<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File Number: 000-25621
E-LOAN, INC.
------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0460084
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5875 ARNOLD ROAD, SUITE 100, DUBLIN CALIFORNIA 94568
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (925) 241-2400
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of July 1, 1999, 38,787,029 shares of the Registrant's Common Stock,
$0.001 par value per share, were issued and outstanding
<PAGE> 2
E-LOAN, INC.
FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Balance Sheets as of June 30, 1999 and December 31, 1998.................................... 2
Statements of Operations for the three months and six months
ended June 30, 1998 and June 30, 1999....................................................... 3
Statements of Cash Flows for the six months ended June 30, 1998
and June 30, 1999........................................................................... 4
Notes to Unaudited Financial Statements..................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 24
Item 2. Changes in Securities and Use of Proceeds................................................... 24
Item 3. Defaults Upon Senior Securities............................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders......................................... 24
Item 5. Other Information........................................................................... 24
Item 6. Exhibits and Reports on Form 8-K............................................................ 25
Signature
Index to Exhibits
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
E-LOAN, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 9,141 $ 931
Proceeds receivable from sale of common stock ................................. -- 64,840
Mortgage loans held-for-sale .................................................. 42,154 70,462
Accounts receivable, net ...................................................... 411 212
Prepaids and other current assets ............................................. 721 7,421
--------- ---------
Total current assets ........................................................ 52,427 143,866
Furniture and equipment, net ........................................................ 2,366 3,688
Deposits and other assets ........................................................... 730 1,903
--------- ---------
Total assets ................................................................ $ 55,523 $ 149,457
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Warehouse lines payable ....................................................... $ 41,046 $ 69,106
Accounts payable, accrued expenses and other current liabilities .............. 2,655 12,841
Capital lease obligation ...................................................... 253 252
Notes payable ................................................................. 71 5,424
--------- ---------
Total current liabilities ................................................... 44,025 87,623
Capital lease obligations ........................................................... 719 634
Notes payable ....................................................................... 570 1,073
--------- ---------
Total liabilities ........................................................... 45,314 89,330
--------- ---------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series C, 4,467,912 shares authorized; 4,069,936 and 4,269,936 shares issued,
and 4,269,936 and 0 shares outstanding at December 31, 1998 and
June 30, 1999 (aggregate liquidation preference $5,245,702
and $0 at December 31, 1998 and June 30, 1999) ................................ 5,526 --
Series C-1, 4,467,912 shares authorized; 0 shares issued and outstanding
(liquidation preference $1.22852 per share) ................................. -- --
Series D, 1,950,000 shares authorized; 1,662,529 and 1,702,529 shares issued,
and 1,662,529 and 0 shares outstanding at December 31, 1998 and June 30, 1999
(aggregate liquidation preference $15,400,006 and $0 at
December 31, 1998 and June 30, 1999) ....................................... 15,867 --
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock:
Series A, 428,635 shares authorized; 428,635 shares issued, and 428,635
and 0 shares outstanding at December 31, 1998 and June 30, 1999
(aggregate liquidation preference $94,300 and $0 at
December 31, 1998 and June 30, 1999) ........................................ 91 --
Series B, 450,708 shares authorized; 430,207 shares issued, and 430,207
and 0 shares outstanding at December 31, 1998 and June 30, 1999
(aggregate liquidation preference $412,999 and $0 at
December 31, 1998 and June 30, 1999) ........................................ 411 --
Common stock, 50,000,000 shares authorized; 12,524,010 and 38,787,029
shares issued and outstanding at December 31, 1998 and June 30, 1999 ........ 13 39
Less: subscription receivable ....................................................... (4) (4)
Unearned compensation ............................................................... (4,477) (31,839)
Additional paid in capital .......................................................... 5,382 132,830
Accumulated deficit ................................................................. (12,600) (40,899)
--------- ---------
Total stockholders' equity (deficit) ........................................ (11,184) 60,127
--------- ---------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity $ 55,523 $ 149,457
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
E-LOAN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .......................................... $ 1,233 $ 4,562 $ 1,759 $ 9,364
Operating expenses:
Operations ................................... 1,157 4,835 2,022 9,274
Sales and marketing .......................... 890 7,574 1,414 11,272
Technology ................................... 392 749 567 1,279
General and administrative ................... 319 2,473 590 3,469
Amortization of unearned compensation ........ 211 5,785 255 12,339
-------- -------- -------- --------
Total operating expenses .............. 2,969 21,416 4,848 37,633
-------- -------- -------- --------
Loss from operations ........................ (1,736) (16,854) (3,089) (28,269)
Other income, net ................................. 29 (66) 49 (31)
-------- -------- -------- --------
Net loss .................................... (1,707) (16,920) (3,040) (28,300)
Accretion of preferred stock ...................... (125) (525) (250) (1,042)
-------- -------- -------- --------
Net loss applicable to common hareholders $ (1,832) $(17,445) $ (3,290) $(29,342)
-------- -------- -------- --------
Net loss per share:
Basic and diluted ............................. $ (0.15) $ (1.29) $ (0.27) $ (2.24)
======== ======== ======== ========
Weighed-average shares -
Basic and diluted .......................... 12,368 13,546 12,346 13,072
======== ======== ======== ========
Pro forma net loss per share:
Basic and diluted .......................... $ (0.08) $ (0.52) $ (0.14) $ (0.88)
======== ======== ======== ========
Pro forma weighed-average shares -
Basic and diluted .......................... 23,314 33,584 23,032 33,263
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
E-LOAN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (3,040) $ (28,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of unearned compensation ................................... 255 12,339
Charitable contribution of common stock ................................. -- 900
Depreciation and amortization ........................................... 90 466
Change in operating assets and liabilities:
Accounts receivable .................................................. (252) 202
Net change in mortgage loans held-for-sale ........................... -- (28,308)
Prepaids, deposits and other assets .................................. (38) (7,377)
Accounts payable, accrued expenses and other ......................... (79) 10,175
--------- ---------
Net cash used in operating activities ............................. (3,064) (39,903)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment ....................................... (171) (1,788)
--------- ---------
Net cash used in investing activities ............................. (171) (1,788)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of issuance costs related to initial public offering .............. -- (1,351)
Proceeds from issuance of common stock .................................... 22 153
Payments on obligations under capital leases .............................. -- (85)
Proceeds from notes payable ............................................... -- 5,855
Repayments of notes payable ............................................... (79) --
Proceeds from warehouse lines payable ..................................... -- 583,315
Repayments of warehouse lines payable ..................................... -- (555,255)
Proceeds from issuance of preferred stock, net ............................ -- 849
--------- ---------
Net cash provided by (used in) financing activities ............... (57) 33,481
--------- ---------
Net (decrease) in cash .................................................... (3,292) (8,210)
--------- ---------
Cash and cash equivalents at beginning of period .......................... 4,218 9,141
--------- ---------
Cash and cash equivalents at end of period ................................ $ 926 $ 931
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .................................................... $ 12 $ 1,469
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Furniture and equipment under capital leases .............................. $ 790 $ 0
========= =========
Proceeds from sale of common stock, net (received July 2, 1999) ............... -- $ 64,480
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
E-LOAN, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. THE COMPANY:
E-Loan, Inc. (the "Company") was incorporated on August 26, 1996 and
began marketing its services in June 1997. Prior to that date, the Company
conducted business through a predecessor company, Palo Alto Funding Group
("PAFG") which was established in 1992 as a mortgage broker. The Company is a
provider of mortgage offerings online and is engaged in the brokerage,
origination, and sale of mortgage loans collateralized by residential real
estate. The Company serves U.S. consumers in the first and second home mortgage
loan market over the internet.
2. BASIS OF PRESENTATION:
Interim Financial Information (unaudited)
The accompanying financial statements as of June 30, 1999 and 1998 are
unaudited. The unaudited interim financial statements have been prepared on the
same basis as the annual financial statements and, in the opinion of management,
reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the Company's financial position, results of
operations and cash flows as of June 30, 1999 and 1998. These financial
statements and notes thereto are unaudited and should be read in conjunction
with the Company's audited financial statements included in the Company's final
Prospectus, dated June 28, 1999. The results for the three months and six months
ended June 30, 1999 are not necessarily indicative of the expected results for
the year ending December 31, 1999.
Use Of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts in the fiscal 1998 and first quarter 1999 financial
statements have been reclassified to conform to the second quarter 1999
presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Initial Public Offering and Conversion of Mandatorily Redeemable
Convertible Preferred Stock:
The Company completed its initial public offering of 4,020,000 shares
of its common stock on June 29, 1999, raising $52.3 million in net proceeds.
Concurrently, the Company sold 960,061 shares of its common stock for $12.5
million in net proceeds in a private placement to Forum Holdings, Inc., an
investment subsidiary of Group Arnault.
Simultaneously with the closing of the initial public offering, all the
convertible preferred stock, mandatorily redeemable convertible preferred stock
and a warrant to purchase mandatorily redeemable preferred stock were
automatically converted into an aggregate of 20,620,194 shares of common stock.
The total proceeds of $64.8 million were received on July 2, 1999.
5
<PAGE> 7
E-LOAN, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Software Development Costs
In 1999 the Company adopted SOP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" which required that
the Company expense computer software costs as they are incurred in the
preliminary project stage. Once the capitalization criteria of the SOP have been
met, external direct costs of materials and services consumed in developing or
obtaining internal-use computer software and payroll and payroll related costs
for employees who are directly associated with and who devote time to the
internal-use computer software are capitalized. Capitalized costs are amortized
over three years on a straight-line basis. As of June 30, 1999, the Company had
capitalized approximately $0.6 million in software development costs.
Net Income (Loss) Per Share
The Company computes net loss per share in accordance with SFAS No.
128, Earnings per Share. Under the provisions of SFAS No. 128 basic net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of common and common equivalent shares outstanding during the period, to the
extent such common equivalent shares are dilutive. Common equivalent shares are
composed of incremental common shares issuable upon the exercise of stock
options and warrants and upon conversion of Series A, B, C and Series D
convertible preferred stock.
Pro forma net loss per share has been computed by dividing net loss
applicable to common shareholders by the pro forma weighted average number of
shares outstanding. Pro forma weighted average shares assume the conversion of
all preferred stock (which were ultimately converted to common stock in
conjunction with the initial public offering, as if the conversion occurred at
the beginning of the period or at date of issuance, if later.
4. WAREHOUSE LINES PAYABLE
As of June 30, 1999, the Company had a warehouse line of credit for
borrowings up to $25 million, which includes a temporary overdraft limit of $15
million for interim financing of mortgage loans. The interest rate charged on
borrowings against the warehouse line of credit is variable based on the
commercial paper rate of the lender plus various percentage rates. Borrowings
are collateralized by the mortgage loans held-for-sale. At June 30, 1999,
approximately $23 million was outstanding under this line. On July 28, 1999 the
warehouse line of credit increased to $50 million. Either the Company or the
lender can terminate the agreement at any time. This agreement expires April 30,
2000. Upon expiration, management believes it will either renew its existing
line or obtain sufficient additional lines.
This line of credit agreement generally requires the Company to comply
with various financial and non-financial covenants. The Company was in
compliance with these covenants at June 30, 1999.
Additionally, the Company entered into an agreement with a lender to
finance up to $35.0 million of mortgage loan inventory pending sale of these
loans to mortgage loan purchasers. This additional loan inventory financing is
secured by the related mortgage loans. The interest rate charged is LIBOR plus
1.25%. Either the Company or the lender can terminate the agreement at any time.
At June 30, 1999 there was no outstanding balance under this financial
6
<PAGE> 8
E-LOAN, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
4. WAREHOUSE LINES PAYABLE, continued:
commitment. This agreement includes various non-financial negative and
affirmative covenants. The Company was in compliance with these covenants at
June 30, 1999.
On May 21, 1999 the Company entered into an agreement with a lender for
a $100 million committed line of credit. Concurrent with the initial public
offering, the agreement was increased to include an additional $100 million in
uncommitted funds. Interest accrues on these funds at LIBOR plus .95%. The line
expires May 20, 2000.
On January 15, 1999, the Company entered into a warehouse line of
credit agreement for borrowings of up to $40 million for interim financing of
mortgage loans. The interest rate charged on borrowings against the line is
equal to LIBOR plus 1.85%. The line of credit expires on February 2, 2000. At
June 30, 1999, approximately $39 million was outstanding under this line. Either
the Company or the lender can terminate the agreement at anytime.
This line of credit agreement generally requires the Company to comply
with various financial and non-financial covenants. The Company was in
compliance with these covenants as of June 30, 1999.
Upon expiration of any of these lines, management believes it will
either renew its existing lines or obtain sufficient additional lines.
5. NOTES PAYABLE
During March 1999, the Company obtained a commitment of $5 million for
a revolving line of credit capital facility. The interest rate is based on the
prime rate and the facility expired on the closing of the Company's initial
public offering. Two of the Company's founding stockholders have provided
guarantees for the Company's obligation under this line of credit. At June 30,
1999, $5 million was outstanding under this revolving line of credit.
Outstanding balance was paid in full in July 1999.
6. REVENUES AND OTHER INCOME, NET
The following table provides the components of revenues ($000s):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Brokerage Fees................. $1,220 $ 575 $1,746 $2,307
Gain on Sale of Loans.......... 13 3,004 13 5,247
Interest Income on Loans....... -- 983 -- 1,810
------ ------ ------ ------
Total Revenues................. $1,233 $4,562 $1,759 $9,364
====== ====== ====== ======
</TABLE>
The following table provides the components of other income, net
($000s):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest on short-term investments... $32 $ 23 $ 61 $ 85
Interest expense on non-warehouse
facilities borrowings.............. (3) (89) (12) (116)
--- ---- ---- -----
$29 $(66) $ 49 $ (31)
=== ==== ==== =====
</TABLE>
7. OPERATING EXPENSES
The following table provides detail of the Company's operating
expenses classified by the following categories ($000s):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Compensation and benefits...... $1,160 $ 4,270 $1,695 $ 7,884
Processing costs............... 203 453 554 639
Advertising and marketing...... 754 6,386 1,178 9,641
Professional services.......... 275 1,214 494 1,718
Occupancy costs................ 130 641 260 1,175
Computer and internet.......... 42 195 112 273
General and administrative..... 194 1,468 300 1,928
Interest expense on warehouse
borrowings................... -- 1,004 -- 2,036
Amortization of unearned
compensation................. 211 5,785 255 12,339
------ ------ ------ -------
Total Operating Expenses....... $2,969 $21,416 $4,848 $37,633
====== ======= ====== =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENT CONTINGENCIES
Upon receiving a locked commitment from a borrower, the Company
simultaneously enters into a forward sale with the ultimate investor. At
June 30, 1999, the Company was a party to commitments to fund loans at interest
rates previously agreed (locked) by both the ultimate lender and the borrower
for specified periods of time. Prior to originating loans under these
commitments, the Company evaluates each customer's credit and collateral
worthiness. The Company uses its best efforts to fund these locked loans within
the agreed-upon locked period. If the loan cannot be funded within this period,
or if the Company is unable to secure a rate lock from the ultimate lender equal
to or less than the rate lock extended to the borrower, the Company will earn
less revenue than it anticipated at the time it locked with the borrower. At
June 30, 1999, the Company had provided locks to originate loans amounting to
approximately $127.6 million (the "locked pipeline"). In addition, the Company
had commitments at June 30, 1999, in its capacity as a broker, amounting to
approximately $6.6 million.
At June 30, 1999, the Company had entered into non-mandatory forward
loan sale agreements, including commitments with lenders for brokered loans,
amounting to approximately $204.7 million (this includes the mortgage loans
held-for-sale at June 30, 1999, of approximately $70.5 million). The forward
loan sale agreements do not subject the Company to mandatory delivery and there
is no penalty if the Company does not deliver into the commitment. The Company
is exposed to the risk that these counterparties may be unable to meet the terms
of these sale agreements. The investors are well-established U.S. financial
institutions; the Company does not require collateral to support these
commitments, and there has been no failure on the part of the counterparties to
meet the terms of these agreements to date.
7
<PAGE> 9
E-LOAN, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
9. INVESTMENTS
In May 1999, the Company acquired a 40% minority interest in E-LOAN
Japan, K.K., a joint venture between E-LOAN, Inc. and Softbank Corp. E-LOAN
Japan, K.K., will develop and market an online mortgage marketplace to serve
consumers in Japan and the Republic of Korea. The Company accounts for these
investments according to the equity method of accounting.
10. SUBSEQUENT EVENTS
On July 2, 1999, the Company filed a restated Certificate of
Incorporation that increased the authorized common shares to 70,000,000 and
provided for 5,000,000 authorized shares of undesignated preferred stock.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Form 10-Q.
This discussion contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below, as well as those discussed below
under "Factors Affecting Future Operating Results." The Company disclaims any
obligation to update information contained in any forward-looking statement. See
"Forward-Looking Statements."
OVERVIEW
E-LOAN is a leading online provider of mortgages and is engaged in the
brokerage, origination and sale of mortgage loans secured by residential real
estate.
E-LOAN's revenues are derived from the brokering of loans and the
origination and sale of loans. Brokered loans are funded through lending
partners and E-LOAN never takes title to the mortgage. Brokerage revenues are
comprised of the mark-up to the lending partner's loan price, and processing and
credit reporting fees. These revenues are recognized at the time a loan is
closed. Originated and sold loans are loans that are funded through E-LOAN's own
warehouse lines of credit and sold to mortgage loan purchasers. Loan origination
and sale revenues consist of proceeds in excess of the carrying value of the
loan, origination fees less certain direct origination costs, other processing
fees and interest paid by borrowers on loans that E-LOAN holds for sale. These
revenues are recognized at the time the loan is sold or, for interest income, as
earned during the period from funding to sale. E-LOAN earns additional revenue
from its loan origination and sale operations as compared to brokered loan
operations because the sale of loans includes a service release premium.
E-LOAN's loan origination and sale operations were initiated in June
1998 and represented 35% of total revenues for the year ended December 31, 1998
and 64% and 83% for the three months ended March 31, 1999 and June 30, 1999,
respectively. E-LOAN expects revenues derived from its loan origination and sale
operations to continue to increase as a percentage of total revenues in future
quarters.
E-LOAN's percentage of purchase mortgage business is increasing. Part
of E-Loan's strategy is to become less reliant on refinance loans, which are
more sensitive to changes in interest rates. Historically, purchase mortgages
have demonstrated growth through a number of economic cycles. For the quarter
ended June 30, 1999, approximately 18% of closed loans and 53% of application
volumes were attributed to purchase mortgages. This compares to 5% and 28%,
respectively, for the quarter ended March 31, 1999.
For the quarter ended June 30, 1999, 63% of all loans were originated
in California. This compares to 83% for the quarter ended December 31, 1998 and
69% for the quarter ended March 31, 1999. We expect that the percentage of loans
originated outside of California will continue to increase because of our
national branding and advertising programs.
In generating revenues, E-LOAN relies on a number of strategic Internet
distribution partners to direct a significant number of prospective customers to
its website. E-LOAN considers its distribution partnerships with Yahoo!, E*Trade
and CBS MarketWatch to be the most critical to its ability to generate revenues.
Both Yahoo! and E*Trade have made equity investments in E-LOAN.
As a result of our limited operating history and our recent growth, it
will be necessary to implement new and expanded operational, financial and
administrative systems and control procedures to enable us to expand, train and
manage our employees and coordinate the efforts of our underwriting, accounting,
finance, marketing, and operations departments. For example, we intend to
implement both a new financial reporting system and a loan production system by
the end of 1999.
9
<PAGE> 11
E-LOAN FOUNDATION STOCK ISSUANCE
In May 1999, E-LOAN donated 75,000 shares of common stock in connection
with its establishment of a charitable foundation. The shares donated had an
estimated fair value of $900,000, which E-LOAN recorded as a general and
administrative expense in the three-month period ending June 30, 1999.
AMORTIZATION OF UNEARNED COMPENSATION
As of December 31, 1998, E-LOAN had recorded unearned compensation in
the amount of $5.7 million in connection with certain stock issuances and option
grants, which were considered to be compensatory. E-LOAN recorded an additional
$38.2 million in unearned compensation in the six months ended June 30, 1999.
The amounts related to options are being amortized on an accelerated
basis over the four-year vesting period associated with these options. E-LOAN
amortized $5.8 million and $12.3 million for the three and six months ended June
30, 1999, respectively, compared to $0.2 million and $0.3 million for the three
and six months ended June 30, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statements of
operations as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Six months ended
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Operations .......................... 94 106 115 99
Sales and marketing ................. 72 166 80 120
Technology .......................... 32 16 32 14
General and administrative .......... 26 54 34 37
Amortization of unearned compensation 17 127 15 132
----- ----- ----- -----
Total operating expenses ..... 241 469 276 402
----- ----- ----- -----
Loss from operations ................ (141) (369) (176) (302)
Other income, net .......................... 2 (1) 3 0
----- ----- ----- -----
Net loss ................................... (139%) (370%) (173%) (302%)
===== ===== ===== =====
</TABLE>
Three and Six Months Ended June 30, 1999 and 1998
REVENUES
Revenues increased to $4.6 million for the three months ended June 30,
1999 from $1.2 million for the three months ended June 30, 1998 and increased to
$9.4 million in the six months ended June 30, 1999 from $1.8 million in the six
months ended June 30, 1998. These increases resulted primarily from growth in
the number of loans closed. During the June 1999 quarter, the Company closed
2,006 loans compared to 1,057 loans in the June 1998 quarter.
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OPERATING EXPENSES
TOTAL OPERATING EXPENSES. Total operating expenses increased to $21.4
million for the three months ended June 30, 1999 from $3.0 million for the three
months ended June 30, 1998 and increased to $37.6 million in the six months
ended June 30, 1999 from $4.8 million in the six months ended June 30, 1998.
These increases were primarily due to significant increases in compensation and
benefits as a result of increased headcount and expanded advertising and
promotional activity, including increased costs related to the addition of
distribution partners.
OPERATIONS. Operations expense is comprised of both fixed and variable
expenses, including salaries, benefits and expenses associated with the
brokering, origination and sale of mortgage loans, and interest expense paid by
E-LOAN under the warehouse facilities it uses to fund loans held for sale.
Operations expense increased to $4.8 million for the three months ended June 30,
1999 from $1.2 million for the three months ended June 30, 1998 and increased to
$9.3 million in the six months ended June 30, 1999 from $2.0 million in the six
months ended June 30, 1998. The increases in absolute dollars were primarily
attributable to the significant increase in operations headcount from 72 at June
30, 1998 compared to 202 at June 30, 1999. In addition, E-LOAN has expanded its
loan origination and sale business since initiating it in June 1998, which has
resulted in additional headcount and an increase in interest expense due to an
increase in the number of loans held for sale. Operations expense increased as a
percentage of revenues from 94% for the three months ended June 30,1998 to 106%
for the three months ended June 30, 1999, which is a direct result of the
Company's growth during that time period. Operations expense decreased as a
percentage of revenue from 115% to 99% in the six month periods ended June 30,
1998 and June 30, 1999, respectively, due to revenue growth exceeding growth in
operations expense. E-LOAN expects operations expense to increase in absolute
dollars over the next two years and intends to increase operations capacity in
anticipation of an increase in the number of loans funded.
SALES AND MARKETING. Sales and marketing expense is primarily comprised
of expenses related to advertising, promotion and distribution partnerships and
salaries, benefits and other expenses related to personnel. Sales and marketing
expense increased to $7.6 million for the three months ended June 30, 1999 from
$0.9 million for the three months ended June 30, 1998 and increased to $11.3
million in the six months ended June 30, 1999 from $1.4 million in the six
months ended June 30, 1998. Sales and marketing expense increased as a
percentage of revenues from 72% for the three months ended June 30, 1998 to 166%
for the three months ended June 30, 1999 and increased from 80% in the six
months ended June 30, 1998 to 120% in the six months ended June 30, 1999. Sales
and marketing expense increased primarily due to increases in compensation
associated with additional headcount and a substantial increase in expenses for
advertising, promotion and distribution partnerships beginning in the third
quarter of 1998 and continuing through the six months ended June 30, 1999.
E-LOAN intends to significantly increase absolute dollar spending in sales and
marketing activities over the next two years in an effort to increase
origination volume and increase overall brand awareness.
TECHNOLOGY. Technology expense includes salary, benefits and consulting
fees related to website development, the introduction of new technologies and
the support of E-LOAN's existing technological infrastructure. Technology
expense increased to $0.8 million for the three months ended June 30, 1999 from
$0.4 million for the three months ended June 30, 1998 and increased to $1.3
million in the six months ended June 30, 1999 from $0.6 million in the six
months ended June 30, 1998. Technology expense decreased as a percentage of
revenues from 32% for the three months ended June 30, 1998 to 16% for the three
months ended June 30, 1999 and decreased from 32% in the six months ended June
30, 1998 to 14% in the six months ended June 30, 1999. The absolute dollar
increases were primarily the result of the growth in engineering and management
information systems personnel to support the expansion of online operations.
E-LOAN intends to significantly increase absolute dollar spending on technology
over the next two years in an effort to further improve the online mortgage
origination process and implement new features and services to its website.
GENERAL AND ADMINISTRATIVE General and administrative expense is
primarily comprised of salary, benefits and professional services. General and
administrative expense increased to $2.5 million for the three months ended June
30, 1999 from $0.3 million for the three months ended June 30, 1998 and
increased to $3.5 million in the six months ended June 30, 1999 from $0.6
million in the six months ended June 30, 1998. General and administrative
expense increased as a percentage of revenues from 26% for the three months
ended June 30, 1998 to 54% for the three months ended June 30, 1999 and
increased from 34% in the six months ended June 30, 1998 to 37% in the six
months ended June 30, 1999.
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The June 1999 quarter included a one-time charge of $0.9 million for the
establishment of the E-LOAN foundation. In addition to the one-time charge,
general and administrative expense increased primarily due to the addition of
general and administrative headcount and increased professional services fees.
General and administrative expenses are expected to increase in absolute dollars
over the next two years as E-LOAN expands its management in anticipation of
continued growth and as a result of additional reporting requirements imposed on
E-LOAN as a publicly traded company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, E-LOAN has financed its operations primarily
through private placements of convertible preferred stock and borrowings under
warehouse lines of credit and other credit facilities. In June 1999, E-LOAN
completed its initial public offering and issued 4,020,000 shares of its common
stock at a price of $14.00 per share. E-LOAN received approximately $52.3
million in cash, net of underwriting discounts from the initial public offering.
Concurrently with the closing of the initial public offering, E-LOAN also sold
960,061 shares of its common stock in a private placement, receiving aggregate
proceeds of approximately $12,500,000. As of December 31, 1998 and June 30,
1999, E-LOAN had approximately $9.1 million and $0.9 million in cash and cash
equivalents, respectively. At June 30, 1999, E-LOAN had a $64.8 million proceeds
receivable from the sale of common stock, which proceeds were received on July
2, 1999.
E-LOAN's sources of cash flow include cash from the sale of mortgage
loans, borrowings under warehouse lines of credit and other credit facilities,
brokerage fees, interest income, and the sale of equity securities in both
private and public transactions. E-LOAN's uses of cash include the funding of
mortgage loans, repayment of amounts borrowed under warehouse lines of credit,
operating expenses, payment of interest, and capital expenditures primarily
comprised of furniture, fixtures, computer equipment, software and leasehold
improvements. Net cash used in operating activities was ($3.0) million and
($39.9) million for the six months ended June 30, 1998 and 1999, respectively.
Net cash used in operating activities was primarily due to an increase in net
losses and an increase in mortgage loans held for sale.
Net cash used in investing activities was ($0.2) million and ($1.8)
million for the six months ended June 30, 1998 and 1999, respectively. Net cash
used in investing activities during these periods was primarily for the purchase
of software, furniture and equipment and leasehold improvements.
Net cash (used in) and provided by financing activities was ($0.06)
million and $33.5 million for the six months ended June 30, 1998 and 1999,
respectively. Net cash provided in these periods was primarily from proceeds
from notes payable, borrowings under E-LOAN's warehouse lines of credit and
other credit facilities, partially offset by repayments of warehouse lines of
credit and issuance costs related to the initial public offering.
FORWARD LOOKING STATEMENTS
The statements contained in this Report that are not historical facts
are "forward-looking statements" (as such term is defined in Section 27A of the
Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934),
which can be identified by the use of forward-looking terminology such as
"estimated," "projects," "anticipated," "expects," "intends," "believes," or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. These
forward-looking statements, such as the Company's plans to increase the number
of purchase loans, the relative importance of loans E-LOAN originates and sells
and growth in the number of applications received, statements regarding
development of E-LOAN's business, future operating results, anticipated capital
expenditures, the expectations as to the use of the capital resource and the
availability of additional financing, and other statements contain in this
Report regarding matters that are not historical facts, are only estimates or
predictions and cannot be relied upon. No assurance can be given that future
results will be achieved; actual events or results may differ materially as a
result of risks facing the company or actual results differing from the
assumption underlying such statements. Such risks and assumptions include, but
are not limited to, E-LOAN's ability to successfully promote and market its
brand to current and new customers, generate customer demand for its products in
regions of the country other than California, access additional debt or equity
financing in the future, achieve acceptable pricing for its services, respond to
increasing competition, manage growth of E-LOAN's operations, as well as
regulatory, legislative, and judicial developments that could cause actual
results to vary materially from the future results indicated, expressed or
implied in such forward-looking statements. All written and oral forward-looking
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statements made in connection with this Report which are attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the "Factors Affecting Future Operating Results" and other
cautionary statements included herein. The Company disclaims any obligation to
update information contained in any forward-looking statement.
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FACTORS AFFECTING FUTURE OPERATING RESULTS
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MAY NOT ACHIEVE
OR MAINTAIN PROFITABILITY
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We incurred net losses of $3.0
million and $28.3 million for the six months ended June 30, 1998 and 1999,
respectively. As of June 30, 1999, our accumulated deficit was $40.8 million.
Given that we expect to continue to incur significant sales and marketing
expenses and that our other operating costs will increase to accommodate
expected growth in loan applications, we will need to generate significant
revenues to achieve and maintain profitability. Even if we achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. If revenues grow slower than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly,
our business, results of operations and financial condition will be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
WE HAVE A LIMITED OPERATING HISTORY AND CONSEQUENTLY FACE SIGNIFICANT RISKS AND
UNCERTAINTIES
We were incorporated in August 1996 and initiated our online mortgage
operations in June 1997. As a result of our limited operating history, our
recent growth and our reporting responsibilities as a public company, it will be
necessary to implement new and expanded operational, financial and
administrative systems and control procedures to enable us to expand, train and
manage our employees and coordinate the efforts of our underwriting, accounting,
finance, marketing, and operations departments.
OUR QUARTERLY FINANCIAL RESULTS ARE VULNERABLE TO SIGNIFICANT FLUCTUATIONS WHICH
COULD ADVERSELY AFFECT OUR STOCK PRICE
Due to rising interest rates and other factors, it is possible that in
some future periods our operating results may be below the expectations of
public market analysts and investors. In this event, the price of our common
stock may fall. Our revenues and operating results may vary significantly from
quarter to quarter due to a number of factors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for detailed
information on our quarterly operating results. As a result, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance.
INTEREST RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR BUSINESS
A high percentage of our customers use our services to refinance
existing mortgages and are motivated to do so primarily when interest rates fall
below the rates of their existing mortgages. In the event interest rates
significantly increase, consumers' incentive to refinance will be greatly
reduced and the number of loans that we originate could significantly decline.
Our loan volume during the three months ended June 30, 1999 was lower than the
prior quarter partly based on recent increases in interest rates. Our failure to
successfully reduce this dependence on refinancings and increase the volume of
our business derived from home purchases could have an adverse effect on our
business.
Our ability to engage in profitable secondary sales of loans may also
be adversely affected by increases in interest rates. The mortgage loan purchase
commitments we obtain are contingent upon our delivery of the relevant loans to
the purchasers within specified periods. To the extent that we are unable to
deliver the loans within the specified periods and interest rates increase, we
may experience no gain or even a loss on the sale of these loans. In addition,
any increase in interest rates will increase the cost of maintaining our
warehouse and repurchase lines of credit which we depend on to fund the loans we
originate. We currently do not use derivative financial instruments to hedge
these risks and are therefore exposed to losses caused by fluctuations in
interest rates.
A sharp decrease in interest rates over a short period may cause
customers who have interest rates on mortgages committed through E-LOAN to
either delay closing their loans or refinance with another lender. If this
occurs in significant numbers, it may have an adverse effect on our business or
quarterly results of operations.
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UNCERTAINTY WITH RESPECT TO THE TIME IT TAKES TO CLOSE LOANS CAN LEAD TO
UNPREDICTABLE REVENUE AND PROFITABILITY
The time between the date an application is received from a customer on
our website and the date the loan closes can be lengthy and unpredictable. For
instance, during the three months ended June 30, 1999, approximately 8% of our
loans were funded after the loan commitment period had expired. The loan
application and approval process is often delayed due to factors over which we
have little or no control, including the timing of the customer's decision to
commit to an available interest rate, the close of escrow date for purchase
loans, the timeliness of appraisals and the adequacy of the customer's own
disclosure documentation. This uncertain timetable can have a direct impact on
our revenue and profitability for any given period. We may expend substantial
funds and management resources supporting the loan completion process and never
generate revenue from closed loans. Therefore, our results of operations for a
particular period may be adversely affected if the loans applied for during that
period do not close in a timely manner or at all. For example, we have
experienced a significant increase in purchase loan applications during the
three months ended June 30, 1999. Purchase loan applications generally take
longer to close than refinancing applications as they are tied to the close of
escrow date. We believe the decline in our loan volumes in the three months
ended June 30, 1999 relative to the first three months of 1999 was partly based
on the extended time it takes to close a purchase loan.
WE HAVE ONLY OPERATED DURING PERIODS OF GROWTH IN THE HOME MORTGAGE MARKET AND
CONSEQUENTLY FACE SIGNIFICANT RISKS AND UNCERTAINTIES
All of our operations have occurred during a period in which the home
mortgage market has experienced rapid growth. Since we began our online mortgage
operations, we have never operated during a sustained downturn in the mortgage
business and we cannot assure you that we will be able to operate successfully
if such a downturn occurs.
WE HAVE RECENTLY EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS; IF WE ARE
UNABLE TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE ADVERSELY AFFECTED
Over the past eighteen months we have experienced a period of
significant growth, which has placed a strain on our resources and will continue
to do so in the future. If we do not manage this growth effectively, it could
adversely affect our business. We may not be successful in managing or expanding
our operations or maintaining adequate management, financial and operating
systems and controls. Our headcount has grown substantially. At December 31,
1997, we had a total of 40 full-time employees and at June 30, 1999, we had a
total of 274 full-time employees.
IF ONLINE MORTGAGES AND OUR SERVICE OFFERINGS DO NOT ACHIEVE WIDESPREAD CONSUMER
ACCEPTANCE, OUR BUSINESS WILL BE ADVERSELY AFFECTED
Our success will depend in large part on widespread consumer acceptance
of purchasing mortgages online. The development of an online market for mortgage
loans has only recently begun, is rapidly evolving and likely will be
characterized by an increasing number of market entrants. Our future growth, if
any, will depend on the following critical factors:
- the growth of the Internet as a commerce medium generally, and as a
market for consumer financial products and services specifically;
- our ability to successfully and cost-effectively market our services
to a sufficiently large number of customers; and
- our ability to overcome a perception among many real estate market
participants that obtaining mortgages online is risky for consumers.
There can be no assurance that the market for our services will
develop, that our services will be adopted or that consumers will significantly
increase their use of the Internet for obtaining mortgage loans. If the online
market for
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mortgage loans fails to develop, or develops more slowly than expected, or if
our services do not achieve widespread market acceptance, our business, results
of operations and financial condition would be adversely affected.
BECAUSE A HIGH CONCENTRATION OF OUR BUSINESS IS IN CALIFORNIA, WE ARE
PARTICULARLY VULNERABLE TO ECONOMIC AND OTHER FACTORS AFFECTING CALIFORNIA
Approximately 89% and 63% of the loans we closed in the six months
ending June 30, 1998 and 1999, respectively, were from borrowers located in
California. No other state generated more than 10% of our closed loans during
these periods. We are more likely to originate a significant amount of our loans
in California for the foreseeable future because we are located there and we
have advertised more heavily in California than in other states. There have been
times in the past, most recently in 1991 - 1992, when the California economy has
suffered a recession disproportionate with the rest of the country. Should a
similar recession happen again in California, our business would be adversely
affected.
In addition, California historically has been vulnerable to natural
disasters, including earthquakes and mudslides, which are not typically covered
by standard hazard insurance policies maintained by borrowers. Uninsured
disasters may adversely impact borrowers' ability to repay mortgage loans we
originate and any sustained period of increased delinquencies or defaults could
adversely affect the pricing of our future secondary loan sales and our overall
ability to sell loans. The occurrence of natural disasters in California could
have an adverse effect on our business, results of operations and financial
condition.
THE LOSS OF ONE OR MORE OF OUR SIGNIFICANT DISTRIBUTION PARTNERS WOULD ADVERSELY
AFFECT OUR BUSINESS
We rely on Internet distribution partners to direct a significant
number of our prospective customers to our website. If we lose any of our
significant distribution partners, we will likely fail to meet our growth
objectives, both in terms of additional borrowers and increased brand awareness.
In the aggregate, approximately 20% of our closed loans were derived from the
websites of our distribution partners during the quarter ended June 30, 1999.
Our agreements with our distribution partners are typically short-term, from one
to three years in length, and can be terminated for any reason upon 30 to 60
day's prior written notice. We cannot assure you that any or all of these
agreements will not be terminated or will be renewed or extended past their
current expiration dates. If any of these agreements were to be terminated or
were to lapse without extension, we could lose a considerable number of loan
applications and our business would be adversely impacted.
THE TERMINATION OF ONE OR MORE OF OUR FUNDING PARTNERSHIPS WOULD ADVERSELY
AFFECT OUR BUSINESS
We depend on GE Capital Mortgage Services, Inc. and Bank United to
finance our internal loan funding activities through the warehouse credit
facilities provided by each of these lenders. We also depend on Greenwich
Capital Financial Products, Inc. to finance portions of our mortgage loan
inventory pending ultimate sale to mortgage loan purchasers. If either of our
warehouse credit facilities becomes unavailable or our relationship with
Greenwich Capital is terminated, our business would be adversely affected. Under
our agreements with each of these partners, we make extensive representations,
warranties and various operating and financial covenants. A material breach of
these representations, warranties or covenants could result in the termination
of our agreements and an obligation to repay all amounts outstanding at the time
of termination. In the past, we have had to obtain waivers from Greenwich
Capital and GE Capital as a result of our failure to comply with covenants
regarding the issuance of capital stock, excess asset purchases and the breach
of financial ratios.
Our agreement with Greenwich Capital expires in April 2000, our
agreement with GE Capital expires in April 2000 and our agreement with Bank
United expires in February 2000. Our agreement with GE Capital can be terminated
at any time on 120 days prior written notice. We are continually seeking to
obtain additional warehouse lending resources, but we may not be successful in
this regard.
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WE DEPEND ON THE TIMELY AND COMPETENT SERVICES OF VARIOUS COMPANIES INVOLVED IN
THE MORTGAGE PROCESS; IF THESE COMPANIES FAIL TO TIMELY AND COMPETENTLY DELIVER
THESE SERVICES, OUR BUSINESS AND REPUTATION WILL BE DIRECTLY AND ADVERSELY
AFFECTED
We rely on other companies to perform services related to the loan
underwriting process, including appraisals, credit reporting and title searches.
Any interruptions or delays in the provision of these services may cause delays
in the processing and closing of loans for our customers. If we are unsuccessful
in managing the timely delivery of these services we will likely experience
increased customer dissatisfaction and our business and reputation could be
adversely affected.
WE DEPEND ON OUR AGREEMENTS WITH THIRD PARTIES TO FUND MORTGAGE LOANS OR FULFILL
LOAN TRANSACTION PROCESSING IN 13 STATES; IF THESE AGREEMENTS ARE TERMINATED,
OUR BUSINESS COULD BE ADVERSELY AFFECTED
E-LOAN licenses its mortgage loan origination systems and proprietary
marks to NetB@nk to enable NetB@nk to fund mortgage loans under the E-LOAN brand
in nine states, and has agreements with PHH Mortgage Services Corporation and
Prism Mortgage Company relating to the fulfillment of all aspects of loan
transaction processing following origination in four states. Each of these
agreements may be terminated by either party upon 30 days prior written notice.
The termination of any or all of these agreements could have a material adverse
effect on our business.
THE LOSS OF OUR RELATIONSHIP WITH FANNIE MAE OR ANY OTHER SIGNIFICANT PROVIDER
OF AUTOMATED UNDERWRITING WOULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS
We expect to depend on automated underwriting and other services
offered by government sponsored and other mortgage investors, including Fannie
Mae and Freddie Mac, to help ensure that our mortgage services can be offered
efficiently and on a timely basis. We currently have an agreement with Fannie
Mae that authorizes our use of their automated underwriting services and enables
us to sell qualified first mortgages to Fannie Mae. We cannot assure you that we
will remain in good standing with Fannie Mae or that Fannie Mae will not
terminate our relationship. We expect to process a significant portion of our
conforming loans using the Fannie Mae system until we are able to obtain
automated underwriting services from other providers. Our agreement with Fannie
Mae can be terminated by either party. The termination of our agreement with
Fannie Mae would adversely impact our business by reducing our ability to
streamline the mortgage origination process. Additionally, we may not be able to
successfully implement the automated underwriting services of Fannie Mae or
other automated underwriting providers in a manner that will lead to substantial
processing efficiencies.
WE MAY INCUR LOSSES ON LOANS IF WE BREACH REPRESENTATIONS OR WARRANTIES TO
MORTGAGE LOAN PURCHASERS
In connection with the sale and exchange of loans, we make customary
representations and warranties to mortgage loan purchasers relating to, among
other things, compliance with laws and origination practices. In the event we
breach any of these representations and warranties, we may be required to
repurchase or substitute these mortgage loans and bear any subsequent losses on
the repurchased loans. We may also be required to indemnify mortgage loan
purchasers for these losses and claims with respect to mortgage loans for which
there was a breach of representations and warranties. In addition, many of our
agreements with mortgage loan purchasers prohibit our solicitation of borrowers
with respect to the refinancing of loans we originate and sell. The mortgage
loan purchasers under these agreements may construe our continuing mortgage
monitoring service as violating these non-solicitation provisions, in which case
they may elect to terminate their agreements with us or may seek recovery from
us for damages sustained by them. Many of our agreements with mortgage loan
purchasers prohibit us from refinancing mortgage loans for specified time
periods, unless we pay penalties to the mortgage loan purchasers or obtain their
consent. These agreements also require us to return any premiums paid by a
mortgage loan purchaser if the mortgage loans purchased are prepaid in full
during periods of up to 12 months following the date the mortgage loan is
purchased.
THE MORTGAGE LENDING INDUSTRY IS INTENSELY COMPETITIVE, AND IF WE FAIL TO
SUCCESSFULLY COMPETE IN THIS INDUSTRY, OUR MARKET SHARE AND BUSINESS WILL BE
ADVERSELY AFFECTED
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To compete successfully, we must respond promptly and effectively to
the challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance and expand our services, as well as our
sales and marketing channels. Increased competition, particularly online
competition, could result in price reductions, reduced margins or loss of market
share, any of which could adversely affect our business. We may not be able to
compete successfully in our market environment and our failure to do so could
have an adverse effect on our business, results of operations and financial
condition.
IF WE FAIL TO COMPLY WITH THE NUMEROUS LAWS AND REGULATIONS THAT GOVERN OUR
INDUSTRY, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Our business must comply with extensive and complex rules and
regulations of, and licensing and examination by, various federal, state and
local government authorities. These rules impose obligations and restrictions on
our residential loan brokering and lending activities. In particular, these
rules limit the broker fees, interest rates, finance charges and other fees we
may assess, require extensive disclosure to our customers, prohibit
discrimination and impose on us multiple qualification and licensing
obligations. We may not always have been and may not always be in compliance
with these requirements. Failure to comply with these requirements may result
in, among other things, revocation of required licenses or registrations, loss
of approved status, voiding of loan contracts or security interests,
indemnification liability or the obligation to repurchase mortgage loans sold to
mortgage loan purchasers, rescission of mortgage loans, class action lawsuits,
administrative enforcement actions and civil and criminal liability.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS
We may acquire or make investments in complementary businesses,
technologies, services or products. These acquisitions and investments could
disrupt our ongoing business, distract our management and employees and increase
our expenses. In the past, we have had discussions with companies regarding our
acquiring, or investing in, their businesses, products, services or technologies
and we expect to have additional discussions in the future. If we acquire a
company, we could have difficulty in assimilating that company's personnel,
operations, technology and software. In addition, the key personnel of the
acquired company may decide not to work for us. We could also have difficulty in
integrating the acquired products, services or technologies into our operations
and we may incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD LIKELY HAVE AN
ADVERSE EFFECT ON OUR BUSINESS
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly
co-founders Chris Larsen, Chief Executive Officer, and Janina Pawlowski,
President. Ms. Pawlowski, a licensed real estate broker, is responsible for all
of our activities in California and several other states. If Ms. Pawlowski were
to terminate her relationship with us for any reason we would not be able to
conduct business in these states until a replacement is found. The loss of the
services of Mr. Larsen, Ms. Pawlowski or other key employees, would also likely
have an adverse effect on our business, results of operations and financial
condition. We have not entered into employment agreements with any of our
executives, except Joseph Kennedy, Senior Vice President, Marketing and Business
Development, and do not maintain "key person" life insurance for any of our
personnel.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED
Competition for personnel throughout our industry is intense. We may be
unable to retain our key employees or attract, assimilate or retain other highly
qualified employees in the future. Our future success depends on our continuing
to attract, retain and motivate highly skilled employees, particularly with
respect to our loan processing functions. We have in the past experienced, and
we expect to continue to experience in the future, difficulty in hiring and
retaining employees with appropriate qualifications. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will be adversely affected.
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OUR BUSINESS WILL BE IMPAIRED IF CONSUMERS DO NOT CONTINUE TO USE THE INTERNET
Our business will be adversely affected if Internet usage does not
continue to grow, particularly by homebuyers. A number of factors may inhibit
Internet usage by consumers, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and lack of availability of
cost-effective, high-speed service. If Internet usage grows, the Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, many
websites have experienced service interruptions as a result of outages and other
delays occurring throughout the Internet infrastructure. If these outages or
delays frequently occur in the future, Internet usage, as well as the usage of
our website, could grow more slowly or decline.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO EXPAND AND PROMOTE OUR BRAND
RECOGNITION
Establishing and maintaining our brand is critical to attracting and
expanding our customer base, solidifying our business relationships and
successfully implementing our business strategy. We cannot assure you that our
brand will be positively accepted by the market or that our reputation will be
strong.
Promotion and enhancement of our brand will also depend, in part, on
our success in providing a high-quality customer experience. We cannot assure
you that we will be successful in achieving this goal. To date we are aware of
numerous customer complaints regarding the quality of our service. If these
complaints persist they may significantly damage our reputation and offset the
efforts we make in promoting and enhancing our brand and could have an adverse
effect on our business, results of operations and financial condition. If
visitors to our website do not perceive our existing services to be of high
quality or if we alter or modify our brand image, introduce new services or
enter into new business ventures that are not favorably received, the value of
our brand could be diluted, thereby decreasing the attractiveness of our service
to potential customers.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ADAPT TO THE RAPID TECHNOLOGICAL
CHANGE THAT CHARACTERIZES OUR INDUSTRY
Our future success will depend on our ability to adapt to rapidly
changing technologies by continually improving the performance features and
reliability of our services. We rely on third party software products and
services, including software related to automated underwriting functions, which
will enable us to realize processing efficiencies that are central to our
operations. If we are unable to integrate this software in a fully functional
manner, we may experience difficulties that could delay or prevent the
successful development, introduction or marketing of new products and services.
In addition, enhancements of our products and services must meet the
requirements of our current and prospective customers and must achieve
significant market acceptance. We could also incur substantial costs if we need
to modify our services or infrastructure to adapt to these changes.
ANY FAILURES OF, OR CAPACITY CONSTRAINTS IN, OUR SYSTEMS OR THE SYSTEMS OF THIRD
PARTIES ON WHICH WE RELY COULD ADVERSELY AFFECT OUR BUSINESS
Our communications hardware and certain of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in Santa
Clara, California and Jersey City, New Jersey. The hardware for our internal
loan and product database, as well as our loan processing operations is
maintained in our Dublin, California facility. Fires, floods, earthquakes, power
losses, telecommunications failures, break-ins and similar events could damage
these systems. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our website. Our business could
be adversely affected if our systems were affected by any of these occurrences.
Our insurance policies may not adequately compensate us for any losses that may
occur due to any failures or interruptions in our systems.
ANY OUTAGES, DELAYS OR OTHER DIFFICULTIES EXPERIENCED BY THE INTERNET SERVICE
PROVIDERS, ONLINE SERVICE PROVIDERS OR OTHER WEBSITE OPERATORS ON WHICH OUR
USERS DEPEND COULD ADVERSELY AFFECT OUR BUSINESS
Our website has in the past and may in the future experience slower
response times or decreased traffic for a variety of reasons. In addition, our
users depend on Internet service providers, online service providers and other
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<PAGE> 21
website operators for access to our websites. Many of these providers have
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Additionally, the Internet infrastructure may not be able to support continued
growth in its use. Any of these problems could adversely affect our business by
limiting access to our website.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO SAFEGUARD THE
SECURITY AND PRIVACY OF OUR CUSTOMERS' FINANCIAL DATA
Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by any breaches that occur.
We also retain on our premises personal financial documents that we receive from
prospective borrowers in connection with their loan applications. These
documents are highly sensitive and if a third party were to misappropriate our
customers' personal information, customers could possibly bring legal claims
against us. We cannot assure you that our privacy policy will be deemed
sufficient by our prospective customers or any federal or state laws governing
privacy which may be adopted in the future.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTY CHALLENGES OR IF WE ARE INVOLVED
IN LITIGATION
Trademarks and other proprietary rights are important to our success
and our competitive position. Although we seek to protect our trademarks and
other proprietary rights through a variety of means, we cannot assure you that
the actions we have taken are adequate to protect these rights. We may also
license content from third parties in the future and it is possible that we
could face infringement actions based upon the content licensed from these third
parties. We have received notice from EduCap, Inc., a provider of educational
loans, that it believes that our use of the name "E-LOAN" infringes EduCap's
trademark "THE E-LOAN." EduCap has demanded that we cease and desist our use of
the name E-LOAN and has threatened legal action if we are unable to reach an
amicable solution. Any claims brought against us, regardless of their merit,
could result in costly litigation and the diversion of our financial resources
and technical and management personnel. Further, if any of these claims are
proved valid, through litigation or otherwise, we may be required to change our
trademarks and pay financial damages, which could adversely affect our business.
In particular, if the claim by EduCap is upheld, we would no longer be permitted
to use the name E-LOAN.
IF OUR INTERNAL SYSTEMS, OR THE INTERNAL SYSTEMS OF OUR SUPPLIERS, ARE NOT YEAR
2000 COMPLIANT, OUR BUSINESS COULD BE SERIOUSLY DISRUPTED
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations.
Computer systems and software that have not been developed or enhanced recently
may need to be upgraded or replaced to comply with Year 2000 requirements.
We believe that each of our software systems on a stand-alone basis is
currently Year 2000 compliant. However, we rely on software components acquired
from third parties which may not be Year 2000 compliant. The Internet operations
of many of our customers and suppliers may also be affected by Year 2000
complications. The failure of our customers or suppliers to ensure that their
systems are Year 2000 compliant could have an adverse effect on our customers
and suppliers, resulting in decreased Internet usage or our inability to obtain
necessary data communication and telecommunication capacity, which in turn could
have an adverse effect on our business, results of operations and financial
condition.
OUR STOCK PRICE COULD BE HIGHLY VOLATILE
The market prices for stocks of Internet-related and technology
companies, particularly following an initial public offering, frequently
increase to levels that bear no relationship to the operating performance of
such companies. Such market prices generally are not sustainable and are subject
to wide variations. If E-LOAN's common stock trades to such levels, it likely
will thereafter experience a material decline.
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<PAGE> 22
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of their
securities. E-LOAN may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.
In addition, the market price of our common stock may be subject to
significant fluctuations in response to numerous factors, including:
- Variations in our annual or quarterly financial results or
those of our competitors;
- Changes by financial research analysts in their estimates of
our earnings or our failure to meet such estimates;
- Conditions in the economy in general or in the Internet or
mortgage lending industries;
- Announcements of key developments by competitors; Growth of
the Internet; Announcements by us of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- Loss of key personnel;
- Unfavorable publicity affecting our industry or us;
- Adverse legal events affecting us; and
- Sales of E-LOAN common stock by stockholders
THE AVAILABILITY OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK FOR SALE COULD
ADVERSELY AFFECT ITS MARKET PRICE
If our stockholders begin to sell substantial amounts of our common
stock in the public market, the market price of our common stock could fall. A
substantial number of sales, or the perception that such sales might occur, also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate. As of July 2, 1999,
we had 38,787,029 shares outstanding. Of these shares, the 4,020,000 shares sold
in our initial public offering are freely tradable in the public market without
restriction unless held by our affiliates. The remaining 34,767,029 shares of
common stock available for sale in the public market are limited by restrictions
under the securities laws and lock-up agreements applicable to such shares and
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Date of Availability For Sale Number
<S> <C>
December 29, 1999 32,340,964 shares
</TABLE>
(180th day after the date of the prospectus for our initial public offering)
In addition, we have 10,500,000 shares of our common stock reserved for
issuance pursuant to our 1997 Stock Plan, of which 6,104,087 shares were subject
to outstanding options at June 30, 1999. All of such outstanding options are
also subject to the 180-day lockup. We intend to register, prior to December 29,
1999, the shares of common stock reserved for issuance under our 1997 Stock Plan
and the 1,500,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan. Accordingly, shares underlying vested options will
be eligible for resale in the public market beginning on December 29, 1999.
Goldman, Sachs & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements.
We have granted registration rights to certain of our stockholders.
Those rights enable these stockholders to require that we register, at our
expense, resales of their shares of common stock. The holders of these rights
beneficially own in the aggregate approximately 17.8 million shares of our
common stock. If they sell a large portion of their shares on the open market
and at one time, our market price per share may decline.
21
<PAGE> 23
ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest rate movements significantly impact E-LOAN's volume of closed
loans and represent the primary component of market risk to E-LOAN. In a higher
interest rate environment, consumer demand for mortgage loans, particularly
refinancing of existing mortgages, declines. Interest rate movements affect the
interest income earned on loans held for sale, interest expense on the warehouse
lines payable, the value of mortgage loans held for sale and ultimately the gain
on sale of mortgage loans. In addition, in an increasing interest rate
environment, E-LOAN's mortgage loan brokerage volume is adversely affected.
E-LOAN originates mortgage loans and manages the market risk related to
these loans by pre-selling them on a best efforts basis to the anticipated
purchaser at the same time that E-LOAN establishes the borrowers' interest
rates. If E-LOAN can process loans within the applicable purchasers' commitment
timeframes E-LOAN has no interest rate risk exposure on the loans. However, if
E-LOAN cannot process the loan within this timeframe and interest rates
increase, E-LOAN may experience a reduced gain or may even incur a loss on the
sale of the loan.
With the exception of pre-selling loans through best-efforts
commitments, E-LOAN currently does not engage in any hedging activities.
E-LOAN currently does not maintain a trading portfolio. As a result,
E-LOAN is not exposed to market risk as it relates to trading activities. The
majority of E-LOAN's portfolio is held for sale which requires E-LOAN to perform
market valuations of its pipeline, its mortgage portfolio held for sale and
related forward sale commitments in order to properly record the portfolio and
the pipeline at the lower of cost or market. Therefore, E-LOAN monitors the
interest rates of its loan portfolio as compared to prevailing interest rates in
the market.
Because E-LOAN pre-sells its mortgage loan commitments forward, E-LOAN
believes that a 100 basis point increase or decrease in long-term rates would
not have a significant adverse effect on E-LOAN's earnings from its interest
rate sensitive assets. E-LOAN pays off the warehouse lines payable when the loan
is sold and consequently
22
<PAGE> 24
would not be expected to incur significant losses from an increase in interest
rates on the line due to the short timeframe that the line is drawn down.
However, since a high percentage of E-LOAN's closed loan volume is from
refinancings, E-LOAN's future operating results are more sensitive to interest
rate movements than a mortgage lender who has a lower proportion of
refinancings.
In the future, if E-LOAN does not pre-sell the mortgage commitments,
its market risk could change significantly.
23
<PAGE> 25
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
The Company issued 126,273 shares of unregistered common stock upon
the net exercise of a warrant. The common stock issued upon the net exercise of
the warrant was exempt from registration under the Securities Act of 1933, as
amended (the "Act") pursuant to Section 3(a)(9) thereof, as securities
exchanged by an issuer with existing security holders.
Since March 31, 1999, the Company has issued and sold unregistered
securities as follows:
Between March 31, 1999 and June 30, 1999, an aggregate of 357,115
shares of Common Stock were issued to employees upon exercise of options. The
aggregate consideration received for such shares was $127,045.
On July 2, 1999, E-LOAN completed an initial public offering in which
it sold 4,020,000 shares of its common stock and 5,000 shares was sold by a
selling stockholder. The managing underwriters in the offering were Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht &
Quist LLC, DLJdirect Inc. and E*TRADE Securities, Inc. The shares of common
stock sold in the offering were registered under the Securities Act of 1933, as
amended, on a Registration Statement on Form S-1 (the "Registration Statement")
(Reg. No. 333-74945) that was declared effective by the Securities and Exchange
Commission on June 28, 1999. All 4,025,000 shares of common stock registered
under the Registration Statement were sold at a price of $14.00 per share for
gross proceeds to E-LOAN of $56.2 million and gross proceeds to the selling
stockholder of $70,000. Offering proceeds to E-LOAN, net of underwriter
discounts, were approximately $52.3 million. Concurrent with the company's
initial public offering, the company sold 960,061 shares of its common stock for
$12.5 million in net proceeds in a private placement. The private placement was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Act") as a transaction not involving any public offerings.
As of June 30, 1999, E-LOAN's balance sheet reflected a receivable of
$64.8 million in respect of the offering proceeds it received on July 2, 1999.
The net proceeds from the initial public offering will be used for general
corporate purposes, including working capital to fund anticipated operating
losses, expenses associated with its advertising campaigns, brand-name
promotions and other marketing efforts and capital expenditures. E-LOAN also may
use a portion of the net proceeds, currently intended for general corporate
purposes, to acquire or invest in businesses, technologies, products or
services, although no specific acquisitions are planned and no portion of the
net proceeds has been allocated for any acquisition. None of the net offering
proceeds of E-LOAN have been or will be paid directly or indirectly to any
director, officer, general partner of E-LOAN or their associates, persons owning
10% or more of any class of E-LOAN's equity securities, or an affiliate of
E-LOAN.
Simultaneous with the effectiveness of the registration statement
relating to the initial public offering, each outstanding share of E-LOAN's
Series A and Series B convertible preferred stock and Series C and Series D
mandatorily redeemable convertible preferred stock was automatically converted
into three shares of E-LOAN's common stock without payment of additional
consideration. The common stock issued upon conversion of the preferred stock
was exempt from registration under Section 3(a)(9) of the Act, as Securities
exchanged by an issuer with existing security holders.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on April 27, 1999
in Palo Alto, California. Proxies for the meeting were solicited. At the
Company's Annual Meeting, the stockholders approved the following resolutions:
<TABLE>
<CAPTION>
<S> <C> <C>
1) Election of the following persons as directors.
Director In Favor Withheld
Ira M. Ehrenpreis 25,552,191 7,556,268
Robert C. Kagle 25,552,191 7,556,268
Tim Koogle 25,552,191 7,556,268
Chris Larsen 25,552,191 7,556,268
Janina Pawlowski 25,552,191 7,556,268
Wade Randlett 25,552,191 7,556,268
2) Approval of an amendment to the Company's Certificate of Incorporation to
effect a 3 for 1 stock split of the Company's common stock.
For: 25,582,191
Against:
Abstain:
3) Adoption of the Company's 1999 Employee Stock Purchase Plan and reservation
of 1,500,000 shares of the commons stock under the Plan.
For: 25,535,316
Against:
Abstain: 46,875
4) Approval of an amendment of the Company's 1997 Stock Plan to increase the
number of shares reserved for issuance under the Plan to a total of
10,500,000 shares of common stock.
For: 25,580,541
Against:
Abstain: 1,650
5) Approval of the Company's Restated Certificate of Incorporation filed upon
the closing of its Initial Public Offering.
For: 25,582,191
Against:
Abstain:
6) Approval of the Company's Restated Bylaws effective upon the closing of its
Initial Public Offering.
For: 25,582,191
Against:
Abstain:
7) Ratification of the appointment of PricewaterhouseCoopers, L.L.P., as
independent auditors of the Company for the fiscal year ended December 31,
1999.
For: 25,460,541
Against:
Abstain: 121,650
</TABLE>
Item 5.
Other Information
None
24
<PAGE> 26
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.41 Material Contracts
27.1* Financial Data Schedule
------------
* Previously filed with Form 10-Q
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the three months
ended June 30, 1999.
25
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-LOAN, INC.
Date: September 30, 1999
/s/ Frank Siskowski
------------------------------
Frank Siskowski
Chief Financial Officer
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
26
<PAGE> 28
Exhibit Index
10.41 Material Contracts
27.1* Financial Data Schedule
----------
* Previously filed with Form 10-Q
27
<PAGE> 1
EXHIBIT 10.41
EXECUTION COPY
MARKETING, PROMOTION, LICENSING, COMPUTER SERVICES
AND RELATED SERVICES AGREEMENT
BETWEEN
FCC NATIONAL BANK
AND
E-LOAN
DATED AS OF MAY 3, 1999
<PAGE> 2
MARKETING, PROMOTION, LICENSING, COMPUTER SERVICES, AND RELATED
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is entered into and
made effective as of this 3rd day of May, 1999 (the "Effective Date"), by and
between E-LOAN, Inc. ("E-LOAN"), a Delaware corporation with its principal
office at 5875 Arnold Road, Dublin, California 94568 and FCC National Bank ("FCC
National"), a national bank with its principal office at 300 King Street,
Wilmington, Delaware 19801. All references in this document to FCC National
shall mean the Internet-based financial institution currently being created by
FCC National, and, upon assignment, nothing in this Agreement shall obligate FCC
National to take any actions or create any liability on the part of FCC
National.
RECITALS
WHEREAS, FCC National has informed E-LOAN that it is working
towards the creation of a full service, fully-integrated, Internet-based
financial institution (the "Project"), which Project may be assigned to another
bank prior to or after completion, or which Project may be separated from FCC
National in some other way;
WHEREAS, E-LOAN provides certain services including mortgage and
related services to consumers on the Internet, via E-LOAN's website currently at
www.eloan.com;
WHEREAS, FCC National and E-LOAN wish to develop a program
utilizing technological interconnectivies, joint trademark and tradename
identification for FCC National to offer more services, including access to
multiple mortgage lenders, to its customers, to provide those customers
hyperlink connectivity to E-LOAN's website using state of the art technology,
and for E-LOAN to obtain increased name recognition and to provide services to a
greater number of customers and in particular customers and potential customers
of FCC National who have an interest or experience in conducting financial
transactions on-line;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, FCC National and E-LOAN agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Unless the context requires
otherwise, capitalized terms in this Agreement shall have the meaning set forth
herein or in Schedule A attached hereto.
Section 1.2 Interpretation. References to Articles, Sections,
Exhibits and Schedules are to be construed as references to the Articles or
Sections of, and Exhibits or Schedules to, this Agreement, unless otherwise
indicated, and terms such as "hereof," "herein," "hereunder" and other similar
compounds of the word "here" shall mean and refer to this entire Agreement
rather than any particular part of the same.
ARTICLE II
SCOPE OF SERVICES
Section 2.1 E-LOAN Services. During the term of the Agreement,
E-LOAN will provide to FCC National the software, personnel, and ongoing support
necessary for purposes of implementing certain lending services to FCC National
customers and other visitors to FCC National's website for the Project described
and
1
<PAGE> 3
in conformance with the technical specifications and performance standards set
forth in the Statement of Work attached hereto as Schedule B, and will provide
to FCC National the related services (the "Services") described and in
conformance with the technical specifications and performance standards set
forth in the Statement of Work for use by FCC National, its Partners and its
electronic banking customers ("Users") in accordance with the terms and
provisions set forth in this Agreement.
Section 2.2 FCC National Obligations. FCC National shall market,
promote and advertise E-LOAN to Internet users through various means, including
through the creation and maintenance of a link on the FCC National website to
the E-LOAN website, shall work with E-LOAN to establish mortgage lending pages
(the "E-LOAN Pages") on FCC National's internet website, and shall give its
customers and other visitors to the internet website access to the E-LOAN Pages.
FCC National shall provide various computer services and internet access for
customers. FCC National shall have complete discretion regarding the use and
placement of promotional materials and access buttons related to the E-LOAN
Pages.
Section 2.3 Independent Contractor Status. The relationship of
E-LOAN to FCC National is that of an independent contractor and nothing herein
shall constitute or be deemed to constitute a joint venture, association,
partnership, agency or other relationship between the parties or to impose any
obligation or liability upon either of the parties based on such relationship.
Section 2.4 Branding. The E-LOAN Pages will be co-branded in the
manner determined by FCC National in FCC National's sole discretion, and E-LOAN
shall make all commercially reasonable changes to its software to comply with
FCC National's web page requirements, except that E-LOAN shall not be required
to make material changes to the content of its web pages; provided, however,
that only E-LOAN Pages containing E-LOAN functionalities shall be co-branded.
"E-LOAN functionalities" means webpages that provide specialized E-LOAN feedback
to customer inputted data, including loan qualification analysis and the listing
of loan products appropriate for a customer's profile. "E-LOAN functionalities"
shall not mean webpages that involve only mathematical calculators or
generalized loan information, unless such loan information was developed or
collected by E-LOAN. FCC National shall not be required to mention E-LOAN or any
co-brand name on any other page of its internet website.
ARTICLE III
PROJECT OBLIGATIONS
Section 3.1 Performance Reporting. E-LOAN shall report promptly
to FCC National (a) all malfunctions or delays in its performance of the
Services or the failure to accomplish timely any of the responsibilities of
E-LOAN, as set forth in the Statement of Work or otherwise in this Agreement or
as required by the Project Manager, (b) any knowledge of circumstances that
could reasonably result in malfunction or lead to delay in the performance of
the Services or other responsibilities of E-LOAN, as set forth in the Statement
of Work or otherwise in this Agreement or as required by the Project Manager,
and (c) E-LOAN's proposed solution to items (a) and (b), including a detailed
description in writing of all solutions to such problems (a "Performance
Report"). FCC National shall have the right to receive and review all
Performance Reports produced by E-LOAN. Notwithstanding anything to the contrary
in this Section 3.1, E-LOAN shall be required to report to FCC National only
those malfunctions, delays, or other failures which could reasonably impact the
Services that E-LOAN provides to FCC National.
Section 3.2 Internet Traffic Reporting. (a) Within fifteen (15)
days after the last day of each calendar month, FCC National will, to the extent
possible, provide E-LOAN with a monthly report of aggregate user traffic
accessing the E-LOAN related portion of the FCC National website. FCC National
shall have no obligation to calculate user traffic under this Section 3.2 until
July 1, 1999.
(b) Within fifteen (15) days after the last day of each
calendar month, E-LOAN will provide FCC National with a monthly report of the
number of page views on the E-LOAN pages on the FCC National website. In
addition, E-LOAN will provide FCC National with a report of users, rate watches,
loan monitors, rate searches,
2
<PAGE> 4
completed applications and closed loans that are originated from the FCC
National website.
Section 3.3 Technical Support and Personnel. (a) FCC National
and E-LOAN shall designate acceptable and appropriately trained technical
personnel to serve as the technical contacts to communicate regarding all
requests or aspects of technical support necessitated by this Agreement. These
contacts are set forth on Schedule C attached hereto. FCC National or E-LOAN, as
applicable, shall promptly notify the other in writing of any changes to such
contacts during the term of this Agreement. Among other responsibilities, these
technical contacts shall meet periodically to review whether E-LOAN is
maintaining the personnel and resources, pursuant to subsection 3.3(b) below,
necessary to perform E-LOAN's obligations under this Agreement (which, both
parties acknowledge, will change from time to time).
(b) E-LOAN shall maintain personnel (i) adequate to perform
its obligations under this Agreement and (ii) possessing such qualification,
knowledge and experience in the provision of the tasks to which they are
assigned as would be required for comparable positions and tasks in competitive
businesses.
Section 3.4 Insurance. At all times during the term of this
Agreement, E-LOAN shall maintain in force comprehensive general liability
insurance. Such insurance shall include contractual liability insurance for the
indemnification obligations contained in Article X, products hazard and
catastrophe coverage, and coverage for negligent acts, errors and omissions in
the provision of the Services under this Agreement. Except to the extent
prohibited by law, all insurance provided herein shall name FCC National and all
its assignees as additional insureds and as loss payees. The required coverages
referred to and set forth in this Section 3.4 shall in no way affect, nor are
they intended as a limitation of, E-LOAN's liability with respect to the
performance of its obligations under this Agreement. E-LOAN further releases,
assigns and waives any and all rights of recovery against FCC National and its
Affiliates, employees, successors and permitted assigns which E-LOAN may
otherwise have or acquire in or from or are in any way connected with any loss
covered by policies of insurance maintained or required to be maintained by
E-LOAN pursuant to this Agreement or because of deductible clauses in or
inadequacy of limits of any such policies of insurance.
Section 3.5 Subcontracting Rights. E-LOAN shall not enter into
any contract or arrangement pursuant to which any third party shall have
responsibility for providing any of the Services without the prior written
consent of FCC National, which consent shall not be unreasonably withheld.
Section 3.6 Export Controls. E-LOAN acknowledges and agrees that
both (a) certain equipment, software and technical data which may be provided or
utilized in connection with the furnishing of the Services; and (b) any
activities in connection with the provision of the Services and related
technology, may be subject to export, re-export or import controls under the
U.S. Export Administration Regulations or similar regulations of the United
States or of any other countries now in effect or enacted hereafter. E-LOAN
agrees that neither it nor any agents, contractors, subcontractors or Affiliates
shall export, re-export or import any such equipment, software, technical data
or any direct product thereof in violation of any such laws.
Section 3.7 Modifications to Achieve Regulatory Approval. (a)
E-LOAN acknowledges that the performance of the Services under this Agreement is
subject to the examination and regulatory authority of the Office of the
Comptroller of the Currency (the "OCC") and any other applicable Federal or
state banking agency (each, an "Agency") pursuant to 12 U.S.C. Section 1867(c).
E-LOAN shall perform the Services in such a manner which will enable FCC
National to achieve compliance with all applicable federal, state and local
laws, government rules and regulations, and Agency supervisory issuances
("Applicable Law") and shall comply with (and cause E-LOAN's Affiliates,
representatives and employees to comply with) all applicable FCC National
Policies in an effort to achieve and maintain compliance with such Applicable
Law. All FCC National Policies that apply to E-LOAN as of the Effective Date
shall be provided to E-LOAN prior to the Effective Date.
(b) If FCC National determines that modification to the
Services is necessary to achieve
3
<PAGE> 5
compliance with Applicable Law and/or to satisfy the recommendations of an
Agency, and/or if FCC National determines that modification to the Services is
necessary to address a change in Applicable Law and/or a change in any FCC
National Policy necessary to more fully comply with Applicable Law, FCC National
must notify E-LOAN of such determination in writing and direct E-LOAN to make
specific modification(s) to the Services that address FCC National's regulatory
concerns. E-LOAN shall promptly implement such proposed modification(s), or if
FCC National's proposed modification(s) would result in significant additional
cost, material disruption or additional burden to E-LOAN, E-LOAN may (i) suggest
alternative modifications designed to address FCC National's concerns with less
cost or disruption to E-LOAN and/or (ii) propose to FCC National that FCC
National bear a stated portion of the costs involved with the modification(s).
If FCC National, in its reasonable determination, concludes that the suggested
alternative modifications do not allow FCC National to achieve compliance with
Applicable Law or FCC National Policy, or that the proposed costs to be paid by
FCC National are, in FCC National's sole discretion, unacceptable, E-LOAN may
elect to (x) implement the modifications proposed by FCC National, as the same
may have been modified by mutual agreement of the parties, or (y) terminate the
Agreement without penalty upon ninety (90) days' written notice to FCC National.
Any termination pursuant to this Section 3.8(b)(ii)(y) shall be subject to the
transition obligations set forth in Section 9.4 of this Agreement.
Section 3.8 Integration. E-LOAN shall make all commercially
reasonable modifications that are necessary, in FCC National's reasonable
discretion, to ensure compatibility of E-LOAN's systems with all other systems
being used to implement the Project.
Section 3.9 End-User Agreements. E-LOAN shall comply with all
applicable and reasonable terms in any End-User Agreement. FCC National shall
provide to E-LOAN by the Effective Date the form of all End-User Agreements in
existence as of that date.
Section 3.10 Project Manager. E-LOAN shall fully cooperate with
the Project Manager and shall respond promptly to all requests of the Project
Manager, including, without limitation, requests for any written or oral
performance or other reports reasonably related to E-LOAN's participation in the
Project.
ARTICLE IV
PAYMENT OBLIGATIONS
Section 4.1 Service Charges; Payment Terms. (a) In consideration
of FCC National's advertising, promotion, marketing, and computer services on
behalf of E-LOAN, and the grant by FCC National to E-LOAN of the right to use
FCC National's proprietary marks in connection with E-LOAN's promotional
activities, E-LOAN agrees to pay FCC National the fees set forth on Schedule D,
which the parties agree represent the fair and reasonable value of the marketing
and promotional activities, computer services, and the use of proprietary marks
of FCC National, including, but not limited to (i) the advertising and publicity
value to E-LOAN created by the association of E-LOAN with FCC National; (ii) FCC
National's obligations to report to E-LOAN the results of FCC National's
marketing efforts; (iii) the computer services, including the weblink and the
efforts to establish E-LOAN Pages on FCC National's website that FCC National
will provide to E-LOAN; and (iv) the delivery of customers with interest and/or
experience in conducting financial transactions on the internet. E-LOAN shall
not compensate FCC National for any services duplicative of those provided by
E-LOAN, and shall be disclosed to the customer as required by RESPA or any other
applicable law.
(b) E-LOAN's payment obligations to FCC National shall be as
set forth on Schedule D attached hereto. E-LOAN shall compensate FCC National on
terms no less favorable than the terms on which it compensates any other Person
providing identical or similar marketing, advertising, and computer services;
provided, however that E-LOAN shall be obligated to review payments to each of
its distribution sources no more than once annually. If such review shows that
FCC National was underpaid at any time during the year prior to such review
because an identical or similar distribution source was compensated on terms
more favorable than FCC National, E-LOAN shall pay to FCC National in arrears
all such amounts. All invoices shall be accompanied by a report in such form and
format and containing such information as is reasonably required by E-LOAN to
evidence the manner in which
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the amounts due hereunder were calculated and which permit E-LOAN to verify such
amounts.
(c) Within 30 days after the end of each month, E-LOAN shall
remit payment to FCC National at FCC National's principal office designated in
the preamble to this Agreement (or such other place designated by FCC National
in accordance with the notice provisions of Section 13.8) for its payment
obligations as set forth on Schedule D. Each payment shall be accompanied by a
report in such form and format and containing such information as is reasonably
required by FCC National to evidence the manner in which the amounts due
hereunder were calculated and which permit FCC National to verify such amounts.
(d) This Agreement and the compensation hereunder will be
subject to change by mutual agreement of the parties, to the extent necessary to
comply with federal and state laws and regulations, including the Real Estate
Settlement Procedures Act (RESPA). If, in the reasonable discretion of either
party, the compensation arrangements or any other provision of this Agreement
fail to comply with any applicable law, or either party is advised by counsel or
a regulatory body with jurisdiction over its activities to terminate or modify
the Agreement or compensation arrangements to achieve compliance, the other
party shall cooperate to the extent necessary to achieve compliance, including,
but not limited to, executing any appropriate amendments to the Agreement. If
any Agency determines that the compensation paid in consideration of the
activities conducted hereunder violates or would violate Applicable Law, the
parties agree that appropriate adjustments (including retroactive adjustments)
will be made to the compensation structure to resolve the violation as
determined by the Agency. The amount of any retroactive adjustments shall not
exceed amounts actually paid or owing.
ARTICLE V
E-LOAN REPRESENTATIONS AND WARRANTIES
E-LOAN represents and warrants as of the date hereof as follows:
Section 5.1 Organization and Qualification. E-LOAN is duly
organized and existing in good standing under the laws of the jurisdiction in
which it is organized, is duly qualified and in good standing as a foreign
corporation in every state in which the character of its business requires such
qualifications, and has the power to own its property and to carry on its
business as now being conducted.
Section 5.2 Due Authorization. The execution and delivery of
this Agreement and compliance by E-LOAN with all provisions of this Agreement
(a) are within the corporate power and authority of E-LOAN, and (b) have been
duly authorized by all requisite corporate proceedings. The Agreement has been
duly executed and delivered by E-LOAN and constitutes a valid and binding
agreement of E-LOAN, enforceable in accordance with its terms.
Section 5.3 Conflicting Agreements. The execution and delivery
of this Agreement shall not conflict with or result in a breach of the terms,
conditions or provisions of, give rise to a right of termination under,
constitute a default under, or result in any violation of, the organizational
documents of E-LOAN or any mortgage, agreement, contract, instrument, order,
judgment, decree, statute, law, rule or regulation to which E-LOAN or any of its
respective properties is subject.
Section 5.4 Consents. No authorizations or other consents,
approvals or notices of or to any Person are required in connection with (a) the
performance by E-LOAN of its obligations under this Agreement, (b) the
development and implementation of the systems necessary to perform the Services
in accordance with the applicable provisions of this Agreement and in compliance
with all applicable laws, (c) the validity and enforceability of this Agreement;
or (d) the execution, delivery and performance by E-LOAN of this Agreement.
Section 5.5 Performance Warranty. E-LOAN represents and warrants
that the Services shall conform in all material respects to the technical
specifications and performance standards set forth in the Statement of Work and
to general industry standards for the Services and products offered by E-LOAN
pursuant to this
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Agreement. E-LOAN further warrants that it has developed or will develop and
implement in a timely manner, all necessary internal technical systems and
procedures to ensure that the Services conform and continue to conform to such
specifications and standards, and to standards at all times reasonably
acceptable to FCC National or as otherwise required to assure compliance by
E-LOAN or FCC National with any law or regulation. FCC National shall have the
right at any time and in a reasonable manner to review and inspect E-LOAN's
operational and security standards and E-LOAN shall cooperate with such reviews
and inspections in accordance with Section 8.2 of this Agreement.
Notwithstanding any other provision in this Agreement, in the event FCC National
notifies E-LOAN that the Services are failing to conform to the above
warranties, FCC National may, in its sole discretion, (a) immediately terminate
this Agreement pursuant to Section 9.2 or (b) request that E-LOAN, without
charge, promptly repair or replace the cause of such failure in accordance with
the response times set forth in the Statement of Work. If E-LOAN fails to repair
or replace promptly the cause of such failure, FCC National may immediately
terminate the Agreement pursuant to Section 9.2. In no event shall a termination
of the Agreement by FCC National pursuant to this Section 5.5 constitute an
Early Termination by FCC National under Section 9.3 hereof.
Section 5.6 Disaster Recovery. E-LOAN represents and warrants
that it currently maintains, and shall continue to maintain throughout the term
of this Agreement, offsite disaster recovery capabilities (further described in
Section 8.4) that permit E-LOAN to recover from a disaster and continue
providing the Services within a commercially reasonable period not to exceed 48
hours from the occurrence of such disaster. E-LOAN maintains, and shall continue
to maintain throughout the term of this Agreement, a back-up power supply system
to guard against electrical outages.
Section 5.7 "Year 2000" Warranty. E-LOAN represents and warrants
that all computer systems, software, and hardware provided by E-LOAN and to be
used in the provision of the Services or otherwise for the Project, including,
without limitation, all Custom Work Product developed by E-LOAN (as defined in
Section 7.3) are, at the time of delivery and thereafter and in all subsequent
modifications, able to accurately process date data, including calculating,
comparing, and sequencing from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations. If, at any time, any such system, software or hardware are found
by FCC National or any other of E-LOAN's customers, not to function in any
material respect as specified in this Section as a result of the date changes
from December 31, 1999 to January 1, 2000 and beyond, including appropriate leap
year calculations, E-LOAN shall at no additional charge to FCC National and in
accordance with the Statement of Work, immediately upon receipt of a report of a
material defect, correct any such defect so as to enable the systems, software
or hardware to fully function in accordance with this Section and with the
Statement of Work. In doing so, FCC National shall cooperate reasonably with
E-LOAN; provided that E-LOAN shall not require FCC National to make any changes
to the systems, software or hardware (except to install changes provided by
E-LOAN) unless the defect is caused solely by a modification thereto not made or
authorized by E-LOAN.
Section 5.8 Intellectual Property Rights. E-LOAN represents and
warrants that it owns, or has the right to use under valid and enforceable
agreements, all Intellectual Property Rights reasonably necessary for and
related to the operation of the Services. The operation of the Services as
presently conducted or proposed to be conducted by E-LOAN does not infringe or
violate any Intellectual Property Rights of any other person, and E-LOAN has not
received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. No other Person has any right to or interest in any
inventions, improvements, discoveries or other confidential information utilized
by E-LOAN that relate to the operation of the Services. In the event it is
determined that E-LOAN is infringing upon any Intellectual Property Right,
E-LOAN shall, as soon as practicable, (a) obtain for FCC National the right to
continue using the infringing item or (b) replace the infringing item or modify
it such that it becomes non-infringing.
Section 5.9 Compliance. E-LOAN represents and warrants that
E-LOAN's business is in compliance with all Applicable Law. E-LOAN further
represents and warrants that (a) E-LOAN's performance under the Agreement and
(b) the Services, including, without limitation, all processing performed as
part of the
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Services, will comply with all Applicable Law.
Section 5.10 Network Access. E-LOAN controls access to its
network through the utilization of security measures that restrict access. FCC
National has no ability to modify such security methods and is in total reliance
upon E-LOAN for the protection of FCC National's internal system against access
through the use of E-LOAN's network. E-LOAN represents that its security
measures are designed, consistent with best industry practices, in an effort to
(i) ensure that FCC National's internal system cannot be accessed without FCC
National's express authorization; (ii) enable E-LOAN to immediately terminate
any unauthorized access; and (iii) enable E-LOAN to identify the entity making
such unauthorized access. E-LOAN will make no changes to its security measures
that would increase the risk of an unauthorized access.
ARTICLE VI
FCC NATIONAL REPRESENTATIONS AND WARRANTIES
FCC National represents and warrants as of the date hereof as follows:
Section 6.1 Organization and Qualification. FCC National is duly
organized and existing in good standing under the laws of the jurisdiction in
which it is organized, is duly qualified and in good standing as a foreign
corporation in every state in which the character of its business requires such
qualifications, and has the power to own its property and to carry on its
business as now being conducted.
Section 6.2 Due Authorization. The execution and delivery of
this Agreement and compliance by FCC National with all provisions of this
Agreement (a) are within the corporate power and authority of FCC National, and
(b) have been duly authorized by all requisite corporate proceedings. The
Agreement has been duly executed and delivered by FCC National and constitutes a
valid and binding agreement of FCC National, enforceable in accordance with its
terms.
Section 6.3 Conflicting Agreements. The execution and delivery
of this Agreement shall not conflict with or result in a breach of the terms,
conditions or provisions of, give rise to a right of termination under,
constitute a default under, or result in any violation of, the organizational
documents of FCC National or any mortgage, agreement, contract, instrument,
order, judgment, decree, statute, law, rule or regulation to which FCC National
or any of its respective properties is subject.
Section 6.4 Consents. No authorizations or other consents or
approvals or notices of or to any Person are required in connection with (a) the
performance of FCC National's obligations under this Agreement, (b) the validity
and enforceability of this Agreement, and (c) the execution, delivery and
performance by FCC National of this Agreement.
Section 6.5 Compliance. FCC National represents and warrants
that FCC National's business is in compliance with all applicable federal, state
and local laws and government rules and regulations. FCC National further
represents and warrants that (a) FCC National's performance under the Agreement
and (b) the Services, including, without limitation, all processing performed as
part of the Services, will comply with all applicable federal, state and local
laws and government rules and regulations.
ARTICLE VII
PROPRIETARY RIGHTS
Section 7.1 Customer Data. [*]
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Section 7.2 Trademarks. (a) FCC National grants to E-LOAN, for
the term of this Agreement, a non-exclusive, non-transferable, royalty-free,
revocable license to use, at FCC National's direction and in FCC National's sole
discretion, any trademark of FCC National or its Affiliates, in connection with
the Services (each, a "FCC National Trademark").
(b) E-LOAN shall use all FCC National Trademarks in
accordance with the standard policies and guidelines adopted by FCC National, as
such standards, policies, and guidelines may be amended by FCC National from
time to time. FCC National shall have the right to proscribe any use by E-LOAN
of a FCC National Trademark including any use that is not in accordance with any
and all of FCC National's standards, policies and/or guidelines. E-LOAN shall
replace any FCC National Trademark upon ninety (90) days' prior written notice
from FCC National; provided however that E-LOAN may continue to use any
previously printed material still containing such FCC National Trademark until
reasonable use of such materials is exhausted; provided further however that FCC
National shall have the right to acquire such previously printed materials upon
payment to E-LOAN of E-LOAN's printing and out-of-pocket expenses associated
with such materials.
(c) E-LOAN shall not engage in any action associated with a
FCC National Trademark that adversely affects the good name, goodwill, image or
reputation of FCC National. All uses of a FCC National Trademark hereunder shall
inure to the benefit of FCC National.
(d) E-LOAN grants to FCC National, for the term of this
Agreement, a non-exclusive, non-transferable, royalty-free, revocable license to
use, at E-LOAN's direction and in E-LOAN's sole discretion, any trademark of
E-LOAN or its Affiliates, in connection with the links to or from or in
conjunction with FCC National's website. E-LOAN's trademarks, as used herein,
are E-LOAN, ELOAN, E-LOAN Express, E-LOAN Ltd., E-Track, e-loan.com and
eloan.com (the "E-LOAN Marks"). FCC National may not use the E-LOAN Marks,
including its service marks, trade names, logos or other commercial or product
designations for any other purpose without the prior written consent of E-LOAN.
(e) In addition, FCC National shall not engage in any action
associated with any E-LOAN Mark that adversely affects the good name, goodwill,
image or reputation of E-LOAN. All uses of an E-LOAN Mark hereunder shall inure
to the benefit of E-LOAN.
Section 7.3 Intellectual Property Rights. (a) For the purposes
of this Section 7.3, (i) "Intellectual Property" shall mean any patents,
inventions, invention disclosures, Marks (as defined below), material trade
secrets, know-how, formulae and processes, software programs (except for
programs purchased off the shelf), proprietary data and databases, copyrights
and all other similar items of intellectual property, whether registered or
unregistered, including any rights created by use thereof, all proceeds thereof
(such as by way of example, licenses, royalties and proceeds of current
infringements), and the right to sue for past, present and future infringements;
(ii) "Marks" shall mean all right, title and interest in and to any United
States or foreign trademarks, service marks and trade names, including any
registration or application for registration of any trademarks and services
marks in the United States Patent and Trademark Office or the equivalent thereof
in any state of the United States or in any foreign country, as well as any
unregistered marks, and any trade dress (including logos, designs, company
names, business names, fictitious names and other business identifiers) in the
United States or any foreign country; and (iii)
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"Custom Work Product" shall mean the resulting work product (including
functional and technical designs, interfaces, test items, test definitions,
programs, modules, code, flowcharts, data diagrams, specifically, documentation
and the like) developed by E-LOAN after the Effective Date of the Agreement on
behalf of FCC National and at FCC National expense in furtherance of the
Statement of Work.
(b) Each party shall retain the rights in and title to its
respective Marks, and any other Intellectual Property previously or generally
developed by such party or its Affiliates that may be adapted or used by the
other party in connection with the Project.
(c) Neither party shall copy, use, display, distribute or
transfer the other party's Marks, or other Intellectual Property owned by such
other party or its Affiliates except as expressly contemplated by this
Agreement. Notwithstanding the foregoing sentence, each party hereto agrees that
the other party shall be free to use and employ the general skills, know-how,
methods and techniques, or skills gained or learned during the course of the
Project, so long as such party does not disclose Confidential Information of the
other party.
(d) Upon termination of this Agreement, E-LOAN shall
transfer to FCC National and FCC National shall own all right, title and
interest to all Custom Work Product, if any. E-LOAN expressly acknowledges and
agrees that, conditioned on final payment of the expenses related thereto, all
such Custom Work Product constitutes "work made for hire" under the Federal
copyright laws (17 U.S.C. Section 101) owned exclusively by FCC National and,
alternatively, E-LOAN shall irrevocably assign all ownership or other rights it
may have in Custom Work Product to FCC National. Further, FCC National shall
own, or E-LOAN shall irrevocably assign to FCC National, all right title and
interest to all rights, including copyrights, in materials, written documents,
concepts, techniques, know-how and ideas embodied in such "work made for hire"
or otherwise developed by E-LOAN for FCC National and at FCC National's expense,
with the exception of pre-existing works of authorship and materials.
ARTICLE VIII
GENERAL COVENANTS
Section 8.1 Disclosures. The parties shall cooperate fully with
each other in providing all required notices and disclosures to the appropriate
governmental or regulatory authorities and to affected Users concerning the
initiation or termination of this Agreement or of the Services, or of any
substantial changes in the Services being provided to FCC National or Users.
Section 8.2 Cooperation with Examinations. E-LOAN shall provide
to the internal and external auditors and personnel of FCC National and FCC
National's Affiliates, and any examiners or agents from any regulatory body
asserting jurisdiction over the business of FCC National or any of FCC
National's Affiliates, all third party audit and examination reports prepared by
regulatory examiners and independent public accountants of E-LOAN, and shall
grant such auditors, personnel, examiners and agents reasonable access to E-LOAN
(including, without limitation, to E-LOAN's records, systems, controls,
processes and procedures) and to the data center from which E-LOAN provides the
Services for the purpose of performing audits or examinations of E-LOAN or
E-LOAN's Affiliates, including, without limitation, any Agency examination under
12 U.S.C. Section 1867(c). E-LOAN shall fully cooperate and provide to such
auditors, personnel, examiners and agents, in a timely manner, all such
assistance as they may reasonably require in connection with any such audit or
examination.
Section 8.3 Year 2000 Due Diligence. (a) E-LOAN understands and
acknowledges that FCC National shall be required to represent to the OCC that
FCC National will perform requisite due diligence to ensure that all third-party
data processing service providers or purchased applications or systems that FCC
National utilizes as part of the Project are Year 2000 compliant in accordance
with OCC issuances. E-LOAN further understands and acknowledges that, as part of
this due diligence, FCC National will determine whether E-LOAN is taking or has
taken appropriate action to achieve Year 2000 readiness and has adopted
contingency plans for mission-critical products and services. E-LOAN shall
cooperate fully with any due diligence and monitoring
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activities conducted by FCC National as part of its oversight and review of
E-LOAN's Year 2000 procedures, including, without limitation, compliance with
FCC National's audit procedures as described in Section 8.2 above.
(b) E-LOAN further understands and acknowledges that FCC
National must develop a contingency plan related to Year 2000 compliance in
accordance with Agency recommendations prior to the launch date of the Project.
E-LOAN shall cooperate fully with the development of such contingency plan.
Section 8.4 Disaster Recovery Plan. Throughout the term of this
Agreement, E-LOAN hall maintain a disaster recovery plan (the "Disaster Recovery
Plan") and the capacity to execute such plan, which plan, at a minimum, shall
conform to the standards set by the Federal Financial Institutions Examination
Council. A copy of the executive summary of E-LOAN's current Disaster Recovery
Plan is attached hereto, for reference purposes only, as Schedule E. On an
annual basis and as otherwise requested by FCC National, E-LOAN shall provide
FCC National with an executive summary of E-LOAN's most current Disaster
Recovery Plan and a detailed description of the Disaster Recovery Plan test
results, which Disaster Recovery Plan shall be performed by E-LOAN at least
annually. Upon the occurrence of any disaster requiring use of E-LOAN's Disaster
Recovery Plan, E-LOAN shall promptly notify FCC National of same, and E-LOAN
shall provide to FCC National equal access as E-LOAN's other customers in the
provision of the products or services contemplated by this Agreement. If FCC
National reasonably determines that E-LOAN has not or cannot put its Disaster
Recovery Plan in place quickly enough to meet FCC National's needs or is
otherwise unable to provide equal access to such products or services, E-LOAN
shall promptly assist and support FCC National in seeking such products or
services from an alternative source and provide transition assistance as
described in Section 9.4 of this Agreement.
ARTICLE IX
TERM AND TERMINATION
Section 9.1 Term. This Agreement shall be effective as of the
Effective Date and shall remain in force for a period of [*] (the "Initial
Term"). The Initial Term shall automatically renew and extend for successive one
(1) year terms, commencing at the conclusion of the Initial Term or any renewal
term, unless contrary notice in writing is given by FCC National or E-LOAN at
least 90 days prior to termination of the then current term. Upon termination,
the parties' obligations of a continuing nature shall continue to be binding and
in full force and effect.
Section 9.2 Termination. Either party may, at its option,
terminate the Agreement in the event of a material breach of this Agreement by
the other party. Such termination may be effected only through written notice to
the breaching party, which notice shall specify the breach on which termination
is based. Following receipt of such notice, the breaching party shall have
thirty (30) days to cure such breach; the Agreement shall terminate in the event
such cure is not effected by the end of such period.
Section 9.3 Early Termination by FCC National. [*]
Section 9.4 Transition Services. Notwithstanding any other
provision of this Agreement, including, without limitation, Sections 9.2 and 9.3
above and Sections 9.5 and 9.6 below, if, upon termination of this Agreement,
FCC National chooses to continue to offer the Services (or any services that
replace the Services or part thereof) itself or through a provider other than
E-LOAN, which other provider may be an Affiliate of FCC
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National, (a "Transition"), FCC National may request an extension of this
Agreement, and E-LOAN shall continue to perform hereunder for a period of up to
six (6) months from the effective date of the termination (the "Transition
Period") in order to allow the orderly migration and transition of the Services
to FCC National and/or a third party vendor designated by FCC National;
provided, however, that E-LOAN shall not be required to provide Transition
Services to FCC National if (i) FCC National has terminated this Agreement
pursuant to Section 9.2, 9.3, 9.5, or 9.6 and (ii) the third-party vendor
operates any other multi-vendor site providing home mortgage loans from multiple
lenders. E-LOAN shall, upon FCC National's request, provide reasonable
assistance to FCC National to complete any such Transition. The payment
obligations set forth in Schedule D shall remain effective during the Transition
Period. "Reasonable assistance" shall include, as requested by FCC National, any
reasonable technical and technical training support required to complete the
Transition in a smooth and orderly fashion and without interruption of the
electronic banking services being provided by FCC National to Users, including,
without limitation, assistance with porting data, revising interfaces and
training FCC National and/or any third party designated by FCC National with
respect to all technologies necessary to conduct the Services as part of the
Project.
Section 9.5 Termination to Achieve Regulatory Approval. E-LOAN
acknowledges that, to expedite and secure regulatory approval for the Project or
otherwise respond to recommendations of any Agency, FCC National may determine,
in its reasonable discretion, that FCC National should perform the Services
internally (or through an Affiliate) rather than through a third-party vendor.
In the event FCC National makes such a determination, FCC National shall have
the right to terminate the Agreement. Any termination pursuant to this Section
9.5 shall be subject to the transition obligations set forth in Section 9.4 of
this Agreement.
Section 9.6 Termination Upon Bankruptcy, Liquidation or
Dissolution of E-LOAN. FCC National, reserving all other rights available to it
at law or in equity, subject to the terms of this Agreement, shall have the
right to immediately terminate this Agreement with respect to any portion of
this Agreement upon the occurrence of any one of the following: (1) any
voluntary proceeding of E-LOAN under the bankruptcy laws or proceeding for the
appointment of a trustee in bankruptcy for E-LOAN, which proceeding is not
dismissed or discharged within thirty (30) days thereafter, or the entry by
E-LOAN into an assignment for the benefit of E-LOAN's creditors; (2)
liquidation, execution or seizure of substantially all of the assets of E-LOAN,
or (3) corporate dissolution of E-LOAN.
Section 9.7 Termination Upon Bankruptcy, Liquidation or
Dissolution of FCC National. E-LOAN, reserving all other rights available to it
at law or in equity, subject to the terms of this Agreement, shall have the
right to immediately terminate this Agreement with respect to any portion of
this Agreement upon the occurrence of any one of the following: (1) any
voluntary proceeding of FCC National under the bankruptcy laws or proceeding for
the appointment of a trustee in bankruptcy for FCC National, which proceeding is
not dismissed or discharged within thirty (30) days thereafter, or the entry by
FCC National into an assignment for the benefit of FCC National's creditors; (2)
liquidation, execution or seizure of substantially all of the assets of FCC
National, or (3) corporate dissolution of FCC National.
ARTICLE X
INDEMNIFICATION, PROCEDURES AND LIABILITY
Section 10.1 E-LOAN Indemnification. E-LOAN hereby agrees to
indemnify and hold harmless FCC National and its Affiliates, and their
successors and assigns, from any loss, liability, claim, damage or expense:
(a) incurred as a result of the breach of any of E-LOAN's
representations and warranties as set forth in this Agreement; or
(b) incurred as a result of the negligence, gross negligence
or willful misconduct of E-LOAN, a breach of any obligation of E-LOAN to FCC
National under this Agreement, or claims against FCC National brought by Users
arising out of any material deviation by E-LOAN from the technical
specifications
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performance standards set forth in the Statement of Work.
Section 10.2 FCC National Indemnification. FCC National hereby
agrees to indemnify and hold harmless, as permitted by law, E-LOAN and its
Affiliates, and their successors and assigns, from any loss, liability, claim,
damage or expense:
(a) incurred as the result of the breach of any of FCC
National's representations and warranties as set forth in this Agreement; or
(b) incurred as a result of the negligence, gross negligence
or willful misconduct of FCC National or a breach of an obligation of FCC
National to E-LOAN under this Agreement.
Section 10.3 Procedure for Indemnification. If a party (the
"Indemnified Party") seeks indemnification under this Article X, (a) the
Indemnified Party shall notify the indemnifying party (the "Indemnifying Party")
within thirty (30) days after learning of the occurrence of any event that is
asserted to be an indemnifiable event pursuant to this Agreement. If such event
involves the claim of any third party and the Indemnifying Party confirms in
writing its responsibility for such liability, if established, the Indemnifying
Party shall be entitled to participate in and, to the extent it shall wish,
assume control over (in which case the Indemnifying Party shall assume all
expense with respect to) the defense, settlement, adjustment or compromise of
such claim.
(b) The Indemnified Party shall have the right to employ
separate counsel in any action or claim and to participate in the defense
thereof at the expense of the Indemnifying Party (i) if the retention of such
counsel has been specifically authorized by the Indemnifying Party, or (ii) if
the counsel is retained because the Indemnifying Party does not notify the
Indemnified Party within twenty (20) days after receipt of a claim notice that
it elects to undertake the defense thereof. The Indemnified Party shall have the
right to employ counsel at the Indemnified Party's own expense and to
participate in such action or claim, including settlement or trial, so long as
such participation does not substantially interfere in the Indemnifying Party's
defense of such claim or action.
(c) The Indemnifying Party shall obtain the prior written
approval of the Indemnified Party before entering into any settlement,
adjustment, or compromise of such claim or ceasing to defend against such claim,
if pursuant to or as a result of such settlement, adjustment, compromise, or
cessation, injunctive or other relief would be imposed against the Indemnified
Party.
(d) If the Indemnifying Party does not assume control over
the defense of such claim as provided in Section 10.3(a), the Indemnified Party
shall have the right to defend the claim in such manner as it may deem
appropriate at the cost and expense of the Indemnifying Party, and with the
consent of the Indemnifying Party, to settle, adjust, or compromise such claim.
The Indemnified Party may settle, adjust, or compromise any such claim without
the consent of the Indemnifying Party if the Indemnified Party waives
indemnification for such claim.
(e) The Indemnifying Party shall remit payment for the
amount of a valid and substantiated claim for indemnification hereunder promptly
upon receipt of a claim notice therefor. Upon the payment in full of any claim
hereunder, the Indemnifying Party shall be subrogated to the rights of the
Indemnified Party against any person with respect to the subject matter of such
claim.
(f) In the event that the Indemnifying Party reimburses the
Indemnified Party for any third party claim, the Indemnified Party shall remit
to the Indemnifying Party any reimbursement that the Indemnified Party
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subsequently receives for such third party claim.
Section 10.4 Limitation of Liability. [*]
ARTICLE XI
CONFIDENTIAL INFORMATION
Section 11.1 Protection. All information disclosed by a party
hereto to any other party hereto in the course of performing under this
Agreement or to which a party hereto gains access in connection with this
Agreement, including, without limitation, any information that is related in any
way to either party's customers ("Customer Information"), shall be deemed to be
the property of the disclosing party and confidential (such information shall
come under the definition of, and hereinafter be referred to as "Confidential
Information"). For the term of this Agreement and for five (5) years thereafter
(and, for purposes of Customer Information, for the term of this Agreement and
indefinitely thereafter), the receiving party shall: (a) receive such
Confidential Information in confidence; (b) use reasonable efforts to maintain
the confidentiality of such Confidential Information and not disclose such
Confidential Information to third parties (except for the receiving party's
representatives, agents and contractors who have a need to know, are under a
duty of non-disclosure, and are acting for the sole benefit of the receiving
party), which efforts shall accord such Confidential Information at least the
same level of protection against unauthorized use and disclosure that the
receiving party customarily accords its own information of a similar nature; (c)
use or permit the use of such Confidential Information solely in accordance with
the terms of this Agreement; and (d) promptly notify the disclosing party in
writing of any loss or unauthorized use or disclosure of or access to the
disclosing party's Confidential Information of which it becomes aware. The
parties hereto shall each abide by and reproduce and include any restrictive
legends or confidential rights notices (although such restrictive legends or
confidential rights notices are not required for Confidential Information to be
afforded the protection required by this Article) that appear in or on any
Confidential Information of the other party hereto that it is authorized to
reproduce. Each party shall also not remove, alter, cover or distort any
confidential rights notices, legends, symbols or labels appearing in any
Confidential Information of any other party hereto. For purposes of this
Agreement, a "need to know" means that the employee requires the Confidential
Information to perform his or her responsibilities in connection with the
Project.
Section 11.2 Exclusions. The restrictions on disclosure set
forth in Section 11.1 shall not apply when, and to the extent that, the
Confidential Information: (a) is or becomes generally available to the public
through no fault of the receiving party (or any Person acting on its behalf);
(b) was previously rightfully known to the receiving party free of any
obligation to keep it confidential; (c) is subsequently disclosed to the
receiving party by a third party who may rightfully transfer and disclose such
information without restriction and free of any obligation to keep it
confidential; (d) is independently developed by the receiving party or a third
party without reference to the disclosing party's Confidential Information; or
(e) is required to be disclosed by the receiving party
13
[*] Confidential treatment requested.
<PAGE> 15
as a matter of law, provided that the receiving party uses all reasonable
efforts to provide the disclosing party with at least ten (10) days' prior
written notice of such disclosure and the receiving party discloses only that
portion of the Confidential Information that is legally required to be furnished
pursuant to the opinion of legal counsel of the receiving party. Notwithstanding
the foregoing, FCC National retains the right, in its sole discretion, to
disclose any Confidential Information to (x) any Agency, whether pursuant to an
audit by such Agency or otherwise, or (y) to its Affiliates (provided that such
Affiliates agree to be bound by the confidentiality provisions of this
Agreement).
Section 11.3 Return or Destruction of Confidential Information
Upon Termination or Expiration of Agreement. Upon the termination or expiration
of this Agreement, each party shall promptly return or destroy (and certify as
to the destruction thereof, without retaining any copies) all materials subject
to Intellectual Property Rights of the other party, all Confidential Information
of the other party, and other information, documents, manuals and other
materials belonging exclusively to the other party, except as may be otherwise
provided in this Agreement.
Section 11.4 Public Statements. Without the prior written
consent of the other, neither party will make any public statement regarding the
existence of this Agreement or the terms hereof, or regarding the Project, and
the parties will cause their representatives not to make any such public
statement. Without the prior written consent of the other, neither party will
make any statement to any employee (other than employees who have a need to know
about the Services Agreement and/or the Project), competitor, customer, client
or supplier of either party, or any other person, with respect to the Project,
the nature or identity of FCC National, E-LOAN or FCC National's involvement in
the Project, or the existence or contents of this Agreement. The execution of
this Agreement by a party shall not be construed as written consent for a public
disclosure. Notwithstanding the foregoing, both parties will endeavor to create
and issue a press release announcing their relationship at a time, in a form,
and in a forum acceptable to both parties.
Section 11.5 Equitable Relief. The parties acknowledge that the
breach of any portion of this Article XI would cause the disclosing party
irreparable harm for which monetary damages would be inadequate. Accordingly,
the disclosing party shall be entitled to seek injunctive or other equitable
relief to remedy any threatened or actual breach of any portion of this Article
XI by the receiving party.
ARTICLE XII
DISPUTE RESOLUTION
Any dispute, controversy, claim or disagreement between the
parties hereto arising from, relating to or in connection with this Agreement,
any agreement, certificate or other document referred to herein or delivered in
connection herewith, or the relationships of the parties hereunder or
thereunder, including questions regarding the interpretation, meaning or
performance of this Agreement, and including claims based on contract, tort,
common law, equity, statute, regulation, order or otherwise ("Dispute") shall be
resolved in accordance with Schedule F.
ARTICLE XIII
GENERAL TERMS AND CONDITIONS
Section 13.1 Force Majeure. (a) For the purposes of this
Agreement, "Force Majeure Event" means an event, condition or circumstance set
forth in the following sentence; provided that such even, condition or
circumstance is beyond the control of the party affected (the "Affected Party")
and that, despite all efforts of the Affected Party to prevent it or mitigate
its effects, such event, condition or circumstance prevents the performance by
such Affected Party of its obligations hereunder. Only the following events may
be considered Force Majeure Events: (i) explosion and fire; (ii) flood,
earthquake, storm, or other natural calamity or act of God; (iii) strike or
other labor dispute; (iv) war, insurrection or riot; (v) acts of or failure to
act by any governmental authority; and (vi) changes in law.
(b) Obligations Under Force Majeure.
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<PAGE> 16
(i) If an Affected Party is rendered unable, wholly
or in part, by a Force Majeure Event, to carry out some or all
of its obligations under this Agreement, then, during the
continuance of such inability, the obligation of such Affected
Party to perform the obligations so affected shall be suspended.
(ii) The Affected Party shall give written notice of
the Force Majeure Event to the other party (the "Unaffected
Party") as soon as practicable after such event occurs, which
notice shall include information with respect to the nature,
cause and date of commencement of the occurrence(s), and the
anticipated scope and duration of the delay. Upon the conclusion
of a Force Majeure Event, the Affected Party shall, with all
reasonable dispatch, take all necessary steps to resume the
obligation(s) previously suspended.
(iii) Notwithstanding the foregoing, an Affected Party
shall not be excused under this Section 13.1 for (1) any
non-performance of its obligations under this Agreement having a
greater scope or longer period than is justified by the Force
Majeure Event, or (2) for the performance of obligations that
arose prior to the Force Majeure Event. Nothing contained herein
shall be construed as requiring an Affected Party to settle any
strike, lockout or other labor dispute in which it may be
involved.
Notwithstanding the foregoing, E-LOAN's performance of any of
its obligations under this Agreement shall not be suspended or excused pursuant
to this Article XIII unless E-LOAN has, at all times during the term of this
Agreement, maintained acceptable disaster recovery capabilities as required by
Section 8.4 of this Agreement.
(c) Continued Payment Obligation. Either party's obligation
to make payments already owing shall not be suspended by Force Majeure Events.
(d) Extended Force Majeure. Either party may terminate this
Agreement upon thirty (30) days prior written notice to the other party if a
Force Majeure Event prevents the other party from substantially performing its
obligations hereunder for a cumulative period of 365 days or more; provided that
strikes or other labor disputes shall be disregarded in determining such
cumulative period.
Section 13.2 Severability. If any term, provision, or
restriction of this Agreement and any appendix, exhibit, or schedule hereto is
held by a court or panel of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement and such exhibits shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such terms, provisions, covenants or restrictions which may be
hereafter declared invalid, void or unenforceable.
Section 13.3 Assignment of Agreement. No party shall assign,
sublicense or otherwise transfer (voluntarily, by operation of law or otherwise)
this Agreement or any right, interest or benefit under this Agreement, without
the prior written consent of the other party, which consent shall not be
unreasonably withheld, and any attempted assignment, sublicense or transfer in
derogation hereof shall be null and void; provided however that FCC National
may, without the prior consent of E-LOAN, assign, sublicense or transfer the
Agreement to (a) any Affiliate of FCC National, with reasonably comparable
resources to FCC National; (b) any new entity created for purposes of operating
the financial institution being created by FCC National as part of the Project
as of the date of this Agreement; or (c) any Person or entity that acquires or
succeeds to all or substantially all of FCC National's business or assets; and
provided, that E-LOAN may, without the prior consent of FCC National, assign,
sublicense
15
<PAGE> 17
or transfer the Agreement to any Person or entity that acquires or succeeds to
all or substantially all of E-LOAN's business or assets. Subject to the
foregoing, this Agreement shall be fully binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
Section 13.4 Obligation to Notify Upon Knowledge of Event or
Circumstance Giving Rise to Claim, Liability, Etc. Each party hereto shall
reasonably endeavor to promptly inform the other party hereto of any event or
circumstance and provide all information related to its respective information,
properties or products which could reasonably lead to a claim, demand, or
liability of or against the other party and/or its Affiliates by any third
party.
Section 13.5 Amendment and Modification of Agreement. No change,
amendment or modification of any provision of this Agreement or waiver of any of
its terms shall be valid unless set forth in writing and signed by both parties.
Section 13.6 Choice of Law and Venue. This Agreement shall be
interpreted, construed and enforced in all respects in accordance with the laws
of the state of Delaware (without regard to any principles of conflicts of laws
thereof).
Section 13.7 Waiver of Compliance or Enforcement. The failure of
any party hereto to insist upon or enforce strict performance by the other party
of any provision of this Agreement or to exercise any right under this Agreement
shall not be construed as a waiver or relinquishment to any extent of such
party's right to assert or rely upon any such provision or right in that or any
other instance; rather the same shall be and remain in full force and effect.
Section 13.8 Notices. Any notice, approval, request,
authorization, direction or other communication under this Agreement shall be
given in writing, shall reference this Agreement and shall be deemed to have
been delivered and given (a) when delivered personally; (b) three (3) business
days after having been sent by registered or certified U.S. mail, return receipt
requested, postage and charges prepaid, whether or not actually received; or (c)
one (1) business day after deposit with a commercial overnight courier, with
written verification of receipt. All communications shall be sent to the
addresses set forth on Schedule G or to such other address as may be designated
by a party by giving written notice to the other party pursuant to this Section
13.8.
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Section 13.9 Further Assurances. Each party hereto agrees to
take, or cause to be taken, all such further or other actions as shall
reasonably be necessary to make effective, to consummate and to perform the
undertakings and obligations contemplated by this Agreement.
Section 13.10 Headings. The headings used in this document are
for convenience only and are not to be construed to have any legal significance.
Section 13.11 Counterparts. This Agreement may be executed in
one or more counterparts, all of which together shall be considered one and the
same agreement, and shall become effective when both of the counterparts have
been signed by each party and delivered to the other.
Section 13.12 Entire Agreement. This Agreement, including all
Schedules attached hereto, constitutes the entire agreement among the parties
hereto and supersedes any and all prior agreements or understandings among the
parties with respect to the subject matter hereof. No party hereto shall be
bound by, and each party hereto specifically objects to, any term, condition or
other provision or other condition which is different from or in addition to the
provisions of this Agreement (whether or not it would materially alter this
Agreement) and which is proffered by any other party hereto in any
correspondence or other document, unless the party to be bound thereby
specifically agrees to such provision in writing.
[signature page follows]
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<PAGE> 19
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed
on its behalf as of the date first above written.
FCC NATIONAL
By: /s/ Kurt M. Campisano
--------------------------------------
Name: Kurt M. Campisano
Title: Senior Vice President
E-LOAN
By: /s/ Doug Galen
--------------------------------------
Name: Doug Galen
Title: VP Bus Dev
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SCHEDULE A
DEFINITIONS
"AAA" shall have the meaning set forth in Schedule F.
"AAA Rules" shall have the meaning set forth in Schedule F.
"Affected Party" shall have the meaning given to it in Section
13.1.
"Affiliate" shall mean any Person that, directly or indirectly,
through one or more intermediaries, (a) owns or controls another Person, (b) is
owned or controlled by another Person, or (c) is under common control or
ownership with another Person. As used herein, "control" means the power to
direct the management or affairs of a Person, and "ownership" means the direct
or indirect beneficial ownership of more than 50% of the equity securities of a
Person, or, in the case of a Person which is not a corporation, more than 50% of
the voting and/or equity interest.
"Agency" shall have the meaning set forth in Section 3.7(a).
"Applicable Law" shall have the meaning set forth in Section
3.7(a).
"Arbitrators" shall have the meaning set forth in Schedule F.
"Basic Qualifications" shall have the meaning set forth in
Schedule F.
"Confidential Customer Financial Information" shall mean
information submitted by a customer, acquired from a third party, or generated
or developed by either party hereto to the extent such information relates to
such customer's application for any credit card or loan, credit bureau data or
other information or analysis used to determine whether such customer will be
issued any credit card or loan, the credit limit for any credit card issued to a
customer, E-LOAN's internal credit scoring, payment history, customer service
and customer dispute information, or any information that bears on a consumer's
credit-worthiness, credit standing, credit capacity, character, general
reputation, personal characteristics, or mode of living that is collected or
used (or expected to be collected or used) as a factor in establishing the
consumer's eligibility for credit, insurance, employment, or any other purpose
permissible under the Fair Credit Reporting Act.
"Confidential Information" shall mean any and all information,
whether written or oral, relating to or disclosed in this Agreement that is or
should be reasonably understood to be confidential or proprietary to the
disclosing party. Confidential Information includes, without limitation, all
information relating to the Project, information about either party's customers
or prospective customers(including, without limitation, Customer Data), policies
and procedures, operations and future business plans, technical processes and
formulas, product designs, sales, performance, costs, know-how and other
unpublished financial information, business plans, projections and marketing
data. The terms and conditions of this Agreement (as well as all information
regarding the negotiation of this Agreement) and the relationship between the
parties that this Agreement represents shall be deemed to be Confidential
Information of the parties hereto. The nature and identity of FCC National and
its involvement in the Project shall also be deemed to be Confidential
Information.
"Customer Data" shall mean the information developed through
customer use of the Services, or obtained in the course of providing the
Services, and through analysis of such information, including without limitation
all demographic, psychographic, behavioral and financial data.
"Dispute" shall have the meaning set forth in Article XII.
"Early Termination" shall have the meaning set forth in Section
9.3.
"End-User Agreement " shall mean any agreement entered into
between FCC National and a User.
"Force Majeure Event" shall have the meaning given to it in
Section 13.1(a).
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<PAGE> 21
"FCC National Policies" shall mean the internal policies and
procedures of FCC National provided in writing to E-LOAN or otherwise made known
to E-LOAN by FCC National or its authorized representatives, as supplemented
from time to time.
"FCC National Trademark" shall have the meaning set forth in
Section 7.2.
"Indemnified Party" shall have the meaning set forth in Section
10.3.
"Indemnifying Party" shall have the meaning set forth in Section
10.3(a).
"Initial Term" shall have the meaning set forth in Section 9.1.
"Intellectual Property Rights" shall mean, to the extent that
any of the following are recognized in any country or jurisdiction in the world:
intellectual property and or proprietary rights, whether registered or
unregistered, including, without limitation, copyrights; patent rights
(including without limitation applications for patent protection); publicity
rights; trade secret rights; registered or otherwise protected trademarks, trade
names and service marks and protections from trademark dilution.
"Level 1 Dispute Review" shall have the meaning set forth in
Schedule F.
"Level 1 Dispute Termination Date" shall have the meaning set
forth in Schedule F.
"Level 2 Dispute Review" shall have the meaning set forth in
Schedule F.
"Level 2 Dispute Termination Date" shall have the meaning set
forth in Schedule F.
"OCC" shall have the meaning set forth in Section 3.7.
"Panel" shall have the meaning set forth in Schedule F.
"Partner" shall mean any vendor providing services or products
to FCC National for the purpose of implementing a function, or part thereof, of
the Project.
"Performance Report" shall have the meaning set forth in Section
3.1.
"Person" shall mean any individual, firm, corporation, business
trust, partnership, or other entity and shall include any successor (by merger
or otherwise) of such entity.
"Project" shall mean have the meaning set forth in the recitals
to this Agreement.
"Project Manager" shall mean any individual(s) or entity
designated by FCC National, in its sole discretion, to manage the Project.
"Services" shall have the meaning set forth in Section 2.1.
"Transition" shall have the meaning set forth in Section 9.4.
"Transition Period" shall have the meaning set forth in Section
9.4.
"Unaffected Party" shall have the meaning given to it in Section
13.1(b)(ii).
"Users" shall have the meaning given to it in Section 2.1.
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SCHEDULE B
STATEMENT OF WORK
TIMING
(1) E-LOAN shall deliver, by the close of business on Friday, April 2, 1999,
a beta version of the webpages for FCC National testing, comment, and
approval.
(2) E-LOAN shall deliver complete functionality and integration of E-LOAN
Pages onto the FCC National website by the close of business on Friday,
May 7, 1999.
TASKS
(1) E-LOAN shall provide the URLs necessary to link to the FCC National
website.
(2) E-LOAN shall provide one or more internet web pages for use on FCC
National's website to offer loan solutions to FCC National's customers
and other visitors to the FCC National website. E-LOAN shall use FCC
National style guides and make all commercially reasonable efforts to
comply with other FCC National requirements in the construction and
modification of the web pages, except that E-LOAN shall not be required
to make material changes to the content of its web pages. The number,
content, and format of such web pages shall be determined in the sole
discretion of FCC National, and E-LOAN shall make all commercially
reasonable changes to its software to comply with FCC National's web
page requirements, except that E-LOAN shall not be required to make
material changes to the content of its web pages.
(3) E-LOAN shall provide FCC National with technical assistance reasonably
requested by FCC National to allow FCC National to incorporate
mortgage-related evaluation tools within its website, allowing customers
to calculate, among other things, the dollar value of the mortgage for
which they would likely qualify, the monthly payments that they could
reasonably afford and their actual monthly payments.
(4) E-LOAN shall use commercially reasonable efforts to ensure that all
pages of the E-LOAN website linked from any part of the FCC National
website comply with the scale, speed and performance equivalent to that
provided by the FCC National website, and E-LOAN shall use its best
efforts to ensure that the scale, speed and performance of all pages of
the E-LOAN website linked from any part of the FCC National website be
no less than the current speed, scale and performance of the E-LOAN
website.
(5) E-LOAN shall ensure that all information provided by users of the
co-branded site is maintained, accessed and transmitted in a secure
environment and in compliance with security specifications equal to
those provided on the E-LOAN website as of the date the site is made
available to the public.
(6) E-LOAN shall maintain the web pages related to its products.
(7) E-LOAN shall, for the term of this Agreement, continue to offer loan
solutions involving multiple lenders and shall ensure the integrity of
E-LOAN's system to present the customer with multiple lender options and
to identify the most competitive loan options.
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(8) E-LOAN shall offer loans to applicants referred by FCC National on terms
not less favorable, and with no additional fees, than the terms and fees
on loans offered by E-LOAN to any other loan applicant.
(9) E-LOAN shall cooperate with FCC National to develop and execute mutually
agreed upon promotional offers; provided, however that nothing in this
Section (9) shall require E-LOAN or FCC National to enter into any
promotional offer which would have a negative financial impact on such
party.
(10) E-LOAN will ensure that customers accessing E-LOAN through the FCC
National site will have no links to outside sites that E-LOAN does not
host.
ACCEPTANCE
(1) Acceptance will be based upon satisfactory completion of all of the TASK
and TIMING items.
(2) After E-LOAN has completed internal testing on the any of the above
items, individually or as a group, it shall deliver such items to FCC
National for testing. FCC National will then be responsible for testing
the completed items.
(3) Once all testing has been completed by FCC National and all bugs
reported have been resolved, a formal acceptance letter will be issued
by E-LOAN to FCC National for signature.
(4) The FCC National executive with the authority to sign off on the
acceptance letter is Chip Weldon, VP, Interactive.
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SCHEDULE C
TECHNICAL SUPPORT AND PERSONNEL
FCC National technical personnel contact information:
c/o First USA Bank, N.A.
Three Christina Centre
201 North Walnut Street
Wilmington, DE 19801
Attn: Evan Tso
Tele.: 302-985-8317
E-mail:[email protected]
E-LOAN technical personnel contact information:
E-LOAN, Inc.
5875 Arnold Road
Dublin, California 94568
Attn: Matthew Murray, Partner Integration Manager
Tele.: (925) 560-2617
E-mail:[email protected]
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SCHEDULE D
PAYMENT OBLIGATIONS
Section 1. Marketing Fee. [*]
Section 2. Transition Fee. [*]
Section 3. Right to Renegotiate. [*]
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[*] Confidential treatment requested.
<PAGE> 26
SCHEDULE E
DISASTER RECOVERY
E-Loan maintains a formal disaster recovery and contingency plan
("DRCP") under which the co-branded Loan Center created for FCC National will
operate. E-Loan has an internal detailed procedural DRCP document containing
contingency actions for various levels of outage and system failures.
This DCRP consists of the information and procedures required to enable
rapid recovery from any event that would prevent the operation of the co-branded
Loan Center and the E-Loan website.
The DCRP has been distributed to all employees who have responsibilities
under the plan. Management employees have a second copy for storage at home.
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SCHEDULE F
DISPUTE RESOLUTION
Level 1 Dispute Review. Upon the written request of either party, FCC
National and E-LOAN shall each appoint a designated representative whose task
shall be to meet the other party's designated representative (by conference
telephone call or in person at a mutually agreeable site) in an endeavor to
resolve any Dispute ("Level 1 Dispute Review"). The designated representatives
shall meet as often as the parties reasonably deem necessary to discuss the
Dispute and negotiate in good faith in an effort to resolve the Dispute without
the necessity of any formal proceeding.
Level 2 Dispute Review. If resolution of the Dispute cannot be resolved
within the earlier of (a) fifteen (15) days of the first Level 1 Dispute Review
meeting and (b) such time as when either party gives the other notice of an
impasse ("Level 1 Dispute Termination Date"), a chief executive officer (or a
functional equivalent) of each of FCC National and E-LOAN shall meet (by
conference telephone call or in person at a mutually agreeable site) within 72
hours after the Level 1 Dispute Termination Date for the purpose of resolving
such unresolved Dispute ("Level 2 Dispute Review").
Submission of Dispute to Mediation. If the parties are unable to resolve
the Dispute within a reasonable period after commencement of the Level 2 Dispute
Review, the parties shall give each other notice of the existence of a
continuing impasse (the date on which both parties are in receipt of such
notice, the "Level 2 Dispute Termination Date") and shall thereafter immediately
submit the Dispute to mediation in accordance with the Commercial Mediation
Rules of the American Arbitration Association ("AAA") and shall bear equally the
costs of the mediation. The parties will act in good faith to jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the AAA
within fifteen (15) days of the Level 2 Termination Date. The parties agree to
participate in good faith in the mediation and negotiations related thereto for
a period of thirty (30) days commencing with the selection of the mediator and
any extension of such period as mutually agreed to by the parties.
Arbitration. (a) If the parties cannot agree to a mediator within
fifteen (15) days of the Level 2 Dispute Termination Date or if the Dispute is
not resolved within thirty (30) days after the beginning of the mediation and
any extension of such periods as mutually agreed to by the parties, the Dispute
shall be submitted to, and finally determined by, binding arbitration in
accordance with the following provisions of this Schedule, regardless of the
amount in controversy or whether such Dispute would otherwise be considered
justiciable or ripe for resolution by a court or arbitration panel.
(b) Any such arbitration shall be conducted by the AAA in
accordance with its current Commercial Arbitration Rules (the "AAA Rules"),
except to the extent that the AAA Rules conflict with the provisions of this
Schedule, in which event the provisions of this Section shall control.
(c) The arbitration panel (the "Panel") shall consist of
three neutral arbitrators ("Arbitrators"), each of whom shall be an attorney
having five or more years experience in the primary area of law as to which the
Dispute relates, and shall be appointed in accordance with the AAA Rules (the
"Basic Qualifications").
(d) Should an Arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 12.5, a substitute
Arbitrator possessing the Basic Qualifications shall be appointed by the AAA. If
an Arbitrator is replaced after the arbitration hearing has commenced, then a
rehearing shall take place in accordance with the provisions of this Schedule
and the AAA Rules.
(e) The arbitration shall be conducted in Philadelphia,
Pennsylvania; provided that the Panel may from time to time convene, carry on
hearings, inspect property or documents and take evidence at any location which
the Panel deems appropriate.
(f) The Panel may in its discretion order a pre-exchange of
information including
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production of documents, exchange of summaries of testimony or exchange of
statements of position and shall schedule promptly all discovery and other
procedural steps and otherwise assume case management initiative and control to
effect an efficient and expeditious resolution of the Dispute.
(g) At any oral hearing of evidence in connection with any
arbitration conducted pursuant to this Schedule, each party and its legal
counsel shall have the right to examine its witnesses and to cross-examine the
witnesses of the other party. No testimony of any witness shall be presented in
written form unless the opposing parties shall have the opportunity to
cross-examine such witness, except as the parties otherwise agree in writing and
except under extraordinary circumstances where, in the opinion of the Panel, the
interests of justice require a different procedure.
(h) Within fifteen (15) days after the closing of the
arbitration hearing, the Panel shall prepare and distribute to the parties a
written award, setting forth the Panel's findings of facts and conclusions of
law relating to the Dispute, including the reasons for the giving or denial of
any requested remedy or relief. The Panel shall have the authority to award any
remedy or relief that a court of competent jurisdiction could order or grant,
and shall award interest on any monetary award from the date that the loss or
expense was incurred by the successful party. In addition, the Panel shall have
the authority to decide issues relating to the interpretation, meaning or
performance of this Agreement, any agreement, certificate or other document
referred to herein or delivered in connection herewith, or the relationships of
the parties hereunder or thereunder, even if such decision would constitute an
advisory opinion in a court proceeding or if the issues would otherwise not be
ripe for resolution in a court proceeding, and any such decision shall bind the
parties in their performance of this Agreement and such other documents.
(i) Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief, no party nor any arbitrator shall disclose the existence, content or
results of any arbitration conducted hereunder without the prior written consent
of the other parties.
(j) To the extent that the relief or remedy granted in an
award rendered by the Panel is relief or a remedy on which a court could enter
judgment, a judgment upon the award rendered by the Panel may be entered in any
court having jurisdiction thereof. Otherwise, the award shall be binding on the
parties in connection with their obligations under this Agreement and in any
subsequent arbitration or judicial proceedings among any of the parties.
(k) The parties agree to share equally the cost of any
arbitration, including the administrative fee, the compensation of the
arbitrators and the costs of any neutral witnesses or proof produced at the
direct request of the Panel.
(l) Notwithstanding the choice of law provision set forth in
Section 13.6, The Federal Arbitration Act, 9 U.S.C. Sections 1 to 14, except as
modified hereby, shall govern the enforcement of Article XII and this Schedule.
Recourse to Courts and Other Remedies. Notwithstanding the
Dispute resolution procedures contained in this Schedule, any party may apply to
any court having jurisdiction (a) to enforce this Agreement to arbitrate, (b) to
seek provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the Dispute is otherwise resolved, (c) to avoid
the expiration of any applicable limitation period, (d) to preserve a superior
position with respect to other creditors, or (e) to challenge or vacate any
final judgment, award or decision of the Panel that does not comport with the
express provisions of Schedule.
Attorneys' Fees. If any action, suit, or proceeding is commenced
to establish, maintain, or enforce any right or remedy under this Agreement, the
party not prevailing therein shall pay, in addition to any damages or other
award, all reasonable attorneys' fees and litigation expenses incurred therein
by the prevailing party.
Affiliates. Each party hereto agrees that for purposes of
Article XII and this Schedule, references
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to the parties shall also include their respective Affiliates, who shall be
subject to the Dispute resolution procedures of Article XII and this Schedule to
the same extent as the parties.
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SCHEDULE G
NOTICES
If to FCC National: FCC National Bank
c/o First USA Bank, N.A.
Three Christina Centre
201 North Walnut Street
Wilmington, DE 19801
Attn: Bill Wallace
with a copy to: FCC National Bank
c/o First USA Bank, N.A.
Three Christina Centre
201 North Walnut Street
Wilmington, DE 19801
Attn: Clint Walker
If to E-LOAN: E-LOAN, Inc.
5875 Arnold Road
Dublin, California 94568
Attn: Doug Galen
with a copy to: E-LOAN, Inc.
5875 Arnold Road
Dublin, California 94568
Attn: Chief Financial Officer
29
