<PAGE>
As filed with the Securities and Exchange Commission on September 11, 2000
Registration No. 333-41312
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER
The Securities Act of 1933
Metavante Corporation
(Exact Name of Registrant as Specified in its Charter)
Wisconsin 7374 39-1165550
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
4900 West Brown Deer Road
Brown Deer, Wisconsin 53223-2459
(414) 357-2290
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Joseph L. Delgadillo
President and Chief Executive Officer
Metavante Corporation
4900 West Brown Deer Road
Brown Deer, Wisconsin 53223-2459
(414) 357-2290
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Randall J. Erickson N. "Norrie" J. Daroga Thomas A. Cole
Godfrey & Kahn, S.C. Senior Vice President, Sidley & Austin
780 North Water Street Secretary and General 10 South Dearborn Street
Milwaukee, Wisconsin Counsel Chicago, Illinois 60603
53202 Metavante Corporation (312) 853-7000
(414) 273-3500 4900 West Brown Deer Road
Brown Deer, Wisconsin
53223-2459
(414) 357-2290
---------------
Approximate date of commencement of proposed sale to the public: As soon as
is practicable after the effective date 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,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price aggregate Amount of
registered registered(1) per share(2) offering price(2) registration fee(3)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $.01 par
value.................. 18,975,000 $13 $246,675,000 $65,123
</TABLE>
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(1) Includes shares subject to sale pursuant to the underwriters' over-
allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933.
(3) A registration fee of $52,800 was paid with the initial filing of the
Registrant's Registration Statement on Form S-1 on July 13, 2000. The
difference between the revised registration fee and the fee already paid
is being paid with this filing.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws 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--September 11, 2000
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--------------------------------------------------------------------------------
Prospectus
, 2000
Metavante Corporation
16,500,000 Shares of Common Stock
--------------------------------------------------------------------------------
Proposed Symbol &
Market: . Following this
offering, Marshall &
Ilsley Corporation,
our parent company,
will continue to own
approximately 84.1%
of our common stock
and will be able to
determine the
outcome of all
corporate actions
requiring
shareholder
approval.
. MVNT/Nasdaq National
Market
The Offering:
. We are offering
16,500,000 shares of
our common stock.
. The underwriters
have an option to
purchase up to an
additional 2,475,000
shares from us to
cover over-
allotments.
. We will retain $100
million of the net
proceeds of this
offering after the
repayment of an
intercompany payable
to M&I. The balance
of the net proceeds,
approximately $14.6
million assuming an
initial public
offering price of
$12 per share, will
be paid as a
dividend which only
M&I will receive.
. This is our initial
public offering, and
we anticipate that
the initial public
offering price will
be between $11 and
$13 per share.
-------------------------------------------------
<TABLE>
<S> <C> <C>
Per Share Total
---------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Metavante:
</TABLE>
-------------------------------------------------
This investment involves risks. See "Risk Factors" beginning on page 7.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Joint Book-Running Managers
Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
Salomon Smith Barney
UBS Warburg LLC
Robert W. Baird & Co.
DLJdirect Inc.
<PAGE>
[Metavante logo]
We are a provider of integrated solutions that enable financial services
providers to initiate and process a board range of financial transactions
electronically, including on the Internet.
Our solutions enable our clients to compete more effectively in their markets
by eliminating the need to own and maintain the technology necessary to run
their businesses and provide market-ready, leading-edge products and services
to their customers.
We have been providing community and regional banks with dependable, outsourced
account processing services with a high level of customer service since 1964.
Since that time we:
. Processed the first Internet banking transaction in October 1995
. Introduced Internet bill payment in 1997 and Internet business banking in
1999
. Our solutions originated and/or processed over 6.4 billion transactions for
over 90 million consumer and business bank accounts in 1999
. Twenty of the largest 20 and 72 of the largest 100 U.S. banks were Metavante
clients as of June 30, 2000
As of June 30, 2000, Metavante Corporation employed 3,842 full- and part-time
employees.
[Pictures of employees]
<PAGE>
Business to Business to Consumer
[Diagram of product suite]
Metavante organizes its business in two segments: eFinance solutions and
financial technology solutions. Each segment offers products and services to
meet the needs of its clients and the particular market served.
[Metavante logo]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 2
Risk Factors........................ 7
Forward-Looking Statements.......... 17
Our Separation From Marshall &
Ilsley Corporation................. 17
Use of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Selected Condensed and Consolidated
Financial Data..................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business........................... 41
Management......................... 59
Relationship With M&I.............. 72
Certain Transactions............... 78
Principal Shareholder.............. 78
Description of Capital Stock....... 79
Shares Eligible for Future Sale.... 83
Underwriting....................... 85
Legal Matters...................... 88
Experts............................ 88
Additional Information............. 88
Index to Condensed and Consolidated
Financial Statements.............. F-1
</TABLE>
1
<PAGE>
PROSPECTUS SUMMARY
Metavante Corporation, a wholly-owned subsidiary of Marshall & Ilsley
Corporation, operates certain businesses previously operated as the M&I Data
Services division of Marshall & Ilsley Corporation. Except as otherwise noted
herein, the information in this prospectus gives effect to the contribution of
such businesses to Metavante. As used in this prospectus, unless the context
otherwise requires, (i) "Metavante," "we," "us" or "our" refers to Metavante
Corporation and its subsidiaries and (ii) "M&I" refers to Marshall & Ilsley
Corporation and its subsidiaries other than Metavante. In addition, unless
otherwise indicated, all information in this prospectus has been adjusted to
reflect (i) the filing of our Restated Articles of Incorporation and (ii) a
1,740,000 for 1 stock split in the form of a stock dividend.
Metavante Corporation
Our Business
We are a provider of integrated solutions that enable financial services
providers to initiate and process a broad range of financial transactions
electronically, including through the Internet. Our integrated financial
transaction processing, outsourcing, software and consulting solutions provide
virtually all of the technology that a financial services provider needs to run
its operations. We are an application service provider, which means that we
enable our clients to access and utilize our solutions over public and private
networks. As our clients strive to provide market-ready, leading-edge products
and services, our solutions free them from the need to own, manage and
continuously update the technology required to support their financial product
offerings which, in turn, enables them to compete more effectively.
We began operations in 1964, providing community and regional banks with
dependable, outsourced account processing services. Since then, we have
established ourselves as a provider of innovative, high quality solutions to
the financial services industry, processing the first ever Internet banking
transaction in October 1995 and introducing new products and services such as
Internet bill payment in 1997 and Internet business banking in 1999. In 1999,
our solutions were used to originate and/or process over 6.4 billion
transactions for over 90 million consumer and business customer bank accounts.
As of June 30, 2000, we had over 3,300 clients comprised of some of the
nation's largest banks, mid-tier and community banks, Internet banks and non-
traditional financial services providers. Our clients include M&I, Bank of
America Corporation, Washington Mutual, Inc., FleetBoston Financial
Corporation, Provident Bank of Maryland, First Midwest Bancorp, Inc., AAA and
USAA.
Our Market Opportunity
Over the past 20 years, the financial services industry has become
significantly more information intensive. Technological innovation and, more
recently, the growth of the Internet have created increasing demand among
consumers for greater product and service convenience. However, financial
services providers are often constrained in their ability to offer innovative
products and services by the design and capacity of existing systems and by the
lack of requisite technical expertise.
2
<PAGE>
Other challenges faced by financial services providers include regulatory
changes and consolidation trends. New entrants into the financial services
industry, such as Internet banks, insurance companies, brokerages and affinity
groups, are seeking solutions to offer banking services to their customers that
previously could be offered only by traditional banks, savings and loans and
credit unions. These traditional institutions, in turn, are faced with new
competitors targeting their most profitable customers. In order to remain
competitive, these providers must integrate new capabilities and technologies
into their product and service offerings. In addition, consolidation among
financial services providers has made it imperative for industry participants
to gain access to cost-effective, scalable solutions.
Both traditional and non-traditional financial services providers
increasingly view technology as critical to improving customer service levels
and retaining and expanding their customer bases. Moreover, dramatic changes in
the financial services landscape and the speed with which new products and
services must be brought to market have required financial services providers
to focus on their core competencies. As a result, financial services providers
have become more inclined to outsource technology requirements which can be
more efficiently handled by a third party. We believe that our suite of
products and services responds to the market need for an outsourced technology
solution. Our products provide comprehensive solutions, which are modular,
flexible and integrated, enabling clients to select those products and services
which best suit their needs, and solutions which allow financial services
providers to introduce new products and services and enhance existing offerings
quickly.
Our goal is to be the leading provider of financial transaction solutions.
We intend to achieve this goal by:
. expanding existing client relationships,
. adding new clients in both existing markets and in new markets,
. continuing to adapt all of our products and services for use over the
Internet and develop new products and services that employ Internet
technologies,
. maximizing recurring revenues, and
. seeking strategic investments in, acquisitions of and alliances with
complementary businesses and technologies.
Our Separation from Marshall & Ilsley Corporation
Prior to this offering, we were a wholly-owned subsidiary of M&I. M&I is
the second largest bank holding company headquartered in Wisconsin. M&I's
principal assets are the stock of its bank and non-bank subsidiaries and the
stock of Metavante. M&I's common stock is publicly traded on the New York Stock
Exchange under the symbol "MI."
3
<PAGE>
After completion of this offering, M&I will continue to own approximately
84.1% of the outstanding shares of our common stock, or approximately 82.1% if
the underwriters exercise their over-allotment option in full. As long as M&I
continues to own a majority of our outstanding stock, M&I will be able to elect
all our directors and determine the outcome of our corporate actions requiring
shareholder approval. In addition, we will continue to derive a substantial
portion of our revenues from M&I in future periods. For the year ended December
31, 1999 and the six months ended June 30, 2000, revenues from M&I represented
approximately 10.4% and 11.0% of our total revenues.
M&I currently plans to complete its divestiture of Metavante by
distributing all of the shares of Metavante owned by M&I to the holders of
M&I's common stock within one year following completion of this offering.
However, M&I is not obligated to complete the distribution, and the
distribution may not occur by the anticipated time or at all. M&I will, in its
sole discretion, determine the timing, structure and terms of the distribution.
M&I's divestiture is subject to receiving a private letter ruling from the
Internal Revenue Service that the distribution will be tax-free to M&I
shareholders and that our separation from M&I qualifies as a reorganization for
U.S. federal tax purposes. If M&I does not receive a private letter ruling from
the Internal Revenue Service regarding the tax-free nature of the distribution,
M&I may determine to proceed with the distribution without the private letter
ruling, or M&I may abandon the distribution. If M&I abandons the distribution,
M&I will continue to be our controlling shareholder.
Information About Us
We were formerly operated as part of the M&I Data Services division of
M&I. In anticipation of this offering, the assets and liabilities relating to
our business were contributed to Metavante Corporation, a wholly-owned
subsidiary of M&I. Our principal executive offices are located at 4900 West
Brown Deer Road, Brown Deer, Wisconsin 53223-2459, and our telephone number is
(414) 357-2290. Our Internet address is www.metavante.com. The information
contained on our website is not part of this prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered..... 16,500,000 shares
Common stock outstanding
immediately after this
offering................ 103,500,000 shares
Common stock held by M&I
immediately after this
offering................ 87,000,000 shares
Use of proceeds.......... We will retain $100 million of the net proceeds of
this offering after the repayment of an intercompany
payable to M&I. The balance of the net proceeds,
approximately $14.6 million assuming an initial
public offering price of $12 per share, will be paid
as a dividend which only M&I will receive. We plan
to use the $100 million we retain for general
corporate purposes and potential investments in, or
acquisitions of, complementary businesses and
technologies. As of June 30, 2000, the amount of the
intercompany payable to M&I was $67 million.
Proposed Nasdaq National
Market symbol........... MVNT
</TABLE>
The foregoing information is based on 87,000,000 shares outstanding
immediately prior to this offering, all of which are owned by M&I. Unless we
specifically state otherwise, the information in this prospectus does not take
into account the issuance of up to 2,475,000 shares of common stock that the
underwriters have the option to purchase. If the underwriters exercise in full
their option to purchase additional shares, 105,975,000 shares of common stock
will be outstanding after this offering.
The number of shares of our common stock to be outstanding immediately
after this offering listed above does not take into account options issuable at
the time of the distribution in connection with the conversion of options
issued under M&I's incentive plans. We have also granted options to purchase
2,650,000 shares of our common stock effective as of the closing date of this
offering with an exercise price equal to the initial public offering price of
our common stock.
As of the date of this prospectus, it is not possible to determine how
many options for shares of Metavante common stock will be issued at the time of
the distribution. Holders of our common stock will experience dilution as a
result of such issuance. If all options issued under M&I's incentive plans that
can be converted into Metavante options are so converted at the time of the
distribution, and if the market prices assumed for M&I and Metavante common
stock are $38 and $12, respectively, approximately 9,547,000 options for shares
of Metavante common stock would be issued for M&I options outstanding as of
July 31, 2000 at an average exercise price of approximately $11.03 per share.
5
<PAGE>
Summary Condensed and Consolidated Financial Data
The following tables present our summary condensed and consolidated
financial and other operating data. The data presented in these tables are from
"Selected Condensed and Consolidated Financial Data" and our historical
consolidated financial statements and pro forma condensed financial statements
and related notes included elsewhere in this prospectus. You should read those
sections for a further explanation of the data summarized here.
The historical consolidated financial information is not indicative of our
future performance and does not reflect what our financial position or results
of operations would have been had we been operated as a separate, stand-alone
entity during the periods presented. The pro forma condensed financial
information is provided for illustrative purposes only and does not purport to
represent what our financial position or results of operations actually would
have been had this offering taken place and our new agreements with M&I been in
place on January 1, 1999.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------------------ ---------------------------
Pro Forma Pro Forma
1995 1996 1997 1998 1999 1999(3) 1999 2000 2000(3)
(In thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of
Income Data:
Total revenues.......... $252,565 $318,840 $381,762 $471,559 $546,384 $541,384 $256,407 $288,970 $286,470
Income from operations.. 27,990 23,164 49,366 58,406 73,030 68,030 32,337 39,754 37,254
Income before taxes..... 24,047 19,335 46,517 55,641 66,198 64,334 30,404 35,760 35,350
Net income.............. 16,168 15,046 27,471 32,605 36,907 35,835 16,402 20,617 20,381
Basic and diluted net
income per share....... $ 0.19 $ 0.17 $ 0.32 $ 0.37 $ 0.42 $ 0.38 $ 0.19 $ 0.24 $ 0.22
======== ======== ======== ======== ======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
income per share(1) ... 87,000 87,000 87,000 87,000 87,000 93,800 87,000 87,000 93,800
Operating Data:
No. of electronic
transactions completed,
in billions(2)......... -- 3.1 4.3 5.6 6.4 -- 3.3 3.4 --
</TABLE>
<TABLE>
<CAPTION>
As of
June 30, 2000
---------------------
Actual Pro Forma(3)
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Total assets.............................................. $555,743 $655,743
Long-term debt............................................ 71,224 4,224
Shareholder's equity...................................... 255,825 422,825
</TABLE>
--------------------
(1) Does not reflect any incremental shares that would result if any M&I stock
options are converted to tandem stock options if M&I distributes its
Metavante shares to its shareholders.
(2) Numbers are approximations for the periods indicated based on internal
processing records. Information is not available prior to 1996. An
"electronic transaction" is defined as any transaction related to bill
payment activity, which commenced in 1999, integrated banking system
account activity, automated teller machine activity, debit and credit card
usage and trust activities that is effected by electronic means, whether
over the Internet or otherwise. The number of electronic transactions
completed is an indicator of recurring revenue, which is Metavante's
primary source of revenue.
(3) The pro forma data assume that the sale of 16,500,000 shares of common
stock offered hereby at an initial public offering price of $12 per share
and the application of the net proceeds therefrom occurred on January 1,
1999. In addition, the pro forma data reflect the effect of our new
agreements with M&I, as if they had been entered into on January 1, 1999.
The pro forma net income per share amounts are based on the 87,000,000
shares previously outstanding plus 5,583,000 shares of common stock, the
proceeds from which will be used to repay intercompany debt to M&I, and
1,217,000 shares of common stock, the proceeds from which will be used for
a dividend to M&I.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before deciding
to purchase shares of our common stock. We have separated the risks into three
categories:
. risks relating to our business and industry,
. risks relating to our relationship with and separation from M&I, and
. risks relating to the securities markets and ownership of our common
stock.
Risks Relating to Our Business and Industry
Ongoing consolidation within the banking and financial services industry
could adversely affect our financial results
Ongoing consolidation within the banking and financial services industry
could result in a smaller number of purchasers for our products and services.
As banks and other financial services providers consolidate, they may
experience a realignment of management responsibilities and a reexamination of
strategic and purchasing decisions and we may lose relationships with key
constituencies within our clients' organizations due to budget cuts, layoffs
or other disruptions. As these financial services providers grow, we may not
be able to adapt to and accommodate their increasingly sophisticated needs. In
addition, acquiring institutions may have their own in-house systems or
outsource to competitors. The loss of business due to consolidation, in
particular the loss of a large client to consolidation, such as M&I, could
materially adversely affect our business, operating results and financial
condition.
We are dependent upon M&I and our distributors for a significant portion of
our business
We derive a significant portion of our revenues from M&I. For the year
ended December 31, 1999 and the six months ended June 30, 2000, revenues from
M&I represented approximately 10.4% and 11.0% of our total revenues,
respectively. We expect that M&I will continue to account for a substantial
portion of our revenues for the foreseeable future. If we lose M&I as a
client, our business, operating results and financial condition would be
materially adversely affected.
We have entered into non-exclusive distribution agreements with several
leading home banking providers, including Digital Insight Corporation,
FundsXpress, Inc., Jack Henry & Associates, Inc., S1 Corporation, Corillian
Corporation and VIFI (Virtual Financial), all of which resell our electronic
bill payment solution as part of their home banking products. Because we are
particularly dependent upon Digital Insight Corporation as a distributor of
our electronic bill payment solution, the loss of Digital Insight Corporation
as a distributor of this product could have a material adverse effect on our
business, operating results and financial condition in general, and our
eFinance solutions segment in particular. Our distribution agreement with
Digital Insight Corporation is currently being renegotiated, and we cannot
make any assurances as to whether the revised agreement will have terms
similar to, or as favorable as, our existing agreement. In addition, several
of these distributors, including Digital Insight Corporation, also compete
with us in a number of related markets, which increases the risk of losing one
or more of these companies as distributors of our products.
7
<PAGE>
We recently entered into an agreement with Spectrum EBP, L.L.C. pursuant
to which Spectrum has agreed to market and use our electronic bill payment
services. Spectrum is a joint venture of The Chase Manhattan Bank, First Union
National Bank and Wells Fargo Bank N.A. This agreement with Spectrum is
important to the future prospects of our eFinance solutions business, and the
loss of this agreement for whatever reason could result in a material adverse
effect on our business, operating results and financial condition.
We face intense competition in all areas of our business
The markets for our products and services are intensely competitive and
we expect to face increased competition in the future as new companies enter
our market and existing competitors expand their product lines and services.
Competitors vary in size and in the scope and breadth of their products and
services. Some of our current and potential competitors have better name
recognition and significantly greater resources than we do, and many of our
competitors are consolidating, creating larger competitors with even greater
resources and broader product lines. In addition, many of our competitors have
established, or may in the future establish, cooperative relationships or
strategic alliances among themselves or with third parties to compete with our
products and services. It is possible that new competitors or alliances among
competitors may emerge and rapidly acquire market share to our detriment.
Currently, CheckFree Holdings Corporation is a dominant competitor of ours in
the electronic bill payment and presentment marketplace. We also face
competition from our clients and potential clients who develop their own
financial services solutions. Our inability to compete successfully against
any of these competitive pressures could result in a material adverse effect
on our business, operating results and financial condition.
We rely on the continued functioning of our data centers and the integrity of
the data we process
Our data centers are an integral part of our business. Our ability to
protect our data centers, particularly our Wisconsin data centers, against
damage from fire, power loss, telecommunications failure and other disasters,
is critical to our future. Moreover, because we rely on the integrity of the
data we process, if this data is incorrect or somehow tainted, client
relations and confidence in our services could be impaired, which would harm
our business, operating results and financial condition.
Network operational difficulties or security problems could damage our
reputation and business
We depend on the reliable operation of network connections from our
clients and our clients' end users to our systems. Any material operational
problems or outages in these connections and/or systems would cause us to be
unable to process transactions in a timely manner for our clients and our
clients' end users, resulting in decreased revenues. In addition, any system
delays, failures or loss of data, whatever the cause, could reduce client
satisfaction with our products and services and harm our current and
prospective financial results. While we have not experienced material
operational problems or outages within the past 12 months, which we define as
problems or outages that would require us to implement our disaster recovery
plan, these are serious risks in our industry.
We also depend on the security of our systems. Our networks may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. We transmit confidential
8
<PAGE>
financial information in providing our services. Users of Internet banking and
other electronic commerce services are concerned about the security of
transmissions over public networks. Therefore, it is critical that our
facilities and infrastructure are perceived by the marketplace to be secure. A
material security problem affecting us could damage our reputation, deter
financial services providers from purchasing our products, deter their
customers from using our products or result in liability to us. Any material
security problem affecting our competitors could affect the marketplace's
perception of Internet banking and electronic commerce services in general and
have the same effects.
If we are unable to keep pace with evolving technology and changes in the
financial services industry, our revenues and future prospects may decline
The markets for our products and services are characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products and services embodying new technologies
and the emergence of new industry standards can render existing products and
services obsolete and unmarketable in short periods of time. We expect new
products and services, and enhancements to existing products and services, to
be developed and introduced by others, which will compete with the products and
services we offer. The life cycles of our products and services are subject to
dramatic shifts. Our future success will depend upon our ability to enhance
current products and services, to develop and introduce new products and
services that keep pace with technological developments and emerging industry
standards, to maintain existing and establish new strategic alliances to help
us develop and implement new technologies and to address the increasingly
sophisticated needs of our clients. There can be no assurance that we will be
successful in developing and marketing new products and services or producing
enhancements that meet these changing demands, that we will be able to overcome
difficulties that could delay or prevent the successful development,
introduction and marketing of these products and services, that we will be able
to maintain or derive the anticipated benefit from our existing strategic
relationships or be able to establish new alliances or that our new products
and services and enhancements will adequately meet the demands of the
marketplace and achieve market acceptance. If we are unable to develop and
introduce new products and services or enhancements in a timely manner, or if a
release of a new product or service does not achieve market acceptance, our
business, operating results and financial condition could be materially
adversely affected.
Acquisitions may be difficult to integrate, divert management resources or
dilute shareholder value
We have undertaken strategic acquisitions in the past and in the future we
may acquire or make investments in complementary companies, products and/or
technologies. Future acquisitions could pose numerous risks to our operations,
including:
. problems integrating the purchased operations, personnel, technologies
or products,
. inability of the acquired business to achieve anticipated revenues,
earnings or cash flow,
. unanticipated costs,
. diversion of resources and management attention from our core
businesses,
9
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. adverse effects on existing business relationships with suppliers and
clients and on our ability to enter into new business relationships,
. entry into markets in which we have limited or no prior experience, and
. potential loss of key employees, particularly those of the acquired
organization.
Tax requirements related to the distribution by M&I of our common stock
may restrict our ability to complete large acquisitions through the issuance of
our common stock. In the event we issue our common stock in connection with an
acquisition, our current shareholders' percentage ownership in the company will
be diluted.
We may not be able to protect our intellectual property, and we may be subject
to infringement claims
Our future success and ability to compete depends upon the proprietary
software we use to provide our eFinance solutions and our financial technology
solutions, substantially all of which was developed by or for us. However, this
proprietary software is not protected by patents and is only protected by
contractual rights and copyright laws. Despite our efforts to protect this
intellectual property, a third party could copy or otherwise obtain our
proprietary software without authorization, or could develop software
competitive to ours. Our competitors may independently develop similar
technology, duplicate our products or services or design around our
intellectual property rights. In addition, the laws of some foreign countries
do not protect our proprietary rights to as great an extent as do the laws of
the United States. We may have to litigate to enforce our intellectual property
rights or to determine their scope, validity or enforceability. Enforcing or
defending our intellectual property rights is expensive, could cause the
diversion of our resources and may not prove successful. If we are unable to
protect our intellectual property, we may lose a valuable competitive
advantage.
We also may be subject to costly litigation in the event our products or
technology infringe upon another party's proprietary rights. We expect software
to be increasingly subject to third party infringement claims as the number of
competitors grows and the functionality of products in different industry
segments overlaps. Third parties may have, or may eventually be issued, patents
that could be infringed by our products or technology. Any of these third
parties could make a claim of infringement against us with respect to our
products or technology. Any such claims and any resulting litigation could
subject us to significant liability for damages. An adverse determination in
any litigation of this type could require us to design around a third party's
patent or to license alternative technology from another party. In addition,
litigation is time consuming and expensive to defend and could result in the
diversion of our time and attention. Any claims from third parties may also
result in limitations on our ability to use the intellectual property subject
to these claims.
Litigation over our products could be costly and time consuming to defend
Since our products are used to deliver services that are integral to our
clients' businesses, errors, defects or other performance problems could result
in financial or other damages to our clients. Product liability litigation
arising from these errors, defects or problems, even if we were successful,
would be time consuming and costly to defend. Existing or future laws or
unfavorable
10
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judicial decisions could negate any limitations of liability provisions that
are included in our agreements with our clients.
We are dependent on senior management; failure to attract and retain skilled
technical employees could harm our ability to grow
We believe that our continued success depends to a significant extent upon
the efforts and abilities of our senior management. The loss of the services of
any of our executive officers for any reason could have a material adverse
effect on our business, operating results and financial condition.
Our future success will also depend in large part upon our ability to
attract and retain highly skilled technical personnel. Because the development
of our products and services requires knowledge of computer hardware, operating
system software, system management software and application software, our
technical personnel must be proficient in a number of disciplines. Competition
for such technical personnel is intense, and our failure to hire and retain
talented personnel could have a material adverse effect on our business,
operating results and financial condition.
Our future growth, if any, will also require additional sales and
marketing, financial and administrative personnel to develop and support new
products and services, to enhance and support current products and services and
to expand operational and financial systems. There can be no assurance that we
will be able to attract and retain the necessary personnel to accomplish our
growth strategies and we may experience constraints that could adversely affect
our ability to satisfy client demand in a timely fashion.
Government regulation of the Internet and the financial services industry
could harm our business
As the Internet continues to evolve, government regulation of
communications and commerce over the Internet is becoming more prevalent. For
example, a recent session of the United States Congress resulted in Internet
laws regarding copyrights, taxation and the transmission of specified types of
material. Congress also adopted legislation imposing obligations on financial
institutions to develop privacy policies, restrict the sharing of non-public
customer data with non-affiliated third parties at the customer's request and
establish procedures and practices to protect and secure customer data. These
privacy provisions, which apply to our financial institution clients and may
apply to us, as well as other laws and regulations that are currently in
existence or may be adopted which govern communications and commerce over the
Internet, could limit the market for Internet-based financial services, impose
liability on us for the transmission of protected data and increase our
expenses.
The financial services industry is subject to extensive and complex
federal and state regulation, and financial institutions operate under high
levels of governmental supervision. Our clients must ensure that our services
and related products work within the extensive and evolving regulatory
requirements applicable to them. Federal, state or foreign authorities could
adopt laws, rules or regulations affecting our clients' businesses which could
lead to increased operating costs
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and could also reduce the convenience and functionality of our products and
services, possibly resulting in reduced market acceptance.
Fluctuations in quarterly operating results could adversely affect the price
of our common stock
Our quarterly operating results have fluctuated in the past. If we fail
to meet expectations as a result of any future fluctuations in our quarterly
operating results, the market price of our common stock would likely decline.
We expect that we may experience fluctuations in future quarters because we
cannot accurately predict the number and timing of contracts we will sign in a
period, in part because the budget constraints and internal review processes
of existing and potential clients are not within our control, and because of
the termination fees payable upon the termination of significant client
contracts.
Our future quarterly operating results may also fluctuate based on
strategic alternatives, such as alternatives we are currently considering with
respect to our M&I EastPoint subsidiary. While we believe a sale of this
subsidiary is the most likely scenario, if we discontinued substantially all
of M&I EastPoint's operations, we would expect to incur an after-tax charge of
approximately $7.0 million. Also, on September 5, 2000, we received a
termination payment of $13.7 million from TransPoint Technology & Services LLC
as a result of the consummation of a merger between TransPoint and Checkfree
Holdings Corporation. TransPoint had been an electronic bill payment client.
Risks Relating to Our Relationship With and Separation From M&I
We have no history as a stand-alone company; our historical financial
information may not be indicative of our results as a separate company
We are currently a wholly-owned subsidiary of M&I. After this offering,
we will be a majority-owned subsidiary of M&I, but will operate as a stand-
alone company. M&I will have no obligation to provide assistance to us, except
as provided in our agreements with M&I. We cannot assure you that we will be
viable as a stand-alone company or that this change will not have an adverse
effect on us. Because the financial information included in this prospectus
relates to periods during which we were wholly-owned by M&I, it is not
necessarily indicative of our future results of operations, financial position
and cash flows.
We intend to enter into an outsourcing agreement with M&I pursuant to
which we will continue to provide services to M&I as a client. The terms of
this agreement differ from the agreement that was in place during the periods
presented in our historical financial statements. We estimate that we would
have reported lower revenues of approximately $5.0 million on an annual basis
in our historical financial statements had this agreement been in place during
the periods presented.
We will be controlled by M&I as long as it owns a majority of our common
stock, and our other shareholders will be unable to affect the outcome of
shareholder voting during this time
After the completion of this offering, M&I will continue to own
approximately 84.1% of our outstanding stock, or approximately 82.1% if the
underwriters exercise their over-allotment option in full. As long as M&I
continues to hold a majority of our outstanding stock, M&I will be able to
elect
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all of our directors and determine the outcome of all corporate actions
requiring shareholder approval. While it controls us, M&I will control
decisions with respect to:
. the composition of our board of directors and, through it, any
determination with respect to the business direction and policies of
our company, including the appointment and removal of officers,
. the allocation of business opportunities that may be suitable for us
and M&I,
. any determination with respect to mergers or other business
combinations,
. the acquisition or disposition of assets by us,
. our debt or equity financing, including future issuances of our common
stock or other securities, and
. amendments to our Restated Articles of Incorporation and Bylaws.
Until the distribution, we may not take any action which would cause M&I to
own less than 80.1% of our common stock, which could prevent us from raising
additional capital through the issuance of our common stock
Pursuant to a reorganization agreement with M&I, we have agreed that,
until completion of the distribution or notice from M&I that it does not
intend to proceed with the distribution, we will not take any action which
would cause M&I to own less than 80.1% of our common stock. The effect of this
provision may be to prevent us from raising additional capital through the
issuance of our common stock.
We may not realize the benefits of our separation from M&I, and our stock
price may decline if M&I does not complete the distribution
M&I has announced that it intends to distribute to its shareholders all
of our common stock that it owns within one year following the completion of
this offering. However, M&I is not obligated to complete the distribution, and
the distribution may not occur by the anticipated time or at all. If M&I does
not complete the distribution, M&I will continue to control us and we may not
fully realize the benefits we expect as a result of our separation from M&I.
In addition, if the distribution is not completed, the liquidity of our shares
in the public market will be limited unless and until M&I elects to sell some
of its significant ownership. There are no limits on these sales and a sale or
potential sale by M&I could adversely affect market prices. Furthermore,
because of the limited liquidity until the distribution occurs, relatively
small trades of our stock may have a disproportionate effect on our stock
price.
Potential conflicts of interest may arise between us and M&I that may not be
resolved in our favor
Conflicts of interest may arise between M&I and us in a number of areas
relating to our past and ongoing relationships, including:
. labor, tax, employee benefit, indemnification and other matters arising
from our separation from M&I,
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. intellectual property matters,
. employee retention and recruiting,
. major business combinations involving us,
. the nature, quality and pricing of transitional services M&I will
provide to us and of services we will provide to M&I as a client, and
. business opportunities that may be attractive to both M&I and us.
Because we do not intend to enter into any non-competition arrangements
with M&I, there is particular potential for conflicts relating to business
opportunities. We may not be able to resolve any potential conflicts, and even
if we do, the resolution may be less favorable than if we were dealing with an
unaffiliated party.
Moreover, after completion of this offering and the election of three
independent directors, who are not affiliated with M&I, we will have a Board
of Directors consisting of six members. Two of the members of our Board of
Directors also serve on the M&I Board of Directors and are executive officers
of M&I. As these individuals perform their duties to M&I and to us, conflicts
of interest and conflicting demands on the amount of time these individuals
will have available for our affairs may arise. We cannot assure you that any
such conflicts will be resolved in our favor.
The administrative services to be provided to us by M&I may not be sufficient
to meet our needs, and we may pay increased costs to replace these services
after our agreement with M&I expires
We intend to enter into an agreement with M&I pursuant to which M&I will
provide administrative services to us, including services related to tax,
insurance and employee benefit matters. These services may not be provided at
the same level as when we were part of M&I, and we may not be able to obtain
the same benefits. The administrative services agreement will have an initial
term which expires 180 days after completion of this offering, subject to
automatic renewal for successive 30-day terms. After the expiration of this
agreement, we may not be able to replace the administrative services in a
timely manner or on terms and conditions, including cost, as favorable as
those we will receive from M&I.
Our intercompany agreements with M&I are not the result of arm's length
negotiations
We have entered or will enter into various agreements with M&I relating
to the organization of our business as a separate entity from M&I, as well as
other agreements pursuant to which we will provide services to M&I as a
client. All of these agreements were or will be entered into in the context of
a parent-subsidiary relationship and were or will be negotiated in the overall
context of our separation from M&I. As a result, these agreements may have
terms and conditions that may be more or less favorable to us than agreements
that are negotiated at arms-length with independent parties. The prices
charged to us pursuant to those agreements under which M&I will provide a
service to us, and the prices charged by us pursuant to those agreements under
which we will provide a service to M&I, may be different from the prices that
we may be required to pay to, or the prices that we might be able to receive
from, third parties for similar services.
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We are dependent upon M&I to support our offerings
We currently rely on M&I to provide various services which support our
private label banking, trust and investment solutions and card solutions
offerings. M&I currently provides these services on a discretionary basis and
we expect that M&I will continue to provide these services on a discretionary
basis. We may not be able to locate a suitable replacement in the event M&I
determines to discontinue providing these services to us, which could have a
material adverse effect on our business, operating results and financial
condition in general, and our financial technology solutions segment in
particular.
Substantial sales of common stock may occur in connection with the
distribution, which could cause our stock price to decline
Substantially all of the shares of our common stock that M&I intends to
distribute to its shareholders will be eligible for immediate resale in the
public market. We are unable to predict whether significant amounts of common
stock will be sold in the open market in anticipation of, or following, this
distribution. We are also unable to predict whether a sufficient number of
buyers would be in the market at that time.
Some of the institutional shareholders who receive our common stock in
the distribution may not be able to hold the stock because of restrictions in
their charters or they may simply not want the stock for a variety of other
reasons. Sales of substantial amounts of common stock in the public market, or
the perception that such sales might occur because of the distribution or
otherwise, could harm the market price of our stock.
Risks Relating to the Securities Markets and Ownership of Our Common Stock
The sale of shares of common stock eligible for future sale may adversely
affect the price of our common stock
Upon completion of this offering, there will be 103,500,000 shares of our
common stock outstanding. The common stock sold in this offering will be
freely tradable without restriction by persons other than our "affiliates," as
such term is defined in the Securities Act of 1933, as amended. In addition,
M&I has announced that it intends to distribute all of the 87,000,000 shares
of our common stock it owns to M&I shareholders within one year after this
offering. Substantially all of these shares will be eligible for immediate
resale in the public market. We are unable to predict whether significant
amounts of common stock will be sold in the open market in anticipation of, or
following, this distribution, or by M&I if the distribution does not occur. We
cannot predict the effect, if any, that future sales of substantial amounts of
common stock, or the perception that such sales might occur, will have on the
market price of the shares of our common stock. Sales of substantial amounts
of common stock, or the perception that such sales might occur, could
adversely affect prevailing market prices for the common stock. We, our
executive officers and directors and M&I and M&I's executive officers and
directors have agreed, subject to exceptions such as the distribution, not to
offer or sell or enter into any swap or other similar arrangements with
respect to any shares of common stock for a period of 180 days after the date
of this prospectus, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation and Credit Suisse First Boston Corporation.
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You will incur substantial dilution in the book value of the shares you
purchase in this offering
The proposed initial public offering price of $12 per share is
substantially higher than the book value of $2.94 per share of the common
stock as of June 30, 2000. Accordingly, purchasers in this offering will incur
immediate and substantial book value dilution of $7.77 per share. Assuming an
initial public offering price of $12 per share, purchasers in this offering
will incur dilution of $7.92 per share after giving effect to the
approximately $14.6 million of the net proceeds of this offering to be paid as
a dividend which only M&I will receive.
We have no prior public market for our common stock; our stock price may be
volatile
Prior to this offering, there has been no public market for our common
stock. Although we have applied to list our common stock on the Nasdaq
National Market, an active, continuous trading market for our common stock may
not develop. This means that you may not be able to sell shares of common
stock you acquire in this offering easily, if at all. Furthermore, the market
price for the common stock could decline below the public offering price set
forth on the cover page of this prospectus. We and the representatives of the
underwriters will determine the initial public offering price based on the
factors described under "Underwriting." This determination may not necessarily
equal the intrinsic value, or fix the market value, of the common stock. The
trading prices of our common stock could be subject to wide fluctuations in
response to the following factors, among others:
. actual or anticipated variations in our quarterly operating results,
. announcements of new products, product enhancements, technological
innovations, new services or significant business initiatives by us or
our competitors,
. additions or losses of significant clients, and
. conditions or trends in the Internet, online commerce and/or financial
services industries.
In addition, the stock market recently has experienced a high level of
price and volume volatility, and market prices for the stock of many companies
have experienced wide price fluctuations which have not necessarily been
related to their operating performance. These broad market fluctuations could
have a material adverse effect on the market price of our common stock.
Anti-takeover provisions in our organizational documents and state law, and
our tax indemnification obligations to M&I, may adversely impact our common
stock
Various provisions of our Restated Articles of Incorporation, Bylaws and
change of control severance agreements which we intend to enter into with some
of our executive officers could delay, defer or prevent a change of control of
Metavante without further action by our shareholders, could discourage
potential investors from bidding for our common stock at a premium over the
market price of the common stock and could adversely affect the market price
of, and the voting and other rights of the holders of, the common stock. In
addition, the "anti-takeover" provisions of the Wisconsin Business Corporation
Law, among other things, restrict the ability of shareholders to cause a
merger or business combination with or obtain control of Metavante. These
provisions may be considered disadvantageous by a shareholder. Our tax
indemnification obligations to M&I which relate to the distribution may also
deter third parties from seeking to acquire control of us.
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FORWARD-LOOKING STATEMENTS
This prospectus contains a number of forward-looking statements regarding
our operations and business. Statements in this document that are not
historical facts are "forward-looking statements." Such forward-looking
statements include those relating to:
. our future business prospects,
. projected or anticipated product development or introduction,
. possible acquisitions, and
. projected revenues, working capital, liquidity, capital needs, interest
costs and income.
The words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. These forward-
looking statements are found at various places throughout this prospectus.
Wherever they occur in this prospectus or in other statements attributable to
Metavante, forward-looking statements are necessarily estimates reflecting the
best judgment of our senior management and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Discussions in this prospectus
under the captions "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" are particularly susceptible to risks and
uncertainties. Such forward-looking statements should, therefore, be considered
in light of various important factors, including those set forth in this
prospectus and other factors set forth from time to time in our reports and
registration statements filed with the Securities and Exchange Commission. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. We disclaim any intent or obligation to
update forward-looking statements, subject to our obligations under the federal
securities laws. Moreover, we, through senior management, may from time to time
make forward-looking statements about the matters described herein or other
matters concerning Metavante.
OUR SEPARATION FROM MARSHALL & ILSLEY CORPORATION
Overview
On July 13, 2000, M&I announced its plan to make Metavante into an
independent, publicly-traded company. Until the completion of this offering, we
will continue as a wholly-owned subsidiary of M&I.
Benefits of the Separation
We believe that we will realize a number of benefits from our separation
from M&I, including the following:
. Greater Strategic Focus. The management of M&I is focused not only on
our company's business, but also on its financial services business. A
separation of our company from M&I will allow our senior management to
focus exclusively on what is best for our company, including developing
existing businesses and new strategic initiatives. This effort will be
supported by our own Board of Directors, management and employees.
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. Capital Financing Flexibility. A separation of our company from M&I
would benefit our company by enhancing our capital planning
flexibility. For example, we would be able to use our own stock to
facilitate growth through acquisitions. Also, we would no longer have
to compete for funds with other members of the M&I organization for
projects our management feels warrant funding. Also, decisions
regarding debt financing to finance growth would rest solely with our
management. However, we have entered into agreements in connection with
our separation from M&I that contain covenants which may restrict our
ability to issue stock, including in connection with large
acquisitions. For a description of these covenants, see "Relationship
With M&I."
. Better Management Incentives. We expect that the motivation of our
employees and the focus of our management will be strengthened by
incentive compensation programs tied to the market performance of our
stock. The market for employees with the skills our company requires is
very competitive and our ability to offer options and other incentive
compensation tied solely to our company's stock should help our
recruiting and retention efforts.
.Increased Speed and Responsiveness. M&I is a larger company operating in
a highly regulated industry. A separation from M&I would allow our
management to implement simplified organizational and internal reporting
structures which should result in faster decision making, more rapid
deployment of resources and greater agility in responding to the demands
of the marketplace. The legal restrictions on our activities as a
controlled subsidiary of a bank holding company will cease when the
separation from M&I is complete, further increasing our ability to
quickly respond to the changing needs of our business.
Intercompany Agreements
The assets and liabilities relating to our business were contributed to us
by M&I effective as of July 1, 2000 pursuant to a general assignment and
assumption agreement. In addition, we have entered or will enter into a number
of other agreements with M&I relating to the separation of our business from
M&I, including an administrative services agreement pursuant to which M&I will
provide us with tax, insurance and employee benefit services, a banking
services agreement and a tax sharing agreement. Finally, we intend to enter
into an outsourcing agreement, a professional services agreement and a branch
automation agreement with M&I pursuant to which we will provide services to M&I
as a client.
The Distribution by M&I of our Common Stock
After completion of this offering, M&I will own approximately 84.1% of the
outstanding shares of our common stock, or approximately 82.1% if the
underwriters exercise their over-allotment option in full. M&I currently plans
to complete its divestiture of Metavante within one year following completion
of this offering by distributing all of the shares of common stock owned by M&I
to the holders of M&I's common stock. The distribution may occur within a
shorter or longer period of time following completion of this offering
depending upon a number of factors, including those listed below. However, M&I
is not obligated to complete the distribution, and we cannot assure you as to
whether or when it will occur.
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M&I will, in its sole discretion, determine the timing, structure and
terms of the distribution. M&I currently expects that the principal factors it
will consider in determining whether and when to complete the distribution
include:
. the relative market prices of our common stock and M&I's common stock,
. the issuance by the Internal Revenue Service of a ruling that the
distribution will be tax-free to M&I shareholders and that the
transaction will qualify as a reorganization for U.S. federal tax
purposes,
. the absence of any court order or regulations prohibiting or
restricting completion of the distribution, and
. other conditions affecting our business or M&I's business.
The timing and structure of the distribution are also subject to such
changes as may be necessary to allow the distribution to qualify as a tax-free
reorganization for U.S. federal tax purposes.
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USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$181.6 million, or approximately $209.3 million if the underwriters' over-
allotment option is exercised in full, assuming an initial public offering
price of $12 per share and after deducting underwriting fees and estimated
offering expenses payable by us.
The net proceeds of this offering will be applied as follows:
. we will repay an intercompany payable to M&I, which, as of June 30,
2000, was $67 million;
. we will retain the next $100 million for general corporate purposes,
including capital expenditures to support anticipated growth in
operations, marketing expenses and working capital, and for potential
investments in, or acquisitions of, complementary businesses and
technologies; and
. the balance of the net proceeds, approximately $14.6 million, or
approximately $42.3 million if the underwriters' over-allotment option
is exercised in full, assuming an initial public offering price of $12
per share, will be paid as a dividend which only M&I will receive.
For a description of the terms of the intercompany payable to M&I, please
see Note 4 of the Notes to the Consolidated Financial Statements included
elsewhere in this prospectus. We currently expect that approximately $90
million of the proceeds we retain will be used for capital expenditures to
support anticipated growth in operations and for possible acquisitions, and
that approximately $10 million will be used for marketing expenses.
Although we regularly evaluate, in the ordinary course of business,
potential investments in, or acquisitions of, complementary businesses and
technologies, we currently have no specific understanding, commitments or
agreements with respect to any material investment in, or material acquisition
of, complementary businesses or technologies and we are not currently in
negotiations regarding any material acquisitions.
DIVIDEND POLICY
We currently intend to retain any future earnings to fund the development
and growth of our business. Therefore, other than the dividend paid to M&I from
the net proceeds of this offering, we do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000. Our
capitalization is presented:
. on an actual basis, and
. on an as adjusted basis to give effect to the sale of the shares of
common stock offered by this prospectus at an assumed initial public
offering price of $12 per share and the application of a portion of the
net proceeds to repay the intercompany payable to M&I.
You should read the information set forth below together with "Use of
Proceeds," "Selected Condensed and Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements and pro forma condensed
financial statements and the notes to those statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
As of June
30, 2000
-----------------
As
Actual Adjusted
(In thousands)
<S> <C> <C>
Short-term borrowings payable to M&I......................... $ 20,241 $ 20,241
======== ========
Long-term debt:
Note payable to M&I......................................... $ 67,000 $ --
Other long-term borrowings.................................. 4,224 4,224
-------- --------
Total long-term debt....................................... 71,224 4,224
-------- --------
Shareholder's equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued or outstanding..................... $ -- $ --
Common stock, $.01 par value; 300,000,000 shares authorized;
87,000,000 shares issued and outstanding, actual; and
103,500,000 shares issued and outstanding, as adjusted..... 870 1,035
Additional paid-in capital.................................. 73,081 254,516
Retained earnings........................................... 181,874 167,274
-------- --------
Shareholder's equity....................................... 255,825 422,825
-------- --------
Total capitalization...................................... $327,049 $427,049
======== ========
</TABLE>
The foregoing table does not take into account the shares of our common
stock reserved for issuance under our stock incentive plan, nor does it take
into account options issuable at the time of the distribution in connection
with the conversion of options issued under M&I's incentive plans. We have
granted options to purchase 2,650,000 shares of our common stock effective as
of the closing date of this offering with an exercise price equal to the
initial public offering price of our common stock. The options we have granted
and the options issuable at the time of the distribution will all come from the
16,000,000 shares of our common stock reserved for issuance under our stock
incentive plan.
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DILUTION
Our net tangible book value as of June 30, 2000 was approximately $183.9
million, or $2.11 per share. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities, divided by the
total number of shares of common stock outstanding on June 30, 2000. Dilution
in the 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 net tangible book value per share of our common stock
immediately afterwards.
After giving effect to the sale of 16,500,000 shares of common stock in
this offering at the assumed initial public offering price of $12 per share and
after deducting the underwriting fees and estimated offering expenses payable
by us and the payment of a dividend of approximately $14.6 million to M&I, our
as adjusted net tangible book value at June 30, 2000 would have been
approximately $350.6 million, or $3.39 per share of common stock. This
represents an immediate increase in net tangible book value of $1.28 per share
to M&I and an immediate dilution of $8.61 per share to new investors purchasing
shares in this offering. The following table illustrates this dilution per
share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $12.00
Net tangible book value per share as of June 30, 2000........... $2.11
Increase per share attributable to new investors................ 1.28
-----
As adjusted net tangible book value per share after this
offering....................................................... 3.39
------
Dilution per share to new investors............................... $ 8.61
======
</TABLE>
The following table summarizes, as of June 30, 2000 on the as adjusted
basis described above, the differences between the number of shares of common
stock purchased from us, the total price paid and the average price per share
paid by our existing shareholder and by the new investors in this offering at
the assumed initial public offering price of $12 per share, before deducting
the underwriting fees and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- -------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C> <C>
M&I................. 87,000,000 84.1% $255,825,000 56.4% $ 2.94
New investors....... 16,500,000 15.9 198,000,000 43.6 12.00
----------- ----- ------------ -----
Total............. 103,500,000 100.0% $453,825,000 100.0%
=========== ===== ============ =====
</TABLE>
The foregoing tables do not take into account the shares of common stock
reserved for issuance under our stock incentive plan, nor do they take into
account options issuable at the time of the distribution in connection with the
conversion of options issued under M&I's incentive plans. We have granted
options to purchase 2,650,000 shares of our common stock effective as of the
closing date of this offering with an exercise price equal to the initial
public offering price of our common stock. The options we have granted and the
options issuable at the time of the distribution will all come from the
16,000,000 shares of our common stock reserved for issuance under our stock
incentive plan.
22
<PAGE>
SELECTED CONDENSED AND CONSOLIDATED FINANCIAL DATA
The following tables set forth historical consolidated financial and other
operating data for Metavante as of and for each of the five years ended
December 31, 1999. Also presented are historical consolidated financial and
other operating data for Metavante as of June 30, 2000 and for the six months
ended June 30, 1999 and 2000. The historical consolidated financial data as of
December 31, 1998 and 1999 and for the three years ended December 31, 1999 were
derived from our consolidated financial statements which have been audited by
Arthur Andersen LLP, our independent auditors, and are included elsewhere in
this prospectus. The remaining historical financial data presented below were
derived from our consolidated accounting records and have not been audited. In
the opinion of management, this unaudited data include all adjusting entries,
consisting only of normal recurring adjustments, necessary to present fairly
the information set forth therein. The historical consolidated financial data
presented in this prospectus are not necessarily indicative of our financial
position or results of operations for any future period. The pro forma
condensed financial data presented in this prospectus do not purport to
represent what our financial position or results of operations actually would
have been had this offering taken place and our new agreements with M&I been in
place on January 1, 1999. The financial and other operating data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our historical
consolidated financial statements and pro forma condensed financial statements
and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
---------------------------------------------------------- ----------------------------
Pro Pro
Forma Forma
1995 1996 1997 1998 1999 1999(5) 1999 2000 2000(5)
(In thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Income
Data(1):
Revenues:
Account processing
fees.................. $178,075 $218,159 $252,004 $305,299 $391,910 $386,910 $186,745 $216,788 $214,288
Professional services
fees.................. 27,219 49,238 63,530 73,170 76,432 76,432 35,300 38,231 38,231
Software revenues...... 24,607 25,349 28,357 37,628 35,657 35,657 15,506 19,727 19,727
Other revenues......... 22,664 26,094 37,871 55,462 42,385 42,385 18,856 14,224 14,224
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues........ 252,565 318,840 381,762 471,559 546,384 541,384 256,407 288,970 286,470
Cost of revenues:
Salaries, commissions
and other payroll-
related costs......... -- -- 150,446 187,296 213,449 213,449 99,287 116,005 116,005
Data processing
expenses.............. -- -- 92,083 116,646 132,939 132,939 62,603 70,228 70,228
Other operating costs.. -- -- 38,336 51,235 58,476 58,476 26,903 32,023 32,023
Depreciation of
premises and
equipment............. -- -- 31,795 35,510 30,327 30,327 15,009 14,045 14,045
Amortization of
intangibles and
computer software..... -- -- 19,736 22,466 38,163 38,163 20,268 16,915 16,915
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues............. 224,575 295,676 332,396 413,153 473,354 473,354 224,070 249,216 249,216
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.. 27,990 23,164 49,366 58,406 73,030 68,030 32,337 39,754 37,254
Net other income
(expense).............. (3,943) (3,829) (2,849) (2,765) (6,832) (3,696) (1,933) (3,994) (1,904)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes..... 24,047 19,335 46,517 55,641 66,198 64,334 30,404 35,760 35,350
Allocated tax
provision.............. 7,879 4,289 19,046 23,036 29,291 28,499 14,002 15,143 14,969
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 16,168 $ 15,046 $ 27,471 $ 32,605 $ 36,907 $ 35,835 $ 16,402 $ 20,617 $ 20,381
======== ======== ======== ======== ======== ======== ======== ======== ========
Basic and diluted net
income per share....... $ 0.19 $ 0.17 $ 0.32 $ 0.37 $ 0.42 $ 0.38 $ 0.19 $ 0.24 $ 0.22
======== ======== ======== ======== ======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
income per share(2).... 87,000 87,000 87,000 87,000 87,000 93,800 87,000 87,000 93,800
Segment Data(3):
Revenues:
eFinance solutions..... -- -- $ 5,233 $ 7,860 $ 51,670 $ 51,670 $ 18,821 $ 35,902 $ 35,902
Financial technology
solutions............. -- -- 347,131 425,018 443,980 438,980 216,000 227,888 225,388
Other.................. -- -- 29,398 38,681 50,734 50,734 21,586 25,180 25,180
Income (loss) from
operations:
eFinance solutions..... -- -- $ (3,098) $ (4,191) $ 430 $ 430 $ (568) $ 410 $ 410
Financial technology
solutions............. -- -- 39,069 46,698 54,529 49,529 25,337 32,649 30,149
Other.................. -- -- 13,395 15,899 18,071 18,071 7,568 6,695 6,695
Operating Data:
No. of electronic
transactions
completed, in
billions(4)........... -- 3.1 4.3 5.6 6.4 -- 3.3 3.4 --
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of June 30, 2000
-------------------------------------------- ---------------------
1995 1996 1997 1998 1999 Actual Pro Forma(5)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $263,034 $302,661 $343,952 $389,125 $522,795 $555,743 $655,743
Long-term debt.......... 14,183 12,740 7,040 6,517 72,516 71,224 4,224
Shareholder's equity.... 104,989 142,422 167,601 201,682 239,350 255,825 422,825
</TABLE>
---------------------
(1) Certain statements of income data are not available prior to 1997.
(2) Does not reflect any incremental shares that would result if any M&I stock
options are converted to tandem stock options if M&I distributes its
Metavante shares to its shareholders.
(3) Segment data are not available for periods prior to 1997.
(4) Numbers are approximations for the periods indicated based on internal
processing records. Information is not available prior to 1996. An
"electronic transaction" is defined as any transaction related to bill
payment activity, which commenced in 1999, integrated banking system
account activity, automated teller machine activity, debit and credit card
usage and trust activities that is effected by electronic means, whether
over the Internet or otherwise. The number of electronic transactions
completed is an indicator of recurring revenue, which is Metavante's
primary source of revenue.
(5) The pro forma data assume that the sale of 16,500,000 shares of common
stock offered hereby at an initial public offering price of $12 per share
and the application of the net proceeds therefrom occurred on January 1,
1999. In addition, the pro forma data reflect the effect of our new
agreements with M&I, as if they had been entered into on January 1, 1999.
The pro forma net income per share amounts are based on the 87,000,000
shares previously outstanding plus 5,583,000 shares of common stock, the
proceeds from which will be used to repay intercompany debt to M&I, and
1,217,000 shares of common stock, the proceeds from which will be used for
a dividend to M&I.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion together with "Selected
Condensed and Consolidated Financial Data," our historical consolidated
financial statements and pro forma condensed financial statements and the
notes to those financial statements included in this prospectus. In addition
to historical information, this discussion contains forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by us due to competitive factors and
other factors discussed under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a provider of integrated solutions that enable financial services
providers to initiate and process a broad range of financial transactions
electronically, including through the Internet. Our integrated financial
transaction processing, outsourcing, software and consulting solutions provide
virtually all of the technology that a bank or other financial services
provider needs to run its operations. Our suite of scalable, integrated
products and services enables financial services providers to introduce new
products and services and enhance existing offerings quickly. The open
architecture of our systems provides for easy integration of new products and
technologies added to our platform.
On July 13, 2000, M&I announced its plan to make us an independent,
publicly-traded company. After the completion of this offering, M&I will own
approximately 84.1% of our outstanding common stock, or approximately 82.1% if
the underwriters exercise their over-allotment option in full. M&I has also
announced its intention to distribute to its shareholders all of its remaining
interest in us within one year following completion of this offering.
We have entered or will enter into agreements with M&I under which M&I
will provide services to us during a transition period after the separation.
The transition period varies depending on the agreement but is generally less
than one year. Some of the agreements, including those for administrative
services and employee matters, may be extended beyond the initial transition
period. These agreements do not necessarily reflect the costs of obtaining the
services from unrelated third parties or of our providing the applicable
services ourselves. However, we believe that purchasing these services from
M&I provides us with an efficient means of obtaining these services during the
transition period.
We must also negotiate new agreements with various third parties as a
separate, stand-alone entity. There can be no assurance that the terms we will
be able to negotiate for these agreements will be as favorable as those we
enjoyed as part of M&I. In addition, as part of M&I, we benefited from various
economies of scale, including shared global administrative functions,
facilities and volume purchase discounts. We will continue to receive
administrative services from M&I in the near term under our administrative
services agreement with M&I. The fees we will pay under this agreement during
the transition period will replace the charges we previously incurred for
similar services as a division of M&I. On a long-term basis, we will need to
build the infrastructure or contract with third parties to provide these
services. While the costs and expenses of obtaining these services elsewhere
will be offset, in part, by the elimination of the fees paid to M&I for
administrative services, we
25
<PAGE>
expect that our costs and expenses as a public company for these services will
increase, although the amount is not determinable at this time.
M&I has been and is expected to continue to be a significant client. In
1999, revenues from M&I represented approximately 10.4% of our total revenues.
In the first six months of 2000, revenues from M&I represented approximately
11.0% of our total revenues.
Basis of Presentation
Our business historically has been operated as a part of the M&I Data
Services division of M&I. As of July 1, 2000, M&I transferred to us all of the
assets and liabilities relating to our business. Our consolidated financial
statements have been prepared from the consolidated financial statements of M&I
using the historical results of operations and historical bases of the assets
and liabilities of the M&I businesses that our company comprises. The
consolidated financial statements also include allocations to us of a number of
M&I corporate assets, including pension assets; liabilities, including profit
sharing, pension and non-qualified deferred compensation obligations; and
expenses, including centralized legal, accounting, employee benefits, real
estate, insurance services, information technology services, treasury and other
M&I corporate and infrastructure costs. The expense allocations have been
determined on bases that M&I and we considered to be a reasonable reflection of
the utilization of the services provided to us or the benefit received by us.
The financial information presented in this prospectus is not indicative
of our financial position, results of operations or cash flows in the future
nor is it necessarily indicative of what our financial position, results of
operations or cash flows would have been had we been a separate, stand-alone
entity for the periods presented. The financial information presented in this
prospectus does not reflect the many significant changes that will occur in our
funding and operations as a result of our becoming a stand-alone entity, the
offering and the distribution.
We intend to enter into several long-term agreements with M&I pursuant to
which we will continue to provide services to M&I as a client. These agreements
will consist of an outsourcing agreement, a professional services agreement and
a branch automation agreement. The terms of these new agreements differ from
the agreements that were in place between M&I and us during the periods
presented in the historical financial statements. We estimate that we would
have reported lower revenues of approximately $5.0 million on an annual basis
in our historical financial statements had these agreements been in place
during the periods presented.
Our business consists of two reportable segments: eFinance solutions and
financial technology solutions. Our eFinance solutions segment is comprised of
electronic bill payment and presentment, business and consumer online banking
and online mortgage services. Our financial technology solutions segment is
comprised of financial account processing, customer relationship management
solutions, private label banking, trust and investment solutions, electronic
funds transfer and card solutions. Other products and services include our
document composition software product (CSF), Automated Clearing House
processing solutions, treasury management services and professional services
related to our Customers Forever joint venture.
Our revenues consist of fees related to information and transaction
processing services, software licensing and maintenance, conversion services
and other professional services. Information
26
<PAGE>
and transaction processing revenues are recognized as services are performed,
typically on a per transaction basis depending on contractual arrangements.
Revenues attributable to the licensing of software are generally recognized
upon delivery and performance of our contractual obligations in accordance with
American Institute of Certified Public Accountants Statement of Position 97-2.
Maintenance fees for ongoing client support and product updates are recognized
ratably over the term of the maintenance period. Buyout fees related to client
termination are typically one-time in nature and recognized upon completion of
client services. Professional services revenues for training and consulting are
recognized as services are performed either on a fee per hour basis or
according to the percentage of completion method depending on contractual
terms.
Cost of revenues consists primarily of salaries and related expenses and
processing and servicing expenses, such as data processing, telecommunications
and equipment lease expenses. Other operating costs include selling, general
and administrative costs, such as advertising and marketing expenses, travel,
supplies and postage, and the use of outside companies for legal, accounting or
other professional services. Depreciation of premises and equipment includes
all depreciation charges related to our premises and equipment which are
computed primarily using the straight-line method over the estimated useful
lives of the assets ranging from three to 40 years. We capitalize certain costs
incurred to develop new software and enhance existing software. Amortization of
capitalized costs is computed on a straight-line basis over the expected useful
life of the product, generally four years. Routine maintenance of software
products, design costs and development costs incurred prior to establishment of
a product's technological feasibility are expensed as incurred. In addition,
Year 2000 costs were expensed as incurred. Amortization of goodwill and other
intangibles and purchased software costs is generally computed on a straight-
line basis over periods ranging from five to 25 years.
Interest expense represents the interest cost on our long and short-term
borrowings. Interest income consists of interest earned on short-term
investment balances. Other income/(expense) includes our equity interest in the
earnings/(loss) of our Customers Forever joint venture and the gain/(loss) on
the disposal of fixed assets.
On May 31, 2000, we invested $5.8 million in Avolent, Inc., which was
formerly known as Just in Time Solutions, Inc. Avolent provides standards-based
software solutions for Internet billing and interactive customer care. This
investment represents an approximately 4% ownership interest in Avolent.
On October 1, 1999, we acquired substantially all of the assets of Cardpro
Services, Inc., a provider of plastic card personalization and procurement
services located in Illinois. The assets were acquired for cash in a
transaction accounted for using the purchase method of accounting. The total
purchase price amounted to approximately $13.1 million. Initial goodwill,
subject to the completion of appraisals and valuations of the assets acquired
and liabilities assumed, amounted to $10.1 million and is being amortized on a
straight-line basis over ten years.
On August 17, 1999, we invested $6.1 million in Customers Forever LLC.
Customers Forever is an Internet-focused, transaction services company
dedicated to helping residential mortgage servicers retain and enhance their
relationships with existing customers. An additional investment of
27
<PAGE>
$3.1 million was made in January 2000. This joint venture investment represents
approximately a 46% ownership interest as of June 30, 2000, and is accounted
for under the equity method of accounting.
On April 1, 1999, we completed the acquisition of the assets, operational
processes and customer relationships of the Electronic Banking Services unit of
Automatic Data Processing, Inc. in a cash transaction using the purchase method
of accounting. The acquired software products and outsourcing solutions are
designed to provide businesses with access to their banking information and
transactions through a variety of delivery methods. The total purchase price
amounted to approximately $66.2 million. Goodwill recorded in the transaction
amounted to $44.0 million and is being amortized on a straight-line basis over
25 years.
On December 31, 1998, we acquired substantially all of the assets of
Moneyline Express, Inc. in a cash transaction accounted for as a purchase.
Moneyline was a wholly-owned subsidiary of Travelers Express Company, Inc.
which specializes in electronic bill payment. The total purchase price amounted
to approximately $6.8 million. Goodwill recorded in this transaction amounted
to $5.4 million and is being amortized on a straight-line basis over 15 years.
Recent Events
In August 2000, Spectrum EBP, L.L.C. entered into a five year agreement to
use our electronic bill payment services and to market those services to its
current and future participants. Spectrum is a joint venture of The Chase
Manhattan Bank, First Union National Bank and Wells Fargo Bank, N.A. designed
to be a hub that enables financial institutions to route electronic bills and
payments through a single connection to other participants. Under the
agreement, Spectrum guarantees minimum volumes ranging from five million
transactions in the first year commencing April 1, 2001, to 45 million
transactions in each of years three, four and five. If Spectrum does not
provide the minimum volume required, each of the three founding member banks
has entered into an agreement with us to provide the required volume or pay the
revenue associated therewith.
In August 2000, we retained Donaldson, Lufkin & Jenrette Securities
Corporation to assist us in evaluating strategic alternatives for our M&I
EastPoint Technology subsidiary. Among the alternatives being considered are a
sale of the subsidiary, discontinuing all or a portion of the subsidiary's
operations, or continuing and repositioning the subsidiary's operations. While
we believe that a sale of the subsidiary is the most likely scenario, if we
discontinued substantially all of M&I EastPoint's operations, we would expect
to incur an after-tax charge of approximately $7.0 million.
In September 1999, we entered into a marketing agreement with TransPoint
Technology & Services LLC which provided, among other things, for minimum
revenues and fees payable to us for providing electronic bill payment services
over a three year period. Subsequently, TransPoint entered into a merger
agreement with CheckFree Holdings Corporation, providing for the acquisition by
CheckFree of TransPoint. As a result of this transaction, our agreement with
TransPoint was terminated and we received $13.7 million on September 5, 2000.
This amount will be reflected in our results of operations for the third
quarter of 2000.
28
<PAGE>
Results of Operations
The following table presents selected statements of income data for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
---------------------------- ------------------
1997 1998 1999 1999 2000
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues(1):
Account processing fees..... $252,004 $305,299 $391,910 $186,745 $216,788
Professional services fees.. 63,530 73,170 76,432 35,300 38,231
Software revenues........... 28,357 37,628 35,657 15,506 19,727
Other revenues.............. 37,871 55,462 42,385 18,856 14,224
-------- -------- -------- -------- --------
Total revenues............. 381,762 471,559 546,384 256,407 288,970
Cost of Revenues:
Salaries, commissions and
other payroll-related
costs...................... 150,446 187,296 213,449 99,287 116,005
Data processing expenses.... 92,083 116,646 132,939 62,603 70,228
Other operating costs....... 38,336 51,235 58,476 26,903 32,023
Depreciation of premises and
equipment.................. 31,795 35,510 30,327 15,009 14,045
Amortization of intangibles
and computer software...... 19,736 22,466 38,163 20,268 16,915
-------- -------- -------- -------- --------
Total cost of revenues..... 332,396 413,153 473,354 224,070 249,216
-------- -------- -------- -------- --------
Income from operations....... 49,366 58,406 73,030 32,337 39,754
Other Income (Expense):
Interest income............. 113 43 704 80 840
Interest expense............ (2,852) (2,479) (4,811) (2,006) (3,203)
Other income (expense),
net........................ (110) (329) (2,725) (7) (1,631)
-------- -------- -------- -------- --------
Net other income
(expense)............... (2,849) (2,765) (6,832) (1,933) (3,994)
-------- -------- -------- -------- --------
Income before taxes.......... 46,517 55,641 66,198 30,404 35,760
Allocated tax provision...... 19,046 23,036 29,291 14,002 15,143
-------- -------- -------- -------- --------
Net income................... $ 27,471 $ 32,605 $ 36,907 $ 16,402 $ 20,617
======== ======== ======== ======== ========
</TABLE>
--------------------
(1) Affiliated revenues included in total revenues above were $51,776, $60,299
and $56,918 for the years ended December 31, 1997, 1998 and 1999,
respectively. Unaudited affiliated revenues were $28,638 and $31,848 for
six months ended June 30, 1999 and 2000, respectively.
29
<PAGE>
The following table presents, for the periods indicated, the relative
composition of total revenues and selected statements of income data as a
percentage of total revenues:
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
------------------- ------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenues:
Account processing fees.................... 66.0% 64.7% 71.7% 72.8% 75.0%
Professional services fees................. 16.6 15.5 14.0 13.8 13.2
Software revenues.......................... 7.4 8.0 6.5 6.0 6.8
Other revenues............................. 10.0 11.8 7.8 7.4 5.0
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
Cost of Revenues:
Salaries, commissions and other payroll-
related costs............................. 39.4 39.7 39.1 38.7 40.2
Data processing expenses................... 24.2 24.7 24.2 24.4 24.3
Other operating costs...................... 10.0 10.9 10.7 10.5 11.1
Depreciation of premises and equipment..... 8.3 7.5 5.6 5.9 4.9
Amortization of intangibles and computer
software.................................. 5.2 4.8 7.0 7.9 5.9
----- ----- ----- ----- -----
Total cost of revenues.................... 87.1 87.6 86.6 87.4 86.2
----- ----- ----- ----- -----
Income from operations...................... 12.9 12.4 13.4 12.6 13.8
Other Income (Expense):
Interest income............................ 0.0 0.0 0.1 0.0 0.3
Interest expense........................... (0.7) (0.5) (0.9) (0.7) (1.1)
Other income (expense), net................ (0.0) (0.1) (0.5) 0.0 (0.6)
----- ----- ----- ----- -----
Net other income (expense)................ (0.7) (0.6) (1.3) (0.7) (1.4)
----- ----- ----- ----- -----
Income before taxes......................... 12.2 11.8 12.1 11.9 12.4
Allocated tax provision..................... 5.0 4.9 5.4 5.5 5.2
----- ----- ----- ----- -----
Net income.................................. 7.2% 6.9% 6.7% 6.4% 7.2%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Total Revenues. Total revenues increased $32.6 million, or 12.7%, to
$289.0 million for the six months ended June 30, 2000 from $256.4 million for
the six months ended June 30, 1999. A portion of the increase in total revenues
is attributable to the acquisitions of Electronic Banking Services and Cardpro.
Revenues from Electronic Banking Services were $20.9 million and $9.8 million
for the six months ended June 30, 2000 and 1999, respectively. Revenues from
Cardpro were $7.1 million and $0 for the six months ended June 30, 2000 and
1999, respectively. Therefore, the acquisitions of Electronic Banking Services
and Cardpro accounted for $18.2 million of the increase in total revenues,
while internal growth accounted for the remaining $14.4 million increase in
total revenues.
Account Processing Fees. Account processing fees increased $30.1 million,
or 16.1%, to $216.8 million for the six months ended June 30, 2000 from $186.7
million for the six months ended June 30, 1999. This increase was due to the
acquisitions of Electronic Banking Services and Cardpro as well as growth
within our online consumer banking product line.
Professional Services Fees. Professional services fees increased $2.9
million, or 8.3%, to $38.2 million for the six months ended June 30, 2000 from
$35.3 million for the six months ended June 30, 1999. This increase was due to
professional services fees associated with Customers Forever, which did not
exist in the first two quarters of 1999.
30
<PAGE>
Software Revenues. Software revenues increased $4.2 million, or 27.2%, to
$19.7 million for the six months ended June 30, 2000 from $15.5 million for the
six months ended June 30, 1999. This increase was primarily due to increased
sales of our customer relationship management and CSF products.
Other Revenues. Other revenues, including buyout fees, decreased $4.7
million, or 24.6%, to $14.2 million for the six months ended June 30, 2000 from
$18.9 million for the six months ended June 30, 1999. This decrease was due to
fewer contract terminations and lower equipment sales in the first two quarters
of 2000.
Salaries, Commissions and Other Payroll-Related Costs. Salaries,
commissions and other payroll-related costs increased $16.7 million, or 16.8%,
to $116.0 million for the six months ended June 30, 2000 from $99.3 million for
the six months ended June 30, 1999. This increase was due to the addition of
401 full-time equivalent employees principally to support growth in our
eFinance solutions segment and the acquisition of Cardpro.
Data Processing Expenses. Data processing expenses increased $7.6 million,
or 12.2%, to $70.2 million for the six months ended June 30, 2000 from $62.6
million for the six months ended June 30, 1999. This increase was due primarily
to the acquisitions of Electronic Banking Services and Cardpro.
Other Operating Costs. Other operating costs increased $5.1 million, or
19.0%, to $32.0 million for the six months ended June 30, 2000 from $26.9
million for the six months ended June 30, 1999. This increase was due primarily
to start-up costs related to our private label banking product line, an
increase in advertising and promotional expenses and an increase in the use of
professional services from third parties.
Depreciation of Premises and Equipment. Depreciation of premises and
equipment decreased $1.0 million, or 6.4%, to $14.0 million for the six months
ended June 30, 2000 from $15.0 million for the six months ended June 30, 1999.
This decrease was due to the run-off of depreciation related to a large
mainframe computer.
Amortization of Intangibles and Computer Software. Amortization of
intangibles and computer software decreased $3.4 million, or 16.5%, to $16.9
million for the six months ended June 30, 2000 from $20.3 million for the six
months ended June 30, 1999. In the six months ended June 30, 1999, we wrote-off
$6.8 million of goodwill associated with our 1996 acquisition of M&I EastPoint
Technology, Inc. The accelerated amortization was recorded due to a decrease in
M&I EastPoint's expected software sales to international customers. The amount
of accelerated amortization was determined by comparing the net carrying amount
of M&I EastPoint's assets to their estimated fair value. The estimated fair
value was calculated using the discounted amount of the expected cash flows
that will be generated by M&I EastPoint's future operations.
Interest Income. Interest income was $0.8 million for the six months ended
June 30, 2000 compared to interest income of $0.1 million for the six months
ended June 30, 1999. This increase was due to growth in the eFinance solutions
segment, which generates investments balances related to our electronic bill
payment operations.
31
<PAGE>
Interest Expense. Interest expense increased $1.2 million to $3.2 million
for the six months ended June 30, 2000 from $2.0 million for the six months
ended June 30, 1999. This increase was due to increased borrowings of $67.0
million related to the Electronic Banking Services acquisition which occurred
on April 1, 1999.
Allocated Tax Provision. Our effective tax rate was 42.3% for the six
months ended June 30, 2000 and 46.1% for the six months ended June 30, 1999.
Our effective tax rate exceeds the statutory rate of approximately 40%
primarily due to unutilized state tax losses generated by our EastPoint
operations and unutilized Federal tax losses from our M&I Asia Pacific, Inc.
subsidiary.
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
--------------
<S> <C> <C>
1999 2000
<CAPTION>
(In millions)
<S> <C> <C>
Revenues:
eFinance solutions....................................... $ 18.8 $ 35.9
Financial technology solutions........................... 216.0 227.9
Other.................................................... 21.6 25.2
------ ------
Total................................................... $256.4 $289.0
====== ======
Income from operations:
eFinance solutions....................................... $ (0.6) $ 0.4
Financial technology solutions........................... 25.3 32.7
Other.................................................... 7.6 6.7
------ ------
Total................................................... $ 32.3 $ 39.8
====== ======
</TABLE>
Revenues in the eFinance solutions segment increased $17.1 million to
$35.9 million for the six months ended June 30, 2000 from $18.8 for the six
months ended June 30, 1999. An increase of $11.1 million in eFinance solutions
revenue is attributable to the acquisition of Electronic Banking Services. The
remaining increase was due to an increase in the number of end users using our
electronic bill payment services, which increased from approximately 183,000
end users as of June 30, 1999 to approximately 408,000 end users as of June 30,
2000. Income from operations in the eFinance solutions segment increased $1.0
million to $0.4 million for the six months ended June 30, 2000 from $(0.6)
million for the six months ended June 30, 1999. This increase was due to the
income from operations generated by the Electronic Banking Services business,
which was acquired in April 1999. Income from operations was constrained by the
large increase in facilities and telecommunications expense associated with the
rapid growth of this segment.
Revenues in the financial technology solutions segment increased $11.9
million, or 5.5%, to $227.9 million for the six months ended June 30, 2000 from
$216.0 for the six months ended June 30, 1999. This increase was due to an
increase in revenues of $7.8 million in our card solutions business resulting
from the acquisition of Cardpro in October 1999. Income from operations in the
financial technology solutions segment increased $7.3 million, or 28.9%, to
$32.6 million for the six months ended June 30, 2000 from $25.3 million for the
six months ended June 30, 1999.
32
<PAGE>
Other revenues increased $3.6 million, or 16.6%, to $25.2 million for the
six months ended June 30, 2000 from $21.6 million for the six months ended June
30, 1999. This increase was due to an increase in professional services work
performed on the Customers Forever joint venture. Income from operations
decreased $0.9 million to $6.7 million for the six months ended June 30, 2000
from $7.6 million for the six months ended June 30, 1999. This decrease was due
to a larger amount of programming work performed in relation to professional
services in the first quarter of 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total Revenues. Total revenues increased $74.8 million, or 15.9%, to
$546.4 million for the year ended December 31, 1999 from $471.6 million for the
year ended December 31, 1998. A portion of the increase in total revenues is
attributable to the acquisitions of Moneyline, Electronic Banking Services and
Cardpro, which accounted for $8.9 million, $30.6 million and $3.9 million,
respectively, of total revenues for the year ended December 31, 1999. None of
these acquisitions contributed to total revenues for the year ended December
31, 1998. Accordingly, these acquisitions accounted for $43.4 million of the
$74.8 million increase in total revenues, while internal growth accounted for
the remaining $31.4 million increase in total revenues.
Account Processing Fees. Account processing fees increased $86.6 million,
or 28.4%, to $391.9 million for the year ended December 31, 1999 from $305.3
million for the year ended December 31, 1998. This increase was due to the
acquisitions of Electronic Banking Services and Cardpro as well as growth in
other offerings within the financial technology solutions segment.
Professional Services Fees. Professional services fees increased $3.2
million, or 4.5%, to $76.4 million for the year ended December 31, 1999 from
$73.2 million for the year ended December 31, 1998. This increase was due to
moderate increases in various products including online banking, CSF and
Customers Forever, offset by decreases due to the decline of business with a
large customer.
Software Revenues. Software revenues decreased $1.9 million, or 5.2%, to
$35.7 million for the year ended December 31, 1999 from $37.6 million for the
year ended December 31, 1998. This decrease was due to lower license sales in
EastPoint.
Other Revenues. Other revenues decreased $13.1 million, or 23.6%, to $42.4
million for the year ended December 31, 1999 from $55.5 million for the year
ended December 31, 1998. This decrease was due to fewer buyouts in 1999 and a
decline in equipment revenue.
Salaries, Commissions and Other Payroll-Related Costs. Salaries,
commissions and other payroll-related costs increased $26.2 million, or 14.0%,
to $213.4 million for the year ended December 31, 1999 from $187.3 million for
the year ended December 31, 1998. This increase was due to the addition of 518
full-time equivalent employees, 271 of which were added through the acquisition
of Electronic Banking Services, principally to support growth in our eFinance
solutions segment.
Data Processing Expenses. Data processing expenses increased $16.3
million, or 14.0%, to $132.9 million for the year ended December 31, 1999 from
$116.6 million for the year ended
33
<PAGE>
December 31, 1998. This increase was due to the growth in the eFinance
solutions segment and acquisitions resulting in higher expenses related to
telecommunications and electronic processing.
Other Operating Costs. Other operating costs increased $7.3 million, or
14.1%, to $58.5 million for the year ended December 31, 1999 from $51.2 million
for the year ended December 31, 1998. This increase was due to Year 2000
related expenses, start-up costs related to our private label banking product
line and fees paid to outside consultants to assist with various systems
development projects.
Depreciation of Premises and Equipment. Depreciation of premises and
equipment decreased $5.2 million, or 14.6%, to $30.3 million for the year ended
December 31, 1999 from $35.5 million for the year ended December 31, 1998. This
decrease was due to the run-off of depreciation related to a large mainframe
computer.
Amortization of Intangibles and Computer Software. Amortization of
intangibles and computer software increased $15.7 million, or 69.9%, to $38.2
million for the year ended December 31, 1999 from $22.5 million for the year
ended December 31, 1998. In 1999, we wrote-off $6.8 million of goodwill
associated with our 1996 acquisition of EastPoint.
Interest Income. Interest income was $0.7 million for the year ended
December 31, 1999. We recorded nominal interest income for the year ended
December 31, 1998. This increase was due to growth in the eFinance solutions
segment, which generates investments balances related to our electronic bill
payment operations.
Interest Expense. Interest expense increased $2.3 million to $4.8 million
for the year ended December 31, 1999 from $2.5 million for the year ended
December 31, 1998. This increase was due to increased borrowings of $67.0
million related to the Electronic Banking Services acquisition.
Allocated Tax Provision. Our effective tax rate was 44.2% for the year
ended December 31, 1999 and 41.4% for the year ended December 31, 1998. Our
effective tax rate exceeds the statutory rate of approximately 40% primarily
due to unutilized state tax losses generated by our EastPoint operations and
unutilized Federal tax losses from our M&I Asia Pacific subsidiary.
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1998 1999
(In millions)
<S> <C> <C>
Revenues:
eFinance solutions....................................... $ 7.9 $ 51.7
Financial technology solutions........................... 425.0 444.0
Other.................................................... 38.7 50.7
------ ------
Total................................................... $471.6 $546.4
====== ======
Income from operations:
eFinance solutions....................................... $ (4.2) $ 0.4
Financial technology solutions........................... 46.7 54.5
Other.................................................... 15.9 18.1
------ ------
Total................................................... $ 58.4 $ 73.0
====== ======
</TABLE>
34
<PAGE>
Revenues in the eFinance solutions segment increased $43.8 million to
$51.7 million for the year ended December 31, 1999 from $7.9 million for the
year ended December 31, 1998. This increase was due to an increase in the
number of end users using our electronic bill payment services, which increased
from approximately 123,000 end users as of December 31, 1998 to approximately
280,000 end users as of December 31, 1999, as well as the acquisition of
Electronic Banking Services. Income from operations in the eFinance solutions
segment increased $4.6 million to $0.4 million for the year ended December 31,
1999 from $(4.2) million for the year ended December 31, 1998. This increase
was due primarily to the Electronic Banking Services acquisition in April 1999.
However, income from operations was constrained by the large increase in
facilities and telecommunications expense associated with the rapid growth of
this segment.
Revenues in the financial technology solutions segment increased $19.0
million, or 4.5%, to $444.0 million for the year ended December 31, 1999 from
$425.0 million for the year ended December 31, 1998. This increase was
primarily due to an increase in revenues of $18.5 million in our card solutions
business. Income from operations in the financial technology solutions segment
increased $7.8 million, or 16.8%, to $54.5 million for the year ended December
31, 1999 from $46.7 million for the year ended December 31, 1998. This increase
was due to significant resources being used in 1998 to prepare for the Year
2000 event. These costs decreased during 1999.
Other revenues increased $12.0 million, or 31.2%, to $50.7 million for the
year ended December 31, 1999 from $38.7 million for the year ended December 31,
1998. Income from operations increased $2.2 million, or 13.7%, to $18.1 million
for the year ended December 31, 1999 from $15.9 million for the year ended
December 31, 1998. These increases were primarily due to strong sales of our
CSF software product.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total Revenues. Total revenues increased $89.8 million, or 23.5%, to
$471.6 million for the year ended December 31, 1998 from $381.8 million for the
year ended December 31, 1997.
Account Processing Fees. Account processing fees increased $53.3 million,
or 21.1%, to $305.3 million for the year ended December 31, 1998 from $252.0
million for the year ended December 31, 1997. This increase was due to strength
in our financial account processing and card solutions offerings.
Professional Services Fees. Professional services fees increased $9.7
million, or 15.2%, to $73.2 million for the year ended December 31, 1998 from
$63.5 million for the year ended December 31, 1997. This increase was primarily
due to increased consulting activity.
Software Revenues. Software revenues increased $9.2 million, or 32.7%, to
$37.6 million for the year ended December 31, 1998 from $28.4 million for the
year ended December 31, 1997. This increase was due to favorable performance
within our customer relationship management and CSF offerings.
Other Revenues. Other revenues increased $17.6 million, or 46.4%, to $55.5
million for the year ended December 31, 1998 from $37.9 million for the year
ended December 31, 1997. This increase was due to higher buyout fees and an
escalation in equipment sales.
35
<PAGE>
Salaries, Commissions and Other Payroll-Related Costs. Salaries,
commissions and other payroll-related costs increased $36.9 million, or 24.5%,
to $187.3 million for the year ended December 31, 1998 from $150.4 million for
the year ended December 31, 1997. This increase was due to the addition of 214
full-time equivalent employees to support growth in our financial technology
solutions segment.
Data Processing Expenses. Data processing expenses increased $24.5
million, or 26.7%, to $116.6 million for the year ended December 31, 1998 from
$92.1 million for the year ended December 31, 1997. This increase was due to
higher expenses related to telecommunications and electronic processing within
our financial technology solutions segment.
Other Operating Costs. Other operating costs increased $12.9 million, or
33.6%, to $51.2 million for the year ended December 31, 1998 from $38.3 million
for the year ended December 31, 1997. This increase was due to increased
advertising and travel expenses as well as higher expense allocations from M&I.
Depreciation of Premises and Equipment. Depreciation of premises and
equipment increased $3.7 million, or 11.7%, to $35.5 million for the year ended
December 31, 1998 from $31.8 million for the year ended December 31, 1997. This
increase was due to higher capital expenditures to support our continued growth
including the construction of a new facility.
Amortization of Intangibles and Computer Software. Amortization of
intangibles and computer software increased $2.7 million, or 13.8%, to $22.5
million for the year ended December 31, 1998 from $19.7 million for the year
ended December 31, 1997.
Interest Expense. Interest expense decreased $0.4 million, or 13.1%, to
$2.5 million for the year ended December 31, 1998 from $2.9 million for the
year ended December 31, 1997. This decrease was due to lower average borrowings
under our revolving line of credit with M&I.
Allocated Tax Provision. Our effective tax rate was 41.4% for the year
ended December 31, 1998 and 40.9% for the year ended December 31, 1997. Our
effective tax rate exceeds the statutory rate of approximately 40% primarily
due to unutilized state tax losses generated by our EastPoint operations and
unutilized Federal tax losses of our M&I Asia Pacific subsidiary.
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------
1997 1998
(In millions)
<S> <C> <C>
Revenues:
eFinance solutions...................................... $ 5.2 $ 7.9
Financial technology solutions.......................... 347.1 425.0
Other................................................... 29.4 38.7
------ ------
Total.................................................. $381.7 $471.6
====== ======
Income from operations:
eFinance solutions...................................... $ (3.1) $ (4.2)
Financial technology solutions.......................... 39.1 46.7
Other................................................... 13.4 15.9
------ ------
Total.................................................. $ 49.4 $ 58.4
====== ======
</TABLE>
36
<PAGE>
Revenues in the eFinance solutions segment increased $2.7 million, or
50.2%, to $7.9 million for the year ended December 31, 1998 from $5.2 for the
year ended December 31, 1997. This increase was due to an increase in the
number of end users using our home banking and Internet banking products, which
increased from approximately 73,000 end users as of December 31, 1997 to
approximately 123,000 end users as of December 31, 1998. Losses from operations
in the eFinance solutions segment increased $1.1 million, or 35.3%, to $(4.2)
million for the year ended December 31, 1998 from $(3.1) million for the year
ended December 31, 1997. This increased loss was due to increased facilities
and telecommunications expense associated with the rapid growth of this
segment.
Revenues in the financial technology solutions segment increased $77.9
million, or 22.4%, to $425.0 million for the year ended December 31, 1998 from
$347.1 million for the year ended December 31, 1997. This increase was due to
the introduction of the BankerInsight(TM) software product in 1998 and an
increase in revenues of $18.5 million in our card solutions business. Income
from operations in the financial technology solutions segment increased $7.6
million, or 19.5%, to $46.7 million for the year ended December 31, 1998 from
$39.1 million for the year ended December 31, 1997.
Other revenues increased $9.3 million, or 31.6%, to $38.7 million for the
year ended December 31, 1998 from $29.4 million for the year ended December 31,
1997. This increase was due to strong sales of the CSF software product in
1998. Income from operations increased $2.5 million, or 18.7%, to $15.9 million
for the year ended December 31, 1998 from $13.4 million for the year ended
December 31, 1997.
Liquidity and Capital Resources
Historically, M&I has managed cash on a centralized basis. Cash receipts
associated with our business have been transferred to M&I on a periodic basis
and M&I has provided funds to cover our disbursements. At June 30, 2000, we had
cash and cash equivalents of $35.9 million.
At June 30, 2000, we had $70 million of lines of credit available from
M&I, of which $20.2 million was outstanding. Interest is payable quarterly at a
rate equal to M&I's average commercial paper rate plus .25%, which figure was
6.24% as of December 31, 1999. We expect these lines of credit to be available
in the future.
Net cash provided by operating activities was $73.0 million for the period
ended December 31, 1997, $77.2 million in 1998, $127.6 million in 1999 and
$56.2 million for the six months ended June 30, 2000. The increase in cash
provided by operations is primarily due to continuing net income growth and an
increase in accounts payable and accrued liabilities.
Net cash used in investing activities was $59.2 million for the period
ended December 31, 1997, $71.1 million for 1998, $165.8 million for 1999 and
$43.8 million for the six months ended June 30, 2000. The increase in cash used
for investing activities in 1999 is primarily due to a $7.0 million increase in
capital additions including purchased software, $11.2 million for the
acquisition of Cardpro and $66.2 million for the acquisition of Electronic
Banking Services.
37
<PAGE>
Net cash provided by financing activities was $(12.5) million for the
period ended December 31, 1997, $(5.6) million for 1998, $58.2 million for 1999
and $(4.0) million for the six months ended June 30, 2000. The increase in net
cash provided by financing activities in 1999 consisted primarily of net
proceeds from the issuance of a note payable to M&I.
The cash provided from our operating activities is expected to be
sufficient to fund our current level of operating activities for the next 12
months. We intend to use the proceeds from the offering that we retain, $100
million, to fund the growth of our business, including expansion of facility
infrastructure, ongoing research and development, computer and related data
center equipment and personnel.
We intend to use a portion of the net proceeds from this offering to pay
down approximately $67 million of intercompany debt, and we will retain $100
million of the net proceeds. We believe that our cash needs, other than for
significant acquisitions, will be met for the next 12 months through cash
generated from operations, the proceeds retained from this offering and
borrowings from M&I or third-party sources. On a long-term basis, we believe
our cash needs will be met primarily from cash generated from operations and
the proceeds of this offering, with significant acquisitions being funded from
debt or equity issuances in the private or public markets. We may also incur
debt for short-term working capital needs. We do not currently anticipate any
additional funding requirements over the next 12 months.
Year 2000
We estimate that the total direct cost for the Year 2000 effort through
December 31, 1999 was approximately $41.0 million. Approximately $10.4 million
was expensed in 1999. Year 2000-related costs for the years ended December 31,
1996, 1997 and 1998 were $2.7 million, $13.5 million and $14.4 million,
respectively. Replacement equipment and software were capitalized or expensed
in accordance with our normal accounting policies. The effect of writing off
the net book value of equipment or software that was not Year 2000 compliant is
included in the above estimates. Year 2000-related costs incurred in 2000 are
estimated to be insignificant.
Market Risk Factors
Market risk arises from exposure to changes in interest rates, exchange
rates, commodity prices and other relevant market rate or price risk. We have a
slight market risk to foreign exchange rate fluctuations as some software sales
are made to international clients. To mitigate this risk, we employ a policy to
hedge these receivables by purchasing a foreign currency forward contract if
the receivable exceeds a stated threshold. This is not a significant amount, as
we only had $0.1 million of foreign currency contracts outstanding at December
31, 1999.
We are also exposed to interest rate risk through our short-term
investments and borrowings. We invest the funds generated from our online
financial solutions segment into short-term, overnight investments. The
interest income generated from these investments is based on a variable rate.
We view the use of short-term instruments as a method of managing interest rate
risk on our investments.
38
<PAGE>
Our borrowings consist of two primary sources. The first source is a $67.0
million note payable to M&I. This instrument has a fixed rate of 6.24% through
April 2004. We expect to repay this note through the use of proceeds from this
offering.
The other borrowings are lines of credit available from M&I at a variable
rate. Due to the variable rate, we would pay more interest expense if rates
increase. Management believes this risk is hedged through the variable rate
investment previously mentioned. As of June 30, 2000, $20.2 million was
outstanding under the lines of credit.
Based on these items, management believes the interest rate risk
associated with these instruments at December 31, 1999 will not have a material
effect on our consolidated financial position or results of operations.
Quarterly Results of Operations
The following table sets forth unaudited consolidated statements of income
data for each quarter of our last two fiscal years and the two most recent
fiscal quarters. The unaudited quarterly financial information has been
prepared on the same basis as the annual information presented elsewhere in
this prospectus and, in management's opinion, reflects all adjustments,
consisting of normal recurring entries, necessary for a fair presentation of
the information provided. The operating results for any quarter are not
necessarily indicative of results for any future period.
39
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Account processing
fees................. $ 71,097 $ 73,203 $ 78,277 $ 82,722 $ 87,062 $ 99,683 $100,866 $104,299 $108,055 $108,733
Professional services
fees................. 17,254 17,714 18,869 19,333 18,238 17,062 21,924 19,208 19,357 18,874
Software revenues..... 10,936 9,976 7,721 8,995 8,400 7,106 9,959 10,192 9,547 10,180
Other revenues........ 10,026 13,587 11,231 20,618 12,450 6,406 10,284 13,245 7,817 6,407
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues........ 109,313 114,480 116,098 131,668 126,150 130,257 143,033 146,944 144,776 144,194
Cost of Revenues:
Salaries, commissions
and other payroll-
related costs........ 46,153 46,294 45,207 49,642 45,643 53,644 58,468 55,694 59,120 56,885
Data processing
expenses............. 25,710 27,980 30,007 32,949 31,115 31,488 31,751 38,585 36,076 34,152
Other operating
costs................ 10,270 13,396 11,686 15,883 12,637 14,266 14,084 17,489 15,365 16,658
Depreciation of
premises and
equipment............ 7,790 9,202 8,984 9,534 7,683 7,326 7,462 7,856 7,039 7,006
Amortization of
intangibles and
computer software.... 5,223 5,813 4,739 6,691 13,233 7,035 8,862 9,033 7,949 8,966
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues............. 95,146 102,685 100,623 114,699 110,311 113,759 120,627 128,657 125,549 123,667
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
operations........... 14,167 11,795 15,475 16,969 15,839 16,498 22,406 18,287 19,227 20,527
Other Income (Expense):
Interest income....... (25) (40) (57) 165 1 79 253 371 347 493
Interest expense...... (556) (554) (505) (864) (560) (1,446) (1,426) (1,379) (1,594) (1,609)
Other income
(expense), net....... 3 (23) (141) (168) 6 (13) (1,927) (791) (546) (1,085)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net other income
(expense)............ (578) (617) (703) (867) (553) (1,380) (3,100) (1,799) (1,793) (2,201)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes.... 13,589 11,178 14,772 16,102 15,286 15,118 19,306 16,488 17,434 18,326
Allocated tax
provision............. 5,742 4,577 6,233 6,484 6,864 7,138 7,466 7,823 7,398 7,745
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income............. $ 7,847 $ 6,601 $ 8,539 $ 9,618 $ 8,422 $ 7,980 $ 11,840 $ 8,665 $ 10,036 $ 10,581
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Revenues:
Account processing
fees................. 65.0% 63.9% 67.4% 62.8% 69.0% 76.5% 70.5% 71.0% 74.6% 75.4%
Professional services
fees................. 15.8 15.5 16.3 14.7 14.5 13.1 15.3 13.1 13.4 13.1
Software revenues..... 10.0 8.7 6.7 6.8 6.7 5.5 7.0 6.9 6.6 7.1
Other revenues........ 9.2 11.9 9.6 15.7 9.8 4.9 7.2 9.0 5.4 4.4
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenues:
Salaries, commissions
and other payroll-
related costs........ 42.2 40.4 38.9 37.7 36.2 41.2 40.9 37.9 40.8 39.4
Data processing
expenses............. 23.5 24.4 25.8 25.0 24.7 24.2 22.2 26.3 24.9 23.7
Other operating
costs................ 9.4 11.7 10.1 12.1 9.9 10.9 9.8 12.0 10.6 11.6
Depreciation of
premises and
equipment............ 7.1 8.1 7.8 7.2 6.1 5.6 5.2 5.3 4.9 4.9
Amortization of
intangibles and
computer software.... 4.8 5.1 4.1 5.1 10.5 5.4 6.2 6.1 5.5 6.2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues............. 87.0 89.7 86.7 87.1 87.4 87.3 84.3 87.6 86.7 85.8
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
operations........... 13.0 10.3 13.3 12.9 12.6 12.7 15.7 12.4 13.3 14.2
Other Income (Expense):
Interest income....... (0.0) (0.0) (0.0) 0.1 0.0 0.1 0.2 0.3 0.2 0.3
Interest expense...... (0.6) (0.5) (0.5) (0.7) (0.5) (1.2) (1.1) (1.0) (1.1) (1.1)
Other income
(expense), net....... 0.0 (0.0) (0.1) (0.1) 0.0 (0.0) (1.3) (0.5) (0.4) (0.7)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net other income
(expense)............ (0.6) (0.5) (0.6) (0.7) (0.5) (1.1) (2.2) (1.2) (1.3) (1.5)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes.... 12.4 9.8 12.7 12.2 12.1 11.6 13.5 11.2 12.0 12.7
Allocated tax
provision............. 5.2 4.0 5.3 4.9 5.4 5.5 5.2 5.3 5.1 5.4
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income............. 7.2% 5.8% 7.4% 7.3% 6.7% 6.1% 8.3% 5.9% 6.9% 7.3%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
We have experienced seasonal variations in our business. Historically,
revenues have been weaker in the first quarter of each year and often lower
than the preceding quarter. This seasonal variation is primarily due to lower
electronic funds transfer, card and software licensing revenues in the first
quarter.
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BUSINESS
Overview
We are a provider of integrated solutions that enable financial services
providers to initiate and process a broad range of financial transactions
electronically, including through the Internet. Our integrated financial
transaction processing, outsourcing, software and consulting solutions provide
virtually all of the technology that a bank or other financial services
provider needs to run its operations. We are an application service provider,
which means that we host, service and support the application which enables our
clients to access and utilize our solutions over public and private networks,
including the Internet. As our clients face increasing competition in their
businesses and strive to provide market-ready, leading-edge products and
services, our solutions free them from the need to own, manage and continuously
update the technology required to support their financial product offerings and
enable them to compete more effectively.
We began operations in 1964, providing community and regional banks with
dependable, outsourced account processing services with a high level of client
service. Since then, we have become a leading provider of innovative, high
quality solutions to the financial services industry, processing the first ever
Internet banking transaction in October 1995 and introducing new products and
services such as Internet bill payment in 1997 and Internet business banking in
1999. In 1999, our solutions were used to originate and/or process over 6.4
billion transactions for over 90 million consumer and business customer bank
accounts. As of June 30, 2000, we had over 3,300 clients, including 20 of the
largest 20 and 72 of the largest 100 banks in the United States. In addition to
the nation's largest banks, we provide our solutions to mid-tier and community
banks, Internet banks and non-traditional financial services providers. Our
clients include M&I, Bank of America Corporation, Washington Mutual, Inc.,
FleetBoston Financial Corporation, Provident Bank of Maryland, First Midwest
Bancorp, Inc., AAA and USAA.
Industry Background
Over the past 20 years, the financial services industry has become
significantly more information intensive. In 1980, the typical financial
institution offered basic banking services through a network of branches with
limited automated teller machine access. Today, many financial institutions
offer a broader range of products and services delivered through a variety of
distribution channels. The Internet, in particular, is driving increasing
demand among consumers for greater product and service convenience. However,
financial services providers are often constrained in their ability to offer
innovative products and services by the design and capacity of existing systems
and by the lack of requisite technical expertise. In some cases, the cost to
upgrade, replace or supplement existing systems is prohibitive.
In recent years, access to technological solutions has become increasingly
important due to the growth of the Internet. Financial institutions are
recognizing that the Internet is a powerful and efficient medium for the
delivery of financial services, including banking, bill payment and other
services for consumers, and cash management, payroll and other services for the
business customers of financial institutions. Consumers and businesses use
Internet-based financial services because of the 24-hour-a-day, 7-day-a-week
convenience and the ability to perform a wide range of transactions from any
personal computer or Internet-enabled device. The Office of the Comptroller of
the
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Currency estimates that there were approximately 5 million U.S. households
banking online in 1999, and analysts expect this number to increase over the
next several years to approximately 32 million users. In response to this
demand, an increasing number of financial institutions are offering Internet-
based banking services. The Office of the Comptroller of the Currency estimates
that 45% of all national banks will offer Internet banking services by the
beginning of 2001.
In addition, financial services providers face serious challenges
resulting from technological innovation, scarcity of qualified information
technology personnel, the Internet, regulatory changes and evolving customer
preferences and behavior. New entrants, such as Internet banks, insurance
companies, brokerages and affinity groups, are seeking solutions to offer
banking services to their customers that previously could be offered only by
traditional banks, savings and loans and credit unions. These traditional
financial institutions, in turn, are faced with new competitors targeting their
most profitable customers. In order to remain competitive, these providers must
integrate new capabilities and technologies, such as Internet banking,
securities brokerage and insurance, into their product and service offerings.
In addition, consolidation among financial services providers has made it
imperative for industry participants to gain access to cost-effective, scalable
solutions.
Both traditional and non-traditional financial services providers
increasingly view technology as critical to improving customer service levels
and retaining and expanding their customer bases. Moreover, dramatic changes in
the financial services landscape and the speed with which new products and
services must be brought to market have required financial services providers
to focus on their core competencies. As a result, financial services providers
have become more inclined to outsource technology requirements which can be
more efficiently handled by a third party. We believe that there is a
significant need for a comprehensive, integrated outsourced solution, which
provides the software and services to support a broad range of financial
services offerings. Dataquest has estimated the market for outsourced
transaction processing at approximately $19.3 billion in 1999.
Our Solution
We provide our clients with a comprehensive suite of products and services
to address the challenges posed by the rapidly changing financial services
industry. Our solutions are grouped into two primary categories:
. eFinance Solutions. Our eFinance solutions include electronic bill
payment and presentment, business and consumer online banking and
online mortgage services.
. Financial Technology Solutions. Our financial technology solutions
include financial account processing, customer relationship management
solutions, private label banking, trust and investment solutions,
electronic funds transfer and card solutions. Our private label banking
service allows non-traditional financial services providers, such as
affinity groups, to provide a full range of banking services to their
members. Our trust and investment solutions allow traditional bank
trust departments, private trust companies, brokerage-based trust
companies and registered investment advisers to manage their investment
portfolios in real time via the Internet. Through our card solutions
offering, we provide banks, credit unions and non-financial companies
with account processing, merchant servicing and card personalization
services for debit, credit, automated teller machine and merchant
cards.
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We believe that our solutions enable financial services providers to
compete more effectively in the financial services marketplace by providing the
following benefits:
. Comprehensive, Integrated Solutions. We offer financial services
providers a comprehensive set of solutions for their financial
transactions. Our solutions are modular, flexible and integrated,
allowing clients to select those products and services which best suit
their needs and add additional products and services as their
businesses grow.
. Speed to Market. Our solutions allow financial services providers to
introduce new products and services and to enhance their existing
offerings in a fraction of the time and cost it would take for them to
develop these products and services internally.
. Customer Relationship Management. Our customer relationship management
solutions assist our clients in generating a complete view of each
customer relationship, regardless of the point of access or source of
information. These solutions have been designed to interface seamlessly
with all of our products and services and help our clients attract and
retain customers.
. Open Architecture. We have designed our systems and operating
environments with architecture frameworks and standards to ensure
technical compatibility and interoperability with the major computing
platforms and network communications protocols in use in the United
States today, as well as to ensure rapid assimilation of new
technologies. This architecture provides our clients with the
flexibility to integrate and deploy new products and technologies and
add applications to our platform.
. User-Centered Design. We have incorporated user-centered design
techniques, such as client observation, prototyping, iteration and
usability testing, as a guiding principle in our product development
process. This practice puts the user, the ultimate customer, at the
center of the product research and design process, resulting in
products and services which use technology to innovatively address
customer needs. User-centered design ensures that our products are
appealing and easy to use, whether in a consumer, small business or
corporate setting.
. Scalable, Reliable and Secure Service. Our solutions are designed to
scale rapidly to support increasing numbers of end users and to operate
reliably. Our solutions are secured by data encryption techniques,
firewalls and several layers of security technology in order to protect
our systems from unauthorized access.
Our Strategy
Our objective is to be the leading provider of financial transaction
solutions. Key elements of our strategy to achieve this objective are to:
. Expand Existing Client Relationships. As of June 30, 2000, we had over
3,300 clients. During 1999, as we expanded our product offerings, we
also experienced a dramatic increase in our client base, adding over
1,200 new clients. Many of these recently added clients use only one or
a few of our products and services. We believe that we have a
significant opportunity to expand our relationships with these clients
by cross-selling additional components of our comprehensive suite of
products and services.
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. Add New Clients. We intend to expand our client base in both existing
and new markets. We believe there is a significant opportunity to
attract new clients among traditional financial services providers
looking for ways to compete more effectively. Moreover, as more non-
traditional companies enter the financial services industry, they will
face technology needs that we believe we can meet with our
comprehensive, fully integrated product offerings. We also believe that
an international market exists for many of our products and services.
. Continue to Leverage the Internet Throughout Our Product Line. We have
incorporated Internet applications and web-based interfaces throughout
the products and services we offer and the internal systems we operate.
We currently offer a broad range of Internet-enabled products and
services, including electronic bill payment and presentment, online
business and consumer banking, web-based trust and investment
solutions, web-enabled automated teller machines, web-based training
and education programs and web-based debit/credit card processing
systems. All of our mainframes and systems servers are Internet-enabled
and we intend to Internet-enable the network that connects our
processing centers to our clients by the end of 2002. We intend to
continue to adapt all of our products and services for use over the
Internet and to develop new products and services that employ Internet
technologies.
. Maximize Recurring Revenues. We seek to develop and maintain long-term
client relationships by providing superior service and multiple
financial transaction processing products and services pursuant to
contracts with five to seven year terms. Many of our products and
services are billed on a per transaction basis or otherwise in
accordance with long-term contracts, which allows us to generate
recurring revenues. In 1999, 81% of our revenues were generated from
recurring sources.
. Seek Strategic Acquisition and Alliance Opportunities. We intend to
pursue investments in, acquisitions of and alliances with complementary
businesses and technologies that will allow us to address new financial
services markets and enable us to provide our clients with access to
the best products, technologies and services in the marketplace.
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<PAGE>
Clients
As of June 30, 2000, we had over 3,300 clients. These clients are
comprised of participants from all segments of the financial services industry,
including 20 of the largest 20 and 72 of the largest 100 banks in the United
States as well as mid-tier and community banks, Internet banks and non-
traditional financial services providers. For the year ended December 31, 1999
and the six months ended June 30, 2000, revenues from M&I represented
approximately 10.4% and 11.0% of our total revenues, respectively. Set forth
below is a listing of some of our clients categorized by type of institution.
We believe these are significant clients of ours based on the amount of
business they do with us, both historically and prospectively, relative to our
other clients within the same categories.
Large Banks Mid-Tier and Community Banks
Astoria Financial Corporation American Savings Bank, F.S.B.
Bank of America Corporation BankAtlantic Bancorp, Inc.
Bank One Corporation City National Corporation
Citizens Banking Corporation Eastern Bank Corporation
FleetBoston Financial Corporation First Midwest Bancorp, Inc.
Imperial Bancorp
Hudson United Bancorp
Marshall & Ilsley Corporation INTRUST Financial Corporation
The Northern Trust Corporation Johnson International, Inc.
SunTrust Banks, Inc. Provident Bank of Maryland
Synovus Financial Corp. S&T Bancorp, Inc.
Washington Mutual, Inc. Washington Trust Bank
Zions Bancorporation
Internet Banks Non-Traditional Financial Services
E*Trade Bank Providers
AAA
everbank.com(TM), a division of Wilmington Savings Fund Society, FSB
Security First Network Bank(TM)
Bessemer Group, Inc.
UmbrellaBank.com Dain Rauscher Corporation
Principal Financial Group
Web Capital Services, Inc. USAA
Set forth below is a listing of some of our clients categorized by the
products and services they purchase from us. We believe these are significant
clients of ours based on the amount of business they do with us, both
historically and prospectively, relative to our other clients within the same
categories.
Electronic Bill Payment and Online Consumer Banking
Presentment
Cullen/Frost Bankers, Inc.
Spectrum EBP, L.L.C., along with M&I
its founding members The Chase
Manhattan Bank, Wells Fargo Bank, Synovus Financial Corp.
N.A. and First Union National
Bank TCF Financial Corporation
TCF Financial Corporation
Washington Mutual, Inc.
Online Business Banking Online Mortgage Services
Bank of America Corporation Bank United
Bank One Corporation GMAC Mortgage
FleetBoston Financial Corporation Temple Inland Mortgage Corp.
SunTrust Banks, Inc.
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Financial Account Processing Electronic Funds Transfer
Citizens Banking Corporation Astoria Financial Corporation
Hudson United Bancorp Citizens Banking Corporation
M&I Hudson United Bancorp
Provident Bank of Maryland Synovus Financial Corp.
Synovus Financial Corp. TYME
Customer Relationship Management Card Solutions
Astoria Financial Corporation
First Union Corporation M&I
INTRUST Financial Corporation Provident Bank of Maryland
M&I Web Capital Services, Inc.
Synovus Financial Corp.
Private Label Banking CSF
AAA The Chase Manhattan Corporation
Capital Crossings Bank
MCI Worldcom Network Services,
Aceva Technologies, Inc., formerly Inc.
Moore Business Forms Limited
InPurchase, Inc.
Old Kent Financial Corporation
UmbrellaBank.com
The Prudential Insurance Company
of America
Trust and Investment Solutions
Associated Trust Company, N.A.
First Hawaiian Bank
Marshall & Ilsley Trust Company
Regions Financial Corporation
The following case studies illustrate how some of our clients are using
our suite of solutions to meet their individual needs:
The Northern Trust Corporation
The Northern Trust Corporation, one of the largest 35 financial services
providers in the United States, had been a licensee of our integrated banking
solutions' software for over 20 years. In 1998, it chose to outsource
substantially all of its banking technology needs to us. This allowed Northern
Trust to quickly implement a complete outsourcing solution and enabled it to
add new products and services, such as online banking, in a cost-effective
manner.
American Automobile Association
AAA recently entered into an agreement jointly with us and M&I to offer
AAA members various online financial products and services. Pursuant to this
agreement, we will provide electronic banking capabilities as well as a wide
range of deposit and loan products, such as automobile loans, home equity loans
and lines of credit, mortgages and savings accounts, branded under AAA's well-
established name. These AAA financial products and services will be supported
24 hours a day, seven days a week through participating AAA club websites and
our client service center.
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Washington Mutual, Inc.
Washington Mutual, Inc., one of the largest 10 financial services
providers in the United States, recently selected us to offer electronic bill
payment services to approximately 7 million retail customers. Washington Mutual
elected to leave its former provider, and Washington Mutual chose us because of
our bill payment expertise, scalable solutions and superior customer service.
In June 2000, Washington Mutual entered into an agreement with us to install
our document composition software.
Our Products and Services
Our products and services offer financial services providers a
comprehensive suite of solutions to meet their specific needs and requirements.
We have grouped these solutions into the following two primary categories:
eFinance solutions and financial technology solutions.
eFinance Solutions
We offer comprehensive eFinance solutions for financial services providers
and their business and consumer customers. These solutions, which provide our
clients with a cost-effective outsourced service branded in their names,
include electronic bill payment and presentment, business and consumer online
banking and online mortgage services. We also provide professional consulting
services to complement our eFinance solutions offerings. As of June 30, 2000,
our clients included 40 of the largest 50 banks in the United States. Our
eFinance solutions are constructed with an emphasis on flexibility, durability,
customization and scalability.
Electronic Bill Payment and Presentment. As of June 30, 2000, we have
entered into agreements to provide electronic bill payment products and
services to over 1,800 financial services providers. Based on fiscal year 1999
revenues, we believe that we are currently the second largest provider of
electronic bill payment solutions and since January 1999, we have added over
1,100 new financial services providers.
Our electronic bill payment solution enables financial institutions and
Internet portal customers to pay bills using a variety of devices, including
personal computers. These customers can use our service to make a payment from
their checking accounts to anyone in the United States, regardless of whether
the payment is made electronically or through a traditional paper-based method.
We target our electronic bill payment solution at financial institutions as
well as home banking providers who resell our product within their offerings.
We believe that our high level of client service and the scalability,
flexibility and ability to integrate with a client's existing infrastructure
offer significant competitive advantages versus alternative bill payment
solutions.
We have integrated our electronic bill payment solution with our document
composition software to allow billers to electronically prepare bills and
statements and to enable their customers to view these bills and statements
online. This end-to-end electronic bill presentment and payment service
significantly reduces the cost of printing and mailing bills while offering a
flexible and efficient method for customers to receive and pay bills. Our
service is expected to be interoperable with open electronic bill exchange
providers, including Spectrum EBP, L.L.C., which allows financial institutions
to share billing information and provide electronic billing information to
their customers.
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<PAGE>
In May 2000, we agreed to incorporate Avolent's modular BillCast(TM)
software, which enables billers to deploy secure, scalable solutions for
personalized billing, statement presentment, payment and service delivery, into
our electronic bill payment and presentment solution. Pursuant to our agreement
with Avolent, which has an initial term of five years and automatically renews
for successive one-year terms, the fees we receive from Avolent are primarily
transaction-based fees for the use of our software. We have not generated
significant revenues from our arrangement with Avolent since this agreement was
only recently entered into.
In August 2000, we entered into a five year agreement with Spectrum EBP,
L.L.C. pursuant to which Spectrum has agreed to use our electronic bill payment
services and to market those services to its current and future participants.
Spectrum is a joint venture of The Chase Manhattan Bank, First Union National
Bank and Wells Fargo Bank, N.A. designed to be a hub that enables financial
institutions to route electronic bills and payments through a single connection
to other participants. Under the agreement, Spectrum guarantees minimum volumes
ranging from five million transactions in the first year commencing April 1,
2001, to 45 million transactions in each of years three, four and five. If
Spectrum does not provide the minimum volume required, each of the three
founding member banks has entered into an agreement with us to provide the
required volume or pay the revenue associated therewith. The fees we receive
under the agreement from Spectrum are primarily transaction-based fees, subject
to minimum annual payments. We have not generated any revenues from this
agreement, since the agreement was only recently entered into.
Online Business Banking. As of June 30, 2000, we provided online business
banking products and services to approximately 320 financial services
providers, including 18 of the largest 20 and 40 of the largest 50 banks in the
United States.
Our online business banking offering consists of a set of modular banking
and cash management solutions designed to meet the needs of small, mid-sized
and large businesses. This offering can be accessed through a variety of
channels, including the Internet, personal computer and telephone, and
interfaces with accounting software packages and enterprise resource planning
systems, such as Intuit QuickBooks(R) and Quicken(R), Solomon(TM) and SAP(TM).
While our online business banking offering is often highly customized
based on client needs and requirements, standard features and functions
include:
. balance reporting, . bill payment,
. money and wire transfer, . multi-bank reporting,
. cash concentration,
. Automated Clearing House
origination,
. electronic data interchange, and
. account reconciliation,
. multiple levels of security.
. stop payments,
Online Consumer Banking. As of June 30, 2000, we provided online consumer
banking products and services to over 230 financial services providers.
Included in this number are over 150 financial services providers to whom we
provide Internet consumer banking on a private label basis through an agreement
with S1 Corporation. Pursuant to our agreement with S1 Corporation, which
expires in June 2004, we paid to S1 Corporation a one-time licensing fee for
the use of S1 Corporation's consumer banking software.
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<PAGE>
Our offering provides online banking solutions to consumers through
financial services providers. These solutions, which can be branded in the name
of the financial services provider, aggregate financial account information,
such as checking account information, loan balances and credit card
information, into one comprehensive product offering that can also include
personalized information. Our online consumer banking offering is provided in a
cost-effective, service bureau environment and is supported by website
development and hosting services as well as our 24-hour end user customer call
centers.
Our online consumer banking clients can easily integrate this offering
with our electronic bill payment solution, and our clients' customers can use
this offering to interface with personal financial management software, such as
Intuit Quicken(R) and Microsoft(R) Money.
Online Mortgage Services. We offer online mortgage services through
Customers Forever LLC, a limited liability company founded in 1999 and owned by
us, Mortgage Guaranty Insurance Company and Customers Forever management. We
currently hold an economic interest of approximately 46% in Customers Forever.
Customers Forever is an Internet-based mortgage transaction service which
is dedicated to helping large residential mortgage services providers retain
and enhance relationships with their existing customers while lowering the cost
of servicing those customers. The service is end-to-end so that everything from
the initial contact with a customer to the closing of a new mortgage loan, as
well as ongoing customer support which allows customers to access loan
information, pay and refinance loans, can be handled online. Customers Forever
provides a private-label website that a residential mortgage services provider
can use to offer online mortgages and home equity loans and provide customers
with online access to statements as well as mortgage payment options 24 hours a
day, seven days a week. Borrowers are informed of refinancing opportunities and
presented with proactive cost-saving options via electronic mail. If the
consumer chooses to refinance a mortgage, the transaction can be approved over
the Internet and fulfilled with minimal human interaction. Customers Forever
enables lenders to save hundreds of dollars per loan in origination costs and
significantly reduce their loan servicing costs.
Financial Technology Solutions
Through our financial technology solutions, we offer financial account
processing, customer relationship management solutions, private label banking,
trust and investment solutions, electronic funds transfer and card solutions to
financial services providers. In addition, we offer professional consulting
services to complement our financial technology solutions offerings.
Financial Account Processing. According to the Tower Group, as of March
2000, 27 of the 100 largest U.S. banks have outsourced their core financial
account processing and, as of June 30, 2000, 10 of these 27 banks have
outsourced these processing functions to us. In total, we provide financial
account processing products and services to approximately 650 financial
services providers.
We provide complete, integrated deposit account and processing services,
loan servicing and transaction posting and financial reporting capabilities to
banks, Internet banks and finance companies on our service bureau platform.
Based on a third party's analysis of our competition in
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<PAGE>
this area, we believe that our financial account processing suite is the most
comprehensive and feature-rich solution offered in the financial services
industry today. The level of integration that exists within our financial
account processing applications provides a seamless look and feel and enables
the users of these applications to dramatically improve the efficiencies in
their operating environments.
Our financial account processing offering consists of the following three
primary modules:
. Deposit services. Our deposit services include base deposit processing,
integrated funds management, exception desktop and retirement account
processing. Products supported include checking, savings, NOW, money
market, retirement and club accounts, time deposits and certificates of
deposit and overdraft management. Our deposit services are integrated
with our loan and financial control systems.
. Integrated loan system. Our integrated loan system is an online, real
time comprehensive accounting system for loan products, including
consumer, commercial, mortgage, revolving credit and floor plan loans.
This system is designed to provide common inquiries, input screens and
reports, regardless of the type of loan established. The ability to mix
and match functions within the loan system supports combinations of
lending products, such as a commercial loan with an escrow account or a
mortgage loan tied to a line of credit. The loan system is integrated
with our deposit and financial control systems.
. Financial control system. Our financial control system is a management
information system that combines general ledger functions, such as
recording, classifying and summarizing of transactions, with reporting
functions. This system is integrated with our other applications to
provide efficient and accurate transaction posting and financial
reporting of data. The application interface provides transaction
mapping and balancing features from our deposit and loan systems to the
general ledger. The financial control system can also access data from
a variety of third-party sources, and all pertinent balance information
is available for complete report customization.
Customer Relationship Management Solutions. As of June 30, 2000, we
provided customer relationship management products and services to
approximately 650 financial services providers.
Our customer relationship management solutions assist our clients in
generating a complete view of each of their business and consumer customer
relationships by storing information about those customers in a central
repository for use across the enterprise. Specific examples of the types of
customer information collected and analyzed include:
. account relationship information, . non-financial contact
such as deposits, loans, information, such as service
mortgages and card products, quality issues and inquiries,
. customer transaction history and
delivery channels usage
information,
. financial goals and objectives
of individual customers, and
. customer demographics and
household information,
. prospective customers and
referrals.
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Our clients can use this information to improve long-term customer satisfaction
and retention. Our customer relationship management solutions have been
designed to interface seamlessly with all of our products and services. These
tools allow our clients to more effectively manage key sales and service
functions to better serve their customers. For business banking, our customer
relationship management solutions help financial services providers manage the
market risk, credit risk and profitability of their customers. For consumer
banking, our customer relationship management solutions help financial services
providers to sell more effectively by performing segmentation analysis,
campaign management sales workflow and prospect management. Our customer
relationship management solutions enable financial services providers to ensure
that all customer interactions are appropriate and consistent, regardless of
the channel of contact.
Private Label Banking. As of June 30, 2000, we have entered into
agreements to provide private label banking products and services to seven
financial services providers.
Through our private label banking offering, we provide, in conjunction
with M&I, a complete, end-to-end outsourcing solution for direct banking. Our
technology and services provide non-traditional financial services providers,
including affinity groups, a turnkey solution to offer their customers a full
range of banking services, such as:
. Internet banking, . call center operation,
. debit and credit card services, . deposit servicing, and
. loan origination and
. automated teller machine card issuance servicing.
and processing,
While we have entered into arrangements with M&I in the past to facilitate
the offering of our private label banking solution, and may do so again in the
future, we may also seek relationships with other banking partners to assist
with our private label banking offering.
Trust and Investment Solutions. As of June 30, 2000, we provided trust and
investment products and services to approximately 130 financial services
providers.
Our trust and investment solutions provide Internet-enabled outsourcing
capabilities to traditional bank trust departments, private trust companies,
brokerage-based trust companies and registered investment advisers. We provide
the technology and processing services to help our clients automate the many
detailed activities associated with managing portfolios and accounting for
invested assets. Our trust and investment solutions include trust services,
participant recordkeeping and operations outsourcing of trust services and
asset management. These solutions allow our clients and their customers to
access portfolio information, analyze portfolios in real time and conduct
portfolio transactions via the Internet. In addition, our integrated document
composition software allows our clients to design and generate customized
statements.
Electronic Funds Transfer. As of June 30, 2000, we provided electronic
funds transfer products and services to approximately 640 financial services
providers.
We link with all major electronic funds transfer networks, gateways and
processors to route and authorize automated teller machine and debit card
transactions and provide automated teller
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machine management and monitoring solutions for banks, credit unions, Internet
banks and independent sales organizations. We manage over 7,900 automated
teller machines across the United States using a dedicated, fault-tolerant
transaction-processing system. We support advanced automated teller machine
function capabilities, where available, including check cashing, statement
printing, foreign language support, stamp and coin dispensing, prepaid cards
and couponing abilities. Our automated teller machine monitoring solution
utilizes automated voice notification to alert a financial institution or its
automated teller machine service team via Internet, telephone, pager, voice
mail, answering machine or electronic interface of events that may adversely
affect an automated teller machine system.
Card Solutions. As of June 30, 2000, we provided card processing products
and services to approximately 1,200 financial services providers.
We provide banks, credit unions and non-financial companies with account
processing, merchant servicing and card personalization services for debit,
credit, automated teller machine and merchant cards. Merchant cards are credit
cards issued by retailers and other business participants. We support account
processing for the debit, credit and automated teller machine card market.
Debit card products supported include Visa(R) Check Card, MasterMoney Card,
Visa(R) Business Check Card and MasterMoney Business Card(R) and we have direct
links to Visa(R) and MasterCard(R) for authorization and settlement of debit
card transactions. Credit card products supported include Visa(R) and
MasterCard(R) classic, gold, platinum, business, corporate, purchasing and
fleet cards. We also provide all of the support services necessary to
effectively manage an automated teller machine, debit or credit card portfolio.
We continue to expand our Internet-enabled card processing offerings through
SureCard(TM), an Internet-based credit card management system, and through
online credit card application processing. Our merchant servicing products
provide merchants with the ability to accept all major credit cards and debit
transactions. Merchants are provided monthly statements, custom reporting,
tailored client service, training and pricing. Our card personalization
offering includes automated teller machine cards for financial institutions and
is certified to produce debit cards, including Visa(R) Check Card and
MasterMoney Card.
Other Products and Services
Other products and services included in our suite of financial transaction
solutions include CSF, which is our document composition software product, and
other processing and service solutions.
CSF. As of June 30, 2000, our CSF software product was licensed by over
350 companies worldwide, including 23 of the largest 25 banks in the United
States, 35 of the largest 65 gas and electric utility companies in the United
States and 3 of the largest 5 telecommunication firms in the United States. CSF
allows our clients to maximize their marketing efforts, expand cross-selling
opportunities and increase customer satisfaction by creating personalized
individual statements, bills, notices, correspondence and marketing
communications. We estimate that these clients generate over 1 billion print
and electronic customer documents each month using our CSF software. Our
professional services staff supplements our CSF offering by providing
customized consulting services on both short-term and long-term bases.
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Other Processing and Service Solutions. We maintain one of the largest
Automated Clearing House operations in the United States, processing over 17
million transactions per month for our clients. In addition, we provide
treasury management services for a number of our clients in our financial
account processing service bureau. Finally, we provide professional consulting
services to Customers Forever for the development and maintenance of its
application software.
Sales and Marketing
We sell our products and services primarily through a direct sales force.
As of June 30, 2000, approximately 300 people supported our sales and marketing
activities nationwide. Our direct sales efforts have been primarily focused on
domestic financial services providers, such as banks, credit unions, brokers,
insurance companies and resellers. We intend to increase our international
sales by pursuing new reseller arrangements and establishing a direct sales
effort abroad.
In 1999, we created a new sales organization to focus on the electronic
bill payment marketplace by developing sales and marketing alliances with
leading home banking providers, including Digital Insight Corporation,
FundsXpress, Inc., Jack Henry & Associates, Inc., S1 Corporation, Corillian
Corporation and VIFI (Virtual Financial), all of which resell our electronic
bill payment solutions as part of their home banking products. Pursuant to our
agreements with each of these companies, which have initial terms of three
years and automatically renew for successive one-year terms, the fees we
receive from these companies for providing our electronic bill payment products
to their customers are primarily transaction-based fees, subject in most cases
to minimum monthly payments. To date, all but our agreement with Corillian
Corporation, which was entered into at the end of June 2000, have generated
revenues for our eFinance solutions business segment. Our agreement with
Digital Insight Corporation is currently being renegotiated, and we cannot make
any assurances as to whether the revised agreement will have terms similar to,
or as favorable as, our existing agreement.
Our direct sales staff utilizes a multi-tiered approach that leverages the
involvement of our field sales personnel, our technical professionals and
members of our senior management. Our sales process simultaneously targets
senior business executives, personnel responsible for financial services
initiatives and bank operations personnel. We employ this approach to
accelerate the sales cycle, which typically ranges from three to nine months.
After a sale has been made, our client services group manages the account and
aggressively cross-sells additional products and services into these accounts.
Our corporate marketing team is responsible for building strong brand
awareness, implementing best practices marketing processes and generating and
identifying potential clients and market opportunities. Our marketing efforts
include electronic marketing, media relations, trade show and event marketing,
strategic marketing, strategic planning, market research and market planning.
Technology and Infrastructure
All of our systems are designed to provide real time data acquisition,
processing, analysis and presentation of financial service applications. Our
systems encompass distributed hardware platforms, an open middleware software
environment, financial services applications, network support
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infrastructure and continuous processing support. The key feature of our
systems is our open systems architecture which provides clients with the
flexibility to easily scale and add new solutions to the underlying platform.
Our open architecture facilitates the integration of applications developed on
the same or disparate platforms, developed by us or our partners, internal
development teams or other third-party application developers. The resulting
integrated solutions not only leverage the individual strengths of these
separate applications, but also create new service opportunities that yield a
higher value to financial organizations than each of the applications alone.
Our platform is equipped to deliver solutions that are designed to meet
the various business needs and diversified operating systems and platforms of
our clients. Our open standards facilitate integration among diverse front-end
delivery and access systems, customer and account processing systems and back-
end management information systems. Multiple delivery channel support and
application integration is accomplished through the use of a number of
standards based on approaches such as extensible markup language, component
object model, common object request broker architecture, interactive financial
exchange and open financial exchange.
Our data centers provide access to host computers for messaging, online
updates and inquiry into the systems operating our solutions. All
communications between the applications running in the data centers and the
organization's host network are routed through a virtual private network
connection in order to provide enhanced security. We are in the process of
migrating our private point-to-point networks to a broadband Internet-protocol-
based network which is expected to be completed by the end of 2002. This
network management initiative will provide the network infrastructure for the
increased bandwidth needs of financial services providers in the future. Our
data centers are responsible for ensuring availability of all types of
communications, including online, electronic mail, frame relay circuit and host
communications. In addition, our data centers provide production, change
control, job scheduling, data storage management, storage of backups and job
performance analysis for systems operating our products. Our recovery plan
provides the organization with a defined recovery site, data processing
resources and vital records required for restoration of all the organization's
operations in the data centers.
Our client-enabling systems environment is operated 24 hours a day, seven
days a week with a team of operating systems, applications support, network
services and operation experts to ensure maximum availability of our services
to our clients.
Research and Development
As of June 30, 2000, our product development staff consisted of over 1,800
software development professionals with experience in a vast array of financial
services technologies, including Internet technology, financial services
applications, software testing and quality assurance, object-oriented software
design, client service systems, straight-through-processing design, user-
centered design, large scale transaction processing and wireless technology.
Our product development group is responsible for strategic product planning,
managing client and market demands and managing the product roll-out process
for each product under development. This group uses best practices, such as
user-centered design, object oriented development, enterprise architecture and
formal software testing, to enhance the quality, performance, scalability and
functionality of our products and services.
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Competition
The markets for our products and services are intensely competitive. We
compete with a variety of companies in various segments of the financial
services industry, and our competitors vary in size and in the scope and
breadth of the products and services they offer.
Our eFinance solutions compete with a number of companies, including:
. Electronic Bill Payment and Presentment. CheckFree Holdings Corporation
is a dominant competitor in this market. Our other primary competitors
are Derivion Corporation and Princeton eCom Corporation. We have
relatively few other competitors in this market.
. Online Banking. The business banking market is highly fragmented with
numerous companies competing for market share. Our primary competitors
in this market are BROKAT Infosystems AG, Fiserv, Inc. and S1
Corporation. Our primary competitors in the consumer banking market are
Corillian Corporation, Digital Insight Corporation and S1 Corporation.
We have relatively few other competitors in the consumer banking
market.
Our financial technology solutions compete with a number of companies,
including:
. Financial Account Processing. This market is highly fragmented with
numerous companies competing for market share. Our primary competitors
are Electronic Data Systems Corporation, Fiserv, Inc. and Jack Henry &
Associates, Inc.
. Customer Relationship Management Solutions. This market is highly
fragmented with numerous companies competing for market share. Our
primary competitors are ALLTEL Information Services, Electronic Data
Systems Corporation, Fiserv, Inc. and Perot Systems Corporation.
. Private Label Banking. The market for private label banking products is
relatively new with limited market competition. Our primary competitor
is Sanchez Computer Associates, Inc.
. Trust and Investment Solutions. Relatively few companies provide trust
and investment solutions. Our primary competitors are SEI Investments
Company and SunGard Data Systems, Inc.
. Electronic Funds Transfer and Card Solutions. The electronic funds
transfer and card solutions markets are highly fragmented with numerous
companies competing for market share. Our primary competitors are
Concord EFS, Inc., Midwest Payment Systems, Inc. and Electronic Data
Systems Corporation.
We also face competition from in-house technology departments of existing
and potential clients who may develop their own solutions rather than purchase
financial services solutions from third-party vendors.
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Intellectual Property
Although we believe our success is more dependent upon our technical
expertise than our proprietary rights, our future success and ability to
compete is dependent in part upon our proprietary technology. None of our
technology is currently patented, although we license patents from third
parties and Customers Forever has applied for two patents. We do, however, rely
on a combination of contractual rights and copyright, trademark and trade
secret laws to establish and protect our proprietary technology. We cannot
assure that the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
superior to our technology. We also cannot assure that we will not infringe
upon the intellectual property rights of third parties. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain or use our products or technology. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same extent
as do the laws of the United States. The costs of defending our proprietary
rights or claims that we infringe third-party proprietary rights may be high.
Employees
As of June 30, 2000, we had a total of 3,842 full- and part-time
employees, including 1,845 in technical and software development, 847 in client
care, 463 in operations, 387 in administration and 300 in sales and marketing.
None of our workforce is currently unionized. We have not experienced any work
stoppages and consider our relations with our employees to be good.
Facilities
Our corporate headquarters are located at 4900 West Brown Deer Road, Brown
Deer, Wisconsin, a combined office and data processing facility of
approximately 380,000 square feet which we own (we lease approximately 38,000
square feet of this facility to M&I for its item processing operations). In
addition, we own or lease the following additional principal facilities:
<TABLE>
<CAPTION>
Approximate Lease
Use Location Square Footage Expiration Date
<S> <C> <C> <C>
Software development Milwaukee, Wisconsin 233,000 N/A*
Online banking and call center Milwaukee, Wisconsin 96,000 03/31/10
Software development and client care Brown Deer, Wisconsin 62,000 04/30/06
Software development and client care Ann Arbor, Michigan 51,000 N/A**
Software development Milwaukee, Wisconsin 49,000 02/29/04
Software development Milwaukee, Wisconsin 33,000 07/31/04
Data processing Oak Creek, Wisconsin 31,000 07/31/13
Software development Milwaukee, Wisconsin 20,000 08/31/04
Online banking and call center Alpharetta, Georgia 12,000 11/30/04
</TABLE>
---------------------
* We own this facility.
** We have signed a lease agreement for this facility but have not yet taken up
occupancy there. We expect the lease term to commence on or about November
1, 2000, which means that the lease will terminate on October 31, 2015.
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We believe that our properties are adequate to support our current
operations. We expect that the growth of our business will require us to obtain
expanded or additional facilities within the next 12 months.
Government Regulation
We are subject to examination, and are indirectly regulated by, the Office
of the Comptroller of the Currency, the Federal Reserve Board, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision and the various
state financial regulatory agencies that supervise and regulate the banks and
thrift institutions for which we provide services. Matters subject to review
and examination by federal and state financial institution regulatory agencies
include our internal controls in connection with our performance of data
processing services and the agreements giving rise to those processing
activities. Furthermore, as long as we are controlled by M&I, we are subject to
restrictions on our activities and to supervision, regulation and examination
by the Federal Reserve Board as a company controlled by a bank holding company.
As a subsidiary of a bank holding company, we are subject to restrictions on
the types of activities that we may engage in, or the products and services
that we may offer. Under Section 4(c)(8) of the Bank Holding Company Act of
1956, as amended, a non-bank subsidiary of a bank holding company may only
engage in activities that the Federal Reserve Board has determined to be "so
closely related to banking . . . as to be a proper incident thereto."
Regulation Y includes a so-called "laundry list" of non-banking activities that
the Federal Reserve Board has approved by regulation. This list includes, among
other things, providing data processing and transmission services, facilities
and databases, as well as access to them by any technological means.
The adoption or modification of laws or regulations relating to the
Internet, or interpretations of existing law, could adversely affect our
business. Laws and regulations which apply to communications and commerce over
the Internet are becoming more prevalent. For example, a recent session of the
United States Congress resulted in Internet laws regarding copyrights, taxation
and the transmission of specified types of material. Congress also adopted
legislation imposing obligations on financial institutions to develop privacy
policies, restrict the sharing of non-public customer data with nonaffiliated
parties at the customer's request and establish procedures and practices to
protect and secure customer data. These privacy provisions, which may apply to
us because of the broad definition of "financial institution" contained in the
legislation, will be implemented by regulations that will take effect on
November 13, 2000, although compliance will be optional until July 1, 2001.
Even if the regulations do not apply directly to us, they will apply to our
financial institution clients. The law of the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for online
financial services, including online banking, may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business online. We are
also subject to encryption and security export laws which, depending on future
developments, could adversely affect our business.
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Legal Proceedings
From time to time, we may be involved in litigation arising in the normal
course of our business. Except as set forth below, we are not party to any
litigation, individually or in the aggregate, that we believe would have a
material adverse effect on our financial condition or results of operations.
On August 27, 1999, Mid-Med Bank p.l.c. filed a Writ of Summons against
M&I EastPoint, our wholly-owned subsidiary, in the Civil Court of Malta. Mid-
Med is seeking approximately $3.5 million in damages for M&I EastPoint's
alleged breach of a professional services agreement and related agreements
between Mid-Med and M&I EastPoint entered into in 1998. Under those agreements,
M&I EastPoint had agreed to develop, implement and license to Mid-Med certain
consumer banking software. In general, the suit alleges that the software
delivered by M&I EastPoint failed to comply with the requirements of the
agreements. M&I EastPoint has retained Maltese counsel and is vigorously
contesting the suit. M&I EastPoint believes that the suit is without foundation
and that M&I EastPoint has meritorious claims against Mid-Med.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth biographical information with respect to
our director and executive officers as of July 1, 2000 and those individuals
who will be appointed to our Board of Directors prior to or concurrently with
the completion of this offering. After completion of this offering, we will add
three independent directors to our Board of Directors who are unaffiliated with
M&I.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James B. Wigdale........ 63 Director
Dennis J. Kuester....... 58 Chairman of the Board
Joseph L. Delgadillo.... 48 President, Chief Executive Officer and a Director
Michael D. Hayford...... 40 Executive Vice President, Corporate Development/Marketing
Group
Gregory T. Nurre........ 47 President, Enterprise Solutions Group
Colleen J. Stenholt..... 50 Senior Vice President, Human Resources
Owen J. Sullivan........ 42 President, Financial Services Group
Peter J. Tallian........ 42 Chief Financial Officer and Executive Vice President, Finance
and Administration Group
Michael E. Touhey....... 44 President, Electronic Commerce Group
</TABLE>
Mr. Delgadillo is currently our sole director. We will expand our Board of
Directors prior to or concurrently with the completion of the offering, adding
Messrs. Wigdale and Kuester. Mr. Kuester will become our Chairman of the Board.
When and if M&I completes the distribution of our common stock that it holds,
it is anticipated that Mr. Wigdale would resign from our Board of Directors and
that Mr. Kuester would remain on our Board but would resign as Chairman.
Biographical information set forth below relating to positions held with
Metavante prior to July 2000 refers to positions with the M&I Data Services
division of M&I. The M&I Data Services division of M&I had an advisory board
from January 1995 through June 2000.
James B. Wigdale. Mr. Wigdale will join our Board of Directors prior to or
concurrently with the completion of this offering. Mr. Wigdale has served as
the Chairman of the Board of M&I since December 1992 and as the Chief Executive
Officer of M&I since October 1992. From December 1988 until December 1992, he
served as the Vice Chairman of the Board of M&I. Mr. Wigdale has been a member
of the Board of Directors of M&I since 1988. Since January 1989, Mr. Wigdale
has also served as the Chairman of the Board of M&I Marshall & Ilsley Bank and
since September 1987, he has served as its Chief Executive Officer. Mr. Wigdale
has served as a Director of Metavante since November 1987. Mr. Wigdale began
his career with M&I in 1962. Mr. Wigdale holds a bachelor's degree from
Stanford University. Mr. Wigdale is a member of the board of directors of
Columbia Hospital Foundation and Columbia Health System, Inc., a member and
past chairman of the board of trustees of the Medical College of Wisconsin and
a member of the board of directors of the Children's Hospital Foundation. Mr.
Wigdale is also a director of Green Bay Packaging, Inc., a manufacturer of
paperboard packaging, and Sentry Insurance, an insurance and financial services
provider.
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Dennis J. Kuester. Mr. Kuester will join our Board of Directors as
Chairman of the Board prior to or concurrently with the completion of this
offering. Mr. Kuester has served as President of M&I since 1987 and has served
on its board of directors since February 1994. Mr. Kuester has also served as
the President and a Director of M&I Marshall & Ilsley Bank since January 1989.
Mr. Kuester has served as a Director of Metavante since 1986 and as Chairman of
the Board since 1993. Throughout his career with M&I, which began in 1976, Mr.
Kuester has held various positions with Metavante, including Vice President,
President and Chief Executive Officer. Prior to joining M&I in 1976, Mr.
Kuester held a variety of sales and management positions with IBM Corporation,
an information technology provider, working in Milwaukee, Wisconsin,
Minneapolis, Minnesota and Chicago, Illinois. Mr. Kuester holds a bachelor's
degree in business administration from the University of Wisconsin-Milwaukee.
Mr. Kuester serves as a director on various boards, including Modine
Manufacturing Company, a worldwide provider of heat transfer and heat storage
technology, Krueger International, Inc., a manufacturer of office, commercial,
institutional and educational furniture, Super Steel Products Corp., a
manufacturer of steel products, and TYME Corporation, an electric funds
transfer services provider. In addition, Mr. Kuester is a director of Froedtert
Memorial Lutheran Hospital, Chairman of the Wisconsin Manufacturers and
Commerce Association and a director of the University of Wisconsin-Milwaukee
Foundation, Inc.
Joseph L. Delgadillo. Mr. Delgadillo has served as our Chief Executive
Officer since January 1998, as our President since 1993 and as a Director since
January 1994. From 1989 until 1993, he served as a Senior Vice President for
Metavante with responsibility for managing the bank processing unit and several
software business units. From 1988 until 1989, he served as Vice
President/Group Executive with responsibility for the bank processing business
unit. Mr. Delgadillo began his career with Metavante in 1986 as Vice President
of Sales and Marketing. Prior to joining us, Mr. Delgadillo worked in a number
of sales and marketing management positions for IBM Corporation. He holds a
master's degree in business administration from Northwestern University's
Kellogg School of Business and a bachelor's degree in psychology from the
University of Wisconsin-Milwaukee. Mr. Delgadillo serves as a director on
various boards and is involved with a number of community-based education
initiatives.
Michael D. Hayford. Mr. Hayford has served as Executive Vice President,
Corporate Development/Marketing Group since 1998. In this position, he is
responsible for the long-range strategic growth plans for Metavante, including
developing new lines of business as well as managing acquisitions and business
partnerships. Mr. Hayford began his career with Metavante in 1992 as head of
operations and was promoted to General Manager and Chief Information Officer in
1993. Mr. Hayford has held various other positions with Metavante, including
General Manager of the financial products group with responsibility for
application development. Prior to joining us, Mr. Hayford worked for Andersen
Consulting LLP, the business and technology consulting affiliate of Arthur
Andersen LLP, for ten years. His responsibilities at Andersen Consulting
included managing a number of very large system integration projects and the
design and development of a worldwide training program for all Andersen new
hires. Mr. Hayford holds a master's degree in business administration from
Northwestern University's Kellogg School of Business and a bachelor's degree in
accounting and computer science from the University of Wisconsin. Mr. Hayford
is also a Certified Public Accountant.
Gregory T. Nurre. Mr. Nurre has served as our President, Enterprise
Solutions Group, which includes electronic funds transfer, card solutions and
private label banking, since May 2000. From February 1999 until May 2000, he
served as the Executive Vice President of this group. Prior to
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joining us, Mr. Nurre was Vice President of Operations for Baan Company N.V., a
global provider of enterprise business solutions, from 1997 until February
1999. In addition, from 1979 until 1997, he worked at IBM Corporation in
several management and executive positions. Mr. Nurre holds a master's degree
in business administration from DePaul University and a bachelor's degree in
economics from Miami University (Ohio).
Colleen J. Stenholt. Ms. Stenholt has served as our Senior Vice President,
Human Resources since March 1998. From October 1996 until March 1998, she
served as Vice President of Human Resources. Prior to joining us, Ms. Stenholt
was the Director of Human Resources at Northwestern Mutual Life Insurance
Company, a mutual life insurance company, from 1988 until October 1996. Ms.
Stenholt also worked as the Manager of Human Resources for GE Marquette Medical
Systems, formerly known as GE Medical Systems, a subsidiary of General Electric
which manufactures diagnostic imaging equipment, from 1984 until 1988, and
served in various human resources positions during her ten years with the
Premcor Refining Group Inc., formerly known as Clark Oil and Refining
Corporation, a refiner of petroleum products. Ms. Stenholt holds a master's
degree in management and a bachelor's degree in sociology from the University
of Wisconsin. Ms. Stenholt serves on the board of directors for the Human
Resources Planning Society in New York.
Owen J. Sullivan. Mr. Sullivan has served as our President, Financial
Services Group, which includes financial account processing, customer
relationship management solutions and trust and investment solutions, since
January 1999. From 1996 until January 1999, Mr. Sullivan served as the
President of our Enterprise Solutions Group with responsibility for the
management of the software organization and professional services divisions,
and from 1993 until 1996, he served as the Vice President of Sales and
Marketing. Prior to joining us, Mr. Sullivan spent 14 years with IBM
Corporation in several management positions. Mr. Sullivan holds a bachelor's
degree in English from Marquette University. Mr. Sullivan is active on several
community boards and organizations throughout the Milwaukee, Wisconsin area.
Peter J. Tallian. Mr. Tallian has served as our Chief Financial Officer
since November 1995 and as our Executive Vice President, Finance and
Administration Group, which includes accounting, information controls and
facilities, since November 1999. From November 1995 until November 1999, Mr.
Tallian served as the Senior Vice President of the Finance and Administration
Group. Prior to joining us, Mr. Tallian spent 13 years with IBM Corporation,
where he held a number of senior financial management positions. Mr. Tallian
holds a master's degree in business administration from the University of
Chicago and a bachelor's degree in economics from the Wharton School of the
University of Pennsylvania.
Michael E. Touhey. Mr. Touhey has served as our President, Electronic
Commerce Group, which includes electronic bill payment and presentment,
business and consumer online banking, online mortgage services and CSF, since
November 1999. From March 1999 until November 1999, he served as Senior Vice
President of the Electronic Commerce Group, and from January 1995 until March
1999, he served as the General Manager of the investment technologies and
client services divisions. Mr. Touhey began his career with Metavante in 1993
as the General Manager of the client services division. Prior to joining us,
Mr. Touhey spent 16 years with IBM Corporation in a variety of sales/marketing,
consulting and management positions. Mr. Touhey holds a master's degree in
business administration and a bachelor's degree in business administration from
Marquette University. Mr. Touhey is a member emeritus of the alumni board for
the Marquette University Business School.
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Our directors are elected at the annual shareholders' meeting and serve
until their successors are duly elected and qualified or until their earlier
resignation or removal. The terms of directors are staggered, with Mr. Wigdale
serving a term expiring in 2001, Mr. Kuester serving a term expiring in 2002,
and Mr. Delgadillo serving a term expiring in 2003. Executive officers are
appointed by and serve at the discretion of the Board of Directors.
Committees of the Board
After this offering, the Board of Directors will establish two standing
committees: an Audit Committee and a Compensation Committee. Currently, the
functions of these two committees are being performed by the Board of
Directors.
The functions of the Audit Committee will include reviewing the adequacy
of our system of internal accounting controls, reviewing the results of the
independent auditors' annual audit, including any significant adjustments,
management judgments and estimates, new accounting policies and disagreements
with management, determining the duties and responsibilities of the internal
audit staff, reviewing the scope and results of our internal auditing
procedures, reviewing our audited financial statements and discussing them with
management, reviewing the audit reports submitted by both the independent
auditors and our internal audit staff, reviewing disclosures by independent
auditors concerning relationships with our company and the performance of our
independent auditors and annually recommending independent auditors, adopting
and annually assessing its charter and preparing reports or statements required
by the Nasdaq National Market or the securities laws. After this offering is
completed, we will appoint three directors to our Audit Committee. Each member
of the Audit Committee will be an "independent director" within the meaning of
the rules of the Nasdaq National Market. For so long as M&I is required to
consolidate our results of operations and financial position, our Audit
Committee is prohibited, under the terms of a reorganization agreement between
M&I and us, from selecting a different accounting firm than the accounting firm
selected by M&I to serve as our auditors.
The functions of the Compensation Committee will include considering and
recommending to the Board of Directors our overall compensation programs,
reviewing and approving the compensation payable to our senior management
personnel and reviewing and monitoring our executive development efforts to
assure development of a pool of management and executive personnel adequate for
our operations. The Compensation Committee will also review significant changes
in employee benefit plans and stock related plans and serve as the "Committee"
under our stock incentive plan. The members of the Compensation Committee will
be appointed after completion of this offering, and will be "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended.
The Board of Directors may, from time to time, establish other committees
to facilitate its work.
With respect to material transactions between M&I and Metavante after this
offering is completed, our Board of Directors has established a policy that all
such transactions will be submitted for review, approval and authorization to
the directors of Metavante who are not affiliated with M&I.
Director Compensation
We expect that each director who is not an employee of Metavante or M&I
will receive an annual retainer fee of $10,000, a fee of $1,000 for each Board
meeting attended and a fee of $500 for
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each Committee meeting attended, if such Committee meeting is not held on the
same day as a Board meeting. We also reimburse all directors for travel and
related expenses incurred in connection with Board and Committee meetings.
Directors are eligible to receive stock options under our stock incentive
plan.
Stock Ownership of Directors and Executive Officers
All of our common stock is currently owned by M&I, and thus none of our
directors or executive officers owns any of our common stock. To the extent our
directors or executive officers own shares of M&I common stock at the time of
the distribution, they will participate in the distribution on the same terms
as other holders of M&I common stock.
The following table sets forth as of July 1, 2000 the number of shares of
M&I common stock owned by our directors, by each of the "named executive
officers," as defined below, and all executive officers and directors of
Metavante as a group.
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned (1)(2) Percent (3)
<S> <C> <C>
James B. Wigdale........................ 782,847(4) *
Dennis J. Kuester....................... 548,128 *
Joseph L. Delgadillo.................... 82,004 *
Michael D. Hayford...................... 26,500 *
Gregory T. Nurre........................ -- --
Owen J. Sullivan........................ 31,492 *
Michael E. Touhey....................... 20,242 *
All directors and executive officers as
a group (9 persons).................. 1,513,463 *
</TABLE>
---------------------
* Represents holdings of less than 1%.
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes shares of M&I common stock which may be acquired within 60 days
pursuant to stock options as follows: Mr. Wigdale--518,500; Mr. Kuester--
345,500; Mr. Delgadillo--61,000; Mr. Hayford--25,500; Mr. Sullivan--31,000;
and Mr. Touhey--19,750.
(3) Based on 103,961,159 shares of M&I common stock outstanding as of July 1,
2000.
(4) Includes 11,678 shares of M&I common stock held by Mr. Wigdale's family as
to which he disclaims beneficial ownership.
Executive Compensation
The following table sets forth compensation information for our Chief
Executive Officer and four other executive officers who, based on salary and
bonus compensation from M&I and its subsidiaries, were the most highly
compensated for the fiscal year ended December 31, 1999. Together, these five
persons are referred to as our "named executive officers." All information set
forth in this table reflects compensation earned by these individuals for
services with M&I and its subsidiaries for the fiscal year ended December 31,
1999, except that information for Mr. Delgadillo is presented for each of the
three fiscal years ended December 31, 1999 since such information has been
previously reported in M&I's filings with the SEC.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards (2)
---------------------
Annual Compensation Awards Payouts
--------------------------- ------------ --------
Number of
Securities
Underlying LTIP All Other
Name and Principal Options/SARS Payouts Compensation
Position Year Salary Bonus Other (1) (3) (4) (5)
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph L. Delgadillo.... 1999 $360,000 $316,000 -- 29,000 $490,372 $57,391
President and Chief 1998 320,000 250,000 -- 20,000 197,020 51,052
Executive Officer 1997 300,000 200,000 -- 12,000 207,960 41,007
Michael D. Hayford...... 1999 $210,000 $165,000 $53,530 8,000 -- $33,118
Executive Vice
President, Corporate
Development/ Marketing
Group.
Gregory T. Nurre, 1999 $190,840 $138,800 -- 6,000 -- $ 926
President..............
Enterprise Solutions
Group
Owen J. Sullivan, 1999 $230,000 $178,100 -- 12,000 -- $43,637
President..............
Financial Services
Group
Michael E. Touhey....... 1999 $166,750 $141,300 -- 10,000 -- $18,763
President, Electronic
Commerce Group
</TABLE>
---------------------
(1) Reflects amounts paid by M&I during 1999 for club memberships.
(2) As of December 31, 1999, Mr. Delgadillo had 2,000 shares of unreleased key
restricted stock valued at $123,625; Mr. Hayford had 1,500 shares of
unreleased key restricted stock valued at $92,719; and Messrs. Sullivan and
Touhey each had 900 shares of unreleased key restricted stock valued at
$55,631. The restricted stock was awarded under M&I's stock option and
restricted stock plan. The value of the restricted stock was arrived at
using a December 31, 1999 closing market price of M&I common stock equal to
$62.8125 per share less consideration which is paid by the executive upon
issuance of the award. Dividends are paid on restricted stock.
(3) All securities referenced are options to purchase shares of M&I's common
stock which were awarded under M&I's stock option and restricted stock
plan.
(4) Long-term incentive plan payouts in any given year are based on the number
of LTIP units awarded with respect to the prior three-year period and M&I's
performance during such period. Accordingly, the amount of LTIP payouts may
vary from year to year and in some years, there may be no payouts under the
LTIP. For 1999, Mr. Delgadillo received a payout from M&I for awards made
with respect to the three-year period from January 1997 through December
1999. The performance criteria for this three-year cycle was based upon
M&I's total shareholder return in relation to companies in the Keefe,
Bruyette & Woods 50 Bank Index.
(5) Includes payments made by M&I in the amount of $17,600 for the benefit of
each of Messrs. Delgadillo, Hayford, Sullivan and Touhey under M&I's
retirement program for 1999. Also includes the following contributions made
by M&I under a supplementary retirement benefits plan and an executive
deferred compensation plan based on compensation paid or deferred during
1999: Mr. Delgadillo--$36,000; Mr. Hayford--$13,500; and Mr. Sullivan--
$16,744. Also includes the following above-market amounts accrued by M&I on
account balances under its supplementary retirement benefits plan and its
executive deferred compensation plan for 1999: Mr. Delgadillo--$3,791; Mr.
Hayford--$2,018; Mr. Nurre--$926; Mr. Sullivan--$9,293; and Mr. Touhey--
$1,163.
The M&I executive deferred compensation plan provides selected key
employees of M&I with the ability to defer up to 80% of their base salary and
100% of their bonus. Those employees electing to participate have two
investment options for amounts deferred: a fixed rate option equal to the
Moody's A Long-Term Corporate Bond Rate for the month of September of the
previous year and an equity option equal to the total return of the S&P 500
Index. The percentage allocated to any
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<PAGE>
investment option may not be less than 10% and elections may be changed semi-
annually. Amounts deferred are distributable upon termination of employment at
the election of the participant. Choices range from a lump sum distribution
upon termination of employment to a payout over 15 years if a participant's
employment terminates on or after age 55, other than because of death or
disability, with at least 10 years of service. Amounts deferred and investment
returns thereon are held in a trust account of which Marshall & Ilsley Trust
Company is the trustee.
M&I's supplementary retirement benefits plan is a nonqualified benefit
plan which covers employees whose compensation exceeds the statutory limits on
compensation which can be taken into account for purposes of crediting
contributions to M&I's retirement growth plan. This plan was suspended in
August 1999 and M&I will make no further contributions to the plan. Existing
account balances under M&I's retirement growth plan in the supplementary
retirement benefits plan will continue to vest as long as the participant
remains employed by M&I and will be credited with the applicable investment
return until payout pursuant to the terms of the supplementary retirement
benefits plan. The executive deferred compensation plan was amended such that
persons eligible to participate therein will receive an allocation equal to the
amount that would have formerly been allocated under the supplementary
retirement benefits plan. This amount, which would have been allocated to such
participant's account under M&I's retirement growth plan absent the statutory
limitations, is credited to an account which vests after an employee has five
years of vesting service as defined in M&I's retirement growth plan.
Participants have the same investment and payout elections as other accounts in
the executive deferred compensation plan and amounts credited under the
supplementary retirement benefits plan are held in trust, as described above.
The following table sets forth information about M&I stock option grants
during the fiscal year ended December 31, 1999 to the named executive officers.
M&I Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to M&I Exercise or
Options/SARs Employees in Base Price Expiration Grant Date Present
Name Granted (1) Fiscal Year ($/Share)(2) Date Value (3)
<S> <C> <C> <C> <C> <C>
Joseph L. Delgadillo.... 29,000 1.9% $61.50 12/16/09 $566,701
Michael D. Hayford...... 8,000 0.5 61.50 12/16/09 156,331
Gregory T. Nurre........ 6,000 0.4 61.50 12/16/09 117,248
Owen J. Sullivan........ 12,000 0.8 61.50 12/16/09 234,497
Michael E. Touhey....... 10,000 0.6 61.50 12/16/09 195,414
</TABLE>
---------------------
(1) Includes options transferable to the employees' immediate family or trusts
or partnerships for the benefit thereof. Options generally become
exercisable based on the following schedule: one-third on the first
anniversary of the date of grant, an additional one-third on the second
anniversary of the date of grant and the remaining one-third on the third
anniversary of the date of grant. All options become immediately
exercisable upon a "triggering event," which is a change of control of M&I.
Employees who have attained age 55 and have at least ten years of service
with M&I or a subsidiary receive options which are fully vested on the date
of grant.
(2) All options have an exercise price equal to 100% of the fair market value
of M&I's common stock on the date of grant. The exercise price may be paid
in cash or by delivery of shares of M&I's common stock. Upon exercise of an
option, the holder may satisfy any tax obligations either by having M&I
withhold shares or by delivering shares such holder already owns.
(3) The grant date present values were determined using the Black-Scholes model
with the following common assumptions: a six year expected period of time
to exercise; a risk-free rate of return of 6.30%; an expected dividend
yield of 1.56%; and a volatility factor of 24.36%.
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<PAGE>
The following table sets forth information with respect to the named
executive officers concerning stock options to purchase M&I common stock that
were exercised during the last fiscal year and the number and value of options
outstanding on December 31, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
M&I Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares Fiscal Year-End (1) at Fiscal Year-End (2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Delgadillo.... -- -- 61,000 39,000 $1,730,066 $148,063
Michael D. Hayford...... 8,000 $370,019 24,000 11,000 637,313 43,500
Gregory T. Nurre........ -- -- -- 6,000 -- 7,875
Owen J. Sullivan........ -- -- 28,000 18,000 631,375 81,750
Michael E. Touhey....... -- -- 18,500 12,500 507,750 40,625
</TABLE>
---------------------
(1) Includes shares which were transferred to the employees' immediate family
or trusts or partnerships for the benefit thereof.
(2) For valuation purposes, a December 31, 1999 market price of $62.8125 was
used.
The following table sets forth information on long-term incentive plan
awards granted by M&I to the named executive officers with respect to 1999 and
2000.
Long-Term Incentive Plan-Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Awards Granted December 1999 for the
Performance Period Beginning January 2000
-----------------------------------------
Number of Performance or Other
Shares, Units Period Until Maturation
Name or Other Rights or Payout (1)
<S> <C> <C>
Joseph L. Delgadillo.... 3,000 3 Years
Michael D. Hayford...... -- --
Gregory T. Nurre........ -- --
Owen J. Sullivan........ -- --
Michael E. Touhey....... -- --
<CAPTION>
Awards Granted December 1998 for the
Performance Period Beginning January 1999
-----------------------------------------------------
Performance or Other
Number of Period Until
Shares, Units or Maturation or
Name Other Rights Payout (1)
<S> <C> <C>
Joseph L. Delgadillo.... 6,000 3 Years
Michael D. Hayford...... -- --
Gregory T. Nurre........ -- --
Owen J. Sullivan........ -- --
Michael E. Touhey....... -- --
</TABLE>
---------------------
(1) Units awarded represent share equivalents of M&I's common stock. The
performance period is the three years commencing on January 1, 2000 and
ending on December 31, 2002 for awards made with respect to 2000 and the
three years commencing on January 1, 1999 and ending on December 31, 2001
for awards made with respect to 1999. Additional units will be credited to
each participant's account when dividends are paid on shares of M&I's
common stock. Vesting of units occurs at the end of the three-year period
with the exception of the death or disability of the participant,
termination of a participant's employment due to retirement or the
occurrence of a "triggering event," which is a change in control of M&I. A
payout multiple is applied to the units awarded to a participant based on
M&I's performance in relation to two equally weighted performance criteria,
which represent (i) the total return of M&I's common stock for the three-
year period when compared with the total return for those stocks composing
the Keefe, Bruyette & Woods 50 Bank Index and (ii) M&I's cumulative
earnings per share for the three-year period. M&I's performance in relation
to the performance criteria is calculated independently, thereby allowing a
participant to receive a payout under one of the criterion but not under
the other. The minimum payout multiple is zero for each criterion and the
maximum is 137.50%, resulting in a combined maximum of 275%. The resulting
payout multiple is applied to the units awarded plus those credited in lieu
of dividends. Before awards are paid, M&I's executive compensation
committee must certify the extent to which the performance criteria have
been met.
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<PAGE>
Treatment of M&I Options
As of July 31, 2000, there are outstanding options to purchase
approximately 7,240,000 shares of common stock of M&I granted by M&I to
officers, directors and employees of M&I and Metavante under various M&I
incentive plans. In connection with the proposed distribution by M&I of its
entire interest in Metavante, it is anticipated that holders of M&I options
granted prior to August 1, 2000 who are employees or directors of M&I or
Metavante on the distribution date will be given an election regarding their
M&I options. Employees or directors of M&I on the distribution date will have
the choice of having their M&I options adjusted so that they retain options
solely over M&I stock after the distribution or, alternatively, will have the
choice of having their M&I options modified as well as receiving new Metavante
options in a ratio that is reflective of the pro rata distribution of Metavante
stock to M&I shareholders in the distribution. This second alternative allows
individuals to receive what are referred to as "tandem options." Employees or
directors of Metavante on the distribution date will have the choice of having
their M&I options adjusted so that they retain options solely over Metavante
stock after the distribution or, alternatively, will have the choice of
receiving tandem options. If a holder is not an employee or director on the
distribution date, or if no election is made, the holder will receive tandem
options. In all events, the number of options that an option holder is entitled
to receive and the respective exercise prices will be determined so that (i)
the ratio of the exercise price of each of the options to the market value of
the respective underlying common stock will not be less than the ratio of the
exercise price of M&I options to the underlying market value of the M&I common
stock immediately prior to the distribution and (ii) the difference between the
aggregate exercise price and aggregate market value of the underlying stock
will not exceed the aggregate intrinsic value inherent in M&I options
immediately prior to the distribution. Metavante and M&I reserve the right to
adjust the foregoing procedures as they deem necessary in their sole discretion
so that the purposes of the conversion are effected in a manner suitable to
Metavante and M&I. All other terms and conditions of the options issued in the
conversions described above will be substantially the same as the original
options. The options issued in the conversion described above will be issued
under our 2000 stock incentive plan described below.
As of the date of this prospectus, it is not possible to determine how
many options for shares of Metavante common stock will be issued as a result of
adjustments and elections described above. Holders of our common stock will
experience dilution as a result of such conversions. Holders of M&I options are
not contractually bound to make either election outlined above. If all
employees and directors of M&I elected to receive tandem options, and if all
employees and directors of Metavante elected to have their M&I options
converted into new Metavante options, and if the market prices for the M&I and
Metavante stock were $38 and $12, respectively, approximately 9,547,000 options
for shares of Metavante stock would be issued for M&I options outstanding as of
July 31, 2000 at an average exercise price of approximately $11.03 per share.
The foregoing computation is for purposes of illustration only.
2000 Stock Incentive Plan
Our Board of Directors has adopted a stock incentive plan, which has been
approved by our sole shareholder, M&I. The purpose of the stock incentive plan
is to attract and retain selected officers, key employees, non-employee
directors and consultants whose skills and talents are important to our
operations, and reward them for making major contributions to our success.
Options
67
<PAGE>
from the stock incentive plan will also be issued to M&I and Metavante
employees consistent with their elections to receive tandem options or solely
Metavante options in connection with the proposed distribution by M&I of its
entire interest in Metavante.
After this offering is completed, the stock incentive plan will be
administered by the Compensation Committee. Under the stock incentive plan, the
Compensation Committee may grant:
. incentive stock options within the meaning of Section 422 of the Code,
. non-qualified stock options, and
. shares of stock or the right to receive shares of stock in the future.
Options and stock awards are collectively referred to as "awards." Awards
may be made to our directors and our key personnel and the directors and the
key personnel of our "related companies." Our "related companies" include any
corporation or other business entity in which we have a significant direct or
indirect equity interest, as determined by our Compensation Committee. However,
incentive stock options may only be issued to our employees and employees of
subsidiary corporations in which we own, directly or indirectly, 50% or more of
the stock. The Compensation Committee will have final authority, subject to the
express provisions of the stock incentive plan, to determine to whom awards
shall be granted; to determine the types of awards and the numbers of shares
covered by the awards; to determine the terms, conditions, performance
criteria, restrictions and other provisions of each award; and to adopt such
rules, regulations and guidelines for carrying out the stock incentive plan as
it may deem necessary or proper. The stock incentive plan provides for
accelerated vesting of awards upon the occurrence of "change of control"
transactions as described in the stock incentive plan. The Compensation
Committee may delegate to our Chief Executive Officer or other senior
executives its duties under the stock incentive plan. Such delegation may be
revoked at any time.
Incentive stock options may be granted under the stock incentive plan to
full- or part-time employees, including officers and directors who are also
employees, of ours or our subsidiary corporations in which we own, directly or
indirectly, 50% or more of the stock. In addition, non-qualified stock options
and stock awards may be granted to employees and non-employee directors of
Metavante or our "related companies."
Subject to the Compensation Committee's authority to adjust the number and
kind of shares subject to each outstanding award and the exercise price in the
event of certain corporate transactions involving us, the aggregate number of
shares of common stock which may be issued under the stock incentive plan is
16,000,000 shares. Award limits established under the stock incentive plan are
as follows: the maximum number of shares of common stock which may be issued
pursuant to incentive stock options is 16,000,000; the maximum number of shares
of common stock which may be issued pursuant to restricted stock awards is
250,000 during the term of the stock incentive plan; and the maximum number of
shares of common stock covered by options granted to any one individual is
500,000 in any one calendar year.
The period during which awards may be made under the stock incentive plan
will expire on the tenth anniversary of the date the stock incentive plan is
adopted, and the term of each option granted under the stock incentive plan
will expire not more than ten years from the date of grant.
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<PAGE>
Each option granted will specify an exercise price or prices; provided,
however, that no option may be granted with a per share exercise price less
than the fair market value per share of common stock on the date of grant. The
fair market value per share on a particular date is the last reported sale
price per share of common stock on that date on the Nasdaq National Market
except for awards which are effective on the date we sell shares of our common
stock in an underwritten public offering, where the exercise price will be the
price per share at which the shares are initially sold to the public. An option
may be exercised as to any or all of the shares covered by the option by full
payment of the exercise price for such shares. Payment of the exercise price
must be made in cash or by tendering previously owned shares of common stock
either directly or by attestation.
The stock incentive plan may be terminated or amended by our Board of
Directors. The Board of Directors may not, without approval of our
shareholders, increase the number of shares of common stock which may be
delivered pursuant to awards granted under the stock incentive plan, except for
increases resulting from certain corporate transactions involving us. We have
granted options over 2,650,000 shares of common stock under the stock incentive
plan effective as of the closing date of this offering. The exercise price of
these options will be the public offering price in this offering.
Grants as of this Offering
As of the closing date of this offering, our directors and executive
officers will receive option grants with an exercise price per share equal to
the initial public offering price as follows:
<TABLE>
<CAPTION>
Name Shares Under Option
<S> <C>
James B. Wigdale............................................ --
Dennis J. Kuester........................................... --
Joseph L. Delgadillo........................................ 340,000
Michael D. Hayford.......................................... 85,000
Gregory T. Nurre............................................ 70,000
Colleen J. Stenholt......................................... 30,000
Owen J. Sullivan............................................ 115,000
Peter J. Tallian............................................ 60,000
Michael E. Touhey........................................... 100,000
</TABLE>
One-third of these stock options will vest on the first anniversary of the
date of grant, with an additional one-third of the options vesting and becoming
exercisable on each successive anniversary of the date of grant. All stock
options vest immediately upon a "change of control" of Metavante as defined in
the stock incentive plan.
Employment Agreements
We intend to enter into an employment agreement with Joseph L. Delgadillo,
our President and Chief Executive Officer. The term of the agreement will start
on the date of the initial public offering of our common stock and end on the
third anniversary of that date. Under the agreement, Mr. Delgadillo will
receive an annual salary of at least $380,000, subject to increase at the
discretion of our Compensation Committee. Mr. Delgadillo is also eligible to
receive an annual bonus determined in accordance with his short-term incentive
plan approved by our Compensation Committee. Mr. Delgadillo is eligible to
participate in our stock incentive plan, any other long-term
69
<PAGE>
incentive plan which is available to our senior executives and our deferred
compensation plan, when and if adopted. He is entitled to participate in our
employee benefit and fringe benefit plans available to other senior executives.
If Mr. Delgadillo's employment is terminated by us without "cause," as
defined in the agreement, or by him if for "good reason," as defined in the
agreement, he is entitled to salary continuation for the remainder of the term
of his contract and a pro-rated bonus, payable monthly, based on the average of
his bonuses for the two fiscal years preceding the year he terminates
employment. In addition, he will be eligible for continued health and dental
coverage under our plans, subsidized by us to the same extent as for active
employees. Mr. Delgadillo will not receive these termination benefits if he
does not sign a release of all employment-related claims he may have against
us, our employees, officers and directors, or if he violates the
confidentiality agreement or non-competition and non-solicitation agreements
contained in the employment agreement. If Mr. Delgadillo voluntarily terminates
his employment with us, Mr. Delgadillo agrees not to divulge our confidential
information, not to compete with us and not to solicit our clients and
employees to work for a competitor during the period of his employment and for
two years thereafter. If Mr. Delgadillo terminates his employment for "good
reason" or is involuntarily terminated by us other than for "cause," the
confidentiality, non-competition and non-solicitation covenants last for the
remainder of the three year term of his agreement, or, if shorter, two years.
If there is a change of control of our company, the employment agreement will
terminate and Mr. Delgadillo's change of control agreement will govern the
payments he will receive on termination of employment.
Change of Control Agreements
We intend to enter into change of control agreements with all of our
executive officers effective as of the date of completion of this offering. The
change of control agreement with Mr. Delgadillo will have a term of three years
and the change of control agreements with the other executive officers each
will have a term of two years. The change of control agreements guarantee an
individual specific payments and benefits upon termination of employment as a
result of a "change of control," as defined in the agreement. If a change of
control occurs, the contract becomes effective and an employment term begins
and continues for a period of three years with respect to Mr. Delgadillo and
two years with respect to the other executive officers. The employment term
renews on a daily basis until we give notice to terminate the daily renewal.
The change of control agreements provide that if, after a change of
control, the individual voluntarily terminates his employment for "good
reason," as defined in the agreement, or is involuntarily terminated other than
for "cause," as defined in the agreement, then the individual will be entitled
to:
. a lump sum payment equal to two or three times the sum of his or her
current base salary, plus the higher of his or her bonus for the last
year or his or her average bonus for the past three years,
. a proportionate amount of any unpaid bonus which is deemed earned for
the year,
. a lump sum payment equal to the retirement benefits lost as a result of
not having been employed for the remaining contract term,
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<PAGE>
. medical and dental and group-term life benefit continuation for a two
or three year period,
. the right to purchase his or her company car, if any, at book value and
the right to purchase our interest in any split dollar insurance owned
on the individual's life, and
. payments for certain other fringe benefits.
The multiple referred to in this paragraph is three for Mr. Delgadillo and
two for the other executive officers. An executive will not receive these
payments and benefits unless he or she executes a release of all employment-
related claims he or she may have against us, our employees, officers and
directors. In the event of a termination of an individual's employment as a
result of his or her death, the individual's beneficiary is entitled to six
month's base salary. No additional amounts are guaranteed under the change of
control agreements upon an individual's disability or termination for cause,
except that Mr. Delgadillo will receive an additional benefit in the first year
of disability equal to his then current base salary and average bonus for the
prior three years, reduced by any payments from our disability plan(s) and any
governmental social security or similar plan. In addition, Mr. Delgadillo's
agreement will provide that at the end of six months after a change of control,
he may terminate employment for any reason and is entitled to receive the
payments enumerated above in a lump sum and the insurance benefits for a period
of three years.
Mr. Delgadillo's change of control agreement will also provide for "gross-
up" payments in the event payments to him under the change of control agreement
are subject to an excise tax pursuant to Section 4999 of the Code or any
similar federal, state or local tax which may be imposed. The gross-up payment
will be made in an amount such that the net amount retained by Mr. Delgadillo,
after any excise tax on the payments and any federal, state and local income
tax and any excise tax on the gross-up payment, shall be equal to the payments
then due.
A "change of control" is defined in the change of control agreements as
occurring if:
. a person acquires more than 33% of the combined voting power of our
outstanding securities entitled to vote generally in the election of
directors,
. the incumbent directors or their permitted successors cease to
constitute at least a majority of our Board of Directors,
. a reorganization, merger, statutory share exchange or consolidation
takes place after which our existing shareholders do not continue to
own at least 50% of our common stock,
. our company is completely liquidated or dissolved, or
. a sale or other disposition of substantially all of our assets takes
place after which our existing shareholders do not continue to own at
least 50% of our common stock.
Neither this offering nor the proposed distribution by M&I will be deemed a
change of control under our agreements.
M&I also has change of control agreements with Mr. Delgadillo and Messrs.
Hayford, Sullivan and Tallian which are substantially similar to the agreements
described above. In addition, M&I has a change of control agreement with Mr.
Nurre. This agreement, which has a term of two years, guarantees Mr. Nurre a
severance benefit equal to 12 months of his then current salary upon
termination of employment as a result of a "change of control," as defined in
the agreement. If a change of control occurs, the contract becomes effective
and an employment term begins and continues for a period of two years. For
purposes of Mr. Nurre's agreement, a "change of control" is
71
<PAGE>
defined as the commencement of a cash tender and/or share exchange offer to
acquire the outstanding shares of common stock of M&I, provided such
transaction is ultimately approved by M&I shareholders and consummated and
results in M&I not being the surviving entity.
The M&I change of control agreements will terminate, in general, when M&I
distributes our common stock to its shareholders. Prior to that date, both our
change of control agreements and the M&I change of control agreements will
remain in effect. However, our executives will only be entitled to receive
payments under the agreement which results in the larger after-tax payments and
benefits to the executive and once payments are made under an agreement, the
other agreement will become null and void.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, the compensation of our executive officers was
determined by M&I's compensation committee. We intend to enter into various
agreements with M&I as described below in "Relationship With M&I."
Additionally, M&I was our sole shareholder prior to this offering, and upon
completion of the offering, will own a substantial majority of our common
stock.
RELATIONSHIP WITH M&I
We have entered or will enter into a number of agreements with M&I for the
purpose of defining our ongoing relationship and the conduct of our respective
businesses. These agreements were or will be developed in connection with this
offering while we are a wholly-owned subsidiary of M&I, and, therefore, such
agreements were and will not be the result of arm's-length negotiations--that
is, negotiations between independent and unrelated parties each acting in its
own self-interest. As a result, there can be no assurance that these
agreements, or the transactions provided for in these agreements, have been or
will be effected on terms at least as favorable to us as could have been
obtained from parties other than M&I.
These agreements may be modified and additional agreements, arrangements
and transactions may be entered into between us after completion of this
offering. Any such future modifications, agreements, arrangements and
transactions will be determined through negotiation between us. With respect to
material transactions between us after the offering is completed, our Board of
Directors has established a policy that all such transactions will be submitted
for review, approval and authorization to our directors who are not affiliated
with M&I.
The following is a summary of the material features of the various
agreements, arrangements and transactions between us. The summaries of each of
the following agreements are qualified in their entirety by reference to the
full text of such agreements, copies of which have been filed as exhibits to
the registration statement of which this prospectus is a part.
Reorganization Agreement
We have entered into a reorganization agreement with M&I, which governs
this offering and the proposed distribution. Although M&I has announced that it
currently plans to complete the distribution within one year following
completion of this offering, or such shorter period of time as may be required
in order to have the distribution qualify as a tax-free reorganization, M&I is
not
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obligated to do so. M&I has the sole discretion to determine whether or when
the distribution will occur and all terms of the distribution, including the
form, structure and terms of any transactions or offerings to effect the
distribution and the timing of and conditions to the completion of the
distribution. We cannot assure you as to whether, when or on what terms the
distribution will occur.
Pursuant to the agreement, we have agreed to cooperate with M&I in all
reasonable respects to accomplish this offering and the distribution.
We have also agreed, at M&I's direction, to promptly take all actions
necessary or desirable to effect these transactions, including the registration
under the Securities Act of shares of our common stock in connection with the
distribution.
We have agreed to pay all costs and expenses relating to this offering and
M&I has agreed to pay all costs and expenses relating to the distribution.
We and M&I have agreed to provide each other with access to information
relating to the assets, business and operations of the requesting party. We
have also agreed that, for so long as M&I is required to consolidate our
results of operations and financial position, we will:
. provide M&I with financial information regarding our company and our
subsidiaries and access to our books and records,
. not select a different accounting firm than the accounting firm
selected by M&I to serve as our auditors,
. complete the annual audit of our financial statements, and the
quarterly review thereof, on the same schedule as the audit, and
quarterly review, of M&I's financial statements, and
. consult with M&I and provide M&I and its auditors with notice of any
proposed determination of, or significant changes in, our accounting
estimates and accounting principles.
As long as M&I beneficially owns 50% or more of our outstanding common
stock, we have also agreed that we may not take any action that may result in a
contravention or an event of default by M&I of:
. any provision of law, including the Bank Holding Company Act of 1956,
as amended, the Code or the Employee Retirement Income Security Act of
1974, as amended,
. any provision of M&I's articles of incorporation or bylaws,
. any credit agreement or other material agreement binding upon M&I, or
. any judgment, order or decree of any governmental body, agency or
court.
We have also agreed not to take any action, except in connection with the
distribution, which would cause M&I to own less than 80.1% of our common stock.
Registration Rights Agreement
We intend to enter into a registration rights agreement with M&I which
will only become effective in the event M&I does not proceed with the
distribution. Under the agreement, we will grant
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demand and "piggyback" registration rights to M&I with respect to shares of
common stock owned by M&I following this offering. Pursuant to the registration
rights agreement, M&I will have the right to require us to file up to three
registration statements under the Securities Act, which may be increased to an
unlimited number of registration statements if effected on Form S-3, covering
M&I's shares. M&I also will have the right, if we file a registration
statement, to require us to include its shares in such registration statement.
Our obligations under the registration rights agreement will be subject to
limitations relating to the minimum amount of common stock to be included in a
registration statement, the timing of the exercise of registration rights and
other similar matters. We will agree to pay all costs and expenses relating to
the exercise of M&I's registration rights, except for underwriting commissions
and filing fees relating to the shares sold by M&I, any special or
extraordinary auditing expenses, M&I's legal expenses and, in the case of
demand registration rights, printing fees. We and M&I will each indemnify the
other party for liabilities, including liabilities under the Securities Act, in
connection with any registration under the registration rights agreement. The
registration rights agreement will terminate when M&I owns less than 5% of our
outstanding common stock. M&I has agreed with the underwriters, however, not to
sell or otherwise dispose of any common stock or related securities for a
period of 180 days after the closing of this offering without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation and Credit
Suisse First Boston Corporation.
General Assignment and Assumption Agreement
Pursuant to a general assignment and assumption agreement with M&I, the
assets and liabilities that constitute our business have been transferred to us
as of July 1, 2000. The general assignment and assumption agreement provides
that effective upon completion of this offering:
. we will indemnify M&I for any liabilities related to our business,
including liabilities under securities and environmental laws, whether
occurring before or after the completion of this offering, and
. M&I will indemnify us for any liabilities related to M&I's business,
including liabilities under the securities and environmental laws,
whether occurring before or after the completion of this offering.
The general assignment and assumption agreement will also provide for a
settlement of obligations with respect to the item processing business which
was historically part of the M&I Data Services division. The item processing
business is not being transferred to us, and M&I will retain the assets and
liabilities related to this business. We have estimated certain assets and
liabilities of the item processing business as of June 30, 2000, including:
. post-retirement liability,
. incentive compensation,
. accounts payable and receivable, and
. fixed assets.
We will settle these estimated items with M&I on or prior to September 30,
2000, based on the actual results of the item processing business compared to
the June 30, 2000 estimates; provided, however, that neither we nor M&I shall
be obligated to pay more than $5 million to settle such items. This will
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result in us making a payment to M&I if the estimates in the aggregate had a
lower value than the realized amounts, and M&I making a payment to us if the
estimates in the aggregate had a higher value than the realized amounts. Any
such settlement is not expected to have any impact on our statement of income
in the period in which such settlement occurs.
Tax Sharing Agreement
In general, we will be included in M&I's consolidated group for federal
income tax purposes for so long as M&I beneficially owns at least 80% of the
total voting power and value of our outstanding stock. Each member of a
consolidated group is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. We intend to enter
into a tax sharing agreement with M&I which will allocate tax liabilities
between us and M&I during the period in which we are included in M&I's
consolidated group such that the amount of taxes to be paid by us will
generally be determined as though we had filed separate federal, state and
local income tax returns. We could, however, be liable in the event that any
federal tax liability is incurred, but not discharged, by other members of
M&I's consolidated group.
Prior to the distribution, M&I will have sole and exclusive responsibility
for the preparation and filing of consolidated federal and other consolidated
or combined or unitary tax returns and amended returns. M&I will be our sole
and exclusive agent to take any action M&I deems appropriate in any matters
relating to a tax return that includes our subsidiaries or us and any related
audits. M&I will have the power, in its sole discretion, to control, contest
and represent our interests in any audit relating to a tax return that includes
our subsidiaries or us.
The tax sharing agreement will provide that if our employees exercise M&I
stock options, then we will be required to reimburse M&I for the tax benefit
that we receive from deducting compensation attributable to the stock options,
less the after-tax cost of the employer's share of any employment taxes arising
in connection with such compensation which is paid by us. Likewise, if M&I
employees exercise our stock options, then M&I will be required to reimburse us
for the tax benefit M&I receives from deducting compensation attributable to
the stock options, less the after-tax cost of the employer's share of any
employment taxes arising in connection with such compensation which is paid by
M&I. The tax sharing agreement also will provide that we will be liable for all
distribution taxes due if the distribution fails to qualify for tax-free
treatment as a result of actions we take or fail to take. Similarly, M&I will
be liable for all distribution taxes due if the distribution fails to qualify
for tax-free treatment as a result of actions that M&I takes or fails to take.
Employee Matters Agreement
We intend to enter into an employee matters agreement with M&I to allocate
assets, liabilities and responsibilities relating to our current and former
employees and their participation in the benefit plans that M&I currently
sponsors and maintains, including stock option, retirement and health and
welfare plans.
All of our eligible employees will continue to participate in the M&I
benefit plans on comparable terms and conditions to those currently applicable
to them until the distribution or the time at which we establish benefit plans
for our current and former employees. Prior to the distribution, we will
reimburse M&I for costs and expenses it incurs in providing benefits to our
employees.
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Although we are not required to establish or maintain any employee benefit
plan or program of any kind, we expect to adopt benefit plans prior to, or at
the time of, the distribution, including qualified retirement plans, an
executive deferred compensation plan, health and welfare plans and fringe
benefit plans. It is intended that our benefit plans will take into account all
service, compensation and other benefit determinations that, as of the
distribution, were recognized under the corresponding M&I benefit plan. Under
the employee matters agreement, our new plans, if any, will not duplicate the
benefits provided under the current M&I plans.
It is intended that our benefit plans will generally assume any
liabilities relating to our employees under the corresponding M&I benefit plan.
Assets relating to the employee liabilities are expected to be transferred to
us or our related plans and trusts from trusts and other funding vehicles
associated with M&I's benefit plans.
Lease Agreement
We intend to enter into a long-term lease agreement with M&I Support
Services, Inc., a subsidiary of M&I, under which M&I Support Services will
agree to lease a portion of our data center in Brown Deer, Wisconsin for use as
a call support center and for its general item processing operations. We expect
that the lease will have a term of five years with no option to renew and will
have annual rental payments of approximately $1.45 million, adjusted annually,
plus a proportionate share of real estate taxes for the data center.
Administrative Services Agreement
We intend to enter into an administrative services agreement with M&I
pursuant to which M&I will make available and provide administrative, support
and consultation services to us, including accounting, tax compliance,
treasury, insurance, employee benefits, transportation and telecommunications.
The agreement will have an initial term which expires 180 days after completion
of this offering, subject to automatic renewal for successive 30-day terms.
Following the initial term of the agreement, either party will be able to
terminate existing categories of services by giving written notice at least 15
days prior to the end of any renewal term. Prior to and for a period of 120
days following the termination of the agreement or the termination of any
service under the agreement, M&I will be obligated to provide, at our request
and expense, transition services with respect to the terminated services and
assistance in engaging or training another person or persons to provide such
services or their equivalent. We anticipate that we will pay M&I a total of
$2.1 milion in the first six months following this offering for such services.
Outsourcing Agreement
We intend to enter into an outsourcing agreement with M&I pursuant to
which we will provide technology services to M&I in support of deposit and loan
accounts, general ledger, bank card, electronic funds delivery, trust, online
banking and other products and day-to-day activities. The agreement will have
an initial term which expires on July 31, 2007; provided, however, that M&I has
the right to terminate the entire agreement or any of the services provided
under the agreement without penalty during a 90-day period commencing July 31,
2005. If M&I terminates the outsourcing agreement or any service provided under
the outsourcing agreement except when it is permitted to do so, M&I is required
to pay a termination fee to us based on a percentage of the value of the fee
payments still due to us. We anticipate that we will receive annual revenues
from M&I under this agreement of approximately $48.0 million.
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Professional Services Agreement
We intend to enter into a professional services agreement with M&I
pursuant to which we will provide professional consulting services to M&I on a
project-by-project basis. The initial term of the agreement expires on June 30,
2005. We anticipate that revenues received under this agreement based on
projects for which we are currently providing consulting services to M&I will
total approximately $2.5 million.
Branch Automation Agreement
We intend to enter into a branch automation agreement with M&I pursuant to
which we will license branch automation software to M&I and provide
maintenance, training, customization and conversion services to M&I in support
of the branch automation software. M&I will not be obligated to license our
branch automation software under the agreement. Assuming M&I determines to
license this software, the license will be perpetual and will only be able to
be terminated under certain circumstances. For maintenance services, the
initial term of this agreement will be seven years.
Banking Services Agreement
We intend to enter into a banking services agreement with M&I pursuant to
which M&I will make available and provide deposit accounts, lines of credit,
float management, lockbox, check rendering, item processing and other financial
and cash management services to us in support of our day-to-day activities. The
agreement will have an initial term which expires July 31, 2005. If we cannot
agree on renewal terms with M&I at the end of the initial term, the agreement
will be extended for one year on the same terms. We anticipate that our annual
payments under this agreement to M&I will be approximately $1.8 million.
Independent Sales Organization and Services Agreement
We intend to enter into an independent sales organization and services
agreement with M&I pursuant to which M&I will act as a member of MasterCard
International, Inc. and VISA, U.S.A., Inc. on our behalf so that we may provide
bankcard authorization and processing services and related services to
merchants. We will pay a fee to M&I for each transaction by a merchant and a
referral fee for new merchant agreements executed with prospects brought to us
by M&I. We anticipate paying M&I $0.6 million per year for these services. The
agreement has an initial term expiring in 2005.
Line of Credit Agreement
We intend to enter into a 364 day line of credit agreement with M&I
pursuant to which M&I will make available to us $100 million. We expect that
interest under this line of credit will be payable quarterly at a rate equal to
M&I's average commercial paper plus .25%.
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CERTAIN TRANSACTIONS
We have in the past entered into intercompany transactions and
arrangements with M&I and its affiliates incidental to our business. General
administrative and other expenses have in the past been allocated to us from
M&I for the types of services described in the administrative services
agreement. The allocation for the last three fiscal years is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Selling, general and administrative expenses........ $ 4,952 $ 6,695 $ 8,718
In addition to the allocations described above, we have entered into
various transactions with M&I in the ordinary course of our business. The
payments for these activities for the last three fiscal years are as follows:
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
(In thousands)
<S> <C> <C> <C>
Interest expense on borrowings...................... $ 1,656 $ 1,276 $ 3,877
Processing and other related fees................... $ 51,776 $ 60,299 $ 56,918
</TABLE>
For a further description of affiliated transactions between Metavante and
M&I, please see Note 4 of the Notes to the Consolidated Financial Statements
included elsewhere in this prospectus.
We will continue to engage in various transactions with M&I on a
contractual and non-contractual basis after the offering is completed.
PRINCIPAL SHAREHOLDER
As of the date of this prospectus, M&I owns beneficially and of record
87,000,000 shares of common stock, representing all of the shares of common
stock outstanding prior to this offering. Upon the sale by us of the 16,500,000
shares of common stock offered hereby, M&I will own beneficially and of record
84.1% of the outstanding common stock, or 82.1% if the underwriters' over-
allotment option is exercised in full. M&I's principal offices are located at
770 North Water Street, Milwaukee, Wisconsin 53202.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by reference to our Restated Articles of Incorporation and Bylaws, a
copy of each of which is filed as an exhibit to the registration statement of
which this prospectus is a part.
Authorized Capital Stock
Our authorized capital stock consists of 300,000,000 shares of common
stock, par value $.01 per share, and 20,000,000 shares of preferred stock, par
value $.01 per share. 87,000,000 shares of common stock and no shares of
preferred stock are outstanding as of the date hereof. 16,500,000 shares of
common stock are being offered in this offering, or 18,975,000 shares if the
underwriters' over-allotment option is exercised in full, and 16,000,000 shares
have been reserved for issuance pursuant to our stock incentive plan. All
shares of common stock currently outstanding are, and the shares of common
stock being offered in this offering will be, validly issued, fully paid and
non-assessable, except to the extent provided in Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law. Under Section 180.0622(2)(b), holders of
common stock are liable up to the amount equal to the par value of the common
stock owned by holders of common stock for all debt owing to our employees for
services performed for us, but not exceeding six months' services in any one
case. Certain Wisconsin courts have interpreted "par value" to mean the full
amount paid upon the purchase of the common stock.
Common Stock
Voting Rights. The holders of common stock are entitled to one vote per
share on all matters to be voted on by shareholders. The holders of common
stock are not entitled to cumulative voting rights. Generally, all matters to
be voted on by shareholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the shares of common stock present in
person or represented by proxy and entitled to vote, subject to any voting
rights granted to holders of any preferred stock.
Dividends. Holders of common stock are entitled to receive dividends when,
as and if declared by the Board of Directors in its discretion out of funds
legally available for payment of dividends, subject to any preferential rights
of any outstanding preferred stock.
Other Rights. In the event of a liquidation or dissolution of Metavante,
the holders of common stock will be entitled to share ratably in all assets
remaining for distribution to shareholders, subject to any preferential rights
of any outstanding preferred stock. Holders of the shares of common stock have
no preemptive or other subscription rights, and the shares of common stock are
not subject to further calls or assessment by Metavante. There are no
conversion rights or sinking fund provisions applicable to the shares of common
stock.
Preferred Stock
The Board of Directors has the authority, without further shareholder
action, to issue preferred stock in one or more series and to fix and determine
the relative rights and preferences of the preferred stock, including voting
rights, dividend rights, liquidation rights, redemption provisions and
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conversion rights. The Board of Directors, without shareholder approval, may
issue shares of preferred stock with voting, dividend, liquidation and other
rights which could adversely affect the rights of the holders of shares of
common stock and could have the effect of delaying, deferring or preventing a
change in control of Metavante.
Authorized but Unissued Shares
Wisconsin law does not require shareholder approval for any issuance of
authorized shares. These additional shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued and unreserved shares may be to
enable the Board of Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt
to obtain control of Metavante by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of our management and
possibly deprive the shareholders of opportunities to sell their shares of
common stock at prices higher than prevailing market prices.
Wisconsin Law and Certain Articles and Bylaw Provisions; Anti-Takeover Measures
The provisions of our Restated Articles of Incorporation and Bylaws and
the Wisconsin Business Corporation Law discussed below may delay or make more
difficult acquisitions or changes of control of Metavante not approved by the
Board of Directors. These provisions could have the effect of discouraging
third parties from making proposals which shareholders may otherwise consider
to be in their best interests. These provisions may also make it more difficult
for third parties to replace our current management without the concurrence of
the Board of Directors.
Number of Directors; Vacancies; Removal. Our Restated Articles of
Incorporation provide that our Board of Directors is divided into three classes
serving staggered three-year terms. As a result, at least two shareholders'
meetings will generally be required for shareholders to change a majority of
the directors. The Board of Directors is authorized to create new directorships
and to fill the positions it creates. The Board of Directors (or its remaining
members, even though less than a quorum) is also empowered to fill vacancies on
the Board of Directors occurring for any reason. Any director appointed to fill
a vacancy or to a newly created directorship will hold office until the next
election for the class of directors to which the new director has been
appointed. Shareholders may remove directors but only for cause and only by the
affirmative vote of the holders of at least 75% of our outstanding shares of
capital stock entitled to be cast in an election of directors. These provisions
of the Restated Articles of Incorporation could prevent shareholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
Shareholder Action by Written Consent; Special Meetings. Our Bylaws
provide that shareholders may only act at a meeting of shareholders or by
unanimous written consent. The Chairman of the Board, the Vice Chairman of the
Board, the Chief Executive Officer, the President or a majority of the Board of
Directors may call special meetings of shareholders and are required to call
special meetings upon written demand by holders of common stock with at least
10% of the votes entitled to be cast at the special meeting.
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Advance Notice for Making Nominations at Annual Meetings and Raising Other
Business. Our Bylaws provide that, for nominations to the Board of Directors or
for other business to be properly brought by a shareholder before an annual
meeting of shareholders, the shareholder must first have given timely notice in
writing to our Corporate Secretary. To be timely, a shareholder's notice
generally must be delivered not less than 120 days prior to the anniversary
date of the annual meeting held in the immediately preceding year. The notice
by a shareholder must contain, among other things, information about the
shareholder delivering the notice and, as applicable, background information
about the nominee or a description of the proposed business to be brought
before the meeting.
Amendments to the Articles of Incorporation. The Wisconsin Business
Corporation Law allows us to amend our Restated Articles of Incorporation at
any time to add or change a provision that is required or permitted to be
included in the Restated Articles of Incorporation or to delete a provision
that is not required to be included in the Articles of Incorporation. The Board
of Directors may propose one or more amendments to our Restated Articles of
Incorporation for submission to shareholders and may condition its submission
of the proposed amendment on any basis if the Board of Directors notifies each
shareholder, whether or not entitled to vote, of the related shareholders'
meeting and includes information regarding the proposed amendment in that
meeting notice. The provisions in our Restated Articles of Incorporation
relating to the structure of our Board of Directors and amendment of our Bylaws
may only be amended by the vote of the holders of not less than 75% of our
outstanding shares of capital stock, and by the holders of not less than 75% of
our outstanding shares of each class or shares of capital stock, if any,
entitled to vote on the matter.
Amendments to the Bylaws. Our Restated Articles of Incorporation and
Bylaws both provide that the holders of at least 75% of our outstanding shares
of capital stock, and not less than 75% of our outstanding shares of each class
or series of capital stock, if any, entitled to vote on the matter have the
power to adopt, amend, alter or repeal the Bylaws. Our Restated Articles of
Incorporation and Bylaws also provide that the Board of Directors may amend,
alter or repeal the existing Bylaws and adopt new Bylaws by the vote of at
least a majority of the entire Board of Directors then in office. However, the
Board of Directors may not amend, repeal or readopt any Bylaw adopted by
shareholders if that Bylaw so provides, and the Board of Directors may not
amend, alter or repeal a Bylaw adopted or amended by shareholders that fixes a
greater or lower quorum requirement or a greater voting requirement for the
Board of Directors unless the Bylaw expressly provides that it may be amended,
altered or repealed by a specified vote of the Board of Directors. Action by
the Board of Directors that changes the quorum or voting requirement for the
Board of Directors must meet the same quorum requirement and be adopted by the
same vote required to take action under the quorum and voting requirement then
in effect, except where a different voting requirement is specified in the
Bylaws. In addition, the Board of Directors may not amend, alter or repeal a
Bylaw if the Restated Articles of Incorporation, the particular Bylaw or the
Wisconsin Business Corporation Law reserve this power exclusively to the
shareholders.
Constituency or Stakeholder Provision. Under Section 180.0827 of the
Wisconsin Business Corporation Law, in discharging his or her duties to
Metavante and in determining what he or she believes to be in the best
interests of Metavante, a director or officer may, in addition to considering
the effects of any action on shareholders, consider the effects of the action
on employees, suppliers,
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customers, the communities in which we operate and any other factors that the
director or officer considers pertinent. This provision may have anti-takeover
effects in situations where the interests of our stakeholders, other than
shareholders, conflict with the short-term maximization of shareholder value.
Wisconsin Antitakeover Statutes. Sections 180.1140 to 180.1144 of the
Wisconsin Business Corporation Law, which are referred to as the Wisconsin
business combination statutes, prohibit a Wisconsin corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless prior to such date the board of directors
approved the business combination or the transaction in which the person became
an interested stockholder. Under specified circumstances, a Wisconsin
corporation may engage in a business combination with an interested stockholder
more than three years after the stock acquisition date. For purposes of the
Wisconsin business combination statutes, a "business combination" includes a
merger or share exchange, or a sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets equal to at least 5% of the aggregate
market value of the stock or assets of the corporation or 10% of its earning
power, or the issuance of stock or rights to purchase stock having a market
value equal to at least 5% of the outstanding stock, the adoption of a plan of
liquidation or dissolution, and other enumerated transactions involving an
interested stockholder, and an "interested stockholder" is a person who
beneficially owns 10% of the voting power of the outstanding voting stock of
the corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within three years prior to the date in question. The Wisconsin business
combination statues do not apply to a business combination involving M&I
because M&I became an interested stockholder before Metavante's common stock
was publicly traded.
Sections 180.1130 to 180.1133 of the Wisconsin Business Corporation Law,
which are referred to as the Wisconsin fair price statutes, require that
business combinations involving a "significant shareholder" and a Wisconsin
corporation be approved by a supermajority vote of shareholders, in addition to
any approval otherwise required, unless the enumerated fair price conditions
are met. For purposes of the Wisconsin fair price statutes, a "significant
shareholder" is a person who beneficially owns, directly or indirectly, 10% or
more of the voting power of the outstanding stock of the corporation, or who is
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting power of the outstanding stock of the
corporation within two years prior to the date in question. The Wisconsin fair
price statutes may discourage any attempt by a shareholder to squeeze out other
shareholders without offering an appropriate premium purchase price. The
Wisconsin fair price statutes apply to business combinations involving M&I.
Subject to specified exceptions, Section 180.1150 of the Wisconsin
Business Corporation Law, which is referred to as the Wisconsin control share
statute, limits the voting power of shares of a Wisconsin corporation held by
any person or persons acting as a group, including shares issuable upon the
exercise of options, in excess of 20% of the voting power in the election of
directors, to 10% of the full voting power of those excess shares. This may
deter any shareholder from acquiring in excess of 20% of our outstanding voting
stock. The Wisconsin control share statute does not apply to shares of
Metavante common stock held by M&I because M&I acquired all of its shares
directly from Metavante.
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Section 180.1134 of the Wisconsin Business Corporation Law, which is
referred to as the Wisconsin defensive action restriction, provides that, in
addition to the vote otherwise required by law or the articles of
incorporation, a Wisconsin corporation must receive approval of the holders of
a majority of the shares entitled to vote before the corporation can take the
actions discussed below while a takeover offer is being made or after a
takeover offer has been publicly announced and before it is concluded. Under
the Wisconsin defensive action restriction, shareholder approval is required
for the corporation to acquire more than 5% of the outstanding voting shares
at a price above the market price from any individual who or organization
which owns more than 3% of the outstanding voting shares and has held those
shares for less than two years, unless a similar offer is made to acquire all
voting shares. This restriction may deter a shareholder from acquiring shares
of our common stock if the shareholder's goal is to have Metavante repurchase
the shareholder's shares at a premium over the market price. Shareholder
approval is also required under the Wisconsin defensive action restriction for
the corporation to sell or option assets of the corporation which amount to at
least 10% of the market value of the corporation, unless the corporation has
at least three independent directors and a majority of the independent
directors vote not to be governed by this restriction. The Wisconsin defensive
action restriction does not apply to share repurchases from M&I because M&I
has held its shares of Metavante common stock for more than two years.
Transfer Agent
The transfer agent for the common stock is Continental Stock Transfer and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our common stock sold in this offering will be
freely tradable without restriction under the Securities Act, except for any
shares which may be acquired by an "affiliate" of Metavante as that term is
defined in Rule 144 under the Securities Act. Persons who may be deemed to be
affiliates generally include individuals or entities that control, are
controlled by or are under common control with Metavante and may include
directors and officers of Metavante as well as significant shareholders of
Metavante.
M&I currently intends to complete its divestiture of Metavante within one
year following this offering by distributing all of the shares of Metavante
common stock owned by M&I to the holders of M&I's common stock. Shares of our
common stock distributed to M&I shareholders in the distribution generally
will be freely transferable, except for shares of common stock received by
persons who may be deemed to be affiliates. Persons who are affiliates will be
permitted to sell the shares of common stock that are issued in this offering
or that they receive in the distribution only through registration under the
Securities Act, or under an exemption from registration, such as the one
provided by Rule 144.
The 87,000,000 shares of our common stock that will continue to be held
by M&I after the offering but before the distribution are deemed "restricted
securities" within the meaning of Rule 144, and may not be sold other than
through registration under the Securities Act or under an exemption from
registration, such as the one provided by Rule 144. As discussed under the
heading
83
<PAGE>
"Underwriting," we, our executive officers and directors and M&I and M&I's
executive officers and directors have agreed not to offer or sell or enter into
any swap or similar arrangements with respect to any shares of our common
stock, subject to exceptions such as the distribution, for a period of 180 days
after the date of this prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First
Boston Corporation.
We will grant shares of our common stock under our stock incentive plan,
subject to restrictions. We currently expect to file a registration statement
under the Securities Act to register shares reserved for issuance under the
plan. Shares issued pursuant to awards after the effective date of the
registration statement, other than shares issued to affiliates, generally will
be freely tradable without further registration under the Securities Act.
Shares issued pursuant to any vested and exercisable options of M&I converted
into our options will also be freely tradable without registration under the
Securities Act after the effective date of the registration statement.
Sales of substantial amounts of common stock in the open market, or the
availability of such shares for sale, could adversely affect prevailing market
prices.
84
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, Salomon Smith Barney Inc., UBS Warburg LLC, Robert W. Baird & Co.
Incorporated and DLJdirect Inc., have severally agreed to purchase from us the
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................
Credit Suisse First Boston Corporation.............................
Salomon Smith Barney Inc...........................................
UBS Warburg LLC....................................................
Robert W. Baird & Co. Incorporated.................................
DLJdirect Inc......................................................
---------
Total...........................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval by their counsel of
legal matters and other conditions. The underwriters must purchase and accept
delivery of all of 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 propose to initially offer some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of these shares of common stock to dealers, including
the underwriters, at the public offering price less a concession not in excess
of $ per share. The underwriters may allow, and these dealers may re-allow,
to other dealers a concession not in excess of $ per share on sales to other
dealers. After the initial offering of the common stock to the public, the
representatives of the underwriters may change the public offering price and
other selling terms. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
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
part, up to an aggregate of 2,475,000 additional shares of common stock at the
initial public offering price less underwriting fees. The underwriters may
exercise this option solely to cover over-allotments, if any, made in
connection with the offering. To the extent that the underwriters exercise this
option, each underwriter will become obligated, under conditions specified in
the underwriting agreement, to purchase its pro rata portion of the additional
shares based on that underwriter's percentage underwriting commitment as
indicated in the preceding table.
85
<PAGE>
The following table shows the per share and total underwriting fees, which
are expected to be determined as a percentage of the initial public offering
price, that we will pay to the underwriters in this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by Metavante
-------------------------
No Exercise Full Exercise
<S> <C> <C>
Per share fees...................................... $ $
------ ------
Total fees.......................................... $ $
====== ======
</TABLE>
We estimate that the total offering expenses (excluding the underwriting
fees) payable by us will be approximately $3 million.
We, our executive officers and directors and M&I and M&I's executive
officers and directors have agreed, for a period of 180 days after the date of
this prospectus, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation and Credit Suisse First Boston Corporation, not
to:
. 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 for the sale of or otherwise dispose of or transfer,
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 of ownership of the common stock,
whether any such transaction described above is to be settled by
delivery of common stock or other securities, in cash or otherwise.
The underwriting agreement contains limited exceptions to these lock-up
agreements.
In addition, subject to our ability to file a registration statement to
cover shares issuable in connection with our stock incentive plan, during this
180-day period, we have also agreed not to file any registration statement for,
and each of our executive officers and directors and M&I and each of M&I's
executive officers and directors have agreed not to make any demand, or
exercise any right, for the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation and Credit Suisse First Boston Corporation.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 825,000 shares of common stock offered by this
prospectus for sale to our employees, directors and business associates
identified by us, as well as to M&I's executive officers, directors and
business associates identified by M&I. The number of shares available for sale
to the general public will be reduced to the extent that any reserved shares
are purchased. Any reserved shares not so purchased will be offered by the
underwriters on the same basis as the other shares offered through this
prospectus. The 180-day period lock-up agreements described above will apply to
reserved shares purchased by our executive officers and directors and M&I's
executive officers and directors. A similar 30-day period lock-up agreement
will apply to reserved shares purchased by anyone else.
86
<PAGE>
An electronic prospectus will be available on the website maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. DLJdirect Inc. will be conducting an electronic distribution of a
portion of the shares being offered. In addition, shares reserved for sale to
our employees, directors and business associates will be offered and sold
through an electronic distribution. All purchasers of shares from DLJdirect
Inc., and all purchasers of reserved shares, will receive a paper copy of the
final prospectus.
We and M&I have agreed to indemnify the underwriters against civil
liabilities specified in the underwriting agreement, including liabilities
under the Securities Act, or to contribute to payments that the underwriters
may be required to make because of these liabilities.
We have applied to have our common stock listed on the Nasdaq National
Market under the symbol "MVNT."
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of common stock in the open market to cover a 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 in some other way or if
Donaldson, Lufkin & Jenrette Securities Corporation or Credit Suisse First
Boston Corporation receives a report that indicates clients of such syndicate
members have "flipped" the common stock. These activities, which may be
effected on the Nasdaq National Market or otherwise, 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.
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
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements associated with the offer and sale of any
of the shares of common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and 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 in any jurisdiction in which such an offer or a solicitation is
unlawful.
Prior to this offering, there was no established trading market for our
common stock. Consequently, the initial public offering price for our common
stock will be determined by negotiation among us and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include:
. the history of and prospects for the industry in which we compete,
. our past and present operations,
. our historical results of operations,
. our prospects for future earnings,
87
<PAGE>
. the recent market prices of securities of generally comparable
companies, and
. the general condition of the securities markets at the time of this
offering.
Some of the underwriters and their affiliates have provided, and in the
future may provide, investment and commercial banking services to us and to
M&I. In connection with rendering these services in the past, the underwriters
and their affiliates have received customary fees and commissions. In addition,
we have engaged Donaldson, Lufkin & Jenrette Securities Corporations to review
strategic alternatives for our M&I EastPoint subsidiary, including the
disposition of this subsidiary, for which Donaldson, Lufkin & Jenrette will
receive customary fees.
LEGAL MATTERS
Matters relating to the legality of the issuance of the shares of common
stock being offered hereby will be passed upon for Metavante by Godfrey & Kahn,
S.C., Milwaukee, Wisconsin. Other legal matters will be passed upon for the
underwriters by Sidley & Austin, Chicago, Illinois.
EXPERTS
The historical consolidated financial statements as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this prospectus have been audited by Arthur Andersen, LLP,
independent public accountants, as indicated in their report, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. For further information with respect to
us and our common stock, reference is made to the registration statement and
the exhibits to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance, reference is made to the copy of
the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. The registration statement and the exhibits to the registration
statement may be inspected and copied at the public reference facilities
maintained by the SEC located at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the regional offices of the SEC located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of this material can also
be obtained at prescribed rates by writing to the SEC's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information about its public reference facilities
and copy charges. This information may also be accessed electronically by means
of the SEC's website on the Internet at http://www.sec.gov.
88
<PAGE>
As a result of the offering, we will be subject to the information
requirements of the Exchange Act and, in accordance with that Act, will file
reports, proxy statements and other information with the SEC on a periodic
basis. The reports, proxy statements and other information filed by us with the
SEC can be inspected and copied at the offices of the SEC, at the website
listed above and at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our shareholders with annual reports containing
audited financial statements examined by our independent accountants for each
fiscal year.
M&I is subject to the information requirements of the Exchange Act. You
may obtain copies of the documents that M&I files with the SEC at the offices
of the SEC or by means of the SEC's website listed above. The documents filed
with the SEC by M&I are not deemed to be a part of this prospectus or the
registration statement of which it forms a part.
89
<PAGE>
INDEX TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Unaudited Pro Forma Condensed Financial Statements........................ F-2
Notes to Unaudited Pro Forma Condensed Financial Statements............... F-5
Report of Independent Public Accountants.................................. F-6
Consolidated Balance Sheets as of December 31, 1998 and 1999 and
(unaudited) as of June 30, 2000.......................................... F-7
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and
1999 and (unaudited) for the six months ended June 30, 1999 and 2000..... F-8
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998
and 1999 and (unaudited) for the six months ended June 30, 1999 and
2000..................................................................... F-9
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1997, 1998 and 1999 and (unaudited) for the six months ended
June 30, 2000............................................................ F-10
Notes to Consolidated Financial Statements................................ F-11
</TABLE>
F-1
<PAGE>
METAVANTE CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed balance sheet of Metavante
Corporation as of June 30, 2000 and unaudited pro forma condensed statements of
income for the six months ended June 30, 2000 and the year ended December 31,
1999 give effect to this offering as if it had occurred as of January 1, 1999.
As discussed under "Use of Proceeds," Metavante intends to use the proceeds it
retains from this offering for working capital, growth in operations, marketing
and potential investments in, or acquisitions of, complementary businesses and
technologies. The pro forma effect of such investments has not been reflected
herein. In addition, subsequent to June 30, 2000, Metavante renegotiated
several agreements with M&I, the anticipated effects of which have been
reflected in the pro forma results.
The following pro forma condensed financial statements are provided for
illustrative purposes only and do not purport to represent what Metavante's
financial position or results of operations actually would have been had this
offering taken place and the new agreements with M&I been in place on the dates
presumed in the pro forma financial statements. The following information
should be read in conjunction with the historical consolidated financial
statements of Metavante.
F-2
<PAGE>
METAVANTE CORPORATION
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
As of June 30, 2000
-----------------------------
Pro
Actual Adjustments Forma
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 35,882 $ -- $ 35,882
Accounts receivable, less allowance of $3,451.... 43,865 -- 43,865
EFD processing receivables....................... 27,201 -- 27,201
Due from affiliated companies.................... 8,637 -- 8,637
Unbilled revenue................................. 39,688 -- 39,688
Deferred income taxes............................ 8,395 -- 8,395
Prepaid expenses................................. 8,699 -- 8,699
Other current assets............................. 14,537 -- 14,537
-------- -------- --------
Total current assets............................ 186,904 -- 186,904
Premises and equipment, net....................... 125,201 -- 125,201
Investments....................................... -- 100,000 100,000
Purchased software, net........................... 20,546 -- 20,546
Capitalized conversions, net...................... 57,658 -- 57,658
Capitalized software, net......................... 86,009 -- 86,009
Goodwill and other intangibles, net............... 71,919 -- 71,919
Other assets...................................... 7,506 -- 7,506
-------- -------- --------
Total assets................................... $555,743 $100,000 $655,743
======== ======== ========
Liabilities and Shareholder's Equity
Current liabilities:
Short-term borrowings............................ $ 20,241 $ -- $ 20,241
Accounts payable................................. 8,512 -- 8,512
Payroll-related accruals......................... 15,867 -- 15,867
Accrued liabilities.............................. 41,992 -- 41,992
Due to third party for bill payment services..... 30,330 -- 30,330
Deferred revenues................................ 68,776 -- 68,776
Other current liabilities........................ 10,764 -- 10,764
-------- -------- --------
Total current liabilities....................... 196,482 -- 196,482
Long-term debt.................................... 67,123 (67,000) 123
Long-term portion of capital leases............... 4,101 -- 4,101
Deferred income taxes............................. 22,440 -- 22,440
Post-retirement benefit obligation................ 9,772 -- 9,772
-------- -------- --------
Total liabilities............................... 299,918 (67,000) 232,918
Shareholder's equity:
Common stock..................................... 870 165 1,035
Additional paid-in capital....................... 73,081 181,435 254,516
Retained earnings................................ 181,874 (14,600) 167,274
-------- -------- --------
Total shareholder's equity...................... 255,825 167,000 422,825
-------- -------- --------
Total liabilities and shareholder's equity..... $555,743 $100,000 $655,743
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
METAVANTE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(In thousands, expect per share data)
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma
----------------------- ----------------------- -----------------------
Six Months
Year Ended Ended Year Ended Six Months Year Ended Six Months
December 31, June 30, December 31, Ended June December 31, Ended June
1999 2000 1999 30, 2000 1999 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Account processing
fees................ $391,910 $216,788 $ (5,000) $(2,500) $386,910 $214,288
Professional services
fees................ 76,432 38,231 -- -- 76,432 38,231
Software revenues...... 35,657 19,727 -- -- 35,657 19,727
Other revenues......... 42,385 14,224 -- -- 42,385 14,224
-------- -------- -------- ------- -------- --------
Total revenues........ 546,384 288,970 (5,000) (2,500) 541,384 286,470
Cost of Revenues:
Salaries, commissions
and other payroll-
related costs.......... 213,449 116,005 -- -- 213,449 116,005
Data processing
expenses............ 132,939 70,228 -- -- 132,939 70,228
Other operating costs.. 58,476 32,023 -- -- 58,476 32,023
Depreciation of
premises and
equipment............. 30,327 14,045 -- -- 30,327 14,045
Amortization of
intangibles and
computer software..... 38,163 16,915 -- -- 38,163 16,915
-------- -------- -------- ------- -------- --------
Total cost of
revenues........... 473,354 249,216 -- -- 473,354 249,216
-------- -------- -------- ------- -------- --------
Income from operations.. 73,030 39,754 (5,000) (2,500) 68,030 37,254
Other Income (Expense):
Interest income........ 704 840 -- -- 704 840
Interest expense....... (4,811) (3,203) 3,136 2,090 (1,675) (1,113)
Other income (expense),
net................. (2,725) (1,631) -- -- (2,725) (1,631)
-------- -------- -------- ------- -------- --------
Net other income
(expense).......... (6,832) (3,994) 3,136 2,090 (3,696) (1,904)
-------- -------- -------- ------- -------- --------
Allocated tax
provision............ 29,291 15,143 (792) (174) 28,499 14,969
-------- -------- -------- ------- -------- --------
Net income.............. $ 36,907 $ 20,617 $ (1,072) $ (236) $ 35,835 $ 20,381
======== ======== ======== ======= ======== ========
Net income per share
(basic and diluted).... $ 0.42 $ 0.24 $ 0.38 $ 0.22
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
METAVANTE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(a) As discussed more fully in "Use of Proceeds," Metavante anticipates
net proceeds from this offering of $181,600 , which will first be used to repay
$67,000 of long-term debt payable to M&I. The remainder of the net proceeds, up
to $100,000 will be retained by Metavante. Any amount in excess of $100,000
will be paid as a dividend which only M&I will receive. For purposes of this
pro forma presentation, the following use of proceeds has been assumed:
<TABLE>
<S> <C>
Net proceeds of offering.......................................... $181,600
Long-term debt payable to M&I as of June 30, 2000................. (67,000)
Proceeds retained by Metavante.................................... (100,000)
--------
Dividend paid to M&I.............................................. $ 14,600
========
</TABLE>
(b) Proceeds from this offering to be retained by Metavante will be
invested in short-term investments at an approximate short-term investment rate
of return of 6%.
(c) To eliminate interest expense incurred on long-term debt payable to
M&I.
(d) Subsequent to June 30, 2000, Metavante renegotiated its several
agreements with M&I. Based on the renegotiated agreements, Metavante
anticipates the revenue to be received, for like services performed in
providing data processing services, will be $5,000 less on an annualized basis.
No other material impacts are anticipated, as either the change caused by the
renegotiated contract is anticipated to be immaterial or, where M&I had
previously provided services to Metavante, such services will be replaced by
other vendors or staff at a like incremental cost.
(e) The pro forma net income per share amounts are based on the 87,000,000
shares previously outstanding plus 5,583,000 shares of common stock, the
proceeds from which will be used to repay intercompany debt to M&I, and
1,217,000 shares of common stock, the proceeds from which will be used for a
dividend to M&I, all of which are described in Note (a).
(f) As discussed elsewhere in this Registration Statement, Metavante may
issue "tandem options," which, if issued, may be dilutive to Metavante. As of
the date of this prospectus, it is not possible to determine how many options
might be issued as a result of the tandem option program. However, as more
fully discussed in "Management--Treatment of M&I Options," utilizing the number
of M&I options outstanding at June 30, 2000 and a presumed share price for M&I
common stock of $38 per share and $12 per share for Metavante common stock, the
maximum number of incremental Metavante options would approximate 9,547,000 new
options at an average exercise price of $11.03 per share. Pro forma diluted net
income per share would not differ from pro forma basic net income per share for
the periods presented when considering the maximum number of potential
incremental shares as a result of the tandem options.
F-5
<PAGE>
Report of Independent Public Accountants
To the Shareholders of Metavante Corporation:
We have audited the accompanying consolidated balance sheets of Metavante
Corporation (a Wisconsin corporation) as of December 31, 1998 and 1999, and the
related consolidated statements of income, shareholder's equity and cash flows
for the years ended December 31, 1997, 1998 and 1999. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metavante
Corporation as of December 31, 1998 and 1999, and the results of its operations
and its cash flows for the years ended December 31, 1997, 1998 and 1999 in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Milwaukee, Wisconsin
July 12, 2000 (except with respect to Note 14, for which the date is September
5, 2000)
F-6
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of As of
December 31, June 30,
------------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 7,453 $ 27,446 $ 35,882
Accounts receivable, less allowance of $2,552,
$3,557 and $3,451 in 1998, 1999 and 2000,
respectively................................. 42,522 44,811 43,865
EFD processing receivables.................... 16,881 26,527 27,201
Due from affiliated companies................. 9,675 10,170 8,637
Unbilled revenue.............................. 31,892 36,371 39,688
Deferred income taxes......................... 9,930 10,452 8,395
Prepaid expenses.............................. 10,736 11,444 8,699
Other current assets.......................... 4,585 6,977 14,537
--------- --------- ---------
Total current assets......................... 133,674 174,198 186,904
Premises and equipment, net.................... 112,018 123,687 125,201
Purchased software, net........................ 12,648 19,023 20,546
Capitalized conversions, net................... 52,670 54,201 57,658
Capitalized software, net...................... 55,655 71,294 86,009
Goodwill and other intangibles, net............ 19,489 74,600 71,919
Other assets................................... 2,971 5,792 7,506
--------- --------- ---------
Total assets................................. $ 389,125 $ 522,795 $ 555,743
========= ========= =========
Liabilities and Shareholder's Equity
Current liabilities:
Short-term borrowings......................... $ 26,243 $ 17,646 $ 20,241
Accounts payable.............................. 7,124 11,901 8,512
Payroll-related accruals...................... 14,902 20,324 15,867
Accrued liabilities........................... 29,824 30,727 41,992
Due to third party for bill payment services.. -- 20,594 30,330
Deferred revenues............................. 58,407 64,304 68,776
Other current liabilities..................... 11,620 10,088 10,764
--------- --------- ---------
Total current liabilities.................... 148,120 175,584 196,482
Long-term debt................................. 578 67,456 67,123
Long-term portion of capital leases............ 5,939 5,060 4,101
Deferred income taxes.......................... 22,237 23,210 22,440
Post-retirement benefit obligation............. 10,569 12,135 9,772
--------- --------- ---------
Total liabilities............................ 187,443 283,445 299,918
Shareholder's equity:
Common stock, $0.01 par value, 300,000 shares
authorized; 87,000 shares issued and
outstanding in each period................... 870 870 870
Additional paid-in capital.................... 69,057 72,827 73,081
Retained earnings............................. 131,755 165,653 181,874
--------- --------- ---------
Total shareholder's equity................... 201,682 239,350 255,825
--------- --------- ---------
Total liabilities and shareholder's equity... $ 389,125 $ 522,795 $ 555,743
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------------------- ------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues(1):
Account processing fees..... $252,004 $305,299 $391,910 $186,745 $216,788
Professional services fees.. 63,530 73,170 76,432 35,300 38,231
Software revenues........... 28,357 37,628 35,657 15,506 19,727
Other revenues.............. 37,871 55,462 42,385 18,856 14,224
-------- -------- -------- -------- --------
Total revenues ............ 381,762 471,559 546,384 256,407 288,970
Cost of Revenues:
Salaries, commissions and
other payroll-related
costs.................... 150,446 187,296 213,449 99,287 116,005
Data processing expenses.... 92,083 116,646 132,939 62,603 70,228
Other operating costs....... 38,336 51,235 58,476 26,903 32,023
Depreciation of premises and
equipment................ 31,795 35,510 30,327 15,009 14,045
Amortization of intangibles
and computer software.... 19,736 22,466 38,163 20,268 16,915
-------- -------- -------- -------- --------
Total cost of revenues..... 332,396 413,153 473,354 224,070 249,216
-------- -------- -------- -------- --------
Income from operations....... 49,366 58,406 73,030 32,337 39,754
Other Income (Expense):
Interest income............. 113 43 704 80 840
Interest expense............ (2,852) (2,479) (4,811) (2,006) (3,203)
Other income (expense),
net...................... (110) (329) (2,725) (7) (1,631)
-------- -------- -------- -------- --------
Net other income
(expense)............... (2,849) (2,765) (6,832) (1,933) (3,994)
-------- -------- -------- -------- --------
Income before taxes.......... 46,517 55,641 66,198 30,404 35,760
Allocated tax provision...... 19,046 23,036 29,291 14,002 15,143
-------- -------- -------- -------- --------
Net income................... $ 27,471 $ 32,605 $ 36,907 $ 16,402 $ 20,617
======== ======== ======== ======== ========
Net income per share (basic
and diluted).............. $ 0.32 $ 0.37 $ 0.42 $ 0.19 $ 0.24
======== ======== ======== ======== ========
</TABLE>
---------------------
(1) Affiliated revenues included in total revenues above were $51,776, $60,299
and $56,918 for the years ended December 31, 1997, 1998 and 1999,
respectively. Unaudited affiliated revenues were $28,638 and $31,848 for
the six months ended June 30, 1999 and 2000, respectively.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income.............. $ 27,471 $ 32,605 $ 36,907 $ 16,402 $ 20,617
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation of
premises and
equipment........... 31,795 35,510 30,327 15,009 14,045
Amortization of
goodwill and other
intangibles......... 19,736 22,466 38,163 20,268 16,915
Deferred income taxes.. (3,867) 3,341 451 -- --
(Gain) loss on sale of
equipment........... 168 369 476 20 (7)
Equity loss in
Customers Forever
joint venture....... -- -- 2,232 -- 1,613
Changes in assets and
liabilities, net of
effects from
acquisitions of
businesses:
Accounts receivable.... (17,828) (11,893) (3,264) 1,739 272
Unbilled revenues...... (7,116) (5,370) (4,974) (819) (1,784)
Prepaids and other
current assets...... 319 (708) (2,553) (1,771) (4,815)
Capitalized conversion
costs............... (2,153) (5,623) (1,531) 16 (4,516)
Other assets........... (119) (1,935) 1,062 (1,479) (3,327)
Accounts payable and
accrued
liabilities......... 15,892 1,172 24,798 17,362 15,118
Deferred revenue....... 7,564 6,383 3,942 (1,628) 4,472
Post-retirement benefit
obligation/other
liabilities......... 1,119 893 1,566 1,715 (2,363)
-------- -------- --------- -------- --------
Net cash provided by
operating
activities......... 72,981 77,210 127,602 66,834 56,240
Cash Flows From Investing
Activities:
Net capital additions to
premises and
equipment............ (36,306) (35,086) (38,720) (6,066) (14,380)
Increase in purchased
software costs....... (1,693) (5,333) (8,700) (6,386) (4,390)
Increase in capitalized
software costs....... (24,003) (25,323) (34,221) (18,686) (24,194)
Change in goodwill and
other intangibles.... 2,841 (218) (656) (622) (829)
Acquisition of Moneyline
Express.............. -- (5,146) -- -- --
Acquisition of Cardpro.. -- -- (11,207) -- --
Acquisition of EBS...... -- -- (66,153) (66,153) --
Investment in Customers
Forever joint
venture.............. -- -- (6,115) -- --
-------- -------- --------- -------- --------
Net cash used in
investing
activities......... (59,161) (71,106) (165,772) (97,913) (43,793)
Cash Flows From Financing
Activities:
Increase (decrease) in
line of credit....... (5,427) (5,426) (8,597) (8,887) 2,595
Proceeds (repayments) on
debt................. (118) 6,775 66,878 66,971 (333)
Payments on capital
leases............... (4,638) (8,462) (879) (3,829) (2,131)
Cash transferred (to)
from Parent.......... (3,612) (19) (3,009) 1,447 (4,396)
Tax benefit of stock
options exercised.... 1,320 1,495 3,770 -- 254
-------- -------- --------- -------- --------
Net cash provided by
(used in) financing
activities......... (12,475) (5,637) 58,163 55,702 (4,011)
-------- -------- --------- -------- --------
Net increase in cash and
cash equivalents...... 1,345 467 19,993 24,623 8,436
Beginning balance........ 5,641 6,986 7,453 7,453 27,446
-------- -------- --------- -------- --------
Ending balance........... $ 6,986 $ 7,453 $ 27,446 $ 32,076 $ 35,882
======== ======== ========= ======== ========
Supplemental Cash Flow
Information:
Cash paid during the
year:
Interest............... $ 3,325 $ 2,171 $ 5,208 $ 1,701 $ 2,828
Income taxes........... $ 14,211 $ 27,120 $ 36,486 $ 16,044 $ 10,613
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
($0.01 Par
Value) Additional Total
------------- Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.... 87,000 $870 $66,242 $ 75,310 $142,422
Net income................... -- -- -- 27,471 27,471
Cash transferred (to) from
Parent.................... -- -- -- (3,612) (3,612)
Tax benefit of exercised
stock options of Parent... -- -- 1,320 -- 1,320
------ ---- ------- -------- --------
Balance, December 31, 1997.... 87,000 870 67,562 99,169 167,601
Net income................... -- -- -- 32,605 32,605
Cash transferred (to) from
Parent.................... -- -- -- (19) (19)
Tax benefit of exercised
stock options of Parent... -- -- 1,495 -- 1,495
------ ---- ------- -------- --------
Balance, December 31, 1998.... 87,000 870 69,057 131,755 201,682
Net income................... -- -- -- 36,907 36,907
Cash transferred (to) from
Parent.................... -- -- -- (3,009) (3,009)
Tax benefit of exercised
stock options of Parent... -- -- 3,770 -- 3,770
------ ---- ------- -------- --------
Balance, December 31, 1999.... 87,000 870 72,827 165,653 239,350
Net income................... -- -- -- 20,617 20,617
Cash transferred (to) from
Parent.................... -- -- -- (4,396) (4,396)
Tax benefit of exercised
stock options of Parent... -- -- 254 -- 254
------ ---- ------- -------- --------
Balance, June 30, 2000........ 87,000 $870 $73,081 $181,874 $255,825
====== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
1. Background and Basis of Presentation
Marshall & Ilsley Corporation, which is referred to as "M&I," plans to
create an independent, publicly-traded company comprised of M&I's e-commerce,
data processing and software businesses. Metavante Corporation is an existing
M&I subsidiary that had insignificant assets or operations and nominal
capitalization prior to July 1, 2000. As of July 1, 2000 and in anticipation of
Metavante's initial public offering, the assets and liabilities relating to the
aforementioned businesses were contributed to Metavante. After completion of
Metavante's initial public offering, M&I will own more than 80% of Metavante's
outstanding common stock. Subject to the satisfactory resolution of certain
conditions, M&I currently intends to complete its divestiture of Metavante
within one year following completion of the initial public offering by
distributing all of its shares of common stock to the holders of M&I's common
stock, although this distribution may occur within a shorter period of time
following this offering if required in order to have the distribution qualify
as a tax-free reorganization.
Metavante is a provider of integrated solutions that enable financial
services providers to initiate and process a broad range of financial
transactions electronically, including through the Internet. Metavante's
integrated transaction processing, outsourcing, software and consulting
solutions provide virtually all of the technology that a bank or other
financial services provider needs to run its operations. Metavante is an
application service provider, which means that it enables its clients to access
and utilize its solutions over public and private networks, including the
Internet.
The consolidated financial statements of Metavante reflect the historical
financial position, results of operations and cash flows of the e-commerce,
data processing and software businesses of M&I during each respective period.
The consolidated financial statements have been prepared using M&I's historical
basis in the assets, liabilities, retained earnings and historical results of
operations of such businesses. The consolidated financial statements do not
include the assets, liabilities and results of operations of the item
processing business to be retained by M&I.
The consolidated financial statements include allocations of M&I expense.
The expense allocations have been determined on the basis that M&I and
Metavante considered to be reasonable reflections of the utilization of
services provided or the benefit received by Metavante. However, the financial
information included herein may not reflect the consolidated financial
position, operating results, changes in shareholder's equity and cash flows of
Metavante in the future or what they would have been had Metavante been a
separate, independent entity during the periods presented.
M&I has approved a general assignment and assumption agreement with
Metavante relating to the organization of Metavante as a wholly-owned
subsidiary of M&I. This agreement allocates assets and liabilities between M&I
and Metavante. In addition, Metavante has entered or will enter into other
agreements with M&I relating to the separation of its business from M&I,
including a reorganization agreement, a lease agreement and an administrative
services agreement. Metavante
F-11
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
also intends to enter into an outsourcing agreement, a professional services
agreement and a branch automation agreement with M&I pursuant to which
Metavante will provide services to M&I as a client. The terms of these new
agreements differ from the agreements that were in place between Metavante and
M&I during the periods presented in the historical financial statements.
Management estimates that Metavante would have reported lower revenues in its
historical financial statements had these agreements been in place during the
periods presented. The historical financial statements reflect the results of
operations of Metavante based on the terms of the agreements that were in place
in the historical periods.
The financial results of Metavante include certain of M&I's wholly-owned
subsidiaries, M&I Asia Pacific, Inc. and M&I EastPoint Technology, Inc., as
well as M&I's share of the Customers Forever LLC equity investment.
The following notes to the financial statements reflect data as of
December 31, 1998 and 1999 and for the three years ended December 31, 1999.
Where deemed material, additional disclosures for the six month periods ended
June 30, 1999 and 2000 have also been provided.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Metavante as
defined. All significant interdivisional balances and transactions are
eliminated.
Interim Financial Information
The financial information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited and includes all adjustments, consisting
only of normal and recurring accruals, that management considers necessary for
a fair presentation of its consolidated financial position, operating results
and cash flows. Results for the six months ended June 30, 2000 are not
necessarily indicative of results to be expected for the full fiscal year 2000
or for any future period.
Revenue Recognition
Data processing and related revenues are recognized as services are
performed based on amounts billable under the contracts. Processing services
performed that have not been billed to clients are accrued.
F-12
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Revenues attributable to the licensing of software are recognized upon
delivery and performance of contractual obligations, provided that no
significant vendor obligations remain and collection of the resulting
receivable is deemed probable. In the event that significant vendor obligations
exist, revenue is deferred until Metavante meets the obligations.
In order to recognize revenue, each element of an arrangement, or
contract, must meet the following four criteria:
. persuasive evidence of an arrangement exists,
. delivery has occurred,
. fee is fixed or determinable, and
. collection is probable.
If one or more of these criteria have not been satisfied, revenue is
deferred until all criteria have been satisfied.
Service revenues from client maintenance fees for ongoing client support
and product updates are recognized ratably over the term of the maintenance
period. Service revenues from training and consulting are recognized when the
services are performed.
Conversion revenues associated with the conversion of clients' processing
systems to Metavante's processing systems are deferred and amortized over the
period of the related processing contract, generally five years. For the years
ended December 31, 1997, 1998 and 1999, conversion revenues deferred were
$14,102, $21,236 and $19,929, respectively. Revenues recognized were $10,500,
$12,569 and $15,268 for the years ended December 31, 1997, 1998 and 1999,
respectively. Conversion revenues deferred were $8,758 and $10,834 (unaudited)
for the six months ended June 30, 1999 and 2000, respectively. For the six
months ended June 30, 1999 and 2000, revenues recognized were $8,120 and $8,412
(unaudited), respectively.
Cash and Cash Equivalents
Cash and cash equivalents are defined as short-term investments that have
an original maturity of three months or less and are readily convertible into
cash. Short-term investments consist of overnight investments in an interest
bearing account at an M&I bank subsidiary. Cash and cash equivalents consist of
the following:
<TABLE>
<CAPTION>
As of As of
December 31, June 30,
--------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Cash......................................... $ 7,453 $ 7,518 $ 6,107
Short-term investments....................... -- 19,928 29,775
------- ------- -------
$ 7,453 $27,446 $35,882
======= ======= =======
</TABLE>
F-13
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
As part of processing certain types of transactions, Metavante earns
interest from the time money is collected from its clients until the time
payment is made to the appropriate merchants. Such cash received from clients
is segregated in a separate short-term investment account as outlined above.
Premises and Equipment
Premises and equipment are recorded at cost. Depreciation is calculated
using the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes. Estimated useful lives generally
range from ten to forty years for premises and three to five years for
equipment. Maintenance and repairs are charged to expense, and betterments are
capitalized. Gains and losses on the sale or disposal of premises and equipment
are recorded as other income or expense.
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
As of As of
December 31, June 30,
----------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Land and improvements..................... $ 2,550 $ 2,484 $ 2,370
Buildings................................. 54,231 56,759 54,190
Computer and other equipment.............. 200,678 209,318 222,328
Construction in progress.................. 2,514 10,090 14,033
-------- -------- --------
259,973 278,651 292,921
Less--accumulated
depreciation/amortization................ 147,955 154,964 167,720
-------- -------- --------
$112,018 $123,687 $125,201
======== ======== ========
</TABLE>
Depreciation expenses were $31,795, $35,510 and $30,327 for the years
ended December 31, 1997, 1998 and 1999, respectively. For the six months ended
June 30, 1999 and 2000, depreciation expenses were $15,009 and $14,045
(unaudited), respectively.
Purchased Software Costs
Costs associated with purchased software (used primarily in the data
processing operations) are capitalized and amortized, using the straight-line
method, over the estimated useful life of the software, which generally is four
or five years. For the years ended December 31, 1998 and 1999, capitalized
purchased software costs were $5,333 and $8,700, respectively. Amortization
expense was $4,285, $4,715 and $6,789, for the years ended December 31, 1997,
1998 and 1999, respectively.
F-14
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Purchased software costs were $6,386 and $4,390 (unaudited) for the six months
ended June 30, 1999 and 2000, respectively. For the six months ended June 30,
1999 and 2000, amortization expense was $2,887 and $2,867 (unaudited),
respectively.
Capitalized Software Costs
The costs of internally developed software and enhancements, which are
marketed externally or will be utilized by Metavante in processing operations,
are capitalized when the technological feasibility of the software, primarily a
working model, has been established. The capitalized costs are generally
amortized using the straight-line method over the expected useful life of the
software, which is generally four years. For the years ended December 31, 1997,
1998 and 1999, capitalized software costs were $24,003, $25,323 and $34,221,
respectively. Amortization expense was $9,272, $13,094 and $18,582 for the
years ended December 31, 1997, 1998 and 1999, respectively. Capitalized
software costs were $18,686 and $24,194 (unaudited) for the six months ended
June 30, 1999 and 2000, respectively. For the six months ended June 30, 1999
and 2000, amortization expense was $8,000 and $9,479 (unaudited), respectively.
Goodwill and Other Intangibles
Goodwill represents the excess of the cost of acquired businesses over the
fair market value of their net tangible and identified intangible assets
acquired. Goodwill is being amortized using the straight-line method over
periods ranging from ten to twenty-five years. Goodwill is included with the
other assets acquired for purposes of assessing if any potential impairment
exists. Amortization expense was $647, $649 and $8,813 for the years ended
December 31, 1997, 1998 and 1999, respectively. For the six months ended June
30, 1999 and 2000, amortization expense was $7,250 and $1,415 (unaudited),
respectively.
Other intangibles consist primarily of the values allocated to intangibles
acquired in connection with business acquisitions, such as client lists.
Metavante amortizes these costs, using the straight-line method, over the
estimated useful lives of the intangibles, which generally is five to twenty
years. Amortization expense was $5,532, $4,008 and $3,979 for the years ended
December 31, 1997, 1998 and 1999, respectively. For the six months ended June
30, 1999 and 2000, amortization expense was $2,131 and $2,095 (unaudited),
respectively.
Capitalized Conversion Costs
Metavante capitalizes the direct costs associated with the conversion of
clients' processing systems to Metavante's processing systems. Upon completion
of conversion, Metavante provides data processing services for the clients. The
capitalized costs are amortized on the straight-line method over the terms of
the related servicing contracts, generally five years. For the years ended
December 31, 1997, 1998 and 1999, conversion costs capitalized were $18,548,
$24,333 and $23,724,
F-15
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
respectively. Recognition of conversion expense was $16,395, $18,710 and
$19,954, and for the years ended December 31, 1997, 1998 and 1999,
respectively. Conversion costs capitalized were $10,441 and $10,686
(unaudited) for the six months ended June 30, 1999 and 2000, respectively. For
the six months ended June 30, 1999 and 2000, recognition of conversion expense
was $10,456 and $7,229 (unaudited), respectively.
Income Taxes
Metavante's operating results are included in the consolidated Federal
income tax return of M&I. Pursuant to a tax allocation agreement with M&I,
current and deferred income taxes are calculated as if Metavante filed
separate Federal and state income tax returns.
Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Impairment
Metavante has certain long-lived assets, such as computer mainframes,
capitalized software and conversion costs, goodwill and other intangibles
arising from acquired businesses. Metavante reviews its long-lived assets and
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
future estimated undiscounted cash flows from the asset are less than the
asset's carrying amount, the asset is considered impaired. The asset-carrying
amount is reduced to its estimated fair value in the period the asset is
determined to be impaired.
M&I EastPoint, acquired in 1996, has reported net losses since the
acquisition date. The net carrying amount of M&I EastPoint's long-lived
assets, including goodwill, was $11,915 and $3,368 at December 31, 1998 and
1999, respectively. During the first quarter of 1999, management determined
that certain of the M&I EastPoint assets were impaired and recorded
accelerated amortization of approximately $6,800 of impaired long-lived assets
(primarily goodwill). The accelerated amortization was recorded due to a
decrease in M&I EastPoint's expected software sales to international
customers. The amount of accelerated amortization was determined by comparing
the net carrying amount of M&I EastPoint's assets to their estimated fair
value. The estimated fair value was calculated using the discounted amount of
the expected cash flows that will be generated by M&I EastPoint's future
operations. Management has assessed this business to determine if any further
impairment exists. While management has concluded that the remaining carrying
amount of the M&I EastPoint assets at December 31, 1999 and June 30, 2000 were
not impaired, management will continue to closely monitor the prospects for
this business.
F-16
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," or
"SFAS 128." The standard requires the disclosure of two net income per share
amounts--"basic net income per share of common stock" and "diluted net income
per share of common stock." The computation of diluted net income per share is
similar to Metavante's previous computation of "net income per share of common
stock."
Basic net income per share of common stock is computed by dividing net
income from operations by the weighted average number of common shares
outstanding during the period. Diluted net income per share of common stock is
computed by dividing the net income from operations by the average number of
common shares and common share equivalents related to the assumed exercise of
stock options and warrants. There were no potentially dilutive common share
equivalents outstanding for the years ending December 31, 1997, 1998 and 1999
or for the six months ending June 30, 1999 or 2000. The number of weighted
average common shares used to calculate net income per share was 87,000,000
shares for all periods presented.
Year 2000 Costs
All costs associated with modifying software for the Year 2000 have been
expensed as incurred. There were no material adverse consequences with respect
to Year 2000. Expenditures, consisting principally of the allocation of
existing information technology personnel and programmers, for the Year 2000
project were approximately $13,467, $14,400 and $10,400 in 1997, 1998 and 1999,
respectively.
Forward Foreign Exchange Policies
Gains and losses on hedges of existing assets or liabilities are included
in the carrying amounts of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments or anticipated transactions
are deferred and are recognized in income or as adjustments of carrying amounts
when the hedged transaction occurs.
New Accounting Pronouncements
Revenue Recognition--In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," or "SAB 101." SAB 101 provides guidance on a variety of
revenue recognition matters and must be adopted no later than the fourth
quarter of 2000. As Metavante's accounting policies are consistent with the
provisions of SAB 101, Metavante does not anticipate any impact on its
financial statements.
Derivatives--In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging
F-17
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Activities," or "SFAS 133." SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument, including derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. Metavante is required
to adopt SFAS 133 effective January 1, 2001. Metavante continues to assess the
impact of this standard, but the impact is not expected to be significant.
Contingencies
On August 27, 1999, Mid Med Bank p.l.c. filed a Writ of Summons seeking
damages against M&I Eastpoint (Metavante's wholly-owned subsidiary) for an
alleged breach of a professional services agreement. Mid Med is seeking
approximately $3,500 in damages. No amount has been accrued within the
financial statements as of June 30, 2000 as management believes the suit is
without merit.
3. Business Combinations and Investments
On December 31, 1998, Metavante acquired substantially all of the assets
of Moneyline Express, Inc., a wholly-owned subsidiary of Travelers Express
Company, Inc. which specializes in electronic bill payment, in a cash
transaction accounted for as a purchase. The total purchase price amounted to
approximately $6,750. Goodwill recorded in this transaction amounted to $5,400
and is being amortized on a straight-line basis over fifteen years.
On April 1, 1999, Metavante completed the acquisition of the assets,
operational processes and client relationships of the Electronic Banking
Services business unit of Automatic Data Processing, Inc. in a cash transaction
using the purchase method of accounting. The total purchase price amounted to
$66,153. Goodwill originally amounted to approximately $52,500. Subsequent to
year-end, finalization of the purchase accounting resulted in goodwill being
reduced by approximately $8,500 for the valuation of other identifiable
intangible assets acquired in the acquisition. The remaining goodwill of
approximately $44,000 is being amortized on a straight-line basis over twenty-
five years.
The results of operations for the acquired companies accounted for as
purchases are included in the Consolidated Financial Statements from the dates
of acquisition. The information below presents, on a pro forma basis,
historical information for Metavante, adjusted for the Electronic Banking
Services transaction, as if the transaction had been consummated on January 1,
1998:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1999
(Unaudited)
<S> <C> <C>
Pro forma Metavante and Electronic Banking Service
Revenues................................................... $505,064 $556,576
Net income................................................. 33,110 37,456
</TABLE>
F-18
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
On August 17, 1999, Metavante invested $6,115 in Customers Forever LLC.
This joint venture investment represented approximately a 47% ownership
interest in Customers Forever and is accounted for under the equity method of
accounting. Equity losses realized during 1999 in relation to Customers Forever
were approximately $2,200 for the period from August 18, 1999 through December
31, 1999. Equity losses realized during the six months ended June 30, 2000 in
relation to Customers Forever were approximately $1,613 (unaudited).
On October 1, 1999, Metavante acquired substantially all of the assets of
Cardpro Services, Inc., a provider of plastic card personalization and
procurement services located in Illinois. The assets were acquired for cash in
a transaction accounted for using the purchase method of accounting. The total
purchase price amounted to approximately $13,100. Initial goodwill, subject to
the completion of appraisals and valuations of the assets acquired and
liabilities assumed, amounted to $10,100 and is being amortized on a straight-
line basis over ten years. Additional payments, contingent upon earnings, may
be made through 2005. The total cumulative maximum payout over the contingency
period is $2,160. Contingency payments, if made, will be charged to goodwill at
the date the contingencies are resolved.
Pro forma results reflecting the acquisitions of Moneyline and Cardpro
have not been disclosed, as the impact of these acquisitions was not material.
4. Related-Party Transactions
Metavante provides data processing and related services to M&I and its
subsidiaries. Charges for these services are at rates similar to those charged
to unaffiliated clients. Data processing service agreements have been executed
with most affiliates. As described in Note 1, in connection with its separation
from M&I, Metavante is expected to enter into new agreements with M&I which
will be effective July 1, 2000.
The majority of Metavante's cash balances are deposited with M&I Marshall
& Ilsley Bank, referred to as "M&I Bank," M&I's largest subsidiary bank.
Certain administrative and general expenses, such as legal, accounting,
and insurance, are incurred by M&I and M&I Bank on behalf of Metavante and are
allocated to Metavante through an intercompany service charge. The method of
allocation varies by type of expense and, where possible, includes all expenses
directly attributable to Metavante. These charges totaled $4,952, $6,695 and
$8,718 for the years ended December 31, 1997, 1998 and 1999, respectively. For
the six months ended June 30, 1999 and 2000, these charges were $3,508 and
$4,941 (unaudited), respectively.
At December 31, 1998 and 1999, Metavante and its subsidiaries had $70,000
of lines of credit available from M&I which are due on demand. Interest on the
outstanding borrowings is payable quarterly at a rate equal to M&I's average
commercial paper rate plus .25%, which figure was 6.24% at December 31, 1999.
At December 31, 1998 and 1999, respectively, the outstanding portion of the
F-19
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
lines of credit were $26,243 and $17,646. Metavante pays a commitment fee of
approximately 1/16th of 1 percent on the available line of credit. Interest
expense on all affiliated borrowings for the years ended December 31, 1997,
1998 and 1999 totaled $1,656, $1,276 and $3,877, respectively. At December 31,
1999, Metavante had an unsecured note of $67,000 with M&I. This note requires
the principal to be paid on April 1, 2004 and interest is to be paid monthly at
6.24% per annum to maturity. The outstanding portion of the lines of credit was
$20,241 (unaudited) as of June 30, 2000. For the six months ended June 30, 1999
and 2000, interest expense was $1,491 and $2,813 (unaudited), respectively.
Metavante provides professional services to Customers Forever in relation
to Customer's Forever customer relationship management software solution.
Unaffiliated revenues from such services amounted to $6,700 during 1999. All
intercompany profit relating to Metavante's ownership share of Customers
Forever has been appropriately eliminated. For the six months ended June 30,
2000, unaffiliated revenues were $3,023 (unaudited).
Directors of M&I who are also directors of M&I's subsidiaries, such as
Metavante, receive compensation from such subsidiaries in varying amounts based
on the director compensation schedule of such subsidiaries. Directors of
subsidiaries of M&I may also elect to defer compensation under M&I's deferred
compensation plan for directors into one of two accounts as selected by the
director.
5. Deferred Contribution Plans
Metavante has a defined contribution retirement plan and an incentive
savings plan sponsored by M&I for substantially all employees. The retirement
plan provides for a guaranteed contribution to eligible participants equal to
2% of compensation. At the option of M&I, a profit sharing amount may also be
contributed and may vary from year to year up to a maximum of 6% of eligible
compensation. Under the incentive savings plan, employee contributions up to 6%
of eligible compensation are matched up to 50% by Metavante based on the
financial performance standards achieved by M&I and subsidiaries during that
year as defined by the plan. Total expense relating to these plans was $9,853,
$12,965 and $15,665 in 1997, 1998 and 1999, respectively. Total expense
relating to these plans was $7,867 and $9,306 (unaudited) for the six months
ended June 30, 1999 and 2000, respectively.
6. Post-Retirement Plans
Metavante is a member of M&I's defined benefit health plan that provides
health care benefits to eligible current and retired employees. In connection
with the planned separation from M&I, Metavante has assumed all post-retirement
obligations relating to its employees. Eligibility for retiree benefits is
dependent upon age, years of service and participation in the health plan
during active service. The plan is contributory and in 1997 the plan was
amended. Employees hired or retained from mergers after September 1, 1997 will
be granted access to the plan upon retirement; however,
F-20
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
such retirees must pay 100% of the cost of health care benefits. The plan
continues to contain other cost-sharing features such as deductibles and co-
insurance. The plan is not funded. The net periodic post-retirement benefit
expense was $1,290, $1,776 and $1,740, representing Metavante's allocated
portion of the combined post-retirement expense of $5,863, $7,016 and $6,268
for 1997, 1998 and 1999, respectively. The net periodic post-retirement benefit
expense was $716 and $601 (unaudited) for the six months ended June 30, 1999
and 2000, respectively.
The changes during the year of the accumulated post-retirement benefit
obligation for retiree health benefits from M&I allocated to Metavante are as
follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accumulated post-retirement benefit obligation, beginning
of year............................................... $ 7,947 $ 8,663
Service cost............................................. 1,263 1,223
Interest cost on accumulated post-retirement benefit
obligation............................................ 593 602
Actuarial gains.......................................... (1,048) (1,415)
Benefits paid............................................ (92) (113)
------- -------
Accumulated post-retirement benefit obligation end of
year.................................................. 8,663 8,960
Unrecognized net gain.................................... 1,139 2,486
Unrecognized prior service cost.......................... 767 689
------- -------
Accrued post-retirement benefit cost..................... $10,569 $12,135
======= =======
Weighted average discount rate used in determining
accumulated post-retirement benefit obligation.......... 7.00% 7.75%
======= =======
</TABLE>
The assumed health care cost trend for 2000 was 6.50%. The rate was
assumed to decrease gradually to 5.00% in 2006 and remain at that level
thereafter.
Net periodic post-retirement benefit cost for Metavante for the years
ended December 31, 1997, 1998 and 1999 includes the following components:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------
1997 1998 1999
<S> <C> <C> <C>
Service cost....................................... $ 833 $1,263 $1,223
Interest on accumulated post-retirement benefit
obligation...................................... 483 593 602
Net amortization and deferral...................... (26) (80) (85)
------ ------ ------
$1,290 $1,776 $1,740
====== ====== ======
</TABLE>
The post-retirement benefit obligation and annual expense is allocated to
Metavante based upon the average claim experience for the combined health plan
and the demographics of Metavante's employees and retirees.
F-21
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
The assumed health care cost trend rate has a significant effect on the
amounts reported for the health care plans. A one percentage point change on
assumed health care cost trend rates would have the following effects on the
amounts allocated to Metavante:
<TABLE>
<CAPTION>
One One
Percentage Percentage
Point Point
Increase Decrease
<S> <C> <C>
Effect on total of service and interest cost
components....................................... $ 397 $ (323)
Effect on post-retirement benefit obligation........ 1,404 (1,477)
</TABLE>
7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
As of As of
December 31, June 30,
--------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Note payable to M&I
Due 2004 with rate at 6.24%, unsecured........ $ -- $67,000 $67,000
Capitalized leases
Due between 2000 and 2002, with varying rates
of 5.31% to 8.25%, secured by specific
equipment.................................... 12,137 9,317 8,075
Notes payable
Due between 2000 and 2003, with rate of 4%,
secured by Advanced Technology Park Facility
Building..................................... 578 518 487
------ ------- -------
Total debt..................................... 12,715 76,835 75,562
Less--current maturities....................... (6,198) (4,319) (4,338)
------ ------- -------
Total long-term debt........................... $6,517 $72,516 $71,224
====== ======= =======
</TABLE>
Scheduled maturities of debt are as follows:
<TABLE>
<CAPTION>
As of
December 31,
------------
1999
<S> <C>
2000......................................................... $ 4,319
2001......................................................... 3,473
2002......................................................... 2,020
2003......................................................... 23
2004......................................................... 67,000
Thereafter................................................... --
-------
$76,835
=======
</TABLE>
F-22
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
No significant changes in maturities of debts occurred from December 31,
1999 to June 30, 2000.
8. Allocated Income Taxes
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Six Months
Years Ended December Ended
31, June 30,
------------------------ -----------
1997 1998 1999 2000
(Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal.............................. $20,524 $16,838 $25,441 $13,310
State................................ 2,389 2,857 3,399 1,833
Deferred.............................. (3,867) 3,341 451 --
------- ------- ------- -------
Total allocated provision for income
taxes................................ $19,046 $23,036 $29,291 $15,143
======= ======= ======= =======
</TABLE>
A reconciliation of the difference between the statutory Federal tax rate
and Metavante's effective tax rate follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
<S> <C> <C> <C>
Statutory Federal rate..................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit................. 5.1 5.1 5.1
Unbenefited state losses................................... 0.6 0.9 3.3
Other...................................................... 0.2 0.4 0.8
---- ---- ----
Effective rate............................................. 40.9% 41.4% 44.2%
==== ==== ====
</TABLE>
F-23
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant
elements of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
As of
December 31,
----------------
1998 1999
<S> <C> <C>
Deferred tax assets
Post-retirement benefits.................................. $ 4,495 $ 5,156
Maintenance and license revenues.......................... 2,434 2,058
Accrued expenses.......................................... 3,001 3,238
------- -------
Total deferred tax assets................................ $ 9,930 $10,452
======= =======
Deferred tax liabilities
Capitalized software and conversion costs................. $20,781 $24,432
Depreciation.............................................. 4,074 3,966
Purchased software........................................ 1,843 2,511
Goodwill.................................................. -- (4,529)
Purchased servicing contracts............................. (3,387) (2,143)
Other..................................................... (1,074) (1,027)
------- -------
Total deferred tax liabilities........................... $22,237 $23,210
======= =======
</TABLE>
9. Lease Commitments
Metavante leases a number of its facilities and equipment. Certain non-
cancelable leases are classified as capital leases, and the leased assets are
included as part of "Premises and Equipment." Other leases are classified as
operating leases and are not capitalized. Details of the capitalized leased
assets are as follows:
<TABLE>
<CAPTION>
As of
December 31,
---------------
1998 1999
<S> <C> <C>
Central processing units.................................... $14,959 $14,256
Disk storage equipment...................................... 2,527 805
Other....................................................... 371 641
------- -------
Total...................................................... 17,857 15,702
Less--accumulated depreciation.............................. 5,720 6,385
------- -------
Net capitalized leased assets.............................. $12,137 $ 9,317
======= =======
</TABLE>
F-24
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
The future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
As of
December 31,
------------
Year 1999
<S> <C>
2000............................................................ $ 9,254
2001............................................................ 7,637
2002............................................................ 5,144
2003............................................................ 3,723
2004............................................................ 2,562
Thereafter...................................................... --
-------
Total.......................................................... $28,320
=======
</TABLE>
Rental expenses charged to operations on operating leases were $5,878,
$8,532 and $13,002 in 1997, 1998 and 1999, respectively. For the six months
ended June 30, 1999 and 2000, rental expense was $6,048 and $7,779 (unaudited),
respectively.
No significant changes in future minimum lease payments occurred from
December 31, 1999 to June 30, 2000.
10. Stock-Based Compensation
Employees of Metavante participate in the executive stock option and
restricted stock plans of M&I, which provide for the grant of nonqualified and
incentive stock options and rights to purchase restricted shares to key
employees and directors. The prices at which options can be granted are the
fair market values of the stock on the date of grant.
The nonqualified and incentive stock option plans generally provide for
the grant of options to purchase shares of M&I's common stock for a period of
ten years from the date of grant. Options granted generally become exercisable
over a period of two or three years from the date of grant; however, options
granted to directors of M&I vest immediately, and options granted after 1996
provide accelerated or immediate vesting for grants to individuals who meet age
and years of service criteria at the date of grant.
F-25
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
The following table provides information relating to nonqualified and
incentive M&I stock options held by Metavante's employees:
<TABLE>
<CAPTION>
Weighted
Average
Number of Option Price Exercise
Shares Per Share Price
<S> <C> <C> <C>
Shares under option at December 31, 1996...... 690,405 $ 8.54-31.88 $23.64
Options granted.............................. 297,750 57.00-57.00 57.00
Options lapsed or surrendered................ (10,750) 19.25-31.88 29.83
Options exercised............................ (66,180) 8.54-31.88 18.66
--------- ------------ ------
Shares under option at December 31, 1997...... 911,225 $ 9.42-57.00 $34.83
Options granted.............................. 267,500 51.81-53.72 51.87
Options lapsed or surrendered................ (19,625) 26.19-57.00 49.04
Options exercised............................ (80,212) 9.42-31.88 21.33
--------- ------------ ------
Shares under option at December 31, 1998...... 1,078,888 $10.92-57.00 $39.80
Options granted.............................. 316,500 59.06-61.50 61.44
Options lapsed or surrendered................ (12,750) 51.81-57.00 53.85
Options exercised............................ (119,537) 10.92-57.00 23.17
--------- ------------ ------
Shares under option at December 31, 1999...... 1,263,101 $13.38-61.50 $46.65
========= ============ ======
</TABLE>
The range of M&I options held by Metavante employees at December 31, 1999
was:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Average Remaining
Number of M&I Shares Exercise Price Contractual
M&I Price Range ----------------------- ----------------------- Life (In
--------------- Outstanding Exercisable Outstanding Exercisable Years)
<S> <C> <C> <C> <C> <C>
$10-20............. 134,975 134,975 $18.52 $18.52 3.8
$20-30............. 139,900 139,900 24.78 24.78 5.2
$30-50............. 137,163 137,163 31.88 31.88 7.0
$50-55............. 259,125 131,500 51.87 51.90 8.9
$55-60............. 279,438 174,438 57.04 57.00 8.0
Over $60........... 312,500 10,000 61.46 60.58 10.0
--------- ------- ------ ------ ----
1,263,101 727,976 $46.65 $38.07 7.8
========= ======= ====== ====== ====
</TABLE>
M&I options held by Metavante employees which were exercisable at December
31, 1997 and 1998 were 526,975 and 621,638, respectively. The weighted-average
exercise price for options exercisable at December 31, 1997 and 1998 was $22.83
and $29.35, respectively.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," or "SFAS 123," establishes financial accounting and
reporting standards for stock-based employee compensation plans.
SFAS 123 defines a fair-value-based method of accounting for employee
stock options or similar equity instruments. Under the fair-value-based method,
compensation cost is measured at the
F-26
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
grant date based on the fair value of the award using an option-pricing model
that takes into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying stock,
expected dividends and the risk-free interest rate over the expected life of
the option. The resulting compensation cost is recognized over the service
period, which is usually the vesting period.
Compensation cost can also be measured and accounted for using the
intrinsic-value-based method of accounting prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," or "APB 25."
Under the intrinsic-value-based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other measurement
date over the amount paid to acquire the stock.
The largest difference between SFAS 123 and APB 25 is the amount of
compensation cost attributable to M&I stock options awarded to Metavante
employees. Under APB 25, no compensation cost is recognized for fixed stock
option plans because the exercise price is equal to the quoted market price at
the date of grant; therefore, there is no intrinsic value. SFAS 123
compensation cost would equal the calculated fair value of the options granted.
As permitted by SFAS 123, M&I and, thus, its divisions and subsidiaries,
continue to measure compensation cost for such plans using the accounting
method prescribed by APB 25.
Had compensation cost for Metavante employee options granted after January
1, 1995 been determined consistent with SFAS 123, Metavante's net income would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1997 1998 1999
<S> <C> <C> <C>
Net income
As reported......................................... $27,471 $32,605 $36,907
Pro forma........................................... 25,884 29,450 33,324
</TABLE>
The fair value of each M&I option grant was estimated as of the date of
grant using the Black-Scholes option pricing model. The resulting compensation
cost was amortized over the vesting period.
F-27
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
The grant date fair values and assumptions used to determine such value
are as follows:
<TABLE>
<CAPTION>
Options Granted During 1997 1998 1999
<S> <C> <C> <C>
Weighted-average grant
date fair value....... $ 14.80 $ 13.31 $ 19.54
Assumptions--
Risk-free interest
rates................ 5.75-6.81% 4.53-5.88% 4.75-6.45%
Expected volatility..... 17.03-18.47% 18.38-22.01% 22.00-24.62%
Expected term (in
years)............... 6.0 6.0 6.0
Expected dividend
yield................ 1.42% 1.69% 1.56%
</TABLE>
11. Financial Instruments and Risk Management
Metavante has a limited number of international clients with contracts
priced in foreign currencies, giving rise to exposure to market risks from
foreign exchange rates. Forward foreign exchange contracts are utilized by
Metavante to reduce those risks. Metavante does not hold or issue financial
instruments for trading purposes. Metavante is exposed to credit-related
losses in the event of non-performance by counterparties to financial
instruments, but it does not expect any counterparties to fail to meet their
obligations, given their high credit ratings. The credit exposure of foreign
exchange contracts is represented by the fair value of contracts, with a
positive fair value at the reporting date.
Metavante enters into forward foreign exchange contracts to hedge certain
firm purchase and sale commitments denominated in foreign currencies
consisting principally of the French Franc, British Pound, Swiss Franc and
Malaysian Ringgit. The term of the currency derivatives is rarely more than 1
1/2 months. The purpose of Metavante's foreign currency hedging activities is
to protect Metavante from the risk that the eventual dollar net cash inflows
resulting from the sale of products or services denominated in foreign
currencies will be adversely affected by changes in exchange rates.
As of December 31, 1999, Metavante had outstanding commitments to sell
145 U.S. dollar equivalent British Pounds.
Deferred gains and losses, both realized and unrealized based on dealer-
quoted prices from hedging, are and will be recognized within one year. These
deferred gains and losses are included on a net basis in the consolidated
balance sheets as either other assets or other liabilities. They are
recognized as part of the purchase or sale transaction when it occurs, or as
other gains or losses when a hedged transaction is no longer expected to
occur.
F-28
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
12. Fair Value of Financial Instruments
The book values and estimated fair values for on- and off-balance sheet
financial instruments as of December 31, 1998 and 1999 are reflected below:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
Book Value Fair Value Book Value Fair Value
<S> <C> <C> <C> <C>
Financial instruments
Financial assets--
Cash and cash equivalents.......... $7,453 $7,453 $27,446 $27,446
Financial liabilities--
Long-term note..................... -- -- 67,000 64,081
Other long-term borrowings......... 578 587 518 504
Capital lease obligations.......... 12,137 12,054 9,317 8,922
</TABLE>
Where readily available, quoted market prices were utilized. If quoted
market prices were not available, fair values were based on estimates using
present value or other valuation techniques. These techniques were
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. The calculated fair value estimates, therefore,
cannot be substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," excludes certain financial instruments and all
non-financial assets and liabilities from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of Metavante.
The following methods and assumptions were used in estimating the fair
value for financial instruments.
Cash and Cash Equivalents and Accounts Receivable
The carrying amounts reported for cash and cash equivalents and accounts
receivable approximate the fair values for those assets.
Borrowings
Other long-term debt was valued using a discounted cash flow analysis with
a discount rate based on current incremental borrowing rates for similar types
of arrangements. Long-term borrowings include their related current maturities.
Short-term borrowings approximate the fair values for those liabilities.
F-29
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Forward Foreign Exchange Contracts
The fair value of Metavante's forward exchange contracts approximate their
carrying value in the financial statements as of December 31, 1998 and 1999.
13. Segments
Metavante organizes its business segments, which principally consist of
eFinance solutions and financial technology solutions, based on a product
focus. Each segment offers products and services to meet the needs of its
clients and the particular market served. Certain products are combined for
purposes of assessing financial performance. Each segment is separately managed
subject to adherence to company policies and discrete financial information is
reviewed by senior management to assess performance on a monthly basis.
Metavante is not dependent on any unaffiliated client or group of clients, the
loss of which would have a material impact on Metavante. As previously
discussed, M&I represents a significant portion of revenues for Metavante.
eFinance Solutions
The eFinance solutions segment is comprised of electronic bill payment and
presentment, business and consumer online banking and online mortgage services.
The electronic bill payment and presentment products enable financial
institutions and Internet customers to pay bills using a variety of devices,
including personal computers. Online business banking consists of a set of
modular banking and cash management solutions designed to meet the needs of
small, mid-sized and large businesses. Online consumer banking aggregates
financial account information, including checking account information, loan
balances and credit card information, into one comprehensive product offering
that can also include personalized information. Metavante's Internet-based,
end-to-end mortgage transaction service is dedicated to helping large
residential mortgage services providers retain and enhance relationships with
their existing customers while lowering the cost of servicing those customers.
Financial Technology Solutions
The financial technology solutions segment is comprised of financial
account processing, customer relationship management solutions, private label
banking, trust and investment solutions, electronic funds transfer and card
solutions. Financial account processing products provide integrated deposit
account and processing services, loan servicing and transaction posting and
financial reporting capabilities to banks, Internet banks and other financial
services providers on Metavante's service bureau platform. Customer
relationship management products are designed to meet the needs of financial
services providers through enhanced management of client relationships. Private
label banking products and services represent a complete, end-to-end
outsourcing solution for non-traditional financial services providers. Trust
and investment solutions' products provide Internet-
F-30
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
enabled outsourcing capabilities to traditional trust companies and registered
investment advisers. Electronic funds transfer products and services link all
major electronic funds transfer networks, gateways and processors to authorize
automated teller machine and debit card transactions and provide automated
teller machine management and monitoring solutions for financial services
providers. Card solutions products provide card processing services to banks,
credit unions and also non-financial companies.
Other is comprised of CSF software, Automated Clearing House processing
solutions, treasury management services and professional consulting services
for Customers Forever.
Segment revenues represent sales to unaffiliated and affiliated (M&I)
clients. Metavante evaluates the profit or loss performance of its segments
based on income from operations. Income from operations is revenues less cost
of revenues. Assets, depreciation, interest expense and interest income are
evaluated by management on a consolidated basis and not identified separately
by segment.
Based on Metavante's organization of its segments and the requirements of
Statement of Financial Accounting Standards No. 131, the following outlines
reportable segment disclosures:
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
---------------------------- ------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
eFinance solutions............ $ 5,233 $ 7,860 $ 51,670 $ 18,821 $ 35,902
Financial technology
solutions.................. 347,131 425,018 443,980 216,000 227,888
Other......................... 29,398 38,681 50,734 21,586 25,180
-------- -------- -------- -------- --------
Total........................ $381,762 $471,559 $546,384 $256,407 $288,970
======== ======== ======== ======== ========
Income (loss) from operations:
eFinance solutions............ $ (3,098) $ (4,191) $ 430 $ (568) $ 410
Financial technology
solutions.................. 39,069 46,698 54,529 25,337 32,649
Other......................... 13,395 15,899 18,071 7,568 6,695
-------- -------- -------- -------- --------
Total........................ $ 49,366 $ 58,406 $ 73,030 $ 32,337 $ 39,754
======== ======== ======== ======== ========
</TABLE>
14. Subsequent Events
Metavante intends to enter into an outsourcing agreement with M&I pursuant
to which Metavante will provide technology services to M&I in support of
deposit and loan accounts, general ledger, bank card, electronic funds
delivery, trust, online banking and other products and day-to-day activities.
Management estimates that Metavante would have reported lower revenues in its
historical financial statements had this agreement been in place during the
periods presented.
F-31
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(In thousands, except share and per share data)
Metavante has adopted a stock incentive plan. Options issued under the
plan will be used, in part, to satisfy elections under the tandem option
program discussed below. In addition, 2,650,000 new options have been granted,
effective as of the closing date of Metavante's initial public offering at an
exercise price equal to the public offering price.
In connection with the proposed distribution by M&I of its entire interest
in Metavante, it is anticipated that holders of M&I options granted prior to
August 1, 2000 who are employees or directors of Metavante on the distribution
date will be given an election regarding their M&I options. They will have the
choice of having their M&I options adjusted so that they retain options solely
over Metavante stock after the distribution or, alternatively, they will have
the choice of receiving tandem options which are options to purchase shares of
both M&I and Metavante. No charge to expense is anticipated in the Metavante
financial statements as a result of these changes to the M&I stock options.
Lastly, on September 5, 2000, Metavante approved a 1,740,000 for 1 stock
split in the form of a stock dividend. All share and per share amounts have
been restated to reflect this split.
15. Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
1998
--------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenues.......................... $109,313 $114,480 $116,098 $131,668 $471,559
Cost of revenues.................. 95,146 102,685 100,623 114,699 413,153
-------- -------- -------- -------- --------
Income from operations............ $ 14,167 $ 11,795 $ 15,475 $ 16,969 $ 58,406
======== ======== ======== ======== ========
Income before taxes............... 13,589 11,178 14,772 16,102 55,641
Income taxes...................... 5,742 4,577 6,233 6,484 23,036
-------- -------- -------- -------- --------
Net income........................ $ 7,847 $ 6,601 $ 8,539 $ 9,618 $ 32,605
======== ======== ======== ======== ========
<CAPTION>
1999
--------------------------------------------
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenues.......................... $126,150 $130,257 $143,033 $146,944 $546,384
Cost of revenues.................. 110,311 113,759 120,627 128,657 473,354
-------- -------- -------- -------- --------
Income from operations............ $ 15,839 $ 16,498 $ 22,406 $ 18,287 $ 73,030
======== ======== ======== ======== ========
Income before taxes............... 15,286 15,118 19,306 16,488 66,198
Income taxes...................... 6,864 7,138 7,466 7,823 29,291
-------- -------- -------- -------- --------
Net income........................ $ 8,422 $ 7,980 $ 11,840 $ 8,665 $ 36,907
======== ======== ======== ======== ========
</TABLE>
F-32
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
, 2000
16,500,000 Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
Salomon Smith Barney
UBS Warburg LLC
Robert W. Baird & Co.
DLJdirect Inc.
-------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations 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 Metavante
have not changed since the date hereof.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock 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 and 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 is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the issuance and
distribution of the common stock being registered hereunder, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 65,123
Nasdaq National Market listing fee............................ 95,000
NASD filing fee............................................... 25,168
Blue sky fees and expenses (including fees of counsel)........ 5,000
Accounting fees and expenses.................................. 1,000,000
Legal fees and expenses....................................... 1,500,000
Printing and engraving expenses............................... 300,000
Transfer agent and registrar fees............................. 2,500
Miscellaneous................................................. 7,209
----------
Total....................................................... $3,000,000
==========
</TABLE>
All amounts except the SEC registration fee, Nasdaq National Market
listing fee and NASD filing fee are estimated.
Item 14. Indemnification of Directors and Officers
Section 180.0851 of the Wisconsin Business Corporation Law (the "WBCL")
requires the Registrant to indemnify a director or officer, to the extent such
person is successful on the merits or otherwise in the defense of a proceeding
for all reasonable expenses incurred in the proceeding, if such person was a
party to such proceeding because he or she was a director or officer of the
Registrant unless it is determined that he or she breached or failed to perform
a duty owed to the Registrant and such breach or failure to perform
constitutes: (i) a willful failure to deal fairly with the Registrant or its
shareholders in connection with a matter in which the director or officer has a
material conflict of interest, (ii) a violation of criminal law, unless the
director or officer had reasonable cause to believe his or her conduct was
unlawful, (iii) a transaction from which the director or officer derived an
improper personal profit or (iv) willful misconduct.
Section 180.0858 of the WBCL provides that subject to certain limitations,
the mandatory indemnification provisions do not preclude any additional right
to indemnification or allowance of expenses that a director or officer may have
under the articles of incorporation or bylaws of the Registrant, a written
agreement between the director or officer and the Registrant or a resolution of
the Board of Directors or the shareholders.
Unless otherwise provided in the Registrant's articles of incorporation or
bylaws, or by written agreement between the director or officer and the
Registrant, an officer or director seeking
II-1
<PAGE>
indemnification is entitled to indemnification if approved in any of the
following manners as specified in Section 180.0855 of the WBCL: (i) by majority
vote of a disinterested quorum of the Board of Directors, (ii) by independent
legal counsel chosen by a quorum of disinterested directors or its committee,
(iii) by a panel of three arbitrators (one of which is chosen by a quorum of
disinterested directors), (iv) by the vote of the shareholders, (v) by a court
or (vi) by any other method permitted in Section 180.0858 of the WBCL.
Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by the Registrant, pursuant to Section 180.0853 of
the WBCL, at such time as the director or officer furnishes to the corporation
written affirmation of his good faith that he has not breached or failed to
perform his duties; and written confirmation to repay any amounts advanced if
it is determined that indemnification by the Registrant is not required.
Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of expenses
and insurance to the extent required or permitted under Sections 180.0850 to
180.0858 of the WBCL for any liability incurred in connection with a proceeding
involving a federal or state statute, rule or regulation regulating the offer,
sale or purchase of securities.
As permitted by Section 180.0858, the Registrant has adopted
indemnification provisions in its Bylaws which closely track the statutory
indemnification provisions with certain exceptions. In particular, Section 7.1
of the Registrant's Bylaws, among other items, provides (i) that an individual
shall be indemnified unless it is proven by a final judicial adjudication that
indemnification is prohibited and (ii) payment or reimbursement of expenses,
subject to certain limitations, will be mandatory rather than permissive.
Under Section 180.0828 of the WBCL, a director of the Registrant is not
personally liable for breach of any duty resulting solely from his or her
status as a director, unless it shall be proved that the director's conduct
constituted conduct described in the first paragraph of this item.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for
indemnification of the directors, certain officers and controlling persons of
the Registrant by the underwriters against certain civil liabilities, including
liabilities under the Securities Act. The General Assignment and Assumption
Agreement filed herewith as Exhibit 10.7 provides for indemnification of the
directors, officers, employees and agents of the Registrant and Marshall &
Ilsley Corporation against certain liabilities, including liabilities under the
Securities Act and the Exchange Act.
In addition, the Registrant intends to obtain directors' and officers'
liability insurance that will insure against certain liabilities, including
liabilities under the Securities Act, subject to applicable restrictions.
Item 15. Recent Sales of Unregistered Securities
None.
II-2
<PAGE>
Item 16. Exhibits and Financial Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Restated Articles of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Form of Common Stock Certificate
5.1 Opinion of Godfrey & Kahn, S.C.
10.1 Registrant's 2000 Stock Incentive Plan
10.2 Form of Employment Agreement between the Registrant and Joseph L.
Delgadillo dated as of , 2000
10.3(a) Form of Two Year Change of Control Agreement
10.3(b) Form of Three Year Change of Control Agreement
10.4 Form of Administrative Services Agreement between the Registrant
and Marshall & Ilsley Corporation dated as of July 1, 2000
10.5 Reorganization Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of July 13, 2000
10.6 Form of Registration Rights Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000
10.7 General Assignment and Assumption Agreement between the Registrant
and Marshall & Ilsley Corporation dated as of July 1, 2000
10.8 Form of Tax Sharing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of July 1, 2000
10.9 Form of Employee Matters Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 13, 2000
10.10 Form of Lease Agreement between the Registrant and M&I Support
Services, Inc. dated as of , 2000
10.11 Form of Outsourcing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of July 1, 2000
10.12 Form of Professional Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.13 Form of Banking Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.14 License Agreement between Marshall & Ilsley Corporation and A2D,
L.P. dated as of May 9, 2000 (assigned to the Registrant)(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
10.15(a) Lease Agreement between M&I Data Services, Inc. and Ameritech
dated as of March 25, 1994 (assigned to the Registrant)
10.15(b) Amendment No. One to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and Wisconsin Bell,
Inc., d/b/a Ameritech Wisconsin, dated as of September 14, 1998
(assigned to the Registrant)
10.16(a) Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and The Brewery Works, Inc. dated as of
March 9, 2000 (assigned to the Registrant)
10.16(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and The Brewery Works,
Inc. dated as of March 28, 2000 (assigned to the Registrant)
10.16(c) Second Amendment to Lease Agreement between the Registrant and The
Brewery Works, Inc. dated as of August 31, 2000
10.17(a) Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and Avis Centre Twelve, L.L.C. dated as of
March 13, 2000 (assigned to the Registrant)
10.17(b) Rider to Lease Agreement between M&I Data Services, a division of
Marshall & Ilsley Corporation, and Avis Centre Twelve, L.L.C.
dated as of March 13, 2000 (assigned to the Registrant)
10.18 Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and Highwoods Realty Limited Partnership,
d/b/a Highwoods Properties, dated as of October 14, 1999
(assigned to the Registrant)
10.19(a) Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and TIAA Realty, Inc. dated as of February
15, 1999 (assigned to the Registrant)
10.19(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and TIAA Realty, Inc.
dated as of June 14, 2000 (assigned to the Registrant)
10.20(a) Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and Teachers Insurance and Annuity
Association of America dated as of July 1, 1995 (assigned to the
Registrant)
10.20(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and TIAA Realty, Inc.
(successor in interest to Teachers Insurance and Annuity
Association of America) dated as of June 30, 1999 (assigned to
the Registrant)
10.21(a) Lease Agreement between M&I Data Services, a division of Marshall
& Ilsley Corporation, and Teachers Insurance and Annuity
Association of America dated as of February 4, 2000 (assigned to
the Registrant)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
10.21(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and Teachers Insurance
and Annuity Association of America dated as of July 24, 2000
(assigned to the Registrant)
10.22 Form of Branch Automation Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.23 Form of Independent Sales Organization and Services Agreement
between the Registrant and Marshall & Ilsley Corporation dated as
of , 2000
10.24 Agreement between Moneyline Express, Inc. and Digital Insight LLC
dated as of February 27, 1997 (assigned to the Registrant)
10.25(a) Master Bill Payment Services Agreement between the Registrant and
Spectrum EBP, L.L.C. dated August 18, 2000
10.25(b) Founding Member Agreement between the Registrant and Wells Fargo
Bank, N.A. dated August 18, 2000
10.25(c) Founding Member Agreement between the Registrant and The Chase
Manhattan Bank dated August 18, 2000
10.25(d) Founding Member Agreement between the Registrant and First Union
National Bank dated August 18, 2000
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Godfrey & Kahn, S.C. (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)(1)
27.1 Financial Data Schedule
99.1 Consent of Dennis J. Kuester pursuant to Rule 438 of the
Securities Act(1)
99.2 Consent of James B. Wigdale pursuant to Rule 438 of the Securities
Act(1)
</TABLE>
---------------------
(1) Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because the required information is not present
or is not present in amounts sufficient to require submission of a schedule or
because the information required is included in the financial statements of the
Registrant or the notes thereto or the schedules are not required or
inapplicable under the related instructions.
Item 17. Undertakings
(a) 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.
II-5
<PAGE>
(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 that time shall be
deemed to be the initial bona fide offering thereof.
(b) 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment No. 1 to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Milwaukee, State of Wisconsin, on September 8, 2000.
Metavante Corporation
/s/ Joseph L. Delgadillo
By: _________________________________
Joseph L. Delgadillo,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Joseph L. Delgadillo President and Chief Executive September 8, 2000
____________________________________ Officer (Principal Executive Officer)
Joseph L. Delgadillo and Director
/s/ Peter J. Tallian Chief Financial Officer and Executive September 8, 2000
____________________________________ Vice President, Finance and
Peter J. Tallian Administration Group (Principal
Accounting Officer)
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Restated Articles of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Form of Common Stock Certificate
5.1 Opinion of Godfrey & Kahn, S.C.
10.1 Registrant's 2000 Stock Incentive Plan
10.2 Form of Employment Agreement between the Registrant and Joseph L.
Delgadillo dated as of , 2000
10.3(a) Form of Two Year Change of Control Agreement
10.3(b) Form of Three Year Change of Control Agreement
10.4 Form of Administrative Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.5 Reorganization Agreement between the Registrant and Marshall & Ilsley
Corporation dated as of July 13, 2000
10.6 Form of Registration Rights Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000
10.7 General Assignment and Assumption Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.8 Form of Tax Sharing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of July 1, 2000
10.9 Form of Employee Matters Agreement between the Registrant and Marshall
& Ilsley Corporation dated as of July 13, 2000
10.10 Form of Lease Agreement between the Registrant and M&I Support
Services, Inc. dated as of , 2000
10.11 Form of Outsourcing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of July 1, 2000
10.12 Form of Professional Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.13 Form of Banking Services Agreement between the Registrant and Marshall
& Ilsley Corporation dated as of July 1, 2000
10.14 License Agreement between Marshall & Ilsley Corporation and A2D, L.P.
dated as of May 9, 2000 (assigned to the Registrant)(1)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
10.15(a) Lease Agreement between M&I Data Services, Inc. and Ameritech dated
as of March 25, 1994 (assigned to the Registrant)
10.15(b) Amendment No. One to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and Wisconsin Bell, Inc.,
d/b/a Ameritech Wisconsin, dated as of September 14, 1998 (assigned
to the Registrant)
10.16(a) Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and The Brewery Works, Inc. dated as of March 9,
2000 (assigned to the Registrant)
10.16(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and The Brewery Works,
Inc. dated as of March 28, 2000 (assigned to the Registrant)
10.16(c) Second Amendment to Lease Agreement between the Registrant and The
Brewery Works, Inc. dated as of August 31, 2000
10.17(a) Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and Avis Centre Twelve, L.L.C. dated as of March
13, 2000 (assigned to the Registrant)
10.17(b) Rider to Lease Agreement between M&I Data Services, a division of
Marshall & Ilsley Corporation, and Avis Centre Twelve, L.L.C. dated
as of March 13, 2000 (assigned to the Registrant)
10.18 Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and Highwoods Realty Limited Partnership, d/b/a
Highwoods Properties, dated as of October 14, 1999 (assigned to the
Registrant)
10.19(a) Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and TIAA Realty, Inc. dated as of February 15,
1999 (assigned to the Registrant)
10.19(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and TIAA Realty, Inc.
dated as of June 14, 2000 (assigned to the Registrant)
10.20(a) Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and Teachers Insurance and Annuity Association
of America dated as of July 1, 1995 (assigned to the Registrant)
10.20(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and TIAA Realty, Inc.
(successor in interest to Teachers Insurance and Annuity Association
of America) dated as of June 30, 1999 (assigned to the Registrant)
10.21(a) Lease Agreement between M&I Data Services, a division of Marshall &
Ilsley Corporation, and Teachers Insurance and Annuity Association
of America dated as of February 4, 2000 (assigned to the Registrant)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
10.21(b) First Amendment to Lease Agreement between M&I Data Services, a
division of Marshall & Ilsley Corporation, and Teachers Insurance
and Annuity Association of America dated as of July 24, 2000
(assigned to the Registrant)
10.22 Form of Branch Automation Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of July 1, 2000
10.23 Form of Independent Sales Organization and Services Agreement between
the Registrant and Marshall & Ilsley Corporation dated as of
, 2000
10.24 Agreement between Moneyline Express, Inc. and Digital Insight LLC
dated as of February 27, 1997 (assigned to the Registrant)
10.25(a) Master Bill Payment Services Agreement between the Registrant and
Spectrum EBP, L.L.C. dated August 18, 2000
10.25(b) Founding Member Agreement between the Registrant and Wells Fargo
Bank, N.A. dated August 18, 2000
10.25(c) Founding Member Agreement between the Registrant and The Chase
Manhattan Bank dated August 18, 2000
10.25(d) Founding Member Agreement between the Registrant and First Union
National Bank dated August 18, 2000
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Godfrey & Kahn, S.C. (contained in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)(1)
27.1 Financial Data Schedule
99.1 Consent of Dennis J. Kuester pursuant to Rule 438 of the Securities
Act(1)
99.2 Consent of James B. Wigdale pursuant to Rule 438 of the Securities
Act(1)
</TABLE>
---------------------
(1)Previously filed.
3
