<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
(Amendment No. 2)
SPS TRANSACTION SERVICES, INC.
(Name of Issuer)
SPS TRANSACTION SERVICES, INC.
MORGAN STANLEY DEAN WITTER & CO.
NOVUS CREDIT SERVICES INC.
SAIL ACQUISITION, INC.
(Name of Persons Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
845743103
(CUSIP Number of Class of Securities)
CHRISTINE A. EDWARDS, ESQ.
GENERAL COUNSEL
2500 LAKE COOK ROAD
RIVERWOODS, ILLINOIS 60015
(847) 405-3400
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
With copies to:
JOSEPH W. ARMBRUST, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
(212) 839-5300
---------------------
This statement is filed in connection with (check the appropriate box):
<TABLE>
<S> <C> <C>
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
</TABLE>
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE
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<S> <C>
$895,696,661 $179,139.33
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</TABLE>
<TABLE>
<S> <C> <C>
* Represents the aggregate consideration (payable in cash) for the assets of the Issuer. The amount
of the filing fee, computed pursuant to Rule 0-11(c)(2) of the Securities Exchange Act of 1934,
equals 1/50th of one per cent of the cash to be received by the Issuer.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing
with which the offsetting fee was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $179,139.33 Filing Party: SPS Transaction Services, Inc.
Form or Registration No.: Schedule 14A Date filed: June 10, 1998
</TABLE>
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<PAGE> 2
INTRODUCTORY STATEMENT
This Amendment No. 2 amends the Rule 13E-3 Transaction Statement (the
"Transaction Statement") filed jointly on August 27, 1998 by SPS Transaction
Services, Inc., a Delaware corporation (the "Company"), NOVUS Credit Services
Inc., a Delaware corporation and the owner of approximately 73.3% of the
outstanding common stock of the Company ("NOVUS"), Morgan Stanley Dean Witter &
Co., a Delaware corporation and the parent company of NOVUS ("MSDW"), and Sail
Acquisition, Inc., a Delaware corporation and a newly formed, wholly owned
subsidiary of NOVUS ("Acquisition"). The Company and Acquisition are parties to
an Agreement and Plan of Merger, dated as of June 15, 1998 (the "Merger
Agreement"), pursuant to which Acquisition will be merged with and into the
Company, under the terms and subject to the conditions set forth in the Merger
Agreement. A copy of the Merger Agreement has been filed by the Company as
Appendix III to the preliminary proxy statement of the Company (the "Proxy
Statement") filed as Exhibit (d)(1) to this Transaction Statement.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of
the information required to be included in response to the Items of Schedule
13E-3. Unless otherwise indicated, all cross-references below are to captions
and subcaptions in the text of, or appendices to, the Proxy Statement without
reference to the Form of Proxy Card, Letter to Shareholders or Notice of
Meeting. The information in the Proxy Statement, including all appendices
thereto, is hereby expressly incorporated by reference, each cross reference
below being deemed to be an incorporation by reference of the portions of the
Proxy Statement referred to and the response to each item being qualified in its
entirety by the provisions of the Proxy Statement and such appendices.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Proxy Statement.
CROSS REFERENCE SHEET
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) See "INTRODUCTION."
(b)-(d) See Cover Page and "INTRODUCTION -- Record Date; Voting at the
Special Meeting; Quorum" and "HISTORICAL MARKET PRICE AND DIVIDEND DATA."
(e) Not Applicable.
(f) See "ANNEX V -- COMMON STOCK PURCHASES."
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) See "CONTROLLING PERSONS, DIRECTORS, AND EXECUTIVE OFFICERS OF
MSDW, NOVUS, ACQUISITION AND THE COMPANY" and "ANNEX IV -- INFORMATION
CONCERNING DIRECTORS AND OFFICERS OF THE COMPANY, MSDW, NOVUS AND ACQUISITION."
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(b) See "SPECIAL FACTORS -- Background" and "CONTROLLING PERSONS,
DIRECTORS, AND EXECUTIVE OFFICERS OF MSDW, NOVUS, ACQUISITION AND THE
COMPANY -- Past Contacts, Transactions, or Negotiations."
ITEM 4. TERMS OF THE TRANSACTION.
(a) See "PROPOSAL NO. 2 -- ADOPTION OF THE MERGER AGREEMENT -- Terms of the
Merger Agreement."
1
<PAGE> 3
(b) See "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Interests of Certain
Persons in the Transactions."
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) See "PROPOSAL NO. 2 -- ADOPTION OF THE MERGER AGREEMENT -- Certain
Effects of the Sale and the Merger" and "CONTROLLING PERSONS, DIRECTORS, AND
EXECUTIVE OFFICERS OF MSDW, NOVUS, ACQUISITION AND THE COMPANY -- Plans or
Proposals."
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) See "SPECIAL FACTORS -- General."
(b) See "FEES AND EXPENSES."
(c) & (d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) See "SPECIAL FACTORS -- Background" and "PROPOSAL NO. 2 -- ADOPTION OF
THE MERGER AGREEMENT."
(b)-(c) See "SPECIAL FACTORS -- Background."
(d) See "PROPOSAL NO. 2 -- ADOPTION OF THE MERGER AGREEMENT -- Certain
Effects of the Sale and the Merger" and "-- Federal Income Tax Consequences of
the Merger."
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) See "SPECIAL FACTORS -- Background" and "-- Recommendation of the
Board of Directors; Fairness of the Transactions" and "OPINION OF FINANCIAL
ADVISOR."
(c) See "INTRODUCTION -- Matters to be Considered at the Special Meeting"
and "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Ancillary Agreements -- The
Voting Agreement."
(d)-(e) See "SPECIAL FACTORS -- Background" and "-- Recommendation of the
Board of Directors; Fairness of the Transactions."
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(b), (1)-(3), (5)&(6) See "SPECIAL FACTORS -- Recommendation of the
Board of Directors; Fairness of the Transactions."
(b)(4) See "SPECIAL FACTORS -- Opinion of Financial Advisor" and "PROPOSAL
NO. 1 -- APPROVAL OF THE SALE -- Interest of Certain Persons in the
Transactions -- Relationship with MSDW."
(c) See "WHERE YOU CAN FIND MORE INFORMATION."
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
See "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Interests of Certain Persons
in the Transactions."
2
<PAGE> 4
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) See "INTRODUCTION -- Record Date; Voting at the Special Meeting;
Quorum," "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness
of the Transactions" and "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Ancillary
Agreement -- The Voting Agreement."
(b) See "SPECIAL FACTORS -- Recommendation of the Board of Directors;
Fairness of the Transactions" and "PROPOSAL NO. 1 -- APPROVAL OF THE
SALE -- Ancillary Agreements."
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) See "PROPOSAL NO. 2 -- ADOPTION OF THE MERGER AGREEMENT -- Appraisal
Rights" and "ANNEX II -- SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE
OF DELAWARE."
(b) & (c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) See "SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA" of the Proxy
Statement, the Company's consolidated financial statements and independent
auditors report related thereto appearing on pages 26 through 42 of the
Company's Annual Report to Stockholders which is attached as Exhibit (d)(4)
hereto and Item 1 of Part I of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 which is attached as Exhibit (d)(7) hereto.
(b) Not Applicable.
ITEM 15. PERSONS AND ASSETS RETAINED, EMPLOYED OR UTILIZED.
(a) See "INTRODUCTION -- Proxies."
(b) Not Applicable.
ITEM 16. ADDITIONAL INFORMATION.
Not Applicable.
3
<PAGE> 5
ITEM 17. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
(a) -- Not Applicable.
(b)(1) -- A report presented by Morgan Stanley to the Board of
Directors of the Company, dated April 17, 1998,
containing certain financial analyses.*
(b)(2) -- Opinion of Financial Advisor -- See Annex I to the Proxy
Statement.
(c)(1) -- Agreement and Plan of Merger, dated as of June 15, 1998,
between the Company and Acquisition -- See Annex III to
the Proxy Statement.
(c)(2) -- Voting Agreement, dated April 18, 1998, between
Associates First Capital Corporation and NOVUS*
(d)(1) -- Preliminary Proxy Statement, dated September 17, 1998,
together with Form of Proxy, Letter to Shareholders and
Notice of Meeting.
(d)(2) -- Annual Report on Form 10-K of the Company for the year
ended December 31, 1997.*
(d)(3) -- Annual Report on Form 10-K/A of the Company for the year
ended December 31, 1997.
(d)(4) -- Annual Report to Stockholders for the year ended December
31, 1997.*
(d)(5) -- Quarterly Report on Form 10-Q of the Company for the
quarter ended March 31, 1998.*
(d)(6) -- Quarterly Report on Form 10-Q/A of the Company for the
quarter ended March 31, 1998.
(d)(7) -- Quarterly Report on Form 10-Q of the Company for the
quarter ended June 30, 1998.*
(e) -- Section 262 of the General Corporation Law of the State
of Delaware -- See Annex II to the Proxy Statement.
(f) -- Not Applicable.
</TABLE>
- -------------------------
* previously filed
4
<PAGE> 6
SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned hereby certifies that the information set forth in this statement is
true, complete and correct.
SPS TRANSACTION SERVICES, INC.
By: /s/ THOMAS C. SCHNEIDER
----------------------------------
Name: Thomas C. Schneider
Title: Chairman and Chief
Financial Officer
MORGAN STANLEY DEAN WITTER & CO.
By: /s/ PHILIP J. PURCELL
----------------------------------
Name: Philip J. Purcell
Title: Chairman and Chief
Executive Officer
NOVUS CREDIT SERVICES INC.
By: /s/ MICHAEL J. HARTIGAN
----------------------------------
Name: Michael J. Hartigan
Title: Vice President
SAIL ACQUISITION, INC.
By: /s/ PHILIP J. PURCELL
----------------------------------
Name: Philip J. Purcell
Title: President
Dated: September 17, 1998
5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
(a) -- Not Applicable.
(b)(1) -- A report presented by Morgan Stanley to the Board of
Directors of the Company, dated April 17, 1998,
containing certain financial analyses.*
(b)(2) -- Opinion of Financial Advisor -- See Annex I to the Proxy
Statement.
(c)(1) -- Agreement and Plan of Merger, dated as of June 15, 1998,
between the Company and Acquisition -- See Annex III to
the Proxy Statement.
(c)(2) -- Voting Agreement, dated April 18, 1998, between
Associates First Capital Corporation and NOVUS*
(d)(1) -- Preliminary Proxy Statement, dated September 17, 1998,
together with Form of Proxy, Letter to Shareholders and
Notice of Meeting.
(d)(2) -- Annual Report on Form 10-K of the Company for the year
ended December 31, 1997.*
(d)(3) -- Annual Report on Form 10-K/A of the Company for the year
ended December 31, 1997.
(d)(4) -- Annual Report to Stockholders for the year ended December
31, 1997.*
(d)(5) -- Quarterly Report on Form 10-Q of the Company for the
quarter ended March 31, 1998.*
(d)(6) -- Quarterly Report on Form 10-Q/A of the Company for the
quarter ended March 31, 1998.
(d)(7) -- Quarterly Report on Form 10-Q of the Company for the
quarter ended June 30, 1998.*
(e) -- Section 262 of the General Corporation Law of the State
of Delaware -- See Annex II to the Proxy Statement.
(f) -- Not Applicable.
</TABLE>
- -------------------------
* previously filed
<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:
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(4) Date Filed:
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<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
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<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>
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<TABLE>
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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>
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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.
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<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
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<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
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<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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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;
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<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."
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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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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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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
8
<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.
10
<PAGE> 19
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.
11
<PAGE> 20
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
12
<PAGE> 21
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.
13
<PAGE> 22
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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<PAGE> 25
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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<PAGE> 26
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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<PAGE> 27
(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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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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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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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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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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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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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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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
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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.
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<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.
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<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.
35
<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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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.
38
<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>
39
<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.
40
<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.
41
<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
42
<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
I-2
<PAGE> 53
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.
II-1
<PAGE> 54
(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.
II-2
<PAGE> 55
(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
II-3
<PAGE> 56
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.
II-4
<PAGE> 57
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
III-1
<PAGE> 58
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
III-2
<PAGE> 59
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.
III-3
<PAGE> 60
(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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE> 73
- --------------------------------------------------------------------------------
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS AND THE PROXY STATEMENT (WITH ALL ENCLOSURES AND ATTACHMENTS) DATED
, 1998. THE UNDERSIGNED RATIFIES ALL THAT THE PROXIES OR ANY OF THEM OR
THEIR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF AND
REVOKES ALL FORMER PROXIES.
DATED 1998
------------------ ,
------------------------------
Signature
------------------------------
Signature if held jointly
PLEASE SIGN THIS PROXY EXACTLY
AS YOUR NAME(S) APPEARS BELOW.
IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE
PERSONS, EACH MUST SIGN.
EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ATTORNEYS
AND CORPORATE OFFICERS SHOULD
ADD THEIR TITLES.
IMPORTANT: PLEASE MARK, DATE,
SIGN AND RETURN THIS PROXY IN
THE ENVELOPE PROVIDED. NO
POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Amendment No. 1 to Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from to
Commission file number 1-10993
SPS TRANSACTION SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3798295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Lake Cook Road, Riverwoods, IL 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847/405-3700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1998, the Registrant had 27,277,357 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant as of March 31, 1998 was approximately $186,288,164.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders mailed to
stockholders on or about March 31, 1998 for the year ended December 31, 1997
are incorporated by reference in Parts I, II and IV.
==============================================================================
<PAGE> 2
The undersigned hereby amends Items 10, 11, 12 and 13 of its Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 as set forth in this
Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Philip J. Purcell, 54, has served as a director of the Company since its
formation and served as its Chairman of the Board from its formation to April
1997. Mr. Purcell has been the Chairman of the Board and Chief Executive
Officer of MSDW, an indirect parent of the Company, Dean Witter Reynolds Inc.
("DWR"), a direct subsidiary of MSDW, and NOVUS Credit Services Inc. ("NCSI"),
a direct subsidiary of MSDW, since May 1997. He served as Chairman of the
Board and Chief Executive Officer of Dean Witter, Discover & Co. ("DWD") from
1986 to May 1997.
Robert L. Wieseneck, 60, has served as President, Chief Executive Officer
and a director of the Company since its formation. He has served as President
of SPS Payment Systems, Inc. ("SPS"), a wholly-owned subsidiary of the Company,
since 1987 and as a director of SPS since 1988. Mr. Wieseneck has also served
as President and as a director of Hurley State Bank ("HSB"), a wholly owned
subsidiary of the Company, since 1989. He has served as a director of NCSI
since 1991 and as an Executive Vice President of NCSI from December 1986 to
April 1987 and since April 1988.
Frank T. Cary, 77, has served as a director of the Company since 1992.
Mr. Cary served as Chief Executive Officer of International Business Machines
Corporation ("IBM") from 1973 until 1981 and as its Chairman of the Board from
1973 until 1983. Mr. Cary serves on the boards of directors of Celgene
Corporation, Cygnus Therapeutic Systems, ICOS Corporation, Lexmark
International, Inc., Lincare, Inc., Seer Technology Inc. and Teltrend Inc.
Christine A. Edwards, 45, has served as a director of the Company since
1997 and as its General Counsel since 1993. She served as Secretary of the
Company from its formation until 1997. She has served as Executive Vice
President, Chief Legal Officer and Secretary of MSDW since May 1997 and served
as Executive Vice President, General Counsel and Secretary of DWD from 1991 to
May 1997. She has also served as a director, Executive Vice President, General
Counsel and Secretary of DWR since January 2, 1991. She has been General
Counsel of NCSI since 1988, a director since 1990 and Executive Vice President
and Secretary since 1991.
Mitchell M. Merin, 44, has served as a director of the Company since 1994.
Mr. Merin has served as President and Chief Executive Officer of Dean Witter
Inter Capital since 1998, as Executive Vice President and Chief Administrative
Officer of DWD from 1994 until 1997, as an Executive Vice President of DWR
since 1990, as Chief Administrative Officer of DWR since 1994, as an Executive
Vice President of NCSI since 1994 and as a director of NCSI since 1994.
Charles F. Moran, 68, has served as a director of the Company since its
formation. Mr. Moran has been a director of HSB since January 1996. He served
as the Senior Vice President, Administration of Sears, Roebuck and Co. ("Sears")
from 1989 until his retirement in 1993. Mr. Moran is also a director of
Thermadyne Holdings Inc., Donnelley Enterprise Solutions Inc. and Advantica
Restaurant Group Inc.
Thomas C. Schneider, 60, has served as Chief Financial Officer and a
director of the Company since its formation and as its Chairman of the Board
since April 29, 1997. Mr. Schneider has served as an Executive Vice President
and Chief Strategic and Administrative Officer and director since 1997 and
served as Executive Vice President and Chief Financial Officer of DWD from 1987
to May 1997. He has also served as Executive Vice President and Chief
Financial Officer of NCSI since 1987 and as a director of NCSI since 1986. Mr.
Schneider has been Chief Financial Officer of DWR since 1987, an Executive Vice
President of DWR since 1984 and a director of DWR since 1981.
Dennie M. Welsh, 55, has served as a director of the Company since 1993.
Mr. Welsh has been Senior Vice President and Group Executive, IBM Global
Services since April 1997 and served as General Manager, IBM Global Services
from January 1995 until April 1997. Mr. Welsh has been Chairman of the Board
of Integrated Systems Solutions Corporation, a wholly owned subsidiary of IBM,
and was its President and Chief Executive Officer from 1991 until 1993.
- 2 -
<PAGE> 3
There are no family relationships between any of the foregoing persons.
EXECUTIVE OFFICERS
The information concerning executive officers required by Item 10 is set
forth in Part I, Item 1 of this Annual Report on Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder require that directors, officers
and beneficial owners of more than 10% of the Common Stock file certain reports
regarding their beneficial ownership of Common Stock with the Securities and
Exchange Commission. The Company believes that all such required reports were
timely filed during and for 1997, except for a report that was timely filed for
Mr. Peterson, but which inadvertently excluded an option grant that was made to
Mr. Peterson in April 1997. The transaction has been subsequently reported to
the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Under the Formula Plan, non-affiliate directors are granted options to
purchase the number of shares of Common Stock equal to $40,000 divided by the
fair market value of a share of Common Stock (determined at the time of each
grant) on the first day of the month following the month in which such
non-affiliate director was elected or appointed to the Board of Directors and at
the close of business on the date of the annual meeting of stockholders, if at
least two months following any previous grant. The exercise price per share of
Common Stock is 100% of the fair market value of a share of Common Stock at the
time of grant. Non-affiliate directors also receive an annual retainer of
$12,000 and $3,000 for each committee on which such director serves and a $1,000
fee for each Board of Directors meeting attended, a $500 fee for each committee
or related meeting attended and reimbursement of out-of-pocket expenses incurred
to attend such meetings. With respect to the Board's Special Committee (which
was disbanded in 1997), each non-affiliate director received an annual retainer
of $12,000, the chairman received an additional $5,000 annual retainer and each
committee member received a $1,000 fee for each committee meeting attended.
Affiliate directors are eligible to receive grants of options to purchase shares
of Common Stock pursuant to the Company's Amended and Restated 1992 Employees
Stock Plan (the "Stock Plan") and the Company's 1995 Omnibus Equity Plan (the
"Omnibus Equity Plan).
SUMMARY COMPENSATION TABLE
The following summary compensation table specifies the components of the
compensation packages of the Company's Chief Executive Officer and four other
most highly compensated executive officers (the "named executive officers") for
the years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------- ---------------------------------- ------------
NUMBER OF ALL
OTHER ANNUAL RESTRICTED SECURITIES LTIP OTHER
NAME AND BONUS COMPENSATION STOCK AWARDS UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($)(1) ($)(3) ($) ($) OPTIONS/SARS(#)(4) ($) ($)(5)
- -------------------- ---- ----------------- -------- ------------- ------------ -------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Wieseneck 1997 295,000 250,000 -0- -0- 85,591 -0- 1,300
(CEO and President). 1996 285,000 55,000 -0- -0- 72,000 -0- 900
1995 275,000 260,000 -0- -0- 100,000 -0- 3,216
Richard F. Atkinson. 1997 207,000 140,000 -0- -0- 30,909 -0- 1,300
(Senior Vice 1996 198,000 40,000 -0- -0- 36,000 -0- 900
President-Private 1995 192,000 150,000 -0- -0- 50,000 -0- 3,216
Label Consumer)
Robert W. Archer.... 1997 207,000 122,000 -0- -0- 16,200 -0- 1,300
(Senior Vice 1996 198,000 40,000 -0- -0- 36,000 -0- 900
President-Sales/ 1995 192,000 150,000 -0- -0- 50,000 -0- 3,216
Operations)
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Serge Uccetta....... 1997 176,000 87,000 -0- -0- -0- -0- 1,300
(Vice President- 1996 170,000 13,000 -0- -0- 14,000 -0- 900
Private Label 1995 165,000 65,000 -0- -0- 5,500 -0- 3,067
Commercial)
David J. Peterson... 1997 166,667(2) 100,000 -0- -0- 15,000 -0- 1,300
(Senior Vice 1996 150,000 35,000 -0- -0- 14,000 -0- 900
President-Commercial 1995 140,000 72,000 -0- -0- 1,500 -0- 3,216
Technology Services)
</TABLE>
_______________________
(1) Includes $8,000 earned in 1997 and $6,000 earned in 1996 by each named
executive officer, and $9,000 earned in 1995 by Messrs. Wieseneck,
Atkinson, Archer and Peterson and $8,444 earned in 1995 by Mr. Uccetta,
but deferred at each such executive's election pursuant to the SPS START.
(2) Mr. Peterson was compensated at an annual salary of $160,000 until May 1,
1997, at which time he was promoted and his annual salary was increased to
$170,000.
(3) All bonuses earned in 1997, 1996 and 1995 include amounts equal to 20% of
each named executive officer's bonus for such year that were deferred
pursuant to each such executive's participation in the Tax Deferred Equity
Plan during such years. Pursuant to the Tax Deferred Equity Plan, all such
deferred bonus amounts were directed to the purchase for the account of
each named executive officer of shares of Common Stock at a price per
share of $17.560 in 1997, $12.847 in 1996 and $22.069 in 1995, each of
which price represents 80% of the average fair market value of such shares
(as defined in each applicable Plan) during the fourth quarter of 1997,
1996 and 1995, as applicable. Purchase of Common Stock in 1997 resulted
in awards of approximately 2,847 shares to Mr. Wieseneck, 1,595 shares to
Mr. Atkinson, 1,390 shares to Mr. Archer, 991 shares to Mr. Uccetta and
1,139 shares to Mr. Peterson. Purchases of Common Stock made pursuant to
the Tax Deferred Equity Plan in 1996 resulted in awards of approximately
856 shares to Mr. Wieseneck, 623 shares to Messrs. Atkinson and Archer,
202 shares to Mr. Uccetta and 545 shares to Mr. Peterson. Purchases of
Common Stock made pursuant to the Tax Deferred Equity Plan in 1995
resulted in awards of approximately 2,356 shares to Mr. Wieseneck, 1,359
shares to each of Messrs. Atkinson and Archer, 589 shares to Mr. Uccetta
and 652 shares to Mr. Peterson. All such shares of Common Stock vest two
years after the date of award and are distributed five years after such
date.
(4) All grants made in 1995 and Non-ROR grants in 1997 were options to
purchase MSDW common stock pursuant to the MSDW Equity Incentive Omnibus
Plan (the "MSDW Omnibus Plan") and 1997 Restoration Option Right ("ROR")
grants were options to purchase MSDW common stock pursuant to the MSDW
Employee's Equity Accumulation Plan.
(5) Consists of the amount of any employer matching contributions under the
SPS START.
The following tables disclose, for the named executive officers,
information regarding stock options granted during, held at the end of or
exercised in 1997 pursuant to the Stock Plan, the MSDW Omnibus Plan and the
MSDW Replacement Stock Plan. There were no stock appreciation rights granted
or exercised during such year.
OPTION/SAR GRANT TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL POTENTIAL REALIZABLE VALUE
UNDERLYING OPTIONS/SARS OPTIONS/SARS AT ASSUMED ANNUAL RATES OF
GRANTED (#) GRANTED TO EXERCISE OR STOCK PRICE APPRECIATION FOR
-------------------------- EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM
NAME NON ROR(1) ROR(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------- ---------- -------- ------------ ----------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Wieseneck 50,000 - 0.22% 35.500 1/16/07 1,116,288 2,828,893
- 6,547 0.03% 45.8125 1/31/01 64,638 139,200
- 29,044 0.13% 45.8125 2/21/03 452,524 1,026,622
Richard F. Atkinson 16,200 - 0.07% 35.500 1/16/07 361,677 916,561
- 2,157 0.01% 52.4375 1/31/01 24,375 52,493
- 12,552 0.06% 52.4375 2/21/03 223,849 507,838
Robert W. Archer... 16,200 - 0.07% 35.500 1/16/07 361,677 916,561
Serge Uccetta...... - - - - - - -
David J. Peterson.. 15,000(3) - 35.79% 17.375 4/28/07 163,906 415,369
</TABLE>
___________________
(1) Except as otherwise noted, all options granted to the named executive
officers in the year ended December 31, 1997 were options to purchase MSDW
common stock at an exercise price equal to the closing price of a share of
MSDW common stock as reported on the NYSE Composite Tape on January 17,
1997, the award date. Such options are exercisable at a rate of one-third
per year over a three-year period beginning on January 17, 1998.
- 4 -
<PAGE> 5
(2) RORs were granted with respect to options previously received by these
executive officers which provide that in the event a "change of control" of
the Company occurs or the recipient terminates employment with the Company
as a result of a "full career retirement," any unvested portion of the
award will immediately vest and become exercisable. An ROR entitles the
grantee in respect of an underlying option (an "Underlying Option"), upon
exercise of such Underlying Option at a time when the grantee is an
employee of the Company or a related employer, and upon tendering shares of
Common Stock to the Company in satisfaction of the exercise price of such
Underlying Option, to the automatic grant of an additional option (a
"Restoration Option") to acquire the number of shares of Common Stock
equal to the numbers of shares of Common Stock delivered to pay the
exercise price of the Underlying Option, and delivered or withheld to pay
taxes owed as a result of such exercise, at a per share price equal to the
closing price of a share of Common Stock as reported on the NYSE Composite
Tape on the exercise date of such Underlying Option. Each such option is
vested upon grant and has the same expiration date and transferability
provisions as its Underlying Option. All of the Restoration Options listed
were granted on July 7, 1997 and July 31, 1997, the date of exercise of the
Underlying Options.
(3) Options granted to Mr. Peterson in the year ended December 31, 1997 were
options to purchase Common Stock at an exercise price equal to the closing
price of a share of Common Stock as reported on the NYSE Composite Tape on
April 29, 1997, the award date. Such options are exercisable at a rate of
one-third per year over a three-year period beginning on April 29, 1998.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END (#) AT FY-END($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(1) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ------------------- ---------------- --------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Robert L. Wieseneck 0/58,206 0/1,883,577 329,189/98,000(3) 7,630,781/1,181,250
Richard F. Atkinson 0/34,764 0/1,101,848 144,507/40,200(4) 3,229,822/382,725
Robert W. Archer... 0/3,000 0/105,656 124,384/40,200(5) 2,611,842/382,725
Serge Uccetta...... 0/0 0/0 13,166/9,334(6) 228,594/0
David J. Peterson.. 0/375 0/14,027 18,291/24,334(7) 67,539/77,813
</TABLE>
______________________
(1) Options exercised to purchase Common Stock are listed first, and options
exercised to purchase MSDW common stock are listed second.
(2) Value is based on the closing price of Common Stock on December 31, 1997
($22.5625) or the closing price of MSDW common stock on December 31, 1997
($59.125), as the case may be, minus the exercise or base price.
(3) Includes options to purchase 142,908 shares of Common Stock and 186,281
shares of MSDW common stock that were exercisable as of December 31, 1997
and options to purchase 48,000 shares of Common Stock and 50,000 shares of
MSDW common stock that were not exercisable as of December 31, 1997.
(4) Includes options to purchase 64,916 shares of Common Stock and 79,591
shares of MSDW common stock that were exercisable as of December 31, 1997
and options to purchase 24,000 shares of Common Stock and 16,200 shares of
MSDW common stock were not exercisable as of December 31, 1997.
(5) Includes options to purchase 72,384 shares of Common Stock and 52,000
shares of MSDW common stock that were exercisable as of December 31, 1997
and options to purchase 24,000 shares of Common Stock and 16,200 shares of
MSDW common stock that were not exercisable as of December 31, 1997.
(6) Includes options to purchase 7,666 shares of Common Stock and 5,500 shares
of MSDW common stock that were exercisable as of December 31, 1997 and
options to purchase 9,334 shares of Common Stock and 0 shares of MSDW
common stock that were not exercisable as of December 31, 1997.
(7) Includes options to purchase 16,666 shares of Common Stock and 1,625 shares
of MSDW common stock that were exercisable as of December 31, 1997 and
options to purchase 24,334 shares of Common Stock and 0 shares of MSDW
common stock that were not exercisable as of December 31, 1997.
PENSION PLANS
The named executive officers are covered under a number of different
pension plans, principally because of the Company's corporate history. The
following narrative indicates estimated annual benefits payable upon retirement
to each of the named executive officers, as of December 31, 1997, for the
specified final average compensation and years of service classifications under
the pension plans and formulas applicable to each such executive officer. Such
plans include the Sears, Roebuck and Co. Pension Plan (the "Sears Pension
Plan"), the NOVUS Credit Services Inc.
- 5 -
<PAGE> 6
Pension Plan (the "NCSI Pension Plan"), the NOVUS Credit Services Inc.
Supplemental Retirement Income Plan (the "NCSI Supplemental Plan") and the Dean
Witter Reynolds Inc. Pension Plan (the "DWR Pension Plan"). The Sears Pension
Plan, the NCSI Pension Plan and the DWR Pension Plan are defined benefit
pension plans intended to qualify under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The NCSI Supplemental Plan is a
nonqualified, unfunded retirement plan intended to pay certain participants in
the NCSI Pension Plan, whose benefits under such plan as of April 6, 1992 have
been limited by certain restrictions imposed by the Code, benefits equal to the
benefits that would have been payable to such participants under the NCSI
Pension Plan if it were not for such limitations, provided that such benefits
shall not exceed those that would have been payable if a participant's earnings
had increased by 5% annually per year from 1994 until the year of his
retirement.
Compensation or "earnings" under the Sears Pension Plan, the NCSI Pension
Plan and the DWR Pension Plan generally refers to total annual cash
compensation for services rendered to Sears, MSDW, and the Company and their
affiliates, including certain pre-tax salary deferrals, but excluding specified
items such as incentive and long-term executive compensation plan awards, the
value of stock awards and employer contributions to profit sharing plans.
"Earnings" used to calculate benefits under the NCSI Pension Plan also include
amounts deferred on and after January 1, 1995 under the Tax Deferred Equity
Plan and the MSDW Tax Deferred Equity Participation Plan (the "MSDW TDEPP").
"Earnings" used to calculate benefits under the NCSI Supplemental Plan include
earnings otherwise disregarded under the NCSI Pension Plan due to limitations
set forth in the Code with respect to highly compensated employees.
Mr. Wieseneck participates in the Sears Pension Plan, the NCSI Pension
Plan and the NCSI Supplemental Plan, but because the benefits payable to him
under the NCSI Pension Plan have been limited by certain restrictions on
benefits and compensation imposed by the Code, the benefits he would have
received under the NCSI Pension Plan without regard to such limitations are
provided under the NCSI Supplemental Plan. Mr. Wieseneck's projected annual
pension benefit from the Sears Pension Plan, the NCSI Pension Plan and the NCSI
Supplemental Plan at retirement at age 65 is $265,242.
Mr. Atkinson participates in the Sears Pension Plan, the NCSI Pension Plan
and the NCSI Supplemental Plan, but because the benefits he has accrued prior
to December 31, 1993 would have been limited by current restrictions on
compensation imposed by the Code, these benefits are provided under the NCSI
Supplemental Plan subject to the compensation limits in effect as of December
31, 1993. Mr. Atkinson's projected annual pension benefit from the Sears
Pension Plan, the NCSI Pension Plan and the NCSI Supplemental Plan at
retirement at age 65 is $106,677.
Mr. Archer participates in the Sears Pension Plan, the NCSI Pension Plan
and the NCSI Supplemental Plan, but his benefits under the NCSI Pension Plan
are calculated under a "grandfather" provision that, in general, provides for a
greater benefit accrual rate and pension benefit than would otherwise be
available under the NCSI Pension Plan. Mr. Archer's projected annual pension
benefit from the Sears Pension Plan, the NCSI Pension Plan and the NCSI
Supplemental Plan at retirement at age 65 is $103,754.
Mr. Uccetta participates in the NCSI Pension Plan. Mr. Uccetta projected
annual pension benefit from the NCSI Pension Plan at retirement at age 65 is
$40,269.
Mr. Peterson participates in the DWR Pension Plan and the NCSI Pension
Plan. His projected annual pension benefit from the DWR Pension Plan and the
NCSI Pension Plan at retirement at age 65 is $78,874.
Current covered compensation in 1997 under the NCSI Pension Plan and,
except for Messrs. Uccetta and Peterson, the NCSI Supplemental Plan, was
$350,000 for Mr. Wieseneck and $160,000 for each of Messrs. Atkinson, Archer,
Uccetta and Peterson. As of December 31, 1997, Messrs. Wieseneck, Atkinson,
Archer, Uccetta and Peterson had 34.5, 37.6, 41.1, 3.3 and 10.5 years of
benefit service, respectively. Benefits are computed on a straight life
annuity basis and are subject to deductions for Social Security benefits and
benefits accrued under the Sears Pension Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Compensation Committee of the Board of Directors was
composed of Messrs. Cary, Moran, Purcell and Welsh, none of whom were officers
or employees of the Company during such year.
During 1997, Mr. Schneider served on the Compensation Committee of NCSI,
five of whose executive officers during 1997, Thomas Butler and Messrs.
Wieseneck, Purcell, Schneider and Merin, served, and (except for Mr. Butler)
continue to serve, as directors of
- 6 -
<PAGE> 7
the Company, and one of whose executive officers, Mr. Purcell, served, and
continues to serve, on the Compensation Committee of the Board of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing general
compensation policies and specific compensation levels for the Company's
executive officers. The Board administers the Company's stock-based incentive
compensation plans, which consist of the Stock Plan, the Formula Plan, the
Omnibus Equity Plan, the Stock Purchase Plan and the Tax Deferred Equity Plan.
In order to attract and retain qualified persons to serve as executive
officers, the Company seeks to offer executive officers total compensation
levels (taking into account annual salary and benefits, annual bonuses and
long-term incentives) that are comparable to those of its competitors, which
include all of the companies that comprise the Company's peer group for the
Performance Graph, in addition to certain other high technology companies,
financial services organizations and other non-manufacturing organizations with
annual revenues comparable to those of the Company.
The ranges set by the Compensation Committee for salary, annual incentive
compensation and long-term incentive compensation for each executive officer
position are based on previous studies of the Company's competitors, which the
Compensation Committee believes continue to offer a fair representation of the
Company's competitive market. Actual salary for each position falls slightly
below the midpoint of the range of salaries offered by such competitors for
such positions. Adjustments within this range are based on a discretionary
evaluation of a combination of the following factors: individual job
performance, changes in the competitive range of salaries and the current
location of a particular executive's salary within the salary target range.
The Company pays annual cash bonuses as annual incentive compensation.
The Compensation Committee believes that basing annual incentive compensation
amounts on the achievement of corporate performance goals creates a desirable
link between value created for stockholders and executive compensation.
Accordingly, the Compensation Committee annually establishes bonus targets for
executive officers that are higher than the median for the Company's
competitive group (as compared with the actual salary, which is slightly lower
than such median) in order to tie the total cash compensation received by
executive officers more directly to corporate performance as measured by net
income and revenue growth, while keeping the total cash compensation package
(without regard to amounts of annual cash bonuses deferred pursuant to awards
made under the Tax Deferred Equity Plan as described below) at or about the
median offered by the Company's competitors. In addition, the Company's
performance generally has to meet designated threshold amounts for net income
and revenue growth designated by the Compensation Committee before any bonuses
can be awarded, although the Compensation Committee has the discretion to award
bonuses of up to 30% of the aggregate initial bonus targets. The size of the
bonus pool is determined by the Company's performance as measured by net income
and revenue growth, further strengthening the link between annual incentive
compensation and the creation of stockholder value.
Bonus targets for 1997, which are expressed as a percentage of base
salary, ranged from 30% to 60% of base salary. The actual bonuses paid, which
may exceed target amounts if the Company's overall performance surpasses its
objectives, depend upon (i) the Company's financial performance compared to
expected performance for the year and historical performance in the previous
year (principally in terms of net income and revenue growth), (ii) the
achievement of specified performance priorities (principally on a company-wide
basis) and (iii) a discretionary review of the executive officer's annual
performance by the Chief Executive Officer of the Company and the Compensation
Committee (or, in the case of the Chief Executive Officer's annual performance,
by the Chairman of the Board of Directors and the Compensation Committee). For
1997, the total amount of actual bonuses paid (including amounts deferred
pursuant to awards made under the Tax Deferred Equity Plan) constituted
approximately 134% of the aggregate initial bonus targets. These bonus awards
reflect the Compensation Committee's discretionary review of the performance of
each executive officer as well as the Company's financial performance during
1997 in light of the business and competitive factors affecting the Company,
including the ongoing adverse credit environment.
Pursuant to the Tax Deferred Equity Plan, a percentage of certain
executive officers' annual cash bonuses (which is fixed annually by the Board
and which was 20% in 1997) is deferred and applied toward the grant of awards
of Common Stock to such executives at 80% of the Common Stock's fair market
value (as determined by the Tax Deferred Equity Plan). Common Stock awarded
pursuant to the Tax Deferred Equity Plan vests two years after the date of
award and is generally distributed five years after the date of award, so that
its value to the executives is dependent
- 7 -
<PAGE> 8
on the degree to which the Common Stock's price has increased during such
periods. Awards of Common Stock made under the Tax Deferred Equity Plan
thereby add an element of long-term incentive compensation to the annual cash
compensation of executive officers. The Company believes that by increasing
executive officers' ownership of Common Stock, this additional component of
long-term incentive compensation also increases executive officers' incentives
to enhance stockholder value through improved Company performance.
The Company paid all long-term incentive compensation in 1997 in the form
of Common Stock options pursuant to the Omnibus Equity Plan. Such options are
valued by utilizing an industry-modified Black-Scholes valuation model, against
which the Company sets the aggregate size of option grants so as to approximate
the median projected value of options offered in the Company's competitive
market. The Company views options granted pursuant to the Omnibus Equity Plan
as incentives to motivate executives to maximize the long-term growth and
profitability of the Company, which will be reflected in the market performance
of the Common Stock. Under the Omnibus Equity Plan, options may not be granted
for less than the fair market value of the Common Stock on the date of grant,
so that executives will recognize value from the grants only if the price of
the Common Stock increases after the date of grant. The vesting schedule of
option grants made pursuant to the Omnibus Equity Plan is within the discretion
of the Board. All options granted under the Stock Plan in 1997, as shown in
the Summary Compensation Table, provide for vesting over a period of three
years.
Policies with respect to the compensation of the Chief Executive Officer
are the same as those discussed for executive officers generally, except that
the historical and plan comparisons and performance priorities on which his
annual incentive compensation is based are tied exclusively to company-wide
goals. Mr. Wieseneck's salary for 1997 was slightly below the median for the
Company's competitive market. Mr. Wieseneck's annual incentive compensation of
$250,000 for 1997 represented 141.2% of his initial bonus target of 60% of base
salary. Mr. Wieseneck's bonus award reflects the Compensation Committee's
discretionary review of Mr. Wieseneck's performance as well as the Company's
financial performance during 1997 in light of the business and competitive
factors affecting the Company, including the ongoing adverse credit
environment.
The Company does not currently maintain any policy with respect to
qualifying annual salary and bonus compensation paid to the named executive
officers for deductibility under Section 162(m) of the Code, which was added to
the Code in August 1993 and which limits the ability of the Company to deduct
any such compensation in excess of $1,000,000 per year for federal income tax
purposes unless certain conditions are met. For purposes of Section 162(m) of
the Code, compensation includes salary, bonus and income resulting from the
exercise of an option. The Company does not currently have any executive
officers, including the Chief Executive Officer, who receive more than
$1,000,000 in annual total compensation, but the Company is reviewing and will
continue to explore the possibility of instituting a policy that would aim to
preserve the deductibility of any such compensation in excess of the Section
162(m) limit should the need arise in the future. The Company intends that
long-term incentive compensation granted pursuant to the Omnibus Equity Plan in
the form of options and stock appreciation rights will satisfy the conditions
necessary for deductibility under Section 162(m).
Frank T. Cary
Charles F. Moran
Philip J. Purcell
Dennie M. Welsh
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on an investment of $100 since February 26, 1992, the Company's initial
trading date, with that of the S&P 500 Index and a group of peer issuers
selected on an industry or line-of-business basis consisting of Automatic Data
Processing, Concord EFS Inc., Envoy Corporation, Equifax Inc., First Financial
Management Corporation (through and including 1994), FISERV, Inc., Electronic
Data Systems Corporation (previously General Motors (Class E Common Stock)),
Household International, Inc., MBNA Corporation, National Data Corporation and
Total System Services, Inc. VeriFone, Inc. is not included in the Company's
peer group for 1997 because it was merged into another company (with the other
company being the surviving corporation) during such year.
- 8 -
<PAGE> 9
TOTAL STOCKHOLDERS' RETURN
DECEMBER 31, 1992 - DECEMBER 31, 1997
[GRAPH]
<TABLE>
<CAPTION>
DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peer Group $ 100 $ 106 $ 127 $ 183 $ 214 $ 265
- --------------------------------------------------------------------------------
S&P 500 100 110 111 153 189 252
- --------------------------------------------------------------------------------
SPS Transaction 100 139 121 137 70 104
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information with respect to the outstanding shares of Common
Stock of the Company and of common stock of MSDW beneficially owned by each
director and nominee for director of the Company, the Chief Executive Officer
and four other most highly compensated executive officers of the Company, the
directors and executive officers of the Company as a group and all beneficial
owners of more than 5% of the Common Stock is furnished as of December 31,
1997. As of December 31, 1997, the Company was a 73.5% majority owned
subsidiary of NCSI, which in turn is a wholly owned, direct subsidiary of MSDW.
<TABLE>
<CAPTION>
COMPANY MSDW
COMMON STOCK COMMON STOCK
------------------------------ -----------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
NAME SHARES(1) OF CLASS(2) SHARES (1) OF CLASS(2)
---- ----------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Purcell................... 22,052 (3) * 2,659,866 (4) *
Robert W. Archer.................... 97,614 (5) * 67,400 (6) *
Richard F. Atkinson................. 87,590 (7) * 98,560 (8) *
Serge Uccetta....................... 13,170 (9) * 5,816 (10) *
David J. Peterson................... 22,478 (11) * 4,129 (12) *
Robert L. Wieseneck................. 209,036 (13) * 246,970 (14) *
Frank T. Cary....................... 15,508 (15) * 0 --
Charles F. Moran.................... 8,395 (16) * 19,076 (17) *
Mitchell M. Merin................... 500 * 554,718 (18) *
Thomas C. Schneider................. 1,002 * 1,117,801 (19) *
Dennie M. Welsh..................... 7,404 (20) * 0 --
Christine A. Edwards................ 2,002 571,976 (21)
NOVUS Credit Services Inc........... 20,000,000 73.5 0 --
2500 Lake Cook Road
Riverwoods, IL 60015
All directors and executive officers
as a group (17 persons)............. 564,270 2.1 5,163,495 *
</TABLE>
________________________
(1) To the knowledge of the Company, each holder has sole voting and investment
power with respect to the shares listed unless otherwise indicated. The
number of shares includes shares of Common Stock owned through the
Company's START Plan (Savings Today Affords Retirement Tomorrow) (the "SPS
START") and the Company's Employee Stock Purchase Plan (the "Stock Purchase
Plan") and shares of MSDW common stock owned through the SPS
- 9 -
<PAGE> 11
START, the Dean Witter START Plan (Savings Today Affords Retirement
Tomorrow) and the MSDW Stock Purchase Plan as of December 31, 1997. The
number of shares has been rounded to the nearest whole share.
(2) Shares subject to options exercisable within 60 days of December 31, 1997
are considered outstanding for the purpose of determining the percent of
the class held by the holder of such option, but not for the purpose of
computing the percentage held by others. Percentages less than one
percent are denoted by an asterisk.
(3) Includes 2,050 shares held in custodial accounts on behalf of Mr.
Purcell's children for which he is custodian, as to which Mr. Purcell
disclaims beneficial ownership.
(4) Includes 22,605 shares owned by Mr. Purcell's spouse, 10,344 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, and
1,407,737 shares subject to options.
(5) Includes 84,384 shares subject to options and 10,000 shares held through a
partnership.
(6) Includes 57,400 shares subject to options.
(7) Includes 76,916 shares subject to options.
(8) Includes 84,991 shares subject to options.
(9) Includes 12,333 shares subject to options.
(10) Includes 5,500 shares subject to options.
(11) Includes 21,333 shares subject to options.
(12) Includes 1,625 shares subject to options.
(13) Includes 166,908 shares subject to options, 15,763 owned jointly with Mr.
Wieseneck's spouse, 10,000 shares owned jointly with his brother and
12,936 shares owned by Mr. Wieseneck's children.
(14) Includes 202,947 shares subject to options, 33,716 shares owned jointly
with Mr. Wieseneck's spouse, 6,206 shares owned jointly with his brother
and 4,101 shares owned by Mr. Wieseneck's children.
(15) Includes 5,912 shares subject to options.
(16) Includes 4,248 shares subject to options.
(17) Includes 19,076 shares owned jointly with Mr. Moran's spouse.
(18) Includes 304,403 shares subject to options.
(19) Includes 489,344 shares subject to options.
(20) Includes 7,404 shares subject to options.
(21) Includes 339,372 shares subject to options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENT WITH NCSI
The Company and NCSI are parties to a Management Services Agreement dated
as of January 1, 1992, pursuant to which NCSI furnishes certain executive,
accounting, financial, legal, tax, organizational, regulatory, insurance,
personnel, employee benefit plans, management information systems, sales,
marketing, purchasing, real estate and other
- 10 -
<PAGE> 12
services to the Company upon the Company's request. The nature and extent of
the services provided by NCSI 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 NCSI 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 (the "Bridge Funding 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 $1.2 billion. The interest rate to be paid by the Company is
equal to MSDW's actual cost of funds. The Borrowing Agreement expires on April
11, 1998. The Company expects to renew or replace the Financing Agreements
prior to the expiration dates of such Financing Agreements. The Company is
continuing to evaluate alternative sources of financing to replace all or a
portion of its financing arrangements with MSDW.
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 may enter into interest rate
swap and cap agreements from time to time with either MSDW or NCSI pursuant to
which the cost of funds borrowed on a floating rate basis by the Company, SPS
or HSB may effectively be fixed.
THIRD PARTY PROCESSING AND COOPERATIVE NETWORK SERVICE AGREEMENT AND TERMINAL
SERVICE AGREEMENT WITH NOVUS
Pursuant to a Third Party Processing and Cooperative Network Service
Agreement dated as of January 2, 1992, as amended, NOVUS Services, Inc.
("NOVUS," successor to Discover Card Services, Inc.), an affiliated entity, and
the Company share electronic data links for VISA, MasterCard and American
Express for the purposes of authorizing and completing NOVUS' transaction
processing services. Effective January 1, 1998, the Company and NOVUS amended
the Third Party Processing and Cooperative Network Service Agreement to extend
its initial term through January 1, 2003. The 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 Company provides terminal maintenance, repair
and preparation services to NOVUS. 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 the
Company under the Third-Party Processing and Cooperative Network 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.
SYSTEM ACCESS AGREEMENT WITH NOVUS
The Company and NOVUS 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 and the Company
entered into a System Access Agreement effective August 1, 1992, as amended.
Pursuant to the System Access Agreement, the Company provides NOVUS with access
to certain applications of the Company's point-of-sale transaction processing
system that will assist NOVUS in its marketing of third-party transaction
processing services. NOVUS pays the Company a per transaction fee for all
point-of-sale transactions processed through the network by the Company and
NOVUS for NOVUS clients, except for those transactions generated by certain
large NOVUS clients that have a direct interface with the NOVUS authorization
system. NOVUS has agreed to annual minimum usage requirements. The term of
the System Access Agreement expires on August 1, 2000. As contemplated by the
agreement, NOVUS may compete with the Company in the processing of certain
transactions, although the Company will receive fees from NOVUS for such
transactions.
- 11 -
<PAGE> 13
SERVICE AGREEMENT WITH NOVUS
Effective September 1, 1996, the Company entered into a Service Agreement
with NOVUS in connection with NOVUS' co-brand and affinity card programs,
whereby the Company provides NOVUS credit card processing services, including
credit review, authorization, collection and other related services for the
specified programs. NOVUS pays the Company a fee based upon the services
provided, which fee can be increased if NOVUS does not achieve certain monthly
minimum usage requirements. As long as NOVUS meets such minimum usage
requirements, the Company has agreed not to provide certain similar services to
any third-party direct competitor of NOVUS. The initial term of the Service
Agreement expires on September 1, 1999, if a specified minimum usage
requirement is achieved during the first year of the term, or if later, on the
date two years after such requirement is first achieved. Thereafter, the term
of the Agreement will be renewed for additional one-year terms unless
terminated by either party upon 90 days written notice prior to the end of any
term.
DEBIT CARD PROCESSING LETTER AGREEMENT AND SALES LEAD LETTER AGREEMENT WITH
NOVUS
Pursuant to a Debit Card Processing Letter Agreement dated August 30,
1994, NOVUS forwards requests for debit card transaction processing services
from its merchant customers to the Company, and the Company provides such
services pursuant to separate agreements with such merchants. The Company then
pays NOVUS a per transaction fee for each debit transaction so processed (for
which the Company receives a separate fee from the merchant customers), and a
per location fee for each new merchant location established on the Company's
system through the Debit Card Processing Letter Agreement. Such Letter
Agreement has 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, NOVUS provides the Company
with sales lead referrals for merchants in connection with the Company's
electronic transaction processing services business. For each such referred
merchant, the Company pays NOVUS an amount equal to 10% of the annual net
profit attributed to the transaction processing services provided by the
Company to such merchant. The 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 NCSI
Effective January 1, 1996, the Company entered into an Amended and
Restated Marketing Services Agreement with NCSI pursuant to which the Company
provides marketing and sales services to NCSI for the benefit of one of NCSI's
subsidiaries, MountainWest Financial Corporation ("MountainWest"). As
compensation for such services, NCSI has agreed to pay to the Company an annual
fee based on MountainWest's after-tax return on certain of its assets. The
Marketing Services Agreement will continue until such time as the Company no
longer provides services to MountainWest under the Service Agreement between
the Company and MountainWest.
SERVICE AGREEMENT WITH MOUNTAINWEST
The Company and MountainWest are parties to a Service Agreement dated as
of November 1, 1990, as amended, pursuant to which the Company provides an
accounts receivable system and various credit services for MountainWest. Under
the Service Agreement, the Company 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. The Company 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, the Company and MountainWest
amended the Service Agreement to extend its term through December 31, 1998.
The term of the 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,
between the Company and MountainWest, the Company handles customer telephone
inquiries in connection with MountainWest's Prime Option
- 12 -
<PAGE> 14
credit card program, including inquiries regarding matters such as account
activation and balances, sales activity, payment history, billing statements
and lost and stolen cards. The Company 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 the
Company uses to charge other operational outsourcing clients. The term of the
Service Agreement expires February 1, 1998 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.
HEADQUARTERS LEASE WITH NCSI
The Company leases its headquarters, which cover approximately 94,950
square feet in Riverwoods, Illinois, from NCSI pursuant to a Lease Agreement
made February 1, 1993, 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 NCSI
subsidiary or affiliate that is also headquartered in the building. Effective
February 1, 1997, the Company and NCSI 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 the
Company's option for one three-year term at a specified base rental per square
foot. The Company also has a lease for approximately 2,400 additional square
feet of office space in the same building in Riverwoods, Illinois, from NCSI
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 NCSI 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 the Company's option
for one three-year term at a specified base rental per square foot.
SERVICE AGREEMENT WITH NEW CASTLE
The Company and Discover Card Bank of New Castle ("New Castle") are
parties to a Service Agreement dated as of January 1, 1991, pursuant to which
the Company 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 the
Company 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 Service Agreement commences
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 this
Agreement.
- 13 -
<PAGE> 15
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 30, 1998.
SPS TRANSACTION SERVICES, INC.
By: /s/ Robert L. Wieseneck
---------------------------------------
Robert L. Wieseneck,
President and Chief Executive Officer
- 14 -
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
{ } Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file Number 1-10993
SPS TRANSACTION SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3798295
(State of incorporation) (I.R.S. Employer
Identification No.)
2500 Lake Cook Road, Riverwoods, IL 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 405-3400
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes {X} No { }
As of April 30, 1998, the Registrant had 27,279,469 shares of common stock,
$0.01 par value, outstanding.
<PAGE> 2
The Registrant hereby amends Part II, Item 6(a) of its quarterly report on Form
10-Q for the quarterly period ended March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.1 Stock Purchase Agreement dated April 18, 1998, between SPS
Transaction Services, Inc. and Associates First Capital
corporation.
10.1 Fifth Amendment to the Amended and Restated Borrowing Agreement
dated as of April 2, 1998 between the Company and MSDW.*
10.2 Amendment to the Facility Fee Letter Agreement dated as of
April 2, 1998, between the Company and MSDW.*
10.3 First Amendment to the Amended and Restated Credit Card
Receivables Purchase Agreement dated as of April 15, 1998,
among HSB, the Company, SPS, MSDW, BCC and Societe Generale.*
11.0 Computation of Earnings per Common Share.*
27.0 Financial Data Schedule.*
27.1 Restated Financial Data Schedule for year ended December 31,
1997.*
27.2 Restated Financial Data Schedule for year ended December 31,
1996.*
* Previously filed.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPS TRANSACTION SERVICES, INC.
------------------------------
(Registrant)
Date: September 11, 1998 By:/s/ Russell J. Bonaguidi
------------------ ------------------------------
Russell J. Bonaguidi
Vice President and Controller (Duly
Authorized Officer and Principal
Accounting Officer)
<PAGE> 4
EDGAR
Exhibit Description of Exhibits
------- -----------------------
2.1 Stock Purchase Agreement dated April 18, 1998, between SPS
Transaction Services, Inc. and Associates First Capital
corporation.
10.1 Fifth Amendment to the Amended and Restated Borrowing
Agreement dated as of April 2, 1998 between the Company and
MSDW.*
10.2 Amendment to the Facility Fee Letter Agreement dated as of
April 2, 1998, between the Company and MSDW.*
10.3 First Amendment to the Amended and Restated Credit Card
Receivables Purchase Agreement dated as of April 15, 1998,
among HSB, the Company, SPS, MSDW, BCC and Societe
Generale.*
11.0 Computation of Earnings per Common Share.*
27.0 Financial Data Schedule.*
27.1 Restated Financial Data Schedule for year ended December 31,
1997.*
27.2 Restated Financial Data Schedule for year ended December 31,
1996.*
* Previously filed.
<PAGE> 5
EXHIBIT 2.1
{CONFORMED COPY}
==============================================================================
STOCK PURCHASE AGREEMENT
between
SPS TRANSACTION SERVICES, INC.,
as
SELLER
and
ASSOCIATES FIRST CAPITAL CORPORATION,
as
PURCHASER
April 18, 1998
===============================================================================
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Purchase and Sale of Shares 1
1.1 Purchase and Sale of Shares 1
1.2 Purchase Price and Additional Transactions 1
1.3 Closing 2
1.4 Seller's Deliveries to Purchaser 2
1.5 Purchaser's Deliveries to Seller 3
ARTICLE II Representations and Warranties of Seller 3
2.1 Authority 3
2.2 No Conflicts; Consents 4
2.3 Organization and Standing; Subsidiaries 4
2.4 Capital Stock of the Subsidiaries 5
2.5 Subsidiaries' Equity Interests 5
2.6 SEC Reports and Financial Statements 5
2.7 Absence of Certain Changes or Events 6
2.8 Litigation 6
2.9 Taxes 6
2.10 Benefit Plans 7
2.11 Employee Relations 8
2.12 Compliance, Licenses and Permits 9
2.13 Takeover Statutes 9
2.14 Vote Required 10
2.15 Brokers, Finders, etc. 10
2.16 Contracts 10
2.17 Insurance 11
2.18 Tangible Personal Property 11
2.19 Real Properties 11
2.20 Office Leases 11
2.21 Guaranties 12
2.22 Computer Systems 12
2.23 Accounts and Receivables 12
2.24 Voting Agreement 13
2.25 No Other Representations or Warranties 13
ARTICLE III Representations and Warranties of Purchaser 13
3.1 Organization and Standing 13
3.2 Authority 13
3.3 No Conflicts; Consents 13
3.4 Information Supplied 14
3.5 Financial Ability to Perform 14
3.6 Absence of Certain Changes or Events 14
3.7 No Other Representations or Warranties 14
ARTICLE IV Covenants of Seller 14
4.1 Access 14
4.2 Ordinary Conduct 15
4.3 Other Transactions 16
4.4 Stockholder Approval; Recommendation 17
4.5 Intercompany Debt 17
4.6 Solicitation 17
4.7 Contribution of Seller 17
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
4.8 Maintain Corporate Existence 17
ARTICLE V Covenants of Purchaser 18
5.1 Confidentiality 18
5.2 Employees 18
5.3 Benefit Plans for Hired Employees 19
5.4 WARN Act 21
5.5 Regulatory Conditions 22
5.6 Certain Understandings 22
5.7 Proxy Information 22
5.8 Assumption of Liabilities 23
ARTICLE VI Mutual Covenants 23
6.1 Consummation of the Transactions 23
6.2 Publicity 23
6.3 Antitrust Notification 24
6.4 Further Assurances 24
ARTICLE VII Conditions to Closing 24
7.1 Each Party's Obligations 24
7.2 Seller's Obligations 25
7.3 Purchaser's Obligations 26
7.4 Frustration of Closing Conditions 26
ARTICLE VIII Tax Matters 27
8.1 Section 338 27
8.2 Liability for Taxes and Related Matters 27
8.3 Transfer Taxes 30
8.4 Information to be Provided by Purchaser 30
8.5 Assistance and Cooperation 30
8.6 Survival of Obligations 30
ARTICLE IX Termination 31
9.1 Termination Events 31
9.2 Information and Confidentiality 31
9.3 Termination Fees 31
9.4 Abandonment 32
ARTICLE X Indemnification 32
10.1 Nonsurvival of Representations, Warranties and Agreements 32
10.2 Agreement to Indemnify 32
10.3 Conditions of Indemnification 33
10.4 Limitation of Indemnification 34
10.5 Claims Adjusted for Taxes 35
ARTICLE XI Expenses 36
ARTICLE XII Miscellaneous 36
12.1 No Third-Party Beneficiaries 36
12.2 Amendment or Waiver 36
12.3 Headings 36
12.4 Counterparts 36
12.5 Assignment 36
12.6 Notices 36
12.7 Entire Agreement 37
12.8 Severability 38
12.9 Schedules 38
12.10 Consent to Jurisdiction 38
12.11 Governing Law 38
Disclosure Schedules S-1
Schedule 1.1 Shares S-2
Schedule 2.2 No Conflicts; Consents S-3
Schedule 2.4 Capital Stock of Subsidiaries S-5
Schedule 2.5 Subsidiaries' Equity Interests S-6
Schedule 2.7 Certain Changes or Events S-7
Schedule 2.8 Litigation S-8
Schedule 2.9.1 State Income Tax Return Filings S-9
Schedule 2.9.2 Section 2.9. Paragraph (iv) - Miscellaneous Tax Matters S-10
Schedule 2.10 Benefit Plans S-11
Schedule 2.11 Employee Relations S-13
Schedule 2.12 Compliance with Applicable Laws S-14
Schedule 2.16 Contracts S-15
Schedule 2.18 Liens S-26
Schedule 2.19 Real Property S-27
Schedule 2.20 Leases S-28
Schedule 2.21 Guaranties S-29
Schedule 2.22 Computer Systems S-30
Schedule 2.23 Cardholders Agreement Forms S-31
Schedule 3.3 No Conflicts; Consents S-34
Schedule 4.2 Ordinary Conduct S-35
Schedule 4.7 Assets of Seller S-36
Schedule 5.2(i) Employees S-37
Schedule 5.2(ii) Additional Employees S-39
Schedule 5.2(iii) Definition of Cause S-40
Schedule 5.3(i) Benefit Plans not Adopted by Purchaser S-41
Schedule 5.3(ix) Stock Options S-42
Exhibit A Form of Voting Agreement A-1
Exhibit B Form of Assumption Agreement A-2
Exhibit C Form of Interim Servicing Agreement A-3
</TABLE>
<PAGE> 8
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
Section
<S> <C>
Account Documentation 2.23
Account Tape 2.23
Accounts 2.23
Affected Persons 2.10
Allocation 8.1(ii)
Allocation Notice 8.1(ii)
Audit 2.9(i)
Basket 10.4
Benefit Plans 2.10
Claims 10.2
Closing 1.3
Closing Date 1.3
Code 2.9(i)
Confidentiality Agreement 5.1
Cut-Off Date 2.23
Delaware Law 2.13
DOJ 6.3
Employee Pension Benefit Plan 5.2
Employee Welfare Benefit Plan 5.2
Exchange Act 2.6
ERISA 2.10
FTC 6.3
GAAP 2.6
Governmental Entity 2.2
Group Subsidiaries 2.9(ii)
Hired Employees 5.2
HSR Act 2.2
Hurley State Bank 2.3(i)
Indemnified Party 10.3
Indemnifying Party 10.3
IRS 2.9(i)
Material Adverse Effect 2.2
Parent 7.3(iii)
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Pre-Closing Tax Period 2.9(i)
Proportionate Interest 10.2
Proposed Allocation 8.1(ii)
Proxy Statement 3.4
Purchase Price 1.1
Purchaser Preamble
Reserves 2.9(iv)
Retention and Incentive Plans 5.3(vii)
SEC 2.2
Securities Act 2.6
Seller Preamble
Seller Liabilities 5.8
Seller SEC Reports 2.6
Shares 1.1
SPS Payment 2.3(i)
Stock Option Plans 5.3(ix)
Subsidiary or Subsidiaries 2.3(i)
Superior Acquisition 4.3
Tax or Taxes 2.9(i)
Tax Package 8.4
Tax Return 2.9(i)
Third Party Acquisition Offer 4.3
Third Party Claims 10.3
338 Elections 8.1(i)
Treasury Regulations 2.9(i)
WARN Act 5.4
</TABLE>
<PAGE> 10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of April 18, 1998 (this
"Agreement"), is by and between SPS Transaction Services, Inc., a Delaware
corporation ("Seller"), and Associates First Capital Corporation, a Delaware
corporation ("Purchaser").
RECITALS
A. Seller owns all of the issued and outstanding shares of capital
stock of each of its Subsidiaries (as such term is defined in Section 2.3(i)
herein).
B. Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, all of the issued and outstanding shares of capital stock of
each of its Subsidiaries upon the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Shares
1.1 Purchase and Sale of Shares. (a) Upon the terms and subject to
the conditions contained herein, on the Closing Date (as hereinafter defined),
Seller will sell, convey, transfer, assign and deliver to Purchaser the
certificates representing all of the issued and outstanding shares of capital
stock of each of Seller's Subsidiaries as set forth on Schedule 1.1 hereto (the
"Shares") duly endorsed for transfer to Purchaser or accompanied by stock powers
duly executed in blank, the Shares to be free and clear of all security
interests, liens, adverse claims, charges and encumbrances, against payment to
Seller of $895,696,661 (the "Purchase Price").
<PAGE> 11
(b) Upon the terms and subject to the conditions contained herein, on
the Closing Date and immediately prior to the sale of the Shares contemplated by
Section 1.1(a), the Subsidiaries shall pay to Seller all amounts necessary to
satisfy Section 7.2(iv) hereof.
1.2 Purchase Price and Additional Transactions. (a) On the Closing
Date and immediately prior to the sale of the Shares contemplated by Section
1.1(a), Purchaser shall make a loan to, or contribute capital to or purchase
stock of, the Subsidiaries (on such terms and conditions as Purchaser and Seller
shall reasonably determine but in no event at any cost to Seller) in an amount
equal to the aggregate amount of the payments to be made by the Subsidiaries
pursuant to Section 1.1(b) by delivery of such amount in immediately available
funds by electronic wire transfer to such bank accounts as are designated in
writing by the Subsidiaries at least two business days prior to the Closing
Date, and the Subsidiaries shall effect the transactions set forth in Section
1.1(b).
(b) On the Closing Date promptly following the consummation of the
transactions set forth in Section 1.1(b), Purchaser shall pay the Purchase Price
by delivering to Seller by electronic wire transfer to a bank account designated
in writing by Seller at least two business days prior to the Closing Date,
immediately available funds in an amount equal to the Purchase Price.
1.3 Closing. Upon the terms and subject to the conditions hereof, the
closing of the transactions contemplated hereby (the "Closing") shall take place
at (i) the offices of Brown & Wood LLP, One World Trade Center, New York, New
York 10048 at 10:00 a.m., local time, on the first business day after all of
the conditions set forth in Article VII have been, or are capable of being
satisfied, or (ii) such other place and/or time and/or on such other date as
Seller and the Purchaser may agree or as may be necessary to permit the
fulfillment or waiver of the conditions herein (in case of either clause (i) or
(ii), the "Closing Date").
1.4 Seller's Deliveries to Purchaser. At Closing, Seller shall
deliver to Purchaser the instruments and items set forth below:
(a) Stock certificates representing the Shares, registered in the name
of Seller, duly endorsed in blank or accompanied by duly executed stock powers;
(b) A certificate of Seller's Secretary or an Assistant Secretary
certifying resolutions adopted by the Board of Directors of Seller authorizing
and approving the execution, delivery and performance of this Agreement and the
transfer of the Shares to Purchaser pursuant to this Agreement;
(c) The written resignations of the directors of the Subsidiaries and
their subsidiaries (excluding the directors of certain subsidiaries that are
designated by certain parties pursuant to contractual arrangements with such
parties);
(d) The stock books, stock ledgers, minute books, and corporate seals
of the Subsidiaries and their subsidiaries;
(e) All Certificates of Seller's officers required under or in
connection with this Agreement;
(f) Certificates of status of compliance or good standing from each
State in which Seller or its Subsidiaries are qualified to transact business,
dated not more than thirty (30) days before the Closing Date;
(g) A certificate of Seller's Secretary or an Assistant Secretary
certifying that the stockholders of Seller have approved the transactions
contemplated by this Agreement;
(h) Any updates of Schedules or Exhibits dated the Closing Date and
certified by Seller's Secretary or an Assistant Secretary; and
(i) All other documents, certificates, instruments, agreements and
writings required to be delivered by Seller on or before the Closing Date
pursuant to this Agreement.
<PAGE> 12
1.5 Purchaser's Deliveries to Seller. At Closing, the Purchaser shall
pay the amounts to Seller and the Subsidiaries and deliver to Seller the
following instruments and items:
(a) The amounts specified in Section 1.2;
(b) A certificate of Purchaser's Secretary or an Assistant Secretary
certifying resolutions of the Board of Directors of Purchaser authorizing and
approving the execution, delivery, and performance of this Agreement;
(c) All certificates of Purchaser's officers required under or in
connection with this Agreement; and
(d) All other documents, certificates, instruments, agreements and
writings required to be delivered by the Purchaser on or before the Closing Date
pursuant to this Agreement.
ARTICLE II
Representations and Warranties of Seller
Seller hereby represents and warrants to Purchaser as follows:
2.1 Authority. Seller has the corporate power and authority to execute
this Agreement and all documents, instruments and agreements required to be
executed by Seller pursuant hereto and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and all
documents, instruments and agreements required to be executed by Seller pursuant
hereto, and the performance by Seller of its obligations hereunder, have been
duly authorized by the Board of Directors of Seller and, except for
authorization of the transactions contemplated by this Agreement by the
stockholders of Seller as provided in Section 4.4 hereof, no further corporate
action is necessary on the part of Seller. This Agreement has been duly
executed and delivered by Seller and, assuming authorization by the stockholders
of Seller and the due execution and delivery by the Purchaser, constitutes a
valid and legally binding obligation of Seller, enforceable against it in
accordance with its terms (subject, as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium (whether general
or specific) and similar laws relating to creditors' rights generally, and
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law)).
2.2 No Conflicts; Consents. Except as set forth on Schedule 2.2
hereto, neither the execution and delivery of this Agreement by Seller, nor the
consummation of the transactions contemplated hereby will conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under any
provision of (i) the respective certificates of incorporation or by-laws of
Seller or the Subsidiaries, (ii) any note, bond, mortgage, indenture, deed of
trust, license, lease, contract, commitment, agreement or arrangement to which
Seller or the Subsidiaries is a party or by which any of them or any of their
respective properties or assets is bound or (iii) any judgment, order or decree,
or statute, law, ordinance, rule or regulation, applicable to Seller or the
Subsidiaries or any of their respective properties or assets, in each case
except for any such conflict, violation, default or right which would not
reasonably be expected to have a material adverse effect on the business,
assets, financial condition, or results of operations of the Subsidiaries taken
as a whole (a "Material Adverse Effect"). No consent, approval, license,
permit, order or authorization of, or registration, declaration or filing with,
any Federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, or other regulatory or self-
regulatory body or association (each, a "Governmental Entity") is required to be
obtained or made by Seller or the Subsidiaries in connection with the
consummation of the transactions contemplated hereby other than (v) filings with
the South Dakota Division of Banks and the appropriate federal banking
<PAGE> 13
agency(ies), the Securities and Exchange Commission (the "SEC") and the state
securities or "blue sky" commission or similar body in each state where such
filing may be necessary, (w) compliance with and filings under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (x) as
set forth on Schedule 2.2 hereto, (y) as become applicable solely as a result of
the specific regulatory status of Purchaser and its affiliates and (z) those the
failure of which to make or obtain would not have a Material Adverse Effect.
2.3 Organization and Standing; Subsidiaries
(i) Each of Seller, SPS Payment Systems, Inc. ("SPS Payment") and
Hurley State Bank ("Hurley State Bank"; each of SPS Payment and Hurley State
Bank being referred to herein as a "Subsidiary" and collectively as the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Seller and each
of the Subsidiaries has all requisite corporate power and authority to carry on
its respective business as presently conducted and to own, lease and operate its
respective properties and assets as currently owned, leased and operated, and
each is duly qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it, or where
the nature of the business conducted by it, make such qualification necessary,
except where the failure to so qualify or be in good standing would not have a
Material Adverse Effect.
(ii) Seller owns the Shares of the Subsidiaries free and clear of all
security interests, liens, adverse claims, charges and encumbrances. Upon
delivery to Purchaser at the Closing of certificates representing the Shares,
duly endorsed by Seller for transfer to Purchaser, and upon Seller's receipt of
the Purchase Price, Purchaser will acquire title to the Shares, free and clear
of any "adverse claim" (as such term is defined in Section 8-102 of the New York
Uniform Commercial Code), other than those arising from acts of Purchaser or its
affiliates.
2.4 Capital Stock of the Subsidiaries. The authorized capital stock
of SPS Payment consists of 10,000 shares of common stock, par value $100 per
share, of which 100 shares are duly authorized and validly issued and
outstanding, fully paid and nonassessable and are owned by Seller free and clear
of any liens, charges and encumbrances. The authorized capital stock of Hurley
State Bank consists of 500 shares of capital stock, par value $100 per share, of
which 500 shares are duly authorized and validly issued and outstanding, fully
paid and nonassessable and are owned by Seller free and clear of any liens,
charges and encumbrances. Except for the Shares, there are no shares of capital
stock or other equity securities of either Subsidiary outstanding. None of the
Shares have been issued in violation of, or are subject to, any purchase option,
call, right of first refusal or preemptive, subscription or similar right.
Except as set forth on Schedule 2.4 hereto, there are no outstanding warrants,
options, rights, agreements, convertible or exchangeable securities or other
commitments (other than this Agreement) (i) pursuant to which the Seller or
either Subsidiary, or any subsidiary of either Subsidiary, is or may become
obligated to issue, sell, purchase, return or redeem any shares of capital stock
or other securities of such Subsidiary or any of its subsidiaries or (ii) that
give any person the right to receive any benefits or rights similar to any
rights enjoyed by or accruing to the holders of shares of capital stock of such
Subsidiary or any of its subsidiaries.
2.5 Subsidiaries' Equity Interests. Except as set forth on Schedule
2.5 hereto, neither Seller nor the Subsidiaries own, directly or indirectly, any
capital stock of or other equity interests in any corporation, partnership or
other person. All of the issued and outstanding shares of capital stock of each
of the Subsidiaries' subsidiaries (as set forth on Schedule 2.5 hereto) are duly
authorized, have been validly issued, are fully paid and nonassessable and, are
owned by the Subsidiaries as set forth on Schedule 2.5, free and clear of all
liens, charges and encumbrances of any kind.
2.6 SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by Seller
with the SEC since December 31, 1997 (including Seller's Annual Report on Form
10-K for
<PAGE> 14
the year ended December 31, 1997) (as such documents have since the time of
their filing been amended, the "Seller SEC Reports"), which include all the
documents (other than preliminary material) that Seller was required to file
with the SEC since such date, as of their respective dates, complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, and the rules and regulations
of the SEC thereunder applicable to such Seller SEC Reports. None of Seller SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof. The financial statements of Seller
included in Seller SEC Reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles as in effect from time to time in the United
States ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q under the Exchange Act) and
fairly present in all material respects, the consolidated financial position of
Seller and its subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended, subject in the
case of interim financial statements to normal year-end adjustments and except
that the interim financial statements do not contain all of the footnote
disclosures required by GAAP. Since December 31, 1997, neither Seller nor any
of its subsidiaries has incurred any liabilities or obligations, whether
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise and
whether due or to become due, except (i) as disclosed or reflected in Seller SEC
Reports filed after December 31, 1997 and prior to the date hereof, (ii) as
incurred in connection with the transactions contemplated or as provided by this
Agreement, (iii) as incurred after December 31, 1997 in the ordinary course of
business, or (iv) except as would not, individually or in the aggregate, have a
Material Adverse Effect.
2.7 Absence of Certain Changes or Events. Since December 31, 1997,
except as contemplated hereby and except as disclosed on Schedule 2.7 or in
Seller SEC Reports filed since December 31, 1997 and prior to the date hereof,
Seller and its subsidiaries have conducted their respective businesses in the
ordinary course and there has not occurred or arisen any event or events which,
individually or in the aggregate, has had or is reasonably likely to (i) have a
Material Adverse Effect, (ii) require filings with the SEC under the Exchange
Act (except for any filings that will be filed under the Exchange Act after the
date hereof but prior to the Closing Date) or (iii) prevent or delay in any
material respect the consummation of any of the transactions contemplated by
this Agreement.
2.8 Litigation. Except as disclosed on Schedule 2.8 hereto, there is
no suit, action or proceeding pending or, to the knowledge of Seller, threatened
against Seller or its subsidiaries that, individually or in the aggregate, (i)
unless expressly indicated on Schedule 2.8, is not adequately reserved for, (ii)
is reasonably likely to have a Material Adverse Effect or (iii) is reasonably
likely to prevent or delay in any material respect Seller from performing its
obligations under, or consummating the transactions contemplated by, this
Agreement. There is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Seller or any of its
subsidiaries which has had or is reasonably likely to have a Material Adverse
Effect.
2.9 Taxes.
(i) For purposes of this Agreement, (a) "Tax" or "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, occupation, use, service, license, payroll, franchise, transfer and
recording taxes, fees and charges, including estimated taxes, imposed by the
United States or any other taxing authority (domestic or foreign), whether
computed on a separate, consolidated, unitary, combined or
<PAGE> 15
any other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to any such
taxes, charges, fees, levies or other assessments; (b) "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes; (c) "IRS" shall mean the United
States Internal Revenue Service; (d) "Treasury Regulations" shall mean the
Treasury Regulations promulgated under the Code; (e) "Pre-Closing Tax Period"
shall mean all taxable periods ending on or before the Closing Date and the
portion ending on the Closing Date of any taxable period that includes (but does
not end on) such day; (f) "Audit" shall mean any audit, assessment of Taxes,
reassessment of Taxes, or other examination by any taxing authority or any
judicial or administrative proceedings or appeal of such proceedings; and (g)
"Code" shall mean the Internal Revenue Code of 1986, as amended.
(ii) Seller, the Subsidiaries and their wholly-owned subsidiaries
(collectively with the Subsidiaries, the "Group Subsidiaries") are each "C"
corporations as defined in the Code.
(iii) In the last five years, the only jurisdictions where the Group
Subsidiaries have filed (or had filed on their behalf) any income Tax Returns
are with the Federal government of the United States and with those States set
forth on Schedule 2.9.1 hereto.
(iv) Except as set forth on Schedule 2.9.2 hereto, (a) the Group
Subsidiaries have (x) duly filed (or had filed on their behalf) with the
appropriate Governmental Entities all Tax Returns required to be filed by them
on or prior to the date hereof, and such Tax Returns are true, correct and
complete in all material respects and (y) duly paid (or had paid on their
behalf) in full or made provision in accordance with GAAP ("Reserves") for the
payment of all Taxes for all periods ending through the date hereof, (b) there
are no liens for Taxes upon any shares of the stock or assets of the Group
Subsidiaries, except for statutory liens for current Taxes not yet due, (c) the
Group Subsidiaries have complied in all respects with all applicable laws, rules
and regulations relating to the payment and withholding of Taxes, except where
the failure to so comply would not have a Material Adverse Effect; and have,
within the time and the manner prescribed by law, withheld from and paid over to
the proper Governmental Entities all amounts required to be so withheld and paid
over under applicable laws, (d) no Audits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Group Subsidiaries, and neither Seller nor the Group Subsidiaries have
received notice of any pending Audits or proceedings, in each case, except those
which would not have a Material Adverse Effect, (e) there are no outstanding
written requests, agreements, consents or waivers to extend the statutory period
of limitations applicable to the assessment of any Taxes or deficiencies against
any of the Group Subsidiaries, (f) none of the Group Subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes and (g) no power
of attorney has been executed by any of the Group Subsidiaries with respect to
any matter relating to Taxes which is currently in force.
2.10 Benefit Plans. Set forth on Schedule 2.10 is a list of each
material bonus, incentive, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option or other stock-based compensation,
severance benefits, salary continuation, salary in lieu of notice,
hospitalization or other medical, life or other insurance plan relating to
Seller's and the Subsidiaries' businesses, employees, officers and directors,
including any policy, plan, program or agreement that provides for the payment
of similar benefits (collectively, the "Benefit Plans"), maintained, sponsored
or contributed to by Seller or its Subsidiaries or under which Seller or its
Subsidiaries have any present or future material obligations or material
liability on behalf of Seller's or its Subsidiaries' current or former
employees, officers or directors, or their dependents or beneficiaries
(collectively, the "Affected Persons"). To the knowledge of Seller, the Benefit
Plans are in compliance in all material respects with all applicable
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and other applicable laws and have been administered in all
material respects in accordance with their terms and such laws, except where the
failure to so comply would not have a Material Adverse Effect.
<PAGE> 16
There are no pending or, to the best knowledge of Seller, threatened
claims and no pending or, to the best knowledge of Seller, threatened litigation
with respect to any Benefit Plans other than ordinary and usual claims for
benefits by participants and beneficiaries.
All contributions made or required to be made under any Benefit Plan
meet the requirements for deductibility under the Code in all material respects,
and all contributions that are required to have been made or to be made prior to
the Closing have been made or will be made.
No Benefit Plan is a "multiemployer plan" (as defined in section
4001(a)(3) of ERISA); and neither the Seller nor any of its Subsidiaries has
sponsored or contributed to any "multiemployer plan." No event or condition has
occurred in connection with which Seller or any of its Subsidiaries is or could
be subject to any material liability, encumbrance or lien with respect to any
Benefit Plan under ERISA, the Code or any other applicable law or under any
agreement or arrangement pursuant to or under which Seller or its Subsidiaries
are required to indemnify any person against such liability.
2.11 Employee Relations. (a) Except as set forth on Schedule 2.11(a)
hereto, (i) neither the Seller nor any of its Subsidiaries has engaged in any
"Unfair Labor Practice" (within the meaning of the National Labor Relations
Act), and no Unfair Labor Practice complaint against Seller or its Subsidiaries
is pending, or to the best knowledge of Seller, threatened before the National
Labor Relations Board; (ii) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the best knowledge of Seller, threatened
against or involving Seller or its subsidiaries; (iii) no employee grievance
which might have a Material Adverse Effect is pending and no claim therefor has
been asserted; (iv) no collective bargaining agreement is currently being
negotiated by Seller or its subsidiaries; (v) neither Seller nor its
subsidiaries has experienced any material labor dispute (including, without
limitation, any work stoppage) during the last three years; and (vi) no attempt
to organize any group or all of the employees of Seller or any of its
Subsidiaries has been made or, to the best knowledge of Seller, proposed.
(b) Neither Seller nor any of its Subsidiaries is now, and the
consummation of the transactions contemplated by this Agreement will not, to the
best of Seller's and its Subsidiaries' knowledge, cause Seller, any of its
Subsidiaries or Purchaser to become, bound by, obligated under or responsible
for any labor contract, collective bargaining agreement, consent decree or
conciliation agreement relating to employment (other than plans or arrangements
described in (c) below).
(c) Except as set forth on Schedule 2.11(c), neither Seller nor any of
its Subsidiaries is a party to or subject to, or directly or indirectly liable
under, any incentive, bonus or commission plan or similar arrangement or
understanding for the benefit of any current or former officer, director or
employee of Seller or its Subsidiaries or any deferred compensation, severance,
retention or employment contract or similar arrangement or understanding with
any such officer, director or employee (whether written or oral), that is not
terminable at will by Seller or its Subsidiaries and that in any event could
result in liability of or an obligation against Purchaser. Except as set forth
on Schedule 2.11(c) or as otherwise expressly provided in this Agreement, no
officer, director or employee of Seller or any of its Subsidiaries shall be
entitled to any severance pay or retention pay or bonus from Purchaser solely as
a result of the consummation of the transactions contemplated hereby.
(d) Except as set forth on Schedule 2.11(d), (i) the practices and
policies of Seller and its subsidiaries with respect to employment and
termination of employment have complied in all material respects with all
applicable laws, statutes, ordinances, regulations, rules, judgments, decrees
and orders ("Employment Laws"), and (ii) there are no claims pending or, to the
knowledge of the Seller, threatened against the Group Subsidiaries with respect
to violations of any such Employment Laws.
2.12 Compliance, Licenses and Permits. Seller and its Subsidiaries
each has complied in all material respects with all laws, statutes, ordinances,
<PAGE> 17
regulations, rules, judgements, decrees and orders applicable to its businesses
including, without limitation, all consumer protection laws and regulations.
Except as set forth on Schedule 2.12, Seller and its Subsidiaries each has all
licenses, permits and other governmental authorizations or approvals necessary
to permit Seller and its Subsidiaries to conduct their respective consumer
businesses as now being conducted, other than such licenses, permits,
authorizations or approvals which, individually or in the aggregate, if not
obtained, would not have a Material Adverse Effect. Except as set forth on
Schedule 2.12 hereto, each such permit, license authorization or approval is in
good standing and there is no proceeding pending or, to the Seller's knowledge,
threatened, to revoke or limit any of them.
2.13 Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States applicable to Seller or the
Subsidiaries is applicable to the transaction contemplated hereby (including,
without limitation, Section 203 of the General Corporation Law of the State of
Delaware ("Delaware Law")).
2.14 Vote Required. The affirmative vote of a majority of the
outstanding shares of common stock of Seller is the only vote of holders of
capital stock of Seller required to authorize the transactions contemplated by
this Agreement.
2.15 Brokers, Finders, etc. Except for Morgan Stanley & Co.
Incorporated, Seller is not subject to any valid claim of any broker, investment
banker, finder or other intermediary in connection with the transactions
contemplated by this Agreement.
2.16 Contracts. Schedule 2.16 lists the following agreements (which
term shall include any legally enforceable obligation) to which Seller or a
Subsidiary is a party as of the date hereof:
(a) any agreement for the lease of personal property from or to a
third party providing for lease payments in excess of $1,000,000 per annum;
(b) any agreement with a third party for the purchase or sale of
supplies, products or other personal property or for the furnishing or receipt
of services which involves payments in excess of $1,000,000 per annum;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement under which it has incurred, issued, assumed, or
guaranteed (or may incur, issue, assume, or guarantee) indebtedness for borrowed
money in excess of $1,000,000 (excluding any certificates of deposit issued in
the ordinary course of business);
(e) any agreement which contains a non-competition provision (excluding
for this purpose any provision concerning confidentiality, non-disclosure or
similar provisions) that restricts the business of Seller or either Subsidiary,
which agreement would continue to apply to Seller or such Subsidiary following
the Closing Date;
(f) any agreement between (i) the Subsidiaries and (ii) Seller or an
affiliate of Seller, which agreement would continue to apply to a Subsidiary
following the Closing Date;
(g) any agreement (excluding any Benefit Plans) with the directors,
officers, or employees of Seller or its Subsidiaries or their respective
affiliates outside the ordinary course of Seller's business;
(h) any agreement with employees in the nature of a collective
bargaining agreement, which agreement would continue to apply to a Subsidiary
following the Closing Date;
(i) any agreement with any merchant that has generated and represents
more than $10,000,000 in outstanding loan receivables of a Subsidiary;
<PAGE> 18
(j) any agreement involving reinsurance or servicing of loan-related
credit insurance; and
(k) any agreement involving any contract of sale involving amounts in
excess of $10,000,000 annually, pursuant to which a Subsidiary may be obligated
to indemnify any other person following the Closing Date.
Upon request, Seller will make available to Purchaser a correct and
complete copy of each written agreement listed on Schedule 2.16 (as amended to
date). With respect to each agreement so listed, except as so indicated on
Schedule 2.16, neither Seller nor the relevant Subsidiary is in material breach
or default thereunder, and no event has occurred which with notice would
constitute a material breach or default by the Seller or the relevant Subsidiary
of such agreement.
2.17 Insurance. Seller and/or its Subsidiaries are and, until
Closing, will be covered by the policies of insurance (including fidelity bonds)
that, in respect of amounts, types and risks insured, management reasonably
believes to be adequate for the business conducted by Seller and/or its
Subsidiaries (which policies are in full force and effect). Upon request,
Seller shall provide to Purchaser copies of such insurance policies.
2.18 Tangible Personal Property. Each Subsidiary owns, free and clear
of all liens and encumbrances (except liens for taxes not yet due and payable
and liens arising solely by operation of law or as listed on Schedule 2.18), or
leases, free and clear of all liens and encumbrances on its leasehold interest
(except as listed in Schedule 2.18), all tangible personal property necessary
for the conduct of its respective businesses as presently conducted except for
such liens and encumbrances which do not materially affect the value of such
property and do not materially interfere with the use made of such property.
Such tangible personal property has been maintained in such condition (ordinary
wear and tear excepted) as to permit each Subsidiary to conduct their respective
businesses as presently conducted.
2.19 Real Properties. Each Subsidiary does not own any real property
other than as described on Schedule 2.19. Except as disclosed on Schedule 2.19,
neither Seller nor any Subsidiary is in violation of any material environmental
laws or regulations applicable to the real property described on Schedule 2.19
and there has not been any discharge, release, disposal, or storage of any
hazardous materials at or on to the real property described in Schedule 2.19.
Assuming the due authorization, execution and delivery of the agreements set
forth on Schedule 2.19 by the other parties thereto, each such agreement is a
valid and binding agreement of the parties thereto and is enforceable by the
Subsidiary which is a party thereto in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and by
general equity principles.
2.20 Office Leases. Schedule 2.20 hereto sets forth a list of all
leases of real property to which the Seller or the Subsidiaries are a party.
Except as described in Schedule 2.20 hereto, each such lease is in full force
and effect, all rents and other amount due thereunder have been paid, and no
Subsidiary is in default under any material term thereof. The leases have been
made available to Purchaser for its inspection. Certain leases have change in
control provisions and, while Seller will cooperate with Purchaser to obtain any
necessary landlord consent, no representation or warranty is made that the
consummation of the transactions contemplated hereunder would not trigger a
default, absent such consent, or that such consent will be obtained.
2.21 Guaranties. Except as disclosed on Schedule 2.21 hereto, no
Subsidiary is a guarantor or is otherwise liable for any liability or obligation
(including indebtedness) of any other person (other than liabilities and
obligations of its subsidiaries), excluding those guaranties that individually
or in the aggregate are not reasonably likely to result in any such Subsidiary
being subject to a material liability or obligation.
2.22 Computer Systems. Except as set forth on Schedule 2.22 hereto,
Seller and the Subsidiaries own or have the right to use all the computer
software,
<PAGE> 19
databases and compilations, including any and all data and connections of data,
necessary for the conduct of the business of Seller and the Subsidiaries as
currently conducted.
2.23 Accounts and Receivables. (a) Compliance with Laws. (i) The
Accounts (as defined below), Cardholder Agreements, and all related documents,
and the interest rates, fees, and charges in connection therewith comply in all
material respects with all applicable laws, rules, regulations, and orders; (ii)
assuming (x) the requisite legal capacity of each cardholder and (y) that each
Cardholder Agreement has been duly executed and delivered by the cardholder
named therein, each Cardholder Agreement is the legal, valid, and binding
obligation of the cardholder and any guarantor named therein and is enforceable
in accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equity principles, and
except for the rights of Cardholders under 12 CFR 226 12(c), 12 CFR 226 13(a)
and any similar state or federal laws applicable thereto; (iii) to the knowledge
of Seller, the outstanding balance of each Account arises from a bona fide sale
or loan transaction, subject to cardholder billing inquiries reflected in
Account Documentation (defined below); (iv) all applications for Accounts have
been taken and evaluated and applicants notified in a manner which is in
compliance in all material respects with the Equal Credit Opportunity Act and
its implementing regulation, as amended; and (v) all disclosures made in
connection with the Accounts were in compliance in all material respects with
the provisions of law as of the time made. "Accounts" shall mean the credit
card accounts that are identified by name and account number on Seller's Fathom
processing system as of the date hereof.
(b) Cardholder Agreements. Schedule 2.23 attached hereto sets forth a
list of all Cardholder Agreement forms currently in use. The terms of
Cardholder Agreements have not been impaired, waived, altered or modified in any
respect except as may be reflected in the Account Documentation (as defined
below). "Account Documentation" shall mean all books and records in the
possession of Seller, relating to the Accounts, consisting of applications for
Accounts, acceptance certificates for prescreened offers, periodic statements,
credit and collection files, file maintenance data correspondence, whether in
documentary form or on microfilm, microfiche, magnetic tape, computer disk or
other form.
(c) Account Data. The information contained in Seller's Fathom
processing system was accurate in all material respects as of the date hereof.
2.24 Voting Agreement. Parent has executed and delivered to
Purchaser, contemporaneously with the execution and delivery of this Agreement,
a voting agreement in the form attached hereto as Exhibit A.
2.25 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article II, neither Seller nor
any other person makes any other express or implied representation or warranty
on behalf of Seller.
ARTICLE III
Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to Seller as follows:
3.1 Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 Authority. Purchaser has all requisite corporate power and
authority to execute this Agreement and all documents, instruments and
agreements required to be executed by Purchaser pursuant hereto and to
consummate the transactions contemplated hereby. The execution and delivery of
the Agreement and all documents, instruments and agreements required to be
executed by Purchaser hereto, and the performance by Purchaser of its
obligations hereunder have been duly authorized by all necessary action on the
part of Purchaser (including requisite stockholder approval, if necessary).
This Agreement has
<PAGE> 20
been duly executed and delivered by Purchaser and, assuming the due execution
and delivery hereof by Seller, constitutes a valid and legally binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms (subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium (whether general or specific) and similar
laws relating to creditors' rights generally, and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law)).
3.3 No Conflicts; Consents. Neither the execution and delivery of
this Agreement by Purchaser, nor the consummation of the transactions
contemplated hereby will conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under any provision of (i) the certificate of
incorporation or by-laws of Purchaser, (ii) any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, agreement or arrangement to
which Purchaser is a party or by which it or any of its properties or assets is
bound or (iii) any judgment, order or decree, or statute, law, ordinance, rule
or regulation, applicable to Purchaser or any of its properties or assets, in
each case except for any such conflict, violation, default or right which would
not reasonably be expected to have a material adverse effect on the business,
assets, financial condition, or results of operations of Purchaser and its
subsidiaries taken as a whole. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by Purchaser or in connection with the
consummation of the transactions contemplated hereby other than (v) filings with
the South Dakota Division of Banks and the appropriate federal banking
agency(ies), the SEC and the state securities or "blue sky" commission or
similar body in each state where such filing may be necessary, (x) compliance
with and filings under the HSR Act, (y) as set forth on Schedule 3.3 hereto and
(z) those the failure of which to make or obtain would effect the ability of
Purchaser to consummate the transactions contemplated hereby.
3.4 Information Supplied. The information supplied in writing or to
be supplied by Purchaser or its subsidiaries in writing for inclusion or
incorporation by reference in a proxy or information statement ("Proxy
Statement") to be filed by Seller in connection with the transactions
contemplated hereby, including any amendments and supplements thereto, will not,
either at the date mailed to stockholders or at the time of any meeting of
stockholders of Seller to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.5 Financial Ability to Perform. Purchaser has sufficient funds
available (through existing credit arrangements or otherwise) to purchase all
the Shares and to pay all of its fees and expenses related to the transactions
contemplated by this Agreement.
3.6 Absence of Certain Changes or Events. Since December 31, 1997,
except as contemplated hereby and except as disclosed in any form, report,
schedule or definitive proxy statement filed by Purchaser with the SEC since
December 31, 1997 and prior to the date hereof, Purchaser and its subsidiaries
have conducted their respective businesses in the ordinary course and there has
not occurred or arisen any event or events which is reasonably likely to prevent
or delay in any material respect the consummation of any of the transactions
contemplated by this Agreement.
3.7 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither Purchaser
nor any other person makes any other express or implied representation or
warranty on behalf of Purchaser.
ARTICLE IV
<PAGE> 21
Covenants of Seller
Seller covenants and agrees with Purchaser as follows:
4.1 Access. Prior to the Closing, Seller shall cause the Subsidiaries
to give Purchaser 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. Prior to the Closing, Seller shall cause the Subsidiaries
to furnish to Purchaser 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 Purchaser shall from
time to time reasonably request. From the date hereof to the Closing Date,
Seller shall provide reasonable accommodations during normal business hours at
each of its locations for up to three employees of Purchaser, and shall allow
such employees of Purchaser reasonable access to facilities and personnel of
Seller for purposes of monitoring the operation of Seller's business; provided,
however, that such access shall be in a manner that does not unreasonably
interfere with the normal operation of Seller's business.
4.2 Ordinary Conduct. Except as set forth on Schedule 4.2 or
otherwise permitted by the terms of this Agreement, from the date hereof to the
Closing, Seller shall (i) cause the business of the Subsidiaries and their
subsidiaries to be conducted in the ordinary course in substantially the same
manner as presently conducted and shall make all reasonable efforts consistent
with past practices to preserve their relationships with customers and others
with whom the Subsidiaries deal and (ii) maintain in effect all insurance as to
which the Subsidiaries and their subsidiaries are beneficiaries, including any
directors and officer insurance. Except as set forth on Schedule 4.2 or
otherwise permitted by the terms of this Agreement, from the date hereof until
the Closing, neither of the Subsidiaries or their subsidiaries shall do any of
the following without the written consent of Purchaser (which consent will not
be unreasonably withheld):
(i) amend their certificate of incorporation or by-laws or similar
documents;
(ii) except for payments of all amounts necessary to satisfy Section
7.2(iv) hereof, 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
Seller or any required payments on the indebtedness of Seller;
(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 merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by 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 Subsidiaries or their subsidiaries;
(v) sell, lease or otherwise dispose of any of their assets that are
material, individually or in the aggregate, to the Subsidiaries or their
subsidiaries, except in the ordinary course of business;
(vi) enter into or amend any agreement, contract or other arrangement
(or series of related agreements, contracts or other arrangements) by which the
Subsidiaries 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 Subsidiaries, 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
<PAGE> 22
(viii) agree, whether in writing or otherwise, to do any of the
foregoing.
4.3 Other Transactions. (a) From the date hereof to the Closing, the
Seller shall not, and shall 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 Purchaser and its respective representatives) concerning any
merger, sale of securities, sale of substantial assets or similar transaction
involving Seller and its subsidiaries; provided, however, that if the officers
or directors of Seller shall be required by their fiduciary obligations under
applicable law, based upon the advice of outside counsel to Seller, to enter
into any such negotiations or discussions or to provide any such information or
assistance to any third party, Seller may do so only if (A) the Board of
Directors of Seller is advised by its financial advisor that the third party has
the financial resources to consummate a Superior Acquisition, as defined in
paragraph (c) below, and the Board of Directors of Seller determines that the
third party is likely to submit a bona fide offer to consummate a Superior
Acquisition (a "Third Party Acquisition Offer"); (B) Seller has provided
Purchaser, as soon as reasonably practicable and in any event prior to such
discussions, negotiations, disclosure or assistance, notice of Seller'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 Seller, the terms of the Third Party
Acquisition Offer; and (C) such third party has signed and delivered to Seller a
confidentiality agreement substantially in the form of the Confidentiality
Agreement referred to in Section 5.1. Seller will immediately cease or cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted with respect to any of the foregoing.
(b) Seller will orally notify Purchaser 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 Purchaser),
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.
(c) For purposes of this Agreement, 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 Seller, or proposes a merger,
consolidation or a sale of substantially all of the assets of the Seller,
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 Seller common stock outstanding, is higher than the quotient obtained
by dividing the Purchase Price by the total number of shares of Seller common
stock outstanding.
4.4 Stockholder Approval; Recommendation
(i) Seller will take, in accordance with applicable law and its
certificate of incorporation and by-laws, all action necessary to convene a
meeting of holders of shares of Seller's common stock (including, if required,
the preparation and filing with the SEC of a proxy or information statement
pursuant to the provisions of Regulation 14A or 14C, as applicable, under the
Exchange Act) to consider and vote upon the approval of this Agreement and
transactions contemplated hereby and any other proposals mutually agreed to with
Purchaser.
(ii) Subject to the fiduciary obligations of its directors under
applicable laws, Seller will take, in accordance with applicable law and its
certificate of incorporation and by-laws, all action necessary to obtain the
affirmative vote of a majority of the outstanding shares of common stock of
Seller required to approve this Agreement and authorize the transactions
contemplated hereby, whether by written consent or at a meeting.
<PAGE> 23
4.5 Intercompany Debt. At or immediately prior to the Closing, each
Subsidiary shall discharge in full any and all amounts due from the Subsidiaries
(or the Subsidiaries' subsidiaries) to Seller or companies affiliated with
Seller (other than the Subsidiaries or their subsidiaries) which are outstanding
at the Closing Date.
4.6 Solicitation. For a period of two (2) years from and after the
Closing Date, neither Seller nor any of its affiliates will without Purchaser's
prior written consent solicit or employ the Hired Employees (other than Hired
Employees whose employment with the Subsidiaries (including their subsidiaries)
or Purchaser is thereafter terminated for any reason other than an offer or
anticipated offer of employment from Seller or its affiliates); provided,
however, that it shall not be a violation of this covenant to hire any
individual who responds to a general public solicitation or advertisement that
is not targeted specifically at the Hired Employees.
4.7 Contribution of Seller. Seller shall, at its sole cost and
expense, immediately prior to Closing, make all necessary and proper
consolidation and elimination entries between the Seller and Seller's
Subsidiaries followed by a capital contribution by the Seller to the Seller's
Subsidiaries such that after such contribution the assets obtained by the
Purchaser from the purchase of the Shares pursuant hereto shall have a net value
to the Purchaser in accordance with generally accepted accounting principles
equal to the net assets ("Equity") of the Seller on a consolidated basis,
reduced by amounts attributable to the assets shown on Schedule 4.7. For
purposes of reference, the amount of the net assets of Seller on a consolidated
basis was equal to $263,035,000 at 12/31/97 (audited) and $274,076,000 at
3/31/98 (unaudited). Therefore, the amount of net assets to be obtained by the
Purchaser at Closing shall 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 Seller
on a consolidated basis for the period beginning April 1, 1998 through the
Closing Date, reduced by amounts attributable to the assets shown on Schedule
4.7.
4.8 Maintain Corporate Existence. Seller shall preserve its corporate
existence for a period of two years after the Closing Date; Seller shall not
permit or suffer the imposition of any liens and encumbrances on its assets
(except liens for taxes not yet due and payable and liens arising solely by
operation of law); and Seller shall not incur indebtedness that is senior to the
obligations of Seller under Article X hereof; provided, however, that Seller may
cease its corporate existence if its obligations under Article X hereof are
assumed by an affiliate of Seller with a net worth at least equal to that of
Seller as of the Closing Date. This Section 4.8 shall survive the Closing Date
until the second anniversary of the Closing Date.
ARTICLE V
Covenants of Purchaser
Purchaser covenants and agrees with Seller as follows:
5.1 Confidentiality. Except to the extent that any of the provisions of
that certain confidentiality agreement dated January 9, 1998 between Purchaser
and Seller (the "Confidentiality Agreement") are inconsistent with this
Agreement, in which case the terms of this Agreement shall govern and supersede
such provisions, the parties hereto acknowledge and agree that the
Confidentiality Agreement remains in full force and effect and shall survive any
termination of this Agreement.
5.2 Employees.
Effective as of the Closing Date, Purchaser and the Group Subsidiaries
shall offer continued employment with Purchaser or the Group Subsidiaries to all
current employees of Seller and its subsidiaries, including any such employees
who are absent from active employment for any reason as of the Closing Date as
well as the persons listed on Schedule 5.2(i). Within thirty (30) days of the
date of this Agreement, Seller may identify up to fifteen (15) employees of
Seller's affiliates (other than the Group Subsidiaries) who perform all or
<PAGE> 24
substantially all of their employment related duties or functions for the
conduct of the business of the Group Subsidiaries, and a list of such
individuals shall be set forth on Schedule 5.2(ii) which shall be made a part
hereof at such time, and Purchaser and the Group Subsidiaries shall offer
employment to such individuals effective at the Closing Date. All such
employees whose employment is continued with Purchaser or the Group
Subsidiaries, and all of the individuals set forth on Schedule 5.2(i) and
Schedule 5.2(ii), are referred to herein as the "Hired Employees". The
continued employment of the Hired Employees shall not be construed to limit the
ability of Purchaser 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 the Purchaser's practices and policies, including its policy of
employment-at-will, except to the extent such Hired Employees are otherwise
party to an employment agreement. Purchaser and the Group Subsidiaries shall
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
Seller or the Subsidiaries, as the case may be, immediately prior to the
Closing Date. Subject to Section 5.3, nothing in this Agreement shall limit
Purchaser's 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, Purchaser and the Group 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
Purchaser or the Group Subsidiaries for any reason other than cause or long
term disability (for this purpose, the existence of cause shall be determined
in accordance with the definition set forth in Schedule 5.2(iii), and the
amount of such benefits shall be determined in accordance with Seller's
severance policies in effect on the date hereof, and such determinations shall
be made in good faith) and (ii) thereafter the Hired Employees shall be
entitled to such severance benefits, salary continuation, salary in lieu of
notice or similar benefits that Purchaser provides to its other employees.
Seller makes no representation as to whether any such employee will accept
employment with Purchaser. 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, and
"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. If necessary, Schedule 5.2(i) shall be amended to be current
as of the Closing Date. Subject to applicable law, Seller shall cause the
employment of each employee listed on Schedule 5.2(i) to be transferred to
Seller or one of its subsidiaries immediately prior to the Closing Date. If
the employment of any such employee is not or cannot be so transferred but the
employee nevertheless becomes a Hired Employee, Seller and Purchaser shall
transfer and assume all assets and liabilities, adjust all accruals and take
all other actions reasonably necessary to cause the provisions of this Section
and Section 5.3 to be applied as if the employment of the employee had been
transferred.
5.3 Benefit Plans for Hired Employees
(i) Except as otherwise provided herein (including, particularly, as
provided in Section 5.2), on and after the Closing Date, Purchaser shall
provide the Hired Employees with the employee benefits generally provided to
other employees of Purchaser, subject to the terms and conditions of
Purchaser's plans. Except as set forth on Schedule 5.3(i), effective as of the
Closing Date, all assets and all liabilities of each Benefit Plan shall be
transferred to, and adopted and assumed by, Purchaser.
(ii) Purchaser shall waive pre-existing condition requirements,
evidence of insurability provisions, waiting period requirements or any similar
provisions applicable as of the Closing Date under any Employee Welfare Benefit
Plans maintained, sponsored, assumed by or contributed to by Purchaser or any
Subsidiary for Hired Employees after the Closing Date; and Purchaser shall
apply toward any deductible requirements and out-of-pocket maximum limits under
such Employee Welfare Benefit Plans any amounts paid (or accrued) by each Hired
<PAGE> 25
Employee under Seller's Employee Welfare Benefits Plans during the current plan
year; provided, however, that the foregoing shall apply only to the extent that
Seller provides Purchaser with such information as Purchaser reasonably
requires to administer such provisions.
(iii) Subject to Section 5.3(x), Purchaser and the Group Subsidiaries
shall recognize for all purposes (other than the accrual of benefits under any
defined benefit pension plan) under Purchaser's Employee Pension Benefit Plans,
Employee Welfare Benefit Plans, Severance Plans and Vacation Plans covering
Hired Employees the service of each Hired Employee with Seller or Seller's
affiliates prior to the Closing Date and the service of each Hired Employee
with all other prior employers to the extent such service is credited under the
Benefit Plans.
(iv) Seller shall be responsible for satisfying obligations under
Section 601 et seq. of ERISA and Section 4980B of the Code, to provide
continuation coverage to or with respect to any employee of Seller or its
Subsidiaries as of the Closing Date in accordance with applicable law with
respect to any "qualifying event" occurring on or prior to the Closing Date,
including any "qualifying event" resulting from the Closing hereunder.
Purchaser or the applicable Group Subsidiary shall be responsible for
satisfying obligations under Section 601 et seq. of ERISA and Section 4980B of
the Code, to provide continuation coverage to or with respect to any Hired
Employee in accordance with applicable law with respect to any "qualifying
event" which occurs after the Closing Date.
(v) Effective as of the Closing Date, Purchaser shall assume from
Seller all liabilities and obligations arising with respect to all vacation
earned but not taken as of the Closing Date by the Hired Employees.
(vi) Purchaser shall assume and shall make all payments to the
participants under the Sail Senior Management Retention Plan (the "Retention
Plan") when and as the same become due and payable under such Retention Plan, a
true and correct copy of which has previously been made available to Purchaser.
(vii) Purchaser shall provide to each Hired Employee a benefit under
Purchaser's Associates Pension Plan equal to such Hired Employee's accrued
benefit as of the Closing Date under Seller's tax-qualified defined benefit
pension plan, provided that Seller transfers to Purchaser the assets
attributable to the aggregate of such frozen accrued benefits as of the Closing
Date (the amount of such assets and the value of such aggregate frozen accrued
benefits to be based upon Seller's most recent actuarial valuations. Seller
(a) shall provide Purchaser, as soon as reasonably practicable after the date
of this Agreement, with such information as Purchaser's actuaries reasonably
require to verify Seller's calculation of the amount of such assets and the
value of such aggregate frozen accrued benefits, and (b) shall provide
Purchaser within 90 days of the Closing Date such information as Purchaser
reasonably requires to administer the foregoing, including without limitation a
calculation of each Hired Employee's accrued benefit as of the Closing Date.
Notwithstanding any of the foregoing, (i) if the calculation by Purchaser's
actuaries of the amount of such assets and the value of such aggregate frozen
accrued benefits does not differ from Seller's calculation of such amounts and
value by more than 10%, Purchaser shall be deemed to have accepted and verified
Seller's calculation, (ii) if Purchaser's calculation differs from Seller's
calculation by more than 10%, Seller, in its sole discretion, may elect (A) to
retain an independent enrolled actuary (selected by mutual agreement of the
parties) to make such calculation, and such enrolled actuary's calculation
shall be binding upon Seller and Purchaser for purposes of this Section 5.3, or
(B) not to transfer any assets to Purchaser's Associates Pension Plan, in which
case Purchaser shall not be required to recognize the prior service of Hired
Employees for benefit accrual purposes under such plan, (iii) except as
expressly provided in this Section 5.3, Seller shall have no liability or
obligation to transfer any amounts to, or to satisfy any funding obligation
under, any Employee Pension Benefit Plan or Employee Welfare Benefit Plan of
Purchaser or its affiliates, and (iv) if Seller transfers such assets and
accrued benefits to Purchaser's Associates Pension Plan, then, notwithstanding
Section 5.3(iii), Purchaser shall recognize the prior benefit accrual service
of the Hired Employees solely with respect to such frozen accrued benefits and
<PAGE> 26
shall cause Purchaser's Associates Pension Plan to preserve all Section
411(d)(6) protected benefits (within the meaning of Section 411 of the Code and
the Treasury Regulations thereunder) with respect to such accrued benefits.
(viii) Purchaser shall pay for a period of three months after the
Closing Date any account maintenance fees necessary to maintain individual
accounts for the Hired Employees at First Chicago Trust Company under Seller's
Associate Stock Award Program or Seller's Employee Stock Purchase Plan
(collectively, the "Stock Plans"), but only if and to the extent that such
individual accounts were established only for purposes of Seller's Associate
Stock Award Program or Seller's Employee Stock Purchase Plan and such account
maintenance fees were paid by Seller prior to the Closing Date.
Notwithstanding any of the foregoing, Purchaser shall not adopt or assume any
other liabilities under the Stock Plans, and Seller shall terminate such Stock
Plans as soon as practicable after the Closing Date.
(ix) Schedule 5.3(ix) sets forth all unexercised options to purchase
Seller's stock that have been granted under Seller's stock option plans (the
"Stock Option Plans") and the exercise price attributable to such options.
Purchaser acknowledges that it shall not be entitled to receive amounts
attributable to the payment of the exercise price of such options.
Notwithstanding any of the foregoing, Purchaser shall not adopt or assume any
liabilities under the Stock Option Plans, and Seller shall terminate each Stock
Option Plan as soon as practicable after the Closing Date.
(x) Notwithstanding any of the foregoing, Seller shall retain, and
Purchaser shall not assume, all obligations and liabilities with respect (A) to
post- employment medical or life insurance benefits provided immediately prior
to the Closing Date to former employees of Seller and its subsidiaries and (B)
post- employment life insurance benefits provided immediately prior to the
Closing Date to current employees of Seller and its subsidiaries. Seller shall
not retain, and Purchaser shall assume, all obligations and liabilities with
respect to post-employment medical benefits provided to Hired Employees. Seller
shall provide Purchaser, as soon as reasonably practicable after the date of
this Agreement, with such information as Purchaser's accountants reasonably
require to verify the financial statement accruals of Seller and the Group
Subsidiaries ("Seller's calculation") with respect to such obligations and
liabilities. If the calculation by Purchaser's accountants of such accruals
does not differ from Seller's calculation of such accruals by more than 10%,
Purchaser shall be deemed to have accepted and verified Seller's calculation.
If Purchaser's calculation differs from Seller's calculation by more than 10%,
Seller shall retain an independent accountant (selected by mutual agreement of
the parties) to calculate such accrual, and such accountant's calculation shall
be binding upon Seller and Purchaser for purposes of this Section 5.3 and such
accrual shall be adjusted accordingly.
5.4 WARN Act. Seller shall be responsible for providing notice for
any "plant closing" or "mass layoff," as defined in the Worker Adjustment and
Retraining Notification Act (the "WARN Act"), 29 U.S.C. Section 2101 et seq.,
up to and including the Closing Date. After the Closing Date, Purchaser shall
be responsible for providing notice for any "plant closing" or "mass layoff" in
accordance with the WARN Act.
5.5 Regulatory Conditions. To the extent required by any regulatory
authority as a condition to approval of the purchase and sale of the Shares or
the other transactions contemplated hereby, Purchaser shall take such
reasonable action as may be required in order to comply with any such
requirement.
5.6 Certain Understandings.
(i) Purchaser has received from Seller certain projections, forecasts
and information relating to the Subsidiaries. Purchaser acknowledges that (a)
there are uncertainties inherent in attempting to make such projections and
forecasts and in such information, (b) Purchaser is familiar with such
uncertainties and is taking full responsibility for making its own evaluation
of the adequacy and accuracy of all projections, forecasts and information so
furnished to it and (c) Purchaser shall not have any claim against Seller, its
<PAGE> 27
affiliates or its agents with respect thereto. Accordingly, neither Seller nor
any other person makes any representation or warranty with respect to such
projections, forecasts and information.
(ii) Purchaser acknowledges that, except as expressly set forth herein,
neither Seller nor any other person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Subsidiaries, and neither Seller nor any other person will be
subject to any liability to Purchaser or any other person resulting from the
distribution to Purchaser, or the use of, any such information. Purchaser
acknowledges that, should the Closing occur, Purchaser will acquire the
Subsidiaries' businesses in an "as is" condition and on a "where is" basis,
without any representation or warranty of any kind, express or implied, except
such representations and warranties as are expressly set forth herein.
(iii) Purchaser acknowledges that, except as expressly set forth
herein, neither Seller nor any other person has made any representation or
warranty, express or implied, as to (a) the physical condition or state of
repair of any of the Subsidiaries' real property, the improvements constituting
a part thereof or the equipment and fixtures appurtenant thereto, (b) the gross
or net income derived therefrom, (c) the cost, book value or market value
thereof, (d) the use or potential use thereof, or (e) any other matter
effecting, or relating to, such property or the operation or management
thereof.
5.7 Proxy Information. If Seller files a Proxy Statement in
connection with the transactions contemplated hereby, Purchaser agrees to
supply information for inclusion in the Proxy Statement upon the request of
Seller. The information supplied in writing or to be supplied by Purchaser or
its subsidiaries in writing for inclusion or incorporation by reference in the
Proxy Statement to be filed by Seller in connection with the transactions
contemplated hereby, including any amendments and supplements thereto, will
not, either at the date mailed to stockholders or at the time of any meeting of
stockholders of Seller to be held in connection with the transactions
contemplated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5.8 Assumption of Liabilities. On the Closing Date, Purchaser shall
execute and deliver an assumption agreement in the form attached hereto as
Exhibit B pursuant to which Purchaser shall, subject to the Purchaser's rights
to indemnification pursuant to Articles VIII and X hereof, assume and agree to
pay, perform and discharge when due any and all liabilities and obligations of
the Seller whether absolute, contingent, known or unknown, accrued or otherwise
that arise out of or relate to any period prior to the Closing; provided,
however, Purchaser shall not assume any fees and expenses incurred by Seller in
connection with the execution and delivery of this Agreement and the
consummation by Seller of the transaction contemplated hereby, including fees
payable to Seller's financial advisor and legal counsel, and expenses incurred
by Seller in connection with the meeting of its shareholders to approve this
Agreement (including expenses incurred in connection with the preparation of
the Proxy Statement) (such liabilities and obligations being referred to as the
"Seller Liabilities").
ARTICLE VI
Mutual Covenants
6.1 Consummation of the. Subject to the terms and conditions of this
Agreement, each party hereto shall use its best efforts consistent with
applicable legal requirements to cause the Closing to occur. Seller and its
subsidiaries and each of their respective directors, officers and
representatives shall file and agree to cooperate with Purchaser in filing, and
Purchaser and its directors, officers and representatives shall, file and agree
to cooperate with Seller and its subsidiaries 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 Seller, on the one hand, and Purchaser, on the other hand,
<PAGE> 28
in connection with the consummation of the transactions contemplated by this
Agreement and the performance by Seller and its subsidiaries of their
businesses after such consummation, and in seeking necessary consultation with
and prompt favorable action by any such Governmental Entity or third party.
6.2 Publicity. The parties hereto agree that, from the date of the
execution and delivery of this Agreement through the Closing, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by any party hereto without the prior consent of (i) Purchaser in the case of a
release or an announcement by Seller or any of its subsidiaries or (ii) Seller
in the case of a release or an announcement by Purchaser (in each case which
consent shall not be unreasonably withheld), except as such release or
announcement may be required by law or the rules or regulations of any United
States or foreign securities exchange, in which case the party required to make
the release or announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of such issuance. After the
date hereof, the parties hereto shall not make any comments or statements with
respect to the transactions contemplated hereby to any third party (including,
without limitation, members of the news media, securities analysts and
employees of Seller, any of its subsidiaries, or Purchaser or any of its
subsidiaries) without the prior consent of Purchaser, on the one hand, or
Seller, on the other hand, as the case may be; provided, however, that the
provisions of this Section 6.2 shall not apply to communications by Seller or
Purchaser to any Governmental Entity in connection with obtaining any consents
or approvals required for the consummation of the transactions contemplated
hereby.
6.3 Antitrust Notification. Seller shall, and Purchaser shall, as
promptly as practicable, file 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 transactions
contemplated hereby and any supplemental information requested in connection
therewith pursuant to the HSR Act. Any such notification and report form and
supplemental information shall be in substantial compliance with the
requirements of the HSR Act. Seller shall furnish to Purchaser, and Purchaser
shall furnish to Seller, such necessary information and reasonable assistance
as may be requested in connection with the preparation of any filing or
submission which is necessary under the HSR Act. Seller shall keep Purchaser
reasonably informed, and Purchaser shall keep Seller reasonably informed, of
the status of any communications with, and any inquiries or requests for
additional information from, the FTC and the DOJ and shall comply promptly with
any such inquiry or request.
6.4 Further Assurances. From time to time, as and when reasonably
requested by another party hereto, a party hereto shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further acts or other actions as
such other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement.
ARTICLE VII
Conditions to Closing
7.1 Each Party's Obligations. The respective obligations of each
party hereto to effect the transactions contemplated hereby is subject to the
satisfaction or waiver as of the Closing of 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 any of the
transactions contemplated by this Agreement shall be in effect;
(ii) The waiting period under the HSR Act, if applicable to the
transactions contemplated hereunder, shall have expired or been terminated;
<PAGE> 29
(iii) The parties hereto shall have filed all material applications,
reports or other documents, given all material notices, met all material
requirements, received all material consents and approvals, satisfied any and
all conditions of approval and all applicable waiting periods shall have
expired in connection with the consummation of the transactions contemplated
hereby;
(iv) This Agreement and the transactions contemplated hereby shall have
been authorized by the stockholders of Seller as required by the Delaware Law;
and
(v) If required, this Agreement and the transactions contemplated
hereby shall be authorized by the affirmative vote of the requisite number of
the outstanding shares of capital stock of Purchaser.
7.2 Seller's Obligations. The obligations of Seller to effect the
transactions contemplated hereby is subject to the satisfaction (or waiver by
Seller) as of the Closing of the following additional conditions:
(i) Accuracy of Representations and Warranties, Compliance with
Covenants. The representations and warranties of Purchaser made in this
Agreement qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, as of the date
hereof 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).
Purchaser shall have duly performed, complied with and satisfied in all
material respects all covenants, agreements and conditions required by this
Agreement to be performed, complied with or satisfied by it by the time of the
Closing. Purchaser shall have delivered to Seller a certificate dated the
Closing Date and signed by an officer of Purchaser confirming the foregoing.
(ii) Absence of Litigation, Injunction. 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 Seller is a plaintiff directly or derivatively) which,
in the reasonable judgment of Seller, would, if issued, be reasonably likely to
restrain or prohibit the consummation of the transactions contemplated hereby
or require rescission of this Agreement or such transactions or result in
material damages to Seller, 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
transactions contemplated hereby not be consummated as so provided or any
statute, rule or regulation enacted or promulgated that makes consummation of
the transactions contemplated hereby illegal.
(iii) Specified Items. Purchaser shall have delivered the items to be
delivered and made the payments to Seller and the Subsidiaries, as applicable,
pursuant to Section 1.5.
(iv) Intercompany Debt. At or immediately prior to the Closing, each
Subsidiary shall have discharged in full any and all amounts due from such
Subsidiary (or such Subsidiary's subsidiaries) to Seller or companies
affiliated with Seller (other than the Subsidiaries or their subsidiaries) that
are outstanding at the Closing Date.
7.3 Purchaser's Obligations. The obligations of Purchaser to effect
the transactions contemplated hereby is subject to the satisfaction (or waiver
by Purchaser) as of the Closing of the following additional conditions:
(i) Accuracy of Representations and Warranties, Compliance with
Covenants. The representations and warranties of Seller made in this Agreement
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date
hereof 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
<PAGE> 30
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). Seller shall have
duly performed, complied with and satisfied in all material respects all
covenants, agreements and conditions required by this Agreement to be
performed, complied with or satisfied by Seller by the time of the Closing.
Seller shall have delivered to Purchaser a certificate dated the Closing Date
and signed by an officer of Seller confirming the foregoing.
(ii) Absence of Litigation, Injunctions. 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 Purchaser is a plaintiff directly or derivatively)
which, in the reasonable judgment of Purchaser would, if issued, be reasonably
likely to restrain or prohibit the consummation of the transactions
contemplated hereby or require rescission of this Agreement or such
transactions or result in material damages to Purchaser, if the transactions
contemplated hereby are consummated, 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 transactions contemplated hereby not be consummated as so provided or
any statute, rule or regulation enacted or promulgated that makes consummation
of the transactions contemplated hereby illegal.
(iii) Interim Servicing Agreement. NOVUS Credit Services Inc.
("Parent") shall have executed and delivered the Interim Servicing Agreement,
which agreement shall be in the form attached hereto as Exhibit C.
(iv) Specified Items. Seller shall have delivered the items to be
delivered to Purchaser pursuant to Section 1.4.
7.4 Frustration of Closing Conditions. No party to this Agreement may
rely on the failure of any condition set forth in this Article VII if such
failure was caused by such party's failure to act in good faith or to use its
best efforts to cause the Closing to occur.
ARTICLE VIII
Tax Matters
8.1 Section 338.
(i) Elections. Seller, the Subsidiaries and Purchaser shall make joint
elections under Sections 338(g) and 338(h)(10) of the Code (the "338
Elections") with respect to the purchase of the Shares and under any similar
provisions of state law. Seller represents that its sale of the Shares is
eligible for, and Purchaser represents that it is qualified to make, such
elections. Seller and Purchaser agree to prepare and file IRS Form 8023,
required schedules thereto, and any similar state forms in a timely fashion in
accordance with the rules under Section 338 of the Code or under a similar
provision of state law, as the case may be. If any changes are required in
these forms subsequent to their filing, the parties will promptly agree on such
changes.
(ii) Allocation of Purchase Price. For purposes of the 338 Elections,
Seller and Purchaser shall mutually agree to a purchase price and allocation of
that price among the assets of the Group Subsidiaries that are deemed to have
been acquired pursuant to Section 338 of the Code or state law equivalent. The
purchase price shall be allocated among the assets of the Group Subsidiaries
that are deemed to have been acquired pursuant to Section 338 of the Code in
the manner required by Treasury Regulations Section 1.338(b)-2T. Purchaser
will submit to Seller a proposed purchase price and allocation thereof (the
"Proposed Allocation") within 90 days from the date hereof. If Seller does not
notify Purchaser within fifteen (15) days of receipt of the Proposed Allocation
of any disagreement with the Proposed Allocation then the Proposed Allocation
shall become the final allocation (the "Allocation"). If Seller notifies
<PAGE> 31
Purchaser within such fifteen (15) day period (the "Allocation Notice") of its
disagreement with the Proposed Allocation then Seller and Purchaser shall in
good faith attempt to resolve their disagreement. In the event the allocation
is determined after delivery of the Allocation Notice by discussions between
Seller and Purchaser, then such allocation shall become the Allocation.
Purchaser and Seller agree that except as otherwise required by law the
Allocation shall be binding on Purchaser and Seller for all federal, state and
local tax purposes. If such disagreement is not resolved within thirty (30)
days from the delivery of the Allocation Notice, then Seller and Purchaser shall
be permitted to allocate the purchase price, in the manner required by Treasury
Regulations Section 1.338(b) -2T, among the assets of the Group Subsidiaries
that are deemed to have been acquired pursuant to Section 338 of the Code
independently (the "Independent Allocations"). The parties hereto acknowledge
that the purchase price and the allocation of the purchase price provided for in
the Allocation or the Independent Allocations, as the case may be, will be
reasonable.
8.2 Liability for Taxes and Related Matters
(i) Seller's Indemnification of Purchaser. Seller shall be liable for
and indemnify Purchaser for all Taxes (including, without limitation, any
obligation to contribute to the payment of a tax determined on a consolidated,
combined or unitary basis with respect to a group of corporations that includes
or included the Group Subsidiaries and Taxes resulting from the Group
Subsidiaries ceasing to be a member of the Seller's affiliated group, or
attributable to the 338 Elections and any state law equivalent), other than
Taxes for which there are Reserves as of the Closing Date, imposed on the Group
Subsidiaries or for which the Group 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.
Seller shall also indemnify, defend and hold harmless Purchaser from all costs
and expenses incurred by Purchaser (including reasonable attorneys' fees and
expenses) in connection with any liability to, or claim by, any taxing
authority, for Taxes for which Seller is required to indemnify Purchaser under
this Article VIII. Except as otherwise set forth in Section 8.2(v) or in this
Section 8.2(i), the amount or economic benefit of any refunds, credits or
offsets in respect of Taxes of the Group Subsidiaries for such periods shall be
for the account of the Seller. Notwithstanding the foregoing, the amount or
economic benefit of any refunds, credits or offsets in respect of Taxes of the
Group Subsidiaries for such periods attributable to any Group Subsidiary's
treatment of finance charges related to credit card receivables (i.e., grace
period interest) shall be for the account of Purchaser; provided, however, that
Purchaser shall bear all costs and expenses incurred, and shall indemnify Seller
for all costs and expenses incurred by Seller (including reasonable attorneys
fees and expenses), in connection with the pursuit of such refunds, credits or
offsets.
(ii) Purchaser's Indemnification of Seller. Purchaser shall be liable
for and indemnify Seller for the Taxes of the Group Subsidiaries 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. Purchaser shall
also indemnify, defend and hold harmless Seller from all costs and expenses
incurred by Seller (including reasonable attorneys' fees and expenses) in
connection with any liability to, or claim by, any taxing authority, for Taxes
for which Purchaser is required to indemnify Seller under this Article VIII. The
amount or economic benefit of any refunds, credits or offsets in respect of
Taxes of the Group Subsidiaries for such periods shall be for the account of
Purchaser.
(iii) Taxes for Short Taxable Year. For purposes of paragraphs (i) and
(ii) above, whenever it is necessary to determine the liability for Taxes of the
Group Subsidiaries for a portion of a taxable year or period that begins before
and ends after the Closing Date, the determination of the Taxes of the Group
Subsidiaries for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Closing Date shall be determined by
assuming that the Group Subsidiaries had a taxable year or period
<PAGE> 32
which ended at the close of the Closing Date, except that exemptions, allowances
or deductions that are calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned on a ratable time basis.
(iv) Adjustment to Purchase Price. Seller and Purchaser shall treat
any payment by Purchaser or Seller under this Article VIII as an adjustment to
the Purchase Price unless a final determination (which shall include the
execution of a Form 870-AD or successor form) causes any such payment not to be
treated as an adjustment to the Purchase Price for United States Federal income
tax purposes.
(v) Refunds from Carrybacks. If Seller becomes entitled to the amount
or economic benefit of any refunds, credits or offsets in respect of Taxes for
any period for which it is liable under Section 8.2(i) to indemnify Purchaser
and such Taxes are attributable solely to the carryback of losses, deductions,
credits or similar items attributable to the Group Subsidiaries and from a
taxable year or period that begins after the Closing Date, the amount or
economic benefit of any such refunds, credits or offsets in respect of Taxes
shall be for the account of Purchaser. Each of Seller and Purchaser shall
forward, and cause its affiliates to forward, to the party entitled pursuant to
Section 8.2(i), 8.2(ii) or this Section 8.2(v) to receive the amount or economic
benefit of a refund, credit or offset in respect of Taxes the amount of such
refund, or the economic benefit of such credit or offset, within 30 days after
such refund is received or after such credit or offset is allowed or applied
against other Tax liability, as the case may be; provided, however, that any
such amounts payable shall be net of any Tax cost or Tax benefit to the party
making payment and its affiliates attributable to the receipt of such refund,
credit or offset and/or the payments of amounts pursuant to this Section 8.2(v).
In the event that any refund, credit or offset in respect of Taxes for which a
payment has been made by Seller to Purchaser is subsequently reduced or
disallowed, Purchaser shall indemnify and hold harmless Seller for any tax
liability, including interest and penalties, assessed against Seller by reason
of the reduction or disallowance.
(vi) Tax Returns. Seller shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Group
Subsidiaries for taxable years or periods ending on or before the Closing Date
and shall pay any Taxes due in respect of such Tax Returns, and Purchaser shall
file or cause to be filed when due all Tax Returns that are required to be filed
by or with respect to the Group Subsidiaries for taxable years or periods ending
after the Closing Date and shall remit any Taxes due in respect of such Tax
Returns. Seller shall pay Purchaser any Taxes, including interest and penalties
attributable to any underpayment, for which Seller is liable pursuant to Section
8.2(i) but which are payable with Tax Returns to be filed by Purchaser pursuant
to the previous sentence within 10 days prior to the due date for the filing of
such Tax Returns.
(vii) Contest Provisions. Purchaser shall promptly notify Seller in
writing upon receipt by Purchaser, any of its affiliates or the Group
Subsidiaries of notice of any pending or threatened federal, state, local or
foreign income or franchise tax audits or assessments which may materially
affect the tax liabilities of the Group Subsidiaries for which Seller would be
required to indemnify Purchaser pursuant to Section 8.2(i), provided that
failure to comply with this provision shall not affect Purchaser's right to
indemnification hereunder. Seller shall have the sole right to represent the
Group Subsidiaries' interests in any tax audit or administrative or court
proceeding relating to taxable periods ending on or before the Closing Date, and
to employ counsel of its choice at its expense. Notwithstanding the foregoing,
Seller shall not be entitled to settle, either administratively or after the
commencement of litigation, any claim for Taxes which would adversely affect the
liability for Taxes of Purchaser or the Group Subsidiaries for any period after
the Closing Date to any extent (including, but not limited to, the imposition of
income tax deficiencies, the reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods, the denial of
amortization or depreciation deductions, or the reduction of loss or credit
carryforwards) without the prior written consent of Purchaser. Such consent
shall not be unreasonably withheld.
<PAGE> 33
Seller shall be entitled to participate at its expense in the defense
of any claim for Taxes for a year or period ending after the Closing Date which
may be the subject of indemnification by Seller pursuant to Section 8.2(i).
Purchaser may not agree to settle any tax claim for the portion of the year or
period ending on or prior to the Closing Date which may be the subject of
indemnification by Seller under Section 8.2(i) without the prior written consent
of Seller, which consent shall not be unreasonably withheld.
8.3 Transfer Taxes. All transfer taxes which may be imposed or
assessed as a result of Purchaser's acquisition of the Shares shall be borne by
Purchaser.
8.4 Information to be Provided by Purchaser. With respect to the
taxable period in 1998 ending on the Closing Date, Purchaser shall promptly
cause the Group Subsidiaries to prepare and provide to Seller a package of tax
information materials (the "Tax Package"), which shall be completed in
accordance with such practice as is mutually agreed upon by Purchaser and Seller
including such practice as to providing the information, schedules and work
papers and as to the method of computation of separate taxable income or other
relevant measure of income as is mutually agreed upon by Purchaser and Seller.
Purchaser shall cause the Tax Package for the portion of the taxable period
ending on the Closing Date to be delivered to Seller within one hundred twenty
(120) days after the Closing Date.
8.5 Assistance and Cooperation. After the Closing Date, each of
Seller and Purchaser shall:
(i) assist (and cause their respective affiliates to assist) the other
party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Article VIII;
(ii) cooperate fully in preparing for any Audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Group Subsidiaries;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
of the Group Subsidiaries;
(iv) provide written notice to the other within ten (10) days of its
receipt of notice in writing of any pending or threatened tax audits or
assessments of the Group Subsidiaries for taxable periods for which the other
may have a liability under this Article VIII, provided, that failure to comply
with this provision shall not affect the other party's rights to indemnification
hereunder; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any tax audit or information request
with respect to any such taxable period within ten (10) days of its receipt
thereof.
8.6 Survival of Obligations. The obligations of the parties set forth
in this Article VIII shall be unconditional and absolute and shall remain in
effect without limitation as to time.
ARTICLE IX
Termination
9.1 Termination Events. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto, if the Closing does not occur on
or prior to February 28, 1999; provided, however, that the right to terminate
this Agreement pursuant to this Section 9.1(ii) shall not be available to any
party hereto, if it has failed to perform any of its obligations under this
Agreement, which failure has resulted in a failure of any of the conditions of
<PAGE> 34
Article VII hereto;
(iii) by either of the parties hereto, 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 this Agreement, and such judgment, order or decree or other
action shall have become final and nonappealable; or
(iv) by Purchaser, if any required approval of the stockholders of the
Seller shall not have been obtained by reason of Seller's failure to call a
stockholder's meeting or the failure to obtain the required vote upon a vote
held at the duly held meeting of stockholders or at any adjournment thereof
contemplated by Section 4.4; provided, however, that unless Purchaser shall
otherwise notify the Seller within ten business days after the stockholders
meeting contemplated by Section 4.4 is held and the required vote has not been
obtained, this Agreement shall automatically terminate without any further
action by any of the parties hereto.
9.2 Information and Confidentiality. In the event of any termination
pursuant to this Article IX, written notice thereof setting forth the reasons
therefor shall promptly be given to the other parties and the transactions
contemplated by this Agreement shall be terminated, without further action by
any party. If the transactions contemplated by this Agreement are terminated as
provided herein: (i) Purchaser shall return all documents and other materials
received from Seller and its Subsidiaries relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to Seller; and (ii) all confidential information received by Purchaser with
respect to the business of Seller and its subsidiaries shall be treated in
accordance with the Confidentiality Agreement, which shall remain in full force
and effect notwithstanding the termination of this Agreement.
9.3 Termination Fees. If (x) this Agreement is terminated by
Purchaser or Seller pursuant to Section 9.1(ii) or (iii), (y) such termination
arises out of any bank regulatory proceeding or action relating to the conduct
of Purchaser's business, including, without limitation, Purchaser's compliance
or alleged non- compliance with the Community Reinvestment Act of 1977, as
amended and (z) Seller at the time of termination of this Agreement is not then
subject to any injunction, order, writ or decree issued by any Governmental
Entity which would restrain or prohibit the consummation of the transactions
contemplated hereby on the basis of a regulatory impediment arising out of the
conduct of Seller's business, Purchaser shall pay by wire transfer of immediate
available funds to an account designated by Seller ten million dollars
($10,000,000.00) within two business days of receipt of Seller's notice of
termination delivered pursuant to Section 9.2 hereof.
9.4 Abandonment. If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Article IX, this
Agreement shall become void and of no further force or effect, except for the
provisions of (i) Section 5.1 relating to the obligation of Purchaser to keep
confidential certain information and data obtained by them, (ii) Section 6.2
relating to publicity, (iii) this Article IX and (iv) Article XI relating to
certain expenses. Nothing in this Article IX shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement.
ARTICLE X
Indemnification
10.1 Nonsurvival of Representations, Warranties and Agreements.
Except as otherwise set forth herein, all representations, warranties and
agreements in this Agreement and in any certificate delivered pursuant hereto
shall not survive beyond the Closing Date. The representations and warranties
included herein are exclusive, and the parties hereto confirm that they have not
relied upon any representations or warranties not contained herein or in the
Schedules
<PAGE> 35
hereto as an inducement to enter into this Agreement. Following the Closing,
the remedies provided in this Article X shall be the sole recourse of all
parties hereto for all claims, liabilities, losses, damages, costs and expenses,
other than those relating to or arising from (i) Taxes, for which the sole
recourse shall be as provided in Article VIII; and (ii) the willful misconduct
of the Purchaser or Seller related to or arising, directly or indirectly, out of
this Agreement or the transactions contemplated hereby.
10.2 Agreement to Indemnify. (a) Upon the terms and subject to the
conditions of this Article X, for a period ending the first business day that is
eighteen (18) months after the Closing Date, Seller shall, in the proportion
that the number of shares of common stock of Seller issued and outstanding in
the name of Parent immediately prior to the Closing Date bears to the total
number of shares of common stock of Seller issued and outstanding immediately
prior to the Closing Date (the "Proportionate Interest"), indemnify, defend and
hold harmless the Purchaser from any losses, liabilities, claims, damages or
expenses (including reasonable legal fees and expenses) (collectively, "Claims")
which arise out of, are based upon or result from any breach of the
representations made by Seller in Sections 2.8 (as well as any Claims relating
to any of the matters set forth on Schedule 2.8), 2.10, 2.11, 2.12, 2.19 or 2.23
of this Agreement, in each case to the extent, and only for the amount by which,
any such Claim results in losses (i) in excess of a general or identified
reserve established for such matters and reflected in the financial statements
of Seller or its Subsidiaries as of the Closing Date consistent with past
practices and (ii) in the case of a Claim relating to a breach of Section 2.19,
in excess of any amounts (in addition to those amounts referred to in clause (i)
above) which Purchaser recovers pursuant to the agreements set forth on Schedule
2.19; and Purchaser covenants to exercise its reasonable best efforts to satisfy
any Claims for a breach of Section 2.19 by enforcing its rights under such
agreements before seeking indemnification under this Section 10.2(a). A claim
for indemnification for which notice was given pursuant to Section 10.3(a)
hereof prior to the end of such eighteen (18) month period shall survive until
such claim is fully and finally determined.
(b) Upon the terms and subject to the conditions of this Article X, for
a period ending on the first business day that is eighteen (18) months after the
Closing Date, Purchaser shall indemnify, defend and hold harmless Seller from
any Claims relating to or arising out of the Seller Liabilities; provided, that
a claim for indemnification for which notice was given pursuant to Section
10.3(a) hereof prior to the end of such period shall survive until such claim is
fully and finally determined.
10.3 Conditions of Indemnification. Subject to the provisions of
Section 10.4, the obligations and liabilities of Seller, in the case of Section
10.2(a), and the Purchaser, in the case of Section 10.2(b), with respect to
Claims made by or against third parties ("Third Party Claims") shall be subject
to the following terms and conditions:
(a) The person to whom such Third Party Claim relates (the "Indemnified
Party") will give the party from which indemnity is sought hereunder (the
"Indemnifying Party") prompt notice of such Third Party Claim, (which notice in
any event shall be given to the Indemnifying Party within 10 days of the
Indemnified Party first becoming aware of the facts and circumstances that form
the basis of such Third Party Claim) and the Indemnifying Party will (except as
otherwise contemplated by the proviso to Section 10.3(b) hereof) assume solely
the defense thereof by representatives chosen by it; provided, that the
Indemnified Party shall be entitled to participate in such action and to employ
counsel at its own expense to assist in the handling of such Third Party Claim.
(b) If the Indemnifying Party, within a reasonable time after notice of
any such Third Party Claim, fails to assume the defense thereof, the Indemnified
Party shall (upon a subsequent 10 days' notice to the Indemnifying Party) have
the right to undertake the defense or, with the consent of the Indemnifying
Party, to undertake a compromise or settlement of such Third Party Claim on
behalf of and for the account and risk of the Indemnifying Party, subject to the
right of the Indemnifying Party to assume the defense of such Third Party Claim
at any time prior to the settlement, compromise or final determination thereof.
The Indemnifying Party shall not be liable for any compromise or
<PAGE> 36
settlement of a Third Party Claim effected without its written consent. During
any period when the Indemnifying Party is contesting any such Third Party Claim
in good faith, the Indemnified Party shall not pay, compromise or settle such
Third Party Claim without the Indemnifying Party's consent; provided, that the
Indemnified Party may nonetheless pay, compromise or settle such Third Party
Claim without such consent during such period, in which event it shall,
automatically and without any further action on its part, waive any right
(whether or not pursuant to this Agreement) to indemnity in respect of all
losses, liabilities, damages or expenses relating to such Third Party Claim. If
the Indemnifying Party shall defend any such Third Party Claim until such Third
Party Claim shall be adjudicated by order, decree, ruling or other action, then
the Indemnified Party shall have the right, in the exercise of its exclusive
discretion, to determine whether or not to appeal such adjudication.
(c) Anything in this Section 10.3 to the contrary notwithstanding, the
Indemnifying Party shall not, without the written consent of the Indemnified
Party (which consent shall not be withheld unreasonably or delayed), settle or
compromise any Third Party Claim or consent to the entry of any judgment which
imposes any future obligation on the Indemnified Party or which does not include
as an unconditional term thereof the giving by the claimant and or plaintiff to
the Indemnified Party a release from all liabilities in respect of such Third
Party Claim.
(d) The Indemnified Party shall, and shall cause its affiliates to,
provide the Indemnifying Party with such assistance (without charge) as may
reasonably be requested by the Indemnifying Party in connection with any
indemnification or defense provided for herein, including, without limitation,
providing the Indemnifying Party with such information, documents and records
and reasonable access to the services of and consultations with such personnel
of the Indemnified Party or its Affiliates as the Indemnifying Party shall deem
necessary (provided that such access shall not unreasonably interfere with the
performance of the duties performed by or responsibilities of such personnel).
10.4 Limitation of Indemnification. Any Claim brought under Section
10.2(a) is subject in each case to the following limitations and restrictions:
(a) Claims may not be asserted at any time after the close of business on
the first business day that is eighteen (18) months after the Closing Date,
other than Claims under Article VIII.
(b) Claims made pursuant to Section 10.2(a) will be paid only to the
extent that the aggregate amount of Seller's Proportionate Interest of all such
Claims exceeds $10,000,000 (the "Basket"), in which event only amounts in excess
of the Basket shall be recoverable; provided, however, that the aggregate amount
recoverable pursuant to Section 10.2(a) shall in no event exceed $150,000,000.
(c) Each Claim shall be reduced by the amount of any insurance proceeds
actually received in connection with such Claim; Purchaser covenants to exercise
its reasonable best efforts to collect insurance proceeds under applicable
insurance policies that are then in force if and to the extent that such Claim
relates to an event covered by such insurance policies before Purchaser may
recover for any Claim pursuant to this Article X.
(d) The representations and warranties of Seller specifically
enumerated in Section 10.2(a) for purposes of determining whether a breach
thereof has occurred that may entitle Purchaser to recover for (i) any Claim
under Section 10.2(a) shall not be deemed qualified by any references to
materiality (or variations thereof) contained therein and any breaches thereof
shall be determined without regard to whether such breach constitutes a Material
Adverse Effect, (ii) any Claim under Section 10.2(a) based on a breach of
Section 2.23(a)(ii) shall be determined without regard to clauses (x) and (y)
thereof, and (iii) any Claim under Section 10.2(a) based on a breach of Section
2.23(a)(iii) shall be determined without regard to the knowledge qualifier set
forth therein.
(e) In addition to the limitations and restrictions set forth in clause
(i) of Section 10.2(a) and the other provisions of this Section 10.4, in no
event shall Purchaser be entitled to recover for any Claim arising out of (i) a
breach of Section 2.23(a)(iii) until the aggregate Claims for breaches of such
<PAGE> 37
representation regarding individual Accounts exceeds $330,000, in which event
only amounts in excess of $330,000 shall be recoverable in connection therewith
(to the extent the amount of Seller's Proportionate Interest of all Claims has
theretofore exceeded the Basket and such Claims have theretofore exceeded any
reserves referred to in clause (i) of Section 10.2(a)) and no amount of such
Claims aggregating less than $330,000 shall be given effect for the purpose of
exceeding the Basket; provided, however, that in no event shall Purchaser be
entitled to recover for any Claims to the extent Purchaser is entitled to seek
reimbursement therefor pursuant to charge-backs to a merchant or otherwise; and
(ii) any Third Party Claim relating to any breach of the representations
enumerated in Section 10.2(a) (other than Section 2.23(a)(iii)) until the
aggregate amount of Third Party Claims for such breaches exceeds $200,000, in
which event only amounts in excess of $200,000 shall be recoverable in
connection therewith (to the extent the amount of Seller's Proportionate
Interest of all Claims has theretofore exceeded the Basket and such Claims have
theretofore exceeded any reserves referred to in clause (i) of Section 10.2(a))
and no amount of such Claims aggregating less than $200,000 shall be given
effect for the purpose of exceeding the Basket.
(f) Seller shall not be responsible for the amount of any Claim in
excess of Seller's Proportionate Interest with respect to any such Claim.
10.5 Claims Adjusted for Taxes. The amount of any Claim for which
indemnification is provided under this Article X shall be (i) if the indemnity
payment is not treated as an adjustment to the Purchase Price for Tax purposes
pursuant to the second succeeding sentence, increased to take account of any net
Tax cost incurred by the Indemnified Party arising from the receipt or accrual
of indemnity payments hereunder (grossed up for such increase) and (ii) reduced
to take account of any net Tax benefit realized by the Indemnified Party as a
result of the deductibility for Tax purposes of such Claim. In computing the
amount of any such Tax cost or Tax benefit, the Indemnified Party shall be
deemed to recognize all other items of income, gain, loss, deduction or credit
before recognizing any item arising from the receipt of any indemnity payment
hereunder or the incurrence of payment of such Claim. Any indemnity payment
under this Agreement shall be treated as an adjustment to the Purchase Price for
Tax purposes, unless a final determination (which shall include the execution of
a Form 870-AD or successor form) with respect to the Indemnified Party or any or
its Affiliates causes any such payment not to be treated as an adjustment to the
Purchase Price for United States Federal income Tax purposes.
ARTICLE XI
Expenses
Except as otherwise provided by Section 9.3, whether or not the
transactions contemplated hereby are consummated, and except as otherwise
specifically provided in this Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby by
Seller shall be paid by Seller and all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby by Purchaser shall
be paid by Purchaser.
ARTICLE XII
Miscellaneous
12.1 No Third-Party Beneficiaries. Except as otherwise provided in
Section 5.3(vii), which are for the benefit of, and enforceable by, the persons
referred to in the Retention Plan, this Agreement is for the sole benefit of the
parties hereto and their permitted assigns, and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
12.2 Amendment or Waiver. No amendment, modification or waiver in
respect of this Agreement shall be effective unless it shall be in writing and
signed by the parties hereto.
<PAGE> 38
12.3 Headings. The headings contained in this Agreement, or in any
exhibit or schedule hereto and in the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
12.5 Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto (including
by operation of law in connection with a merger, or sale of substantially all
the assets, or any dissolution, of any party hereto) without the prior written
consent of the other parties hereto; provided, however, that the Purchaser may
assign its rights hereunder to an affiliate of the Purchaser without the prior
written consent of any party hereto; provided further, however, that no
assignment shall limit or affect the assignor's obligations hereunder. Any
attempted assignment in violation of this Section 12.5 shall be void.
12.6 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy or sent, postage prepaid, by registered, certified or
express mail or overnight courier service and shall be deemed given when so
delivered by hand, or telecopied, or if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service), as
follows:
if to Seller,
SPS Transaction Services, Inc.
2500 Lake Cook Road
Riverwoods, IL 60015
Telecopy No: (847) 405-0558
Attention: President and CEO
with a copy to:
Brown & Wood LLP
One World Trade Center
58th Floor
New York, New York 10048
Telecopy No.: (212) 839-5599
Attention: Joseph W. Armbrust, Esq.
if to Purchaser,
Associates First Capital Corporation
250 E. Carpenter Freeway
Irving, TX 75062
Telecopy No: (972) 652-5798
Attention: General Counsel
with copies to:
Associates Credit Card Services Inc.
6400 Las Golinas Blvd.
Irving, TX 75039
Telecopy No: (972) 653-3630
Attention: Private Label General Manager
or such other address as any party may from time to time specify by written
notice to the other parties hereto.
12.7 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, and the Confidentiality Agreement contain the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
<PAGE> 39
subject matter. The parties hereto shall not be liable or bound to any other
party in any manner by any representations, warranties or covenants relating to
such subject matter except as specifically set forth herein or in the
Confidentiality Agreement. Without limiting the generality of the foregoing,
and notwithstanding any otherwise express representations and warranties made
herein, Seller makes no representation or warranty to Purchaser with respect to:
(i) any projections, estimates or budgets heretofore delivered to or made
available to Purchaser of future revenues, expenses or expenditures or future
results of operations of Seller or its subsidiaries; or (ii) except as expressly
covered by a representation and warranty contained in Article II hereof, any
other information or documents (financial or otherwise) made available to
Purchaser or their counsel, accountants or advisers with respect to Seller and
its subsidiaries.
12.8 Severability. If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, (i) a
suitable and equitable provision shall be substituted therefor in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid or unenforceable provision and (ii) the remainder of this Agreement and
the application of such provision to other persons, entities or circumstances
shall not be affected by such invalidity or unenforceability.
12.9 Schedules. The inclusion of any matter in any schedule to this
Agreement shall be deemed to be an inclusion for all purposes of this Agreement,
including each representation and warranty to which it may relate, but inclusion
therein shall expressly not be deemed to constitute an admission by Seller, or
otherwise imply, that any such matter is material or creates a measure for
materiality for the purposes of this Agreement.
12.10 Consent to Jurisdiction. The parties hereto irrevocably submit
to the exclusive jurisdiction of (a) the courts of the State of New York and (b)
the federal court sitting in the Southern District of New York for the purposes
of any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. The parties hereto agree to commence any
action, suit or proceeding relating hereto either in the federal court sitting
in the Southern District of New York or if such suit, action or other proceeding
may not be brought in such court for jurisdictional reasons, in the courts of
the state of New York. The parties hereto further agree that service of any
process, summons, notice or document by United States registered mail to such
party's respective address set forth above shall be effective service of process
for any action, suit or proceeding in New York with respect to any matters to
which it has submitted to jurisdiction in this Section 12.10. The parties
hereto irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the courts of the State of New York or
(ii) the federal court sitting in the Southern District of New York, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
12.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers,
thereunto duly authorized, as of the day and year first above written.
SPS TRANSACTION SERVICES, INC.
By /s/ Robert L. Wieseneck
Name: Robert L. Wieseneck
Title: President and Chief Executive Officer
ASSOCIATES FIRST CAPITAL CORPORATION
By /s/ Joseph N. Scarpinato
Name: Joseph N. Scarpinato
Title: Executive Vice President
<PAGE> 40
EXHIBIT A
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement"), dated as of April 18, 1998, by
Associates First Capital Corporation, a Delaware corporation ("Purchaser"), and
NOVUS Credit Services Inc. (the "Parent"), a stockholder of SPS Transaction
Services, Inc., a Delaware corporation (the "Company").
RECITALS
A. Purchaser and the Company are concurrently herewith entering into a
Stock Purchase Agreement dated as of the date hereof (a copy of which has been
provided to the Parent) (the "Stock Purchase Agreement"), pursuant to which
Purchaser shall acquire all of the issued and outstanding shares of capital
stock of each of the Subsidiaries (as defined in the Stock Purchase Agreement).
B. The Parent is a significant stockholder of the Company.
C. The execution and delivery of this Agreement is a condition to
Purchaser entering into the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
1. Voting. At the meeting of the Company's stockholders convened to
consider and vote upon the authorization of the transactions contemplated by the
Stock Purchase Agreement (the "Stock Sale"), the Parent shall vote or cause to
be voted all of the shares of common stock of the Company, par value $0.01 per
share (the "Company Common Stock"), owned of record by it at the record date for
such vote (a) in favor of the authorization of the transactions contemplated by
the Stock Purchase Agreement and (b) against (i) approval of any proposal made
in opposition to or in competition with the Stock Sale or any of the other
transactions contemplated by the Stock Purchase Agreement, (ii) any merger,
consolidation, sale of assets, business combination, share exchange,
reorganization or recapitalization of the Company or any of its subsidiaries,
with or involving any party other than the Purchaser or one of its subsidiaries,
(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 Stock Sale or the other transactions contemplated by
the Stock Purchase Agreement or result in a breach of any of the covenants,
representations, warranties or other obligations or agreements of the Company
under the Stock Purchase Agreement which would materially and adversely affect
the Company or its ability to consummate the transactions contemplated by the
Stock Purchase Agreement.
2. No Solicitation. The Parent shall 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 Acquisition Offer"), or (ii) engage in negotiations
or discussions concerning a Third Party Acquisition Offer or the
<PAGE> 41
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 Acquisition Offer. The Parent shall
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with respect to any
Third Party Acquisition Offer.
3. No Transfer. The Parent shall not sell, pledge, assign or otherwise
transfer or dispose of, or authorize, propose or agree to the sale, pledge,
assignment or other transfer or disposition of, any of its shares of Company
Common Stock.
4. Best Efforts; Additional Agreements and Provisions. Subject to the
terms and conditions of this Agreement, each of the parties hereto agrees to use
its, his or her best efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things reasonably necessary, proper, or advisable
in accordance with applicable law to consummate and make effective the
transactions contemplated by this Agreement and the Stock Purchase Agreement. If
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or the Stock Purchase Agreement, each party to this
Agreement shall take all such action.
5. Representations and Warranties. The Parent represents and warrants
to Purchaser as follows:
(a) Organization. The Parent is a corporation duly organized and
validly existing under the laws of the State of Delaware.
(b) Corporate Power. The Parent has the requisite power and authority
to enter into this Agreement, and to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
(c) Validity. This Agreement has been duly and validly executed and
delivered by the Parent and constitutes a valid and legally binding obligation
thereof, enforceable in accordance with its terms. The Parent has full legal
power, authority and right to vote all shares of Company Common Stock in favor
of the authorization of the transactions contemplated by the Stock Purchase
Agreement without the consent or approval of, or any other action on the part
of, any other person or entity.
(d) Authority to Vote Shares. The Parent owns of record a total of
20,000,000 shares of Company Common Stock. The Parent has full legal power,
authority and right to vote all shares of Company Common Stock in favor of the
authorization of the transactions contemplated by the Stock Purchase Agreement
without the consent or approval of, or any other action on the part of, any
other person or entity.
(e) Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of any of the transactions contemplated hereby
or by the Stock Purchase Agreement, nor compliance with any of the provisions
hereof or thereof, will violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
or suspension of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien upon any of the properties or assets of the Parent under, any of the terms,
conditions or provision of any agreement or instrument to which the Parent is a
party or any statute, rule, regulation, judgment, order, decree or other legal
requirement applicable to the Parent; except for any such breach, violation,
conflict or default which, individually or in the aggregate, would not prevent
the Parent from casting all votes necessary to authorize the transactions
contemplated by the Stock Purchase Agreement.
(f) Litigation. There is no claim, action, proceeding or investigation
pending or, to the knowledge of the Parent, threatened against or relating to
<PAGE> 42
the Parent before any court or governmental or regulatory authority or body and
the Parent is not subject to any outstanding order, writ, injunction or decree
which, if determined adversely, individually or in the aggregate, could
reasonably be expected to prevent the Parent from performing its obligations
hereunder.
6. Termination. This Agreement may be terminated upon the earliest to
occur of (i) the termination of the Stock Purchase Agreement pursuant to Article
IX thereof; (ii) the consummation of the Stock Sale; and (iii) the date which is
9 months after the date hereof. In the event of a termination of this Agreement
pursuant to this Section 6, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto; provided,
however, that nothing herein shall release any party hereto from any liability
for any breach of this Agreement.
7.Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be
in writing (including telex or similar writing) and shall be deemed given if
delivered in person or by messenger, cable, telegram or telex or facsimile
transmission or by a reputable overnight delivery service which provides for
evidence of receipt to the parties at the following addresses or telecopier
numbers (or at such other address, or telecopy number for a party as shall be
specified by like notice):
if to the Parent at:
NOVUS Credit Services Inc.
2500 Lake Cook Road
Riverwoods, IL 60015
Telecopy No.: (847) 405-3755
Attention: General Counsel, Credit Services
if to Purchaser at:
Associates First Capital Corporation
250 E. Carpenter Freeway
Irving, TX 75062
Telecopy No.: (972) 652-5798
Attention: General Counsel
(b) 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.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
(d) Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all prior and contemporaneous agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
(e) Severability; Savings. The invalidity or unenforceability or any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such state.
(g) Assignment. Neither this Agreement nor any of the rights, interest
or obligations hereunder shall be assigned by any party hereto, whether by
operation of law or otherwise, without the express prior written consent of each
of the other parties hereto. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by
<PAGE> 43
the parties and their respective successors, heirs, legal representatives and
permitted assigns.
(h) Remedies. In addition to all other remedies available, the parties
agree that, in the event of a breach by a party of any of its obligations
hereunder, the non-breaching party shall be entitled to specific performance or
injunctive relief.
(i) Defined Terms. All capitalized terms used herein and not defined
herein shall have the meaning set forth in the Stock Purchase Agreement.
IN WITNESS WHEREOF, each of the parties hereto have signed this
Agreement as of the date first above written.
ASSOCIATES FIRST CAPITAL CORPORATION
By /s/ Joseph N. Scarpinato
Name: Joseph N. Scarpinato
Title: Executive Vice President
NOVUS CREDIT SERVICES INC.
By /s/ Thomas C. Schneider
Name: Thomas C. Schneider
Title: Chief Financial Officer
<PAGE> 44
EXHIBIT B
ASSUMPTION AGREEMENT
This Assumption Agreement (this "Agreement") is made and entered into as of
{ } { }, 1998, by and between SPS Transaction Services, Inc., a Delaware
corporation ("Seller"), and Associates First Capital Corporation, a Delaware
corporation ("Purchaser").
RECITALS
A. Seller and Purchaser are parties to a certain Stock Purchase
Agreement dated April 18, 1998 (the "Purchase Agreement"), pursuant to which,
subject to the terms and conditions therein contained, Seller has agreed to sell
to Purchaser, and Purchaser has agreed to purchase from Seller, all of the
issued and outstanding shares of SPS Payment Systems, Inc. and Hurley State
Bank, each a wholly owned subsidiary of Seller (collectively, the
"Subsidiaries").
B. Pursuant to the Purchase Agreement, it is a condition precedent to
Purchaser's obligations thereunder that Seller shall have transferred to the
Subsidiaries all of its assets not specifically excluded in Schedule 4.7 to the
Purchase Agreement (the "Seller's Assets"), and it is a condition precedent to
Seller's obligations thereunder that Purchaser shall have assumed all of
Seller's obligations arising prior to the Closing (as defined therein).
C. Simultaneously with the execution hereof, Seller has transferred to
the Subsidiaries the Seller's Assets in form satisfactory to Purchaser.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
Section 1. Purchaser hereby irrevocably and unconditionally assumes and
agrees to pay, perform and discharge when due any and all Seller Liabilities (as
defined in the Purchase Agreement).
Section 2. This Agreement may be executed in two counterparts, each of
which shall be deemed to be an original and both of which, taken together, shall
constitute one and the same instrument.
Section 3. This Agreement shall be binding upon the parties hereto and
their respective successors and assigns, and shall inure to the benefit of
Seller and its affiliates and their respective successors and assigns.
Section 4. This Agreement shall be governed and construed by the
internal laws of the State of New York.
IN WITNESS WHEREOF, each of the parties hereto have duly entered into this
Assumption Agreement as of the day and year first above written.
ASSOCIATES FIRST CAPITAL CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
SPS TRANSACTION SERVICES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 45
EXHIBIT C
INTERIM SERVICING AGREEMENT
This Interim Servicing Agreement (the "Agreement") is entered into as of { }
{ }, 1998, by NOVUS Credit Services Inc., a corporation organized under the
laws of Delaware ("NOVUS"), and Associates First Capital Corporation, a
corporation organized under the laws of Delaware ("Purchaser").
RECITALS
1. Pursuant to the terms of a certain Stock Purchase Agreement dated as
of April 18, 1998 (as amended from time to time, the "Purchase Agreement"), SPS
Transaction Services, Inc., a Delaware corporation having its principal
executive offices in Illinois ("Seller"), has agreed to sell to Purchaser, and
Purchaser has agreed to purchase from Seller, all of the issued and outstanding
shares of stock of SPS Payment Systems, Inc., a Delaware corporation, and Hurley
State Bank, a South Dakota state chartered bank (each an "Acquired
<PAGE> 46
Company" and collectively, the "Acquired Companies").
2. In order for Purchaser to operate the business of each Acquired
Company immediately following the consummation of the transactions contemplated
by the Purchase Agreement, Purchaser desires to enter into certain interim
arrangements with NOVUS with respect to the provision of certain services with
respect to the Acquired Companies.
3. NOVUS is willing to enter into such interim arrangements and to
provide such services subject to the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound the parties hereto agree as follows:
1. Certain Services.
a. Commencing at the Closing (as such term is defined in the
Purchase Agreement), during the term of this Agreement NOVUS shall, directly or
through one or more of its affiliates, provide to each Acquired Company such
services as may be requested by Purchaser from time to time; provided, however,
that in no event shall NOVUS be required to provide to an Acquired Company,
directly or through one or more of NOVUS's affiliates, any service which prior
to the Closing has not been provided to such Acquired Company by NOVUS nor shall
NOVUS be required to provide any legal advice or any other service the rendering
of which would violate any law or regulation; and provided, further, that any
services requested by Purchaser hereunder shall be provided by NOVUS, directly
or through one or more of its affiliates, to any of the Acquired Companies only
to the extent that such service has, prior to the Closing, been provided by
NOVUS to such Acquired Company.
b. The receipt by an Acquired Company of any services rendered
hereunder shall be an unqualified acceptance of, and a waiver by Purchaser and
each Acquired Company of all claims with respect to, such services, unless
Purchaser gives NOVUS written notice of claim within 30 days from the date the
services were rendered by NOVUS or any of NOVUS's affiliates.
2. Term.
The term of this Agreement shall commence at the Closing Date (as defined in the
Stock Purchase Agreement) and shall continue for a period of seven and one- half
months. Purchaser agrees to use its best efforts to establish as soon as
practicable after the Closing Date its own internal capabilities to provide the
services which are the subject of this Agreement. Purchaser agrees to
immediately notify NOVUS when it has established the internal capability to
provide any of such services and upon such notification the term of this
Agreement shall expire for the service for which notification has been given.
Notwithstanding any termination of this Agreement, the provisions of Sections
3.d, 6 and 8.i hereof shall survive any such termination and remain in full
force and effect.
3. Payments by Purchaser.
a. Fees. Purchaser shall pay NOVUS compensation for each service
provided hereunder at the rate or under the formula charged to each Acquired
Company for such service by NOVUS or its affiliate. NOVUS shall invoice
Purchaser for the value of services rendered hereunder on a monthly basis.
Payment for such services shall be due 10 days following the date the
corresponding invoice was mailed to Purchaser.
b. Payment of Expenses Reimbursement. Purchaser shall be
responsible for, and shall provide NOVUS with all funds required in connection
with, any expenses incurred in connection with services to be rendered hereunder
including, but not limited to, any license fees and other third party charges
necessary in order to enable NOVUS to use any software for the benefit of
Purchaser or an Acquired Company. NOVUS shall not be required to advance
<PAGE> 47
Purchaser or any of the Acquired Companies any funds required for the
performance of services owed hereunder. Should NOVUS elect to advance any such
funds, however, they shall be reimbursed by Purchaser immediately upon demand.
c. Taxes. In addition to any other amounts payable to NOVUS
hereunder, Purchaser shall promptly reimburse NOVUS for any taxes, excises,
imposts, duties, levies, withholdings or other similar taxes (excepting any
charges based on net income) that NOVUS or its affiliates may be required to pay
on account of Purchaser or any of the Acquired Companies in connection with the
performance of services hereunder or with respect to payments made by Purchaser
for such services pursuant to this Agreement.
d. Disputed Charges. In the event Purchaser disputes any charges
invoiced by NOVUS pursuant to this Agreement, whether for services rendered or
for funds advanced hereunder, Purchaser shall deliver to NOVUS, within 10 days
from the date of the corresponding invoice, a written statement identifying the
charges so disputed and providing a detailed explanation of Purchaser's
objections. Any charges not objected to by Purchaser pursuant to the provisions
of this Section shall be deemed accepted. If the parties cannot resolve the
dispute in a mutually satisfactory manner within 20 days from the date of
receipt by NOVUS of Purchaser's statement of objections, the controversy shall
be finally adjudicated by Deloitte & Touche LLP or its successor or another
independent public accountant mutually acceptable to the parties. The
independent public accountant will review the books and records of NOVUS, or any
of its affiliates that performed the services or advanced the funds subject of
the dispute, as well as those of Purchaser, the Acquired Companies and any other
affiliate of the parties which may be relevant to its decision, and shall make
such other investigations as it may deem necessary in order to ascertain the
accuracy of the amounts invoiced by NOVUS. The fees of the independent public
accountant shall be paid by Purchaser if the invoice is determined to be
substantially correct and by NOVUS if the invoice is determined to be
substantially incorrect. Pending any such final determination, Purchaser agrees
to pay the amounts in dispute to NOVUS, subject to adjustment as required in
order to give effect to the public accountant's final determination.
4. isclaimer of Warranties.
NOVUS makes no representations and gives no warranties whatsoever, either
express or implied, to Purchaser, the Acquired Companies or any of their
respective affiliates or any other person or entity that any services provided
hereunder are or will be adequate and sufficient (as to quality or type) to meet
the needs (or any specifically identified needs) or any objectives of any such
person or entity with respect to the conduct of its business.
5. Non-Exclusivity.
Nothing in this Agreement shall preclude NOVUS, or any of its affiliates, from
providing services comparable to those rendered hereunder to any other person or
entity at any time.
6. Indemnification; Limitation of Liability.
a. Indemnification. Purchaser agrees to indemnify and hold NOVUS
and its affiliates harmless from and against any and all liabilities, penalties,
demands, claims, actions and causes of action, suits, obligations, encumbrances,
losses, damages, costs and expenses including, but not limited to, attorneys'
fees and expenses (all of the foregoing, collectively, "Losses") to which NOVUS
or any of its affiliates may be subjected arising out of or attributable,
directly or indirectly, to (i) the performance or nonperformance of any services
hereunder or otherwise arising under this Agreement, except for any such Losses
arising out of or attributable, directly or indirectly, to NOVUS's gross
negligence, bad faith or willful misconduct or (ii) any acts or omissions of
Purchaser or any of the Acquired Companies not specifically authorized by this
Agreement.
b. Procedure. If any claim is made or asserted by a third party
against NOVUS for which NOVUS is entitled to indemnification under this Section
6, NOVUS shall, with reasonable promptness, give to Purchaser written notice of
<PAGE> 48
the claim or assertion of liability and request Purchaser to defend against the
claim. Failure to so notify Purchaser shall not relieve Purchaser of any
liability which Purchaser might have to NOVUS, unless such failure materially
prejudices Purchaser's position. Purchaser shall have the right to defend
against the claim, in which event Purchaser shall give written notice to NOVUS
of acceptance of the defense of such claim and the identity of counsel selected
by Purchaser with respect to such matters which shall be reasonably acceptable
to NOVUS. In the event Purchaser does not accept the defense of the claim as
provided above or in the event that Purchaser or its counsel fails to use
reasonable care in maintaining such defense or such defense is having a
materially adverse effect on NOVUS's business, NOVUS, upon written notice to
Purchaser, shall have the right to employ counsel for such defense at the
expense of Purchaser. NOVUS and Purchaser shall cooperate with one another in
the defense of any such action and the relevant records and personnel of each
shall be available to the other with respect to such defense.
c. Limitation of Liability. i. Under no circumstances will NOVUS
or its affiliates be liable (in contract, tort or otherwise) to Purchaser, the
Acquired Companies or any of their respective affiliates for any Losses suffered
by Purchaser, the Acquired Companies or any of their respective affiliates
arising out of or attributable, directly or indirectly, to the performance or
nonperformance of any services hereunder or otherwise arising under this
Agreement, except for any such Losses arising out of or attributable to the bad
faith, gross negligence or willful misconduct of NOVUS or its affiliates.
ii. Any liability of NOVUS or its affiliates to Purchaser, the
Acquired Companies or any of their respective affiliates arising with respect to
any matters arising out of or attributable to, directly or indirectly, this
Agreement, regardless of the form of the claim or cause of action (whether based
in contract, infringement, negligence, strict liability, other tort or
otherwise), shall be limited to actual damages. In no event shall NOVUS or its
affiliates be liable to Purchaser, the Acquired Companies or any of their
respective affiliates for any indirect, consequential, incidental or punitive
damages, whether arising under contract, in tort, at law, or in equity.
"Consequential damages" shall include, but not be limited to, loss of
anticipated profits, loss of use, loss of revenue, cost of capital and loss or
damage of other property or equipment.
7. Ownership of Work Product.
a. Except for the data provided by Purchaser to NOVUS and the
reports produced by NOVUS for Purchaser pursuant to this Agreement, all
proprietary tools and methodologies and all written material including programs,
card decks, tapes, listing and other programming documentation which were
preexisting or originated and prepared by NOVUS pursuant to this Agreement
Acquired Companies pursuant to a separate written agreement signed by authorized
representatives of each party.
b. No license under any trade secrets, copyrights, or other rights
is granted by this Agreement or any disclosure hereunder.
c. Purchaser shall have reasonable access to all data, records,
files, statements, invoices, billings, and other information generated by or in
custody of NOVUS relating to the services provided pursuant to this Agreement.
8. Miscellaneous.
a. Notices. All notices, requests and other communications to
either party hereunder shall be in writing (including facsimile transmission)
and shall be given,
If to Purchaser, to:
Associates First Capital Corporation
250 E. Carpenter Fireway
Irving, TX 75062
<PAGE> 49
Telecopy No.: (972) 652-5798
Attention: General Counsel
If to NOVUS, to:
Novus Credit Services, Inc.
2500 Lake Cook Road
Riverwoods, IL 60015
Telecopy No.: (847) 405-3755
Attention: General Counsel, Credit Services
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
b. Amendments and Waivers. i. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement, or in
the case of a waiver, by the party against whom the waiver is to be effective.
ii. Except as otherwise provided in Sections 1.b and 3.d hereof, no
failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
c. Force Majeure. The parties shall be relieved of their
obligations hereunder (except for the payment of money), if and to the extent
that any of the following events hinder, limit or make commercially
impracticable the performance by either party of any of its obligations
hereunder: act of God, war, civil commotion, riot, acts of public enemies,
blockade or embargo, fire, explosion, lightning, casualty, accident, flood,
sabotage, national defense requirements, labor trouble, strike, lockout or
injunction; governmental requests, laws, regulations, orders or actions whether
valid or invalid (including without limitation import or export prohibitions or
priorities, requisitions, allocations and price adjustment restrictions);
breakage or failure of machinery or apparatus; inability to obtain power,
materials, facilities, equipment, communication or transportation; or any other
event, whether or not of the class or kind enumerated herein, beyond the control
of either party such as cannot be circumvented by reasonable diligence and
without unusual expense. The party claiming relief hereunder shall notify the
other party in writing of the events causing delay or default in performance.
The party failing to fulfill its obligations shall, however, take reasonable
steps to remove or otherwise address the impediment to action.
d. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other party hereto, except that NOVUS may, without
the consent of Purchaser, assign, delegate or transfer its rights or obligations
under this Agreement to one or more of NOVUS's affiliates.
e. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
f. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
g. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written,
<PAGE> 50
between the parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
h. Independent Contractors. The parties hereto are independent
contractors. Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, franchise or joint venture relationship
between the parties. Neither party shall incur any debts or make any
commitments for the other, except to the extent, if at all, specifically
provided herein.
i. Confidentiality. Each party and its affiliates will hold, and
will use their best efforts to cause their respective partners, officers,
directors, employees and other agents to hold, in confidence, all confidential
documents and information concerning the other party furnished to such party or
its affiliates in connection with the transactions contemplated by this
Agreement, except to the extent that such information can be shown to have been
(x) previously known by such party on a nonconfidential basis, (y) in the public
domain through no fault of such party, or (z) later lawfully acquired by such
party on a nonconfidential basis from sources other than the other party or any
of its affiliates; provided that such party may disclose such information in
connection with the transactions contemplated by this Agreement to the partners,
officers, directors, employees and other agents of such party or its affiliates
so long as such persons are informed by such party of the confidential nature of
such information and are directed by such party to keep such information
confidential and not to use it for any purpose other than its intended use; and
provided, further, that if any person described in the immediately preceding
proviso breaches its confidentiality obligations, the party to whom the
disclosure is attributable will inform the other party and will take reasonable
steps at the request of such other party to enforce such obligation.
Notwithstanding the foregoing, each party may disclose such information if (i)
compelled to disclose by judicial or administrative process or by other
requirements of law, or (ii) necessary to establish such party's position in any
litigation or any arbitration or other proceeding based upon or in connection
with the subject matter of this Agreement. Prior to any disclosure pursuant to
the preceding sentence, the disclosing party shall give reasonable prior notice
to the other party to this Agreement of such intended disclosure and, if
requested by such party, shall use all reasonable efforts to obtain a protective
order or similar protection for such information or data and shall otherwise
disclose such information and data to the extent and only to the extent
necessary to comply with any applicable rule, regulation or policy of a
governmental entity or securities exchange. The obligation of a party hereto to
hold any such information in confidence shall be satisfied if it exercises the
same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If all or any part of the
services rendered hereunder are terminated, each party and its affiliates will,
and will use their best efforts to cause their respective partners, officers,
directors, employees, accountants, counsel, consultants, advisors and agents to,
destroy or deliver to the other party, upon request, all documents and other
materials, and all copies thereof, obtained by such party or its affiliates or
on their behalf from the other party in connection with the services so
terminated that are subject to such confidence.
j. Records. NOVUS shall maintain the business records pertaining
to the services rendered hereunder and will retain the records pertaining to
each such service for a period of 12 months after the cessation of such service.
At the Purchaser's request, NOVUS shall provide to Purchaser copies of records
pertaining to the services rendered hereunder.
k. Severability. If any provision hereof is or becomes illegal,
invalid, or unenforceable under the laws of a particular jurisdiction, such
provision shall be fully severable with respect to such laws; this Agreement
shall be construed and enforced in such jurisdiction as if such provision had
never comprised a part hereof; the remaining provisions hereof shall remain in
full force and effect in such jurisdiction and shall not be affected by such
provision or by its severance herefrom; and all of the provisions hereof shall
remain in full force and effect in all other jurisdictions and shall not be
<PAGE> 51
affected by the severance of such provision under the laws of such jurisdiction.
Furthermore, in lieu of such provision there shall be added automatically for
purposes of such jurisdiction as part of this Agreement a provision as similar
in terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid and enforceable in such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on their respective behalf, by their respective officers, thereunto
duly authorized, as of the date first above written.
NOVUS CREDIT SERVICES, INC.
By:
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Name:
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Title:
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ASSOCIATES FIRST CAPITAL CORPORATION
By:
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Name:
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Title:
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