<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1996
REGISTRATION NO. 333-228
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MONEYGRAM PAYMENT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6099 84-1327808
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
7401 WEST MANSFIELD AVE.
LAKEWOOD, COLORADO 80235
(303) 716-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ANDREA M. KENYON
SECRETARY AND GENERAL COUNSEL
MONEYGRAM PAYMENT SYSTEMS, INC.
7401 MANSFIELD AVENUE
LAKEWOOD, COLORADO 80235
(303) 716-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
THOMAS A. ROSSI KEVIN F. BLATCHFORD BRUCE K. DALLAS
FIRST DATA CORPORATION SIDLEY & AUSTIN DAVIS POLK & WARDWELL
2121 N. 117TH AVENUE ONE FIRST NATIONAL PLAZA 450 LEXINGTON AVENUE
OMAHA, NEBRASKA 68164 CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10017
(402) 498-2104 (312) 853-7000 (212) 450-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two prospectus cover pages: one to be
used for a prospectus in connection with a United States and Canadian offering
(the "U.S. Prospectus") and one to be used for a prospectus in connection with
a concurrent international offering (the "International Prospectus"). The
International Prospectus will be identical to the U.S. Prospectus except that
it will have a different front cover page. The front cover page to be used in
the International Prospectus is located at the end of the U.S. Prospectus and
has been labeled "Alternate Page for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued December 4, 1996
14,463,750 Shares
MoneyGram Payment Systems, Inc.
COMMON STOCK
----------
OF THE 14,463,750 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 11,571,000 ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 2,892,750 ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE SHARES OF
COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY INTEGRATED PAYMENT
SYSTEMS INC. ("IPS" OR THE "SELLING STOCKHOLDER"), A WHOLLY OWNED
SUBSIDIARY OF FIRST DATA CORPORATION. SEE "SELLING STOCKHOLDER." THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF
COMMON STOCK OFFERED HEREBY. PRIOR TO THE OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $10 AND $12. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
----------
THE COMMON STOCK HAS BEEN APPROVED FORLISTING ON THE NEW YORK STOCK
EXCHANGE ("NYSE"), SUBJECT TO OFFICIAL NOTICE OF ISSUANCE,
UNDER THE SYMBOL "MNE."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
-------- -------------- --------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Before deducting expenses payable by the Selling Stockholder estimated
at $2,100,000.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,161,250 additional shares of Common Stock at the price to
public less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholder will be $ ,
$ , and $ , respectively. See "Underwriters."
----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
December , 1996 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in immediately available funds.
----------
MORGAN STANLEY & CO.
Incorporated
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
December , 1996
<PAGE>
[Collage of pictures of MoneyGram
advertisements (including billboards
and bus benches) as described
in "Business--Sales and Marketing"
and consumer money wire transfer
checks as described in "Business--
the Money Transfer Process."]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER
THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR
DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT
PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE
POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE SELLING
STOCKHOLDER AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE
ANY RESTRICTIONS AS TO, THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION
OF THIS PROSPECTUS.
----------------
Until January , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments of subscriptions.
----------------
Unless the context otherwise requires, references to the "Company" or
"MoneyGram" are to MoneyGram Payment Systems, Inc. Prior to the consummation
of the offering made hereby (the "Offering"), IPS will transfer to the Company
certain assets and liabilities of its consumer money wire transfer service
business marketed under the name "MoneyGram" (the "Business") (such transfer
of assets and liabilities and the subsequent transition of the Business to the
Company, being referred to herein as the "Transition"). The information
contained in this Prospectus, unless otherwise indicated, gives effect to the
Transition as if completed prior to the date hereof and assumes that the
Company has owned and operated the assets acquired in the Transition as a
separate legal entity during the periods presented.
----------------
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions, and all areas subject
to its jurisdiction.
The following trademarks and service marks are mentioned in this Prospectus:
"American Express(R)" is a registered trademark of American Express Company;
"First Data Corporation(R)" and "First Data(R)" are registered service marks
of First Data Corporation; and "MoneyGramSM" and "MoneySaverSM" are service
marks of the Company.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
The Transition and Ongoing
Relationship with First Data....... 9
Risk Factors........................ 14
Use of Proceeds..................... 24
Dividend Policy..................... 24
Dilution............................ 24
Capitalization...................... 25
Selected Financial and Operating
Data............................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................ 39
Management.......................... 57
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ownership of Capital Stock......... 61
Certain Relationships and Related
Transactions...................... 63
Description of Capital Stock....... 70
Selling Stockholder................ 72
Shares Eligible for Future Sale.... 72
Certain U.S. Federal Income Tax
Considerations for Non-U.S.
Holders of Common Stock........... 73
Underwriters....................... 76
Legal Matters...................... 79
Experts............................ 79
Additional Information............. 79
Index to Financial Statements ..... F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the related notes thereto, appearing elsewhere in this Prospectus
(the "Financial Statements"). Unless otherwise indicated, the information
contained in this Prospectus assumes that the U.S. Underwriters' over-allotment
option is not exercised. See "Underwriters." Prospective purchasers of the
Common Stock offered hereby should carefully consider the factors set forth
under "Risk Factors" as well as the other information contained in this
Prospectus.
THE COMPANY
OVERVIEW
The Company is a leading non-bank provider of consumer money wire transfer
services, with a strong, well-recognized brand-name. The Company accounted for
approximately 16% of all consumer money wire transfer transactions worldwide in
1995. The Company offers customers the ability to transfer funds quickly,
reliably, conveniently and at attractive prices through its network of agents
(each, a "MoneyGram Agent"), consisting of approximately 17,700 locations in 84
countries worldwide as of September 30, 1996. MoneyGram Agents, representing
approximately 68% of the Company's revenues for the first nine months of 1996,
are subject to long-term contracts ranging in term from three to six years.
MoneyGram targets its services to individuals without traditional banking
relationships, expatriates who send money to their country of origin,
traditional bank customers in need of emergency money transfer services,
tourists without local bank accounts and businesses that need rapid and
economical money transfer services. The Company also provides cash advance and
express bill payment services (including payments on revolving credit, time and
personal loans) through many MoneyGram Agent locations in the United States.
The number of MoneyGram Agent locations has grown from 11,600 in 1991 to
approximately 17,700 as of September 30, 1996. In 1995 and the first nine
months of 1996, the Company processed 5.4 million and 4.4 million transactions,
respectively, and transferred $1.6 billion and $1.2 billion total face amount
of funds, respectively. In 1995, total revenues were $137.1 million, total
revenues from transaction fees excluding foreign exchange revenues and
investment income ("Transaction Fee Revenues") were $93.8 million, foreign
exchange revenues were $42.8 million and operating income was $29.7 million. In
the first nine months of 1996, the Company's total revenues, Transaction Fee
Revenues, foreign exchange revenues and operating income were $107.0 million,
$83.9 million, $22.8 million and $20.6 million, respectively. Substantially all
of the Company's transactions originate in the United States. In 1995, 45% of
the Company's transactions were between U.S. locations, 44% were from U.S. to
Mexico locations and 11% involved one or more international locations other
than Mexico.
The Company generates substantially all of its foreign exchange revenue on
its U.S. to Mexico transactions based on the difference between the cost of
Mexican pesos at wholesale rates and the retail exchange rate charged to
customers in such transactions. In addition to receive commissions, the Company
pays fees to Banco Nacional de Mexico, S.A. ("Banamex"), the Company's primary
receive-only MoneyGram Agent in Mexico, in an amount equal to one-half of the
total foreign exchange revenues derived from U.S. to Mexico MoneyGram
transactions received at a Banamex location.
CUSTOMERS AND MARKETS
Consumers sending expatriate remittance funds and individuals without bank
accounts are the two largest segments of repetitive money transfer customers.
The Federal Reserve Board of Governors estimates that there are approximately
23 million households in the United States without traditional banking
relationships. Additionally, industry analysts estimate that there are an
increasing number of people who remit funds to their respective countries of
origin on a regular basis.
Consumer money wire transfer services provide customers with a convenient,
rapid and secure method of sending money. The Company believes that consumer
money wire transfer service providers and their agent
4
<PAGE>
networks offer significant advantages over alternative methods of sending
money, including those provided by banks and the postal service, such as
reliability and security, global accessibility of agents, speed, convenient
hours, individualized services and customer flexibility.
Non-bank consumer money wire transfer services are provided primarily by two
global companies, MoneyGram and Western Union Financial Services, Inc.
("Western Union"), as well as several niche competitors. The Company estimates
that in 1995 the industry processed 33 million non-bank consumer money wire
transfer transactions worldwide, an increase of 29% over 1994, and representing
a compounded annual growth rate of 22% since 1991. In 1995, the Company
processed 5.4 million of the 33 million non-bank consumer money wire transfer
transactions worldwide, representing approximately 16% of such transactions.
Western Union accounted for approximately 81% of all such transactions
worldwide in 1995. The Company believes the gross revenues generated from non-
bank consumer money wire transfers in 1995 were $800 million on $9 to $10
billion in face amount of transferred funds.
The United States currently originates more consumer money wire transfer
transactions than any other country in the world. The Company expects that the
majority of the future growth in the United States will occur in transactions
that terminate in international locations. Money transfers from the United
States to Mexico currently represent an important and growing component of the
money transfer industry due to the large number of Mexican immigrants remitting
money from the United States to Mexico.
The Company believes international consumer money transfers will continue to
grow through the end of the decade, primarily due to the combination of
increased migration and greater consumer awareness. The Company believes that
migration dynamics throughout Latin America, the Caribbean, Europe and Asia
provide attractive growth potential for consumer money transfer services.
Recently, three international companies, The Thomas Cook Group, the Post Office
Counters Ltd., a subsidiary of the UK Post Office, and Consorcio Oriental S.A.,
representing approximately 2,000 new locations in the aggregate, have indicated
their intention to serve as MoneyGram Agents.
STRATEGY
MoneyGram's objectives are to continue to grow as a leading provider of
consumer money wire transfer services by offering competitive pricing and
superior service and to develop and introduce other financial services. The
Company has developed and has been pursuing the following strategy to
capitalize on its competitive position in the growing market for consumer money
transfer services:
. Target Frequent Users of Money Transfer Services. The Company uses
selected agent expansion in high-usage markets to ensure convenient access
to its services for its target customers. The Company focuses its
advertising and promotional campaigns in these high-usage markets to
increase brand awareness and generate consumer trial and repeat usage of
the MoneyGram service.
. Offer Enhanced Value to Customers. The Company offers value-added
features to its customers, including a free three-minute long distance
phone call with most transactions and a free 10-word message to the
recipient of the funds. As part of its marketing strategy, the Company has
maintained its prices 20% to 30% below those of Western Union on
frequently sent face amounts.
. Increase Brand Recognition and Loyalty. The Company's advertising and
promotional campaigns increase brand awareness and generate trial and
repeat usage of the MoneyGram service. The Company also will continue to
offer its MoneySaver card to increase loyalty to the MoneyGram service by
providing frequent users a discount on future transactions.
. Expand its Agent Network. The Company seeks to develop relationships with
potential MoneyGram Agents that offer the optimal combination of location,
existing service mix and commitment. The Company provides its agents with
a number of support services, including product training, traffic building
and cooperative advertising programs, as well as signage and personal
computers for certain MoneyGram Agents.
5
<PAGE>
. Grow Internationally. The Company is expanding its presence in
international markets, the next significant growth area for money transfer
services, by focusing on particular corridors. The Company believes that
future growth internationally should occur as migration continues and
advertising and promotional efforts increase international awareness of
the MoneyGram service. The Company will focus on countries with rapid
growth rates or inefficient and expensive delivery systems and, when
permissible, countries that currently are subject to U.S. trade embargoes.
. Penetrate Additional Retail Network and Other Distribution Channels. The
Company seeks to maintain a balanced and diversified MoneyGram Agent
network. Potential outlets for U.S. network expansions are check cashers,
postal and packaging outlets and supermarkets. The Company expects to
expand its international MoneyGram Agent network primarily by adding
travel agencies, bureau de change operations and banks.
. Develop Other Related Payment Products and Services. The Company
currently plans to offer complementary products and services through the
MoneyGram Agent network, such as money orders and phone cards, and, in the
future, may develop other related products, such as prepaid debit cards,
secured credit cards and insurance products. The Company believes that by
introducing new products it will generate additional revenues, as well as
enhance the attractiveness of the MoneyGram service to potential agents
and its target customers.
BACKGROUND
The Business was started in 1988 by American Express Company ("American
Express") and has been managed and operated by First Data Corporation ("First
Data"), through its wholly owned subsidiary Integrated Payment Systems Inc.
("IPS"). The Company was incorporated in Delaware in January 1996 and was
formed to acquire certain assets related to the Business prior to the
consummation of the Offering. The sale of Common Stock offered hereby is being
made in order to comply with the terms of the consent decree (the "Consent
Decree") entered into between First Data and the Federal Trade Commission (the
"FTC") in connection with First Data's merger with First Financial Management
Corporation ("FFM"), the parent company of Western Union. The Company will not
have conducted any business prior to the Offering. The Company's principal
executive offices are located at 7401 West Mansfield Avenue, Lakewood, Colorado
80235 and its telephone number is (303) 716-6800.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholder:
U.S. offering.................... 11,571,000 shares
International offering........... 2,892,750 shares
------------
Total.......................... 14,463,750 shares
------------
------------
Common Stock to be outstanding 16,625,000 shares
after the Offering(1).............
Use of proceeds.................... The Company will not receive any proceeds
from the sale by the Selling Stockholder of
the Common Stock in the Offering.
New York Stock Exchange symbol..... MNE
</TABLE>
- --------
(1) Excludes 1,200,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan (1,175,000 shares) and 1996 Broad-Based
Stock Option Plan (25,000 shares). It is anticipated that options to
acquire approximately 1,050,000 shares and 8,000 shares of Common Stock
will be granted under the 1996 Stock Option Plan and the 1996 Broad-Based
Stock Option Plan, respectively, at an exercise price equal to 100% of the
initial public offering price of the Common Stock offered hereby effective
upon the consummation of the Offering. See "Management--Stock Plans" and
"Shares Eligible for Future Sale."
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN MATTERS RELATING TO
ANY INVESTMENT IN THE COMPANY. See "Risk Factors" on page 14 for a discussion
of: Highly Competitive Industry; Competition with First Data; Dependence on
Major MoneyGram Agents; Fluctuation of MoneyGram Agent Network; Factors
Relating to Independence and Sale of the Company--Reliance on First Data, --
Conflicts of Interest with First Data, --Absence of Arm's-Length Negotiations,
- --Agreements between the Company and Western Union Regarding Certain Service
Marks and --Loss of Use of American Express Name; Ability to Grow through New
Products and Services; New Management Team; Extensive Regulation; Uncertainty
as to Certain Tax Matters; Risk of Loss; Liquidity; Fluctuation in Quarterly
Operating Results; Foreign Transactions Risks; Financial Statement
Presentation; Antitakeover Matters; Absence of Prior Public Trading Market and
Determination of Offering Price; Shares Eligible for Future Sale and IPS
Intention to Sell All of its Common Stock; and Dilution.
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial data presented on a carve-
out basis for the Transition and are derived from historical financial data of
IPS. The financial data include allocations of operating and general and
administrative expenses to the Company from IPS. Such allocations do not
necessarily reflect the expenses that would have been or will be incurred by
the Company operating as a stand-alone entity. Management of the Company
believes that costs have been determined and allocated on a reasonable basis
and all costs attributable to conducting the Business have been included in the
Company's Financial Statements. In the opinion of management, such expenses
would not be materially affected by the Company operating as a stand-alone
entity. See Note 1 of the Notes to Financial Statements. The summary financial
data below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements appearing elsewhere in this Prospectus. The statement of operations
data set forth below with respect to the years ended December 31, 1993, 1994
and 1995 and the balance sheet data at December 31, 1994 and 1995 are derived
from, and are qualified by reference to, the audited Financial Statements
appearing elsewhere in this Prospectus. Balance sheet data as of December 31,
1993 and September 30, 1995 and the statement of operations data for the nine
months ended September 30, 1995 have been derived from audited financial
statements not included in this Prospectus. The statement of operations data
for the years ended December 31, 1991 and 1992 and balance sheet data as of
December 31, 1991 and 1992 are derived from unaudited financial statements not
included in this Prospectus. Balance sheet data as of September 30, 1996 and
statement of operations data for the nine-month period ended September 30, 1996
are derived from, and are qualified by reference to, unaudited interim
financial statements appearing elsewhere in this Prospectus. In the opinion of
management, such unaudited interim financial statements include all adjustments
(consisting only of normal recurring accruals) necessary for a fair and, except
as noted below, consistent presentation, in accordance with generally accepted
accounting principles, of such information. The financial and operating results
for the nine months ended September 30, 1996 are not necessarily indicative of
the Company's results for any future interim period or the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Fee and other.......... $ 17,735 $ 30,519 $48,815 $71,015 $94,242 $72,934 $84,154
Foreign exchange....... 594 1,280 3,070 20,373 42,826 33,145 22,821
-------- -------- ------- ------- ------- ------- -------
Total revenues....... 18,329 31,799 51,885 91,388 137,068 106,079 106,975
Income (loss) before
income taxes (1)...... (16,681) (10,270) (3,196) 19,411 29,656 29,592 20,573
Net income (loss)...... $(11,009) $ (6,778) $(2,077) $12,176 $18,294 $18,254 $12,715
Pro forma net income
(loss) per common
share (2)............. $ (.66) $ (.41) $ (.12) $ .73 $ 1.10 $ 1.10 $ .76
BALANCE SHEET DATA (AT
END OF PERIOD):
Assets restricted to
settlement of
MoneyGram
transactions.......... $ 11,338 $ 11,573 $12,827 $20,927 $26,010 $23,167 $26,059
Fixed assets at cost,
net of depreciation... 950 1,123 1,275 3,084 6,000 6,392 6,822
Costs of acquiring
Agent Contracts, net
of amortization....... 3,369 2,864 1,956 3,401 7,979 8,017 14,840
Total assets........... 16,561 16,009 16,502 28,583 41,618 40,814 49,483
Liabilities relating to
unsettled MoneyGram
transactions.......... 11,338 11,573 12,827 20,927 26,010 23,167 26,059
Total liabilities...... 15,455 14,996 17,358 35,411 40,449 33,686 41,379
Stockholder's equity
(deficit)............. 1,106 1,013 (856) (6,828) 1,169 7,128 8,104
OPERATING DATA:
Number of MoneyGram
Agent locations (at
end of period)........ 11.6 13.1 14.1 16.0 17.2 17.0 17.7
Percentage change...... 11% 13% 8% 13% 8%(3) N/A 4%(3)
Number of transactions. 656 1,114 2,040 3,285 5,393 3,824 4,386
Percentage change...... 104% 70% 83% 61% 64% N/A 15%
</TABLE>
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(1) During the first quarter of 1995, the Company received a $2.5 million
commission rebate from Banamex. The fourth quarter of 1995 includes $1.3
million of discretionary promotion-related payments to MoneyGram Agents. In
addition, in order to comply with the Consent Decree, the Company spent
approximately $6 million more than it otherwise would have for advertising
in the fourth quarter of 1995. The Company incurred costs and expenses
related to obtaining consents from MoneyGram Agents to permit the
assignment of their Agent Contracts to the Company of $375,000 in the
fourth quarter of 1995 and $500,000 in the nine-month period ended
September 30, 1996. Prior to 1996, the Company recorded advertising and
promotion expenses based on transaction volumes for interim reporting
purposes. Beginning in 1996, the Company recorded advertising and promotion
expenses based on actual expenses incurred during the interim period. If
the Company had continued to record advertising and promotion expenses
based on transaction volumes, advertising and promotion expenses would have
been approximately $100,000 less for the first nine months of 1996.
(2) Gives effect to the Company's issuance to IPS of 16,624,900 shares of
Common Stock prior to the consummation of the Offering.
(3) During the last three months of 1995 and the first three months of 1996,
three MoneyGram Agents representing 1,607 locations chose not to renew
their Agent Contracts. In addition, the Company's efforts to add new
MoneyGram Agents were hampered because, during this period, the Company's
sales personnel spent the majority of their time obtaining consents for the
assignment of Agent Contracts rather than focusing their efforts on
expanding the MoneyGram Agent base.
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THE TRANSITION AND ONGOING RELATIONSHIP WITH FIRST DATA
The Company was established to acquire, pursuant to the Transition, the
consumer money wire transfer service business managed and operated by First
Data, through First Data's wholly owned subsidiary IPS, under the name
"MoneyGram" and has not previously carried on an active business. Because of
the nature of consumer money wire transfer services, the Company will have
significant ongoing relationships with First Data and its affiliates under
which First Data and such affiliates will continue to own all of the contracts
with the MoneyGram Agents (the "Agent Contracts") and will provide the Company
with certain services. See "Certain Relationships and Related Transactions--
The Transition Agreements."
BACKGROUND
On June 12, 1995, First Data entered into a merger agreement with FFM, the
parent corporation of Western Union. Western Union is the principal competitor
of the Company. The Company estimates that of the 33 million non-bank consumer
money wire transfers processed worldwide in 1995, Western Union and the
Company accounted for approximately 81% and 16%, respectively, of all such
transactions.
In order to obtain the FTC's approval of its merger with FFM, First Data
entered into the Consent Decree dated January 19, 1996 with the FTC which
requires First Data to divest the sales and marketing functions associated
with the consumer money wire transfer business of the Company or Western Union
by January 23, 1997, but allows First Data to continue to perform processing
services for both businesses. In addition, on September 20, 1995 First Data
and the FTC entered into an agreement (the "Hold Separate Agreement") under
which First Data agreed to manage and maintain the Business as a separate,
ongoing business, independent of all other First Data businesses, including
Western Union. The Consent Decree and the Hold Separate Agreement require,
among other things, that prior to the Transition, First Data will: (i) spend
at least $24 million annually on advertising and promotion of the Business,
provided that no less than $10 million is spent in any two consecutive
quarters; (ii) pay 120% of the standard 1995 sales commission rates to the
MoneyGram sales force for each MoneyGram Agent renewal and MoneyGram Agent
recruitment; and (iii) operate the Business in the ordinary course so that,
when divested, the Business will be capable of providing a consumer money wire
transfer service substantially similar to that which had been provided under
First Data.
Upon the consummation of the Offering, the Consent Decree requires First
Data to, among other things: (i) make available to the Company, at no
additional cost and for a period of time of up to six months thereafter, such
personnel, assistance and training from First Data as is reasonably necessary
to transfer technology and knowledge of the Business; and (ii) refrain from
entering into any contract to provide a consumer money wire transfer service
with a selling MoneyGram Agent who has a contract with the Company to provide
the MoneyGram service until the scheduled expiration of such contract (without
giving effect to any contract extension or renewal provisions that become
effective after the consummation of the Offering). See "Risk Factors--
Competition with First Data."
THE TRANSITION
Following the signing of the Consent Decree and the Hold Separate Agreement,
First Data decided to divest itself of the sales and marketing functions
associated with the Business and to retain Western Union. Pursuant to this
decision, First Data identified those operations and functions necessary to
operate the Business as a stand-alone entity, including those assets and
personnel to be dedicated solely to the Business, began reconfiguring the
shared customer service centers so that IPS's leased facility in Lakewood,
Colorado (the "Lakewood Facility") would be exclusively used in the Business
and commenced the separation of information and services related to the
Business within the IPS data center in Englewood, Colorado.
In order to comply with applicable licensing requirements relating to the
operation of a consumer money transfer business, IPS managed and operated the
Business prior to the Transition under a management agreement with American
Express Travel Related Services, Inc. ("TRS"), a wholly owned subsidiary of
American Express (the "TRS Management Agreement"). The TRS Management
Agreement provided that TRS, as holder of
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licenses and permits that are necessary to own and operate the Business (the
"Required Licenses"), would own and execute all Agent Contracts and hold
certain funds related to unsettled MoneyGram transactions (the "Fiduciary
Funds"), and IPS would conduct the day-to-day operations of the Business and
receive the net economic benefits therefrom. As contemplated by the TRS
Management Agreement, IPS obtained the Required Licenses so as to be able to
own and operate the Business in its own name. Consequently, prior to the
consummation of the Offering, TRS, IPS and First Data will enter into an
agreement that effects the assignment of substantially all of the Agent
Contracts to IPS (the "TRS Assignment"), and IPS will begin performing all of
the functions previously performed by TRS under the TRS Management Agreement
in respect of such Agent Contracts. Those Agent Contracts that are not
assignable at the time of the TRS Assignment will be terminated by IPS as
required by the TRS Management Agreement. Following the Transition and the
Offering, IPS, as holder of the Required Licenses, will own and execute all
Agent Contracts and hold all Fiduciary Funds related thereto in accordance
with the Operations Agreement described below. The Operations Agreement
provides that IPS will assign all Agent Contracts to the Company at such time
as the Company obtains the Required Licenses to own and operate the Business
in its own name. The Company expects to obtain all Required Licenses within
one year of the date hereof; however, no assurance can be given that the
Company will obtain any or all such licenses.
The Transition Agreements
Pursuant to the Transition, the Company will enter into a Contribution
Agreement (the "Contribution Agreement"), an Operations Agreement (the
"Operations Agreement"), a Software License Agreement (the "Software License
Agreement"), a Short-Term Working Capital Facility (the "Facility"), a Service
Mark Letter Agreement (the "Service Mark Letter Agreement"), a Human Resources
Agreement (the "Human Resources Agreement"), a Telecommunications Services
Sharing Agreement (the "Telecom Agreement") and a Registration Rights
Agreement (the "Registration Rights Agreement") and, if requested by the
Company, a Service Mark License Agreement (the "License Agreement")
(collectively, the "Transition Agreements"). Under the Transition Agreements,
First Data or its affiliates will provide a source of liquidity for working
capital purposes and certain licenses and services to the Company that are
necessary to the operation of the Business. See "Certain Relationships and
Related Transactions--The Transition Agreements."
The Contribution Agreement. Prior to the consummation of the Offering, the
Company, First Data and IPS will enter into the Contribution Agreement
pursuant to which (i) IPS will contribute $12 million to the Company for
general corporate purposes (the "IPS Cash Contribution") and (ii) IPS and
certain of its affiliates will contribute certain assets to the Company (the
"MoneyGram Assets"), which include, among other things, certain copyrights and
trademarks (including the MoneyGram service mark), certain software used in
connection with the Business, the economic benefits under the Agent Contracts,
the customer service center operations of the Business, the leasehold interest
in the Lakewood Facility and certain other personal property relating to the
Business's operations, including computers and signage provided to MoneyGram
Agents (collectively, the "Contribution"). The MoneyGram Assets will be
contributed to the Company "as is, where is." In consideration of the
Contribution, the Company will issue and deliver to IPS 16,624,900 shares of
Common Stock. IPS currently holds 100 shares of the Company's Common Stock,
which represent all of the currently issued and outstanding shares.
As a result of the Transition, the tax basis (for federal income tax
purposes) of the MoneyGram Assets will increase from their tax basis in the
hands of IPS and certain of its affiliates at the time of the Contribution to
their fair market value at that time (determined by reference to the initial
public offering price). Such tax basis is generally expected to produce a tax
benefit to the Company in future years through depreciation or amortization
deductions or through decreased gain or (subject to certain limitations)
increased loss on a disposition of any MoneyGram Asset. However, the "anti-
churning" rules under Section 197 of the Internal Revenue Code of 1986, as
amended (the "Code"), might apply to disallow such amortization with respect
to certain intangible assets of the Company. For financial accounting and
reporting purposes, the Company will record a deferred tax asset (with a
corresponding credit to capital surplus) for the tax effect of the excess of
the tax basis of the MoneyGram Assets following the Contribution over their
net book value. Solely for financial accounting and
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<PAGE>
reporting purposes, such tax basis will be reduced to take into account
management's assessment of the possible application of the "anti-churning"
rules under Section 197 of the Code. In addition, the amount of the gross
deferred tax asset which will be recorded at the time of the Contribution will
be reduced by a valuation allowance which will be based upon management's
judgment as to the likelihood of the Company generating sufficient taxable
income to realize the asset through future tax deductions. See "Risk Factors--
Uncertainty as to Certain Tax Matters" and "Certain Relationships and Related
Transactions--the Transition Agreements--The Contribution Agreement--Taxes."
The Operations Agreement. Under the Operations Agreement, which has an
initial two-year term, IPS or its affiliates will perform for the Company data
processing services, management services, disaster recovery services for the
Lakewood Facility customer service center, voice center services and certain
corporate support services. The Company and First Data have agreed to
schedules for fees and expenses which reflect First Data's good faith estimate
of the actual cost of providing such services (including reasonable
allocations of overhead expenses) calculated on a basis consistent with the
determinations made in preparing the Financial Statements appearing elsewhere
in this Prospectus. IPS has agreed to provide certain additional services
under the Operations Agreement at the request of the Company. No assurances
can be given, however, that the Company could not obtain such services at a
lower cost from a third party. See "Certain Relationships and Related
Transactions--The Transition Agreements--The Operations Agreement."
The data processing services include, among other things, data processing,
telecommunication management and data security management. The management
services include those functions that IPS must perform in order for the
Business to be in compliance with applicable licensing and other legal
requirements (including anti-fraud and anti-money laundering functions) until
such time as the Company has obtained the Required Licenses to own and operate
a consumer money wire transfer service in its own name. Disaster recovery
services will be provided by IPS for the Lakewood Facility customer service
center in the event the center is damaged by fire, earthquake, power loss,
telecommunications failure or similar events. Voice Center Services may entail
servicing up to 30% of the Company's incoming voice calls through IPS'
facility in Corpus Christi, Texas (the "Corpus Christi Facility"). Corporate
support services (such as payroll, regulatory compliance, operations support,
treasury and accounting services) will be provided until the Company can
administratively assume performance of such services itself. Under the terms
of the Operations Agreement, IPS will continue to be a party to all Agent
Contracts and to hold all Required Licenses to operate the Business, while
other activities relating to the Business, including pricing, selecting and
negotiating with MoneyGram Agents, determining commissions to be paid to
MoneyGram Agents and substantially all customer service center services, will
be conducted by the Company. IPS will hold all Fiduciary Funds related to
MoneyGram transactions and will be entitled to investment income thereon until
such time as the Company operates the Business in its own name. IPS will pay
to the Company, on a daily basis, an amount equal to Transaction Fee Revenues
generated by the Business (excluding the Company's portion of foreign exchange
revenues which will be paid by IPS to the Company on a monthly basis). The
Company will pay to First Data, on a monthly basis, all amounts owed to First
Data under the Operations Agreement.
Under the Operations Agreement, the Company will be obligated to obtain all
Required Licenses to operate the Business in its own name upon the earlier of
the expiration of the initial two-year term or within 180 days after
termination of the Operations Agreement in accordance with its terms. However,
the Operations Agreement provides that, at the request of the Company in its
sole discretion, IPS will negotiate in good faith to extend the term of the
Operations Agreement or negotiate a similar arrangement with the Company, in
either case upon such terms and conditions, including prices, to be agreed
upon by the Company and IPS. The Company may terminate the Operations
Agreement in its entirety or may terminate certain related groups of services
offered thereunder, including data processing services, or, if the Company has
obtained the Required Licenses and has converted its MoneyGram Agents, the
management services, upon prior written notice within specified periods of
varying lengths, none of which exceeds 90 days. In the event that the Company
terminates the data processing services, the Company is obliged to provide IPS
certain information required by IPS to perform its management services under
the Operations Agreement. See "Certain Relationships and Related
Transactions--The Transition Agreements--The Operations Agreement--
Termination."
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<PAGE>
The Software License Agreement. The software used in connection with the
Business is comprised of three components: personal computer based application
software (the "PC MoneyGram Software") used by those MoneyGram Agents who have
personal computers and enter transactions electronically; certain application
software currently used by IPS to process all MoneyGram transactions (the
"MoneyGram Application Software"); and certain other application software used
in processing MoneyGram transactions, but which IPS also currently utilizes in
processing its money order payment products (the "Utility Software"). The PC
MoneyGram Software and the MoneyGram Application Software will be contributed
to the Company pursuant to the Contribution Agreement. Pursuant to the
Software License Agreement, IPS will grant to the Company a perpetual,
irrevocable, worldwide, nonexclusive, royalty-free license to use the Utility
Software in the Business or for any other purpose. See "Certain Relationships
and Related Transactions--The Transition Agreements--The Software License
Agreement."
The Short-Term Working Capital Facility. Prior to the consummation of the
Offering, First Data and the Company will enter into the Facility pursuant to
which the Company may borrow from time-to-time, on a revolving basis, an
amount up to $20 million. Borrowings under the Facility will be unsecured and
only may be used for working capital requirements of the Company. The interest
rate on all outstanding borrowings under the Facility will be the prime rate,
as announced by Chase Manhattan Bank, N.A., plus one percent. The Facility
will terminate 180 days from the consummation of the Offering, at which time
all outstanding borrowings thereunder would have to be repaid or refinanced by
the Company. The Facility contains no commitment or other fees to be charged
to the Company. The Facility contains covenants that limit or restrict the
ability of the Company, without the consent of First Data, which will not be
unreasonably withheld, to (i) place liens on or otherwise encumber its assets
and properties, (ii) to pay dividends, make other distributions or acquire its
capital stock, (iii) dispose of property material to the Business or
operations, (iv) merge or consolidate or acquire assets of any other person or
entity, (v) make certain Investments (as defined therein), (vi) enter into
certain transactions with affiliates and (vii) incur additional indebtedness
for money borrowed. The Facility also will include terms, conditions,
representations and warranties, indemnities, events of default and other
provisions that are customary in such agreements. See "Certain Relationships
and Related Transactions--The Transition Agreements--The Short-Term Working
Capital Facility."
The Service Mark Letter Agreement. Pursuant to the Service Mark Letter
Agreement, the Company, First Data and Western Union have agreed not to sue
each other in respect of the service marks "The Better Way to Wire Money,"
"Wire Money in Minutes" and "Money in Minutes," and certain other similar
phrases, whether in English or another language (the "Disputed Marks"), during
the two-year period following the consummation of the Offering (or thereafter
in respect of the use of any Disputed Mark during such two-year period).
However, the Company and First Data have agreed that each may prosecute or
challenge applications in respect of any of the Disputed Marks at patent and
trademark authorities in the United States or elsewhere during such two-year
period. The Service Mark Letter Agreement also provides that, at the option of
the Company at any time during such two-year period, Western Union, IPS and
the Company will execute the License Agreement and the Service Mark Letter
Agreement will thereupon terminate.
If executed, the License Agreement provides that Western Union will grant to
the Company a non-exclusive and royalty-free license to use "The Better Way to
Wire Money" and "Money in Minutes Worldwide" in English and certain other
languages (but not Spanish) in certain countries, always accompanied by the
word "MoneyGram" and to use "Wire Money in Minutes" in the United States in
English, always accompanied by the word "MoneyGram." The Company will
relinquish to Western Union any rights it may have in, and will be prohibited
from otherwise using, these marks, as well as other specified marks Western
Union uses. Western Union will covenant not to use "The Better Way to Wire
Money" in English in certain countries, including the United States. Both the
Company and Western Union will have a six-month period, beginning upon signing
the License Agreement, during which non-conforming uses of the marks covered
by the agreement will be permitted. Any non-conforming signage, including non-
conforming signage installed during the transition period, may be used through
the life of such signage. The License Agreement has other terms, conditions
and indemnities customary in such licensing agreements. See "Risk Factors--
Agreements between the Company and Western Union Regarding Certain Service
Marks" and "Certain Relationships and Related Transactions--The Transition
Agreements--The Service Mark Letter Agreement."
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<PAGE>
The Human Resources Agreement. First Data, IPS and the Company will enter
into the Human Resources Agreement which defines the duties, obligations and
liabilities of First Data and IPS and the Company with respect to the
transition of employees from First Data and IPS to the Company. The Human
Resources Agreement addresses the termination of such employees under First
Data's pension, profit sharing and stock plans and welfare benefit plans
(medical, dental, etc.) and their benefits as newly hired employees of the
Company. Pursuant to the Human Resources Agreement, First Data, IPS and the
Company have each agreed, for a one-year period from the consummation of the
Offering, not to solicit or hire each other's employees. See "Certain
Relationships and Related Transactions--The Transition Agreements--The Human
Resources Agreement."
The Telecommunications Services Sharing Agreement. First Data and the
Company will enter into the Telecom Agreement which provides that First Data
shall cooperate and use reasonable efforts to facilitate the provision of
telecommunication services under First Data's agreements with its various
long-distance telecommunication service providers to the Company and its
affiliates, if any. The Telecom Agreement permits the Company to choose among
such long-distance providers and to benefit from First Data's tariff rates.
The Company, in exchange, will agree to use the telecommunication services
provided by First Data's telecommunication service providers exclusively for
all of the Company's and its affiliates' person-to-person telephone calls
(both incoming and outgoing). The Telecom Agreement expires on December 31,
1998, unless earlier terminated for, among other things, breach by either
party of its representations, warranties or agreements therein, bankruptcy or
insolvency of a party or, at the Company's option, upon 60 days' written
notice.
The Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, the Company has agreed to register under the Securities Act of
1933, as amended (the "Securities Act") (and applicable state securities
laws), the shares of Common Stock held by the Selling Stockholder, if any,
after the completion of the Offering. IPS has agreed that in the event the
U.S. Underwriters' over-allotment option is not exercised in full, it will
deposit any shares of Common Stock then-owned by it into an irrevocable voting
trust (the "Trust") with Wachovia Bank of North Carolina, N.A., as trustee
(the "Trustee"). Pursuant to the irrevocable voting trust agreement (the
"Trust Agreement") among First Data, IPS and the Trustee, the Trustee will
vote any shares of Common Stock subject to the Trust in the same proportion as
all shares of outstanding Common Stock are voted by the other stockholders.
The Trustee will also have the duty and the authority on behalf of IPS to
dispose of such shares of Common Stock on or prior to January 23, 1997, in a
manner advised by a nationally recognized investment banker, which may include
Morgan Stanley & Co. Incorporated, or to donate such shares to a designated
charity or charities on January 23, 1997 (unless the Trust is extended). See
"Certain Relationships and Related Transactions--The Transition Agreements--
The Registration Rights Agreement."
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RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements due to a number of factors, including those set forth below
and elsewhere in this Prospectus. Prospective investors should consider
carefully the following factors in addition to the other information set forth
in this Prospectus in evaluating an investment in the shares of Common Stock
offered hereby.
HIGHLY COMPETITIVE INDUSTRY
The consumer money transfer and other payment products industry is highly
competitive. The principal methods of competition are price, advertising and
the number and quality of agents and agent locations. Quality of service and
service enhancements are, to a lesser extent, also competitive factors. The
Company faces competition from other consumer money wire transfer service
providers as well as from other payment products which offer consumers the
ability to transfer funds to others. Non-bank consumer money wire transfer
services are provided primarily by two global companies, MoneyGram and Western
Union. The Company estimates that Western Union accounted for approximately
81% of the 33 million non-bank consumer money wire transfers processed
worldwide in 1995 (compared to approximately 16% by the Company).
Recently, competition has increased through the entry of new competitors or
expanded services offered by existing competitors, particularly in the U.S. to
Mexico market. Orlandi Valuta, a competitor in the Los Angeles to Mexico
corridor, has expanded its U.S. presence to over 3,400 agents in California,
Illinois, Texas and Florida, now offers a 10-minute service to Mexico and is
contemplating offering a U.S. to U.S. service. The Company faces additional
competition from the U.S. Postal Service which announced plans to offer two
new money transfer products to Mexico in 1996. The U.S. Postal Service has
joined the Eurogiro Network AS, which allows the U.S. Postal Service to send
postal money order delivery information electronically to participating
partner postal administrations (such as Mexico's postal service). Funds also
may be wired to the receiving institution over this network. This "electronic
money order" service will allow customers to quickly send their money orders
to Mexico for pick up at the Mexican post office. In addition, the U.S. Postal
Service currently is testing an electronic funds transfer system in California
and Texas that will allow postal customers to wire money to Mexico to be
received at Bancomer, S.A. ("Bancomer"), Mexico's third largest bank. Niche
competitors who serve specific migratory corridors also compete with the
Company, including several Mexican banks (such as Bancomer) which have
recently begun to offer consumer money wire transfer services from the United
States to Mexico, focusing on specific geographic locations with high
densities of Mexican immigrants. Niche competitors are able to focus on
particular geographic corridors and eliminate the expenses associated with
maintaining nationwide and worldwide agent networks.
The Company also faces competition from providers of other payment products.
Banks, other financial institutions and credit card companies provide similar
services. Some financial institutions in the United States have announced
plans to expand such services or offer consumer money wire transfer services
for non-bank customers. The Company also faces competition from automated
teller machines and similar retail electronic networks that could allow
consumers to transfer funds to others. The Company also competes with
providers of money orders purchased through IPS, Western Union agents, the
U.S. Postal Service, currency exchanges, supermarkets, convenience stores and
other retail outlets. Money orders generally are less expensive than consumer
money wire transfer services and are available to customers through more
extensive distribution networks.
A significant portion of the Company's growth in revenues and transaction
volumes prior to 1996 resulted from promotional discounting of its prices,
which has reduced the Company's profit margins. Customers typically increase
usage during promotion periods, but also transmit smaller amounts of money per
transaction with a resulting lower average fee per transaction. Historically,
the Company's transaction volumes have increased during price promotions and,
although transaction volumes decline when the price promotion ends, they
consistently remain above pre-promotion levels. There can be no assurance as
to what the Company's competitors will do in the future in terms of pricing,
nor can there be any assurance that the Company will be
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<PAGE>
able to continue to price below such competitors (particularly niche
competitors, such as Mexican banks establishing consumer wire transfer service
locations in high-use areas in the United States) or offer frequent and
substantial promotions. Future price competition could further reduce the
Company's profit margins (without any increase in transaction volume). As the
MoneyGram service increases its brand name recognition and transaction volumes
increase, the Company has in 1996, and currently intends to continue, to
reduce the number, scope, duration and level of discounting of its price
promotions compared to 1995 and 1994.
Many of the Company's competitors, including Western Union, have, and
potential competitors may have, significantly greater financial, technological
and marketing resources than the Company. No assurances can be given that such
competitors will not use such resources to compete more aggressively by
expanding their agent networks, funding substantial advertising campaigns,
adding enhanced customer services and/or reducing prices, that the Company
will be able to compete successfully against current or future competitors or
that such competition will not have a material adverse effect on the Company's
business, operating results or financial condition. See "Business--MoneyGram
Pricing and Fees," "--Sales and Marketing" and "--Competition."
COMPETITION WITH FIRST DATA
The Company currently competes, and following the offering will compete,
directly with First Data and Western Union, subject only to limited non-
solicitation protections provided by the Consent Decree. Although the Consent
Decree prohibits First Data from entering into a consumer money wire transfer
service contract with a MoneyGram Agent prior to the scheduled expiration of
its Agent Contract, First Data and Western Union may sign a consumer money
wire transfer service contract with any MoneyGram Agent whose Agent Contract
is terminated in accordance with its terms. If MoneyGram fails to comply with
the terms of any Agent Contract, the MoneyGram Agent may terminate the Agent
Contract, in which case First Data and Western Union are permitted under the
Consent Decree to sign such agent to a Western Union agent contract.
In addition, the scope of the Consent Decree is limited in certain respects.
Specifically, the non-solicitation provisions of the Consent Decree described
above do not limit First Data or Western Union from entering into contracts
with MoneyGram Agents to provide services utilizing automatic teller machines
and other point of sale devices, transactions involving debit cards, cash
advances utilizing credit cards, home banking, prepaid telephone and cash
cards, money orders and utility bill payment services. First Data and Western
Union therefore can offer such products in direct competition with the
Company, unrestricted by the Consent Decree. In addition, certain senior
managers of First Data, who previously exercised direction and control over
the Business, will remain as senior managers of First Data with responsibility
for, among other things, the operations of Western Union. Finally, other than
pursuant to the confidentiality provisions in the Hold Separate Agreement,
First Data is not restricted or precluded from applying its historical
knowledge of the Business to its management of Western Union, which may
enhance Western Union's ability to compete with the Company.
Western Union is likely to continue to use its significantly greater
financial, technological and marketing resources to compete vigorously with
the Company in the consumer money wire transfer services industry, including
by signing terminated MoneyGram Agents and other new agents, by acquisitions
and joint ventures and by launching new products that compete with the
consumer money wire transfer service offered by the Company. Such competition
may have a material adverse effect on the Company's business, operating
results or financial condition. See "Business--Competition."
DEPENDENCE ON MAJOR MONEYGRAM AGENTS
In 1995, the Company's top 10 selling MoneyGram Agents, representing
approximately 2,500 agent locations, accounted for approximately 42% of the
Company's transaction volume and 43% of the Company's Transaction Fee
Revenues. During the first nine months of 1996, the Company's top 10 selling
MoneyGram Agents, representing approximately 3,300 locations, accounted for
approximately 42% of the Company's
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transaction volume and 41% of the Company's Transaction Fee Revenues. The
Company has long-term contracts that expire no earlier than the year 2000 with
eight of its 1996 top 10 selling MoneyGram Agents, representing approximately
2,700 locations and accounting for approximately 37% of the Company's
transaction volume and 36% of the Company's Transaction Fee Revenues for the
first nine months of 1996. Two of the top 10 MoneyGram Agents in 1995 and
1996, Banamex and the Chicago Currency Exchange, were each involved in
transactions representing over 10% of the Company's total revenues. In 1995,
46% of funds transferred and 44% of all transactions processed by the Company
were sent by MoneyGram Agents located in the United States and received by
MoneyGram Agents located in Mexico. Banamex, the Company's primary MoneyGram
Agent in Mexico (receive only), represented approximately 71% of the Company's
approximately 1,000 agent locations in Mexico, accounted for 97% of the
Company's approximately 2.4 million total receive transactions in Mexico and
generated $42.4 million in foreign exchange revenues (representing 31% of
total revenues) during 1995. The Agreement with Banamex expires in April,
2002. The Chicago Currency Exchange (consisting of approximately 85 separate
Agent Contracts with owners of Chicago Currency Exchange locations which
expire in 2000 or 2001) in the aggregate initiated send transactions that
generated approximately 15% of the Company's total Transaction Fee Revenues in
1995. In addition, Ace Cash Express ("Ace"), which has 575 locations,
initiated send transactions that generated approximately 11% of the Company's
total Transaction Fee Revenues in the first nine months of 1996. The Agent
Contract with Ace expires in 2000. The loss of, or significant reduction in,
business from one or more of the Company's significant MoneyGram Agents,
including Banamex, Ace and the Chicago Currency Exchange, could have a
material adverse effect on the Company's business, operating results or
financial condition. See "Business--The MoneyGram Agent Network."
FLUCTUATION OF MONEYGRAM AGENT NETWORK
The MoneyGram Agent network recently has experienced increased fluctuation
in the number of MoneyGram Agents. This fluctuation resulted from normal
turnover, as well as extraordinary circumstances arising from the Transition.
From October 1995 to March 1996 (the "Consent Period"), the MoneyGram Agent
sales force dedicated a significant amount of time and effort to obtaining
consents from MoneyGram Agents to the assignment of their Agent Contracts
rather than focusing their efforts on maintaining and expanding the agent
base. During the Consent Period, the Company lost three significant MoneyGram
Agents: Revco, D.S., Inc. ("Revco"), Greyhound Lines, Inc., and Food 4 Less
Supermarkets, Inc. Two of these three MoneyGram Agents were among the top 10
selling MoneyGram Agents in 1995. While these three MoneyGram Agents
collectively represented 1,607 locations at December 31, 1995 (9.3% of the
total number of MoneyGram Agents at such date), the percentage of total
transactions and total revenues attributable to these agents was only 6.0% and
4.8%, respectively. Also, as a result of the Transition, the 450 American
Express Travel Services Offices (the "TSOs") will no longer serve as MoneyGram
Agents. The loss of the TSOs will decrease the number of countries covered by
the MoneyGram Agent network by 15. Although the MoneyGram Agent network has
begun to grow through the addition of new MoneyGram Agents, there can be no
assurance that the MoneyGram Agent network will continue to grow, the failure
of which could have a material adverse effect on the Company's business,
operating results or financial condition. See "Business--The MoneyGram Agent
Network."
FACTORS RELATING TO INDEPENDENCE AND SALE OF THE COMPANY
Reliance on First Data. The operating success and viability of the Company
are dependent upon the performance by First Data or its affiliates of their
obligations under the Transition Agreements. Therefore, the breach or
termination of any of the Transition Agreements could have a material and
adverse affect on the Company's business, operations or financial condition.
There can be no assurance that the Company would be able to arrange an
alternative source of such services or support or a source of working capital
provided under the Transition Agreements upon comparable terms (including
prices) or at all. Moreover, until such time as the Company has obtained the
Required Licenses and title to the Agent Contracts has been assigned to the
Company by IPS, the Company will be precluded from operating the Business
other than under the Operations Agreement
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or an extension thereof. Under the Operations Agreement, IPS has agreed, at
the request of the Company in its sole discretion, to negotiate in good faith
to extend the Operations Agreement or negotiate a similar arrangement with the
Company, in either case upon such terms and conditions, including prices, to
be agreed upon by the parties. Although the Company expects to procure all of
the Required Licenses within one year of the date hereof, there can be no
assurance that any or all Required Licenses will be obtained in a timely
manner or that, upon the failure to do so, First Data and the Company will
agree to extend the Operations Agreement. See "Certain Relationships and
Related Transactions--The Transition Agreements."
Conflicts of Interest with First Data. Conflicts of interest between First
Data and the Company could arise as a result of First Data's ownership of
Western Union, on one hand, and the obligations of First Data and its
affiliates under the Transition Agreements, on the other hand. See "Certain
Relationships and Related Transactions--The Transition Agreements." After
giving effect to the Offering, IPS will continue to own approximately 13% of
the outstanding shares of Common Stock (assuming the U.S. Underwriters do not
exercise their over-allotment option), which could result in IPS being the
Company's largest single stockholder, as well as IPS being deemed an
"affiliate" of the Company. However, IPS will not have any designated
directors on the Board of Directors of the Company or any other rights or
preferences as compared to any other stockholder of the Company, other than
any it may have by virtue of the number of shares of Common Stock it owns or
under the Registration Rights Agreement. In addition, if the U.S.
Underwriters' over-allotment option is not exercised in full and IPS continues
to own Common Stock following the Offering, IPS will deposit such Common Stock
into the Trust and will have no ability to direct or influence the manner in
which such Common Stock is voted or sold. See "The Transition and Ongoing
Relationship with First Data," "Certain Relationships and Related
Transactions--The Transition Agreements--The Registration Rights Agreement"
and "Selling Stockholder."
Absence of Arm's-Length Negotiations. While management of the Company has
participated in the preparation and negotiation of the Transition Agreements,
none of the Transition Agreements were the result of third party, arm's-length
negotiations. However, the fees and expenses to be paid by the Company for
services to be performed by First Data and its affiliates under the Operations
Agreement reflect First Data's good faith estimate of the actual cost
(including reasonably allocated overhead expenses) of providing such services,
calculated on a basis consistent with the determinations made in preparing the
Financial Statements appearing elsewhere in this Prospectus. No assurances can
be given that the Company could not obtain such services at a lower cost from
a third party. See "Certain Relationships and Related Transactions--The
Transition Agreements--The Operations Agreement."
Agreements between the Company and Western Union Regarding Certain Service
Marks. The Company uses certain service marks in the Business, including
"MoneyGram," "The Better Way to Wire Money," "Wire Money in Minutes" and
"Money in Minutes Worldwide." Many of these marks have been refused initial
registration by the U.S. Patent and Trademark Office or are being used
concurrently by Western Union, the Company's principal competitor.
IPS has registered "MoneyGram" in certain countries and has applications
pending to register the mark in the United States and in substantially all
other countries in which the Company is conducting, or intends imminently to
conduct, business. In the United States and in certain other countries, the
trademark examiners initially have refused to register "MoneyGram" on the
grounds that it is merely descriptive of the service. In the United States,
the trademark examiner, on appeal, refused to register "MoneyGram" on the
grounds that it is generic. The Company intends to defend vigorously the
registrability of "MoneyGram." However, no assurance can be given that
"MoneyGram" will be registered in any country where applications are pending.
Western Union is using, among other marks, "The Best Way to Send Money" and
"The Fastest Way to Send Money" and has registered these marks in the United
States and in other countries. IPS, on behalf of MoneyGram, applied to
register "The Better Way to Wire Money" in the United States, and the U.S.
trademark examiner rejected the application due to Western Union's prior
registrations for said marks.
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Western Union uses "Money in Minutes" and has registered this mark in the
U.S. and has applied to register the mark in certain other countries. IPS, on
behalf of MoneyGram, applied to register "Wire Money in Minutes" in the United
States and expects that the U.S. trademark examiner will reject IPS's
application due to Western Union's prior United States registration.
The Company and Western Union have no current dispute regarding the
Company's use of "The Better Way to Wire Money," "Wire Money in Minutes" or
"Money in Minutes Worldwide," and the two entities have concurrently used
these or similar marks for some time. However, the Company's and Western
Union's respective rights to these marks and to similar marks are unsettled.
Consequently, pursuant to the Service Mark Letter Agreement, the Company,
First Data and Western Union have agreed not to sue each other in respect of
the Disputed Marks, during the two-year period following the consummation of
the Offering (or thereafter in respect of the use of any Disputed Mark during
such two-year period). However, the Company and First Data have agreed that
each may prosecute or challenge applications in respect of any of the Disputed
Marks at patent and trademark authorities in the United States or elsewhere
during such two-year period. The Service Mark Letter Agreement also provides
that, at the option of the Company at any time during such two-year period,
Western Union, IPS, and the Company will execute the License Agreement and the
Service Mark Letter Agreement will thereupon terminate. No assurances can be
given about the effect, if any, of entering into such arrangement concerning
the Disputed Marks may have on the Business or the Company's operating results
or financial condition, including in the event such arrangement constitutes an
abandonment by the Company and Western Union of any or all of the Disputed
Marks. See "Business--Proprietary Rights and Trademarks" and "Certain
Relationships and Related Transactions--The Service Mark Letter Agreement."
No assurances can be given about the effect that any dispute between the
Company and Western Union over the use of one of these marks, an adverse
resolution of such a dispute, if any, or the loss of any service mark of the
Company, would have on the Business or the Company's operating results or
financial condition.
Loss of Use of American Express Name. Prior to the Transition, IPS has
managed and operated the Business and other IPS payment products under the TRS
Management Agreement. Under the TRS Management Agreement, IPS is permitted to
use the American Express name and logo in connection with the marketing of the
MoneyGram service. The TRS Management Agreement contemplates that IPS would
phase out the use of the American Express name and logo by April 1997. IPS
already has commenced such phase out, for instance, in certain of its
advertising and promotions of the MoneyGram service. Upon the transfer of the
Agent Contracts from TRS to IPS in connection with the Transition, neither IPS
nor the Company will be permitted to use the American Express or TRS name or
logo in connection with advertising or promotion of the MoneyGram service. No
assurances can be given that the loss of the use of the American Express or
TRS name and logo will not have a material adverse effect on the Company's
business, operating results or financial condition.
ABILITY TO GROW THROUGH NEW PRODUCTS AND SERVICES
To enhance its growth prospects, the Company currently intends to expand its
business by, among other things, (i) targeting frequent users of money
transfer services, (ii) increasing brand recognition and loyalty, (iii)
providing enhanced value to customers, (iv) growing internationally, (v)
expanding its agent network, (vi) penetrating additional retail and other
distribution channels and (vii) developing other related payment products and
systems. This growth strategy will require increased expenditures. Among the
related payment products the Company currently intends to develop is a money
order product. IPS has agreed, pursuant to the Operations Agreement, to
negotiate in good faith the terms of additional data processing and other
services to be provided by IPS and its affiliates in respect of a money order
product offered by the Company, initially in the names of IPS (as the licensed
entity) and the Company and, at such time as the Company has obtained all
necessary licenses to offer such product, a money order product offered by the
Company in its own name, all at rates not greater than then-current market
rates. The development of new products may require, among other things, the
development of additional software by or on behalf of the Company.
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Aspects of the Company's operations depend upon intellectual property
subject to patents or copyrights owned by, and licensed from, third party
providers such as software and telecommunications products. The Company
believes it currently has licenses or other protection in regard to all such
intellectual property. However, should the Company offer new or additional
services, products or programs or alter the current method of operating the
Business, the Company may engage in activities not covered by its current
licenses and agreements. There can be no assurance that in the process of
expanding its product base, the Company will not require additional or
expanded licenses from third party providers. While the Company believes that
such licenses are readily available, there can be no assurance that the
Company will not incur additional expenses to obtain such licenses.
NEW MANAGEMENT TEAM
Certain members of the Company's senior management group, including Mr.
Calvano, the Chairman and Chief Executive Officer, Mr. Fowler, the Executive
Vice President and Chief Financial Officer, Mr. Friedman, the Executive Vice
President--Operations, and Ms. Kenyon, the Secretary and General Counsel,
began working with the Company in February, September, April and July of 1996,
respectively, and have only had the opportunity to work together with the
existing management team since then. In addition to other executive management
positions with other companies, Mr. Calvano previously served as president and
chief operating officer of Western Union from June 1991 through May 1993 and
Mr. Friedman previously served as chief financial officer of Western Union
from November 1994 through March 1996. Other senior sales and marketing
managers of the Company formerly held the same or similar positions while
managing the Business at IPS. Nevertheless, there can be no assurance that the
Company's management group will be successful in managing the operations of
the Company or be able to implement effectively the Company's business and
expansion strategy. In addition, none of the key senior management personnel
have an employment agreement with the Company. See "Management."
EXTENSIVE REGULATION
The Business is subject to supervision and regulation under state and
federal laws and regulations, as well as regulation by foreign governments.
The Company will be required, among other things, to obtain and maintain
licenses in 43 states, the District of Columbia and Puerto Rico. Potential
licensees such as the Company generally must meet certain financial
requirements and provide security (such as bonds). In addition, licensees are
generally subject to certain reporting requirements and, in some cases,
audits. Failure to obtain or maintain a license in a particular state could
preclude the Company from offering the MoneyGram service in that state or
subject the Company to fines and penalties under state law. The Business also
is subject to federal regulation, including the Bank Secrecy Act (the "BSA")
and the Money Laundering Control Act of 1986 (the "MLCA"), which were adopted
to combat "money laundering" via financial institutions, including money
transmitters such as the Company and MoneyGram Agents. In addition, some
foreign countries have regulations applicable to the Business. Such
regulations include both international anti-money laundering initiatives and
local regulation of money transmission. Certain countries currently, or in the
future may, limit consumer money transmission activities (as principal and/or
agent) to banks or similarly licensed financial institutions. Such
restrictions may limit who the Company can utilize as an agent, require the
Company to conduct the Business through a licensed entity or prohibit the
Company altogether from conducting the Business in such country. While the
Mexican government has enacted legislation which criminalizes money
laundering, Mexico currently does not require any special license to engage in
the consumer money wire transfer business.
The failure to comply with the laws or regulations to which the Business is
subject, adverse changes in the interpretation thereof or the adoption of more
stringent laws or regulations could have a material adverse effect on the
Company's business, operating results or financial condition. See "Business--
Regulation and Licensing."
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UNCERTAINTY AS TO CERTAIN TAX MATTERS
As a result of the Transition, the tax basis (for federal income tax
purposes) of the MoneyGram Assets will increase from their tax basis in the
hands of IPS and certain of its affiliates at the time of the Contribution to
their fair market value at that time (determined by reference to the initial
public offering price). Such tax basis is generally expected to produce a tax
benefit to the Company in future years through depreciation or amortization
deductions or through decreased gain or (subject to certain limitations)
increased loss on a disposition of any MoneyGram Asset. However, the "anti-
churning" rules under Section 197 of the Code might apply to disallow such
amortization with respect to certain intangible assets of the Company. For
financial accounting and reporting purposes, the Company will record a
deferred tax asset (with a corresponding credit to capital surplus) for the
tax effect of the excess of the tax basis of the MoneyGram Assets following
the Contribution over their net book value. Solely for financial accounting
and reporting purposes, such tax basis will be reduced to take into account
management's assessment of the possible application of the "anti-churning"
rules under Section 197 of the Code. Management's best estimate of the amount
of this uncertainty is subject to revisions and resolution of the uncertainty
may not occur until such time as an audit of the Company's tax return for the
period ended December 31, 1996, or any subsequent year in which amortization
deductions are claimed, is completed by the IRS. Any revisions to the deferred
tax asset resulting from resolution of this uncertainty will be offset by a
corresponding charge or credit directly to capital surplus at the time such
resolution occurs. In addition, the amount of the gross deferred tax asset
which will be recorded at the time of the Contribution will be reduced by a
valuation allowance which will be based upon management's judgment as to the
likelihood of the Company generating sufficient taxable income to realize the
asset through future tax deductions. Any future changes in the valuation
allowance will be based upon management's then current assessment of the
Company's ability to generate sufficient taxable income to realize the balance
of the deferred tax asset through future tax deductions and the impact of any
such changes in the valuation allowance will be recorded as a component of
income tax expense. No assurances can be given that the anti-churning rules
will not be applied to disallow amortization with respect to a significant
portion of the MoneyGram Assets, that the Company will generate sufficient
taxable income to realize the deferred tax asset through future deductions or
that changes in applicable tax law (possibly on a retroactive basis) will not
limit the Company's ability to take such deductions. See "Certain
Relationships and Related Transactions--the Transition Agreements--The
Contribution Agreement--Taxes."
RISK OF LOSS
The Company's operations are dependent on its ability to protect its
customer service center and other processing operations against damage from
fire, earthquake, power loss, telecommunications failure or similar events.
The Company's voice center and other customer service operations are located
in its Lakewood Facility, although up to 30% of the inbound voice calls may be
routed through the Corpus Christi Facility in order to insure that the Company
will have adequate redundancy in its customer service system. First Data and
its affiliates will provide disaster recovery services for the Company's voice
center during the term of the Operations Agreement at First Data's facilities
in Englewood, Colorado, and, for such time as the Company chooses to route
inbound voice calls through the Corpus Christi Facility, at the Corpus Christi
Facility. The Company may determine in the future to obtain such services from
a third party. However, no assurance can be given that the disaster recovery
services selected by the Company, either from First Data or a third party,
will be adequate, and operations may still be interrupted, even for extended
periods. Any damage or failure that causes interruptions in the Company's
operations could have a material adverse effect on the Company's business,
operating results or financial condition. The Operations Agreement does not
provide for consequential damages for the Company in the event that either the
customer service center or the data processing disaster recovery services are
inadequate and the Company incurs resulting losses. The Company's property and
business interruption insurance may not be adequate to compensate the Company
for all losses that it may incur. See "Business--Operations."
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LIQUIDITY
The Company's initial sources of liquidity will be the IPS Cash
Contribution, cash generated from operations and the Facility. In the event
that the IPS Cash Contribution and internally generated funds from operations
are not sufficient to meet the Company's liquidity requirements, the Company
will be dependent upon First Data under the Facility to provide working
capital funds until such time as the Company generates sufficient cash flow
from operations or the Company can replace the Facility with a credit facility
with a third party. The Facility will terminate 180 days from the consummation
of the Offering, at which time all outstanding borrowings thereunder would
have to be repaid or refinanced. There can be no assurance that the Facility
will be extended or refinanced. In addition, the Facility contains terms and
conditions, including certain restrictive covenants, customary in such
agreements. See "Certain Relationships and Related Transactions--The
Transition Agreements--The Short-Term Working Capital Facility." Although the
Company believes it can refinance or replace the Facility prior to its
termination, if necessary, no assurances can be given that it will be able to
do so in a timely manner. In such event, and if the IPS Cash Contribution and
internally generated funds from operations are not sufficient for working
capital needs, the Company would be required to seek other sources of
liquidity, if available.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's Transaction Fee Revenues and foreign exchange revenues
fluctuate on a quarterly basis and, to a lesser extent, reflect some seasonal
variations in transaction volumes. Transaction Fee Revenues fluctuate based in
part upon whether the Company is offering a price discounting promotion. These
promotions are a part of the Company's growth strategy. Customers typically
increase usage during price promotions, but also usually transmit smaller
amounts of money per transaction, with a resulting lower average fee per
transaction. The lower average fee per transaction during promotions
historically has been partially offset by corresponding increases in
transaction volume. Foreign exchange revenues fluctuate based upon the
volatility in the spread earned between wholesale and retail exchange rates on
foreign exchange transactions (primarily to Mexico). These exchange rates are
affected by volatility of foreign currencies, particularly the Mexican peso,
and the face amount of transactions sent outside the United States, primarily
to Mexico. Seasonal factors such as holidays, migrant worker remittances,
which are higher in the summer and fall, and emergency transfers to travelers,
which are higher during the summer, also affect the Company's quarterly
results of operations.
FOREIGN TRANSACTIONS RISKS
Approximately 75% of the Company's total revenues (including foreign
exchange revenues) in each of 1994 and 1995 and 70% of total revenues in the
first nine months of 1996 were derived from consumer money wire transfer
service transactions involving either a receiving or sending party (or both)
located outside of the United States (primarily U.S. to Mexico transactions).
The Company generates foreign exchange revenues on U.S. to international
transactions (primarily Mexico) due to the difference in the cost of foreign
currencies at wholesale exchange rates and the retail exchange rates charged
to customers in such transactions. Foreign exchange revenues in 1995 were
substantially larger than in prior years primarily due to the volatility of
the value of the Mexican peso. As the decrease in average foreign exchange
revenues earned per Mexico transaction (from approximately $20 in the first
nine months of 1995 to approximately $13 in the first nine months of 1996)
demonstrates, the Company's average foreign exchange revenues per transaction
in 1995 are not indicative of what the Company expects to achieve in the
future. While a substantial portion of the Company's transaction volume and
total revenues are the result of transactions involving one or more MoneyGram
Agent locations outside the United States, substantially all of the Company's
assets are located in the United States and approximately 98% of all send
transactions originate in the United States. Consequently, virtually all
Transaction Fee Revenues are based in U.S. dollars.
The international portion of the Business is subject to a number of inherent
risks, including difficulties establishing and maintaining agent networks,
fluctuations in the value of foreign currencies, government actions such as
currency devaluations or imposition of foreign exchange controls, potential
political and economic
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instability and the need to comply with foreign regulatory requirements. There
can be no assurance that these factors will not adversely affect the Company's
international revenues (including foreign exchange revenues), growth strategy
or its operating results or financial condition. See "Business--International
Transactions."
FINANCIAL STATEMENT PRESENTATION
The Company's Financial Statements and other financial data appearing
elsewhere in this Prospectus are presented on a carve-out basis for the
Business and are derived from the historical financial statements and
financial data of IPS. The Financial Statements include allocations of
operating and general and administrative expenses to the Company from IPS.
However, such allocations do not necessarily reflect the expenses that would
have been or will be incurred by the Company operating as a stand-alone
entity. Management of the Company believes that costs have been determined and
allocated on a reasonable basis and all costs attributable to conducting the
Business have been included in the Company's Financial Statements.
Furthermore, in the opinion of management, the Company's expenses, as
reflected in the Financial Statements, would not be materially affected by the
Company operating as a stand-alone entity and its execution of the
Contribution Agreement, the Operations Agreement and the Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Financial Statement Presentation" and Note 1 of the
Notes to Financial Statements.
ANTITAKEOVER MATTERS
The Company's Certificate of Incorporation and By-laws contain certain
provisions that may delay, deter or prevent a takeover of the Company. The
Certificate of Incorporation provides for a classified board of directors,
with three classes of directors, each class being elected for three-year,
staggered terms, and prohibits stockholder action by written consent. In
addition, the Company's By-laws include provisions establishing advance notice
procedures with respect to stockholder proposals and director nominations,
permitting the calling of special stockholder meetings only by a majority of
the Board of Directors or the President and limiting the removal of directors
except for "cause." These factors could have the effect of making it more
difficult for a third party to acquire control of the Company, which could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock."
ABSENCE OF PRIOR PUBLIC TRADING MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, there can be no assurance
that an active public market will develop for the Common Stock or that, if
such a market develops, the market price will equal or exceed the initial
public offering price set forth on the cover page of this Prospectus. The
initial public offering price for the Common Stock will be determined by
negotiations between the Selling Stockholder and the U.S. Representatives (as
defined below) based on the factors described under "Underwriters." The prices
at which the Common Stock trades from time to time after the Offering will be
determined by the marketplace and may be influenced by many factors, including
the Company's operating and financial performance, the depth and liquidity of
the market for the Common Stock, future sales of Common Stock (or the
potential thereof), including sales by IPS (unless the U.S. Underwriters
exercise their over-allotment option in full), investor perception of the
Company and its prospects, the Company's dividend policy and general economic
conditions. Further, the stock market may experience volatility that affects
the market prices of companies in ways unrelated to the operating performance
of such companies. These market fluctuations may adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE AND IPS INTENTION TO SELL ALL OF ITS COMMON
STOCK
Upon consummation of the Offering, the Company will have outstanding
16,625,000 shares of Common Stock and an additional 1,200,000 shares reserved
for issuance under the Company's 1996 Stock Option Plan (1,175,000 shares) and
1996 Broad-Based Stock Option Plan (25,000 shares). See "Management--Stock
Plans."
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In addition, subsequent to the Offering, the Company currently expects to
implement a stock option plan for certain key MoneyGram Agents pursuant to
which the Company would reserve shares of Common Stock (the "MoneyGram Agent
Stock Option Plan"). If implemented, the Company may grant options to certain
key MoneyGram Agents (exercisable at the price of the Common Stock on the date
any such option is granted) in connection with the extension of existing or
the negotiation of new Agent Contracts. Such options, if granted, generally
would not be exercisable until the expiration of the initial term of such
Agent Contracts. The Company expects that any such stock options (and the
shares of Common Stock issuable upon exercise of such options) would be
registered under the Securities Act. Therefore, any shares of Common Stock
issued upon exercise of such options would be freely tradeable without
restriction. No assurance can be given that the Company will adopt such a
MoneyGram Agent Stock Option Plan (which may require stockholder approval) or
that, if adopted, any options would be granted thereunder.
All of the shares of Common Stock sold by the Selling Stockholder in the
Offering will be freely tradeable without restriction. In addition, the
Selling Stockholder has entered into the Registration Rights Agreement with
the Company pursuant to which it has the right to cause the Company to
register shares owned by it after the Offering, if any, under the Securities
Act for sales in underwritten offerings or from time to time in open market
transactions. See "Certain Relationships and Related Transactions--The
Transition Agreements--The Registration Rights Agreement." Under the terms of
the Trust Agreement, the Trustee has the duty and the authority on behalf of
IPS to dispose of any shares owned by IPS on or prior to January 23, 1997 or
to donate such shares to a designated charity or charities on January 23, 1997
(unless the Trust is extended). No predictions can be made as to the effect,
if any, that market sales of such shares, or the availability of shares for
future sales, will have on the market price of shares of Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
Each of the Company, the Selling Stockholder and the Trustee pursuant to the
Trust Agreement has agreed, subject to certain exceptions, that, without the
prior written consent of Morgan Stanley & Co. Incorporated, it will not (i)
offer, pledge, issue, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, file a registration statement (in the case of the Company) or make
any demand for or exercise any right with respect to (in the case of the
Selling Stockholder and the Trustee) any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are then owned by such person or
are thereafter acquired directly from the Company) or (ii) enter into any swap
or similar agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) of this paragraph is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, for a period
of 180 days after the date of this Prospectus, in the case of the Company, and
prior to December 31, 1996, in the case of the Selling Stockholder and
Trustee, other than (a) the shares of Common Stock offered hereby, (b) any
grant of stock options that vest subsequent to 180 days after the date of this
Prospectus, (c) one or more registration statements relating to the Company's
1996 Stock Option Plan, the 1996 Broad-Based Stock Option Plan or the
MoneyGram Agent Stock Option Plan or the Company's obligations under the
Registration Rights Agreement or (d) the deposit, if any, of any shares of
Common Stock with Wachovia Bank of North Carolina, N.A. as trustee pursuant to
the Trust Agreement. See "Shares Eligible for Future Sale" and "Underwriters."
DILUTION
As of September 30, 1996, the Company had a pro forma net tangible book
value per share of Common Stock of $.32 (after giving effect to the issuance
of 16,624,900 shares of Common Stock to IPS and the IPS Cash Contribution in
the Transition and excluding any amounts attributable to deferred tax assets
resulting from the Transition). Based on an assumed initial public offering
price of $11.00 per share, purchasers of Common Stock in the Offering will
experience an immediate dilution of $10.68 per share. See "Dilution."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Stockholder of the Common Stock in the Offering.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company expects to retain its future earnings to operate and support the
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Facility generally
prohibits the Company from paying any dividend or making any other
distribution with respect to, or acquiring, shares of its capital stock other
than (i) dividends or distributions payable in shares of its Common Stock,
(ii) acquisitions of Common Stock with proceeds from a concurrent issuance of
Common Stock and (iii) cash dividends in an aggregate amount in excess of 10%
of net income of the Company on a cumulative basis after September 30, 1996.
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996, was $5.3 million or $.32 per share of Common Stock (after giving effect
to the issuance of 16,624,900 shares of Common Stock to IPS and the IPS Cash
Contribution in the Transition, as if the Transition occurred on September 30,
1996 and excluding any amounts attributable to deferred tax assets resulting
from the Transition). See "The Transition and Ongoing Relationship with First
Data," "Capitalization" and "Certain Relationships and Related Transactions--
The Transition Agreements--The Contribution Agreement--Taxes." Net tangible
book value per share is equal to the Company's total tangible assets less
total liabilities, divided by the total number of shares of Common Stock
outstanding. Because the Company will not receive any proceeds from the
Offering, the sale of shares of Common Stock offered hereby will not affect
the pro forma net tangible book value. "Dilution" per share is determined by
subtracting pro forma net tangible book value per share from the amount paid
for a share of Common Stock in the Offering. The following table illustrates
this per share dilution at an assumed initial public offering price of $11.00
per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $11.00
Net tangible book deficit per share prior to the Offering
and the IPS Cash Contribution........................... $(.40)(1)
Increase in net tangible book value per share
attributable to the IPS Cash Contribution............... .72
-----
Pro forma net tangible book value per share after giving
effect to the Transition(2)............................... .32
------
Dilution to purchasers of Common Stock in the Offering..... $10.68
======
</TABLE>
- --------
(1) Prior to consummation of the Offering, the Company has not had, and will
not have, its own cash accounts and all positive cash flows attributable
to its business flow to IPS while any negative cash flows are funded by
IPS. As a result, the capital surplus component of the Company's
stockholder's equity as of the consummation date of the Offering will (i)
decrease from the balance reported at September 30, 1996 to the extent the
Company's cash flows are positive for the period October 1, 1996 through
the consummation date, or (ii) increase from the balance reported at
September 30, 1996 to the extent the Company's cash flows are negative for
the period October 1, 1996 through the consummation date.
(2) Based upon an assumed initial public offering price of $11.00 per share,
the pro forma excess of the tax basis, for financial accounting and
reporting purposes, of the Company's net assets (following the
Contribution, determined after reducing such tax basis to take into
account management's assessment of the possible application of the anti-
churning rules under Section 197 of the Code) over their net book value at
September 30, 1996 is approximately $138.4 million resulting in a pro
forma gross deferred tax asset of $54.0 million. Based upon preliminary
management assessments, a valuation allowance of 12% or $6.3 million would
be necessary. Including the pro forma net deferred tax asset of $47.7
million would increase the pro forma net tangible book value to $53.0
million or $3.19 per share from $5.3 million or $.32 per share.
24
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma cash, short-term debt and
capitalization of the Company as of September 30, 1996 (as if the Transition,
including the IPS Cash Contribution, had occurred on such date). This table
should be read in conjunction with the Financial Statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Cash(1)................................................... $12,000
=======
Short-term debt(2)........................................ $ --
=======
Long-term debt............................................ $ --
-------
Stockholders' equity:
Common Stock, $.01 par value, 100,000,000 shares
authorized; 16,625,000 shares issued and
outstanding(3)......................................... 166
Capital surplus(4)(5)................................... 17,679
Accumulated earnings.................................... 2,259
-------
Total stockholders' equity............................ 20,104
-------
Total capitalization................................ $20,104
=======
</TABLE>
- --------
(1) Represents the IPS Cash Contribution.
(2) Prior to the consummation of the Offering, First Data will extend to the
Company the Facility, pursuant to which the Company may borrow from time-
to-time, on a revolving basis, an amount up to $20 million. Borrowings
under the Facility will be unsecured. The Facility will terminate 180 days
from the consummation of the Offering, at which time all outstanding
borrowings under the Facility would have to be repaid or refinanced by the
Company. See "Certain Relationships and Related Transactions--The
Transition Agreements--The Short-Term Working Capital Facility."
(3) Excludes 1,200,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan (1,175,000 shares) and 1996 Broad-Based
Stock Option Plan (25,000 shares). See "Management--Stock Plans" and
"Shares Eligible for Future Sale."
(4) Includes $12 million, representing the IPS Cash Contribution. Prior to
consummation of the Offering, the Company has not had, and will not have,
its own cash accounts and all positive cash flows attributable to its
business flow to IPS while any negative cash flows are funded by IPS. As a
result, the capital surplus component of the Company's stockholder's
equity as of the consummation date of the Offering will (i) decrease from
the balance reported at September 30, 1996 to the extent the Company's
cash flows are positive for the period October 1, 1996 through the
consummation date, or (ii) increase from the balance reported at September
30, 1996 to the extent the Company's cash flows are negative for the
period October 1, 1996 through the consummation date.
(5) Excludes an estimated $47.7 million attributable to pro forma net deferred
tax assets which will result from the Contribution assuming an initial
public offering price of $11.00 per share. See "Risk Factors--Uncertainty
as to Certain Tax Matters," "Dilution" and "Certain Relationships and
Related Transactions--The Transition Agreements--The Contribution
Agreement--Taxes."
25
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial data presented on a carve-
out basis for the Transition and are derived from historical financial data of
IPS. The financial data include allocations of operating and general and
administrative expenses to the Company from IPS. Such allocations do not
necessarily reflect the expenses that would have been or will be incurred by
the Company operating as a stand-alone entity. Management of the Company
believes that costs have been determined and allocated on a reasonable basis
and all costs attributable to conducting the Business have been included in
the Company's Financial Statements. In the opinion of management, such
expenses would not be materially affected by the Company operating as a stand-
alone entity. See Note 1 of Notes to Financial Statements. The selected
financial data below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements appearing elsewhere in this Prospectus. The statement
of operations data set forth below with respect to the years ended December
31, 1993, 1994 and 1995 and the balance sheet data at December 31, 1994 and
1995 are derived from, and are qualified by reference to, the audited
Financial Statements appearing elsewhere in this Prospectus. Balance sheet
data as of December 31, 1993 and September 30, 1995 and the statement of
operations data for the nine months ended September 30, 1995 have been derived
from audited Financial Statements not included in this Prospectus. The
statement of operations data for the years ended December 31, 1991 and 1992
and balance sheet data as of December 31, 1991 and 1992 are derived from
unaudited financial statements not included in this Prospectus. Balance sheet
data as of September 30, 1996 and statement of operations data for the nine-
month period ended September 30, 1996 are derived from, and are qualified by
reference to, unaudited interim financial statements appearing elsewhere in
this Prospectus. In the opinion of management, such unaudited interim
financial statements include all adjustments (consisting only of normal
recurring accruals) necessary for a fair and, except as noted below,
consistent presentation, in accordance with generally accepted accounting
principles, of such information. The financial and operating results for the
nine months ended September 30, 1996 are not necessarily indicative of the
Company's results for any future interim period or the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Fee and other.......... $ 17,735 $ 30,519 $48,815 $71,015 $94,242 $72,934 $84,154
Foreign exchange....... 594 1,280 3,070 20,373 42,826 33,145 22,821
-------- -------- ------- ------- ------- ------- -------
Total revenues....... 18,329 31,799 51,885 91,388 137,068 106,079 106,975
Expenses:
Agent commissions and
amortization of Agent
Contract acquisition
costs................. 11,612 17,957 22,112 28,742 34,801(1) 25,587(1) 33,865
Processing costs....... 9,791 11,022 12,361 15,334 25,542 17,500 18,698
Advertising and
promotion (2)......... 8,800 7,847 13,708 19,523 33,822(3) 24,015 22,347
Selling, service and
general and
administrative........ 4,807 5,243 6,900 8,378 13,247(4) 9,385 11,492
-------- -------- ------- ------- ------- ------- -------
Total expenses....... 35,010 42,069 55,081 71,977 107,412 76,487 86,402
Income (loss) before
income taxes.......... (16,681) (10,270) (3,196) 19,411 29,656 29,592 20,573
Net income (loss)...... $(11,009) $ (6,778) $(2,077) $12,176 $18,294 $18,254 $12,715
Pro forma net income
(loss) per common
share (5)............. $ (.66) $ (.41) $ (.12) $ .73 $ 1.10 $ 1.10 $ .76
BALANCE SHEET DATA (AT
END OF PERIOD):
Assets restricted to
settlement of
MoneyGram
transactions.......... $ 11,338 $ 11,573 $12,827 $20,927 $26,010 $23,167 $26,059
Fixed assets at cost,
net of depreciation... 950 1,123 1,275 3,084 6,000 6,392 6,822
Costs of acquiring
Agent Contracts, net
of amortization....... 3,369 2,864 1,956 3,401 7,979 8,017 14,840
Total assets........... 16,561 16,009 16,502 28,583 41,618 40,814 49,483
Liabilities relating to
unsettled MoneyGram
transactions.......... 11,338 11,573 12,827 20,927 26,010 23,167 26,059
Total liabilities...... 15,455 14,996 17,358 35,411 40,449 33,686 41,379
Stockholder's equity
(deficit)............. 1,106 1,013 (856) (6,828) 1,169 7,128 8,104
OPERATING DATA:
Number of MoneyGram
Agent locations (at
end of period)........ 11.6 13.1 14.1 16.0 17.2 17.0 17.7
Percentage change...... 11% 13% 8% 13% 8%(6) N/A 4%(6)
Number of transactions. 656 1,114 2,040 3,285 5,393 3,824 4,386
Percentage change...... 104% 70% 83% 61% 64% N/A 15%
</TABLE>
- -------
(1) Net of a $2.5 million commission rebate from Banamex received by the
Company during the first quarter of 1995.
(2) Prior to 1996 the Company recorded advertising and promotion expenses
based on transaction volumes for interim reporting purposes. Beginning in
1996, the Company recorded advertising and promotion expenses based on
actual expenses incurred during the interim period. If the Company had
continued to record advertising and promotion expenses based on
transaction volumes, advertising and promotion expenses would have been
approximately $100,000 less for the first nine months of 1996.
(3) To comply with the Consent Decree, the Company spent approximately $6
million more than it otherwise would have for advertising in the fourth
quarter of 1995. In addition, the fourth quarter of 1995 includes $1.3
million of discretionary promotion-related payments to MoneyGram Agents.
(4) Includes costs and expenses related to obtaining consents from MoneyGram
Agents to permit the assignment of their Agent Contracts to the Company of
$375,000 in the fourth quarter of 1995 and $500,000 in the nine-month
period ended September 30, 1996.
(5) Gives effect to the Company's issuance to IPS of 16,624,900 shares of
Common Stock prior to the consummation of the Offering.
(6) During the last three months of 1995 and the first three months of 1996,
three MoneyGram Agents representing 1,607 locations chose not to renew
their Agent Contracts. In addition, the Company's efforts to add new
MoneyGram Agents were hampered because, during this period, the Company's
sales personnel spent the majority of their time obtaining consents for
the assignment of Agent Contracts rather than focusing their efforts on
expanding the MoneyGram Agent base.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements appearing elsewhere in this Prospectus. Such Financial Statements
give effect to the Transition as if completed prior to January 1, 1993, are
presented on a carve-out basis for the Business and are derived from the
historical financial information of IPS. See "--Financial Statement
Presentation" below. See "The Transition and Ongoing Relationship with First
Data" for a description of the Transition.
OVERVIEW
The Company is a leading non-bank provider of consumer money wire transfer
services, with a strong, well-recognized brand-name. The Company accounted for
approximately 16% of all consumer money wire transfer transactions worldwide
in 1995. The Company offers customers the ability to transfer funds quickly,
reliably, conveniently and at attractive prices through its approximately
17,700 MoneyGram Agent locations in 84 countries worldwide as of September 30,
1996. MoneyGram Agents, representing approximately 68% of the Company's
revenues for the first nine months of 1996, are subject to long-term contracts
ranging in term from three to six years. MoneyGram targets its services to
individuals without traditional banking relationships, expatriates who need to
send money to their country of origin, traditional bank customers in need of
emergency money transfer services, tourists without local bank accounts and
businesses that need rapid and economical money transfer services. The Company
also provides cash advance and bill payment services (including payments on
revolving credit, time and personal loans) through many MoneyGram Agent
locations in the United States.
Consumers sending expatriate remittance funds and individuals without
traditional banking relationships are the two largest segments of repetitive
money transfer customers. The Federal Reserve Board of Governors estimates
that there are approximately 23 million households in the United States
without traditional banking relationships. Additionally, industry analysts
estimate that there are an increasing number of people who remit funds to
their respective countries of origin on a regular basis.
Non-bank consumer money wire transfer services are provided primarily by two
global companies, MoneyGram and Western Union, as well as several niche
competitors. The Company estimates that in 1995 the industry processed 33
million non-bank consumer money wire transfer transactions worldwide, an
increase of 29% over 1994, and representing a compounded annual growth rate of
22% since 1991. In 1995, the Company processed 5.4 million of the 33 million
non-bank consumer money wire transfer transactions worldwide, representing
approximately 16% of such transactions. Western Union accounted for
approximately 81% of all such transactions worldwide in 1995. The Company
believes the gross revenues generated from non-bank consumer money wire
transfers in 1995 were $800 million on $9 to $10 billion in face amount of
transferred funds.
The United States currently originates more consumer money wire transfer
transactions than any other country in the world. The Company expects that the
majority of the future growth in the United States will occur in transactions
that terminate in international locations. Money transfers from the United
States to Mexico currently represent an important and growing component of the
money transfer industry due to the large number of Mexican immigrants
remitting money from the United States to Mexico.
The Company believes international consumer money transfer will continue to
grow through the end of the decade, primarily due to the combination of
increased migration and greater consumer awareness. The Company believes that
migration dynamics throughout Latin America, the Caribbean, Europe and Asia
provide attractive growth potential for consumer money transfer services.
27
<PAGE>
Revenues
The Company's revenues are comprised of Transaction Fee Revenues (68% of
1995 revenues), foreign exchange revenues (31% of 1995 revenues) and
investment income (less than 1% of 1995 revenues). Transaction Fee Revenues
are a function of the number of transactions processed by the Company and the
fee per transaction paid by the customers sending the money. Transaction fees
are charged to customers according to a graduated schedule based upon the face
amount of the transaction. Prices are set to maximize transaction volume at
certain frequently transferred face value amounts. The average face amounts
for the Company's transactions during 1995 were $238, $302 and $446 for
transactions from U.S. to U.S., U.S. to Mexico and U.S. or international to
international locations, respectively, and the standard fees for such
transactions were approximately $20, $31 and $40 (depending on the location of
the recipient), respectively. The average face amounts for the Company's
transactions during the first nine months of 1996 were $234, $266 and $397 for
transactions from U.S. to U.S., U.S. to Mexico and U.S. or international to
international locations, respectively. Foreign exchange revenues are a
function of the number of transactions and the spread between the cost to the
Company of purchasing currency at wholesale exchange rates and the retail
exchange rates charged to recipients of funds outside the United States
(primarily Mexico). Investment income represents income allocated from IPS for
funds which have been transferred through the MoneyGram system, but not yet
collected by the recipient. Following the Transition, IPS will retain such
investment income until such time as the Company operates the Business in its
own name.
Transaction volume has increased as a result of (i) the Company's
development of its broad, convenient network of agent locations, (ii)
advertising and promotion strategies targeted to increase brand awareness of
MoneyGram, which have built usage among frequent money transfer users and
established positions in potential growth markets, and (iii) the overall
growth in the money transfer industry. This growth in transaction volume has
been partially offset by a decrease in the average transaction fees earned per
transaction. This decrease was caused by the Company's marketing and pricing
policy designed to increase its market share. In order to grow its market
share, the Company has actively pursued a policy of maintaining its prices 20%
to 30% below those of Western Union on each of the most frequently sent face
value amounts and has featured numerous promotions with even greater discounts
on prices. Promotional discounting of prices has reduced the Company's profit
margins. Customers typically increase usage during promotion periods, but also
transmit smaller amounts of money per transaction with a resulting lower
average fee per transaction. Historically, the Company's transaction volumes
have increased during price promotions and, although transaction volumes
decline when the price promotion ends, they consistently remain above pre-
promotion levels.
Substantially all of the growth in foreign exchange revenues through the end
of 1995 has resulted from an increase in the number of U.S. to Mexico
transactions processed by the Company and an increase in the average foreign
exchange revenue earned per transaction as a result of the increased
volatility of the value of the Mexican peso versus the U.S. dollar. Both the
Company and Banamex realize foreign exchange revenues on U.S. to Mexico
transactions with respect to the difference between the Company's wholesale
rates and the retail exchange rates charged to MoneyGram customers. In
addition to receive commissions, the Company pays Banamex fees in an amount
equal to one-half of the total foreign exchange revenues derived from U.S. to
Mexico MoneyGram transactions received at a Banamex location. Banamex
purchases Mexican pesos at a known rate for transactions that will be paid the
following day. Banamex and the Company then set the Mexican peso pricing to be
charged for those transactions based on competitive retail market rates. At a
minimum, the Company believes that its retail pricing will cover the currency
purchase cost and, in almost every case, the transaction will generate income
equal to the difference between wholesale and retail exchange rates. The total
and per transaction foreign exchange revenues realized by the Company in 1995
were substantially larger than in prior years due to the volatility of the
peso. As the decrease in average foreign exchange revenues earned per
transaction (from approximately $20 in the first nine months of 1995 to
approximately $13 in the first nine months of 1996) demonstrates, the
Company's average foreign exchange revenues per transaction in 1995 are not
indicative of what the Company expects to achieve in the future. Future levels
of foreign exchange revenues will continue to depend on the total number of
MoneyGram's international transactions and the volatility of the currencies in
the recipient countries. In addition, foreign exchange revenues will depend on
the structure of the
28
<PAGE>
Agent Contracts the Company executes in international markets and, in
particular, on the manner in which the Company shares foreign exchange
revenues with receiving MoneyGram Agents and on the arrangement under which
the Company pays commissions to the receiving MoneyGram Agents.
Total investment income is a relatively small contributor to revenues as the
average time required to collect funds from MoneyGram Agents is only slightly
less than the average time it takes for the funds to be collected by the
recipient.
Expenses
The Company's expenses include commissions paid to MoneyGram Agents and
guarantee commission payments to certain MoneyGram Agents (31% of 1995
expenses), advertising and promotion expenses (31% of 1995 expenses),
processing expenses (24% of 1995 expenses), selling, service and general and
administrative expenses (12% of 1995 expenses) and the amortization of Agent
Contract acquisition payments (2% of 1995 expenses). Commissions are set forth
in the Agent Contracts. Commissions paid to selling MoneyGram Agents typically
are based on a percentage of the transaction fee (averaging 20% of the
transaction fee) and receive commissions are based on either a flat or
percentage fee (averaging 16% of the transaction fee). Agent Contract
acquisition payments are amortized over the original term of the contract
(typically five years). Advertising and promotion expenses include signage
related expenses, print and media advertisements, "giveaways," discretionary
promotional cash rebates to MoneyGram Agents and currently a free three-minute
long distance phone call with each transaction within the United States or
between the United States and the Americas so that the sender may provide the
recipient notice of the transaction. Processing expenses primarily represent
the cost of the Company's customer service center, as well as information
processing and fraud prevention costs. Selling and service expenses represent
the costs associated with the Company's agent services, technical services and
sales, field services and marketing groups. General and administrative
expenses include the Company's legal, accounting and human resources
functions.
The Company's operating expenses can be divided into four categories: (i)
expenses that vary based upon transaction fees earned, primarily MoneyGram
Agent commissions; (ii) expenses that vary based upon the number of
transactions processed, primarily transaction processing expenses and customer
service center costs; (iii) discretionary expenses, primarily advertising; and
(iv) fixed expenses, primarily amortization of Agent Contract acquisition
costs, sales and service and general and administrative expenses. Under the
Operations Agreement, the Company will pay a fixed data processing fee for
each transaction. Future growth may require additional operational facilities
and enhanced management, information and telecommunications systems and other
operations, causing the Company to incur additional expenses. However, the
Company believes that cost reduction opportunities exist through economies of
scale, the further automation of MoneyGram Agents and the renegotiation of
certain vendor relationships.
Under the Consent Decree and the Hold Separate Agreement, First Data has
been obligated since September 1995, and until the consummation of the
Offering will be obligated, to spend a total of $24 million per year and no
less than $10 million in any two consecutive quarters on MoneyGram advertising
and promotion. To comply with the Consent Decree, the Company spent
approximately $6 million more than it otherwise would have for advertising in
the fourth quarter of 1995.
Financial Statement Presentation
The Financial Statements appearing elsewhere in this Prospectus reflect the
historical financial results of the Company giving effect to the Transition as
if completed prior to January 1, 1993. See "The Transition and Ongoing
Relationship with First Data" for a description of the Transition pursuant to
which, among other things, IPS will contribute to the Company the MoneyGram
Assets. As a result, the Financial Statements and other financial data
appearing elsewhere in this Prospectus are presented on a "carve-out" basis
for the Business and are derived from the historical financial information of
IPS. The Financial Statements include allocations of operating and general and
administrative expenses to the Company from IPS. However, such allocations do
not
29
<PAGE>
necessarily reflect the expenses that would have been or will be incurred by
the Company operating as a stand-alone entity. Management of the Company
believes that costs have been determined and allocated on a reasonable basis
and all costs attributable to conducting the Business have been included in
the Company's Financial Statements. In the opinion of management, the
Company's expenses, as reflected in the Financial Statements would not be
materially affected by the Company operating as a stand-alone entity and its
execution of the Transition Agreements. See Note 1 of the Notes to Financial
Statements.
Taxes
As a result of the Transition, the tax basis (for federal income tax
purposes) of the MoneyGram Assets will increase from their tax basis in the
hands of IPS and certain of its affiliates at the time of the Contribution to
their fair market value at that time (determined by reference to the initial
public offering price). Such tax basis is generally expected to produce a tax
benefit to the Company in future years through depreciation or amortization
deductions or through decreased gain or (subject to certain limitations)
increased loss on a disposition of any MoneyGram Asset. However, the "anti-
churning" rules under Section 197 of the Code might apply to disallow such
amortization with respect to certain intangible assets of the Company. For
financial accounting and reporting purposes, the Company will record a
deferred tax asset (with a corresponding credit to capital surplus) for the
tax effect of the excess of the tax basis of the MoneyGram Assets following
the Contribution over their net book value. Solely for financial accounting
and reporting purposes, such tax basis will be reduced to take into account
management's assessment of the possible application of the "anti-churning"
rules under Section 197 of the Code. Management's best estimate of the amount
of this uncertainty is subject to revisions and resolution of the uncertainty
may not occur until such time as an audit of the Company's tax return for the
period ended December 31, 1996, or any subsequent year in which amortization
deductions are claimed, is completed by the IRS. Any revisions to the deferred
tax asset resulting from resolution of this uncertainty will be offset by a
corresponding charge or credit directly to capital surplus at the time such
resolution occurs. In addition, the amount of the gross deferred tax asset
which will be recorded at the time of the Contribution will be reduced by a
valuation allowance which will be based upon management's judgment as to the
likelihood of the Company generating sufficient taxable income to realize the
asset through future tax deductions. Any future changes in the valuation
allowance will be based upon management's then current assessment of the
Company's ability to generate sufficient taxable income to realize the balance
of the deferred tax asset through future tax deductions and the impact of any
such changes in the valuation allowance will be recorded as a component of
income tax expense. Based upon an assumed initial public offering price of
$11.00 per share, the pro forma excess of the tax basis of the Company's net
assets (determined for financial accounting and reporting purposes, as
described above) over their pro forma net book value at September 30, 1996
will be approximately $138.4 million resulting in a pro forma gross deferred
tax asset of $54.0 million. Based upon preliminary management assessments, a
valuation allowance of 12% or $6.3 million would be established resulting in a
pro forma net deferred tax asset of $47.7 million. See "Certain Relationships
and Related Transactions--the Transaction Agreements--The Contribution
Agreement--Taxes."
Quarterly Results of Operations
The Company's Transaction Fee Revenues and foreign exchange revenues
fluctuate on a quarterly basis and, to a lesser extent, reflect some seasonal
variations in transaction volumes. Transaction Fee Revenues fluctuate based in
part upon whether the Company is offering a price discounting promotion. These
promotions are a part of the Company's growth strategy. Customers typically
increase usage during price promotions, but also usually transmit smaller
amounts of money per transaction, with a resulting lower average fee per
transaction. The lower average fee per transaction during promotions
historically has been partially offset by corresponding increases in
transaction volume. Foreign exchange revenues fluctuate based upon the
volatility in the spread earned between wholesale and retail exchange rates on
foreign exchange transactions (primarily to Mexico). These exchange rates are
affected by volatility of foreign currencies, particularly the Mexican peso,
and the face amount of transactions sent outside the United States, primarily
to Mexico. Seasonal factors such as holidays, migrant worker remittances,
which are higher in the summer and fall, and emergency transfers to travelers,
which are higher during the summer, also affect the Company's quarterly
results of operations.
30
<PAGE>
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the
Company considers necessary for a fair and consistent presentation, in
accordance with generally accepted accounting principles, of such information.
The financial and operating results for any interim period are not necessarily
indicative of results for any future interim period or the entire year.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------------- ------------------------------------ -------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fee and other....... $14,738 $18,800 $19,494 $17,983 $18,899 $28,420 $25,615 $21,308 $27,567 $29,686 $26,901
Foreign exchange.... 1,950 5,399 5,457 7,567 13,928 10,480 8,737 9,681 8,044 7,731 7,046
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues..... 16,688 24,199 24,951 25,550 32,827 38,900 34,352 30,989 35,611 37,417 33,947
Expenses:
Agent commissions
and amortization of
Agent Contract
acquisition costs.. 5,988 7,454 7,956 7,344 5,770(1) 10,475 9,342 9,214 10,925 11,690 11,250
Processing.......... 3,092 4,132 4,070 4,040 5,289 6,338 5,873 8,042 6,822 5,906 5,970
Advertising and
promotion(2)....... 3,766 4,866 5,145 5,746 7,737 8,265 8,013 9,807(3) 8,814 7,949 5,584
Selling and service. 894 929 914 963 1,510 1,742 1,993 2,280(4) 2,221(4) 2,555(4) 2,869(4)
General and
administrative..... 1,044 1,115 1,182 1,337 1,294 1,391 1,455 1,582 1,391 1,225 1,231
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses..... 14,784 18,496 19,267 19,430 21,600 28,211 26,676 30,925 30,173 29,325 26,904
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 1,904 5,703 5,684 6,120 11,227 10,689 7,676 64 5,438 8,092 7,043
Income tax expense... 710 2,126 2,118 2,281 4,302 4,095 2,941 24 2,083 3,099 2,676
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income........... $ 1,194 $ 3,577 $ 3,566 $ 3,839 $ 6,925 $ 6,594 $ 4,735 $ 40 $ 3,355 $ 4,993 $ 4,367
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per common share(5). $ .07 $ .22 $ .21 $ .23 $ .42 $ .39 $ .29 $ -- $ .20 $ .30 $ .26
Number of
transactions........ 633 819 866 967 1,232 1,316 1,276 1,569 1,505 1,481 1,400
</TABLE>
- -------
(1) Net of a $2.5 million commission rebate from Banamex received by the
Company during the first quarter of 1995.
(2) Prior to 1996, the Company recorded advertising and promotion expenses
based on transaction volumes for interim reporting purposes. Beginning in
1996, the Company recorded advertising and promotion expenses based on
actual expenses incurred during the interim period. If the Company had
continued to record advertising and promotion expenses based on
transaction volumes, advertising and promotion expenses would have been
approximately $2.0 million less for the first quarter of 1996, $.5 million
more for the second quarter of 1996 and $1.4 million more for the third
quarter of 1996.
(3) To comply with the Consent Decree, the Company spent approximately $6
million more than it otherwise would have for advertising in the fourth
quarter of 1995. In addition, the fourth quarter of 1995 includes $1.3
million of discretionary promotion-related payments to MoneyGram Agents.
(4) Includes costs and expenses related to obtaining consents from MoneyGram
Agents to permit the assignment of their Agent Contracts to the Company of
$375,000 in the fourth quarter of 1995, $300,000 in the first quarter of
1996, $150,000 in the second quarter of 1996 and $50,000 in the third
quarter of 1996.
(5) Gives effect to the Company's issuance to IPS of 16,624,900 shares of
Common Stock prior to the consummation of the Offering.
31
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationships to total revenues of certain items included in the Company's
statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
----------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transaction Fees................ 93.8% 77.4% 68.5% 68.5% 78.4%
Foreign exchange................ 5.9 22.3 31.2 31.2 21.3
Investment income............... .3 .3 .3 .3 .3
----- ----- ----- ----- -----
Total revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Agent commissions............... 40.9 30.4 24.0 22.6 29.6
Amortization of Agent Contract
acquisition costs.............. 1.7 1.1 1.4 1.5 2.1
Processing...................... 23.8 16.8 18.6 16.5 17.5
Advertising and promotion....... 26.4 21.3 24.6 22.5 20.9
Selling and service............. 5.8 4.0 5.5 4.9 7.1
General and administrative...... 7.5 5.1 4.2 3.9 3.6
----- ----- ----- ----- -----
Total expenses.............. 106.1 % 78.7% 78.3% 72.1% 80.8%
----- ----- ----- ----- -----
Income (loss) before income taxes. (6.1)% 21.3% 21.7% 27.9% 19.2%
----- ----- ----- ----- -----
Net income (loss)................. (4.0)% 13.3% 13.4% 17.2% 11.9%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Revenues. The Company's revenues increased 1% in the first nine months of
1996 to $107.0 million from $106.1 million for the same period in 1995. This
increase was caused primarily by an increase in Transaction Fee Revenues,
partially offset by a decrease in foreign exchange revenues.
Transaction Fee Revenues increased 16% in the first nine months of 1996 to
$83.9 million from $72.6 million for the same period in 1995. This growth was
due to a 15% increase in transactions to approximately 4.4 million
transactions in the first nine months of 1996 from approximately 3.8 million
transactions in the same period of 1995 and an increase of 1% in the average
gross fee per transaction to $19.13 compared to $18.99 for the same period in
1995. Transactions increased due to increased sales by existing MoneyGram
Agents as a result of the impact of advertising and promotion expenditures
throughout 1995 and the first nine months of 1996. The slight increase in
average gross fee per transaction was due to the Company sponsoring only nine
weeks of price promotions during the first nine months of 1996 compared to 29
weeks of price promotions during the same period in 1995, which was
substantially offset by a 9% decrease in the average face amount per
transaction to $270 for the first nine months of 1996 from $297 for the same
period in 1995.
Foreign exchange revenues, substantially all of which arise from U.S. to
Mexico transactions, decreased 31% to $22.8 million in the first nine months
of 1996 compared to $33.1 million for the same period in 1995. The average
foreign exchange revenue per Banamex transaction decreased 34% in the first
nine months of 1996 to approximately $13 from $20 for the same period of 1995.
The foreign exchange revenue during the first nine months of 1995 was unusally
high primarily due to the volatility of the Mexican peso during this period
and a higher average face amount of funds transferred of $310 compared to $258
for same period in 1996. Management believes the decrease in the average face
amount is due to the depreciation of the peso against the U.S. dollar whereby
fewer U.S. dollars purchase the same number of pesos.
32
<PAGE>
The peso to U.S. dollar exchange revenue for the Company and Banamex
averaged 10% of the average face amount during the first nine months of 1996
compared to 13% during the same period in 1995. The peso exhibited high
volatility in late 1994 and early 1995 due to the devaluation of the peso by
the Mexican government on December 20, 1994, political unrest related to the
Chiapas uprising and the assassination of the favored presidential candidate,
Luis Donaldo, and other economic uncertainties. During 1995, the Mexican
government took steps to stabilize the economy and the political unrest. As a
result, the peso was less volatile in late 1995 and early 1996 and the
Company's average foreign exchange revenue per transaction is expected to
continue to be less in 1996 compared to 1995.
Expenses. The Company's total operating expenses increased 13% to $86.4
million in the first nine months of 1996 compared to $76.5 million during the
same period in 1995. During the first three months of 1995, Banamex agreed to
reduce its earned agent commission by approximately $2.5 million (the "1995
Banamex Rebate") since it was sharing in unusually high foreign exchange
revenue with the Company, as described above, and wanted to help support the
Company's price promotion during the first three months of 1995. In addition,
during the first nine months of 1996, the Company paid approximately $500,000
of sales representative salaries, commissions and out-of-pocket expenses
related to obtaining consents from MoneyGram Agents to permit the assignment
of their Agent Contracts to the Company. Also, as described below, effective
January 1, 1996, the Company changed its method of accounting for advertising
and promotion expenses during interim periods which increased operating
expenses by $100,000 during the first nine months of 1996 as compared to the
same period in 1995. Excluding the impact of the above items, the Company's
total operating expenses would have increased 9% during the first nine months
of 1996.
As a percentage of total revenues, total operating expenses increased to 81%
during the first nine months of 1996 compared to 72% during the same period in
1995, primarily as a result of foreign exchange revenues being unusually high
during the 1995 period. As a percentage of Transaction Fee Revenues, and after
excluding the impact of the expense related items described in the immediately
preceding paragraph, total operating expenses declined from 109% in the first
nine months of 1995 to 102% in the first nine months of 1996.
MoneyGram Agent commissions and amortization of Agent Contract acquisition
payments increased 32% to $33.9 million during the first nine months of 1996
from $25.6 million during the same period in 1995. MoneyGram Agent commissions
and amortization of Agent Contract acquisition payments as a percentage of
Transaction Fee Revenues increased to 40% during the first nine months of 1996
from 35% for the same period in 1995. This increase was due primarily to the
$2.5 million 1995 Banamex Rebate. If the impact of the 1995 Banamex Rebate is
excluded from 1995, MoneyGram Agent commissions and amortization of Agent
Contract acquisition payments as a percentage of Transaction Fee Revenues
would have been 39% in 1995. Expenses associated with MoneyGram Agents failing
to reach guaranteed minimums increased to $2.3 million in the first nine
months of 1996 from approximately $600,000 during the same period of 1995,
primarily due to the addition of new MoneyGram Agents who are not yet
operating above minimum guarantee levels.
Processing expenses increased 7% to $18.7 million during the first nine
months of 1996 from $17.5 million during the same period in 1995, primarily
due to increased transaction volume of 15% offset by the efficiencies created
by additional agent automation. As a percentage of Transaction Fee Revenues,
processing expenses decreased to 22% during the first nine months of 1996 from
24% during the same period in 1995.
Advertising and promotion expenses decreased 7% to $22.3 million during the
first nine months of 1996 from $24.0 million during the same period in 1995.
As a percentage of total revenues, advertising and promotion expenses
decreased to 21% during the first nine months of 1996 compared to 23% during
the same period in 1995. During 1995 the Company recorded advertising and
promotion expenses based on transaction volumes for interim reporting
purposes. Beginning in 1996, the Company recorded advertising and promotion
expenses based on actual expenses incurred during the interim period. If the
Company continued to record advertising and promotion expenses based on
transaction volumes, advertising and promotion expenses would have been
approximately $100,000 less for the first nine months of 1996.
33
<PAGE>
Selling and service expenses increased by 46% to $7.6 million during the
first nine months of 1996 from $5.2 million for the same period in 1995. This
increase is due to an increase in the number of sales and service employees
hired to further expand and support the MoneyGram Agent network. As a
percentage of Transaction Fee Revenues, selling and service expenses were 9%
and 7% during the first nine months of 1996 and 1995, respectively. During the
first nine months of 1996, the Company incurred approximately $500,000 of
sales, salaries, commissions and out-of-pocket expenses related to obtaining
consents from MoneyGram Agents to permit the assignment of their Agent
Contracts to the Company.
General and administrative expenses decreased by 7% to $3.8 million during
the first nine months of 1996 from $4.1 million during the same period in
1995. As a percentage of Transaction Fee Revenues, general and administrative
expenses decreased to 5% during the first nine months of 1996 from 6% during
the same period in 1995.
Operating Income. Operating income decreased by 30% to $20.6 million in the
first nine months of 1996 from $29.6 million during the same period in 1995.
As a percentage of total revenues, operating income decreased to 19% during
the first nine months of 1996 from 28% during the same period in 1995.
Net Income. The Company's net income decreased 30% in the first nine months
of 1996 to $12.7 million from $18.3 million during the same period in 1995.
The decrease in net income primarily resulted from the 31% decrease in foreign
exchange revenues caused by less volatility in the value of the Mexican peso
compared to the U.S. dollar, a 13% increase in total operating expenses due to
an increase in transaction volumes, the 1995 Banamex Rebate and the $100,000
increase in advertising and promotion expenses resulting from the Company's
accounting change relating thereto. The increase in operating expenses was
more than offset by a 15% increase in Transaction Fee Revenues.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. The Company's revenues increased 50% in 1995 to $137.1 million
from $91.4 million for 1994. This growth reflected a 64% increase in the
number of transactions processed from 3.3 million to 5.4 million and a 110%
increase in the Company's foreign exchange revenues, substantially all of
which arises from U.S. to Mexico transactions, from $20.4 million to $42.8
million. This growth in foreign exchange revenues from U.S. to Mexico
transactions is a result of a 71% increase in the number of such transactions
from 1.4 million to 2.4 million, coupled with a 25% increase in the average
foreign exchange revenue earned per transaction from $14.60 to $18.21,
resulting from the increased volatility of the value of the Mexican peso
versus the U.S. dollar. The total and per transaction foreign exchange
revenues realized by the Company in 1995 were substantially larger than in
prior years, primarily due to the significant volatility of the value of the
Mexican peso. Accordingly, the Company's average foreign exchange revenues per
transaction in 1995 are not indicative of what the Company expects to achieve
in the future.
The remaining growth in 1995 revenues was due to the significant overall
transaction growth in 1995 discussed above, partially offset by a decrease of
19% in the average Transaction Fee Revenues earned per transaction from $21.55
to $17.39. The decrease in the average Transaction Fee Revenues per
transaction in 1995 compared to 1994 was primarily due to the 27 weeks of
price promotions in 1995 compared to six weeks in 1994. For example, due to a
fourth quarter price promotion, the average transaction fee for fourth quarter
1995 was only $13.52 compared to $17.39 for the full year 1995. The $13.52
average Transaction Fee Revenues during the fourth quarter of 1995 represented
a 35% decrease compared to the average Transaction Fee Revenues of $20.85
during the second and third quarters of 1995 when a price promotion was not
offered. This decrease in average Transaction Fee Revenues was offset in part
by a 21% increase in transaction volume during the fourth quarter of 1995 as
compared to the average volumes during the second and third quarters of 1995.
The growth in the number of transactions was attributable to the Company's
advertising campaigns and discount price and other promotions, as well as
greater availability of the MoneyGram service resulting from 8% growth from
16,000 to 17,200 in the number of MoneyGram Agent locations. The decrease in
average Transaction Fee Revenues per transaction was due to increased usage by
customers who took advantage of the promotional discount prices to transmit
smaller face amounts. The average transaction face amount decreased 16% from
$344 to $289.
34
<PAGE>
Expenses. The Company's total operating expenses increased 49% to $107.4
million in 1995 from $72.0 million in 1994. As a percentage of total revenues,
total operating expenses decreased 78% in 1995 from 79% in 1994. Growth in the
total amount of funds transferred and volumes of transactions processed
resulted in higher commissions to MoneyGram Agents and processing costs,
respectively, while the Company's marketing and price promotions contributed
to significantly increased advertising and promotion expenses.
MoneyGram Agent commissions and amortization of Agent Contract acquisition
payments increased 21% to $34.8 million from $28.7 million, and decreased to
25% in 1995 from 32% in 1994 as a percentage of total revenues. MoneyGram
Agent commissions and amortization of Agent Contract acquisition payments as a
percentage of Transaction Fee Revenues decreased to 37% in 1995 from 40% in
1994. This decline was largely attributable to the $2.5 million 1995 Banamex
Rebate.
Processing expense increased 67% to $25.5 million in 1995, principally as a
result of the growth in transaction volume. As a percentage of Transaction Fee
Revenues, processing expense increased to 27% in 1995 from 22% in 1994,
primarily due to the decline in average Transaction Fee Revenues per
transaction described above.
Advertising and promotion expense increased in 1995 to $33.8 million, from
$19.5 million in 1994, as a result of the advertising and promotion strategies
designed to increase market share and broaden the brand recognition of the
MoneyGram service in its target markets. In addition, during the fourth
quarter of 1995, in conjunction with the price promotion, the Company paid its
MoneyGram Agents discretionary promotion-related cash payments of
approximately $1.2 million. As a percentage of total revenues, advertising and
promotion expense increased to 25% in 1995 from 21% in 1994. Selling and
service expense increased by 103% to $7.5 million as a result of an increase
in the number of sales and service employees hired to further expand the
MoneyGram Agent network, a 9% increase in the number of MoneyGram Agents and
an increase in marketing costs associated with the Company's advertising
campaigns. In addition, during the fourth quarter of 1995, the Company
incurred approximately $375,000 of sales, salaries, commission and other out-
of-pocket expenses related to obtaining consents from MoneyGram Agents to
permit the assignment of their Agent Contracts to the Company. As a percentage
of Transaction Fee Revenues, selling and service expense increased to 8% in
1995 from 5% in 1994. General and administrative expenses increased by 22% in
1995 to $5.7 million due to an overall increase in the number of employees as
a result of growth in the Business. As a percentage of Transaction Fee
Revenues, general and administrative expenses decreased to 6% in 1995 from 7%
in 1994.
Operating Income. Operating income increased by 53% to $29.7 million in 1995
from $19.4 million in 1994. As a percentage of total revenues, operating
income increased to 22% from 21%. The fourth quarter of 1995 was adversely
impacted by the combination of the pricing promotion discussed under revenues
and the additional $6 million advertising expense discussed above.
Net Income. The Company's net income increased 50% in 1995 to $18.3 million
from $12.2 million in 1994. The 1995 increase in net income resulted from
increased foreign exchange revenues from U.S. to Mexico transactions and the
continued growth in the number of transactions processed.
35
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. The Company's revenues increased 76% in 1994 to $91.4 million from
$51.9 million in 1993. This growth reflected a 61% increase in the number of
transactions processed from 2.0 million to 3.3 million and significant growth
in the Company's foreign exchange revenues, substantially all of which arises
from U.S. to Mexico transactions, from $3.1 million to $20.4 million. This
growth in foreign exchange revenues from U.S. to Mexico transactions was a
result of a 56% increase in the number of such transactions from .9 million to
1.4 million, coupled with a 307% increase in the average foreign exchange
revenue earned per transaction from $3.59 to $14.60, resulting from the
increased volatility of the value of the Mexican peso versus the U.S. dollar.
The remaining growth in 1994 revenues was due to the significant overall
transaction growth discussed above, partially offset by a decrease of
approximately 10% in the average Transaction Fee Revenues earned per
transaction from $23.86 to $21.55. The growth in the number of transactions
was attributable to the Company's advertising campaigns and price promotions,
as well as greater availability of the MoneyGram service resulting from 13%
growth from approximately 14,100 to 16,000 in the number of MoneyGram Agent
locations. The decrease in average Transaction Fee Revenues per transaction
was due to increased usage by customers who took advantage of the promotional
discount prices to transmit smaller face amounts per transaction. The average
transaction face amount decreased 9% from $377 to $344.
Expenses. The Company's total operating expenses increased 31% to $72.0
million in 1994 from $55.1 million in 1993. As a percentage of total revenues,
operating expense decreased to 79% in 1994 from 106% in 1993. Growth in the
total amount of funds transferred and volumes of transactions processed
resulted in higher agent commissions and processing costs, respectively, while
the Company's marketing and price promotions contributed to significantly
increased advertising and promotion expenses.
MoneyGram Agent commissions and amortization of Agent Contract acquisition
costs increased 30% to $28.7 million in 1994 from $22.1 million in 1993 and
decreased as a percentage of total revenues to 31% from 43%. MoneyGram Agent
commissions and the amortization of Agent Contract acquisition payments
decreased to 40% from 45% as a percentage of Transaction Fee Revenues in 1994
as compared to 1993.
Processing expense increased 24% to $15.3 million in 1994. As a percentage
of Transaction Fee Revenues, processing expense decreased to 22% in 1994 from
25% in 1993.
Advertising and promotion expense increased by 42% in 1994 to $19.5 million,
as the Company began its campaign to promote the MoneyGram service. As a
percentage of total revenues, advertising and promotion expense decreased to
21% in 1994 from 26% in 1993. Selling and service expense increased by
approximately 23% to $3.7 million in 1994, primarily as a result of an
increase in marketing costs associated with the Company's advertising
campaigns. As a percentage of Transaction Fee Revenues, selling and service
expense decreased to 5% in 1994 from 6% in 1993. General and administrative
expenses increased by 20% in 1994 to $4.7 million. As a percentage of
Transaction Fee Revenues, general and administrative expense decreased to 7%
in 1994 from 8% in 1993.
Operating Income. Operating income increased to $19.4 million in 1994 from
an operating loss of $3.2 million in 1993.
Net Income. The Company earned net income in 1994 of $12.2 million compared
to a net loss of $2.1 million in 1993. The 1994 improvement in net income
resulted from increased foreign exchange revenues from U.S. to Mexico
transactions and the continued growth in the number of transactions processed,
offset, in part, by the increased advertising expenditures.
LIQUIDITY AND CAPITAL RESOURCES
Total assets of the Company increased by $7.9 million to $49.5 million at
September 30, 1996 from $41.6 million at December 31, 1995. The $26.1 million
of assets restricted to settlement of MoneyGram transactions at
36
<PAGE>
September 30, 1996 was comparable to the December 31, 1995 balance of $26.0
million. "Costs of acquiring Agent Contracts, net of amortization," increased
by $6.8 million from $8.0 million at December 31, 1995 to $14.8 million at
September 30, 1996, as a result of Agent Contract signings and renewals.
Currently, the Company is negotiating the renewal of certain existing
MoneyGram Agents and the signing of new MoneyGram Agents. In 1995, the Company
paid $6.5 million related to Agent Contract acquisition payments. During the
first nine months of 1996, the Company has already paid $9.1 million related
to Agent Contract acquisition payments and estimates additional Agent Contract
acquisition payments will be approximately $7 million for the remainder of
1996. The Company believes that 1997 Agent Contract acquisition payments will
be lower (estimated at $6 million) as most major MoneyGram Agents will be
under long-term (three-to-five year) agreements, but that Agent Contract
acquisition payments will increase in 1998 (estimated at $7 to $8 million) as
contracts with several key MoneyGram Agents, as well as those between Western
Union and many of its key agents, begin to expire. However, in the event that
the Company implements the MoneyGram Agent Stock Option Plan, the Company will
be able to reduce the amount of cash required for signing bonuses by offering
certain new and renewing MoneyGram Agents a combination of cash payments and
stock options under the MoneyGram Agent Stock Option Plan.
During the first nine months of 1996, cash flows from operating activities
increased by $3.5 million to $18.0 million from $14.5 million during the same
period in 1995. This was due to an increase in cash inflows from working
capital items, partially offset by a decrease in net income.
During the first nine months of 1996, cash flows used by investing
activities increased by $2.0 million to $12.2 million from $10.2 million
during the same period in 1995. The increase in cash outflows from investing
activities was due to Agent Contract acquisition payments primarily to
existing agents to extend the term of these Agent Contracts by an average of
five years. This investing activity was more than offset by the $3.5 million
increase in cash flows from operating activities which resulted in the Company
returning capital of $5.8 million to IPS during the 1996 period as compared to
$4.3 million during the same period in 1995. Because the Company does not
presently have its own cash accounts, the historical financial statements
reflect positive cash flows attributable to the Business as a return of
capital to IPS, while any negative cash flows attributable to the Business are
reflected as being funded by IPS in the form of a capital contribution.
The Company's cash flows from operating activities decreased by $1.9 million
from $23.3 million in 1994 to $21.4 million in 1995. This decrease was
principally the result of net cash outflows attributable to working capital
items of $.6 million in 1995 as compared to a net cash inflow of $9.2 million
in 1994 offset by higher net income in 1995. During 1995, the Company
increased its investing activities by $7.0 million to $12.1 million from $5.1
million in 1994, primarily due to an increase in Agent Contract acquisition
payments attributable to the signing of MoneyGram Agents and increased capital
expenditures for signage and personal computers for its MoneyGram Agents. As a
result of these increased investing activities, net capital returns to IPS
declined by $8.8 million from $18.1 million in 1994 to $9.3 million in 1995.
The Company has relied primarily on cash flows from operating activities
and, in part, on funding from First Data to support operating and investing
activities. Management expects the Company's future operating and investing
cash needs will be provided by cash flows from operating activities, the $12
million IPS Cash Contribution and the Facility. The Facility will terminate
180 days from the consummation of the Offering, at which time all outstanding
borrowings thereunder would have to be repaid or refinanced. The Facility
contains terms and conditions, including certain restrictive covenants,
customary in such agreements. See "Certain Relationships and Related
Transactions--the Transition Agreements--The Short-Term Working Capital
Facility." Management expects to negotiate a credit facility with a third
party prior to the expiration of the Facility, if necessary, with borrowing
availability, terms and conditions sufficient to meet the Company's liquidity
and capital resource requirements for the foreseeable future. However, there
can be no assurance that the Company will be successful in arranging such
financing in a timely manner.
Each consumer money wire transfer transaction involves the transfer of funds
from the sending customer to the selling MoneyGram Agent and shortly
thereafter from the selling MoneyGram Agent to IPS as the licensed entity on
behalf of the Company. These funds are used to satisfy the liability to pay
the recipient customer the
37
<PAGE>
amount transferred, usually by the end of the same or next day. The Company
does not utilize such funds to support the operations of the Company. These
funds are included on the Company's Balance Sheet under the caption "Proceeds
including proceeds due from/(to) IPS relating to unsettled MoneyGram
transactions," and support the associated liability "Liabilities relating to
unsettled MoneyGram transactions." See Note 1 of the Notes to Financial
Statements.
In certain instances, the Company has guaranteed minimum commissions to
certain MoneyGram Agents. As of September 30, 1996, the remaining maximum
commitment equalled approximately $71.2 million over the next seven years.
Historically, the Company's transaction volume growth has been sufficient to
mitigate the Company's required payments under these guarantees, with annual
payments of between $1.3 and $2.5 million during each of the three years in
the period ended December 31, 1995. The Company believes that its future
required payments under the guarantees will not have a material impact on its
financial condition or results of operations.
Management believes that the cash flows to be provided by operations, the
$12 million IPS Cash Contribution and the Facility will be sufficient to meet
its working capital and capital expenditure needs for the foreseeable future.
38
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading non-bank provider of consumer money wire transfer
services, with a strong, well-recognized brand-name. The Company accounted for
approximately 16% of all consumer money wire transfer transactions worldwide
in 1995. The Company offers customers the ability to transfer funds quickly,
reliably, conveniently and at attractive prices through its approximately
17,700 MoneyGram Agent locations in 84 countries worldwide as of September 30,
1996. MoneyGram Agents, representing approximately 68% of the Company's
revenues for the first nine months of 1996, are subject to long-term contracts
ranging in term from three to six years. MoneyGram targets its services to
individuals without traditional banking relationships, expatriates who send
money to their country of origin, traditional bank customers in need of
emergency money transfer services, tourists without local bank accounts and
businesses that need rapid and economical money transfer services. The Company
also provides cash advance and express bill payment services (including
payments on revolving credit, time and personal loans) through many MoneyGram
Agent locations in the United States.
The number of MoneyGram Agent locations has grown from 11,600 in 1991 to
approximately 17,700 as of September 30, 1996. In 1995 and the first nine
months of 1996, the Company processed 5.4 million and 4.4 million
transactions, respectively, and transferred $1.6 billion and $1.2 billion
total face amount of funds, respectively. In 1995 total revenues were $137.1
million, Transaction Fee Revenues were $93.8 million, foreign exchange
revenues were $42.8 million, and operating income was $29.7 million. In the
first nine months of 1996, the Company's total revenues, Transaction Fee
Revenues, foreign exchange revenues and operating income were $107.0 million,
$83.9 million, $22.8 million and $20.6 million, respectively. Substantially
all of the Company's transactions originate in the United States. In 1995, 45%
of the Company's transactions were between U.S. locations, 44% were from U.S.
to Mexico locations and 11% involved one or more international locations other
than Mexico.
The Company generates substantially all of its foreign exchange revenue on
its U.S. to Mexico transactions based on the difference between the cost of
Mexican pesos at wholesale rates and the retail exchange rate charged to
customers in such transactions. In addition to receive commissions, the
Company pays Banamex fees in an amount equal to one-half of the total foreign
exchange revenues derived from U.S. to Mexico MoneyGram transactions received
at a Banamex location.
CUSTOMERS AND MARKETS
Consumers sending expatriate remittance funds and individuals without bank
accounts are the two largest segments of repetitive money transfer customers.
The Federal Reserve Board of Governors estimates that there are approximately
23 million households in the United States without traditional banking
relationships. Additionally, industry analysts estimate that there are an
increasing number of people who remit funds to their respective countries of
origin on a regular basis.
Consumer money wire transfer services provide customers with a convenient,
rapid and secure method of sending money. The Company believes that consumer
money wire transfer services have the following advantages over alternative
methods of transferring money:
. Reliability and Security. Consumer money wire transfer services are
generally viewed as a more reliable and secure method of sending money
than other methods such as mailing a money order or a bank check.
. Global Accessibility of Agents. U.S.-based consumer money wire transfer
service providers have over 30,000 agent locations in the United States
and over 10,000 agent locations outside the United States. Typically,
such agents are at locations convenient to customers. In addition,
consumer money wire transfer networks provide service to many foreign
locations which banks typically do not serve.
. Speed. Money transferred through consumer money wire transfer services
often is available immediately and usually available within 24 hours
after it is sent, far faster than sending money through the mail.
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. Convenient Hours. Unlike banks and post offices, many consumer money wire
transfer agents are open 24 hours a day, seven days a week.
. Individualized Services and Customer Flexibility. Agent networks
typically include agents fluent in a variety of foreign languages. In
addition, customers may purchase only the necessary financial services
without maintaining a continual relationship or account with the agent.
Non-bank consumer money wire transfer services are provided primarily by two
global companies, MoneyGram and Western Union, as well as several niche
competitors. The Company estimates that in 1995 the industry processed 33
million non-bank consumer money wire transfer transactions worldwide, an
increase of 29% over 1994 and representing a compounded annual growth rate of
22% since 1991. In 1995, the Company processed 5.4 million of the 33 million
non-bank consumer money wire transfer transactions worldwide, representing
approximately 16% of such transactions. Western Union accounted for
approximately 81% of all such transactions worldwide in 1995. The Company
believes the gross revenues generated from non-bank consumer money wire
transfers in 1995 were $800 million on $9 to $10 billion in face amount of
transferred funds.
The United States currently originates more consumer money wire transfer
transactions than any other country in the world. The Company expects that the
majority of the future growth in the United States will occur in transactions
that terminate in international locations. Money transfers from the United
States to Mexico currently represent an important and growing component of the
money transfer industry due to the large number of Mexican immigrants
remitting money from the United States to Mexico.
The Company believes international consumer money transfers will continue to
grow through the end of the decade, primarily due to the combination of
increased migration and greater consumer awareness. The Company believes that
migration dynamics throughout Latin America, the Caribbean, Europe and Asia
provide attractive growth potential for consumer money transfer services. The
Company intends to target advertising and promotional campaigns to raise
awareness of MoneyGram services to new groups of consumers.
STRATEGY
MoneyGram's objectives are to continue to grow as a leading provider of
consumer money wire transfer services by offering competitive pricing and
superior service and to develop and introduce other financial services. The
Company has developed and has been pursuing the following strategy to
capitalize on its competitive position in the growing market for consumer
money transfer services:
. Target Frequent Users of Money Transfer Services. Immigrants remitting
funds to their home countries, people who may have a bank account
(generally savings only) but who do not use other bank services or have
traditional banking relationships (the "Underbanked") and people sending
money to the Underbanked and unbanked represent a majority of consumer
money transfers. The Company uses selected agent expansion in high-usage
markets to ensure convenient access to its services for its target
customers. The Company focuses its advertising and promotional campaigns
in these high-usage markets to increase brand awareness and generate
consumer trial and repeat usage of the MoneyGram service.
. Offer Enhanced Value to Consumers. MoneyGram provides customers with an
attractive price/value relationship. The Company offers value-added
features to its customers, including a free three-minute long distance
phone call with each transaction within the United States or between the
United States and the Americas so that the sender may provide the
recipient notice of the transaction, and a free 10-word message to the
recipient included with the transferred funds. The Company also offers a
MoneySaver card to certain customers which provides a 10% discount to
frequent users. No other consumer money wire transfer provider currently
offers this array of services. Pricing has been an important part of the
Company's consumer marketing strategy. The Company has maintained its
consumer prices 20% to 30% below those of Western Union on each of the
most frequently sent face amounts. In addition, the Company periodically
offers consumers even greater discounts.
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. Increase Brand Recognition and Loyalty. Recognition of the MoneyGram
brand and consumer loyalty are critical to maintaining and enhancing
market share. In addition to offering value-added services to its
customers, the Company designs its advertising and promotional campaigns
to increase brand awareness and generate customer trial and repeat usage
of the service. The Company also uses its MoneySaver frequent user
discount program to build customer loyalty and enhance the MoneyGram
brand image.
. Expand its Agent Network. The MoneyGram Agent network is essential to the
Company's growth and the Company believes that the quantity and quality
of MoneyGram Agents available to the Company's customers are key elements
of the Company's continued success. The Company seeks to develop
relationships with potential MoneyGram Agents that offer the optimal
combination of location, existing service mix and commitment to providing
the MoneyGram service. In order to retain its agents, MoneyGram provides
them with a number of support services, including product training,
traffic building and cooperative advertising programs, as well as
signage. In addition, the Company's goal is to provide a computer to all
MoneyGram Agents processing more than 30 transactions per month, which
improves transaction speed, reliability and security.
. Grow Internationally. Management views international markets as the next
significant growth area for money transfer services. Focusing on
particular corridors, the Company is currently seeking to expand its
global presence. The Company has significantly increased its send
transaction volume to Asia, the Caribbean and Latin America. The advent
of send and receive capabilities by MoneyGram Agents in Latin America is
broadening the Company's customer base and fostering growth in this key
market. In addition, the Company currently is negotiating new Agent
Contracts in Europe and intends to focus increased resources on expanding
its service in Europe. Future growth should occur as migration patterns
continue and advertising and promotional efforts increase international
awareness of the MoneyGram service. The Company intends to focus on
countries with rapid growth rates or inefficient and expensive delivery
systems and, when permissible, countries that currently are subject to
U.S. trade embargoes. The Company is expanding its MoneyGram Agent
network to capitalize on these money transfer opportunities.
. Penetrate Additional Retail Network and Other Distribution Channels. The
Company's success depends on its ability to grow and develop its
MoneyGram Agent network. The key characteristics of an attractive agent
location are convenience, extended hours, days of service, cash
availability, well trained and motivated staffing and a secure
environment. The Company also seeks to maintain a balanced and
diversified network. Currently, check cashers and supermarkets generate
approximately 80% of the Company's send volume despite accounting for
only 30% to 35% of the Company's MoneyGram Agent locations. Potential
outlets for U.S. network expansion are check cashers, postal and
packaging outlets and supermarkets not currently offering a consumer
money wire transfer product. The Company expects to expand its
international MoneyGram Agent network primarily by adding travel
agencies, bureau de change operators and banks.
. Develop Other Related Payment Products and Systems. The Company currently
plans to offer complementary products and services through the MoneyGram
Agent network, such as money orders and phone cards and, in the future,
may develop other related products, such as prepaid debit cards, secured
credit cards and insurance products. The Company believes that by
offering additional products it will generate additional revenues, as
well as enhance the attractiveness of the MoneyGram service to potential
agents and its target customers. See "Risk Factors--Ability to Grow
through New Products and Services."
THE MONEYGRAM AGENT NETWORK
The Company has an extensive global network of MoneyGram Agents. Of the
17,700 MoneyGram Agent locations, approximately 13,500 are located in the
United States, 1,000 in Mexico (of which approximately 700 are Banamex
locations) and 3,200 in 82 other countries around the world. The MoneyGram
Agent network includes a variety of types of businesses. Supermarkets and
check cashers represent approximately 30% to 35% of the Company's MoneyGram
Agent locations and approximately 80% of the Company's send transaction
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volume. MoneyGram Agent locations also include travel agencies, collection
agencies, bus stations and credit unions. The Company estimates that 12,000 to
13,000 of the 17,700 MoneyGram Agent locations in any given month, on average,
initiate or receive a transaction. The total number of MoneyGram Agent
locations has increased from approximately 14,100 in 1993 to 17,700 at
September 30, 1996. Since October 1995, several large MoneyGram Agents have
added a significant number of agent locations, including Ace America's Cash
Express, Albertson's Inc., Rite Aid Corporation, the Thomas Cook Group, Ltd.
and VONS COMPANY, INC., which added approximately 90, 390, 245, 350 and 95 new
MoneyGram Agents, respectively.
In addition, three international companies have recently indicated that they
will serve as MoneyGram Agents. The Thomas Cook Group, which has been offering
the MoneyGram service under a pilot agreement, has signed a five year
agreement to offer the MoneyGram service in at least 678 of its approximately
1,000 branches, covering 19 countries by the end of 1997. In 18 of these
countries, the Thomas Cook network will replace the TSOs lost upon
consummation of this Offering. In addition, the agreement with Thomas Cook
provides incentives for the Thomas Cook sales force to sign MoneyGram Agent
agreements with Thomas Cook's 4,800 financial institution customers worldwide.
Pursuant to a public bidding process, the Post Office Counters Ltd., a
subsidiary of the UK Post Office ("POCL"), recently indicated its intention to
replace its current consumer money wire transfer service provider and enter
into a contract with the Company as its sole provider of consumer money wire
transfer services. POCL operates over 19,000 branches throughout the United
Kingdom and currently provides consumer money wire transfer services in
approximately 988 branches. The Company and POCL are currently negotiating the
Agent Contract and planning the implementation. The Company expects to begin
offering the MoneyGram service through the POCL in February 1997. Finally,
Consorcio Oriental of New York, Inc. ("CONY") and Consorcio Oriental, S.A. of
the Dominican Republic ("CODR"), have signed an Agent Contract to offer the
MoneyGram service. CONY and CODR operate nearly 500 owned and affiliated
outlets throughout the northeastern United States, Florida and Puerto Rico as
well as over 100 owned and affiliated outlets in the Dominican Republic. As a
new feature for the Company, the service provided through CONY and CODR will
include home delivery of consumer money wire transfers to all destinations in
the Dominican Republic. The Company expects to begin offering the MoneyGram
service through CODR and CONY in December 1996.
In order to accomplish the Transition, the MoneyGram Agent sales force
dedicated a significant amount of time and effort to obtaining the consents of
MoneyGram Agents to the assignment of their Agent Contracts from TRS to IPS
and, at such time as the Company obtains the Required Licenses, to the Company
(the "Consents"). During the period from October 1995 to March 1996 (the
"Consent Period"), the Major Accounts division of the MoneyGram Agent sales
force dedicated more than half of their time to obtaining Consents while the
Retail Sales division of the MoneyGram Agent sales force dedicated all of
their time between October 1995 and February 1996 to obtaining the Consents.
In the process of obtaining the Consents, the Company renewed many Agent
Contracts, and obtained long-term extensions to existing Agent Contracts
resulting in most MoneyGram Agents being under contract for a longer period of
time. As of September 30, 1996, Agent Contracts representing approximately
7,000 locations and approximately 65% of the Company's Transaction Fee
Revenues for the nine months then ended do not expire until the year 2000 or
thereafter. Agent Contracts representing approximately 3,300 locations and
approximately 13% of the Company's Transaction Fee Revenues for the first nine
months of 1996 expire between October 1, 1996 and December 31, 1999. All other
Agent Contracts have expired or are currently in evergreen periods and are
subject to termination upon notice ranging from 90 to 365 days.
During the Consent Period three significant MoneyGram Agents, Revco,
Greyhound Lines, Inc. and Food 4 Less Supermarkets, Inc., chose not to renew
their Agent Contracts. While these three MoneyGram Agents collectively
represented 9.3% of the MoneyGram Agent locations at December 31, 1995, the
percentage of total transactions and total revenues attributable to these
MoneyGram Agents were only 6.0% and 4.8%, respectively.
In addition, as a result of the Transition, the 450 American Express Travel
Services Offices ("TSOs") which serve as MoneyGram Agents no longer will offer
the MoneyGram service. The TSOs accounted for approximately 9%, 6%, 2% and 1%
of the Company's transactions volume for 1993, 1994 and 1995 and the nine-
month period ended September 30, 1996, respectively. The loss of these TSOs
will reduce the number of
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countries with MoneyGram Agents by 15. The Company is actively engaged in
establishing independent Agent Contracts with the approximately 200 individual
American Express Representative Offices, which are independently owned but
operated under the American Express name and logo.
As the process of obtaining the Consents nears completion, the MoneyGram
Agent network has again begun to grow. From June 30, 1996 through September
30, 1996, the Company added 1,800 MoneyGram Agents, for a net gain for that
period of 1,300 agents. Although the Company has lost approximately 2,700,
3,600 and 3,300 MoneyGram Agents for the years ended 1994 and 1995 and the
nine-month period ended September 30, 1996, respectively, it has added
approximately 4,500, 4,900 and 3,800 new MoneyGram Agents, respectively,
during such periods. 1,400 of the 3,300 MoneyGram Agents lost between January
1, 1996 and September 30, 1996 were smaller agents who had conducted ten or
fewer total transactions during the three months preceeding their termination.
The Company believes that turnover in agents, caused primarily by the sale of
the agent location, a change in the nature of their business or the movement
by agents among consumer money wire transfer service providers, is normal for
the industry. In addition, during the Consent Period, the MoneyGram sales
personnel spent the majority of their time obtaining the Consents rather than
focusing their efforts on expanding the MoneyGram Agent base. The Company can
give no assurance that it will be able to continue to sign new agents at a
rate that exceeds the attrition rate of existing agent locations. See "Risk
Factors--Fluctuation of MoneyGram Agent Network" and "--Competition with First
Data."
A limited number of the Company's top MoneyGram Agents generate a
significant percentage of the Company's transaction volume and revenues. In
1995, the Company's top 10 selling MoneyGram Agents, representing
approximately 2,500 locations, accounted for approximately 42% of the
Company's transaction volume and 43% of the Company's Transaction Fee
Revenues. In the first nine months of 1996, the Company's top 10 selling
MoneyGram Agents, representing approximately 3,300 locations, accounted for
approximately 42% of the Company's transaction volume and 41% of the Company's
Transaction Fee Revenues. The Company has long-term contracts that expire no
earlier than the year 2000 with eight of its 1996 top 10 MoneyGram Agents,
representing approximately 2,700 locations and accounting for approximately
37% of the Company's transaction volume and 36% of the Company's Transaction
Fee Revenues for the first nine months of 1996. Two of the top 10 MoneyGram
Agents in 1995 and 1996, Banamex and the Chicago Currency Exchange, were each
involved in transactions representing over 10% of the Company's total
revenues. In 1995, 46% of funds transferred and 44% of all transactions
processed by the Company were sent by MoneyGram Agents located in the United
States and received by MoneyGram Agents located in Mexico. During 1995, U.S.
to Mexico transactions for which Banamex was the receiving agent generated
approximately $42.4 million in foreign exchange revenues, representing 31% of
total revenues. The Banamex Agreement expires in April, 2002. The Chicago
Currency Exchange (consisting of the approximately 85 separate Agent Contracts
with owners of Chicago Currency Exchange locations which expire in 2000 or
2001) in the aggregate initiated send transactions that generated
approximately 15% of the Company's total Transaction Fee Revenues in 1995. In
addition, Ace, which has 575 locations, initiated send transactions that
generated approximately 11% of the Company's total Transaction Fee Revenues in
the first nine months of 1996. The Agent Contract with Ace expires in 2000.
The loss of, or a significant reduction in, business from one or more of the
significant MoneyGram Agents, including Banamex, Ace or a significant portion
of the Chicago Currency Exchange locations, could have a material adverse
effect on the Company's business, operating results or financial condition. In
addition, each of Banamex and the Chicago Currency Exchange is the primary
provider of the MoneyGram service in its geographic location. Therefore, the
loss of either of these relationships could leave the Company without the
ability to provide adequate service to its customers in a key geographic area.
There can be no assurance that the Company could replace the volume, revenues
or geographic range represented by either Banamex or the Chicago Currency
Exchange locations.
In order to retain and sign certain significant agents and to provide those
agents an opportunity to share in the growth of the Company, subsequent to the
Offering the Company expects to implement the MoneyGram Agent Stock Option
Plan. If implemented, the Company may grant options to certain key MoneyGram
Agents (exercisable at the price of the Common Stock on the date any such
option is granted) in connection with the
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extension of existing or the negotiation of new Agent Contracts. Such options,
if granted, generally would not be exercisable until the expiration of the
initial term of such Agent Contracts. The Company expects that any such stock
options (and the shares of Common Stock issuable upon exercise of such options)
would be registered under the Securities Act. Therefore, any shares of Common
Stock issued upon exercise of an option would be freely tradeable without
restriction. No assurance can be given that the Company will adopt such a
MoneyGram Agent Stock Option Plan (which may require stockholder approval) or
that, if adopted, any options would be granted thereunder.
EXPRESS PAYMENT AND CASH ADVANCE
Express Payment, a service which provides consumers with a way to quickly pay
third party loans, bills or debt, is one of the fastest growing segments of the
money transfer industry. Since 1988 all MoneyGram Agents have offered the
Express Payment service. The Company maintains contracts with entities such as
credit card companies, lending institutions and collection agencies
("Creditors") which provide customers with credit and require a means by which
delinquent customers can make overdue payments directly to Creditors. Typical
Creditors include GMAC, Ford Motor Credit Company, Capital One and American
Express. To use Express Pay, the Creditor directs the consumer to visit a
MoneyGram location and transmit the amount due. The consumer pays the principal
amount owed and a $10.50 flat fee to the MoneyGram Agent. A MoneyGram money
transfer check automatically prints out at the Creditor's office as immediately
usable funds.
The Cash Advance product is an ancillary service offered by the Company
through about 140 MoneyGram Agents representing approximately 1,000 locations.
The service allows the customer to receive a cash advance of up to $1,000 on a
Visa or MasterCard. Fees vary based on the amount advanced.
NEW PRODUCTS
The Company expects to offer a phone card product beginning in the fourth
quarter of 1996. The market for phone cards is growing rapidly but is
increasingly fragmented. Annual industry wide phone card revenues are estimated
at $800 million in 1995, and a 15-20% growth rate is expected through the year
2000. Customers without access to long distance phone service can purchase a
phone card in denominations of $5, $10, $20 or $50 and use the card to make
calls from any phone. International calls typically also can be made with a
phone card. The Company is well positioned to service the phone card market and
believes that the phone card is a natural complement to its existing products.
Many of the 30 to 40 million people without a phone in the U.S. are the same
individuals who comprise the unbanked and Underbanked, one of the Company's
target customer segments. The Company has entered into a distribution agreement
with MCI Telecommunications Corporation, which will provide the
telecommunications services product support and customer service for the new
phone card product.
THE MONEY TRANSFER PROCESS
The actual collection and payout of funds in MoneyGram's money transfer
process is handled by the MoneyGram Agents. Selling MoneyGram Agents collect
the money to be transferred plus the transaction fee from the customer sending
the money. At the end of each day, the Company totals the amount of each
MoneyGram Agent's transactions and the corresponding transaction fees. The
following morning the Company debits the selling MoneyGram Agents' bank
accounts for the dollar value of all of the MoneyGram Agents' transactions
processed on the previous day and the corresponding transaction fees. All
selling MoneyGram Agents are required to maintain separate bank accounts for
use in connection with processing the MoneyGram service and the process of
debiting this bank account is done through an automated clearing house ("ACH")
transfer.
Receiving MoneyGram Agents are authorized to pay out the transferred funds to
the recipient customer through confirmation of a reference number for the
transaction. In most instances, the receive MoneyGram Agents are reimbursed for
this payment by depositing a pre-signed money transfer check into their bank
account.
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Typically, the Company provides the MoneyGram Agents with blank checks and the
MoneyGram Agents write the checks out to themselves following the receipt of an
authorization number from the Company and deposit them into their bank
accounts. Similar to selling MoneyGram Agents, all receive agents must maintain
separate bank accounts for use in connection with processing the MoneyGram
service. The Company pays selling MoneyGram Agents and receiving MoneyGram
Agents their commissions at the end of each month. The Company assumes
responsibility for information processing and the additional support services
necessary to complete a given transaction. The individual MoneyGram Agents
assume responsibility for both internal fraud and/or customer fraud for any
non-cash payment (e.g., checks) for services rendered. Currently, the Company
provides a free three-minute long distance telephone call with each transaction
within the United States or between the United States and the Americas so that
the sender may provide the recipient with notice of the transaction.
The entire process generally is completed on a same day or next day basis.
The receipt of the transmitted funds is location independent; a customer can
retrieve funds from any MoneyGram Agent within most of the Company's MoneyGram
Agent network regardless of the sender's location. This capability provides
significant flexibility to the Company's customers. The Company's
identification requirements vary according to the principal amount sent and the
circumstances of the transaction, but, generally, domestic transactions only
require the recipient to present basic forms of identification to receive the
transferred funds. No pre-existing relationship between the Company and the
send or receive customer is required in any circumstance.
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[Chart Illustrating Money Transfer Process]
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The MoneyGram Agents are compensated through commissions with rates
determined by their Agent Contracts. Commissions for send transactions
typically are based on a percentage of each transaction fee and average
approximately 20% of the Company's gross fee per transaction. MoneyGram
Agents' commissions for receive transactions are either a flat fee or a
percentage fee, typically averaging approximately 16% of the Company's gross
fee per transaction.
MONEYGRAM PRICING AND FEES
The Company is compensated for its money transfer services through fees paid
by the sender and, in certain international transactions, revenues from
foreign exchange conversion. Transaction fees are charged to customers
according to a graduated schedule based upon the face amount of the
transaction. Prices are set to maximize transaction volume at certain
"frequent" face amounts. The average face amounts for the Company's
transactions during 1995 were $238, $302 and $446 for transactions from U.S.
to U.S., U.S. to Mexico and U.S. or international to international locations,
respectively, and the standard fees for such transactions were approximately
$20, $31 and $40 (depending on the location of the recipient), respectively.
The average face amounts for the Company's transactions during the first nine
months of 1996 were $234, $266 and $397 for transactions from U.S. to U.S.,
U.S. to Mexico and U.S. or international to international locations,
respectively.
The Company's pricing policy has been an important part of its overall
strategy. In order to grow the Business, management actively pursued a policy
of maintaining its prices 20% to 30% below those of Western Union on each of
the most frequently sent face amounts and has featured numerous promotions
with even greater discounts on prices. Promotional discounting of prices has
reduced the Company's profit margins. Customers typically increase usage
during promotion periods, but also transmit smaller amounts of money per
transaction with a resulting lower average fee per transaction. Historically,
the Company's transaction volumes have increased during price promotions and,
although transaction volumes decline when the price promotion ends, they
consistently remain above pre-promotion levels. There can be no assurance as
to what the Company's competitors will do in the future in terms of pricing,
nor can there be any assurance that the Company will be able to continue to
price below such competitors or offer frequent and substantial promotions.
Future price competition could further reduce profit margins (without any
increase in transaction volume) and adversely effect the Company's business,
operating results or financial condition. As the MoneyGram service increases
its brand name recognition and transaction volumes increase, the Company has
in 1996, and currently intends to continue, to reduce the number, scope,
duration and level of discounting of its price promotions compared to 1995 and
1994.
In addition to fees charged for each transaction, certain international
money transfers generate revenues from foreign exchange conversions. The
foreign exchange revenues received for international money transfers are
determined by the Company's contract with the receiving agent and the spread
between the wholesale and retail exchange rates for the currency involved in
the transaction. The Company's total revenues from foreign exchange have
increased from $3.1 million in 1993, to $20.4 million in 1994 and $42.8
million in 1995. For the nine-month period ended September 30, 1996 total
foreign exchange revenues were $22.8 million compared to $33.1 million for the
same period in 1995. The total and per transaction foreign exchange revenues
realized by the Company in 1995 were substantially larger than in prior years,
primarily due to the volatility of the value of the Mexican peso. As the
decrease in average foreign exchange revenue earned per transaction (from
approximately $20 in the first nine months of 1995 to approximately $13 in the
first nine months of 1996) demonstrates, the Company's average foreign
exchange revenues per transaction in 1995 are not indicative of what the
Company expects to achieve in the future.
Both the Company and Banamex realize foreign exchange revenue on U.S. to
Mexico transactions with respect to the difference between the Company's
wholesale rates and the retail exchange rates charged to MoneyGram customers.
In addition to receive commissions, the Company pays Banamex fees in an amount
equal to one-half of the total foreign exchange revenues derived from U.S. to
Mexico MoneyGram transactions received at a Banamex location. Banamex
purchases Mexican pesos at a known rate for transactions that will be paid the
following day. Banamex and the Company then set the Mexican peso pricing to be
charged for those
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transactions based on competitive retail market rates. At a minimum, the
Company believes that its retail pricing will cover the currency purchase cost
and, in almost all cases, the transaction will generate income due to the
difference between wholesale and retail exchange rates.
SALES AND MARKETING
The Company advertises primarily through spot television ads, radio, print
and other media including billboards and bus benches. The Company has
implemented advertising and promotion strategies intended to increase its
market share and broaden the brand recognition of the MoneyGram service in its
target markets. Management believes that these strategies have been effective
in increasing the Company's total transaction volume and the total amount of
funds processed through the MoneyGram system.
The major goals of the Company's advertising are to: (i) increase brand
awareness within the general market; (ii) generate customer trial and continued
usage of the service; (iii) convert customers of other consumer money transfer
providers to the Company; and (iv) create brand loyalty. The Company's
management has targeted its advertising in high usage markets (e.g., immigrants
in the United States remitting funds to their native countries, the Underbanked
and the unbanked) by directly comparing the Company's price to the prices
charged by the Company's competitors or by focusing on speed and security of
funds transferred.
The Company seeks to focus its marketing strategies on targeted advertising
and on discounted price promotions. A typical promotional campaign entails the
lowering of the fees charged per face amount. The Company directs its
promotional materials to markets that it believes are most responsive to its
marketing strategy, such as price sensitive consumers and selected demographic
markets. The Company also provides secondary advertising in other markets
intended to increase consumer awareness of the benefits of its services. Each
of the Company's major promotions corresponded to a significant rise in
transaction volumes. Customers typically increase usage during promotion
periods, but also transmit smaller amounts of money per transaction with a
resulting lower average fee per transaction. Historically, the Company's
transaction volumes have increased during price promotions and, although
transaction volumes decline when the price promotion ends, they consistently
remain above pre-promotion levels.
The MoneyGram Agent network is supported by a nationwide field service team
which recruits and services MoneyGram Agents. The field service team is broken
into four segments: national accounts (large regional and national chains),
domestic individual accounts (small businesses), international accounts
(worldwide except U.S. and Canada) and Express Payment subscribers (primarily
commercial customers and collection agencies). The field service team provides
a variety of services to MoneyGram Agents including training, automation,
assistance with cooperative advertising and provision of signage. There are
currently 90 employees in the Sales and Service Department.
The Company introduced the MoneySaver program in April 1993 as a part of the
customer loyalty element of its marketing strategy. This program offers a 10%
discount on customer transaction fees (normal and promotional fees) and
utilizes pre-recorded "sender profiles" to save time for the MoneyGram Agent
and the customer during the send portion of a MoneyGram transaction. MoneySaver
cards are mailed to targeted customers after they have sent a MoneyGram
transaction, and currently there are approximately 2.8 million cards in
circulation. A significant number of those who have received MoneySaver cards
have used them in a subsequent transaction. In 1995 and the first nine months
of 1996, 32% and 35%, respectively, of all send transactions were initiated
with a MoneySaver card. The cards also enable the Company to maintain a
customer database that facilitates the Company's direct marketing campaigns.
Prior to the Transition, IPS has managed and operated the Business and other
IPS payment products under the TRS Management Agreement. Under the TRS
Management Agreement, IPS is permitted to use the American Express and TRS name
and logo in connection with the MoneyGram service. The TRS Management Agreement
contemplates that IPS would phase out the use of the American Express name and
logo by April 1997. IPS has already commenced such phase out, for instance, in
certain of its advertising and promotions of the MoneyGram
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service. Upon the transfer of the Agent Contracts from TRS to IPS in
connection with the Transition, neither IPS nor the Company will be permitted
to use the American Express or TRS name or logo in connection with the
MoneyGram service, except in certain point-of-sale advertising at MoneyGram
locations for a limited period of time. No assurances can be given that the
loss of the use of the American Express or TRS name and logo will not have a
material adverse effect on the Company's business, operating results or
financial condition.
SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS
The Company's Transaction Fee Revenues and foreign exchange revenues
fluctuate on a quarterly basis and, to a lesser extent, reflect some seasonal
variations in transaction volumes. Transaction Fee Revenues fluctuate based in
part upon whether the Company is offering a price discounting promotion. These
promotions are a part of the Company's growth strategy. Customers typically
increase usage during price promotions, but also usually transmit smaller
amounts of money per transaction, with a resulting lower average fee per
transaction. The lower average fee per transaction during promotions
historically has been partially offset by corresponding increases in
transaction volume. Foreign exchange revenues fluctuate based upon the
volatility in the spread earned between wholesale and retail exchange rates on
foreign exchange transactions (primarily to Mexico). These exchange rates are
affected by volatility of foreign currencies, particularly the Mexican peso,
and the face amount of transactions sent outside the United States, primarily
to Mexico.
The Company processes relatively higher volumes of MoneyGram transactions in
the months of May and December as a result of customers' increased use of the
MoneyGram service to send money to family members at the Mothers' Day and
Christmas holidays. Seasonal factors such as migrant worker remittances, which
are higher in the summer and fall, and emergency transfers to travelers, which
are higher during the summer, also affect the Company's quarterly results of
operations.
OPERATIONS
Overview
The Company's operations are headquartered at its Lakewood Facility. The
Lakewood Facility houses the Company's customer service center which processes
an average of 25,000 to 30,000 calls per day. The facility is staffed 24 hours
a day, 365 days a year. The Company has operators fluent in sixteen languages
and at least 50% of the operators are bilingual. The Lakewood Facility
currently is operating with 300 operator stations but is capable of operating
approximately 440 call operator stations simultaneously. As currently
configured, and assuming the same proportion of transactions are initiated by
MoneyGram Agents via personal computers, the Lakewood Facility can process the
voice transactions associated with an overall volume of 10 million
transactions per year. At peak capacity, the Lakewood Facility could handle
the voice calls associated with a total volume of approximately 13 million
transactions per year. However, in order to insure that the Company will have
adequate redundancy in its customer service system, the Company has decided
that pursuant to the Operations Agreement, up to 30% of the inbound voice
calls may be routed through the Corpus Christi Facility.
In order to assure that the Company can provide MoneyGram Agents with
uninterrupted service in the event of an emergency, the Operations Agreement
provides that First Data and its affiliates will provide disaster recovery
services for the Company's customer service center during the term of the
Operations Agreement at First Data facilities located in Englewood, Colorado,
and, for such time as the Company chooses to route inbound voice calls through
the Corpus Christi Facility, at the Corpus Christi Facility. The Company may
obtain disaster recovery services from a third party. See "Risk Factors--Risk
of Loss" and "Certain Relationships and Related Transactions--The Transition
Agreements--The Operations Agreement."
Voice Communications
Each call into the Company's customer service center is electronically
distributed by a Rockwell Spectrum Automatic Call Distributor ("ACD"). The ACD
informs the operator of the call type and forwards the calls to
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the appropriate operator, based on the linguistic requirements of the caller.
The ACD also collects the detailed statistical information used by the Company
to help maximize the efficiency of the customer service center's operations,
including average time to answer, average call length, average number of
abandoned calls and the number of calls in queue.
MoneyGram Agent Automation
During the nine months ended September 30, 1996, approximately 72% of all
send transactions were processed through personal computers ("PCs") located at
selected MoneyGram Agent locations. PC usage reduces the Company's average
cost of a transaction. Currently, the Company's goal is to provide a personal
computer system, together with training and field support, to all MoneyGram
Agents who process more than 30 transactions per month. The PC enables the
MoneyGram Agent to enter customer and transaction data more quickly than
possible via the Company's customer service center and provides the MoneyGram
Agent with an on-line reference for inquiries, such as other MoneyGram Agent
locations and transaction procedures. The PCs currently at approximately 450
MoneyGram Agent locations process both MoneyGram wire transactions and IPS's
money order and other payment services. These PCs will be contributed to the
Company prior to the Offering. The Company has agreed, as part of the
Transition, to permit IPS to continue to offer its money order and other
payment services through these MoneyGram Agents on their PCs.
INTERNATIONAL TRANSACTIONS
Mexico
Although the Company only began processing transactions in Mexico in 1990,
it processed approximately 2.4 million transactions for receipt in Mexico
during 1995 and approximately 1.8 million transactions in the first nine
months of both 1996 and 1995. Management believes that this growth is the
result of the development of a Mexican-oriented agent network, targeted
advertising and promotional programs and its relationship with Banamex, a
leading commercial bank in Mexico.
TRS (an affiliate of American Express) and Banamex entered into the Banamex
Agreement on July 24, 1990, allowing Banamex to serve as MoneyGram's primary
receive agent in Mexico. Since the initial signing, the Banamex Agreement has
been extended three times. The Banamex Agreement is effective through April
17, 2002 and provides for an automatic renewal after April 17, 2002 for an
additional five-year term unless either party notifies the other of its intent
to cancel 90 days prior to the end of the term. The Banamex Agreement only
allows the Company to process or pay U.S. to Mexico MoneyGram money transfers
through Banamex as its receiving agent, except for the limited circumstances
in which the Company had a relationship with a MoneyGram Agent in Mexico prior
to September 1, 1994 or in specific regions of Mexico where Banamex does not
have a branch location. However, as a result of the assignment of the Banamex
Agreement by TRS to IPS in the Transition, Banamex is not prohibited from
processing, but is still prohibited from paying, money transfers in Mexico on
behalf of American Express or its affiliates and First Data or its affiliates
(including Western Union). Currently, Banamex processes or pays money
transfers in Mexico only on behalf of the Business. Western Union has agreed
with the Company that prior to the earlier of the termination of the Banamex
Agreement or April 17, 2002, Western Union shall not use Banamex to process,
directly or indirectly, United States-to-Mexico consumer money wire transfer
service transactions on behalf of Western Union.
A majority of the money transfers to Mexico are sent for next day pick-up.
For each transaction, Banamex receives a sliding percentage of the monthly
average transaction fee charged to customers. Banamex receives a higher
percentage of the fee for same day transactions. Banamex reserves the right
under certain circumstances to disapprove any Company proposed promotion or
discount and receive a minimum, agreed upon fee amount per transaction
regardless of what the Company charges the customer. The Company pays Banamex
fees in an amount equal to one-half of the total foreign exchange revenues
derived from U.S. to Mexico MoneyGram transactions received at a Banamex
location.
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In order to encourage a high volume of U.S. to Mexico transactions, First
Data has agreed with Banamex, and the Company subsequently will be bound, to
spend a specified amount each year on Spanish language advertising.
Historically, the Company has spent significantly more than the amount
required by the agreement. In 1995, the Company spent over $8 million on
Spanish language advertising, signage and promotional activities.
The Americas, Asia and Europe
Management views the international markets other than Mexico as its next
area of potential transaction growth. Focusing on particular corridors, the
Company is currently seeking to expand its global presence. Send transaction
volume to the Caribbean and Latin America has increased, and the advent of
send as well as receive capabilities by MoneyGram Agents in the region is
broadening the Company's customer base and fostering growth in this market.
While the Company previously offered receive-only service throughout the Latin
American region, MoneyGram Agents in approximately 10-15 countries in the
region will be offering both send and receive service by the end of 1996. The
Company's agent network in Latin America is increasing, with new MoneyGram
Agents in Uruguay, the Cayman Islands, Dominica and the Bahamas, increasing
the scope of the Company's agent network in the region. For example, CONY and
CODR have recently signed an Agent Contract to offer the MoneyGram service.
CONY and CODR operate nearly 500 owned and affiliated outlets throughout the
northeastern United States, Florida and Puerto Rico as well as over 100 owned
and affiliated outlets in the Dominican Republic. As a new feature for the
Company, the service provided through CONY and CODR will include home delivery
of consumer money wire transfers to all destinations in the Dominican
Republic. The Company expects to begin offering the MoneyGram service through
CODR and CONY in December 1996.
In Europe, the Company has added MoneyGram Agents in the U.K., Spain,
Germany, Switzerland, Belgium, Norway and Ireland. In addition, The Thomas
Cook Group, which has been offering the MoneyGram service under a pilot
agreement, has signed a five year agreement to offer the MoneyGram service in
at least 678 of its approximately 1,000 branches, covering 19 countries by the
end of 1997. In 18 of these countries, the Thomas Cook network will replace
the TSOs lost upon consummation of this Offering. The agreement with Thomas
Cook also provides incentives for the Thomas Cook sales force to sign
MoneyGram Agent agreements with Thomas Cook's 4,800 financial institution
customers worldwide. Pursuant to a public bidding process, the POCL recently
indicated its intention to replace its current consumer money wire transfer
service provider and enter into a contract with the Company as its sole
provider of consumer money wire transfer services. POCL operates over 19,000
branches throughout the United Kingdom and currently provides consumer money
wire transfer services in approximately 988 branches. The Company and POCL are
currently negotiating the Agent Contract and planning the implementation. The
Company expects to begin offering the MoneyGram service through the POCL in
February 1997. Spain is a particularly promising market due to the loosening
of restrictions on money transmittal by the Spanish Central Bank. Additional
efforts are underway to work with Post Office or PostBank organizations in
several European countries to expand coverage. Asian transaction volume has
also increased, and the Company has initiatives to expand the number of
MoneyGram Agents in Pakistan, Sri Lanka and Bangladesh.
The Company believes that future growth should occur as migration patterns
continue and advertising and promotional efforts increase international
awareness of the MoneyGram service. Future markets of focus include those
countries with rapid growth rates or inefficient and expensive delivery
systems and, when permissible, countries that currently are subject to U.S.
trade embargoes. Such growth could be slowed, however, due to protectionist
policies practiced by some countries, the existence of bank relationships
between countries which effectively lock out competition with their low fees
and the lack of reliable market data. Competition between the Company and
Western Union in the international arena is very fragmented and varies by
country and region. While Western Union has agents in a greater number of
countries than the Company, the Company believes that the Western Union brand
name is not as established internationally as it is in the United States. In
order to effectively penetrate the international market, the Company will need
to develop enhancements such as direct conversion between non-U.S. currencies,
home delivery and an improved telecommunications and banking settlement
infrastructure.
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COMPETITION
The consumer money transfer and other payment products industry is highly
competitive. The principal methods of competition are price and number and
quality of agents and agent locations. Quality of service and service
enhancements are, to a lesser extent, competitive factors. The Company faces
competition from other consumer money wire transfer service providers as well
as from other payment products which offer consumers the ability to transfer
funds to others. Non-bank consumer money wire transfer services are provided
primarily by two global companies, MoneyGram and Western Union. The Company
estimates that Western Union accounted for approximately 81% of the 33 million
non-bank consumer money wire transfers processed worldwide in 1995 (compared
to approximately 16% by the Company).
Recently, competition has increased through the entry of new competitors or
expanded services offered by existing competitors, particularly in the U.S. to
Mexico market. Orlandi Valuta, previously a competitor in the Los Angeles to
Mexico corridor, has expanded its U.S. presence to over 3,400 agents in
California, Illinois, Texas and Florida, now offers a 10-minute service to
Mexico and is contemplating offering a U.S. to U.S. service. The Company faces
additional competition from the U.S. Postal Service which announced plans to
offer two new money transfer products to Mexico in 1996. The U.S. Postal
Service has joined the Eurogiro Network AS, which allows the U.S. Postal
Service to send postal money order delivery information electronically to
participating partner postal administrations (such as Mexico's postal
service). Funds also may be wired to the receiving institution over this
network. This "electronic money order" service will allow customers to quickly
send their money orders to Mexico for pick up at the Mexican post office. In
addition, the U.S. Postal Service currently is testing an electronic funds
transfer system in California and Texas that will allow postal customers to
wire money to Mexico to be received at Bancomer. Niche competitors who serve
specific migratory corridors also compete with the Company, including several
Mexican banks (such as Bancomer) which have recently begun to offer consumer
money wire transfer services from the United States to Mexico, focusing on
specific geographic locations with high densities of Mexican immigrants. Niche
competitors are able to focus on particular geographic corridors and eliminate
the expenses associated with maintaining nationwide and worldwide agent
networks.
The Company also faces competition from providers of other payment products.
Banks, other financial institutions and credit card companies provide similar
services. Some financial institutions in the United States have announced
plans to expand such services or offer consumer money wire transfer services
for non-bank customers. The Company also faces competition from automated
teller machines and similar retail electronic networks that could allow
consumers to transfer funds to others. The Company also competes with
providers of money orders purchased through IPS, Western Union agents, the
United States Postal Service, currency exchanges, supermarkets, convenience
stores and other retail outlets. Money orders generally are less expensive
than consumer money wire transfer services and are available to customers
through more extensive distribution networks.
A significant portion of the Company's growth in revenues and transaction
volumes prior to 1996 resulted from promotional discounting of its prices,
which has reduced the Company's profit margins. Customers typically increase
usage during promotion periods, but also transmit smaller amounts of money per
transaction with a resulting lower average fee per transaction. Historically,
the Company's transaction volumes have increased during price promotions and,
although transaction volumes decline when the price promotion ends, they
consistently remain above pre-promotion levels. There can be no assurance as
to what the Company's competitors will do in the future in terms of pricing,
nor can there be any assurance that the Company will be able to continue to
price below such competitors (particularly niche competitors, such as Mexican
banks establishing consumer wire transfer service locations in high-use areas
in the United States) or offer frequent and substantial promotions. Future
price competition could further reduce the Company's profit margins (without
any increase in transaction volume). As the MoneyGram service increases its
brand name recognition and transaction volumes increase, the Company has in
1996, and currently intends to continue, to reduce the number, scope, duration
and level of discounting of its price promotions compared to 1995 and 1994.
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The Company currently competes, and following the Offering will compete,
directly with First Data and Western Union, subject only to limited non-
solicitation protections provided by the Consent Decree. Although the Consent
Decree prohibits First Data from entering into a consumer money wire transfer
service contract with a MoneyGram Agent prior to the scheduled expiration of
the Agent Contract, First Data and Western Union may sign a consumer money
wire services contract with any MoneyGram Agent whose Agent Contract is
terminated in accordance with its terms. If MoneyGram fails to comply with the
terms of any Agent Contract, including, in the case of certain significant
MoneyGram Agents, achieving certain minimum transaction volume and dollar
levels, the MoneyGram Agent may terminate the Agent Contract, in which case
First Data and Western Union are permitted under the Consent Decree to sign
such agent to a Western Union agent contract.
In addition, the scope of the Consent Decree is limited in certain respects.
Specifically, the non-solicitation provisions of the Consent Decree described
above do not limit First Data or Western Union from entering into contracts
with MoneyGram Agents to provide services utilizing automatic teller machines
and other point of sale devices, transactions involving debit cards, cash
advances utilizing credit cards, home banking, prepaid telephone and cash
cards, money orders and utility bill payment services. First Data and Western
Union therefore can offer such products in direct competition with the
Company, unrestricted by the Consent Decree. In addition, certain senior
managers of First Data who previously exercised discretion and control over
the Business will remain as senior managers of First Data with responsibility
for, among other things, the operations of Western Union. Finally, other than
pursuant to the confidentiality provisions of the Hold Separate Agreement,
First Data is not restricted or precluded from applying its historical
knowledge of the Business to its management of Western Union, which may
enhance Western Union's ability to compete with the Company.
Western Union is likely to continue to use its significantly greater
financial, technological and marketing resources to compete vigorously with
the Company in the consumer money wire transfer services industry, including
by signing terminated MoneyGram Agents and other new agents, by acquisitions
and joint ventures and by launching new products that compete with the
consumer money wire transfer service offered by the Company. Such competition
may have a material adverse effect on the Company's business, operating
results or financial condition.
Many of the Company's competitors have, and potential competitors may have,
significantly greater financial, technological and marketing resources than
the Company. No assurances can be given that such competitors will not use
such resources to compete more agressively by expanding their agent networks,
funding substantial advertising campaigns, adding enhanced customer services
and/or reducing prices, that the Company will be able to compete successfully
against current or future competitors or that such competition will not have a
material adverse effect on the Company's business, operating results or
financial condition.
PROPRIETARY RIGHTS AND TRADEMARKS
MoneyGram Marks
The Company uses certain service marks in the Business, including
"MoneyGram," "The Better Way to Wire Money," "Wire Money in Minutes" and
"Money in Minutes Worldwide." Many of these marks have been refused initial
registration by the U.S. Patent and Trademark Office or are concurrently being
used by Western Union, the Company's principal competitor.
IPS has registered "MoneyGram" in certain countries and has applications
pending to register the mark in the United States and in substantially all
other countries in which the Company is conducting, or intends imminently to
conduct, business. In the United States and in certain other countries, the
trademark examiners initially have refused to register "MoneyGram" on the
grounds that it is merely descriptive of the service. In the United States,
the trademark examiner, on appeal, refused to register "MoneyGram" on the
grounds that it is generic. The Company intends to defend vigorously the
registrability of "MoneyGram." However, no assurance can be given that
"MoneyGram" will be registered in any country where applications are pending.
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Western Union is using, among other marks, "The Best Way to Send Money" and
"The Fastest Way to Send Money" and has registered these marks in the United
States and in other countries. IPS, on behalf of Moneygram, applied to
register "The Better Way to Wire Money" in the United States, and the U.S.
trademark examiner rejected the application due to Western Union's prior
registrations for said marks.
Western Union uses "Money in Minutes" and has registered this mark in the
U.S. and has applied to register the mark in certain other countries. IPS, on
behalf of Moneygram, applied to register "Wire Money in Minutes" in the United
States and expects that the U.S. trademark examiner will reject IPS's
application due to Western Union's prior United States registration.
The Company and Western Union have no current dispute regarding the
Company's use of "The Better Way to Wire Money," "Wire Money in Minutes" or
"Money in Minutes Worldwide," and the two entities have concurrently used
these or similar marks for some time. However, the Company's and Western
Union's respective rights to these marks and to similar marks are unsettled.
Consequently, pursuant to the Service Mark Letter Agreement, the Company,
First Data and Western Union have agreed not to sue each other in respect of
the Disputed Marks, during the two-year period following the consummation of
the Offering (or thereafter in respect of the use of any Disputed Mark during
such two-year period). However, the Company and First Data have agreed that
each may prosecute or challenge applications in respect of any Disputed Marks
at patent and trademark authorities in the United States or elsewhere during
such two-year period. The Service Mark Letter Agreement also provides that, at
the option of the Company at any time during such two-year period, Western
Union, IPS and the Company will execute the License Agreement and the Service
Mark Letter Agreement will thereupon terminate.
If executed, the License Agreement provides that Western Union will grant
the Company a license to use "The Better Way to Wire Money" and "Money in
Minutes Worldwide" in English and in certain other languages except Spanish in
certain countries, always accompanied by the mark "MoneyGram" and to use "Wire
Money in Minutes" in the United States in English, always accompanied by the
word "MoneyGram." The Company will relinquish to Western Union all other
rights it may have in, and be prohibited from otherwise using other marks used
by Western Union, including, for example, "Money in Minutes," "The Best Way to
Send Money" and "The Fastest Way to Send Money." Western Union will covenant
not to use "The Better Way to Wire Money" in English in certain countries,
including the United States. Both the Company and Western Union will have a
six-month period, beginning upon signing the License Agreement, during which
non-conforming uses of the marks covered by the agreement will be permitted.
Any non-conforming signage, including non-conforming signage installed during
the transition period, may be used through the life of such signage. No
assurances can be given about the effect, if any, of entering into such
arrangement concerning the Disputed Marks may have on the Business or the
Company's operating results or financial condition, including in the event
such arrangement constitutes an abandonment by the Company and Western Union
of any or all of the Disputed Marks. See "Certain Relationships and Related
Transactions--The Service Mark Letter Agreement."
No assurances can be given about the effect of any dispute between the
Company and Western Union over the use of one of these marks, an adverse
resolution of such a dispute, if any, or the loss of any service mark of the
Company, would have on the Business or the Company's operating results or
financial condition.
Software
IPS developed the MoneyGram and Utility Software and all modifications and
enhancements to it. IPS contracted with the General Electric Company ("GE") in
1992 to develop the PC MoneyGram Software and subsequent modifications and
enhancements. GE transferred to IPS title to all PC MoneyGram Software
specifically developed for IPS, and GE granted a license to IPS to use any
pre-existing materials contained in the PC Based Software with GE's
teleprocessing services. Using the MoneyGram and Utility Software, the Company
and those MoneyGram Agents who use the PC MoneyGram Software can record all
transactions into an on-line database with ready access. This information is
summarized daily by each MoneyGram Agent for remittance
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processing and for compliance with the respective Agent Contracts, including
calculation of MoneyGram Agent commissions. The MoneyGram and Utility Software
also allow for the creation of transaction reports required for regulatory
reporting purposes. Pursuant to the Contribution Agreement, IPS will
contribute the MoneyGram Application Software and the PC MoneyGram Software to
the Company. The Software License Agreement will provide that IPS will grant
to the Company, a perpetual, irrevocable, worldwide, nonexclusive, royalty-
free license to use the Utility Software in the Business or for any other
purpose. See "Certain Relationships and Related Transactions--The Transition
Agreements--The Contribution Agreement and "--The Software License Agreement."
REGULATION AND LICENSING
State Regulations
Forty-three states, the District of Columbia and Puerto Rico currently have
sale of checks or money transmission laws which require that firms which
engage in the business of transmitting funds by wire and/or issuing checks and
other payment instruments obtain a license prior to engaging in such
businesses. The licensing process requires the applicant to submit information
concerning its operations and management as well as financial information.
Most U.S. jurisdictions also require the posting of a bond to protect the
public from insolvency or default by the issuer. Some U.S. jurisdictions also
require licensees to maintain highly-rated, liquid investments in an amount
equal to the amount of their outstanding payment obligations and many require
the issuer to maintain a minimum net worth. Typically, the licensee is
required to file annual reports with the applicable banking department.
Reporting requirements include the submission of updated financial statements,
revisions to agent lists, sales data and notification of changes in the
business. A growing number of U.S. jurisdictions also conduct annual or semi-
annual on-site examinations of licensees.
IPS currently holds all of the licenses necessary to conduct the operations
of the Business. Upon consummation of the Transition, it will be necessary for
the Company to apply for and obtain licenses from each of these forty-three
states, the District of Columbia and Puerto Rico with regard to its U.S.
operations. Normally, the licenses are granted by state regulatory authorities
after the filing of an application and some degree of investigation by the
pertinent state regulatory authorities. In many jurisdictions, licenses must
be renewed on an annual basis. While there is no guarantee that the Company
will obtain the aforementioned licenses in all jurisdictions, it is expected
that, within one year of the date hereof, the Company will be able to obtain
such licenses in all jurisdictions. Failure to obtain a license in a
particular state could preclude the Company from offering the service in that
state.
Federal Regulation
The BSA, and its accompanying regulations, and the MLCA, were adopted to
combat "money laundering" and apply to financial institutions including money
transmitters such as the Company and the MoneyGram Agents. The BSA requires
money transmitters to maintain certain records, verify the identity of
customers and periodically file certain reports. The MLCA criminalizes certain
transactions, including transfers of funds through money transmitters such as
the Company and the MoneyGram Agents, that involve funds derived from certain
specified unlawful activities and that are performed with the requisite
knowledge or intent. In addition, the Money Laundering Suppression Act of 1994
may require the Company to register with the Treasury Department as a money
transmitting business and to maintain a list of the MoneyGram Agents and
expresses the sense of Congress that each state should license and regulate
any money order transmitters' activity in that state.
The Company has developed an extensive BSA and Anti-Money Laundering
Compliance Program. Elements of this program include (i) preparation and
filing of currency transaction reports, (ii) real time review of transactions
exceeding certain amounts, (iii) daily review of transactions exceeding $1,000
and (iv) periodic review of transaction patterns by funds transfer corridor
(e.g., Los Angeles to Mexico or Amsterdam to Colombia).
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Violations of the money laundering laws or regulations can result in civil
and/or criminal liability in varying amounts that can range from $500 or less
for negligent violations of BSA requirements, to $1 million for certain
aggravated offenses, to the greater of $500,000 or twice the amount involved
in the underlying transaction for certain money laundering and other offenses.
Forfeiture penalties also are applicable to violations of various provisions
of all three statutes. The failure to comply with the laws or regulations to
which the Business is subject, adverse changes in the interpretation thereof
or the adoption of more stringent laws or regulations could have a material
adverse effect on the Company's business, results of operations or financial
condition.
Non-U.S. Regulation
Some foreign countries have licensing requirements and other regulations
applicable to the Business. Such regulations may include both international
anti-money laundering initiatives and local regulation of money transmission.
On the international front, the world community has begun to focus on the
problem of money laundering through the adoption of a number of international
initiatives. These initiatives include the adoption of the 1988 U.N.
Convention Against Illicit Traffic in Narcotic Drugs, the creation of the
Financial Action Task Force on Money Laundering established by directive of
the 1989 G-7 Economic Summit and the enactment of the Directive on Prevention
of the Use of the Financial System for the Purpose of Money Laundering by the
European Union. As a result of these initiatives, money laundering has been
criminalized in an increasing number of foreign jurisdictions. Some
jurisdictions now require customer identification, recordkeeping and
suspicious transaction reporting. In many instances, however, the offense is
limited to the laundering of proceeds of the sale of illegal drugs.
Although the business of consumer money wire transfer is not separately
licensed as in the U.S., in some jurisdictions the local agent or the
transmitter must hold a banking or foreign exchange license. In these
instances, the Company generally requires proof of the appropriate permit from
the local agent prior to its offering the MoneyGram service. Certain countries
currently, or in the future may, limit consumer money transmission activities
(as principal and/or agent) to banks or similarly licensed financial
institutions. Such restrictions may limit who the Company can utilize as an
agent, require the Company to conduct the Business through a licensed entity
or prohibit the Company altogether from conducting the Business in such
country. While the Mexican government has recently enacted legislation which
criminalizes money laundering, Mexico currently does not require any special
licensing in connection with the offering of consumer money wire transfer
services. To the extent these requirements are applicable to the MoneyGram
service, the failure to comply may be a criminal offense under local law.
Future Regulation
The adoption of more stringent laws or regulations, or adverse changes or
interpretations of existing laws or regulations, could have a material adverse
effect upon the Company.
LITIGATION
The Company is currently not engaged in any material legal proceedings.
EMPLOYEES
The Company has approximately 525 employees, including approximately 100 in
sales, marketing and customer service, approximately 350 in customer service
center operations and approximately 75 in operational, general and
administrative functions. None of the Company's employees are represented by a
labor union, and the Company believes that its employee relations are good.
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MANAGEMENT
DIRECTORS
The Board of Directors currently consists of six members and is divided into
three classes serving staggered terms as follows: Class 1, comprised of two
persons and serving for a term expiring at the 1997 Annual Meeting of
Stockholders; Class 2, comprised of two persons and serving for a term
expiring at the 1998 Annual Meeting of Stockholders; and Class 3, comprised of
two persons and serving for a term expiring at the 1999 Annual Meeting of
Stockholders. Following the expiration of the initial term, directors will
serve for three-year terms. The Company may add one or more independent
directors following consummation of the Offering, who may serve on the Audit
Committee and/or the Compensation Committee of the Board of Directors.
Information with respect to those individuals who currently serve as directors
of the Company is set forth below:
<TABLE>
<CAPTION>
INITIAL TERM
NAME EXPIRES POSITION
---- ------------ --------
<S> <C> <C>
Robbin L. Ayers....... 1999 Executive Vice President and Director
James F. Calvano...... 1999 Chairman and Chief Executive Officer
Brian J. Fitzpatrick.. 1998 Director
John M. Fowler........ 1997 Executive Vice President, Chief
Financial Officer and Director
William D. Guth....... 1997 Director
Sanford Miller........ 1998 Director
</TABLE>
Mr. Ayers, 44, has served as Executive Vice President and General Manager--
International since October 1996. He previously served in the Office of the
President of the Company since September 1995. Mr. Ayers has responsibility
for the Company's international operations. Mr. Ayers has been a Director
since January 1996. Prior to his appointment to the Office of the President,
Mr. Ayers served from January 1995 to September 1995 as Senior Vice President,
Europe and Pacific Rim Retail Services for the Business. From 1992 to 1994 Mr.
Ayers was Senior Vice President, Marketing of IPS and from 1985 to 1992, he
served in various management positions with IPS. Mr. Ayers founded the
MoneyGram service during 1988 and was its General Manager until 1991.
Previously Mr. Ayers held positions with American Express, Citicorp and
Yankelovich, Skelly and White an international marketing firm. He holds a B.A.
in Sociology and an M.B.A. in Marketing from the University of Cincinnati.
Mr. Calvano, 60, has served as Chairman and Chief Executive Officer of the
Company since October 1996. Prior to joining the Company, Mr. Calvano was
employed by the Travelers Group Inc. as Executive Vice President of Marketing
and by Travelers Insurance Companies a division of Travelers Group Inc. as
Executive Vice President & Chief Administrative Officer from November 1993
until February 1995. Mr. Calvano served as President and Chief Operating
Officer of New Valley Corp./Western Union from June 1991 through May 1993. Two
months before he assumed this position, New Valley Corp. suspended payments on
its publicly held debt. New Valley Corporation consented to an involuntary
filing of a bankruptcy petition under Title 11 of the U.S. Code effective
November 15, 1991. From January 1989 until December 1990, Mr. Calvano was
President and Chief Executive Officer of Carlson Travel Group and Executive
Vice President of Carlson Companies Inc. Prior to that date, Mr. Calvano
served in various management positions at Primerica Corporation, American
Express Travel Related Services, Avis, Inc. and the Olivetti Corporation of
America. Mr. Calvano serves on the Board of Directors of Team Rental Group,
Inc. Mr. Calvano holds an AMP from Harvard Business School and a B.A. from the
University of Chicago.
Mr. Fitzpatrick, 54, has served as a director of the Company since October
1996. Mr. Fitzpatrick has been President and Chief Executive Officer of Fits
Systems, a computer software company, since 1972. Mr. Fitzpatrick also serves
on the Board of Directors of Jade Cricket Corporation. Mr. Fitzpatrick
received his A.B. in economics from Boston College.
Mr. Fowler, 47, has served as Executive Vice President and Chief Financial
Officer since October 1996. Prior to joining the Company, Mr. Fowler worked as
a private consultant. From 1989 to 1994 Mr. Fowler was employed by the
Travelers Group Inc. as Executive Vice President and Chief Administrative
Officer, responsible for operations and administration throughout the
organization. Mr. Fowler held the position of Chairman and
57
<PAGE>
Chief Executive Officer of Gulf Insurance Group, a subsidiary of Travelers
Group Inc. from 1987 to 1994 and served as Senior Vice President, Corporate
Development, for the Travelers Group Inc. from 1986 through 1989. Prior to
that date, Mr. Fowler served in various management positions at Warner Amex
Cable, the U.S. Department of Transportation and Reading Company. Mr. Fowler
serves on the board of directors of Air Express International Corporation,
TransAtlantic Holdings, Inc. and Eastern Alliance Insurance Company. Mr.
Fowler holds a B.S. degree from Yale University and a J.D. from the University
of Pennsylvania Law School.
Dr. Guth, 63, has served as a director of the Company since October 1996.
Dr. Guth is a professor of management and strategy at the Stern School of
Business at New York University. Dr. Guth also serves as a principal of
Faculty Practice Associates, a strategic management consulting firm. Dr. Guth
received his D.B.A. degree from Harvard University, his M.B.A. degree from
Indiana University and his B.S. degree from Washington University.
Mr. Miller, 43, has served as a director of the Company since October 1996.
He has served as the Chairman of the Board of Directors and Chief Executive
Officer of Team Rental Group, Inc., which owns Budget Rent a Car franchises in
seven metropolitan regions in the United States, since December 1993. Between
1989 and 1991, Mr. Miller served as Director of Marketing, Special Accounts
for Budget Rent a Car Corporation. From 1981 to 1989, Mr. Miller was an
executive officer and principal stockholder of corporations that owned and
operated 30 Budget Rent a Car franchises. Mr. Miller holds a B.S. from the
State University of New York at Oswego.
Mr. Calvano, Chairman and the Chief Executive Officer of the Company, serves
as a director on Team Rental Group, Inc.'s Board of Directors and Mr. Miller,
a director of the Company, is Chief Executive Officer of Team Rental Group,
Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, comprised of Messrs. and Miller, will be
responsible for reviewing with management the financial controls, accounting
and audit and reporting activities of the Company. The Committee will review
the qualifications of the Company's independent auditors, make recommendations
to the Board of Directors as to the selection of independent auditors, review
the scope, fees and results of any audit and review non-audit services and
related fees of the independent auditors.
The Compensation Committee, comprised of Messrs. Fitzpatrick and Guth, will
be responsible for the administration of all salary and incentive compensation
plans for the officers and key employees of the Company, including bonuses.
The Committee also will administer the Company's 1996 Stock Option Plan.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors will be made by the entire Board of
Directors.
EXECUTIVE OFFICERS
Information with respect to those individuals who currently serve as
executive officers of the Company is set forth below. Information with respect
to Messrs. Ayers, Calvano and Fowler is set forth above under "Management--
Directors." Executive officers of the Company are appointed annually by the
Board of Directors and serve until their successors have been duly elected and
qualified.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
James F. Calvano........ Chairman and Chief Executive Officer
John M. Fowler.......... Executive Vice President and Chief Financial Officer
Robbin L. Ayers......... Executive Vice President and General Manager--International
Alan H. Friedman........ Executive Vice President--Operations
Andrea M. Kenyon........ Secretary and General Counsel
</TABLE>
58
<PAGE>
Mr. Friedman, 50, has served as Executive Vice President--Operations of the
Company since October 1996. Prior to joining the Company, Mr. Friedman was
employed by Western Union as Senior Vice President and Chief Financial Officer
from November 1994 to March 1996. Mr. Friedman previously held various
financial management positions at Western Union Corporation. Mr. Friedman
served as Vice President and Comptroller of New Valley Corp/Western Union from
January 1991 until November 1994, and held that post in April 1991 when New
Valley Corporation suspended payments on its publicly held debt. New Valley
Corporation consented to an involuntary filing of a bankruptcy petition under
Title 11 of the U.S. Code effective November 15, 1991. Mr. Friedman holds a
B.B.A. from the Bernard M. Baruch College of the City University of New York.
Mr. Friedman is also a licensed CPA in New York state, a member of the
Financial Executives Institute and a member of the American Institute of
Certified Public Accountants.
Ms. Kenyon, 41, has served as General Counsel since October 1996. Prior to
joining the Company, Ms. Kenyon spent six years in the general counsel's office
of American Express, where she provided bank regulatory and legislative support
for American Express, its domestic and international banks and financial
service subsidiaries. She also provided legal support to IPS on payment product
issues and anti-money laundering regulations when First Data was a subsidiary
of American Express. Prior to joining American Express, Ms. Kenyon was an
associate at a law firm in New Jersey where she specialized in commercial
banking. She is a 1976 graduate of Lafayette College and 1983 graduate of
Villanova University School of Law.
COMPENSATION OF DIRECTORS
Directors currently do not receive an annual retainer or other compensation
for serving as directors. It is anticipated that, following consummation of the
Offering, directors who do not receive compensation as officers or employees of
the Company or any of its affiliates will be compensated for serving as
directors, including an annual retainer fee and a fee for each meeting of the
Board of Directors that they attend. All such compensation will be determined
by the Board of Directors.
EXECUTIVE COMPENSATION
The Company was incorporated as a subsidiary of IPS in January 1996. The
following table sets forth compensation information for each individual who
served in the capacity of an executive officer of the Business during 1995 and
who will continue to serve as an executive officer of the Company following
consummation of the Offering (the "Named Executives"). Mr. Calvano, the
Chairman and Chief Executive Officer of the Company, Mr. Fowler, an Executive
Vice President and the Chief Financial Officer of the Company, Mr. Friedman,
the Executive Vice President--Operations of the Company and Ms. Kenyon, the
General Counsel of the Company did not begin to serve in such capacities until
February, September, April and July 1996, respectively. Prior to his
appointment as Chief Executive Officer, Mr. Calvano had a consulting contract
with First Data.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
SECURITIES
BONUS OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION($) OPTIONS(#) COMPENSATION($)(2)
- ------------------ ---- --------- ------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Robbin L. Ayers
Executive Vice
President............... 1995 $131,437 $60,000 $45,066(4) 5,000(3) $14,100
</TABLE>
- --------
(1) Mr. Ayers will be paid a bonus of $75,000 upon consummation of the
Offering.
(2) Represents amounts contributed by First Data to defined contribution plans.
(3) Represents shares prior to the two-for-one stock split recently announced
by First Data and effective November 1, 1996.
(4) Represents reimbursable living expenses provided by the Company for an
expatriate assignment.
59
<PAGE>
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
------------------------------------------------- -----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) 1995(1) ($/SH)(2) DATE 5% ($) 10% ($)
- ---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mr. Ayers... 5,000(4)(5) (6) $51.125 3/15/05 $160,761 $407,400
</TABLE>
The following table sets forth information for the Named Executives
regarding grants in 1995 of options to purchase First Data common stock.
- --------
(1) Based on options to purchase an aggregate of 5,385,176 shares of First
Data common stock granted.
(2) The exercise price is the fair market value on the date of grant.
(3) Potential realizable value is calculated based on an assumption that the
price of First Data common stock appreciates at the annual rate shown,
compounded annually, from the date of grant of the option until the
expiration date of the option. The value is net of the exercise price but
is not adjusted for the taxes that would be due upon exercise. The 5% and
10% assumed rates of appreciation are required by the rules of the
Securities and Exchange Commission and do not represent either First
Data's or the Company's estimate of future price. Actual gains, if any,
upon the exercise of these options will depend on the actual performance
of First Data common stock.
(4) Option becomes exercisable over a four-year period with 25% of the option
becoming exercisable on each of the first through fourth anniversaries of
the date of grant.
(5) Represents shares prior to the two-for-one stock split recently announced
by First Data and effective November 1, 1996.
(6) Less than 1/10 of 1 percent.
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth information for the Named Executives
regarding the exercise in 1995 of options to purchase First Data common stock
and their holdings of unexercised options to purchase First Data common stock
as of December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED OPTIONS AT DECEMBER 31, 1995(#) OPTIONS AT DECEMBER 31, 1995($)(2)
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Mr. Ayers(3)............ 2,500 $67,188 10,107 / 11,302 $314,876 / $292,633
</TABLE>
- --------
(1) The value realized is the excess of the fair market value on the date of
exercise over the exercise price, but is not adjusted for the taxes due on
exercise.
(2) The value is calculated based on the aggregate amount of the excess of
$66.9375 over the relevant exercise price(s).
(3) Represents shares prior to the two-for-one stock split recently announced
by First Data and effective November 1, 1996.
RETIREMENT PLAN
The Company does not maintain and currently does not plan to implement a
tax-qualified defined benefit pension plan.
First Data maintains a Retirement Plan (the "Retirement Plan") which is a
tax-qualified, funded, noncontributory, defined benefit pension plan that
provides benefits for eligible employees of First Data and its participating
subsidiaries. Eligible employees include all employees of First Data and its
participating subsidiaries located in the United States and certain employees
located outside the United States as of January 2, 1993. In 1994, employees
participating in the Retirement Plan were offered the option to cease accruing
benefits under the Retirement Plan in exchange for an enhanced benefit under
First Data's Incentive Savings Plan, a defined contribution pension plan. Mr.
Ayers elected to opt out of the Retirement Plan, resulting in a frozen defined
benefit of $23,111, upon retirement at age 65 (unreduced for survivor
protection) and assuming a straight life annuity on a monthly basis.
60
<PAGE>
STOCK PLANS
In connection with the Offering, the Board of Directors of the Company will
adopt, and IPS as the Company's sole stockholder will approve, the Company's
1996 Stock Option Plan (for executives and other key employees) and the
Company's 1996 Broad-Based Stock Option Plan (for all other employees). The
Company has reserved for issuance under the 1996 Stock Option Plan 1,175,000
shares of Common Stock. The Compensation Committee, which will administer the
1996 Stock Option Plan, is expected to grant, subject to consummation of the
Offering, options to purchase Common Stock as follows: 50,000 options to Mr.
Ayers; 300,000 options to Mr. Calvano; 250,000 options to Mr. Fowler; 32,500
options to Mr. Friedman; 25,000 options to Ms. Kenyon and 392,500 options to
other employees of the Company. Each option will have an exercise price equal
to 100% of the initial public offering price, will have a four-year term and
will become exercisable with respect to 25% of the shares of Common Stock
subject to the option on each of the first four anniversaries of the
consummation of the Offering.
The Company has reserved for issuance under the 1996 Broad-Based Stock
Option Plan 25,000 shares of Common Stock. The Company expects to grant under
the 1996 Broad-Based Stock Option Plan upon consummation of the Offering
options to purchase up to an aggregate of 8,000 shares of Common Stock to
eligible employees of the Company (other than certain officers and employees
who are eligible under the 1996 Stock Option Plan and certain employees who
reside in foreign countries) as of the date of the closing of the Offering.
Each such option will have an exercise price equal to 100% of the initial
public offering price, will have a four-year term and will become exercisable
with respect to 25% of the shares of Common Stock subject to such option on
each of the first four anniversaries of the consummation of the Offering.
OWNERSHIP OF CAPITAL STOCK
SECURITY OWNERSHIP OF THE COMPANY BY MANAGEMENT
Prior to the consummation of the Offering, no director or executive officer
beneficially owned any equity securities of the Company. The Company expects
that, subject to consummation of the Offering, certain executive officers and
other employees of the Company will be granted options to purchase Common
Stock. See "Management--Stock Plans."
SOLE STOCKHOLDER OF THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership by the Selling Stockholder of the Common Stock (i) immediately prior
to the Offering and (ii) as adjusted to reflect the sale of the shares of
Common Stock offered hereby (assuming the U.S. Underwriters' over-allotment
option is not exercised). The Selling Stockholder has sole voting and
investment power with respect to all shares indicated as beneficially owned by
the Selling Stockholder. If the U.S. Underwriters' over-allotment option is
not exercised in full, IPS will deposit any shares of Common Stock then-owned
by it into the Trust. IPS will be the beneficial owner of any such shares,
however, the Trustee will have sole voting and investment power with respect
to the shares of Common Stock subject to the Trust in accordance with the
terms of the Trust Agreement.
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING(1)
--------------------- --------------------
PERCENT OF PERCENT OF
NAME AND ADDRESS NUMBER CLASS NUMBER CLASS
- ---------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Integrated Payment Systems Inc.
6200 South Quebec
Englewood, CO 80111................ 16,625,000 100% 2,161,250 13%
</TABLE>
- --------
(1) If the U.S. Underwriters' over-allotment option is exercised in full, the
Selling Stockholder's number of shares of Common Stock and percent of
class would be zero.
61
<PAGE>
PRINCIPAL STOCKHOLDERS OF FIRST DATA
The following table sets forth, based on 223,517,389 shares of First Data
common stock outstanding as of December 31, 1995, the percentage of ownership
of First Data common stock by the persons who beneficially own more than 5% of
First Data common stock based solely upon filings with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
- ------------------- ----------------------- ----------
<S> <C> <C>
American Express Company
American Express Tower
World Financial Center
New York, NY 10285......................... 27,227,310(2)(4) 12.2%
Janus Capital Corporation(3)
100 Fillmore Street, Suite 300
Denver, CO 80208........................... 14,802,043(4) 6.6%
</TABLE>
- --------
(1) Represents shares prior to the two-for-one stock split recently announced
by First Data and effective November 1, 1996.
(2) According to the Schedule 13G of American Express, 4,608,810 of these
shares were held by American Express Financial Advisers, which was a joint
filer of the Schedule 13G. Pursuant to the terms of an October 1993
offering by American Express of 6 1/4% Exchangeable Notes Due October 15,
1996 ("DECS"), American Express may, at its option, consummate the
mandatory exchange thereunder at maturity by delivering share of First Data
common stock. If American Express exercises such option and uses its
current holdings of First Data common stock without acquiring any
additional shares, its ownership interest in First Data would be
substantially reduced. However, American Express is under no obligation to
exercise such option to deliver First Data common stock pursuant to the
terms of the DECS or, if it so elects, that it will use all or any portion
of its current holdings of First Data common stock to make such delivery.
(3) The Schedule 13G dated February 13, 1996 of Janus Capital Corporation was
filed jointly with Thomas H. Bailey. As stated in Item 4 of this Schedule
13G, Mr. Bailey owns approximately 12.2% of Janus Capital. In addition to
being a stockholder of Janus Capital, Mr. Bailey serves as President and
Chairman of the Board of Janus Capital and filed the joint statement with
Janus Capital as a result of such stock ownership and positions which may
be deemed to enable him to exercise control over Janus Capital. According
to this Schedule 13G, Mr. Bailey does not own of record any shares of First
Data common stock; however, as a result of his position, Mr. Bailey may be
deemed to have the power to exercise or to direct the exercise of such
voting and/or dispositive power that Janus Capital may have with respect to
First Data common stock held by investment companies registered under
section 8 of the Investment Company Act of 1940 and individual and
institutional clients (the "Managed Portfolios"). According to this
Schedule 13G, all shares reported herein have been acquired by the Managed
Portfolios and Mr. Bailey specifically disclaims beneficial ownership over
any shares of First Data common stock that he or Janus Capital may be
deemed to beneficially own. Furthermore, according to this Schedule 13G,
Mr. Bailey does not have the right to receive any dividends from, or the
proceeds from the sale of, the securities held in the Managed Portfolios
and disclaims any ownership associated with such rights.
(4) Shared voting and dispositive power.
BENEFICIAL OWNERSHIP OF FIRST DATA COMMON STOCK BY DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY
The following table sets forth, as of July 31, 1996, the number of shares of
common stock of First Data beneficially owned by each director of the Company,
each of the Named Executives and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP(1) CLASS
- ---- ----------------------- ----------
<S> <C> <C>
Robbin L. Ayers............................. 10,162(2) (4)
James F. Calvano............................ 5,000 (4)
John M. Fowler.............................. -- (4)
Alan H. Friedman............................ 30 (4)
Andrea M. Kenyon............................ -- (4)
All directors and executive officers as a
group (8 persons).......................... 15,192(3) (4)
</TABLE>
- --------
(1) The number of shares reported includes options that are exercisable within
60 days of July 31, 1996.
(2) Includes 10,107 shares issuable upon exercise of options.
(3) Includes 10,107 shares issuable upon exercise of options.
(4) Less than one percent.
62
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH FIRST DATA
On June 12, 1995, First Data entered into a merger agreement with FFM, the
parent of Western Union. Western Union is the principal competitor of the
Company. The Company estimates that of the 33 million non-bank consumer money
wire transfers processed worldwide in 1995, Western Union and the Company
accounted for approximately 81% and 16%, respectively, of all such
transactions. In order to obtain the FTC's approval of its merger with FFM
under federal antitrust law, First Data and the FTC entered into the Consent
Decree and the Hold Separate Agreement. The Consent Decree requires First Data
to divest the sales and marketing functions of either the Business or Western
Union, but allows First Data to perform processing services for both
businesses. First Data decided to divest itself of at least the sales and
marketing functions associated with the Business and retain Western Union.
First Data identified those operations and functions necessary to operate the
Business as a stand-alone entity, including those assets and personnel to be
dedicated solely to the Business, began reconfiguring the shared customer
service centers so that the Lakewood Facility would be used exclusively in the
Business and commenced the separation of information and services related to
the Business within the IPS data center in Englewood, Colorado.
THE TRANSITION AGREEMENTS
Pursuant to the Transition, the Company will enter into the Transition
Agreements, which consist of the Contribution Agreement, the Operations
Agreement, the Software License Agreement, the Facility, the Service Mark
License Agreement, and, if requested by the Company, the License Agreement,
the Human Resources Agreement, the Telecom Agreement and the Registration
Rights Agreement. Under the Transition Agreements, First Data or its
affiliates will provide a source of liquidity for working capital purposes,
certain licenses and services that are necessary to the operation of the
Business, including data processing services and services in respect of
compliance with applicable licensing and other legal requirements regarding
the provision of a consumer money wire transfer service. See "The Business--
Regulation and Licensing." While management of the Company has participated in
the preparation and negotiation of the Transition Agreements, none of the
Transition Agreements were the result of third-party, arm's-length
negotiations and there can be no assurance that the Company would not be able
to obtain services provided thereunder from a third party at a lower cost. For
additional information concerning the relationship of, and competition and
potential conflicts between, the Company and First Data, see "Risk Factors--
Factors Relating to Independence and Sale of the Company" and "The Business--
Competition."
The following summary description of the Transition Agreements does not
purport to be complete and is qualified in its entirety by reference to the
Contribution Agreement, the Operations Agreement, the Software License
Agreement, the Facility, the Service Mark Letter Agreement (or, if applicable,
the License Agreement), the Human Resources Agreement, the Telecom Agreement
and the Registration Rights Agreement, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part. See
"Available Information."
The Contribution Agreement
MoneyGram Assets. Pursuant to the Contribution Agreement, (i) IPS will
contribute the $12 million IPS Cash Contribution and (ii) IPS and certain of
its affiliates will contribute to the Company all right, title and interest in
the MoneyGram Assets, including (a) the MoneyGram Marks, which consist of
certain copyrights and trademarks owned by First Data or IPS that are material
to the conduct of the Business, including the MoneyGram service mark; (b) the
PC MoneyGram and the MoneyGram Application Software; (c) the economic benefits
under the Agent Contracts; (d) the real estate lease and leasehold
improvements and certain items of personal property and personal property
leases related to the Lakewood Facility; and (e) certain items of personal
property, including PCs, printers and signage, that are provided to MoneyGram
Agents for use in connection with the MoneyGram service and certain contracts
with third persons related thereto. The MoneyGram Assets
63
<PAGE>
will be transferred to the Company prior to the consummation of the Offering
"as is, where is," and in consideration therefor, the Company will issue and
deliver to IPS 16,624,900 shares of Common Stock.
Notwithstanding the transfer of the economic benefits under certain Agent
Contracts, in order to comply with applicable licensing requirements, IPS will
not assign to the Company title to any Agent Contract. Those Agent Contracts
that are not assignable by their terms from TRS will be terminated, and the
Company will be free to seek a new contract with the applicable agent. Those
Agent Contracts that are in the name of IPS will remain with IPS and the
economic benefits will be assigned to the Company pursuant to the Contribution
Agreement and the Operations Agreement. Upon satisfaction of the conditions to
the Company's owning and operating the Business in its own name, IPS will
assign all Agent Contracts to the Company, and the Company will assume all
liabilities and obligations related thereto.
The PCs currently located at approximately 450 MoneyGram Agent locations are
used to process both MoneyGram wire transactions and IPS's money order and
other payment services. These PCs will be contributed to the Company prior to
the Offering. The Company has agreed, as part of the Transition, to maintain
such PCs and to permit IPS to continue to offer its money order and other
payment services through these MoneyGram Agents on those PCs.
Assumed Liabilities. Pursuant to the Contribution Agreement, the Company
will assume and has agreed to discharge all liabilities and obligations to be
paid or performed in respect of the MoneyGram Assets, except in respect of the
Agent Contracts, which, as described above, cannot be assigned to the Company
until the satisfaction of certain conditions. Nevertheless, the Company will
assume the economic liabilities under the Agent Contracts and agree to
indemnify First Data and certain persons affiliated with First Data for losses
or expenses suffered by First Data or any such person in respect of such Agent
Contracts as if the Company were the owner of, and had primary liability
under, the Agent Contracts (except with respect to any loss or expense
incurred as a direct result of the gross negligence or willful misconduct of
First Data or its affiliates).
Taxes. The Contribution Agreement provides that First Data will be liable
for and will pay all taxes imposed upon or applicable to the Business or the
MoneyGram Assets with respect to periods ending at or prior to the time of the
Contribution and the Company will be liable for and will pay taxes imposed on
or applicable to the Business or the MoneyGram Assets with respect to periods
after the Contribution. Any sales tax, use tax, real property transfer or
gains tax, documentary stamp tax or similar tax attributable to the transfer
of the MoneyGram Assets shall be shared equally by the Company and IPS.
As a result of the Transition, the tax basis (for federal income tax
purposes) of the MoneyGram Assets will increase from the tax basis in the
hands of IPS and its affiliates at the time of the Contribution to their fair
market value at that time (determined by reference to the initial public
offering price). Subject to the discussion below, such tax basis is generally
expected to produce a tax benefit to the Company in future years through
depreciation or amortization deductions or through decreased gain or (subject
to certain limitations) increased loss.
In general, under Section 197 of the Code the tax basis of certain
intangible assets (including goodwill and going concern value) of the Company
is amortizable over a fifteen-year period. However, if the "anti-churning"
rules under Section 197(f)(9) of the Code apply, no amortization under Section
197 of the Code will be allowed with respect to the tax basis of goodwill,
going concern value and any other intangible assets for which depreciation or
amortization would not have been allowed but for Section 197. The Company
currently believes that a significant portion of the MoneyGram Assets would
not be amortizable if the anti-churning rules applied. In that regard, the
Company currently expects to receive an appraisal of the portion of the
MoneyGram Assets not of a type subject to the anti-churning rules.
Furthermore, for the reasons set forth below, the Company does not believe
that the anti-churning rules are applicable.
In general, the Code provides a rule under which the "anti-churning" rules
will apply if IPS and the Company are treated as being related either
immediately before or immediately after the Contribution. In form, IPS will
own all of the outstanding stock of the Company immediately before and
immediately after the Contribution and therefore under the provisions of the
Code might be considered to be related to the Company
64
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for this purpose. However, tax counsel to First Data has advised First Data
that, in its opinion, although not clear, the Company should not be treated as
being related to IPS either immediately before or immediately after the
Contribution and therefore the anti-churning rules should not apply under that
rule as a result of the Contribution. No authority directly supports tax
counsel's opinion, and tax counsel's opinion represents only its best judgment
and is based on certain assumptions. Tax counsel's advice is based on the
reasoning that (i) the Company will conduct no meaningful business activity
before the Contribution, and IPS's holding of stock in the Company following
the Contribution will be transitory, (ii) both immediately before and
immediately after the Contribution IPS will be under a binding obligation to
sell to the Underwriters an amount of stock of the Company that will cause IPS
to no longer be related to the Company for purposes of the above rule and
(iii) the application of that anti-churning rule to the Contribution would,
under tax counsel's understanding of the purpose of the anti-churning rules,
be inconsistent with such purpose. Tax counsel's reasoning is consistent with
the reasoning of authority under provisions of the Code not related to the
anti-churning rules. In addition to the anti-churning rule discussed above,
the Code also provides rules under which, in general, the anti-churning rules
will apply in certain circumstances where the "user" of an intangible asset
included in the MoneyGram Assets is a person other than the Company. The
meaning of the term "user" is to be set forth in Treasury Regulations, which
have not yet been issued. However, in the opinion of tax counsel to First
Data, although not entirely clear, those rules should not apply to the
Transition. Such opinion represents only tax counsel's best judgment and is
based on certain assumptions.
The Company will decide from time to time (based on the advice of its own
tax advisors) whether the Company is entitled to claim such amortization
deductions. Changes in applicable tax law may eliminate (possibly on a
retroactive basis) the Company's ability to do so. In that regard, the IRS is
expected to issue Treasury regulations under Section 197 in the near future
which could set forth rules precluding such deductions. With respect to any
amortization deductions claimed by the Company, the IRS could successfully
assert a position on the audit of the Company's tax returns or in litigation
disallowing such deductions, and interest might be imposed by the IRS.
For financial accounting and reporting purposes, the Company will record a
deferred tax asset (with a corresponding credit to capital surplus) for the
tax effect of the excess of the tax basis of the MoneyGram Assets following
the Contribution over their net book value. Solely for financial accounting
and reporting purposes, such tax basis will be reduced to take into account
management's best estimate of the uncertainties outlined above with respect to
the ability of the Company to sustain amortization deductions upon challenge,
if any, by the IRS. Management's best estimate of the amount of this
uncertainty is subject to revisions, and resolution of the uncertainty may not
occur until such time as an audit of the Company's tax return for the period
ended December 31, 1996 or any subsequent year in which amortization
deductions are claimed, is completed by the IRS. Any revisions to the deferred
tax asset resulting from resolution of this uncertainty will be offset by a
corresponding charge or credit directly to capital surplus at the time such
resolution occurs. In addition, the amount of the gross deferred tax asset
which will be recorded at the time of the Contribution will be reduced by a
valuation allowance which will be based upon management's judgment as to the
likelihood of the Company generating sufficient taxable income to realize the
asset through future tax deductions. Any future changes in the valuation
allowance will be based upon management's then current assessment of the
Company's ability to generate sufficient taxable income to realize the balance
of the deferred tax asset through future tax deductions and the impact of any
such changes in the valuation allowance will be recorded as a component of
income tax expense. Based upon an assumed initial public offering price of
$11.00 per share, the pro forma excess of the tax basis of the Company's net
assets (determined for financial accounting and reporting purposes as
described above) over their pro forma net book value at September 30, 1996 is
approximately $138.4 million resulting in a pro forma gross deferred tax asset
of $54.0 million. Based upon preliminary management assessments, a valuation
allowance of 12% or $6.3 million would be necessary resulting in a pro forma
net deferred tax asset of $47.7 million.
The Operations Agreement
Under the Operations Agreement, which has an initial two-year term, IPS or
its affiliates will perform for the Company data processing services,
management services, disaster recovery services for the Lakewood Facility's
customer service center, voice center services and certain corporate support
services. Under the Operations Agreement, the Company and First Data have
agreed to schedules of fees and expenses which reflect
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First Data's good faith estimate of the actual cost of providing such services
(including reasonable allocations of overhead expenses) calculated on a basis
consistent with the determinations made in preparing the Financial Statements
appearing elsewhere in this Prospectus. No assurances can be made, however,
that the Company could not obtain such services at lower cost from a third
party.
Data Processing Services. Data processing services include, among other
things, on-line and batch processing of MoneyGram transactions, database
management, data security and telecommunications and account management.
Management Services. The management services are functions that IPS must
perform in order for the Business to be in compliance with applicable
licensing and other legal requirements (including anti-fraud and anti-money
laundering functions) until such time as the Company is fully licensed in all
applicable jurisdictions to own and operate a consumer money wire transfer
service in its own name (the "Management Services"). IPS will issue to
MoneyGram Agents its own financial paper and send and receive forms. IPS also
will be responsible for collecting all monies related to MoneyGram
transactions. Fiduciary Funds related to MoneyGram transactions, except those
related to transactions that are subject to the TRS Management Agreement, will
be held by IPS and invested, in accordance with applicable law, in a portfolio
of investments at least equal to the principal amount of MoneyGram
transactions that, from time to time, have been initiated but not yet paid to
the recipient. IPS will be entitled to investment income on the Fiduciary
Funds until such time as the Company operates the Business in its own name.
Under the Operations Agreement, IPS will continue to be a party to the Agent
Contracts and to hold all necessary licenses to operate the Business. All
other activities relating to the Business, including pricing, selecting and
negotiating with MoneyGram Agents, determining commissions to be paid to
MoneyGram Agents and substantially all customer service center services, will
be conducted by the Company.
Disaster Recovery Services. IPS and its affiliates will provide disaster
recovery services for the Lakewood Facility customer service center during the
term of the Operations Agreement at First Data's facilities in Englewood,
Colorado in the event the customer service center is damaged by fire,
earthquake, power loss, telecommunications failure or similar events, and, for
such time as the Company chooses to route inbound voice calls through the
Corpus Christi Facility, at the Corpus Christi Facility.
Voice Center Services. Voice Center Services may be provided, pursuant to
the Company's request, for up to 30% of the Company's inbound voice calls
through the Corpus Christi Facility.
Corporate Support Services. Corporate support services such as payroll,
operations support, treasury and accounting services will be provided by IPS
and its affiliates until the Company can administratively assume performance
of such services itself.
Economic Rights under the Agent Contracts. Under the Operations Agreement,
IPS will pay to the Company on a daily basis the aggregate amount of fees paid
by customers in respect of all MoneyGram transactions. Foreign exchange
revenues in respect of all such transactions will be paid by IPS to the
Company on a monthly basis, as such revenues are collected from Banamex
monthly. The Company will pay the MoneyGram Agents the commissions and other
amounts payable on account of MoneyGram transactions in accordance with the
terms of the applicable Agent Contracts and, on a monthly basis, will pay IPS
the amount due or payable to First Data under the Operations Agreement.
Confidentiality. Both the Company and First Data will agree to keep
confidential certain information concerning the other party's business,
technical data or computer software, documentation and systems to which a
party has access under the Operations Agreement. In addition, any confidential
information that the Operations Agreement requires the Company to provide to
First Data will be provided only to a designated representative of First Data.
Such designated representative will be obligated to keep such information
confidential and to provide it only to those persons within First Data who
have a need to know such information in order for First Data to perform its
obligations under the Operations Agreement. The designated representative also
will take reasonable steps to keep any confidential information of the Company
separated from First Data personnel involved in the management of the Western
Union business.
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Term. The Operations Agreement will have a two-year term, unless earlier
terminated as described below. The Company is obligated to obtain all
necessary licenses to commence owning and operating the Business in its own
name on or prior to the expiration of the two-year term or within 180 days
after termination of the Operations Agreement in accordance with its terms.
Thereafter, IPS will have no further obligation to provide the Management
Services or to allow the Company or any MoneyGram Agent to continue to sell an
IPS denominated consumer money wire transfer product. However, the Operations
Agreement provides that, at the request of the Company in its sole discretion,
IPS will negotiate in good faith to extend the term of the Operations
Agreement or negotiate a similar arrangement with the Company, in either case
upon such terms and conditions, including prices, to be agreed upon by the
Company and IPS.
Termination. The Company may terminate the Operations Agreement in its
entirety or may terminate certain related groups of services offered under the
Operations Agreement, including the data processing services or, if the
Company has obtained the Required Licenses and has converted its selling
MoneyGram Agents, the management services, upon prior written notice within
specified periods of varying lengths, none of which exceeds 90 days. The
Company may terminate the voice center services on 30 days notice. In the
event the Company terminates the data processing services the Company is
obligated to provide IPS with certain information required by IPS to perform
the Management Services. In addition, the Company or IPS will have the right
to terminate the Operations Agreement in the event of, among other things, (i)
the failure of the other party or any of its affiliates to perform any
material obligation thereunder (after notice, an opportunity to cure and
satisfaction of certain dispute resolution procedures), (ii) certain
bankruptcy related events of the other party, (iii) the enjoinment of the
other party from performing any of its material obligations thereunder and
(iv) the insolvency of the other party.
Continuing Obligations After Termination. If the Operations Agreement is
terminated, IPS and the Company will expeditiously and in good faith agree
upon and document a plan providing for an orderly transition to a successor of
the obligations of IPS under the Operations Agreement over a period of not
less than 180 days from the date of such termination. During such transition
period, IPS will provide reasonable transition assistance to the Company. The
Company will compensate IPS, on a time and materials basis, for such
assistance, at IPS's then-prevailing rates (plus reimbursement of expenses) in
addition to all other payment obligations of the Company pursuant to and in
accordance with the Operations Agreement.
Indemnification. IPS and the Company will agree to indemnify and hold
harmless each other in respect of certain matters arising in connection with
the Operations Agreement. The indemnification obligations of IPS and the
Company under the Operations Agreement will be limited in the certain
respects, including in respect of the maximum amounts of indemnification.
Money Order Product. During the term of the Operations Agreement, IPS has
agreed, upon the request of the Company, to negotiate in good faith the terms
of additional data processing and other services to be provided by IPS and its
affiliates in respect of a money order product offered by the Company,
initially, in the names of IPS (as the licensed entity) and the Company and,
at such time as the Company has obtained all necessary licenses to offer such
product, a money order product offered by the Company in its own name. Any
agreement between the Company and IPS in respect of such product will be on
terms agreed to by the parties, provided that IPS has agreed that its fees and
reimbursable expenses will not be greater than then-current market rates.
The Software License Agreement
Pursuant to the Software License Agreement, IPS will grant to the Company, a
perpetual, irrevocable, worldwide, nonexclusive, royalty-free license to use
the Utility Software in the Business or for any other purpose. IPS will
indemnify, defend and hold the Company harmless against certain claims arising
out of or related to any claim that the Company's use or possession of the
Utility Software, or the license to such software granted thereunder,
infringes or violates the intellectual property of any third person. If a
final injunction is obtained against the Company's use of the Utility Software
by reason of such infringement or if in IPS's opinion such software is likely
to become the subject of a claim for such infringement, IPS may procure for
the Company the
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right to continue using such software in the manner permitted under the
Software License Agreement or replace or modify such software so that it
becomes noninfringing.
The Short-Term Working Capital Facility
Prior to the consummation of the Offering, First Data and the Company will
enter into the Facility with the Company pursuant to which the Company may
borrow from time to time, on a revolving basis, up to $20 million. Borrowings
under the Facility will be unsecured and may be used by the Company only to
fund working capital requirements. The Facility will terminate 180 days from
the consummation of the Offering, at which time all outstanding borrowings
thereunder would have to be repaid or refinanced by the Company. See "Risk
Factors--Liquidity."
Borrowings under the Facility bear interest at the prime rate, as announced
by Chase Manhattan Bank, N.A. (the "Prime Rate"), plus one percent. Any
overdue amounts under the Facility will bear an interest rate equal to the
Prime Rate plus three percent. The Company, upon proper notice to First Data,
may make prepayments on the outstanding balance under the Facility at any
time. No commitment or other fees are charged to the Company under the
Facility.
The Facility contains certain negative covenants that limit or restrict the
Company, without the consent of First Data (not to be unreasonably withheld),
from (i) creating or permitting any lien or other encumbrance on its assets or
properties, other than purchase money security interests or pre-existing liens
on after-acquired property; (ii) paying any dividend on or making any
distribution with respect to, or acquiring, shares of its capital stock other
than (x) dividends or distributions payable in shares of its Common Stock, (y)
acquisitions of Common Stock with proceeds from a concurrent issuance of
Common Stock or (z) cash dividends to the extent that the aggregate amount of
all such cash dividends in excess of 10% of net income of the Company on a
cumulative consolidated basis after September 30, 1996; (iii) selling, leasing
or otherwise disposing of any property (other than in the ordinary course of
business) that is material to the Company's business or operations; (iv)
merging or consolidating; (v) acquiring all or substantially all of the assets
of any other person, except for acquisitions that in the aggregate do not
exceed $5 million; (vi) Investments (as defined in the Facility) in excess of
$5 million in the aggregate; (vii) any transactions with an affiliate other
than on an arm's length basis and (viii) prepaying or repaying the principal
of any indebtedness for money borrowed unless such payment is a regularly
scheduled payment, in which case the Company concurrently shall reduce the
commitment under the Facility in an amount equal to such payment (and repay
any outstanding indebtedness under the Facility in excess of such reduced
commitment). The Facility also will include terms, conditions, representations
and warranties, indemnities and events of default and other provisions which
are customary in such agreements. In addition, in the event the Company or any
of its subsidiaries receives cash proceeds from the issuance of any
indebtedness for money borrowed, the Company must repay outstanding borrowings
under the Facility in an amount equal to such cash proceeds and the
outstanding commitment under the Facility shall be reduced concomitantly.
The Service Mark Letter Agreement
Pursuant to the Service Mark Letter Agreement, the Company, First Data and
Western Union have agreed not to sue each other in respect of the Disputed
Marks during the two-year period following the consummation of the Offering
(or thereafter in respect of the use of any Disputed Mark during such two-year
period). However, the Company and First Data have agreed that each may
prosecute or challenge applications in respect of any of the Disputed Marks at
patent and trademark authorities in the United States or elsewhere during such
two-year period. The Service Mark Letter Agreement also provides that, at the
option of the Company at any time during such two-year period, Western Union,
IPS and the Company will execute the License Agreement and the Service Mark
Letter Agreement will thereupon terminate.
If executed, the License Agreement provides that Western Union will grant to
the Company a non-exclusive and royalty-free license to use "The Better Way to
Wire Money" and "Money in Minutes Worldwide" in English and certain other
languages (but not Spanish) in certain countries, always accompanied by the
word "MoneyGram" and to use "Wire Money in Minutes" in the United States in
English, always accompanied by the word "MoneyGram" (the "Licensed Marks").
The Company will relinquish to Western Union any rights it
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may have in, and will be prohibited from otherwise using, the Licensed Marks.
In addition, the Company will relinquish any rights it may have in, and be
prohibited from using, other marks used by Western Union, including, for
example, "Money in Minutes," "The Best Way to Send Money" and "The Fastest Way
to Send Money." Western Union will covenant not to use "The Better Way to Wire
Money" in English in certain countries, including the United States. Both the
Company and Western Union will have a six-month period, upon signing the
License Agreement, during which non-conforming uses of the marks covered by
the agreement will be permitted. Any non-conforming signage, including non-
conforming signage installed during the transition period, may be used through
the life of such signage. The Company is required to use the Licensed Marks in
compliance with laws and in accordance with quality control and other
guidelines agreed to by the parties. In the event the Company breaches any
material obligation of the Company under the Service Mark License Agreement
(which breach is not cured within 60 days of notice by Western Union of such
breach), Western Union may terminate the license with respect to all licensed
Marks in each Territory (as defined therein) in which such breach occurred and
was not cured. The Company has six months after any such termination to
discontinue use of the Licensed Marks. The Service Mark License Agreement also
contains limited representations and warranties by Western Union, mutual
indemnities and certain other terms customary in such licensing agreements.
The Human Resources Agreement
First Data, IPS and the Company will enter into the Human Resources
Agreement which defines the duties, obligations and liabilities of First Data,
IPS and the Company with respect to the transition of employees from First
Data and IPS to the Company. The Human Resources Agreement addresses the
termination of such employees under First Data's pension, profit sharing and
stock plans and welfare benefit plans (medical, dental, etc.) and their
benefits as newly hired employees of the Company. Pursuant to the Human
Resources Agreement, First Data, IPS and the Company have each agreed, for a
one-year period from the consummation of the Offering, not to solicit or hire
each other's employees.
The Telecommunications Services Sharing Agreement
First Data and the Company will enter into the Telecom Agreement which
provides that First Data shall cooperate and use reasonable efforts to
facilitate the provision of telecommunication services under First Data's
agreements with its various long-distance telecommunication service providers
to the Company and its affiliates, if any. The Telecom Agreement permits the
Company to choose among such long-distance providers and to benefit from First
Data's tariff rates. The Company, in exchange, will agree to use the
telecommunication services provided by First Data's telecommunication
providers exclusively for all of the Company's and its affiliates' person-to-
person telephone calls (both incoming and outgoing). The Telecom Agreement
expires on December 31, 1998, unless earlier terminated for, among other
things, breach by either party of its representations, warranties or
agreements therein, bankruptcy or insolvency of a party or, at the Company's
option, upon 60 days written notice.
Registration Rights Agreement
In connection with the Offering, the Company and IPS will enter into a
Registration Rights Agreement, which, among other things, provides that upon
the request of IPS, the Company will register under the Securities Act any of
the shares of Common Stock (and any other securities issued in respect thereof
or in exchange therefor) held by IPS (or the Trustee) and certain transferees
for sale in accordance with IPS's intended method of disposition thereof, and
will take such other actions necessary to permit the sale thereof in other
jurisdictions. IPS has the right to request three such registrations (one of
which may be a "shelf" registration pursuant to Rule 415 under the Securities
Act), subject to certain limitations specified in the Registration Rights
Agreement. IPS also has the right, which it may exercise at any time and from
time to time in the future, to include the shares of Common Stock (and any
other securities issued in respect thereof or in exchange therefor) held by
IPS (or the Trustee) and certain transferees in certain other registrations of
common equity securities of the Company initiated by the Company on its own
behalf or on behalf of its other stockholders. Subject to certain limitations
specified in the Registration Rights Agreement, such registration rights are
assignable by IPS and its assigns.
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OTHER RELATIONSHIPS
For a description of certain transactions between IPS and American Express
that related to the Business prior to the Offering, see Note 3 of the Notes to
Financial Statements.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share. The following summary description
of the capital stock, Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and By-laws of the Company does not purport
to be complete and is qualified in its entirety by reference to the Company's
Certificate of Incorporation and By-laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part (see
"Available Information"), and to the Delaware General Corporation Law
("DGCL").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock offered by the Selling Stockholder in the Offering will
be fully paid and nonassessable.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-
laws, summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
Delaware Anti-takeover Law. Section 203 of the DGCL ("Section 203")
prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the
business combination is approved by both the Board of Directors and by holders
of at least 66 2/3% of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder. For these purposes, the term
"business combination" includes mergers, asset sales and other similar
transactions with an "interested stockholder." An "interested stockholder" is
a person who, together with affiliates and associates, owns (or, within the
prior three years, did own) 15% or more of the corporation's voting stock.
Pursuant to the Certificate of Incorporation, the Company has expressly
elected not to be governed by Section 203.
Classified Board of Directors. The Company's Certificate of Incorporation
provides for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. As a result, approximately one-
third of the Board of Directors will be elected each year. Classification of
the Board of Directors expands the time required to change the composition of
a majority of directors and may tend to discourage a proxy contest or other
takeover bid for the Company. Moreover, under the DGCL in the case of a
corporation having a classified board of directors, the stockholders may
remove a director only for cause. These provisions, when coupled with
provisions of the Company's Certificate of Incorporation authorizing only the
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Board of Directors to fill vacant directorships, will preclude stockholders of
the Company from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies with their
own nominees.
Special Meetings of Stockholders. The Company's By-laws provide that special
meetings of stockholders may be called by the Chairman of the Board, if any,
or the President and shall be called by the President or the Secretary at the
request in writing of a majority of the Board of Directors of the Company.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Company's By-laws provide that stockholders seeking to bring
business before a meeting of stockholders, or to nominate candidates for
election as directors at a meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to,
or mailed and received at, the principal executive office of the Company, not
less than 60 days nor more than 90 days prior to the scheduled meeting (or, if
a special meeting, not later than the close of business on the tenth day
following the earlier of (i) the day on which such notice of the date of the
meeting was mailed, or (ii) the day on which public disclosure of the date of
the special meeting was made). The By-laws also specify certain requirements
pertaining to the form and substance of a stockholder's notice. These
provisions may preclude some stockholders from making nominations for
directors at an annual or special meeting or from bringing other matters
before the stockholders at a meeting.
No Action by Written Consent of the Stockholders. The Company's Certificate
of Incorporation does not allow the stockholders of the Company to take action
by written consent except during periods when all of the Company's outstanding
stock is owned by a single stockholder.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains a provision that is
designed to limit the directors' liability to the extent permitted by the DGCL
and any amendments thereto. Specifically, directors will not be held liable to
the Company or its stockholders for an act or omission in such capacity as a
director, except for liability as a result of: (i) a breach of the duty of
loyalty to the Company or its stockholders, (ii) actions or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase of the
Company's stock under Section 174 of the DGCL, or (iv) actions or omissions
pursuant to which the director will receive an improper personal benefit. The
principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws. The Company's Certificate of Incorporation
does not eliminate its directors' duty of care. The inclusion of this
provision in the Company's Certificate of Incorporation may, however,
discourage or deter stockholders or management from bringing a lawsuit against
directors for a breach of their fiduciary duties, even though such an action,
if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of
the duty of care.
Indemnification. The Company's By-laws also provide that the Company will
indemnify its directors and officers to the fullest extent permitted by
Delaware law. The Company generally is required to indemnify its directors and
officers for all judgments, fines, settlements, legal fees and other expenses
incurred in connection with pending or threatened legal proceedings because of
the director's or officer's position with the Company or another entity that
the director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceedings or acted in good
faith and in what was reasonably believed to be a lawful manner and in the
Company's best interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
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SELLING STOCKHOLDER
Immediately prior to the sale of the shares of Common Stock in the Offering,
IPS will own all of the 16,625,000 issued and outstanding shares of Common
Stock. After giving effect to the sale of shares of Common Stock to be sold in
the Offering, the Selling Stockholder will own 2,161,250 shares of Common
Stock, representing 13% of the outstanding shares of Common Stock. The
foregoing percentage of ownership of the Selling Stockholder does not give
effect to the 2,161,250 shares of Common Stock which may be sold by the
Selling Stockholder if the U.S. Underwriters over-allotment option is
exercised in full and does not give effect to the dilution arising from the
possible exercise of stock options.
SHARES ELIGIBLE FOR FUTURE SALE
Giving effect to the Transition, the Company will have outstanding
16,625,000 shares of Common Stock. Of these shares, the 14,463,750 shares sold
in the Offering (or 16,625,000 shares if the U.S. Underwriters' over-allotment
option granted by the Selling Stockholder is exercised in full) will be freely
tradeable without restrictions or further registration under the Securities
Act, except for any shares purchased by an "affiliate" of the Company which
will be subject to the resale limitations of Rule 144 under the Securities Act
("Rule 144"). Any shares held by the Selling Stockholder after completion of
the Offering (up to 2,161,250 shares of Common Stock assuming the over-
allotment option granted by IPS is not exercised in full) will be "restricted
securities" within the meaning of Rule 144. These "restricted securities" may
not be sold in absence of registration under the Securities Act other than in
accordance with Rule 144 or another exemption from registration. IPS has
certain rights to have the Common Stock owned by it (or held by the Trustee)
subsequent to the Offering, if any, registered by the Company under the
Securities Act. See "Certain Relationships and Related Transactions--The
Transition Agreements--The Registration Rights Agreement."
In general, under Rule 144 as currently in effect, a person (including an
"affiliate" (as that term is defined under the Securities Act)) who
beneficially owns shares that are "restricted securities" as to which at least
two years have elapsed since the later of the date of acquisition of such
securities from the issuer or from an affiliate of the issuer, and any
affiliate who owns shares that are not "restricted securities," is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of one percent of the then outstanding shares of Common Stock or
the average weekly trading volume in the Company's Common Stock in composite
trading on all exchanges and the New York Stock Exchange during the four
calendar weeks preceding such sale. A person (or persons whose shares are
aggregated) who is not deemed an "affiliate" of the Company and who has
beneficially owned restricted securities as to which at least three years have
elapsed since the later of the date of the acquisition of such securities from
the issuer or from an affiliate of the issuer is entitled to sell such shares
under Rule 144 without regard to the volume limitations described above. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof.
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
shares of Common Stock, or the availability of such shares for sale, will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Under the terms of the Trust
Agreement, the Trustee has the duty and the authority on behalf of IPS to
dispose of any shares owned by IPS on or prior to January 23, 1997 or to
donate such shares to a designated charity or charities on January 23, 1997
(unless the Trust is extended). In connection with the Offering, subject to
certain exceptions, the Company, the Selling Stockholder and the Trustee
pursuant to the Trust Agreement have agreed not to sell or otherwise dispose
of, directly or indirectly, any shares of Common Stock (or any security
convertible into or exchangeable or exercisable for Common Stock) for a period
of 180 days after the date hereof (in the case of the Company) and prior to
December 31, 1996 (in the case of the Selling Stockholder and the Trustee)
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters other than (i) the shares of Common Stock offered
hereby, (ii) any grant of stock options that vest subsequent to 180 days after
the date of
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<PAGE>
this Prospectus or (iii) one or more registration statements relating to the
Company's 1996 Stock Option Plan, the 1996 Broad-Based Stock Option Plan or
the MoneyGram Agent Stock Option Plan or the Company's obligations under the
Registration Rights Agreement or (d) the deposit, if any, of any shares of
Common Stock with Wachovia Bank of North Carolina, N.A. as trustee pursuant to
the Irrevocable Voting Trust Agreement. See "Underwriters."
In connection with the Offering, the Company expects to grant to certain
officers and key employees options to acquire up to an aggregate 1,050,000
shares of Common Stock under the 1996 Stock Option Plan and to grant to
certain other employees options to acquire up to an aggregate of 8,000 shares
of Common Stock under the 1996 Broad-Based Stock Option Plan, in each case at
a price equal to 100% of the initial public offering price set forth on the
cover page of this Prospectus. An additional 125,000 and 17,000 shares of
Common Stock would be available for future grants under the Company's 1996
Stock Option Plan and 1996 Broad-Based Stock Option Plan. See "Management--
Stock Plans." The Company intends to file one or more registration statements
on Form S-8 under the Securities Act to register all shares of Common Stock
issuable pursuant to the Company's 1996 Stock Option Plan and 1996 Broad-Based
Stock Option Plan, and such registration statements are expected to become
effective upon filing. Shares of Common Stock covered by these registration
statements will thereupon be eligible for sale in the public markets.
In order to retain and sign certain significant MoneyGram Agents and to
provide those MoneyGram Agents an opportunity to share in the growth of the
Company, subsequent to the Offering, the Company currently expects to
implement the MoneyGram Agent Stock Option Plan. If implemented, the Company
may grant options to certain key MoneyGram Agents (exercisable at the price of
the Common Stock on the date any such option is granted) in connection with
the extension of existing or the negotiation of new Agent Contracts. Such
options, if granted, generally would not be exercisable until the expiration
of the initial term of such Agent Contracts. The Company expects that any such
stock options (and the shares of Common Stock issuable upon exercise of such
options) would be registered under the Securities Act. Therefore, any shares
of Common Stock issued upon exercise of an option would be freely tradeable
without restriction. No assurance can be given that the Company will adopt
such a MoneyGram Agent Stock Option Plan (which may require stockholder
approval) or that, if adopted, any options would be granted thereunder.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of shares
of Common Stock by a beneficial owner of Common Stock that, for United States
federal income or estate tax purposes, as the case may be, is a nonresident
alien individual, a foreign corporation or a foreign partnership or a foreign
trust or estate (a "non-U.S. holder"). The following discussion is based on
current provisions of the Code, existing and proposed regulations promulgated
thereunder and judicial and administrative interpretations thereof (any of
which may be changed either retroactively or prospectively) and is for general
information only. The following discussion does not address tax consequences
that may be relevant in light of any specific facts or circumstances that
might apply to a particular non-U.S. holder and does not address tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or the application or effect of any tax treaty.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, could affect the United States
taxation of dividends on Common Stock paid to a non-U.S. holder. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. It cannot
be predicted at this time whether the Proposed Regulations will become
effective as proposed or what modifications, if any, may be made to them. The
discussion below is not intended to include a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
may have if adopted.
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PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES, AS WELL AS THE
STATE, LOCAL AND OTHER TAX CONSEQUENCES, OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF COMMON STOCK.
Dividends
Dividends paid to a non-U.S. holder will be subject to United States
withholding tax at a 30 percent rate, or such lower rate as may be specified
by an applicable tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the non-U.S. holder in the United
States and the non-U.S. holder provides the payor with proper documentation.
Dividends which are effectively connected with such a United States trade or
business generally are subject to United States federal income tax on a net
income basis at regular graduated rates applicable to U.S. persons. A non-U.S.
holder may claim exemption from withholding under the effectively connected
income exception by filing IRS Form 4224 with the Company or its paying agent
at the times required by federal income tax law. The Proposed Regulations
would replace Form 4224 with Form W-8. Under certain circumstances, a non-U.S.
holder which is a corporation also may be subject to an additional "branch
profits tax" at a rate of 30%, or such lower rate as may be specified by an
applicable income tax treaty, of the non-U.S. holder's effectively connected
earnings and profits, subject to certain adjustments. Effectively connected
dividends might be subject to different treatment under an applicable tax
treaty depending on whether such dividends are attributable to a permanent
establishment of the non-U.S. holder in the United States.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above (unless the payor
has knowledge to the contrary) and, under current interpretation of United
States Treasury regulations, for purposes of determining the applicability of
a tax treaty rate. A non-U.S. holder of Common Stock eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service ("IRS").
The Proposed Regulations would provide for certain presumptions (which
differ from those described above) upon which the Company generally may rely
to determine whether, in the absence of certain documentation, a holder should
be treated as a non-U.S. holder for purposes of the 30% withholding tax
described above. The presumptions would not apply for purposes of granting a
reduced rate of withholding under a treaty. Under the Proposed Regulations, to
obtain a reduced rate of withholding under a treaty a non-U.S. holder
generally would be required to provide an Internal Revenue Service Form W-8
certifying such non-U.S. holder's entitlement to benefits under a treaty
together with, in certain circumstances, additional information. The Proposed
Regulations also would provide rules to determine whether, for purposes of
determining the applicability of a tax treaty and for purposes of the 30%
withholding tax described above, dividends paid to a non-U.S. holder that is
an entity should be treated as paid to the entity or those holding an interest
in that entity.
Sale of Common Stock
Generally, a non-U.S. holder will not be subject to United States federal
income tax on any gain recognized upon the sale or exchange or other
disposition of shares of Common Stock unless (i) the gain is effectively
connected with a trade or business carried on by the non-U.S. holder within
the United States, (ii) the non-U.S. holder is a nonresident alien individual
who holds Common Stock as a capital asset, is present in the United States for
183 or more days in the taxable year of the sale or disposition and either (a)
such individual's "tax home" for United States federal income tax purposes is
in the United States or (b) the sale is attributable to an office or other
fixed place of business maintained by such individual in the United States, or
(iii) subject to certain exceptions, the Company is or has been a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code at any time during the five year period ending on the
date of disposition, or, if shorter, the period during which the non-U.S.
holder held the Common Stock. The Company believes that it is not, nor has it
ever been, a "United States real property holding corporation" and does not
anticipate becoming such a corporation.
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The 183-day rule summarized above only applies in limited circumstances
because generally an individual present in the United States for 183 days in
the taxable year of the sale, exchange, or other disposition will be treated
as a resident for United States federal income tax purposes and therefore will
be subject to United States federal income tax at graduated rates applicable
to individuals who are United States persons for such purposes.
Non-U.S. holders should consult applicable treaties, which may result in
United States federal income tax treatment on the sale or exchange or other
disposition of the Common Stock different than as described above.
Backup Withholding and Information Reporting
The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, each non-U.S. holder. These reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the non-U.S. holder resides.
Unless the Company has actual knowledge that a holder is a non-U.S. holder,
dividends paid to such non-U.S. holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the holder is not an
"exempt recipient" as defined in the existing Treasury regulations (which
includes corporations) and fails to provide a correct taxpayer identification
number and other information to the Company. United States backup withholding
generally will not apply to (i) the payment of dividends paid on Common Stock
to a non-U.S. holder at an address outside the United States (unless the
Company has knowledge that the holder is a United States person for United
States federal income tax purposes) or (ii) the payment of proceeds of a sale
or other disposition of Common Stock effected by or through the foreign office
of a broker. In the case of the payment of proceeds from such a sale or other
disposition of Common Stock effected by or through a foreign office of a
broker that is a United States person (for United States federal income tax
purposes) or a "U.S. related person," however, information reporting (but not
backup withholding) is required with respect to the payment unless the broker
has documentary evidence in its files that the owner is a non-U.S. holder (and
has no actual knowledge to the contrary) and certain other requirements are
met or the holder otherwise establishes an exemption. For this purpose, a
"U.S. related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income is from a United States trade or business for a specified
three-year period. The payment of the proceeds of a sale or other disposition
of Common Stock effected by or through the United States office of a broker is
subject to information reporting and backup withholding at a rate of 31
percent unless the non-U.S. holder certifies, among other things, as to its
non-United States status under penalties of perjury or otherwise establishes
an exemption.
If adopted, the Proposed Regulations would alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions and other rules under which non-U.S. holders may be
subject to backup withholding in the absence of required certifications and
would revise the definition of an "exempt recipient" in the case of a
corporation.
Backup withholding is not an additional tax. Rather, any amounts withheld
under the backup withholding rules from a payment to a non-U.S. holder will be
allowed as a refund or a credit against such non-U.S. holder's United States
federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
Estate Tax
Shares of Common Stock owned or treated as owned, or which were the subject
of certain lifetime transfers, by an individual who is not a citizen or
resident (as specifically defined for United States federal estate tax
purposes) of the United States at the time of death will be includible in the
individual's gross estate for United States federal estate tax purposes,
unless an applicable tax treaty provides otherwise. Such individual's estate
may be subject to United States federal estate tax on the property includible
in the estate for United States federal estate tax purposes.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Lehman Brothers Inc.,
Montgomery Securities and Smith Barney Inc. are acting as U.S.
Representatives, and the International Underwriters named below, for whom
Morgan Stanley & Co. International Limited, Lehman Brothers International
(Europe), Montgomery Securities and Smith Barney Inc. are acting as the
International Representatives, have severally agreed, to purchase from the
Selling Stockholder, and the Selling Stockholder has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................
Lehman Brothers Inc..........................................
Montgomery Securities........................................
Smith Barney Inc.............................................
----------
Subtotal..................................................... 11,571,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited...................
Lehman Brothers International (Europe).......................
Montgomery Securities........................................
Smith Barney Inc.............................................
----------
Subtotal..................................................... 2,892,750
----------
Total........................................................ 14,463,750
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.
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<PAGE>
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that with certain exceptions: (a)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below), and
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions, (i) it is not purchasing any
International Shares (as defined below) for the account of any United States
or Canadian Person and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute any
prospectus relating to the International Shares in the United States or in any
province or territory of Canada or to any United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or of any province or
territory of Canada, or any corporation, pension, profit sharing or other
trust or other entity organized under the laws of the United States or Canada
or of any political subdivision thereof (other than a branch located outside
the United States and Canada of any United States or Canadian Person) and
includes any United States or Canadian branch of a person who is otherwise not
a United States or Canadian Person. All shares of Common Stock to be purchased
by the U.S. Underwriters and the International Underwriters are referred to
herein as the U.S. Shares and the International Shares, respectively.
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares of Common Stock sold shall be the Price to Public set forth on the
cover page hereof, in United States dollars, less an amount not greater than
the per share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance
that, by purchasing such Common Stock, such dealer represents and agrees that
it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such Common Stock in any province or territory of Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws thereof and that any offer of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Common Stock a notice to the foregoing effect.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and during the period of six months after the date hereof will
not offer or sell any shares of Common Stock to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their business or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered
hereby in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on to any person in the
United Kingdom any document received by it in connection with the issue of the
shares of Common Stock if that person is of a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996, or to any person to whom the document may otherwise lawfully be
issued or passed on.
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The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover
page hereof, and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $ per share to other Underwriters or certain dealers. After the initial
offering of the shares of Common Stock, the offering price, and other selling
terms may from time to time, be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Selling Stockholder has granted
to the U.S. Underwriters an option exercisable for 30 days from the date of
this Prospectus, to purchase up to an additional 2,161,250 shares of Common
Stock at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will be committed, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such U.S. Underwriter's name in the preceding table bears to the total number
of shares of Common Stock offered by the U.S. Underwriters hereby.
Each of the Company, the Selling Stockholder and the Trustee pursuant to the
Trust Agreement has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not, subject to certain exceptions, (i)
offer, issue, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, file a registration statement (in the case of the Company) or make
any demand for or exercise any right with respect to registration of (in the
case of the Selling Stockholder and the Trustee) any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock (whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from the Company) or (ii) enter
into any swap or similar agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) of this paragraph is to be settled
by delivery of Common Stock or such other securities, in cash or otherwise,
for a period of 180 days after the date of this Prospectus, in the case of the
Company, and prior to December 31, 1996, in the case of the Selling
Stockholder and the Trustee, other than (i) the shares of Common Stock offered
hereby, (ii) any grant of stock options that vest subsequent to 180 days after
the date of this Prospectus or (iii) one or more registration statements
relating to the Company's 1996 Stock Option Plan, the 1996 Broad-Based Stock
Option Plan or the MoneyGram Agent Stock Option Plan or the Company's
obligations under the Registration Rights Agreement or (iv) the deposit, if
any, of any shares of Common Stock with Wachovia Bank of North Carolina, N.A.
as trustee pursuant to the Trust Agreement.
At the request of the Company, the Underwriters have reserved up to 723,187
shares of Common Stock offered hereby for sale to certain directors, officers
and employees of the Company. Sales of shares of Common Stock to such persons
will be at the initial public offering price. The number of shares available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public in the Offering on the same terms as the other
shares offered hereby. All purchasers of the shares of Common Stock reserved
pursuant to this paragraph who are also directors or senior officers of the
Company will be required to enter into agreements identical to those described
in the immediately preceding paragraph restricting the transferability of such
shares for a period of 180 days after the date of this Prospectus. Messrs.
Calvano and Fowler have each indicated an interest in purchasing up to 100,000
shares of Common Stock under this reserve program.
The Underwriters have informed the Selling Stockholder that they do not
intend sales to discretionary accounts to exceed five percent of the total
number of shares of Common Stock offered hereby.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
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<PAGE>
Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., Montgomery
Securities, and Smith Barney Inc. provide from time to time certain financial
advisory services to First Data and its affiliates for which they have
received customary fees and commissions.
PRICING OF THE OFFERING
Prior to the Offering there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiations between the Selling Stockholder and the U.S. Representatives.
Among the factors to be considered in determining the initial public offering
price, in addition to prevailing market conditions, are the sales, earnings
and other financial and operating information of the Company in recent
periods, the future prospects of the Company and its industry in general, and
certain ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to that of
the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Selling Stockholder by Sidley & Austin, Chicago, Illinois.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The Financial Statements of the Company at December 31, 1994 and 1995, and
for each of the three years in the period ended December 31, 1995, appearing
in this Prospectus and the Registration Statement of which this Prospectus is
a part have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in such
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting. With
respect to the unaudited interim financial information as of and for the nine-
month period ended September 30, 1996 appearing in this Prospectus and the
Registration Statement of which this Prospectus is a part, Ernst & Young LLP
have reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report, appearing elsewhere herein and in such Registration
Statement, states that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their report on such information should be restricted considering the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the
Securities Act.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits and schedules
thereto), pursuant to the Securities Act and the rules and regulations
promulgated thereunder, with respect to the Offering. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted from the Prospectus in accordance with the rules and regulations
of the Commission, and to which reference is hereby made.
After consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith will be required to file, proxy
statements, reports and other information with the Commission. The
Registration Statement, as well
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as any such report, proxy statement and other information filed by the Company
with the Commission, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Upon listing of the Common Stock on the New York Stock Exchange,
Inc. (the "NYSE"), reports, proxy statements and other information concerning
the Company may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Statements made in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such statement concerning a contract, agreement
or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, reference is made to such exhibit or
other filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference. Copies of the
exhibits are available upon request made to Andrea M. Kenyon, Secretary,
MoneyGram Payment Systems, Inc., 7401 Mansfield Avenue, Lakewood, Colorado
80235, telephone number (303) 716-6800.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent accounting firm and quarterly
reports containing unaudited financial information for the first three
quarters of each fiscal year.
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MONEYGRAM PAYMENT SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED FINANCIAL STATEMENTS PAGE
- ---------------------------- ----
<S> <C>
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1994 and 1995........................... F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995..................................................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995..................................................................... F-5
Statement of Changes in Stockholder's (Deficit)/Equity for the Years Ended
December 31, 1993, 1994 and 1995......................................... F-6
Notes to Financial Statements............................................. F-7
<CAPTION>
UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------
<S> <C>
Independent Accountants' Review Report.................................... F-15
Balance Sheet as of June 30, 1996......................................... F-16
Statements of Income for the Six Months Ended June 30, 1995 and 1996...... F-17
Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996.. F-18
Statement of Changes in Stockholder's Equity for the Six Months Ended June
30, 1996................................................................. F-19
Notes to Financial Statements............................................. F-20
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of
MoneyGram Payment Systems, Inc.
We have audited the accompanying balance sheets of MoneyGram Payment
Systems, Inc. as of December 31, 1994 and 1995, and the related statements of
operations and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MoneyGram Payment Systems,
Inc. at December 31, 1994 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Denver, Colorado
February 2, 1996, except as to Notes 1 and 9, as to which
the date is December , 1996.
* * * *
The foregoing report is in the form that will be signed upon the completion
of the transactions and restatement of capital accounts described in Note 1 to
the financial statements under the caption "Formation of the Company."
Ernst & Young LLP
Denver, Colorado
December 4, 1996
F-2
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1994 1995
- ----------------------------------------------------------- -------- --------
<S> <C> <C>
Cash and cash equivalents.................................. $ -- $ --
Assets restricted to settlement of MoneyGram transactions.. 20,927 26,010
Fee revenue receivable..................................... 910 1,165
Prepaid and other current assets........................... 90 271
-------- --------
Total current assets................................... 21,927 27,446
Fixed assets at cost, net of depreciation: 1994--$2,231;
1995--$3,953.............................................. 3,084 6,000
Deferred income taxes...................................... 171 193
Costs of acquiring Agent Contracts, net of amortization:
1994--$3,535;
1995--$1,952.............................................. 3,401 7,979
-------- --------
Total assets........................................... $28,583 $ 41,618
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
- -----------------------------------------------------------
<S> <C> <C>
Liabilities relating to unsettled MoneyGram transactions... $20,927 $ 26,010
Accounts payable........................................... 2,178 1,393
Commissions payable........................................ 6,418 6,696
Accrued advertising........................................ 4,457 2,786
Employee-related liabilities............................... 507 1,280
Accrued and other liabilities.............................. 924 2,284
-------- --------
Total current liabilities.............................. 35,411 40,449
Stockholder's equity/(deficit):
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,625,000 shares........ 166 166
Capital surplus.......................................... 21,756 11,459
Accumulated deficit...................................... (28,750) (10,456)
-------- --------
Total stockholder's equity/(deficit)................... (6,828) 1,169
-------- --------
Total liabilities and stockholder's equity/(deficit)... $28,583 $ 41,618
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Revenues
Fee and other...................................... $48,815 $71,015 $ 94,242
Foreign exchange................................... 3,070 20,373 42,826
------- ------- --------
Total revenue ................................... 51,885 91,388 137,068
------- ------- --------
Expenses:
Agent commissions and amortization of Agent
Contract acquisition costs........................ 22,112 28,742 34,801
Processing......................................... 12,361 15,334 25,542
Advertising and promotion.......................... 13,708 19,523 33,822
Selling and service................................ 2,996 3,700 7,525
General and administrative......................... 3,904 4,678 5,722
------- ------- --------
Total expenses................................... 55,081 71,977 107,412
------- ------- --------
Income (loss) before income taxes.................... (3,196) 19,411 29,656
Income tax (benefit) expense......................... (1,119) 7,235 11,362
------- ------- --------
Net income (loss).................................... $(2,077) $12,176 $ 18,294
======= ======= ========
Pro forma net income (loss) per common share......... $ (.12) $ .73 $ 1.10
======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $(2,077) $ 12,176 $ 18,294
Adjustments to reconcile net income to net cash
provided by operating activities:
Direct depreciation and amortization expense*.. 1,518 1,889 3,762
Other noncash charges.......................... (160) 25 (22)
Changes in operating assets and liabilities:
Assets restricted to settlement of MoneyGram
transactions................................ 1,254 (8,100) (5,083)
Accounts receivable.......................... (103) (773) (255)
Prepaid and other assets..................... 268 21 (181)
Liabilities relating to unsettled MoneyGram
transactions................................ (1,254) 8,100 5,083
Accounts payable and other liabilities....... 1,108 9,953 (189)
------- -------- --------
Net cash provided by operating activities........ 554 23,291 21,409
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of signage and equipment................ (762) (2,739) (4,638)
Costs of acquiring Agent Contracts............... -- (2,404) (6,474)
------- -------- --------
Net cash used by investing activities............ (762) (5,143) (11,112)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfer from/(to) IPS....................... 208 (18,148) (10,297)
------- -------- --------
Net cash provided/(used) by financing activities. 208 (18,148) (10,297)
------- -------- --------
Net change in cash and cash equivalents.......... $ -- $ -- $ --
======= ======== ========
</TABLE>
- --------
* Relates only to MoneyGram assets as reflected on the accompanying balance
sheet.
See accompanying notes.
F-5
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S
EQUITY/(DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON CAPITAL ACCUMULATED STOCKHOLDER'S
STOCK SURPLUS DEFICIT EQUITY/(DEFICIT)
------ -------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance January 1, 1993........... $166 $ 39,696 $(38,849) $ 1,013
Net loss........................ -- -- (2,077) (2,077)
Capital contribution from IPS... -- 208 -- 208
---- -------- -------- --------
Balance December 31, 1993......... 166 39,904 (40,926) (856)
Net income...................... -- -- 12,176 12,176
Return of capital to IPS........ -- (18,148) -- (18,148)
---- -------- -------- --------
Balance December 31, 1994......... 166 21,756 (28,750) (6,828)
Net income...................... -- -- 18,294 18,294
Return of capital to IPS........ -- (10,297) -- (10,297)
---- -------- -------- --------
Balance December 31, 1995......... $166 $ 11,459 $(10,456) $ 1,169
==== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
MoneyGram Payment Systems, Inc. (the "Company") is a wholly owned subsidiary
of Integrated Payment Systems Inc. ("IPS"), which is a wholly owned subsidiary
of First Data Corporation ("First Data"). First Data was a wholly owned
subsidiary of American Express Company ("American Express") prior to an
initial public offering of its common stock (the "1992 IPO") in April 1992.
Nature of Business
IPS' principal business involves providing payment instruments transaction
processing to institutional clients and retail consumers. These services
principally have involved the marketing and processing of the following types
of payment instruments: American Express(R) Official Checks, American
Express(R) Money Orders and the MoneyGram service ("MoneyGram" or the
"Business"). Pursuant to a management agreement (the "TRS Management
Agreement") among First Data, IPS and American Express Travel Related Services
Company, Inc., a wholly owned subsidiary of American Express ("TRS"), IPS has
managed the TRS payment instruments business, although TRS has been and
currently is the state-licensed issuer and provider of such payment
instruments. Throughout the periods presented in the accompanying financial
statements, the MoneyGram service has been conducted through an extensive
network of TRS selling agents. In accordance with the TRS Management
Agreement, the contracts with these selling agents were negotiated and managed
by IPS but executed in the name of TRS. Furthermore, IPS and First Data agreed
to indemnify TRS against any losses, damages and costs with respect to the
payment instruments of TRS; therefore, IPS' financial statements have been
prepared as if it were the issuer of the payment instruments. Pursuant to the
terms of the TRS Management Agreement, IPS became a licensed issuer of payment
instruments during 1993 and, in addition, acquired the MoneyGram service mark
at no cost from American Express in 1994. As discussed immediately below, the
Company was formed with the intention of it assuming the Business from IPS
pursuant to the various agreements described below.
Formation of the Company
On October 27, 1995, First Data consummated a merger transaction with First
Financial Management Corporation ("FFM"). FFM, through a subsidiary, Western
Union Financial Services, Inc. ("Western Union"), provides money transfer
services similar to MoneyGram. On January 19, 1996, First Data entered into a
consent decree with the Federal Trade Commission ("FTC") regarding MoneyGram
and Western Union. Under the terms of the consent decree, First Data is
allowed to perform processing services for each of MoneyGram and Western
Union, but it is permitted to retain the sales and marketing functions of only
one of the two businesses. The required divestiture must occur no later than
January 23, 1997. In addition, First Data and the FTC entered into a "hold
separate" agreement whereby the MoneyGram business must be managed and
maintained as a separate, ongoing business, independent of all other First
Data businesses and independent of the Western Union business. Among its
provisions the "hold separate" agreement requires that, prior to consummation
of the required divestiture, IPS expend not fewer than $24 million annually on
MoneyGram advertising and promotion with no less than $10 million to be
expended for any two consecutive quarterly periods. This agreement further
requires that, during the "hold separate" period, IPS pay the MoneyGram sales
force 120% of the standard 1995 sales commission rates. The hold separate
arrangement will continue until the requisite divestiture is consummated.
First Data has decided to comply with the divestiture requirements of the
consent decree through a public stock offering of the Company's common stock
consisting of a secondary offering by IPS (the "Offering"). In conjunction
with the Offering, the Company was formed as a wholly owned subsidiary of IPS
in January 1996. In accordance with the Contribution Agreement among the
Company, First Data and IPS, certain assets necessary to operate the Business
(the "MoneyGram Assets") were transferred, subject to certain liabilities, to
the
F-7
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company in exchange for 16,624,900 shares of the Company's common stock. The
accompanying financial statements have been prepared as if this exchange had
been consummated prior to January 1, 1993 and the assets and liabilities are
reflected therein at their historical IPS cost basis. The transferred assets
included certain proprietary rights and trademarks material to the conduct of
the Business; the net economic benefits under certain MoneyGram Agent
contracts; certain applications software; the leases, leasehold improvements,
personal property and third party contracts associated with First Data's
Lakewood, Colorado customer service center; and certain personal property and
leases related to property, such as computers and signage, provided to
MoneyGram Agents for their use in providing MoneyGram services. In addition,
pursuant to the Contribution Agreement, IPS will contribute $12 million in
cash to the Company prior to the Offering (the "IPS Cash Contribution"). Such
capital contribution will be reflected in the Company's financial statements
during the period in which it is received.
In conjunction with the Offering, the Company, IPS and affiliates of IPS
have also entered into an operations agreement (the "Operations Agreement"), a
software license agreement (the "Software License Agreement"), a short-term
working capital facility (the "Facility"), with a commitment in an amount
equal to $20 million, a service mark letter agreement (the "Service Mark
Letter Agreement") and, if requested by the Company, a Service Mark License
Agreement, a human resources agreement (the "Human Resources Agreement") and a
telecommunications services sharing agreement (the "Telecom Agreement"). The
Operations Agreement requires IPS to provide the Company with certain data
processing services, including the processing of MoneyGram transactions for a
period of two years, certain management services necessary for the Company to
comply with state licensing requirements until such time as the Company is
fully licensed in all states to offer consumer money transfer services in its
own name and certain additional support services. These services are to be
provided to the Company at First Data's good faith estimate of its actual cost
of providing such services (including reasonable allocations of overhead
expenses). The Software License Agreement provides the Company with a
perpetual, assignable, nonexclusive, royalty free, worldwide, irrevocable
license to use certain software used in operating the Business. Under the
Facility, the Company may borrow from time-to-time, on a revolving, unsecured
basis, to fund its working capital requirements. Any borrowings thereunder
will bear interest of the prime rate, as announced by Chase Manhattan Bank,
N.A., plus 1% per annum. The Facility will terminate 180 days from the
consummation of the Offering and includes customary terms, conditions,
restrictive covenants and events of default. Pursuant to the Service Mark
Letter Agreement, the Company and First Data have agreed not to sue one
another in respect of certain disputed marks for a period of two years
commencing at the consummation of the Offering and, at the option of the
Company, it may cause Western Union and IPS to enter into an agreement
pursuant to which Western Union would grant the Company a license to use
certain of these disputed service marks in certain languages. The Human
Resource Agreement provides for the transfer of employees from First Data to
the Company and the Telecom Agreement provides the Company access to
telecommunications services provided to First Data at First Data's tariff
rates.
Financial Statement Presentation
The accompanying financial statements have been prepared as if the
transaction and agreements described immediately above were consummated and/or
entered into prior to January 1, 1993. These financial statements present the
financial position, results of operations and cash flows attributable to
MoneyGram, which was operated as a product line of IPS, during each of the
periods presented. The following paragraphs set forth the methodologies and
assumptions utilized in preparing the accompanying financial statements.
Balance Sheets
The balance sheet caption "Liabilities relating to unsettled MoneyGram
transactions" represents the face value of all unsettled MoneyGram
transactions. It includes amounts attributable to transactions where proceeds
have been received from selling agents as well as an estimate of amounts due
from selling agents for customer
F-8
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
transactions occurring on or prior to the statement date but not yet settled.
Because IPS did not maintain specific cash or investment portfolio accounts
for its products, the accompanying balance sheet reflects zero balances for
cash and cash equivalents and the balance sheet caption "Proceeds including
proceeds due from/(to) IPS relating to unsettled MoneyGram transactions"
represents the amount necessary to fund the liability. Specific fiduciary
assets maintained by IPS for MoneyGram and the consequent amounts due to or
from IPS relative to the liability are included in the accompanying balance
sheet under the caption "Assets restricted to settlement of MoneyGram
transactions," which is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1994 1995
----------- -----------
<S> <C> <C>
Cash and advances to certain receive agents...... $13,831 $11,446
Receivables from selling agents, including $2,421
and $1,055, respectively, from TRS.............. 11,903 9,809
Due (to) from IPS................................ (4,807) 4,755
------- -------
$20,927 $26,010
======= =======
</TABLE>
Statements of Operations
The statements of operations reflect revenues and related commission
expenses that are distinct and separately identifiable to MoneyGram as well as
an estimate of allocable investment earnings based upon IPS investment returns
applied to an estimated average cash position. Allocable investment earnings
included in revenues amounted to $.1 million, $.2 million and $.4 million
during the years ended December 31, 1993, 1994 and 1995, respectively.
During the periods presented, MoneyGram was a part of IPS' retail services
product group; accordingly, with the exception of agent commission and
advertising expenses, a substantial portion of the expenses in the
accompanying statements of operations represents allocations of IPS costs.
IPS' accounting systems provide for the capturing of costs on a functional
cost center basis. Certain cost centers relate exclusively to the MoneyGram
service and have been 100% allocated to the Company and others relate
substantially, and have been allocated substantially, to the Company. The
expenses, included in the accompanying statements of operations, attributable
to these cost centers amounted to $11.5 million, $13.7 million and $26.0
million for the years ended December 31, 1993, 1994 and 1995, respectively.
These expenses relate principally to IPS' two customer service centers. The
remaining $7.8 million, $10.0 million and $12.8 million of expenses, excluding
agent commissions and advertising, represent allocations that are based upon
various factors which, in the opinion of management, approximate actual usage.
These allocated expenses relate to data processing, facilities, legal, finance
and accounting, treasury, human resources, sales and other support functions.
Included in these allocated expenses are allocations of IPS general and
administrative expenses, based upon the Company's proportion of IPS' gross
revenues, of $0.8 million for each of years ended December 31, 1993 and 1994
and $1.0 million for the year ended December 31, 1995. The statements of
operations do not include any allocations of First Data general and
administrative expenses as such costs are not considered to be variable as a
result of the Company's operations. Management of the Company believes that
costs have been determined and allocated on a reasonable basis and all costs
attributable to conducting the Business have been included in the accompanying
statements of income.
In the opinion of the Company's management, the Company's expenses, as
reflected in the accompanying statements of operations, will not be materially
affected as a result of it becoming a stand-alone entity and its execution of
the Contribution Agreement, the Operations Agreement and the Facility.
F-9
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Fee revenue represents the transaction fee charged by the selling agent to
the consumer and is recognized at the date of sale. Foreign exchange revenue
represents the Company's share of amounts attributable to favorable spreads
between wholesale foreign currency purchase rates and the retail exchange rate
charged to consumers, principally with respect to Mexican pesos. Commissions
to agents are either a percentage of the transaction fee charged to the
consumer or a fixed dollar amount per transaction and also include amounts
attributable to minimum commission guarantees with respect to certain agents.
Commissions to agents, including guaranteed commissions, are expensed as
incurred.
Fixed Assets
Fixed assets are comprised of agent location signage and personal computers,
equipment, furniture and fixtures, and leasehold improvements and are
depreciated over their estimated useful lives ranging from 3 to 8 years.
Depreciation is computed using the straight-line method.
Income Taxes
The Company has accounted for income taxes under the liability method
required by SFAS No. 109, Accounting for Income Taxes. The taxable income of
the Company is included in the taxable income of IPS, which is included in the
consolidated U.S. federal income tax return of First Data. Except as described
below, the Company's provision for income taxes has been computed as if it
were a separate tax-paying entity.
During the periods presented there was no formal tax-sharing agreement
between the Company, IPS and First Data, however, First Data subsidiaries
remit current taxes payable to First Data and they are entitled to
reimbursement from First Data for current tax benefits. The provision for
income taxes has been computed as if the Company were a subsidiary of First
Data and, therefore, the tax benefits resulting from taxable losses incurred
by the Company during and prior to 1993 have been recorded in those years. As
a result, the accompanying financial statements do not reflect any benefit for
utilization of tax loss carryforwards.
As a result of the Transition, the tax basis (for federal income tax
purposes) of the MoneyGram Assets will increase from their tax basis in the
hands of IPS and its affiliates at the time of the Contribution to their fair
market value at that time (determined by reference to the initial public
offering price). Such tax basis is generally expected to produce a tax benefit
to the Company in future years through depreciation or amortization deductions
or through decreased gain or (subject to certain limitations) increased loss
on a disposition of any MoneyGram Asset. However, the "anti-churning" rules
under Section 197 of the Internal Revenue Code (the "Code") might apply to
disallow such amortization with respect to certain intangible assets of the
Company.
Pursuant to the requirements of SFAS No. 109 the Company will record a
deferred tax asset (with a corresponding credit to capital surplus) for the
tax effect of the excess of the tax basis of the MoneyGram Assets following
the Contribution over their net book value. Solely for financial accounting
and reporting purposes, such tax basis will be reduced to take into account
management's assessment of the possible application of the "anti-churning"
rules under Section 197 of the Code. The amount of the deferred tax asset
which will be recorded at the time of the Contribution will be further reduced
by a valuation allowance which will be based upon management's judgment as to
the likelihood of the Company generating sufficient taxable income to realize
the assets through future tax deductions, under the "more likely than not"
criteria prescribed by SFAS No. 109. Adjustments of the net deferred tax asset
attributable to the resolution of the uncertainties associated with provisions
of the Code will be charged against or credited to capital surplus while
adjustments of the valuation allowance will be charged to or credited against
income tax expense in the Company's income statement.
F-10
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Costs of Acquiring Agent Contracts
Amounts paid to acquire multi-year exclusive contracts with agents are
capitalized and amortized on a straight-line basis over the life of the
related contract (3 to 5 years).
Pro Forma Per Share Data
Pro forma net (loss) income per share has been computed as if the Company
had 16,625,000 shares of its common stock outstanding during each of the
periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
In addition to the relationships set forth and the other information
described in Note 1, IPS, and consequently the Company, have other
transactions and relationships with American Express and First Data.
American Express
Travel Services Offices of TRS ("TSOs") act as agents with respect to
MoneyGram. MoneyGram Transaction Fee Revenues (revenues excluding foreign
exchange revenues and allocated investment income) derived from TSO
transactions amounted to approximately $10.1 million, $10.9 million and $5.1
million for the years ended December 31, 1993, 1994 and 1995, respectively.
Commissions paid to TRS for send and receive transactions amounted to
approximately $5.3 million, $5.6 million and $3.3 million for the respective
years.
In conjunction with the 1992 IPO, an intercompany agreement was entered into
by IPS and First Data with American Express (the "Intercompany Agreement") the
provisions of which included:
(i) An annual license fee of $1.0 million for use of the American Express
name by IPS. The amounts allocated to the Company in the 1993 and 1994
statements of operations amounted to $0.4 million and $0.1 million,
respectively. No allocation of such cost was made subsequent to March 1994
when the American Express name was deleted from MoneyGram's media
advertising.
(ii) An agreement by American Express to reimburse First Data and/or IPS
for expenses of up to $10.6 million relating to the change of First Data's
name, its change in status to a publicly owned corporation and advertising
IPS' payment instruments under a new name. During 1993, IPS was reimbursed
$0.8 million under the Intercompany Agreement for 1993 advertising and
related expenses incurred, of which $0.2 million related to the deletion of
the American Express name from MoneyGram. During 1994, IPS was reimbursed
$5.2 million, substantially all of which related to MoneyGram. This
reimbursement of expenses incurred has been treated similar to a capital
contribution in the accompanying financial statements.
First Data
The allocated expenses in the accompanying statements of operations, as
described in Note 1, include allocations from First Data and affiliates of
$2.9 million, $2.6 million and $3.9 million for the years ended December 31,
1993, 1994 and 1995, respectively. The First Data allocations relate
principally to the Company's estimated portion of IPS' participation in
certain First Data insurance, benefit and incentive plans, as well as certain
other services provided during those periods, including the Company's
estimated portion of charges to IPS for data processing services provided by
First Data Technologies, Inc., a wholly owned subsidiary of First Data, of
$1.7 million, $1.6 million and $2.2 million for the years ended December 31,
1993, 1994 and 1995, respectively.
F-11
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The income tax (benefit)/provision consists of the following (thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Federal........................................... $(1,119) $6,556 $ 9,850
State and local................................... -- 679 1,512
------- ------ -------
Total............................................. $(1,119) $7,235 $11,362
======= ====== =======
</TABLE>
Deferred income taxes result from the recognition of temporary differences.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years. The income tax (benefit)/provision is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Current.......................................... $ (959) $7,210 $11,384
Deferred......................................... (160) 25 (22)
------- ------ -------
Total............................................ $(1,119) $7,235 $11,362
======= ====== =======
</TABLE>
The Company's net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued and other liabilities................................ $197 $303
---- ----
Total deferred tax assets.................................. 197 303
Valuation allowance............................................ -- --
---- ----
Deferred tax assets, net of valuation allowance................ 197 303
Deferred tax liabilities:
Depreciation and amortization................................ -- 82
Other........................................................ 26 28
---- ----
Total deferred tax liabilities............................. 26 110
---- ----
Net deferred tax assets.................................... $171 $193
==== ====
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax (benefit)/expense is (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Tax at U.S. statutory rate....................... $(1,119) $6,794 $10,379
Increases in taxes resulting from
State and local taxes, net of federal income
tax benefit................................... -- 441 983
------- ------ -------
Income tax (benefit)/expense................. $(1,119) $7,235 $11,362
======= ====== =======
</TABLE>
F-12
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RETIREMENT PLANS
First Data sponsors a defined benefit and a defined contribution retirement
plan covering full-time employees of First Data and its participating
subsidiaries, of which IPS is one. Retirement benefits under the defined
benefit plan are based primarily upon length of service and compensation. The
defined contribution plan allows eligible employees to contribute a percentage
of their compensation to the plan and provides for certain employer matching,
service-related and other contributions. During 1994, First Data restructured
these plans to allow employees to elect to cease accruing benefits under the
defined benefit plan in exchange for enhanced employer contributions under the
defined contribution plan. Employees hired subsequent to 1994 do not
participate in the defined benefit plan.
Included in the allocated expenses from First Data discussed in Note 3 are
$0.2 million, $0.2 million and $0.3 million for the years ended December 31,
1993, 1994 and 1995, respectively, relative to MoneyGram's estimated portion,
based on gross salary costs, of amounts charged by First Data to IPS for
participation of its employees in the plans.
Pursuant to the terms of the Human Resources Agreement among First Data, IPS
and the Company, employees transitioning from First Data to the Company have
been fully vested in their First Data retirement benefits. During 1996 the
Company plans to adopt and implement a defined contribution plan and does not
plan to provide a defined benefit plan.
6. OPERATING LEASE COMMITMENTS
Certain facilities and operating equipment utilized in the operations of the
Business are leased under cancelable and noncancelable agreements. A portion
of the rent expense attributable to IPS' two customer service centers, which
has been allocated to the Company, amounted to $0.4 million, $0.4 million and
$0.8 million for the years ended December 31, 1993, 1994 and 1995,
respectively. A portion of the rent expense relates to a sublease from an
affiliate of IPS. At December 31, 1995, the minimum allocated calendar year
rental commitment for these facilities was: 1996--$0.4 million; 1997--$0.1
million.
7. COMMITMENTS AND CONTINGENCIES
In certain instances, certain MoneyGram Agents have been guaranteed minimum
commissions. As of December 31, 1995, the remaining maximum commitment amounts
to approximately $68.0 million as follows on a calendar year basis: 1996--
$10.0 million; 1997--$12.0 million; 1998--$13.0 million; 1999--$14.0 million;
2000--$15.0 million; and years following--$4.0 million. Historically,
MoneyGram's volume growth has been sufficient to mitigate required performance
under these guarantees, and net payments under these guarantees amounted to
$2.5 million, $2.0 million and $1.3 million during the years ended December
31, 1993, 1994 and 1995, respectively.
IPS is involved in litigation primarily arising in the normal course of its
business. In the opinion of management, IPS' recovery or liability, if any,
under any pending litigation relating to MoneyGram would not materially affect
the Company's financial condition or operations.
8. CREDIT RISK AND CERTAIN RELATIONSHIPS
Credit risk results from the possibility that a loss may occur from the
failure of another party to perform according to the terms of a contract. In
the case of MoneyGram, the principal risk centers around that of a selling
agent failing to remit the proceeds of a transaction to the Company. The
Company mitigates this risk through extensive credit evaluations prior to
entering into a contractual relationship and thereafter monitors performance
F-13
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
to ensure compliance. MoneyGram Agents conduct business in thousands of
locations. Further, the nature of the agents' principal businesses is diverse
and the agent base includes supermarkets, department and convenience stores,
travel agents and check cashing establishments. Other than TSOs with respect
to the years ended December 31, 1993 and 1994, no Transaction Fee Revenues
attributable to a single MoneyGram Agent accounted for more than 8% of
MoneyGram's total Transaction Fee Revenues during the periods presented.
However, during the years ended December 31, 1993, 1994 and 1995,
approximately 17%, 16% and 15% of total Transaction Fee Revenues were derived
from a consortium of Chicago MoneyGram Agents.
Approximately 49%, 60% and 64% of MoneyGram's total revenues (including
foreign exchange revenues and allocated investment income) were derived from
money transfer transactions from the United States to Mexico during the years
ended December 31, 1993, 1994 and 1995, respectively. The Mexican receive
agent for substantially all of these transactions is a major Mexican financial
institution under the terms of a contract expiring in April 2002. The caption
"cash and advances to certain receive agents" in Note 1 to the accompanying
Financial Statements includes IPS' funding of these transactions pursuant to
the terms of this contract. Many MoneyGram Agents also act as agents with
respect to the sale of American Express(R) Money Orders. One such agent has
entered into a financing agreement with IPS (the "Financing Agreement"). The
Financing Agreement provides for, among other items:
--a deferred remittance schedule with respect to proceeds from the sale of
American Express(R) Money Orders.
--the agent to receive interest bearing working capital and long-term
advances.
The Financing Agreement contains various restrictive covenants, limitations
on the amount of deferred remittances and working capital advances and a $18.5
million limit on long-term advances. Working capital advances are based upon
the agent's money order sales. The amount of long-term advances outstanding as
of December 31, 1995 was $9.4 million. No portion of the long-term advances
has been included in the accompanying balance sheets due to the commingled
nature of the agent relationship and the resulting inability to segregate that
which would be attributable to MoneyGram.
9. SUBSEQUENT EVENTS
On December , 1996, the MoneyGram assets were transferred, subject to
certain liabilities, to the Company pursuant to the terms of the Contribution
Agreement and the Company will file an amended registration statement with the
Securities and Exchange Commission relating to the Offering. Including the
underwriters over-allotment option, 16,625,000 shares of the Company's common
stock are being registered for sale by IPS, as selling stockholder.
In connection with the Offering, the Board of Directors of the Company will
adopt, and IPS as the Company's sole stockholder will approve, the Company's
1996 Stock Option Plan (the "1996 Stock Option Plan") and the Company's 1996
Broad-Based Stock Option Plan. The Company has reserved for issuance under the
1996 Stock Option Plan and the 1996 Broad-Based Stock Option Plan 1,175,000
and 25,000 shares of common stock, respectively.
F-14
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors of
MoneyGram Payment Systems, Inc.
We have reviewed the accompanying balance sheet of MoneyGram Payment
Systems, Inc. as of September 30, 1996, and the related statements of income
and cash flows for the nine-month period ended September 30, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards with the
objective of expressing an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements at September 30, 1996
and for the nine-month period then ended for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of MoneyGram Payment Systems, Inc. as of
September 30, 1995 (not presented herein), and the related statements of
income, stockholder's equity (not presented herein), and cash flows for the
nine-month period then ended and in our report dated December 8, 1995 (except
as to Notes 1 and 9 as to which the date is December , 1996) we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying statements of income and cash flows
for the nine-month period ended September 30, 1995, is fairly stated, in all
material respects, in relation to the statements of income and cash flows from
which such information has been derived.
Ernst & Young LLP
Denver, Colorado
October 16, 1996, except as to Note 2, as to which the date is December ,
1996
****
The foregoing report is in the form that will be signed upon the completion
of the transactions and restatement of capital accounts described in Note 1 to
the audited financial statements as of and for the year ended December 31,
1995, under the caption "Formation of the Company".
Ernst & Young LLP
Denver, Colorado
December 4, 1996
F-15
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1996
- ----------------------------------------------------------------- -------------
<S> <C>
Cash and cash equivalents........................................ $ --
Assets restricted to settlement of MoneyGram transactions........ 26,059
Fee revenue receivable........................................... 780
Prepaid and other current assets................................. 829
-------
Total current assets......................................... 27,668
Fixed assets at cost, net of depreciation: $6,234................ 6,822
Deferred income taxes............................................ 153
Costs of acquiring Agent Contracts, net of amortization: $4,016.. 14,840
-------
Total assets................................................. $49,483
=======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- -----------------------------------------------------------------
<S> <C>
Liabilities relating to unsettled MoneyGram transactions......... $26,059
Accounts payable................................................. 2,343
Commissions payable.............................................. 6,116
Accrued advertising.............................................. 2,549
Employee-related liabilities..................................... 2,048
Accrued and other liabilities.................................... 2,264
-------
Total current liabilities.................................... 41,379
Stockholder's equity:
Common stock, $.01 par value, authorized 100,000,000 shares;
issued and outstanding 16,625,000 shares...................... 166
Capital surplus................................................ 5,679
Retained earnings.............................................. 2,259
-------
Total stockholder's equity................................... 8,104
-------
Total liabilities and stockholder's equity................... $49,483
=======
</TABLE>
See accompanying notes.
F-16
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
---------------
1995 1996
------- -------
<S> <C> <C>
Revenues
Fee and other................................................ $72,934 $84,154
Foreign exchange............................................. 33,145 22,821
------- -------
Total revenue.............................................. 106,079 106,975
Expenses:
Agent commissions and amortization of Agent Contract
acquisition costs........................................... 25,587 33,865
Processing................................................... 17,500 18,698
Advertising and promotion.................................... 24,015 22,347
Selling and service.......................................... 5,245 7,645
General and administrative................................... 4,140 3,847
------- -------
Total expenses............................................. 76,487 86,402
------- -------
Income before income taxes..................................... 29,592 20,573
Income tax expense............................................. 11,338 7,858
------- -------
Net income..................................................... $18,254 $12,715
======= =======
Pro forma net income per common share.......................... $ 1.10 $ .76
======= =======
</TABLE>
See accompanying notes.
F-17
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
----------------
1995 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $18,254 $12,715
Adjustments to reconcile net income to net cash provided by
operating activities:
Direct depreciation and amortization expense*............. 2,255 4,497
Other noncash charges..................................... 45 40
Changes in operating assets and liabilities:
Assets restricted to settlement of MoneyGram
transactions........................................... (2,240) (49)
Accounts receivable..................................... (1,371) 385
Prepaid and other assets................................ (741) (558)
Liabilities relating to unsettled MoneyGram
transactions........................................... 2,240 49
Accounts payable and other liabilities.................. (3,965) 881
------- -------
Net cash provided by operating activities................... 14,477 17,960
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of signage and equipment........................... (4,310) (3,103)
Costs of acquiring Agent Contracts.......................... (5,869) (9,077)
------- -------
Net cash used by investing activities....................... (10,179) (12,180)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfer to IPS......................................... (4,298) (5,780)
------- -------
Net cash used by financing activities....................... (4,298) (5,780)
------- -------
Net change in cash and cash equivalents..................... $ -- $ --
======= =======
</TABLE>
- --------
*Relates only to MoneyGram assets as reflected on the accompanying balance
sheet.
See accompanying notes.
F-18
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
(ACCUMULATED TOTAL
COMMON CAPITAL DEFICIT)/RETAINED STOCKHOLDER'S
STOCK SURPLUS EARNINGS EQUITY
------ ------- ----------------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1995....... $166 $11,459 $(10,456) $ 1,169
Net income.................... -- -- 12,715 12,715
Capital contribution to IPS... -- (5,780) -- (5,780)
---- ------- -------- -------
Balance September 30, 1996...... $166 $ 5,679 $ 2,259 $ 8,104
==== ======= ======== =======
</TABLE>
See accompanying notes.
F-19
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial statements of MoneyGram Payment Systems, Inc. ("the
Company") should be read in conjunction with the Company's financial
statements for the year ended December 31, 1995. Significant accounting
policies disclosed therein have not changed. For interim reporting purposes
during 1995, the Company allocated advertising and promotion expenses based on
transaction volumes. For the nine months ended September 30, 1996, advertising
and promotion expenses reflect actual expenses incurred during the period as
the Company believes this is a more objective method of accounting under its
current circumstances, which circumstances include the minimum spending on
advertising and promotion required under the Hold Separate Agreement with the
Federal Trade Commission and the Company's emergence as an independent
publicly-held entity. Advertising and promotion expenses for the nine months
ended September 30, 1996 would have been approximately $100,000 less if the
Company continued to allocate these costs for interim reporting purposes based
on transaction volumes. This change had minimal impact on net income and pro
forma net income per common share.
The financial statements are unaudited; however, in the opinion of
management, they include all normal recurring adjustments necessary for a fair
presentation of the financial position of the Company at September 30, 1996
and the results of its operations and cash flows for the nine months ended
September 30, 1996 and 1995. Results of operations reported for interim
periods are not necessarily indicative of results for the entire year.
2. Pursuant to the terms of the contribution agreement between the Company,
Integrated Payment Systems Inc. ("IPS") and First Data Corporation, as
described in Note 1 to the Company's December 31, 1995 financial statements,
on December 1996, certain assets were contributed to the Company subject to
certain liabilities. The Company will file an amended registration statement
with the Securities and Exchange Commission for the initial public offering of
100% (including the underwriters' over-allotment option) of its issued and
outstanding 16,625,000 shares of common stock. All such shares will be offered
by IPS, as selling stockholder.
F-20
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued December 4, 1996
14,463,750 Shares
MoneyGram Payment Systems, Inc.
COMMON STOCK
----------
OF THE 14,463,750 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,892,750 ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 11,571,000 ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. ALL OF THE SHARES
OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY INTEGRATED PAYMENT
SYSTEMS, INC. ("IPS" OR THE "SELLING STOCKHOLDER"), A WHOLLY OWNED
SUBSIDIARY OF FIRST DATA CORPORATION. SEE "SELLING STOCKHOLDER." THE
COMPANY WILL NOT RECEIVE ANY OF THE NET PROCEEDS FROM THE SALE OF
SHARES OF COMMON STOCK OFFERED HEREBY. PRIOR TO THE OFFERING, THERE
HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT
IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER
SHARE WILL BE BETWEEN $10 AND $12. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE ("NYSE"), SUBJECT TO OFFICIAL NOTICE OF ISSUANCE,
UNDER THE SYMBOL "MNE."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
-------- -------------- -------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Before deducting expenses payable by the Selling Stockholder estimated
at $2,100,000.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,161,250 additional shares of Common Stock at the price to
public less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholder will be $ ,
$ , and $ , respectively. See "Underwriters."
----------
The shares of Common Stock are offered,subject to prior sale, when as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
December , 1996 at the office of Morgan Stanley & Co. Incorporated, New York,
NY, against payment therefor in immediately available funds.
----------
MORGAN STANLEY & CO.
International
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
December , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (other than underwriting discounts and commissions) payable in
connection with the sale of the Common Stock offered hereby (including the
Common Stock which may be issued pursuant to the over-allotment option) are as
follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee......................................... $ 182,691
NASD filing fee.............................................. 30,500
New York Stock Exchange listing fee.......................... 200,000*
Printing and engraving expenses.............................. 150,000*
Legal fees and expenses...................................... 700,000*
Accounting fees and expenses................................. 700,000*
Blue Sky fees and expenses (including legal fees and
expenses)................................................... 15,000*
Transfer agent and registrar fees and expenses............... 25,000*
Miscellaneous................................................ 96,809*
----------
Total.................................................... $2,100,000
==========
</TABLE>
--------
*Estimated
The Selling Stockholder will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided that such officer or director acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests, and, for criminal proceedings, had no
reasonable cause to believe his conduct was illegal. A Delaware corporation
may indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation in the performance of his duty. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
In accordance with Section 102(b)(7) of the DGCL, the Company's Certificate
of Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(i) breaches of their duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) certain transactions under Section 174 of the
DGLC (unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) transactions from which a director derives an improper
personal benefit. The effect of this provision is to eliminate the personal
liability of directors for monetary damages for actions involving a breach of
their fiduciary duty of care, including any actions involving gross
negligence.
The Certificate of Incorporation and the By-laws of the Company provide for
indemnification of the Company's officers and directors to the fullest extent
permitted by applicable law, except that the By-laws
II-1
<PAGE>
provide that the Company is required to indemnify an officer or director in
connection with a proceeding initiated by such person only if the proceeding
was authorized by the Board of Directors of the Company. In addition, the
Company maintains insurance policies which provide coverage for its officers
and directors in certain situations where the Company cannot directly
indemnify such officers or directors.
The Underwriting Agreement provides for indemnification of directors and
officers of the Company by the Underwriters against certain liabilities.
Pursuant to Section 145 of the DGCL and the Certificate of Incorporation and
the By-laws of the Company, the Company maintains directors' and officers'
liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
In connection with the incorporation and organization of the Company on
January 4, 1996, 100 shares of Common Stock were issued to IPS, the sole
stockholder of the Company, in exchange for $2,000. In connection with the
Contribution Agreement, prior to the consummation of the Offering, the Company
will issue shares of Common Stock to IPS.
No Underwriters were involved in the foregoing sales of Common Stock. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to
transactions by an issuer not involving any public offering or the rules and
regulations thereunder. All of such shares of Common Stock are deemed
restricted securities within the meaning of Rule 144 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1** --Form of Underwriting Agreement.
2.1* --Form of Contribution Agreement among the Company, First Data Corporation
and Integrated Payment Systems Inc.
3.1** --Certificate of Incorporation of the Company, as amended.
3.2** --By-laws of the Company.
5.1* --Opinion of Sidley & Austin as to the legality of the shares of Common
Stock being offered.
8.1* --Opinion of Sidley & Austin as to certain tax matters.
9.1* --Form of Irrevocable Voting Trust Agreement.
10.1* --Form of Operations Agreement among the Company and Integrated Payment
Systems Inc. and First Data Technologies, Inc.
10.2* --Form of Software License Agreement between the Company and Integrated
Payment Systems Inc.
10.3* --Form of Registration Rights Agreement between the Company and Integrated
Payment Systems Inc.
10.4* --Form of Service Mark Letter Agreement among Western Union Financial
Services, Inc., First Data Corporation and MoneyGram Payment Systems,
Inc., which includes the Service Mark License Agreement among such
parties as an exhibit thereto.
10.5* --Form of Human Resources Agreement among the Company, Integrated Payment
Systems Inc. and First Data Corporation.
10.6* --Form of Telecommunications Services Sharing Agreement between the
Company and First Data Corporation.
10.7* --Agreement among American Express Travel Related Services Company, Inc.,
Banco Nacional de Mexico, S.N.C., and California Commerce Bank, as
amended (subject to a request for confidential treatment pursuant to Rule
406 of the Securities Act).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.8** --Form of 1996 Stock Option Plan of the Company.
10.9** --Form of 1996 Broad-Based Stock Option Plan.
10.10** --Lease Agreement between the Company and the Mutual Life Insurance
Company of New York in respect of certain facilities located in Lakewood,
Colorado.
10.11* --Form of Short-Term Working Capital Facility between First Data
Corporation and the Company.
10.12* --Letter Agreement between the Company and Western Union Financial
Services, Inc. regarding Banamex.
15.1* --Letter from Ernst & Young LLP re: unaudited interim financial
information
18.1** --Letter from Ernst & Young LLP re: change in accounting principle
23.1* --Consent of Ernst & Young LLP.
23.2 --Consent of Sidley & Austin (included in Exhibit 5.1).
24.1 --Powers of Attorney (see page II-4).
27.1* --Financial Data Schedule.
99.1** --Agreement containing Consent Order dated August 28, 1995 and Hold
Separate Agreement dated September 20, 1995, each between First Data
Corporation and the Federal Trade Commission.
</TABLE>
- --------
*Filed herewith.
**Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable or the information has been provided in the Financial Statements,
or the notes thereto, included in this Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act,
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (3) that for the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on December 4, 1996.
MONEYGRAM PAYMENT SYSTEMS, INC.
/s/ James F. Calvano
By: _________________________________
James F. Calvano
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of MoneyGram Payment Systems,
Inc. hereby severally constitute and appoint David Treinen and John Zieser,
and each of them singly, our true and lawful attorneys, with full power to
them and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
registration statement, and generally to do all things in our names and on our
behalf in such capacities to enable the Company to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ James F. Calvano Chairman of the Board and 12/4/96
____________________________________ Chief Executive (Principal
James F. Calvano Executive Officer)
/s/ Robbin L. Ayers Director and Executive Vice 12/4/96
____________________________________ President
Robbin L. Ayers
/s/ John M. Fowler Director and Executive Vice 12/4/96
____________________________________ President and
John M. Fowler Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ Brian J. Fitzpatrick Director 12/4/96
____________________________________
Brian J. Fitzpatrick
/s/ William D. Guth Director 12/4/96
____________________________________
William D. Guth
/s/ Sanford Miller Director 12/4/96
____________________________________
Sanford Miller
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement.
2.1* -- Form of Contribution Agreement among the Company, First Data
Corporation and
Integrated Payment Systems Inc.
3.1** -- Certificate of Incorporation of the Company, as amended.
3.2** -- By-laws of the Company.
5.1* -- Opinion of Sidley & Austin as to the legality of the shares of
Common Stock being offered.
8.1* -- Opinion of Sidley & Austin as to certain tax matters.
9.1* -- Form of Irrevocable Voting Trust Agreement.
10.1* -- Form of Operations Agreement among the Company and Integrated
Payment Systems Inc. and First Data Technologies, Inc.
10.2* -- Form of Software License Agreement between the Company and Inte-
grated Payment Systems Inc.
10.3* -- Form of Registration Rights Agreement between the Company and
Integrated Payment Systems Inc.
10.4* -- Form of Service Mark Letter Agreement among Western Union Finan-
cial Services, Inc., First Data Corporation and MoneyGram Pay-
ment Systems, Inc., which includes the Service Mark License
Agreement among such parties as an exhibit thereto.
10.5* -- Form of Human Resources Agreement among the Company, Integrated
Payment
Systems Inc. and First Data Corporation.
10.6* -- Form of Telecommunications Services Sharing Agreement between
the Company and First Data Corporation.
10.7* -- Agreement among American Express Travel Related Services Compa-
ny, Inc., Banco Nacional de Mexico, S.N.C., and California Com-
merce Bank, as amended (subject to a request for confidential
treatment pursuant to Rule 406 of the Securities Act).
10.8** -- Form of 1996 Stock Option Plan of the Company.
10.9** -- Form of 1996 Broad-Based Stock Option Plan.
10.10** -- Lease Agreement between the Company and the Mutual Life Insur-
ance Company of New York in respect of certain facilities lo-
cated in Lakewood, Colorado.
10.11* -- Form of Short-Term Working Capital Facility between First Data
Corporation and the Company.
10.12* -- Letter Agreement between the Company and Western Union Financial
Services, Inc. regarding Banamex.
15.1* -- Letter from Ernst & Young LLP re: unaudited interim financial
information.
18.1** -- Letter from Ernst & Young LLP re: change in accounting princi-
ple.
23.1* -- Consent of Ernst & Young LLP.
23.2 -- Consent of Sidley & Austin (included in Exhibit 5.1).
24.1 -- Powers of Attorney (see page II-4).
27.1* -- Financial Data Schedule.
99.1** -- Agreement containing Consent Order dated August 28, 1995 and
Hold Separate
Agreement dated September 20, 1995, each between First Data
Corporation and the Federal Trade Commission.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
EXHIBIT 2.1
DRAFT: NOVEMBER 25, 1996
CONTRIBUTION AGREEMENT
DATED AS OF ________, 1996
AMONG
FIRST DATA CORPORATION
INTEGRATED PAYMENT SYSTEMS INC.
AND
MONEYGRAM PAYMENT SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS............................................................ 1
Section 1.1. Definitions................................................... 1
ARTICLE II
CONTRIBUTION........................................................... 7
Section 2.1. Contributed Assets............................................ 7
Section 2.2. Excluded Assets............................................... 9
Section 2.3. Assumed Liabilities........................................... 9
Section 2.4. Excluded Liabilities.......................................... 10
Section 2.5. Transfer of Title to Agent Contracts.......................... 10
Section 2.6. Representation and Warranty Regarding Contributed Assets...... 11
ARTICLE III
ISSUANCE OF SHARES..................................................... 12
Section 3.1. Issuance of Shares and Other Consideration.................... 12
ARTICLE IV
CLOSING................................................................ 12
Section 4.1. Closing Date.................................................. 12
Section 4.2. Amendment of Schedules........................................ 12
Section 4.3. The Company's Closing Date Deliveries......................... 13
Section 4.4. IPS' Closing Date Deliveries.................................. 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V
ADDITIONAL AGREEMENTS.................................................. 13
Section 5.1. Use of Names.................................................. 13
Section 5.2. Collection of Accounts........................................ 14
Section 5.3. Taxes......................................................... 14
Section 5.4. Allocation of Consideration................................... 16
Section 5.5 Tax Contests.................................................. 16
Section 5.6. Right to Use MoneyGram Agent Assets........................... 18
Section 5.7. Employees..................................................... 18
Section 5.8. Pending Service and Trademarks................................ 18
Section 5.9. Lakewood Lease................................................ 19
Section 5.10. Financial Systems............................................. 19
Section 5.11. Delivery of Software.......................................... 20
Section 5.12. Additional Services........................................... 20
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF IPS AND FDC..................... 20
Section 6.1. FTC Approval.................................................. 20
Section 6.2. No Restraint.................................................. 20
Section 6.3. Underwriting Agreement........................................ 20
ARTICLE VII
INDEMNIFICATION........................................................ 21
Section 7.1. Indemnification by IPS........................................ 21
Section 7.2. Indemnification by the Company................................ 22
Section 7.3. Notice of Claims.............................................. 23
Section 7.4. Third Person Claims........................................... 24
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.5. Limitations................................................... 25
ARTICLE VIII
TERMINATION............................................................ 26
Section 8.1. Termination................................................... 26
ARTICLE IX
GENERAL PROVISIONS..................................................... 26
Section 9.1. Survival of Obligations....................................... 26
Section 9.2. Notices....................................................... 27
Section 9.3. Successors and Assigns........................................ 27
Section 9.4. Access to Records after Closing............................... 28
Section 9.5. Entire Agreement; Amendments.................................. 29
Section 9.6. Partial Invalidity............................................ 29
Section 9.7. Execution in Counterparts..................................... 29
Section 9.8. Further Assurances............................................ 29
Section 9.9. Governing Law................................................. 29
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
Exhibit 1 Covenant Not to Sue
Exhibit 2 Facility
Exhibit 3 Human Resources Agreement
Exhibit 4 Instrument of Assumption
Exhibit 5 Instrument of Contribution
Exhibit 6 Operations Agreement
Exhibit 7 Registration Rights Agreement
Exhibit 8 Service Mark Letter Agreement
Exhibit 9 Software License Agreement
Exhibit 10 Telecommunications Services Sharing Agreement
Exhibit 11 Western Union Letter Agreement
Exhibit 12 Instrument of Assignment (Western Union)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<C> <S>
Schedule 1.1A Assignable Pending Applications
Schedule 1.1B Lakewood Lease
Schedule 1.1C MoneyGram Application Software
Schedule 1.1D Nonassignable Pending Applications
Schedule 1.1E PC MoneyGram Application Software
Schedule 2.1B Lakewood Assets
Schedule 2.1C MoneyGram Agent Assets
Schedule 2.1D MoneyGram Marks
Schedule 2.1E Agent Contracts
Schedule 2.1F Help Desk Assets
Schedule 2.1G Express Payment Assets
Schedule 2.1H Cash Advance Assets
Schedule 5.1 Restricted FDC Tradenames and Trademarks
Schedule 5.7 MoneyGram Business Employees
Schedule 5.11 Form of Delivery of Software
</TABLE>
iv
<PAGE>
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT, dated as of ____________, 1996, among First
Data Corporation, a Delaware corporation ("FDC"), Integrated Payment Systems
Inc., a Delaware corporation and a wholly owned subsidiary of FDC ("IPS"), and
MoneyGram Payment Systems, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, IPS is, among other things, engaged in the Business (as
defined in Section 1.1) and historically has operated the Business in the name
of American Express Travel Related Services Company, Inc., a New York
corporation ("Travel Related Services"), in order to comply with State Licensing
Requirements (as defined in Section 1.1);
WHEREAS, IPS has obtained all licenses necessary under State Licensing
Requirements and, prior to, or simultaneous with, the Closing (as defined in
Section 1.1), will begin operating the Business (as defined in Section 1.1)
substantially in its own name; and
WHEREAS, FDC and IPS desire to contribute to the Company, and the
Company desires to acquire, on a going concern basis, the Contributed Assets (as
defined in Section 2.1), all on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed among FDC, IPS and the
Company as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. DEFINITIONS. In this Agreement, the following terms have
the meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
<PAGE>
"AFFILIATE" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person; provided, however, that under no circumstances shall FDC and
its Affiliates be deemed Affiliates of the Company or the Company and its
Affiliates be deemed Affiliates of FDC.
"AGENT CONTRACT" means an agreement pursuant to which a MoneyGram
Agent provides Consumer Money Wire Transfer Services on behalf of the Business,
together with any license agreement with such MoneyGram Agent related to the PC
MoneyGram Application Software.
"ASSIGNABLE PENDING APPLICATIONS" means the pending trademark
applications set forth in Schedule 1.1A.
"BUSINESS" means the Consumer Money Wire Transfer Services marketed
under the name "MoneyGram(SM)" and the sales and distribution of a "MoneyGram"
phonecard, it being acknowledged and agreed to by the parties hereto that the
Business shall not include any services marketed under the name "Western Union."
"CLOSING" means the closing of the transfer of the Contributed Assets
to the Company in exchange for the Contribution Amount.
"CLOSING DATE" has the meaning specified in Section 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" has the meaning specified in Section 3.1.
"COMPANY GROUP MEMBER" means the Company and its Affiliates, and their
respective directors, officers, employees, agents, attorneys and consultants and
their respective successors and assigns.
"CONSENT DECREE" means the Consent Decree dated January 19, 1996
(Docket No. C-3635) between FDC and the FTC, including all appendices and
attachments thereto, as it may be amended or supplemented from time to time.
-2-
<PAGE>
"CONSUMER MONEY WIRE TRANSFER SERVICES" means the service of
transferring the right to money using computer or telephone lines, or any other
technology now existing or later developed, from one person to a different
person through a MoneyGram Agent and the services marketed under the phrase
"Express Payment" or "Cash Advance."
"CONTRIBUTION AMOUNT" has the meaning specified in Section 3.1.
"COVENANT NOT TO SUE" means the Covenant Not to Sue in the form of
Exhibit 1.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title or other restrictions of a similar kind.
"EXPENSES" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against hereunder (including,
without limitation, court filing fees, court costs, arbitration fees or costs,
witness fees and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, accountants and other professionals).
"FACILITY" means the Short-Term Working Capital Facility in the form
of Exhibit 2.
"FIDUCIARY ASSETS" means, as of any date, the amount of assets that
would be reflected in respect of the caption "Assets restricted to settlement of
MoneyGram transactions" on a balance sheet of the Company prepared as of such
date in accordance with the policies applied in the preparation of the audited
balance sheet of the Company dated as of December 31, 1995 contained in the
Registration Statement.
"FIDUCIARY LIABILITIES" means, as of any date, the amount of
liabilities that would be reflected in respect of the caption "Liabilities
relating to unsettled MoneyGram transactions" on a balance sheet of the Company
prepared as of such date in accordance with the policies applied in the
preparation of the audited balance sheet of the Company dated as of December 31,
1995 contained in the Registration Statement.
-3-
<PAGE>
"FTC" means the Federal Trade Commission of the United States of
America.
"FTC APPROVAL" means the approval by the FTC pursuant to the Consent
Decree of the offering contemplated by the Registration Statement, including the
transactions contemplated or described therein.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" means all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from a Governmental
Body, whether through a contractual arrangement with a third Person or
otherwise, that are necessary to entitle IPS to carry on and conduct the
Business substantially as currently conducted.
"HUMAN RESOURCES AGREEMENT" means the Human Resources Agreement in the
form of Exhibit 3.
"INSTRUMENT OF ASSUMPTION" means the Instrument of Assumption in the
form of Exhibit 4.
"INSTRUMENT OF CONTRIBUTION" means the Instrument of Contribution in
the form of Exhibit 5.
"IPS GROUP MEMBER" means IPS, FDC and Affiliates of FDC, and their
respective directors, officers, employees, agents, attorneys and consultants and
their respective successors and assigns.
"LAKEWOOD LEASE" means the real estate lease and leasehold
improvements described in Schedule 1.1B.
"LOSSES" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"MONEYGRAM AGENT" means a Person that has contracted with Travel
Related Services, IPS or the Company, as the case may be, to provide the
Consumer Money Wire Transfer Services provided by the Business.
"MONEYGRAM MARKS" means all of the trademarks in Schedule 2.1D (as
such Schedule may be amended in accordance with Section 4.2) and any common law
rights IPS may have in any such trademarks.
-4-
<PAGE>
"MONEYGRAM APPLICATION SOFTWARE" means all source and object code
versions of the computer software commonly known as the MoneyGram Application
Software and all enhancements and modifications thereto, including, without
limitation, all components, modules, tools, utilities and related materials,
together with all related documentation, on whatever medium such materials and
related documentation may be maintained, as described in Schedule 1.1C.
"NONASSIGNABLE PENDING APPLICATIONS" means the pending trademark
applications set forth in Schedule 1.1D.
"OPERATIONS AGREEMENT" means the Operations Agreement in the form of
Exhibit 6.
"PC MONEYGRAM APPLICATION SOFTWARE" means all source and object code
versions of the computer software commonly known as the PC MoneyGram Application
Software and all enhancements and modifications thereto, including, without
limitation, all components, modules, tools, utilities and related materials,
together with all related documentation, on whatever medium such materials and
related documentation may be maintained, as described in Schedule 1.1E.
"PERMITTED ENCUMBRANCES" means (a) liens for Taxes and other
governmental charges and assessments that are not yet due and payable, (b) liens
of landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable and (c) other liens or imperfections on property that are not
material in amount or do not materially detract from the value of or materially
impair the existing use of the property affected by such lien or imperfection.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of Exhibit 7.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1
of the Company (Reg. No. 333-228) filed on January 10, 1996 with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended, including all exhibits and amendments thereto.
-5-
<PAGE>
"REQUIREMENTS OF LAW" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body.
"SERVICE MARK LETTER AGREEMENT" means the Service Mark Letter
Agreement in the form of Exhibit 8.
"SERVICE MARK LICENSE AGREEMENT" means the Service Mark License
Agreement included as Exhibit B to the Service Mark Letter Agreement.
"SOFTWARE LICENSE AGREEMENT" means the Software License Agreement in
the form of Exhibit 9.
"STATE LICENSING REQUIREMENTS" means Requirements of Law related to
the licensing of a Person offering money transfer services.
"STRADDLE PERIOD" means any taxable year or period beginning before
and ending after the Closing Date.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") means any
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
value added, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Body.
"TAX AUTHORITY" means the Internal Revenue Service or any other
comparable state, local or foreign government authority.
"TAXABLE PERIOD" means any Taxable year or period (or portion thereof)
for federal, state or local income or franchise Tax purposes, in each case
ending after the Closing.
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
"TELECOMMUNICATIONS SERVICES SHARING AGREEMENT" means the
Telecommunications Services Sharing Agreement in the form of Exhibit 10.
-6-
<PAGE>
"WESTERN UNION LETTER AGREEMENT" means the Letter Agreement in the
form of Exhibit 11.
ARTICLE II
CONTRIBUTION
------------
SECTION 2.1. CONTRIBUTED ASSETS. Subject to Section 2.5, upon the
terms and subject to the conditions of this Agreement, on the Closing Date, IPS
shall pay to the Company $12 million in cash, and FDC shall cause IPS or its
Affiliates to contribute, transfer, assign, convey and deliver to the Company,
and the Company shall acquire from IPS or its Affiliates, free and clear of all
Encumbrances (except for Permitted Encumbrances), all right, title and interest
of IPS or its Affiliates, as the case may be, in, to and under:
(a) the Lakewood Lease;
(b) the items contained in Schedule 2.1B (as such Schedule may be
amended in accordance with Section 4.2), which includes (A) all items of
machinery, equipment, vehicles, furniture and other personal property owned
or leased by IPS or its Affiliates and which are used or have been used in
connection with providing the voice center functions for the Business at
the facilities that are the subject of the Lakewood Lease and (B) certain
contracts between IPS or its Affiliates and a third Person pursuant to
which such third Person provides services in respect of such personal
property or the facilities that are the subject of the Lakewood Lease
(collectively, the "Lakewood Assets");
(c) the items contained in Schedule 2.1C (as such Schedule may be
amended in accordance with Section 4.2), which includes (A) all items of
machinery, equipment, signage and other personal property, including,
without limitation, computers and computer printers, that are owned or
leased by IPS or its Affiliates and provided to MoneyGram Agents for the
use by MoneyGram Agents in providing the Consumer Money Wire Transfer
Services on behalf of IPS and (B) all contracts between IPS or its
Affiliates and a third Person pursuant to which such third Person provides
services in respect of such personal property (collectively the "MoneyGram
Agent Assets");
-7-
<PAGE>
(d) the MoneyGram Marks described or set forth in Schedule 2.1D (as
such Schedule may be amended in accordance with Section 4.2);
(e) the economic benefits under the Agent Contracts listed or
described in Schedule 2.1E (as such Schedule may be amended in accordance
with Section 4.2);
(f) the items contained in Schedule 2.1F (as such Schedule may be
amended in accordance with Section 4.2), which constitute certain items of
machinery, equipment, furniture and other personal property owned or leased
by IPS or its Affiliates and which are used or have been used in connection
with providing the help desk functions for the Business and (B) all
contracts between IPS or its Affiliates and a third Person pursuant to
which such third Person provides services in respect of such personal
property (collectively, the "Help Desk Assets");
(g) the items contained in Schedule 2.1G (as such Schedule may be
amended in accordance with Section 4.2), which includes (A) all items of
machinery, equipment, furniture and other personal property owned or leased
by IPS or its Affiliates and which are used or have been used in connection
with providing the "Express Payment" service offered by the Business and
(B) all contracts between IPS or its Affiliates and a third Person relating
to the "Express Payment" service offered by the Business (collectively, the
"Express Payment Assets");
(h) the items contained in Schedule 2.1H (as such Schedule may be
amended in accordance with Section 4.2), which includes (A) all items of
machinery, equipment, furniture and other personal property owned or leased
by IPS or its Affiliates and which are used or have been used in connection
with providing the "Cash Advance" service offered by the Business and (B)
all contracts between IPS or its Affiliates and a third Person relating to
the "Cash Advance" service offered by the Business (collectively, the "Cash
Advance Assets");
(i) the trademarks and service marks that are the subject of the
Nonassignable Pending Applications, upon assignment thereof as contemplated
by Section 5.8;
(j) the MoneyGram Application Software and the PC MoneyGram
Application Software, and, in each case, (x) all copyright interests owned
or claimed by IPS or its
-8-
<PAGE>
Affiliates pertaining to such Software, including, without limitation, all
copyright interests accruing by reason of the Copyright Act of 1976, as
amended, 17 U.S.C. (S) 101 et. seq., and international copyright
conventions; and (y) all inventions, discoveries, improvements, ideas,
trade secrets, know-how, confidential information, and all other
intellectual property owned or claimed by IPS or its Affiliates relating to
such software; and
(k) any and all rights IPS may have in the Disputed Marks (as defined
in the Service Mark Letter Agreement).
All of the foregoing assets to be acquired by the Company hereunder
(excluding any Excluded Assets (as defined in Section 2.2) but supplemented from
time to time pursuant to Section 2.5) are referred to herein as the "Contributed
Assets."
SECTION 2.2. EXCLUDED ASSETS. Notwithstanding the provisions of
Section 2.1, the Contributed Assets shall not include any assets, properties,
business or goodwill, tangible or intangible, of IPS or any of its Affiliates
that are not expressly contributed, assigned, transferred, conveyed and
delivered to the Company pursuant to the Instrument of Contribution (the
"Excluded Assets"), including, without limitation, the following:
(a) all Fiduciary Assets as of the Closing Date;
(b) the rights, claims or causes of action of IPS or its Affiliates
against third parties that may arise in connection with the discharge by
IPS or its Affiliates of the Excluded Liabilities; and
(c) all Governmental Permits of IPS in respect of the Business.
SECTION 2.3. ASSUMED LIABILITIES. Subject to Section 2.5, on the
Closing Date, the Company shall deliver to IPS the Instrument of Assumption
pursuant to which the Company shall assume and agree to discharge the following
obligations and liabilities in accordance with their respective terms and
subject to the respective conditions thereof: all liabilities and obligations of
IPS or its Affiliates to be paid or performed on and after the Closing Date in
respect of the Contributed Assets, including, without limitation, under (i) the
Lakewood Lease; (ii) the contracts included in the Lakewood Assets; (iii) the
economic liabilities under the Agent Contracts listed or described in Schedule
2.1E (as such Schedule may be amended in
-9-
<PAGE>
accordance with Section 4.2); (iv) the contracts included in the MoneyGram Agent
Assets; (v) the contracts included in the Help Desk Assets; (vi) the contracts
included in the Express Payment Assets; (vii) the contracts included in the Cash
Advance Assets; (viii) Assignable Pending Applications; and (ix) all aspects of
the conduct of the Business on and after the Closing Date not delegated to
Affiliates of FDC under the Operations Agreement, including the performance of
all activities contemplated by Section 5.1 of the Operations Agreement; except,
in each case, to the extent such liabilities and obligations, but for a breach
or default by IPS or its Affiliates, would have been paid, performed or
otherwise discharged prior to the Closing Date or to the extent any such
liabilities and obligations arise out of any such breach or default.
All of the foregoing liabilities and obligations to be assumed by the
Company hereunder (excluding any Excluded Liabilities but supplemented from time
to time pursuant to Section 2.5) are referred to herein as the "Assumed
Liabilities."
SECTION 2.4. EXCLUDED LIABILITIES. The Company shall not assume or be
obligated to pay, perform or otherwise discharge any liability or obligation of
IPS or its Affiliates, direct or indirect, known or unknown, absolute or
contingent, not expressly assumed by the Company pursuant to the Instrument of
Assumption, including, without limitation, (i) any of the Fiduciary Liabilities
as of the Closing Date and (ii) any liabilities existing as of the Closing Date
related to certain personal computers that, prior to the Closing Date, the
Company has requested IPS purchase on its behalf, the costs of which (not to
exceed $1,350,000) the parties hereto have agreed will be paid by IPS (all such
liabilities and obligations not being assumed being herein called the "Excluded
Liabilities").
SECTION 2.5. TRANSFER OF TITLE TO AGENT CONTRACTS. (a) Notwithstanding
anything in this Agreement to the contrary, in order to comply with State
Licensing Requirements, this Agreement shall not constitute an agreement to
assign to the Company any Agent Contract or an assumption by the Company of any
Agent Contract. In furtherance of the foregoing sentence, at the Closing the
Company shall receive assignment of all economic benefits under Agent Contracts
included in the Contributed Assets pursuant to the Instrument of Contribution
and assume all economic liabilities under the Agent Contracts included in the
Contributed Assets pursuant to the Instrument of Assumption. Upon satisfaction
of the conditions to the Company's offering of Consumer Money Wire Transfer
Services and operation of the Business in its own name as contemplated by the
Operations
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Agreement, including compliance by the Company with all State Licensing
Requirements, IPS shall assign such Agent Contracts to the Company and the
Company shall assume all liabilities and obligations related thereto pursuant to
instruments reasonably acceptable to the Company and IPS and in accordance with
the terms of the Operations Agreement. Upon the assignment and assumption of the
Agent Contracts as contemplated in this Section 2.5(a), such Agent Contracts
shall constitute Contributed Assets and all liabilities associated therewith
shall constitute Assumed Liabilities for purposes of this Agreement.
(b) If, after the Closing Date and prior to the two-year anniversary
of the date hereof, any Agent Contract the economic benefits of which are
included in the Contributed Assets is terminated by a MoneyGram Agent in
accordance with the terms of such Agent Contract, then FDC and IPS each agrees
not to, and to cause their Affiliates not to, for a period of 60 days after the
date of such termination, enter into any agreement with such MoneyGram Agent to
provide Consumer Money Wire Transfer Services (as defined in the Consent Decree)
on behalf of IPS or any of its Affiliates.
(c) If any Agent Contract, which on the day of Closing is not
assignable in accordance with its terms to IPS or the Company, is terminated in
connection with the transactions contemplated hereby, then FDC and IPS each
agrees not to, and to cause their Affiliates not to, enter into any agreement
with such terminated MoneyGram Agent to provide Consumer Money Wire Transfer
Services (as defined in the Consent Decree) on behalf of IPS or any of its
Affiliates for a period of 60 days after the time such Agent Contract would have
expired in accordance with its terms, determined without regard to any automatic
extension or renewal provisions.
SECTION 2.6. REPRESENTATION AND WARRANTY REGARDING CONTRIBUTED ASSETS.
Except for those assets that IPS must retain in order for the Business to be
operated in compliance with State Licensing Requirements, the Contributed
Assets, together with (i) the services provided by IPS and its Affiliates to the
Company under the Operations Agreement, (ii) the services made available to the
Company under the Telecommunications Services Sharing Agreement, (iii) the
rights of the Company under the Covenant Not to Sue and the Service Mark Letter
Agreement (including the right to be granted a license to the Licensed Marks (as
defined in the Service Mark License Agreement) and (iv) the license to the
Utility Software (as defined in the Software License Agreement), constitute all
services and assets necessary to conduct the Business as currently conducted by
IPS. THE
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CONTRIBUTED ASSETS ARE BEING TRANSFERRED ON AN "AS IS, WHERE IS" BASIS AND IPS,
FDC AND THEIR AFFILIATES DISCLAIM ALL WARRANTIES, REPRESENTATIONS AND GUARANTIES
WHETHER EXPRESS OR IMPLIED (EXCEPT AS SET FORTH IN THIS SECTION 2.6). NEITHER
IPS, FDC NOR ANY OF THEIR AFFILIATES MAKES ANY REPRESENTATION OR WARRANTY AS TO
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES
WHATSOEVER.
ARTICLE III
ISSUANCE OF SHARES
------------------
SECTION 3.1. ISSUANCE OF SHARES AND OTHER CONSIDERATION. In
consideration for the Contributed Assets, on the Closing Date the Company shall
assume the Assumed Liabilities and issue to IPS such number of validly issued,
fully paid and nonassessable shares (the "Contribution Amount") of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), as the parties
shall agree (but in no event more than that number of shares of Common Stock
registered under the Registration Statement). IPS and the Company agree that
the assumption of the Assumed Liabilities and the issuance of the Contribution
Amount of Common Stock shall be allocated among the Contributed Assets as set
forth in the Allocation Schedule (as defined in Section 5.4).
ARTICLE IV
CLOSING
-------
SECTION 4.1. CLOSING DATE. The Closing shall be consummated as soon
as practicable after the fulfillment or (if permissible) waiver of the
conditions set forth in Article VI on a date agreed upon by the Company and IPS,
at such place and at such time as shall be agreed upon by the Company and IPS.
The time and date on which the Closing is actually held is referred to herein as
the "Closing Date."
SECTION 4.2. AMENDMENT OF SCHEDULES. IPS may, from time to time on
or prior to the Closing, by notice in accordance with the terms of this
Agreement, supplement, amend or create any Schedule to reflect the status of the
Business as of such time.
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SECTION 4.3. THE COMPANY'S CLOSING DATE DELIVERIES. At the Closing the
Company shall deliver to IPS all of the following:
(a) The Instrument of Assumption, the Operations Agreement, the
Facility, the Software License Agreement, the Service Mark Letter
Agreement, the Human Resources Agreement, the Telecommunications Services
Sharing Agreement, the Western Union Letter Agreement, the Covenant Not to
Sue and the Registration Rights Agreement, each duly executed by the
Company; and
(b) The Contribution Amount of Common Stock.
SECTION 4.4. IPS' CLOSING DATE DELIVERIES. Subject to fulfillment or
(if permissible) waiver of the conditions set forth in Article VI, at the
Closing IPS shall deliver, or cause to be delivered, to the Company all of the
following:
(a) The Instrument of Contribution duly executed by IPS and each
Affiliate of IPS contributing any Contributed Assets;
(b) The Operations Agreement, the Facility, the Software License
Agreement, the Service Mark Letter Agreement, the Human Resources
Agreement, the Telecommunications Services Sharing Agreement, the Western
Union Letter Agreement, the Covenant Not to Sue and the Registration Rights
Agreement, each duly executed by FDC, IPS or an Affiliate of FDC, as the
case may be; and
(c) An instrument of assignment in the form of Exhibit 12 transferring
certain rights Western Union Financial Services, Inc., an indirect, wholly
owned subsidiary of FDC, may own in the MoneyGram Marks.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
SECTION 5.1. USE OF NAMES. IPS is not granting the Company a license
to use any of the trade names or trademarks of IPS or any Affiliate of IPS
(other than those granted pursuant to Section 5.8), including, without
limitation, those listed on Schedule 5.1, or of American Express Company or any
Affiliate of American Express Company and, after the Closing, except as provided
in Section 5.8 or the Operations Agreement or the
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Service Mark Letter Agreement (or, if applicable, the Service Mark License
Agreement), the Company shall not use in any manner the names or marks of IPS or
any Affiliate of IPS or of American Express Company or any Affiliate of American
Express Company or any word that is similar in sound or appearance that
infringes on such names or marks. In the event the Company or any Affiliate of
the Company violates any of its obligations under this Section 5.1, IPS and its
Affiliates may proceed against it in law or in equity for such damages or other
relief as a court may deem appropriate. The Company acknowledges that a
violation of this Section 5.1 may cause IPS and its Affiliates irreparable harm
which may not be adequately compensated for by money damages. The Company
therefore agrees that in the event of any actual or threatened violation of this
Section 5.1, IPS and any of its Affiliates shall be entitled, in addition to
other remedies that they may have, to a temporary restraining order and to
preliminary and final injunctive relief against the Company or an Affiliate of
the Company to prevent any violations of this Section 5.1, without the necessity
of posting a bond.
SECTION 5.2. COLLECTION OF ACCOUNTS. (a) If, after the Closing Date,
the Company shall receive any remittance from any MoneyGram Agent with respect
to any Fiduciary Asset as of the Closing Date, the Company shall, immediately
upon receipt thereof, credit a bank account specified by IPS through an
automated clearing house or wire transfer.
(b) After the Closing Date, IPS and its Affiliates shall handle any
remittance from any MoneyGram Agent with respect to any Contributed Asset in
accordance with the terms of the Operations Agreement.
SECTION 5.3. TAXES. (a) IPS shall be liable for and shall pay all
Taxes (whether assessed or unassessed) applicable to the Business or the
Contributed Assets, in each case attributable to taxable years or periods ending
at the time of or prior to the Closing and, with respect to any Straddle Period,
the portion of such Straddle Period ending at the time of the Closing. The
Company shall be liable for and shall pay all Taxes (whether assessed or
unassessed) applicable to the Business or the Contributed Assets, in each case
attributable to taxable years or periods beginning after the Closing and, with
respect to any Straddle Period, the portion of such Straddle Period beginning
immediately after the Closing. IPS and the Company shall each be entitled to any
refunds of Taxes for which it is liable under this Section 5.3(a). For purposes
of this Section 5.3, any Straddle Period shall be treated on a "closing of the
books" basis as two partial periods, one ending at the time of
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the Closing and the other beginning immediately after the Closing, provided,
however, that Taxes (such as property Taxes) imposed on a periodic basis shall
be allocated on a daily basis. Notwithstanding the preceding sentence, if the
transactions contemplated by this Agreement result in the reassessment of the
value of any of the Contributed Assets or any of the assets of the Business for
property Tax purposes, or the imposition of any property Taxes on such
Contributed Assets or assets of the Business at a rate which is different than
the rate that would have been imposed if such transactions had not occurred,
then (y) the portion of such property Taxes for the portion of the Straddle
Period ending at the time of the Closing shall be determined on a daily basis,
using the assessed value and Tax rate that would have applied had such
transactions not occurred, and (z) the portion of such property Taxes for the
portion of such Straddle Period beginning immediately after the Closing shall be
the total property Taxes for the Straddle Period minus the amount described in
clause (y) of this sentence.
(b) Notwithstanding paragraph (a), any sales Tax, use Tax, real
property transfer or gains Tax, documentary stamp Tax or similar Tax
attributable to the sale or transfer of the Business or the Contributed Assets
shall be paid by 50 percent by the Company and 50 percent by IPS. The Company
and IPS agree to timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise reduce),
or file Tax Returns with respect to, such Taxes.
(c) IPS or the Company, as the case may be, shall promptly provide
reimbursement for any Tax paid by one party all or a portion of which is the
responsibility of the other party in accordance with the terms of this Section
5.3. Within a reasonable time prior to the payment of any said Tax, the party
paying such Tax shall give notice to the other party of the Tax payable and the
portion which is the liability of each party, although failure to do so will not
relieve the other party from its liability hereunder.
(d) After the Closing, each of IPS and the Company shall (and cause
their respective Affiliates to):
(i) assist the other party in preparing any Tax Returns which such
other party or its Affiliates is responsible for preparing and filing;
(ii) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns relating to the Business or
the Contributed Assets;
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(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes relating to the Business or the Contributed Assets;
(iv) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments relating to the Business or the
Contributed Assets for taxable periods for which the other may have a
liability under Section 7.1(a)(i) or 7.2(a)(i) as it relates to this
Section 5.3; 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.
(e) Any indemnity payments made pursuant to Section 7.1(a)(i) or
7.2(a)(i) as it relates to this Section 5.3 shall be treated by the Company and
IPS as an adjustment to the amount of Contributed Assets (except to the extent
the payment is the liability under controlling law of the party making such
indemnity payment).
SECTION 5.4. ALLOCATION OF CONSIDERATION.
Within 90 days following the Closing Date, IPS shall deliver to the
Company a schedule (the "Allocation Schedule") allocating the consideration
described in Section 3.1 among each category of assets included in the
Contributed Assets. The Allocation Schedule shall be reasonable and shall be
prepared based on the initial public offering price of the Common Stock and in
accordance with Section 1060 of the Code and the regulations thereunder. The
Company and IPS each agrees that promptly after receiving said Allocation
Schedule it shall return an executed copy thereof to IPS. The Company and IPS
each agrees to file (or cause to be filed) Internal Revenue Service Form 8594,
and all federal, state, local and foreign Tax Returns, in accordance with the
Allocation Schedule. The Company and IPS each agrees to provide the other
promptly with any other information required to complete Form 8594.
SECTION 5.5 TAX CONTESTS.
(a) The Company shall promptly notify IPS in writing upon receipt by
the Company or any Affiliate thereof of notice of any pending or threatened
federal, state, local or foreign Tax
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audits, examinations or assessments that will or might affect the Tax
liabilities for which IPS would be required to indemnify the Company pursuant
Section 7.1(a)(i) as it relates to Section 5.3. Such notice shall include a
summary of all action taken or proposed to be taken by the Internal Revenue
Service or a state or local Tax Authority in respect of such matter. The Company
shall forbear (and shall cause each Affiliate to forbear), for at least 30 days
after the giving of such notice, payment of any amounts related to such matter
(if such forbearance is permitted by law).
(b) In the case of any pending or threatened federal, state, local or
foreign Tax audits examinations or assessments that will or might affect the Tax
liabilities for which IPS would be required to indemnify the Company pursuant to
Section 7.1(a)(i) as it relates to Section 5.3(a), the Company shall contest, or
cause to be contested, such matter on audit, through Internal Revenue Service or
state, local or foreign administrative proceedings and through judicial
proceedings, unless notified to the contrary in writing by IPS or unless, and to
the extent, IPS does not exercise its right to participate in and control such
contest pursuant to this paragraph (b). IPS shall have the sole right to
participate in and control, at the expense of IPS, any such Tax audit or
administrative or judicial proceeding, and such participation and control shall
be reflected by the grant of appropriate powers of attorney or other appropriate
or necessary authorizations. Decisions regarding the conduct of any such audit
or administrative or judicial proceeding shall be made by IPS, FDC or their
representatives after consultation with the Company and its representatives,
provided, however, that ultimate control over any such audit or administrative
or judicial proceedings, including procedural matters that necessarily relate to
all issues being contested in connection therewith (including, without
limitation, choice of forum) shall be exercised in good faith solely by IPS, FDC
and their representatives. The Company shall take any action as is necessary to
effectuate the decisions of IPS and FDC made in conformity with the requirements
of the preceding sentence. Decisions regarding the settlement of proceedings or
litigation related in whole or in part to such matter shall be made solely by
IPS, FDC and their representatives. Fees and expenses paid to third-party
service providers (including, without limitation, legal and accounting expenses)
relating to the resolution of any such matter shall be borne by IPS.
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SECTION 5.6. RIGHT TO USE MONEYGRAM AGENT ASSETS. (a) The Company
hereby acknowledges that certain computers included in the MoneyGram Agent
Assets are used by MoneyGram Agents to provide products and services marketed by
IPS, including, without limitation, the money order and utility bill remittance
services marketed by IPS (the "IPS Products"). The Company hereby grants IPS and
its Affiliates a license for such MoneyGram Agents to use such computers and
related equipment included in the MoneyGram Agent Assets, and any upgraded or
new computers and related equipment provided to such MoneyGram Agents by the
Company for use in the Business, to process transactions for any IPS Products.
So long as the MoneyGram Agents offer any IPS Products, the Company shall not
remove, or terminate the right to use, such computers and related equipment used
by a MoneyGram Agent to process transactions for any IPS Product without having
given IPS 30 days' prior written notice thereof.
(b) IPS agrees to pay to the Company on or prior to the 30th day after
Closing the amount of $52,000, which amount equals the estimated maintenance
fees that will be incurred by the Company for the two-year period following
Closing with respect to the computers currently used by "Big B" and certain
other MoneyGram Agents to be agreed to by IPS and the Company prior to Closing.
In consideration for such payment, the Company agrees, notwithstanding the
provisions of paragraph (a) above, not to remove, or terminate the right to use,
such computers and related equipment used by such MoneyGram Agents to process
transactions for any IPS Product for a period of two years after Closing and
thereafter only upon 30 days' prior written notice thereof.
SECTION 5.7. EMPLOYEES. Schedule 5.7 sets forth a list of each
individual employed by FDC or any of its Affiliates who the parties hereto agree
will be employed by the Company on and after the Closing Date (each, a
"MoneyGram Business Employee"). FDC agrees, and agrees to cause its Affiliates,
effective as of 11:59 p.m. on December 20, 1996, to terminate the employment of
each of the MoneyGram Business Employees, and the Company agrees, effective upon
such termination, to offer employment to each of the MoneyGram Business
Employees at total compensation levels agreed to between FDC and the Company.
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SECTION 5.8. PENDING SERVICE AND TRADEMARKS. On behalf of IPS and its
Affiliates, the Company shall prosecute, in the name of IPS or any such
Affiliate, the Nonassignable Pending Applications. IPS agrees, and agrees to
cause its Affiliates, to execute all papers reasonably requested by the Company
to prosecute such applications. IPS hereby grants to the Company an assignable,
exclusive, royalty-free license to use each of the marks that are the subject of
the Nonassignable Pending Applications in the territories and languages
applicable to such applications during the period of time during which the
Company prosecutes the related application until such time as the application or
certificate of registration can be assigned to the Company in accordance with
applicable Requirements of Law. IPS hereby agrees that at such time as the
application or certificate of registration can be assigned to the Company in
accordance with applicable Requirements of Law for any of the marks that are the
subject of the Nonassignable Pending Applications, IPS shall, and shall cause
its Affiliates to, assign to the Company all right, title and interest in such
mark, together with the goodwill of the business symbolized thereby. The parties
hereto hereby agree that upon the occurrence of any such assignment such mark
shall constitute Contributed Assets for purposes of this Agreement.
SECTION 5.9. LAKEWOOD LEASE. (a) Within 30 days after the Closing, IPS
and the Company agree to negotiate in good faith the terms and conditions upon
which the Company shall sublease to IPS a portion of the premises currently used
by IPS located on the third floor of the facilities that are the subject of the
Lakewood Lease, including, without limitation, the space subject to such
sublease, the term of such sublease and other provisions thereof (including
rentals, which shall be no greater than current market rates).
(b) Within 30 days after the Closing, IPS and the Company agree to
negotiate in good faith the terms and conditions upon which IPS shall, or shall
cause, the fourth floor of the facilities that are the subject of the Lakewood
Lease to be built-out to the specifications agreed to by IPS and the Company.
IPS shall pay all costs and expenses with respect to such build-out.
SECTION 5.10. FINANCIAL SYSTEMS. IPS shall provide, or cause to be
provided, to the Company at IPS's expense either the "Platinum" software or the
"Lawson" software. IPS shall give the Company notice of the software IPS has
selected to provide (the "Offered Software") and IPS's cost and expense of
providing such software (the "Software Expense"). The Company may, at its
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option, elect not to accept the Offered Software and instead acquire its own
software for general ledger and related accounting functions (which may be the
"Lawson" software if the "Lawson" software is not the Offered Software). In such
event, IPS shall reimburse the Company for the cost of such software in an
amount not to exceed the Software Expense.
SECTION 5.11. DELIVERY OF SOFTWARE. IPS shall deliver to the Company
the MoneyGram Application Software and the PC MoneyGram Application Software in
the manner and in accordance with the time frame set forth in Schedule 5.11.
SECTION 5.12. ADDITIONAL SERVICES. At the request of the Company,
First Data shall cause Call Interactive, an affiliate of First Data, to enter
into an agreement with the Company to provide to the Company any service then
offered by Call Interactive upon such terms and conditions to be agreed to by
First Data and the Company and at prices equal to (i) during the period
commencing on the Closing Date and ending on the fifth anniversary of the
Closing Date, Call Interactive's costs of providing such service plus 15 percent
and (ii) thereafter, Call Interactive's costs of providing such service plus 20
percent.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF IPS AND FDC
--------------------------------------------------
The obligations of IPS and FDC under this Agreement shall, at the
option of IPS (to the extent permissible under applicable law), be subject to
the satisfaction, on or prior to the Closing Date, of the following conditi ons:
SECTION 6.1. FTC APPROVAL. FDC shall have obtained the FTC Approval.
SECTION 6.2. NO RESTRAINT. No legal action, suit, investigation or
proceeding shall have been instituted to restrain or prohibit or otherwise
challenge the legality or validity of the transactions contemplated hereby.
SECTION 6.3. UNDERWRITING AGREEMENT. IPS shall have entered into a
legally enforceable and binding agreement with the representatives of the
underwriters named in the Registration Statement to sell, on a firm commitment
basis, more than 80% of the shares of Common Stock of the Company outstanding
following the issuance of the Common Stock pursuant to Section 3.1, pursuant to
the offering contemplated by such Registration Statement.
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ARTICLE VII
INDEMNIFICATION
---------------
SECTION 7.1. INDEMNIFICATION BY IPS. (a) IPS agrees to indemnify and
hold harmless each Company Group Member from and against any and all Losses and
Expenses incurred by such Company Group Member in connection with or arising
from:
(i) any breach or failure to perform by IPS or any Affiliate of IPS
of any of their respective covenants or obligations in this Agreement;
(ii) any breach of any warranty or representation of IPS contained in
this Agreement;
(iii) any Excluded Liability; or
(iv) any claim that the MoneyGram Application Software or the PC
MoneyGram Application Software infringes or violates the Intellectual
Property of any third Person;
provided, however, that IPS's maximum aggregate obligation to indemnify and hold
harmless pursuant to this Section 7.1(a) shall be limited to the payment by IPS
of cash in an aggregate amount not to exceed $200 million (except to the extent
related to the obligations of IPS and its Affiliates pursuant to Section 5.3,
5.4 or 5.5, as to which no limitation shall apply); and provided, further, that
IPS shall have no obligation to indemnify and hold harmless under Section
7.1(a)(iv) if any infringement is based upon the Company's use of the MoneyGram
Application Software or the PC MoneyGram Application Software, as the case may
be, in combination with any other software or the MoneyGram Application Software
or the PC MoneyGram Application Software, as the case may be, is used in a
manner for which it is not designed or the infringement is based upon
modifications of the MoneyGram Application Software or the PC MoneyGram
Application Software, as the case may be, made by or for the Company.
(b) The indemnification provided for in Sections 7.1(a)(i) through
(iii) shall terminate two years after the Closing Date and the indemnification
provided for in Section 7.1(a)(iv) shall terminate ten years after the Closing
Date (and no claims shall be made by any Company Group Member under this Section
7.1 thereafter), except that the indemnification by IPS shall continue as to:
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(i) the covenants of IPS and FDC set forth in Section 9.4, which
shall survive for the period of time set forth therein;
(ii) the covenants of IPS set forth in Sections 5.3, 5.4 and 5.5,
which shall survive until the expiration of the relevant statutory period
of limitations applicable to the underlying claim, giving effect to any
waiver, mitigation or extension thereof;
(iii) the covenants of IPS set forth in Section 5.8, as to which no
time limitation shall apply; and
(iv) any Loss or Expense of which any Company Group Member has
notified IPS in accordance with the requirements of Section 7.3 on or prior
to the date such indemnification would otherwise terminate in accordance
with this Section 7.1, as to which the obligation of IPS shall continue
until the liability of IPS shall have been determined pursuant to this
Article VII, and IPS shall have reimbursed all Company Group Members for
the full amount of such Loss and Expense in accordance with this Article
VII.
SECTION 7.2. INDEMNIFICATION BY THE COMPANY. (a) The Company agrees
to indemnify and hold harmless each IPS Group Member from and against any and
all Loss and Expense incurred by such IPS Group Member in connection with or
arising from:
(i) any breach or failure to perform by the Company or any Affiliate
of the Company of any of their respective covenants or obligations in this
Agreement;
(ii) any Assumed Liability;
(iii) the employment by FDC or any of its Affiliates of the MoneyGram
Business Employees from Closing through December 20, 1996; or
(iv) any Agent Contract included in the Contributed Assets or the
economic benefits of which are assigned to the Company, except to the
extent such Loss and Expense directly resulted from any IPS Group Member's
gross negligence or willful misconduct or the failure of any IPS Group
Member to perform its material obligations under the Operations Agreement;
provided, however, that the Company's maximum aggregate obligation to indemnify
and hold harmless pursuant to this
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Section 7.2(a) shall be limited to the payment by the Company of cash in an
aggregate amount not to exceed $200 million (except to the extent related to the
obligations of the Company pursuant to Section 5.3, 5.4 or 5.5, as to which no
limitation shall apply).
(b) The indemnification provided for in Section 7.2(a) shall
terminate two years after the Closing Date (and no claims shall be made by any
IPS Group Member under this Section 7.2 thereafter), except that the
indemnification by the Company shall continue as to:
(i) the covenants of the Company set forth in Section 9.4, which
shall survive for the period of time set forth therein;
(ii) covenants of the Company set forth in Sections 5.3, 5.4 and 5.5,
which shall survive until the expiration of the relevant statutory period
of limitations applicable to the underlying claim, giving effect to any
waiver, mitigation or extension thereof;
(iii) the covenants of the Company set forth in Sections 5.6 and 5.8,
as to which no time limitation shall apply; and
(iv) any Loss or Expense of which IPS has notified the Company in
accordance with the requirements of Section 7.3 on or prior to the date
such indemnification would otherwise terminate in accordance with this
Section 7.2, as to which the obligation of the Company shall continue until
the liability of the Company shall have been determined pursuant to this
Article VII, and the Company shall have reimbursed all IPS Group Members
for the full amount of such Loss and Expense in accordance with this
Article VII.
SECTION 7.3. NOTICE OF CLAIMS. (a) Any Company Group Member or IPS
Group Member (the "Indemnified Party") seeking indemnification hereunder shall
give promptly to the party obligated to provide indemnification to such
Indemnified Party (the "Indemnitor") a notice (a "Claim Notice") describing in
reasonable detail the facts giving rise to the claim for indemnification
hereunder and shall include in such Claim Notice (if then known) the amount or
the method of computation of the amount of such claim and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed hereunder or in connection herewith upon which such claim is based;
provided, however, that a Claim Notice in respect of any action at law or suit
in equity by or against a third Person as
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to which indemnification will be sought shall be given promptly after the action
or suit is commenced and in accordance with Section 7.4.
(b) In calculating any Loss or Expense there shall be deducted (i)
any insurance recovery in respect thereof (and no right of subrogation shall
accrue hereunder to any insurer) and (ii) the amount of any Tax benefit to the
Indemnified Party (or any of its Affiliates) with respect to such Loss or
Expense (and increased to take into account any Taxes payable by the recipient
of any indemnity payment hereunder as a result of the receipt of such payment).
(c) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under this
Article VII shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of any
court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnitor shall agree. The judgment or decree of a
court shall be deemed final when the time for appeal, if any, shall have expired
and no appeal shall have been taken or when all appeals taken shall have been
finally determined. The Indemnified Party shall have the burden of proof in
establishing the amount of Losses and Expenses suffered by it.
SECTION 7.4. THIRD PERSON CLAIMS. (a) In order for an Indemnified
Party to be entitled to any indemnification provided for under this Agreement in
respect of, arising out of or involving a claim or demand made by any third
Person against the Indemnified Party (a "Third Person Claim"), such Indemnified
Party must notify the Indemnitor in writing of the Third Person Claim within 10
days after receipt by such Indemnified Party of written notice thereof. Any
notice of a Third Person Claim shall contain a reference to the provision of
this Agreement or any other agreement, document or instrument executed hereunder
or in connection herewith upon which such claim is based, the facts giving rise
to an alleged basis for the claim and (if then known) the amount of the
liability asserted against the Indemnitor by reason of the claim. Following such
notice of a Third Person Claim, the Indemnified Party shall deliver to the
Indemnitor, within five business days after the Indemnified Party's receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnified Party relating thereto. Notwithstanding the foregoing, should
a party be physically served with a complaint with regard to a Third Person
Claim, the Indemnified Party must notify the Indemnitor with a copy of the
complaint within five business days after receipt thereof and
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<PAGE>
shall deliver to the Indemnitor within seven business days after the receipt of
such complaint copies of notices and documents (including court papers) received
by the Indemnified Party relating to the Third Person Claim.
(b) In the event any legal proceeding shall be threatened or
instituted or any claim or demand shall be asserted in respect of a Third Party
Claim, the Indemnitor shall have the sole and absolute right after the receipt
of the notice required by Section 7.4(a), at its option and at its own expense,
to be represented by counsel of its choice and to control, defend against,
negotiate, settle or otherwise deal with any such proceeding, claim or demand;
provided, however, that the Indemnified Party may participate in any such
proceeding with counsel of its choice and at its expense. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such legal proceeding, claim or demand. To the
extent the Indemnitor elects not to defend such proceeding, claim or demand, and
the Indemnified Party defends against or otherwise deals with any such
proceeding, claim or demand, the Indemnified Party may retain counsel, at the
expense of the Indemnitor, and control the defense of such proceeding. Neither
the Indemnitor nor the Indemnified Party may settle any such proceeding which
settlement obligates the other party to pay money, to perform obligations or to
admit liability without the consent of the other party, which consent shall not
be unreasonably withheld. After any final judgment or award shall have been
rendered by a court, arbitration board or administrative agency of competent
jurisdiction and the time in which to appeal therefrom has expired, or a
settlement shall have been consummated, or the Indemnified Party and the
Indemnitor shall arrive at an agreement with respect to each separate matter
alleged to be indemnified by the Indemnitor hereunder, the Indemnified Party
shall forward to the Indemnitor notice of any sums due and owing by it with
respect to such matter and the Indemnitor shall pay all of the sums so owing to
the Indemnified Party by wire transfer, certified or bank cashier's check within
30 days after the date of such notice.
SECTION 7.5. LIMITATIONS. (a) In any case in which an Indemnified
Party recovers from third Persons any amount in respect of a matter with respect
to which an Indemnitor has indemnified it pursuant to this Article VII, such
Indemnified Party shall promptly pay over to the Indemnitor the amount so
recovered (after deducting therefrom the full amount of the expenses reasonably
incurred by it in procuring such recovery), but not in excess of the sum of (i)
any amount previously so paid
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<PAGE>
by the Indemnitor to or on behalf of the Indemnified Party in respect of such
matter and (ii) any amount expended by the Indemnitor in pursuing or defending
any claim arising out of such matter.
(b) Except for remedies that cannot be waived as a matter of law,
injunctive and provisional relief and as otherwise expressly set forth herein,
if the Closing occurs, this Article VII shall be the exclusive remedy for breach
of this Agreement (including any covenant, obligation, representation or
warranty contained in this Agreement) or otherwise in respect of the
contribution of the Contributed Assets contemplated hereby.
(c) Any payment by the Company or IPS under this Article VII shall be
treated by the Company and IPS as an adjustment to the Contributed Assets.
(d) To the extent of any inconsistency between this Article 7 and
Sections 5.3, 5.4 or 5.5, the provisions of Sections 5.3, 5.4 or 5.5, as the
case may be, shall control.
ARTICLE VIII
TERMINATION
-----------
SECTION 8.1. TERMINATION. Anything contained in this Agreement to
the contrary notwithstanding, this Agreement may be terminated at any time prior
to the Closing Date by the mutual consent of the Company and IPS. In the event
this Agreement shall be terminated, no party shall have any liability to any
other party hereunder.
ARTICLE IX
GENERAL PROVISIONS
------------------
SECTION 9.1. SURVIVAL OF OBLIGATIONS. Subject to the provisions of
Article VII, all representations, warranties, covenants and obligations
contained in this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
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<PAGE>
SECTION 9.2. NOTICES. All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered personally or when sent by registered or certified mail
or by private courier addressed as follows:
If to the Company, to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Attention: Chief Executive Officer
with a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Attention: General Counsel
If to FDC or to IPS to:
First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68164
Attention: General Counsel
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
SECTION 9.3. SUCCESSORS AND ASSIGNS. (a) The rights of either party
under this Agreement shall not be assignable by such party hereto without the
written consent of the other party, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, (i) FDC and IPS may assign all their
respective rights and delegate their respective duties and obligations hereunder
to any of their Affiliates, provided such Affiliate remains an Affiliate of FDC
and IPS after such an assignment and that notwithstanding such assignment FDC
and IPS, respectively, shall remain primarily liable for all of their respective
obligations hereunder; and (ii) subsequent to the consummation of the offering
in accordance with the Registration Statement, the Company may assign all its
rights and delegate its duties and obligations hereunder to any of its
Affiliates or to any Person who purchases substantially all of the Business,
provided the assignee agrees to be bound in writing to the terms and conditions
set forth in this Agreement, and, notwithstanding
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such assignment, the Company shall remain primarily liable for all of its
obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. Except as to any
Company Group Member or IPS Group Member entitled to indemnity under Article
VII, nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any Person other than the parties and successors and
assigns permitted by this Section 9.3 any right, remedy or claim under or by
reason of this Agreement.
SECTION 9.4. ACCESS TO RECORDS AFTER CLOSING. (a) For a period of six
years after the Closing Date or, in the case of books and records relating to
Taxes, until the expiration of all applicable statutes of limitation and
carryback and carryforward periods, IPS, FDC and their Affiliates and their
respective representatives shall have reasonable access to all of the books and
records of the Business to the extent that such access may reasonably be
required by IPS or its Affiliates in connection with matters relating to or
affected by (i) the operations of the Business prior to the Closing Date and
(ii) Sections 5.3, 5.4, 5.5 or 5.6. Such access shall be afforded by the Company
upon receipt of reasonable advance written notice and during normal business
hours. IPS shall be solely responsible for any costs or expenses incurred by it
pursuant to this Section 9.4(a). If the Company shall desire to dispose of any
of such books and records prior to the expiration of such six-year period or
applicable statutes of limitation and carryback and carryforward periods, as the
case may be, the Company shall, prior to such disposition, give IPS a reasonable
opportunity, at IPS' expense, to segregate and remove such books and records as
IPS may select.
(b) For a period of six years after the Closing Date, or, in the case
of books and records relating to Taxes, until the expiration of all applicable
statutes of limitation, the Company and its representatives shall have
reasonable access to all of the books and records relating to the Business which
IPS or any of its Affiliates may retain after the Closing Date. Such access
shall be afforded by IPS and its Affiliates upon receipt of reasonable advance
written notice and during normal business hours. The Company shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
9.4(b). If IPS or any of its Affiliates shall desire to dispose of any of such
books and records prior to the expiration of such six-year period or applicable
statutes of limitation, as the case may be, IPS shall, prior to such
disposition, give the Company a reasonable
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<PAGE>
opportunity, at the Company's expense, to segregate and remove such books and
records as the Company may select.
SECTION 9.5. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the
Exhibits and Schedules referred to herein and the agreements and documents
delivered pursuant hereto contain the entire understanding of the parties hereto
with regard to the subject matter contained herein or therein, and supersede all
other prior agreements, understandings or letters of intent between or among any
of the parties hereto. Except as provided in Section 4.2, this Agreement shall
not be amended, modified or supplemented except by a written instrument signed
by an authorized representative of each of the parties hereto.
SECTION 9.6. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
SECTION 9.7. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of IPS and the Company.
SECTION 9.8. FURTHER ASSURANCES. On and after the Closing Date each
party hereto shall take such other actions and execute such other documents and
instruments of conveyance and transfer as may be reasonably requested by the
other party hereto from time to time to effectuate or confirm the transfer of
the Contributed Assets to the Company and the issuance of shares of Common Stock
to IPS in accordance with the terms of this Agreement.
SECTION 9.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
laws provisions) of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
FIRST DATA CORPORATION
By _____________________________
Name:
Title:
INTEGRATED PAYMENT SYSTEMS INC.
By _____________________________
Name:
Title:
MONEYGRAM PAYMENT SYSTEMS, INC.
By _____________________________
Name:
Title:
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<PAGE>
Exhibit 5.1
[LETTERHEAD OF SIDLEY & AUSTIN]
December 4, 1996
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Ladies and Gentlemen:
We have acted as special counsel to MoneyGram Payment Systems, Inc., a
Delaware corporation (the "Company"), in connection with the registration of the
offer and sale of up to 16,625,000 shares of Common Stock, par value $.01 per
share, of the Company (the "Shares") by Integrated Payment Systems Inc., a
Delaware corporation (the "Selling Stockholder"), pursuant to a Registration
Statement on Form S-1 (Registration No. 333-228), as amended, filed with the
Securities and Exchange Commission (the "Commission") and to which this opinion
appears as Exhibit 5.1 (the "Registration Statement").
We have examined originals or certified or photostatic copies of such
records of the Company, certificates of officers of the Company and public
officials and such other documents as we have deemed relevant or necessary as
the basis of the opinion set forth below. In such examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures, the legal capacity of all natural persons and the conformity
with the original documents of any copies thereof submitted to us for our
examination. Based on the foregoing, we are of the following opinion:
The Shares will be legally issued, fully paid and nonassessable when
(i) the Company's Board of Directors shall have adopted final
resolutions authorizing the issuance of 16,624,900 of the Shares to
the Selling Stockholder pursuant to the Contribution Agreement among
the Company, First Data Corporation and the Selling Stockholder (the
"Contribution Agreement"), (ii) the transactions contemplated by the
Contribution Agreement shall have been duly consummated and (iii)
certificates representing the Shares shall have been duly executed,
countersigned and registered and duly delivered to the Selling
Stockholder against receipt of the consideration provided therefor in
the Contribution Agreement.
<PAGE>
MoneyGram Payment Systems, Inc.
December 4, 1996
Page 2
We do not find it necessary for purposes of this opinion to cover, and
accordingly we express no opinion as to, the application of the securities or
blue sky laws of the various states or the District of Columbia to the sale of
the Shares.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and the reference to this Firm under the heading "Legal
Matters" in the Prospectus constituting part of the Registration Statement. In
giving such consent, we do not thereby admit that we are within the category of
persons from whom consent is required by Section 7 of the Securities Act of
1933, as amended, or the related rules promulgated by the Commission.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SIDLEY & AUSTIN]
December 4, 1996
First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68164
Ladies and Gentlemen:
You have requested our opinion as to whether the transfer of assets
described below will be treated as a taxable sale for federal income tax
purposes and, if it is so treated, whether the "anti-churning" rules under
Section 197(f)(9) of the Internal Revenue Code of 1986, as amended (the "Code"),
will apply to certain intangible assets included in the transfer. Capitalized
terms not otherwise defined herein have the meanings specified in the Prospectus
included in the Registration Statement to which this opinion is filed as an
exhibit.
Facts
- -----
First Data Corporation, a Delaware corporation ("FDC"), operates a
consumer money transfer business (the "MoneyGram Business") through its wholly-
owned subsidiary Integrated Payment Systems Inc., a Delaware corporation
("IPS"). The MoneyGram Business involves the transfer of funds through a network
of agents (each, a "MoneyGram Agent") located in the United States and abroad.
The services of the MoneyGram Agents are provided to the MoneyGram Business in
accordance with contracts with each of the MoneyGram Agents (the "Agent
Contracts"). We have assumed for purposes of this opinion that the MoneyGram
Business was held or used by IPS on July 25, 1991. For purposes of this opinion,
we have also assumed that any intangible assets transferred in the proposed
transaction described below were held or used by IPS on July 25, 1991./1/
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/1/ As of April 13, 1992, IPS operated the MoneyGram Business, except that
for state licensing reasons American Express Travel Related Services Company,
Inc., a New York corporation ("TRS"), which is a subsidiary of American Express
Company, continued to hold the Agent
(continued...)
<PAGE>
In connection with FDC's acquisition of First Financial Management
Corporation in 1995, FDC entered into a consent decree with the Federal Trade
Commission pursuant to which FDC has determined to divest the MoneyGram
Business.
FDC will accomplish this divestiture through the transfer (the
"Contribution") by IPS and its affiliates of the assets of the MoneyGram
Business to MoneyGram Payment Systems, Inc., a Delaware corporation ("Company"),
followed by the sale by IPS of at least 87% of the stock of Company to the
public (the "Offering"). IPS formed Company in January 1996 for this purpose.
Company has 100 shares of common stock issued and outstanding, all of which are
currently held by IPS. Company currently holds no assets (other than a nominal
amount of capital) and conducts no business. You have advised us that its only
activities since its organization in January 1996 have been being a registrant
under a Registration Statement filed with the Securities and Exchange Commission
in connection with the Offering (the "Registration Statement"), qualifying to do
business in various states (although not conducting any business) and preparing
licensing applications.
The divestiture will be accomplished as follows:
(1) On Business Day 1, the Registration Statement will be in final form
(other than pricing and price-related information). After the market closes
on Business Day 1 (in order):
(i) The Offering will be priced and the underwriting agreement (the
"Underwriting Agreement") will be executed by the underwriters
named therein (the "Underwriters"), IPS and Company. The
Underwriting Agreement will require IPS to sell at least
14,463,750 shares (approximately 87%) of the outstanding
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/1/ (...continued)
Contracts and licenses relating to (among other things) the MoneyGram Business.
Since April 13, 1992, TRS has not performed any services or engaged in any
activities related to the MoneyGram Business other than merely holding the
licenses and Agent Contracts and managing certain funds held pending payment to
third parties, and since that date IPS has had all the economic benefits and
burdens associated with the MoneyGram Business. In view of the foregoing, it
appears likely that IPS would be deemed to be the holder or user of the
MoneyGram Business as of April 13, 1992. Additionally, we understand that a
similar arrangement was in effect during the period from July 25, 1991 (or
earlier) through April 13, 1992. Even if TRS held or used the MoneyGram Business
during that period, it would not affect the conclusions of this opinion.
Prior to the transfer described below, the Agent Contracts will be
transferred from TRS to IPS. As described more fully below, IPS will continue to
hold the Agent Contracts and licenses (but not the economic rights related
thereto) pending their transfer in the transaction as described below.
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<PAGE>
Company common stock to the Underwriters for resale to the
public in the Offering pursuant to a "firm commitment"
underwriting. The terms and conditions of the Underwriting
Agreement were negotiated at arm's-length and, in our
experience, are customary for a "firm-commitment" underwriting.
We have assumed that the Underwriting Agreement will be binding
on the parties thereto in accordance with its terms. IPS will
also grant to the Underwriters an option to purchase from IPS
the remaining 2,161,250 shares (approximately 13%) of Company
common stock outstanding to cover over-allotments in the
Offering.
(ii) IPS will thereafter make the Contribution, whereby IPS will
transfer to Company $12 million of cash, and IPS and certain of
its affiliates will transfer to Company assets relating to the
MoneyGram Business. In exchange, Company will assume related
liabilities and issue to IPS 16,624,900 shares of Company
common stock.
(iii) Ernst & Young will release an unlegended opinion on the
financial statements in the Registration Statement.
(iv) A pre-effective amendment to the Registration Statement, which
includes the Ernst & Young opinion and all pricing information,
will be prepared.
(2) On Business Day 2, the pre-effective amendment will be filed with the
Securities and Exchange Commission and will be declared effective by 9:30
a.m. The final prospectuses will be printed and the Underwriters will
confirm the purchases.
(3) On Business Day 5, the Offering (other than, perhaps, any shares
subject to the over-allotment option) will close. The Offering will be a
"secondary offering" by and for the benefit of IPS. IPS will receive all
the net proceeds from the Offering. Company will not sell any of its own
shares to the Underwriters or to the public, and will be entitled to none
of the proceeds of the Offering. For purposes of this opinion, we have
assumed that neither the Underwriters nor any purchaser in the Offering (or
pursuant to the over-allotment option) is or will be related in any
material way to FDC or its subsidiaries.
(4) Within 30 days after the Underwriting Agreement becomes effective, the
over-allotment option may be exercised. The Underwriters may exercise the
option solely to cover over-allotments, if any, made in connection with the
Offering.
3
<PAGE>
After the consummation of the Offering, FDC will have certain
transition arrangements with the Company described below (the Contribution and
such transition arrangements are collectively referred to as the "Transition").
We have assumed that the transition arrangements will approximate the terms of
arm's-length negotiations and will be consistent with commercial practice (or,
if not, will have terms which are more favorable to Company and do not give FDC
or its affiliates any of the economic benefits and burdens associated with the
MoneyGram Business or its assets). We have also assumed that, except for the
arrangements described below, there will be no ongoing relationships between
Company and any third party pursuant to which any third party will have any
right to use any MoneyGram Asset or will have any of the economic benefits and
burdens associated with the MoneyGram Business or its assets following the
Contribution. We understand, however, that the MoneyGram Agents have the right
to use certain service marks that are being transferred to Company in the
Contribution. We also understand that certain MoneyGram Agents will receive fees
based on foreign currency revenues associated with transactions effected through
such Agents.
Consent Decree. Upon the consummation of the Offering, the consent
decree requires FDC to, among other things, make available to Company for a
period of up to six months, at no additional cost, such personnel, assistance,
and training as is reasonably necessary to transfer technology and knowledge of
the MoneyGram Business.
Operations Agreement. Under the Operations Agreement among IPS,
Company and First Data Technologies, Inc., a wholly-owned subsidiary of FDC, IPS
or its affiliates will perform for Company data processing services, certain
disaster recovery services, voice center services and certain corporate support
services. Under the Operations Agreement, Company has agreed to grant to IPS,
for the term of the Operations Agreement, a non-exclusive, royalty-free license
to use certain software. IPS has agreed, at the request of Company, to negotiate
in good faith the terms of additional data processing and other services
relating to a money order offered by Company on terms (including price) to be
negotiated between the parties.
IPS will continue to be a party to all Agent Contracts, hold all
required licenses to operate the MoneyGram Business and perform certain
management services for Company. IPS will do so in order for the MoneyGram
Business to be in compliance with applicable licensing and other legal
requirements until such time as Company is fully licensed in all applicable
jurisdictions to own and operate a consumer money wire transfer service in its
own name. Other activities relating to the MoneyGram Business, including
pricing, selecting and negotiating with MoneyGram Agents, determining
commissions to be paid to MoneyGram Agents and substantially all customer
service center services, will be conducted by Company. The Operations Agreement
requires IPS to pay Company the fees received by IPS from customers in respect
of all MoneyGram transactions. Foreign exchange revenues in respect of all such
transactions will be paid by IPS to Company as such revenues are collected by
IPS.
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<PAGE>
Company will pay the MoneyGram Agents the commissions and other amounts payable
on account of MoneyGram transactions in accordance with the terms of the
applicable Agent Contract and will pay IPS the amount due or payable to First
Data under the Operations Agreement.
The Operations Agreement will have a two-year term unless earlier
terminated by Company or First Data. Company is obligated to obtain all
necessary licenses to commence owning and operating the MoneyGram Business in
its own name on or prior to the expiration of such two-year term. In general,
after the expiration of the two-year term, IPS will have no further obligation
to provide the management services described above or to allow Company or any
MoneyGram Agent to continue to sell any IPS denominated product. The Operations
Agreement does provide, however, that at the request of Company, IPS will
negotiate in good faith to extend the term of the Operations Agreement or
negotiate a similar agreement with Company upon terms to be agreed upon by
Company and IPS.
IPS will charge Company fees and expenses for services rendered under
the Operations Agreement which reflect estimates of the actual costs of
providing such services (and will not be based on receipts, income, etc. of
Company). IPS will be entitled to certain investment income with respect to
funds (Fiduciary Funds) held in connection with the MoneyGram Business. We have
assumed that any compensation paid to IPS or any affiliate of IPS in connection
with, and any other terms relating to, additional services negotiated between
IPS and Company, extensions of the Operations Agreement, or any similar
agreement will reflect arm's-length negotiations, will be consistent with
commercial practice and will not give IPS or any affiliate thereof any economic
benefits or burdens associated with the MoneyGram Business.
As a result of the foregoing, we understand that, although IPS will be
a party to all Agent Contracts, hold licenses and perform certain services,
neither IPS nor any affiliate of IPS will enjoy any economic benefits or burdens
attributable to the MoneyGram Business. Company alone will be entitled to the
economic benefits and burdens of the MoneyGram Business following the
Contribution.
Software License Agreement. IPS will not transfer software which is
used in processing MoneyGram transactions and which IPS also uses in processing
its money order payment products in the Contribution. Pursuant to a Software
License Agreement between IPS and Company, IPS will grant Company a perpetual,
irrevocable, world-wide, nonexclusive, royalty-free license to use such software
in the MoneyGram Business or for any other purpose.
Short-Term Working Capital Facility. Pursuant to the Short-Term
Working Capital Facility between FDC and Company, Company may borrow up to $20
million from time to time on a revolving basis. Interest will be payable on any
such borrowings at prime plus one percentage point. The Facility will terminate
180 days
5
<PAGE>
from the consummation of the Offering, at which time all outstanding borrowings
will have to be repaid or refinanced by Company.
Service Mark Letter Agreement. Certain service marks are used in the
MoneyGram Business and will be transferred to Company pursuant to the
Contribution Agreement. Some of the service marks used in the MoneyGram Business
(the "Disputed Marks") are used concurrently by Western Union, a principal
competitor of the MoneyGram Business and an indirect, wholly-owned subsidiary of
FDC. IPS's rights, if any, in the Disputed Marks will be transferred to Company
pursuant to the Contribution Agreement. Although there are currently no disputes
regarding the use by the MoneyGram Business of the Disputed Marks, the rights to
the Disputed Marks are unsettled. Pursuant to the Service Mark Letter Agreement
between FDC and Company, FDC and Company have agreed not to sue the other or its
affiliates in respect of the Disputed Marks during the two-year period following
the Offering specified in the Service Mark Letter Agreement (or thereafter in
respect of any use of such service marks during such two-year periods). In
addition, Company will have the option to cause Western Union to enter into a
Service Mark License Agreement under which it will be acknowledged that the
ownership of the Disputed Marks vests in Western Union and Western Union will
license Company the use of certain service marks in certain languages and
Western Union will agree not to use certain service marks in certain languages.
Human Resources Agreement. Pursuant to the Human Resource Agreement
among Company, IPS and FDC, certain employees and their related benefits will be
transferred from IPS and FDC to the Company.
Telecommunications Services Sharing Agreement. Pursuant to the
Telecommunications Services Sharing Agreement between Company and FDC, FDC will
cooperate and use reasonable efforts to facilitate the provision of
telecommunication services to Company under FDC's agreements with its various
providers.
Discussion
- ----------
FDC intends that the Contribution qualify as a taxable sale to Company
pursuant to Section 1001,/2/ rather than a transfer described in Section 351(a).
If the Contribution were treated as a transfer described in Section 351(a), in
general the assets transferred to Company would have a tax basis equal to the
tax basis of those assets in the hands of IPS./3/ If, however, the Contribution
were treated as a taxable sale, the tax
- ----------------
/2/ Unless otherwise indicated, all "Section" references are references to
sections of the Code.
/3/ Section 362(a).
6
<PAGE>
basis of the transferred assets in the hands of Company would be increased to
their fair market value./4/
Subject to the following sentence, it is anticipated that the tax
basis of intangible assets transferred to Company in the Contribution will be
amortized by Company for federal income tax purposes under Section 197. However,
if the "anti-churning" rules under Section 197(f)(9) apply to the Contribution,
the tax basis of certain intangible assets transferred to Company in the
Contribution could not be amortized under Section 197.
This opinion analyzes (i) whether the Contribution will be treated as
a taxable sale pursuant to Section 1001 rather than as a transfer described in
Section 351(a) and (ii) assuming the Contribution will be treated as a taxable
sale, whether the "anti-churning rules" under Section 197(f)(9) will apply to
the Contribution so that certain intangible assets of Company will not be
amortizable under Section 197.
I. Taxable Sale or Section 351 Transaction
---------------------------------------
Section 351 provides that "[n]o gain or loss shall be recognized if
property is transferred to a corporation by one or more persons solely in
exchange for stock in such corporation and immediately after the exchange such
person or persons are in control (as defined in section 368(c)) of the
corporation." "Control" means the ownership of stock possessing at least 80% of
the total combined voting power of all classes of stock entitled to vote and at
least 80% of the total number of shares of each other class of stock of the
corporation./5/ However, the 80% control requirement will not be met if,
pursuant to a prearranged binding agreement that is an integral part of the
transfer, the person or persons transferring property to the corporation
transfer a portion of the stock received to a third party and, as result, do not
retain "control" of the corporation./6/
- ----------------
/4/ Section 1012.
/5/ Section 368(c).
/6/ Rev. Ruling 79-70, 1979-1 C.B. 144. Earlier Revenue Rulings issued by the
Internal Revenue Service indicated that any "prearranged plan" to transfer the
shares to a third party would be taken into account in determining whether the
control requirement was met. See Rev. Ruling 70-140, 1970-1 C.B. 73. Later
Revenue Rulings, however, clarify that prearranged binding agreements entered
into prior to the exchange will be taken into account, but that merely the
intent to transfer the stock received will not, even when the stock is actually
transferred within a relatively short period of time. See Rev. Ruling 79-70,
1979-1 C.B. 144; Rev. Ruling 78-294, 1978-2 C.B. 141; PLR 9549031 (Sept. 12,
1995); PLR 9405007 (Oct. 19, 1993); PLR 9142013 (July 17, 1991). Under Section
6110(j)(3), private letter rulings may not be used or cited as precedent. They
are useful, however, in ascertaining the position of the Internal Revenue
Service on the issues therein
7
<PAGE>
IPS will enter into the Underwriting Agreement prior to the
Contribution, as an integral part of the Contribution, pursuant to which IPS
will commit to sell, and the Underwriters will commit to purchase, at least 87%
of the common stock (which is the only class of stock) of Company. The terms and
conditions of the Underwriting Agreement were negotiated at arm's-length and, in
our experience, are customary for a "firm-commitment" underwriting, and we have
assumed that the Underwriting Agreement will be binding on the parties thereto
in accordance with its terms./7/
Therefore, based on the foregoing, IPS will not be in "control" of
Company immediately after the Contribution as required by Section 351(a)./8/ As
a consequence, the Contribution will not qualify as a transaction described in
Section 351(a) and will instead be treated as a taxable sale of the assets of
the MoneyGram Business to Company./9/ Accordingly, Company will take a tax basis
in the transferred assets equal to Company's cost for the MoneyGram Assets (that
is, their fair market value at the time of the Contribution)./10/
II. Section 197(f)(9) - Anti-churning Rules
---------------------------------------
A. General Rules
-------------
Section 197(a) provides that a taxpayer generally is entitled to an
amortization deduction with respect to any "amortizable Section 197 intangible"
- ----------------
/6/ (...continued)
addressed.
/7/ We do not believe that the provisions of the Underwriting Agreement
setting out conditions to each party's obligations under the Underwriting
Agreement or setting out circumstances under which the Underwriting Agreement
could be terminated will cause the Underwriting Agreement to fail to be a
binding agreement. Under the terms of the Underwriting Agreement and our
understanding of general commercial practice, we do not believe that those
provisions (or any others in the Underwriting Agreement) will provide either
party with meaningful discretion as to whether it will sell or purchase, as the
case may be, Company stock pursuant to the Underwriting Agreement in the absence
of events outside the control of such party. Cf. Notice 90-6, 1990-1 C.B. 304;
PLR 9437044 (June 23, 1994); PLR 9405007 (Oct. 19, 1993); PLR 9142013 (July 17,
1991).
/8/ The fact that there are four days between the Contribution and the
consummation of the Offering should not affect the analysis. There is no
indication in any of the authorities that the Offering must take place on the
same day as the Contribution, only that such sale must be pursuant to a binding
obligation entered into prior to the Contribution. See Rev. Ruling 79-70, 1979-
1 C.B. 144.
/9/ Treasury Regulation Section 1.351-1(a)(3) should not apply to the
Contribution because Company is not issuing stock for cash in the Offering.
/10/ Section 1012.
8
<PAGE>
calculated by amortizing the adjusted basis of such intangible ratably over the
15-year period beginning with the month in which such intangible was acquired.
In general, an "amortizable Section 197 intangible" is any "Section 197
intangible" which (i) is acquired by the taxpayer after August 10, 1993 and is
held in connection with the conduct of a trade or business or, in general, for
the production of income (Section 197(c)(1)), (ii) is not a "self-created
intangible" (Section 197(c)(2)) and (iii) is not subject to anti-churning rules
described below (Section 197(c)(3)).
A "Section 197 intangible" generally includes (subject to certain
exceptions) goodwill, going concern value, workforce in place, business books
and records, operating systems, customer lists, patents, copyrights, knowhow and
similar items, licenses, permits and other rights granted by a governmental unit
or agency, and any franchise, trademark or trade name.
For purposes of this opinion, we have assumed that each of the
intangible assets transferred to Company in the Contribution is a "Section 197
intangible" within the meaning of Section 197. Each of those intangibles will be
acquired by Company after August 10, 1993 and we have further assumed that each
will be used in Company's trade or business or for the production of income
(under Section 197(c)(1) of the Code) and that none will be a self-created
intangible (under Section 197(c)(2) of the Code). Therefore, the intangible
assets transferred to Company in the Contribution should generally be
amortizable under Section 197 as "amortizable Section 197 intangibles" unless
such assets are subject to the anti-churning rules described below.
Section 197(f)(9)(A) provides "anti-churning" rules which provide that
an "amortizable Section 197 intangible" does not include any goodwill, going
concern value or other intangible for which depreciation or amortization would
not have been allowed but for Section 197, which is acquired after August 10,
1993 if any one of the following three tests is met:
(i) The intangible was held or used at any time on or after July 25,
1991, and on or before August 10, 1993, by the taxpayer or a related
person.
(ii) The intangible was acquired from a person who held such intangible
at any time on or after July 25, 1991, and on or before August 10,
1993, and, as part of the transaction, the user of such intangible
does not change.
(iii) The taxpayer grants the right to use such intangible to a person (or
a person related to such person) who held or used such intangible at
any time on or after July 25, 1991, and on or before August 10,
1993.
9
<PAGE>
In addition, an "amortizable Section 197 intangible" does not include any
Section 197 intangible acquired in a transaction one of the principal purposes
of which is to avoid the anti-churning rules./11/
Therefore, as discussed more fully below, no amortization under
Section 197 will be allowed with respect to goodwill, going concern value or
other intangibles included in the MoneyGram assets for which depreciation or
amortization would not have been allowed but for Section 197 (hereinafter,
collectively "MoneyGram Goodwill") if any of the foregoing three tests is met or
if the anti-abuse rule described above is met. Those tests, and the anti-abuse
rule, are analyzed below.
B. Analysis
--------
1. Intangibles Held or Used by a Related Person
--------------------------------------------
The anti-churning rules will apply if, under the first test stated
above, the MoneyGram Goodwill was held or used at any time on or after July 25,
1991, and on or before August 10, 1993, by Company or a related person. As noted
above, we have assumed for purposes of this opinion that some amount of
MoneyGram Goodwill was held or used by IPS on July 25, 1991. Thus, the MoneyGram
Goodwill will be subject to the anti-churning rule if IPS is "related" to
Company for purposes of that test.
For purposes of the anti-churning rules, a person (the "related
person") is "related" to another person if two conditions are met. First, the
related person must bear a relationship to such person under either of two
alternative tests. One alternative is specified in Section 267(b) (applied after
making certain adjustments). Under Section 267(b) (after making such
adjustments), two corporations are related if they are members of a group of
corporations connected through stock ownership with a common parent corporation
where 20% or more of the voting power or value of the stock of each corporation
in the group other than the parent is owned by one or more corporations in the
group, and the common parent owns at least 20% of the voting power or value of
the stock of one of the other corporations in the group./12/ The other
alternative is Section 197(f)(9)(C)(i)(II), which provides that a person is
related to another person if "the related person and such person are engaged in
trades or businesses under common control (within the meaning of subparagraphs
(A) and (B) of section 41(f)(1))." In the case of two corporations, "trades or
businesses under common
- ----------------
/11/ Section 197(f)(9)(F).
/12/ See Sections 197(f)(9)(C)(i)(I), 267(b)(3), 267(f), and 1563(a). Special
rules, not applicable here, would apply if ownership were between 20% and 50%.
10
<PAGE>
control" means a parent-subsidiary group that is related by at least 50% stock
ownership./13/
Second, two persons are related for purposes of the anti-churning
rules of Section 197(f)(9) "if such relationship exists immediately before or
immediately after the acquisition of the intangible involved."/14/
There are currently no regulations interpreting Section 197(f)(9). Its
legislative history provides little guidance except to state that "[i]n addition
to these rules [referring to the rules explicitly set out in the statute] , it
is anticipated that rules similar to the anti-churning rules under Section 168
of the Code will apply in determining whether persons are related (See Prop.
Treas. Reg. 1.168-4 (February 16, 1984))."/15/
Subject to the discussion below, IPS (a party holding or using the
property at some time between July 25, 1991 and August 10, 1993) might be viewed
as "related" to Company under both relationship tests set out above. In form,
IPS will own at least 20% of the stock of Company (by voting power or value)
both immediately before and immediately after the Contribution. Likewise, in
form, IPS and Company will be engaged in trades or businesses under common
control (because IPS will own at least
- ----------------
/13/ See Section 41(f)(1)(B), Treasury Regulation (S) 1.41-8(a)(3), and
Treasury Regulations (S) 1.52-1(b) and (c).
/14/ Section 197(f)(9)(C)(ii).
/15/ Conference Report of the Committee on the Budget, House of
Representatives, to Accompany H.R. 2264, Omnibus Reconciliation Act of 1993,
H.Rep. No. 103-213, 103d Cong., 1st Sess. (August 4, 1993) (hereinafter, "Conf.
Rept.") at 692 n. 32. The 1984 proposed regulations under Section 168 cited in
the legislative history relate to the anti-churning rules under Section
168(e)(4), as previously in effect, and generally exclude from the Accelerated
Cost Recovery System (among other things) certain property acquired by a
taxpayer in certain churning transactions. Those rules apply where the property
was owned or used by the taxpayer or a related person and, for that purpose,
persons are related if they bear a specified relationship or are engaged in
trades or businesses under common control.
Proposed Treasury Regulation (S) 1.168-4(d)(6) states, as a general rule,
that persons are related if they bear a relationship specified in section 267(b)
(subject to certain modifications) and that "[i]n general, persons are related
if they are related either immediately before or immediately after the
taxpayer's acquisition of the property in question." We reviewed the rules set
forth in Proposed Treasury Regulation (S) 1.168-4(d) and the related examples.
Except to the limited extent discussed or cited below, none was directly
relevant to the application of the anti-churning rules in this transaction. In
addition, we have found no relevant authority applying the related party rules
under Section 168.
11
<PAGE>
50% of the stock of Company (by voting power or value) both immediately before
and immediately after the Contribution.
The central question, however, is whether, under the facts of the
proposed transaction, Company should be treated as related to IPS "immediately
before or immediately after" the Contribution for purposes of Section
197(f)(9)(C)(ii) of the Code, notwithstanding such ownership in form.
We found no authority directly addressing the question of whether
Company should be treated as related to IPS under Section 197(f)(9)(C)(ii) of
the Code. There is minimal authority or commentary discussing the "immediately
before or immediately after" requirement,/16/ and one commentator noted the
anti-churning issue that arises in transactions similar to the one in
question./17/ However, for the reasons discussed below, we believe that,
although not clear, Company should not be treated as related to IPS either
immediately before or immediately after the Contribution for purposes of Section
197(f)(9)(C)(ii) of the Code.
a. Binding Contract
----------------
Prior to the Contribution, IPS will have entered into a binding
contract to sell to the Underwriters approximately 87% of the common stock of
Company (which, other than 100 shares previously outstanding, will be received
by IPS as a result of the Contribution).
As discussed above under "Taxable Sale or Section 351 Transaction",
Section 351 requires that those transferring assets to a corporation own stock
representing control of the corporation "immediately after" the transfer, and
that the control requirement is not satisfied where those transferring the
assets are, at the time of the transfer, under a pre-existing binding agreement
to sell more than 20% of the corporation's stock following the transfer./18/
Because both the control requirement
- ----------------
/16/ See Avi-Yonah, 533 T.M., Amortization of Intangibles (stating on page
A-18 that "[t]he determination of whether a relationship exists is made
immediately before or immediately after the acquisition of the intangible, so
that the rule cannot be avoided by acquiring the intangible simultaneously with
entering into or leaving a related-party status").
/17/ 94 TNT 201-25, AICPA Comments on Issues to be Covered in Intangible
Amortization Regs. (Release Date: October 7, 1994)(proposing that the scope of
the "immediately before or immediately after" rules be limited so as to prevent
its application where a business is sold in a failed Section 351 transaction).
/18/ See Rev. Ruling 79-70, 1979-1 C.B. 144.
12
<PAGE>
under Section 351/19/ and the status of two corporations as "related" for
purposes of Section 197/20/ depend on stock ownership, and because both tests
look to ownership "immediately after" a transfer of assets, a pre-existing
binding agreement to sell stock should result in the corporations not being
related "immediately after" the acquisition for purposes of Section 197 as well
as for purposes of Section 351. Under that rationale, Company and IPS should not
be treated as related immediately after the Contribution for purposes of Section
197.
Just as the binding agreement to sell Company stock should defeat the
relationship immediately after the Contribution for purposes of Section 197, it
should likewise defeat the relationship immediately before the Contribution.
Immediately before the Contribution, the binding agreement will be in effect to
sell approximately 87% of the stock of Company. The fact that there was some
period during which IPS owned 100 shares (i.e., all of the issued and
outstanding shares) of Company stock free of the binding agreement should not
alter that result. See discussion below under "Transitory Nature of IPS's Stock
Holding in Company."
The Internal Revenue Service ("IRS") has recognized in another area
that a binding agreement causes the relationship between two parties to be
disregarded. In private letter rulings the IRS has disregarded the relationship
between two parties in order to allow an election to be made under Section
338(h)(10)./21/ In general, a parent corporation cannot sell stock in a wholly-
owned subsidiary to another of its wholly-owned subsidiaries and make an
election under Section 338(h)(10), because the parent and the purchasing
subsidiary are related through stock ownership in a way prohibited by the
Code./22/ The IRS, however, has considered situations where a parent corporation
transferred stock in its wholly-owned subsidiary ("Subsidiary") to an inactive,
newly formed and wholly-owned subsidiary ("Newco") and immediately after the
transfer, and pursuant to a pre-existing binding agreement, sold the stock of
Newco to a third party (in one case to the public pursuant to a firm commitment
underwriting agreement). Because of the pre-existing binding agreement to sell
the stock of Newco, the transfer was a taxable sale of the stock of Subsidiary
rather than a Section 351 transaction. The IRS ruled that the parent corporation
and Newco would not be treated
- ----------------
/19/ See Section 368(c).
/20/ See Sections 41(f)(1)(A) and (B), 267 and 1563 and Treasury Regulation
Sections 1.41-8(a)(3) and 1.52-1(b) and (c).
/21/ In general, if an election under Section 338(h)(10) is made, a taxable
sale of stock is treated for federal income tax purposes as a taxable sale of
the underlying assets of the corporation being sold.
/22/ Section 338(h)(3)(A)(iii) ("the stock is not acquired from a person the
ownership of whose stock would, under Section 318(a) (other than paragraph (4)
thereof), be attributable to the person acquiring such stock"). See Section
318(a)(3)(C).
13
<PAGE>
as having the relationship prohibited by the Code and allowed the parent
corporation and Newco to make an election under Section 338(h)(10) with respect
to the transfer to Newco of the stock of Subsidiary./23/ In those rulings, the
IRS disregarded the parent corporation's ownership of Newco so that the Section
338(h)(10) election could be made. The IRS appears to base these rulings on the
fact that the parent corporation had entered into a legally binding agreement to
dispose of the stock of Newco and on the transitory nature of the parent
corporation's ownership of Newco prior to the transaction. Utilizing the same
reasoning, IPS's ownership of Company's stock should be disregarded due to the
binding agreement to dispose of Company stock and (as discussed below) the
transitory nature of Company prior to the Contribution.
The applicability of the foregoing authorities to the present
transaction depends on the extent to which the purpose of the requirements of
Section 351 and Section 338 are aligned with the purpose of the anti-churning
rules of Section 197. Although the concepts are similar, it is difficult to say
with certainty that the purposes are strongly aligned. A binding agreement to
sell stock does not defeat ownership for all federal income tax purposes.
Therefore, while helpful, the foregoing authorities are not conclusive in the
present transaction.
b. Transitory Nature of IPS's Stock Holding in Company
----------------------------------------------------
Although a corporation generally will not be disregarded for federal
income tax purposes if it is duly organized under applicable law and conducts
some commercial activity,/24/ where a corporation conducts no business it is
often disregarded for federal income tax purposes./25/
In the private letter rulings discussed above under "Binding
Contract", the newly formed subsidiaries were shell corporations with a nominal
amount of capital and, except for activities incident to the contemplated
transactions, conducted no activities and carried on no business prior to the
closing of the transactions. The newly formed subsidiaries therefore were
disregarded for purposes of applying the rules under Section 338 and related
provisions of the Code.
- ----------------
/23/ See PLR 9541039 (July 20, 1995) as modified by PLR 9549031 (Sept. 12,
1995) (stock sold to ESOP); PLR 9142013 (July 17, 1991) (stock sold in a public
offering pursuant to a firm commitment underwriting).
/24/ See, e.g., Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943);
National Carbide Corp. v. Commissioner, 336 U.S. 422 (1949).
/25/ See, e.g., Treas. Reg. (S) 1.6012-2(a)(2) (A corporation that has
received a charter but has never perfected its organization and has transacted
no business and has no income may not have to file a tax return. A corporation
that has ceased business and dissolves, retaining no assets, does not have to
file even if it is still a continuing corporation for certain state law
purposes.)
14
<PAGE>
Transitory and inactive subsidiaries have also been disregarded in the
context of Subchapter S election terminations. Prior to the 1996 Small Business
Act permitting an S corporation to own a subsidiary, a corporation's Subchapter
S election would terminate if the corporation owned a subsidiary. Section
1361(c)(6), under prior law, provided, however, that the restriction on an S
corporation owning a subsidiary did not apply if such subsidiary had not begun
business and did not have gross income. In addition, the IRS also disregarded
such subsidiary if the affiliation between the Subchapter S corporation and the
subsidiary was part of a reorganization transaction so long as the affiliation
period was momentary, although one ruling allowed a 30-day affiliation
period./26/
For purposes of the anti-churning rules, Company should be disregarded
prior to the Contribution because Company will conduct no business and will
carry on no activities (other than as discussed above) prior to the
Contribution. Furthermore, because of IPS's brief stock holding in Company
during periods when Company is carrying on business activities, IPS's holding of
Company stock following the Contribution should be viewed as transitory and
therefore disregarded. The foregoing is not clear, however, because none of the
authorities discussed above is directly applicable to the anti-churning rules
under Section 197 and transitory ownership of subsidiaries and inactive
subsidiaries are not disregarded for all tax purposes.
c. Purpose of Anti-Churning Rules
-------------------------------
The anti-churning rules are intended to prevent a taxpayer from
converting existing intangibles for which amortization is not allowed into
intangibles for which amortization is allowed./27/ Therefore, the anti-churning
rules should be applied only where the overall transaction results in the
transferor retaining a material ownership interest in the intangible property in
question, not in cases such as the present transaction where the transferor
retains no such material interest.
For example, the "immediately before" test should apply where a parent
corporation receives a distribution of intangible assets from its subsidiary
simultaneous with a sale of all the stock of the subsidiary to an unrelated
buyer, thereby obtaining a step-up in the tax basis of assets previously
indirectly owned through the subsidiary. In such case, the shareholder and the
subsidiary are related "immediately before" the distribution of the assets (but
not "immediately after") and the overall transaction does not result in a change
in the beneficial ownership of such assets (the shareholder now owns directly
what it used to own indirectly). In contrast, the "immediately before" test
- ----------------
/26/ See Rev. Ruling 73-496, 1973-2 C.B. 312 (Subchapter S election not
terminated where acquired subsidiary liquidated within 30 days); Rev. Ruling
72-320, 1972-1 C.B. 270 (Subchapter S election not terminated by momentary
ownership of subsidiary prior to spin-off).
/27/ Conf. Rept. at 691.
15
<PAGE>
should not apply where, for example, a taxpayer acquires the stock of a target
corporation and then liquidates the target in a taxable liquidation that results
in the step-up in the tax basis of intangible assets. The proposed Treasury
Regulations under Section 168 provide that the anti-churning rules will not
apply in this situation./28/ Likewise, the "immediately before" test should not
apply in a case where, as in the proposed transaction, the parent transfers the
intangible property to the subsidiary in a failed Section 351 transfer
immediately before the sale of all of the stock of the subsidiary to a third
party. In that situation, the parent has retained no direct or indirect
ownership interest in the intangible property.
The "immediately after" test should apply, for example, where
intangible assets are transferred from a parent to a newly formed 20% or greater
owned corporation in exchange for stock of the newly formed corporation, which
the parent holds following the exchange. In such case, the two subsidiaries are
related "immediately after" the transfer (but not "immediately before") and the
overall transaction does not result in a change in beneficial ownership because
the parent continues to indirectly own the assets. In contrast, the "immediately
after" test should not apply where, as in the proposed transaction, the parent
promptly sells the stock of the corporation to a third party (particularly if
sold pursuant to a pre-existing binding contract).
Because the overall transaction in this case results in a change in
the beneficial ownership of the MoneyGram Business and this is not a transaction
whereby IPS is attempting to convert existing intangibles for which amortization
is not allowed into intangibles for which amortization is allowed without
transferring the direct and indirect ownership of such intangibles, this
transaction should not be the type of transaction to which the anti-churning
rules should apply, notwithstanding the language of the Code.
d. Conclusion
----------
Based on the foregoing, in our opinion, although not clear, Company
should not be treated as being related to IPS either immediately before or
immediately after the Contribution and therefore the anti-churning rules should
not apply under that test as a result of the Contribution.
2. Acquisition of Intangible Where User Does Not Change
----------------------------------------------------
The second anti-churning test set forth earlier applies if the
intangible was acquired from a person who held such intangible at any time on or
after July 25, 1991,
- ----------------
/28/ See Proposed Treasury Regulation (S) 1.168-4(d)(11).
16
<PAGE>
and on or before August 10, 1993, and as part of the transaction the user of
such intangible does not change. As noted earlier, we have assumed that IPS
held the MoneyGram Goodwill on July 25, 1991. Therefore, the second anti-
churning test will apply to any asset included in the MoneyGram Goodwill where,
as part of the Transition, the user of such asset does not change.
We have found no direct authority discussing when a person is deemed
to be a "user" for purposes of Section 197(f)(9). Section 197 states that the
determination of whether the user of property changes as party of a transaction
is to be determined in accordance with Treasury Regulations, and at this time no
such Treasury Regulations have been issued.
Although the proposed Treasury Regulations under Section 168 and
rulings thereunder relate to tangible (rather than intangible) property and
therefore are not applicable for purposes of Section 197, they nonetheless might
provide some guidance as to when a person is deemed to be a user for purposes of
the Section 197 anti-churning rules. In particular, Proposed Treasury Regulation
(S) 1.168-4(d)(2)(ii) provides that if the former owner (or a related person)
continues to operate the property though an arrangement such as a management
contract for more than three months after the transfer, all facts and
circumstances will be taken into account in determining whether the user of the
property has changed. Among the factors considered are (i) whether the
arrangement in question is a customary commercial practice, (ii) whether the
arrangement in question has been arranged at arm's-length and (iii) whether the
new owner has assumed all benefits and burdens of ownership. In general, where
the new owner assumes all the benefits and burdens of ownership, the agreement
is customary and negotiated at arm's-length and the compensation paid to the
former owner is reasonable and within industry standards, the former owner will
not be deemed to be a "user" of the property.
Example 15 in Proposed Treasury Regulation (S) 1.168-4(e) addresses
the issue of whether a management or services agreement between the seller of a
business and the sold business causes the seller to be a user for purposes of
the anti-churning rules. This example involves a seller who continued to manage
the business that was sold and received a fixed salary plus a percentage of
gross profits for performing such services. The arrangement was stated to be
customary and negotiated at arm's-length. In addition, the fees were stated to
represent the real value of the services rendered and to be reasonable in
amount. The example states that such arrangement results in sufficient change in
ownership such that the anti-churning rules under Section 168 do not apply.
In addition, the IRS has ruled that a former owner of an orchard, who
sold the orchard and then continued to perform all services necessary for the
care, cultivation and harvesting of the orchard pursuant to a farming contract,
was not a
17
<PAGE>
"user" of the orchard for purposes of the Section 168 anti-churning rules./29/
Under the farming contract, which was negotiated at arm's-length, customary in
the industry and reasonable, the former owner received compensation payable
regardless of the revenues from the orchard, reimbursement of its direct costs
and two incentive fees. The new owner, however, bore all the risk of loss.
Under the facts set forth above, we believe that the "use" question
should be relevant, if at all, only as follows.
(a) MoneyGram Business or Agent Contracts. The "use" question might
arise with respect to the MoneyGram Business as a whole (or more narrowly with
respect to the Agent Contracts) in view of the fact that, under the Operations
Agreement, IPS or its affiliates will perform certain management and other
services with respect to the MoneyGram Business, will be a party to all Agent
Contracts and will hold all licenses to conduct the MoneyGram Business. However,
under the terms of the Operations Agreement, IPS and its affiliates should not
be viewed as the "user" of the MoneyGram Business or of the Agent Contracts,
although this conclusion is not entirely clear in the absence of controlling
authority as to the meaning of the term "user" in Section 197. As noted above,
we have assumed that the Operations Agreement approximates the terms of arm's-
length negotiations and is consistent with commercial practice (or, if not, will
have terms which are more favorable to Company and do not give FDC or its
affiliates any of the economic benefits and burdens of ownership of the
MoneyGram Business). Furthermore, as discussed above, under the terms of the
Operations Agreement Company (not IPS or any affiliate of IPS) will bear the
economic benefits and burdens of the MoneyGram Business and of the Agent
Contracts. IPS (or its affiliates) will receive fees representing an estimate of
the actual costs of providing services to Company, not based on the revenues of
Company. We note that during the term of the Operations Agreement IPS will keep
the investment income from Fiduciary Funds held by IPS for Company. However,
this arrangement is only tangential to the MoneyGram Business and should not
effect the foregoing analysis.
(b) Computer Software. Although certain rights with respect to
computer software will be granted under the Operations Agreement and the
Software License Agreement, the anti-churning rules apply only to intangible
assets for which depreciation or amortization would not have been allowed but
for Section 197. Computer software would have been eligible for amortization,
however, and therefore no computer software would be included in MoneyGram
Goodwill./30/
- ----------------
/29/ See PLR 8648006 (Aug. 25, 1986).
---
/30/ See. Revenue Procedure 69-21, 1969-2 C.B. 303.
---
18
<PAGE>
(c) Service Marks. As described above, it is unclear who owns the
Disputed Marks. Therefore, it is not certain whether Company will acquire any
such Disputed Marks as a result of the Contribution. If it is later determined
that Company, rather than Western Union, is the owner of Disputed Marks
currently used by Western Union, it could be argued that either the user of such
Disputed Marks, Western Union, did not change as part of the Transition or that
MoneyGram in effect granted the right to use such Disputed Marks to Western
Union pursuant to the Service Mark Letter Agreement. However, we do not believe
this is the type of situation at which the anti-churning rules are aimed. The
ownership of these Disputed Marks is currently unsettled and will not, in fact,
be determined for a number of years, if ever. In addition, the Service Mark
License Agreement, if executed, will make clear that Western Union, and not
Company, is the owner of the Disputed Marks. Thus, this anti-churning test could
apply to these Disputed Marks, if at all, only in hindsight. In addition, the
Service Mark Letter Agreement does not give Western Union the right to use a
Disputed Mark which belongs to Company or vice versa; it only provides that the
parties will not sue each other to enforce any perceived rights during a
specified period. We have found no authority for the proposition that a party
which is infringing on another's rights illegally should be deemed a "user" for
purposes of this anti-churning test. For these reasons, although not entirely
clear (particularly in the absence of controlling authority as to the meaning of
the term "user" in Section 197), this anti-churning test should not apply to the
Disputed Marks covered by the Service Mark Letter Agreement.
We understand that MoneyGram Agents have the right to use certain
service marks. Although it could be argued that the MoneyGram Agents are, and
after the Contribution will continue to be, "users" of such service marks, we do
not believe such an argument would prevail. In this case the service marks are
an integral part of the MoneyGram Business, not intangible property rights to
which are being transferred to third parties for use in their own business.
Thus, although not entirely clear (particularly in the absence of controlling
authority as to the term "user" in Section 197), this test should not apply to
such service marks.
(d) Fees Based on Foreign Exchange Gains. As noted above, certain
MoneyGram Agents will receive fees based on foreign currency revenues associated
with transactions effected through such Agents. We understand that such fees
were negotiated at arm's-length, are paid as compensation for services actually
rendered, and are similar to fee arrangements entered into between other similar
businesses and their agents. Therefore, although not entirely clear, we do not
believe that any such MoneyGram Agent should be deemed to be a "user" of any
portion of the MoneyGram Goodwill.
(e) Conclusion. Based on the foregoing, in our opinion, although not
entirely clear, Company should be treated as the sole "user" of the MoneyGram
Goodwill after the Contribution and thus this anti-churning test should not be
applicable to the Transition.
19
<PAGE>
3. Grant of Right to Use Intangible
--------------------------------
The third anti-churning test set forth above applies if the taxpayer
grants the right to use such intangible to a person (or a person related to such
person) who held or used such intangible at any time on or after July 25, 1991
and on or before August 10, 1993. For the reasons discussed above under
"Acquisition of Intangible Where User Does Not Change," in our opinion, although
not entirely clear, Company should be treated as the sole "user" of the
MoneyGram Goodwill after the Contribution and thus this anti-churning test
should not be applicable to the Transition.
4. Anti-Avoidance Rule
-------------------
Section 197(f)(9)(F) contains an anti-abuse rule which provides that
the term "amortizable section 197 intangible" does not include any section 197
intangible acquired in a transaction, one of the principal purposes of which is
to avoid the requirement that the intangible be acquired after August 10, 1993
or to avoid the anti-churning rule. The Federal Trade Commission is requiring
FDC and IPS to divest themselves of the MoneyGram Business. Thus, we believe
that the Transition should not be viewed as an abusive transaction covered by
this provision.
Conclusion
- ----------
Based on the facts and assumptions set forth above, and subject to the
foregoing discussion and reasoning, we are of the opinion (i) that the
Contribution will be treated as a taxable sale for federal income tax purposes
rather than a transaction described in Section 351(a) and (ii) that, although
not clear, the anti-churning rules should not apply as a result of the
Transition.
You have not asked for, and we do not express, any opinion other than
that expressly set forth above.
This opinion is provided to you only and, without our prior written
consent, may not be relied upon, used, circulated, quoted or otherwise referred
to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by you. Notwithstanding the previous
sentence, we hereby consent to the references to our firm appearing in the
Registration Statement under the heading "Certain Relationships and Related
Transactions -- the Transition Agreements -- The Contribution Agreement --
Taxes" and the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, we do not thereby admit that we are within
the category of persons where consent is required by Section 7 of the
Securities Act of 1933, as amended, or the related rules promulgated by the
Securities and Exchange Commission. This opinion letter is limited to the
matters stated herein, and no opinion is implied or may be inferred beyond the
matters expressly stated herein. This opinion letter shall not be construed as
or deemed to be a guaranty or insuring agreement.
20
<PAGE>
This opinion is based on the assumption that all documents related to
the Transition, when executed, will conform in all material respects to the
documents included as exhibits to the Registration Statement to which this
opinion is also an exhibit.
This opinion is rendered as of the date hereof based on the law and
facts in existence on the date hereof, and we do not undertake, and hereby
disclaim, any obligation to advise you of any changes in law or fact, whether or
not material, which may be brought to our attention at a later date. We note
that Treasury regulations have not yet been promulgated under Section 197 and
any such Treasury regulations might be inconsistent with the opinions described
herein.
We express no opinion with respect to the effect of any laws other
than federal income tax laws of the United States of America.
Very truly yours,
/s/ Sidley & Austin
21
<PAGE>
EXHIBIT 9.1
DRAFT 11/11/96
IRREVOCABLE VOTING TRUST AGREEMENT
THIS IRREVOCABLE VOTING TRUST AGREEMENT (this "Trust Agreement"), is
entered into on ____ __, 1996, by and between First Data Corporation, a Delaware
corporation ("FDC"), Integrated Payment Systems Inc., a Delaware corporation and
a wholly-owned subsidiary of FDC ("IPS"), and Wachovia Bank of North Carolina,
N.A., a National Banking Association (the "Trustee"). FDC, IPS and each
affiliate of FDC are referred to herein collectively as the "FDC Group" and each
individually as a "FDC Group Member."
WITNESSETH:
WHEREAS, FDC, through IPS, engages in, among other things, the
business of transferring the right to money using computer or telephone lines
from one person through the location of an agent to a different person through
an agent, which is marketed under the name MoneyGram (the "Consumer Money Wire
Transfer Services" or the "Business");
WHEREAS, pursuant to a consent decree dated January 19, 1996 (the
"Consent Decree") between FDC and the Federal Trade Commission (the "FTC"), FDC
is obligated to divest certain assets relating to either the Business or the
Consumer Money Wire Transfer Services owned and operated by Western Union
Financial Services, Inc., a subsidiary of FDC, by January 23, 1997;
WHEREAS, FDC has decided to comply with the Consent Decree by
divesting itself of the Business (the "Divestiture");
WHEREAS, FDC and IPS have entered into a contribution agreement with
MoneyGram Payment Systems, Inc., a Delaware corporation and a wholly-owned
subsidiary of IPS ("MG"),
<PAGE>
dated as of _______, 1996 (the "Contribution Agreement"), whereby IPS
contributed to MG the Contributed Assets (as defined in the Contribution
Agreement) in exchange for shares (the "IPS Shares") of common stock, par value
$.01 per share, of MG ("MG Common Stock");
WHEREAS, FDC and IPS will accomplish the Divestiture through the sale
of the IPS Shares via an initial public offering (the "IPO") pursuant to an
underwriting agreement dated __________, 1996 (the "Underwriting Agreement")
among IPS, MG and the underwriters named therein (collectively, the
"Underwriters"), whereby the Underwriters (i) have made a firm commitment to
purchase approximately 87% of the IPS Shares to be sold in the IPO and (ii) have
an option (the "Overallotment Option") exercisable within 30 days of the date of
the Underwriting Agreement to purchase any or all of the remaining IPS Shares;
WHEREAS, the proposed Divestiture is subject to the prior approval of
the FTC, which has reviewed this Trust Agreement;
WHEREAS, in order to comply with the Consent Decree and obtain the
approval of the FTC to the Divestiture pursuant to the IPO, FDC and IPS have
agreed that, in the event that the Overallotment Option is not exercised in full
during the 30-day option period, IPS shall deposit any and all IPS Shares then
owned by IPS into an irrevocable voting trust (the "Trust") with the Trustee
pursuant to this Trust Agreement for disposition in accordance with the terms
and conditions hereof; and
WHEREAS, FDC and IPS desire to enter into this Trust Agreement to (i)
facilitate the above described transactions and (ii) to obtain FTC approval of
the Divestiture through the IPO, including the subsequent disposition or
dispositions of any IPS Shares by the Trustee under this Trust Agreement.
-2-
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
promises, covenants and agreement hereinafter set forth, the parties hereto
agree as follows:
1. APPOINTMENT OF TRUSTEE. FDC and IPS hereby jointly and irrevocably
appoint Wachovia Bank of North Carolina, N.A. as Trustee hereunder, and Wachovia
Bank of North Carolina, N.A. hereby accepts said appointment and agrees to act
as Trustee under this Trust Agreement as provided herein.
2. CREATION AND PURPOSE OF IRREVOCABLE VOTING TRUST. Subject to the
terms and conditions hereof, as of the date 31 days after the execution of the
Underwriting Agreement (the "Effective Date") a voting trust in respect of all
the MG Common Stock held by IPS as of the Effective Date (the "Remaining Stock")
will be created and established in accordance with Section 218 of the Delaware
General Corporation Law for the purpose of causing all of the Remaining Stock to
be held pending sale thereof at the earliest practicable date, as provided for
herein. A copy of this Trust Agreement and any amendment hereto shall be filed
at the registered office of MG in the State of Delaware and shall be made
available for examination by any stockholder of MG or any beneficiary of the
Trust at any reasonable time for any reasonable purpose.
3. IRREVOCABILITY. After the deposit of the Remaining Stock with the
Trustee as provided herein, this Trust Agreement, the Trust and the nomination
of the Trustee shall be irrevocable by FDC and IPS and shall terminate only in
accordance with the provisions of Section 11.
4. DEPOSIT AND TRANSFER OF REMAINING STOCK; VOTING TRUST
CERTIFICATES. (a) On the Effective Date, IPS shall deliver a certificate or
certificates representing all of the outstanding Remaining Stock to the Trustee,
duly endorsed for transfer or accompanied by duly executed instruments of
transfer. Each certificate delivered to the Trustee pursuant to this Section
4(a)
-3-
<PAGE>
shall be canceled and new certificates evidencing the Remaining Stock shall be
issued and registered in the name of the Trustee. Upon the issuance and
registration of such certificates, the Trustee shall deliver Voting Trust
certificates substantially in the form attached hereto as Exhibit A with blanks
therein appropriately completed (the "Certificates") to IPS (IPS's status upon
its delivery of the Remaining Stock to the Trustee and the Trustee's delivery of
the Certificates to IPS shall be referred to herein as "Beneficiary").
(b) All shares of Remaining Stock, while deposited with the Trustee
pursuant to this Trust Agreement, are herein called the "Deposited Stock."
(c) Each Certificate representing Deposited Stock shall bear a legend
to the effect that it is subject to this Trust Agreement, and that fact also
shall be noted in the stock transfer records of MG.
5. RETENTION OF DEPOSITED STOCK BY TRUSTEE. The Trustee shall retain
possession of the Deposited Stock only in accordance with, and subject to the
terms and conditions set forth in, this Trust Agreement.
6. MAINTENANCE OF RECORDS; REPLACEMENT OF VOTING TRUST CERTIFICATES.
(a) The Trustee shall keep a record relating to the Certificates, indicating
the name and address of the Beneficiary, the number of shares of Deposited Stock
represented thereby, and the date the Beneficiary originally acquired the
Remaining Stock, and the Trustee shall deposit a copy of such record with MG at
its registered office in the State of Delaware. The copy of such record may be
examined by any stockholder of MG or any beneficiary of the Trust, either in
person or by agent or attorney, at any reasonable time for any reasonable
purpose. The Trustee also shall maintain such other records and books as are
necessary or appropriate to carry out the terms and provisions of this Trust
Agreement.
-4-
<PAGE>
(b) In case any Certificate shall become mutilated, lost, stolen or
destroyed, the Trustee, under such conditions with respect to indemnity and
otherwise as in the Trustee's discretion may be prescribed, may provide for the
issuance of a new Certificate in lieu of such lost, stolen or destroyed
Certificate or in exchange for such mutilated Certificate.
7. RESTRICTION ON TRANSFER. During the term of this Trust
Agreement, the Trustee shall not sell, transfer, assign, pledge, or otherwise
encumber or create any lien on any Deposited Stock, except in accordance with
Sections 8 or 9.
8. VOTING AND OTHER ACTIONS BY TRUSTEE. (a) During the term, and
subject to the provisions, of this Trust Agreement and for so long as the
Trustee shall hold the Deposited Stock pursuant to this Trust Agreement, the
Trustee shall possess and shall be entitled to exercise all rights and powers of
absolute ownership of the Deposited Stock, including, but not limited to, the
right to take part in and consent to any corporate or stockholders' action of
any kind whatsoever; the right to receive dividends and distributions on all
Deposited Stock for the account of the Beneficiary; the right to receive and
waive any notices to stockholders as required by law or the certificate of
incorporation or by-laws of MG; the right to dispose of the Deposited Stock in
accordance with Section 9 and Section 11; and the right to vote the Deposited
Stock on all matters upon which holders of Deposited Stock are entitled to vote,
provided, however, that the Trustee shall vote all shares of Deposited Stock
with respect to all matters, including, without limitation, the election or
removal of directors, voted on by the stockholders of MG (whether at a regular
or special meeting or pursuant to a unanimous written consent) in the same
proportion as all shares of MG Common Stock (other than Deposited Stock) are
voted with respect to such matters. In exercising its voting rights in
accordance with this Section 8(a), the Trustee shall take such actions at all
annual, special or other meetings of stockholders of MG or in connection with
any action by consent in lieu of a meeting.
-5-
<PAGE>
(b) No other person shall have any voting right in respect of any
Deposited Stock so long as this Trust Agreement is in effect. The Trustee shall
have no beneficial interest in the Deposited Stock.
(c) During the term of this Trust Agreement, neither the Beneficiary
nor any other FDC Group Member shall attempt to exercise any control over the
decisions or actions of the Trustee; provided, however, nothing herein shall
prevent the Trustee from otherwise utilizing the Beneficiary or any other FDC
Group Member, or any of their respective officers or employees, as consultants
with regard to the disposition of the Deposited Stock, the Trustee having no
obligation to accept or follow any recommendations from such consultants; and
provided further, however, nothing herein shall prevent the Trustee from
providing to the Beneficiary such reports, financial data or other information
heretofore customarily provided by MG to its stockholders.
9. DISPOSITION OF THE DEPOSITED STOCK. (a) Immediately upon receipt
of the Deposited Stock, the Trustee shall retain Morgan Stanley & Co.
Incorporated ("Morgan Stanley") or, if Morgan Stanley declines such
representation, an investment banking firm of national reputation (the
"Investment Banker") to advise Trustee as to the appropriate method by which to
dispose of the Deposited Stock in accordance with the terms of this Trust
Agreement.
(b) The Investment Banker shall recommend a disposition whereby the
Trustee will sell all of the Deposited Stock at the earliest practicable date
(but in no event sooner than December 31, 1996 without the prior written
approval of Morgan Stanley in accordance with the Underwriting Agreement) to
one or more purchasers (other than any FDC Group Member) in a manner and for
such price as the Investment Banker shall deem reasonable and consistent with
maximizing the price to be received by IPS in consideration therefor. The
Trustee shall sell the Deposited Stock only when recommended and in the manner
recommended by the Investment Banker. The Trustee shall have no discretion with
respect to the disposition in respect of the Deposited Stock.
-6-
<PAGE>
(c) The Trustee shall have all right, power and authority to dispose
of all of the Deposited Stock in accordance with the Investment Banker's
recommendation and shall cause all reasonably necessary actions to be taken to
effect the sale of all Deposited Stock (in one or more transactions) in a manner
consistent with such recommendation.
(d) The Investment Banker may recommend a sale of, and the Trustee
may sell, the Deposited Stock by any method, including, but not limited to, a
secondary public offering of all or some of the Deposited Stock (i) in one or
more publicly registered transactions and/or (ii) in one or more privately
negotiated transactions for the sale of either publicly registered or
unregistered Deposited Stock.
(e) If either the Beneficiary or the Trustee determines, or if the
Investment Banker recommends, that in connection with the disposition of the
Deposited Stock it may be beneficial or advisable to register or qualify any or
all of the Deposited Stock under the Securities Act of 1933, as amended, or any
state securities or Blue Sky laws, then each of the Beneficiary and the Trustee
shall take any and all action necessary or advisable, including any and all
actions pursuant to the Registration Rights Agreement dated ______, 1996 between
IPS and MG, to register and qualify or cause MG to register and qualify such
Deposited Stock.
(f) The Trustee shall comply with all applicable laws, including,
without limitation, all federal and state securities laws, in connection with
any sale of the Deposited Stock.
(g) Beneficiary shall cooperate with the Trustee, take such other
actions and execute such documents or instruments as may be reasonably requested
by the Trustee from time to time, and provide any information and such
representations and warranties regarding the Deposited Stock in order to
facilitate and effectuate the disposition of the Deposited Stock in accordance
with the terms of this Trust Agreement.
-7-
<PAGE>
(h) The Trustee promptly shall inform the Beneficiary and the FTC of
any disposition of Deposited Stock in accordance with this Section 9.
10. TRANSFERABILITY OF TRUST CERTIFICATES. All Certificates shall be
transferable on the books of the Trustee upon the surrender by the registered
holder thereof, properly assigned, in accordance with rules from time to time
established for this purpose by the Trustee. Use of the transfer form included
in Exhibit A hereto shall be deemed acceptable for such purpose by the Trustee.
Until a Certificate is so transferred, the Trustee may treat the registered
holder as owner for all purposes. Each transferee of a Certificate issued
hereunder shall, by transferee's acceptance thereof, assent to and become a
party to this Trust Agreement and shall assume all attendant rights and
obligations hereunder. Notwithstanding the foregoing, only a FDC Group Member
shall be permitted to be a transferee or a registered holder of Certificates in
accordance herewith.
11. TERMINATION OF VOTING TRUST AGREEMENT. (a) This Trust Agreement
shall terminate upon the earlier of (i) the disposition of all of the Deposited
Stock in accordance with Section 9 or (ii) January 23, 1997, without notice by
or to, or action on the part of, the Trustee or the Beneficiary.
Notwithstanding the preceding sentence, the Beneficiary may amend the date in
clause (ii) of the preceding sentence by providing written notice to the Trustee
providing (x) the new, amended date (which shall not exceed three months from
the expiration date then in effect) and (y) a representation that the FTC has
approved such amended date. In the event of such extension, prior to the
expiration as hereinabove provided, as originally fixed, or as theretofore
extended, as the case may be, the Trustee shall file in the registered offices
of MG in the State of Delaware a copy of an agreement extending the expiration
date of this Trust Agreement and thereupon the duration of this Trust Agreement
shall be extended for the period fixed by such extension agreement.
-8-
<PAGE>
(b) In the event that any Deposited Stock remains in the Trust on the
termination of this Trust Agreement, as it may be extended, then the Trustee
shall deliver certificates representing all of such remaining Deposited Stock,
duly endorsed for transfer or accompanied by duly executed instruments of
transfer, to or among one or more of the charitable organizations listed on
Schedule A, as designated by IPS in writing on or before the termination of this
Trust Agreement. The Beneficiary shall promptly notify the FTC of any
disposition of Deposited Stock in accordance with this Section 11(b).
12. DIVIDENDS; DISTRIBUTIONS ON SALE OF DEPOSITED STOCK AND
DISSOLUTION. (a) The Beneficiary shall be entitled to receive from time to
time payments equal to the amount of cash dividends, if any, collected or
received by the Trustee with respect to the shares of Deposited Stock
represented by such Certificate. Such payments shall be made by the Trustee as
soon as practicable after the receipt of the dividends. In lieu of receiving
cash dividends and paying them to the Beneficiary, the Trustee may instruct MG
in writing to pay the cash dividends directly to the Beneficiary. In the event
any such instruction is given to MG, all liability of the Trustee with regard to
the payment of such dividends shall cease, unless and until such instruction is
revoked. The Trustee may at any time revoke such instruction by written notice
to MG and direct it to make subsequent payments to the Trustee.
(b) In the event that the Trustee receives any additional shares of
capital stock of MG through a dividend or other distribution with respect to any
Deposited Stock, the Trustee shall hold such shares subject to this Trust
Agreement for the benefit of the Beneficiary, and the shares shall become
subject to all of the terms and conditions of this Trust Agreement to the same
extent as if they were originally deposited as shares of Deposited Stock
hereunder. The Trustee shall issue Certificates in respect of such shares to
the Beneficiary.
(c) In the event of the sale of any or all of the Deposited Stock
pursuant to this Trust Agreement, the Trustee shall receive the cash,
securities, property or other consideration paid in
-9-
<PAGE>
exchange for such shares of Deposited Stock (the "Proceeds"), and promptly shall
distribute such Proceeds to the Beneficiary. The Trustee, in its reasonable
discretion, may require the surrender to it of Certificates before paying to
the holder such Proceeds and, if any Deposited Stock remains subject to the
Trust, reissue to such holder a new Certificate reflecting such remaining
Deposited Stock.
(d) In the event of the termination of this Trust Agreement pursuant
to Section 11, the Trustee shall receive any Proceeds which are distributed or
distributable in respect of the Deposited Stock, and, upon the receipt of all
Certificates by the holders thereof, promptly shall distribute the Proceeds to
the Beneficiary.
13. TRUSTEE TO MAINTAIN INDEPENDENCE. During the effective period of
this Trust, neither the Trustee nor any affiliate of the Trustee may have (i)
any officers or directors in common with any FDC Group Member, or (ii) any
material business arrangements or dealings, financial or otherwise, outside of
the customary or ordinary course of business, with any FDC Group Member.
Investment by the Trustee in the stock or securities of any FDC Group Member,
short of obtaining a controlling interest, will not be considered a proscribed
business arrangement or dealing; provided, however, that in no event shall any
such investment by the Trustee in voting securities of any FDC Group Member
exceed five percent of the outstanding voting securities of such entity and in
no event shall the Trustee hold a proportion of such voting securities so
substantial as to permit the Trustee in any way to control or direct the affairs
of any FDC Group Member.
14. COMPENSATION OF TRUSTEE. The Trustee shall be entitled to
receive from IPS, as compensation for all services rendered hereunder as
Trustee, an amount equal to $500.00 per month for each and every month or part
thereof during the term that this Trust Agreement is in effect.
-10-
<PAGE>
15. PAYMENT OF TRUSTEE'S EXPENSES. The Trustee is expressly
authorized to incur and pay all reasonable charges and other expenses, including
all reasonable fees and expenses of counsel and the Investment Banker, deemed
necessary and proper in the performance of the Trustee's duties under this
Trust Agreement, and the Beneficiary agrees to reimburse the Trustee for such
charges and expenses.
16. DELEGATION OF TRUSTEE'S DUTIES. The Trustee may appoint an agent
or agents at any time or from time to time and may delegate to such agent or
agents the performance of any administrative duty of the Trustee hereunder.
17. STANDARD OF CARE; INDEMNITY. The duties and responsibilities of
the Trustee shall be limited to those expressly set forth in this Trust
Agreement. The Trustee shall not be answerable for the default or misconduct of
the Investment Banker or any agent or attorney appointed by the Trustee in
pursuance hereof; provided, however, that, in the case of such agent or
attorney, Trustee selected such agent or attorney in good faith exercising
reasonable care. The Trustee shall be free from liability in action on any
paper, document or signature reasonably believed by the Trustee to be genuine
and to have been signed by the proper party. The Trustee shall not be liable
for any error of judgment nor for any act done or omitted, nor any mistake of
fact, nor for anything which the Trustee may do or refrain from doing in good
faith, except that (i) the Trustee shall be liable for the Trustee's own
intentional wrongful actions or gross negligence and (ii) the Trustee's
obligations under Sections 9(e) and 9(f). The Trustee may consult with counsel
reasonably acceptable to IPS and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken, omitted or
suffered by the Trustee in good faith and in accordance with such opinion. Each
of FDC and IPS, jointly and severally, agrees to at all times protect, indemnify
and save harmless the Trustee from any liability, loss or expense of any kind or
character whatsoever incurred by the Trustee in connection with this Trust or
the performance of the Trustee's duties and obligations under this Trust
Agreement, except those resulting from or arising out of the gross negligence or
willful
-11-
<PAGE>
misconduct of the Trustee, and will assume full responsibility for, and pay all
reasonable cost and expense of, any suit or litigation of any character,
including any proceedings before the FTC, with respect to the Deposited Stock,
this Trust Agreement or the performance of the Trustee's duties and obligations
under this Trust Agreement, and if the Trustee shall be made a party thereto,
IPS and FDC shall pay all reasonable costs and expenses, including reasonable
counsel fees, to which the Trustee may be subject by reason thereof. The
indemnification provided by this Section 17 shall survive termination of this
Trust Agreement.
18. QUALIFICATION OF TRUSTEE. Upon receipt of the Deposited Stock
pursuant to this Trust Agreement, neither the initial Trustee, nor any successor
trustee designated pursuant to Section 19, may be an officer, director, employee
or attributable stockholder of IPS or any other FDC Group Member, or have any
business or familial relationships with FDC; provided, however, that any such
Trustee may thereafter become an officer, director or employee of MG.
19. TERMINATION, RESIGNATION AND REPLACEMENT OF TRUSTEE. (a) The
Trustee shall serve for the duration of this Trust Agreement, or until the
Trustee's earlier resignation, incapacity to act or death. No interest in any
of the Deposited Stock held by any deceased or former Trustee nor any of the
rights or duties of any deceased or former Trustee may be transferred by will,
devise, succession or in any manner except as provided in this Trust Agreement.
The heirs, administrators and executors of such deceased Trustee, however, shall
have the right and duty to convey any Deposited Stock held by such Trustee to
one or more successor trustees.
(b) The Trustee, or any trustee hereafter appointed, may resign at any
time by giving 60 days' written notice of resignation to IPS and the FTC,
provided, however, the Trustee agrees to continue the Trustee's duties until
such time as the Deposited Stock has been transferred to a successor trustee
appointed pursuant to this Section 19.
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<PAGE>
(c) Upon receiving such notice of resignation or upon being notified
of the death or incapacity of the Trustee: (i) IPS shall select a successor
trustee, subject to the consent of the FTC, which consent shall not be
unreasonably withheld; (ii) the successor trustee shall have experience and
expertise in acquisitions and divestitures and (iii) if the FTC has not opposed,
in writing, including the reasons for opposing, the selection of any proposed
successor trustee, within 10 days after notice by the Trustee or IPS to the FTC
of the identity of any proposed successor trustee, the FTC shall be deemed to
have consented to the selection of the proposed successor trustee.
(d) If no successor trustee shall have been appointed and shall have
accepted appointment within 45 days after a notice of resignation pursuant to
Section 19(b), the resigning Trustee may petition any authority or court of
competent jurisdiction for the appointment of a successor trustee.
(e) Upon written assumption by the successor trustee of the Trustee's
powers and duties hereunder, the Trustee shall deliver a copy of the assumption
to IPS and shall notify the FTC and all registered holders of Certificates of
such assumption, whereupon the Trustee shall be discharged of its powers and
duties hereunder and the successor trustee shall become vested therewith.
(f) Any corporation into which any trustee hereunder may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which any trustee hereunder may be a party, shall be the
successor trustee under this Trust Agreement, without the execution or filing of
any paper or any further act on the part of the parties hereto, anything to the
contrary notwithstanding, provided that such successor trustee meets the
qualifications specified in Section 18.
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<PAGE>
20. DISCLOSURE OF INFORMATION. To the extent requested to do so by
IPS or by any registered holder of a Certificate, the Trustee promptly shall
furnish to the party making such request full information with respect to (a)
all property theretofore delivered to it as Trustee under this Trust Agreement,
(b) all property then held by it as Trustee under this Trust Agreement, and (c)
all action theretofore taken by it as Trustee under this Trust Agreement.
21. AMENDMENTS. From time to time this Trust Agreement may be
modified or amended by agreement executed by the Trustee and FDC and IPS (with
the approval of the FTC) and all registered holders of Certificates. Each
amendment to the Trust Agreement shall be filed at the registered office of MG
in the State of Delaware.
22. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, or sent by cable, telegram, telex or
telefax, or by first-class mail (postage prepaid) to the respective parties as
follows:
If to FDC: First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68164
Attention: General Counsel
If to IPS: Integrated Payment Systems Inc.
6200 S. Quebec
Englewood, Colorado 80111
Attention: General Counsel
If to Trustee: Wachovia Bank of North Carolina, N.A.
101 N. Main Street
Winston Salem, N.C. 27102
Attention: Sandra Turner
If to FTC: Bureau of Competition-Compliance
Federal Trade Commission
-14-
<PAGE>
601 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Attention: Daniel P. Ducore
or to such other address as any of them by written notice to the other parties
may designate from time to time. Each notice or other communication which shall
be personally delivered, mailed, telecopied or telexed in the manner described
above, or which shall be delivered to a telegraph company, shall be deemed
sufficiently received for all purposes at such time as it is delivered to the
addressee (with any return receipt, delivery receipt or, with respect to a
telecopy or telex, answer back being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
23. ASSIGNABILITY. Except as expressly provided for herein, this
Trust Agreement shall not be assignable by any of the parties hereto, except in
the event of the resignation, incapacity to act or death of any Trustee and the
appointment of a successor trustee in accordance with Section 19.
24. PARTIAL INVALIDITY. If any part of any provision of this Trust
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Trust Agreement shall be invalid or unenforceable under
applicable law, said part shall be ineffective to the extent of such invalidity
only, without in any way affecting the remaining parts of said provisions or the
remaining provisions of said agreement.
25. SUCCESSORS AND ASSIGNS. This Trust Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their successors and
assigns as provided herein.
26. HEADINGS. Section headings contained in this Trust Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Trust Agreement for any
-15-
<PAGE>
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
27. GOVERNING LAW. This Trust Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof.
28. EXECUTION IN COUNTERPARTS. This Trust Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, First Data Corporation, Integrated Payment Systems
Inc. and Wachovia Bank of North Carolina, N.A. have caused this Irrevocable
Voting Trust Agreement to be executed by their respective duly authorized
officers on the day and year first above written.
FIRST DATA CORPORATION
By: ________________________________
INTEGRATED PAYMENT SYSTEMS INC.
By: ________________________________
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By: ________________________________
-17-
<PAGE>
EXHIBIT A
---------
No. 1 ____ Shares
VOTING TRUST CERTIFICATE
for
COMMON STOCK
$.01 PAR VALUE PER SHARE
of
MONEYGRAM PAYMENT SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS TO CERTIFY THAT INTEGRATED PAYMENT SYSTEMS INC., a Delaware
corporation, has been issued this Certificate, pursuant to the Irrevocable
Voting Trust Agreement hereinafter referred to, in exchange for a certificate or
certificates for ____ shares of the Common Stock, $.01 par value, of MoneyGram
Payment Systems, Inc., a Delaware corporation (the "Company"). This Certificate
is issued pursuant to, and the rights of the holder hereof are subject to and
limited by, the terms of an Irrevocable Voting Trust Agreement, dated as of
________ __, 1996, executed by First Data Corporation, a Delaware corporation,
Integrated Payment Systems Inc., a Delaware corporation, and Wachovia Bank of
North Carolina, N.A., as Voting Trustee, a copy of which Irrevocable Voting
Trust Agreement is on file in the registered office of the Company, and is open
to inspection of any stockholder of the Company and the holder hereof. The
Irrevocable Voting Trust Agreement, unless earlier terminated (or extended)
pursuant to the terms thereof, will terminate on January 23, 1997.
<PAGE>
The registered holder of this Certificate shall be entitled to the
benefits of said Irrevocable Voting Trust Agreement, including the right to
receive payments equal to the cash dividends, if any, paid by the Company with
respect to the number of shares represented by this Certificate.
This Certificate shall be transferable only on the books of the
undersigned Trustee or any successor. Such a transfer shall be recognized only
upon surrender of this Certificate (with the transfer form on the reverse hereof
having been filled out and properly executed) in accordance with the provisions
of the Irrevocable Voting Trust Agreement. Until so transferred, the Trustee
may treat the registered holder as the owner of this Voting Trust Certificate
for all purposes whatsoever, unaffected by any notice to the contrary.
By accepting this Certificate, the holder hereof assents to all the
provisions of, and becomes a party to, said Irrevocable Voting Trust Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
signed by its officer duly authorized.
___________, 1996 Wachovia Bank of North Carolina, N.A.
By:
________________________________
Authorized Officer
- ii-
<PAGE>
[BACK OF VOTING TRUST CERTIFICATE]
FOR VALUE RECEIVED, INTEGRATED PAYMENT SYSTEMS INC. hereby sells,
assigns, and transfers unto __________________ the within Voting Trust
Certificate, and all rights and interest represented thereby, and does hereby
irrevocably constitute and appoint ______________________________________
Attorney to transfer said Voting Trust Certificate on the books of the within
mentioned Trustee, with full power of substitution in the premises.
___________________________________
Dated: ________________
In the Presence of:
<PAGE>
SCHEDULE A
----------
Boystown
Boy Scouts of America
Girl Scouts of America
Open Door Mission
United Way of America
<PAGE>
EXHIBIT 10.1
DRAFT: NOVEMBER 25, 1996
OPERATIONS AGREEMENT
DATED AS OF ________, 1996
AMONG
MONEYGRAM PAYMENT SYSTEMS, INC.,
FIRST DATA TECHNOLOGIES, INC.
AND
INTEGRATED PAYMENT SYSTEMS INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE 1
DEFINITIONS ............................................................. 1
ARTICLE 2
SERVICES ................................................................ 9
Section 2.1. Support Services ................................... 9
Section 2.2. Additional Services ................................ 9
ARTICLE 3
TRANSACTION SETTLEMENT; PORTFOLIO AND REGULATORY COMPLIANCE ............. 9
Section 3.1. Transaction Settlement ............................. 9
Section 3.2. Portfolio .......................................... 10
Section 3.3. MoneyGram Agents ................................... 11
Section 3.4. Compliance with Laws ............................... 13
Section 3.5. Transition of Business ............................. 14
ARTICLE 4
SECURITY ................................................................ 15
ARTICLE 5
GENERAL AGREEMENTS OF THE PARTIES ....................................... 15
Section 5.1. Company Obligations ................................ 15
Section 5.2. First Data Obligations ............................. 16
Section 5.3. Extension of Term; Money Order Processing .......... 16
Section 5.4. License to Certain Software ........................ 17
ARTICLE 6
PAYMENTS TO FIRST DATA .................................................. 18
Section 6.1. Fees and Charges ................................... 18
Section 6.2. IPS Reports and Payments ........................... 18
Section 6.3. Taxes .............................................. 19
Section 6.4. Certification of Charges ........................... 19
ARTICLE 7
CONFIDENTIALITY ......................................................... 19
Section 7.1. General ............................................ 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Section 7.2. Confidential Information Defined ................... 20
Section 7.3. Permitted Disclosure; Public and Generic
Information; Legally Required Disclosure ........... 21
Section 7.4. Notices ............................................ 22
Section 7.5. Company Disclosure of Confidential Information
to First Data ...................................... 22
Section 7.6. Remedy ............................................. 23
ARTICLE 8
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES ............................ 23
ARTICLE 9
TERM AND TERMINATION .................................................... 23
Section 9.1. Term ............................................... 23
Section 9.2. Termination by Company ............................. 24
Section 9.3. Termination by First Data .......................... 26
Section 9.4. Orderly Transition ................................. 27
Section 9.5. Effect of Termination .............................. 27
ARTICLE 10
INDEMNITIES, LIABILITY AND LIMITS OF LIABILITY .......................... 28
Section 10.1. First Data's Indemnification ....................... 28
Section 10.2. Company's Indemnification .......................... 29
Section 10.3. Notification ....................................... 31
Section 10.4. Claims Period ...................................... 32
Section 10.5. Subrogation ........................................ 33
Section 10.6. Exclusive Remedy ................................... 33
Section 10.7. No Special Damages ................................. 33
ARTICLE 11
DISPUTE RESOLUTION ...................................................... 34
Section 11.1. Dispute Resolution ................................. 34
Section 11.2. Recourse to Courts and Other Remedies .............. 37
Section 11.3. Affiliates ......................................... 37
Section 11.4. Exception to Article 11 ............................ 37
ARTICLE 12
MISCELLANEOUS ........................................................... 37
Section 12.1. Expenses ........................................... 37
Section 12.2. Relationship of Parties ............................ 38
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Section 12.3. Force Majeure ...................................... 38
Section 12.4. Entire Agreement ................................... 39
Section 12.5. Assignment ......................................... 39
Section 12.6. Notices ............................................ 39
Section 12.7. Counterparts ....................................... 40
Section 12.8. Governing Law ...................................... 41
Section 12.9. Media Releases ..................................... 41
Section 12.10. Waiver ............................................. 41
Section 12.11. Severability ....................................... 41
Section 12.12. Construction Rules ................................. 42
</TABLE>
iii
<PAGE>
EXHIBITS
A. Support Services
A-1. Agent Services
A-2. Corporate Support Services
A-3. Data Center Services
A-4. Voice Center Disaster Recovery Services
A-5. Regulatory Compliance Services
B. Inspection, Review and Timing
C. Software
C-1. IPS Application Software
C-2. MoneyGram Application Software
C-3. PC MoneyGram Application Software
D. Pricing and Reimbursable Expenses
E. Terminable Groups of Data Center Services
F. Form of Agent Contract
iv
<PAGE>
OPERATIONS AGREEMENT
THIS OPERATIONS AGREEMENT (this "Agreement") dated as of __________,
1996 is among MoneyGram Payment Systems, Inc., a Delaware corporation
("Company"), First Data Technologies, Inc., a Delaware corporation ("FDT"), and
Integrated Payment Systems Inc., a Delaware corporation ("IPS" and, together
with FDT, "First Data").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Company, IPS and First Data Corporation, a Delaware
corporation and the parent company of FDT and IPS ("FDC"), have entered into a
Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") pursuant to which IPS and certain of its Affiliates (as defined
below) contributed to Company certain assets of the Business (as defined below);
and
WHEREAS, Company and First Data desire to enter into this Agreement to
establish, among other things, (i) the terms and conditions pursuant to which
First Data shall perform for the benefit of Company certain services relating to
the Business and (ii) the duties, rights and obligations of each of First Data
and Company to the other;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, Company and First Data agree as follows:
ARTICLE 1
DEFINITIONS
-----------
In this Agreement, unless the context shall otherwise require, the
capitalized terms used herein shall have the respective meanings specified or
referred to in this Article 1. Each agreement referred to in this Agreement
shall mean such agreement as amended, supplemented and modified from time to
time to the extent permitted by the applicable provisions thereof and hereof.
Each definition in this Agreement includes the singular and the plural, and
reference to the neuter gender includes the masculine and feminine where
appropriate. References to any statute or regulations means such statute or
regulations as amended at the time and include any successor legislation or
regulations. The headings to the Articles and Sections hereof and the table of
contents herein are for convenience of reference
<PAGE>
and shall not affect the meaning or interpretation of this Agreement. Except as
otherwise stated, reference to Articles, Sections, Exhibits mean the Articles,
Sections and Exhibits of this Agreement. The Exhibits are hereby incorporated
by reference into and shall be deemed a part of this Agreement. Unless the
context clearly indicates otherwise, the word "including" means "including but
not limited to".
"AAA" means the American Arbitration Association.
"AAA Rules" means the AAA's Commercial Arbitration Rules.
"Additional Services" means services performed for Company by First
Data or its Affiliates pursuant to this Agreement, other than (i) the Support
Services and (ii) any service or other obligation to be performed by First Data
pursuant to Article 3.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person; provided, however, that FDC and its Affiliates shall not be deemed
Affiliates of Company and Company and its Affiliates shall not be deemed
Affiliates of FDC and its Affiliates.
"Agent Contract" means an agreement pursuant to which a MoneyGram
Agent provides Consumer Money Wire Transfer Services on behalf of the Business,
together with any license agreement with such MoneyGram Agent related to the PC
MoneyGram Application Software described in Exhibit C-3.
"Agent Services" means the services specified in Exhibit A-1.
"Amount Due" has the meaning specified in Section 6.2.
"Arbitrators" has the meaning specified in Section 11.1(b)(ii).
"Bankruptcy" means, with respect to any Party, the happening of any
one or more of the following events: (a) a Party: (i) makes an assignment for
the benefit of creditors; (ii) files a voluntary petition in bankruptcy; (iii)
is adjudged a bankrupt or insolvent, or there has been entered against such
Party an order for relief, in any bankruptcy or insolvency proceeding; (iv)
files a petition or answer seeking in respect of such Party any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under
2
<PAGE>
any statute, law or regulation; (v) files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against such
Party in any proceeding of a nature described above; (vi) seeks, consents or
acquiesces in the appointment of a trustee, receiver, conservator or liquidator
of such Party or of all or any substantial part of such Party's properties; or
(vii) in respect of clauses (i), (ii), (iv), (v) or (vi) above, such Party takes
any corporate action to authorize any action contemplated by any of such
clauses; or (b) 90 days after the commencement of any proceeding against any
Party seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
if such proceeding has not been dismissed, or within 60 days after the
appointment without such Party's consent or acquiescence of a trustee, receiver
or liquidator of the Party or of all or any substantial part of such Party's
properties, if such appointment is not vacated or stayed, or within 60 days
after the expiration of any such stay, if such appointment is not vacated.
"Basic Qualifications" has the meaning specified in Section
11.1(b)(ii).
"Business" means the Consumer Money Wire Transfer Services marketed
under the name "MoneyGram"(SM) and the sales and distribution of a "MoneyGram"
phonecard.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed in
Denver, Colorado.
"Claim Notice" has the meaning specified in Section 10.3(a).
"Company Data" means, at any time, data files, databases and related
data and information (in any form or medium) relating to the Business or
comprising the input or output of First Data's obligations specified in Article
3, the Support Services or any Additional Services.
"Company Indemnitee" has the meaning specified in Section 10.1(a).
"Confidential Information" has the meaning specified in Section 7.2.
"Consequential Damages" means any liability, Loss, Expense or damage,
whether in an action arising out of breach of warranty, breach of contract,
delay, negligence, theory of tort,
3
<PAGE>
strict liability or other legal or equitable theory, for indirect, special,
reliance, incidental, punitive or consequential damages or commercial loss,
injury or damage, including loss of revenues, profits or use of capital or
production.
"Consumer Money Wire Transfer Services" means the service of
transferring the right to money using computer or telephone lines, or any other
technology now existing or later developed, from one person to a different
person through a MoneyGram Agent and the services marketed under the phrase
"Express Payment" or "Cash Advance".
"Corporate Support Services" means the services specified in Exhibit
A-2.
"Costs" means all direct costs, expenses and charges plus all indirect
costs, expenses and charges, including reasonable allocations of overhead,
incurred by a Party in performing its obligations under this Agreement.
"Data Center Services" means the services specified in Exhibit A-3.
"days" means calendar days.
"Designated Representative" means the employee of First Data
designated in writing from time to time by First Data who shall be the only
individual to whom Company shall provide certain specified information under
this Agreement, including Confidential Information of Company. The Designated
Representative on the date hereof is Michael H. Jeronimus.
"Dispute" has the meaning specified in Section 11.1(a).
"Expenses" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against hereunder (including court
filing fees, court costs, witness fees and reasonable fees and disbursements of
legal counsel, investigators, expert witnesses, accountants and other
professionals).
"Fees" means, with respect to each of the Support Services and the
services provided by IPS under Article 3, the fees and charges set forth or
referenced in Exhibit D and, with respect to any Additional Service, the fees
and charges agreed to in writing by First Data and Company, in each case as the
same may be modified from time to time during the Term.
4
<PAGE>
"Fiduciary Funds" means, (i) in respect of any IPS Funds Transfer
Service transaction that will be paid to the recipient thereof in U.S. dollars,
the amount of money being transmitted to the recipient thereof and (ii) in
respect of any IPS Funds Transfer Service transaction that will be paid to the
recipient thereof in a currency other than U.S. dollars, the amount of U.S.
dollars necessary to purchase the amount of such other currency being
transmitted to the recipient thereof.
"First Data" has the meaning specified in the first paragraph of this
Agreement.
"First Data Equipment" means the equipment owned by or leased to First
Data or its Affiliates required to perform First Data's obligations hereunder.
"First Data Indemnitee" has the meaning specified in Section 10.2(a).
"Force Majeure Event" has the meaning specified in Section 12.3.
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Indemnified Party" has the meaning specified in Section 10.3(a).
"Indemnifying Party" has the meaning specified in Section 10.3(a).
"IPS Application Software" means the application Software owned by IPS
or its Affiliates that is used to provide the Data Center Services until such
time as the Utility Software is available to perform such services in accordance
with Exhibit A-3, together with the documentation (if any) relating thereto, as
described on Exhibit C-1, and any modifications thereto.
"IPS Funds Transfer Service" means the Consumer Money Wire Transfer
Services offered by and in the name of IPS or Travel Related Services.
"IPS Report" has the meaning set forth in Section 6.2.
"Losses" means any and all losses, Costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, deficiencies
or other charges.
5
<PAGE>
"modification" means any modification, enhancement, translation,
conversion, compilation, upgrade or other derivative version of, or change or
addition to, any item, and "modify" and "modified" shall have corollary
meanings.
"MoneyGram Agent" means a Person that has contracted with Travel
Related Services, IPS or the Company, as the case may be, to provide the
Consumer Money Wire Transfer Services provided by the Business.
"MoneyGram Application Software" means the application Software owned
by Company that is used in the Business, together with the documentation (if
any) relating thereto, as described on Exhibit C-2.
"New MoneyGram Application Software" means all developments,
improvements, modifications, additions, expansions, new versions, new releases,
rewrites or enhancements to the MoneyGram Application Software that are
developed by or on behalf of Company after the Closing Date.
"New Utility Software" means all developments, improvements,
modifications, additions, expansions, new versions, new releases, rewrites or
enhancements to the Utility Software that are developed by or on behalf of
Company after the 45-day period provided in Exhibit A-3.
"Panel" has the meaning specified in Section 11.1(b)(ii).
"Party" means First Data or Company as the context requires.
"PC MoneyGram Application Software" means the application Software
owned by Company that is used in the Business, together with the documentation
(if any) relating thereto, as described on Exhibit C-3.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Portfolio" has the meaning specified in Section 3.2(a).
"Proprietary Rights" means all trade secret, copyright, patent,
trademark, service mark, trade name, certification mark, trade dress or other
proprietary rights in all countries related
6
<PAGE>
to such item or any part thereof, any extensions or renewals of the foregoing,
and any registrations, patents or applications with respect to the foregoing.
"Regulatory Compliance Services" means the services specified in
Exhibit A-5.
"Reimbursable Expenses" means, in respect of the Support Services and
the services provided by IPS under Article 3, the items of expense so designated
or described in Exhibit D and, with respect to any Additional Service, the items
of expense so designated or described by written agreement of the Parties, in
each case subject to such additions and deletions as may be made by written
agreement of the Parties from time to time during the Term.
"Requirements of Law" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body.
"Service Mark Letter Agreement" means the Service Mark Letter
Agreement dated as of the date hereof among Company, FDC and Western Union
Financial Services, Inc. ("Western Union"), which includes as an exhibit thereto
the Service Mark License Agreement among IPS, Western Union and Company.
"Software" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level "proprietary" languages, related documentation and
materials, whether in source code, object code or human readable form; provided,
however, that Software shall not include computer software that is available in
consumer retail stores and subject to "shrink-wrap" license agreements.
"Software License Agreement" means the Software License Agreement
dated as of the date hereof between IPS and Company.
"Solvent", when used with respect to any Person, means that at the
time of determination: (i) the fair market value of its assets is in excess of
the total amount of its liabilities (including contingent liabilities determined
in accordance with generally accepted accounting principles); (ii) the present
fair saleable value of its assets is greater than its probable liability on its
existing debts (including contingent liabilities) as such debts become absolute
and matured; (iii) it is then able, and is reasonably expected to be able, to
pay its debts (including contingent debts and other commitments) as they
7
<PAGE>
mature; and (iv) it has capital sufficient to carry on its business as conducted
and as proposed to be conducted.
"State Licenses" means the licenses or permits issued by Governmental
Bodies in respect of State Licensing Requirements.
"State Licensing Requirements" means Requirements of Law related to
the licensing of a Person offering money transfer services.
"Support Services" means the services as described in Exhibits A-1
through A-5.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Body.
"Term" means, subject to the provisions of Section 5.3, the period
commencing on the date hereof and ending on the earlier of: (i) the second
anniversary of the date hereof and (ii) the end of any transition period in
accordance with Section 9.4, except that the obligations of the Parties under
Article 3 (including the Regulatory Compliance Services) shall terminate in
accordance with the provisions of Section 9.1(b).
"Third Party Software" means any Software that is proprietary to a
Person other than any Party or its Affiliates and that is to be obtained and
used by First Data or its Affiliates to perform their obligations hereunder, and
any modifications thereto.
"Third Party Vendor" means, with respect to any item of First Data
Equipment or Third Party Software, the owner, licensor, manufacturer,
distributor or other supplier of such item.
"Travel Related Services" means American Express Travel Related
Services Company, Inc., a New York corporation.
"Utility Software" means the application Software owned by IPS or its
Affiliates that will be licensed to Company under the Software License
Agreement, delivered pursuant to Exhibit A-3
8
<PAGE>
and used by First Data to provide the Data Center Services, together with the
documentation (if any) relating thereto.
"Voice Center Disaster Recovery Services" means the services specified
in Exhibit A-4.
"Voice Center Services" means the services specified in Exhibit A-2.
ARTICLE 2
SERVICES
--------
SECTION 2.1. SUPPORT SERVICES. During the Term, First Data shall
perform for Company, either directly, through its Affiliates or through
agreements with Third Party Vendors, each of the Support Services described in
Exhibit A.
SECTION 2.2. ADDITIONAL SERVICES. During the Term, First Data shall
perform for Company, either directly, through its Affiliates or through
agreements with Third Party Vendors, such Additional Services agreed to by the
Parties. Such Additional Services and the Fees, Reimbursable Expenses and other
terms with respect thereto shall be set forth in an additional Exhibit to this
Agreement or otherwise evidenced by a written amendment hereto.
ARTICLE 3
TRANSACTION SETTLEMENT; PORTFOLIO AND REGULATORY COMPLIANCE
-----------------------------------------------------------
SECTION 3.1. TRANSACTION SETTLEMENT. (a) During the period commencing
on the date hereof and until the earlier of (i) the termination of the
obligations of IPS and Company in respect of any IPS Funds Transfer Service
transaction as specified in Section 9.1(b) and (ii) the date 30 days after the
date Company has obtained all State Licenses necessary to offer the Consumer
Money Wire Transfer Services and conduct the Business in its own name, IPS
shall, subject to Section 3.1(g), be responsible for the administrative function
of collecting all sums due from MoneyGram Agents under Agent Contracts and the
payment of all Fiduciary Funds in respect of completed IPS Funds Transfer
Service transactions in accordance with the terms of the Agent Contracts.
9
<PAGE>
(b) Each Business Day, IPS shall notify Company of the following
items related to IPS Funds Transfer Service transactions effected during the
immediately preceding Business Day (and, if applicable, any intervening non-
Business Day or Days): (i) the aggregate amount received by MoneyGram Agents
from customers in respect of all IPS Funds Transfer Service transactions, (ii)
the aggregate amount of all Fiduciary Funds related to such transactions and
(iii) the aggregate amount of fees paid by customers related to such
transactions.
(c) Each Business Day, IPS shall deliver to Company, in U.S. dollars
by automated clearing house or wire transfer to an account specified by Company,
an amount equal to the amount set forth in respect of clause (iii) of Section
3.1(b).
(d) Company shall pay all fees and any foreign exchange revenues due
to MoneyGram Agents under the Agent Contracts on a timely basis in accordance
with the terms of such Agent Contracts.
(e) The Parties shall agree from time to time on operational
procedures to implement the payment obligations under Section 3.1(c) in a
timely, efficient and prudent manner.
(f) Company acknowledges that all amounts representing Fiduciary
Funds are funds of IPS to be held on behalf of IPS until such time as they are
disbursed by a MoneyGram Agent to the recipient thereof. Company and MoneyGram
Agents shall have a fiduciary duty to IPS with respect to such Fiduciary Funds.
Company shall take appropriate steps on its own initiative and as reasonably
requested by IPS to ensure that MoneyGram Agents are clearly aware of their
responsibilities with respect to such Fiduciary Funds and properly handle such
Fiduciary Funds.
(g) Any amounts paid by IPS to MoneyGram Agents or customers with
respect to any IPS Funds Transfer Service transaction for which a corresponding
settlement of sales proceeds is not received by IPS shall be the sole
responsibility of Company. If IPS makes any payment with respect to any such
transaction, IPS shall be entitled to full reimbursement therefor from Company.
SECTION 3.2. PORTFOLIO. (a) The Parties agree that IPS shall maintain
in accordance with Requirements of Law a portfolio or portfolios of investments
(the "Portfolio") at least equal to the amount of Fiduciary Funds associated
with IPS Funds Transfer Service transactions conducted in the name of IPS that,
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from time to time, have been initiated but not yet paid to the recipient.
(b) The Parties agree to transfer the Portfolio to Company for
management by Company in accordance with the transition contemplated by Section
3.5.
SECTION 3.3. MONEYGRAM AGENTS. (a) Company shall be responsible for
negotiating and enforcing the terms of all Agent Contracts, including in respect
of the sums to be paid to IPS, the timing of remittance fees and consumer funds
to be transferred (subject to compliance with applicable Requirements of Law)
and the payment of any incentive fees to MoneyGram Agents.
(b) The Parties agree that contracts entered into after the date
hereof with respect to the IPS Funds Transfer Service shall be executed (i) in
the name of IPS by Company as IPS's authorized agent for such purpose, (ii)
assignable to Company and (iii) shall be binding upon IPS, it being agreed by
the Parties that no such contract shall, without the prior written consent of
IPS, which consent shall not be unreasonably withheld, contain terms relating to
the liabilities and obligations of IPS that are materially more onerous to IPS
than those set forth in the form or forms of contract set forth in Exhibit F.
Promptly after entering into any Agent Contract or amending or modifying any
Agent Contract, Company shall inform the Designated Representative, in writing,
of the material terms thereof, including the timing of payment of Fiduciary
Funds. If required in order to comply with Requirements of Law or State
Licensing Requirements, the Company shall deliver to the Designated
Representative a copy of any Agent Contract requested by IPS to be used solely
for such purposes.
(c) Company shall have sole discretion in selecting the entities that
shall serve as MoneyGram Agents; provided, however, that, if First Data
reasonably determines that providing the IPS Funds Transfer Service through a
MoneyGram Agent could reasonably be expected to subject First Data to potential
liability under, or cause First Data to violate or not be in full compliance
with, applicable Requirements of Law, including State Licensing Requirements,
federal and state currency reporting and anti-money laundering statutes or
similar laws, then First Data may give Company written notice of its desire not
to provide the services contemplated by this Article 3 in respect of such
MoneyGram Agent. If Company does not object to such written notice within five
Business Days of receipt thereof, First Data shall be excused from its
obligations to perform under this
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Article 3 in respect of such MoneyGram Agent. If Company does so object by
written notice to First Data within such five Business Day period, then First
Data shall continue to perform its obligations under this Article 3 in respect
of such MoneyGram Agent, and First Data and Company shall resolve their dispute
in accordance with the following procedures:
(i) Any disputes or controversies under this Section 3.3(c) shall be
settled by arbitration before a single arbitrator in Denver, Colorado under
the Expedited Procedures of the AAA Rules. The AAA shall provide the
Parties with a list of proposed arbitrators within five Business Days of
the filing of a demand for arbitration. Each Party shall have three
Business Days to return the list containing its peremptory strikes of
arbitrators. The AAA shall then appoint a single arbitrator within five
Business Days of receiving the return of the Parties' lists, and any
objections by the Parties to the qualifications of the arbitrator shall be
made within two Business Days thereafter. Within five Business Days of the
date for Parties' objections to the qualifications of the arbitrator, the
arbitration hearing shall begin and it shall be continued from day to day
until completed. The arbitrator's award shall be rendered within five
Business Days of the completion of the hearing;
(ii) To the extent that the award rendered by the arbitrator is
relief or a remedy on which a court could enter judgment, a judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction. Otherwise the award shall be binding on the Parties in
connection with their continuing performance of this Agreement and in any
subsequent arbitral or judicial proceeding between the Parties; and
(iii) To the extent that there is a dispute or controversy as to
whether providing the IPS Funds Transfer Service through a MoneyGram Agent
could reasonably be expected to cause First Data to violate or not be in
full compliance with applicable Requirements of Law under this Section
3.3(c), either Party may, but is not required to, obtain an opinion or
ruling from the applicable Governmental Body regarding such issue. Any such
opinion or ruling shall be conclusive between the Parties. If such opinion
or ruling is obtained prior to or during an arbitration proceeding, it
shall be conclusively binding upon the arbitrator in rendering the award,
and the arbitrator's authority shall be limited to rendering an award that
is consistent with the opinion or ruling. If such opinion or
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ruling is obtained after an award has been rendered, the Parties agree to
vacate any award inconsistent with the opinion or ruling, and any judgment
rendered on such an award. Vacating of such an award and/or judgment,
however, shall not affect the Parties' rights to have relied upon the award
and/or judgment while it was in effect.
(d) Company shall have the authority, in its sole discretion, to
terminate any MoneyGram Agent in accordance with the terms of the applicable
Agent Contract. Company shall have the authority to determine where the
Business is conducted, subject to compliance with applicable Requirements of
Law.
SECTION 3.4. COMPLIANCE WITH LAWS. (a) Company and IPS each agrees
that it will perform its obligations under this Article 3 and, in the case of
IPS, the Regulatory Compliance Services so as not to cause the other Party or
the Business to be in violation of any applicable Requirements of Law, including
State Licensing Requirements, permissible investment rules, prompt remittance
rules and federal and state currency reporting and anti-money laundering
requirements.
(b) IPS shall, with the cooperation and assistance of Company and at
Company's expense, provide Regulatory Compliance Services, including making all
required filings with any Governmental Body, that are required in connection
with the Business solely as it relates to the sale of the IPS Funds Transfer
Service and shall comply with State Licensing Requirements and licensing,
escheat and sales Tax laws with respect to the Business. The Parties
acknowledge that IPS shall have no obligation under this Section 3.4(b) with
respect to any Consumer Money Wire Transfer Services conducted by Company in its
own name, including in connection with the transition contemplated by Section
3.5.
(c) IPS shall prepare and provide Company (i) the operating,
financial, investments, sales and outstanding, and abandoned property reports
that IPS generated in respect of the Business prior to the date hereof in the
ordinary course of its business and (ii) such other reports and information (in
such form and frequency as Company may reasonably request) sufficient to enable
Company to monitor the Business.
(d) Company may (with prior written approval of IPS, which shall not
be unreasonably withheld) initiate, prosecute and resolve collection actions
against MoneyGram Agents or other actions in the name of IPS to enforce and
defend IPS's rights under the Agent Contracts. Company shall keep the
Designated
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Representative informed on a timely and regular basis of any material
developments in any such action.
SECTION 3.5. TRANSITION OF BUSINESS. (a) As soon as practicable
after the execution of this Agreement, Company shall apply for and use its best
efforts to obtain State Licenses to offer Consumer Money Wire Transfer Services
and conduct the Business in its own name. No later than three months after the
date hereof, Company shall inform the Designated Representative, in writing, of
the material terms of Company's strategy and anticipated schedule for obtaining
such licenses and shall keep IPS informed, in writing, on a timely and regular
basis of any changes to such strategy and schedule.
(b) Company shall notify the Designated Representative in writing
before filing any license application contemplated by Section 3.5(a). IPS may
elect to participate in any such application process if it deems such
participation appropriate to protect licenses IPS will continue to maintain in
connection with its businesses.
(c) Company shall begin converting MoneyGram Agents from sellers of
the IPS Funds Transfer Services to become sellers of Consumer Money Wire
Transfer Services offered in Company's name as soon as possible after obtaining
the appropriate State Licenses to allow for such conversion.
(d) Company shall keep the Designated Representative informed on a
regular and timely basis (with such frequency and in such format as IPS
reasonably requests) of all of its plans and activities relating to the
transition process contemplated hereunder, including as to the schedule and
status of State License applications and the conversion of MoneyGram Agents and
the Portfolio.
(e) Subject to its other rights under this Agreement, IPS shall
cooperate in good faith with Company in support of Company's transition plan and
take such actions as are reasonable and necessary to support such transition,
including assignment of Agent Contracts.
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ARTICLE 4
SECURITY
--------
The IPS Application Software and the Utility Software are and shall
remain First Data's property, and Company shall have no rights to, or interest
in, the IPS Application Software or the Utility Software, except as provided in
the Software License Agreement. As between First Data and Company, First Data
shall exercise exclusive control over the First Data Equipment, IPS Application
Software, First Data personnel and physical premises and facilities used by
First Data and its Affiliates to perform its obligations hereunder. Any use of
or access to such First Data Equipment, IPS Application Software, First Data
personnel, physical premises or facilities by Company personnel shall be subject
to First Data's express prior consent in each specific instance. The personnel
of each Party shall comply with the security and other rules, policies and
procedures applicable to the other Party's employees and invitees for access to
such other Party's premises or facilities.
ARTICLE 5
GENERAL AGREEMENTS OF THE PARTIES
---------------------------------
SECTION 5.1. COMPANY OBLIGATIONS. (a) Except as set forth in this
Agreement, Company hereby agrees to perform and be responsible for all aspects
of the Business, including all sales and marketing activities and credit review
and analysis related to selecting and maintaining MoneyGram Agents.
(b) Company agrees to perform on a timely basis its obligations set
forth in this Agreement. Without limiting the generality of the foregoing,
Company agrees to:
(i) inspect and review all reports, displays and other output prepared
by First Data in connection with performing its obligations hereunder and
reject all such incorrect reports, displays or output within the period
necessary to permit timely correction of such report, display or output, as
specified in Exhibit B;
(ii) comply with the operating procedures established from time to
time by First Data in connection with the provision of its Data Center
Services hereunder, it being understood that First Data has provided to
Company a copy of such procedures as in effect on the date hereof; and
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(iii) provide to the Designated Representative such timely management
decisions, access to personnel, information (including financial statements
necessary for IPS to perform its obligations under Article 3 (including
Regulatory Compliance Services) in respect of, or to comply with, State
Licensing Requirements), approvals and acceptances as First Data or its
Affiliates may reasonably request in order to perform their obligations
hereunder, including (A) furnishing to the Designated Representative on a
monthly basis by the first of each month, for First Data's planning
purposes, reports of Company's anticipated need for Support Services (and
Additional Services, if any) during the next six-month period (but not
beyond the later of (i) the end of the Term and (ii) the expiration of
First Data's obligations under Section 9.4), and (B) promptly informing the
Designated Representative of any proposed business changes that would
require First Data to alter its performance of its obligations hereunder.
(c) The failure of Company to reject any report, display or output
within the applicable time period as contemplated by Section 5.1(b)(i) shall
constitute acceptance thereof. If Company rejects any such report, display or
output within the applicable time period, then upon request of Company, First
Data shall use reasonable efforts to correct the report, display or output. The
correction of any such incorrect report, display or output, at First Data's
expense (to the extent that First Data is responsible primarily therefor and has
received timely notice thereof), shall be Company's sole and exclusive remedy
for any such incorrect report, display or output.
SECTION 5.2. FIRST DATA OBLIGATIONS. Except as may otherwise be
agreed during the Term, First Data shall perform the Support Services, any
Additional Services and the services under Article 3 in all material respects in
a professional and workmanlike manner.
SECTION 5.3. EXTENSION OF TERM; MONEY ORDER PROCESSING. (a) Upon
the written request of Company, in its sole discretion, at any time during the
Term, First Data will negotiate in good faith (i) an extension of the Term or
(ii) the terms of a new agreement covering the provision by First Data to
Company of any or all of the Support Services, any Additional Services or the
services contemplated by Article 3, in each case upon such terms and conditions,
including prices, to be agreed upon by First Data and Company.
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(b) Upon the written request of Company, in its sole discretion at any
time during the Term, First Data will negotiate in good faith the terms of
Additional Services to be provided to Company in respect of (i) a money order
product offered by Company in the names of IPS, as the entity licensed to offer
such a product under State Licensing Requirements, and Company and (ii) at such
time as Company has obtained State Licenses necessary under State Licensing
Requirements to offer such product in its own name, a money order product
offered by Company in the name of Company. Any agreement among the Parties in
respect of such Additional Services shall be entered into in accordance with
Section 2.2; provided, however, that the Fees and Reimbursable Expenses in
respect of such Additional Services shall not be greater than then-current
market rates.
SECTION 5.4. LICENSE TO CERTAIN SOFTWARE. (a) Company hereby grants
First Data a non-exclusive, royalty-free license for the Term to execute the
MoneyGram Application Software and any New MoneyGram Application Software or New
Utility Software in connection with First Data's performance of the Data Center
Services. As between First Data and Company, the MoneyGram Application Software
and any New MoneyGram Application Software or New Utility Software will remain
Company's property. First Data will have no ownership interest or other right
in the MoneyGram Application Software or any New MoneyGram Application Software
or New Utility Software. Company represents and warrants to First Data that any
New MoneyGram Application Software and New Utility Software will not violate or
infringe, directly or indirectly, any Proprietary Rights of any other Person or
contribute to any such violation or infringement.
(b) If any injunction is issued as to the MoneyGram Application
Software or any New MoneyGram Application Software or New Utility Software
because of the violation or infringement, or alleged violation or infringement,
of a third Person's Proprietary Rights, Company shall use reasonable efforts to
modify or replace such Software in order to avoid such violation or
infringement. If Company is unable to so modify or replace such Software with
reasonable efforts, at reasonable prices or within a reasonable period of time,
then First Data shall not be responsible for providing to Company the affected
portion of the Data Center Services.
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ARTICLE 6
PAYMENTS TO FIRST DATA
----------------------
SECTION 6.1. FEES AND CHARGES. The initial Fees for the Support
Services and the services performed by First Data under Article 3 are set forth
in Exhibit D. Exhibit D also sets forth or describes the applicable
Reimbursable Expenses, including reimbursements, assessments and pass through
fees of Third Party Vendors. If First Data commences to perform any Additional
Services for Company after the execution of this Agreement, then Company shall
pay Fees and Reimbursable Expenses for any such Additional Services as agreed
upon by the Parties and set forth in writing.
SECTION 6.2. IPS REPORTS AND PAYMENTS. In respect of each calender
month, First Data shall deliver to Company a report (the "IPS Report") setting
forth in reasonable detail the following information in respect of such month,
such IPS Report to be delivered to Company as soon as reasonably practicable
after the information needed to compile the report is available to First Data
and in no event later than the 15th day after the end of such month: (i) the
aggregate amount of foreign exchange revenues realized in respect of all IPS
Funds Transfer Service transactions effected and (ii) the aggregate amount of
all Fees, Costs, charges, Reimbursable Expenses, Taxes, interest payments and
other amounts due or payable to First Data under this Agreement. The difference
between the amounts set forth in response to items (i) and (ii) above in the IPS
Report is defined herein as the "Amount Due".
If the Amount Due is a positive number, then IPS shall pay to Company
the absolute value of the Amount Due and, if the Amount Due is a negative
number, then Company shall pay to IPS the absolute value of the Amount Due.
Payments of the Amount Due with respect to any IPS Report shall be made no later
than five Business Days following the delivery of such IPS Report. Such payment
shall be made by wire transfer to the account identified in writing from time to
time by the Party receiving an Amount Due.
To the extent Company disputes in good faith any portion of the IPS
Report or the calculation of the Amount Due, then Company shall so notify First
Data and such dispute shall be resolved pursuant to the procedures set forth in
Article 11. Notwithstanding the existence of any such dispute, each Party agrees
to pay, and continue to pay, any Amount Due on a timely basis in accordance with
the terms hereof, without set-off or
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taking other action other than pursuant to the procedures set forth in Article
11.
SECTION 6.3. TAXES. (a) In addition to any and all other payments
to First Data to be made hereunder, Company shall pay, or shall reimburse First
Data for payments made in respect of, all Taxes which are levied or imposed by
any Governmental Body by reason of the performance, sale, license or use of any
services, equipment, software or other goods or products covered by this
Agreement, excluding any income Taxes payable by First Data on amounts earned by
First Data hereunder. Without limitation on the foregoing, Company shall
promptly pay to First Data an amount equal to any such Taxes actually paid or
required to be collected or paid by First Data.
(b) Company hereby authorizes First Data to calculate the total
amount of escheat and sales Taxes due from Company from the monies due First
Data and remit the amount of escheat and sales Taxes to the appropriate taxing
authority on behalf of Company. First Data's remittance of the escheat and
sales Taxes on behalf of Company shall be computed by First Data based on the
information available to First Data. In the event of under or over calculation,
Company shall be responsible for any additional monies due including any
penalties or interest and for collecting any refunds due to Company from the
appropriate taxing authority, unless such calculation resulted from First Data's
negligence or willful misconduct.
(c) Prior to First Data making the escheat and sales Tax remittance
on behalf of Company provided in paragraph (b) above, Company agrees to supply
First Data with any and all current information necessary for First Data to
compute and remit the escheat and sales Taxes.
SECTION 6.4. CERTIFICATION OF CHARGES. First Data shall provide,
upon reasonable request, the written certificate of First Data's authorized
officer, certifying that any amount calculated by First Data hereunder has been
accurately calculated in accordance with the terms of this Agreement.
ARTICLE 7
CONFIDENTIALITY
---------------
SECTION 7.1. GENERAL. (a) Except as otherwise provided in this
Article 7, each Party shall keep confidential and not disclose Confidential
Information of the other Party.
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The Parties shall take reasonable steps, no less rigorous than those taken to
protect their own comparable confidential and proprietary information, to
prevent any unauthorized or inadvertent disclosure of Confidential Information
of the other Party or the loss of Confidential Information. Each Party agrees
that for purposes of this Article 7, the terms First Data and Company shall also
include their respective Affiliates, who shall be subject to the provisions of
this Article 7.
(b) Each Party shall create and maintain safeguards to limit
disclosure of Confidential Information of the other Party to its Affiliates, and
its or its Affiliate's employees, third party service providers, consultants,
subcontractors and contractors who have a need to know such information solely
in connection with such Party's obligations under this Agreement or rights under
the Software License Agreement or, if applicable, the Service Mark License
Agreement, and provided that any such Person who is not an employee of the Party
or an Affiliate of such Party making such disclosure shall have first executed a
confidentiality agreement containing terms consistent with the obligations of
this Article 7. First Data acknowledges and agrees to use best efforts to
establish and maintain safeguards so that Confidential Information of Company
shall not be used in competition with, or otherwise to the detriment of,
Company.
(c) Subject to Company's rights under the Software License Agreement
and, if applicable, the Service Mark License Agreement, each Party agrees that,
upon request by the other Party, such Party shall return to the other Party any
Confidential Information of the other Party which such Party does not then
require to perform its obligations hereunder. No Party shall obtain any
Proprietary Rights under this Agreement in any of the other Party's Confidential
Information that has been or at any time after the date of this Agreement is
disclosed, directly or indirectly, to such Party exclusively pursuant to this
Agreement.
SECTION 7.2. CONFIDENTIAL INFORMATION DEFINED. As used herein the
term "Confidential Information" means (i) with respect to Company, the Company
Data, the MoneyGram Application Software, any New MoneyGram Application
Software, the PC MoneyGram Application Software, any New Utility Software and
any Third Party Software that is licensed to or used by Company, (ii) with
respect to First Data, the IPS Application Software, the Utility Software and
any Third Party Software that is licensed to or used by First Data and (iii)
with respect to each Party, the terms of this Agreement and all information and
materials (in any medium), whether communicated to a Party before or after the
date
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hereof, respecting, comprising, describing, embodying or incorporating:
(i) information about such Party's business, customers, employees,
finances, operations, products or services,
(ii) other technical data, research, products, business or financial
information, plans or strategies, forecasts or forecast assumptions,
business practices, operations or procedures, services, marketing or
merchandising information respecting such Party or its customers, or
(iii) computer software and documentation, databases, data processing
or communications systems, practices or procedures or other internal
systems or controls (planned or in any stage of development) used, owned or
developed (or in development) by or at the request of such Party (including
(1) object code, source code, source listings, programming techniques or
systems, programming or systems documentation or specifications, or user,
operations or systems manuals, (2) hardware, firmware or other equipment or
appliances, engineering drawings, schematics or related documentation,
specifications or manuals or (3) other charts, diagrams, graphs, models,
sketches, writings or data related thereto),
including, in each case, any trade secrets and other proprietary ideas,
concepts, know-how, methodologies and information incorporated therein, whether
incorporated in materials produced by a Party pursuant to or in connection with
this Agreement or any other agreement between the Parties; provided, however,
that the Party disclosing such information in tangible form shall mark any
tangible material containing Confidential Information of such Party with an
appropriate legend indicating the confidential nature of such material prior to
providing such material to the other Party; and provided, further, that the
failure of either Party to so legend any material shall not relieve the other
Party of the obligation to maintain the confidentiality of any unlegended
material which such Party knows or should reasonably know contains Confidential
Information of the other Party.
SECTION 7.3. PERMITTED DISCLOSURE; PUBLIC AND GENERIC INFORMATION;
LEGALLY REQUIRED DISCLOSURE. (a) The provisions of this Article 7 shall not
apply to any Confidential Information to the extent included in any assignment
of any of Company's rights under the Software License Agreement or, if
applicable, the Service Mark License Agreement if effected in accordance with
the
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terms of such agreements; provided, however, that such assignee executes and
delivers to IPS an agreement to be bound by the terms of this Article 7 in
respect of such Confidential Information, in form and substance reasonably
satisfactory to IPS.
(b) The provisions of this Article 7 shall not prohibit disclosure by
a Party of any information or materials identical or similar to that contained
in another Party's Confidential Information, but which (i) are or become
generally available to the public other than as a result of any breach of the
provisions of this Agreement or any other applicable agreement between the
Parties; (ii) are in the possession of such Party or any of its Affiliates prior
to receipt thereof (other than through any improper means) and are not subject
to a confidentiality obligation; (iii) are commonly known to Persons engaged in
the funds transfer, payment instrument, message or document delivery,
telecommunications or data processing industries or by individuals employed by
Persons engaged in such industries other than as a result of any breach of the
provisions of this Agreement or any other applicable agreement between the
Parties; or (iv) are independently developed by such Party without reference to
the Confidential Information of the other Party.
(c) A Party may disclose Confidential Information to the extent
required to be disclosed by such Party under any Requirements of Law applicable
to such Party or the conduct of such Party's business or otherwise (provided
that upon receipt of demand for any such required disclosure such Party shall
provide the disclosing Party prompt notice thereof).
SECTION 7.4. NOTICES. Each Party agrees that it will not remove any
statutory copyright notice or other identification or evidence of Confidential
Information contained on or included in any item of Confidential Information of
the other Party. The Parties shall each reproduce any such notice or
identification on any reproduction, modification or translation of such
Confidential Information and shall add any statutory copyright notice or other
evidence of confidential information to the other Party's Confidential
Information in its possession upon reasonable request by the other Party.
SECTION 7.5. COMPANY DISCLOSURE OF CONFIDENTIAL INFORMATION TO FIRST
DATA. Company hereby agrees that it shall, and shall cause its Affiliates and
its or its Affiliates officers, employees, representatives, agents and advisors
to, disclose only to the Designated Representative any and all
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Confidential Information of Company that Company desires or intends to, or is
required by the terms of this Agreement to, disclose to First Data or its
Affiliates.
SECTION 7.6. REMEDY. In the event of any breach of this Article 7,
the Parties agree that the non-breaching Party will suffer irreparable harm and
the total amount of monetary damages for any injury to the non-breaching Party
from any violation of this Article 7 will be impossible to calculate and will
therefore be an inadequate remedy. Accordingly, the Parties agree that the non-
breaching Party shall be entitled to temporary and permanent injunctive relief
against the breaching Party, its Affiliates, employees, officers, directors,
agents or representatives, and the other rights and remedies to which the non-
breaching Party may be entitled to at law, in equity and under this Agreement
for any violation of this Article 7. The provisions of this Article 7 shall
survive the expiration or termination of this Agreement.
ARTICLE 8
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
--------------------------------------------
IT IS UNDERSTOOD AND AGREED THAT FIRST DATA DOES NOT REPRESENT,
WARRANT OR GUARANTEE IN ANY WAY THAT THE PERFORMANCE OF THE SUPPORT SERVICES,
ANY ADDITIONAL SERVICES OR THE SERVICES CONTEMPLATED BY ARTICLE 3 WILL BE
UNINTERRUPTED OR ERROR FREE. EXCEPT AS PROVIDED HEREIN, NO PARTY HERETO MAKES
ANY, AND EACH PARTY HERETO HEREBY EXPRESSLY DISCLAIMS ANY, REPRESENTATIONS OR
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATED TO THIS
AGREEMENT, INCLUDING AS TO ANY SERVICES, HARDWARE, SOFTWARE, EQUIPMENT OR
MATERIALS PROVIDED OR USED BY OR ON BEHALF OF ANY PARTY UNDER THIS AGREEMENT.
EACH PARTY HERETO EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. FIRST DATA AND COMPANY HEREBY AGREE THAT
THIS AGREEMENT INVOLVES THE PROVISIONS OF SERVICES, AND THAT THIS AGREEMENT IS A
SERVICE AGREEMENT FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE AND THEREFORE THAT
THE PROVISIONS OF THE UNIFORM COMMERCIAL CODE SHALL NOT APPLY TO THIS AGREEMENT.
ARTICLE 9
TERM AND TERMINATION
--------------------
SECTION 9.1. TERM. (a) This Agreement shall commence on the date
hereof and, subject to the earlier termination of (i) the services contemplated
in Article 3 pursuant to Section 3.1(a)
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(including the Regulatory Compliance Services) or (ii) the Data Center Services,
the Agent Services, the Corporate Support Services, the Voice Center Disaster
Recovery Services or any Additional Services pursuant to Section 9.2(b), shall
continue for the Term, unless earlier terminated as provided in Section 9.2 or
Section 9.3.
(b) Upon the earlier of (i) the expiration of the Term or (ii) the
conditions specified in clause (ii) of Section 3.1(a) have been fulfilled, IPS
shall have no further obligation to allow Company or any MoneyGram Agent to
continue to sell the IPS Funds Transfer Service. On or before the expiration of
the earlier of the Term or the transition period contemplated by Section 9.4,
Company shall terminate on behalf of IPS all Agent Contracts between IPS and
MoneyGram Agents in respect of the IPS Funds Transfer Service or convert such
Agent Contracts into contracts between Company and MoneyGram Agents, destroy at
its expense all IPS blank financial paper (money transfer checks) not shipped to
MoneyGram Agents and perform such other tasks as are reasonably requested by
First Data for the prompt, orderly and proper wind-down of the IPS Funds
Transfer Service relationship with such MoneyGram Agents. After the expiration
of the earlier of the Term or the transition period contemplated by Section 9.4,
IPS and Company shall continue to fulfill their respective obligations under
Article 3 (including, in the case of IPS, Regulatory Compliance Services) so
long as any IPS Funds Transfer Service transactions remain uncompleted, and,
once all IPS Funds Transfer Service transactions are completed, then Article 3
shall be null and void and of no further force or effect.
SECTION 9.2. TERMINATION BY COMPANY. (a) This Agreement shall
terminate upon the occurrence of any of the following events and (i) in the case
of clause (A), (C) or (D) below, at the option of Company by written notice to
First Data and (ii) in the case of clause (B) below, immediately and without
prior written notice or any other action by Company:
(A) If First Data or any Affiliate of First Data shall fail to
perform, or repudiates or seeks to avoid or invalidate, any material
obligation to be performed by it under this Agreement, provided that (i) in
the case of any breach which is capable of being cured, or otherwise
discontinued, First Data has received notice of such breach from Company
demanding such breach be cured and First Data has not cured or discontinued
such breach within 30 days of receipt of such notice; and (ii) the Parties
have exhausted the dispute resolution proceedings described in Article 11;
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(B) In the event of Bankruptcy of IPS;
(C) If a Governmental Body enjoins the performance by a Party of any
material obligations under this Agreement; or
(D) If Company reasonably determines that First Data is not Solvent.
(b) Notwithstanding anything to the contrary in this Agreement,
(i) if the conditions specified in clause (ii) of Section 3.1(a) have
been fulfilled, Company may terminate this Agreement in its entirety by
giving First Data 90 days' notice thereof; and
(ii) if Company shall determine that it no longer requires (1) the
Data Center Services, (2) the Agent Services, (3) the Corporate Support
Services, (4) the Voice Center Disaster Recovery Services, (5) the Voice
Center Services or (6) any Additional Services, in the case of clause (1),
(2) or (3), as a whole or any portion thereof (provided that Company may
only terminate groups of Data Center Services as described in Exhibit E),
and, in the case of clause (4) or (5), as a whole, then Company shall give
First Data prior written notice of such determination as follows:
(A) in the case of all or any portion of the Data Center
Services, 90 days' notice;
(B) in the case of all or any portion of the Agent Services, 30
days' notice;
(C) in the case of all or any portion of the Corporate Support
Services, 30 days' notice;
(D) in the case of the Voice Center Disaster Recovery Services,
30 days' notice;
(E) in the case of the Voice Center Services, 30 days' notice;
and
(F) in the case of any Additional Services, as agreed to by the
Parties.
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Upon any such termination, the provisions of this Agreement that
relate to such Support Services or any Additional Services so terminated
shall be void and of no further force and effect and the Parties shall
effect the provisions of the last paragraph of Section 9.5. If Company
terminates all or any portion of the Data Center Services prior to the time
that First Data's obligations under Article 3 have terminated, then Company
shall provide to First Data such information at such times as First Data
reasonably requests as necessary or desirable to perform its obligations
under Article 3 (including Regulatory Compliance Services). The failure of
Company to so provide such information at the times required shall excuse
First Data from its obligations to perform under Article 3 for any period
affected by, and to the extent of, such failure by Company, and First Data
shall not be liable to Company under this Agreement in connection with
First Data's duties or obligations under Article 3.
SECTION 9.3. TERMINATION BY FIRST DATA. (a) This Agreement shall
terminate upon the occurrence of any of the following events and (i) in the case
of clause (A), (C) or (D) below, at the option of First Data by written notice
to Company and (ii) in the case of clause (B) below, immediately and without
prior written notice or any other action by First Data:
(A) If Company or any Affiliate of Company shall fail to perform, or
repudiates or seeks to avoid or invalidate, any material obligation to be
performed by it under this Agreement, provided that (i) in the case of any
breach which is capable of being cured, or otherwise discontinued, Company has
received notice of such breach from First Data demanding such breach be cured
and Company has not cured or discontinued such breach within 30 days of receipt
of such notice; and (ii) the Parties have exhausted the dispute resolution
proceedings described in Article 11;
(B) In the event of Bankruptcy of Company;
(C) If a Governmental Body enjoins the performance by a Party of any
material obligations under this Agreement; or
(D) If First Data reasonably determines that Company is not Solvent.
(b) Notwithstanding anything to the contrary in this Agreement,
First Data shall have the right to terminate the
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Corporate Support Services described in Exhibit A-2.1 upon 60 days' prior
written notice to Company.
SECTION 9.4. ORDERLY TRANSITION. Upon termination of this Agreement
pursuant to Section 9.2(a) or 9.3(a), First Data and Company shall expeditiously
and in good faith, agree upon and document a plan providing for an orderly
transition of any or all of the obligations of First Data hereunder, as the case
may be, to a successor over a period of not less than 180 days from the date of
such termination. Such transition period shall be deemed to be part of the Term,
unless otherwise agreed to by the Parties. During such transition period, First
Data shall provide reasonable transition assistance to Company. Company shall
compensate First Data, on a time and materials basis, for such assistance, at
First Data's then prevailing rates (plus reimbursement of out-of-pocket
expenses) in addition to all other payment obligations of Company pursuant to
and in accordance with this Agreement.
SECTION 9.5. EFFECT OF TERMINATION. Upon the termination of this
Agreement, each Party shall have no further obligation to perform any obligation
hereunder to the other Party and all outstanding unpaid amounts due and owing to
First Data or Company under the terms of this Agreement shall become immediately
due and payable, provided, however, that the termination of this Agreement shall
not affect the following:
(a) The obligation of Company to pay for any services rendered or any
other obligation or liability owing or which becomes owing under this Agreement
whether the obligations arise prior to or after the date of termination,
including pursuant to Section 9.4;
(b) The provisions of Article 10 or any other indemnification
obligations of any Party;
(c) The provisions of Section 3.5, Section 5.3 and Section 9.4;
(d) The provisions of Article 7 or any other confidentiality
obligations of any Party; and
(e) The provisions of Article 11.
In addition, upon the termination of this Agreement, each Party shall
return to the other Party all copies of such Party's Confidential Information,
and shall erase all versions of the other Party's Confidential Information from
its data files,
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in each case, other than any Confidential Information licensed to Company under
the Software License Agreement or, if applicable, the Service Mark License
Agreement.
ARTICLE 10
INDEMNITIES, LIABILITY AND
LIMITS OF LIABILITY
--------------------------
SECTION 10.1. FIRST DATA'S INDEMNIFICATION. (a) Subject to the
provisions of this Article 10, First Data shall indemnify and hold harmless
Company, its Affiliates and their respective directors, officers, employees,
shareholders and permitted assigns (each, a "Company Indemnitee") from and
against any and all Loss and Expense imposed in any manner upon or asserted
against any Company Indemnitee in connection with or arising from this Agreement
to the extent that such Loss or Expense relates to or arises out of:
(i) the breach by First Data or any Affiliate of First Data of any
material covenant or agreement of First Data or any Affiliate of First Data
contained in this Agreement; or
(ii) any claim, demand or action alleging that the First Data
Equipment infringes any third Person's Proprietary Rights.
(b) Notwithstanding subsection (a) of this Section 10.1, First Data
shall not be required to indemnify, protect or hold harmless any Company
Indemnitee from and against any Loss or Expense to the extent that such Loss or
Expense arises as a result of (i) any Company Indemnitee's gross negligence or
willful misconduct, (ii) the breach by Company or any Affiliate of Company any
of its covenants or agreements contained in this Agreement or (iii) any
modification contained in the New MoneyGram Application Software or the New
Utility Software or the incapability of any such Software with the First Data
Equipment.
(c) Except as provided in Section 10.1(d), notwithstanding anything
to the contrary in this Agreement, the cumulative liability of First Data under
Section 10.1(a) relating to any and all events occurring in any one calendar
year shall not under any circumstances exceed the aggregate amount of fees paid
to First Data for its services provided hereunder performed during the
immediately preceding calendar year; and in the case of events occurring in the
remainder of the calendar year in
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which this Agreement is executed, such liability shall not under any
circumstances exceed $2 million.
(d) Notwithstanding the limitation of liability provided in Section
10.1(c), if the liability of First Data under Section 10.1(a) arises as a result
of its gross negligence or willful misconduct in the performance of its
obligations hereunder, then the cumulative liability of First Data under Section
10.1(a) relating to any and all events occurring in any one calendar year shall
not under any circumstances exceed an amount equal to two times the aggregate
amount of fees paid to First Data for its services provided hereunder performed
during the immediately preceding calendar year; and in the case of events
occurring in the remainder of the calendar year in which this Agreement is
executed, such liability shall not under any circumstances exceed $4 million.
SECTION 10.2. COMPANY'S INDEMNIFICATION. (a) Subject to the
provisions of this Article 10, Company shall indemnify and hold harmless First
Data and its Affiliates and their respective directors, officers, employees,
shareholders and permitted assigns (each, a "First Data Indemnitee") from and
against any and all Loss and Expense imposed in any manner upon or asserted
against any First Data Indemnitee in connection with or arising from this
Agreement to the extent that such Loss or Expense relates to or arises out of:
(i) the breach by Company or any Affiliate of Company of any material
covenant or agreement of Company or any Affiliate of Company contained in
this Agreement;
(ii) any claim, demand or action alleging that any New MoneyGram
Application Software or New Utility Software, any modification to the PC
MoneyGram Application Software or any Software (other than the MoneyGram
Application Software), Company Data or Third Party Software provided by
Company or any Affiliate of Company or any portion thereof as furnished to
or used by First Data or its Affiliates under this Agreement infringes any
third Person's Proprietary Rights; provided that Company shall not be
required to indemnify and hold harmless any First Data Indemnitee to the
extent an actual or alleged infringement is caused by any First Data
Indemnitee combining any New MoneyGram Application Software or New Utility
Software or any Software (other than the MoneyGram Application Software),
Company Data or Third Party Software with any other Software without the
express consent of Company; and provided, further, that Company's
obligations hereunder shall also not apply to the extent
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that an infringement claim is made with respect to Software (other than the
MoneyGram Application Software, the PC MoneyGram Application Software, the
IPS Application Software or the Utility Software) provided by First Data to
Company or enhancements to Software, Company Data or Third Party Software
that are requested by First Data or any Affiliate of First Data and which
are implemented using designs or specifications created by First Data or
any Affiliate of First Data;
(iii) any claim that the Business, Company or any Affiliate of Company
has violated or does not comply with any Requirements of Law, except to the
extent such violation or lack of compliance directly relates to the
services provided by First Data under this Agreement;
(iv) any claim by any third Person (including any MoneyGram Agent)
that Company breached any contractual or other legal obligation (including
any Agent Contract) owed or alleged to be owed to such third Person;
(v) the performance on and after the date hereof of all aspects of the
Business not delegated to First Data under this Agreement, including all
activities contemplated by Section 5.1; or
(vi) any application for any license as contemplated by Section
3.4(b).
(b) Notwithstanding subsection (a) of this Section 10.2, Company
shall not be required to indemnify or hold harmless any First Data Indemnitee
from and against any Loss or Expense to the extent that such Loss or Expense
arises as a result of any First Data Indemnitee's gross negligence or willful
misconduct or the breach by First Data or any Affiliate of First Data of any of
its covenants or agreements contained in this Agreement.
(c) Except as provided in Section 10.2(d), notwithstanding anything
to the contrary in this Agreement, the cumulative liability of Company under
Sections 10.2(a)(i) and (ii) relating to events occurring in any one calendar
year shall not under any circumstances exceed the aggregate amount of fees paid
to First Data for its services provided hereunder performed during the
immediately preceding calendar year; and in the case of events occurring in the
remainder of the calendar year in which this Agreement is executed, such
liability shall not under any circumstances exceed $2 million.
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(d) Notwithstanding the limitation of liability provided in Section
10.2(c), if the liability of Company under Section 10.2(a)(i) or (ii) arises as
a result of its gross negligence or willful misconduct in the performance of its
obligations hereunder, then the cumulative liability of Company under Sections
10.2(a)(i) and (ii) relating to events occurring in any one calendar year shall
not under any circumstances exceed an amount equal to two times the aggregate
amount of fees paid to First Data for its services provided hereunder performed
during the immediately preceding calendar year; and in the case of events
occurring in the remainder of the calendar year in which this Agreement is
executed, such liability shall not under any circumstances exceed $4 million.
SECTION 10.3. NOTIFICATION. (a) Any Person (the "Indemnified
Party") seeking indemnification hereunder shall give promptly to the Party
obligated to provide indemnification to such Indemnified Party (the
"Indemnifying Party") a notice (a "Claim Notice") describing in reasonable
detail the facts giving rise to any claim for indemnification hereunder and
shall include in such Claim Notice (if then known) the amount or the method of
computation of the amount of such claim, and a reference to the provision of
this Agreement or any other agreement, document or instrument executed hereunder
or in connection herewith upon which such claim is based; provided, however,
that a Claim Notice in respect of any action at law or suit in equity by or
against a third Person as to which indemnification will be sought shall be given
promptly after the action or suit is commenced.
(b) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under this
Article 10 shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnifying Party; (ii) by a final judgment, decree
or decision pursuant to the dispute resolution procedures referred to in Article
11 and/or of any court of competent jurisdiction; or (iii) by any other means to
which the Indemnified Party and the Indemnifying Party shall agree. The
judgment or decree of a court shall be deemed final when the time for appeal, if
any, shall have expired and no appeal shall have been taken or when all appeals
taken shall have been finally determined. The Indemnified Party shall have the
burden of proof in establishing the amount of Loss and Expense suffered by it.
(c) If a claim, suit or proceeding by a third Person for which
indemnification may be available under this Agreement is made or filed against
an Indemnified Party, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of
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such claim, suit or proceeding. The Indemnifying Party, within 30 days, or such
shorter period as is required to avoid any prejudice in the claim, suit or
proceeding, after the notice, may elect to defend, compromise or settle the
third Person claim, suit or proceeding at its expense. Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, within ten Business
Days after the Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating to
the third Person claim. In any third Person claim, suit or proceeding which the
Indemnifying Party has elected to defend, compromise or settle, the Indemnifying
Party shall not after such election be responsible for the expenses of legal
counsel for the Indemnified Party, but the Indemnified Party may participate
therein and retain counsel at its own expense. In any third Person claim, suit
or proceeding the defense of which the Indemnifying Party shall have assumed,
the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the matter without the consent of the
Indemnifying Party and the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement affecting the Indemnified Party
without the written consent of the Indemnified Party to the extent that the
judgment or settlement involves more than the payment of money. The Indemnified
Party shall provide to the Indemnifying Party all information, assistance and
authority reasonably requested in order to evaluate any third Person claim, suit
or proceeding and effect any defense, compromise or settlement. To the extent
the Indemnifying Party elects not to defend such proceeding, claim or demand,
and the Indemnified Party defends against or otherwise deals with any such
proceeding, claim or demand, the Indemnified Party may retain counsel, at the
expense of the Indemnifying Party, and control the defense of such proceeding.
After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
time in which to appeal therefrom has expired, or a settlement shall have been
consummated, or the Indemnified Party and the Indemnifying Party shall arrive at
a binding agreement with respect to each separate matter alleged to be
indemnified by the Indemnifying Party hereunder, the Indemnified Party shall
forward to the Indemnifying Party notice of any sums due and owing by it with
respect to such matter and the Indemnifying Party shall pay all of the sums owed
to the Indemnified Party by wire transfer, certified or bank cashier's check
within 30 days after the date of such notice.
SECTION 10.4. CLAIMS PERIOD. No cause of action, dispute or claim
for indemnification under this Agreement may be
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asserted or made against any Party or submitted to arbitration on a date later
than: (a) one year after the date in which facts giving rise to such cause of
action, dispute or claim are discovered or, with the exercise of due diligence,
should reasonably have been discovered, or if such event for which
indemnification is claimed is an action or proceeding brought against the
Indemnified Party, the end of the related notification period provided in
Section 10.3; or (b) one year after the earlier of the termination of this
Agreement or the expiration of the Term.
SECTION 10.5. SUBROGATION. If an Indemnifying Party shall be
obligated to indemnify an Indemnified Party pursuant to Sections 10.1 or 10.2,
the Indemnifying Party shall, upon payment of such indemnity in full, be
subrogated to all rights of the Indemnified Party with respect to the claims and
defenses to which such indemnification relates.
SECTION 10.6. EXCLUSIVE REMEDY. Except for (i) remedies that cannot
be waived as a matter of law and injunctive and provisional relief, (ii) the
provisions of Sections 5.1(c), 7.6, 9.2 and 9.3 and (iii) any Party's obligation
to make any payments or reimbursements hereunder (including the payment of Fees,
Reimbursable Expenses and Taxes and reimbursements pursuant to Article 3), this
Article 10 shall be the sole and exclusive remedy for breach of this Agreement,
including with respect to any claim, demand, cause of action, debt, Cost, Loss,
Expense or liability subject thereto.
SECTION 10.7. NO SPECIAL DAMAGES. IN NO EVENT SHALL FIRST DATA,
COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES BE LIABLE FOR ANY CONSEQUENTIAL
DAMAGES UNDER THIS AGREEMENT, WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER FIRST DATA, COMPANY OR ANY OF THEIR RESPECTIVE
AFFILIATES HAS BEEN ADVISED, OR COULD HAVE FORESEEN, OF THE POSSIBILITY SUCH
DAMAGES; PROVIDED THE FOREGOING EXCLUSION SHALL NOT APPLY TO CONSEQUENTIAL
DAMAGES INCURRED BY ANY PARTY AS A RESULT OF THE MISAPPROPRIATION OR MISUSE OF
SUCH PARTY'S CONFIDENTIAL INFORMATION. THE FOREGOING REPRESENTS AN EXPRESS
ALLOCATION OF RISK BETWEEN THE PARTIES.
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ARTICLE 11
DISPUTE RESOLUTION
------------------
SECTION 11.1. DISPUTE RESOLUTION.
(a) Informal Dispute Resolution. Subject to Section 11.2, any
dispute, controversy or claim between Company and First Data arising from or in
connection with this Agreement, the Software License Agreement or, if
applicable, the Service Mark License Agreement whether based on contract, tort,
common law, equity, statute, regulation, order or otherwise ("Dispute") shall be
resolved in accordance with this Section 11.1:
(i) Upon written request of Company or First Data, each Party will
appoint a designated representative whose task it will be to meet for the
purpose of endeavoring to resolve such Dispute ("Level 1 Review"). The
designated representatives shall meet as often as the Parties reasonably
deem necessary to discuss the Dispute and negotiate in good faith in an
effort to resolve the Dispute without the necessity of any formal
proceeding;
(ii) If resolution of the Dispute cannot be resolved within 15 days
of the first Level 1 Review meeting, then the issue shall be brought before
a committee (the "Senior Level Policy Team") comprised of Charles T. Fote
and David P. Bailis, representing First Data, and James F. Calvano and
Andrea Kenyon, representing Company (or comparable level successors to
these individuals, as appropriate) ("Level 2 Review"). The Senior Level
Policy Team shall meet as often as necessary to discuss the Dispute and
negotiate in good faith to resolve the Dispute. The members of the Senior
Level Policy Team may be substituted at the discretion of First Data or
Company, as the case may be, upon ten days' written notice.
(iii) Arbitration for the resolution of a Dispute may not be commenced
until the earlier of:
(A) the date on which the Senior Level Policy Team concludes in
good faith that amicable resolution through continued negotiation of
the matter does not appear likely; or
(B) 30 days after the date the Dispute became subject to the
review of the Senior Level Policy Team.
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(b) Arbitration. Any Dispute that remains unresolved after compliance
with the provisions of Section 11.1(a), regardless of the magnitude thereof or
the amount in controversy or whether such Dispute would otherwise be considered
justiciable or ripe for resolution by a court or arbitral tribunal, shall be
submitted to, and finally determined by, arbitration in accordance with the
following provisions of this Section 11.1(b):
(i) Any such arbitration shall be conducted by the AAA in
accordance with the AAA Rules, except as the AAA Rules conflict with
the provisions of this Article 11, in which event the provisions of
this Article 11 shall control.
(ii) The arbitral panel (the "Panel") shall consist of three
arbitrators independent of the Parties (the "Arbitrators"). The
Arbitrators shall be appointed pursuant to AAA's procedure for
selecting arbitrators as described in its pamphlet entitled Resolving
Computer Disputes: A Guide to Arbitration or any other publication of
the AAA relevant to the nature of the Dispute. Each Arbitrator shall
have at least ten years' experience as a senior manager in a data
processing company or a consumer payment services company (the "Basic
Qualifications").
(iii) Should an Arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 11.1(b), the
Arbitrator shall be replaced by the AAA. Each such replacement
Arbitrator shall satisfy the Basic Qualifications. If an Arbitrator is
replaced after the arbitration hearing has commenced, then a rehearing
shall take place in accordance with the provisions of this Section
11.1(b) and the AAA Rules.
(iv) The arbitration shall be conducted in Denver, Colorado or
in such other location as the Parties may designate by mutual written
consent; provided, however, that the Panel may from time to time
convene, carry on hearings, inspect property or documents, and take
evidence at any location which the Panel deems appropriate.
(v) The Panel may in its discretion order a pre-hearing exchange
of information including production of documents, exchange of
summaries of testimony or exchange of statements of position, and
shall schedule promptly all discovery and other procedural steps and
otherwise assume case management initiative and control to effect an
efficient and expeditious resolution of the Dispute.
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(vi) At any oral hearing of evidence in connection with an
arbitration pursuant to this Section 11.1(b), each Party and its legal
counsel shall have the right to examine its witnesses and to cross-examine
the witnesses of the other Party. No testimony of any witness shall be
presented in written form unless the opposing Party or Parties shall have
the opportunity to cross-examine such witness, except as the Parties
otherwise agree in writing or except under extraordinary circumstances
where, in the opinion of the Panel, the interests of justice require a
different procedure.
(vii) Within 15 days after the closing of the arbitration hearing,
the Panel shall prepare and distribute to the Parties a writing setting
forth the Panel's findings of facts and conclusions of law relating to the
Dispute, including the reasons for the giving or denial of any award.
(viii) Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief, neither a Party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of both Parties.
(ix) A judgment upon the award rendered by the Panel may be entered
in any court having jurisdiction thereof.
(x) First Data and Company agree to share equally the cost of any
administrative fee, any compensation of the Arbitrators and any expenses of
any witnesses or proof produced at the direct request of the Panel.
(xi) The Parties shall each bear all their own Costs of arbitration,
including legal fees.
(xii) The Panel shall not have the power to award Consequential
Damages.
(xiii) The Federal Arbitration Act, 9 U.S.C. Sections 1 through 14,
except as modified hereby, shall govern the interpretation and enforcement
of this Section 11.1(b).
Notwithstanding the foregoing, the Parties agree to continue
performing their respective obligations under this Agreement, the Software
License Agreement and the Service Mark License Agreement while the Dispute is
being resolved unless and until such obligations are terminated or expire in
accordance with the provisions hereof.
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SECTION 11.2. RECOURSE TO COURTS AND OTHER REMEDIES. Notwithstanding
the Dispute resolution procedures contained in Section 11.1, either Party may
apply to any court having jurisdiction (i) to enforce this agreement to
arbitrate, (ii) to seek provisional injunctive relief so as to enforce any
agreements in this Agreement, the Software License Agreement or the Service Mark
License Agreement until the arbitration award is rendered or the Dispute is
otherwise resolved, (iii) to avoid the expiration of any applicable limitation
period, (iv) to preserve a superior position with respect to other creditors or
(v) to challenge or vacate any final judgment, award or decision of the Panel
that does not comport with the express provisions of Section 11.1.
SECTION 11.3. AFFILIATES. Each Party agrees that for purposes of
this Article 11, the terms First Data and Company shall also include their
respective Affiliates, who shall be subject to the Dispute resolution procedures
of this Article 11.
SECTION 11.4. EXCEPTION TO ARTICLE 11. This Article 11 shall not
apply to any dispute or controversy arising out of Section 3.3(c). Such
disputes and controversies shall be settled in accordance with the dispute
resolution procedures of Section 3.3(c).
ARTICLE 12
MISCELLANEOUS
-------------
SECTION 12.1. EXPENSES. First Data shall bear all costs incurred by
or on behalf of each Party for services rendered on or prior to the date hereof
in connection with the negotiation and preparation of this Agreement, including
fees and expenses of financial consultants, accountants and counsel. Except as
otherwise provided herein, each of the Parties shall pay all Costs incurred by
it or on its behalf in connection with its performance and compliance with all
its obligations hereunder, including fees and expenses of its own financial
consultants, accountants and counsel.
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SECTION 12.2. RELATIONSHIP OF PARTIES. (a) First Data, in
furnishing services to Company under this Agreement, is acting only as an
independent contractor. Except as set forth in this Agreement, First Data does
not and shall not undertake by this Agreement or otherwise to perform any
obligation of Company, whether regulatory or contractual, or assume any
responsibility for Company's business or operations. First Data has the sole
and exclusive right and obligation to supervise, manage, contract, direct,
procure, perform or cause to be performed, all work to be performed by First
Data under this Agreement, unless otherwise provided herein.
(b) Nothing in this Agreement shall be deemed by the Parties, or by
any third Person, to create a partnership, joint venture or similar relationship
between or among any of the Parties and, except as otherwise expressly provided
herein, no Party shall be deemed to be the agent of any other Party, it being
understood and agreed that neither the method of computing compensation nor any
other provision contained herein shall be deemed to create any relationship
between the Parties hereto other than the relationship of independent parties
contracting for services. No Party has, and shall not hold itself out as
having, any authority to enter into any contract or create any obligation or
liability on behalf of, in the name of, or binding upon any other Party except
as specifically provided herein.
SECTION 12.3. FORCE MAJEURE. Each Party shall be excused from the
performance of obligations (other than payment obligations) under this
Agreement, for any period and to the extent that it is prevented, restricted or
delayed from or interfered with in performing any of its obligations under this
Agreement, in whole or in part, as a result of labor disputes, strikes, work
stoppages or delays, acts of God, severe weather, failures or fluctuations in
utilities or telecommunications equipment or service, shortages of materials or
rationing, civil disturbance, acts of public enemies, blockade, embargo or any
law, order, proclamation, regulation, ordinance or court order or requirement
having legal effect of any judicial authority or Governmental Body, or any other
act or omission whatsoever, whether similar or dissimilar to the foregoing,
which are beyond the reasonable control of such Party (each, a "Force Majeure
Event"), and such nonperformance shall not be a breach or default under this
Agreement, or a ground for termination of this Agreement. Each Party shall give
the other Party immediate notice of any Force Majeure Event affecting the
notifying Party's ability to perform under this Agreement and shall promptly
update
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the other Party regarding the notifying Party's efforts to mitigate and resolve
such Force Majeure Event.
SECTION 12.4. ENTIRE AGREEMENT. This Agreement, the Software License
Agreement and the Service Mark License Agreement, including the Exhibits hereto
and thereto, constitute the entire agreement among the Parties with regard to
the subject matter hereof and thereof, and supersede all other prior agreements,
understandings or discussions among the Parties concerning such subject matter.
This Agreement may not be amended or modified except in writing signed by an
authorized representative of each Party to this Agreement.
SECTION 12.5. ASSIGNMENT. Except as otherwise provided herein, the
rights and obligations of both First Data and Company under this Agreement are
personal and not assignable, either voluntarily or by operation of law, without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, (i) First Data may assign
its rights and delegate its duties and obligations hereunder to any of its
Affiliates, provided such Affiliate remains an Affiliate of First Data after
such an assignment and that notwithstanding such assignment IPS and FDC shall
remain primarily liable for all of their respective obligations hereunder; and
(ii) if the conditions specified in clause (ii) of Section 3.1(a) have been
fulfilled, the Company may assign all its rights and delegate its duties and
obligations hereunder to any of its Affiliates or to any Person who purchases
substantially all of the Business, provided the assignee agrees to be bound in
writing to the terms and conditions set forth in this Agreement, and,
notwithstanding such assignment, the Company shall remain primarily liable for
all of its obligations hereunder. Except in respect of a Company Indemnitee or
a First Data Indemnitee entitled to indemnification under Article 10, nothing in
this Agreement is intended to or shall be construed to confer upon any Person
other than the Parties and their respective successors and permitted assigns,
any right, remedy or claim under or by reason of this Agreement.
SECTION 12.6. NOTICES. All notices which any Party may be required
or desire to give to any other Party shall be in writing and shall be given by
personal service, telecopy, registered mail or certified mail (or its
equivalent) or overnight courier to the other Party at its respective address or
telecopy telephone number set forth below. Mailed notices and notices by
overnight courier shall be deemed to be given upon actual receipt by the Party
to be notified. Notice delivered by telecopy shall be confirmed in writing by
overnight courier and
39
<PAGE>
shall be deemed to be given upon actual receipt by the Party to be notified.
In the case of First Data:
First Data Technologies, Inc.
6200 So. Quebec St., Suite 320AK
Englewood, Colorado 80111
Attention: Brent Willing
Telephone Number: 303-488-8190
Telecopy Number: 303-488-8631
With a copy to:
First Data Corporation
2121 N. 117th Ave. NP 30
Omaha, Nebraska 68164
Attention: General Counsel
Telephone Number: 402-498-4085
Telecopy Number: 402-498-4123
In the case of Company:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: Chief Executive Officer
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
With a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: General Counsel
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
A Party may from time to time change its address for notification purposes by
giving the other Party prior written notice of the new address and the date upon
which it shall become effective.
SECTION 12.7. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed
40
<PAGE>
an original but all of which together shall constitute one and the same
instrument.
SECTION 12.8. GOVERNING LAW. Except as otherwise specified in
Article 11, this Agreement shall be governed by and construed in accordance with
the internal laws (as opposed to the conflict of laws provisions) of the State
of New York.
SECTION 12.9. MEDIA RELEASES. All media releases, public
announcements and public disclosures by the Parties or their respective
employees, representatives or agents relating to this Agreement or its subject
matter, including promotional or marketing material and annual account reports,
but not including any announcement intended solely for internal distribution by
any of the Parties, or any disclosure required by Requirements of Law or
accounting or regulatory requirements beyond the reasonable control of any of
the Parties, shall be coordinated with and approved in writing by the other
Parties prior to the release thereof.
SECTION 12.10. WAIVER. Any term or provision of this Agreement may
be waived, or the time for its performance may be extended, by the Party
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any Party,
it is authorized in writing by an authorized representative of such Party. The
failure of any Party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the
right of any Party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver of
any other or subsequent breach. Except as specifically provided otherwise, all
remedies provided for in this Agreement shall be cumulative and in addition to
and not in lieu of any other remedies available to any Party at law, in equity
or otherwise.
SECTION 12.11. SEVERABILITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
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<PAGE>
SECTION 12.12. CONSTRUCTION RULES. The Parties hereto represent that
in the negotiation and drafting of this Agreement they have been represented by
and relied upon the advice of counsel of their choice. The Parties affirm that
their counsel have had a substantial role in the drafting and negotiation of
this Agreement and, therefore, the rule of construction to the effect that any
ambiguities are to be resolved against the drafting Person shall not be employed
in the interpretation of this Agreement, including any Exhibit.
42
<PAGE>
IN WITNESS WHEREOF, each Party hereto has caused this Agreement to be
signed and delivered by its duly authorized officer as of the date first written
above.
MONEYGRAM PAYMENT SYSTEMS, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
FIRST DATA TECHNOLOGIES, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
INTEGRATED PAYMENT SYSTEMS INC.
By: _____________________________
Name: ___________________________
Title: __________________________
43
<PAGE>
EXHIBIT 10.2
DRAFT: NOVEMBER 25, 1996
SOFTWARE LICENSE AGREEMENT
--------------------------
THIS SOFTWARE LICENSE AGREEMENT (this "Agreement") is entered into as
of ___________, 1996, between Integrated Payment Systems Inc., a Delaware
corporation ("IPS"), and MoneyGram Payment Systems, Inc., a Delaware corporation
(the "Company").
WHEREAS, IPS, First Data Technologies, Inc., a Delaware corporation
("FDT"), and the Company are parties to the Operations Agreement dated as of the
date hereof (the "Operations Agreement"), pursuant to which IPS and FDT will
provide, inter alia, certain data processing services to the Company; and
WHEREAS, IPS wishes to grant to the Company a license to use the
Utility Software (as hereafter defined) on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
representations, conditions and agreements hereafter expressed, the Parties (as
hereafter defined) agree as follows:
1. Definitions. In this Agreement, unless the context shall
otherwise require, the capitalized terms used herein shall have the respective
meanings specified or referred to in this Section 1. Each agreement referred to
in this Agreement shall mean such agreement as amended, supplemented and
modified from time to time to the extent permitted by the applicable provisions
thereof and hereof. Each definition in this Agreement includes the singular and
the plural, and reference to the neuter gender includes the masculine and
feminine where appropriate. References to any statute or regulations means such
statute or regulations as amended at the time and include any successor
legislation or regulations. The headings to the sections hereof are for
convenience of reference and shall not affect the meaning or interpretation of
this Agreement. Except as otherwise stated, reference to Sections and Exhibits
means the Sections and Exhibits of this Agreement. The Exhibits are hereby
incorporated by reference into and shall be deemed a part of this Agreement.
Unless the context clearly indicates otherwise, the word "including" means
"including but not limited to".
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person;
<PAGE>
provided, however, that IPS and its Affiliates shall not be deemed Affiliates of
the Company and the Company and its Affiliates shall not be deemed Affiliates of
IPS.
"Agreement" shall have the meaning set forth in the first paragraph
hereof.
"Business" means the Consumer Money Wire Transfer Services marketed
under the name "MoneyGram"(SM) and the sales and distribution of a "MoneyGram"
phonecard.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Consequential Damages" means any liability, Loss, Expense or damage,
whether in an action arising out of breach of warranty, breach of contract,
delay, negligence, theory of tort, strict liability or other legal or equitable
theory, for indirect, special, reliance, incidental, punitive or consequential
damages or commercial loss, injury or damage, including loss of revenues,
profits or use of capital or production.
"Consumer Money Wire Transfer Services" means the service of
transferring the right to money using computer or telephone lines, or any
technology now existing or later developed, from one person to a different
person through a MoneyGram Agent and the services marketed under the phrases
"Express Payment" and "Cash Advance."
"Contribution Agreement" means the Contribution Agreement dated as of
the date hereof among the Company, IPS and First Data Corporation, a Delaware
corporation.
"Costs" means all direct costs, expenses and charges plus all indirect
costs, expenses and charges, excluding allocations of overhead.
"Data Processing Services" means the data processing services provided
by IPS and its Affiliates to the Company under the Operations Agreement.
"Dispute" means any and all disputes, controversies or claims between
the Parties arising from or in connection with this Agreement or the
relationship of the Parties whether based on contract, tort, common law, equity,
statute, regulation, order or otherwise.
"Expenses" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting
2
<PAGE>
any claim, action, suit or proceeding incident to any matter indemnified against
hereunder (including court filing fees, court costs, witness fees and reasonable
fees and disbursements of legal counsel, investigators, expert witnesses,
accountants and other professionals).
"FDT" shall have the meaning set forth in the first recital to this
Agreement.
"Force Majeure Event" shall have the meaning specified in Section
10(c).
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Intellectual Property" means any United States patent, trademark,
service mark, trade dress, logo, trade name, copyright, mask work, trade
secret, confidential information, publicity and privacy rights or other similar
or related property right.
"IPS" shall have the meaning set forth in the first paragraph of this
Agreement.
"Losses" means any and all losses, Costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, deficiencies
or other charges.
"MoneyGram Agent" means a Person that has contracted with Travel
Related Services, IPS or the Company, as the case may be, to provide the
Consumer Money Wire Transfer Services provided by the Business.
"MoneyGram Application Software" shall have the meaning set forth in
the Contribution Agreement.
"Operations Agreement" shall have the meaning set forth in the first
recital to this Agreement.
"Party" means a party to this Agreement and its permitted successors
and assigns.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"PC MoneyGram Application Software" shall have the meaning set forth
in the Contribution Agreement.
3
<PAGE>
"Services" shall have the meaning set forth in Section 5(a).
"Travel Related Services" means American Express Travel Related
Services Company, Inc., a New York corporation.
"Utility Software" means that certain software owned by or licensed to
IPS or its Affiliates used in the Business, together with the documentation (if
any) relating thereto as described in Exhibit A.
2. License Grant.
(a) Utility Software. IPS hereby grants to the Company a perpetual,
irrevocable, worldwide, nonexclusive, royalty-free license to use the Utility
Software in the Business or for any other purpose. The foregoing license shall
include the right to assign, transfer and modify the Utility Software and to
distribute, license or sublicense derivative works incorporating the Utility
Software.
(b) Reservation. All right, title and interest in and to the Utility
Software, other than those rights expressly granted herein, shall remain in IPS
and its licensors.
(c) Assignment. The Company may assign any of its rights under this
Agreement (whether by operation of law or otherwise), including the license
granted pursuant to this Section 2, in accordance with the provisions of Section
10(e).
(d) Company Covenants. The Company hereby agrees that it will use
reasonable efforts to cause any licensee, sublicensee or assignee with respect
to the Utility Software licensed to the Company pursuant to this Agreement to
comply with the terms and conditions of this Agreement.
3. Delivery of Software.
(a) Initial Delivery. Within 90 days of the Parties' execution of
this Agreement, IPS shall deliver to the Company the Utility Software (including
the source code, object code, JCLs and existing documentation) in the form and
format set forth in Exhibit B.
(b) Final Delivery. Upon (i) the termination of all of the Data
Processing Services, whether as a result of the termination of the Operations
Agreement, in whole or in
4
<PAGE>
part, and (ii) the Parties having executed and delivered an amendment to
Exhibit A, in form and substance reasonably acceptable to each Party, which
amendment shall set forth a description of the Utility Software as of the
date of such amendment, IPS shall deliver to the Company the Utility
Software in the form and format set forth in Exhibit B, such delivery to
include all modifications, enhancements, updates and revisions made by IPS
on behalf of the Company through the date of such final delivery.
4. Ownership (and Distribution) of Software and Modifications Thereto
Developed by the Company. As between the Company and IPS, the Parties
acknowledge and agree that IPS and its licensors shall own all right, title and
interest in and to the Utility Software. Subject to such ownership rights in
the Utility Software, as between IPS and its licensors and the Company, the
Company shall own all right, title and interest in and to all modifications it
creates to the Utility Software.
5. Transition Responsibilities.
(a) Services. IPS or its Affiliates shall provide the Company with
up to 500 hours of training and application support relating to the Utility
Software (the "Services") at locations and times agreed to by IPS and the
Company over the period beginning on the date hereof through the date that
is 90 days after final delivery of the Utility Software pursuant to Section
3(b). The Parties agree that an hour of Services shall mean any hour during
which one or more employees of the Company are receiving Services. At the
request of the Company, IPS shall provide the Company additional Services,
provided that the Company shall pay IPS for each such additional hour of
Services on a time and materials basis (i.e., not including allocations of
overhead associated with delivery of such Services) and for the travel and
lodging expenses of its employees who perform the Services.
(b) No Other Services. Except as contemplated by Section 5(a), IPS
shall have no responsibility to update, maintain or support the Utility
Software.
6. Representations and Warranties; Disclaimers.
(a) By IPS. IPS represents and warrants to the Company that: (i) IPS
has all right, power and authority to enter into and perform its
obligations set forth in this Agreement in accordance with its terms
without the consent of any third Person; (ii) the Utility Software as
delivered
5
<PAGE>
to the Company will not infringe or violate any Intellectual Property of
any third Person; (iii) all Services provided herein shall be provided in a
professional and workmanlike manner; and (iv) the Utility Software, the PC
MoneyGram Application Software and the MoneyGram Application Software
constitute all of the software required to process Consumer Money Wire
Transfer Service transactions for the Business as conducted on the date
hereof.
(b) By the Company. The Company represents and warrants to IPS that
the Company has all right, power and authority to enter into and perform
its obligations set forth in this Agreement in accordance with its terms
without the consent of any third Person.
(c) No Other Warranties; Disclaimer. EXCEPT FOR THE EXPRESS
WARRANTIES SET FORTH HEREIN, THE UTILITY SOFTWARE AND THE SERVICES PROVIDED
TO THE COMPANY HEREUNDER ARE PROVIDED ON AN "AS-IS" BASIS WITHOUT ANY
REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER. EXCEPT AS SET FORTH
HEREIN OR IN ANY OTHER AGREEMENT TO WHICH IPS AND THE COMPANY ARE PARTIES,
IPS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO THE
COMPANY OR ANY OTHER PERSON, INCLUDING ANY WARRANTIES REGARDING THE
MERCHANTABILITY, SUITABILITY, ORIGINALITY, FITNESS FOR A PARTICULAR PURPOSE
OR OTHERWISE (IRRESPECTIVE OF ANY PREVIOUS COURSE OF DEALINGS BETWEEN THE
PARTIES OR CUSTOM OR USAGE OF TRADE), OR RESULTS TO BE DERIVED FROM THE USE
OF THE SOFTWARE OR THE SERVICES PROVIDED HEREUNDER.
7. Disclaimer of Liability. NOTWITHSTANDING ANY OTHER PROVISION TO
THE CONTRARY SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL IPS, ANY OF ITS
AFFILIATES, OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
SUBCONTRACTORS BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES UNDER THIS AGREEMENT,
WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER
EITHER PARTY OR ANY OTHER SUCH PERSON HAS BEEN ADVISED, OR COULD HAVE FORESEEN,
OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING REPRESENTS AN EXPRESS
ALLOCATION OF RISK BETWEEN THE PARTIES.
8. Indemnification.
(a) Indemnification by IPS. Subject to Section 9, IPS shall
indemnify and hold the Company harmless against any and all Losses and
Expenses arising out of or related to (i) the breach of any warranty or the
inaccuracy of any representation of IPS contained in this Agreement, (ii)
the breach by IPS of any of its covenants in this Agreement or
6
<PAGE>
(iii) any claim that the Company's use or possession of the Utility
Software or the license granted hereunder, infringes or violates the
Intellectual Property of any third Person. If a final injunction is
obtained against the Company's use of the Utility Software by reason of
such infringement, or if in IPS' opinion the Utility Software is likely to
become the subject of a claim for such infringement, IPS shall, at its sole
option and expense: (i) procure for the Company the right to continue using
the Utility Software, or any portion thereof, in the manner permitted
hereunder; or (ii) replace or modify the Utility Software, or any portion
thereof, so that it becomes noninfringing.
(b) Indemnification by the Company. Subject to Section 9, the Company
shall indemnify and hold IPS and its Affiliates harmless against any and
all Losses and Expenses arising out of or related to the breach by the
Company of any of its covenants in this Agreement.
(c) Limitation of Indemnification Obligations. Notwithstanding
anything to the contrary set forth in this Agreement: (i) the remedies in
Section 8(a) shall be the Company's sole remedies in the event of a
successful claim of Intellectual Property infringement; and (ii) IPS shall
have no liability to the Company under this Section 8 if (1) any
infringement is based upon the Company's use of the Utility Software in
combination with any software not furnished by IPS, (2) the Utility
Software is used in a manner for which it is not designed or (3) the
infringement is based upon modifications of the Utility Software made by or
for the Company.
(d) Procedure. IPS or the Company, as the case may be (the
"Indemnifying Party"), shall indemnify the indemnified party under this
Section 8 (the "Indemnified Party") as set forth in this Section 8 provided
that: (i) the Indemnified Party promptly notifies the Indemnifying Party in
writing of the claim; (ii) the Indemnifying Party has sole control of the
defense and all related settlement negotiations with respect to the claim,
provided, however, that the Indemnified Party has the right, but not the
obligation, to participate in the defense of any such claim or action
through counsel of its own choosing and at it's sole expense; and (iii) the
Indemnified Party cooperates fully to the extent reasonably necessary, and
executes all documents reasonably necessary for the defense of such claim.
7
<PAGE>
9. Dispute Resolution. Any Dispute shall be resolved in accordance
with Article 11 of the Operations Agreement, the provisions of which are
incorporated herein by reference.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
Parties shall pay all Costs incurred by it or on its behalf in connection
with its performance and compliance with all its obligations under this
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel.
(b) Relationship of Parties. IPS, in furnishing Services to the
Company under this Agreement, is acting only as an independent contractor.
Except as set forth in this Agreement, IPS does not and shall not undertake
by this Agreement or otherwise to perform any obligation of the Company,
whether regulatory or contractual, or assume any responsibility for the
Company's business or operations. IPS has the sole and exclusive right and
obligation to supervise, manage, contract, direct, procure, perform or
cause to be performed, all work to be performed by IPS under this
Agreement, unless otherwise provided herein.
(c) Force Majeure. Each Party shall be excused from the performance
of obligations (other than payment obligations) under this Agreement, for
any period and to the extent that it is prevented, restricted or delayed
from or interfered with in performing any of its obligations under this
Agreement, in whole or in part, as a result of labor disputes, strikes,
work stoppages or delays, acts of God, severe weather, failures or
fluctuations in utilities or telecommunications equipment or service,
shortages of materials or rationing, civil disturbance, acts of public
enemies, blockade, embargo or any law, order, proclamation, regulation,
ordinance or court order or requirement having legal effect of any judicial
authority or Governmental Body, or any other act or omission whatsoever,
whether similar or dissimilar to the foregoing, which are beyond the
reasonable control of such Party (each, a "Force Majeure Event"), and such
nonperformance shall not be a breach or default under this Agreement, or a
ground for termination of this Agreement. Each Party shall give the other
Party immediate notice of any Force Majeure Event affecting the notifying
Party's ability to perform under this Agreement and shall promptly update
the other Party regarding the notifying Party's efforts to mitigate and
resolve such Force Majeure Event.
8
<PAGE>
(d) Entire Agreement. This Agreement, including the Exhibits hereto,
and the provisions of the Operations Agreement expressly referenced herein,
constitute the entire agreement among the Parties with regard to the
subject matter hereof and thereof, and supersede all other prior
agreements, understandings or discussions among the Parties concerning the
subject matter hereof and thereof. This Agreement may not be amended or
modified except in writing signed by an authorized representative of each
Party.
(e) Assignment. IPS may assign its rights and delegate its duties
and obligations hereunder to any of its Affiliates, provided such Affiliate
remains an Affiliate of IPS after such an assignment and that
notwithstanding such assignment IPS shall remain primarily liable for all
of its obligations hereunder. The Company may assign, transfer, sublicense
and/or delegate its rights and duties under this Agreement, in whole or in
part, in accordance with the license grant set forth in Section 2(a),
provided that such assignee, transferee, sublicensee or delegatee agrees to
be bound in writing to the terms and conditions of this Agreement, and,
notwithstanding such assignment, the Company shall remain primarily liable
for all of its obligations hereunder. Subject to the foregoing, this
Agreement shall extend to and be binding upon and inure to the benefit of
the Parties and their respective successors and permitted assigns. Except
as contemplated by Section 8 in respect of an Indemnified Party, nothing in
this Agreement is intended to or shall be construed to confer upon any
Person other than the Parties, and their respective successors and
permitted assigns, any right, remedy or claim under or by reason of this
Agreement.
(f) Notices. All notices which any Party may be required or desire
to give to any other Party shall be in writing and shall be given by
personal service, telecopy, registered mail or certified mail (or its
equivalent) or overnight courier to the other Party at its respective
address or telecopy telephone number set forth below. Mailed notices and
notices by overnight courier shall be deemed to be given upon actual
receipt by the Party to be notified. Notice delivered by telecopy shall be
confirmed in writing by overnight courier and shall be deemed to be given
upon actual receipt by the Party to be notified.
9
<PAGE>
In the case of IPS:
Integrated Payment Systems Inc.
6200 So. Quebec St., Suite 320AK
Englewood, CO 80111
Attention: Brent Willing
Telephone Number: 303-488-8190
Telecopy Number: 303-488-8631
With a copy to:
First Data Corporation
2121 N. 117th Ave. NP 30
Omaha, Nebraska 68164
Attention: General Counsel
Telephone Number: 402-498-4085
Telecopy Number: 402-498-4123
In the case of the Company:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: Chief Executive Officer
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
With a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: General Counsel
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
A Party may from time to time change its address for notification purposes
by giving the other Party prior written notice of the new address and the
date upon which it shall become effective.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(h) Governing Law. Subject to the provisions referenced in Section
9, this Agreement shall be governed by and construed in accordance with the
internal laws (as
10
<PAGE>
opposed to the conflict of laws provisions) of the State of New York.
(i) Waiver. Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, by the Party entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any Party, it is
authorized in writing by an authorized representative of such Party. The
failure of any Party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any Party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach. Except as specifically provided
otherwise, all remedies provided for in this Agreement shall be cumulative
and in addition to and not in lieu of any other remedies available to any
Party at law, in equity or otherwise.
(j) Severability. Wherever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable
law, but in case any one or more of the provisions contained herein shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
11
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be signed and delivered by its duly authorized officer as of the date first
written above.
MONEYGRAM PAYMENT SYSTEMS, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
INTEGRATED PAYMENT SYSTEMS INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
12
<PAGE>
EXHIBIT A
---------
UTILITY SOFTWARE
----------------
<PAGE>
EXHIBIT B
---------
FORM AND FORMAT OF DELIVERY OF UTILITY SOFTWARE
-----------------------------------------------
IPS shall deliver the source code, object code, JCLs and existing
documentation (if any) relating to the Utility Software on magnetic media to be
mutually agreed upon. Upon delivery, the Utility Software shall be configured
substantially as it was configured on the system of IPS (independent of software
that related solely to performing functions unrelated to the Business) such that
the Utility Software is capable of being operated on the system of a Person
other than IPS, provided that such system executes using a multiple virtual
language system (MVS) similar to the MVS currently used by IPS to execute the
Utility Software.
<PAGE>
EXHIBIT 10.3
DRAFT: NOVEMBER 12, 1996
REGISTRATION RIGHTS AGREEMENT
dated as of ______________, 1996
between
MONEYGRAM PAYMENT SYSTEMS, INC.
and
INTEGRATED PAYMENT SYSTEMS INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of
______________, 1996 between MoneyGram Payment Systems, Inc., a Delaware
corporation (the "Company"), and Integrated Payment Systems Inc., a Delaware
corporation ("IPS").
RECITALS
--------
WHEREAS, pursuant to the Contribution Agreement dated as of _______, 1996
(the "Contribution Agreement") between First Data Corporation, a Delaware
corporation and the parent company of IPS ("FDC"), IPS and the Company, FDC, IPS
and certain other affiliates of IPS contributed to the Company certain assets
related to the "MoneyGram(SM)" business;
WHEREAS, as a result of the transactions contemplated by the Contribution
Agreement, IPS is the owner of all of the Company's issued and outstanding
common stock as of the date hereof, and IPS and the Company have determined to
offer to the public (the "Initial Public Offering") shares of the Company's
common stock, such Initial Public Offering to consist of a secondary offering by
and for the benefit of IPS; and
WHEREAS, the parties hereto desire to enter into this Agreement setting
forth the terms of certain registration rights applicable to the Registrable
Securities (as defined below).
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions and Usage.
As used in this Agreement:
1.1. Definitions.
Agent. "Agent" shall mean the principal placement agent on an
agented placement of Registrable Securities.
Commission. "Commission" shall mean the Securities and Exchange
Commission.
Common Stock. "Common Stock" shall mean (i) the common stock, par
value $.01 per share, of the Company, and (ii) shares of capital stock of the
Company issued by the Company in respect of or in exchange for shares of such
common stock in connection with any stock dividend or distribution, stock split-
up, recapitalization, recombination or exchange by the Company generally of
shares of such common stock.
<PAGE>
Continuously Effective. "Continuously Effective", with respect to a
specified registration statement, shall mean that it shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (i) any ten (10) consecutive business days, or (ii) an
aggregate of fifteen (15) business days during the period specified in the
relevant provision of this Agreement.
Demand Registration. "Demand Registration" shall have the meaning set
forth in Section 2.1(i).
Demanding Holders. "Demanding Holders" shall have the meaning set
forth in Section 2.1(i).
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
Holders. "Holders" shall mean IPS and Transferees of IPS's
Registrable Securities with respect to the rights that such Transferees shall
have acquired in accordance with Section 8, at such times as such Persons shall
own Registrable Securities. Notwithstanding the foregoing, in the event that IPS
deposits any Registrable Securities into the trust (the "Trust") created and
established pursuant to that Irrevocable Voting Trust Agreement dated the date
hereof between FDC, IPS and Wachovia Bank of North Carolina, N.A., as trustee
(the "Trustee"), then each of IPS and the Trustee, individually and collectively
shall be deemed to constitute a "Holder" for all purposes under this Agreement;
provided, however, that the Trustee shall not under any circumstances be deemed
a "Selling Holder" for purposes of Section 7.2 or an "indemnifying party" for
purposes of Section 7.4 or otherwise have any obligation or liability under or
pursuant to Section 7.2 or 7.4.
Initiating Substantial Holder. "Initiating Substantial Holder" shall
have the meaning set forth in Section 2.2.
Majority Selling Holders. "Majority Selling Holders" shall mean those
Selling Holders whose Registrable Securities included in such registration
represent a majority of the Registrable Securities of all Selling Holders
included therein.
Person. "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
Piggyback Registration. "Piggyback Registration" shall have the
meaning set forth in Section 3.1.
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Register, Registered and Registration. "Register", "registered", and
"registration" shall refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering by the Commission of effectiveness of such
registration statement or document.
Registrable Securities. "Registrable Securities" shall mean, subject
to Section 8 and Section 10.3: (i) the Shares owned by Holders on the date
hereof, and owned by a Holder on the date of determination, (ii) any shares of
Common Stock or other securities issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange by the Company generally
for, or in replacement by the Company generally of, such Shares; and (iii) any
securities issued in exchange for Shares in any merger or reorganization of the
Company; provided, however, that Registrable Securities shall not include any
securities which have theretofore been registered and sold pursuant to the
Securities Act or which have been sold to the public pursuant to Rule 144 or any
similar rule promulgated by the Commission pursuant to the Securities Act, and,
provided further, the Company shall have no obligation under Sections 2 and 3 to
register any Registrable Securities of a Holder if the Company shall deliver to
the Holders requesting such registration an opinion of counsel reasonably
satisfactory to such Holders and their counsel to the effect that the proposed
sale or disposition of all of the Registrable Securities for which registration
was requested does not require registration under the Securities Act for a sale
or disposition in a single public sale, and the Company offers to remove any and
all legends restricting transfer from the certificates evidencing such
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a Holder of Registrable Securities whenever such Person has the then-
existing right to acquire such Registrable Securities (by conversion, purchase
or otherwise), whether or not such acquisition has actually been effected.
Registrable Securities then outstanding. "Registrable Securities then
outstanding" shall mean, with respect to a specified determination date, the
Registrable Securities owned by all Holders on such date.
Registration Expenses. "Registration Expenses" shall have the meaning
set forth in Section 6.1.
Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
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Selling Holders. "Selling Holders" shall mean, with respect to a
specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
Shares. "Shares" shall mean the shares of Common Stock held initially
by IPS following the closing of the Initial Public Offering.
Shelf Registration. "Shelf Registration" shall have the meaning set
forth in Section 2.2.
Substantial Holder. "Substantial Holder" shall mean any Holder that
owned on the date of this Agreement 25% or more of the Registrable Securities
then outstanding and such Transferee, if any, to whom such Substantial Holder
Transfers Registrable Securities and assigns such Substantial Holder's rights as
a Substantial Holder as permitted by Section 8.
Transfer. "Transfer" shall mean and include the act of selling,
giving, transferring, creating a trust (voting or otherwise), assigning or
otherwise disposing of (other than pledging, hypothecating or otherwise
transferring as security) (and correlative words shall have correlative
meanings); provided however, that any transfer or other disposition upon
foreclosure or other exercise of remedies of a secured creditor after an event
of default under or with respect to a pledge, hypothecation or other transfer as
security shall constitute a "Transfer".
Underwriters' Representative. "Underwriters' Representative" shall
mean the managing underwriter, or, in the case of a co-managed underwriting, the
managing underwriter designated as the Underwriters' Representative by the co-
managers.
Violation. "Violation" shall have the meaning set forth in Section
7.1.
1.2. Usage.
(i) References to a Person are also references to its assigns and
successors in interest (by means of merger, consolidation or sale of all or
substantially all the assets of such Person or otherwise, as the case may be).
(ii) References to Registrable Securities "owned" by a Holder shall
include Registrable Securities beneficially owned by such Person but which are
held of record in the name of a nominee, trustee, custodian, or other agent, but
shall exclude
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shares of Common Stock held by a Holder in a fiduciary capacity for customers of
such Person.
(iii) References to a document are to it as amended, waived and
otherwise modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(iv) References to Sections or to Schedules or Exhibits are to
sections hereof or schedules or exhibits hereto, unless the context otherwise
requires.
(v) The definitions set forth herein are equally applicable both to
the singular and plural forms and the feminine, masculine and neuter forms of
the terms defined.
(vi) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.
(vii) The term "hereof" and similar terms refer to this Agreement as
a whole.
(viii) The "date of" any notice or request given pursuant to this
Agreement shall be determined in accordance with Section 13.2.
Section 2. Demand Registration.
2.1.
(i) At any time on or after the date hereof, if one or more Holders
that own an aggregate of 51% or more of the Registrable Securities then
outstanding shall make a written request to the Company (the "Demanding
Holders"), the Company shall cause to be filed with the Commission a
registration statement meeting the requirements of the Securities Act (a "Demand
Registration"), and each Demanding Holder shall be entitled to have included
therein (subject to Section 2.7) all or such number of such Demanding Holder's
Registrable Securities as the Demanding Holder shall request in writing. Any
request made pursuant to this Section 2.1 shall be addressed to the attention of
the Secretary of the Company, and shall specify the number of Registrable
Securities to be registered, the intended methods of disposition thereof and
that the request is for a Demand Registration pursuant to this Section 2.1(i).
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(ii) The Company shall be entitled to postpone for up to 30 days the
filing of any Demand Registration Statement otherwise required to be prepared
and filed pursuant to this Section 2.1 if the Board of Directors of the Company
determines, in its good faith reasonable judgment (with the concurrence of the
Underwriters' Representative, if any), that such registration and the Transfer
of Registrable Securities contemplated thereby would materially interfere with,
or require premature disclosure of, any financing, acquisition or reorganization
involving the Company or any of its wholly owned subsidiaries and the Company
promptly gives the Demanding Holders notice of such determination; provided,
however, that the Company shall not have postponed pursuant to this Section
2.1(ii) the filing of any other Demand Registration Statement otherwise required
to be prepared and filed pursuant to this Section 2.1 during the 12 month period
ended on the date of the relevant request pursuant to Section 2.1(i).
(iii) Whenever the Company shall have received a demand pursuant to
Section 2.1(i) to effect the registration of any Registrable Securities, the
Company shall promptly give written notice of such proposed registration to all
Holders. Any such Holder may, within twenty (20) days after receipt of such
notice, request in writing that all of such Holder's Registrable Securities, or
any portion thereof designated by such Holder, be included in the registration.
2.2. On or after the date of this Agreement, each Substantial
Holder that shall make a written request to the Company (the "Initiating
Substantial Holder") shall be entitled to have all or any number of such
Initiating Substantial Holder's Registrable Securities included in a
registration with the Commission in accordance with the Securities Act for an
offering on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act (a "Shelf Registration"). Any request made pursuant to this
Section 2.2 shall be addressed to the attention of the Secretary of the Company,
and shall specify the number of Registrable Securities to be registered, the
intended methods of disposition thereof and that the request is for a Shelf
Registration pursuant to this Section 2.2.
2.3. Following receipt of a request for a Demand Registration or a
Shelf Registration, the Company shall:
(i) File the registration statement with the Commission as promptly
as practicable, and shall use the Company's best efforts to have the
registration statement declared effective under the Securities Act as soon as
practicable.
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(ii) Use the Company's best efforts to keep the relevant registration
statement Continuously Effective (x) if a Demand Registration, for up to 180
days or until such earlier date as of which all the Registrable Securities under
the Demand Registration Statement shall have been disposed of in the manner
described in the registration statement, and (y) if a Shelf Registration, for
eighteen (18) months. Notwithstanding the foregoing, if for any reason the
effectiveness of a registration pursuant to this Section 2 is suspended or, in
the case of a Demand Registration, postponed as permitted by Section 2.1(ii),
the foregoing period shall be extended by the aggregate number of days of such
suspension or postponement.
2.4. The Company shall be obligated to effect no more than two Demand
Registrations and such number of Shelf Registrations as may be necessary to
provide each and every Substantial Holder with the right to request one Shelf
Registration. For purposes of the preceding sentence, registration shall not be
deemed to have been effected (i) unless a registration statement with respect
thereto has become effective, (ii) if after such registration statement has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Selling Holders and such
interference is not thereafter eliminated, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of the Selling Holders. If the Company shall have complied with its
obligations under this Agreement, a right to demand a registration pursuant to
this Section 2 shall be deemed to have been satisfied (i) if a Demand
Registration, upon the earlier of (x) the date as of which all of the
Registrable Securities included therein shall have been disposed of pursuant to
the registration statement, and (y) the date as of which such Demand
Registration shall have been Continuously Effective for a period of 180 days,
and (ii) if a Shelf Registration, upon the effective date of a Shelf
Registration, provided no stop order or similar order, or proceedings for such
an order, is thereafter entered or initiated.
2.5. A registration pursuant to this Section 2 shall be on such
appropriate registration statement form of the Commission as shall (i) be
selected by the Company and be reasonably acceptable to the Majority Selling
Holders, or by the Initiating Substantial Holder, as the case may be, and (ii)
permit the disposition of the Registrable Securities in accordance with the
intended method or methods of disposition
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<PAGE>
specified in the request pursuant to Section 2.1(i) or Section 2.2,
respectively.
2.6. If any registration pursuant to Section 2 involves an
underwritten offering (whether on a "firm", "best efforts" or "all reasonable
efforts" basis or otherwise), or an agented offering, the Majority Selling
Holders, or the Initiating Substantial Holder, as the case may be, shall have
the right to select the underwriter or underwriters and manager or managers to
administer such underwritten offering or the placement agent or agents for such
agented offering; provided, however, that each Person so selected shall be
reasonably acceptable to the Company.
2.7. Whenever the Company shall effect a registration pursuant to
this Section 2 in connection with an underwritten offering by one or more
Selling Holders of Registrable Securities: (i) if such Selling Holders have
requested the inclusion therein of more than one class of Registrable
Securities, and the Underwriters' Representative or Agent advises each such
Selling Holder in writing that, in its opinion, the inclusion of more than one
class of Registrable Securities would adversely affect such offering, the
Demanding Holders holding at least a majority of the Registrable Securities
proposed to be sold therein by them shall decide which class of Registrable
Securities shall be included therein in such offering and the related
registration, and the other class shall be excluded; and (ii) if the
Underwriters' Representative or Agent advises each such Selling Holder in
writing that, in its opinion, the amount of securities requested to be included
in such offering (whether by Selling Holders or others) exceeds the amount which
can be sold in such offering within a price range acceptable to the Majority
Selling Holders, securities shall be included in such offering and the related
registration to the extent of the amount which can be sold within such price
range and on a pro rata basis among all Selling Holders, first for the account
of the Substantial Holders, and second for all other Selling Holders.
Section 3. Piggyback Registration.
3.1. If at any time the Company proposes to register (including for
this purpose a registration effected by the Company for stockholders of the
Company other than the Holders) securities under the Securities Act in
connection with the public offering solely for cash on Form S-1, S-2 or S-3 (or
any replacement or successor forms), the Company shall promptly give each Holder
of Registrable Securities written notice of such registration (a "Piggyback
Registration"). Upon the written request of each Holder given within 20 days
following the date of such notice, the Company shall cause to be included in
such registration statement and use its best efforts to be registered
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<PAGE>
under the Securities Act all the Registrable Securities that each such Holder
shall have requested to be registered. The Company shall have the absolute right
to withdraw or cease to prepare or file any registration statement for any
offering referred to in this Section 3 without any obligation or liability to
any Holder.
3.2. If the Underwriters' Representative or Agent shall advise the
Company in writing (with a copy to each Selling Holder) that, in its opinion,
the amount of Registrable Securities requested to be included in such
registration would materially adversely affect such offering, or the timing
thereof, then the Company will include in such registration, to the extent of
the amount and class which the Company is so advised can be sold without such
material adverse effect in such offering: First, all securities proposed to be
sold by the Company for its own account; second, the Registrable Securities
requested to be included in such registration by Holders pursuant to this
Section 3, and all other securities being registered pursuant to the exercise of
contractual rights comparable to the rights granted in this Section 3, pro rata
based on the estimated gross proceeds from the sale thereof; and third, all
other securities requested to be included in such registration.
3.3. Each Holder shall be entitled to have its Registrable Securities
included in an unlimited number of Piggyback Registrations pursuant to this
Section 3.
3.4. If the Company has previously filed a registration statement with
respect to Registerable Securities pursuant to Section 2 or pursuant to this
Section 3, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of 180
days has elapsed from the effective date of such a previous registration.
Section 4. Registration Procedures. Whenever required under Section 2
or Section 3 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as practicable:
4.1. Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use the Company's best efforts
to cause such registration statement to become effective; provided, however,
that before filing a registration statement or prospectus or any
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amendments or supplements thereto, including documents incorporated by reference
after the initial filing of the registration statement and prior to
effectiveness thereof, the Company shall furnish to one firm of counsel for the
Selling Holders (selected by Majority Selling Holders or the Initiating
Substantial Holder, as the case may be) copies of all such documents in the form
substantially as proposed to be filed with the Commission at least five (5)
business days prior to filing for review and comment by such counsel, which
opportunity to comment shall include an absolute right to control or contest
disclosure if the applicable Selling Holder reasonably believes that it may be
subject to controlling person liability under applicable securities laws with
respect thereto.
4.2. Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration statement. If the
registration is for an underwritten offering, the Company shall amend the
registration statement or supplement the prospectus whenever required by the
terms of the underwriting agreement entered into pursuant to Section 5.2.
Subject to Rule 415 under the Securities Act, if the registration statement is a
Shelf Registration, the Company shall amend the registration statement or
supplement the prospectus so that it will remain current and in compliance with
the requirements of the Securities Act for eighteen (18) months after its
effective date, and if during such period any event or development occurs as a
result of which the registration statement or prospectus contains a misstatement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the Company
shall promptly notify each Selling Holder, promptly amend the registration
statement or supplement the prospectus so that each will thereafter comply with
the Securities Act and promptly furnish to each Selling Holder of Registrable
Securities such amended or supplemented prospectus, which each such Holder shall
thereafter use in the Transfer of Registrable Securities covered by such
registration statement. Pending such amendment or supplement each such Holder
shall cease making offers or Transfers of Registrable Securities pursuant to the
prior prospectus. In the event that any Registrable Securities included in a
registration statement subject to, or required by, this Agreement remain unsold
at the end of the period during which the Company is obligated to use its best
efforts to maintain the effectiveness of such registration statement, the
Company may file a post-effective amendment to the registration statement for
the purpose of removing such securities from registered status.
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4.3. Furnish to each Selling Holder of Registrable Securities, without
charge, such numbers of copies of the registration statement, any pre-effective
or post-effective amendment thereto, the prospectus, including each preliminary
prospectus and any amendments or supplements thereto, in each case in conformity
with the requirements of the Securities Act and the rules thereunder, and such
other related documents as any such Selling Holder may reasonably request in
order to facilitate the disposition of Registrable Securities owned by such
Selling Holder.
4.4. Use the Company's best efforts (i) to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such states or jurisdictions as shall be reasonably requested
by the Underwriters' Representative or Agent (as applicable, or if inapplicable,
the Majority Selling Holders or the Initiating Substantial Holder, as the case
may be), and (ii) to obtain the withdrawal of any order suspending the
effectiveness of a registration statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of the offer and transfer of
any of the Registrable Securities in any jurisdiction, at the earliest possible
moment; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
4.5. In the event of any underwritten or agented offering, enter into
and perform the Company's obligations under an underwriting or agency agreement
(including indemnification and contribution obligations of underwriters or
agents), in usual and customary form, with the managing underwriter or
underwriters of or agents for such offering. The Company shall also cooperate
with the Majority Selling Holders or Initiating Substantial Holder, as the case
may be, and the Underwriters' Representative or Agent for such offering in the
marketing of the Registerable Shares, including making available the Company's
officers, accountants, counsel, premises, books and records for such purpose,
but the Company shall not be required to incur any material out-of-pocket
expense pursuant to this sentence.
4.6. Promptly notify each Selling Holder of any stop order issued or
threatened to be issued by the Commission in connection therewith (and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered).
4.7. Make generally available to the Company's security holders copies
of all periodic reports, proxy statements, and other information referred to in
Section 10.1 and
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an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 90 days following the end of the 12-month period
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of each registration statement filed pursuant to this
Agreement.
4.8. Make available for inspection by any Selling Holder, any
underwriter participating in such offering, any Agent in an agented offering and
the representatives of such Selling Holder, underwriter or Agent (but not more
than one firm of counsel to such Selling Holders), all financial and other
information as shall be reasonably requested by them, and provide the Selling
Holder, any underwriter participating in such offering, any Agent in an agented
offering and the representatives of such Selling Holder, underwriter or Agent
the opportunity to discuss the business affairs of the Company with its
executive officers and independent public accountants who have certified the
audited financial statements included in such registration statement, in each
case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company or the related Selling Holder of Registrable Securities agrees to be
responsible for such Person's breach of confidentiality on terms reasonably
satisfactory to the Company.
4.9. Use the Company's best efforts to obtain a so-called "comfort
letter" from its independent public accountants, and legal opinions of counsel
to the Company addressed to the Selling Holders, any underwriter or any Agent,
in customary form and covering such matters of the type customarily covered by
such letters, and in a form that shall be reasonably satisfactory to the
Majority Selling Holders or the Initiating Substantial Holder, as the case be.
The Company shall furnish to each Selling Holder, underwriter or Agent a signed
counterpart of any such comfort letter or legal opinion. Delivery of any such
opinion or comfort letter shall be subject to the recipient furnishing such
written representations or acknowledgments as are customarily provided by
selling stockholders, underwriters or agents who receive such comfort letters or
opinions.
4.10. Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement.
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4.11. Use all reasonable efforts to cause the Registrable Securities
covered by such registration statement (i) if the Common Stock is then listed on
a securities exchange or included for quotation in a recognized trading market,
to continue to be so listed or included for a reasonable period of time after
the offering, and (ii) to be registered with or approved by such other United
States or state governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Company to enable the Selling
Holders of Registrable Securities to consummate the disposition of such
Registrable Securities.
4.12. Use the Company's reasonable efforts to provide a CUSIP number
for the Registrable Securities prior to the effective date of the first
registration statement including Registrable Securities.
4.13. Take such other actions as are reasonably required in order to
expedite or facilitate the disposition of Registrable Securities included in
each such registration.
Section 5. Holders' Obligations. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any Selling Holder of Registrable
Securities that such Selling Holder shall:
5.1. Furnish to the Company such information regarding such Selling
Holder, the number of the Registrable Securities owned by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of such Selling Holder's Registrable Securities, and to cooperate
with the Company in preparing such registration; and
5.2. Agree to sell their Registrable Securities to the underwriters at
the same price and on substantially the same terms and conditions as the Company
or the other Persons on whose behalf the registration statement was being filed
have agreed to sell their securities, and to execute the underwriting agreement
agreed to by the Majority Selling Holders (in the case of a registration under
Section 2) or the Company and the Majority Selling Holders (in the case of a
registration under Section 3).
Section 6. Expenses of Registration. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and paid as follows:
6.1. With respect to each Demand Registration and Shelf Registration,
the Selling Holders shall proportionately bear and pay all expenses incurred in
connection with any
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registration, filing, or qualification of Registrable Securities with respect to
such Demand Registrations or Shelf Registrations (which right may be assigned to
any Person to whom Registrable Securities are Transferred as permitted by
Section 8), including all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees relating to listing the Registrable
Securities on the national securities exchange (or including the Registrable
Securities for quotation on the trading market) on which the Common Stock is
then listed (or quoted), all fees and expenses of complying with state
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the reasonable fees and disbursements
of counsel for the Company, and of the Company's independent public accountants,
including the expenses of "cold comfort" letters required by or incident to such
performance and compliance, and the reasonable fees and disbursements of one
firm of counsel for the Selling Holders of Registrable Securities (selected by
Demanding Holders owning a majority of the Registrable Securities owned by
Demanding Holders to be included in a Demand Registration or by the Initiating
Substantial Holder, as the case may be) (the "Registration Expenses").
6.2. The Company shall bear and pay all Registration Expenses incurred
in connection with any Piggyback Registrations pursuant to Section 3 for each
Selling Holder (which right may be Transferred to any Person to whom Registrable
Securities are Transferred as permitted by Section 8), but excluding
underwriting discounts and commissions relating to Registrable Securities (which
shall be paid on a pro rata basis by the Selling Holders of Registrable
Securities).
6.3. Any failure of the Company to pay any Registration Expenses as
required by Section 6.2 shall not relieve the Company of its obligations under
this Agreement.
Section 7. Indemnification; Contribution. If any Registrable
Securities are included in a registration statement under this Agreement:
7.1. To the extent permitted by applicable law, the Company shall
indemnify and hold harmless each Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of the Securities Act, and each
officer, director, partner, employee and agent of such Selling Holder and such
controlling Person, against any and all losses, claims, damages, liabilities and
expenses (joint or several), including attorneys' fees and disbursements and
expenses of investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange
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Act or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein, or any amendments or
supplements thereto;
(ii) The omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading; or
(iii) Any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any applicable state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law;
provided, however, that the indemnification required by this Section 7.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for use in
connection with such registration. The Company shall also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers, directors,
agents and employees and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Selling Holders; provided, however, that the indemnity agreement contained in
this Section 7.1 shall not apply to any underwriter to the extent that any such
loss is based on or arises out of an untrue statement or alleged untrue
statement of a material fact, or an omission or alleged omission to state a
material fact, included in or omitted from any preliminary prospectus if the
final prospectus shall correct such untrue statement or alleged untrue
statement, or such omission or alleged omission, and a copy of the final
prospectus has not been sent or given to a purchaser of a Registrable Security
subject to such registration at or prior to the confirmation of sale to such
Person if such underwriter was under an obligation to deliver such final
prospectus and failed to do so.
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<PAGE>
7.2. To the extent permitted by applicable law, each Selling Holder
shall indemnify and hold harmless the Company, each of its directors, each of
its officers who shall have signed the registration statement, each Person, if
any, who controls the Company within the meaning of the Securities Act, any
other Selling Holder, any controlling Person of any such other Selling Holder
and each officer, director, partner, employee and agent of such other Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint and several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration; provided, however, that (x) the indemnification required by this
Section 7.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld, and (y) in no event shall the amount of any
indemnity under this Section 7.2 exceed the gross proceeds from the applicable
offering received by such Selling Holder.
7.3. Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit, proceeding, investigation
or threat thereof made in writing for which such indemnified party may make a
claim under this Section 7, such indemnified party shall deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and disbursements and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time following the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve such
indemnifying
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<PAGE>
party of any liability to the indemnified party under this Section 7 but shall
not relieve the indemnifying party of any liability that it may have to any
indemnified party otherwise than pursuant to this Section 7. Any fees and
expenses incurred by the indemnified party (including any fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) shall be paid to the indemnified party, as incurred, within thirty
(30) days of written notice thereof to the indemnifying party (regardless of
whether it is ultimately determined that an indemnified party is not entitled to
indemnification hereunder). Any such indemnified party shall have the right to
employ separate counsel in any such action, claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expenses of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the indemnifying party
shall have failed to promptly assume the defense of such action, claim or
proceeding or (iii) the named parties to any such action, claim or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it which are
different from or in addition to those available to the indemnifying party and
that the assertion of such defenses would create a conflict of interest such
that counsel employed by the indemnifying party could not faithfully represent
the indemnified party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall not, in connection with any one such action, claim or proceeding or
separate but substantially similar or related actions, claims or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at any time
for all such indemnified parties, unless in the reasonable judgment of such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such action,
claim or proceeding, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels). No
indemnifying party shall be liable to an indemnified party for any settlement of
any action, proceeding or claim without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld.
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<PAGE>
7.4. If the indemnification required by this Section 7 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 7:
(i) The indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any Violation has been committed by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 7.1 and Section 7.2,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 7.4 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in Section 7.4(i). No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
7.5. If indemnification is available under this Section 7, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 7 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 7.4.
7.6. The obligations of the Company and the Selling Holders of
Registrable Securities under this Section 7 shall survive the completion of any
offering of Registrable Securities pursuant to a registration statement under
this Agreement, and otherwise.
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<PAGE>
Section 8. Transfer of Registration Rights. Rights with respect to
Registrable Securities may be Transferred as follows: (i) the rights of a
Substantial Holder to require a Shelf Registration pursuant to Section 2.2 may
be Transferred to any Person in connection with the Transfer to such Person by
such Substantial Holder of a number of Registrable Securities equal to 25% or
more of the Registrable Securities outstanding on the date of this Agreement,
(ii) all other rights of a Holder with respect to Registrable Securities
pursuant to this Agreement may be Transferred by such Holder to any Person in
connection with the Transfer of Registrable Securities to such Person, in all
cases, if (x) any such Transferee that is not a party to this Agreement shall
have executed and delivered to the Secretary of the Company a properly completed
agreement substantially in the form of Exhibit A, and (y) the Transferor shall
have delivered to the Secretary of the Company, no later than 15 days following
the date of the Transfer, written notification of such Transfer setting forth
the name of the Transferor, name and address of the Transferee, and the number
of Registrable Securities which shall have been so Transferred and (iii) the
Trustee shall have such rights and obligations as a Holder as set forth in the
definition of Holder in Section 1.1.
Section 9. Holdback. Except in the case of a Shelf Registration,
each Holder entitled pursuant to this Agreement to have Registrable Securities
included in a registration statement prepared pursuant to this Agreement, if so
requested by the Underwriters' Representative or Agent in connection with an
offering of any Registrable Securities, shall not effect any public sale or
distribution of shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
underwritten or agented registration), during the five business day period prior
to, and during the 90-day period beginning on, the date such registration
statement is declared effective under the Securities Act by the Commission,
provided that such Holder is timely notified of such effective date in writing
by the Company or such Underwriters' Representative or Agent.
Section 10. Covenants of the Company. The Company hereby agrees and
covenants as follows:
10.1. The Company shall file as and when applicable, on a timely
basis, all reports required to be filed by it under the Exchange Act. If the
Company is not required to file reports pursuant to the Exchange Act, upon the
request of any Holder of Registrable Securities, the Company shall make publicly
available the information specified in subparagraph (c)(2) of Rule 144 of the
Securities Act, and take such further action as may be
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<PAGE>
reasonably required from time to time and as may be within the reasonable
control of the Company, to enable the Holders to Transfer Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act or any similar rule or
regulation hereafter adopted by the Commission.
10.2. (i) The Company shall not, and shall not permit its majority
owned subsidiaries to, effect any public sale or distribution of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for shares of Common Stock, during the five business days prior to, and during
the 90-day period beginning on, the commencement of a public distribution of the
Registrable Securities pursuant to any registration statement prepared pursuant
to this Agreement (other than by the Company pursuant to such registration if
the registration is pursuant to Section 3). The Company shall not effect any
registration of its securities (other than on Form S-4, Form S-8, or any
successor forms to such forms or pursuant to such other registration rights
agreements as may be approved in writing by the Majority Selling Holders or the
Initiating Substantial Holder, as the case may be), or effect any public or
private sale or distribution of any of its securities, including a sale pursuant
to Regulation D under the Securities Act, whether on its own behalf or at the
request of any holder or holders of such securities from the date of a request
for a Demand Registration pursuant to Section 2.1 until the earlier of (x) 90
days following the date as of which all securities covered by such Demand
Registration Statement shall have been Transferred, and (y) 90 days following
the effective date of such Demand Registration statement, unless the Company
shall have previously notified in writing all Selling Holders of the Company's
desire to do so, and either Selling Holders owning a majority of the Registrable
Securities or the Underwriters' Representative, if any, shall have consented
thereto in writing.
(ii) Any agreement entered into after the date of this Agreement
pursuant to which the Company or any of its majority owned subsidiaries issues
or agrees to issue any privately placed securities similar to any issue of the
Registrable Securities (other than (x) shares of Common Stock pursuant to a
stock incentive, stock option, stock bonus, stock purchase or other employee
benefit plan of the Company approved by its Board of Directors, and (y)
securities issued to Persons in exchange for ownership interests in any Person
in connection with a business combination in which the Company or any of its
majority owned subsidiaries is a party) shall contain a provision whereby
holders of such securities agree not to effect any public sale or distribution
of any such securities during the periods described in the first sentence of
Section 10.2(i), in each case including
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<PAGE>
a sale pursuant to Rule 144 under the Securities Act (unless such Person is
prevented by applicable statute or regulation from entering into such an
agreement).
10.3. The Company shall not, directly or indirectly, (x) enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation or (y) Transfer or agree to Transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset Transfer, the surviving corporation or
the Transferee, respectively, shall have agreed in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to include the securities
which the Holders of Registrable Securities would be entitled to receive in
exchange for Registrable Securities pursuant to any such merger, consolidation
or reorganization.
10.4. The Company shall not grant to any Person (other than a Holder
of Registrable Securities) any registration rights with respect to securities of
the Company, or enter into any agreement, that would entitle the holder thereof
to have securities owned by it included in a Demand Registration or Shelf
Registration.
Section 11. Amendment, Modification and Waivers; Further Assurances.
(i) This Agreement may be amended only if the Company shall have
obtained the written consent of Holders owning Registrable Securities possessing
a majority in number of the Registrable Securities then outstanding to such
amendment.
(ii) No waiver of any terms or conditions of this Agreement shall
operate as a waiver of any other breach of such terms and conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof. No
written waiver hereunder, unless it by its own terms explicitly provides to the
contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other party
hereto may reasonably require in order to effectuate the terms and purposes of
this Agreement.
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<PAGE>
Section 12. Assignment; Benefit. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, assigns, executors, administrators or
successors; provided, however, that except as specifically provided herein with
respect to certain matters, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by the Company
without the prior written consent of Holders owning Registrable Securities
possessing a majority in number of the Registrable Securities outstanding on the
date as of which such delegation or assignment is to become effective. A Holder
may Transfer its rights hereunder to a successor in interest to the Registrable
Securities owned by such assignor only as permitted by Section 8.
Section 13. Miscellaneous.
13.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
regard to the conflict of laws principles thereof.
13.2. Notices. All notices and requests given pursuant to this
Agreement shall be in writing and shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to the following:
If to IPS, to:
First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68104
Attention: General Counsel
Telephone: 402-498-4085
Facsimile: 402-498-4123
If to the Company, to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Attention: General Counsel
Telephone: 303-716-6800
Facsimile: 303-716-6997
or in the case of Transferees, to the address contained in the agreement in the
form of Exhibit A whereby such party became bound by the provisions of this
Agreement. Except as otherwise provided in this Agreement, the date of each
such notice and
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<PAGE>
request shall be deemed to be, and the date on which each such notice and
request shall be deemed given shall be: at the time delivered, if personally
delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next business day delivery.
13.3. Entire Agreement; Integration. This Agreement supersedes all
prior agreements between or among any of the parties hereto with respect to the
subject matter contained herein, and embodies the entire understanding among the
parties relating to such subject matter.
13.4. Injunctive Relief. Each of the parties hereto acknowledges
that in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy at law. Each
of the parties therefore agrees that in the event of such a breach hereof the
aggrieved party may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach hereof. By seeking or obtaining any such relief, the
aggrieved party shall not be precluded from seeking or obtaining any other
relief to which it may be entitled.
13.5. Section Headings. Section headings are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
13.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
13.7. Severability. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not affect
the validity and enforceability of the remaining provisions of this Agreement,
unless the result thereof would be unreasonable, in which case the parties
hereto shall negotiate in good faith as to appropriate amendments hereto.
13.8. Filing. A copy of this Agreement and of all amendments thereto
shall be filed at the principal executive office of the Company with the
corporate recorder of the Company.
13.9. Termination. This Agreement may be terminated at any time by a
written instrument signed by the parties hereto. Unless sooner terminated in
accordance with the preceding sentence, this Agreement (other than Section 7
hereof) shall
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<PAGE>
terminate in its entirety on such date as there shall be no Registrable
Securities outstanding, provided that any shares of Common Stock previously
subject to this Agreement shall not be Registrable Securities following the sale
of any such shares in an offering registered pursuant to this Agreement.
13.10. Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees (including any fees incurred in any appeal) in
addition to its costs and expenses and any other available remedy.
13.11. No Third Party Beneficiaries. Nothing herein expressed or
implied is intended to confer upon any person, other than the parties hereto,
their respective permitted assigns (including, if applicable, the Trustee),
successors, heirs and legal representatives or any Person entitled to
indemnification or contribution under Section 7, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
MONEYGRAM PAYMENT SYSTEMS, INC.
By:___________________________________
Name:
Title:
INTEGRATED PAYMENT SYSTEMS INC.
By:___________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
to Registration
Rights Agreement
AGREEMENT TO BE BOUND
BY THE REGISTRATION RIGHTS AGREEMENT
The undersigned, being the transferee of ______ shares of the common
stock, $.01 par value per share [or describe other capital stock received in
exchange for such common stock] (the "Registrable Securities"), of MoneyGram
Payment Systems, Inc., a Delaware corporation (the "Company"), as a condition to
the receipt of such Registrable Securities, acknowledges that matters pertaining
to the registration of such Registrable Securities is governed by the
Registration Rights Agreement (the "Agreement") dated as of __________, 1996
initially between the Company and Integrated Payment Systems Inc., a Delaware
corporation, and the undersigned hereby (1) acknowledges receipt of a copy of
the Agreement, and (2) agrees to be bound as a Holder by the terms of the
Agreement, as the same has been or may be amended from time to time.
Agreed to this __ day of ______________, ____________.
_________________________________
_________________________________*
_________________________________*
*Include address, telephone and facsimile for notices.
A-1
<PAGE>
EXHIBIT 10.4
DRAFT: NOVEMBER 12, 1996
December __, 1996
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
The undersigned, First Data Corporation, a Delaware corporation
("First Data"), and Western Union Financial Services, Inc., a Delaware
corporation ("Western Union"), hereby refer to the transactions contemplated by
the Registration Statement of MoneyGram Payment Systems, Inc., a Delaware
corporation ("MoneyGram"), on Form S-1 (Registration No. 333-228), as amended
(the "Registration Statement"), filed under the Securities Act of 1933, as
amended, in respect of the initial public offering of shares of common stock,
par value $.01 per share (the "Common Stock"), of MoneyGram. Such initial public
offering is intended by First Data to satisfy its obligations under the Consent
Decree dated January 19, 1996 (Docket No. C-3635) between First Data and the
Federal Trade Commission and will be effected through the sale by First Data of
its shares of Common Stock. In connection with such initial public offering,
MoneyGram, First Data and certain subsidiaries of First Data will enter into
agreements that are described in the Registration Statement as the "Transition
Agreements."
In consideration of the foregoing, and of the promises and covenants
hereinafter set forth, the parties to this letter agreement agree as follows:
During the two years following the date of the closing of the initial
sale of Common Stock by First Data pursuant to the Registration Statement
(the "Period"), MoneyGram, on the one hand, and First Data and Western
Union, on the other hand, each agrees not to sue the other party or any of
such other party's Affiliates (as defined below), officers, directors or
employees in respect of any of the service marks set forth in Exhibit A to
this letter agreement (the "Disputed Marks") in any jurisdiction, and,
after the Period, MoneyGram, on the one hand, and First Data and Western
Union, on the other hand, each agrees not to sue the other party or any of
such other party's Affiliates, officers, directors or employees in respect
of the use of any Disputed Mark during the Period. Nothing in the preceding
sentence shall preclude First Data or MoneyGram from prosecuting or
challenging applications in respect of
<PAGE>
MoneyGram Payment Systems, Inc.
December __, 1996
Page 2
any of the Disputed Marks at the United States Patent and Trademark Office
or any governmental authority in any state or other jurisdiction of the
United States or country other than the United States that performs
functions similar to those performed by the United States Patent and
Trademark Office.
The parties hereto agree that each statute of limitations that may be
applicable to a claim in respect of any Disputed Mark shall be deemed to
have been tolled during the Period.
MoneyGram, First Data and Western Union agree that, upon written
notice from MoneyGram to First Data and Western Union at any time during
the Period, First Data shall cause Integrated Payment Systems Inc. to, and
Western Union shall, enter into the Service Mark License Agreement attached
hereto as Exhibit B. Upon execution and delivery of the Service Mark
License Agreement, the parties hereto agree that their agreements set forth
in the two immediately preceding paragraphs shall terminate.
MoneyGram, First Data and Western Union each agrees to be responsible
for ensuring that each of their respective Affiliates complies with this
letter agreement and does not take any action which, if done by MoneyGram,
First Data or Western Union, as the case may be, would constitute a breach
of this letter agreement. "Affiliate" of any person means any other person
which, directly or indirectly, controls, is controlled by or is under
common control with such person.
This letter agreement may be executed in one or more counterparts,
each of which shall be considered an original instrument, but all of which shall
be considered one and the same agreement, and shall become binding when one or
more counterparts have been signed by each of the parties hereto and delivered
to each of MoneyGram, First Data and Western Union.
This letter agreement shall not be amended, modified or supplemented,
except by a written instrument signed by an authorized representative of each of
the parties hereto.
This letter agreement shall be governed by and construed in accordance
with the internal laws (as opposed to the conflict of laws provisions) of the
State of New York.
<PAGE>
MoneyGram Payment Systems, Inc.
December __, 1996
Page 3
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement among MoneyGram,
First Data and Western Union.
Very truly yours,
FIRST DATA CORPORATION
By:
--------------------
Name:
------------------
Title:
-----------------
WESTERN UNION FINANCIAL
SERVICES, INC.
By:
--------------------
Name:
------------------
Title:
-----------------
The foregoing agreement is hereby confirmed and accepted as of the date of this
letter.
MONEYGRAM PAYMENT SYSTEMS, INC.
By:
--------------------
Name:
------------------
Title:
-----------------
<PAGE>
Exhibit A
---------
The following constitute the Disputed Marks, whether used in English
or any other language:
THE BETTER WAY TO WIRE MONEY
WIRE MONEY IN MINUTES
MONEY IN MINUTES WORLDWIDE
MONEY IN MINUTES
THE BEST WAY TO SEND MONEY
THE BEST WAY TO RECEIVE MONEY
THE FASTEST WAY TO SEND MONEY
THE FASTEST WAY TO RECEIVE MONEY
THE BETTER WAY TO SEND MONEY
THE BETTER WAY TO RECEIVE MONEY
THE BETTER WAY TO SEND MONEY IN MINUTES WORLDWIDE
THE BETTER WAY TO RECEIVE MONEY IN MINUTES WORLDWIDE
THE BETTER WAY TO TRANSFER MONEY IN MINUTES WORLDWIDE
<PAGE>
DRAFT: NOVEMBER 25, 1996
EXHIBIT B
---------
S E R V I C E M A R K L I C E N S E A G R E E M E N T
-----------------------------------------------------------
THIS SERVICE MARK LICENSE AGREEMENT (this "Agreement") is entered into
as of ________, 199_, by and among Western Union Financial Services, Inc., a
Delaware Corporation ("WU"), Integrated Payment Systems Inc., a Delaware
corporation ("IPS"), and MoneyGram Payment Systems, Inc., a Delaware corporation
("Licensee").
WHEREAS, IPS, First Data Corporation, a Delaware corporation ("FDC"),
and Licensee are parties to the Contribution Agreement dated as of _________,
1996 (the "Contribution Agreement"), pursuant to which IPS and FDC contributed
certain assets associated with the Business (as hereafter defined) to Licensee
and IPS, WU and Licensee entered into a letter agreement related to the Licensed
Marks (as hereafter defined) (the "Letter Agreement"); and
WHEREAS, pursuant to the Letter Agreement, Licensee has exercised its
right to cause IPS and WU to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
representations, conditions and agreements hereafter expressed, the Parties (as
hereafter defined) agree as follows:
1. Definitions. The capitalized terms used herein shall have the
respective meanings specified or referred to in this Section 1. Each agreement
referred to in this Agreement shall mean such agreement as amended, supplemented
and modified from time to time to the extent permitted by the applicable
provisions thereof and hereof. Each definition in this Agreement includes the
singular and the plural, and reference to the neuter gender includes the
masculine and feminine where appropriate. References to any statute or
regulation means such statute or regulation as amended at the time and include
any successor legislation or regulation. The headings to the Sections hereof are
for convenience of reference and shall not affect the meaning or interpretation
of this Agreement. Except as otherwise stated, reference to Sections and
Exhibits means the Sections and Exhibits of this Agreement. The Exhibits are
hereby incorporated by reference into and shall be deemed a part of this
Agreement. Unless the context clearly indicates otherwise, whenever the word
"include," "includes," or "including" is used in this Agreement, each such word
shall be deemed to be followed by the words "without limitation."
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person; provided, however, that under no circumstances shall FDC and
its Affiliates be deemed Affiliates of Licensee or shall Licensee and its
Affiliates be deemed Affiliates of FDC.
"Agreement" shall have the meaning set forth in the first paragraph of
this Agreement.
<PAGE>
"Business" means the Consumer Money Wire Transfer Services marketed
under the name "MoneyGram(SM)", the sales and distribution of a "MoneyGram"
phonecard and any other service or product now or hereafter marketed by
Licensee.
"Consequential Damages" means any liability, Loss, Expense or damage,
whether in an action arising out of or relating to a breach of warranty, breach
of contract, delay, negligence, theory of tort, strict liability or other legal
or equitable theory, for indirect, special, reliance, incidental, punitive,
exemplary or consequential damages or commercial loss, injury or damage,
including loss of revenues, profits or use of capital or production.
Consequential Damages shall not include direct damages.
"Consumer Money Wire Transfer Service" means the service of
transferring the right to money using computer or telephone lines, or any other
technology now existing or later developed, from one person to a different
person through the location of a MoneyGram Agent, including the services
marketed under the phrase "Express Payment" or "Cash Advance."
"Contribution Agreement" shall have the meaning set forth in the first
recital to this Agreement.
"Costs" means all direct costs, expenses and charges plus all indirect
costs, expenses and charges, including reasonable allocations of overhead.
"Dispute" means any and all disputes, controversies and claims between
the Parties arising from or in connection with this Agreement or the
relationship of the Parties under this Agreement whether based on contract,
tort, common law, equity, statute, regulation, order or otherwise.
"Expenses" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit
or proceeding incident to any matter indemnified against hereunder (including
court filing fees, court costs, witness fees and reasonable fees and
disbursements of legal counsel, investigators, expert witnesses, accountants and
other professionals).
"FDC" shall have the meaning set forth in the first recital to this
Agreement.
"Force Majeure Event" shall have the meaning specified in Section
17(c).
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Intellectual Property" means any trademark, service mark, trade
dress, logo or trade name.
"IPS" shall have the meaning set forth in the first paragraph of this
Agreement.
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"Languages" means those certain languages in which the Licensed Marks
are licensed to Licensee as set forth in Exhibit A of this Agreement.
"Letter Agreement" shall have the meaning set forth in the first
recital to this Agreement.
"Licensed Marks" means the service marks set forth in Exhibit A of
this Agreement.
"Licensee" shall have the meaning set forth in the first paragraph of
this Agreement.
"Licensee Signage" shall have the meaning set forth in Section 6(b).
"Losses" means any and all losses, Costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, deficiencies
or other charges.
"MoneyGram Agent" means a Person that now or in the future has
contracted to provide the Consumer Money Wire Transfer Services or any other
services or products marketed by the Business.
"Operations Agreement" shall have the meaning set forth in Section 11.
"Party" means a party to this Agreement and its permitted successors
and assigns.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Prohibited Additional Element" means any term that Licensee is
precluded from using in connection with each Licensed Mark as set forth in
Exhibit A of this Agreement.
"Prohibited Marks" means the marks set forth in Exhibit B of this
Agreement.
"Required Additional Element" means any additional term that Licensee
must use in connection with each Licensed Mark as set forth in Exhibit A of this
Agreement.
"Requirements of Law" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body.
"Territory" means the countries specified in Exhibit A of this
Agreement.
"WU" shall have the meaning set forth in the first paragraph of this
Agreement.
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"WU Signage" shall have the meaning set forth in Section 7(b).
2. License Grant. WU hereby grants to Licensee a non-exclusive
and royalty-free license to:
(a) use the Licensed Marks solely in connection with the Business in
the Languages and in the designated Territories as specified on Exhibit A,
provided that: (i) Licensee uses each Licensed Mark with each Required
Additional Element and (ii) Licensee does not use each Licensed Mark with
any Prohibited Additional Element, it being understood that Licensee may
use with each Licensed Mark elements in addition to each Required
Additional Element so long as such additional elements otherwise comply
with Licensee's obligations and covenants set forth herein;
(b) permit MoneyGram Agents to use the Licensed Marks solely in
connection with the Business in the Languages and in the designated
Territories as specified in Exhibit A, provided that: (i) each such
MoneyGram Agent uses each Licensed Mark with each Required Additional
Element (it being understood that each such MoneyGram Agent may use with
each Licensed Mark elements in addition to each Required Additional Element
so long as such additional elements otherwise comply with each MoneyGram
Agent's obligations and covenants set forth herein), (ii) each such
MoneyGram Agent does not use each Licensed Mark with any Prohibited
Additional Element, (iii) each such MoneyGram Agent that, after the date
hereof, enters into an agreement with Licensee to provide the services
offered by the Business, or amends any agreement that exists on the date
hereof to provide the services offered by the Business, agrees to be bound
in writing to the terms and conditions set forth in this Agreement,
pursuant to which WU is an express third party beneficiary of each such
agreement, and (iv) to the extent necessary, Licensee promptly provides WU
with a copy of each such agreement to enforce WU's rights under such
agreement should Licensee fail to enforce WU's rights in a timely manner;
and
(c) sublicense the rights granted to Licensee pursuant to Sections
2(a) and 2(b) to any Affiliate of Licensee engaged in the Business, provided
that (i) each such Affiliate agrees to be bound in writing to the terms and
conditions set forth in this Agreement, (ii) WU is an express third party
beneficiary of each such agreement and (iii) to the extent necessary, Licensee
promptly provides WU with a copy of each such agreement to enforce WU's rights
under such agreement should Licensee fail to enforce WU's rights in a timely
manner.
3. Standards For Use Of Licensed Marks.
(a) Use of the Licensed Marks by Licensee, each MoneyGram Agent and
any Affiliate of Licensee pursuant to this Agreement shall be in accordance
with the standards of quality set forth in Exhibit C. Licensee shall
conduct the Business in which the Licensed Marks are used in substantial
compliance with all Requirements of Law.
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<PAGE>
(b) In connection with the use of Licensed Marks, Licensee shall,
and shall cause each MoneyGram Agent and each Affiliate of Licensee to,
apply the notice (e.g., the (R) symbol, the "SM" symbol or the "TM" symbol)
specified by WU in writing. WU shall provide Licensee with written notice
of changes to the notation requirements for the Licensed Marks. Licensee
shall, and shall cause each MoneyGram Agent and each Affiliate of Licensee
to, implement such changes as soon as reasonably practicable, provided that
Licensee shall not be required to remove, replace or reprint, or cause to
be removed, replaced or reprinted, any signage, advertising, promotional
materials, paper goods and any other materials and supplies that contain
the Licensed Marks with the former notations, except as would be necessary
in the ordinary course of Licensee's business.
4. Review of Use of Licensed Marks. Upon WU's reasonable request,
which shall not be more often than quarterly, Licensee shall provide WU with a
representative sample of sales literature, documents, instruments, printed media
or other materials bearing the Licensed Marks for purpose of verifying
compliance with the terms of this Agreement by Licensee, each MoneyGram Agent
and each Affiliate of Licensee. If WU reasonably considers such products or
services or such documents, instruments, media and other material to be of a
type or quality that is inconsistent with the terms of this Agreement, WU may
request Licensee to, and Licensee shall and shall cause each MoneyGram Agent and
each Affiliate of Licensee to (unless Licensee or such MoneyGram Agent or
Affiliate of Licensee elects to discontinue use of the Licensed Marks as they
relate to such products, services, documents, instruments, media or other
material), improve such products or services or such documents, instruments,
media and other materials such that such products or services or such documents,
instruments, media and other materials are of a type and quality that is
consistent with the terms of this Agreement. If Licensee fails or fails to cause
any MoneyGram Agent or Affiliate of Licensee to exercise either of the foregoing
options, WU may proceed under Section 15.
5. WU's Retention of Ownership.
(a) Licensee acknowledges and agrees that as between Licensee and WU,
WU owns all right, title and interest in and to the Licensed Marks and the
Prohibited Marks, and Licensee agrees and shall cause each MoneyGram Agent
that, after the date hereof, enters into an agreement with Licensee to
provide the services offered by the Business, or amends any agreement that
exists on the date hereof to provide the services offered by the Business,
and each Affiliate of Licensee to agree that the use of the Licensed Marks
or the Prohibited Marks shall not create in the favor of Licensee, any such
MoneyGram Agent or any Affiliate of Licensee any ownership interest
therein. All right, title and interest in and to the Licensed Marks and the
Prohibited Marks, other than those rights expressly granted herein, shall
remain in WU.
(b) Licensee agrees and shall cause each MoneyGram Agent that, after
the date hereof, enters into an agreement with Licensee to provide the
services offered by the Business, or amends any agreement that exists on
the date hereof to provide the services
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<PAGE>
offered by the Business, and each Affiliate of Licensee to agree to execute
all documents reasonably requested by WU to effect any necessary or
appropriate registration, maintenance or renewal of any of the Licensed
Marks in any Language in any Territory or recordation of Licensee, any
MoneyGram Agent or any Affiliate of Licensee as a registered user of any of
the Licensed Marks. WU shall reimburse Licensee, any MoneyGram Agent or any
Affiliate of Licensee for any reasonable out-of-pocket costs incurred by
Licensee, any MoneyGram Agent or any Affiliate of Licensee in connection
therewith.
(c) Except as required by applicable Requirements of Law and except
as otherwise provided in this Agreement, during the term of this Agreement
and at any time after the expiration, cancellation, annulment or
termination of this Agreement or any license granted pursuant hereto with
respect to any Territory, Licensee shall not, and shall cause each
MoneyGram Agent and each Affiliate of Licensee not to: (i) use any trade
name or any other name, mark or trade dress that is confusingly similar to
any of the Licensed Marks in any language (whether or not such language is
delineated in Exhibit A) in any Territory; or (ii) use any of the
Prohibited Marks anywhere in the world in any language.
(d) IPS acknowledges and agrees that as between IPS and WU, WU owns
all right, title and interest in and to the Licensed Marks and the
Prohibited Marks in all languages anywhere in the world, and hereby
releases any and all right, title and interest (if any) that IPS may have
in and to the Licensed Marks and the Prohibited Marks in all languages
anywhere in the world.
6. Licensee and MoneyGram Agent Nonconforming Uses; Signage.
(a) Nonconforming Uses. The Parties acknowledge and agree that as of
the date of this Agreement, Licensee and MoneyGram Agents are using in the
Territories the Prohibited Marks or the Licensed Marks in a manner that
does not comply with the terms and conditions of this Agreement. Except as
set forth in Section 6(b), within one-hundred eighty (180) days after the
date of this Agreement, Licensee shall cease and shall cause all Money Gram
Agents and Affiliates of Licensee to cease (i) all such uses of the
Prohibited Marks and (ii) all nonconforming uses of the Licensed Marks./1/
(b) Signage. The Parties acknowledge and agree that as of the date
of this Agreement, Licensee and MoneyGram Agents have signage in
Territories that contain the Prohibited Marks or the Licensed Marks that do
not comply with the terms and conditions of this Agreement (the "Licensee
Signage"). Licensee and MoneyGram Agents may continue to use the Licensee
Signage and, prior to one-hundred eighty (180) days after the date of this
Agreement, may put in place additional Licensee Signage, provided that the
Licensee Signage
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/1/ The Parties agree that this Section 6(a) may be deleted and other changes
made to this Agreement as a result of such deletion if the condition
acknowledged in the first sentence of this Section 6(a) does not exist as of the
date this Agreement is executed.
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<PAGE>
is, as of the date that is one-hundred eighty (180) days after the date of
this Agreement: (i) affixed permanently to a fixture at a location of
Licensee or a MoneyGram Agent; (ii) professionally manufactured; and (iii)
not a billboard or bench advertisement. If, after the date that is one-
hundred eighty (180) days after the date of this Agreement: (x) such
Licensee Signage is damaged, broken or ceases in whole or in part to be
affixed to the fixture to which it is affixed as of the date that is one-
hundred eighty (180) days after the date of this Agreement for any reason
whatsoever (including, a Force Majeure Event); (y) Licensee or any
MoneyGram Agent ceases to use the location containing such Licensee
Signage, then such Licensee Signage shall be (A) removed and destroyed and
(B) at the option of Licensee or the MoneyGram Agent, replaced with signage
that complies with the terms and conditions of this Agreement./2/
7. WU, WU Affiliates and Its and Their Respective Agents'
Nonconforming Uses; Signage.
(a) Nonconforming Uses. The Parties acknowledge and agree that as of
the date of this Agreement, WU, WU Affiliates, and its and their respective
agents are using the Licensed Marks in Territories in ways that do not
comply with the terms and conditions of this Agreement. Except as set forth
in Section 7(b), within one-hundred eighty (180) days after date of this
Agreement, WU shall cease, and shall cause its Affiliates and its and its
Affiliates' agents to cease, all such uses of the Licensed Marks in
Territories that do not comply with the terms and conditions of this
Agreement./3/
(b) Signage. The Parties acknowledge and agree that as of the date
of this Agreement, WU, WU Affiliates, and its and their respective agents
have signage in the Territories that contain the Licensed Marks in ways
that do not comply with the terms and conditions of this Agreement (the "WU
Signage"). WU, WU Affiliates, and its and their respective agents may
continue to use the WU Signage and, prior to one-hundred eighty (180) days
after the date of this Agreement, may put in place additional WU Signage,
provided that the WU Signage is, as of the date that is one-hundred eighty
(180) days after the date of this Agreement: (i) affixed permanently to a
fixture at a location of WU, a WU Affiliate, or an agent of WU or a WU
Affiliate; (ii) professionally manufactured; and (iii) not a billboard or
bench advertisement. If, after the date that is one-hundred eighty (180)
days after the date of this Agreement: (x) such WU Signage is damaged,
broken or ceases in whole or in part to be affixed to the fixture to which
it is affixed as of the date that is one-
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/2/ The Parties agree that this Section 6(b) may be deleted and other changes
made to this Agreement as a result of such deletion if the condition
acknowledged in the first sentence of this Section 6(b) does not exist as of the
date this Agreement is executed.
/3/ The Parties agree that this Section 7(a) may be deleted and other changes
made to this Agreement as a result of such deletion if the condition
acknowledged in the first sentence of this Section 7(a) does not exist as of the
date this Agreement is executed.
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<PAGE>
hundred eighty (180) days after the date of this Agreement for any reason
whatsoever (including, a Force Majeure Event); (y) WU, or any WU Affiliate
or agent of WU or any WU Affiliate ceases to use the location containing
such WU Signage, then such WU Signage shall be (A) removed and destroyed
and (B) at the option of WU, a WU Affiliate or agent of WU or any WU
Affiliate, replaced with signage that complies with the terms and
conditions of this Agreement./4/
8. Unauthorized Use or Infringement of Licensed Marks. Licensee
agrees to cooperate with WU as reasonably requested by WU in protecting,
enforcing and defending the Licensed Marks. Licensee agrees to notify promptly
WU in writing of any infringement, imitation, claim or other problem with
respect to the Licensed Marks that may arise or otherwise come to Licensee's
attention. Subject to the further provisions of this Section 8, WU shall have
the right, but not the obligation, to take any action on account of any such
infringement, imitation, claim or problem, at its sole expense. Licensee shall
have the right, but not the obligation, to participate in any action taken on
account of any such infringement, imitation, claim or problem, at its sole
expense. Licensee shall not institute any suit or take any other action on
account of any such infringement, imitation, claim or problem without the prior
express written consent of WU, which consent WU may withhold in its sole
discretion. If WU initiates litigation against any Person, WU shall choose the
attorneys, control the litigation, pay the Expenses and retain any damages
recovered as a result of any judgment in favor of WU. If WU takes no action to
stop an alleged unauthorized use or infringement of a Licensed Mark within a
reasonable period of time following notice by Licensee of such unauthorized use
or infringement, then Licensee may, by written notice to WU, request that WU
bring an action with respect to such alleged unauthorized use or infringement at
the expense of Licensee, in which event WU shall promptly commence such action,
but only if (a) Licensee certifies to WU that, in the good faith judgment of
Licensee, the failure to take action against the unauthorized use or
infringement in question is reasonably likely to have a material adverse effect
on the Business and (b) Licensee delivers to WU an opinion of trademark counsel
(which such counsel is reasonably acceptable to WU) to the effect that WU is
more likely than not to prevail in such action. Any damages awarded in any such
suit shall, after payment of Expenses incurred by WU, be paid to Licensee.
9. Transactions Affecting the Licensed Marks. Licensee shall not,
without informing WU in advance of the material facts relating thereto and
without obtaining WU's prior written consent, which consent WU may withhold in
its sole discretion, effect the settlement, defense of, consent to a judgment or
decree or other action with respect to any suit, action or proceeding before any
Governmental Body involving any Licensed Mark.
10. Registration. WU shall obtain such registrations of the Licensed
Marks in each of the Territories and in each of the Languages as it deems
appropriate or necessary in its sole
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/4/ The Parties agree that this Section 7(b) may be deleted and other changes
made to this Agreement as a result of such deletion if the condition
acknowledged in the first sentence of this Section 7(b) does not exist as of the
date this Agreement is executed.
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<PAGE>
discretion, and Licensee, MoneyGram Agents and Affiliates of Licensee shall not
be entitled to obtain any such registration. WU shall use commercially
reasonable efforts to maintain the registrations of any of the Licensed Marks
that are currently registered in the Territories and in the Languages where such
Licensed Marks are currently registered. In addition to those registrations
obtained and maintained by WU as provided in the first two sentences of this
Section 10, if Licensee desires WU to register the Licensed Marks in other
Territories or in other Languages, upon Licensee's reasonable written request,
WU shall use reasonable commercial efforts to register and maintain, or cause to
be registered or maintained, such Licensed Marks in each of the Territories
specified by Licensee, provided that: (a) Licensee reimburses WU for all Costs
relating thereto; and (b) Licensee, MoneyGram Agents and Affiliates of Licensee
shall not be entitled to obtain any such registration.
11. Confidentiality. The Parties hereby agree to be bound by the
provisions of Article 7 of the Operations Agreement dated as of _______, 1996
(the "Operations Agreement") among Licensee, First Data Technologies, Inc., a
Delaware corporation, and IPS, the provisions of which are hereby incorporated
by reference.
12. Representations and Warranties; Disclaimers.
(a) By WU. WU represents and warrants to Licensee that: (i) WU has
all right, power and authority to enter into and perform its obligations
set forth in this Agreement in accordance with its terms without the
consent of any third Person; (ii) the Licensed Marks if used as
contemplated herein will not infringe any Intellectual Property of any
third Person; (iii) subject to the provisions of Section 7(b), after one-
hundred eighty (180) days after the date of this Agreement, WU will not use
the term "WIRE" or the term "WORLDWIDE" in connection with the mark MONEY
IN MINUTES in any Language or in any Territory for which Licensee has
received a license to use the mark WIRE MONEY IN MINUTES or MONEY IN
MINUTES WORLDWIDE; (iv) subject to the provisions of Section 7(b), after
one-hundred eighty (180) days after date of this Agreement, WU shall not
use the mark THE BETTER WAY TO WIRE MONEY in English in any Territory for
which Licensee has received a license to use such mark pursuant to this
Agreement; and (v) WU shall not license any of the Licensed Marks to any
third Person other than to WU Affiliates and its and their respective
agents.
(b) By Licensee. Licensee represents and warrants to WU that:
Licensee has all right, power and authority to enter into and perform its
obligations set forth in this Agreement in accordance with its terms
without the consent of any third Person.
(c) No Other Warranties; Disclaimer. EXCEPT FOR THE EXPRESS
WARRANTIES SET FORTH HEREIN, THE LICENSED MARKS PROVIDED TO LICENSEE
HEREUNDER ARE PROVIDED ON AN "AS-IS" BASIS WITHOUT ANY REPRESENTATION OR
WARRANTY OF ANY KIND WHATSOEVER. EXCEPT AS SET FORTH HEREIN, WU AND IPS
MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO LICENSEE OR
ANY OTHER PERSON, INCLU-
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<PAGE>
DING ANY WARRANTIES REGARDING THE MERCHANTABILITY, SUITABILITY,
ORIGINALITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY PREVIOUS COURSE OF DEALINGS BETWEEN THE PARTIES OR CUSTOM OR USAGE OF
TRADE).
13. Disclaimer of Liability. NOTWITHSTANDING ANY OTHER PROVISION TO
THE CONTRARY SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL WU, IPS, ANY OF
THEIR RESPECTIVE AFFILIATES, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES
UNDER THIS AGREEMENT, WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES
REGARDLESS OF WHETHER OR NOT ANY PARTY OR ANY OTHER SUCH PERSON HAS BEEN ADVISED
OR COULD HAVE FORESEEN, OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING
REPRESENTS AN EXPRESS ALLOCATION OF RISK AMONG THE PARTIES.
14. Indemnification.
(a) Indemnification by WU. Subject to Section 15, WU shall indemnify
and hold Licensee harmless against any and all Losses and Expenses arising
out of or related to: (i) the material breach of any warranty or the
inaccuracy of any representation of WU contained in this Agreement; (ii)
the material breach by WU of any of its covenants in this Agreement; or
(iii) any claim against Licensee based on Licensee's use of the Licensed
Marks in accordance with this Agreement or the license granted hereunder
infringes or violates the Intellectual Property of any third Person.
(b) Indemnification by Licensee. Subject to Section 15, Licensee
shall indemnify and hold WU harmless against any and all Losses and
Expenses arising out of or relating to: (i) the material breach of any
warranty or the inaccuracy of any representation of Licensee contained in
this Agreement; (ii) the material breach by Licensee, any Affiliate of
Licensee or any MoneyGram Agent of its or their covenants in this
Agreement; or (iii) the use of the Licensed Marks by Licensee, any
Affiliate of Licensee or any MoneyGram Agent in contravention with the
material terms of this Agreement.
(c) Procedure. Each Party shall indemnify the other as set forth in
this Section 14 provided that: (i) the indemnified party promptly notifies
the indemnifying party in writing of the claim, provided that the failure
to notify the indemnifying party shall not relieve it from any liability
which it may have to the indemnified party except to the extent the
indemnifying party was prejudiced by such failure; (ii) WU has sole control
of the defense and all related settlement negotiations with respect to the
claim, provided, however, that Licensee has the right, but not the
obligation, to participate in the defense of any such claim or action
through counsel of its own choosing; and (iii) Licensee cooperates fully to
the extent deemed necessary or desirable by WU, and executes all documents
deemed necessary or desirable by
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<PAGE>
WU for the defense of such claim, provided that WU shall reimburse Licensee
for any reasonable out-of-pocket costs incurred by Licensee in connection
therewith.
15. Dispute Resolution. The Parties hereby agree to be bound by and
to resolve any Dispute in accordance with Article 11 of the Operations
Agreement, the provisions of which are hereby incorporated by reference.
16. Term and Termination.
(a) Term. Notwithstanding anything to the contrary set forth herein,
this Agreement (and the license granted herein) shall continue indefinitely
unless terminated as set forth herein.
(b) Termination by Licensee. Licensee may terminate this Agreement
in its entirety or the license granted herein as it relates to any
Territory upon written notice to WU:
(i) if WU breaches any of its material obligations under this
Agreement which breach is not substantially cured within sixty (60)
days after notice specifying the breach is given by Licensee to WU; or
(ii) for its convenience as of a future date specified in such
notice.
(c) Partial Termination of Agreement by WU. If Licensee breaches any
of its material obligations set forth in Sections 2, 3 or 4 or in any
Territory (determined pursuant to the provisions incorporated by reference
in Section 15), which breach is not substantially cured within sixty (60)
days after notice specifying the breach is given by WU to Licensee, then,
upon written notice to Licensee, WU may terminate the license granted
pursuant to Section 2 with respect to all of the Licensed Marks in each
Territory in which such breach occurred and was not cured.
(d) Termination by WU of Agreement in its Entirety. WU may terminate
this Agreement (and the license granted herein) in its entirety, upon
written notice to Licensee, if:
(i) Licensee breaches any of its material obligations under this
Agreement (other than a breach of Sections 2, 3, or 4), which breach
is not substantially cured within sixty (60) days after notice
specifying the breach is given by WU to Licensee; or
(ii) Licensee becomes insolvent, makes a general assignment for
the benefit of creditors, files a voluntary petition for bankruptcy,
suffers or permits the appointment of a receiver for its business or
assets, or becomes subject to any proceedings under any bankruptcy or
insolvency law, whether domestic or foreign, or has wound
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<PAGE>
up or liquidated, voluntarily or otherwise, and if such condition or
event is not cured or if adequate assurances are not provided within
sixty (60) days of any such event occurring.
(e) Consequences of Termination of Agreement in its Entirety. Upon
termination of this Agreement in its entirety for any reason, one-hundred
eighty (180) days after the receipt by Licensee of the notice specified in
Section 16(d) or receipt by WU of the notice specified in Section 16(b)
(unless an earlier date is specified in a notice under Section 16(b)(ii)):
(i) the license granted to Licensee shall terminate; (ii) Licensee shall
cease all use of the Licensed Marks in all Territories and in all
Languages; (iii) Licensee shall terminate all sublicenses granted pursuant
to this Agreement and cause such sublicensees (whether such sublicensees
are Affiliates of Licensee or MoneyGram Agents) to cease all use of the
Licensed Marks in all Territories and in all Languages; (iv) the
obligations of WU, WU Affiliates and its and their respective agents set
forth in Section 7 and the representations and warranties of WU in Section
12 shall terminate; and (v) Licensee shall comply with the provisions
incorporated by reference in Section 11 as they relate to any Confidential
Information (as defined in the Operations Agreement) of WU obtained by
Licensee in connection with the performance by the Parties of their
respective obligations hereunder.
(f) Consequences of Termination of License Relating to a Territory.
Upon termination of the license granted herein with respect to any
Territory for any reason, one-hundred eighty (180) days following the
receipt by WU of the notice specified in Section 16(b) (unless an earlier
date is specified in a notice under Section 16(b)(ii)) or the receipt by
Licensee of the notice specified in Section 16(c): (i) the license granted
to Licensee with respect to such Territory shall terminate; (ii) Licensee
shall cease all use of the Licensed Marks in such Territory and in all
Languages in such Territory; (iii) Licensee shall terminate all sublicenses
granted pursuant to this Agreement with respect to each such Territory and
shall cause such sublicensees (whether such sublicensees are Affiliates of
Licensee or MoneyGram Agents) to cease all use of the Licensed Marks in
such Territory and in all Languages in each such Territory; (iv) the
obligations of WU, WU Affiliates and its and their respective agents set
forth in Section 7 as they relate to such Territory and the representations
and warranties of WU in Section 12 shall terminate; and (v) Licensee shall
comply with the provisions incorporated by reference in Section 11 as they
relate to such Territory and the applicable Licensed Marks.
17. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each Party shall
pay all Costs incurred by it or on its behalf in connection with the
negotiation and preparation of this Agreement and its performance and
compliance with all its obligations hereunder, including fees and expenses
of its own financial consultants, accountants and counsel.
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<PAGE>
(b) Relationship of Parties. Nothing in this Agreement shall be
deemed by the Parties, or by any third Person, to create a partnership,
joint venture or similar relationship between or among any of the Parties
and, except as otherwise expressly provided herein, no Party shall be
deemed to be the agent of any other Party. No Party has, and shall not hold
itself out as having, any authority to enter into any contract or create
any obligation or liability on behalf of, in the name of, or binding upon
any other Party except as specifically provided herein.
(c) Force Majeure. Each Party shall be excused from the performance
of obligations (other than payment obligations) under this Agreement, for
any period and to the extent that it is prevented, restricted or delayed
from or interfered with in performing any of its obligations under this
Agreement, in whole or in part, as a result of labor disputes, strikes,
work stoppages or delays, acts of God, severe weather, failures or
fluctuations in utilities or telecommunications equipment or service,
shortages of materials or rationing, civil disturbance, acts of public
enemies, blockade, embargo or any law, order, proclamation, regulation,
ordinance or court order or requirement having legal effect of any judicial
authority or Governmental Body, or any other act or omission whatsoever,
whether similar or dissimilar to the foregoing, which are beyond the
reasonable control of such Party (each, a "Force Majeure Event"), and such
nonperformance shall not be a breach or default under this Agreement, or a
ground for termination of this Agreement. Each Party shall give the other
Parties prompt notice of any Force Majeure Event affecting the notifying
Party's ability to perform under this Agreement and shall promptly update
the other Parties regarding the notifying Party's efforts to mitigate and
resolve such Force Majeure Event.
(d) Entire Agreement. This Agreement, including the Exhibits hereto
and the provisions of Articles 7 and 11 the Operations Agreement, which WU
acknowledges it has reviewed and understands, constitutes the entire
agreement among the Parties with regard to the subject matter hereof, and
supersedes all other prior agreements, understandings or discussions among
the Parties concerning such subject matter. There are no representations,
warranties, understandings or agreements (written or oral) relative to the
subject matter hereof which are not expressly set forth herein. This
Agreement may not be amended or modified except in writing signed by an
authorized representative of each Party to this Agreement.
(e) Assignment. Except as otherwise provided herein, the rights and
obligations of both WU and Licensee under this Agreement are personal and
not assignable, either voluntarily or by operation of law, without the
prior written consent of the other Party. Notwithstanding the foregoing,
(i) WU may assign all its rights and delegate its duties and obligations
hereunder to any Affiliate, provided such Affiliate remains an Affiliate of
WU after such an assignment and that notwithstanding such assignment WU
shall remain primarily liable for all of its obligations hereunder, and
(ii) Licensee may assign all its rights and delegate its duties and
obligations hereunder to any Person who purchases substantially all of the
Business, provided the assignee agrees to be bound in writing to the terms
and
-13-
<PAGE>
conditions set forth in this Agreement, and, notwithstanding such
assignment, Licensee shall remain primarily liable for all of its
obligations hereunder. Subject to the foregoing, this Agreement shall
extend to and be binding upon and inure to the benefit of the Parties and
their respective Affiliates, successors and permitted assigns. Nothing in
this Agreement is intended to or shall be construed to confer upon any
Person other than the Parties and their respective Affiliates, successors
and permitted assigns, any right, remedy or claim under or by reason of
this Agreement.
(f) Notices. All notices which any Party may be required or desire to
give to any other Party shall be in writing and shall be given by personal
service, telecopy, registered mail or certified mail (or its equivalent) or
overnight courier to the other Parties at their respective addresses or
telecopy telephone numbers set forth below. Mailed notices and notices by
overnight courier shall be deemed to be given upon actual receipt by the
Party to be notified. Notice delivered by telecopy shall be confirmed in
writing by overnight courier and shall be deemed to be given upon actual
receipt by the Party to be notified.
In the case of IPS:
Integrated Payment Systems Inc.
6200 So. Quebec St.
Englewood, Colorado 80111
Attention: General Counsel
Telephone Number: 303-488-8973
Telecopy Number: 303-488-8902
With a copy to:
First Data Corporation
2121 N. 117th Ave. NP 30
Omaha, Nebraska 68164
Attention: General Counsel
Telephone Number: 402-498-4085
Telecopy Number: 402-498-4123
In the case of Licensee:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: Chief Executive Officer
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
-14-
<PAGE>
With a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: General Counsel
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
In the case of WU:
Western Union Financial Services, Inc.
6200 So. Quebec Street
Englewood, Colorado 80111
Attention: President
Telephone Number: (303) 488-8182
Telecopy Number: (303) 488-8292
With a copy to:
First Data Corporation
2121 N. 117th Ave. NP 30
Omaha, Nebraska 68164
Attention: General Counsel
Telephone Number: 402-498-4085
Telecopy Number: 402-498-4123
A Party may from time to time change its address for notification purposes
by giving the other Parties prior written notice of the new address and the
date upon which it shall become effective.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(h) Governing Law. Subject to the provisions referenced in Section 15,
this Agreement shall be governed by and construed in accordance with the
internal laws (as opposed to the conflict of laws provisions) of the State
of New York.
(i) Survival. Except as provided herein, the provisions of Sections 5,
11, 12, 13, 14, 15, 16(e), 16(f) and 17 shall survive the termination
of this Agreement for any reason.
-15-
<PAGE>
(j) Waiver. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the Party entitled to the
benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any Party, it is
authorized in writing by an authorized representative of such Party. The
failure of any Party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any Party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach. Except as specifically provided
otherwise, all remedies provided for in this Agreement shall be cumulative
and in addition to and not in lieu of any other remedies available to any
Party at law, in equity or otherwise.
(k) Severability. Wherever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable
law, but in case any one or more of the provisions contained herein shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
(l) Recordation. Licensee shall have the right to prepare and record
a memorandum of this Agreement or otherwise record notice of its license
rights or permitted user status with respect to the Licensed Marks in the
appropriate office of a Governmental Body, subject to WU's prior review and
approval, which approval shall not be unreasonably withheld or delayed. WU
shall cooperate fully to the extent reasonably necessary, and execute all
documents relating thereto, provided that Licensee shall reimburse WU for
any reasonable out-of-pocket costs incurred by WU in connection therewith.
-16-
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first above written.
MONEYGRAM PAYMENT SYSTEMS, INC.
Signed By:
-----------------------------
Print Name:
-----------------------------
Title:
----------------------------------
INTEGRATED PAYMENT SYSTEMS INC.
Signed By:
-----------------------------
Print Name:
-----------------------------
Title:
----------------------------------
WESTERN UNION FINANCIAL SERVICES, INC.
Signed By:
-----------------------------
Print Name:
-----------------------------
Title:
----------------------------------
-17-
<PAGE>
EXHIBIT A
---------
LICENSED MARKS
--------------
Attached
-18-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
---------
- --------------------------------------------------------------------------------------------------------------
| | | Required | Prohibited |
| Licensed Mark | Territories -- Languages | Additional Elements | Additional Elements |
==============================================================================================================
| <S> | <C> | <C> | <C> |
| THE BETTER | Except as set forth below, the | 1. The term | 1. the term |
| WAY TO WIRE | Licensed Mark may be used in | "MoneyGram" must be | "worldwide" |
| MONEY | each of the countries set forth | used in close proximity to | 2. the name of |
| | below in the language or languages | the Licensed Mark and in | any country |
| | that are native to such country and | a prominent manner. | |
| | in English in each country; | | |
| | provided, however, that in no | | |
| | event shall the Licensed Mark be | | |
| | used in Spanish: | | |
| | | | |
| | United States of America | | |
| | ------------------------ | | |
| | | | |
| | Continental Europe | | |
| | ------------------ | | |
| | | | |
| | Andorra | | |
| | Austria | | |
| | Belgium | | |
| | Bosnia | | |
| | Bulgaria | | |
| | Croatia | | |
| | Cyprus | | |
| | Czech Rep. | | |
| | Denmark | | |
| | Estonia | | |
| | Finland | | |
| | France | | |
| | Germany | | |
| | Gibralter | | |
| | Greece | | |
| | Hungary | | |
| | Iceland | | |
| | Ireland | | |
| | Italy | | |
| | Luxemburg | | |
| | Malta | | |
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
| | | Required | Prohibited |
| Licensed Mark | Territories -- Languages | Additional Elements | Additional Elements |
===========================================================================================================
|<S> | <C> | <C> | <C> |
| | Monaco | | |
| | Netherlands | | |
| | Norway | | |
| | Poland | | |
| | Portugal | | |
| | Russia | | |
| | Spain | | |
| | Sweden | | |
| | Switzerland | | |
| | Ukraine | | |
| | United Kingdom | | |
| | | | |
| | Caribbean/Latin America | | |
| | ----------------------- | | |
| | | | |
| | Antigua | | |
| | Aruba | | |
| | Bahamas | | |
| | Barbados | | |
| | Barbuda | | |
| | Belize | | |
| | Bermuda | | |
| | Brazil | | |
| | Cayman Islands | | |
| | Curacao | | |
| | Grenada | | |
| | Haiti | | |
| | Jamaica | | |
| | St. Lucia | | |
| | St. Vincent/Grenadines | | |
| | Trinidad & Tobago | | |
| | U.S. Virgin Islands | | |
| | | | |
| | Asia/Middle East | | |
| | ---------------- | | |
| | | | |
| | Australia | | |
| | Bahrain | | |
| | Bangladesh | | |
| | Cambodia | | |
| | China | | |
| | Guam | | |
- -----------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
| | | Required | Prohibited |
| Licensed Mark | Territories -- Languages | Additional Elements | Additional Elements |
|=================|==================================|=============================|=========================|
| <S> | <C> | <C> | <C> |
| | United Arab Emirates | | |
| | Vietnam | | |
| | | | |
| | Africa | | |
| | ------ | | |
| | | | |
| | Egypt | | |
| | Ghana | | |
| | | | |
|-----------------|----------------------------------|-----------------------------|-------------------------|
| WIRE MONEY | United States -- English | 1. The term | |
| IN MINUTES | | "MoneyGram" must be | |
| | | used in close proximity to | |
| | | the Licensed Mark and in | |
| | | a prominent manner. | |
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
| | | Required | Prohibited |
| Licensed Mark | Territories -- Languages | Additional Elements | Additional Elements |
===============================================================================================================
| <S> | <C> | <C> | <C> |
| MONEY IN | The Licensed Mark may be used in | 1. The term | |
| MINUTES | each of the countries set forth | "MoneyGram" must be | |
| WORLDWIDE | below in the language or languages | used in close proximity to | |
| | that are native to such country and | the Licensed Mark and in | |
| | in English in each country; | a prominent manner. | |
| | provided, however, that in no | | |
| | event shall the Licensed Mark be | | |
| | used in Spanish: | | |
| | | | |
| | United States of America | | |
| | ------------------------ | | |
| | | | |
| | Continental Europe | | |
| | ------------------ | | |
| | | | |
| | Andorra | | |
| | Austria | | |
| | Belgium | | |
| | Bosnia | | |
| | Bulgaria | | |
| | Croatia | | |
| | Cyprus | | |
| | Czech Rep. | | |
| | Denmark | | |
| | Estonia | | |
| | Finland | | |
| | France | | |
| | Germany | | |
| | Gibralter | | |
| | Greece | | |
| | Hungary | | |
| | Iceland | | |
| | Ireland | | |
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
| | | Required | Prohibited |
|Licensed Mark | Territories -- Languages | Additional Elements | Additional Elements |
==============================================================================================================
|<S> | <C> | <C> | <C> |
| | Italy | | |
| | Luxemburg | | |
| | Malta | | |
| | Monaco | | |
| | Netherlands | | |
| | Norway | | |
| | Poland | | |
| | Portugal | | |
| | Russia | | |
| | Spain | | |
| | Sweden | | |
| | Switzerland | | |
| | Ukraine | | |
| | United Kingdom | | |
| | | | |
| | Caribbean/Latin America | | |
| | ----------------------- | | |
| | | | |
| | Antigua | | |
| | Aruba | | |
| | Bahamas | | |
| | Barbados | | |
| | Barbuda | | |
| | Belize | | |
| | Bermuda | | |
| | Brazil | | |
| | Cayman Islands | | |
| | Curacao | | |
| | Grenada | | |
| | Haiti | | |
| | Jamaica | | |
| | St. Lucia | | |
| | St. Vincent/Grenadines | | |
| | Trinidad & Tobago | | |
| | U.S. Virgin Islands | | |
| | | | |
| | Asia/Middle East | | |
| | ---------------- | | |
| | | | |
| | Australia | | |
| | Bahrain | | |
| | Bangladesh | | |
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Required Prohibited
Licensed Mark Territories -- Languages Additional Elements Additional Elements
=======================================================================================================
<S> <C> <C> <C>
Taiwan
Thailand
Turkey
United Arab Emirates
Vietnam
Africa
------
Egypt
Ghana
- -------------------------------------------------------------------------------------------------------
</TABLE>
A-6
<PAGE>
EXHIBIT B
---------
PROHIBITED MARKS
----------------
MONEY IN MINUTES
THE BEST WAY TO SEND MONEY
THE BEST WAY TO RECEIVE MONEY
THE FASTEST WAY TO SEND MONEY
THE FASTEST WAY TO RECEIVE MONEY
THE BETTER WAY TO SEND MONEY
THE BETTER WAY TO RECEIVE MONEY
THE BETTER WAY TO SEND MONEY IN MINUTES WORLDWIDE
THE BETTER WAY TO RECEIVE MONEY IN MINUTES WORLDWIDE
THE BETTER WAY TO TRANSFER MONEY IN MINUTES WORLDWIDE
<PAGE>
EXHIBIT C
---------
QUALITY CONTROL STANDARDS
-------------------------
[TO BE PROVIDED BY LICENSEE]
<PAGE>
EXHIBIT 10.5
Draft: November 25, 1996
===============================================================================
HUMAN RESOURCES AGREEMENT
dated as of __________ __, 1996
among
FIRST DATA CORPORATION
INTEGRATED PAYMENT SYSTEMS INC.
and
MONEYGRAM PAYMENT SYSTEMS, INC.
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 ALLOCATION OF LIABILITIES 5
ARTICLE 3 SAVINGS PLAN 5
Section 3.1. Establishment of Company Savings Plan 5
Section 3.2. Transfer of Account Balances from FDC Savings
Plan to Company Savings Plan 6
ARTICLE 4 PENSION PLAN 6
ARTICLE 5 WELFARE BENEFITS 6
Section 5.1. Welfare Benefits Provided Under Company Plans 6
Section 5.2. Accounts under FDC Cafeteria Plan 7
Section 5.3. Treatment of COBRA Beneficiaries. 7
ARTICLE 6 MISCELLANEOUS PLANS AND AGREEMENTS 8
Section 6.1. Stock Option Plans 8
Section 6.2. Bonus and Incentive Plans. 8
Section 6.3. Workers' Compensation 8
Section 6.4. Vacation Pay Policy 9
Section 6.5. Tuition Reimbursement Plan. 9
Section 6.6. Severance Pay Plan. 9
ARTICLE 7 INDEMNIFICATION 9
Section 7.1. Indemnification 9
Section 7.2. Notification 10
Section 7.3. Claims Period 12
Section 7.4. Subrogation 12
Section 7.5. Exclusive Remedy 12
Section 7.6. No Special Damages 13
Section 7.7. Timely Payment 13
ARTICLE 8 MISCELLANEOUS 13
Section 8.1. No Rights 13
Section 8.2. Corporate Action; Delegation of Authority 13
Section 8.3. No Solicitation 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8.4. Termination 14
Section 8.5. Survival of Obligations 14
Section 8.6. Notices 14
Section 8.7. Successors and Assigns 15
Section 8.8. Access to Records after Closing 16
Section 8.9. Entire Agreement; Amendments 16
Section 8.10. Partial Invalidity 16
Section 8.11. Execution in Counterparts 17
Section 8.12. Further Assurances 17
Section 8.13. Governing Law 17
</TABLE>
<PAGE>
HUMAN RESOURCES AGREEMENT
THIS HUMAN RESOURCES AGREEMENT (this "Agreement") is dated as of
___________, 1996, among First Data Corporation, a Delaware corporation ("FDC"),
Integrated Payment Systems Inc., a Delaware corporation and a wholly owned
subsidiary of FDC ("IPS"), and MoneyGram Payment Systems, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Company, IPS and FDC have entered into a Contribution
Agreement dated as of the date hereof (the "Contribution Agreement") pursuant to
which IPS and certain of its Affiliates (as defined below) contributed to
Company certain assets of the Business (as defined in Article I of the
Contribution Agreement); and
WHEREAS, IPS intends to make a public offering of its shares of
Company common stock in a transaction that will cause Company to cease to be a
member of the FDC Group (as defined below); and
WHEREAS, following the date on which Company ceases to be a member of
the FDC Group, FDC and Company intend to cause certain of their respective plans
to transfer accrued liabilities and assets relating to such liabilities between
such plans; and
WHEREAS, the Parties (as defined below) intend that Company provide
certain benefits to certain employees after Company is no longer a member of the
FDC Group; and
WHEREAS, FDC, IPS and Company wish to enter into this Agreement in
order to effect such intentions.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the sufficiency of which is
acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
In this Agreement, unless the context otherwise requires, the
capitalized terms used herein shall have the respective meanings set forth above
in the preamble or specified or referred to in this Article 1, except that any
capitalized term used but not defined herein shall have the meaning assigned to
such term in the Contribution Agreement. Each agreement referred to in this
Agreement shall mean such agreement as amended, supplemented and modified from
time to time to the extent permitted by the applicable provisions thereof and
hereof. Each definition in
<PAGE>
this Agreement includes the singular and the plural, and reference to the neuter
gender includes the masculine and feminine where appropriate. References to any
statute or regulations means such statute or regulations as amended at the time
and include any successor legislation or regulations. The heading to the
Articles and Sections hereof and the table of contents herein are for
convenience of reference and shall not affect the meaning or interpretation of
this Agreement. Except as otherwise stated, references to Articles and Sections
means the Articles and Sections of this Agreement. Unless the context clearly
indicates otherwise, the word "including" means "including but not limited to".
"Affected Business Employee" means any (i) any "MoneyGram Business
Employee" as defined in Section 5.7 of the Contribution Agreement, and (ii) any
individual whose relationship with Company or any Affiliate of Company is, as of
the Effective Date, under common law that of an employee, including any such
individual who on the Effective Date is not actively at work on account of
short-term disability or approved leave of absence, other than a nonresident
alien who receives no earned income from Company, or an Affiliate thereof,
constituting income from sources within the United States.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person; provided, however, that FDC and its Affiliates shall not be deemed
Affiliates of Company and Company and its Affiliates shall not be deemed
Affiliates of FDC and its Affiliates.
"Agreement" means this Agreement.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, and any applicable state law requiring continuation coverage
under a medical plan.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Company" means MoneyGram Payment Systems, Inc., a Delaware
corporation, and any corporation which shall succeed to the business of such
corporation.
"Company Cafeteria Plan" means the MoneyGram Payment System, Inc.
Employee Welfare Benefit Plan.
-2-
<PAGE>
"Company Group" means Company and (a) any corporation which is a
member of the same controlled group of corporations (within the meaning of
section 414(b) of the Code) as Company, (b) a trade or business (whether or not
incorporated) under common control (within the meaning of section 414(c) of the
Code) with Company, (c) any organization (whether or not incorporated) which is
a member of an affiliated service group (within the meaning of section 414(m) of
the Code) which includes Company, a corporation described in clause (a) of this
definition or a trade or business described in clause (b) of this definition, or
(d) any other entity which is required to be aggregated with Company pursuant to
regulations promulgated under section 414(o) of the Code.
"Company Indemnified Parties" shall mean any Company Group member, its
officers, directors and employees, each of Company's Employee Benefit Plans and
any contract administrator or service provider for any such plan (and the agents
and employees of such administrators and providers).
"Company Plan" means the Company Cafeteria Plan, the Company Savings
Plan and the Company Welfare Plans, and any other Employee Benefit Plan
contributed to or maintained at any time by Company or its Affiliates.
"Company Savings Plan" means the defined contribution plan which shall
be established by Company after the Effective Date for the benefit of certain
eligible employees.
"Company Welfare Plans" means the welfare benefit plans established by
Company following the Effective Date which provide benefits which correspond to
benefits provided under the FDC Welfare Plans.
"Effective Date" means the date on which Company ceases to be a member
of the FDC Group.
"Employee Benefit Plan" means any plan, program, agreement or
arrangement providing compensation or benefits to employees or their
beneficiaries or dependents, including but not limited to any "employee benefit
plan" within the meaning of section 3(3) of ERISA, and any cash or stock bonus,
deferred compensation, stock option, stock purchase disability, tuition
reimbursement, vacation, cafeteria or severance plan, arrangement or program.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
-3-
<PAGE>
"FDC Cafeteria Plans" means the First Data Corporation Health Care
Reimbursement Account Plan, the First Data Corporation Dependent Care Account
Plan and the First Data Corporation Flexible Benefit Plan.
"FDC Group" means FDC and (a) any corporation which is a member of the
same controlled group of corporations (within the meaning of section 414(b) of
the Code) as FDC, (b) a trade or business (whether or not incorporated) under
common control (within the meaning of section 414(c) of the Code) with FDC, (c)
any organization (whether or not incorporated) which is a member of an
affiliated service group (within the meaning of section 414(m) of the Code)
which includes FDC, a corporation described in clause (a) of this definition or
a trade or business described in clause (b) of this definition, or (d) any other
entity which is required to be aggregated with FDC pursuant to regulations
promulgated under section 414(o) of the Code.
"FDC Indemnified Parties" shall mean any FDC Group member, its
officers, directors and employees, each of FDC's Employee Benefit Plans and any
contract administrator or service provider for any such plan (and the agents and
employees of such administrators and providers).
"FDC Pension Plan" means the First Data Corporation Retirement Plan.
"FDC Plan" means the FDC Cafeteria Plan, the FDC Pension Plan, the FDC
Savings Plan, the FDC Welfare Plans and any other Employee Benefit Plan
maintained or contributed to by FDC and any other employee benefit plan or
program maintained by FDC that immediately before the Effective Date covered or
provided benefits to any Affected Business Employee or any dependent or
beneficiary thereof.
"FDC Savings Plan" means First Data Corporation Incentive Savings
Plan.
"FDC Welfare Plans" means an "employee welfare plan" as defined in
section 3(1) of ERISA maintained or contributed to by FDC and which covers or
otherwise provides benefits to any Affected Business Employee or the dependents
or beneficiaries thereof. For purposes of this Agreement, any plan, program or
policy providing for severance pay or benefits shall be treated as an "employee
welfare plan" without regard to whether such plan, program or policy is in fact
subject to ERISA.
-4-
<PAGE>
"Losses" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"Other Agreements" shall mean the Contribution Agreement among the
Parties and the Operations Agreement among Company, IPS and First Data
Technologies, Inc.
"Party" means FDC, IPS or Company.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Transfer Date" means December 21, 1996.
ARTICLE 2
ALLOCATION OF LIABILITIES
Except as otherwise provided in this Agreement or the Other
Agreements, the obligations and liabilities of FDC, Company and their respective
Affiliates under the applicable FDC Plans and Company Plans shall be determined
pursuant to the terms of such plans as in effect on the Effective Date.
ARTICLE 3
SAVINGS PLAN
SECTION 3.1. ESTABLISHMENT OF COMPANY SAVINGS PLAN. On the Transfer
Date, each Affected Business Employee shall cease to accrue any additional
benefit under the FDC Savings Plan. Company shall take any and all action
necessary to establish the Company Savings Plan effective on the Transfer Date
(including, but not limited to, any and all action necessary to enable Company
to administer such plan on the Transfer Date) and to obtain as soon thereafter
as is administratively practicable a determination letter from the Internal
Revenue Service stating that such plan is, as of the Transfer Date, qualified
under section 401(a) of the Code. The Company Savings Plan shall contain such
terms and conditions as Company shall determine, provided that the Company
Savings Plan shall provide that (i) any Affected Business Employee who
immediately before the Transfer Date is a participant in the FDC Savings Plan
shall be on the Transfer Date a participant in the Company Savings Plan, (ii)
periods of employment with the FDC Group prior to the Transfer Date shall be
taken into account under the Company Savings Plan as if it were employment by
the Company Group for purposes of determining an individual's eligibility to
participate and such individual's
-5-
<PAGE>
vested interest in his or her accounts under such plan, (iii) the Company
Savings Plan shall contain such provisions, including optional forms of benefit,
as are reasonably necessary or appropriate in the opinion of FDC and Company, to
allow the transfer of accounts described in Section 3.2, (iv) the interest of
each Affected Business Employee (or the beneficiaries thereof) under the Company
Savings Plan in any amount transferred thereto from the FDC Savings Plan
(including any future earnings thereon) shall be fully vested and nonforfeitable
and (v) subject to applicable law and the provisions of the FDC Savings Plan,
the account balances (including outstanding loans) of each Affected Business
Employee shall be spun off from the FDC Savings Plan and merged into the Company
Savings Plan within three months of the Transfer Date.
SECTION 3.2. TRANSFER OF ACCOUNT BALANCES FROM FDC SAVINGS PLAN TO
COMPANY SAVINGS PLAN. Subject to applicable law and the provisions of the FDC
Savings Plan, not later than the first day of the second calendar month
beginning after the Transfer Date, or effective as of any other date as agreed
to in writing by the plan administrator for the FDC Savings Plan and the plan
administrator for the Company Savings Plan, the account balances (including
outstanding loans) of all Affected Business Employees and any beneficiaries
thereof shall be transferred from the FDC Savings Plan to the Company Savings
Plan in the manner prescribed by section 414(l) of the Code. As of the effective
date of such transfer, the Company Savings Plan shall assume all obligations and
liabilities of the FDC Savings Plan to the Affected Employees and their
beneficiaries, and the FDC Plan shall have no further obligations or liabilities
with respect thereto.
ARTICLE 4
PENSION PLAN
Each Affected Business Employee shall be treated as having terminated
employment with an "Employer" as defined in the FDC Pension Plan as of the
Transfer Date, and thereafter, such employees shall be entitled to distributions
thereunder as provided pursuant to the terms thereof.
ARTICLE 5
WELFARE BENEFITS
SECTION 5.1. WELFARE BENEFITS PROVIDED UNDER COMPANY PLANS. On the
Effective Date, each Affected Business Employee shall cease to accrue any
additional benefit under the FDC Welfare Plans. On the Effective Date, Company
shall establish the Company Welfare Plans to the extent such plans are not
already in existence prior to the Effective Date. The Company
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Welfare Plans shall duplicate the types of benefits (but shall not be required
by this Agreement to duplicate the amount or level of benefits) provided by the
FDC Welfare Plans pursuant to such terms and conditions as the Company shall
determine, provided that (i) each Affected Business Employee who immediately
before the Effective Date is covered by a FDC Welfare Plan shall on the
Effective Date be eligible for coverage under the comparable Company Welfare
Plan, (ii) periods of employment with the FDC Group prior to the Effective Date
shall be taken into account for all purposes under the Company Welfare Plans as
if it were employment by the Company Group, (iii) any amounts paid or incurred
by Affected Employees during 1996 under the FDC Welfare Plans shall be taken
into account under the Company Welfare Plans for purposes of satisfying
deductibles and determining whether maximum out-of-pocket or similar
requirements have been satisfied and (iv) no condition of an Affected Business
Employee covered by the applicable FDC Welfare Plan shall be excluded from
coverage under the applicable Company Welfare Plans as a pre-existing condition.
On the Effective Date, Company shall assume and be responsible for all
liabilities and obligations to Affected Business Employees in respect of claims
made under the applicable Company Welfare Plan by or on behalf of Affected
Business Employees on and after the Effective Date. FDC shall, pursuant to the
terms of the applicable FDC Welfare Plan, retain responsibility for all claims
relating to Affected Business Employees made up to, but not including, the
Effective Date.
SECTION 5.2. ACCOUNTS UNDER FDC CAFETERIA PLAN. On the Effective
Date, Company shall establish the Company Cafeteria Plan. On the Effective Date,
each Affected Business Employee shall cease to accrue any additional benefit
under the FDC Cafeteria Plans. The Company Cafeteria Plan shall contain such
terms and conditions as Company shall determine, provided that any Affected
Business Employee who was immediately before the Effective Date a participant in
any FDC Cafeteria Plan shall be eligible to be a participant in the
corresponding portion of the Company Cafeteria Plan on the Effective Date. On
and after the Effective Date, the Company Cafeteria Plan shall assume and be
responsible for any claims under, and no Affected Business Employee shall be
entitled to submit any further claims under, any FDC Cafeteria Plan to the
extent of any balance to the credit of such employee under any FDC Cafeteria
Plan as of the Effective Date, and each Affected Business Employee shall be
credited with an opening balance under the corresponding portion of the Company
Cafeteria Plan as of the Effective Date equal to the balance, if any, to the
benefit of such employee under such FDC Cafeteria Plan as of the Effective Date.
SECTION 5.3. TREATMENT OF COBRA BENEFICIARIES. The appropriate
Company Welfare Plans shall retain or assume, as the
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case may be, any and all obligations for and liabilities to any individual
claiming coverage or benefits with respect to welfare benefits on account of a
relationship or former relationship with an Affected Business Employee pursuant
to COBRA or any similar provision of federal or state law requiring continued
coverage of such individuals. Any provisions of this Agreement applicable to
Affected Business Employees also shall be applicable in determining the rights
of or benefits provided to any persons claiming coverage or benefits with
respect to the coverage provided to such Affected Business Employees pursuant to
COBRA or any similar provision of federal or state law requiring continued
coverage of such persons.
ARTICLE 6
MISCELLANEOUS PLANS AND AGREEMENTS
SECTION 6.1. STOCK OPTION PLANS. On the Transfer Date, Company's and
its Affiliates' employees shall no longer be eligible to receive options under
the terms of the First Data Corporation 1992 Long-Term Incentive Plan. Affected
Business Employees who hold options under such plans shall be treated as having
terminated their employment with the FDC Group on the Transfer Date, and any
stock options remaining outstanding thereunder that are not fully exercisable
pursuant to their terms shall become fully exercisable on the Transfer Date for
the remainder of the post-termination of employment period specified therein.
SECTION 6.2. BONUS AND INCENTIVE PLANS. (a) Company and its
Affiliates shall retain or assume, as the case may be, all obligations to pay
bonuses or incentive compensation to or on behalf of Affected Business Employees
that are accrued or accruable under generally accepted accounting principles
consistently applied on the books of FDC, Company or their Affiliates as of the
Effective Date. Except as set forth in paragraph (b) below, after the Effective
Date, FDC shall have no further obligation for the payment of any such bonuses
or incentive compensation.
(b) IPS agrees to pay to Company, on or before thirty (30) days after
the Effective Date, an amount equal to the product of (i) the number of days
from January 1, 1996 to the Effective Date (inclusive) and (ii) $2,085.
SECTION 6.3. WORKERS' COMPENSATION. (a) FDC shall retain the
responsibility for all claims relating to Company employees and former Company
employees relating to incidents occurring up to but not including the Effective
Date (including, but not limited to, claims which are filed after the Effective
Date but which relate to incidents occurring prior to the
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Effective Date). Any amount by which actual claims expenses vary from the
reserve established by FDC for such expenses for periods prior to the Effective
Date shall be retained by FDC.
(b) Company shall assume responsibility for all claims relating to
Company employees and former employees under applicable workers' compensation
laws relating to periods beginning on the Effective Date. Company shall take any
and all action necessary to effect timely return to work for all Company
employees and former Company employees who are on a leave of absence from
employment during which they were entitled to receive workers' compensation
(including, but not limited to, persons with respect to whom FDC has the
liability to pay workers' compensation claims).
SECTION 6.4. VACATION PAY POLICY. Company shall assume liability for
accrued but unpaid vacation of Affected Business Employees, determined under
generally accepted accounting principles consistently applied, as of the
Effective Date. After the Effective Date, it is expected that Company shall
maintain for its employees a vacation pay policy, and Company shall be
responsible for costs incurred to provide vacation pay to Company employees
following such date. Periods of employment by Affected Business Employees with
the FDC Group prior to the Effective Date shall be taken into account under
Company's vacation pay policy for purposes of determining the amount of vacation
to which such employees are entitled.
SECTION 6.5. TUITION REIMBURSEMENT PLAN. On the Effective Date,
Company shall assume any obligation of FDC or its affiliates to or on behalf of
Affected Business Employees under the IPS tuition reimbursement plan, including
(without limitation) the obligation to pay or make reimbursements for expenses
incurred during 1996 with respect to any course of study commenced prior to the
Effective Date. In assuming such liabilities and making such payments and
reimbursements, Company shall apply terms and conditions set forth in the IPS
tuition reimbursement plan and applicable law.
SECTION 6.6. SEVERANCE PAY PLAN. Until the first anniversary of the
Effective Date, Company shall provide Affected Business Employees severance
benefits pursuant to a severance plan, program or policy not less favorable to
such employees than that maintained by FDC immediately before the Effective
Date.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1. INDEMNIFICATION. (a) Company shall indemnify and hold
harmless the FDC Indemnified Parties for all
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Losses and Expenses sustained in connection with the benefits provided or the
actions taken or omitted to be taken in connection with this Agreement, or
otherwise relating to the provision of employee benefits to employees or former
employees of Company, their beneficiaries, alternate payees or any other person
claiming benefits through them (except to the extent such Losses or Expenses are
specifically allocated to FDC pursuant to this Agreement, including without
limitation Losses and Expenses arising in connection with (1) Company's
reduction, elimination or failure to provide any benefit previously provided to
its employees or employees of any of its subsidiaries, (2) the provision of
benefits to Affected Business Employees under the FDC Welfare Plans where such
Losses or Expenses arise after the Effective Date, (3) the transfer of account
balances from the FDC Savings Plan to the Company Savings Plan where such Losses
or Expenses are incurred as a result of (A) any act or omission by Company (or
Company's representative) or (B) a determination by the Internal Revenue Service
that the Company Savings Plan is not a tax-qualified plan and (4) any failure of
Company or its Affiliates to fulfill any of its obligations under this Agreement
or any Employee Benefit Plan of the Company Group.
(b) FDC shall indemnify and hold harmless the Company Indemnified
Parties for all Losses and Expenses sustained in connection with (1) the
provision of benefits to Affected Business Employees under FDC Employee Benefit
Plans where such Losses or Expenses arise prior to the Effective Date, (2) the
transfer of account balances from the FDC Savings Plan to the Company Savings
Plan where such Losses or Expenses are incurred as a result of (A) any act or
omission by FDC (or FDC's representative) or (B) determination by the Internal
Revenue Service that the FDC Savings Plan is not a tax-qualified plan and (3)
any failure of FDC or its Affiliates to fulfill any of its obligations under
this Agreement or any Employee Benefit Plan of the FDC Group not assumed by
Company and its Affiliates under this Agreement.
(c) In the event that any Party retains the services of an attorney
to enforce any term of this Agreement, or to obtain a remedy for a breach of
this Agreement, the prevailing Party shall be entitled to recover its reasonable
costs and attorney fees, including the costs and attorney fees on appeal, if
any.
SECTION 7.2. NOTIFICATION. (a) Any Person (the "Indemnified Party")
seeking indemnification hereunder shall give promptly to the Party obligated to
provide indemnification to such Indemnified Party (the "Indemnifying Party") a
notice (a "Claim Notice") describing in reasonable detail the facts giving rise
to any claim for indemnification hereunder and shall include
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in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based; provided, however, that a Claim Notice
in respect of any action at law or suit in equity by or against a third party as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced.
(b) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under this
Article 7 shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnifying Party; (ii) by a final judgment, decree
or decision of any court of competent jurisdiction; or (iii) by any other means
to which the Indemnified Party and the Indemnifying Party shall agree. The
judgment or decree of a court shall be deemed final when the time for appeal, if
any, shall have expired and no appeal shall have been taken or when all appeals
taken shall have been finally determined. The Indemnified Party shall have the
burden of proof in establishing the amount of Loss and Expense suffered by it.
(c) In the event a claim, suit or proceeding by a third party for
which indemnification may be available under this Agreement is made or filed
against an Indemnified Party, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of such claim, suit or proceeding. The
Indemnifying Party, within thirty (30) days, or such shorter period as is
required to avoid any prejudice in the claim, suit or proceeding, after the
notice, may elect to defend, compromise or settle the third party claim, suit or
proceeding at its expense. There after, the Indemnified Party shall deliver to
the Indemnifying Party, within ten (10) Business Days after the Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnified Party relating to the third party claim. In
any third party claim, suit or proceeding which the Indemnifying Party has
elected to defend, compromise or settle, the Indemnifying Party shall not after
such election be responsible for the expenses of legal counsel for the
Indemnified Party, but the Indemnified Party may participate therein and retain
counsel at its own expense. In any third party claim, suit or proceeding the
defense of which the Indemnifying Party shall have assumed, the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the matter without the consent of the Indemnifying Party and the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement affecting the Indemnified Party without the written consent of
the Indemnified Party to the extent that the judgment or settlement
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involves more than the payment of money. The Indemnified Party shall provide to
the Indemnifying Party all information, assistance and authority reasonably
requested in order to evaluate any third party claim, suit or proceeding and
effect any defense, compromise or settlement. To the extent the Indemnifying
Party elects not to defend such proceeding, claim or demand, and the Indemnified
Party defends against or otherwise deals with any such proceeding, claim or
demand, the Indemnified Party may retain counsel, at the expense of the
Indemnifying Party, and control the defense of such proceeding. After any final
judgment or award shall have been rendered by a court, arbitration board or
administrative agency of competent jurisdiction and the time in which to appeal
therefrom has expired, or a settlement shall have been consummated, or the
Indemnified Party and the Indemnifying Party shall arrive at a binding
agreement with respect to each separate matter alleged to be indemnified by the
Indemnifying Party hereunder, the Indemnified Party shall forward to the
Indemnifying Party notice of any sums due and owing by it with respect to such
matter and the Indemnifying Party shall pay all of the sums owed to the
Indemnified Party by wire transfer, certified or bank cashier's check within
thirty (30) days after the date of such notice.
SECTION 7.3. CLAIMS PERIOD. No cause of action, dispute or claim for
indemnification under this Agreement may be asserted or made against any Party
or submitted to arbitration on a date later than the earlier of: (a) one year
after the date in which facts giving rise to such cause of action, dispute or
claim are discovered or, with the exercise of due diligence, should reasonably
have been discovered, or if such event for which indemnification is claimed is
an action or proceeding brought against the Indemnified Party, the end of the
related notification period provided in Section 7.2; or (b) the second
anniversary of the Effective Date.
SECTION 7.4. SUBROGATION. In the event that an Indemnifying Party
shall be obligated to indemnify an Indemnified Party pursuant to Section 7.1,
the Indemnifying Party shall, upon payment of such indemnity in full, be
subrogated to all rights of the Indemnified Party with respect to the claims and
defenses to which such indemnification relates.
SECTION 7.5. EXCLUSIVE REMEDY. Except for (i) remedies that cannot
be waived as a matter of law and injunctive and provisional relief, and (ii) any
Party's obligation to make any payments or reimbursements hereunder, this
Article 7 shall be the sole and exclusive remedy for breach of this Agreement,
including with respect to any claim, demand, cause of action, debt, Loss,
Expense or liability subject thereto.
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SECTION 7.6. NO SPECIAL DAMAGES. IN NO EVENT SHALL FIRST DATA, IPS,
COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES BE LIABLE FOR ANY CONSEQUENTIAL
DAMAGES UNDER THIS AGREEMENT, WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER FIRST DATA, COMPANY OR ANY OF THEIR RESPECTIVE
AFFILIATES HAS BEEN ADVISED, OR COULD HAVE FORESEEN, OF THE POSSIBILITY SUCH
DAMAGES. THE FOREGOING REPRESENTS AN EXPRESS ALLOCATION OF RISK BETWEEN THE
PARTIES.
SECTION 7.7. TIMELY PAYMENT. Each Party shall be required to pay any
amount due to the other Party pursuant to this Agreement in a timely manner on
the date on which such payment is due, and if no due date is specified, within
30 days after the date on which the Party to whom payment is owed makes written
demand for such payment from the other Party.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. NO RIGHTS. This Agreement shall not give any employee
(including any Affected Business Employee) or any Person any right to continued
employment or to any employee benefits. Except for rights of any Indemnified
Party under Article 7 or any FDC Group member or Company Group member under
Section 8.3, this Agreement shall not give any Person other than a Party any
rights, including in particular any third-party beneficiary or other right to
enforce any provision of this Agreement or to receive damages for a breach of
any such provision. Nothing in this Agreement shall obligate FDC, IPS, Company
or any of their Affiliates to assist any Company employee to enforce any rights
such employee may have with respect to any of the employee benefits described in
this Agreement.
SECTION 8.2. CORPORATE ACTION; DELEGATION OF AUTHORITY. Any action
taken by an officer at the level of Vice-President or above shall be considered
to be action taken by either FDC or Company for purposes of this Agreement.
Without limiting the foregoing, the Chief Executive Officer of FDC or Company
may delegate in writing to any other person the authority to act on behalf of
FDC or Company, respectively, with respect to actions required under the terms
of this Agreement.
SECTION 8.3. NO SOLICITATION. For a period of one year after the
Effective Date, neither Company nor any of its Affiliates shall (i) induce or
attempt to persuade any current or future employee of IPS or Western Union
Financial Services, Inc. ("WU"), as the case may be, to terminate his or her
employment relationship with IPS or WU, as the case may be, in order to
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enter into employment with Company or any of its Affiliates, or (ii) hire or
retain, as an employee, independent contractor or otherwise, any current or
future employee of IPS or WU, as the case may be, unless, in each case, waived
in writing by IPS or WU, as the case may be. For a period of one year after the
Effective Date, neither FDC nor any of its Affiliates shall (i) induce or
attempt to persuade any current or future employee of any member of the Company
Group to terminate his or her employment relationship with such member in order
to enter into employment with IPS or WU or (ii) hire or retain for or on behalf
of IPS or WU as an employee, independent contractor or otherwise, any current or
future employee of any member of the Company Group unless, in each case, waived
in writing by Company. The Parties acknowledge that a violation of this Section
8.3 may cause IPS, WU, Company or their respective Affiliates, as the case may
be, irreparable harm which may not be adequately compensated for by money
damages. The Parties therefore agree that in the event of any actual or
threatened violation of this Section 8.3, any affected FDC Group member or
Company Group member, as the case may be, shall be entitled, in addition to
other remedies it may have, to a temporary restraining order and to preliminary
and final injunctive relief against Company, FDC or their respective Affiliates,
as the case may be, to prevent any violation of this Section 8.3, without the
necessity of posting a bond. The prevailing party in any action commenced under
this Section 8.3 shall also be entitled to receive reasonable attorney's fees
and court costs. It is the intent and the understanding of each Party if, in any
action before any court, agency or arbitration panel legally empowered to
enforce this Section 8.3, any term, restriction, covenant or promise in this
Section 8.3 is found to be unreasonable and for that reason unenforceable, then
such term, restriction, covenant or promise shall be deemed modified to the
extent necessary to make it enforceable by such court, agency or arbitration
panel.
SECTION 8.4. TERMINATION. Anything contained in this Agreement to
the contrary notwithstanding, this Agreement may be terminated at any time prior
to the Effective Date by the mutual consent of Company, FDC and IPS. In the
event this Agreement shall be terminated, no Party shall have any liability to
any other Party hereunder.
SECTION 8.5. SURVIVAL OF OBLIGATIONS. All covenants and obligations
contained in this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
SECTION 8.6. NOTICES. All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered
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personally or when sent by registered or certified mail or by private courier
addressed as follows:
If to Company, to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Attention: Chief Executive Officer
with a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Avenue
Lakewood, Colorado 80235
Attention: General Counsel
If to FDC or to IPS to:
First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68164
Attention: General Counsel
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
SECTION 8.7. SUCCESSORS AND ASSIGNS. (a) The rights of any Party
shall not be assignable by such Party without the written consent of the other
Parties, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, (i) FDC and IPS may assign all their respective rights and delegate
their respective duties and obligations hereunder to any of their Affiliates,
provided such Affiliate remains an Affiliate of FDC and IPS after such an
assignment and that notwithstanding such assignment FDC and IPS, respectively,
shall remain primarily liable for all of their respective obligations hereunder;
and (ii) subsequent to the consummation of the initial public offering of the
common stock of Company, Company may assign all its rights and delegate its
duties and obligations hereunder to any of its Affiliates or to any Person who
purchases substantially all of the Business, provided the assignee agrees to be
bound in writing to the terms and conditions set forth in this Agreement, and,
notwithstanding such assignment, the Company shall remain primarily liable for
all of its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the Parties and their successors and permitted assigns.
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SECTION 8.8. ACCESS TO RECORDS AFTER CLOSING. (a) Subject to
applicable laws and regulations relating to confidentiality and privacy of
employee information and records, for a period of six years after the Effective
Date, IPS, FDC and their Affiliates and their respective representatives shall
have reasonable access to all of the books and records of the Business to the
extent that such access may reasonably be required by IPS, FDC or their
Affiliates in connection with matters which are the subject matter of this
Agreement. Such access shall be afforded by Company upon receipt of reasonable
advance written notice and during normal business hours. IPS shall be solely
responsible for any costs or expenses incurred by it pursuant to this Section
8.8(a). If Company shall desire to dispose of any of such books and records
prior to the expiration of such six-year period, Company shall, prior to such
disposition, give IPS a reasonable opportunity, at IPS' expense, to segregate
and remove such books and records as IPS may select.
(b) Subject to applicable laws and regulations relating to
confidentiality and privacy of employee information and records, for a period of
six years after the Effective Date, Company and its representatives shall have
reasonable access to all of the books and records relating to the Business which
IPS or any of its Affiliates may retain after the Effective Date. Such access
shall be afforded by IPS and its Affiliates upon receipt of reasonable advance
written notice and during normal business hours. Company shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
8.8(b). If IPS or any of its Affiliates shall desire to dispose of any of such
books and records prior to the expiration of such six-year period, IPS shall,
prior to such disposition, give Company a reasonable opportunity, at Company's
expense, to segregate and remove such books and records as Company may select.
SECTION 8.9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, and any
agreements and documents delivered pursuant hereto, contain the entire
understanding of the Parties with regard to the subject matter contained herein
or therein, and supersede all other prior agreements, understandings or letters
of intent between or among any of the Parties. This Agreement shall not be
amended, modified or supplemented except by a written instrument signed by an
authorized representative of each of the Parties.
SECTION 8.10. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect,
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such provision shall be ineffective to the extent, but only to the extent, of
such invalidity, illegality or unenforceability without invalidating the
remainder of such invalid, illegal or unenforceable provision or provisions or
any other provisions hereof, unless such a construction would be unreasonable.
SECTION 8.11. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be considered an
original instrument, but all of which shall be considered one and the same
agreement, and shall become binding when one or more counterparts have been
signed by each of the Parties and delivered to each of FDC, IPS and Company.
SECTION 8.12. FURTHER ASSURANCES. On and after the Effective Date,
each Party shall take such other actions and execute such other documents and
instruments as may be reasonably requested by the other Parties from time to
time to effectuate or confirm the consummation of the transaction contemplated
by this Agreement in accordance with the terms of this Agreement.
SECTION 8.13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
laws provisions) of the State of New York.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date first set forth
above.
FIRST DATA CORPORATION
By:__________________________________
Name:____________________________
Title:___________________________
INTEGRATED PAYMENT SYSTEMS INC.
By:__________________________________
Name:____________________________
Title:___________________________
MONEYGRAM PAYMENT SYSTEMS, INC.
By:________________________________
Name:__________________________
Title:_________________________
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EXHIBIT 10.6
DRAFT: NOVEMBER 25, 1996
TELECOMMUNICATIONS SERVICES SHARING AGREEMENT
DATED AS OF ________, 1996
BETWEEN
MONEYGRAM PAYMENT SYSTEMS, INC.
AND
FIRST DATA CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION Page
- ------- ----
ARTICLE 1
Definitions.......................................................... 1
ARTICLE 2
SERVICES............................................................. 5
Section 2.1. Telecommunications Services............................ 5
Section 2.2. No Guarantee or Provision of Services.................. 5
Section 2.3. Related Services....................................... 5
ARTICLE 3
GENERAL AGREEMENTS OF THE PARTIES.................................... 6
Section 3.1. Terms of Telecommunications Agreements................. 6
Section 3.2. Termination of a Telecommunications
Agreement............................................. 6
Section 3.3. Prohibition on Resale.................................. 6
Section 3.4. Third Party Consents................................... 6
Section 3.5. Covenants.............................................. 6
Section 3.6. Service Orders......................................... 7
ARTICLE 4
BILLING AND PAYMENTS................................................. 7
Section 4.1. Billing................................................ 7
Section 4.2. Payments............................................... 7
Section 4.3. Other Charges.......................................... 7
ARTICLE 5
CONFIDENTIALITY...................................................... 8
Section 5.1. General Confidentiality Obligations.................... 8
Section 5.2. Confidentiality Obligations of MG...................... 8
ARTICLE 6
TERM AND TERMINATION................................................. 8
Section 6.1. Term................................................... 8
Section 6.2. Termination by FDC..................................... 8
Section 6.3. Termination by MG...................................... 9
Section 6.4. Partial Termination of Agreement by FDC................ 9
Section 6.5. Effect of Termination.................................. 10
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SECTION PAGE
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ARTICLE 7
INDEMNIFICATION...................................................... 10
Section 7.1. Indemnification by MG.................................. 10
Section 7.2. Third-Party Beneficiaries.............................. 11
Section 7.3. No Special Damages..................................... 11
ARTICLE 8
DISPUTE RESOLUTION................................................... 11
ARTICLE 9
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES......................... 11
ARTICLE 10
MISCELLANEOUS........................................................ 12
Section 10.1. Expenses............................................. 12
Section 10.2. Relationship of Parties.............................. 12
Section 10.3. Entire Agreement..................................... 12
Section 10.4. Assignment........................................... 12
Section 10.5. Notices.............................................. 13
Section 10.6. Counterparts......................................... 14
Section 10.7. Governing Law........................................ 14
Section 10.8. Waiver............................................... 14
Section 10.9. Severability......................................... 14
Section 10.10. Construction Rules................................... 14
SCHEDULES
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1.1A Other Telecommunications Agreements
1.1B Other Telecommunications Services Providers
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<PAGE>
TELECOMMUNICATIONS SERVICES SHARING AGREEMENT
THIS TELECOMMUNICATIONS SERVICES SHARING AGREEMENT (this "Agreement")
dated as of __________, 1996 between MoneyGram Payment Systems, Inc., a Delaware
corporation ("MG"), and First Data Corporation, a Delaware corporation ("FDC").
W I T N E S S E T H:
-------------------
WHEREAS, MG, FDC and Integrated Payment Systems Inc., a Delaware
corporation and a wholly owned subsidiary of FDC ("IPS"), have entered into a
Contribution Agreement dated as of the date hereof (the "Contribution
Agreement"), pursuant to which IPS and certain of its Affiliates (as defined
below) contributed to MG certain assets of the Business (as defined below); and
WHEREAS, MG, IPS and First Data Technologies, Inc., a Delaware
Corporation and a wholly owned subsidiary of FDC ("FDT"), have entered into an
Operations Agreement dated as of the date hereof (the "Operations Agreement"),
pursuant to which FDT, IPS and certain of their Affiliates provide certain
services relating to the Business to MG; and
WHEREAS, MG and FDC desire to enter into this Agreement pursuant to
which MG agrees to use and FDC agrees to provide access to telecommunications
services provided to FDC pursuant to the Telecommunications Agreements (as
defined below);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, MG and FDC agree as follows:
ARTICLE 1
DEFINITIONS
-----------
In this Agreement, unless the context shall otherwise require, the
capitalized terms used herein shall have the respective meanings specified or
referred to in this Article 1. Each agreement referred to in this Agreement
shall mean such agreement as amended, supplemented and modified from time to
time to the extent permitted by the applicable provisions thereof and hereof.
Each definition in this Agreement includes the singular and the plural, and
reference to the neuter gender includes the
<PAGE>
masculine and feminine where appropriate. References to any statute or
regulations means such statute or regulations as amended at the time and include
any successor legislation or regulations. The headings to the Articles and
Sections hereof and the table of contents herein are for convenience of
reference and shall not affect the meaning or interpretation of this Agreement.
Except as otherwise stated, reference to Articles and Sections means the
Articles and Sections of this Agreement. Unless the context clearly indicates
otherwise, the word "including" means "including but not limited to".
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person through the ownership or control, directly or indirectly, of more than
50% of all the voting power of the shares or other interests entitled to vote
for the election of directors or other governing authority; provided, however,
that FDC and its Affiliates shall not be deemed Affiliates of MG and its
Affiliates and MG shall not be deemed Affiliates of FDC and its Affiliates.
"AT&T" means American Telephone and Telegraph Company.
"AT&T Agreement" means the agreement dated as of _____, 1996 between
AT&T and FDC, as the same may be amended after the date hereof.
"Bankruptcy" means, with respect to any Party, the happening of any
one or more of the following events: (a) a Party: (i) makes an assignment for
the benefit of creditors; (ii) files a voluntary petition in bankruptcy; (iii)
is adjudged a bankrupt or insolvent, or there has been entered against such
Party an order for relief, in any bankruptcy or insolvency proceeding; (iv)
files a petition or answer seeking in respect of such Party any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation; (v) files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against such Party in any proceeding of a nature described above; (vi)
seeks, consents or acquiesces in the appointment of a trustee, receiver,
conservator or liquidator of such Party or of all or any substantial part of
such Party's properties; or (vii) in respect of clauses (i), (ii), (iv), (v) or
(vi) above, such Party takes any corporate action to authorize any action
contemplated by any of such clauses; or (b) 90 days after the commencement of
any proceeding against any Party seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, if such proceeding has not been dismissed, or
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<PAGE>
within 60 days after the appointment without such Party's consent or
acquiescence of a trustee, receiver or liquidator of the Party or of all or any
substantial part of such Party's properties, if such appointment is not vacated
or stayed, or within 60 days after the expiration of any such stay, if such
appointment is not vacated.
"Charges" means all direct charges, fees, tariffs and Taxes and all
indirect charges, fees, tariffs and Taxes assessed by a Telecommunications
Services Provider pursuant to a Telecommunications Services Agreement.
"Consequential Damages" means any liability, Loss, Expense or damage,
whether in an action arising out of breach of warranty, breach of contract,
delay, negligence, theory of tort, strict liability or other legal equitable
theory, for indirect, special, reliance, incidental, punitive or consequential
damages or commercial loss, injury or damage, including loss of revenues,
profits or use of capital or production.
"Costs" means all direct costs, expenses and charges plus all indirect
costs, expenses and charges, including reasonable allocations of overhead,
incurred by a Party in performing its obligations under this Agreement.
"Dispute" means any and all disputes, controversies and claims
between the Parties arising from or in connection with this Agreement or the
relationship of the Parties under this Agreement whether based on contract,
tort, common law, equity, statute, regulation, order or otherwise.
"Expenses" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against hereunder (including court
filing fees, court costs, witness fees and reasonable fees and disbursements of
legal counsel, investigators, expert witnesses, accountants and other
professionals).
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Losses" means any and all losses, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, deficiencies
or other charges.
"MCI" means MCI Telecommunications Corporation.
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<PAGE>
"MCI Agreement" means the agreement dated as of _____, 1996 between
MCI and FDC, as the same may be amended after the date hereof.
"Party" means FDC or MG and its Affiliates as the context requires.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Solvent", when used with respect to any Person, means that at the
time of determination: (i) the fair market value of its assets is in excess of
the total amount of its liabilities (including contingent liabilities determined
in accordance with generally accepted accounting principles); (ii) the present
fair saleable value of its assets is greater than its probable liability on its
existing debts (including contingent liabilities) as such debts become absolute
and matured; (iii) it is then able, and is reasonably expected to be able, to
pay its debts (including contingent debts and other commitments) as they mature;
and (iv) it has capital sufficient to carry on its business as conducted and as
proposed to be conducted.
"Sprint" means Sprint Communications Company L.P., a Delaware limited
partnership.
"Sprint Agreement" means the Custom Network Services Agreement between
Sprint and FDC dated as of February 26, 1996, as the same may be amended after
the date hereof.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Body.
"Telecommunications Agreements" means the AT&T Agreement, the MCI
Agreement and the Sprint Agreement and any other agreement listed in Schedule
1.1A, as such schedule may be modified from time to time during the Term
pursuant to the written agreement of the Parties.
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<PAGE>
"Telecommunications Services" means services provided pursuant to the
Telecommunications Agreements that are used in connection with the Business.
"Telecommunications Services Providers" means AT&T, MCI and Sprint and
any other provider listed in Schedule 1.1B, as such schedule may be modified
from time to time during the Term pursuant to the written agreement of the
Parties.
"Term" means the period commencing on the date hereof and ending on
December 31, 1998.
ARTICLE 2
SERVICES
--------
SECTION 2.1. TELECOMMUNICATIONS SERVICES. During the Term, MG and
its Affiliates agree to be bound by the terms of the Telecommunications
Agreements as if MG and its Affiliates were Affiliates of FDC and to exclusively
use the Telecommunications Services offered thereunder for all of the person-to-
person telephone calls (both incoming and outgoing where either MG or any of its
Affiliates is the customer of record) used in each of their businesses. MG may
choose, from time to time, under which Telecommunications Agreement to receive
Telecommunications Services by written notice to FDC. During the term, FDC
shall cooperate and use reasonable efforts to facilitate the provision of the
Telecommunications Services by the Telecommunications Services Providers to MG
and its Affiliates at the respective rates in effect from time to time, pursuant
to and in accordance with the terms of the respective Telecommunications
Agreements as if MG and its Affiliates were Affiliates of FDC.
SECTION 2.2. NO GUARANTEE OR PROVISION OF SERVICES. It is understood
by the Parties that FDC is not providing any guarantee as to the level or
quality of services provided under any Telecommunications Agreement and is not
responsible for the provision of any such services to MG or any Affiliate of MG.
SECTION 2.3. RELATED SERVICES. MG and its Affiliates shall be
entitled to a portion of any services other than Telecommunications Services
provided pursuant to any Telecommunications Services Agreement, including
training of employees, in accordance with MG's and its Affiliates' pro rata
portion of the total Telecommunications Services used by FDC and its Affiliates
and MG and its Affiliates.
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<PAGE>
ARTICLE 3
GENERAL AGREEMENTS OF THE PARTIES
---------------------------------
SECTION 3.1. TERMS OF TELECOMMUNICATIONS AGREEMENTS. MG shall, and
shall cause its Affiliates to, comply with and abide by all terms of each of the
Telecommunications Agreements, including any terms regarding levels of service
and form of payment.
SECTION 3.2. TERMINATION OF A TELECOMMUNICATIONS AGREEMENT. In the
event that one or more of the Telecommunications Agreements is terminated for
whatever reason during the Term, any rights that MG or any Affiliate of MG
received pursuant to this Agreement under such Telecommunications Agreement also
shall be terminated, and any and all obligations of FDC under this Agreement
with respect to each terminated Telecommunications Agreement also shall
terminate without liability of FDC to MG or any Affiliate of MG; provided,
however, that FDC shall provide MG with prompt notice of any such termination;
and provided, further, that if FDC enters into another agreement with a
telecommunications services provider to provide substantially the same services
as those provided under the terminated Telecommunications Agreement (a
"Replacement Agreement"), FDC will cooperate and use reasonable efforts to
facilitate the receipt by MG and its Affiliates of services pursuant to the
Replacement Agreement for the remainder of the Term.
SECTION 3.3. PROHIBITION ON RESALE. MG and each of its Affiliates
agrees not to resell or share any services provided under any of the
Telecommunications Agreements at any time during the Term without the prior
written consent of FDC.
SECTION 3.4. THIRD PARTY CONSENTS. Each Party will act diligently
and reasonably to secure the consent, approval or waiver from any
Telecommunications Services Provider necessary to perform its obligations
hereunder; provided that neither Party shall have any obligation to offer or pay
any consideration in order to obtain any such consents or approvals.
SECTION 3.5. COVENANTS. (a) MG's and each of its Affiliates' usage of
each of the services available under each of the Telecommunications Agreements
shall comply with and be governed by the specifications and provisions set forth
in the corresponding Telecommunications Agreement.
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<PAGE>
(b) MG agrees to cause its Affiliates to comply with all covenants and
obligations of MG set forth herein.
SECTION 3.6. SERVICE ORDERS. MG agrees to provide FDC with a copy of
any order for any Telecommunications Services or any other services pursuant to
the Telecommunications Agreement within 10 days of such order.
ARTICLE 4
BILLING AND PAYMENTS
--------------------
SECTION 4.1. BILLING. (a) Billing of Telecommunications Services to
MG and its Affiliates shall be in accordance with the terms of each of the
Telecommunications Agreements; provided, however, that the Parties shall use
their reasonable best efforts to cause each Telecommunications Services Provider
to bill MG and its Affiliates directly for the Telecommunications Services, or
any other services provided under the relevant Telecommunications Agreement,
furnished to MG or its Affiliates by such provider.
SECTION 4.2. PAYMENTS. (a) MG agrees to pay promptly all bills
presented to it or its Affiliates by the Telecommunications Services Providers
pursuant to the Telecommunications Agreements in the manner and time period
specified in such agreements.
(b) In the event that any Telecommunications Services Provider does
not bill MG or its Affiliates directly for the Telecommunications Services, or
any other services provided under the relevant Telecommunications Agreement,
furnished to MG or its Affiliates by such provider, FDC shall pay for such
services on MG's or its Affiliates behalf and MG agrees to repay FDC promptly,
but in no event later than 10 days after written notice of, any monies so paid
by FDC on behalf of MG or its Affiliates.
SECTION 4.3. OTHER CHARGES. During the Term, MG shall be responsible
for and pay its and its Affiliates' pro rata portion of any ordinary and
customary charges incurred by FDC or MG and its Affiliates in connection with
ordinary and customary Telecommunications Services provided under any of the
Telecommunications Agreements. Each Party shall be responsible for any expenses
and charges that relate solely to services provided under a Telecommunications
Agreement solely for or at the request of such Party.
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<PAGE>
ARTICLE 5
CONFIDENTIALITY
---------------
SECTION 5.1. GENERAL CONFIDENTIALITY OBLIGATIONS. Each Party hereby
agrees to be bound by the provisions of Article 7 of the Operations Agreement,
the provisions of which are hereby incorporated by reference, with respect to
the Confidential Information (as defined in the Operations Agreement) of the
other Party obtained in connection with the performance of this Agreement.
SECTION 5.2. CONFIDENTIALITY OBLIGATIONS OF MG. In addition to any
confidentiality obligation set forth in Section 5.1, during the Term, MG shall,
and shall cause its Affiliates to, abide by all provisions of each of the
Telecommunications Agreements relating to maintaining the confidentiality of
information provided in connection therewith.
ARTICLE 6
TERM AND TERMINATION
--------------------
SECTION 6.1. TERM. This Agreement shall commence on the date hereof
and, unless earlier terminated as provided in this Article 6, continue until
December 31, 1998.
SECTION 6.2. TERMINATION BY FDC. This Agreement shall terminate upon
the occurrence of any of the following events and (i) in the case of clause (a),
(c) or (d) below, at the option of FDC following 30 days prior written notice to
MG and (ii) in the case of clause (b) below, immediately and without prior
written notice or any other action by FDC:
(a) If MG or any Affiliate of MG shall fail to perform, or repudiates
or seeks to avoid or invalidate, any material obligation to be performed by it
under this Agreement or any Telecommunications Agreement, provided that (i) in
the case of any breach which is capable of being cured, or otherwise
discontinued, MG has received notice of such breach from FDC or from any
Telecommunications Services Provider demanding such breach be cured and MG has
not cured or discontinued such breach within 30 days of receipt of such notice;
and (ii) the Parties have exhausted the dispute resolution proceedings provided
for in Article 8; provided, however, that if the continuation of services
pursuant to any Telecommunications Agreement to MG or
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<PAGE>
any Affiliate of MG during the dispute resolution proceedings will, in the
opinion of FDC, jeopardize the continued provision of services to FDC pursuant
to any Telecommunications Agreement, FDC may terminate the rights of MG and its
Affiliates hereunder;
(b) In the event of Bankruptcy of MG;
(c) If a Governmental Body enjoins the performance by a Party of any
of its material obligations under this Agreement; or
(d) If FDC reasonably determines that MG is not Solvent.
SECTION 6.3. TERMINATION BY MG. This Agreement shall terminate (a)
at the option of MG at any time following 60 days prior written notice to FDC or
(b) upon the occurrence of any of the following events and (i) in the case of
clause (A), (C) or (D) below, at the option of MG following 30 days prior
written notice to FDC and (ii) in the case of clause (B) below, immediately and
without prior written notice or any other action by MG:
(A) If FDC or any Affiliate of FDC shall fail to perform, or
repudiates or seeks to avoid or invalidate, any material obligation to be
performed by it under this Agreement or any Telecommunications Agreement,
provided that (i) in the case of any breach which is capable of being cured, or
otherwise discontinued, FDC has received notice of such breach from MG or from
any Telecommunications Services Provider demanding such breach be cured and FDC
has not cured or discontinued such breach within 30 days of receipt of such
notice; and (ii) the Parties have exhausted the dispute resolution proceedings
provided for in Article 8;
(B) In the event of Bankruptcy of FDC;
(C) If a Governmental Body enjoins the performance by a Party of any
of its material obligations under this Agreement; or
(D) If MG reasonably determines that FDC is not Solvent.
SECTION 6.4. PARTIAL TERMINATION OF AGREEMENT BY FDC. If MG or any
Affiliate of MG breaches any of its material obligations or covenants in any
Telecommunications Agreement (a "Breached Telecommunications Agreement"), as
determined pursuant
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<PAGE>
to the provisions of the Breached Telecommunications Agreement, which breach is
not substantially cured within 30 days after notice specifying the breach is
given by the Telecommunications Services Provider under the Breached
Telecommunications Agreement or by FDC, then upon written notice to MG, FDC may
terminate this Agreement as it relates to the Breached Telecommunications
Agreement. Nothing in this Section 6.4 shall limit FDC's termination rights
pursuant to Section 6.2.
SECTION 6.5. EFFECT OF TERMINATION. Upon the termination of this
Agreement, each Party shall have no further obligation to perform any obligation
hereunder to the other Party and all outstanding unpaid amounts due and owing by
MG to FDC or any Telecommunications Services Provider under the terms of this
Agreement or any Telecommunications Agreement shall become immediately due and
payable, provided, however, that the termination of this Agreement shall not
affect the following:
(a) The obligation of MG to pay for any services rendered or any
other obligation or liability owing or which becomes owing under this Agreement
or any Telecommunications Agreement whether the obligations arise prior to or
after the date of termination;
(b) The provisions of Article 7 or any other indemnification
obligations of any Party;
(c) The provisions of Article 5 or any other confidentiality
obligations of any Party; and
(e) The provisions of Article 8.
In addition, upon the termination of this Agreement, each Party shall
return to the other Party all copies of such Party's Confidential Information
(as defined in the Operations Agreement) obtained in connection with the
performance of this Agreement, and shall erase all versions of such Confidential
Information from its data files.
ARTICLE 7
INDEMNIFICATION
---------------
SECTION 7.1. INDEMNIFICATION BY MG. Subject to the provisions of
this Article 7, MG shall indemnify and hold harmless FDC, each of its Affiliates
and each of their respective directors, officers, employees and agents
(collectively the
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<PAGE>
"Indemnified Parties"), from and against any and all Losses and Expenses based
on, arising out of, pertaining to or in connection with circumstances in which
(i) any act or omission of MG or any Affiliate of MG gives rise to a breach of
any Telecommunications Agreement; or (ii) MG or any Affiliate of MG breaches any
of its covenants or obligations in this Agreement. This indemnity shall be
applicable whether or not such Loss or Expense or the facts or transactions
giving rise to such Loss or Expense arose prior to, on or subsequent to the date
hereof.
SECTION 7.2. THIRD-PARTY BENEFICIARIES. The provisions of this
Article 7 are for the benefit of, and are intended to create, third-party
beneficiary rights in favor of each of the Indemnified Parties that is not a
Party.
SECTION 7.3. NO SPECIAL DAMAGES. IN NO EVENT SHALL FDC, MG OR ANY OF
THEIR RESPECTIVE AFFILIATES BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES UNDER THIS
AGREEMENT, WHICH ARE HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER FDC, MG OR ANY OF THEIR RESPECTIVE AFFILIATES HAS BEEN ADVISED, OR COULD
HAVE FORESEEN, OF THE POSSIBILITY SUCH DAMAGES. THE FOREGOING REPRESENTS AN
EXPRESS ALLOCATION OF RISK BETWEEN THE PARTIES.
ARTICLE 8
DISPUTE RESOLUTION
------------------
The Parties hereby agree to be bound by and to resolve any Dispute in
accordance with Article 11 of the Operations Agreement, the provisions of which
are hereby incorporated by reference.
ARTICLE 9
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
--------------------------------------------
IT IS UNDERSTOOD AND AGREED THAT FDC DOES NOT REPRESENT, WARRANT OR
GUARANTEE IN ANY WAY THAT THE PERFORMANCE OF SERVICES BY THE TELECOMMUNICATIONS
SERVICES PROVIDERS WILL BE UNINTERRUPTED OR ERROR FREE. NO PARTY HERETO MAKES
ANY, AND EACH PARTY HERETO HEREBY EXPRESSLY DISCLAIMS ANY, REPRESENTATIONS OR
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATED TO THIS
AGREEMENT, INCLUDING AS TO ANY SERVICES, HARDWARE, SOFTWARE, EQUIPMENT OR
MATERIALS PROVIDED OR USED BY OR ON BEHALF OF ANY PARTY UNDER THIS AGREEMENT.
EACH PARTY HERETO
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<PAGE>
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
ARTICLE 10
MISCELLANEOUS
-------------
SECTION 10.1. EXPENSES. Except as otherwise provided herein, each of
the Parties shall pay all Costs incurred by it or on its behalf in connection
with its performance and compliance with all its obligations hereunder,
including fees and expenses of its own counsel.
SECTION 10.2. RELATIONSHIP OF PARTIES. (a) Except as set forth in
this Agreement, FDC does not and shall not undertake by this Agreement or
otherwise to perform any obligation for or on behalf of MG or any Affiliate of
MG, whether regulatory or contractual, or assume any responsibility for MG's or
its Affiliates' businesses or operations.
(b) Nothing in this Agreement shall be deemed by the Parties, or by
any third Person, to create a partnership, joint venture or similar relationship
between the Parties and, except as otherwise expressly provided herein, no Party
shall be deemed to be the agent of any other Party. No Party has, and shall not
hold itself out as having, any authority to enter into any contract or create
any obligation or liability on behalf of, in the name of, or binding upon any
other Party.
SECTION 10.3. ENTIRE AGREEMENT. This Agreement, including the
Schedules hereto, and Article 7 and Article 11 of the Operations Agreement,
constitute the entire agreement among the Parties with regard to the subject
matter hereof, and supersede all other prior agreements, understandings or
discussions among the Parties concerning such subject matter. Except as provided
herein, this Agreement may not be amended or modified except in writing signed
by an authorized representative of each Party.
SECTION 10.4. ASSIGNMENT. Except as otherwise provided herein, the
rights and obligations of both FDC and MG under this Agreement are personal and
not assignable, either voluntarily or by operation of law, without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld. Except as provided in Section 7.2, nothing in this Agreement is
intended to or shall be construed to confer upon any Person other than the
Parties and their
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<PAGE>
respective successors and permitted assigns, any right, remedy or claim under or
by reason of this Agreement.
SECTION 10.5. NOTICES. All notices which any Party may be required
or desire to give to any other Party shall be in writing and shall be given by
personal service, telecopy, registered mail or certified mail (or its
equivalent) or overnight courier to the other Party at its respective address or
telecopy telephone number set forth below. Mailed notices and notices by
overnight courier shall be deemed to be given upon actual receipt by the Party
to be notified. Notice delivered by telecopy shall be confirmed in writing by
overnight courier and shall be deemed to be given upon actual receipt by the
Party to be notified.
In the case of FDC:
First Data Corporation
2121 N. 117th Ave. NP 30
Omaha, Nebraska 68164
Attention: General Counsel
Telephone Number: 402-498-4085
Telecopy Number: 402-498-4123
In the case of MG:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: Chief Executive Officer
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
With a copy to:
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
Attention: General Counsel
Telephone Number: 303-716-6800
Telecopy Number: 303-716-6997
A Party may from time to time change its address for notification purposes by
giving the other Party prior written notice of the new address and the date upon
which it shall become effective.
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<PAGE>
SECTION 10.6. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 10.7. GOVERNING LAW. Except as otherwise specified in
Article 8, this Agreement shall be governed by and construed in accordance with
the internal laws (as opposed to the conflict of laws provisions) of the State
of New York.
SECTION 10.8. WAIVER. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the Party entitled
to the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any Party, it is
authorized in writing by an authorized representative of such Party. The
failure of any Party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any Party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach. Except as specifically provided otherwise, all remedies
provided for in this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to any Party at law, in equity or
otherwise.
SECTION 10.9. SEVERABILITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
SECTION 10.10. CONSTRUCTION RULES. The Parties hereto represent that
in the negotiation and drafting of this Agreement they have been represented by
and relied upon the advice of counsel of their choice. The Parties affirm that
their counsel have had a substantial role in the drafting and negotiation of
this Agreement and, therefore, the rule of construction to the effect that any
ambiguities are to be resolved against the drafting Person shall not be employed
in the interpretation of this Agreement, including any Schedule.
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<PAGE>
IN WITNESS WHEREOF, each Party has caused this Agreement to be signed
and delivered by its duly authorized officer as of the date first written above.
MONEYGRAM PAYMENT SYSTEMS, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
FIRST DATA CORPORATION
By: _______________________________
Name:______________________________
Title: ____________________________
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<PAGE>
Exhibit 10.7
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
[LETTERHEAD OF FIRST DATA CORP.]
February 23, 1995
Banco Nacional de Mexico, S.A.
California Commerce Bank
811 Wilshire Boulevard
Los Angeles, California 90017
Subject: Modification and Extension of Agreement dated as of
July 24, 1990
Gentlemen:
Reference is made to the agreement between us dated as of July 24, 1990 as
amended on October 12, 1990, March 6, 1992, and August 29, 1994 (the
"Agreement"). All capitalized terms not defined herein shall have the meaning
set forth in the Agreement. Any reference to BNM herein includes CCB.
Notwithstanding anything to the contrary in the Agreement, it is hereby agreed
as follows:
FIRST: That Section 5.1 of the Agreement is hereby amended to read in its
entirety as follows: "The Term of this Agreement shall be from the Effective
Date through April 17, 2002. This Agreement shall be automatically renewed for
one successive five year term unless either Party provides written notice to the
other Party at least 90 days prior to the end of the term."
SECOND: That the Commission Fee Schedule set forth in Section 3.1(a) is hereby
amended to read in its entirety as follows:
"Section 3.1(a) - Commission Fee Schedule
-----------------------
Effective April 1, 1995
The basic fee shall be the amount payable to BNM with respect to transactions
requiring overnight delivery to Mexico (the "Basic Fee"). The Basic Fee is
calculated as follows:
Each month FDC shall pay to BNM, or its designee, for each overnight
transaction, a varying percentage of the monthly average transaction fee charged
to consumers by FDC with respect to MoneyGram overnight service to Mexico. The
percentages shall be as follows:
1
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Monthly Number of Total Overnight BNM Fee Percentage
and Same Day Service Transactions Per Transaction
- --------------------------------- ---------------
1 - 15,000 *****
15,001 - 25,000 *****
25,001 - and above *****
Each month BNM and FDC shall determine the gross amount of retail fees charged
to consumers by FDC with respect to overnight service and divide such amount by
the total number of overnight transactions in such month in order to determine
the monthly average overnight transaction fee (the "Monthly Average Overnight
Fee"). The Monthly Average Overnight Fee will then be multiplied by the
applicable BNM Fee Percentage per Transaction to determine the per transaction
fee. These amounts shall be added (as set forth in the Schedule above) and
billed to FDC monthly and payable upon receipt by FDC. In no event shall the
Commission Fee payable to BNM or its designee, with respect to overnight
service, exceed ***** of the gross retail fees charged to consumers by Amex or
FDC, as the case may be, with respect to transactions processed overnight by BNM
pursuant to this Agreement.
For example:
Total amount of overnight transaction fees for January, 1995 =
*****.
Total number of overnight transactions in January, 1995 = *****.
***** divided by ***** equals a Monthly Average Overnight Fee of
***** vs. *****.
***** is multiplied by ***** for the first ***** transactions. This
equals ***** fee per transaction.
***** is then multiplied by ***** for ***** to ***** transactions.
This equals ***** per transaction.
***** is then multiplied by ***** for the next 25,000 transactions and all
subsequent transactions. This equals ***** per transaction.
If 157,331 overnight transactions occur in a month, the fee would be
calculated as follows: (15,000 x *****) plus (10,000 x *****) plus (132,331
x *****) = *****.
2
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
In determining the BNM Fee Percentage Per Transaction, the sum of same day
and overnight transactions shall be utilized in determining the Total
Monthly Number of Transactions.
Same Day Service Fee
- --------------------
The BNM fee charged for same day service shall be calculated as follows:
The same day service fee shall be equal to the Monthly Average Overnight Fee
times the BNM Fee Percentage Per Transaction plus ***** of the difference
between the Monthly Average Overnight Fee to Mexico and the MoneyGram monthly
average same day fee to Mexico during the applicable month. The MoneyGram
monthly average same day fee to Mexico shall be calculated by dividing the total
amount of retail fees received by FDC with respect to same day transactions
divided by the total number of same day transactions in such month.
For example:
The Monthly Average Overnight Fee is *****. The monthly average same day
service fee is *****. The difference is *****. The fee to BNM shall be
***** for the first 15,000 transactions in a month plus *****, for a total
of ***** per transaction.
The fee to BNM for 15,001 to 25,000 same day transactions will be *****
plus *****, for a total of ***** per transaction.
The fee to BNM for 25,001 or more transactions will be ***** plus *****,
for a total of ***** per transaction.
If 30,000 transactions occur in a month of which 10,000 are same day
transactions, the fee will be calculated as follows: (***** x 15,000) plus
(***** x 10,000) plus (***** x 5,000) plus (10,000 x *****) = *****
In no event shall the Commission Fee payable to BNM or its designee with
respect to same day service exceed ***** of the gross retail fees charged
to consumers by Amex or FDC, as the case may be, with respect to same day
service transactions processed by BNM pursuant to this Agreement.
Changes to MoneyGram Fee Schedule
- ---------------------------------
From time to time, FDC may promote its MoneyGram program by offering Purchasers
a reduced retail fee or alter its regular retail fee. FDC shall notify BNM
thirty days prior to any such promotion or change. BNM shall have the right to
disapprove of any reduced retail fee in the event
3
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
BNM determines that the reduction is not within its interest and the long term
best interest of the MoneyGram program in Mexico. In the event BNM does not
disapprove within five business days following such notice, such promotional fee
shall be utilized in calculating the Commission Fee hereunder. In the event BNM
disapproves such promotion, the Basic Fee payable to BNM with respect to each
transaction subject to such promotion shall be not less than ***** per
transaction.
Service Levels and Branch Network
- ---------------------------------
BNM shall maintain throughout the term of this agreement, the service levels in
effect on the date hereof. In addition, BNM shall offer both the overnight and
same day service in each location in its branch network during normal business
hours.
Early Termination Option
- ------------------------
This Agreement may be terminated at the sole discretion of BNM, upon 30 days
advance written notice to FDC in the event the level of media advertising of the
MoneyGram product by FDC in terms of gross dollar advertising spent by FDC for
MoneyGram in the Spanish language falls below ***** in any year.
Advertising
- -----------
BNM shall obtain prior approval from FDC prior to any reference or use of the
MoneyGram name or logo in any advertising or promotional materials provided by
BNM.
Successors and Assigns
- ----------------------
Notwithstanding anything to the contrary in the Extension of Agreement dated
August 29, 1994, the Parties agree that this Agreement and all rights,
privileges, duties, and obligations of the Parties hereto may not be assigned or
delegated (collectively an "Assignment") by any Party hereto, without the prior
written consent of the other Parties, except (i) to an affiliate or direct or
indirect subsidiary of such party (collectively ("Affiliate"), which Affiliate
has all of the requisite licenses and regulatory approvals to perform as
required pursuant to the Agreement and after such party receives the prior
written consent of the other parties hereto, which consent shall not be
unreasonably withheld, and (ii) Amex may assign without the prior written
consent of the other parties hereto, all of its rights, privileges, duties and
obligations under the Agreement to FDC or any affiliate of FDC and such
assignee may provide the money transfer service in its own name. Upon any such
assignment by Amex, Amex shall be released from all liability under this
Agreement. Any purported assignment in violation of this paragraph shall be
null and void.
Except as specifically modified herein, the terms and conditions of the
Agreement including all amendments thereto remain in full force and effect. To
the extent of any inconsistency between
4
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
any provisions hereof and the provisions of the Agreement, including all
amendments, the provisions hereof shall prevail.
Very truly yours,
American Express Travel Related
Services Company, Inc.
By First Data Corporation
By: /s/ Charles T. Fote
------------------------------------
First Data Corporation
By: /s/ Charles T. Fote
------------------------------------
Acknowledged and Agreed:
This 23rd day of February 1995
Banco Nacional de Mexico, S.A.
By: /s/ [Name illegible]; /s/ [Name illegible]
--------------------------------------------
California Commerce Bank
By: /s/ Salvador Villar /s/ [Name illegible]
-------------------------------------------
5
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
[LETTERHEAD OF FIRST DATA CORP.]
August 29, 1994
Banco Nacional de Mexico, S.A.
California Commerce Bank
811 Wilshire Blvd.
Los Angeles, CA 90017
RE: Extension of Agreement Dated as of July 24, 1990
Gentlemen:
Reference is made to the agreement between us dated as of July 24, 1990 as
amended (the "Agreement"). All capitalized terms not defined herein shall have
the meaning set forth in the Agreement. Section 5.1 of the Agreement is hereby
amended to read in its entirety as follows: "The Term of this Agreement shall
be from the Effective Date through April 15, 1997." Section 5.2(b) is hereby
deleted.
In addition, it is hereby agreed that neither Amex nor First Data Corporation or
its affiliates (collectively "FDC") shall for a period commencing on the date
hereof and ending April 15, 1997, transfer or accept an offer to transfer all or
substantially all of the MoneyGram business, whether through the sale of stock,
assets or otherwise, to any person or entity unless such transferee shall have
expressly agreed in writing to be bound by the terms of the Agreement and to
assume the obligations of Amex and FDC thereunder. BNM and CCB hereby consent to
an assignment of the Agreement by Amex to FDC and agree that consent to any
assignment of Amex's or FDC's rights under the Agreement to any unaffiliated
third party shall not be unreasonably withheld. Upon any assignment and
assumption, Amex or FDC (as the case may be) shall be released from their
obligations under the Agreement.
Subject to the provisions of the next paragraph, it is also agreed that neither
Amex nor FDC, as the case may be, shall enter into any arrangement for the
purpose of processing or paying MoneyGram money transfers in Mexico after
September 1, 1994, until the termination of this Agreement with any person or
entity, it being understood that either Amex or FDC have entered or may enter
into such arrangements with non-bank entities prior to September 1, 1994, and
may continue such arrangements in accordance with their terms.
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
In the event that Amex, FDC or any successor in interest seeks to provide the
MoneyGram service to any location in Mexico in which BNM does not have a branch
within a ***** mile radius, BNM shall be notified. In the event BNM is not able
to provide service to such location within ***** days following such notice,
either through one of its own branches, or if permitted under applicable law, a
sub-agent, Amex, FDC or any successor in interest may enter into arrangements
for the provision of such services in that location with any person or entity.
Nothing in this Agreement shall prohibit BNM or CCB from processing money
transfers on behalf of Amex or FDC affiliated entities in the event this
Agreement is assigned by Amex or FDC.
Very truly yours,
American Express Travel Related
Services Company, Inc.
By First Data Corporation
By: /s/ Charles T. Fote
-------------------------------
Title: Executive Vice President
----------------------------
First Data Corporation
By: /s/ Charles T. Fote
-------------------------------
Title: Executive Vice President
----------------------------
ACKNOWLEDGED AND AGREED
THIS 1st DAY OF September, 1994
--- ---------
Banco Nacional de Mexico, S.A.
By: /s/ [Name illegible] /s/ [Name illegible]
-----------------------------------------------
Title: Deputy President; Executive Vice President
--------------------------------------------
California Commerce Bank
By: /s/ Salvador Villar /s/ [Name illegible]
-----------------------------------------------
Title: President; Executive Vice President
--------------------------------------------
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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
[LETTERHEAD OF MONEYGRAM]
March 6, 1992
Francisco Moreno
President & CFO
International Payment Systems, Inc.
811 Wilshire Blvd., Suite 1005
Los Angeles, CA 90017
Estimado Paco:
This letter shall amend the Agreement dated July 24, 1990 between American
Express Travel Related Services Company Inc., Banco Nacional de Mexico ("BNM")
and California Commerce Bank (the "Agreement"). The following amendments shall
become effective as of February 1, 1992:
Section 3.1(a) - Commission Fee Schedule
-----------------------
Effective February 1, 1992
<TABLE>
<CAPTION>
Monthly Number Incremental
of Transactions Fee per Transaction
--------------- -------------------
<S> <C>
1 - 15,000 *****
15,001 - 25,000 *****
25,001+ *****
</TABLE>
For example: If 20,000 transactions are completed in a given month the total
fee paid to BNM would be calculated as follows: (15,000 x *****) plus (5,000 x
*****) = *****.
Advertising
- -----------
BNM shall not be obligated to pay for advertising of American Express(R)
MoneyGram. However, prior approval shall be obtained from BNM for all
advertising by Amex wherein the BNM name, trademarks, service marks, or services
are used or shown. Such approval shall not be unreasonably withheld. Prior
approval will not be required for advertising generically about services to
Mexico, such as "MoneyGram is available in more than 700 locations in Mexico."
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Francisco Moreno
March 6, 1992
Page 2
Section 3.1(d) shall be amended to read as follows:
(d) Cancellation Fees. Amex shall pay to BNM, for each Cancellation
Notice received by BNM within the 30-day period stated in Section 1.2(e), a
cancellation fee to cover BNM's costs in confirming, and notifying the parties
of, the status of the Transaction ("Cancellation Fee"). The Cancellation Fee
commencing February 1, 1992 is ***** Dollars ($*****). Amex shall not be charged
a Cancellation fee for bona fide consumer initiated cancellations. The
Cancellation Fee shall be adjusted as necessary in accordance with the written
agreement of the parties hereto.
Exclusivity
- -----------
American Express agrees that it will not use the services of any other Mexican
bank to process or pay American Express MoneyGrams in Mexico without the written
consent of Banamex. In return, Banamex will not process or pay money transfers
in Mexico on behalf of any significant direct competitor of American Express
MoneyGram engaged in the business of receiving money for the purpose of
transmitting the same to Mexico without the written consent of American Express.
Notwithstanding the foregoing, BNM shall have the right to transmit funds for
any of its customers and those of its affiliates in the ordinary course of its
banking business and any financial institution without limitation. Neither BNM
nor Amex, nor any affiliate of either of them, shall permit use of their names,
logos, or trademarks in advertising to the general public, products or services
that compete with the MoneyGram distribution by BNM in Mexico or sales of
MoneyGram to Mexico by Amex, its Travel Service Offices and affiliates without
the written consent of the other. Notwithstanding the foregoing, Amex shall have
the right to advertise and support its "10 Minute Service" to Amex Travel
Service Offices and other retail outlets.
Agreement Effective
- -------------------
Except as specifically modified herein, all terms and conditions of the
Agreement remain effective and unchanged.
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Francisco Moreno
March 6, 1992
Page 3
WHEREFORE this amendment to Agreement is entered into this 6th day of March,
1992.
BANCO NACIONAL DE MEXICO AMERICAN EXPRESS TRAVEL
RELATED SERVICES CO. INC.
By: /s/ [Name illegible] By: /s/ [Name illegible]
-------------------------- --------------------------
Title: Deputy President Title: EVP-GM
----------------------- -----------------------
5/6/92
CALIFORNIA COMMERCE BANK
By: /s/ Salvador Villar
--------------------------
Title: President & C.E.O.
-----------------------
5/8/92
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AMENDMENT TO AGREEMENT
This Amendment to Agreement hereby amends that certain Agreement dated as
of July 24, 1990 by and between American Express Travel Related Services
Company, Inc., a New York corporation ("Amex") on the one hand, and Banco
Nacional de Mexico, S.N.C., a Mexican banking society ("BNM"), and California
Commerce Bank, a California banking corporation ("CCB"), on the other hand (the
"Agreement").
Notwithstanding any terms to the contrary in the Agreement, the following
terms shall govern the Agreement:
1. The license granted under the Agreement by BNM to Amex is hereby
extended to Amex for Canada under the same terms and conditions and to the same
extent as the United States of America.
2. Any references to dollars shall mean United States dollars.
3. BNM shall have the right to assign its right, title, and interest as
Licensor in any license for software to California Commerce Bank, and in such
event, Amex shall attorn to California Commerce Bank as Licensor to the same
extent as BNM under the Agreement.
4. This amendment shall be effective as of July 24, 1990.
5. Except as specifically amended herein, all terms and conditions of the
Agreement remain unaffected hereby.
WHEREFORE, this Amendment to Agreement is entered into this 12th, day of
October 1990.
Banco Nacional de Mexico S.N.C. American Express Travel Related
a Mexican banking society Services, Inc., a New York
corporation
/s/ Barry Barnes C. /s/ Robbin L. Ayers 10/15/90
- ----------------------------------- ------------------------------------
Barry Barnes C., Deputy
/s/ Raul A. Anaya /s/ Isaac Lasky 10/15/90
- ----------------------------------- ------------------------------------
Raul A. Anaya, General Manager
California Commerce Bank,
a California banking corporation
/s/ Pablo de la Paca
- -----------------------------------
Pablo de la Paca, President
/s/ Thomas Levine
- -----------------------------------
Thomas Levine,
Senior Vice President
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AGREEMENT
by and between
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.,
a New York corporation,
BANCO NACIONAL DE MEXICO, S.N.C.,
a Mexican banking society,
and
CALIFORNIA COMMERCE BANK,
a California state-chartered banking corporation
July 24, 1990
<PAGE>
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
---------
SERVICES
--------
1.1 Amex.................................................................. 1
(a) Agents........................................................... 1
(b) Reporting and Record Keeping..................................... 2
(c) Use of BNM Name and Logo......................................... 2
(d) Foreign Exchange Risk............................................ 2
(e) Daily Transactions Report........................................ 2
(f) Payment in Collected Funds....................................... 3
(g) Publication of Participating BNM Branches........................ 3
(h) Amex's Cooperative Advertising................................... 3
1.2 BNM................................................................... 3
(a) Transmission from BNM to Participating BNM Branch and
Notification to Recipient........................................ 3
(b) Participating BNM Branches....................................... 3
(c) Payment of Funds................................................. 3
(d) Inquiry Service.................................................. 4
(e) Cancellation of Transactions..................................... 4
(f) Exception Report................................................. 4
(g) Use of Amex Name and Logo........................................ 4
(h) BNM's Cooperative Advertising.................................... 4
1.3 CCB................................................................... 5
(a) Foreign Exchange Transaction..................................... 5
(b) Payment of Pesos to BNM.......................................... 5
(c) Return of Funds upon Cancellation................................ 5
ARTICLE II
----------
SOFTWARE LICENSE
----------------
2.1 License............................................................... 5
(a) Grant............................................................ 5
(b) Acceptance....................................................... 5
(c) Revocation....................................................... 5
(d) Software......................................................... 6
(e) Source Code...................................................... 6
2.2 Installation of Software.............................................. 6
2.3 Training.............................................................. 6
2.4 Maintenance of Software............................................... 6
2.5 Limited Warranty...................................................... 7
(a) Authority........................................................ 7
(b) Software Performance............................................. 7
(c) Voidability...................................................... 7
(d) Limitations on Warranty.......................................... 7
2.6 Nondisclosure......................................................... 7
-i-
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
TABLE OF CONTENTS (cont.)
-----------------
Page
----
2.7 Copying............................................................... 7
(a) BNM Approval..................................................... 7
(b) Non-exclusive License............................................ 8
ARTICLE III
-----------
FEES AND TAXES
--------------
3.1 Fees.................................................................. 8
(a) Commission Fee................................................... 8
(b) Foreign Exchange Profits......................................... 8
(c) Telegraph Notice Fee............................................. 9
(d) Cancellation Fee................................................. 9
3.2 Taxes................................................................. 9
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Amex.................................................................. 9
(a) Amex's Authority................................................. 9
(b) Licenses and Permits............................................. 9
4.2 BNM................................................................... 10
(a) BNM's Authority.................................................. 10
(b) Licenses and Permits............................................. 10
4.3 CCB................................................................... 10
(a) CCB's Authority.................................................. 10
(b) Licenses and Permits............................................. 10
ARTICLE V
---------
TERM AND TERMINATION
--------------------
5.1 Term.................................................................. 11
5.2 Termination........................................................... 11
(a) For Cause........................................................ 11
(b) Without Cause.................................................... 11
(c) Discontinue Use.................................................. 11
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
6.1 Limited Liability..................................................... 11
6.2 Indemnification....................................................... 11
6.3 Expenses.............................................................. 12
6.4 Notices............................................................... 12
-ii-
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
TABLE OF CONTENTS (cont.)
-----------------
Page
----
6.5 Successors and Assigns................................................ 13
6.6 Third Party Beneficiaries............................................. 14
6.7 Counterparts.......................................................... 14
6.8 Governing Law......................................................... 14
6.9 Captions.............................................................. 14
6.10 Waiver and Modification............................................... 14
6.11 Attorneys' Fees....................................................... 15
6.12 Entire Agreement...................................................... 15
6.13 Severability.......................................................... 15
6.14 Reports............................................................... 15
6.15 Force Majeure......................................................... 16
SCHEDULE 3.1(a)............................................................. 17
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AGREEMENT
---------
THIS AGREEMENT ("Agreement") is entered into as of July ___, 1990
("Effective Date"), by and between American Express Travel Related Services
Company, Inc., a New York corporation ("Amex"), on the one hand, and Banco
Nacional de Mexico, S.N.C., a Mexican banking society ("BNM"), and California
Commerce Bank, a California state-chartered banking corporation ("CCB"), on the
other hand. BNM and Amex are sometimes referred to herein individually as a
"Party" and collectively as the "Parties".
R E C I T A L S
- - - - - - - -
A. BNM is a bank chartered under the laws of Mexico. It has a
California state-licensed agency office located in Los Angeles. CCB is an
indirect wholly-owned subsidiary of BNM.
B. BNM wishes to provide certain banking services to, and to
license, install, and maintain software for, Amex, and Amex wishes to acquire
such services and software from BNM, in connection with the sale by Amex's duly-
licensed agents (individually "Agent" and collectively "Agents") in the United
States of Mexican peso-denominated electronic payment orders (individually
"MoneyGram" and collectively "MoneyGrams") for the delivery of the Mexican pesos
("Funds") at a Participating BNM Branch (as defined in Section 1.2(b) below) in
Mexico (individually "Transaction" and collectively "Transactions").
C. The parties hereto have, prior to the Effective Date, conducted
an extensive test ("Test") in which the parties had the opportunity to confirm
that the Transactions may be performed as intended under the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
and representations contained herein, the parties hereto agree as follows:
ARTICLE I
---------
SERVICES
--------
1.1 Amex.
----
(a) Agents. Amex shall be solely responsible for appointing,
contracting with, ensuring the proper licensing of, instructing as to the
features of the MoneyGram program, and supervising the Agents in the United
States for the sale of the MoneyGrams.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) Reporting and Record Keeping. Amex shall assume all responsibility
and liability for any and all legal or regulatory reporting or record keeping
requirements related to the sale of MoneyGrams or the transmission of money
abroad, including, without limitation, any requirements of the Bank Secrecy Act
of 1970, as amended ("Bank Secrecy Act"), and the regulations implementing the
Bank Secrecy Act.
(c) Use of BNM Name and Logo. Amex shall use its best efforts to
require the Agents to display the BNM name and logo in connection with the
Transactions at the place of sale of any MoneyGram in a manner approved by BNM
and Amex, and Amex shall require the Agents to disclose to each purchaser of a
MoneyGram ("Purchaser") that the payment of the Funds in Mexico will be made at
local branch offices of BNM. Such use of the BNM name and logo shall be only for
purposes related to the Transactions and BNM or Amex may terminate such use upon
thirty (30) days prior written notice to the other Party.
(d) Foreign Exchange Risk. For the purpose of informing each Purchaser
at the time of sale of the MoneyGram of the amount of Mexican pesos to be
delivered to the intended recipient of the MoneyGram ("Recipient"), Amex will
apply a foreign exchange rate to the principal amount and require the Agents to
disclose the converted amount to the Purchaser. Because Amex will enter into a
contract with the Purchaser with regard to the foreign exchange rate at the time
of sale of the MoneyGram, Amex, and not BNM or CCB, shall assume any foreign
exchange risk which may accompany the Transactions and any delays in the
consummation thereof.
(e) Daily Transactions Report. Amex shall transmit to BNM'S computer
in Los Angeles, California by 3:30 p.m. Pacific time each business day a
detailed report with regard to all of the Transactions commenced that business
day (individually "Daily Transactions Report" and collectively "Daily
Transactions Reports"). Each Daily Transactions Report shall contain
information, for each Transaction commenced, with regard to the identification
of the Purchaser and correspondent Recipient, the amount of Funds involved in
the Transaction, the time of purchase of the MoneyGram, the address of the
Recipient, and the location of the Participating BNM Branch closest to the
Recipient. Transactions contained in Daily Transactions Reports received by BNM
after 3:30 p.m. Pacific time shall be handled by BNM as part of the next
business day's work. Under this Agreement, a business day is defined as a day
when both BNM and CCB are open to the public for the purpose of carrying on the
banking business.
-2-
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(f) Payment in Collected Funds. For the purpose of funding CCB's daily
purchases of Mexican pesos sufficient to cover the daily sales of MoneyGrams by
the Agents, Amex shall pay CCB on or before the business day during which BNM
receives in Los Angeles the Daily Transactions Report from Amex in accordance
with Section 1.1(e) above, and in compliance with the cutoff times established
by CCB, in collected funds (in United States dollars) an amount sufficient to
purchase the total peso equivalent, at CCB's foreign exchange rate for similar
transactions, of the amount of MoneyGrams sold by the Agents that business day.
(g) Publication of Participating BNM Branches. Amex shall publish a
list of Participating BNM Branches, as provided by BNM, for the Agents, stating
each Participating BNM Branch's address and normal business hours. This list
shall be published either through a written medium or through a modification of
the Software (as defined in Section 2.1(d) below) to display such on the Agents'
computer equipment.
(h) Amex's Cooperative Advertising. In order to support Section 1.1(c)
above, Amex agrees to fund cooperatively with BNM any materials necessary to
display the BNM logo and name.
1.2 BNM.
---
(a) Transmission from BNM to Participating BNM Branch and Notification
to Recipient. Within two (2) business days following the business day during
which BNM receives the Daily Transactions Report from Amex in accordance with
Section 1.1(e) above, BNM shall (i) transmit the necessary instructions
regarding the Transactions and the payment of the Funds to the appropriate
Participating BNM Branch; and (ii) send a telegram to each Recipient notifying
such Recipient of the availability of the Funds and the need for the Recipient
to present sufficient identification (as determined by BNM) at the appropriate
Participating BNM Branch in order to collect the Funds. No obligations for BNM
under this Section 1.2(a) shall arise unless and until BNM has received a
sufficient amount of Mexican pesos to fund the Transactions.
(b) Participating BNM Branches. For the purposes of this Agreement,
Participating BNM Branches shall include those branch offices of BNM designated
by BNM which are a part of the BNM payment order network.
(c) Payment of Funds. Upon the presentation by the Recipient of
sufficient identification (as determined by BNM), the appropriate Participating
BNM Branch shall pay the Funds to the Recipient. Payment of the Funds shall be
made only on a business day during which Mexican banks are open to the
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public for the purpose of carrying on the banking business.
(d) Inquiry Service. BNM shall maintain sufficient information for a
period of not less than three (3) years in order to be able to respond to
inquiries from Amex, any Recipient, or any Participating BNM Branch regarding
the status of Transactions. BNM shall provide a dedicated group to respond to
such inquiries. BNM shall also maintain sufficient information in computer
readable format in BNM's computer system for a period of time sufficient to
satisfy the requirements of the Bank Secrecy Act and any other applicable
federal and state record retention laws and regulations.
(e) Cancellation of Transactions. If BNM receives written notice
("Cancellation Notice") from Amex thirty (30) or more days after the
Participating BNM Branch receives the Funds and the information regarding the
Transaction, BNM shall cancel (at no charge to Amex) a Transaction that remains
unpaid at the time BNM receives the Cancellation Notice at the appropriate
Participating BNM Branch, and BNM shall confirm such cancellation to Amex. If
BNM receives a Cancellation Notice from Amex before the expiration of such 30-
day period, BNM shall cancel a Transaction that remains unpaid at the time BNM
receives the Cancellation Notice at the appropriate Participating BNM Branch,
BNM shall confirm such cancellation to Amex, and Amex shall pay BNM a
Cancellation Fee (as defined in Section 3.1(d) below).
(f) Exception Report. BNM shall produce for Amex, at the end of each
month during the term of this Agreement, an exception report listing all
Transactions that have not been reported completed as of that date (individually
"Exception Report" and collectively "Exception Reports"). Each Exception Report
shall contain the same type of information for each incomplete Transaction as
contained on the Daily Transactions Reports. In addition, the Exception Report
shall provide the date upon which BNM notified the Recipient by telegram of the
availability of the Funds.
(g) Use of Amex Name and Logo. BNM shall use its best efforts to
require the BNM Participating Branches to display the Amex name and logo in
connection with the Transactions at the place of payment of the Funds in a
manner approved by Amex and BNM. Such use of the Amex name and logo shall be
only for purposes related to the Transactions and Amex or BNM may terminate such
use upon thirty (30) days prior written notice to the other Party.
(h) BNM's Cooperative Advertising. In order to support Section 1.2(g)
above, BNM agrees to fund cooperatively with Amex any materials necessary to
display the Amex logo and name.
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
1.3 CCB.
(a) Foreign Exchange Transaction. At the request of Amex, and after
the receipt of sufficient collected funds in United States dollars, CCB shall
purchase Mexican pesos at its wholesale foreign exchange rate for similar
transactions effective on the date of such purchase. CCB may obtain the Mexican
pesos necessary to fund the Transactions from CCB's account at BNM, from BNM, or
CCB may purchase the Mexican pesos from any third party.
(b) Payment of Pesos to BNM. CCB shall pay to BNM the total Mexican
peso amount instructed by Amex on that business day.
(c) Return of Funds upon Cancellation. If the Funds are returned
from BNM to CCB, CCB shall convert the Funds back into United States dollars at
CCB's foreign exchange rate for similar transactions on the business day that
CCB receives the returned Funds. CCB shall then return such Funds to Amex.
ARTICLE II
----------
SOFTWARE LICENSE
----------------
2.1 License.
-------
(a) Grant. BNM hereby grants to Amex a nonexclusive license to use
the point of sale Software, subject to the terms and conditions of this
Agreement ("License"). The Software is designed to enable Amex to capture the
information provided by the Purchaser, to identify the Participating BNM Branch
closest to the Recipient, and to record and transmit efficiently to BNM the
information necessary to complete the Transaction by arranging for the payment
of the Funds to the Recipient at such Participating BNM Branch. Amex agrees
that it has no right or claim to any Source Code (as defined in this Section
2.1), and that it has no title or claim of title to the Software. Amex further
agrees to restrict its use of the Software to any computer equipment owned or
leased by Amex and to the fulfillment of its rights and obligations under the
Transactions as set forth in this Agreement.
(b) Acceptance. Having participated in the Test and having confirmed
that the Software functions as intended under the terms of this Agreement, Amex
hereby accepts the Software as of the Effective Date.
(c) Revocation. BNM may revoke the License upon (i) any breach of
this Agreement by Amex or any Agent, or (ii) the termination of this Agreement.
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(d) Software. For the purposes of this Agreement, Software
shall include (a) any proprietary computer software program furnished by BNM to
Amex pursuant to this Agreement, including, without limitation, any proprietary
right, copyright, trade secret, and intellectual property right related thereto;
(b) any physical manifestation relating to or resulting from such programs,
including, without limitation, screens, images, graphics, and printouts; (c) any
information relating to the aforementioned, including, without limitation,
Source Code, object code, algorithms embodied in the Software, user manuals, and
other related documentation and installation and operational procedures; and (d)
any update provided by BNM for any of the aforementioned.
(e) Source Code. For the purposes of this Agreement, Source
Code shall include any visually or electronically encoded version of the
Software in the original language(s) in which it was written and any language to
which it may have been converted together with any other version of the
Software, whether in a high or low level language, in any form other than that
which may be executed directly from or by the operating system (such as by a
loader program). Source Code shall also include object modules or data structure
files required in connection with the operation or regular periodic
reconfiguration of the Software with regard to the identification of the
Participating BNM Branches.
2.2 Installation of Software.
------------------------
With the assistance and under the supervision, and at the sole
expense, of Amex, BNM shall install the Software, which is currently designed to
run on personal computers maintained by Amex.
2.3 Training.
--------
At the sole expense of Amex, BNM shall provide the necessary
training to Amex's personnel with regard to the use and operation of the
Software, on dates and at locations to be agreed upon by the Parties.
2.4 Maintenance of Software.
-----------------------
BNM shall, at its own expense and for the term of this Agreement,
provide maintenance services to Amex with respect to the data structure files of
the Software and will correct any errors in the Software which exist in the
Software as of the Effective Date and which arise during the use of the Software
in compliance with the terms of this Agreement. BNM's maintenance services
under this Agreement shall be performed upon the request of Amex and in a timely
and professional manner by qualified maintenance technicians familiar with the
Software and its
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
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operation, and the services shall conform to the standards generally observed in
the industry for similar services.
2.5 Limited Warranty.
----------------
Subject to Section 2.4, BNM represents and warrants that:
(a) Authority. BNM has all necessary authority to license the
Software to Amex and to perform all other obligations required by this Agreement
without the further consent of any other person.
(b) Software Performance. The Software will conform, in all
material respects, in BNM's judgment, to BNM's current specifications when
installed and will be free of defects which substantially affect the Software's
performance. BNM retains the right to modify the Software in any manner. BNM
makes no representations about the results that Amex may obtain with the
Software. Amex acknowledges that the Software may not operate without errors or
interruptions.
(c) Voidability. This limited warranty is voidable by BNM if
Amex modifies the Software in any manner without obtaining the prior written
consent of BNM.
(d) Limitations on Warranty. THE EXPRESS WARRANTIES IN THIS
AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
2.6 Nondisclosure.
-------------
Amex agrees that the Software has been developed at great expense
and constitutes valuable trade secrets of BNM. Amex agrees to retain all
Software in confidence and not to disclose or make the Software available to
third parties. Amex also agrees to implement security measures sufficient to
protect BNM's interests, including, without limitation, maintaining the Software
in a secured area accessible only to employees of Amex who have a need to use
such programs in compliance with the terms of this Agreement. Amex shall inform
every such employee of the confidentiality of such programs.
2.7 Copying.
-------
(a) BNM Approval. Amex may not copy or duplicate the Software
without the prior written approval of BNM. Amex hereby acknowledges that BNM
retains the exclusive right to license the Software and the medium upon which
the Software has been provided to Amex, and any copy thereof produced under the
terms of this Agreement. Amex does not have the right to make
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any additional copies of the Software supplied hereunder for backup purposes.
(b) Non-exclusive License. The Parties recognize that BNM may
license more than one copy of the Software to other parties, that this does not
evidence an intent by BNM to publish the Software and should not be construed as
such a publication, and that such multiple licensing does not evidence an intent
by BNM not to treat the Software as a trade secret.
ARTICLE III
-----------
FEES AND TAXES
--------------
3.1 Fees.
----
Amex shall pay to BNM the following fees in connection with the
Transactions:
(a) Commission Fee. Amex shall pay to BNM at the end of each
month during the term of this Agreement a portion of the commission collected by
the Agents on each MoneyGram sold ("Commission Fee"). A Commission Fee schedule
setting forth the amount of each commission to be paid to BNM by Amex as of the
Effective Date is attached hereto as Schedule 3.1(a). The Commission Fee
schedule shall be adjusted as necessary in accordance with the written agreement
of the parties hereto. From time to time, Amex shall promote the MoneyGram
program by offering Purchasers a reduced Commission Fee. At least thirty (30)
days prior to any such promotion, Amex shall obtain BNM's written approval as to
the reduced Commission Fee. Amex shall pay to BNM at the end of each month
during the term of the promotion a portion of this reduced Commission Fee as
agreed by Amex and BNM.
(b) Foreign Exchange Profits. Amex and BNM shall share equally
the profits generated, if any, in connection with each foreign exchange
conversion. Such profits shall be calculated and paid at the end of each month
during the term of this Agreement. The foreign exchange profits shall be
determined by subtracting (i) the total payments in United States dollars for
each month by Amex to CCB for the purpose of funding the Transactions by
purchasing Mexican pesos, from (ii) the total amount in United States dollars
calculated at the BNM Purchase Rate for all of the Transactions in Mexican pesos
for that month. The BNM Purchase Rate shall be the foreign exchange rate set
from time to time by Banamex USA Bancorp, a California corporation, in Los
Angeles, California for the conversion of United States dollars into Mexican
pesos. The BNM Purchase Rate shall be provided by BNM to Amex on an as needed
basis.
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(c) Telegraph Notice Fee. Amex shall pay to BNM at the end of each
month during the term of this Agreement the total of the fees assessed for
Transactions involving BNM's telegraph notice to the Recipient of the
availability of the Funds ("Telegraph Notice Fee"). The Telegraph Notice Fee
per Transaction as of the Effective Date is ***** (*****). The Telegraph
Notice Fee shall be adjusted as necessary in accordance with the written
agreement of the parties hereto.
(d) Cancellation Fee. Amex shall pay to BNM, for each Cancellation
Notice received by BNM within the 30-day period stated in Section 1.2(e), a
cancellation fee to cover BNM's costs in confirming, and notifying the
parties of, the status of the Transaction ("Cancellation Fee"). The
Cancellation Fee as of the Effective Date is ***** (*****). The
Cancellation Fee shall be adjusted as necessary in accordance with the written
agreement of the parties hereto.
3.2 Taxes.
-----
Amex shall, in addition to the other amounts payable to BNM and CCB
under this Agreement, pay all sales and other taxes, federal, state, or
otherwise, however designated, which are levied or imposed in the United States
by reason of the Transactions contemplated by this Agreement. Without limiting
the foregoing, Amex shall promptly pay to BNM or CCB, as appropriate, an amount
equal to any such taxes actually paid, or required to be collected or paid, by
BNM or CCB.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Amex.
----
(a) Amex's Authority. The execution and delivery by Amex of this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Amex, and this Agreement is a valid and binding obligation
of Amex, enforceable in accordance with its terms, except as the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium, or other similar
laws affecting the rights of creditors generally and by general equitable
principles. No consent or approval of, notice to, or filing with any
governmental authority having jurisdiction over any aspect of the business or
assets of Amex is required in connection with the execution and delivery by Amex
of this Agreement.
(b) Licenses and Permits. Amex and the Agents have all licenses and
permits which are necessary for the conduct of their businesses, including,
without limitation, the
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transmission of money to foreign countries, and such licenses are in full force
and effect. The properties and operations of Amex have been, are, and will
continue to be maintained and conducted, in all material respects, in compliance
with all applicable laws and regulations.
4.2 BNM.
---
(a) BNM's Authority. The execution and delivery by BNM of this
Agreement have been duly and validly authorized by all necessary action on the
part of BNM, and this Agreement is a valid and binding obligation of BNM,
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, moratorium, or other similar laws
affecting the rights of creditors generally and by general equitable
principles. No consent or approval of, notice to, or filing with any
governmental authority having jurisdiction over any aspect of the business or
assets of BNM is required in connection with the execution and delivery by BNM
of this Agreement.
(b) Licenses and Permits. BNM has all licenses and permits which are
necessary for the conduct of its businesses and such licenses are in full force
and effect. The properties and operations of BNM are and have been maintained
and conducted, in all material respects, in compliance with all applicable laws
and regulations.
4.3 CCB.
---
(a) CCB's Authority. The execution and delivery by CCB of this
Agreement have been duly and validly authorized by all necessary action on the
part of CCB, and this Agreement is a valid and binding obligation of CCB,
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, moratorium, or other similar laws
affecting the rights of creditors generally and by general equitable principles.
No consent or approval of, notice to, or filing with any governmental authority
having jurisdiction over any aspect of the business or assets of CCB is required
in connection with the execution and delivery by CCB of this Agreement.
(b) Licenses and Permits. CCB has all licenses and permits which are
necessary for the conduct of its businesses and such licenses are in full force
and effect. The properties and operations of CCB are and have been maintained
and conducted, in all material respects, in compliance with all applicable laws
and regulations.
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INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
ARTICLE V
---------
TERM AND TERMINATION
--------------------
5.1 Term.
----
The initial term of this Agreement shall be from the Effective
Date through December 31, 1991. This Agreement shall be automatically renewed
for successive one-year terms unless either Party provides written notice to the
other Party at least thirty (30) days prior to the end of the term.
5.2 Termination.
-----------
(a) For Cause. This Agreement may be terminated by either Party
for cause at any time. Such cause shall include legal or regulatory prohibitions
on the ability of any party hereto to conduct the Transactions, the default or
breach by any party hereto of any provision contained herein, and the bankruptcy
of either Party.
(b) Without Cause. This Agreement may be terminated by either
Party without cause upon thirty (30) days prior written notice to the other
Party.
(c) Discontinue Use. Upon termination of this Agreement for any
reason, Amex agrees to discontinue immediately the use of the Software or any
portion thereof and to return immediately to BNM any Software, including,
without limitation, any copy or partial copy thereof, and Amex and the Agents
agree to cease the use or display of BNM's name or logo for any purpose.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
6.1 Limited Liability. Amex agrees that the liability of BNM or CCB
arising out of contract, negligence, strict liability in tort, or warranty under
this Agreement shall not exceed an amount equal to one-half of the Commission
Fee payable by Amex to BNM for the period of the one calendar month immediately
preceding the date upon which the event occurred which gives rise to such
liability.
6.2 Indemnification.
---------------
Amex agrees to defend, indemnify, and hold harmless BNM, CCB, and
any of their subsidiaries or affiliates from and against any costs, damages,
liabilities, and expenses of any nature, including, without limitation,
attorneys' fees,
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insofar as such costs, damages, liabilities, and expenses arise out of or are
based upon any act or omission, whether negligent or otherwise, including,
without limitation, any reporting or record keeping requirements, any payment of
the Funds to a party other than the Recipient pursuant to the instructions of
Amex if such party presented sufficient identification (as determined by BNM) to
identify such party as the Recipient, and any good faith attempts to cancel any
Transaction pursuant to the instructions of Amex, performed by Amex or the
Agents.
6.3 Expenses.
--------
Each party hereto shall pay its own costs and expenses,
including, without limitation, those of its attorneys and accountants, in
connection with this Agreement and the transactions covered and contemplated
hereunder.
6.4 Notices.
-------
All notices, demands, or other communications hereunder shall be
in writing and be made by (a) hand delivery; (b) facsimile transmission; or (c)
overnight mail; and shall be deemed to have been duly given (i) on the date of
service if delivered by hand or facsimile transmission (provided that telecopied
notices are also mailed by United States mail, first class, certified or
registered, postage prepaid, or Mexican mail, first class, certified or
registered, postage prepaid, as applicable); or (ii) on the next day if
delivered by overnight mail (provided that overnight mailed notices are also
mailed by United States mail, first class, certified or registered, postage
prepaid, or Mexican mail, first class, certified or registered, postage prepaid,
as applicable); and properly addressed as follows:
(a) If to Amex:
American Express Travel Related Services
Company, Inc.
181 Inverness Drive West
Englewood, Colorado 80112
Attention: President
Telecopier No.: (303) 799-2364
With copies to:
American Express Travel Related Services
Company, Inc.
181 Inverness Drive West
Englewood, Colorado 80112
Attention: Counsel
Telecopier No.: (303) 799-2364
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406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(b) If to BNM:
Banco Nacional de Mexico
Apoyo a Medios de Transferencias del
Exterior
Isabel la Catolica #44
COL Centro
Attention: Manuel Violante, Gerente
Telecopier No.: (905) 524-6461
With copies to:
Banco Nacional de Mexico
Departamento Juridico
16 de septiembre 63, 3er Piso
Attention: Juan Jose Magallanes
Telecopier No.: (905) 720-4922
Banamex USA Bancorp
615 South Flower Street
Los Angeles, California 90017
Attention: Francisco Moreno, Vice President
Telecopier No.: (213) 488-2685
(c) If to CCB:
California Commerce Bank
615 South Flower Street, Suite 1200
Los Angeles, California 90017
Attention: Thomas Levine, General Counsel
Telecopier No.: (213) 488-2685
With copies to:
California Commerce Bank
615 South Flower Street, Suite 1400
Los Angeles, California 90017
Attention: Manuel Ruiz
Telecopier No.: (213) 488-2685
The persons or addresses to which mailings or deliveries shall be made may
change from time to time by notice given pursuant to the provisions of this
Section 6.4.
- -----------
6.5 Successors and Assigns.
----------------------
Subject to Section 6.6, all terms and provisions of this
-----------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective transferees, successors, and assigns; provided, however,
-------- -------
that (a) Amex shall not be released from any liability under this Agreement if
Amex assigns or delegates its rights, privileges, duties, and
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obligations hereunder, and (b) this Agreement and all rights, privileges,
duties, and obligations of the parties hereto may be assigned or delegated by
any party hereto only (i) to an affiliate or direct or indirect subsidiary of
such party, which affiliate or subsidiary is properly licensed to perform the
obligations herein, and (ii) after such party receives the prior written consent
of the other parties hereto, which consent shall not be unreasonably withheld.
Any purported assignment in violation of this Section 6.5 shall be null and
void.
6.6 Third Party Beneficiaries.
-------------------------
Each party hereto intends that this Agreement shall not benefit, or
create any right or cause of action in or on behalf of, any person other than
the parties hereto.
6.7 Counterparts.
------------
This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
6.8 Governing Law.
-------------
This Agreement is made and entered into in the State of California and
the laws of the State of California shall govern the validity and interpretation
hereof and the performance of the parties hereto of their respective duties and
obligations hereunder. Exclusive jurisdiction for litigation of any dispute,
controversy, or claim arising out of, in connection with, or in relation to this
Agreement, or the breach hereof, shall be in the state or federal courts located
in the county of Los Angeles, California.
6.9 Captions.
--------
The captions contained in this Agreement are for convenience of
reference only and do not form a part of this Agreement.
6.10 Waiver and Modification.
-----------------------
No waiver of any term, provision, or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such term,
provision, or condition of this Agreement. This Agreement may be modified or
amended only by an instrument of equal formality signed by the parties or
their duly authorized agents.
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INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
6.11 Attorneys' Fees.
---------------
In the event either Party brings an action or suit against the
other Party by reason of any breach of any covenant, agreement, representation,
warranty, or other provision hereof, or any breach of any duty or obligation
created hereunder by such other party, the prevailing party, as determined by
the court or other body having jurisdiction, shall be entitled to have and
recover of and from the losing party, as determined by the court or other body
having jurisdiction, all reasonable costs and expenses incurred or sustained by
such prevailing party in connection with such suit or action, including, without
limitation, legal fees and court costs (whether or not taxable as such).
6.12 Entire Agreement.
----------------
The making, execution, and delivery of this Agreement by the
parties hereto have not been induced by any representations, statements,
warranties, or agreements other than those herein expressed. This Agreement and
the Schedule hereto embody the entire understanding of the parties and there are
no further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof, unless expressly
referred to by reference herein.
6.13 Severability.
------------
Whenever possible, each provision of this Agreement and every
related document shall be interpreted in such manner as to be valid under
applicable law. However, if any provision of any of the foregoing shall be
invalid or prohibited under said applicable law, it shall be construed,
interpreted, and limited to effectuate its purpose to the maximum legally
permissible extent. If it cannot be so construed and interpreted so as to be
valid under such law, such provision shall be ineffective to the extent of such
invalidity or prohibition without invalidating the remainder of such provision
or the remaining provisions of this Agreement, and this Agreement shall be
construed to the maximum extent possible to carry out its terms without such
invalid or unenforceable provision or portion thereof.
6.14 Reports.
-------
Any reports referenced in this Agreement, unless the context
specifically requires otherwise, may be created and maintained in a computer
readable format, including, without limitation, microfilm or microfiche, rather
than printed form.
-15-
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
6.15 Force Majeure.
-------------
None of the parties hereto shall be deemed to be in default of this
Agreement if performance of the obligations required by this Agreement is
delayed or becomes impossible because of any act of God or earthquake, flood,
fire, strike, sickness, accident, civil commotion, epidemic, act of government
or its agencies or officers, power interruption, computer or transmission
failure, or any cause beyond the control of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
"Amex" American Express Travel Related
Services Company, Inc.
By: /s/ Charles Fote
----------------------------
Name: Charles Fote
----------------------------
Title: Executive Vice President
----------------------------
By: /s/ Robbin L. Ayers
--------------------------
Name: Robbin L. Ayers
--------------------------
Title: S.V.P. & General Manager
--------------------------
Integrated Payment Systems
"BNM" Banco Nacional de Mexico, S.N.C.
By: /s/ Antonio Ortiz Mena
--------------------------
Name: Antonio Ortiz Mena
--------------------------
Title: President & CEO
--------------------------
By: /s/ Manuel Sanchez Lugo
--------------------------
Name: Manuel Sanchez Lugo
--------------------------
Title: Executive Vice President
--------------------------
"CCB" California Commerce Bank
By: /s/ Jose Manuel Rivero
--------------------------
Name: Jose Manuel Rivero
--------------------------
Title: Vice Chairman
--------------------------
By: /s/ Salvador Villar
--------------------------
Name: Salvador Villar
--------------------------
Title: Director
--------------------------
- 16 -
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
SCHEDULE 3.1(a)
---------------
COMMISSION FEE
--------------
<TABLE>
<CAPTION>
Transfer Amount Consumer Fee BNM Commission
--------------- ------------ --------------
<S> <C> <C>
$ 0.01 - 50.00 $***** $*****
50.01 - 100.00 ***** *****
100.01 - 200.00 ***** *****
200.01 - 300.00 ***** *****
300.01 - 500.00 ***** *****
500.01 - 750.00 ***** *****
750.01 - 1000.00 ***** *****
1000.01 - 2000.00 ***** *****
2000.01 - 3000.00 ***** *****
3000.01 - 4000.00 ***** *****
4000.01 - 5000.00 ***** *****
5000.01 - 7500.00 ***** *****
7500.01 - 10000.00 ***** *****
</TABLE>
17
<PAGE>
Exhibit 10.11
DRAFT: NOVEMBER 12, 1996
REVOLVING CREDIT AGREEMENT
Dated as of __________ __, 1996
MONEYGRAM PAYMENT SYSTEMS, INC., a Delaware corporation (the
"Borrower"), and FIRST DATA CORPORATION, a Delaware corporation (the "Lender"),
agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE ADVANCES
Section 1.01. The Advances. The Lender agrees, on the terms and
conditions hereinafter set forth, to make advances (the "Advances") to the
Borrower from time to time during the period from the date hereof until
________, 1997 (such date, or the earlier date of termination of the Commitment
(as defined below) pursuant to Section 5.01, being the "Termination Date") in an
aggregate amount not to exceed at any time outstanding $20,000,000 (the
"Commitment"). Each Advance shall be in an amount not less than $500,000 or an
integral multiple of $100,000 in excess thereof, except that an Advance may be
in an amount equal to the entire unused Commitment. Within the limits of the
Commitment, the Borrower may borrow, prepay pursuant to Section 1.04 and
reborrow under this Section 1.01.
SECTION 1.02. Making the Advances. Each Advance shall be made on
notice, given not later than 11:00 A.M. (Denver time) on the fourth Business Day
prior to the date of the proposed Advance, by the Borrower to the Lender,
specifying the date and amount thereof. Not later than 12:00 P.M. (Denver time)
on the date of such Advance and upon fulfillment of the applicable conditions
set forth in Article II, the Lender will make such Advance available to the
Borrower in U.S. dollars at the Lender's address referred to in Section 6.02 in
same day funds. Each notice from the Borrower to the Lender requesting an
Advance shall be irrevocable and binding on the Borrower.
SECTION 1.03. Interest and Repayment. The Borrower shall repay, and
shall pay interest on, the aggregate unpaid principal amount of all Advances in
accordance with a promissory note of the Borrower, in substantially the form of
Exhibit A hereto (the "Note"), evidencing the indebtedness resulting from such
Advances and delivered to the Lender pursuant to Article II.
<PAGE>
SECTION 1.04. Optional Prepayments. The Borrower may, upon at least
four Business Days' notice to the Lender stating the proposed date and principal
amount of the prepayment, and if such notice is given the Borrower shall, prepay
the outstanding principal amounts of the Advances in whole or in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that each partial prepayment shall be in a principal
amount not less than $100,000.
SECTION 1.05. Mandatory Prepayments. Within three (3) Business Days
after receipt by the Borrower or any subsidiary of the Borrower of any cash
proceeds from the issuance of indebtedness for borrowed money, the Borrower
shall make or cause to be made a mandatory prepayment in an amount equal to the
lesser of (i) such cash proceeds (net of any financing charges associated
therewith) and (ii) the outstanding Commitment in effect at that time. Upon the
Lender's receipt of any mandatory prepayment made pursuant to this Section 1.05,
the outstanding Commitment shall be automatically reduced by the amount of such
mandatory prepayment.
SECTION 1.06. Payments and Computations. The Borrower shall make each
payment hereunder and under the Note not later than 11:00 A.M. (Denver time) on
the day when due in U.S. dollars to the Lender at its address referred to in
Section 6.02 in same day funds. All computations of interest shall be made by
the Lender on the basis of a year of 365 days, in each case, for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest is payable. Each determination by the Lender
of an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
SECTION 1.07. Payment on Non-Business Days. Whenever any payment
hereunder or under the Note shall be stated to be due on a day other than a day
of the year on which banks are not required or authorized to close in Denver
(any such other day being a "Business Day"), such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
ARTICLE II
CONDITIONS OF LENDING
SECTION 2.01. Conditions Precedent to Initial Advance. The obligation
of the Lender to make its initial Advance is subject to the condition precedent
that the Lender shall have
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<PAGE>
received on or before the day of such Advance the following, each dated such
day, in form and substance satisfactory to the Lender:
(a) This Agreement.
(b) The Note.
(c) Certified copies of the resolutions of the Board of Directors of
the Borrower approving this Agreement and the Note, and of all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to this Agreement and the Note.
(d) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (i) the names and true signatures of the officers of
the Borrower authorized to sign this Agreement and the Note and the other
documents to be delivered by it hereunder, (ii) copies attached thereto of
the Certificate of Incorporation of the Borrower and the By-Laws of the
Borrower.
SECTION 2.02. Conditions Precedent to All Advances. The obligation of
the Lender to make each Advance (including the initial Advance) shall be subject
to the further conditions precedent that on the date of such Advance (a) the
following statements shall be true (and each giving of the applicable notice
requesting such Advance and the acceptance by the Borrower of the proceeds of
such Advance shall constitute a representation and warranty by the Borrower that
on the date of such Advance such statements are true):
(i) The representations and warranties contained in Section 3.01 of
this Agreement are correct on and as of the date of such Advance, before
and after giving effect to such Advance and to the application of the
proceeds therefrom, as though made on and as of such date; and
(ii) No event has occurred and is continuing, or would result from such
Advance or from the application of the proceeds therefrom, which
constitutes an Event of Default (as defined in Section 5.01) or would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both;
and (b) the Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
-3-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Note are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene (i) the
Borrower's Certificate of Incorporation or By-Laws or (ii) law or any
contractual restriction binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement
and the Note.
(d) This Agreement and the Note are legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
ARTICLE IV
COVENANTS OF THE BORROWER
SECTION 4.01. Affirmative Covenants. So long as the Note shall remain
unpaid or the Lender shall have any Commitment hereunder, the Borrower will,
unless the Lender shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property except to the extent contested in
good faith.
(b) Reporting Requirements. Furnish to the Lender:
(i) promptly after the sending or filing thereof, copies of all
reports which the Borrower sends to any of its
-4-
<PAGE>
security holders, and copies of all reports and registration statements
which the Borrower or any subsidiary files with the Securities and Exchange
Commission or any national securities exchange; and
(ii) as soon as possible and in any event within five days after the
occurrence of each Event of Default and each event which, with the giving
of notice or lapse of time, or both, would constitute an Event of Default,
continuing on the date of such statement, a statement of the chief
financial officer of the Borrower setting forth details of such Event of
Default or event and the action which the Borrower has taken and proposes
to take with respect thereto.
SECTION 4.02. Negative Covenants. So long as the Note shall remain
unpaid or the Lender shall have any Commitment hereunder, the Borrower will not,
without the written consent of the Lender, which consent will not be
unreasonably withheld:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
subsidiaries to create or suffer to exist, any lien, security interest or other
charge or encumbrance, or any other type of preferential arrangement, upon or
with respect to any of its properties, whether now owned or hereafter acquired,
or assign, or permit any of its subsidiaries to assign, any right to receive
income, in each case to secure or provide for the payment of any Debt (as
defined below in this subsection (a)) of any person or entity, other than (i)
purchase money liens or purchase money security interests upon or in any
property acquired or held by the Borrower or any subsidiary in the ordinary
course of business to secure the purchase price of such property or to secure
indebtedness incurred solely for the purpose of financing the acquisition of
such property, or (ii) liens or security interests existing on such property at
the time of its acquisition (other than any such lien or security interest
created in contemplation of such acquisition).
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, and (v) obligations under direct or indirect guaranties in respect of,
and obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
-5-
<PAGE>
obligations of others of the kinds referred to in clauses (i) through (iv)
above.
(b) Dividends, Etc. Declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of capital stock of the Borrower, or
purchase, redeem or otherwise acquire for value (or permit any of its
subsidiaries to do so) any shares of any class of capital stock of the Borrower
or any warrants, rights or options to acquire any such shares, now or hereafter
outstanding, except that the Borrower may (i) declare and may any dividend
payment or other distribution payable in common stock of the Borrower, (ii)
purchase, redeem or otherwise acquire shares of its common stock or warrants,
rights or options to acquire any such shares with the proceeds received from the
substantially concurrent issue of new shares of its common stock and (iii)
declare or pay quarterly cash dividends to its stockholders to the extent that
the aggregate amount of all such cash dividends would not exceed ten percent
(10.0%) of net income of the Borrower arising after September 30, 1996 and
computed on a cumulative consolidated basis, provided that, immediately after
giving effect to such proposed action, no Event of Default or event which, with
the giving of notice or lapse of time, or both, would constitute an Event of
Default would exist.
(c) Sales of Assets. Sell, assign, transfer, lease, convey or
otherwise dispose of any property (other than in the ordinary course of the
Borrower's business), whether now owned or hereafter acquired, to the extent
that such property is material to the Borrower's business or operations.
(d) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, any person or entity (whether in one transaction or a series of
transactions), except for acquisitions of assets from any person(s) or
entity(ies) which do not exceed in the aggregate $5,000,000 at any time.
(e) Investments. Directly or indirectly make or own any Investment
except:
(i) Investments existing on the date hereof; and
(ii) Investments which do not exceed $5,000,000 in the aggregate at
any time.
-6-
<PAGE>
"Investment" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of stock, partnership interest, notes,
debentures or other securities, or of a beneficial interest in stock,
partnership interest, notes, debentures or other securities, issued by any other
Person, and (ii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees, bonuses paid to agents and similar items made
or incurred in the ordinary course of business) or capital contribution by that
Person to any other Person.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
(f) Transactions with Affiliates. Other than any transaction or
agreement with Lender or any of its Affiliates, directly or indirectly enter
into or permit to exist any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder or holders of any of the capital stock of the Borrower,
or with any Affiliate of the Borrower, on terms that are less favorable to the
Borrower than those that could be obtained in an arm's length transaction at the
time from Persons who are not such a holder or Affiliate.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person is
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act) of greater than twenty percent (20%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
stock, by contract or otherwise.
(g) Other Indebtedness. Not prepay or repay any principal payable in
respect of any indebtedness for borrowed money incurred by Borrower unless such
payment is a regularly scheduled payment under such indebtedness, in which case
the Borrower agrees that it shall, concurrently with any such payment, reduce
the Commitment hereunder by an amount equal to such payment, and prepay
Advances, if necessary, in an amount sufficient to ensure that the outstanding
Advances hereunder do
-7-
<PAGE>
not exceed the Commitment (after taking into account such reduction).
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of, or interest on,
the Note when the same becomes due and payable or
(b) Any representation or warranty made by the Borrower (or any of its
officers) under or in connection with this Agreement shall prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in this Agreement for a period of twenty (20) days after
written notice thereof shall have been given to the Borrower by the Lender; or
(d) The Borrower shall fail to pay any principal of or premium or
interest on any Debt (as defined in Section 4.02(a)) which is outstanding in a
principal amount of at least $2,000,000 in the aggregate (but excluding Debt
evidenced by the Note) of the Borrower or such subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), redeemed, purchased
or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall
be required to be made, in each case prior to the stated maturity thereof;
(e) the Borrower or any of its subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or
-8-
<PAGE>
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any of its subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but no instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 30 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Borrower or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$2,000,000 shall be rendered against the Borrower or any of its subsidiaries and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect;
then, in any such event, the Lender may, by notice to the Borrower, (i) declare
its obligation to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) declare the Note, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Note, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that in the event of an actual or deemed entry of an order
for relief with respect to the Borrower or any of its subsidiaries under the
Federal Bankruptcy Code, (A) the obligation of the Lender to make Advances shall
automatically be terminated and (B) the Note, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
-9-
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Note, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 6.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier or electronic
communication) and mailed, telecopied, transmitted or delivered, if to the
Borrower, at its address at 7401 West Mansfield Avenue, Lakewood, Colorado
80235, Attention: General Counsel; and if to the Lender, at its address at 2121
N. 117th Ave., NP 30, Omaha, Nebraska 68164, Attention: General Counsel,
facsimile no. (402) 498-4123; or, as to each party, at such other address as
shall be designated by such party in a written notice to the other party. All
such notices and communications shall, when mailed, telecopied or transmitted,
be effective when deposited in the mails, telecopied or confirmed by electronic
receipt, respectively, except that notices to the Lender pursuant to the
provisions of Article I shall not be effective until received by the Lender.
SECTION 6.03. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under the
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 6.04. Indemnities. The Borrower agrees to defend, protect,
indemnify and hold harmless the Lender and each of its Affiliates and each of
its and its Affiliates' directors, officers and employees (collectively, the
"Idemnitees") from and against any and all liabilities, obligations, losses
(other than loss of profits), damages, penalties, fees, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (excluding any taxes and including, without limitation, the
reasonable fees and disbursements of counsel for such Indemnitees in connection
with any investigative, administrative or judicial proceeding, whether or not
such Indemnitees shall be designated a party thereto), which any of them may
incur and reasonably pay arising out of or relating to
-10-
<PAGE>
this Agreement or the Note or any of the transactions contemplated hereby or
thereby or the direct or indirect application or proposed application of the
proceeds of any Advance, provided, however, the Borrower shall have no
obligation to an Indemnitee hereunder with respect to any matter caused solely
by or resulting solely from the willful misconduct or gross negligence of such
Indemnitee. The Borrower, upon demand by the Lender, shall reimburse each
Indemnitee for any reasonable legal or other expenses incurred in connection
with investigating or defending any of the foregoing except if the same is
directly due to the willful misconduct or gross negligence of such Indemnitee.
If the undertaking to indemnify, pay and hold harmless set forth in this Section
6.04 may be unenforceable because it is violative of any law or public policy,
the Borrower shall contribute the maximum portion which it is permitted to pay
and satisfy under applicable law, to the payment and satisfaction of all
liabilities, obligations, losses, damages, penalties, fees, actions, judgments,
suits, claims, costs, expenses or disbursements incurred by any Indemnitee.
SECTION 6.05. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses, if any (including reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement, the Note and the other
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 6.05. In addition, the Borrower shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Note and the other documents to be delivered
hereunder, and agrees to save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION 6.06. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lender, which consent will not be unreasonably withheld.
The Lender may at any time, without the consent of the Borrower, assign all or
any portion of its rights under this Agreement and the Note. Any assignee or
transferee of the Note agrees by acceptance thereof to be bound by all the terms
and provisions of this Agreement and the Note.
-11-
<PAGE>
SECTION 6.07. Governing Law. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of New
York.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER: MONEYGRAM PAYMENT SYSTEMS, INC.
By:
----------------------------
Title:
LENDER: FIRST DATA CORPORATION
By:
----------------------------
Vice President
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
$20,000,000.00 Dated: __________ __, 1996
FOR VALUE RECEIVED, the undersigned, MONEYGRAM PAYMENT SYSTEMS, INC.,
a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
FIRST DATA CORPORATION, a Delaware corporation (the "Lender"), the principal
amount of TWENTY MILLION DOLLARS ($20,000,000.00) or, if less, the aggregate
principal amount of all Advances made by the Lender to the Borrower pursuant to
the Credit Agreement (as hereinafter defined) outstanding, on __________, 1997,
or on such earlier date as may be required by the terms of the Credit Agreement.
Capitalized terms used herein and not otherwise defined herein are defined as
defined in the Credit Agreement.
The Borrower shall pay interest on the principal amount hereof from
time to time outstanding from the date hereof until such principal amount is
paid in full, payable quarterly in arrears on the first day of each calendar
quarter during the term hereof and on the final day when such principal amount
becomes due at a fluctuating interest rate per annum in effect from time to time
equal at all times to the higher of:
(a) the rate of interest announced publicly by The Chase Manhattan
Bank, N.A. ("Chase"), the rate or interest announced publicly by Chase,
from time to time, as its prime rate (the "Prime Rate") plus one percent
(1.0%) per annum; provided, however, that any overdue amount of principal,
interest, fees or other amounts payable hereunder or under the Credit
Agreement referred to below shall bear interest, payable on demand, at the
Prime Rate plus three percent (3.0%) per annum. Each change in the
fluctuating interest rate hereunder shall take effect simultaneously with
the corresponding change in the Prime Rate.
Both principal and interest are payable in lawful money of the United
States of America to the Lender at 2121 N. 117th Ave., NP 30, Omaha, Nebraska
68164, Attention: General Counsel, in same day funds. All Advances made by the
Lender to the Borrower, and all payments made on account of the principal amount
hereof, shall be recorded by the Lender and, prior to any transfer hereof,
endorsed on the grid attached hereto which is part of this Promissory Note.
A-1
<PAGE>
This Promissory Note is the Note referred to in, and is entitled to
the benefits of, the Revolving Credit Agreement dated as of __________ __, 1996
(the "Credit Agreement") between the Borrower and the Lender. The Credit
Agreement, among other things, (i) provides for the making of advances (the
"Advances") by the Lender to the Borrower from time to time in an aggregate
amount not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by the Borrower.
MONEYGRAM PAYMENT SYSTEMS, INC.
By:
---------------------------
Title:
A-2
<PAGE>
EXHIBIT 10.12
DRAFT: NOVEMBER 7, 1996
December __, 1996
MoneyGram Payment Systems, Inc.
7401 West Mansfield Ave.
Lakewood, Colorado 80235
The undersigned, Western Union Financial Services, Inc., a Delaware
corporation and a subsidiary of First Data Corporation ("Western Union"), hereby
refers to the transactions contemplated by the Registration Statement of
MoneyGram Payment Systems, Inc., a Delaware corporation ("MoneyGram"), on Form
S-1 (Registration No. 333-228), as amended (the "Registration Statement"), filed
under the Securities Act of 1933, as amended, in respect of the initial public
offering of shares of common stock, par value $.01 per share (the "Common
Stock"), of MoneyGram. Such initial public offering is intended by First Data
Corporation, a Delaware corporation and currently the sole stockholder of
MoneyGram ("First Data"), to satisfy its obligations under the Consent Decree
dated January 19, 1996 (Docket No. C-3635) (the "Consent Decree") between First
Data and the Federal Trade Commission and will be effected through the sale by
First Data of its shares of Common Stock. In connection with such initial public
offering, MoneyGram, First Data and certain subsidiaries of First Data will
enter into agreements that are described in the Registration Statement as the
"Transition Agreements." Any capitalized term not defined in this letter
agreement shall have the meaning specified in the Consent Decree.
In consideration of the foregoing, and of the promises and covenants
hereinafter set forth, the parties to this letter agreement agree as follows:
Prior to the earlier of (i) the termination of the Agreement dated
July 24, 1990 among Travel Related Services Company, Inc., Banco National
de Mexico, S.A. ("Banamex"), California Commerce Bank and First Data, as
amended, or (ii) April 17, 2002, Western Union shall not, directly or
indirectly, use Banamex to process United States-to-Mexico Consumer Money
Wire Transfer Service transactions on behalf of Western Union.
<PAGE>
MoneyGram Payment Systems, Inc.
December __, 1996
Page 2
This letter agreement may be executed in one or more counterparts,
each of which shall be considered an original instrument, but all of which shall
be considered one and the same agreement, and shall become binding when one or
more counterparts have been signed by each of the parties hereto and delivered
to each of MoneyGram and Western Union.
This letter agreement shall not be amended, modified or supplemented,
except by a written instrument signed by an authorized representative of each of
the parties hereto.
This letter agreement shall be governed by and construed in accordance
with the internal laws (as opposed to the conflict of laws provisions) of the
State of New York.
<PAGE>
MoneyGram Payment Systems, Inc.
December __, 1996
Page 3
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between MoneyGram
and Western Union.
Very truly yours,
WESTERN UNION FINANCIAL SERVICES, INC.
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
The foregoing agreement is hereby confirmed and accepted as of the date of this
letter.
MONEYGRAM PAYMENT SYSTEMS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
EXHIBIT 15.1
December , 1996
The Board of Directors of
MoneyGram Payment Systems, Inc.
We are aware of the inclusion in Amendment No. 5 to the Registration
Statement (Form S-1 No. 333-228) and related Prospectus of MoneyGram Payments
System, Inc. of our report dated October 16, 1996 (except as to Note 2, as to
which the date is December , 1996) relating to the unaudited interim
financial statements of MoneyGram Payments Systems, Inc. for the nine-month
period ended September 30, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Denver, Colorado
- -------------------------------------------------------------------------------
The foregoing acknowledgement is in the form that will be signed upon the
completion of the transactions and restatement of capital accounts described
in Note 1 to the audited financial statements as of and for the year ended
December 31, 1995 under the caption "Formation of the Company."
ERNST & YOUNG LLP
Denver, Colorado
December 4, 1996
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 2, 1996 (except as to Notes 1 and 9, as
to which the date is December , 1996) in Amendment No. 5 to the Registration
Statement (Form S-1 No. 333-228) and related Prospectus of MoneyGram Payment
Systems, Inc.
ERNST & YOUNG LLP
- -------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the transactions and restatement of capital accounts described in Note 1 to
the audited financial statements as of and for the year ended December 31,
1995 under the caption "Formation of the Company."
ERNST & YOUNG LLP
Denver, Colorado
December 4, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the balance sheets and statements of operations included in Amendment No. 5 to
the Registration Statement (Form S-1 No. 333-228), and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 1,165 780
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,446 27,668
<PP&E> 9,953 13,056
<DEPRECIATION> 3,953 6,234
<TOTAL-ASSETS> 41,618 49,483
<CURRENT-LIABILITIES> 40,449 41,379
<BONDS> 0 0
<COMMON> 166 166
0 0
0 0
<OTHER-SE> 1,003 7,938
<TOTAL-LIABILITY-AND-EQUITY> 41,618 49,483
<SALES> 0 0
<TOTAL-REVENUES> 137,068 106,975
<CGS> 0 0
<TOTAL-COSTS> 107,412 86,402
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 29,656 20,573
<INCOME-TAX> 11,362 7,858
<INCOME-CONTINUING> 18,294 12,715
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,294 12,715
<EPS-PRIMARY> 1.10 .76
<EPS-DILUTED> 1.10 .76
</TABLE>
