<PAGE>
As filed with the Securities and Exchange Commission on April 13, 2000
Registration No. 333-31122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
Amendment No. 1
to
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(o) 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 -- April 13, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF PAYMAP]
Paymap Inc.
4,170,000 Shares of Common Stock
- --------------------------------------------------------------------------------
Paymap Inc.: The Offering:
. We develop, market
and service . We are offering
innovative 4,170,000 shares of
electronic payment our common stock.
products that
enable consumers
to manage their
finances more
efficiently and
help them achieve
their financial
goals.
. We have granted the
underwriters an
option to purchase
up to an additional
625,500 shares from
us to cover over-
allotments.
. Paymap Inc. 3 . This is our initial
Embarcadero public offering, and
Center, Suite no public market
500 San Francisco, currently exists for
California 94111 (415) our shares.
743-1000
Proposed Symbol & . We anticipate that
Market: the initial public
offering price will
be between $11.00
and $13.00.
. PMAP/Nasdaq
National Market
. 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>
Description of artwork contained inside the front cover of the prospectus
[Pictures and description of 4 channels of distribution for our products,
including internet, point of sale, direct mail and 1-800 number]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 15
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Data............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business........................... 27
Management......................... 38
Certain Relationships and Related
Transactions...................... 46
Principal Stockholders............. 47
Description of Capital Stock....... 49
Shares Eligible for Future Sale.... 52
Underwriting....................... 54
Legal Matters...................... 56
Experts............................ 56
Additional Information............. 56
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 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 products are based on our
proprietary payment system that is designed to give consumers the ability to
map out 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. To date, we
have received substantially all of our revenues from the sale of our equity
acceleration 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, 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 automated 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 payment
products.
Our Strategy
Key elements of our business strategy are to:
. Introduce a suite of next-generation products allowing consumers to
formulate a comprehensive payment program to achieve a variety of
individual financial goals, such as prepayment of debt and investing for
retirement.
2
<PAGE>
. Offer 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........................ 4,170,000 shares
Common stock to be outstanding after this
offering.................................... 17,076,076 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:
. 975,952 shares of common stock issuable upon exercise of options that
have been granted under our 1995 Stock Option Plan (at a weighted average
exercise price of $0.18 per share);
. 272,458 shares of common stock reserved for issuance under our 1995 Stock
Option Plan; and
. 1,833,500 shares of common stock reserved for issuance under our other
equity incentive plans.
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 19, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 20 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....................... -- -- -- 150 1,131
------ ------ ------- ------- -------
Total operating expense............ 1,070 1,823 2,876 3,932 8,249
------ ------ ------- ------- -------
Operating income (loss).............. $ (779) $ (540) $(1,301) $ 972 $ 3,534
Net income (loss).................... $ (801) $ (609) $ 111 $ 389 $ 1,535
====== ====== ======= ======= =======
Net income (loss) available to common
shareholders........................ $ (841) $ (649) $ 71 $ 445 $ 1,535
====== ====== ======= ======= =======
Basic earnings (loss) per share (a).. $(0.80) $(0.56) $ 0.04 $ 0.13 $ 0.41
====== ====== ======= ======= =======
Diluted earnings (loss) per share
(a)................................. $(0.80) $(0.56) $ 0.01 $ 0.03 $ 0.11
====== ====== ======= ======= =======
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)........................... $ 0.12
=======
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 and non-voting common stock into 8,783,230 shares of common
stock as if the conversion occurred on January 1, 1999 or the date of original
issuance, if later.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
Actual As Adjusted (b)
(unaudited)
<S> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents ........................ $ 969 $ 46,456
Working capital................................... 1,457 46,944
Total assets...................................... 57,923 103,410
Line of credit, net of current portion............ 1,208 1,208
Stockholders' equity.............................. 3,125 48,612
</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............................ 134,998 235,145 308,810
</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 4,170,000 shares of common stock at an assumed initial public
offering price of $12.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below,
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 approximately 99% 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 new customer
enrollments.
Approximately 63%, 29% and 31% of our new enrollments in 1997, 1998 and 1999,
respectively, were acquired through our relationship with Wells Fargo/Norwest.
The initial term of our agreement with Norwest will expire in the third quarter
of this year. We are currently negotiating a new agreement with Wells
Fargo/Norwest. There can be no assurance, however, that we will be able to
enter into a new agreement. In addition, approximately 77% of our total new
enrollments in 1999 were acquired through 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
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 customers. 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. Only one affinity partner has in the past terminated its
agreement with us after the initial term. The cancellation of one or more of
these relationships may cause us to lose potential customers, market share and
revenue, any of 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. We expect competition to persist and
intensify in the future. 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.
Companies with greater financial resources may enter into our markets and
significantly reduce or eliminate our current competitive advantage. In
addition, financial institutions, including any of our current affinity
partners, or other processing and bill payment companies with similar
technologies may 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 and
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 including John P. Decker, our President and Chief
Executive Officer, and Stephen M. Herz, our Senior Vice President and Chief
Operating Officer. If for any reason any key member of our management team,
including Mr. Decker or Mr. Herz, 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, financial
condition and results of operations 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 Automated Clearing House 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
Automated Clearing House Network transactions.
Automated Clearing House Network transactions must be processed through
originating depositary financial institutions. Currently, we process our
transactions through Wells Fargo/Norwest and BankOne. We currently process 40%
of our transactions through Wells Fargo/Norwest and 60% of our transactions
through BankOne. Generally, our agreements with these institutions can be
terminated upon written notice to the other party. If one or both of these
originating depositary financial institutions 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 relationships with other originating depositary financial
institutions. 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.
8
<PAGE>
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 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. It is our policy to correct any errors upon notification from a
customer. To date, we have not been subject to any legal proceedings for
erroneous or fraudulent transactions. Any significant liability or claim could
have a material adverse effect on our business, operating results and financial
condition.
9
<PAGE>
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 business
could be materially adversely affected. A security or privacy breach may:
. cause our financial institution affinity partners 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;
. 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.
10
<PAGE>
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.
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.
11
<PAGE>
Federal Reserve and National Automated Clearing House Association rules
provide that we can only access the Automated Clearing House Network through
originating depositary financial institutions. If these rules were to change to
further restrict our access to the Automated Clearing House Network or limit
our ability to provide Automated Clearing House 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.
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 56.2% of our outstanding common stock, or 54.3% 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
12
<PAGE>
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.
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 $9.11 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 975,952
shares of common stock, having a weighted average exercise price of $0.18 per
share, and warrants to purchase 430,348 shares of common stock were outstanding
as of March 31, 2000. When and if these options and warrants 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.
13
<PAGE>
Immediately after the completion of this offering, we will have 17,076,076
shares of common stock outstanding, or 17,701,576 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, 3,214,307 shares will be eligible for sale in
the public market under Rule 144(k), 9,199,836 shares will become eligible for
sale under Rule 144 and 101,332 shares will become eligible for sale under Rule
701.
14
<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.
15
<PAGE>
USE OF PROCEEDS
We will receive approximately $45.5 million in net proceeds from the sale of
the shares of common stock we are offering at an assumed initial public
offering price of $12.00 per share. If the underwriters exercise their over-
allotment option in full, our net proceeds will be approximately $52.5 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.
16
<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 each
outstanding share of Series A, Series B and Series C preferred stock and
Class B common stock into one share of common stock and the exercise of
warrants to purchase 430,348 shares of common stock, which will terminate
upon closing of this offering; 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 $12.00 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 $ 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);
16,834,279 shares issued and outstanding (pro
forma as adjusted) (1)....................... -- 55 97
Unearned compensation......................... (5,179) (5,179) (5,179)
Additional paid-in capital.................... 9,217 9,217 54,662
Less: Notes receivable from stockholders...... (89) (89) (89)
Retained earnings (accumulated deficit)....... (879) (879) (879)
------- ------- -------
Stockholders' equity........................ 3,125 3,125 48,612
------- ------- -------
Total capitalization........................ $ 4,333 $ 4,333 $49,820
======= ======= =======
</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.
17
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1999 was $3.0 million, or approximately $0.25 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 4,170,000 shares of common stock offered by this prospectus at an
assumed initial public offering price of $12.00 per share and after deducting
the estimated underwriting discounts and offering expenses payable by us, our
pro forma net tangible book value will be $49.0 million, or approximately $2.89
per share. This represents an immediate increase in pro forma net tangible book
value of $2.64 per share to existing stockholders and an immediate dilution in
net tangible book value of $9.11 per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of December
31, 1999................................................... $0.25
Increase per share attributable to new investors............ 2.64
-----
Pro forma net tangible book value per share after the
offering..................................................... 2.89
------
Dilution per share to new investors........................... $ 9.11
======
</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 $12.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
(In
thousands)
<S> <C> <C> <C> <C> <C>
Existing stockholders... 12,644,279 75.0% $ 2,500 5% $ 0.20
New investors........... 4,170,000 25.0 50,040 95 12.00
---------- ----- ---------- --------
Total................. 16,814,279 100.0% $ 52,540 100.0%
========== ===== ========== ========
</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 and 430,348 shares of common stock
issuable upon exercise of outstanding warrants.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to 4,795,500, or
approximately 27% of the total numbers of shares of our common stock
outstanding after this offering.
Assuming the exercise in full of all outstanding options and warrants, our
pro forma as adjusted net tangible book value at December 31, 1999 would be
$2.67 per share, representing an immediate increase in net tangible book value
of $2.39 per share to our existing stockholders, and an immediate decrease in
the net tangible book value per share of $0.24 to the new investors.
18
<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...................... -- -- -- 150 1,131
------ ------ ------- ------- -------
Total operating expenses......... 1,070 1,823 2,876 3,932 8,249
------ ------ ------- ------- -------
Operating income (loss)............. (779) (540) (1,301) 972 3,534
Other expense, net.................. 22 69 64 185 197
------ ------ ------- ------- -------
Net income (loss) before provision
(benefit) for taxes................ (801) (609) (1,365) 787 3,337
Provision (benefit) for taxes....... -- -- (1,476) 398 1,802
------ ------ ------- ------- -------
Net income (loss)................... $ (801) $ (609) $ 111 $ 389 $ 1,535
====== ====== ======= ======= =======
Net income (loss) available to
common shareholders................ $ (841) $ (649) $ 71 $ 445 $ 1,535
====== ====== ======= ======= =======
Basic earnings (loss) per share..... $(0.80) $(0.56) $ 0.04 $ 0.13 $ 0.41
====== ====== ======= ======= =======
Diluted earnings (loss) per share... $(0.80) $(0.56) $ 0.01 $ 0.03 $ 0.11
====== ====== ======= ======= =======
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.............................. $ 0.12
=======
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) (1,520) (1,687) 1,457
Total assets........................ 5,005 6,157 21,130 35,793 57,923
Line of credit, net of current
portion............................ -- -- -- -- 1,208
Stockholders' equity (deficit)...... (1,723) (985) (809) (55) 3,125
</TABLE>
19
<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 our financial statements and
the accompanying notes included in this prospectus. This discussion contains
forward-looking statements as described under "Special Note Regarding Forward-
Looking Statements." 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.
Overview
We develop, market and service 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 out 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 revenues from enrollment fees, net of provisions for estimated
refunds, and transaction processing fees. We price our product offerings under
two different structures. The pricing offered by us to a particular consumer is
based on customer and marketing information and the terms of the agreement with
the affinity partner.
The elements of the first pricing structure include an enrollment fee of
varying amounts collected either at the time of inception of the account
agreement or over a three- to six-month period after inception and ongoing
transaction fees. Consistent with Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements (SAB 101), enrollment fee revenue is
deferred and recognized over the expected service period of eight years, which
is based on our actual customer attrition experience. Our revenue recognition
policy, which is based in part on our actual historical customer attrition
experience, results in the recognition of greater amounts of deferred
enrollment revenues and deferred customer acquisition costs in the earlier
years relative to the later years of the expected product life. Transaction
fees are collected as transactions are processed and are recognized on a
monthly basis.
The second pricing structure is a monthly fee program offer collected on a
per transaction basis, without an enrollment fee. We collect, recognize and
earn transaction fees as transactions are processed monthly.
If a customer cancels an agreement with us during the first 30- to 90-day
period, we refund the customer's enrollment fee. We utilize historical refund
statistics, which considers our contractual obligations and past business
practices to establish the amount reserved for customer refunds.
Cost of Acquisitions, Servicing and Support
Customer acquisition costs consist of direct response advertising and other
direct incremental costs associated with acquisition of customers. Our direct
response advertising consists of the costs of sending direct mail pieces to our
affinity partners' customers, and the supporting in-bound telemarketing. 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, such as enrollment processing and verification services. These
incremental costs also include the portion of the enrollment fees due to
affinity partners. The fees payable to the affinity partners are generally
20
<PAGE>
payable after the later to occur of 90 days after enrollment or receipt of
funds from the customers. Our accounting policy requires that we amortize
qualifying deferred customer acquisition costs over the expected period of the
service, typically five or eight years depending on the product. Amortization
of deferred customer acquisition costs considers the effect of customer
attrition experience which results in greater amortization of such costs in the
earlier years of the expected product life.
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 transaction fees due to affinity partners and the portion of
customer service, direct marketing, telemarketing and enrollment processing
costs which do not qualify for deferral. The fees due to the affinity partners
are paid monthly.
Using our payment system, funds are moved from our customers' designated
accounts to custodial accounts, and then transferred to the specified payee
accounts on the due date. In certain instances, such as reversals due to late
non-sufficient funds notice, late payoff notice or where there are Automated
Clearing House disputes, we fund the custodial accounts to the extent
sufficient amounts of cash balances are not available to pass through customer
principal and interest payments to affinity partners or other mortgage
servicers. Cash shortfalls in the custodial accounts, to the extent not
recoverable from the customer, affinity partner, or other mortgage servicers
results in credit exposure for us. We have established a reserve, which
represents our estimate of amounts that will be required to fund custodial
account shortfalls in excess of amounts that will be recovered from customers,
affinity partners or other mortgage servicers. In 1998, we recorded a provision
of $627,000 to establish this reserve. Prior to 1998, these exposures were not
significant. The balance in the reserve is determined using a specific account
identification methodology and therefore the provision of losses may vary from
year to year.
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.
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 $150,000 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 $6.3
million, which will be amortized over the four-year vesting period of the
options awards. For the year ended December 31, 1999, we recognized $1.1
million in compensation expense.
21
<PAGE>
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...................... -- 0 150 1 1,131 4
------- ---- ------- --- ------- ---
Total operating expenses......... 2,876 32 3,932 19 8,249 26
------- ---- ------- --- ------- ---
Operating income (loss).............. (1,301) (15) 972 5 3,534 11
Other expense ....................... 64 0 185 1 197 1
------- ---- ------- --- ------- ---
Net income before provision (benefit)
for taxes........................... (1,365) (15) 787 4 3,337 10
Provision (benefit) for taxes........ (1,476) (108) 398 51 1,802 54
------- ---- ------- --- ------- ---
Net income (loss).................... $ 111 1% $ 389 2% $ 1,535 5%
======= ==== ======= === ======= ===
</TABLE>
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>
22
<PAGE>
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>
The following table sets forth the number of active accounts, new enrollments
and attrition for 1997, 1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Active accounts at beginning of year.............. 60,686 134,998 235,145
New enrollments during the year................... 95,565 163,452 141,857
Attrition during the year......................... (21,253) (63,305) (68,192)
------- ------- -------
Active accounts at year end....................... 134,998 235,145 308,810
======= ======= =======
</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. Enrollment fee revenues increased 51% 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 54% 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 255,475 in 1999 from 166,084 in 1998, which in turn directly
increased the total number of transactions processed. The increase in the
subscriber base is driven by new enrollments. Substantially all of our
enrollment and transaction fee revenue in each year was generated by our equity
acceleration product.
Cost of Acquisitions, Servicing and Support. Cost of acquisitions, servicing
and support increased 27% 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 for payments made on behalf of customers to mortgage servicers
resulting from late non-sufficient fund returns or Automated Clearing House
disputes.
Gross Profit Margin. As a result of revenue increasing 53% 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 91% 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
$1.1 million increase in corporate administration costs and a $537,000 increase
in finance and 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 furniture and equipment in 1999.
Amortization of Unearned Compensation. Amortization of unearned compensation
increased $1.0 million to $1.1 million in 1999 from $150,000 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.
23
<PAGE>
Operating Income. Operating income margin increased to 11% in 1999 from 5% in
1998 as a result of the increase in our gross profit 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 $398,000 in 1998 as a result of our increased operating income. Our
effective tax rate of 54% 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. Enrollment fee revenues increased 147% to $7.9 million from
$3.2 million in 1997 due to an increase in the number of new 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 166,084 in 1998 from 76,872 in 1997. Substantially all of our
enrollment and transaction fee revenue in each year was generated by our equity
acceleration product.
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 for payments made on
behalf of customers to mortgage servicers resulting from late non-sufficient
fund returns or Automated Clearing House disputes.
Gross Profit Margin. As a result of revenue increasing 133% in 1998 while
cost of acquisition, servicing and support increased 117%, 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 $526,000 of furniture and equipment in 1998.
Amortization of Unearned Compensation. Amortization of unearned compensation
increased to $150,000 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 5% in
1998 from (15%) in 1997 as a result of the increase in our gross profit margin,
which was partially offset by increases in operating expenses.
Provision (Benefit) for Taxes. Provision for taxes was $398,000 in 1998
compared to an income tax benefit of $1.5 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 $1.5 million in 1997 due to
the reversal of the valuation allowance for deferred tax assets as we believed
that realization of those assets was more likely than not.
24
<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
is secured by all of our assets. 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 and $2.6 million was
available for future borrowings. Beginning in August 2000, we must repay the
outstanding balance in 24 equal monthly installments.
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 in this
prospectus:
<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 46% 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 deferred enrollment fee accounts.
Similarly, the growth in fees due to affinity partners 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 $21.7 million in deferred customer acquisition costs,
which was offset by the receipt of $20.7 million in deferred revenue from
enrollment fees. Funds were provided by an increase in accounts payable and
other liabilities of $1.5 million. We invested $526,000 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 $700,000
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 $14 million 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 fees due to affinity partners
followed the growth in new accounts and transaction fees during the year. We
invested $930,000 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.
25
<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.
26
<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 products are based on our proprietary
payment system that is designed to give consumers the ability to map out and
execute their customized electronic payment plan for core financial products
such as mortgages, credit cards and investments. Our electronic payment
products are currently used by 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 Automated Clearing House Network. We primarily market
our products directly to consumers through affinity relationships with
approximately 40 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 Mortgage Bankers Association of America there
were over 52 million mortgages in the U.S. as of December 31, 1999.
According to the Federal Reserve Bulletin, an estimated $6.2 trillion in
mortgage debt was outstanding as of September 30, 1999. 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 December 31, 1999,
there were approximately 400 million Visa(R), MasterCard(R), American
Express(R) and Discover(R) credit card accounts in the U.S., representing
approximately $512 billion in consumer debt outstanding.
. 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.
27
<PAGE>
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.
Our Solution
We develop, market and service electronic payment products that offer
substantial benefits to both the consumer and the 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 Automated Clearing House
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 enables 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. To date, we have received substantially all our revenues
from the sale of our equity acceleration products. 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 consumers to customize their mortgage
payments based on their financial goals and achieve certainty with respect to
these payments. The consumer can calculate the benefits, increase or decrease
the amount of frequency withdrawls, match payroll cycles, and accumulate money
from one or more accounts to set up their automated payment program. This
capability is transferable to new mortgages.
At the same time, Equity Accelerator enables our financial institution
affinity partners to provide a value-added product to their customers, increase
customer retention, reduce servicing cost and enhance profitability of their
business.
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 automated 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 payment products.
28
<PAGE>
Our Strategy
Our objective is to enhance and expand our position as a leading developer,
marketer and servicer of 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 additional electronic
payment products designed to 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.
29
<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
Automated Clearing House Network to the mortgage company when the mortgage
payment is due. Equity Accelerator's automated funds transfer and budgeting
features enable the homeowner to save a significant amount of interest and
build equity more quickly. 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 seven 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.]
30
<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 their profitability. This benefit results
from lower costs associated with electronic payment processing and predictable
payments. In addition, because we provide a turnkey solution, our affinity
partners are not required to make any significant capital investment. We are
currently offering Equity Accelerator 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 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, such as less customization and non-transferability, and a premium
service version, which includes features such as overdraft protection and a
higher level of customer service. 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 regardless of the lending
financial institution. 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 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 a variety of competing products is 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 product 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 Automated Clearing House
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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 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 enable 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 Automated Clearing House 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 financial institution
affinity 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 test marketing results. To date, we
have conducted 651 test campaigns designed to enhance our product offerings.
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. Generally, the terms of our products
offered to each affinity partner's customer base are similar, except certain
features may be customized at the request of an affinity partner. 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.
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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 collaborate with our affinity partners to develop a targeted marketing
effort for each affinity partner's customer base. Our data mining and customer
segmentation techniques have enabled us to develop personalized marketing
campaigns that are uniquely prepared for the affinity partner's target market.
As a result, we are able to recognize better response rates as well as lower
acquisition costs.
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 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.
We market our equity acceleration products under two different pricing
structures. We base our different structures on marketing information, the
terms of the agreement with our sponsoring financial institution affinity
partner and the expected response rate. Our first pricing structure includes an
enrollment fee collected from the consumer at the time of inception of the
program or over a three- to six-month period after inception and with ongoing
transaction fees. Our second pricing structure does not involve an enrollment
fee but includes a monthly fee which is collected on a per transaction basis.
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
payment 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 Automated Clearing House
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
Automated Clearing House 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
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checking, savings or money market accounts into custodial accounts maintained
in the name of our financial institution affinity partners through our
Automated Clearing House Network gateway at selected originating depository
financial institutions, such as Wells Fargo/Norwest and BankOne. At the same
time that withdrawals are moved from the customer's accounts, we collect our
transaction fees. The funds are directed to these custodial accounts 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 requisite
payment details are sent electronically to their servicing platform.
[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 proprietary
technologies including:
. customized statistical software applications;
. customer relationship management software that provides front-end user
screen applications ("screen pops");
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. 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.
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
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 believe that we
compete primarily on the basis of product features, customer service, scope of
product offerings and relationships with financial institutions. 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.
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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, such as credit card companies, transaction
processing companies and banks, 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 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.
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Legal Proceedings
We have commenced arbitration of a dispute with a software developer that
claims entitlement to additional compensation. We believe that the resolution
of the arbitration proceedings will not have a material adverse effect on our
financial condition, results of operations, cash flows 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.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of January 31, 2000
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
James Gala........................ 47 Vice President, Chief Financial
Officer
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
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.
James Gala has served as our Chief Financial Officer since April 2000. Prior
to joining us, he served as vice president and general manager of the tax
division at Probusiness Services, Inc. during 1999. Mr. Gala served as a
consultant and chief financial officer at US Lighting/Delta Power Supply during
1999. From 1996 to 1999, he served as senior vice president of operations at
The Money Store, where he was primarily responsible for home improvement
lending operations. Prior to that, he served as chief financial officer at Red
Rose Collection, Inc. from 1995 to 1996. Mr. Gala served as executive vice
president of finance, systems and operations at CIGNA Property and Casualty
during 1995, and as senior vice president and director of business development
at First Nationwide Bank from 1988 to 1994. Mr. Gala holds a Bachelor of
Science degree in Business Administration--Accounting from Ohio State
University and is a certified public accountant.
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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. where he 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.
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 was a co-founder and served as vice president and a director
of Micro-Rent 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.
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 Oclassen 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.
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<PAGE>
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.
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.
Employment Agreements
We have not entered into employment agreements with any of our executive
officers.
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. No
interlocking relationship exists between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
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, at 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.
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<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 ......... $218,071 $57,894 --
President and Chief
Executive Officer
Stephen M. Herz(1)...... 64,615 52,631 --
Senior Vice President
and Chief Operating
Officer
John A. Charckon........ 164,099 -- --
Controller
James D. Connelly....... 133,961 35,526 66,124
Vice President
Craig M. Compiano....... 124,038 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.
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.
41
<PAGE>
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>
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 deemed fair market value of the underlying securities
as of December 31, 1999 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 49,593 509,914 486,011
Vice President
Craig M. Compiano ...... -- -- 241,802 14,022 2,369,660 137,416
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 March 31, 2000, 1,626,000 shares of common
stock were reserved
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<PAGE>
for issuance under the 1995 option plan. Of these shares, 343,129 were issued
upon exercise of stock options, 975,952 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.
2000 Stock Option Plan
Our board of directors adopted our 2000 Stock Option Plan on February 10,
2000 and our stockholders approved the plan on March 28, 2000. 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.
Unless the administrator determines otherwise, 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 and our stockholders approved the plan on March 28, 2000.
This plan provides our employees with an opportunity to purchase our common
stock through accumulated payroll deductions.
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<PAGE>
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.
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.
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 through
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.
44
<PAGE>
2000 Nonemployee Directors Stock Option Plan
Our board of directors adopted the 2000 Nonemployee Directors Stock Option
Plan on February 10, 2000 and reserved a total of 275,000 shares of common
stock for issuance under the plan. Our stockholders approved the plan on March
28, 2000. 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 2010, unless terminated
earlier in accordance with the provisions of the directors plan.
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
45
<PAGE>
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.
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 following three years.
Mr. Decker is a party to a tax indemnity agreement pursuant 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.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of March 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 12,906,076 shares outstanding as of March
31, 2000, assuming conversion of the preferred stock and Class B common stock
into common stock, and 17,076,076 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 March 31, 2000 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 8.6% 6.5%
Montreux Equity
Partners(2)........... 1,394,555 10.8 8.2
2700 Sand Hill Road
Menlo Park, CA 94025
C. Charles Hetzel III.. 1,203,890 9.3 7.1
One New York Plaza
New York, NY 10004
Benjamin S. Wood,
Jr.(3)................ 737,933 5.7 4.3
3133 S. Milwaukee St.
Denver, CO 80210
Directors and Officers:
John P. Decker(4)...... 2,719,957 21.1 15.9
Craig M. Compiano(5)... 1,051,783 8.1 6.2
Daniel K. Turner
III(6)................ 1,454,175 11.3 8.5
Anders Brag............ 908,224 7.0 5.3
Denis A. Cardone(7).... 1,545,936 12.0 9.1
John A. Charckon....... -- -- --
Stephen M. Herz(8)..... 341,330 2.6 2.0
James D. Connelly...... 116,926 * *
All directors and
executive officers as
a group
(12 persons)(9)....... 9,838,238 73.8% 56.2%
</TABLE>
- ---------------------
* Less than 1% of Paymap's outstanding common stock.
(1) Messrs. Compiano and Grant, who are officers and directors of Grant
Financial Group, Inc., together hold a majority of the voting shares of
Grant Financial Group and control voting and dispositive power with respect
to such shares.
47
<PAGE>
(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) Includes 542,000 shares held in trust.
(5) Excludes 1,109,507 shares held by Grant Financial Group. Mr. Compiano may
be deemed to have an indirect pecuniary interest in an indeterminate
portion of our shares held by Grant Financial Group. Mr. Compiano disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(6) 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.
(7) 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.
(8) 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.
(9) Includes 1,109,507 shares held by Grant Financial Group, Inc.
48
<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 March 31, 2000, after giving effect to the conversion of all preferred
stock and Class B common stock into common stock, 12,906,076 shares of common
stock were outstanding. As of March 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.
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<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.
50
<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.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
17,076,076 shares of common stock, assuming the issuance of 4,170,000 shares of
common stock by this prospectus (assuming no exercise of the underwriters'
over-allotment option) and no exercise of options after March 31, 2000. Of
these shares, the 4,170,000 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 12,906,076 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, 3,214,307 shares will become eligible for sale pursuant to Rule
144(k), 9,199,836 shares will become eligible for sale under Rule 144 and
101,332 shares will become eligible for sale under Rule 701.
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 March 31, 2000 and currently reserved for
issuance under these plans, this registration statement would cover
approximately 3,081,910 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
12,906,076 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.
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.
52
<PAGE>
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.
53
<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 625,500 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.
54
<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
$1,050,000.
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 have applied to have our common stock listed for quotation on the Nasdaq
National Market under the symbol "PMAP."
55
<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.
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.
56
<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
Statement 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.
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
(except as to Note 21, which
is as of April 5, 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, equipment and computer software, net.. 1,325 3,234 --
Other assets, net................................ 1,280 2,456 --
------- ------- ------
Total assets.................................. $35,793 $57,923 $ --
======= ======= ======
<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...................... 857 1,796 --
------- ------- ------
Total current liabilities..................... 7,190 12,569 --
Deferred revenue (Note 8)........................ 28,158 41,021 --
Line of credit, net of current portion........... -- 1,208 --
------- ------- ------
Total liabilities............................. 35,348 54,798 --
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; 182,353
shares issued and outstanding in 1998, 204,706
shares issued and outstanding in 1999; no
shares issued and outstanding (pro forma)..... 2 2 --
Unearned compensation.......................... -- (5,179) (5,179)
Additional paid-in capital..................... 2,334 9,217 9,217
Less: Notes receivable from stockholders....... (21) (89) (89)
Retained earnings (accumulated deficit)........ (2,414) (879) (879)
------- ------- ------
Total stockholders' equity.................... (55) 3,125 $3,125
------- ------- ======
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity..... $35,793 $57,923
======= =======
</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)..... -- 150 1,131
------- ------- -------
Total operating expenses.......................... 2,876 3,932 8,249
------- ------- -------
Operating income (loss)............................... (1,301) 972 3,534
Other expense, net.................................... 64 185 197
------- ------- -------
Income (loss) before provision (benefit) for taxes.... (1,365) 787 3,337
Provision (benefit) for taxes (Note 10)............... (1,476) 398 1,802
------- ------- -------
Net income............................................ $ 111 $ 389 $ 1,535
======= ======= =======
Net income attributable to common shareholders (Note
2)................................................... $ 71 $ 445 $ 1,535
======= ======= =======
Net income per share:
Basic............................................... $ 0.04 $ 0.13 $ 0.41
======= ======= =======
Diluted............................................. $ 0.01 $ 0.03 $ 0.11
======= ======= =======
Pro forma net income per share (unaudited):
Basic............................................... $ 0.12
=======
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
Preferred Preferred Preferred Class A Class B Notes
Stock Stock Stock Common Stock Common 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............ 680 $ 7 -- $ -- 319 $ 3 1,707 $17 160 $ 2 $ -- $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............ 680 7 -- -- 319 3 1,751 18 160 2 -- 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.... -- -- -- -- -- -- -- -- -- -- (150) 150 --
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- -- -- -- 150 -- --
Net Income...... -- -- -- -- -- -- -- -- -- -- -- -- --
Class A Common
Stock Dividend.. -- -- -- -- -- -- 444 4 -- -- -- 78 --
--- --- --- ---- --- --- ----- --- --- --- ------- ------ ----
Balance,
December 31,
1998............ 680 7 -- -- 319 3 3,441 34 205 2 -- 2,334 (21)
--- --- --- ---- --- --- ----- --- --- --- ------- ------ ----
Issuance of
Common Stock
Class A......... -- -- -- -- -- -- 16 -- -- -- -- 4 --
Issuance of
Common Stock
Class A for note
receivable...... -- -- -- -- -- -- 342 4 -- -- -- 59 (63)
Options
Exercised....... -- -- -- -- -- -- 82 1 -- -- -- 14 (5)
Reclassification
of Preferred
Stock Series B.. -- -- 417 4 -- -- -- -- -- -- -- 496 --
Unearned
Compensation.... -- -- -- -- -- -- -- -- -- -- (6,310) 6,310 --
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- -- -- -- 1,131 -- --
Net Income...... -- -- -- -- -- -- -- -- -- -- -- -- --
--- --- --- ---- --- --- ----- --- --- --- ------- ------ ----
Balance,
December 31,
1999............ 680 $ 7 417 $ 4 319 $ 3 3,881 $39 205 $ 2 $(5,179) $9,217 $(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...... 111 111
Accrued
Dividend--
Preferred Stock
Series B........ -- (40)
------------ -------
Balance,
December 31,
1997............ (2,803) (809)
------------ -------
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.... -- --
Amortization of
unearned
compensation.... -- 150
Net Income...... 389 389
Class A Common
Stock Dividend.. -- 82
------------ -------
Balance,
December 31,
1998............ (2,414) (55)
------------ -------
Issuance of
Common Stock
Class A......... -- 4
Issuance of
Common Stock
Class A for note
receivable...... -- --
Options
Exercised....... -- 10
Reclassification
of Preferred
Stock Series B.. -- 500
Unearned
Compensation.... -- --
Amortization of
unearned
compensation.... -- 1,131
Net Income...... 1,535 1,535
------------ -------
Balance,
December 31,
1999............ $ (879) $3,125
============ =======
</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..................................... $ 111 $ 389 $ 1,535
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 211 306 371
Amortization of unearned compensation........ -- 150 1,131
Amortization of deferred customer acquisition
cost........................................ 3,244 8,098 12,384
Provision for estimated refunds.............. 2,374 2,415 4,740
Customer refunds paid........................ (1,734) (2,629) (4,022)
Additions to deferred revenue................ 13,978 20,689 24,796
Amortization of deferred revenue............. (3,245) (7,933) (11,933)
Additions to deferred customer acquisition
costs....................................... (12,799) (21,670) (22,906)
Changes in assets and liabilities:
Enrollment fees receivable................. (3,409) 3 (9,146)
Accounts receivable........................ 32 (450) 411
Prepaid expense and other assets........... 51 (137) (31)
Due to affinity partners................... 2,310 (231) 4,181
Deferred taxes............................. (1,476) 366 (1,120)
Accounts payable and other current
liabilities............................... 340 1,642 1,081
-------- -------- --------
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 products provided by the Company build and
maintain the customer's payment plan which directs electronic withdrawals of
customers' funds from their bank accounts, depositing of those funds in custody
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. As a result of these agreements, the Company offers its products to the
affinity partners' customers. Customers, upon acceptance of the program, enter
into agreements, setting forth the terms of the offer that they have accepted.
The Company provides the mortgage acceleration products to the customers who
subscribe until such time as the customer terminates the service or their
underlying mortgage is paid in full. In addition, the Company will continue to
earn transaction fees for providing the mortgage acceleration services after
termination of affinity partner agreements.
The material terms of the agreements with the affinity partners include:
contract term, payment of fees to affinity partners, custody account
reconciliations, annual audit of Paymap, representations and warranties, non-
disclosure of homeowner data and privacy provisions, and indemnification
provisions.
The original contract term typically extends from three to five years, and
renewals typically extend two to five years. Fees due to affinity partners
differ because of different products and prices, differing features on similar
products, and institutional differences relating to size and economies of
scale. The Company represents and warrants that the program will be conducted
according to the agreed specifications. Affinity partners must authorize in
writing any disclosure of homeowner data or solicitation of homeowner names by
the Company.
Initial public offering
In February 2000, the Company's Board of Directors authorized the Company 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 B common stock will be converted to one class of common stock.
F-7
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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.
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 payments made on behalf of customers to the mortgage servicer that
may be reversed due to late non-sufficient funds returns or Automated Clearing
House disputes. The Company recorded a provision for this credit risk of
$627,000 in 1998 to establish this reserve. During 1999, the Company recorded a
provision of $58,000 and charged $158,000 against this reserve. This resulted
in a balance of $528,000 as of December 31, 1999. This reserve is included in
other current liabilities.
Revenue recognition
Revenues are earned from enrollment fees, net of provisions for estimated
refunds, and transaction processing fees. The Company prices its product
offerings under two different pricing structures. The pricing offered by the
Company to a particular consumer is based on customer and marketing information
and the terms of the agreement with the affinity partners.
The elements of the first pricing structure include an enrollment fee of
varying amounts collected either at the time of inception of the account
agreement or over a three- to six-month period after inception and ongoing
transaction fees. Enrollment fee revenue is deferred and recognized over the
expected service period of eight years, which is based on the Company's actual
customer attrition experience. Our revenue recognition policy, which is based
in part on our actual historical customer attrition experience, results in the
recognition of greater amounts of deferred enrollment revenues and deferred
customer acquisition costs in the earlier years relative to the later years of
the expected product life. The transaction fees are collected, recognized and
earned as transactions are processed monthly.
The second pricing structure is a monthly fee program offer collected on a
per transaction basis without an enrollment fee. Transaction fees are collected
as transactions are processed and are recognized on a monthly basis.
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.
F-8
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. These costs have been incurred for the solicitation of
specifically identifiable prospects. These direct response advertising costs
are amortized beginning in the month after the costs are incurred. 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. Other direct incremental cost amortization begins at such time
the cost of successful acquisitions is incurred.
Deferred customer acquisition costs are amortized over the expected product
life. Amortization of deferred customer acquisition costs considers the effect
of customer attrition experience which results in greater amortization of such
costs in the earlier years of the expected product life. The product life
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, equipment and computer software
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 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 costs incurred during the application development stage, related to
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 will receive a full refund if they
terminate the service during the first three months. The Company 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.
F-9
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Due to affinity partners
Pursuant to its contractual obligations with its affinity partners, the
Company pays customer acquisition fees and monthly transaction processing fees
to 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 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.
F-10
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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,
------------------------
1997 1998 1999
(In thousands, except
per share data)
<S> <C> <C> <C>
Numerator:
Net income...................................... $ 111 $ 389 $ 1,535
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.... $ 71 $ 445 $ 1,535
======= ======= =======
Denominator:
Weighted average common shares--
Basic......................................... 1,885 3,510 3,711
======= ======= =======
Diluted....................................... 10,505 13,735 13,755
======= ======= =======
Net income per share:
Basic......................................... $ 0.04 $ 0.13 $ 0.41
======= ======= =======
Diluted....................................... $ 0.01 $ 0.03 $ 0.11
======= ======= =======
The following reconciles basic to diluted weighted average shares outstanding
for the periods indicated:
<CAPTION>
Year Ended December 31,
------------------------
1997 1998 1999
<S> <C> <C> <C>
Basic:
Basic Common.................................... 1,885 3,510 3,711
Series A Preferred.............................. 3,686 3,686 3,686
Series B Redeemable Preferred .................. 2,258 2,258 2,258
Series B Common (stock split)................... 707 806 905
Series C Preferred.............................. 1,729 1,729 1,729
Options......................................... 11 1,266 1,073
Warrants........................................ 229 480 393
------- ------- -------
Diluted........................................... 10,505 13,735 13,755
======= ======= =======
</TABLE>
Pro forma 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 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.
F-11
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following reconciles actual and pro forma weighted average shares
outstanding as of December 31, 1999:
<TABLE>
<S> <C>
Basic:
Basic weighted average common stock................................. 3,711
Series A Preferred.................................................. 3,686
Series B Redeemable Preferred....................................... 2,258
Common Series B (Stock Split)....................................... 905
Series C Preferred.................................................. 1,729
------
Pro-forma shares.................................................... 12,289
======
Diluted:
Diluted Shares 1999................................................. 13,755
------
Diluted Pro-forma shares............................................ 13,755
======
</TABLE>
Pro forma 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 January 1, 1999.
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 $3 million, $8 million and $11 million of revenues were earned
from customers obtained from the Company's largest affinity partner for the
years ended December 31, 1997, 1998 and 1999, respectively. The Company's next
largest affinity partner relationship resulted in customers which generated
earned revenues of $.2 million, $3 million and $5 million for the years ended
December 31, 1997, 1998 and 1999, respectively. In addition, a substantial
portion of the Company's business is generated with customers in
F-12
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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.
6. Furniture, Equipment and Computer Software
Furniture, equipment and computer software 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, equipment and computer software, 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.
F-13
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
Deferred revenue represents enrollment fees. Revenue recognized in earnings
is net of provision for estimated refunds.
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 outstanding balance under this
line in 24 equal monthly payments. Borrowings under the line of credit bear
interest at 11%. The line of credit is secured by all of the Company's assets.
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. Upon entering into the line of credit
agreement, in August of 1997, the Company issued 430,348 warrants. The Company
did not allocate the proceeds received to the unused line of credit agreement
and warrants based upon the relative fair value as such allocation would not
have a material effect on financial position or results of operations. Interest
expense related to outstanding borrowings for the years ended 1997, 1998 and
1999 was $19,000, $118,000 and $91,000.
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>
F-14
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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............................................. (417) 408 (975)
State............................................... 11 (42) (145)
Change in valuation allowance....................... (1,070) -- --
------- ---- -------
Net change in deferred.............................. (1,476) 366 (1,120)
------- ---- -------
Total (benefit) provision........................ $(1,476) $398 $ 1,802
======= ==== =======
</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 4 8
Other....................................... 3 4 1
Change in valuation allowance............... (152) -- --
-------- ------- -------
Total (benefit) expense................. (108)% 51% 54%
======== ======= =======
</TABLE>
The effective income tax rates in 1998 and 1999 is a result of the
amortization of unearned compensation from qualified incentive stock options
for which the Company receives no tax deduction.
F-15
<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, are included in other assets on
the balance sheet. 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............................................ 225 495 686
------- ------- --------
Total.......................................... $ 1,476 $ 1,110 $ 2,230
======= ======= ========
</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.
F-16
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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
preferred stock is not entitled to any specific dividends.
Class A common stock
The Company's Class A common stock has full voting rights and was renamed as
common stock subsequent to December 31, 1999.
F-17
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. The Company recognizes compensation expense for such
shares based upon the deemed fair value at that date of issuance. Accordingly,
the Company recognized $149,639 and $158,040 in compensation expense for the
years ended December 31, 1998 and 1999, respectively. Such amounts are included
in the total amortization of unearned compensation in the statement of
operations.
Warrants
In August, 1997 the Company issued warrants to a third party to purchase
430,348 shares of Class A or Class B common stock for $0.0018 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-18
<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............. 796 $0.18 $143 $0.18
Granted................................ -- 0.18 -- 0.18
Exercised.............................. (10) 0.18 (2) 0.18
Forfeited.............................. (18) 0.18 (3) 0.18
----- ----- ---- -----
Balance at December 31, 1997............. 768 0.18 138 0.18
Granted................................ 290 0.18 52 0.18
Exercised.............................. (36) 0.18 (6) 0.18
Forfeited.............................. (25) 0.18 (5) 0.18
----- ----- ---- -----
Balance at December 31, 1998............. 997 0.18 179 0.18
Granted................................ 261 0.18 47 0.18
Exercised.............................. (32) 0.18 (6) 0.18
Forfeited.............................. (8) 0.18 (1) 0.18
----- ----- ---- -----
Balance at December 31, 1999............. 1,218 $0.18 $219 $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> <C>
1999.................... $0.18 1,218 6.60 $0.18 894
1998.................... 0.18 997 7.47 0.18 829
1997.................... 0.18 768 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 $10.84, respectively.
F-19
<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................................................ $ 71 $ 445 $1,535
Net income attributable to common stockholders--pro
forma................................................... 71 438 1,527
Basic net income per share attributable to common
stockholders--
as reported............................................. $0.04 $0.13 $ 0.41
Basic net income per share attributable to common
stockholders--
pro forma............................................... 0.04 0.12 0.41
Diluted net income per share attributable to common
stockholders--
as reported............................................. $0.01 $0.03 $ 0.11
Diluted net income per share attributable to common
stockholders--
pro forma............................................... 0.01 0.03 0.11
</TABLE>
14. Unearned Compensation
Options and stock granted during the years ended December 31, 1998 and 1999
resulted in unearned compensation of $149,639 and $6,310,142, 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 $149,639 was
fully amortized as the underlying shares were vested. For the year ended
December 31, 1999, the amortization of unearned compensation was $1,131,389.
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-20
<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
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.
F-21
<PAGE>
PAYMAP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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 $308 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-22
<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
On April 5, 2000, the Company affected a 5.42-for-1 Class A common stock
split previously approved by the Board of Directors. The Company's $0.01 par
value Class A common stock was 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.
F-23
<PAGE>
Description of artwork contained inside the back cover of the prospectus
[Graphic showing the flow of funds from various customer accounts to their
intended destination using our payment platform]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[PAYMAP LOGO]
4,170,000 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 underwriter
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............................ 60,000
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........................................ 8,570
----------
Total..................................................... $1,050,000
==========
</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 officers 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 August 1997, we issued warrants to purchase 430,348 shares of our
Class A or Class B common stock to Wachovia Bank, N.A. at an exercise price
of $0.0018 per share.
2. 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.
3. 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.
II-1
<PAGE>
4. 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.
5. 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.
6. 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.
7. 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.
8. 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[3], 15[5] and
15[6] 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[4], 15[7], and 15[8] 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 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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
+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
+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
++10.12 Client Agreement between Norwest Mortgage, Inc. and the Company dated
January 17, 1997, as amended.
++10.13 Marketing and Administrative Services Agreement between Chase Mortgage
Services, Inc. and the Company dated July 24, 1997, as amended.
10.14 Master Agreement for Treasury Management Services between the Company
and Norwest Bank Iowa dated June 11, 1999 and attachments.
++10.15 Automated Clearing House Agreement dated September 26, 1994.
+11.1 Statement of computation of net loss per share
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
*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.
+ Previously filed.
++ Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULE
Financial statement schedules are being 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
II-3
<PAGE>
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-4
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in San Francisco,
California, on the 13th day of April 2000.
Paymap Inc.
/s/ John P. Decker
By: _________________________________
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 Amendment No. 1 to
the 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 Executive April 13, 2000
______________________________________ Officer (Principal Executive
John P. Decker Officer)
/s/ James Gala Chief Financial Officer April 13, 2000
______________________________________ (Principal Financial Officer)
James Gala
John A. Charckon* Controller (Principal Accounting April 13, 2000
______________________________________ Officer)
John A. Charckon
Denis A. Cardone* Chairman of the Board April 13, 2000
______________________________________
Denis A. Cardone
Daniel K. Turner III* Director April 13, 2000
______________________________________
Daniel K. Turner III
Anders Brag* Director April 13, 2000
______________________________________
Anders Brag
Stephen M. Hertz* Director April 13, 2000
______________________________________
Stephen M. Herz
</TABLE>
/s/ John P. Decker
*By: ____________________________
John P. Decker
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement
+3.1 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
+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
++10.12 Client Agreement between Norwest Mortgage, Inc. and the Company dated
January 17, 1997, as amended.
++10.13 Marketing and Administrative Services Agreement between Chase Mortgage
Services, Inc. and the Company dated July 24, 1997, as amended
10.14 Master Agreement for Treasury Services between the Company and Norwest
Bank Iowa dated June 11, 1999 and attachments
++10.15 Automated Clearing House Agreement dated September 26, 1994
+11.1 Statement of computation of net loss per share
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
*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.
+ Previously filed.
++ Confidential treatment requested.
<PAGE>
Exhibit 10.12
CLIENT AGREEMENT
THIS CLIENT AGREEMENT (the "Agreement") is made and entered into, effective
as of January 17,1997 by and between AEGIS MORTGAGE ACCELERATION CORPORATION
("Aegis"), a Delaware corporation, having its principal office located at Three
Embarcadero Center, Suite 2250, San Francisco, California 94111, and NORWEST
MORTGAGE, INC. ("Client"), a California corporation, having its principal office
located at 405 SW 5th Street, Des Moines, Iowa 50328.
WHEREAS Aegis is in the business of marketing and servicing debt
rescheduling and acceleration programs and other financial services, and in that
regard, developing new business prospects;
WHEREAS Client wishes to engage the services of Aegis to perform data
processing and marketing services under the name Norwest Mortgage Equity
Enhancement Program (the "Program");
NOW, THEREFORE, for and in consideration of the within promises and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby expressly acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
All words or phrases defined in this Section 1 (except as otherwise expressly
provided or unless the context otherwise requires) shall, for the purposes of
this Agreement, have the respective meanings set forth in this paragraph.
(a) ACH. ACH shall mean the Automated Clearing House of the Federal
---
Reserve. All debits to Subscribers shall be originated through the ACH.
(b) Aegis Proprietary Information. Aegis Proprietary Information shall mean
-----------------------------
Aegis' products, processes and services, including research, development,
compilations of information systems, techniques, formulas, computer programs and
methods of designing such programs, documentation of computer programs and
methods, manuals, financial data, software and documentation and specifications
thereof relating to the Program and its implementation and not already known
independently by Client through non-confidential sources.
(c) Agencies. Agencies shall mean the Federal National Mortgage
--------
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal Housing Administration ("FHA"), the U.S. Department of Housing and Urban
Development ("HUD"), the Government National Mortgage Association ("GNMA"), the
U.S. Department of Veterans Affairs ("VA"), the Federal Reserve Board, the
Office of
***Confidential treatment has been requested with respect to the information
contained within the "[***]" markings. Such marked portions have been omitted
from this filing and have been filed separately with the Securities and Exchange
Commission.
<PAGE>
Comptroller of Currency, and any and all state and federal regulatory bodies
that regulate, either directly or indirectly, the activities of Client.
(d) Attrition Rate. Attrition Rate shall mean the percentage of Subscribers
--------------
who voluntarily terminate participation in the Program and shall be measured one
hundred twenty (120) days after the Subscriber's first mortgage payment after
enrolling in the Program. The Attrition Rate shall be calculated by dividing the
number of voluntary terminations by the number of cumulative enrolled accounts
since commencement of Solicitations under the Program.
(e) Bank Accounts. Bank Accounts refers to the Fee Account (and Fee
-------------
Accounts) and the Custodial Holding Account (and Custodial Holding Accounts) and
shall mean those certain bank accounts to be opened at Client's location or at
its designated correspondent bank, so long as the funds are FDIC insured and
provided that the bank accounts am established and maintained in accordance with
the current rules, regulations, and restrictions established by the Agencies, if
any, governing the use of bank accounts in connection with programs similar to
the Program. Subscriber mortgage payments, curtailments, and enrollment fees
shall pass through the Bank Accounts in accordance with the specifications set
forth in Exhibit D of this Agreement.
(f) Campaign. Campaign shall have the meaning contained in Exhibit E of
--------
this Agreement.
(g) Campaign Term. Campaign Term shall have the meaning contained in
-------------
Exhibit E of this Agreement.
(h) Client Proprietary Information. Client Proprietary Information shall
------------------------------
mean all technical, business, economic or financial information or data owned,
developed or provided by Client including but not limited to names, addresses,
account balances and account types.
(i) Custodial Holding Account. Custodial Holding Account (and
-------------------------
Custodial Holding Accounts) shall mean the Bank Account or Bank Accounts to be
used exclusively for the processing of Subscriber mortgage payments and
principal curtailments in accordance with the Program. The Custodial Holding
Account may, at Client's election, pay interest at a rate established by the
Client and its bank. The Custodial Holding Account may also, in cases where a
Customer is participating in a Deferred Membership Payment Plan, be utilized to
collect a deferred enrollment fee. All interest accounting and IRS Form 1099
processing, if applicable, will be handled by Aegis.
(j) Customer. Customers shall mean those individuals currently repaying a
--------
mortgage debt instrument to the Client, as servicer, on a monthly schedule.
Customer
2
<PAGE>
shall also refer to those customers of Client's affiliates who are currently
repaying a mortgage debt instrument through a servicer or subservicer other than
Client.
(k) Deferred Membership Payment Plan (DMPP). Deferred Membership
---------------------------------------
Payment Plan shall mean that version of the Program that requires payment of a
$[***] fee, or such other DMPP fee as specified in accordance with Exhibit C of
this Agreement, upon enrolling. A deferred enrollment fee will be collected
from the amount deposited in the Custodial Holding Account in excess of the
amount necessary to pay the next due monthly mortgage payment and transferred to
the Fee Account. Actual principal curtailment dollars begin to accumulate for
application to the loan balance only after the entire deferred enrollment fee is
collected. Client's portion of the deferred enrollment fee will be paid only
after the entire deferred enrollment fee has been collected. All fees,
including enrollment fees, deferred enrollment fees, service fees, and
transaction fees, are set forth in Exhibit C of this Agreement. Aegis agrees to
provide Client with monthly reports describing the status of all fees set forth
in Exhibit C.
(l) Extended Term. Extended Term shall have the meaning contained in
-------------
Section 7 of this Agreement.
(m) Fee Account. Fee Account (and Fee Accounts) shall mean the Bank
-----------
Account or Bank Accounts to be used exclusively for the processing of Subscriber
enrollment and service fees (including deferred enrollment fees) in accordance
with the Program.
(n) Initial Phase. Initial Phase shall have the meaning contained in the
-------------
Program Materials and shall refer to the initial phase of Solicitations under
the Program and not any remailings or duplicate Solicitations.
(o) Initial Solicitation. Initial Solicitation shall mean the date on
--------------------
which a Solicitation of Prospects under the Program commences.
(p) Initial Term. Initial Term shall have the meaning contained in Section
------------
7 of this Agreement.
(q) Investor. Investor shall mean any individual, corporation, partnership,
--------
joint venture, trust, or unincorporated organization owning the legal interest
in a Subscriber's mortgage loan that is a participant in the Program.
(r) [***]
(s) [***]
[***] Confidential treatment has been requested for certain portions of this
document
3
<PAGE>
(t) Portfolio Penetration Rate. Portfolio Penetration Rate shall mean the
--------------------------
percentage of Customers in Client's Total Target Market that enroll in the
Program as a result of Solicitations by Aegis.
(u) Program. Program shall have the meaning contained in the second
-------
"whereas" clause of this Agreement and shall include the [***] and Aegis's
Solicitation and Telephone Solicitation for Rescheduling, using the Program
Materials, of Prospects within Client's designated Target Market in accordance
with the specifications set forth in Exhibit A-1 hereto. All Program Materials
will reflect Client's choice of name and style, and will clearly identify the
product as after market (i.e., not a part of mortgage contract with subscriber).
[***]
(v) Program Materials. Program Materials shall mean those specifications
-----------------
and procedures, including document, scripts, and any and all marketing and
Solicitation materials prepared in connection with the Program.
(w) Proprietary Information. Proprietary Information shall mean the Aegis
-----------------------
Proprietary Information and the Client Proprietary Information.
(x) Prospect. Prospect shall mean any Customer in connection with whom
--------
Client has provided to Aegis raw data necessary for Solicitation to sign up for
the Program.
(y) Rescheduling. Rescheduling shall mean effecting a payment mode change
------------
for the Subscriber from a monthly schedule (12 times per year) to an accelerated
schedule of weekly, monthly, bi-weekly, or semi-monthly payments without causing
any changes to the original loan documents.
(z) Solicitation. Solicitation shall mean any effort, means or method
------------
approved by the Client and implemented by Aegis to communicate the benefits of
Rescheduling to Prospects.
(aa) Subscriber. Subscriber shall mean any Prospect who has signed up for
----------
the Program and has had all enrollment processing completed including, but not
limited to, execution of the enrollment form, mailing of the acknowledgment
letter, and confirmation of the Subscriber data.
(bb) Target Market. Target Market shall mean, as determined jointly by
-------------
Client and Aegis, any Customer with sufficient remaining terms, principal
balance and interest
[***] Confidential treatment has been requested for certain portions of this
document
4
<PAGE>
rate which would make Rescheduling logical and beneficial for the individual(s).
Target Markets may include:
(i) Client's existing Customers;
(ii) Customers of any of Client's affiliates including,
without limitation, Norwest Bank customers, who are
making mortgage payments to mortgage loan servicers other
than Client; and
(iii) all other customer accounts of Client.
(cc) Telephone Solicitation. Telephone Solicitations shall mean those
----------------------
telephonic solicitations of those Prospects who have previously requested
additional information. Client may approve of outbound calls to non-respondents
on a campaign-by-campaign basis.
(dd) Termination Fee. Termination Fee shall have the meaning contained in
---------------
Exhibit E of this Agreement.
(ee) Total Target Market. Total Target Market shall mean Client's Target
-------------------
Market, as defined in paragraph 1(bb) of this Agreement, less those sub-
categories of Client's Target Market described in paragraphs 1(bb)(ii) and
1(bb)(iii) of this Agreement, as of the date of the Initial Solicitation of the
Program, (i) plus Customers in a Target Market whose mortgage loans were
originated, or whose mortgage loans were acquired by Client, after the Initial
Solicitation; and (ii) minus those Customers whose mailing materials are deemed
to be undeliverable.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF AEGIS
Aegis warrants and represents to, agrees with, and covenants to, Client as
follows:
(a) Aegis is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Aegis is duly licensed,
registered, qualified and in good standing in each state where the nature of
Aegis's business activities require such licensing, registration, qualification,
and good standing.
(b) Aegis has the power and legal right to enter into and perform this
Agreement and to perform the obligations required of it hereunder, and this
Agreement and any document or instrument to be executed and delivered by Aegis
to Client pursuant hereto has been duly (or will be prior to delivery)
authorized, executed, and delivered.
(c) This Agreement and any documents or instruments now or hereafter
executed or delivered to Client by Aegis pursuant to this Agreement constitute
(or shall, when delivered to Clint by Aegis, constitute) valid and legally
binding obligations of Aegis enforceable against Aegis in accordance with their
respective terms.
5
<PAGE>
(d) Aegis has in full force and effect and will maintain during the term of
this Agreement all insurance necessary to perform its obligations hereunder,
including without limitation (i) an adequate errors and omissions policy or
policies satisfying the requirements of all applicable regulatory authorities
with respect to Aegis's operations, or (ii) a standard fidelity or banker's
blanket bond. Aegis shall supply Client with evidence of such insurance on an
annual basis.
(e) Aegis shall immediately notify Client of any material failure or, to
the best of Aegis's knowledge, any anticipated material failure on its part to
observe and perform any representation, warranty, duty, covenant or agreement
required to be observed and performed by it hereunder.
(f) Aegis and the Program are consistent with and in compliance with the
current guidelines established by the Agencies governing programs such as the
Program. Aegis and the Program comply with all state and federal statutes and
regulations that are applicable to the Program. Aegis shall have a duty to
learn of and comply with any and all disclosure and other regulatory
requirements which are mandated by federal and state banking and other
regulatory authorities. Aegis will promptly inform Client of any changes in the
aforementioned regulations which materially affect implementation of the
Program.
3. RIGHTS, OBLIGATIONS, AND DUTIES OF AEGIS
(a) Aegis shall have the right to appoint any and all third parties
necessary to perform the duties recited hereunder so long as Aegis abides by and
is not in breach of this Agreement; provided, that (i) Aegis shall remain liable
to Client for the performance of such third party; (ii) Aegis warrants that the
performance of such third party shall be in compliance with all laws and
regulations applicable to the activities contemplated under this Agreement and
shall be in conformity with Aegis' obligations under this Agreement; (iii) Aegis
provide Client with thirty (30) days written notice prior to appointing such
third party; and (iv) at Client's election, Client may continue to deal directly
and exclusively with Aegis, notwithstanding such appointment.
(b) In connection with the performance of its duties hereunder, Aegis shall
abide by all written procedures and Program specifications now or hereafter
furnished to Client. There shall be no changes to the Program's specifications
without Client's prior written approval. Within sixty (60) days of the
execution of this Agreement and prior to the date of the first solicitation
under the Program, Aegis will prepare and furnish to Client a complete set of
Program Materials, which Program Materials shall be revised and approved by
Client, as necessary, to conform to Client's requirements. Client and Aegis
agree to cooperate and work together in jointly developing. testing, and
producing those Program Materials which will be used in connection with
Prospects who are customers of Client's affiliates. Aegis' employees,
representatives and/or agents shall not make any representations or warranties,
about the Program to any Customer,
6
<PAGE>
Prospect, or Subscriber except as set forth in the Program Materials and as
approved by Client.
(c) Aegis shall indemnify and hold harmless Client and its authorized
representatives and service providers from and against any liability, claims,
damages and costs (including reasonable attorneys' fees) arising out of any
breach by Aegis or its employees, officers, agents, and contractors, of this
Agreement or by any unauthorized statements, warranties or representations made
by Aegis's marketing personnel, employees, agents, or contractors.
(d) Aegis shall provide office space, computer, phone, and other equipment
and services and staffing levels sufficient to implement and direct the
Solicitation and Telephone Solicitation of the Program, including the
anticipated growth in Aegis's volume that is likely to result from solicitation
of Client's portfolio, on behalf of Client in accordance with the provisions of
the projected schedule attached to this Agreement as Exhibit G. All incoming
and outgoing Solicitation calls shall be handled in such a manner so as to
present the Program as a product and/or service of Client. All correspondence
shall be conducted in this manner as well. Aegis will use its best efforts to
assist Client's training staff in developing and delivering information to
Client's employees which will ensure that Client's servicing personnel
understand the Program and its effects upon the work being performed by such
servicing personnel.
(e) [***] Aegis shall perform all services necessary to implement the
Program, including, without limitation, solicitation, daily mail pick-up, mail
distribution, recording of all cash receipts, quality control checks on
applications or any other incomplete paperwork, credit card authorizations,
deposits, data capture of necessary homeowner information from
application/verifications, hard copy reports of sales to Client on a monthly
basis, process commencement letters to new Subscriber, ACH pre-notification
instructions, ACH instructions on behalf of the Subscriber, Subscriber
inquiries, resolution of any ACH failures, process changes to Subscriber's
mortgage and correspondence of same 1099 reporting for Subscribers and IRS,
handling of all NSF notifications to Subscribers, notification of termination
and performance of Subscriber service functions.
(f) Aegis shall, at its expense, be responsible for compliance with Agency
or Investor requirements applicable to the Program. Client agrees to cooperate
with Aegis to obtain any necessary approval for the Program. If the Agencies or
Investors determine that the Program may no longer be offered, this Agreement
may be suspended by Client and terminated with cause in accordance with the
provisions of Section 10(b) of this Agreement but without payment of the
enrollment fee refund described in Section 10(c) of this Agreement.
[***] Confidential treatment has been requested for certain portions of this
document
7
<PAGE>
(g) Aegis shall furnish to Client, as soon as available and in any event
within one hundred twenty days after the close of each of Aegis's fiscal year, a
copy of its unaudited annual financial statement. Aegis shall also furnish to
Client, as soon as available and in any event within one hundred eighty (180)
days after the close of each fiscal year, a copy of its annual audited financial
statement, certified by an independent public auditor. All such financial
statements shall be prepared in accordance with GAAP, applied on a consistent
basis. In the event that Client determines, in the exercise of its reasonable
discretion, that there has been a material adverse change in Aegis's financial
condition, this Agreement may be suspended by Client and terminated with cause
in accordance with the provisions of section 10(b) of this Agreement but without
payment of the enrollment fee refund described in Section 10(c) of this
Agreement.
(h) Aegis shall make no attempt to solicit or use Client's Customers, or
any Target Market Prospect which is a customer of a corporation affiliated with
Client, in any manner or for any other product or service not covered by the
terms of this Agreement.
(i) Aegis shall make available to Client or its agents on-site inspection
of Aegis' premises and any activity related to the Program during normal
operating hours with reasonable notice. Aegis shall use commercially reasonable
efforts to develop a system that would enable Client to monitor, from its
servicing center in Phoenix, Arizona, Customer telephone calls.
(j) Aegis shall not disclose the Client Proprietary Information to any
person, firm or corporation without Client's prior written consent unless
otherwise required by law, then only after notice to and consultation with
Client.
(k) Aegis hereby promises that the Program will perform properly and in
accordance with the Program specifications. Aegis shall cooperate with Client
and shall use commercially reasonable efforts to assure the success of the
Program in accordance with Client's requirements. Client currently requires the
Program to:
(i) attain a blended Portfolio Penetration Rate of between [***]
percent [***] and [***] percent [***]. For purposes of this sub-
paragraph, the definition of Total Target Market used in
calculating Portfolio Penetration Rate shall exclude all
Customers whose mortgage loans are serviced by Client as a result
of Client's acquisition of a mortgage servicing portfolio where
those Customers have been solicited for a mortgage acceleration
product by a competitor of Aegis. Client and Aegis agree to
cooperate in identifying such Customers. The Portfolio
Penetration Rate shall be computed monthly commencing four (4)
months after completion of the last mailing during the Initial
Phase of a Solicitation as described in the Program Materials,
provided, however, that the determination of Portfolio
Penetration Rate shall be computed no less than annually
[***] Confidential treatment has been requested for certain portions of this
document
8
<PAGE>
commencing on the first anniversary of the effective date of this
Agreement; and
(ii) limit the Attrition Rate to no more than [***] percent [***]. The
Attrition Rate shall be computed monthly commencing four (4)
months after completion of the last mailing during the Initial
Phase of a Solicitation as described in the Program Materials.
(l) Aegis shall, on a monthly basis, reconcile the Fee Account. All ACH
activity involving the, Custodial Holding Account will be the sole
responsibility of Aegis. All manual, non-ACH activity involving the Custodial
Holding Account must be approved in, writing by Client. Aegis will provide
Client with a copy of each month's Bank Account reconciliation no later than the
twentieth business day of the following month.
(m) Aegis shall duplicate all pertinent data on a daily basis and provide
for off-site storage of said duplicate data.
(n) All communications with Prospects shall be in Client's name, except as
otherwise approved by Client in writing. Aegis shall submit all routine
standardized contemplated communications to Client for Client's approval prior
to distribution. Client shall have the right to periodically review scripts
utilized by Aegis. Aegis agrees that the approach of its employees to Customers
in telephonic conversations will be professional and will not include any
behavior that, in Client's opinion, constitutes an excessively aggressive sales
tactic.
(o) Aegis shall perform all fee income accounting functions. Client
reserves the right, with reasonable notice and in a manner not calculated to
disrupt Aegis's business operations, to examine any and all of Aegis's business
records including, without limitation those books and records relating to fee
income calculation.
(p) Aegis shall provide Client with monthly management information reports,
as described in Exhibit H of this Agreement, detailing the status of the Program
and containing such other information regarding the status of the Program as
Client shall reasonably request.
(q) Aegis shall provide marketing assistance necessary to implement the
Solicitation of Client's defined Target Market, including but not limited to
writing, design, copyrighting, mechanical artwork, photography, illustrations,
printing, mailing, and customer service.
(r) Aegis shall designate at least one of its employees as Client's
dedicated account representative. Such account representative shall be
exclusively dedicated to servicing Client's account with Aegis and shall be
subject to the approval of Client.
[***] Confidential treatment has been requested for certain portions of this
document
9
<PAGE>
(s) Aegis shall use commercially reasonable efforts to develop, at a
mutually agreed upon cost, a process of converting loans in Client's loss
mitigation program to the Program.
(t) Aegis shall provide Client with a copy of its business continuation
plan, describing alternative facilities, communications, computer systems, and
all other necessary resources required to continue its business and its
performance under the terms of this Agreement in the event that Aegis's existing
facilities become damaged, inaccessible, or otherwise unavailable. The business
continuation plan shall be furnished to Client by Aegis within ninety (90) days
of the effective date of this Agreement.
(u) Aegis' duties outlined in this Section 3 shall be performed at Aegis'
expense.
(v) To the extent such duties have not already been described in Sections
3(a) through 3(u), Aegis shall also perform the items allocated to it on Exhibit
B to this Agreement
4. RIGHTS AND DUTIES OF CLIENT
(a) Client agrees to deliver to Aegis on a monthly basis during the Initial
Term of this Agreement, and any Extended Term, all requested data necessary to
implement the approved Solicitation of Client's Target Market, including but not
limited to Client's Customers names, addresses, telephone numbers, and original
and current loan information in a format mutually agreed upon.
(b) Commencing on a date agreed to by the parties, Client shall deliver
monthly all necessary data from newly originated loan Customers not solicited or
rescheduled at the point of origination during the previous quarterly period for
additional Solicitation as mutually agreed upon by the parties.
(c) Client shall appoint a specific liaison person or liaison team to Aegis
through which all communications will flow and decisions will be made.
(d) If Client becomes aware of any disclosure requirements during the
enrollment phase which are mandated by federal and state banking and other
regulations, Client will promptly inform Aegis of any changes in the
aforementioned regulations which materially affect implementation of the
Program. Notwithstanding the foregoing Client shall have no duty to learn of
any changes in the law and shall not be liable to Aegis if it fails to advise
Aegis of any such changes. Client will have sole approval rights to Subscriber
Terms and Conditions.
(e) Client agrees that services provided by Aegis shall not relieve Client
from any obligation to maintain records in accordance with generally accepted
servicing standards. Client retains responsibility at all times for maintaining
adequate accounting
10
<PAGE>
management and reporting systems, audit functions, recovery routines, and the
operation of on-site computer equipment. Services provided by Aegis will not
impose upon or transfer to Aegis the responsibility for such functions.
(f) Client shall indemnify and hold harmless Aegis and its authorized
representative and service providers from and against any liability, claims,
damages and costs (including reasonable attorneys' fees) arising out of any
breach by Client of this Agreement or by any unauthorized warranties or
representations made by Client's personnel or employees to any Prospect,
Customer or Subscriber.
(g) Client's duties outlined in this Section 4 shall be performed at
Client's expense.
(h) In addition to duties described in Sections 4(a) through 4(g), Client
shall perform the item allocated to it on Exhibit B of this Agreement.
5. NON-DISCLOSURE COVENANT
Aegis and Client acknowledge that the Proprietary Information necessary for the
implementation of the Program is highly confidential and a valuable asset of its
respective owners, which has been and will continue to be developed by and for
the parties; which represents and will continue to represent a material
investment of the owner's time and money. Further both parties acknowledge that
such Proprietary Information has been or will be made available to either party
as a result of this Agreement on a confidential basis and that both parties have
accepted or will accept such Proprietary Information on such basis, thereby
establishing a confidential relationship and a position of trust with regard to
the same. Both parties agree not to:
(i) publish, communicate, disclose or divulge to any person, firm,
corporation or other legal entity, directly or indirectly, any of
the Proprietary Information, except as otherwise permitted herein
or required by law;
(ii) use the other party's Proprietary Information for its own
benefit, or for the benefit of any person, firm, corporation or
other legal entity, directly or indirectly, except as required in
the course of implementation of the Program;
(iii) use any of the other party's Proprietary Information or take any
other action to divert or attempt to divert, any business of or
any customers of, the other party to itself or any other
competitive person or legal entity, by direct or indirect
inducement; or to induce or attempt to induce any present or past
customer of either party to discontinue using the services of
either party; and
11
<PAGE>
(iv) employ or seek to employ any person who is employed by either
party or directly or indirectly induce persons to leave either
party, provided, however, either party may use (i) newspapers or
other media to generally solicit the public which can then result
in the hiring of an employee or (ii) a recruiter to hire an
employee provided such campaign is directed to the industry in
general and not exclusively to the other party's employees.
6. NO GRANT OF PROPRIETARY RIGHTS
Neither this Agreement nor the disclosure of proprietary information hereunder
shall be construed as granting to either party any right, title or license to
any patent application, trademark copyright, trade secret, service marks and any
other intellectual property right, or any software or know-how to which either
party has title or rights of ownership or license.
7. TERM
This Agreement will become effective upon execution by both parties. The
initial term of this Agreement shall be the period of three (3) years commencing
on the effective date of this Agreement (the "Initial Term"). Client shall have
the option to renew this Agreement for an additional two (2) year period (the
"Extended Term"). Client may exercise this renewal option by delivering to
Aegis, no later than thirty (30) days prior to expiration of the Initial Term,
written notice of its election to exercise this renewal option. Thereafter,
unless otherwise canceled in writing by either party in accordance with the
provisions of Section 10 of this Agreement, the terms and conditions of this
Agreement shall continue in force. Client shall be obligated to pay Aegis a
Termination Fee in accordance with Exhibit E of this Agreement. Aegis and
Client's continuing obligations under this Agreement relating to indemnification
for breach of duties, representation or warranties as provided in Section 5 of
this Agreement, shall survive the termination of this Agreement.
8. FEES TO CLIENT
(a) The fee structure and charges for services listed in Exhibit C shall
remain in effect during the Initial Term. Thereafter, Aegis and Client must
agree upon any revisions to the fee structure charged to Subscribers as a result
of changes in operating costs, or market conditions. Unless mutually agreed to
otherwise, Client shall share in any change in fees proportional to Client's
pro-rata share of current fees.
(b) Aegis will deposit the upfront enrollment fees collected from
Subscribers into the Fee Account and shall, on a monthly basis, transmit by
wire, no later than the tenth (10th) day of the month, Client's portion of such
fees, for fees earned during the
12
<PAGE>
previous mouth. The fee schedule for the Program is set forth in Exhibit C to
this Agreement.
(c) Aegis and Client may agree in writing to alternative pricing options
that differ from the fee schedule set forth in Exhibit C to this Agreement.
9. EXPENSES
(a) Client shall pay the expenses, if any, that are outlined in Section 4
and Exhibit A-3 of this Agreement. No additional expenses shall be added
without written approval by Client.
(b) Monies due one party to the other over 30 days will bear delinquency
charges at the rate of 10% or the maximum rate allowed by law, whichever is
less.
10. TERMINATION.
This Agreement may be terminated:
(a) without cause by Client, only in connection with those Subscribers
whose mortgage loans are sold by Client to a buyer who, after the purchase of
said mortgage loans, chooses not to permit Subscribers to participate in the
Program, as of the end of any calendar month during the Initial Term, and any
Extended Term, of this Agreement, by giving Aegis ninety (90) days prior written
notice. In the event of such termination during the Initial Term and any
Extended Term, Client shall pay Aegis the Termination Fee set forth in Exhibit E
of this Agreement. Payment of the Termination Fee by Client to Aegis shall
fully satisfy Client's obligations under this Agreement and shall serve to
release Client from any continuing obligation to Aegis in connection with
Subscriber mortgage loans that are sold as aforesaid, other than those
obligations set forth in Section 7 of this Agreement; and
(b) with cause by Aegis and Client at any time upon the expiration of
thirty (30) days following written notice to the other party in the event of the
other party's material breach of this Agreement (which notice specifies the
material breach); provided, that the breaching party fails to cure such breach
to the satisfaction of the other party within such thirty (30) day period, and
(c) notwithstanding termination of this Agreement, Aegis and Client will
honor all current Subscriber contracts in accordance with the term of this
Agreement, it being understood that, except as provided in this Section, each
individual Program Subscriber has the sole and exclusive right to cancel his
enrollment in the program; provided, however, Client, in its discretion, may
terminate, a Subscriber contract if (i) this Agreement is terminated with cause
as described in Section 10(b) above, and (ii) the Subscriber contract allows for
termination. Furthermore, in the event Client's
13
<PAGE>
termination of the Subscriber contract is based on Aegis's material breach of
this Agreement (which breach shall be deemed to not include a termination with
cause under the provisions of Sections 3(f), 3(g), or 11(p) of this Agreement),
Aegis and Client shall, respectively and on a pro rata basis, reimburse the
Subscriber for the portion of the enrollment fee described in Exhibit C of this
Agreement that is received by Aegis and Client. This enrollment fee refund shall
be described in a provision of the Subscriber contract which shall be mutually
acceptable to Client and Aegis.
11. ADDITIONAL PROVISIONS
(a) Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties, their successors and assigns.
(b) Amendments am Modifications. This Agreement may only be amended,
---------------------------
waived, changed, modified or discharged by an agreement in writing signed by the
parties.
(c) Integration. This Agreement represents the final understanding of the
-----------
parties as to all matters included herein and supersedes all prior written or
oral agreements of the parties on matters covered herein.
(d) Governing. This Agreement shall be construed in accordance with the
---------
laws of the State of Iowa.
(e) Severability. If any provision or term of this Agreement shall be
------------
found to be illegal or unenforceable for any reason whatsoever, all other
provisions and terms shall remain in full force and effect.
(f) Force Majeure. Notwithstanding any other provision of this Agreement,
-------------
neither party shall be deemed in default of this Agreement or bear liability to
the other party for any delay, failure in performance, loss, or damage arising
from cause beyond its reasonable control, including, but not limited to the
following: fire, embargo, explosion, power failure, earthquake, nuclear
accident, volcanic action, flood, war, civil disturbance interventions of
military authority, acts of God or public enemy; provided, however, that (i) no
such event shall excuse the payment of money due hereunder and (ii) if
Subscriber is entitled to fees or damages under the Subscriber contract as a
result of the aforesaid items, the party that fails to perform under this
Agreement shall be responsible for same.
(g) Assignment. Except as otherwise provided herein, the parties agree not
----------
to assign or otherwise transfer their rights or delegate their obligations under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Client shall have the right to
assign all of its rights and obligations under this Agreement to any other
entity that is owned, either directly or indirectly, by Norwest Corporation. A
stock transaction involving the assignment or
14
<PAGE>
transfer of full or partial ownership of a party shall be deemed to be an
assignment subject to this section. No such assignment or delegation by either
party will relieve such party of its obligations or duties under this Agreement.
(h) Notices. All notices or other written communications regarding this
-------
Agreement are to be provided by U.S. First Class Mail or national overnight
courier service with receipt acknowledged.
If to Aegis:
Aegis Mortgage Acceleration Corp.
Three Embarcadero Center, Suite 2250
San Francisco, California 94111
Attn.: Legal Department
If to Client:
Rosalea Sheets
Senior Vice President
Norwest Mortgage, Inc.
405 S.W. Fifth Street
Des Moines, Iowa 50329
with a copy to:
Stephen Morrison, Esq.
Senior Vice President and General Counsel
405 S.W. Fifth Street
Des Moines, Iowa 50328
(i) Exclusivity. Client agrees that Aegis shall be the exclusive provider
-----------
of any program involving debt reduction through ACH transfers, and that as long
as the Agreement is in force, Client will not conduct a program for its
Customers similar to the Program either internally or with a third party, unless
the program is in place with customers who are acquired with a portfolio
acquisition. Aegis shall use commercially reasonable efforts to convert to the
Program, at a mutually agreeable cost, mortgage loans that are acquired as a
result of a portfolio acquisition.
(j) Conversion. Aegis agrees to convert the existing CPI/Alltel bi-weekly
----------
mortgage loans to the Program without cost to Client.
(k) [***]
[***] Confidential treatment has been requested for certain portions of this
document
15
<PAGE>
[***]
(l) [***]
(m) Customer Service Standards. Aegis agrees to provide Customers with a
--------------------------
level of customer service at least equal to the level of customer service
provided by Client directly to its customers. The provisions of Exhibit F
hereof are the current customer service levels. Exhibit F may be modified from
time to time by Client by delivering to Aegis a revised and updated version of
its own customer service levels.
(n) EDT Development. Aegis will use its best efforts to assist the
---------------
development of any additional electronic data interface capabilities with
CPI/Alltel that Client requests.
(o) Incentives. Aegis will use its best efforts to cooperate with Client
----------
in developing a customer service representative incentive plan to be funded by
Aegis.
(p) [***]
[***] Confidential treatment has been requested for certain portions of this
document
16
<PAGE>
[***]
(q) Escrow Agreement. Aegis will place full, complete, and accurate
----------------
working copies of all software, software hard code, software operating
instructions, subscriber database, and daily administrative procedures,
including minimum processing system requirements, installation procedures,
operating procedures, and diskettes containing complete processing program
necessary to operate the mortgage acceleration process (the "Back-Up System")
into escrow with Information Architects, Inc. ("Escrow Agent"), whose address is
19602 Highway 305, Suite 102, Poulsbo, Washington 98370, within seven (7) days
of the date of this Agreement. Aegis will simultaneously provide Escrow Agent
with an expanded customer service procedure (the "Manual"). Escrow Agent will
confirm with Client its receipt of the Back-Up System within ten (10) days of
the date of this Agreement.
Aegis will provide Escrow Agent with an update of the Back-Up System
and Manual by the fifteenth (15th) day of each mouth or upon each two
percent (2%) increase in Program enrollment. Escrow Agent will notify
Client by the twentieth (20th) day of each month if it has not
received the required information.
Client will notify Escrow Agent of any failure by Aegis to provide the
debit and payment services to Client subscribers described in the
Client Agreement for a period in excess of five (5) consecutive
business days. Upon receipt of this notice, Escrow Agent will call an
officer of Aegis. If Aegis cannot cure the problem within two (2)
business days, Escrow Agent will deliver to Client by overnight mail,
the Back-Up System and Manual without being required to obtain the
consent of Aegis.
(r) ODFI. Aegis will cooperate with Client in supporting a transition to
----
Norwest Bank as the ODFI.
(s) On-line Access. Client and Aegis mutually agree to work together in an
effort to develop a system to permit Client on-line, inquiry-only access to
customer data and payee authorization information through Aegis's back-end
Novell system.
IN WITNESS WHEREOF, the parties have executed this Client Agreement on the date
below indicated, effective as of the date first above written.
NORWEST MORTGAGE, INC.
/s/ Illegible By: /s/ Rosalea Sheets
- ------------------------------ -------------------------------------
Attest Rosalea Sheets, Senior Vice President
[***] Confidential treatment has been requested for certain portions of this
document
17
<PAGE>
Date: June 9, 1997
----------------------------------
AEGIS MORTGAGE ACCELERATION CORP.
/s/ Craig M. Compiano By: /s/ John P. Decker
- ------------------------------ -------------------------------------
Attest John P. Decker, President
Date: June 18, 1997
-----------------------------------
18
<PAGE>
Exhibit A:
---------
Program Description
The Norwest Mortgage Equity Enhancement Program is not a mortgage, but a
method of rescheduling standard monthly mortgage payments. The Program provides
the equity benefits and reduced interest of biweekly mortgage payments, and
offers the added flexibility and convenience of customer designated payment
intervals (weekly, biweekly monthly, or semi-monthly) and may provide interest
on funds awaiting payment to a mortgage servicer.
Homeowners can participate in this program regardless of where their
mortgages originated or are currently being serviced.
The Norwest Mortgage Equity Enhancement Program can be offered to your
customers and to third party servicers at a substantially lower cost than
competitive accelerated mortgage plans. In addition, its low, one-time
enrollment fee entitles homeowners to continue to use the program even if they
purchase a new home.
The Norwest Mortgage Equity Enhancement Program does not change the
mortgage terms or payment due date, but does require the mortgage servicer to
receive payments electronically, and to process periodic reductions of
principal.
The Norwest Mortgage Equity Enhancement Program will allow customers to
debit up to ten (10) separate accounts per customer and pay one or more payee
financial institutions.
Here is how the Norwest Mortgage Equity Enhancement Program works using a
biweekly payment schedule as an example:
. One half of the regular monthly mortgage payment is collected every two
weeks by electronic transfer from the homeowner's bank account to an
interest bearing custodial account [see 1(l)].
. Mortgage payments are automatically paid to the mortgage servicer
monthly. Biweekly payments -- the equivalent of thirteen monthly
mortgage payments -- are collected annually.
. The two extra biweekly payments plus the interest earned, if interest in
paid by Client are sent to the mortgage servicer to directly reduce the
mortgage principal balance.
Here is how the Norwest Mortgage Equity Enhancement Program works with a semi-
monthly payment schedule:
19
<PAGE>
. One half of the regular monthly payment + 1/24 of the regular monthly
payment are deducted two times each month (e.g., 10th and 25th).
. The additional amount (1/24 of the regular mortgage) is added to each
half payment, so as to replicate the pay down pattern of the bi-weekly
schedule (13 monthly payments per year).
. Additional principal will be applied each mouth (1/12 of monthly
payment).
Here is how the Norwest Mortgage Equity Enhancement Program works with a monthly
payment schedule:
. The regular monthly payment (PITI) + 1/12 of the regular monthly payment
will be deducted once each month.
. Additional principal will be applied each mouth (1/12 of monthly
payment).
Here is how the Norwest Mortgage Equity Enhancement Program works with a weekly
payment schedule:
. One fourth of the regular monthly payment (PITI) will be deducted every
week.
. The customer makes the equivalent of 13 mortgage payments since there
are 52 weekly deductions resulting in an additional principal payment.
. There will be four months during the calendar year in which five weekly
payments will be collected.
20
<PAGE>
[***]
[***] Confidential treatment has been requested for certain portions of this
document
21
<PAGE>
[***]
[***] Confidential treatment has been requested for certain portions of this
document
22
<PAGE>
[***]
[***] Confidential treatment has been requested for certain portions of this
document
23
<PAGE>
[***]
[***] Confidential treatment has been requested for certain portions of this
document
24
<PAGE>
Exhibit B:
---------
Additional Duties and Responsibilities of Client and Aegis
Aegis's Program Manual is incorporated herein by this reference.
25
<PAGE>
Exhibit C:
---------
Fee Schedule
[***]
[***] Confidential treatment has been requested for certain portions of this
document
26
<PAGE>
Amendment to Client Agreement, Exhibit C: Fee Schedule
This Amendment to the Client Agreement ("Agreement") dated January 17, 1997, is
effective as of October 1, 1999 between Norwest Mortgage, Inc. ("Client") and
Aegis Mortgage Acceleration Corp. ("Aegis"). It does not extend the existing
expiration date of the Agreement or change commissions for either the [***] or
the [***] offers.
Aegis and Client hereby agree to utilize the new [***] product offer as
a major part of the continuing portfolio mailing program. Under this program,
the Subscriber's enrollment fee is collected from [***] the standard Aegis'
[***] product in which the Subscriber pays the fee at the time of enrollment.
Aegis and Client hereby agree that Client will be paid a [***] commission for
all [***] offers and that Exhibit C to the Agreement shall be deemed to reflect
this commission amount during its remaining term.
Except as amended herein the Agreement shall continue to be in full force and
effect.
Please indicate your acceptance of this Amendment by executing two copies below.
CLIENT: AEGIS MORTGAGE ACCELERATION
CORP.:
By /s/ ALAN W. JONES By /s/ JOHN P. DECKER
------------------------------------- --------------------------------
Name ALAN W. JONES Name JOHN P. DECKER
----------------------------------- ------------------------------
Title VICE PRESIDENT Title PRESIDENT
---------------------------------- -----------------------------
Date 12/14/99 Date 12/15/99
----------------------------------- ------------------------------
Please sign, date and return one copy of this Amendment to:
Deirdre A. Gautieri
Aegis Mortgage Acceleration Corp.
Three Embarcadero Center, Suite 500
San Francisco, California 94111
[***] Confidential treatment has been requested for certain portions of this
document
27
<PAGE>
Exhibit D:
---------
Flow Of Funds Through Bank Account
28
<PAGE>
AEGIS MORTGAGE ACCELERATION CORPORATION FLOW OF FUNDS
[FLOW CHARTS APPEAR HERE]
29
<PAGE>
Exhibit E:
---------
Termination Fee
1. The following definitions are part of this termination fee schedule and the
termination provisions contained in paragraphs 7 and 10 of this Agreement.
(a) Campaign. Campaign shall mean a mail solicitation assigned a specific
--------
campaign number. A campaign number is assigned by Aegis to a specific mail
drop at a specific point in time to Prospects with similar characteristics.
(b) Campaign Term. Campaign Term shall mean the sixty (60)-month period
-------------
beginning on the date of the campaign mailing.
2. If this Agreement is terminated by Client without cause and Client causes
the loans to be removed from the Program under the provisions of paragraph 10(a)
[***] as defined in paragraph 7 of this Agreement, then a termination fee (the
"Termination Fee") shall be calculated for each active account participating in
the Program [***] arising from each Campaign that has not completed the 60
month Campaign Term and Client shall pay Aegis such Termination Fee within 30
days from receiving detailed billing report from Aegis after termination notice
is received or exercise of option notice date.
3. No Termination Fee shall be payable for an active account participating in
the Program [***] arising from any Campaign that has completed the 60 month
Campaign Tenn.
4. If Client elects to renew this Agreement for an Extended Term under the
provisions of paragraph 7 and this Agreement is not terminated by Client with
cause or by Aegis, then Client shall be obligated to pay a Termination Fee, as
defined in this Exhibit E, on all active accounts participating in the Program
[***] at the time of termination that were enrolled during the Extended Term.
5. Client shall pay Aegis Termination Fees as follows:
(a) No Termination Fee representing recovery of unamortized marketing costs
shall be payable for any Campaign containing a [***] offer regardless of
the 60 month Campaign Term.
(b) A Termination Fee representing recovery of unamortized marketing costs
shall be payable at the rate of [***] per active account participating in
the Program [***] per month for the remaining months in the Campaign Term
for any Campaign containing a [***] offer.
[***] Confidential treatment has been requested for certain portions of this
document
30
<PAGE>
(c) A Termination Fee representing recovery of lost revenue from program
administration shall be payable at the rate of [***] per active account
participating in the Program [***] per month for the remaining months in
the Campaign Term for any campaign containing a [***] offer or a [***]
offer.
6. Termination Fees as defined in paragraphs 5(b) and (c) above shall be
calculated on a Net Present Value basis at a discount rate of [***].
[***] Confidential treatment has been requested for certain portions of this
document
31
<PAGE>
Exhibit F:
---------
Customer Service Level Standards
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Enrollment Center
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Quality of Service: [***] or more of all incoming calls answered within [***]
- ---------------------------------------------------------------------------------------------------------
Call Answer Rate: [***] or more of all incoming calls answered by a specialist
- ---------------------------------------------------------------------------------------------------------
Call Abandon Rate: [***] or less of all incoming calls
- ---------------------------------------------------------------------------------------------------------
Time Spent in Queue: [***] or less
- ---------------------------------------------------------------------------------------------------------
PBS Requests Completed: [***] or more of all requests completed within [***] business days of
receipt
- ---------------------------------------------------------------------------------------------------------
Call Monitoring Checklist: Score of [***] or above on all, monitored calls. Each specialist is
monitored on [***] calls per month
- ---------------------------------------------------------------------------------------------------------
Customer Service Survey: Score of [***] or above on each survey returned
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Enrollment Processing
- ---------------------------------------------------------------------------------------------------------
Enrollments Completed: [***] or more of all enrollments uploaded each [***]
- ---------------------------------------------------------------------------------------------------------
Data Entry Error Rate: [***] or less of the enrollments completed
- ---------------------------------------------------------------------------------------------------------
File Checklist: For each hard file created, a checklist should be attached
- ---------------------------------------------------------------------------------------------------------
Enrollment Turnaround Time: [***] or less
- ---------------------------------------------------------------------------------------------------------
Fee Deposit & Enrollment [***]
Reconciliation:
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Customer Service
- ---------------------------------------------------------------------------------------------------------
Quality of Service: [***] or more of all incoming calls answered within [***]
- ---------------------------------------------------------------------------------------------------------
Call Answer Rate: [***] or more of all incoming calls answered by a representative
- ---------------------------------------------------------------------------------------------------------
Call Abandon Rate: [***] or less of all incoming calls
- ---------------------------------------------------------------------------------------------------------
Unresolved Requests: [***] resolved within [***] business [***] of receipt
- ---------------------------------------------------------------------------------------------------------
Call Monitoring Checklist: Score of [***] or above on all monitored calls. Each representative
is monitored on [***] calls per mouth
- ---------------------------------------------------------------------------------------------------------
Customer Service Survey: Score of [***] or above on each survey returned
- ---------------------------------------------------------------------------------------------------------
Complaints: Complaints are kept in a file with documentation detailing the
resolution of each complaint
- ---------------------------------------------------------------------------------------------------------
Error Reports: Manually checked daily
- ---------------------------------------------------------------------------------------------------------
Call Sheets: Representatives complete Call Sheets on each telephone call they
take. The sheets can be referred to if necessary
- ---------------------------------------------------------------------------------------------------------
Written Correspondence: Sent within [***] of original call
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Note: The Performance measurement period is monthly unless otherwise indicated.
For example, the call answer rate will be reported at month end (e.g. 94% for
January 1997).
[***] Confidential treatment has been requested for certain portions of this
document
32
<PAGE>
EXHIBIT G:
---------
PROJECTED MAILINGS - SUMMARY
[***]
[***] Confidential treatment has been requested for certain portions of this
document
33
<PAGE>
Exhibit H:
---------
Management-Information Reports
Aegis shall furnish Client with the following Management Information Reports.
Such reports shall be delivered on a frequency, format, and media mutually
acceptable to Aegis and Client.
1. Sponsor Activity Summary
2. Campaign Report
3. Enrollments Received and Uploaded
4. Inbound Call Statistics
5. Actual versus Standard Customer Service Performance
6. Portfolio Penetration Rates
7. Attrition Statistics
8. Commission and Fee Accounting
9. Bank Account Reconciliations
34
<PAGE>
December 10, 1999
James D. Connelly
Vice President
Aegis Mortgage Acceleration Corp.
Three Embarcadero Center
Suite 500
San Francisco, California 94111
Re: Aegis Client Agreement
----------------------
Dear Jim:
Thank you for your letter of October 29, 1999 regarding the extension of the
Initial Term of the Client Agreement dated January 17, 1997 by and between Aegis
Mortgage Acceleration Corporation ("Aegis") and Norwest Mortgage, Inc. ("NMI")
(the "Agreement"). NMI has agreed to a six-month extension of the Initial Term
described in the Agreement.
The Agreement is modified as follows:
1. The second sentence of paragraph 7 of the Agreement is deleted and replaced
with the following:
The initial term of this Agreement shall be the period of three and one-
half (3 1/2) years commencing on the effective date of this Agreement (the
"Initial Term") and ending at the close of business on July 17, 2000.
2. Except as expressly set forth herein, the Agreement is not modified in any
way and is expressly ratified and reaffirmed in its entirety.
Please acknowledge Aegis's agreement to these modification terms by executing
this letter in the space provided below and returning it to the undersigned.
Please call me at (315) 237-7032 if you have any questions.
Very truly yours,
NORWEST MORTGAGE, INC.
By /s/ Alan Jones
-----------------------------------
Alan Jones, Vice President
THE FOREGOING MODIFICATION PROVISIONS ARE EXPRESSLY ACKNOWLEDGED AND AGREED TO:
AEGIS MORTGAGE ACCELERATION CORPORATION
By /s/ James D. Connelly
-----------------------------------
James D. Connelly, Vice President
35
<PAGE>
Exhibit 10.13
MARKETING AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MARKETING AND ADMINISTRATIVE SERVICES Agreement ("Agreement")
dated as of the 24th day of July 1997 by and between Chase Mortgage Services,
Inc., a Delaware corporation, having a place of business at 200 Old Wilson
Bridge Road, Worthington, Ohio 43085 ("Chase") and AEGIS MORTGAGE ACCELERATION
CORP., a Delaware corporation, having its principal office at Three Embarcadero
Center, Suite 2250, San Francisco, California 94111 ("Aegis").
WITNESSETH:
WHEREAS Aegis is in the business of marketing and servicing debt
rescheduling and acceleration programs and other financial services, and in that
regard, developing new business prospects;
WHEREAS Chase wishes to engage the services of Aegis to perform data
processing and marketing services under the name Equity Accelerator Program (the
"Program");
NOW, THEREFORE, for and in consideration of the within promises and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby expressly acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
(a) "Campaign" means a mail Solicitation assigned a specific
Campaign number by Aegis.
(b) "Campaign Term" means the period of time from the date on
which a Campaign is mailed until a date eighty (80) months from such date. As to
any Customer existing on the Effective Date, the Campaign Terms shall be deemed
to have commenced on the date such Customer became a borrower under a
Rescheduled Loan subject to processing by Aegis and shall end eighty (80) months
thereafter.
(c) "Customers" means Chase's customers who are currently repaying
a mortgage debt instrument to Chase, as servicer, on a monthly schedule.
(d) "Program" means the Equity Accelerator program described in
the Specifications.
(e) "Program Material" means those specifications and procedures,
including documents, scripts and any other marketing and Solicitation materials
prepared in connection with the Program.
***Confidential treatment has been requested with respect to the information
contained within the "[***]" markings. Such marked portions have been omitted
from this filing and have been filed separately with the Securities and Exchange
Commission.
<PAGE>
(f) "Prospect" means any Customer for whom Chase has provided to
Aegis the information necessary for solicitation to sign up for the Program.
(g) "Rescheduling" means effecting a payment method change for the
Subscriber from a monthly schedule (12 times per year) to a schedule of weekly,
monthly, biweekly, or semi-monthly debits without causing any changes to the
original loan documents or loan terms. Such loans shall be known as "Rescheduled
Loans."
(h) "Solicitation" means any effort, mean or method approved in
writing by Chase and implemented by Aegis to communicate the benefits of the
Program to Prospects, including without limitation, writing, design, copy
writing, mechanical artwork, photography, illustrations, printing, mailing, and
customer service.
(i) "Specifications" means the detailed description of the
Program, attached as Exhibit A which may not be modified without the written
consent of Chase.
(j) "Subscriber" means a Customer who has completed enrollment in
the Program, and has paid all fees due to Aegis.
(k) "Target Market" means those Prospects with mortgages of
sufficient remaining terms, principal balance and interest which would make the
Program logical and beneficial, as determined jointly by Chase and Aegis.
(l) "Telephone Solicitation" means those telephonic solicitations
of those Prospects who have previously requested additional information.
(m) "Termination Fee" means a fee for each Subscriber whose loan
is the subject of termination under Section 16(e), equal to the product of: (i)
[***] for Subscribers enrolling in the Program at an enrollment fee equal to
[***] (or [***]) and [***] for Subscribers enrolling in the Program
without payment of an enrollment fee; times (ii) the number of months remaining
in the Campaign Term applicable to such Subscriber; which product shall be
brought to net present value at an [***] percent [***] discount rate.
2. COMMENCEMENT. Aegis shall, as of July 24, 1997 (the "Effective
Date") commence the performance of marketing services in reference to the Target
Market and fee and payment processing functions in reference to Prospects and
Subscribers, pursuant to the terms hereof. Aegis shall terminate performance of
marketing services in reference to the Target Market on July 24, 2001, unless
sooner terminated pursuant to the provisions of this Agreement, or unless
extended by mutual agreement of the parties. As to each Rescheduled Loan, Aegis
shall terminate performance of payment processing functions upon transfer of
servicing of such Rescheduled Loan to a third party who chooses not to
participate in a rescheduled loan program with Aegis ("Non-Participating Third
Party"), refinance, satisfaction or other
[***] Confidential treatment has been requested for certain portions of this
document
2
<PAGE>
liquidation, unless sooner terminated pursuant to the provisions of this
Agreement, or unless extended by mutual agreement of the parties. In the event
of a termination due to a Non-Participating Third Party, Chase shall be liable
to the Subscriber for any fees due such Subscriber for termination of
Subscriber's involvement in the Program.
3. INSURANCE. At its expense, Aegis shall maintain policies of
fidelity, and such other insurance as Is acceptable to Chase, and shall furnish
proof of same upon Chase demand.
The policies shall be in such amounts and with such standard coverages
as are satisfactory to chase. Aegis shall provide Chase with a certificate from
the insurer evidencing such coverage which shall provide for at least ten (10)
days prior notice from the insurer to Chase in the event of insurer's
cancellation. Aegis covenants to-make claim against, and diligently pursue,
recovery from the insurance carrier(s) with whom insurance is maintained for any
claim made by Chase upon Aegis for which such insurance carriers may be liable.
4. STATEMENTS AND RECORDS. Aegis shall annually, within five business
days of finalization, but in no event later than June 30th of each year, provide
to Chase an audited statement of Aegis' consolidated statement of operations for
such fiscal year, prepared in accordance with generally accepted accounting
principles and by an auditor acceptable to Chase. Aegis will keep Rescheduled
Loan records in accordance with FNMA, FHLMC and GNMA guidelines and FHA and VA
regulations and the regulations of any state or federal government or
supervisory agency having authority over Chase or Aegis. Such Rescheduled Loan
records shall be the property of Chase and upon demand by Chase, or termination
of this Agreement, shall be delivered to Chase. Upon Chase's written request,
Aegis shall give Chase, or its authorized representatives and appropriate
regulators, the opportunity, during normal business hours, to examine Aegis'
books and records relating to the Rescheduled Loans and to make copies and
extracts at Chase's expense. Aegis shall provide to Chase monthly a copy of the
print file for every direct mail campaign which will contain the names and data
appearing on the direct mail solicitations together with a sample of the
materials contained within any such campaign. In addition, Aegis shall provide
any enrollment materials for each Subscriber upon Chase's request.
5. RESPONSIBILITIES OF AEGIS. Until the principal and interest of
each Rescheduled Loan is paid in full, or until termination of this Agreement in
accordance with the provisions hereof, whichever is sooner, Aegis shall:
(a) Debit of Payments. Proceed diligently to debit all mortgage
payments due under the terms of each Rescheduled Loan as they become due by
automatic debit from the Subscriber's account; insure that all authorizations
necessary to allow such debits are in place prior to the date on which debit is
due for the Rescheduled Loan, and exert diligent efforts to arrange for
subsequent debit of a failed debit; notify
3
<PAGE>
Chase, within 5 business days, if Aegis is unable to debit any account and
thereafter arrange for subsequent debit.
(b) Deposit in Accounts. Deposit all funds received with respect
to each Rescheduled Loan daily into Chase's receipt settlement account; within
48 hours of fund receipt, see to transfer of such funds into Chase's custodial
account; upon accumulation of sufficient funds to make scheduled mortgage
payments and/or additional principal payments under the terms of the Rescheduled
Loan documents, see to transfer of such funds into Chase's disbursement
settlement account and then onto an appropriate Chase account for posting to the
Subscriber's mortgage debt; maintain records to show the respective interest of
each Subscriber, Chase and the investor in the accounts.
(c) Records and Delinquency Notice. Keep a complete, accurate, and
separate account of all sums paid by Subscriber, debited, or disbursed.
(d) Customer Service and Other Duties and Reports. Respond
promptly to customer inquiries relating to the Program generally, and as it
relates to any individual loan, and immediately relay all other customer service
issues to appropriate personnel within Chase; perform such other customary
duties, furnish such other reports and execute such other documents in
connection with its duties hereunder as Chase from time to time may reasonably
require, as well as such other responsibilities as are customarily performed
according to prudent mortgage banking standards.
(e) Statements to Mortgagor. Submit to each mortgagor, at least
annually, an accounting or report detailing interest earnings on mortgage
payments and other information customarily provided to mortgagors in relation
thereto; mail, on or before the date required by law, all required IRS 1099 INT
forms, to all parties entitled to receive same, for the period during which
services are performed by Aegis under the terms of this Agreement
(f) Rescheduled Loan Payoffs. Handle paid-off Rescheduled Loans in
compliance with law, including but not limited to, timely delivery of all
payment information, termination of the account debit authorization, and
remittance of all remaining funds to Chase.
(g) Operating Procedures. Abide by all written procedures and
specifications furnished by Aegis to Chase, and by Chase to Aegis (the
"Procedures"). Aegis hereby represents and warrants that procedures provided by
Aegis to Chase comply with all applicable laws, rules, regulations, guidelines
and/or requirements of any regulatory agency, investor, or any party which has
insured or guaranteed an interest in a Rescheduled Loan. A true and correct copy
of the current procedures under which Aegis operates have been as of the date of
this Agreement delivered to Chase. Procedures may be modified from time to time
as agreed by Aegis and Chase. Each account shall be established and maintained,
and all debit and remittance activities shall be performed, in
4
<PAGE>
a manner which complies with the applicable laws, rules, regulations, guidelines
and/or requirements of any regulatory agency, investor, or any party which has
insured or guaranteed an interest in the Rescheduled Loan Aegis shall provide
Chase with copies of all account reconciliations on a monthly basis, by the
twentieth (20th) day of each month.
(h) Program Materials and Marketing. Within sixty (60) days of the
Effective Date and prior to the first Solicitation, Aegis and Chase will work
together to create the Program Materials. Aegis shall provide marketing
assistance necessary to implement the Solicitation of Chase's defined Target
Market within 180 days of the Effective Date, including but not limited to
writing, design, copywriting, mechanical artwork, photography, illustrations,
printing, mailing, enrollment processing and customer service (for more specific
detail refer to Exhibit C).
(i) Non-solicitation. Aegis, its employees, representatives and/or
agents shall not make any representations or warranties about the Program to any
Customer, Prospect or Subscriber except as set forth in the Program Materials
and as approved in writing by Chase. Aegis shall not directly or indirectly,
solicit or contact any Customer, Prospect, or Subscriber, for any purpose, or
provide any list or other information obtained in connection with this Agreement
in connection with any Customer, Prospect or Subscriber or on any Rescheduled
Loan to any third party, including but not limited to solicitation of any
product or service, other than in connection with services provided under this
Agreement
(j) Facilities. Aegis shall maintain office space, computer,
phone, and other equipment and services and staff (including payroll services
and employment benefits) sufficient to implement and direct the Solicitation and
Telephone Solicitation and all other obligations of Aegis set forth in this
Agreement. Aegis will use reasonable commercial efforts to assist Chase's
training staff in developing and delivering information about the Program to
assist Chase's employees who may provide services related to the Program.
(k) Servicing Transfers. In the event of a transfer of the
servicing on a Rescheduled Loan to a third party, Aegis shall continue to
provide the services described in this Agreement, pursuant to the terms of the
Procedures.
6. RESPONSIBILITIES OF CHASE. Until the principal and interest of
each Rescheduled Loan is paid in full, or until termination of this Agreement in
accordance with the provisions hereof, whichever is sooner, Chase shall:
(a) Customer Information. Deliver monthly to Aegis all data
reasonably requested by Aegis to implement the Solicitation.
5
<PAGE>
(b) New Customer Information. Deliver monthly to Aegis all loan
information regarding newly originated or new servicing loan customers
identified by Chase and necessary for Solicitation of such Customers.
7. FEES. The fee structure and charges for services listed in Exhibit
B shall remain in effect during the term of this Agreement Thereafter, Aegis and
Chase must agree upon any revisions to the fee structure charged to Subscribers
as a result of changes in operating costs, or market conditions. Unless mutually
agreed to otherwise, Chase shall share in any change in fees proportional to
Chase's pro-rata share of current few. Monies due one party to the other over
thirty days will bear delinquency charges at the maximum rate allowed by law or
10% whichever is less.
8. ADDITIONAL AGREEMENTS. The parties further agree as follows:
(a) Modifications required to be made to Aegis' systems in order
to comply with changes in federal or state banking laws or regulations will be
made available to Chase Prospects and Subscribers. Each such change shall be
made and implemented as soon as practical, and in any event by such time as the
modification may be necessary to comply with the law or regulation.
(b) Should Aegis fail to maintain the service standards referenced
in this Agreement, Aegis will undertake such actions as are necessary to
promptly enable it to recover and maintain such service standards. Aegis will
advise Chase of the corrective steps that Aegis is undertaking and the estimated
time required to complete the correction and, in the case of errors in data or
reports, will supply the corrected data or reports to Chase promptly. By receipt
of such information, Chase shall not have waived its right to consider Aegis in
breach of this Agreement pursuant to the provisions of paragraph 16 of this
Agreement.
(c) Aegis shall maintain adequate backup arrangements and
equipment in order to maintain services hereunder in the event of the failure of
Aegis' equipment Aegis shall test the operation and effectiveness of its
disaster recovery plan at least annually and will make the results of such tests
available to Chase upon request. Chase will be responsible for its own systems,
programs and equipment (including backup) necessary to support its on-site
operations.
(d) Aegis further represents and warrants that its has implemented
various procedures and systems which will safeguard Chase's records and other
data and Aegis' data, equipment, facilities and other property used in the
performance of Aegis' obligations under this Agreement from loss of damage
attributable to fire, theft, or any other cause. Aegis will maintain and enforce
these systems and procedures throughout the term of this Agreement and
thereafter if necessary, and will make whatever additions and amendments to them
as are required by applicable law from time to time for the secure performance
of its obligations under this Agreement.
6
<PAGE>
9. NON-EXCLUSIVE AGREEMENT. Nothing in this Agreement shall prevent
Aegis from performing any services described above for other entities, during or
after the term of this Agreement. In addition, nothing in this Agreement shall
prevent Chase from receiving any services described above from other entities,
during or after the term of this Agreement, provided that Aegis shall be the
exclusive provider of the services described in this Agreement for loans for
which, as of the Effective Date, the servicing rights are owned by Chase, and
for which Chase, or its affiliate directly performs the servicing duties.
10. PERFORMANCE STANDARDS. In performing services hereunder, Aegis
shall:
(a) Perform such services in accordance with applicable written
supplemental service agreements, letters of understanding, policies, procedures
and processing priorities or other schedules to which the parties may agree from
time to time;
(b) Perform such services using the same standards of care and
diligence as are required of a national banking association exercising prudent
mortgage banking practices in processing or performing similar functions; and
(c) Perform such services in accordance with applicable state and
federal laws and regulations and investor requirements.
11. CONFIDENTIALITY. It is expressly understood by both Chase and
Aegis that certain information which will be exchanged by Chase and Aegis and/or
their employees, or agents, during the term hereof constitutes trade secrets
and/or confidential information of the respective entities. Accordingly, both
Chase and Aegis shall treat such information received from the other strictly
confidential, and shall not use, disclose or permit to be used or disclosed at
any time, prior to or after termination of this Agreement, the trade secrets
and/or confidential information in any manner other than as permitted by the
other party.
12. ACCESS TO INFORMATION. Aegis shall provide Chase and its duly
authorized representatives and representatives of governmental authorities
having jurisdiction over Chase with access to all books, records, other
information and facilities reasonably related to this Agreement or the provision
of services hereunder, as Chase or any such person shall reasonably request.
13. AUTHORITY. Except as specifically authorized by Chase in writing.
Aegis shall not, and shall have no authority to, solicit, communicate, or enter
into any agreements, contracts or other binding commitments, in the name of and
on behalf of Chase.
7
<PAGE>
14. INDEMNIFICATION. Each party shall indemnify and hold the other
harmless against any loss resulting from (i) a breach of any of its covenant or
obligations under the terms of this Agreement or (ii) the inaccuracy of any
representation or warranty made by such party under the term of this Agreement
15. TERMINATION. Each Subscriber has the right to terminate its
participation in the program in accordance with his agreement and in accordance
with the Terms and Conditions document which is a part of the Specifications and
is provided Subscriber. Aegis and Chase shall, upon such termination,
respectively and on a pro-rata basis pay or refund to each Subscriber the
portion of the enrollment fee described in Exhibit B received by Aegis and
Chase. Operationally, Aegis shall pay Subscriber the total amount due to
Subscriber and subsequently deduct Chase's pro-rata share from the fees due
Chase each month.
16. TERMINATION. Either party (the "Terminating Party") may, by
written notice to the other, terminate this Agreement if:
(a) The other party (the "Breaching Party") materially fails to
perform its covenant or obligations hereunder, or breaches its representations
and warranties hereunder, and upon notice by the Terminating Party of the
material failure to perform or breach, the Breaching Party has not corrected
same within 45 days of delivery of notice (provided, however, that such 45 day
period shall be reduced to 2 business days in the event of non-payment of any
monthly payment due on a Rescheduled Loan, or to any lesser time frame required
by law, regulation or investor guidelines).
(b) The other party becomes insolvent or bankrupt or is placed
under conservatorship or receivership.
(c) The other party assigns or attempts to assign its rights and
obligations hereunder, without the prior written consent of the Terminating
Party.
(d) By Chase, with respect to the affected Rescheduled Loans, upon
90 days written notice (or such other time period as may be required by
applicable law, regulation or investor requirements) to Aegis in the event of
(i) Chase's sale of the Rescheduled Loan or (ii) Chase's sale of the servicing
rights to the Rescheduled Loan.
(e) By Chase, without cause, upon 90 days written notice to the
other party; provided, however, that if Chase terminates this Agreement pursuant
to the subparagraph (e), it shall pay Aegis the Termination Fee as reimbursement
for expenses relating to resulting transfer of processing.
17. AEGIS NOT TO RESIGN/CHANGE BANK. Aegis shall not resign from the
obligations and duties hereby imposed on it, except upon consent of Chase, which
consent shall not be unreasonable withheld, or upon the determination that its
duties
8
<PAGE>
hereunder are no longer permissible under applicable law and such incapacity
cannot be cured. No such resignation shall become effective until a successor
conforming to the characteristics set forth in the following sentence has
assumed Aegis' responsibilities and obligations hereunder; provided, however,
Aegis and Chase shall cooperate in identifying such successor. Any successor
shall be an institution which is reasonably acceptable to Chase. Aegis shall not
change the banking institution with which it has a depository relation in
reference to the accounts that are the subject of this Agreement without the
prior written consent of Chase.
18. POST TERMINATION. Upon termination of this Agreement, Aegis shall
account for and turn over to Chase all funds collected under each Rescheduled
Loan less only the compensation then due Aegis, and if any compensation is in
dispute only the non-disputed portion of such compensation, and deliver to Chase
all records and documents relating to each such Rescheduled Loan that it may
have in its possession. Obligations relating to indemnification for breach of
duties, representations or warranties and to confidentiality, shall survive
termination of this Agreement.
19. INDEPENDENT CONTRACTOR. Aegis shall be an independent contractor
acting on its own behalf and for its own account and without authority to act
for or in behalf of Chase except as expressly set forth herein or as requested
by Chase in writing.
20. NOTICE. All notices from Aegis to Chase shall be sent by fax,
overnight mail or first class mail addressed to Chase at the address specified
below unless another address is designated in writing by Chase. All notices from
Chase to Aegis shall be sent by fax, overnight mail or first class mail
addressed to Aegis at the address specified below unless another address is
designated in writing by Aegis.
If to Chase:
Chase Mortgage Services, Inc.
200 Old Wilson Bridge Road
Worthington, Ohio 43085
Attn: Gregg Harrington
If to Aegis:
Aegis Mortgage Acceleration Corp.
Three Embarcadero Center
Suite 2250
San Francisco, CA 94111
Attn: John P. Decker
21. ENTIRE AGREEMENT. On September 24, 1992, Aegis (as successor in
interest to Grant Financial Group, Inc.) entered into an Equity Accelerator
Program, Agreement with Chase (the "First Agreement") an agreement dated July
11, 1996 for
9
<PAGE>
certain Rescheduled Loans (the "Second Agreement"), and an Agreement dated
December 17, 1996 for the initial target mailing solicitation plan (the "Third
Agreement"). The First Agreement and the Third Agreement shall be replaced by
this Agreement This Agreement contain the entire agreement between the parties
pertaining to the First and Third Agreements. The Second Agreement remains in
force. No modification of this Agreement shall be valid unless in writing and
signed by the parties.
22. AEGIS REPRESENTATIONS. Aegis represents, warrants and covenants to
Chase that it is, and at all times during the term of this Agreement shall:
(a) Have all material licenses, permits, franchises, certificates
and approvals required to enter into and to perform this Agreement,
(b) Operate under procedures which do not violate or contradict
GNMA, FNMA and FHLMC guidelines pertaining to one-to-four family, residential
mortgage loans,
(c) Comply with present and future GNMA, FNMA and FHLMC
requirements and the requirements of any private investor or insurer of a
mortgage loan subject to this Agreement.
(d) Comply with applicable state and federal laws, rules and
regulations.
(e) Make no representation, warranty or statement which contains
or will contain any untrue or inaccurate statement of a material fact or omit to
state a material fact necessary to make the statements made not misleading.
23. ADDITIONAL REPRESENTATION. Each party represents and warrants
that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction;
(b) It has full power, authority and capacity to enter into,
execute, deliver and perform this Agreement;
(c) This Agreement constitutes its legal, valid, binding and
enforceable obligations; and
(d) All corporate actions, covenants, resolutions and approvals
necessary for the execution and performance of this Agreement have been taken
and/or received.
10
<PAGE>
24. GOVERNING LAW. This Agreement is governed by the laws of the State
of Ohio.
25. ASSIGNMENT. Any sale, transfer or assignment, in whole or in part,
of any interest in or obligations under this Agreement, are subject to the other
party's written consent, which consent shall not be unreasonably withheld,
provided however that, Chase may, without consent, assign to an affiliate. A
sale transfer or assignment of more than fifty one percent (51%) of the stock,
or a change in control of more than fifty one percent (51%) of the stock. of a
party shall be deemed a sale, transfer or assignment requiring consent in
accordance with this Section 25. Each party shall promptly notify the other of
any sale, transfer or assignment or intended sale, transfer or assignment
requiring consent pursuant to the terms of this Section 25.
26. ESCROW AGREEMENT.
(a) Aegis will place full complete and accurate working copies of
all software, software bard code, software operating instructions. subscriber
database, and daily administrative procedures, including minimum processing
system requirements, installation requirements, operating procedures, and
diskettes containing complete processing programs necessary to operate the
mortgage acceleration process, as well as an expanded customer service procedure
(collectively, the "Deposit") with Information Architects, Inc. (the "Escrow
Agent"), whose address is 261 Moe Street, P. 0. Box 205, Poulsbo, WA 98370,
within seven (7) days of the date of this Agreement Escrow Agent will confirm
with Chase its receipt of the Deposit within ten (10) days of the date of this
Agreement.
(b) Aegis will provide Escrow Agent with an update of the Deposit
by the fifteenth (15th) day of each month. Escrow Agent will notify Chase by the
twentieth (20th) day of each month if it has not received the required
information.
(c) Chase will notify Escrow Agent of any material breach by Aegis
of this Agreement Upon receipt of such notice, Escrow Agent will notify an
officer of Aegis in writing. If Aegis cannot cure the breach within ten (10)
business days, and notifies Escrow Agent that the breach cannot be cured within
this time, Escrow Agent shall deliver to Chase by overnight mail, the Deposit
without being required to obtain the consent of Aegis.
(d) After such release of the Deposit to Chase, Chase may use the
Deposit solely, and only to extent necessary, for the purpose of curing the
breach which triggered the release. As soon as such breach is cured, or a work-
around or other intermediate solution is found, Chase shall return the Deposit,
and all copies thereof, to Escrow Agent.
11
<PAGE>
27. COSTS AND EXPENSES.
Unless otherwise states herein, all obligations and responsibilities of
Aegis as set forth in this Agreement shall be at the sole costs and expense of
Aegis. Unless otherwise states herein, all obligations and responsibilities of
Chase as set forth in this Agreement shall be at the sole costs and expense of
Chase.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed
and executed in its corporate name by one of its duly authorized officers, all
as of the date first above written.
CHASE MORTGAGE SERVICES, INC.
Signature: /s/ J. Gregory Harrington
---------------------------
Name: J. Gregory Harrington
-------------------------------
Title: First Vice President
-------------------------------
Date: July 24, 1997
-------------------------------
AEGIS MORTGAGE ACCELERATION CORP.
Signature: /s/ John Decker
---------------------------
Name: John Decker
-------------------------------
Title: President
------------------------------
Date: July 24, 1997
-------------------------------
12
<PAGE>
Exhibit A
Specifications
(To Be Determined)
<PAGE>
Exhibit B
Fee Structure
[***]
Enrollment Fees due Chase will be calculated on a monthly basis and are earned
at the time a Subscriber is enrolled. Program Fees due Chase will be calculated
on a monthly basis and are earned at the time a debit is completed. Fees due
Chase shall be remitted to Chase by the 20th day of the month following the
month in which a fee is earned.
Aegis shall upon request by Chase perform payment processing functions pursuant
to the terms of this Agreement in connection with loans which are already
Rescheduled Loans. The fee for set up of any such Rescheduled Loans shall be
[***] per such Rescheduled Loan due to Aegis from Chase, with the exception of
Rescheduled Loans acquired by Chase from Source One Mortgage for which the setup
fee shall be [***] per such Rescheduled Loan.
[***] Confidential treatment has been requested for certain portions of this
document
<PAGE>
Amendment to Client Agreement, Exhibit B: Fee Schedule
This Amendment to the Client Agreement ("Agreement") dated July 24, 1997, is
effective as of October 1, 1999 between Chase Manhattan Mortgage Corporation
("Client") and Aegis Mortgage Acceleration Corp. ("Aegis"). It does not extend
the existing expiration date of the Agreement or change commissions for either
the [***], the [***] or the [***].
Aegis and Client hereby agree to utilize the new [***] product offer as
a major part of the continuing portfolio mailing program. Under this program,
the Subscriber's enrollment fee is collected from [***] the standard Aegis'
[***] product in which the Subscriber pays the fee at the time of enrollment.
Aegis and Client hereby agree that Client will be paid a [***] commission for
all [***] new mailing subscribers and a [***] commission for all [***] remailing
subscribers and that Exhibit B to the Agreement shall be deemed to reflect these
commission amounts during its remaining term.
Except as amended herein the Agreement shall continue to be in full force and
effect.
Please indicate your acceptance of this Amendment by executing two copies below.
CHASE MANHATTAN MORTGAGE CORP.: AEGIS MORTGAGE ACCELERATION CORP.:
By /s/ J. Gregory Harrington By /s/ William R. Grant
----------------------------- --------------------------------
J. Gregory Harrington, William R. Grant,
Senior Vice President Vice President
Date 2/15/00 Date 2/7/00
---------------------------- ------------------------------
Please sign, date and return one copy of this Amendment to:
Deirdre A. Gautieri
Aegis Mortgage Acceleration Corp.
Three Embarcadero Center, Suite 500
San Francisco, California 94111
[***] Confidential treatment has been requested for certain portions of this
document
<PAGE>
Exhibit C
Relating to Marketing Plan
Aegis responsibilities include:
. Preparing a twelve month mailing schedule for the Program,
including new mailings and re-mailings.
. Preparing Program Materials based on mutually agreed upon revisions
to the Program Materials used in pilot mailings for Chase,
including but not limited to the benefits statements.
. Providing counts and samples for Chase Approval of excluded and
mailable loans.
. Printing off-set materials.
. Providing materials for and conducting Chase employee training as
necessary.
. Managing all laser printing, folding, inserting and metering
required in connection with any Program marketing materials.
. Conducting and bearing expense of all Campaigns, and assigning a
Campaign tracking number to each. There shall be a minimum of five
Campaigns per year, each of which shall result in a hit rate of at
least two percent
. Providing effective follow-up to all Customer inquiries.
. Providing monthly reporting of marketing results.
Chase responsibilities include:
. Providing camera-ready artwork (logo slicks), sample materials, PMS
colors.
. Preparing test tape of portfolio for Aegis data segmentation and
layout testing.
. Providing a listing of exclusion criteria, and reviewing final
exclusion criteria, for use in identifying loans that are
ineligible for the Program.
. Cooperating in a limited amount of testing of alternative
materials, offers or segmentation (not to exceed 20% of eligible
loans).
<PAGE>
. Sending a new master file tape of the portfolio on a monthly basis
until completion of the mailing schedule.
C-2
<PAGE>
EXHIBIT 10.14
MASTER AGREEMENT FOR TREASURY MANAGEMENT SERVICES
This Master Agreement for Treasury Management Services ("Agreement") is entered
into this 11th day of June, 1999, between NORWEST BANK IOWA, NATIONAL
ASSOCIATION, (the "Bank") and the undersigned customer AEGlS Mortgage
Acceleration Corp (the "Company").
The Bank offers and provides certain treasury management services to its
commercial customers, and the Company anticipates that it will from time to time
engage the Bank to perform all or some treasury management services under this
Agreement (the "Services").
The Bank and the Company agree:
1. Scope of the Services. The Bank shall provide the Company with the
---------------------
treasury management services requested in writing and Services agreed to by
the Bank. The Services are described in general terms in separate writings
which are specifically incorporated into this Agreement (the "Product
Descriptions"). The Company agrees to the terms and conditions contained in
the applicable Product Description(s); the Bank's user guide (the "Guide"),
if any, for each Service it requests; and the Bank's terms and conditions
applicable to each account affected by the Services (the "Account Terms").
Delivery and use of a Service shall be conclusively deemed to be agreement
to the provisions contained in the applicable Product Description and
Guide. The Bank may amend a Product Description, a Guide, or the Account
Terms from time to time upon fourteen (14) days prior written notice. The
Company acknowledges receiving a copy of the Account Terms and of the
Product Description and Guide, if any, for the Services it has initially
requested.
2. Performance of the Services. The Bank shall perform the Services in
---------------------------
accordance with reasonable commercial standards applicable to the Bank's
business; in conformity with rules, regulations or laws governing the
activities of the Bank; and in accordance with this Agreement.
3. Term. This Agreement shall continue in effect unless terminated by either
----
party upon seven (7) days prior written notice. The Bank may immediately
terminate this Agreement without notice to the Company if the Company
files, or has filed against it, a petition under the U.S. Bankruptcy Code
or a similar state or federal law. Each additional Service shall commence
within a reasonable time after the Bank agrees to provide it and shall
continue in effect until terminated by written notice or termination of
this Agreement.
4. Service Fees: Taxes; Invoice; Payment. The Company agrees to pay the Bank
-------------------------------------
for the Services in accordance with the Bank's fee schedule(s). The Bank
may
Page 1
<PAGE>
modify its fee schedule(s) at any time upon prior notice. The Company
also agrees to pay an amount equal to any taxes applicable to the Services,
however designated, exclusive of taxes based on the net income of the Bank.
Except as otherwise agreed in writing, all fees and taxes shall be charged
monthly against the Company's accrued earnings allowance. The Bank may
debit the Company's account(s) with the Bank for, or may bill the Company
and the Company agrees promptly to pay, any amount by which the fees or
taxes exceed such earnings allowance.
5. Liability: Indemnification. The Bank shall be responsible only for
--------------------------
performing the Services as expressly provided for in this Agreement, and
shall be liable only for material losses directly resulting solely from its
own negligence or intentional misconduct in performing those Services.
Neither the Bank nor the Company shall have any liability for failure to
perform or delay in performing the Services if such failure or delay is due
to circumstances beyond that party's reasonable control. Each party agrees
to make reasonable efforts to prevent such occurrences. In no event shall
the Bank have any liability for any consequential, special, punitive or
indirect loss or damage. The Company shall promptly furnish proof of loss
in written form to the Bank, and shall provide the Bank all reasonable
assistance in recovering a loss. If the Company is reimbursed by or on
behalf of the Bank, the Bank or its designee shall be subrogated to all
rights of the Company. Except to the extent that the Bank is liable under
the terms of this Agreement, the Company agrees to indemnify and hold the
Bank, its directors, officers, employees and agents harmless from all
claims, demands, judgments, and expenses (including their reasonable
attorneys' fees and legal expenses) arising out of or in any way connected
with the performance of the Services. The Company agrees that this
indemnification shall survive termination of this Agreement.
6. Affiliates. Present and future Bank affiliates may from time to time
----------
provide one or more Services under the terms of this Agreement. In that
event, the Bank shall notify the Company that the affiliate has agreed to
provide the Service(s), the term "Bank" shall include the affiliate with
respect to the Service, the Bank and the affiliate may share any
information helpful in providing the Service and liability with respect to
the Service shall be limited solely to the affiliate(s) providing the
Service. The Company acknowledges that its consent to the release of
information is not a condition of doing business with the Bank or its
affiliates.
7. General. The laws of the state in which the principal office of the
-------
particular Bank providing the Service is located shall govern for all
purposes. This Agreement shall constitute the entire agreement between the
Bank and the Company and supersede prior oral or written representations,
conditions, warranties, understandings, proposals or agreements regarding
the Services. Headings do not constitute a part of this Agreement. Any
notice or other communication may be
Page 2
<PAGE>
sent to the Company at its then current address on file with the Bank. The
Bank will have a reasonable time after receipt of any notice or other
communication to act on it. No provision may be modified except in writing
signed by the party against whom the modification is to be enforced. No
waiver of any right on one occasion will be a waiver of the same or any
other right on a subsequent occasion. The Bank or the Company may assign
this Agreement to any successor by merger, consolidation or corporate
reorganization. Any invalidity, in whole or in part, of any provision shall
not affect the validity of any other provision. The Bank may, grant credit
to the Company in connection with the Services, but is not required to do
so. Delivery and use of an informational Service occurs when the
information is provided. The Bank may, without notice, refuse to honor any
payment, transfer or withdrawal order which would result in an overdraft,
even if it has previously allowed overdrafts. The Bank may establish cut-
off times, and may change those cut-off times upon reasonable notice to the
Company. Unless specifically defined in the applicable Product Description
or Guide, the term "banking day" means that part of a business day
occurring prior to the cut off time stated in the Bank's funds availability
policy, and the term "business day" means that part of every calendar day
except Saturdays, Sundays and federal holidays, during which the Bank is
open to the public for carrying on substantially all of its banking
functions. The Bank may disclose any information which in its opinion
facilitates the performance of a Service. The Bank may at any time use
agents and/or independent contractors to provide all or any portion of a
Service.
The parties have caused this Agreement to be executed and warrant that their
respective signatory, whose signature(s) appears below, has been and is on the
date of this Agreement duly authorized by all necessary action in accordance
with its governing instruments to execute this Agreement.
Agreed To And Accepted By: Agreed To And Accepted By:
NORWEST BANK IOWA, AEGIS MORTGAGE
NATIONAL ASSOCIATION ("BANK") ACCELERATION CORP. ("COMPANY")
By: /s/ Tina Smith Fritz By: /s/ Craig M.Compiano
------------------------------------ ------------------------------
Name: Tina Smith Fritz Name: Craig M. Compiano
---------------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------------- ---------------------------
Page 3
<PAGE>
Treasury Management Services
Implementation Authorization
- --------------------------------------------------------------------------------
Customer Information:
- --------------------------------------------------------------------------------
Customer Name Customer Contact
Aegis Mortgage Acceleration Corp Craig Compiano
- --------------------------------------------------------------------------------
Address Tax Identification Number
3 Embarcadero CTR STE 500
- --------------------------------------------------------------------------------
Address Customer Phone Number
415-743-1306
- --------------------------------------------------------------------------------
Address Customer Fax Number
- --------------------------------------------------------------------------------
City State Zip Code Contact Internet E-Mail Address
San Francisco CA 94111-4008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Summary of Requested Services (Please check services desires):
- --------------------------------------------------------------------------------
The following services are provided by: Norwest Bank Iowa, National Association
(Note: The above named Norwest Bank may contract with other Norwest Bank legal
----
entities to provide some or all of the described services and are herein
approved as Norwest Affiliates under article 6 of the Master Agreement for
Treasury Management Services.)
Date: June 11, 1999
<TABLE>
<CAPTION>
DDA and Depository Services: Special DDA Arrangements Lockbox Services:
<S> <C> <C>
[_] New Demand Deposit Account [_] Special Statement Cut Option [_] Retail Lockbox
[_] Vault Depository, Coin/Currency Orders [_] Special Statement Delivery [_] Wholesale Lockbox
[_] Pre-Qualified Check Deposit [_] Returned Item Special Instruct. [_] Wholesale Lockbox - 2 Party Secured
[_] Deposit Account Reporting [_] Check Cashing [_] Wholesale Lockbox - 3 Party Secured
[_] Interstate Deposit Banking [_] Electronic Account Analysis [_] Canadian Wholesale Lockbox
[_] Electronic Bill Payment Consolidator [_] Consolidated Account Analysis
[_] Standard Account Analysis Information Services:
Tax Services: [_] BankTIES PC Services
ACH Services: [_] BankTIES Tax [_] CustomConnect Information Services
[_] ACH Origination (Debit or Credit) [_] DeposiTax [_] ICIS Balance Reporting (Colorado)
[_] ACH Debit Filter [_] BankTIES ACH Tax Module [_] Manual Balance Reporting
[_] 3rd Party Payroll Origination [_] Business Express/PC Services
[_] 3rd Party Cash Concentration (DTC) Disbursement Services: [_] BankTIES (DOS for BAI, Lg. Corp.)
[X] Bank TIES ACH [_] Controlled Disbursement
[_] Cross-Border ACH Services [_] Payable Through Drafts Wire Sweep, Transfer Services:
[_] Cross-Border ACH 3rd Party [_] Account Reconciliation Plan [_] Wire Transfer Origination/Receipt
[_] Positive Pay ARP [_] Norwest PC Wire (DOS)
Electronic Commerce Services: [_] Image CD-ROM [_] BankTIES PC Services - Wire
[_] EDI Receipt [_] Electronic Stop Payments [_] Standing Instruction Wire Transfer
[_] EDI Origination [_] Purchasing Card [_] Zero Balance Account
[_] Check Production Outsourcing [_] InvestAccount Sweep
[_] Document Outsourcing [_] Money Market Mutual Fund Sweep
[_] Technical Consulting Custom Service [_] EuroSweep Services
</TABLE>
- --------------------------------------------------------------------------------
Special Instructions:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Customer Authorization:
- --------------------------------------------------------------------------------
Printed Name: Craig Compiano Printed Name: Tina Smith Fritz
--------------------------- ------------------------
Signature: /s/ Craig Compiano Signature: /s/ Tina Smith Fritz
--------------------------- ------------------------
Title: VP Date: 6/14/99 Title: VP Date: 7/16/99
---------- ----------- --------- --------
<PAGE>
SECURITY PROCEDURE AGREEMENT FOR ACH SERVICE
This Security Procedure Agreement for ACH Service (the 'Agreement') is entered
into this 11th day of June, 1999 between NORWEST BANK IOWA, NATIONAL ASSOCIATION
(the "Bank") and the undersigned customer AEGIS Mortgage Acceleration Corp. (the
"Company").
The Bank and the Company have entered into a Master Agreement for Treasury
Management Services*, supplemented by a Product Description which governs the
ACH Service to be provided by the Bank.
The Bank and the Company agree:
1. Security Procedure Selection. The Company acknowledges that the Bank
----------------------------
offers each of the security procedures described below for the purpose of
verifying the authenticity of an instruction to originate an ACH electronic
credit or debit entry (a "payment order") received by the Bank in the name
of the Company. The Company refuses to have its payment orders verified by
any security procedure other than the security procedure it has expressly
designated. The Company has reviewed each of these security procedures and
has determined that the following security procedure best meets its
requirements, given the size, type and frequency of the payment orders it
will issue to the Bank (check one):
PI SecurID - File Transmission - This procedure combines a card with a
---------------------------
personal identification number (PIN) known only by the Company and
the Bank. The card generates a random and unique security code every
minute. The code combines with the PIN to provide a unique password
every minute. The password must be presented with the ACH
transmission and is used by the Bank to authenticate the identity of
the Company.
(TM) Password - File Transmission - This procedure requires that a
----------------------------
unique eight digit code seperately agreed upon in writing by the
Company and the Bank be presented with the Company's ACH file. The
Company may be required to change the code on a regular basis.
(TM) Password - Taped or Written Instructions - This procedure requires
----------------------------------------
that the Company present taped or written instructions in a tamper
proof container accompanied by a unique code seperately agreed upon
in writing by the Company and the Bank.
_____________________
* In the past referred to as the Master Agreement for Cash Management
Services. This document is incorporated under the Master Agreement for Cash
Management Services if one is already on file with Norwest.
Page 1
<PAGE>
2. Security Procedure Protection. The Company and the Bank will preserve the
-----------------------------
confidentiality of the security procedure. If the Company becomes aware of
a breach, or suspects that a breach may occur, it will immediately notify
the Bank in a manner affording the Bank a reasonable opportunity to act on
the information.
3. Company Bound by Payment Orders. The Company will be bound by any payment
-------------------------------
order, whether or not authorized, issued in its name and accepted by the
Bank in compliance with the chosen security procedure.
4. Inconsistency of Name and Number. If a payment order describes (a) the
--------------------------------
receiver inconsistently by name and account number, payment may be made on
the basis of the account number even if it identifies a person different
from the named receiver, or (b) a participating financial institution
inconsistently by name and identification number, the identification number
may be relied upon as the proper identification of the financial
institution.
The undersigned have caused this Agreement to be executed and warrant that their
respective signatory, whose signature(s) appears below, has been and is on date
of this Agreement date duly authorized by all necessary action in accordance
with its governing instruments to execute this Agreement.
Agreed To And Accepted By: Agreed To And Accepted By:
NORWEST BANK IOWA, AEGIS MORTGAGE
NATIONAL ASSOCIATION ("BANK") ACCELERATION CORP. ("COMPANY")
By: /s/ Tina Smith Fritz By: /s/ Craig M. Compiano
------------------------------------ ------------------------------
Name: Tina Smith Fritz Name: Craig M. Compiano
---------------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------------- ---------------------------
Date: 7/15/99 Date: 6/14/99
---------------------------------- ----------------------------
Page 2
<PAGE>
SUBLICENSE AGREEMENT FOR BANKTIES(R) ACH SERVICE
This Agreement is entered into this 11th day of June, 1999, ("Effective Date"),
by and between Norwest Bank Iowa, National Association, (the "Bank") and AEGIS
Mortgage Acceleration Corp. (the "Company").
RECITALS
WHEREAS, the Bank has sublicensed a certain software package from Politzer &
Haney ("P&H") entitled Auto Cash Version 2.01 ("ACT"), which constitutes the
"BankTIES ACH" software (the "Software"): and
WHEREAS, the Company desires to license the Software from the Bank for the
purpose of providing automated clearinghouse services (the "Services") through
the Bank; and
WHEREAS, the Bank and the Company have entered into an ACH Agreement for the
purposes of providing the Services (the "ACH Agreement"),
NOW, THEREFORE, the parties agree as follows:
1. Use of Software. The Software allows the Company to create and transmit to
---------------
the Bank ACH transactions. The Bank hereby sublicenses the Software and the
Documentation to the Company for the sole purpose of creating ACH
transactions that will in all cases be transmitted to the Bank's host
computer for processing and delivery to an Automated Clearing House ("ACH")
or deposit to accounts maintained at the Bank ("on-us entries"). Each copy
of the Software may be used on only one designated CPU and solely for the
purpose described in this section. If, however, the Company's designated
CPU becomes inoperative, the Company may use the Software on a temporary
back-up CPU until the designated CPU again becomes operatonal.
2. Tutorial System. The Bank may choose to make available to the Company the
---------------
Auto Cash Transfer Tutorial System (the "Tutorial System"). The Company
agrees that the Tutorial System shall be used solely for use in the
training of its employees in the use of the Software.
3. Fee; Term. Upon execution of this Agreement, the Company agrees to pay the
---------
Bank a license as specified in the Bank's pricing schedule, receipt of
which is hereby acknowledged by the Company. This Agreement shall commence
on the Effective Date and shall remain in effect for the term of the ACH
Agreement, unless canceled by either party upon prior written notice to the
other party. Upon termination of this Agreement, the Company shall
immediately return to the Bank all copies of the Software, the
Documentation, and, if applicable, the Tutorial System.
Page 3
<PAGE>
4. Documentation. The Bank will provide the Company with one copy of the
-------------
Software User Manual (the "Documentation"). Portions of the Documentation
include documentation it has received from P&H. Those portions of the
Documentation which have been received from P&H remain the property of P&H
and are or may be copyrighted by P&H. All other portions of the
Documentation remain the property of the Bank and are or may be copyrighted
by the Bank.
5. LIMITATION OF LIABILITY. IN NO EVENT SHALL THE BANK BE LIABLE FOR ANY
-----------------------
INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO LOST DATA, PROGRAMS, PROFITS (ANTICIPATED, ACTUAL, OR
OTHERWISE), OR BENEFITS RESULTING FROM USE OF, RELIANCE UPON, OR INABILITY
TO USE THE SOFTWARE OR THE TUTORIAL SYSTEM, REGARDLESS OF WHETHER OR NOT
THE BANK HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES AND
REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY OR FORM OF ACTION. IN NO
EVENT SHALL THE BANK'S CUMULATIVE LIABILITY TO THE COMPANY IN RELATION TO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY EXCEED A SUM EQUAL
TO THE TOTAL LICENSE FEE ACTUALLY PAID TO THE BANK UNDER THIS AGREEMENT.
6. WARRANTIES. BOTH PARTIES ACKNOWLEDGE THAT THE BANK MAKES NO WARRANTIES,
----------
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF
MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE. ADDITIONALLY, P&H
MAKE NO SUCH WARRANTIES. The sole and exclusive limited remedy of the
company is the remedy described in Section 5 above.
7. Export. The Company agrees that the Software and the Tutorial System
------
licensed hereunder shall not be exported directly or indirectly, separately
or as a part of a system, without first obtaining a license from the U.S.
Department of Commerce or any other appropriate agency of the U.S.
Government as required. Diversion of Products contrary to U.S. law is
prohibited. Nothing in this Section 6 shall be interpreted as expanding any
of the Company's rights as otherwise stated in this Agreement.
8. General.
-------
8.1. The Bank may make copies of any enhanced versions of the Software
available to the Company at such price as the Bank shall determine at
its sole discretion.
Page 4
<PAGE>
8.2. The Company recognizes that it is sublicensing the Software and, if
applicable, the Tutorial System provided by P&H and acknowledges that
P&H has the right to enforce this Agreement directly against the
Company in the event of the breach by Company.
8.3. The Company may not assign this Agreement or any of its rights
hereunder to anyone.
8.4. The waiver or failure of either party to exercise, in any respect, any
right provided for under this Agreement shall not be deemed to be a
waiver of any further right under this Agreement.
8.5. This Agreement and the transactions contemplated hereby shall, except
as may otherwise be required by the Bank's license agreement with P&H,
be governed by and construed in accordance with the laws of the State
of Minnesota and to the extent not inconsistent with this Agreement,
and in accordance with the ACH Agreement.
8.6. The Bank may discontinue to provide to the Company any maintenance or
other product support which it now, or hereafter has agreed to provide
upon prior written notice to the Company.
9. Notice. Any notice hereunder shall be in writing.
------
10. Proprietary Rights. The Software, the Tutorial System, all copies thereof
------------------
and related documentation, and installation and operating manuals and
Documentation ("Proprietary Information") are Proprietary Information of
the Bank and/or P&H. All applicable rights in patents, copyrights,
trademarks and trade secrets in the Proprietary Information are and will
remain in the Bank and/or P&H. The Company shall not assign, sell,
transfer, publish, disclose, display or otherwise make available any
Proprietary Information to others. The Company shall secure and protect the
same in a manner consistent with maintenance of the rights therein and take
appropriate action by instruction or agreement with its employees who are
permitted access to such Proprietary Information to satisfy its obligations
hereunder. The Company hereby acknowledges that, except as specifically set
forth herein, or as may be permitted in writing by the Bank, the Company
shall not
10.1. provide, transmit; sub-sublicense, transfer or otherwise distribute
the Software or any part thereof to a third party, or
10.2. copy, reverse engineer, reverse compile, or reverse assemble,
modify, or alter the Software or any part thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on the day and date first above written.
Page 5
<PAGE>
Agreed To And Accepted By: Agreed To And Accepted By:
NORWEST BANK IOWA, AEGIS MORTGAGE
NATIONAL ASSOCIATION ("BANK") ACCELERATION CORP. ("COMPANY")
By: /s/ TINA SMITH FRITZ By: /s/ CRAIG M. COMPIANO
------------------------------------ -------------------------------
Name: TINA SMITH FRITZ Name: CRAIG M. COMPIANO
---------------------------------- -----------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
--------------------------------- ----------------------------
Date: 7/15/99 Date: 6/14/99
---------------------------------- -----------------------------
Page 6
<PAGE>
Exhibit 10.15
Bank One, Springfield
Automated Clearing House Agreement
This Automated Clearing House Agreement ("Agreement"), including Schedules
A, B and C attached hereto and incorporated herein by reference is made by and
between Aegis Mortgage Acceleration Corporation, San Francisco, California
("Company") and Bank One, Springfield, Springfield, Illinois ("Bank One").
Witnesseth
----------
WHEREAS, Company wishes to initiate Entries via the automated clearing
house pursuant to the terms of the Agreement and the rules of the National
Automated Clearing House Association, local or regional clearinghouse rules, and
applicable federal and state laws, regulations, and rules (together referred to
as "Rules"); and
WHEREAS, Bank One desires to receive Company's instructions and is willing
to act as Company's Originating Depository Financial Institution with respect to
such Entries;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties, intending
to be legally bound, hereby commit and agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms
-----------
shall have the meanings provided in the Rules and the Illinois Commercial Code
Chapter 810, Act 5, Article 4A. The term "Entries" shall have the meaning
provided in the Rules and shall also mean the data received from Company
hereunder from which Bank One prepares Entries.
2. Term. This Agreement shall have an initial term of two years
----
commencing on October 1, 1994 and terminating on September 30, 1996.
3. Services. The Company will deliver to Bank One certain data
--------
concerning debits or credits to accounts of its customers or employees (the
"Data"), as agreed upon by Bank One and Company. Bank One will provide all the
services to Company as detailed in Schedule A attached (the "Services"). Company
agrees to cooperate as required in said documents.
4. Fees. As compensation for the Services, Company agrees to pay the
----
fees in the amount(s) and at the time(s) set forth in Schedule C delivered from
time to time to the Company.
***Confidential treatment has been requested with respect to the information
contained within the "[***]" markings. Such marked portions have been omitted
from this filing and have been filed separately with the Securities and Exchange
Commission.
<PAGE>
5. Compliance with Security Procedures. If an Entry received by Bank One
-----------------------------------
purports to have been transmitted or authorized by Company, it will be deemed
effective as Company's Entry and Customer shall be obligated to pay Bank One the
amount of such Entry as provided herein notwithstanding whether the Entry was
not in fact initiated and authorized by Company, provided Bank One acted in
compliance with Schedule B (the Security Procedures) with respect to such Entry.
6. Settlement. In originating Credit Entries, Company shall pay Bank
----------
One the amount of each Entry transmitted by Bank One pursuant to this Agreement
at such time on the Settlement Date with respect to such Entry as Bank One, in
its discretion, may determine, and the amount of each On-Us Entry at such time
on the Effective Entry Date of such Entry as Bank One, in its discretion, may
determine.
Company will receive provisional credit in immediately available funds on
the relevant Settlement Date for each Debit Entry originated by it, subject to
final payment of such Debit Entry. If a Debit Entry originated by Company is
dishonored or returned, Company shall promptly provide to Bank One in available
funds the amount of such Debit Entry.
Notwithstanding the foregoing, however, Bank One has the right at any time
to require Company to pay Bank One the amount of each Credit Entry transmitted
by Bank One on the date of the transmission by Bank One of such Entry at such
time as Bank One may require in its sole discretion. In addition, Bank One shall
have right at any time to place a percentage of the provisional or final credit
provided to Company for each Debit Entry originated by it in Escrow for a period
of 60 days.
7. Inconsistency of Name and Account Numbers. Company acknowledges and
-----------------------------------------
agrees that, if an Entry describes the Receiver inconsistently by name and
account number, payment of the Entry transmitted by Bank One to the Receiving
Depository Financial Institution might be made by the Receiving Depository
Financial Institution on the basis of the account number even if it identifies a
person different from the named Receiver, and that Customer's obligation to pay
the amount of the Entry to Bank One is not excused in such circumstances.
8. Customer Representations and Agreements. Company represents to Bank
---------------------------------------
One and agrees that (a) each party shown as the Receiver on an Entry received by
Bank One from Company has authorized the initiation and posting of such Entry to
its account in the amount and on the Effective Entry Date shown on such Entry,
(b) such authorization is operative at the time of transmittal or crediting by
Bank One as provided herein, (c) Entries transmitted to Bank One by Company are
limited to those types of Entries set forth in Schedule A, (d) Company shall
perform its obligations under this Agreement in accordance with all applicable
laws and regulations, and (e) Company shall be bound and comply with the Rules
as in effect from time to time, including without limitation the provision
thereof making payment of an Entry by the Receiving Depository
-2-
<PAGE>
Financial Institution to the Receiver provisional until receipt by the Receiving
Depository Financial Institution of final settlement for such Entry; and
specifically acknowledges that it has received notices of that Rule and of the
fact that if such settlement is not received the Receiving Depository Financial
Institution shall be entitled to a refund from the Receiver of the amount
credited and Company shall not be deemed to have paid the Receiver the amount of
the Entry.
For any other claim by the Company, Bank One shall only be liable (within
the other limits contained in this Agreement) for gross negligence or willful
misconduct. In no event shall Bank One be directly liable to any of the
Company's customers or employees or to any other party. In no event shall Bank
One's aggregate liability to the Company, its customers and employees, and any
other parties under this Agreement or as a result of providing the Services or
the Software License exceed the actual loss suffered by Company.
9. Indemnification. The Company agrees to indemnify and hold Bank One
---------------
harmless from all liabilities, losses, costs and expenses (including reasonable
attorney's fees) incurred by Bank One and caused by, or arising out of, (a) any
breach by the Company of any of its warranties, covenants, or representations
herein or any provision of this Agreement or any agreement by the Company with
any employee/customer with respect to any electronic or paper debit or credit,
(b) any failure by the Company to comply with any applicable Rules in relating
to the Data of the Services, and (c) any claim against Bank One by any person or
company in excess of the limitations of liability set forth in Paragraph 9 above
and caused by or arising out of provision of the Services or the Software
License.
10. Software License. If the Company requests the use of or receives any
----------------
software offered by Bank One, then the Company covenants and agrees to the
following (the "Software License"):
a. Bank One grants to the Company and the Company accepts a
nontransferable and nonexclusive license to use the computer software and
related documentation offered to and paid for by the Company, including without
limitation, the MERET(R) PC Software (all such software, documentation and
manuals referred to as "the Software").
b. The Company acknowledges that Bank One (or another company as
disclosed on the Software) is the owner and licensor of the copyrights to the
Software and that such Software is proprietary and confidential information of
Bank One (or such other company).
c. The Company may add information to the Software, provided that
upon discontinuance or termination of the Agreement, the added information will
be
-3-
<PAGE>
removed from the Software. Upon termination of this Agreement, all copies of the
Software will be returned to Bank One.
d. The Company will make no copies other than one, as necessary, of
each item of software, and each copy will contain all legends and notices and
will be subject to the same restrictions as the original. The Company will not
transfer or sublicense the Software to any other party.
e. As to any Software which is, or in the opinion of Bank One, may
become subject to a claim of infringement or misappropriation, Bank One may
elect in its sole discretion to (i) obtain the right of continued use of the
Software for the Company, (ii) replace or modify the Software to avoid such
claim, or (iii) terminate the Software License. If the Software License is
terminated under this Paragraph 11(e)(iii), no further charges will accrue.
11. Confidentiality Agreement. The Company and Bank One mutually agree
-------------------------
that each will refrain from knowingly using proprietary information received
from the other party in connection with provision of the Services or the
Software License, and to prevent dissemination to third parties, each party will
exercise the same degree of care as it employs for protection of its own
proprietary information. No obligation will exist under this Agreement with
respect to an item of information (1) known to the recipient prior to receipt
from the other party; (2) after substantially the same information is published
or made available to the general public through no act or failure to act on the
part of the recipient or (3) after substantially the same information becomes
available to the recipient from a third party having no obligation to hold such
information in confidence. Each party will inform its employees of their
obligations under this paragraph and instruct them so as to ensure that such
obligations are met.
12. The Account. Bank One may without prior notice or demand obtain
-----------
payment of any amount due and payable to it under this Agreement by debiting the
Company's account(s) located at Bank One (the "Account"), and shall post a
credit to the Account for the amount received by Bank One by reason of the
return of an Entry transmitted by Bank One for which Bank One has previously
received payment from Company. Such settlement shall be made as of the day of
such receipt by Bank One. Company shall at all times maintain a balance of
available funds in the Account sufficient to cover its payment obligations under
this Agreement. In the event there are insufficient funds available in the
Account to cover Company's obligations under this Agreement, Company agrees that
Bank One may debit any account maintained by Company with Bank One or any
affiliate of Bank One or that Bank One may set off against any amount it owes to
Company, in order to obtain payment of Company's obligations under this
Agreement.
13. Account Reconciliation. Entries transmitted by Bank One will be
----------------------
reflected on Company's periodic statement issued by Bank One with respect to the
Account.
-4-
<PAGE>
Company agrees to notify Bank One promptly of any discrepancy between Company's
records and the information shown on any such periodic statement. If Company
fails to notify Bank One of any such discrepancy within thirty (30) days of
receipt of a periodic statement containing such information, Company agrees that
Bank One shall not be liable for any other losses resulting from Company's
failure to give such notice or any loss of interest with respect to an Entry
shown on such periodic statement. If Company fails to notify Bank One of any
such discrepancy within sixty (60) days of receipt of such periodic statement,
Company shall be precluded from asserting such discrepancy against Bank One.
14. Notices, Instructions, Etc. (a) Except as otherwise provided herein,
--------------------------
Bank One shall not be required to act upon any notice or instruction received
from Company or any other person or to provide any notice or advice to Customer
or any other person with respect to any matter, (b) Bank One shall be entitled
to rely on any written notice or other written communication believed by it in
good faith to be genuine and to have been signed by an Authorized Representative
of Company, and any such communication shall be deemed to have been signed by
such person. Company will provide a list of authorized signers to Bank One.
Company may add or delete any Authorized Representative by written notice to
Bank One signed by an officer of the Company authorized pursuant to Board
Resolutions to do so. Such notices shall be effective on the second business day
following the day Bank One's receipt thereof, and (c) except as otherwise
provided herein, any written notice or other written communication required or
permitted to be given under this Agreement shall be delivered or sent by United
States registered or certified mail, postage prepaid, or by express carrier, and
if to Bank One, addressed to:
Bank One, Springfield
Attn: Vice President, Corporate Cash Management
East Old State Capitol Plaza
Springfield, IL 62701
and if to Company, addressed to their business address on file with Bank One
unless another address is substituted by notice delivered or sent as provided
herein. Except as otherwise expressly provided herein, any such notice shall be
deemed given when received.
15. Authorization. The Company warrants and represents that there are no
-------------
provisions of any law, whether federal, state or local, or any certificate of
incorporation, bylaw, or agreement of any kind, nature, or description binding
upon the Company which prohibits the Company from entering into this Agreement,
and that the Company's performance of this Agreement has been duly authorized
and is a binding obligation of the Company.
-5-
<PAGE>
16. Financial Information. Company agrees to furnish to Bank One within
---------------------
30 days of Bank One's written request to do so, financial information of Company
as Bank One may reasonably request.
17. Banking Day. Company agrees that if any day scheduled for delivery or
-----------
pickup of Entries is not a "banking day," such pickup or delivery shall be made
on an alternative date to be mutually agreed upon by the Company and Bank One.
For purposes of this Agreement, a "banking day" is a day on which Bank One and
the Federal Reserve Bank are open for carrying on substantially all of its
business (other than a Saturday or Sunday).
18. Record of Telephone Requests. Bank One may, at its election,
----------------------------
electronically record all telephone requests received from Company by Bank One.
In the event Bank One does record such requests, it will retain the recording
for a period of 45 days.
19. Use of Name. Company agrees not to use in any of its advertising or
-----------
promotional activities, the names "MERET(R)," "MERET(R) PC," "Bank One,
Springfield," "BANC ONE CORPORATION" or any other name designated by Bank One as
proprietary without first obtaining the written consent of Bank One.
20. Renewal; Termination. This Agreement shall be automatically
--------------------
extended for successive one-year periods after the expiration of the initial
term unless the Company notifies Bank One or Bank One notifies the Company of
its intent to terminate the Agreement at least 90 days prior to the end of the
initial term or any one-year extension. Fee Schedules may be adjusted at the end
of the initial term or any extension thereafter. Within thirty (30) days of
being informed of any price increase, Company may elect to cancel this Agreement
by notifying Bank One in writing of its intent to cancel. Such cancellation will
take effect ninety (90) days after Bank One receives the Company's written
notification. The obligations of Company under the following paragraphs will
survive any termination or expiration of this Agreement: Paragraphs 9, 10, 11,
12 and 19.
21. Construction; Applicable Law. This Agreement will be governed and
----------------------------
construed in accordance with the laws of the State of Illinois. Paragraph
headings are for convenience only and shall not influence the construction or
interpretation of this Agreement.
22. Binding Agreement; Benefit. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and their respective legal
representatives, successors, and assigns. this Agreement is not for the benefit
of any other person, and no other person shall have any right against Bank One
or Company hereunder.
-6-
<PAGE>
23. Assignment. This Agreement shall not be assigned or otherwise
----------
transferred by the Company to any other person, corporation, or other entity
without Bank One's prior written consent.
This Agreement will become effective and binding upon the parties upon the
date of approval and execution of this Agreement by Bank One, Springfield.
Aegis Mortgage Acceleration Corporation Bank One, Springfield
By: /s/ CRAIG M. COMPIANO By: /s/ [ILLEGIBLE]
-------------------------------- -------------------
Its: VICE PRESIDENT Its: Vice President
-------------------------------- -------------------
Date: 9/20/94 Date: 9/26/94
-------------------------------- ------------------
-7-
<PAGE>
SCHEDULE A
----------
SERVICES
--------
Bank One's MERET(R) System will provide Company with an automated mechanism
to collect mortgage payments from participants in Company's Equity Accelerator
Program. Bank One will perform the following services for Company at the rates
listed on Schedule C attached and Company will assist Bank One by doing those
things stated in #1 and #2 below:
1. Company will create computer files containing the appropriate debit
transaction information. The format of this file will be mutually
agreed upon between Bank One and Company.
2. Company will make available to Bank One by data transmission, the
computer file referred to in #1 above.
3. Bank One will process the information contained on the computer file
through its MERET System.
4. On the effective date supplied by Company, all participant's accounts
will be debited and Company's account at Bank One will be credited for
the total amount of the debits.
5. Bank One will supply Company with reports showing a complete audit
trail of all transactions.
6. Bank One will resubmit one time any item that is returned for
insufficient or uncollected funds. Items returned for any other
reason, or returned for insufficient or uncollected funds a second
time, will be forwarded to Company via data transmission.
7. Company and Bank One will mutually establish procedures to transfer
payments to respective mortgage payments.
8. For additional fees described in Schedule C, Bank One agrees to
develop and maintain a special "Process Control System" (PCS) to be
used by Company and certain of its mortgage customers to add an
additional level of security to the ACH processing environment
The PCS will help validate the integrity of transaction information
provided by Company on behalf of its mortgage company customers. Bank
One will develop and maintain a master file containing appropriate
information about each participant. Each debit transaction record
received by Bank One
<PAGE>
will be compared to this master file to ensure that either the
participant has a corresponding record in the master file or does not
have a corresponding record n the master file, depending upon whether
the individual mortgage company utilizes the PCS.
More detailed specifications for the PCS are contained in separate
written correspondence between Company and Bank One.
-2-
<PAGE>
SCHEDULE B
----------
AUTOMATED CLEARING HOUSE
------------------------
SECURITY PROCEDURES
-------------------
1. Schedules.
---------
Company shall provide to Bank One a schedule of all dates that Customer
anticipates it will originate Entries within 15 business days from the date
of this Agreement for the remaining calendar year and by December 15 of
each year for the following calendar year. Bank One will provide a list of
"nonbanking days" for the current year within 15 business days from the
date of this Agreement and by December 15 of each year for the following
calendar year. Periodic updates to these schedules will be accepted in
writing from the other party.
If Bank One has not received Entries from Company on scheduled delivery
dates and times, Bank One may contact Company for additional information on
the status of the Entries. It shall be within Bank One's sole discretion to
accept Entries which are not received on the scheduled delivery date and
time. If Bank One does choose to accept such Entries, it may require a call
back to verify the contents of the Entries received. If Bank One cannot
obtain such verification, it is under no obligation to process the Entries.
2. Notification.
------------
If Entries are sent to Bank One by magnetic tape or other media, Company
will provide a transmittal from detailing the number of Entries and total
dollars contained in each file and deliver this transmittal with the tape
and other media. This transmittal must be signed by an authorized
representative of Company.
If Entries are sent to Bank One through electronic transmission, Company
will contact Bank One and provide the number of Entries and total dollars
contained in each file of the transmission. If mutually agreed upon,
Company can transmit this information in a separate computer file.
If Company does not provide Bank One with this information, Bank One will
attempt to contact Company for this information. If Bank One is unable to
obtain this information, Bank One may elect not to process this file until
confirmation is received.
<PAGE>
3. Limits.
------
Bank One may set a maximum dollar limit on each Entry contained within a
file of Entries or may set a maximum dollar limit on any particular file of
Entries sent to Bank One on any business day. If either the file or Entry
exceeds the designated dollar limit, Bank One may elect not to process this
file.
4. Security Codes.
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Bank One may elect to establish a unique security code which shall be
assigned to Company exclusively and shall be used to establish
authentication for Entries sent to Bank One by Company according to the
conditions set forth in Section 5 of the Agreement. For each batch or file
of Entries sent by Company, Company shall supply Bank One with this unique
security code as well as the information set forth in Section 2 of this
Schedule B. Company may be requested to provide dial back numbers in order
to initiate electronic transmission of files.
When sending Entries by electronic transmission, Company must provide the
necessary codes as determined by Bank One's data processing security system
in order to establish the necessary communication link.
-2-
<PAGE>
SCHEDULE C
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TRANSACTION PROCESSING FEES
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[***]
[***] Confidential treatment has been requested for certain portions of this
document
<PAGE>
[***]
[***] Confidential treatment has been requested for certain portions of this
document
<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, (except as to Note 21, which is as of April
5, 2000) relating to the financial statements of Paymap Inc., which appear in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 11, 2000
