-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7pFgL+HXFq+ty8/2dm72VJNiyHaIkCnHPRkPsXGsuGtAnyBRfUg+WjF+DyTCuwN vmOqZ/voLkbHTbG6y4MlAA== 0000950109-99-003762.txt : 19991028 0000950109-99-003762.hdr.sgml : 19991028 ACCESSION NUMBER: 0000950109-99-003762 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19991027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICIAL PAYMENTS CORP CENTRAL INDEX KEY: 0001094998 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 522190781 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-87325 FILM NUMBER: 99734306 BUSINESS ADDRESS: STREET 1: 2333 SAN RAMON VALLEY BOULEVARD STREET 2: SUITE 450 CITY: SAN RAMON STATE: CA ZIP: 94583 BUSINESS PHONE: 9258387996 MAIL ADDRESS: STREET 1: 2333 SAN RAMON VALLEY BOULEVARD STREET 2: SUITE 450 CITY: SAN RAMON STATE: CA ZIP: 94583 FORMER COMPANY: FORMER CONFORMED NAME: US AUDIOTEX CORP DATE OF NAME CHANGE: 19990914 S-1/A 1 AMENDMENT #1 TO FORM S-1 As filed with the Securities and Exchange Commission on October 26, 1999 Registration No. 333-87325 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ OFFICIAL PAYMENTS CORPORATION (Exact name of registrant as specified in its charter) ------------------ Delaware 7374 52-2190781 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification No.) incorporation or Classification Code organization) Number) 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 (925) 855-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ Thomas R. Evans Chief Executive Officer 445 Park Avenue, 10th Floor New York, New York 10022 (917) 322-2540 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Dennis J. Block, Esq. Daniel Clivner, Esq. Cadwalader, Wickersham & Taft Simpson Thacher & Bartlett 100 Maiden Lane New York, New York 10038 10 Universal City Plaza, Suite 852 (212) 504-6000 Universal City, California 91608 (818) 755-7000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] ------------------ CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
Proposed Proposed Maximum Title of Each Class of Amount Maximum Aggregate Amount of Securities to be to be Offering Price Offering Registration Registered Registered(1) Per Share(2) Price(2) Fee - --------------------------------------------------------------------------------- Common Stock, par value $0.01 per share....... 5,750,000 shares $15.00 $86,250,000 $23,978(3) - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
(1) Includes 750,000 shares subject to an over-allotment option granted to the underwriters by us. See "Underwriting." (2) Estimated solely for purposes of computing the registration fee pursuant to Rule 457(o). (3) Of this fee, $16,680 was paid upon the first filing of the registration statement. 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 Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities law to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the documentation 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-- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 1999 OFFICIAL PAYMENTS CORPORATION 5,000,000 Shares of Common Stock - -------------------------------------------------------------------------------- The Offering: Symbol & Market: . OPAY/Nasdaq National. We are offering Market 5,000,000 shares of our common stock. . We have granted the underwriters an option to purchase up to an additional 750,000 shares from us to cover over- allotments. . This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $13.00 and $15.00 per share. Investing in our common stock involves risks. See "Risk Factors" beginning on page 5.
--------------------------------------------------------------------------- Per Share Total --------------------------------------------------------------------------- Public offering price: $ $ Underwriting fees: Proceeds to us:
--------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 CIBC World Markets DLJdirect Inc. [Inside Front Cover Artwork] TABLE OF CONTENTS
Page Prospectus Summary.................. 1 Risk Factors........................ 5 Forward-Looking Statements.......... 15 Use of Proceeds..................... 16 Dividend Policy..................... 16 Capitalization...................... 17 Dilution............................ 18 Selected Financial Data............. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20 Business............................ 33 Management.......................... 49
Page Certain Relationships and Related Transactions....................... 57 Principal Stockholders.............. 59 Description of Capital Stock........ 61 Shares Eligible for Future Sale..... 63 Underwriting........................ 65 Legal Matters....................... 67 Experts............................. 67 About this Prospectus............... 67 Where You Can Find Additional Information........................ 67 Index to Financial Statements ...... F-1
i PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. We urge you to read the entire prospectus carefully. SUMMARY Our Business We believe we are the leading provider of electronic payment options to government entities enabling consumers to use their credit cards to pay, by telephone or through the Internet, personal federal and state income taxes, sales and use taxes, property taxes and fines for traffic violations and parking citations. Our government clients include the IRS, the States of California and New Jersey, the District of Columbia and approximately 425 municipalities. Our pilot program for personal federal income taxes processed approximately 45,000 tax payments totaling more than $174 million in payments to the IRS from January 15, 1999 to April 15, 1999. According to IRS data, we had a 95% market share, based on dollar volume, for credit card payments of personal federal income taxes due April 15, 1999. We also processed over 293,000 payments for our state and municipal government clients totaling $82.7 million in the first nine months of 1999. Our interactive toll-free telephone number, 1-888-2PAY-TAX SM, allows consumers to make payments and receive certain customer service information. We began offering payment services through the Internet in August 1999. Our 8882paytax.com Web site currently allows consumers to make payments of property taxes, business license fees, parking citations and utility bills for two municipalities. Pursuant to agreements with two states and eight additional municipalities, we expect to provide the ability to make similar payments and state income tax payments to those government entities through the Internet by the end of 1999. We are working with our other government clients, including the Internal Revenue Service (IRS), to enable consumers to make additional tax and other payments through the Internet. We are also enhancing our Web site so that consumers will be able to print receipts, save their personal data to facilitate future payments, obtain information regarding our services and access additional tax and other information. We combine expertise in facilitating credit card transactions, an Internet focus and targeted marketing techniques to attract both government clients and consumers to our services. Our services allow our government clients to provide their constituents with user-friendly electronic payment options at no charge to the government entity. Consumers who use our payment services pay us a convenience fee that is added to their payment. We believe that consumers use our services for the convenience, the payment flexibility and the perquisites associated with paying by credit card. We had revenues of $2.4 million in 1998 and $7.2 million in the first nine months of 1999. We incurred net losses of $325,000 in 1998 and $1.3 million in the first nine months of 1999. Our accumulated deficit was $994,000 at December 31, 1998 and $2.3 million at September 30, 1999. Our Market Opportunity and Solution In addition to payments made automatically on a taxpayer's behalf, such as payroll withholding taxes, individuals and small businesses make a variety of payments to government entities at the federal, state and local levels. Based on government data and our estimates, federal and state personal income taxes, state sales and use taxes, local real estate taxes and fines for traffic violations and parking citations total $670 billion annually. We believe our electronic payment solutions are attractive to government entities because they provide an added service to consumers while reducing paperwork and encouraging the electronic filing of tax forms. Our services address the IRS' publicly-stated goal to substantially increase taxpayer access to electronic filing, payment, and communication products and services. Many government entities lack the expertise, technical 1 personnel and economies of scale to cost-effectively implement and maintain the hardware and software necessary to accept credit card payments from consumers by telephone or through the Internet. Our services are designed to work with their existing information systems, require minimal implementation and are provided at no cost to government entities. Individuals and small businesses who utilize a particular payment service can be grouped into user communities, distinguished by specific demographics and psychographics, that may utilize related products and services. For example, we may be able to facilitate the sale of consulting or other related services to small businesses that use our services to pay sales taxes, or the sale of automobile insurance or online driving school services to consumers paying fines for traffic violations. Our Strategy Our goal is to continue to be the leading provider of, and further develop the market for, electronic payment services using credit cards to pay government obligations. The following are key elements of our strategy: . Expand and enhance our service offerings for personal federal income tax payments. For the 1998 tax year, we processed only balance-due personal federal income tax payments. By early 2000, we expect to also process personal estimated and extension tax payments. . Obtain additional state and municipal clients. We currently provide our credit card payment services to the States of California and New Jersey, the District of Columbia and approximately 425 municipal government clients. We are focusing on establishing relationships with additional states and municipalities by leveraging our existing relationships with the IRS and other clients. . Continue the roll-out of our Internet services. Within the next 6 to 12 months, we expect to offer our existing government clients the option to add Internet payments services while new clients will have the option to sign up for both Internet and interactive telephone payment services. . Broaden our payment service offerings. We expect to expand our services to include solutions for personal state estimated and extension income tax payments, corporate taxes and fees, public university tuition and building permit fees. . Cross-sell related services to small business and individual users. By grouping consumers according to the type of payments they make, we intend to target distinct groups of users to cross-sell related products and services. . Increase brand awareness and consumer usage. We have relied on our government clients and credit card issuers, and will continue to work with them, to publicize our services through government publications and credit card billing and promotional inserts. In addition, we intend to advertise directly in order to publicize our services. . Pursue strategic relationships and acquisitions to reach additional consumers and provide related services. 2 General Information We are located on the Internet at www.8882paytax.com. Our executive offices are located at 2333 San Ramon Valley Boulevard, Suite 450, San Ramon, California 94583 and our telephone number is 925-855-5000. We changed our name from U.S. Audiotex Corporation on October 20, 1999. ---------------- References in this prospectus to a particular income tax year mean taxes for that calendar year due in April of the next calendar year. Unless otherwise indicated, all share and per share information in this prospectus: . Assumes that the underwriters will not exercise their over-allotment option; and . Reflects the merger of U.S. Audiotex, LLC into us, which was effective as of September 30, 1999. The Offering Common stock offered............. 5,000,000 shares Common stock to be outstanding after this offering............. 20,000,000 shares Use of proceeds.................. We intend to use the net proceeds of this offering, which are estimated to be approximately $63.0 million
. to repay the outstanding balance of promissory notes, evidencing advances made to us by our stockholders and
. for working capital and general corporate purposes.
For a more detailed discussion of the advances made to us by our stockholders, please see "Use of Proceeds" on page 16 and "Certain Relationships and Related Transactions" on page 57. Proposed Nasdaq National Market symbol.......................... OPAY
Unless otherwise indicated, this prospectus reflects a 3-for-1 stock split as of October 26, 1999, and assumes that the underwriters do not exercise the option granted by us to purchase additional shares in the offering to cover over-allotments. The number of shares of common stock to be outstanding after this offering is based on shares outstanding as of October 26, 1999, and excludes: . 4,488,012 shares of common stock issuable upon exercise of options that have been granted under our 1999 Stock Incentive Plan at an exercise price of $1.33 per share; . 2,411,988 shares of common stock reserved as of October 26, 1999 for issuance under our 1999 Stock Incentive Plan. For a more detailed description of our capitalization, please see "Capitalization" on page 17. 3 Summary Financial Data You should read the following summary financial data in conjunction with "Selected Financial Data" on page 19 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20 and our audited financial statements and the related notes included elsewhere in this prospectus.
Year Ended Nine Months December 31, Ended September 30, ---------------------------- ---------------------- 1996(1) 1997 1998 1998(2) 1999(2) (In thousands, except per share data) Statements of Operations Data: Total revenues........... $ 786 $1,202 $2,369 $ 1,434 $ 7,208 Total cost of revenues... 305 696 1,080 606 5,427 ------ ------ ------ --------- ---------- Gross profit............. 481 506 1,289 828 1,781 Operating expenses....... 766 1,002 1,559 1,099 3,042 ------ ------ ------ --------- ---------- Income (loss) from operations.............. (285) (496) (270) (271) (1,261) ------ ------ ------ --------- ---------- Net income (loss)........ $ (323) $ (502) $ (325) $ (308) $ (1,290) ====== ====== ====== ========= ========== Basic and diluted net income (loss) per share:.................. $(0.01)(/3/) $(0.03) $(0.02) $ (0.02) $ (0.09) ====== ====== ====== ========= ========== Shares used in computing basic and diluted net income (loss) per share:.................. 5,000 5,000 5,000 5,000 5,000 ====== ====== ====== ========= ==========
September 30, 1999 ----------------------- Actual As Adjusted(4) Balance Sheet Data: Cash and cash equivalents............................... $ 514 $61,681 Working capital (deficit)............................... (1,050) 61,799 Total assets............................................ 206 63,228 Total debt including current portion.................... 1,946 113 Stockholders' equity ................................... (472) 65,528
- -------- (1) Includes the results of operations of the predecessor company for the period from January 1, 1996 to June 26, 1996. (2) September 30, 1998 and 1999 information is derived from our unaudited financial statements. (3) Basic and diluted net income (loss) per share excludes net income (loss) of $(156,000) of the predecessor company. (4) Reflects (a) the issuance and sale of shares of common stock in this offering at an assumed initial offering price of $14.00 per share (the midpoint of the range set forth on the cover page of this prospectus), and (b) the use of the net proceeds from this offering as described in "Use of Proceeds" on page 16. See "Certain Relationships and Related Transactions" on page 57 and Note 2 to our financial statements. 4 RISK FACTORS Before you invest in our common stock, you should be aware of various risks, including those risks described in the risk factors below. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide whether to purchase shares of our common stock. You should keep these risk factors in mind when you read forward-looking statements elsewhere in this prospectus. Any or all of these risks could have a material adverse effect on our business, operating results and financial condition. Risks Related to Our Business We have a history of losses and expect to continue to incur losses. We have incurred net losses of approximately $2.3 million for the period from our inception on June 26, 1996 to September 30, 1999. We expect to incur losses from operations for the foreseeable future. We cannot assure you that we will become or remain profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20. In addition, in the third quarter of 1999 we recorded on our balance sheet a deferred stock compensation expense totaling $41.2 million. This expense consists of an amount of $10.0 million, representing the minimum value of the options, guaranteed by Imperial Bank, granted to Thomas R. Evans, our Chairman and Chief Executive Officer, and an amount of $31.2 million, representing the difference between the estimated value of the common stock underlying options we granted to certain of our other officers and employees and the exercise price of those options. The total amount of this expense may increase as a result of additional options that we will grant concurrent with the completion of this offering. The $10.0 million expense related to Mr. Evans' options and $27.0 million of expense related to options granted to our other officers will be amortized, using a straight-line method, over a three-year period, starting in the third quarter of 1999. The remaining $4.2 million of expenses related to options granted to our other employees will be expensed upon completion of this offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" on page 20, "Management--1999 Stock Incentive Plan" on page 53 and "--Employment Agreements" on page 55 and Note 8 to our financial statements. We intend to expend significant resources on increasing our sales and marketing staff and capabilities and systems development. As a result, we will need to significantly increase our revenues to achieve and maintain profitability. We cannot assure you that we will be able to achieve the necessary revenue growth. If our revenues do not increase sufficiently, our operating results and financial condition could be materially and adversely affected. Because our business model is unproven and evolving, it is difficult to evaluate our business. The use of credit cards to make payments to government agencies is relatively new and evolving. To date, our business has consisted primarily of providing credit card payment options for the payment of balance-due federal and state personal income taxes, property taxes, and fines for traffic violations and parking citations. Because we have only a limited operating history, it is difficult to evaluate our business and prospects and the risks, expenses and difficulties that we may face in implementing our business model. Our success will depend on maintaining our relationship with the IRS and on developing additional relationships with state and local government agencies, especially state taxing authorities, and their respective constituents. We cannot assure you that we will be able to develop new relationships or maintain existing relationships, and our failure to do so could have a material and adverse effect on our business, operating results and financial condition. Our future growth depends on the acceptance of our payment systems as a method for making payments to government entities. We work with government entities to allow us to provide credit card payment services to their constituents. While many government entities have initiatives or legislative mandates in place to foster the 5 growth of electronic payments, our business, operating results and financial condition would suffer if there were a reduction in these initiatives. Traditionally, individuals and small businesses have made substantially all payments to government entities by check or money order. We are providing our payment services through our interactive telephone conduit and have developed and will continue to expand the availability of our Internet conduit. However, we cannot assure you that we will be successful in attracting enough additional consumers to use our interactive telephone and Internet conduits to make their payments to our government clients. The lack of meaningful growth in the market for credit card payments to government entities could have a material adverse effect on our business, operating results and financial condition. If consumers are unwilling to pay convenience fees for our services, our business model will fail. Our business model is based on consumers' willingness to pay a convenience fee in addition to their required government payment in order to use our credit card payment option. If consumers are not receptive to paying a convenience fee, demand for our services will decline or fail to grow, which could jeopardize the implementation of our business plan and would have a material and adverse effect on our business, operating results and financial condition. If credit card associations change their rules and do not allow us to charge convenience fees, our operating results would be materially and adversely affected. Credit card association rules governing the use of Visa(R) and MasterCard(R) at merchant locations generally prohibit merchants from charging a convenience fee for cardholder purchases. We and Imperial Bank, our majority stockholder, have worked with these credit card associations to permit convenience fees for credit card payments for government services and taxes. We cannot assure you that credit card association rules will continue to allow us to charge convenience fees. To date, Visa(R) permits a convenience fee but only if it is a flat amount for a particular government service and will not allow fees that are variable in amount depending on the kind of service provided or the amount involved. If our ability to charge convenience fees is limited or eliminated, our business, operating results and financial condition would be materially and adversely affected. The IRS currently accounts for 60% of our revenues, and the loss of the IRS as a client would materially and adversely impact our operating results. In the first nine months of 1999, convenience fees from payments to the IRS accounted for approximately 60% of our total revenues. For the 2000 tax year, we will be required to respond to an IRS request for proposal for electronic payment services for us to continue to provide our services. We expect that the IRS will select one or more electronic payment service providers for the 2000 tax year within the next several months. If the IRS does not accept our proposal, our business, operating results and financial condition would be materially and adversely affected. Most of our contracts with government clients are not exclusive or long-term contracts and, as a result, large government clients may terminate their relationships with us on short notice. Most of our agreements with government clients are non-exclusive, short-term contracts or memoranda of understanding and can be terminated without cause on short notice, generally 30 to 90 days. In addition, a government client may choose not to renew its contract with us or may not choose our proposal in response to a government request for proposal. If one of our larger existing government clients chooses to terminate its contract or memorandum of understanding with us, or does not choose our proposal, our business, operating results and financial condition could be materially and adversely affected. Increased competition in the market for payment services to government entities could result in lower operating margins and decreased market share. Our credit card payment services face competitive pressures from various card issuing banks for Visa(R) and MasterCard(R), which send out checks that function as cash advances and can be used for payments to 6 government entities. In addition, a number of data and bill processing companies have the technical capability and other resources to commence providing credit card payment services, and have indicated an intent to do so. Increased competition from other providers of payment options to government entities could have a material and adverse effect on our business, operating results and financial condition. Many of our current and potential competitors have significantly greater financial, marketing, technical, sales, and customer support and other resources than we do. In addition, some of these competitors may be able to devote greater resources to the development, promotion and sale of their services, adopt more aggressive pricing strategies and devote substantially more resources to the development of technology and systems than we will be able to devote or adopt. Increased competition may result in lower operating margins and loss of market share. We may not be able to compete successfully against current and future competitors, and competitive pressures could have a material and adverse effect on our business, operating results and financial condition. If our services do not function as designed, we may incur significant liability for the processing of fraudulent or erroneous transactions. Our electronic payment services are designed to provide payment management functions and to limit our government clients' risk of fraud or loss in effecting transactions with their constituents. As electronic services become more critical to our government clients, there is the potential for significant liability claims for the processing of fraudulent or erroneous transactions. In addition, defects or programming errors in the software we use could cause service interruptions. Our services depend on complex software that is both internally developed and licensed from third parties. Although we conduct extensive testing, complex software may contain defects or programming errors, or may not properly interface with third party systems, particularly when first introduced or when new versions are released. We encountered an incident where a date coding error in a pilot program resulted in approximately 13,700 transactions being posted for tax year 1999 rather than 1998, which required reposting by the IRS to the correct year. In addition, duplicate transactions by consumers and processing errors by the Company during April 1999 resulted in duplicate payments to the IRS. To the extent that defects or errors are undetected in the future and cannot be resolved satisfactorily or in a timely manner, our business could suffer. If a liability claim or claims were brought against us, even if not successful, their defense would likely be time- consuming and costly and could damage our reputation. Any such liability or claim could have a material and adverse effect on our business, operating results and financial condition. If our system security is breached, we may be liable to government clients and consumer users for damages resulting from the breach. Our failure to prevent system security breaches could have a material and adverse effect on our business, operating results and financial condition. A fundamental requirement for electronic payment services is the secure transmission of confidential information over public communication networks. Third parties may attempt to breach our system security or that of our government clients or consumer users. If they are successful, we may be liable to our government clients or consumer users for any damages resulting from a breach in our system security, and any breach could harm our reputation. We may be required to expend significant capital and other resources to license additional encryption and other technologies to protect against system security breaches or to alleviate problems caused by any such breaches. If our systems fail, we may not be able to provide adequate service, and our operations could be damaged. Our success depends on the efficient and uninterrupted operation of our computer and communications systems. The majority of our computer and communications systems are located in San Ramon and San Francisco, California. Our systems and operations are vulnerable to damage or interruption from: . telecommunication failures; . power loss; 7 . earthquakes, fires or floods; . computer viruses; . physical and electronic break-ins; and . acts of sabotage, vandalism and similar events. Any failure of our systems could impede the timely processing of consumer user payments and other data and the day-to-day management of our business. Despite any precautions we take, a natural disaster or other unanticipated problem that leads to the corruption or loss of data at our facilities could result in an interruption of our services. Service interruptions could have a material and adverse effect on our reputation, business, operating results and financial condition and would have a significant adverse effect if they occurred on or near April 15. A constraint in our capacity to process transactions could impair the quality and availability of our service. Capacity constraints may cause unanticipated system disruptions, impair quality and lower the level of our service, all of which could have a material and adverse effect on our business, operating results and financial condition. Although we believe that we have sufficiently expanded our system capacity to accommodate expected additional personal federal income tax payments and our other anticipated growth, we cannot assure you that we will not suffer capacity constraints caused by a sharp increase in the use of our services. Due to the large number of tax payments made in March and early April, there is an increased risk that we will suffer a capacity constraint during that period, which would have an adverse effect on our business, operating results and financial condition. If we fail to respond to rapid technological change, our systems and services could be rendered obsolete. The electronic payment industry is characterized by rapid technological change. If we cannot adapt or respond in a cost-effective and timely manner to technological changes, our business, operating results and financial condition will be materially and adversely affected, and our technology and systems, and thus our services, could be rendered obsolete. The development of our technologies and necessary service enhancements entails significant technical and business risks and requires substantial lead-time and expenditures. We may not be able to keep pace with the latest technological developments, successfully identify and meet the demands of our government clients and consumer users, use new technologies effectively, or adapt our services to emerging industry standards or to our government clients' or consumer users' requirements. Our operating results may fluctuate significantly from quarter to quarter, which may negatively impact our stock price. We believe our quarterly operating results will fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include: . the seasonality of our business, which is due primarily to the fact that the majority of federal and state personal income tax payments is being made on or near April 15 and to the fact that property tax payments are made only once or twice per year in most jurisdictions; . the amount and timing of costs related to our sales and marketing efforts and other initiatives; and . our ability to upgrade, enhance and maintain our systems and infrastructure in a timely and cost-effective manner. Because of these factors, we believe that comparisons of our quarterly operating results are not necessarily meaningful. In addition, it is possible that in some future quarters our operating results will be below the expectations of research analysts and investors, in which case the price of our common stock is likely to decline. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Fluctuation of Quarterly Results" on page 30. 8 If government clients and credit card issuers cease to publicize our services, consumer use of our services may slow, and we would suffer a large increase in advertising costs. Currently, our government clients and credit card issuers provide most of the publicity for our services, without any cost to us. If these entities cease to publicize our services, or charge us for this publicity, our advertising costs will increase substantially, which could have a material and adverse effect on our business, operating results and financial condition. Our government clients and credit card issuers have no obligation to continue to provide this publicity, and we cannot assure you that they will continue to do so. In addition, the government clients may publicize other services, including those of our competitors. If we do not expand our sales and marketing and other staff and capabilities or effectively manage our internal growth, we may not be able to expand our business. We are currently experiencing a period of rapid expansion. In order to manage our expected growth, accommodate our needs and take advantage of new opportunities in our market, we will need to attract additional key personnel in the near future. We also will need to expand our sales and marketing, technical, finance, administrative, systems and operations staff. This expansion involves a number of risks, including: . our ability to hire and retain qualified personnel in a competitive environment; and . our ability to successfully integrate new personnel with our existing personnel. We cannot assure you that our current and planned personnel levels, systems, procedures and controls will be adequate to support our future operations. If inadequate, we may not be able to exploit existing and potential strategic relationships and market opportunities. Any delays or difficulties we encounter could impair our ability to attract new, and enhance our relationships with existing government clients and consumer users. If we are unsuccessful in hiring, integrating and retaining new personnel, or unable to effectively manage our internal growth, our business, operating results and financial condition could be materially and adversely affected. A number of members of our management team have little experience working together; we depend on a few key employees. Our future success will depend upon the continued service of key management and technical personnel. Thomas Evans, our Chairman and Chief Executive Officer, joined us in August 1999. Given his limited experience with our business and other members of management, it is possible that Mr. Evans may not integrate well into our business. The failure of key personnel to integrate well would have a material and adverse effect on our business, operating results and financial condition. We currently do not maintain key man life insurance policies on any of our employees. The loss of the services of any of our key employees or our inability to hire and retain additional key employees would have a material and adverse effect on our business, operating results and financial condition. If we do not adequately address year 2000 issues, we may incur significant costs, which could negatively impact our operating results. Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot reliably distinguish dates beginning on January 1, 2000 from dates prior to the year 2000. Many of these computer systems and software products may need to be upgraded or replaced in order to correctly process dates beginning in 2000. The failure to correct any year 2000 issues in the software and computer systems used for our services could materially and adversely affect our business, operating results and financial condition. 9 We rely on interfacing with computer hardware and software provided by third parties that may not be year 2000 compliant. Currently, these third parties primarily consist of our government clients. For many of these government clients, we have installed our systems onto their computer networks. As our Internet roll-out continues, these third parties will include our consumer users, who will access our services through their own computer systems. The failure of third party hardware or software to properly process dates for the year 2000 and any failure by these third parties to resolve any year 2000 issues they may have could cause us to incur unanticipated expenses. These expenses could have a material adverse effect on our business, operating results and financial condition. We believe that we have identified substantially all local installations at our government clients' sites that require remediation to be year 2000 compliant. We are currently remediating those identified local installations. If we are unable to properly remediate all local installations requiring remediation, or complete such remediation in a timely manner, our government clients will experience year 2000 problems, which could expose us to liability and damage our reputation and result in a material and adverse effect on our business, operating results and financial condition. Additionally, to the extent that year 2000 issues have a negative impact on consumer users and undermine the public's faith in the Internet as a medium for the exchange of information and commerce, growth of Internet commerce could slow, which in turn could materially and adversely affect our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness" on page 31. We may not be able to protect our intellectual property rights, which may result in damages to us; or we may infringe on the rights of others, which may subject us to liability for damages caused to third parties. We protect our intellectual property rights through a combination of trademark, service mark, copyright and trade secrets laws. We cannot assure you, however, that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation of those rights. We do not have any proprietary technology or patent protections. In addition, we cannot be certain that our services do not infringe on valid patents, copyrights and intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming and could divert our management's attention away from running our business. We may not be able to license technologies, including Web server and encryption technologies, from third parties on favorable terms, and we may not be able to utilize these technologies successfully. We intend to continue to license technology from third parties, including our Web server and encryption technology. Our business is evolving, and we may need to license additional technologies to remain competitive or adequately protect the security of our systems. We may not be able to license these technologies on commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology into our services. These third party licenses may fail to generate revenues sufficient to offset associated acquisition and maintenance costs, or may divert our resources from the development of our own proprietary technology. Our inability to obtain any of these licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. Any such delays in services could cause our business and operating results to suffer. We substantially depend on Imperial Bank's sponsorship to maintain our status as a credit card member service provider or certified processor; and our status in each credit card association could be suspended or terminated if we cannot comply with standards or if the associations change their membership rules. Termination of our member service provider registrations or our status as a certified processor of credit cards, or any changes in the rules of the credit card associations that limit our ability to provide processing and 10 marketing services, could have a material adverse effect on our business, operating results and financial condition. As a nonbank processor, in order to process credit card transactions, we must be sponsored by a financial institution that is a principal member of a credit card association. Through Imperial Bank, our majority stockholder, we are registered with Visa(R) and MasterCard(R) as a certified processor and member service provider. See "Certain Relationships and Related Transactions" on page 57. We are a merchant agent for American Express(R). Our status in each association and with American Express(R) depends on our compliance with their standards, which may change and may vary from association to association, and could be suspended or terminated if we are unable to comply. We cannot assure you that the credit card associations will maintain our registrations or keep their current rules in effect. Additionally, some of the member financial institutions that set the rules for each credit card association are our or Imperial Bank's competitors, and may help effect rules that are less favorable to us. Our failure to successfully integrate any future acquisitions could strain our managerial, operational and financial resources. As part of our business strategy, we intend to pursue opportunistic acquisitions that would provide additional technologies, products, services or experienced personnel. Acquisitions present a number of potential risks that could have a material and adverse effect on our business, operating results and financial condition, including: . difficulty in assimilating the acquired company's personnel, operations and technologies; . entrance into markets in which we have limited or no prior experience; . the potential loss of key employees of the acquired company; . the distraction of our management's attention from other business concerns; and . the potentially dilutive issuance of our common stock, the use of significant amounts of cash or the incurrence of substantial amounts of debt. Risks Related to Our Industry If the growth in the use and capacity of the Internet does not continue, or the Internet is not secure, the growth of our business will be negatively impacted. The growth of our business would be materially and adversely affected if Internet usage does not continue to grow rapidly. Internet usage may be inhibited for a number of reasons, including: . concerns about the security of confidential information; . lack of reliability and ease of access; . lack of cost-effective, high-speed service; . inconsistent quality and interruption of service; . inadequate network infrastructure; and . adoption of onerous laws or governmental regulations. The Internet infrastructure may not be able to support the demands placed on it by increased usage and its performance and reliability may decline. Internet Web sites have experienced interruptions and delays in their service as a result of outages occurring throughout the Internet network infrastructure. If these outages or delays occur frequently in the future, Internet usage, as well as the use of our Internet payment service, could grow more slowly than projected or decline. In addition, because a number of our services involve the transfer of confidential information, our business, operating results and financial condition could be materially and adversely affected if Internet users significantly reduce their use of the Internet due to security concerns. 11 We may become subject to Federal Reserve Board licensing laws or to expanded electronic fund transfer rules, which could increase our operating costs and restrict our business activities. Our management believes that we are not required to be licensed by the Federal Reserve Board, or other federal or state agencies that regulate or monitor banks or other types of providers of electronic commerce services. We cannot assure you that a federal or state agency will not attempt, either now or in the future, to require that providers of services like ours be licensed. This would impede our ability to do business in the areas within the regulator's jurisdiction. In conducting several aspects of our business, we are subject to various laws and regulations relating to commercial transactions generally, such as the Uniform Commercial Code. We are also subject to the electronic fund transfer rules embodied in Regulation E issued by the Federal Reserve Board. Given the expansion of the electronic commerce market, it is possible that the Federal Reserve Board might revise Regulation E or adopt new rules for electronic fund transfers affecting users other than consumers. It is possible that Congress or individual states could enact laws regulating the electronic commerce market. If enacted, these laws, rules and regulations could be imposed on our business and industry and could have a material and adverse effect on our business, operating results and financial condition. Because of Imperial Bank's ownership of our shares, we are subject to federal and state banking laws, which, if changed, could further restrict our business activities or increase our operating cost. We are subject to federal and state banking laws and regulations because of Imperial Bank's ownership of our stock. In order to allow Imperial Bank to comply with applicable laws and regulations, we are restricted from entering into certain business activities. These restrictions limit our discretion in operating our business. We cannot assure you that the banking laws and regulations will not be amended, replaced or construed differently, the effect of which could materially and adversely affect our business, operating results and financial condition. See "Business--Regulatory Matters" on page 47 and "Certain Relationships and Related Transactions" on page 57. If there are changes in tax laws which decrease the amount, the methods or the frequency of our consumer tax payments, our revenues could decrease. Congress, as well as individual states and municipalities, regularly consider a wide array of tax proposals. These tax proposals may result in a reduction of federal, state or local tax rates, collection of a greater percentage of taxes through withholding or other changes that could result in a decrease in the number and amount of payments that consumer users have to make directly to a government entity. In addition, some of these proposals may result in taxation of credit card perquisites, such as frequent flyer miles. If any of these proposals were to be passed, it may reduce the number and amount of tax payments effected through our services and the dollar amount of our revenue derived from the convenience fees charged to consumer users. If enacted, these laws could have a material and adverse effect on our business, operating results and financial condition. If there is a general economic downturn, the amount of income tax paid could decrease, which would reduce our operating results. Income taxes are dependent on the amount of income earned by tax paying citizens. A significant economic downturn could reduce the per capita income of citizens, and thus reduce the amount of income tax payments consumer users have to make to a government entity, which may reduce our revenues from convenience fees. If the United States experiences an economic downturn, it could have a material and adverse effect on our business, operating results and financial condition. 12 Risks Related to This Offering Our directors, executive officers and principal stockholders will be able to exert significant influence over us. After this offering, our directors, executive officers and our current stockholders, Imperial Bank and Beranson Holdings, Inc., will beneficially own approximately 75.0% of our outstanding common stock, or 72.3% if the underwriters exercise their over-allotment option in full. These stockholders, if they vote together, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also delay or prevent a change in control of us or discourage a potential acquirer from attempting to obtain control of us, any of which could have an adverse effect on the market price of our common stock. See "Management" and "Principal Stockholders" on page 59. The tangible book value of our common stock is substantially lower than the offering price, resulting in immediate and substantial dilution to you. The initial public offering price will be substantially higher than the tangible book value per share of our outstanding common stock. If you purchase our common stock in this offering, the shares you buy will experience an immediate and substantial dilution in tangible book value per share. The shares of common stock owned by the existing stockholders will experience a material increase in the tangible book value per share. The dilution to investors in this offering will be approximately $10.87 per share. As a result, if we were to distribute our tangible assets to our stockholders immediately following this offering, purchasers of shares of common stock in this offering would receive less than the amount paid for such shares. See "Dilution" on page 18. Anti-takeover provisions in our charter and Delaware law could inhibit others from acquiring us, which could adversely affect the market price of our common stock. Some of the provisions of our certificate of incorporation, bylaws and Delaware law could, together or separately: . discourage potential acquisition proposals; . delay or prevent a change in control; and . limit the price that investors may be willing to pay in the future for shares of our common stock. In particular, our certificate of incorporation and bylaws provide, among other things, that stockholders may not take actions by written consent, that special meetings of stockholders may only be called by a majority of our board of directors or by our Chairman and that approval by stockholders owning 80% of our shares is required for the removal of our directors, the adoption, amendment or repeal of our bylaws and the consummation of certain business combinations with any related person. We are also subject to Section 203 of the Delaware General Corporation Law which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder, as defined in the statute, for a period of three years following the date on which the stockholder became an interested stockholder. Our stock has not been publicly traded before and there may be volatility in our stock price. Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market. The initial public offering price for the shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common stock that will prevail in the trading market. See "Underwriting" on page 65. The market price of the common stock may decline below the initial public offering price. In recent years, the securities markets have experienced substantial volatility in prevailing price levels that is unrelated or disproportionate to the operating performance of individual companies. The 13 market prices of the securities of Internet-related companies have been especially volatile. Some companies that have had volatile stock prices have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management's attention and resources. This could have a material adverse effect on our business, operating results and financial condition. Management has broad discretion as to the use of proceeds from this offering. Our management will have broad discretion with respect to the use of proceeds from this offering. Most of the proceeds from this offering will be used for expenses of the business, such as hiring sales and marketing personnel, repayment of stockholder loans and general working capital. You will be relying on the judgment of our management about these uses. See "Use of Proceeds" on page 16. If we do not use the proceeds of this offering beneficially, our business, operating results and financial condition could be materially and adversely affected. There may be an adverse effect on the market price of our stock as a result of shares being available for sale in the future. Sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could adversely affect the prevailing market price of our common stock. This could also impair our ability to raise additional capital through the sale of our equity securities. After this offering, we will have 20,000,000 shares of common stock outstanding, or 20,750,000 shares if the underwriters exercise their over-allotment option in full. Of these shares, the shares sold in this offering will be freely tradable, except for shares purchased by any of our affiliates, which will be subject to the limitations of Rule 144 under the Securities Act. The remaining shares are "restricted securities," and will become eligible for sale in the public market at various times after 180 days after the date of this prospectus, subject to the limitations and other conditions of Rule 144 under the Securities Act. In addition, in connection with this offering, holders of all shares of restricted securities and options to purchase our common stock have agreed not to sell the shares of common stock they now own or acquire upon exercise of such options without the prior written consent of Donaldson, Lufkin & Jenrette for a period of 180 days from the date of this prospectus. See "Shares Eligible for Future Sale" on page 63. 14 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control. The factors listed in the sections entitled "Risk Factors" on page 5 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward- looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in the "Risk Factors" section and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and elsewhere in this prospectus could have a material adverse effect on our business, operating results and financial condition. 15 USE OF PROCEEDS We will receive approximately $63.0 million in net proceeds from the sale of the shares of common stock we are offering. If the underwriters exercise their over-allotment option in full, our net proceeds will be approximately $72.8 million. Net proceeds is what we expect to receive after paying underwriting discounts and commissions and estimated offering expenses. For the purpose of estimating net proceeds, we are assuming that the initial public offering price will be $14.00 per share, which represents the midpoint of the range set forth on the cover page of this prospectus. We expect to use approximately $2.8 million of the net proceeds to repay the outstanding balance of the advances available to us by our stockholders to fund our ongoing operations. These advances are evidenced by promissory notes bearing interest at a floating rate equal to Imperial Bank's prime rate plus 2% per year. We expect that the outstanding balance of the promissory notes will increase as a result of additional advances made to us by our stockholders during the period from September 30, 1999 to the closing of this offering. For a more detailed discussion, please see "Certain Relationships and Related Transactions" on page 57. We intend to use the balance of the net proceeds for working capital and general corporate purposes, including developing new payment and Internet services, increasing our sales and marketing staff and capabilities and making acquisitions. While we expect to evaluate potential acquisitions from time to time, we have no present understandings, commitments or agreements with respect to any acquisitions. DIVIDEND POLICY We have neither declared nor paid any cash dividends on our common stock. We do not anticipate paying any cash dividends for the foreseeable future. Any future determination as to the payment of dividends will be at the discretion of our board of directors. 16 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999: . on an actual basis; and . as adjusted to reflect the sale of 5,000,000 shares of common stock in this offering at an assumed offering price of $14.00 per share, which represents the midpoint of the range set forth on the cover page of this prospectus, less underwriting discounts and commissions and estimated offering expenses. You should read the following table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20 and our financial statements and related notes included elsewhere in this prospectus.
As of September 30, 1999 (unaudited) --------------------- Actual As Adjusted (In thousands) Cash and cash equivalents................................ $ 514 $ 61,681 ======== ======== Debt: Notes payable and capital lease obligations............ $ 314 $ 113 Notes payable to stockholders.......................... 1,632 -- Stockholders' equity: Common stock, $0.01 par value; 150,000,000 shares authorized; 15,000,000 shares issued and outstanding, as of September 30, 1999; 20,000,000 shares issued and outstanding, as adjusted ............................. 150 200 Additional paid-in capital............................. 42,373 105,323 Deferred stock compensation............................ (40,711) (40,711) Retained earnings (deficit)............................ (2,284) (2,284) -------- -------- Total stockholders' equity .......................... (472) 62,528 -------- -------- Total capitalization............................... $ 1,474 $ 62,641 ======== ========
17 DILUTION Our net tangible book value as of September 30, 1999 was $(472,000) or approximately $(0.03) per share, based on 15,000,000 shares of common stock outstanding. 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 at September 30, 1999. Our net tangible book value as of September 30, 1999 would have been $62,528,000, or $3.13 per share, after giving effect to the sale of the shares of common stock in this offering at an assumed initial public offering price of $14.00 per share, which represents the midpoint of the range set forth on the cover page of this prospectus, less the underwriting discounts and commissions and estimated offering expenses payable by us. This represents an immediate increase in the net tangible book value of approximately $3.15 per share to our existing stockholders and an immediate dilution of $10.87 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution: Initial public offering price per share................... $14.00 Net tangible book value per share as of September 30, 1999................................................... $(0.03) Increase in net tangible book value per share attributable to new stockholders....................... 3.15 ------ Net tangible book value after this offering............... 3.13 ------ Dilution per share to new stockholders.................... $10.87 ======
The following table summarizes, as of September 30, 1999, the number of shares of common stock we have sold, the total consideration paid to us and the average price per share paid to us by existing stockholders and by the investors purchasing shares of common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses:
Shares Purchased Total Consideration Average Price ------------------ ------------------- ------------- Number Percent Amount Percent Per Share Existing stockholders...... 15,000,000 75.0% $ 1,396,000 2.0% $ 0.09 New stockholders........... 5,000,000 25.0 70,000,000 98.0 14.00 ---------- ----- ----------- ----- ------ Total.................... 20,000,000 100.0% $71,396,000 100.0% $ 3.57 ========== ===== =========== ===== ======
In the event that we issue additional shares of common stock in the future, purchasers of common stock in this offering may experience further dilution. The tables above assume no exercise of stock options outstanding on September 30, 1999. Options to purchase 4,488,012 shares of common stock, having a weighted average exercise price of $1.33 per share, were outstanding as of September 30, 1999. When and if these options are exercised, new stockholders will experience further dilution. 18 SELECTED FINANCIAL DATA The following selected historical financial data for each of the years in the three year period ended December 31, 1998 and as of December 31, 1997 and 1998 have been derived from our financial statements, which have been audited by KPMG LLP, our independent auditors and are included elsewhere in this prospectus. The results of operations for the year ended December 31, 1995 and 1996 includes the results of operations of our predecessor company for the period from January 1, 1995 to June 26, 1996. The selected financial data as of December 31, 1995 and September 30, 1998 and 1999 and for the year ended December 31, 1995 and the nine months ended September 30, 1998 and 1999 have been derived from our unaudited financial statements, which include, in the opinion of our management, all adjustments, consisting only of normal recurring adjustments and deferred stock compensation, that we consider necessary for a fair presentation of financial position and results of operations for that period and at that date. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of results to be expected for any future period. The information set forth below should be read along with the financial statements and the related notes included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20.
Year Ended Nine Months December 31, Ended September 30, ----------------------------------- --------------------- 1995 1996(1) 1997 1998 1998 1999 (In thousands, except per share data) Statements of Operations Data: Revenues: Transaction fees....... $ 102 $ 351 $ 935 $2,076 $ 1,286 $ 6,995 Other revenues......... 559 435 267 293 148 213 ----- ------ ------ ------ --------- ---------- Total revenues..... 661 786 1,202 2,369 1,434 7,208 Total cost of revenues: Cost of transaction fees.................. 24 221 412 1,009 593 5,306 Cost of other revenues.............. 63 84 284 71 13 121 ----- ------ ------ ------ --------- ---------- Total cost of revenues.......... 87 305 696 1,080 606 5,427 ----- ------ ------ ------ --------- ---------- Gross profit............ 574 481 506 1,289 828 1,781 Operating expenses: Sales and marketing.... 236 222 330 356 287 622 Development costs...... 113 238 206 608 475 648 General and administrative........ 673 306 446 595 337 1,138 Deferred stock compensation.......... -- -- 20 -- -- 516 Allocated expenses from related party.... -- -- -- -- -- 118 ----- ------ ------ ------ --------- ---------- Total operating expenses.......... 1,022 766 1,002 1,559 1,099 3,042 ----- ------ ------ ------ --------- ---------- Income (loss) from operations............. (448) (285) (496) (270) (271) (1,261) Other income (expense), net.................... (8) (38) (6) (55) (37) (29) ----- ------ ------ ------ --------- ---------- Net income (loss)....... $(456) $ (323) $ (502) $ (325) $ (308) $ (1,290) ===== ====== ====== ====== ========= ========== Basic and diluted net income (loss) per share.................. $ -- $(0.01)(/2/) $(0.03) $(0.02) $ (0.02) $ (0.09) ===== ====== ====== ====== ========= ========== Shares used in computing basic and diluted net income (loss) per share.................. -- 15,000 15,000 15,000 15,000 15,000 ===== ====== ====== ====== ========= ========== Balance Sheet Data: Cash and cash equivalents............ $ 44 $ 221 $ 182 $ 631 $ 361 $ 514 Working capital (deficit).............. 64 (60) (221) 392 (313) (1,050) Total assets............ 584 695 764 1,747 1,159 2,061 Total debt including current portion........ 383 476 389 810 318 1,946 Stockholders' equity (deficit).............. 141 (11) (91) 184 182 (472)
- -------- (1) Includes the results of operations of the predecessor company for the period from January 1, 1996 to June 26, 1996. (2) Basic and diluted net income (loss) per share excludes the net income (loss) of $(156,000) of the predecessor company for the period from January 1, 1996 to June 26, 1996. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or our future financial performance which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under "Risk Factors" on page 5 and "Business" on page 33. Overview We believe we are the leading provider of electronic payment options to government entities enabling consumers to use their credit cards to pay, by telephone or through the Internet, personal federal and state income taxes, sales and use taxes, property taxes and fines for traffic violations and parking citations. The use of credit cards to make payments to government entities is relatively new and evolving. We commenced our current operations on June 26, 1996, initially offering our credit card payment services for the payment of fines for traffic violations, parking citations and property taxes. We currently offer these services to approximately 425 municipalities. In January 1999, we signed a credit card payment contract with the IRS and we began providing our services for the balance-due payment of personal federal income taxes. We started providing services for the payment of personal state income taxes in California in January 1999, in New Jersey in March 1999 and in the District of Columbia in July 1999. Consumers can make payments through our toll-free interactive telephone system. Since August 1999, consumers have also been able to make certain payments through our Web site, www.8882paytax.com. Our predecessor company was originally founded in 1986 as a provider of interactive voice response applications for the classified advertising industry. In July 1996, our predecessor company made the decision to discontinue those operations to focus on our current business. In April 1997, our predecessor company sold those operations. Our revenues consist primarily of convenience fees, which are transaction fees paid by consumers for using our credit card payment services. In the first nine months of 1999, our convenience fees ranged from 2.5% to 8.8% of the amount paid per transaction. We charge a convenience fee that either varies depending on the dollar amount of the payment or is fixed. For processing personal federal and state income tax payments and property tax payments, the convenience fee that we charge is a percentage of the payment amount. For processing fines for traffic violations and parking citations, we charge a fixed amount per ticket. We also derive a small amount of other revenues from sales of our systems to government entities and other miscellaneous fees such as for maintenance and consulting. Revenues are recognized upon installation of the software for system sales. Our revenues have increased significantly since we started providing services in January 1999 for personal federal income tax payments. Our primary cost of revenues is merchant discount fees paid to our credit card processors, which, in the first nine months of 1999, ranged from 2.1% to 2.6% of the total amount paid by the consumer, depending on the credit card used and the type of transaction. We also incur telecommunications costs of approximately $0.50 per completed transaction through our telephone conduit. Although there are no telecommunications costs associated with payments made through our Internet conduit, we pay a third party license fee of $0.15 per completed transaction for certain technology used in our Internet conduit. We may also pay referral fees for transactions completed as a result of referrals by third parties. We retained between 11.6% to 64.2% of the convenience fee after paying the merchant discount fee and telecommunication costs for payments processed 20 through our telephone conduit and 12.0% to 67.0% of the convenience fee for payments processed through the Internet for the first nine months of 1999. Our cost of revenues has increased significantly since January 1999 because of the large number of personal federal income payments processed. Processing fines for traffic violations and parking citations produces a higher gross margin than processing personal federal and state income tax payments and property tax payments because the convenience fee as a percentage of fines processed is significantly higher than the convenience fee as a percentage of federal and state income tax payments and property tax payments processed. Operating expenses include sales and marketing expenses, development costs, general and administrative expenses, deferred stock compensation and allocated expenses for related party. Sales and marketing expenses consist primarily of salaries and commissions for sales and marketing personnel. We expect to significantly increase our sales, marketing, advertising, customer service and new customer implementation expenditures during the next twelve months. We believe these expenditures will enable us to increase the number of consumers that use our electronic payment services and grow our government client base. Development costs consist primarily of salaries for engineering personnel and depreciation of computer equipment used to enhance our interactive telephone system and develop our Internet services. We expense our development costs as they are incurred. We expect to increase our development costs in the future as we enhance our Internet conduit and develop new service offerings. This increase will primarily relate to the hiring of additional employees performing technical support and computer programming functions. The impact of our strategy to expand our Internet offerings and capabilities will have minimal effect on our results of operations and liquidity and capital resources. General and administrative expenses consist primarily of salaries for executive, accounting and administrative personnel. We also expect general and administrative expenses to increase significantly as we continue to hire additional members of our management team. We recorded $516,000 related to the amortization of deferred stock compensation in the nine-month period ended September 30, 1999. Allocated expenses from related party is due to Imperial Bank employees providing consulting services to us related to this offering. We have incurred significant losses since our inception and we expect to continue to incur losses for the foreseeable future. As of September 30, 1999, we had an accumulated deficit of approximately $2.3 million. We have recorded on our balance sheet a deferred stock compensation expense totaling $41.2 million in the third quarter of 1999. This expense consists of an amount of $10.0 million, representing the guaranteed value of options granted to Thomas R. Evans, our Chairman and Chief Executive Officer, and an amount of $31.2 million, representing the estimated value of the common stock underlying options we granted to certain of our other officers and employees in August and September of 1999 in excess of the exercise price of those options. The total amount of this expense will increase as a result of additional options that we will grant on or prior to the completion of this offering. The $10 million expense related to Mr. Evans' options and $27.0 million of expense related to new options granted to other of our officers and employees will be amortized, using a straight-line method, over a three-year period, starting in the third quarter of 1999. The remaining $4.2 million of expenses related to options previously granted to other officers and employees will be expensed upon completion of this offering. See "Management--1999 Stock Incentive Plan" on page 53 and "--Employment Agreements" on page 55 and Note 8 to our financial statements. Significant Government Contracts Our agreements with our government clients are non-exclusive and short-term, and can generally be terminated without cause on short notice, in most cases 30 to 90 days. Under these agreements, we provide our services at no charge to our government clients and we pay the credit card discount and transaction fees. In January 1999, we entered into an agreement with the IRS to provide credit card payment services for the balance-due payment of personal federal income taxes. The initial agreement expired in October 1999, and the IRS subsequently renewed our contract. Under the terms of our agreement with the IRS, we will provide: . services for balance-due payments from January 14, 2000 to October 16, 2000; 21 . services for extension payments from January 14, 2000 to April 17, 2000; and . services for estimated payments from March 1, 2000 to January 31, 2001. Under the terms of the agreement, we must comply with availability, access and reporting requirements specified by the IRS. In September 1999, we entered into an agreement with the IRS to provide services allowing taxpayers to use computer software programs both to file personal income tax returns and to pay the balance due by credit card. According to the agreement, we would provide these integrated filing and payment services from January 14, 2000 to October 16, 2000. We intend to partner with electronic filing software providers such as OrrTax Software Inc. to provide these services. Under the agreement, the average convenience fee on the payments cannot exceed 3% of the tax payment. In November 1998, we entered into an agreement with Novus Services, Inc. by which we assumed Novus' obligations under its contract with the California Franchise Tax Board to provide credit card payment services for balance-due personal state income taxes. The term of the agreement is indefinite. In January 1999, we entered into a contract with the Division of Purchase and Property of the State of New Jersey to provide credit card payment services for balance-due and estimated personal state income taxes. The initial term of the contract is two years, expiring in February 2001. In December 1998, we entered into a contract with the Office of the Chief Financial Officer of the District of Columbia to provide credit card payment services for balance-due personal income taxes. The contract includes provisions relating to the convenience fees we may charge, and any changes to our fees must be approved by the District of Columbia. The initial term of the contract is one year, expiring in December 1999, and the District of Columbia has the option to extend the contract for periods of up to four additional years. Results of Operations The following table sets forth, for the periods illustrated, certain statements of operations data expressed as a percentage of total revenues:
As a Percentage of Revenues ------------------------------------- Nine Months Year Ended Ended December 31, September 30, ------------------ ---------------- 1996 1997 1998 1998 1999 Revenues: Transaction fees......................... 45 % 78 % 88 % 90 % 97 % Other revenues........................... 55 22 12 10 3 --- --- --- ------ ------ Total revenues......................... 100 100 100 100 100 Cost of revenues: Cost of transaction fees................. 28 34 43 41 73 Cost of other revenues................... 11 24 3 1 2 --- --- --- ------ ------ Total cost of revenues................. 39 58 46 42 75 --- --- --- ------ ------ Gross profit............................... 61 42 54 56 25 Operating expenses: Sales and marketing...................... 28 27 15 20 9 Development costs........................ 30 17 26 33 9 General and administrative............... 39 39 25 24 15 Deferred stock compensation.............. -- -- -- -- 2 Allocated expenses from related party expense................................. -- -- -- -- 7 --- --- --- ------ ------ Total operating expenses............... 97 83 66 77 42 --- --- --- ------ ------ Income (loss) from operations.............. (36) (41) (12) (19) (17) Other income (expense), net................ (5) (1) (2) (2) -- --- --- --- ------ ------ Net income (loss).......................... (41)% (42)% (14)% (21)% (17)% === === === ====== ======
22 Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Revenues Total revenues. Total revenues increased $5.8 million to $7.2 million for the nine months ended September 30, 1999 from $1.4 million for the nine months ended September 30, 1998, an increase of 414%. This increase is primarily attributable to revenues generated from processing personal federal and state income tax payments as well as increases in revenues from processing property taxes and fines for traffic violations and parking citations. Personal federal income tax. Revenues from processing personal federal income tax payments, a service we introduced on January 15, 1999, were $4.3 million for the nine months ended September 30, 1999, representing 60% of our total revenues. We processed approximately 44,840 transactions totaling $174.0 million during this period. On average, we charged a 2.5% convenience fee based upon the dollar amount of the IRS payment for processing personal federal income taxes during this period. Personal state income tax. Revenues from processing personal state income tax payments, a service we introduced in January 1999 for California and in March 1999 for New Jersey, were $291,000 for the nine months ended September 30, 1999, representing 4.0% of our total revenues. We processed approximately 23,100 transactions totaling $10.0 million during this period. On average, we charged a 2.9% convenience fee based upon the dollar amount of the payment for processing personal state income taxes during this period. Property taxes. Revenues from processing property tax payments increased $597,000 to $954,000 for the nine months ended September 30, 1999 from $356,000 for the nine months ended September 30, 1998, an increase of 167%. For the nine months ended September 30, 1999, we processed approximately 55,000 transactions totaling $33.2 million, compared to 15,800 transactions totaling $12.6 million for the nine months ended September 30, 1998. This increase is primarily attributable to new local jurisdictions added subsequent to September 30, 1998. As of September 30, 1999, we had 150 local government clients for property tax payment services, compared to 43 as of September 30, 1998. Because of an increase in the rate of convenience fee charged that became effective during the second quarter of 1999, we also collected a higher convenience fee based upon dollar amount of payment, for the nine months ended September 30, 1999 compared to the nine months ended September 30, 1998. Revenues from processing property tax payments represented 13% of total revenues for the nine months ended September 30, 1999 compared to 25% for the nine months ended September 30, 1998. Fines for traffic violations. Revenues from processing fines for traffic violations increased $308,000 to $888,000 for the nine months ended September 30, 1999 from $580,000 for the nine months ended September 30, 1998, an increase of 53%. For the nine months ended September 30, 1999, we processed approximately 59,000 transactions totaling $8.7 million, compared to 42,500 transactions totaling $6.2 million for the nine months ended September 30, 1998. This increase is primarily attributable to higher utilization rates and new local jurisdictions added subsequent to September 30, 1998. The convenience fee charged remained relatively constant. As a result, the increase in revenues was driven by increases in the number of transactions. As of September 30, 1999, we had 166 local government clients for traffic violation payment services, compared to 109 as of September 30, 1998. Revenues from processing fines for traffic violations represented 12% of total revenues for the nine months ended September 30, 1999 compared to 40% for the nine months ended September 30, 1998. Fines for parking citations. Revenues from processing fines for parking citations increased $91,000 to $206,000 for the nine months ended September 30, 1999 from $115,000 for the nine months ended September 30, 1998, an increase of 79%. For the nine months ended September 30, 1999, we processed approximately 69,000 transactions totaling $2.4 million, compared to approximately 39,400 transactions totaling $1.3 million for the nine months ended September 30, 1998. This increase is primarily attributable to one local jurisdiction being added in July of 1998. The convenience fee charged remained relatively constant. As a result, the 23 increase in revenues was driven by an increase in the number of transactions processed. Revenues from processing fines for parking citations represented 3% of total revenues for the nine months ended September 30, 1999 compared to 8% percent for the nine months ended September 30, 1998. Other transaction fees. Other transaction fees, which include revenues from fax filing and processing payments to utilities, increased $79,000 to $314,000 for the nine months ended September 30, 1999 from $235,000 for the nine months ended September 30, 1998, an increase of 34%. Other revenues. Other revenues increased $65,000 to $213,000 for the nine months ended September 30, 1999 from $148,000 for the nine months ended September 30, 1998, an increase of 87%. The largest component of other revenues, system sales, increased $90,000 due to two local jurisdictions purchasing a computer system during the nine months ended September 30, 1999 compared to one local jurisdiction purchasing a computer system during the nine months ended September 30, 1998. Expenses Cost of transaction fees. Cost of transaction fees increased $4.7 million to $5.3 million for the nine months ended September 30, 1999 from $593,000 for the nine months ended September 30, 1998, an increase of 793%. The largest component of cost of transaction fees, merchant discount fees, increased by $4.3 to $5.1 million for the nine months ended September 30, 1999 from $825 for the nine months ended September 30, 1998, an increase of 521%. The cost of telephone charges for our toll-free interactive telephone system increased by $132 to $195 for the nine months ended September 30, 1999 from $63 for the nine months ended September 30, 1998, an increase of 210%. Cost of transaction fees was 73% of total revenues for the nine months ended September 30, 1999 compared to 41% for the nine months ended September 30, 1998. The increase is due to the lower gross margins for federal income tax payment services as compared to other payment services. Cost of other revenues. Cost of other revenues increased $108,000 to $121,000 for the nine months ended September 30, 1999 from $13,000 for the nine months ended September 30, 1998, an increase of 831%. These costs are composed of computer hardware costs and direct labor costs for consulting and maintenance work performed. Sales and marketing expenses. Sales and marketing expenses increased $335,000 to $622,000 for the nine months ended September 30, 1999 compared to $287,000 for the nine months ended September 30, 1998. This increase was primarily attributable to an increase in the number of sales and marketing personnel to handle additional growth in business and in anticipation of future growth and an increase in commission payments. Sales and marketing expenses represented 9% of total revenues for the nine months ended September 30, 1999 compared to 20% for the nine months ended September 30, 1998. Development costs. Development costs increased $173,000 to $648,000 for the nine months ended September 30, 1999 compared to $475,000 for the nine months ended September 30, 1998. This increase was primarily attributable to an increase in the number of engineering personnel and development of our internet conduit. Development costs represented 9% of total revenues for the nine months ended September 30, 1999 compared to 33% for the nine months ended September 30, 1998. General and administrative expenses. General and administrative expenses increased $763,000 to $1.1 million for the nine months ended September 30, 1999 compared to $337,000 for the nine months ended September 30, 1998. This increase was primarily attributable to hiring additional management personnel. General and administrative expenses represented 15% of total revenues for the nine months ended September 30, 1999 compared to 24% for the nine months ended June 30, 1998. Deferred stock compensation. Deferred stock compensation was $516,000 for the nine months ended September 30, 1999. This was the result of $41.2 million of deferred compensation expenses recorded in 24 August 1999 for options granted to our employees to purchase approximately 4,488,000 shares of our common stock at an exercise price of $1.33 per share. Allocated expenses from related party. Related party expense was $118,000 for the nine months ended September 30, 1999. This was due to Imperial Bank employees providing consulting services to us related to this offering. Related party expense represented 2% of total revenues for the nine months ended September 30, 1999. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues Total Revenues. Total revenues increased $1.2 million to $2.4 million for the year ended December 31, 1998, from $1.2 million for the year ended December 31, 1997, an increase of 97%. This increase is primarily attributable to higher revenues generated from processing a greater amount of property tax payments for existing and new clients. Property taxes. Revenues from processing property tax payments increased $587,000 to $765,000 for the year ended December 31, 1998 from $178,000 for the year ended December 31, 1997, an increase of 330%. For the year ended December 31, 1998, we processed 33,900 transactions totaling $28.2 million, compared to 8,700 transactions totaling $7.1 million for the year ended December 31, 1997. This increase is primarily attributable to higher utilization rates and new municipal government clients being added throughout 1997 and 1998. As of December 31, 1998, we had 73 municipal government clients for property tax payment services, compared to 10 as of December 31, 1997. We also collected a higher average convenience fee for the year ended December 31, 1998 compared to the year ended December 31, 1997. Revenues from processing property tax payments represented 32% of total revenues for the year ended December 31, 1998 compared to 15% for the year ended December 31, 1997. Fines for traffic violations. Revenues from processing fines for traffic violations increased $381,000 to $827,000 for the year ended December 31, 1998 from $446,000 for the year ended December 31, 1997, an increase of 85%. For the year ended December 31, 1998, we processed 59,200 transactions totaling $8.6 million, compared to 29,600 transactions totaling $4.4 million for the year ended December 31, 1997. This increase is primarily attributable to higher utilization rates and new municipal government clients being added throughout 1997 and 1998. The average convenience fee charged remained relatively constant. The increase in revenues was driven by an increase in the number of transactions processed. As of December 31, 1998, we had 114 municipal government clients for traffic violation payment services, compared to 52 as of December 31, 1997. Revenues from processing fines for traffic violations represented 35% of total revenues for the year ended December 31, 1998 compared to 37% for the year ended December 31, 1997. Fines for parking citations. Revenues from processing fines for parking citations increased $52,000 to $157,000 for the year ended December 31, 1998 from $105,000 for the year ended December 31, 1997, an increase of 50%. For the year ended December 31, 1998, we processed 52,700 transactions totaling $1.7 million, compared to 37,600 transactions totaling $1.1 million for the year ended December 31, 1997. This increase is primarily attributable to higher utilization rates at existing government clients in 1998 and one new local government entity added in July 1998. The average convenience fee charged remained relatively constant. The increase in revenues was driven by an increase in the number of transactions processed. Revenues from processing fines for parking citations represented 7% of total revenues for the year ended December 31, 1998 compared to 9% for the year ended December 31, 1997. Other transaction fees. Other transaction fees increased $121,000 to $327,000 for the year ended December 31, 1998 from $206,000 for the year ended December 31, 1997, an increase of 59%. This increase is primarily attributable to additional utility and fax filing clients added during 1998. These revenues represented 25 14% of total revenues for the year ended December 31, 1998 compared to 17% for the year ended December 31, 1997. Other revenues. Other revenues increased $27,000 to $293,000 for the year ended December 31, 1998 from $267,000 for the year ended December 31, 1997, an increase of 10%. The increase in other revenues was primarily due to additional consulting and maintenance fees earned related to current and prior computer system sales. Expenses Cost of transaction fees. Cost of transaction fees increased $384,000 to $1.1 million for the year ended December 31, 1998 from $696,000 for the year ended December 31, 1997, an increase of 55%. Merchant discount fees increased by $554,000 to $825,000 for the year ended December 31, 1998 from $271,000 for the year ended December 31, 1997, an increase of 204%. Cost of telephone charges increased $43,000 to $99,000 for the year ended December 31, 1998 from $56,000 for the year ended December 31, 1997, an increase of 77%. These increases were primarily attributable to the corresponding increase in revenue. Cost of revenues was 46% of total revenues for the year ended December 31, 1998 compared to 58% for the year ended December 31, 1997. Cost of other revenues. Cost of other revenues decreased $213,000 to $71,000 for the year ended December 31, 1998 from $284,000 for the year ended December 31, 1997, a decrease of 75%. This was due to a one time reclassification adjustment that was recorded in 1997 for $261,000. Sales and marketing expenses. Sales and marketing expenses increased $26,000 to $356,000 for the year ended December 31, 1998 compared to $330,000 for the year ended December 31, 1997. Sales and marketing expenses represented 15% of total revenues for the year ended December 31, 1998 compared to 27% for the year ended December 31, 1997. Development costs. Development costs increased $402,000 to $608,000 for the year ended December 31, 1998 compared to $206,000 for the year ended December 31, 1997. This increase was primarily attributable to an increase in the number of engineering personnel. Development costs represented 26% of total revenues for the year ended December 31, 1998 compared to 17% for the year ended December 31, 1997. General and administrative expenses. General and administrative expenses increased $129,000 to $595,000 for the year ended December 31, 1998 compared to $466,000 for the year ended December 31, 1997. This increase was primarily due to an increase in audit fees, higher depreciation expenses due to additional capital expenditures and higher salary expenses from hiring additional support staff. General and administrative expenses represented 25% of total revenues for the year ended December 31, 1998 compared to 39% for the year ended December 31, 1997. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Revenues Total revenues. Total revenues increased $416,000 to $1.2 million for the year ended December 31, 1997 from $786,000 for the year ended December 31, 1996, an increase of 53%. This increase is primarily attributable to revenues generated from processing property tax payments as well as increases in revenues from processing fines for traffic violations and parking citations. Property taxes. Revenue from processing property tax payments increased $172,000 to $178,000 for the year ended December 31, 1997 from $6,000 for the year ended December 31, 1996, an increase of 2867%. For the year ended December 31, 1997, we processed 8,700 transactions totaling $7.1 million, compared to 123 transactions totaling $100,000 for the year ended December 31, 1996. We collected a slightly lower average 26 convenience fee for the year ended December 31, 1998 compared to the year ended December 31, 1997. Revenues from processing property tax payments represented 15% of total revenues for the year ended December 31, 1997, compared to 1% for the year ended December 31, 1996. Fines for traffic violations. Revenues from processing fines for traffic violations increased $181,000 to $446,000 for the year ended December 31, 1997 from $265,000 for the year ended December 31, 1996, an increase of 68%. For the year ended December 31, 1997, we processed 29,600 transactions totaling $4.4 million, compared to 19,500 transactions totaling $2.9 million for the year ended December 31, 1996. This increase is primarily attributable to higher utilization rates and new municipal governmental clients being added throughout 1996 and 1997. The average convenience fee charged remained constant. The increase in revenues was driven by an increase in the number of transactions processed. As of December 31, 1997 we had 52 municipal government clients, compared to 15 as of December 31, 1996. Revenues from processing fines for traffic violations represented 37% of total revenues for the year ended December 31, 1997 compared to 34% for the year ended December 31, 1996. Fines for parking citations. Revenues from processing fines for parking citations increased $92,000 to $105,000 for the year ended December 31, 1997 from $13,000 for the year ended December 31, 1996, an increase of 708%. For the year ended December 31, 1997, we processed 37,600 transactions totaling $1.1 million, compared to 4,400 transactions totaling $132,000 for the year ended December 31, 1996. This increase is primarily attributable to additional government clients added during 1997. The average convenience fee charged was slightly higher for the year ended December 31, 1997 compared to the year ended December 31, 1996. The increase in revenues was driven both by an increase in the number of transactions processed and an increase in the average convenience fee. Revenues from processing fines for parking citations represented 9% of total revenues for the year ended December 31, 1997 compared to 2% for the year ended December 31, 1996. Other transaction fees. Other transaction fees increased $139,000 to $206,000 for the year ended December 31, 1997 from $67,000 for the year ended December 31, 1996, an increase of 207%. This increase is primarily attributable to additional utility and fax filing clients added during 1997. These revenues represented 17% of total revenues for the year ended December 31, 1997 compared to 9% for the year ended December 31, 1996. Other revenues. Other revenues decreased $168,000 to $267,000 for the year ended December 31, 1997 from $435,000 for the year ended December 31, 1996, a decrease of 39%. The decrease in other revenues was primarily due to decrease in computer system sales of $167,000. Expenses Cost of transaction revenues. Cost of transaction revenues increased $391,0000 to $696,000 for the year ended December 31, 1997 from $305,000 for the year ended December 31, 1996, an increase of 128%. Merchant discount fees increased $202,000 to $271,000 for the year ended December 31, 1997 from $69,000 for the year ended December 31, 1996, an increase of 293%. Cost of other revenues increased $200,000 to $284,000 for the year ended December 31, 1997 from $84,000 for the year ended December 31, 1996, an increase of 238%. This increase was primarily attributable to costs associated with system sales that occurred in 1997. Cost of revenues was 58% of total revenues for the year ended December 31, 1997 compared to 39% for the year ended December 31, 1996. Cost of other revenues. Cost of other revenues increased $240,000 to $284,000 for the year ended December 31, 1997 from $44,000 for the year ended December 31, 1996, an increase of 545%. This was due to a one time reclassification adjustment that was recorded in 1997 for $261,000. Sales and marketing expenses. Sales and marketing expenses increased $108,000 to $330,000 for the year ended December 31, 1997 compared to $222,000 for the year ended December 31, 1996. Sales and 27 marketing expenses represented 27% of total revenues for the year ended December 31, 1997 compared to 28% for the year ended December 31, 1996. Development costs. Development costs decreased $32,000 to $206,000 for the year ended December 31, 1997 compared to $238,000 for the year ended December 31, 1996. The decrease in development costs was primarily attributable to capitalization of $200,000 in development costs in 1997 as a result of establishing technological feasibility upon completion of a working model for our software systems. Development costs represented 17% of total revenues for the year ended December 31, 1997 compared to 30% for the year ended December 31, 1996. General and administrative expenses. General and administrative expenses increased $160,000 to $466,000 for the year ended December 31, 1997 compared to $306,000 for the year ended December 31, 1996. This increase was primarily due to an increase in salary expenses from hiring additional personnel. General and administrative expenses represented 39% of total revenues for the years ended December 31, 1997 and 1996. 28 Selected Unaudited Quarterly Results of Operations The following tables set forth certain unaudited quarterly results of operations data for the seven quarters ended September 30, 1999, as well as the percentage of our revenues represented by each item. We believe this data has been prepared on substantially the same basis as the audited financial statements contained in this prospectus, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below for the fair presentation of the quarterly results of operations. The quarterly results of operations data should be read along with our audited financial statements and the related notes appearing elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for future periods.
Three Months Ended -------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, March 31, June 30, September 30, 1998 1998 1998 1998 1999 1999 1999 (Dollars in thousands) Revenues: Transaction fees...... $ 287 $ 507 $ 492 $ 790 $ 728 $5,247 $ 1,020 Other revenues........ 34 71 43 145 102 36 75 ----- ----- ----- ----- ----- ------ ------- Total revenues...... 321 578 535 935 830 5,283 1,095 Cost of revenues: Cost of transaction fees................. 108 253 232 416 421 4,397 488 Cost of other revenues............. 7 4 2 58 19 2 100 ----- ----- ----- ----- ----- ------ ------- Total cost of revenues........... 115 257 234 474 440 4,399 588 ----- ----- ----- ----- ----- ------ ------- Gross profit............ 206 321 301 461 390 884 507 Operating expenses: Sales and marketing... 102 96 89 69 175 260 187 Development costs..... 119 163 193 133 140 180 328 General and administrative....... 112 113 112 258 199 350 589 Deferred stock compensation......... -- -- -- -- -- -- 516 ----- ----- ----- ----- ----- ------ ------- Allocated expenses from related parties.............. -- -- -- -- -- -- 118 Total operating expenses........... 333 372 394 460 514 790 1,738 ----- ----- ----- ----- ----- ------ ------- Income (loss) from operations............. (127) (51) (93) 1 (124) 94 (1,231) Other income (expense), net.................... (5) (17) (15) (18) 3 (33) 1 ----- ----- ----- ----- ----- ------ ------- Net income (loss)....... $(132) $ (68) $(108) $ (17) $(121) $ 61 $(1,230) ===== ===== ===== ===== ===== ====== ======= Revenues: Transaction fees........ 89 % 88 % 92 % 84 % 88 % 99 % 93 Other revenues.......... 11 12 8 16 12 1 7 ----- ----- ----- ----- ----- ------ ------- Total revenues.......... 100 100 100 100 100 100 100 Cost of revenues: Cost of transaction fees................. 34 44 44 45 51 83 44 Other revenues........ 2 1 0 6 2 0 10 ----- ----- ----- ----- ----- ------ ------- Total cost of revenues........... 36 45 44 51 53 83 54 ----- ----- ----- ----- ----- ------ ------- Gross profit............ 64 55 56 49 47 17 46 Operating expenses: Sales and marketing... 32 17 17 7 21 5 17 Development costs..... 37 28 36 14 17 3 30 General and administrative....... 35 19 21 28 24 7 54 Deferred stock compensation......... -- -- -- -- -- -- 47 ----- ----- ----- ----- ----- ------ ------- Allocated expenses from related parties.............. -- -- -- -- -- -- 11 Total operating expenses........... 104 64 74 49 62 15 159 ----- ----- ----- ----- ----- ------ ------- Income (loss) from operations............. (40) (9) (18) -- (15) 2 (112) Other income (expense), net.................... (1) (3) (3) (2) -- (1) -- ----- ----- ----- ----- ----- ------ ------- Net income (loss)....... (41)% (12)% (21)% (2)% (15)% 1 % (112)% ===== ===== ===== ===== ===== ====== =======
29 Seasonality and Fluctuation of Quarterly Results We have experienced quarter-to-quarter revenue growth with some seasonal fluctuations in the second and fourth quarters of 1998 and the second quarter of 1999. The quarter-to-quarter revenue growth is due to an increase in the number of government clients and payment services and an increase in utilization rates. The fluctuations in the second and fourth quarter of 1998 relate primarily to an increase in convenience fees from processing California property tax payments, which are collected twice a year -- in April and December. The sharp increase in revenues in the second quarter of 1999 is due to processing personal federal income tax payments in April 1999. We expect that results for the second quarter of future years will continue to be impacted by the April 15 deadline for paying personal federal and state income taxes. Cost of revenues as a percentage of total revenues was significantly higher in the second quarter of 1999 than in previous quarters as a result of processing federal income tax payments, which have significantly lower margins than other payment services. This is due to the fact that our convenience fee is generally lower as a percentage of large government payments, such as income taxes, while our primary cost of sales, which are merchant discount fees, are relatively constant as a percentage of the government payment amount. For a discussion of convenience fees, please see "Business--Our Services--Fee Structure" on page 41. We anticipate that our operating expenses will continue to increase significantly due to the anticipated expansion of our sales force in order to obtain additional state and municipal clients, the marketing campaign to make consumer users aware of our electronic payment option, and development and implementation costs associated with our Internet service. If revenues in any quarter do not increase correspondingly with increases in expenses, our results for that quarter would be materially and adversely affected. For the foregoing reasons, we believe that comparisons of our quarterly operating results are not necessarily meaningful and that our operating results in any particular quarter should not be relied upon as necessarily indicative of future performance. In addition, it is possible that in some future quarters our operating results will be below the expectations of research analysts and investors, and in that case, the price of our common stock is likely to decline. Liquidity and Capital Resources Historically, we have experienced operating losses during most periods. We expect to continue to incur losses from operations for the foreseeable future. Our working capital deficit was $60,000 at December 31, 1996. We had a working capital deficit of $221,000 at December 31, 1997. In December 1998, there was a capital contribution of $600,000 and our working capital was $392,000 at December 31, 1998. At September 30, 1999, our working capital deficit was $1.1 million. Net cash used in operating activities was $904,000 for the nine months ended September 30, 1999. For the nine months ended September 30, 1998, our operating activities used cash of $98,000. For the year ended December 31, 1998, 1997 and 1996, net cash used in operating activities were $245,000, $323,000 and $425,000, respectively. The cash used in operating activities for the nine months ended September 30, 1999 was primarily due to an increase in accounts receivable and a decrease in accounts payable. For the nine months ended September 30, 1998, the cash provided by operating activities was primarily attributable to a decrease in accounts receivable. Cash used for operating activities for the years ended December 31, 1998, 1997 and 1996 were primarily the result of our net loss and an increase in accounts receivable. Net cash used in investing activities was $255,000 and $148,000 for the nine months ended September 30, 1999 and 1998 and $298,000 and $139,000 for the years ended December 31, 1998 and 1997. This cash was used primarily for the purchase of computer equipment and software. 30 Net cash provided by financing activities was $1.0 million and $425,000 for the nine months ended September 30, 1999 and 1998 and $992,000, $423,000 and $581,000 for the years ended December 31, 1998, 1997 and 1996. The cash generated in the nine months ended September 30, 1999 resulted from advances we received from our stockholders. The net cash generated in the nine months ended September 30, 1998 was primarily due to a loan we received from Beranson Holdings, Inc. The cash generated in 1998, 1997 and 1996 was due to capital contributions by our stockholders. As of September 30, 1999, we have the ability to borrow an additional $500,000 from our stockholders. We believe that, based on our current business plan, the net proceeds from this offering and existing cash equivalents will be sufficient to meet our operating activities, capital expenditures and other obligations for at least the next two years. Year 2000 Readiness Many currently installed computer systems and software products were coded to accept and recognize only two-digit rather than four-digit entries to define the applicable year. These systems may recognize a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems and/or software used by many companies, including our government clients and financial institutions upon which we rely to perform our services, may need to be upgraded to comply with year 2000 requirements. Those companies that do not upgrade risk system failure and/or miscalculations that can cause disruptions of normal business activities. State of Readiness. We have completed our assessment of our service and information technology systems. We believe that all of our mission critical systems and a majority of our non-mission critical systems are year 2000 compliant. We have also completed our initial survey of the information systems of our principal system vendors and service providers. Based on the oral representations of these vendors and service providers, we believe that the information technology systems of these third parties, as they relate to us, do not pose significant operational issues. We have replaced those principal vendors that have been unable to certify to us that their products are year 2000 compliant. Our assessment is on-going and will continue with respect to all principal vendors and service providers with which we do business. In addition, we do not believe that our embedded systems pose year 2000 concerns because we believe that we have identified all of our software and hardware that require year 2000 updates or modifications. Costs. We currently anticipate that our total expenses for year 2000 compliance will be less than $100,000. As of September 30, 1999, we have spent approximately $60,000 in personnel and other costs related to our year 2000 risk assessment and remediation efforts. Risks. All of our installed systems have customized programming code, many with date specific routines required by our government clients. If the host system/database supporting the customized system changes due to year 2000 upgrades, we may incur a failure to our operating system. Based upon tests conducted by our government clients, we believe these problems can be promptly remedied. However, we cannot guarantee that the test cases represent all of the possible year 2000 problems and that longer remedial periods will not be required. If a system failure occurs unrelated to coding, we believe we would be able to rebuild the failed system in a timely manner. Should such a system failure occur, we may need to rely on a large client to provide appropriate client representation for customer relations and technology support services to assist in fixing the problem. We cannot guarantee that our government clients will provide this assistance or that we would be able to rebuild our system in the anticipated time frame. Contingency Plans. We have developed a contingency plan based on the use of backup computer systems in the event a year 2000 problem occurs. We house both our interactive telephone and Internet processing systems in dual locations to provide complete system redundancy. These facilities contain emergency power generators and backup computer systems, which would be used in the event of failure due to 31 a year 2000 problem. Because each system has interchangeable power supplies and hard drives, if we experience system failure, the redundant system is expected to immediately assume the functions of the failed system without interruption of service. Our contingency plan is periodically reviewed for adequacy with respect to our client base as well as to determine whether any new products or services we offer are consistent with our plan. Due to incremental increases in the use of our services, we cannot guarantee that at any given time our contingency plan adequately provides for the latest increase in use. Although our contingency plan has been tested against various year 2000 problem scenarios, we cannot be certain that we have provided for all contingencies, or that in the event of an actual year 2000 problem, our backup system will operate as planned. New Accounting Pronouncement The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. We must adopt SFAS No. 133 by July 1, 2001. Our management does not believe the adoption of SFAS No. 133 will have a material effect on our financial position. In March 1998, the American Institute of Certified Accountants issued Statement of Position 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, or SOP 98-1. SOP 98-1 provides guidance on accounting for computer software developed or obtained for internal use, including the requirement to capitalize specified costs and amortization of such costs. We adopted SOP 98-1 in January 1999. The adoption did not have a material effect on our financial position or results of operations. 32 BUSINESS Company Overview We believe we are the leading provider of electronic payment options to government entities enabling consumers to use their credit cards to pay, by telephone or through the Internet, personal federal and state income taxes, sales and use taxes, property taxes and fines for traffic violations and parking citations. Our interactive toll-free telephone number, 1-888-2PAY- TAXSM, allows consumers to make payments and receive certain customer service information. Our 8882paytax.com Web site currently allows consumers to make certain payments, and we are actively working with government clients, including the IRS and the States of California and New Jersey to enable consumers to make additional tax and other payments through the Internet. Industry Background Growth of Electronic Commerce and the Internet Increased use of credit cards, automated teller machines, electronic fund transfers and direct payroll deposits have automated, simplified and reduced the costs of financial transactions for financial institutions and businesses and their customers. Electronic commerce offers the potential to complete financial transactions more quickly, with greater accuracy and at a lower cost than traditional paper-based methods, and provides consumer users with added convenience. Consumers now routinely perform financial transactions by telephone, using an interactive telephone system, and through the Internet. The Internet has experienced rapid growth and has become an important tool for global communications and commerce. International Data Corporation estimates that there were 97 million Web users worldwide at the end of 1998 and projects this number will increase to approximately 320 million by the end of 2002. Internet-based financial services, such as electronic brokerage and banking, represent a significant portion of the electronic commerce market. The attractiveness of Internet-based financial services stems in large part from the speed and ease of conducting financial transactions over the Internet, as well as the ability of the Internet user to access additional information. The number of U.S. households using online banking is projected to grow from 7 million at the end of 1998 to more than 24 million by 2004, according to Dataquest, Inc., a unit of Gartner Group, Inc. Dataquest, Inc. estimates that approximately 57%, or about 13.7 million, of these households will be paying their bills online by 2004. Online communities on the Internet provide businesses an attractive means of promoting and selling their products and services. As we facilitate Web-based payments by individuals to government entities, we believe there are opportunities to offer and cross-sell contextually compatible services to our consumers. International Data Corporation estimates that commerce over the Internet will increase from approximately $32 billion worldwide in 1998 to approximately $133 billion in 2000 and to $1 trillion by 2003. Online communities that allow businesses to identify and reach specific audiences within a personalized context provide the opportunity to increase advertising efficiency and improve the likelihood of success for these businesses' advertising campaigns. The Market for Payments to Government Entities In addition to payments made automatically on behalf of consumers, such as payroll withholding taxes, individuals and small businesses make a variety of payments to government entities at the federal, state and local levels. These payments have traditionally been made by mailing checks, obtaining money orders or making payments in person. . Federal Level. The IRS estimates that for the 1999 tax year, there will be 128 million personal federal income tax filers making payments totaling approximately $920 billion, a portion of which is remitted through payroll withholding. Of these income tax filers, the IRS estimates that there are 33 approximately 21 million individuals who will pay the balance shown as due on their tax return when filing their tax return on or before April 15 and 8 million individuals who pay taxes when filing for extensions of the April 15 deadline. Further, an additional 41 million estimated tax payment transactions are expected to be made by individuals for the 1999 tax year. Based on IRS data, we believe that payments for "balance-due" filers for the 1999 tax year will be approximately $45 billion. For "extension filers" this amount is approximately $206 billion and for "estimated filers" it is approximately $162 billion. Accordingly, total payments for the 1999 tax year are estimated to be approximately $414 billion. . State Level. Based on U.S. Census data, personal state income tax payments were approximately $160 billion for the 1998 tax year. Based on our experience with respect to personal federal income tax payments, we believe that approximately 45%, or $72 billion, of this total constitutes balance-due, estimated and extension tax payments. Based on U.S. Census data, state sales and use taxes paid by businesses totaled approximately $155 billion for 1998, a portion of which is paid by small businesses using checks or money orders. Fees collected by states for motor vehicle licenses and registrations are estimated to have been approximately $14 billion in 1998. Other state payments that could potentially be made electronically include corporate fees and taxes, professional license fees, employment withholding taxes and state disability insurance payments made by individuals and businesses. . Local Level. Based on U.S. Census data, local property taxes were approximately $225 billion in 1998. Based on our experience in the states where we accept credit card payments for such taxes, we estimate approximately 50% of that amount is not already included with mortgage payments. There are a substantial number of other payments to local government entities that could be paid electronically. For example, we estimate fines for traffic violations and parking citations to be in excess of $5 billion annually. Outsourcing Opportunity Providing electronic payment options is an attractive goal for government entities. Part of the IRS's stated strategy is to make electronic filing, payment and communication so simple, inexpensive and trusted that taxpayers will prefer these methods. Further, the IRS has stated that its goal is to substantially increase taxpayer access to electronic filing, payment, and communication products and services, and have 80% of all taxpayers file their returns electronically by the year 2007. Electronic payments provide significant benefits for government entities, including improved service, cost savings, reduced paperwork and faster transaction processing. Government entities may prefer to outsource electronic payment options rather than provide such options themselves because they lack the expertise, technical personnel and economies of scale necessary to implement and maintain the required software and hardware systems. In addition, legislation prohibits certain government entities from paying credit card payment processing fees associated with accepting credit cards. In selecting a provider of outsourced credit card payment services, we believe government entities consider the following: . a provider's ability to offer these services at no cost to the government entity; . referrals from other government entities currently using a provider's services; . proven technology systems and implementation know-how; . consumer usage of the provider's services; . the greatest possible consumer reach through both Internet and telephone conduits; . a provider's relationships with financial institutions and credit card companies; and . flexibility in adapting to unique government procedures. 34 Our Solution Our pilot program for personal federal income taxes processed approximately 45,000 tax filings totaling more than $174 million in payments to the IRS from January 15, 1999 to April 15, 1999. According to IRS data, we captured a 95% market share, based on dollar volume, for credit card payments of personal federal income taxes due April 15, 1999. We also processed over 293,000 payments totaling $82.7 million during the first nine months of 1999 for our state and municipal government clients. Benefits to Consumer Users Although consumers must pay a convenience fee for our services and, a breach of our security system could allow access to personal credit card and other information, we believe that the following benefits of our services to consumers outweigh their detriments: . Convenience. Consumers can utilize our interactive telephone or Internet system to make payments to government entities by credit card, eliminating the need to mail checks, obtain money orders or make payments in person. As we integrate the federal and our state clients' income tax payment processes, consumers in those states will be able to pay their personal federal and state income taxes in a single session. For some fines for traffic violations and parking citations, consumers can also obtain information about outstanding balances. . Flexibility. By paying with credit cards, consumers gain the flexibility to pay their credit card balances over time rather than when a government obligation is due. This is an especially attractive option for consumers who do not have sufficient funds when the government payment is due. . Perquisites. Consumers can take advantage of frequent flyer programs, cash back arrangements or other benefits offered by credit card issuers. Payments for government obligations can be substantial, allowing consumers to earn significant rewards. Benefits to Government Clients Although there may be some indirect cost to the government entity to promote our services, we believe that the following benefits of our services to government clients outweigh their detriments: . Electronic Payment Option. Our services allow our government clients to provide consumers with an electronic payment option, furthering their goal of improving customer service, reducing paperwork and encouraging the electronic filing of tax forms. . No Charge. We provide our electronic payment options to our government clients at no charge. . Electronic Posting. Credit card payments allow information to be posted electronically to our government clients' existing systems, with real- time authorizations and posting, including fraud checking, credit availability and address verification. . Ease of Implementation. Our services are designed to work with the information system in place at our government clients and to require minimal adaptation. For example, government entities do not have to be Web-enabled to offer our Internet payment solutions to their constituents. Proven Track Record We have successfully provided a secure credit card payment option to the IRS, the states of California and New Jersey and the District of Columbia, as well as approximately 425 municipalities. In the nine months ended September 30, 1999, we processed approximately $257 million in credit card payments to our government clients. Recognized and Trusted Brand Name Most of our government clients list our interactive telephone number, 1-888- 2PAY-TAX SM, as a payment option on their billing statements, tax publications and citations. The IRS has informed us that it plans to include our 1-888-2PAY- TAX SM number on instruction booklets for Form 1040 for the 1999 tax year and on the 35 IRS Web site. We believe that by featuring us on their billing statements and instruction booklets, government entities increase consumer awareness of and confidence in our services. We intend to further increase our brand awareness through advertising targeted towards consumer users. We believe that once a consumer successfully uses our services to make a payment, the consumer is more likely to use our service for future payments. According to a study conducted for us by a market research firm among consumers who had used our services, 89% of respondents stated that they plan to use our services again. Existing Relationships with Credit Card Issuers and Associations We believe our existing relationships with the major credit card issuers and associations will enable us to continue to provide electronic payment options for a broadening array of payments to government entities. We currently process payments using American Express(R), Visa(R), MasterCard(R) and the Discover(R) card. Imperial Bank, our majority stockholder, is a long-standing member of the Visa(R) and MasterCard(R) associations and processes transactions utilizing those credit cards for us. We are a merchant agent for American Express(R), eliminating the need for government entities to separately enter into contracts with American Express. All four credit card associations and organizations with whom we do business allow for convenience fees as long as the cardholder receives added convenience from the service. These card associations and issuers, except for Visa(R), allow for a tiered fee schedule that varies the fee depending on the amount charged. Because of Visa(R)'s rules against tiered convenience fees, we do not accept Visa(R) cards as a means of payment in tax-related payment programs, such as the IRS, the States of California and New Jersey and the District of Columbia. We do, however, accept Visa(R) as a means of payment in all non-tax- related payment programs, such as parking citations processing, where fixed conveniences fees can be charged. Our Strategy Our goal is to continue to be the leading provider of, and further develop the market for, electronic payment services using credit cards to pay government obligations. The following are key elements of our strategy. Expand and Enhance Services for Personal Federal Income Tax Payments In January 1999, we signed a credit card payment contract with the IRS to provide our services for the balance-due payment of personal federal income taxes. This has significantly increased our profile and greatly expanded awareness of our 1-888-2PAY-TAX SM brand. The IRS has informed us that it plans to add our 1-888-2PAY-TAX SM number on instruction booklets for Form 1040 for the 1999 tax year and on the IRS Web site which, we believe, will further expand consumers' awareness of our products and services. For the 1998 tax year, we processed only income tax payments that were shown as due on tax returns filed on or before April 15, 1999. By early 2000, we expect to also process estimated and extension tax payments. We have a working relationship with the IRS's Electronic Tax Administration division (ETA). In 1998, the ETA published A Strategy For Growth, a document detailing its strategies through the year 2007, which features us as one of the ETA's industry partners and describes our electronic payment options. Further, we are working to develop a series of additional products that are consistent with their stated strategic objectives. The majority of these products focus on electronic filing and payment integration of personal federal and state income taxes. Leverage Our IRS Relationship to Obtain Additional State Government Clients We are leveraging our IRS relationship to provide our services to additional state government entities. Our efforts have been bolstered by the fact that the IRS has endorsed the concept of joint federal and state payments either by phone or through electronic filing. We currently provide our electronic payment conduit for income 36 tax payments to the States of California and New Jersey and the District of Columbia, which together accounted for 21% of the personal state income tax market in the 1998 tax year. We are focusing on establishing relationships with other states, the 9 largest of which represented another 43% of the personal state income tax market in the 1998 tax year. We are hiring new regional sales managers and sales account executives to extend our coverage of state governments. A key element of our strategy for obtaining personal state income tax accounts is the integration of the personal federal and state income tax payment processes. According to a research study conducted for us by a market research firm among consumers who had used our personal federal income tax payment services in 1999, 75% indicated that they would use our services to make personal state income tax payments. Our integrated solution allows consumers to pay their personal federal and state income taxes in a single session, which should enhance consumer convenience and usage. Competitors who do not currently provide services to the IRS will be unable to offer this integrated service. Once we are providing personal income tax payment services to a particular state, we will look for opportunities to provide additional services covering sales and use tax payments, fees collected by departments of motor vehicles and other payments for that state. For example, we are currently providing services that allow small businesses in California to remit their sales and use tax payments by credit card. Leverage Our IRS and State Government Client Relationships to Obtain Additional Municipal Clients We currently provide services to over 400 municipal clients. We believe our relationships with the IRS and state government entities provide an advantage in helping us establish relationships with additional municipal clients. To further our strategic marketing position, we are creating a geo-demographic database of consumers who have already used our services. This database will be used in the selling process to municipalities to show an existing base of potential consumers in those municipalities. We are targeting municipal clients through direct sales, telemarketing and targeted newsletters and other mailings. Internet Services Roll-out In August 1999, we began providing our payment services through the Internet. We intend to offer our Internet payment services to all of our existing government clients within the next 6 to 12 months. In addition, all new government clients will have the option to sign up for both our Internet and telephone payment services. We currently offer Internet services for business license fees, parking citations, personal property tax, real estate tax, utility payments and other fees only in Arlington County, Virginia and Fairfax County, Virginia. We have verbal agreements to provide Internet Services for such payments by the end of the year to the following government entities: . Marion County, Ohio . Lucas County, Ohio . Grand Blanc Township, Michigan . Grand Blanc DPW, Michigan . Rochester Hills, Michigan . Allen County, Indiana . Alexandria, Virginia . Hanover County, Virginia We also have verbal agreements with the States of California and New Jersey for state income tax payments via the Internet, which we expect to offer on our Web site by the end of the year. 37 We expect the Internet to be an increasingly important revenue source. However, Internet access is currently estimated to reach only 25% of the U.S. households, including a majority of households with greater than $75,000 of annual income compared to 94% for telephone. Therefore, we expect that the majority of our revenues will be generated by our interactive telephone service in the next few years. As more U.S. households acquire Internet access, we expect that consumers will increasingly want both the telephone and Internet options we offer. Introduce New Services and Service Enhancements In August 1999, we began processing credit card payments of sales and use taxes for the State of California. By early 2000, we expect to begin processing credit card payments of estimated and extension personal federal and state income taxes. We seek to remain at the forefront of our industry by continuing to develop additional and complementary services. We are exploring opportunities to process other payments, such as motor vehicle registration fees, state corporate fees and taxes, professional license fees, employment withholding taxes and state disability insurance. We are also exploring opportunities to provide direct debiting and other electronic fund transfer features to consumers in the future. Cross-Sell Related Services to Targeted Audiences Individuals and small businesses who utilize our payment services can be grouped into user communities distinguished by specific demographics and psychographics. Because these customers are active online consumers, they represent a valuable opportunity to expand our business by cross-selling other related services. For example, we may be able to facilitate the sale of consulting or other related services to small businesses that use our services to pay sales taxes, or the sale of automobile insurance or online driving school services to consumers paying fines for moving violations. Increase Brand Awareness and Consumer Use We have relied on our government clients and credit card issuers, and will continue to work with them, to publicize our services through government publications and credit card billing inserts. In order to increase the number of transactions we process, we intend to increase consumer awareness of our credit card payment services through an advertising campaign. We expect to increase our advertising spending with the proceeds of this offering. The advertising campaign will focus on promoting our services for personal federal and state income tax payments in March and early April. In addition, we plan to advertise throughout the year at the local level to promote our payment services for property taxes and fines for traffic violations and parking citations. Our marketing is also focused on promoting additional payment opportunities to our existing consumers. We believe that once a consumer uses our system, he or she is more likely to use our services to make other types of payments to government entities. Our Web site will promote different types of payments that can be made using our services. In addition, our Web site will invite consumer users to save their personal data on our secured site to facilitate future payments. We will use this data to identify and promote additional payment and cross-selling opportunities. Pursue Strategic Relationships and Acquisitions We intend to pursue strategic relationships with electronic income tax filing providers to offer our payment services to their customers, which would allow their customers to file returns and pay taxes electronically. We also plan to investigate and pursue relationships with Internet portals and other Internet financial service providers in order to reach additional Internet users. In addition, we may pursue opportunistic acquisitions that will enhance our product offering and technical capabilities, including companies that provide government client or consumer user products or services closely related to ours. 38 Government Clients As of September 1, 1999, we provide services to the IRS, the States of California and New Jersey, the District of Columbia and approximately 425 municipal government clients in 25 states throughout the United States. The highest concentration of municipalities we service are in California, Texas and Virginia. The table below lists, as of September 1, 1999, our existing government clients and the types of payments we process for those clients.
Government Clients Payment Type IRS Balance-due personal federal income taxes California Balance-due personal state income taxes Sales and use taxes New Jersey Balance-due and estimated personal state income taxes District of Columbia Balance-due personal state income taxes 150 municipalities Property taxes 166 municipalities Fines for traffic violations 115 municipalities Fines for parking citations 81 municipalities Other services
Our Services Our Telephone and Internet Conduits Our consumers can choose to make payments of federal, state and municipal taxes, as well as pay fines for traffic violations and parking citations, by telephone, using our 1-888-2PAY-TAX SM number, or over our 8882paytax.com Web site. We currently provide a telephone conduit for payments to all of our government clients. We work with our government clients to develop the script for our fully automated telephone conduits, which gather the necessary information in an efficient, user-friendly manner and inform the customers of the applicable convenience fee to be charged before the consumer confirms or cancels the payment. We continually update our interactive telephone systems to increase the ease of use of our services. Our 8882paytax.com Web site allows consumers to make certain payments, and we are working with our existing government clients, including the IRS, to enable consumers to make additional payments. We are also enhancing our Web site so that consumers will be able to obtain information regarding our services, access additional information, print receipts and save their personal data to facilitate future payments. Consumers using our Web site will receive a prompt informing them of the convenience fee before they confirm or cancel the payment. With the growing acceptance of the Internet and its use for effecting financial transactions traditionally conducted by mail, telephone or in person, we believe many users will prefer to make payments to our government clients through the Internet. 39 The following table lists the payments that can be made through our existing Internet site and interactive telephone system: Internet Payment Types Telephone Payment Types . Business license fees . Automated fax filings . Parking citations . Business license fees . Personal property tax . Federal income tax . Real estate tax . Homeowner's association dues . Utility bills . Parking citations Current Internet Clients . Personal property tax . Arlington County, VA . Real estate tax . Fairfax County, VA . Sales and use tax . State income tax . Traffic Violations . Utility bills Credit Card Payment Services For each payment type listed below, the following table sets forth the payments we currently process, those which we currently plan to provide pursuant to existing agreements and future services that we plan to begin processing within the next 6 to 12 months.
Payment Type Currently Processed Currently Planned Services Future Services Personal federal Balance-due payments Estimated taxes income taxes.......... Extension payments Integrated payment of personal federal and state income taxes Personal state income Balance-due payments Extension payments taxes................. Estimated tax payments Integrated payment of personal federal and state income taxes Other state payments.. Sales and use taxes Business and professional license fees Property taxes........ Real estate and personal property taxes and school district taxes Fines for traffic Fines for speeding and violations............ other traffic rule violations Fines for parking Fines for parking rule citations............. violations Utilities/miscellaneous.. Water, electricity and gas bills Other payments........ Corporate taxes and fees Motor vehicle registration fees Public university tuition and other fees Building permit fees
40 Customized Systems In addition to our electronic payment services, we design, install and implement individual systems for municipal government clients. These systems incorporate our electronic payment conduits and also provide connections between databases to transfer information simultaneously. These products include: Property Tax System.... Provides information about real estate taxes, including secured and unsecured taxes, supplemental taxes, asset valuation and exemptions, tax rates, special assessments and redemptions. Citation Processing Provides information about traffic violations, System................. including bail, due dates, traffic school, proof of corrections, warrants and drivers license holds. Parking System......... Provides information about parking citations, including fines, tow-aways, restricted zones and other infractions. Automated Fax Filing... Allows attorneys and paralegals to fax documents to courts and pay filing fees by credit card. We also build and sell custom applications, such as a polling place locator application, county social service inquiry system and additional government- related applications. These systems are generally sold to the government entity for a flat fee that covers our costs and provides significant margin. Fee Structure We charge consumer users a convenience fee to use our credit card services for payments to government entities. For large payments, such as personal federal and state income tax payments, we charge a convenience fee based on the amount of the payment, which in the first six months of 1999 averaged approximately 2.5% of the payment amount. For smaller payments, such as fines for traffic violations and parking citations, we charge a fixed convenience fee which in the first six months of 1999 averaged 8% of the amount due. The same convenience fee is charged for payments made by telephone or through the Internet. We currently accept American Express(R), Visa(R), MasterCard(R) and the Discover(R) card for most local payments. We currently accept American Express(R), MasterCard(R) and the Discover(R) card for federal and state payments. Cross Selling We intend to develop cross-selling opportunities for both the telephone system and the Internet. For example, on the telephone, after a customer executes a traffic citation payment, they can be prompted to register and pay for traffic school. On the Internet, the same prompts can be developed through text links on the traffic citation payment page. We may receive referral fees from the applicable service providers from whom our consumers purchase goods or services. Sales and Marketing Focus on Signing Additional Government Clients We are leveraging our IRS relationship and our ability to offer the integration of personal federal and state income tax payments to attract new state government clients. Similarly, we will use our relationship with state governments to obtain new municipal clients. We intend to make significant additions to our sales and marketing staff and customer service infrastructure. Specific account executives are dedicated to the IRS and each state government client. We are targeting municipal clients through direct sales, telemarketing and targeted newsletters and other mailings. In addition, we publish a quarterly newsletter that announces our new services and government clients, which is distributed to our existing and potential government clients. We will continue to make presentations and operate booths at IRS tax conferences and other government entity gatherings. 41 Focus on Increasing Utilization and Awareness To date, our services have been publicized primarily by our government clients and credit card issuers. Government publications and instruction booklets have been used to present the payment option to potential consumer users. For example, the IRS and state tax agencies have included our 1-888- 2PAY-TAXSM phone number in selected tax publications distributed to individuals and tax preparation professionals, and, in the first half of April 1999, the IRS profiled our electronic payment option on its electronic services web page. A significant number of municipalities have provided our phone number as a payment alternative for fines for traffic violations and parking citations. In addition, major credit card issuers have also promoted our services because the government market represents an under-tapped market for credit card utilization. Our systems have been promoted through mailing inserts to all American Express(R) and Discover(R) cardholders, and a significant number of MasterCard(R) holders. We intend to launch an advertising campaign targeted at consumer users to broaden awareness of our electronic payment options. We will focus our campaign on promoting use of our personal federal and state income tax payment services during March and early April. In addition to increasing awareness for new consumer users, we will also focus on promoting additional payment opportunities to existing consumer users who have already used our services. We believe these existing consumer users are more likely to use our services to make other payments, and we will use our Web site to bring those services to the attention of our customers. Leverage Existing Relationships We have relationships with Bank of America, American National Bank (Illinois), Union Bank of California, Sun Trust and Novus Services implement systems for their government clients. For example, Novus Services was awarded the contract to provide personal income tax payment services for the State of California and subcontracted the implementation of the system to us. Our product implementation model and revenues as a subcontractor are identical to a directly contracted account. We will look for strategic opportunities to provide services to government entities in conjunction with these and other partners. 42 Our Operations and Technology We provide complete electronic credit card payment services to government entities. Our electronic payment conduits can perform all of the following functions for our government clients: . Capture unique identifiers for each transaction, such as citation number, social security number, the consumer's identity and related payment information. . Perform real-time authorizations and postings, including fraud checking, credit availability and address verification. . Electronically create daily transaction files from all remote and local systems. . Compare the daily transaction files to credit card authorization processor files--the "mirror balancing system". This validation process assures credible data and reliable funds flow to government clients. . Create a daily payment transaction activity report that is automatically e-mailed or sent by facsimile to government clients. . Create upload files from the mirror balancing system that are sent electronically to government clients. These files are used by clients to post payments to their internal systems. [Graphic Display of Transaction Process for the Payment of Property Tax] Our technological solutions and operations are focused on producing four integrated results for our government clients and consumers: reliability, security, audit capability and customer service/operational support. We designed our technology and resulting operations around these core concepts. Reliability Our foremost service goal is reliability, which we seek to accomplish through redundant hardware that provides disaster recovery and allows us to implement seamless real-time backup and 100% system availability. Our Internet payment servers are housed at Digex, Inc. facilities in Cupertino, California, and in Beltsville, Maryland. The Cupertino site is our primary processing location, containing a 72-hour capacity diesel generator. The Beltsville site is expected to be able to instantly assume processing and provide 100% system availability in the event the primary site is rendered inoperative. Additionally, should we experience overloads due to unexpected volume increases, our backup servers are designed to come into service without interruption. 43 Our interactive telephone systems have the same dual facility scheme as our Internet systems. Our primary interactive telephone authorization and processing facility is located in San Ramon, California, where our computers have interchangeable power supplies and hard drives so that if a system fails, the redundant systems should assume the workload. We also maintain a backup facility in San Francisco, California, used for disaster recovery and transaction overflows. Transaction Security We place a high priority on transaction security and fraud prevention. Our goal is to maintain the confidentiality of all consumer credit card and related information. For our Internet conduit delivery vehicle, we employ secured socket layers for user security from the consumer's browser to our 8882paytax.com Web site. Taxpayer identity validations for credit card payments are transmitted in an encrypted manner and are performed in accordance with existing industry procedures. We have several system functions that are designed to combat fraud. For example, credit card authorizations are performed on-line and in real time. Our system captures the cardholder's credit card account number, card expiration date and billing statement mailing address and zip code, and requires the cardholder to enter a three or four digit card verification code or card verification value if it is present on the back of the card. Credit card information is transmitted exclusively to the credit card processor. No one outside of our system and the credit card processor's system receives the information, including the IRS and other government clients. Audit Capability Our internally-developed mirror balancing system and reporting systems provide us and our government clients with electronic audit capability. These applications enable us to account for all transactions, to assure that data transmissions to government clients are complete and reporting and update files are accurate. Customer Service We provide automated customer service systems, such as the transaction verification system, which allows consumers to confirm their transaction posting. In addition, we employ customer service representatives who are available to assist consumers with individual needs. We also provide a "Frequently Asked Questions" feature on our Web site to answer common questions that consumer users have. We intend to increase the number of customer service representatives so that calls from consumers to our government clients or to our credit card issuer partners relating to our services can be routed to us. Payment Conduits We provide two principal conduits for making payments to government clients: via the interactive toll free telephone conduit and via the Internet. . Interactive Toll Free Telephone Conduit. In order to facilitate payments through our interactive telephone system, we first create a script of voice prompts, record the script, and program possible responses to the voice prompts into our computer database. We then establish a network connection to the government client's database system and program the connection to send and retrieve information to and from the client's database system. Payment and other information for our interactive telephone systems is received from consumers who respond to voice prompts on our toll free system by depressing touch-tone buttons on their telephones. Once the convenience fee and other necessary information is conveyed to and confirmed by the consumer, approval is obtained from the relevant credit card issuing bank, and the payment is processed. Upon completion of the payment, the user is given a receipt number. 44 . Internet Conduit. In order to facilitate payments through our Internet conduit, we first configure the client's profile settings and create a screen and menu options or "links" within our Web site. Encrypted payment data may then be sent between our server and the government client's server. A "test mode" then follows until the client is converted to "live" mode to enable payments to be processed. Payment and other information for our Internet conduit is received from consumers who retrieve the payment screen on their computer through our secure Web site. Once their payment data is entered, approval is obtained from the credit card issuing bank and the payment is processed through our secure Web site. Upon completion of the payment, the user is given a receipt number. Competition Alternative Payment Options In addition to using our credit card payment services, consumer users have the following payment options when making payments to government entities: . Checks, money orders or cash. Payment by mailing checks, obtaining money orders and paying in person are the traditional and currently the most widely used methods for making payments to government entities. . Credit card checks. Many of the issuing banks for Visa(R) and MasterCard(R) distribute cash advance checks to their cardholders. In March and early April, issuing banks generally promote the use of these checks to pay taxes. Because these checks are treated as a cash advance, they are generally a more expensive solution than our services. The typical terms for a cash advance include a fee, and the advance starts to accrue interest immediately at the issuing bank's applicable rate. In addition, many issuing banks apply the consumer's payments to other less expensive balances first. Moreover, cash advances typically do not qualify for frequent flyer mileage programs or any other perquisites. In contrast, payments made through our systems require a convenience fee, but are treated as purchases subject to generally lower interest rates, may not immediately accrue interest, and may qualify for various award programs. . Direct debit. Consumer users can arrange through their bank or otherwise to have payments to government entities directly debited from their checking or savings account. If arranged through the bank in which a consumer user's checking or savings account is maintained, this service is often provided free of charge. Competing Providers of Credit Card Services for Payments to Government Entities In selecting a provider of outsourced electronic payment services, we believe government entities consider the following: . our ability to offer these services at no cost to the government entity; . existing relationships and referrals from other government entities currently using our services; . our proven technology systems and implementation know-how; . consumer usage of our services; . the greatest possible consumer reach through both Internet and telephone conduits; . our relationships with financial institutions and credit card companies; . our flexibility in adapting to unique government procedures; . quality and convenience of our service; 45 . marketing and brand name recognition; and . price of our services to consumers. A limited number of competitors are currently involved in the market for credit card payments to government entities. We believe we have a substantially larger government client base, and have greater name recognition than our primary competitors. There are, however, a number of larger credit card payment and electronic commerce companies with similar technological capabilities, some of which have greater resources than we do. We believe that the peculiarities of the government market create barriers to entry and expansion that favor the market leader. Our current competitors include the following: . For personal federal income tax payments by credit card, we currently have 100% market share for American Express(R) and MasterCard(R) payments. The only current competitor is a joint development effort by Intuit (TurboTax(R)) and Discover(R) card, for which Discover(R) card, which had approximately 5% of the overall credit card market based on total payment volume in 1998, is the only credit card accepted. . Bank of America is the processing bank for a number of government entities, which allows them to add processing services such as ours without submitting to the standard request for proposal process. Bank of America works with technology providers such as us to implement payment systems. Bank of America also partners with Electronic Data Systems/Phone Charge and Lockheed-IMS. . National Information Consortium, Inc. provides Internet services for government entities, and has indicated it intends to provide services to government entities with respect to the payment of sales and use taxes. Intellectual Property We have registered the service marks 8882paytax.com SM, 1-888-2PAY-TAX SM and US Audiotex SM. We protect our intellectual property rights through a combination of trademark, service mark, copyright and trade secrets laws. We cannot assure you that the steps we have taken to protect our intellectual property rights, however, will be adequate to deter misappropriation of those rights. We may not be able to detect unauthorized use of and take appropriate steps to enforce our intellectual property rights. It may also be possible for unauthorized third parties to copy certain portions of our proprietary information or reverse engineer the proprietary information used in our services. In order to limit access to and disclosure of our proprietary information, all of our employees are subject to confidentiality and invention assignment arrangements, and we enter into nondisclosure agreements with third parties that are material to our business. Furthermore, we cannot assure you that third parties will not claim that we have infringed upon their patents or other proprietary rights. We have been, and from time to time we expect to be, subject to claims by third parties in the ordinary course of business, including claims of alleged infringement of service marks, trademarks, copyrights, patents and other intellectual property rights of third parties. Although there has not been any litigation relating to such claims to date, these claims and any resultant litigation would subject us to significant liability for damages and could result in the invalidation of our proprietary rights. In addition, even if we prevail, the litigation could be time-consuming and expensive to defend and could result in a diversion of our time and attention from our business, any of which could materially and adversely affect our business, operating results and financial condition. Any claims or litigation from third parties may also result in limitations on our ability to use the service marks, trademarks and other intellectual property subject to these claims or litigation, unless we enter into agreements with the third parties. However, these agreements may be unavailable on commercially reasonable terms, or not available at all. We also intend to continue to license technology from third parties, including our Web server and encryption technology. We cannot be certain that these third-party content licenses will be available to us on 46 commercially reasonable terms or that we will be able to integrate the technology into our products and services. These licenses may expose us to increased risks. See "Risk Factors" on page 5. We license our base interactive telephone hardware and software systems from Alliance Systems Incorporated, which manufacturers the hardware and provides the operating system and other development tools that we use. The license fee is included in the cost of each system. Licenses for the processor software that enables us to receive authorizations from credit card companies are obtained from third party vendors each time a new government client account is established. An additional license is acquired from Artisoft Inc. to allow us to develop our interactive telephone applications. Finally, we obtain a separate license for the credit card processing software that we license from CyberSource Corp. with respect to each government client that is supported on our Internet conduit. Regulatory Matters By virtue of Imperial Bank's ownership interest in us, and owing to the nature of our business, we are subject to various regulatory requirements. Imperial Bank is a California State chartered bank whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). It is not a member bank of the Federal Reserve System. Imperial Bank is subject to regulation and supervision by the FDIC, as its primary federal regulator, as well as by the California Department of Financial Institutions (the Department). Imperial Bank, in turn, is a wholly owned subsidiary of Imperial Bancorp, a registered bank holding company, which is subject to the provisions of the federal Bank Holding Company Act of 1956, as amended (the BHC Act) and which is regulated and supervised by the Board of Governors of the Federal Reserve System (the Federal Reserve). As long as Imperial Bank maintains a "controlling interest" in us--in general, 25% or more common stock ownership--we will be subject to examination and supervision by the FDIC as well as by the Department. Section 24 of the Federal Deposit Insurance Act generally restricts and prohibits insured state banks, such as Imperial Bank, and their subsidiaries from engaging in activities and making types of investments that are not permissible for national banks and their subsidiaries. The FDIC's regulations under this statute define "activity permissible for a national bank" to include any activity authorized for national banks under any statute, as well as activities recognized as permissible for a national bank in regulations, official circulars, bulletins, orders or written interpretations issued by the Office of the Comptroller of the Currency (the OCC). Our business involves processing payments by individuals to federal, state and local governments pursuant to telephonic or electronic instruction. This activity has long been recognized as part of or incidental to the business of banking, and is permissible for a national bank and for majority owned subsidiaries of national banks. The OCC has also broadly allowed national banks to perform, provide, or deliver through electronic means and facilities any activity, function, product or service that it is otherwise authorized to perform, provide or deliver, and, in connection with those services, provide unrelated services arising from excess capacity acquired or developed in good faith for banking purposes. These activities may be conducted by national banks directly, as well as through majority owned subsidiaries of national banks. These activities may also be conducted through subsidiaries in which the national bank holds less than 50% of the voting stock, provided, among other things, the bank is able to prevent the subsidiary from engaging in impermissible activities or may readily divest its ownership interest if the subsidiary engages in such impermissible activities. Because we believe that all of our current activities are permissible for national banks, we believe this limitation has no effect on our business and upon Imperial Bank's ownership interest in us at the present time. For as long as Imperial Bank owns a voting equity interest in us which equals 25% or more, or may otherwise be deemed by the regulatory authorities to constitute "control", we will also be subject to certain California State and federal statutes and regulations that apply to Imperial Bank. For example, we will be required to limit any transactions we may have with "affiliates" of Imperial Bank in the same manner as 47 Imperial Bank must limit its transactions with its affiliates. Among other things, all such dealings with affiliates must be at arms' length. We cannot guarantee that the banking laws will not be amended or construed differently, or that new laws or regulations will not be adopted, the effect of which could materially and adversely affect our business, operating results and financial condition. We are also subject to the laws and regulations relating to commercial transactions generally, such as the Uniform Commercial Code, and to the electronic fund transfer rules embodied in Regulation E issued by the Federal Reserve. The Federal Reserve's Regulation E implements the Electronic Fund Transfer Act, which was enacted in 1978. Regulation E protects consumers engaging in electronic transfers, and sets forth basic rights, liabilities and responsibilities of consumers who use electronic money services and of financial institutions that offer these services. For us, Regulation E sets forth disclosure and investigative procedures. For consumers, Regulation E establishes procedures and time periods for reporting unauthorized use of electronic money transfer services and limitations on the consumer's liability if the notification procedures are followed within prescribed periods. These limitations on the consumer's liability may result in liability to us. Given the expansion of the Internet commerce market, it is possible that the Federal Reserve might revise Regulation E or adopt new rules for electronic funds transfer affecting users other than consumers. Because of growth in the Internet commerce market, Congress has held hearings on whether to regulate providers of services and transactions in the Internet commerce market. It is possible that Congress or individual states could enact laws regulating the Internet commerce market. Initiatives are also pending in Congress which are intended to protect individual privacy and would, among other things, regulate the ability of financial institutions to use and share with affiliates and unrelated third parties information concerning individuals developed in the course of dealings with their customers, which is not currently subject to regulation. If enacted, these laws, rules, and regulations could be imposed on our business and industry and could have a material adverse effect on our business, operating results and financial condition. Federal, local and state laws and regulations may be adopted in the future to address issues such as user privacy, pricing, online content regulation, taxation and the characteristics and quality of online products and services. Any new law or regulation relating to the Internet could have a material and adverse effect on our business, operating results and financial condition. Legal Proceedings We are currently not involved in any material legal proceedings. Employees As of October 26, 1999, we had 35 employees. None of our employees are covered by collective bargaining agreements. We believe that our relations with our employees are good. Facilities Our corporate headquarters are located in San Ramon, California, in a 7,500 square feet leased facility. Our annual rent is approximately $192,000. Our lease expires in August 2005. In addition, we lease two facilities where our back-up systems are located. We believe that our existing facilities are adequate for our current needs and that suitable additional space will be available, on acceptable terms, when needed. 48 MANAGEMENT Executive Officers and Directors The following table sets forth information about our management, directors and director nominees as of October 1, 1999:
Name Age Position Thomas R. Evans......... 45 Chairman, Chief Executive Officer Kenneth Stern........... 51 President and Director Brian W. Nocco.......... 47 Chief Financial Officer and Director Michael P. Presto....... 46 Chief Operating Officer Michael Barrett......... 37 Chief Internet and Sales Officer Steve Johnson........... 55 Senior Vice President, National Sales Manager Bruce Zanca............. 39 Senior Vice President, Communications and Administration Debbie Soleta........... 36 Vice President, Finance Brad Belton............. 34 Vice President, Engineering Angelica F. Carey....... 30 Vice President, Corporate Marketing Kirstin K. Gunn......... 37 Vice President, Consumer Marketing Andrew Cohan............ 45 Director Nominee Christos Cotsakos....... 51 Director Nominee George L. Graziadio, Jr. ................... 80 Director Nominee Vernon Loucks........... 65 Director Nominee Lee E. Mikles........... 43 Director Nominee Bruce Nelson............ 47 Director Nominee
Thomas R. Evans has served as our Chairman and Chief Executive Officer since August 1999. From April 1998 to May 1999, Mr. Evans was the president and chief executive officer of Geocities, Inc., which was acquired by Yahoo! Inc. in May 1999. From 1991 to April 1998, Mr. Evans served as president and publisher of U.S. News and World Report, a magazine that reports on domestic and international current events. From January 1997 to April 1998, Mr. Evans also served as president and publisher of The Atlantic Monthly, a magazine that features articles on art, literature, politics and technology. In addition, from May 1995 to April 1998, Mr. Evans served as president and publisher of Fast Company, a magazine that showcases business people and ideas. From 1990 to 1991, Mr. Evans served as vice president, advertising director of U.S. News and World Report. Kenneth Stern, our founder, has served as President and a Director since 1986, and is responsible for our operations, product designs and sales support. From 1984 to 1986, Mr. Stern held a senior management position in software development at Integral Systems. From 1976 to 1984, Mr. Stern was Vice President of Systems Development at Tessereact Corporation. Brian W. Nocco has served as our Chief Financial Officer and Director since September 30, 1999. From May 1998 until joining us, Mr. Nocco was Executive Vice President of Corporate Development at Imperial Bank, where he was involved in our management and initial public offering process. From 1994 to 1998, Mr. Nocco served as Senior Vice President and Manager of Audit and Compliance for The Chubb Corporation, an insurance company headquartered in Warren, New Jersey. From 1977 to 1994, Mr. Nocco served in various lending and financial management positions, including Treasurer, at Continental Bank in Chicago, Illinois. Michael P. Presto has served as our Chief Operating Officer since September 1999, and is responsible for our technology, customer service and business operations. Mr. Presto was Senior Vice President, Circulation and Business Development at Curtis Circulation Company from April 1998 to September 1999, where he was responsible for worldwide circulation sales and marketing strategies. From January 1993 to April 1998, 49 Mr. Presto was Vice President of Consumer Marketing and Senior Vice President of Consumer Marketing and Distribution for The New York Daily News during which time he also served as President of Data Comm Services Inc., an affiliate telemarketing/fulfillment customer service business. In addition, Mr. Presto has held executive management positions at U.S. News and World Report and Newsweek. Michael Barrett has served as our Chief Internet and Sales Officer since September, 1999. Mr. Barrett is responsible for marketing, sales, business development and strategic partnerships with respect to our Internet initiative. From May 1999 to September 1999, Mr. Barrett worked as an e-commerce consultant for Yahoo!, Inc., and from September 1997 to May 1999, Mr. Barrett was Senior Vice President of Sales and Strategic Partnerships at Geocities, Inc. In addition, from November 1995 to September 1997, Mr. Barrett was Vice President of Advertising for Disney Online, and he served as Publisher of Family Computer Magazine for Family PC. Previously, he held sales management positions at Meredith Publishing, Newsweek and Family PC. Steve Johnson has served as Senior Vice President, National Sales Manager since 1998, and is responsible for our sales organization. Prior to joining us, Mr. Johnson was the Regional Director of Client Relationships and Business Development at Electronic Data Systems since 1987. Bruce Zanca joined us as Senior Vice President, Communications and Administration in September 1999. Mr. Zanca oversees our corporate communications, public relations and investor relations efforts. He also manages the firm business administration infrastructure. Until June 1999, he was Vice President of Communications at GeoCities, Inc., where he was in charge of the public affairs, media relations, government affairs and investor relations efforts. Prior to joining GeoCities, Mr. Zanca was Vice President of Corporate Communications at U.S. News and World Report since June 1995. From August 1994 to June 1995, Mr. Zanca was President of Zanca Associates, a full service communications consulting and television production company. From January 1989 to May 1989, Mr. Zanca served as a White House press secretary under Marlin Fitzwater, and from May 1989 to September 1991, he served as a public relations adviser to President George Bush. Debbie Soleta has served as Vice President, Finance since 1992, and is responsible for our accounting and overseeing our administrative staff. Ms. Soleta also served as a director from January 1998 to August 1999. Prior to joining us, Ms. Soleta was an accountant with a firm in Fremont, California, from 1989 to 1991. Brad Belton joined us in November 1992 as Senior Software Engineer. Since January 1994, he has served as Vice President, Engineering, and is responsible for our database systems development. From 1988 to November 1992, Mr. Belton held various positions with Zendex Corporation, a manufacturer of micro controllers and computer equipment, including the position of Senior Software Engineer and Manager. Mr. Belton received his B.S. degree in Software Engineering from Oregon Institute of Technology. Angelica F. Carey joined us as Vice President, Corporate Marketing in September 1999. Ms. Carey is responsible for managing our corporate marketing, as well as promoting our services to our government clients and business partners and contributing to our sales, public relations and strategic partnership efforts. From July 1998 to July 1999, Ms. Carey was the Director of Ad Sales Marketing at GeoCities, Inc. Prior to GeoCities, Ms. Carey was also involved in the launch and development of the award-winning new business magazine Fast Company, where she worked as Marketing Manager from 1995 to 1998. From October 1993 to January 1996, Ms. Carey was a Senior Marketing Writer at U.S. News and World Report. Kristen K. Gunn joined us as Vice President, Consumer Marketing in September 1999. In addition to managing our relationships with strategic marketing partners, Ms. Gunn will be overseeing the development of our brand image and consumer marketing campaign. Before joining us, Ms. Gunn was the Director of Visitor Marketing at GeoCities, Inc. where she was responsible for marketing over 4 million homepages and promoting 50 GeoCities as a visitor destination. At GeoCities, Ms. Gunn also worked on creating the company's initial corporate branding campaign. From 1993 to 1998, Ms. Gunn served as the Manager of New Media at U.S. News and World Report. As a member of the magazine's first new media team, Ms. Gunn worked on the development, construction and launch of three Web sites in addition to managing the sites' advertising and business development relationships. Andrew Cohan will join our board of directors upon consummation of the offering. Since September 1999, he has been Chairman and Chief Executive Officer of Artist Marketing Corp., a marketing company for artists and entertainment/celebrity figures. From August 1997, Mr. Cohan was Senior Vice President, Worldwide Entertainment, Licensing and Marketing for Sony Signature, an entertainment licensing and marketing company. From January 1996 to July 1997, Mr. Cohan was Senior Vice President, Chief Merchandising Officer for Beverages and More, a start-up beverages retailer. Before that, Mr. Cohan was Vice President, Merchandising for Emerson Radio Corporation since February 1994. Christos M. Cotsakos will join our Board of Directors upon consummation of the offering. Mr. Cotsakos is the Chairman of the Board of Directors and Chief Executive Officer of E*TRADE Group, Inc., an electronic broker/dealer. Prior to joining E*TRADE, he served as President, Co-Chief Executive Officer, Chief Operating Officer and a Director of A.C. Nielsen, Inc. from March 1995 to January 1996, as President and Chief Executive Officer of Nielsen International from September 1993 to March 1995, and as President and Chief Operating Officer of Nielsen Europe, Middle East and Africa from March 1992 to September 1993. Mr. Cotsakos joined Nielsen after 19 years with the Federal Express Corporation, where he held a number of senior positions. Mr. Cotsakos also serves as a director of several technology companies in both the public and private sector. George L. Graziadio, Jr. will join our Board of Directors upon completion of this offering. Mr. Graziadio has been the Chairman of the Board, President and Chief Executive Officer of Imperial Bancorp, a bank holding company, since 1969. Mr Graziadio is engaged as an owner or partner in many other business activities, primarily in the real estate industry. He also serves on the board of directors of various subsidiaries of Imperial Bancorp, including the board of directors of Imperial Bank, our majority stockholder. He serves on the board of directors of Coastcast Corp., a manufacturer of golf clubheads, orthopedic implants and surgical tools. Mr Graziadio is the uncle of Lee E. Mikles, one of our director nominees. Vernon R. Loucks Jr. will join our Board of Directors upon consummation of the offering. Mr. Loucks is the Chairman of the Board of Directors of Baxter International, Inc., a developer, distributor and manufacturer of health care products and services, and previously served as Baxter's Chief Executive Officer from 1980 through 1998. Mr. Loucks also serves as a director of Affymetrix, Inc., Anhauser-Busch Companies, Inc., The Dun & Bradstreet Corporation, Emerson Electric Company and The Quaker Oats Company. Lee E. Mikles will join our Board of Directors upon completion of this offering. Mr. Mikles is the chairman of Mikles/Miller Management Inc., an investment advisor and Chairman of Mikles/Miller Securities, LLC, a registered broker/dealer. He has has been a director of Imperial Bancorp since 1996 and its wholly-owned subsidiary, Imperial Bank, since 1993. Mr. Mikles also serves on the board of directors of Coastcast Corp., and Boss Holdings, Inc. Mr. Mikles is the nephew of George L. Graziadio, Jr., one of our director nominees. Bruce Nelson will join our Board of Directors upon consummation of the offering. Mr. Nelson most recently was Vice Chairman of Young & Rubicam Inc. Prior to that position, he worked at McCann-Erickson Worldwide for 19 years in various positions, including as Director of Worldwide Accounts, Director of Strategy for Worldwide Accounts and Creative Director for Worldwide Accounts. 51 Board of Directors and Committees Our board of directors is composed of up to nine members. Currently there are six vacancies. Within 30 days following the consummation of this offering, we intend to fill those vacancies with individuals, including one individual designated by Kenneth Stern, who will be neither our officers nor employees. Within 30 days following the completion of this offering, our board of directors will establish an Audit Committee and a Compensation Committee. Effective upon their joining our board of directors, certain of our independent directors will serve as the members of the Audit Committee and the Compensation Committee. The Audit Committee's principal functions will include making recommendations to our board of directors regarding the annual selection of our independent auditors, reviewing the proposed scope of each annual audit and reviewing the recommendations of our independent auditors resulting from the audit of our consolidated financial statements. The Compensation Committee's principal function will be to establish the compensation of our Chief Executive Officer and other senior officers and to establish and administer our compensation programs, including the grant of awards under our stock incentive plan. See "--1999 Stock Incentive Plan" on page 53. Our board of directors may at various times establish other committees to facilitate the management of our company. Director Compensation Prior to this offering, directors received no compensation for their service on our board of directors. Upon completion of this offering, directors who are not our employees will receive an annual retainer of $20,000. Directors will be reimbursed for out-of-pocket expenses incurred in connection with their service as directors. In addition, each non-employee director will receive, upon consummation of this offering, options to purchase 75,000 shares of our common stock at an exercise price per share equal to the initial public offering price. Directors who are our officers or employees will not receive any additional compensation for their services as directors. See "--1999 Stock Incentive Plan" on page 53. Executive Compensation The following table sets forth information with respect to the compensation earned during the year ended December 31, 1998 by our Chief Executive Officer and our two other most highly compensated executive officers (collectively, the Named Executive Officers). We did not pay any bonuses in 1998. Perquisites and other personal benefits, securities and property did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for any of the Named Executive Officers. Summary Compensation Table
Other Name and Principal Position Salary Compensation Thomas Evans(1).................................. $ -- $ -- Chairman and Chief Executive Officer Kenneth Stern.................................... 144,000(/2/) -- President Brian W. Nocco(3)................................ -- -- Chief Financial Officer
- -------- (1) Mr. Evans became our Chairman and Chief Executive Officer in August 1999. His annual base salary is $200,000. Please see "--Employment Agreements" on page 55 for a detailed description of Mr. Evans's employment agreement. (2) Effective August 1999, Mr. Stern's annual base salary is $215,000. Please see "--Employment Agreements" on page 55 for a detailed description of Mr. Stern's employment agreement. (3) Mr. Nocco became our Chief Financial Officer as of September 30, 1999. His annual base salary is $200,000. Please see "--Employment Agreements" on page 55 for a detailed description of Mr. Nocco's employment agreement. 52 1999 Stock Incentive Plan In August 1999, our board of directors adopted the 1999 Stock Incentive Plan. We have reserved a total of 6,900,000 shares of common stock for issuance under the plan. The purpose of the plan is to promote our long-term growth and profitability by providing individuals with incentives to improve stockholder value and contribute to our growth and financial success, and by enabling us to attract, retain and reward the best available persons for positions of substantial responsibility. The plan provides for the grant of both: . non-qualified stock options; and . incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Participation in the plan is open to our key employees, officers and directors. Key employees and officers may be granted incentive stock options and non-qualified stock options. Directors who are not our employees may only receive non-qualified stock options. We have granted non-qualified stock options to purchase 4,488,012 shares of our common stock to the following individuals and groups:
Name Number of Shares Thomas Evans............................................. 1,325,460 Kenneth Stern............................................ 212,073 Brian Nocco.............................................. 397,638 All executive officers as a group (11 persons)........... 4,320,999 All others (5 persons)................................... 167,013
All of the above options are non-qualified stock options, have a term of ten years and an exercise price of $1.33 per share. We have granted stock options to Mr. Evans to purchase up to 1,325,460 shares of our common stock and to other executive officers and employees to purchase up to 2,499,822 shares of our common stock which are exercisable immediately. All of these shares will be non-transferable and subject to our right to repurchase those shares at a price of $1.33 per share. We may exercise this right at any time during the 30-day period following termination of employment for reasons other than death, disability or a change in control. Our repurchase right will expire with respect to one-third of the option shares on the first anniversary of the grant date. Thereafter, our right will expire on a cumulative basis with respect to the remaining shares on a monthly basis on the last day of each of the next 24 consecutive months. Further, upon completion of this offering, we will grant Mr. Evans an additional option to acquire shares of our common stock at an exercise price of $1.33 per share so that, when combined with the option described above, Mr. Evans will have options to acquire a number of shares of our common stock as is equal to a total of five percent (5%) of our common stock outstanding at that time, on a fully diluted basis, including the options granted to Mr. Evans. In addition, upon completion of this offering, we will grant other executive officers and employees additional options to acquire shares of our common stock at an exercise price of $1.33 per share so that, when combined with the options described above, these individuals will have options to acquire a number of shares of our common stock as is equal to a total of 9.43% of our common stock outstanding at that time, on a fully diluted basis, including the options granted to these individuals. We have also granted 662,730 stock options to purchase shares of our common stock to executive officers and employees, other than Mr. Evans, which will vest on the date of this offering. Kenneth Stern has been delegated the authority to grant, upon completion of this offering, any employees selected by him additional options to acquire shares of our common stock at an exercise price of $1.33 per share so that, when combined with the options already granted, these employees selected by Mr. Stern to receive options will have options to acquire a number of shares of our common stock equal to a total of two and one-half percent 53 (2.5%) of our common stock outstanding at that time, on a fully diluted basis, including the options granted to these employees. In addition, Mr. Stern has also been delegated the authority to grant, upon completion of this offering, non-qualified stock options to any of our employees to purchase shares of our common stock at an exercise price equal to the initial public offering price so that they will have options to acquire a number of shares of common stock equal to a total of two and one-half percent (2.5%) of our common stock outstanding at that time, on a fully diluted basis, including the options granted to these employees. The plan is administered by the compensation committee of our board of directors. The compensation committee has the authority to: . determine whether and to what extent incentive stock options and/or non- qualified stock options will be granted to eligible key employees; . select key employees and outside directors to whom options will be granted; . determine the number of shares of common stock to be covered by each option granted; . determine the exercise price, vesting schedule and all other terms and conditions of stock options granted; . determine the fair market value of a share of common stock on a given date; . provide that all shares of common stock received by an optionee upon the exercise of a stock option prior to the consummation of this offering shall be subject to a right of first refusal, which requires the option holder to offer to us any shares that the option holder wishes to sell; and . amend the terms of any option, prospectively or retroactively, provided that no amendment will impair the rights of the option holder without his or her written consent. For incentive stock options to qualify under Section 422 of the Internal Revenue Code, they: . must have an exercise price at least equal to fair market value on the date of grant; and . may not be exercisable more than ten years from the date of grant. If any of our employees or any employee of our subsidiaries owns over 10% of the combined voting power of all classes of our stock on the date of grant, the incentive stock options granted to these employees: . must have an exercise price not less than 110% of the fair market value; and . may not be exercisable more than five years from the date of grant. The exercise price of any option may be paid: . in cash; . through a "cashless exercise"; . by tendering of shares of common stock; . by a combination of cash and shares; or . by any other means approved by the compensation committee. Our board of directors may terminate, amend or modify the plan at any time, except that all awards made prior to termination of the plan will remain in effect until they have been satisfied or terminated in accordance with the terms of the plan and such awards. 54 Employment Agreements We have entered into an employment agreement with Thomas Evans, our Chairman and Chief Executive Officer. The employment agreement provides for an annual base salary of $200,000. In addition, under the terms of his agreement, Mr. Evans will receive a one-time bonus of $500,000, $250,000 of which has been paid to date, and $250,000 of which will be paid no later than the first anniversary of the commencement of his employment with us. Mr. Evans was also granted options to purchase 1,325,460 shares of our common stock at $1.33 per share under the 1999 Stock Incentive Plan. We agreed to grant Mr. Evans additional options under our 1999 Stock Incentive Plan at an exercise price of $1.33 per share upon consummation of this offering so that, at that time, he would hold options, including the initial grant of options to purchase 1,325,460 shares, to purchase shares of our common stock equal to a total of 5% of our common stock outstanding, on a fully diluted basis, including the options granted to Mr. Evans. Under the terms of the employment agreement, Imperial Bank has guaranteed that the "value"--as defined in the agreement--of Mr. Evans' vested options will be worth $10,000,000 on or before the third anniversary of the date of the agreement, or Imperial Bank will pay Mr. Evans an amount equal to the difference between $10,000,000 and the highest value of the vested options on or before the third anniversary. If Mr. Evans' employment is terminated by us without "cause" or if he terminates his employment for "good reason," including a "change in control," as these terms are defined in the agreement, we will be required to pay him his base salary and benefits for one year, and all of his options will vest immediately. If Mr. Evans' employment is terminated by us with cause, we will be required to pay him any compensation, benefits or reimbursements accrued through the date of termination. Mr. Evans' employment under the agreement may be terminated by us on 30 days' notice without cause, or immediately upon notice with cause, and may be terminated by Mr. Evans on 60 days' notice without good reason, or immediately for good reason. We have entered into an employment agreement with Kenneth Stern, pursuant to which Mr. Stern has agreed to serve as our President and a member of our board of directors until August 23, 2006. The employment agreement provides for an annual base salary of $215,000 and a minimum annual bonus of $100,000. Mr. Stern has the right to take early retirement at any time after the third anniversary of the date of the agreement, upon which we would be required to pay him his base salary and bonus through August 23, 2006. If Mr. Stern's employment is terminated by us without "cause" or if he terminates his employment for "good reason," as these terms are defined in the agreement, we will be required to pay him his base salary and bonus through August 23, 2006, and provide benefits through December 31, 2002 or for one year from the date of termination, whichever is later. Additionally, Mr. Stern would be entitled to retain his position as a director through August 23, 2006, provided that he and Beranson Holdings, Inc. own or control an aggregate of 10% of our outstanding common stock. If Mr. Stern's employment is terminated by us with cause, we will be required to pay him any compensation, benefits or reimbursements accrued through the date of termination. Mr. Stern's employment under the agreement may be terminated by us on 30 days' notice without cause, or immediately upon notice with cause, and may be terminated by Mr. Stern on 120 days' notice without good reason, or immediately for good reason. We have entered into an employment agreement with Brian Nocco, pursuant to which Mr. Nocco will serve as our Chief Financial Officer and a member of our board of directors. The employment agreement provides for an annual base salary of $200,000, as well as reimbursement for relocation expenses. In addition, under the terms of his agreement, Mr. Nocco will receive a minimum bonus of $100,000 in 2000. Mr. Nocco was also granted options to purchase 397,638 shares of our common stock at $1.33 per share under the 1999 Stock Incentive Plan. We agreed to grant Mr. Nocco additional options under our 1999 Stock Incentive Plan at an exercise price of $1.33 per share upon consummation of this offering so that, at that time, he would hold options, including the initial grant of options to purchase 397,638 shares, to purchase shares of our common stock equal to a total of 1.5% of our common stock outstanding, on a fully diluted basis, including the options granted to Mr. Nocco. If Mr. Nocco's employment is terminated by us without "cause" or if he terminates his employment for "good reason," including a "change in control," as these terms are defined in the agreement, we will be required to pay him his base salary and benefits for one year, and all of his options will vest immediately. If Mr. Nocco's employment is terminated by us with cause, we will be required to pay him any 55 compensation, benefits or reimbursements accrued through the date of termination. Mr. Nocco's employment under the agreement may be terminated by us on 30 days' notice without cause, or immediately upon notice with cause, and may be terminated by Mr. Nocco on 60 days' notice without good reason, or immediately for good reason. We have entered into an employment agreement with Michael P. Presto, our Chief Operating Officer. The employment agreement provides for an annual base salary of $200,000. In addition, under the terms of his agreement, Mr. Presto will receive a minimum bonus of $100,000 in 2000. Mr. Presto was also granted options to purchase 662,730 shares of our common stock at $1.33 per share under the 1999 Stock Incentive Plan. We agreed to grant Mr. Presto additional options under our 1999 Stock Incentive Plan at an exercise price of $1.33 per share upon consummation of this offering so that, at that time, he would hold options, including the initial grant of options to purchase 662,730 shares, to purchase shares of our common stock equal to a total of 2.5% of our common stock outstanding, on a fully diluted basis, including the options granted to Mr. Presto. If Mr. Presto's employment is terminated by us without "cause" or if he terminates his employment for "good reason," including a "change in control," as these terms are defined in the agreement, we will be required to pay him his base salary and benefits for one year, and all of his options will vest immediately. If Mr. Presto's employment is terminated by us with cause, we will be required to pay him any compensation, benefits or reimbursements accrued through the date of termination. Mr. Presto's employment under the agreement may be terminated by us on 30 days' notice without cause, or immediately upon notice with cause, and may be terminated by Mr. Presto on 60 days' notice without good reason, or immediately for good reason. We have entered into an employment agreement with Michael Barrett, our Chief Internet and Sales Officer. The employment agreement provides for an annual base salary of $200,000. In addition, under the terms of his agreement, Mr. Barrett will receive a minimum bonus of $100,000 in 2000. Mr. Barrett was also granted options to purchase 795,276 shares of our common stock at $1.33 per share under the 1999 Stock Incentive Plan. We agreed to grant Mr. Barrett additional options under our 1999 Stock Incentive Plan at an exercise price of $1.33 per share upon consummation of this offering so that, at that time, he would hold options, including the initial grant of options to purchase 795,276 shares, to purchase shares of our common stock equal to a total of 3% of our common stock outstanding, on a fully diluted basis, including the options granted to Mr. Barrett. If Mr. Barrett's employment is terminated by us without "cause" or if he terminates his employment for "good reason," including a "change in control," as these terms are defined in the agreement, we will be required to pay him his base salary and benefits for one year, and all of his options will vest immediately. If Mr. Barrett's employment is terminated by us with cause, we will be required to pay him any compensation, benefits or reimbursements accrued through the date of termination. Mr. Barrett's employment under the agreement may be terminated by us on 30 days' notice without cause, or immediately upon notice with cause, and may be terminated by Mr. Barrett on 60 days' notice without good reason, or immediately for good reason. The employment agreements generally contain confidentiality provisions and covenants not to compete during the term of employment and for one year after termination of employment. Compensation Committee Interlocks and Insider Participation Prior to this offering, we have had no separate compensation committee or other board committee performing equivalent functions. Upon filling the vacancies on our board of directors, our board of directors will create a Compensation Committee composed solely of outside directors. During the year ended December 31, 1998, none of our executive officers served: . as a member of the compensation committee, or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors, of another entity, one of whose executive officers served on our board of directors; . as a director of another entity, one of whose executive officers served on our board of directors; or . as a member of the compensation committee, or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors, of another entity, one of whose executive officers served as a director of our company. 56 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Our stockholders, Imperial Bank and Beranson Holdings, Inc., a company affiliated with Kenneth Stern, our President, have from time to time made advances to us to bridge temporary cash shortages and fund certain capital expenditures, particularly purchases of equipment and other technology required to support the expansion of our IRS and state income tax relationships. These advances are made under lines of credit from Imperial Bank and Beranson Holdings, Inc. in the combined amount of $2.8 million and are evidenced by promissory notes bearing interest at a floating rate equal to Imperial Bank's prime rate plus 2% per annum. The notes mature on the earlier of December 31, 2000 or the date that is 30 days after the date of the completion of our initial public offering. As of October 26, 1999, the aggregate principal and interest accrued on these notes was $2.3 million. We expect to repay the balance of the promissory notes, together with the accrued interest, from the net proceeds of this offering. We do not believe we would have been able to obtain financing from an unaffiliated third party on similar or more favorable terms. During the past year, we have received the following advances from our stockholders: . August 16, 1999; $200,000 from Imperial Bank and $50,000 from Beranson Holdings, Inc. . August 24, 1999; $1,105,600 from Imperial Bank and $276,400 from Beranson Holdings, Inc. . October 1999; $560,000 from Imperial Bank and $140,000 from Beranson Holdings, Inc. In January 1998, Imperial Bank agreed to increase its ownership interest of U.S. Audiotex LLC from 20% to 80% by purchasing a 60% membership interest, or 75% of Beranson Holdings, Inc.'s membership interest, from Beranson Holdings, Inc. for $3,010,000, of which $2,510,000 was immediately payable to Beranson Holdings, Inc. The purchase price balance of $500,000 was payable according to the following structure: . In order to fund our cash flow needs, Imperial Bank made a capital contribution of $500,000 to us, bearing interest at 10% per annum, in return for a preferred membership interest. . Imperial Bank's preferred membership interest was subject to mandatory redemption upon the formation of Official Payments Corporation. . Imperial Bank was obligated to forward any redemption payments it received from us to Beranson Holdings, Inc. as an additional payment for its purchase of the membership interest. For accounting purposes, Imperial Bank's preferred membership interest was treated by us as a loan from Beranson Holdings, Inc. to us. Upon our formation on August 24, 1999, the mandatory redemption of Imperial Bank's preferred membership interest was triggered and this "loan," including $82,000 of accrued interest, was repaid to Beranson Holdings, Inc. out of the proceeds of the advances made to us on that date by Imperial Bank and Beranson Holdings, Inc. Imperial Bank is one of three merchant banks we use to process credit card transactions and perform traditional merchant credit card settlement services. Under our agreement with Imperial Bank for processing and settlement services, Imperial Bank is authorized to retain from our sales revenues customary merchant discount fees usually charged for similar processing services, on a product by product basis. During the nine months ended September 30, 1999, we paid Imperial Bank approximately $1.6 million for performing these processing and settlement services. We believe Imperial Bank is providing these services on terms no less favorable to us than could be obtained from unaffiliated third parties. We expect that Imperial Bank will continue to provide these services to us following this offering. Imperial Bank has provided human resource services and other assistance to us. These services and assistance include payroll processing and benefits administration, including the administration of our 401(k) plan and other benefit programs, and employee recruiting. Like all wholly-owned and majority- owned subsidiaries of Imperial Bank, we pay a pass-through charge, based on the total number of employees, for these services. During the nine months ended September 30, 1999, we paid Imperial Bank a fee of $7,000 for these 57 services. We believe Imperial Bank is providing these services on terms no less favorable to us than could be obtained from unaffiliated third parties. Upon completion of this offering, Imperial Bank will continue to provide these services to us for the foreseeable future. Imperial Bank and Beranson Holdings, Inc. have guaranteed the performance of our obligations under two equipment leases. Upon completion of this offering, we expect that Imperial Bank and Beranson Holdings, Inc. will be released as the guarantors of our lease obligations. We were originally organized as a California limited liability company ("LLC"). In anticipation of our initial public offering, we merged the LLC with and into a Delaware corporation, as a result of which all the assets and liabilities of the LLC were transferred to the corporation. Prior to the merger, Imperial Bank and Beranson Holdings, Inc. were the only members of the LLC and owned membership interests representing 80% and 20%, respectively, in the LLC. Since the merger, Imperial Bank and Beranson Holdings, Inc. hold a corresponding percentage ownership interest in us, with Imperial Bank owning 12,000,000 shares of our common stock and Beranson Holdings, Inc. owning 3,000,000 shares of our common stock. 58 PRINCIPAL STOCKHOLDERS This table sets forth information regarding the beneficial ownership of our common stock as of September 30, 1999 by: . each person known to us to own beneficially more than 5% of our outstanding common stock; . each of our directors; . each of our executive officers listed in the summary compensation table in the "Management" section on page 52; and . all of our directors and executive officers as a group. The calculations of the percentages in the following table are based on 15,000,000 shares of our common stock outstanding prior to the closing of this offering, and 20,000,000 shares outstanding immediately following the completion of this offering. Unless otherwise noted, each of the persons listed below has sole voting and investment power with respect to their shares.
Stockholder Name and Shares Beneficially Shares Beneficially Address(/1/) Owned Prior to Offering Owned After Offering - -------------------- ------------------------------------------------------ Number Percentage Number Percentage Imperial Bank.......... 12,000,000 80.0% 12,000,000 60.0% c/o Imperial Bank Building 9920 South La Cienega Boulevard Inglewood, CA 90301 Beranson Holdings, Inc.(1)............... 3,000,000 20.0 3,000,000 15.0 c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 Thomas R. Evans........ 1,325,460(/2/) 8.1 1,325,460 6.2 c/o Official Payments Corporation 445 Park Avenue, 10th Floor New York, New York 10022 Kenneth Stern(1)....... 3,212,073 21.1 3,212,073 15.9 c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 Brian Nocco............ 397,638 2.6 397,638 1.9 c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 George L. Graziadio, Jr. .................. -- -- 75,000 * c/o Imperial Bank Building 9920 South La Cienega Boulevard Inglewood, CA 90301 Lee E. Mikles.......... -- -- 75,000 * c/o Imperial Bank Building 9920 South La Cienega Boulevard Inglewood, CA 90301 Andrew Cohan........... -- -- 75,000 * c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 Christos Cotsakos...... -- -- 75,000 * c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 Vernon R. Loucks Jr.... -- -- 75,000 * c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 Bruce Nelson........... -- -- 75,000 * c/o Official Payments Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, California 94583 All executive officers and directors as a group................. 7,320,999 37.9 7,770,999 31.4 (17 persons)
59 - -------- * Less than 1%. (1) Beranson Holdings, Inc. is a company controlled by Mr. Stern and his wife, Michaella Stern, as joint tenants. Lauren Stern, a minor, is the only other stockholder. Accordingly, Mr. Stern is deemed to beneficially own the shares of our common stock owned by Beranson Holdings, Inc. (2) Consists of 1,325,460 shares of our common stock underlying presently exercisable options, equal to 5% of our common stock outstanding after this offering on a fully diluted basis. For a discussion of Mr. Evans's arrangement, see "Management--Employment Agreements" on page 55. 60 DESCRIPTION OF CAPITAL STOCK General We are authorized to issue up to 150,000,000 shares of common stock, 15,000,000 shares of which are issued and outstanding, held by two stockholders of record. An additional 6,900,000 shares of common stock are issuable upon exercise of outstanding stock options under our 1999 Stock Incentive Plan. The following description provides a summary of the material rights and limitations relating to ownership of our capital stock. For a complete legal description of our capital stock, you should refer to our certificate of incorporation and bylaws, copies of which are included as exhibits to the registration statement of which this prospectus is a part. Common Stock Upon completion of this offering, there will be no preemptive, conversion, subscription, redemption or repurchase rights associated with the shares of common stock. Each holder of common stock is entitled to one vote for each share owned of record on matters submitted to a vote of the stockholders. Holders of common stock are not entitled to cumulative voting rights in the election of directors. If we are liquidated, the holders of common stock are entitled to participate ratably in the assets available for distribution after satisfaction of all claims of our creditors. The holders of common stock are entitled to receive ratably such dividends as our board of directors, in its discretion, may declare out of funds legally available therefor. Under the Delaware General Corporation Law (the DGCL), dividends may be paid out of either: . surplus as defined in the DGCL; or . net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. See "Dividend Policy" on page 16. Bylaw Provisions Our bylaws provide that our board of directors will consist of not less than 3 nor more than 9 members. The exact number of directors constituting our board can be fixed and changed from time to time by our board. The directors will be elected at the annual meeting of stockholders or any special meeting of stockholders and each director so elected will hold office until the next annual meeting or until his successor is elected and qualified or until his earlier resignation or removal. Our bylaws may be amended by the affirmative vote of 80% of our stockholders or the affirmative vote of two-thirds of our board of directors. See "Risk Factors" on page 5. Anti-Takeover Matters Provisions of the DGCL Section 203 of the DGCL generally restricts a corporation from entering into certain business combinations with an interested stockholder (defined as any person or entity that is the beneficial owner of at least 15% of a corporation's voting stock) or its affiliates, unless: . the transaction is approved by the board of directors of the corporation prior to the date such person or entity became an interested stockholder; . the interested stockholder acquired 85% of the corporation's stock, excluding voting stock owned by directors and officers and certain employee stock plans of the corporation, in the same transaction in which the interested stockholder exceeds 15%; or 61 . the business combination is approved by the board of directors and by a vote of two-thirds of the outstanding voting stock not owned by the interested stockholder. The DGCL provides that a corporation may elect not to be governed by Section 203. At present, we do not intend to make such an election and we intend to avail ourselves of the rights afforded by Section 203. The effect of Section 203 may be to render more difficult a change in control of our company. Charter Provisions Our certificate of incorporation provides that stockholders may not take action by written consent, but only at a duly called annual or special meeting of stockholders. Special meetings of our stockholders may be called only by our Chairman or a majority of our directors. Our certificate of incorporation also includes supermajority voting provisions. The affirmative vote of 80% of our stockholders is required for the removal of our directors, the adoption, amendment or repeal of our bylaws, and the consummation of some business combinations with any related person, which is defined as any person or entity who, together with its affiliates, owns 10% of our voting stock. However, the supermajority requirement will not apply to business combinations with related persons if the combinations are approved by a majority of our directors, or if our stockholders receive the requisite type and amount of consideration. Limitation of Director and Officer Liability Our certificate of incorporation and bylaws provide that, to the extent not prohibited by law, we will indemnify any person who is or was made, or threatened to be made, party to any threatened, pending or completed action, suit or proceeding, by reason of the fact that such person is or was our director or officer, or is or was serving in any capacity at our request for any other corporation, partnership or other enterprise, against judgments, fines, penalties, excise taxes, amounts paid in settlement costs, charges and expenses, including attorneys' fees. Persons who are not directors or officers of our company may be similarly indemnified in respect of service to our company to the extent our board of directors at any time specifies such persons are entitled to the benefits of the indemnification provisions contained in our certificate of incorporation or bylaws. Our certificate of incorporation provides for the elimination of personal liability to our company or our stockholders for monetary damages for breach of fiduciary duty as a director, except for: . any breach of the director's duty of loyalty to our company or our stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . certain unlawful dividends or redemptions as provided under Section 174 of the DGCL; or . any transaction from which the director derived an improper personal benefit. Transfer Agent American Stock Transfer & Trust Company will be the transfer agent and registrar for the common stock. 62 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our securities. Upon completion of this offering, there will be 20,000,000 shares of our common stock outstanding, assuming there is no exercise of the Underwriters' over- allotment option or options outstanding under our stock option plans. Of these shares, the 5,000,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. Sales of Restricted Shares The remaining 15,000,000 shares of common stock are deemed "restricted securities" under Rule 144. Upon expiration of the Lock-Up Agreements described below, these shares of common stock will be available for sale in the public market, subject to the provisions of Rule 144 under the Securities Act. The Lock-Up Agreements provide that, for a period of 180 days after the date of this prospectus, our stockholders prior to this offering will not sell, offer, contract or grant any option to sell, pledge, transfer, establish an open put equivalent position or otherwise dispose of any shares of common stock, any options to purchase shares of common stock or any shares convertible into or exchangeable for shares of common stock, owned directly by such persons or with respect to which they have the power of disposition, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a stockholder, including an Affiliate, who has beneficially owned his or her restricted securities, as that term is defined in Rule 144, for at least one year from the later of the date such securities were acquired from us or, if applicable, the date they were acquired from one of our Affiliates is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of 1% of the then outstanding shares of common stock--200,000 shares immediately after this offering--or the average weekly trading volume in the common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from us or, if applicable, the date they were acquired from one of our Affiliates, a stockholder who is not an Affiliate of us at the time of sale and has not been an Affiliate of us for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. Securities issued in reliance on Rule 701--such as shares of common stock acquired pursuant to the exercise of certain options granted under our 1999 Stock Option Plan--are also restricted securities and, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, may be sold by stockholders, other than our Affiliates subject only to the manner of sale provisions of Rule 144 and by Affiliates under Rule 144 without compliance with its one-year holding period requirement. Registration Rights We have granted Imperial Bank and Beranson Holdings, Inc. the right to demand, on four occasions and one occasion, respectively, that we register their shares of our common stock. In addition, under the terms of the registration rights agreements, if we propose to register any of our securities, either for our own account or for the account of another stockholder exercising registration rights, Imperial Bank and Beranson Holdings, Inc. are entitled to notice of the registration and are entitled to include their shares in the registration. Both the demand and the "piggy-back" registration rights are subject to a number of conditions and limitations, among them the right of the underwriters of any registration to limit the number of shares included in the registration. We have agreed to pay the expenses associated with the registration of Imperial Bank's and Beranson Holdings, 63 Inc.'s shares of our common stock, including the reasonable cost of legal counsel, not to exceed $75,000 for each registration. Options We intend to file registration statements on Form S-8 under the Securities Act to register all shares of common stock issuable under our 1999 Stock Incentive Plan. Shares issued upon the exercise of stock options after the effective date of the registration statements on Form S-8 will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to Affiliates and the Lock-up Agreements noted above, if applicable. Effect of Sales of Shares Prior to this offering, there has been no public market for our common stock, and no prediction can be made as to the effect, if any, that market sales of shares of common stock or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of our common stock in the public market could adversely affect the market price of our common stock and could impair our future ability to raise capital through an offering of our equity securities. 64 UNDERWRITING Subject to the terms and conditions contained in an underwriting agreement dated , 1999, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, CIBC World Markets Corp. and DLJdirect Inc. have severally agreed to purchase from us the respective number of shares of common stock set forth opposite their names below.
Number of Underwriter Shares Donaldson, Lufkin & Jenrette Securities Corporation............. CIBC World Markets Corp......................................... DLJdirect Inc. ................................................. ----- Total......................................................... =====
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of common stock offered by this prospectus are subject to approval by their counsel of certain legal matters and to certain other conditions. The underwriters are obligated to purchase and accept delivery of all the shares of common stock offered by this prospectus, other than those shares covered by the over-allotment option described below, if any are purchased. The underwriters initially propose to offer the shares of our common stock in part directly to the public at the initial public offering price set forth on the cover page of this prospectus and in part to certain dealers, including the underwriters, at the initial offering price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may re-allow, to other dealers a concession not in excess of $ per share. After the initial offering of the common stock, the public offering price and other selling terms may be changed by the representatives of the underwriters at any time without notice. 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 in part, up to a total of 750,000 additional shares of common stock at the initial public offering price less underwriting discounts and commissions. The underwriters may exercise the option solely to cover overallotments, if any, made in connection with the offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, subject to a number of conditions, to purchase its pro rata portion of such additional shares based on such underwriter's percentage underwriting commitment as indicated in the preceding table. At our request, the underwriters have reserved for sale, at the initial public offering price, up to 7.5% of the shares included in the offering, to be sold to some of our and our shareholders' directors, officers and employees and family of our and our shareholders' directors and executive officers, to strategic partners, and to other persons and entities that we believe have contributed to the development and success of our business. The number of shares available for sale to the general public will be reduced to the extent these persons purchase reserved shares. The persons purchasing shares under our directed share program must commit to purchase shares at the same time as the general public. Any reserved shares that are not orally confirmed for purchase 65 within one day of the pricing of the offering will be offered by the underwriters to the general public on the same terms as the shares offered in our initial public offering. We have agreed to indemnify the underwriters against a number of liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make. We and each of our executive officers, directors, stockholders and option holders have agreed, subject to some exceptions, 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 to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or . enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock; for a period of 180 days after the date of this prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. In addition, during the 180-day period, we have also agreed not to file any registration statement with respect to, and each of our executive officers, directors and certain of our stockholders has agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of our 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. However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion, release all or any portion of the securities subject to the lock-up agreements. We have determined that if the lock-up with respect to a significant number of shares has been waived, whether with respect to a single stockholder or a number of stockholders, we will review applicable securities laws and, if public disclosure would be appropriate, disclose the waiver. Prior to the offering, there has been no established trading market for our common stock. The initial public offering price of the shares of our common stock offered by this prospectus was determined by negotiation among us and the representatives of the underwriters. The factors considered in determining the initial public offering price included the history of and the prospects for the industry in which we compete, our past and present operations, our historical results of operations, our prospects for future earnings, the recent market prices of securities of generally comparable companies and the general condition of the securities markets at the time of the offering. 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 in connection with the offer and sale of any shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of the particular jurisdiction. Persons with this prospectus should inform themselves about and observe any restrictions relating to the offering 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 offered hereby in any jurisdiction in which such an offer or a solicitation is unlawful. The following table shows the underwriting fees to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option described above.
Total ----------------- Per No Full Share Exercise Exercise Underwriting fees paid by us............................ $ $ $
66 In connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may overallot the offering, creating a syndicate short position. The underwriters may bid for and stabilize the price of our common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if they repurchase previously distributed common stock in syndicate covering transactions, in stabilizing transactions or otherwise. These activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS The validity of the issuance of the shares of common stock offered by this prospectus will be passed upon for us by Cadwalader, Wickersham & Taft, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Simpson Thacher & Bartlett, New York, New York. EXPERTS The financial statements of Official Payments Corporation as of December 31, 1997, 1998, for the period from January 1, 1996 to June 26, 1996 of the predecessor company and for the period from June 26, 1996 (inception) to December 31, 1996 and for each of the years in the two-year period ended December 31, 1998 have been included herein and in the Registration Statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. You should read this prospectus together with the additional information described in "Where You Can Find Additional Information" on page 66. The information on our www.8882paytax.com Web site is not part of this prospectus. 8882paytax.com SM and 1-888-2PAY-TAX SM are registered service marks of Official Payments Corporation. All other brand names, trademarks and service marks appearing in this prospectus are the property of their respective holders. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. You may inspect a copy of the registration statement without charge at the SEC's principal office in Washington, D.C. and obtain copies of all or any part thereof upon payment of certain fees from the Public Reference Section of the SEC at the SEC's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Commission's Regional Offices in New York, located at 7 World Trade Center, Suite 1300, New York, New York 10048, or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC's World Wide Web address is www.sec.gov. We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish such other reports as we may determine or as may be required by law. 67 OFFICIAL PAYMENTS CORPORATION Index to Financial Statements
Page Independent Auditors' Report............................................. F-2 Balance Sheets as of December 31, 1997, 1998 and September 30, 1999...... F-3 Statements of Operations for the period from January 1, 1996 to June 26, 1996 (predecessor company) and for the period from June 26, 1996 (inception) to December 31, 1996 and for the years ended December 31, 1997 and 1998 and for the nine-month periods ended September 30, 1998 (unaudited) and 1999 (unaudited)........................................ F-4 Statements of Stockholders' Equity (Deficit) for the period from June 26, 1996 (inception) to December 31, 1996 and for the years ended December 31, 1997 and 1998 and for the nine-month period ended September 30, 1999 (unaudited)............................................................. F-5 Statements of Cash Flows for the period from June 26, 1996 (inception) to December 31, 1996 and for the years ended December 31, 1997 and 1998 and for the nine-month periods ended September 30, 1998 (unaudited) and 1999 (unaudited)............................................................. F-6 Notes to Financial Statements............................................ F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Official Payments Corporation: We have audited the accompanying balance sheets of Official Payments Corporation as of December 31, 1997 and 1998 and the related statements of operations, stockholders' equity (deficit) and cash flows for the period from January 1, 1996 to June 26, 1996 (predecessor company) and for the period from June 26, 1996 (inception) to December 31, 1996 and for each of the years in the two-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Official Payments Corporation as of December 31, 1997 and 1998, and the results of its operations and cash flows for the period from January 1, 1996 to June 26, 1996 (predecessor company) and for the period from June 26, 1996 (inception) to December 31, 1996 and for each of the years in the two-year period ended December 31, 1998, in conformity with generally accepted accounting principles. San Francisco, California August 12, 1999, except note 1 and note 8 which is as of October 26, 1999 F-2 OFFICIAL PAYMENTS CORPORATION BALANCE SHEETS (In thousands, except share and per share data)
December 31, ------------- September 30, 1997 1998 1999 (unaudited) ASSETS Current assets: Cash and cash equivalents........................ $ 182 $ 631 $ 514 Accounts receivable.............................. 265 554 532 Receivable from related parties.................. 12 -- -- Prepaid expenses and other current assets........ 54 29 134 Receivable from U.S. Treasury.................... -- -- 95 ----- ------ ------- Total current assets.......................... 513 1,214 1,275 Property and equipment, net....................... 251 533 750 Other assets...................................... -- -- 36 ----- ------ ------- Total assets.................................. $ 764 $1,747 $ 2,061 ===== ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses............ $ 404 $ 654 $ 480 Deferred revenue................................. 62 99 107 Current portion of notes payable and capital lease obligations............................... 268 69 106 Notes payable to related parties................. -- -- 1,632 ----- ------ ------- Total current liabilities..................... 734 822 2,325 Notes payable and capital lease obligations....... 121 241 208 Notes payable to related party.................... -- 500 -- ----- ------ ------- Total liabilities............................. 855 1,563 2,533 ----- ------ ------- Commitments and contingencies Stockholders' equity (deficit): Common Stock, $0.01 par value; 150,000,000 shares authorized; 15,000,000, shares issued and outstanding as of December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively................................... 150 150 150 Additional paid-in capital...................... 428 1,028 42,373 Deferred stock compensation..................... -- -- (40,711) Accumulated earnings (deficit).................. (669) (994) (2,284) ----- ------ ------- Stockholders' equity (deficit)................ (91) 184 (472) ----- ------ ------- Total liabilities and stockholders' equity (deficit).................................... $ 764 $1,747 $ 2,061 ===== ====== =======
See accompanying notes to financial statements. F-3 OFFICIAL PAYMENTS CORPORATION STATEMENTS OF OPERATIONS (In thousands, except per share data)
Period from June 26, 1996 Nine months Period from (Inception) Year ended ended September January 1, 1996 to December 31, 30, to December 31, ---------------- ---------------- June 26, 1996 1996 1997 1998 1998 1999 (Predecessor Company) (unaudited) Revenues: Transaction fees.................................. $ 111 $ 240 $ 935 $ 2,076 $ 1,286 $ 6,995 Other revenues ................................... 201 234 267 293 148 213 ----- ------- ------- ------- ------- ------- Total revenues.................................. 312 474 1,202 2,369 1,434 7,208 Cost of revenues: Cost of transaction fees.......................... 28 193 412 1,009 593 5,306 Cost of other revenues............................ 40 44 284 71 13 121 ----- ------- ------- ------- ------- ------- Total cost of revenues.......................... 68 237 696 1,080 606 5,427 ----- ------- ------- ------- ------- ------- Gross profit........................................ 244 237 506 1,289 828 1,781 Operating expenses: Sales and marketing............................... 107 115 330 356 287 622 Development costs................................. 114 124 206 608 475 648 General and administrative........................ 148 158 446 595 337 1,138 Deferred stock compensation....................... -- -- -- -- -- 516 Allocated expenses from related party............. -- -- 20 -- -- 118 ----- ------- ------- ------- ------- ------- Total operating expenses........................ 369 397 1,002 1,559 1,099 3,042 ----- ------- ------- ------- ------- ------- Income (loss) from operations....................... (125) (160) (496) (270) (271) (1,261) Other income (expense), net......................... (31) (7) (6) (55) (37) (29) ----- ------- ------- ------- ------- ------- Net income (loss)............................... $(156) $ (167) $ (502) $ (325) $ (308) $(1,290) ===== ======= ======= ======= ======= ======= Basic and diluted net income (loss) per share....... $ -- $ (0.01) $ (0.03) $ (0.02) $ (0.02) $ (0.09) ===== ======= ======= ======= ======= ======= Shares used in basic and diluted net income (loss) per share.......................................... -- 15,000 15,000 15,000 15,000 15,000 ===== ======= ======= ======= ======= =======
See accompanying notes to financial statements. F-4 OFFICIAL PAYMENTS CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Period from June 26, 1996 (inception) to December 31, 1996 and the years ended December 31, 1997 and 1998 and for the nine-month period ended September 30, 1999 (unaudited) (In thousands)
Note Total Common stock Additional Deferred receivable Retained stockholders' ------------- paid-in stock from equity equity Shares Amount capital compensation stockholder (deficit) (deficit) Balance as of June 26, 1996 (inception)....... -- $ -- $ -- -- $ -- $ -- $ -- Issuance of common stock for liabilities contributed............ 12,000 120 (464) -- -- -- (344) Issuance of common stock for cash and note receivable............. 3,000 30 970 -- (500) -- 500 Net income (loss)....... -- -- -- -- -- (167) (167) ------ ----- ------- -------- ----- ------- ------ Balance as of December 31, 1996............... 15,000 150 506 -- (500) (167) (11) Distribution of note receivable to stockholder............ -- -- (98) -- -- -- (98) Repayment of note receivable............. -- -- -- -- 500 -- 500 Services performed by stockholder............ -- -- 20 -- -- -- 20 Net income (loss) ...... -- -- -- -- -- (502) (502) ------ ----- ------- -------- ----- ------- ------ Balance as of December 31, 1997............... 15,000 150 428 -- -- (669) (91) Capital contribution.... -- -- 600 -- -- -- 600 Net income (loss) ...... -- -- -- -- -- (325) (325) ------ ----- ------- -------- ----- ------- ------ Balance as of December 31, 1998............... 15,000 150 1,028 -- -- (994) 184 Deferred stock compensation (unaudited)............ -- -- 41,227 (41,227) -- -- -- Amortization of deferred stock compensation (unaudited)............ -- -- -- 516 -- -- 516 Services performed by stockholder (unaudited)............ -- -- 118 -- -- -- 118 Net income (loss) (unaudited)............ -- -- -- -- -- (1,290) (1,290) ------ ----- ------- -------- ----- ------- ------ Balance as of September 30, 1999 (unaudited)... 15,000 $ 150 $42,373 (40,711) $ -- $(2,284) $ (472) ====== ===== ======= ======== ===== ======= ======
See accompanying notes to financial statements. F-5 OFFICIAL PAYMENTS CORPORATION STATEMENTS OF CASH FLOWS (In thousands)
Period from Year ended Nine months January 1, 1996 Period from December ended to June 26, 1996 31, September 30, June 26, 1996 (Inception) to ------------ -------------- (Predecessor December 31, 1997 1998 1998 1999 Company) 1996 (unaudited) Cash flows provided by (used in) operating activities: Net income (loss)...... $(156) $(167) $(502) $(325) $(308) $(1,290) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization......... 3 14 29 57 36 132 Deferred stock compensation......... -- -- -- -- -- 516 Services performed by related party........ -- -- 20 -- -- 118 Changes in operating assets and liabilities: Accounts receivable.. (51) (76) (101) (289) 143 22 Prepaid expenses and other assets........ 40 12 (35) 25 (256) (141) Receivable from U.S. Treasury............ -- -- -- -- -- (95) Accounts payable and accrued expenses.... 4 90 235 250 276 (174) Deferred revenue..... (74) (64) 31 37 11 8 ----- ----- ----- ----- ----- ------- Net cash provided by (used in) operating activities......... (234) (191) (323) (245) (98) (904) ----- ----- ----- ----- ----- ------- Cash flows provided by (used in) investing activities--capital expenditures........... (43) (63) (139) (298) (148) (255) ----- ----- ----- ----- ----- ------- Cash flows provided by (used in) financing activities: Issuance of common stock................. -- 500 -- -- -- -- Capital contribution .. -- -- -- 600 -- -- Repayment of notes payable and capital leases................ 119 (38) (77) (108) (75) (90) Repayment of note receivable from stockholder........... -- -- 500 -- -- -- Notes payable to related party......... -- -- -- 500 500 1,132 ----- ----- ----- ----- ----- ------- Net cash provided by (used in) financing activities......... 119 462 423 992 425 1,042 ----- ----- ----- ----- ----- ------- (Decrease) increase in cash and cash equivalents............ (158) 208 (39) 449 179 (117) Cash and cash equivalents at beginning of period.... 171 13 221 182 182 631 ----- ----- ----- ----- ----- ------- Cash and cash equivalents at end of period................. $ 13 $ 221 $ 182 $ 631 $ 361 $ 514 ===== ===== ===== ===== ===== ======= Supplemental disclosure of noncash activity: Net liabilities contributed........... $ -- $ 384 $ -- $ -- $ -- $ -- Assets acquired through capital leases........ $ -- $ -- $ -- $ 41 $ 3 $ 94 ===== ===== ===== ===== ===== =======
See accompanying notes to financial statements. F-6 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 1997, 1998 and September 30, 1999 (unaudited) (1) Description of Business and Summary of Significant Accounting Policies (a) The Company Official Payments Corporation (the Company) was formed as U.S. Audiotex, LLC a California limited liability company (the "LLC"), on June 26, 1996. U.S. Audiotex Corporation, a Delaware corporation (the "Corporation"), was formed on August 24, 1999. Effective September 30, 1999, the LLC merged with and into the Corporation. On October 20, 1999, the Company changed its name to Official Payments Corporation. The Company provides credit card payment options for consumers to pay personal federal and state income taxes, sales and use taxes, property taxes and fines for traffic violations and parking citations. On June 26, 1996, Beranson Holdings, Inc., (the Predecessor) a company wholly owned by the Company's president, contributed net liabilities of $344,000 to the Company in exchange for an 80% interest in the Company. These assets and liabilities were recorded at the historical basis of the Predecessor. The Predecessor also had a business which collected revenues from interactive voice response classified advertisements. The formation of the Company excluded this operation of the Predecessor so revenues and net loss from this business activity totaling $752,000 and $14,000, respectively for the year ended December 31, 1996 have not been included in the financial statements of the Company. The activities of Beranson Holdings, Inc. for the first six months of 1996 related to the credit card payment business have been presented in the financial statements of the Company. (b) Unaudited Interim Financial Information The financial information for nine months ended September 30, 1998 and 1999 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments and deferred stock compensation) which the Company considers necessary for the fair presentation of the financial position at such dates and the operations and cash flows for the periods then ended. Operating results for the nine months ended September 30, 1999 are unaudited, and are not necessarily indicative of results which may be expected for the entire year. (c) Cash and Cash Equivalents The company considers cash on hand, deposits in bank, certificates of deposits, and short-term marketable securities with original maturities of less than 90 days to be cash equivalents. (d) Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The Company has determined the estimated useful lives of their assets to be three years for computer equipment and five years for furniture and fixtures. (e) Revenue Recognition Transaction fees are derived from convenience fees paid by consumers for credit card payment services provided by the Company. Convenience fees are charged based on the amount of the payment processed and the type of payment. Transaction fees are recognized in the month the services are provided. Other revenues consists of the sale of customized systems which include software licenses, implementation services, training and post contract support related to these system sales. As vendor specific objective evidence does not exist for each element of the contract, revenues are recognized upon customer acceptance of the F-7 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) software which occurs after installation of the system and the completion of training. Maintenance revenues are deferred based on vendor specific objective evidence and recognized ratably over the contractual term of the maintenance agreement, generally one year. (f) Development Costs Development costs associated with new products and enhancements to existing software products are expensed as incurred until technological feasibility is established upon completion of a working model. To date, the Company's software development has been completed concurrent with the establishment of technological feasibility, and, accordingly, $200,000 has been capitalized. The Company amortizes this cost on a straight line basis over an estimated useful life of three years, which is determined to be the greater of the amount computed using the straight-line method and the ratio that current gross revenues from the capitalized software bear to current and anticipated future revenues from the capitalized software. (g) Concentration of Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of accounts receivable. The Company performs ongoing credit evaluations of its clients and generally does not require collateral. Uncollectible accounts have been insignificant to date. The Company had one customer that accounted for 22% of accounts receivable at December 31, 1997 and none that account for greater than 10% of accounts receivable at December 31, 1998 and September 30, 1999 (unaudited). In the nine-month period ended September 30, 1999 transaction fees from IRS payments accounted for 60% of total revenues (unaudited). The Company's agreement with the IRS covers credit card payments for 1998 tax returns filed during the 1999 filing season. The agreement was renewed for an additional one- year period by mutual consent of both parties. In April 1999 certain payments to the U.S. Treasury were duplicated which resulted in an overpayment totaling $440,000. In August 1999, the Internal Revenue Service acknowledged this overpayment and has agreed to reimburse the Company for the full overpayment. During September 1999, the Internal Revenue Service reimbursed the Company approximately $345,000 of this payment. (h) 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. (i) Fair Value of Financial Instruments The fair values of the Company's cash, cash equivalents, accounts receivable, accounts payable approximate their carrying values due to their short maturity. The fair value of amounts due to related parties is not readily determinable. F-8 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) (j) Accounting for Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell. (k) Net Income (Loss) Per Share Basic net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of options and warrants to purchase common stock using the treasury stock method. Diluted net income (loss) per share is computed using the weighted-average number of shares of common stock and, when dilutive, potential shares of options and warrants to purchase common stock using the treasury stock method outstanding. (l) Comprehensive Income (Loss) The Company has no components of other comprehensive income (loss), and accordingly, the comprehensive income (loss) is the same as net income (loss) for all periods presented. (m) Recent Accounting Pronouncements The FASB recently issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. The Company must adopt SFAS No. 133 by July 1, 2001. Management does not believe the adoption of SFAS No. 133 will have a material effect on the financial position of the Company. In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98--1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use or SOP 98-1. SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. The adoption of SOP 98-1 in 1998 did not have a material affect on our financial position or results of operations. (n) Advertising Expense The cost of advertising is expensed as incurred. Such costs are included in selling and marketing expense and totaled approximately $6,000, $28,000, $28,000 and $63,000 for the years ended December 31, 1996, 1997, 1998 and the nine-month period ended September 30, 1999 (unaudited). (o) Stock Compensation The Company uses the intrinsic-value method to account for all of its employee stock compensation plans. Expense associated with stock compensation is being amortized on a straight-line basis over the vesting period of the individual awards. F-9 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) (2) Related Party Transactions Notes receivable (payable) from/to related parties is as follows:
December 31, -------------- September 30, 1997 1998 1999 (unaudited) (In thousands) Advances to an officer..................... $ 11 $ -- $ -- Amount due from Beranson Holdings, Inc..... 1 -- -- Note payable to stockholders............... -- (500) (1,632) ----- ------- ------- $ 12 $ (500) $(1,632) ===== ======= =======
On June 26 1996 the net liabilities (see footnote 1) contributed by the Predecessor included a note receivable of $98,000 from Kenneth Stern, the sole shareholder of the Predecessor. In 1997 the note was distributed to Kenneth Stern and the Company recorded a distribution to stockholders of $98,000. During the period from June 26, 1996 to December 31, 1996 the Company allocated approximately $16,000 of its general and administrative expenses to Beranson Holdings, Inc. Imperial Bank and Beranson Holdings, Inc., a company affiliated with our President, have from time to time made advances to fund certain capital expenditures. These advances are evidenced by promissory notes bearing interest at a floating rate equal to Imperial Bank's prime rate (7.75% as of June 30, 1999) plus 2% per annum. Principal and accrued interest of approximately $558,000 was repaid by the Company on August 24, 1998 and was refinanced with new notes to stockholder due December 31, 2000. Imperial Bank is one of 3 merchant banks used to process credit card transactions and perform traditional merchant credit card settlement services for the Company. The Company's agreement with Imperial Bank does not prohibit it from utilizing other merchants and is cancellable by the Company upon 30 days notice. During the nine months ended September 30, 1999, for performing these charges the Company paid Imperial Bank approximately $1.6 million for performing these merchant discount fees. Imperial Bank provides administrative and financial services to the Company. The Company reimburses Imperial Bank for these services to the extent they represent ongoing activities such as human resources, payroll processing and employee benefits administration. During the nine months ended September 30, 1999, the Company incurred approximately $7,000 for these services (unaudited). To the extent that Imperial Bank provides services for activities that are not paid for by the Company, the Company's allocated cost is recorded as expense and as a contribution of capital. For the year ended December 31, 1997 and for the nine months ended September 30, 1999 (unaudited), the Company recorded $20,000 and $118,000 respectively for these services. No such services were received by the Company or performed on behalf of the Company for all other periods presented. In April 1999, the Company received an intercompany advance of $440,000 from Imperial Bank to assist in its working capital needs. This amount was repaid by the Company in August, 1999. In June 1999, the stockholders of the Company agreed to loan the Company $2.8 million in working capital which is payable on the earlier of the date that is 30 days following the IPO date or December 31, F-10 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) 2000. Through September 30, 1999 (unaudited), the Company received advances of approximately $1.6 million from the stockholders which bears interest at 2% above prime and which will be repaid from the proceeds of the Company's initial public offering. (3) Property and Equipment Property and equipment are summarized as follows:
December 31, September 30, ------------- 1999 1997 1998 (unaudited) (In thousands) Computer equipment........................... $ 456 $ 768 $1,019 Furniture and fixtures....................... 38 66 164 ------ ------ ------ 494 834 1,183 Less accumulated depreciation and amortization................................ 243 301 433 ------ ------ ------ $ 251 $ 533 $ 750 ====== ====== ====== Property and equipment recorded under capital leases was approximately $24,000, $64,000 and $158,000 as of December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively, with related accumulated amortization of approximately $11,000, $20,000 and $38,000, respectively. (4) Debt and other commitments The Company has a credit facility with a third party bank which consists of a $500,000 line of credit and a term loan due May 2001 with an original principal amount of $250,000. The borrowings bear interest at the bank's prime rate of 7.75% as of December 31, 1998 plus 1.50%. The Company also leases certain equipment under capital leases, extending through 2000. Notes payable were as follows: December 31, September 30, ------------- 1999 1997 1998 (unaudited) (In thousands) Line of credit............................... $ 208 $ 151 $ 119 Term loan.................................... 171 121 83 Capital lease obligation..................... 10 38 113 ------ ------ ------ 389 310 315 Less current portion......................... 268 69 106 ------ ------ ------ Long-term notes payable...................... $ 121 $ 241 $ 209 ====== ====== ======
The Company leases its facility and certain equipment under operating leases, extending through 1999. The Company is in compliance with all financial covenants under this debt and other commitments as of December 31, 1998. F-11 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) Future minimum debt and capital leases payments as of September 30, 1999 were as follows (in thousands) (unaudited): 1999................................................................ $ 40 2000................................................................ 153 2001................................................................ 113 2002 and thereafter................................................. 20 ---- Total future minimum debt and capital leases payments............. $326 ====
Future minimum lease payments under noncancelable operating leases as of September 30, 1999 were as follows (in thousands) (unaudited): Years ending December 31: 1999................................................................ $ 98 2000................................................................ 194 2001................................................................ 199 2002................................................................ 203 2003................................................................ 207 ---- Total future minimum lease payments under operating leases........ $901 ====
Rental expense under operating leases for the years ended December 31, 1997 and 1998 was $64,000 and $75,000, respectively. (5) Stockholders' Equity (Deficit) On January 23, 1998, Imperial Bank purchased 9 million shares of common stock or 75% of the Predecessor's 12 million shares of common stock in the Company for $3,010,000. In addition, Imperial Ventures, a wholly owned subsidiary of Imperial Bank, transferred its 3 million shares of common stock in the Company to Imperial Bank. As of December 31, 1998, Imperial Bank and the Predecessor are the holders of 80% and 20% of the Company's common stock, respectively. (6) Income Taxes As of December 31, 1998 the Company had no federal or Californian net operating loss carryforwards. As of December 31, 1998 the Company has no federal or Californian research and development credit carryforwards for tax purposes. All tax operating losses to date have been used by the members of U.S. Audiotex, LLC on their personal tax returns. (7) Segment Information The Company has adopted the provisions of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining which information to report is based on the way that management organizes the operating segments within the Company for making operating decisions and assessing financial performance. F-12 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) The Company's chief operating decision-maker is considered to be the Company's President. The President reviews financial information by disaggregated information about revenues by product for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the President is consistent with the information presented in the accompanying statements of operations. Therefore, the Company operates in a single operating segment.
Period from January 1, 1996 Period from to June 26, 1996 Nine months ended June 26, 1996 (Inception) to Year ended September 30, (Predecessor December 31, ------------- ----------------- Company) 1996 1997 1998 1998 1999 (unaudited) (In thousands) Revenues by product are: Transaction fees: Federal income tax........................................ $-- $-- $ -- $ -- $ -- $ 4,342 Moving violations......................................... 101 160 446 827 580 888 Parking citations......................................... -- 13 105 157 115 206 Property taxes............................................ -- 7 178 765 356 954 State income taxes........................................ -- -- -- -- -- 291 Fax filing................................................ 10 33 120 192 140 165 Service bureau-utilities.................................. -- 27 86 135 95 149 Other revenues: System sales.............................................. 159 204 166 115 15 105 Maintenance & consulting.................................. 42 30 101 178 133 108 - -------------------------------------------------- ---- ---- ------ ------ -------- -------- Total revenues............................................. $312 $474 $1,202 $2,369 $==1,434 $==7,208
No single customer accounted for greater than 10% of revenues in any period reported. (8) Subsequent Events (a) Recapitalization On August 24, 1999, the Company issued 2,400 shares of common stock to Imperial Bank for an aggregate consideration of $8.00 and 600 shares of common stock to Beranson Holdings, Inc. for an aggregate consideration of $2.00. In connection with the merger of U.S. Audiotex, LLC into U.S. Audiotex Corporation, a Delaware Corporation, the limited liability company interests of Imperial Bank and Beranson Holdings in U.S. Audiotex, LLC were exchanged for 11,997,600 and 2,999,400 shares of the Company's common stock, respectively. Share information has been restated for all periods presented. (b) Initial Public Offering (Unaudited) On September 15, 1999, our Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission permitting us to sell shares of our common stock in connection with a proposed IPO. (c) Stock Incentive Plan The Board of Directors adopted the 1999 Stock Incentive Plan (the Incentive Plan) on August 24, 1999. The Incentive Plan provides for the grant of nonstatutory stock options to employees or outside directors. A total of 6,900,000 shares of our common stock are reserved for issuance under the Incentive Plan, 900,000 of which are available for grants to outside directors. F-13 OFFICIAL PAYMENTS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1997, 1998 and September 30, 1999 (unaudited) Options granted under the Incentive Plan may be designated as qualified or nonqualified at the discretion of our Board of Directors, with exercise prices for incentive stock options of not less than the fair value of the underlying stock at the date of grant. Options granted under the plan vest annually over a maximum five year period and expire ten years from the date of grant. The Company uses the intrinsic value method to account for the Incentive Plan. Accordingly, compensation cost is recognized for stock options when, on the date of grant, the current market value of the underlying common stock exceeds the exercise price of the stock options at the date of grant. In the nine-month period ended September 30, 1999, the Company recorded deferred compensation expense of approximately $41 million for options granted to employees to purchase approximately 4,488,000 shares of our common stock at an exercise price of $1.33 per share. (d) Stock Split On October 26, 1999 our Board of Directors authorized a 3 for 1 split of all of the outstanding shares of the Company's common stock which will be effective prior to the completion of the Company's initial public offering. Shares and per share number information has been restated for all periods presented to give effect to this stock split. (e) Significant Employment Agreements In August 1999, the Company entered into an employment agreement with Thomas R. Evans, the Chairman and Chief Executive Officer. The employment agreement as amended as of September 14, 1999 provides for an annual base salary of $200,000 and a one-time bonus of $500,000. Mr. Evans was granted options to purchase 1,325,460 shares of common stock at $1.33 per share. The Company may exercise this right at any time during the 30-day period following Mr. Evans' termination of employment for reasons other than death, disability or a change in control. The Company's repurchase right will expire with respect to one- third of the 1,325,460 option shares on the first anniversary of the grant date. Thereafter, the Company's right will expire on a cumulative basis with respect to 29,763 shares per month on the last day of each of the next 24 consecutive months. Further, upon completion of this offering, the Company will grant Mr. Evans an additional option to acquire shares of the Company's common stock at an exercise price of $1.33 per share so that, when combined with the option described above, Mr. Evans will have options to acquire such number of shares of the Company's common stock as is equal to an aggregate of five percent (5%) of the Company's common stock outstanding at that time, on a fully diluted basis (including the options granted to Mr. Evans). Under the terms of the employment agreement, Imperial Bank has guaranteed that the value (as defined in the agreement) of Mr. Evans' 1,325,460 options will be worth $10,000,000 based upon the number of options vested on or before the third anniversary of the date of the agreement, or Imperial Bank will pay Mr. Evans an amount equal to the difference between $10,000,000 and the highest value of the vested options on or before the third anniversary. As part of the $41 million in deferred stock compensation recorded by the Company in the nine- month period ended September 30, 1999 (unaudited) the Company recorded $10 million of deferred stock compensation based upon this guarantee. This $10 million of deferred stock compensation is being amortized on a straight-line basis over the vesting period of the options which is 36 months. In August 1999, the Company entered into an employment agreement with Kenneth Stern, pursuant to which Mr. Stern has agreed to serve as the Company's President and a member of the board of directors until August 23, 2006. The employment agreement provides for an annual base salary of $215,000 and a minimum annual bonus of $100,000. Mr. Stern has the right to take early retirement at any time after the third anniversary of the date of the agreement, upon which the Company would be required to pay him his base salary and bonus through August 23, 2006. F-14 [OFFICIAL PAYMENTS Logo] 5,000,000 Shares of common stock ---------------------- PROSPECTUS ---------------------- Donaldson, Lufkin & Jenrette CIBC World Markets DLJdirect Inc. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representation as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of U.S. Audiotex Corporation have not changed since the date hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Until , 1999 (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 with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the expenses in connection with this Registration Statement. The Company will pay all expenses of the offering. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission, National Association of Securities Dealers, Inc. ("NASD") and the Nasdaq National Market. Securities and Exchange Commission Filing Fee................... $23,978 NASD Filing Fee................................................. 6,500 Nasdaq National Market Listing Fee.............................. * Printing Fees and Expenses...................................... * Legal Fees and Expenses......................................... * Accounting Fees and Expenses.................................... * Blue Sky Fees and Expenses...................................... * Miscellaneous................................................... * ------- Total......................................................... $ * =======
- -------- * To be completed in an amendment. Item 14. Indemnification of Directors and Officers Subsection (a) of Section 145 of the General Corporation Law of Delaware (the "DGCL") empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Subsection (b) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 of the DGCL further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification or advancement of expenses provided for by Section 145 shall not be deemed exclusive of any II-1 other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Our certificate of incorporation provides that no director, or person serving on a committee of the board of directors, shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . under Section 174 of the DGCL; or . for any transaction from which the director derived an improper personal benefit. Our bylaws provide that we must indemnify our directors, officers and employees against any liability incurred in connection with any proceeding in which they may be involved as a party or otherwise, by reason of the fact that he or she is or was a director, officer, employee, or agent of us, or is or was serving at our request as a director, officer, employee, agent, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan, or other entity or enterprise, except: . to the extent that such indemnification against a particular liability is expressly prohibited by applicable law; . for a breach of such person's duty of loyalty to us or our stockholders; . for acts or omission not in good faith; . for intentional misconduct or a knowing violation of law; or . for any transaction resulting in receipt by such person of an improper personal benefit. Such indemnification may include advances of expenses prior to the final disposition of such proceeding. Item 15. Recent Sales of Unregistered Securities On August 24, 1999, we issued 2,400 shares of our common stock to Imperial Bank for an aggregate consideration of $8.00 and 600 shares of common stock to Beranson Holdings, Inc. for an aggregate consideration of $2.00. We relied on the exemption under Section 4(2) of the Securities Act of 1933, as amended, because it was an offer made by an issuer not involving a public offering. In connection with the merger of U.S. Audiotex, LLC into us, which merger we effected as of September 30, 1999, the limited liability company interests of Imperial Bank and Beranson Holdings, Inc. in U.S. Audiotex, LLC were exchanged for 11,997,600 and 2,999,400 shares of our common stock, respectively. The merger was an internal corporate reorganization solely involving the existing members of U.S. Audiotex, LLC in order to convert our corporate form into a C corporation in anticipation of this initial public offering. II-2 Item 16. Exhibits and Financial Statement Schedule (a) Exhibits.
Exhibit No. Description ------- ----------- 1.1 --Form of Underwriting Agreement.** 2.1 --Merger Agreement, dated as of September 24, 1999, between U.S. Audiotex, LLC and U.S. Audiotex Corporation. 3.1 --Certificate of Incorporation of the Registrant.* 3.1.1 --Amended Certificate of Incorporation of the Registrant. 3.2 --Bylaws of the Registrant.* 4.1 --Common Stock Specimen.** 5.1 --Opinion of Cadwalader, Wickersham & Taft.** 10.1 --Amended Employment Agreement, dated as of September 14, 1999, by and among U.S. Audiotex Corporation, Imperial Bank and Thomas R. Evans.* 10.2 --Employment Agreement, dated August 24, 1999, between U.S. Audiotex Corporation and Kenneth Stern.* 10.3 --1999 Stock Incentive Plan.* 10.4 --Stockholders Agreement, dated August 24, 1999, by and among U.S. Audiotex Corporation, U.S. Audiotex, Inc. and Imperial Bank.* 10.5 --Electronic Tax Administration Memorandum of Agreement between the Internal Revenue Service and U.S. Audiotex, LLC.* 10.5.1 --Electronic Tax Administration Memorandum of Agreement Between the Internal Revenue Service and U.S. Audiotex Corporation, dated October 4, 1999. 10.6 --Contract between U.S. Audiotex, LLC and the Office of the Chief Financial Officer of the District of Columbia with an award date of December 22, 1998. 10.7 --Term contract between the New Jersey Division of Purchase and Property and U.S. Audiotex, LLC, together with related Response to Request for Proposal. 10.8 --Subcontract with the Novus Services, Inc., dated November 30, 1998, of the IVR Services agreement with the California Franchise Board. 10.9 --Processing Agreement, dated as of July 16, 1995, by and between Imperial Bank and U.S. Audiotex LLC. 10.10 --Contract with the Internal Revenue Service for Integrated Electronic Filing and Payment of Individual Income Tax by Credit Card, dated September 30, 1999.** 23.1 --Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).** 23.2 --Consent of KPMG LLP. 24.1 --Power of Attorney (included on signature page). 27.1 --Financial Data Schedule. 99.1 --Consent of George L. Graziadio 99.2 --Consent of Lee E. Mikles 99.3 --Consent of Bruce Nelson 99.4 --Consent of Christos Cotsakos 99.5 --Consent of Andrew Cohan 99.6 --Consent of Vernon Loucks
- -------- * Previously Filed ** To be filed by amendment. (b) Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. Item 17. Undertakings The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "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 II-3 against public policy as expressed in the 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 of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the 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 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 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. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Ramon, State of California, on October 26, 1999. U.S. AUDIOTEX CORPORATION By: /s/ Thomas R. Evans ---------------------------------- Thomas R. Evans Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas R. Evans and Brian W. Nocco, and each of them, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform such and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents, or any of them, or their substitute or substitutes, may lawfully 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 indicated on October 26, 1999
Signature Title /s/ Thomas R. Evans - ------------------------------------- Thomas R. Evans Chairman and Chief Executive Officer and a director (principal executive officer) /s/ Brian W. Nocco - ------------------------------------- Chief Financial Officer and a Brian W. Nocco director (principal accounting officer) /s/ Kenneth Stern - ------------------------------------- President and a director Kenneth Stern
II-5
Exhibit No. Description Page ------- ----------- ---- 1.1 --Form of Underwriting Agreement.** 2.1 --Merger Agreement, dated as of September 24, 1999, between U.S. Audiotex, LLC and U.S. Audiotex Corporation. 3.1 --Certificate of Incorporation of the Registrant.* 3.1.1 --Amended Certificate of Incorporation of the Registrant. 3.2 --Bylaws of the Registrant.* 4.1 --Common Stock Specimen.** 5.1 --Opinion of Cadwalader, Wickersham & Taft.** 10.1 --Amended Employment Agreement, dated as of September 14, 1999, by and among U.S. Audiotex Corporation, Imperial Bank and Thomas R. Evans.* 10.2 --Employment Agreement, dated August 24, 1999, between U.S. Audiotex Corporation and Kenneth Stern.* 10.3 --1999 Stock Incentive Plan.* 10.4 --Stockholders Agreement, dated August 24, 1999, by and among U.S. Audiotex Corporation, U.S. Audiotex, Inc. and Imperial Bank.* 10.5 --Electronic Tax Administration Memorandum of Agreement between the Internal Revenue Service and U.S. Audiotex, LLC.* 10.5.1 --Electronic Tax Administration Memorandum of Agreement Between the Internal Revenue Service and U.S. Audiotex Corporation, dated October 4, 1999. 10.6 --Contract between U.S. Audiotex, LLC and the Office of the Chief Financial Officer of the District of Columbia with an award date of December 22, 1998. 10.7 --Term contract between the New Jersey Division of Purchase and Property and U.S. Audiotex, LLC, together with related Response to Request for Proposal. 10.8 --Subcontract with the Novus Services, Inc., dated November 30, 1998, of the IVR Services agreement with the California Franchise Board. 10.9 --Processing Agreement, dated as of July 16, 1995, by and between Imperial Bank and U.S. Audiotex LLC. 10.10 --Contract with the Internal Revenue Service for Integrated Electronic Filing and Payment of Individual Income Tax by Credit Card, dated September 30, 1999.** 23.1 --Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).** 23.2 --Consent of KPMG LLP. 24.1 --Power of Attorney (included on signature page). 27.1 --Financial Data Schedule. 99.1 --Consent of George L. Graziadio 99.2 --Consent of Lee E. Mikles 99.3 --Consent of Bruce Nelson 99.4 --Consent of Christos Cotsakos 99.5 --Consent of Andrew Cohan 99.6 --Consent of Vernon Loucks
- -------- * Previously Filed ** To be filed by amendment. EX-2.1 2 MERGER AGREEMENT DTD 8/24/1999 EXHIBIT 2.1 AGREEMENT OF MERGER THIS AGREEMENT OF MERGER is made as of August 24, 1999, by and between U.S. Audiotex Corporation, a Delaware corporation (the "Corporation"), and U.S. Audiotex, LLC, a California limited liability company (the "LLC" and collectively with the Corporation, the "Constituent Entities"). WHEREAS, the board of directors of the Corporation (the "Board of Directors") and the stockholders of the Corporation have determined that it is desirable and in the best interests of the Corporation and its stockholders that the LLC be merged with and into the Corporation on the terms and conditions set forth herein, and the Board of Directors and stockholders of the Corporation have approved this Agreement of Merger. WHEREAS, the management committee of the LLC (the "Management Committee") has determined that it is desirable and in the best interests of the LLC and its members (the "Members") that the LLC be merged with and into the Corporation on the terms and conditions set forth herein, and the Management Committee and Members of the LLC have approved this Agreement of Merger. NOW, THEREFORE, in order to implement the foregoing, the parties agree as follows: 1. Merger. At the Effective Time (as defined in Section 2 hereof), the LLC shall be merged with and into the Corporation (the "Merger") pursuant to the provisions of, and with the effect provided in, the Delaware General Corporation Law (the "DGCL") and Chapter 12 of the Beverly-Killea Limited Liability Company Act of California (the "LLC Act"). The Corporation shall be the surviving corporation of the Merger (the "Surviving Corporation") and shall continue to be governed by the DGCL. The separate existence of the LLC shall cease at the Effective Time. The corporate existence of the Surviving Corporation shall continue unimpaired and unaffected by the Merger. 2. Effective Time of the Merger. The Merger shall become effective upon the filing of a certificate of merger (the "Delaware Certificate of Merger") with the Secretary of State of the State of Delaware and the filing a certificate of merger with the Secretary of State of the State of California (the "California Certificate of Merger") in accordance with Section 264 of the DGCL and Section 17552 of the LLC Act, respectively, which time is herein sometimes referred to as the "Effective Time." 3. Directors and Officers. The officers and directors of the Corporation holding office at the Effective Time shall hold office in the Surviving Corporation until removed as provided by law or until the election and qualification of their respective successors. 4. Conversion of Interests. 4.1 Conversion of Membership Interests. Upon the Effective Time, each membership interest in the LLC outstanding immediately prior to the Effective Time shall be converted by reason of the Merger and without any action on the part of the holders of any such membership interests into and shall become 49,990 shares of fully paid and nonassessable shares of common stock, par value $0.01 per share (the "Common Stock"), of the Surviving Corporation for each percent of the sharing ratio represented by such membership interest. 4.2 Conversion of Common Stock. Upon the Effective Time, each share of common stock of the Corporation issued and outstanding immediately prior thereto shall remain issued, outstanding and unchanging as a validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. 5. Assumption of Obligations. At the Effective Time, the franchises, existence and rights of the LLC shall be merged into the Corporation and the Corporation shall, as the Surviving Corporation, be fully vested therewith. At the Effective Time, (a) the Surviving Corporation shall possess all of the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of each of the Constituent Entities; (b) all property, real, personal and mixed, and all debts due to either of the Constituent Entities on whatever account, including stock subscriptions, and all other things in action and all and every other interest of or belonging to or due to each of the Constituent Entities, shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; (c) all property, rights, privileges, powers, franchises and all and every other interest of each of the Constituent Entities shall be thereafter as effectually the property of the Surviving Corporation as they had been of the respective Constituent Entities; and (d) the title to any real property, or any interest therein, which has vested by deed or otherwise in either of the Constituent Entities, shall not revert to the transferor thereof, or be in any way impaired, by reason of the Merger. The Surviving Corporation shall assume and thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Entities. 6. Approval by the Board of Directors and Stockholders and the Management Committee and Members. The terms and conditions of the Merger and this Agreement of Merger have been unanimously approved by the Board of Directors and stockholders of the Corporation and by the Management Committee and Members of the LLC. 7. Further Acts. From time to time, as or when requested by the Surviving Corporation, or by its successors or assigns, the LLC shall execute and deliver or cause to be executed and delivered all such other instruments, and shall take or cause to be taken all such further or other actions, as the Surviving Corporation, or its successors or assigns, may deem necessary or desirable in order to vest in and confirm to the Surviving Corporation and its successors and assigns, title to and possession of all of the property, rights, privileges, powers and franchises referred to in Section 5 hereof and otherwise to carry out the intent and purposes of this Agreement of Merger. 8. Amendment. The Constituent Entities, by mutual consent of their respective Board of Directors and Management Committee, as applicable, may amend, modify or supplement this Agreement of Merger in such manner as may be agreed upon by them in writing at any time before or after the adoption and approval of this Agreement of Merger by the stockholders and the Members of the Constituent Entities. If any amendment, modification or supplement changes any of the principal terms of this Agreement of Merger, then said 2 amendment, modification or supplement to this Agreement of Merger shall be approved by the stockholders and the Members of the Constituent Entities. 9. Abandonment. 9.1 Pursuant to Section 251(d) of the DGCL, the Board of Directors of the Corporation may, at any time prior to the filing of the Delaware Certificate of Merger with the Secretary of State of the State of Delaware and the California Certificate of Merger with the Secretary of State of the State of California, abandon and terminate this Agreement of Merger notwithstanding approval of this Agreement of Merger by the stockholders of the Corporation and the Members of the LLC. 9.2 Pursuant to Section 17551(d) of the LLC Act, subject to the rights of third parties under any contracts relating thereto, the Management Committee of the LLC may, at any time prior to the filing of the Delaware Certificate of Merger with the Secretary of State of the State of Delaware and the California Certificate of Merger with the Secretary of State of the State California, abandon and terminate this Agreement of Merger notwithstanding approval of this Agreement of Merger by the stockholders of the Corporation and the Members of the LLC. 10. Miscellaneous. 10.1 Address of Surviving Corporation. The address of the Surviving Corporation for purposes of the delivery of notices regarding any matter relating to the Merger and the transactions contemplated in this Agreement of Merger is as follows: U.S. Audiotex Corporation 18 Crow Canyon Court, Suite 300 San Ramon, California 94583 Attention: Corporate Secretary 10.2 Counterparts. This Agreement of Merger may be executed in one or more counterparts, and each such counterpart hereof shall constitute but one agreement. 10.3 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement of Merger. 10.4 Governing Law. This Agreement of Merger shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to the conflicts of law principles thereof. 3 IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement of Merger to be executed on their behalf as of the day first written above. U.S. AUDIOTEX CORPORATION, a Delaware corporation By: /s/ BRIAN W. NOCCO -------------------------------------- Name: Brian W. Nocco Title: Director U.S. AUDIOTEX, LLC, a California limited liability company By: /s/ BRIAN W. NOCCO -------------------------------------- Name: Brian W. Nocco Title: CEO 4 EX-3.1.1 3 CERTIFICATE OF AMENDMENT OF CERT OF INCORPORATION EXHIBIT 3.1.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF U.S. AUDIOTEX CORPORATION ------------------------------------------ Pursuant to Section 242 of the General Corporation Law of the State of Delaware ------------------------------------------ U.S. Audiotex Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of Delaware on August 24, 1999. 2. ARTICLE I of the Certificate of Incorporation is amended to read in full as follows: "NAME The name of the corporation is Official Payments Corporation (the "Corporation")." 3. The aforesaid amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and by the unanimous written consent of stockholders of the Corporation in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Chairman of the Board and Chief Executive Officer this 20th day of October, 1999. U.S. AUDIOTEX CORPORATION By: /s/ THOMAS R. EVANS --------------------------------- Name: Thomas R. Evans Title: Chairman of the Board and Chief Executive Officer -2- EX-10.5.1 4 ELECTRONIC TAX ADMINISTRATION MEMORANDUM Exhibit 10.5.1 IR-99-03 MODIFICATION #02 ELECTRONIC TAX ADMINISTRATION MEMORANDUM OF AGREEMENT BETWEEN THE INTERNAL REVENUE SERVICE, U.S. AUDIOTEX CORPORATION A. INTRODUCTION: This Electronic Tax Administration ("ETA") Memorandum of Agreement ("Agreement") between the Internal Revenue Service ("IRS") and U.S. Audiotex Corporation ("USA"), sets forth the complete agreement of the parties with regard to USA's participation as an "Industry Partner" of the IRS with respect to credit card payments. The parties agree that, except as provided below, USA agrees to comply with all relevant statutory, regulatory, and administrative requirements relating to the electronic filing program and to the Taxpayer Relief Act of 1997. This is a non-monetary, zero dollar, fixed priced Agreement. As such, no compensation will be paid for services rendered under this Agreement. B. AUTHORITY: This Agreement is entered into pursuant to the authority vested in the Commissioner of the IRS by Treasury Order 150-10 to administer and enforce the internal revenue laws and revenue procedures for electronic filing. Authority is also vested in the Commissioner of IRS by the statutory authority 26 U.S.C. 6311(d)(2), to enter into contracts to obtain services related to receiving payment by credit cards. Such payments are subject to Section 6311 of the Internal Revenue Code. This Agreement is not an "acquisition" as that term is defined in the Federal Acquisition Regulation ("FAR") 2.101; therefore, the FAR does not apply to this Agreement. C. BACKGROUND AND PURPOSE: This Agreement resulted from the evaluation and selection by the IRS of a proposal received in response to a solicitation or Request for Proposals ("RFP") for ETA Partnerships. Proposals were sought for non-monetary Agreements formally described as approach 2 in the IRS Draft RFP ("DRFP") for ETA contracts and agreements. The purpose of this amendment is to exercise the Option year (2000 filing season) of this Agreement. In doing so, U.S. Audiotex will accept credit card payments for the Year 2000 filing season for the 1040 balance due application; pilot acceptance of credit card payments for 1040 Estimated Taxes (1040ES) and pilot acceptance of 4868 payments, Extension of Time to File. The result may either reduce or remove barriers to using the existing ETA program. D. DEFINITIONS: N/A E. APPLICABLE DOCUMENTS: N/A F. AUTHORIZED REPRESENTATIVES: Communication between the Participant and the IRS shall be conducted through the points of contact listed below unless otherwise agreed upon by the parties. IRS TECHNICAL REPRESENTATIVE: The IRS Authorized Technical Representative designated for this agreement is: Linda Rickard Telephone: (202) 283-6852 FAX: (202) 233-4786 email: linda.rickardaml.irs.gov The technical representative is responsible for the management of the technical details within the scope of this agreement. This individual shall be responsible for the overall management and coordination of this agreement and shall act as the central point of contact with the Participant. This representative is responsible for the inspection and acceptance of all reports, and such other responsibilities as may be specified in the agreement. The technical representative does not have authority to alter the Contractor's obligations or to change the agreement specifications, terms or conditions. If, as a result of technical discussions, it is desirable to modify agreement obligations or the statement of work, changes will be issued in writing and signed by the IRS Signatory Authority. The technical representative for this agreement may be changed at any time by the Government and without prior notice to the participant. 2 IRS SIGNATORY AUTHORITY: The IRS Signatory Authority designated for this agreement is: Sherrill A. Fields, National Director Electronic Program Enhancement The Signatory Authority is the only person authorized to make or approve changes in the requirements of this agreement, and notwithstanding any clauses contained elsewhere in this agreement, the said authority remains solely with the Signatory Authority. In the event the Participant makes any change at the direction of any person other than the Signatory Authority, the change will be considered to have been made without authority. PARTICIPANT'S AUTHORIZED REPRESENTATIVE: Steve Johnson, Vice President U.S. Audiotex Corporation 2333 San Ramon Valley Boulevard, Suite 450 San Ramon, CA 94583 Telephone: 1-800-487-4567 Fax: 1-800-434-4913 email: sjohnson(a)usaudiotex.com The individual designated above as the Participant's Authorized Representative shall have the authority to agree to changes in the agreement on behalf of the Participant. This individual shall be responsible for the overall management and coordination of this agreement and shall act as the central point of contact with the Government. This individual shall have full authority to act for the Participant in the performance of the agreement and shall meet with the IRS Technical Representative to discuss problems as they occur. The Participant's Authorized Representative shall respond within four work hours after notification of the existence of a problem. G. DUTIES AND RESPONSIBILITIES OF THE PARTICIPANT: USA agrees, through January 31, 2001, at no charge to the IRS, to: 1. Provide taxpayer access to the credit card transaction processing network from 9:00 am, eastern time, on the start date through midnight, Hawaii time, on the end date for each federal tax payment application as follows: 1040 Balance Due January 14, 2000-October 16, 2000 4868 January 14, 2000-April 17, 2000 1040ES Estimated Taxes March 1, 2000-January 31, 2001 3 2. Provide taxpayer access to the credit card transaction processing network at a rate equal to or exceeding 95% availability (total number of customers accessing the Participant's credit card transaction network on the first attempt/total number of attempts). 3. An accuracy rate to the Government of 99% or higher for transmitted transaction data. This includes accuracy of electronic payment data received from the taxpayer and subsequently sent to the Government as well as data resulting from intermediate actions taken by the Contractor necessary for coding, applying and transmitting payment data. 4. Marketing plan and deliverables that support and facilitate public awareness of e-file and electronic payments. This will include (1) development and execution of an Electronic Payment Marketing Plan (to include IRS e-file key messages, plan milestones/deliverables and measurements for success); (2) description of how the Contractor will evaluate the number of unique taxpayers that use the payment product as a result of the marketing plan execution; (3) description of how the Contractor will track unique visits to its Web site by way of the hyperlink from the IRS Digital Daily Web site; and (4) submission of marketing performance reports. Beginning March 2000 through November 2000, the reports should be included in every other Monthly Report, as described below, as a separate section. The reports will contain a narrative description of USA's targeted marketing accomplishments and any difficulties in performance of the Agreement during that reporting period. It should report the estimated number of unique taxpayers that use the payment product as a result of the marketing plan execution and the number of unique visits to USA's Web site by way of the hyperlink from the IRS Digital Daily Web site. An initial and supplemental marketing performance findings report shall be submitted no later than June 30, 2000 and March 31, 2001, respectively. The reports shall be submitted in conjunction with the pilot findings report described below. The initial report shall include marketing activity occurring between January and April 17, 2000. The supplemental report will include a summary of the initial report's findings and marketing activity occurring between April 18, 2000 and January 31, 2001. The report is subject to inspection, verification and approval by the IRS. 5. Provide documentation of the transaction processing networks employed in the pilot and the networks' interface including testing certification plan, test reports, workflow diagrams and functional specification procedures. Test reports will describe methods for correcting and testing problems identified during the prior filing season, including but not limited to methods for verifying tax period ending dates and preventing duplicate payments. 4 6. Provide a means for taxpayers to confirm payment transaction, via the interactive voice response system, up to 10 days after the end of the filing period. 7. Provide taxpayers with IRS general information upon request. 8. Provide reports of any material network outages or work stoppages and all reports (EDI.X.12) as stated in the "EFTPS Credit Card Bulk Filer Requirements" received from the Government. No additional "bulk filer" reports are required. 9. Make reasonable efforts to modify software, systems, and services in accordance with its commercial business practices to conform to the provisions of IRS regulations promulgated under U.S.C. 6311(d)(1). 10. Retain credit card authorization logs for 72 months from the date of each transaction. The information in such logs shall include the transaction dates, time, cardmember account number and expiration date, amount of transaction, and approval code. 11. Convert credit card transactions to ACH debit authorizations and settle funds to Treasury Financial Agent (TFA) The TFA will initiate one bulk daily debit to the account established for this purpose. The Participant shall adhere to revised EFTPS Credit Card Bulk Filer Requirements and all format specifications provided by the Government. 12. Settle all credit card payment transactions in accordance with the standard timeframe for settlement for each credit card as stated in the applicable merchant agreement. MasterCard/VISA funds will be deposited on the 2nd business day after the transaction date (the date of authorization). American Express and Discover/NOVUS funds will be deposited on the 3rd business day after the transaction date. Any funds held overnight will be subject to U.S. Treasury penalties and interest. 13. Provide only guaranteed payments to the government for taxes owed. 14. Provide, prior to transmitting payment data, a file of Taxpayer Identification Numbers (TINs) to the IRS for entity validation. The IRS will provide a file to U.S. Audiotex identifying rejected TINs. U.S. Audiotex will contact the taxpayers to obtain valid entity information. If the IRS is unable to validate the TINS within 48 hours of receipt of the file, payment data for the applicable TINs will be transmitted to the IRS without entity validation. This may require U.S. Audiotex to provide telephone numbers for the taxpayers to the IRS if a TIN subsequently proves to be invalid. 15. Maintain the confidentiality of any information relating to credit card transactions with absolutely no disclosure or use except to the extent authorized by written procedures promulgated by the IRS pursuant to 26 U.S.C. 6311(e)(3). 5 16. Maintain the confidentiality of any information relating to Fed/State credit card payments completed in a single transaction. This includes absolutely no disclosure or use of information collected during this transaction for any purpose other than processing the transaction to the U.S. Treasury or appropriate State. Information collected during this transaction may not be disclosed or used for any purpose prohibited by Section 6311 of the Internal Revenue Code. 17. Pay credit card discount fees and other transaction fees. 18. Provide a merchant descriptor on the taxpayer's credit card statement indicating the tax payment amount as a unique line item entitled "US Treasury Tax Payment". 19. Provide a merchant descriptor on the taxpayer's credit card statement indicating the convenience fee amount as a unique line item. 20. Provide pre-settlement daily reports containing a summary of taxpayers using the system and total dollar amount of payments sent to the IRS, call path counts, customer service activity and any problems encountered. All reports will segregate the volume of payments by payment type. Aggregate and cumulative payment volumes will be provided daily. The daily reports will be delivered to the designated IRS point of contact by 9:00 am eastern time each day. 21. Provide post settlement status reports (daily and monthly) containing the number of taxpayers using the system and total dollar amount of payments sent to the IRS, and any problems encountered. All daily and monthly summary reports will segregate the volume of payments by payment type. Aggregate and cumulative payment volumes will be provided daily. The post-settlement daily reports, containing the prior day's activity, shall be delivered to the designated IRS point of contact (POC) by 2:00 pm Eastern time each day provided that payment confirmation is received by 12:00 pm (Noon) Eastern Time. The Contractor shall notify the IRS POC if payment confirmation is either not received by Noon or is received after Noon, and the Government shall establish a revised reporting time for that day if necessary. Monthly reports will be delivered to the designated IRS point of contact by the 10th day of each month. 22. Provide weekly reports of all chargeback, reversal and void actions identifying the transaction date, dollar amount, action request date and reason for action. These actions will be in conformance with the chargeback procedures issued by the IRS and meet the definition of chargebacks, reversals and voids provided by Audiotex. These reports will be delivered to the designated IRS point of contact by close of business each Friday. 23. Provide incident reports describing material outages or other payment processing problems as they occur. The report shall include a description of the incident, the 6 cause, number of taxpayers impacted, duration of the incident and actions taken to remedy the incident. This includes, but is not limited to, systemic problems related to authorizing credit on line and human errors that result in duplicate payments or non-payment. The COTR or the IRS Project Manager should be informed of such incidents within 24 hours of occurrence or awareness and an incident report provided within 5 business days. 24. Provide a final project schedule in accordance with guidelines and other requirements as specified by IRS. 25. Submit final VRU script related to Tax Year 1999 for approval to the IRS by October 8, 1999. All changes to the script must be approved by the IRS before implementation. 26. Obtain signed contracts with all participating credit card companies by October 8, 1999. 27. Complete integrated readiness testing with TFA by December 15, 1999. User and internal feature testing will be completed by December 30, 1999. 28. Provide a Pilot Finding Report by June 30, 2000, containing the conduct and findings of the pilot (including a summary of all payment activity from January 14, 2000 through April 17, 2000 by payment type and aggregate volumes, any problems, changes made during the pilot, lessons learned and recommendations for improvement) and client feedback. A supplemental report shall be completed no later than March 31, 2001 containing summary data from the initial pilot finding report and activity from April 18, 2000 through January 31, 2001. H. DUTIES AND RESPONSIBILITIES OF THE IRS: The IRS agrees, to provide during the life of this agreement: 1. Record specifications necessary for settlement of funds and posting of tax records related to the credit card payments. 2. Business requirements in compliance with the regulations governing credit card payments. 3. No consideration to the Participant for credit card related transactions. 4. Financial agent(s) to act on the IRS's behalf for settlement of funds of individual tax payments. The financial agent(s) will have no authority to access accounts, use information, or place requirements on any person or organization to use the 7 taxpayer's credit card to collect any amount beyond what has been authorized by the taxpayer. 5. A mechanism for returning funds received by credit card payment in order to correct an error which can be resolved under the Truth in Lending Act, 15 U.S.C. 1666 et. seq. Return of funds received erroneously or without authorization will be made as authorized by section 6311(d)(3)(E) of the Internal Revenue Code and in accordance with the implementing credit card regulations. 6. Required information or instructions for the Participant to communicate to taxpayers. 7. Required reporting criteria and formats. 8. Through corporate efforts to increase awareness and appeal of IRS e-file with the ultimate goal of creating positive intent-to-use and actual usage, IRS' approach to marketing and promotional plans include expanded research, print and media buys. The media opportunities that IRS will pursue in 2000 include: Television (Cable TV and Public Service Awareness TV); Radio (Network); Print (General and PC Magazines); Outdoor (Public Service Awareness); and Internet (Banners). The IRS will make reference to the pay by phone credit card pilot and include the Contractor's logo, where possible. This will include, but is not limited to, Cover Stories, Questions and Answers and hyperlinks on the IRS' electronic services Web page as well as a poster and Questions and Answers brochure included in the Year 2000 e-file marketing kit for Electronic Return Originators. IRS will also promote the pilot internally to its employee. I. PUBLIC RELEASE OF INFORMATION: 1. The Participant shall obtain the written permission of the IRS Project Manager before releasing or using any information regarding work on the Agreement. Information including, but not limited to, product packaging, advertisements, unclassified speeches, articles, press releases, presentations, displays or demonstrations developed or proposed for release to the public must be submitted in their entirety to the IRS. The Participant shall request, in writing, permission to release information describing the scope of the information to be released and the purpose for its release. 2. In the event of a termination for the convenience of the Government, the Government shall be responsible for press releases, jointly prepared with the Participant, declaring the termination of the pilot by the Government. Such releases shall be placed where determined by the Participant and agreed to by the Government. The Government reserves the right to either place such releases itself in a reasonable number of news media or paying for the participant's placement of such releases. The Government shall consider the participant's reasonable request for the number and types of news media to receive such releases. The Government shall make the final determination 8 on the number and placement of such releases where the Government is incurring the cost of the releases. The Government shall also consider the participant's reasonable request that it not issue a public release or public announcement of the termination of the contract for the Government's convenience. J. LIABILITY: 1. Each party to this agreement shall be responsible for the acts and omissions of its own employees. 2. The IRS shall not be liable for any injury to the Participant's personnel or damage to the Participant's property unless such injury or damage is due to negligence on the part of the Government and is recoverable under the Federal Tort Claims Act {28 U.S.C. 1346(b)}, or pursuant to other statutory authority. K. THIRD PARTY RIGHTS: This Agreement does not confer any rights or benefits on any taxpayer or any third party. L. PERIOD OF PERFORMANCE AND TERMINATION: 1. This Agreement shall be in effect from the date executed by both parties through March 31, 2001. 2. During the period beginning January 14, 2000 and ending January 31, 2001, there shall be no opportunity for the Participant, U.S. Audiotex, to terminate this Agreement. Otherwise, this Agreement may be terminated by either party upon 30 days after receipt of written notice signed by either of the signatories to this Agreement or by their successors or designees. The Participant understands that in the event the IRS terminates this Agreement, the Participant has no right to any claim against the Government, including a claim for termination costs. M. MODIFICATION OF AGREEMENT: This Agreement is considered modified automatically to conform to any provision of the regulations promulgated under 26 U.S.C. 6311(d)(1). Otherwise, this Agreement may be modified by either party, but only upon mutual agreement. All modifications must be in writing and signed by both of the signatories to this Agreement or by their successors. N. INSPECTION RIGHTS: 1. The IRS may inspect the work performed by the Participant upon reasonable notice to the Participants Authorized Representative and in a manner that will not interfere with the Participant's performance of this Agreement. The Participant shall provide 9 access for this purpose to the IRS's Authorized Representatives(s) to the location where the work is being performed. The IRS shall also have the right to inspect the Participant's Report of the work performed as a result of this Agreement. The IRS's Authorized Representative shall provide the results of any inspections to the Participant's Authorized Representative for any necessary resolution. 2. The IRS may evaluate the Participant's performance of this Agreement and may provide the results of this evaluation to the Participant, in writing, on a quarterly basis for written comment and return to the IRS. The evaluation, including the Participant's comments, may be used by the IRS in considering the Participant for future Agreements or Contracts. 0. DISCLOSURE REGULATIONS: 1. DISCLOSURE OF INFORMATION-SAFEGUARDS (IRSAP 1052.224-9000) (JANUARY 1998) In performance of this contract, the contractor agrees to comply and assume responsibility for compliance by his/her employees with the following requirements: (1) All work shall be performed under the supervision of the contractor or the contractor's responsible employees. (2) Any return or return information made available shall be used only for the purpose of carrying out the provisions of this contract. Information contained in such material shall be treated as confidential and shall not be divulged or made known in any manner to any person except as may be necessary in the performance of the contract. Inspection by or disclosure to anyone other than an officer or employee of the contractor shall require prior written approval of the Internal Revenue Service. Requests to make such inspections or disclosures should be addressed to the IRS Contracting Officer (3) Should a person (contractor or subcontractor) or one of his/her employees make any unauthorized inspection(s) or disclosure(s) of confidential tax information, the terms of the Default clause (FAR 52.2498), incorporated herein by reference, may be invoked, and the person (contractor or subcontractor) will be considered to be in breach of this contract. 2. DISCLOSURE OF "OFFICIAL USE ONLY" INFORMATION SAFEGUARDS (IRSAP 1052.224-70(D) (DECEMBER 1988) Any Treasury Department Information made available or to which access is provided, and which is marked or should be marked "Official Use Only", shall be used only for the purpose of carrying out the provisions of this contract and shall 10 not be divulged or made known in any manner to any person except as may be necessary in the performance of the contract. Disclosure to anyone other than an officer or employee of the contractor or subcontractor at any tier shall require prior written approval of the IRS. Requests to make such disclosure should be addressed to the IRS Contracting Officer. 3. DISCLOSURE OF INFORMATION--CRIMINAL/CIVIL SANCTIONS (IRSAP 1052.224-71(a) (JANUARY 1998) (1) Each officer or employee of any person (contractor or subcontractor) at any tier to whom returns or return information is or may be disclosed shall be notified in writing by the person (contractor or subcontractor) that returns or return information disclosed to such officer or employee can be used only for a purpose and to the extent authorized herein, and that further disclosure of any such returns or return information for a purpose or to an extent unauthorized herein constitutes a felony punishable upon conviction by a fine of as much as $5,000 or imprisonment for as long as five years, or both, together with the costs of prosecution. Such person (contractor or subcontractor) shall also notify each such officer and employee that any such unauthorized future disclosure of returns or return information may also result in an award of civil damages against the officer or employee in an amount not less than $1,000 with respect to each instance of unauthorized disclosure plus in the case of willful disclosure or a disclosure which is the result of gross negligence, punitive damages, plus the cost of the action. These penalties are prescribed by IRC Sections 7213 and 7431 and set forth at 26 CFR 301.6103(n). (2) Each officer or employee of any person (contractor or subcontractor) to whom returns or return information is or may be disclosed shall be notified in writing by such person that any return or return information made available in any format shall be used only for the purpose of carrying out the provisions of this contract and that inspection of any such returns or return information for a purpose or to an extent not authorized herein constitutes a criminal misdemeanor punishable upon conviction by a fine of as much as $1,000.00 or imprisonment for as long as 1 year, or both, together with the costs of prosecution. Such person (contractor or subcontractor) shall also notify each such officer and employee that any such unauthorized inspection of returns or return information may also result in an award of civil damages against the officer or employee in an amount equal to the sum of the greater of $1,000.00 for each act of unauthorized inspection with respect to which such defendant is found liable or the sum of the actual damages sustained by the plaintiff as a result of such unauthorized inspection plus in the case of a willful inspection or an inspection which is the result of gross negligence, punitive damages, 11 plus the costs of the action. The penalties are prescribed by IRC Sections 7213A and 7431. (3) Additionally, it is incumbent upon the contractor to inform its officers and employees of the penalties for improper disclosure imposed by the Privacy Act of 1974, 5 U.S.C. 552a. Specifically, 5 U.S.C. 552a(I)(1), which is made applicable to contractors by 5 U.S.C. 552a(m)(1), provides that any officer or employee of a contractor, who by virtue of his/her employment or official position, has possession of or access to agency records which contain individually identifiable information, the disclosure of which is prohibited by the Privacy Act or regulations established thereunder, and who knowing that disclosure of the specific material is so prohibited, willfully discloses the material in any manner to any person or agency not entitled to receive it, shall be guilty of a misdemeanor and fined not more than $5,000. 4. DISCLOSURE OF INFORMATION-OFFICIAL USE ONLY (IRSAP 1052.224-71(b) (DECEMBER 1988) Each officer or employee of the contractor to whom "Official Use Only" information may be made available or disclosed shall be notified in writing by the contractor that "Official Use Only" information disclosed to such officer or employee can be used only for a purpose and to the extent authorized herein, and that further disclosure of any such "Official Use Only" information, by any means, for a purpose or to an extent unauthorized herein, may subject the offender to criminal sanctions imposed by 18 U.S.C. Sections 641. 5. DISCLOSURE OF INFORMATION-INSPECTION (IRSAP 1052.224-72) (DECEMBER 1988) The Internal Revenue Service shall have the right to send its officers and employees into the offices and plants of the contractor for inspection of the facilities and operations provided for the performance of any work under this contract. On the basis of such inspection, the Contracting Officer may require specific measures in cases where the contractor is found to be non compliant with contract safeguards. |X|(15) 52.239-1, Privacy or Security Safeguards (5 U.S.C. 552a). P. REMEDIES: There are no additional remedies other than the termination rights as defined in L(2). Q. LIMITATIONS: 12 The terms of this Agreement are not intended to alter, modify, or rescind any current Agreement or provision of Federal law now in effect. Any provision of this Agreement, which conflicts with Federal law, will be null and void. R. DISPUTE RESOLUTION: N/A S. SIGNATURES: /s/ Sherrill A. Fields Date: 9/30/99 --------------------- ------- Internal Revenue Service Sherrill A. Fields, National Director Electronic Program Enhancement /s/ Kenneth Stern Date: 10/4/99 --------------------- ------- U.S. Audiotex Corporation Kenneth Stern, President 13 EX-10.6 5 CONSENT BETWEEN U.S. AUDIOTEX, LLC Exhibit 10.6 [GRAPHIC] ================================================================================ SOLICITATION, OFFER, AND AWARD PAGE OF 1 41 Award will be made on this [ILLEGIBLE] notice plus attachments - -------------------------------------------------------------------------------- 1. CONTACT [ILLEGIBLE] 2. SOLICITATION 3. DATE ISSUED 4. PURCHASE REQ.EST NO. NO. NO. CFOPD-99-C005 CFOPD-98-R-017 25 Aug 98 None |X| [ILLEGIBLE] |_| SEALED BIDDING [ILLEGIBLE] - -------------------------------------------------------------------------------- 5. ISSUED BY Off. of the Chief Financial Officer District of Columbia Govt, MSC Procurement Ste. 410S, 441 4th St NW Wash DC 20001 - -------------------------------------------------------------------------------- 6. ADDRESS OFFER TO [ILLEGIBLE] ================================================================================ SOLICITATION - -------------------------------------------------------------------------------- 7. Sealed offer or [ILLEGIBLE] and 7 [ILLEGIBLE] described in the Schedule will be located at the place specified in block [ILLEGIBLE] hand carried in the [ILLEGIBLE] located in Suite 410S, 441 4th St NW, Washington DC 2001 until 5 pm EDT Wed., Sep 16th, 1998. If this is a sealed bid solicitation, offers will be publically [ILLEGIBLE] at flat rate. CAUTION--LATE OFFERS See section in Solicitation Instructions and Conditions. All offers are subject to the following: 1. The attached Solicitation Instructions and Conditions 2. [ILLEGIBLE] FOR INFORMATION CALL (Address and Telephone No.) [ILLEGIBLE]: Len Nadybal, T.202-7270380 F.727-9599 or Email (see pg. 6) ================================================================================ [ILLEGIBLE] TABLE OF CONTENTS |X| SEC DESCRIPTION PAGE(S) - -------------------------------------------------------------------------------- PART I - THE SCHEDULE - -------------------------------------------------------------------------------- |X| A SOLICITATION CONTRACT FORM 1 - -------------------------------------------------------------------------------- |X| B [ILLEGIBLE] OR SERVICE AND [ILLEGIBLE] 2 - -------------------------------------------------------------------------------- |X| C DESCRIPTION [ILLEGIBLE] WORK STATEMENT 4 - -------------------------------------------------------------------------------- |X| D [ILLEGIBLE] AND MARKING 8 - -------------------------------------------------------------------------------- |X| F INSPECTION AND ACCEPTANCE 9 - -------------------------------------------------------------------------------- |X| F DELIVERIES OR PERFORMANCE 9 - -------------------------------------------------------------------------------- |X| G CONTRACT ADMINISTRATION DATA 11 - -------------------------------------------------------------------------------- |X| H SPECIAL CONTRACT REQUIREMENTS 12 - -------------------------------------------------------------------------------- |X| SEC DESCRIPTION ON [ILLEGIBLE] PAGE(S) - -------------------------------------------------------------------------------- PART II - CONTRACT CLAUSES - -------------------------------------------------------------------------------- |X| I CONTRACT CLAUSES 14 - -------------------------------------------------------------------------------- PART II - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH - -------------------------------------------------------------------------------- |X| J LIST OF ATTACHMENTS 22 - -------------------------------------------------------------------------------- PART IV - REPRESENTATIONS AND INSTRUCTIONS - -------------------------------------------------------------------------------- |X| K REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS 23 - -------------------------------------------------------------------------------- |X| L INSTR., CONDS., AND NOTICE TO OFFERORS 30 - -------------------------------------------------------------------------------- |X| M EVALUATION FACTORS FOR AWARD 34 - -------------------------------------------------------------------------------- D. OFFER ================================================================================ 9. In compliance with the above, the undersigned affirms and agrees to [ILLEGIBLE] any or all [ILLEGIBLE] upon which [ILLEGIBLE] are [ILLEGIBLE] set forth in the [ILLEGIBLE] accepted within _____ calendar days from the date specified for receipt of the offers 60 calendar days unless a [ILLEGIBLE] period is rectified by the [ILLEGIBLE]. - -------------------------------------------------------------------------------- 10. ACKNOWLEDGMENT OF AMENDMENTS AMENDMENT NO. DATE AMENDMENT NO. DATE ------------------------------------------- The Offeror acknowledges receipt of attachments to the ------------------------------------------- SOLICITATION for [ILLEGIBLE] and related documents [ILLEGIBLE] - -------------------------------------------------------------------------------- 11. DISCOUNT FOR PROMPT PAYMENT (See Section L) ___% 10 Calendar Days ___ %20 Calendar Days ___% 30 Calendar Days ____%____ Calendar Days - -------------------------------------------------------------------------------- 12. OFFERORS' NAMES AND ADDRESSES [ILLEGIBLE] Area code and Telephone No. U S Audiotex, LLC 18 Crow Canyon Ct., Suite 300 San Ramon, CA 94583 1-800-487-4567 - -------------------------------------------------------------------------------- 13. [ILLEGIBLE] Kenneth Stern President/CEO - -------------------------------------------------------------------------------- [ILLEGIBLE] 14. SIGNATURE 15. OFFER DATE [ILLEGIBLE] /s/ Kenneth Stern 9/12/98 - -------------------------------------------------------------------------------- AWARD (To be Completed By The Contractoring Officer) - -------------------------------------------------------------------------------- 16. [ILLEGIBLE] [ILLEGIBLE] No charge to the Line items 0001-0004 D.C. Governmen- - -------------------------------------------------------------------------------- 17. ADMINISTERED [ILLEGIBLE] - -------------------------------------------------------------------------------- 18. [ILLEGIBLE] ADDRESS [ILLEGIBLE] IN BLOCK ______ - -------------------------------------------------------------------------------- 19. ADMINISTERED [ILLEGIBLE] - -------------------------------------------------------------------------------- 20. ACCOUNTING DATA - -------------------------------------------------------------------------------- 21. PAYMENT WILL BE MADE BY - -------------------------------------------------------------------------------- 22. NAME AND SIGNATURE OF CONTRACTING OFFICER /S/ Leonard [ILLEGIBLE] - -------------------------------------------------------------------------------- 23. AWARD DATE December 22, 1998 ================================================================================ Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 2 of 41 Pages PART I - SECTION B SUPPLIES OR SERVICES AND PRICES/COSTS This is a concessionaire contract for the operation by a private enterprise of an interactive operator assisted tax payment/transfer activity of the Office of Tax & Revenue of the Office of the Chief Financial Officer of the District of Columbia. The intent of the Contract is for a contractor to run a utility through which District of Columbia taxpayers can, through the concessionaire, pay tax using major credit and debit cards as an alternative to customary tax remittance processes. The Contractor shall debit the accounts of the taxpayers for the fees the Contractor and the District of Columbia agree may be charged to the taxpayers using the system in payment for the availability and convenience of the activity. This is a contract for which there is no cost to the District of Columbia. The concessionaire is renumerated for services performed through its retention of the fees charged to users at levels agreed upon between the contracting officer and the concessionaire. Line Description Qty Price Amount Item ea. - -------------------------------------------------------------------------------- 0001 Call Center Setup (Non-recurring cost for establishment of physical plant at Contractor's location, acquisition and implementation of software/ firmware programs, utilities and modules, acquisition of telecom- munications infrastructure to include voice prompts, population of the facility with staff, and other associated goods or services necessary to bring the call center on line and able to function and perform the requirements in the Statement of Work (Part I - Section C). 1 job No Cost to the Government Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 3 of 41 Pages 0002 Periodical Operational Costs (Monthly or other recurring fees for maintenance of the facility, to include maintenance of disaster recovery infrastructure, data management and general operational support, telecommunications Included in fees to maintenance and customer service users - support (to respond to District inquiries) See Part III - Section J 0003 Transactional Fees and Charges Per payment processed, added to the Taxpayer's remittance amount 1 ea See Part III-- Section J ------------------------- Total Contract Price $ No Cost to the Government 0004 Option to Extend Period of Performance (See Para. F.5, Part I - Section F, Deliveries or Performance) -------------------------------LAST ITEM------------------------------- Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 4 of 41 Pages PART I - SECTION C DESCRIPTION/SPECIFICATIONS/WORK STATEMENT C.1. Background & Purpose a. Through this contract, the District of Columbia Office of Tax and Revenue (OTR) provides a credit and debit card payment service to the public. The service will be used by taxpayers to make remittances to the District using credit and debit cards. b. The service the Contractor will provide is to be offered to the public as a convenient and efficient interface with government, as an alternate to customary methods of paying taxes and as a method which will enhance taxpayer cash flow through the delayed billing embodied in credit card usage methodology. c. This is a contract for the establishment, implementation and operation of an interactive voice prompted, voice and/or touch tone response driven tax payment activity. C.2 Functional Description The system of accepting calls and processing payment transactions shall function thusly: a. a. The Contractor shall install telephone line(s) with 800- or 888- area code prefixes and provide the associated telephone number to the District of Columbia (via the Contracting Officer or his or her duly appointed Contract Administrator or Contracting Officer Technical Representative (COTR)). b. The District will make the telephone number and details of the payment opportunity available through the payment facility, known to appropriate taxpayers. Taxpayers would then dial the 1800 or 1888 telephone number in order to access the Contractor's facility and avail themselves of the opportunities to remit tax payments to the Government by using a credit and/or debit card through the interactive voice response system provided by the Contractor on behalf of the Government. This contract does not confer upon the Contractor the status of agent or instrumentality of the Government; the Contractor shall not represent itself to anyone, explicitly or through implication, as an entity having such status or a standing that is tantamount to such status. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 5 of 41 Pages c. Provide voice messages and prompts mutually designed to prompt callers to provide information necessary to identify the payer and post the payment. The information will be obtained through the taxpayer use of his or her telephone keypad in response to the voice prompts that are delivered when the caller dials the 1-800 or 1-888 telephone number. The texts of the messages and prompts shall be put "on-line" only after approval of the wording by the project office of the D. C. Government. The messages shall prompt the taxpayer so that the Contractor: - obtains information on the caller's desired transaction (to include the information required in the Exhibits at PART III - SECTION J, below) - can obtain authorization to verify that the payer's card is valid and credit in the amount to be paid is available, - can collect the paid amount from the Contractor's supporting Merchant Bank or financial institution, withdraw from the gross receipts the amount of the fee charged and send the remaining amount due to the Government through electronic means to the end destination account of the District of Columbia. d. The Contractor shall transmit remittances less thecontractor's agreed fee to the bank account designated by the Government. The account number(s), ABA routing numbers, etc., will be made available to the Concessionaire upon contract award, and whenever the account information changes. Such remittances shall be transferred electronically once per day along with information sufficient for the Government to identify the taxpayer to whose tax return the payment is to be credited. The extent and format of the information required to accomplish this task is delineated in the Exhibits at PART III - SECTION J. C.3. Physical Infrastructure & Operational Requirements a. The Contractor will, at its expense, furnish and maintain all equipment related software and communication lines needed to perform the required service. The system will be installed and functioning no later than two (2) months from the date of the award of the Contract by the Contracting Officer. b. The Contractor shall install and operate the system at a location it owns or leases for the purposes of this contract - government facilities will not be made available. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 6 of 41 Pages c. Maintenance of the system for the life of the contract will be provided at no cost to the Government. The vendor will provide twenty four (24) hour seven (7) day a week maintenance to insure minimal "down" time and maximum availability of the service to the public. d. The voice prompts will be developed jointly by the service provider and the Contracting Officer's Technical Representative (COTR) from the Office of Tax and Revenue. Interactive voice response messages will not be placed into service without advance approval of the COTR. The name and contact information for the COTR will be made available to the Contractor by the Contracting Officer upon contract award. The interactive voice response messages must clearly state that the service provider charges a fee for the convenience of using the service, and must state to the taxpayer what the amount of the fee is. It must be clear to the taxpayer that the fee is not paid to the District of Columbia Government. e. All taxpayer payment information and information related to the Contractor's find transfers to the District that it provides to OTR must have an accuracy rate of at least ninety eight percent (98%). f. The identifying data and payment amount will be electronically transmitted to the District within twenty-four (24) hours of receipt from the bank or financial institution with which the Contractor has its Merchant's Account Agreement. g. The format for the transmitted information will be designated to the Contractor by the Government upon contract award. The format and contents shall be based upon the contents of District of Columbia Pamphlet DC-1345, Electronic Filing Manual, which is incorporated herein by reference, and a copy of which is available at any time by sending an Email message quoting "Please send DC-1345" as the subject line of the message to: rfp_at_~cfo-ojs.ccmail.dcgov.org The document will be provided by automated return Email to the Email address from which the request originates. (The minimum information required from the Contractor with each funds transfer is, for business taxpayers, the name, business taxpayer identification number, tax account number and sub number, tax type(s), tax period(s) to which thc payment applies, description (if payment is a fee, or other types of non-tax payment), and the payment amount. For individual taxpayers, Contractor shall provide the same information that applies to business taxpayers, except the primary social security number shall substitute for the business taxpayer identification numbers). Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 7 of 41 Pages h. Reports: (1) The Contractor shall, on a weekly basis and on the last work day of the D.C. Government's fiscal year (generally 30 September of each year), provide, at no additional cost to the Government, transaction summary reports that permit the Office of Tax and Revenue and/or the D.C. Treasurer to verify all charges made to taxpayers, fees collected by the Contractor and transmissions/deposits to the Government. The reports must enable the District to reconcile payment with deposits. The Contractor shall make arrangements with the Contract Administrator appointed by the Contracting Officer to provide for a means acceptable to the government which shall be used to transmit the reports to the government. Payments must balance with deposits. (2) Cumulative reports of records of telephone calls and related activity must be kept on a real time basis and available on demand by the Contracting Officer as a printed document, via voice response and by FAX. The reports must provide data which can be analyzed to determine call activities including line activity by hour of the day and day of the week, volumes of calls, hang ups, etc. j. Credit Card Merchant Fees. (1) The Contractor shall pay the credit card discount rate and all associated processing fees associated with its Merchant's Account Agreement with the Financial Institution through which it processes credit card payment transactions. The amount remitted to the District of Columbia shall never be an amount any less than that amount of tax which the taxpayer directed to be paid to the District when the taxpayer placed the call to the Contractor to make the payment. (2) Chargebacks. The Concessionaire shall indemnify the District of Columbia against chargebacks (i.e., return to the Concessionaire of unpaid card charge paperwork). The Contractor shall, through collection processes of its own, insurance against chargebacks, factoring through third parties or other methodology permitted under law, deal directly with the taxpayer(s) whose payments were not honored by the Concessionaire's merchant bank. No refund of received amounts will be requested of the Government by the Concessionaire and no such requests will be honored. k. No charges other than that authorized by this Contract may be charged to the taxpayer or to the District of Columbia Government by the Contractor without advance written authorization from the Contracting Officer. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 8 of 41 Pages (1) Amounts charged for any of the fees that are authorized under this contract or which may be authorized in any subsequent modification shall not exceed the amounts the Contracting Officer has agreed may be charged. The structure of fees and charges (Line Item 0003 in the Schedule at PART I - SECTION B) are contained in the Exhibits at PART III - SECTION J, List of Attachments. The attachment containing the fees and charges may be modified by mutual agreement and may be incorporated into this contract from time to time. Modifications (changes in the fee structure and the amounts applicable to each) may not be placed into effect by the Contractor without the advance written approval of the Contracting Officer. (2) Chargebacks. Collection fees and charges the concessionaire may levy against a taxpayer whose payment is not honored by his or her card issuer are considered to be matters between the cardholder and the Contractor, and not fees and charges that are subject to the terms and conditions of this contract. PART I - SECTION D PACKAGING AND MARKING Not Applicable. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 9 of 41 Pages PART I - SECTION E INSPECTION AND ACCEPTANCE E.1 Inspection. Inspection of the quality, completeness and acceptability of delivered work shall be by the Contracting Offices appointed Contract Administrator prior to final acceptance by the government. E.2 Acceptance. Acceptance of the Contractor's Services shall be at destination. PART I - SECTION F DELIVERIES OR PERFORMANCE F.1 Deliveries. a. Schedule of Deliverables related to Installation and Commencement of Operations (Line Item 0001): See Para. C.3.a., at PART I - SECTION C, Physical Infrastructure and Operational Requirements. b. Schedule of Deliverables for Originations and Transmission of Accumulated transactions(Line Item 0003): (1) PIN number maintenance .................. continual basis (2) Call Center Operation ................... continual basis (3) Transaction Reports (Para C.3.h(1) at Part I - Section C).... weekly on a day to be agreed between the Contractor and the COTR (4) Call Activity Reports ................... continual accumulation, deliverable on demand (5) Fund Remittances ........................ daily Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 10 of 41 Pages F.2 Period of Performance. The period of performance under this contract is for one year from the date of award noted in block 23, adjacent to the Contracting Officer's signature on Page 1. F.3 Options for Increased Quantity Not Applicable. As the government markets the availability of the concessionaire's service to the public, call volumes will increase. No modification of the contract is necessary to accommodate these kinds of "quantity increases". The concessionaire shall monitor demand for access and accommodate the demand to maintain conformance to the performance requirements of the contract. F.5 Option to Extend the Term of the Contract. a. The Contracting Officer may extend the term of this contract by written notice to the Contractor within the time specified in the Schedule, provided, that the Government shall give the Contractor written notice of its intention to extend at least 30 days before the contract expires. The preliminary notice does not commit the Government to an extension b. If the Government exercises this option, the extended contract shall be considered to include this option provision. c. The total duration of this Contract, including the exercise of any options under this clause, shall not exceed five (5) years. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 11 of 41 Pages PART I - SECTION G CONTRACT ADMINISTRATION DATA G.1 Payment/Invoices The District of Columbia will accept no invoices in conjunction with this contract. G.2 Contracting Officer The Contracting Officer is located at: Mission Support Center Procurement Office Office of the Chief Financial Officer Suite 410S 441 4th Street, NW Washington DC 20001 Tel. (202) 727-0380 The Contracting Officer is the only official authorized to contractually bind the District. G.3 Contract Administrator If the Contracting Officer appoints a Contract Administrator to administer this contract, the Administrator will be appointed in writing and will, minimally, have the responsibility of ensuring that the work conforms to the requirements of the contract. Any additional responsibilities and authorities shall be only those that the Contracting Officer specifies in the letter of appointment. The Contract Administrator shall not have authority to make changes in the scope or terms and conditions of the contract or to order extra goods or services beyond the quantities or time periods provided in the Schedule. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 12 of 41 Pages PART I - SECTION H SPECIAL CONTRACT REQUIREMENTS H.1 Insurance (27 DCMR) The Contractor, at its expense, shall obtain the minimum insurance coverage set forth below prior to award of the contract and shall keep such insurance in force throughout the contract period: (1) Public Liability and Property Damage Insurance The Contractor shall carry insurance against liability for personal and bodily injury and property damage in an amount of at least $100,000 for each individual and $500,000 in the aggregate (liability) and $200,000 (property). (2) Workers' Compensation: The Contractor shall carry workers' compensation insurance covering all of its employees employed upon the premises and in connection with its other operations pertaining to this agreement, and the Contractor agrees to comply at all times with the provisions of the workers' compensation laws of the District. (3) Employer's Liability: The Contractor shall carry employer's liability of at least $100,000. (4) Comprehensive Automobile Liability Insurance (applicable to owned, non-owned and hired vehicles): The Contractor shall carry comprehensive automobile insurance applicable to owned, non-owned and hired vehicles against liability for bodily injury and property damage in an amount not less than that required by the laws of the District of Columbia. All insurance provided by the Contractor as required by this section, except comprehensive automobile liability insurance applicable to owned, non-owned and hired vehicles, shall set forth the District as an additional insured. All insurance shall be written with responsible companies licensed by the District. A copy of the policy or minimally, a rider adding the District as Insured to a previously existing policy which meets the minimum requirements above, will be sent by the Contractor to the Contracting Officer within 10 days of contract award. The policies of insurance shall provide for at least 30 days' written notice to the District prior to their termination or material alteration. H.2 Other Contractors The Contractor shall not commit or permit any act which will interfere with the performance of work done by any other District Contractor or by any District employee. If Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 13 of 41 Pages another Contractor is awarded a future contract for performance of the required services, the original Contractor shall cooperate fully with the District and the new Contractor in any transition activities which the Contracting Officer deems necessary during the term of the contract. H.3 Key Personnel If key personnel are named in the contract who shall have specific responsibilities in performing under this contract, the Contractor, prior to diverting any of the specified key personnel for any reason, notify the Contracting Officer at least thirty (30) calendar days in advance and shall submit justification (including proposed substitutions) in sufficient detail to permit evaluation of the impact on the contact. The offeror shall not reassign these key personnel or appoint replacements without prior written approval from the Contracting Officer. H.4 First Source Employment Agreement The Contractor shall maintain compliance with the terms and conditions of the First Source Employment Agreement executed between the District of Columbia and the Contractor throughout the entire duration of the contract, including any option periods. H.5 Changes. a. Only the Contracting Officer is authorized to make changes to the terms and conditions of this Contract. b. Changes to voice messages will be made only upon request of the Government and at no cost. No restrictions will be placed on the Government to limit the numbers of changes or the frequency of changes that can be made. Changes shall be made promptly after receipt of the Contracting Officer's Technical Advisor's request by the Contractor in no case later than 48 hours after such receipt. c. Also see the provisions of Para C.3.(k), above. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 14 of 41 Pages PART II - SECTION I CONTRACT CLAUSES 1. Order of Precedence and Contract Any inconsistency in this solicitation shall be resolved by giving precedence in the following order (if provided): A. The Schedule B. The Statement of Work C. Special Contract Requirements D. Contract Clauses 2. Laws and Regulations Incorporated by Reference The provisions of the following Acts, and representations and stipulations required by any of the said Acts together with the provisions of applicable regulations made pursuant to said Acts, are hereby incorporated by reference and, to the extent applicable, incorporated by reference in this contract; together with the Laws of the District of Columbia, and the Materiel Management Manual, effective July 1, 1974, as amended. A. Contract Work Standards Act of August 13, 1962, also known as the Contract Work Hours and Safety Standards Act of 1962, Stat. 357-360. B. Buy American Act, Act of March 3, 1933, c.212, Title III, 4Stat. 1520, as amended. C. Walsh-Healy Public Contracts Act, Act of June 30, 1936, c.881, 4Stat. 2036. as amended. (Applies only when contract is $10,000 or more). D. Commissioner's Order 73-51 dated February 28, 1973 as amended, "Compliance with Equal Opportunity Obligations in Contracts". E. Public Law 93-112 Rehabilitation Act of 1973 Section 504 as amended. F. Mayor's Order 83-265 dated November 9, 1933 Subject: Employment Agreement Goal and Objectives for all District of Columbia Projects. G. D.C. Law 5-93, Dated May 9, 1984, the First Source Employment Agreement Act of 1984.m H. Procurement Practices Act of 1985, D.C. Law 6-110. 3. Waiver The waiver of any breach of the contract will not constitute a waiver of any subsequent breach thereof, nor a waiver of the contract. 4. Indemnification. The Contractor shall indemnify and save harmless District and all its officers, agents, and servants against any and all claims or liability arising from or based on, or as a consequence of or result of, any act, omission or default of the Contractor, its employees, or its subcontractors, in the performance of this contract or any confidentiality agreement required under this contract. Moneys due or to become due to the Contractor under the contract may be retained by the District as necessary to satisfy any outstanding claim which the District may have against the Contractor. 5. Transfer No contract or any interest therein shall be transferred by the parties to whom the award is made; such transfer will be null and void and will be cause to annul the contract. 6. Taxes The Government of the District of Columbia is exempt from and will not pay, Federal Excise Taxes and D.C. or state Sales and Use Taxes. OFFERORS MUST EXCLUDE SUCH TAXES, AS WELL AS STATE AND CITY TAXES FROM THEIR PROPOSALS. Tax exemption certificates are no longer issued by the District for Federal Excise Tax. The following statements, as appropriate, may be used by Contractors when claiming tax deductions for Federal Excise Tax exempt items sold to the District: "The District of Columbia government is exempt from Federal Excise Tax. Tax Exemption Registration 30070511 from the Internal Revenue Service, Baltimore MD." OR "Exempt from Maryland Sales Tax, Registered with the Comptroller of the Treasury (for deliveries to District Departments or Agencies) - Exemption Nr. 09339" 7. Officials Not To Benefit No member of or delegate to Congress, or Officer or employee of the District shall be admitted to any share or part of this contract or to any benefit that may arise therefrom, and any contract made by the Contracting Officer of any District employee authorized to execute contracts in which they or the employee of the District shall be personally interested shall be void, and no payment shall be made thereon by the District or any officer thereof, but this provision shall not be construed to extend to this contract if made with a corporation for its general benefit. However, should a Federal or District employee submit a bid for his personal benefit, the Contracting Officer reserves the right to waive the aforementioned restriction, providing Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 15 of 41 Pages that said employee furnishes a Notarized Affidavit prior to the time set for opening of bids, setting forth intentions to resign his Federal or District employment in the event said employee shall be considered for an award of contract. Failure to submit such Affidavit shall automatically render his bid non-responsive and no further consideration shall be given thereto (See Representations, Certifications and Acknowledgments, Section K). 8. Disputes A. If a dispute arises under or relates to the contract a claim by the Contractor shall be made writing and submitted to the Contracting Officer for a written decision. A claim by the District against the Contractor shall be subject to a written decision by the Contracting Officer. B. "Claim," as used in this clause, means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or related to the contract. A claim arising under a contract, unlike a claim relating to that contracts a claim that can be resolved under a contract clause that provides for the relief sought by the claimant. C. The decision of the Contracting Officer shall be final and conclusive and not subject to review by any forum, tribunal or Government agency. 9. Changes The Contracting Officer may, as any time, by written order, and without notice to the surety, if any, make changes in the contract within the general scope hereof. If such changes cause an increase or decrease in the cost of performance of this contact, or in the time required for performance, an equitable adjustment shall be made. Any claim for adjustment under this paragraph must be asserted within ten (10) days from the date the change is offered, provided, however, that the Contracting Officer, if he determines that the facts justify such action, may receive, consider and adjust any such claim asserted at any time prior to the date of final settlement of the contract. If the parties fail to agree upon the adjustment to be made, the failure to agree shall be considered a dispute. Nothing in this clause shall excuse the Contractor from proceeding with the contract as changed. 10. Termination for Default A. The District may, subject to the provisions of paragraph C., below, by written notice of default to the Contractor, terminate the whole or any part of this contract in any one of the following circumstances: i] If the Contractor fails to make delivery of the supplies or to perform the services within the time specified within the project work plan or any extension thereof, or (ii) If the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms and in either of these two circumstances does not cure such failure within a period of ten (10) days (or such longer period as the Contractor may authorize in writing) after receipt of notice from the Contracting Officer specifying such failure. B. In the event the District terminates this contract in whole or part as provided in paragraph A. above, the District may procure, upon such terms and in such manner as the Contracting Officer may deem appropriate, supplies or service similar to those so terminated; and the Contractor shall be liable to the District for any excess costs for similar supplies or services. Provided, that the Contractor shall continue the performance of this contact to the extend not terminated under provisions of this clause. The Contractor shall work with any subsequent contractor to ensure a smooth transfer of information for a period of sixty (60) days. C. Except with respect to defaults of subcontractors, the Contractor shall not be liable for any excess costs if the failure to perform the contract arises out of causes beyond the control and without the fault or negligence of the contractor Such causes may include, but are not restricted to, acts of God or of public enemy, acts of the District or Federal Government in either their sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather; but in every case the failure to perform must be beyond the control and without the fault or negligence of the Contractor. If the failure to perform is caused by the default of the subcontractor, and if such default arises out of causes beyond the control of both the Contractor and the subcontractor, and without the fault or negligence of either of them, the Contractor shall not be liable for any excess cost for failure to perform, unless the supplies or services to be furnished by the contractor were obtainable from other sources in sufficient time to permit the Contractor to meet the required delivery schedule. D. If this contract is terminated as provided in paragraph A. Above, District in addition to any other rights provided in this clause, may require the Contractor to transfer title and deliver to the District, in the manner and to the extent directed by the Contracting Office, completed supplies, (ii) such partially completed supplies and materials, information, and contract rights (herein after called "manufacturing materials") as the Contractor has specifically produced or specifically produced or specifically acquired for the performance been terminated; and the Contractor, shall, upon direction of the Contracting Officer, protect and preserve property in possession of the Contractor in which the District has an interest. Payment for completed supplies delivered to and accepted by the District shall be at the contract price. Payment for manufacturing materials delivered to and agreed upon by the Contractor and Contacting Officer; failure to agree to such amount shall be a dispute concerning a question of fact. The District may withhold from amounts otherwise due the Contractor for such completed supplies or manufacturing materials such sums as the Contracting Office determines to be necessary to protect the District against loss because of outstanding liens or claims of former lien holders. E. If after notice of termination of this contract under the provisions of this clause, it is determined for any reason that the Contractor was not in default under the provision of this clause, or that the default was excusable under the provisions of this clause, the rights and obligations of the parties shall, if the contract contains a clause providing for a termination for convenience be the same as if the notice of termination had been issued pursuant to such clause. See Paragraph 14, below "Termination for Convenience of the District." F. The rights and remedies of District provided in this clause shall not be exclusive and are in addition to any rights and remedies provided by law or under this contract. G. As used in paragraph C Above, the terms "subcontractor" and "subcontractors" means subcontractor(s) at any tier. 11. Termination for Convenience A. CFO may, at any time, terminate performance of work under this contract in whole or in part if the Contracting Officer determines that a termination is in the District's interest. The Contracting Officer shall terminate by delivering to the Contractor a "Notice of Termination" specifying the extent of termination and effective date. B. After receipt of a "Notice of Termination", and except as directed by the Contracting Officer, the Contractor shall immediately proceed with the following obligations regardless of any delay in determining or adjusting any amounts due under this clause (i) stop work as specified in the notice (ii) Place no further subcontracts or orders (referred to as subcontracts in this clause) for materials, services, or facilities, except as necessary to complete the continued portion of the contract. (iii) Terminate all contracts to the extent they relate to the work terminated, (iv) Assign to the District, as directed by the Contracting Officer, all rights, title and interest of the Contractor under the subcontracts terminated, in which case the District shall have the right to settle or pay any termination settlement proposal arising out of those terminations, (v) With approval or ratification to the extent Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 16 of 41 Pages required by the Contracting Officer, settle all outstanding liabilities and termination settlement proposals arising from the termination of subcontracts: the approval or ratification will be final for purposes of this clause, (vi) As directed by the Contracting Officer, transfer title and deliver to the District (a) the fabricated and unfabricated parts, work in process, completed work, supplies, and other material produced or acquired for the work terminated; and (b) the completed or partially completed plans, drawings, information, and other property that, if the contract has been completed, would be required to be furnished to the District (vii) Complete performance of the work not terminated. (viii) Take any action that may be necessary, or that the Contracting Officer may direct, for the protection and preservation of the property related to this contract that is in the possession of the Contractor and in which the District has or may have acquired an interest, (ix) Use its best efforts to sell, as direct or authorized by the Contracting Officer, any property of the types referred to in the subparagraph (vi) above, provided, however, that the Contractor (a) is not required to extend credit to any purchase, and (b) may acquire the property under the conditions prescribed by, and at prices approved by, the Contracting Officer. The proceeds of any transfer or disposition will be applied to reduce any payments to be made by the District under this contract, credited to the price or cost of the work, or paid in any other manner directed by the Contracting Officer. C. After the expiration of ninety (90) days (or such longer period as may be agreed to) after receipt by the Contracting Officer of acceptable inventory schedules, the Contractor may submit to the Contracting Officer a list, certified at to quantity, and quality of termination inventory not previously disposed of excluding items authorized for disposition by the Contracting Officer. The Contractor may request the District to remove those items or enter into an agreement for their storage. Within fifteen (15) days, the District will accept title to those items and remove them or enter into a storage agreement. The Contracting Officer may verify the list upon removal of the items, or if stored, within forty-five (45) days from submission of the list, and shall correct the list, as necessary, before final settlement. D. After termination, the Contractor shall submit a final settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but not later than six (6) months from effective date of termination, unless extended in writing by the contracting Officer upon written request of the Contractor within this 6 month period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after six (6) months or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined. E. Subject to paragraph D. above, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount to be paid because of the termination. The amount may include a reasonable allowance for profit on work done. However, the agreed amount whether under this paragraph E., or paragraph F., below, exclusive of costs shown in subparagraph F. (iii) below, may not exceed the total contract price as reduced by (a) the amount of payments previously made and (b) the contract price of work not terminated. The contract shall be amended, and the Contractor paid the agreed amount. Paragraph F., below shall not limit, restrict, or affect the amount that may be agreed upon to be paid under this paragraph. F. If the Contractor and the Contracting Officer fail to agree on the whole amount to be paid because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined by the Contracting Officer as follows, but without duplication of any amounts agreed on under paragraph E., above: The contract price for completed supplies or services accepted by the District (or sold or acquired under subparagraph B. (ix), above), not previously paid for, adjusted for any saving of freight and other charges. The total of-- (a) The costs incurred in the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but excluding any costs attributable to supplies or services paid or to be paid under subparagraph F., (above; (b) cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subparagraph F. above; and (c) A sum, as profit on subparagraph F. above, determined by the Contracting Officer to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subparagraph (c) and shall reduce the settlement to reflect the indicated rate of loss. (iii) The reasonable cost of settlement of the work terminated, including (a) Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data; (b) the termination and settlement of subcontracts (excluding the amounts of such settlement); and (c) Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. G. Except for normal spoilage, and except to the extent that the District expressly assumed the risk of loss, the Contracting Officer shall exclude from the amounts payable to the Contractor under paragraph F. above, the fair value, as determined by the Contracting officer, of property that is destroyed, lost, stolen, or damaged so as to become undeliverable to the District or to a buyer. H. The Contractor shall have the right of appeal, under the Disputes clause, from any determination made by the Contracting Officer under paragraph D., F. or J., of this clause except that if the Contractor failed to submit the termination settlement proposal within the time provided in paragraph D. or J., and failed to request a time extension, there is no right of appeal. If the Contracting Officer has made a determination of the amount due under paragraph D., F. or J., the District shall pay the Contractor (a) the amount determined by the Contracting Officer if there is no right of appeal of if no timely appeal has been taken, or (b) the amount finally determined on an appeal. In arriving at the amount due the Contractor under this clause, there shall be deducted (i). All unliquidated advance or other payments to the Contractor under the terminated portion of this contract (ii). Any claim which the District has against the Contractor under this contract; and (iii). The agreed price for the proceeds of sale of, materials, supplies, or other things acquired by the Contractor or sold under the provisions of this clause and not recovered by or credited to the District. I. If the termination is partial, the Contractor may file a proposal with the Contracting Officer for an equitable adjustment of the price(s) of the continued portion of the contract. The Contracting Officer shall make any equitable adjustment agreed upon. Any proposal by the Contractor for an equitable adjustment under this clause shall be requested within 90 days from the effective date of termination unless extended in writing by the Contracting Officer. J. The District may, under the terms and conditions it prescribes, make any partial payments and payments against costs incurred by the Contractor for the terminated portion of the contract, If the Contracting Officer believes the total of these payments will not exceed the amount to which the Contractor will be entitled. If the total payments exceed the amount finally determined to be due, the Contractor shall repay the excess to the District upon demand, together with interest computed at the rate of ten percent (10%) per year. Interest shall be computed for the period from the date the excess payment is received by the contractor to the date the excess is repaid. Interest shall not be charged on any excess payment due to a Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 17 of 41 Pages reduction in the Contractor's termination settlement proposal because of retention or other disposition of termination inventory until 10 days after the date of the retention or disposition, or a later date determined by the Contracting Officer because of the circumstances. K. Unless otherwise provided in this contract or by statute, the Contractor shall maintain all records and documents relating to the terminated portion of this contract for three (3) years after final settlement. This includes all books and other evidence bearing on the Contractor's costs and expenses under this contract. The Contractor shall make these records and documents available to the District, at the Contractors office, at all reasonable times, without any direct charge. If approved by the Contracting Officer, photographs, micrographs, or other authentic reproductions may be maintained instead of original records and documents. 12. Recovery of Debts Owed the District. The Contractor hereby agrees that the District of Columbia may use all or any portion of any consideration or refund due the Contractor under the present contract to satisfy in whole or part, any debt due the District. 13. Examination of the Books The Contracting Officer, the DC Inspector General, OFCO, The District of Columbia Auditor, and the D C. Financial Responsibility and Management Assistance Authority or any of their duly authorized representatives shall until three years after final payment, have the right to examine any directly pertinent books, documents, papers, and records of the Contractor involving transactions related to the contract. 14. Nondiscrimination Clause A. The Contractor shall not discriminate in any manner against any employee or applicant for employment that would constitute a violation of the District of Columbia Human Rights Act, approved December 13, 1977 (D.C. Law 2-38: D.C. Code 1-2512) (1981 Ed.). The Contractor shall include a similar clause in all subcontracts, except subcontracts for standard commercial supplies or raw materials. In addition, the Contractor agrees and any subcontractor shall agree to post in conspicuous places, available to employees and applicants for employment, notice setting forth the provisions of the nondiscrimination clause provided in section 251 of the District of Columbia Human Rights Act (D.C. Code 1-2522) B. Pursuant to rules of the Office of Human Rights, published on August 15, 1986 in the D.C. Register, the following clauses apply to this contract: (i) The contractor shall not discriminate against any employee or applicant for employment because of race, color, religion, national origin, sex, age, marital status, personal appearance, sexual orientation, family responsibilities, matriculation, political affiliation, or physical handicap, (ii) The Contractor agrees to take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, national origin, sex, age, marital status, personal appearance, sexual orientation, family responsibilities, matriculation, political affiliation, or physical handicap. The affirmative action shall include, but not be limited to the following: (a) Employment, upgrading, or transfer; (b) Recruitment or recruitment advertising; (c) Demotion, layoff, or termination; (d) Rates of pay, or other forms of compensation; and (e) Selection for training and apprenticeship. (iii) The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the Contracting Agency, setting forth the provisions in subsections B.(i) and B.(ii), above, concerning nondiscrimination and affirmative action. (iv) The Contractor shall, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment pursuant to the nondiscrimination requirement set forth in subsection B. (v) The Contractor agrees to send to each labor union or representative of workers with which it has a collective bargaining agreement, or other contract or understanding, a notice to be provided by the Contracting Agency, advising each labor union or workers' representative of the Contractor's commitments under this chapter, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. (vi) The Contractor agrees to permit access to all books, records, and accounts, pertaining to its employment practices, by the Contracting Officer and the Contracting Agency for purposes of investigation to ascertain compliance with this chapter, and to require under terms of any subcontractor agreement each subcontractor to permit access of such subcontractor's books, records, and accounts for such purposes. (vii) The Contractor agrees to comply with the provisions of this chapter and with all guidelines for equal employment opportunity applicable in the District of Columbia adopted by the District, or any authorized official. (viii) The prime contractor shall include in every subcontract the equal opportunity clauses, subsection B(i) through B(ii) of this section, so that such provisions shall be binding upon each subcontractor or vendor. (ix) The prime contractor shall take such action with respect to any subcontract as the Contracting Officer may direct as a means of enforcing these provisions, including sanctions for non-compliance; provided, however, that in the event the prime contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the Contracting Agency, the prime contractor may request the District to enter into such litigation to protect the interest of the District 15. Service Contract Act of 1965 A. Definitions: "Act", as used in this clause, means the Service Contract Act of 1965, as amended (41 U.S.C. 351-358). "Contractor" as used in this clause, means the prime Contractor or any subcontractor at any tier. "Service employee" as used in this clause, means any person (other than a person employed in a bona fide executive, administrative or professional capacity as defined in 29 CFR 541) engaged in performing a Government contract nor exempted under 41 U.S.C. 356, the principal purpose of which is to furnish services in the United States as defined in section 22.1001 of the Federal Acquisition Regulation. It includes all such persons regardless of the actual or alleged contractual relationship between them and a contractor. B. Applicability To the extent that the Act applies, this contract is subject to the following provisions and to all other applicable provisions of the Act and regulations of the Secretary of Labor (29CFR 4) All interpretations of the Act in Subpart C of 29 CFR 4 are incorporated in this contract by reference. This clause does not apply to contracts or subcontracts administratively exempted by the Secretary of Labor or exempted by 41 U.S.C. 356, as interpreted in Subpart C. 29 CFR 4. C. Compensation (i) The Contractor shall pay not less than the minimum wage and shall furnish fringe benefits to each service employee. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 18 of 41 Pages under this contract in accordance with wages and benefits determined by the Secretary of Labor or the Secretary's authorized representative, as specified in any attachments to this contract. (ii) If there is an attachment, the Contractor shall classify any class of service employees not listed in it, but to be employed under this contract. The classification shall provide a reasonable relationship to those listed in the attachment. The Contractor shall pay that class wages and fringe benefits determined by agreement of the interested parties. The contracting agency, the Contractor, and the employees who will perform the contract or their representatives. If the interested parties do not agree, the Contracting Officer shall submit the question, with a recommendation for final determination by the Office of Government Contract Wage Standards, Wage and Hour Division Employment Standards Administration (ESA). Department of Labor. Failure to pay such employees the compensation agreed upon by the interested parties or finally determined by ESA is a contract violation. (iii) If the term of this contract is more than one (1) year, the minimum wages and fringe benefits required for service employees under this contract shall be subject to adjustment after 1 year and not less often than once every two (2) years under wage determinations issued by ESA. D. Minimum Wage. In the absence of a minimum wage attachment for this contract, the Contractor shall not pay any service or other employees performing this contract less than the minimum wage specified by section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended (29 U.S.C. 206). Nothing in this clause shall relieve the Contractor of any other legal or contractual obligations to pay a higher wage to any employee. E. Successor Contracts. If this contract succeeds a contract subject to the Act under which substantially the same services were furnished and service employees were paid wages and fringe benefits provided for in a collective bargaining agreement, then, in the absence of a minimum wage attachment to this contract, the Contractor may not pay any service employee performing this contract less than the wage and benefits, including those accrued and any prospective increases, provided for under that agreement. No Contractor may be relieved of this obligation unless the limitations of 29 CFR 4.1c(b) apply or unless the Secretary of Labor or the Secretary's authorized representative (i) Determines that the agreement under the predecessor was not the result of arms-length negotiations, or (ii) Finds, after a hearing under 29 CFR 4.10, that the wages and benefits provided for by that agreement vary substantially from those prevailing for similar services in the locality. F. Notification to Employees. The Contractor shall notify each service employee commencing work on this contract of the minimum wage and any fringe benefits required to be paid, or shall post a notice of the wages and benefits in a prominent and accessible place at the work site, using such poster at may be provided by the Department of Labor. G. Safe and sanitary working conditions. The Contractor shall not permit services called for by this contract to be performed in building or surroundings or under working conditions provided by or under working conditions provided by or under the control or supervision of the Contractor that are unsanitary, hazardous, or dangerous to the health or safety of service employees. The Contractor shall comply with the health standards applied under 29 CFR Part 1925, H. Records. The Contractor shall maintain for three (3) years from the completion of the work, and make available for inspection and transcription by authorized ESA representatives, a record of the following (i) For each employee subject to the Act - (a) Name and address; (b) Work classification or classifications, rate or rates of wages and fringe benefits provided (c) Rate or rates of payments in lieu of fringe benefits, and total daily and weekly compensation; (d) Daily and weekly hours worked; and (e) Any deductions, rebates, or refunds from total daily and weekly compensation. (ii) For those classes of service employees not included in any wage determination attached to this contract, wage rates or fringe benefits determined by interested parties or by ESA under the term of paragraph K of this clause will fulfill this requirement. I. Withholding of payments and Termination of Contract. The Contracting Officer shall withhold from the prime contractor under this or any other government contract with the prime contractor any sums the Contracting Officer, or an appropriate officer of the Labor Department, decides may be necessary to pay underpaid employees. Additionally, any failure to comply with the requirements of this clause may be grounds for termination for default. J. Contractor's Report. (i) If there is a wage determination attachment to this contract and any classes of service employees not listed on it are to be employed under the contract, the Contractor shall report promptly to the Contracting Officer the wages to be paid and the fringe benefits to be provided each of these classes, when determined under paragraph C, of this clause. (ii) If wages to be paid or fringe benefits to be furnished any service employee(s) under the contract are covered in collective bargaining agreement effective at any time when the contract is being performed, the prime Contractor shall provide to the Contracting Officer a copy of the agreement and full information on the application and accrual of wages and benefits (including any prospective increases) to service employees working on the contract. The prime Contractor shall report when contract performance begins, in the case of agreements then in effect, and shall report subsequently effective agreements, provisions, or amendments promptly after they are negotiated. K. Variations, tolerances, and exemptions involving employment. Notwithstanding any of the provisions in this clause, the following employees may be employed in accordance with the following variations, tolerances, and exemptions authorized by the Secretary of Labor. (i) In accordance with regulations issued under Section 14, of the Fair Labor Standards Act of 1938 by the Administrator of the Wage and Hour Division, ESA(29 CFR 520, 521, 524 and 525), apprentices, student learners, and workers whose earning capacity is impaired by age or by physical or mental deficiency or injury, may be employed at wages lower than the minimum wages otherwise required by section 2(a)(1) or 2(b)(1) of the Service Contract Act, without diminishing any fringe benefits or payments in lieu of these benefits required under section 2(a)(2) of the Act. (ii) If the Administrator will issue certificates under the Act for employing apprentices, and student learners, disabled persons, or disabled clients of sheltered workshops not subject to the Fair Labor Standards Act of 1938, or subject to different minimum rates of minimum wages, but without changing requirements concerning fringe benefits for supplementary cash payments in lieu of these benefits. (iii) The Administrator may also withdraw, annul, or cancel such certificates under 29 CFR 525 and 528. (iv) An employee engaged in an occupation in which the employee customarily and regularly receives more than $ 30 a month in tips credited by the employer against the minimum wage required by section 2(a)(1) of the Act or section 2(b)(1) of the Act, in accordance with regulations in 29 CFR 531. However, the amount of credit shall not exceed 40 percent of the minimum rate specified in section 6(a)(1) of the Fair Labor Standards Act of 1938 as amended. 16. Conflict of Interest The Contractor shall take special care to avoid even the appearance of a conflict on Interest in its dealings with the District. Any such conflict shall be immediately disclosed to the Contracting Officer. The contract is subject to immediate termination pursuant the Default clause herein if the District determines that action by the Contractor outside the scope of the contract create a potential conflicts of interest or other untenable posture, in the absence of a written waiver by District. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 19 of 41 Pages 17. Disclosure of the Information No information regarding the Contractor's performance of the contract shall be disclosed by the Contractor to anyone other than District Government officials unless written approval is obtained in advance from the Contracting Officer. 18. Rights In Data A. All data first produced in the performance of this contract shall be the sole property of the District Contractor hereby acknowledges that all data including, without limitation, computer program codes produced by the Contractor for the District under this contract are works made for hire and are the sole property of the District; but, to the extent any such data may not, by operation of law, be works made for hire. Contractor hereby transfers and assigns to the District the ownership of copyright in such works, whether published or unpublished. The Contractor agrees to give the District all assistance reasonably necessary to perfect such rights including but not limited to, the works and supporting documentation and the execution of any instrument required to register copyrights. The Contractor agrees not to assert any rights at common law or in equity in such data. The Contractor shall not publish or reproduce such data in whole or in part or in any manner or form, or authorize others to do so, without written consent of the District until such time as the District may have released such data to the public. The District shall not unreasonably withhold consent to the Contractor's request to publish or reproduce data in professional publications. B. The District shall have restricted rights in data, including computer software and all accompanying documentation, and manuals and instructional materials, listed or described in a license or agreement made a part of the contract, which the parties have agreed will be furnished with restricted rights, provided however, notwithstanding any contrary provision in any such license or agreement, such restricted rights shall include, as a minimum, the right to: (i) Use the data at any District installation. If the data is software, use the software and all accompanying documentation and manuals or instructional materials with the computer for which or with which it was acquired, including use at any District installation to which the computer may have been transferred by the District; (ii) Use the computer software and all accompanying documentation and manuals or instructional materials with a backup computer if the computer for which or with which it was acquired is inoperative; (iii) Copy computer programs for safekeeping (archives) or backup purposes; and (iv) modify all the data, including computer software and all accompanying documentation and manuals or instructional materials, or combine it with other software, subject to the provision that the modified portions shall remain subject to these restrictions. C. The restricted rights set forth in Paragraph B are of no effect unless the data is marked by the Contractor with the following legend: RESTRICTED RIGHTS Use, duplication, or disclosure is subject to restrictions stated in Contract No. ___________ with (contractor's name) __________________________ and (ii) the related computer software documentation includes a prominent statement of the restrictions applicable to the computer software. The Contractor may not place any legend on computer software indicating restrictions on the District's rights in such software unless the restrictions are set forth in a license or agreement made a part of the contract prior to the delivery date for the software. Failure of the Contractor to apply a restricted rights legend to such computer software shall relieve the District of liability with respect to such unmarked software. D. In addition to the rights granted in Paragraph B above, the Contractor hereby grants to the District a nonexclusive, paid up license throughout the world, of the same scope as restricted rights set forth in Paragraph B above, under any copyright owned by the Contractor. In any work of authorship prepared for or acquired by the District under the contract. Unless written approval of the Contracting Officer is obtained, the Contractor shall not include in technical data or computer software prepared for or acquired by the District under the contract any works of authorship in which the copyright is not owned by the Contractor without acquiring for the District any rights necessary to perfect a copyright license of the scope specified in the first sentence of this paragraph. E. Whenever any data, including computer software, is to be obtained from a subcontractor under this contract, the Contract shall use this same clause in the subcontract, without alteration, and no other clause shall be used to enlarge or diminish the District's or the Contractor's rights in that subcontractor data or computer software which is required for the District. F. For all computer software furnished to the District with the rights specified in Paragraph A, the Contractor shall furnish to the District a copy of the source code with such rights of the scope specified in Paragraph A. For all computer software furnished to the District with the restricted rights specified in Paragraph B, the District, if the Contractor, either directly or through a successor or affiliate shall cease to provide the maintenance or warranty service provided the District under this contract or any paid-up maintenance agreement, or if Contractor should be declared bankrupt or insolvent by a court of competent jurisdiction, shall have the right to obtain, for its own and sole use only, a single copy of the then current version of the source code supplied under this contract, and a single copy of the documentation associated therewith, upon payment to the person in control of the source code the reasonable cost of making each copy. G. The Contractor shall indemnify and save and hold harmless the District, its officers, agents and employees acting within the scope of their official duties against any liability, including costs and expenses, (i) for the violation of proprietary rights, copyrights, or rights of privacy, arising out of the publication, translation, reproduction, delivery, performance, use or disposition of any data furnished under this contract, or (ii) based upon libelous or other unlawful matter contained in such data. H. Nothing contained in this clause shall imply a license to the District under any patent, or be construed as affecting the scope of any license or other right granted to the District under any patent. Paragraphs B, C, D, F, and G above are not applicable to material furnished to the Contractor by the District and incorporated in the work furnished under contract, provided that such incorporated materiel is identified by the Contractor at the time of delivery of such work. 19. Preferences for Local Businesses, Disadvantaged Businesses, or Businesses Operating in an Enterprise Zone. A. General Preferences. Under the provisions of D.C. Law 9-217, "Equal Opportunity for Local, Small and Disadvantaged Business Enterprises Act of 1992" ("Act"), the District shall apply preferences in evaluating proposals from businesses that are local, disadvantaged or located in an enterprise zone of the District of Columbia. The scale of points which can be applied under the Act are defined in solicitations at Part I - Section M, Evaluation Factors for Award. B. Liquidated Damages. If the Contractor fails to comply with the subcontracting plan submitted in accordance with the requirements of the contract and 27 DCMR 804.9, 39 DCR 9059 (December 4, 1992), and approved by the Contracting Officer, within the period of the contract or any extension thereof, the Contractor shall, in place of actual damages, pay to the District as fixed, agreed and liquidated damages, for each calendar day the Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 20 of 41 Pages Contractor fails to comply with the subcontracting plan, the sum of $25.00, unless the Contracting Officer determines that the contractor made good faith efforts to comply with the subcontracting plan. Prior to assessing any liquidated damages under this provision, the Contracting Officer shall issue a written notice informing the Contractor that it is not in compliance with the subcontracting plan and setting forth the areas of non-compliance. The written notice from the Contracting Officer shall provide the Contractor ten (10) days from the date of receipt of the written notice to correct any areas of non-compliance or to demonstrate that the Contractor has used good faith efforts to comply with the subcontracting plan. If the Contractor fails to correct any areas of non-compliance or demonstrate good faith efforts within the ten-day period, the Contracting Officer shall assess liquidated damages beginning on the first day after the end of the ten-day period. If the failure to comply with the subcontracting plan is such that the District deems it a material breach of the contract and terminates the contract under the Default Clause, the Contractor shall be liable for the fixed, agreed and liquidated damages accruing until the time the District may reasonably obtain similar goods or services. 20. Applicability of the Service Contract Act of 1965 To the extent that the Act applies, this contract is subject to the following provisions and to all other applicable provisions of the Act and regulations of the Secretary of Labor (29 CFR 4). All interpretations of the Act in Subpart C of 29 CFR 4 are incorporated in this contract by reference. This clause does not apply to contracts or subcontracts administratively exempted by the Secretary of Labor or exempted by 41 U.S.C. 356, as interpreted in Subpart C, 29 CFR 4. See appropriate Attachment at Part IV - Section J for the applicable U.S. Department of Labor Wage Rate Determination, if applicable. 21. Patents The Contractor shall hold and save the District, its officers, agents, servants and employees harmless from liability of any nature or kind, including costs, expenses, for or on account of any patented or unpatented invention, article, process, or appliance, manufactured or use in the performance of this Contract, including their use by the District, unless otherwise specifically stipulated in this Contract. 22. Inspection and Acceptance. Inspection and acceptance will be at destination, unless otherwise provided. Until delivery and acceptance, and after any rejections, risk of loss will be on the Contractor unless loss results from negligence on the part of the government. 23. Responsibility for Supplies Tendered The Contractor shall be responsible for the materials or supplies covered by this Contract until they are delivered at the designated point, but the Contractor shall bear all risk on rejected materials or supplies after notification of rejection. Upon failure to do so within ten days after notification, the District may return the rejected materials or supplies to the Contractor at the Contractor's risk and expense. 24. Appropriation of Funds The District's liability under this contract is contingent upon the future availability of monies with which to make payment [ILLEGIBLE] contract purpose. The legal liability on the part of the District of Columbia for payment of any money shall not arise unless and until such monies shall have been provided. 25. Multiyear Contract. If funds are not available for the continued performance in a subsequent year of a multiyear contract, the contract for the subsequent year shall be terminated, either automatically or in accordance with the termination clause of this contract, if any. Unless otherwise provided for in this contract, the effect of termination is to discharge both the District and the Contractor from future performance of the Contract, but not from their existing obligations. The Contractor shall be reimbursed for the reasonable value of any nonrecurring costs incurred, but not amortized in the price of the supplies or services delivered under the Contract. 26. Termination of Contracts for Certain Crimes and Violations A. The District may terminate without liability any Contract and may deduct from the Contract price or otherwise recover the full amount of any fee, commission, percentage, gift, or consideration paid in violation of this title if the Contractor has been convicted of a crime arising out of or in connection with the procurement of any work to be done or any payment made under this Contract. B. If a Contract is terminated pursuant to this section, the Contractor: (i) May be paid only the actual costs of the work performed to the date of termination, plus termination costs, if any; and (ii) shall refund all profits or fixed fees realized under the Contract. C. The rights and remedies contained in this Clause are in addition to any other rights or remedies provided by law, and the exercise of any of them is not a waiver of any other right or remedy provided by law. 27. Invoices A. An invoice is a written request for payment under the contract for supplies delivered or services rendered in order to be proper an invoice must include as applicable, the following: (1) Name and address of the Contractor. (2) Invoice date. (3) Contract number or other authorization for supplies delivered or services performed (including order number and contract line item number). (4) Description, quantity, unit of measure, unit price and extended price of supplies delivered or services performed. (5) Shipping and payment terms (e.g., shipment number and date of shipment, prompt payment discount terms). (6) Name and address of Contractor official to whom the payment is to be sent (must be the same as that on the contract or accompanied by a proper notice of assignment). (7) Name (where practicable), title, phone number, mailing address of person to be notified in event of defective invoice. (8) Any other information or documentation required by the Contract (such as evidence of shipment). Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 21 of 41 Pages Invoices shall be prepared and submitted in quadruplicate (one copy shall be marked "original") unless otherwise specified. B. For purpose of determining if interest begins to accrue under the Prompt Payment Act (Public Law 97-177), as amended by P.L. 100-496): (1) A proper invoice will be deemed to have been received when it is received by the office designated in the contract for receipt of invoices and acceptance of the supplies delivered or services rendered has occurred; (2) Payment shall be considered made on the date on which check for such payment is dated; (3) Payment terms (e.g., "net 20") offered by the Contractor will not be deemed as the "required payment date"; and (4) The following periods of time will not be included; (i) after receipt of an improper invoice and prior to notice of any defect or impropriety, but not to exceed 7 days; and (ii) between the date of a notice and any defect or impropriety and the date a proper invoice is received. When the notice is in writing, it shall be considered made on the date shown in the notice. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 22 of 41 Pages PART III - SECTION J LIST OF ATTACHMENTS Number Description 1. Schedule of Fees and Charges (Line Item 0003 of the Schedule) Not included in the solicitation - incorporated in the contract at the conclusion of negotiations. 2. D.C. Pamphlet 1345, Electronic Payments Manual Note: This manual is incorporated by this reference; a copy may not necessarily be attached to this copy of this document, but may be retrieved electronically via Email by sending a message to rfp_at_~cfo-ojs.ccmail.dcgov.org In the subject line of the message, use "Please Send DC-1345". 3. Confidentiality Agreement (Contractor must sign before beginning performance). 4. Performance Related Documents from Contractor's Proposal (33 pages): - Letter of Kenneth Stern, CEO, dated September 17, 1998 - Clarification Letter of Stephen R. Johnson, Sr. VP, dated October 30, 1998. - Statement of Experience and Capability (Offeror's Proposal Section A) - Qualifications of Key Personnel (Offeror's Proposal Section B) - Summary of Firm's Approach (Offeror's Proposal Section C) - Technical Implementation Plan (Exhibit 4 of Offeror's Proposal) Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 23 of 41 Pages PART IV - SECTION K REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS (This section must be completed and returned with applicable documentation called for throughout the text in order for a proposal to be considered responsive to the solicitation). The Offeror Represents and Certifies as part of the offer that (check or complete all applicable items and submit all required documentation): K.1 Certification Regarding a Drug-Free Workplace. A. Definitions. As used in this provision: "Controlled substance" means a controlled substance in schedules I through V of section 202 of the Controlled Substances Act (21 U.S.C. 812) and as further defined in regulation at 21 CFR 1308.11 - 1308.15. "Conviction" means a finding of guilt (including a plea of nolo contendere) or imposition of sentence, or both, by any judicial body charged with the responsibility to determine violations of the Federal or State criminal drug statutes. "Criminal drug statute" means a Federal or non-Federal criminal statue involving the manufacture, distribution, dispensing, possession or use of any controlled substance. "Drug-free workplace" means the site(s) for the performance of work done by the Contractor in connection with a specific contract at which employees of the Contractor are prohibited from engaging in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance. "Employee" means an employee of a Contractor directly engaged in the performance of work under a Government contract. "Directly engaged" is defined to include all direct cost employees and any other Contractor employee who has other than a minimal impact or involvement in contract performance. "Individual" means an offeror/contractor that has no more than one employee including the offeror/contractor. B. By submission of its offer, the offeror, if other than an individual, who is making an offer that equals or exceeds $25,000, certifies and agrees, that with respect to all employees of the offeror to be employed under a contract resulting from this solicitation, it will - no later than 30 calendar days after contract award for contracts of 30 calendar days or more performance duration; or as soon as possible for contracts of less than 30 calendar days performance duration, but in any case, by a date prior to when performance is expected to be completed - (1) Publish a statement notifying such employees that the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance is prohibited in the Contractor's workplace and specifying the actions that will be taken against employees for violations of such prohibition; (2) Establish an ongoing drug-free awareness program to inform such employees about - (a) The dangers of drug abuse in the workplace; (b) The Contractor's policy of maintaining a drug-free workplace; (c) Any available drug counseling, rehabilitation, and employee assistance programs; and (d) The penalties that may be imposed upon employees for drug abuse violations occurring in the workplace. (3) Provide all employees engaged in performance of the contract with a copy of the statement required by subparagraph B(1) of this provision; (4) Notify such employees in writing in the statement required by subparagraph B(1) of this provision that, as a condition of continued employment on the contract resulting from this solicitation, the employee will - (a) Abide by the terms of the statement; and (b) Notify the employer in writing of the employee's conviction under a criminal drug statute for a violation occurring in the workplace no later than 5 calendar days after such conviction; (5) Notify the Contracting Officer in writing within 10 calendar days after receiving notice under subdivision B(4)(b) of this clause, from an employee or otherwise receiving actual notice of such conviction. The notice shall include the position title of the employee. (6) Within 30 calendar days after receiving notice under subdivision B(4)(b) of this provision of a conviction, take one of the following actions with respect to any employee who is convicted of a drug abuse violation occurring in the workplace: (a) Take appropriate personnel action against such employee, up to and including termination; or Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 24 of 41 Pages (b) Require such employee to satisfactorily participate in drug abuse assistance or rehabilitation program approved for such purposes by a Federal, State, or local health, law enforcement, or other appropriate agency. (7) Make a good faith effort to maintain a drug-free workplace through implementation of subparagraphs B.(1) through B.(6) of this provision. C. By submission of its offer, the offeror, if an individual who is making an offer of any dollar value, certifies and agrees that the offeror will not engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of the contract resulting from this solicitation. D. Failure of the offeror to provide the certification required by paragraphs B or C of this provision, renders the offeror unqualified an ineligible for award. In addition to other remedies available to the Government, the making of a false, fictitious, or fraudulent certification under paragraph B or C of this provision may render the maker subject to criminal prosecution. K.2 Type of Business Organization. The offeror or quoter, by checking the applicable box represents that it operates as |X| a corporation under the laws of the State of CALIFORNIA, |_| an individual, |_| a partnership, |_| a nonprofit organization, or |_| a joint venture. K.3 Authorized Negotiators. The offeror shall list the names of persons authorized to negotiate on the offeror's behalf in connection with the Request for Proposal (list names, titles and telephone numbers of the authorized negotiators): KENNETH STERN, PRESIDENT, 800-IVR-4567 -------------------------------------------------------------------------- STEVE JOHNSON, SR. VICE PRESIDENT, 800-IVR-4567 -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- K.4 Vendor Submissions For Preferences for Local Business Enterprises, Disadvantaged Business Enterprises, or Businesses Located in an Enterprise Zone. Any vendor seeking to receive preferences on this solicitation as a local business enterprise ("LBE"), disadvantaged business enterprise ("DBE"), or business located in an enterprise zone, must submit at the time of, and as part of its proposal, evidence of the vendor's, subcontractor's, or joint venture partner's certification or self-certification as an LBE or DBE, to include a copy of all relevant letters of certification from the District of Columbia Minority Business Opportunity Commission, or a copy of any sworn notarized Self-Certification Forms prescribed by the Minority Business Opportunity Commission along with an acknowledgment letter issued by the Director of the Department of Human Rights and Minority Business Development, or evidence that the vendor or any subcontractor is located in an enterprise zone. By checking the applicable box, the offeror represents that it is certified as a |_| local business, |_| a disadvantaged business, or a |_| business located in an enterprise zone, in accordance with D.C. Law 9-217, the "Equal Opportunity for Local, Small and Disadvantaged Business Enterprises Act of 1992". Further, by checking any the following boxes, the offeror represents that it is using or will use one or more subcontractors certified as |_| local businesses, |_| disadvantaged businessES, or |_| businesses located in enterprise zones. If any boxes are checked to gain the preferences available under the law, provide evidence of such certification as follows: A Self-Certification Package is available to assist offerors in the completion of their certifications. Any vendor, subcontractor or joint venture seeking self-certification may obtain the package from: The Department of Human Rights and Minority Business Development Certification and Business Development Division 441 4th Street, NW, Ninth Floor Washington, DC 20001 All vendors are encouraged to contact the Certification and Business Development Division at (202) 724-1385 if additional information is required on certification procedures and requirements. Any material misrepresentation on the sworn notarized self-certification form could result in termination of the contract, contractor's liability for civil and criminal action in accordance with the Equal Opportunity for Local Small and Disadvantaged Business Enterprises Act of 1992, D.C. Law 9-217 and other District Laws and possible [illegible]. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 25 of 41 Pages K.5 Certificate of Independent Price Determination (Apr 1985). (a) The offeror certifies that-- (1) The prices in this offer have been arrived at independently, without, for the purpose of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to (i) those prices, (ii) the intention to submit an offer, or (iii) the methods or factors used to calculate the prices offered; (2) The prices in this offer have not been and will not be knowingly disclosed by the offeror, directly or indirectly, to any other offeror or competitor before bid opening (in the case of a sealed bid solicitation) or contract award (in the case of a negotiated solicitation) unless otherwise required by law; and (3) No attempt has been made or will be made by the offeror to induce any other concern to submit or not to submit an offer for the purpose of restricting competition. (b) Each signature on the offer is considered to be a certification by the signatory that the signatory-- (1) Is the person in the offeror's organization responsible for determining the prices being offered in this bid or proposal, and that the signatory has not participated and will not participate in any action contrary to subparagraphs (a)(1) through (a)(3) of this provision, or (2)(i) Has been authorized, in writing, to act as agent for the following principals in certifying that those principals have not participated, and will not participate in any action contrary to subparagraphs (a)(1) through (a)(3) of this provision STEVE JOHNSON [insert full name of person(s) in the offeror's organization responsible for determining the prices offered in this bid or proposal, and the title of his or her position in the offeror's organization]; (ii) As an authorized agent, does certify that the principals named in subdivision (b)(2)(i) of this provisions have not participated, and will not participate, in any action contrary to subparagraphs (a)(1) through (a)(3) of this provision; and (iii) As an agent, has not personally participated, and will not participate, in any action contrary to subparagraphs (a)(1) through (a)(3) of this provision. If the offeror deletes or modifies subparagraph (a)(2) of this provision, the offeror must furnish with its offer a signed statement setting forth in detail the circumstances of the disclosure. K.6 Contingent Fee Representation and Agreement The Contractor warrants that no person or selling agency has been employed or retained to solicit or secure the contract upon an agreement or understanding for a commission, percentage, brokerage or contingent fee, excepting bona fide employees or bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business. For breach of violation of this warranty, the District shall have the right to terminate the contract without liability or in its discretion to deduct from the contract or price or consideration or otherwise recover the full amount of the commission, percentage, brokerage, or contingent fee. K.7 Prospective Contractor's Responsibility In order to receive an award under this RFP, the Contracting Officer must determine that the prospective contractor has the capability in all respects to perform fully the contract requirements. To be deemed responsible, a prospective contractor must establish that it has: (1) Financial resources adequate to perform the contract, or the ability to obtain them; (2) Ability to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments; (3) A satisfactory record of performance; (4) The necessary organization, experience, accounting and operational control, and technical skills, or the ability to obtain them. (5) Compliance with the applicable District licensing, tax laws, and regulations; (6) The necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and (7) Other qualifications and eligibility criteria necessary to receive an award under applicable laws and regulations. The District reserves the right to request from a prospective contractor information necessary to determine the prospective contractor's responsibility. Information is to be submitted upon the request of the District within the time specified in the request. Failure of an offeror to comply with a request for information may subject the offeror's proposal to rejection on responsibility grounds. If a prospective contractor fails to supply the requested information, the District's Contracting Officer shall make the determination of responsibility or nonresponsibility based on available information. If the available information is insufficient to make a determination of responsibility, the District's Contracting Officer shall determine the offeror to be nonresponsible. K.8 ASSURANCE OF COMPLIANCE WITH EQUAL EMPLOYMENT OPPORTUNITY REQUIREMENTS Mayor's Order 85-85, effective June 10, 1985 and the rules implementing Mayor's Order 85-85, 4 DCR 1100 "Equal Opportunity Requirements in District Government Contracts," are incorporated into District of Columbia contracts by reference. Therefor, all bidders offerors shall indicate below their written commitment to assure compliance with Mayor's Order 85-85 and the Implementing Regulation. Failure to comply with the subject Mayor's Order and the Implementing Regulation shall result in rejection of the prospective bid proposal. I, KENNETH STERN, PRESIDENT, the authorized representative of U.S. AUDIOTEX, LLC, hereinafter referred to as "the contractor," certify that the contractor is fully aware of all of the provisions of Mayor's Order 85-85, effective June 10, 1985, and of the Rules Implementing Mayor's Order 85-85, and 4 DCR 1100. I further certify and assure that the contractor will fully comply with all applicable provisions of the Mayor's Order and Implementing Regulation if awarded the D.C. Government contract as a result of the present solicitation. Further the Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 26 of 41 Pages contractor acknowledges and understands that the award of said contract and its continuation are specifically conditioned upon the contractor's continued compliance with the Order and Regulations cited above. Further the Contractor agrees to include in each subcontract it issues for goods and services, including construction contracts, except construction subcontracts for standard commercial supplies or raw materials, shall include as express contractual provisions, the language contained in Title 4, District of Columbia Regulation at Paragraphs 1103.2 through 1103.10, which is as follows: 1103.2 The contractor shall not discriminate against any employee or applicant for employment because of race, color, religion, national origin, sex, age, marital status, personal appearance, sexual orientation, family responsibilities, matriculation, political affiliation, or physical handicap. 1103.2 The contractor agrees to take affirmative action to ensure applicants are employed, and that the employees are treated during employment without regard to their race, color, religion, national origin, sex, marital status, personal appearance, sexual orientation, family responsibilities, matriculation, political affiliation, or physical handicap. The affirmative action shall include, but not be limited to, the following: (a) Employment, upgrading or transfer; (b) Recruitment or recruitment advertising; (c) Demotion, layoff or termination; (d) Rates of pay, or other forms of compensation; and (e) Selection for training and apprenticeship. 1103.4 The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the Contracting Agency, setting forth the provisions in Paras. 1103.2 and 1103.3 concerning non-discrimination. 1103.5 The contractor shall, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment pursuant to the non-discrimination requirements set forth in paragraph 1103.2. 1103.6 The contractor agrees to send to each labor union or representative of workers with which it has a collective bargaining agreement, or other contract or understanding, a notice to be provided by the Contracting Agency, advising each labor union or worker's representative of the contractor's commitments under this chapter, and shall post copies of the notice in conspicuous places available to the employees and applicants for employment. 1103.7 The contractor agrees to permit access to all books, records, and accounts pertaining to its employment practices, by the Director and the Contracting Agency for purposes of investigation to ascertain compliance with this chapter, and to require under terms of any subcontractor agreement with each subcontractor to permit access of those subcontractor's books, records and accounts for such purposes. 1103.8 The contractor agrees to comply with the provisions of this chapter and with all guidelines for equal employment opportunity applicable in the District of Columbia adopted by the Director, or any authorized official. 1103.9 The prime contractor shall include in every subcontract the equal opportunity clauses, Paragraphs 1103.2 through 1103.10 of this section, so that these provisions shall be binding upon each subcontractor or vendor. 1103.10 The prime contractor shall take action with respect to any subcontract as the Contracting Officer may direct as a means of enforcing these provisions, including sanctions for non-compliance, provided that in event the prime contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the Contracting Agency, the prime contractor may request the District to enter into such litigation to protect the interest of the District. US AUDIOTEX, LLC ------------------------ Contractor Offeror Bidder KENNETH STERN, PRESIDENT ------------------------ Name /s/ Kenneth Stern ------------------------ Signature Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 27 of 41 Pages PRESIDENT ------------------------ Title CFOPD-98-R-017 ------------------------ Contract Number 9/16/98 ------------------------ Date K.9 Appointment of Attorney By submitting a proposal in response to this solicitation, the offeror: A. irrevocably designates and appoints the Clerk of the District of Columbia Superior Court and his successors in office as the true and lawful attorney of the Contract for the purpose of receiving service of all notices and processes issued by any court in the District of Columbia, as well as service of all pleadings and other papers, in relation to any action or legal proceeding arising out of or pertaining to this solicitation and any contract that may be awarded as a result of it, or the work required or performed hereunder, and B. expressly agrees that the validity of any service upon the said Clerk as herein authorized shall not be affected either by the fact that the offeror was personally within the District of Columbia and otherwise subject to personal service at the time of service upon said Clerk or by the fact that the Contractor failed to receive a copy of such process, notice or other paper so served upon the said Clerk provided the said Clerk shall have deposited in the United States mail, registered and postage prepaid, a copy of such process, notice pleading or other paper addressed to the contractor at the address stated in this contract. K.10 Conflict of Interest Please disclose the following: (1) Any material arrangements, relationships or other employment that your firm or any firm employee has with any firms or other persons or entities that may create a conflict of interest or the appearance of a conflict of interest in providing services to the District; (2) Any family relationship that any employee of the firms has with any District public servant that may create a conflict of interest or the appearance of a conflict of interest in providing services to the District; (3) Any other matter that the firm believes may create a conflict of interest or the appearance of a conflict of interest in providing services to the District; and (4) Any procedures the firm has, or would adopt, to (1) prevent a conflict of interest or the appearance of a conflict of interest from occurring in the future, and (ii) disclose any conflict of interest or potential conflict of interest which occurred during the course of the firm's employment by the District. K.11 First Source Employment Agreement Certification For all proposals over $100,000.00, except for those in which the offeror is located outside the Washington D.C. metropolitan area and will perform no work in the Washington D.C. metropolitan area, the following certification is required: The offeror recognizes that one of the primary goals of the District government is the creation of job opportunities for bona fide District residents. Accordingly, the offeror agrees to pursue the District's following goals for utilization of bona fide residents of the District of Columbia with respect to this Contract and in compliance with the Mayor's Order 83-265, whereby (1) at least 51% of all jobs created as a result of this Contract are to be performed by employees who are residents of the District of Columbia and at least 51% of apprentices and trainees employed shall be residents of the District of Columbia registered in programs approved by the D.C. Apprenticeship Council. The offeror also agrees to notify all prospective subcontractors prior to execution of any contractual agreements, that the subcontractors are expected to implement Mayor's Order 83-265 in their own employment practices. The offeror understands and will comply with the requirements of The Volunteer Apprenticeship Act of 1978, D.C. Code sec 36-101 et seq, and the First Source Employment Agreement Act of 1984, D.C. Code sec 1-1161 et seq. The offeror certifies that it intends to enter into a First Source Employment Agreement with the District of Columbia Department of Employment Services (DOES). Under this First Source Employment Agreement, the offeror will use DOES as the first source for recruitment and referral of any new employees. The offeror shall negotiate the First Source Employment Agreement directly with DOES. Nothing in this certification or the First Source Employment Agreement shall be construed as requiring the offeror to hire or train persons it does not consider qualified based on standards the offeror applies to all job applicants. /s/ Ken Stern 9/16/98 --------------------------- ------------------------ Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 28 of 41 Pages Signature Date KENNETH STERN PRESIDENT --------------------------- ------------------------ Printed Name Title The penalty for making false statements in offers is prescribed in 18 USC 1001. K.12 Vendor Registration / Payment Identification Nr. The District of Columbia has an automated vendor database used to process payments. Firms are indexed in the database by DUNS numbers issued by the Dun and Bradstreet Corporation. Individuals doing business with the District are indexed by their social security numbers. DUNS numbers may be obtained free of charge by telephoning B&B, toll-free, at 1800-3330505. Application forms are available on the Internet at http://www.dnb.com/dbis/aboutdb/dunsform.htm. No payments can be processed under any contract resulting from this solicitation without the following information: DUNS or Social Security Nr.: 032713419 Legal Name of Entity (or name of individual) under which above number was obtained: US AUDIOTEX, LLC - -------------------------------------------------------------------------------- Street or Mailing Address associated with above given number: 18 CROW CANYON COURT, SUITE 300 - -------------------------------------------------------------------------------- SAN RAMON, CA 94583 - -------------------------------------------------------------------------------- Type of Business: INTERACTIVE VOICE RESPONSE/CREDIT CARD SYSTEMS DEVELOPER K.13 Tax Certification. The proposer shall complete the following Tax Certification Affidavit: Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 29 of 41 Pages District of Columbia - Department of Tax and Revenue Tax Certification Affidavit 9-16 1998 Name of Organization/Entity US AUDIOTEX, LLC Address 18 CROW CANYON COURT, SUITE 300, SAN RAMON, CA 94583 Name Soc. Sec. No. Title Principal Officers: KENNETH STERN ###-##-#### PRESIDENT -------------------------------------------------------- WILLIAM CAPPS ###-##-#### MANAGING DIRECTOR -------------------------------------------------------- -------------------------------------------------------- Business Telephone No: 923-438-7996 Finance & Revenue Registration No: Federal Identification No: 68-0386340 DUNS NO: 032713419 Contract No: Unemployment Insurance Account No: 4256733-9 I hereby certify that US AUDIOTEX HAS NOT YET APPLIED TO DISTRICT FOR ANY TAX ACCOUNTS. 1. I have complied with the applicable tax filing and licensing requirements of the District of Columbia. 2. The following information is true and correct concerning tax compliance for the following taxes for the past five (5) years: Current Not Current District: Sales and Use Tax |_| |_| Employer Withholding |_| |_| Hotel Occupancy |_| |_| Corporation Franchise |_| |_| Unincorporated Franchise |_| |_| Personal Property |_| |_| Professional License |_| |_| Arena/Public Safety Fee |_| |_| Vendor Fee |_| |_| 3. If not current, as checked in Item 2, I am in compliance with a payment agreement with the Department of Finance and Revenue: ___ Yes ___ No Attach a copy of the agreement. If outstanding liabilities exists and no agreement has been made, please attach a listing of all such liabilities. 4. The Department of Finance and Revenue also requires: (A) Copies of Form FR-532 (Notice of Registration) or a copy of an FR-800 Combined Registration Form) (B) Copies of cancelled checks for the last tax period(s) filed for each tax liability; i.e., Sales and Use, Employer Withholding, etc. The District of Columbia Government is hereby authorized to verify the above information with appropriate government authorities. Penalty for making false statements is a fine of not more than $1,000.00, imprisonment for not more than one year, or both, as prescribed in D.C. Code Sec [illegible]. Penalty for false sweeting is a fine of not more than $2,000.00, imprisonment for not more than three years, or both, as prescribed in D.C. Code Sec. [illegible]. /s/ Ken Stern KENNETH STERN, PRESIDENT - ----------------------------------- ---------------------------------- Signature of Person Authorized Printed name & title to Sign this Document Notary: DISTRICT OF COLUMBIA, ss: Subscribed and sworn before me this 16th day of September, 1998 ----------------- Month & Year /s/ Gary Beeler ----------------------------- Notary Public Commission Expires: 6/27/01 [NOTARY SEAL] Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 30 of 41 Pages PART IV - SECTION L INSTRUCTIONS, CONDITIONS AND NOTICES TO OFFERORS L.1 Proposal Identification/Submission. A. Proposals shall be submitted in a sealed envelope conspicuously marked with this solicitation number (from block 2 on page 1) B. Proposals shall be hand delivered or mailed to the location show in the SOLICITATION section on page 1. L.2 Proposal Information and Format. Proposals shall be prepared simply and economically, providing a straightforward, concise delineation of proposer's capabilities to satisfy the requirements of this RFP. Fancy bindings and colored displays or promotional material are not desired. All pages must be numbered. The proposers shall submit one (1) original and seven (7) copies of the proposals. L.3 Proposal Submission Date and Time, Late Submission, Modifications and Withdrawal. Proposals shall be submitted no later than the date and time shown at block 7 on page 1. Proposals, modifications to proposals, or requests for withdrawal that are received in the designated location after the exact local time specified, are "late" and shall be considered only if they are received before the award is made and one (1) or more of the following circumstances apply: (1) The proposal or modification was sent through postal channels by insured, registered, certified or [illegible] Express mail no later than the fifth (5th) calendar day before the date specified for receipt of offers; (2) The proposal or modification was sent by mail and it is determined by the Contracting Officer that the late receipt at the location specified in the solicitation was caused by mishandling by the District after receipt; or (3) The proposal is the only proposal received. B. The only acceptable evidence to establish the date of a late proposal, late modification or late withdrawal sent either by registered or certified mail shall be a U.S. or Canadian Postal Service postmark on the wrapper or on the original receipt from the U.S. or Canadian Postal Service. If neither postmark shows a legible date, the proposal, modification or withdrawal shall be deemed to have been mailed late. When the postmark shows the date but not the hour, the time is presumed to be the last minute of the date shown. If no date is shown in the postmark, the proposal shall be considered late unless the offeror can furnish evidence from the postal authorities of timely mailing. C. A late proposal, late request for modification or late request for withdrawal shall not be considered, except as provided in this section. D. A late modification of a successful proposal which makes its terms more favorable to the District shall be considered at any time it is received and may be accepted. E. A late proposal, late modification or late withdrawal of offer that is not considered shall be held unopened, unless opened for identification, until after award and then retained with unsuccessful offers resulting from this solicitation. L.4 Explanation to Prospective Offerors. Any prospective offeror desiring an explanation or interpretation of this solicitation must request it in writing and in time to reach the Contracting Officer before the closing date and time indicated for this solicitation. Any substantive information given to a prospective offeror concerning a solicitation will be furnished promptly to all other prospective offerors as an amendment to the solicitation, if that information is necessary in submitting offers or if the lack of it would be prejudicial to any other prospective offerors. Oral explanations or instructions given before the award of the contract will not be binding. L.5 Contract Award Notwithstanding Statements of Intent to make a single award that may be contained in the solicitation, the Contracting Officer reserves the right, should it be in the District's best interests to award more than one contract as a result of this solicitation. In order to receive a contract award, a firm must meet the general responsibility criteria specified in the paragraph entitled "Prospective Contractor's Responsibility, at Part IV - Section K. The District may award a contract on the basis of initial offers received, without discussion. Therefore, each initial offer should contain the offeror's best terms from a standpoint of price, technical, and other factors. L.6 Proposal Submission Format Offerors are to enter their offered price(s), discounts and other percentages, options prices and period details, total amounts, warranty Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 31 of 41 Pages details and any other information for which blank spaces are provided, in The Schedule at Part I - Section B. All applicable blanks in the OFFER section of the form as page 1 and at Part IV - Section K, and blanks in any forms that are provided in the Attachments must also be completed. The offeror's proposal shall consist of this solicitation document with the completed forms, plus the applicable supplemental documentation required in Part IV - Section K, as well as a narrative addressing the subject matter at subparagraphs A, B, and C, below, as applicable: A. Statement of Experience and Capability. Please provide the following information: (1) Brief historical summary of the firm, including its year of organization. (Please limit your response to 1 page) (2) Description of the general capabilities of your firm, including information related to the total size and staffing, professional staff and clerical support; (Please limit your response to 1 page) (3) Description of your firm's specific experience in previously providing to the general public the same or similar services and/or supplies called for in the solicitation. Please provide no more than three references, including name and telephone number of contact persons who can discuss your firm's experience in providing these or similar services and/or supplies. In particular, (4) Location of office(s) that would serve the District; (5) Listing and description of all pending litigation, or litigation concluded within the past 5 years, related to other contracts or agreements your firm has with the District of Columbia or the Federal Government in which your firm or any predecessor firm, or any member of your firm or predecessor firm, is named defendant; B. Qualifications of Key Personnel The solicitation calls for the naming of key personnel, the individuals named shall be considered essential to the work that will be performed under the resulting contracts. When "key personnel" are called for in the solicitation, prospective offerors are to locate and read the terms related to such personnel and requirements relating to qualifying substitutes. Offerors are cautioned to insure that they have a full understanding of the consequences that will result if key personnel are diverted from performance under the contract after they are proposed. The contractor will assign a project manager who will be responsible for directing all activities and meeting weekly with a senior staff member designated by OTR/DSA to review progress, the DSAY2K Program Manager. This individual will be a key individual. In addition to the key individual, the contractor will propose to provide sufficient staff with the required skills to successfully complete the project. The offeror must specify in its technical proposal it's requirements with respect to the amount of OTR/DSA staffing that will be needed to support this effort. While the government recognizes that OTR/DSA staff must be involved in many key areas of the Y2K project, it is the government's preference to minimize the OTR/DSA staffing requirements. Proposals will be weighed accordingly. Provide the following information about the named individuals: (1) Names, office locations, and resumes of all key personnel including those individuals who will be handling the day-to-day responsibilities of performing duties under the contract. (2) Name(s) and office location(s) of the individual(s) who will have primary responsibility for providing managerial oversight under the contract; (3) Description of experience of personnel in providing the same or similar services as required under the contract. (Please limit your response to 2 pages); and C. Summary of Firm's Approach (1) In a proposal where services are required as a whole or part of a Contract to be awarded, please provide narrative description of your proposed approach to complete the work outlined in Part I - Section B and detailed in Part I Section C. Address implementation procedures your firm will utilize, control and quality assurance measures, time lines and other pertinent elements. In particular, the proposer must list for what credit cards the firm has established merchant's agreements, and which of the cards will be cards D.C. taxpayers will be able to make remittances. (2) Subcontracting Plan. A notarized statement detailing a subcontracting plan shall be submitted, as part of the proposal, by any prime contractor seeking a preference on the basis of proposed subcontracting with an LBE, DBE, or business located in an enterprise zone. See the Clause 21 at Part III - Section I, Local, Disadvantaged or Enterprise Zone Businesses and the Certifications required at Part IV - Section K Para 4. Each subcontracting plan shall include the following: (a) A description of the goods or services to be provided by the LBE, DBE, or business located in an enterprise zone; Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 32 of 41 Pages (b) If the prime contractor is seeking a preference on the basis of proposed subcontracting with an LBE, DBE, or business located in an enterprise zone, a statement of the dollar value by type of business, of the proposal that pertains to the subcontracts to be performed by the LBEs, DBEs, or businesses located in an enterprise zone; (c) If the solicitation contains an LBE or DBE subcontracting set-aside, a statement of the dollar value by type of business enterprise, of the proposal that pertains to the subcontracts to be performed by LBEs or DBEs; (d) The names and addresses of all proposed subcontractors who are LBEs, DBEs, or businesses located in an enterprise zone; (e) The name of the individual employed by the prime contractor who will administer the subcontracting plan, and a description of the duties of the individual; (f) A description of the efforts the prime contractor will make to ensure that LBEs, DBEs, or businesses located in an enterprise zone will have an equitable opportunity so compete for subcontracts; (g) In all subcontracts that offer further subcontracting opportunities, assurances that the prime contract will include a statement, approved by the contracting officer, that the subcontractor will adopt a subcontracting plan similar to the subcontracting plan required by the contract; (h) Assurances that the prime contractor will cooperate in any studies or surveys that may be required by the contracting officer, and submit periodic reports, as requested by the contracting officer, to allow the District to determine the extent of compliance by the prime contractor with the subcontracting plan; (i) List the type of records the prime contractor will maintain to demonstrate procedures adopted to comply with the requirements set forth in the subcontracting plan, and include assurances that the prime contractor will make such records available for review upon the District's request; and (j) A description of the prime contractor's recent efforts to locate LBEs, DBEs, and businesses located in an enterprise zone and to award subcontracts to them. L.7 Restriction On Disclosure and Use of Data. Offerors who include in their proposals data that they do not want disclosed to the public or used by the District Government except for use in the procurement process shall so state in their proposal L.8 Retention of Proposals All proposal documents shall be the property of the District and retained by the District, and therefore will not be returned to the offerors. L.9 Examination of Solicitation. Offerors are expected to examine all instructions and attachments in this solicitation and any modifications thereto. Failure to do so will be at the offeror's risk. L.10 Acknowledgment of Amendments. Offerors shall acknowledge receipt of any amendment to this solicitation by (a) annotating block 10 of the form at Page 1 and returning a copy of it; or (b) by identifying the amendment number and date in the proposal; or (c) by letter to the Contracting Officer. The District must receive the acknowledgment by the date and time specified for receipt of offers. Offeror's failure to acknowledge an amendment may result in rejection of the offer. L.11 Right to Reject Proposals The District reserves the right to reject, in whole or in part, any and all proposals received as the result of this RFP. L.12 Proposal Preparation Costs Each offeror shall bear all costs it incurs in providing responses to this RFP and for providing any additional information required by the District to facilitate the evaluation process. The successful offeror shall also bear all costs incurred in conjunction with contract development and negotiation. L.13 Quality Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 33 of 41 Pages Unless otherwise specified, all materials used for the manufacture or construction of any supplies covered by this bid proposal, shall be new and of the best quality and the workmanship will be of the highest grade. L.14 Brand Name or Equal If in the descriptions of supplies in The Schedule, the words "...or equal" are used for any one or more line items, then the use of the name of a manufacturer or of any special brand or make in describing any item in this bid/proposal does not restrict bidders or offerors so that manufacturer, or specific brand or make; the reference thereto indicates the character or quality of article desired, but articles on which bids/in proposals which are based and submitted must be equal to those referred to. Offerors offering any article other than the specific make, brand or manufacture named in this solicitation must so state in each instance what the equal brand, make and model are being proposed, otherwise their proposals will be considered as being based upon furnishing the specific make, brand or manufacturer's product named in the Schedule. L.15 Protests Protests in connection with this solicitation or award of contract shall be handled pursuant to District rules and regulations. The protest shall be filed in writing, within ten (10) working days after the basis of the protest is known or should have been known, with the Office of the Chief Financial Officer (ATTN: Procurement), Suite 410S, One Judiciary square, 44th St. NW, Washington DC 20001. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 34 of 41 Pages PART V-SECTION M EVALUATION FACTORS FOR AWARD M.1 Evaluation For Award. The contract(s) shall be awarded to the responsible offeror(s) whose offer(s) is/are most advantageous to the District, based upon the evaluation criteria specified below. Thus, while the points in the evaluation criteria indicate their relative importance, the total scores will not necessarily be determinative of award. Rather, the total scores will guide the District in making an intelligent award decision based upon the evaluation criteria. The District reserves the right to reject any or all proposals determined to be inadequate or unacceptable. The District also reserves the right to request oral presentations from those firms determined to be in the competitive range and shall use information derived from these oral presentations, if any, in its evaluation. M.2 Evaluation Criteria. The District will evaluate proposals on the basis of the following evaluation factors: 1. Experience and Capability of the Firm 25 points Breadth and depth of experience of the firm in performing the same or similar services. 2. Quality and Depth of Experience and Knowledge of Personnel 20 points (a) Experience of the individuals in the firm who will be assigned to the contract including those individuals who will have responsibility for the training and instructions to be provided under this contract. (b) Expertise of the individuals who will be assigned to the contract related to the installation services to be provided. 3. Technical Approach and Work Plan 30 points Demonstration of clear understanding of the supplies and services required by the District and the soundness of the firm's proposed approach and implementation procedures. 4. Price 25 points The District will evaluate this factor based on the calculation of the expected overall cost to the Taxpayer given each proposer's proposed price. ------------- Total 100 points Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 35 of 41 Pages M-3. Preferences for Local Businesses, Disadvantaged Businesses, or Businesses Operating in an Enterprise Zone. Under the provisions of D.C. Law 9-217, "Equal Opportunity for Local, Small and Disadvantaged Business Enterprises Act of 1992" ("Act"), the District shall apply preferences in evaluating proposals from businesses that are local, disadvantaged or located in an enterprise zone of the District of Columbia. See Part IV - Section K for certifications required of offerors wishing to qualify for these preferences. For evaluation purposes, the allowable preferences under the Act for this procurement are as follows: (i) The addition of the equivalent of five points on a 100-point scale for a local business enterprise ("LBE") certified by the Minority Business Opportunity Commission ("MBOC"); (ii) The addition of the equivalent of five points on a 100-point scale for a disadvantaged business enterprise ("DBE") certified by the MBOC; (iii) The addition of the equivalent of two points on a 100-point scale for a business located in an enterprise zone, as defined in subsection 3(8) of the Act and in 27 DCMR 899, 39 DCR 9087-9088 (December 4, 1992); (iv) The addition of the equivalent of five (5) points on a 100-point scale added to the overall score for proposals submitted by the LBE in response to a Request for Proposals "RFP") by any prime contractor that is an LBE certified by the MBOC; (v) The addition of the equivalent of five (5) points on a 100-point scale added to the overall score for proposals submitted in response to an RFP by any prime contractor that is a DBE certified by the MBOC; (vi) The addition of the equivalent of two (2) points on a 100-point scale added to the overall score for proposals submitted in response to an RFP by any prime contractor that is a business enterprise located in an enterprise zone. (vii) Preferences for Subcontracting in Open Market Solicitations With No LBE or DBE Subcontracting Set-Aside. The preferences for subcontracting in open market solicitations where there is no LBE or DBE subcontracting set-aside are as follows: (a) If the prime contractor is not a certified LBE, certified DBE, or a business located in an enterprise zone, the District shall award the above-stated preferences by increasing the points proportionally based on the total dollar value of the proposal that is designated by the prime contractor for subcontracting with an LBE, DBE, or business located in an enterprise zone. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 36 of 41 Pages (b) If the prime contractor is a joint venture that is not a certified LBE or DBE joint venture, or if the prime contractor is a joint venture that includes a business located in an enterprise zone but such business located in an enterprise zone does not own and control at least 51% of the joint venture, the District shall award the above-stated preferences by increasing the points proportionally based on the total dollar value of the proposal that is designated by the prime contractor for a certified LBE, certified DBE, or business located in an enterprise zone through participation in the joint venture. (viii) Joint Ventures. Preferences For Certified Joint Ventures which Include Local or Disadvantaged Businesses and Preferences for Joint Ventures Including Businesses Located in an Enterprise Zone. (a) When an MBOC-certified joint venture includes a local or disadvantaged business enterprise, and the local or disadvantaged business owns and controls at least fifty-one percent (51%) of the venture, the joint venture will receive the preferences as if it were a certified local or disadvantaged business enterprise. (b) When a joint venture includes a business located in an enterprise zone, and such business located in an enterprise zone owns and controls at least fifty-one percent (51%) of the venture, the joint venture will receive the preference as if it were a business located in an enterprise zone. (ix) Subcontracting. Local, Small and Disadvantaged Business Enterprise Subcontracting. When a prime contractor is certified by the MBOC as a local, small or disadvantaged business, the prime contractor shall perform at least fifty percent (50%) of the contracting effort, excluding the cost of materials, goods and supplies, with its own organization and resources, and if it subcontracts, fifty percent (50%) of the subcontracting effort, excluding the cost of materials, goods and supplies, shall be with certified local, small and disadvantaged business enterprises, unless a waiver is granted by the Contracting Officer, with the prior approval and consent of the Director of the Department of Human Rights and Minority Business Development, under the provisions of 27 DCMR 805, 39 DCR 9059-9061 (December 4, 1992). (x) Maximum Preference Points: The maximum total preference points under the Act for this procurement are the equivalent of twelve (12) points on a 100-point scale for proposals submitted in response to an RFP. - ------------------------------- NOTHING FOLLOWS--------------------------------- Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 37 of 41 Pages ATT 1 SCHEDULE OF FEES AND CHARGES A. The Contractor/Concessionaire is authorized to charge to taxpayers the following maximum amounts for tax payments made by credit card and debit card: (Offerors to complete with proposed fee schedule) (Will be incorporated as contractually binding upon award) B. Changes. Post-award changes in the Schedule of Fees and Charges in this attachment, which may be agreed upon between the Concessionaire and the Contracting Officer from time to time, are hereby hereby considered as modifications to this contract and are herewith incorporated into this contract by this reference. This particular copy of this document may not have the latest Schedule of Fees and Charges attached to it. See Para G.2 for the address and phone number of the Contracting Officer for the latest modification. Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Page 38 of 4l Pages ATT2 (Incorporated by Reference) DC Electronic Payment Manual Telephonic Tax Payments via Credit/Debit Cards CFOPD-98-R-017 Attachment 2 Electronics Payment Manual (may not be attached to this copy) EX-10.7 6 TERM CONTRACT BETWEEN THE NEW JERSEY DIVISION EXHIBIT 10.7
- ----------------------------------------------------------------------------------------------------------------------------------- [THE GREAT SEAL OF THE STATE OF NEW JERSEY] STATE OF NEW JERSEY BID NO :99-X-28201 REQUEST FOR PROPOSAL T-NO :T 1799 ----------------------------------------------------- FOR: INTERACTIVE VOICE RESPONSE SYSTEM DATE ISSUED :12/02/98 NJ DIVISION OF REVENUE N.J. VENDOR NO : - -------------------------------------------------------------------------------------------------- ESTIMATED AMOUNT: $ .00 VENDOR PHONE NO : CONTRACT EFFECTIVE DATE: 01/18/99 VENDOR FAX NO : **** EXTRA COPY 24 **** CONTRACT EXPIRATION DATE: 01/17/01 VENDOR FEIN/SSN : COOPERATIVE PURCHASING: NO REQUISITION NO :1014590 SET ASIDE: NONE REQUESTING AGENCY :822105 --------------------------------------------------------------------------- DIRECT QUESTIONS CONCERNING THIS RFP TO: 292 - 5170 FAX BUYER:JOHN KENNEDY PHONE:(609) 984-9703 - -----------------------------------------------------------------------------------------------------------------------------------
PURSUANT TO N.J.S.A. 52:34-12 AND N.J.A.C. 17:12-2.5, PROPOSALS WHICH FAIL TO CONFORM WITH THE FOLLOWING REQUIREMENTS WILL BE AUTOMATICALLY REJECTED: 1) PROPOSALS MUST BE RECEIVED AT OR BEFORE THE PUBLIC OPENING TIME OF 2 PM ON ----- 12/23/98 AT THE FOLLOWING PLACE: DEPARTMENT OF TREASURY, GSA, PURCHASE -------- BUREAU, PO BOX 230, 33 WEST STATE STREET, 9TH FLOOR, TRENTON, NEW JERSEY 08625-0230. TELEPHONE, TELEFACSIMILE OR TELEGRAPH PROPOSALS WILL NOT BE ACCEPTED. THE ACCOMPANYING SELF-ADDRESSED ENVELOPE SHOULD CONTAIN OR BE ATTACHED TO THE PROPOSAL. 2) THE VENDOR MUST SIGN THE PROPOSAL. 3) THE PROPOSAL MUST INCLUDE ALL PRICE INFORMATION. PROPOSAL PRICES SHALL INCLUDE DELIVERY OF ALL ITEMS F.O.B. DESTINATION OR AS OTHERWISE PROVIDED. PRICE QUOTES MUST BE FIRM THROUGH ISSUANCE OF CONTRACT. 4) ALL PROPOSAL PRICES MUST BE TYPED OR WRITTEN IN INK. 5) ALL CORRECTIONS, WHITE-OUTS, ERASURES, RESTRIKING OF TYPE, OR OTHER FORMS OF ALTERATION, OR THE APPEARANCE OF ALTERATION, TO UNIT AND/OR TOTAL PRICES MUST BE INITIALED IN INK BY THE VENDOR. 6) THE VENDOR MUST SUBMIT WITH THE PROPOSAL BID SECURITY IN THE AMOUNT OF $ NONE OR NONE %. CHECK THE TYPE OF BID SECURITY SUPPLIED: _______ ANNUAL BID ---- ---- BOND ON FILE. _______ BID BOND ATTACHED. _____ CERTIFIED OR CASHIER'S CHECK ATTACHED. ______ LETTER OF CREDIT ATTACHED. 7) THE VENDOR MUST COMPLETE AND SUBMIT, PRIOR TO THE SUBMISSION OF THE PROPOSAL, OR ACCOMPANYING THE PROPOSAL, THE ATTACHED OWNERSHIP DISCLOSURE FORM. (SEE N.J.S.A. 52:25-24.2). 8) THE VENDOR MUST ATTEND THE MANDATORY PRE-BID CONFERENCE(S) AND SITE VISIT(S) AT THE FOLLOWING DATE(S) AND TIME(S): NONE - -------------------------------------------------------------------------------- ADDITIONAL REQUIREMENTS 9) PERFORMANCE SECURITY:$ NONE OR NONE %. 10) PAYMENT RETENTION: ______ %. --- ---- 11) AN AFFIRMATIVE ACTION FORM (ATTACHED). 12) A MACBRIDE PRINCIPLES CERTIFICATION (ATTACHED). 13) REQUESTED DELIVERY: 14 DAYS AFTER RECEIPT OF ORDER 14) CERTIFICATION OR NOTIFICATION OF REGISTRATION WITH THE SECRETARY OF STATE IF A FOREIGN (NON-NJ) CORPORATION, IF NECESSARY (SEE N.J.S.A. 14A:13-1 ET SEQ. AND N.J.A.C. 17:12-2.10). 15) FOR SET ASIDE CONTRACTS ONLY, N.J. DEPARTMENT OF COMMERCE CERTIFICATION OR NOTIFICATION OF REGISTRATION AS A SMALL, MINORITY OR FEMALE BUSINESS (SEE N.J.A.C. 17:13-3.2). - -------------------------------------------------------------------------------- TO BE COMPLETED BY VENDOR 16) DELIVERY CAN BE MADE DAYS OR WEEKS AFTER RECEIPT OF ORDER. -------- -------- 17) CASH DISCOUNT TERMS (SEE ATTACHED NOTICE): %, DAYS:NET DAYS ------- ------ ------ 18) VENDOR PHONE NO. 19) VENDOR FAX NO. ------------------ ------------------ 20) VENDOR FEDERAL ID NO. 21) YOUR BID REFERENCE NO. ------------- ---------- SIGNATURE OF THE VENDOR ATTESTS THAT THE VENDOR HAS READ, UNDERSTANDS, AND AGREES TO ALL TERMS, CONDITIONS, AND SPECIFICATIONS SET FORTH IN THE REQUEST FOR PROPOSAL, INCLUDING ALL ADDENDA. FURTHERMORE, SIGNATURE BY THE VENDOR SIGNIFIES THAT THE REQUEST FOR PROPOSAL AND THE RESPONSIVE PROPOSAL CONSTITUTES A CONTRACT IMMEDIATELY UPON NOTICE OF ACCEPTANCE OF THE PROPOSAL BY THE STATE OF NEW JERSEY FOR ANY OR ALL OF THE ITEMS BID, AND FOR THE LENGTH OF TIME INDICATED IN THE REQUEST FOR PROPOSAL. FAILURE TO ACCEPT THE CONTRACT WITHIN THE TIME PERIOD INDICATED IN THE REQUEST FOR PROPOSAL, OR FAILURE TO HOLD PRICES OR TO MEET ANY OTHER TERMS AND CONDITIONS AS DEFINED IN EITHER THE REQUEST FOR PROPOSAL OR THE PROPOSAL DURING THE TERM OF THE CONTRACT, SHALL CONSTITUTE A BREACH AND MAY RESULT IN SUSPENSION OR DEBARMENT FROM FURTHER STATE BIDDING. A DEFAULTING CONTRACTOR MAY ALSO BE LIABLE, AT THE OPTION OF THE STATE, FOR THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE PRICE BID BY AN ALTERNATE VENDOR OF THE GOODS OR SERVICES IN ADDITION TO OTHER REMEDIES AVAILABLE. - ------------------------------------------------------------------------------- 22) ORIGINAL SIGNATURE OF VENDOR 23) NAME OF FIRM - ------------------------------------------------------------------------------- 24) PRINT/TYPE NAME AND TITLE 25) DATE - ------------------------------------------------------------------------------- PBRFP-2 11/97
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I. Unless the bidder is specifically instructed otherwise in the Request for Proposal, the following terms and conditions will apply to all contracts or purchase agreements made with the State of New Jersey. These terms are in addition to the terms and conditions set forth in the Request for Proposal (RFP) and should be read in conjunction with same unless the RFP specifically indicates otherwise. If a bidder proposes changes or modifications or takes exception to any of the State's terms and conditions, the bidder must so state specifically in writing in the bid proposal. Any proposed change, modification or exception in the State's terms and conditions by a bidder will be a factor in the determination of an award of a contract or purchase agreement. II. All of the State's terms and conditions will become a part of any contract(s) or order(s) awarded as a result of the Request for Proposal, whether stated in part, in summary or by reference. In the event the bidder's terms and conditions conflict with the State's, the State's terms and conditions will prevail, unless the bidder is notified in writing of the State's acceptance of the bidder's terms and conditions. III. The statutes, laws or codes cited are available for review at the New Jersey State Library, 185 West State Street, Trenton, New Jersey 08625. IV. If awarded a contract or purchase agreement, the bidder's status shall be that of any independent principal and not as an employee of the State. 1. STATE LAW REQUIRING MANDATORY COMPLIANCE BY ALL CONTRACTORS 1.1 CORPORATE AUTHORITY - All New Jersey corporations must obtain a Certificate of Incorporation from the Office of the Secretary of State prior to conducting business in the State of New Jersey. If a bidder is a corporation incorporated in a state other than New Jersey, the bidder must obtain a Certificate of Authority to do business from the Office of the Secretary of State prior to receipt of final contract award. Within seven (7) days of receipt of a notice of intent to award the successful bidder shall provide either certification or notification of filing with the Secretary of State. Failure to comply will result in the State's withdrawing of the notice of intent to award. If the bidder awarded a contract or purchase agreement is an individual not residing in this state or a partnership organized under the laws of another state, then the bidder shall execute a power of attorney designating the State Treasurer as his true and lawful attorney to receive process in any civil action which may arise out of the performance of this contract or agreement. This appointment of the State Treasurer shall be irrevocable and binding upon the bidder, his heirs, executors, administrators, successors or assigns. Within ten (10) days of receipt of this process, the Treasurer shall forward same to the bidder at the address designated herein. 1.2 ANTI-DISCRIMINATION - All parties to any contract with the State of New Jersey agree not to discriminate in employment and agree to abide by all anti-discrimination laws including those contained within N.J.S.A. 10:2-1 through N.J.S.A. 10:2-4, N.J.S.A 10:5-1 et seq. and N.J.S.A. 10:5-31 through 10:5-38, and all rules and regulations issued thereunder. 1.3 PREVAILING WAGE ACT - The New Jersey Prevailing Wage Act, N.J.S.A. 34:11-56.26 et seq. is hereby made part of every contract entered into on behalf of the State of New Jersey through the Division of Purchase and Property, except those contracts which are not within the contemplation of the Act. The bidder's signature on this proposal is his guarantee that neither he nor any subcontractors he might employ to perform the work covered by this proposal has been suspended or debarred by the Commissioner, Department of Labor for violation of the provisions of the Prevailing Wage Act. 1.4 AMERICANS WITH DISABILITIES ACT - The contractor must comply with all provisions of the Americans With Disabilities Act (ADA, P.L. 101-336, in accordance with 42 U.S.C. 12101 et seq. 1.5 THE WORKER AND COMMUNITY RIGHT TO KNOW ACT - The provisions of N.J.S.A. 34:5A-1 et seq. which require the labeling of all containers of hazardous substances are applicable to this contract. Therefore, all goods offered for purchase to the State must be labeled by the contractor in compliance with the provisions of the Act. 1.6 OWNERSHIP DISCLOSURE - Contracts for any work, goods or services cannot be issued to any corporation or partnership unless prior to or at the time of bid submission the bidder has disclosed the names and addresses of all its owners holding 10% or more of the corporation or partnership's stock or interest. Refer to N.J.S.A. 52:25-24.2. 1.7 COMPLIANCE - LAWS - The contractor must comply with all local, state and federal laws, rules and regulations applicable to this contract and to the goods delivered and/or services performed hereunder. 1.8 COMPLIANCE - STATE LAWS - It is agreed and understood that any contracts and/or orders placed as a result of this proposal shall be governed and construed and the rights and obligations of the parties hereto shall be determined in accordance with the laws of the STATE OF NEW JERSEY. 1.9 COMPLIANCE - CODES - The contractor must comply with NJUCC and the latest NEC70, B.O.C.A. Basic Building code, OSHA and all applicable codes for this requirement. The contractor will be responsible for securing and paying all necessary permits, where applicable. 2 LIABILITIES 2.1 LIABILITY - COPYRIGHT - The contractor shall hold and save the State of New Jersey, its officers, agents, servants and employees, harmless from liability of any nature or kind for or on account of the use of any copyrighted or uncopyrighted composition, secret process, patented or unpatented invention, article or appliance furnished or used in the performance of his contract. 2.2 INDEMNIFICATION - The contractor shall assume all risk of and responsibility for, and agrees to indemnify, defend, and save harmless the State of New Jersey and its employees from and against any and all claims, demands, suits, actions, recoveries, judgements and costs and expenses in connection therewith on account of the loss of life, property or injury or damage to the person, body or property of any person or persons whatsoever, which shall arise from or result directly or indirectly from the work and/or materials supplied under this contract. This indemnification obligation is not limited by, but is in addition to the insurance obligations contained in this agreement. 2.3 INSURANCE - The contractor shall secure and maintain in force for the term of the contract liability insurance as provided herein. The contractor shall provide the State of New Jersey with current certificates of insurance for all coverages and renewals thereof which must contain the proviso that the insurance provided in the certificate shall not be cancelled for any reason except after thirty days written notice to:
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STATE OF NEW JERSEY Purchase Bureau - Bid Ref.# The insurance to be provided by the contractor shall be as follows. a. General liability policy as broad as the standard coverage forms currently in use in the State of New Jersey which shall not be circumscribed by any endorsements limiting the breadth of coverage. The policy shall be endorsed to include: 1. BROAD FORM COMPREHENSIVE GENERAL LIABILITY 2. PRODUCTS/COMPLETED OPERATIONS 3. PREMISES/OPERATIONS The limits of liability for bodily injury and property damage shall not be less than $1 million per occurrence as a combined single limit. b. Automobile liability insurance which shall be written to cover any automobile used by the insured. Limits of liability for bodily injury and property damage shall not be less than $1 million per occurrence as a combined single limit. c. Worker's Compensation Insurance applicable to the laws of the State of New Jersey and Employers Liability Insurance with limits not less than: $100,000 BODILY INJURY, EACH OCCURRENCE $100,000 DISEASE EACH EMPLOYEE $500,000 DISEASE AGGREGATE LIMIT 3. TERMS GOVERNING ALL PROPOSALS TO NEW JERSEY PURCHASE BUREAU 3.1 CONTRACT AMOUNT - The estimated amount of the contract(s), when stated on the Advertised Request for Proposal form, shall not be construed as either the maximum or minimum amount which the State shall be obliged to orger as the result of this Request for Proposal or any contract entered into as a result of this Request for Proposal. 3.2 CONTRACT PERIOD AND EXTENSION OPTION - If, in the opinion of the Director of the Division of Purchase and Property, it is in the best interest of the State to extend any contract entered into as a result of this Request for Proposal, the contractor will be so notified of the Director's intent at least 30 days prior to the expiration date of the existing contract. The contractor shall have 15 calendar days to respond to the Director's request to extend the contract. If the contractor agrees to the extension, all terms and conditions of the original contract, including price, will be applicable. 3.3 BID AND PERFORMANCE SECURITY a. Bid Security - If bid security is required, such security must be submitted with the bid in the amount listed in the Request for Proposal, see N.J.A.C. 17:12-2.2. Acceptable forms of bid security are as follows. 1. A properly executed individual or annual bid bond issued by an insurance or security company authorized to do business in the State of New Jersey, a certified or cashier's check drawn to the order of the Treasurer, State of New Jersey, or an irrevocable letter of credit drawn naming the Treasurer, State of New Jersey as beneficiary issued by a federally insured financial institution. 2. The State will hold all bid security during the evaluation process. As soon as is practicable after the completion of the evaluation, the State will: a. Issue an award notice for those offers accepted by the State; b. Return all bond securities to those who have not been issued an award notice. All bid security from contractors who have been issued an award notice shall be held until the successful execution of all required contractual documents and bonds (performance bond, insurance, etc). If the contractor fails to execute the required contractual documents and bonds within thirty (30) calendar days after receipt of award notice, the contractor may be found in default and the contract terminated by the State. In case of default, the State reserves all rights inclusive of, but not limited to, the right to purchase material and/or to complete the required work in accordance with the New Jersey Administrative Code and to recover any actual excess costs from the contractor. Collection against the bid security shall be one of the measures available toward the recovery of any excess costs. b. Performance Security - If performance security is required, the successful bidder shall furnish'performance security in such amount on any award of a term contract or line item purchase, see N.J.A.C. 17:12-2.3. Acceptable forms of performance security are as follows: 1. The contractor shall be required to furnish an irrevocable security in the amount listed in the Request for Proposal payable 44C24 to the Treasurer, State of New Jersey, binding the contractor to provide faithful performance of the contract. 2. The performance security shall be in the form of a properly executed individual or annual performance bond issued by an insurance or security company authorized to do business in the State of New Jersey, a certified or cashier's check drawn to the order of the Treasurer, State of New Jersey, or an irrevocable letter of credit drawn naming the Treasurer, State of New Jersey as beneficiary issued by a federally insured financial institution. The Performance Security must be submitted to the State within 30 days of the effective date of the contract award and cover the period of the contract and any extensions thereof. Failure to submit performance security may result in cancellation of contract for cause pursuant to provision 3.5b,l, and nonpayment for work performed. 3.4 VENDOR RIGHT TO PROTEST - INTENT TO AWARD - Except in cases of emergency, bidders have the right to protest the Director's propo d award of the contract as announced in the Notice of Intent to Award, see N.J.A.C. 17;12-3.3. Unless otherwise stated, a bidders protest must be submitted to the Director within 10 working days after receipt of written notification that his bid has not being accepted or, that an award of contract has been made. In the public interest, the Director may shorten this protest period, but shall provide at least 48 hours for bidders to respond to a proposed award. In cases of emergency, stated in the record, the Director may waive the appeal period. See N.J.A.C. 17:12-3 et seq. REV. 10/93
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3.5 TERMINATION OF CONTRACT a. Change of Circumstances Where circumstances and/or the needs of the State significantly change, or the contract is otherwise deemed no longer to be in the public interest, the Director may terminate a contract entered into as a result of this Request for Proposal, upon no less than 30 days notice to the contractor with an oppportunity to respond. In the event of such termination, the contractor shall furnish to the using agency, free of charge, such reports as may be required. b. For cause: 1. Where a contractor fails to perform or comply with a contract, and/or fails to comply with the complaints procedure in N.J.A.C. 17:12-4.2 et seq., the Director may terminate the contract upon 10 days notice to the contractor with an opportunity to respond. 2. Where a contractor continues to perform a contract poorly as demonstrated by formal complaints, late delivery, poor performance of service, short-shipping etc., so that the Director is repeatedly required to use the complaints procedure in N.J.A.C. 17:12-4.2 at seq. the Director may terminate the contract upon 10 days notice to the contractor with an opportunity to respond. c. In cases of emergency the Director may shorten the time periods of notification and may dispense with an opportunity to respond. d. In the event of termination under this section, the contractor will be compensated for work performed in accordance with the contract, up to the date of termination. Such compensation may be subject to adjustments. 3.6 COMPLAINTS - Where a bidder has a history of performance problems as demonstrated by formal complaints and/or contract cancellations for cause pursuant to 3.5b a bidder may be bypassed for this award. See N.J.A.C. 17:12-4.8. 3.7 EXTENSION OF CONTRACT QUASI-STATE AGENCIES - It is understood and agreed that in addition to State Agencies, Quasi-State Agencies may also participate in this contract. Quasi-State Agencies are defined in N.J.S.A. 52:27B-56.1 as any agency, commission, board, authority or other such governmental entity which is established and is allocated to a State department or any bi-state governmental entity of which the State of New Jersey is a member. 3.8 EXTENSION OF CONTRACTS TO POLITICAL SUBDIVISIONS, VOLUNTEER FIRE DEPARTMENTS AND FIRST AID SQUADS, AND INDEPENDENT INSTITUTIONS OF HIGHER EDUCATION - N.J.S.A. 52:25-16.1 permits counties, municipalities and school districts to participate in any term contract(s), that may be established as a result of this proposal. N.J.S.A. 52:25-16.2 permits volunteer fire departments, volunteer first aid squads and rescue squads to participate in any term contract(s) that may be established as a result of this proposal. N.J.S.A. 52:25-16.5 permits independent institutions of higher education to participate in any term contract(s) that may be established as a result of this proposal, provided that each purchase by the independent institution of higher education shall have a minimum cost of $500. In order for the State contract to be extended to counties, municipalities, school districts, volunteer fire departments, first aid squads and independent institutions of higher education the bidder must agree to the extension and so state in his bid proposal. The extension to counties, municipalities, school districts, volunteer fire departments, first aid squads and independent institutions of higher education must be under the same terms and conditions, including price, applicable to the State. 3.9 EXTENSIONS OF CONTRACTS TO COUNTY COLLEGES - N.J.S.A. 18A:64A-25.9 permits any college to participate in any term contract(s) that may be established as a result of this proposal. 3.10 EXTENSIONS OF CONTRACTS TO STATE COLLEGES - N.J.S.A. 18A:64-60 permits any State College to participate in any term contract(s) that may be established as a result of this proposal. 3.11 SUBCONTRACTING OR ASSIGNMENT - The contract may not be subcontracted or assigned by the contractor, in whole or in part, without the prior written consent of the Director of the Division of Purchase and Property. Such consent, if granted, shall not relieve the contractor of any of his responsibilities under the contract. In the event the bidder proposes to subcontract for the services to be performed under the terms of the contract award, he shall state so in his bid and attach for approval a list of said subcontractors and an itemization of the products and/or services to be supplied by them. Nothing contained in the specifications shall be construed as creating any contractual relationsAip between any subcontractor and the State. 3.12 MERGERS, ACQUISITIONS - If, subsequent to the award of any contract resulting from this Request for Proposal, the contractor shall merge with or be acquired by another firm, the following documents must be submitted to the Director, Division of Purchase & Property. a. Corporate resolutions prepared by the awarded contractor and new entity ratifying acceptance of the original contract, terms, conditions and prices. b. State of New Jersey Bidders Application reflecting all updated information including ownership disclosure, pursuant to provision 1.5. C. Vendor Federal Employer Identification Number. The documents must be submitted within thirty (30) days of completion of the merger or acquisition. Failure to do so may result in termination of contract pursuant to provision 3.5b. REV. 10/93
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If, subsequent to the award of any contract resulting from this Request for Proposal, the contractor's partnership or corporation shall dissolve, the Director, Division of Purchase & Property must be so notified. All responsible parties of the dissolved partnership or corporation must submit to the Director in writing, the names of the parties proposed to perform the contract, and the names of the parties to whom payment should be made. No payment should be made until all parties to the dissolved partnership or corporation submit the required documents to the Director. 3.13 PERFORMANCE GUARANTEE OF BIDDER - The bidder hereby certifies that: a. The equipment offered is standard new equipment, and is the manufacturer's latest model in production, with parts regularly used for the type of equipment offered; that such parts are all in production and not likely to be discontinued; and that no attachment or part has been substituted or applied contrary to manufacturer's recommendations and standard practice. b. All equipment supplied to the State and operated by electrical current is UL listed where applicable. c. All new machines are to be guaranteed as fully operational for the period stated in the Request For Proposal from time of written acceptance by the State. The bidder will render prompt service without charge, regardless of geographic location. d. Sufficient quantities of parts necessary for proper service to equipment will be maintained at distribution points and service headquarters. e. Trained mechanics are regularly employed to make necessary repairs to equipment in the territory from which the service request might emanate within a 48-hour period or within the time accepted as industry practice. f. During the warranty period, the contractor shall replace immediately any material which is rejected for failure to meet the requirements of the contract. g. All services rendered to the State shall be performed in strict and full accordance with the specifications stated in the contract. The contract shall not be considered complete until final approval by the State's using agency is rendered. 3.14 DELIVERY GUARANTEES - Deliveries shall be made at such time and in such quantities as ordered in strict accordance with conditions contained in the Request for Proposal. The contractor shall be responsible for the delivery of material in first class condition to the State's using agency or the purchaser under this contract, and in accordance with good commercial practice. Items delivered must be strictly in accordance with the Request for Proposal. In the event delivery of goods or services is not made within the number of days stipulated or under the schedule defined in the Request for Proposal, the using agency may be authorized to obtain the material or service from any available source, the difference in price, if any, to be paid by the contractor failing to meet his commitments. 3.15 DIRECTOR'S RIGHT OF FINAL BID ACCEPTANCE - The Director reserves the right to reject any or all bids, or to award in whole or in part if deemed to be in the best interest of the State to do so. The Director shall have authority to award orders or contracts to the vendor or vendors best meeting all specifications and conditions in accordance with N.J.S.A. 52:34-12. The bids will be awarded by the Director in accordance with N.J.A.C. 17:12-2.6. 3.16 BID ACCEPTANCES AND REJECTIONS - The provisions of N.J.A.C. 17:12- 2.4, relating to the Director's right to waive minor elements of non-compliance with bid specifications and N.J.A.C. 17:12-2.5 which defines causes for automatic bid rejection, apply to all proposals and bids. 3.17 STATE'S RIGHT TO INSPECT BIDDER'S FACILITIES - The State reserves the right to inspect the bidder's establishment before making an award, for the purposes of ascertaining whether the bidder has the necessary facilities for performing the contract. The State may also consult with clients of the bidder during the evaluation of bids. Such consultation is intended to assist the State in making a contract award which is most advantageous to the State. 3.18 STATE'S RIGHT TO REQUEST FURTHER INFORMATION - The Director reserves the right to request all information which may assist him in making a contract award, including factors necessary to evaluate the bidder's financial capabilities to perform the contract. Further, the Director reserves the right to request a bidder to explain in detail how the bid price was determined. 3.19 MAINTENANCE OF RECORDS - The contractor shall maintain records for products and/or services delivered against the contract for a period of three (3) years from the date of final payment. Such records shall be made available to the State upon request for purposes of conducting an audit or for ascertaining information regarding dollar volume or number of transactions. 4. TERMS RELATING TO PRICE QUOTATION 4.1 PRICE FLUCTUATION DURING CONTRACT - Unless otherwise noted by the State, all prices quoted shall be firm through issuance of contract or purchase order and shall not be subject to increase during the period of the contract. In the event of a manufacturer's or contractor's price decrease during the contract period, the State shall receive the full benefit of such price reduction on any undelivered purchase order and on any subsequent order placed during the contract period. The Director of Purchase and Property must be notified in writing of any price reduction within five (5) days of the effective date. Failure to report price reductions will result in cancellation of contract for cause, pursuant to provision 3.5b,l. 4.2 DELIVERY COSTS - Unless otherwise noted in the Request for Proposal, all prices for items in bid proposals are to be submitted F.O.B. Destination. Proposals submitted other than F.O.B. Destination may not be considered. Regardless of the method of quoting shipments, the contractor shall assume all costs, liability and responsibility for the delivery of merchandise in good condition to the State's using agency or designated purchaser. REV. 10/93
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F.O.B. Destination does not cover "spotting" but does include delivery on the receiving platform of the ordering agency at any destination in the State of New Jersey unless otherwise specified. No additional charges will be allowed for any additional transportation costs resulting from partial shipments made at contractor's convenience when a single shipment is ordered. The weights and measures of the State's using agency receiving the shipment shall govern. 4.3 C.O.D. - TERMS C.O.D. terms are not acceptable as part of a bid proposal and will be cause for rejection of a bid. 4.4 TAX CHARGES - The State of New Jersey is exempt from State sales or use taxes and Federal excise taxes. Therefore, price quotations must not include such taxes. The State's Federal Excise Tax Exemption number is 22-75-0050K. 4.5 PAYMENT TO VENDORS - Payment for goods and/or services purchased by the State will only be made against State Payment Vouchers. The State bill form in duplicate together with the original Bill of Lading, express receipt and other related papers must be sent to the consignee on the date of each delivery. Responsibility for payment rests with the using agency which will ascertain that the contractor has performed in a proper and satisfactory manner in accordance with the terms and conditions of the award. Payment will not be made until the using agency has approved payment. For every contract the term of which spans more than one fiscal year, the State's obligation to make payment beyond the current fiscal year is contingent upon legislative appropriation and availability of funds. 4.6 NEW JERSEY PROMPT PAYMENT ACT - The New Jersey Prompt Payment Act N.J.S.A. 52:32-32 et seq. requires state agencies to pay for goods and services within sixty (60) days of the agency's receipt of a properly executed State Payment Voucher or within sixty (60) days of receipt and acceptance of goods and services, whichever is later. Properly executed performance security, when required, must be received by the state prior to processing any payments for goods and services accepted by state agencies. Interest will be paid on delinquent accounts at a rate established by the State Treasurer. Interest will not be paid until it exceeds $5.00 per properly executed invoice. Cash discounts and other payment terms included as part of the original agreement are not affected by the Prompt Payment Act. 4.7 RECIPROCITY - In accordance with N.J.S.A. 52:32-1.4 and N.J.A.C. 17:12-2.11, the State of New Jersey will invoke reciprocal action against an out-of-State bidder whose state or locality maintains a preference practice for their bidders. 5. CASH DISCOUNTS - Bidders are encouraged to offer cash discounts based on expedited payment by the State. The State will make efforts to take advantage of discounts, but discounts will not be considered in determining the lowest bid. a. Discount periods shall be calculated starting from the next business day after the recipient has accepted the goods or services, received a properly signed and executed State Payment Voucher form and, when required, a properly executed performance security, whichever is latest. b. The date on the check issued by the State in payment of that Voucher shall be deemed the date of the State's response to that Voucher. 6. STANDARDS PROHIBITING CONFLICTS OF INTEREST - The following prohibitions on vendor activities shall apply to all contracts or purchase agreements made with the State of New Jersey, pursuant to Executive Order No. 189 (1988). a. No vendor shall pay, offer to pay, or agree to pay, either directly or indirectly, any fee, commission, compensation, gift, gratuity or other thing of value of any kind to any State officer or employee or special State officer or employee, as defined by N.J.S.A. 52:13D-13b. and e., in the Department of the Treasury or any other agency with which such vendor transacts or offers or proposes to transact business, or to any member of the immediate family, as defined by N.J.S.A. 52:130-13i., of any such officer or employee, or partnership, firm or corporation with which they are employed or associated, or in which such officer or employee has an interest within the meaning of N.J.S.A. 52:130-13g. b. The solicitation of any fee, commission, compensation, gift, gratuity or other thing of value by any State officer or employee or special State officer or employee from any State vendor shall be reported in writing forthwith by the vendor to the Attorney General and the Executive Commission on Ethical Standards. c. No vendor may, directly or indirectly, undertake any private business, commercial or entrepreneurial relationship with, whether or not pursuant to employment, contract or other agreement, express or implied, or sell any interest in such vendor to, any State officer or employee or special State officer or employee or special State officer or employee having any duties or responsibilities in connection with the purchase, acquisition or sale of any property or services by or to any State agency or any instrumentality thereof, or with any person, firm or entity with which he is employed or associated or in which he has an interest within the meaning of N.J.S.A. 52:13D-13g. Any relationships subject to this provision shall be reported in writing forthwith to the Executive Commission on Ethical Standards, which may grant a waiver of this restriction upon application of the State officer or employee or special State officer or employee upon a finding that the present or proposed relationship does not present the potential, actuality or appearance of a conflict of interest. d. No vendor shall influence, or attempt to influence or cause to be influenced, any State officer or employee or special State officer or employee in his official capacity in any manner which might tend to impair the objectivity or independence of judgement of said officer or employee. e. No vendor shall cause or influence, or attempt to cause or influence, any State officer or employee or special State officer or employee to use, or attempt to use, his official position to secure unwarranted privileges or advantages for the vendor or any other person. f. The provisions cited above in paragraph 6a. through 6e. shall not be construed to prohibit a State officer or employee or Special State officer or employee from receiving gifts from or contracting with vendors under the same terms and conditions as are offered or made available to members of the general public subject to any guidelines the Executive Commission on Ethical Standards may promulgate under paragraph 6c. PBST05 Rev.9/96
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INSTRUCTIONS: Provide below the names, home addresses, dates of birth, offices held and any ownership interest of all officers of the firm named above. If additional space is necessary, provide on an attached sheet.
OWNERSHIP INTEREST NAME HOME ADDRESS DATE OF BIRTH OFFICE HELD (Shares Owned or % of Partnership) - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
INSTRUCTIONS: Provide below the names, home addresses, dates of birth, and ownership interest of all individuals not listed above, and any partnerships, corporations and any other owner having a 10% or greater interest in the firm named above. If a listed owner is a corporation or partnership, provide below the same information for the holders of 10% or more interest in that corporation or partnership. If additional space is necessary, provide that information on an attached sheet. If there are no owners with 10% or more Interest in your firm, enter "None" below. Complete the certification at the bottom of this form. If this form has previously been submitted to the Purchase Bureau in connection with another bid, indicate changes, if any, where appropriate, and complete the certification below.
OWNERSHIP INTEREST NAME HOME ADDRESS DATE OF BIRTH OFFICE HELD (Shares Owned or % of Partnership) - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
COMPLETE ALL QUESTIONS BELOW YES NO 1. Within the past five years has another company or corporation had a 10% or greater interest in the firm identified above? (If yes, complete and attach a separate disclosure form reflecting previous ownership interests.) ------ ------ 2. Has any person or entity listed in this form or its attachments ever been arrested, charged, indicted or convicted in a criminal or disorderly persons matter by the State of New Jersey, any other state or the U.S. Government? (If yes, attach a detailed explanation for each instance.) ------ ------ 3. Has any person or entity listed in this form or its attachments ever been suspended, debarred or otherwise declared ineligible by any agency of government from bidding or contracting to provide services, labor, material or supplies? (If yes, attach a detailed explanation for each instance.) ------ ------ 4. Are there now any criminal matters or debarment proceedings pending in which the firm and/or its officers and/or managers are involved? (If yes, attach a detailed explanation for each instance.) ------ ------ 5. Has any federal, state or local license, permit or other similar authorization, necessary to perform the work applied for herein and held or applied for by any person or entity listed in this form, been suspended or revoked, or been the subject of any pending proceedings specifically seeking or litigating the issue of suspension or revocation? (If yes to any part of this question, attach a detailed explanation for each instance.) ------ ------ - ------------------------------------------------------------------------------- CERTIFICATION: 1, being duly sworn upon my oath, hereby represent and state that the foregoing information and any attachments thereto to the best of my knowledge are true and complete. I acknowledge that the State of New Jersey is relying on the information contained herein and thereby acknowledge that I am under a continuing obligation from the date of this certification through the completion of any contracts with the State to notify the State in writing of any changes to the answers or information contained herein. I acknowledge that I am aware that it is a criminal offense to make a false statement or misrepresentation in this certification, and if I do so, I recognize that I am subject to criminal prosecution under the law and that it will also constitute a material breach of my agreement(s) with the State of New Jersey and that the State at its option, may declare any contract(s) resulting from this certification void and unenforceable. - ------------------------------------------------------------------------------- I, being duly authorized, certify that the information supplied above, including all attached pages, is complete and correct to the best of my knowledge. I certify that all of the foregoing statements made by me are true. I am aware that if any of the foregoing statements made by me are wilfully false, I am subject to punishment. Date: (Signature) ------------ --------------------------------------------- PRINT OR TYPE (Name) --------------------------------------------- (Title) --------------------------------------------- PB-ODF.1 R4/29/96
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Request for Proposal for an Interactive Voice Response (IVR) System Services for the State of New Jersey 1.0 PURPOSE AND INTENT The purpose of this Request for Proposal (RFP) is to solicit proposals from bidders to provide Interactive Voice Response (IVR) credit card processing services. The successful bidder will implement a program that will initially include Individual Gross Income Tax revenue collection with the possibility for expansion to other applications for the Division of Revenue (DOR). The proposed system must be capable of processing VISA, MasterCard Discover and American Express, contingent on their willingness to participate. The Contractor will be requested to demonstrate that it can install, maintain and administer an efficient charge card processing operation, and that it has the technical capability and adequate resources to satisfactorily perform the services as specified in this RFP. The Contractor must also provide all the equipment and/or software as required for any charge card application that the State approves during the term of this contract. The major objectives of this RFP are as follows: - - To contract with a single vendor to provide IVR for credit card processing and services to the Division of Revenue without cost to the State. - - To increase revenue collections and expedite funds availability by enhancing customer payment and convenience options. - - To evaluate the this methodology as a means for increasing customer satisfaction. Detailed information and requirements are defined in 3.0 SCOPE OF WORK.
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2.0 BACKGROUND In keeping with the Governor's friendlier, easier government, the Division of Revenue is looking for ways to give taxpayers more options in payment methods for taxes, fees, licenses, registration and various other services and applications. The State however, does not want to incur additional work and/or expense that would counteract the benefit of these options. The Division of Revenue is looking at a pilot program for the collection of Individual Gross Income Tax revenue for tax year 1998. It is the intent of the Division to contract with a company who offers IVR at no cost to the State. 3.0 SCOPE OF WORK 3.1 Interactive Voice Response System (IVR) The Contractor must provide a toll free telephone access to computer-based voice scripts and menus that guide the taxpayer through the tax payment process. Any associated fees to the taxpayer must be clearly stated prior to confirming the payment transaction and allow the call to be discontinued and unrecorded or charged. Note: The Contractor must produce written IVR scripts and a menu structure, which DOR must approve prior to its implementation. The proposed system must be capable of processing VISA, MasterCard Discover and American Express, contingent on their willingness to participate. The Contractor must provide software that: - - Automatically captures payment details; - - Obtains authorizations for payment amounts; - - Provides rejection scripts for non-authorized transactions; - - Processes transactions for any of the previously mentioned major credit cards; - - Stores payment detail records for a minimum of two years; and, - - Transmits data to the State via an electronic submission such as, but not limited to, e-mail, electronic file or EDI. The system must be available 7 days a week, 24 hours a day. The Contractor must indicate any days, if any, that the system will not be available, e.g., holidays.
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3.2 Transfer of Funds Credit must be provided to the State within no more than 48 hours after transaction date. The method of payment must be by either an Automated ClearingHouse (ACH) debit, or a wire transfer. The Contractor will make deposit to the depository bank stipulated by the State at the contract commencement. The State will not be responsible for the convenience fee or processing cost fee imposed on the taxpayer if the transaction should occur in a charge-back. 3.3 Transaction Requirements and Supporting Documentation Authorization shall be provided for all transactions. The taxpayer's social security number and name control must be validated. Electronic files on individual transactions must be received by the State by 8:00 a.m. (Eastern Time) the next day that corresponds to bank deposits made on the prior day. The transmission of data must be accomplished in a time frame established by the DOR and in a matter that is compatible with existing DOR platforms. The DOR currently supports most transfer protocols, i.e., FTP, dial-up. During the detailed design phase at the initiation of this project, the file transfer layout, mechanism, and protocol will be finalized. The Contractor shall provide transaction listings, daily and weekly deposit summaries and work with the State in producing reports deemed necessary to reconcile transactions. The State reserves the right to add payment types and codes without additional cost to the State. Transaction reports must provide detail categorized by payment type or code relating to, and totaling to, the daily deposit amount transferred to the State's bank account. 3.4 Telephone Support The Contractor must provide a toll free number to the taxpayers for making credit card payments. The Contractor must provide to the State a toll free number for inquiry and customer service. This number must be available during standard business hours between 7:30AM and 5:OOPM (Eastern Time).
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3.5 Confidentiality Requirement All Contractor employees must sign and abide by the State's Confidentiality Agreement. A copy is attached in Appendix A. 3.6 Year 2000 Compliance The Contractor should note that the following requirements are mandatory: 3.6.1 The Contractor represents and warrants that all the hardware and software products (products) which are supplied to the State by the Contractor under this RFP are designed and intended to be used prior to, during, and after the calendar year 2000 AD. The Contractor further represents and warrants that all such products, individually and in combination, will operate during each such time period without error relating to date data, specifically including, but not limited to, any error resulting from, relating to, or the product of, date which represents or references different centuries or more than one century and any errors resulting from or relating to calculations, processing or sequencing employing date. The Contractor further represents and warrants that none of the products uses proprietary table calculations in resolving year 2000 date data values. 3.6.2 Without limiting the foregoing in any manner, the Contractor further represents and warrants: a. that the products will not abnormally end or provide invalid or incorrect results as a result of date data, specifically including date data which represents or references different centuries or more than one century; b. that the products have been designed to ensure year 2000 compatibility including, but not limited to, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, date data century display formats, and date data interface values that reflect the century; c. that the products include "year 2000 capabilities." For purposes of this RFP, "year 2000 capabilities" means the product: (i) will manage and manipulate data involving dates including single century formulas and multi-century formulas, and will not cause an abnormally ending scenario within the application or generate incorrect values or invalid results involving such dates; and
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(ii) provides that all date-related data interface functionalities include the indication of century. d. that the products design and performance adhere to ISO 8601 and FIPS 4-1 standards. 3.6.3 Definitions a. Four digit Year Format shall mean a format that allows entry or processing of a four digit year date: the first two digits will designate the century, and the second two digits shall designate the year within the century. As an example, 1996 shall mean the 96th year of the 20th century. b. Leap Year shall mean the year during which an extra day is added in February (29th). Leap Year occurs in all years divisible by 400 or evenly divisible by 4, and not evenly divisible by 100. c. Year 2000 Compliant shall mean that the data outside of the range of 1900- 1999 will be correctly processed, either on-line or batch processing, in any level of computer hardware or software, including, but not limited to, microcode, firmware, application programs, files, and databases. d. Products shall include, but not be limited to, any hardware, software, firmware or microcode developed, customized, supplied or supported by the Contractor. 3.6.4 Year 2000 Compliance Performance Warranty The Contractor further warrants and represents that the products are and will continue to be Year 2000 compliant. All date processing by the products will include Four Digit Year Format and recognize and correctly process dates for Leap Year, and that processing or calculations involving Leap Year will not result in software, firmware, or hardware failure. Additionally, all date sorting or sequencing by the products that includes a "year category" shall be done based on the Four Digit Year Format code. 3.6.5 Remedies for Non-Compliance of Warranty The Contractor agrees to pay liquidated damages in the amount of $500.00 per each day the products fail to maintain and uphold the Year 2000 Compliance Performance Warranty described in this Section of the RFP. 3.6.6 The Contractor represents and warrants that: a. The products will function without error or interruption related to Date Data, specifically including errors or interruptions from functions which may involve Date Data from more than one century.
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b. The products require that all Date Data (whether received from users, systems, applications or other sources) include an indication of century in each instance. c. All date output and results, in any form, shall include an indication of century in each instance. d. When used in this section, the term "Date Data" shall mean any data or input which includes an indication of or reference to date. The foregoing is in addition to the other representations and warranties set forth herein. 3.7 State Security and Privacy Requirements The Social Security Number, credit card number, and any other information obtained by the Contractor, from a person using the Contractor's system, that might be used to identify or locate an individual is confidential and may not be used by the Contractor(s), or other parties, for any purpose other than processing of the tax return payment. Specifically prohibited is the selling of, or otherwise transmitting, this information to third parties for the purpose of preparing mailing lists or other third party use. The data base, or information collected or generated as a result of this contract, is not to be sold or otherwise used by the Contractor(s). 3.8 Fiduciary Coverage Required Within ten (10) days of notification of the State's intent to award a bidder a contract, the prospective Contractor(s) shall show evidence of effective Fiduciary Coverages in the form of a bond or insurance policy, in an amount of not less than $250,000.00, assuring coverages, that payment of all moneys or procedures collected for all such State Accounts, bills or other indebtedness, shall be paid and turned over to the State. This Fiduciary Coverage shall apply to the contractor(s) or subcontractor(s), including their employees, heirs, executors, administrators, successors and assigns, jointly and severally.
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4.0 PROPOSAL PREPARATION AND SUBMISSION INSTRUCTIONS 4.1 General The bid response proposal is the State's primary vehicle for obtaining essential information on which contract award decisions are based. Bidders are cautioned that their failure to submit the information as required may result in a determination that the bidder's proposal is non-responsive to the RFP requirements. Any qualifying statements by the bidder which effect change(s) to RFP Purchase Standard Terms and Conditions, Special Terms and Conditions, Specifications or other RFP requirements may be regarded as non- responsive. Consequently, the bidder's eligibility for contract award may be jeopardized. Therefore, bidders are encouraged not to take exception to the State's Terms, Conditions or Specifications. In the event that a bidder wishes to take exception to any of the State's Terms, Conditions or Specifications, such exceptions should be detailed in a cover letter to the bid response proposal and must cross reference the applicable RFP page and section reference number. All instructions contained in the RFP should be met in order to qualify for consideration for award. Proposals which do not meet or comply with all instructions may be considered non-responsive. The information required to be submitted in response to this RFP has been determined by the using agency and the Purchase Bureau to be essential for use by the State in the bid evaluation and contract award process. The Director will use this information as a basis for his/her determination on contract award(s). Mere reiterations of RFP services are strongly discouraged as they do not provide insight into the bidder's understanding of and ability to complete the term contract. 4.2 Proposal Delivery and Identification It is the responsibility of the bidder to clearly and properly identify and label his/her bid response proposal to aid the Purchase Bureau in properly handling the bid. The exterior of the bid submission package should be clearly labeled with the solicitation number, correct final bid opening date, and buyer name and solicitation name/description. Anticipate potential delivery delays by allowing adequate time for hand, postal, courier, or other delivery service.
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4.3 Number of Bid Response Proposal Submissions Required Bidders must submit one (1) clearly marked original bid response proposal and should submit seven (7) complete/exact copies of the original. It is suggested that the bidder make and retain a full copy of his/her bid response proposal for his/her records. 4.4 Proposal Format and Content The proposal should be submitted in one volume (where practical) and that volume divided into three (3), easily identified sections as follows: 4.5 Section - 1: Technical Proposal This section shall describe the bidder's approach and plans for accomplishing the work outlined in the scope of work section. Those plans and approaches should be described in sufficient detail to permit the State to evaluate them fairly and with a minimum of possible misinterpretation. Furthermore, the bidder should demonstrate and describe the effort, skills and understanding of the term contract necessary to satisfactorily complete the term contract. This section of the proposal shall contain at least the following information: 4.5.1 Management Overview This section of the bidder's bid response proposal will set forth the bidder's overall technical approach and plans to meet the requirements of the RFP in a narrative format. The contents of this narrative should be designed to convince the State that the bidder understands the objectives that the term contract is intended to meet, the nature of the required work and level of effort necessary to successfully provide the services required by this term contract. In addition, this narrative should convince the State that the bidder's general approach and plans to undertake and complete the term contract are appropriate to the service(s) involved. 4.5.2 Detailed Plans, Approach and Deliverables This section of the bidder's response proposal will set forth in detail the bidder's plans and approach for providing all services and service categories required by the scope of work. The bidder's response will cover each service set forth in the scope of work section of this RFP and will detail how the bidder intends to provide the required services. If the scope of work sets forth service categories, the bidder's response will be made at the service and service category level. The bidder's response should clearly cross reference RFP section, service, and service category numbers, as well as RFP page numbers.
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The contents of the bidder's response to this section should be designed to convince the State that the bidder's detailed plans and approach proposed to provide the required services are realistic, attainable and appropriate and that the proposed plans will lead to the successful provision of the services required. 4.5.3 Security The bidder's proposal must include information pertaining to how it will ensure the secure transmission of customer data (e.g., Social Security Number, credit card number, etc.) over telephone lines. 4.5.4 Term contract Management, Scheduling, and Control 4.5.4.1 Contractor's Term Contract Management The bidder will describe the firm's general approach to managing the term contract. This section will include the bidder's specific plans to manage, control and supervise the term contract in order to ensure the satisfactory provision of the services required. The plan will also include the bidder's approach to liaison with the State's term contract manager, including term contract coordination, status meetings, status reports, etc. 4.5.4.2 Bidder's Gear-Up Plan The Bidder must submit a detailed gear-up plan with his/her bid proposal, designed to demonstrate to, and convince the State that, the bidder will be able to establish full, effective and efficient operational control by the contract's effective date. 4.5.5 Potential Problems This section of the bidder's proposal will set forth a summary of problems that the bidder anticipates during the course of providing the services required by this RFP. For each problem identified, the bidder will provide the bidder's proposed solution to that problem. 4.5.6 Information on Subcontractors (if applicable) The bidder will comply with requirements of the Purchase Bureau Standard Terms and Conditions Section 3.11 concerning subcontracting. In addition, the bidder will supply the following detailed information concerning any subcontractor's proposed as part of the term contract team or to be used during the provision of services under this term contract:
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4.5.6.1 Name and Address of Subcontractor(s) 4.5.6.2 Detailed description of services to be provided by the subcontractor. 4.5.6.3 Detailed resumes for subcontractor personnel assigned to the term contract that demonstrate the individual(s)' knowledge, ability, and experience as it relates to the services to be provided. 4.5.6.4 Documented experience of the subcontractor in successfully performing work under term contracts of a similar size and scope to that required by this RFP. 4.6 Section - 2: Organizational Support and Experience This section shall contain all pertinent information relating to the bidder's organization, personnel, and experience, including, but not limited to, references, together with a contact name and telephone number that will serve to substantiate the bidder's qualifications and capabilities to provide the services required by this RFP. This section shall contain the following information 4.6.1 The location of the bidder's office that will be responsible for managing this contract. Include a telephone number and individual to contact. 4.6.2 A term contract organizational chart, with names, showing the key management and supervisory personnel (including subcontractor's personnel) to be assigned to the term contract. The chart should include the labor category and title of each individual assigned. 4.6.3 An organizational chart showing the bidding firm's entire organizational structure. This chart will show the relationship of the individuals assigned to this term contract to the bidder's overall organizational structure. 4.6.4 The bidder shall provide a comprehensive list of all personnel to be assigned to the term contract. This list will identify the labor category of each individual assigned and provide a summary of each individual's function and role on the term contract. The bidder may also list back-up staff that may be called upon to assist or replace primary individuals assigned. Back-up staff must be clearly identified as back-up. 4.6.5 A detailed resume must be submitted for each key management and supervisory individual assigned to the term contract, as identified on the term contract organizational chart, and the comprehensive list of personnel assigned, as required above. Resumes should be constructed
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to emphasize the relevant qualifications and experience of the individuals assigned in successfully providing services under term contracts of a similar size and scope to those required by this RFP. A description of the term contract should be given and should show how the individual's work under the term contract relates to the individual's ability to contribute to the successful provision of the services required by this RFP. Include the name and address of reference together with a person to contact for a reference check and a telephone number. The effective dates of all contracts listed by the bidder under this section should be given. 4.6.6 Experience of Bidding Firm on Term Contracts of Similar Size and Scope The bidder shall provide a comprehensive listing of term contracts of a similar size and scope that have been successfully undertaken by the bidding firm as documentation of the firm's ability to successfully undertake and provide the services required by this RFP. Emphasis should be placed on term contracts that are very similar in size and scope to those required by this RFP. A description of the term contract should be included and should show how the term contract relates to the ability of the firm to provide the services required by this RFP. Include the name and address of the reference together with a person to contact for a reference check and a telephone number. Dates should be given for each term contract referenced. The bidder must emphasize the firm's past experience in implementing state contracts and success in this area. 4.6.7 The bidder should provide proof of the firm's financial capacity and capabilities to undertake and successfully provide services required under this term contract. A financial statement for the most recent fiscal year or bank references are acceptable. 4.7 Section - 3: Cost Proposal 4.7.1 Bidders shall submit their prices on the attached Price Sheets. Failure to submit all information requested will result in your bid being considered non- responsive. Bidders are requested to hold prices firm for a minimum of sixty (60) days in order that an award can be made. This rate should reflect the convenience fee charged to the customer per transaction. There is no charge to the State for the services related to the payment for taxes by the customers utilizing the Contractor's system. Bidders must submit prices as indicated on the Price Sheets contained in this RFP. 4.7.2 Bidders shall also provide a comprehensive listing of any and all labor categories that may be used to perform additional work in accordance with the additional work clause of this RFP. All-Inclusive
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Loaded hourly rates are to be submitted for any and all labor categories that the bidder anticipates may be required to perform additional work. Failure to include a labor category along with an all-inclusive hourly rate will exclude that category from eligibility to perform additional work. Bidders may submit labor categories for additional work that are not included in the base proposal to perform the scope of work required by this RFP. Bidders may also submit all inclusive unit costs for any materials, supplies, equipment, etc., that the bidder anticipates may be needed for additional work under contract. Only items or services for which rates or unit costs are submitted with the bidder's original bid response proposal may be utilized for additional work and paid under the resulting term contract resulting from this RFP. 5.0 PROPOSAL EVALUATION CRITERIA Proposals may be evaluated by a committee composed of members of affected departments and agencies together with representative(s) from the Purchase Bureau, other State agencies, governmental bodies or others designated by the Director, Division of Purchase and Property. The following criteria, not necessarily listed in order of significance, will be used to evaluate proposals. These evaluation criteria categories may be used to develop more detailed criteria to be used during the evaluation process. 5.1 The bidder's general approach and plans to meet the requirements of the RFP. 5.2 The bidder's detailed approach and plans to perform the services required by the scope of work of this RFP. 5.3 The bidding firm's documented experience in successfully providing services of a similar size and scope to those required by this RFP. 5.4 The qualifications and experience of personnel assigned to the term contract with emphasis on documented experience in successfully providing services under term contracts of a similar size and scope to those required by this RFP. 5.5 The overall ability of the bidder, as judged by the State, to satisfactorily provide all services required by this RFP. This judgment may include, but not be limited to, such factors as the staffing plan, including the management, supervision, labor, etc., the proposed use of subcontractors, bidder's organizational chart for the term contract, etc.
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5.6 The bidder's cost proposal. 6.0 BIDDER'S INFORMATION 6.1 General 6.1.1 Section References All RFP section cross references within the Special Terms and Conditions, Specifications, Attachment Text, or Price Sheets are cross references within these sections and not to similarly numbered sections within the Purchase Bureau Standard Terms and Conditions unless specifically noted. The Purchase Bureau Standard Terms and Conditions are normally located on pages 2 through 6 of the RFP document. 6.1.2 Precedence of Purchase Bureau Standard Terms and Conditions Unless specifically noted, the Purchase Bureau Standard Terms and Conditions found on pages 2 through 6 of this RFP take precedence over any similar terms and conditions located in the Special Terms and Conditions, Specifications, Attachment Text, or Price Sheet sections of this RFP. Unless specifically noted, language found in the Special Terms and Conditions, Specifications, Attachment Text, or price sheet sections will serve to supplement but not to supersede the Purchase Bureau Standard Terms and Conditions. 6.2 Questions and Inquiries It is the policy of the New Jersey Division of Purchase and Property to accept questions and inquiries from all potential bidders who have received this RFP. Since no pre-bid conference has been scheduled for this procurement, the cut-off for questions will be at 2:00 p.m. on the seventh business day from the "Date Issued" in the cover of this RFP. Short procedural inquiries may be accepted, by telephone, by the buyer noted on the coversheet to this RFP. Oral explanations or instructions given over the telephone before the award of the contract shall not be binding. Bidders are cautioned that all questions and inquiries regarding this RFP must be directed to the Purchase Bureau buyer listed on the coversheet of this RFP. Written questions should specifically reference the RFP page number and section number to which the question relates. Bidders should not contact the using agency directly by telephone concerning this RFP. Questions must be mailed or faxed to the attention of the assigned buyer at the following address:
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State of New Jersey Purchase Bureau P.O. Box 230 Trenton, New Jersey 08625-0230 Attention: John J. Kennedy Fax Number: 609-292-5170 A copy of all written questions should also be faxed to the following individual at the using agency: NJ Division of Revenue Trenton, New Jersey 08625 Attention: Janice Eckstein Fax Number: 609-777-3535 6.3 Revisions to this RFP In the event it becomes necessary to revise, modify, clarify or otherwise alter the RFP for this procurement, revisions will be made in the form of addenda to this RFP and will be made and distributed as follows: 6.3.1 Since there is no pre-bid conference scheduled for this procurement, addenda will be distributed to all bidders that received the initial RFP. 6.3.2 All addenda to the original RFP become part of this RFP and shall become part of the final contract resulting from this RFP. 6.4 Pre-bid Conference No pre-bid conference has been scheduled for this procurement. 6.5 Oral Presentation/Clarification of Proposals Bidders who submit a proposal in response to this RFP may be required to give an oral presentation of their proposal to the State and/or submit written responses to questions from the State regarding their proposal. The purpose of the State's communication with a bidder (either through an oral presentation or a letter of clarification) is to provide an opportunity for the bidder to clarify or elaborate on his/her proposal. Original submissions cannot be supplemented, changed or corrected in any way. No comments regarding other bidders or proposals are permitted, and bidders may not attend presentations by their competitors. Bidders must clearly understand that it is the State's sole option to determine which bidders, if any, will be invited to make oral presentations and/or supply written clarification. Bidder shall not
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construe the list of firms invited, if any, to imply acceptance or rejection of any bid(s). The Division of Purchase and property, Purchase Bureau, will schedule the time and location of any such presentations, and will be the sole point of contact for any request for written clarification. 6.6 Site Visit No site visit is scheduled for this procurement. 6.7 Term Contract Period This is a term contract. The period of the contract resulting from this RFP will be the period between the "effective date" and the "expiration date" appearing in the header on the upper right hand corner of the coversheet of this RFP. In the event that delays in the bid process result in a postponement of the anticipated effective date, the bidder agrees to accept a contract for the full contract period. 6.8 Issuing Office This RFP is issued by the State Division of Purchase and Property, Purchase Bureau. The issuing office is the sole point of contact between bidders and the State for purposes of this RFP. 6.9 Cost Liability The State of New Jersey assumes no responsibility and no liability for costs incurred by vendors prior to issuance of an agreement, contract or purchase order. 6.10 Contents of Bid Proposal The entire contents of every bid response proposal that is publicly opened and read becomes a public record, notwithstanding any disclaimer by the bidder in the bid response proposal document. All bid response proposals, being public records, are available for public review and inspection. Persons who wish to review bid response proposals must make an appointment with the Purchase Bureau. Inspection is subject to the rules of the Purchase Bureau. 6.11 Price Alteration Bid prices must be typed or written in ink or the bid will be subject to the automatic rejection provisions of the administrative code. Any price change (including "white-outs") must be initialed, or that item will be disqualified. This policy is meant to protect both the State and the bidder.
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7.0 SPECIAL CONTRACTUAL TERMS AND CONDITIONS 7.1 Contract Term and Extension Options This will be a two year contract. Any extension of this contract will be done in accordance with Section 3.2 of the Purchase Bureau Standard Terms and Conditions. This contract may be extended for one (1) or more period(s) of all or part of one (1) year with the aggregate time period of all contract years AND extensions is not to exceed three (3) years. In the event the public exigency requires, the Director may extend this contract beyond the period noted above. 7.2 Contract Continuity/Transitional Period In the event the services are scheduled to end either by contract expiration or by termination by the State of New Jersey (at the State's discretion), it shall be incumbent upon the Contractor to continue the services, if directed by the State, until new services can be completely operational. Normally, this transitional period will not extend more than one hundred and eighty (180) days beyond the expiration date of the existing contract. The Contractor will be reimbursed for these services at the rate in effect when this transitional period clause is invoked by the State. 7.3 Prime Contractor Responsibilities 7.3.1 The State will consider the prime contractor to be the sole point of contact with regard to contractual matters and the prime contractor will be required to assume sole responsibility for the complete effort stipulated in the RFP. Payment will be made only to the prime contractor. 7.3.2 The prime contractor is responsible for assuring subcontractor compliance with all terms and conditions of this RFP. The prime contractor will assume sole responsibility for any payments due the subcontractor(s) under this contract. 7.4 Ownership of Material Ownership of all data, material, proposals, manuals, training sessions, and documentation (including work papers) originated and prepared for the State pursuant to this contract shall belong exclusively to the State.
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7.5 Data Confidentiality All data contained in the source documents supplied by the State of New Jersey are to be considered confidential and shall be solely for the use of the issuing office and the using agency. The Contractor will be required to use reasonable care to protect the confidentiality of the data. Any use, sale, or offering of this data in any form by the Contractor, his/her employees, or assignees will be considered in violation of this contract and will cause the infraction to be reported to the State Attorney General for possible prosecution. Penalties for violations of such guarantees will include, but are not limited to, cancellation of the contract and/or legal action with no damages paid by the State. 7.6 Responsibility of the Contractor The Contractor is responsible for the professional quality, technical accuracy and timely completion and delivery of all services, materials, equipment, or supplies furnished by the Contractor under this contract. The Contractor shall, without additional compensation, correct any deficiencies in its services, materials, equipment or supplies. The review, approval, acceptance, or payment for any of the services, materials, equipment, or supplies provided under contract shall not be construed as a waiver of any rights under the agreement or of any cause for action arising out of the performance of this contract. The Contractor's obligations under this clause are in addition to the Contractor's other expressed or implied assurance under this contract or State law and in no way will diminish any other rights that the State may have against the Contractor for faulty materials, equipment, or work. 7.7 Delivery and Damages If circumstances beyond the control of the Contractor result in a late delivery, it is the responsibility and obligation of the Contractor to make the details known immediately to the Purchase Bureau, 33 West State St., Trenton, New Jersey and the using agency. If the Contractor cannot meet the delivery date(s) for the effort as specified in his/her proposal, he/she shall be liable to the State to the sum of one hundred dollars ($100.00) per normal work day that such delivery is late. Ten percent (10%) of the contract cost is the maximum amount of liability. These said sums shall be treated as liquidated damages and not a penalty. 7.8 Retainage Retainage is not required on this contract.
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7.9 Performance Security This section will serve to supplement Section 3.3 of the Purchase Bureau Standard Terms and Conditions. If performance security is required for the contract resulting from this RFP, the amount of the performance security will be stated in item number 9 on the coversheet to this RFP. If the requirement for performance security is expressed as a percentage, security will be required only if the total amount of the contract exceeds $250,000.00. 7.10 Form of Compensation and Payment 7.10.1 This section will serve to supplement Section 4 of the Purchase Bureau Standard Terms and Conditions. The cost for services provided under this contract will be borne by the individual utilizing the service. The State will not pay the Contractor for any service detailed in the Scope of Work Section of this RFP. In the event that the State requests the Contractor to perform additional work, as defined in the "Additional Work" Section of this RFP, the Contractor is authorized to submit invoices for services and/or service categories satisfactorily provided under the "Additional Work" Section of this RFP. Official state invoice forms must be submitted to the using agency along with supporting documentation substantiating that the services have been provided satisfactorily. Invoices must reference the hourly rates supplied by the Contractor in its response to this RFP. All invoices must be approved by the State's term contract manager and the using agency before payment will be authorized. 7.10.2 Availability of Funds This section supplements Purchase Bureau Standard Terms and Conditions Section 4.5. The State's obligation hereunder is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the State for payment of any money shall arise unless and until funds are made available each fiscal year to the Using Agency by the Legislature. 7.11 Special Projects/Additional Work Should additional work, special projects, hearings, meetings, or other activities beyond the scope of this RFP be deemed appropriate by the using agency or the Contractor, the Contractor must present to the using agency a written request to perform the additional work. The written request must be based upon the hourly rates or unit costs submitted with the Contractor's original proposal and must contain a complete description of the additional services to be performed. Should the using agency elect to order additional services covered under the services and service categories detailed in the scope of
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work section of this RFP, the Contractor will be paid the unit cost for each service in accordance with applicable unit costs or rates as submitted on the Price Sheets for service or service category. The Contractor shall not begin performing any additional work prior to obtaining written approval from the State of New Jersey, Purchase Bureau, and the State's term contract manager. The using agency must submit a written request to the Purchase Bureau to obtain approval for additional work. Complete documentation confirming the need and appropriateness of the work must be submitted along with the appropriate PB-6 or other fiscal documents. The request must be accompanied by all other required State approvals, such as Office of Management and Budget, (OMB) Office of Information Technology (OIT), etc. Only services for which firm rates or unit costs are submitted with the bidder's original bid response may be utilized for additional work and paid under the term contract resulting from this RFP. 7.12 Term Contract Management - General All Contractor activities to be performed under all parts of the contract will be accomplished in consultation with, under the direction of, and with the approval of the State's term contract manager. The State's term contract manager will be responsible for the approval of each element of the services and/or service categories in the scope of work. 7.13 Substitution of Personnel or Subcontractor If, during the term of the contract, the Contractor or subcontractor cannot provide the management and on-site supervisory personnel as proposed and requests a substitution, that substitution must be an approved equal or better. The Contractor or sub-contractor will provide detailed resume qualifications and justification which will be forwarded to the State's term contract manager for written approval prior to any personnel substitution. It is acknowledged by the Contractor that every reasonable attempt shall be made to assign the personnel listed in the Contractor's bid response proposal. 7.13.1 No Contractor management or on-site supervisory or management personnel shall be permanently assigned until they have been interviewed and approved by the State's term contract manager. Personnel assigned temporarily during the start-up period must be identified and their functions defined. 7.13.2 In the event that any of the Contractor's management or on-site supervisory personnel are found to be unacceptable by the State's term contract manager, or are replaced or transferred by the Contractor for any reason, the individual(s) assigned as replacement(s) shall equal or exceed in qualifications and experience the individual(s) proposed by the Contractor in the Contractor's bid response proposal.
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7.13.3 In the event that the prime Contractor desires to substitute a subcontractor, the prime Contractor will identify the organization, officers, and the contractual agreement to be made which will be forwarded to the State's term contract manager and the Director, Division of Purchase and Property for approval prior to the commencement of any work by the recommended substitute subcontractor. 8.0 DEFINITIONS Addenda - Addenda are written or graphic instruments issued by the Purchase Bureau which modify or interpret the RFP document(s) by additions, deletions, clarifications, or corrections. All-Inclusive Hourly Rate - All direct and indirect costs including, but not limited to: overhead, fee or profit, clerical support, travel expenses, safety equipment, materials, supplies, managerial support and all documents, forms, and reproductions thereof. Hourly rates also include portal-to-portal expenses. Time spent in traveling to and from the work site or the employee's normal work station should not be included in any estimates. Bidder - A person, partnership, firm, corporation, or joint venture submitting a bid response proposal for the purpose of obtaining a state contract. Contractor - The bidder awarded a State contract to perform the services required by this RFP. Director - The Director, Division of Purchase and Property, Department of the Treasury. By statutory authority, the contracting officer for the State of New Jersey. Evaluation Committee - A committee established to review and evaluate bid proposals and recommend a contract award. The committee normally includes representatives of the using agency and central purchasing authority. Other members may be appointed from other agencies or political subdivisions as disinterested third parties. Formal Date of Award- The effective date of the contract and work initiation. Services - For purposes of this RFP, the definition of services shall be expanded to include not only time, labor, and effort, but also all materials, supplies, equipment or other tangible items necessary to satisfactorily complete the Scope of Work required by this RFP.
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- -------------------------------------------------------------------------------------------------------------- LINE COMMODITY-SERVICE DESCRIPTION QUANTITY UNIT PERCENT DO NOT USE NO. - -------------------------------------------------------------------------------------------------------------- UNLESS SPECIFIED OTHERWISE BELOW: SHIP TO: 822105 / S001 DIV OF REVENUE PAYMENT PROCESSING 160 SOUTH BROAD ST LIVINGSTON ST ENTRANCE TRENTON NJ 08608 - -------------------------------------------------------------------------------------------------------------- 00001 COMMODITY CODE: 794-13-038282 1 PCNT ------- ---------- INTERACTIVE VOICE RESP.-DIV. OF REV. FEE TO BE PAID BY THE USER OF THE INTERACTIVE VOICE RESPONSE SYSTEM TO THE CONTRACTOR. THIS FEE MUST BE STATED AS A PERCENT AND WILL BE IN EFFECT FOR THE ENTIRE TERM OF THE CONTRACT AND ANY EXTENSION THEREOF. - --------------------------------------------------------------------------------------------------------------
State of New Jersey AFFIRMATIVE ACTION EMPLOYEE INFORMATION REPORT - ------------------------------------------------------------------------------- IMPORTANT - READ INSTRUCTIONS ON BACK OF FORM CAREFULLY BEFORE COMPLETING FORM. TYPE OR PRINT IN SHARP BALL POINT PEN. FAILURE TO PROPERLY COMPLETE THE ENTIRE FORM MAY DELAY ISSUANCE OF YOUR CERTIFICATE. - ------------------------------------------------------------------------------- SECTION A - COMPANY IDENTIFICATION - -------------------------------------------------------------------------------
1. FID. NO. OR SOCIAL SECURITY 2. TYPE OF BUSINESS 3. TOTAL NO. OF EMPLOYEES IN THE ENTIRE [ ]1. MFG. [ ]2. SERVICE [ ]3. WHOLESALE COMPANY [ ]4. RETAIL [ ]5. OTHER - ----------------------------------------------------------------------------------------------------------------------------------- 4. COMPANY NAME - ----------------------------------------------------------------------------------------------------------------------------------- 5. STREET CITY COUNTY STATE ZIP CODE - ----------------------------------------------------------------------------------------------------------------------------------- 6. NAME OF PARENT OR AFFILIATED COMPANY (IF NONE, SO INDICATE) CITY STATE ZIP CODE - ----------------------------------------------------------------------------------------------------------------------------------- 7. DOES THE ENTIRE COMPANY HAVE A TOTAL OF AT LEAST 50 EMPLOYEES? [ ] YES [ ] NO - ----------------------------------------------------------------------------------------------------------------------------------- 8. CHECK ONE: IS THE COMPANY: [ ] SINGLE-ESTABLISHMENT EMPLOYER [ ] MULTI-ESTABLISHMENT EMPLOYER - ----------------------------------------------------------------------------------------------------------------------------------- 9. IF MULTI-ESTABLISHMENT EMPLOYER, STATE THE NUMBER OF ESTABLISHMENTS IN N.J. [ ] - ----------------------------------------------------------------------------------------------------------------------------------- 10. TOTAL NUMBER OF EMPLOYEES AT THE ESTABLISHMENT WHICH HAS BEEN AWARDED THE CONTRACT [ ] - ----------------------------------------------------------------------------------------------------------------------------------- 11. PUBLIC AGENCY AWARDING CONTRACT CITY STATE ZIP CODE - ----------------------------------------------------------------------------------------------------------------------------------- OFFICIAL USE ONLY - ----------------------------------------------------------------------------------------------------------------------------------- DATE RECEIVED OUT OF STATE PERCENTAGES ASSIGNED CERTIFICATION NUMBER - ----------------------------------------------------------------------------------------------------------------------------------- MO/DAY/YR COUNTY MINORITY FEMALE
- ------------------------------------------------------------------------------- SECTION B - EMPLOYMENT DATA - ------------------------------------------------------------------------------- 12. Report all permanent, temporary and part-time employees ON YOUR OWN PAYROLL. Enter the appropriate figures on all lines and in all columns. Where there are no employees in a particular category, enter a zero. Include ALL employees, not just those in minority categories, in columns 1, 2 & 3. - -------------------------------------------------------------------------------
ALL EMPLOYEES MINORITY GROUP EMPLOYEES (PERMANENT) JOB Col. 1 Col. 2 Col. 3 MALE FEMALE CATEGORIES TOTAL MALE FEMALE (Cols. 2&3) BLACK HISPANIC AMERICAN ASIAN BLACK HISPANIC AMERICAN ASIAN INDIAN INDIAN - ----------------------------------------------------------------------------------------------------------------------------------- Officials and Managers - ----------------------------------------------------------------------------------------------------------------------------------- Professionals - ----------------------------------------------------------------------------------------------------------------------------------- Technicians - ----------------------------------------------------------------------------------------------------------------------------------- Sales Workers - ----------------------------------------------------------------------------------------------------------------------------------- Office and Clerical - ----------------------------------------------------------------------------------------------------------------------------------- Craftworkers (Skilled) - ----------------------------------------------------------------------------------------------------------------------------------- Operatives (Semi-skilled) - ----------------------------------------------------------------------------------------------------------------------------------- Laborers (Unskilled) - ----------------------------------------------------------------------------------------------------------------------------------- Service Workers - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- Total employment from Previous Report (if any) - ----------------------------------------------------------------------------------------------------------------------------------- The data below shall NOT be included in the request for the categories above. - ----------------------------------------------------------------------------------------------------------------------------------- Temporary and Part-time Employees - ----------------------------------------------------------------------------------------------------------------------------------- 13. HOW WAS INFORMATION AS TO RACE OR 15. IS THIS THE FIRST 16. IF NO DATE OF LAST ETHNIC GROUP IN SECTION B OBTAINED? EMPLOYEE INFORMATION REPORT SUBMITTED [ ] 1. VISUAL SURVEY [ ] 2. EMPLOYMENT RECORD REPORT (AA.302) SUBMITTED? MO. DAY YEAR [ ] 3. OTHER (SPECIFY) [ ]1. YES [ ]2. NO - ----------------------------------------------------------------------------------------------------------------------------------- 14. DATES OF PAYROLL PERIOD USED - ----------------------------------------------------------------------------------------------------------------------------------- SECTION C - SIGNATURE AND IDENTIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- 17. NAME OF PERSON COMPLETING FORM (Print or Type) SIGNATURE TITLE DATE MO. DAY YEAR - ----------------------------------------------------------------------------------------------------------------------------------- 18. ADDRESS (NO. & STREET) (CITY) (STATE) (ZIP CODE) PHONE (AREA CODE, NO. & EXTENSION) - ----------------------------------------------------------------------------------------------------------------------------------- FORM AA302
INSTRUCTIONS FOR COMPLETING THE AFFIRMATIVE ACTION EMPLOYEE INFORMATION REPORT (FORM AA302) IMPORTANT: READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THE FORM. PRINT OR TYPE ALL INFORMATION. FAILURE TO PROPERLY COMPLETE THE ENTIRE FORM MAY DELAY ISSUANCE OF YOUR CERTIFICATE. ITEM 1 - Enter the Federal Identification Number assigned to the contractor or vendor by the Internal Revenue Service, or if a Federal Employer Identification Number has been applied for, but not yet issued, write the words "applied for", or If your business is such that you have not, or will not receive a Federal Employee Identification Number, enter the Social Security Number assigned to the single owner or to a partner, in case of partnership. ITEM 2 - Check the box appropriate to your TYPE OF BUSINESS. If you are engaged in more than one type of business, check the predominant one. If you are a manufacturer deriving more than 50% of your receipts from your own retail outlets, check "Retail". ITEM 3 - Enter the total "number" of employees in the entire company, including part-time employees. This number shall include all facilities in the entire firm or corporation. ITEM 4 - Enter the name by which the company is identified. If there is more than one company name, enter the predominant one. ITEM 5 - Enter the physical location of the company, include City, County, State and Zip Code. ITEM 6 - Enter the name of any parent or affilliated company including City, State and Zip Code. If there is none, so indicate by entering "None" or N/A. ITEM 7 - Check the appropriate box for the total number of employees in the entire company. "Entire Company" shall include all facilities in the entire firm or corporation, including part-time employees, not just those employees at the facility being awarded the contract. ITEM 8 - Check the box appropriate to your type of company establishment. Single-establishment Employer shall include an employer whose business is conducted at only one physical location. Multi-establishment Employer shall include an employer whose business is conducted at more than one location. ITEM 9 - If multi-establishment was entered in Item 8, enter the number of establishments within the State of New Jersey. ITEM 10 - Enter the total number of employees at the establishment being awarded the contract. ITEM 11 - Enter the name of the Public Agency awarding the contract. Include City, State, and Zip Code. ITEM 12 - Enter the appropriate figures on all lines and in all columns. THIS SHALL ONLY INCLUDE EMPLOYMENT DATA FROM THE FACILITY THAT IS BEING AWARDED THE CONTRACT. DO NOT list the same employee in more than one job category. Racial/Ethnic Groups will be so defined: Black: Not of hispanic origin. Persons having origin in any of the Black racial groups of Africa. Hispanic: Persons of Mexican, Puerto Rican, Cuban, or Central or South American or other Spanish culture or origin, reguardless of race. American Indian or Alaskan Native: Persons having origins in any of the original peoples of North America, and who maintain cultural identification through tribal affiliation or community recognition. Asian or Pacific Islander: Persons having origin in any of the peoples of the Far East, Southeast Asia, the Indian Subcontinent or the Pacific Islands. This area includes for example, China, Japan, the Phillippine Islands and Somoa. ITEM 13 - Check the appropriate box, if the race or ethnic group information was not obtained by 1 or 2, specify by what other means this was done in 3. ITEM 14 - Enter the dates of the payroll period used to prepare the employment data presented in item 12. ITEM 15 - If this is the first time an Employee Information Report has been submitted for this company, check block "Yes". ITEM 16 - If the answer to item 15 is "No", enter the date when the last Employee Information Report was submitted by this company. ITEM 17 - Print or type the name of the person completing this form. Include the signature, title and date. ITEM 18 - Enter the physical location where the form is being completed. Include City, State, Zip Code and Phone Number. [LOGO] STATE OF NEW JERSEY DEPARTMENT OF THE TREASURY DIVISION OF CN-230 PURCHASE BUREAU PURCHASE AND PROPERTY TRENTON, NEW JERSEY 08625 IMPORTANT NOTICE TO BIDDERS Effective October 7, 1991, in accordance with N.J.S.A. 52:32-1.4 and N.J.A.C. 17:12-2.11, the State of New Jersey will invoke reciprocal action against an out-of-State bidder whose state or locality maintains a preference practice for their bidders. For states having preference laws, regulations, or practices, New Jersey will use the annual surveys compiled by the Council of State Governments, National Association of State Purchasing Officials, or the National Institute of Governmental Purchasing to invoke reciprocal actions. The State may obtain additional information anytime it deems appropriate to supplement the above survey information. Any bidder may submit information related to preference practices enacted for a local entity outside the State of New Jersey. This information may be submitted in writing as part of the bid response proposal, and should be in the form of resolutions passed by an appropriate governing body, regulations, a Notice to Bidders, laws, etc. It is the responsibility of the bidder to provide the documentation with the bid proposal or submit it to the Director, Division of Purchase and Property within five (5) working days of the public bid opening. Written evidence for a specific procurement that is not provided to the Director within five working days of the public bid opening will not be considered in the evaluation of that procurement, but will be retained and considered in the evaluation of subsequent procurements. Any bidder having evidence of out-of-State local entities invoking preference practices should complete the form below, with a copy of appropriate documentation. The form and documentation may be submitted with your bid response proposal. - ------------------------------------------------------------------------------- Name of Locality having preference practices City/Town/Authority ______________________________________________________ County ______________________________ State ______________________________ ( ) Documentation attached ( ) Resolution ( ) Regulations/Laws ( ) Notice to Bidder ( ) Other _________________________ Name of Firm Submitting this Information ______________________________________ (Please Print) ________________________________________________________________ NOTICE TO ALL BIDDERS --------------------- SET-OFF FOR STATE TAX --------------------- Please be advised that, pursuant to P.L. 1995, c.159, effective January 1, 1996, ---- -- and notwithstanding any provision of the law to the contrary, whenever any taxpayer, partnership or S corporation under contract to provide goods or services or construction projects to the State of New Jersey or its agencies or instrumentalities, including the legislative and judicial branches of State government, is entitled to payment for those goods or services at the same time a taxpayer, partner or shareholder of that entity is indebted for any State tax, the Director of the Division of Taxation shall seek to set off that taxpayer's or shareholder's share of the payment due the taxpayer, partnership or S corporation. The amount set off shall not allow for the deduction of any expenses or other deductions which might be attributable to the taxpayer, partner or shareholder subject to set-off under this act. The Director of the Division of Taxation shall give notice of the set-off to the taxpayer and provide an opportunity for a hearing within 30 days of such notice under the procedures for protests established under R.S. 54:49-18. No requests ---- for conference, protest, or subsequent appeal to the Tax Court from any protest under this section shall stay the collection of the indebtedness. Interest that may be payable by the State, pursuant to P.L. 1987, C.184 (c. 52:32-32 et -- seq.), to the taxpayer shall be stayed. - ---- NOTICE TO ALL BIDDERS --------------------- REQUIREMENT TO PROVIDE A CERTIFICATION -------------------------------------- IN COMPLIANCE WITH MacBRIDE PRINCIPLES -------------------------------------- AND NORTHERN IRELAND ACT OF 1989 -------------------------------- Pursuant to Public Law 1995, c.134, a responsible bidder selected, after public bidding, by the Director of the Division of Purchase and Property, pursuant to N.J.S.A. 52:34-12, or the Director of the Division of Building and -------- Construction, pursuant to N.J.S.A. 52:32-2, must complete the certification -------- below by checking one of the two representations listed and signing where indicated. If a bidder who would otherwise be awarded a purchase, contract or agreement does not complete the certification, then the Directors may determine, in accordance with applicable law and rules, that it is in the best interest of the State to award the purchase, contract or agreement to another bidder who has completed the certification and has submitted a bid within five (5) percent of the most advantageous bid. If the Directors find contractors to be in violation of the principles which are the subject of this law, they shall take such action as may be appropriate and provided for by law, rule or contract, including, but not limited to, imposing sanctions, seeking compliance, recovering damages, declaring the party in default and seeking debarrment or suspension of the party. I certify, pursuant to N.J.S.A. 52:34-12.2, that the entity for which I am -------- authorized to bid: ____ has no ongoing business activities in Northern Ireland and does not maintain a physical presence therein through the operation of offices, plants, factories, or similar facilities, either directly or indirectly, through intermediaries, subsidiaries or affiliated companies over which it maintains effective control; or _____ will take lawful steps in good faith to conduct any business operations it has in Northern Ireland in accordance with the MacBride principles of nondiscrimination in employment as set forth in N.J.S.A. 52:18A-89.5 and in -------- conformance with the United Kingdom's Fair Employment (Northern Ireland) Act of 1989, and permit independent monitoring of their compliance with those principles. I certify that the foregoing statements made by me are true. I am aware that if any of the foregoing statements made by me are willfully false, I am subject to punishment. -------------------------------------------- Signature of Bidder Dated: -------------------------------------------- Print or Type{ Name { { -------------------------------------------- Title PBMACB 12/95 [LOGO] STATE OF NEW JERSEY DEPARTMENT OF THE TREASURY DIVISION OF CN-230 PURCHASE BUREAU PURCHASE AND PROPERTY TRENTON, NEW JERSEY 08625 NOTICE TO VENDORS ------------------ With the approach of the holiday season, we wish to advise all vendors of the following statute: N.J.S.A. 52:34-19. Payment of compensation or gratuity to - -------- State employees prohibited. The payment of any fee, commission or compensation of any kind or the granting of any gift or gratuity of any kind, either directly or indirectly, whether or --------------------------------- not in connection with any purchase, sale or contract, to any person employed by the State in the Department of the Treasury, or to any other person in the employ of the State having any duties or responsibilities in connection with the purchase or aquisition of any property or services by the State or any department, commission, authority, agency or instrumentality thereof, by or on behalf of any seller or supplier who has made, negotiated, solicited or offered to make any contract to sell or furnish real or personal property or services to the State or to any department, officer, commission, authority, agency or instrumentality thereof, is hereby prohibited. Any person offering, paying, giving, soliciting or receiving any fee, commission, compensation, gift or gratuity in violation of this section shall be guilty of a misdemeanor. NEW JERSEY IS AN EQUAL OPPORTUNITY EMPLOYER [LOGO OF US AUDIOTEX APPEARS HERE] December 28, 1998 State of New Jersey Purchasing Bureau 33 West State Street, 9/th/ Floor Trenton, NJ 08625-0230 Dear Sirs: U S Audiotex appreciates the opportunity to present its response to the State of New Jersey's Bid No. 99-X-28201 for an Interactive Voice Response System credit card acceptance program for its taxpayers. We believe that U S Audiotex is uniquely positioned to provide this service to the State for the following reasons: . We are the largest and most experienced credit card processor using interactive voice response technology in the country. We have over 250 customers nationwide who subscribe to our services. These customers are all government entities. Our sole business focus is on providing credit card acceptance programs to the government sector. . We have an existing and highly successful credit card tax payment program that we have named 888-2PAY-TAX(SM). Close to 100 city and county governments currently subscribe to this program. . On August 20, 1998, following a comprehensive eight month vendor analysis that included evaluating proposals from 26 separate companies, the Internal Revenue Service announced that it had awarded to U S Audiotex and its 888-2PAY-TAX(SM) program a bid to provide credit card processing services for the 1998 tax year. Beginning January 15, 1999, taxpayers who wish to pay their federal income tax with their credit card will be able to do so by dialing 888-2PAY- TAX(SM). . On January 4, 1999, the California Franchise Tax Board will begin participation in 888-2PAY-TAX(SM), enabling taxpayers to pay their delinquent tax bills with their credit card. . On December 23, 1998, the District of Columbia, after evaluating numerous competitive bids, notified U S Audiotex that it will join the 888-2PAY-TAX(SM) program for the District's 800,000 taxpayers. . Because the State of New Jersey participates in a joint Federal/State Electronic Filing program, subscribing to 888-2PAY-TAX(SM) would maintain conformity with IRS procedures and programs and minimize taxpayer confusion. Centerpoint Building - 18 Crow Canyon Court - Suite 300 - San Ramon, CA 94583 Tel. (925)838-7996 Fax (925)838-4395 - Web Site http://www,usaudiotex.com [LOGO] . U S Audiotex will provide residents of the State of New Jersey, who are paying their federal income tax, the ability to pay their State tax during the same telephone session. We believe that this will significantly increase taxpayer participation in the State's credit card program. For these reasons, we believe that U S Audiotex is able to present a singular and compelling opportunity for the State and its taxpayers. We would welcome the opportunity to serve both parties should you decide to select U S Audiotex and 888-2PAY-TAX(SM). Yours Truly, /s/ Kenneth Stern - ----------------- Kenneth Stern President and CEO U S Audiotex, LLC [LETTERHEAD OF USAUDIOTEX] COMPUTERS THAT SPEAK FOR THEMSELVES The attached fee schedule reflects the convenience fees that will be charged to cardholders who make a credit card payment through the 888-2PAY-TAX service. There are no costs to the State of New Jersey. These fees will be in affect for a minimum of 60 days.
- -------------------------------------------------------------------------------------------------------------- PRICE SHEET TERM CONTRACT - ADVERTISED BID PROPOSAL - -------------------------------------------------------------------------------------------------------------- DEPT OF TREASURY NUMBER : 99-X-28201 PAGE PURCHASE BUREAU OPEN DATE : 12/23/98 TIME : 2 PM 29 STATE OF NEW JERSEY T-NUMBER : T1799 33 WEST STATE ST 9TH FL PO BOX 230 TRENTON NJ 08625-0230 BIDDER : US AUDITOR, LLC - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- LINE No. COMMODITY-SERVICE DESCRIPTION QUANTITY UNIT PERCENT 00 NOT USE - -------------------------------------------------------------------------------------------------------------- UNLCGS SPIC1411D OTMERWISE BELOW; SHIP TO: 922105 / S001 DIV OF REVENUE PAYMENT PROCESSING 160 SOUTH BROAD ST LIVINGSTON ST, ENTRANCE TRENTON NJ 08609 - -------------------------------------------------------------------------------------------------------------- 00001 COMMODITY CODE: 794-13-038282 1 PCNT ------ ------ INTERACTIVE VOICE RESP.-DIV. OF REV. FEE TO BE PAID BY THE USER OF THE INTERACTIVE VOICE RESPONSE SYSTEM TO THE CONTRACTOR. Fee Schedule THIS FEE MUST BE STATED AS A PERCENT AND (AMEX, MasterCard, Discover) WILL BE IN EFFECT FOR THE ENTIRE TERM OF Payment Amount THE CONTRACT AND ANY EXTENSION THEREOF. From To Fee ---- -- ---- $0 $99.99 $3 100 199.99 6 200 399.99 11 400 699.99 16 700 1,099.99 25 1,100 1,599.99 35 1,600 2,299.99 49 2,300 3,099.99 68 3,100 3,999.99 87 4,000 4,999.99 109 5,000 6,099.99 133 6,100 7,299.99 159 7,300 8,599.99 187 8,600 9,999.99 218 10,000 11,999.99 262 12,000 14,999.99 399 15,000 19,999.99 437 20,000 24,999.99 547 25,000 29,999.99 656 30,000 34,99,99 767 35,000 39,999.99 876 40,000 44,999.99 985 45,000 49,999.99 1,095 50,000 54,999.99 1,204 55,000 59,999.99 1,314 60,000 64,999.99 1,423 65,000 69,999.99 1,533 70,000 74,999.99 1,650 75,000 79,999.99 1,760 80,000 84,999.99 1,870 85,000 89,999.99 1,980 90,000 94,999.99 2,O90 95,000 99,999.99 2,200 - --------------------------------------------------------------------------------------------------------------
U S Audiotex Credit Card Convenience Fee Schedule State of New Jersey (Excluding American Express) Payment Amount - ----------------------------------------------------------- From To Fees - ----------------------------------------------------------- 0 99.99 $ 3 - ----------------------------------------------------------- 100 199.99 $ 6 - ----------------------------------------------------------- 200 399.99 $ 9 - ----------------------------------------------------------- 400 699.99 $ 14 - ----------------------------------------------------------- 700 1099.99 $ 22 - ----------------------------------------------------------- 1100 1599.99 $ 32 - ----------------------------------------------------------- 1600 2299.99 $ 46 - ----------------------------------------------------------- 2300 3099.99 $ 62 - ----------------------------------------------------------- 3100 3999.99 $ 80 - ----------------------------------------------------------- 4000 4999.99 $ 100 - ----------------------------------------------------------- 5000 6099.99 $ 122 - ----------------------------------------------------------- 6100 7299.99 $ 146 - ----------------------------------------------------------- 7300 8599.99 $ 172 - ----------------------------------------------------------- 8600 9999.99 $ 199 - ----------------------------------------------------------- 10,000 11,999.99 $ 239 - ----------------------------------------------------------- 12,000 14,999.99 $ 299 - ----------------------------------------------------------- 15,000 19,999.99 $ 399 - ----------------------------------------------------------- 20,000 24,999.99 $ 499 - ----------------------------------------------------------- 25,000 29,999.99 $ 599 - ----------------------------------------------------------- 30,000 34,999.99 $ 699 - ----------------------------------------------------------- 35,000 39,999.99 $ 799 - ----------------------------------------------------------- 40,000 44,999.99 $ 899 - ----------------------------------------------------------- 45,000 49,999.99 $ 999 - ----------------------------------------------------------- 50,000 54,999.99 $ 1,099 - ----------------------------------------------------------- 55,000 59,999.99 $ 1,199 - ----------------------------------------------------------- 60,000 64,999.99 $ 1,299 - ----------------------------------------------------------- 65,000 69,999.99 $ 1,399 - ----------------------------------------------------------- 70,000 74,999.99 $ 1,499 - ----------------------------------------------------------- 75,000 79,999.99 $ 1,599 - ----------------------------------------------------------- 80,000 84,999.99 $ 1,699 - ----------------------------------------------------------- 85,000 89,999.99 $ 1,799 - ----------------------------------------------------------- 90,000 94,999.99 $ 1,899 - ----------------------------------------------------------- 95,000 99,999.99 $ 1,999 - ----------------------------------------------------------- (c) Copyright 1988, U S Audiotex/SM/, LLC, San Ramon, CA State of Now Jersey Proposal Fee Schedule.doc
- -------------------------------------------------------------------------------------------------------------- PRICE SHEET TERM CONTRACT - ADVERTISED BID PROPOSAL - -------------------------------------------------------------------------------------------------------------- DEPT OF TREASURY NUMBER : 99-X-28201 PAGE PURCHASE BUREAU OPEN DATE : 12/23/98 TIME : 2 PM 29 STATE OF NEW JERSEY T-NUMBER : T1799 33 WEST STATE ST 9TH FL PO BOX 230 TRENTON NJ 08625-0230 BIDDER : US AUDITOR, LLC - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- LINE COMMODITY-SERVICE DESCRIPTION QUANTITY UNIT PERCENT DO NOT USE No. - -------------------------------------------------------------------------------------------------------------- UNLESS SPECIFIED OTHERWISE BELOW: SHIP TO: 922105 / S001 DIV OF REVENUE PAYMENT PROCESSING 160 SOUTH BROAD ST LIVINGSTON ST, ENTRANCE TRENTON NJ 08609 - -------------------------------------------------------------------------------------------------------------- 00001 COMMODITY CODE: 794-13-038282 1 PCNT ------ ------ INTERACTIVE VOICE RESP.-DIV. OF REV. FEE TO BE PAID BY THE USER OF THE INTERACTIVE VOICE RESPONSE SYSTEM TO THE CONTRACTOR. Fee Schedule-MasterCard/Discover THIS FEE MUST BE STATED AS A PERCENT AND (Excluding AMEX) WILL BE IN EFFECT FOR THE ENTIRE TERM OF Payment Amount THE CONTRACT AND ANY EXTENSION THEREOF. From To Fee ---- -- --- $0 $99.99 $3 100 199.99 6 200 399.99 9 400 699.99 14 700 1,099.99 22 1,100 1,599.99 32 1,600 2,299.99 46 2,300 3,099.99 62 3,100 3,999.99 80 4,000 4,999.99 100 5,000 6,099.99 122 6,100 7,299.99 146 7,300 8,599.99 172 8,600 9,999.99 199 10,000 11,999.99 239 12,000 14,999.99 299 15,000 19,999.99 399 20,000 24,999.99 499 25,000 29,999.99 599 30,000 34,999.99 699 35,000 39,999.99 799 40,000 44,999.99 899 45,000 49,999.99 999 50,000 54,999.99 1,099 55,000 59,999.99 1,199 60,000 64,999.99 1,299 65,000 69,999.99 1,399 70,000 74,999.99 1,499 75,000 79,999.99 1,599 80,000 84,999.99 1,699 85,000 89,999.99 1,799 90,000 94,999.99 1,899 95,000 99,999.99 1,999 - --------------------------------------------------------------------------------------------------------------
U S Audiotex Credit Card Convenience Fee Schedule* State of New Jersey (State Income Taxes) Payment Amount From To Fees ---- -- ---- 0 99.99 $ 3 100 199.99 $ 6 200 399.99 $ 11 400 699.99 $ 16 700 1,099.99 $ 25 1,100 1,599.99 $ 35 1,600 2,299.99 $ 49 2,300 3,099.99 $ 68 3,100 3,999.99 $ 87 4,000 4,999.99 $ 109 5,000 6,099.99 $ 133 6,100 7,299.99 $ 159 7,300 8,599.99 $ 187 8,800 9,999.99 $ 218 10,000 11,999.99 $ 262 12,000 14,999.99 $ 329 15,000 19,999.99 $ 437 20,000 24,999.99 $ 547 25,000 29,999.99 $ 656 30,000 34,999.99 $ 767 35,000 39,999.99 $ 876 40,000 44,999.99 $ 985 45,000 49,999.99 $ 1,095 50,000 54,999.99 $ 1,204 55,000 59,999.99 $ 1,314 60,000 64,999.99 $ 1,423 65,000 69,999.99 $ 1,533 70,000 74,999.99 $ 1,650 75,000 79,999.99 $ 1,760 80,000 84,999.99 $ 1,870 85,000 89,999.99 $ 1,980 90,000 94,999.99 $ 2,090 95,000 99,999.99 $ 2,200 *Participating cards: American Express, MasterCard, and NOVUS/Discover. U S AUDIOTEX STATEMENT OF EXPERIENCE AND CAPABILITY U S AUDIOTEX was founded in July, 1985 and incorporated in April, 1986. The organizations primary business objective was to develop superior quality Interactive Voice Response Systems. That objective remains unchanged today. In the early 1990's the organization's focus moved towards credit card processing for government agencies. In this service, our client base demanded virtually 100% accuracy, real time credit controls and unparalleled up-time. U S AUDIOTEX's management believes that our superior approach to quality and reliability contributed to winning the IRS's business over 26 other proposals and for being awarded the State of California's Franchise Tax Board business for delinquent taxpayer collections. U S AUDIOTEX has historically grown at about 40% per year. However, with the addition of the IRS, our growth in the government market has skyrocketed. In 1996, in order to sustain the growth, U S AUDIOTEX brought in a financial partner, Imperial Ventures. In January of 1998, Imperial Bank (parent of Imperial Ventures) acquired Imperial Ventures' interest in U S AUDIOTEX plus additional membership interests from U S AUDIOTEX's founder. The additional financial strength of the organization has provided the opportunity to increase staffing and expand the product line to incorporate secured Internet payment transactions (currently in development). U S AUDIOTEX is now an affiliate of a six billion dollar financial institution traded on the New York Stock Exchange under the symbol IMP. This provides us access to 1000 additional staff members. This allows 100% of the U S AUDIOTEX staff to focus on installing and managing systems. The Imperial staff provides the support for Finance, Legal, Human Resources, Recruiting, Marketing, Facilities Management and special projects like "Year 2000". U S AUDIOTEX is the largest Interactive Voice Response/Credit Card Processing Service in the United States for Government entities. We have obtained this status through our commitment to quality and reliability, customer service and financial controls that are the most rigorous in the industry. Due to our industry focus, our systems are more robust, our engineers more knowledgeable about this specific product and our financial and operational support staff have substantially more directly related experience than any generalist. U S AUDIOTEX has a staff of twenty professionals dedicated to this single product line. Our support organizations like legal, human resources etc. are provided by Imperial Bank. The U S AUDIOTEX engineering group is made up of seven full time professionals. U S AUDIOTEX does not use outsourcing for engineering. We firmly believe that in order to service our customers quickly and efficiently we must be totally committed to all technical aspects of a project from inception through continual enhancements. The U S AUDIOTEX operational support staff is a professional organization responsible for script management, including free script updates, customer support, customer training, and graphic arts for the production of signage, displays, and other support materials that substantially enhance customer utilization. The U S AUDIOTEX financial management group is responsible for cash management. This staff is managed by our Chief Financial Officer, Debbie Soleta. Debbie has five direct staff members. The staff's duties include establishing the credit card accounts, including terminal ID's. They install the Automatic Clearing House (ACH) processes and test the electronic deposits into your account. The U S AUDIOTEX Interactive Voice Response (IVR) System provides numerous benefits to the Government and taxpayers, including: . One-Stop shopping for IVR/credit card acceptance . Acceptance of credit cards for tax payments (AMEX, MasterCard and Discover). . 24 hour/7 day service availability . Free IBM service 24 hours/7 day a week . Electronic file created on a real time basis . Real time authorization of credit cards . Real time verification of entered data to caller . Automatic PIN authorization . Financial controls . All credit card payments FDIC insured . Simple IVR expansion to include additional tax payments . Our existing national tax payment line, 888-2PAY-TAX/SM/ All of these key issues make U S Audiotex the logical choice for IVR/credit card acceptance for government agencies. With U S Audiotex, you only deal with one company as opposed to multiple companies to provide the same service. In turn, U S Audiotex applications are developed quicker and placed in operation in half the time required by others. US Audiotex is providing the following information to the State of New Jersey in response to its bid request proposal number 99-X-28201 for Interactive Voice Response (IVR) System - NJ Division of Revenue. One original bid response and seven copies of the original bid response are enclosed. 4.5 Section - 1: Technical Proposal - ------------------------------------ U S AUDIOTEX acknowledges the State of New Jersey's system requests addressed in the bid. The State of New Jersey's goal is to provide additional payment options to citizens while keeping the cost of doing so at a minimum. U S AUDIOTEX approach and plans for accomplishing the work outlined in the scope of work section: U S AUDIOTEX will develop and implement an IVR system for the State of New Jersey that will accept and process credit card payments for State of New Jersey Income Taxes. Key strategies required for timely implementation include: 1) Develop IVR script that is acceptable to the State of New Jersey 2) Establish transmission protocol for transaction reports to the State of New Jersey (e-mail, electronic or EDI) 3) Establish taxpayer validation procedures 4) Establish name control procedures 5) Determine what types of reports the State of New Jersey would like to receive (daily, weekly, monthly) Quick completion of this project is facilitated by these key issues: 1) U S AUDIOTEX has a working IVR script for the US Treasury and the California Franchise Tax Board that can be customized for the State of New Jersey 2) U S AUDIOTEX recommends electronic transfer of taxpayer information to the State of New Jersey 3) U S AUDIOTEX recommends collection of first four letters of last name for taxpayer name control (we are already doing this for the CA FTB) 4) U S AUDIOTEX already sends daily, weekly and monthly reports to existing customers 5) U S AUDIOTEX has worked vigorously in the last 4 months to establish same service for the IRS and the CA FTB The State of New Jersey and U S AUDIOTEX will need to work closely together to make sure this project is developed correctly and implemented on time. Proposed timeline is included in Appendix A. 4.5.1 Management Overview After working on an IVR System for the IRS that will handle credit card payments starting January 15, 1999 and for the CA FTB starting January 4, 1999, we have an excellent understanding of the procedures that need to take place to implement such a system for the State of New Jersey. This unique understanding will facilitate a quick response time required to establish a similar system for the State of New Jersey by the end of January 1999. The U S AUDIOTEX IVR System hardware and software is already established and ready to handle calls and payments for the State of New Jersey. All of our hardware is fault tolerant with double back up capability. We have two redundant processing locations already in place to handle call traffic and will determine which location to use based upon call volume. Current capacity will easily handle payments from those citizens who decide to use a credit card to pay a balance due to the State of New Jersey. Electronic transmission of data is currently ready, as well. U S AUDIOTEX recommends sending an electronic file to the State of New Jersey as opposed to EDI transmission. This will be a quicker process than EDI as EDI will take at least a month or so to complete programming. However, this does not preclude us from developing an EDI format for the next tax payment year should the NJ DOR so desire. U S AUDIOTEX believes that, for the pilot program, time is of the essence and the State of New Jersey probably has the same thoughts. As stated above, the key issues that need to be addressed right away are script development, transmission protocol, name control and validation procedures. IVR implementation time is based on these key factors. U S AUDIOTEX will work closely with the State of New Jersey's representatives on these issues and will advise which alternatives are the best to pursue and in the best interests of the State of New Jersey given its aggressive implementation schedule. U S AUDIOTEX Software and Hardware Overview: . Software The U S AUDIOTEX software is set up for over 250 government customers throughout the United States. Key components of the software include: . Developed in Visual Voice . Window NT . 100% 32 bit architecture . Re-entrant and reusable . Year 2000 compliant . Highly modular U S AUDIOTEX normally customizes every installation. Customization is fairly minimal and there is no charge for this effort. . Hardware U S AUDIOTEX is an authorized IBM Business Partner. All servers and workstations are acquired through authorized IBM channels and include on site IBM service. U S AUDIOTEX does not modify any hardware component. The primary system will contain a Windows NT server. The server is responsible for maintaining a RAID file array such that all stored data is duplicated during every write. Each Windows NT work station will contain 48 digital lines (two T1's) to provide 192 line configuration using one server and 4 work stations. All network configuration will be based on Windows NT. Key components of the system include: . 100% use of Dialogic Boards from Parsippany, NJ in all systems . 32 bit architecture . Hot swapable power supply . Raid disk drives . Dual CPU's in server . Redundant voice cards . All American made systems . Financial controls U S AUDIOTEX provides an exclusive audit control process that electronically performs a mirror balancing of the system's activity and the monies posted through ACH processing. The U S AUDIOTEX system, as part of its nightly batch balancing procedures, pulls down an ACH file from the financial institution front end processor. This file is matched to the IVR System's activity to insure that every payment captured is accounted for in the daily ACH process. The U S AUDIOTEX system handles voids (reversed transactions prior to batch cutoff), credits (reversed transactions after batch cutoff), charge backs and research requests to document telephone charges. 4.5.2 Detailed Plans, Approach and Deliverables U S AUDIOTEX proposes to the State of New Jersey that it utilize our Interactive Voice Response (IVR) System to enable taxpayers to pay their tax obligations with their credit card via a touch-tone telephone. In particular, we propose that the State of New Jersey subscribe to U S AUDIOTEX's existing credit card tax payment program, 888-2PAY-TAX/SM/. Close to 100 cities and counties across the country participate in 888-2PAY-TAX/SM/. Recently, the IRS and CA FTB announced that it will begin acceptance of credit cards for the 1998 tax year and that it has chosen U S AUDIOTEX and the 888-2PAY-TAX/SM/ program for this purpose. Credit card fees that are traditionally borne by the merchant will be absorbed by U S AUDIOTEX on behalf of the State of New Jersey. In addition, U S AUDIOTEX will pay all telecommunications and processing costs. All equipment will be situated at U S AUDIOTEX's site. In return, U S AUDIOTEX will assess a convenience fee to those taxpayers who pay their tax through this program. (See Section C - Cost Proposal). As a result, this program will be free of charge to the State of New Jersey. It is understood that the convenience fees need not be included in the solicitation; that they will, however, be incorporated in a contract upon the conclusion of negotiations. The System will be available to taxpayers 7 days per week, 24 hours a day. Taxpayers, using a touch-tone telephone, will dial (toll free) 888-2PAY-TAX/SM/ and be connected to the U S AUDIOTEX IVR System. The IVR will prompt the taxpayer to enter a four digit jurisdiction code, Taxpayer Identification Number, the first four letters of their last name (name control) and payment amount. The taxpayer will be informed of the amount of the convenience fee and be given the option of proceeding with the payment transaction. If the taxpayer elects to proceed with the payment, he/she is requested to enter their credit card number, card expiration date, zip code and daytime telephone number. The U S AUDIOTEX IVR System will perform an on-line authorization to verify credit (or availability of funds if a debit card is used for payment) and, upon verification of credit or funds availability, will provide the caller/taxpayer with a confirmation code that the payment has been authorized by the card issuing institution. IVR scripts are customized for each client application. The scripts include cardholder rejection scenarios, as applicable. All scripts will be approved by the NJ DOR. Taxpayer identification and payment data will be transmitted to the State of New Jersey by 8:00AM ET the following morning via electronic file or email. 48 hours following the transaction date, funds are deposited to the State of New Jersey's designated bank account (Visa/MasterCard). AMEX and Discover typically settle in three days but modifications will be requested of these card companies for a 48 hour settlement. Storage of payment detail records will be kept for 2 years. In addition to the features and processes described above, U S AUDIOTEX, due to its prevailing agreement with the IRS and the fact that the State of New Jersey participates in a joint State of New Jersey/Federal Electronic Filing Program, will provide a unique set of prompts for State of New Jersey taxpayers who call 888-2PAY-TAX/SM/ to pay their federal income tax in the year 2000. If the caller/taxpayer, during the telephone session, enters a State of New Jersey zip code, the U S AUDIOTEX IVR System will recognize that the taxpayer is from the State of New Jersey of New Jersey and, upon the conclusion of the payment of federal income tax, offer the taxpayer the option of paying their State of New Jersey tax during the same session. We believe that this feature will generate significant additional taxpayer participation in the State of New Jersey credit card payment program. Implementation Procedures: A detailed Technical Implementation Plan and timeline appears in Appendix A. In general, U S AUDIOTEX implementations entail nine (9) basic categories of activity. They include: . Planning and Project Management: This entails project assignment of personnel, project sizing and budgeting and identification of costs. . Marketing/Sales: Includes promotional and user awareness programs. . Data Center: Includes facility preparation, wiring, support/training, disaster recovery/contingency planning. . Telecommunications: Identify and select a vendor, install lines. . Accounting: ACH set-up, ordering terminal and merchant ID's, settlement procedures. . Customer Service: Identify issues/needs, determine roles, staffing, user training/documentation. . Scripting/Recording: Develop scripts, conduct recordings. . Project Design/Implementation: Program application scripts, test plans, hardware installation, stress testing. . User Acceptance: Client review and sign-off, go live. Control and Quality Assurance Measures: Quality control is critical to all applications and at multiple intersections within the application. The most critical starting point is the quality and reliability of the hardware components used in the application. U S AUDIOTEX uses exclusively IBM industrial platforms and Dialogic voice boards. Both of these products are compliant with ISO 9001 standard. This type of configuration is the most durable and reliable platform available. The second phase of quality control is the usage of reliable software modules. U S AUDIOTEX builds a system through a series of unique independent software structures that are highly reliable and in production in a tremendous number of situations. By utilizing existing software, the project starts with a reliable base platform and an operational procedure for both the human and systems interface. These steps ensure that the software meets the requirements of the card association as well as the exacting requirements of each organization in which the system is implemented. Ongoing quality control is a key to U S AUDIOTEX's ongoing success in this marketplace. We believe the most important key to success is total customer satisfaction. U S AUDIOTEX provides live customer service representatives. This department is responsible for handling customer issues that affect utilization of the U S AUDIOTEX product and services in the marketplace. This department is for the exclusive use of the U S AUDIOTEX clients and has no other responsibilities except to insure that the system's process smoothly and accurately. In addition to customer satisfaction, U S AUDIOTEX provides Interactive Voice Response client surveys. Quality control surveys are periodically added to the system to gather total client feedback. In addition to the survey, U S AUDIOTEX also has voice mail capabilities for receiving recorded comments. Although the U S AUDIOTEX system captures the caller's telephone number through automatic number identification facilities, U S AUDIOTEX does not do any outbound client survey. This is done to protect the privacy of individuals within a household. U S AUDIOTEX systems monitor their operational functions and when a severity level alarm is triggered the system forwards a message to U S AUDIOTEX's 24 hour a day/7 days a week maintenance service. The engineer on call will log on to the affected system as well as dispatch an IBM system engineer to correct any failure. All the features of U S AUDIOTEX's total customer satisfaction and quality assurance facilities including IBM service and ongoing system's monitoring is available to all U S AUDIOTEX clients. U S AUDIOTEX only offers this one level of service. Credit Card Participation: U S AUDIOTEX has merchant agreements with American Express, Discover, MasterCard and Visa. In accordance with standard procedure between U S AUDIOTEX and each of the card issuers, U S AUDIOTEX is required to notify the credit card organization of the merchant opportunity and the associated convenience fees, as appropriate. At that time, each credit card entity determines its participation position and notifies U S AUDIOTEX as to their intent. The following responses address each issue located in the Scope of Work Section (Section 3.1 through 3.8). These responses are not meant to be reiterations of the bid requirements, but confirmation that U S AUDIOTEX currently meets these requirements. 3.1 U S AUDIOTEX already has a toll-free number, 888-2PAY-TAX/SM/, established for State of New Jersey taxpayers to call. This number is a nationwide payment number also used by the IRS and the CA FTB. U S AUDIOTEX scripts are done professionally and allow callers to make their payment in a quick and efficient manner. After a taxpayer enters the amount of the payment, they will be informed of the convenience fee amount. U S AUDIOTEX will provide an existing IVR script to the State of New Jersey for review and approval. U S AUDIOTEX software meets the requirements specified in section 3.1. All of U S AUDIOTEX credit card processing systems run 24 hours a day, 7 days a week. There is no down time. 3.2 Visa and MasterCard payments are settled in 48 hours. However, as noted above, AMEX and Discover settle in 72 hours. U S AUDIOTEX has advised AMEX and Discover of this requirement in the State of New Jersey's bid and, in concert with AMEX and Discover, is making settlement modifications to address this requirement. U S AUDIOTEX will deposit payments to the bank and bank account specified by the State of New Jersey. Payments through the U S AUDIOTEX System are deposited via ACH to the State of New Jersey's bank account and are FDIC insured. The State of New Jersey is not responsible for returning the convenience fee portion of a payment that has been charged back. This is standard with all of our government clients. 3.3 All credit card transactions through the U S AUDIOTEX System are authorized on a real-time basis, i.e. we verify card for legality and existing funds while caller is on hold. U S AUDIOTEX will collect a social security number from the taxpayer. U S AUDIOTEX will use the name control file from the State of New Jersey to validate name control. These procedures will have an important effect on the time required to complete this project. Typically, name control is accomplished by using the first four letters of the taxpayer's last name. U S AUDIOTEX sends transaction reports to the State of New Jersey on a daily basis by 8:00AM ET. Reports always arrive before funds have been deposited into the State of New Jersey's bank account. Transmission of data can be finalized when necessary. U S AUDIOTEX supports various protocols and will work with the State of New Jersey on these. Electronic transmission is recommended at this point in time. U S AUDIOTEX already processes and sends daily, weekly and monthly reports to clients. Additional payment options and script changes will be provided to the State of New Jersey at no cost. Again, this is standard for all of our clients. U S AUDIOTEX daily reports are broken down by card type, payment amount, fee, total payment amount. Also included is the social security number, name control and a verbal receipt number that is provided to every taxpayer whose payment is authorized. 3.4 U S AUDIOTEX will provide customer service from 7:30AM to 5:00PM ET for the State of New Jersey's taxpayers. 3.5 Confidentiality requirement is acknowledged by U S AUDIOTEX. 3.6 through 3.6.2 c: Year 2000 compliance and requirements specified in these sections are acknowledged by U S AUDIOTEX. 3.6.3 through 3.8: These sections are acknowledged by U S AUDIOTEX. 4.5.3 Security U S AUDIOTEX will transmit a secure (encrypted) file to the State of New Jersey for payment posting. The data transmitted includes the taxpayer identification number, name control, payment data, type, dates and various other control fields. Not included in this transmission is the customer's credit card number, card type or expiration date. U S AUDIOTEX also collects contact phone numbers, Automatic Number Identification (ANI) and some card billing address information which is used for credit card fraud control. U S AUDIOTEX is also implementing CVC and CVV card controls. CVC and CVV card controls are additional information requirements that are printed on the card but not on the card imprint. This process reduces stolen card numbers as a source of fraudulent card usage. For enhanced security U S AUDIOTEX does not transmit any card numbers and related information. This eliminates any additional security control issues. The card payment information is available to research any payment issue through our customer service team. Various agencies, like the IRS and the State of California Franchise Tax Board, have different protocol requirements ranging from encryption modems, PKZIP encrypted and password protected files to EDI. An important component of Security is to avoid having detailed security plans within a public RFP. However, all security transmissions include the following components: . Encryption . Password Protection . Control Totals U S AUDIOTEX provides the flexibility to meet the State of New Jersey's requirements along with the ability to change in the future at no cost to the State of New Jersey. 4.5.4 Term Contract Management, Scheduling and Control 4.5.4.1 Contractor's Term Contract Management U S AUDIOTEX's general approach to term contract management is to assign a person within the Company who has overall responsibility for the implementation and ongoing relationship of the term contract. He/she supervises a team of engineering, marketing, telecommunications, accounting and customer service personnel to support the program for the client. The person typically assigned to manage the term contract is a U S AUDIOTEX Account Executive. In this case, the term contract manager, or Project Manager as we call this position, will be Craig White. As a U S AUDIOTEX Account Executive, Craig has an extensive background in project management having implemented numerous tax applications for various counties and municipalities and having been one of the project managers assigned to the IRS account. Our experience has taught us that assigning one person to manage the overall client relationship minimizes communications problems and facilitates the implementation process. A key tool in the term contract management process and for the Project Manager himself is to have a project plan that details the numerous steps that are required to implement a credit card program through an IVR system. While each project plan is tailored to the unique characteristics of each project, our experience has shown us that there are more similarities than differences among individual applications. Thus, our extensive experience in this arena has alerted us to potential pitfalls and has given us the wherewith all to leverage our experience to meet client requirements within necessary time frames. A copy of our project plan that includes detailed action items is included in this response. The U S AUDIOTEX term contract manager for the State of New Jersey will have the responsibility for coordinating communications between U S AUDIOTEX and the State of New Jersey's term contract manager. During the initial phases of implementation after requirements are defined and tasks assigned, we recommend that weekly status meetings between our team members and the State of New Jersey's representatives be held to manage the implementation process until the program is activated for taxpayer use. Status reports chronicling issues, responsibilities and due dates are generated and distributed to participants for review and action, as necessary. 4.5.4.2 Bidder's Gear-Up Plan - See Appendix A for timeline. 4.5.5 Potential Problems Generally, potential problems can be anticipated and avoided or minimized if there are three elements that have been incorporated in the project at the outset. First, there must be capable, qualified and experienced people devoted to term contract management. Second, there must be an effective project plan that is developed and used as a guideline in the conduct of day-to-day project management. Thirdly, and perhaps, most importantly, previous experience in income tax credit card applications has shown us how to anticipate, avoid and minimize potential problems. Our experience has shown us that problems typically arise at the beginning of the project when user requirements have not been thoroughly defined and communicated. It is crucial to the project's success that all requirements are identified and clearly delineated at the outset. Aside from defining and communicating requirements at the project's beginning to avoid or minimize potential problems, most issues occur due to scheduling or timing problems. From experience, potential problems may arise in three general areas: 1) Scripting, 2) Performance and transmission of entity validation and payment data and 3) Settlement of funds. Scripting: Scripts are essential to the success of an IVR credit card ---------- payment program. They should be tightly constructed and, ideally, should seldom exceed three minutes in duration. Scripts define the interaction of the program with the taxpayer. Poorly worded or structured scripts will result in poor taxpayer usage. The construction of a script is one of the first implementation functions that U S AUDIOTEX addresses. Performance and transmission of entity validation and payment data: U S ------------------------------------------------------------------- AUDIOTEX will collect the taxpayer's social security number and name control for taxpayer validation. Entity validation may be performed on-line and in real time or on a batch basis. The State of New Jersey's needs and capabilities need to be determined in advance. Traditionally, U S AUDIOTEX collects the first four letters of the last name for name control. From a development perspective, this area can be the most time consuming and technically challenging because of the need to develop an interface or establish a communications protocol and the reliance on both the customer and the vendor to function in unison. Again, sound project management and adherence to a workable project plan will either eliminate or reduce the impact of potential problems in this area. Settlement of funds: The movement of funds from the credit card issuers' -------------------- accounts to that of the State of New Jersey is generally a perfunctory process. Nevertheless, problems can arise related to the availability of funds for each type of credit card accepted by the program. Discover and American Express typically settle 72 hours from the payment date; MasterCard and Visa settle within 48 hours. In some cases, arrangements can be made to accommodate 48 hour settlement for Discover and American Express. Since this is a requirement of the State of New Jersey, we are in discussion with AMEX and Discover to address this requirement. U S AUDIOTEX will request Visa, AMEX, MasterCard and Discover credit card companies to participate in this program. As you may already know, Visa chose not to participate in our program for the IRS (nor will it participate in the CA FTB's program). Note: Visa does not allow for the assessment of variable convenience fees to its cardholders. While a fixed convenience fee may be practical in some payment applications where the payment range is limited, e.g. traffic citations, fixed convenience fees are not workable in tax applications where a wide range of payment options necessitates the imposition of a tiered or variable convenience fee schedule. However, U S AUDIOTEX will still request their participation in a program for the State of New Jersey. 4.5.6 through 4.5.6.4 Information on Subcontractors U S AUDIOTEX does not incorporate the use of subcontractors in any of its IVR projects. All IVR design, development, quality control, implementation, etc. are handled by U S AUDIOTEX employees only. Credit card processing is handled by our Parent and we already have existing agreements with all major credit card companies. When signing up for 888-2PAY-TAX/SM/, you only sign an agreement with U S Audiotex, not with various companies that provide the marketing, the IVR or the credit card processing capabilities. 4.6 Section - 2: Organizational Support and Experience - ------------------------------------------------------- 4.6.1 US Audiotex, LLC 18 Crow Canyon Court, Suite 300 San Ramon, CA 94583 Craig White, Account Executive 1-800-487-4567 fax:1-800-434-4913 e-mail: cwhite@usaudiotex.com 4.6.2 The following U S AUDIOTEX personnel will be assigned specific tasks for this project: Ken Stern, President Steve Johnson, Sr. Vice President Craig White, Account Executive Debbie Soleta, CFO Brad Belton, Director of Engineering David Rickard, Software Engineer U S AUDIOTEX will not utilize any contractors/subcontractors on this project. 4.6.3 See Appendix B for Organization Chart. 4.6.4 Craig White, Account Executive - Project Manager Steve Johnson, Sr. Vice President - Asst. Project Manager/Script Development Debbie Soleta, CFO - Establishment of terminal id's for funds flow, reconciliation of daily payments and customer service Brad Belton, Director of Programming - Overall programming management David Rickard, Software Engineer - IVR design, script set up and maintenance Each U S Audiotex employee above will have key roles in making sure U S AUDIOTEX provides quality work and customer service for the State of New Jersey's credit card program. Each has already functioned in a similar capacity on the IRS project. In addition to Craig's responsibilities, Steve, Ken, Brad and Debbie will have managerial oversight responsibilities for U S AUDIOTEX on the State of New Jersey's project in areas ranging from executive management (Ken) and engineering development (Brad) to customer service and accounting (Debbie). Each of these individuals is located in San Ramon, California. 4.6.5 See Appendix C for Resumes. 4.6.6 Experience of Bidding Firm on Term Contracts of Similar Size and Scope. U S Audiotex has extensive experience with large Term Contracts. Those that are pertinent to this RFP include: The US Treasury (IRS, 888-2PAY-TAX/SM/) The California Franchise Tax Board (FTB, 888-2PAY-TAX/SM/) The District of Columbia (888-2PAY-TAX/SM/) Fairfax County, VA (888-2PAY-TAX/SM/) Contract terms: The IRS contract is for 1 year with an option year attached. U S AUDIOTEX is a subcontractor under Discover and has agreed to provide 888-2PAY-TAX service to the State of California under the terms of the agreement with Discover. Agreement with the District of Columbia is 1 year with 5 option years attached. The Fairfax County, VA contract is for 3 years with 3 additional option years. Contacts: IRS, Larry Faulkner, Project Director-Alternative Payments, 202-283-4783 5000 Ellin Road, C4342, Lanham, MD 20706 (Contract awarded July 1998. Service will be available January 15, 1999 for 1998 filing season. One year contract with option to extend for one year. System scheduled for completion December 1998.) FTB, Patti Seebode, Manager, 916-845-4340 Analysis and Modernization Section, Unit 729, Sacramento, CA 95812-1468 (Contract awarded December 1998. 1.2 million collection notices annually amounting to nearly $1 billion in receivables. System scheduled for completion January 1999.) District of Columbia, Leonard Nabybal, Procurement, 202-727-0380 D.C. Purchasing & Contracting Division, 441 4th Street, N.W., Suite 410-S, Washington, D.C. 20001 (RFP awarded to U S Audiotex December 1998. Over 800,000 tax returns are filed in the District of Columbia.) Fairfax County, Elizabeth Cole, Director-Revenue Collection, 703-324-2550 12000 Government Center Parkway, Suite 333, Fairfax, VA 22035 (Contract awarded December 1998. $1.5 billion tax levy-Personal Property Tax and Real Estate Tax. System completed and in operation December 1998) 4.6.7 See Appendix D for Financial Statements. Keys points of US Audiotex and 888-2PAY-TAX/SM/ . US AUDIOTEX GUARANTEE: If a US Audiotex system fails to accurately capture and accurately process the correct payment amount, US Audiotex will pay that customer's convenience fee. . US Audiotex processes payments for over 250 government agencies. This is our only business. . US Audiotex and 888-2PAY-TAX went through an 8 month rigorous review by the US Treasury before being selected as the credit card payment solution for the IRS. . US Audiotex is one-stop shopping: . We handle the IVR design, set-up, maintenance and on-going customer support for you from our office. . Our Parent handles all of the credit card processing. . We already have existing agreements with all of the major credit card companies. . 888-2PAY-TAX is FREE. All costs are covered by US Audiotex. . US Audiotex provides 24 Hour Technical Support. There are no charges for this service. . Our customer support is second to none. If any problems arise with our service, whether it be credit card related or system related, you only need to call one number -- our number. . Internet payment capability will be ready April, 1999. [LETTERHEAD OF THE STATE OF NEW JERSEY] DEPARTMENT OF THE TREASURY DIVISION OF PURCHASE AND PROPERTY January 20, 1999 USAudioTex Centerpoint Building 18 Crow Canyon Court, Suite 300 San Ramon, CA 94583 Re: Interactive Voice Response System New Jersey Division of Revenue BID NUMBER: 99-X-28201 BID OPENING DATE: 12/29/98 BUYER: John J. Kennedy TELEPHONE NUMBER: 609-984-9703 Dear Mr. Stern: The Division of Purchase and Property intends to award a contract from your firm for the above referenced procurement in accordance with your Bid Response Proposal, contingent upon the execution of a contract and the availability of funds. The terms, conditions and specifications are contained in the bid proposal opened on the above referenced date. Sincerely, For: Director Division of Purchase and Property By: /s/ John J. Kennedy John J. Kennedy Unit Supervisor, Information Technology and Telecommunications Unit
STATE OF NEW JERSEY NUMBER : A88512 PAGE: 1 BUREAU OF PURCHASE DATE : 02/19/99 33 WEST STATE ST 9TH FL TRENTON, NJ 08625-0230 BUYER : JOHN KENNEDY - ---------------------------------------------- PHONE : (609) 984-9703 PROFESSIONAL CONTRACT EFFECTIVE DATE : 02/08/99 - ---------------------------------------------- EXPIRATION DATE: 02/07/01 INTERACTIVE VOICE RESPONSE SYSTEM - T-NUMBER : T1799 NJ DIVISION OF REVENUE CONTRACTOR : US AUDIOTEX LLCC - ---------------------------------------------------------------------------------------------------------- VENDOR NO. : 680386340 VENDOR PHONE : (800) 487-4567 - --------------------------------------------- FEIN/SSN : 680386340 US AUDIOTEX LLC REQ AGENCY : 822105 18 CROW CANYON COURT #300 DIV OF REVENUE SAN RAMON CA 94583 AGENCY REQ NO : PURCCH REQ NO. : 1014590 FISCAL YEAR : 99 COMMODITY CODE : 79413 SOLICITATION # : 28201 - --------------------------------------------- BID OPEN DATE : 12/30/98
TERM CONTRACT FROM: 02/08/99 TO: 02/07/01 ESTIMATED AMOUNT: $ 750,000.00 - ------------------------------------------------------------------------------- 1. ORDERING PERIOD: CONTRACT BEGINNING ORDERING PERIOD IS: 02/08/99 CONTRACT ENDING ORDERING PERIOD IS: 02/07/01 2. F.O.B. POINT: DESTINATION 3. DELIVERY DELIVERY WILL BE MADE WITHIN 030 DAYS ARO UNLESS SPECIFIED DIFFERENTLY ON EACH LINE OR UNLESS AN ALTERNATE DELIVERY SCHEDULE IS INDICATED. AN ALTERNATE DELIVERY SCHEDULE IS ENCLOSED HEREIN: YES 4. CASH DISOUNT TERMS: CASH DISCOUNT TERMS ARE 00.00% DAYS. 5. PERFORMANCE BOND: PERFORMANCE BOND REQUIRED: NO ; DATE REQUIRED 00/00/00 AMOUNT $0; PERCENT OF CONTRACT 0.00% 6. RETAINAGE: RETAINAGE PERCENT IS 0.00% 7. COOPERATIVE PROC: THIS CONTRACT IS AVAILABLE FOR POLITICAL SUBDIVISION USE UNDER THE COOPERATIVE PROCUREMENT PROGRAM NO 8. BID REFERENCE NO: YOUR BID REFERENCE NUMBER IS: 9. AWARDED LINE: YOU WERE AWARDED 1 LINES FROM THE SOLICITATION NUMBER 28201. THESE LINES ARE INCLUDED AS A PART OF THIS CONTRACT. - ------------------------------------------------------------------------------- ALL TERMS AND CONDITIONS AS A PART OF SOLICITATION NUMBER 28201 INCLUDING ANY ADDENDA THERETO AND ALSO INCLUDING THE BIDDER'S PROPOSAL AS ACCEPTED BY THE STATE ARE INCLUDED HEREIN BY REFERENCE AND MADE PART HEREOF EXCEPT AS SPECIFIED HEREIN - ------------------------------------------------------------------------------- THIS IS NOTICE OF ACCEPTANCE BY THE DIRECTOR OF THE DIVISION OF PURCHASE AND PROPERTY ACTING FOR AND ON BEHALF OF THE STATE OF NEW JERSEY, OF THE OFFER REFERENCED ABOVE BY YOUR FIRM WHOSE NAME AND ADDRESS APPEAR ABOVE. - -------------------------------------- -------------------------------------- BUYER DATE FOR DIRECTOR DATE DIVISION OF PURCHASE AND PROPERTY - ------------------------------------------------------------------------------- USING AGENCIES CANNOT PROCESS INVOICES FOR PAYMENT OF DELIVERED GOODS AND/OR SERVICES UNTIL THE PROPERLY EXECCUTED BOND HAS BEEN RECEIVED AND ACCEPTED BY THE PURCHASE BUREAU. VENDOR COPY - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- PRICE SHEET PROFESSIONAL CONTRACT - -------------------------------------------------------------------------------------------------------------------------------- BUREAU OF PURCHASE NUMBER : A88512 PAGE PURCHASE BUREAU T-NUMBER : T1799 2 STATE OF NEW JERSEY 33 WEST STATE ST 9TH FL PO BOX 230 CONTRACTOR: US AUDIOTEX LLC TRENTON NJ 08625-0230 - --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- LINE ESTIMATED UNIT PRICE OR EXTENDED AMT NO. COMMODITY/SERVICE DESCRIPTION QUANTITY UNIT PERCENT DISCOUNTS IF APPLICABLE - -------------------------------------------------------------------------------------------------------------------------------- UNLESS SPECIFIED OTHERWISE BELOW: SHIP TO: 822105 / S001 DIV OF REVENUE PAYMENT PROCESSING 160 SOUTH BROAD ST LIVINGSTON ST ENTRANCE TRENTON NJ 08608 00001 COMMODITY CODE: 794-13-038282 1 EACH NET INTERACTIVE VOICE RESP.-DIV. OF REV. FEE TO BE PAID BY THE USER OF THE INTERACTIVE VOICE RESPONSE SYSTEM TO THE CONTRACTOR. THE PURPOSE OF THIS CONTRACT LINE IS FOR EFFECTUATING PAYMENT AGAINST THIS CONTRACT. THE FEES PAID AGAINST THIS CONTRACT WILL BE PAID DIRECTLY TO THE CONTRACTOR BY THE PERSON UTILIZING THE SERVICE. THE FEE CHARGED BY THE CONTRACTOR MUST BE IN ACCORDANCE WITH THE FEE SCHEDULE SUBMITTED BY THE CONTRACTOR IN THEIR RESPONSE PROPOSAL (ATTACHED). - --------------------------------------------------------------------------------------------------------------------------------
EX-10.8 7 U.S. AUDIOTEX (SUBJECT TO CHANGE) [logo] USAudiotex COMPUTERS THAT SPEAK FOR THEMSELVES November 30, 1998 Group Vice President Government Relations NOVUS SERVICES, INC. 2500 Lake Cook Road 2W Riverwoods, IL 60015 Dear Kevin: Per our discussion concerning the contract with the California Franchise Tax Board(FTB), all references to NOVUS providing JVR services and assuming JVR responsibilities are services and responsibilities of US Audiotex, LLC. Specifically, US Audiotex will provide those services and perform those functions that are delineated in Riders A, B and C of MSA DGS OFA-NOVUS, Contract #C9818802. US Audiotex will be responsible for paying the NOVUS SERVICES, INC. discount rate (as documented in the MSA) and MasterCard's discount rate of 1.91% on a monthly basis directly to NOVUS in the same way we currently process accounts. US Audiotex will be responsible for providing American Express directly to the FTB. We both realize that there are additional details; however, it is understood that it is both parties intent to process this client under the same business practices that we currently have in place. Kevin, I'm confident that this is going to be as great project for both of our organizations. Sincerely, /s/ Ken Stearn Ken Stern President Centerpoint Building . 18 Crow Canyon Court . Suite 300 . San Ramon, CA 94583 Tel. (925)838-7996 . Fax (925)838-4395 . Web Site http://www.usaudiotex.com [graphic] NOVUS Services, Inc./First Data Merchant Services (FDMS) C9818802 RIDER A - ------------------------------------------------------------------------------- The following changes to MSA DGS OFA-NOVUS, are hereby incorporated in Contract #C9818802 1. Section 6.10 - Pricing Information, does not apply. Refer to Rider A. 2. Section 7.23 - Payment Terms and Penalties, does not apply. The following language is hereby incorporated into Contract #C9818802. 1. Novus shall provide an electronic credit card program accepting MasterCard, Discover and American Express. In addition, NOVUS shall be able to add the acceptance of VISA, if the credit card company approves of the program. . NOVUS shall settle the card transactions to the appropriate card associations, card networks and card issuers. . NOVUS shall pay FTB the cardholder's transaction amount less the convenience pay charged for use of NOVUS's systems. . NOVUS shall provide processing services, including all equipment and software, for purposes of accepting various card as agreed by both parties. NOVUS shall process payments of fees, taxes and/or other obligations owed to FTB. . NOVUS shall electronically transmit all card transactions to the designated processing center in real time as the transactions occur. The system will balance and reconcile each day's electronically- captured transactions on a daily basis. The system, when necessary as a result of such reconciliation, will process all appropriate ---- adjustments. . NOVUS shall route FTB funds to FTB bank account via ACH transactions for MasterCard, Discover and American Express transactions. [See Rider C] . NOVUS shall charge the cardholder a convenience fee for the use of the IVR system. (See Rider B, Convenience Fee Chart). The fee shall be charged to the cardholder as a separate transaction at the same time as the corresponding payment to FTB. . NOVUS shall provide all services at no cost to FTB and shall pay all card processing fees on behalf of FTB. All expenses associated with MasterCard, Discover and American Express shall be paid by NOVUS. 2. NOVUS shall conduct complete (all-around) testing by December 14, 1998, and shall implement the electronic credit card program by January 4,1999. 3. NOVUS shall provide a fully-automated, external Interactive Voice Response (IVR) telephone system which shall be available for cardholders to pay their Franchise Tax Board (FTB) bills by credit card 7 days a week, 24 hours a day. This system shall be supplied and maintained by the vendor. Backup procedures and disaster recovery program for cardholder_calls shall be in accordance with DGS MSA 0FA-NOVUS, Section 11.4. - -------------------------------- 4. NOVUS shall provide a call volume capacity to accommodate the needs of FTB ------------------------------- and will monitor usage during the contract period, adding capacity as volumes increase at no cost to FTB. 5. NOVUS shall have a secured Internet Payment option should FTB expand to Internet credit card payments. - -------------------------------------------------------------------------------- Page 1 NOVUS Services, Inc./First Data Merchant Services (FDMS) C9818802 RIDER A - -------------------------------------------------------------------------------- 6. NOVUS shall have a built-in method to fully duplicate the entire script in multiple languages at no additional cost to FTB. 7. NOVUS shall guarantee that its systems (hardware and software) are Y2K compliant 8. NOVUS shall pay all credit card and bank fees, including chargeback fees. FTB shall bear no vendor costs for the electronic credit card program. 9. NOVUS shall cause the Cardholder's credit card bill to describe a payment to FTB as "State of California FTB" and to describe a convenience fee payment as "Payment Processing Fee." ---------------------- 10. NOVUS shall provide written notification to FTB at least 30 days prior to an increase or decrease of the convenience fee charged to the cardholder. 11. NOVUS shall provide a toll-free number with a unique jurisdictional code exclusively for credit cardholders to charge their payments to the FTB. 12. NOVUS shall provide an IVR prompt which allows the cardholder to obtain convenience fee information. The cardholder shall not be charged for this call unless the call is completed with a credit card payment to FTB. NOVUS shall refer all cardholder calls regarding credit card issues to the cardholder's issuing bank. 13. NOVUS shall not deny a credit card payment based on a chargeback to or from NOVUS's ANI file. 14. FTB shall dial into NOVUS' data center to retrieve entity validation and ------------------------------------------------------------------------ payment file data. ------------------ 15. Information Confidentiality and Security: NOVUS shall adhere to the security and disclosure requirements of the FTB. NOVUS and its employees are considered agents of FTB only for confidential data purposes and shall be liable under the State and Federal statues for unauthorized disclosures. 16. NOVUS shall not intermingle FTB taxpayer information with other business accounts. 17. NOVUS shall utilize Asynchronous Communication for the payment file data and ---- encrypt the file with PKZIP encryption software. 18. NOVUS shall provide the payment file in a form and manner approved by FTB. 19. Any file layout changes shall be made upon mutual agreement of NOVUS and ------------------------------------------------------------------------ FTB. ---- 20. NOVUS shall provide at a minimum the following information in the Payment File: . Taxpayer's account number (TPID), . name control (first 4 letters of the taxpayer's last name), . tax year, . payment amount, . telephone number (from where the cardholder made the credit card transaction), . home telephone number, ---------------------- . date and time of the transaction, and . authorization code. - -------------------------------------------------------------------------------- Page 2 NOVUS Services, Inc./First Data Merchant Services (FDMS) C9818802 RIDER A - ------------------------------------------------------------------------------- 21. NOVUS shall retain storage and retrieval of credit card transactions for a minimum of 36 months from the transaction date. NOVUS shall retransmit the file in the event of an unsuccessful transmission or upon request of FTB. 22. NOVUS shall not charge a fee for any of the reports (including custom reports) requested by and/or provided to FTB. 23. FTB shall receive a daily report of cardholder credit card hang-ups showing ----- at what point in the script the hang-up occurred and reserves the right to have script changes made to eliminate the problem. If FTB wants to change a previously approved script, the change shall be made within 72 hours after review and testing requirements have been met. 24. The script shall utilize a key-pad delivery system for name control, subject --------------------------------------------------- to FTB approval. ---------------- 25. NOVUS shall provide a toll-free number that will allow FTB to verify an electronic payment immediately in order to stop an imminent collection activity. 26. FTB has final approval of any marketing done by NOVUS that references services provided to or for FTB or California taxpayers. 27. FTB shall obtain prior written approval from NOVUS before including any card specific logos or marks in any signs or any printed or broadcast materials. 28. FTB shall be responsible for all promotion and advertising of the card payment program. 29. FTB shall either provide an insert describing the card payment option in applicable bill notices or print the system's telephone number on all applicable bill notices. 30. NOVUS shall have the right, at any time, to process chargebacks according to ----------------------------------- the NOVUS operating regulations by deducting the amount in question from --------------------------------------------------------------------------- future payments that NOVUS would otherwise owe FTB. If the settlement amount ---------------------------------------------------------------------------- is less than the chargeback amount, NOVUS shall invoice FTB for the ---------------------------------------------------------------------------- chargeback amount. NOVUS shall only charge FTB the original amount of the ------------------ card transaction that was originally paid to FTB. NOVUS shall be responsible for the convenience fees and any service fees related to the charged back card transaction, excluding FTB's bank fees, if any, FTB shall pay such invoices without delay, and within 30 calendar days from the date of invoice. 31. This Agreement shall commence on the December 11, 1998. Either party (NOVUS ----------------- or FTB) shall have the right to terminate the contract upon 30 days written notice to the other. a. Cardholder - The person whose name is embossed on the credit card and who ---------- makes a credit card payment to the Franchise Tax Board. b. FTB - The Franchise Tax Board --- c. NOVUS - NOVUS Services, Inc./First Data Merchant Services (FDMS) ----- - -------------------------------------------------------------------------------- Page 3 NOVUS Services, Inc./First Data Merchant Services (FDMS) C9818802 RIDER B - ------------------------------------------------------------------------------- The following additions, deletions and/or changes to DGS MSA OFA-NOVUS are hereby incorporated. Convenience Fee Chart* ----------------------------------- Payment Amount Convenience Fee ----------------------------------- $1 - 99.99 $3 $100 - 199.99 $6 $200 - 399.99 $11 $400 - 699.99 $16 $700 - 799.99 $19 $800 - 1099.99 $25 $1100 - 1599.99 $35 $1600 - 2299.99 $49 $2300 - 3099.99 $68 $3100 - 3999.99 $87 $4000 - 4999.99 $109 $5000 - 6099.99 $133 $6100 - 7299.99 $159 $7300 - 8599.99 $187 $8600 - 9999.99 $218 $10,000 - 11,999.99 $262 $12,000 - 14,999.99 $329 $15,000 - 19,999.99 $437 $20,000 - 24,999.99 $547 $25,000 - 29,999.99 $656 $30,000 - 34,999.99 $767 $35,000 - 39,999.99 $876 $40,000 - 44,999.99 $985 $45,000 - 49,999.99 $1,095 $50,000 - 54,999.99 $1,204 $55,000 - 59,999.99 $1,314 $60,000 - 64,999.99 $1,423 $65,000 - 69,999.99 $1,533 $70,000 - 74,999.99 $1,650 $75,000 - 79,999.99 $1,760 $80,000 - 84,999.99 $1,870 $85,000 - 89,999.99 $1,980 $90,000 - 94,999.99 $2,090 $95,000 - 99,999.99 $2,200 * Participating cards: American Express, MasterCard, and NOVUS/Discover - -------------------------------------------------------------------------------- Page 1 NOVUS Services, Inc./First Data Merchant Services (FDMS) C9818802 RIDER C Discover/MasterCard Merchant Settlement Daily Wire Transfer
NOVUS/FDMS Transaction Transactions Discover/MasterCard Wire Transfer Wired Funds Deposited on Transmitted for (Into Bank) Sent Deposited in Settlement Day Settlement Funding Received Merchant's Acct ========================================================================================================================= Sunday 12:00 PM PST Monday Tuesday Tuesday Tuesday Monday 12:00 PM PST Tuesday Wednesday Wednesday Wednesday Tuesday 12:00 PM PST Wednesday Thursday Thursday Thursday Wednesday 12:00 PM PST Thursday Friday Friday Friday Thursday 12:00 PM PST Friday Monday Monday Monday Friday 12:00 PM PST Saturday Tuesday Tuesday Tuesday Saturday 12:00 PM PST Sunday Tuesday Tuesday Tuesday - -------------------------------------------------------------------------------------------------------------------------
Note: ** Settlement of American Express payments requires one additional day for processing - ------------------------------------------------------------------------------- Discover/MasterCard Merchant Settlement Daily ACH
NOVUS/FDMS Transaction Transactions Made Discover/MasterCard ACH Transfer ACH Deposited Day Before 12:00 noon PST Funding Received Sent* in Merchant's Account* =============================================================================================================== Sunday 12:00 PM PST Monday Tuesday Tuesday Wednesday Monday 12:00 PM PST Monday Tuesday Tuesday Wednesday Tuesday 12:00 PM PST Tuesday Wednesday Wednesday Thursday Wednesday 12:00 PM PST Wednesday Thursday Thursday Friday Thursday 12:00 PM PST Thursday Friday Friday Monday Friday 12:00 PM PST Friday Monday Monday Tuesday Saturday 12:00 PM PST Monday Tuesday Tuesday Wednesday - --------------------------------------------------------------------------------------------------------------
Note: * Settlement of American Express payments requires one additional day for processing. NOVUS/FDMS Payment File Transfer
Day of Credit Card Time of Transaction Day FTB Can Access FTB's Transaction File by 2:00 PM PST ======================================================================================= Sunday Anytime Monday Monday Before 12:00 PM PST Monday Monday 12:00 PM PST or later Tuesday Tuesday Before 12:00 PM PST Tuesday Tuesday 12:00 PM PST or later Wednesday Wednesday Before 12:00 PM PST Wednesday Wednesday 12:00 PM PST or later Thursday Thursday Before 12:00 PM PST Thursday Thursday 12:00 PM PST or later Friday Friday Before 12:00 PM PST Friday Friday 12:00 PM PST or later Monday Saturday Anytime Monday - ---------------------------------------------------------------------------------
Page 6 AGREEMENT FOR AMERICAN EXPRESS /R/ CARD ACCEPTANCE This agreement (Agreement) applies to your acceptance of American Express /R/ Cards for payment of tax obligations to the Internal Revenue Service (IRS) through your IVR System and for the collection of Convenience Fees (as defined below). The words we, our, us, and American Express mean American Express Travel Related Services Company, Inc. and its subsidiaries, affiliates and licensees that issue Cards. You and your mean U.S. Audiotex, LLC. American Express Card or Card shall mean any card or account access device issued by American Express Travel Related Services Company, Inc. or its subsidiaries or affiliates or its or their licensees, bearing the American Express name or an American Express trademark, service mark or logo. Cardmember means the person whose name is embossed on the face of the card. Payments or purchases made with the Card are Charges. You agree to accept the Card under the terms and conditions of this Agreement at all your locations in the United States, Canada, the U.S. Virgin Islands and Puerto Rico for payment of tax obligations to the IRS (except as noted below) and for related Convenience Fees. Each location or method of conducting sales is an Establishment. The pricing information regarding what you charge Cardmembers for the convenience/service of charging payments of tax obligations to the IRS via the telephone is found in Exhibit A attached hereto. For purposes of this Agreement, such charges shall be known as Convenience Fees. Convenience Fees are strictly confidential and may not be disclosed to any third party without your prior written consent. You shall not discriminate against any Cardmember by charging him/her a higher Convenience Service Fee than you would charge a holder of another charge, credit or debit card. CARD ACCEPTANCE PROCEDURES Procedures for Card acceptance are set forth below. You agree to comply with any changes in these procedures within thirty (30) days' written notice from us. Charge Records - -------------- For every Charge you agree to create a record of Charge (Charge Record) or an electronic reproducible record containing: 1) the Card account number and expiration date via an imprinter, Card swipe device or data entry device; 2) the date the Charge was incurred; 3) the amount of the Charge, which must be the total amount of the payments on the Card; 4) the Authorization approval code number; 5) a mutually acceptable description of the payments made; 6) an imprint or other registration of your name, address, Establishment number and/or your store number; and 7) the words "No Refunds" if you have a No Refund policy. If the Cardmember denies authorizing such a Charge, we will have the right to Full Recourse for such Charge. Authorization - ------------- You agree to obtain an authorization approval code number form us as described below (Authorization). Each Authorization request must be for the total amount of payments. Authorization is not a guarantee that we will accept the Charge without Full Recourse, nor is it a guarantee that the person making the Charge is the Cardmember. You agree to obtain Authorization for every Charge regardless of amount and at the time the Charge is incurred. If your terminal is unable to reach our computer authorization system for Authorization, you agree to obtain Authorization for all Charges by calling us at our authorization telephone number. You shall be charged 65 cents for each Charge for which you request authorization by telephone. We retain the right to change the amount we charge to you for requesting Authorization by telephone at any time. Credits - ------- When you give a refund for a payment made with a Card, you must credit that Card account (Credit). You must create a record of Credit (Credit Record) and submit the Credit to us within seven (7) days of determining the Credit is due. We will debit the full amount of the Credit from the applicable Account (as defined in this Agreement). If we are unable to debit such amount, you must pay us promptly upon receipt of our invoice. You agree to issue Credits only for Charges made with the Card. You agree not to give a cash refund for payments made with the Card. Refunds - ------- Your refund policy for payments made with the Card must be at least as favorable as your refund policy for payments made with any other form of payment. You agree to disclose your refund policy to Cardmembers at the time of the payment and in a manner that complies with applicable law. Submission and Acceptance of Charges and Credits - ------------------------------------------------ You agree to submit all Charges to us within seven (7) days of the date they are incurred. You agree to submit Credits as described above in "Credits." Charges and Credits will be deemed accepted on a given business day if received and processed before our close of business for that day at the location we designate. You agree not to submit Charges or Credits on behalf of any other entity. You warrant that all indebtedness arising from Charges that you submit is genuine and free of any liens, claims or encumbrances. You acknowledge that you have no right to bill and/or collect from any Cardmember for any payment made with the Card; provided, however, that you may bill and/or collect from a Cardmember with respect to a Charge in the event that we have exercised our right to Full Recourse with respect to such Charge and you have the legal right to bill and/or collect from such Cardmember for such Charge. When you submit Charges and Credits electronically (Charge Date), you agree to do so over communications lines or via magnetic tape in machine-readable format (Transmission). Even if you transmit Charge Data electronically you agree to still create and retain electronically reproducible Charge Records and Credit Records. In the event that you submit Charges and Credits on paper, you agree to submit Charge Records and Credit Records on forms approved by us and in accordance with the instructions we provide and containing the information we require, including but not limited to the Establishment number we assign to you. Transmissions must comply with the specifications we provide and must contain information required by us, including, but not limited to the Establishment number we assign to you and a description of the payments made which is acceptable to us. At our request you agree to place additional, less or differently formatted information on Transmissions within thirty (30) days written notice from us. We are not obligated to accept any Transmission that does not comply with our requirements. Processors - ---------- You may retain, at your expense, a third party approved by us (Processor) for obtaining Authorizations and/or submitting Charge Data. You, and not American Express, are responsible for any errors, omissions, delays or expenses caused by your Processor. You agree to provide us with all relevant information we request about your Processor and you agree to notify us promptly in writing if you change your Processor. Document Retention - ------------------ For each Charge and/or Credit, you agree to retain the original Charge Record or Credit Record and all documents evidencing such transaction or reproducible record thereof, for twenty-four (24) months from the later of the date (i) you submitted the Charge or the Credit to us or (ii) you have fully delivered the goods or provided the services purchased. You agree to provide a copy of the Charge Form or Credit Form and other supporting documents to us within twenty-five (25) calendar days of our request and you acknowledge that we will have the right to Full Recourse with respect to any Charge for which you fail to provide such documents within such time period. Honoring Cards - -------------- You agree to honor Cards properly presented in accordance with this Agreement. When a customer asks what payment methods you accept, you agree to mention the American Express Card. When a Cardmember makes or requests to make a payment with the Card, you agree: not to try, in any way, to persuade the Cardmember to use any other payment method; not to offer to extend credit or charge services to the Cardmember for that transaction through your own or any other charge, credit, debit or similar card or service; and not to criticize or mischaracterize the Card. You agree not to state or publish a preference for any other charge, credit, debit or similar card or service over the Card. You agree not to promote the use of any other charge, credit, debit or similar card or service, more actively than you promote the use of the Card. You agree to display American Express signs, decals and other identification (as applicable) prominently at all locations of the IRS and to display prominently AMerican Express identification in your marketing materials, to the same extent that you display/provide such identification for other cards. PAYMENT We will pay you, or designated bank account(s), in United States Dollars for the face amount of Charges you submit for payment of tax obligations to the IRS, and for Convenience Fees. We will send payment in accordance with the payment plan you select. You may not receive payment on behalf of any other entity. You are solely responsible for payment to the IRS for any and all Charges and/or payments of tax obligations to the IRS and/or amounts paid to the designated bank account referenced above. We shall have no obligation to make any payments to the IRS. Discount Rate - ------------ The Discount is the amount we charge you for accepting the Card for payment of tax obligations to the IRS and for Convenience Fees. The initial Discount rate is 2.20%. Effective every April 1st (beginning after your first full calendar year of Card acceptance) we may adjust the Discount rate. We further have the right to adjust the Discount rate at any time upon thirty (30) days written notice to you. However, the Discount rate may not be changed during the period of January 1 through April 15 of any given calendar year. Payment Method - -------------- Under the Electronic Pay Program (Electronic Pay), funds are sent electronically via the Automated Clearing House of the Federal Reserve System (ACH). You must - --- designate demand deposit accounts (Accounts) at banks (Banks) that participate in ACH. You must also provide to us the required information about the Accounts and the Banks and you must notify the Banks that we may have access to the Accounts to make payments. American Express will initiate payment to the Accounts via ACH within two (2) --- calendar days (excluding Sunday and any Federal Reserve holiday) after we receive and process your Charges. If payment date falls on a day that our bank is not open for processing ACH payments, we will initiate payment on the next day that our bank is open for processing ACH payments. We will not be responsible for any obligations or liabilities, including but not limited to incidental or consequential damages over and above the amount of the applicable debit, credit or adjustment to an Account in the event that any such debit, credit or adjustment is not honored by a Bank or is improperly applied to an Account. If payment is made by check, we will charge a fee of 95 cents per check. Following the end of any month in which Charges are submitted to us, we may debit your Account for the total amount of Discount for all Charges which we received during such month. In addition, we may debit your Account for any amounts you owe us, including but not limited to amounts subject to Full Recourse, and for any Credits issued. You must notify your Bank that we may have access to your Account(s) to debit such Account(s). FULL RECOURSE Full Recourse means that we have the right to payment from you for the full amount of each Charge subject to such right. We may debit the applicable Account or you shall pay us promptly upon receipt of our invoice. We shall have Full Recourse if you do not comply with the terms of this Agreement with respect to a Charge(s), even if we had notice when we paid you for the Charge(s) that you did not so comply and even if you obtained Authorization for the Charge(s) in question. We will also have right to Full Recourse as provided elsewhere in this Agreement. DISPUTED CHARGES If we contact you regarding a claim, complaint, or question about any Charge (Disputed Charge) you shall respond to us in writing within twenty-five (25) days after we contact you. We will have Full Recourse for the amount of each Disputed Charge if, by the end of that time period, you have not provided us with a written substantive response to our inquiry that addresses all the aspects of the Cardmember's claim and includes all documentation you should have relating to the Disputed Charge which enables us to resolve the dispute. If a Cardmember, despite your reply, continues to withhold payment for such Disputed Charge and the Cardmember has the right under applicable law to withhold such payment, we will have the right to Full Recourse for such Charge. PROHIBITED TRANSACTIONS You agree not to accept the Card for amounts which do not represent payment of tax obligations to the IRS or Convenience Fees. CONFIDENTIALITY Each party shall keep confidential and not disclose to any third party the terms of this Agreement and any information it receives from the other party that is not publicly available. You agree that the names, addresses and account numbers of Cardmembers are the sole and exclusive property of American Express. You must not use or disclose any Cardmember's name, address or account number except as provided in this Agreement. TRADEMARKS AND SERVICE MARKS This Agreement does not give either party any rights in the other party's name, logo, service marks, trademarks, trade names, taglines or any other proprietary designation (Marks). No use may be made of either party's Marks without the prior written permission of that party. Where you mention the Card as a payment method you agree to use our Marks, but only as described in our logo sheets. You agree that we may list the name and address of you and your Establishment(s) in materials containing lists of establishments which accept the Card which we may publish from time to time. NOTICES
Unless otherwise notified, you will send all notices to: Notices will be sent to you at: American Express Travel Related US Audiotex, LLC Services Company, Inc. ----------------- 200 Vesey Street 18 Crow Canyon Ct., Ste. 300 New York, N.Y. 10285 ----------------- Attention: Yvonne DeCicco San Ramon, CA 94583 Attention: Kenneth Stern ----------------- Imperial Bank 2015 Manhattan Beach Blvd. Redondo Beach, CA 90278 Attention: William Capps
Page 10 With a copy to: - --------------- American Express Travel Related - ------------------------------- Services Company, Inc. - ---------------------- 200 Vesey Street - ---------------- New York, N.Y. 10285 - -------------------- Attention: General Counsel's Office - ----------------------------------- INDEMNIFICATION Each party agrees to indemnify and hold harmless the other party, its parent, subsidiaries, affiliates, licensees, successors and assigns from and against any and all damages, losses, costs and/or expenses, including but not limited to reasonable attorneys' fees, arising from the indemnifying party's actions or failure to act in connection with the relationship established by this Agreement, including but not limited to the breach of this Agreement by the indemnifying party. You shall also indemnify and hold harmless American Express, our parent, subsidiaries, affiliates, licensees, successor and assigns from any and all claims and actions initiated by the IRS. TERMINATION The Agreement will commence on the Effective Date and continue for a period of two (2) years (Initial Term); provided, however, that we may terminate this Agreement at any time upon thirty (30) days written notice to you. In the event that you state or publish a preference for any other charge, credit, debit or similar card or service over the Card, and in addition to any and all other rights and remedies we may have under this Agreement and/or in law or in equity, we shall have the right to immediately terminate this Agreement upon our sending written notice of such termination to you. You agree that this Agreement is a contract to extend financial accommodations and that if bankruptcy proceedings or similar proceedings are filed with respect to your business, this Agreement is automatically terminated. If you cease or adversely alter your operations, or if you sell all or substantially all of your assets or stock, or if you become insolvent, or if we receive a disproportionate number of Cardmember inquiries or complaints relating to Charges at your Establishments of if we have reasonable cause to believe that you will not be able to perform all your obligations under this Agreement, then we may, in our discretion, (i) immediately terminate this Agreement and/or (ii) create a reserve as security for your obligations to us and withhold payment from you in an amount no greater, and for a period of time no longer, than necessary to protect our rights to Full Recourse and to process Credits under this Agreement. If we create such a reserve pursuant to this paragraph, then we may deduct from and recoup and offset against such reserve amounts you owe under this Agreement. You must notify us immediately if any of the above events occur. Upon termination, you must: 1) remove all American Express identification and return our materials and equipment immediately; 2) submit any Charges incurred prior to the termination in accordance with this Agreement; and 3) submit any Credits relating to these Charges in accordance with the Agreement. Our rights under the sections entitled "Full Recourse," "Disputed Charges," "Confidentiality," "Indemnification" and "Termination" shall survive termination of this Agreement. COMPLIANCE WITH LAWS You represent and warrant that you shall comply with (i) all laws, regulations and rules applicable to your business and/or (ii) all requirements of the IRA' Electronic Tax Administration Request for Proposal ("RFP"), the Contract Terms and Conditions entered between you and the IRS pursuant to the RFP, and all applicable statutes and regulations with respect to the subject matter thereof. Inasmuch as this Agreement comtemplates situations in which return information will be provided by American Express to your personnel, you specifically agree to comply with RFP Section C.8 "DISCLOSURE OF INFORMATION- CRIMINAL/CIVIL SANCTIONS (IRSAP 1052.224-71(A)) (DEC 1988) by ensuring that each officer and employee of your company receives the notice contained in that section of the RFP. You represent and warrant to us that you have the right to collect Convenience Fees from Cardmembers and your collection of such Convenience Fees does not violate any Federal, state or local law or regulation. GOVERNING LAW THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS NEGOTIATED, EXECUTED AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. ASSIGNMENT You may not assign this Agreement without our prior written consent, except that you may assign this Agreement to an affiliate of yours which is financially capable of performing your obligations heredunder and which has been approved by the IRS to replace you for the program involved. We may assign this Agreement to our parent corporation and/or any of our subsidiaries or affiliates. NO WAIVER Failure to enforce any term or condition of this Agreement shall not be a waiver of the right to later enforce such term or condition or any other term or condition on this Agreement. CHANGING THIS AGREEMENT Any change(s) to this Agreement must be in writing and must be duly signed by both parties. ENTIRE AGREEMENT This Agreement, along with Exhibit A, is the entire agreement with respect to the subject matter hereof and supersedes any previous agreement with respect to the subject matter hereof. AUTHORITY TO SIGN Each party represents that the individual who signs this Agreement has authority to do so and to bind it to the terms and conditions of this Agreement. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. BY: ----------------------- David House President, Establishment Services US AUDIOTEX, LLC - ------------------- By: (Signature) /s/Kenneth Stern - ---------------- Name: (Print) PRESIDENT - ---------------- Title (Print) Effective Date: 1/15/1999 --------------- U S Audiotex Credit Card Convenience Fee Schedule* State of New Jersey (State Income Taxes) Payment Amount From To Fees ---- -- ---- 0 99.99 $ 3 100 199.99 $ 6 200 399.99 $ 11 400 699.99 $ 16 700 1,099.99 $ 25 1,100 1,599.99 $ 35 1,600 2,299.99 $ 49 2,300 3,099.99 $ 68 3,100 3,999.99 $ 87 4,000 4,999.99 $ 109 5,000 6,099.99 $ 133 6,100 7,299.99 $ 159 7,300 8,599.99 $ 187 8,800 9,999.99 $ 218 10,000 11,999.99 $ 262 12,000 14,999.99 $ 329 15,000 19,999.99 $ 437 20,000 24,999.99 $ 547 25,000 29,999.99 $ 656 30,000 34,999.99 $ 767 35,000 39,999.99 $ 876 40,000 44,999.99 $ 985 45,000 49,999.99 $ 1,095 50,000 54,999.99 $ 1,204 55,000 59,999.99 $ 1,314 60,000 64,999.99 $ 1,423 65,000 69,999.99 $ 1,533 70,000 74,999.99 $ 1,650 75,000 79,999.99 $ 1,760 80,000 84,999.99 $ 1,870 85,000 89,999.99 $ 1,980 90,000 94,999.99 $ 2,090 95,000 99,999.99 $ 2,200 *Participating cards: American Express, MasterCard, and NOVUS/Discover. AGREEMENT FOR AMERICAN EXPRESS/R/ CARD ACCEPTANCE This agreement (Agreement) applies to your acceptance of American Express /R/ Cards on behalf of various state and local governmental entities (Governmental Entities) through your IVR System. The words we, our, us, and American Express mean American Express Travel Related Services Company, Inc. and its subsidiaries, affiliates and licensees that issue Cards. You and your mean the business entity that signs the signature page of this Agreement. American Express Card or Card shall mean any card or account access device issued by American Express Travel Related Services Company, Inc. or its subsidiaries or affiliates or its or their licensees, bearing the American Express name or an American Express trademark, service mark or logo. Cardmember means the person whose name is embossed on the face of the Card. Payments or purchases made with the Card are Charges. You agree to accept the Card on behalf of Governmental Entities under the terms of this Agreement at all your locations in the United States, Canada, the U.S. Virgin Islands and Puerto Rico in payment for all goods and services sold and collection of funds (except as noted below). Each location or method of conducting sales is an Establishment. You agree that prior to your accepting the Card on behalf of any particular Governmental Entity, you shall obtain our written approval. Additionally, you shall notify us, and give us an opportunity to participate in, any meetings you may have with officials of a Governmental Entity which include discussion American Express Card acceptance. Furthermore, you shall provide us with pricing information regarding what you charge Cardmembers for the convenience/service of charging payments due Governmental Entities via the phone instead of in person. For purposes of this Agreement, such charges shall be known as Administrative Service Fees. You shall provide us with your general Administrative Service Fee pricing structure and the Administrative Service Fee(s) associated with each Governmental Entity. Administrative Service Fees are strictly confidential and may not be disclosed to any third party without your prior written consent. You shall not discriminate against any Cardmember by charging him/her a higher Administrative Service Fee than you would charge a holder of another charge, credit or debit card. CARD ACCEPTANCE PROCEDURES Procedures for Card acceptance are set forth below. You agree to comply with any changes in these procedures within thirty (30) days' written notice from us. Charge Records - -------------- For every Charge you agree to create a record of Charge (Charge Record) or an electronic reproducible record containing; 1) the Card account number and expiration date via an imprinter, Card swipe device or data entry device; 2) the date the Charge was incurred; 3) the amount of the Charge, which must be the total amount of the payments or purchases on the Card plus applicable taxes; 4) the Authorization approval code number; 5) a mutually acceptable description of the goods or services purchased; 6) an imprint or other registration of your name, address, Establishment number and/or your store number; and 7) the words "No Refunds" if you have a No Refund policy. If the Cardmember denies making or authorizing such a Charge, we will have the right to Full Recourse for such Charge. Authorization - ------------- You agree to obtain an authorization approval code number from us as described below (Authorization). Each Authorization request must be for the total amount of payments or purchases plus applicable taxes. Authorization is not a guarantee that we will accept the Charge without Full Recourse, nor is it a guarantee that the person making the Charge is the Cardmember. You agree not to obtain Authorization on behalf of any other entity except for Governmental Entities. You agree to obtain Authorization for every Charge regardless of amount. If your terminal is unable to reach our computer authorization system for Authorization, you agree to obtain Authorization for all Charges by calling us at our authorization telephone number. You shall be charged 65 cents for each Charge for which you request authorization by telephone. We retain the right to change the amount we charge to you for requesting Authorization by telephone at any time. For Charges for goods or services which are shipped or provided more than thirty (30) days after the order is made, you agree to obtain Authorization for such Charge at the time the order is made and again immediately before you ship the --------- goods or provide the services to the Cardmember. Credits - ------- When you give a refund for a purchase made with a Card, you must credit that Card account (Credit). You must create a record of Credit (Credit Record) and submit the Credit to us within seven (7) days of determining the Credit is due. We will debit the full amount of the Credit from the applicable Account (as defined in this Agreement). If we are unable to debit such amount, you must pay us promptly upon receipt of our invoice. You agree to issue Credits only for Charges made with the Card. You agree not to give a cash refund for goods or services purchased with the Card. Refunds - ------- Your refund policy for purchases made with the Card must be at least as favorable as your refund policy for purchases made with any other form of payment. You agree to disclose your refund policy to Cardmembers at the time of the purchase and in a manner that complies with applicable law. Submission and Acceptance of Charges and Credits - ------------------------------------------------ You agree to submit all Charges to us within seven (7) days of the date they are incurred; provided, however, that you agree not to submit any Charge until the goods or services purchased have been delivered to the Cardmember. You agree to submit Credits as described above in "Credits." Charges and Credits will be deemed accepted on a given business day if received and processed before our close of business for that day at the location we designate. You agree not to submit Charges or Credits on behalf of any other entity. You warrant that all indebtedness arising from Charges that you submit is genuine and free of any liens, claims or encumbrances. You acknowledge that you have no right to bill and/or collect from any Cardmember for any purchase made with the Card. When you submit Charges and Credits electronically (Charge Data), you agree to do so over communications lines or via magnetic tape in machine-readable format (Transmission). Even if you transmit Charge Data electronically you agree to still create and retain electronically reproducible Charge Records and Credit Records. In the event that you submit Charges and Credits on paper, you agree to submit Charge Records and Credit Records on forms approved by us and in accordance with the instructions we provide and containing the information we require, including but not limited to the Establishment number we assign to you. Transmissions must comply with the specifications we provide and must contain information required by us, including, but not limited to the Establishment number we assign to you and a description of the goods or services purchased which is acceptable to us. At our request you agree to place additional, less or differently formatted information on Transmissions within thirty (30) days written notice from us. We are not obligated to accept any Transmission that does not comply with our requirements. Processors - ---------- You may retain, at your expense, a third party approved by us (Processor) for obtaining Authorizations and/or submitting Charge Data. You, and not American Express, are responsible for any errors, omissions, delays or expenses caused by your Processor. You agree to provide us with all relevant information we request about your Processor and you agree to notify us promptly in writing if you change your Processor. Recurrent Billing - ----------------- If you offer automatic recurrent billing for a series of separate purchases, Cardmembers must sign a consent form (Consent Form) authorizing you to charge their Card accounts for specific amounts at specific times (Recurrent Billing Charges). You agree to obtain a Consent Form before submitting the first Recurrent Billing Charge. The Consent Form must include the Cardmember's name, Card account number and signature; the amount of each Recurrent Billing Charge: the frequency of such Recurrent Billing Charges; the date the Recurrent Billing Charges will begin and end; and a statement that the Cardmember may cancel the Consent Form at any time. You agree to retain Consent Forms for twenty-four (24) months from the date you submit the last Recurrent Billing Charge. Before submitting each Recurrent Billing Charge, you must obtain Authorization. Document Retention - ------------------ For each Charge and/or Credit, you agree to retain the original Charge Record or Credit Record and all documents evidencing such transaction or reproducible record thereof, for twenty-four (24) months from the later of the date (i) you submitted the Charge or the Credit to us or (ii) you have fully delivered the goods or provided the services purchased. You agree to provide a copy of the Charge Form or Credit Form and other supporting documents to us within twenty-five (25) calendar days of our request and you acknowledge that we will have the right to Full Recourse with respect to any Charge for which you fail to provide such documents within such time period. Honoring Cards - -------------- You agree to honor Cards properly presented in accordance with this Agreement. When a customer asks what payment methods you accept, you agree to mention the American Express Card. When a Cardmember makes or requests to make a purchase or purchase with the Card, you agree: not to try, in any way, to persuade the Cardmember to use any other payment method; not to offer to extend credit or charge services to the Cardmember for that transaction through your own or any other charge, credit, debit or similar card or service; and not to criticize or mischaracterize the Card. You agree not to state or publish a preference for any other charge, credit, debit or similar card or service over the Card. Except for special promotions of limited duration funded by an issuer of another charge, credit, debit or similar card or service over the Card. Except for special promotions of limited duration funded by an issuer of another charge, credit or debit card, and subject to your compliance with the immediately preceding sentence, you agree not to promote the use of any other charge, credit, debit or similar card or service (except for your won card which is issued solely by you and is usable only at your Establishments), more actively than you promote the use of the Card. You agree to display American Express signs, decals and other identification (as applicable) prominently at all locations of Governmental Entities and American Express identification in your marketing materials. PAYMENT We will pay you, or designated bank accounts for the benefit of Governmental Entities, in Unites States Dollars for the face amount of Charges you submit on behalf of such Governmental Entities. We will send payment in accordance with the payment plan you select. Establishments located in Canada must submit Charges in Canadian Dollars and will be paid in Canadian Dollars. You may not receive payment on behalf of any other entity except for Governmental Entities. You are solely responsible for payment to Governmental Entities for any and all Charges and/or payments received by you on behalf of Governmental Entities and/or paid to the designated bank accounts referenced above. We shall have no obligation to make any payments to Governmental Entities. Discount Rate - ------------- The Discount is the amount we charge you for accepting the Card on behalf of the Governmental Entities. The initial Discount rates are the percentages set forth on the signature page of this Agreement. Effective every April 1st (beginning after your first full calendar year of Card acceptance) we may adjust the Discount rates. We further have the right to adjust the Discount rate at any time upon thirty (30) days written notice to you. Payment Method - -------------- Under the Electronic Pay Program (Electronic Pay), funds are sent electronically via the Automated Clearing House of the Federal Reserve System (ACH). You must - --- designate demand deposit accounts (Accounts) at banks (Banks) that participate in ACH. You must also provide to us the required information about the Accounts and the Banks and you must notify the Banks that we may have access to the Accounts to make payments. American Express will initiate payment to the Accounts via ACH within three (3) calendar days (excluding Sunday and any --- Federal Reserve holiday) after we receive and process your Charges. If payment date falls on a day that our bank is not open for processing ACH payments, we will initiate payment on the next day that our bank is open for processing ACH payments. We will not be responsible for any obligations or liabilities, including but not limited to incidental or consequential damages over and above the amount of the applicable debit, credit or adjustment to an Account in the event that any such debit, credit or adjustment is not honored by a Bank or is improperly applied to an Account. If payment is made by check, we will charge a fee of 95 cents per check. Following the end of any month in which Charges are submitted to us, we may debit your Account for the total amount of Discount for all Charges which we received during such month. In addition, we may debit your Account for any amounts you owe us, including but not limited to amounts subject to Full Recourse, and for any Credits issued. You must notify your Bank that we may have access to your Account(s) to debit such Account(s). FULL RECOURSE Full Recourse means that we have the right to payment from you for the full amount of each Charge subject to such right. We may debit the applicable Account or you shall pay us promptly upon receipt of our invoice. We shall have Full Recourse if you do not comply with the terms of this Agreement with respect to a Charge(s), even if we had notice when we paid you for the Charge(s) that you did not so comply and even if you obtained Authorization for the Charge(s) in question. We shall have Full Recourse with respect to all Charges involving taxes of any form. We will also have right to Full Recourse as provided elsewhere in this Agreement. DISPUTED CHARGES If we contact you regarding a claim, complaint, or question about any Charge (Disputed Charge) you shall respond to us in writing within twenty-five (25) days after we contact you. We will have Full Recourse for the amount of each such Disputed Charge if, by the end of that time period, you have not provided us with a written substantive response to our inquiry that addresses all the aspects of the Cardmember's claim and includes all documentation you do have or should have relating to the Disputed Charge which enables us to resolve the dispute. If a Cardmember, despite your reply, continues to withhold payment for such Disputed Charge and the Cardmember has the right under applicable law to withhold such payment, we will have the right to Full Recourse for such Charge. PROHIBITED TRANSACTIONS You agree not to accept the Card for: Capital obligations and/or extraordinary expenses, including penalties or fines of any kind (except as permitted by applicable law), damages, losses or any other costs or fees that are beyond the normal basic fee for the goods or services provided; gambling services, gambling chips or gambling credits; cash; goods which will be resold; sales made under a different trade name, business affiliation and/or industry than indicated on the signature page hereof; sales by third parties (other than Governmental Entities); or amounts which do not represent a bona fide sale of goods or services or the collection of funds on behalf of Governmental Entities, at your Establishment. CONFIDENTIALITY Each party shall keep confidential and not disclose to any third party the terms of this Agreement and any information it receives from the other party that is not publicly available. You agree that the names, addresses and account numbers of Cardmembers are the sole and exclusive property of American Express. You must not use or disclose any Cardmember's name, address or account number except as provided in this Agreement. We shall keep confidential your Administrative Service Fees. TRADEMARKS AND SERVICE MARKS This Agreement does not give either party any rights in the other party's name, logo, service marks, trademarks, trade names, taglines or any other proprietary designation (Marks). No use may be made of either party's Marks without the prior written permission of that party. Where you mention the Card as a payment method you agree to use our Marks, but only as described in our logo sheets. You agree that we may list the name and address of you and your Establishment(s) in materials containing lists of establishments which accept the Card which we may publish from time to time. NOTICES Unless otherwise notified, you will send Notices will be sent to you at: all notices to: American Express Travel Related US AUDIOTEX, LLC Services Company, Inc. ---------------- 200 Vesey Street 18 CROW CANYON CT STE 300 New York, N.Y. 10285 ------------------------- Attention: Joseph Quagliata SAN RAMON, CA 94583 Attn: Debbie P. Soleta With a copy to: ----------------------- - --------------- American Express Travel Related - ------------------------------- Services Company, Inc. - ---------------------- 200 Vesey Street - ---------------- New York, N.Y. 10285 - -------------------- Attention: Yvonne DeCicco - -------------------------- INDEMNIFICATION Each party agrees to indemnify and hold harmless the other party, its parent, subsidiaries, affiliates, licensees, successors and assigns from and against any and all damages, losses, costs and/or expenses, including but not limited to reasonable attorneys' fees, arising from the indemnifying party's actions or failure to act in connection with the relationship established by this Agreement, including but not limited to the breach of this Agreement by the indemnifying party. You shall also indemnify and hold harmless American Express, our parent subsidiaries, affiliates, licensees, successor and assigns from any and all claims and actions initiated by Government Entities. TERMINATION The Agreement will commence on the Effective Date and continue for a period of three (3) years (Initial Term). After the Initial Term, this Agreement will remain in effect until terminated by either party upon written notice to the other party. The termination will be effective sixty (60) days after receipt of such notice. In the event that you state or publish a preference for any other charge, credit, debit or similar card or service over the Card, and in addition to any and all other rights and remedies we may have under this Agreement and/or in law or in equity, we shall have the right to immediately terminate this Agreement upon our sending written notice of such termination to you. You agree that this Agreement is a contract to extend financial accommodations and that if bankruptcy proceedings or similar proceedings are filed with respect to your business, this Agreement is automatically terminated. If you cease or adversely alter your operations, or if you sell all or substantially all of you assets or stock, or if you become insolvent or if we receive a disproportionate number of Cardmember inquiries or complaints relating to Charges at your Establishments or if we have reasonable cause to believe that you will not be able to perform all your obligations under this Agreement, we may, in our discretion, immediately terminate this Agreement. You must notify us immediately if any of the above events occur. You further agree that if, in our reasonable business judgment, it is necessary to create a reserve as security for your obligations to us under this Agreement, or any other agreement between you and us, we may withhold payment from you in an amount calculated based on our experience with your business and no greater than necessary to protect our rights to Full Recourse and to process Credits under this Agreement and our rights under any other agreement between you and us. We have the right to deduct from and recoup and offset against the reserve amounts you owe us under such agreements. We will notify you if we withhold payments. Upon termination, you must: 1) remove all American Express identification and return our materials and equipment immediately; 2) submit any Charges incurred prior to the termination in accordance with this Agreement; and 3) submit any Credits relating to these Charges in accordance with this Agreement. Our rights under the sections entitled "Full Recourse," "Disputed Charges." "Confidentiality," "Indemnification" and "Termination" shall survive termination of this Agreement. COMPLIANCE WITH LAWS Each party agrees to comply with all laws, regulations and rules applicable to its respective business. You represent and warrant to us that you have the right to collect the Administrative Service Fees from Cardmembers and your collection of such Administrative Service Fees does not violate any Federal, state or local law or regulation. GOVERNING LAW THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS NEGOTIATED, EXECUTED AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. ASSIGNMENT You may assign this Agreement to your parent corporation and/or any of your subsidiaries or affiliates which you control or wholly-own, which entity is engaged in the same business as you are engaged in as of the Effective Date hereof and is fully capable of performing all your financial and business obligations hereunder. We may assign this Agreement to our parent corporation and/or any of our subsidiaries or affiliates. NO WAIVER Failure to enforce any term or condition of this Agreement shall not be a waiver of the right to later enforce such term or condition or any other term or condition of this Agreement. CHANGING THIS AGREEMENT Any change(s) to this Agreement must be in writing and must be duly signed by both parties. ENTIRE AGREEMENT This Agreement is the entire agreement with respect to the subject matter hereof and supersedes any previous agreement with respect to the subject matter hereof. AUTHORITY TO SIGN Each party represents that the individual who signs this Agreement has authority to do so and to bind it to the terms and conditions of this Agreement. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. By: ----------------------- David House President, Establishment Services US AUDIOTEX, LLC Discount Rate - ---------------- BY: (Signature) Property Taxes 1.80% Citations 2.10% Debbie P. Soleta Fax Filing 3.00% - ---------------- Utilities 2.50% Name: (Print) VP-FINANCE ________________ Title: (Print) Effective Date: 12/9 ,1998 STANDARD AGREEMENT ------------------------------- STD. 2(REV 5-91) CONTRACT NUMBER AM. NO. DGS MSA OFA-NOVUS 02 ------------------------------- TAXPAYER'S FEDERAL EMPLOYER I.D. 36-4020792 ------------------------------- THIS AGREEMENT, made into and entered into this 11th day of May 1998, in the State of California, by and between the State of California, through its duly elected or appointed, qualified and acting - -------------------------------------------------------- TITLE, OFFICER ACTING FOR THE STATE AGENCY - -------------------------------------------------------- Director Department of General Services, hereafter called the - -------------------------------------------------------- State, and CONTRACTOR'S NAME NOVUS SERVICES, INC./First Data Merchant Services (FDMS), hereafter called the - -------------------------------------------------------- Contractor. WITNESSETH: That the Contractor and in consideration of the covenants, conditions, agreements, and stipulations of the State hereinafter expressed, does hereby agree to furnish to the State services and materials as follows: (Set forth service to be rendered by Contractor, amount to be paid Contractor, time for performance or completion and attach plans and specifications, if any.) This Amendment is for the purpose of extending the term of the Master Service Agreement (MSA) DGS MSA OFA-NOVUS. The term shall be from Nov. 12, 1996, to Nov. 13, 1999. Except as amended herein, all terms of this MSA remain in full force and effect. CONTINUED ON ___ SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER. ================================================================================ The provisions on reverse side hereof constitute a part of this agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon the date first above written. ================================================================================ STATE OF CALIFORNIA - -------------------------------------------------------------------------------- AGENCY Department of General Services - -------------------------------------------------------------------------------- BY (AUTHORIZED SIGNATURE) /s/ GARRY NESS - -------------------------------------------------------------------------------- PRINTED NAME OF PERSON SIGNING GARRY NESS - -------------------------------------------------------------------------------- TITLE Assistant Chief Counsel ================================================================================ CONTRACTOR - -------------------------------------------------------------------------------- CONTRACTOR (If other than an individual, state whether a corporation, partnership, etc. NOVUS Services, Inc. First Data Merchant Services - -------------------------------------------------------------------------------- BY (AUTHORIZED SIGNATURE) /s/ Joseph Hurley Gov. Business Mgr /s/ Drew Freeman - -------------------------------------------------------------------------------- PRINTED NAME AND TITLE OF PERSON SIGNING Joseph Hurley, Gov. Business Mgr Drew Freeman Vice President - -------------------------------------------------------------------------------- ADDRESS 2500 Lake Cook Rd., 2W RiverWoods, IL 60015 ================================================================================ AMOUNT ENCUMBERED BY THIS DOCUMENT $ - -------------------------------------------------------------------------------- PRIOR AMOUNT ENCUMBERED FOR THIS CONTRACT $ - -------------------------------------------------------------------------------- TOTAL AMOUNT ENCUMBERED TO DATE $ - -------------------------------------------------------------------------------- PROGRAM CATEGORY (CODE AND TITLE) FUND TITLE - -------------------------------------------------------------------------------- (OPTIONAL USE) - -------------------------------------------------------------------------------- ITEM CHAPTER STATUTE FISCAL YEAR - -------------------------------------------------------------------------------- OBJECT OF EXPENDITURE (CODE AND TITLE) - -------------------------------------------------------------------------------- I hereby certify that upon my own personal T.B.A. NO. B.R. NO. knowledge that budgeted funds are available for the period and purpose of the expenditure state above. - -------------------------------------------------------------------------------- SIGNATURE OF ACCOUNTING OFFICER DATE ================================================================================ |_| CONTRACTOR |_| STATE AGENCY |_| DEPT. OF GEN. SER |_| CONTROLLER |_| Department of General Services Use Only [ILLEGIBLE] APPROVED JUN 9 1998 STATE OF CALIFORNIA STANDARD AGREEMENT 3TD. 2(REV 5-91) (REVERSE) 1. The Contractor agrees to indemnify, defend and save harmless the State, its officers, agents and employees from any and all claims and losses accruing or resulting to any and all contractors, subcontractors, materialmen, laborers and any other person, firm or corporation furnishing or supplying work services, materials or supplies in connection with the performance of this contract, and from any and all claims and losses accruing or resulting to any person, firm or corporation who may be injured or damaged by the Contractor in the performance of this contract. 2. The Contractor, and the agents and employees of Contractor, in the performance of the agreement, shall act in an independent capacity and not as officers or employees or agents of State of California. 3. The State may terminate this agreement and be relieved of the payment of any consideration to Contractor should Contractor fail to perform the covenants herein contained at the time and in the manner herein provided. In the event of such termination the State may proceed with the work in any manner deemed proper by the State. The cost to the State shall be deducted from any sum due the Contractor under this agreement, and the balance, if any, shall be paid the Contractor upon demand. 4. Without the written consent of the State, this agreement is not assignable by Contractor either in whole or in part. 5. Time is of the essence in this agreement. 6. No alteration or variation of the terms of this contract shall be valid unless made in writing and signed by the parties hereto, and no oral understanding or agreement not incorporated herein, shall be binding on any of the parties hereto. 7. The consideration to be paid Contractor, as provided herein, shall be in compensation for all of Contractor's expenses incurred in the performance hereof, including travel and per diem, unless otherwise expressly so provided. 1 MSA Number: DGS MSA OFA-NOVUS Contractor: NOVUS SERVICES, INC. / First Data Merchant Services (FDMS) 1. The State is permitted to process debit card sales through the following national and regional debit Networks which list of regional Networks may be supplemented from time to time upon the written agreement of the State and the Contractor and otherwise in accordance with the terms of the Master Service Agreement (MSA). i) EXPLORE ii) INTERLINK iii) MAESTRO 2. In connection with the processing of debit card sales through such Networks, State agrees to comply (and hereby assumes all liability for any failure to so comply) with the operating rules and regulations of such Networks as such rules and regulations may exist from time to time, including with respect to certain regional Networks. 3. STATE FURTHER AGREES THAT CARD SALES USING DEBIT CARDS MUST BE APPROVED AS AN ON-LINE ELECTRONIC AUTHORIZATION THROUGH THE APPLICABLE NETWORK AND THE STATE AGREES THAT IT WILL NOT ACCEPT ANY DEBIT CARD IN CONNECTION WITH A CARD SALE WITHOUT SUCH APPROVAL. 4. Compliance. State shall comply with the Network rules and with applicable federal, state, and local laws, rules and regulations, including without limitations, the Electronic Funds Transfer Act and Regulations E of the Board of Governors of the Federal Reserve System. Without limiting the generality of the foregoing, State agrees that: a) Each card sale transacted with a debit card shall be submitted immediately for on-line electronic authorization and shall not be stored and processed at a later time; b) For each card sale transacted with a debit card (or series of card sales transacted with a debit card by the same cardholder), the cardholder shall be required to enter his or her Personal Identification Number (PIN) through a PIN pad located at the point of sale; c) The PIN pad shall be situated so as to permit cardholders to input their PINs without revealing them to other persons, including State personnel; d) State shall instruct its personnel that they shall under no circumstances ask any cardholder to disclose his or her PIN and in the event that any of State's personnel nevertheless becomes aware of any cardholder's PIN, such personnel shall not create or maintain any record of such PIN and shall not use such PIN or disclose such PIN to any other person; e) For each card sale transacted with a debit card, a transaction receipt in conformity with Regulation E shall be made available to the cardholder; f) State agrees not to establish a minimum or maximum transaction amount as a condition for use of a debit card and not to charge any cardholder for the use of any debit card in connection with a card sale, unless the Network rules applicable to such debit card permit such a charge to be made and unless the 2 MSA Number: DGS MSA OFA-NOVUS Contractor: NOVUS SERVICES, INC. 8. Conflict Language. In the event of a conflict between the MSA language and the language of any document(s) incorporated by reference, the MSA language will prevail. In case of disagreement between the RFP and the Contractor's proposal, the RFP will prevail. 9. Valid Agreement. This agreement shall not be valid until signed by all parties and approved by the DGS, Office of Legal Services. No services shall be provided and no services shall be billed under this agreement prior to approval by the DGS, Office of Legal Services. 10. Purpose. Upon approval of this agreement, the basic services to be offered include credit and charge card acceptance and processing services for state agencies. The State is seeking to implement as many payment vehicles as are practical and secure to improve its efficiency and the level of service experienced by all parties which pay the State money. Accordingly, Contractor may add materials, new features to the services, or offer new electronic information services and payment technologies such as debit card, prepaid/smart card, and Internet. Any charges and terms and conditions established by Contractor for new materials, features, or electronic information services and payment technologies must be approved by DGS. 11. Modification. If all parties agree, the terms and conditions of this MSA may be modified by amendment. Amendments to the terms of this MSA shall be valid when made in writing and agreed to and signed by the parties to this MSA. No oral understanding or agreement not incorporated in the MSA shall be binding on the parties of this MSA. 12. Objectives. Under the MSA, individual subscribers will be able to establish working agreements with the Contractor in accordance with their specific requirements. The Contractor will be able to provide solutions to the particular requirements of subscribers regarding accounting practices, information requirements associated with some payments, and recovery of costs associated with card acceptance. 13. Subscribers. The below referenced state departments, agencies, and political subdivisions of the State may request services from the Contractor: . The Executive Branch; . The Legislative Branch; . The Judicial Branch; . Constitutional Officers; . California State Universities; . Community Colleges; and . Political subdivisions of the State, such as city and county governments and special districts. 14. Subscription Agreement. The subscription agreement executed between the Contractor and the subscribing organization shall incorporate this MSA. State agencies of the Executive Branch should complete a Standard Agreement, Form STD. 2. Subscribers not authorized to use the Standard Agreement should use the appropriate equivalent contract form. A sample of how to complete the Form STD. 2 to contract for credit card services is provided as Attachment 1 to the MSA. To better meet the specific needs of the subscribing organization, a subscription agreement may contain a particular set of terms and conditions, as mutually agreed, provided that 1) they comply with, and meet all requirements of, the codes and regulations of the State of California; and 2) there are no 3 MSA Number: DGS MSA OFA-NOVUS Contractor: NOVUS SERVICES, INC. conflicts with the terms and conditions of this MSA. The terms and conditions of the MSA take precedence over any subscription agreement. Each subscribing organization shall designate a contact person to receive required written reports and notices. 15. Pricing. In consideration of Contractor's processing services, subscribers will pay in arrears pricing based on pricing grids provided in Section 14.0, pages 22 and 23, of the Contractor's proposal. Initial pricing for each method utilized for NOVUS or VISA and MasterCard processing will be based on the subscriber's estimated average ticket size. The Contractor will review quarterly for actual combined average ticket for all subscribers for actual processing method utilized and adjust pricing accordingly. The Contractor will send to each subscriber and to the Departmental Contact identified below quarterly notices documenting all price adjustments as a result of a change in the combined average ticket for all subscribers for actual processing method utilized. For this MSA, annual quarters are as follows: First Quarter January, February, March Second Quarter April, May, June Third Quarter July, August, September Fourth Quarter October, November, December 16. VISA and MasterCard Interchange Assessment Rates. The pricing specified in item 15 is subject to fluctuations in the VISA and MasterCard interchange assessment rates. These rates are outside of the control of the Contractor; therefore, both increases and decreases in the rates are to be passed on to the State in amounts reflective of changes in official interchange assessment rates promulgated by VISA and MasterCard. Contractor will send to each subscriber and to the Departmental Contact identified below notices documenting all pricing adjustments resulting from official changes in interchange assessment rates. 17. MSA Official Contact Persons. Reports and notices required under the MSA shall be in writing and delivered to the appropriate address(es) below. Each party shall notify the other of any change in name and address. Gloria Anderson, Departmental Contact Yvonne DeCicco, Sr. Business Department of General Services Manager Office of Fleet Administration NOVUS SERVICES, INC. 8000 Q Street 818 Connecticut Avenue, Suite 601 Sacramento, CA 95814 Washington, DC 20008 E-mail: glanders@dgs.ca.gov FAX: (202) 331-2140 FAX: (916) 327-2075 Telephone: (202) 331-0044 Telephone: (916) 327-2107 18. Statewide Reports. Quarterly, the Contractor will provide a summary report of all billings under this MSA to the Departmental Contact identified in item 17. 19. Financial Liability. Each subscriber must complete a subscription agreement for services and is responsible for payment for those services, subject to appropriations of their controlling body. The State will not accept liability for accounts of non-state subscribers (Community Colleges and Political Subdivisions). 4 MSA Number DGS MSA OFA-NOVUS Contractor: NOVUS SERVICES, INC. 20. Invoicing. Each subscriber shall provide billing information (mailing address, contact person, etc.) as requested by the Contractor. The Contractor shall bill each subscriber monthly for services and equipment, if applicable. The invoice shall reference the MSA number and subscriber's subscription contract number. Contractor will provide a telephone number, fax number, and address to each subscriber for billing comments or inquiries. 21. Convenience Fees. Usage of convenience fees is subject to approval by the appropriate governing bankcard association, American Express or NOVUS SERVICES. 22. Card Payment Deposits. All participating state agencies are required to open a Zero Balance Account (ZBA) at a selected Centralized Treasury System (CTS) bank to accept card payment transactions. The Contractor shall transmit the total amount of the card payment transactions, less the amount of any convenience fees, for each agency to the appropriate ZBA each day. Either Automated Clearing House (ACH) or Fedwire may be used. The vendor may not debit or reduce any payment transaction in the ZBA. The Contractor shall settle in gross daily and process chargebacks and adjustments through a separate process agreeable to the State. 23. Assignability. This MSA may not be assigned, in whole or in part, by State or Contractor without the prior written approval of the other party. 24. Standard Forms. Required standard forms are available as follows: 1) Vendor Data Records (STD. 204), Appendix B of Contractor's proposal, and 2) Nondiscrimination Compliance Statement (STD. 19), Appendix B of Contractor's proposal. A Nondiscrimination Clause (STD. 17A) is provided as Attachment 2 and incorporated by reference and made part of this MSA. 25. Separability. If any provision of this MSA is held by a court of competent jurisdiction to be void or unenforceable, the remainder of this MSA shall remain in full force and effect. 26. Discover Card. Contractor will completely process all Discover Card and other NOVUS card brands and settle directly to subscribers. 27. American Express. Contractor will provide processing (authorization, capture, and routing) for American Express once subscribers have completed a separate subscription agreement with American Express. Settlement will be made directly to the State by American Express. 28. No Additional Requirements or Qualifications. The Contractor agrees that no additional requirements or qualifications to the terms and conditions of this agreement beyond what is required by Federal and state laws and regulations, or by VISA and MasterCard operating rules, or by prudent operating requirements shall be made in carrying out the Contractor's stated obligations herein. Attachment 1 SAMPLE This is an example of how to complete the Form Standard 2, to contract for credit card vendor services. If your agency has special requirements, include them in this document. Contract duration, dollar amounts, and reporting requirements may vary by agency. [ILLEGIBLE] - -------------------------------------------------------------------------------- State of California -------------------------- STANDARD AGREEMENT APPROVED BY THE CONTRACT NUMBER AM. NO. 3TD. 2(REV 5-91) ATTORNEY GENERAL -------------------------- TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER -------------------------- THIS AGREEMENT, made and entered into this ( ) day of (month) 19xx, in the State of California, by and between State of California, through its duly elected or appointed, qualified and acting TITLE, OFFICER ACTING FOR STATE AGENCY Subscribing Agency hereafter called the - -------------------------------------------------------- state, and CONTRACTOR'S NAME Credit Card Vendor hereafter called the - -------------------------------------------------------- Contractor. WITNESSETH: That the Contractor and in consideration of the covenants, conditions, agreements, and stipulations of the State hereinafter expressed, does hereby agree to furnish to the State services and materials as follows: (Set forth service to be rendered by Contractor, amount to be paid Contractor, time of performance of completion, and attach plans and specifications, if any.) Master Services Agreement DGS MSA OFA ______, is incorporated by reference and made part of this agreement. The subscriber acknowledges receipt of the Master Services Agreement terms and conditions. Both parties agree to be bound by all terms and conditions contained in the Master Services Agreement. The Amount of this contract shall not exceed $_________. The term of this agreement shall be from ___________, 19__ to ___________, 19__, and may be extended for three annual periods upon the written consent of both parties. The vendor agrees to provide the following special report requirements to the subscriber: (e.g. Annual activity summary) CONTINUED ON (NUMBER) SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER. ================================================================================ The provisions on the reverse side hereof constitute a part of this agreement. IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon the date first above written. ================================================================================ STATE OF CALIFORNIA - -------------------------------------------------------------------------------- AGENCY Subscribing Agency - -------------------------------------------------------------------------------- BY (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- PRINTED NAME OF PERSON SIGNING - -------------------------------------------------------------------------------- TITLE ================================================================================ CONTRACTOR - -------------------------------------------------------------------------------- CONTRACTOR (If other than an individual, state whether a corporation, partnership, etc. Credit Card Vendor - -------------------------------------------------------------------------------- BY (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- PRINTED NAME AND TITLE OF PERSON SIGNING - -------------------------------------------------------------------------------- ADDRESSEE ================================================================================ AMOUNT ENCUMBERED BY THIS DOCUMENT $ - -------------------------------------------------------------------------------- PRIOR AMOUNT ENCUMBERED FOR THIS CONTRACT $ - -------------------------------------------------------------------------------- TOTAL AMOUNT ENCUMBERED TO DATE $ - -------------------------------------------------------------------------------- PROGRAM CATEGORY (CODE AND TITLE) FUND TITLE - -------------------------------------------------------------------------------- OPTIONAL USE - -------------------------------------------------------------------------------- ITEM CHAPTER STATUTE FISCAL YEAR - -------------------------------------------------------------------------------- OBJECT OF EXPENDITURE (CODE AND TITLE) - -------------------------------------------------------------------------------- I hereby certify that upon my own personal T.B.A. NO. B.R. NO. knowledge that budgeted funds are available for the period and purpose of the expenditure state above. - -------------------------------------------------------------------------------- SIGNATURE OF ACCOUNTING OFFICER DATE ================================================================================ |_| CONTRACTOR |_| STATE AGENCY |_| DEPT. OF GEN. SER |_| CONTROLLER DEPARTMENT OF GENERAL SERVICE USE ONLY - -------------------------------------------------------------------------------- NONDISCRIMINATION CLAUSE (OCP-1) 3TD. 17A (REV 3-95) FMC 1. During the performance of this contract, contractor and its subcontractors shall not unlawfully discriminate, harass or allow harassment, against any employee or applicant for employment because of sex, race, color, ancestry, religious creed, national origin, disability (including HIV and AIDS), medical condition (cancer), age, marital status, denial of family and medical care leave and denial of pregnancy disability leave. Contractors and subcontractors shall insure that the evaluation and treatment of their employees and applicants for employment are free from such discrimination and harassment. Contractor and subcontractors shall comply with the provisions of the Fair Employment and Housing Act (Government Code, Section 12900 et seq.) and the applicable regulations promulgated thereunder (California Code of Regulations, Title 2, Section 7285.0 et seq.). The applicable regulations of the Fair Employment and Housing Commission implementing Government Code, Section 12990 (a-f), set forth in Chapter 5 of Division 4 of Title 2 of the California Code of Regulations are incorporated into this contract by reference and made a part hereof as if set forth in full. Contractor and its subcontractors shall give written notice of their obligations under this clause to labor organizations with which they have a collective bargaining or other agreement. 2. This contractor shall include the nondiscrimination and compliance provisions of this clause in all subcontracts to perform work under the contact. ATTACHMENT A LYNK SYSTEMS, INC. DEBIT INFORMATION Claire Mendonca Novus Services, Inc. 818 Connecticut Avenue NW Suite 601 Washington, DC 20006 Phone: (800) 310-4740, Ext. 426 Fax: (208) 939-4903 Lynk Systems, founded in 1991, is a third party processor authorizing transactions for ATM debit cards and check verification. Lynk is connected to all major ATM debit card payment systems. Lynk's data center operates 24 hours a day, seven days a week proprietary technology residing on Stratus fault-tolerant computers, providing continuous availability. The pricing information is as follows: $199 PINPad 1000 $15 Encryption Fee $10 Shipping Fee for PINPad $10 Month Statement & Technical Helpdesk Fee $.34 Transaction Fee plus the Network acquirer fee (varies from $.00-$.11/trans) $.10 Transaction Decline Fee plus the Network acquirer fee $.10 Batch Fee You have a choice of Networks: Basic State of California Package (Interlink & Explorer) $60 Application Fee/Installation Fee Premium Package which includes all National Networks $85 Application Fee/Installation Fee [LETTERHEAD OF NOVUS SERVICES, INC.] September 25, 1996 Gloria Anderson, Departmental Contact Department of General Services Office of Fleet Administration 800 Q Street Sacramento, CA 95814 Dear Ms. Anderson: NOVUS Services, Inc. hereby submits this response to the State of California's Request for Proposal for Card Payment Acceptance Services. NOVUS Services intends to enter into a contract with the State of California for its card payment processing needs and will meet all of the mandatory requirements as set forth in its RFP. In addition, NOVUS Services has responded to the RFP in detail to demonstrate the NOVUS Services system, the service it will provide, and its ability to support the State of California's card transaction processing. Thank you very much for the Opportunity to bid on the State of California's Request for Proposal for Card Payment Acceptance Services. If you have any questions or concerns regarding this response, please contact Mary Pappas at (847) 405-3959 or Claire Mendonca at (208) 939-4902. Sincerely, /s/ Yvonne DeCicco/MP Yvonne DeCicco Sr. Business Manager Government Relations cc: M. Pappas C. Mendonca- - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Section - Paragraph Headings Page Number - ---------------------------- ----------- 6.4 Introduction 1 6.6 Vendor Profile 2 6.6.5 References 2 6.11 Unique Capabilities 5 7.0 Administrative and Contractual Requirements 6 7.4 Term of Contract(s) 6 7.6 Contract Cancellation 6 7.7 Subcontractors 6 7.9 Standard Documents 7 8.0 Convenience Fees and Card Payment Deposits 8 8.1 Convenience Fees 8 8.2 Card Payment Deposits 8 9.0 Levels of Service 9 9.1 Manual Processing 9 9.2 Authorization Only 9 9.7 Interactive Voice System (IVR) Interface 9 10.0 Credit and Charge Card Payment Support Requirements 10 10.1 Card Brand Support 10 10.2 Retrievals and Chargebacks 10 10.3 Merchant Help Desk 10 10.4 Credit/Charge Card Transaction Set 10 10.5 Authorization and Processing 11 10.6 Authorization and Processing during Downtime 11 10.7 Interactive Voice Response (IVR) 11 10.8 Settlement and Clearing 12 10.9 Convenience Fee Collection 12 10.10 Funding Procedures 12 10.11 Agency Fee Collection 13 10.12 Reports 13 10.13 Customer Service 14 10.14 Training and Implementation Support 15 10.15 Implementation Schedule 15 10.16 Fraud and Loss Prevention Support 16 10.17 American Express and Discover Card Processing 17 10.18 System Processing and Response Times 17 11.0 Technology and Communications Capabilities 18 11.1 Computer Systems, Facilities and Sites 18 11.2 Hardware, Software and Operating Systems 18 11.3 Provisions for Normal Operating Problems 18 11.4 Emergency 18 11.5 Communications Network 18 12.0 Terminal Support Services 20 13.0 Settlement and Data Transmission Services 21 14.0 Pricing 22 14.1 Combined Volume Pricing 22 14.2 Term 22 14.3 Service Level Pricing 22 14.4 Bundled Pricing 22 14.5 Funds Availability Options 22 14.6 Terminal Pricing 23 14.7 IVR Services 23 14.8 Other Costs 23 15.0 Other Card or Electronic Payment Options 24 - -------------------------------------------------------------------------------- 6.4 Introduction - -------------------------------------------------------------------------------- The NOVUS Network is now one of the largest credit card networks in the United States. In 1985 the Discover Card was launched. NOVUS Services has since introduced two new Card Brands. The relaunched Private Issue and the BRAVO Card. There are over 42 million Cardmembers who carry a NOVUS Card Brand. Discover Card remains the corner NOVUS Services Brand represented in 33% of all households nationwide. Headquartered in Riverwoods, Illinois, NOVUS Services also has Operations Centers in Columbus, Ohio; Sandy, Utah; New Castle, Delaware; and Scottsdale and Glendale, Arizona. These centers serve Merchants and Cardmembers by handling inquiries, settlement, billing, security authorizations and payment processing. Responding to the increasing interest of government entities to accept credit cards, Novus Services created a government industry group devoted entirely to government accounts on the federal, state and local level. This allows us to address the specific needs of government entities. The group includes government account representatives, specialists in our operations department, specialists at headquarters and government service supervisors. In addition we have local service representatives handling our training and on site support. Included in the over 2 million merchants nationwide that accept NOVUS Card Brands are Military Exchanges, Moral Welfare & Recreation (MWR) Facilities, the US Mint, US Postal Service and the Smithsonian Institution. At NOVUS Services superior quality work is the most important element of our product's competitiveness within the financial services industry. We understand that our customers have many options regarding credit card services and that our ability to deliver the highest quality work is at the center of our long term existence and profitability as a financial services company. Our Quality Mission Statement clearly focuses us towards this ultimate goal. NOVUS Services Quality Mission Statement We will identify and understand the expectations of our customers and set requirements based on these expectations. We will meet those requirements 100% of the time by doing things right the first time. 1 - -------------------------------------------------------------------------------- 6.6 Vendor Profile - -------------------------------------------------------------------------------- 6.6 Vendor Profile - NOVUS Services, Inc. is a wholly owned subsidiary of NOVUS Credit Services Inc., which is a wholly owned subsidiary of Dean Witter, Discover & Company. Please see the attached organizational charts for a breakdown of company structure. 6.6.1 Annual reports for the years 1994 and 1995 have been attached as Attachments M and L respectively. 6.6.2 NOVUS Services does not hold ownership of any other companies. 6.6.3 NOVUS Services will be using four vendors in its efforts to complete all of the State of California's requirements. First Data Merchant Services will be our BankCard acquirer. U S Audiotex will be our subcontractor for IVR services. Advantis is our communications vendor. Lynk Systems, Inc. provides us with debit card access. 6.6.4 NOVUS Services is not a member of the Visa or MasterCard Associations. However, we have been a certified processor of both since 1986. Through our relationship with Lynk Systems, we can provide debit card acceptance capabilities on our terminals. 6.6.5 References BankCard Processing: 1. Baby Superstores Contact Person: Jerri Miller Phone: (864) 968-2595 Processing Services: Visa/MasterCard/NOVUS/American Express Merchant operates 90 locations nationwide in the children's furniture and apparel industry. We have been supporting their card processing since January of 1990. 2. Hobby Lobby Stores Contact Person: Patrick Jones Phone: (405) 745-1190 Processing Services: Visa/Mastercard/NOVUS Merchant operates 68 locations in the hobby store industry. We have been supporting their card processing since June of 1987. 2 3. Hi-Lo Auto Supply Co. Contact Person: David Barnes Phone: (713) 745-1190 Processing Services: Visa/MasterCard/NOVUS Merchant operates 198 locations in the auto parts industry. We have been supporting their card processing since December of 1987. 4. Trugreen Chemlawn Contact Person: Dawn Valley/Cheryl Townsend Phone: (901) 681-1884 Processing Services: Visa/MasterCard/NOVUS Merchant operates 196 locations nationwide in the lawn and landscaping services industry. We have been supporting their card processing since October of 1992. 5. Mail Boxes, Etc. Contact Person: Karen Hillary-Wilks Phone: (619) 455-8849 Processing Services: Visa/MasterCard/NOVUS/American Express Merchant operates 2,300 locations nationwide in the mailing services industry. We have been supporting their card processing since June of 1993. 6. H & R Block Contact Person: Will be provided at a later date. Phone: Will be provided at a later date. Processing Services: Visa/MasterCard/NOVUS Merchant operates 470 locations nationwide in the tax services industry. We have been supporting their card processing since November of 1995. Processing for Government Agencies: 1. State of Texas Contact Person: Ellen Rathgerber Phone: (512) 463-5971 Processing Services: NOVUS NOVUS Services signed a blanket agreement with the State of Texas in January of 1996. 2. Commonwealth of Virginia Contact Person: Judy Siler Phone: (804) 225-2647 Processing Services: NOVUS NOVUS Services signed a blanket agreement with the Commonwealth of Virginia in March of 1996. 3 3. State of Wisconsin Contact Person: Gabrielle Cooke Phone: (608) 266-3209 Processing Services: NOVUS NOVUS Services signed a blanket agreement with the State of Wisconsin in August of 1996. 4. State of Indiana Contact Person: Mike Hinkle Phone: (317) 232-4715 Processing Services: NOVUS NOVUS Services signed an agreement with the State of Indiana for State Income Tax collection in January of 1996. 5. State of Oklahoma Contact Person: Albert Hurley Phone: (405) 522-4216 Processing Services: NOVUS NOVUS Services signed a blanket agreement with the State of Oklahoma in July of 1995. 4 ================================================================================ Dean Witter, Discover & Co. Management Organization [GRAPHIC] NOVUS SERVICES 1997 ANNUAL PLAN EXECUTIVE [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Administration NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Operations NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Marketing Services NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Product Marketing NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Field Sales and Service NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Relationship Management NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Information Assets NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - Targeted Acquisition NOVUS Network Services [GRAPHIC] NOVUS Services, Inc. 1996 Annual Plan Riverwoods - International Sales NOVUS Network Services [GRAPHIC] - -------------------------------------------------------------------------------- 6.11 Unique Capabilities - -------------------------------------------------------------------------------- 1 Single Statement - If NOVUS Services is chosen as your card payment processor all of your Visa, MasterCard, and NOVUS transaction reporting will appear on one statement. Only NOVUS Services can provide this service since all of the other processors responding this RFP do not have access to NOVUS transaction reporting detail. 2 Servicing - NOVUS Service operates three district and one regional office in the State of California. Therefore, we can offer the State, not only the services of our specialized government service staff, but also the experience and attention of approximately 45 local service representatives. 3 Specialized Government Experience - In addition to hundreds of local government entities, NOVUS Services has signed blanket agreements with the State Governments of Texas, Wisconsin, Virginia, and Maryland. We have knowledge of and experience in fulfilling the requirements of boarding and training agencies once the blanket agreement has been executed. 4 24 Hour Redundant Merchant Service - NOVUS Services has two merchant operations facilities. One in Columbus, Ohio, and the other in Phoenix, AZ. Merchant and Terminal services are provided on a 24 hour, 7 day a week, basis. If systems fail at one center, the other is fully capable of fulfilling the needs of the State. 5 Free Supplies and Support - All supplies required to process card transactions will be provided to the State by NOVUS Services at no cost. Training and servicing is also provided to the State at no cost. 5 - -------------------------------------------------------------------------------- 7.0 Administrative and Contractual Requirements - -------------------------------------------------------------------------------- NOVUS Services, Inc. is prepared to comply with all of the requirements of this section. The following are additional comments to specific subsections. 7.4 Term of Contract(s) - NOVUS Services, Inc. agrees to a contract term of two years beginning January 1, 1997 and to the renewal option of three additional one-year periods. In addition, our standard Governmental Entity Agreement has been attached at Attachment B. 7.6 Contract Cancellation - This provision is consistent with the language in our standard agreement. See Attachment B, Section 19. 7.7 Subcontractors - NOVUS Services, Inc. intends to use the services of four subcontractors in fulfilling the requirements of this RFP. First Data Merchant Services will be our BankCard subcontractor, U S Audiotex will be our Interactive Voice Response system subcontractor, Advantis will be our communications vendor, and Lynk Systems, Inc. will provide our debit card access. First Data Merchant Services. Owned by First Data Corporation, FDMS integrates the strengths of four powerful platforms - CES, NaBANCO, Envoy, and TeleMoney - into one large scale unit, with nearly 30 years of experience in the payment processing industry. FDMS will be your Visa and MasterCard acquirer. NOVUS Services has had a working relationship with FDMS for over 10 years. U S Audiotex. NOVUS Services has a pre-existing relationship with U S Audiotex which will allow us to provide telephone payment services to the State of California. U S Audiotex is a rapidly-growing California-based provider of Interactive Voice Response (IVR) services to merchants. Their IBM-based software allows for automatic acceptance of credit card payments. The company was founded in 1986 and currently provides their interactive voice response products and services to many governmental agencies, with a concentration of their clients in the State of California. References for their services are available upon request. Advantis. Advantis provides networking services to 1000's of commercial customers in the US. Advantis' partner, IBM Global Network, provides worldwide communications services to many commercial customers. Services include SNA, Internetworking, Voice, and Video. Advantis has serviced NOVUS Services since December of 1992. Lynk Systems Inc. Lynk, founded in 1991, is a third party processor authorizing transactions for ATM debit cards and check verification. Lynk is connected to all major ATM debit card payment systems. Lynk's data center operates 24 hours a day, seven days a week proprietary technology residing on Stratus fault-tolerant computers, providing continuous availability of service. 6 7.9 Standard Documents - NOVUS Services, Inc. intends to comply with the terms of the Standard Agreement (STD Form 2) and has attached all relevant forms. See Appendix B - Standard Forms. 7 - -------------------------------------------------------------------------------- 8.0 Convenience Fees and Card Payment Deposits - -------------------------------------------------------------------------------- In addition to the information in the attached tables, the following are more detailed comments for specific sections. 8.1 Convenience Fees 8.1.3 Usage of a tiered convenience fee with BankCard transactions is subject to Association constraints. Currently the Associations do not allow tiered convenience fees. 8.2 Card Payment Deposits 8.2.6 A separate merchant number can be assigned to each location so that the State can more easily track deposits. 8.2.7 NOVUS Services offers electronic Merchant Daily Letters, Chargeback Notifications, Ticket Retrieval Requests. however Monthly Statements and Invoices are not electronic. Chargeback and Ticket Retrieval information regarding the State's BankCard transactions will be received from FDMS. 8 8.1 Convenience Fee Assessment (*MR*)
- --------------------------------------------------------------------------------------- Planned Currently Availability Functions/Capabilities Available Date Comments - --------------------------------------------------------------------------------------- 8.1.1 BankCard usage is subject Assess a flat convenience fee X to Association approval. - --------------------------------------------------------------------------------------- 8.1.2 BankCard usage is subject Assess a percentage X to Association approval. convenience fee - --------------------------------------------------------------------------------------- 8.1.3 BankCard usage is subject Assess a tiered convenience fee X to Association Approval. - --------------------------------------------------------------------------------------- 8.1.4 An individual merchant Provide flexibility for each X number would be required agency to assess or not assess a for each agency. convenience fee - --------------------------------------------------------------------------------------- 8.1.5 An individual merchant Provide flexibility for each X number would be required agency to assess or not assess a for each agency payment convenience fee by payment channel. channel - --------------------------------------------------------------------------------------- 8.1.6 An individual merchant Support variations in X number would be required convenience fees at the agency for each agency location. level - ---------------------------------------------------------------------------------------
8.2 Card Payment Deposits (*MR*)
- --------------------------------------------------------------------------------------- Planned Currently Availability Functions/Capabilities Available Date Comments - --------------------------------------------------------------------------------------- 8.2.1 Deposit card transactions, less X convenience fees, into agency ZBA - --------------------------------------------------------------------------------------- 8.2.2 Deposit convenience fees into X separate vendor account - --------------------------------------------------------------------------------------- 8.2.3 Submit monthly invoices for discount fees and any other X fees to individual agencies - --------------------------------------------------------------------------------------- 8.2.4 Transmit timely detailed analysis necessary to reconcile X ZBA and convenience fee deposits - --------------------------------------------------------------------------------------- 8.2.5 Provide a directory of representatives for inquiry X and problem resolution - --------------------------------------------------------------------------------------- 8.2.6 Identify revenue classification X and source - --------------------------------------------------------------------------------------- 8.2.7 Monthly Statements and Electronically transmit all X invoices are not accounting information to the electronic. State and Participating Agencies - --------------------------------------------------------------------------------------- 8.2.8 Provide ad hoc reporting X - ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 9.0 Levels of Service - -------------------------------------------------------------------------------- In addition to the information in the attached tables, the following are more detailed comments for specific sections. 9.1 Manual Processing - If the manual processing option is chosen, BankCard processing fees may be higher. 9.2 Authorization-Only - If this option is used, paper drafts must be mailed to NOVUS Services. 9.7 Interactive Voice System (IVR) Interface - U S Audiotex has a standard interface for existing IVR systems at various state agencies. The systems support older products with serial port asynchronous data transfer starting at 300 Baud through current model systems. U S Audiotex provides interface logic and "C" code software for the agency's existing IVR. 9 9.0 Levels of Service (*MR*)
- ---------------------------------------------------------------------------------------- Planned Currently Availability Level of Service Available Date Comments - ---------------------------------------------------------------------------------------- 9.1 Paper drafts must be mailed Manual Processing X to Novus rather than deposited at a bank branch. - ---------------------------------------------------------------------------------------- 9.2 Authorization Only X - ---------------------------------------------------------------------------------------- 9.3 EDC X - ---------------------------------------------------------------------------------------- 9.4 Electronic ECR/POS X Use of Novus' PC/ECR Interface Interface required. - ---------------------------------------------------------------------------------------- 9.5 PC Interface X - ---------------------------------------------------------------------------------------- 9.6 MOTO X - ---------------------------------------------------------------------------------------- 9.7 IVR Interface X - ---------------------------------------------------------------------------------------- 9.8 IVR Support and X Fulfillment - ----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 10.0 Credit and Charge Card Payment Support Requirements - -------------------------------------------------------------------------------- In addition to the information in the attached tables, the following are more detailed comments for specific sections. 10.1 Card Brand Support - NOVUS Services will process all major card brands (Visa, MasterCard, American Express and Discover). Processing for American Express transactions includes authorization and routing. However settlement is direct with American Express. 10.2 Retrievals and Chargebacks - These processes are described in our Operating Regulations (Attachment A). 10.2.1 Ticket Retrieval Requests are distributed by either paper or electronic files. NOVUS does not have imaging capability. 10.2.2 Chargebacks for government accounts are extremely low (less than 1%). 10.2.3 If Ticket Retrieval Requests are mailed, they are typically received within three to four days. If they are electronic, then they will be received the same day the are initiated. BankCard Ticket Retrieval Requests will be distributed by FDMS. 10.3 Merchant Help Desk - NOVUS Services provides help desk support 24 hours a day, seven days a week. Operations centers are located in both Columbus, Ohio, and Phoenix, Arizona. NOVUS Services believes in a full service approach to the staffing of its help desk. This means that each representative is trained to handle any issue that might arise. We have taken our one call resolution approach to such an advanced level that our Full Service Unit 1 in our Westland Operations center in Columbus, Ohio, received the International Team Excellence Award from the Help Desk Institute (HDI). Over 4,700 companies are HDI members. Our full service concept has succeeded in reducing transferred calls by 40%. 10.4 Credit/Charge Card Transaction Set - See attached chart. 10 10.4 Credit/Charge Card Transaction Set
- ---------------------------------------------------------------------------------------- Planned Currently Availability Functions/Capabilities Available Date Comments - ---------------------------------------------------------------------------------------- 10.4.1 Sales Authorization X - ---------------------------------------------------------------------------------------- 10.4.2 Credit (returns) X - ---------------------------------------------------------------------------------------- 10.4.3 Pre-authorization X - ---------------------------------------------------------------------------------------- 10.4.5 This function is not an Pre-authorization cancellation industry requirement. - ---------------------------------------------------------------------------------------- 10.4.6 Authorizations after the Post authorization completion of a transaction may not be effective. - ---------------------------------------------------------------------------------------- 10.4.7 BankCard transactions No signature transaction X require an appropriate Category Code. - ---------------------------------------------------------------------------------------- 10.4.8 Purchase cancel X - ---------------------------------------------------------------------------------------- 10.4.9 Off-line purchase X - ----------------------------------------------------------------------------------------
10.5 Authorization and Processing - Average authorization response time is 5 to 10 seconds, not including terminal dial time or the delivery of the call to our network through an entry point, which we call a gateway. Therefore, this time frame includes the transmission of the authorization request from the gateway to our authorizer and back. We cannot control terminal dial time or the time between the terminal and the gateway. However, an estimate of the total average response time is between 8 to 12 seconds. 10.6 Authorization and Processing during Downtime - The NOVUS Network electronic authorization system is available and operating a minimum of 98% of the time. In the rare case of electronic equipment failure, NOVUS Services has a toll free ARU (Audio Response Unit) authorization telephone system for use in obtaining authorization for both NOVUS Card Brand and BankCard transactions. That number is 1-800-347-0451. ARU authorizations for American Express transactions can be obtained by calling 1-800-528-2121. Where telephone lines are out, it is recommended that you wait until lines are restored to process transactions. NOVUS Services does not schedule any downtime. 10.7 Interactive Voice Response (IVR) - The basic IVR system allows callers to pay fees via their touch tone phone 24 hours a day, 7 days a week. Qualified callers will be offered the option of paying their fees over the phone using VISA, MasterCard or NOVUS Card Brands (or additional cards as the State of California requests). The system quickly guides the caller through the necessary data entry, then authorizes the card and posts the transaction while the caller is on-line. After the payment processing is completed the U S Audiotex system updates the appropriate files. When the authorization, posting and updating are completed, the system verbally issues the caller a unique receipt number. The entire process is completed while the caller is on-line. The U S Audiotex system balances transactions daily with both the Merchant Service Providers' system and the State's system to guarantee processing accuracy and produces daily transaction summary reports. The system electronically deposits funds into the State's designated bank. Customer Service and Training for the IVR system are provided by U S Audiotex as determined by the needs of the State of California.. A complete description of U S Audiotex's IVR system, including a description of their software architecture, is included in this proposal as Attachment C. 10.7.1 Because the US Audiotex system uses screen scraper technology, it can interface with virtually any CRT on virtually any system accessing an underlying database. most common implementations have been with IBM mainframes AS/400's and TCP/IP networks. Because U S Audiotex is an IBM Business Partner we have access to the IBM communication manager which provides interfaces to every product that an IBM system would interface to. 11 10.8 Settlement and Clearing Daily Settlement ACH: Funds can be electronically sent to your designated bank account(s) via the Automated Clearing House (ACM). For batches received by 8:30 PM PST, NOVUS Services will initiate the ACM transfer within 24 hours. Settlement can be either gross or net (less discount fees). For transactions received from U S Audiotex, ACM transfer will be initiated within 48 hours. Federal Wire: Funds can be sent via fed wire. Transactions batched out by 8:30 PM PST will have funds federal wired to designated bank account by 11:00 am PST next day. All NOVUS Services settlement processing and accounting are done internally. Our ACH provider in California is Wachovia Bank, and our fedwire provider is First Chicago. 10.8.1 NOVUS accepts files into our network at any time. We initiate settlement on business days, excluding banking holidays. 10.8.2 The cutoff time to receive transmissions for which we will initiate settlement on the next business day is 8:30 PM in California. 10.9 Convenience Fee Collection - To accommodate convenience fees, we typically deposit sales plus fees to the same bank account and later invoice monthly for the fees. A sample of our monthly invoice has been attached as Attachment J. However, individual requirements will be addressed. The BankCard Associations would need approve any use of a convenience fee. 10.10 Funding Procedures 10.10.1 We fund daily Monday - Friday, except banking holidays. 10.10.2 We compute sales plus convenience fees less returns and less chargebacks and adjustments. We can settle in gross and process chargebacks and adjustments through a separate adjustment account. l0.10.3 Either ACH or Fedwire will be used. 10.10.4 Daily Reporting NOVUS Services will provide a Merchant Daily Letter (MDL) to the State that provides a summary of NOVUS Card Brand, Visa, MasterCard, and American Express daily activity. The MDL has complete information for balancing and reconciling to the merchant's card activity and bank account. The MDL is sent daily, via mail or fax. If the State does not require the MDL, it will be withheld. 12 Monthly Reporting At the end of each month NOVUS Services sends via mail to its merchants a Merchant Monthly Statement. The Merchant Monthly Statement summarizes NOVUS Card Brand, Visa, MasterCard, and American Express deposits for each merchant account and identifies the discount fees to be assessed. 10.10.5 A sample Merchant Daily Letter has been attached as Attachment D and a sample Merchant Monthly Statement has been attached as Attachment E. 10.10.6 See Section 10.8 for standard time frames. 10.11 Agency Fee Collection - NOVUS Services offers monthly invoicing for all fees (see Attachment J). Currently we provide our invoicing option to the majority of our government accounts. 10.12 Reports 10.12.1 Our standard reports include Merchant Daily Letters, Monthly Statements, Ticket Retrieval Requests and Chargeback Notifications for NOVUS Card Brand transactions. All reports except Monthly Statements are available electronically. BankCard standard reports include Merchant Daily Letters and Monthly Statements. The Daily Letters will be available electronically after March of 1997. BankCard Ticket Retrieval Requests and Chargeback Notifications will be issued by FDMS and are available electronically. The following are detailed descriptions of all reports: Electronic Merchant Daily Letter (EMDL) After your batch transmissions have been processed, you will have electronic access to your EMDL, which will provide you with a recap of you settlement, including totals for each agency. In addition it will detail chargeback, adjustment and correction items. This report is available in either formatted or unformatted data format, according to your requirements. o Formatted Data: The "Print Image" format is a text file which provides a formatted output document. This is a user friendly, easy-to-read report. o Unformatted Data: The "Data File" format is comprised of unformatted data which can be interfaced with internal accounting or reconciliation applications, as needed. This report consists of raw data, which you will need to reformat in order to read easily. Electronic Ticket Retrieval Requests and Chargeback Notifications You will be able to access Ticket Retrieval Requests and Chargeback Notifications electronically. Using this electronic process will provide you with additional time to investigate and respond to each request. A sample of the NOVUS Services Ticket Retrieval Request and Chargeback Notification have been attached as 13 Attachments H and I respectively. Copies of the Ticket Retrieval Request and Chargeback Notifications you will be receiving from FDMS are attached as Attachments J and K respectively. Monthly Statements The Monthly Statement, which is sent vial mail, summarizes activity for each merchant number and identifies the applicable discount and fees that have been assessed. See Attachment D. 10.12.2 We will create separate monthly invoices for the collection of discount. See Attachment J. 10.12.3 Our daily reporting provides detail by merchant number. 10.12.4 Electronic reports remain on the system for access by the State for 3 days. After that time, paper copies can be retrieved and faxed to the State as needed. 10.12.5 Our reports are available in either paper or electronic forms. We currently do not have document imaging capabilities. 10.12.6 Our electronic daily reports are not available in an on-line real time access mode. These reports more closely resemble a remote batch mode. 10.12.7 Electronic reports are more secure because the State would be assigned a unique identification code, and the transfer of files occurs over our communications interface, which we call SENDEN. 10.13 Customer Service 10.13.1 Our Government Services Unit at our Westland Operations Center in Columbus, Ohio, consists of 10 specially assigned service representatives who are experienced in working with the unique needs of government accounts. They can be reached via 1-800-347-0433. 10.13.2 All State Agencies will be serviced by our Government Services Unit. 10.13.3 The Government Services Unit hours of operation are from 5:00 am to 3:30 PM PST. After that time, assistance may be obtained from our general customer service team which is available 24 hours, 7 days a week. 10.13.4 The majority of inquiries receive immediate response. 10.13.5 All of your customer service needs will be handled by our Government Services Unit at our Westland Operations Center. NOVUS Services believes in a full service, one-call resolution approach to customer service. Therefore, every service 14 representative in our Government Services Unit is trained to fulfill all of your requirements. These representatives will provide information regarding accounting, chargebacks and settlement questions. These people will also reorder supplies and handle special requests, i.e. research accounts, duplicate reports. 10.13.6 Customer Service is available on a 24 hour, 7 day a week, basis. If an issue requires escalation, please contact Yvonne DeCicco, Vice President, Government Relations at (202) 331-0044. 10.13.7 Every member of our Government Services Unit is capable of responding to your inquiries. In the case of extreme conditions rendering the entire Westland Operations Center unresponsive, NOVUS Services will route all customer services calls to our operations center in Phoenix, AZ. 10.13.5 The majority of issues are resolved immediately. 10.13.9 The standard for average speed of answer is 30 seconds. 10.14 Training and Implementation Support - All State representatives will be trained to accept, process and settle NOVUS Card Brand, Visa, MasterCard and American Express transactions. This training will be done by designated local Service Representatives at an on-site location or alternative site selected by you. There are approximately 45 NOVUS Services, Inc. Service Representatives in the State of California, each thoroughly trained in all aspects of credit card transactions Initial training time will be scheduled at the time of implementation. Follow-up training can be scheduled as necessary. Training will include the use of Point of Sale equipment, operating procedures (Operating Regulations are attached as Attachment A), completion of paperwork, analysis of account information, chargeback and settlement procedures, etc. Representatives will be given all materials necessary to complete a transaction at no charge. Additional supplies may be obtained by dialing a toll-free phone number. 10.14.1 In addition to the 45 local Service Representatives available for on-site training. The Government Relations Group at NOVUS Services has designated a Government Service Supervisor to oversee all of your training needs. The name of this individual is Julie Crooks and she been servicing NOVUS Services' accounts for over 10 years. In addition your Account Executive, Claire Mendonca, will be heavily involved in insuring the fulfillment of all of your requirements. 10.15 Implementation Schedule - After the agreement and a boarding are fully executed, each participating department should be up and running in approximately 4 weeks. The following is a breakdown of each event required to facilitate that time frame: o All participating departments will have completed the boarding form and faxed it to Claire Mendonca at (208) 939-4903 no later than November 13, 1996. 15 o All department(s) will be boarded and receive merchant numbers within 2 business days. o Equipment and supplies will be received within 2 to 3 weeks from the day the department is boarded. This process can be expedited if overnight shipping is used. o Each participating department is required to have the following at this time: a single line RJ11 phone jack (it must be analog and not digital); two electrical outlets (these outlets can come off of a power strip if outlets are limited). o Scheduling of training will depend upon when each participating department's is available and how many classes will be required. In general, training is completed within 1 to 2 weeks after the equipment and supplies have been received. 10.16 Fraud and Loss Prevention Support - NOVUS Services offers the following support services for fraud and loss prevention: Sniper Report: This report monitors NOVUS Card Brand activity and is based on a point scoring system, with points assigned to criteria measuring the seriousness of potential fraud activity. Draft Capture: The Draft Capture report monitors activity of merchants who have been set up with the Draft Capture program. These merchants submit batches consisting of sales made on MasterCard, Visa, American Express and NOVUS. Although this includes NOVUS Card Brand activity, our primary focus is on BankCard transactions. This report is reviewed for abnormal batching submitted by the merchants. Suspect File: The Suspect File is a report generated by NOVUS Services in which merchants who have been closed for various reasons, or have otherwise been found to be undesirable are placed. Merchants who apply for NOVUS acceptance are run against this report, with matching information placing it on the report to be reviewed by the person working the Suspect File. Terminated Merchant File (TMF): TMF's are based on the same theory as the Suspect File, however, this report is generated for BankCard and is used by FDMS to decline merchants applying for BankCard processing. MFATS: The MFATS report is reviewed to disclose merchants who may have excessive lost/stolen activity that has otherwise been unnoticed. This report relies heavily on the fact that Cardmember Security has to add instances of card misuse to the report. This report has been very successful in getting results or either closures or lost/stolen packages being sent to educate the merchant. Excessive Chargeback Report: This report is generated by NOVUS Services and covers a three month period in which merchants appearing on this list have exceeded the chargeback rate. 16 Authorization Logs: These logs are periodically reviewed to find inconsistencies with authorization attempts. The report we most commonly review is the Supplemental Authorization Log which deals exclusively with BankCard transactions. 10.17 American Express and Discover Card Processing - NOVUS Services will completely process all Discover Card transactions. Processing services provided for American Express transactions are authorization, capture, and routing. Settlement will be made directly to the State by American Express. 10.18 System Processing and Response Times 10.18.1 Average authorization response time is 5 to 10 seconds, not including terminal dial time or the delivery of the call to our network through an entry point, which we call a gateway. Therefore, this time frame includes the transmission of the authorization request from the gateway to authorizer and back. We cannot control terminal dial time or the time between the terminal and the gateway. However, an estimate of the total average response time is between 8 to 12 seconds. 10.18.2 The NOVUS Network electronic authorization system is available and operating a minimum of 98% of the time. In the rare case of electronic equipment failure, NOVUS Services has a toll free ARU (Audio Response Unit) authorization telephone system available 24 hours a day, 7 days a week. 10.18.3 NOVUS Services does not schedule any down time. 10.18.4 Our authorization system is redundant. NOVUS Services has two "authorizers", which are located in Dallas, TX and Columbus, OH and are set-up to maintain complete redundancy. 17 - -------------------------------------------------------------------------------- 11.0 Technology and Communications Capabilities - -------------------------------------------------------------------------------- 11.1 Computer Systems, Facilities and Sites - Transactions submitted from the terminals to the NOVUS Network are routed through Advantis, NOVUS Services' communications vendor. Advantis has processing facilities in Schaumburg, IL, and Columbus, OH. NOVUS Services has merchant operations centers in Columbus, OH, and Phoenix, AZ. NOVUS Services' corporate headquarters is located in Riverwoods, IL. 11.1.1 All NOVUS terminal applications and NOVUS Services' internal systems have either already been updated to support the year 2000 or are in the process of being updated. All updates are scheduled to be completed by December 31, 1996. NOVUS Services will begin issuing cards with the year 2000 expiration date during January, 1997. 11.2 Hardware, Software and Operating Systems - The majority of point of sale (POS) locations will use Verifone Trans 330 terminals with terminal software provided by NOVUS Services. The IVR system and kiosks will use hardware and software provided by U S Audiotex. PC Capture can be used to turn any IBM compatible computer into a credit card acceptance terminal. It is available in either DOS or Windows formats. 11.3 Provisions for Normal Operating Problems - Both the NOVUS Services authorization system and merchant servicing units we redundant. NOVUS Services has two "authorizers", which are located in Dallas, TX, and Columbus, OH, and are set-up to maintain complete redundancy. NOVUS Services has merchant operations centers in Columbus, OH, and Phoenix, AZ. Thus merchant servicing and terminal support are also redundant. 11.4 Emergency - Every area of NOVUS Services is equipped with complete disaster recovery procedures. Our merchant operations centers regularly practice implementation of these procedures. In addition, our systems network is completely redundant and supported by Advantis' disaster recovery procedures. 11.5 Communications and Network 11.5.1 For terminal support, the NOVUS Terminal Help Desk is available 24 hours a day, 7 days a week. For support of other methods of direct interface with our network (i.e. Interface between U S Audiotex and NOVUS Services or electronic reporting), the Advantis Network Control Center is also available 24 hours a day, 7 days a week. 18 11.5.2 All inquiries received by the NOVUS Terminal Help Desk or the Advantis Network Control Center are processed immediately. Response time is typically less than 24 hours and rarely exceeds 3 business days. 11.5.3 Advantis, our communications vendor, utilizes almost every major carrier in the US to deliver authorizations services. In the State of California, Advantis utilizes Pacific Bell. 19 - -------------------------------------------------------------------------------- 12.0 Terminal Support Services - -------------------------------------------------------------------------------- 12.1 Terminal Installation and Support 12.1.1 The equipment offered by NOVUS Services are the VeriFone Tranz 330 terminal and 250 printer. All installation and training fees have been waived. You are, however, required to provide a single line phone jack and two electrical outlets per set of equipment. See Attachment K. 12.2 Terminal Functions - See attached tables. 20 12.0 Terminal Support Services 12.1 Terminal Installation and Support (*MR*) - Individual agency terminal requirements may vary, however all agencies will require complete "turnkey" terminal installation, training and support services. Terminal lease/purchase/rental, installation and support should be included in the vendor's proposal so that a separate contract for terminals is not required. 12.1.1 Please list all P0S terminal equipment manufacturers and models that are available and supported. 12.2 Terminal Functions - The table below lists a series of POS terminal credit authorization, EDC and settlement related functions that facilitate card acceptance. Please indicate whether each of the functions is currently supported through your system and the terminals supported or, if not currently supported, when the function will be supported. Please add any explanatory comments that may be appropriate. 12.2 Terminal Functions ================================================================================ Planned Currently Availability Functions/Capabilities Available Date Comments ================================================================================ 12.2.1 Batch entry of off-line X transactions - -------------------------------------------------------------------------------- 12.2.2 Batch authorization of off-line X transactions - -------------------------------------------------------------------------------- 12.2.3 Identify (flag) off-line X transactions - -------------------------------------------------------------------------------- 12.2.4 Include off-line transactions in batch totals X ================================================================================ 12.2 Terminal Functions (Continued) ================================================================================ Planned Currently Availability Functions/Capabilities Available Date Comments ================================================================================ 12.2.6 Recall transaction by sales receipt X - -------------------------------------------------------------------------------- 12.2.7 Recall transaction by card number X - -------------------------------------------------------------------------------- 12.2.8 Edit entries (or prompt) for required information X - -------------------------------------------------------------------------------- 12.2.9 Scroll transaction log - -------------------------------------------------------------------------------- 12.2.10 Enter transaction X edits/adjustments - -------------------------------------------------------------------------------- 12.2.11 Display stored transaction X records - -------------------------------------------------------------------------------- 12.2.12 Display magnetic stripe data for stored transactions X - -------------------------------------------------------------------------------- 12.2.13 Last transaction reprint X ================================================================================ 12.2 Terminal Functions (Continued) ================================================================================ Planned Currently Availability Functions/Capabilities Available Date Comments ================================================================================ 12.2.14 Pre-programmed alternate X telephone numbers - -------------------------------------------------------------------------------- 12.2.15 Automatic download of X terminal data - -------------------------------------------------------------------------------- 12.2.16 PIN pad support X - -------------------------------------------------------------------------------- 12.2.17 Smart card/chip card support X - -------------------------------------------------------------------------------- 12.2.18 Data collection and support X for preferential card interchange rates ================================================================================ - -------------------------------------------------------------------------------- 13.0 Settlement and Data Transmission Service - -------------------------------------------------------------------------------- See attached table for information regarding NOVUS Services' capabilities. 21 13.0 Settlement and Data Transmission Services The table below lists a series of card payment settlement and data transmission functions that facilitate card acceptance and payment reconciliation and settlement. Please indicate whether each of the functions is currently supported through your system and equipment or, if not currently supported, when the function will be available. Please add any explanatory comments that may be appropriate. 13.1 Settlement and Data Transmission Functions ================================================================================ Planned Currently Availability Functions/Capabilities Available Date Comments ================================================================================ 13.1.1 System calculates totals and X summaries - -------------------------------------------------------------------------------- 13.1.2 Support reconciliation of X terminal log to paper transactions - -------------------------------------------------------------------------------- 13.1.3 Multi-point settlement X transmissions - -------------------------------------------------------------------------------- 13.1.4 Host verification of settlement X transmissions - -------------------------------------------------------------------------------- 13.1.5 Host verification of totals X - -------------------------------------------------------------------------------- 13.1.6 Summary of sales and credit X transactions for payment - -------------------------------------------------------------------------------- 13.1.7 Reporting levels and X distribution options ================================================================================ - -------------------------------------------------------------------------------- 14.0 Pricing - -------------------------------------------------------------------------------- 14.1 Combined Volume Pricing. - The tiered pricing provided applies to all agencies within the State of California. 14.2 Term - All pricing is guaranteed for the 2 year period, with the exception of Visa and MasterCard Interchange rules, which are subject to market conditions. 14.3 Service Level Pricing
- ------------------------------------------------------------------------------------------------------ FEES TO BE ADDED TO THE FEES ON THE CHART BELOW - ------------------------------------------------------------------------------------------------------ Level of NOVUS Visa MasterCard Amex IVR - ------------------------------------------------------------------------------------------------------ Service Fee Fee Fee Fee Fee - ------------------------------------------------------------------------------------------------------ Mannual Processing 0.00 .15 + 9(cents) .30 + 9(cents) 0.00 0.00 - ------------------------------------------------------------------------------------------------------ Authorization Only 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------ EDC 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------ Electronic ECR/POS interface 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------ PC Interface 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------ MOTO 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------ IVR Interface 0.00 0.00 0.00 0.00 See Chart Below - ------------------------------------------------------------------------------------------------------ IVR Support and Fulfillment 0.00 0.00 0.00 0.00 0.00 - ------------------------------------------------------------------------------------------------------
14.4 Bundled Pricing - BankCard pricing has been quoted by FDMS per the attached letter dated September 23, 1996. 14.4.1 See the chart below for pricing breakdown.
- --------------------------------------------------------------------------------------------------------------------- Avg. Trans. NOVUS % NOVUS % V/MC % V/MC % TOTAL % AMEX IVR Interface - --------------------------------------------------------------------------------------------------------------------- Tiers Disc. Rate Proc. Fee Disc. Rate Proc. Fee V/MC Rate Proc. Fee Fee in $* - --------------------------------------------------------------------------------------------------------------------- $1 - 5 1.55 0.00 3.39 1.25 4.64 10(cents)/Trans. 1.50 - --------------------------------------------------------------------------------------------------------------------- $6 - 10 1.55 0.00 2.79 1.25 4.04 10(cents)/Trans. 1.50 - --------------------------------------------------------------------------------------------------------------------- $11 - 25 1.55 0.00 1.82 0.56 2.38 10(cents)/Trans. 2.00 - --------------------------------------------------------------------------------------------------------------------- $26 - 50 1.55 0.00 1.67 0.28 1.93 10(cents)/Trans. 2.00 - --------------------------------------------------------------------------------------------------------------------- $51 - 75 1.55 0.00 1.59 0.16 1.75 10(cents)/Trans. 2.25 - --------------------------------------------------------------------------------------------------------------------- $76 - 100 1.55 0.00 1.55 0.11 1.66 10(cents)/Trans. 2.25 - --------------------------------------------------------------------------------------------------------------------- $101 - 150 1.55 0.00 1.49 0.08 1.67 10(cents)/Trans. 2.50 - --------------------------------------------------------------------------------------------------------------------- $151 - 200 1.55 0.00 1.46 0.06 1.52 10(cents)/Trans. 2.50 - --------------------------------------------------------------------------------------------------------------------- $201 - 700 1.50 0.00 1.45 0.05 1.50 10(cents)/Trans. 2.50 - --------------------------------------------------------------------------------------------------------------------- $701 + 1.40 0.00 1.45 0.05 1.60 10(cents)/Trans. 2.75 - ---------------------------------------------------------------------------------------------------------------------
* U S Audiotex fees are dollar amounts added to the discount rate. U S Audiotex rates are preliminary, pending their selection of a BankCard processor. 14.4.2 The NOVUS Services system supports preferential rates. 14.5 Funds Availability Options - Pricing does not vary based on the availability of funds. 22 14.6 Terminal Pricing - NOVUS Services equipment, the Verifone Tranz 330 and Printer 250, can be purchased for $350.00 per terminal/printer combination. PC Capture software, as described in sections 11.2 and 15.0, can be purchased for $50.00 per package. Magnetic strip readers are also available for purchase. 14.7 IVR Services - See chart on page 22. 14.8 Other Costs - NOVUS Services does not anticipate the need for any additional fees or charges. 23 [LOGO] - -------- FIRST DATA CORP. - -------- MERCHANT SERVICES September 23, 1996 State of California BankCard Processing Proposal: In conjunction with NOVUS Services, First Data Merchant Services, sponsored by First Financial Bank is pleased to participate in a proposal to process bankcard transactions for the State of California. In this proposal, NOVUS Services would act as the primary processor and First Data Merchant Services would be the acquirer/processor for all your VISA and MasterCard transactions. Our services include bankcard deposit settlement, transaction retrieval requests, chargeback processing, and Q-Net authorizations. Our discount rate is inclusive of VISA and MasterCard interchange and assessment fees levied on each transaction. NOVUS Services' bankcard processing fee is for terminal authorization, draft capture, and terminal support. First Data Merchant Services is prepared to offer the State of California the following tiered rate structure based on the average transaction dollar amount for all magnetic stripe-read transactions. Manually entered transactions would be subject to additional "non-qual" charges as described below. ======================================================= AVG $ TRANS DISCOUNT RATE ------------------------------------------------------- $1 - 5 3.39 ------------------------------------------------------- $6 - 10 2.79 ------------------------------------------------------- $11 - 25 1.82 ------------------------------------------------------- $26 - 50 1.67 ------------------------------------------------------- $51 - 75 1.59 ------------------------------------------------------- $76 - 100 1.55 ------------------------------------------------------- $101 - 150 1.49 ------------------------------------------------------- $151 - 200 1.46 ------------------------------------------------------- - $201 + 1.45 ------------------------------------------------------- MERCHANT SERVICES P.O. Box 5561 FORT LAUDERDALE, FLORIDA 33310, TEL. (954) 786-2100 Since, our discount rate quote is inclusive of the lowest possible interchange fee, any transactions that do not quality for interchange fee will be assessed the additional interchange fee amount. "Non-qualifying" transactions include manually entered transactions (magnetic stripe is not read by the terminal), and failure to close-out your terminal on a daily basis. The "non-qual" charges for manually entered transactions are as follows: VISA - 15 basis points (0.15%) and 9 cents per transaction MasterCard - 30 basis points (0.30%) and 9 cents per transaction We look forward to your joining over 135,000 merchants that enjoy the reliable and accurate credit card processing services at NOVUS Services and First Data Merchant Services. Sincerely, /s/ John G. Bonerba John G. Bonerba National Sales Manager, Indirect Sales JGB/ka - -------------------------------------------------------------------------------- 15.0 Other Card or Electronic Payment Options - -------------------------------------------------------------------------------- o EFT and ACH based payment services - NOVUS Services can provide these functions. o EDI support - We can provide this function. o ATM support for non-cash services - We do not provide this service. o Kiosk/customer information terminals - We can provide this function. o Gateway services and network access - We can provide this service. o Debit cards - We offer this function. o Smart cards - We are currently test marketing in this area. o Pre-paid/stored value cards - We are currently test marketing in this area. o Internet payments (including SET compliance) - NOVUS Services announced on March 25, 1996, their support of the Secure Electronic Transaction (SET) protocol for credit card payments over the Internet. NOVUS Services expects to implement an Internet payment system for all NOVUS Card Brands later this year. o Other PC based payments - A PC software program is available for processing card transactions. NOVUS Services offers PC Capture software which, when used with an IBM compatible computer, is capable of credit card authorization, draft capture, end of day reporting, check guarantee/authorization, and automatic bank deposit for all major credit cards. o Any other ancillary payment support and information services - NOVUS Services offers verification and guarantee services for payments made by check. 24 (Required in lieu of IRS W-9 when doing business with the State of California) STD.204 (Rev. [ILLEGIBLE]) PURPOSE: Information contained in this [ILLEGIBLE] will be used by State agencies to prepare information Returns (Form 1099) and for withholding on payments to nonresident vendors. (See Privacy Statement on reverse.) ================================================================================ DEPARTMENT/OFFICE LEASE RETURN --------------------------------------------------------------------- TO: STREET ADDRESS --------------------------------------------------------------------- CITY, STATE, ZIP CODE ================================================================================ VENDOR'S BUSINESS NAME OWNERS FULL NAME (Last, First, M.I.) NOVUS Services, Inc. ================================================================================ STREET ADDRESS 2500 Lake Cook Road ================================================================================ CITY, STATE, AND ZIP CODE Riverwoods, IL 60015 ================================================================================ ARE YOU SUBJECT TO FEDERAL TAX WITHHOLDING (See Withholding for IRS Form [ILLEGIBLE]) |_| YES |X| NO ================================================================================ INSTRUCTIONS: (1). Check box indicating type of business entity and provide taxpayer identification number. (2). Check box indicating resident or nonresident. (See reverse for additional information). (3). Check one or more VENDOR ACTIVITY boxes specifying vendor activity type. ================================================================================ VENDOR TYPE: RESIDENCY STATUS ================================================================================ |X| CORPORATION (Enter [ILLEGIBLE]) | 3 | 6 | - | 4 | 0 | 2 | 0 | 7 | 9 | 2 | |X| Resident - Qualified to do business in CA/ Permanent place of business in CA |_| Non Resident (See Reverse) ================================================================================ VENDOR ACTIVITY - -------------------------------------------------------------------------------- A: B: - -------------------------------------------------------------------------------- |_| MEDICAL SERVICES [ILLEGIBLE] |_| SERVICES NOW [ILLEGIBLE] |_| EQUIPMENT SUPPLIES ([ILLEGIBLE]) |_| RENT |X| OTHER ([ILLEGIBLE]) Financial --------- ================================================================================ |X| INDIVIDUAL/SOLE PROPRIETOR (Enter [ILLEGIBLE]) |__|__|__| - |__|__| - |__|__|__|__| |_| Resident |_| Non Resident (See Reverse) |_| PARTNERSHIP (Enter [ILLEGIBLE]) |__|__| - |__|__|__|__|__|__|__| |_| Resident |_| Non Resident (See Reverse) |_| ESTATE OR TRUST (Enter [ILLEGIBLE]) |__|__| - |__|__|__|__|__|__|__| |_| Resident (Estate) - Decadent was a CA resident at the time of death |_| Resident (Trust) - At least one trustee is a CA resident |_| Non Resident (See Reverse) ================================================================================ VENDOR ACTIVITY - -------------------------------------------------------------------------------- A: B: - -------------------------------------------------------------------------------- |_| NON EMPLOYEE COMPENSATION |_| EQUIPMENT/SUPPLIES [ILLEGIBLE] [ILLEGIBLE] |_| MEDICAL SERVICES [ILLEGIBLE] |_| INTEREST [ILLEGIBLE] |_| RENT |_| ROYALTIES |_| PRIZES AND AWARDS |_| OTHER [ILLEGIBLE] ____________ __________________________________ ================================================================================ I hereby certify under penalty of perjury that the information provided on this document is true and correct. If my residency status should change. I will promptly inform you. ================================================================================ AUTHORIZED VENDOR REPRESENTATIVE'S NAME (Type or Print) Peter Valle ================================================================================ TITLE Director, Targeted Acquisition ================================================================================ SIGNATURE /s/ Peter Valle ================================================================================ DATE 9/24/96 ================================================================================ TELEPHONE NUMBER (847) 405-3320 ================================================================================ OFFICIAL STATE USE ONLY ================================================================================ CONTRACT LEASE NUMBER ([ILLEGIBLE]) |_| NONEMPLOYEE COMPENSATION |_| MEDICAL SERVICES |_| RENT |_| OTHER ________ ================================================================================ PORTABLE INCOME CODE PER STATE ADMINISTRATIVE MANUAL SECTION 8422 19/Check One INITIALS DATE INITIALED |_| 1 |_| 2 |_| 3 |_| 4 |_| 5 |_| 6 |_| 7 ================================================================================ NONRESIDENT WITHHOLDING |_| STANDARD RATE |_| WAIVED |_| REDUCED RATE _____________ ================================================================================ [ILLEGIBLE] ================================================================================ COMPANY NAME NOVUS Services, Inc. - -------------------------------------------------------------------------------- The company named above (hereinafter referred to as "prospective contractor") hereby certifies, unless specifically exempted, compliance with Government Code Section 12990 (a-f) and California Code of Regulations, Title 2, Division 4, Chapter 5 in matters relating to reporting requirements and the development, implementation and maintenance of a Nondiscrimination Program. Prospective contractor agrees not to unlawfully discriminate, harass or allow harassment against any employee or applicant for employment because of a sex, race, color, ancestry, religious creed, national origin, disability (including HIV and AIDS), medical condition (cancer), age, marital status, denial of family and medical care leave and denial of pregnancy disability leave. - -------------------------------------------------------------------------------- CERTIFICATION - -------------------------------------------------------------------------------- I, the official named below, hereby swear that I am duly authorized to legally bind the prospective contractor to the above described certification. I am fully aware that this certification, executed on the date and in the county below, is made under penalty of perjury under the laws of the State of California. - -------------------------------------------------------------------------------- OFFICIAL NAME Peter Valle - -------------------------------------------------------------------------------- DATE EXECUTED EXECUTED IN THE COUNTY OF September 23, 1996 Lake - -------------------------------------------------------------------------------- PROSPECTIVE CONTRACTOR'S SIGNATURE /s/ Peter Valle - -------------------------------------------------------------------------------- PROSPECTIVE CONTRACTOR'S TITLE Director, Targeted Acquisition - -------------------------------------------------------------------------------- PROSPECTIVE CONTRACTOR'S LEGAL BUSINESS NAME NOVUS Services, Inc. ================================================================================ EX-10.9 8 PROCESSING AGREEMENT DTD 07/16/1995 Exhibit 10.9 PROCESSING AGREEMENT This Agreement made as of July 16, 1995, by and between IMPERIAL Bank, ("IMPERIAL"), a California state banking corporation organized under the laws of the State of California, organized under the laws of the State of California and U.S. Audiotex, LLC. ("COMPANY"), a limited liability company with principal offices located at 18 Crow Canyon Court, Suite 300, San Ramon, California 94583. A. COMPANY provides services to government and private merchants ("MERCHANTS"). COMPANY is an independent contractor, not an employee or agent of IMPERIAL, and is entitled to none of the benefits accorded IMPERIAL employees. B. IMPERIAL is a member of Visa USA, Inc. ("VISA") and MasterCard International, Inc. ("MASTERCARD"), and provides processing and other services regarding MASTERCARD and VISA sales transactions ("SALES"). VISA and MASTERCARD are herein jointly referred to as the "ASSOCIATIONS". C. MASTERCARD, VISA and IMPERIAL have adopted rules, regulations and directives relating to all aspects of SALES and SALES processing. Such rules, regulations and directives, as amended from time to time, are herein called the "RULES." For good and valuable consideration, COMPANY and IMPERIAL agree as follows: 1. COMPANY will provide the following services to MERCHANTS: A. Place terminals at MERCHANT locations 1. Training for employees 2. Customer Service 3. Coding B. Provide MERCHANTS with P.O.S. Deployment "Help-Desk" services including: 1. The procurement, deployment, repair, programming and shipment of electronic payment processing terminals to MERCHANT locations; 2. The training of MERCHANTS in the use of electronic terminal equipment; and 3. The monitoring of the usage of electronic terminal equipment and the availability to assist MERCHANTS via telephone with problems related to the usage of electronic terminal equipment. 2. IMPERIAL shall provide processing and clearance of Credit and Debit Card Sales transactions and payment for such transactions directly with MERCHANT. 3. IMPERIAL agrees to sponsor COMPANY as an independent service provider pursuant to the RULES during the term of this Agreement so long as COMPANY shall maintain acceptable registration as an agent of IMPERIAL pursuant to the RULES. This requirement will be waived if deemed not necessary by MasterCard Visa regulations. 4. COMPANY agrees to use its best efforts to use IMPERIAL as its provider of processing and clearance of Credit and Debit Card Sales transactions. COMPANY agrees to abide by all RULES. IMPERIAL agrees to provide any changes in the RULES promptly (usually within ten days) in writing to COMPANY. 5. IMPERIAL agrees to facilitate settlement of electronic transmissions (or other media acceptable to IMPERIAL) of SALES originated by MERCHANTS accepted by IMPERIAL and thereafter transmit the same to appropriate interchanges for settlement. IMPERIAL agrees to receive and or facilitate from the MASTERCARD and VISA systems such credits and debits ("CHARGEBACKS") as are attributable to such transactions. Neither COMPANY nor MERCHANT shall receive credit for such SALES until IMPERIAL receives credit from MASTERCARD or VISA. Notwithstanding anything to the contrary herein, COMPANY shall be offered its choice of various network services used by IMPERIAL for processing transactions of MERCHANTS signed by COMPANY, and COMPANY may choose any such services which IMPERIAL, using its business judgment, agrees COMPANY is capable of properly utilizing, which agreement IMPERIAL shall not unreasonably withhold, and provided that COMPANY will not require IMPERIAL to approve any services that would cause IMPERIAL to breach its service agreement with First Data Corporation. For the same to be offered to MERCHANTS, and be approved by IMPERIAL, will require a separate written contract between the parties and that the parties negotiate and reach agreement on numerous credit and performance issues. IMPERIAL will commence such negotiations whenever COMPANY desires. 6. COMPANY will train MERCHANTS and will use its reasonable efforts to require the MERCHANTS compliance with all RULES. COMPANY shall report to IMPERIAL any fees it charges to MERCHANTS. No change to such fees shall be implemented by COMPANY except as set forth herein, or as otherwise may be in - 2 - compliance with RULES and any contracts between IMPERIAL and MERCHANTS. 7. COMPANY will not have liability for CHARGEBACKS or other losses resulting from SALES and processing contracts between IMPERIAL and individual MERCHANTS. 8. For the services rendered by IMPERIAL and to pay IMPERIAL for use of VISA and MASTERCARD interchanges, IMPERIAL is authorized to retain from SALES revenues the fees ("FEES") described on the attached Exhibit A, which may be amended as provided in such Exhibit. 9. IMPERIAL is not liable nor responsible for any failure or delay in performance caused by acts of God, strikes, flood, fire, war, public enemy, electrical or equipment failure, failures by third parties, or other events beyond its control. 10. IMPERIAL shall keep confidential and disclose to no other person, firm or entity, other than VISA or MASTERCARD, the schedule of FEES, the RULES, the methods of doing business of COMPANY, or the identity of the MERCHANTS or their business addresses. COMPANY shall keep confidential, and disclose during the term of this agreement or following its termination, to no other person, firm or entity, other than VISA or MASTERCARD, the schedule of FEES, the RULES, IMPERIAL'S method of doing business, or the identity of the MERCHANTS or their business addresses, except as required by applicable law, including federal and state securities law. 11. The initial term of this Agreement shall begin as of July 16, 1996; provided, however, this Agreement shall automatically renew for successive annual terms following the expiration of the initial term or any renewal thereof unless a party shall provide the other party written notice of nonrenewal at least 90 days prior to the commencement of the additional renewal term, or unless this Agreement is otherwise terminated pursuant to the terms hereof. 12. COMPANY may terminate this agreement, by sending written notice to IMPERIAL, for any of the following reasons: (i) a default by IMPERIAL of its obligations to COMPANY hereunder and the failure to cure such default within thirty days after written notice by COMPANY of such default; or (ii) in the event of insolvency or receivership of IMPERIAL, or in the event that a substantial part of IMPERIAL'S property is or becomes subject to any levy, seizure, assignment or sale for or by any creditor or governmental agency without being released or satisfied within thirty days thereafter, or (iii) if IMPERIAL fails to abide by any of the RULES; or (iv) in the event of a merger, stock - 3 - exchange or the sale of substantially all of the assets of IMPERIAL or any subsidiary comprising more than 30% of IMPERIAL'S assets. 13. IMPERIAL may terminate this agreement by sending written notice to COMPANY, for any of the following reasons: (i) a default by COMPANY of its obligations to IMPERIAL hereunder and the failure to cure such default within thirty days after written notice by IMPERIAL of such default; or (ii) in the event of insolvency, receivership or voluntary or involuntary bankruptcy or COMPANY, in the event of an assignment for the benefit of COMPANY's creditors, or in the event that a substantial part of COMPANY's property is or becomes subject to any levy, seizure, assignment or sale for or by any creditor or governmental agency without, being released or to make any payment required hereunder when due or is in breach of Section 6(b), or (iv) if COMPANY fails to abide by any of the RULES. 14. A. COMPANY shall make no representations to any entity, including MERCHANTS, as to IMPERIAL. COMPANY is not authorized to commit IMPERIAL to any contractual forms with any MERCHANT. COMPANY hereby agrees to hold IMPERIAL, MASTERCARD and VISA harmless and indemnify them from any loss, cost or damages suffered by them as the result of failure of COMPANY to abide by the covenants contained herein or the duties described in the RULES. B. IMPERIAL shall indemnify, defend and hold harmless the COMPANY, its employees, officers, directors, shareholders, agents, corporate parents and affiliates against any and all liability, loss, damage, cost or expense directly or indirectly related or attributable to (i) IMPERIAL'S negligence or misconduct in performance hereunder, or IMPERIAL's breach of this Agreement or any provision hereof, and (ii) any action or claim brought against COMPANY by MERCHANTS concerning actions or inaction by IMPERIAL pursuant to this Agreement. 15. If COMPANY substantially fails to provide services to MERCHANTS required under this Agreement for three days after notice to COMPANY, IMPERIAL may provide services to MERCHANTS at the FEES identified in Exhibit A, after notice to COMPANY. As to any particular service not provided by COMPANY, IMPERIAL may provide such service on request of MERCHANT, and charge COMPANY the scheduled FEE for such service. 16. COMPANY shall not use the name of IMPERIAL either verbally or in writing without prior written consent of IMPERIAL. COMPANY and IMPERIAL agree that VISA and MASTERCARD have the right to perform procedural reviews of COMPANY and any MERCHANTS, - 4 - and the parties agree to cooperate to assure VISA and MASTERCARD receive program data as required by VISA and MASTERCARD. 17. In the event of the termination of this Agreement other than pursuant to Section 12 of this Agreement, IMPERIAL agrees to renew and extend those MERCHANT contracts acquired by COMPANY from IMPERIAL, and to continue to pay "RESIDUAL COMPENSATION" to COMPANY, in accordance with this Agreement, for a period not to exceed 36 months after termination of this Agreement and so long as the MERCHANTS continue to provide to those MERCHANTS the services stipulated herein. RESIDUAL COMPENSATION is the difference between the discount charged to the MERCHANT by IMPERIAL for sales processing and the applicable FEES described on the attached Exhibit A. The provisions contained in Section 6 of this Agreement shall survive termination for the duration of the period IMPERIAL pays residual compensation to COMPANY pursuant to the terms of this Section 17. 18. It is the intention of the parties hereto that COMPANY shall not have the right at any time to solicit MERCHANTS for transfer or to assign MERCHANTS contracts (such solicitation and assignment are herein collectively referred to as "TRANSFER"), MERCHANTS' files, MERCHANTS' records (paper and fiche), BINs, ICAs and FDR systems relating to MERCHANTS' accounts and utilized by COMPANY to other members of the ASSOCIATIONS in competition with IMPERIAL. 19. This Agreement, along with the exhibits attached to said Agreement and all, documents referred to in said Agreement, contains the entire understanding between the parties hereto for the purposes set forth above. This Agreement may not be altered, amended or modified except in writing executed by a duly authorized representative of each party. 20. This Agreement is not assignable, by either party without the written consent of the other party. 21. This Agreement is to be interpreted and construed under the laws of the State of California. 22. Time is of the essence in this Agreement. IN WITNESS WHEREOF, the parties have set their hands on the date first set forth above. IMPERIAL BANK U.S Audiotex, LLC. By: /s/ William Capps By: /s/ Kenneth Stern --------------------------- --------------------------- Its: Exec. V.P. Its: President -------------------------- -------------------------- - 5 - EX-23.2 9 CONSENT OF KPMG LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Official Payments Corporation: We consent to the use of our report included herein and to the reference to our firm under the headings "Selected Financial Data" and "Experts" in the Prospectus. KPMG LLP San Francisco, California October , 1999 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the audited condensed financial statements of U.S. Audiotex Corporation for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 514 0 532 0 0 1,275 1,183 (433) 2,061 2,325 0 0 0 150 (622) 2,061 7,208 7,208 5,427 5,427 3,042 0 29 (1,240) 0 0 0 0 0 (1,240) (0.09) (0.09)
EX-99.1 11 CONSENT OF GEORGE L. GRAZIADIO EXHIBIT 99.1 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, George L. Graziadio, Jr. hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ George L. Graziadio ------------------------------------- George L. Graziadio, Jr. October , 1999 EX-99.2 12 CONSENT OF LEE E. MIKLES EXHIBIT 99.2 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, Lee E. Mikles hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ Lee E. Mikles ------------------------------------- Lee E. Mikles October 25, 1999 EX-99.3 13 CONSENT OF BRUCE NELSON EXHIBIT 99.3 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, Bruce Nelson hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ Bruce Nelson ------------------------------------- Bruce Nelson October 25, 1999 EX-99.4 14 CONSENT OF CHRISTOS COTSAKOS EXHIBIT 99.4 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, Christos Cotsakos hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ Christos Cotsakos ------------------------------------- Christos Cotsakos October 25, 1999 EX-99.5 15 CONSENT OF ANDREW COHAN EXHIBIT 99.5 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, Andrew Cohan hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ Andrew Cohan ------------------------------------- Andrew Cohan October 25, 1999 EX-99.6 16 CONSENT OF VERNON LOUCKS EXHIBIT 99.6 CONSENT OF DIRECTOR NOMINEE The Board of Directors Official Payments Corporation: I, Vernon Loucks hereby consent to the use of my name as a Director Nominee in the Form S-1 Registration Statement filed by Official Payments Corporation. /s/ Vernon Loucks ------------------------------------- Vernon Loucks October , 1999 -----END PRIVACY-ENHANCED MESSAGE-----