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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-14350
MONEYGRAM PAYMENT SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-1327808
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
7401 W. Mansfield Avenue
Lakewood, Colorado 80235
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 716-6800
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock (par value $.01 per share) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Common shares of the registrant outstanding at March 20, 1998 were
16,513,800. The aggregate market value, as of March 20, 1998, of such common
shares held by non-affiliates of the registrant was approximately $219,243,000.
(Aggregate market value estimated solely for the purposes of this report. This
shall not be construed as an admission for the purposes of determining affiliate
status.)
Documents Incorporated By Reference
Part III: Portions of the Registrant's Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 5, 1998.
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<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
----
Background
Item 1. Business ........................................................... 2
Item 2. Properties ......................................................... 7
Item 3. Legal Proceedings .................................................. 7
Item 4. Submission of Matters to a Vote of Securityholders ................. 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ............................................................ 8
Item 6. Selected Financial Data ............................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ......... 14
Item 8. Financial Statements and Supplementary Data ........................ 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant ................. 15
Item 11. Executive Compensation ............................................. 15
Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 15
Item 13. Certain Relationships and Related Transactions ..................... 15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 15
<PAGE>
BACKGROUND
MoneyGram Payment Systems, Inc. (the "Company" or "MoneyGram") was
incorporated as a subsidiary of Integrated Payment Systems Inc. ("IPS"), a
wholly owned subsidiary of First Data Corporation ("First Data"), in January
1996 to acquire certain assets and liabilities of IPS' consumer money transfer
service business marketed under the name "MoneyGram" ("the Business").
On June 12, 1995, First Data entered into a merger agreement with First
Financial Management Corporation ("FFM"), the parent company of Western Union
Financial Services, Inc. ("Western Union"). In order to obtain the approval of
the Federal Trade Commission ("FTC") of its merger with FFM, First Data entered
into a "Consent Decree" with the FTC that required First Data to divest the
sales and marketing functions associated with the consumer money transfer
business of the Company or Western Union.
Following the signing of the Consent Decree, First Data decided to divest
the sales and marketing functions associated with the Business. Pursuant to that
decision and a Hold Separate Agreement, which First Data had entered into with
the FTC, First Data identified those operations and functions necessary to
operate the Business as a stand-alone entity, reconfigured the shared customer
service center and commenced the separation of information and services related
to the Business within IPS's data center in anticipation of contributing certain
assets and liabilities to the Company and consummating a public offering ("IPO")
of the Company's Common Shares ("Common Shares"). The IPO occurred on December
11, 1996.
To effect the transition of the Business to the Company (the
"Transition"), First Data and the Company entered into the following agreements:
1. Contribution Agreement. Pursuant to this Agreement, IPS and/or certain
of its affiliates contributed to the Company (a) $12 million for general
corporate purposes, (b) certain software, copyrights and trademarks, (c) the
economic benefit of the agreements with the Business' agents, (d) the customer
service center operations, (e) the leasehold interest in the Lakewood, Colorado
premises, and (f) certain other personal property, all related to the Business.
In exchange, the Company issued and delivered to IPS 16,624,900 Common Shares.
2. Operations Agreement. Under this Agreement, IPS or its affiliates
performed for the Company data processing services, management services,
disaster recovery services for the Company's Lakewood, Colorado customer service
center, voice center services and certain corporate support services. The
management services included those functions that IPS must perform in order for
the Business to be in compliance with applicable licensing and other legal
requirements until such time as the Company had obtained the licenses to own and
operate a consumer money transfer service in its own name.
3. Software License Agreement. Pursuant to this Agreement, IPS granted to
the Company a perpetual, irrevocable, worldwide, nonexclusive, royalty-free
license to use certain application software in the Business or for any other
purpose. Certain software used by MoneyGram agents who enter transactions
electronically, and application software used to process all MoneyGram
transactions, were contributed to the Company pursuant to the Contribution
Agreement.
4. Short-Term Working Capital Facility (the "Facility"). Pursuant to the
Facility, which terminated on June 13, 1997, the Company had a revolving line of
credit of $20 million provided by First Data.
5. 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", "Money in Minutes" and certain other similar phrases, whether
in English or another language, during the two-year period commencing December
11, 1996. 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 a License Agreement and the Service Mark Letter Agreement
will then terminate.
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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 would 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 would covenant not to use "The Better Way to Wire Money" in English in
certain countries, including the United States.
6. Human Resources Agreement. This Agreement, among First Data, IPS and
the Company, defined 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.
7. Telecommunication Services Sharing Agreement. This Agreement, which
expires in December 1998, between First Data and the Company, provides that
First Data shall cooperate and use reasonable efforts to facilitate the
provision of telecommunication services to the Company under First Data's
agreements with its various long-distance telecommunication service providers.
This Agreement permits the Company to choose among such long-distance providers
and to benefit from First Data's tariff rates. The Company, in exchange, has
agreed to use the telecommunication services provided by First Data's
telecommunication service providers exclusively for all of the Company's
person-to-person telephone calls.
On March 1, 1998, having received all required money transfer licenses,
the Company converted the operation of the Business from IPS' licenses to its
own. Consequently, all but certain accounting and processing services provided
pursuant to the Operations Agreement have been terminated. Those terminated
services are now provided by the Company or third parties. In addition, on March
1, 1998 all money transfer agent agreements were assigned to the Company by IPS.
ITEM 1. BUSINESS.
Overview
The Company is a leading non-bank provider of consumer money transfer
services, with a strong, well-recognized brand name. It offers customers the
ability to transfer funds quickly, reliably and conveniently through its
approximately 22,000 agent locations in 105 countries worldwide. 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 an express bill payment service through many
of its agent locations in the United States, and recently began to offer money
orders through a wholly owned subsidiary. See "New Products".
The number of agent locations has grown from approximately 18,500 in 1996
to approximately 22,000 in March 1998. In each of 1996 and 1997, the Company
processed approximately 5.8 million transactions, and transferred $1.55 billion
and $1.57 billion principal amount of funds, respectively.
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
15% of families in the United States that do not have checking accounts.
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.
The Company believes international consumer money transfers will continue
to grow primarily due to the combination of increased migration and greater
consumer awareness. The Company believes that migration dynamics
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throughout Latin America, the Caribbean, Europe, Africa 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.
The MoneyGram Agent Network
The Company has an extensive global network of agents in the United
States, Mexico and in 103 other countries around the world. The Company's agent
network includes a variety of types of businesses, including supermarkets, check
cashers, convenience stores, travel agencies, bus stations and credit unions.
A limited number of the Company's top agents generate a significant
percentage of the Company's transaction volume and revenues. In 1996 and 1997,
respectively, the Company's top 10 selling agents accounted for approximately
43% and 42% of the Company's transaction volume and 42% and 40% of the Company's
transaction fee revenues. Three of the top 10 MoneyGram agents in 1997, Banco
Nacional de Mexico S.N.C. ("Banamex"), America's Cash Express ("Ace") and the
Chicago Currency Exchange, were each involved in transactions representing more
than 10% of the Company's total revenues. The agreement with Banamex expires in
April 2002 and the agent contract with Ace currently expires in 2001. The
Chicago Currency Exchange consists of approximately 85 separate agent contracts
with owners of Chicago Currency Exchange locations that expire in 2000 or 2001.
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
funds. The following morning the Company, through an automated clearing house
transfer, debits the selling agents' bank accounts for the dollar value of all
of the MoneyGram agents' transactions processed on the previous day and the
corresponding transaction fees.
Receiving MoneyGram agents are authorized to pay out the transferred funds
to the recipient customer through confirmation of a reference number for 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 recipient
customer can receive the funds from any MoneyGram agent within most of the
Company's agent network regardless of the sender's location. In most instances,
the receive agents are reimbursed for this payment by depositing a pre-signed
money transfer check into their bank account. The Company pays selling agents
and receiving agents their commissions at the end of each month. Commission
payments are based on a percentage of the consumer fee for a send transaction
and a flat fee for a receive transaction.
Currently, the Company provides a free three-minute long distance
telephone call with each money transfer 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.
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 principal amount of the transaction.
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<PAGE>
ExpressPayment
MoneyGram(R) ExpressPayment(sm) service, 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. 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 customers can make overdue payments directly
to Creditors. To use ExpressPayment, the Creditor directs the consumer to visit
a MoneyGram location and transmit the amount due. The consumer pays the
principal amount owed and typically, 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, or in some cases, an electronic file transmission
is issued to the Creditor.
Sales and Marketing
The Company advertises its money transfer service primarily through
television ads, radio, print and other media including billboards and bus
benches. The Company has implemented advertising and promotion strategies,
including discounted price promotions, intended to increase its market share and
broaden the brand recognition of the MoneyGram service in its target markets.
The MoneyGram agent network is supported by a nationwide sales and account
development team that recruits and trains the Company's agents. This team
provides a variety of services to MoneyGram agents including training,
automation, assistance with cooperative advertising and provision of signage.
Operations
The Company's money transfer operations are located at its Lakewood,
Colorado facility. The Lakewood facility houses the Company's customer service
center which is staffed 24 hours a day, 365 days a year. The Company processes
an average of 24,000 voice calls per day and has operators fluent in 13
languages and at least 50% of the MoneyGram customer service representatives are
bilingual.
Phone Card
The Company introduced a phone card product in the fourth quarter of 1996.
Customers can purchase a MoneyGram(R) Phone Card in denominations of $5, $10,
$20 or $50 and use the card to make calls from any telephone. 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.
New Products
On January 8, 1998 the Company purchased Mid-America Money Order Company
("MAMO"), a nationwide issuer of money orders. The money order product is sold
through MAMO's agent locations.
Consumers can purchase money orders in face amounts of up to $400 per
item. Upon payment of a fee, which is set by the agent, and the face amount of
the money order, the money order is electronically printed at the agent's
location and given to the consumer. MAMO charges the agent a per-item fee based
on volume and the agent's schedule for remitting the funds to MAMO.
MAMO's agent network is supported by product specialists who recruit and
train money order agents. MoneyGram's sales and account development team has
begun to seek additional outlets for the sale of money orders in MoneyGram's
existing agent base and newly signed money transfer agents.
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<PAGE>
MAMO's money order operations are located at its Louisville, Kentucky
facility. The Louisville facility handles all agent services and presented items
either through MAMO's own employees or pursuant to a processing arrangement with
Mid-America Data Processing, Inc.
International Transactions
Mexico
The Company's primary money transfer receive agent in Mexico is Banamex.
The agreement with Banamex allows the Company to process or pay United
States-to-Mexico MoneyGram money transfers only 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. The
agreement with Banamex is effective through April 17, 2002 and provides for an
automatic five year renewal unless either party notifies the other of its intent
to cancel 90 days prior to the end of the term. 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 transfer
service transactions on behalf of Western Union.
The Americas
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. The Company's
agent network in Latin America is increasing, with new MoneyGram agents in
Columbia, Ecuador, Guyana and Venezuela.
Europe, Asia and Africa
In February 1997, the Company and Thomas Cook Group Ltd. entered into a
joint venture to market and develop the MoneyGram money transfer service in
Europe, Asia, the Middle East and Africa. The Company and Thomas Cook control
51% and 49%, respectively, of the UK based joint venture company, MoneyGram
International Limited ("MIL"). In accordance with the joint venture agreement,
MIL is given responsibility in phases for specific countries covered by the
joint venture. As countries are put under MIL's control, certain revenue
generated in these countries is contributed to MIL. Effective March 1, 1998, the
Company and Thomas Cook agreed to amend the joint venture agreement to
accelerate the phase-in of specific countries.
In Europe, the Company has recently added MoneyGram agents in Greece, the
United Kingdom, Ireland, Sweden, Italy, Denmark and Finland.
Competition
The consumer money transfer and money order industries are highly
competitive. The principal methods of competition are advertising, price and
number and quality of agents and agent locations. The Company faces competition
from other consumer money transfer service providers as well as from other
payment products that offer consumers the ability to transfer funds to others.
Non-bank consumer money transfer services are provided primarily by two global
companies, MoneyGram and Western Union. MAMO's primary competitors are IPS,
Travelers Express and the United States Post Office.
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Recently, competition has increased in the money transfer industry 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 primarily in the Los Angeles to Mexico corridor, has
expanded its U.S. presence to other locations and is now owned by Western Union.
The Company faces additional competition from the U.S. Postal Service which is
offering a money transfer product to Mexico from California, Texas and Chicago.
Niche competitors who serve specific migratory corridors also compete with the
Company, including several Mexican banks that have begun to offer consumer money
wire transfer services from the United States to Mexico. Niche competitors are
able to focus on particular geographic corridors and avoid the expenses
associated with maintaining nationwide and worldwide agent networks.
The Company and MAMO also face competition from bank and non-bank
providers of other types of payment products and services, including money
orders, automated teller machines and similar retail electronic networks that
could allow consumers to transfer funds to others.
Proprietary Rights and Trademarks
The Company uses certain service marks in the Business, including
"MoneyGram," "The Better Way to Wire Money," "Wire Money in Minutes", "Money in
Minutes Worldwide" and "Money Well Sent - 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.
"MoneyGram" is registered in certain countries, including the United
States, and applications are pending to register the mark in substantially all
other countries in which the Company is conducting, or intends imminently to
conduct, business. In certain other countries, the trademark examiners initially
have refused to register "MoneyGram" on the grounds that it is merely
descriptive of the service. 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.
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. For
additional information, see "Background".
Regulation and Licensing
State Regulation
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, including money orders, obtain a license prior to
engaging in such businesses. 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
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outstanding payment obligations and many require the issuer to maintain a
minimum net worth and impose various reporting requirements.
The Company is licensed in all states which require a license and in the
District of Columbia and Puerto Rico. MAMO is also licensed in all such states
and the District of Columbia.
Federal Regulation
The Company, MAMO and their agents are subject to the Bank Secrecy Act
("BSA") and the Money Laundering Control Act ("MLCA"), which were adopted to
combat "money laundering". The BSA requires money transmitters and issuers of
money orders to maintain certain records, and verify the identity of customers
and file reports at certain transaction amounts. The MLCA criminalizes certain
transactions, including the transfer of funds and the purchase of money orders
using funds that were derived from certain specified unlawful activities.
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.
Although the business of consumer money 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.
Employees
The Company and its subsidiaries have approximately 720 employees,
including approximately 120 in sales and marketing, approximately 360 in
customer service center operations, and approximately 240 in operational,
general and administrative functions. None of the Company's or its subsidiaries'
employees are represented by a labor union, and the Company believes that its
employee relations are good.
ITEM 2. PROPERTIES.
The Company leases executive office and customer service center space at
7401 West Mansfield Avenue in Lakewood, Colorado and executive office space at
Park 80 West in Saddle Brook, New Jersey. The former is pursuant to a lease that
expires in April 2002 and the latter is pursuant to a lease that expires in
April 2003. MAMO subleases office space in Louisville, Kentucky pursuant to a
sublease that expires in January 2002.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a proposed class action commenced in the
United States District Court for the Central District of California on November
3, 1997 by Lidya Bueno and others. The action includes allegations that the
Company breached its contracts with the plaintiffs and has engaged in unfair and
fraudulent business practices, false advertising and discrimination, and seeks
money damages and injunctive relief. The Company believes that it has
meritorious defenses and intends to defend this action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of the Company's securityholders
during the quarter ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Shares are listed on the New York Stock Exchange, Inc.
("NYSE"). The following table sets forth, for the indicated calendar periods,
the reported high and low prices of the Common Shares on the NYSE Composite
Tape. The Common Shares have been listed on the NYSE since December 11, 1996.
1996 High Low
Fourth Quarter (December 11 through December 31) .. $ 14.50 $ 13.25
1997
First Quarter ..................................... $ 14.50 $ 6.875
Second Quarter..................................... $ 15.75 $ 8.375
Third Quarter...................................... $ 18.625 $ 14.50
Fourth Quarter..................................... $ 17.875 $ 8.50
1998
First Quarter (through March 20, 1998)............. $ 13.625 $ 10.375
At March 20, 1998, there were 138 holders of record of the Common Shares.
No dividends were paid on the Common Shares in 1997 or 1998.
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL AND OPERATING DATA
(UNAUDITED)
The following table sets forth selected financial data for the Company,
for years prior to 1997, 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 were 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 were not 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" and the financial statements appearing elsewhere in this document.
The financial and operating information for the years ended December 31, 1993
and 1994 are derived from unaudited financial statements not included in this
document.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Fee and other ....................... $113,637 $108,578 $ 94,242 $ 71,015 $ 48,815
Foreign exchange .................... 27,274 29,141 42,826 20,373 3,070
-------- -------- -------- -------- --------
Total revenues .................... 140,911 137,719 137,068 91,388 51,885
Expenses:
Agent commissions and amortization
of agent contract acquisition costs 52,851 44,255 34,801(1) 28,742 22,112
Processing costs .................... 26,702 23,930 24,542 15,334 12,361
Advertising and promotion ........... 28,091 29,113 33,822 19,523 13,708
Selling, service and general and
administrative .................... 25,457 16,745(2) 14,247(2) 8,378 6,900
-------- -------- -------- -------- --------
Total expenses .................... 133,101 114,043 107,412 71,977 55,081
Income (loss) before income taxes ...... 7,810 23,676 29,656 19,411 (3,196)
Net income (loss) ...................... $ 11,680 $ 14,631 $ 18,294 $ 12,176 $ (2,077)
Basic net income (loss) per
common share (3) ................. $ .70 $ .88 $ 1.10 $ .73 $ (.12)
Diluted net income (loss) per
common share ..................... $ .70 $ .88 $ 1.10 $ .73 $ (.12)
</TABLE>
- ----------
(1) Net of a $2.5 million commission rebate from Banamex received by the
Company during the first quarter of 1995.
(2) 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 1996.
(3) Gives effect to the Company's issuance to IPS of 16,624,900 common shares
prior to the IPO.
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Selected Financial and Operating Data
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Assets restricted to settlement of
MoneyGram transactions .................... $ 14,040 $ 11,287 $ 26,010 $ 20,927 $ 12,827
Fixed assets at cost, net of depreciation . 10,540 9,127 6,000 3,084 1,275
Costs of acquiring agent contracts,
net of amortization ....................... 15,943 18,175 7,979 3,401 1,956
Total assets ................................. 136,718 113,729 41,618 28,583 16,502
Total liabilities ............................ 35,556 24,299 40,449 35,411 17,358
Stockholders' equity (deficit) ............... 101,162 89,430 1,169 (6,828) (856)
Operating Data:
Number of MoneyGram agent
locations (at end of period) .............. 22.0 18.5 17.2 16.0 14.1
Number of transactions ....................... 5,867 5,781 5,393 3,285 2,040
</TABLE>
10
<PAGE>
QUARTERLY SUMMARY
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.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- --------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fee and other .............. $ 26,325 $ 29,503 $ 29,775 $ 28,034 $ 27,567 $ 29,686 $ 26,901 $ 24,424
Foreign exchange ........... 6.068 8,125 7,392 5,689 8,044 7,731 7,046 6,320
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues ......... 32,393 37,628 37,167 33,723 35,611 37,417 33,947 30,744
Expenses:
Agent commissions and
amortization of agent
contract acquisition
costs ................... 11,007 12,354 12,356 17,134 10,925 11,690 11,250 10,390
Processing ................. 6,025 6,440 6,289 7,948 6,411 5,873 5,576 6,070
Advertising and
promotion ............... 5,994 7,783 6,862 7,452 8,814 7,949 5,584 6,766
Selling and service ........ 3,059 2,723 2,792 2,439 2,221(1) 2,555(1) 2,869(1) 2,937
General and
administrative .......... 2,768 2,789 2,583 6,304 1,802 1,258 1,625 1,478
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses ......... 28,853 32,089 30,882 41,277 30,173 29,325 26,904 27,641
-------- -------- -------- -------- -------- -------- -------- --------
Income(loss) before income
taxes ................... 3,540 5,539 6,285 (7,554) 5,438 8,092 7,043 3,103
Income tax expense/(benefit) 1,380 2,209 2,483 (9,942) 2,083 3,099 2,676 1,187
-------- -------- -------- -------- -------- -------- -------- --------
Net income .................... $ 2,160 $ 3,330 $ 3,802 $ 2,388 $ 3,355 $ 4,993 $ 4,367 $ 1,916
======== ======== ======== ======== ======== ======== ======== ========
Basic net income per common
share (2) ................. $ .13 $ .20 $ .23 $ .14 $ .20 $ .30 $ .26 $ .12
Number of transactions ........ 1,282 1,572 1,550 1,463 1,505 1,481 1,400 1,395
</TABLE>
- ----------
(1) Includes costs and expenses related to obtaining consents from MoneyGram
agents to permit the assignment of their agent contracts to the Company of
$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.
(2) Gives effect to the Company's issuance to IPS of 16,624,900 common shares
prior to the IPO.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Revenues. The Company's revenues were $140.9 million in 1997 as compared
with $137.7 million in 1996. This was the net result of a 5% increase in fee
revenues, partially offset by a 6% decline in foreign exchange revenues.
Fee revenues increased to $113.6 million from $108.6 million in 1996.
Transactions were 5.87 million in 1997, up 1% from the 1996 level of 5.78
million. The first quarter of 1997 reflected a 15% decline in transactions from
the 1996 level; excluding the first quarter, transactions were 7% higher than
1996. The average overall fee per transaction increased 2%. The fee per
transaction for money transfers going to Mexico declined 9% as a result of a
price promotion that extended over ten months of 1997, versus a six-month
promotion in 1996. The fee revenue includes interest income of $1.7 million in
1997 as compared with $.4 million in 1996.
Foreign exchange revenues, most of which arise from U.S. to Mexico
transactions, declined to $27.3 million in 1997 from $29.1 million in 1996. This
was due mainly to a lower level of principal per transaction, a reduction in the
percent of spread and a decline in Mexican transactions.
Expenses. Agent commissions were $52.9 million in 1997 versus $44.3
million in 1996. This increase was due to higher levels of fee revenues, the
full year amortization of certain signing bonuses which were entered into during
1996 and loss reserves established for specific contracts with guaranteed
minimum commission payments. The loss reserves were for contracts entered into
prior to 1996 and which extend through the year 2000.
Processing expenses of $26.7 million in 1997 included $1.3 million of
reserves primarily for additional bad debts and the migration off the First Data
systems. Excluding the reserves, processing expenses were $25.4 in 1997, up 6%
from $23.9 million in 1996. This increase was mainly the result of a change in
the mix of transactions, with a trend towards a higher percentage of
international transactions, and higher operating costs associated with rent and
software licenses.
Advertising and promotion expense declined 4% to $28.1 million in 1997
from $29.1 million in 1996 primarily due to reduced costs associated with the
free phone call which is offered to MoneyGram customers with each transaction.
Selling and service expense increased 4% to $11.0 million from $10.6
million in 1996 as a result of the development of a separate stand-alone sales
and marketing force beginning in the second half of 1996.
General and administrative expenses of $14.4 million included $3.4 million
of costs associated with modifications to the corporate structure, including
operating under MoneyGram's own licenses, a severance reserve and certain asset
write-offs. Excluding these costs, general and administrative expenses were
$11.0 million as compared with $6.2 million in 1996. The increase in this
expense category is due to expenses associated with the public company status
and higher depreciation expense.
The Company recorded a benefit for income taxes of $3.9 million compared
with an income tax provision of $9.0 million in 1996. Included in the benefit is
a $6.9 million reversal of the valuation allowance associated with the Company's
deferred tax asset which was established at the time MoneyGram was divested by
First Data. Based on management's current judgement, it is more likely than not
that the Company will be able to fully utilize the entire value of the deferred
tax asset.
12
<PAGE>
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Revenues. The Company's revenues were $137.7 million in 1996 as compared
with $137.1 million in 1995. This was the result of a 15% increase in fee
revenues, partially offset by a decline in foreign exchange revenues.
Fee revenues increased to $108.6 million from $94.2 million in 1995. This
revenue growth was due to a 7% increase in transactions, to approximately 5.78
million transactions in 1996 from approximately 5.4 million transactions in 1995
and an 8% increase in the average fee per transaction that was attributable to a
lower level of price promotion during 1996. These growth factors were partially
offset by a lower average principal amount per transaction.
Foreign exchange revenues decreased 32% to $29.1 million in 1996 compared
with $42.8 million for 1995. The foreign exchange revenue during 1995 was
unusually high primarily due to the volatility of the Mexican peso during this
period. The Mexican government has taken steps to stabilize the economy and
alleviate the political unrest and as a result, the peso was less volatile in
late 1995 and during 1996. In addition, the average principal per transaction
declined, resulting in less foreign exchange revenue.
Expenses. Agent commissions increased 27% to $44.3 million in 1996 from
$34.8 million in 1995. This increase was mainly due to the higher level of fee
revenue (15%) and agent rebates associated with the 1995 price promotions.
Although transaction volume increased, total processing expenses decreased
2% to $23.9 million in 1996 from $24.5 million in 1995, primarily due to
operational efficiencies and reduced telecommunications expense.
Advertising and promotion expenses decreased 14% to $29.1 million in 1996
from $33.8 million in 1995. This was due to a decrease from the unusually high
advertising and discretional promotional expenses incurred in 1995.
Selling and service expenses increased 41% to $10.6 million in 1996 from
$7.5 million in 1995. This was attributable to an increase in the number of
sales and service employees hired to expand and support the agent network as a
separate entity. During the first nine months of 1996, the Company incurred
approximately $500,000 in salaries, commissions and out-of-pocket expenses
related to obtaining consents from agents to permit the assignment of their
contracts to the Company upon its attaining licenses as a separate entity.
General and administrative expenses decreased 8% to $6.2 million in 1996
from $6.7 million in 1995 as a result of certain costs being attributable
directly to the IPO.
Capital Resources and Liquidity
Total assets increased $23 million, to $136.7 million in 1997 from
$113.7 million in 1996. This increase primarily consists of a $10.8 million
increase in cash and marketable securities, a $5.8 million increase in the
deferred tax asset and a $2.8 million increase in restricted assets.
Total cash and cash equivalents was $20.5 million at December 1997 and
$18.0 million at December 1996. In prior years all available cash was
transferred to Integrated Payment Systems, Inc., as a return of capital. In 1997
the Company began investing in securities with maturities in excess of three
months to achieve a more favorable rate of return. At December 1997, $8.3
million was classified as Investments available for sale.
Cash flow from operations was $19.5 million in 1997 as compared with $17.1
million in 1996 and $21.4 million in 1995. The improvement in 1997 was partially
due to the utilization of the deferred tax asset to reduce tax payments.
Cash used for investing activities was $17.0 million in 1997 as compared
with $20.2 million in 1996 and $11.1 million in 1995. During 1996, $13.1 million
was paid to existing agents for extending the terms of their contracts by an
average of five years. In 1997, $8.2 million of Investments available for sale
were purchased and separately classified on the balance sheet.
13
<PAGE>
In 1996, IPS contributed $12 million as per the Contribution Agreement, as
defined in Note 1 to the financial statements, and assumed certain obligations
of the Company, both of which generated positive cash flows of $21.1 million.
The Company has relied primarily on cash flows from operating activities
to support its capital investment program. Management expects that future
recurring capital needs will be largely met by funds generated from operating
activities. The Company signed a $20 million credit line in October 1997; to
date there have been no draw-downs on this credit line.
Impact of Year 2000
The year 2000 issue is the result of computer programs being written using
two (2) digits rather than four (4) to define the applicable year. Any of the
Company's computer programs that have time-sensitive logic may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations including
among other things, a temporary inability to process transactions, which could
have a material impact on the operations of the Company.
Based upon recent assessments, the Company has determined that it will be
required to modify or replace significant portions of its existing computer
systems not only to meet the year 2000 issue, but to insure that it has
technology to meet the changing needs of the market place. The Company will
utilize both internal and external resources to replace its existing systems
mainly through software packages currently available, including customized
modifications, in addition to some modifications to existing software. The new
packages will be year 2000 compatible; any modification to existing software
will require special programming to make them year 2000 compatible.
The Company has initiated communications with all its significant
technology service providers and large agents to determine the extent to which
the Company's interface systems are vulnerable to those third parties failure to
address their own year 2000 issues. The Company's year 2000 project cost and
estimates to complete include the estimated costs and time associated with the
required implementations, based upon available information. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be converted and would not have an adverse effect on the
Company's systems.
The Company anticipates completing the modernization of its systems within
eighteen (18) months, but not later than October 1999, which is prior to any
anticipated impact on its operating systems. The cost of the new systems,
including all reprogramming, is estimated at $5-8 million over the period.
The cost of the project and the date on which the Company believes it will
complete the year 2000 implementation are based on management's best estimates
which were derived utilizing numerous assumptions of future events, including
the substantial reliance upon third parties. There can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences,
include but are not limited to, the availability of trained personnel, the
ability to locate and correct all relevant computer code, for those portions of
the system not being replaced, and similar uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Financial Statements, together with the report thereon of Ernst &
Young LLP, dated March 12, 1998, on pages 18 through 30 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the Proxy Statement for the Company's 1998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Index to Financial Statements:
The Financial Statements and the notes thereto, together with
the report thereon of Ernst & Young LLP, dated March 12, 1998,
appear on pages 18 through 30 of this Report. Financial
statement schedules not included in this Report have been
omitted because they are not applicable or the required
information is shown on the Financial Statements or notes
thereto.
(a) (2) Financial Statement Schedules:
None
15
<PAGE>
(a) (3) Exhibits:
The following exhibits are filed as part of this Annual Report
or, where indicated, were heretofore filed and are hereby
incorporated by reference.
2.1 Contribution Agreement, dated as of December 10, 1996, among the
Company, IPS and First Data (incorporated herein by reference to
Exhibit 2.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, the "1997 10-K").
2.2 Stock Purchase Agreement dated August 4, 1997 between
Mid-America Bancorp and the Company (incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K dated
January 8, 1998).
3.1 Certificate of Incorporation of the Company, as amended to date
(incorporated herein by reference to Exhibit 3.1 of the
Company's Registration Statement No. 333-228).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement No. 333-228).
10.1 Operations Agreement, dated as of December 10, 1996, among the
Company, IPS and First Data Technologies, Inc. (incorporated
herein by reference to Exhibit 10.1 of the 1997 10-K).
10.2 Software License Agreement, dated as of December 10, 1996,
between the Company and IPS (incorporated herein by reference to
Exhibit 10.2 of the 1997 10-K).
10.3 Service Mark Letter Agreement, dated as of December 10, 1996,
among Western Union, First Data and the Company which includes
the Service Mark License Agreement among such parties as an
exhibit thereto (incorporated herein by reference to Exhibit
10.3 of the 1997 10-K).
10.4 Human Resources Agreement, dated as of December 10, 1996, among
the Company, IPS and First Data (incorporated herein by
reference to Exhibit 10.4 of the 1997 10-K).
10.5 Telecommunications Services Sharing Agreement, dated as of
December 10, 1996, between the Company and First Data
(incorporated herein by reference to Exhibit 10.5 of the 1997
10-K).
10.6 Agreement among American Express Travel Related Services
Company, Inc., Banamex and California Commerce Bank, as amended
(subject to a request for confidential treatment pursuant to
Rule 406 of the Securities Act) (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement No.
333-228).
10.7 1996 Stock Option Plan of the Company (incorporated herein by
reference to Exhibit 10.7 of the 1997 10- K).
10.8 1996 Broad-Based Stock Option Plan (incorporated herein by
reference to Exhibit 10.8 of the 1997 10-K).
10.9 Lease Agreement between the Company and the Mutual Life
Insurance Company of New York in respect of certain facilities
located in Lakewood, Colorado (incorporated by reference to
Exhibit 10.10 the Company's Registration Statement No. 333-228).
10.10 Letter Agreement between the Company and Western Union regarding
Banamex (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement No. 333-228).
16
<PAGE>
10.11 Executive Retention Plan, dated May 15, 1997, as amended to date
(incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10Q for the quarter ended June 30,
1997).
10.12 Service Agreement, dated November 25, 1997, as amended, between
the Company and Advantis Corporation (portions of which are
subject to a request for confidential treatment pursuant to
Rule 24b-2 of the Exchange Act).
23.1 Consent of Independent Auditors.
(b)(1) Reports on Form 8-K:
The Company filed the following reports on Form 8-K for the
quarter ended December 31, 1997:
Date Item
---- ----
October 22, 1997 5
December 3, 1997 5
December 24, 1997 5
27. Financial Data Schedule.
17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To The Board of Directors and Stockholders of
MoneyGram Payment Systems, Inc.
We have audited the accompanying balance sheets of MoneyGram Payment
Systems, Inc. (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 12, 1998
18
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
ASSETS 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................. $ 20,540 $ 17,996
Investments available for sale ........................................ 8,300 --
Assets restricted to settlement of MoneyGram transactions ............. 14,040 11,287
Fee revenue receivable ................................................ 2,567 587
Receivable from IPS ................................................... 3,105 3,659
Prepaid and other current assets ...................................... 638 648
-------- --------
Total current assets .................................................. 49,190 34,177
Fixed assets at cost, net of depreciation: 1997 - $8,472; 1996 - $7,911 ......... 10,540 9,127
Deferred tax asset (Note 3) ...................................................... 58,090 52,250
Other assets ..................................................................... 2,955 --
Costs of acquiring agent contracts, net of amortization:
1997 - $9,704; 1996 - $4,903 .......................................... 15,943 18,175
-------- --------
Total assets ..................................................................... $136,718 $113,729
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Liabilities relating to unsettled MoneyGram transactions .............. $ 14,040 $ 11,287
Accounts payable and accrued liabilities .............................. 12,324 5,726
Commissions payable ................................................... 6,523 7,286
-------- --------
Total current liabilities ............................................. 32,887 24,299
Other obligations ................................................................ 2,669 --
Stockholders' Equity:
Common stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 16,625,000 shares ....................................... 166 166
Capital surplus ....................................................... 85,089 85,089
Valuation allowance ................................................... 52 --
Retained earnings ..................................................... 15,855 4,175
-------- --------
Total stockholders' equity ............................................ 101,162 89,430
-------- --------
Total liabilities and stockholders' equity ....................................... $136,718 $113,729
======== ========
</TABLE>
See accompanying notes
19
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Fee revenue, net of refunds ................. $ 113,637 $ 108,578 $ 94,242
Foreign exchange ............................ 27,274 29,141 42,826
--------- --------- ---------
Total revenues ........................ 140,911 137,719 137,068
--------- --------- ---------
Expenses:
Agent commissions and amortization of
agent contract acquisition costs ............ 52,851 44,255 34,801
Processing .................................. 26,702 23,930 24,542
Advertising and promotion ................... 28,091 29,113 33,822
Selling and service ......................... 11,013 10,582 7,525
General and administrative .................. 14,444 6,163 6,722
--------- --------- ---------
Total expenses ........................ 133,101 114,043 107,412
--------- --------- ---------
Income before income taxes ........................ 7,810 23,676 29,656
Income tax expense/(benefit) (Note 3) ............ (3,870) 9,045 11,362
--------- --------- ---------
Net income ........................................ $ 11,680 $ 14,631 $ 18,294
========= ========= =========
Basic net income per common share ................. $ .70 $ .88 $ 1.10
Diluted net income per common share ............... $ .70 $ .88 $ 1.10
Weighted average shares and equivalents outstanding 16,701 16,630 16,625
</TABLE>
See accompanying notes
20
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 11,680 $ 14,631 $ 18,294
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense ..................... 8,323 6,910 3,762
Deferred tax asset ........................................ (5,840) -- --
Other noncash charges ..................................... 330 192 (22)
Changes in operating assets and liabilities:
Assets restricted to settlement of
MoneyGram transactions ..................... (2,753) 14,723 (5,083)
Accounts receivable ................................. (1,980) 578 (255)
Receivable from IPS ................................. 554 (3,659) --
Prepaid and other assets ............................ (2,028) (377) (181)
Liabilities relating to unsettled MoneyGram
transactions ........................................ 2,753 (14,723) 5,083
Accounts payable and other liabilities .............. 8,470 (1,177) (189)
-------- -------- --------
Net cash provided by operating activities ................. 19,509 17,098 21,409
-------- -------- --------
Cash flows from investing activities:
Purchase of investments available for sale ................ (8,214) -- --
Purchase of equipment and signage ......................... (6,205) (7,095) (4,638)
Costs of acquiring agent contracts ........................ (2,546) (13,137) (6,474)
-------- -------- --------
Net cash used for investing activities .................... (16,965) (20,232) (11,112)
-------- -------- --------
Cash flows from financing activities:
Net transfer from (to) IPS ................................ -- 21,130 (10,297)
-------- -------- --------
Net cash provided(used) by financing activities ........... -- 21,130 (10,297)
-------- -------- --------
Net increase in cash and cash equivalents ................. 2,544 17,996 --
Cash and cash equivalents at beginning of year ............ 17,996 -- --
-------- -------- --------
Cash and cash equivalents at end of year .................. $ 20,540 $ 17,996 $ --
======== ======== ========
</TABLE>
No cash was paid for taxes, except for payments to IPS, in 1996 and 1995. In
1997 taxes of $3.6 million were paid in cash.
There was no interest paid in 1995, 1996 or 1997.
See accompanying notes
21
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained
Earnings/ Stockholders'
Common Capital (Accumulated Valuation Equity/
Stock Surplus Deficit) Allowance (Deficit)
----- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
Net income -- -- 14,631 -- 14,631
Capital contribution from IPS -- 21,130 -- -- 21,130
Deferred tax asset -- 52,500 -- -- 52,500
---- ------- ------- ---- --------
Balance December 31, 1996 166 85,089 4,175 -- 89,430
Net income -- -- 11,680 -- 11,680
Adjustment -- -- -- 52 52
---- ------- ------- ---- --------
Balance December 31, 1997 $166 $85,089 $15,855 $ 52 $101,162
==== ======= ======= ==== ========
</TABLE>
See accompanying notes
22
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Background and Basis of Presentation
Background
MoneyGram Payment Systems, Inc. (the "Company" or "MoneyGram") is a
non-bank provider of consumer money wire transfer service. MoneyGram targets its
services to individuals without traditional banking relationships.
The Company was until December 11, 1996 (the date of the MoneyGram IPO,
"the IPO Date"), a wholly owned subsidiary of Integrated Payment Systems Inc.
("IPS"), which is a wholly owned subsidiary of First Data Corporation ("First
Data"). IPS managed the payment instruments business, which included the
MoneyGram business ("the Business"). MoneyGram's financial statements have been
prepared as if it were the issuer of the payment instruments.
In October 1995, First Data consummated a merger transaction with First
Financial Management Corporation whose subsidiary Western Union Financial
Services, Inc. ("Western Union"), provides money transfer services similar to
MoneyGram. In January 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 was allowed to perform processing
services for both MoneyGram and Western Union, but it was permitted to retain
the sales and marketing functions of only one of the two businesses. In
addition, First Data and the FTC entered into a "hold separate" agreement
whereby the Business was to 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
required that, prior to consummation of the divestiture, IPS expend not less
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 required that, during the hold separate period, IPS pay the
MoneyGram sales force 120% of the standard 1995 sales commission rates. The hold
separate arrangement continued until the IPO Date.
First Data decided to comply with the divestiture requirements of the
consent decree through a public stock offering of the Company's common stock 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 Company just prior to the completion of
the IPO 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, 1995 and the assets and liabilities are
reflected therein at their historical cost basis. The MoneyGram 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 MoneyGram'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 contributed $12 million in cash to the Company and
paid certain liabilities prior to the IPO Date. Such capital contributions are
reflected in the Company's 1996 financial statements.
In conjunction with the Offering, the Company, IPS and affiliates of IPS
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"), a service mark letter agreement (the
"Service Mark Letter Agreement"), 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
23
<PAGE>
additional support services. These services are 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 could borrow from
time-to-time, on a revolving, unsecured basis. The Facility was terminated in
1997 without being drawn down. 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 IPO Date 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 provided 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, 1995. 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, through the IPO Date.
The following paragraphs set forth the methodologies and assumptions utilized in
preparing the accompanying financial statements for periods prior to the IPO
date.
Balance Sheets
The balance sheet caption "Liabilities relating to unsettled MoneyGram
transactions" represents the principal value of all unsettled MoneyGram
transactions where the recipients have not yet picked up their funds. Specific
fiduciary assets maintained by IPS for MoneyGram and the consequent amounts due
from IPS relative to the unsettled MoneyGram transactions liability are included
in the accompanying balance sheet under the caption "Assets restricted to
settlement of MoneyGram transactions".
Statement of Operations
The statement of operations reflects revenues and related commission
expenses that were 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.
Until the IPO Date, 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
provided for the capturing of costs on a functional cost center basis. Certain
cost centers relate exclusively and others relate substantially to the MoneyGram
service, and have been allocated accordingly, to the Company. The expenses,
included in the accompanying statements of operations, attributable to these
cost centers amounted to $25.4 million, and $26.0 million for the years ended
December 31, 1996, and 1995 respectively. These expenses relate principally to
IPS' two customer service centers and other processing costs. The remaining
$15.7 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
related to legal, finance, 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. The allocated expenses in the accompanying statement of
operations include allocations from First Data and affiliates of $2.3 million
and $3.9 million for the years ended December 31, 1996 and 1995, respectively.
The First Data allocations relate principally to the Company's estimated
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 the Company for data processing
services provided by First Data Technologies, Inc., a wholly owned subsidiary of
First Data, of $2.1 million and $2.2 million for the years ended December 31,
1996 and 1995, respectively. The statements of operations do not include any
allocations of First Data general and administrative expenses as such costs were
not considered to be variable as a result of the Company's
24
<PAGE>
operations. Management of the Company believes that costs have been determined
and allocated on a reasonable basis. The Company's expenses, as reflected in the
accompanying statements of operations, were not materially affected as a result
of its becoming a stand-alone entity and its execution of the Contribution
Agreement, the Operations Agreement and the Facility, but do reflect additional
costs incurred as a result of becoming a separate public company.
2. Summary of Significant Accounting Policies
Revenue Recognition
Fee revenue, net of refunds, 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 are expensed as incurred; the agent
guaranteed commissions are included when the agent does not achieve the
guaranteed amount.
Diluted Net Income Per Share
Diluted net income per common share is computed using the weighted-average
number of common shares and common share equivalents outstanding during each
period. Common share equivalents represent the effect of outstanding stock
options. Prior years have been restated to conform with SFAS 128, "Earnings per
Share."
Cash and Cash Equivalents
The Company has classified as cash equivalents its investments in the
highest grade federal government discount notes, and commercial paper with an
original maturity of three months or less.
Investments Available for Sale.
The securities are stated at fair value with the unrealized gains or
losses (net of taxes) being reported in a separate component of stockholder's
equity.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are comprised of personal computers, equipment,
furniture and fixtures, leasehold improvements and agent signage. These assets
are depreciated over their estimated useful lives ranging from 3 to 8 years.
Depreciation is computed using the straight-line method.
Advertising and Promotional Expense
The Company records advertising and promotional expense based on actual
expenses incurred.
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).
25
<PAGE>
Other Obligations
Included are the impairment reserves for underperforming agent contracts
with guaranteed minimum future commission payments. These reserves will be
partially used to offset the payments to agents for a two year period.
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 the
accompanying notes. Actual results could differ from those estimates.
3. Income Taxes
The Company has accounted for income taxes under the liability method. The
taxable income of the Company for the periods up to the IPO Date 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, through the IPO date, has been computed as if it
were a separate tax-paying entity. The Company is a separate tax-paying entity
for periods subsequent to the IPO Date.
For periods prior to 1997 there was no formal tax-sharing agreement
between the Company, IPS and First Data, however, First Data subsidiaries
remitted current taxes payable to First Data and they were entitled to
reimbursement from First Data for current tax benefits. The provision for income
taxes, for periods prior to the IPO Date, was 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 1995 have been recorded in
those years. As a result, the accompanying financial statements do not reflect
any benefit for utilization of tax loss carry forwards.
As a result of the IPO, the tax basis (for federal income tax purposes) of
the MoneyGram assets has increased from their tax basis in the hands of IPS to
their fair market value at the IPO Date (determined by reference to the initial
public offering price). Such tax treatment will 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. Pursuant to the requirements of SFAS No. 109
the Company recorded a deferred tax asset (with a corresponding credit to
capital surplus) for the tax effect of the excess of the MoneyGram assets
following the Contribution over their net book value. The amount of the deferred
tax asset that was recorded at the IPO Date was reduced by a valuation
allowance. Based on management's current judgement, it is now more likely than
not that the Company will be able to fully utilize the full value of this asset
and thus the valuation allowance was reversed in the fourth quarter of 1997.
26
<PAGE>
The income tax expense (benefit) consists of the following (in thousands):
Year ended December 31,
----------------------------------
1997 1996 1995
------- ------- -------
Current federal ........................ $ 1,640 $ 7,667 $ 9,850
Current state and local ................ 330 1,128 1,512
Deferred taxes - federal ............... (4,867) 250 --
Deferred taxes - state and local ....... (973) -- --
------- ------- -------
Total .................................. $(3,870) $ 9,045 $11,362
======= ======= =======
Deferred income taxes result from the recognition of temporary differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements. This will result in differences between income for tax
purposes and income for financial statement purposes in future years. The
deferred tax provision was immaterial for 1995. As a result of the IPO in
December 1996, MoneyGram was no longer included in the consolidated U.S. federal
income tax return of First Data. The primary component of the Company's deferred
tax assets as of December 31, 1997 and 1996, on a stand alone basis, results
from the differences in book and tax depreciation and amortization ($55.2
million and $52.3 million, respectively) and reserves not yet deducted for tax
purposes ($2.9 million in 1997).
The reconciliation of income tax computed at the U.S. federal statutory
tax rate to income tax (benefit) expense is (in thousands):
Year ended December 31,
----------------------------
1997 1996 1995
------- ------- -------
Tax at U.S. statutory rate ...................... $ 2,733 $ 8,287 $10,379
Increases in taxes resulting from State and local
taxes, net of federal income tax benefit .... 335 758 983
Decrease in valuation allowance ................. (6,938) -- --
------- ------- -------
Income tax expense (benefit) ............. $(3,870) $ 9,045 $11,362
======= ======= =======
4. Investments Available for Sale
The following is a summary of the available-for-sale securities as of
December 31, 1997:
(in thousands)
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------ ------ ------
Bankers acceptance notes .............. $4,867 81 -- $4,948
Other obligations of U.S. government
agencies ......................... 2,788 10 -- 2,798
U.S. corporate debt instruments ....... 559 -- (5) 554
------ ------ ------ ------
Total ................................. $8,214 91 (5) $8,300
====== ====== ====== ======
All investments available for sale have current maturity dates of three to
twenty-three months.
27
<PAGE>
5. Retirement Plans and Retiree Medical Benefits
MoneyGram maintains a defined contribution savings plan which covers all
of the Company's full-time employees. The plan provides for tax deferred amounts
for each participant, consisting of employee elective contributions and
additional matching and discretionary Company contributions. The aggregate
amounts charged to expense in connection with this plan was $.4 million in 1997.
Prior to December 1996, MoneyGram employees were covered under First Data's
defined contribution plan. 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.
The Company does not provide to its retirees any form of health care or
life insurance benefits, other than those benefits required by law. Any benefits
provided will be fully paid for by the retirees without any corporate subsidy.
6. Operating Lease Commitments
Certain facilities and operating equipment utilized in the operations of
the Business are leased under cancelable and noncancelable agreements. Rental
expense amounted to $1.0 million in 1997, and $0.8 million for both 1996 and
1995, respectively. Future minimum lease payments at December 31, 1997 are $1.0
million for 1998, $1.1 million for 1999 and 2000, $1.2 million for 2001 and $.6
million for 2002. Certain leases on office space contain renewal options and
escalation clauses providing for additional rentals based upon maintenance,
utility and tax increases.
7. Commitments and Contingencies
In certain instances, MoneyGram agents have been guaranteed minimum
commissions. As of December 31, 1997, the remaining maximum commitment amounts
to approximately $55.4 million as follows on a calendar year basis: 1998--$15.4
million; 1999--$16.8 million; 2000--$17.3 million; 2001--$3.9 million and
2002--$2.0 million. Historically, MoneyGram's volume growth has been sufficient
to mitigate required performance under these guarantees, and net payments under
these guarantees amounted to $5.1 million, $3.2 million and $1.3 million during
the years ended December 31, 1997, 1996 and 1995, respectively.
MoneyGram is involved in litigation primarily arising in the normal course
of its business. In the opinion of management, MoneyGram's liability, if any,
under any pending litigation would not materially affect the Company's financial
condition or operations.
The Company currently offers its customers a free three minute phone call
with most transactions. In addition, the Company sells phone cards through its
agents. During 1996, the Company entered into a three year agreement with a
telecommunications provider for voice telephone services, guaranteeing $14
million in usage by July 2000. An amendment to this agreement has been signed
which will terminate the original agreement, including the guarantee portion,
effective March 1998, without any penalty to the Company. A contract has been
signed with a new telecommunications provider. This agreement will not require
any guaranteed usage levels or minimum payments.
28
<PAGE>
8. Fixed Assets
The details of fixed assets are as follows:
(in thousands)
1997 1996
---------- ----------
Gross assets:
Leasehold improvements ................. $ 1,288 $ 1,132
Agent signs ............................ 3,034 5,610
Computer related equipment ............. 13,301 9,480
All other .............................. 1,389 816
---------- ----------
Total gross assets ..................... 19,012 17,038
Less accumulated depreciation .............. 8,472 7,911
---------- ----------
Net fixed assets ........................... $ 10,540 $ 9,127
========== ==========
9. Stock Options
In connection with the IPO, the Board of Directors of the Company adopted,
and IPS as the Company's sole stockholder approved, 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. The exercise price of the options granted
is equal to the common stock's fair market value at the date of grant. The
exercise price for all options outstanding is $9.50-$12.50, with 1.1 million of
options exercisable at $12. Options are vested at a rate of 25 percent per year
over a four year period from the date of grant. Options for 271,000 shares are
exercisable, at $12, as of December 31, 1997. A summary of the changes in the
plans is as follows:
1997 1996
---------- ----------
Options Outstanding at beginning of year 1,162,325 --
Granted 98,750 1,162,575
Cancelled (79,463) (250)
---------- ----------
Outstanding at end of year 1,181,612 1,162,325
========== ==========
The Company has elected to follow APB No. 25 and its related
interpretations in accounting for its stock-based compensation plans. No
compensation cost has been recognized in the Statements of Operations for the
stock options granted. The disclosure requirements of SFAS No. 123 require
companies which do not record the fair value in the statements of operations to
provide pro forma disclosures of net income and earnings per share in the notes
to the financial statements as if the fair value of the stock-based compensation
had been recorded.
The Company utilized a Black-Scholes option pricing model to quantify the
pro forma effect on net income and earnings per share of the fair value of the
options granted. Based on the results of the model, the value of the options
granted is $153,000 in 1997 and $308,000 in 1996. The following weighted
assumptions were used in 1997: no annual dividends, an expected life of 5 years,
expected volatility of 58% and a risk-free interest rate of 5.6%. The Company's
pro forma net income would have been $11.6 million and $14.4 million in 1997 and
1996 respectively, compared to actual net income of $11.7 million and $14.6
million respectively; pro forma earnings per common share would have been $.70
compared to $.70 and $.87 compared to $.88.
On December 24, 1997, the Board of Directors of the Company approved the
repurchase of up to 800,000 shares of its common stock. As of December 31, 1997
there were no repurchases. In the first quarter of 1998, the Company repurchased
111,200 shares.
29
<PAGE>
10. 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 is that a selling agent fails 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 to ensure compliance. The
agents are required to deposit daily the principal and fees received the prior
day into a trust account, and these funds are drawn down daily by MoneyGram.
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.
Approximately 48%, 55% 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 1997, 1996 and 1995, respectively. The Mexican receive agent for
substantially all of these transactions is a major Mexican financial institution
operating under the terms of a contract expiring in April 2002.
11. Subsequent Events (unaudited)
On January 8, 1998, the Company purchased, for cash, the stock of
Mid-America Money Order Company ("MAMO") from Mid-America Bancorp for $15.6
million. MAMO is engaged in the sale of retail money orders through a nationwide
agent network.
A summary of MAMO's unaudited financial data for the year ended December
31, 1997, is as follows:
$ Millions
----------
Revenue $ 5.6
Operating expense 3.7
-----
Income before income taxes 1.9
=====
Net income $ 1.1
=====
Cash and cash equivalents $38.1
Other assets 4.9
-----
Total assets $43.0
=====
Money orders outstanding $32.5
Other liabilities .5
Stockholder's equity 10.0
-----
Total liabilities and
stockholder's equity $43.0
=====
During the first quarter of 1998, the Company has successfully transferred
its data processing from First Data to a computer facility provided by IBM
Global Network Services. Additionally, the Company now operates under licenses
issued in its own name, completing the separation from First Data.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
MoneyGram Payment Systems, Inc.
(Registrant)
By: /s/ James F. Calvano
-----------------------------
James F. Calvano
Chairman of the Board and
Chief Executive Officer
March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ James F. Calvano Chairman of the Board and March 30, 1998
- ------------------------------ Chief Executive Officer
James F. Calvano (Principal Executive Officer)
/s/ Robbin L. Ayers Director and Executive Vice President March 30, 1998
- ------------------------------
Robbin L. Ayers
/s/ John M. Fowler Director, Executive Vice President, March 30, 1998
- ------------------------------ Chief Financial Officer and Treasurer
John M. Fowler (Principal Financial and Accounting Officer)
/s/ Brian J. Fitzpatrick Director March 30, 1998
- ------------------------------
Brian J. Fitzpatrick
/s/ William D. Guth Director March 30, 1998
- ------------------------------
William D. Guth
/s/ Sanford Miller Director March 30, 1998
- ------------------------------
Sanford Miller
</TABLE>
31
[Logo of Advantis] Customer Agreement [Logo]
- --------------------------------------------------------------------------------
Advantis is a New York corporation having its principal office at 231 North
Martingale Road, Schaumburg, Illinois 60173-2254.
Thank you for doing business with us. We are committed to providing you with the
highest quality Services and Products. If, at any time, you have any questions
or problems, or are not completely satisfied, please let us know. Our goal is to
do our best for you.
This Advantis Customer Agreement (called the "Agreement") covers the major
business transactions we may do with you, including:
(a) provision of Services; and
(b) license of Programs.
Advantis Services and special options such as certain licensed Programs, special
Services, custom solutions, and volume discounts are described in Transaction
Documents. We will provide you with the appropriate Transaction Documents.
This Agreement and its applicable Attachments and Transaction Documents are the
complete agreement regarding these transactions, and replace any prior oral or
written communications between us.
By signing below for our respective Enterprises, each of us agrees to the
terms of this Agreement. Once signed, 1) any reproduction of this Agreement,
an Attachment, or Transaction Document made by reliable means (for example,
photocopy or facsimile) is considered an original and 2) all Services and
Products you order under this Agreement are subject to it.
Agreed to: (Enterprise name) Agreed to:
MoneyGram Payment Systems, Inc. Advantis Corporation
By /s/ Alan H. Friedman By /s/ [ILLEGIBLE]
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
Name (type or print) Alan H. Friedman Name (type or print)
Date: Date:
Enterprise number: Advantis Customer Agreement number:
Enterprise Address:
7401 West Mansfield Avenue
Lakewood, CO 80235
- --------------------------------------------------------------------------------
After signing, please return a copy of this Agreement to the following address:
Advantis
3405 W. Dr. M. L. King Jr. Blvd.
Tampa, FL 33607
Attention: Order Support Services
- --------------------------------------------------------------------------------
Page 1 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Table of Contents
- --------------------------------------------------------------------------------
Section Title Page
Part 1 - General ................................ 3
1.1 Definitions ............................ 3
1.2 Agreement Structure .................... 4
1.3 Electronic Communications .............. 5
1.4 Prices and Price Changes ............... 5
1.5 Invoicing, Payment, and Taxes .......... 6
1.6 Patents and Copyrights ................. 6
1.7 Limitation of Liability ................ 7
1.8 Your Additional Rights ................. 7
1.9 Changes to and Termination of Services . 7
1.10 Changes to the Agreement Terms ......... 8
1.11 Agreement Termination .................. 8
1.12 Geographic Scope ....................... 8
1.13 Governing Law .......................... 8
1.14
1.15 Notice ................................. 8
Part 2 - Responsibilities of the Parties ........ 9
2.1 Mutual Responsibilities ................ 9
2.2 Our Responsibilities ................... 9
2.3 Your Other Responsibilities ............ 9
Part 3 - Warranties ............................. 11
3.1 The Advantis Warranties ................ 11
3.2 Extent of Warranty ..................... 11
3.3 Items Not Covered by Warranty .......... 11
Part 4 - Equipment Provided by Advantis ......... 12
Part 5 - Customer Transmitted Data .............. 13
Page 2 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Part 1 - General
- --------------------------------------------------------------------------------
1.1 Definitions
End User is any party whom you authorize, by any means, for example, a
User Identification, to access a Service. It also means any party whom you
authorize to access programs, data, or equipment within a Service.
Enterprise is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent. The term "Enterprise"
applies only to the portion of the enterprise located in the United States
or Puerto Rico.
Equipment is a machine, its features, conversions, upgrades, elements, or
accessories, or any combination of them. The term "Equipment" includes
Advantis Equipment and any non-Advantis Equipment we provide to you.
Materials are work product (such as programs, program listings,
programming tools, documentation, reports, and drawings) that we may
deliver to you during a project. The term "Materials" does not include
Programs.
Product is a Program or Equipment.
Program is the following, including features and any whole or partial
copies:
1. machine-readable instructions;
2. a collection of machine-readable data, such as a data base; and
3. related licensed materials, including documentation and listings, in
any form.
The term "Program" includes an Advantis Program and any non-Advantis
Program that we may provide to you. The term does not include licensed
internal code or Materials.
Services are described in Transaction Documents and include access to, and
use of, Equipment, programs, networking facilities, and associated
enhanced communication and support services. Except for the right to use
programs that we authorize you to access through the Services, we grant no
other rights to those programs to you or End Users.
Start Date of a Service is the day on which we make it available to you.
System is the Services and Products we provide together under this
Agreement that we identify to you as a "System."
User Identification is a code or codes which enable authorization or
access to programs, data, or equipment through a Service.
Page 3 of 13
<PAGE>
1.2 Agreement Structure
Attachments
Some Services and Products have terms in addition to those we specify in
this Agreement. We provide the additional terms in documents called
"Attachments," which are also part of this Agreement. For example, we
describe the additional terms for Programs in an Attachment. We make the
Attachments available to you for signature.
Transaction Documents
For each business transaction, we will provide to you the appropriate
"Transaction Documents" that confirm the details of the transaction. Some
Transaction Documents require signature, and others do not. Supplements
are an example of Transaction Documents that must be signed by both of us.
Supplements may contain descriptions of custom solutions and associated
special charges or descriptions of project schedules, responsibilities,
and associated charges. Exhibits and Fee Schedules are unsigned
Transaction Documents that explain in detail standard Services, Programs,
and associated charges.
Conflicting Terms
If there is a conflict among the terms in the various documents, those of
an Attachment prevail over those of this Agreement. The terms of a
Transaction Document prevail over those of both of these documents.
Your Order
You may order a Service or Product by various means, including a request
written on paper and delivered to us, a request sent via facsimile to us,
and a request sent via electronic communications to us.
Our Acceptance of Your Order
A Service or Product becomes subject to this Agreement when we accept your
order by doing any of the following:
1. sending you a Transaction Document;
2. making the Service available; or
3. shipping the Product.
Your Acceptance of Additional Terms
You accept the additional terms in an Attachment or Transaction Document
by doing any of the following:
1. signing it;
2. using the Service or Product, or allowing others to do so; or
3. making any payment for the Service or Product.
Page 4 of 13
<PAGE>
1.3 Electronic Communications
Each of us may communicate with the other by electronic means, such as
IBM(R) Mail Exchange and Information Exchange. Each of us agrees to the
following for all electronic communications:
1. a User Identification contained in an electronic document is legally
sufficient to verify the sender's identity and the document's
authenticity;
2. an electronic document that contains a User Identification is a
signed writing; and
3. an electronic document, or any computer printout of it, is an
original when maintained in the normal course of business.
1.4 Prices and Price Changes
The following are the bases on which we may require the amount payable for
a Service or Product to be paid, with an example of each:
1. one-time (Service installation charges);
2. recurring (a periodic charge for Services);
3. a combination of both (an initial charge and a monthly license
charge for a Program); or
4. usage (network traffic charges).
We will specify the amount and basis for the particular Service or
Product.
Price Increases
We may increase recurring charges and usage charges by giving you three
months' written notice. An increase applies on the first day of the month
on or after the effective date we specify in the notice.
We may increase one-time charges and hourly rates without notice. However,
an increase to one-time charges does not apply to you if 1) we receive
your order before the announcement date of the increase and 2) one of the
following occurs within three months after the announcement:
1. we make the Service available to you;
2. we ship you the Product;
3. with our authorization, you make an additional license copy of a
Program or a copy of a distributed feature; or
4. a Program's group-upgrade charge becomes due.
Price Decreases
For one-time charges, you receive the benefit of a price decrease when the
Service Start Date occurs on or after the effective date of the decrease.
For recurring charges and usage charges, you receive the benefit of a
decrease on the first day of the month following the effective date of the
decrease.
- ----------
IBM is a registered trademark of the International Business Machines
Corporation.
Page 5 of 13
<PAGE>
1.5 Invoicing, Payment, and Taxes
We invoice:
1. usage charges following the period in which you incur them;
2. recurring charges (other than usage charges) for a Program in
advance for the applicable invoice period: and
3. all other charges when or after you incur them.
Amounts due are payable as we specify in the invoice. You agree to pay
accordingly. You agree to pay charges for all Service usage you or End
Users incur by any means, including providing a User Identification to
access a Service. You are responsible for charges and damages resulting
from misuse of User Identifications under your control. You agree to pay
amounts equal to any applicable taxes resulting from any transaction under
this Agreement. This does not include taxes based on our net income. You
are responsible for personal property taxes for each Product from the date
we ship it to you.
1.6 Patents and Copyrights
For purposes of this Section only, the term "Product" includes Materials
alone or in combination with Products we provide to you as a System.
If a third party claims that a Product we provide to you infringes that
party's patent or copyright, we will defend you against that claim at our
expense and pay all costs, damages, and attorney's fees that a court
finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If such a claim is made or appears likely to be made, you agree to permit
us to enable you to continue to use the Product, or to modify it, or
replace it with one that is at least functionally equivalent. If we
determine that none of these alternatives is reasonably available, you
agree to return the Product to us on our written request and we may
terminate the affected Service.
This is our entire obligation to you regarding any claim of infringement.
Notice of Infringement
All notices of patent or copyright infringement permitted or required by
this Agreement will be in writing, will be sent to the following address,
and will take effect upon receipt.
General Counsel
Advantis
231 North Martingale Road
Schaumburg, Illinois 60173-2254
Claims for Which We are Not Responsible
We have no obligation regarding any claim based on any of the following:
1. your modification of a Product, or a Program's use with Equipment
and programs other than the Equipment and Programs with which the
Program is designed to operate;
2. the combination, operation, or use of a Product with any product,
data, or apparatus that we did not provide; or
Page 6 of 13
<PAGE>
3. infringement by a non-Advantis Product alone, as opposed to its
combination with Products we provide to you as a System.
1.7 Limitation of Liability
Circumstances may arise where, because of a default on our part or other
liability, you are entitled to recover damages from us. In each such
instance, regardless of the basis on which you are entitled to claim
damages from us, we are liable only for:
1. payments referred to in our patent and copyright terms described
above;
2. bodily injury (including death), and damage to real property and
tangible personal property; and
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring or usage, 12 months' charges
apply) for the Service or Product that is the subject of the claim.
This limit also applies to any of our subcontractors and Program
developers. It is the maximum for which we are collectively
responsible.
Items for Which We are Not Liable
Under no circumstances are we, our subcontractors, or Program developers
liable for any of the following:
1. third-party claims against you for losses or damages (other than
those under the first two items listed above);
2. loss of, or damage to, your records or data; or
3. economic consequential damages (including lost profits or savings)
or incidental damages, even if we are informed of their possibility.
1.8 Your Additional Rights
You may have additional rights under certain laws (such as consumer laws)
which do not allow the exclusion of implied warranties, or the exclusion
or limitation of certain damages. If these laws apply, our exclusions or
limitations may not apply to you.
1.9 Changes to and Termination of Services
We will give you three months' written notice if we increase Service
charges or change invoicing procedures, or when a planned change would
substantially alter a Service from its current description. We will give
you 12 months' written notice it we terminate a Service (or if we change
this 12-month notice period). However, if a third party claims that a
Product we provide as part of a Service infringes a patent or copyright,
we reserve the right to terminate the Service effective immediately.
You agree to give us one month's written notice to terminate your use of a
Service. The termination will be effective at month's end.
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<PAGE>
1.10 Changes to the Agreement Terms
In order to maintain flexibility in our Services, Products, and options,
we may change the terms of this Agreement by giving you three months'
written notice. However, these changes are not retroactive. They apply, as
of the effective date we specify in the notice, only to new orders (those
we receive on or after the date of the notice) and to on-going
transactions, such as licenses and Services.
Otherwise, for a change to be valid, both of us must sign it. Additional
or different terms in any order or written communication from you are
void.
1.11 Agreement Termination
You may terminate this Agreement on written notice to us following the
expiration or termination of all your obligations.
Either of us may terminate this Agreement if the other does not comply
with any of its terms, provided the one who is not complying is given
written notice and reasonable time to comply.
Any terms of this Agreement which by their nature extend beyond its
termination remain in effect until fulfilled, and apply to respective
successors and assignees.
1.12 Geographic Scope
All your rights, all our obligations, and all licenses are valid only in
the United States and Puerto Rico.
1.13 Governing Law
The laws of the State of New York govern this Agreement.
1.14
Intentionally left blank
1.15 Notice
All notices permitted or required by this Agreement except for notices of
patent and copyright infringement which will be sent to the address
specified in section 1.6, "Patents and Copyrights," will be sent to the
following address and will take effect upon receipt:
Advantis
3405 W. Dr. M. L. King Jr. Blvd.
Tampa, FL 33607
Attention: Order Support Services
Page 8 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Part 2 - Responsibilities of the Parties
- --------------------------------------------------------------------------------
2.1 Mutual Responsibilities
Each of us agrees that under this Agreement:
1. neither of us grants the other the right to use its trademarks,
trade names, or other designation in any promotion or publication;
2. all information exchanged by both of us is nonconfidential. If
either of us requires the exchange of confidential information, it
will be made under a signed confidentiality agreement. Part 5 of
this Agreement describes our responsibilities for handling data and
information you transmit using the Services;
3. each is free to enter into similar agreements with others;
4. each grants the other only the licenses specified. No other licenses
(including licenses under patents) are granted;
5. each will promptly notify the other if it becomes aware of any
unsafe conditions or hazardous materials to which the other's
personnel would be exposed at any of its facilities;
6. neither of us will bring a legal action more than two years after
the cause of action arose; and
7. neither of us is responsible for failure to fulfill its obligations
due to causes beyond its control.
2.2 Our Responsibilities
We will:
1. inform you of Service descriptions, charges, discounts, allowances,
and other terms in Transaction Documents; and
2. provide to you necessary User Identifications to enable access to
the Services.
2.3 Your Other Responsibilities
You agree:
1. not to assign, or otherwise transfer this Agreement or your rights
under it, delegate your obligations, or resell any Service, without
prior written consent. Any attempt to do so is void;
2. to allow us to install mandatory engineering changes (such as those
required for safety) on Equipment:
3. that you are responsible for the results obtained from the use of
the Services and Products;
4. to provide us with sufficient, free, and safe access to your
facilities for us to fulfill our obligations;
5. to control and be responsible for User Identifications and their
distribution to End Users;
6. to obtain, install, and maintain suitable equipment as necessary to
access the Services:
Page 9 of 13
<PAGE>
7. to comply with all applicable laws, regulations. or conventions
including those related to data privacy, international
communications, and exportation of technical or personal data. You
are responsible for obtaining all necessary governmental,
regulatory, or statutory approvals for your use of the Services:
8. to obtain all required permissions if you use a Service to copy,
download, display, distribute, or execute programs or perform other
works;
9. to be responsible for data, programs, or other material that you
provide for use with a Service, and ensure that 1) we do not violate
anyone's rights in providing the Service, and 2) the disclosure or
use of the material through the Service does not breach any
contractual relationship;
10. to inform, in writing, those whom you authorize to access a Service
of the applicable terms of the Agreement and that we have no
liability to them. You may use the name Advantis" when informing
them that your products are available through the Services; and
11. to authorize us to include your name, contact information, and other
mutually-agreed-to information in a directory of Advantis customers,
unless you notify us otherwise in writing within one month of your
first order for the Services.
Page 10 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Part 3 - Warranties
- --------------------------------------------------------------------------------
3.1 The Advantis Warranties
Warranty for Advantis Services
For each Advantis Service, we warrant that we perform it:
1. in a workmanlike manner; and
2. according to its current description contained in this Agreement, an
Attachment, or a Transaction Document.
Warranty for Advantis Programs
We specify the warranty for warranted Advantis Programs in an Attachment.
Warranty for Systems
Where we provide a System (for example, when we provide Services,
Equipment, and Programs according to our marketing proposal), we warrant
that its components are compatible and will operate with one another. This
warranty is in addition to our other applicable warranties.
3.2 Extent of Warranty
Misuse, accident, modification, unsuitable physical or operating
environment, operation with equipment and programs other than the
Equipment and Programs with which a Program is designed to operate,
improper maintenance by you, or failure caused by a product for which we
are not responsible. may void the warranties.
THESE WARRANTIES REPLACE ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
3.3 Items Not Covered by Warranty
We do not warrant uninterrupted or error-free operation of a Service or
Product.
We will identify Advantis Services and Products that we do not warrant.
Unless we specify otherwise, we provide Materials, non-Advantis Services
and non-Advantis Products on an "AS IS" basis. However, non-Advantis
manufacturers, suppliers, or publishers may provide their own warranties
to you.
Page 11 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Part 4 - Equipment Provided by Advantis
- --------------------------------------------------------------------------------
We may provide Equipment to be installed on your premises for the purpose of
providing a Service. The Equipment is and will remain the asset of Advantis or
its lessor and will not become a fixture or realty.
Certain Equipment may contain licensed internal code. We will identify this
Equipment to you.
No right, title, or interest in or to the Equipment, or licensed internal code
associated with it, or any related planning information, is passed to you.
However we will use such Equipment to provide Services to you.
As appropriate. we will provide you physical planning information for the
Equipment. You agree to comply with that information in order to provide an
environment meeting our specifications.
Our Responsibilities
We will:
1. install the Equipment we provide at your site unless we specify otherwise;
2. maintain the Equipment; and
3. be responsible for all return, removal, and shipping charges for the
Equipment.
Your Responsibilities
You agree to:
1. provide and pay for the physical space and electrical power for the
Equipment at your site;
2. be responsible for loss of or damage to the Equipment caused by your or
your employees' or your agents' intentional acts or negligence:
3. provide us or our designee with all assistance reasonably necessary to
permit us access to your site to perform inspection, installation,
preparation for return, or maintenance as is appropriate;
4. provide, at no cost to us, adequate security to protect the Equipment from
theft, loss, damage, or misuse;
5. return to us, or permit us or our designee to remove at our discretion,
the Equipment, any licensed internal code associated with it, and physical
planning documentation at the expiration or termination of the Service;
6. not alter the Equipment in any manner, not move it to other locations, and
not transfer it to anyone else without our prior written approval;
7. keep the Equipment free from all liens, charges, or encumbrances; and
8. affix and keep in a prominent place on the Equipment any marking or label
we require.
Page 12 of 13
<PAGE>
[Logo of Advantis] Customer Agreement
Part 5 - Customer Transmitted Data
- --------------------------------------------------------------------------------
We agree not to disclose your confidential information including programs and
data, transmitted using the Services. However, we have no obligation of
confidentiality relating to your information, including programs and data, which
is not confidential. Information that is not confidential includes information
which is:
1. either currently publicly available or becomes publicly available in the
future without our breach of any obligation or responsibility described in
this Agreement;
2. rightfully received by either of us from a third party, where the
information was received without any obligation of confidentiality
associated with it;
3. already in our possession without an obligation of confidentiality;
4. independently developed by us;
5. approved for disclosure by you; or
6. treated by you as nonconfidential.
We also have no liability for any disclosure of information that occurs as the
result of our delivery of your information, at your direction and to a recipient
you designate, when the delivery is made in the normal course of Service
provision (for example, to an incorrect delivery address provided by you to us).
We may disclose information to the extent required by law.
Handling of your Information
You are responsible for selection and use of the security facilities and options
that we provide.
You are responsible to develop and maintain procedures (apart from the Services)
to protect your information. You are responsible for backup and restoration of
your information.
For the purposes of operation and maintenance we may use, copy, display, store,
and distribute internally your information. We agree not to reverse assemble or
reverse compile your information. We do not guarantee that these procedures will
prevent the loss of, alteration of, or improper access to, your information. You
agree that access to your information will not prohibit or prevent us from
developing or marketing any Service or Product.
For transmission carried over interexchange carriers' and local exchange
carriers' facilities, Advantis is not responsible for transmission errors, or
corruption or security of data.
We reassign to other customers data storage that you return to us. We do not
erase data storage and, in some cases the next customer accessing a disk may be
able to read residual data. We are not responsible for your failure to erase
sensitive data from disk space returned to us.
Page 13 of 13
<PAGE>
Supplement for Custom Solution [Logo]
- --------------------------------------------------------------------------------
Both of us agree that under these terms we provide to you a Service consisting
of a logical partition processor environment dedicated to your use.
1.0 Term
This Supplement starts on the date the last party agrees to the
Supplement (the "Start Date") and ends on the seventh anniversary of the
Start Date subject to Section 11.0, Termination Charge. We jointly
schedule the availability date of the logical partition processor
environment.
2.0 Description
We provide to you a logical partition processor environment as an IBM
Service called a Custom Solution. This Custom Solution consists of the
logical partition processor equipment, logical partition processor
connectivity, logical partition processor programs, logical partition
processor system programmer support, and logical partition processor
operational support specified below.
The processing capacity and storage associated with the logical partition
processor is based on our interpretation of your indicated requirements.
WE MAKE NO WARRANTY AS TO THE SUITABILITY OF THE LOGICAL PARTITION
PROCESSOR ENVIRONMENT TO THOSE REQUIREMENTS. You agree to determine if
this Custom Solution meets your needs. We will not predict the
performance which can be expected with the logical partition processor
environment.
- --------------------------------------------------------------------------------
Each of us agrees that the complete agreement between us about this transaction
consists of 1) this Transaction Document and its Attachments and 2) the Advantis
Customer Agreement, as assigned to IBM (or any equivalent agreement signed by
both of us). In the event there is a conflict among the various documents, the
terms of this Supplement prevail over those of the Advantis Customer Agreement.
Agreed to: Agreed to:
MoneyGram Payment Systems, Inc. International Business Machines
Corporation
By /s/ Alan H. Friedman By /s/ [ILLEGIBLE]
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
Name (type or print) Alan H. Friedman Name (type or print)
Date: Date:
Enterprise number: IBM Customer Agreement number:
Enterprise Address: Custom Solution number
7401 West Mansfield Avenue
Lakewood, CO 80235
- --------------------------------------------------------------------------------
After signing, please return a copy of this Agreement to the following address:
IBM Corporation
3405 W. Dr. M. L. King Jr. Blvd.
Tampa, FL 33607
Attention: Order Support Services
- --------------------------------------------------------------------------------
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<PAGE>
If we determine that the logical partition processor. an environmental
facility such as telephone, chilled water, and air conditioning, or the
IBM site has become unusable, we will make reasonable efforts to restore
service as soon as practical. Such efforts may include replacement,
sharing of resource, and/or an alternate IBM site. Your logical partition
processor has an uninterrupted power source including batteries and
diesel generator. However, the environmental facilities other than power,
any direct connections, and the IBM site do not have backup.
3.0 Logical Partition Processor Equipment
We provide you access to the following logical partition processor
equipment on the date we make this Custom Solution available to you.
Processor Complex
34% of the processing capacity of an IBM(1) 9672 Model R24 processor
which is equivalent to approximately 30 million instructions per second
("MIPS")
128 MB Central Storage
128 MB Expanded Storage
4 Parallel Channels
8 ESCON Channels
Direct Access Storage
1 IBM 9393 RAMAC Virtual Storage Model 002 (290 gigabytes ("GB"))
Magnetic Tape
1 IBM 3490 Model A20 Magnetic Tape Controller
3 IBM 3490 Model B40 Magnetic Tape Units
Communications
2 IBM 3745 Model 170 Communications Controllers
5 Black Box Model SR025 A-B switches
3 Black Box Model SR751 A-B switches
2 Token Ring LANs
3 UDS Model 801 AC automatic calling unit
1 UDS 208 dial modems
2 AT&T 3810 dial modems
1 IBM 8229 Token Ring Bridge
Note: Two A-B switches and one automatic calling unit are spares.
We provide you not less than the equivalent of 34% of an IBM 9672 Model
R24 processor in one logical partition on a shared logical processor
using PRISM. At our sole discretion you may temporarily have access to
more processing capacity than approximately 30 MIPS. You should not take
any actions which would make you dependent on such additional capacity.
You may request additional processing capacity as specified in section
9.0, item 2.
We make a system printer available to the logical partition processor for
our use in system problem resolution exclusively.
"Uncap" or "Uncapping" shall mean the removal of the method of limiting
or controlling the logicial partition processor resource within an IBM
General Processor group. Upon your written request, we will "Uncap" your
logical partition processor once each calendar year for a period not
- ----------
(1) IBM is a registered trademark of international Business Machines
Corporation.
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<PAGE>
2. order, install, maintain and pay for any equipment not specified
above, including but not limited to the terminals at your locations
that you will use to access the logical partition processor and
communications controllers at your locations that will connect your
terminals to the logical partition processor.
4.0 Logical Partition Processor Connectivity
Attachment 3 contains a schematic of the connectivity components which
each of us provides. The communications equipment we provide to you is
specified in section 3.0 above.
THE BLACK BOX A-B SWITCHES, AT&T MODEMS, UDS MODEM, AND UDS AUTOMATIC
CALLING UNIT SPECIFIED IN SECTION 3.0 ARE PROVIDED "AS IS" AND THERE ARE
NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. WE WILL WORK WITH OUR VENDORS TO RESOLVE ANY EQUIPMENT PROBLEMS
INCLUDING SWAPPING OUT EQUIPMENT IF NECESSARY, HOWEVER WE HAVE NO
RESPONSIBILITY TO MAKE ANY THIRD PARTY EQUIPMENT OPERATE ACCORDING TO THE
THIRD PARTY EQUIPMENT MANUFACTURER'S SPECIFICATIONS.
Where we receive equipment warranties from an equipment manufacturer, and
where we are able to do so, we will pass through those equipment
warranties which we receive from the equipment manufacturer to you.
As part of the logical partition processor environment we will:
1. provide to you (a) two MDNS frame relay-based connections between
our logical partition processor site and the IBM MDNS backbone
network, (b) one MDNS frame relay-based connection between the IBM
MDNS backbone network and your Saddlebrook, NJ location, and (c) and
two MDNS frame relay-based connections between the IBM MDNS backbone
network and your Lakewood, CO location. The terms under which we
provide these MDNS connections to you are specified in the Network
Services Exhibit.
The five MDNS connections are specified in the following table.
<TABLE>
<CAPTION>
===============================================================================================
From To location Physical line Protocols Features provided Use
location speed (Kbps) Supported
-------- ----------- ------------- --------- ----------------- ---
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Saddlebrook MDNS 128 IP, IPX Large router, 100 Mbps Fast
Backbone Ethernet, ISDN backup
- -----------------------------------------------------------------------------------------------
Lakewood MDNS 384 SNA, IP, IPX, Large router with HSRP
Backbone X.25
- -----------------------------------------------------------------------------------------------
Lakewood MDNS 384 SNA, IP, IPX, Large router with HSRP Backup
Backbone X.25 connection
- -----------------------------------------------------------------------------------------------
Irving MDNS 384 SNA, IP, X.25 Large router with HSRP
Backbone
- -----------------------------------------------------------------------------------------------
Irving MDNS 384 SNA, IP, X.25 Large router with HSRP Backup
Backbone connection
===============================================================================================
</TABLE>
The PVCs we provide are specified in the following table.
<TABLE>
<CAPTION>
===========================================================================================
BI-directional
From location To location CIR (Kbps) Type Use
- ------------- ----------- -------------- ---- ---
CIR (Kbps)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irving Lakewood 384 Virtual private network access
- -------------------------------------------------------------------------------------------
Irving Lakewood 384 Virtual private network access Backup PVC
- -------------------------------------------------------------------------------------------
Irving IBM SNA 56 Existing SNA connections
Backbone
- -------------------------------------------------------------------------------------------
Irving IBM SNA 56 Existing SNA connections Backup PVC
Backbone
- -------------------------------------------------------------------------------------------
Irving Lakewood 8 Virtual private network access
- -------------------------------------------------------------------------------------------
Irving Lakewood 8 Virtual private network access X.25 CTI
Virtual private network access
- -------------------------------------------------------------------------------------------
Lakewood Saddlebrook 128 Virtual private network access Backup PVC
===========================================================================================
</TABLE>
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<PAGE>
2. attach each of two of the Token Ring LANs we provide to an IBM 3745 which
we provide. We will interconnect these two LANS with a bridge;
3. attach each of the routers/FRADS which terminate the two MDNS frame
relay-based connections to one Token Ring LAN we provide;
4. configure each router/FRAD which terminates an MDNS frame-relay based
connection in Irving such that incoming X.25 traffic is sent to the IBM
3745 via a cable we provide and incoming SNA and IP traffic is sent via
the Token Ring LANs to the logical partition processor;
5. order, install at our logical partition processor site, maintain and pay
for four dial connections and their associated dial modems (note that one
dial line is a spare). We will attach each of three dial modems we provide
to both the IBM 3745s we provide via A-B switches and cables we provide;
6. attach each of two leased line CSUs/DSUs you provide to both the IBM 3745s
we provide via A-B switches and cables we provide;
7. attach the router which terminates the Banamex line and which you provide
to the Token Ring we provide via a cable we provide;
8. provide the definitions to make the logical partition processor a Network
Services (NS) attached host; and
9. provide communication lines including modems which attach the two IBM
3745s we provide and other IBM sites to the IBM network. These
communication lines will be used only by IBM to provide system program and
operational support from IBM sites remote from the logical partition
processor site and are not available for your use.
Your Responsibilities
You agree to:
1. provide, pay for, and maintain (a) your Fast Ethernet LAN at your
Saddlebrook, NJ location and all your equipment attached to that LAN; (b)
your Token Ring LANs at your Lakewood, CO location and all your equipment
attached to that LAN; and (c) your X.25 equipment at your Lakewood, CO
location;
2. attach your Fast Ethernet LAN at your Saddlebrook, NJ location to the MDNS
frame relay-based router/FRAD we provide using cable you provide;
3. attach (a) your Token Ring LANs at your Lakewood, CO location to the MDNS
frame relay-based routers/FRADS we provide using cables you provide and
(b) attach your X.25 equipment at your Lakewood, CO location to the MDNS
frame relay-based router/FRAD we provide using an A-B switch and cables
you provide;
4. order, install at our logical partition processor site, maintain, and pay
for a communication line to Banamex and its associated router; and
5. order, install at our logical partition processor site, maintain, and pay
for two leased lines (one each to FirstData Corporation ("FDT") and
General Electric Information Systems ("GEIS")) and two associated
CSUs/DSUs.
Equipment You Provide on Our Logical Partition Processor Site
You or your agents will provide and install the following equipment at our
logical partition processor site:
1. one router which terminates the Banamex communication line; and
2. two CSUs/DSUs which terminate the two leased lines you provide.
The equipment specified above and any other equipment you install at our
logical partition processor site are and will remain your or your lessor's
asset and will not become a fixture or realty. No right, title, or
interest in or to such equipment (or licensed internal code associated
with such equipment or any related planning information) shall pass to us.
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You will:
1. install the equipment you provide at our site during our normal
business hours;
2. maintain the equipment; and
3. be responsible for all return, removal, and shipping charges for
this equipment.
We agree to:
1. provide and pay for the physical space and electrical power for the
equipment at our logical partition processor site;
2. be responsible for the loss of or damage to the equipment caused by
our or our employees' or our agents' intentional acts or negligence;
3. provide you or your designee with all assistance reasonably
necessary to permit you access to our site to perform inspection,
installation, preparation for return, or maintenance as appropriate;
4. provide, at no cost to you, the same level of security which we
provide our own equipment;
5. return to you, or permit you or your designee to remove at your
discretion, the equipment, any licensed internal code associated
with the equipment, and physical planning documentation at the
expiration or termination of this Supplement;
6. not alter the equipment in any manner, not move it to other
locations, and not transfer it to anyone else without your prior
written consent;
7. keep such equipment free from all liens, charges or encumbrances;
and
8. not remove any labels or marking which you affix to the equipment.
Connectivity Operational Support
We will:
1. 24 hours per day, seven days per week, monitor the three dial
connections. If the receiving location has not responded to a dial
out call, we will contact the receiving location, attempt to rectify
the problem, and reinitiate the dial out call. For all other
problems we will inform you of the problem so you can resolve it;
2. for all other communication lines you provide, if we receive problem
reports, we will do problem determination and resolve any problems
with the equipment we provide. If the problem is in the
communication line or equipment you provide, we will inform you of
the problem so you can resolve it; and
3. activate the A-B switches we provide pursuant to the operations
procedures we write with your input.
5.0 Logical Partition Processor Programs
We will amend this Supplement to specify any changes to the programs
specified in subsections 5.1 through 5.3.
You agree that it is your responsibility (1) at your expense to make your
application programs capable of correctly processing, providing and/or
receiving date data within and between the twentieth and twenty-first
centuries and (2) if vendors do not provide versions of their programs
which purport to be capable of correctly processing, providing and/or
receiving date data within and between the twentieth and twenty-first
centuries, to arrange with the vendors of the programs specified in
subsections 5.1 through 5.3 to provide versions of their programs which
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<PAGE>
are capable of correctly processing, providing and/or receiving date data
within and between the twentieth and twenty-first centuries.
5.1 IBM Programs
We will order, license, install on the logical partition processor, pay
for, and maintain the generally available IBM system and/or
application-enabling programs ("IBM Programs") specified below in this
subsection 5.1. You may access and use these programs
You may request us in writing to install on the logical partition
processor (1) any IBM Program not specified below or (2) a new version of
an IBM Program specified below which has an increased charge. We will
inform you of the charge for the additional IBM Program or the new
version. The charge will be equal to the processor group 40 Distributed
Systems License Option ("DSLO") price for the IBM Program plus any third
party royalty. We will order, license, and install at a mutually agreed
time the IBM Program you request on the logical partition processor when
we receive your written request to do so.
Upon your written request, we will remove from the logical partition
processor any IBM Program specified below if you are the only user of that
IBM Program on the logical partition processor. If we remove the IBM
Program, we will credit your invoice the DSLO monthly charge for the IBM
Program.
Based on your reported problems and with your concurrence and at a
mutually agreed time, we will install program update tapes, program
modifications, and no charge program enhancements to the IBM Programs
specified below.
You agree that if an IBM Program is no longer supported by IBM, IBM will
be unable to maintain that IBM Program. Upon our mutual agreement IBM will
remove any unsupported IBM Program from the logical partition processor.
Upon your written request, we will install on the logical partition
processor any generally available Year 2000 Ready version of an IBM
Program we provide. If such version has a charge associated with it, you
agree to pay that charge.
IBM will not maintain any IBM Program not specified below or in an
amendment to this Supplement.
You agree to pay us any additional license fees (for example, increased
DSLO license charges) that we incur as a result of your requests to
increase the size of the logical partition processor.
Except as expressly set forth in this Supplement, you obtain no right,
title, or interest in or to the IBM Programs we provide to you under this
Supplement. You may not download or otherwise copy, reverse assemble,
reverse compile, or otherwise translate any of such IBM Programs, except
that you may copy such IBM Programs for archival and back-up purposes.
The charge for the IBM Programs specified in the following table is
included in your monthly charge specified in section 9.0 below and
consists of the sum of one-third of the IBM processor group 40 DSLO prices
for the IBM Programs (called "IBM Program Charges"). This sum equals
$38,000.00.
====================================================================
Program Name Program Number Version Release Modification
- --------------------------------------------------------------------
Operating System
- --------------------------------------------------------------------
MVS/ESA 5655-068 5 1 0
- --------------------------------------------------------------------
MVS/JES2 5695-047 4 3 0
- --------------------------------------------------------------------
System Management
- --------------------------------------------------------------------
DFSMS (DSS, DFP, RMM) 5695-DF1 1 3 0
- --------------------------------------------------------------------
RMF 5655-084 5 1 0
====================================================================
Page 7
<PAGE>
====================================================================
Network Control
- --------------------------------------------------------------------
ACF/NCP (two copies) 5684-063 7 5 0
- --------------------------------------------------------------------
ACF/VTAM ESA 5695-117 4 4 0
- --------------------------------------------------------------------
ACF/SSP 5655-041 4 5 0
- --------------------------------------------------------------------
NetView 5655-007 3 1 0
- --------------------------------------------------------------------
TSCF 5688-139 1 2 0
- --------------------------------------------------------------------
System View AOC 5685-151 1 2 0
- --------------------------------------------------------------------
TCP/IP 5655-HAL 3 1 0
- --------------------------------------------------------------------
NPSI (two copies) 5688-035 3 1 0
- --------------------------------------------------------------------
EP/3725 5735-XXB 0 0 0
- --------------------------------------------------------------------
Interactive /Query
- --------------------------------------------------------------------
ISPF 5655-042 4 1 0
- --------------------------------------------------------------------
SDSF 5665-488 1 8 0
- --------------------------------------------------------------------
TSO/E 5685-025 2 5 0
- --------------------------------------------------------------------
Data Base/Communications
- --------------------------------------------------------------------
CICS/ESA 5655-018 4 1 0
- --------------------------------------------------------------------
DB2 5695-D82 2 4 0
- --------------------------------------------------------------------
IMS 5695-176 5 1 0
- --------------------------------------------------------------------
Compilers, etc.
- --------------------------------------------------------------------
VS COBOL II 5668-958 2 2 0
- --------------------------------------------------------------------
Compiler/Library COBOL 5688-197 2 2 0
- --------------------------------------------------------------------
High Level Assembler H 5696-234 1 1 0
- --------------------------------------------------------------------
Miscellaneous
- --------------------------------------------------------------------
EREP 5658-260 3 5 0
- --------------------------------------------------------------------
SMP/E 5668-949 1 8 0
- --------------------------------------------------------------------
QMF/MVS 5706-254 3 1 0
- --------------------------------------------------------------------
Information/Management 5695-077 0 0 0
- --------------------------------------------------------------------
3270 File Transfer 5665-311 0 0 0
- --------------------------------------------------------------------
BookManager/Read 5695-046 0 0 0
- --------------------------------------------------------------------
PSF 5695-040 3 0 0
- --------------------------------------------------------------------
Ditto 5655-103 0 0 0
====================================================================
Your Responsibilities
You agree to provide your own copies of IBM Program documentation.
5.2 Non-IBM Programs You License
You will order, license, and pay for and maintain the non-IBM programs
specified below in this subsection 5.2. You will send or have sent to us
the program load tapes for these programs and we will load them on the
logical partition processor on your behalf. Based on your reported
problems and on a mutually agreeable schedule, we will also install any
program update tapes, program modifications and enhancements, and new
versions of these programs that you send or have sent to us.
Upon your written request we will install on the logical partition
processor any generally available version of a non-IBM program you license
which purports to be capable of correctly processing, providing and/or
receiving date data within and between the twentieth and twenty-first
centuries, which you send or have sent to us.
Page 8
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You agree to pay any license fees resulting from your requests to increase
the size of the logical partition processor.
========================================================================
Vendor Program Version Release Modification
------ ------- ------- ------- ------------
- ------------------------------------------------------------------------
First Data Corporation InfoMax
========================================================================
Your Responsibilities
For any non-IBM program you license and provide to us to install on the
logical partition processor, you agree to:
1. provide your own copies of documentation;
2. obtain the necessary permission from your licensors for IBM to be
your agent for reporting program problems;
3. execute any contracts, provide any documents, and pay any fees (for
example, access/use fees or transfer fees) required by your licensor
in order for us to install or execute the licensor's program or
program updates on the logical partition processor;
4. warrant that we will not be violating the rights of any third party
by our installation on your behalf on the logical partition
processor of any non-IBM programs you license and that your use of
such programs will not involve a breach of any confidentiality or
contractual relationship; and
5. provide thirty (30) days prior written notice to us of any request
to remove InfoMax from the logical parition processor.
In addition, prior to our installation on your behalf of any Computer
Associates International, Inc. ("CA") programs you license, you will
provide us with a copy of the CA program license and written notice
identifying the CA software and proposed installation date.
5.3 Non-IBM Programs We License
We will order, license, install on the logical partition processor, and
maintain the non-IBM programs specified below in this subsection 5.3. The
charges for these non-IBM programs we license are included in your monthly
charge specified in section 9.0. You may access and use these programs as
described in Attachment 4.
You may request us in writing to install on the logical partition
processor (a) a new version of a non-IBM program specified below which may
have an increased charge or (b) a new non-IBM program. We will inform you
of the charge for the new version, if applicable, or the new program and
you agree to pay such charge. If it is available and if we are allowed to
do so by the vendor, we will order, license, and install the new version
or new program you request on the logical partition processor when we
receive your written request to do so.
Based on your reported problems and with your concurrence and at a
mutually agreed time, we will install program update tapes, program
modifications, and program enhancements to the non-IBM programs specified
below which have been provided to us by the vendor.
Upon your written request we will remove from the logical partition
processor any non-IBM program specified below. In such case we will reduce
your monthly charge accordingly.
Upon your written request and if it is available and we are allowed to do
so by the vendor, we will install on the logical partition processor any
generally available version of a non-IBM program we license which purports
to be capable of correctly processing, providing and/or receiving date
data within and between the twentieth and twenty-first centuries. If such
version has a charge associated with it, you agree to pay that charge.
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You agree to pay us any additional license fees that we incur as a result
of your requests to increase the size of the logical partition processor.
<TABLE>
<CAPTION>
=============================================================================================
Vendor Program Version Release Modification
- ------ ------- ------- ------- ------------
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer Associates CA-1
- ---------------------------------------------------------------------------------------------
Computer Associates CA-7 2 3 1
- ---------------------------------------------------------------------------------------------
Computer Associates Easytrieve Plus 6 1 0
- ---------------------------------------------------------------------------------------------
Computer Associates Endevor / MVS 3 3 7
- ---------------------------------------------------------------------------------------------
Computer Associates Optimizer 6 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates Optimizer II 1 3 1
- ---------------------------------------------------------------------------------------------
Computer Associates Deliver 1 6 1
- ---------------------------------------------------------------------------------------------
Computer Associates View i 6 8
- ---------------------------------------------------------------------------------------------
Computer Associates Top-Secret 4 4 0
- ---------------------------------------------------------------------------------------------
Computer Associates Automate Open Interface 4 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates Automate - Lcomm 4 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates Apcdoc 1 1 1
- ---------------------------------------------------------------------------------------------
Computer Associates JCL Check 2 1 6
- ---------------------------------------------------------------------------------------------
Computer Associates VMAN 3 1 0
- ---------------------------------------------------------------------------------------------
Computer Associates Intertest w/XA - ESA 4 1 0
- ---------------------------------------------------------------------------------------------
Computer Associates Netspy / MVS 4 5 0
- ---------------------------------------------------------------------------------------------
Computer Associates Easyproc LIB 2 2 0
- ---------------------------------------------------------------------------------------------
Computer Associates Delliver CICS Option 0 0 0
- ---------------------------------------------------------------------------------------------
Deliver TSO/SPF/ISPF
Computer Associates Interface 0 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates Deliver VTAM Interface 0 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates View CICS Interface 0 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates View ERO Option 0 0 0
- ---------------------------------------------------------------------------------------------
Computer Associates View TSO / ISF Interface 0 0 0
- ---------------------------------------------------------------------------------------------
View Native TSO
Computer Associates Interface 0 0 0
- ---------------------------------------------------------------------------------------------
Candle Corporation Omegamon/Epilog 3 0 0
- ---------------------------------------------------------------------------------------------
Candle Corporation Omegamon/CICS 3 0 0
- ---------------------------------------------------------------------------------------------
Candle Corporation Omegamon/DB2 3 0 0
- ---------------------------------------------------------------------------------------------
Candle Corporation Omegamon/MVS 3 0 0
- ---------------------------------------------------------------------------------------------
Compuware Fileaid/MVS 8 0 0
- ---------------------------------------------------------------------------------------------
Compuware CICS-ABENDAID/FX w DB2 4 0 0
- ---------------------------------------------------------------------------------------------
Compuware ABENDAID-XLS w D82 4 0 0
- ---------------------------------------------------------------------------------------------
Compuware Fileaid/DB2 4 0 0
- ---------------------------------------------------------------------------------------------
Compuware Xpediter/TSO 4 0 0
- ---------------------------------------------------------------------------------------------
Innovation Data FDR 5 2 32
- ---------------------------------------------------------------------------------------------
Innovation Data FDR Compactor 5 2 0
- ---------------------------------------------------------------------------------------------
Levi, Ray, & Shoup VPS 6 2 2
- ---------------------------------------------------------------------------------------------
Levi, Ray, & Shoup VMCF / CICS 6 0 0
- ---------------------------------------------------------------------------------------------
BMC 3270 Super Optimizor
for CICS 2 0 0
=============================================================================================
</TABLE>
Page 10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
=============================================================================================
Technologic PIE/Multi CICS 3 1 0
- ---------------------------------------------------------------------------------------------
Software Diversified Services IPCP Plus 4 1 0
- ---------------------------------------------------------------------------------------------
Connect: Direct for MVS
Sterling Commerce ARS Option 1 7 2
- ---------------------------------------------------------------------------------------------
Sterling Commerce Connect Direct for MVS 1 7 2
- ---------------------------------------------------------------------------------------------
Connect - Mailbox for
Sterling Commerce MVS Combo 4 3 2
- ---------------------------------------------------------------------------------------------
Sterling Software DMS/OS (SAMS Disk) 8 1 7
- ---------------------------------------------------------------------------------------------
Sterling Software VAM (SAMS Allocate) 5 0 4
- ---------------------------------------------------------------------------------------------
SHRINK (SAMS Compress)
Sterling Software MVS 5 1 0
- ---------------------------------------------------------------------------------------------
Serena International COMPAREX/MVS 7 2 0
- ---------------------------------------------------------------------------------------------
Syncsort SYNCSORT / MVS 3 6 0
- ---------------------------------------------------------------------------------------------
Unitech Systems ACR/Summary 1 0 0
- ---------------------------------------------------------------------------------------------
Allen Systems ODE 3 0 0
=============================================================================================
</TABLE>
Except as expressly set forth in this Supplement, you obtain no right,
title, or interest in or to the non-IBM programs specified immediately
above that we provide to you under this Supplement. You may not download
or make whole or partial copies of these programs. You may not reverse
assemble, reverse compile, or otherwise translate any of these programs
from object code to source code. You may not sublicense or assign any
rights to use the non-IBM programs we license and which are specified
above including assignment by operation of law.
You agree to abide by the license terms specified in Attachment 4 for the
above non-IBM programs we license.
5.4 Your Application Programs
You agree to develop, test, customize, and maintain your application
programs on the logical partition processor. If you send load tapes to us
and so request, we will load your application programs and modifications
to your application programs onto the logical partition processor.
6.0 Logical Partition Processor System Program Support
Twenty-four hours per day, seven days per week you may, via the NOTIFY
facility of the IBM network, report problems with the IBM Programs and
non-IBM programs we license and the non-IBM programs you license, with the
exception of the InfoMax program, (called "Supported Programs"). We will
respond based on the severity you assign to the problem. You may use the
NOTIFY facility to communicate other system programming service requests
to us or you may contact our system programming personnel between 8 AM. to
6 P.M. CT on normal IBM work days using a telephone number we will provide
you for that purpose.
We will:
1. based on problems you report to us or problems we detect while
performing our system program and operational support, identify the
program(s) with the problem. If the problem is in a Supported
Program, we will contact the vendor, obtain a fix from the vendor,
install and test the fix, and inform you when the problem is
resolved. If a Supported Program is no longer supported by the
vendor, we will be unable to resolve the problem. If we determine
that a reported problem is the result of your modification of a
Supported Program or is in your application program(s), we will
return that problem to you for resolution;
2. based on your direction, set system parameters;
Page 11
<PAGE>
3. based on problems you report and your direction, manage DASD
including full volume restores, initializations, installs, analyzes,
inspects and/or file movement from one volume to another; and
4. provide the system generation and loading of a Network Control
Program ("NCP") for the IBM 3745 attached to the logical partition
processor. At your request, but not more than twice a month, we
regenerate and reload the NCP based on specifications you provide
us.
In addition we will perform the following data base administrator
activities for DB2 and DL1:
a. allocating and creating your DB2 and DL1 tables based on your
application programmers' input;
b. utilize your archival and recovery job control language from
your DB2 and DL1 load tapes which you provide to us during
implementation;
c. planning and setting up reorganization jobs for your DB2 and
DL1; and
d. internal DB2 and DL1 security administration for not more than
10 occurrences per month. Occurrences include adding DB2 and
DL1 userids and DB2 and DL1 access modifications.
Upon your one month's prior written notice we will discontinue providing
this DB2 and DL1 support at the end of any month. Upon discontinuance of
this support we will reduce your monthly charge as specified in section
9.0.
At your request we will install only one version or release of a Supported
Program at a mutually agreed time within any 24 consecutive month period.
If you request us to install versions or releases in excess of this limit,
we will inform you of the charge to due so and obtain your approval before
we perform the installation.
Your Responsibilities
You agree to:
1. provide input to us so we can perform subsystem definition tasks and
set subsystem parameters;
2. perform initial and ongoing application program development tasks,
such as compilations and assemblies and testing activities;
3. customize any programs and screens, such as TSO ISPF screens, to
meet your application requirements;
4. resolve any problems you report to us which are the result of your
modification of a Supported Program or which are in your application
program(s); and
5. perform all system and software administrative activities including,
but not limited to:
a. performing system administrator definition functions;
b. providing the security administrative function;
c. registering all authorized users for access to the logical
partition on the IBM Service Manager by using our ordering
procedures: and
d. providing access security for the logical partition.
6. provide or have provided on your behalf system programming support
for InfoMax.
7.0 Logical Partition Processor Operational Support
Our operational support is generally available 24 hours per day, seven
days per week. You should communicate operational service requests to us
via the NOTIFY facility of the IBM network. We will:
1. write the IBM operations procedures based on your input and
guidance. At your request we will provide you one hard copy of these
operations procedures. These operations procedures are Materials;
Page 12
<PAGE>
2. initiate and operate your daily production schedule using CA-7 and
the CA-7 job control language you provide us and implement changes
to your production schedule at your request up to 10,000 jobs
through February 28, 1999;
3. monitor the system console and pursuant to your requests, execute
console commands that can be performed at the logical partition
processor only, such as power on/off and system restart;
4. monitor CA-7 messages as daily production is executed and inform you
of all exceptions to production schedules;
5. notify you of job failures and production scheduling problems and
(1) refer job failures to either your or our appropriate support
personnel for resolution and (2) based on your input and the IBM
operations procedures, resolve production scheduling problems and
restart and/or recover jobs;
6. initiate weekly backup dumps to tape of system DASD packs (IPL pack
and alternate system resident pack) and maintain the tapes on-site
for one week and then send the tapes to an off-site storage
facility;
7. maintain a library of your tapes in a tape rack with 8,300 slots
through February 28, 1999;
8. upon your request, mount tape cartridges and reels and correct tape
malfunctions;
9. provide change management for Supported Programs; and
10. report application problems to your personnel per your procedures.
In addition, for the period between December 1, 1997 and December 1, 1998,
we will initiate archiving and journaling activities and initiate recovery
and restoration procedures for DB2 and DL1 files. In the event you
continue to require these archiving, journaling, recovery and restoration
procedures for DB2 and DL1 files after December 1, 1998, we will provide
the corresponding charges as described in Section 9.0, Charges, for such
service.
We are not responsible for the results you obtain from our running your
application programs on your behalf.
Your Responsibilities
You agree to:
1. provide to us input so we may prepare the IBM operations procedures
including, but not limited to, your production processing schedules,
your restart and recovery instructions, and your current First Data
Corporation operating procedures;
2. determine that there is sufficient time to complete all production
activities, including backup, in the time available for such
activities;
3. resolve any application program usage questions or problems;
4. provide all operation, monitoring, and support of your devices
directly or remotely attached to your location;
5. initiate archiving and journaling activities and initiate recovery
and restoration procedures for any non-DB2 data files not stored on
system DASD packs (for example, user data files); and
6. provide change management for your application program(s).
Page 13
<PAGE>
8.0 Monthly Reports
You may request us to report to you capacity and performance parameters
collected by systems monitor facility ("SMF") and/or remote monitor
facility ("RMF"). In such case you must specify to us the SMF and/or RMF
parameters you want us to collect and the frequency with which you want us
to collect them before we make the logical partition processor available
to you. At some later date if you want us to report to you additional
parameters each month, specify the additional parameters to us and we will
inform you of the charge, if any, for us to report them to you.
Within the first ten workdays of each month except the first, we will mail
to you one hard copy report or send you on-line the report containing the
parameters you requested us to collect. This report is a Material. If you
identify trends which indicate that you might require additional or
reduced logical partition processor resources, at your request we will
review your conclusions. However, you will make the final decision
regarding your need for additional or reduced resources.
9.0 Charges
The charges for this Custom Solution, which are fixed for the term of this
Supplement notwithstanding anything to the contrary in Part 1, section 1.4
of the Advantis Customer Agreement and which start on December 1, 1997,
are:
1. a one time charge of [*] to be paid upon MoneyGram's execution of
this Supplement;
2. the following recurring monthly charges which are proratable, but
not eligible for allowances and discounts. We invoice you these
charges in the month after we start providing you the Service:
a. [*] for each of the first 12 months beginning December 1,
1997;
b. [*] for each of the next 51 months beginning December 1, 1998;
and
c. [*] for each of the remaining months of the Supplement term.
3. the following recurring monthly charges, which are proratable but
not eligible for discounts or allowances, for additional resources
you request:
a. [*] for each additional 1.1% of the processing capacity of an
IBM 9672 Model R24 processor (approximately equivalent to 1
MIP) up to a maximum of 60 MIPS. If you exceed 60 MIPS, the
charge is [*] plus [*] for each MIP;
b. [*] for each additional 80 GB increment of IBM 9393 Model 002
RAMAC DASD up to a maximum of 450 GB; and
c. [*] for each additional gigabyte of IBM 3390 Model 003 DASD
in full device increments.
You may request the additional resource specified above with 30 days
prior written notice to us. If additional resource is available,
such requests will be fulfilled as soon as practical. These charges
will be effective on the date we make the additional resource
available to you. We have no obligation to fulfill such requests if
you have submitted notice of termination to us or if less than four
months remain in the Supplement term. Additional resources will be
removed on a last in, first out basis.
You may decrease the logical partition processor resources below the
levels specified in section 3.0 with thirty (30) days prior written
notice. However, if, after we have installed additional resource on
the logical partition processor at your request, you request us to
remove some or all of such additional resource, we will do so upon
30 days written notice. Additional resources will be removed on a
last in, first out basis.
4. a. [*] for each MIP reduced below the specified level in Section
3.0;
* Information omitted but included separately with an application for
confidential treatment filed with the Securities and Exchange Commission.
Page 14
<PAGE>
b. [*] for each 3490 Model 840 Magnetic Tape Unit removed as
specified in Section 3.0; and
c. direct access storage or 9393 RAMAC DASD may not be reduced below
the specified levels in Section 3.0.
4. the following recurring charges, which are neither proratable nor
eligible for allowances or discounts, for additional resource you use:
a. if the number of tape slots we provide on-site in one month
exceeds 8300 at any time through February 28, 1999, we will charge
you [*] per additional tape per month for each tape slot in excess
of 8300;
b. beginning on March 1, 1999, we will charge you [*] per month per
additional tape slot in excess of 5500; and
c. if the number of tape reels or cartridges we mount in one month
exceeds 7215, we will charge you [*] per additional tape reel and
cartridge mounted;
5. [*] for each DB2 security administrative occurrence in excess of ten
per month; and
6. usage charges for the dial connections we provide to you;
7. any offsite tape storage charges in excess of [*] monthly; and
8. beginning March 1, 1999 should your monthly jobs that we run, exceed
7500, we will charge you [*] per job per month in excess of 7500.
We will reduce your monthly charge by [*] starting in the month after we
discontinue providing you data base administrator activities (including
but not limited to DB2 and DL1 archiving, journaling, recovery and
restoration procedures) or reserve the right to increase your monthly
charge after 12 months if the workload so warrants.
Magnetic tape cartridges are not included. If you do not furnish IBM
compatible tape cartridges, we can provide IBM tape cartridges at their
generally available charge.
You agree to pay telecommunications carrier dial backup connection usage
and access charges, if any.
All other charges are as we specify in the applicable Fee Schedule(s).
10.0 Termination
Either of us may terminate this Supplement if the other does not comply
with any of its terms, provided that the other party is given notice of
its failure to comply and a reasonable time to comply. If you terminate
this Supplement due to our breach, the termination charges specified in
section 11.0 do not apply. If we terminate this Supplement due to your
breach, the termination charges specified in section 11.0 do apply.
You may terminate this Supplement for convenience upon 90 days' written
notice to us. In such case the termination charges specified in section
11.0 will apply.
We may not terminate this Supplement for convenience.
11.0 Termination Charge
If you terminate this Supplement for convenience or we terminate the
Supplement due to your breach of its terms before the sixth anniversary of
the Start Date, you agree to pay us a termination charge. The termination
charge shall be:
a. the difference between [*] and the charges you have incurred under this
Supplement up to the termination date if the Supplement is terminated
prior to the sixty-fourth month of the Start Date; or
* Information omitted but included separately with an application for
confidential treatment filed with the Securities and Exchange Commission.
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<PAGE>
b. [*] if the Supplement is terminated on or after the sixty-fourth month
of the Start Date but before the sixth anniversary of the Start Date.
c. There is no termination charge if this Supplement is terminated on or
after the sixth anniversary of the Start Date.
We invoice you this termination charge on the date the Supplement
terminates.
12.0 Materials
IBM or third parties have all right, title, and interest (including
ownership of copyright) in the following Materials which we may provide
you during this Supplement term:
1. monthly capacity and performance reports;
2. IBM operations procedures;
3. monthly service level agreement reports; and
4. the disaster recovery plan referenced in Attachment 2: Disaster
Recovery.
We grant you an irrevocable, nonexclusive, worldwide, paid-up license to
use, execute, reproduce, display, perform, distribute (internally only)
copies of, and prepare derivative works based upon those Materials. You
will reproduce and include the copyright notice and any other legend,
following IBM's copyright instructions, on any copies of the Materials you
make.
13.0 Invoicing
You agree to pay our invoices within 30 days of your receipt of our
invoice. You also agree to pay us a monthly fee equal to 1.5% of any
amount we have invoiced you which you have not paid within 30 days of your
receipt of our invoice.
14. Amendment
We agree to begin good faith negotiations with you to amend the charges in
this Supplement after the forth full year of the Supplement term, such
amendment not to take effect prior to the start of the sixty second month
of the Supplement term.
15.0 Changes to the Supplement Terms
Section 1.11 of the Advantis Customer Agreement shall be amended for this
Supplement only, to include the following:
Notwithstanding anything stated in Section 1.1, "Changes to the Agreement
Terms" of the Agreement, the terms of this Supplement shall only be
modified by written agreement signed by both parties.
16.0 Your Other Responsibilities
Section 2.3, subsection 1, of the Advantis Customer Agreement shall be
deleted in its entirety and replaced with the following:
1. provided you retain all liability for the obligations under this
Agreement and provide prior written notice, you may assign, or otherwise
transfer, this Agreement or your rights under it to your wholly owned
subsidiary. In addition, you agree not to resell any Service, without
prior written consent. Any attempt to do so is void.
* Information omitted but included separately with an application for
confidential treatment filed with the Securities and Exchange Commission.
Page 16
<PAGE>
Attachment 1: Service Level Agreement
1. Service Level Objectives
We have established the following service level objectives for the Service we
provide you under this Supplement:
1. We will maintain Logical Partition Availability of 99.5%.
"Logical Partition Availability" (which is expressed as a percent)
shall mean, for the Logical Partition, the Monthly Scheduled Hours
minus the Total Outage Hours plus the Excusable Outage Hours, the
result being divided by the Monthly Scheduled Hours.
"Logical Partition" shall mean the equipment which IBM provides and
which is specified in section 3.0 with the exception of the IBM 3745
Communication Controller. Communication lines and communication
equipment either you or we provide are not included in the Logical
Partition.
"Monthly Scheduled Hours" shall mean the Monthly Hours minus the
Scheduled Maintenance Hours for the Logical Partition.
"Monthly Hours" shall mean the product of 24 times the number of
calendar days in the month, the result expressed as hours.
"Scheduled Maintenance Hours" shall mean the total number of hours
in the calendar month during which the Logical Partition was
unavailable for your use due to maintenance activity which was (1)
jointly agreed by us in advance and (2) announced to you in writing
with at least 30 days prior notice. Scheduled Maintenance Hours do
not include time in excess of the maintenance activity time we
jointly agreed in advance.
"Total Outage Hours" shall mean the total number of Monthly
Scheduled Hours during which the Logical Partition was unavailable
for your use. Unavailable time is calculated by summing the IBM
problem records for the Logical Partition for the month. Both your
personnel and IBM operational personnel initiate problem records.
"Excusable Outage Hours" shall mean the number of Total Outage Hours
which were due to causes outside of IBM's control including, but not
limited to (1) force majeure events, (2) our inability to maintain a
Logical Partition component due to your request to postpone
previously scheduled maintenance, (3) individual DASD and tape unit
malfunctions which do not render the units unusable, and (4) the
portion of Total Outage Hours which fall outside the hours during
which you have requested to use the logical partition processor.
Problem logs from our problem management process will be used to
determine if an outage should be included in Excusable Outage Hours.
This objective is effective on the Start Date.
Within ten working days of each month except the first we will send
you a report specifying Logical Partition Availability for the prior
month. This report is a Material.
2. We will mount tapes at your request on average three minutes and at
most 15 minutes from your request.
Upon your request we will provide you a report each month containing
our monthly tape mount statistics. These reports are Materials. This
objective is effective on the Start Date.
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3. We will complete processing your critical batch applications by your
critical output deadlines.
During the first 90 days of full operation we will jointly identify
and we will document in the IBM operations procedures (1) your
critical batch applications, (2) each critical batch application's
critical output deadline, and (3) the input from you necessary to
run the critical batch application and the time when we will receive
this critical input from you.
This objective is effective 90 days after the date we are executing
all your batch and on-line processing programs on the logical
partition processor. The objective will be suspended when (1) any
changes are made to length of time that it takes to process a batch
application due to, for example, increased data volumes or program
changes or (2) the number of batch jobs to be processed is changed.
In such cases the objective will become effective on a mutually
agreed to date after we have updated the IBM operations procedures
with new critical output deadlines.
We are not responsible for achieving this objective if such failure
is due to causes outside our control including, but not limited to,
(1) force majeure events, (2) our late receipt of your input
necessary to run the critical batch application, (3) unsuccessful
execution of your job stream used to run the critical batch
application, (4) your requests to bring down prerequisite programs,
(5) your requests to execute programs which can not be run
simultaneously with the critical batch application, (6) unsuccessful
processing of prerequisite jobs, and (7) your requests to deviate
from the IBM operations procedures. In such cases, however, we will
inform your designated contact of the cause, discuss alternate means
to complete the critical batch application by its critical output
deadline, and employ commercially reasonable efforts to meet the
critical output deadline.
4. We will make your critical on-line applications available for your
use at their start times.
During the first 90 days of full operation we will jointly identify
and we will document in the IBM operations procedures (1) your
critical on-line applications and (2) each critical on-line
application's start time. A critical on-line application is
available for your use if the application is executing on the host
processor. The host processor does not include communication lines
or communication equipment such as communications controllers
attached to the host processor.
This objective is effective 90 days after the date we are executing
all your batch and on-line processing on the logical partition
processor.
We are not responsible for achieving this objective if such failure
is due to causes outside our control including, but not limited to,
(1) force majeure events, (2) late completion of your batch
applications, (3) your requests to bring down prerequisite programs,
(4) your requests to execute programs which can not be run
simultaneously with the critical on-line application, and (5) your
requests to deviate from the IBM operations procedures. In such
cases, however, we will inform your designated contact of the cause,
discuss alternate means to start the critical on-line application as
soon as possible, and employ commercially reasonable efforts to
start the critical on-line application as soon as possible.
Page 18
<PAGE>
2. Credits for Failure to Meet Service Level Objectives
If IBM does not meet the service level objectives specified above under the
conditions specified below, in the month following the month for which credits
were earned IBM will process credits to your invoice in the amounts specified
below.
1. If the Logical Partition Availability is less than the Logical
Partition Availability objective in any given month, you will
receive a credit of $1,000.00 plus an additional $2,000.00 for each
0.1% by which the Logical Partition Availability is less than our
Logical Partition Availability objective.
2. We provide no credits if we do not achieve our tape mount
objectives.
3. If we do not achieve our scheduled batch job objective on any day,
you shall receive a credit of $100.00 for that day.
4. If we do not achieve our on-line systems availability objective on
any day, you shall receive a credit of $100.00 for that day.
You may receive a maximum monthly credit of $20,000.00. In addition, if any
single event causes us to miss multiple objectives, we will provide you only the
largest credit associated with the missed objectives, not the sum of the credits
for each missed objective.
Page 19
<PAGE>
Attachment 2: Disaster Recovery
We are responsible for developing, writing, and updating a plan specifying the
actions which will be taken and facilities which will be used in order for you
to continue processing if the IBM logical partition processor site is unusable
due to a disaster. This disaster recovery plan is a Material. We will provide
you advice and counsel in developing your disaster recovery plan. You will
review and approve the disaster recovery plan and you are responsible for
insuring that this disaster recovery plan meets your needs. You are responsible
for contracting for disaster recovery activities and facilities including, but
not limited to, (1) a processor configuration from IBM Business Recovery
Services ("BRS"), (2) connectivity between the disaster recovery processor and
your location, and (3) connectivity between the disaster recovery processor and
the IBM network for our use in providing you system program and operational
support. You are also responsible for determining when the IBM site is not
usable and declaring a disaster.
For the time period between your declaration of a disaster and your declaration
that the disaster is over IBM will, as soon as commercially reasonable:
1. retrieving your data and system tapes from our storage and
installing your operating environment on the disaster recovery
processor;
2. perform the system program support activities specified in section
6.0, except that we will do one NCP generation to establish
connectivity between disaster recovery site and your location in
addition to the two per month we would do under normal
circumstances; and
3. perform the operational activities specified in section 7.0, except
that we will use the number of tape slots and off-site tape storage
facilities provided by your disaster recovery facility provider.
IBM will perform these services remotely from the BRS site if possible, but in
order to meet its obligations under this SOW may have to send IBM personnel to
the BRS site.
In addition we will participate with you in one disaster recovery test per
calendar year, such test to have a duration no longer than 24 hours. During this
test we will perform the activities we would perform during a declared disaster
as specified immediately above.
We will pay on your behalf your IBM Business Recovery Services Total Monthly
Charge up to a maximum of $5,000.00 per month. IBM will invoice you directly and
you agree to pay (1) any IBM Business Recovery Services monthly charges in
excess of $5,000.00 and (2) any IBM Business Recovery Services charges you incur
during a declared disaster or disaster recovery test. In addition you agree to
pay for connectivity between the disaster recovery processor and your location,
and connectivity between the disaster recovery processor and the IBM network for
our use in providing you system program and operational support during a
disaster or disaster test.
Additional Charges
In addition to the charges specified in section 9.0, you agree to pay us actual
and reasonable travel and living expenses incurred by IBM personnel during a
disaster recovery test or a declared disaster.
Charge Reductions
During the period of a declared disaster IBM will apply to your invoice a credit
of $52000.00 per month. This credit is proratable.
Page 1 of 1
<PAGE>
Attachment 3: Connectivity Schematic
[Graphic omitted]
Page 1 of 1
<PAGE>
Attachment 4: Terms for Non-IBM Programs We License
The following terms apply to the non-IBM programs we license that are specified
in section 5.3.
MoneyGram shall protect, indemnify, defend and hold harmless IBM and its
directors, officers and employees from all claims arising from your use of any
Non-IBM Programs We License pursuant to this Supplement.
MoneyGram may use the Non-IBM Programs We License pursuant to this Supplement,
for the internal processing of MoneyGram Payment Systems, Inc.'s internal
business data only.
The terms for the following programs are currently being negotiated and
therefore the specific programs we provide are subject to change.
Notwithstanding anything contained in the IBM Customer Agreement, this
Supplement, including but not limited to Section 5.3, Non-IBM Programs We
License, or the attachments to the Supplement, the Parties acknowledge that as
of November 3, 1997, IBM has not finalized the agreements to include the
following software in this Supplement:
- --------------------------------------------------------------------------------
Vendor Program Version Release Modification
------ ------- ------- ------- ------------
- --------------------------------------------------------------------------------
Sterling Commerce Connect: Direct for 1 7 2
MVS ARS Option
- --------------------------------------------------------------------------------
Sterling Commerce Connect Direct for MVS 1 7 2
- --------------------------------------------------------------------------------
Sterling Commerce Connect - Mailbox for 4 3 2
MVS Combo
- --------------------------------------------------------------------------------
Serena International COMPAREX / MVS 7 2 0
- --------------------------------------------------------------------------------
Allen Systems ODE 3 0 0
- --------------------------------------------------------------------------------
IBM will execute and present to First Data Technologies, Inc. ("FDT") a letter
agreement in a form substantially similar to Attachment 5, attached hereto, on
or before December 1, 1997, or such later date as the parties may agree on. If
IBM does not execute and present such letter agreement to FDT by such date,
MoneyGram shall have the ability, within 10 days of such date, to terminate this
Supplement without penalty.
IBM shall obtain the necessary rights for MoneyGram to access the above software
by no later than November 15, 1997, or such later date as the parties may agree
on. If such rights are not obtained by this date, MoneyGram shall have the
right, within 10 days of such date, to terminate this Supplement without
penalty.
Page 1 of 1
<PAGE>
[Logo of Advantis]
Agreement for Exchange of Confidential Information
================================================================================
Our mutual objective under this Agreement is to provide appropriate protection
for Confidential Information ("Information") while maintaining our ability to
conduct our respective business activities. Each of us agrees that the
following terms apply when one of us ("Discloser") discloses Information to the
other ("Recipient") under this Agreement.
1. Associated Contract Documents
Each time one of the parties wishes to disclose specific Information to
the other, the Discloser will issue a Supplement to this Agreement
("Supplement") before disclosure.
The Supplement will identify the Recipient's person designated to be its
Point of Contact for the disclosure and will contain the Initial and Final
Disclosure Dates. If either of these dates is omitted from the Supplement,
such date will be deemed to be the actual date of disclosure. Information
becomes subject to this Agreement on the Initial Disclosure Date. The
Supplement will also contain a non-confidential description of the
specific Information to be disclosed and any additional terms for that
Information.
The only time Recipient and Discloser are required to sign the Supplement
is when it contains additional terms. When signatures are not required,
the Recipient indicates acceptance of Information under the terms and
conditions of this Agreement by participating in the disclosure, after
receipt of the Supplement.
2. Disclosure
The Discloser and the Recipient's Point of Contact will coordinate and
control the disclosure Information will be disclosed either:
1. in writing;
2. by delivery of items;
3. by initiation of access to Information, such as may be contained in
a data base; or
4. by oral and/or visual presentation.
Information should be marked with a restrictive legend of the Discloser.
If Information is not marked with such legend or is disclosed orally, 1)
the Information will be identified as confidential at the time of
disclosure and 2) the Discloser will promptly provide the Recipient with a
written summary.
3. Obligations
The Recipient agrees to:
1. use the same care and discretion to avoid disclosure, publication or
dissemination of the Discloser's Information as it uses with its own
similar information that it does not wish to disclose, publish or
disseminate; and
2. use the Discloser's Information solely for the purpose for which it
was disclosed or otherwise for the benefit of the Discloser.
The Recipient may disclose Information to:
1. its employees and employees of its parent and subsidiary companies
who have a need to know; and
2. any other party with the Discloser's prior written consent.
Page 1
<PAGE>
Before disclosure to any of the above parties, the Recipient will have a
written agreement with such party sufficient to require that party to
treat Information in accordance with this Agreement.
The Recipient may disclose Information to the extent required by law.
However, the Recipient will give the Discloser prompt notice to allow the
Discloser a reasonable opportunity to obtain a protective order.
4. Confidentiality Period
Information disclosed pursuant to this Agreement will be subject to the
terms of this Agreement for two years following the Final Disclosure Date.
5. Exceptions to Obligations
The Recipient may disclose, publish. disseminate. and use Information that
is:
1. already in its possession without obligation of confidentiality;
2. developed independently;
3. obtained from a source other than the Discloser without obligation
of confidentiality;
4. publicly available when received, or thereafter becomes publicly
available through no fault of the Recipient; or
5. disclosed by the Discloser to another party without obligation of
confidentiality.
6. Residual Information
The Recipient may disclose publish, disseminate. and use the ideas,
concepts, know-how and techniques, related to Recipient's business
activities, which are contained in the Discloser's Information and
retained in the memories of Recipient's employees who have had access to
the Information pursuant to this Agreement ("Residual Information")
Nothing contained in this Section gives the Recipient the right to
disclose, publish, or disseminate, except as set forth elsewhere in this
Agreement:
1. the source of Residual Information;
2. any financial, statistical or personnel data of the Discloser; or
3. the business plans of the Discloser.
7. Disclaimers
THE DISCLOSER PROVIDES INFORMATION SOLELY ON AN "AS IS" BASIS.
The Discloser will not be liable for any damages arising out of the use of
Information disclosed hereunder.
Neither this Agreement, nor any disclosure of Information hereunder grants
the Recipient any right or license under any trademark, copyright or
patent now or hereafter owned or controlled by the Discloser.
Disclosure of Information containing business plans is for planning
purposes only. The Discloser may change or cancel its plans at any time.
Use of such Information is at the Recipient's own risk.
Page 2
<PAGE>
The receipt of Information pursuant to this Agreement will not preclude,
or in any way limit, the Recipient from:
1. providing to others products or services which may be competitive
with products or services of the Discloser;
2. providing products or services to others who compete with the
Discloser; or
3. assigning its employees in any way it may choose.
8. General
This Agreement does not require either party to disclose or to receive
Information.
Neither party may assign or otherwise transfer its rights or delegate its
duties or obligations under this Agreement without prior written consent.
Any attempt to do so is void.
The Recipient will comply with all applicable United States and foreign
export laws and regulations.
Only a written agreement signed by both parties can modify this Agreement.
Either party may terminate this Agreement by providing one month's written
notice to the other. Any provisions of this Agreement which by their
nature extend beyond its termination will remain in effect until
fulfilled, and will apply to respective successors and assigns.
If there is a conflict between the terms and conditions of this Agreement
and a Supplement, those of the Supplement prevail. Except as modified by a
Supplement the terms of this Agreement remain in full force and effect.
The laws of the State of New York govern this Agreement.
This Agreement and its Supplements are the complete and exclusive
agreement regarding our disclosures of Information, and replace any
prior oral or written communications between us. By signing below for
our respective enterprises, each of us agrees to the terms of this
Agreement. Once signed, any reproduction of this Agreement made by
reliable means (for example, photocopy or facsimile) is considered an
original.
Agreed to: MoneyGram Payment Systems, Inc. Agreed to: Advantis Corporation
7401 West Mansfield Avenue 231 N. Martingale Road
Lakewood, Colorado 80235 Schaumburg, Illinois
60173-2254
By: /s/ Alan A. Friedman By: /s/ [ILLEGIBLE]
----------------------------------- -----------------------------
Name: Alan A. Friedman Name:
----------------------------------- -----------------------------
Title: EVP Title:
----------------------------------- -----------------------------
Date: Date: NOV 25, 1997
----------------------------------- -----------------------------
Page 3
<PAGE>
[Logo of Advantis]
Agreement for Exchange of Confidential Information
Supplement for Disclosure
================================================================================
Discloser: Advantis Name and Address of Recipient's Point of
Contact: Any MoneyGram Personnel With
Access to Advantis Provided Programs
Initial Disclosure Date: Start Date* Final Disclosure Date: Seventh
Anniversary of the Start Date
Date of Agreement for Exchange of Confidential Information: September 30, 1997
* Start Date shall mean the Start Date as defined in the Advantis Customer
Agreement, Supplement for Custom Solution for logical partition processor
environment services ("Supplement").
Confidential Information:
The following is a nonconfidential description of Information the Discloser
wishes to disclose.
All software, including any updates, program modifications, enhancements and
new versions, provided pursuant to the Supplement.
Additional Terms and Conditions, if any: (If none, write NONE)
- --------------------------------------------------------------------------------
Both of us agree that this Supplement and the Agreement for Exchange of
Confidential Information are the complete agreement regarding this disclosure
and replace any prior oral or written communications between us. Any
reproduction of this Supplement made by reliable means (for example, photocopy
or facsimile) is considered an original.
The only time both of us are required to sign this Supplement is when it
contains additional terms and conditions.
Agreed to: MoneyGram Payment Systems, Inc. Agreed to: Advantis Corporation
7401 West Mansfield Avenue 231 N. Martingale Road
Lakewood, Colorado 80235 Schaumburg, Illinois
60173-2254
By: /s/ Alan A. Friedman By: /s/ [ILLEGIBLE]
----------------------------------- -----------------------------
Name: Alan A. Friedman Name:
----------------------------------- -----------------------------
Title: EVP Title:
----------------------------------- -----------------------------
Date: Date: NOV 25, 1997
----------------------------------- -----------------------------
- --------------------------------------------------------------------------------
|_| Check this box if there are continuous pages, including attached
additional terms. Also, enter the total number of pages below.
- --------------------------------------------------------------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333- 17939) pertaining to the 1996 Stock Option Plan and 1996 Broad
Based Stock Option Plan of MoneyGram Payment Systems, Inc. of our report dated
March 12, 1998, with respect to the consolidated financial statements of
MoneyGram Payment Systems, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1997.
Ernst & Young LLP
New York, New York
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MoneyGram
Payment Systems, Inc.'s Form 10-K for the period ended December 31, 1997 and is
qualified entirely by reference to such Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,540
<SECURITIES> 8,300
<RECEIVABLES> 5,672
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,190
<PP&E> 10,540
<DEPRECIATION> 8,472
<TOTAL-ASSETS> 136,718
<CURRENT-LIABILITIES> 32,887
<BONDS> 0
0
0
<COMMON> 166
<OTHER-SE> 100,996
<TOTAL-LIABILITY-AND-EQUITY> 136,718
<SALES> 0
<TOTAL-REVENUES> 140,911
<CGS> 0
<TOTAL-COSTS> 133,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,810
<INCOME-TAX> (3,870)
<INCOME-CONTINUING> 11,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,680
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
