<PAGE>
As filed with the Securities and Exchange Commission on July 13, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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. Delagdillo
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>
Proposed maximum
Title of each class of aggregate Amount of
securities to be registered offering price(1) registration fee
--------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $.01 par value................. $200,000,000 $52,800
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933. Includes shares subject to sale
pursuant to the underwriters' over-allotment option.
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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--July 13, 2000
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--------------------------------------------------------------------------------
Prospectus
, 2000
[Logo]
Metavante Corporation
Shares of Common Stock
--------------------------------------------------------------------------------
Metavante
Corporation:
. We are a leading . This is our
provider of initial public
integrated offering and no
solutions that public market
enable financial currently exists
services providers for our shares. We
to initiate and anticipate that
process a broad the initial public
range of financial offering price
transactions will be between
electronically, $ and $
including through per share.
the Internet.
. Prior to this
. 4900 West Brown offering, Marshall
Deer Road & Ilsley
Brown Deer, Corporation, our
Wisconsin 53223- parent company,
2459 owned all of our
(414) 357-2290 common stock.
Following this
offering, M&I will
own approximately
%
of our common
stock and will
continue to
control us.
Proposed Symbol &
Market:
. MVNT/Nasdaq
National Market
The Offering:
. We are offering . We will retain
shares of $100 million of
our common stock. the net proceeds
of this offering
after the
repayment of an
intercompany
payable to M&I.
The balance of the
net proceeds, if
any, will be paid
to M&I as a
dividend.
. The underwriters
have an option to
purchase up to an
additional
shares from us to
cover over-
allotments.
. Closing:
,
2000.
--------------------------------------------
<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.
--------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Salomon Smith Barney
UBS Warburg LLC DLJdirect Inc.
<PAGE>
Diagram of product suite and pictures of principal facilities
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. 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
Disclosure Regarding Forward-Looking
Statements....................... 16
Our Separation From Marshall &
Ilsley Corporation............... 17
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Consolidated Financial
Data............................. 22
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............ 23
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business......................... 37
Management....................... 53
Relationship With M&I............ 66
Certain Transactions............. 71
Principal Shareholder............ 71
Description of Capital Stock..... 72
Shares Eligible for Future Sale.. 76
Underwriting..................... 78
Legal Matters.................... 81
Experts.......................... 81
Additional Information........... 81
Index to Consolidated
Financial Statements.......... F-1
</TABLE>
1
<PAGE>
PROSPECTUS SUMMARY
Metavante Corporation ("Metavante"), a wholly-owned subsidiary of Marshall
& Ilsley Corporation ("M&I"), operates certain businesses previously operated
as the M&I Data Services division of M&I. 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.
See "Risk Factors" for a discussion of certain factors you should
consider.
Metavante Corporation
Our Business
We are a leading 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 (ASP), which means that we enable 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 1998 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 19 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, FleetBoston Financial
Corporation, Provident Bank of Maryland, First Midwest Bancorp, Inc., E*Trade
Bank, AAA and USAA.
Our Market Opportunity and Solution
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. In some cases, the cost to upgrade,
replace or supplement existing systems is prohibitive.
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
(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 our suite of
products and services responds to the market need for an outsourced technology
solution by providing the following benefits:
. comprehensive solutions, which are modular, flexible and integrated,
enabling clients to select those products and services which best suit
their needs,
. solutions which allow financial services providers to introduce new
products and services and enhance existing offerings quickly,
. customer relationship management tools to enable financial services
providers to attract and retain customers,
. open architecture which provides financial services providers with the
flexibility to integrate and deploy new products and technologies and
add applications to our platform,
. user-centered design, resulting in products and services that use
technology to innovatively address customer needs, and
. scalable, reliable and secure solutions.
Our suite of products and services allows financial services providers to
implement and enhance technology solutions quickly and economically, enabling
them to compete more effectively in the financial services marketplace.
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 by taking advantage of cross-
selling opportunities,
3
<PAGE>
. add new clients in both existing markets, by offering our solutions to
traditional financial services providers who seek to remain competitive
and to non-traditional companies entering the financial services
industry, and in new markets through international sales,
. continue to leverage the Internet throughout our product line,
. maximize recurring revenues by entering into long-term contracts with
clients, and
. seek 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."
After completion of this offering, M&I will continue to own approximately
% of the outstanding shares of our common stock (or approximately % 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. In 1999, sales to M&I
represented approximately 10.4% of our total revenues.
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
Metavante owned by M&I to the holders of M&I's common stock. 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.
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..... shares
Common Stock outstanding
immediately after this
offering.............. shares
Common Stock held by M&I
immediately after this
offering.............. 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, if
any, will be paid to M&I as a dividend. 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 March 31, 2000, the amount
payable to M&I was $85.4 million.
Proposed Nasdaq National
Market symbol......... MVNT
</TABLE>
The foregoing information is based on 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 shares of common stock that the
underwriters have the option to purchase. If the underwriters exercise in full
their option to purchase additional shares, 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 the
shares of our common stock reserved for issuance under our stock incentive
plan. This number also 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 expect to grant options to purchase 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.
5
<PAGE>
Summary Consolidated Financial Data
The following tables present our summary consolidated financial data. The
data presented in these tables are from "Selected Consolidated Financial Data"
and our historical consolidated financial statements and notes to those
statements included elsewhere in this prospectus. You should read those
sections for a further explanation of the financial data summarized here.
The historical consolidated financial information may not be indicative of
our future performance and does not reflect what our financial position and
results of operations would have been had we been operated as a separate,
stand-alone entity during the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Income
Data:
Total revenues.......... $ 252,565 $ 318,840 $ 381,762 $ 471,559 $ 546,384 $ 126,150 $ 144,776
Income from operations.. 27,990 23,164 49,366 58,406 73,030 15,839 19,227
Income before taxes..... 24,047 19,335 46,517 55,641 66,198 15,286 17,434
Net income.............. 16,168 15,046 27,471 32,605 36,907 8,422 10,036
Operating Data:
No. of electronic
transactions
completed(1)......... -- 3,108,507 4,330,593 5,645,709 6,445,299 1,602,644 1,646,813
</TABLE>
<TABLE>
<CAPTION>
As of
March 31, 2000
------------------
As
Actual Adjusted
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Total assets................................................. $ 535,402
Long-term debt............................................... 71,747
Shareholder's equity......................................... 250,390
</TABLE>
--------------------
(1) Approximations for the periods indicated based on internal processing
records. Information not available prior to 1996.
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 three months ended March 31, 2000, sales to M&I
represented approximately 10.4% and 10.2% 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 arrangements with several
leading home banking providers to resell our electronic bill payment solution
as part of their home banking products. The loss of one or more of these
distributors could have a material adverse effect on our business, operating
results and financial condition in general, and our online financial solutions
segment in particular.
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
7
<PAGE>
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. 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 operational problems or
outages in these connections and/or systems would cause us to be unable to
process transactions 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.
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 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 certain
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
8
<PAGE>
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,
. 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 in part upon our
proprietary technology, but our protective measures may prove inadequate to
protect our contractual and proprietary rights. We rely on a combination of
contractual rights and copyright, trademark and trade secret laws to
9
<PAGE>
establish and protect our proprietary technology. None of our technology is
currently patented. Despite our efforts to protect our intellectual property, a
third party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software or technology
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, to protect our trade secrets or know-how 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 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 Key
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. In particular, the loss of
the services of Joseph L. Delgadillo, our President and Chief Executive
Officer, or any of our other executive officers, could have a material adverse
effect on our business, operating results and financial condition. While we
intend to enter into an employment agreement with Mr. Delgadillo, we do not
have, nor do we intend to enter into, employment agreements with any of our
other executive officers.
Our future success will also depend in large part upon our ability to
attract and retain highly skilled technical, management and sales and marketing
personnel. Because the development of our products and services requires
knowledge of computer hardware, operating system software, system
10
<PAGE>
management software and application software, key 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 or the loss
of one or more key employees could have a material adverse effect on our
business, operating results and financial condition.
Our future growth, if any, will 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 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 the expectations of securities analysts or investors 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 initiation or termination of
significant client contracts.
11
<PAGE>
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 believe that we would
have reported lower revenues 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 % of our outstanding stock (or approximately % 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 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.
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
12
<PAGE>
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,
. 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
independent directors, who are not affiliated with M&I, we will have a Board of
Directors consisting of members. Two of the members of our Board of
Directors also serve on the M&I Board of Directors, and these directors are
also 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 certain 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 , 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.
13
<PAGE>
This agreement will be entered into in the context of a parent-subsidiary
relationship and will be negotiated in the overall context of our separation
from M&I. As a result, this agreement may have terms and conditions that are
less specific or less favorable than some agreements that are negotiated at
arms-length. The prices charged to us under this agreement may be different
from the prices that we may be required to pay third parties for similar
services or the costs of similar services if we undertake them ourselves.
We are Dependent Upon M&I as a Strategic Partner
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 alternative banking partner 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 enabling 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.
Certain 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 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 (the
"Securities Act"). In addition, M&I has announced that it intends to
distribute all of the 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
14
<PAGE>
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 have agreed, subject to
certain exceptions (including 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.
You Will Incur Substantial Dilution in the Book Value of the Shares You
Purchase in This Offering
The proposed initial public offering price of $ is substantially
higher than the book value of $ per share of the common stock at
, 2000. Accordingly, purchasers in this offering will incur immediate
and substantial book value dilution of $ per share.
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 intend to apply 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,
. changes in financial estimates by securities analysts,
. 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.
15
<PAGE>
Anti-Takeover Provisions in Our Organizational Documents and State Law, and
Our Tax Indemnification Obligations to M&I, May Adversely Impact Our Common
Stock
Certain provisions of our Restated Articles of Incorporation, Bylaws and
change of control severance agreements which we intend to enter into with
certain 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, certain "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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain 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 (the
"SEC"). 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. Moreover, we, through senior
management, may from time to time make forward-looking statements about the
matters described herein or other matters concerning Metavante.
16
<PAGE>
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 certain 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.
. 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 intend to enter into certain agreements in
connection with our separation from M&I that will 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
M&I has approved the contribution of certain assets and liabilities to us
effective as of July 1, 2000 pursuant to a general assignment and assumption
agreement. In addition, we will enter into
17
<PAGE>
certain 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 certain tax, insurance and employee benefit services, a
banking services agreement and a tax sharing agreement. Finally, we intend to
enter into an outsourcing agreement and a professional services agreement with
M&I pursuant to which we will provide services to M&I as a client. See
"Relationship With M&I" for more information on these various agreements.
The Distribution by M&I of our Common Stock
After completion of this offering, M&I will own approximately % of the
outstanding shares of our common stock (or approximately % 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. However, M&I is not obligated to complete
the distribution, and we cannot assure you as to whether or when it will occur.
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.
18
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ million (or approximately $ million if the underwriters' over-
allotment option is exercised in full), assuming an initial public offering
price of $ 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 March 31,
2000, was $85.4 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 potential
investments in, or acquisitions of, complementary businesses and
technologies; and
. the balance of the net proceeds, if any, will be paid to M&I as a
dividend.
For a description of the terms of the intercompany payable, please see
Note 4 of the Notes to the Consolidated Financial Statements included elsewhere
in this prospectus.
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.
DIVIDEND POLICY
We currently intend to retain any future earnings to fund the development
and growth of our business. Therefore, other than the dividend, if any, paid to
M&I from the net proceeds of this offering, we do not anticipate paying any
cash dividends in the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 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 $ 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 Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes to those statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of
March 31, 2000
-----------------
As
Actual Adjusted
(In thousands)
<S> <C> <C>
Short-term borrowings payable to M&I......................... $ 18,407 $
======== ======
Long-term debt:
Note payable to M&I........................................ $ 67,000 $
Other long-term borrowings................................. 4,747
-------- ------
Total long-term debt..................................... 71,747
-------- ------
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; shares issued and outstanding,
actual; and shares issued and outstanding, as
adjusted.................................................. --
Additional paid-in capital................................. 74,701
Retained earnings.......................................... 175,689
-------- ------
Shareholder's equity..................................... 250,390
-------- ------
Total capitalization................................... $322,137 $
======== ======
</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 expect to grant options to purchase 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. See "Management--
2000 Stock Incentive Plan" and "Management--Treatment of M&I Options" for more
information on options to be issued under our stock incentive plan.
20
<PAGE>
DILUTION
Our net tangible book value as of March 31, 2000 was approximately $176.6
million, or $ 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 March 31, 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 shares of common stock in this
offering at the assumed initial public offering price of $ per share and
after deducting the underwriting fees and estimated offering expenses payable
by us, our as adjusted net tangible book value at March 31, 2000 would have
been approximately $ , or $ per share of common stock. This
represents an immediate increase in net tangible book value of $ per share
to M&I and an immediate dilution of $ 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.................. $
Net tangible book value per share as of March 31, 2000........... $
Increase per share attributable to new investors.................
As adjusted net tangible book value per share after this
offering......................................................
-----
Dilution per share to new investors.............................. $
=====
</TABLE>
The following table summarizes, as of March 31, 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 $ per share, before deducting
the underwriting fees and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares of
Common Stock Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C> <C>
M&I............................ % $ % $
New investors..................
----- ---- ---- ---
Total...................... 100% $ 100%
===== ==== ==== ===
</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 expect to
grant options to purchase 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. See "Management--2000 Stock
Incentive Plan" and "Management--Treatment of M&I Options" for more information
on options to be issued under our stock incentive plan.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical consolidated financial
data for Metavante as of and for each of the five years ended December 31,
1999. Also presented are certain historical consolidated financial data for
Metavante as of and for the three months ended March 31, 1999 and 2000
(unaudited), included elsewhere in this prospectus. The historical consolidated
financial data as of 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 financial data presented below were derived from
our unaudited consolidated accounting records not included in this prospectus.
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 the results of
operations for any future period. The financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
---------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
(In thousands, except per share data)
<S> <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 $ 87,062 $108,055
Professional services
fees................. 27,219 49,238 63,530 73,170 76,432 18,238 19,357
Software revenues...... 24,607 25,349 28,357 37,628 35,657 8,400 9,547
Other revenues......... 22,664 26,094 37,871 55,462 42,385 12,450 7,817
-------- --------- --------- --------- --------- --------- ---------
Total revenues........ 252,565 318,840 381,762 471,559 546,384 126,150 144,776
Cost of revenues:
Salaries, commissions
and other payroll-
related costs........ -- -- 150,446 187,296 213,449 45,643 59,120
Data processing
expenses............. -- -- 92,083 116,646 132,939 31,115 36,076
Other operating costs.. -- -- 38,336 51,235 58,476 12,637 15,365
Depreciation of
premises &
equipment............ -- -- 31,795 35,510 30,327 7,683 7,039
Amortization of
intangibles and
computer software.... -- -- 19,736 22,466 38,163 13,233 7,949
-------- --------- --------- --------- --------- --------- ---------
Total cost of
revenues............ 224,575 295,676 332,396 413,153 473,354 110,311 125,549
-------- --------- --------- --------- --------- --------- ---------
Income from operations.. 27,990 23,164 49,366 58,406 73,030 15,839 19,227
Net other income
(expense)............. (3,943) (3,829) (2,849) (2,765) (6,832) (553) (1,793)
-------- --------- --------- --------- --------- --------- ---------
Income before taxes..... 24,047 19,335 46,517 55,641 66,198 15,286 17,434
Allocated tax
provision............. 7,879 4,289 19,046 23,036 29,291 6,864 7,398
-------- --------- --------- --------- --------- --------- ---------
Net income.............. $ 16,168 $ 15,046 $ 27,471 $ 32,605 $ 36,907 $ 8,422 $ 10,036
======== ========= ========= ========= ========= ========= =========
Segment Data(2):
Revenues:
Online financial
solutions............ -- -- $ 5,233 $ 7,860 $ 51,670 $ 3,807 $ 17,651
Enabling technology
solutions............ -- -- 347,131 425,018 443,980 110,683 115,117
Other.................. -- -- 29,398 38,681 50,734 11,660 12,008
Income from operations:
Online financial
solutions............ -- -- $ (3,098) $ (4,191) $ 430 $ (1,119) $ 939
Enabling technology
solutions............ -- -- 39,069 46,698 54,529 11,885 15,623
Other.................. -- -- 13,395 15,899 18,071 5,073 2,665
Operating Data(3):
No. of electronic
transactions
completed............ -- 3,108,507 4,330,593 5,645,709 6,445,299 1,602,644 1,646,813
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, March 31,
-------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
(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 $535,402
Long-term debt...... 14,183 12,740 7,040 6,517 72,516 71,747
Shareholder's
equity............ 104,989 142,422 167,601 201,682 239,350 250,390
</TABLE>
-------------------
(1) Certain statements of income data are not available prior to 1997.
(2) Segment data are not available for periods prior to 1997.
(3) Approximations for the periods indicated based on internal processing
records. Information not available prior to 1996.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," our consolidated 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 leading 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 % of our outstanding common stock (or approximately % 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 intend to 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 expect that our costs and
expenses will increase as a result of the loss of these economies of scale,
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 net
revenues. In the first three months of 2000, revenues from M&I represented
approximately 10.2% of our total net revenues.
23
<PAGE>
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 certain 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 certain 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 and a professional services 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 in our
historical financial statements had these agreements been in place during the
periods presented.
Our business consists of two reportable segments: online financial
solutions and enabling technology solutions. Our online financial solutions
segment is comprised of electronic bill payment and presentment, business and
consumer online banking and online mortgage services. Our enabling technology
solutions segment is comprised of financial account processing, customer
relationship management (CRM) 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 (ACH) processing solutions, treasury management
services and professional services related to Customers Forever LLC.
Our revenues consist of fees related to information and transaction
processing services, software licensing and maintenance, conversion services
and other professional services. Information 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 AICPA 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
24
<PAGE>
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 three 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 October 1, 1999, we acquired certain assets of Cardpro Services, Inc.
("Cardpro"), 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. 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. 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 ("EBS")
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. 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 certain assets of Moneyline Express,
Inc. ("Moneyline") 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. Goodwill recorded in
25
<PAGE>
this transaction amounted to $5.4 million and is being amortized on a
straight-line basis over
15 years.
Results of Operations
The following table presents selected statements of income data for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues(1):
Account processing fees.... $252,004 $305,299 $391,910 $ 87,062 $108,055
Professional services
fees.................... 63,530 73,170 76,432 18,238 19,357
Software revenues.......... 28,357 37,628 35,657 8,400 9,547
Other revenues............. 37,871 55,462 42,385 12,450 7,817
-------- -------- -------- -------- --------
Total revenues............ 381,762 471,559 546,384 126,150 144,776
Cost of Revenues:
Salaries, commissions and
other payroll-related
costs................... 150,446 187,296 213,449 45,643 59,120
Data processing expenses... 92,083 116,646 132,939 31,115 36,076
Other operating costs...... 38,336 51,235 58,476 12,637 15,365
Depreciation of premises &
equipment............... 31,795 35,510 30,327 7,683 7,039
Amortization of intangibles
and computer software... 19,736 22,466 38,163 13,233 7,949
-------- -------- -------- -------- --------
Total cost of revenues.... 332,396 413,153 473,354 110,311 125,549
-------- -------- -------- -------- --------
Income from operations....... 49,366 58,406 73,030 15,839 19,227
Other Income (Expense):
Interest income............ 113 43 704 1 347
Interest expense........... (2,852) (2,479) (4,811) (560) (1,594)
Other income (expense),
net..................... (110) (329) (2,725) 6 (546)
-------- -------- -------- -------- --------
Net other income
(expense).............. (2,849) (2,765) (6,832) (533) (1,793)
-------- -------- -------- -------- --------
Income before taxes.......... 46,517 55,641 66,198 15,286 17,434
Allocated tax provision...... 19,046 23,036 29,291 6,864 7,398
-------- -------- -------- -------- --------
Net income................... $ 27,471 $ 32,605 $ 36,907 $ 8,422 $ 10,036
======== ======== ======== ======== ========
</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 $14,272 and $14,742 for
three months ended March 31, 1999 and 2000, respectively.
26
<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>
Three Months
Years Ended Ended
December 31, March 31,
------------------- --------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenues:
Account processing fees................. 66.0% 64.7% 71.7% 69.0% 74.6%
Professional services fees.............. 16.6 15.5 14.0 14.5 13.4
Software revenues....................... 7.4 8.0 6.5 6.7 6.6
Other revenues.......................... 10.0 11.8 7.8 9.8 5.4
----- ----- ----- ------ ------
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 36.2 40.8
Data processing expenses................ 24.2 24.7 24.2 24.6 24.9
Other operating costs................... 10.0 10.9 10.7 10.0 10.6
Depreciation of premises & equipment.... 8.3 7.5 5.6 6.1 4.9
Amortization of intangibles and computer
software............................. 5.2 4.8 7.0 10.5 5.5
----- ----- ----- ------ ------
Total cost of revenues................. 87.1 87.6 86.6 87.4 86.7
----- ----- ----- ------ ------
Income from operations.................... 12.9 12.4 13.4 12.6 13.3
Other Income (Expense):
Interest income......................... 0.0 0.0 0.1 0.0 0.2
Interest expense........................ (0.7) (0.5) (0.9) (0.4) (1.1)
Other income (expense), net............. (0.0) (0.1) (0.5) 0.0 (0.4)
----- ----- ----- ------ ------
Net other income (expense)............. (0.7) (0.6) (1.3) (0.4) (1.3)
----- ----- ----- ------ ------
Income before taxes....................... 12.2 11.8 12.1 12.2 12.0
Allocated tax provision................... 5.0 4.9 5.4 5.4 5.1
----- ----- ----- ------ ------
Net income................................ 7.2% 6.9% 6.7% 6.8% 6.9%
===== ===== ===== ====== ======
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Total Revenues. Total revenues increased $18.6 million, or 14.8%, to
$144.8 million for the three months ended March 31, 2000 from $126.2 million
for the three months ended March 31, 1999.
Account Processing Fees. Account processing fees increased $21.0 million,
or 24.1%, to $108.1 million for the three months ended March 31, 2000 from
$87.1 million for the three months ended March 31, 1999. This increase was due
to the acquisitions of EBS and Cardpro as well as growth in other products
within the enabling technology solutions segment.
Professional Services Fees. Professional services fees increased $1.2
million, or 6.1%, to $19.4 million for the three months ended March 31, 2000
from $18.2 million for the three months ended March 31, 1999. This increase was
due to the acquisition of EBS as well as professional services fees associated
with Customers Forever, neither of which existed in the first quarter of 1999.
Software Revenues. Software revenues increased $1.1 million, or 13.7%, to
$9.5 million for the three months ended March 31, 2000 from $8.4 million for
the three months ended March 31, 1999. This increase was primarily due to
increased sales of our CRM products.
Other Revenues. Other revenues (including buyout fees) decreased $4.7
million, or 37.2%, to $7.8 million for the three months ended March 31, 2000
from $12.5 million for the three months ended March 31, 1999. This decrease was
due to fewer contract terminations in the first quarter of 2000.
27
<PAGE>
Salaries, Commissions and Other Payroll-Related Costs. Salaries,
commissions and other payroll-related costs increased $13.5 million, or 29.5%,
to $59.1 million for the three months ended March 31, 2000 from $45.6 million
for the three months ended March 31, 1999. This increase was due to the
addition of 605 full-time equivalent employees principally to support growth in
our online financial solutions segment.
Data Processing Expenses. Data processing expenses increased $5.0 million,
or 15.9%, to $36.1 million for the three months ended March 31, 2000 from $31.1
million for the three months ended March 31, 1999. This increase was due
primarily to the acquisitions of EBS and Cardpro.
Other Operating Costs. Other operating costs increased $2.8 million, or
21.6%, to $15.4 million for the three months ended March 31, 2000 from $12.6
million for the three months ended March 31, 1999. This increase was due
primarily to start-up costs related to our private label banking product line
as well as an increase in advertising and promotional expenses.
Depreciation of Premises and Equipment. Depreciation of premises and
equipment decreased $0.7 million, or 8.4%, to $7.0 million for the three months
ended March 31, 2000 from $7.7 million for the three months ended March 31,
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 $5.3 million, or 39.9%, to $7.9
million for the three months ended March 31, 2000 from $13.2 million for the
three months ended March 31, 1999. In the three months ended March 31, 1999, we
wrote-off $6.8 million of goodwill associated with our 1996 acquisition of M&I
EastPoint Technology, Inc. ("EastPoint").
Interest Income. Interest income was $0.3 million for the three months
ended March 31, 2000. We recorded nominal interest income for the three months
ended March 31, 1999. This increase was due to growth in the online financial
solutions segment, which generates investments balances related to our
electronic bill payment operations.
Interest Expense. Interest expense increased $1.0 million to $1.6 million
for the three months ended March 31, 2000 from $0.6 million for the three
months ended March 31, 1999. This increase was due to increased borrowings of
$67.0 million related to the EBS acquisition.
Allocated Tax Provision. Our effective tax rate was 42.4% for the three
months ended March 31, 2000 and 44.9% for the three months ended March 31,
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.
28
<PAGE>
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
--------------
<S> <C> <C>
1999 2000
<CAPTION>
(In millions)
<S> <C> <C>
Revenues:
Online financial solutions.............................. $ 3.8 $ 17.7
Enabling technology solutions........................... 110.7 115.1
Other................................................... 11.7 12.0
------ ------
Total.................................................. $126.2 $144.8
====== ======
Income from operations:
Online financial solutions.............................. (1.1) 0.9
Enabling technology solutions........................... 11.9 15.6
Other................................................... 5.0 2.7
------ ------
Total.................................................. $ 15.8 $ 19.2
====== ======
</TABLE>
Revenues in the online financial solutions segment increased $13.9 million
to $17.7 million for the three months ended March 31, 2000 from $3.8 for the
three months ended March 31, 1999. This increase was due to an increase in the
number of end users using our electronic bill payment services as well as the
acquisition of EBS. Income from operations in the online financial solutions
segment increased $2.0 million to $0.9 million for the three months ended March
31, 2000 from $(1.1) million for the three months ended March 31, 1999. This
increase was due to the income from operations generated by the EBS 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 enabling technology solutions segment increased $4.4
million, or 4.0%, to $115.1 million for the three months ended March 31, 2000
from $110.7 for the three months ended March 31, 1999. This increase was due to
an increase in our card solutions business resulting from the acquisition of
Cardpro in October 1999. Income from operations in the enabling technology
solutions segment increased $3.7 million, or 31.5%, to $15.6 million for the
three months ended March 31, 2000 from $11.9 million for the three months ended
March 31, 1999.
Other revenues increased $0.3 million, or 3.0%, to $12.0 million for the
three months ended March 31, 2000 from $11.7 million for the three months ended
March 31, 1999. This increase was due to a slight increase in professional
services work performed on the Customers Forever joint venture. Income from
operations decreased $2.3 million to $2.7 million for the three months ended
March 31, 2000 from $5.0 million for the three months ended March 31, 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.
29
<PAGE>
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 EBS and Cardpro as well as growth in other offerings within the
enabling 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 principally to support growth in our online
financial 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 December 31, 1998. This increase was due to
the growth in the online financial 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 online financial
solutions segment, which generates investments balances related to our
electronic bill payment operations.
30
<PAGE>
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 EBS 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, Inc. subsidiary.
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1999
(In millions)
<S> <C> <C>
Revenues:
Online financial solutions.............................. $ 7.9 $ 51.7
Enabling technology solutions........................... 425.0 444.0
Other................................................... 38.7 50.7
------ ------
Total.................................................. $471.6 $546.4
====== ======
Income from operations:
Online financial solutions.............................. (4.2) 0.4
Enabling technology solutions........................... 46.7 54.5
Other................................................... 15.9 18.1
------ ------
Total.................................................. $ 58.4 $ 73.0
====== ======
</TABLE>
Revenues in the online financial 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 as well as the
acquisition of EBS. Income from operations in the online financial 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 EBS 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 enabling 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 growth in our card solutions business. Income
from operations in the enabling 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.
31
<PAGE>
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 CRM 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.
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 enabling 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 enabling 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
on our revolving line of credit.
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<PAGE>
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, Inc. subsidiary.
Segment Information. The following table presents, for the periods
indicated, the revenues and income from operations by business segment:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1997 1998
(In millions)
<S> <C> <C>
Revenues:
Online financial solutions............................. $ 5.2 $ 7.9
Enabling technology solutions.......................... 347.1 425.0
Other.................................................. 29.4 38.7
------ ------
Total................................................. $381.7 $471.6
====== ======
Income from operations:
Online financial solutions............................. (3.1) (4.2)
Enabling technology solutions.......................... 39.1 46.7
Other.................................................. 13.4 15.9
------ ------
Total................................................. $ 49.4 $ 58.4
====== ======
</TABLE>
Revenues in the online financial 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.
Losses from operations in the online financial 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 enabling 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 software product in 1998 and higher
volumes in the card solutions arising from several new clients. Income from
operations in the enabling 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 Metavante on a periodic
basis and M&I has provided funds to cover our disbursements. At March 31, 2000,
we had cash and cash equivalents of $34.6 million.
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<PAGE>
At March 31, 2000, we had $70 million of lines of credit available from
M&I of which $18.4 million was outstanding. Interest is payable quarterly at a
rate equal to M&I's average commercial paper rate plus .25% (6.24% as of
December 31, 1999). We expect these lines 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
$26.3 million for the three months ended March 31, 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
$20.2 million for the three months ended March 31, 2000. The increases in cash
used for investing activities were primarily due to capital additions to
premises and equipment to meet future growth as well as the acquisitions of
Cardpro, EBS and Moneyline Express.
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 $1.0 million for the three months ended March 31, 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.
We intend to use a portion of the net proceeds from this offering to pay
down the note of $67.0 million and $18.4 million outstanding under our credit
facility. We expect to continue to expend significant amounts on expansion of
facility infrastructure, ongoing research and development, computer and related
data center equipment and personnel.
We believe that our cash needs, other than for significant acquisitions,
will be met for the next 12 months through the proceeds retained from this
offering, cash generated from operations and borrowings from M&I or third-party
sources.
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. The cost 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 certain threshold. This is not a significant amount,
as we only had $0.1 million of foreign currency contracts outstanding at
December 31, 1999.
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<PAGE>
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.
Our borrowings consist of two primary instruments. The first instrument 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 second borrowing instrument is a line of credit 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.
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 statement of
operations data for each quarter of our last two fiscal years and most recent
fiscal quarter. 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.
35
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
(In thousands)
<S> <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
Professional services
fees.................. 17,254 17,714 18,869 19,333 18,238 17,062 21,924 19,208 19,357
Software revenues...... 10,936 9,976 7,721 8,995 8,400 7,106 9,959 10,192 9,547
Other revenues......... 10,026 13,587 11,231 20,618 12,450 6,406 10,284 13,245 7,817
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues......... 109,313 114,480 116,098 131,668 126,150 130,257 143,033 146,944 144,776
Cost of Revenues:
Salaries, commissions,
and other payroll-
related costs......... 40,851 40,543 39,643 66,259 45,643 53,644 58,468 55,694 59,120
Data processing
expenses.............. 28,212 41,956 21,093 25,385 31,115 31,488 31,751 38,585 36,076
Other operating costs.. 12,021 15,486 13,615 10,113 12,637 14,266 14,084 17,489 15,365
Depreciation of
premises & equipment.. 8,605 (1,357) 21,290 6,972 7,683 7,326 7,462 7,856 7,039
Amortization of
intangibles and
computer software..... 5,457 6,057 4,982 5,970 13,233 7,035 8,862 9,033 7,949
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues.............. 95,146 102,685 100,623 114,699 110,311 113,759 120,627 128,657 125,549
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.. 14,167 11,795 15,475 16,969 15,839 16,498 22,406 18,287 19,227
Other Income (Expense):
Interest income........ (25) (40) (57) 165 1 79 253 371 347
Interest expense....... (556) (554) (505) (864) (560) (1,446) (1,426) (1,379) (1,594)
Other income (expense),
net................... 3 (23) (141) (168) 6 (13) (1,927) (791) (546)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net other income
(expense)............. (578) (617) (703) (867) (553) (1,380) (3,100) (1,799) (1,793)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes..... 13,589 11,178 14,772 16,102 15,286 15,118 19,306 16,488 17,434
Allocated tax
provision.............. 5,742 4,577 6,233 6,484 6,864 7,138 7,466 7,823 7,398
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. $ 7,847 $ 6,601 $ 8,539 $ 9,618 $ 8,422 $ 7,980 $ 11,840 $ 8,665 $ 10,036
======== ======== ======== ======== ======== ======== ======== ======== ========
Revenues:
Account processing
fees.................. 65.0% 63.9% 67.4% 62.8% 69.0% 76.5% 70.5% 71.0% 74.6%
Professional services
fees.................. 15.8 15.5 16.3 14.7 14.5 13.1 15.3 13.1 13.4
Software revenues...... 10.0 8.7 6.7 6.8 6.7 5.5 7.0 6.9 6.6
Other revenues......... 9.2 11.9 9.6 15.7 9.8 4.9 7.2 9.0 5.4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues......... 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......... 37.4 35.4 34.1 50.3 36.2 41.2 40.9 37.9 40.8
Data processing
expenses.............. 25.8 36.6 18.2 19.3 24.7 24.2 22.2 26.3 24.9
Other operating costs.. 10.9 13.6 11.8 7.7 9.9 10.9 9.8 12.0 10.6
Depreciation of
premises & equipment.. 7.9 (1.2) 18.3 5.3 6.1 5.6 5.2 5.3 4.9
Amortization of
intangibles and
computer software..... 5.0 5.3 4.3 4.5 10.5 5.4 6.2 6.1 5.5
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues.............. 87.0 89.7 86.7 87.1 87.4 87.3 84.3 87.6 86.7
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.. 13.0 10.3 13.3 12.9 12.6 12.7 15.7 12.4 13.3
Other Income (Expense):
Interest income........ (0.0) (0.0) (0.0) 0.1 0.0 0.1 0.2 0.3 0.2
Interest expense....... (0.5) (0.5) (0.4) (0.7) (0.5) (1.2) (1.1) (1.0) (1.1)
Other income (expense),
net................... 0.0 0.0 (0.1) (0.1) 0.0 (0.0) (1.3) (0.5) (0.4)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net other income
(expense)............. (0.5) (0.5) (0.5) (0.7) (0.5) (1.1) (2.2) (1.2) (1.3)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes..... 12.5 9.8 12.8 12.2 12.1 11.6 13.5 11.2 12.0
Allocated tax
provision.............. 5.3 4.0 5.4 4.9 5.4 5.5 5.2 5.3 5.1
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income.............. 7.2% 5.8% 7.4% 7.3% 6.7% 6.1% 8.3% 5.9% 6.9%
======== ======== ======== ======== ======== ======== ======== ======== ========
</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.
36
<PAGE>
BUSINESS
Overview
We are a leading 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 (ASP), which means that we enable 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 1998 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 19 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, FleetBoston Financial
Corporation, Provident Bank of Maryland, First Midwest Bancorp, Inc., E*Trade
Bank, 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 (ATM) 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
37
<PAGE>
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 Currency (OCC) 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 OCC 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:
. Online Financial Solutions. Our online financial solutions include
electronic bill payment and presentment, business and consumer online
banking and online mortgage services.
. Enabling Technology Solutions. Our enabling technology solutions
include financial account processing, customer relationship management
solutions, private label banking, trust and investment solutions,
electronic funds transfer and card solutions.
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,
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<PAGE>
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.
. 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
39
<PAGE>
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 ATMs, 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.
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 19 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. Representative clients include:
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.
Marshall & Ilsley Corporation Imperial Bancorp
The Northern Trust Corporation INTRUST Financial Corporation
SunTrust Banks, Inc. Johnson International, Inc.
Synovus Financial Corp. Provident Bank of Maryland
Washington Mutual, Inc. S&T Bancorp, Inc.
Zions Bancorporation Washington Trust Bank
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<PAGE>
Internet Banks Non-Traditional Financial Services
Providers
E*Trade Bank
AAA
everbank.com(TM), a division of Wilmington Savings Fund Society, FSB
Security First Network Bank(TM) Bessemer Trust Company
UmbrellaBank.com Dain Rauscher Corporation
WebFinancial Corporation Principal Financial Group
USAA
For the year ended December 31, 1999 and the three months ended March 31,
2000, sales to M&I represented approximately 10.4% and 10.2% of our total
revenues, respectively.
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)
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.
Washington Mutual, Inc. (WAMU)
WAMU, 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. WAMU elected to leave its former
provider, and WAMU chose us because of our bill payment expertise, scalable
solutions and superior customer service. In June 2000, WAMU 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:
online financial solutions and enabling technology solutions.
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<PAGE>
Online Financial Solutions
We offer comprehensive online financial 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 online financial solutions offerings. As
of June 30, 2000, our clients included 40 of the largest 50 banks in the United
States. Our online financial 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, including Washington
Mutual, Inc., First Tennessee National Corporation and TCF Financial
Corporation. 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 interoperable with open electronic bill exchange providers,
including Spectrum EBP, LLC, which allows financial institutions to share
billing information and provide electronic billing information to their
customers.
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 clients include Bank of America
Corporation, FleetBoston Financial Corporation, SunTrust Banks, Inc. and Bank
One Corporation.
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, enterprise resource planning
(ERP) and payroll software systems, such as Great Plains(R), Intuit
QuickBooks(R), Microsoft BackOffice(R), Peachtree(R), PeopleSoft(R) and
SAP(TM).
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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,
. Automated Clearing House . rate reports and economic data,
(ACH) origination,
. cash concentration,
. account reconciliation,
. electronic data interchange, and
. stop payments,
. multiple levels of security.
Online Consumer Banking. We provided online consumer banking products and
services to over 230 financial services providers as of June 30, 2000. Included
in this number are over 150 financial services providers to whom we provide
Internet consumer banking on a private label basis through a strategic alliance
with S1 Corporation. Our clients include Astoria Financial Corporation, Synovus
Financial Corp., M&I and TCF Financial Corporation.
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 (MGIC) and Customers Forever
management. We currently hold an economic interest of approximately 46% in
Customers Forever. Clients for our Customers Forever product as of June 30,
2000 consisted of GMAC Mortgage, Temple Inland Mortgage Corp. and Bank United,
three of the largest mortgage services providers in the United States.
Customers Forever is an Internet-based, end-to-end 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. 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.
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Enabling Technology Solutions
Through our enabling technology solutions, we offer financial account
processing, customer relationship management (CRM) solutions, private label
banking, trust and investment solutions, electronic funds transfer (EFT) and
card solutions to financial services providers. In addition, we offer
professional consulting services to complement our enabling technology
solutions offerings.
Financial Account Processing. According to the Tower Group, 27 of the 100
largest U.S. banks have outsourced their core financial account processing
and, as of March 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, including M&I,
Synovus Financial Corp., Provident Bank of Maryland and Citizens Banking
Corporation.
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. 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.
For clients requiring a client-server platform for their core financial
account processing, our M&I EastPoint banking system currently provides a
complete solution for managing financial institutions.
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Customer Relationship Management Solutions. As of June 30, 2000, we
provided customer relationship management products and services to
approximately 650 financial services providers, including M&I, First Union
Corporation, INTRUST Financial Corporation and Synovus Financial Corp.
Our CRM solutions assist our clients in generating a complete view of each
of their business and consumer customer relationships. Our clients can use this
information to improve long-term customer satisfaction and retention. Our CRM
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 CRM solutions help financial services providers manage the market
risk, credit risk and profitability of their customers. For consumer banking,
our CRM solutions help financial services providers to sell more effectively by
performing segmentation analysis, campaign management sales workflow and
prospect management. Our CRM 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, including AAA, Capital Crossings Bank,
InPurchase, Inc. and UmbrellaBank.com.
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
. ATM card issuance and processing, . loan origination and
servicing.
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, including Marshall & Ilsley Trust Company, Regions Financial
Corporation, Associated Trust Company, N.A. and First Hawaiian Bank.
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.
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Electronic Funds Transfer. As of June 30, 2000, we provided electronic
funds transfer products and services to approximately 640 financial services
providers, including TYME, Citizens Banking Corporation, Synovus Financial
Corp. and Astoria Financial Corporation.
We link with all major EFT networks, gateways and processors to route and
authorize ATM and debit card transactions and provide ATM management and
monitoring solutions for banks, credit unions, Internet banks and independent
sales organizations. We manage over 7,900 ATMs across the United States using a
dedicated, fault-tolerant transaction-processing system. We support advanced
ATM function capabilities, where available, including check cashing, statement
printing, foreign language support, stamp and coin dispensing, prepaid cards
and couponing abilities. Our ATM monitoring solution utilizes automated voice
notification to alert a financial institution or its ATM service team via
Internet, telephone, pager, voice mail, answering machine or electronic
interface of events that may adversely affect an ATM system.
Card Solutions. As of June 30, 2000, we provided card processing products
and services to approximately 1,200 financial services providers, including
M&I, Provident Bank of Maryland, WebFinancial Corporation and Astoria Financial
Corporation.
We provide banks, credit unions and non-financial companies with account
processing, merchant servicing and card personalization services for debit,
credit, ATM and merchant cards. We support account processing for the debit,
credit and ATM 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 ATM, 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 ATM 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 custom statement formatter (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. Our
clients include The Chase Manhattan Corporation, Old Kent Financial
Corporation, Moore Business Forms Limited and The Prudential Insurance Company
of America. CSF allows our clients to maximize their marketing efforts, expand
cross-selling opportunities and
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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.
Other Processing and Service Solutions. We maintain one of the largest ACH
origination operations in the United States, originating 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.
Strategic Alliances
We have technology alliances with a number of leading companies in the
financial services and technology industries and will continue to pursue new
alliances both domestically and internationally. These alliances 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.
Our significant strategic partners include:
S1 Corporation
S1 Corporation develops integrated, brandable Internet applications that
enable companies offering financial services to create their own financial
portals. In 1995, we partnered with S1 to develop and launch one of the world's
first Internet banks. Today, we offer S1's consumer banking application on a
private label basis to over 150 financial services providers. In addition, S1
offers our electronic bill payment solution to its customers.
American Management Systems, Inc.
American Management Systems, Inc. provides electronic business strategy,
management and technology services to large organizations. In 1999, we
partnered with American Management to be the exclusive ASP for its software
application which enables banks to automate consumer lending decisions.
Avolent, Inc.
Avolent, Inc. (formerly Just in Time Solutions, Inc.) provides standards-
based software solutions for Internet billing and interactive customer care.
The company's modular BillCast(TM) software enables billers to deploy secure,
scalable solutions for personalized billing, statement presentment, payment and
service delivery. In May 2000, we agreed to incorporate BillCast software into
our electronic bill payment and presentment solution and purchased
approximately 4% of the equity of the company.
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Biztro, Inc.
Biztro, Inc. is an Internet portal for small business services, including
insurance, benefits, payroll and communications. Biztro provides management
applications, productivity tools and information sources that streamline and
automate the work of the small business manager and enable employee self-
service. In February 2000, we entered into an agreement with Biztro to provide
our online business banking solutions as part of the Biztro business operations
platform.
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.
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 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.
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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 (XML),
component object model (COM), common object request broker architecture
(CORBA), interactive financial exchange (IFX) and open financial exchange
(OFX).
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.
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.
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Our online financial solutions compete with a number of companies,
including:
. Electronic Bill Payment and Presentment. Our primary competitors are
CheckFree Holdings Corporation, Online Resources & Communications
Corporation and Princeton eCom Corporation.
. Online Banking. Our primary competitors in the business banking 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.
Our enabling technology solutions compete with a number of companies,
including:
. Financial Account Processing. Our primary competitors are Electronic
Data Systems Corporation, Fiserv, Inc. and Jack Henry & Associates,
Inc.
. Customer Relationship Management Solutions. Our primary competitors are
ALLTEL Information Services, Electronic Data Systems Corporation,
Fiserv, Inc. and Perot Systems Corporation.
. Private Label Banking. Our primary competitor is Sanchez Computer
Associates, Inc.
. Trust and Investment Solutions. Our primary competitors are SEI
Investments Company and SunGard Data Systems, Inc.
. Electronic Funds Transfer and Card Solutions. 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.
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 certain patents from
third parties and are in the process of applying for several patents. In
addition, 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.
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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*
Software development and client care Brown Deer, Wisconsin 62,000 04/30/06
Online banking and call center Milwaukee, Wisconsin 51,000 03/31/10
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 and client care Ann Arbor, Michigan 26,000 01/31/01
Online banking and call center Alpharetta, Georgia 12,000 11/30/04
</TABLE>
---------------------
* We own this facility.
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.
Government Regulation
We are subject to examination, and are indirectly regulated by, the Office
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, or "FRB", 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 FRB as a company controlled by a
bank holding company.
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
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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.
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 $3.1 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
Directors and Executive Officers
The following table sets forth certain 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
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
Mr. Wigdale and Mr. 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
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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.
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
54
<PAGE>
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 (CPA).
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 joining us, Mr.
Nurre was Vice President of Operations for Baan Company N.V., a global provider
of enterprise business solutions. In addition, he spent 18 years 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, with responsibilities for planning,
training and organizational development. Ms. Stenholt has also worked as the
Manager of Human Resources for GE Marquette Medical Systems (formerly GE
Medical Systems), a subsidiary of General Electric which manufactures
diagnostic imaging equipment, and served in various human resources positions
during her ten years with the Premcor Refining Group Inc. (formerly 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.
55
<PAGE>
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.
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
serving terms expiring in 2001,
serving terms expiring in 2002, and serving terms 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.
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. Upon consummation of this
offering, the members of the Audit Committee are expected to be
, each of whom will be an "independent director" within the
meaning of the rules of the Nasdaq National Market.
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 are
expected to be
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<PAGE>
. are "non-employee directors" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Board of Directors may, from time to time, establish certain 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
Each director who is not an employee of Metavante or M&I will receive an
annual retainer fee of $ , a fee of $ for each Board meeting
attended and a fee of $ for each Committee meeting attended, if such
Committee meeting is not held on the same day as a Board meeting. Committee
chairpersons receive an additional annual retainer fee of $ . 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, which is described in detail under the heading "Management--2000 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>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1)(2) Percent (3)
<S> <C> <C>
James B. Wigdale...................... 782,852(4) *
Dennis J. Kuester..................... 548,128 *
Joseph L. Delgadillo.................. 85,004 *
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)............. 1,516,468 *
</TABLE>
57
<PAGE>
---------------------
* 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--66,000; 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 (the "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.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards (2)
---------------------
Annual Compensation ($) Awards Payouts
--------------------------- ------------ --------
Securities
Underlying LTIP All Other
Name and Principal Options/SARS Payouts Compensation
Position Year Salary Bonus Other (1) (#)(3) ($)(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
58
<PAGE>
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 ("LTIP") 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 (the "KBW 50 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 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.
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<PAGE>
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 $195,414
</TABLE>
---------------------
(1) Includes options transferable to the employees' immediate family or trusts
or partnerships for the benefit thereof. Options generally become
exercisable based on the following schedule: one-third on the first
anniversary of the date of grant, an additional one-third on the second
anniversary of the date of grant and the remaining one-third on the third
anniversary of the date of grant. All options become immediately
exercisable upon a "triggering event" (which relates to a change of control
of M&I). Employees who have attained age 55 and have at least ten years of
service with M&I or a subsidiary receive options which are fully vested on
the date of grant.
(2) All options have an exercise price equal to 100% of the fair market value
of M&I's common stock on the date of grant. The exercise price may be paid
in cash or by delivery of shares of M&I's common stock. Upon exercise of an
option, the holder may satisfy any tax obligations either by having M&I
withhold shares or by delivering shares such holder already owns.
(3) The grant date present values were determined using the Black-Scholes model
with the following common assumptions: a six year expected period of time
to exercise; a risk-free rate of return of 6.30%; an expected dividend
yield of 1.56%; and a volatility factor of 24.36%.
The following table sets forth information with respect to the named
executive officers concerning stock options to purchase M&I common stock that
were exercised during the last fiscal year and the number and value of options
outstanding on December 31, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
M&I Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares Value Fiscal Year-End (#)(1) at Fiscal Year-End ($)(2)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) ($) 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.
60
<PAGE>
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 relates to 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 KBW 50 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.
Treatment of M&I Options
As of , 2000, there are outstanding options to purchase
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 July
, 2000 who are current employees or directors of M&I or Metavante will be
given an election regarding their M&I options. Current employees or directors
of M&I 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 (so-
called Tandem Options). Current employees or directors of Metavante 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 a current employee
or director, 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
61
<PAGE>
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 aggregate intrinsic value of options (i.e., 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 the same as the original
options.
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 assumed for the
M&I and Metavante stock were $ and $ , respectively, approximately
options for shares of Metavante stock would be issued for M&I
options outstanding as of July , 2000 at an average exercise price of
approximately $ per share. The foregoing computation is for purposes of
illustration only.
2000 Stock Incentive Plan
Our Board of Directors intends to adopt a stock incentive plan. The
purpose of the stock incentive plan is to provide a means to attract and retain
high quality individuals, to motivate key personnel to achieve our long-term
goals, to provide incentive compensation opportunities to our key personnel
that are competitive with those of similar companies and to further align the
interests of key personnel who participate in the stock incentive plan with
those of our shareholders through compensation that is based on the value of
our common stock.
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 certain of our key personnel and the directors
and the key personnel of our "related companies." Our "related companies"
include any corporation, joint venture, limited liability company or other
business entity in which we have a significant direct or indirect equity
interest or which has a significant direct or indirect equity interest in us.
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 cancel or suspend
awards; to determine the terms and provisions of
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<PAGE>
any agreements made pursuant to the stock incentive plan; and to make all other
determinations that may be necessary or advisable for the administration of the
stock incentive plan. In making such award determinations, the Compensation
Committee may take into account the nature of the services rendered by the
respective personnel, their present and potential contribution to our success
and such other factors as the Compensation Committee deems relevant. The Board
of Directors has the non-exclusive power to exercise the authority of the
Compensation Committee with respect to awards to our non-employee directors and
our "related companies." The stock incentive plan provides for accelerated
vesting of awards upon the occurrence of certain "change of control"
transactions as described in the stock incentive plan.
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 "related companies." 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
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 ; the maximum number of shares
of common stock covered by options granted to any one individual is in
any one calendar year; and the maximum value of stock awards granted to any one
person is $ .
The period during which incentive stock options may be granted 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. 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. At the
discretion of the Compensation Committee, options may be exercised in full at
any time, from time to time or in installments, or upon the occurrence of
specified events. An option may be exercised as to any or all of the shares
covered by the option by delivering written notice of exercise to our Corporate
Secretary, accompanied by full payment of the exercise price for such shares.
Payment of the exercise price must be made in cash, by tendering previously
owned shares of common stock or by authorizing a third party to sell shares of
the common stock acquired upon exercise of an option and remitting the purchase
price to us.
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 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.
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<PAGE>
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........................................
Michael D. Hayford..........................................
Gregory T. Nurre............................................
Colleen J. Stenholt.........................................
Owen J. Sullivan............................................
Peter J. Tallian............................................
Michael E. Touhey...........................................
</TABLE>
For employees of Metavante, % of these stock options will vest on the
anniversary of the date of grant, with an additional % of the
options vesting and becoming exercisable on each successive anniversary of the
date of grant. For our directors who are not employees of Metavante or M&I, the
stock options will vest and become exercisable as to all shares on the
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 terms of such agreement have not
yet been determined.
Change of Control Agreements
M&I has entered into change of control agreements with certain of our
executive officers, including Messrs. Delgadillo, Hayford, Sullivan and
Tallian. The change of control agreement with Mr. Delgadillo has a term of
three years and the change of control agreements with Messrs. Hayford, Sullivan
and Tallian each have a term of two years. The M&I 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 Messrs. Hayford, Sullivan and Tallian.
The employment term renews on a daily basis until M&I gives notice to terminate
the daily renewal.
The M&I 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 current
base salary, plus the higher of his bonus for the last year or his
average bonus for the past three years,
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. 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,
. health and other benefits for the remaining contract term, and
. payments for certain other fringe benefits.
The multiple referred to in this paragraph is three for Mr. Delgadillo
and two for Messrs. Hayford, Sullivan and Tallian. In the event of a
termination of an individual's employment as a result of his 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. In addition, Mr.
Delgadillo's agreement provides that at the end of six months after a change
of control, he may terminate employment for any reason and is entitled to
receive full benefits.
Mr. Delgadillo's change of control agreement also provides 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 M&I change of control agreements
as occurring if:
. a person acquires more than 33% of the combined voting power of M&I's
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 M&I's board of directors,
. certain reorganizations, mergers, statutory share exchanges or
consolidations,
. a complete liquidation or dissolution of M&I, or
. a sale or other disposition of substantially all of the assets of M&I.
M&I has entered into a similar 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 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.
Upon completion of this offering, the M&I change of control agreements
will terminate and new change of control agreements between us and each of our
executive officers as well as 12 other employees will become effective. The
new change of control agreements will be substantially similar to the existing
M&I change of control agreements. The multiple under the new change of control
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agreements is expected to be three for Mr. Delgadillo and two for the other
executives. Neither this offering nor the proposed distribution by M&I will be
deemed a change of control under the new agreements.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, the compensation of our executive officers was
determined by M&I's compensation committee. Our Compensation Committee will
initially consist of . 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. See "Principal Shareholder" for information regarding M&I.
RELATIONSHIP WITH M&I
We intend to 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 will be developed in connection with this offering while we
are a wholly-owned subsidiary of M&I, and, therefore, such agreements 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 each of these agreements, or the
transactions provided for in these agreements, 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 certain agreements,
arrangements and transactions to be entered into between us. The summaries of
each of the following agreements are qualified in their entirety by reference
to the full text of the forms 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 intend to enter into a reorganization agreement with M&I, which will
govern 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, M&I is not 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 will agree to cooperate with M&I in all
respects to accomplish this offering and the distribution.
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We will also agree, 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.
We will agree to pay all costs and expenses relating to this offering and
M&I will agree to pay all costs and expenses relating to the distribution.
We and M&I will agree to provide each other with access to information
relating to the assets, business and operations of the requesting party. We
will also agree 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 audit of our financial statements on the same schedule as
the audit 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 will also agree 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 will also agree to 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 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
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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 certain
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 certain 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.
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 certain 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 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.
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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 and to resolve, settle or agree to any deficiency, claim
or adjustment proposed, asserted or assessed in connection with an audit.
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 certain 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 certain 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.
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, executive
deferred compensation and supplemental benefit plans, health and welfare plans,
fringe benefit plans and leave of absence programs. 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
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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 under which
M&I or its subsidiaries 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 certain 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 , subject
to automatic renewal for successive 30-day terms. At any time during the term
of the agreement, either party will be able to terminate existing categories of
services upon 30 days' prior written notice during the initial term and 15
days' prior written notice during any renewal term. M&I will be obligated to
provide us assistance, at our request and expense, upon the termination of any
service provided pursuant to the agreement. We anticipate that we will pay M&I
a total of $ , 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 . We anticipate that we will
receive annual payments from M&I under this agreement equal to approximately
$ .
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 agreement may be terminated by either party on 30
days' notice, but all projects in progress would continue until completed
despite any notice of termination. 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.
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 . We
anticipate that our annual payments under this agreement to M&I will be
approximately $ .
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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>
Year
-----------------------
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>
Year
-----------------------
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 as
described in greater detail under the heading "Relationship With M&I."
PRINCIPAL SHAREHOLDER
As of the date of this prospectus, M&I owns beneficially and of record
shares of common stock, representing all of the shares of common
stock outstanding prior to this offering. Upon the sale by us of the
shares of common stock offered hereby, M&I will own beneficially and of record
% of the outstanding common stock ( % 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. shares of common stock and no shares of preferred
stock are outstanding as of the date hereof. shares of common stock are
being offered in this offering ( shares if the underwriters' over-
allotment option is exercised in full) and shares have been reserved for
issuance pursuant to our stock incentive plan, as discussed under the heading
"Management--2000 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
(the "WBCL"). 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 WBCL 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, certain 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 WBCL 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 certain
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
WBCL reserve this power exclusively to the shareholders.
Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL,
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, customers, the communities
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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 WBCL
(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 certain 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 certain other
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.
Sections 180.1130 to 180.1133 of the WBCL (the "Wisconsin Fair Price
Statute") 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 certain
fair price conditions are met. For purposes of the Wisconsin Fair Price
Statute, 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 Statute may discourage any attempt by a
shareholder to squeeze out other shareholders without offering an appropriate
premium purchase price.
Subject to certain exceptions, Section 180.1150 of the WBCL (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.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") 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 certain actions 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 Restrictions, 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
75
<PAGE>
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 Restrictions
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.
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 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 "Underwriting," we, our executive officers and directors and M&I 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 certain exceptions
(including 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.
As discussed under the heading "Management--2000 Stock Incentive Plan,"
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
76
<PAGE>
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. See "Management--Treatment of M&I Options" for
information relating to the conversion of M&I options into options for our
common stock.
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.
77
<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, Salomon Smith Barney Inc.,
UBS Warburg LLC 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...................
Salomon Smith Barney Inc..............................................
UBS Warburg LLC.......................................................
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 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.
78
<PAGE>
The following table shows the underwriting fees to be paid by us 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>
No Exercise Full Exercise
<S> <C> <C>
Per share............................................. $ $
-------- --------
Total................................................. $ $
======== ========
</TABLE>
We will pay the offering expenses, estimated to be $ .
We, our executive officers and directors and M&I 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, 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, during this 180-day period, we have, with certain exceptions,
also agreed not to file any registration statement for, and each of our
executive officers and directors and M&I 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.
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of common stock offered by this
prospectus for sale to our employees, directors and other persons designated by
us. 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.
An electronic prospectus will be available on the website maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
these websites relating to this offering is not a part of this prospectus, has
not been approved or endorsed by us or any underwriter and should not be relied
on by prospective investors.
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.
79
<PAGE>
We intend to apply 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 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,
. 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.
80
<PAGE>
LEGAL MATTERS
Certain legal 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. Certain legal matters will be
passed upon for the underwriters by Sidley & Austin, Chicago, Illinois.
EXPERTS
The 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.
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.
81
<PAGE>
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.
82
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and
(unaudited) as of March 31, 2000......................................... F-3
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and
1999 and (unaudited) for the three months ended March 31, 1999 and 2000.. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998
and 1999 and (unaudited) for the three months ended March 31, 1999 and
2000..................................................................... F-5
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1997, 1998 and 1999 and (unaudited) for the three months
ended March 31, 2000..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<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
F-2
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of As of
December 31, March 31,
------------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 7,453 $ 27,446 $ 34,562
Accounts receivable, less allowance of $2,552,
$3,557 and $3,964 in 1998, 1999 and 2000,
respectively............................... 42,522 44,811 43,309
EFD processing receivables.................... 16,881 26,527 23,155
Due from affiliated companies................. 9,675 10,170 12,225
Unbilled revenue.............................. 31,892 36,371 37,479
Deferred income taxes......................... 9,930 10,452 10,452
Prepaid expenses.............................. 10,736 11,444 10,788
Other current assets.......................... 4,585 6,977 6,508
--------- --------- ---------
Total current assets......................... 133,674 174,198 178,478
Premises & equipment, net...................... 112,018 123,687 121,450
Purchased software, net........................ 12,648 19,023 20,238
Capitalized conversions, net................... 52,670 54,201 55,973
Capitalized software, net...................... 55,655 71,294 78,399
Goodwill and other intangibles, net............ 19,489 74,600 73,805
Other assets................................... 2,971 5,792 7,059
--------- --------- ---------
Total assets................................ $ 389,125 $ 522,795 $ 535,402
========= ========= =========
Liabilities and Shareholder's Equity
Current liabilities:
Short-term borrowings......................... $ 26,243 $ 17,646 $ 18,407
Accounts payable.............................. 7,124 11,901 5,312
Payroll-related accruals...................... 14,902 20,324 13,983
Accrued liabilities........................... 29,824 30,727 43,523
Due to third party for bill payment services.. -- 20,594 20,693
Deferred revenues............................. 58,407 64,304 65,052
Other current liabilities..................... 11,620 10,088 10,558
--------- --------- ---------
Total current liabilities.................... 148,120 175,584 177,528
Long-term debt................................. 578 67,456 67,498
Long-term portion of capital leases............ 5,939 5,060 4,249
Deferred income taxes.......................... 22,237 23,210 23,210
Post-retirement benefit obligation............. 10,569 12,135 12,527
--------- --------- ---------
Total liabilities............................ 187,443 283,445 285,012
Shareholder's equity:
Common stock, no par value, 2,500 shares
authorized; 50 shares issued and
outstanding in each period................. -- -- --
Additional paid-in capital.................... 69,927 73,697 74,701
Retained earnings............................. 131,755 165,653 175,689
--------- --------- ---------
Total shareholder's equity................... 201,682 239,350 250,390
--------- --------- ---------
Total liabilities & shareholder's equity.... $ 389,125 $ 522,795 $ 535,402
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues(1):
Account processing fees..... $252,004 $305,299 $391,910 $ 87,062 $108,055
Professional services fees.. 63,530 73,170 76,432 18,238 19,357
Software revenues........... 28,357 37,628 35,657 8,400 9,547
Other revenues.............. 37,871 55,462 42,385 12,450 7,817
-------- -------- -------- -------- --------
Total revenues ............ 381,762 471,559 546,384 126,150 144,776
Cost of Revenues:
Salaries, commissions and
other payroll-related
costs.................... 150,446 187,296 213,449 45,643 59,120
Data processing expenses.... 92,083 116,646 132,939 31,115 36,076
Other operating costs....... 38,336 51,235 58,476 12,637 15,365
Depreciation of premises &
equipment................ 31,795 35,510 30,327 7,683 7,039
Amortization of intangibles
and computer software.... 19,736 22,466 38,163 13,233 7,949
-------- -------- -------- -------- --------
Total cost of revenues..... 332,396 413,153 473,354 110,311 125,549
-------- -------- -------- -------- --------
Income from operations....... 49,366 58,406 73,030 15,839 19,227
Other Income (Expense):
Interest income............. 113 43 704 1 347
Interest expense............ (2,852) (2,479) (4,811) (560) (1,594)
Other income (expense),
net...................... (110) (329) (2,725) 6 (546)
-------- -------- -------- -------- --------
Net other income
(expense)............... (2,849) (2,765) (6,832) (553) (1,793)
-------- -------- -------- -------- --------
Income before taxes.......... 46,517 55,641 66,198 15,286 17,434
Allocated tax provision...... 19,046 23,036 29,291 6,864 7,398
-------- -------- -------- -------- --------
Net income................... $ 27,471 $ 32,605 $ 36,907 $ 8,422 $ 10,036
======== ======== ======== ======== ========
Earnings per share (basic and
diluted).................. $549,420 $652,100 $738,140 $168,440 $200,720
======== ======== ======== ======== ========
</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 $14,272 and $14,742 for
the three months ended March 31, 1999 and 2000, respectively.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
----------------------------- ------------------
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 $ 8,422 $ 10,036
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation of
premises and
equipment........... 31,795 35,510 30,327 7,683 7,039
Amortization of
goodwill and other
intangibles......... 19,736 22,466 38,163 13,233 7,949
Deferred income taxes.. (3,867) 3,341 451 -- --
(Gain) loss on sale of
equipment........... 168 369 476 52 (82)
Equity loss in
Customers Forever
joint venture....... -- -- 2,232 -- 756
Changes in assets &
liabilities, net of
effects from
acquisitions of
businesses:
Accounts receivable.... (17,828) (11,893) (3,264) 438 4,874
Unbilled revenues...... (7,116) (5,370) (4,974) (1,746) (3,163)
Prepaids and other
current assets...... 319 (708) (2,553) 1,266 1,125
Capitalized conversion
costs............... (2,153) (5,623) (1,531) 649 (1,772)
Other assets........... (119) (1,935) 1,062 (2,106) (2,023)
Accounts payable and
accrued
liabilities......... 15,892 1,172 24,798 (773) 1,430
Deferred revenue....... 7,564 6,383 3,942 1,278 747
Post-retirement benefit
obligation/other
liabilities......... 1,119 893 1,566 223 (602)
-------- -------- --------- -------- --------
Net cash provided by
operating
activities......... 72,981 77,210 127,602 28,619 26,314
Cash Flows From Investing
Activities:
Net capital additions to
premises and
equipment............ (36,306) (35,086) (38,720) (2,082) (4,720)
Increase in purchased
software costs....... (1,693) (5,333) (8,700) (2,624) (2,610)
Increase in capitalized
software costs....... (24,003) (25,323) (34,221) (7,766) (11,720)
Change in goodwill &
other intangibles.... 2,841 (218) (656) (118) (1,144)
Acquisition of Moneyline
Express.............. -- (5,146) -- -- --
Acquisition of Cardpro.. -- -- (11,207) -- --
Acquisition of EBS...... -- -- (66,153) -- --
Investment in Customers
Forever joint
venture.............. -- -- (6,115) -- --
-------- -------- --------- -------- --------
Net cash used in
investing
activities......... (59,161) (71,106) (165,772) (12,590) (20,194)
Cash Flows From Financing
Activities:
Increase (decrease) in
line of credit....... (5,427) (5,426) (8,597) (8,580) 761
Proceeds (repayments) on
debt................. (118) 6,775 66,878 59,232 42
Payments on capital
leases............... (4,638) (8,462) (879) 4,121 (811)
Cash transferred (to)
from Parent.......... (3,612) (19) (3,009) 2,528 1,004
Tax benefit of stock
options exercised.... 1,320 1,495 3,770 -- --
-------- -------- --------- -------- --------
Net cash provided by
(used in) financing
activities......... (12,475) (5,637) 58,163 57,301 996
-------- -------- --------- -------- --------
Net increase in cash and
cash equivalents..... 1,345 467 19,993 73,330 7,116
Beginning balance....... 5,641 6,986 7,453 7,453 27,446
-------- -------- --------- -------- --------
Ending balance.......... $ 6,986 $ 7,453 $ 27,446 $ 80,783 $ 34,562
======== ======== ========= ======== ========
Supplemental Cash Flow
Information:
Cash paid during the
year:
Interest............... $ 3,325 $ 2,171 $ 5,208 $ 560 $ 1,597
Income taxes........... $ 14,211 $ 27,120 $ 36,486 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
METAVANTE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
(No Par
Value) Additional Total
------------- Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.... 50 $-- $67,112 $ 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.... 50 -- 68,432 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.... 50 -- 69,927 131,755 201,682
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.... 50 -- 73,697 165,653 239,350
Net income................... -- -- -- 10,036 10,036
Cash transferred (to) from
Parent.................... -- -- 1,004 -- 1,004
Tax benefit of exercised
stock options of Parent... -- -- -- -- --
--- ---- ------- -------- --------
Balance, March 31, 2000....... 50 $-- $74,701 $175,689 $250,390
=== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(In thousands, except per share data)
1. Background and Basis of Presentation
Marshall & Ilsley Corporation ("M&I") plans to create an independent
publicly-traded company comprised of M&I's e-commerce, data processing and
software businesses. Metavante Corporation ("Metavante") 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 ("IPO"), the assets and liabilities
relating to the aforementioned businesses were contributed to Metavante. After
completion of Metavante's IPO, 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 IPO by distributing all of its
shares of common stock to the holders of M&I's common stock.
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 (ASP), 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 will enter into certain 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 also intends to enter into an outsourcing agreement and a
professional services 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
F-7
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. ("M&I
EastPoint"), as well as M&I's share of the Customers Forever LLC ("CF") 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 three month periods ended
March 31, 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 March 31, 2000 and for the three months
ended March 31, 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 three months ended March 31,
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-8
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues attributable to the licensing of software are generally
recognized upon delivery and performance of certain 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
. 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 $3,901 and $4,407 (unaudited)
for the three months ended March 31, 1999 and 2000, respectively. For the three
months ended March 31, 1999 and 2000, revenues recognized were $4,125 and
$4,702 (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, March 31,
--------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Cash......................................... $ 7,453 $ 7,518 $14,468
Short-term investments....................... -- 19,928 20,094
------- ------- -------
$ 7,453 $27,446 $34,562
======= ======= =======
</TABLE>
F-9
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, March 31,
----------------- -----------
1998 1999 2000
(Unaudited)
<S> <C> <C> <C>
Land and improvements..................... $ 2,550 $ 2,484 $ 2,484
Buildings................................. 54,231 56,759 53,524
Computer and other equipment.............. 200,678 209,318 238,619
Construction in progress.................. 2,514 10,090 11,081
-------- -------- --------
259,973 278,651 305,708
Less--accumulated
depreciation/amortization.............. 147,955 154,964 184,258
-------- -------- --------
$112,018 $123,687 $121,450
======== ======== ========
</TABLE>
Depreciation expenses were $31,795, $35,510 and $30,327 for the years
ended December 31, 1997, 1998 and 1999, respectively. For the three months
ended March 31, 1999 and 2000, depreciation expenses were $7,683 and $7,039
(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. Purchased software costs were $2,624 and $2,610
(unaudited) for the three months ended March 31, 1999 and 2000, respectively.
For the three months ended March 31, 1999 and 2000, amortization expense was
$1,561 and $1,395 (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
F-10
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $7,766 and $11,720
(unaudited) for the three months ended March 31, 1999 and 2000, respectively.
For the three months ended March 31, 1999 and 2000, amortization expense was
$3,914 and $4,615 (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 three months ended
March 31, 1999 and 2000, amortization expense was $6,620 and $590 (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 three months ended
March 31, 1999 and 2000, amortization expense was $1,138 and $1,349
(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, 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 $3,549 and $4,022
(unaudited) for the three months ended March 31, 1999 and 2000, respectively.
For the three months ended March 31, 1999 and 2000, recognition of conversion
expense was $3,549 and $4,085 (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.
F-11
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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). 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 March 31, 2000 were
not impaired, management will continue to closely monitor the prospects for
this business.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). The standard requires the disclosure of two earnings per share
amounts--"basic earnings per share of common stock" and "diluted earnings per
share of common stock." The computation of diluted earnings per share is
similar to Metavante's previous computation of "earnings per share of common
stock."
Basic earnings per share of common stock is computed by dividing net
earnings from operations by the weighted average number of common shares
outstanding during the period. Diluted earnings per share of common stock is
computed by dividing the net earnings 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 three months ending March 31, 1999 or 2000. The number of weighted
average common shares used to calculate earnings per share was fifty 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 (principally, 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.
F-12
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("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 FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain 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.
3. Business Combinations and Investments
On December 31, 1998, Metavante acquired certain 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 ("EBS") 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
F-13
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
presents, on a pro forma basis, certain historical information for Metavante,
adjusted for the EBS transaction, as if the transaction had been consummated on
January 1, 1998:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1999
<S> <C> <C>
Pro Forma Company and EBS (Unaudited)
Revenues................................................... $505,064 $556,576
Net Income................................................. 33,110 37,456
</TABLE>
On August 17, 1999, Metavante invested $6,115 in Customers Forever LLC.
This joint venture investment represented approximately a 47% ownership
interest in CF and is accounted for under the equity method of accounting.
Equity losses realized during 1999 in relation to CF were approximately $2,200
for the period from August 18, 1999 through December 31, 1999. Equity losses
realized during the three months ended March 31, 2000 in relation to CF were
approximately $750 (unaudited).
On October 1, 1999, Metavante acquired certain 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 ("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
F-14
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 three months ended March 31,
1999 and 2000, these charges were $1,726 and $2,372 (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% (6.24% at December 31, 1999). At December 31,
1998 and 1999, respectively, the outstanding portion of the 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, interest is to be paid monthly at 6.24%
per annum to maturity. The outstanding portion of the lines of credit were
$18,407 (unaudited) as of March 31, 2000. For the three months ended March 31,
1999 and 2000, interest expense was $299 and $1,393 (unaudited), respectively.
Metavante provides professional services to CF in relation to CF's
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 CF has been appropriately eliminated. For the
three months ended March 31, 2000, unaffiliated revenues were $1,552
(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 $3,389 and $4,312 (unaudited) for the three months
ended March 31, 1999 and 2000, respectively.
F-15
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 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 coinsurance. 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 $460 and
$401 (unaudited) for the three months ended March 31, 1999 and 2000,
respectively.
The changes during the year of the accumulated post-retirement benefit
obligation (APBO) for retiree health benefits from consolidated M&I allocated
to Metavante are as follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
APBO, beginning of year................................... $ 7,947 $ 8,663
Service cost.............................................. 1,263 1,223
Interest cost on APBO..................................... 593 602
Actuarial gains........................................... (1,048) (1,415)
Benefits paid............................................. (92) (113)
------- -------
APBO, 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 APBO... 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 APBO..................................... 483 593 602
Net amortization and deferral........................ (26) (80) (85)
------ ------ ------
$1,290 $1,776 $1,740
====== ====== ======
</TABLE>
F-16
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 March
December 31, 31,
--------------- -----------
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 8,247
Notes payable
Due between 2000 and 2003, with rate of 4%,
secured by Advanced Technology Park Facility
Building..................................... 578 518 498
------ ------- -------
Total debt..................................... 12,715 76,835 75,745
Less--current maturities....................... (6,198) (4,319) (3,998)
------ ------- -------
Total long-term debt........................... $6,517 $72,516 $71,747
====== ======= =======
</TABLE>
F-17
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
No significant changes in maturities of debts occurred from December 31,
1999 to March 31, 2000.
8. Allocated Income Taxes
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Three Months
Years Ended December Ended
31, March 31,
------------------------ ------------
1997 1998 1999 2000
(Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal............................ $20,524 $16,838 $25,441 $ 6,503
State.............................. 2,389 2,857 3,399 895
Deferred............................. (3,867) 3,341 451 --
------- ------- ------- -------
Total allocated provision for income
taxes............................. $19,046 $23,036 $29,291 $ 7,398
======= ======= ======= =======
</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-18
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 certain 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-19
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 three months
ended March 31, 1999 and 2000, rental expense was $2,556 and $3,614
(unaudited), respectively.
No significant changes in future minimum lease payments occurred from
December 31, 1999 to March 31, 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
certain age and years of service criteria at the date of grant.
F-20
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
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 option or similar equity instruments. Under the fair-value-based method,
compensation cost is measured at the 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
F-21
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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" ("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.
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>
F-22
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 nonperformance 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
(principally, 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 combined
statements of assets and liabilities 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.
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
F-23
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS 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.
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 (online financial solutions and
enabling 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.
Online Financial Solutions
The online financial solutions segment is comprised of electronic bill
payment and presentment ("EBPP") business and consumer online banking and
online mortgage services. The EBPP 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
F-24
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Enabling Technology Solutions
The enabling technology solutions segment is comprised of the financial
account processing, customer relationship management solutions, private label
banking, trust and investment solutions, electronic funds transfer ("EFT") and
card solutions products. 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-
enabled outsourcing capabilities to traditional trust companies and registered
investment advisers. EFT products and services link all major EFT networks,
gateways and processors to authorize ATM and debit card transactions and
provide ATM 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 (ACH)
processing, treasury management and professional services for CF.
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.
F-25
<PAGE>
METAVANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Based on Metavante's organization of its segments and the requirements of
SFAS 131, the following outlines reportable segment disclosures:
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Online financial solutions... $ 5,233 $ 7,860 $ 51,670 $ 3,807 $ 17,651
Enabling technology
solutions................. 347,131 425,018 443,980 110,683 115,117
Other........................ 29,398 38,681 50,734 11,660 12,008
-------- -------- -------- -------- --------
Total...................... $381,762 $471,559 $546,384 $126,150 $144,776
======== ======== ======== ======== ========
Income (loss) from operations:
Online financial solutions... $ (3,098) $ (4,191) $ 430 $ (1,119) $ 939
Enabling technology
solutions................. 39,069 46,698 54,529 11,885 15,623
Other........................ 13,395 15,899 18,071 5,073 2,665
-------- -------- -------- -------- --------
Total...................... $ 49,366 $ 58,406 $ 73,030 $ 15,839 $ 19,227
======== ======== ======== ======== ========
</TABLE>
14. Separation
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-26
<PAGE>
15. Quarterly Information (Unaudited)
<TABLE>
<CAPTION>
1998
--------------------------------------------
(In thousands)
Quarter
-----------------------------------
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
--------------------------------------------
(In thousands)
Quarter
-----------------------------------
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-27
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
, 2000
[COMPANY LOGO]
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
UBS Warburg LLC
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............................................. $52,800
Nasdaq National Market listing fee............................... *
NASD filing fee.................................................. *
Blue sky fees and expenses (including fees of counsel)........... *
Accounting fees and expenses..................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Transfer agent and registrar fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
---------------------
*To be completed by amendment.
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
The list of exhibits is incorporated by reference to the "Index to
Exhibits" located after the signature page of this Registration Statement.
(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.
(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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin, on July 13, 2000.
Metavante Corporation
/s/ Joseph L. Delgadillo
By: _________________________________
Joseph L. Delgadillo,
President and Chief Executive
Officer
Each person whose signature appears below hereby constitutes and appoints
Joseph L. Delgadillo, Peter J. Tallian and N. "Norrie" J. Daroga, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Registration Statement (and to
file any and all registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule
462(b) of the Securities Act), and any and all instruments or documents filed
as part of or in connection with this Registration Statement or the amendments
thereto (or any registration statement filed pursuant to Rule 462(b) of the
Securities Act), and each of the undersigned does hereby ratify and confirm all
that said attorney-in-fact and agent, or his substitutes, shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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 July 13, 2000
____________________________________ Officer (Principal Executive Officer)
Joseph L. Delgadillo and Director
/s/ Peter J. Tallian Chief Financial Officer and Executive July 13, 2000
____________________________________ Vice President, Finance and
Peter J. Tallian Administration Group (Principal
Accounting Officer)
</TABLE>
II-4
<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
3.2 Form of Bylaws of the Registrant
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 Form of Change of Control Agreement*
10.4 Form of Administrative Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000*
10.5 Form of Reorganization Agreement between the Registrant and Marshall
& Ilsley Corporation dated as of , 2000*
10.6 Form of Registration Rights Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000*
10.7 Form of General Assignment and Assumption Agreement between the
Registrant and Marshall & Ilsley Corporation dated as of ,
2000*
10.8 Form of Tax Sharing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of , 2000*
10.9 Form of Employee Matters Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000*
10.10 Form of Lease Agreement between the Registrant and Marshall & Ilsley
Corporation dated as of , 2000*
10.11 Form of Outsourcing Agreement between the Registrant and Marshall &
Ilsley Corporation dated as of , 2000*
10.12 Form of Professional Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000*
10.13 Form of Banking Services Agreement between the Registrant and
Marshall & Ilsley Corporation dated as of , 2000*
10.14 License Agreement between Marshall & Ilsley Corporation and A2D, L.P.
dated as of May 9, 2000 (assigned to the Registrant)
10.15(a) Lease Agreement between the Registrant and Ameritech Wisconsin dated
as of March 25, 1994*
10.15(b) Amendment No. One to Lease Agreement between the Registrant and
Wisconsin Bell, Inc., d/b/a Ameritech Wisconsin, dated as of
September 14, 1998*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<C> <S>
10.16(a) Lease Agreement between the Registrant and The Brewery Works, Inc.
dated as of March 9, 2000*
10.16(b) First Amendment to Lease Agreement between the Registrant and The
Brewery Works, Inc. dated as of March 28, 2000*
10.17 Lease Agreement between Marshall & Ilsley Corporation and ADP, Inc.
dated as of April 1, 1999 (assigned to the Registrant)*
10.18 Lease Agreement between the Registrant and Highwoods Realty Limited
Partnership, d/b/a Highwoods Properties, dated as of October 14,
1999*
10.19 Lease Agreement between the Registrant and TIAA Realty, Inc. dated as
of February 15, 1999*
10.20 First Amendment to Lease Agreement between the Registrant and TIAA
Realty, Inc. dated as of June 14, 2000*
10.21 Lease Agreement between the Registrant and Teachers Insurance and
Annuity Association of America dated as of July 1, 1995*
10.22 Lease Agreement between the Registrant and TIAA Realty, Inc.
(successor in interest to Teachers Insurance and Annuity Association
of America) dated as of June 30, 1999*
10.23 Lease Agreement between the Registrant and Teachers Insurance and
Annuity Association of America dated as of February 4, 2000*
21.1 Subsidiaries of the Registrant
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)
27.1 Financial Data Schedule
99.1 Consent of Dennis J. Kuester pursuant to Rule 438 of the Securities
Act
99.2 Consent of James B. Wigdale pursuant to Rule 438 of the Securities
Act
</TABLE>
---------------------
* To be filed by amendment
