<PAGE>
As filed with the Securities and Exchange Commission on February 25, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PAYMAP INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7379 94-3179980
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------
3 EMBARCADERO CENTER
SUITE 500
SAN FRANCISCO, CALIFORNIA 94111
(415) 743-1000
(Address, including zip code, and telephone number, including area code, of
corporation's principal executive offices)
------------
JOHN P. DECKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PAYMAP INC.
3 EMBARCADERO CENTER
SUITE 500
SAN FRANCISCO, CALIFORNIA 94111
(415) 743-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copies to:
<TABLE>
<S> <C>
VICTOR A. HEBERT BRYANT B. EDWARDS
HELLER EHRMAN WHITE & McAULIFFE LLP LATHAM & WATKINS
333 BUSH STREET 633 WEST FIFTH STREET, SUITE 4000
SAN FRANCISCO, CALIFORNIA 94101-7063 LOS ANGELES, CALIFORNIA 90071-2007
Telephone: (415) 772-6000 Telephone: (213) 485-1234
Facsimile: (415) 772-6268 Facsimile: (213) 891-8763
</TABLE>
------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum Amount of
Aggregate Registration
Title of Securities to be Registered Offering Price (1) Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value.................. $57,500,000 $15,180
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the registration statement filed with the SEC relating to these securities +
+has been declared effective by the SEC. This prospectus is not an offer to +
+sell these securities or our solicitation of your offer to buy these +
+securities in any jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- February 25, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[Paymap Logo]
Paymap Inc.
Intelligent Payment Automation
Shares of Common Stock
- --------------------------------------------------------------------------------
Paymap Inc.: The Offering:
. We develop, market . We are offering
and service shares
innovative of our common stock.
electronic payment
products that
enable consumers
to manage their
finances more
efficiently and
help them achieve
their financial
goals.
. Our stockholders are
not selling shares
in this offering.
. We have granted the
underwriters an
option to purchase
up to an additional
shares
from us to cover
over-allotments.
. Paymap Inc. 3
Embarcadero
Center,
Suite 500San Francisco,
California 94111(415)
743-1000
. This is our initial
public offering, and
no public market
currently exists for
our shares.
Proposed Symbol &
Market:
. We anticipate that
. PMAP/Nasdaq the initial public
National Market offering price will
be between $ and
$ .
. We plan to use the
net proceeds from
this offering for
working capital and
general corporate
purposes.
. Closing: ,
2000
----------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
-------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Paymap:
-------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
U.S. Bancorp Piper Jaffray
DLJdirect Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 14
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Financial Data............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 25
Management.......................... 35
Certain Relationships and Related
Transactions....................... 44
Principal Stockholders.............. 45
Description of Capital Stock........ 46
Shares Eligible for Future Sale..... 49
Underwriting........................ 51
Legal Matters....................... 53
Experts............................. 53
Additional Information.............. 53
Index to Financial Statements....... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our financial statements and the related notes appearing elsewhere in this
prospectus. This summary is not complete and does not contain all the
information you should consider. You should read the entire prospectus
carefully, including the documents to which we have referred you and the
section entitled "Risk Factors," before making an investment decision.
Paymap Inc.
Our Business
Paymap Inc. develops, markets and services innovative electronic payment
products that enable consumers to manage their finances more efficiently and
help them achieve their financial goals. Our proprietary payment system gives
consumers the ability to "map" and execute their customized electronic payment
plan for core financial products, such as mortgages, credit cards and
investments. Consumers can use our products to personalize and automate the
timing and amount of withdrawals from their checking and other accounts. Our
products then automatically make payments to selected accounts in accordance
with each consumer's customized financial plan. This level of flexibility,
functionality and customization is not offered by typical electronic payment
products. With our products, consumers can easily structure and periodically
revise a personalized payment map that is designed to achieve financial goals,
such as prepayment of debt.
In 1994, we introduced Equity Accelerator(R), our first electronic payment
product. Equity Accelerator is designed for a customer whose goal is to build
home equity faster, realize significant interest savings and pay off a mortgage
earlier. We also offer this product to consumers who wish to accelerate payment
of non-mortgage consumer loans, such as auto and boat loans. We recently
introduced an additional electronic payment product that enables consumers to
make on-demand mortgage payments to avoid late charges and fees. We are also
piloting another product that is designed to allow consumers to manage their
finances more efficiently by making regular, scheduled payments electronically
on their mortgages and other loans. We are currently developing additional
payment products that are intended to enable consumers to create personalized
payment plans with respect to credit cards and investment products.
We currently have more than 300,000 customers that use our equity
acceleration products. Every month, we process approximately $1.2 billion in
payments in over 1 million transactions. Over 95% of these transactions are
made electronically through our proprietary payment system that links to the
Automated Clearing House Network (the "ACH Network"), a processing and delivery
system approved by the Federal Reserve that provides for the distribution and
settlement of electronic debits and credits among financial institutions.
We market our electronic payment products directly to customers of our
financial institution affinity partners. We currently have relationships with
approximately 40 financial institutions, including Citicorp, Bank of America,
Chase Manhattan, First Union, Wells Fargo/Norwest and BankOne. By offering our
products through affinity relationships with established financial
institutions, we are able to efficiently market our products to their customers
and leverage their trusted advisor status. In addition, Fannie Mae has
contracted with us to incorporate our equity acceleration product into Working
Mortgage, a Fannie Mae home mortgage product.
1
<PAGE>
Our Market Opportunity and Solution
We believe consumers are becoming more sophisticated in analyzing and
managing their financial affairs. They are looking for solutions that provide
greater control and flexibility in managing core financial products and an
automated way to exercise budgeting discipline, enabling them to save time and
achieve their individual financial goals. Similarly, financial institutions and
other providers of these consumer financial products are seeking to offer
value-added products to their customers and to enhance the profitability of
their businesses.
Electronic payments offer benefits to both consumers and providers of core
financial products by enabling a financial transaction to be completed more
quickly and conveniently, with greater accuracy and at a lower cost than
traditional paper-based payments. According to The Nilson Report, the number
and dollar volume of non-mortgage electronic payments are expected to increase
from approximately 1.3 billion and $132.6 billion in 1998 to 6.2 billion and
$694.9 billion in 2005. Over the same time period, the percentage of these
electronic payments is expected to increase from 2.9% to 10.2%.
We believe that our electronic payment products take advantage of these
trends and address the needs of both consumers and providers of these core
financial products. For example, Equity Accelerator enables homeowners to
establish a disciplined and flexible electronic payment program to realize
significant interest savings, to build equity faster and to pay off their
mortgage earlier. More specifically, Equity Accelerator allows consumers to:
. calculate the benefits of various prepayment plans and select the one
that achieves their specific goals;
. increase or decrease the amount and frequency of withdrawals;
. synchronize withdrawals from checking or savings accounts to match their
payroll cycles;
. accumulate withdrawals from one or more accounts; and
. transfer the payment program to a new mortgage.
Equity Accelerator also offers our financial institution affinity partners a
turnkey, outsourced electronic payment solution that enables them to:
. make available a value-added product to their customers without incurring
any significant additional costs;
. enhance profitability and reduce servicing costs;
. increase customer retention; and
. develop more timely and predictable payment streams.
Having introduced Equity Accelerator to the mortgage market, we have
substantial experience in developing, marketing, implementing and servicing an
electronic payment product that provides an innovative payment solution for the
home mortgage, one of the most complex financial products from a payment
perspective. In addition, our payment system can be applied to make electronic
payments with respect to a variety of financial products. Accordingly, we
believe we are well positioned to continue to leverage our experience and
proprietary payment system to develop and introduce additional innovative
payment products. This suite of product offerings will allow our customers to
formulate a comprehensive payment map to achieve a variety of financial goals.
2
<PAGE>
Our Strategy
Key elements of our business strategy are to:
. Use our proprietary payment platform to introduce a suite of next-
generation products that will allow our customers to formulate a
comprehensive payment map to achieve a variety of individual financial
goals, such as prepayment of debt and investing for retirement.
. Introduce variations of our existing products to broaden our potential
customer base and enhance the response rates for our products.
. Expand our relationships with existing affinity partners by introducing
and marketing additional products to their customers and develop affinity
relationships with additional financial institutions and other companies
that market and sell financial services and products.
. Integrate our products into core financial products and market them at
the point-of-sale to improve the terms of such core financial products
from the consumers' perspective and improve the penetration of our
products.
. Expand our use of the Internet as a distribution channel by marketing our
products through co-branded, private labeled or hyperlinked Web sites
with our affinity partners and other strategic Web alliances, and to
consumers directly through our Web sites.
General Information
Our executive offices are located at 3 Embarcadero Center, Suite 500, San
Francisco, California 94111 and our telephone number is (415) 743-1000. We were
incorporated in the State of Delaware in April 1993 and changed our name from
Aegis Mortgage Acceleration Corporation in February 2000. Equity Accelerator is
our registered servicemark. This prospectus also contains trademarks and
servicemarks of other companies.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered........................ shares
Common stock to be outstanding after this
offering.................................... shares
Use of proceeds............................. For working capital and general
corporate purposes.
Proposed Nasdaq National Market symbol...... PMAP
</TABLE>
The number of shares of common stock to be outstanding after this offering
excludes:
. 1,217,749 shares of common stock issuable upon exercise of options that
have been granted under our 1995 Stock Option Plan as of December 31,
1999 (at a weighted average exercise price of $0.18 per share);
. 272,458 shares of common stock reserved as of December 31, 1999 for
issuance under our 1995 Stock Option Plan; and
. 1,833,500 shares of common stock reserved for issuance under our equity
incentive plans which are being adopted in connection with this offering.
------------
Assumptions That Apply In This Prospectus
Unless we indicate otherwise, all information in this prospectus reflects the
following:
. issuance of 430,348 shares of common stock upon exercise of outstanding
warrants which must be exercised immediately prior to closing of the
offering;
. the conversion of our outstanding Class A common stock, Class B common
stock and preferred stock into common stock;
. no exercise of outstanding options to purchase common stock after
December 31, 1999; and
. no exercise by the underwriters of their over-allotment option to
purchase up to additional shares of common stock.
4
<PAGE>
Summary Financial Data
(In thousands, except per share data and selected other data)
You should read the following summary financial data together with "Selected
Financial Data" on page 18, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 19 and our audited financial
statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Revenues:
Enrollment fees, net................ $ 992 $1,561 $ 3,245 $ 7,933 $11,933
Transaction fees.................... 1,184 3,611 5,761 13,086 20,200
------ ------ ------- ------- -------
Total revenues..................... 2,176 5,172 9,006 21,019 32,133
Cost of acquisitions, servicing and
support............................. 1,885 3,889 7,431 16,115 20,350
------ ------ ------- ------- -------
Gross profit....................... 291 1,283 1,575 4,904 11,783
Operating expenses:
Selling, general and
administrative..................... 931 1,640 2,665 3,476 6,747
Depreciation and amortization....... 139 183 211 306 371
Amortization of unearned
compensation....................... -- -- -- 192 1,453
------ ------ ------- ------- -------
Total operating expense............ 1,070 1,823 2,876 3,974 8,571
------ ------ ------- ------- -------
Operating income (loss).............. (779) (540) (1,301) 930 3,212
Net income (loss).................... $ (801) $ (609) $ 164 $ 430 $ 1,313
====== ====== ======= ======= =======
Net income (loss) available to common
shareholders........................ $ (841) $ (649) $ 124 $ 486 $ 1,313
====== ====== ======= ======= =======
Basic earnings (loss) per share (a).. $(0.80) $(0.56) $ 0.07 $ 0.14 $ 0.35
====== ====== ======= ======= =======
Diluted earnings (loss) per share
(a)................................. $(0.80) $(0.56) $ 0.01 $ 0.04 $ 0.10
====== ====== ======= ======= =======
Weighted average shares:
Basic (a)........................... 1,048 1,157 1,885 3,510 3,711
====== ====== ======= ======= =======
Diluted (a)......................... 1,048 1,157 10,505 13,735 13,755
====== ====== ======= ======= =======
Pro forma earnings per share
(unaudited):
Basic (a)........................... $ 0.11
=======
Diluted (a)......................... $ 0.10
=======
Pro forma weighted average shares
(unaudited):
Basic (a)........................... 12,289
=======
Diluted (a)......................... 13,755
=======
</TABLE>
The pro forma basic and diluted share calculations above reflect the
conversion upon the closing of the offering of all outstanding shares of
preferred stock, Class A common stock and Class B common stock into 12,664,279
shares of common stock as if the conversion occurred at the date of original
issuance.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
Actual As Adjusted (b)
(unaudited)
<S> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents ........................ $ 969 $
Working capital................................... 1,858
Total assets...................................... 57,759
Line of credit, net current portion............... 1,208
Stockholders' equity.............................. 3,361
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
<S> <C> <C> <C>
Selected Other Data (unaudited):
Weighted average number of customers.................... 76,872 166,084 255,475
Year-end number of customers............................ 133,861 230,705 305,630
</TABLE>
- --------------------
(a) For a description of the computation of the net income (loss) per share and
the number of shares used in per share calculations, see note 2 of the
notes to the financial statements.
(b) As adjusted to reflect receipt of the net proceeds from the sale in this
offering of shares of common stock at an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
5
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware of various risks,
including the risks described below. You should carefully consider these risk
factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
You should keep these risk factors in mind when you read forward-looking
statements elsewhere in this prospectus. Any or all of these risks could have a
material adverse effect on our business, financial condition and results of
operations.
If we are unable to increase our customer base for Equity Accelerator and
retain our existing customers, our business could suffer.
Equity Accelerator accounted for substantially all of our revenues in 1999.
We expect that Equity Accelerator will continue to account for a significant
percentage of our revenues for the foreseeable future. If we are unable to
increase our customer base for Equity Accelerator or if we suffer significant
customer attrition, our business, financial condition and results of operations
could be materially adversely affected.
If we do not successfully introduce new electronic payment products that are
planned for the near future, our business could suffer.
We plan to introduce new electronic payment products in the near future to
serve our financial institution clients and consumers. These new electronic
payment products must achieve market acceptance. New products may require long
development and testing periods and, even if we complete development of and
introduce new products, they may not be accepted by consumers at price levels
that are profitable to us. Significant delays in the development and release,
or reduction in pricing, of these new products could materially and adversely
affect our business, financial condition and results of operations.
Our future profitability depends upon our ability to successfully implement our
strategy to increase adoption of electronic payment methods.
Our future profitability will depend, in part, on our ability to:
. increase consumer awareness of electronic payment products;
. build our infrastructure to introduce new easy-to-use electronic payment
products designed to meet various financial requirements of consumers;
and
. leverage our existing relationships with financial institutions to cross-
sell other financial products to consumers.
Our failure to successfully implement these programs or to substantially
increase adoption of electronic payment methods could have a material adverse
effect on our business, financial condition and results of operations.
We depend on a small number of key affinity relationships for a significant
portion of our active customer accounts.
Approximately 39%, 30% and 30% of our total active accounts in 1997, 1998 and
1999, respectively, result from our relationship with one affinity partner. In
addition, approximately 79% of our total active customer accounts in 1999
resulted from our relationships with ten of our financial institution affinity
partners. If one or more of these financial institutions terminates its
relationship with us, ceases to exist or to actively regenerate, maintain or
service their loan portfolios, our business, financial condition and business
prospects could be materially adversely affected.
6
<PAGE>
Our business may be adversely affected if our relationships with our major
financial institution affinity partners are terminated.
We primarily market our electronic payment products through affinity
relationships with financial institutions. Our agreements with these financial
institutions typically give us the exclusive right to market our equity
acceleration products under the brand name of the particular financial
institution directly to their mortgage portfolios. These agreements generally
provide for an initial term of two to five years. The initial term of a
significant number of these agreements has expired. After the expiration of the
initial term, these agreements generally continue unless cancelled by either of
us upon 90 days written notice. The cancellation of one or more of these
relationships may cause us to lose potential customers, market share and
revenue, which could have a material adverse effect upon our business
prospects, financial condition and results of operations.
Competitive pressures we face may have a material adverse effect on us.
The electronic payments market is new and evolving rapidly, resulting in a
dynamic competitive environment. We face significant competition in the
electronic payment products market. Increased competition may result in price
reductions, reduced margins or loss of market share, any of which could have a
material adverse effect on our business, financial condition and results of
operations. Further, we expect competition to persist and intensify in the
future.
Companies with greater financial resources may enter into our markets and
significantly reduce or eliminate our current competitive advantage. In
addition, other processing and bill payment companies with similar technologies
may emerge to compete with us as we continue to create and market new products.
Many of our potential competitors have longer operating histories,
substantially greater financial, technical, marketing and other resources, or
greater name recognition than we do. They also may be able to respond more
quickly than we can to changes in technology or customer requirements.
Competition could seriously impede our ability to sell additional products on
acceptable terms.
The loss of key executives could adversely affect our business.
Our success depends to a significant degree upon the continued contributions
of our key management. If for any reason any key members of our management team
ceased to be active in the management of our company, it could have a material
adverse effect on our business, financial condition and results of operations.
We do not have employment agreements with our officers and we only maintain
"key person" life insurance for our chief executive officer.
If we do not expand our sales and marketing and other staff and capabilities or
effectively manage our internal growth, we may not be able to expand our
business.
In order to manage our expected growth, accommodate our needs and take
advantage of new opportunities in our markets, we will need to attract
additional key personnel in the near future. We will also need to expand our
sales and marketing, technical, finance, administrative, systems and operations
staff. However, we may not be able to hire, retain and motivate qualified
personnel or to successfully integrate new personnel with our existing
personnel.
Our current and planned personnel levels, systems, procedures and controls
may not be adequate to support our future operations. If inadequate, we may not
be able to exploit existing and potential strategic relationships and market
opportunities. Any delays or difficulties we encounter could impair our ability
to attract new clients, and our ability to enhance our relationships with
existing clients and consumers. Competition for qualified personnel is intense,
especially in the San Francisco Bay Area, and we may be unable to hire and
retain qualified personnel. If we are unsuccessful in hiring, integrating and
retaining new personnel, or unable to effectively manage our internal growth,
our business, financial condition and results of operations could be materially
adversely affected.
7
<PAGE>
Our operating results may fluctuate significantly from quarter to quarter,
which may negatively impact our stock price.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, some of which are outside of our control.
These factors include:
. the amount and timing of costs related to our product development
initiatives, sales and marketing efforts, establishment of affinity
relationships and other initiatives;
. our pricing strategies;
. our ability to upgrade, enhance and maintain our systems and
infrastructure in a timely and cost-effective manner; and
. market trends and economic conditions affecting consumers' receptivity of
electronic payment products and our affinity partners' origination
trends.
Because of these and other factors, we believe that comparisons of our
quarterly operating results are not necessarily meaningful. In addition, it is
possible that in some future quarters our operating results will be below the
expectations of research analysts and investors, in which case the price of our
common stock is likely to decline.
If we fail to respond to rapid technological change, our electronic payment
products could be rendered obsolete.
The electronic payment industry is characterized by rapid technological
change. Our future success depends upon our ability to rapidly incorporate
changing technology into our electronic payment products. If we are unable to
adapt or respond effectively to technological changes, our business, operating
results and financial condition will be materially adversely affected. In
addition, our technology and electronic payment products could be rendered
obsolete. The development of our technologies and electronic payment products
requires substantial lead-time and expenditures. We may not be able to keep
pace with the latest technological developments, successfully identify and meet
the demands of our customers, use new technologies effectively or adapt our
electronic payment products to emerging industry standards or to our customer's
requirements, or successfully develop, introduce or market new products.
In addition, new and competing technologies may emerge to make our value
proposition to providers of core financial products and consumers less
attractive. We depend on the ACH Network and its links to servicing platforms
like Alltell to provide our electronic payment services. Consumers or financial
institutions may begin to use other methods to effect these payments that may
be more efficient or user-friendly. As a result, our business could suffer.
We depend on originating depositary financial institutions to process our ACH
Network transactions.
ACH Network transactions must be processed through originating financial
institutions (ODFIs). Currently, we process our transactions through two ODFIs.
If one or both of these ODFIs significantly changed the terms of our agreements
with them or imposed conditions or requirements that would limit our
transaction processing capacity or volume, we would be required to establish
new ODFI relationships. If we are not able to establish such new relationships
in a timely manner and on commercially reasonable terms, our business could be
materially adversely affected.
If our computer systems and network infrastructure fail or are disrupted, our
business could suffer.
Our success depends on the efficient and uninterrupted operation of our
computer and communications systems. The satisfactory performance, reliability
and availability of our electronic payment platform and network infrastructure
are critical to our reputation and ability to attract and retain financial
institution affinity partners and our ability to maintain adequate customer
service levels. All of our computer and communications
8
<PAGE>
systems are located in San Francisco, California, except for our back-up
facility which is located in Livermore, California. Our systems and operations
are vulnerable to damage or interruption from a number of factors including:
. telecommunication failures;
. power loss;
. earthquakes, fires, floods or other natural disasters;
. computer viruses;
. physical or electronic break-ins; and
. acts of sabotage, vandalism and similar events.
Any failure of our systems could impede the timely processing of payments and
other data and the day-to-day management of our business. Despite any
precautions we take, a natural disaster or other unanticipated problem that
leads to the corruption or loss of data at our facilities, including our back-
up facility, could result in an interruption of our services. Service
interruptions could have a material adverse effect on our business, operating
results and financial condition.
If our electronic payment products do not function as designed, we may incur
significant liability for the processing of fraudulent or erroneous
transactions.
As electronic payment products become more widely used, there is the
potential for significant liability claims by our customers and our financial
institution affinity partners against us for the processing of fraudulent or
erroneous transactions. Our electronic payment products depend on complex
software that may contain defects or programming errors or may not properly
interface with third party systems, particularly when first introduced or when
new versions are released. Defects in our software programs and errors or
delays in our processing of electronic payments could result in:
. additional development costs;
. diversion of technical and other resources from our other development
efforts;
. loss of credibility with current or potential customers and financial
institutions;
. harm to our reputation; and
. exposure to liability claims.
To the extent that defects or errors are undetected in the future and cannot
be resolved satisfactorily or in a timely manner, our business could suffer. If
a liability claim or claims were brought against us, even if not successful,
their defense would likely be time-consuming and costly and could damage our
reputation. Any liability or claim could have a material adverse effect on our
business, operating results and financial condition.
Security and privacy breaches in our electronic payment transactions may damage
customer relations and inhibit our growth.
If we are unable to protect the security and privacy of our electronic
payment transactions and the storage and transmission of confidential
information, such as consumer financial and profile information, our growth
could be materially adversely affected. A security or privacy breach may:
. cause our financial institutions to lose confidence in our electronic
payment products;
. deter consumers from using our electronic payment products;
. harm our reputation;
. expose us and our financial institution affinity partners to liability;
9
<PAGE>
. divert technical and other resources from current product development
efforts; and
. expose us to potentially significant remediation costs.
Our security applications may not be sufficient to address changing market
conditions or the security and privacy concerns of existing and potential
customers. Unauthorized use of our networks could potentially jeopardize the
security of confidential information transmitted by our financial institution
affinity partners. We may be required to spend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by those breaches. Any failures in our security and privacy measures could have
a material adverse effect on our business, financial condition and results of
operations.
We may not be able to obtain adequate financing to implement our strategy.
Successful implementation of our strategy will likely require continued
access to capital. If we do not generate sufficient cash from operations, our
growth could be limited unless we are able to obtain capital through additional
debt or equity financings. Debt or equity financings may not be available as
required. If we raise additional funds by issuing equity securities, the
percentage ownership of our then current stockholders may be reduced. In
addition, we may issue equity securities that have rights, preferences or
privileges senior to those of the holders of our common stock as determined in
the sole discretion of our board of directors. Even if financing is available,
it may not be on terms that are favorable to us or sufficient for our needs. If
we are unable to obtain sufficient financing, we may be unable to fully
implement our growth strategy.
We may not be able to protect our intellectual property rights, which may
result in damages to us, or we may infringe on the rights of others, which may
subject us to liability for damages caused to third parties.
Our ability to compete depends in part upon our proprietary technology and
intellectual property. Our business will suffer if we do not adequately protect
our proprietary technology and intellectual property rights. We protect our
intellectual property rights through a combination of trademarks, service
marks, copyrights trade secrets and contractural provisions, each of which
affords limited protection. We have also applied for patent protection by
filing two patent applications that relate to our proprietary payment system.
However, the steps we have taken to protect our intellectual property rights
may not be adequate to deter misappropriation of those rights. In addition, we
cannot be certain that our products do not infringe on valid patents,
copyrights and intellectual property rights held by third parties. We may be
subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming and could divert our management's attention
away from running our business.
If the growth in the use of the electronic payments market does not continue,
the growth of our business will be negatively impacted.
The electronic payments market is still evolving. We believe future growth in
the electronic payments market will be driven by the cost, ease-of-use and
quality of products offered to consumers and financial institutions that
service them. If the number of electronic payment transactions does not
continue to grow or if consumers or financial institutions do not continue to
adopt electronic payment products, our business, financial condition and
results of operations could be materially adversely affected.
If there is a recession, our business could be materially adversely affected.
Because consumers view our products as savings products requiring them to
make additional payments, we may be vulnerable to recessions and conditions
affecting the economy in general. If a recession were to occur as a result of
which consumers decide not to use our electronic payment products, our
business, results of operations and financial condition would be materially
adversely affected.
10
<PAGE>
The demand for our electronic payment products may decline in the event of a
downturn in the home mortgage market.
We have derived substantially all of our revenues from the sale of our equity
acceleration products in the mortgage market and, therefore, depend heavily on
mortgage loan origination and regeneration. Periods of economic slowdown or
recession may result in decreased demand for new loans and the refinancing of
existing loans and may increase the risk of default on loans. The demand for
our electronic payment products may decrease in periods of economic downturn,
which may materially adversely affect our business, financial condition and
results of operations.
Our business could be adversely affected by consumer litigation against our
affinity partners.
Consumer litigation is frequently directed at financial institutions
concerning their business practices based upon a variety of legal theories.
This type of litigation can take the form of class actions, and may be based
upon alleged violation of privacy, consumer protection, bank regulatory, anti-
trust and other laws. Our business would be adversely affected if we are named
as a party and are required to incur costs to defend or to pay settlements or
judgments arising from such actions. In addition, if such actions are brought
against our affinity partners they may elect to transact less business with us
or otherwise alter their method of doing business with us. This could reduce or
eliminate revenue we obtain from marketing our products to their customers.
Our business could become subject to government regulation, which could make
our business more expensive to operate.
We believe that we are not required to be licensed by the Office of the
Comptroller of the Currency, the Federal Reserve Board or other federal
agencies that regulate or monitor banks or other types of providers of
electronic commerce services. Although a number of states have legislation
regulating or licensing check sellers, accelerated mortgage payment providers,
mortgage bankers, money transmitters or service providers to banks, we have not
registered under such legislation because we believe the manner in which we
market and sell our products does not require us to be registered or licensed
under such legislation. If we are notified by regulators that we are required
to register or be licensed to conduct our business, then we will take
appropriate and necessary steps to comply with such requirements. Any such
requirements could increase our operating costs which could affect our
operating results and financial condition. In addition, the entities
responsible for interpreting and enforcing these laws and regulations could
amend those laws or regulations or issue new interpretations of existing laws
or regulations. Any of these changes could lead to increased operating costs
and reduce the convenience and functionality of our electronic payment
products, possibly resulting in reduced market acceptance.
Federal Reserve and National Automated Clearing House Association rules
provide that we can only access the ACH Network through ODFIs. If these rules
were to change to further restrict our access to the ACH Network or limit our
ability to provide ACH Network-based transaction processing services, it could
have a material adverse effect on our business, financial condition and results
of operations. In addition, as part of our business strategy we intend to offer
our electronic payment products directly to consumers. As a result, we may have
to become licensed under various federal and state licensing or regulatory
regimes. We may not be able to secure those licenses or registrations in a
timely manner, or at all. If we fail to secure those licenses, our business,
financial condition and results of operations will be materially adversely
affected. Moreover, our financial condition and results of operations could be
materially adversely affected directly as a result of the increased operating
costs relating to such registration or licensure.
11
<PAGE>
Consolidation in the banking industry may adversely affect our ability to sell
our electronic payment products.
Mergers, acquisitions and personnel changes at key financial institutions
have the potential to adversely affect our business, financial condition and
results of operations. Currently, the banking industry is undergoing large-
scale consolidation, causing the number of financial institutions to decline.
This consolidation could cause us to lose:
. current and potential customers if the acquiring company does not offer
our products and determines that the combined company should not offer
our products;
. market share if the combined financial institution determines that it is
more efficient to develop in-house electronic payment products similar to
ours or offer our competitors' products; and
. revenue if the combined financial institution is able to negotiate a
greater volume discount for, or discontinues the use of, our products.
Our directors and executive officers will be able to exert significant
influence over us.
After this offering, our directors and executive officers will beneficially
own approximately % of our outstanding common stock, or % if the
underwriters exercise their over-allotment option in full. These stockholders,
if they vote together, will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of us or discourage a potential
purchaser from attempting to obtain control of us which could adversely affect
the market price of our common stock.
Our management has broad discretion as to the use of proceeds from this
offering.
We do not have a quantified business plan for the allocation of the proceeds
from this offering, and we will not have one until we have received the
proceeds from this offering. We do not have a specific use for the proceeds
from this offering other than for working capital and general corporate
purposes, including developing new electronic payment products and increasing
our sales and marketing staff and capabilities. However, we have not performed
any studies nor made any preliminary determinations as to the allocation of
proceeds. Our management will have broad discretion with respect to the use of
proceeds from this offering. You will therefore be relying on the judgment of
our management. If we do not allocate the proceeds from this offering
effectively, our business, operating results and financial condition could be
materially and adversely affected.
Our stock has not been publicly traded before this offering, and there may be
volatility in our stock price.
Before this offering, there has been no public market for our common stock.
We cannot predict the extent to which investor interest will lead to the
development of an active and liquid trading market. The initial public offering
price for the shares will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of the market
price of the common stock that will prevail in the trading market. The market
price of our common stock may decline below the initial public offering price.
In recent years, the securities markets have experienced substantial volatility
in prevailing price levels that is unrelated or disproportionate to the
operating performance of individual companies. The market prices of the
securities of technology related companies have been especially volatile. Some
companies that have had volatile stock prices have been subject to securities
class action suits filed against them. If a suit were to be filed against us,
regardless of the outcome, it could result in substantial costs and a diversion
of our management's attention and resources. This could have a material adverse
effect on our business, financial condition and results of operations.
12
<PAGE>
The tangible book value of our common stock is substantially lower than the
offering price, resulting in immediate and substantial dilution to you, and the
exercise of stock options could cause further dilution.
The initial public offering price is substantially higher than the tangible
book value per share of our outstanding common stock. If you purchase our
common stock in this offering, the shares you buy will experience an immediate
and substantial dilution in tangible book value per share. The shares of common
stock owned by the existing stockholders will experience a material increase in
the tangible book value per share. The dilution to investors in this offering
will be approximately $ per share. As a result, if we were to distribute
our tangible assets to our stockholders immediately following this offering,
purchasers of shares of common stock in this offering would receive less than
the amount paid for such shares. In addition, options to purchase
shares of common stock, having a weighted average exercise price of $ per
share, were outstanding as of December 31, 1999. When and if these options are
exercised, new stockholders will experience further dilution.
Anti-takeover provisions in our charter documents and under Delaware law could
inhibit others from acquiring us, which could adversely affect the market price
of our common stock.
Some of the provisions of our amended and restated certificate of
incorporation, amended and restated bylaws and Delaware law could, together or
separately:
. discourage potential acquisition proposals;
. delay or prevent a change in control; and
. limit the price that investors may be willing to pay in the future for
shares of our common stock.
In particular, our amended and restated certificate of incorporation and
amended and restated bylaws, among other things, provide that stockholders may
not take actions by written consent, provide that special meetings of
stockholders may only be called by a majority of our board of directors, and do
not provide for cumulative voting. We are also subject to Section 203 of the
Delaware General Corporation Law which generally prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any interested stockholder, as defined in the statute, for a period of three
years following the date on which the stockholder became an interested
stockholder. These anti-takeover provisions could substantially impede the
ability of public shareholders to change our management and board of directors,
which may reduce the trading price of our common stock.
There may be an adverse effect on the market price of our stock as a result of
shares being available for sale in the future.
Sales of a substantial amount of our common stock in the public market after
this offering, or the perception that these sales may occur, could adversely
affect the prevailing market price of our common stock. This could also impair
our ability to raise additional capital through the sale of our equity
securities.
Immediately after the completion of this offering, we will have
shares of common stock outstanding, or shares if the underwriters
exercise their over-allotment option in full. Of these shares, the shares sold
in this offering will be immediately transferable without restriction in the
public market, except for shares purchased by any of our affiliates, which will
be subject to the limitations of Rule 144 under the Securities Act. The
remaining shares are "restricted securities," and will become eligible for sale
in the public market at various times after the date of this prospectus,
subject to the limitations and other conditions of Rule 144 under the
Securities Act. In addition, under the terms of a stockholders agreement, we
may be obligated under certain circumstances to register outstanding shares of
our common stock. In connection with this offering, holders of all shares of
restricted securities and options to purchase our common stock have agreed not
to sell the shares of common stock they now own or acquire upon exercise of
their options without the prior written consent of Donaldson, Lufkin & Jenrette
for a period of 180 days from the date of this prospectus. Donaldson, Lufkin &
Jenrette may, however, in its sole discretion and without notice,
release all or any portion of the shares from the restrictions in the lock-up
agreements. After these agreements expire, shares will be eligible
for sale in the public market.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. Forward-looking statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"projected," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of these terms or other comparable terminology.
These statements are only predictions and involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under "Risk Factors," which may cause our actual
results to differ materially from any forward-looking statement. All
projections contained in this prospectus, including those set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements. Other forward looking statements
include:
. anticipated trends in our business, including trends in electronic
payments markets;
. our intention to develop and introduce new products;
. our anticipated growth and growth strategies; and
. anticipated levels of adoption of electronic payment products.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update or revise any of the forward-looking
statements after the date of this prospectus or to conform these statements to
actual results and do not intend to do so.
14
<PAGE>
USE OF PROCEEDS
We will receive approximately $ million in net proceeds from the sale of
the shares of common stock we are offering at an assumed initial public
offering price of $ per share. If the underwriters exercise their over-
allotment option in full, our net proceeds will be approximately $ million.
Net proceeds is what we expect to receive after paying underwriting discounts
and commissions and estimated offering expenses.
We intend to use the net proceeds for working capital and general corporate
purposes, including developing new electronic payment products, increasing our
sales and marketing staff and capabilities and making acquisitions of strategic
businesses or technologies. While we expect to evaluate potential acquisitions
from time to time, we have no present understandings, commitments or agreements
with respect to any acquisitions. We currently have no quantified business plan
for the specific allocation of proceeds from this offering. See "Risk Factors--
Our management has broad discretion as to the use of proceeds from this
offering."
DIVIDEND POLICY
We have not paid cash dividends since our inception and do not anticipate
paying any cash dividends. We anticipate that we will retain all of our future
earnings, if any, for use in the expansion and operation of our business and
for general corporate purposes. Our board of directors will have the authority
to declare and pay dividends on the common stock, in its discretion, as long as
there are funds legally available to do so.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of preferred
stock, the conversion of Class A and Class B common stock and the
exercise of warrants to purchase common stock; and
. on a pro forma basis, as adjusted to give effect to the sale of the
common stock offered by this prospectus at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and offering expenses payable by us.
This table should be read together with our financial statements appearing
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Pro forma
Actual Pro forma as adjusted
(Unaudited)
---------------------
(In thousands)
<S> <C> <C> <C>
Line of credit, net of current portion.......... $ 1,208 $ 1,208 $
Stockholders' equity:
Series A preferred stock, $0.01 par value,
780,000 shares authorized; 680,000 shares
issued and outstanding, actual; no shares
issued and outstanding, as adjusted.......... 7
Series B preferred stock, $0.01 par value,
750,000 shares authorized; 416,667 shares
issued and outstanding, actual; no shares
issued and outstanding, as adjusted.......... 4
Series C preferred stock, $0.01 par value,
320,000 shares authorized; 319,149 shares
issued and outstanding, actual; no shares
issued and outstanding, as adjusted.......... 3
Class A common stock, $0.01 par value;
50,000,000 shares authorized;
3,881,049 shares issued and outstanding,
actual; no shares issued and outstanding, as
adjusted .................................... 39
Class B common stock, $0.01 par value; 320,000
shares authorized; 204,706 shares issued and
outstanding, actual; no shares issued and
outstanding as adjusted...................... 2
Common stock, $0.01 par value, 50,000,000
shares authorized; 12,664,279 shares issued
and outstanding (pro forma); shares
issued and outstanding (pro forma as
adjusted) (1)................................ 55
Unearned compensation......................... (6,650) (6,650)
Additional paid-in capital.................... 11,052 11,052
Less: Notes receivable from stockholders...... (89) (89)
Retained earnings (accumulated deficit)....... (1,007) (1,007)
------- ------- ------
Stockholders' equity........................ 3,361 3,361
------- ------- ------
Total capitalization........................ $ 4,569 $ 4,569 $
======= ======= ======
</TABLE>
- ---------------------
(1) The outstanding share information excludes 1,217,749 shares of common stock
issuable upon the exercise of outstanding options under our option plan
with a weighted average exercise price of $0.18 per share as of December
31, 1999 and 430,348 shares of common stock issuable upon exercise of
outstanding warrants.
16
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1999 was $ million, or approximately $ per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities divided by the number of shares of common stock
outstanding. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share and after deducting
the estimated underwriting discounts and offering expenses payable by us, our
pro forma net tangible book value will be $ million, or approximately $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution in
net tangible book value of $ per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999................................................. $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering...................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, and the total price and the average price per share paid by existing
stockholders and by the new investors, before deducting estimated underwriting
discounts and offering expenses payable by us, at an assumed initial public
offering price of $ per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ --------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
-------- -------- --------- ----------
Total................. 100.0% $ 100.0% $
======== ======== ========= ==========
</TABLE>
The above table excludes 1,217,749 shares of common stock issuable upon
exercise of options outstanding as of December 31, 1999, with a weighted
average exercise price of $0.18 per share.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to , or
approximately % of the total numbers of shares of our common stock
outstanding after this offering.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjuction with our
financial statements and related notes beginning on page F-1 of this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The statement of operations data for the years ended December 31,
1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and
1999, are derived from the audited financial statements included elsewhere in
this prospectus. The statement of operations data for the years ended December
31, 1995 and 1996, and the balance sheet data as of December 31, 1995, 1996 and
1997, are derived from audited financial statements not included in this
prospectus. The historical results are not necessarily indicative of results to
be expected for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997 1998 1999
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Enrollment fees, net............... $ 992 $1,561 $ 3,245 $ 7,933 $11,933
Transaction fees................... 1,184 3,611 5,761 13,086 20,200
------ ------ ------- ------- -------
Total revenues................... 2,176 5,172 9,006 21,019 32,133
Cost of acquisitions, servicing and
support............................ 1,885 3,889 7,431 16,115 20,350
------ ------ ------- ------- -------
Gross profit..................... 291 1,283 1,575 4,904 11,783
Operating expenses:
Selling, general and
administrative.................... 931 1,640 2,665 3,476 6,747
Depreciation and amortization...... 139 183 211 306 371
Amortization of unearned
compensation...................... -- -- -- 192 1,453
------ ------ ------- ------- -------
Total operating expenses......... 1,070 1,823 2,876 3,974 8,571
------ ------ ------- ------- -------
Operating income (loss)............. (779) (540) (1,301) 930 3,212
Other expense (income), net......... 22 69 (26) 45 27
------ ------ ------- ------- -------
Net income (loss) before provision
(benefit) for taxes................ (801) (609) (1,275) 885 3,185
Provision (benefit) for taxes....... -- -- (1,439) 455 1,872
------ ------ ------- ------- -------
Net income (loss)................... $ (801) $ (609) $ 164 $ 430 $ 1,313
====== ====== ======= ======= =======
Net income (loss) available to
common shareholders................ $ (841) $ (649) $ 124 $ 486 $ 1,313
====== ====== ======= ======= =======
Basic earnings (loss) per share..... $(0.80) $(0.56) $ 0.07 $ 0.14 $ 0.35
====== ====== ======= ======= =======
Diluted earnings (loss) per share... $(0.80) $(0.56) $ 0.01 $ 0.04 $ 0.10
====== ====== ======= ======= =======
Weighted average shares:
Basic.............................. 1,048 1,157 1,885 3,510 3,711
====== ====== ======= ======= =======
Diluted............................ 1,048 1,157 10,505 13,735 13,755
====== ====== ======= ======= =======
Pro forma earnings per share
(unaudited):
Basic.............................. $ 0.11
=======
Diluted............................ $ 0.10
=======
Pro forma weighted average shares
(unaudited):
Basic.............................. 12,289
=======
Diluted............................ 13,755
=======
<CAPTION>
As of December 31,
-----------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 203 $ 293 $ 537 $ 1,002 $ 969
Working capital (deficit)........... (765) (697) (1,430) (1,457) 1,858
Total assets........................ 5,005 6,157 21,093 35,699 57,759
Line of credit, net current
portion............................ -- -- -- -- 1,208
Stockholders' equity (deficit)...... (1,723) (985) (756) 81 3,361
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with, and is qualified in its
entirety by reference to, our financial statements and the accompanying notes
included in this prospectus. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections related to future events and our future financial performance, each
of which involves risks and uncertainties. These events and our actual results
could differ materially from those described in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors," "Business" and elsewhere in this prospectus. We
do not undertake any obligation to update or revise any forward-looking
statement after the date of this prospectus.
Overview
We develop, market and service innovative electronic payment products that
enable consumers to manage their finances more efficiently and help them
achieve their financial goals. Our proprietary payment system gives consumers
the ability to "map" and execute their customized electronic payment plan for
core financial products, such as mortgages, credit cards and investments.
Consumers can use our products to personalize and automate the timing and
amount of withdrawals from their checking and other accounts. Our products then
automatically make payments to selected accounts in accordance with each
consumer's customized financial plan. We primarily market our electronic
payment products directly to consumers through affinity relationships with
financial institutions, including six of the seven largest banks in the United
States. We introduced our first equity acceleration product in 1994 and have
derived substantially all of revenues to date from the sale of such product.
Revenue
We earn revenue from customer enrollment and transaction processing fees. We
receive enrollment fees at inception of the contract or over a three to six
month period following enrollment. Consistent with Staff Accounting Bulletin
101, Revenue Recognition in Financial Statements (SAB 101), enrollment fees are
deferred and recognized over an expected eight-year service period. Transaction
fees are recognized as the services are performed for our customers.
Cost of Acquisitions, Servicing and Support
Customer acquisition costs consist of direct response advertising and other
direct incremental costs associated with acquisition of customers. As a result,
pursuant to Statement of Position 93-7, Reporting on Advertising Costs, we
defer qualifying direct mail and inbound telemarketing costs. Consistent with
SAB 101, we also defer other direct incremental costs of customer acquisition.
These incremental costs include the portion of the enrollment fee shared with
affinity partners and the direct cost of customer set up. Our accounting policy
requires that we amortize qualifying deferred customer acquisition costs over
the expected period of the service, five or eight years depending on the
product.
In addition to customer acquisition costs, we incur costs in the ongoing
servicing and support of our customers, which are expensed as incurred. These
costs include the portion of transaction fees shared with affinity partners and
the portion of customer service, direct marketing, telemarketing and enrollment
processing charges which do not qualify for deferral.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of costs relating to
sales and marketing to affinity partners and costs associated with our
information technology department, including salaries and technology platform
improvements and maintenance. In addition, selling, general and administrative
expenses also include finance and accounting and corporate administration
costs.
19
<PAGE>
Amortization of Unearned Compensation
Amortization of unearned compensation includes the amortization of unearned
employee and director stock-based compensation and expenses. During 1998, we
awarded shares of common stock to certain employees and directors resulting in
compensation expense of $192,000 since the shares were fully vested at the date
of issuance. During the third quarter of 1999, we granted options and issued
stock to directors and employees resulting in unearned compensation of $8.1
million, which will be recognized over the four-year vesting period of the
options awards. For the year ended December 31, 1999, we recognized $1.5
million in compensation expense.
Results of Operations for the Years ended December 31, 1997, 1998 and 1999
The following table sets forth, for the periods indicated, our results of
operations expressed in dollar values and as percentages of total revenue,
except for the tax provision which is stated as a percentage of
net income before provision for taxes.
Results of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998 1999
------------- ----------- -----------
$ % $ % $ %
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Enrollment fees, net............... $ 3,245 36% $ 7,933 38% $11,933 37%
Transaction fees................... 5,761 64 13,086 62 20,200 63
------- ---- ------- --- ------- ---
Total revenues................... 9,006 100 21,019 100 32,133 100
Cost of acquisitions, servicing and
support............................. 7,431 83 16,115 77 20,350 63
------- ---- ------- --- ------- ---
Gross profit..................... 1,575 17 4,904 23 11,783 37
Operating expenses:
Selling, general and administrative
expenses............................ 2,665 30 3,476 17 6,747 21
Depreciation and amortization........ 211 2 306 1 371 1
Amortization of unearned
compensation........................ -- 0 192 1 1,453 5
------- ---- ------- --- ------- ---
Total operating expenses......... 2,876 32 3,974 19 8,571 27
------- ---- ------- --- ------- ---
Operating income (loss).............. (1,301) (14) 930 4 3,212 10
Other expense (income)............... (26) 0 45 0 27 0
------- ---- ------- --- ------- ---
Net income before provision (benefit)
for taxes........................... (1,275) (14) 885 4 3,185 10
Provision (benefit) for taxes(1)..... (1,439) (113) 455 51 1,872 59
------- ---- ------- --- ------- ---
Net income (loss).................... $ 164 2% $ 430 2% $ 1,313 4%
======= ==== ======= === ======= ===
</TABLE>
- ---------------------
(1)Provision (benefit) for taxes is shown as a percentage of net income before
provision for taxes.
20
<PAGE>
The following table details the cost of acquisitions, servicing and support
for the years ended December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Amortization of customer acquisition costs............ $ 3,244 $ 8,098 $ 12,384
Affinity partner transaction fees..................... 1,223 2,054 2,976
Direct marketing...................................... 354 434 476
Telemarketing......................................... 393 807 759
Enrollment processing................................. 441 665 460
Customer Service...................................... 1,776 4,057 3,295
------- -------- --------
Total cost of acquisitions, servicing and support... $ 7,431 $ 16,115 $ 20,350
======= ======== ========
</TABLE>
The following table details the cost of selling, general and administrative
expenses for the years ended December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Institutional sales and marketing........................... $ 480 $ 493 $ 576
Technology.................................................. 831 933 2,453
Finance and accounting...................................... 285 561 1,098
Corporate administration.................................... 1,069 1,489 2,620
------ ------ ------
Total selling, general and administrative expenses........ $2,665 $3,476 $6,747
====== ====== ======
</TABLE>
Comparison of Years Ended December 31, 1999 and December 31, 1998
Revenues. Total revenues increased 53% to $32.1 million in 1999 from $21.0
million in 1998 for two reasons. Enrollment fee revenues increased 50% to $11.9
million in 1999 from $7.9 million in 1998 due to an increase in enrollment fee
subscribers in 1999. Transaction fee revenue increased 55% to $20.2 million in
1999 from $13.1 million in 1998 due to a 54% increase in the weighted average
number of total subscribers to 255,385 in 1999 from 166,090 in 1998.
Cost of Acquisitions, Servicing and Support. Cost of acquisitions, servicing
and support increased 26% to $20.4 million in 1999 from $16.1 million in 1998.
This increase was caused by a 53% increase in amortization of acquisition costs
to $12.4 million in 1999 from $8.1 million in 1998 as a result of increases in
our customer base. However, this increase in amortization expense was partially
offset by a 20% decrease in customer service costs to $3.3 million in 1999 from
$4.1 million in 1998 primarily due to $627,000 provision taken in 1998 for
estimated losses on advances made on behalf of customers to mortgage servicers.
Gross Profit. As a result of revenue increasing 52% in 1999 while cost of
acquisition, servicing and support increased only 26%, our gross profit margin
increased to 37% in 1999 from 23% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 94% to $6.7 million in 1999 from $3.5 million
in 1998, as a result of a $1.5 million increase in technology staffing costs, a
$1.5 million increase in corporate administration costs and a $500,000 increase
in accounting department costs.
Depreciation and Amortization. Depreciation and amortization expense
increased $65,000 to $371,000 in 1999 from $306,000 in 1998 primarily due to
the acquisition of $2.3 million of furniture and equipment in 1999.
21
<PAGE>
Amortization of Unearned Compensation. Amortization of unearned compensation
increased $1.3 million to $1.5 million in 1999 from $192,000 in 1998 due to the
granting of options and stock to directors and employees in 1999 with exercise
prices below fair market value at the time of grant or issuance.
Operating Income. Operating income margin increased to 9% in 1999 from 4% in
1998 as a result of the increase in our gross margin, which was partially
offset by increases in selling, general and administrative expense and
amortization of unearned compensation as percentages of total revenues.
Provision for Taxes. Provision for taxes increased to $1.8 million in 1999
from $455,000 in 1998 as a result of our increased operating income. Our
effective tax rate of 59% and 51% in 1999 and 1998, respectively, was due to
the non-deductibility of amortization of unearned compensation for federal
income tax purposes.
Comparison of Years Ended December 31, 1998 and December 31, 1997
Revenues. Total revenues increased 133% to $21.0 million in 1998 from $9.0
million in 1997 for two reasons. Enrollment fee revenues increased 145% to $7.9
million from $3.2 million in 1997 due to an increase in the number of
enrollment fee subscribers. Transaction fee revenue increased 126% to $13.1
million in 1998 from $5.8 million in 1997 because the weighted average number
of subscribers increased 114% to $166,090 in 1998 from $77,320 in 1997.
Cost of Acquisitions, Servicing and Support. Cost of acquisitions, servicing
and support increased 118% to $16.1 million from $7.4 million in 1997. This
increase was primarily the result of two factors. Amortization of customer
acquisition costs increased 153% to $8.1 million in 1998 from $3.2 million in
1997 which was consistent with the increase in enrollment fee revenue. Customer
service costs increased 128% to $4.1 million in 1998 from $1.8 million in 1997
due to the increase in the weighted average number of subscribers and a
$627,000 provision taken in 1998 for estimated losses on advances made on
behalf of customers to mortgage servicers.
Gross Profit. As a result of revenue increasing 133% in 1998 while cost of
acquisition, servicing and support increased 118%, our gross profit margin
increased to 23% in 1998 from 17% in 1997.
Selling, General and Administrative Expenses. Expenses increased 30% to $3.5
million in 1998 from $2.7 million in 1997, principally from a $593,000 increase
in salaries due to higher headcount, and a $407,000 increase in other general
and administrative expenses, including system maintenance, communications and
professional fees.
Depreciation and Amortization. Depreciation and amortization expense
increased $95,000 in 1998 to $306,000 from $211,000 in 1997 primarily due to
the acquisition of $500,000 of furniture and equipment in 1998.
Amortization of Unearned Compensation. Amortization of unearned compensation
increased to $192,000 in 1998 from zero in 1997 due to the granting of fully-
vested compensatory shares to directors and employees in 1998.
Operating Income (Loss). Operating income (loss) margin increased to 4% in
1998 from (15%) in 1997 as a result of the increase in our gross margin.
Provision (Benefit) for Taxes. Provision for taxes was $455,000 in 1998
compared to an income tax benefit of $1.4 million in 1997. The effective tax
rate in 1998 was 51% primarily due to the non-deductibility of amortization of
unearned compensation. The benefit for taxes was $1.4 million in 1997 due to
the reversal of the valuation allowance for deferred tax assets as we believed
that realization was more likely than not.
22
<PAGE>
Liquidity and Capital Resources
We have historically satisfied our cash requirements primarily from
operations and through private placements of equity securities and lease and
debt financing. Through December 31, 1999, we have raised approximately $2.7
million through equity financings, which includes the sale of 1.4 million
shares of preferred stock for net proceeds of approximately $2.5 million. See
notes 11 and 12 to our financial statements.
Line of Credit
We have a line of credit that we use to assist us in managing our liquidity.
Borrowings under this line of credit bear interest at 11%. The line of credit
agreement requires that we comply with certain financial covenants related to
minimum net worth, a ratio of debt to net worth, and coverage of fixed charges.
As of December 31, 1999, we had $1.5 million outstanding under this line of
credit, of which $2.6 million was available for future borrowings. Beginning in
August 2001, the then outstanding balance will begin to amortize equally over
24 months.
Sources and Uses of Funds
The following table sets forth a summary of cash flow activity and should be
referred to in conjunction with our statements of cash flow, included herewith:
<TABLE>
<CAPTION>
Year Ended December
31,
-----------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities.. $ (12) $1,008 $ 1,472
Cash flow provided by (used in) investing activities.. (930) (526) (2,268)
Cash flow provided by (used in) financing activities.. 1,186 (17) 763
------ ------ -------
Net increase (decrease) in cash and cash
equivalents........................................ $ 244 $ 465 $ (33)
</TABLE>
For the year ended December 31, 1999, we generated $1.5 million of cash from
operations, a 47% increase over 1998. We expended $22.9 million in deferred
acquisition costs, which was offset by the receipt of $24.8 million in deferred
revenues from enrollment fees. The $9.1 million increase in enrollment fees
receivable was the result of growth in new accounts. Similarly, the growth in
affinity partner fees reflected the growth in new accounts and transaction fees
during the year. We invested $2.3 million in furniture and equipment, primarily
for computer equipment and software. From a financing perspective, additional
funds were generated through the utilization of an additional $750,000 of our
line of credit.
For the year ended December 31, 1998, we generated $1.0 million of cash from
operations. We expended $21.6 million in deferred customer acquisition costs,
which was offset by the receipt of $20.6 million in deferred revenue from
enrollment fees. Funds were provided by an increase in accounts payable of
$1.8 million. We invested $500,000 in furniture and equipment. During 1998, we
drew down our line of credit by $1.7 million, and repaid principal amounts of
$1.8 million, and ended the year with $1.0 million outstanding under the line.
For the year ended December 31, 1997, we used $12,000 of cash in operations.
We expended $12.8 million in deferred customer acquisition costs, which was
offset by the receipt of $13.9 in deferred revenue from enrollment fees. The
$3.4 million increase in enrollment fees receivable was the result of growth in
new accounts. Similarly, the growth in affinity partner fees followed the
growth in new accounts and transaction fees during the year. We invested
$900,000 in additional furniture and equipment, and drew down $750,000 from our
line of credit. In addition, we received $428,000 from stockholders in
repayment of borrowings.
We believe that our existing cash and cash equivalents, the net proceeds from
this offering and existing and available credit facilities will be sufficient
to fund our operating activities, capital expenditures, new product initiatives
and other obligations for at least the next 18 months.
23
<PAGE>
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133),
which establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognizes all derivatives
as either assets or liabilities on the balance sheet and measures those
instruments at fair value. We, to date, have not engaged in derivative and
hedging activities. We will adopt SFAS 133, as required, on January 1, 2001. We
do not believe SFAS 133 will have a material impact on our financial condition
and results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities (SOP
98-5). This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The adoption of
SOP 98-5 did not have a material impact on our financial condition and results
of operations.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. We believe that
all of our material systems are substantially year 2000 compliant. To our
knowledge, we have not experienced any significant problems as a result of year
2000 issues.
Disclosure about Market Risk
Our exposure to market risk is confined to our cash and cash equivalents
which have maturities of less than three months. Because of the short-term
maturities of our portfolio, we do not believe that an increase in market rates
would have any negative impact on the realized value of our investment
portfolio.
24
<PAGE>
BUSINESS
Overview
We develop, market and service innovative electronic payment products that
enable consumers to manage their finances more efficiently and help them
achieve their financial goals. Our proprietary payment system gives consumers
the ability to map and execute their customized electronic payment plan for
core financial products such as mortgages, credit cards and investments. We
currently offer one or more electronic payment products to over 300,000
customers. Every month, we process approximately $1.2 billion in payments in
over 1 million transactions. Over 95% of these transactions are made
electronically through our proprietary payment systems that links to the ACH
Network. We primarily market our electronic payment products directly to
consumers through affinity relationships with financial institutions including
six of the seven largest banks in the United States. By offering our electronic
payment products, our affinity partners can expand their product offering and
enhance the profitability of their business.
Market Opportunity
We believe consumers are becoming more sophisticated in analyzing and
managing their financial affairs. In addition, consumers are seeking ways to
reduce the time and resources they devote to managing their finances. As a
result, consumers are looking for solutions that provide greater control and
flexibility in managing core financial products and automation so that they can
use these products efficiently enabling them to achieve their individual
financial goals. Similarly, financial institutions and other providers of core
financial products are looking for ways to offer value-added products to their
customers and enhance the profitability of their businesses.
Electronic payments offer convenience and flexibility to both consumers and
providers of core financial products by enabling a financial transaction to be
completed more quickly, with greater accuracy and at a lower cost than
traditional paper-based payments. Consumers benefit from the greater
convenience and flexibility of electronic payments, and both consumers and
financial institutions benefit from the efficiency and cost savings achieved
through electronic payments. According to The Nilson Report, the number and
volume of non-mortgage electronic payments are expected to increase from
approximately 1.3 billion and $132.6 billion in 1998 to 6.2 billion and $694.9
billion in 2005. Over the same time period, the percentage of these electronic
payments is expected to increase from 2.9% to 10.2%.
Electronic payment system can be used to make a payment or contribution with
respect to most core consumer financial products, including mortgages, credit
cards, IRAs, mutual funds and other savings programs. The market for each of
these products is substantial.
. Mortgages. According to the American Banker, there were over 56 million
mortgages in the U.S. as of December 31, 1999, representing over $4.5
trillion in mortgage debt. We estimate that only about 2% of mortgages
are currently being paid through a mortgage acceleration program.
. Credit Cards. According to The Nilson Report, as of September 30, 1999,
there were approximately 400 milion credit card accounts in the U.S.,
representing approximately $491 billion in consumer outstandings.
. Mutual Funds. According to the Investment Company Institute, as of
September 30, 1999, there were 212 million mutual fund accounts
representing approximately $5.97 trillion in investments.
We believe that the growth and acceptance of electronic transactions along
with movement towards personalized, automated financial management has created
a substantial demand for electronic payment products that:
. offer consumers of core financial products the ability to customize their
payments or contributions and exercise budgeting discipline to optimize
their financial management and achieve individual financial goals; and
. provide institutions and other suppliers of core financial products with
fee income and costs savings that motivate them to offer electronic
payment products to their customers.
25
<PAGE>
Our Solution
We develop, market and service innovative electronic payment products that
offer substantial benefits to both the consumer and provider of core financial
products. Our electronic payment products are based on our proprietary
technology that was specifically developed and refined so that it can be used
in a variety of core financial products. Our technology facilitates the
transfer of funds electronically from the consumer's account to the accounts of
the providers of core financial products using the ACH Network, a processing
and delivery system approved by the Federal Reserve that provides for the
distribution and settlement of electronic debits and credits among financial
institutions. Consumers can use our products to personalize and automate the
timing and amount of withdrawals from checking and other accounts. Our products
then automatically make payments to selected accounts in accordance with each
consumer's customized financial plan. This level of flexibility, functionality
and customization is not offered by typical electronic payment products. With
our products, consumers can easily structure and periodically revise a payment
map that is designed to manage their core financial products more efficiently
and achieve individual goals such as prepayment of debt. Our electronic payment
products offer our financial institution partners a turnkey, outsourced payment
solution that enable them to expand their product offerings and enhance the
profitability of their business.
We introduced our first electronic payment product, Equity Accelerator, for
the mortgage market. Equity Accelerator enables a consumer with a mortgage to
establish a customized electronic payment program that provides for the regular
withdrawal of funds from a bank account to efficiently prepay the mortgage and
thereby realize significant interest savings, build equity faster and pay off a
mortgage earlier. Equity Accelerator also provides the consumer with
significant flexibility in establishing and adjusting this payment program to
meet and achieve changing financial needs and objectives. Equity Accelerator
allows the consumer to:
. calculate the benefits of various prepayment plans and select the one
that achieves their specific goals;
. increase or decrease the amount and frequency of withdrawals;
. synchronize withdrawals from checking or savings accounts to match their
payroll cycles;
. accumulate withdrawals from one or more accounts; and
. transfer the payment program to a new mortgage.
At the same time, Equity Accelerator enables our financial institution affinity
partners to:
. make available a value-added product to their customers without incurring
any significant costs;
. enhance profitability and reduce servicing costs;
. increase customer retention; and
. develop more timely and predictable payment streams.
Having introduced Equity Accelerator in 1994 to the mortgage market, we have
substantial experience in developing, marketing, implementing and servicing a
product that provides an innovative payment solution for one of the most
complex financial products from a payment perspective. In addition, our payment
system can be applied to make electronic payments with respect to a variety of
financial products. Accordingly, we believe we are well positioned to continue
to leverage this experience and our payment system to develop and introduce
additional innovative payment products.
26
<PAGE>
Our Strategy
Our objective is to enhance and expand our position as a leading developer,
marketer and servicer of innovative electronic payment products that enable
consumers to manage their finances more efficiently and achieve their financial
goals. Key elements of our business strategy are set forth below.
Capitalize on Our Electronic Payments Platform to Introduce Our Next-Generation
Products.
We intend to use our proprietary platform to introduce electronic payment
products that will complement our existing products and enable our customers to
formulate a comprehensive payment map to achieve their individual financial
goals. We currently have electronic payment products for mortgage and other
consumer loans. We are also currently developing a credit card payment product
and an investment contribution product and intend to introduce these products
later this year. We believe that these products will allow us to offer
consumers a suite of electronic payment products that will enable them to map
out and execute a comprehensive plan to achieve a variety of financial goals
such as prepayment of debt and investing for retirement.
Introduce Variations to Our Existing Products to Broaden Our Potential Customer
Base and Enhance Our Response Rates.
We will continue to evaluate and introduce variations of our existing
electronic payment products in order to retain our position as a leading
provider of mortgage acceleration products, to further expand our market share
in the mortgage market and to gain market share in other core financial product
markets. For example, we intend to introduce several new product variations to
Equity Accelerator which will allow us to offer our electronic payment products
to a larger consumer base and increase the response rate to our product
offerings. By continually evaluating our electronic payment products through
consumer testing, we are able to better determine consumer demand for products,
which allows us to introduce variations of products that meet those specific
needs.
Leverage Our Existing Relationships with Financial Institutions, Enter into
Affinity Relationships with Additional Financial Institutions and Enter into
Strategic Alliances.
Many of our affinity partners that provide mortgage loans also provide other
financial services and products. We intend to leverage these relationships to
help us expand into new markets, such as mutual funds and credit cards. We are
also actively pursuing new affinity relationships with financial institutions
who are not currently our partners. We believe our established track record
will enable us to expand our existing affinity relationships and develop new
ones. We believe that our electronic payment products provide the financial
institutions with a number of benefits, including administrative savings,
enhanced profitability, consumer loyalty and improved portfolio valuations
resulting from certainty of receiving regular electronic payments. We also plan
to expand our distribution channels and sell our products through strategic
alliances with other companies that market and sell financial services and
products.
Integrate Our Electronic Payment Products into Core Financial Products and
Market Them at the Point-of-Sale.
We intend to offer our electronic payment products at the point-of-sale by
integrating our products into the core financial products offered by our
financial institution affinity partners. For example, although Equity
Accelerator has historically been offered after the mortgage has been issued,
we have been selected by Fannie Mae to incorporate our mortgage acceleration
capabilities into one of Fannie Mae's mortgage products at the point-of-sale.
We are also working with other major financial institutions to incorporate our
mortgage acceleration capabilities into their mortgages at the point-of-sale.
We believe that by offering our products at the point-of-sale we will be able
to improve the terms of the core financial products from the consumer's
perspective and improve the penetration of our products.
27
<PAGE>
Expand Our Use of the Internet as a Distribution Channel.
Historically, we have marketed our electronic payment products primarily
through direct mail and telemarketing. We believe that we can make our
business more efficient and more accessible to consumers by taking advantage
of the rapid growth of the Internet. As part of our Internet initiatives, we
are currently conducting a pilot program with one of our financial institution
affinity partners where consumers can enroll in our Equity Accelerator
program, compare financial alternatives by inputting different goals and
parameters and create a customized payment plan online at a co-branded Web
site. We intend to market and service our products through these types of
sites with other affinity partners. We also intend to market products through
other strategic Web alliances, such as finance-related Web portal companies,
and to consumers directly through our own Web site.
Products
Existing Products
Equity Accelerator
Mortgages. Equity Accelerator for mortgages is an electronic payment product
that enables a homeowner to establish a customized schedule to prepay
automatically a home loan. Equity Accelerator is designed to make automatic
periodic deductions from a homeowner's checking or savings account based on a
schedule determined by the homeowner and to forward the payments through the
ACH Network to the mortgage company when the mortgage payment is due. Equity
Accelerator's automated budgeting features offer a compelling value
proposition to the homeowner. For example, if a homeowner with a $100,000, 30
year loan bearing interest at 8% elects to customize a payment plan to make a
deposit account withdrawal every two weeks equal to 50% of the regular monthly
payment, such homeowner will save $46,298 in interest payments and fully repay
the loan 7 years earlier. These 26 bi-weekly withdrawals result in 12 regular
monthly payments and the equivalent of one extra payment that is paid against
principal. This accelerated loan is completely paid off while 47% of the
principal balance of a non-accelerated loan would still be outstanding. This
example is illustrated by the following chart.
[MORTGAGE ACCELERATION GRAPHIC APPEARS HERE]
[Graphic which shows comparison of the pay off of a $100,000, 30 year mortgage
at 8% interest with and without equity acceleration.]
28
<PAGE>
In addition to providing substantial benefits to consumers, Equity
Accelerator offers our financial institution partners the ability to expand
their product offerings and enhance the profitability of their business without
making any capital investment. We are currently offering this product through
contractual arrangements with approximately 40 financial institutions.
We continually design and test variations of our Equity Accelerator product
in order to retain our market position, improve response rates and broaden the
market for our product. Product variations such as expanded features, reduced
features and pricing alternatives are designed and tested to identify
additional large market segments and marketing opportunities. We are presently
testing two Equity Accelerator variations: a version providing streamlined
features and a premium service version. As we validate product variations that
provide improved response rates or additional target market segments, we will
integrate these product variations into our marketing and distribution
programs.
In addition to variations to our Equity Accelerator product, we are actively
working with Fannie Mae and our affinity partners to incorporate the
capabilities of this product into their mortgages at the point-of-sale.
Incorporating equity acceleration features into a mortgage improves the
mortgage for the consumer and the mortgage servicer. For example, it enhances
Fannie Mae's Working Mortgage over comparable mortgages by reducing the credit
score needed by the consumer to qualify for a mortgage and providing more
timely and predictable mortgage payments to the mortgage servicer. We believe
that mortgages that include our payment capabilities at the point-of-sale can
increase the market penetration of our products.
Other Consumer Loans. We also offer Equity Accelerator as an electronic
payment product that enables a borrower to establish a customized schedule to
prepay automatically a non-mortgage consumer loan. Although we have offered
this product primarily as an extension to Equity Accelerator for mortgages, we
intend to market this electronic payment product separately in the future and
thereby expand our customer base. This product provides similar benefits to the
consumers and our affinity partners as Equity Accelerator for mortgages.
Just-in-Time EFT
Just-in-Time EFT is an electronic payment product, offered through financial
institutions, that enables homeowners to make last minute, on-demand mortgage
payments to avoid late charges and fees. Just-in-Time is intended to replace
existing on-demand payment products such as pay-by-phone payment products
offered by mortgage servicers and electronic payment companies. Generally, pay-
by-phone products are paper-based solutions that are not integrated into the
collection process and are time intensive for the servicer. Just-in-Time EFT is
an electronic payment solution that is fully integrated into the servicer's
platform and enables servicers to realize substantial savings in both time and
cost. Although there is a variety of competing products currently available, we
believe that Just-in-Time EFT is the most efficient product on the market from
the mortgage servicer's standpoint and, therefore, will likely be offered by
the mortgage servicer as the preferred method of making last minute, on-demand
mortgage payments to avoid late charges and fees.
We have entered into an agreement with Washington Mutual for our Just-in-Time
EFT electronic payment product and believe that it will become Washington
Mutual's preferred electronic transaction processing platform for late
payments. Based on our test marketing results, we expect to enter into several
additional contracts with other affinity partners beginning in the second
quarter of 2000.
Paymatch
Paymatch is an electronic payment product that is designed to allow borrowers
to conveniently repay their mortgage and other consumer loans. It is designed
to make automatic and customized deductions from one or more of a borrower's
checking accounts and forward the funds through the ACH Network to the lender
on the payment due date. Although Paymatch does not offer payment acceleration,
it does offer budgeting convenience and also helps the consumer personalize
payment withdrawals. Our financial institution clients benefit from
29
<PAGE>
Paymatch primarily because they are able to realize additional income, lower
servicing costs and increased predictability of payments.
Products Under Development
We currently have two products under development which we intend to pilot-
market during the second half of 2000.
Investpay. Investpay is an electronic payment product that will provide a
payment plan enabling an individual investor to design and execute a plan to
accumulate investment dollars by withdrawal of specified amounts from a
designated account on a customized, automatic withdrawal schedule. The funds
will then be electronically forwarded to the investment vehicle indicated by
the investor, such as a mutual fund or an IRA. The investor benefits from a
self-discipline tool that provides for the scheduled investment of income that
helps achieve their retirement and other savings goals. The financial
institutions benefit from increasing assets under management by expanding the
market, creating fund and brand loyalty, receiving regular investment inflows
and reducing processing costs.
NoCheks. NoCheks is an electronic payment product that is designed to enable
credit cardholders to make their monthly credit card payment by electronic
withdrawals from the checking or savings account designated by them. NoCheks
incorporates many of the primary features of our payment platform, including
customizable withdrawal schedules from multiple accounts, payments to multiple
sources, cardholder driven funds transfer rules and electronic interfaces with
card issuers. Although NoCheks does not accelerate the payoff of the credit
card balance, cardholders benefit from eliminating paper checks, budgeting and
managing their cash requirements, and from building better credit records
through timely payment of their credit card balances. Card issuers benefit from
more timely electronic payments which can lower delinquency rates and reduce
servicing costs.
Product Development Process
We maintain a product development group with a long-term perspective of
planning and developing new electronic payment products. We have focused our
product development efforts on developing new products as well as variations of
existing products. Our depth of experience in direct marketing, financial
products and the ACH Network gives us competitive insights to create solutions
that satisfy the needs of the consumer as well as those of the financial
institutions.
After we have identified a need for a particular product or variation of an
existing product, we present our concept product to our affinity financial
institution partners and then we test our products with small test campaigns.
Consumer testing enables us to better understand the requirements of consumers
and to design and develop products that are responsive to their demands. We
measure both quantitative and qualitative tests marketing results. To date, we
have conducted 651 test campaigns designed to enhance our existing products.
Marketing
We have historically marketed our products through exclusive institutional
affinity relationships that enable us to leverage the brand names of our
financial institutional affinity partners. We currently have approximately 40
affinity relationships which include six of the seven largest banks in the
United States, including Citicorp, Bank of America, Chase Manhattan, First
Union, Wells Fargo/Norwest and BankOne. Our agreements with these institutions
typically give us the exclusive right to market our equity acceleration
products to their mortgage portfolios. We believe our proven ability to develop
these trust-based relationships will allow us to market other products through
our current affinity partners and to develop new affinity relationships with
other financial institutions.
30
<PAGE>
In addition to financial institutions, we intend to market our products
through strategic alliances with finance-related Web portal companies, makers
of financial software and other financial service providers. We believe these
alliances will offer us substantial opportunities to sell our products
"bundled" or co-branded with those of our strategic partner.
We believe our traditional direct marketing strengths and data mining
experience provide a solid base for moving our electronic payment products into
the consumer-direct distribution channel. We believe that the consumer-direct
channel will provide us with a substantial market of potential consumers that
are not affiliated with our affinity partners. We use proprietary data mining
techniques to identify segments within our potential customer base that are
best qualified for a targeted, specific product offer. We also data-mine our
database of non-respondents to market new products after completion of an
initial product offering. Our data mining strategy allows us to reduce
acquisition costs and maximize enrollment responses per marketing campaign.
Distribution
Historically, we have relied upon direct mail and in-bound telemarketing to
distribute our products. To date, we have mailed approximately twenty million
mailing pieces to homeowners. Potential customers respond by mail or by calling
our in-bound telemarketing center.
We will also use the Internet to enhance distribution of our electronic
payments products. Presently, our Web site describes the features and benefits
of our Equity Accelerator product, and allows the consumer to customize their
personal plan, including the amount of payday-to-payday deductions needed to
reach their interest savings and accelerated mortgage payoff goals. It also
facilitates on-line enrollment and authorization for ACH Network deductions. We
intend to provide these Web-based capabilities for all of our products through
co-branded sites or hyperlinks that will integrate our sites with our partners'
sites. We also intend to offer customer service capabilities through the
Internet, thereby providing customers with an additional method of
communicating with us.
Technology
We have developed and refined our technology platform to provide the
flexibility and intelligent rules-based logic needed to create customized
payment programs for consumers. Two major components of our technology platform
are the transaction management system that executes the customer's electronic
payments plan by managing account activity and moving funds through the ACH
Network, and the marketing management system that enables us to model different
financial alternatives and that manages our direct marketing efforts, including
data-mining and tracking test campaigns.
Our transaction management system is designed to effect a customized payment
flow for each consumer that uses our products. It uploads the consumer account
data from the marketing management system when the consumer enrolls. It then
manages the transfer of funds electronically from the customer's account(s),
based on a payment program established by the consumer. The withdrawals are
moved from the customer's specified checking, savings or money market accounts
into custodial accounts nominated in the name of our financial institution
affinity partners through our ACH Network gateway at selected originating
depository financial institutions, such as Wells Fargo/Norwest and BankOne. The
funds are directed to custodial accounts nominated in the name of our affinity
partners and forwarded to the financial institution clearing account at the due
date. This facilitates the asynchronous timing of withdrawals from the
customers' accounts and the remittance to the payees. It also allows the system
to gather money from multiple sources to make a single payment, or gather money
from a single account to make multiple payments. The system maintains the
customer-specified rules for withdrawal and adjustments throughout the service
period. When payments are made to the payee's cashiering accounts, the requsite
payment details are sent electronically to their servicing platform.
31
<PAGE>
[PAYMAP TRANSACTION PROCESSING SYSTEM GRAPHIC APPEARS HERE]
[Graphic showing the flow of funds from various customer accounts to their
intended destinations using our payment platform.]
Our transaction management system is comprised of six Pentium III servers
that operate with a Novell Netware operating system and Advanced Revelation's
AREV database using RAID 5 array of disks for redundant data storage. This
system is supported by software that supports the following functions:
. multi-debit-multi-credit, rules-based payments allow for scheduled "many-
to-many" matching and customizable orientation, features of our software
that are not generally available in bill driven models;
. electronic interfaces that exchange information daily with our affinity
partners' customer service platforms to transmit and maintain information
at both ends; and
. the back-office payment administration and reconciliation of daily funds
movements from customer accounts through clearing banks to custodial
accounts and to final payment destinations.
We upload customer and mortgage information from tapes provided by affinity
partners into the marketing management system which produces our direct
marketing campaigns, tracks production and marketing results and data mines
the consumer base. This system supports our marketing and distribution and
product development and testing processes, and is based on our innovative
proprietary technologies including:
. customized statistical software applications;
. customer relationship management software that provides front-end user
screen applications ("screen pops");
. internet and direct mail campaign management software that is designed to
retrieve data from various databases and files, and to perform data
exclusions, segmentation and campaigns;
. customized amortization software for calculating personalized, goal
oriented customer financial benefits summaries; and
. enrollment by phone process that allows for secure electronic customer
authorizations.
Our marketing management system is comprised of nine Pentium III servers.
The database operates with an SCO UNIX operating system and Oracle database
software. These servers also support remote site back-up and the Web interface
and e-mail applications.
A common 100 Mbs Ethernet LAN connecting about 200 user workstations through
two 10/100 Base-T star shaped networks, each using Bay Networks intelligent
hubs interconnected with 10/100 wiring, supports both the transaction
management and marketing management systems.
32
<PAGE>
Our back-up facility is in Livermore, California, approximately 50 miles east
of San Francisco. Our Unix and Novell back-up servers are located at a call
center that operates seven days a week. The production servers located in San
Francisco are connected by T1 dedicated lines to the backup servers and backups
are transmitted every night to the Livermore location.
Our information system is designed to block unauthorized access to our
internal network through software that is installed on our server. The software
allows sophisticated authentication, access blocking by Internet Protocol (IP)
address, domain names or logins, other filtering options, scanning for Java and
ActiveX and third party plug-ins that allow URL filtering or virus scanning. It
also allows targeting access to specific components of the internal network
with very specific access rights. The topology of our firewall was designed
with a router as the entry point from the ADSL line. This router connects to
the firewall. The Web servers then connect directly to the firewall allowing
only very restricted and specific access. The remaining part of the network is
connected to the firewall through the main router, which has its own
safeguards.
Customer Service
We are committed to providing high quality service. Our customer service
group manages the relationship with customers once they have completed the
enrollment process. Customers can contact our customer service group to inquire
about program features; to add other loans, change banks or make other
adjustments to their personalized payment plans and withdrawal amounts or to
request other account maintenance items. Our customer service group is
supported by a call center maintained in our San Francisco facility. In the
future we may expand our customer service capabilities by establishing an
additional call center and by providing customer service through the Internet.
Competition
The market for electronic payment systems is highly competitive and dynamic,
and competition is expected to increase significantly. We will continue to
differentiate ourselves from competitors by offering an end-to-end solution
that enhances core financial products that are important to customers. In the
mortgage acceleration industry we face competition from independent companies
that sell mortgage acceleration products directly to consumers and financial
institutions that market and sell mortgage products in-house. We believe that
we are the only firm to offer financial institutions a completely outsourced
solution for their mortgage acceleration program needs. Our product includes a
sophisticated direct marketing program tailored to their customer base, inbound
telemarketing product support, enrollment processing, ongoing customer service
and customized electronic payment processing for each customer.
As we expand our new product offerings into the investment and credit card
markets, we will use the same full service approach to differentiate ourselves
from third party competitors and in-house electronic payment alternatives.
Companies with greater resources and bill payment processing companies with new
technologies may emerge to compete with us in these markets.
Intellectual Property and Other Proprietary Rights
Our success depends upon the development and protection of proprietary
technology related to our electronic payment system. We rely primarily on a
combination of trademarks, servicemarks, copyrights and trade secrets and
contractual provisions to protect our intellectual property rights.
We develop our technology through our in-house engineering resources and
through outsourcing certain projects to third party consultants and service
providers. These third parties generally provide development services on a
work-for-hire basis, and our contracts provide that we own the rights to all
technology and source code developed as a result of their work. We also enter
into confidentiality agreements with our employees, consultants and service
providers, and attempt to restrict access to proprietary information on a need
to know basis. Despite our precautions, these agreements may be breached and
unauthorized third parties may copy
33
<PAGE>
aspects of our current or future products or obtain and use information that we
regard as proprietary. In addition, our current and future competitors may
independently develop similar or superior technology.
We have a policy of filing patent applications where appropriate to seek
protection for our technology. To date, we have filed two U.S. patent
applications covering our proprietary technology. If the patents are issued,
the claims may not be sufficiently broad to protect our technology nor can we
assure you that the patents will not be challenged, invalidated or circumvented
in the future.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could entail substantial
costs, the diversion of management attention, and other resources. Accordingly,
litigation could materially adversely affect our business, operating results,
and financial condition.
We are not aware of any instance in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims of their
intellectual property rights against us. We expect infringement claims to rise
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlap. As a result,
infringement claims, whether with or without merit, could be time consuming and
costly to defend, could cause product delays, and could force us to enter into
unfavorable royalty or license agreements with third parties. If a third party
brings a successful claim of product infringement against us, we must either
license the infringed or similar technology or develop alternative technology
on a timely basis. Because a license may be unavailable or have unacceptable
terms, or we may not find an acceptable alternative technology, a successful
product infringement claim against us could materially adversely affect our
business, operating results, and financial condition.
Employees
As of December 31, 1999, we had 195 employees, including full time
equivalents and consultants. None of our employees is represented by a
collective bargaining agreement. We have not experienced any work stoppages and
consider our relations with our employees to be good.
Facilities
Our facilities consist of approximately 23,000 square feet in San Francisco,
California pursuant to a lease that expires in September 2002. We believe that
our facilities are adequate for the next six to nine months and we believe that
we can lease suitable additional space on commercially acceptable terms to
accommodate expansion.
Legal Proceedings
We have commenced arbitration of a dispute with the developer of software who
claims entitlement to additional compensation. We are also seeking to obtain
the application source code for the new software which was being developed by
such software developer in legal proceedings against such software developer
and its principal subcontractor. We believe that the resolution of these
proceedings will not have a material adverse effect on our financial condition
or business. Except as described above, we are not a party to any material
legal proceedings. We could become involved in litigation from time to time
relating to claims arising out of our ordinary course of business.
34
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of January 31, 1999
are as follows:
<TABLE>
<CAPTION>
Name Age Position
<C> <C> <S>
John P. Decker(2)(3).............. 61 President, Chief Executive Officer,
Treasurer and Director
Stephen M. Herz................... 49 Senior Vice President, Chief Operating
Officer and Director
Craig M. Compiano................. 48 Vice President
William R. Grant.................. 37 Vice President
Cindy McGovern.................... 47 Vice President
James D. Connelly................. 59 Vice President
Michael W. Rogers................. 35 Vice President
David D. Woody.................... 62 Senior Consultant
John A. Charckon.................. 55 Controller
Denis A. Cardone(1)(2)............ 61 Chairman of the Board
Daniel K. Turner III(1)(2)(3)..... 38 Director
Anders Brag(1)(3)................. 46 Director
Victor A. Hebert.................. 62 Secretary
</TABLE>
- ---------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating committee.
John P. Decker is one of our co-founders and has served as our President,
Chief Executive Officer, Treasurer and a director since May 1993. Prior to
joining us, Mr. Decker established and later served as Vice President--Finance
of First Deposit Corp. (subsequently renamed Providian Financial Corp.), where
he managed the development of several consumer financial products and treasury
funding products. Prior to that, he served as Senior Financial Consultant of
SRI International (formerly, Stanford Research Institute), where he specialized
in the development of products and strategies for financial service firms. Mr.
Decker holds a Bachelor of Science degree in Mechanical Engineering from Duke
University and a Masters of Business Administration degree in Finance from the
Haas Graduate School of Business, University of California, Berkeley. He is
also a chartered financial analyst.
Stephen M. Herz has been our Senior Vice President and Chief Operating
Officer since August 1999 and became a director in January 2000. From August
1995 to August 1999, Mr. Herz served as Senior Vice President of Visa
International, where he specialized in global consumer electronic commerce.
Prior to that, he held a variety of management positions at Chase Manhattan
Bank, encompassing product development, information services, community banking
operations and distributions, business policy and planning and consumer loan
operations. Mr. Herz holds a Bachelor of Arts degree in Economics from the
University of Pittsburgh and a Masters of Business Administration from the
Simon School.
Craig M. Compiano is one of our co-founders and has served as our Vice
President since May 1993. Mr. Compiano served as a director from our inception
until January 2000. From 1979 to 1985, he served as a systems consultant with
Arthur Andersen & Company and participated in the design and implementation of
the fiscal and client trust systems utilized by the State of California
Department of Developmental Services for its Regional Center Network. Mr.
Compiano holds a Bachelor of Science degree in Engineering from the University
of Southern California and a Masters in Business Administration degree in
Finance from the University of California, Berkeley.
William R. Grant is one of our co-founders and has served as our Vice
President since April 1993. Prior to joining us, Mr. Grant founded Grant
Financial Group, Inc. which was primarily involved in the development and
marketing of electronic payment services for mortgage products. From 1986 to
1989, Mr. Grant worked at Consortium Financial Planners as a regional sales
manager.
35
<PAGE>
Cindy McGovern has served as our Vice President since October 1997. Prior to
joining us, Ms. McGovern served as a Vice President in Prudential's home
mortgage department from 1988 to 1996. Prior to joining Prudential, Ms.
McGovern served as a manager of Citicorp's credit card and mortgage division
from 1978 to 1988.
James D. Connelly has served as our Vice President since June 1998, and prior
to that, as a Senior Consultant since June 1995. Prior to his association with
us, Mr. Connelly served as Vice President and a director of MicroRent
Corporation, where he specialized in marketing, sales and general management
from 1984 to 1997. Mr. Connelly holds a Bachelor of Arts in Economics from Duke
University and Master of Business Administration in Finance from University of
California, Berkeley.
Michael W. Rogers is one of our co-founders and has served as our Vice
President since June 1999, and, prior to that, as our Senior Product Manager
for Equity Accelerator since April 1993. Mr. Rogers worked in product
development and as call center manager for Grant Financial Group, Inc. from
1991 to 1993. From 1989 to 1991, Mr. Rogers served as marketing representative
of Sportsworld, a sports marketing company. From 1988 to 1989, Mr. Rogers
served as a business analyst for Dun & Bradstreet. Mr. Rogers holds a Bachelor
of Arts degree in Organizational Behavior from the University of California,
Berkeley.
David D. Woody has served as a Senior Consultant to us since December 1994.
Mr. Woody specializes in reorganization of work flows and process improvement.
Since September 1981, he has operated his own consulting organization, The
Benchmark Group. Mr. Woody holds a Bachelor of Arts and a Master of Business
Administration, with honors, from the University of Cincinnati.
John A. Charckon has served as our Controller since September 1998. Prior to
joining us, he was an independent contractor at Deloitte & Touche LLP from 1996
to 1998, where he was responsible for financial audit and consulting. Prior to
his consulting at Deloitte & Touche LLP, he was a financial consultant at The
Brennen Group from 1991 to 1996. He was chief financial officer for Argonaut
Insurance Company from 1976 to 1991. Mr. Charckon holds a Bachelor of Arts
degree from Northwestern University and is a certified public accountant.
Denis A. Cardone has served as our director and the Chairman of the Board
since May 1993. In 1970, he co-founded Scarborough Alliance Corporation, a
pension advisory and administration firm, and has served as its president since
1987. Mr. Cardone also serves as president of Scarborough Capital Corporation,
an SEC registered investment advisor, and chairman of Scarborough Securities
Corporation, an NASD broker-dealer. In addition, in 1985 Mr. Cardone co-founded
Essex Corporation, a bank marketing firm that offers mutual funds, annuities
and other financial service products. Mr. Cardone has a Bachelor of Arts degree
in English Literature from Villanova University with graduate studies in
finance at New York University.
Daniel K. Turner III has served as our director since May 1993. Since
February 1993, he has served as the Managing General Partner of Montreux Equity
Partners. Prior to forming Montreux Equity Partners, Mr. Turner served as head
of the Turnaround and Restructuring Group for Berkeley International Capital
Corporation from August 1990 to February 1993. Previously, Mr. Turner was the
founding Chief Financial Officer for Ocalssen Pharmaceuticals, Inc. from
February 1986 to April 1990. From May 1983 to February 1986, Mr. Turner was a
tax and accounting consultant with Price Waterhouse. Mr. Turner has a Bachelor
of Science in Business Administration in Accounting from Sacramento State
University and has attended the Haas School of Business MBA Program at the
University of California, Berkeley.
Anders Brag has served as our director since May 1993. Mr. Brag served as a
general partner of Hambro International Venture Fund, the U.S. affiliate of
London-based Hambros Bank PLC, from 1979 to 1990 and served as special limited
partner subsequently until 1997. Mr. Brag is a Managing Director of Denison
Hydraulics, an international manufacturer of hydraulic equipment. Mr. Brag's
primary business focus over the last five years has been in venture capital and
leverage buyout investments. He serves as a director of several private
companies, including Ocean Pacific Apparel Corporation, a licensing lifestyle
corporation. Mr. Brag holds a Bachelor of Arts in Economics from Institute
European de Cooperation et d'Economie and a Masters of Business Administration
from the Harvard University Graduate School of Business.
36
<PAGE>
Victor A. Hebert has served as our corporate secretary since February 2000.
Mr. Hebert is a member of the law firm of Heller Ehrman White & McAuliffe LLP
and is the Deputy Chairman and a director of London Pacific Group Limited, a
diversified financial services company.
Board of Directors Composition and Committees
We have established an audit committee, a compensation committee and a
nominating committee. The audit committee consists of Messrs. Turner, Cardone
and Brag. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the scope of audit and
other services by our independent auditors, reviews the accounting principles
and auditing practices and procedures to be used for our financial statements
and reviews the results of those audits.
The compensation committee consists of Messrs. Cardone, Decker and Turner.
The compensation committee makes recommendations to the board of directors
regarding our stock and compensation plans, approves compensation of certain
officers and administers our stock option plans.
The nominating committee consists of Messrs. Brag, Decker and Turner. The
nominating committee identifies and recommends qualified persons to serve as
our directors.
Compensation Committee Interlocks and Insider Participation
Messrs. Decker, Cardone and Turner are members of our compensation committee.
Mr. Decker is our President, Chief Executive Officer and Treasurer. None of the
members of the compensation committee is currently or has ever served as a
member of the board of directors or compensation committee of any entity that
has one or more officers serving as member of our board of directors or
compensation committee.
Director Compensation
Our non-employee directors are reimbursed for expenses incurred in connection
with attending board and committee meetings. From June 1993 to June 1999, we
granted our non-employee directors 2,710 shares of our common stock for
attending in person each meeting of the board or a committee. Starting in
September 1999, our non-employee directors were paid $2,500 for attending in
person each meeting of the board or a committee. A non-employee director may
elect to receive this compensation in our common stock or cash. Under our Non-
employee Directors Stock Option Plan, beginning after our 2000 Annual
Stockholders Meeting, each new non-employee director who joins our board will
receive an automatic grant of options to purchase 16,500 shares of our common
stock. In addition, each annual meeting beginning with our 2000 Annual
Stockholders Meeting, each non-employee director will receive an automatic
grant of options to purchase 5,500 shares of our common stock.
37
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by us during the year
ended December 31, 1999 to our Chief Executive Officer and to our four other
most highly compensated executive officers who received salary and bonus
compensation of more than $100,000 during the year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
1999 Annual Awards
Compensation ------------
---------------- Securities
Name and Principal Underlying
Position Salary Bonus Options(#)
<S> <C> <C> <C>
John P. Decker ......... $209,615 $57,894 --
President and Chief
Executive Officer
Stephen M. Herz(1)...... 73,076 52,631 --
Senior Vice President
and Chief Operating
Officer
John A. Charckon........ 164,099 -- --
Controller
James D. Connelly....... 135,000 35,526 66,124
Vice President
Craig M. Compiano....... 125,000 32,895 8,672
Vice President
</TABLE>
- ---------------------
(1) Mr. Herz joined us in August 1999 and, as a result, his salary reflects his
compensation for that period.
38
<PAGE>
Stock Option Grants
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1999 to each of the named
executive officers. All options were granted under our 1995 Stock Option Plan.
Unless stated otherwise, options granted under the 1995 Stock Option Plan vest
with respect to 25% of the shares on December 31 of the year of the grant and
the remaining shares vest in monthly installments over the following three
years. The percentage of options granted is based on an aggregate of 260,702
options granted by us during the year ended December 31, 1999 to our employees,
including the named executive officers.
The potential realizable value amounts in the last two columns of the
following chart represent hypothetical gains or "option spread" that could be
achieved for each option if exercised at the end of the option term. The
assumed 5% and 10% annual rates of stock price appreciation from the date of
grant to the end of the option term are provided in accordance with rules of
the SEC and do not represent our estimate or projection of the future common
stock price. We do not necessarily agree that this method can properly
determine the value of our stock options. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock, overall
market conditions and the option holder's continued employment through the
vesting period, which factors are not reflected on this table. This table does
not take into account any actual appreciation in the price of the common stock
from the date of grant to the present.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------- Value at Assumed
Number % of Total Annual Rates of Stock
of Securities Options Price Appreciation
Underlying Granted to Exercise for Option Terms
Options Employees Price Expiration ----------------------
Name Granted in Fiscal Year Per Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John P. Decker.......... -- --% $ -- -- $ -- $ --
President and Chief
Executive Officer
Stephen M. Herz......... -- -- -- -- -- --
Senior Vice President
and Chief Operating
Officer
John A. Charckon........ -- -- -- -- -- --
Controller
James D. Connelly....... 66,124 25.4 0.18 9/16/09 19,873 31,634
Vice President
Craig M. Compiano....... 8,672 3.3 0.18 9/16/09 2,606 4,150
Vice President
</TABLE>
39
<PAGE>
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
The following table sets forth information regarding exercised stock options
during the fiscal year ended December 31, 1999 and unexercised stock options
held as of December 31, 1999 by each of the named executive officers. The value
realized is based on the fair market value of the underlying securities as of
December 31, 1999 of $0.18 per share, minus the per share exercise price,
multiplied by the number of shares underlying the option. Also reported below
are values for "in-the-money" options, which values represent the positive
spread, if any, between the exercise price of each outstanding stock option and
the fair market value of the common stock as of December 31, 1999.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
Shares at December 31, 1999(#) at December 31, 1999
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John P. Decker.......... -- -- -- -- $ -- $ --
President and Chief
Executive Officer
Stephen M. Herz......... -- -- -- -- -- --
Senior Vice President
and Chief Operating
Officer
John A. Charckon........ -- -- -- -- -- --
Controller
James D. Connelly ...... -- -- 52,032 49,593
Vice President
Craig M. Compiano ...... -- -- 241,802 14,022
Vice President
</TABLE>
Employee Benefit Plans
1995 Stock Option Plan
Our 1995 Stock Option Plan was adopted by our board of directors and
stockholders on May 30, 1995. This plan provides for the grant of incentive
stock options to our employees and nonstatutory stock options to our employees,
directors and consultants. As of December 31, 1999, 1,626,000 shares of common
stock were reserved for issuance under the 1995 option plan. Of these shares,
101,332 were issued upon exercise of stock options, 1,217,749 shares were
subject to outstanding options and 272,458 shares were available for future
grant.
Our board of directors or a committee appointed by the board administers the
1995 option plan and determines the terms of options granted, including the
exercise price, the number of shares subject to individual option awards and
the vesting period of options. The exercise price of incentive stock options
cannot be lower than 100% of the fair market value of the common stock on the
date of grant and, in the case of incentive stock options granted to holders of
more than 10% of our voting power, not less than 110% of the fair market value.
The term of an incentive stock option cannot exceed ten years, and the term of
an incentive stock option granted to a holder of more than 10% of our voting
power cannot exceed five years. In general, options granted under the 1995
option plan vest with respect to 25% of the shares on December 31 of the year
of grant and monthly thereafter over three more years. A participant may not
transfer rights granted under our 1995 option plan other than by will, the laws
of descent and distribution.
If we are acquired, all stock options granted under our 1995 option plan will
accelerate and become fully exercisable for a period of 30 days prior to the
close of the acquisition, unless the successor assumes or substitutes other
options in their place. Our board of directors may amend, modify or terminate
the 1995 option plan at any time; provided that with respect to outstanding
options, the optionee must consent to the amendment. In addition, any
amendments to the plan must be consistent with Rule 16b-3 under the Securities
Exchange Act of 1934, if applicable. Our 1995 option plan will terminate in
2005 unless terminated earlier by the board of directors.
40
<PAGE>
2000 Stock Option Plan
Our board of directors adopted our 2000 Stock Option Plan on February 10,
2000. Subject to stockholder approval, this plan provides for the grant of
incentive stock options to our employees and nonstatutory stock options to our
employees, directors and consultants. 1,283,500 shares of common stock are
reserved for issuance under the 2000 option plan.
Our board of directors or a committee appointed by the board administers the
2000 option plan and determines the terms of options granted, including the
exercise price, the number of shares subject to individual option awards and
the vesting period of options. The exercise price of nonstatutory options must
be at least 85% of the fair market value of the common stock on the date of
grant. The exercise price of incentive stock options cannot be lower than 100%
of the fair market value of the common stock on the date of grant. The exercise
price of any stock option granted to a holder of more than 10% of our voting
power, may not be less than 110% of the fair market value. The term of an
incentive stock option cannot exceed ten years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years. A participant may not transfer rights granted under our 2000
option plan other than by will, the laws of descent and distribution, or as
otherwise provided under the plan and option agreement.
Options granted under our 2000 option plan will accelerate and become fully
exercisable for a period of 30 days in the event we are acquired, unless the
successor corporation assumes or substitutes other equivalent options in their
place. Our board of directors may amend or terminate our 2000 stock option plan
at any time; provided that stockholder consent will be required if necessary to
preserve incentive stock option treatment or the board concludes it is
advisable. In addition, our board of directors may not, without the adversely
affected optionee's prior written consent, amend, modify or terminate the 2000
option plan if the amendment, modification or termination would impair the
rights of optionees. Our 2000 option plan will terminate in 2010 unless
terminated earlier by our board.
2000 Employee Stock Purchase Plan
Our board of directors adopted our 2000 Employee Stock Purchase Plan on
February 10, 2000. Subject to stockholder approval, this plan provides our
employees with an opportunity to purchase our common stock through accumulated
payroll deductions.
A total of 275,000 shares of common stock has been reserved for issuance
under the purchase plan. In addition, the purchase plan provides for annual
increases in the number of shares available for issuance under the purchase
plan on the first day of each fiscal year, beginning January 1, 2001, equal to
the lesser of (1) 137,500 shares, (2) 0.5% of the outstanding capital stock on
the date of the increase, or (3) an amount determined by the board.
The board of directors or a committee appointed by the board administers the
purchase plan. The board or its committee has full and exclusive authority to
interpret the terms of the purchase plan and determine eligibility.
After six months of employment with us, employees are eligible to participate
if they are customarily employed by us or any participating subsidiary for at
least 20 hours per week and five months per year. However, an employee may not
be granted an option to purchase stock under the purchase plan:
. if the employee immediately after grant owns stock possessing five
percent or more of the total combined voting power or value of all
classes of our capital stock, or
. to extent that the option would permit the employee to accrue rights to
purchase stock under all of our employee stock purchase plans in excess
of $25,000 worth of stock for each calendar year. For this purpose rights
to acquire stock accrue when they first become exercisable.
41
<PAGE>
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, allows for offering periods of up to 6 months,
except as otherwise determined by the plan administrator, each with a purchase
date occurring at the end of the offering period. The administrator may
designate additional purchase dates in any offering period. The offering
periods will generally start on the first trading day on or after April 1 and
October 1 of each year, except for the first offering period which will
commence on the first trading day before the effective date of this offering,
will end on the last trading day on or before September 30, 2000, and will have
a purchase date on the last trading day of September.
The purchase plan permits participants to purchase common stock though
payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base time gross earnings and
commissions, but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation.
Amounts deducted and accumulated for the participant's account are used to
purchase shares of common stock on each purchase date at a price of 85% of the
lower of the fair market value of the common stock at (1) the beginning of the
offering period and (2) the purchase date. Participants may reduce their
withholding percentage at any time during an offering period and may increase
or decrease their withholding percentage (but not below zero) on the first day
of each offering period. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.
A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.
The purchase plan provides that, if we merge with or into another corporation
or sell substantially all of our assets, a successor corporation may assume or
substitute for each outstanding purchase right. If the successor corporation
refuses to assume or substitute for the outstanding purchase rights, the
administrator of the plan, with the board's approval, may accelerate the
exercisability of the purchase rights. The purchase plan will terminate in
2020. However, the board of directors has the authority to amend or terminate
the purchase plan at any time; provided that amendments which would increase
the number of shares issuable under the purchase plan or change the designation
of eligible employees would require stockholders approval.
2000 Nonemployee Directors Stock Option Plan
Our board of directors adopted the 2000 Non-employee Directors Stock Option
Plan on February 10, 2000 and reserved a total of 275,000 shares of common
stock for issuance under the plan. Each nonemployee director who becomes our
director after the 2000 Annual Stockholders Meeting will be automatically
granted a nonstatutory stock option to purchase 16,500 shares of common stock
on the date on which such person first becomes a director. At each annual
stockholders meeting beginning with the 2000 Annual Stockholders Meeting, each
non-employee director will automatically be granted a nonstatutory option to
purchase 5,500 shares of common stock.
The exercise price of options under the director plan will be equal to the
fair market value of the common stock on the date of grant. The maximum term of
the options granted under the director plan is ten years. Options will become
exercisable in full upon grant, but the underlying shares may be subject to a
right of repurchase. Shares underlying options granted to a director upon
joining our board are subject to right of repurchase in our favor which lapses
with respect to 25% of the shares one year after the date of grant, and with
respect to an additional 25% of the shares at the end of each year thereafter.
Each subsequent grant is subject to right of repurchase for one year after the
date of grant. In the event we are acquired, options granted under the director
plan will become fully vested immediately prior to the consummation of the
transaction. The director plan will terminate in 2020, unless terminated
earlier in accordance with the provisions of the directors plan.
42
<PAGE>
401(k) Plan
In 1999, our board of directors adopted a Retirement Savings and Investment
Plan covering our full-time employees located in the United States. This plan
became effective on February 1, 2000. This plan is intended to qualify under
Section 401(k) of the Internal Revenue Code of 1986, as amended, so that
contributions to this plan by employees, and the investment earnings on the
contributions, are not taxable to employees until withdrawn. Pursuant to this
plan, employees may elect to reduce their current compensation by up to the
lesser of 20% of their annual compensation or the statutory prescribed annual
limit ($10,500 in 2000) and to have the amount of the reduction contributed to
the plan. We will make additional matching contributions equal to 50% of the
first 4% contributed by each plan participant.
Limitation of Liability and Indemnification
Our amended and restated certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for: (1) breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) unlawful payments of
dividends or unlawful stock repurchases or redemptions, or (4) any transaction
from which the director derived an improper personal benefit. Such limitation
of liability does not apply to liabilities arising under the federal or state
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission.
Our amended and restated bylaws provide that we shall indemnify our
directors, officers, employees and other agents to the fullest extent permitted
by law. We believe that indemnification under our bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws permit such indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our amended and
restated bylaws. These agreements, among other things, will indemnify our
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in our right, arising out
of such person's services as one of our directors or executive officers, any of
our subsidiaries or any other company or enterprise to which the person
provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
There is no pending litigation or proceeding involving any of our directors
or executive officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
43
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 21, 1999, we entered into a purchase agreement with Stephen M.
Herz. Pursuant to this agreement, Mr. Herz purchased 341,330 shares of our
common stock at a purchase price of $0.18 per share by delivery to us of a 10-
year promissory note bearing interest at 5.7% per year. His shares are subject
to right of repurchase which lapses with respect to 25% of the underlying
shares on the first anniversary of the purchase date and in equal monthly
installments over the next three years.
Mr. Decker is a party to a tax indemnity agreement under to which we will
indemnify Mr. Decker for income tax liability which may arise as a result of
certain option exercises; however, our liability is limited to the net amount
by which our federal, state and local taxes are reduced as a result of
increased compensation deductions and any other amounts paid pursuant to the
indemnity.
Holders of our capital stock are entitled to registration rights with respect
to the shares of common stock that they will hold following this offering. See
"Description of Capital Stock--Registration and Other Rights."
We believe that all transactions between us and our officers, directors,
principal stockholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of January 31, 2000 by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the named executive officers and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 12,664,279 shares outstanding as of
January 31, 1999, assuming conversion of the preferred stock, Class A common
stock and Class B common stock, and shares outstanding after this
offering and assuming no exercise of the underwriters' over-allotment option.
Beneficial ownership is calculated based on SEC requirements. All shares of
the common stock subject to options currently exercisable or exercisable within
60 days after January 31, 1999 are deemed to be outstanding for the purpose of
computing the percentage of ownership of the person holding the options, but
are not deemed to be outstanding for the purpose of computing the percentage of
ownership of any other person. Unless otherwise indicated below, each
stockholder named in the table has sole or shared voting and investment power
with respect to all shares beneficially owned, subject to applicable community
property laws.
Unless otherwise indicated in the table, the address of each individual
listed in the table is Paymap Inc., 3 Embarcadero Center, Suite 500, San
Francisco, California 94111.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Beneficially Shares Beneficially Owned
Owned ------------------------------
Before and After the Offering Before Offering After Offering
<S> <C> <C> <C>
5% Stockholders:
Grant Financial Group,
Inc.(1)............... 1,109,507 8.8%
Montreux Equity
Partners(2)........... 1,394,555 11.0
C. Charles Hetzel III.. 1,203,890 9.5
Benjamin S. Wood,
Jr.(3)................ 737,933 5.8
Directors and Officers:
John P. Decker......... 2,719,957 21.5
Craig M. Compiano(4)... 1,050,174 8.1
Daniel K. Turner
III(5)................ 1,454,175 11.5
Anders Brag............ 908,224 7.2
Denis A. Cardone(6).... 1,545,936 12.2
John A. Charckon....... -- --
Stephen M. Herz(7)..... 341,330 2.7
James D. Connelly...... 114,167 *
All directors and
executive officers as a
group (12 persons)(8).. 10,019,750 74.2
</TABLE>
- -------------------
* Less than 1% of Paymap's outstanding common stock.
(1) Messrs. Campiano, Grant and Cardone, who are officers and directors of
Grant Financial Group, Inc., together hold a majority of the voting shares
of Grant Financial and control voting and dispositive power with respect to
such shares.
(2) Consists of 237,542 shares held by Montreux Equity Management II, LLC,
258,935 shares held by Montreux International, 45,165 shares held by
Montreux, LLP, 90,335 shares held by MEM II, LP and 762,578 shares held by
H.J. Limited. Montreux Equity Management II, LLC, Montreux International,
Montreux, LLP, MEM II, LP and H.J. Limited are under common control and are
affiliated with Montreux Equity Partners.
(3) Includes 621,929 shares held by June Green Wood, Mr. Wood's spouse, and
70,568 shares held by the June Greene Wood 1995 Gift Trust. Mr. Wood may be
deemed to have a beneficial interest in shares held by Ms. Wood and The
Wood Trust.
(4) Excludes 1,109,507 shares held by Grant Financial. Mr. Campiano may be
deemed to have an indirect pecuniary interest in an indeterminate portion
of our shares held by Grant Financial Group. Mr. Campiano disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(5) Includes 1,394,555 shares held by entities affiliated with Montreux Equity
Partners and 59,620 shares held directly by Mr. Turner. Mr. Turner is the
general partner of the general partner of each of the entities affiliated
with Montreux Equity Partners and has voting and dispositive power with
respect to those shares. Mr. Turner disclaims beneficial ownership of such
shares except to the extent of his proportional interest in such entities.
(6) Includes 27,100 shares of common stock held by Anne Cardone, Mr. Cardone's
spouse. Mr. Cardone may be deemed to have a beneficial interest in shares
held by Anne Cardone.
(7) These shares are subject to right of repurchase in our favor which lapses
with respect to 25% of the shares on September 21, 2000, and thereafter,
with respect to equal monthly installments at the end of each month over
the next three years.
(8) Includes 1,109,507 shares held by Grant Financial Group, Inc.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation, which will be filed at
the closing of this offering, authorizes the issuance of up to 50,000,000
shares of common stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.01 per share. The rights and preferences of the
preferred stock may be established from time to time by our board of directors.
As of January 31, 2000, after giving effect to the conversion of all preferred
stock, Class A common stock and Class B common stock into common stock,
12,664,279 shares of common stock were outstanding. As of January 31, 2000, we
had 34 stockholders.
The following description provides a summary of the material rights and
limitations relating to ownership of our capital stock. For a complete legal
description of our capital stock, you should refer to our amended and restated
certificate of incorporation and amended and restated bylaws, copies of which
are included as exhibits to the registration statement of which this prospectus
is a part.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights.
Subject to preferences of the holders of any preferred stock issued after the
sale of the common stock offered by this prospectus, holders of common stock
are entitled to receive ratably dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. In the event of our liquidation, dissolution or winding up, holders of
common stock will be entitled to share in our assets remaining after the
payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights, and there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock, which we may designate and issue in the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval,
from time to time to issue up to an aggregate of 10,000,000 shares of preferred
stock, $0.01 par value per share, in one or more series. Each of those series
will have the rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as are
determined by the board of directors. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of holders of
any preferred stock that may be issued in the future. Issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock.
Registration and Other Rights
Pursuant to a stockholders agreement, we are contractually obligated, under
limited circumstances and subject to specified conditions and limitations, to
register shares of our common stock.
46
<PAGE>
We must use our best efforts to register the outstanding shares:
. if, at any time before April 30, 2001, we receive written notice from
holders of 50% or more of the outstanding shares subject to the
stockholders agreement requesting that we effect a registration with
respect to at least 30% of the outstanding shares then held by the
holders requesting registration (or a lesser percentage if the offering
amount (less underwriting discounts and commissions) will exceed
$5,000,000); or
. if we decide to register our own securities and we receive written notice
from the stockholders requesting inclusion of their common stock.
However, in addition to certain other conditions and limitations, if
requested by the underwriters to decrease the number of shares registered, we
can limit the number of registrable shares included in the registration
statement. The underwriters have requested that no registrable shares be
registered in this offering. In addition, the holders of these registration
rights have entered into lock-up agreements and have agreed not to exercise
their registration rights until 180 days following this offering.
Delaware Anti-Takeover Law and Charter Provisions
Our amended and restated certificate of incorporation and amended and
restated bylaws, each effective upon the closing of the offering, contain
provisions that may make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of us. These
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. The specific provisions:
. allow us to issue preferred stock without any vote or further action by
the stockholders;
. require advance notification of stockholder proposals and nominations of
candidates for election as directors; and
. do not provide for cumulative voting in the election of directors.
In addition, our bylaws provide that special meetings of the stockholders may
be called only by the board of directors and that the authorized number of
directors may be changed only by resolution of the board of directors.
These provisions may make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of us.
We are also subject to Section 203 of the Delaware General Corporation Law.
This law prohibits a Delaware corporation from engaging in any "business
combination" with any "interested stockholder," unless any of the following
conditions are met:
. before the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or after the date of the transaction, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
47
<PAGE>
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, lease, exchange, mortgage, transfer, pledge or other
disposition of 10% or more of our assets involving the interested
stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder;
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation; and
. any transaction involving us that has the effect of increasing the
proportionate share of our stock of any class or series beneficially
owned by the interested stockholder.
Section 203 defines an "interested stockholder" as an entity or person
beneficially owning 15% or more of our outstanding voting stock and any entity
or person affiliated with or controlling or controlled by such entity or
person.
These provisions are designed to discourage certain types of coercive
takeover practices and encourage persons or entities seeking to acquire control
of us to first negotiate with us. However, these and other provisions could
have the effect of making it more difficult to acquire us by means of a tender
offer or proxy contest, or to remove our incumbent officers and directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLP.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming the issuance of shares
of common stock by this prospectus (assuming no exercise of the underwriters'
over-allotment option) and no exercise of options after January 31, 1999. Of
these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by our "affiliates," as that term is defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may generally
only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with limitations of Rule 144 as described
below.
Sales of Restricted Shares
The remaining shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. These shares are "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 under the Securities Act as
summarized below. All of these shares will be subject to "lock-up" agreements
providing that the stockholder will not offer, sell or otherwise dispose of any
of the shares of common stock owned by them for a period of 180 days after the
date of this offering. Donaldson, Lufkin & Jenrette, however, may in its sole
discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Upon expiration of the lock-up
agreements, shares will become eligible for sale pursuant to Rule
144(k), shares will become eligible for sale under Rule 144 and
shares will become eligible for sale under Rule 701.
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<CAPTION>
Number of
Date Shares
<S> <C>
At the effective date.............................................
180 days after the effective date.................................
From time to time after 180 days after the effective date.........
</TABLE>
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our 1995 Stock Option
Plan, our 2000 Stock Option Plan, our 2000 Employee Stock Purchase Plan and our
2000 Non-Employee Directors Stock Option Plan. Based upon the number of shares
subject to outstanding options as of January 31, 1999 and currently reserved
for issuance under these plans, this registration statement would cover
approximately 3,323,707 shares. Shares registered under the registration
statement will generally be available for sale in the open market immediately
after the 180 day lock-up agreements expire.
Also beginning 180 days after the date of this offering, holders of
shares of our common stock, including shares issuable upon conversion of
preferred stock, will be entitled to certain rights with respect to
registration of these shares for sale in the public market. See "Description of
Capital Stock-- Registration and Other Rights." Registration of these shares
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon effectiveness of
the registration.
49
<PAGE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell in "broker's
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding; or
. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering and expiration of the lock-up period.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
written compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this prospectus in reliance on Rule 144, without having
to comply with the holding period and notice filing requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates" (as defined in Rule 144) subject only to the manner of
sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one year minimum holding period requirements.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 2000 (the "Underwriting Agreement"), the underwriters named
below, who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), U.S. Bancorp Piper Jaffray Inc. and DLJdirect Inc. (the
"Representatives"), have severally agreed to purchase from us the respective
number of shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
Number of
Underwriters: Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
U.S. Bancorp Piper Jaffray Inc.......................................
DLJdirect Inc........................................................
----------
Total..............................................................
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock offered by this
prospectus (other than those shares covered by the over-allotment option
described below) if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
DLJdirect Inc., an affiliate of DLJ and a member of the selling group, is
facilitating the distribution of the shares sold in this offering over the
Internet. The underwriters have agreed to allocate a limited number of shares
to DLJdirect for sale to its brokerage account holders. An electronic
prospectus will be available on the Web site maintained by DLJdirect. Other
than the prospectus in electronic format, the information on this Web site
relating to the offering is not part of this prospectus and has not been
approved or endorsed by us or the underwriters and should not be relied on by
prospective investors.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at
the initial public offering price less underwriting discounts and commissions.
The underwriters may exercise such option solely to cover overallotments, if
any, made in connection with the offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such underwriter's percentage underwriting commitment as indicated in
the preceding table.
51
<PAGE>
The following table shows the underwriting fees we will pay to underwriters
in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
Paid by Paymap
-------------------------
No Exercise Full Exercise
<S> <C> <C>
Per Share............................................. $ $
Total............................................... $ $
</TABLE>
We estimate our expenses relating to this offering will be approximately
$ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect thereof.
We and each of our executive officers and directors and our stockholders have
agreed that, for a period of 180 days from the date of this prospectus and
subject to certain exceptions, they will not, without the prior written consent
of DLJ, either:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
The foregoing restrictions will apply regardless of whether a covered
transaction is to be settled by the delivery of common stock, or such other
securities, in cash or otherwise.
In addition, during such 180-day period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and stockholders has agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
without DLJ's prior written consent.
At our request, the underwriters have reserved up to five percent of the
shares offered by this prospectus for sale at the initial public offering price
to our employees, officers and directors and other individuals associated with
us and members of their families. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase or confirm for purchase, orally or in writing, such
reserved shares. Any reserved shares not purchased or confirmed for purchase
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered hereby will be determined by negotiation among us and the
Representatives. The factors to be considered in determining the initial public
offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of the
offering.
We intend to apply to have our common stock listed for quotation on the
Nasdaq National Market under the symbol "PMAP."
52
<PAGE>
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares of common stock included in this offering may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of
any such shares of common stock be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of such jurisdiction. Persons into whose
possession this prospectus comes are advised to inform themselves about and to
observe any restrictions relating to the offering of the common stock and the
distribution of this prospectus. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any shares of common stock
included in this offering in any jurisdiction in which such an offer or a
solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of our common stock.
Specifically, the underwriters may overallot the offering, creating a syndicate
short position. The underwriters may bid for and purchase shares of common
stock in the open market to cover such syndicate short position or to stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members if the syndicate repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or otherwise. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
The underwriters are not required to engage in these activities, and may end
any of these activities at any time.
A holder of less than 5% of our outstanding shares who is an immediate family
member of one of our executive officers is an employee of DLJ.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Heller Ehrman White & McAuliffe LLP, San Francisco, California.
Victor A. Hebert, our Secretary, is a member of Heller Ehrman White & McAuliffe
LLP. Certain legal matters will be passed upon for the underwriters by Latham &
Watkins, Los Angeles, California.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information set forth in the registration statement and all exhibits and
schedules to the registration statement. For further information with respect
to us and the common stock offered by this prospectus, we refer you to the
registration statement, including the exhibits thereto, and the financial
statements and notes filed as a part of the registration statement. You should
read the documents filed with the SEC as exhibits for a more complete
description of the matter involved.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the public reference facilities of the SEC located at 450 Fifth Street, N.W.,
in Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings will also be
available to the public from the SEC's web site at http:\\www.sec.gov.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets at December 31, 1998, 1999................................ F-3
Statements of Operations for the years ended December 31, 1997, 1998 and
1999.................................................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1997,
1998 and 1999........................................................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999.................................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Paymap Inc.
The stock split described in Note 21 to the financial statements has not been
consummated at February 25, 2000. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Paymap Inc. (Paymap Inc.) at December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of Paymap Inc.'s
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 10, 2000
F-2
<PAGE>
PAYMAP INC.
BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
Pro Forma
Stockholders'
Equity at
1998 1999 1999
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash............................................. $ 1,002 $ 969 $ --
Enrollment fees receivable....................... 3,759 12,905 --
Accounts receivable.............................. 470 59 --
Prepaid expenses................................. 272 93 --
------- ------- -------
Total current assets.......................... 5,503 14,026 --
Deferred customer acquisition costs (Note 5)..... 27,685 38,207 --
Furniture and equipment, net..................... 1,325 3,234 --
Other assets, net................................ 1,186 2,292 --
------- ------- -------
Total assets.................................. $35,699 $57,759 $ --
======= =======
<CAPTION>
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK
AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Liabilities:
Due to affinity partners....................... $ 2,455 $ 6,636 $ --
Accounts payable............................... 2,733 2,732 --
Reserve for customer refunds................... 445 1,163 --
Line of credit................................. 700 242 --
Other current liabilities...................... 627 1,396 --
------- ------- -------
Total current liabilities..................... 6,960 12,169 --
Deferred revenue (Note 8)........................ 28,158 41,021 --
Line of credit, net of current portion........... -- 1,208 --
------- ------- -------
Total liabilities............................. 35,118 54,398 --
Series B mandatorily redeemable preferred stock;
par value $0.01; 750,000 shares authorized;
416,667 issued and outstanding; redemption and
liquidation amount of $1.20 per share; no shares
issued and outstanding (pro forma).............. 500 -- --
Commitments and contingencies (Note 18).......... -- -- --
Stockholders' equity:
Series A convertible preferred stock; par value
$0.01; 780,000 shares authorized; 680,000
shares issued and outstanding; liquidation
amount of $1.00 per share..................... 7 7 --
Series B convertible preferred stock; par value
$0.01; 750,000 shares authorized; 416,667
issued and outstanding; redemption and
liquidation amount of $1.20 per share plus
accumulated dividends, no shares issued and
outstanding (pro forma)....................... -- 4 --
Series C convertible preferred stock; par value
$0.01; 320,000 shares authorized; 319,149
issued and outstanding; liquidation amount of
$4.00 per share; no shares issued and
outstanding (pro forma)....................... 3 3 --
Common stock, par value $0.01; 50,000,000
shares authorized; 12,664,279 shares issued
and outstanding (pro forma)................... -- -- 55
Class A common stock; par value $0.01;
50,000,000 shares authorized; 3,441,429 and
3,881,049 shares issued and outstanding; no
shares issued and outstanding (pro forma)..... 34 39 --
Class B convertible common stock; par value
$0.01; 320,000 shares authorized; 204,706
shares issued and outstanding; no shares
issued and outstanding (pro forma)............ 2 2 --
Unearned compensation.......................... -- (6,650) (6,650)
Additional paid-in capital..................... 2,376 11,052 11,052
Less: Notes receivable from stockholders....... (21) (89) (89)
Retained earnings (accumulated deficit)........ (2,320) (1,007) (1,007)
------- ------- -------
Total stockholders' equity.................... 81 3,361 $ 3,361
------- ------- =======
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity..... $35,699 $57,759
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PAYMAP INC.
STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenues:
Enrollment fees, net................................ $ 3,245 $ 7,933 $11,933
Transaction fees.................................... 5,761 13,086 20,200
------- ------- -------
Total revenues.................................... 9,006 21,019 32,133
Cost of acquisitions, servicing and support (Note
15).................................................. 7,431 16,115 20,350
------- ------- -------
Gross profit........................................ 1,575 4,904 11,783
Operating expenses:
Selling, general and administrative expenses (Note
16)................................................ 2,665 3,476 6,747
Depreciation of furniture and equipment............. 211 306 371
Amortization of unearned compensation (Note 14)..... -- 192 1,453
------- ------- -------
Total operating expenses.......................... 2,876 3,974 8,571
------- ------- -------
Operating income (loss)............................... (1,301) 930 3,212
Other expense (income), net........................... (26) 45 27
------- ------- -------
Income (loss) before provision (benefit) for taxes.... (1,275) 885 3,185
Provision (benefit) for taxes (Note 10)............... (1,439) 455 1,872
------- ------- -------
Net income............................................ $ 164 $ 430 $ 1,313
======= ======= =======
Net income attributable to common shareholder......... $ 124 $ 486 $ 1,313
======= ======= =======
Net income per share:
Basic............................................... $ 0.07 $ 0.14 $ 0.35
======= ======= =======
Diluted............................................. $ 0.01 $ 0.04 $ 0.10
======= ======= =======
Pro forma net income per share (unaudited):
Basic............................................... $ 0.11
=======
Diluted............................................. $ 0.10
=======
Pro forma weighted average shares (unaudited):
Basic............................................... 12,289
=======
Diluted............................................. 13,755
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PAYMAP INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Series A Series B Series C
Class A Class B Preferred Preferred Preferred Notes
Common Stock Common Stock Stock Stock Stock Additional Receivable
------------- ------------- ------------- ------------- ------------- Unearned Paid-In From
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Compensation Capital Stockholders
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996............ 1,707 $17 160 $ 2 680 $ 7 -- $ -- 319 $ 3 $ -- $ 2,017 $(20)
Issuance of
Common Stock
Series A........ 33 1 -- -- -- -- -- -- -- -- -- 5 --
Options
Exercised....... 11 -- -- -- -- -- -- -- -- -- -- 2 --
Net Income...... -- -- -- -- -- -- -- -- -- -- -- -- --
Accrued
Dividend--
Preferred Stock
Series B........ -- -- -- -- -- -- -- -- -- -- -- (40) --
----- --- --- --- --- --- --- ---- --- --- ------- ------- ----
Balance,
December 31,
1997............ 1,751 18 160 2 680 7 -- -- 319 3 -- 1,984 (20)
Issuance of
Common Stock
Class A......... 32 -- -- -- -- -- -- -- -- -- -- 6 --
Reversal of
Dividend-
Preferred Stock
Series B........ -- -- -- -- -- -- -- -- -- -- -- 56 --
Options
Exercised....... 1,214 12 -- -- -- -- -- -- -- -- -- 16 (1)
Issuance of
Common Stock
Class B......... -- -- 45 -- -- -- -- -- -- -- -- 44 --
Unearned
Compensation.... -- -- -- -- -- -- -- -- -- -- -- 192 --
Net Income...... -- -- -- -- -- -- -- -- -- -- -- -- --
Class A Common
Stock Dividend.. 444 4 -- -- -- -- -- -- -- -- -- 78 --
----- --- --- --- --- --- --- ---- --- --- ------- ------- ----
Balance,
December 31,
1998............ 3,441 34 205 2 680 7 -- -- 319 3 -- 2,376 (21)
----- --- --- --- --- --- --- ---- --- --- ------- ------- ----
Issuance of
Common Stock
Class A......... 16 -- -- -- -- -- -- -- -- -- -- 3 --
Issuance of
Common Stock
Class A for note
receivable...... 342 4 -- -- -- -- -- -- -- -- -- 59 (63)
Options
Exercised....... 82 1 -- -- -- -- -- -- -- -- -- 14 (5)
Conversion of
Preferred Stock
Series B........ -- -- -- -- -- -- 417 4 -- -- -- 497 --
Unearned
Compensation.... -- -- -- -- -- -- -- -- -- -- (6,650) 8,103 --
Net Income...... -- -- -- -- -- -- -- -- -- -- -- -- --
----- --- --- --- --- --- --- ---- --- --- ------- ------- ----
Balance,
December 31,
1999............ 3,881 $39 205 $ 2 680 $ 7 417 $ 4 319 $ 3 $(6,650) $11,052 $(89)
===== === === === === === === ==== === === ======= ======= ====
<CAPTION>
Retained
Earnings
(Accumulated
Deficit) Total
<S> <C> <C>
Balance,
December 31,
1996............ $(2,914) $ (888)
Issuance of
Common Stock
Series A........ -- 6
Options
Exercised....... -- 2
Net Income...... 164 164
Accrued
Dividend--
Preferred Stock
Series B........ -- (40)
------------ -------
Balance,
December 31,
1997............ (2,750) (756)
Issuance of
Common Stock
Class A......... -- 6
Reversal of
Dividend-
Preferred Stock
Series B........ -- 56
Options
Exercised....... -- 27
Issuance of
Common Stock
Class B......... -- 44
Unearned
Compensation.... -- 192
Net Income...... 430 430
Class A Common
Stock Dividend.. -- 82
------------ -------
Balance,
December 31,
1998............ (2,320) 81
------------ -------
Issuance of
Common Stock
Class A......... -- 3
Issuance of
Common Stock
Class A for note
receivable...... -- --
Options
Exercised....... -- 10
Conversion of
Preferred Stock
Series B........ -- 501
Unearned
Compensation.... -- 1,453
Net Income...... 1,313 1,313
------------ -------
Balance,
December 31,
1999............ $(1,007) $3,361
============ =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PAYMAP INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 164 $ 430 $ 1,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 211 306 371
Amortization of unearned compensation......... -- 192 1,453
Changes in assets and liabilities:
Enrollment fees receivable.................. (3,409) 3 (9,146)
Deferred customer acquisition costs......... (9,555) (13,571) (10,522)
Accounts receivable......................... 32 (450) 411
Prepaid expense and other assets............ 51 (138) (31)
Deferred revenue............................ 10,733 12,756 12,863
Due to affinity partners.................... 2,310 (231) 4,181
Reserve for customer refunds................ 640 (214) 718
Deferred taxes.............................. (1,439) 423 (1,050)
Accounts payable and other current
liabilities................................ 250 1,502 (911)
------- -------- --------
Net cash provided by (used in) operating
activities............................... (12) 1,008 1,472
------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.............. (930) (526) (2,268)
------- -------- --------
Net cash used in investing activities..... (930) (526) (2,268)
------- -------- --------
Cash flows from financing activities:
Borrowings from line of credit.................. 750 1,700 750
Repayments of line of credit.................... -- (1,750) --
Proceeds from issuance of common stock Class A.. 6 6 3
Repayment of notes receivable from
stockholders................................... 428 -- --
Proceeds from stock option exercise............. 2 27 10
------- -------- --------
Net cash provided by financing
activities............................... 1,186 (17) 763
------- -------- --------
Net change in cash........................ 244 465 (33)
Cash at beginning of year......................... 293 537 1,002
------- -------- --------
Cash at end of year............................... $ 537 $ 1,002 $ 969
======= ======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest paid................................... $ 19 $ 118 $ 91
======= ======== ========
Income taxes paid............................... $ -- $ 168 $ 2,900
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company
Organization and nature of operations
Paymap Inc. (Paymap or the Company) develops, markets and services electronic
payment products. The Company's products are based upon a proprietary
electronic payment system that allows consumers to establish a customized
electronic payment program for core financial products such as mortgages.
Historically, substantially all the Company's revenues have been derived from
marketing equity acceleration products to homeowner customers of financial
institutions with which the Company has affinity marketing relationships.
Paymap Inc. (formerly named Aegis Mortgage Acceleration Corporation) was
formed on April 22, 1993. The service provided by the Company directs
electronic withdrawals of customers' funds from their bank accounts, depositing
of those funds in trust accounts on behalf of those customers, and the
remittance of those funds in payment of the customers' needs (e.g. mortgages,
loans, etc.). Paymap's operations are located in San Francisco, California.
Paymap has determined that it does not have any separately reportable
business segments.
Affinity partner agreements
The Company has agreements with financial institutions (affinity partners)
which allow it to market its mortgage acceleration services to the
institutions' customers. These agreements, with remaining lives of up to five
years, expire at various dates and upon expiration of the initial term,
generally continue unless cancelled by either party upon 90 days written
notice. The Company provides the mortgage acceleration service to the customers
who subscribe until such time the customer terminates the service or their
underlying mortgage is paid in full.
Initial public offering
In February 2000, the Company's Board of Directors authorized Paymap to file
a registration statement with the Securities and Exchange Commission for the
purpose of an initial public offering of the Company's common stock. Concurrent
with the offering, all of the Company's outstanding preferred stock and Class A
and Class B common stock will be converted to one class of common stock
resulting in cancellation and retirement of all such outstanding stock.
2. Summary of Significant Accounting Policies
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management of Paymap to make certain estimates
and assumptions that affect the reported amounts of certain assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of certain revenues and
certain expenses during the reporting period. Actual results could differ from
those estimates.
Risks and uncertainties
The Company is dependent upon its affinity partners for the distribution of
mortgage acceleration products. In the event the contracts are not renewed, the
Company's ability to generate new mortgage acceleration customers and maintain
its active customer base would be adversely affected. The two largest affinity
partner relationships expire in 2000. Management believes that these affinity
partner relationships will be extended or renewed in the normal course of
business.
F-7
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company is exposed to credit risk in connection with the processing of
transactions as a result of nonperformance by other parties. Paymap utilizes
analysis and other controls to manage this risk. The Company also maintains a
reserve for advances made on behalf of customers to the mortgage servicer. The
Company's reserve for losses related to these advances totalled $627,000 and
$528,000 as of December 31, 1998 and 1999, respectively. This reserve is
included in other liabilities.
Revenue recognition
Revenues are earned from enrollment and transaction processing fees. The
Company provides its products under different pricing options. Certain of these
pricing options require a customer to pay an enrollment fee either at inception
of the contract or over a three to six month period after inception. Following
enrollment, an ongoing transaction fee is collected as the services are
performed. Other pricing options do not require an enrollment fee, but the
Company collects a higher transaction fee.
Enrollment fees are deferred and recognized over the expected service period
of eight years. The expected service period considers factors such as the type
of mortgage acceleration product and customer attrition experience. The Company
recognizes transaction fees as the services are performed.
Deferred customer acquisition costs
The Company defers qualifying costs incurred in connection with the
acquisition of customers. Costs subject to deferral include direct response
advertising and other direct incremental costs associated with the enrollment
of customers.
Under the provisions of Statement of Position (SOP 93-7), Reporting on
Advertising Costs, the Company defers third party costs such as printing and
postage as well as telemarketing costs for employees directly associated with
customer solicitations. In addition, direct incremental costs are also subject
to deferral including amounts due to affinity partners for successful customer
acquisition and direct costs of customer set up.
Deferred customer acquisition costs are amortized over the expected period of
service, computed using the ratio that current period revenues bear to the
total of current and expected period revenues by product. The service period
varies by product and ranges from five to eight years. Products for which the
Company receives an enrollment fee at inception of the contract or over a three
to six month period after inception have an expected life of eight years.
Products without an enrollment fee have an expected life of five years. The
amortization of deferred customer acquisition costs considers such factors as
the type of mortgage acceleration product and historical customer attrition
experience. These factors are regularly reviewed and updated using the most
current available information.
The Company evaluates deferred acquisition costs for impairment by comparing
the carrying amount of the assets by product, on cost pool basis, to the
probable future net revenues. To the extent future probable net revenues are
less than amounts capitalized, the Company will write off the excess and report
such amount as additional amortization expense for the current period.
Furniture and equipment
Furniture and equipment are recorded at cost. Depreciation and amortization
is computed over the estimated useful lives of assets using the straight-line
method. Depreciation periods are three to five years for computers, computer
software and equipment and seven years for furniture and fixtures. Leasehold
improvements are amortized over the life of the lease. Maintenance and repairs
are charged to expense as
F-8
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
incurred and improvements and betterments are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss reflected in operations in the
period realized.
Under the provisions of Statement of Position (SOP 98-1), Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use, Paymap
capitalizes certain costs related to the software developed for internal use
purposes and for which it has no substantive plan to market externally.
Capitalized costs are amortized on a straight-line basis over the estimated
useful life of the asset at such time the software is ready for its intended
use, generally three to five years. The Company adopted SOP 98-1 effective
January 1, 1998. As a result, the Company capitalized $254,000 and $1,617,000
for the years ended 1998 and 1999, respectively.
Reserve for customer refunds
Customers paying an upfront enrollment fee have the right to terminate the
service during the first three months and receive a full refund. Paymap
maintains a reserve for estimated refunds based on management's assessment of
various factors, including past experience. The establishment of the reserve is
based upon estimates and the ultimate refunds may vary from the Company's
experience.
Due to affinity partners
The Company shares a portion of any customer enrollment fee and monthly
transaction processing fee with its financial institution affinity partners.
Income taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The provision for income tax expense represents taxes
payable for the current period, plus the net change in deferred tax assets and
liabilities.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under the
APB No. 25, compensation expense is calculated as the excess of the estimated
fair value of Paymap's stock over the exercise price on the date of the grant.
Fair value of financial instruments
The carrying amount of cash, accounts receivable and payable and accrued
liabilities approximates their fair values based on the short-term nature of
these instruments.
Net income per share
The Company computes net income per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic net income per
share is computed by dividing the net income
F-9
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed by dividing the net income 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 exercise of stock options and warrants and upon conversion of
Series A, B, and C convertible preferred stock.
The following table sets forth the computation of basic and diluted net
income per share for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
(In thousands,
except per share
data)
1997 1998 1999
<S> <C> <C> <C>
Numerator:
Net income............................................. $ 164 $ 430 $1,313
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption value....... (40) -- --
Accretion adjustment of Series B mandatorily redeemable
convertible preferred stock to redemption value....... -- 56 --
------ ------ ------
Net income attributable to common shareholders........... $ 124 $ 486 $1,313
====== ====== ======
Denominator:
Weighted average common shares--
Basic................................................ 1,885 3,510 3,711
====== ====== ======
Diluted.............................................. 10,505 13,735 13,755
====== ====== ======
Net income per share:
Basic................................................ $ 0.07 $ 0.14 $ 0.35
====== ====== ======
Diluted.............................................. $ 0.01 $ 0.04 $ 0.10
====== ====== ======
</TABLE>
Proforma net income per share (unaudited)
Pro forma net income per common share for the year end December 31, 1999 is
computed using the weighted average number of shares of common stock
outstanding, including the pro forma effects of the automatic conversion of the
Company's Class A and Class B common stock and Series A, Series B and Series C
preferred stock into shares of the Company's common stock at a 5.42-for-1
conversion ratio effective upon the closing of the Company's initial public
offering as if such conversion occurred on January 1, 1999, or at the date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute pro forma basic and
diluted net income per share for the year ended December 31, 1999.
Proforma stockholders' equity (unaudited)
The unaudited pro forma stockholders' equity reflects the subsequent
conversion of Class B common stock and the Series A, Series B and Series C
preferred stock into common stock, more fully described above, as if such
conversion had occurred as of December 31, 1999.
F-10
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impact of recently issued accounting standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Paymap, to date, has not engaged in derivative and hedging
activities. Paymap will adopt SFAS 133 as required on January 1, 2001.
Management does not believe it will have a material impact on financial
position or results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 Reporting on the Costs of Start-Up Activities (SOP
98-5). This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-5 effective January 1, 1999. The SOP did not have a material
impact on the Company's financial position or results of operations.
3. Concentrations of Credit Risk
All cash deposits are held by four financial institutions and exceed existing
federal deposit insurance coverage limits at each institution.
4. Significant Customers and Geographic Concentrations
Approximately 39%, 30% and 30% of active accounts during the years ended
December 31, 1997, 1998, and 1999, respectively, resulted from the Company's
largest affinity partner relationship. The Company's next largest affinity
partner relationship represented 16%, 17% and 18% of active accounts for years
ended December 31, 1997, 1998, and 1999, respectively. In addition, a
substantial portion of the Company's business is generated with customers in
California, Florida, Texas and Illinois. The percentage of total customer
relationships attributable to those states are 13%, 7%, 6% and 4%,
respectively. No other state represents more than 3% of total customer
relationships.
5. Deferred Customer Acquisition Costs
The following summarizes deferred customer acquisition costs as of and for
the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------- --- ---
1997 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance....... $ 4,558 $14,113 $ 27,685
Eligible deferred
acquisition costs...... 12,799 21,670 22,906
Amortization expense.... (3,244) (8,098) (12,384)
------- ------- --------
Ending balance.......... $14,113 $27,685 $ 38,207
======= ======= ========
</TABLE>
Deferred customer acquisition costs asset is affected by qualifying costs
deferred in the current period and amortization of previously deferred costs in
such period. In periods where there is growth in new business and customer
solicitations (and therefore customer acquisition costs), the asset will
increase because the amount of acquisition costs being deferred exceeds
amortization expense.
F-11
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Furniture and Equipment
Furniture and equipment at December 31, 1998 and 1999 are recorded at cost,
net of accumulated depreciation, and consist of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------
1998 1999
(In thousands)
<S> <C> <C>
Capitalized internal software.................................. $ 254 $ 1,617
Purchased software............................................. 366 551
Computers and equipment........................................ 997 1,645
Furniture and fixtures......................................... 325 397
Leasehold improvements......................................... 266 266
------ -------
2,208 4,476
Less accumulated depreciation................................ (883) (1,242)
------ -------
Furniture and equipment, net................................... $1,325 $ 3,234
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
$183,000, $267,000 and $359,000, respectively.
7. Reserve for Customer Refunds
The Company maintains a reserve for customer refunds in the event that
customers elect to terminate the service within the refund period, which is
generally 30 to 90 days. The following summarizes the activity in the refund
reserve:
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Beginning balance.................................... $ 19 $ 659 $ 445
Provision for estimated refunds...................... 2,374 2,415 4,740
Refunds paid......................................... (1,734) (2,629) (4,022)
------- ------- -------
Ending balance....................................... $ 659 $ 445 $ 1,163
======= ======= =======
</TABLE>
8. Deferred Revenue
The Company recognizes revenue over the expected period of service. The
following summarizes deferred revenue for the years ended December 31, 1997,
1998 and 1999, respectively:
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Beginning balance................................... $ 4,669 $15,402 $ 28,158
Revenue deferred.................................... 13,978 20,689 24,796
Revenue recognized in earnings, net................. (3,245) (7,933) (11,933)
------- ------- --------
Ending balance...................................... $15,402 $28,158 $ 41,021
======= ======= ========
</TABLE>
9. Line of Credit
The Company has a revolving line of credit of up to $4.0 million for working
capital requirements that can be borrowed against until August 2000. Beginning
September 2000, the Company shall repay the then
F-12
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
outstanding balance under this line in 24 equal monthly payments. Borrowings
under the line of credit bear interest at 11%. The line of credit agreement
requires the Company to comply with certain financial covenants related to
minimum net worth, a ratio of debt to net worth, and coverage of fixed charges.
The Company was in compliance with all debt covenants as of the balance sheet
date.
As of December 31, 1999, the Company had $1,450,000, outstanding under this
line of credit. As of December 31, 1999, $2,550,000 was available for future
borrowings. Based upon amounts outstanding at December 31, 1999, required
principal payments are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 241,667
2001.............................................................. 725,000
2002.............................................................. 483,333
----------
$1,450,000
==========
</TABLE>
10. Income Taxes
The components of the provision for federal and state income taxes for the
years ended December 31, 1997, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
-------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Current:
Federal................................................ $ -- $ 9 $ 2,274
State.................................................. -- 23 648
------- ---- -------
Current taxes.......................................... -- 32 2,922
Deferred:
Federal................................................ (386) 457 (916)
State.................................................. 17 (34) (134)
Change in valuation allowance.......................... (1,070) -- --
------- ---- -------
Net change in deferred................................. (1,439) 423 (1,050)
------- ---- -------
Total (benefit) provision........................... $(1,439) $455 $ 1,872
======= ==== =======
</TABLE>
The following analysis reconciles the Federal statutory income tax rate to
the effective income tax rate for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
<S> <C> <C> <C>
Federal statutory rate......................... 35 % 35% 35%
State income tax, net of federal benefit....... 6 8 10
Deferred compensation.......................... 0 6 14
Other.......................................... (2) 2 --
Change in valuation allowance.................. (152) -- --
-------- ------- -------
Total (benefit) expense.................... (113)% 51% 59%
======== ======= =======
</TABLE>
The non-deductibility of deferred compensation expense is due to the
amortization of unearned stock compensation which results in a substantially
higher tax provision than the statutory rate.
F-13
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the estimated future tax effect of temporary
differences between assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations. The valuation allowances
established in prior years relating to the Company's deferred tax assets was
fully reversed in 1997 since management believed it was more likely than not
that the deferred tax assets would be fully realized. The components of
deferred income tax assets, net of liabilities, as of December 31, 1997, 1998
and 1999, are as follows:
<TABLE>
<CAPTION>
Deferred Tax
Assets/(Liabilities)
--------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Net operating loss carryforward.................. $ 477 $ 201 $ --
Accrual to cash.................................. 178 134 89
Deferred customer acquisition costs.............. (4,799) (9,413) (12,990)
Deferred revenue................................. 5,237 9,574 13,947
State taxes...................................... (97) (63) 71
Reserve for customer refunds..................... 255 182 427
Other............................................ 188 401 522
------- ------- --------
Total............................................ $ 1,439 $ 1,016 $ 2,066
======= ======= ========
</TABLE>
11. Mandatorily Redeemable Securities
Until December of 1999, mandatorily redeemable convertible preferred stock
consisted of Series B preferred stock. In December 1999, the holders of the
Series B preferred stock and the Company waived their rights of redemption.
Accordingly, the Series B preferred stock was reclassified to stockholders
equity at that time. Prior to December 1999, it was convertible at the option
of the holder, at any time, at a rate of one share of Class A common stock for
each share of Series B preferred stock. These shares were redeemable at the
option of either the holder or the Company at any time after June 30, 1997 at a
redemption price of $1.20 per share. Each share of Series B preferred stock was
entitled to an annual dividend of $0.06667 per share. The Series B preferred
stock was issued in December 1994 at $1.20 per share and has preference over
the Series A preferred stock and the Class A and Class B common stock. In
addition, in the event of a registered public offering of Class A common stock,
the Series B preferred stock will automatically convert to shares of Class A
common stock at a rate of one share of preferred stock for each share of Class
A common stock. Holders of Series B preferred stock are entitled to vote
together with holders of Series A and C preferred stock and Class A common
stock.
The following summarizes the activity regarding the Series B Preferred Stock:
<TABLE>
<CAPTION>
As of
December 31,
----------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Beginning balance..................................... $597 $637 $ 500
Dividend accretion.................................... 40 -- --
Stock dividend........................................ -- (81) --
Effect of change in dividend rate..................... -- (56) --
Reclassification to stockholders' equity.............. -- -- (500)
---- ---- -----
Ending balance........................................ $637 $500 $ --
==== ==== =====
</TABLE>
F-14
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1998, the Certificate of Incorporation was amended to make these shares
noncumulative and changed the dividend rate from $0.096 to $0.06667 per share.
In addition, the amendment provided the holders with the option to receive such
dividends in cash or common stock. This amendment resulted in an accrued
dividend reversal of $56,402 during 1998.
12. Stockholders' Equity
Concurrent with the Company's initial public offering, all of the Company's
outstanding preferred stock and Class A and B common stock will be converted to
one class of common stock resulting in cancellation and retirement of all such
outstanding preferred stock. Stockholders' equity consists of Series A, Series
B and Series C preferred stock and Class A and Class B common stock. All voting
rights are vested in the Series A, Series B and Series C preferred stock and
the Class A common stock. The Class B common stock has no voting rights.
Series A preferred stock
The Series A preferred stock was issued at $1.00 per share, is noncumulative
and possesses preferences to both classes of the common stock as to dividends
and liquidation. It is convertible at the option of the holder at a rate of one
share of Class A common stock for each share of Series A preferred stock. Also,
the Series A preferred stock shall automatically convert into shares of Class A
common stock upon a registered public offering at a rate of one share of
Preferred Stock for each share of Class A common stock. Subject to the
liquidation preferences of the Series B and Series C preferred stock, each
share of Series A preferred stock shall be entitled to receive, when and as
declared by the Board of Directors, a dividend equal to $0.10 per share. At
December 31, 1999 and 1998, no dividends had been declared for the Series A
preferred stock.
Series C preferred stock
The Series C preferred stock was issued at $4.00 per share, is noncumulative
and possesses preferences to both classes of the common stock and the Series A
preferred stock as to liquidation. It is convertible at the option of the
holder at a rate of one share of Class A common stock for each share of Series
C preferred stock. Also, in the event of a registered public offering of the
Company's Class A common stock, each share of Series C preferred stock shall
automatically convert into one share of Class A common stock. The Series C is
not entitled to any specific dividends.
Class B common stock
The Company's Class B common stock has no voting rights and shall convert
into fully paid and nonassessable shares of Class A common stock at a rate of
one share of Class A common stock for each share of Class B common stock
converted upon the closing of a registered public offering, the sale or merger
of the assets of the Company, the transfer of outstanding shares of the Class B
common stock by its holder to its shareholders or by a resolution of at least
66.7 percent of the Board of Directors of the Company.
Directors' shares
During 1998 and 1999, 32,520 and 16,260 shares were granted to directors of
Paymap as compensation. As of December 31, 1999, total shares granted to
directors were 173,440.
F-15
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Warrants
The Company has issued warrants to third parties to purchase 430,348 shares
of Class A or Class B common stock for $0.01 per share.
Stockholder note receivable
On September 21, 1999, the Company sold 341,330 shares of Class A common
stock to an executive officer at a purchase price of $0.18 per share in
exchange for a 10-year promissory note bearing interest at 5.7% per annum. In
addition, the Company has full recourse against the borrower. These shares are
subject to repurchase by the Company at $0.18, which right of repurchase lapses
over a four year period, 25% on the first anniversary date and equally
thereafter over the remaining three years.
13. Stock Options
In June 1995, the Company approved and adopted the 1995 Stock Option Plan
(the 1995 Plan) that provides for the grant of nonqualified or incentive stock
options, as defined under current tax laws, of the Company's common stock to
eligible employees and directors at the discretion of the Board of Directors.
Options issued under the 1995 Plan may be granted to employees and nonemployee
directors. The exercise price of each option must equal the fair market price
of the Company's stock on the date of grant. The term of an option may not
exceed 10 years and each option vests over a four year period with 25% vesting
on December 31 in the year of grant.
Effective May 30, 1997, the Board of Directors of the Company approved an
amendment to the 1995 Plan to increase the pool of Class A common options
available for award to employees and others by 542,000 shares, from 813,000
shares to 1,335,000 shares. In September of 1999, the Board authorized an
additional 271,000 of shares to 1,626,000 shares.
At December 31, 1999, the total authorized shares issuable under the 1995
Plan was 1,626,000 shares and the number of shares available for future grants
was approximately 271,000 shares.
F-16
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes the activity under the 1995 Plan for the years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Options
Outstanding
----------------
Exercise Weighted
Number Price Average
of Per Aggregate Exercise
Shares Share Price Price
(In thousands,
except per share amounts)
<S> <C> <C> <C> <C>
Balance at December 31, 1996............. 791 $0.18 $146 $0.18
Granted................................ -- 0.18 -- 0.18
Exercised.............................. (11) 0.18 (2) 0.18
Forfeited.............................. (21) 0.18 (4) 0.18
----- ----- ---- -----
Balance at December 31, 1997............. 759 0.18 140 0.18
Granted................................ 293 0.18 54 0.18
Exercised.............................. (27) 0.18 (5) 0.18
Forfeited.............................. (28) 0.18 (5) 0.18
----- ----- ---- -----
Balance at December 31, 1998............. 997 0.18 184 0.18
Granted................................ 260 0.18 48 0.18
Exercised.............................. (33) 0.18 (6) 0.18
Forfeited.............................. (4) 0.18 (1) 0.18
----- ----- ---- -----
Balance at December 31, 1999............. 1,220 $0.18 $225 $0.18
===== ===== ==== =====
</TABLE>
The following table summarizes information with respect to stock options
outstanding:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Contractual
Exercise Number Life Weighted Average Number
Year Ended Price Outstanding (Years) Exercise Price Exercisable
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1999.................... $0.18 1,220 6.60 $0.18 894
1998.................... 0.18 997 7.47 0.18 829
1997.................... 0.18 759 8.20 0.18 667
</TABLE>
The following information concerning the Company's 1995 Plan is provided in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation. As
permitted by SFAS No. 123, the Company accounts for its plans in accordance
with APB No. 25 and related interpretations. The fair value of each stock
option is estimated on the date of grant using the minimum value option-pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
As of
December 31,
----------------
1997 1998 1999
<S> <C> <C> <C>
Volatility.................................................... 0.0% 0.0% 0.0%
Expected life (in years)...................................... 5.0 4.5 4.5
Risk-free interest............................................ 5.4% 5.1% 5.2%
Expected dividend rate........................................ -- -- --
</TABLE>
As a result of the above assumptions, the weighted average fair value of
options granted for the years ended December 31, 1997, 1998 and 1999 was $0.04,
$0.04 and $12.24, respectively.
F-17
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Had compensation expense for the 1995 Plan been determined based on the fair
value at the grant date for options granted in 1997, 1998 and 1999 consistent
with provisions of SFAS 123, the pro forma net income would have been reported
as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
(In thousands,
except per share
amounts)
<S> <C> <C> <C>
Net income attributable to common stockholders--as
reported.................................................. $ 124 $ 486 $1,313
Net income attributable to common stockholders--pro forma.. 124 479 1,305
Basic net income per share attributable to common
stockholders--as reported................................. $0.07 $0.14 $ 0.35
Basic net income per share attributable to common
stockholders--pro forma................................... 0.07 0.14 0.35
Diluted net income per share attributable to common
stockholders--as reported................................. $0.01 $0.04 $ 0.10
Diluted net income per share attributable to common
stockholders--pro forma................................... 0.01 0.04 0.10
</TABLE>
14. Unearned Compensation
Options and stock granted during the years ended December 31, 1998 and 1999
resulted in unearned compensation of $192,236 and $8,102,947, respectively. The
amounts recorded represent the difference between the exercise price or
issuance price and the deemed fair value of the Company's common stock on the
date shares issued or options granted. The amortization of unearned
compensation is being charged to operations over the vesting period of the
options or shares. For the year ended December 31, 1998, the unearned
compensation reflected at date of grant for shares issued totaling $192,236 was
fully amortized as the underlying shares were vested. For the year ended
December 31, 1999, the amortization of unearned compensation was $1,452,834.
15. Cost of Acquisitions, Servicing and Support
The following table details the cost of acquisition, servicing and support
for the years ended December 31, 1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Amortization of customer acquisition costs.............. $3,244 $ 8,098 $12,384
Affinity partner transaction fees....................... 1,223 2,054 2,976
Direct marketing........................................ 354 434 476
Telemarketing........................................... 393 807 759
Enrollment processing................................... 441 665 460
Customer service........................................ 1,776 4,057 3,295
------ ------- -------
Total cost of revenues................................ $7,431 $16,115 $20,350
</TABLE>
F-18
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
16. Selling, General and Administrative Expenses
The following table details the cost of selling, general and administrative
expenses for the years ended December 31, 1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Institutional sales and marketing.............. $ 480 $ 493 $ 576
Technology..................................... 831 933 2,453
Finance and accounting......................... 285 561 1,098
Corporate administration....................... 1,069 1,489 2,620
------ ------ ------
Total selling, general and administrative
expense..................................... $2,665 $3,476 $6,747
====== ====== ======
</TABLE>
17. Operating Lease Commitments
In 1997, the Company entered into an operating lease for approximately 23,000
square feet of office space located in San Francisco, California, that houses
its operations. The term of the lease is five years, expiring on September 30,
2002. The minimum future obligations under the lease are as follows:
<TABLE>
<S> <C>
2000............................................................. $ 724,248
2001............................................................. 724,248
2002............................................................. 543,186
----------
$1,991,682
==========
</TABLE>
Rent expense for office space was $367,627, $724,248 and $724,248 for the
years ended December 31, 1997, 1998 and 1999, respectively.
18. Commitments and Contingencies
In February 2000, the Company commenced arbitration of a dispute with the
developer of software who claims entitlement to additional compensation. The
Company is also seeking to obtain the application source code for the new
software which was being developed by such software developer in legal
proceedings against such software developer and its principal subcontractor.
The software developer claims entitlement to additional compensation.
Management does not believe that these matters are material to financial
position and results of operations.
The Company entered into a tax indemnity agreement with a major shareholder
and an executive officer in connection with the exercise of options to purchase
217,647 shares of Class A common stock on March 27, 1998. Paymap's commitment
is limited to the net amount by which federal, state and local taxes of the
Company are actually reduced as a result of increased compensation deductions
and any other amounts paid pursuant to the indemnity.
In the normal course of business, the Company at times is subject to pending
and threatened legal actions and proceedings. After reviewing pending and
threatened actions with counsel, management believes that the outcome of such
actions is not expected to have a material adverse effect on financial position
or results of operations.
19. Customer Custodial Accounts
Paymap maintains custodial accounts for customer loan payments collected
prior to the remittance of such payments by the Company to the respective loan
servicers. To the extent the funds are not available in the
F-19
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
custodial accounts to remit such payments to the loan servicer, the Company
advances the funds to settle these transactions. The balance in the custodial
accounts at December 31, 1998 and 1999 was approximately $222 million and $187
million, respectively. These funds are not assets of the Company and,
accordingly, have been excluded from these financial statements.
20. Subsequent Events
2000 Stock Option Plan
On February 10, 2000, the Board of Directors approved the 2000 Stock Option
Plan. This plan provides for the grant of incentive stock options to the
Company's employees and nonstatutory stock options to the Company's employees,
directors and consultants. A total of 1,283,500 shares of common stock were
reserved for issuance under this plan.
2000 Employee Stock Purchase Plan
On February 10, 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan. This plan provides the Company's employees with an opportunity
to purchase the Company's common stock through accumulated payroll deductions.
A total of 275,000 shares of common stock has been reserved for issuance under
the purchase plan.
2000 Nonemployee Directors Stock Option Plan
The 2000 Nonemployee Directors Stock Option Plan was adopted by the Board of
Directors effective February 10, 2000. Each non-employee director who becomes a
director after the 2000 Annual Stockholders Meeting will be automatically
granted a nonstatutory stock option to purchase 16,500 shares of common stock,
and at each annual stockholders meeting beginning with the 2000 Annual
Stockholders Meeting, will automatically be granted a nonstatutory stock option
to purchase 5,500 shares of common stock. The exercise price of options under
the director plan will be equal to the fair market value of the common stock on
the date of grant. The maximum terms of the options granted under the director
plan is ten years. Shares underlying options granted to a director exercisable
at the rate determined by the plan administrator. Shares underlying options
granted to a director upon joining the Company's board are subject to right of
repurchase in the Company's favor, which right of repurchase lapses with
respect to 25% of the shares one year after the date of grant, and at the rate
25% of the shares at the end of each year thereafter. Each subsequent grant is
subject to right of repurchase for one year after the date of grant.
401(k) Plan
The Company's Retirement Savings and Investment Plan covering its full-time
employees located in the United States is effective February 1, 2000. This plan
is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended, so that contributions to this plan by employees, and the
investment earnings thereon, are not taxable to employees until withdrawn.
Pursuant to this plan, employees may elect to reduce their current compensation
by up to the lesser of 20% of their annual compensation or the statutory
prescribed annual limit ($10,500 in 2000) and to have the amount of such
reduction contributed to his plan. The Company intends to make additional
matching contributions equal to 50% of the first 4% contributed by each plan
participant.
F-20
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Class A Common Stock
On February 10, 2000, the Board of Directors approved an increase in the
number of authorized shares to 50,000,000.
21. Stock Split (Unaudited)
On February 10, 2000 the Board of Directors approved a 5.42-for-1 Class A
common stock split to be effective prior to the effective date of the Company's
planned initial public offering. The Company's $0.01 par value Class A common
stock will be split and then reclassified as common stock with a par value of
$0.01 per share. All share and per share information has been retroactively
restated to reflect the effect of this stock split and the reclassification of
the Company's Class A common stock to common stock.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
PAYMAP INC.
Intelligent Payment Automation
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
U.S. Bancorp Piper Jaffray
DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representation as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Paymap have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriters
in this offering or when selling previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
Part II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by Paymap, other than
the underwriting discounts and commissions payable by Paymap, in connection
with the sale of the common stock being registered. All amounts shown are
estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount To
Be Paid
----------
<S> <C>
SEC Registration fee.......................................... $ 15,180
NASD filing fee............................................... 6,250
Nasdaq National Market listing fee............................ 17,500
Blue sky qualification fees and expenses...................... 5,000
Printing and engraving expenses............................... 150,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 500,000
Transfer agent and registrar fees............................. 5,000
Miscellaneous expenses........................................ 1,070
----------
Total..................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. Our amended and restated bylaws provide
that we will indemnify our directors, officers, employees and agents to the
full extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, we intend to enter into separate indemnification
agreements with our directors which would require us, among other things, to
indemnify them against certain liabilities which may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The indemnification provisions in our bylaws and the
indemnification agreement to be entered into between us and each of our
directors and oficers may be sufficiently broad to permit indemnification of
our officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act. We also intend to maintain director
and officer liability insurance, if available on reasonable terms, to insure
our directors and officers against the cost of defense, settlement or payment
of a judgment under certain circumstances. In addition, the underwriting
agreement filed as Exhibit 1.1 to this Registration Statement provides for
indemnification by the underwriters of Paymap and our officers and directors
for certain liabilities arising under the Securities Act of 1933, or otherwise.
Item 15. Recent Sales of Unregistered Securities.
Within the past three years, we have issued and sold the following
securities:
1. In March 1998, we issued 443,958 shares of our Class A Common Stock as
dividends to nine holders of our Series B Preferred Stock. At the
stockholders election, the dividends were paid in shares of our Class A
Common Stock at a $0.18 per share.
2. In March 1998, we issued 242,307 shares of our Class B Common Stock to
Grant Financial Group, Inc. pursuant to the Asset Purchase Agreement dated
April 30, 1993.
3. In March 1998, we issued 1,179,647 shares of our Class A Common Stock
to Mr. Decker upon exercise of his options to purchase 1,179,647 shares of
our Class A Common Stock at an exercise price of $0.018 per share.
II-1
<PAGE>
4. In April 1999, we issued 49,273 shares of our Class A Common Stock to
Townsend Y. Lathrop upon exercise of a warrant to purchase 49,273 shares of
our Class A Common Stock.
5. In September 1999, we issued 341,330 shares of our common stock to Mr.
Herz at a purchase price of $0.18 per share. These shares are subject to
right of repurchase which lapses over a four-year period with respect to
25% of the underlying shares on the first anniversary of the purchase date
and in equal monthly installments over the following three years.
6. To date, we issued an aggregate of 173,440 shares of our Class A
Common Stock to Messrs. Cardone, Brag and Turner, our non-employee
directors, as compensation for attending our board meetings since 1995 to
1999.
7. As of December 31, 1999, we have issued, and there remain outstanding,
under our 1995 Stock Option Plan, options to purchase an aggregate of
1,217,749 shares of common stock with an exercise price of $0.18 per share.
As of December 31, 1999, options to purchase 101,332 shares of common stock
have been exercised for aggregate consideration of $18,696.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances of securities described in Items 15 [1], 15 [2], 15 [4] and 15
[5] were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act as transactions by an issuer not
involving a public offering. The issuances of securities described in Items 15
[3], 15 [6], and 15[7] were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transactions. All recipients either received adequate information about us or
had access, through employment or other relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules.
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation, as amended and
currently in effect
3.2 Amended and Restated Certificate of Incorporation, to be effective
upon closing of this offering
3.3 Bylaws, as currently in effect
3.4 Amended and Restated Bylaws, to be effective upon closing of this
offering
*4.1 Specimen Common Stock Certificate
*5.1 Opinion of Heller Ehrman White & McAuliffe LLP
10.1 1995 Stock Option Plan, as amended
10.2 2000 Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 2000 Nonemployee Directors Stock Option Plan
10.5 Form of Director and Executive Officer Indemnification Agreement
10.6 Lease between Three Embarcadero Center Venue and the Company dated
June 6, 1997
10.7 Credit Agreement between Wachovia Bank, N.A. and the Company dated
August 25, 1997, as amended
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.8 Warrant Agreement between Wachovia Bank, N.A. and the Company dated
August 25, 1997, as amended
10.9 Stockholders Agreement dated as of April 30, 1993 by and among the
Company and its stockholders
10.10 Stock Purchase Agreement between Stephen M. Herz and the Company dated
September 21, 1999
10.11 Tax Indemnity Agreement with John P. Decker dated July 1, 1998
11.1 Statement of computation of net loss per share
23.1 Consent of PricewaterhouseCoopers LLP, independent auditors
*23.2 Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit
5.1)
24.1 Power of Attorney (included on page II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
*To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Francisco, California, on the
25th day of February 2000.
Paymap Inc.
By: /s/ John P. Decker
__________________________________
John P. Decker,
President and Chief Executive
Officer
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John P. Decker and Stephen M. Herz, and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John P. Decker President and Chief February 25, 2000
______________________________________ Executive Officer
John P. Decker (Principal Executive and
Financial Officer)
/s/ John A. Charckon Controller (Principal February 25, 2000
______________________________________ Accounting Officer)
John A. Charckon
/s/ Denis A. Cardone Chairman of the Board February 25, 2000
______________________________________
Denis A. Cardone
/s/ Daniel K. Turner III Director February 25, 2000
______________________________________
Daniel K. Turner III
/s/ Anders Brag Director February 25, 2000
______________________________________
Anders Brag
/s/ Stephen M. Herz Director February 25, 2000
______________________________________
Stephen M. Herz
</TABLE>
II-4
<PAGE>
EXHIBIT 3.1(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
AEGIS MORTGAGE ACCELERATION CORPORATION
Aegis Mortgage Acceleration Corporation, a corporation organized under the
laws of the State of Delaware, hereby certifies as follows:
First: That the name of this corporation is Aegis Mortgage Acceleration
Corporation.
Second: That Aegis Mortgage Acceleration Corporation was originally
incorporated under the name Aegis Financial Corporation, and its certificate of
incorporation was originally filed with the Secretary of State of Delaware on
April 22, 1993.
Third: That a Certificate of Amendment changing this corporation's name
to Aegis Mortgage Acceleration Corporation was filed with the Secretary of State
of Delaware on June 8, 1993.
Fourth: That this Restated Certificate of Incorporation, which restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation, was duly adopted in accordance with Sections
241 and 245 of the General Corporation Law of the State of Delaware.
<PAGE>
Fifth: That the text of the Certificate of Incorporation of this
corporation, as heretofore amended, restated or supplemented, is hereby further
amended and restated by this certificate to read in its entirety as follows:
FIRST. The name of the corporation is Aegis Mortgage Acceleration
Corporation.
SECOND. The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of its
registered agent at such address is Corporation Service Company, County of Kent.
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. This corporation is authorized to issue three classes of shares,
which shall be known as Preferred Stock, Class A Common Stock and Class B Common
Stock. The total number of shares of stock of all classes that this corporation
is authorized to issue is 6,690,000. Each share of each class of stock of this
corporation shall have a par value of $0.01. The Preferred Stock shall be
subdivided into three series, which shall be known as Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock. The total number of
shares of Series A Preferred Stock which this corporation is authorized to issue
is 780,000. The total number of shares of Series B Preferred Stock which this
corporation is authorized to issue is 750,000. The total number of shares of
Series C Preferred Stock which this corporation is authorized to issue is
320,000. The total number of shares of Class A Common Stock which this
corporation is authorized to issue is 4,520,000. The total number of shares of
Class B Common Stock which this corporation is authorized to issue is 320,000.
(The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall be collectively referred to as the "Preferred Stock," and the Class
A Common Stock and Class B Common Stock shall be collectively referred to as the
"Common Stock.")
FIFTH. The rights, preferences, privileges and restrictions granted to or
imposed upon the Class A Common Stock and Class B Common Stock and the
respective holders thereof are as follows:
A. Dividend Rights. Subject to the superior rights of the Preferred
---------------
Stock, dividends may be declared by the Board of Directors and paid on
outstanding Class A Common Stock and Class B Common Stock out of any funds
legally available therefor. For dividend purposes, the holders of Class B
Common Stock shall receive the same dividend as if they had converted their
shares into Class A Common Stock.
B. Liquidation. Upon the voluntary or involuntary liquidation, winding up
-----------
or dissolution of the corporation, the remaining assets of the corporation,
subject to the
2
<PAGE>
superior rights of the Preferred Stock, shall be paid ratably to the holders of
the Class A Common Stock and Class B Common Stock, treating the Class B Common
Stock as if such shares had been converted into Class A Common Stock immediately
prior to the liquidation.
C. Voting Rights. Except as otherwise expressly provided by law, the
-------------
voting rights of the Class B Common Stock shall be as follows:
(1) The corporation shall not, without the consent (given by vote in
person or by proxy at a meeting called for that purpose, or by written consent)
of the holders of at least a majority of the outstanding Class B Common Stock,
voting separately and as a class, alter or change the powers, provisions or
special rights of Class B Common Stock.
(2) Except as specifically set forth in paragraph (1) of this Section
C or as otherwise required by law, the holders of Class B Common Stock shall
have no voting power. No holder of Class B Common Stock shall vote upon or
otherwise participate in any actions of any nature taken by the corporation or
the stockholders thereof or be entitled to receive notice of any meeting of
stockholders and the entire voting power for the election of directors and for
all other purposes shall be vested exclusively in the holders of Class A Common
Stock. Each share of Class A Common Stock shall entitle the holder thereof to
one vote.
D. Automatic Conversion. The Class B Common Stock shall convert into
--------------------
fully paid and nonassessable shares of Class A Common Stock of the corporation
as follows:
(1) The outstanding shares of Class B Common Stock shall automatically
convert into shares of Class A Common Stock at a rate of one share of Class A
Common Stock for each share of Class B Common Stock converted upon the first to
occur of the following: (a) the closing of this corporation's sale of its Class
A Common Stock to the public in an offering registered under the Securities Act
of 1933, as amended, (b) the closing of a merger or sale of assets of the
corporation in which the corporation is not the "continuing corporation" (as
defined below), (c) the outstanding shares of Class B Common Stock are
transferred by Grant Financial Group, Inc., a California corporation, to its
shareholders or (d) a resolution is passed by a vote of at least two-thirds of
the Directors of this corporation electing to have all outstanding shares of
Class B Common Stock automatically convert into shares of Class A Common Stock.
The corporation shall be the "continuing corporation" if and only if the
corporation, or its stockholders immediately before such transaction (the "Pre
merger Stockholders"), shall own, immediately after and as a result of the
transaction, equity securities, other than warrants, options or similar rights
to subscribe to or purchase equity securities of the surviving or acquiring
corporation or such corporation's parent corporation, possessing more than 50%
of the voting power of the surviving or acquiring corporation or its parent
corporation. Any securities of the surviving or acquiring corporation owned by
the Pre
3
<PAGE>
merger Stockholders immediately before such transaction shall not be counted
as part of the securities owned by such Pre merger Stockholders immediately
after such transaction for purposes of determining whether the corporation is
the "continuing corporation." For purposes of this Section, voting power of a
corporation shall be calculated by assuming the conversion of all then
outstanding convertible equity securities (including those convertible at some
future date), but not assuming the exercise of any warrants, options or other
rights to subscribe to or purchase voting shares.
(2) Before any holder of Class B Common Stock shall be entitled to receive
a certificate or certificates for shares of Class A Common Stock upon
conversion, such holder shall surrender the certificate or certificates for the
holder's shares of Class B Common Stock, duly endorsed, at the office of the
corporation or of any transfer agent for such stock. The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Class B Common Stock, a certificate or certificates for the number of shares
of Class A Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made on the date specified for
automatic conversion in paragraph (1) of this Section D, and the person or
persons entitled to receive the shares of Class A Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or record
holders of such shares of Class A Common Stock on such date.
(3) The number of shares of Class A Common Stock issuable upon conversion
of shares of Class B Common Stock shall be subject to adjustments as follows:
(i) In the event of a stock split, reverse stock split, stock
dividend, reorganization or recapitalization affecting the number of shares of
outstanding Class A Common Stock, then in each such case the number of shares of
Class A Common Stock into which shares of Class B Common Stock may be converted
shall be equitably adjusted so as not to impair or enlarge the conversion rights
of Class B Common Stock.
(ii) In the event the corporation determines to offer rights to the
holders of Class A Common Stock entitling them to subscribe to additional shares
of Class A Common Stock or securities convertible into Class A Common Stock, the
corporation shall also extend such right to the holders of Class B Common Stock
as if converted to Class A Common Stock on the record date for such offering.
There shall be no adjustment in the respective conversion rates by virtue of
such rights offering or by virtue of any sale of any class of securities of the
corporation.
(4) Whenever the amount of Class A Common Stock deliverable upon the
conversion of Class B Common Stock shall be adjusted pursuant to the provisions
hereof, the corporation shall forthwith file, at its principal executive office
and with any transfer agent for its Class A Common Stock or Class B Common
Stock, a statement signed by the Chief Executive Officer and Treasurer of the
corporation stating the
4
<PAGE>
adjusted amount of its Class A Common Stock deliverable per share of Class B
Common Stock calculated to the nearest one hundredth and setting forth in
reasonable detail the mode of calculation. Each adjustment shall remain in
effect until a subsequent adjustment is required hereunder.
(5) The corporation shall at all times reserve and keep available out
of its authorized but unissued Class A Common Stock the full number of shares
deliverable upon conversion of all the then outstanding Class B Common Stock and
shall take all such action and obtain all such permits and orders as may be
necessary to enable the corporation lawfully to issue such Class A Common Stock
upon the conversion of Class B Common Stock.
(6) No fractions of shares of Class A Common Stock shall be issued
upon the conversion of Class B Common Stock. In lieu of fractions, the number of
shares of Class A Common Stock issuable upon the conversion of Class B Common
Stock shall be rounded to the nearest whole number.
(7) The issue of stock certificates on conversion of Class B Common
Stock shall be made without charge to the converting stockholders and the
corporation shall pay any stock transfer tax with respect to the issue thereof
if Class A Common Stock deliverable upon conversion is issued in the name of the
holder of the Class B Common Stock certificate converted.
SIXTH. The rights, preferences, privileges and restrictions granted to or
imposed upon the Preferred Stock and the holders thereof are as follows:
A. Dividend Rights.
---------------
(1) Subject to the superior rights of the Series B Preferred Stock,
each share of Series A Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor, a
dividend equal to $0.10 per share of Series A Preferred Stock before the payment
of any dividend on the Common Stock.
(2) Each share of Series B Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, payable in preference and
priority to any payment of any other dividend on any shares of capital stock of
the corporation, cumulative annual dividends in the amount of $0.062 per share
unless a dividend is paid at a higher rate on any other outstanding shares, in
which event during the period such higher dividend is paid, each share of Series
B Preferred shall be entitled to receive a dividend at such higher rate.
Dividends on shares of Series B Preferred shall be cumulative and shall accrue
from the date payment is received for such shares of Series B Preferred, but
shall not be paid or payable until the earliest to occur of (i) June 30, 1995
and each June 30 thereafter, (ii) payment of dividends on any other class or
series of
5
<PAGE>
shares, (iii) conversion or redemption of the Series B Preferred Stock, but only
as to the shares so converted or redeemed, (iv) sale of all or substantially all
of the assets of the corporation, and (v) any liquidation, dissolution or
winding up, or merger of the corporation if the corporation's stockholders
immediately before such transaction do not hold (by virtue solely of the
securities issued in connection with their status as stockholders of the
corporation) at least 50% of the voting power of the surviving or continuing
entity (any event described in clause (iv) or (v) above referred to as a "Merger
or Sale"). Dividends shall cease accumulating on the Series B Preferred Stock on
June 30, 1997.
(3) When the Board of Directors declares a dividend on the shares of
Series B Preferred Stock with respect to the dividends that accumulated on or
prior to June 30, 1997, each holder of the Series B Preferred Stock shall have
the option to receive the dividend either in cash or in shares of the Common
Stock of the Company, valuing such Common Stock at the fair market value as
determined by the Board of Directors at the time of the declaration of the
dividend.
B. Liquidation.
-----------
(1) In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, or in a bankruptcy,
reorganization, insolvency, receivership, assignment for the benefit of
creditors, marshalling of assets or similar proceeding relating to the
corporation or its property before any distribution may be made with respect to
the Series A Preferred Stock, the Common Stock or any other class or series of
capital stock, each holder of shares of Series B Preferred Stock and Series C
Preferred Stock shall be entitled to be paid $1.20 and $4.00 per share,
respectively, plus all accrued and unpaid dividends out of the assets of the
corporation available for distribution to holders of the corporation's capital
stock of all classes, whether such assets are capital, surplus, or capital
earning. If the assets of the corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series B
Preferred Stock and Series C Preferred Stock the full amounts to which they
shall be entitled, the holders of shares of Series B Preferred Stock and Series
C Preferred Stock shall share ratably in any distribution of assets according to
the amounts which would be payable with respect to the Series B Preferred Stock
and Series C Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
(2) In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, or in a bankruptcy,
reorganization, insolvency, receivership, assignment for the benefit of
creditors, marshaling of assets or similar proceeding relating to the
corporation or its property before any distribution may be made with respect to
the Common Stock or any other class or series of capital stock other than the
Series B Preferred Stock and Series C Preferred Stock, each holder of shares of
Series A Preferred Stock shall be entitled to be paid $1.00 per share plus all
6
<PAGE>
accrued and unpaid dividends out of the assets of the corporation available for
distribution to holders of the corporation's capital stock of all classes,
whether such assets are capital, surplus, or capital earning. If the assets of
the corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the full
amounts to which they shall be entitled, the holders of shares of Series A
Preferred Stock shall share ratably in any distribution of assets according to
the amounts which would be payable with respect to the Series A Preferred Stock
held by them upon such distribution if all amounts payable on or with respect to
said shares were paid in full.
(3) If, upon the occurrence of a liquidation, dissolution or winding
up, after the payment to the holders of the Preferred Stock of the preferential
amount, assets remain in the corporation, the holders of Preferred Stock and the
holders of Common Stock shall be entitled to share in all such remaining assets
in the same manner as if all shares of Preferred Stock had been converted into
Common Stock.
(4) Whenever the distribution provided for in this Section B shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the corporation.
(5) A Merger or Sale shall be deemed to be a winding up of the
corporation for purposes of this Paragraph B.
C. Redemption
----------
(1) Redemption at Holders' Option
-----------------------------
(i) In accordance with the provisions set forth below, the
holders of Series B Preferred Stock may elect to have all or any portion of
their shares of Series B Preferred Stock redeemed at any time or from time to
time after June 30, 1997, in either case by delivering a written notice (the
"Redemption Notice") to the corporation specifying the number of shares of
Series B Preferred Stock to be redeemed and the date upon which the shares are
to be redeemed (the "Redemption Date"), which date must be at least thirty days
after the date that the Redemption Notice is delivered to the corporation.
(ii) If the corporation has received a Redemption Notice, on the
Redemption Date the corporation shall, to the extent that it is legally
permitted to do so, redeem the shares specified in the Redemption Notice by
paying in cash therefor $1.20 per share, and, in addition, an amount equal to
all accrued but unpaid dividends per share of Series B Preferred Stock.
(iii) In the event that the corporation is unable legally to
redeem the full number of shares of Series B Preferred Stock specified in the
Redemption Notice,
7
<PAGE>
the corporation shall effect such redemption ratably according to the number of
shares of Series B Preferred Stock held by each holder requesting redemption.
Shares of Series B Preferred Stock with respect to which a redemption request
has been made but which are not redeemed on the Redemption Date because funds
are not legally available for the redemption thereof shall be redeemed by the
corporation as provided in this Paragraph (C)(1) as soon as practicable after
funds are legally available for such redemption.
(v) The obligation of the Corporation to redeem any shares of
Series B Preferred Stock pursuant to this Paragraph (C)(1) is conditioned upon
the surrender to the corporation, on or before the Redemption Date, of
certificates representing the shares to be redeemed, duly endorsed, at the
office of the corporation or of any transfer agent for the Series B Preferred
Stock.
(2) Redemption at Corporation's Option
----------------------------------
(i) In accordance with the provisions set forth below, the
Corporation may elect, at any time after June 30, 1997, to redeem all or any
portion of the outstanding shares of Series B Preferred Stock by delivering a
written notice (the "Mandatory Redemption Notice") to the holders of the Series
B Preferred Stock specifying the number of shares of Series B Preferred Stock to
be redeemed and the date upon which the shares are to be redeemed (the
"Mandatory Redemption Date"), which date must be at least thirty days after the
date that the Mandatory Redemption Notice is delivered to the holders of the
Series B Preferred Stock.
(ii) If the corporation has delivered a Mandatory Redemption
Notice, on the Mandatory Redemption Date the corporation shall redeem the shares
specified in the Mandatory Redemption Notice (other than shares that have been
converted into Class A Common Stock pursuant to Paragraph E) by paying in cash
therefor $1.20 per share, and, in addition, an amount equal to all accrued but
unpaid dividends per share of Series B Preferred Stock.
(iii) In the event that the corporation is redeeming less than
the full number of outstanding shares of Series B Preferred Stock, the
corporation shall effect such redemption ratably according to the number of
shares of Series B Preferred Stock held by each holder thereof.
(iv) On or before the Mandatory Redemption Date, the holders of
any certificates representing shares of Series B Preferred Stock called for
redemption pursuant to this Paragraph (C)(2) (other than shares that have been
converted into Class A Common Stock pursuant to Paragraph E)shall surrender such
certificates, duly endorsed, at the office of the corporation or of any transfer
agent for the Series B Preferred Stock, and the corporation shall have no
obligation to redeem such shares or to pay the redemption amount with respect
thereto until such surrender; provided, however, that regardless of whether such
certificates are so surrendered, after the Mandatory
8
<PAGE>
Redemption Date: (i) such shares shall be deemed to have been redeemed and no
further dividends shall accrue with respect to the shares so redeemed, (ii) the
holders of such certificates shall no longer be stockholders of the Corporation
and (iii) the holders of such certificates shall have no rights with respect
thereto other than to receive the redemption amount, without interest thereon,
upon the surrender of such certificates as provided above.
D. Voting Rights. Except as otherwise required by law, the holder of each
-------------
share of Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Class A Common Stock into which such share of Preferred
Stock could be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the corporation having general voting power and not
separately as a class. Fractions of votes by the holders of Preferred Stock
shall not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
can be converted) be rounded to the nearest whole share.
E. Conversion.
----------
(1) Each share of Preferred Stock shall be convertible, at the option
of the holder thereof, at any time at the office of the corporation or any
transfer agent for the Preferred Stock. In addition, the outstanding shares of
Preferred Stock shall automatically convert into shares of Class A Common Stock
upon the closing of this corporation's sale of its Class A Common Stock to the
public in an offering registered under the Securities Act of 1933, as amended.
Initially, a share of Preferred Stock shall convert into shares of Class A
Common Stock at a rate of one share of Class A Common Stock for each share of
Preferred Stock.
(2) Before any holder of Preferred Stock shall be entitled to receive a
certificate or certificates for shares of Class A Common Stock upon conversion,
such holder shall surrender the certificate or certificates for the holder's
shares of Preferred Stock, duly endorsed, at the office of the corporation or of
any transfer agent for such stock, and, unless such conversion is automatic,
shall give written notice to the corporation at such office that such holder
elects to convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for shares of Class A Common
Stock to be issued. The corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Preferred Stock, a
certificate or certificates for the number of shares of Class A Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made (i) in the case such conversion is automatic, upon the
closing of the public offering, (ii) in the case such conversion is at the
election of the holder, immediately prior to the close of business on the date
of surrender of the shares of Preferred Stock to be converted,
9
<PAGE>
and the person or persons entitled to receive the shares of Class A Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or record holders of such shares of Class A Common Stock on such date.
(3) The number of shares of Class A Common Stock issuable upon
conversion of shares of Preferred Stock shall be subject to adjustments as
follows:
(i) In the event of a stock split, reverse stock split, stock
dividend, reorganization or recapitalization affecting the number of shares of
outstanding Class A Common Stock, then in each such case the number of shares of
Class A Common Stock into which shares of Preferred Stock may be converted shall
be equitably adjusted so as not to impair or enlarge the conversion rights of
Preferred Stock.
(ii) In the event the corporation determines to offer rights to
the holders of Class A Common Stock entitling them to subscribe to additional
shares of Class A Common Stock or securities convertible into Class A Common
Stock, the corporation shall also extend such right to the holders of Preferred
Stock as if converted to Class A Common Stock on the record date for such
offering. There shall be no adjustment in the respective conversion rates by
virtue of such rights offering or by virtue of any sale of any class of
securities of the corporation.
(4) Whenever the amount of Class A Common Stock deliverable upon the
conversion of Preferred Stock shall be adjusted pursuant to the provisions
hereof, the corporation shall forthwith file, at its principal executive office
and with any transfer agent for its Class A Common Stock or Preferred Stock, a
statement signed by the Chief Executive Officer and Treasurer of the corporation
stating the adjusted amount of its Class A Common Stock deliverable per share of
Preferred Stock calculated to the nearest one hundredth and setting forth in
reasonable detail the mode of calculation. Each adjustment shall remain in
effect until a subsequent adjustment is required hereunder.
(5) The corporation shall at all times reserve and keep available out
of its authorized but unissued Class A Common Stock the full number of shares
deliverable upon conversion of all the then outstanding Preferred Stock and
shall take all such action and obtain all such permits and orders as may be
necessary to enable the corporation lawfully to issue such Class A Common Stock
upon the conversion of Preferred Stock.
(6) No fractions of shares of Class A Common Stock shall be issued
upon the conversion of Preferred Stock. In lieu of fractions, the number of
shares of Class A Common Stock issuable upon the conversion of Preferred Stock
shall be rounded to the nearest whole number.
(7) The issue of stock certificates on conversion of Preferred Stock
shall be made without charge to the converting stockholders and the corporation
shall pay any stock transfer tax with respect to the issue thereof if Class A
Common Stock deliverable
10
<PAGE>
upon conversion is issued in the name of the holder of the Preferred Stock
certificate converted.
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. In furtherance and not in limitation of the powers conferred by
statute:
A. The Board of Directors of the corporation is expressly authorized, to
adopt, amend, alter, or repeal the bylaws of the corporation.
B. Elections of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
C. The books of the corporation may be kept at such place within or
without the State of Delaware as the bylaws of the corporation may provide or as
may be designated from time to time by the Board of Directors of the
corporation.
NINTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction with the State of Delaware may, on the application in a summary way
of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
TENTH. A director of this corporation shall have no personal liability to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except (1) for any breach of the director's duty of loyalty
to this corporation or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (3)
under Section 174 of the Delaware General Corporation Law or (4) for any
transaction from which the director derives (or derived) an improper personal
benefit. If the Delaware General Corporation Law is amended hereafter to
authorize corporate action further eliminating or limiting the personal
liability
11
<PAGE>
of directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
ELEVENTH. The corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
IN WITNESS WHEREOF, Aegis Mortgage Acceleration Corp. has caused this
certificate to be signed by John Decker, its President, this 4th day of
March, 1998.
AEGIS MORTGAGE ACCELERATION CORP.
By: /s/ John Decker
----------------------------
Name: John Decker
Title: President
12
<PAGE>
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
AEGIS MORTGAGE ACCELERATION CORPORATION
Aegis Mortgage Acceleration Corporation, a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST:
-----
That Article Sixth, Section A of the Restated Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
"A. Dividend Rights.
---------------
(1) Subject to the superior rights of the Series B Preferred Stock,
each share of Series A Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor, a
dividend equal to $0.10 per share of Series A Preferred Stock before the payment
of any dividend on the Common Stock.
(2) Each share of Series B Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, payable in preference and
priority to any payment of any other dividend on any shares of capital stock of
the corporation, cumulative annual dividends in the amount of $0.06667 per share
unless a dividend is paid at a higher rate on any other outstanding shares, in
which event during the period such higher dividend is paid, each share of Series
B Preferred shall be entitled to receive a dividend at such higher rate.
Dividends on shares of Series B Preferred shall be cumulative and shall accrue
from the date payment is received for such shares of Series B Preferred, but
shall not be paid or payable until the earliest to occur of (i) June 30, 1995
and each June 30 thereafter, (ii) payment of dividends on any other class or
series of shares, (iii) conversion of the Series B Preferred Stock, but only as
to the shares so converted, (iv) sale of all or substantially all of the assets
of the corporation, and (v) any liquidation, dissolution or winding up, or
merger of the corporation if the corporation's stockholders immediately before
such transaction do not hold (by virtue solely of the securities issued in
connection with their status as stockholders of the corporation) at least 50% of
the voting power of the surviving or continuing entity (any event described in
clause (iv) or (v) above referred to as a "Merger or Sale"). Dividends shall
cease accumulating on the Series B Preferred Stock on June 30, 1997.
(3) When the Board of Directors declares a dividend on the shares of
Series B Preferred Stock with respect to the dividends that accumulated on or
prior to June 30, 1997, each holder of the Series B Preferred Stock shall have
the option to receive the dividend either in cash or in shares of the Common
Stock of the Company, at the exchange rate of one share of Common Stock for each
$1.00 of accrued dividends."
That Article Sixth, Section C of the Restated Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
<PAGE>
"C. Redemption. The Preferred Stock shall be nonredeemable."
-----------
SECOND: That said amendment was duly adopted in accordance with the
------
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Aegis Mortgage Acceleration Corporation has caused this
Certificate of Amendment of Restated Certificate of Incorporation to be executed
by its duly authorized person this 27th day of December, 1999.
/s/ Craig M. Compiano
---------------------------------
Name: Craig M. Compiano
--------------------------
Title: Vice President
-------------------------
<PAGE>
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
AEGIS MORTGAGE ACCELERATION CORPORATION
Aegis Mortgage Acceleration Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation has adopted the
following resolution:
RESOLVED, that Article FIRST of the Restated Certificate of Incorporation
be amended to read as follows:
"FIRST: The name of the corporation is Paymap Inc."
SECOND: That said amendment has been consented to and authorized by the
holders of a majority of the issued and outstanding stock entitled to vote by
written consent given in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed, signed and acknowledged
this Certificate of Amendment this 14th day of February, 2000.
Aegis Mortgage Acceleration Corporation
By: /s/John P. Decker
-----------------
John P. Decker, President and
Chief Executive Officer
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PAYMAP INC.
Paymap Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Paymap Inc. The corporation was
originally incorporated under the name Aegis Financial Corporation, and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on April 22, 1993. A Certificate of
Amendment changing the corporation's name to Aegis Mortgage Acceleration
Corporation was filed with the Secretary of State of the State of Delaware on
June 8, 1993. A Certificate of Amendment changing the corporation's name to
Paymap Inc. was filed with the Secretary of State of the State of Delaware on
_______, 2000.
2. Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of the Certificate of Incorporation of the
corporation.
3. The Certificate of Incorporation of the corporation is hereby
amended and restated to read in its entirety as set forth in the Amended and
Restated Certificate of Incorporation attached hereto as Exhibit A.
IN WITNESS WHEREOF, John P. Decker has caused this Amended and
Restated Certificate of Incorporation to be duly executed by its Chief Executive
Officer and attested to by its Secretary this __th day of ________, 2000.
PAYMAP INC.
By: _____________________________________
John P. Decker
President and Chief Executive Officer
<PAGE>
Exhibit A
---------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PAYMAP INC.
FIRST. The name of the corporation is Paymap Inc.
- -----
SECOND. The address of the registered office of the corporation in the State of
- ------
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of its
registered agent at such address is Corporation Service Company, County of New
Castle.
THIRD. The nature of the business or purposes to be conducted or promoted is to
- -----
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock which the
- ------
corporation shall have authority to issue is Sixty Million (60,000,000) shares,
comprised of Fifty Million (50,000,000) shares of Common Stock with a par value
of $0.01 per share (the "Common Stock") and Ten Million (10,000,000) shares of
Preferred Stock with a par value of $0.01 per share (the "Preferred Stock").
Upon the amendment of this article to read as herein set forth: (i) each
outstanding share of Class A Common Stock is converted and reconstituted into
one share of Common Stock, (ii) each outstanding share of Class B Common Stock
is converted and reconstituted into shares of Common Stock, (iii) each
outstanding share of Series A Preferred Stock is converted and reconstituted
into shares of Common Stock, (iv) each outstanding share of Series B
Preferred Stock is converted and reconstituted into shares of Common Stock,
and (v) each outstanding share of Series C Preferred Stock is converted and
reconstituted into shares of Common Stock, in each case, rounded down or
up, as the case may be, to the nearest whole shares of Common Stock.
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
A. PREFERRED STOCK.
---------------
The Preferred Stock may be issued in one or more series at such time
or times and for such consideration or considerations as the board of directors
may determine. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. Except as may be
expressly provided in this Amended and Restated Certificate of Incorporation,
including any certificate of designations for a series of Preferred Stock,
different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
The board of directors is expressly authorized, subject to the
limitations prescribed by law and the provisions of this Amended and Restated
Certificate of
<PAGE>
Incorporation, to provide for the issuance of all or any shares of the Preferred
Stock, in one or more series, each with such designations, preferences, voting
powers (or no voting powers), relative, participating, optional or other special
rights and privileges and such qualifications, limitations or restrictions
thereof as shall be stated in the resolution or resolutions adopted by the board
of directors to create such series, and a certificate of designations setting
forth a copy of said resolution or resolutions shall be filed in accordance with
the General Corporation Law of the State of Delaware. The authority of the board
of directors with respect to each such series shall include without limitation
of the foregoing the right to specify the number of shares of each such series
and to authorize an increase or decrease in such number of shares and the right
to provide that the shares of each such series may be: (i) subject to redemption
at such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on such
conditions, and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes or any other series;
(iii) entitled to such rights upon the dissolution of, or upon any distribution
of the assets of, the corporation; (iv) convertible into, or exchangeable for,
shares of any other class or classes of stock, or of any other series of the
same or any other class or classes of stock of the corporation at such price or
prices or at such rates of exchange and with such adjustments, if any; (v)
entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or (vi) entitled to such other preferences, powers, qualifications,
rights and privileges, all as the board of directors may deem advisable and as
are not inconsistent with law and the provisions of this Amended and Restated
Certificate of Incorporation. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of such holder is required pursuant to the terms of any
Preferred Stock designation.
B. COMMON STOCK
------------
A. Relative Rights of Preferred Stock and Common Stock. All preferences,
---------------------------------------------------
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
B. Voting Rights. Except as otherwise required by law or this Amended
-------------
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held by such holder of record on
the books of the corporation for the election of directors and on all matters
submitted to a vote of stockholders of the corporation; provided, however, that,
-------- -------
except as otherwise required by law, holders of Common Stock shall not be
entitled to vote on any amendment to this Amended and Restated Certificate of
Incorporation (including any certificate of
3
<PAGE>
designations relating to any series of Preferred Stock) that relates solely to
the terms of one or more outstanding series of Preferred Stock if the holders of
such affected series are entitled, either separately or together as a class with
the holders of one or more other such series, to vote thereon pursuant to this
Amended and Restated Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock).
C. Cumulative Voting. Holders of stock of any class or series of the
-----------------
corporation shall not be entitled to cumulate their votes for the election of
directors or any other matter submitted to a vote of the stockholders, unless
such cumulative voting is required pursuant to Sections 2115 or 301.5 of the
California General Corporation Law, in which event each such holder shall be
entitled to as many votes as shall equal the number of votes which (except for
this provision as to cumulative voting) such holder would be entitled to cast
for the election of directors with respect to such holder's shares of stock
multiplied by the number of directors to be elected by such holder, and the
holder may cast all of such votes for a single director or may distribute them
among the number of directors to be voted for, or for any two or more of them as
such holder may see fit, so long as the name of the candidate for director shall
have been placed in nomination prior to the voting and the stockholder, or any
other holder of the same class or series of stock, has given notice at the
meeting prior to the voting of the intention to cumulate votes.
D. Dividends. Subject to the preferential rights of the Preferred
---------
Stock, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the board of directors, out of the assets of the corporation
which are by law available therefor, dividends payable either in cash, in
property or in shares of capital stock.
E. Dissolution, Liquidation or Winding Up. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Amended and Restated
Certificate of Incorporation, including any certificate of designations for a
series of Preferred Stock, to receive all of the remaining assets of the
corporation of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
FIFTH. The corporation is to have perpetual existence.
- -----
SIXTH. In furtherance and not in limitation of the powers conferred by the laws
- -----
of the State of Delaware:
A. The board of directors of the corporation is expressly authorized:
(i) To make, alter or repeal the Bylaws of the corporation.
(ii) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation.
4
<PAGE>
(iii) To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
(iv) By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member of any
committee. The Bylaws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the Bylaws of the corporation, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Amended and Restated Certificate
of Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of the State of Delaware, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of the State of Delaware, recommending to the stockholders the
sale, lease or exchange, of all or substantially all of the corporation's
property and assets, recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or amending the Bylaws of the
corporation; and, unless the resolution or Bylaws expressly so provided, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware.
(v) When and as authorized by the stockholders in accordance
with statute, to sell, lease or exchange all or substantially all of the
property and assets of the corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property, including shares of
stock in, and/or other securities of, any other corporation or corporations, as
its board of directors shall deem expedient and for the best interests of the
corporation.
5
<PAGE>
B. Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
C. The books of the corporation may be kept at such place within or
without the State of Delaware as the Bylaws of the corporation may provide or as
may be designated from time to time by the board of directors of the
corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
- -------
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or classes of creditors, and/or
of the stockholders or classes of stockholders of this corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. A director of this corporation shall not be personally liable to the
- ------
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended hereafter
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of repeal or
modification.
NINTH. The corporation reserves the right to amend or repeal any provision
- -----
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter
6
<PAGE>
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
TENTH. No action shall be taken by the stockholders of the corporation except
- -----
at an annual or special meeting of the stockholders called in accordance with
the Amended and Restated Bylaws and no action shall be taken by the stockholders
by written consent.
7
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
AEGIS FINANCIAL CORPORATION
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
-----------------
the State of Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19805.
The name of the corporation's registered agent at such address shall be
Corporation Service Company.
Section 2. Other Offices. The corporation may also have offices at such
-------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
--------------------------
stockholders shall be held for the purpose of electing directors and conducting
such other business as may come before the meeting. The date, time and place of
the annual meeting shall be determined by resolution of the Board of Directors.
Special meetings of stockholders for any other purpose may be held at such time
and place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the Secretary if directed by the Board of Directors.
Section 2. Notice. Written or printed notice of every annual or special
------
meeting of the stockholders, stating the place, date, time, and, in the case of
special meetings, the purpose or purposes of such meeting shall be given to each
stockholder entitled to vote at such meeting not less than 10 nor more than 60
days before the date of the meeting. All such notices shall be delivered,
either personally or by mail, by or at the direction of the Board of Directors,
the Chairman of the Board or the Secretary, and if mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to
the stockholder at his or her address as it appears on the records of the
corporation, with postage prepaid.
<PAGE>
Section 3. Stockholders List. The officer having charge of the stock ledger
-----------------
of the corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, specifying the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 4. Quorum. The holders of a majority of the outstanding shares of
------
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of the shares present in person or represented by proxy at the meeting
and entitled to vote thereat, shall have the power, by the affirmative vote of
the holders of a majority of such shares, to adjourn the meeting to another time
and/or place. Unless the adjournment is for more than thirty days or unless a
new record date is set for the adjourned meeting, no notice of the adjourned
meeting need be given to any stockholder, provided that the time and place of
the adjourned meeting were announced at the meeting at which the adjournment was
taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
Section 5. Vote Required. When a quorum is present or represented by proxy
-------------
at any meeting, the vote of the holders of a majority of the shares present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provisions of an
applicable statute or of the certificate of incorporation a different vote is
required in which case such express provision shall govern and control the
decision of such question.
Section 6. Voting Rights. Except as otherwise provided in the certificate
-------------
of incorporation and subject to Section 3 of Article VI hereof, every
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of capital stock held by such stockholder,
except that no proxy shall be voted after three years from its date, unless such
proxy provides for a longer period.
Section 7. Informal Action. Any action taken at any annual or special
---------------
meeting of stockholders of the corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all
2
<PAGE>
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Any action taken pursuant to such written consent of the stockholders shall have
the same force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
---------
Section 1. Number Election and Term of Office. The initial Board of
----------------------------------
Directors shall consist of five (5) persons. Thereafter, the number of
directors may be fixed at any time by the affirmative vote of a majority of the
stockholders or by the affirmative vote of a majority of the directors at a
regular or special meeting called for that purpose, provided, however, that no
vote to decrease the number of the directors of the corporation shall shorten
the term of any incumbent director.
The directors shall be elected at the annual meeting of stockholders,
except as provided in Section 3 of this Article III, and each director elected
shall hold office until the next annual meeting of stockholders and until a
successor is duly elected and qualified or until his or her death, resignation
or removal as hereinafter provided.
Section 2. Removal. Any director or the entire Board of Directors may be
-------
removed at any time, with or without cause, by the holders of a majority of the
shares of stock of the corporation then entitled to vote at an election of
directors, except as otherwise provided by statute.
Section 3. Vacancies. Vacancies and newly created directorships resulting
---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum, and each
director so chosen shall hold office until the next annual meeting of
stockholders and until a successor is duly elected and qualified or until his or
her earlier death, resignation or removal as hereinafter provided.
Section 4. Annual Meetings. The annual meeting of each newly elected Board
---------------
of Directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of stockholders.
Section 5. Other Meetings and Notice. Regular meetings, other than the
-------------------------
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board on at least 24 hours notice to each
director, either personally, by telephone, by
3
<PAGE>
mail, or by telegraph. In like manner and on like notice, the Secretary must
call a special meeting upon the written request of a majority of directors.
Section 6. Quorum. A majority of the total number of directors shall
------
constitute a quorum for the transaction of business. The vote of a majority of
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. If a quorum is not present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Committees. The Board of Directors may, by resolution passed by
----------
a majority of the whole board, designate one or more committees. Each committee
shall consist of one or more of the directors of the corporation, which, to the
extent provided in such resolution and not otherwise limited by statute, shall
have and may exercise the powers of the Board of Directors in the management and
affairs of the corporation, including without limitation, the power to declare a
dividend and to authorize the issuance of stock. The Board of Directors may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and shall report the same to the
directors when required.
Section 8. Committee Rules. Each committee of the Board of Directors may
---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by the resolution of the Board of
Directors designating such committee, but in all cases the presence of at least
a majority of the members of such committee shall be necessary to constitute a
quorum. In the event that a member and that member's alternate, if alternates
are designated by the Board of Directors as provided in Section 7 of this
Article III, of such committee is/are absent or disqualified, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member.
Section 9. Informal Action. Any action required or permitted to be taken at
---------------
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee.
4
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by the
------
Board of Directors and shall consist of a Chairman, Chief Executive Officer, a
President, a Secretary, a Treasurer, and such other officers and assistant
officers as may be deemed necessary or desirable by the Board of Directors. Any
number of offices may be held by the same person. In its discretion, the Board
of Directors may choose not to fill any office for any period as it may deem
advisable, except the offices of Chief Executive Officer and Secretary.
Section 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until the next annual meeting of the Board of
Directors and until a successor is duly elected and qualified or until his or
her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of Directors
-------
may be removed by the Board of Directors whenever in its judgment the best
interest of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death, resignation
---------
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term by the Board of Directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
------------
Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of the fact that he or she is also a director of the
corporation.
Section 6. The Chairman. Unless otherwise directed by the Board of
------------
Directors, the Chairman shall preside at all meetings of the Board of Directors
and all meetings of the stockholders and shall have such other powers and
perform such duties as are specified in these bylaws and as may from time to
time be assigned to him or her by the Board of Directors.
Section 7. The Chief Executive Officer. The Chief Executive Officer shall
---------------------------
have responsibility for general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
5
<PAGE>
The Chief Executive Officer shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation. The Chief Executive
Officer shall have general powers of supervision and shall be the final
arbitrator of all differences between officers of the corporation, subject only
to the Board of Directors.
Section 8. The President. The President shall have responsibility for the
-------------
operations of the corporation and shall perform such other duties and have such
other powers as the Board of Directors may, from time to time, determine or
these bylaws may prescribe.
Section 9. Vice Presidents. The Vice President, if any there be, shall, in
---------------
the absence or upon the disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties and
have such other powers as the Board of Directors may, from time to-time,
determine or these bylaws may prescribe.
Section 10. The Secretary and Assistant Secretaries. The Secretary shall
---------------------------------------
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors; shall perform such other duties and
have such other powers as the Board of Directors may from time to time determine
or these bylaws may prescribe; shall have custody of the corporate seal of the
corporation, if any there be; and the Secretary, or an Assistant Secretary, if
any there be, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his or her signature or by the
signature of such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The Assistant Secretary, if any
there be, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 11. The Treasurer and Assistant Treasurer. The Treasurer shall have
-------------------------------------
the custody of the corporate funds and securities; shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation;
shall deposit all monies and other valuable effects in the name and to the
credit of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements; and shall render to the Board of
Directors, at its regular meeting or when the Board of
6
<PAGE>
Directors so requires, an account of the corporation. If required by the Board
of Directors, the Treasurer shall give the corporation a bond (which shall be
rendered every six years) in such sums and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Treasurer and for the restoration to the corporation, in
case of death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in the possession
or under the control of the Treasurer belonging to the corporation. The
Assistant Treasurer, if any there be, shall in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall perform such duties and have such powers as
the Board of Directors may, from time to time, determine or these bylaws
prescribe.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation against
expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if it be determined that he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interest of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interest of the corporation, or, with respect to any
criminal action or proceeding, that the person had reasonable cause to believe
that his or her conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or is or was
7
<PAGE>
serving at the request of the corporation as a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, against
expenses (including attorneys fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation; provided however that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Section 3. To the extent that a director, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article V or
in defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys fees) actually and reasonably incurred by
him or her in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article V
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee, or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 1 and 2 of this
Article V. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to create an obligation to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as authorized in this Article V.
Section 6. The indemnification and advancement of expenses provided by or
granted pursuant to the other sections of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders, of disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
8
<PAGE>
Section 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation against any
liability asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article V.
Section 8. For purposes of this Article V, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued would
have had power and authority to indemnify its directors, officers, employees and
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
Section 9. The indemnification and advancement of expenses provided by, or
granted pursuant to this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VI
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be
----
entitled to have a certificate signed by the Chairman and Chief Executive
Officer, President or a Vice President, and the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by him or
her in the corporation. Where a certificate is signed (1) by a transfer agent or
an assistant transfer agent other than the corporation or its employee or (2) by
a registrar, other than the corporation or its employee, the signature of any
such Chairman and Chief Executive officer, President, Vice President, Secretary,
or Assistant Secretary may be facsimile. In case any officer who has signed, or
whose facsimile signature has been used on, any such certificate shall cease to
be such officer of the corporation, whether because of death, resignation or
otherwise, before such certificate has been delivered by the corporation, such
certificate may nevertheless be issued and delivered as though the person who
signed such certificate or whose facsimile signature has been used on any such
certificate had not ceased to be such officer of the corporation. All
certificates for shares shall be consecutively numbered or
9
<PAGE>
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled, and no new certificate shall be
issued in replacement until the former certificate for a like number of shares
shall have been surrendered or canceled, except as otherwise provided in Section
2 with respect to lost, stolen or destroyed certificates.
Section 2. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his or her legal representative, to give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 3. Fixing a Record Date. The Board of Directors may fix in
--------------------
advance a date, not more than sixty nor less than ten days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining any consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividends or to
any such allotment to rights, or to exercise the rights in respect to any such
change, conversion, or exchange of capital stock, or to give such consent, and
in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividends or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be notwithstanding any transfer
of any stock on the books of the corporation after any such record date fixed as
aforesaid. If no record date is fixed, the time for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given, or
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. The time for determining stockholders for stock of
the corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock subject to the provisions of the certificate of
incorporation. Before payment of any dividend there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time,
10
<PAGE>
in their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think in the best interest of the corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
Section 4. Securities Owned BV Corporation. Voting securities in any other
-------------------------------
corporation or other enterprise held by the corporation shall be voted by the
Chairman and Chief Executive Officer, unless the Board of Directors specifically
confers authority to vote with respect thereto, which may be general or confined
to specific instances, upon some other person or officer. Any person authorized
to vote securities shall have the power to appoint proxies, with general power
of substitution.
ARTICLE VII
MISCELLANEOUS
-------------
Section 1. Dividends. Subject to the provisions of the certificate of
---------
incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend, there may be set apart out of any funds of the corporation available
for dividends such sum as the directors from time to time in their discretion
deem proper for working capital or as a reserve fund to meet other contingencies
or for equalizing dividends or for such other purposes as the directors shall
deem conducive to the interests of the corporation.
Section 2. Fiscal Year. The fiscal year of the corporation shall be
-----------
determined by the Board of Directors.
Section 3. Checks. All checks or demands for money and notes of the
------
corporation shall be signed by such officer or such other person as the Board of
Directors may from time to time designate.
Section 4. Notice and Waiver of Notice. Whenever any notice is required
---------------------------
to be given, personal notice shall not be necessary unless expressly so stated,
and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, first class mail (air-mail to an
address outside of the United States), postage pre-paid, addressed to the person
entitled thereto at his or her address as it appears on the records of the
corporation, in which case such notice shall be deemed given on the day of such
mailing, unless it is notice of a director's meeting, in which case such notice
shall be deemed given three days after the date of such mailing. Notice may also
be given personally, against receipt, or by telegram, telex, telecopy or similar
communication and
11
<PAGE>
notice so given shall be deemed given when so delivered personally or when
delivered for transmission.
Whenever any notice whatsoever is required or permitted to be given under
the provisions of any law, or under the provisions of the certificate of
incorporation or these bylaws, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time such notice
is required to be given, shall be deemed equivalent thereto. A telegram, telex,
telecopy or similar communication waiving any such notice sent by a person
entitled to notice shall be deemed equivalent to a waiver in writing signed by
such person. Neither the business nor the purpose of any meeting need be
specified in any waiver.
ARTICLE VIII
AMENDMENTS
----------
These bylaws may be amended, altered or repealed and new bylaws adopted at
any meeting of the Board of Directors by a majority vote. The fact that the
power to adopt, amend, alter or repeal the bylaws has been conferred upon the
Board of Directors shall not divest the stockholders of the same powers.
Dated: April 29, 1993
/s/ William R. Grant
-------------------------------
William R. Grant, Secretary
12
<PAGE>
EXHIBIT 3.4
PAYMAP INC.
AMENDED AND RESTATED
BYLAWS
- --------------------------------------------------------------------------------
ARTICLE I.
STOCKHOLDERS
Section 1. Annual Meeting.
(1) An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such place,
on such date, and at such time as the Board of Directors shall each year fix.
(2) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of the notice provided for in this bylaw, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this bylaw.
(3) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (2) of this
bylaw, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than 120 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 150th day prior to such annual meeting and not
later than the close of business on the later of (i) the 90th day prior to such
annual meeting or (ii) the 10th day following the day on which public
announcement of the date of such meeting is first made; and provided further
that if no annual meeting was held in the previous year, notice by the
stockholder to be timely must be so received a reasonable time before the
Corporation's notice of annual meeting is mailed or sent to stockholders. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (b)
as to any other business that the stockholder proposes
<PAGE>
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(4) Notwithstanding anything in the second sentence of paragraph (3) of
this bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 100
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the corporation.
(5) Only such persons who are nominated in accordance with the procedures
set forth in these bylaws shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
these bylaws. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in these bylaws.
The chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in these by laws and, if any proposed
nomination or business is not in compliance with these by laws, to declare that
such defective proposed business or nomination shall be disregarded.
(6) For purposes of these bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(7) Notwithstanding the foregoing provisions of this by law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
bylaw. Nothing in this by law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a 8 under the Exchange Act.
2
<PAGE>
Section 2. Special Meetings: Notice.
Special meetings of the stockholders, other than those required by statute,
may be called at any time by the Board of Directors pursuant to a resolution
approved by a majority of the whole Board of Directors. Notice of every special
meeting, stating the time, place and purpose, shall be given by mailing, postage
prepaid, at least 10 but not more than 60 days before each such meeting, a copy
of such notice addressed to each stockholder of the Corporation at his post
office address as recorded on the books of the Corporation. The Board of
Directors may postpone or reschedule any previously scheduled special meeting.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than 10 nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
corporation Law or the Certificate of Incorporation of the Corporation).
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a
3
<PAGE>
majority of the shares of such class or classes present in person or represented
by proxy shall constitute a quorum entitled to take action with respect to that
vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date, or time.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board or, in his or her absence,
the Chief Executive Officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The chairman shall have the power to adjourn the meeting to another place, date
and time. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
4
<PAGE>
The Corporation may, and to the extent required by law, shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by a duly appointed inspector or inspectors.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least 10 days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Waiver of Notice.
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law or of the certificate of incorporation or these bylaws,
a written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
5
<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
Section 1. Number, Election and Term of Directors.
Subject to the rights of the holders of any series of preferred stock to
elect directors under specified circumstances, the number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies. The directors, other than
those who may be elected by the holders of any series of preferred stock under
specified circumstances, shall be divided, with respect to the time for which
they severally hold office, into three classes with the term of office of the
first class to expire at the Corporation's first annual meeting of stockholders,
the term of office of the second class to expire at the Corporation's second
annual meeting of stockholders and the term of office of the third class to
expire at the Corporation's third annual meeting of stockholders, with each
director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the
first meeting, (i) directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until his or her successor shall have been duly elected and qualified,
and (ii) if authorized by a resolution of the Board of Directors, directors may
be elected to fill any vacancy on the Board of Directors, regardless of how such
vacancy shall have been created.
Section 2. Newly Created Directorships and Vacancies.
Subject to applicable law and to the rights of the holders of any series of
preferred stock with respect to such series of preferred stock, and unless the
Board of Directors otherwise determines, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the entire Board of Directors shall shorten the term of
any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
6
<PAGE>
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
Board, the President or by two or more directors then in office and shall be
held at such place, on such date, and at such time as they or he or she shall
fix. Notice of the place, date, and time of each such special meeting shall be
given each director by whom it is not waived by mailing written notice not less
than five days before the meeting or by telephone or by telegraphing or telexing
or by facsimile transmission of the same not less than 24 hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
the whole Board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
7
<PAGE>
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non negotiable,
secured or unsecured, and to do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with these
bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Unless otherwise restricted by the certificate of incorporation, the Board
of Directors shall have the authority to fix the compensation of the directors.
The directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at the
meeting of the Board of Directors or paid a stated salary or paid other
compensation as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Waiver of Notice.
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law, the certificate of incorporation, or these bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when such person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.
8
<PAGE>
ARTICLE III.
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV.
OFFICERS
Section 1. Generally.
The officers of the corporation shall consist of a President, one or more
Vice Presidents, a Secretary and a Chief Financial Officer. The Corporation may
also have, at the discretion of the Board of Directors, a Chairman of the Board
and such other officers as may from time to time be appointed by the Board of
Directors. Officers shall be elected by the Board of Directors, which shall
consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
number of offices may be held by the same person. The salaries of officers
elected by the Board of Directors shall be fixed from time to time by the Board
of Directors or by such officers as may be designated by resolution of the
Board.
9
<PAGE>
Section 2. Chairman of the Board.
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board, by the Board of Directors or as may be prescribed by
these bylaws. If there is no president and no one has been appointed chief
executive officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 3 below.
Section 3. President.
The President shall be the Chief Executive Officer of the Corporation.
Subject to the provisions of these bylaws and to the direction of the Board of
Directors, he or she shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him or her by the Board of Directors. He or
she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
Section 4. Vice President.
Each Vice President shall have such powers and duties as may be delegated
to him or her by the Board of Directors. One Vice President shall be designated
by the Board to perform the duties and exercise the powers of the President in
the event of the President's absence or disability.
Section 5. Chief Financial Officer.
The Chief Financial Officer shall have the responsibility for maintaining
the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Chief Financial Officer shall also perform
such other duties as the Board of Directors may from time to time prescribe.
Section 6. Secretary.
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He or
she shall have charge of the corporate books and shall perform such other duties
as the Board of Directors may from time to time prescribe.
10
<PAGE>
Section 7. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
Section 8. Removal.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 9. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and other wise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other Corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V.
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may, except as
otherwise required by law, fix a record date, which record
11
<PAGE>
date shall not precede the date on which the resolution fixing the record date
is adopted and which record date shall not be more than 60 nor less than 10 days
before the date of any meeting of stockholders, nor more than 60 days prior to
the time for such other action as hereinbefore described; provided, however,
that if no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI.
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, recognized overnight delivery service or by sending such notice by
facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand
12
<PAGE>
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance at any meeting shall constitute waiver of notice except attendance
for the sole purpose of objecting to the timeliness of notice.
ARTICLE VII.
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these by-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
13
<PAGE>
Section 5. Time Periods.
In applying any provision of these bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section I of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
14
<PAGE>
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE
VIII shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full by
the Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
ARTICLE VT1I or otherwise shall be on the Corporation.
Section 4. Non Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this ARTICLE VIII shall not be exclusive of any other right which any person
may have or
15
<PAGE>
hereafter acquire under any statute, the Corporation's Certificate of
Incorporation, bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE IX.
AMENDMENTS
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to make, alter, amend and repeal the
bylaws subject to the power of the holders of capital stock of the Corporation
to alter, amend or repeal the bylaws; provided, however, that, with respect to
the powers of holders of capital stock to make, alter, amend and repeal bylaws
of the corporation, notwithstanding any other provision of these bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law, these bylaws or
any preferred stock, the affirmative vote of the holders of at least 50 percent
of the voting power of all of the then-outstanding shares entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to make, alter, amend or repeal any provision of these bylaws.
16
<PAGE>
EXHIBIT 10.1
AEGIS MORTGAGE ACCELERATION CORP.
1995 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE OF THE PLAN
-------------------
The purposes of the 1995 Stock Option Plan (the "Plan") of AEGIS
MORTGAGE ACCELERATION CORP., a Delaware corporation (the "Company"), are to:
(a) furnish incentive to individuals chosen to receive options because
they are considered capable of responding by improving operations and increasing
profits;
(b) encourage selected employees, directors and consultants to accept
or continue employment with, to serve as directors of or to consult for, the
Company or its affiliates; and
(c) increase the interest of selected employees, directors and
consultants in the Company's welfare through their participation in the growth
in value of the common stock, $.01 par value, of the Company (the "Common
Stock").
To accomplish the foregoing objectives, this Plan provides a means
whereby employees, directors and consultants may receive options to purchase
Common Stock. Options granted under this Plan ("Options") will be either
nonqualified options ("NQOs") subject to federal income taxation upon exercise
or options intended to qualify for preferential federal income tax treatment as
"incentive stock options" ("ISOs").
2. ELIGIBLE PERSONS
----------------
Every full-time employee of the Company or of any Affiliate (as
defined below) is eligible to receive Options under this Plan. The term
"Affiliate," as used in this Plan, means a parent or subsidiary corporation, as
defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor statute. The term "employee" includes officers or directors who
are also employees, as well as employees who are neither officers nor directors
of the Company. Every person who is a consultant to the Company or any Affiliate
or any person who is a director of the Company, but not a full-time employee, is
eligible to receive NQOs but is not eligible to receive ISOs. The term
"consultant" includes persons employed by, or otherwise affiliated with, a
consultant.
3. STOCK SUBJECT TO THIS PLAN
--------------------------
<PAGE>
The total number of shares of stock that may be granted pursuant to
this Plan is 150,000 shares of the Common Stock of the Company. The shares
covered by the portion of any grant that expires unexercised under this Plan
shall become available again for grant under this Plan. The number of shares
reserved for purchase under this Plan is subject to adjustment in accordance
with the provisions for adjustment provided herein.
4. ADMINISTRATION
--------------
This Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee of the Board appointed by the Board (in
either case, the "Administrator"). If the Administrator consists of a committee
appointed by the Board, then the members of the Administrator shall serve at the
discretion of the Board, and the Administrator shall have such powers and
responsibilities as the Board may from time to time specify. The Administrator
shall perform its duties in good faith. The Administrator may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper. Subject to the provisions of this Plan, the Administrator shall
have the authority to select the persons to receive Options under this Plan, to
award Options, to fix the number of shares that each optionee may purchase, to
set the terms and conditions of each Option (including whether each Option will
be a NQO or an ISO, the exercise price and any restriction or limitation, or any
vesting or exercise acceleration or waiver or forfeiture restrictions regarding
any Option and/or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator shall determine, in its sole
discretion), to reduce the exercise price of any Option to the then current Fair
Market Value (as defined in Section 6.1.4 of this Plan) if the Fair Market Value
of the Common Stock covered by such Option shall have declined since the date
the Option was granted, and to determine all other matters relating to this
Plan; provided, however, that if the Company has a class of equity securities
registered under the Securities Exchange Act of 1934 (the "Exchange Act") or the
Company's officers, directors or 10% shareholders are subject to the short-swing
profit rule of Section 16 of the Exchange Act with respect to securities of the
Company, then this Plan shall be administered, with respect to those optionees
subject to Section 16 of the Exchange Act, so that this Plan complies with the
provisions of Rule 16b-3 or any successor rule promulgated by the Securities and
Exchange Commission ("Rule 16b-3"). All questions of interpretation,
implementation and application of this Plan shall be determined by the
Administrator. Such determinations shall be final and binding on all persons.
5. GRANTING OF RIGHTS
------------------
2
<PAGE>
5.1 Ten-Year Limitation. No Options shall be granted under this Plan
-------------------
after ten years from the date of adoption of this Plan by the Board, or the date
this Plan was approved by the shareholders of the Company, whichever is earlier.
5.2 Written Agreement; Effect. Each Option shall be evidenced by a written
-------------------------
agreement (the "Option Agreement"), in form satisfactory to the Company,
executed by the Company and the person to whom such Option is granted. The
Option Agreement shall specify whether each Option it evidences is a NQO or an
ISO. Failure of the grantee to execute an Option Agreement shall not void or
invalidate the grant of an Option; the Option may not be exercised, however,
until the Option Agreement is executed.
5.3 Advance Approvals. The Administrator may approve the grant of Options
-----------------
to persons who are expected to become employees or directors of, or consultants
to, the Company or an Affiliate, but are not employees, directors or consultants
at the date of approval. In such cases, the Option shall be deemed granted,
without further approval, on the date the grantee becomes an employee, director
or consultant and has satisfied all requirements of this Plan for Options
granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option shall be designated as an NQO or an ISO and shall be
subject to the terms and conditions set forth in Section 6.1. NQOs shall also be
subject to the terms and conditions set forth in Section 6.2. ISOs shall also be
subject to the terms and conditions set forth in Section 6.3.
6.1 Terms and Conditions to Which All Options Are Subject. All Options
-----------------------------------------------------
shall be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the
----------------------------
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification, or is
converted into or exchanged for other securities as a result of a change to the
Company's articles of incorporation or a merger, consolidation, or
reorganization, appropriate adjustments shall be made in (a) the number and
class of shares of each outstanding Option and of stock subject to this Plan,
and (b) the exercise price of each outstanding Option; provided, however, that
the Company shall not be required to issue fractional shares as a result of any
such adjustment. Each such adjustment shall be subject to approval by the Board
in its sole discretion, which determination shall be final and binding on all
persons.
6.1.2 Corporate Transactions. New option rights may be substituted for
----------------------
Options granted, or the Company's obligations as to outstanding Options may be
assumed, by an employer corporation other than the Company, or an Affiliate
thereof, in connection with any merger, consolidation, acquisition, separation,
reorganization, liquidation or like occurrence in which the Company is involved,
in such manner that the then-outstanding Options which are ISOs will continue to
be "incentive stock options" within the meaning of Section 422 of the Code to
the full extent permitted thereby. Notwithstanding the foregoing or the
provisions of Section 6.1.1, in connection with any merger, consolidation,
acquisition, separation, or similar occurrence, if such employer corporation, or
an Affiliate thereof, does not substitute new and substantially equivalent
option rights or assume the Company's obligations as to outstanding Options, the
option rights granted hereunder shall accelerate and become fully exercisable
during the period specified below, and any right of repurchase with respect to
any Option or Common Stock issuable upon exercise of an option shall lapse upon
the closing of such event. Each optionee shall be mailed notice at least 35 days
before such event, and shall have at least 30 days after the mailing of such
notice (but not later than the stated termination date of the Option) to
exercise any Option granted hereunder. The actions described in this Section
6.1.2 may be taken without regard to any resulting tax consequences to the
optionee.
<PAGE>
6.1.3 Option Grant Date. Each Option Agreement shall specify the date
-----------------
as of which it shall be effective, which date shall be the "Grant Date"
(determined pursuant to Section 5.3 in the case of advance approvals).
6.1.4 Fair Market Value. For purposes of this Plan, the fair market
-----------------
value of the Company's Common Stock (the "Fair Market Value") shall be
determined as follows:
(a) if the stock is listed on any established stock exchange or
a national market system, including, without limitation, the National Market
System of the National Association of Securities Dealers Automated Quotation
System, its Fair Market Value shall be the closing sale price for the stock, or
the mean between the high bid and low asked prices if no sales were reported, as
quoted on such system or exchange (or the largest such exchange) for the date
the Fair Market Value is to be determined (or, if there are no sales or bids for
such date, then for the last preceding business day on which there were sales or
bids), as reported in the Wall Street Journal or a similar publication;
-------------------
(b) if the stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the stock on the date the
Fair Market Value is to be determined (or if there are no quoted prices for such
date, then for the last preceding business day on which there were quoted
prices); and
4
<PAGE>
(c) in the absence of an established market for the
stock, the Fair Market Value shall be determined in good faith by the Board,
with reference to the Company's net worth, prospective earning power, dividend-
paying capacity, and other relevant factors, including the goodwill of the
Company, the economic outlook in the Company's industry, the Company's position
in the industry, the Company's management and the values of stock of other
corporations in the same or a similar line of business.
6.1.5 Time of Option Exercise. Options may, in the sole
-----------------------
discretion of the Administrator, be exercisable entirely at the Grant Date or at
such times and in such amounts as may be specified by the Administrator. Unless
otherwise established by the Administrator with respect to any individual or
group of individuals, an Option shall become exercisable with respect to one-
fourth of all shares subject to the Option on the first anniversary of the Grant
Date (the "Vesting Base Date"), and with respect to an additional 1/48 of the
shares originally subject to the Option monthly thereafter, so that the Option
is exercisable in its entirety four years from the Vesting Base Date.
6.1.6 Nonassignability of Option Rights. No Option shall be
---------------------------------
assignable or otherwise transferable by the optionee except by will or by the
laws of descent and distribution. During the life of the optionee, an Option
shall be exercisable only by the optionee or the optionee's guardian or legal
representative.
6.1.7 Payment. Except as provided below, payment in full, in
-------
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
before it is exercised, the Administrator, in the exercise of its absolute
discretion, may authorize any one or more of the following additional methods of
payment:
(a) acceptance of the optionee's promissory note for some
or all of the aggregate exercise price of the shares being acquired (except, if
required by applicable law, for the aggregate par value of the shares being
acquired, which must be paid in cash or other lawful consideration under
applicable law), payable on such terms and bearing interest at such rate as
determined by the Administrator; provided, however that in no event shall such
promissory note bear interest at less than the minimum interest rate specified
by federal tax law at which no additional interest would be imputed. An
optionee's promissory note may be either unsecured or secured in such manner as
the Administrator shall approve including, without limitation, by a security
interest in securities of the Company;
(b) delivery by the optionee of Common Stock or other
securities of the Company already owned by the optionee for all or part of
5
<PAGE>
the aggregate exercise price of the shares being acquired, provided the Fair
Market Value of such Common Stock or securities is equal on the date of exercise
to the aggregate exercise price of the shares being acquired, or such portion
thereof as the optionee is authorized to pay by delivery of such Common Stock or
securities; and
(c) any other property, so long as such property
constitutes valid consideration under applicable law for the shares being
acquired and is surrendered in good form for transfer.
6.1.8 Termination of Employment.
-------------------------
(a) Termination Without Cause. Any portion of an
-------------------------
Option that has not vested on or before the date on which an optionee ceases,
for any reason other than Termination For Cause (as defined in Section 6.1.8(b)
of this Plan), to be an employee or director of, or a consultant to, the Company
or an Affiliate ("Termination Without Cause") shall expire immediately upon such
Termination Without Cause. To the extent the Option has vested as of the date of
Termination Without Cause, the Option shall be exercisable for a period of three
months after such Termination Without Cause, or such longer period as the
Administrator may approve in writing, but not in either case after the original
expiration date of the Option. The foregoing sentence notwithstanding, if
Termination Without Cause is due to the permanent disability or death of the
optionee, then the optionee's personal representative, or any other person who
acquires option rights from an optionee by will or the applicable laws of
descent and distribution, may, within 12 months after the date of Termination
Without Cause (but not after the original expiration date of the Option),
exercise the Option to the extent it was exercisable on the date of Termination
Without Cause. Transfer of an optionee from the Company to an Affiliate or vice
versa, or from one Affiliate to another, or a leave of absence duly authorized
by the Company, shall not be deemed a termination of employment or a break in
continuous employment, provided that (unless otherwise approved by the
Administrator) such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(b) Termination For Cause.
---------------------
(i) Definition of Termination For Cause. "Termination
-----------------------------------
For Cause" shall mean termination of the optionee's employment with, or
consulting duties for, or removal as a director of, the Company or an Affiliate
by the Company, such Affiliate or the Board of Directors of the Company or such
Affiliate for: (A) willful breach of the duties or obligations required of the
optionee, (B) material neglect of the duties or obligations required of the
optionee, (C) commission of fraud, embezzlement or misappropriation, or other
willful acts of dishonesty or willful misconduct, or commission of a crime of
moral turpitude
6
<PAGE>
involving the optionee whether or not a criminal or civil charge is filed in
connection therewith, or (D) the unauthorized disclosure of proprietary or
confidential information relating to the Company's or the Affiliate's business.
(ii) Expiration of Option; Repurchase Option. Any portion
---------------------------------------
of the Option that has not vested on or before the date of Termination For Cause
shall expire immediately upon such Termination For Cause. To the extent the
Option has vested as of the date of Termination For Cause, the Option shall
expire immediately, and shall not be exercisable on or after the date of
Termination For Cause. Upon Termination For Cause, the Company shall have the
right, but not the obligation, to repurchase any shares of Common Stock
previously purchased pursuant to the exercise of any Option at the purchase
price paid by the optionee (the "Repurchase Option"). The Company may freely
assign its rights under this Section 6.1.8(b).
(iii) Exercise of Repurchase Option. The Company may
-----------------------------
exercise its Repurchase Option at any time after the optionee's Termination For
Cause; provided, however, that the Company's Repurchase Option shall terminate
unless exercised by written notice (the "Exercise Notice") from the Company to
the optionee within one hundred fifty (150) days after the date of such
Termination For Cause. If the Company exercises its Repurchase Option as
provided herein, the optionee shall, within ten days of receipt of the Exercise
Notice, surrender to the Company at the place stated in the Exercise Notice, the
certificate or certificates representing the shares of Common Stock being
purchased, endorsed in blank or accompanied by an appropriate assignment
separate from certificate, and the Company shall concurrently pay to the
optionee the purchase price for those shares.
6.1.9 Other Provisions. Each Option Agreement may contain such
----------------
other terms, provisions and conditions not inconsistent with this Plan,
including vesting restrictions or rights of repurchase, as may be determined by
the Administrator, and each ISO granted under this Plan shall include such other
provisions and conditions as the Administrator determines are desirable to
qualify such option as an "incentive stock option" within the meaning of Section
422 of the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by optionees, such Options shall provide
that (a) the right of first refusal applies only where there is a bona fide
third-party offer; (b) such right of first refusal requires the Company to make
its election to purchase the stock subject to such right of first refusal, if at
all, by giving notice of such election no more than 30 days after receipt of
notice of notice by an optionee to the Company of such proposed transfer; and
(c) upon the exercise of a right of first refusal, the Company must purchase all
(but not less than all, unless the selling optionee consents) of the offered
stock on the same terms offered by the bona fide third-party offerer, within 60
days after receipt of the notice of such right of first
7
<PAGE>
refusal, unless a longer period is offered by the bona fide third-party offerer.
Such Options shall further provide that the right of first refusal shall
terminate upon the earlier of (i) the closing of the Company's initial
registered public offering to the public generally, or (ii) the date ten years
after the Grant Date. The Administrator may also, in its sole discretion,
include provisions permitting the Administrator to reduce the exercise price of
one or more Options after the Grant Date.
6.1.10 Withholding and Employment Taxes. At the time of exercise
--------------------------------
of an Option the optionee shall remit, or make provision satisfactory to the
Administrator for remitting, to the Company in cash all applicable federal and
state withholding and employment taxes. The Administrator may, in the exercise
of the Administrator's sole discretion, permit an optionee to pay some or all of
such taxes by means of a promissory note on such terms as the Administrator
deems appropriate. If and to the extent authorized and approved by the
Administrator in its sole discretion, an optionee may elect, by means of a form
of election to be prescribed by the Administrator, to have shares which are
acquired upon exercise of an Option withheld by the Company or tender other
shares of Common Stock or other securities of the Company owned by the optionee
to the Company at the time the amount of such taxes is determined in order to
pay the amount of such tax obligations, subject to such limitations as may be
necessary to satisfy the requirements of Rule 16b-3, if the optionee is subject
to Section 16(b) of the Exchange Act. Any Common Stock or other securities so
withheld or tendered will be valued by the Company as of the date they are
withheld or tendered. Unless the Administrator otherwise determines, the
optionee shall pay to the Company in cash, promptly when the amount of such
obligations become determinable, all applicable (as determined by the
Administrator in its sole discretion) federal and state withholding taxes
resulting (in the sole judgment of the Administrator) from the lapse of
restrictions imposed on exercise of an Option, from a transfer or other
disposition of shares acquired upon exercise of an Option or from other events
related to the Option or the shares acquired upon exercise of the Option.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions in addition to the terms and conditions set forth
in Section 6.1 of this Plan:
6.2.1 Exercise Price. The exercise price of an NQO shall be
--------------
determined by the Administrator.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions in addition to the terms and conditions set forth
in Section 6.1 of this Plan:
8
<PAGE>
6.3.1 Exercise Price. The exercise price of an ISO shall be
--------------
determined in accordance with the applicable provisions of the Code and shall in
no event be less than the Fair Market Value at the Grant Date of the stock
covered by the ISO; provided, however, that the exercise price of an ISO granted
to any person who owns, directly or indirectly or is treated as owning by reason
of applicable attribution rules in the Code, stock of the Company constituting
more than ten percent of the total combined voting power of all classes of
outstanding stock of the Company or of any Affiliate of the Company (a "Ten
Percent Shareholder"), shall in no event be less than 110 percent of such Fair
Market Value.
6.3.2 Option Term. Unless an earlier expiration date is
-----------
specified by the Administrator at the Grant Date, each ISO shall expire
(notwithstanding any other provisions of this Plan or the Option Agreement) ten
years from its Grant Date, except that an ISO granted to any Ten Percent
Shareholder shall expire five years from its Grant Date.
6.3.3 Disqualifying Dispositions. If stock acquired by exercise
--------------------------
of an ISO is disposed of within two years from the Grant Date or within one year
after the transfer of the stock to the optionee, the holder of the stock
immediately prior to the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the disposition as the Company may reasonably require.
Such holder shall pay to the Company any withholding and employment taxes which
the Company in its sole discretion deems applicable to such disposition. Any
disposition not in accordance with this Section 6.3.3 shall be void and of no
effect. The Company may instruct its stock transfer agent by appropriate means,
including placement of legends on stock certificates, not to transfer stock
acquired by exercise of an ISO unless it has been advised by the Company that
the requirements of this Section have been satisfied.
9
<PAGE>
7. MANNER OF EXERCISE
------------------
An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the Secretary
of the Company (or such other officer as the Administrator may designate),
accompanied by (i) an executed stock purchase agreement in form and substance
satisfactory to the Company, (ii) payment of the exercise price, (iii) if
required, payment of any federal or state withholding or employment taxes
required to be withheld by virtue of exercise of the Option and (iv) such other
required payments and documents as the Administrator may request. The date the
Company receives written notice of exercise hereunder accompanied by payment of
the exercise price and the amount of any taxes required to be withheld, together
with all such other documents required to be delivered will be considered the
date the Option was exercised. Promptly after receipt of written notice of
exercise of an Option, the Company shall, without stock issue or transfer taxes
to the optionee or any other person entitled to exercise the Option, deliver to
the optionee or such other person a certificate or certificates for the
requisite number of shares of stock. An optionee or transferee of an Option
shall not have any privileges as a shareholder with respect to any stock covered
by the Option until the date of issuance of a stock certificate.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
-------------------------------------
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment, consultancy or status as a director at any
time, nor confer upon any optionee any right to continue in the employ of, as a
consultant to or as a director of the Company or any of its Affiliates.
9. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
-------------------------------------------------
The Board of Directors may, at any time, amend, alter, suspend or
discontinue this Plan without shareholder approval and may amend the terms of
any Option outstanding hereunder; provided that if this Plan is subject to Rule
16b-3, such amendment or alteration is made in a manner consistent with Rule
16b-3 and provided that, with respect to any outstanding Options, the optionee
consents to such amendment.
10. LIABILITY AND INDEMNIFICATION OF ADMINISTRATOR
----------------------------------------------
No member of the group constituting the Administrator shall be liable
for any act or omission on such member's own part, including but not limited to
the exercise of any power or discretion given to such member under this Plan,
10
<PAGE>
except for those acts or omissions resulting from such member's own gross
negligence or willful misconduct, and except in circumstances where applicable
state law prohibits such limitations of liability. Except to the extent that
such indemnification is prohibited by applicable law, the Company shall
indemnify each present and future member of the group constituting the
Administrator against, and each member of the group constituting the
Administrator shall be entitled without further act on his or her part to
indemnity from the Company for, all expenses (including the amount of judgments
and the amount of approved settlements made with a view to the curtailment of
costs of litigation, other than amounts paid to the Company itself) reasonably
incurred by such person in connection with or arising out of any action, suit,
or proceeding to the fullest extent permitted by law and by the Certificate of
Incorporation and Bylaws of the Company.
11. EFFECTIVE DATE OF THIS PLAN
---------------------------
This Plan shall become effective upon adoption by the Board; provided,
however, that if this Plan is not approved within 12 months after its adoption
by the shareholders of the Company, then any Options granted or exercised
pursuant to this Plan shall constitute NQOs and not ISOs, regardless of their
status on the Grant Date.
Adopted by the Board of Directors on May 30, 1995.
Adopted by the Shareholders on May 30, 1995.
Amended by the Board of Directors on February 10, 2000.
<PAGE>
Exhibit 10.2
2000 STOCK OPTION PLAN
OF
PAYMAP INC.
1. PURPOSES OF THE PLAN
--------------------
The purposes of the 2000 Stock Option Plan (the "Plan") of Paymap Inc., a
Delaware corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonstatutory
options" ("NSOs").
2. ELIGIBLE PERSONS
----------------
Every person who at the date of grant of an Option is a full-time employee
of the Company or of any Affiliate (as defined below) of the Company is eligible
to receive NSOs or ISOs under this Plan. Every person who at the date of grant
is a consultant to, or nonemployee director of, the Company or any Affiliate (as
defined below) of the Company is eligible to receive NSOs under this Plan. The
term "Affiliate" as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions of the Code. The term "employee" includes
an officer or director who is an employee, of the Company. The term
"consultant" includes persons employed by, or otherwise affiliated with, a
consultant.
3. STOCK SUBJECT TO THIS PLAN
--------------------------
Subject to the provisions of Section 6.1.1 of the Plan, the total number of
shares of stock which may be issued under options granted pursuant to this Plan
shall be 1,283,500 shares of Common Stock. The shares covered by the portion of
any grant under the Plan which expire unexercised shall become available again
for grants under the Plan.
1
<PAGE>
4. ADMINISTRATION
--------------
4.1 General. This Plan shall be administered by the Board of Directors
-------
of the Company (the "Board") or, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of part of the Plan,
is delegated (in either case, the "Administrator").
4.2 Public Company. From and after such time as the Company registers
--------------
a class of equity securities under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Committee shall consist of Board
members who are "Non-Employee Directors" as defined under Rule 16b-3 promulgated
by the Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.
4.3 Authority of Administrator. Subject to the other provisions of
--------------------------
this Plan, the Administrator shall have the authority, in its discretion: (i) to
grant Options; (ii) to determine the fair market value of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee, to modify or amend any Option; (ix) to accelerate the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
4.4 Interpretation by Administrator. All questions of interpretation,
-------------------------------
implementation, and application of this Plan shall be determined in its absolute
discretion by the Administrator. Such determinations shall be final and binding
on all persons .
4.5 Rule 16b-3. With respect to persons subject to Section 16 of the
----------
Exchange Act, if any, transactions under this Plan are intended to comply with
the applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent a transaction under this Plan or action by the Administrator fails to so
comply, it shall, to the extent deemed advisable by the Administrator, be
modified to comply with Rule 16b-3. Notwithstanding the above, it shall be the
responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule
2
<PAGE>
16b-3 or any successor rule thereto, or if any such person incurs any liability
under Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
-------------------------------------
5.1 No Options shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board.
5.2 Each Option shall be evidenced by a written stock option agreement
(the "Option Agreement"), in form satisfactory to the Company, executed by the
Company and the person to whom such Option is granted; provided, however, that
the failure by the Company, the optionee, or both to execute the Option
Agreement shall not invalidate the granting of an Option, although the exercise
of each option shall be subject to Section 6.1.3.
5.3 The Option Agreement shall specify whether each Option it
evidences is an NSO or an ISO.
5.4 Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NSOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. Options
-----------------------------------------------------
granted under this Plan shall be subject to the following terms and conditions:
6.1.1 Changes in Capital. Subject to Section 6.1.2, if the stock
------------------
of the Company is changed by reason of a stock split, reverse stock split, stock
dividend, or recapitalization, combination or reclassification, appropriate
adjustments shall be made by the Board in (a) the number and class of shares of
stock subject to this Plan and each Option outstanding under this Plan, and (b)
the exercise price of each outstanding Option; provided, however, that the
Company shall not be required to issue fractional shares as a result of any such
adjustments. Each such adjustment shall be subject to approval by the Board in
its absolute discretion.
6.1.2 Corporate Transactions. In the event of the proposed
----------------------
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at
3
<PAGE>
least 30 days prior to such proposed action. To the extent not previously
exercised, all Options will terminate immediately prior to the consummation of
such proposed action. In the event of a merger or consolidation of the Company
with or into another corporation or entity, or in the event of a sale of all or
substantially all of the assets of the Company in which the stockholders of the
Company receive securities of the acquiring entity or an affiliate thereof, all
Options shall be assumed or equivalent options shall be substituted by the
successor corporation (or other entity) or a parent or subsidiary of such
successor corporation (or other entity). If such successor does not agree to
assume the Options or to substitute equivalent options therefor, unless the
Administrator shall determine otherwise, the Options shall be fully exercisable
for a period of 30 days from the date notice is given under this Section 6.1.2
and shall terminate upon expiration of such 30-day period.
6.1.3 Time of Option Exercise. Subject to Section 5 and Section
-----------------------
6.3.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the Option Agreement granting the Option, or (b) in
accordance with a schedule related to the date of the grant of the Option, the
date of first employment, or such other date as may be set by the Administrator
(in any case, the "Vesting Base Date") and specified in the Option Agreement
relating to such Option; provided, however, that the right to exercise an Option
must vest at the rate of at least 20% per year over five years from the date the
option was granted. Options granted to officers, directors or consultants may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Board of the
Administrator in accordance with this Plan. In any case, no Option shall be
exercisable until a written Option Agreement in form satisfactory to the Company
is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance approvals
-----------------
described in Section 5.4, the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. Except as otherwise
---------------------------------
determined by the Administrator and expressly set forth in the Option Agreement,
no Option granted under this Plan shall be assignable or otherwise transferable
by the optionee except by will or by the laws of descent and distribution.
During the life of the optionee, except as otherwise determined by the
Administrator and expressly set forth in the Option Agreement, an Option shall
be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
-------
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
4
<PAGE>
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms
and bearing such interest rate as determined by the Administrator (but in
no event less than the minimum interest rate specified under the Code at
which no additional interest would be imputed and in no event more than the
maximum interest rate allowed under applicable usury laws), which
promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security
interest in the shares of the Company);
(b) Delivery by the optionee of Common Stock already
owned by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator; and
(c) Pursuant to a "cashless exercise/sale" procedure
pursuant to which funds to pay for the exercise of the Option are delivered to
the Company by a broker upon receipt of stock certificates from the Company, or
pursuant to which optionees may obtain margin loans from brokers to fund the
exercise of the Option.
6.1.7 Termination of Employment.
-------------------------
(a) If, for any reason other than death, disability or
"cause" (as defined below), an optionee ceases to be employed by the Company or
any of its Affiliates (such event being called a "Termination"), Options held at
the date of Termination (to the extent then exercisable) may be exercised in
whole or in part at any time within 90 days of the date of such Termination, or
such other period of not less than 30 days after the date of such Termination as
is specified in the Option Agreement (but in no event after the Expiration
Date).
(b) If an optionee dies or becomes disabled (within the
meaning of Section 22(c)(3) of the Code) while employed by the Company or an
Affiliate or within the period that the Option remains exercisable after
Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within 12 months after the
death or 12 months after the disability of the optionee, or such other period of
not less than six months from the date of Termination as is specified in the
Option Agreement (but in no event after the Expiration Date).
5
<PAGE>
(c) If an optionee is terminated for "cause," all
Options then held shall terminate and no longer be exercisable as of the date of
Termination.
(d) For purposes of this Section 6.1.7, "employment"
includes service as a director or as a consultant.
(e) For purposes of this Section 6.1.7, an optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.
(f) For purposes of this Section 6.1.7, "cause" shall
mean Termination (i) by reason of optionee's commiss ion of a felony,
misdemeanor or other illegal conduct involving dishonesty, fraud or other
matters of moral turpitude, (ii) by reason of optionee's dishonesty towards,
fraud upon, or deliberate injury or attempted injury to the Company or any of
its Affiliates, or (iii) by reason of optionee's willfully engaging in
misconduct which is materially and demonstrably injurious to the Company or any
of its Affiliates.
6.1.8 Repurchase of Stock. At the option of the Administrator,
-------------------
the stock to be delivered pursuant to the exercise of any Option granted to an
employee, director or consultant under this Plan may be subject to a right of
repurchase in favor of the Company with respect to any employee, or director or
consultant whose employment, or director or consulting relationship with the
Company is terminated. Such right of repurchase shall be exercisable as the
Administrator may determine in the grant of option, either:
(a) at the Option exercise price and (i) shall lapse at
the rate of at least 20% per year over five years from the date the Option is
granted (without regard to the date it was exercised or becomes exercisable),
and must be exercised for cash or cancellation of purchase money indebtedness
within 90 days after such termination of employment (or in the case of
securities issued upon exercise of options after the date of termination, within
90 days after the date of the exercise) ; or
(b) at the higher of the Option exercise price or the
value (determined as set forth in Section 6.1.11) of the stock being repurchased
on the date of termination, and must be exercised for cash or cancellation of
purchase money indebtedness within 90 days of termination of employment (or in
the case of securities issued upon exercise of options after the date of
termination, within 90 days after the date of exercise), and such right shall
terminate when the Company's securities become publicly traded.
6
<PAGE>
In addition to the restrictions set forth in subparagraphs (a) and (b)
above, the shares held by an officer, director or consultant of the issuer or an
affiliate of the issuer may be subject to additional or greater restrictions, at
the absolute discretion of the Administrator.
6.1.9 Withholding and Employment Taxes. At the time of
--------------------------------
exercise of an Option or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the optionee shall remit to the Company
in cash all applicable federal and state withholding and employment taxes. If
authorized by the Administrator in its absolute discretion, after considering
any tax or accounting consequences, an optionee may elect to (i) deliver a full
recourse promissory note on such terms as the Administrator deems appropriate,
(ii) tender to the Company previously owned shares of Stock or other securities
of the Company, or (iii) have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company to pay some or all of the amount
of tax that is required by law to be withheld by the Company as a result of the
exercise of such Option. Any election pursuant to clause (ii) above, where the
optionee is tendering Common Stock issued pursuant to the exercise of an Option,
shall require that such shares have been held at least six months prior to the
Tax Date. Any securities tendered or withheld in accordance with this Section
6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 Other Provisions. Each Option granted under this Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by employees, directors or consultants,
such Options shall provide that the right of first refusal shall terminate upon
the earlier of (i) the closing of the Company's initial registered public
offering to the public generally, or (ii) the date ten years after the grant
date as set forth in Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan, the
----------------------
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
- -------------------
7
<PAGE>
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, by consideration of such factors as the Administrator in its
discretion deems appropriate among the recent issue price of other securities of
the Company, the Company's net worth, prospective earning power, dividend-paying
capacity, and other relevant factors, including the goodwill of the Company, the
economic outlook in the Company's industry, the Company's position in the
industry and its management, and the values of stock of other corporations in
the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.5, no Option shall be
-----------
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the Option Agreement is referred to in this Plan as
the "Expiration Date") .
6.1.13 Exercise Price. The exercise price of any Option granted
--------------
to any person who owns, directly or by attribution under the Code currently
Section 424(d), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.2 Terms and Conditions to Which Only NSOs Are Subject. Except as
---------------------------------------------------
set forth in Section 6.1.13, the exercise price of a NSO shall be not less than
85% of the fair market value (determined in accordance with Section 6.1.11) of
the stock subject to the Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.13, the
--------------
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise
--------------------------
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within
8
<PAGE>
the meaning of Section 422 of the Code, the holder of the stock immediately
before the disposition shall promptly notify the Company in writing of the date
and terms of the disposition and shall provide such other information regarding
the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
----------
employment as provided in Section 5.4, the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Vesting. Notwithstanding any other provision of this Plan,
-------
ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, ISOs with
lower exercise prices shall vest before ISOs with higher exercise prices,
regardless of the grant date.
6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted to
----
any Ten Percent Stockholder shall be exercisable more than five years after the
date of grant.
7. MANNER OF EXERCISE
7.1 An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 6.1.6. The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Option was exercised.
7.2 Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a stockholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
9
<PAGE>
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
-------------------------------------
Nothing in this Plan or any Option granted thereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION
---------------------
The Company shall provide to each optionee during the period such optionee
holds an outstanding Option, and to each holder of Common Stock acquired upon
exercise of Options granted under the Plan for so long as such person is a
holder of such Common Stock, annual financial statements of the Company as
prepared either by the Company or independent certified public accountants of
the Company. Such financial statements shall include, at a minimum, a balance
sheet and an income statement, and shall be delivered as soon as practicable
following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES
----------------------------------
Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
11. NONEXCLUSIVITY OF THE PLAN
--------------------------
The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.
12. MARKET STANDOFF
---------------
Each Optionee, if so requested by the Company or any representative of the
underwriters in connection with any registration of the offering of any
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), shall not sell or otherwise transfer any shares of Common
Stock acquired upon exercise of Options during the 180-day period following the
effective date of a registration statement of the company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first two registration statements of the Company to become effective under the
Securities Act which includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restriction until the end of such 180-day period.
10
<PAGE>
13. AMENDMENTS TO PLAN
------------------
The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
stockholder approval is advisable.
14. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the stockholders of the Company, or approval of stockholders of the Company
voting at a validly called stockholders' meeting, is obtained within 12 months
after adoption by the Board. If such stockholder approval is not obtained within
such time, Options granted hereunder shall terminate and be of no force and
effect from and after expiration of such 12-month period. Options may be
granted and exercised under this Plan only after there has been compliance with
all applicable federal and state securities laws.
Plan adopted by the Board of Directors on February 10, 2000.
Plan approved by Stockholders on ___________, 2000.
11
<PAGE>
EXHIBIT 10.3
PAYMAP INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
-------
This Plan is intended to allow Employees of the Company and its Designated
Subsidiaries to purchase Common Stock through accumulated Payroll deductions.
2. Defined Terms.
-------------
The meanings of defined terms (generally, capitalized terms) in this Plan
are provided in Section 23 ("Glossary").
3. Eligibility.
-----------
(a) Participation. Any person who is an Employee on an Offering Date
-------------
shall be eligible to participate in this Plan during the corresponding Offering
Period.
(b) No Participation by Five-Percent Stockholders. Notwithstanding
---------------------------------------------
Section 3(a), an Employee shall not participate in this Plan during an Offering
Period if immediately after the grant of a Purchase Right on the Offering Date,
the Employee would own stock possessing five percent or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary. For this purpose, an Employee is treated as owning stock owned by
any other person whose stock would be attributed to the Employee under Section
424(d) of the Code and stock that he or she could purchase by exercise of
Purchase Rights or other options.
4. Offering Periods.
----------------
Except as otherwise determined by the Administrator:
(a) the first Offering Period under this Plan shall begin on the first
business day before the effective date of a firmly underwritten initial public
offering of Common Stock and shall end on the last trading day of September
2000;
(b) a new Offering Period shall begin on the first business day of each
April and October while this Plan is in effect;
(c) the duration of each Offering Period (other than the first Offering
Period) shall be 6 months (measured from the first business day of the first
month to the last business day of the 6th month); and
(d) an Offering Period shall terminate on the first date that no
Participant is enrolled in it.
<PAGE>
5. Participation.
-------------
(a) An Employee may become a Participant in this Plan by completing a
subscription agreement, in such form as the Administrator may approve from time
to time, and delivering it to the Administrator by 1 p.m. Pacific time on the
applicable Offering Date, unless another time for filing the subscription
agreement is set by the Administrator for all Employees with respect to a given
Offering Period. The subscription agreement shall authorize Payroll deductions
pursuant to this Plan and shall have such other terms as the Administrator may
specify from time to time.
(b) At the end of an Offering Period, each Participant in the Offering
Period who remains an Employee shall be automatically enrolled in the next
succeeding Offering Period (a "Re-enrollment") unless, in a manner and at a time
specified by the Administrator, but in no event later than 1 p.m. Pacific time
on the Offering Date of such succeeding Offering Period, the Participant
notifies the Administrator in writing that the Participant does not wish to be
re-enrolled. Re-enrollment shall be at the withholding percentage specified in
the Participant's most recent subscription agreement. No Participant shall be
automatically re-enrolled whose participation has terminated by operation of
Section 10.
6. Payroll Deductions.
------------------
(a) Payroll deductions under this Plan shall be in whole percentages, from
a minimum of 1% up to a maximum (not to exceed 10%) established by the
Administrator from time to time, as specified by the Participant in his or her
subscription agreement in effect on the first day of an Offering Period.
Payroll deductions for a Participant shall begin with the first payroll payment
date of the Offering Period and shall end with the last payroll payment date of
the Offering Period, unless sooner terminated by the Participant as provided in
Section 10.
(b) A Participant's Payroll deductions shall be credited to his or her
account under this Plan. A Participant may not make any additional payments
into his or her account.
(c) A Participant may reduce his or her Payroll deductions by any whole
percentage (but not below 0%) at any time during an Offering Period, effective
15 days after the Participant files with the Administrator a new subscription
agreement authorizing the change. A Participant may make other changes to his
or her Payroll deductions at the beginning of an Offering Period by delivering a
new subscription agreement authorizing the change to the Administrator by 1 p.m.
Pacific time on the relevant Offering Date.
7. Purchase Rights.
---------------
(a) Grant of Purchase Rights. On the Offering Date of each Offering
------------------------
Period, the Participant shall be granted a Purchase Right to purchase during the
Offering Period the number of shares of Common Stock determined by dividing (i)
$25,000 multiplied by the number of (whole or part) calendar years in the
Offering Period by (ii) the fair market value of a share of Common Stock on the
Offering Date; provided that no Participant shall be entitled to purchase, under
this Plan or any other employee stock purchase plan of the Company or any
Subsidiary,
2
<PAGE>
Common Stock having a total fair market value (measured on the Offering Dates of
the Offering Periods in which such shares were purchased) of more than $25,000.
(b) Terms of Purchase Rights. Except as otherwise determined by the
------------------------
Administrator, each Purchase Right shall have the following terms:
(i) The per-share price of the shares subject to a Purchase Right
shall be 85% of the lower of the fair market values of a share of Common
Stock on (a) the Offering Date on which the Purchase Right was granted and
(b) the Purchase Date. The fair market value of the Common Stock on a
given date shall be the closing price as reported in the Wall Street
Journal; provided, however, that if there is no public trading of the
-------- --------
Common Stock on that date, then fair market value shall be determined by
the Administrator in its discretion.
(ii) Payment for shares purchased by exercise of Purchase Rights
shall be made only through Payroll deductions under Section 6.
(iii) Upon purchase or disposition of shares acquired by exercise of
a Purchase Right, the Participant shall pay, or make provision satisfactory
to the Administrator for payment of, all tax (and similar) withholdings
that the Administrator determines, in its discretion, are required due to
the acquisition or disposition, including without limitation any such
withholding that the Administrator determines in its discretion is
necessary to allow the Company and its Subsidiaries to claim tax deductions
or other benefits in connection with the acquisition or disposition.
(iv) During his or her lifetime, a Participant's Purchase Right is
exercisable only by the Participant.
(v) Purchase Rights will in all respects be subject to the terms and
conditions of this Plan, as interpreted by the Administrator from time to
time.
8. Purchase Dates; Purchase of Shares; Refund of Excess Cash.
---------------------------------------------------------
(a) The Administrator shall establish one or more Purchase Dates for each
Offering Period. Unless otherwise determined by the Administrator, the last
trading day of each March and September shall be a Purchase Date.
(b) Each then-outstanding Purchase Right shall be exercised automatically
on each Purchase Date, following addition to the Participant's account of that
day's Payroll deductions, to purchase the maximum number of full shares of
Common Stock at the applicable price using the Participant's accumulated Payroll
deductions, subject to the limitation in Section 7(a).
(c) The shares purchased upon exercise of a Purchase Right shall be deemed
to be transferred to the Participant on the Purchase Date.
3
<PAGE>
(d) Any cash remaining in a Participant's Payroll deduction account after
the purchase of shares on a Purchase Date shall be carried forward in that
account for application on the next Purchase Date; provided that upon
--------
termination of an Offering Period, any such cash shall be promptly refunded to
the Participant.
9. Registration and Delivery of Share Certificates.
-----------------------------------------------
(a) Shares purchased by a Participant under this Plan will be registered
in the name of the Participant, or in the name of the Participant and his or her
spouse, or in the name of the Participant and joint tenant(s) (with right of
survivorship), as designated by the Participant.
(b) As soon as administratively feasible after each Purchase Date, the
Company shall deliver to the Participant a certificate representing the shares
purchased upon exercise of a Purchase Right. If approved by the Administrator
in its discretion, the Company may instead (i) deliver a certificate (or
equivalent) to a broker for crediting to the Participant's account or (ii) make
a notation in the Participant's favor of non-certificated shares on the
Company's stock records.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may withdraw all, but not less than all, the Payroll
deductions credited to his account under this Plan before a Purchase Date by
giving written notice to the Administrator, in a form the Administrator
prescribes from time to time, at least 15 days before the Purchase Date.
Payroll deductions will then cease as to the Participant, no purchase of shares
will be made for the Participant on the Purchase Date, and all Payroll
deductions then credited to the Participant's account will be refunded promptly.
(b) Upon termination of a Participant's Continuous Employment for any
reason, including retirement or death, all Payroll deductions credited to the
Participant's account will be promptly refunded to the Participant or, in the
case of death, to the person or persons entitled thereto under Section 14, and
the Participant's Purchase Right will automatically terminate.
(c) A Participant's withdrawal from an offering will not affect the
Participant's eligibility to participate in a succeeding offering or in any
similar plan that may be adopted by the Company.
11. Use of Funds; No Interest.
-------------------------
Amounts withheld from Participants under this Plan shall constitute general
funds of the Company, may be used for any corporate purpose, and need not be
segregated from other funds. No interest shall accrue on a Participant's
Payroll deductions.
12. Number of Shares Reserved.
-------------------------
(a) The following numbers of shares of Common Stock are reserved for
issuance under this Plan, and such number may be issued at any time before
termination of this Plan:
4
<PAGE>
(i) Beginning the date of approval of this Plan by the stockholders
of the Company, 275,000 shares of Common Stock; and
(ii) Beginning the first business day of each calendar year starting
January 1, 2001 or after, the lesser of an additional (A) 137,500 shares of
Common Stock, (B) 0.5% of the outstanding shares of capital stock on such
date, or (C) an amount determined by the Board.
(b) If the total number of shares that would otherwise be subject to
Purchase Rights granted on an Offering Date exceeds the number of shares then
available under this Plan (after deduction of all shares for which Purchase
Rights have been exercised or are then exercisable), the Administrator shall
make a pro-rata allocation of the available shares in a manner that it
determines to be as uniform and equitable as practicable. In such event, the
Administrator shall give written notice of the reduction and allocation to each
Participant.
(c) The Administrator may, in its discretion, transfer shares reserved for
issuance under this Plan into a plan or plans of similar terms, as approved by
the Board, providing for the purchase of shares of Common Stock to employees of
Subsidiaries designated by the Board that do not (or do not thereafter)
participate in this Plan. Such additional plans may, without limitation,
provide for variances from the terms of this Plan to take into account special
circumstances (such as foreign legal restrictions) affecting the employees of
the designated Subsidiaries.
13. Administration.
--------------
This Plan shall be administered by the Board or by such directors,
officers, and employees of the Company as the Board may select from time to time
(the "Administrator"). All costs and expenses incurred in administering this
Plan shall be paid by the Company, provided that any taxes applicable to an
Employee's participation in this Plan may be charged to the Employee by the
Company. The Administrator may make such rules and regulations as it deems
necessary to administer this Plan and to interpret any provision of this Plan.
Any determination, decision, or action of the Administrator in connection with
the construction, interpretation, administration, or application of this Plan or
any right granted under this Plan shall be final, conclusive, and binding upon
all persons, and no member of the Administrator shall be liable for any such
determination, decision, or action made in good faith.
14. Designation of Beneficiary.
--------------------------
(a) A Participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the Participant's account under
this Plan in the event of the Participant's death.
(b) A designation of beneficiary may be changed by the Participant at any
time by written notice. In the event of the death of a Participant, and in the
absence of a beneficiary validly designated under this Plan who is living at the
time of the Participant's death, the
5
<PAGE>
Administrator shall deliver such shares and/or cash to the executor or
administrator of the Participant's estate, or if no such executor or
administrator has been appointed (to the Administrator's knowledge), the
Administrator, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant or, if
no spouse, dependent, or relative is known to the Administrator, then to such
other person as the Administrator may designate.
15. Transferability.
---------------
Neither Payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of a Purchase Right or to receive shares
under this Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way (other than by will, the laws of descent and distribution, or as
provided in Section 14) by the Participant. Any such attempt at assignment,
transfer, pledge, or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw funds in accordance
with Section 10.
16. Reports.
-------
Individual accounts will be maintained for each Participant in this Plan.
Statements of account will be given to participating Employees promptly
following each Purchase Date, setting forth the amounts of Payroll deductions,
per-share purchase price, number of shares purchased, and remaining cash
balance, if any.
17. Adjustments upon Changes in Capitalization.
------------------------------------------
(a) Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each unexercised Purchase Right and
the number of shares of Common Stock authorized for issuance under this Plan but
not yet been placed under a Purchase Right (collectively, the "Reserves"), as
well as the price per share of Common Stock covered by each unexercised Purchase
Right, shall be proportionately adjusted for any change in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any change in
the number of shares of Common Stock effected without receipt of consideration
by the Company (not counting shares issued upon conversion of convertible
securities of the Company as "effected without receipt of consideration"). Such
adjustment shall made by the Board and shall be final, binding, and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no consequent adjustment shall be made with respect to, the number
or price of shares of Common Stock subject to a Purchase Right.
(b) In the event of the proposed dissolution or liquidation of the
Company, the then-current Offering Period will terminate immediately before the
consummation of the proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the Company's
assets, or the merger of the Company with or into another corporation (if the
Company's stockholders own less than 50% of the total outstanding voting power
in the surviving entity or a parent of the surviving entity after the merger),
each Purchase
6
<PAGE>
Right under this Plan shall be assumed or an equivalent purchase
right shall be substituted by the successor corporation or a parent or
subsidiary of the successor corporation, unless the successor corporation does
not agree to assume the Purchase Rights or to substitute equivalent purchase
rights, in which case the Board may, in lieu of such assumption or substitution,
accelerate the exercisability of Purchase Rights and allow Purchase Rights to be
exercisable as to shares as to which they would not otherwise be exercisable, on
terms and for a period that the Board determines in its discretion. To the
extent that the Board accelerates exercisability of Purchase Rights as
described above, it shall promptly so notify all Participants in writing.
(c) The Board may, in its discretion, also make provision for adjusting
the Reserves, as well as the price per share of Common Stock covered by each
outstanding Purchase Right, if the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its outstanding Common Stock, or if the Company consolidates with or merges
into any other corporation, in a transaction not otherwise covered by this
Section 17.
18. Amendment or Termination.
------------------------
(a) The Board may at any time terminate or amend this Plan. No amendment
may be made without prior approval of the stockholders of the Company (obtained
in the manner described in Section 20) if it would increase the number of shares
that may be issued under this Plan.
(b) The Board may elect to terminate any or all outstanding Purchase
Rights at any time, except to the extent that exercisability of such Purchase
Rights has been accelerated pursuant to Section 17(b). If this Plan is
terminated, the Board may also elect to terminate Purchase Rights upon
completion of the purchase of shares on the next Purchase Date or to permit
Purchase Rights to expire in accordance with their terms (with participation to
continue through such expiration dates). If Purchase Rights are terminated
before expiration, any funds contributed to this Plan that have not been used to
purchase shares shall be refunded to Participants as soon as administratively
feasible.
19. Notices.
-------
All notices or other communications by a Participant to the Company or the
Administrator under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for that purpose.
20. Stockholder Approval.
--------------------
This Plan shall be submitted to the stockholders of the Company for their
approval within 12 months after the date this Plan is adopted by the Board.
21. Conditions upon Issuance of Shares.
----------------------------------
7
<PAGE>
(a) Shares shall not be issued with respect to a Purchase Right unless the
exercise of such Purchase Right and the issuance and delivery of such shares
pursuant thereto complies with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of a Purchase Right, the Company may
require the person exercising such Purchase Right to represent and warrant at
the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned applicable provisions of law.
22. Term of Plan.
------------
This Plan shall become effective upon the earlier of its adoption by the
Board or its approval by the stockholders of the Company as described in Section
20. It shall continue in effect for a term of 20 years unless sooner terminated
under Section 18.
23. Glossary. The following definitions apply for purposes of this Plan:
--------
(a) "Administrator" means the Board or the persons appointed by the Board
-------------
to administer this Plan pursuant to Section 13.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the Common Stock of the Company.
------------
(e) "Company" means PayMap Inc., a Delaware corporation.
-------
(f) "Continuous Employment" means the absence of any interruption or
---------------------
termination of service as an Employee. Continuous Employment shall not be
considered interrupted in the case of a leave of absence agreed to in writing by
the Company, provided that either (i) the leave does not exceed 90 days or (ii)
re-employment upon expiration of the leave is guaranteed by contract or statute.
(g) "Designated Subsidiaries" means the Subsidiaries that have been
-----------------------
designated by the Board from time to time in its sole discretion to participate
in this Plan.
(h) "Employee" means any person, including an officer, who is customarily
--------
employed for at least 20 hours per week and five months per year by the Company
or one of its Designated Subsidiaries. Whether an individual qualifies as an
Employee shall be determined by the
8
<PAGE>
Administrator, in its sole discretion, by reference to Section 3401(c) of the
Code and the regulations promulgated thereunder; unless the Administrator makes
a contrary determination, the Employees of the Company shall, for all purposes
of this Plan, be those individuals who satisfy the customary employment criteria
set forth above and are carried as employees by the Company or a Designated
Subsidiary for regular payroll purposes.
(i) "Offering Date" means the first business day of an Offering Period.
-------------
(k) "Offering Period" means a period established by the Administrator
---------------
pursuant to Section 4 during which Payroll deductions are accumulated from
Participants and applied to the purchase of Common Stock.
(l) "Participant" means an Employee who has elected to participate in this
-----------
Plan pursuant to Section 5.
(m) "Payroll" means all regular, straight-time gross earnings, exclusive
-------
of payments for overtime, shift premium, incentive compensation or payments,
bonuses, and commissions.
(m) "Plan" means this Paymap Inc. 2000 Employee Stock Purchase Plan.
----
(n) "Purchase Date" means such business days during each Offering Period
-------------
as may be established by the Administrator for the purchase of Common Stock
pursuant to Section 8.
(o) "Purchase Right" means a right to purchase Common Stock granted
--------------
pursuant to Section 7.
(p) "Subsidiary" means, from time to time, any corporation, domestic or
----------
foreign, of which not less than 50% of the voting shares are held by the Company
or another Subsidiary of the Company.
9
<PAGE>
Exhibit 10.4
2000 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
PAYMAP INC.
1. PURPOSES OF THE PLAN
--------------------
The purposes of the 2000 Nonemployee Directors Stock Option Plan of
Paymap Inc., a Delaware corporation, are: (a) to encourage Nonemployee Directors
to accept or continue their association with the Company; and (b) to increase
the interest of Nonemployee Directors in the Company's operations and increased
profits through participation in the growth in value of the Common Stock of the
Company.
2. DEFINITIONS
-----------
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or a
-------------
committee appointed by the Board, responsible for administering this Plan, as
provided in Section 5.
(b) "Affiliate" shall mean a parent or subsidiary corporation as
---------
defined in the applicable provisions of the Code.
(c) "Annual Option" shall have the meaning set forth in Section 6(b).
-------------
(d) "Board" shall mean the Board of Directors of the Company, as
-----
constituted from time to time.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Common Stock" shall mean the Common Stock of the Company.
------------
(g) "Company" shall mean Paymap Inc., a Delaware corporation.
-------
(h) "Director Fee" shall mean the cash amount, if any, a Nonemployee
------------
Director shall be entitled to receive for serving as a director of the Company
in any fiscal year.
(i) "Fair Market Value" shall mean, as of the date in question, the
-----------------
last transaction price quoted by the Nadsaq National Market System on the date
of grant; provided, however, that if the Common Stock is not traded on such
-------- -------
market system or the
<PAGE>
foregoing shall otherwise be inappropriate, then the Fair Market Value shall be
determined by the Administrator in good faith at its sole discretion and on such
basis as it shall deem appropriate. Such determination shall be conclusive and
binding on all persons.
(j) "Initial Option" shall have the meaning set forth in Section
--------------
6(a).
(k) "Nonemployee Director" shall mean any person who is a member of
--------------------
the Board but is not an employee of the Company or any Parent or Subsidiary of
the Company and has not been an employee of the Company or any Parent or
Subsidiary of the Company at any time during the preceding 12 months.
(l) "Option" shall mean a stock option granted pursuant to this Plan.
------
(m) "Option Agreement" shall mean the written agreement described in
----------------
Section 6(c) evidencing the grant of an Option to a Nonemployee Director and
containing the terms, conditions and restrictions pertaining to such Option.(n)
"Option Shares" shall mean the Shares subject to an Option granted under this
Plan.
(o) "Optionee" shall mean a Nonemployee Director who holds an Option.
--------
(p) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this 2000 Nonemployee Directors Stock Option
----
Plan of Paymap Inc., as it may be amended from time to time.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
----------
and Exchange Commission, or any successor rule thereto.
(s) "Section" unless the context clearly indicates otherwise, shall
-------
refer to a Section of this Plan.
(t) "Share" shall mean a share of Common Stock, as adjusted in
-----
accordance with Section 7(a).
(u) "Subsidiary" shall mean a "subsidiary corporation" of the
----------
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code, but only for so long as it is a "subsidiary corporation".
2
<PAGE>
3. ELIGIBLE PERSONS
----------------
Every person who at the date of grant of an Option is a Nonemployee
Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
--------------------------
Subject to Section 7(a) of this Plan, the maximum aggregate number of
Shares which may be issued on exercise of Options granted pursuant to this Plan
is 275,000 Shares. The Shares covered by the portion of any grant under the
Plan which expires unexercised shall become available again for grants under the
Plan.
5. ADMINISTRATION
--------------
(a) This Plan shall be administered by the Board, or by a committee
(the "Committee") of at least two Board members to which administration of the
Plan is delegated (in either case, the "Administrator"), in accordance with the
requirements of Rule 16b-3.
(b) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its sole discretion: (i) to determine the Fair
Market Value of the Shares subject to Option; (ii) to interpret this Plan; (iii)
to prescribe, amend and rescind rules and regulations relating to this Plan;
(iv) to defer (with the consent of the Optionee) or accelerate the exercise date
of any Option; (v) to authorize any person to execute on behalf of the Company
any instrument evidencing the grant of an Option; and (vi) to make all other
determinations deemed necessary or advisable for the administration of this
Plan. The Administrator may delegate nondiscretionary administrative duties to
such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation and application of
this Plan shall be determined by the Administrator. Such determination shall be
final and binding on all persons.
6. GRANT OF OPTIONS
----------------
(a) Grant for Initial Election or Appointment to Board. Subject to
--------------------------------------------------
the terms and conditions of this Plan, beginning at any time after the Company's
2000 Annual Stockholder's meeting if any person who is not an officer or
employee of the Company is first elected or appointed as a member of the Board
and is otherwise considered a "Nonemployee Director" as defined herein, then the
Company shall grant to such Nonemployee Director on such day an Option to
purchase 16,500 Shares ("Initial Option") at an exercise price equal to the Fair
Market Value of such Shares on the date of such Initial Option grant, subject to
the limitation of Section 7(i).
3
<PAGE>
(b) Grant for Re-election to Board. Subject to the terms and
------------------------------
conditions of this Plan, on the date of the first meeting of the Board
immediately following each annual meeting of stockholders of the Company
beginning with the Company's 2000 Annual Stockholders Meeting (even if held on
the same day as the meeting of stockholders) the Company shall grant to each
Nonemployee Director then in office for longer than six months, an Option to
purchase 5,500 shares (the "Annual Option") at an exercise price equal to the
Fair Market Value of such Shares.
(c) No Option shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board. Each Option shall be evidenced
by a written Option Agreement, in form and substance satisfactory to the
Company, executed by the Company and the Optionee. Failure by the Company, the
Nonemployee Director, or both to execute an Option Agreement shall not
invalidate the granting of an Option; however, the Option may not be exercised
until the Option Agreement has been executed by both parties.
7. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in this Section 7.
(a) Changes in Capital Structure. Subject to subsection 7(b), if the
Common Stock is changed by reason of a stock split, reverse stock split, stock
dividend, or recapitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation, or reorganization,
appropriate adjustments shall be made in: (i) the number and class of shares of
Common Stock subject to this Plan and each Option outstanding under this Plan;
and (ii) the exercise price of each outstanding Option; provided, however, that
-------- -------
the Company shall not be required to issue fractional shares as a result of any
such adjustment. Each such adjustment shall be subject to approval by the
Administrator in its sole discretion.
(b) Corporate Transactions. In the event of a merger, consolidation,
----------------------
reorganization, similar transaction or series of related transactions in which
the holders of the Company's outstanding shares immediately before such
transaction or series of transactions do not, immediately after such transaction
or series of transactions, retain stock representing a majority of the voting
power of the surviving entity or in the event of a sale of all or substantially
all of the assets of the Company, all outstanding Options shall become vested,
and any right of repurchase shall lapse, immediately prior to the consummation
of such transaction, and each Option shall thereafter remain exercisable for a
period of thirty days from the consummation of such transaction.
4
<PAGE>
(c) Time of Option Exercise. Subject to the other provisions of this
-----------------------
Plan, each Option shall be for a term of ten years. Each Option shall be
exercisable in full on the date of grant. At the discretion of the
Administrator, the Company shall have a right of repurchase of Option Shares.
The Administrator shall have the discretion to specify the times at which such
right of repurchase shall lapse; provided, however, that the right of repurchase
-------- -------
must lapse at the rate of at least 25% per year over four years from the date
the option was granted.
(d) Limitation on Other Grants. The Administrator shall have no
--------------------------
discretion to grant Options under this Plan other than as set forth in Sections
6(a) and 6(b).
(e) Nonassignability of Option Rights. No Option shall be assignable
---------------------------------
or otherwise transferable by the Optionee, except by will or the laws of descent
and distribution. During the life of an Optionee, an Option shall be
exercisable only by the Optionee.
(f) Payment. Except as provided below, payment in full, in cash,
-------
shall be made for all Option Shares purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. Payment may also be made pursuant to a
cashless exercise/sale procedure. At the time an Option is granted or
exercised, the Administrator, in its absolute discretion, may authorize any one
or more of the following additional methods of payment: (i) acceptance of the
Optionee's full recourse promissory note for all or part of the Option price,
less any par value per share, which must be paid in cash, payable on such terms
and bearing such interest rate as determined by the Administrator (but in no
event less than the minimum interest rate specified under the Code at which no
additional interest on debt instruments of such type would be imputed), which
promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security
interest in the Shares); (ii) delivery by the Optionee of Common Stock already
owned by the Optionee for all or part of the Option price, provided the Fair
Market Value of such Common Stock is equal on the date of exercise to the Option
price, or such portion thereof as the Optionee is authorized to pay by delivery
of such stock; provided, however, that if an Optionee has exercised any portion
-------- -------
of any Option granted by the Company by delivery of Common Stock, the Optionee
may not, within six months following such exercise, exercise any Option granted
under this Plan by delivery of Common Stock; and (iii) any other consideration
and method of payment to the extent permitted under the Delaware General
Corporation Law.
(f) Termination as Director. Unless determined otherwise by the
-----------------------
Administrator in its absolute discretion, to the extent not already expired or
exercised, an
5
<PAGE>
Option shall terminate at the earlier of: (i) the expiration of the term of the
Option; or (ii) three months after the last day served by the Optionee as a
director of the Company; provided, that an Option shall be exercisable after the
--------
date of termination of service as a director only to the extent exercisable on
the date of termination; and provided further, that if termination of service as
----------------
a director is due to the Optionee's death or "disability" (as determined in
accordance with Section 22(e)(3) of the Code), the Optionee, or the Optionee's
personal representative (or any other person who acquires the Option from the
Optionee by will or the applicable laws of descent and distribution), may at any
time within 12 months after the termination of service as a director (or such
lesser period as is specified in the Option Agreement but in no event after the
expiration of the term of the Option), exercise the rights to the extent they
were exercisable on the date of the termination.
(g) Withholding and Employment Taxes. At the time of exercise of an
--------------------------------
Option (or at such later time(s) as the Administrator may prescribe), the
Optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. If authorized by the Administrator in its
sole discretion, an Optionee shall be permitted to elect, by means of a form of
election to be prescribed by the Administrator, to have shares of Common Stock
which are acquired upon exercise of the Option withheld by the Company or to
tender to the Company other shares of Common Stock or other securities of the
Company owned by the Optionee on the date of determination of the amount of tax
to be withheld as a result of the exercise of such Option (the "Tax Date") to
pay the amount of withholding taxes due. Any securities so withheld or tendered
shall be valued by the Company as of the Tax Date.
(h) Option Term. Each Option shall expire ten years after the date
-----------
of grant.
(i) Exercise Price. The exercise price of any Option granted to any
--------------
person who owns, directly or by attribution under the Code currently Section
424(d), stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "Ten Percent
Stockholder") shall in no event be less than 110% of the fair market value
(determined in accordance with 2(i) of the stock covered by the Option at the
time the Option is granted.
8. MANNER OF EXERCISE
------------------
(a) An Optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 7(e) and, if required, by payment
of any federal or state withholding or employment taxes required to be withheld
due to exercise of the Option.
6
<PAGE>
The date the Company receives written notice of an exercise accompanied by
payment of the exercise price and any required federal or state withholding or
employment taxes will be considered as the date such Option was exercised.
Unless otherwise provided by the Administrator, Options may be exercised only
twice in any calendar year.
(b) Promptly after the date an Option is exercised, the Company
shall, without stock issue or transfer taxes to the optionee or other person
entitled to exercise the Option, deliver to the Optionee or such other person a
certificate or certificates for the requisite number of shares of Common Stock.
An Optionee or transferee of an Optionee shall not have any privileges as a
stockholder with respect to any Common Stock covered by the Option until the
date of issuance of a stock certificate.
9. NO RIGHT TO DIRECTORSHIP
------------------------
Neither this Plan nor any Option shall confer upon any Optionee any
right with respect to continuation of the Optionee's membership on the Board or
shall interfere in any way with provisions in the Company's Certificate of
Incorporation, as amended, and Bylaws, as amended, relating to the election,
appointment, terms of office, and removal of members of the Board.
10. LEGAL REQUIREMENTS
------------------
The Company shall not be obligated to offer or sell any Shares upon
exercise of any Option unless the Shares are at that time effectively registered
or exempt from registration under the federal securities laws and the offer and
sale of the Shares are otherwise in compliance with all applicable securities
laws and the regulations of any stock exchange on which the Company's securities
may then be listed. The Company shall have no obligation to register the Shares
covered by this Plan under the federal securities laws or take any other steps
as may be necessary to enable the Shares covered by this Plan to be offered and
sold under federal or other securities laws. Upon exercising all or any portion
of an Option, an Optionee may be required to furnish representations or
undertakings deemed appropriate by the Company to enable the offer and sale of
the Shares or subsequent transfers of any interest in the Shares to comply with
applicable securities laws. Certificates evidencing Shares acquired upon
exercise of Options shall bear any legend required by, or useful for purposes of
compliance with, applicable securities laws, this Plan or the Option Agreements.
11. AMENDMENTS TO PLAN
------------------
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may adversely affect outstanding Options. No amendment
shall require stockholder approval unless:
7
<PAGE>
(a) stockholder approval is required to meet the exemptions provided
by Rule 16b-3, or any successor rule thereto or under applicable state statutes;
or
(b) the Board otherwise concludes that stockholder approval is
advisable.
12. STOCKHOLDER APPROVAL; TERM
--------------------------
This Plan shall become effective upon adoption by the Board of
Directors; provided, however, that no Option shall be exercisable unless and
-------- -------
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called stockholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within 12
months after adoption by the Board. This Plan shall terminate ten years after
adoption by the Board unless terminated earlier by the Board. The Board may
terminate this Plan at any time without stockholder approval. No Options shall
be granted after termination of this Plan, but termination shall not affect
rights and obligations under then-outstanding Options.
Adopted by the Board of Directors: February 10, 2000
Approved by the Stockholders: _____________, 2000
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is effective as of the
____ day of _________, 2000, by and between Paymap Inc., a Delaware corporation
(the "Company"), and ___________________, an individual ("Indemnitee").
BACKGROUND
A. Indemnitee is a member of the Board of Directors or is an executive
officer of the Company and, in that capacity, performs a valuable service for
the Company. For a variety of reasons, including the frequency, magnitude and
often baseless nature of claims and actions brought against corporate directors
and officers generally, it is difficult for corporations to attract and retain
highly competent persons as directors and officers. In addition, there exists
uncertainty, both as to matters of "substance" and "procedure," about the
protection against such claims provided by statutory, charter and bylaw
provisions and through "director and officer" insurance.
B. The Company's Bylaws also provide for indemnification of, and
advancement of expenses to, the directors and officers of the Company to the
maximum extent authorized by the Delaware General Corporation Law, as amended
(the "DGCL"), and, together with the DGCL, permits, by its nonexclusive nature,
the establishment of indemnification agreements between the Company and its
directors and officers.
C. In order to induce Indemnitee to continue to serve as a member of the
Board of Directors or as an executive officer and to clarify the specific
procedure for addressing indemnification matters if and as they arise, the
Company and the Indemnitee hereby agree to contractual indemnification
arrangements on the terms set forth in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement, the following terms have
-----------
the following meanings:
a. "Agent" means any person (i) who is or was a director,
officer, employee or other agent of the Company or (ii) who is or was serving at
the request of the Company, or otherwise as a result of that person's
relationship with the Company, as a director, officer, employee or other agent
of another foreign or domestic corporation or of any partnership, joint venture,
trust or other enterprise (including, without limitation, service with respect
to employee benefit plans).
b. "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by
<PAGE>
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company's
then outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
c. "Disinterested Director" means a director of the Company who
neither is nor was a party to the Proceeding in respect of which indemnification
is sought under this Agreement or otherwise.
d. "Expenses" includes any and all direct and indirect costs
(including, without limitation, attorneys' fees and disbursements, court costs,
fees and expenses of witnesses, experts, professional advisers and private
investigators, arbitration expenses, costs of attachment, appeal or similar
bonds, travel expenses, duplicating, printing and binding costs, telephone
charges, postage, delivery service fees, and any and all other disbursements or
out-of-pocket expenses) actually and reasonably incurred by or on behalf of
Indemnitee in connection with either (i) the investigation, defense, settlement
or appeal of, or being a witness or participant in, a Proceeding (including
preparing for any of the foregoing) or (ii) the establishment or enforcement of
any right to indemnification under this Agreement or otherwise or any right to
recovery under any liability insurance policy maintained by the Company;
provided, however, that "Expenses" shall not include any judgments, fines or
amounts paid in settlement.
e. "Independent Counsel" means a law firm or attorney that
neither is presently nor in the past two years has been retained to represent:
(i) the Company or Indemnitee in any matter material to the Company or
Indemnitee, or (ii) any other party to the Proceeding in respect of which
indemnification is sought under this Agreement or otherwise. In addition, the
term "Independent Counsel" does not include any law firm or attorney who, under
the applicable standards of professional conduct then
-2-
<PAGE>
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's right to indemnification
under this Agreement or otherwise.
f. "Liabilities" means liabilities and losses of any type
whatsoever, including, without limitation, judgments, fines, excise taxes and
penalties (including, without limitation, ERISA excise taxes and penalties) and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such liabilities and
losses), actually incurred by Indemnitee in connection with or as a result of a
Proceeding.
g. "Potential Change in Control" shall be deemed to have
occurred if
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Change in Control;
(iii) any person, other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases such person's beneficial ownership of
such securities by five percentage points or more over the initial percentage of
such securities equal to or exceeding 9.5% so owned by such person; or (iv) the
Board of Directors of the Company adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
h. "Proceeding" means any threatened, pending or completed
action, suit or proceeding (including any inquiry, hearing, arbitration
proceeding or alternative dispute resolution mechanism), whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Company), to which Indemnitee is or was a party, witness or other
participant, or is threatened to be made a party, witness or other participant,
by reason of the fact that Indemnitee is or was an Agent, or by reason of
anything done or not done by Indemnitee in that capacity or in any other
capacity while serving as an Agent, whether before or after the date of this
Agreement. "Proceeding" shall not include any Proceeding initiated by Indemnitee
(other than as contemplated by Sections 3(d) or 6 of this Agreement) unless such
Proceeding was authorized or consented to by the Board of Directors of the
Company.
i. "Voting Securities" means any securities of the Company which
vote generally in the election of directors.
-3-
<PAGE>
2. Agreement to Indemnify. Subject to the terms and conditions of, and in
----------------------
accordance with the procedures set forth in, this Agreement, the Company shall
hold Indemnitee harmless and indemnify Indemnitee (and Indemnitee's spouse as
provided below), to the fullest extent permitted by the provisions of the DGCL
and other applicable law, from and against all Expenses and Liabilities,
including, without limitation, Expenses and Liabilities arising from any
Proceeding brought by or in the right of the Company or its stockholders. The
Company and Indemnitee intend that this Agreement provide for indemnification in
excess of that expressly required, granted or permitted by statute, including,
without limitation, any indemnification provided by the Company's Certificate of
Incorporation or Bylaws, or by vote of its stockholders or directors, or by
applicable law. If, after the date hereof, the DGCL or any other applicable law
is amended to permit or authorize indemnification of, or advancement of defense
expenses to, Indemnitee to a greater extent than is permitted on the date
hereof, references in this Agreement to the DGCL or any other applicable law
shall be deemed to refer to the DGCL or such applicable law as so amended.
3. Procedural Matters.
------------------
a. Initial Request. Whenever Indemnitee believes that, in a specific
case, Indemnitee is then entitled to indemnification under this Agreement or
under the Company's Certificate of Incorporation or Bylaws, the DGCL or
otherwise, Indemnitee shall submit a written notice to the Company requesting an
authorization and determination by the Company to that effect. The notice shall
describe the matter giving rise to the request and be accompanied by all
appropriate supporting documentation reasonably available to Indemnitee.
b. Determination and Payment. The Company shall make a determination
about Indemnitee's entitlement to indemnification in the specific case no later
than 90 days after receipt of Indemnitee's request. In making that
determination, the person or persons making the determination shall presume that
Indemnitee met any applicable standard of conduct required for indemnification,
unless the Company shall have affirmatively shown by clear and convincing
evidence that Indemnitee did not meet that standard. The determination shall be
made by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors. If such a quorum is not obtainable, or, even if
obtainable, a quorum of Disinterested Directors so directs, the determination
shall be made by Independent Counsel in a written opinion obtained at the
Company's expense. Notwithstanding the foregoing, if there has been a Change in
Control (other than a Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to such
Change in Control), the determination shall be made by Independent Counsel in a
written opinion obtained at the Company's expense. If the person or persons
empowered to make the determination either: (i) affirmatively makes a
determination of Indemnitee's entitlement to indemnification or (ii) fails to
make any determination at all within the 90-day period, indemnification shall be
considered as authorized and proper in the circumstances, and
-4-
<PAGE>
Indemnitee shall be absolutely entitled to such indemnification, and shall
receive payment as promptly as practicable, in the absence of any
misrepresentation of a material fact by Indemnitee in the request for
indemnification, or a specific determination by a court of competent
jurisdiction that all or any part of such indemnification is prohibited by
applicable law. If the person or persons empowered to make the determination
find that the Indemnitee is not entitled to indemnification, the Indemnitee
shall have the right to apply to a court of competent jurisdiction for the
purpose of enforcing Indemnitee's right to indemnification pursuant to this
Agreement. The termination of any Proceeding by judgment, order, settlement,
arbitration award, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company, or that, with respect to
any criminal Proceeding, Indemnitee had reasonable cause to believe Indemnitee's
conduct was unlawful.
c. Advancement of Expenses. If so requested in a writing by
Indemnitee accompanied by appropriate supporting documentation, the Company
shall, within ten days after receipt of the request, advance funds for the
payment of Expenses, whether that request is made before or after the final
disposition of a Proceeding (including, without limitation, any criminal
Proceeding or any Proceeding brought by or in the right of the Company or its
stockholders), unless there has been a final determination that Indemnitee is
not entitled to indemnification for those Expenses. If required by law at the
time of the advance, the payment of the advance shall be conditioned upon the
receipt from Indemnitee of an undertaking (which need not be secured) to repay
the advance to the extent that it is ultimately determined that Indemnitee is
not entitled to such indemnification by the Company. Any dispute concerning the
advancement of Expenses may, at the election of the Indemnitee, be resolved by
arbitration before an arbitrator selected by Indemnitee and approved by the
Company. If the parties cannot agree on a single arbitrator, then the claim
shall be heard by a panel of three arbitrators, with one selected by Indemnitee,
one selected by the Company and one selected jointly by the foregoing two
arbitrators. Each of the arbitrators shall be a litigation or corporate attorney
with experience in the field of officer and director indemnification. The
arbitrators shall be selected within (15) days after demand for arbitration and
shall render a decision within (45) days after selection, unless good cause is
shown for requiring a longer decision period. The Company shall act in utmost
good faith to provide timely information to the arbitrators and to insure
Indemnitee a full opportunity to defend against the Company's claim that
Indemnitee is not entitled to an advance of Expenses. The Company shall
indemnify Indemnitee against all Expenses incurred by Indemnitee under the
dispute resolutions proceedings set forth in this Subsection 3(c), unless a
court of competent jurisdiction finds that each of the claims and/or defenses by
Indemnitee in the action or proceeding for which an advance is sought was
frivolous or made in bad faith.
-5-
<PAGE>
d. Enforcement. If Indemnitee has not received a determination of
entitlement to indemnification or an advance, as the case may be, within the
applicable time periods for such actions specified in this Agreement, or if it
has been determined that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall be
entitled to commence an action in any court of competent jurisdiction (including
the court in which the Proceeding (as to which Indemnitee seeks indemnification)
is or was pending) (i) in the former case, seeking enforcement of Indemnitee's
rights under this Agreement or otherwise, or seeking an initial determination by
the court, or (ii) in the latter case, challenging any such determination or any
aspect thereof, including the legal or factual bases therefor. The Company
hereby consents to service of process and to appear generally in any such
proceeding. It shall be a defense to any such action that applicable law does
not permit the Company to indemnify Indemnitee for the amount claimed. In any
such action, the Company shall have the burden of proving that indemnification
or advances are not proper in the circumstances of the specific case. Neither
the failure of the Company to have made a determination prior to the
commencement of such action that indemnification is proper under the
circumstances because Indemnitee has met the standard of conduct under
applicable law, nor an actual determination by the Company that Indemnitee has
not met such standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has not met that standard of conduct. The Company
shall indemnify Indemnitee for Expenses incurred by Indemnitee in connection
with the successful establishment or enforcement, in whole or in part, by
Indemnitee of Indemnitee's right to indemnification or advances.
e. Notice by Indemnitee and Defense of Proceedings. Indemnitee shall
promptly notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may give rise to a claim for indemnification under
this Agreement or otherwise; provided, however, that a failure of Indemnitee to
provide that notice shall relieve the Company from liability only if and to the
extent that the failure materially prejudices the Company's ability to
adequately defend Indemnitee in the Proceeding. With respect to any Proceeding
as to which Indemnitee so notifies the Company:
i. The Company shall be entitled to participate at its own
expense.
ii. Except as otherwise provided below, the Company, jointly with
any other indemnifying party similarly notified, shall be entitled to assume the
defense of such Proceeding, with counsel reasonably satisfactory to Indemnitee.
After notice from the Company to Indemnitee of the Company's election to assume
the defense, the Company shall not be liable to Indemnitee under this Agreement
for any Expenses subsequently incurred by Indemnitee, other than as provided
below. Indemnitee shall have the right to employ Indemnitee's own counsel in
that Proceeding, but the fees and expenses of such
-6-
<PAGE>
counsel incurred after notice from the Company of its election so to assume the
defense shall be borne by Indemnitee, except to the extent that (x) the
employment of counsel by Indemnitee has been authorized by the Company, (y)
Indemnitee has reasonably concluded that there may be a conflict of interest
between the Company and Indemnitee in the conduct of the defense of such
Proceeding or that counsel selected by the Company may not be adequately
representing Indemnitee, or (z) the Company has not in fact employed counsel to
assume the defense of such Proceeding. In those cases, the fees and expenses of
Indemnitee's own counsel shall be paid by the Company.
iii. Neither the Company nor Indemnitee shall unreasonably
withhold its or his or her consent to any proposed settlement. The Company has
no obligation to indemnify and hold Indemnitee harmless under this Agreement for
any amounts paid in settlement of any Proceeding effected without its written
consent. The Company shall not settle any Proceeding in any manner which would
impose any penalty or limitation on Indemnitee without Indemnitee's written
consent.
f. Change in Control. If there is a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
then with respect to all matters thereafter arising concerning the rights of
Indemnitee to indemnification and advances under this Agreement or otherwise,
the Company shall seek legal advice only from Independent Counsel selected by
Indemnitee and approved by the Company, which approval shall not be unreasonably
withheld. Such Independent Counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company shall pay the reasonable fees and expenses of such Independent Counsel.
4. Nonexclusivity. The indemnification provided by this Agreement is not
--------------
exclusive of or inconsistent with any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation or Bylaws, any other agreement,
any vote of stockholders or directors, the DGCL, or otherwise, both as to action
in Indemnitee's official capacity and otherwise. If and to the extent that a
change in the DGCL (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Company's Certificate of Incorporation or Bylaws or under this Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this Agreement
the greater benefits so afforded by such change.
5. Partial Indemnification. If Indemnitee is entitled to indemnification
-----------------------
by the Company for some or a portion of Expenses or Liabilities but not for the
total amount, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses and Liabilities to which Indemnitee is entitled to be
indemnified. Moreover,
-7-
<PAGE>
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred by Indemnitee in connection therewith.
6. Liability Insurance. To the extent the Company maintains an insurance
-------------------
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer, as the case may be. If Indemnitee serves as a fiduciary of
any employee benefit plan of the Company or any of its subsidiary or affiliated
corporations, then to the extent that the Company maintains an insurance policy
or policies providing fiduciaries' liability insurance, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms, to the
maximum extent of the coverage available for any fiduciary. In the event of a
Potential Change in Control, the Company shall maintain in force any and all
insurance policies then maintained by the Company providing directors' and
officers' liability insurance or fiduciaries' liability insurance, in respect of
Indemnitee, for a period of six years thereafter. Upon notice to the Company,
either from Indemnitee or from any other source, of the commencement or threat
of commencement of any Proceeding or matter which may give rise to a claim for
indemnification of Indemnitee and which may be covered by any insurance policy
maintained by the Company, the Company shall promptly give notice to the insurer
in accordance with the procedures prescribed by such policy and shall thereafter
take all necessary or appropriate action to cause such insurer to pay, to or on
behalf of Indemnitee all Liabilities and Expenses payable under such policy with
respect to such Proceeding or matter. The Company shall indemnify Indemnitee
for Expenses incurred by Indemnitee in connection with any successful action
brought by Indemnitee for recovery under any insurance policy referred to in
this Section 6 and shall advance to Indemnitee the Expenses of such action in
the manner provided in Section 3(c) above.
7. Other Sources. Indemnitee shall not be required to exercise any rights
-------------
Indemnitee may have against any other parties (for example, under an insurance
policy purchased by Indemnitee, the Company or any other person or entity)
before Indemnitee exercises or enforces Indemnitee's rights under this
Agreement. However, to the extent the Company actually indemnifies Indemnitee
or advances Indemnitee funds in respect of Expenses, the Company shall be
entitled to enforce any such rights which Indemnitee may have against third
parties. Indemnitee shall assist the Company in enforcing those rights if it
pays Indemnitee's costs and expenses of doing so. If Indemnitee is actually
indemnified or advanced Expenses by any such third party, then, for so long as
Indemnitee is not required to disgorge the amounts so received, to that extent
the Company shall be relieved of its obligation to indemnify Indemnitee or to
advance Expenses.
-8-
<PAGE>
8. Certain Relationships. The obligations and rights created under this
---------------------
Agreement shall not be affected by any amendment to the Company's Certificate of
Incorporation or Bylaws or any other agreement or instrument to which Indemnitee
is not a party, and shall not diminish any other rights which Indemnitee now or
in the future has against the Company or any other person or entity.
9. Severability. If any provision of this Agreement is determined to be
------------
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the Company and Indemnitee. In any
event, the remaining provisions of this Agreement shall remain enforceable to
the maximum extent possible.
10. Contribution. If the indemnification provided in Section 2 of this
------------
Agreement is unavailable, then, in respect of any Proceeding in which the
Company is jointly liable with Indemnitee (or would be if joined in the
Proceeding), the Company shall contribute to the amount of Expenses and
Liabilities as appropriate to reflect: (i) the relative benefits received by the
Company, on the one hand, and Indemnitee, on the other hand, from the
transaction from which the Proceeding arose, and (ii) the relative fault of the
Company, on the one hand, and of Indemnitee, on the other, in connection with
the events which resulted in such Expenses and Liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of Indemnitee, on the other, shall be determined by reference to,
among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such Expenses and Liabilities. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations described in this Section 10.
11. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws. This Agreement is intended to be an agreement
of the type contemplated by Section 145(f) of the DGCL.
12. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by personal or courier delivery,
confirmed facsimile or telex transmission or first class mail, and shall be
deemed to have been duly given upon receipt if personally delivered or delivered
by courier, on the date of transmission if transmitted by facsimile or telex, or
three days after mailing if mailed, to the addresses set forth below:
-9-
<PAGE>
If to Indemnitee:
____________________
____________________
____________________
____________________
If to the Company:
Paymap Inc.
3 Embarcadero Center, Suite 500
San Francisco, CA 94111
Attn: President
or to such other address as either party may designate by notice to the other
from time to time.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
14. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, estate, heirs, executors, administrators,
personal or legal representatives and assigns. The Company shall require any
successor corporation (whether by merger, consolidation, or otherwise) by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
15. Amendment and Waiver. This Agreement may not be amended except by a
--------------------
writing executed by both the Company and Indemnitee. No waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged therewith. A waiver of, or a failure to insist on, complete
compliance with any provision of this Agreement shall not be construed as a
waiver of a subsequent or different non-compliance, breach or default of that or
any other provision of this Agreement.
16. Acknowledgment. The Company expressly acknowledges that it has entered
--------------
into this Agreement and assumed the obligations imposed on the Company under
this Agreement in order to induce Indemnitee to serve or to continue to serve as
a director or officer and acknowledges that Indemnitee is relying on this
Agreement in serving or continuing to serve in such capacity. The Company
further agrees to stipulate in any court proceeding that the Company is bound by
all of the provisions of this Agreement.
17. Period of Limitations. No legal action shall be brought and no cause
---------------------
of shall be asserted by or in the right of the Company against Indemnitee,
estate,
-10-
<PAGE>
heirs, executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such two-
year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall
govern.
18. Duration of Agreement. This Agreement shall continue in effect for so
---------------------
long as Indemnitee is subject to any possible Proceeding, regardless of whether
Indemnitee continues to serve as an Agent.
19. Entire Agreement. This document contains the final, complete and
----------------
exclusive statement of the agreement between the Company and Indemnitee with
respect to the subject matter of this Agreement and supersedes any prior or
contemporaneous understandings, agreements, communications, correspondence or
representations by or between the parties, whether written or oral, relating to
the subject matter of this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in its first paragraph.
PAYMAP INC.
By:_____________________________
Title:__________________________
________________________________
____________________, Indemnitee
-12-
<PAGE>
Exhibit 10.6
Date: June 6, 1997
Lessor: Three Embarcadero Center Venture
Lessee: Aegis Mortgage Acceleration Corporation
Premises: Suite 500
Base Year: 1997
Rentable Area of Premises: 23,363 square feet
Lessee's Percentage Share: 3.61%
Term Commencement: October 1, 1997
Term Expiration: September 30, 2002
Base Rent: $60,354 per month
Security Deposit: $400,000
Lessee's Address for Notices: Three Embarcadero Center
5th Floor
San Francisco, CA 94111
Lessor's Address for Notices: Suite 2600
Four Embarcadero Center
San Francisco, CA 94111
Exhibit(s) and Addendum: Exhibit A - Floor Plan of the 5th Floor
Exhibit B - Space Plan and Outline
Specifications
Exhibit C - Form of Letter of Credit
Addendum to Office Lease
The provisions of the Lease identified above in the margin are those provisions
where references to particular Basic Lease Information appear. Each such
reference shall incorporate the applicable Basic Lease Information. In the event
of any conflict between any Basic Lease Information and the Lease, the latter
shall control.
<PAGE>
LESSEE LESSOR
AEGIS MORTGAGE THREE EMBARCADERO
ACCELERATION CORPORATION, CENTER VENTURE,
a Delaware corporation a partnership
By: Pacific Property Services, L.P., a
California limited partnership,
Managing Agent
By: /s/ John Decker By: /s/ ^^
-------------------------------- ------------------------------
Its: President Its: Chief Operating Officer
------------------------------- -----------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.........................................................
2. Term; Condition of Premises.........................................
3. Rental..............................................................
4. Escalation Rent Payments............................................
5. Use.................................................................
6. Services............................................................
7. Impositions Payable by Lessee.......................................
8. Alterations.........................................................
9. Liens...............................................................
10. Repairs.............................................................
11. Destruction or Damage...............................................
12. Subrogation.........................................................
13. Indemnification.....................................................
14. Compliance with Legal Requirements..................................
15. Assignment and Subletting...........................................
16. Rules...............................................................
17. Entry by Lessor.....................................................
18. Events of Default...................................................
19. Termination upon Default............................................
20. Continuation after Default..........................................
21. Other Relief........................................................
22. Lessor's Right to Cure Defaults.....................................
23. Attorneys' Fees.....................................................
24. Eminent Domain......................................................
25. Subordination.......................................................
26. No Merger...........................................................
27. Sale................................................................
28. Estoppel Certificate................................................
29. No Light, Air, or View Easement.....................................
30. Holding Over........................................................
31. Security Deposit....................................................
32. Waiver..............................................................
33. Notices and Consents................................................
34. Complete Agreement..................................................
35. Authority...........................................................
36. Miscellaneous.......................................................
37. Exhibits............................................................
</TABLE>
Rules and Regulation
Exhibit(s) and Addendum
<PAGE>
THIS LEASE, dated June 6, 1997, for purposes of reference only, is made and
entered into by and between THREE EMBARCADERO CENTER VENTURE, a partnership
("Lessor") and AEGIS MORTGAGE ACCELERATION CORPORATION, a Delaware corporation
("Lessee").
WITNESSETH:
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the
premises described in section 1 (b) below for the term and subject to the terms,
covenants, agreements and conditions hereinafter set forth, to each and all of
which Lessor and Lessee hereby mutually agree.
1. Unless the context otherwise specifies or requires, the following
terms shall have the meanings herein specified:
(a) The term "Building" shall mean the land and other real property
in the parcel bounded by Clay, Davis, Sacramento and Drumm Streets, in San
Francisco, California, the building constructed thereon known as Three
Embarcadero Center, any property interest in the area of the streets, the
interest appurtenant to the parcel in all pedestrian bridges in the Embarcadero
Center project, and all other improvements on or appurtenances to the parcel or
the streets. The Building includes, but is not limited to, an Office Tower with
29 floors of off ice space, three levels of retail area and a parking garage.
(b) The term "premises" shall mean the portion of the Office Tower
located on the floor(s) specified in the Basic Lease Information which is
outlined in red on the floor plan(s) attached hereto as Exhibit A.
(c) The term "Base Year" shall mean the calendar year specified in
the Basic Lease Information as the Base Year, provided that as to any office
space that is added to the premises, the term "Base Year" shall mean the
calendar year in which the space is added to the premises.
(d) The term "Operating Expenses" shall mean all costs of management,
operation and maintenance of the Building that are allocable to the Office
Tower, including, without limitation: wages, salaries and payroll burden of
employees; property management fees; janitorial, maintenance, security and other
services; Building office rent or rental value; power, water, waste disposal and
other utilities; materials and supplies; maintenance and repairs; license costs;
insurance premiums and the deductible portion of any insured loss under Lessor's
insurance; and depreciation on personal property. Operating Expenses shall not
include: Property Taxes; depreciation on the Building other than depreciation on
exterior window draperies provided by Lessor and carpeting in public corridors
and common areas; cost of tenants' improvements; real estate brokers'
commissions; interest; and capital items or Capital Amortization
<PAGE>
Expenses. Actual Operating Expenses for both the Base Year and each subsequent
calendar year shall be adjusted to equal Lessors reasonable estimate of
Operating Expenses had the total rentable area of the Building been occupied.
Lessor and Lessee acknowledge that certain of the costs of management, operation
and maintenance of the Building are to be allocated entirely to the Office
Tower, certain of such costs are to be allocated entirely to the retail area or
parking garage, and certain of such costs are to be allocated among the Office
Tower, retail area and parking garage. The determination of such costs and their
allocation shall be in accordance with generally accepted accounting principles
applied on a consistent basis.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses paid or incurred by Lessor in the Base Year.
(f) The term "Property Taxes" shall mean 80% of all real property
taxes (and any taxes levied wholly or partly in lieu thereof) levied against the
Building. Lessor and Lessee acknowledge that the figure of 80% represents the
agreed ratio of the value of the Office Tower to the value of the Building.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes attributed to the tax year ending June 30 of the Base Year.
(h) The term "Capital Amortization Expenses" shall mean the annual
amortization of the cost of any capital improvements made to the Building by
Lessor after the Base Year, or the portion of such cost that is properly
allocable to the Office Tower where the capital improvements benefit more than
the Office Tower, that reduce Operating Expenses, are required for the health
and safety of tenants, or are required under any governmental law or regulation
that was not applicable to the Building at the time it was constructed. The
amortization period shall be such reasonable period as Lessor shall determine,
and the amortization expense shall include interest on the unamortized balance
of the cost of such capital improvements at the rate of 10% per annum or such
higher rate as may have been paid by Lessor on funds borrowed for the purpose of
constructing or installing such capital improvements.
(i) The term "rentable area" shall mean the rentable area specified
in the Basic Lease Information. If any office space is added to or deleted from
the premises, the rentable area of the space added or deleted shall mean:
(1) as to an entire floor added to or deleted from the premises,
all areas within outside permanent Building walls, measured to the inside glass
surface of outer Building walls, including rest rooms, janitor, telephone and
electrical closets, allocated mechanical areas, and columns and projections
necessary to the Building, but excluding public stairs, elevator shafts and pipe
shafts, together with the enclosing walls thereof;
2
<PAGE>
(2) as to the portion of a floor added to or deleted from the
premises, the aggregate of the usable area of the portion of the floor added to
or deleted from the premises, plus the result obtained by multiplying the area
of the common area on such floor times a fraction, whose numerator is the usable
area of added or deleted portion of the floor and whose denominator is the
usable area of all tenant space on the floor.
(j) The term "usable area" shall mean all floor area in a tenant
space, measured to the inside glass surface of outer Building walls, to the
office side of corridors and other permanent partitions, and to the center of
partitions that separate the tenant space from adjoining tenant spaces, without
deduction for columns and projections necessary to the Building.
(k) The term "common area" shall mean the total area on a floor
consisting of rest rooms, janitor, telephone and electrical closets, allocated
mechanical areas, and public corridors providing access to tenant space on such
floor, but excluding public stairs, elevator shafts and pipe shafts, together
with the enclosing walls thereof.
(l) The term "Lessee's percentage share" shall mean the percentage
obtained by dividing the rentable area of the premises, or any office space
added to the premises, by total rentable area of the Office Tower, and
multiplying such quotient by 100 percent. As to the initial premises leased
hereunder, "Lessee's percentage share" is the percentage figure specified in the
Basic Lease Information.
(m) The term "wattage allowance "shall mean the product obtained by
multiplying the rentable area of the premises by one kilowatt hour per square
foot.
2. The term of this Lease shall commence and, unless sooner terminated as
hereinafter provided, shall end on the dates respectively specified in the Basic
Lease Information. Unless otherwise agreed by Lessor and Lessee in this Lease,
Lessor shall deliver the premises to Lessee on the commencement of the term in
their then existing condition with no alterations being made by Lessor. If
Lessor has undertaken in this Lease to make any alterations to the premises
prior to commencement of the term and the alterations are completed prior to the
date set forth in the Basic Lease Information for commencement of the term, if
Lessee desires to take occupancy in advance of such date Lessor shall deliver
the premises to Lessee at such time in advance of such date as shall be mutually
approved by Lessor and Lessee and, notwithstanding anything to the contrary
contained herein, the term of the Lease shall commence upon such delivery. If
Lessor, for any reason whatsoever, cannot deliver the premises to Lessee at the
commencement of the term, this Lease shall not be void or voidable, nor shall
Lessor be liable to Lessee for any loss or damage resulting therefrom, but in
that event rental shall be waived for the period between the commencement of the
term and the time when Lessor delivers the premises to Lessee. No delay in
delivery of the premises shall operate to extend the term hereof.
3
<PAGE>
3. (a) Lessee shall pay to Lessor throughout the term of this Lease as
rental for the premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year subsequent
to the Base Year shall be (1) the Base Rent, and (2) Lessee's percentage share
of the total dollar increase, if any, in Operating Expenses paid or incurred by
Lessor in such calendar year over the Base Operating Expenses, Lessee's
percentage share of the total dollar increase, if any, in Property Taxes
attributable to the tax year ending June 30 of such calendar year over the Base
Property Taxes, and Lessee's percentage share of the Capital Amortization
Expenses for such calendar year. If any office space is added to the premises,
Lessee's percentage share of increases in Operating Expenses and Property Taxes
and Lessee's percentage share of Capital Amortization Expenses shall be
calculated separately for the initial premises and each parcel of office space
that is added to the premises. The aggregate increased rental due pursuant to
clause 2 above is hereinafter referred to as "Escalation Rent."
(b) Rental shall be paid to Lessor, in advance, on or before the
first day of the term hereof and on or before the first day of each and every
successive calendar month thereafter during the term hereof. In the event the
term of this Lease commences on a day other than the first day of a calendar
month or ends on a day other than the last day of a calendar month, the monthly
rental for the first and last fractional months of the term thereof shall be
appropriately prorated.
(c) All sums of money due to Lessor hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid when due it shall nonetheless be collectible as additional rent with
the next installment of rental thereafter failing due, but nothing contained
herein shall be deemed to suspend or delay the payment of any sum of money at
the time it becomes due and payable hereunder, or to limit any other remedy of
Lessor.
(d) Lessee hereby acknowledges that late payment by Lessee to Lessor
of rent and other sums due hereunder after the expiration of any applicable
grace period will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be difficult to ascertain. Such costs include,
but are not limited to, processing and accounting charges, and late charges
which may be imposed on Lessor by the terms of any trust deed covering the
premises. Accordingly, if any installment of rent or any other sums due from
Lessee shall not be received by Lessor when due or if a grace period is
applicable under section 18 (a) below, prior to the expiration of the grace
period, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
4
<PAGE>
(e) Any amount due to Lessor, if not paid when due or if a grace
period is applicable under section 18 (a) below, prior to the expiration of the
grace period, shall bear interest from the date due until paid at the rate of
10% per annum or, if a higher rate is legally permissible, at the highest rate
legally permitted, provided that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by Lessee
to the extent such interest would cause the total interest to be in excess of
that legally permitted. Payment of interest shall not excuse or cure any default
hereunder by Lessee.
(f) All payments due from Lessee to Lessor shall be paid to Lessor,
without deduction or offset, in lawful money of the United States of America at
Lessor's address for notices hereunder, or to such other person or at such other
place as Lessor may from time to time designate by notice to Lessee.
4. Escalation Rent shall be paid monthly on an estimated basis, with
subsequent annual reconciliation, in accordance with the following procedures:
(a) During December of the Base Year and December of each subsequent
calendar year, or as soon thereafter as practicable, Lessor shall give Lessee
notice of its estimate of any Escalation Rent due under paragraph (a) of section
3 above for the ensuing calendar year. On or before the first day of each month
during the ensuing calendar year, Lessee shall pay to Lessor 1/12th of such
estimated Escalation Rent, provided that if such notice is not given in December
Lessee shall continue to pay on the basis of the prior year's estimate until the
month after such notice is given.
(b) Within 90 days after the close of each calendar year or as soon
after such 90-day period as practicable, Lessor shall deliver to Lessee a
statement of the actual Escalation Rent for such calendar year. The statement
shall be final and binding. If the statement discloses that Lessee owes an
amount that is less than the estimated payments for such calendar year
previously made by Lessee, Lessor shall credit such excess first against any
sums then owed by Lessee to Lessor and then against the next payments of rental
due hereunder. If the statement discloses that Lessee owes an amount that is
more than the estimated payments for such calendar year previously made by
Lessee, Lessee shall pay the deficiency to Lessor within 30 days after delivery
of the statement.
(c) The amount of Escalation Rent for any fractional year in the term
hereof shall be appropriately prorated. The termination of this Lease shall not
affect the obligations of Lessor and Lessee pursuant to paragraph (b) above to
be performed after such termination.
5. The premises shall be used for general office purposes and no other.
Lessee shall not do or permit to be done in or about the premises, nor bring to
keep or permit to be brought or kept therein, anything which is prohibited by or
will in any way conflict with any law, statute, ordinance or governmental rule
or regulation now in force or which
5
<PAGE>
may hereafter be enacted or promulgated, or which is prohibited by the standard
form of fire insurance policy, or will in any way increase the existing rate of
or affect any fire or other insurance upon the Building or any of its contents,
or cause a cancellation of any insurance policy covering the Building or any
part thereof or any of its contents. Lessee shall not use or store in the
premises any hazardous or toxic substances. Lessee shall not do or permit
anything to be done in or about the premises which will in any way obstruct or
interfere with the rights of other tenants of the Building, or injure or annoy
them, or use or allow the premises to be used for any improper, immoral,
unlawful or objectionable purposes, nor shall Lessee cause, maintain or permit
any nuisance or waste in, on or about the premises.
6. (a) Lessor shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and restrooms, all
exterior landscaping, the windows in the Office Tower, the mechanical, plumbing
and electrical equipment serving the Office Tower, the telephone cable
distribution system serving the Office Tower to the telephone terminal on each
floor and the structure itself in reasonably good order and condition except for
damage occasioned by the act of Lessee, which damage shall be repaired by Lessor
at Lessee's expense.
(b) Lessor shall cause to be furnished (1) electricity for lighting
and the operation of office machines, (2) telephone cable distribution system
access, (3) heat and air conditioning to the extent reasonably required for the
comfortable occupancy by Lessee in its use of the premises during the period
from 7 a.m. to 6 p.m. on weekdays and from 7 a.m. to noon on Saturdays (except
holidays), or such shorter period as may be prescribed by any applicable
policies or regulations adopted by any utility or governmental agency, (4)
elevator service, (5) lighting replacement (for building standard lights), (6)
restroom supplies, (7) window washing with reasonable frequency, (8) daily
janitor service during the times and in the manner that such services are
customarily furnished in comparable office buildings in the area, and (9)
building lobby reception services. Lessor may establish reasonable measures to
conserve energy, including but not limited to, automatic switching of lights
after hours and more efficient forms of lighting, so long as such measures do
not unreasonably interfere with Lessee's use of the premises. Lessor shall not
be in default hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the rental herein reserved be abated by reason of (i)
the installation, use or interruption of use of any equipment in connection with
the furnishing of any of the foregoing services, (ii) failure to furnish or
delay in furnishing any such services when such failure or delay is caused by
accident or any condition beyond the reasonable control of Lessor or by the
making of necessary repairs or improvements to the premises or to the Building,
or (iii) the limitation, curtailment, rationing or restrictions on use of water,
electricity, gas or any other form of energy serving the premises or the
Building. Lessor shall use reasonable efforts diligently to remedy any
interruption in the furnishing of such services.
6
<PAGE>
(c) Lessor may provide security services for the Building or, jointly
with the owners of other buildings in the Embarcadero Center project, provide
security services for the Embarcadero Center project, but neither Lessor nor the
owners of such other buildings shall be obligated to provide security services
or be deemed to have warranted the effectiveness of any services that are
provided or the personnel, procedures or equipment used in connection therewith,
and neither Lessor nor the owners of such other buildings shall be liable in any
manner for the failure of any security services to prevent personal injury or
death or property damage or loss, or to apprehend any person suspected of such
injury, death, damage or loss.
(d) If heat-generating equipment or lighting other than building
standard lights are installed or used in the premises and such equipment or
lighting affects the temperature otherwise maintained by the air conditioning
system, or if equipment is installed in the premises which requires a separate
temperature-controlled room, on Lessee's request, or at Lessor's election after
notice to Lessee, Lessor shall install supplementary air conditioning facilities
in the premises or otherwise modify the ventilating and air conditioning system
serving the premises, and the capital and maintenance costs of such facilities
and modifications shall be borne by Lessee.
(e) Lessee shall reimburse Lessor, upon billing thereof, for the cost
of (1) all heat or air conditioning provided to the premises during hours
requested by Lessee when such services are not otherwise furnished by Lessor,
(2) all power and cooling energy provided for supplementary air conditioning
facilities in or serving the premises and for the equipment giving rise to the
need for such facilities, and (3) if the average monthly power usage of all
lighting and office equipment in the premises, excluding equipment the power
usage of which is charged to Lessee under item (2) above, exceeds the wattage
allowance, all power usage in excess of the wattage allowance. Lessee shall pay
the cost of any transformers, additional risers, panel boards and other
facilities if and to the extent required to furnish power for supplementary air
conditioning facilities in or serving the premises or power for lighting and
office equipment in the premises with a power usage in excess of the wattage
allowance. Lessee shall also pay the cost of increasing the capacity of the
telephone cable distribution system to the extent required for Lessee's
purposes.
(f) In the event that Lessor, at Lessee's request, provides services
to Lessee that are not otherwise provided for in this Lease, Lessee shall pay
Lessor's reasonable charges for such services upon billing thereof.
7. In addition to the monthly rental and other charges to be paid by
Lessee hereunder, Lessee shall pay or reimburse Lessor for any and all of the
following items (hereinafter collectively referred to as "Impositions"), whether
or not now customary or in the contemplation of the parties hereto: taxes (other
than local, state and federal personal or corporate income taxes measured by the
net income of Lessor from all sources), assessments (including, without
limitation, all assessments for public
7
<PAGE>
improvements, services or benefits, irrespective of when commenced or
completed), excises, levies, business taxes, license, permit, inspection and
other authorization fees, transit development fees, assessments or charges for
housing funds, service payments in lieu of taxes and any other fees or charges
of any kind, which are levied, assessed, confirmed or imposed by any public
authority, but only to the extent the Impositions are (a) upon, measured by or
reasonably attributable to the cost or value of Lessee's equipment, furniture,
fixtures and other personal property located in the premises, or the cost or
value of any lease hold improvements made in or to the premises by or for
Lessee, regardless of whether title to such improvements shall be in Lessee or
Lessor; (b) upon or measured by the monthly rental or other charges payable
hereunder, including, without limitation, any gross receipts tax levied by the
City and County of San Francisco, the State of California, the Federal
Government or any other governmental body with respect to the receipt of such
rental; (c) upon, with respect to or by reason of the development, possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Lessee of the premises or any portion thereof; or (d) upon this
transaction or any document to which Lessee is a party creating or transferring
an interest or an estate in the premises. In the event that it shall not be
lawful for Lessee to reimburse Lessor for the Impositions but it is lawful to
increase the monthly rental to take into account Lessor's payment of the
Impositions, the monthly rental payable to Lessor shall be revised to net Lessor
the same net return without reimbursement of the Impositions as would have been
received by Lessor with reimbursement of the Impositions.
8. (a) Lessee shall not make or suffer to be made any alterations,
additions or improvements to the premises or any part thereof (hereinafter
collectively referred to as "Alterations"), without Lessor's prior consent,
which consent shall not be unreasonably withheld. All Alterations shall be made
by Lessor for Lessee's account in accordance with the procedures set forth in
this section. All Alterations shall immediately become Lessor's property and, at
the end of the term hereof, shall remain on the premises without compensation to
Lessee unless Lessor elects by notice to Lessee to have Lessee remove any
Alterations that are peculiar to Lessee's use of the premises and are not
standardly required or used by other tenants, in which event Lessee shall be
responsible for the cost of restoring the premises to their condition prior to
the installment of such non-standard Alterations.
(b) Plans and specifications for the Alterations shall be prepared at
Lessee's expense by either its architect or Lessor's architect if Lessee so
elects, and by engineers approved by Lessor where mechanical or electrical
engineering services are required by the nature of the Alterations. Lessee shall
cause any architect retained by it to follow the standard construction
administration procedures and to utilize the standard specifications and details
promulgated by Lessor for the Building. The plans and specifications shall be
subject to approval by Lessor and Lessee, which approval shall not be
unreasonably withheld by either party, and following such approval Lessor shall
obtain quotations of the cost of the Alterations as reflected by the approved
plans and
8
<PAGE>
specifications from one or more general contractors approved by Lessor for
construction in the Building. Lessor shall submit the quotations to Lessee,
shall accept the quotation approved by Lessee, and shall proceed to enter into a
contract for the construction or installation of the Alterations with the
contractor whose quotation was approved by Lessee. Lessor itself does not
warrant the cost of the Alterations, the timeliness of performance or the
quality of the contractor's work, but Lessor shall use reasonable efforts to
secure performance of the construction contract for Lessee's benefit.
(c) In the event Lessor or the contractor is instructed by Lessee to
proceed with any changes to the Alterations without a prior determination of any
increased costs resulting from such changes and without approval of such
increases by Lessee, or in the event Lessee is responsible for increased costs
attributable to a delay or acceleration in the time for construction, the amount
of any increased costs shall be as reasonably determined by Lessor upon
completion of the Alterations, subject only to Lessors reasonable efforts in
causing the contractor to furnish Lessee appropriate back-up information
concerning increased costs, if any.
(d) The cost of the Alterations to be paid by Lessee shall include a
reasonable charge for the administration by Lessor or its agent of the
construction or installation of the Alterations.
(e) Lessee shall pay to Lessor all amounts payable by Lessee pursuant
to this section within 10 days after billing by Lessor. Bills may be rendered in
advance of or during the progress of the Alterations so as to enable Lessor to
pay the contractor, architect or engineer without advancing Lessor's own funds.
At Lessor's election, Lessee shall deposit with Lessor prior to the commencement
of the Alterations the estimated cost thereof or such lesser portion as Lessor
shall specify, to be held and applied to the cost as incurred. Any surplus funds
shall be returned to Lessee when the Alterations have been paid for in full.
(f) Lessor may delegate some or all of its authority and
responsibilities under this section 8 to its managing agent.
9. Lessee shall keep the premises and the Building free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Lessee. Lessor shall have the right to post and keep posted on the premises
any notices that may be provided by law or which Lessor may deem to be proper
for the protection of Lessor, the premises and the Building from such liens.
10. By entry hereunder Lessee accepts the premises as being in the
condition in which Lessor is obligated to deliver the premises. Lessee shall, at
all times during the term hereof and at Lessee's sole cost and expense, keep the
premises in good condition and repair, ordinary wear and tear, damage thereto by
fire, earthquake, act of God or the elements excepted. Lessee hereby waives all
rights to make repairs at the expense of
9
<PAGE>
Lessor or in lieu thereof to vacate the premises. Lessee shall at the end of the
term hereof surrender to Lessor the premises and all Alterations thereto that
are to remain in the premises in the same condition as when received, ordinary
wear and tear and damage by fire, earthquake, act of God or the elements
excepted. Lessor has no obligation and has made no promise to alter, remodel,
improve, repair, decorate or paint the premises or any part thereof, except as
specifically herein set forth. No representations respecting the condition of
the premises or the Building have been made by Lessor to Lessee, except as
specifically herein set forth.
11. (a) In the event the premises or the portion of the Building
necessary for Lessee's occupancy are damaged by fire, earthquake, act of God,
the elements or other casualty, within 30 days after such event Lessor shall
notify Lessee of the estimated time, in Lessor's reasonable judgment, required
for repair or restoration. If the estimated time is not more than 90 days after
the commencement of work, Lessor shall forthwith repair or restore the premises
or the portion of the Building necessary for Lessee's occupancy. This Lease
shall remain in full force and effect except that, if such damage is not the
result of the negligence or willful act of Lessee or Lessee's employees or
invitees, an abatement of rental shall be allowed Lessee for such part of the
premises as shall be rendered unusable by Lessee in the conduct of its business
during the time such part is so unusable.
(b) If the time for repair or restoration is in excess of 90 days,
Lessor may elect, in the same notice to Lessee, to repair or restore the
premises or the portion of the Building necessary for Lessee's occupancy, in
which event this Lease shall continue in full force and effect, but the rent
shall be abated as hereinabove in this section provided. If Lessor does not so
elect to repair or restore, this Lease shall terminate as of the date of such
fire or other casualty.
(c) If the premises or the Building are to be repaired or restored
under this section, Lessor shall repair or restore at its cost the Building
itself and all improvements in the premises other than Alterations made by or
for Lessee. Lessee shall pay the cost of repairing or restoring any Alterations
made by or for Lessee and shall be responsible for carrying such casualty
insurance as it deems appropriate with respect to such Alterations.
(d) Lessor and Lessee acknowledge that their respective rights and
obligations in the event of any damage to or destruction of the premises or the
Building are to be governed exclusively by this Lease.
12. Lessor and Lessee shall each obtain from their respective insurers
under all policies of fire, theft, public liability, workers' compensation and
other insurance maintained by either of them at anytime during the term hereof
insuring or covering the Building or any portion thereof or operations therein,
a waiver of all rights of subrogation which the insurer of one party might have
against the other party, and Lessor and Lessee
10
<PAGE>
shall each indemnify the other against any loss or expense, including reasonable
attorneys' fees, resulting from the failure to obtain such waiver.
13. Lessee hereby waives all claims against Lessor for damage to any
property or injury or death of any person in, upon or about the premises arising
at any time and from any cause other than by reason of negligence or willful act
of Lessor, its employees or contractors, and Lessee shall hold Lessor harmless
from and defend Lessor against any and all claims, liability, damage or loss
arising out of any injury to or death of any person or damage to or destruction
of property attributable to or resulting from the use of the premises by Lessee,
except such as is caused by negligence or willful act of Lessor, its agents or
employees. Lessee shall also hold Lessor harmless from any liability, cost or
expense resulting from damage to the telephone cable distribution system caused
by Lessee, its employees or contractors, or arising from Lessee's use or storage
in the premises of any hazardous or toxic substance. The foregoing indemnity
obligations of Lessee shall include reasonable attorneys' fees investigation
costs and all other reasonable costs and expenses incurred by Lessor from the
first notice that any claim or demand is to be made or may be made. The
provisions of this section shall survive the termination of this Lease with
respect to any event occurring prior to such termination.
14. Lessee, at its sole cost and expense, shall promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now in force or which may hereafter be in force, with the requirements of any
board of fire underwriters or other similar body now or hereafter constituted,
with any directive or occupancy certificate issued pursuant to any law by any
public officer or officers, as well as the provisions of all recorded documents
affecting the premises, insofar as any thereof relate to or affect the
condition, use or occupancy of the premises, excluding structural changes not
necessitated by Lessee's acts or by improvements made by or for Lessee.
15. (a) Lessee shall not, without the prior consent of Lessor, which
consent shall not be unreasonably withheld by Lessor, assign or hypothecate
this Lease or any interest herein, sublet the premises or any part thereof, or
permit the use of the premises by any party other than Lessee. This Lease shall
not, nor shall any interest herein, be assignable as to the interest of Lessee
by operation of law without the consent of Lessor, which consent shall not be
unreasonably withheld. Any of the foregoing acts without such consent shall be
void and shall, at the option of Lessor, terminate this Lease. In connection
with each consent requested by Lessee, Lessee shall submit to Lessor the terms
of the proposed transaction, the identity of the parties to the transaction, the
proposed documentation for the transaction and all other information reasonably
requested by Lessor concerning the proposed transaction and the parties involved
therein.
(b) Without limiting the other instances in which it may be
reasonable for Lessor to withhold its consent to an assignment or subletting,
Lessor and Lessee acknowledge that it shall be reasonable for Lessor to withhold
its consent in the following instances:
11
<PAGE>
(1) if at the time consent is requested or at anytime prior to
the granting of consent, Lessee is in default under this Lease or would be in
default under this Lease but for the pendency of any grace or cure period under
section 18 below;
(2) if the proposed assignee or sublessee is a governmental
agency;
(3) if the proposed assignee or sublessee is an existing tenant
in the Embarcadero Center project;
(4) if, in Lessor's reasonable judgment, the use of the premises
by the proposed assignee or sublessee would not be comparable to the types of
office use by other tenants in the Embarcadero Center project, would entail any
alterations which would lessen the value of the leasehold improvements in the
premises, would result in more than a reasonable number of occupants per floor,
or would require increased services by Lessor;
(5) if, in Lessor's reasonable judgment, the financial worth of
the proposed assignee or sublessee does not meet the credit standards applied by
Lessor for other tenants under leases with comparable terms, or the character,
reputation, or business of the proposed assignee or sublessee is not consistent
with the quality of the other tenancies in the Building; or
(6) if the subletting is of less than the entire premises.
(c) If at any time or from time to time during the term of this Lease
Lessee desires to sublet all or any part of the premises, Lessee shall give
notice to Lessor setting forth the terms of the proposed subletting and the
space so proposed to be sublet. Lessor shall have the option, exercisable by
notice given to Lessee within 20 days after Lessee's notice is given, to sublet
from Lessee such space at the rental and other terms set forth in Lessee's
notice, or, if the proposed subletting is for the entire premises for a sublet
term ending within the last year of the term of this Lease, to terminate this
Lease. If Lessor does not exercise such option, Lessee shall be free to sublet
such space to any third party, on the same terms set forth in the notice given
to Lessor, subject to obtaining Lessor's prior consent as hereinabove provided.
(d) Notwithstanding the provisions of paragraphs (a) and (b) above,
Lessee may assign this Lease or sublet the premises or any portion thereof, with
notice to Lessor but without the necessity of Lessor's consent and without
extending any option to Lessor pursuant to paragraph (c) above, to any
corporation which controls, is controlled by or is under common control with
Lessee, to any corporation resulting from the merger or consolidation with
Lessee, or to any person or entity which acquires all the assets of Lessee as a
going concern of the business that is being conducted in the premises.
12
<PAGE>
(e) No sublessee (other than Lessor if it exercises its option
pursuant to paragraph (c) above) shall have a right further to sublet without
Lessors prior consent, which Lessee acknowledges may be withheld in Lessors
absolute discretion, and any assignment by a sublessee of its sublease shall be
subject to Lessor's prior consent in the same manner as if Lessee were entering
into a new sublease. No sublease, once consented to by Lessor, shall be modified
or terminated by Lessee without Lessors prior consent, which consent shall not
be unreasonably withheld.
(f) In the case of an assignment, one-half of any sums or other
economic consideration received by Lessee as a result of such assignment shall
be paid to Lessor after first deducting (1) the unamortized cost of leasehold
improvements made to the premises at Lessee's cost, using as an amortization
period the term of this Lease, and (2) the cost of any real estate commissions
incurred by Lessee in connection with such assignment. In the event such sums or
other economic consideration are received in installments, the amount of the
deduction against each installment shall be in the same proportion to the total
deduction as the amount of the installment bears to the total sums or other
economic consideration.
(g) In the case of a subletting, one-half of any sums or economic
consideration received by Lessee as a result of such subletting shall be paid to
Lessor after first deducting (1) the rental due hereunder, prorated to reflect
only rental allocable to the sublet portion of the premises, (2) the cost of
leasehold improvements made to the sublet portion of the premises at Lessee's
cost, amortized over the term of this Lease except for leasehold improvements
made for the specific benefit of the sublessee, which shall be amortized over
the term of the sublease, and (3) the cost of any real estate commissions
incurred by Lessee in connection with such subletting, amortized over the term
of the sublease.
(h) Regardless of Lessors consent, no subletting or assignment shall
release Lessee of Lessee's obligation or alter the primary liability of Lessee
to pay the rental and to perform all other obligations to be performed by Lessee
hereunder. The acceptance of rental by Lessor from any other person shall not be
deemed to be a waiver by Lessor of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting, nor shall any consent constitute a modification of any
of the terms of this Lease. In the event of default by any assignee of Lessee or
any successor of Lessee in the performance of any of the terms hereof, Lessor
may proceed directly against Lessee without the necessity of exhausting remedies
against such assignee or successor. Lessor may consent to subsequent assignments
or subletting of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee, or any successor of Lessee, and
without obtaining its or their consent thereto, and such action shall not
relieve Lessee of liability under this Lease.
(i) In the event Lessee shall assign this Lease or sublet the
premises or
13
<PAGE>
request the consent of Lessor to any assignment, subletting, hypothecation or
other action requiring Lessor's consent hereunder, then Lessee shall pay
Lessor's reasonable attorneys' fees incurred in connection therewith.
16. Lessee shall faithfully observe and comply with the rules and
regulations annexed to this Lease, and after notice thereof, all reasonable
modifications thereof and additions thereto from time to time promulgated in
writing by Lessor. Lessor shall not be responsible to Lessee for the
nonperformance by any other tenant or occupant of the Building of any of such
rules and regulations.
17. Lessor may enter the premises at reasonable hours to (a) inspect the
same; (b) exhibit the same to prospective purchasers, lenders or tenants; (c)
determine whether Lessee is complying with all of its obligations hereunder; (d)
supply janitor service and any other service to be provided by Lessor to Lessee
hereunder; (e) post notices of nonresponsibility; and (f) make repairs or
perform maintenance required of Lessor under the terms hereof, make repairs to
any adjoining space or utility services, or make repairs, alterations or
improvements to any other portion of the Building; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Lessee as reasonably possible. Lessee hereby waives any
claim for damages for any inconvenience to or interference with Lessee's
business or any loss of occupancy or quiet enjoyment of the premises occasioned
by such entry. Lessor shall at all times have and retain a key with which to
unlock all of the doors in, on or about the premises (excluding Lessee's vaults,
safes and similar areas designated in writing by Lessee in advance); and Lessor
shall have the right to use any and all means which Lessor may deem proper to
open Lessee's doors in an emergency in order to obtain entry to the premises,
and any entry to the premises obtained by Lessor in an emergency shall not be
construed or deemed to be a forcible or unlawful entry into or a detainer of the
premises or an eviction, actual or constructive, of Lessee from the premises or
any portion thereof.
18. The following events shall constitute Events of Default under this
Lease:
(a) a default by Lessee in the payment when due of any rent or other
sum payable hereunder and the continuation of such default for a period of 5
days after the same is due, provided that if Lessee has failed three or more
times during the term hereof to pay any rent or other sum within 5 days after
the due date, no grace period shall thereafter be applicable hereunder;
(b) a default by Lessee in the performance of any of the other terms,
covenants, agreements or conditions contained herein, and, if the default is
curable, the continuation of such default for a period of 30 days after notice
by Lessor or beyond the time reasonably necessary for cure if the default is of
a nature to require more than 30 days to remedy, provided that if Lessee has
defaulted in the performance of the same
14
<PAGE>
obligation three or more times during the term hereof and notice of such default
has been given by Lessor in each instance, no cure period shall thereafter be
applicable hereunder;
(c) the bankruptcy or insolvency of Lessee, transfer by Lessee in
fraud of creditors, an assignment by Lessee for the benefit of creditors, or the
commencement of any proceedings of any kind by or against Lessee under any
provision of the Federal Bankruptcy Act or under any other insolvency,
bankruptcy or reorganization act unless, in the event any such proceedings are
involuntary, Lessee is discharged from the same within 60 days thereafter;
(d) the appointment of a receiver for a substantial part of the
assets of Lessee;
(e) the abandonment of the premises; and
(f) the levy upon this Lease or any estate of Lessee hereunder by any
attachment or execution and the failure to have such attachment or execution
vacated within 30 days thereafter.
19. Upon the occurrence of any Event of Default by Lessee hereunder,
Lessor may, at its option and without any further notice or demand, in addition
to any other rights and remedies given hereunder or by law, terminate this Lease
and exercise its remedies relating thereto in accordance with the following
provisions:
(a) Lessor shall have the right, so long as the Event of Default
remains uncured, to give notice of termination to Lessee, and on the date
specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease, Lessor may
then or at any time thereafter by judicial process, re-enter the premises and
remove therefrom all persons and property and again repossess and enjoy the
premises, without prejudice to any other remedies that Lessor may have by reason
of Lessee's default or of such termination.
(c) In the event of any such termination of this Lease, and in
addition to any other rights and remedies Lessor may have, Lessor shall have all
of the rights and remedies of a landlord provided by Section 1951.2 of the
California Civil Code. The amount of damages which Lessor may recover in event
of such termination shall include, without limitation, (1) the worth at the time
of award (computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award plus one percent)
of the amount by which the unpaid rent for the balance of the term after the
time of the award exceeds the amount of rental loss that Lessee proves could be
reasonably avoided, (2) all legal expenses and other related costs incurred by
Lessor following Lessee's default, (3) all costs incurred by Lessor in restoring
the
15
<PAGE>
premises to good order and condition, or in remodeling, renovating or otherwise
preparing the premises for retailing, and (4) all costs (including, without
limitation, any brokerage commissions) incurred by Lessor in reletting the
premises.
20. Even though Lessee has breached this Lease and abandoned the premises,
this Lease shall continue in effect for so long as Lessor does not terminate
Lessee's right to possession, and Lessor may enforce all its rights and remedies
under this Lease, including the right to recover the rental as it becomes due
under this Lease. Acts of maintenance or preservation or efforts to relet the
premises or the appointment of a receiver upon initiative of Lessor to protect
Lessor's interest under this Lease shall not constitute a termination of
Lessee's right to possession.
21. The remedies provided for in this Lease are in addition to any other
remedies available to Lessor at law or in equity by statute or otherwise.
22. All agreements and provisions to be performed by Lessee under any of
the terms of this Lease shall be at its sole cost and expense and without any
abatement of rental. If Lessee shall fail to pay any sum of money, other than
rental, required to be paid by it hereunder or shall fail to perform any other
act on its part to be performed hereunder and such failure shall continue for 30
days after notice thereof by Lessor, or such longer period as may be allowed
hereunder, Lessor may, but shall not be obligated so to do, and without waiving
or releasing Lessee from any obligations of Lessee, make any such payment or
perform any such other act on Lessee's part to be made or performed as in this
Lease provided. All sums so paid by Lessor and all necessary incidental costs
shall be payable to Lessor on demand.
23. If as a result of any breach or default in the performance of any of
the provisions of this Lease, Lessor uses the services of an attorney in order
to secure compliance with such provisions or recover damages therefor, or to
terminate this Lease or evict Lessee, Lessee shall reimburse Lessor upon demand
for any and all reasonable attorneys' fees and expenses so incurred by Lessor,
provided that if Lessee shall be the prevailing party in any legal action
brought by Lessor against Lessee, Lessee shall be entitled to recover reasonable
attorneys' fees and expenses incurred by Lessee.
24. If all or any part of the premises shall be taken as a result of the
exercise of the power of eminent domain, this Lease shall terminate as to the
part so taken as of the date of taking, and, in the case of a partial taking,
either Lessor or Lessee shall have the right to terminate this Lease as to the
balance of the premises by notice to the other within 30 days after such date,
provided, however, that a condition to the exercise by Lessee of such right to
terminate shall be that the portion of the premises taken shall be of such
extent and nature as substantially to handicap, impede or impair Lessee's use of
the balance of the premises. In the event of any taking, Lessor shall be
entitled to any and all compensation, damages, income, rent, awards, or any
interest therein whatsoever which may be paid or made in connection therewith,
and Lessee shall have no claim against
16
<PAGE>
Lessor for the value of any unexpired term of this Lease or otherwise. In the
event of a partial taking of the premises which does not result in a termination
of this Lease, the monthly rental thereafter to be paid shall be equitably
reduced.
25. (a) This Lease shall be subject and subordinated at all times to that
certain deed dated October 2, 1973, from the Redevelopment Agency of the City
and County of San Francisco recorded October 4, 1973, in the Office of the
Recorder of said City and County in Book B814 of Official Records at page 647.
Lessee covenants and agrees that Lessee shall not discriminate against or
segregate any person or group of persons on account of race, sex, creed, color,
national origin, or ancestry in the occupancy, use, sublease, tenure or
enjoyment of the premises.
(b) This Lease shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation for security now or hereafter placed
upon the Building and to any and all advances made on the security thereof or
Lessor's interest therein, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding the foregoing, if any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage or deed of trust or prior to its ground lease, and shall
give notice thereof to Lessee, this Lease shall be deemed prior to the mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of the mortgage, deed of trust or ground lease or the date of
recording thereof. In the event any mortgage or deed of trust to which this
Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to
the mortgagee or beneficiary, Lessee shall attorn to the purchaser at the
foreclosure sale or to the grantee under the deed in lieu of foreclosure; in the
event any ground lease to which this Lease is subordinate is terminated, Lessee
shall attorn to the ground lessor. Lessee agrees to execute any documents
required to effectuate such subordination, to make this Lease prior to the lien
of any mortgage or deed of trust or ground lease, or to evidence such
attornment.
(c) In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, or in the event any ground lease to which this Lease
is subordinate is terminated, this Lease shall not be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Lessee hereunder be
disturbed if Lessee shall not then be in default in the payment of rental and
other sums due hereunder or otherwise be in default under the terms of this
Lease, and if Lessee shall attorn to the purchaser, grantee, or ground lessor as
provided in paragraph (b) above or, if requested, enter into a new lease for the
balance of the term hereof upon the same terms and provisions as are contained
in this Lease. Lessee's covenant under paragraph (b) above to subordinate this
Lease to any ground lease, mortgage, deed of trust or other hypothecation
hereafter executed is conditioned upon each such senior instrument containing
commitments specified in this paragraph (c).
17
<PAGE>
26. The surrender of this Lease by Lessee, or a mutual cancellation
thereof, shall not work a merger, and shall, at the option of Lessor, terminate
all or any existing subleases or subtenancies, or operate as an assignment to it
of any or all such subleases or subtenancies.
27. In the event the original Lessor hereunder, or any successor owner of
the Building, shall sell or convey the Building, all liabilities and obligations
on the part of the original Lessor, or such successor owner, under this Lease
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Lessee agrees to attorn to such
new owner.
28. At anytime and from time to time but on not less than 10 days' prior
notice by Lessor, Lessee shall execute, acknowledge, and deliver to Lessor,
promptly upon request, a certificate certifying (a) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that this Lease is in full force and effect, as modified, and stating the date
and nature of each modification), (b) the amount of the Base Rent and most
recent Escalation Rent, if any, and the date to which such rental has been paid,
(c) that no notice has been received by Lessee of any default which has not been
cured, except as to defaults specified in the certificate, (d) that no default
of Lessor is claimed by Lessee, except as to defaults specified in the
certificate, and (e) such other matters as may be reasonably requested by
Lessor. Any such certificate may be relied upon by any prospective purchaser,
mortgagee or beneficiary under any deed of trust on the Building or any part
thereof.
29. Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Building shall in no way affect
this Lease or impose any liability on Lessor.
30. (a) If, without objection by Lessor, Lessee holds possession of the
premises after expiration of the term of this Lease, Lessee shall become a
tenant from month to month upon the terms herein specified but at a monthly
rental equivalent to 150% of the then prevailing monthly rental paid by Lessee
at the expiration of the term of this Lease, payable in advance on or before the
first day of each month. Each party shall give the other notice at least one
month prior to the date of termination of such monthly tenancy of its intention
to terminate such tenancy.
(b) If, over Lessor's objection, Lessee holds possession of the
premises after expiration of the term of this Lease or expiration of its
holdover tenancy, without limiting the liability of Lessee for its unauthorized
occupancy of the premises, Lessee shall indemnify Lessor and any replacement
tenant for the premises for any damages or loss suffered by either Lessor or the
replacement tenant resulting from Lessee's failure timely to vacate the
premises.
18
<PAGE>
31. Lessee has deposited with Lessor the sum specified in the Basic Lease
Information (the "deposit"). The deposit shall be held by Lessor as security for
the faithful performance by Lessee of all the provisions of this Lease to be
performed or observed by Lessee. If Lessee fails to pay rent or other sums due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of the deposit for the
payment of any rent or other sum in default or for the payment of any other sum
to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of the deposit, Lessee shall within
10 days after demand therefor deposit cash with Lessor in an amount sufficient
to restore the deposit to the full amount thereof and Lessee's failure to do so
shall be a material breach of this Lease. Lessor shall not be required to keep
the deposit separate from its general accounts. If Lessee performs all of
Lessee's obligations hereunder, the deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without interest, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the premises. No trust relationship is created herein between Lessor and
Lessee with respect to the deposit.
32. The waiver by Lessor of any agreement, condition or provision herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same or any other agreement, condition or provision herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of Lessor to insist upon the performance by Lessee in strict accordance with
such terms. The subsequent acceptance of rental hereunder by Lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any agreement,
condition or provision of this Lease, other than the failure of Lessee to pay
the particular rental so accepted, regardless of Lessor's knowledge of the
preceding breach at the time of acceptance of the rental.
33. Each notice, consent, demand or other communication from one party to
the other that is given pursuant to the terms of this Lease (collectively
referred to in this section as a "notice") shall be in writing and shall be (a)
personally delivered, (b) sent by United States mail, registered or certified
mail, postage prepaid, return receipt requested, (c) sent by Federal Express or
similar nationally recognized overnight courier service, with receipt, or (d)
transmitted by facsimile or other electronic transmission, provided that a
duplicate copy is sent within one business day after such transmission by United
States mail. Each notice shall be addressed as follows: to Lessor and Lessee at
the respective addresses specified in the Basic Lease Information or to such
other place as one party may from time to time designate in a notice to the
other; or, to Lessee, in the case a notice personally delivered at the premises.
Each notice shall be deemed to have been given upon the date of actual receipt
(or refusal to accept delivery) as indicated on the customary receipt used by
the delivering service or, in the case of a facsimile or other
19
<PAGE>
electronic transmission, the confirmation of the completed transmission. Lessee
hereby appoints as its agent to receive the service of all dispossessory or
distraint proceedings and notices thereunder the person in charge of or
occupying the premises at the time, and, if no person shall be in charge of or
occupying the same, then such service may be made by attaching the same on the
main entrance of the premises.
34. There are no oral agreements between Lessor and Lessee affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements, and understandings if any, between Lessor
and Lessee or displayed by Lessor to Lessee with respect to the subject matter
of this Lease or the Embarcadero Center project. There are no representations
between Lessor and Lessee other than those contained in this Lease. All implied
warranties, including implied warranties of merchantability and fitness, are
excluded.
35. (a) If Lessee signs as a corporation, each of the persons executing
this Lease on behalf of Lessee warrants that Lessee is a duly authorized and
existing corporation, that Lessee has and is qualified to do business in
California, that the corporation has the full right and authority to enter into
this Lease, and that each and both of the persons signing on behalf of the
corporation were authorized to do so. If Lessee signs as a partnership, each of
the persons executing this Lease on behalf of Lessee warrants that Lessee is a
partnership, that the partnership has the full right and authority to enter into
this Lease, and that each person signing on behalf of the partnership is
authorized to do so.
(b) Pacific Property Services, L.P. represents that it is the agent
of Lessor and has the right and authority to sign this Lease on behalf of
Lessor; except for such representation, Pacific Property Services, L.P. shall
have no liability under this Lease.
36. The words "Lessor" and "Lessee" as used herein shall include the
plural as well as the singular. If there be more than one Lessee, the
obligations hereunder imposed upon Lessee shall be joint and several. Time is of
the essence of this Lease and each and all of its provisions. Submission of this
instrument for examination or signature by Lessee does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Lessor and Lessee. The
agreements, conditions and provisions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, executors,
administrators, successors and assigns of the parties hereto. Lessee shall not,
without the consent of Lessor, use the words "Embarcadero Center" or the name of
the Building for any purpose other than as the address of the business to be
conducted by Lessee in the premises. If any provision of this Lease shall be
determined to be illegal or unenforceable, such determination shall not affect
any other provision of this Lease and all such other provisions shall remain in
full force and effect. This Lease shall be governed by and construed pursuant to
the laws of the State of California.
20
<PAGE>
37. The exhibit(s) and addendum, if any, specified in the Basic Lease
Information are attached to this Lease and by this reference made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
LESSEE LESSOR
AEGIS MORTGAGE THREE EMBARCADERO
ACCELERATION CORPORATION, CENTER VENTURE,
a Delaware corporation a partnership
By: Pacific Property Services, L.P., a
California limited partnership,
Managing Agent
By: /s/ John Decker By: /s/ ^^
-------------------------- -----------------------------
Its: President Its: Chief Operating Officer
------------------------- ----------------------------
By:
--------------------------
Its:
-------------------------
Date of Execution Date of Execution
by Lessee: June 9, 1997 by Lessor: June 10, 1997
----------------- -------------------
21
<PAGE>
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress to and
egress from their respective premises. The halls, passages, exits, entrances,
shopping malls, elevators, escalators and stairways are not for the general
public, and Lessor shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Lessor would be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom any tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal
activities. No tenant and no employee or invitee of any tenant shall go upon the
roof of the Building except such roof or portion thereof as may be contiguous to
the premises of a particular tenant and may be designated in writing by Lessor
as a roof deck or roof garden area.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Lessor. Lessor will adopt and furnish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Lessor for
modifications, which approval will not be unreasonably withheld. All approved
signs or lettering on doors shall be printed, painted, affixed or inscribed at
the expense of the tenant by a person approved by Lessor, which approval will
not be unreasonably withheld. Material visible from outside the Building will
not be permitted.
3. The premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. No cooking shall be done or permitted
by any tenant on the premises, except that use by the tenant of food and
beverage vending machines and Underwriters' Laboratory approved microwave ovens
and equipment for brewing coffee, tea, hot chocolate and similar beverages shall
be permitted, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and regulations.
4. No tenant shall employ any person or persons other than Lessor's
janitorial service for the purpose of cleaning the premises, unless otherwise
approved by Lessor. No person or persons other than those approved by Lessor
shall be permitted to enter the Building for the purpose of cleaning the same.
No tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
9:30 P.M. unless, by prior arrangement with Lessor, service is extended to a
later hour for specifically designated rooms.
5. Lessor will furnish each tenant free of charge with two keys to each
door lock in its premises. Lessor may make a reasonable charge for any
additional keys. No
22
<PAGE>
tenant shall have any keys made. No tenant shall alter any lock or install a new
or additional lock or any bolt on any door of its premises without the prior
consent of Lessor. The tenant shall in each case furnish Lessor with a key for
any such lock. Each tenant, upon the termination of its tenancy, shall deliver
to Lessor all keys to doors in the Building which shall have been furnished to
the tenant.
6. The freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Lessor in its discretion
shall deem appropriate. The persons employed to move such equipment in or out of
the Building must be acceptable to Lessor. Lessor shall have the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other properly brought into the Building. Heavy objects shall, if considered
necessary by Lessor, stand on wood strips of such thickness as is necessary to
properly distribute the weight. Lessor will not be responsible for loss of or
damage to any such property from any cause, and all damage done to the Building
by moving or maintaining such property shall be repaired at the expense of the
tenant.
7. No tenant shall use or keep in the premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Lessor's prior approval, use any method of
heating or air conditioning other than that supplied by Lessor. No tenant shall
use or keep or permit to be used or kept any foul, noxious or hazardous gas or
substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Lessor or other occupants of the
Building by reason of noise, odors or vibrations, or interfere in any way with
other tenants or those having business therein. No pets shall be kept in the
premises.
8. Lessor shall have the right, exercisable without notice and without
liability to any tenant, to change the name and street address of the Building.
9. Lessor reserves the right to exclude from the Building between the
hours of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and legal
holidays any person who does not present a proper access card or other
identification as a tenant or an employee of a tenant, or who does not otherwise
present proper authorization by a tenant for access to its premises. Each tenant
shall be responsible for all persons for whom it authorizes access and shall be
liable to Lessor for all acts of such persons. Lessor shall in no case be liable
for damages for any error with regard to the admission to or exclusion from the
Building of any person. In the case of invasion, mob, riot, public excitement or
other circumstances rendering such action advisable in Lessor's opinion, Lessor
reserves the right to prevent access to the Building during the continuance of
the same by such action as Lessor may deem appropriate.
10. The directory of the Building will be provided for the display of the
name and location of tenants and a reasonable number of the principal officers
and employees of tenants, and Lessor reserves the right to exclude any other
names therefrom.
23
<PAGE>
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Lessor. If consented to by Lessor, such items shall be installed on
the office side of the standard window covering and shall in no way be visible
from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages,
and other products or services shall be subject to such reasonable regulations
as may be adopted by Lessor. Lessor may establish a central receiving station in
the Building for delivery and pick-up by all messenger services, and may limit
delivery and pick-up at tenant premises to Building personnel.
13. Each tenant shall see that the doors of its premises are closed and
locked and that all water faucets or apparatus, cooking facilities and office
equipment (excluding office equipment required to be operative at all times) are
shut off before the tenant or its employees leave the premises at night, so as
to prevent waste or damage, and for any default or carelessness in this regard
the tenant shall be responsible for any damage sustained by other tenants or
occupants of the Building or Lessor. On multiple-tenancy floors, all tenants
shall keep the doors to the Building corridors closed at all times except for
ingress and egress.
14. The toilets, urinals, wash bowls and other restroom facilities shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or invitees, shall have
caused it.
15. Except with the prior consent of Lessor, no tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, theatre
tickets or any other goods or merchandise to the general public in or on the
premises, nor shall any tenant carry on, or permit or allow any employee or
other person to carry on, the business of stenography, typewriting or any
similar business in or from the premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the premises of any
tenant be used for manufacturing of any kind, or any business or activity other
than that specifically provided for in such tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building.
17. Each tenant shall have the right to connect the telephone system in
its premises to the telephone cable distribution system serving the Office Tower
at the location of the telephone cable terminal on the floor on which the
premises are situated, provided that no connection shall be made and no work
otherwise affecting the telephone cable terminal or distribution system shall be
undertaken without reasonable prior notice
24
<PAGE>
to Lessor. Lessor or Lessor's contractor with responsibility for maintenance of
the telephone distribution system may require supervision of the connection by
Lessor or the maintenance contractor, and may impose such other reasonable
conditions as may be necessary to protect the telephone cable terminal or
distribution system. Any damage to the telephone cable terminal or distribution
system caused by the act or omission of any tenant shall be repaired at the
expense of that tenant.
18. No motorcycles or motor scooters shall be parked or stored anywhere in
the Building other than the garage of the Building, and no bicycles may be
parked or stored anywhere in the Building other than in facilities provided
therefor in the garage or the common area of the Building.
19. There shall not be used in any portion of the Building, by any tenant
or its invitees, any hand trucks or other material handling equipment except
those equipped with rubber tires and side guards unless otherwise approved by
Lessor.
20. Each tenant shall store its refuse within its premises. No material
shall be placed in the refuse boxes or receptacles if such material is of such
nature that it may not be disposed of in the ordinary and customary manner of
removing and disposing of refuse in the City and County of San Francisco without
being in violation of any law or ordinance governing such disposal. All refuse
disposal shall be made only through entryways and elevators provided for such
purposes and at such times as Lessor shall designate.
21. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall
cooperate to prevent the same.
22. The requirements of the tenants will be attended to only upon
application by telephone or in person at the office of the Building. Employees
of Lessor shall not perform any work or do anything outside of their regular
duties unless under special instructions from Lessor.
23. Lessor may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Lessor
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Lessor from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25
<PAGE>
25. Lessor reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building, and for the preservation of good order
therein.
26
<PAGE>
[INSERT FLOOR PLAN HERE]
27
<PAGE>
EXHIBIT C
IRREVOCABLE LETTER OF _________________, 1997
CREDIT NO_______________________
BENEFICIARY: APPLICANT:
________________________________ _________________________
SUITE 2600 _________________________
FOUR EMBARCADERO CENTER _________________________
SAN FRANCISCO, CA 94111
GENTLEMEN:
WE HAVE HEREBY ESTABLISHED OUR IRREVOCABLE LETTER OF CREDIT NO.
_____________ AT THE REQUEST OF AND FOR THE ACCOUNT OF THE APPLICANT, FOR AN
AMOUNT OF NOT TO EXCEED IN THE AGGREGATE U.S. DOLLARS ______________ **U.S.
$_____________ ** (THE "STATED AMOUNT") AVAILABLE FOR PAYMENT BY YOUR DRAFT(S)
DRAWN AT SIGHT ON US AND ACCOMPANIED BY:
(1) YOUR WRITTEN AND SIGNED CERTIFICATE SHOWING THE NAME AND TITLE OF THE
SIGNER, REFERENCING THIS LETTER OF CREDIT NO. _______ (THE "CREDIT")
READING:
"THE UNDERSIGNED BEING DULY AUTHORIZED DO HEREBY CERTIFY THAT:
(A) (I) AN EVENT OF DEFAULT ON THE PART OF THE LESSEE HAS OCCURRED UNDER
THE OFFICE LEASE DATED ______________ (THE "LEASE"), BETWEEN
________________ ______________________ AND APPLICANT; AND
(II) FUNDS DRAWN UNDER THE CREDIT WILL BE APPLIED IN THE MANNER
AUTHORIZED UNDER SECTION 31 OF THE LEASE; OR
(B) (I) APPLICANT HAS FAILED TO CAUSE THE CREDIT TO BE EXTENDED OR
REPLACED AT LEAST 60 DAYS PRIOR TO THE DATE IT IS DUE TO EXPIRE;
AND
28
<PAGE>
(II) ______________ HAS MADE WRITTEN DEMAND ON APPLICANT FOR THE
EXTENSION OR REPLACEMENT OF THE CREDIT AND AT LEAST 10 DAYS HAS
ELAPSED SINCE SUCH DEMAND WAS MADE WITHOUT THE CREDIT HAVING
BEEN EXTENDED OR REPLACED; AND
(III) THE FUNDS DRAWN UNDER THE CREDIT WILL BE APPLIED IN THE MANNER
AUTHORIZED UNDER PARAGRAPH ____ OF THE ADDENDUM TO OFFICE LEASE
THAT CONSTITUTES PART OF THE LEASE."
YOUR DRAFT(S) MUST BE PRESENTED AT OUR OFFICE LOCATED AT
_________________________, SAN FRANCISCO, CALIFORNIA __________ NOT LATER THAN
___________________, _____ (THE "EXPIRATION DATE") OR ANY AUTOMATICALLY EXTENDED
EXPIRATION DATE AS PROVIDED HEREINBELOW.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY
EXTENDED WITHOUT AMENDMENT, FOR PERIOD(S) OF ONE (1) YEAR EACH FROM THE
EXPIRATION DATE HEREOF OR ANY SUCH AUTOMATICALLY EXTENDED EXPIRATION DATE UNLESS
WE NOTIFY YOU AT THE ADDRESS STATED HEREINABOVE BY REGISTERED MAIL (RETURN
RECEIPT) AT LEAST SIXTY (60) DAYS PRIOR TO THE CURRENT EXPIRATION DATE THAT WE
HAVE ELECTED NOT TO EXTEND THIS LETTER OF CREDIT FOR ANY SUCH FURTHER ONE YEAR
PERIOD.
NOTWITHSTANDING ANY REFERENCE IN THIS LETTER OF CREDIT TO OTHER DOCUMENTS,
INSTRUMENTS OR AGREEMENTS OR REFERENCES IN SUCH OTHER DOCUMENTS, INSTRUMENTS OR
AGREEMENTS TO THIS LETTER OF CREDIT THIS LETTER OF CREDIT CONTAINS THE ENTIRE
AGREEMENT AMONG THE APPLICANT, BENEFICIARY AND THE ISSUER HEREUNDER RELATING TO
THE OBLIGATIONS OF THE ISSUER HEREUNDER.
ALL DRAFTS MUST BE MARKED "DRAWN UNDER _________________ LETTER OF CREDIT
NO. ________________ ."
WE HEREBY AGREE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT SHALL BE DULY HONORED ON DUE PRESENTATION TO THE DRAWEE.
EXCEPT AS EXPRESSLY STATED HEREIN, THIS CREDIT IS ISSUED SUBJECT TO THE
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE
29
<PAGE>
PUBLICATION NO. 500.
VERY TRULY YOURS,
______________________________________
BY
_____________________________ (AUTHORIZED SIGNATURE)
30
<PAGE>
ADDENDUM TO OFFICE LEASE
------------------------
THIS ADDENDUM TO OFFICE LEASE (the "Addendum") shall constitute a part of
that Office Lease dated June 6, 1997 (the "Lease"), between THREE EMBARCADERO
CENTER, a partnership ("Lessor"), and AEGIS MORTGAGE ACCELERATION CORPORATION, a
Delaware corporation ("Lessee"), and the terms hereof shall for all purposes be
deemed incorporated in the Lease. In the event of any inconsistency between the
provisions of this Addendum and the other provisions of the Lease, this Addendum
shall govern.
1. Amendment of Section 3(d). Section 3(d) of the Lease is hereby amended
-------------------------
so as to read as follows:
Lessee hereby acknowledges that late payment by Lessee to Lessor
of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which
will be difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges
which may be imposed on Lessor by the terms of any trust deed
covering the premises. Accordingly, if any installment of rent or
any other sums due from Lessee shall not be received by Lessor
within five (5) days after the date due, Lessee shall pay to
Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of any default by
Lessee under Section 18(a) of this Lease with respect to such
overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder.
2. Amendment of Section 3(e). Section 3(e) of the Lease is hereby amended
-------------------------
so as to read as follows:
(e) Any amount due to Lessor, if not received by Lessor within
five (5) days from the date due, shall bear interest from the
date due until paid at the
31
<PAGE>
rate of ten percent (10%) per annum or, if a higher rate is
legally permissible, at the highest rate legally permitted,
provided that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are
paid by Lessee to the extent such interest would cause the total
interest to be in excess of that legally permitted. Payment of
interest shall not excuse or cure any default under section 18(a)
of this Lease.
3. Amendment of Section 15(b). Section 15(b) of the Lease is
--------------------------
hereby amended to read as follows:
(b) Without limiting the other instances in which it may be
reasonable for Lessor to withhold its consent to an assignment or
subletting, Lessor and Lessee acknowledge that it shall be
reasonable for Lessor to withhold its consent in the following
instances:
(1) if at the time consent is requested or at any time
prior to the granting of consent, Lessee is in default under
this Lease or would be in default under this Lease but for
the pendency of any grace or cure period under section 18
below;
(2) if the proposed assignee or sublessee is a governmental
agency;
(3) if, in Lessor's reasonable judgment, the use of the
premises by the proposed assignee or sublessee would involve
occupancy by other than primarily executive or professional
personnel and related support staff, would entail any
alterations which would materially lessen the value of the
leasehold improvements in the premises, would result in more
than a reasonable number of occupants per floor, or would
require increased services by Lessor;
(4) if, in Lessor's reasonable judgment, the financial
worth of the proposed assignee does not meet the credit
standards applied by Lessor for other tenants under leases
with comparable terms, the financial worth of the proposed
sublessee is not adequate for the obligations under the
sublease, or the character, reputation, or business of the
proposed assignee or sublessee is not consistent with the
quality of the other tenancies in the Building; and
(5) in the case of a subletting of less than the entire
premises, if the subletting would result in the division of
the premises into more than 3 sublet parcels on any floor
leased entirely by Lessee;
32
<PAGE>
provided, however, that Lessee shall, at its sole cost and
expense be responsible for constructing any demising walls
and separate entrances to the permitted sublet parcels,
which construction shall be performed in accordance with all
applicable governmental laws, codes, rules, regulations and
orders, in a workmanlike manner, and free and clear of all
liens for labor and materials furnished in connection with
such construction.
4. Amendment of Section 18(a). Section 18(a) of the Lease is hereby
--------------------------
amended so as to read as follows:
(a) A default by Lessee in the payment when due of any rent or
other sum payable hereunder and the continuation of such default
for a period of five (5) days after notice from Lessor;
5. Amendment of Section 18(b). Section 18(b) of the Lease is
--------------------------
hereby amended so as to read as follows:
(b) A default by Lessee in the performance of any of the other
terms, covenants, agreements or conditions contained herein and,
if the default is curable, the continuation of such default for a
period of thirty (30) days after notice by Lessor or beyond the
time reasonably necessary for cure if the default is of a nature
to require more than thirty (30) days to remedy;
6. Improvement of Premises. Lessor and Lessee acknowledge that Lessee
-----------------------
desires to effect substantial improvements to the premises under section 8 of
the Lease to adapt the same for Lessee's occupancy and, accordingly, the
following procedures are hereby established to implement the provisions of
section 8. To the extent any provisions of this paragraph are inconsistent with
the provisions of section 8, as to the improvements to be made prior to
occupancy, the provisions of this paragraph shall govern.
(a) Lessor and Lessee acknowledge that they have approved the space
plan and outline specifications identified in Exhibit B attached to the Lease.
The alterations reflected in Exhibit B, together with any changes thereto or
additional
33
<PAGE>
alterations requested by Lessee, are hereinafter referred to as "Lessee's Work."
Lessor shall cause the architects for the improvement of the premises, Huntsman
Associates, and their mechanical and electrical engineers, to prepare
construction drawings for Lessee's Work, including any alternates for pricing
purposes approved by Lessor and Lessee in order to facilitate the construction
of Lessee's Work for a cost not to exceed the sum of $350,445.00 (the "Assumed
Cost"). Lessee shall cooperate with the architects and engineers as necessary to
enable them to prepare complete plans and specifications, satisfying applicable
code requirements, that are ready for pricing and permit application by July 10,
1997 (the "Plans Date"). The architects or the general contractor for Lessee's
Work shall be responsible for submitting plans and specifications to the
appropriate authorities for the issuance of required permits, and the cost of
such permits shall constitute part of Lessee's Work.
(b) Lessor shall obtain a quotation or quotations of the cost of
Lessee's Work from one or more general contractors approved by Lessor for
construction in the Building, which quotation or quotations shall include such
alternates as shall have been approved by Lessor and Lessee. Lessor shall submit
the quotations to Lessee and Lessor shall accept the quotation acceptable to
Lessee, including the applicable alternates. Lessor shall enter into a contract
with the general contractor who submitted the approved quotation and shall use
its best efforts to cause the contractor to commence, diligently proceed with,
and complete Lessee's Work in accordance with the approved plans and
specifications. Lessee acknowledges that Lessor itself does not warrant the
timeliness of performance or the quality of the contractor's work, but Lessor
shall use its best efforts to
34
<PAGE>
enforce the contract, including all warranties contained therein, against the
general contractor for Lessee's benefit.
(c) The cost of Lessee's Work shall include architects' and
engineers' fees, except for services attributable to any portion of Lessee's
Work beyond that reflected in Exhibit B, the cost of which shall be borne by
Lessee. The cost of Lessee's Work shall also include the cost of any changes in
Lessee's Work requested or caused by Lessee, and in the event Lessor or the
general contractor is instructed by Lessee to proceed with such changes without
a prior determination of any increased costs or any increased construction time
resulting from such changes and without approval of such increases by Lessee,
the amount thereof shall be as reasonably determined by Lessor upon completion
of Lessee's Work, subject only to Lessor's reasonable efforts in causing its
general contractor to furnish to Lessee appropriate back-up information
concerning increased costs and construction delays, if any. The cost of Lessee's
Work shall include a charge for Lessor's construction administration in the
amount of 5% of the cost of Lessee's Work.
(d) Lessor shall bear the cost of Lessee's Work, except as provided
in this subsection (d) and subject to the provisions of section 7 of this
Addendum. In the event the cost of Lessee's Work exceeds the Assumed Cost, the
monthly Base Rent shall be increased by the amount necessary to fully amortize
on a monthly basis in equal monthly installments the difference between the
actual cost of Lessee's Work and the Assumed Cost on a straight line basis over
the term of the Lease at a rate of 10% per annum.
35
<PAGE>
(e) Any improvements to or installations in the premises desired by
Lessee that are outside the scope of the normal construction trades and
therefore not part of Lessee's Work shall be furnished and installed by or on
behalf of Lessee at Lessee's expense. Lessee shall adopt a schedule in
conformance with the schedule of Lessor's contractors and conduct its work in
such a manner as to maintain harmonious labor relations and as not to interfere
unreasonably with or delay the work of Lessor's contractors but Lessor shall
nonetheless afford Lessee's contractors reasonable and timely access to the
premises. Lessee's contractors, subcontractors and labor shall be approved by
Lessor, which approval shall not be unreasonably withheld or delayed, and shall
be subject to the administrative supervision of Lessor's general contractor.
Contractors and subcontractors engaged by Lessee shall employ men and means to
insure so far as may be possible the progress of the work without interruption
on account of strikes, work stoppage or similar causes for delay. Lessor shall
give access and entry to the premises to Lessee and its contractors and
subcontractors and sufficient opportunity and time during each work day and
reasonable use of facilities to enable Lessee to adapt the premises for Lessee's
use and perform the work to be performed by or on behalf of Lessee; provided,
however, that if such entry is prior to the commencement of the term of the
Lease such entry shall be subject to all of the applicable terms and conditions
of this Lease except the payment of rent.
(f) In the event of any delay in the performance of Lessee's Work
such that Lessee's Work is not completed prior to the commencement of the term,
Lessee's obligation to pay rental under section 3 of the Lease shall not
commence until Lessee's
36
<PAGE>
Work is substantially completed, meaning complete subject only to the completion
or correction of items on Lessor's project manager's punch list, the completion
or correction of which will not materially interfere with Lessee's use or
occupancy of the premises. If Lessor shall be delayed, however, in substantially
completing Lessee's Work as a result of any of the following (hereinafter
referred to as a "Tenant Delay"):
(1) any delay past the Plans Date in the completion of plans and
specifications for Lessee's Work that satisfy applicable code requirements
and are ready for pricing and permit application, if such delay is
attributable to Lessee's failure timely to cooperate with the architects
and engineers;
(2) Lessee's change(s) in plans and specifications for Lessee's
Work after the completion of plans and specifications for pricing and
permit application; or
(3) Lessee's request for special materials, finishes, or
installations not reflected in Exhibit B; then, notwithstanding anything to
the contrary contained in the Lease, the commencement of rental shall be
accelerated by the number of days of such Tenant Delay.
7. Letter of Credit. Notwithstanding anything to the contrary contained
----------------
in section 31 of the Lease, Lessee may satisfy its obligation to furnish the
security deposit contemplated therein by delivery to Lessor no later than August
1, 1997 a standby letter of credit, initially in the amount of $400,000.00, and
declining by $30,000.00 on each anniversary of the term commencement date, in
the form attached to the Lease as Exhibit C (the "letter of credit") issued by
Wachovia Bank of Georgia. In the event Lessee shall
37
<PAGE>
fail to deliver the letter of credit on or before August 1, 1997, then
notwithstanding anything in this Addendum to the contrary, Lessee and not Lessor
shall pay for the cost of Lessee's Work, and the monthly Base Rent shall be
$52,859. In the event Lessee shall fail to deliver the letter of credit on or
before August 1, 1997, Lessor shall submit each progress billing monthly from
its general contractor to Lessee, and Lessee shall pay each such progress
billing within 10 days after submittal by Lessor. Lessor shall not be obligated
to continue Lessee's Work if Lessee does not pay the cost of Lessee's Work for
which it is responsible when due. If Lessee does not make timely payment to
Lessor, Lessor may, but shall not be obligated to, advance Lessor's funds to pay
such progress billing and any funds so advanced shall be payable to Lessor upon
demand as additional rent and shall bear interest as provided in section 3(e) of
the Lease.
Lessee's right to the reduction in the security deposit contained in the
preceding paragraph is expressly conditioned upon there having been no prior
Event of Default under section 18 of the Lease. If the term of the letter of
credit expires prior to the period during which the security deposit is
required, the letter of credit has not been extended or replaced at least 60
days prior to its expiration, Lessor has made written demand on Lessee for
extension or replacement of the letter of credit and at least 10 days have
elapsed after the demand was made without the letter of credit having been
extended or replaced, then Lessor shall be entitled to draw upon the letter of
credit and purchase with the proceeds thereof a time deposit with the bank that
issued the letter of credit. Such time deposit shall be governed by the
following provisions:
(a) The initial term of the time deposit shall be one year, and prior
to the
38
<PAGE>
occurrence of an Event of Default by Lessee under the Lease, the time deposit
shall be automatically reinvested for successive terms of one year or such
shorter period as shall be designated by Lessor.
(b) At any time after the occurrence of an Event of Default, Lessor
shall have the right to withdraw all or part of the time deposit and apply the
same in the manner authorized under section 31 of the Lease with respect to a
security deposit, and Lessor shall have no liability to Lessee for any penalty
or loss incurred by reason of the withdrawal of the time deposit in advance of
its maturity.
(c) Following expiration of the term of the Lease, Lessor shall
assign the time deposit to Lessee.
8. Liability of Lessor. For any breach of this Lease the liability of
-------------------
Lessor (including all persons and entities that comprise Lessor, and any
successor landlord) and any recourse by Lessee against Lessor shall be limited
to the interest of Lessor and Lessor's successors-in-interest in and to the
Building and the rents, issues and profits from the Building. On behalf of
itself and all persons claiming by, through, or under Lessee, Lessee expressly
waives and releases Lessor from any personal liability for breach of this Lease.
39
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum as of the
date of the Lease.
AEGIS MORTGAGE ACCELERATION THREE EMBARCADERO CENTER
CORPORATION, VENTURE,
a Delaware corporation a partnership
By: Pacific Property Services, L.P., a
By: /s/ John Decker California limited partnership,
-------------------------------- Managing Agent
Its: President
-------------------------------
By: By: /s/ ^^
-------------------------------- -----------------------------
Its: Its: Chief Operating Officer
------------------------------- -----------------------------
40
<PAGE>
EXHIBIT 10.7
CREDIT AGREEMENT
This Credit Agreement is entered into as of August 25, 1997 between
Wachovia Bank, N.A. ("Lender") and Aegis Mortgage Acceleration Corp., a Delaware
corporation ("Borrower").
1. Definitions.
-----------
1.1 Definitions. The following terms have the meanings indicated:
-----------
"Agreement" means this Credit Agreement as amended, restated or
modified from time to time.
"Availability Period" means the period commencing on the date of this
Agreement and ending 18 months later.
"Banking Day" means, unless otherwise defined in this Agreement, a day
other than a Saturday or a Sunday on which Lender is open for business in
Georgia.
"Borrower" means Aegis Mortgage Acceleration Corp., a Delaware
corporation.
"Closing Date" means the date of execution of the Agreement.
"Collateral" means the personal property collateral described in
Paragraph 4.2 of this Agreement.
"Debt" means at any date the obligations of Borrower or any Subsidiary
for borrowed money, including, without limitation, borrowings evidenced by
bonds, debentures, notes, capital leases or similar instruments and obligations
to reimburse lenders under letters of credit or similar instruments.
"EBITDA" means, for any period, determined in accordance with GAAP the
earnings of Borrower, and if any Subsidiary exists, the earnings of such
Subsidiary or Subsidiaries, before interest expense, income taxes, depreciation
and amortization.
"Event of Default" means any event listed in Article 8 of this
Agreement.
"Fixed Charges" means for any period the aggregate of all obligations
for payments by Borrower, and if any Subsidiary exists, any Subsidiary, of
interest and principal on Debt and the aggregate of dividends paid on or amounts
paid for redemption of equity securities (whether in cash or other property).
"GAAP" means generally accepted accounting principles and practices as
promulgated by the Accounting Research Board, the Accounting Principles Board
and
<PAGE>
the Financial Accounting Standards Board or any superseding or supplemental
documentation of equal authority promulgating generally accepted accounting
principles and practices, all as in effect from time to time.
"Net Worth" means the book value of the assets of Borrower less
liabilities reflected in a balance sheet prepared in accordance with the accrual
method of accounting and GAAP consistently applied by Borrower. If any
Subsidiary exists, Net Worth shall be determined on a consolidated basis.
"Note" means the promissory note of Borrower evidencing loans pursuant
to the Revolving Facility substantially in the form of Exhibit A to this
Agreement.
"Obligations" means those obligations of Borrower to Lender including
the following:
(i) Borrower's obligations under the Note, including principal,
interest, late charges, prepayment charges and attorneys
fees;
(ii) Borrower's obligations under this Agreement;
(iii) all of Borrower's other present and future obligations to
Lender;
(iv) the repayment of any amounts that Lender may advance or
spend for the maintenance or preservation of the
Collateral;
(v) the repayment of any other expenditures that Lender may
make under the provisions of this Agreement (including the
default costs provided for in this Agreement) or for the
benefit of Borrower;
(vi) all amounts owed under any modifications, renewals or
extensions of any of the foregoing obligations; and
(vii) any of the foregoing that arises after the filing of a
petition by or against Borrower under the Bankruptcy Code.
"Reference Rate" means a per annum rate equal to the rate of interest
announced from time to time by Lender as its "prime rate", "prime lending rate",
"base rate" or similar reference rate (with each change therein to be effective
as of the date of such change). Each such rate announced by Lender is a
reference rate and does not necessarily represent the lowest or best rate
actually charged by it to any customer. Lender may make commercial loans or
other loans at rates of interest at, above or below such reference rate. In the
event Lender ceases to use its "prime rate", "prime lending
2
<PAGE>
rate" "base rate" or similar reference rate as a standard, Lender shall
designate a substitute therefor.
"Revolving Facility" means the revolving line of credit described in
Article 2 of this Agreement.
"Subsidiary" means, as applied to Borrower, (i) any corporation of
which 50% or more of the outstanding stock (other than directors' qualifying
shares) having ordinary voting power to elect a majority of its board of
directors (or other governing body), regardless of the existence at the time of
a right of the holders of any class or classes (however designated) of
securities of such corporation to exercise such voting power by reason of the
happening of any contingency, or any partnership of which 50% or more of the
outstanding partnership interests is, at the time, directly or indirectly owned
by Borrower or by one or more Subsidiaries of Borrower, and (ii) any other
entity which is directly or indirectly controlled or capable of being controlled
by Borrower or by one or more Subsidiaries of Borrower.
"Warrant Agreement" means the warrant agreement between Lender and
Borrower substantially in the form of Exhibit D to this Agreement.
"Warrants" has the meaning ascribed in paragraph 5.4.
2. Revolving Facility.
------------------
2.1 Amount. From time to time during the Availability Period Lender, on a
------
revolving basis, will make advances to Borrower in amounts not less than
$250,000 for each advance. The total of all advances outstanding under the
Revolving Facility may not exceed at any one time $4,000,000 less permanent
reductions to the Revolving Facility. The Revolving Facility may be reduced by
Borrower during the Availability Period in amounts not less than $500,000 but
each reduction shall reduce the available credit under the Revolving Facility
permanently.
2.2 Principal Payments. Borrower shall repay the principal balance of
------------------
advances under the Revolving Facility in 24 equal monthly payments commencing on
the 30th day of the month immediately succeeding the month in which the
Availability Period ends.
2.3 Interest Rate. The principal balance of the Revolving Facility shall
-------------
bear interest at the rate of 11% per annum. Borrower shall pay interest monthly
in arrears on the 30th day of each month.
2.4 Use of Proceeds. Borrower shall use the proceeds of the Revolving
---------------
Facility for working capital purposes.
3
<PAGE>
2.5 Prepayments. Borrower may at any time prepay advances under the
-----------
Revolving Facility in full or in part in amounts not less than $500,000 for each
such prepayment. Partial prepayments after the expiration of the Availability
Period shall be applied to the most remote installment payments due.
2.6 Commitment Fee. On September 30, December 31, March 31 and June 30
--------------
during the Availability Period and on the date the Availability Period ends
Borrower shall pay to Lender an amount equal to .75% per annum on the undrawn
portion of the Revolving Facility based upon the daily average of the unused
portion of the Revolving Facility during the quarter.
3. Disbursement of Credit, Payment and Interest Calculations.
---------------------------------------------------------
3.1 Requests. Each request for an advance under the Revolving Facility
--------
shall be made in writing on a form acceptable to Lender or in any other manner
acceptable to Lender.
3.2 Disbursements and Payments. Each disbursement by Lender shall be made
--------------------------
within 24 hours of receipt of Borrower's request and each payment by Borrower
under this Agreement shall be made in the funds and at such place as Lender may
from time to time select.
3.3 Evidence of Indebtedness. Principal, interest and all other sums due
------------------------
Lender under this Agreement shall be evidenced by the Note and by entries in
records maintained by Lender. Each payment on and any other credits with respect
to principal, interest and all other sums due under this Agreement shall be
evidenced by entries to records maintained by Lender.
3.4 Interest Calculation. Except as otherwise stated in this Agreement,
--------------------
all interest and fees, if any, payable under this Agreement shall be computed on
the basis of a 360 day year and actual days elapsed.
3.5 Late Payments. Any sum payable by Borrower hereunder (including unpaid
-------------
interest to the extent provided by law) if not paid when due shall bear interest
(payable on demand) from its due date until payment in full at a rate per annum
which is the greater of 15% or 4% over the Reference Rate.
3.6 Banking Pay. Any sum payable by Borrower hereunder which becomes due
-----------
on a day which is not a Banking Day shall be due on the next Banking Day after
such due date. Any payments received by Lender on a day which is not a Banking
Day shall be deemed to be received on the next Banking Day after such date of
receipt.
3.7 Taxes and Other Charges. Borrower agrees to make all payments or
-----------------------
reimbursements under this Agreement free and clear of and without deduction for
any
4
<PAGE>
present or future taxes, levies, imposts, fees or other charges of any kind
which may be imposed by any governmental authority with respect to such payments
or reimbursements. If any such taxes are imposed by any governmental authority,
Borrower agrees to pay such taxes and to confirm payment to Lender within 30
days after the due date for each tax payment. This paragraph shall not apply
with respect to any taxes which are imposed on or measured by Lender's net
income by any jurisdiction.
3.8 Telephone Requests. At Lender's sole discretion in each instance,
------------------
Lender may accept telephone requests to make or to repay extensions of credit.
Extensions of credit requested by telephone shall be deposited into Borrower's
commercial account with Lender or an affiliate bank of Lender, or such other
account(s) as may be specified in writing by Borrower and acceptable to Lender.
Telephone requests may be made by any individual identified in writing to Lender
on a form acceptable to Lender as being authorized to make such requests. Lender
shall be entitled to rely upon any written or telephone request from persons it
reasonably believes to be authorized by Borrower to make such requests without
making independent inquiry. Borrower hereby indemnifies Lender for, and holds
Lender harmless from, any and all losses, damages, claims and expenses
(including reasonable attorneys' fees), however arising, which Lender suffers or
incurs based on or arising out of extensions of credit or payments made on any
telephone request except that Lender shall not be indemnified against its own
gross negligence or willful misconduct. The provisions of this paragraph shall
survive termination of this Agreement.
3.9 Conditions Precedent to All Advances. At the time of (and after giving
------------------------------------
effect to) the making of any advance under the Revolving Facility, the following
conditions shall have been satisfied or shall exist:
(i) there shall then exist no Event of Default;
(ii) all representations and warranties by Borrower contained
herein or in any other related documents (other than those
representations and warranties which are, by their terms,
expressly limited to the date made or given) shall be true
and correct in all material respects with the same effect
as though such representations and warranties had been made
on and as of the date of such advance; and
(iii) the advance to be made and the use of proceeds thereof
shall not contravene, violate or conflict with, or involve
Borrower or Lender in a violation of, any law, rule,
injunction, regulation, or determination of any court of
law or other governmental authority.
5
<PAGE>
Each request for an advance under the Revolving Facility and the acceptance
by Borrower of the proceeds thereof shall constitute a representation and
warranty by Borrower to Lender, as of the date of such advance, that all of the
conditions specified in this Section have been satisfied.
4. Collateral.
----------
4.1 Grant of Security Interest. Borrower grants a security interest in the
--------------------------
Collateral to Lender to secure the payment or performance of the Obligations.
4.2 Collateral. Borrower shall execute and deliver to Lender financing
----------
statements and such other documents as are necessary to perfect Lender's
interests in the Collateral, which shall consist of the property of Borrower,
wherever located, and now owned or hereafter acquired, including, but not
limited to the following:
(i) Accounts, including accounts receivable;
(ii) Chattel paper;
(iii) Equipment, including furniture, furnishings, fixtures,
computers, office equipment and incidental accessories;
(iv) Instruments;
(v) General intangibles, including patents, copyrights,
tradenames, trademarks, logos and computer software;
(vi) Documents;
(vii) Rights ancillary to, or arising in any way in connection
with, any of the foregoing, including security agreements
securing any of the foregoing, documents and notes;
(viii) Books and records pertaining to the foregoing and the
equipment containing the books and records;
(ix) Capital stock of any Subsidiary;
(x) Bank operating accounts, excluding any fiduciary accounts
containing funds held for the benefit of any mortgagor or
customer by the Borrower; and
(xi) To the extent not listed above as original collateral,
proceeds and products of the foregoing, including money,
deposit accounts, goods, insurance proceeds and other
tangible or
6
<PAGE>
intangible property received upon the sale or other
disposition of the foregoing.
Lender is authorized, at its option, to file financing statements or amendments
without the signature of Borrower with respect to the Collateral.
4.3 Possession and Control of Collateral.
------------------------------------
4.3.1 Possession. Borrower shall have possession of the Collateral,
----------
except where expressly provided in this Agreement or where Lender chooses to
perfect its security interest by possession. Borrower shall deliver to Lender
certificates representing the capital stock of any Subsidiary, together with an
undated and irrevocable form of stock powers, within ten (10) days of Borrower's
creation or acquisition of such Subsidiary. If Lender takes possession of
investment securities of Borrower it shall also be entitled to possession of
additional securities, such as stock dividends issued in connection with such
securities.
4.3.2 Inspection; Notice. Lender may inspect the Collateral, wherever
------------------
it is located, at any time upon reasonable notice. Borrower shall give Lender
prompt written notice of any change in the location of the Collateral or the
name of the entity, such as a subsidiary, owning the Collateral.
4.3.3 Personal Property. The Collateral shall remain personal
-----------------
property at all times. Borrower shall not affix any of the Collateral to any
real property in any manner which would change its nature from that of personal
property to real property or to a fixture.
4.3.4 Lender Collection Rights. Lender shall have the right at any
------------------------
time to notify any account debtors and any obligors under instruments to make
payments directly to Lender, and Lender may at any time enforce Borrower's
rights against the account debtors and obligors.
4.3.5 Limitations on Obligations Concerning Maintenance of
----------------------------------------------------
Collateral.
- ----------
(i) Risk of Loss. Borrower has the risk of loss of the
------------
Collateral. Lender shall not be responsible for any
injury or loss to the Collateral, or any part thereof,
arising from any act of nature, flood, fire or any other
cause beyond the reasonable control of Lender.
(ii) No Collection Obligation. Lender have no duty to collect
------------------------
any income accruing on the Collateral or to preserve any
rights relating to the Collateral.
7
<PAGE>
(iii) No Duty of Care. Lender shall have no duty of care with
---------------
respect to the Collateral.
4.3.6 No Disposition of Collateral. Except as permitted in this
----------------------------
Agreement, Borrower has no right to sell, lease or otherwise dispose of any of
the Collateral.
5. Conditions.
----------
The effectiveness of this Agreement is subject to Lender's receipt of the
following, each of which must be in form and substance satisfactory to Lender:
5.1 Note. Borrower shall have executed and delivered to Lender the Note.
----
5.2 Financing Statements. Borrower and Lender shall have executed and
--------------------
delivered to each other financing statements and such other documents as are
provided in this Agreement to protect Lender's interests in the Collateral.
5.3 Warrant Agreement. Borrower and Lender shall have executed and
-----------------
delivered to each other the Warrant Agreement.
5.4 Warrant. Borrower shall have executed and delivered to Lender the
-------
Warrant as provided in and in the form attached as an Exhibit to the Warrant
Agreement.
5.5 Authorization Certificates. Lender shall have received certificates of
--------------------------
the President of Borrower dated the Closing Dates as to the due authorization of
the execution of this Agreement and related agreements and documentation, as to
the accuracy as of the Closing Date of the representations and warranties in
Article 6 and due performance of the covenants in Article 7 of this Agreement.
5.6 Opinions of Counsel. Lender shall have received opinions of counsel
-------------------
for Lender and Borrower in form and content satisfactory to Lender and its
counsel covering the matters described in Exhibit C to this Agreement.
5.7 Corporate Documents. Lender shall have received either original,
-------------------
photocopied or facsimile copies of the Certificate of Incorporation and By-laws
of Borrower (certified in the case of the Certificate of Incorporation by the
Secretary of State of the State of Delaware), together with either original,
photocopied or facsimile current good standing certificates for Borrower issued
by the Secretary of State of the State of Delaware and of such other
jurisdictions where Borrower is presently qualified to do business as a foreign
corporation (subject to such exceptions as may be acceptable to Lender).
5.8 Lien Searches. Lender shall have received either original, photocopied
-------------
or facsimile UCC, judgment and tax lien search reports for each jurisdiction in
which
8
<PAGE>
Borrower is located or has Collateral, showing no liens or financing statements
of record against Borrower, except liens permitted under Section 7.8, and
showing no litigation that is material to Borrower.
6. Representations and Warranties.
------------------------------
Borrower represents and warrants that:
6.1 Organization and Authorization. Borrower is a corporation duly
------------------------------
organized and existing under the laws of the state of Delaware, and is qualified
to do business in California and in each other jurisdiction where the failure to
qualify would have a material adverse effect upon the Borrower. The execution,
delivery and performance of this Agreement and of any instrument or agreement
required by this Agreement are within Borrower's powers, have been duly
authorized, and are not in conflict with the terms of any charter, bylaw or
other organization papers of Borrower.
6.2 No Conflicts. The execution, delivery and performance of this
------------
Agreement and of any instrument or agreement required by this Agreement are not
in conflict with any law or any indenture, or undertaking to which Borrower is a
party or by which Borrower is bound or affected.
6.3 Enforceability. This Agreement is a legal, valid and binding agreement
--------------
of Borrower, enforceable against Borrower in accordance with its terms, and any
instrument or agreement required under this Agreement, when executed and
delivered, will be similarly legal, valid, binding and enforceable, such
enforceability in either case being subject to the effects of applicable laws
affecting creditors' rights generally or affecting the availability of equitable
remedies.
6.4 Compliance with Laws. Borrower has complied, in all material respects,
--------------------
with all known federal, state, and local laws, rules, and regulations affecting
its business.
6.5 Ownership of Collateral. All Collateral is owned by Borrower free and
-----------------------
clear of all security interests, liens, encumbrances and rights of others except
the rights of Lender under this Agreement required and those consented to in
writing by Lender.
6.6 Litigation. There is no known litigation, tax claim, proceeding or
----------
dispute pending, or, to the knowledge of Borrower, threatened, against or
affecting Borrower or its properties, the adverse determination of which might
materially affect Borrower's financial condition or operations or materially
impair Borrower's ability to perform its obligations hereunder or under any
instrument or agreement required by this Agreement.
6.7 No Event of Default. No event has occurred and is continuing or would
-------------------
result from the extension of credit under this Agreement which constitutes or
would
9
<PAGE>
constitute an Event of Default or which, upon a lapse of time or notice or both,
would become an Event of Default.
6.8 Information Submitted. All financial information submitted by Borrower
---------------------
to Lender has been prepared in accordance with the accrual method of accounting
consistently applied by Borrower, is true and correct in all material respects
and is complete insofar as may be necessary to give Lender a true and accurate
knowledge of the subject matter of such information.
6.9 No Material Adverse Change. There has been no material adverse change
--------------------------
in the financial condition or operations of Borrower since the date of the most
recent audited financial statements submitted to Lender.
6.10 Investment Company Act. Etc. Borrower is not an "investment company"
---------------------------
or a company "controlled" by an "investment company"(as each of the quoted terms
is defined or used in the Investment Company Act of 1940, as amended). Borrower
is not subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or any federal statute or regulation limiting its
ability to incur indebtedness for money borrowed or to pledge any of its assets
to secure such indebtedness, as contemplated by this Agreement or by any related
document.
7. Covenants.
---------
So long as credit is available under this Agreement and until full and
final payment of all of Borrower's obligations under this Agreement and any
instrument or agreement required under this Agreement, unless Lender waives
compliance in writing, Borrower shall perform the following covenants:
7.1 Notices of Certain Events. Borrower shall promptly give written notice
-------------------------
to Lender of-
(i) all litigation affecting Borrower or any Subsidiary where
the amount claimed not covered by insurance is $500,000 or
more;
(ii) any substantial dispute which may exist between Borrower or
any Subsidiary and any governmental regulatory body or law
enforcement authority:
(iii) any Event of Default or any event which, upon a lapse of
time or notice or both, would become an Event of Default;
10
<PAGE>
(iv) any other matter which has resulted or might result in an
adverse change in Borrower's financial condition or
operations.
7.2 Financial and Other Information. Borrower shall deliver to Lender in
-------------------------------
form and detail satisfactory to Lender, and in such number of copies as Lender
may request:
(i) As soon as available but no later than 120 days after the
close of each of its fiscal years, a complete copy of
Borrower's financial statements, which shall include
Borrower's balance sheet as of the close of such year, and
Borrower's statements of operations, stockholders equity
and cash flows for such year prepared in accordance with
GAAP, audited by an independent public accountant selected
by Borrower and satisfactory to Lender. The statements
shall be accompanied by a certificate of Borrower that no
event has occurred and is continuing which is, or with the
lapse of time or notice or both would be, an Event of
Default.
(ii) As soon as available but no later than 45 days after the
close of each month, Borrower's balance sheet as of the
close of such month, and Borrower's statements of
operations, stockholders equity and cash flows, all as
prepared by Borrower for its own use and certified by a
duly authorized officer of Borrower as being complete and
correct and fairly presenting Borrower's financial
condition and results of operations in accordance with
accrual accounting principles and practices consistently
applied. The statements shall be accompanied by a
certificate of Borrower that no event has occurred and is
continuing which is, or with the lapse of time or notice or
both would be, an Event of Default.
(iii) Promptly, such other statements, lists of property and
accounts, budgets, forecasts, reports or other information
concerning Borrower's business activities and financial
condition as Lender may reasonably request from time to
time.
(iv) If any Subsidiary exists, the Borrower shall deliver to
Lender all financial statements, balance sheets and
statements of operations required by this Article 7.2 on a
consolidated basis.
11
<PAGE>
7.3 Books, Records, Audits and Inspections. Borrower shall, and shall
--------------------------------------
cause any Subsidiary to, maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance with the
accrual method of accounting consistently applied, and in compliance with the
regulations of any governmental regulatory body having jurisdiction over
Borrower, any Subsidiary, or their businesses and permit employees or agents of
Lender at any reasonable time to inspect the Collateral, Borrower's properties,
and any Subsidiary's properties to conduct appraisals of the Collateral, and to
examine or audit Borrower's and any Subsidiary's books, accounts and records and
make copies and memoranda thereof. In the event any Collateral, properties,
books, accounts or records are in the possession of or under the control of a
third party, Borrower shall direct and hereby authorizes such third party to
permit access to Lender's employees or agents for the purpose of performing the
inspections, appraisals, examinations or audits permitted under this paragraph,
and to respond to any requests from Lender for information concerning the
amount, status or condition of any Collateral in third party's possession or
control.
7.4 Minimum Net Worth. Borrower shall maintain a Net Worth, calculated on
-----------------
the last day of each calendar quarter with the first calculation to be December
31, 1997 (i) during the period December 31, 1997 through and including December
31, 1998 not less than $300,000; (ii) during the period commencing January 1,
1999 through and including December 31, 1999 not less than $1,000,000; and (iii)
at any time thereafter not less than Net Worth at December 31, 1999, plus 50% of
positive net income for all periods after December 31, 1999 considered on a
cumulative basis.
7.5 Debt to Net Worth. Borrower shall not permit Borrower's total Debt,
-----------------
calculated on the last day of each calendar quarter with the first calculation
to be December 31, 1997 to exceed six times its Net Worth through 1998 and five
times its Net Worth thereafter.
7.6 Coverage of Fixed Charges. Borrower shall not permit the ratio,
-------------------------
calculated on the last day of each fiscal quarter with the first calculation to
be September 30, 1997, of EBITDA for such period to Fixed Charges for such
period to be less than 1.5 to 1.0.
7.7 Other Indebtedness. Except for indebtedness under the Revolving
------------------
Facility, Borrower shall not, and shall not permit any Subsidiary to, create or
incur any indebtedness for borrowed money or for the deferred purchase price of
property under leases, or become liable as a surety, guarantor, accommodation
endorser or otherwise for or upon the obligation of any other person, firm or
corporation; provided, however, that this paragraph shall not be deemed to
prohibit:
(i) the acquisition of goods, supplies or merchandise on
normal trade credit;
12
<PAGE>
(ii) the endorsement of negotiable instruments received in the
ordinary course of its business as presently conducted;
(iii) debt and personal property lease obligations existing as
of the Closing Date and which have been disclosed to
Lender in writing;
(iv) additional indebtedness of Borrower, including lease
obligations, for the acquisition of real or personal
property to the extent permitted under paragraph 7.9
below;
(v) lease obligations related to occupancy of real property
existing on or at the Closing Date disclosed to Lender in
writing;
(vi) loans from stockholders of Borrower subordinated to Lender
on terms satisfactory to Lender; and
(vii) other financial arrangements with Lender, including
letters of credit.
7.8 Liens. Borrower shall not, and shall not permit any Subsidiary to,
-----
create, assume or suffer to exist any security interest, lien (including the
lien of an attachment, judgment or execution) or encumbrance, securing a charge
or obligation, on or of any of its property, real or personal, whether now owned
or hereafter acquired, except:
(i) security interests in favor of Lender;
(ii) liens for current taxes, assessments or other governmental
charges which are not delinquent or remain payable without
any penalty;
(iii) purchase money security interests in personal property
hereafter acquired as permitted by paragraph 7.9 below,
when the security interest does not extend beyond the
property purchased.
7.9 Capital Leases. Borrower shall not have outstanding at any time lease
--------------
obligations for personal property exceeding $400,000.
7.10 Acquisitions. Borrower shall not, and shall not permit any Subsidiary
------------
to, acquire or purchase the assets or business of any other person, firm, or
corporation, except in an amount which does not exceed in the aggregate
$5,000,000 and including not more than $1,000,000 in cash; or acquire or
purchase securities other than obligations
13
<PAGE>
issued or guaranteed by the United States and other readily marketable
securities, including commercial paper.
7.11 Loans and Guaranties. Except for accounts receivable generated in the
--------------------
ordinary course of business, Borrower shall not, and shall not permit and
Subsidiary to, make any loans, advances or other extensions of credit to, or
guarantee any of the obligations, of any person, firm or corporation in excess
of $300,000 in the aggregate.
7.12 Sales and Leasebacks. Borrower shall not, and shall not permit any
--------------------
Subsidiary to, enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
7.13 Existence and Properties. Borrower shall, and shall cause any
------------------------
Subsidiary to, maintain and preserve its existence and all rights, privileges
and franchises now enjoyed, conduct its business in an orderly, efficient and
customary manner, keep all its properties in good working order and condition,
and from time to time make all needed repair, renewals or replacements of such
property.
7.14 Liquidations. Borrower shall not liquidate or dissolve.
------------
7.15 Mergers. Borrower shall not, and shall not permit any Subsidiary to,
-------
enter into any consolidation, merger, partnership, joint venture or other
combination requiring a cash investment exceeding $1,000,000 or a total
investment exceeding $5,000,000.
7.16 Sale of Assets. Borrower shall not sell, lease or otherwise dispose
--------------
of its business or assets as a whole having a fair market value in excess of
$500,000.
7.17 Insurance. Borrower shall, and shall cause any Subsidiary to,
---------
maintain and keep in force fire and hazard insurance policies covering the
tangible property comprising the Collateral; and each such insurance policy
shall be in an amount equal to the full replacement value of such tangible
property and, shall include a replacement cost endorsement. Borrower shall also
maintain and keep in force a term life insurance policy of at least $1,000,000
on the life of John P. Decker. Such policies shall be issued by insurance
companies acceptable to Lender, and shall include loss payable endorsements in
favor of Lender in form acceptable to Lender. Borrower shall also, and shall
cause any Subsidiary to, maintain and keep in force insurance satisfactory to
Lender as to amount, nature and carrier covering property damage, public
liability and workers' compensation, and shall deliver to Lender upon Lender's
request a copy of each insurance policy or, if permitted by Lender, a
certificate of insurance listing all insurance in force. Any payments to Lender
from insurance shall reduce Borrower's obligations to Lender.
7.18 Compliance with Laws. Borrower shall, and shall cause any Subsidiary
--------------------
to, at all times comply with, or cause to be complied with, all laws, statutes
rules,
14
<PAGE>
regulations, orders and directions of any governmental authority having
jurisdiction over Borrower or any Subsidiary or Borrower's or any Subsidiary's
business in all material respects.
7.19 Accuracy of Financial Information. Borrower shall cause all financial
---------------------------------
information, including information relating to the Collateral, upon submission
by Borrower to Lender to be true and correct in all material respects and
complete to the extent necessary to give Lender a true and accurate knowledge of
the subject matter of such information.
7.20 Additional Acts. Borrower shall, and shall cause any Subsidiary to,
---------------
perform, on request of Lender, such acts as may be necessary or advisable to
perfect any lien or security interest provided for in, or otherwise to carry out
the intent of, this Agreement.
7.21 Business Activities. Borrower shall not, and shall not permit any
-------------------
Subsidiary to, engage in any business activities or operations substantially
different from or unrelated to present business activities and operations.
7.22 Use of Proceeds. No part of the proceeds of any loan advanced
---------------
hereunder will be used for any purpose which violates, or which would be
inconsistent or not in compliance with, the provisions of Regulation G,
Regulation T, Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System, as the same may be in effect from time to time.
8. Events of Default.
-----------------
The occurrence of any of the following Events of Default shall terminate
any obligation on the part of Lender to disburse advances under the Revolving
Facility until such Event of Default shall have been cured or waived. All
obligations of Borrower to Lender under or in respect of this Agreement and any
instrument or agreement required under this Agreement shall be immediately due
and payable (i) automatically upon the occurrence of an Event of Default
specified in paragraphs 8.6 and 8.7 and (ii) at the option of Lender, upon the
occurrence of any other Event of Default:
8.1 Failure to Pay. Borrower fails to pay, within five days of the date
--------------
when due, any installment of interest or principal or any other sum due under
this Agreement in accordance with the terms of this Agreement.
8.2 Breach of Representation or Warranty. Any representation or warranty
------------------------------------
in this Agreement or in any agreement, instrument or certificate executed
pursuant or in connection with any transaction contemplated by this Agreement
proves to have been false or misleading in any material respect when made.
15
<PAGE>
8.3 Falsity of Reports. Any financial statements delivered by Borrower to
------------------
Lender proves to be false or misleading in any material respect.
8.4 Security Interest. Lender fails to have a valid and enforceable
-----------------
perfected security interest in or lien on the Collateral or such security
interest or lien fails to be prior to the rights and interest of others except
those consented to in writing by Lender.
8.5 Judgments. One or more judgments or arbitration awards are entered
---------
against Borrower or any Subsidiary, or Borrower or any Subsidiary enters into
any settlement agreements with respect to any litigation or arbitration, in the
aggregate amount in any year exceeding $400,000 on a claim or claims not covered
by insurance.
8.6 Voluntary Bankruptcy. Borrower or any Subsidiary files any petition,
--------------------
proceeding, case or action for relief under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors.
8.7 Involuntary Bankruptcy. An involuntary petition is filed under any
----------------------
bankruptcy or similar statute against Borrower or any Subsidiary, or a receiver,
trustee, liquidator, assignee, custodian, sequestrator or other similar official
is appointed to take possession of the properties of Borrower or any Subsidiary;
provided, however, that such Event of Default shall be deemed cured if such
petition or appointment is with respect to claims aggregating less than
$1,000,000 and is set aside or withdrawn or ceases to be in effect within 30
days from the date of such filing or appointment.
8.8 Suspension of Business. Borrower voluntarily suspends its business for
----------------------
more than one week.
8.9 Default of Other Financial Obligations. Any default occurs under any
--------------------------------------
other agreement involving the borrowing of money or the extension of credit in
excess of $500,000 to which Borrower may be a party as borrower, guarantor or
installment purchaser if such default consists of the failure to pay any
obligation when due or if such default gives to the holder of the obligation
concerned the right to accelerate the obligation.
8.10 Default under Security Agreement. Any security agreement or other
--------------------------------
agreement or instrument required under this Agreement is breached or becomes
ineffective or any default occurs under any such agreement or instrument.
8.11 Default of Other Lender Obligations. Any material default occurs
-----------------------------------
under any other obligation of Borrower or any Subsidiary to Lender or to any
subsidiary or affiliate of Lender.
16
<PAGE>
8.12 Breach Under Agreement. Borrower breaches any covenant or other
----------------------
material term, condition, provision, representation or warranty contained in
this Agreement not specifically referred to in this Article 8.
8.13 Notice of Default; Cure. Lender shall give Borrower written notice of
-----------------------
the occurrence of Events of Default set forth in paragraphs 8.4, 8.10, 8.11 and
8.12 and Borrower shall have 30 days after such notice within which to cure such
default.
8.14 Change of Control. Lender shall not have consented to (i) the
-----------------
occurrence of a transaction or series of transactions whereby the holders of the
outstanding voting securities of the Company before such transaction or
transactions own fewer than 50% of the outstanding voting securities of the
Company after such transaction or transactions, or (ii) the appointment of a
successor Chief Executive Officer of Borrower within 120 days after John P.
Decker for any reason ceases to be the Chief Executive Officer of Borrower.
9. Remedies Upon Default.
---------------------
9.1 General. Upon any Event of Default, Lender may pursue any remedy
-------
available at law (including those available under the provisions of the Uniform
Commercial Code), or in equity to collect, enforce or satisfy any Obligations
then owing, whether by acceleration or otherwise.
9.2 Concurrent Remedies. Upon any Event of Default, Lender shall have the
-------------------
right to pursue any of the following remedies separately, successively or
concurrently:
(i) File suit and obtain judgment and, in conjunction with any
action, Lender may seek any ancillary remedies provided by
law, including levy of attachment and garnishment.
(ii) Take possession of any Collateral if not already in its
possession without demand and without legal process. Upon
Lender's demand, Borrower will assemble and make the
Collateral available to Lender as they direct. Borrower
grants to Lender the right, for this purpose, to enter
into or on any premises where Collateral may be located.
(iii) Without taking possession, sell, lease or otherwise
dispose of the Collateral at public or private sale in
accordance with the Uniform Commercial Code.
9.3 Foreclosure Procedures.
----------------------
(i) No Waiver. No delay or omission by Lender to exercise any
---------
right or remedy accruing upon any Event of Default shall
(a)
17
<PAGE>
impair any right or remedy, (b) waive any default or
operate as an acquiescence to the Event of Default, or (c)
affect any subsequent default of the same or of a
different nature.
(ii) No Obligation to Pursue Others. Lender shall have no
------------------------------
obligation to attempt to satisfy the Obligations by
collecting them from any other person liable for them and
Lender may release, modify or waive any collateral
provided by any other person to secure any of the
Obligations, all without affecting Lender's rights against
Borrower.
(iii) Compliance With Laws. Lender may comply with any
--------------------
applicable state or federal law requirements in connection
with a disposition of the Collateral and compliance will
not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.
(iv) Sales on Credit. Should any of the Collateral be sold by
---------------
Lender upon credit or for future delivery, Borrower will
be credited only with payments actually made by the
purchaser, received by Lender and applied to the
indebtedness of the Purchaser. In the event the purchaser
fails to pay for the Collateral, Lender may resell the
Collateral and Borrower shall be credited with the
proceeds of the sale.
(v) Purchases by Lender. In the event Lender shall purchase
-------------------
any of the Collateral being sold, Lender may pay for the
Collateral by crediting some or all of the Obligations of
the Borrower.
10. Miscellaneous.
-------------
10.1 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties to this Agreement and their respective successors and
assigns; provided, however, that Borrower shall not assign this Agreement or any
of the rights, duties or obligations of Borrower hereunder without the prior
written consent of Lender.
10.2 Consents and Waivers. No consent or waiver under this Agreement shall
--------------------
be effective unless in writing. No waiver of any breach or default shall be
deemed a waiver of any breach or default thereafter occurring.
10.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Georgia (without references to principles of
conflicts of law).
18
<PAGE>
10.4 Costs and Attorneys' Fees. Each party agrees to pay its own costs and
-------------------------
counsel fees with respect to the preparation and enforcement of this Agreement.
Notwithstanding the foregoing, Borrower agrees to pay (i) up to $5,000 of
Lender's counsel fees in connection with the preparation of this Agreement
incurred after July 10, 1997 and (ii) the out-of-pocket expenses incurred by
Lender while an Event of Default is continuing in connection with the Event of
Default and related collection, bankruptcy and other enforcement proceedings.
Notwithstanding the foregoing, in the event a legal action or arbitration
proceeding is commenced in connection with the enforcement of this Agreement or
any instrument or agreement required under this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements incurred in connection with such action or proceeding, as
determined by the court or arbitrator.
10.5 Integration. This Agreement and any instrument, agreement or document
-----------
attached hereto or referred to herein (i) integrate all the terms and conditions
mentioned in this Agreement, (ii) supersede all oral negotiations and prior
writings in respect to the subject matter of this Agreement, and (iii) are
intended by the parties as the final expression of the agreement with respect to
the terms and conditions set forth in this Agreement and any such instrument,
agreement or document and as the complete and exclusive statement of the terms
agreed to by the parties. In the event of any conflict between the terms,
conditions and provisions of this Agreement and any such instrument, agreement
or document, the terms, conditions and provisions of this Agreement shall
prevail.
10.6 Participations. Lender, with the approval of Borrower, may sell,
--------------
assign, grant participations in, or otherwise transfer to any other person, firm
or corporation (a "Participant"), all or part of the obligations of Borrower
under this Agreement. Such approval of Borrower will not be unreasonably
withheld. Borrower agrees that each such disposition will give rise to a direct
obligation of Borrower to the Participant. Borrower authorizes Lender and each
Participant, upon the occurrence of an Event of Default, to proceed directly by
right of setoff, banker's lien or otherwise, against any assets of Borrower
which may be in the hands of Lender or such Participant, respectively. Borrower
authorizes Lender to disclose to any prospective Participant and any Participant
any and all information in Lender's possession concerning Borrower, this
Agreement and the Collateral.
10.7 Arbitration.
-----------
(i) Any controversy or claim between or among the parties,
including but not limited to those arising out of or
relating to this Agreement or any agreements or
instruments relating to this Agreement or delivered in
connection with this Agreement and any claim based on or
arising from an alleged
19
<PAGE>
tort, but not including any claim or controversy relating
to the amount, term or rate of interest on Borrower's
obligations to Lender under this Agreement or any
agreement or instrument delivered in connection with this
Agreement, shall at the request of any party be determined
by arbitration. The arbitration shall be conducted in
accordance with the United States Arbitration Act (Title
9, U.S. Code), notwithstanding any choice of law provision
in this Agreement, and under the Commercial Rules of the
American Arbitration Association. The arbitrator(s) shall
give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any
court having jurisdiction. The institution and maintenance
of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration if any
other party contests such action for judicial relief.
(ii) No provision of this paragraph shall limit the right of
Lender to the Collateral as provided in Article 9 or the
right of any party to this Agreement to exercise self help
remedies such as setoff, to foreclose against or sell any
real or personal property collateral or security, or to
obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after or during the
pendency of any arbitration or other proceeding. The
exercise of a remedy does not waive the right of either
party to resort to arbitration or reference. In any
judicial proceeding the parties hereby waive any right to
trial by jury.
10.8 Notices. All notices required hereunder shall be by facsimile,
-------
personal delivery or first class mail, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties may specify from time to time in writing. If by facsimile notice shall
also be confirmed by personal delivery or first class mail, postage prepaid.
10.9 Headings. Article and paragraph headings are for reference only and
--------
shall not affect the interpretation or meaning of any provisions of this
Agreement.
10.10 Severability. The illegality or unenforceability of any provision of
------------
this Agreement or any instrument or agreement under this Agreement shall not in
any way
20
<PAGE>
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or any instrument or agreement required under this Agreement.
10.11 Counterparts. This Agreement may be executed in as many counterparts
------------
as may be deemed necessary or convenient, and by the parties to this Agreement
on separate counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
agreement.
21
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as of
the day and year first above written.
WACHOVIA BANK, N.A. AEGIS MORTGAGE ACCELERATION CORP.
By:/s/ David Gaines By: /s/ John P. Decker
--------------------------------- ----------------------------
David Gaines John P. Decker, President
Senior Vice President
Address where notices to Lender are to Address where notices to Borrower are
be sent: to be sent:
191 Peachtree Street, N.E. Three Embarcadero Center
Atlanta, Georgia 30303 Suite 2250
Telephone: (404) 332-5722 San Francisco, CA 94111
Facsimile: (404) 332-1455 Telephone: (415) 658-8710
Facsimile: (415) 362-4835
22
<PAGE>
Amendment to Credit Agreement
This Amendment, which amends the Credit Agreement ("Agreement") entered
into as of August 25, 1997, between Aegis Mortgage Acceleration Corporation
("Aegis") and Wachovia Bank, N.A. ("Lender"), is intended to extend the
Availability Period as defined in the existing Agreement and to amend the
Agreement to conform to such extension and update the address for notices.
Whereas Aegis and Lender have agreed to extend the Availability Period of
the Agreement, the parties hereto agree to amend the Agreement as follows:
1. The definition of "Availability Period" set forth in Section 1.1 shall
be changed from 18 months to 36 months. To that end, Section 1.1 shall be
amended and restated to read in its entirety to read as follows:
"Availability Period means the period commencing on the date of this
Agreement and ending 36 months later"
2. The address listed on the signature page for Aegis shall be amended as
follows: Three Embarcadero Center, Suite 500 San Francisco, California 94111.
Except as expressly amended by this Amendment, the Agreement shall remain
in full force and effect.
Date September 28, 1998
-------------------
Aegis Mortgage Acceleration Corporation Wachovia Bank, N.A.
By: /s/ John P. Decker By /s/ Signature Illegible
------------------- ------------------------
Its President Its Senior Vice President
<PAGE>
EXHIBIT 10.8
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made and entered into as of this 25th day of
August, 1997 between Aegis Mortgage Acceleration Corp., a Delaware corporation
(the "Company") and Wachovia Bank, N.A. (the "Holder").
BACKGROUND
A. The Company is authorized to issue two classes of common stock,
one designated Class A Common Stock and the other designated Class B Common
Stock. Each share of Class B Common Stock is convertible into one share of Class
A Common Stock. The Class B Common Stock has no voting rights.
B. The Company is issuing warrants to the Holder in connection with
Revolving Facilities provided to the Company by Holder, representing initially
three percent of the outstanding shares of common stock of the Company on a
fully diluted basis.
THE PARTIES AGREE AS FOLLOWS:
1. Definitions.
-----------
1.1. Definitions. The following terms have the meaning indicated:
-----------
"Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute.
"Affiliate" means, with respect to any Person, any of (i) a
director or executive officer of such Person, (ii) any holder of 10% or more of
any class of capital stock of such Person, or (iii) any other Person that,
directly or indirectly, controls, or is controlled, by or is under common
control with, such Person.
"Charter Documents" of a Person means the articles or certificate
of incorporation, the by-laws and any other charter documents of such Person, as
amended or restated and as in effect as of the Closing Date.
"Class A Common" means a class of the Company's Common Stock with
full voting rights.
"Class B Common" means a class of the Company's Common Stock
without voting rights but which is otherwise identical to Class A Common and
which is convertible into Class A Common pursuant to the Company's Charter
Documents.
<PAGE>
"Closing Date" means the date of execution of the Credit
Agreement.
"Credit Agreement" means the Credit Agreement of even date
between the Company and Wachovia.
"Commission" means the Securities and Exchange Commission or any
other federal agency administering the Act.
"Common Stock" means the Class A Common and Class B Common of the
Company.
"Common Stock Outstanding" means the number of shares of Common
Stock outstanding plus the number of shares of common stock issuable upon
exercise of all outstanding Options and upon conversion of all Convertible
Securities.
"Competitor" means the Person identified in a list from the
Company to Holder in writing prior to the Closing and such additional Persons as
Holder may approve from time to time, which approval will not be unreasonably
withheld.
"Convertible Security" means indebtedness or shares of capital
stock convertible into or exchangeable for shares for Common Stock.
"Exercise Price" means the price of $.01 per share to purchase a
share of Common Stock pursuant to a Warrant adjusted from time to time as
provided in Article 6.
"Holder" means any registered holder of Warrants or Warrant.
"Minimum Outstandings" means one-half the credit available under
the Revolving Facility at any time or from time to time.
"Option" means the right to purchase Common Stock or a
Convertible Security pursuant to an option, warrant or other agreement.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, an individual, a government or a
subdivision thereof or a governmental agency.
"Principal Stockholders" means any group of stockholders of the
Company owning more than one-third of the Common Stock Outstanding.
"Put Date" has the meaning ascribed in paragraph 7.2.2.
"Put Notice" has the meaning ascribed in paragraph 7.2.2.
2
<PAGE>
"Put Price" has the meaning ascribed in paragraph 7.2.3.
"Register", "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act, other than on Forms S-4, S-8 or any similar successor
forms, and the declaration or ordering of the effectiveness of such registration
statement.
"Stockholder Agreement" means that certain Stockholder Agreement
entered into as of April 30, 1993 by and among the Company and the stockholders
of the Company as attached hereto as Exhibit B.
"Wachovia" means Wachovia Bank., N.A.
"Warrant Certificate" means a certificate representing one or
more of the Warrants, registered in the name of the Holder, substantially in the
form of Exhibit A.
"Warrants" means the warrants issued pursuant to this Warrant
Agreement, which, when exercised, give the Holder the right to obtain a share of
Common Stock per warrant, subject to adjustment.
"Warrant Shares" means the shares of Common Stock acquired or
acquirable upon exercise of the Warrant.
2. Warrants.
--------
2.1. Initial Issuance of Warrants. On the Closing Date, in
----------------------------
consideration of the Revolving Facility by Wachovia, the Company will issue to
the Holder a warrant to purchase 67,662 shares of Common Stock which, upon
issuance, will be equivalent to three percent of the Common Stock Outstanding at
the Closing Date with an exercise price of $ .01 per share.
2.2. Additional Issuance. At the end of the eighteenth month
-------------------
following the Closing Date if the Company has not had, under the Revolving
Facility during such period, weighted average loans outstanding equal to at
least 50% of the maximum amount available under the Revolving Facility the
Company shall issue to the Holder a warrant to purchase an amount of Common
Stock which is equal to (i) 22,554 shares multiplied by (ii) a fraction the
numerator of which is (a) weighted average Minimum Outstandings minus (b)
weighted average loans outstanding and the denominator of which is the weighted
average Minimum Outstandings.
2.3. Exercisablity. Any warrants pursuant to this Warrant Agreement
-------------
shall be exercisable only until the fifth anniversary of the Closing Date.
3
<PAGE>
2.4. Registered Holder. The Company may deem the registered Holder of
-----------------
a Warrant Certificate as the absolute owner for all purposes, notwithstanding
any notation of ownership or other writing thereon made by anyone.
2.5. Reservation of Shares. The Company shall, so long as Warrants
---------------------
remain outstanding, have authorized and reserved a number of shares of Class A
Common and Class B Common sufficient for the exercise of the Warrants. Upon
issuance such shares shall be validly issued, fully paid and non-assessable.
2.6. No Fractional Shares. The Company need not issue fractional
--------------------
shares upon exercise of the Warrants, but in lieu thereof shall round the
issuance to the next lower whole share.
2.7. Mandatory Exercise of Warrants and Conversion of Warrant Shares.
---------------------------------------------------------------
Not later than immediately prior to the consummation of the initial underwritten
public offering of Class A Common Stock of the Company (or if reclassified the
equivalent class of Company's common stock being offered to the public) Holder
shall exercise the Warrant and/or convert the Warrant Shares to Class A Common
Stock if such public offering involves the sale of Common Stock of the Company
aggregating not less than $20 million and the per share public offering price is
not less than $5.00 (before any adjustment under Article 6).
2.8. Optional Conversion. In connection with, or the reasonable
-------------------
expectation of, (i) any public offering or public sale of Class A Common
(including a registered offering and a sale pursuant to Rule 144 issued by the
Commission or any similar rule then in force), (ii) the sale to any person or
group of persons (as defined in Section 13(d)(3) of the Exchange Act) of
securities possessing in the aggregate the ordinary voting power to elect a
majority of the Company's directors, which sale has been approved by the
Company's board of directors, (iii) the sale to any persons or group of persons
(as defined in Section 13(d)(3) of the Exchange Act) (provided such person or
group of persons immediately after such sale owns or has the right to acquire
not more than 2 percent of the Class A Common then outstanding), (iv) the sale
to any person or group of persons that possess or will possess in the aggregate
the ordinary voting power to elect a majority of the Company's directors
(excluding the shares of Class B Common being converted); or (v) any merger or
consolidation pursuant to which any person or group of persons will possess in
the aggregate the ordinary voting power to elect a majority of the Company's
directors, which merger or consolidation has been approved by the Company's
board of directors, each record holder of Class B Common is entitled to convert
into the same number of shares of Class A Common any or all of such Holder's
shares of Class B Common actually being distributed to the public, sold to an
underwriter, broker-dealer or market maker for actual sale to the public or sold
to the third-party purchaser.
4
<PAGE>
2.9. Stockholders Agreement. Prior to the exercise of the Warrants
----------------------
under this Agreement, the Holder shall, as a condition precedent to such
exercise, become a party to the Stockholders Agreement by exercising a
counterpart thereof. To the extent that there is any inconsistency between this
Agreement, the Warrant Certificate and the Stockholders Agreement, the terms of
the Stockholders Agreement shall supersede and control the interpretation of
this Agreement and the Warrant Certificate. The right of the Holder to (i) put
the Warrants pursuant to Section 7.2 of this Agreement and (ii) receive notice
of and participate in certain transfers of shares owned by John P. Decker
pursuant to Section 7.3 of this Agreement shall be deemed in addition to and not
inconsistent with the Stockholders Agreement.
3. Representations and Warranties.
------------------------------
3.1. The Company:
-----------
The Company represents and warrants that:
3.1.1 Organization and Authorization. Company is a corporation
------------------------------
duly organized and existing under the laws of the State of Delaware, and is
qualified to do business in California and in each other jurisdiction where the
failure to qualify would have a material adverse effect upon the Company. The
execution, delivery and performance of this Agreement and of any instrument or
agreement required by this Agreement are within Company's powers, have been duly
authorized, and are not in conflict with the terms of the Company's Charter
Documents.
3.1.2 No Conflicts. The execution, delivery and performance of
------------
this Agreement and of any instrument or agreement required by this Agreement are
not in conflict with any law or any indenture, or undertaking to which Company
is a party or by which Company is bound or affected.
3.1.3 Compliance with Laws. Company has complied, in all
--------------------
material respects, with all known federal, state, and local laws, rules, and
regulations affecting its business.
3.1.4 Capitalization. The Company has issued and outstanding
--------------
prior to the issuance of the Warrant shares of capital stock and Convertible
Securities and Options which upon conversion or exercise aggregate 2,255,394
shares of Class A Common Stock which are designated 299,815 shares of Class A
Common Stock, 160,000 shares of Class B Common Stock, 680,000 shares of Series A
Preferred Stock, 416,667 shares of Series B Preferred Stock, 319,149 shares of
Series C Preferred Stock, and options and warrants to purchase 379,763 shares of
Class A Common Stock. The Company is obligated to issue up to 58,823 shares of
Class B Common Stock pursuant to the 1983 asset purchase agreement with Grant
Financial Group.
5
<PAGE>
3.2. The Holder:
----------
The Holder represents and warrants that:
3.2.1 Investment. The Warrants and Warrant Shares are or
----------
will be acquired for investment for Holder's own account and not with a view to
distribution in violation of the Act.
3.2.2 Accredited Investor. The Holder qualifies as an
-------------------
"accredited investor," within the meaning of the regulations of the Commission
promulgated under the Act.
4. Covenants.
---------
4.1. Financial and Other Information. Company shall deliver to Holder
-------------------------------
in form and detail satisfactory to Holder, and in such number of copies as
Holder may request:
(a) As soon as available but no later than 120 days after the
close of each of its fiscal years, a complete copy of Company's financial
statements, which shall include Company's statements of operations, stockholders
equity and cash flows for such year, audited by an independent public accountant
selected by Company and satisfactory to Holder.
(b) As soon as available but no later than 45 days after the
close of each month, Company's balance sheet as of the close of such month, and
Company's statements of operations, stockholders equity and cash flows, all as
prepared by Company for its own use and certified by a duly authorized officer
of Company as being complete and correct and fairly presenting Company's
financial condition and results of operations in accordance with accrual
accounting principles and practices consistency applied.
(b) Promptly, such other statements, budgets, forecasts, reports
or other financial information concerning Company's business activities and
financial condition as Holder may reasonably request from time to time.
4.2. Books, Records, Audits and Inspections. Company shall maintain
--------------------------------------
adequate books, accounts and records and prepare all financial statements
required hereunder in accordance with the accrual method of accounting
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over Company or its business and permit
employees or agents of Holder at any reasonable time to inspect Company's
properties, and to examine or audit Company's books, accounts and records and
make copies and memoranda thereof. In the event any properties, books, accounts
or records are in the possession of or under the control of a third party,
Company shall direct and hereby authorizes such third party to
6
<PAGE>
permit access to Holder's employees or agents for the purpose of performing the
inspections, examinations or audits permitted under this paragraph.
4.3. Existence of Properties. Company shall maintain and preserve
-----------------------
Company's existence and all rights, privileges and orderly, efficient and
customary manner, keep all Company's properties in good working order and
condition, and from time to time make all needed repair, renewals or
replacements of such property.
4.4. Compliance with Laws. Company shall at all times comply with, or
--------------------
cause to be complied with, all laws, statutes, rules, regulations, orders and
directions of any governmental authority having jurisdiction over Company or
Company's business in all material respects.
5. Transfer of Warrants and Warrant Shares.
---------------------------------------
5.1. Transfers. Subject to other applicable provisions of this Article
---------
5, the Holder may transfer Warrant Certificates and Warrant Shares to Affiliates
of Holder if the Warrant Certificate to be transferred is accompanied by a form
of assignment substantially in the form of Exhibit A-1 duly executed by Holder.
5.2. Right of First Refusal Upon Transfer. If the Holder wishes to
------------------------------------
transfer any or all of such Holder's Warrants or Warrant Shares or any interest
therein to any person other than a Competitor, the Holder shall first offer such
Warrants or Warrant Shares to the Company by providing it with a notice (the
"Transfer Notice") naming the proposed transferee, specifying the number of
Warrants or Warrant Shares to be transferred, the price per Warrant or Warrant
Share and all other terms of the transfer and offering to sell such Warrants or
Warrant Shares to the Company at the same price and upon the same terms and
conditions. The Company shall have 15 days from the receipt of the Transfer
Notice within which to give the Holder written notice (the "Purchase Notice")
that it agrees to purchase all such Shares at the price and on the terms and
conditions set forth in the Transfer Notice, and if such Purchase Notice is
given within such 15-day period, the Company shall have 45 days from receipt of
the Transfer Notice within which to complete the purchase of such Warrants or
Warrant Shares at the price and on the terms set forth in the Transfer Notice.
If the Company does not deliver a Purchase Notice to the Holder within 20 days
after receipt of a Transfer Notice from the Holder, Holder shall have the right,
for a period of 90 days from the day upon which the Company received the
Transfer Notice, to transfer such Warrants and Warrant Shares to the transferee
named in the Transfer Notice or to a Person which is not a Competitor; provided,
however, that such transfer must be at a price not less than the price offered
to the Company in the Transfer Notice, for the number of Warrants or Warrant
Shares specified in the Transfer Notice and on terms and conditions no more
favorable than those specified in the Transfer Notice. The Company may assign
its right under this paragraph 5.2 to any other person or entity, including
other stockholders of the Company.
7
<PAGE>
5.3. Compliance With Act. All transfers of Warrant Certificates and
-------------------
Warrant Shares under this Article 5 shall be in compliance with the Act.
6. Anti-dilution Protection.
------------------------
6.1. Change in Warrant Exercise Price Upon Issuance of Securities. If
------------------------------------------------------------
the Company issues or sells any shares of Common Stock or issues any Convertible
Security or Option (except options pursuant to employee stock programs adopted
by the board of directors of the Company) entitling the issuees to acquire
shares of Common Stock for a consideration less than $4.00 per share (before
adjustment for stock splits described in paragraph 6.3) the Exercise Price shall
be reduced to the price determined by multiplying the then Exercise Price by a
fraction (i) the numerator of which shall be (a) the Common Stock Outstanding
immediately prior to such issuance or sale plus (b) the number resulting from
dividing (x) the aggregate consideration received by the Company upon such
issuance or sale by (y) $4.00 and (ii) the denominator of which shall be the
Common Stock Outstanding immediately after and giving effect to such issuance or
sale.
For purposes of paragraph 6.1, the following provisions shall
also be applicable:
6.1.1 Cash Consideration. If the Company issues the Common Stock
------------------
Option or Convertible Security for cash, the consideration shall be the gross
price without deduction of reasonable compensation or discount paid or allowed
to underwriters or placement agents or any reasonable expenses incurred in
connection with such issuance.
6.1.2 Non-Cash Consideration. If the Company issues the Common
----------------------
Stock Option or Convertible Security for a consideration wholly or partially
other than cash, the fair value of such consideration as determined by the board
of directors of the Company in the good faith exercise of its business judgment
shall be deemed to be the value for purposes of paragraph 6.1, except that any
Common Stock Option or Convertible Security issued for services shall be deemed
to be issued for no consideration.
6.1.3 Options and Convertible Securities. If the Company issues
----------------------------------
an Option or Convertible Security with an exercise or conversion price less than
$4.00 per share of Common Stock the shares issuable upon exercise of such Option
or Convertible Security shall immediately be deemed part of Common Stock
Outstanding.
6.2. Termination of Option or Conversion Rights.
------------------------------------------
If any right to purchase Common Stock under any Option or any
right to convert or exchange any Convertible Security terminates or expires, the
Exercise Price shall, upon such termination, be changed to the Exercise Price
that would have been
8
<PAGE>
in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the shares of Common Stock
issuable thereunder shall no longer be deemed to be Common Stock Outstanding.
6.3. Stock Splits or Stock Dividends.
-------------------------------
If the outstanding shares of Common Stock are subdivided into a
greater number of shares of Common Stock by virtue of stock splits or stock
dividends, the Exercise Price shall, simultaneously with the effectiveness of
such subdivision, be proportionately reduced, and conversely, if the outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Exercise Price shall, simultaneously with the effectiveness of
such combination, be proportionately increased.
6.4. Successive Changes.
------------------
The provisions of this Article 6 shall apply to successive
issuances, subdivisions and combinations on or of shares of Common Stock after
the date of this Agreement.
6.5. Adjustment of Shares Issuable Upon Exercise of Warrants.
-------------------------------------------------------
Upon each adjustment of the Exercise Price as a result of the
calculations made pursuant to this Article 6, each Warrant outstanding prior to
the making of the adjustment in the Exercise Price shall thereafter be treated
as that number of Warrants, and shall evidence the right to purchase, at the
adjusted Exercise Price, that number of shares of Common Stock, obtained by (i)
multiplying (a) the number of shares of Common Stock purchasable upon exercise
of a Warrant prior to adjustment by (b) the Exercise Price in effect prior to
adjustment, and (ii) dividing the product so obtained by the Exercise Price in
effect after such adjustment of the exercise price.
6.6. Notices.
-------
6.6.1 Notice of Dividends. Upon the declaration of any dividends
-------------------
payable with respect to any class of common stock in cash or other property the
Company shall give written notice to Holder not fewer than 10 days prior to the
payment date.
6.6.2 Notice of Potentially Dilutive Event. If the Company
------------------------------------
proposes to issue securities which would result in an adjustment of the Exercise
Price, the Company will give written notice to the Holder of such proposed event
not fewer than 10 days prior to the occurrence of such event.
9
<PAGE>
6.6.3 Notice of Adjustment. Upon the occurrence of each
--------------------
adjustment or readjustment of the Exercise Price, the Company at its expense
shall compute such adjustment or readjustment in accordance with the terms
hereof. Promptly, and in no case more than 20 days after the occurrence of such
adjustment or readjustment, the Company shall furnish the Holder with a
certificate signed by the Company's President or Senior Financial Officer
setting forth in reasonable detail (i) the Exercise Price after such adjustment
or readjustment, (ii) the method of calculation and the facts upon which such
calculation is based and (iii) the number of shares of Common Stock purchasable
upon exercise of a Warrant after such adjustment or readjustment. At any time or
from time to time, upon written request from any Holder, the Company shall at
its expense provide such Holder a certificate setting forth the current exercise
price and the number of shares of Common Stock which at that time would be
received by such Holder upon exercise of its Warrants.
7. Liquidity Provisions.
--------------------
7.1. Registration Rights.
-------------------
7.1.1 Notice of Registration. Subject to the terms of this
----------------------
Agreement, in the event the Company decides to register with the Commission any
of its Common Stock (either for its own account or the account of its security
holders), the Company will: (i) promptly give the Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable Blue Sky or other state
securities laws), and (ii) include in such registration (and any related
qualification under Blue Sky laws or other state securities laws), and in any
underwriting involved therein, all the Warrant Shares specified in a written
request delivered to the Company by the Holder within 15 days after delivery of
such written notice from the Company.
7.1.2 Notice of Underwriting. If the registration of which the
----------------------
Company gives notice is for a public offering involving an underwriting, the
Company shall so advise the Holder as part of the written notice given pursuant
to paragraph 7.1.1. In such event the right of the Holder to registration and
the inclusion of such Holder's Warrant Shares in such underwriting shall be
conditioned upon such underwriting to the extent provided in this paragraph
7.1.2. If the Holder proposes to distribute Warrant Shares through such
underwriting it shall (together with the Company and the other stockholders
distributing their Shares through such underwriting) enter into an underwriting
agreement with the underwriter's representative for such offering. Holder shall
have no right to participate in the selection of the underwriters.
7.1.3 Marketing Limitations. In the event the underwriter's
---------------------
representative advises the Holder seeking registration of Warrant Shares
pursuant to this paragraph 7.1.3 in writing that market factors require a
limitation of the number of shares
10
<PAGE>
of the Company to be underwritten, the underwriter's representative may: (i) in
the case of the Company's initial registered public offering, exclude some or
all of such shares from such registration and underwriting pro rata based on the
number of Warrant Shares requested to be registered by the Holder and (ii) in
the case of any subsequent registered public offering subsequent to the initial
public offering, limit the number of shares to be included in such registration
and underwriting to not less than 10% of the shares of Common Stock included in
such registration.
7.1.4 Withdrawal. If the Holder disapproves of the terms of any such
----------
underwriting, the Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter delivered at least seven days prior to the
effective date of the registration statement. Any Warrant Shares excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7.1.5 Expenses. The Company shall bear the expenses incurred in
--------
complying with this Article 7, including, without limitation, all federal and
state registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for the Holder
and stockholders (if different from the Company), blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration. The Holder shall bear all underwriting discounts and selling
commissions applicable to the sale of the Warrant Shares pursuant to this
Agreement.
7.1.6 Registration Procedures. The Company will keep the Holder
-----------------------
advised as to the initiation and completion of such registration. At its expense
the Company will furnish such number of prospectuses (including preliminary
prospectuses) and other documents as the Holder from time to time may reasonably
request.
7.1.7 Information Furnished by Holder. It shall be a condition
-------------------------------
precedent of the Company's obligations under this Article 7 that the Holder
furnish to the Company such information regarding the Holder as the Company may
reasonably request.
7.1.8 Market Stand-off. The Holder hereby agrees, if so requested by
----------------
the Company and the underwriter's representative (if any), the Holder shall not
sell or otherwise transfer any Warrant Shares or other securities of the Company
during the 180-day period following the effective date of a registration
statement of the Company filed under the Act; provided that such restriction
shall only apply to the first two registration statements of the Company to
become effective which include securities to be sold on behalf of the Company to
the public in an underwritten offering.
7.1.9 Securities Exchange Act of 1934. Following the effective date
-------------------------------
of the first registration statement filed by the Company for the offering of its
securities to the general public, the Company shall file with the Commission in
a timely
11
<PAGE>
manner all reports and other documents required of the Company under the
Securities Exchange Act of 1934, as amended.
7.1.10 Indemnification.
---------------
7.1.10.1 Company's Indemnification of Holder. To the
-----------------------------------
extent permitted by law, the Company will indemnify the Holder, each of its
officers, directors and constituent partners, legal counsel for the Holder and
stockholders, and each person controlling the Holder, with respect to which
registration, qualification or compliance of Warrant Shares has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter against all claims, losses, damages or liabilities (or
actions in respect thereof) to the extent claims, losses, damages or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related registration statement) incident to any such
registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance; and the
Company will reimburse the Holder, each such underwriter and each person who
controls the Holder or underwriter, for any legal and any other expenses
reasonably incurred in connection with investigation or defending any such
claim, loss, damage, liability or action if settlement is effected without the
consent of the Company (which consent shall not unreasonably be withheld); and
provided, further, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based upon any untrue statement or omission based upon written information
furnished to the Company by the Holder or controlling person and stated to be
for use in connection with the offering of securities of the Company.
7.1.10.2 Holder's Indemnification of Company. To the
-----------------------------------
extent permitted by law, the Holder will, if Warrant Shares are included in the
securities as to which such registration, qualification or compliance is being
effected pursuant to this Agreement, indemnify the Company, each of its
directors and officers, each legal counsel and independent accountant of the
Company, each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Act, and each other stockholder of the Company whose
shares are registered, each of its officers, directors and constituent partners
and each person controlling such other stockholder; against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other
12
<PAGE>
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Holder of any rule or regulation promulgated
under the Act applicable to the Holder and relating to action or inaction
required of the Holder in connection with any such registration, qualifications
or compliance; and will reimburse the Company, such stockholders, such
directors, officers, partners, persons, law and accounting firms, underwriters
or control persons for any legal and any other expenses reasonably incurred in
connection with investigation or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Holder and stated to be specifically for use in
connection with the offering of securities of the Company provided, however,
that the Holder's liability under this paragraph 7.1.10.2 shall not exceed the
Holder's proceeds from the offering of securities made in connection with such
registration.
7.1.10.3 Indemnification Procedure. Promptly after
-------------------------
receipt by an indemnified party under this paragraph 7.1.10 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this paragraph 7.1.10,
notify the indemnifying party in writing of the commencement thereof and
generally summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such claim; provided, however, that
the indemnifying party shall be entitled to select counsel for the defense of
such claim with the approval of any parties entitled to indemnification, which
approval shall not be unreasonably withheld, unless the Holder determines that
there may be a conflict between the position of the Company and the Holder in
conducting the defense of such action, suit or proceeding by reason of
recognized claims for indemnity under this paragraph 7.1.10, then counsel for
such party shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interest of such party
at the expense of the indemnifying party. The Company shall not be required to
pay the costs of more than one counsel for Holder and other stockholders
pursuant to this paragraph. The failure to notify an indemnifying party promptly
of the commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party,
to the extent so prejudiced, of any liability to the indemnified party under
this paragraph 7.1.10, but the omission so to notify the indemnifying party will
not relieve such party of any liability that such party may have to any
indemnified party otherwise other than under this paragraph 7.1.10.
7.1.11 Limitation on Registration Rights. Shares included in
---------------------------------
a request for registration under this Article 7 shall not be eligible for
registration under this Article 7 if either (i) the Warrant Shares have
previously been sold to the public, or (ii) no
13
<PAGE>
registration under the Act is required in connection with the disposition of
such Warrant Shares pursuant to Rule 144 under the Act.
7.1.12 Conversion of Shares. As a condition to the inclusion
--------------------
of any Warrant Shares in a registration statement pursuant to this Article 7, if
such Warrant Shares are not shares of Class A Common Stock of the Company, the
Holder must convert, or agree to convert such Warrant Shares, into shares of
Class A Common Stock at or prior to the closing of the offering contemplated by
such registration statement.
7.2. Holder's Right to Put.
---------------------
7.2.1 Put Right. The Holder may not put the Warrants
---------
or Warrant Shares until the earlier to occur of (i) the sixth anniversary of the
Closing Date, or (ii) a change of control of the Company in a transaction or
series of transactions where the holders of the Class A Common Stock immediately
preceding the transaction own fewer than 50% of the voting securities of Company
or surviving entity after the transaction. Within 90 days after such occurrence,
the Holder may at any time, or from time to time, put to the Company all or any
portion of its Warrants and Warrant Shares.
7.2.2 Exercise of Put Right. The right to put Warrants
---------------------
or Warrant Shares shall be exercised by providing the Company a notice ("Put
Notice") specifying the number of Warrants and Warrant Shares to be put and the
date on which the Put Price is to be paid ("Put Date") and the Put Price. The
Put Notice shall be given at least 90 days before the Put Date.
7.2.3 Put Price. The put price to be paid per Warrant
---------
or Warrant Share by the Company ("Put Price") shall be $5.00 per Warrant or
Warrant Share, subject to application of the anti-dilution provisions in this
Warrant Agreement.
7.2.4 Payment of Put Price. On the Put Date, upon
--------------------
delivery to the Company of the Warrant Certificates representing the Warrants
put and the certificates representing the Warrant Shares put, the Company shall
pay in cash the Put Price for each Warrant or Warrant Share so delivered.
7.2.5 Protection of Put Right. The Company shall not
-----------------------
enter into any agreement, understanding or transaction pursuant to which the
Company shall be required, or makes a covenant, representation or warranty, to
prevent or to impair the exercise of the put rights provided for in this
paragraph 7.2 or the obligation of the Company to pay the Put Price. If the
Company is unable in accordance with applicable state corporation statutes
lawfully to purchase all of the Warrants and Warrant Shares which are the
subject of a Put Notice, the Company shall if so requested in writing by the
Holder, (i) purchase in accordance with the Put Notice the maximum number of
such Warrants or Warrant Shares put which the Company may lawfully purchase and
(ii) in one or more installments, at the earliest time that the Company may
lawfully do so,
14
<PAGE>
purchase all remaining Warrants and Warrant Shares put and pay interest at the
Reference Rate set forth in the Credit Agreement on the amount of the aggregate
Put Price attributable to such remaining Warrants and Warrant Shares from the
Put Date to the date on which such amount is paid in full.
7.3. Co-Sale Rights. There shall be disclosed to the Holder
--------------
(i) by the Company at least 45 days prior to the consummation of a change of
control as defined in paragraph 7.2.1, (ii) by the Principal Stockholders a
proposed transaction involving the transfer of more than 10% of the Common Stock
Outstanding and (iii) by John P. Decker a proposed transaction involving the
transfer of more than 10% of his shares of Common Stock Outstanding, the
identity of the proposed transferee and the terms and conditions of the proposed
transfer in reasonable detail. In the event of such a transaction the Holder
may, subject to the provisions of the Stockholders Agreement, elect to
participate in the transaction by delivering written notice of such election to
the Company or the Principal Stockholders or John P. Decker, or as the case may
be, within 15 days after receipt of such disclosure. The Holder may participate
in the transaction by selling to the transferee Warrant Shares or other shares
of Common Stock then held by Holder. Holder shall have the right to sell a
number of shares of Common Stock determined by multiplying in the total number
of shares of Common Stock owned by the Holder (assuming exercise of all Warrants
held by the Holder) by a fraction the numerator of which is the total number of
shares of Common Stock to be acquired by the transferee in the transaction and
the denominator of which shall be the Common Stock Outstanding in the case of
the Company, the total shares owned to be transferred by the Principal
Stockholders transferring shares in the case of the Principal Stockholders and
the total shares owned by John P. Decker in his case. Such sale shall be at the
same price per share to be received by the other selling stockholders. In the
event that the transaction takes the form of a sale of assets of the Company,
the Holder shall have the right to receive the same consideration per share, if
any, received by other holders of Common Stock in connection with such
transaction. This paragraph shall not apply to transfers among Principal
Stockholders or transfers by a Principal Stockholder or John P. Decker to a
member or members of their immediate families or to a trust for the account of
the transferor or a member or members of the transferor's immediate family.
7.4. Bring-Along Provisions. If the Principal Stockholders
----------------------
together with other stockholders (the "selling stockholders") shall propose to
transfer shares of Common Stock constituting more than 50% of the Common Stock
Outstanding, then such selling stockholders shall have the right, upon giving
written notice thereof to the Holder at least 30 days prior to such sale, to
require the Holder to participate in such sale as provided below. The selling
stockholders may require the Holder to include in such sale that number of
Warrant Shares (or Warrants) owned by the Holder which is determined by
multiplying the total number of shares of Common Stock owned by the Holder
(assuming exercise of all Warrants held by the Holder) by a fraction, the
numerator of which is the number of shares of Common Stock proposed to be
transferred
15
<PAGE>
by the selling stockholders and the denominator of which is the aggregate number
of shares of Common Stock held by the selling stockholders (assuming exercise of
each outstanding Option held by any of the selling stockholders). Any such
participation by the Holder shall be at the same price per share applicable to
the sale of the Common Stock by the selling stockholders and otherwise shall be
on the same terms and conditions (including any with respect to deferral of
payments in whole or in part) as are applicable to the selling stockholders.
Notwithstanding anything to the contrary contained herein, no Principal
Stockholder shall have a bring-along right with respect to any of the following
transfers of Common Stock:
(1) to an Affiliate of a Principal Stockholder or to any
officer, employee or director of such stockholder;
(2) to the Company or an Affiliate of the Company; or
(3) in a bona-fide public offering.
8. Miscellaneous.
-------------
8.1. Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties to this Agreement and their respective successors and
assigns.
8.2. Consents and Waivers. No consent or waiver under this Agreement
--------------------
shall be effective unless in writing. No waiver of any breach or default shall
be deemed a waiver of any breach or default thereafter occurring.
8.3. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Delaware.
8.4. Notices. All notices required hereunder shall be by facsimile,
-------
personal delivery or first class mail, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties may specify from time to time in writing. If by facsimile notice shall
also be confirmed by personal delivery or first class mail, postage prepaid.
8.5. Headings. Article and paragraph headings are for reference only
--------
and shall not affect the interpretation or meaning of any provisions of this
Agreement.
8.6. Severability. The illegality or unenforceability of any
------------
provision of this Agreement or any instrument or agreement under this Agreement
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
under this Agreement.
16
<PAGE>
8.7. Lost Certificates. If the Holder shall lose a Warrant
-----------------
Certificate or stock certificate representing Warrant Shares, Holder shall be
entitled to receive from the Company replacement certificates upon receipt from
the Holder of an indemnity with respect to the lost certificates and without
bond from the Holder.
8.8. Counterparts. This Agreement may be executed in as many
------------
counterparts as may be deemed necessary or convenient, and by the parties to
this Agreement on separate counterparts each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute but one and
the same agreement.
WACHOVIA BANK, N.A. AEGIS MORTGAGE ACCELERATION CORP.
By: /s/ David Gaines By: /s/ John P. Decker
-------------------------------- ------------------------------
David Gaines John P. Decker, President
Senior Vice President
Address where notices to Lender are Address where notices to Borrower
are to be sent: are to be sent:
191 Peachtree Street, N.E. Three Embarcadero Center
Atlanta, Georgia 30303 Suite 2250
Telephone: (404) 332-5722 San Francisco, CA 94111
Facsimile: (404) 332-1455 Telephone: (415) 658-8710
Facsimile: (415) 362
17
<PAGE>
Exhibit A
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES PURCHASABLE
UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND
ANY APPLICABLE STATE SECURITIES LAWS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO AND ARE
SUBJECT TO A WARRANT AGREEMENT WHICH FIXES THE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND THE HOLDER OF THESE WARRANTS. A COPY OF THE WARRANT AGREEMENT IS ON
FILE AT THE COMPANY'S PRINCIPAL OFFICE.
AEGIS MORTGAGE ACCELERATION CORP.
COMMON STOCK WARRANT CERTIFICATE
VOID AFTER _________________, 2002 For the Purchase of ____________
Shares of Common Stock
Aegis Mortgage Acceleration Corp., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Wachovia Bank, N.A., or any
registered assigns, is the registered holder (the "Holder") of
________________________ (__________) Warrants (the "Warrants") to purchase
_______________________ shares (the "Shares") of either Class A Common Stock or
Class B Common Stock of the Company ("Common Stock") at the option of the
Holder. Each Warrant entitles the Holder to purchase from the Company one fully
paid and nonassessable share of Common Stock at an initial exercise price (the
"Exercise Price") of $______________________ per share.
The Holder's right to purchase Shares hereunder shall be exercised by
surrender to the Company of this Warrant Certificate, together with an executed
Form of Warrant Subscription (attached hereto), execution by the Holder of the
Stockholders Agreement entered into as of April 30, 1993 by and among the
Company and the stockholders of the Company (the "Stockholders Agreement") and
payment of the aggregate Exercise Price of the Warrants exercised, at the
principal executive office of the Company, upon terms and subject to the
conditions set forth in this Warrant Certificate, and in the Warrant Agreement
dated as of ____________________, 1997 (the "Warrant Agreement") between the
Company and the Holder. The Warrant Agreement is incorporated in this
<PAGE>
Warrant Certificate by this reference and must be referred to for a description
of the rights, obligations and duties of the Company and the Holder of the
Warrants issued pursuant to the Warrant Agreement.
If, upon any exercise of Warrants represented by this Warrant Certificate,
the number of Warrants exercised is less than the total number of Warrants
represented by this Warrant Certificate, there shall be issued to the Holder or
the Holder's assignee a new Warrant Certificate representing the number of
Warrants not exercised.
This Warrant Certificate, when surrendered to the Company in accordance
with the terms of the Warrant Agreement, may be exchanged without payment of any
service charge for another Warrant Certificate or Warrant Certificates
representing in the aggregate a like number of Warrants.
Subject to and in accordance with the terms of the Warrant Agreement, any
or all of the Warrants represented by this Warrant Certificate may be
transferred by presentation to the Company accompanied by an executed Form of
Assignment (attached hereto). A new Warrant Certificate representing the number
of Warrants so transferred shall be issued to the transferee, subject to any
limitations provided in the Warrant Agreement, without charge. If the number of
Warrants so transferred is less than the total number of Warrants represented by
this Warrant Certificate, there shall be issued to the transferor a new Warrant
Certificate representing the number of Warrants not transferred.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by the person named below "hereunto duly authorized.
DATED: ________________, 1997 AEGIS MORTGAGE ACCELERATION CORP.
By:______________________________
John P. Decker, President
2
<PAGE>
EXHIBIT A-1
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto __________________________________, the Warrants represented by
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint to transfer such
Warrants on the books of the within-named Corporation with full power of
substitution
DATED: ____________________, 19__
Signature ___________________________
<PAGE>
EXHIBIT A-2
FORM OF WARRANT SUBSCRIPTION
(To be signed only upon exercise of Warrant.)
TO Aegis Mortgage Acceleration Corp.:
The undersigned, the holder of the Warrants represented by the attached
Warrant Certificate (the "Holder"), hereby irrevocably elects to exercise the
purchase right represented by such Warrants for, and to purchase thereunder,
________________ shares of Common Stock (the "Shares") of Aegis Mortgage
Acceleration Corp. (the "Company") and herewith makes payment, as provided in
the Warrant Agreement, of $_______________ therefor. The Holder hereby requests
that the Company issue shares of Class A Common Stock and/or __________ shares
of Class B Common Stock and requests that the certificate(s) for such Shares be
issued in the name of, and
delivered to:
__________________________________
__________________________________
__________________________________
__________________________________ __________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
__________________________________
__________________________________
(Address)
Dated: _____________________, 19__
* Insert here the number of Shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as
to which the Warrants are being exercised), in either case without making
any adjustment for additional Shares or any other securities or property or
cash which, pursuant to the adjustment provisions of the Warrant Agreement,
may be deliverable upon exercise.
21
<PAGE>
Amendment to Warrant Agreement
This Amendment, which amends the Warrant Agreement ("Agreement") entered into as
of August 25, 1997, between Aegis Mortgage Acceleration Corporation ("Company")
and Wachovia Bank, N.A. ("Holder"), is intended to amend the Agreement to
provide for a fixed number of warrants to purchase stock of Company to be issued
to Holder instead of a formula based upon the amount of loans made by Holder to
Company pursuant to the Credit Agreement between Company and Holder entered into
as of August 25, 1997.
Whereas Company and Holder have agreed to amend the Additional Issuance
provision of the Agreement, the parties hereto agree to amend the Agreement as
follows:
1. Section 2.2 of the Agreement shall be amended to provide for a fixed number
of warrants to purchase shares of Company stock to be issued to Holder upon
expiration of a thirty-day period commencing on the date of execution of
this Amendment. To that end, Section 2.2 shall be amended and restated to
read in its entirety to read as follows:
"2.2 Additional Issuance: Thirty days following the execution of this
Amendment, the Company shall issue to Holder a warrant to purchase 7,940
shares of Class B Common Stock of Company at an exercise price of $.01 per
share."
2. The address listed on the signature page for the Company shall be amended
as follows: Three Embarcadero Center, Suite 500 San Francisco, California
94111.
Except as expressly amended by this Amendment, the Agreement shall remain in
full force and effect.
Date September 28, 1998
-------------------
Aegis Mortgage Acceleration Corporation Wachovia Bank, N.A.
By /s/ John P. Decker By /s/ Signature Illegible
------------------- ------------------------
Its President Its Senior Vice President
---------- ----------------------
<PAGE>
Addendum to Warrant Agreement
This Addendum is intended to supplement the Warrant Agreement ("Agreement")
dated as of August 25, 1997 between Aegis Mortgage Acceleration Corp., a
Delaware Corporation ("Company") and Wachovia Bank, N.A. ("Holder") wherein
Company agreed to grant to Holder warrants to purchase up to three percent of
the outstanding common stock of Company on a fully diluted basis.
The parties hereto acknowledge and agree that, at the time of execution of the
Agreement, the calculation of the final number of warrants to be issued was
uncertain due to two transactions which could further dilute the number of
outstanding shares of the Company and it was agreed that when those two
transactions were completed, Company would issue additional warrants to Holder
to maintain Holder's initial percentage of warrant coverage. At this time, the
parties hereto agree that the two transactions have resulted in Holder being
entitled to receive an additional three thousand seven hundred ninety eight
(3,798) warrants. Holder and Company hereby agree that except as supplemented by
this Addendum, the Agreement shall remain in full force and effect.
Agreed To And Accepted By:
Aegis Mortgage Acceleration Corporation Wachovia Bank, N.A.
By /s/ John Decker By
---------------- ------------------------
Its President Its
---------- ------------------------
<PAGE>
EXHIBIT 10.9
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is entered into as of the
30th day of April, 1993, by and among Aegis Financial Corporation, a Delaware
corporation (the "Company"), and the stockholders of the Company (collectively,
the "Stockholders").
BACKGROUND
A. The Company and Grant Financial Group, Inc., a California corporation
and a Stockholder ("GFG"), have entered into an Asset Purchase Agreement dated
as of April 30, 1993 pursuant to which the Company will acquire substantially
all of the assets of GFG (the "Acquisition"). Following the Acquisition, the
Stockholders will own all of the outstanding shares of capital stock of the
Company (which shares, together with any shares of capital stock of the Company
subsequently acquired by the Stockholders or issued upon conversion of such
shares, shall be referred to as the "Shares").
B. As a condition to the consummation of the Acquisition, the Company and
the Stockholders are entering into this Agreement. This Agreement shall only be
effective upon the effectiveness of the Acquisition and shall be of no effect if
the Acquisition does not occur.
AGREEMENT
THE COMPANY AND THE STOCKHOLDERS HEREBY AGREE AS FOLLOWS:
1. Election of Directors. Each Stockholder hereby agrees to vote such
Stockholder's Shares for the election as director of any person nominated by the
Board of Directors of the Company and agrees not to vote for the removal of any
such person as a director unless so recommended by the Board of Directors.
2. Transfer of Shares
2.1. Right of First Refusal Upon Transfer. If a Stockholder wishes to
transfer any or all of such Stockholder's Shares or any interest therein (a
"Selling Stockholder"), the Selling Stockholder shall first offer such Shares to
the Company by providing it with a notice (the "Transfer Notice") naming the
proposed transferee, specifying the number of Shares to be transferred, the
price per Share and all other terms of the transfer and offering to sell such
Shares to the Company at the same price and upon the same terms and conditions.
The Company shall have 15 days from the receipt of the Transfer Notice within
which to give the Selling Stockholder written notice (the "Purchase Notice")
that it agrees to purchase all such Shares at the price and on the terms and
conditions set forth in the Transfer Notice, and if such Purchase Notice is
given
<PAGE>
within such 15-day period, the Company shall have 45 days from receipt of the
Transfer Notice within which to complete the purchase of such Shares at the
price and on the terms set forth in the Transfer Notice. If the Company does not
deliver a Purchase Notice to the Selling Stockholder within 20 days after
receipt of a Transfer Notice from such Stockholder, such Stockholder shall have
the right (subject to compliance with Section 2.2), for a period of 60 days from
the day upon-which the-Company received the Transfer Notice, to transfer such
Shares to the transferee named in the Transfer Notice; provided, however, that
such transfer must be at a price not less than the price offered to the Company
in the Transfer Notice, for the number of Shares specified in the Transfer
Notice and on terms and conditions no more favorable than those specified in the
Transfer Notice. The Company may assign its right under this Section 2.1 to any
other person or entity, including other Stockholders.
2.2. Co-Sale Right. If the Company does not elect to purchase all of
the Shares specified in the Transfer Notice pursuant to Section 2.1, the Selling
Stockholder shall disclose to the other Stockholders (the "Other Stockholders")
at least 20 days prior to consummation of the transfer the same information
provided to the Company in the Transfer Notice (the "Sale Notice"). Each Other
Stockholder may elect to join the Selling Stockholder as a seller in such sale
by delivering written notice of such election to the Selling Stockholder within
10 days after receipt of the Sale Notice. Each Other Stockholder choosing to do
so may participate in the sale by selling to the proposed purchaser at the price
and terms specified in the Sales Notice an aggregate number of Shares equal to
or less than the product of (a) the total number of Shares to be acquired by the
purchaser in such sale, multiplied by (b) a fraction, (i) the numerator of which
is the number of Shares held by such Other Stockholder, and (ii) the denominator
of which is the aggregate number of Shares held by the Selling Stockholder and
all Other Stockholders that have elected to participate in such transaction.
Failure of an Other Stockholder to give timely notice of its election to
participate as a seller will be deemed conclusively to constitute an election
not to participate. The Selling Stockholder shall conclude the proposed sale at
a price and on terms no more favorable to the Selling Stockholder than the price
and terms specified in the Sale Notice within 50 days of the date of the Sale
Notice.
2.3. Permitted Transfers. A Stockholder may transfer any or all of
such Stockholder's Shares without complying with Sections 2.1 and 2.2 if (a)
such transfer is made either (i) to such Stockholder's spouse or children, or to
a trust for the benefit of any of the foregoing or such Stockholder, or (ii) if
such Stockholder is an entity, to the shareholders or partners of such
Stockholder or to any parent or subsidiary of such Stockholder or other entity
affiliated with such Stockholder, and (b) the transferee acknowledges in writing
that the Shares so transferred are subject to the terms and conditions of this
Agreement and agrees to be bound by this Agreement.
2
<PAGE>
2.4. Restriction on Transfer by GFG. GFG shall not transfer any
shares of Class B Common Stock of the Company until such time as GFG has
satisfied all obligations owed to GFG's creditors.
2.5. Effect of Noncompliance. Any transfer made without complying
with this Section 2 shall be void and of no effect.
3. Bring-Along Provision. If Stockholders holding 66-2/3% or more of the
outstanding Shares (the "Majority Stockholders") find an investor to acquire all
outstanding shares of capital stock of the Company, the Majority Stockholders
have the right, upon giving 30-days written notice thereof to the other
Stockholders, to require the other Stockholders to participate in such
transaction; provided that the disposition of Shares by the Majority
Stockholders is at the same consideration per share and on the same terms and
conditions as the disposition of the other Stockholders' Shares, and the other
Stockholders shall receive their pro rata portion of any other consideration
received by the Majority Stockholders in respect of such transaction. Each
Stockholder hereby agrees to deliver such Stockholder's Shares free and clear of
all liens or encumbrances in connection with a disposition pursuant to this
Section.
4. Representations and Warranties
4.1. Representations and Warranties of Stockholders. Each Stockholder
hereby represents and warrants to the other Stockholders and to the Company
that:
4.1.1 No Conflicts. The execution, delivery and performance of
this Agreement by such Stockholder will not result in a violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice, any material contract, obligation or commitment to
which such Stockholder is a party or by which it is bound.
4.1.2 Enforceability. Assuming due execution and delivery by
the Company and the other Stockholders, this Agreement constitutes a legal,
valid and binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms, subject, as to enforcement, (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors, rights and (ii) to
general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.
4.1.3 Capacity. Such Stockholder has the requisite legal
capacity to enter into this Agreement.
4.1.4 Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration, or filing with,
any federal, state, or
3
<PAGE>
local governmental authority in the United States, or of any other person or
entity (which has not been obtained) on the part of such Stockholder is required
in connection with such Stockholder's valid execution and delivery of this
Agreement.
4.2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Stockholders that:
4.2.1 No Conflicts with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any violation of,
be in conflict with, or constitute a default under, with or without the passage
of time or the giving of notice: (i) any provision of the Company's Certificate
of Incorporation or Bylaws; (ii) any provision of any judgment, decree or order
to which the Company is a party or by which it is bound; (iii) any material
contract, obligation or commitment to which the Company is a party or by which
it is bound; or (iv) to the Company's knowledge, any statue, rule or
governmental regulation applicable to the Company.
4.2.2 Enforceability. Assuming due execution and delivery by
the Stockholders, this Agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject, as to enforcement, (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general applicability
relating to or affecting creditors, rights and (ii) to general principles of
equity, whether such enforcement is considered in a proceeding in equity or at
law.
4.2.3 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of all obligations under this
Agreement has been taken.
4.2.4 Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration, or filing with,
any federal, state, or local governmental authority in the United States, or of
any other person or entity (which has not been obtained) on the part of the
Company is required in connection with the Company's valid execution and
delivery of this Agreement.
5. Registration Rights
5.1. Demand Registration
5.1.1 Request for Registration. If at any time after April 30,
1997, and before April 30, 2001, the Company receives from Stockholders holding
50% or more of the outstanding Shares (the "Initiating Holders") a written
request that the Company register with the Securities and Exchange Commission
(the "SEC") at least thirty percent (30%) of the outstanding Shares, or a lesser
percentage if the aggregate
4
<PAGE>
offering price (net of underwriting discounts and commissions) to the public of
the Shares is reasonably expected to exceed $5,000,000, the Company shall: (i)
promptly, but in any event within ten (10) days, give written notice of the
proposed registration to all other Stockholders; and (ii) as soon as
practicable, but in any event within ninety (90) days after receipt of the
request of the Initiating Holders, use its best efforts to effect such
registration of the Shares of the Initiating Holders together with all or such
portion of the Shares of any other Stockholder who has given written notice to
the Company within fifteen (15) days after receiving such written notice from
the Company pursuant to clause (ii) above. Such obligation shall include,
without limitation, the execution of an undertaking to file post-effective
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the Securities
Act of 1933, as amended (the "Act"), and any other governmental requirements or
regulations. The Company shall have the right, exercisable one time only during
any 12-month period, to delay the effectiveness of such request of the
Initiating Holders until up to one hundred twenty (120) days after delivery of
the request if the Board of Directors of the Company has determined in good
faith that such a registration would be seriously detrimental to the Company at
such time. The Initiating Holders may withdraw the request during such one
hundred twenty (120) days period, in which event such Initiating Holders shall
not be deemed to have made the request. The Company shall not be obligated to
take any action to effect any registration pursuant to this Section 5.1 after
the closing of the sale of Shares resulting from one previous registration
effected pursuant to a request under this Section 5.1.
5.1.2 Registration of Other Securities. Any registration
statement filed pursuant to the request of the Initiating Holders under this
Section 5.1 may, subject to the provisions of Section 5.1.3, include securities
of the Company other than the Shares.
5.1.3 Underwriting in Demand Registration. If the Initiating
Holders intend to use an underwriter to distribute the Shares covered by their
request, they shall so advise the Company in their request and the Company shall
include such information in its written notice to the other Stockholders. In
such event, the right of any Stockholder to registration pursuant to this
Section 5.1 shall be conditioned upon such Stockholder's participation in such
underwriting and the inclusion of all or part of such Stockholder's Shares in
the underwriting, unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Stockholder. The Company shall enter into an
underwriting agreement in customary form with an underwriter selected by the
Stockholders holding a majority of the Shares proposed to be included in the
underwriting, but subject to the approval of the Company which shall not be
unreasonably withheld. The underwriting agreement may contain provisions
regarding indemnification and contribution from the Company. Notwithstanding any
other provision of this Section 5.1, if the underwriter advises the Initiating
Holders and the Company in writing that marketing factors require a limitation
of the number of shares is
5
<PAGE>
to be included in the underwriting, then securities of the Company other than
the Shares shall first be excluded from such registration to the extent required
by such underwriting limitation. If a further limitation of the number of shares
is still required, the Company shall so advise the Initiating Holders and the
number of shares included in such underwriting and registration shall be
allocated among the Stockholders requesting registration in proportion, as
nearly as practicable, to the total number of shares held by such Stockholders
at the time of the filing of the registration statement. If the number of Shares
so excluded exceeds twenty percent (20%) of the number of Shares which the
Stockholders have requested to be included in such registration, then the
Initiating Holders shall be entitled, on behalf of the Stockholders, either (i)
to require that the registration be deferred for such period of time as the
Initiating Holders, the Company and the underwriter may mutually agree upon, but
in no event for more than ninety (90) days from delivery of a written notice of
the Initiating Holders to the Company requesting such delay, or (ii) to withdraw
the registration request, in which case it shall not count as the Stockholders,
one demand registration. If any Stockholder disapproves of the terms of the
underwriting, such Stockholder may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Initiating Holders delivered at least
seven (7) days prior to the effective date of the registration statement. The
Shares so withdrawn also shall be withdrawn from registration.
5.2. Piggyback Registration
5.2.1 Notice of Registration. Subject to the terms of this
Agreement, in the event the Company decides to register with the SEC any of its
Common Stock (either for its own account or the account of its security
holders), the Company will: (i) promptly give each Stockholder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable Blue Sky or
other state securities laws), and (ii) include in such registration (and any
related qualification under Blue Sky laws or other state securities laws), and
in any underwriting involved therein, all the Shares specified in a written
request delivered to the Company by any Stockholder within 15 days after
delivery of such written notice from the Company.
5.2.2 Notice of Underwriting. If the registration of which the
Company gives notice is for a public offering involving an underwriting, the
Company shall so advise the Stockholders as a part of the written notice given
pursuant to Section 5.2.1. In such event the right of any Stockholder to
registration and the inclusion of such Stockholder's Shares in such underwriting
shall be conditioned upon such underwriting to the extent provided in this
Section 5.2. All Stockholders proposing to distribute their Shares through such
underwriting shall (together with the Company and the other Stockholders
distributing their Shares through such underwriting) enter into an underwriting
agreement with the underwriter's representative for such offering. The
Stockholders shall have no right to participate in the selection of the
underwriters.
6
<PAGE>
5.2.3 Marketing Limitations. In the event the underwriter's
representative advises the Stockholders seeking registration of Shares pursuant
to this Section 5.2 in writing that market factors require a limitation of the
number of Shares to be underwritten, the underwriter's representative may: (a)
in the case of the Company's initial registered public offering, exclude some or
all from such registration and underwriting pro rata based on the number of
Shares requested to be registered by all Stockholders; and (b) in the case of
any subsequent registered public offering subsequent to the initial public
offering, limit the number of Shares to be included in such registration and
underwriting to not less than 10% of the shares of Common Stock included in such
registration.
5.2.4 Withdrawal. If any Stockholder disapproves of the terms
of any such underwriting, such Stockholder may elect to withdraw therefrom by
written notice to the Company and the underwriter delivered at least seven days
prior to the effective date of the registration statement. Any Shares excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
5.3. Expenses. The Company shall bear the expenses incurred in
complying with this Section 5, including, without limitation, all federal and
state registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for the
Stockholders (if different from the Company), blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration. Each Stockholder participating in the registration shall bear all
underwriting discounts and selling commissions applicable to the sale of such
Stockholder's Shares pursuant to this Agreement.
5.4. Registration Procedures. The Company will keep each Stockholder
whose Shares are included in any registration pursuant to this Section 5 advised
as to the initiation and completion of such registration. At its expense the
Company will furnish such number of prospectuses (including preliminary
prospectuses) and other documents as a Stockholder from time to time may
reasonably request.
5.5. Information Furnished by Stockholders. It shall be a condition
precedent of the Company's obligations under this Section 5 that each
Stockholder participating in any registration furnish to the Company such
information regarding such Stockholder as the Company may reasonably request.
5.6. Market Stand-off. Each Stockholder hereby agrees that, if so
requested by the Company and the underwriter's representative (if any), such
Stockholder shall not sell or otherwise transfer any Shares or other securities
of the Company during the 180-day period following the effective date of a
registration statement of the Company filed under the Act; provided that such
restriction shall only apply to the first
7
<PAGE>
two registration statements of the Company to become effective which include
securities to be sold on behalf of the Company to the public in an underwritten
offering.
5.7. Securities Exchange Act of 1934. Following the effective date of
the first registration statement filed by the Company for the offering of its
securities to the general public, the Company shall file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Exchange Act of 1934, as amended.
5.8. Indemnification
5.8.1 Company's Indemnification of Stockholders. To the extent
permitted by law, the Company will indemnify each Stockholder, each of its
officers, directors and constituent partners, legal counsel for the
Stockholders, and each person controlling such Stockholder, with respect to
which registration, qualification or compliance of Shares has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter against all claims, losses, damages or liabilities (or
actions in respect thereof) to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or other
document (including any related registration statement) incident to any such
registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance; and the
Company will reimburse each such Stockholder, each such underwriter and each
person who controls any such Stockholder or underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
indemnity contained in this Section 5.8.1 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if settlement is
effected without the consent of the Company (which consent shall not
unreasonably be withheld); and provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based upon any untrue statement or
omission based upon written information furnished to the Company by such
Stockholder or controlling person and stated to be for use in connection with
the offering of securities of the Company.
5.8.2 Stockholder's Indemnification of Company. To the extent
permitted by law, each Stockholder will, if Shares held by such Stockholder are
included in the securities as to which such registration, qualification or
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and
8
<PAGE>
officers, each legal counsel and independent accountant of the Company, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Act, and each other such Stockholder, each of its officers,
directors and constituent partners and each person controlling such other
Stockholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such Stockholder of any rule or regulation promulgated under the Act applicable
to such Stockholder and relating to action or inaction required of such
Stockholder in connection with any such registration, qualification or
compliance; and will reimburse the Company, such Stockholders, such directors,
officers, partners, persons, law and accounting firms, underwriters or control
persons for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Stockholder and stated to be specifically for use in
connection with the offering of securities of the Company provided, however,
that each Stockholder's liability under this Section 5.8.2 shall not exceed such
Stockholder's proceeds from the offering of securities made in connection with
such registration.
5.8.3 Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 5.8 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 5.8, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Stockholders in conducting the defense of such action, suit or
proceeding by reason of recognized claims for indemnity under this Section 5.8,
then counsel for such party shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interest of such party at the expense of the indemnifying party. The Company
shall not be required to pay the costs of more than one counsel for the
Stockholders pursuant to this Section. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to the
ability of the indemnifying party to defend such action, shall relieve such
9
<PAGE>
indemnifying party, to the extent so prejudiced, of any liability to the
indemnified party under this Section 5.8, but the omission so to notify the
indemnifying party will not relieve such party of any liability that such party
may have to any indemnified party otherwise other than under this Section 5.8.
5.9. Limitation on Registration Rights. Shares included in a request
for registration under this Section 5 shall not be eligible for registration
under this Section 5 if either (a) the Shares have previously been sold to the
public, or (b) no registration under the Act is required in connection with the
disposition of such Shares pursuant to Rule 144 under the Act or otherwise.
5.10. Conversion of Shares. As a condition to the inclusion of any
Shares in a registration statement pursuant to this Section 5, the holders of
such Shares, if such Shares are not shares of Class A Common Stock of the
Company, must convert, or agree to convert such Shares, into shares of Class A
Common Stock at or prior to the closing of the offering contemplated by such
registration statement.
6. Legends on Share Certificates. Each outstanding certificate
representing Shares shall bear legends reading substantially as follows:
The securities represented by this certificate were acquired for investment
only and not for resale. They have not been registered under the Securities Act
of 1933 or any state securities law. These shares may not be sold, transferred,
pledged, or hypothecated unless first registered under such laws, or unless the
issuer has received evidence satisfactory to it that registration under such
laws is not required.
The securities represented by this certificate are subject to voting and
transfer restrictions and a bring-along right which may require the disposition
of the securities in certain circumstances on the terms and conditions set forth
in a Stockholders Agreement dated as of April 30, 1993, a copy of which is on
file in the office of the Secretary of the issuer. No transfer of such Common
Stock will be made on the books of the issuer unless accompanied by evidence of
compliance with the terms of such Agreement.
Such certificates shall bear any additional endorsements that may be
required for compliance with state securities or blue sky laws or that may be
deemed appropriate by the Board of Directors of the Company.
7. Additional Stockholders. The Company shall not sell any shares of
capital stock and the Stockholders shall not transfer any Shares, unless the new
shareholder becomes a party to this Agreement by execution of a counterpart
hereof. Upon such execution, such shareholder shall be considered a
"Stockholder" under this Agreement and the shares of capital stock held and
subsequently acquired by such Stockholder shall be considered "Shares" under
this Agreement.
10
<PAGE>
8. Termination. This Agreement (except for Sections 5 and 9) shall
terminate upon the earlier to occur of: (a) the closing of a firm-commitment
underwritten offering of the Common Stock of the Company involving the sale to
the public of Common Stock with an aggregate offering price exceeding $5,000,000
pursuant to a registration statement filed under the Act; and (b) the sale of
all of the Shares or assets of the Company.
9. Miscellaneous.
9.1. Notices. Any and all notices or other communications provided
for herein shall be deemed to be validly given on the date of service if served
personally, on the business day after transmission by telecopier or telex with
confirmation of receipt, or five days after the date of mailing if mailed in the
United States mail, registered or certified mail, postage prepaid, return
receipt requested, and addressed to the parties at their most current addresses
set forth in the records of the Company. The address of any party for notice may
be changed by giving notice to the other parties pursuant to this Section 9.1.
9.2. Captions. The captions at the beginning of the sections in this
Agreement are inserted for identification and convenience only and shall not be
considered in the construction or interpretation of this Agreement.
9.3. Construction. Whenever used herein, the singular number shall
be deemed to include the plural, and the plural shall be deemed to include the
singular. Any reference in the masculine shall be deemed to refer to the
feminine. All reference to a party shall include that party's personal
representatives, successors, heirs and assigns.
9.4. Entire Agreement. This Agreement constitutes the entire
agreement among the parties on the subject matter hereof and supersedes any and
all prior agreements or understandings, whether written or oral. No
representations, warranties or inducements, express or implied, have been made
by any party to another, except as set forth herein.
9.5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.6. Modification, Waivers and Consents. No amendment, alteration or
modification of this Agreement shall be valid unless in a writing signed by the
Company and Stockholders holding a majority of the outstanding Shares. No
waiver of any provision of this Agreement shall be valid unless made in writing.
Any action, consent or agreement required from the Stockholders under or in
connection with this Agreement shall be effective upon the written action,
consent or agreement of Stockholders holding a majority of the Shares.
11
<PAGE>
9.7. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the executors, administrators, legal representatives,
heirs, successors and assigns of the parties to this Agreement, unless expressly
provided otherwise in this Agreement.
9.8. Attorneys' Fees. In any action to enforce or interpret the
provisions of this Agreement the prevailing party shall be entitled to recover
such party's reasonable costs of suit, including reasonable attorneys, fees, in
addition to any other recovery or relief.
9.9. Severability. If any portion of this Agreement shall be
determined to be invalid or unenforceable in a court of competent jurisdiction,
the remainder shall be valid and enforceable to the maximum extent possible.
9.10. Governing Law. This Agreement and the rights of the parties
hereunder shall be governed by and enforced in accordance with the laws of the
State of California applicable to contracts made in that state between residents
of that state.
9.11. Specific Performance. The Shares of the Company cannot be
readily purchased or sold on the open market, and for that reason, among others,
the parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Should any dispute arise under this Agreement, including,
without limitation, a breach of any covenant under this Agreement, the parties
agree that a decree of specific performance shall be an appropriate remedy. This
remedy shall be cumulative and not exclusive and shall be in addition to any
other remedies which the parties may have.
9.12. Further Instruments. From time to time, each party hereto shall
execute and deliver such instruments as may be reasonably necessary to carry out
the intent and purpose of this Agreement.
9.13. Arbitration. Any controversy arising out of, or relating to,
this Agreement as it may be amended from time to time, including any claim for
damages or injunctive relief, shall be settled by arbitration in San Francisco,
California in accordance with the rules then obtaining of the American
Arbitration Association. The parties consent to the jurisdiction of the Supreme
Court of the State of California and of the United States District Court for the
Northern District of California, for all purposes in connection with
arbitration. The parties consent that any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested or by
personal service or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto and their spouses have duly executed
and delivered this Agreement the day and year first above written.
The Company: AEGIS MORTGAGE ACCELERATION CORPORATION,
a Delaware corporation
By:_____________________________________
Title:__________________________________
Stockholders:
________________________________________
(Signature)
________________________________________
(Printed Name of Stockholder)
________________________________________
(Title if Stockholder is an entity)
13
<PAGE>
SPOUSAL CONSENT
Each of the undersigned (each of whom is the spouse of one of the
individual Stockholders whose signature appears above) hereby consents to his or
her respective spouse's execution of the foregoing Agreement, acknowledges that
the Company is a business interest that is subject to the sole management and
control of his or her respective spouse, agrees to be bound by the terms of this
Agreement, and hereby irrevocably appoints his or her respective spouse as the
agent of the undersigned for the purposes of executing and performing any
actions directly or indirectly relating to the Company and the foregoing
Agreement, including without limitation, amendments and supplements to or
waivers, consents, or approvals under the Agreement, without further signature
or consent of or notice to the undersigned.
________________________________________
(Signature)
________________________________________
(Printed Name)
14
<PAGE>
EXHIBIT 10.10
AEGIS MORTGAGE ACCELERATION CORP.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of September 21, 1999, by and between AEGIS MORTGAGE ACCELERATION CORP.,
a Delaware corporation ("COMPANY"), and Stephen M. Herz ("PURCHASER").
R E C I T A L S
- - - - - - - -
A. PURCHASER is the Chief Operating Officer of the COMPANY.
B. The parties desire to specify the terms and conditions of PURCHASER's
equity participation in COMPANY.
THE PARTIES AGREE AS FOLLOWS:
1. Issuance of Shares; Purchase Price; Payment.
-------------------------------------------
1.1 Issuance and Price. PURCHASER hereby purchases and COMPANY hereby
------------------
sells 62,976 shares of COMPANY common stock (the "Shares") at a purchase price
of $1.00 per share.
1.2 Payment. PURCHASER shall pay for the Shares by executing and
-------
delivering to COMPANY a 10-year, 5.7% promissory note in the form attached to
this Agreement as Exhibit A. PURCHASER shall also execute and deliver to COMPANY
a security agreement in the form attached to this Agreement as Exhibit B.
<PAGE>
2. Rights to Repurchase Shares.
---------------------------
2.1 Termination. If PURCHASER shall cease to be an employee of
-----------
COMPANY for any reason, COMPANY shall have the right to repurchase all of the
Shares at a rate of $1.00 per share plus the total interest paid or accrued with
respect to each Share purchased. The number of Shares subject to COMPANY's right
to repurchase shall be (i) reduced by 15,744 of the Shares on August 23, 2000
and (ii) by 1,312 of the Shares on the 23rd day of September, 2000, and the 23rd
day of each month thereafter that PURCHASER serves as an employee, so that
COMPANY's right to repurchase shall expire fully on August 23, 2003; provided,
--------
however, that (a) in the event of PURCHASER's death on or before August 23,
- -------
2000, then COMPANY's right to repurchase shall expire with respect to 15,744 of
the Shares upon the date of death and (b) in the event of a Change in Control,
if PURCHASER is an employee of COMPANY on the closing date of a transaction that
constitutes a Change of Control, then COMPANY's right to repurchase shall expire
with respect to all Shares upon such Change in Control.
For purposes of this Agreement, a "Change in Control" shall mean the
occurrence of any one of the following: (x) Any "person", as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the COMPANY, a subsidiary, an affiliate or a
COMPANY employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of COMPANY representing
50% or more of the combined voting
2
<PAGE>
power of COMPANY's then-outstanding securities; or (y) a sale of assets
involving 75% or more of the fair market value of the assets of COMPANY as
determined in good faith by the Board of Directors of COMPANY, or (z) any merger
or reorganization of COMPANY whether or not another entity is the survivor,
pursuant to which the holders of all the shares of capital stock of COMPANY
outstanding prior to the transaction hold, as a group, less than 50% of the
shares of capital stock of COMPANY outstanding after the transaction.
2.2 Exercise of Repurchase Right. COMPANY may exercise its right to
----------------------------
repurchase set forth in this Section 2 by written notice to PURCHASER within 90
days after the date on which the Shares (or a portion thereof) become subject to
such right to repurchase; provided, that if COMPANY determines that exercise of
-------- ----
its right to repurchase would violate applicable laws or would be detrimental to
the best interests of COMPANY, COMPANY may assign all or a portion of its
repurchase right to such person or persons, including stockholders of COMPANY,
as are designated for such purpose by the Board of Directors of COMPANY. If
COMPANY (or its assignees) exercises its right of repurchase, PURCHASER shall,
if necessary, endorse and deliver to COMPANY (or its assignees) the stock
certificates representing the Shares being repurchased, and COMPANY (or its
assignees) shall pay PURCHASER the total repurchase price upon such delivery.
Repayment may be by the cancellation of indebtedness to the extent then
outstanding from PURCHASER to COMPANY and otherwise shall be in cash. PURCHASER
shall cease to have any rights with respect to such repurchased Shares
immediately upon receipt of the repurchase price.
3
<PAGE>
3. Right of First Refusal and Restrictions on Transfer.
---------------------------------------------------
The Shares shall be subject to a right of first refusal by COMPANY in
the event that PURCHASER or any transferee of such Shares proposes to sell,
pledge or otherwise transfer such Shares or any interest in such Shares to any
person or entity; provided that transfer to Purchaser's spouse, issue, spouse of
an issue or trusts for the benefit of such persons shall not be subject to a
right of first refusal if the transferees agree in writing to be bound by the
terms of this Agreement and take the Shares subject to any security interest in
favor of COMPANY. Any holder of the Shares desiring to transfer such Shares or
any interest in such Shares shall give a written notice to COMPANY describing
the proposed transfer, including the number of Shares proposed to be
transferred, the price and terms at which such Shares are proposed to be
transferred and the name and address of the proposed transferee. Unless
otherwise agreed by COMPANY and the holder of such Shares, purchases by COMPANY
under this Section shall be at the proposed price and terms specified in the
notice to COMPANY. If COMPANY fails to exercise its right of first refusal
within 30 days from the date on which COMPANY receives the shareholder's notice,
the shareholder may, within the next 90 days, conclude a transfer to the
proposed transferee of the exact number of Shares covered by that notice on
terms not more favorable (taken as a whole) to the transferee than those
described in the notice. COMPANY's right of first refusal shall attach to the
Shares, and all transferees shall be subject thereto. Any subsequent proposed
transfer shall again be subject to COMPANY's right of first refusal. If COMPANY
exercises its right of first refusal, the shareholder shall endorse and deliver
to COMPANY the stock
4
<PAGE>
certificates representing the Shares being repurchased and COMPANY shall upon
such delivery pay the shareholder the total repurchase price. The holder of the
Shares being repurchased shall cease to have any rights with respect to such
Shares immediately upon receipt of the repurchase price. The right of first
refusal set forth in this Section shall terminate upon the earliest of
consummation of an underwritten public offering of COMPANY's common stock
registered under the Securities Act of 1933 (the "Act"), sale of substantially
all the assets of COMPANY, a merger in which COMPANY is not the survivor or
acquisition of all the outstanding securities of COMPANY.
4. Other Restrictions on Resale of Shares.
--------------------------------------
4.1 Legends. PURCHASER understands and acknowledges that the Shares
-------
are not registered under the Act, and that under the Act and other applicable
laws PURCHASER may be required to hold such Shares for an indefinite period of
time. Each stock certificate representing Shares shall bear the following
legends:
The securities represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Act"). Any transfer of such securities shall be invalid
unless a registration statement under the Act is in effect
as to such transfer or, in the opinion of counsel reasonably
acceptable to the Company, such registration is unnecessary
for such transfer to comply with the Act.
The securities represented hereby are subject to the
terms of an agreement between the Company and the holder of
such securities. Pursuant to the terms of such agreement,
the Company has a right of first refusal with respect to
transfer of such securities and has a right to repurchase
such securities under certain circumstances. A copy of the
agreement can be obtained from the Secretary of the Company.
5
<PAGE>
4.2 Market Standoff. PURCHASER agrees that if so requested by
---------------
COMPANY or any representative of the underwriters in connection with
registration of the initial public offering of any securities of COMPANY under
the Act, PURCHASER shall not sell, pledge or otherwise transfer any Shares or
other securities of COMPANY during the 180-day period following the effective
date of such registration statement. COMPANY may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
5. Representations and Acknowledgments of PURCHASER.
------------------------------------------------
PURCHASER hereby represents, warrants, acknowledges and agrees that:
5.1 Investment. PURCHASER is acquiring the Shares for PURCHASER's own
----------
account, and not directly or indirectly for the account of any other person.
PURCHASER is acquiring the Shares for investment and not with a view to
distribution or resale thereof except in compliance with the Act and any
applicable state law regulating securities.
5.2 Access to Information. PURCHASER has had the opportunity to ask
---------------------
questions of, and to receive answers from, appropriate executive officers of
COMPANY with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business, affairs, financial
condition and results of operations of COMPANY. PURCHASER has had access to
such financial and other information as is necessary in order for PURCHASER to
make a fully informed decision as to investment of COMPANY, and has had the
opportunity to obtain any additional
6
<PAGE>
information necessary to verify any of such information to which PURCHASER has
had access.
5.3 Pre-Existing Relationship. PURCHASER further represents and
-------------------------
warrants that he has either (i) a pre-existing relationship with COMPANY or one
or more of its officers or directors consisting of personal or business contacts
of a nature and duration which enable him to be aware of the character, business
acumen and general business and financial circumstances of COMPANY or the
officer or director with whom such relationship exists or (ii) such business or
financial expertise as to be able to protect his own interests in connection
with the purchase of the Shares.
5.4 Speculative Investment. PURCHASER's investment in COMPANY
----------------------
represented by Shares is speculative in nature and is subject to a high degree
of risk of loss in whole or in part; the amount of such investment is within
PURCHASER's risk capital means and is not so great in relation to PURCHASER's
total financial resources as would jeopardize the personal financial needs of
PURCHASER and PURCHASER's family in the event such investment were lost in whole
or in part.
5.5 Unregistered Securities.
-----------------------
(a) PURCHASER must bear the economic risk of investment for an
indefinite period of time because the Shares have not been registered under the
Act and therefore cannot and will not be sold unless they are subsequently
registered under the Act or an exemption from such registration is available.
COMPANY has made no agreements, covenants or undertakings whatsoever to register
any of the Shares under the Act. COMPANY has made no representations, warranties
or covenants whatsoever as to
7
<PAGE>
whether any exemption from the Act, including, without limitation, any exemption
for limited sales in routine brokers' transactions pursuant to Rule 144 under
the Act, will become available and any such exemption pursuant to Rule 144, if
available at all, will not be available unless: (i) a public trading market then
exists in COMPANY's common stock, (ii) adequate information as to COMPANY's
financial and other affairs and operations is then available to the public, and
(iii) all other terms and conditions of Rule 144 have been satisfied.
(b) Transfer of the Shares has not been registered or qualified
under any applicable state law regulating securities and therefore the Shares
cannot and will not be sold unless they are subsequently registered or qualified
under any such act or an exemption therefrom is available. COMPANY has made no
agreements, covenants or undertakings whatsoever to register or qualify any of
the Shares under any such act. COMPANY has made no representations, warranties
or covenants whatsoever as to whether any exemption from any such act will
become available.
6. Tax Advice.
----------
PURCHASER acknowledges that PURCHASER has not relied and will not rely
upon COMPANY with respect to any tax consequences related to the ownership,
purchase or disposition of the Shares. PURCHASER assumes full responsibility for
all such consequences and for the preparation and filing of all tax returns and
elections which may or must be filed in connection with such Shares. PURCHASER
has executed and delivered to COMPANY an acknowledgment in the form of Exhibit C
to this Agreement.
7. No Commitment.
-------------
8
<PAGE>
Nothing in this Agreement constitutes an agreement that PURCHASER will
be retained as an employee of COMPANY for any term.
8. Notices.
-------
Any notice or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally or five days after mailing if mailed by first class
United States mail, certified or registered with return receipt requested,
postage prepaid, and addressed as follows:
To COMPANY at: AEGIS MORTGAGE ACCELERATION CORP.
3 Embarcadero Center, 5th Floor
San Francisco, California 94111
To PURCHASER at: 1007 Jennifer's Meadow Court
Danville, California 94506
9. Binding Effect.
--------------
This Agreement shall be binding upon the heirs, legal representatives
and successors of COMPANY and PURCHASER; provided, however, that PURCHASER may
not assign any rights or obligations under this Agreement. COMPANY's rights
under this Agreement shall be freely assignable.
10. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts entered into and to
be performed entirely within the State of California by residents of the State
of California.
11. Stockholders Agreement.
----------------------
9
<PAGE>
PURCHASER agrees to be a signatory to the Stockholders Agreement dated
as of April 30, 1993, among the COMPANY and its stockholders, the form of which
is attached to this Agreement as Exhibit D. In the event of any conflict with or
inconsistency between this Agreement and the Stockholders Agreement, the terms
of this Agreement shall control the rights and obligations of the PURCHASER and
COMPANY.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement on
the date first above written.
COMPANY
AEGIS MORTGAGE ACCELERATION CORP.
By /s/ Johh P. Decker
----------------------------------
Johh P. Decker, President
PURCHASER
/s/ Stephen M. Herz
----------------------------------
Stephen M. Herz
10
<PAGE>
CONSENT OF SPOUSE
-----------------
By execution of this Consent, the undersigned spouse of PURCHASER agrees to
be bound by the terms of this Agreement as to her interest, whether as community
property or otherwise, if any, in the Shares purchased, including, without
limitation, the terms of Section 2 of this Agreement.
/s/ ^^
-------------------------------------
11
<PAGE>
EXHIBIT 10.11
THIS TAX INDEMNITY AGREEMENT
THIS TAX INDEMNITY AGREEMENT ("Agreement"), dated as of July 1, 1998, is
entered into by and between AEGIS MORTGAGE ACCELERATION CORPORATION (the
"Corporation") and JOHN DECKER ("Decker").
RECITALS
A. Decker exercised options (the "Options") to purchase 217,647 shares of
Common Stock of the Corporation (the "Option Shares") on March 27, 1998 (the
"Exercise Date"), which Options were awarded to Decker as compensation for
services. The Options did not qualify for treatment as incentive stock options
under Section 422 of the Internal Revenue Code or any other special tax
treatment.
B. Decker's exercise of the Options results in Decker's realization of
ordinary income equal to the excess of the fair market value of the Option
Shares on the Exercise Date over the exercise price paid therefor.
C. The Board of Directors of the Corporation has determined that the
Option Shares had a fair market value of $1.00 per share on the Exercise Date
and the Corporation will take this position on its tax returns. The parties
desire that the Corporation indemnify Decker for any income tax liability he
incurs as a result of the fair market value being in excess of $1.00, subject to
the restrictions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual agreements contained herein
and the services performed by Decker for the Corporation, the parties agree as
follows:
SECTION 1. INDEMNIFICATION
---------------
1.1 Indemnity.
---------
(a) General. If Decker becomes obligated to pay an amount of United States
-------
federal, state or local income tax, interest, or penalty with respect to the
exercise of the Options or the receipt of Option Shares in excess of the amount
of such tax that Decker would be obligated to pay if the Option Shares had a
fair market value of $1.00 on the Exercise Date, the Corporation shall pay to
Decker the amount of such excess taxes, interest, or penalty. In computing the
amount of excess taxes payable by Decker for purposes of the preceding sentence,
the amount by which Decker's federal income tax is reduced as a result of any
deduction Decker receives for increased state or local income taxes payable
shall be taken into account.
(b) Prior Sale. If Decker sells the Option Shares for cash prior to the
----------
time that any indemnity becomes payable hereunder, the Corporation's obligation
to indemnify Decker under Section 1.1(a) shall be limited to the excess of (i)
the amount of the indemnity calculated under Section 1.1(a) without regard to
this paragraph over (ii) the net decrease in Decker's federal, state, and local
income tax liability on such sale as the result of the Option Shares having a
fair market value in excess of $1.00 on the Exercise Date.
(c) Gross Up. Any payment made by the Corporation to Decker under this
--------
Section 1.1 shall be increased by an amount such that Decker receives, on an
after-tax basis, an amount equal to the indemnity otherwise payable.
(d) Payments. Subject to Sections 1.2 and 1.3, payments under this
--------
Section 1.1 shall be due on the later of (i) 7 days prior to the date on which
Decker is required to pay the excess tax liability described in Section 1.1(a),
and (ii) 20 days after Decker notifies the Corporation of such obligation.
<PAGE>
1.2 Limitation on Indemnity Payment. The Corporation's total payments to
-------------------------------
Decker under Section 1.1, including the amount of any gross-up under Section
1.1(c), shall not exceed the net amount by which the federal, state and local
income taxes of the Corporation (or its successors) are actually reduced in any
prior or current year, as a result of both the increased compensation deductions
the Corporation may take by reason of the excess in fair market value of the
Option Shares over $1.00 per share and the deductions the Corporation may take
for any indemnity paid hereunder (including any gross-up). In computing the
actual reduction in the Corporation's tax liability, the Corporation shall take
into account: (i) the Corporation's ability to use any increased compensation
deductions, determined by taking into account any other corporation with which
the Corporation files a consolidated or combined return in the relevant year,
(ii) the fact that the Corporation's deductions against federal taxable income
for state or local income taxes paid may be reduced as a result of increased
compensation deductions against state or local taxable income; (iii) any
increase in the amount of federal, state, or local employment taxes payable by
the Corporation with respect to the Options, the Option Shares, or the indemnity
payment; and (iv) any interest or penalty payable with respect to any increased
employment taxes. If an indemnity becomes payable (but for the provisions of
this Section 1.2), the Corporation agrees that it will make good faith efforts
to claim all reasonably available tax benefits in connection with the Options,
the Option Shares and any indemnity payment, and to make good faith efforts to
timely file returns and other forms, make elections, or take any other
procedural action reasonably necessary to reduce its tax liability. The amount
of any actual reduction for any year shall be finally determined as of the time
that the Corporation files its tax return for such year and shall not be reduced
as a result of future events, including but not limited to any subsequent
adjustment to the Corporation's tax liability for such year, whether as a result
of an audit or otherwise. If any indemnity payment was limited under this
Section 1.2 because the Corporation was unable to use a deduction in any prior
or the current taxable year, and the Corporation becomes able to use the
deduction in a subsequent taxable year, then notwithstanding the first sentence
of this Section 1.2, the Corporation shall pay to Decker, on the last day of the
year in which the Corporation is able to use the deduction, the amount by which
its taxes are actually reduced in such year.
1.3 Estimate of Limitation. The Corporation shall make payments when due
----------------------
under Sections 1.1 and 1.2 based on a good faith estimate of the amount of the
limitation imposed pursuant to Section 1.2. If the actual limitation is later
determined to be higher than such good faith estimate, the Corporation shall
make additional payments to Decker to the extent required pursuant to Section
1.1. If the actual limitation is determined to be lower than such good faith
estimate, Decker will return any payments previously made pursuant to Section
1.1 as a result of such incorrect estimate.
SECTION 2. NOTIFICATION; CONTEST RIGHTS
----------------------------
2.1 Notification. If Decker receives any notice, assessment, proposed
------------
assessment, bill or any other written notification from any governmental
authority assessing, proposing to assess, or seeking to collect any tax for
which the Corporation is obligated to indemnify under this Agreement or making
any adjustment to the fair market value of the Option Shares, Decker shall,
within 15 days, send a copy of such notice to the Corporation. Decker's failure
to send the Corporation a copy of the notice shall not affect the Corporation's
obligation to pay the indemnity under Section 1 unless Decker's failure
materially adversely affects the Corporation's ability to contest the assessment
of an indemnifiable tax under Section 2.2.
2.2 Contest. If the Corporation so requests, Decker shall contest any
-------
assessment or proposed assessment by any governmental authority of an
indemnifiable tax. The Corporation shall be responsible for the expenses of any
such contest conducted at the Corporation's request. The Corporation shall be
entitled to control any such contest, provided that it first agrees in writing
to make any indemnification payments required by Section 1.1 as a result of such
assessment, without regard to any limitations contained in Section 1.2. If
allowed under applicable law, the Corporation may contest any indemnifiable tax
in its own name. Neither party may compromise or settle the question of the
fair market value of the Option Shares with any
2
<PAGE>
governmental authority without prior written consent of the other party, which
consent shall not be unreasonably withheld.
SECTION 3. BINDING EFFECT
--------------
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company and the executors, administrators and
heirs of Decker.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first date written above.
JOHN DECKER
/s/ John Decker
---------------------------------------
AEGIS MORTGAGE ACCELERATION CORPORATION
By: /s/ ^^
------------------------------------
3
<PAGE>
EXHIBIT 11.1
PAYMAP INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
(In thousands,
except per share
data)
1997 1998 1999
<S> <C> <C> <C>
Numerator:
Net income............................................. $ 164 $ 430 $1,313
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption value....... (40) -- --
Accretion adjustment of Series B mandatorily redeemable
convertible preferred stock to redemption value....... -- 56 --
------ ------ ------
Net income attributable to common shareholders........... $ 124 $ 486 $1,313
====== ====== ======
Denominator:
Weighted average common shares--
Basic................................................ 1,885 3,510 3,711
====== ====== ======
Diluted.............................................. 10,505 13,735 13,755
====== ====== ======
Net income per share:
Basic................................................ $ 0.07 $ 0.14 $ 0.35
====== ====== ======
Diluted.............................................. $ 0.01 $ 0.04 $ 0.10
====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 10, 2000, relating to the financial statements and
financial statement schedules of Paymap Inc., which appear in such Registration
Statement. We also consent to the references to us under the heading "Experts"
in such Registration Statement.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 25, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 969
<SECURITIES> 0
<RECEIVABLES> 13,057
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,026
<PP&E> 44,975
<DEPRECIATION> (1,242)
<TOTAL-ASSETS> 57,759
<CURRENT-LIABILITIES> 12,169
<BONDS> 42,229
0
14
<COMMON> 41
<OTHER-SE> 3,306
<TOTAL-LIABILITY-AND-EQUITY> 57,759
<SALES> 32,133
<TOTAL-REVENUES> 32,133
<CGS> 0
<TOTAL-COSTS> 20,350
<OTHER-EXPENSES> 8,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,185
<INCOME-TAX> 1,872
<INCOME-CONTINUING> 1,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,313
<EPS-BASIC> .35
<EPS-DILUTED> .10
</TABLE>
