As filed with the Securities and Exchange Commission on
February 26, 2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
GREEN DOT CORPORATION
(Exact name of Registrant as
specified in its charter)
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Delaware
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7389
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93-4766827
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(State or other jurisdiction
of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(I.R.S. employer
identification no.)
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605 East Huntington Drive,
Suite 205
Monrovia, CA 91016
(626) 739-3942
(Address, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
John C. Ricci
General Counsel
Green Dot Corporation
605 East Huntington Drive,
Suite 205
Monrovia, CA 91016
(626) 739-3942
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Laird H. Simons III, Esq.
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William V. Fogg, Esq.
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William L. Hughes, Esq.
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Daniel A. OShea, Esq.
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James D. Evans, Esq.
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Cravath, Swaine & Moore LLP
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Fenwick & West LLP
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Worldwide Plaza
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801 California Street
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825 Eighth Avenue
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Mountain View, CA 94041
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New York, NY 10019
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(650) 988-8500
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(212) 474-1000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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CALCULATION OF REGISTRATION
FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)
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Fee
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Class A Common Stock, par value $0.001 per share
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$150,000,000
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$10,695.00
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(1)
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Estimated solely for the purpose of
calculating the amount of the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment that
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. Neither we nor the selling stockholders may sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities,
and neither we nor the selling stockholders are soliciting an
offer to buy these securities, in any state where the offer or
sale is not permitted.
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PRELIMINARY
PROSPECTUS
Subject
to completion, dated February 26, 2010
Shares
Class A
Common Stock
This is an
initial public offering of shares of the Class A common
stock of Green Dot Corporation. We are
selling shares
of our Class A common stock, and the selling stockholders
are
selling shares
of our Class A common stock. We will not receive any
proceeds from the sale of shares of our Class A common
stock by the selling stockholders. The estimated initial public
offering price is between $ and
$ per share.
We have two
classes of authorized common stock, Class A common stock
and Class B common stock. The rights of the holders of our
Class A common stock and our Class B common stock are
identical, except with respect to voting and conversion. Each
share of our Class A common stock will be entitled to one
vote per share. Each share of our Class B common stock will
be entitled to ten votes per share and will be convertible at
any time into one share of our Class A common stock.
We intend to
apply for the listing of our Class A common stock on the
NYSE under the symbol
.
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Per
Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to Green Dot, before expenses
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$
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$
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Proceeds to the selling stockholders, before expenses
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$
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$
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Green Dot
and the selling stockholders have granted the underwriters an
option for a period of 30 days from the date of this
prospectus to purchase from them up
to
additional shares of our Class A common stock to cover
over-allotments, if any.
Investing
in our Class A common stock involves a high degree of risk.
See Risk Factors beginning on page 9 of this
prospectus.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed on the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
Delivery of
the shares of our Class A common stock will be made on or
about ,
2010.
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J.P.
Morgan |
Morgan Stanley |
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Piper
Jaffray |
UBS Investment Bank |
,
2010
TABLE OF
CONTENTS
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Page
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1
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F-1
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You should rely only on the information contained in this
prospectus or in any free writing prospectus prepared by or on
behalf of us and delivered or made available to you. Neither we
nor the selling stockholders have authorized anyone to provide
you with information different from that contained in this
prospectus. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of our Class A
common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of our
Class A common stock. Our business, financial condition,
results of operations and prospects may have changed since that
date.
No action is being taken in any jurisdiction outside the United
States to permit a public offering of our Class A common
stock or possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
Until ,
2010, all dealers that buy, sell or trade in our Class A
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus. This summary does not contain all
the information you should consider before investing in our
Class A common stock. You should read the entire prospectus
carefully, including the section entitled Risk
Factors and our consolidated financial statements and
related notes included elsewhere in this prospectus, before
making an investment in our Class A common stock.
Green Dot
Corporation
Green Dot is a leading prepaid financial services company
providing simple, low-cost and convenient money management
solutions to a broad base of U.S. consumers. We believe
that we are the leading provider of general purpose reloadable
prepaid debit cards in the United States and that our Green Dot
Network is the leading prepaid reload network in the United
States. We sell our cards and offer our reload services
nationwide at approximately 50,000 retail stores, which provide
consumers convenient access to our products and services. Our
proprietary technology platform, Green PlaNET, enables real-time
transactions in a secure environment. The combination of our
innovative products, broad retail distribution and proprietary
technology creates powerful network effects, which we believe
enhance the value we deliver to our customers, retail
distributors and other participants in our network.
We were an early pioneer in the development of general purpose
reloadable prepaid debit cards, or GPR cards, and associated
reload services, which collectively we refer to as prepaid
financial services. GPR cards are designed for general spending
purposes and can be used anywhere the cards applicable
payment network, such as Visa or MasterCard, is accepted, but,
unlike gift cards, can be reloaded with additional funds for
ongoing, long-term use. We believe that we are the leading
provider of GPR cards in the United States based on the
2.4 million active cards in our portfolio as of
October 31, 2009, which we define as cards that have had a
purchase, reload or ATM transaction during the previous
90-day
period.
We have built strong distribution and marketing relationships
with many significant retail chains, including Walmart,
Walgreens, CVS, Rite Aid, Kroger, Radio Shack, K-Mart, Meijer
and 7-Eleven. These retail chains provide consumers with
convenient locations to purchase and reload our cards. In
addition, any holder of a GPR card issued by a member of our
reload network may reload that card at any one of those
locations. Currently, there are over 100 third-party programs
that use our nationwide reload network to facilitate reloading
by their cardholders. We have also recently entered into an
agreement with PayPal whereby its customers can add funds to any
new or existing PayPal account through our reload network at all
retail locations where we sell our products and services. In
fiscal 2009, the gross dollar volume loaded to our GPR card and
reload products was $4.7 billion, an increase of 66% over
fiscal 2008.
We have developed a business model with powerful network
effects. Growth in the number of our product and service
offerings or our network participants, which include consumers,
retail distributors and businesses that accept reloads or
payments through the Green Dot Network, enhances the value we
deliver to all network participants. Our proprietary technology
platform, Green PlaNET, enables network participants to
communicate and complete transactions on a real-time basis in a
secure environment and is a central component of our
network-based business model.
For the years ended July 31, 2007, 2008 and 2009 and the
three months ended October 31, 2009, our total operating
revenues were $83.6 million, $168.1 million,
$234.8 million and $66.3 million, respectively. In the
same periods, we generated operating income of
$1.2 million, $29.2 million, $63.7 million and
$17.9 million, respectively.
1
Industry
Overview
Prepaid cards have emerged as an attractive product within the
electronic payments industry. They are easy for consumers to
understand and use because they work in a manner similar to
traditional debit cards, allowing the cardholder to use a
conventional plastic card linked to an account established at a
financial institution. According to Mercator Advisory
Groups Prepaid Market Forecast 2009 to 2012
research report, $8.7 billion was loaded onto GPR cards in
the United States in 2008 and $118.5 billion is expected to
be loaded onto GPR cards in the United States in 2012,
reflecting a 92% compound annual growth rate during that
four-year period. We believe that this growth in the use of GPR
cards will contribute to a substantial increase in the demand
for prepaid financial services.
The prepaid financial services industry is fragmented and its
products are relatively early in their life cycles. Vendors
generally do not have a broad set of product and service
offerings or capabilities, and no single vendor currently
provides all of the elements that are necessary to establish and
operate a GPR card program. We believe this creates a
significant opportunity for a vertically integrated provider
with a broad suite of innovative products and services.
Our Competitive
Strengths
Our combination of innovative products and marketing expertise,
a known brand name, a nationwide retail distribution presence
and a proprietary technology platform supports our network-based
business model and has enabled us to become a leading provider
of prepaid financial services in the United States. Our
strengths include:
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Innovative Product and Marketing Expertise. We
are an innovator in the development, merchandising and marketing
of prepaid financial services. We believe we were the first
company to combine the products, technology platform and
distribution channel required to make retailer-distributed GPR
cards a viable product offering. Our consumer focus has led us
to enhance our product packaging and product displays in retail
locations to educate consumers and promote our products and
services more effectively. We believe that we have the strongest
brand in the prepaid financial services industry and we continue
to build brand awareness using national television advertising.
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Leading Retail Distribution. We have
established a nationwide retail distribution network, consisting
of approximately 50,000 retail store locations, which gives us
access to the vast majority of the U.S. population.
According to Scarborough Research, during the twelve months
ended October 31, 2009, at least 93% of
U.S. households shopped at one or more of the stores of our
current retail distributors.
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Leading Reload Network in the United
States. We believe the Green Dot Network is the
leading reload network for prepaid cards in the United States.
We also believe that it can be expanded and adapted to many new
and evolving applications in the electronic payments industry.
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Proprietary Technology Platform. Green PlaNET,
our centralized processing platform, contains a variety of
proprietary software applications that run our front-end,
back-end, anti-fraud, regulatory compliance and customer service
processing systems. It enables us to develop, distribute and
support a variety of products and services effectively.
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Business Model with Powerful Network
Effects. The combination of our broad group of
products and services, large portfolio of active cards,
nationwide footprint of retail distributors and proprietary
technology platform creates powerful network effects. Growth in
the number of our product and service offerings or network
participants enhances the value we deliver to all network
participants. For example, we are able to attract retail
distributors because of the large number of consumers who
actively use our reload network. We believe the breadth and
depth of our network would be difficult to replicate and
represents a significant competitive advantage, as well as a
barrier to entry for potential competitors.
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2
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Vertical Integration. We believe that we are
more vertically integrated than our competitors, based on our
distribution capabilities, processing platform, program
management skills and proprietary reload network. This
integration has allowed us to reduce costs across our operations
and, we expect, will continue to provide us with opportunities
to reduce operational costs in the future. It also enables us to
scale our business quickly in response to rising demand and to
ensure high-quality service for our customers.
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Strong Regulatory and Compliance
Infrastructure. We employ a proactive approach to
licensing, regulatory and compliance matters, which we believe
provides us with an important competitive advantage. We believe
that this has helped us develop strong relationships with
leading retailers and financial institutions and has prepared us
well for changes in the regulatory environment.
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Our
Strategy
The key components of our strategy include:
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Increasing the Number of Network
Participants. We intend to enhance the network
effects in our business model by:
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attracting new users by introducing new products, improving
current products and promoting our products;
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expanding and strengthening our distribution by establishing
relationships with additional high-quality retail chains and
accelerating our entry into new distribution channels; and
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adding businesses that accept reloads or payments through, and
applications for, the Green Dot Network by continuing to enroll
additional third-party program providers in our reload network
and to identify additional uses for our reload networks
cash transfer technology.
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Increasing Revenue per Customer. We intend to
pursue greater revenue per customer by improving cardholder
retention, increasing card usage and increasing adoption of
optional revenue-generating services.
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Improving Operating Efficiencies. We intend to
leverage our growing scale and vertical integration to generate
incremental operating efficiencies, which will provide us with
the flexibility to engage in new marketing programs, reduce
pricing and make other investments in our business to maintain
our leadership position.
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Broadening Brand and Product Awareness. We
intend to broaden awareness of the Green Dot brand and our
products and services through national television advertising,
online advertising and ongoing enhancements to our packaging and
merchandising.
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Acquiring a Bank and Complementary
Businesses. We intend to pursue acquisitions that
will help us achieve our strategic objectives, particularly
those designed to improve operating revenue growth and operating
efficiencies. In February 2010, we entered into a definitive
agreement to acquire a bank holding company and its subsidiary
commercial bank, and filed applications with the appropriate
federal and state regulators seeking approvals for this
transaction. We believe this acquisition will increase the
efficiency with which we introduce and manage potential new
products and services, reduce the risk that we would be
negatively impacted by changes in the business practices of the
banks that issue our cards, reduce the sponsorship and service
fees and other expenses that we pay to third parties, and allow
us to serve our customers better and more efficiently through a
more vertically integrated platform.
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Risks Affecting
Us
Our business is subject to numerous risks, which are highlighted
in the section entitled Risk Factors immediately
following this prospectus summary. These risks represent
challenges to the
3
successful implementation of our strategy and to the growth and
future profitability of our business. Some of these risks
include:
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our growth rates may decline in the future;
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operating revenues derived from sales at Walmart and our other
three largest retail distributors represented 64%, 9%, 8% and
6%, respectively, of our total operating revenues during the
three months ended October 31, 2009, and the loss of
operating revenues from any of these retail distributors would
adversely affect our business;
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our future success depends upon our retail distributors
active and effective promotion of our products and services, but
their interests and operational decisions might not always align
with our interests;
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the industry in which we compete is highly competitive and has a
number of major participants, which could adversely affect our
operating revenue growth; and
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we operate in a highly regulated environment; failure to comply
with applicable laws or regulations, or changes in those laws or
regulations that adversely affect our operating methods, could
negatively impact our business.
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Corporate History
and Information
We were incorporated in Delaware in October 1999 as Next Estate
Communications, Inc. and changed our name to Green Dot
Corporation in October 2005. Our principal executive offices are
located at 605 East Huntington Drive, Suite 205, Monrovia,
California 91016, and our telephone number is
(626) 739-3942.
Our website address is www.greendot.com. The information on, or
that can be accessed through, our website is not incorporated by
reference into this prospectus and should not be considered to
be a part of this prospectus.
Unless otherwise indicated, the terms Green Dot,
we, us and our refer to
Green Dot Corporation, a Delaware corporation, together with its
consolidated subsidiary, the term prepaid cards
refers to prepaid debit cards and the term our cards
refers to our Green Dot-branded and co-branded GPR cards. In
addition, prepaid financial services refers to GPR
cards and associated reload services, a segment of the prepaid
card industry.
Green Dot and MoneyPak are our registered trademarks in the
United States, and the Green Dot logo is our trademark. Other
trademarks appearing in this prospectus are the property of
their respective holders.
4
The
Offering
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Class A common stock offered by us |
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shares |
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Class A common stock offered by the selling stockholders |
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shares |
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Class A common stock to be outstanding after this offering |
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shares |
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Class B common stock to be outstanding after this offering |
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shares(1) |
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Total common stock to be outstanding after this offering |
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shares |
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Voting rights |
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We have two classes of authorized common stock: Class A
common stock and Class B common stock. The rights of the
holders of our Class A and Class B common stock are
identical, except with respect to voting and conversion. The
holders of our Class B common stock are entitled to 10
votes per share, and the holders of our Class A common
stock are entitled to one vote per share. The holders of our
Class A common stock and Class B common stock will
vote together as a single class on all matters submitted to a
vote of our stockholders, unless otherwise required by law. Each
share of our Class B common stock is convertible into one
share of our Class A common stock at any time and will
convert automatically upon certain transfers or the date that
the total number of shares of Class B common stock
outstanding represents less than 10% of the total number of
shares of Class A and Class B common stock
outstanding. See Description of Capital Stock. |
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Use of proceeds |
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We expect to use the net proceeds of this offering for general
corporate purposes, including working capital and capital
expenditures. We may also use a portion of the net proceeds to
acquire or invest in complementary businesses, products,
services, technologies or assets. We will not receive any
proceeds from the sale of shares by the selling stockholders.
See Use of Proceeds. |
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Dividends |
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We have never declared or paid any cash dividends on our capital
stock, and we do not currently intend to pay any cash dividends
on our Class A common stock for the foreseeable future. |
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Proposed NYSE symbol |
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(1) |
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The shares of our Class B common stock outstanding after
this offering will represent
approximately % of the total number
of shares of our Class A and Class B common stock
outstanding after this offering
and % of the combined voting power
of our Class A and Class B common stock outstanding
after this offering. |
5
The number of shares of our Class A and Class B common
stock to be outstanding after this offering is based upon shares
outstanding as of October 31, 2009, and excludes:
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4,963,547 shares of our Class B common stock issuable
upon the exercise of stock options outstanding as of
October 31, 2009 with a weighted average exercise price of
$4.25 per share
(including shares
of our Class A common stock that we expect to be sold in
this offering by certain selling stockholders upon the exercise
of vested stock options with a weighted average exercise price
of $ per share);
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1,392,250 shares of our Class B common stock issuable
upon the exercise of stock options granted after
October 31, 2009 with a weighted average exercise price of
$20.48 per share;
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259,584 shares of our Class B common stock granted as
restricted stock awards after October 31, 2009;
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4,567,242 shares of our Class B common stock issuable
upon the exercise of warrants outstanding as of October 31,
2009 with a weighted average exercise price of $22.31 per share,
including a warrant to purchase up to 4,283,456 shares that
is exercisable only upon the achievement of performance goals
specified in our arrangement with PayPal, Inc.; and
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shares
of our Class A common stock reserved for issuance under our
2010 Equity Incentive Plan, which will become effective on the
first day that our Class A common stock is publicly traded,
as more fully described in Executive
Compensation Employee Benefit Plans 2010
Equity Incentive Plan.
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Except as otherwise indicated, all information in this
prospectus assumes:
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the automatic conversion of all outstanding shares of our
preferred stock into 24,941,521 shares of our Class B
common stock and the conversion by the selling stockholders
of shares
of our Class B common stock into a like number of shares of
our Class A common stock, in each case immediately prior to
the completion of this offering;
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the filing of our restated certificate of incorporation and the
effectiveness of our restated bylaws, which will occur
immediately following the completion of the offering; and
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no exercise by the underwriters of their option to purchase up
to an
additional shares
of our Class A common stock from us and the selling
stockholders in this offering.
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6
Summary
Consolidated Financial and Other Data
The following tables present summary historical financial data
for our business. You should read this information together with
Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes, each included elsewhere
in this prospectus.
We derived the statement of operations data for the years ended
July 31, 2007, 2008 and 2009 from our audited consolidated
financial statements included elsewhere in this prospectus. We
derived the statement of operations data for the years ended
July 31, 2005 and 2006 from our unaudited consolidated
financial statements not included in this prospectus. We derived
the statement of operations data for the three months ended
October 31, 2008 and 2009 and the balance sheet data as of
October 31, 2009 from our unaudited consolidated financial
statements included elsewhere in this prospectus, which have
been prepared on a consistent basis with our audited
consolidated financial statements. In the opinion of our
management, these unaudited financial data reflect all
adjustments, consisting of normal and recurring adjustments,
necessary for a fair statement of our results for those periods.
Our historical results are not necessarily indicative of our
results to be expected in any future period.
The pro forma per share data give effect to the conversion of
all currently outstanding shares of our convertible preferred
stock into shares of our Class B common stock upon the
closing of this offering, as though the conversion had occurred
at the beginning of the indicated fiscal period. For further
information concerning the calculation of pro forma per share
information, please refer to note 2 and note 12 of our
notes to consolidated financial statements.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
|
$21,771
|
|
|
|
$36,359
|
|
|
|
$45,717
|
|
|
|
$91,233
|
|
|
|
$119,356
|
|
|
|
$27,635
|
|
|
|
$30,532
|
|
Cash transfer revenues
|
|
|
12,064
|
|
|
|
20,616
|
|
|
|
25,419
|
|
|
|
45,310
|
|
|
|
62,396
|
|
|
|
14,556
|
|
|
|
17,807
|
|
Interchange revenues
|
|
|
5,705
|
|
|
|
9,975
|
|
|
|
12,488
|
|
|
|
31,583
|
|
|
|
53,064
|
|
|
|
10,418
|
|
|
|
17,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
39,540
|
|
|
|
66,951
|
|
|
|
83,624
|
|
|
|
168,126
|
|
|
|
234,816
|
|
|
|
52,609
|
|
|
|
66,265
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
19,148
|
|
|
|
28,660
|
|
|
|
38,838
|
|
|
|
69,577
|
|
|
|
75,786
|
|
|
|
20,538
|
|
|
|
18,165
|
|
Compensation and benefits expenses(1)
|
|
|
11,584
|
|
|
|
18,499
|
|
|
|
20,610
|
|
|
|
28,303
|
|
|
|
40,096
|
|
|
|
9,191
|
|
|
|
12,067
|
|
Processing expenses
|
|
|
6,990
|
|
|
|
8,547
|
|
|
|
9,809
|
|
|
|
21,944
|
|
|
|
32,320
|
|
|
|
7,297
|
|
|
|
10,053
|
|
Other general and administrative expenses
|
|
|
6,521
|
|
|
|
10,077
|
|
|
|
13,212
|
|
|
|
19,124
|
|
|
|
22,944
|
|
|
|
5,747
|
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
44,243
|
|
|
|
65,783
|
|
|
|
82,469
|
|
|
|
138,948
|
|
|
|
171,146
|
|
|
|
42,773
|
|
|
|
48,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(4,703
|
)
|
|
|
1,168
|
|
|
|
1,155
|
|
|
|
29,178
|
|
|
|
63,670
|
|
|
|
9,836
|
|
|
|
17,877
|
|
Interest income
|
|
|
300
|
|
|
|
301
|
|
|
|
771
|
|
|
|
665
|
|
|
|
396
|
|
|
|
210
|
|
|
|
60
|
|
Interest expense
|
|
|
(474
|
)
|
|
|
(823
|
)
|
|
|
(625
|
)
|
|
|
(247
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(4,877
|
)
|
|
|
645
|
|
|
|
1,301
|
|
|
|
29,596
|
|
|
|
64,065
|
|
|
|
10,046
|
|
|
|
17,937
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
111
|
|
|
|
(3,346
|
)
|
|
|
12,261
|
|
|
|
26,902
|
|
|
|
4,219
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(4,877
|
)
|
|
|
535
|
|
|
|
4,647
|
|
|
|
17,335
|
|
|
|
37,163
|
|
|
|
5,827
|
|
|
|
10,404
|
|
Dividends, accretion and allocated earnings of preferred stock
|
|
|
|
|
|
|
(367
|
)
|
|
|
(5,157
|
)
|
|
|
(13,650
|
)
|
|
|
(29,000
|
)
|
|
|
(4,409
|
)
|
|
|
(7,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
|
$(4,877
|
)
|
|
|
$168
|
|
|
|
$(510
|
)
|
|
|
$3,685
|
|
|
|
$8,163
|
|
|
|
$1,418
|
|
|
|
$3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$(0.48
|
)
|
|
|
$0.02
|
|
|
|
$(0.05
|
)
|
|
|
$0.34
|
|
|
|
$0.68
|
|
|
|
$0.12
|
|
|
|
$0.28
|
|
Diluted
|
|
|
$(0.48
|
)
|
|
|
$0.01
|
|
|
|
$(0.05
|
)
|
|
|
$0.26
|
|
|
|
$0.52
|
|
|
|
$0.09
|
|
|
|
$0.22
|
|
Weighted-average common shares issued and outstanding
|
|
|
10,228
|
|
|
|
10,873
|
|
|
|
11,100
|
|
|
|
10,757
|
|
|
|
12,036
|
|
|
|
12,026
|
|
|
|
12,060
|
|
Weighted-average diluted common shares issued and outstanding
|
|
|
10,228
|
|
|
|
13,194
|
|
|
|
11,100
|
|
|
|
14,154
|
|
|
|
15,712
|
|
|
|
16,034
|
|
|
|
15,318
|
|
Pro forma earnings per common share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.00
|
|
|
|
|
|
|
|
$0.28
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.91
|
|
|
|
|
|
|
|
$0.26
|
|
Pro forma weighted-average shares issued and outstanding
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,978
|
|
|
|
|
|
|
|
37,002
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,654
|
|
|
|
|
|
|
|
40,260
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
expense of $0, $0, $156,000, $1.2 million and
$2.5 million for the years ended July 31, 2005, 2006,
2007, 2008 and 2009, respectively, and $586,000 and $712,000 for
the three months ended October 31, 2008 and 2009,
respectively.
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Statistical Data (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of GPR cards activated
|
|
|
428,737
|
|
|
|
721,561
|
|
|
|
894,295
|
|
|
|
2,167,004
|
|
|
|
3,106,923
|
|
|
|
1,115,382
|
|
Number of cash transfers
|
|
|
2,262,854
|
|
|
|
4,055,775
|
|
|
|
4,992,956
|
|
|
|
9,153,119
|
|
|
|
14,084,458
|
|
|
|
4,766,488
|
|
Number of active cards as of period end(1)
|
|
|
289,086
|
|
|
|
428,300
|
|
|
|
625,165
|
|
|
|
1,270,072
|
|
|
|
2,056,828
|
|
|
|
2,368,530
|
|
Gross dollar volume(2)
|
|
|
$414,910
|
|
|
|
$801,956
|
|
|
|
$1,134,175
|
|
|
|
$2,831,278
|
|
|
|
$4,702,914
|
|
|
|
$1,586,895
|
|
|
|
|
(1)
|
|
Represents the total number of GPR
cards in our portfolio that have had a purchase, reload or ATM
withdrawal transaction during the previous
90-day
period.
|
|
(2)
|
|
Represents the total dollar volume
of funds loaded to our GPR card and reload products in the
specified period.
|
The following table presents unaudited consolidated balance
sheet data as of October 31, 2009 on:
|
|
|
|
|
an actual basis; and
|
|
|
|
an as adjusted basis to give effect to the sale of
the shares
of our Class A common stock offered by us in this
prospectus at an assumed initial public offering price of
$ per share, after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses.
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
October 31, 2009
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data (Unaudited):
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash(2)
|
|
$
|
58,623
|
|
|
$
|
|
|
Settlement assets(3)
|
|
|
52,813
|
|
|
|
52,813
|
|
Total assets
|
|
|
161,628
|
|
|
|
|
|
Settlement obligations(3)
|
|
|
52,813
|
|
|
|
52,813
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
108,174
|
|
|
|
108,174
|
|
Total stockholders equity
|
|
|
53,454
|
|
|
|
|
|
|
|
|
(1)
|
|
Each $1.00 increase or decrease in
the assumed initial public offering price of
$ per share would increase or
decrease, respectively, our cash, cash equivalents and
restricted cash, total assets and total stockholders
equity by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions.
|
|
(2)
|
|
Includes $15.4 million of
restricted cash. We maintain restricted deposits in bank
accounts to support our line of credit.
|
|
(3)
|
|
Our retail distributors collect
customer funds for purchases of new cards and reloads and then
remit these funds directly to bank accounts established on
behalf of those customers by the banks that issue our cards. Our
retail distributors remittance of these funds takes an
average of three business days. Settlement assets represent the
amounts due from our retail distributors for customer funds
collected at the point of sale that have not yet been remitted
to the card issuing banks. Settlement obligations represent the
amounts that are due from us to the card issuing banks for funds
collected but not yet remitted by our retail distributors and
are not funded by our line of credit. We have no control over or
access to customer funds remitted by our retail distributors to
the card issuing banks. Customer funds therefore are not our
assets, and we do not recognize them in our consolidated
financial statements.
|
8
RISK
FACTORS
This offering and an investment in our Class A common
stock involve a high degree of risk. You should carefully
consider the risks and uncertainties described below, together
with all of the other information in this prospectus, including
the consolidated financial statements and related notes
appearing at the end of this prospectus, before deciding to
invest in our Class A common stock. If any of the following
risks actually occurs, our business, financial condition,
results of operations and future prospects could be materially
and adversely affected. In that event, the market price of our
Class A common stock could decline and you could lose part
or all of your investment.
Risks Related to
Our Business
Our
growth rates may decline in the future.
In recent quarters our operating income and net income, while
still increasing significantly year over year, have not always
increased sequentially and the rate at which our operating
revenues have grown has declined. Accordingly, there can be no
assurance that we will be able to continue our historical growth
rates in future periods and we would expect seasonal or other
influences occasionally to cause sequential quarterly declines
in our operating income and net income. In the near term, our
continued growth depends in significant part on our ability,
among other things, to attract new users of our products, to
expand our reload network and to increase our revenues per
customer. Since the value we provide to our network participants
relates in large part to the number of users of, businesses that
accept reloads or payments through, and applications enabled by,
the Green Dot Network, our operating revenues could suffer if we
were unable to increase the number of purchasers of our GPR
cards, and adapt our reload network to meet consumers
evolving needs. We may fail to expand our reload network for a
number of reasons, including our inability to produce products
and services that appeal to consumers and lead to increased new
card sales, our loss of one or more key retail distributors or
our loss of key, or failure to add, businesses that accept
reloads or payments through the Green Dot Network, which we
refer to as network acceptance members.
We may not be able to increase card usage and cardholder
retention, which have been two important contributors to our
growth. Currently, many of our cardholders use their cards
infrequently or do not reload their cards. We may be unable to
generate increases in card usage or cardholder retention for a
number of reasons, including our inability to maintain our
existing distribution channels, the failure of our cardholder
retention and usage incentives to influence cardholder behavior,
our inability to predict accurately consumer preferences or
industry changes and to modify our products and services on a
timely basis in response thereto, and our inability to produce
new features and services that appeal to cardholders.
As the prepaid financial services industry continues to develop,
our competitors may be able to offer products and services that
are, or that are perceived to be, substantially similar to or
better than ours. This may force us to compete on the basis of
price and to expend significant advertising, marketing and other
resources in order to remain competitive. Even if we are
successful at increasing our operating revenues through our
various initiatives and strategies, we will experience an
inevitable decline in growth rates as our operating revenues
increase to higher levels and may experience a decline in
margins. If our operating revenue growth rates slow materially
or decline, our business, operating results and financial
condition could be adversely affected.
Operating
revenues derived from sales at Walmart and our other three
largest retail distributors represented 64%, 9%, 8% and 6%,
respectively, of our total operating revenues during the three
months ended October 31, 2009, and the loss of operating
revenues from any of these retail distributors would adversely
affect our business.
Most of our operating revenues are derived from prepaid
financial services sold at our four largest retail distributors.
As a percentage of total operating revenues, operating revenues
derived from products and services sold at the store locations
of Wal-Mart Stores, Inc. (or Walmart) and our three other
largest retail distributors, as a group, were approximately 64%
and 23%, respectively, in the three months ended
October 31, 2009. While we do not expect our 2010 operating
revenues derived
9
from products and services sold at Walmart stores to increase as
a percentage of our total operating revenues, we expect that
Walmart and our other three largest retail distributors will
continue to have a significant impact on our annual operating
revenues in future years. It would be difficult to replace any
of our large retail distributors, particularly Walmart, and the
operating revenues derived from sales of our products and
services at their stores. Accordingly, the loss of Walmart or
any of our other three largest retail distributors would have a
material adverse effect on our business, and might have a
positive impact on the business of one of our competitors if it
were able to replace us. In addition, any publicity associated
with the loss of any of our large retail distributors could harm
our reputation, making it more difficult to attract and retain
consumers and other retail distributors, and could lessen our
negotiating power with our remaining and prospective retail
distributors.
Our contracts with these retail distributors have terms that
expire at various dates between 2011 and 2013, subject to early
termination provisions. There can be no assurance that we will
be able to continue our relationships with our largest retail
distributors on the same or more favorable terms in future
periods or that our relationships will continue beyond the terms
of our existing contracts with them. Our operating revenues and
operating results could suffer if, among other things, any of
our retail distributors renegotiates, terminates or fails to
renew, or to renew on similar or favorable terms, its agreement
with us or otherwise chooses to modify the level of support it
provides for our products.
Our future success depends upon our retail
distributors active and effective promotion of our
products and services, but their interests and operational
decisions might not always align with our interests.
Substantially all of our operating revenues are derived from our
products sold at the stores of our retail distributors. Revenues
from our retail distributors depend on a number of factors
outside our control and may vary from period to period. Because
we compete with many other providers of consumer products for
placement and promotion of products in the stores of our retail
distributors, our success depends on our retail distributors and
their willingness to promote our products and services
successfully. In general, our contracts with these third parties
allow them to exercise significant discretion over the placement
and promotion of our products in their stores, and they could
give higher priority to the products and services of other
companies. Accordingly, losing the support of our retail
distributors may limit or reduce the sales of our cards and
MoneyPak reload product. Our operating revenues may also be
negatively affected by our retail distributors operational
decisions. For example, if a retail distributor fails to train
its cashiers to sell our products and services or implements
changes in its systems that disrupt the integration between
their systems and ours, we could experience a decline in our
product sales. Even if our retail distributors actively and
effectively promote our products and services, there can be no
assurance that their efforts will result in growth of our
operating revenues.
The
industry in which we compete is highly competitive, which could
adversely affect our operating revenue growth.
The prepaid financial services industry is highly competitive
and includes a variety of financial and non-financial services
vendors. Our current and potential competitors include:
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prepaid card program managers like First Data Corporation (or
First Data), Netspend Corporation (or Netspend), AccountNow,
Inc. (or AccountNow), PreCash Inc. (or PreCash) and UniRush, LLC
(or Rush Card);
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reload network providers, such as Visa, Inc. (or Visa),
MasterCard International Incorporated (or MasterCard), The
Western Union Company (or Western Union) and MoneyGram
International, Inc. (or MoneyGram); and
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prepaid card distributors, such as InComm and Blackhawk Network,
Inc. (or Blackhawk).
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Some of these vendors compete with us in more than one of the
vendor categories described above, while others are primarily
focused in a single category. In addition, competitors in one
category have worked or are working with competitors in other
categories to compete with us. A portion of our cash transfer
revenues is derived from reloads to cards managed by companies
that compete with
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us as program managers. We also face potential competition from
retail distributors or from other companies, such as Visa, that
may in the future decide to compete, or compete more
aggressively, in the prepaid financial services industry.
We also compete with businesses outside of the prepaid financial
services industry, including traditional providers of financial
services, such as banks that offer demand deposit accounts and
card issuers that offer credit cards, private label retail cards
and gift cards.
Many existing and potential competitors have longer operating
histories and greater name recognition than we do. In addition,
many of our existing and potential competitors are substantially
larger than we are, may already have or could develop
substantially greater financial and other resources than we
have, may offer, develop or introduce a wider range of programs
and services than we offer or may use more effective advertising
and marketing strategies than we do to achieve broader brand
recognition, customer awareness and retail penetration. We may
also face price competition that results in decreases in the
purchase and use of our products and services. To stay
competitive, we may have to increase the incentives that we
offer to our retail distributors and decrease the prices of our
products and services, which could adversely affect our
operating results.
Our continued growth depends on our ability to compete
effectively against existing and potential competitors that seek
to provide prepaid cards or other electronic payment products
and services. If we fail to compete effectively against any of
the foregoing threats, our revenues, operating results,
prospects for future growth and overall business could be
materially and adversely affected.
We
operate in a highly regulated environment, and failure by us or
the businesses that participate in our reload network to comply
with applicable laws and regulations could have an adverse
effect on our business, financial position and results of
operations.
We operate in a highly regulated environment, and failure by us
or the businesses that participate in our reload network to
comply with the laws and regulations to which we are subject
could negatively impact our business. We are subject to state
money transmission licensing requirements and a wide range of
federal and other state laws and regulations, which are
described under Business Regulation
below. In particular, our products and services are subject to
an increasingly strict set of legal and regulatory requirements
intended to protect consumers and to help detect and prevent
money laundering, terrorist financing and other illicit
activities.
Many of these laws and regulations are evolving, unclear and
inconsistent across various jurisdictions and ensuring
compliance with them is difficult and costly. For example, with
increasing frequency, federal and state regulators are holding
businesses like ours to higher standards of training, monitoring
and compliance, including monitoring for possible violations of
laws by the businesses that participate in our reload network.
Failure by us or those businesses to comply with the laws and
regulations to which we are subject could result in fines,
penalties or limitations on our ability to conduct our business,
or federal or state actions, any of which could significantly
harm our reputation with network participants, banks that issue
our cards, customers and regulators, and could materially and
adversely affect our business, operating results and financial
condition.
Changes
in laws and regulations to which we are subject, or may become
subject to, may increase our costs of operation, decrease our
operating revenues and disrupt our business.
Changes in laws and regulations may occur that could increase
our compliance and other costs of doing business, require
significant systems redevelopment, or render our products or
services less profitable or obsolete, which could have an
adverse effect on our results of operations. We could face more
stringent anti-money laundering rules and regulations, as well
as more stringent licensing rules and regulations, compliance
with which could be expensive and time consuming. For example,
more stringent anti-money laundering regulations could require
the collection and verification of more information from our
customers, which could have a material adverse effect on our
operations.
Changes in laws and regulations governing the way our products
and services are sold could adversely affect our ability to
distribute our products and services and the cost of providing
those
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products and services. If onerous regulatory requirements were
imposed on the sale of our products and services, the
requirements could lead to a loss of retail distributors, which,
in turn, could materially and adversely impact our operations.
In light of current economic conditions, legislators and
regulators have increased their focus on the banking and
consumer financial services industry, and there are extensive
proposals in the U.S. Congress that could substantially change
the way banks (including card issuing banks) and other financial
services companies are regulated and able to offer their
products to consumers. These changes, if made, could have an
adverse effect on our business, financial position and results
of operations. For example, changes in the way we or the banks
that issue our cards are regulated could expose us to increased
regulatory oversight and litigation. In addition, changes in
laws and regulations that limit the fees that can be charged or
the disclosures that must be provided with respect to our
products and services could increase our costs and decrease our
revenues.
Our
pending bank acquisition will, if successful, subject our
business to significant new, and potentially changing,
regulatory requirements, which may adversely affect our
business, financial position and results of
operations.
Upon consummation of our pending bank acquisition, we will
become a bank holding company under the Bank Holding
Company Act of 1956, or BHC Act. As a bank holding company, we
will be required to file periodic reports with, and will be
subject to comprehensive supervision and examination by, the
Federal Reserve Board. Among other things, we and the subsidiary
bank we acquire will be subject to risk-based and leverage
capital requirements, which could adversely affect our results
of operations and restrict our ability to grow. These capital
requirements, as well as other federal laws applicable to banks
and bank holding companies, could also limit our ability to pay
dividends. We also would likely incur additional costs
associated with legal and regulatory compliance as a bank
holding company, which could adversely affect our results of
operations. In addition, as a bank holding company, we would
generally be prohibited from engaging, directly or indirectly,
in any activities other than those permissible for bank holding
companies. This restriction might limit our ability to pursue
future business opportunities we might otherwise consider but
which might fall outside the activities permissible for a bank
holding company. See Business
Regulation Bank Regulations.
Moreover, substantial changes to banking laws are possible in
the near future. There are extensive proposals in the U.S.
Congress that could substantially change the regulatory
framework affecting our operations. These changes, if they are
made, could have an adverse effect on our business, financial
position and results of operations.
We
rely on relationships with card issuing banks to conduct our
business, and our results of operations and financial position
could be materially and adversely affected if we fail to
maintain these relationships or we maintain them under new terms
that are less favorable to us.
Substantially all of our cards are issued by Columbus Bank and
Trust Company or GE Money Bank. Our relationships with
these banks are currently, and will be for the foreseeable
future, a critical component of our ability to conduct our
business and to maintain our revenue and expense structure,
because we are currently unable to issue our own cards, and,
notwithstanding our pending bank acquisition, will be unable to
do so for the foreseeable future at the volume necessary to
conduct our business, if at all. If we lose or do not maintain
existing banking relationships, we would incur significant
switching and other costs and expenses and we and users of our
products and services could be significantly affected, creating
contingent liabilities for us. As a result, the failure to
maintain adequate banking relationships could have a material
adverse effect on our business, results of operations and
financial condition. Our agreements with the banks that issue
our cards provide for revenue-sharing arrangements and cost and
expense allocations between the parties. Changes in the costs
and expenses that we have to bear under these relationships
could have a material impact on our operating expenses. In
addition, we may be unable to maintain adequate banking
relationships or,
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following their expiration in 2012 and 2013, renew our
agreements with the banks that currently issue substantially all
our cards under terms at least as favorable to us as those
existing before renewal.
We
receive important services from third-party vendors, including
card processing from Total System Services, Inc. Replacing them
would be difficult and disruptive to our business.
Some services relating to our business, including fraud
management and other customer verification services, transaction
processing and settlement, card production and customer service,
are outsourced to third-party vendors, such as Genpact
International, Inc. for call center services and Total System
Services, Inc. for card processing. It would be difficult to
replace some of our third-party vendors, particularly Total
System Services, in a timely manner if they were unwilling or
unable to provide us with these services in the future, and our
business and operations could be adversely affected.
Changes
in credit card association or other network rules or standards
set by Visa and MasterCard, or changes in card association and
debit network fees or products or interchange rates, could
adversely affect our business, financial position and results of
operations.
We and the banks that issue our cards are subject to Visa and
MasterCard association rules that could subject us to a variety
of fines or penalties that may be levied by the card
associations or networks for acts or omissions by us or
businesses that work with us, including card processors, such as
Total Systems Services, Inc. The termination of the card
association registrations held by us or any of the banks that
issue our cards or any changes in card association or other
network rules or standards, including interpretation and
implementation of existing rules or standards, that increase the
cost of doing business or limit our ability to provide our
products and services could have an adverse effect on our
business, operating results and financial condition. In
addition, from time to time, card associations increase the
organization
and/or
processing fees that they charge, which could increase our
operating expenses, reduce our profit margin and adversely
affect our business, operating results and financial condition.
Furthermore, a substantial portion of our operating revenues is
derived from interchange fees. For the three months ended
October 31, 2009, interchange revenues represented 27.0% of
our total operating revenues, and we expect interchange revenues
to continue to represent a significant percentage of our total
operating revenues in the near term. The amount of interchange
revenues that we earn is highly dependent on the interchange
rates that Visa and MasterCard unilaterally set and adjust from
time to time. In light of recent legislation in foreign
jurisdictions and recent attention generally on interchange
rates in the United States, interchange rates could decline in
the future. If that happens, our operating revenues, operating
results, prospects for future growth and overall business could
be materially and adversely affected.
Our
business could suffer if there is a decline in the use of
prepaid cards as a payment mechanism or there are adverse
developments with respect to the prepaid financial services
industry in general.
As the prepaid financial services industry evolves, consumers
may find prepaid financial services to be less attractive than
traditional or other financial services. Consumers might not use
prepaid financial services for any number of reasons, including
the general perception of our industry. For example, negative
publicity surrounding other prepaid financial service providers
could impact our business and prospects for growth to the extent
it negatively impacts the perception of prepaid financial
services among consumers. If consumers do not continue or
increase their usage of prepaid cards, our operating revenues
may remain at current levels or decline. Predictions by industry
analysts and others concerning the growth of the prepaid
financial services as an electronic payment mechanism, including
those included in this prospectus, may overstate the growth of
any industry, segment or category and you should not rely upon
them. The projected growth may not occur or may occur more
slowly than estimated. If consumer acceptance of prepaid
financial services does not continue to develop or develops more
slowly than expected or if there is a shift in the mix of
payment forms, such as cash, credit cards, traditional debit
cards and prepaid cards, away from our products
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and services, it could have a material adverse effect on our
financial position and results of operations.
Fraudulent
and other illegal activity involving our products and services
could lead to reputational damage to us and reduce the use and
acceptance of our cards and reload network.
Criminals are using increasingly sophisticated methods to
capture cardholder account information in order to engage in
illegal activities such as counterfeiting and identity theft. We
rely upon third parties for some transaction processing
services, which subjects us to risks related to the
vulnerabilities of those third parties. A single significant
incident of fraud, or increases in the overall level of fraud,
involving our cards and other products and services, could
result in reputational damage to us, which could reduce the use
and acceptance of our cards and other products and services,
cause retail distributors or network acceptance members to cease
doing business with us or lead to greater regulation that would
increase our compliance costs.
A
data security breach could expose us to liability and protracted
and costly litigation, and could adversely affect our reputation
and operating revenues.
We, the banks that issue our cards, our retail distributors,
network acceptance members and third-party processors receive,
transmit and store confidential customer and other information
in connection with the sale and use of our prepaid financial
services. Our encryption software and the other technologies we
use to provide security for storage, processing and transmission
of confidential customer and other information may not be
effective to protect against data security breaches by third
parties. The risk of unauthorized circumvention of our security
measures has been heightened by advances in computer
capabilities and the increasing sophistication of hackers. The
banks that issue our cards and our retail distributors, network
acceptance members and third-party processors also may
experience similar security breaches involving the receipt,
transmission and storage of our confidential customer and other
information. Improper access to our or these third parties
systems or databases could result in the theft, publication,
deletion or modification of confidential customer and other
information.
A data security breach of the systems on which sensitive
cardholder data and account information are stored could lead to
fraudulent activity involving our products and services,
reputational damage and claims or regulatory actions against us.
If we are sued in connection with any data security breach, we
could be involved in protracted and costly litigation. If
unsuccessful in defending that litigation, we might be forced to
pay damages
and/or
change our business practices or pricing structure, either of
which could have a material adverse effect on our revenues and
profitability. We would also likely have to pay (or indemnify
the banks that issue our cards for) fines, penalties
and/or other
assessments imposed by Visa or MasterCard as a result of any
data security breach. Further, a significant data security
breach could lead to additional regulation, which could impose
new and costly compliance obligations. In addition, a data
security breach at one of the banks that issue our cards or at
our retail distributors, network acceptance members or
third-party processors could result in significant reputational
harm to us and cause the use and acceptance of our cards to
decline, both of which could have a significant adverse impact
on our operating revenues and future growth prospects.
Litigation
or investigations could result in significant settlements, fines
or penalties.
We have been the subject of general litigation and regulatory
oversight in the past, and could be the subject of litigation,
including class actions, and regulatory or judicial proceedings
or investigations in the future. The outcome of litigation and
regulatory or judicial proceedings or investigations is
difficult to predict. Plaintiffs or regulatory agencies in these
matters may seek recovery of very large or indeterminate amounts
or seek to have aspects of our business suspended or modified.
The monetary and other impact of these actions may remain
unknown for substantial periods of time. The cost to defend,
settle or otherwise resolve these matters may be significant.
If regulatory or judicial proceedings or investigations were to
be initiated against us by private or governmental entities, our
business, results of operations and financial condition could be
adversely
14
affected. Adverse publicity that may be associated with
regulatory or judicial proceedings or investigations could
negatively impact our relationships with retail distributors,
network acceptance members and card processors and decrease
acceptance and use of, and loyalty to, our products and related
services.
We
must adequately protect our brand and the intellectual property
rights related to our products and services and avoid infringing
on the proprietary rights of others.
The Green Dot brand is important to our business, and we utilize
trademark registrations and other tools to protect it. Our
business would be harmed if we were unable to protect our brand
against infringement and its value was to decrease as a result.
We rely on a combination of trademark and copyright laws, trade
secret protection and confidentiality and license agreements to
protect the intellectual property rights related to our products
and services. We may unknowingly violate the intellectual
property or other proprietary rights of others and, thus, may be
subject to claims by third parties. If so, we may be required to
devote significant time and resources to defend against these
claims or to protect and enforce our own rights. Some of our
intellectual property rights may not be protected by
intellectual property laws, particularly in foreign
jurisdictions. The loss of our intellectual property or the
inability to secure or enforce our intellectual property rights
or defend successfully against an infringement action could harm
our business, results of operations, financial condition and
prospects.
We are exposed
to losses from cardholder account overdrafts.
Our cardholders can incur charges in excess of the funds
available in their accounts, and we may become liable for these
overdrafts. While we decline authorization attempts for amounts
that exceed the available balance on the card, the application
of card association rules, the timing of the settlement of
transactions and the assessment of our monthly maintenance fee,
among other things, can result in overdrawn accounts.
Maintenance fee assessment overdrafts accounted for
approximately 90% of our aggregate overdrawn account balances in
fiscal 2009. Maintenance fee assessment overdrafts occur as a
result of our charging a cardholder, pursuant to our terms and
conditions, our monthly maintenance fee at a time when he or she
does not have sufficient funds in his or her account. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies and Estimates Reserve for
Uncollectible Overdrawn Accounts.
Our remaining overdraft exposure arises primarily from
late-posting. A late-post occurs when a merchant posts a
transaction within a card association-permitted timeframe but
subsequent to our release of the authorization for that
transaction, as permitted by card association rules. Under card
association rules, we may be liable for the amount of the
transaction even if the cardholder has made additional purchases
in the intervening period and funds are no longer available on
the card at the time the transaction is posted.
Overdrawn account balances are funded on our behalf by one of
the banks that issue our cards. We are responsible to our
issuing banks for any losses associated with these overdrafts.
Overdrawn account balances are therefore deemed to be our
receivables due from cardholders. We maintain reserves to cover
the risk that we may not recover these receivables due from our
cardholders, but our exposure may increase above these reserves
for a variety of reasons, including our failure to predict the
actual recovery rate accurately. To the extent we incur losses
from overdrafts above our reserves or we determine that it is
necessary to increase our reserves substantially, our business,
results of operations and financial condition could be
materially and adversely affected.
We
face settlement risks from our retail distributors, which may
increase during an economic downturn.
The vast majority of our business is conducted through retail
distributors that sell our products and services to consumers at
their store locations. Our retail distributors collect funds
from the consumers who purchase our products and services and
then must remit these funds directly to
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accounts established on behalf of these consumers at the banks
that issue our cards. The remittance of these funds by the
retail distributor takes on average three business days. If a
retail distributor becomes insolvent, files for bankruptcy,
commits fraud or otherwise fails to remit proceeds to the
issuing bank from the sales of our products and services, we are
liable for any amounts owed to the issuing bank. As of
October 31, 2009, we had assets subject to settlement risk
of $52.8 million. Given the unprecedented volatility in
global financial markets and the frequent occurrence of negative
economic events, the approaches we use to assess and monitor the
creditworthiness of our retail distributors may be inadequate,
and we may be unable to detect and take steps to mitigate an
increased credit risk in a timely manner.
A further economic downturn could result in settlement losses,
whether or not directly related to our business. We are not
insured against these risks. Significant settlement losses could
have a material adverse effect on our business, results of
operations and financial condition.
Future
acquisitions or investments could disrupt our business and harm
our financial condition.
We are in the process of acquiring a bank holding company and
its subsidiary commercial bank, although we cannot guarantee
when, if ever, this acquisition will be completed. In addition,
we may pursue other acquisitions that we believe will help us to
achieve our strategic objectives. The process of integrating an
acquired business, product or technology can create unforeseen
operating difficulties, expenditures and other challenges such
as:
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increased regulatory and compliance requirements, including, if
we complete our pending bank acquisition, capital requirements
applicable to us and our acquired subsidiary bank;
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implementation or remediation of controls, procedures and
policies at the acquired company;
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diversion of management time and focus from operation of our
then-existing business to acquisition integration challenges;
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coordination of product, sales, marketing and program and
systems management functions;
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transition of the acquired companys users and customers
onto our systems;
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retention of employees from the acquired company;
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integrating employees from the acquired company into our
organization;
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integration of the acquired companys accounting,
information management, human resource and other administrative
systems and operations generally with ours;
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liability for activities of the acquired company prior to the
acquisition, including violations of law, commercial disputes,
and tax and other known and unknown liabilities; and
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litigation or other claims in connection with the acquired
company, including claims brought by terminated employees,
customers, former stockholders or other third parties.
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If we are unable to address these difficulties and challenges or
other problems encountered in connection with our bank
acquisition or any future acquisition or investment, we might
not realize the anticipated benefits of that acquisition or
investment, we might incur unanticipated liabilities or we might
otherwise suffer harm to our business generally.
To the extent we pay the consideration for any future
acquisitions or investments in cash, it would reduce the amount
of cash available to us for other purposes. Future acquisitions
or investments could also result in dilutive issuances of our
equity securities, the incurrence of debt, contingent
liabilities, amortization expenses, or impairment charges
against goodwill on our balance sheet, any of which could harm
our financial condition and negatively impact our stockholders.
Economic,
political and other conditions may adversely affect trends in
consumer spending.
The electronic payments industry, including the prepaid
financial services segment within that industry, depends heavily
upon the overall level of consumer spending. Sustained
deterioration in
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general economic conditions in the United States might reduce
the number of our cards that are purchased or reloaded, the
number of transactions involving our cards and the use of our
network and related services. If general economic conditions
result in a sustained reduction in the use of our products and
related services, either as a result of a general reduction in
consumer spending or as a result of a disproportionate reduction
in the use of card-based payment systems, our business, results
of operations and financial condition would be materially harmed.
Our
business is dependent on the efficient and uninterrupted
operation of computer network systems and data
centers.
Our ability to provide reliable service to cardholders and other
network participants depends on the efficient and uninterrupted
operation of our computer network systems and data centers as
well as those of our retail distributors, network acceptance
members and third-party processors. Our business involves
movement of large sums of money, processing of large numbers of
transactions and management of the data necessary to do both.
Our success depends upon the efficient and error-free handling
of the money that is collected by our retail distributors and
remitted to the banks that issue our cards or network acceptance
members. We rely on the ability of our employees, systems and
processes and those of the banks that issue our cards, our
retail distributors, our network acceptance members and
third-party processors to process and facilitate these
transactions in an efficient, uninterrupted and error-free
manner.
In the event of a breakdown, a catastrophic event (such as fire,
natural disaster, power loss, telecommunications failure or
physical break-in), a security breach or malicious attack, an
improper operation or any other event impacting our systems or
processes, or those of our vendors, or an improper action by our
employees, agents or third-party vendors, we could suffer
financial loss, loss of customers, regulatory sanctions and
damage to our reputation. The measures we have taken, including
the implementation of disaster recovery plans and redundant
computer systems, may not be successful, and we may experience
other problems unrelated to system failures. We may also
experience software defects, development delays and installation
difficulties, any of which could harm our business and
reputation and expose us to potential liability and increased
operating expenses. Some of our contracts with retail
distributors, including our contract with Walmart, contain
service level standards pertaining to the operation of our
systems, and provide the retail distributor with the right to
collect damages and potentially terminate its contract with us
for system downtime exceeding stated limits. If we face system
interruptions or failures, our business interruption insurance
may not be adequate to cover the losses or damages that we incur.
We
must be able to operate and scale our technology effectively to
match our business growth.
Our ability to continue to provide our products and services to
a growing number of network participants, as well as to enhance
our existing products and services and offer new products and
services, is dependent on our information technology systems. If
we are unable to manage the technology associated with our
business effectively, we could experience increased costs,
reductions in system availability and losses of our network
participants. Any failure of our systems in scalability and
functionality would adversely impact our business, financial
condition and results of operations.
If
we are unable to keep pace with the rapid technological
developments in our industry and the larger electronic payments
industry necessary to continue providing our network acceptance
members and cardholders with new and innovative products and
services, the use of our cards and other products and services
could decline.
The electronic payments industry is subject to rapid and
significant technological changes, including continuing
advancements in the areas of radio frequency and proximity
payment devices (such as contactless cards),
e-commerce
and mobile commerce, among others. We cannot predict the effect
of technological changes on our business. We rely in part on
third parties, including some of our competitors and potential
competitors, for the development of, and access to, new
technologies. We expect that new services and technologies
applicable to our industry will continue to emerge, and
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these new services and technologies may be superior to, or
render obsolete, the technologies we currently utilize in our
products and services. Additionally, we may make future
investments in, or enter into strategic alliances to develop,
new technologies and services or to implement infrastructure
change to further our strategic objectives, strengthen our
existing businesses and remain competitive. However, our ability
to transition to new services and technologies that we develop
may be inhibited by a lack of industry-wide standards, by
resistance from our retail distributors, network acceptance
members, third-party processors or consumers to these changes,
or by the intellectual property rights of third parties. Our
future success will depend, in part, on our ability to develop
new technologies and adapt to technological changes and evolving
industry standards. These initiatives are inherently risky, and
they may not be successful or may have an adverse effect on our
business, financial condition and results of operations.
As
a public company, we will be subject to additional financial and
other reporting and corporate governance requirements that may
be difficult for us to satisfy, will raise our costs and may
divert resources and management attention from operating our
business.
We have historically operated as a private company. After this
offering, we will need to file with the Securities and Exchange
Commission, or SEC, annual and quarterly information and other
reports that are specified in the Securities Exchange Act of
1934, as amended, or the Exchange Act, and SEC regulations.
Thus, we will need to ensure that we have the ability to prepare
on a timely basis financial statements that comply with SEC
reporting requirements. We will also become subject to other
reporting and corporate governance requirements, including the
listing standards of the New York Stock Exchange, or the NYSE,
and the provisions of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, and the regulations promulgated thereunder,
which will impose significant new compliance obligations upon
us. As a public company, we will be required, among other
things, to:
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prepare and distribute periodic reports and other stockholder
communications in compliance with our obligations under the
federal securities laws and the NYSE rules;
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define and expand the roles and the duties of our board of
directors and its committees;
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institute more comprehensive compliance, investor relations and
internal audit functions;
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evaluate and maintain our system of internal control over
financial reporting, and report on managements assessment
thereof, in compliance with the requirements of Section 404 of
the Sarbanes-Oxley Act and related rules and regulations of the
SEC and the Public Company Accounting Oversight Board; and
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involve and retain outside legal counsel and accountants in
connection with the activities listed above.
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The adequacy of our internal control over financial reporting
must be assessed by management for each year commencing with the
year ending December 31, 2011. We do not currently have
comprehensive documentation of our internal control over
financial reporting, nor do we document our compliance with
these controls on a periodic basis in accordance with
Section 404 of the Sarbanes-Oxley Act. Furthermore, we have
not tested our internal control over financial reporting in
accordance with Section 404 and, due to our lack of
documentation, this testing would not be possible at this time.
If we were unable to implement the controls and procedures
required by Section 404 in a timely manner or otherwise to
comply with Section 404, management might not be able to
certify, and our independent registered public accounting firm
might not be able to report on, the adequacy of our internal
control over financial reporting. If we are unable to maintain
adequate internal control over financial reporting, we might be
unable to report our financial information on a timely basis and
might suffer adverse regulatory consequences or violate NYSE
listing standards. There could also be a negative reaction in
the financial markets due to a loss of investor confidence in us
and the reliability of our financial statements.
The changes necessitated by becoming a public company will
require a significant commitment of additional resources and
management oversight that will increase our costs and might
place a strain on our systems and resources. As a result, our
managements attention might be diverted from other
18
business concerns. In addition, we might not be successful in
implementing and maintaining controls and procedures that comply
with these requirements. For example, in connection with the
most recent audit of our consolidated financial statements, we
identified a significant deficiency in our internal control over
financial reporting relating to our financial statement closing
process and the need to enhance our financial reporting
resources and infrastructure. If we fail to maintain an
effective internal control environment or to comply with the
numerous legal and regulatory requirements imposed on public
companies, we could make material errors in, and be required to
restate, our financial statements. Any such restatement could
result in a loss of public confidence in the reliability of our
financial statements and sanctions imposed on us by the SEC.
Our
future success depends on our ability to attract, integrate,
retain and incentivize key personnel.
Our future success will depend, to a significant extent, on our
ability to attract, integrate, retain and incentivize key
personnel, namely our management team and experienced sales,
marketing and program and systems management personnel. We must
retain and motivate existing personnel, and we must also
attract, assimilate and motivate additional highly-qualified
employees. We may experience difficulty assimilating our
newly-hired personnel, which may adversely affect our business.
Competition for qualified management, sales, marketing and
program and systems management personnel can be intense.
Competitors have in the past and may in the future attempt to
recruit our top management and employees. If we fail to attract,
integrate, retain and incentivize key personnel, our ability to
manage and grow our business could be harmed.
We
might require additional capital to support our business in the
future, and this capital might not be available on acceptable
terms, or at all.
If our unrestricted cash and cash equivalents balances and any
cash generated from operations and from this offering are not
sufficient to meet our future cash requirements, we will need to
access additional capital to fund our operations. We may also
need to raise additional capital to take advantage of new
business or acquisition opportunities. We may seek to raise
capital by, among other things:
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issuing additional shares of our Class A common stock or
other equity securities;
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issuing debt securities; or
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borrowing funds under a credit facility.
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We may not be able to raise needed cash in a timely basis on
terms acceptable to us or at all. Financings, if available, may
be on terms that are dilutive or potentially dilutive to our
stockholders, and the prices at which new investors might be
willing to purchase our Class A common stock could be lower
than the initial public offering price. The holders of new
securities may also receive rights, preferences or privileges
that are senior to those of existing holders of our Class A
common stock. In addition, if we were to raise cash through a
debt financing, the terms of the financing might impose
additional conditions or restrictions on our operations that
could adversely affect our business. If we require new sources
of financing but they are insufficient or unavailable, we would
be required to modify our operating plans to take into account
the limitations of available funding, which would harm our
ability to maintain or grow our business.
The
occurrence of catastrophic events could damage our facilities or
the facilities of third parties on which we depend, which could
force us to curtail our operations.
We and some of the third-party service providers on which we
depend for various support functions, such as customer service
and card processing, are vulnerable to damage from catastrophic
events, such as power loss, natural disasters, terrorism and
similar unforeseen events beyond our control. Our principal
offices, for example, are situated in the foothills of southern
California near known earthquake fault zones and areas of
elevated wild fire danger. If any catastrophic event were to
occur, our ability to operate our business could be seriously
impaired, as we do not maintain redundant systems for critical
business functions, such as finance and accounting. In addition,
we
19
might not have adequate insurance to cover our losses resulting
from catastrophic events or other significant business
interruptions. Any significant losses that are not recoverable
under our insurance policies, as well as the damage to, or
interruption of, our infrastructure and processes, could
seriously impair our business and financial condition.
Risks Related to
Our Class A Common Stock and This Offering
We
cannot assure you that a market will develop for our
Class A common stock or what the market price of our
Class A common stock will be.
No public trading market currently exists for our Class A
common stock, and one may not develop or be sustained after this
offering to provide you with adequate liquidity. If a market
does not develop or is not sustained, it may be difficult for
you to sell your shares of Class A common stock at an
attractive price or at all. We cannot predict the prices at
which our Class A common stock will trade. The initial
public offering price for our Class A common stock will be
determined through negotiations among us, the selling
stockholders and representatives of the underwriters and may not
bear any relationship to the market price at which our
Class A common stock will trade in the public market
following this offering or to any other established criteria of
the value of our business. A significant portion of our shares
may not trade following the offering because the selling
stockholders will continue to own
approximately % of our shares. If
these shares do not trade, there may be limited liquidity for
shares of our Class A Common Stock following this offering.
The
price of our Class A common stock may be volatile and you
could lose all or part of your investment.
In the recent past, stocks generally, and financial services
company stocks in particular, have experienced high levels of
volatility. The trading price of our Class A common stock
following this offering may fluctuate substantially and may be
higher or lower than the initial public offering price. The
trading price of our Class A common stock following this
offering will depend on a number of factors, including those
described in this Risk Factors section, many of
which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to
lose all or part of your investment in our Class A common
stock as you may be unable to sell your shares at or above the
price you paid in this offering. Factors that could cause
fluctuations in the trading price of our Class A common
stock include the following:
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price and volume fluctuations in the overall stock market from
time to time;
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significant volatility in the market prices and trading volumes
of financial services company stocks;
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actual or anticipated changes in our results of operations or
fluctuations in our operating results;
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actual or anticipated changes in the expectations or
recommendations of investors or any securities analysts who
follow our Class A common stock;
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actual or anticipated developments in our business or our
competitors businesses or the competitive landscape
generally;
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the publics reaction to our press releases, other public
announcements and filings with the SEC;
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litigation involving us, our industry or both or investigations
by regulators into our operations or those of our competitors;
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new laws or regulations or new interpretations of existing laws
or regulations applicable to our business;
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changes in accounting standards, policies, guidelines,
interpretations or principles;
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general economic conditions; and
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sales of shares of our Class A common stock by us or our
stockholders.
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In the past, many companies that have experienced volatility in
the market price of their stock have become subject to
securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our
managements attention from other business concerns, which
could seriously harm our business.
Our
operating results may fluctuate in the future, which could cause
our stock price to decline.
Our quarterly and annual results of operations may fluctuate in
the future as a result of a variety of factors, many of which
are outside of our control. If our results of operations fall
below the expectations of investors or any securities analysts
who follow our Class A common stock, the trading price of
our Class A common stock could decline substantially.
Fluctuations in our quarterly or annual results of operations
may be due to a number of factors, including, but not limited to:
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the timing and volume of purchases, use and reloads of our
prepaid cards and related products and services;
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the timing and success of new product or service introductions
by us or our competitors;
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seasonality in the purchase or use of our products and services;
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fluctuations in customer retention rates;
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changes in the mix of products and services that we sell;
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changes in the mix of retail distributors through which we sell
our products and services;
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the timing of commencement, renegotiation or termination of
relationships with significant retail distributors;
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the timing of commencement, renegotiation or termination of
relationships with significant network acceptance members;
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changes in our or our competitors pricing policies or
sales terms;
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the timing of commencement and termination of major advertising
campaigns;
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the timing of costs related to the development or acquisition of
complementary businesses;
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the timing of costs of any major litigation to which we are a
party;
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the amount and timing of operating costs related to the
maintenance and expansion of our business, operations and
infrastructure;
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our ability to control costs, including third-party service
provider costs;
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volatility in the trading price of our Class A common
stock, which may lead to higher stock-based compensation
expenses; and
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changes in the regulatory environment affecting the banking or
electronic payments industries generally or prepaid financial
services specifically.
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Concentration
of ownership among our existing directors, executive officers
and principal stockholders may prevent new investors from
influencing significant corporate decisions.
Our Class B common stock has ten votes per share and our
Class A common stock, which is the stock we are selling in
this offering, has one vote per share. Assuming the
underwriters option to purchase additional shares is not
exercised, based upon beneficial ownership as of
October 31, 2009, our current directors, executive
officers, holders of more than 5% of our common stock and their
respective affiliates will, in the aggregate, beneficially own
approximately % of our outstanding
Class B common stock, representing
approximately % of the voting power
of our outstanding capital stock. As a result, these
stockholders will be able to exercise a controlling influence
over matters requiring stockholder approval, including the
election of directors and approval of significant corporate
transactions, and will have significant influence over our
management and policies for the foreseeable future. Some of
these persons or entities may have interests that are different
from yours. For example, these stockholders may support
proposals and actions with which you may disagree or
21
which are not in your interests. The concentration of ownership
could delay or prevent a change in control of our company or
otherwise discourage a potential acquirer from attempting to
obtain control of our company, which in turn could reduce the
price of our Class A common stock. In addition, these
stockholders, some of which have representatives sitting on our
board of directors, could use their voting control to maintain
our existing management and directors in office, delay or
prevent changes of control of our company, or support or reject
other management and board of director proposals that are
subject to stockholder approval, such as amendments to our
employee stock plans and approvals of significant financing
transactions. See Description of Capital Stock
Anti-Takeover Provisions.
Our
stock price could decline due to the large number of outstanding
shares of our common stock eligible for future
sale.
Upon completion of this offering, we will have
outstanding shares
of our common stock, assuming no exercise of outstanding options
after ,
2010. The shares sold in this offering will be immediately
tradable without restriction. Of the remaining shares:
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shares
will be eligible for sale immediately upon completion of this
offering;
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shares
will be eligible for sale beginning 90 days after the date
of this prospectus; and
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shares
will be eligible for sale upon the expiration of
lock-up
and/or
market standoff agreements, subject in some cases to the volume
and other restrictions of Rule 144 and Rule 701 promulgated
under the Securities Act of 1933, as amended, or the Securities
Act.
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The lock-up and market standoff agreements expire 180 days
after the date of this prospectus, except that with respect to
the lock-up agreements the
180-day
period may be extended for up to 34 additional days under
specified circumstances where we announce or pre-announce
earnings or a material event occurs within 17 days prior
to, or 16 days after, the termination of the
180-day
period. The representatives of the underwriters may, in their
sole discretion and at any time without notice, release all or
any portion of the securities subject to
lock-up
agreements.
Immediately following this offering, the holders of
approximately shares
of our Class B common stock will be entitled to rights with
respect to the registration of these shares under the Securities
Act. See Description of Capital Stock
Registration Rights. If we register the resale of their
shares following the expiration of the
lock-up and
market standoff agreements, these stockholders could sell those
shares in the public market without being subject to the volume
and other restrictions of Rules 144 and 701.
After the closing of this offering, we intend to register
approximately shares
of our Class A and Class B common stock that have been
issued or reserved for future issuance under our stock incentive
plans. Of these
shares, shares
will be eligible for sale upon the exercise of vested options
after the expiration of the
lock-up and
market standoff agreements. In addition, the shares subject to
an outstanding warrant to purchase 283,786 shares of our
Class B common stock could be eligible for sale immediately
upon completion of this offering, depending upon the manner in
which it is exercised. Assuming our other outstanding warrant
vests, up to an additional 4,283,456 shares will be
eligible for sale after the expiration of
lock-up
and/or
standoff agreements.
Sales of substantial amounts of our Class A common stock in
the public market following this offering, or even the
perception that these sales could occur, could cause the trading
price of our Class A common stock to decline. These sales
could also make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that
we deem appropriate.
Because
the initial public offering price of our Class A common
stock will be substantially higher than the pro forma as
adjusted net tangible book value per share of our outstanding
Class A and Class B common stock following this
offering, new investors will incur immediate and substantial
dilution.
The initial public offering price will be substantially higher
than the pro forma as adjusted net tangible book value per share
of our Class A and Class B common stock immediately
following this offering based on the total value of our tangible
assets less our total liabilities. Therefore, if you
22
purchase shares of our Class A common stock in this
offering, you will experience immediate dilution of
approximately $ per share, the
difference between the price per share you pay for our
Class A common stock and its pro forma as adjusted net
tangible book value per share following the offering. See
Dilution. Furthermore, investors purchasing shares
of our Class A common stock in this offering will only own
approximately % of our outstanding
shares of Class A and Class B (and
have % of the combined voting power
of the outstanding shares of our Class A and Class B
common stock) after the offering even though they will have
contributed % of the total
consideration received by us in connection with our sale of
shares of our capital stock. To the extent outstanding options
to purchase our Class B common stock are exercised,
investors purchasing our Class A common stock in this
offering will experience further dilution.
We
will have broad discretion in the use of the net proceeds from
this offering.
We cannot specify with certainty the particular uses of the net
proceeds that we will receive from this offering. Our management
will have broad discretion in the application of these proceeds,
including for any of the purposes described in the section
entitled Use of Proceeds. Accordingly, you will have
to rely upon the judgment of our management with respect to the
use of the proceeds, with only limited information concerning
managements specific intentions. Our management may spend
a portion or all of the net proceeds from this offering in ways
that our stockholders may not desire or that may not yield a
favorable return. The failure by our management to apply these
funds effectively could harm our business. Pending their use, we
may invest the net proceeds from this offering in a manner that
does not produce income or that loses value. In addition, a
majority of the offering is comprised of shares of our
Class A common stock being sold by the selling
stockholders, and we will not receive any proceeds from the sale
of those shares.
Our
charter documents and Delaware law could discourage, delay or
prevent a takeover that stockholders consider favorable and
could also reduce the market price of our stock.
Our restated certificate of incorporation and our restated
bylaws contain provisions that could delay or prevent a change
in control of our company. These provisions could also make it
more difficult for stockholders to nominate directors for
election to our board of directors and take other corporate
actions. These provisions, among other things:
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provide our Class B common stock with disproportionate
voting rights (see Concentration of ownership
among our existing directors, executive officers and principal
stockholders may prevent new investors from influencing
significant corporate decisions above);
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provide for non-cumulative voting in the election of directors;
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provide for a classified board of directors;
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authorize our board of directors, without stockholder approval,
to issue preferred stock with terms determined by our board of
directors and to issue additional shares of our Class A and
Class B common stock;
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limit the voting power a holder, or group of affiliated holders,
of more than 25% of our common stock to 14.9%;
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provide that only our board of directors may set the number of
directors constituting our board of directors or fill vacant
directorships;
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prohibit stockholder action by written consent and limit who may
call a special meeting of stockholders; and
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require advance notification of stockholder nominations for
election to our board of directors and of stockholder proposals.
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These and other provisions in our restated certificate of
incorporation and our restated bylaws, as well as provisions
under Delaware law, could discourage potential takeover
attempts, reduce the price that investors might be willing to
pay in the future for shares of our Class A common stock
and result in the trading price of our Class A common stock
being lower than it otherwise would be. See
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Description of Capital Stock Preferred
Stock and Description of Capital Stock
Anti-Takeover Provisions.
If
securities analysts do not publish research or reports about our
business or if they publish negative evaluations of our
Class A common stock, the trading price of our Class A
common stock could decline.
We expect that the trading price for our Class A common
stock will be affected by any research or reports that
securities analysts publish about us or our business. If one or
more of the analysts who may elect to cover us or our business
downgrade their evaluations of our Class A common stock,
the price of our Class A common stock would likely decline.
If one or more of these analysts cease coverage of our company,
we could lose visibility in the market for our Class A
common stock, which in turn could cause our stock price to
decline.
We
do not intend to pay dividends for the foreseeable
future.
We have never declared or paid any cash dividends on our capital
stock. The revolving line of credit we maintain with Columbus
Bank and Trust Company prohibits the payment of any
dividends without its prior written consent. In addition, the
capital requirements imposed under the BHC Act, as well as other
federal laws applicable to banks and bank holding companies,
would limit our ability to pay dividends. We intend to retain
any earnings to finance the operation and expansion of our
business, and we do not anticipate paying any cash dividends in
the foreseeable future. As a result, you will likely receive a
return on your investment in our Class A common stock only
if the market price of our Class A common stock increases.
24
SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains
forward-looking statements. We may, in some cases, use words,
such as project, believe,
anticipate, plan, expect,
estimate, intend, continue,
should, would, could,
potentially, will or may, or
other similar words and expressions that convey uncertainty
about future events or outcomes to identify these
forward-looking statements. Forward-looking statements in this
prospectus include, among other things, statements about:
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our expectations regarding our revenues, expenses, effective tax
rates and other results of operations;
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our anticipated capital expenditures and our estimates regarding
our capital requirements;
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our liquidity and working capital requirements;
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our need to obtain additional funding and our ability to obtain
future funding on acceptable terms;
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our spending of the net proceeds from this offering;
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the impact of seasonality on our business;
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the growth rates of the markets in which we compete;
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our anticipated strategies for growth and sources of new
revenues;
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maintaining and expanding our customer base and our
relationships with retail distributors and network acceptance
members;
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our ability to anticipate market needs and develop new and
enhanced products and services to meet those needs;
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our current and future products, applications and functionality
and plans to promote them;
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anticipated trends and challenges in our business and in the
markets in which we operate;
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the evolution of technology affecting our products, services and
markets;
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our ability to retain and hire necessary employees and to staff
our operations appropriately;
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management compensation and the methodology for its
determination;
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our ability to find future acquisition opportunities on
favorable terms or at all and to manage any acquisitions;
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our ability to complete our pending bank acquisition and our
expectations regarding the benefits of doing so;
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our efforts to make our business more vertically integrated;
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our ability to compete in our industry and innovation by our
competitors;
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our ability to stay abreast of new or modified laws and
regulations that currently apply or become applicable to our
business;
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estimates and estimate methodologies used in preparing our
consolidated financial statements and determining option
exercise prices; and
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the future trading prices of our Class A Common Stock and
the impact of securities analysts reports on these prices.
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The outcome of the events described in these forward-looking
statements is subject to known and unknown risks, uncertainties
and other factors that could cause actual results to differ
materially from the results anticipated by these forward-looking
statements. These risks, uncertainties and factors include those
we discuss in this prospectus under the caption Risk
Factors. You should read these risk factors and the other
cautionary statements made in this prospectus as being
applicable to all related forward-looking statements wherever
they appear in this prospectus.
The forward-looking statements made in this prospectus relate
only to events as of the date on which the statements are made.
We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
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INDUSTRY AND
MARKET DATA
This prospectus also contains estimates and other statistical
data, including those relating to market size, transaction
volumes, demographic groups and growth rates of the markets in
which we participate, that we have obtained from industry
publications and reports. These industry publications and
reports generally indicate that they have obtained their
information from sources believed to be reliable, but do not
guarantee the accuracy and completeness of their information.
This information involves a number of assumptions and
limitations, and you are cautioned not to give undue weight to
these estimates, as there is no assurance that any of them will
be reached. Although we have not independently verified the
accuracy or completeness of the data contained in these industry
publications and reports, based on our industry experience we
believe that the publications and reports are reliable and that
the conclusions contained in the publications and reports are
reasonable.
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USE OF
PROCEEDS
We estimate that we will receive net proceeds from the sale of
the shares
of our Class A common stock that we are selling in this
offering of approximately
$ million, based on an
assumed initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover page of this prospectus,
after deducting the estimated underwriting discounts and
commissions and estimated offering expenses. If the
underwriters option to purchase additional shares in this
offering is exercised in full, based on the same assumptions, we
estimate that our net proceeds will be approximately
$ million. Each $1.00
increase or decrease in the assumed initial public offering
price would increase or decrease, as applicable, the net
proceeds to us by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions. We will not
receive any proceeds from the sale of shares of our Class A
common stock by the selling stockholders.
The principal purposes of our selling shares in this offering
are to obtain additional capital, to create a public market for
our Class A common stock and to facilitate our future
access to the public equity markets. We expect to use the net
proceeds of this offering for general corporate purposes,
including working capital and potential capital expenditures. We
do not have more specific plans for the net proceeds from this
offering. We may also use a portion of the net proceeds for the
acquisition of, or investment in, complementary businesses,
products, services, technologies or assets.
We have not yet determined our anticipated expenditures and
therefore cannot estimate the amounts to be used for each of the
purposes discussed above. The amounts and timing of any
expenditures will vary depending on the amount of cash generated
by our operations, competitive and technological developments
and the rate of growth, if any, of our business. Accordingly,
our management will have significant flexibility in applying the
net proceeds from this offering, and investors will be relying
on the judgment of our management regarding the application of
these net proceeds. Pending the uses described above, we intend
to invest the net proceeds from this offering in short-term,
interest-bearing obligations, investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of
the United States government. The goal with respect to the
investment of these net proceeds will be capital preservation
and liquidity so that these funds are readily available to fund
our operations.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock, and we do not currently intend to pay any cash dividends
on our Class A common stock in the foreseeable future. The
revolving line of credit we maintain with Columbus Bank and
Trust Company prohibits the payment of any dividends
without its prior written consent. In addition, should we
complete our proposed acquisition of a bank holding company and
its subsidiary commercial bank, as a bank holding company, the
Federal Reserve Boards risk-based and leverage capital
requirements, as well as other federal laws applicable to banks
and bank holding companies, could limit our ability to pay
dividends. We expect to retain future earnings, if any, to fund
the development and growth of our business. Any future
determination to pay dividends on our Class A common stock,
if permissible, will be at the discretion of our board of
directors and will depend upon, among other factors, our
financial condition, operating results, current and anticipated
cash needs, plans for expansion and other factors that our board
of directors may deem relevant.
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CAPITALIZATION
The following table sets forth our unaudited consolidated cash,
cash equivalents and restricted cash and capitalization as of
October 31, 2009 on:
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an actual basis;
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a pro forma basis to give effect to (i) the conversion of
all shares of our common stock outstanding as of
October 31, 2009 into 12,075,938 shares of our
Class B common stock and (ii) the automatic conversion
of all outstanding shares of our preferred stock into
24,941,521 shares of our Class B common stock
immediately prior to the completion of this offering; and
|
|
|
|
a pro forma as adjusted basis to give further effect to
(i) the conversion by the selling stockholders
of shares
of our Class B common stock into a like number of shares of
our Class A common stock immediately prior to the
completion of this offering and (ii) the sale by us of
the shares
of our Class A common stock offered by us in this
prospectus at an assumed initial public offering price of
$ per share, after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses, and the sale by the selling stockholders of
the shares
of our Class A common stock offered by them in this
prospectus.
|
The information below is illustrative only, and our
capitalization following the completion of this offering will be
adjusted based on the actual initial public offering price and
other terms of the offering determined at the pricing of this
offering. You should read this table together with our
consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2009
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
As Adjusted(1)
|
|
|
|
(In thousands)
|
|
|
Cash, cash equivalents and restricted cash(2)
|
|
$
|
58,623
|
|
|
$
|
58,623
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.001 par value:
25,554,000 shares authorized, 24,941,521 shares issued
and
outstanding; shares
authorized, no shares issued or outstanding, pro forma or pro
forma as adjusted
|
|
|
31,322
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 50,000,000 shares
authorized, 12,075,938 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro forma
or pro forma as adjusted
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Class B common stock, $0.001 par value: ten votes per
share, no shares authorized, issued or outstanding,
actual; shares
authorized, 37,017,459 shares issued and outstanding, pro
forma; shares
authorized, shares
issued and outstanding, pro forma as adjusted
|
|
|
|
|
|
|
37
|
|
|
|
|
|
Class A common stock, $0.001 par value: one vote per
share, no shares authorized, issued or outstanding,
actual; shares
authorized, no shares issued or outstanding, pro forma; shares
authorized, shares
issued and outstanding, pro forma as adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,822
|
|
|
|
35,119
|
|
|
|
|
|
Related party notes receivable(3)
|
|
|
(5,869
|
)
|
|
|
(5,869
|
)
|
|
|
(5,869
|
)
|
Retained earnings
|
|
|
24,167
|
|
|
|
24,167
|
|
|
|
24,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
53,454
|
|
|
|
53,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
53,454
|
|
|
$
|
53,454
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
(1) |
|
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease, respectively, our cash, cash
equivalents and restricted cash, additional paid-in capital,
total stockholders equity and total capitalization by
approximately $ million,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same and after
deducting the estimated underwriting discounts and commissions.
If the underwriters option to purchase additional shares
of our Class A common stock in this offering is exercised
in full, the amount of pro forma as adjusted cash, cash
equivalents and restricted cash, additional paid-in capital,
total stockholders equity and total capitalization would
increase by approximately $ and we
would have shares of Class A
common stock issued and outstanding
and shares
of Class B common stock issued and outstanding. |
|
(2) |
|
Includes $15.4 million of restricted cash. We maintain
restricted deposits in bank accounts to support our line of
credit. |
|
(3) |
|
All related party notes receivable were repaid in full in
November 2009. |
In the table above, the number of shares outstanding as of
October 31, 2009 does not include:
|
|
|
|
|
4,963,547 shares of our Class B common stock issuable
upon the exercise of stock options outstanding as of
October 31, 2009 with a weighted average exercise price of
$4.25 per share
(including shares
of our Class A common stock that we expect to be sold in
this offering by certain selling stockholders upon the exercise
of vested stock options with a weighted average exercise price
of $ per share);
|
|
|
|
1,392,250 shares of our Class B common stock issuable
upon the exercise of stock options granted after
October 31, 2009 with a weighted average exercise price of
$20.48 per share;
|
|
|
|
259,584 shares of our Class B common stock granted as
restricted stock awards after October 31, 2009;
|
|
|
|
4,567,242 shares of our Class B common stock issuable
upon the exercise of warrants outstanding as of October 31,
2009 with a weighted average exercise price of $22.31 per share,
including a warrant to purchase up to 4,283,456 shares that
is exercisable only upon the achievement of performance goals
specified in our arrangement with PayPal, Inc.; and
|
|
|
|
shares
of our Class A common stock reserved for issuance under our
2010 Equity Incentive Plan, which will become effective on the
first day that our Class A common stock is publicly traded,
as more fully described in Executive
Compensation Employee Benefit Plans 2010
Equity Incentive Plan.
|
29
DILUTION
If you invest in our Class A common stock in this offering,
your interest will be diluted to the extent of the difference
between the initial public offering price of our Class A
common stock and the pro forma as adjusted net tangible book
value of our Class A and Class B common stock after
giving effect to this offering. As of October 31, 2009, our
pro forma net tangible book value, before giving effect to this
offering, was approximately $ , or
$ per share, based
upon shares
outstanding as of that date, including shares acquired through
option exercises in order to be sold in this offering. Pro forma
net tangible book value per share represents the amount of our
total tangible assets less our total liabilities, divided by the
number of outstanding shares of our Class A and
Class B common stock, after giving effect to the automatic
conversion of all outstanding shares of our preferred stock into
shares of our Class B common stock.
After giving effect to the sale by us of
the shares
of our Class A common stock offered by us in this
prospectus at an assumed initial public offering price of
$ per share, after deducting the
estimated underwriting discounts and commissions and the
estimated offering expenses, our pro forma as adjusted net
tangible book value as of October 31, 2009 would have been
approximately $ million, or
$ per share. This represents an
immediate increase in pro forma net tangible book value of
$ per share to existing
stockholders and an immediate dilution of
$ per share to new investors
purchasing shares of our Class A common stock at the
initial public offering price. The following table illustrates
this per share dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share of our
Class A common stock
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share as of
October 31, 2009
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share as of
October 31, 2009 after giving effect to this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma as adjusted net tangible book value per
share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ would increase or decrease our pro forma as
adjusted net tangible book value per share after this offering
by $ per share and the dilution in
pro forma as adjusted net tangible book value to new investors
by $ per share, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions. If the
underwriters exercise in full their option to purchase
additional shares of our Class A common stock in this
offering, the pro forma as adjusted net tangible book value per
share after giving effect to this offering would be
$ per share, and the dilution in
pro forma as adjusted net tangible book value per share to
investors in this offering would be
$ per share.
The following table summarizes on the pro forma as adjusted
basis described above, the difference between our existing
stockholders and the purchasers of shares of our Class A
common stock in this offering with respect to the number of
shares of our common stock purchased from us, the total
consideration paid to us and the average price per share paid to
us, based on an assumed initial public offering price of
$ per share, before deducting the
estimated underwriting discounts and commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Price
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
per Share
|
|
Existing stockholders(1)
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
0.93
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes shares purchased by the selling stockholders, including
shares acquired through option exercises in order to sell the
shares in this offering. |
30
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease, respectively, total consideration
paid by new investors and total consideration paid by all
stockholders by approximately
$ million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same.
The above discussion and tables assume no exercise of our stock
options or warrants outstanding as of October 31, 2009,
consisting of 4,963,547 shares of our Class B common
stock issuable upon the exercise of stock options with a
weighted average exercise price of approximately $4.25 per
share, and 4,567,242 shares of our Class B common
stock issuable upon the exercise of warrants with a weighted
average exercise price of approximately $22.31 per share. If all
of these options and warrants were exercised, then:
|
|
|
|
|
there would be an additional $ per
share of dilution to new investors;
|
|
|
|
our existing stockholders, including the holders of these
options and warrants, would own %
and our new investors would own %
of the total number of shares of our Class A and
Class B common stock outstanding upon the completion of
this offering; and
|
|
|
|
our existing stockholders, including the holders of these
options and warrants, would have
paid % of total consideration, at
an average price per share of $ ,
and our new investors would have
paid % of total consideration.
|
31
SELECTED
CONSOLIDATED FINANCIAL DATA
The following tables present selected historical financial data
for our business. You should read this information together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, related notes and other financial
information included elsewhere in this prospectus. The selected
consolidated financial data in this section are not intended to
replace the financial statements and are qualified in their
entirety by the financial statements and related notes included
elsewhere in this prospectus.
We derived the statement of operations data for the years ended
July 31, 2007, 2008 and 2009 and the balance sheet data as
of July 31, 2008 and 2009 from our audited consolidated
financial statements included elsewhere in this prospectus. We
derived the balance sheet data as of July 31, 2007 from our
audited consolidated financial statements not included in this
prospectus. We derived the statement of operations data for the
years ended July 31, 2005 and 2006 and the balance sheet
data as of July 31, 2005 and 2006 from our unaudited
consolidated financial statements not included in this
prospectus. We derived the statement of operations data for the
three months ended October 31, 2008 and 2009 and the
balance sheet data as of October 31, 2009 from our
unaudited consolidated financial statements included elsewhere
in this prospectus. In the opinion of our management, these
unaudited financial data reflect all adjustments, consisting of
normal and recurring adjustments, necessary for a fair statement
as to results for those periods. Our historical results are not
necessarily indicative of our results to be expected in any
future period.
The pro forma per share data give effect to the conversion of
all currently outstanding shares of our convertible preferred
stock into shares of our Class B common stock upon the
closing of this offering, as though the conversion had occurred
at the beginning of the indicated fiscal period. For further
information concerning the calculation of pro forma per share
information, please refer to note 2 and note 12 of our
notes to consolidated financial statements.
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
21,771
|
|
|
$
|
36,359
|
|
|
$
|
45,717
|
|
|
$
|
91,233
|
|
|
$
|
119,356
|
|
|
$
|
27,635
|
|
|
$
|
30,532
|
|
Cash transfer revenues
|
|
|
12,064
|
|
|
|
20,616
|
|
|
|
25,419
|
|
|
|
45,310
|
|
|
|
62,396
|
|
|
|
14,556
|
|
|
|
17,807
|
|
Interchange revenues
|
|
|
5,705
|
|
|
|
9,975
|
|
|
|
12,488
|
|
|
|
31,583
|
|
|
|
53,064
|
|
|
|
10,418
|
|
|
|
17,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
39,540
|
|
|
|
66,951
|
|
|
|
83,624
|
|
|
|
168,126
|
|
|
|
234,816
|
|
|
|
52,609
|
|
|
|
66,265
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
19,148
|
|
|
|
28,660
|
|
|
|
38,838
|
|
|
|
69,577
|
|
|
|
75,786
|
|
|
|
20,538
|
|
|
|
18,165
|
|
Compensation and benefits expenses(1)
|
|
|
11,584
|
|
|
|
18,499
|
|
|
|
20,610
|
|
|
|
28,303
|
|
|
|
40,096
|
|
|
|
9,191
|
|
|
|
12,067
|
|
Processing expenses
|
|
|
6,990
|
|
|
|
8,547
|
|
|
|
9,809
|
|
|
|
21,944
|
|
|
|
32,320
|
|
|
|
7,297
|
|
|
|
10,053
|
|
Other general and administrative expenses
|
|
|
6,521
|
|
|
|
10,077
|
|
|
|
13,212
|
|
|
|
19,124
|
|
|
|
22,944
|
|
|
|
5,747
|
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
44,243
|
|
|
|
65,783
|
|
|
|
82,469
|
|
|
|
138,948
|
|
|
|
171,146
|
|
|
|
42,773
|
|
|
|
48,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(4,703
|
)
|
|
|
1,168
|
|
|
|
1,155
|
|
|
|
29,178
|
|
|
|
63,670
|
|
|
|
9,836
|
|
|
|
17,877
|
|
Interest income
|
|
|
300
|
|
|
|
301
|
|
|
|
771
|
|
|
|
665
|
|
|
|
396
|
|
|
|
210
|
|
|
|
60
|
|
Interest expense
|
|
|
(474
|
)
|
|
|
(823
|
)
|
|
|
(625
|
)
|
|
|
(247
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(4,877
|
)
|
|
|
645
|
|
|
|
1,301
|
|
|
|
29,596
|
|
|
|
64,065
|
|
|
|
10,046
|
|
|
|
17,937
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
111
|
|
|
|
(3,346
|
)
|
|
|
12,261
|
|
|
|
26,902
|
|
|
|
4,219
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(4,877
|
)
|
|
|
535
|
|
|
|
4,647
|
|
|
|
17,335
|
|
|
|
37,163
|
|
|
|
5,827
|
|
|
|
10,404
|
|
Dividends, accretion and allocated earnings of preferred stock
|
|
|
|
|
|
|
(367
|
)
|
|
|
(5,157
|
)
|
|
|
(13,650
|
)
|
|
|
(29,000
|
)
|
|
|
(4,409
|
)
|
|
|
(7,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
$
|
(4,877
|
)
|
|
$
|
168
|
|
|
$
|
(510
|
)
|
|
$
|
3,685
|
|
|
$
|
8,163
|
|
|
$
|
1,418
|
|
|
$
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$(0.48
|
)
|
|
|
$0.02
|
|
|
|
$(0.05
|
)
|
|
|
$0.34
|
|
|
|
$0.68
|
|
|
|
$0.12
|
|
|
|
$0.28
|
|
Diluted
|
|
|
$(0.48
|
)
|
|
|
$0.01
|
|
|
|
$(0.05
|
)
|
|
|
$0.26
|
|
|
|
$0.52
|
|
|
|
$0.09
|
|
|
|
$0.22
|
|
Weighted-average common shares issued and outstanding
|
|
|
10,228
|
|
|
|
10,873
|
|
|
|
11,100
|
|
|
|
10,757
|
|
|
|
12,036
|
|
|
|
12,026
|
|
|
|
12,060
|
|
Weighted-average diluted common shares issued and outstanding
|
|
|
10,228
|
|
|
|
13,194
|
|
|
|
11,100
|
|
|
|
14,154
|
|
|
|
15,712
|
|
|
|
16,034
|
|
|
|
15,318
|
|
Pro forma earnings per common share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.00
|
|
|
|
|
|
|
|
$0.28
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.91
|
|
|
|
|
|
|
|
$0.26
|
|
Pro forma weighted-average shares issued and outstanding
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,978
|
|
|
|
|
|
|
|
37,002
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,654
|
|
|
|
|
|
|
|
40,260
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
(3,492
|
)
|
|
$
|
3,214
|
|
|
$
|
4,835
|
|
|
|
$34,825
|
|
|
|
$70,731
|
|
|
$
|
11,567
|
|
|
$
|
19,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of July 31,
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash(3)
|
|
$
|
15,619
|
|
|
$
|
16,670
|
|
|
$
|
14,991
|
|
|
$
|
41,613
|
|
|
$
|
41,931
|
|
|
$
|
58,623
|
|
Settlement assets(4)
|
|
|
8,590
|
|
|
|
12,868
|
|
|
|
15,412
|
|
|
|
17,445
|
|
|
|
35,570
|
|
|
|
52,813
|
|
Total assets
|
|
|
30,436
|
|
|
|
42,626
|
|
|
|
56,441
|
|
|
|
97,246
|
|
|
|
123,269
|
|
|
|
161,628
|
|
Settlement obligations(4)
|
|
|
7,355
|
|
|
|
8,933
|
|
|
|
12,916
|
|
|
|
17,445
|
|
|
|
35,570
|
|
|
|
52,813
|
|
Long-term debt
|
|
|
6,769
|
|
|
|
5,030
|
|
|
|
2,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
25,271
|
|
|
|
37,004
|
|
|
|
45,237
|
|
|
|
65,962
|
|
|
|
81,031
|
|
|
|
108,174
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
22,336
|
|
|
|
26,816
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
5,165
|
|
|
|
5,623
|
|
|
|
(11,130
|
)
|
|
|
4,468
|
|
|
|
42,238
|
|
|
|
53,454
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
expense of $0, $0, $156,000, $1.2 million and
$2.5 million for the years ended July 31, 2005, 2006,
2007, 2008 and 2009, respectively, and $586,000 and $712,000 for
the three months ended October 31, 2008 and 2009,
respectively.
|
|
(2)
|
|
We anticipate that our investor and
analyst presentations will include Adjusted EBITDA, which we
define as net income plus net interest expense (income), income
tax expense (benefit), depreciation and amortization, and
stock-based compensation expense and which is a financial
measure that is not calculated in accordance with GAAP. The
table below provides a reconciliation of this non-GAAP financial
measure to the most directly comparable financial measure
calculated and presented in accordance with GAAP. Adjusted
EBITDA should not be considered as an alternative to net income,
operating income or any other measure of financial performance
calculated and presented in accordance with GAAP. Our Adjusted
EBITDA may not be comparable to similarly titled measures of
other organizations because other organizations may not
calculate Adjusted EBITDA in the same manner as we do. We
prepare Adjusted EBITDA to eliminate the impact of items that we
do not consider indicative of our core operating performance.
You are encouraged to evaluate these adjustments and the reason
we consider them appropriate.
|
33
|
|
|
|
|
We believe Adjusted EBITDA is
useful to investors in evaluating our operating performance for
the following reasons:
|
|
|
|
|
|
Adjusted EBITDA is widely used by
investors to measure a companys operating performance
without regard to items, such as interest expense, income tax
expense, depreciation and amortization, and stock-based
compensation expense, that can vary substantially from company
to company depending upon their financing structure and
accounting policies, the book value of their assets, their
capital structures and the method by which their assets were
acquired;
|
|
|
|
securities analysts use Adjusted
EBITDA as a supplemental measure to evaluate the overall
operating performance of companies; and
|
|
|
|
we adopted a new accounting
standard for stock-based compensation effective August 1,
2006 and recorded stock-based compensation expense of
approximately $156,000, $1.2 million and $2.5 million
for the years ended July 31, 2007, 2008 and 2009,
respectively, and $586,000 and $712,000 for the three months
ended October 31, 2008 and 2009, respectively. Prior to
August 1, 2006, we accounted for stock-based compensation
using the intrinsic value method under previously issued
guidance, which resulted in zero stock-based compensation
expense. By comparing our Adjusted EBITDA in different
historical periods, our investors can evaluate our operating
results without the additional variations caused by stock-based
compensation expense, which is not comparable from year to year
due to changes in accounting treatment, changes in the fair
market value of our common stock (which is influenced by
external factors like the volatility of public markets) and the
financial performance of our peers, and is not a key measure of
our operations.
|
|
|
|
|
|
Our management uses Adjusted EBITDA:
|
|
|
|
|
|
as a measure of operating
performance, because it does not include the impact of items not
directly resulting from our core operations;
|
|
|
|
for planning purposes, including
the preparation of our annual operating budget;
|
|
|
|
to allocate resources to enhance
the financial performance of our business;
|
|
|
|
to evaluate the effectiveness of
our business strategies; and
|
|
|
|
in communications with our board of
directors concerning our financial performance.
|
|
|
|
|
|
We understand that, although
Adjusted EBITDA is frequently used by investors and securities
analysts in their evaluations of companies, Adjusted EBITDA has
limitations as an analytical tool, and you should not consider
it in isolation or as a substitute for analysis of our results
of operations as reported under GAAP. Some of these limitations
are:
|
|
|
|
|
|
Adjusted EBITDA does not reflect
our capital expenditures or future requirements for capital
expenditures or other contractual commitments;
|
|
|
|
Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect
interest expense or interest income;
|
|
|
|
Adjusted EBITDA does not reflect
cash requirements for income taxes;
|
|
|
|
although depreciation and
amortization are non-cash charges, the assets being depreciated
or amortized will often have to be replaced in the future, and
Adjusted EBITDA does not reflect any cash requirements for these
replacements; and
|
|
|
|
other companies in our industry may
calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.
|
|
|
|
|
|
The following table presents a
reconciliation of Adjusted EBITDA (unaudited) to net income, the
most comparable GAAP measure, for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended July 31,
|
|
|
Ended October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Reconciliation of Adjusted EBITDA to Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(4,877
|
)
|
|
$
|
535
|
|
|
$
|
4,647
|
|
|
$
|
17,335
|
|
|
$
|
37,163
|
|
|
$
|
5,827
|
|
|
$
|
10,404
|
|
Interest expense (income), net
|
|
|
174
|
|
|
|
522
|
|
|
|
(146
|
)
|
|
|
(418
|
)
|
|
|
(395
|
)
|
|
|
(210
|
)
|
|
|
(60
|
)
|
Income tax expense (benefit)
|
|
|
|
|
|
|
111
|
|
|
|
(3,346
|
)
|
|
|
12,261
|
|
|
|
26,902
|
|
|
|
4,219
|
|
|
|
7,533
|
|
Depreciation and amortization
|
|
|
1,211
|
|
|
|
2,046
|
|
|
|
3,524
|
|
|
|
4,407
|
|
|
|
4,593
|
|
|
|
1,145
|
|
|
|
1,296
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
1,240
|
|
|
|
2,468
|
|
|
|
586
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(3,492
|
)
|
|
$
|
3,214
|
|
|
$
|
4,835
|
|
|
$
|
34,825
|
|
|
$
|
70,731
|
|
|
$
|
11,567
|
|
|
$
|
19,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Includes $6,025, $2,025, $2,285,
$2,328, $15,367 and $15,381 of restricted cash at July 31,
2005, 2006, 2007, 2008, 2009 and October 31, 2009,
respectively.
|
|
(4)
|
|
Our retail distributors collect
customer funds for purchases of new cards and reloads and then
remit these funds directly to bank accounts established on
behalf of those customers by the banks that issue our cards. Our
retail distributors remittance of these funds takes an
average of three business days. Settlement assets represent the
amounts due from our retail distributors for customer funds
collected at the point of sale that have not yet been remitted
to the card issuing banks. Settlement obligations represent the
amounts that are due from us to the card issuing banks for funds
collected but not yet remitted by our retail distributors and
are not funded by our line of credit. We have no control over or
access to customer funds remitted by our retail distributors to
the card issuing banks. Customer funds therefore are not our
assets, and we do not recognize them in our consolidated
financial statements.
|
34
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in
conjunction with our consolidated financial statements and
related notes contained elsewhere in this prospectus. This
discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may
differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors,
including those set forth under Risk Factors and
elsewhere in this prospectus.
Overview
Green Dot is a leading prepaid financial services company
providing simple,
low-cost and
convenient money management solutions to a broad base of
U.S. consumers. We believe that we are the leading provider
of general purpose reloadable prepaid debit cards in the United
States and that our Green Dot Network is the leading prepaid
reload network in the United States. We sell our cards and offer
our reload services nationwide at approximately 50,000 major
retail stores, which provide consumers convenient access to our
products and services.
We were founded in October 1999 to distribute and service GPR
cards. In 2001, we sold our first such card at a Rite Aid store
in Virginia. Between 2001 and 2004, we concentrated on
increasing our distribution capacity and established
distribution agreements with CVS, The Pantry Stores (Kangaroo
Express) and Radio Shack, among others. In 2004, we launched the
Green Dot Network, which allowed our cardholders to reload funds
onto their cards at any of our retail distributors
locations regardless of where their cards were initially
purchased. For example, this allowed our cards purchased at Rite
Aid stores to be reloaded at CVS stores. We also began to market
the Green Dot Network to providers of third-party prepaid card
programs, which enabled their cardholders to reload funds onto
their cards through our Green Dot Network. In 2005, we continued
to expand our distribution capacity by establishing a
distribution relationship with Walgreens. In May 2007, we began
marketing and distributing Green Dot-branded cards over the
Internet and through our website.
In October 2006, we entered into agreements with Walmart and GE
Money Bank to manage a co-branded GPR card program for Walmart
and to provide reload network services at Walmart stores through
our Green Dot Network. After an extensive product design and
pilot period, we launched the Walmart MoneyCard program in
approximately 2,500, or 70%, of Walmarts U.S. stores
in July 2007. In October 2007, we launched a Visa-branded
non-reloadable gift card program at most of these stores. By
October 31, 2009, we offered the Walmart MoneyCard in more
than 3,600, or 97%, of Walmarts U.S. stores. Since
its inception, the Walmart MoneyCard program has been highly
successful, contributing significantly to the increase in our
total operating revenues. To enhance the value proposition to
cardholders, in February 2009, significant pricing changes were
made to the Walmart MoneyCard program. The new card fee, monthly
maintenance fee and
point-of-sale,
or POS, swipe reload fee for Walmart MoneyCards at Walmart
stores were each lowered to $3.00 from $8.94, $4.94 and $4.64,
respectively. Our revenues from Walmart have increased
significantly in response to these pricing changes, as
substantial increases in volumes more than offset the revenue
impact of the lower fees.
In July 2009, we re-launched our core Green Dot-branded GPR card
with new packaging, features and pricing. Our innovative new
package contains a temporary prepaid card, for the first time
visible to the consumer through the packaging, that can be used
immediately upon activation. New card features include free
online bill payment services and a fee-free ATM network with
approximately 17,000 participating ATMs. We reduced the new card
fee from $9.95 to $4.95. We raised the monthly maintenance fee
from $4.95 to $5.95, and at the same time instituted maintenance
fee waivers for months in which cardholders either load $1,000
or more onto their cards or make at least 30 purchase
transactions in order to encourage increased card usage and
cardholder retention. The re-launch of the Green Dot-branded GPR
card generated significant increases in volume that more than
offset the revenue impact of the lower new card fees.
35
In September 2009, we further expanded our distribution capacity
by entering into a distribution agreement with 7-Eleven. In
September 2009, PayPal became a new acceptance member in the
Green Dot Network, allowing PayPal account holders to add funds
to their accounts using our MoneyPak product. These funds can be
used immediately by account holders unlike funds loaded to
PayPal accounts from a bank account, which may not be available
for several days. In October 2009, we further expanded our
distribution capacity by entering into a joint marketing and
referral agreement with Intuit Inc. In January 2010, Intuit
integrated into its TurboTax software an option that allows its
customers to receive their tax refunds via direct deposit to a
Green Dot co-branded GPR card called a TurboTax Refund Card.
Key Business
Metrics
We designed our business model to provide low-cost, easy-to-use
financial products and services to a large number of customers
through retail store and online distribution. We review a number
of metrics to help us monitor the performance of, and identify
trends affecting, our business. We believe the following
measures are the primary indicators of our quarterly and annual
performance.
Number of GPR Cards Activated represents the
total number of GPR cards sold through our retail and online
distribution channels that are activated (and, in the case of
our online channel, also funded) by cardholders in a specified
period. We activated 894,000, 2.2 million and
3.1 million GPR cards in fiscal 2007, 2008 and 2009,
respectively, and 567,000 and 1.1 million GPR cards in the
three months ended October 31, 2008 and 2009, respectively.
Number of Cash Transfers represents the total
number of MoneyPak and POS swipe reload transactions that we
sell through our retail distributors in a specified period. We
sold 5.0 million, 9.2 million and 14.1 million
MoneyPak and POS swipe reload transactions in fiscal 2007, 2008
and 2009, respectively, and 3.0 million and
4.8 million MoneyPak and POS swipe reload transactions in
the three months ended October 31, 2008 and 2009,
respectively.
Number of Active Cards represents the total
number of GPR cards in our portfolio that have had a purchase,
reload or ATM withdrawal transaction during the previous
90-day
period. We had 625,000, 1.3 million and 2.1 million
active cards outstanding as of July 31, 2007, 2008 and
2009, respectively, and 1.3 million and 2.4 million
active cards outstanding as of October 31, 2008 and 2009,
respectively.
Gross Dollar Volume represents the total
dollar volume of funds loaded to our GPR card and MoneyPak
products. Our gross dollar volume was $1.1 billion,
$2.8 billion and $4.7 billion in fiscal 2007, 2008 and
2009, respectively, and $1.0 billion and $1.6 billion
in the three months ended October 31, 2008 and 2009,
respectively.
Key components of
our results of operations
Operating
Revenues
We classify our operating revenues into the following three
categories:
Card Revenues. Card revenues consist of new
card fees, monthly maintenance fees, ATM fees and other
revenues. We charge new card fees when a consumer purchases a
GPR or gift card in a retail store. We charge maintenance fees
on GPR cards to cardholders on a monthly basis pursuant to the
terms and conditions in our cardholder agreements. We charge ATM
fees to cardholders when they withdraw money or conduct other
transactions at certain ATMs in accordance with the terms and
conditions in our cardholder agreements. Other revenues consist
primarily of fees associated with optional products or services,
which we generally offer to consumers during the card activation
process. Optional products and services that generate other
revenues include providing a second card for an account,
expediting delivery of the personalized GPR card that replaces
the temporary card obtained at the retail store and upgrading a
cardholder account to one of our premium programs
the VIP program or Premier Card program
which provide benefits for our more active cardholders.
Historically, our card revenues have also included customer
service fees that we charged in accordance with the terms and
conditions of our cardholder agreements.
36
Our aggregate new card fee revenues vary based upon the number
of GPR cards activated and the average new card fee. The average
new card fee depends primarily upon the mix of products that we
sell since there are variations in new card fees among Green
Dot-branded and co-branded products and between GPR cards and
general purpose gift cards. Our aggregate monthly maintenance
fee revenues vary primarily based upon the number of cards in
our portfolio and the average fee assessed per account. Our
average monthly maintenance fee per active account depends upon
the mix of Green Dot-branded and co-branded cards in our
portfolio and upon the extent to which fees are waived based on
significant usage. Our aggregate ATM fee revenues vary based
upon the number of cardholder ATM transactions and the average
fee per ATM transaction. The average fee per ATM transaction
depends upon the mix of Green Dot-branded and co-branded active
cards in our portfolio and the extent to which cardholders
enroll in our VIP program, which has no ATM fees, or make ATM
transactions on our fee-free ATM network.
Cash Transfer Revenues. We earn cash transfer
revenues when consumers purchase and use a MoneyPak or fund
their cards through a POS swipe reload transaction in a retail
store. Our aggregate cash transfer revenues vary based upon the
total number of MoneyPak and POS swipe reload transactions and
the average price per MoneyPak or POS swipe reload transaction.
The average price per MoneyPak or POS swipe reload transaction
depends upon the relative numbers of cash transfer sales at our
different retail distributors and on the mix of MoneyPak and POS
swipe reload transactions at certain retailers that have
different fees for the two types of reload transactions.
Interchange Revenues. We earn interchange
revenues from fees remitted by the merchants bank, which
are based on rates established by Visa and MasterCard, when
cardholders make purchase transactions using our cards. Our
aggregate interchange revenues vary based primarily on the
number of active cards in our portfolio and on the mix of
cardholder purchases between those using signature
identification technologies and those using personal
identification numbers.
Operating
Expenses
We classify our operating expenses into the following four
categories:
Sales and Marketing Expenses. Sales and
marketing expenses consist primarily of the sales commissions we
pay to our retail distributors for sales of our GPR and gift
cards and reload services in their stores, advertising and
marketing expenses, the costs of manufacturing and distributing
to our retail distributors card packages, placards and
promotional materials and the costs associated with providing
personalized GPR cards to consumers who have activated their
cards. We generally establish sales commission percentages in
long-term distribution agreements with our retail distributors,
and aggregate sales commissions are determined by the number of
prepaid cards and cash transfers sold at their respective retail
stores. We incur advertising and marketing expenses for
television and online advertisements of our products and through
retailer-based print promotions and in-store displays.
Advertising and marketing expenses are recognized as incurred
and typically deliver a benefit over an extended period of time.
For this reason, these expenses do not always track changes in
revenues. Our manufacturing and distribution costs vary
primarily based on the number of GPR cards activated.
Compensation and Benefits
Expenses. Compensation and benefits expenses
represent the compensation and benefits that we provide to our
employees and the payments we make to third-party contractors.
While we have an in-house customer service organization, we
employ third-party contractors to conduct all call center
operations, handle routine customer service inquiries and
provide temporary support in the area of IT operations and
elsewhere. Compensation and benefits expenses associated with
our customer service and loss management functions generally
vary in line with the size of our active card portfolio, while
the expenses associated with other functions do not.
Processing Expenses. Processing expenses
consist primarily of the fees charged to us by the banks that
issue our prepaid cards, the third-party card processor that
maintains the records of our customers accounts and
processes transaction authorizations and postings for us, and
MasterCard
37
and Visa, which process transactions for us through their
respective payment networks. These costs generally vary based on
the total number of active cards in our portfolio.
Other General and Administrative
Expenses. Other general and administrative
expenses consist primarily of professional service fees,
telephone and communication costs, depreciation and amortization
of our property and equipment, losses from unrecovered customer
purchase transaction overdrafts and fraud, rent and utilities,
and insurance. We incur telephone and communication costs
primarily from customers contacting us through our toll-free
telephone numbers. These costs vary with the total number of
active cards in our portfolio as do losses from unrecovered
customer purchase transaction overdrafts and fraud. Costs
associated with professional services, depreciation and
amortization of our property and equipment and rent and
utilities vary based upon our investment in infrastructure, risk
management and internal controls and are generally not
correlated with our operating revenues or other transaction
metrics.
Income Tax
Expense
Our income tax expense consists of the federal and state
corporate income taxes accrued on income resulting from the sale
of our products and services. Since the majority of our
operations are based in California, most of our state taxes are
paid to that state.
Comparison of
Three Months Ended October 31, 2008 and 2009
(unaudited)
Operating
Revenues
The following table presents the breakdown of operating revenues
among card, cash transfer and interchange revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(Dollars in thousands)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
27,635
|
|
|
|
52.5
|
%
|
|
$
|
30,532
|
|
|
|
46.1
|
%
|
Cash transfer revenues
|
|
|
14,556
|
|
|
|
27.7
|
|
|
|
17,807
|
|
|
|
26.9
|
|
Interchange revenues
|
|
|
10,418
|
|
|
|
19.8
|
|
|
|
17,926
|
|
|
|
27.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
52,609
|
|
|
|
100.0
|
%
|
|
$
|
66,265
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues. Our card revenues totaled
$30.5 million in the three months ended October 31,
2009, an increase of $2.9 million, or 10%, from the
comparable period in fiscal 2008. This increase was primarily
due to
period-over-period
growth of 97% in the number of GPR cards activated and 79% in
the number of active cards in our portfolio, largely offset by
the February 2009 reduction in new card and monthly maintenance
fees for the Walmart MoneyCard and the July 2009 reduction in
the new card fee for Green Dot-branded cards. These fee
reductions also contributed to the decline in card revenues as a
percentage of total operating revenues. We expect our card
revenues will continue to increase in absolute dollars as the
number of our cards grows, but we do not expect them to shift
significantly as a percentage of our total operating revenues
from the percentage for the three months ended October 31,
2009.
Cash Transfer Revenues. Our cash transfer
revenues totaled $17.8 million in the three months ended
October 31, 2009, an increase of $3.3 million, or 22%,
from the comparable period in fiscal 2008. This increase was
primarily due to
period-over-period
growth of 61% in the number of cash transfers sold, partially
offset by a shift in our retail distributor mix toward Walmart,
which generally has lower fees than our other retail
distributors and significantly reduced the POS swipe reload fee
in February 2009. We expect our cash transfer revenues will
continue to increase in absolute dollars in because of the
recent increase in the number of GPR cards activated and the
addition of PayPal as a network acceptance member, but we do not
expect them to shift significantly as a percentage of total
operating revenues from the percentage for the three months
ended October 31, 2009.
38
Interchange Revenues. Our interchange revenues
totaled $17.9 million in the three months ended
October 31, 2009, an increase of $7.5 million, or 72%,
from the comparable period in fiscal 2008. This increase was
primarily due to
period-over-period
growth of 79% in the number of active cards in our portfolio. We
expect our interchange revenues will continue to increase in
absolute dollars, but we do not expect them to shift
significantly as a percentage of total operating revenues from
the percentage for the three months ended October 31, 2009.
Operating
Expenses
The following table presents the breakdown of operating expenses
among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
20,538
|
|
|
|
39.0
|
%
|
|
$
|
18,165
|
|
|
|
27.4
|
%
|
Compensation and benefits expenses
|
|
|
9,191
|
|
|
|
17.5
|
|
|
|
12,067
|
|
|
|
18.2
|
|
Processing expenses
|
|
|
7,297
|
|
|
|
13.9
|
|
|
|
10,053
|
|
|
|
15.2
|
|
Other general and administrative expenses
|
|
|
5,747
|
|
|
|
10.9
|
|
|
|
8,103
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
42,773
|
|
|
|
81.3
|
%
|
|
$
|
48,388
|
|
|
|
73.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses. Our sales and
marketing expenses were $18.2 million in the three months
ended October 31, 2009, a decrease of $2.4 million, or
12%, from the comparable period in fiscal 2008. This decrease
was primarily the result of a $4.4 million decline in
advertising and marketing expenses. During the 2009 comparison
period, we did no television advertising and deployed fewer new
in-store displays. The decrease in sales and marketing expenses
was also the result of a $0.4 million, or 4%, decline in
the sales commissions we paid to our retail distributors and
brokers because of reductions in the commission percentages we
paid to our retail distributors, most significantly Walmart.
These declines were partially offset by a $2.4 million
increase in the manufacturing and distribution costs of card
packaging, placards and promotional materials due to increased
numbers of GPR cards and MoneyPaks sold. We expect our sales and
marketing expenses as a percentage of our total operating
revenues to increase significantly in the year ending
December 31, 2010 from the percentage in the three months
ended October 31, 2009 as we strategically engage in
television advertising, which we recommenced in January 2010,
and as the contractual sales commission percentage that we are
obligated to pay to Walmart increases substantially in May 2010
to a level approximating where it was before
mid-February 2009.
Compensation and Benefits Expenses. Our
compensation and benefits expenses were $12.1 million in
the three months ended October 31, 2009, an increase of
$2.9 million, or 31%, from the comparable period in fiscal
2008. This increase was primarily the result of a
$2.1 million increase in third-party contractor expenses as
the number of active cards in our portfolio and associated call
volumes grew from the three months ended October 31, 2008
to the comparable period in fiscal 2009. This increase was also
the result of a $0.8 million increase in employee
compensation and benefits, including a $0.1 million
increase in stock-based compensation, as our headcount grew from
241 as of October 31, 2008 to 256 as of October 31,
2009. We expect our compensation and benefits expenses to
increase as we continue to add personnel and incur additional
third-party contractor expenses to support expanding operations
and as we assume the reporting requirements and compliance
obligations of a public company. However, we expect these
expenses to decline as a percentage of our total operating
revenues from the percentage in the three months ended
October 31, 2009 since aggregate
39
compensation and benefits should grow more slowly than total
operating revenues as we scale our business.
Processing Expenses. Our processing expenses
were $10.1 million in the three months ended
October 31, 2009, an increase of $2.8 million, or 38%,
from the comparable period in fiscal 2008. This increase was
primarily the result of
period-over-period
growth of 79% in the number of active cards in our portfolio,
partially offset by lower fees charged to us under agreements
with one of the banks that issue our cards and our third-party
card processor that became effective in November 2008 and by
more efficient use of our card processor through the purging of
inactive accounts and a more effective use of analysis and
reporting tools. We expect our processing expenses to increase
in absolute dollars but to decline slowly as a percentage of our
total operating revenues from the percentage in the three months
ended October 31, 2009 as our contracts with our
third-party providers generally contain tiered-pricing
structures under which an increasing number of transactions and
cards result in lower per-transaction costs.
Other General and Administrative Expenses. Our
other general and administrative expenses were $8.1 million
in the three months ended October 31, 2009, an increase of
$2.4 million, or 41%, from the comparable period in fiscal
2008. This increase was primarily the result of a
$1.6 million increase in professional service fees due to
our potential bank acquisition and other corporate development
initiatives and a $0.6 million increase in telephone and
communication expenses due to increased use of our call center
and our interactive voice response system, or IVR, as the number
of active cards in our portfolio increased. We expect these
expenses to increase in absolute dollars as we incur additional
costs related to the growth of our business and as we assume the
reporting requirements and compliance obligations of a public
company. However, we expect these expenses to decline as a
percentage of our total operating revenues from the percentage
in the three months ended October 31, 2009 as we benefit
from past significant investments that we have made and from the
potential acquisition of a bank.
Income Tax
Expense
The following table presents the breakdown of our effective tax
rate among federal, state and other:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.1
|
|
|
|
6.0
|
|
Other
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
42.0
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
Our income tax expense increased by $3.3 million to
$7.5 million in the three months ended October 31,
2009, but there was no change in the effective tax rate. We
expect our effective tax rate to decline over the next two years
as changes in California tax law result in less of our income
before income taxes being allocated to the state of California.
40
Comparison of
Fiscal 2008 and 2009
Operating
Revenues
The following table presents the breakdown of operating revenues
among card, cash transfer and interchange revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(Dollars in thousands)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
91,233
|
|
|
|
54.3
|
%
|
|
$
|
119,356
|
|
|
|
50.8
|
%
|
Cash transfer revenues
|
|
|
45,310
|
|
|
|
26.9
|
|
|
|
62,396
|
|
|
|
26.6
|
|
Interchange revenues
|
|
|
31,583
|
|
|
|
18.8
|
|
|
|
53,064
|
|
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
168,126
|
|
|
|
100.0
|
%
|
|
$
|
234,816
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues. Our card revenues totaled
$119.4 million in fiscal 2009, an increase of
$28.1 million, or 31%, from fiscal 2008. This increase was
primarily due to
year-over-year
growth of 43% in the number of GPR cards activated and 62% in
the number of active cards in our portfolio, partially offset by
the February 2009 reduction in new card and monthly maintenance
fees for the Walmart MoneyCard. This reduction in fees also
contributed to the decline in card revenues as a percentage of
total operating revenues.
Cash Transfer Revenues. Our cash transfer
revenues totaled $62.4 million in fiscal 2009, an increase
of $17.1 million, or 38%, from fiscal 2008. This increase
was primarily due to
year-over-year
growth of 54% in the number of cash transfers, partially offset
by a shift in our retail distributor mix toward Walmart, which
generally has lower fees than our other retail distributors and
significantly reduced the POS swipe reload fee in February 2009.
Interchange Revenues. Our interchange revenues
totaled $53.1 million in fiscal 2009, an increase of
$21.5 million, or 68%, from fiscal 2008. This increase was
primarily due to
year-over-year
growth of 62% in the number of active cards in our portfolio.
Operating
Expenses
The following table presents the breakdown of operating expenses
among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(Dollars in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
69,577
|
|
|
|
41.4
|
%
|
|
$
|
75,786
|
|
|
|
32.3
|
%
|
Compensation and benefits expenses
|
|
|
28,303
|
|
|
|
16.8
|
|
|
|
40,096
|
|
|
|
17.1
|
|
Processing expenses
|
|
|
21,944
|
|
|
|
13.0
|
|
|
|
32,320
|
|
|
|
13.7
|
|
Other general and administrative expenses
|
|
|
19,124
|
|
|
|
11.4
|
|
|
|
22,944
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
138,948
|
|
|
|
82.6
|
%
|
|
$
|
171,146
|
|
|
|
72.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses. Our sales and
marketing expenses were $75.8 million in fiscal 2009, an
increase of $6.2 million, or 9%, from fiscal 2008. This
increase was primarily the result of a $10.1 million, or
25%, increase in the sales commissions we paid to our retail
distributors and brokers.
41
Aggregate commissions increased because of increased sales, but
the impact of these increased sales was offset in part by a
reduction in pricing and commission rates at Walmart. The
increase in sales and marketing expenses was also the result of
a $2.7 million increase in the manufacturing and
distribution costs of card packages, placards and promotional
materials due to the re-launch of our Green Dot-branded products
and increased numbers of GPR cards and MoneyPaks sold. These
sales and marketing expense increases were partially offset by a
$6.6 million decline in advertising and marketing expenses,
principally as a result of our decision not to use television
advertising during fiscal 2009.
Compensation and Benefits Expenses. Our
compensation and benefits expenses were $40.1 million in
fiscal 2009, an increase of $11.8 million, or 42%, from
fiscal 2008. This increase was primarily the result of a
$9.0 million increase in employee compensation and
benefits, including a $1.2 million increase in stock-based
compensation, as our headcount grew from 209 at the end of
fiscal 2008 to 248 at the end of fiscal 2009 and we hired
several new members of management. Third-party contractor
expenses also increased by $2.8 million as the number of
active cards in our portfolio and associated call volumes grew
from fiscal 2008 to fiscal 2009.
Processing Expenses. Our processing expenses
were $32.3 million in fiscal 2009, an increase of
$10.4 million, or 47%, from fiscal 2008. This increase was
primarily the result of
year-over-year
growth of 62% in the number of active cards in our portfolio.
This growth was partially offset by lower fees charged to us
under agreements with one of the banks that issue our cards and
our third-party card processor that became effective in November
2008 and by more efficient use of our card processor.
Other General and Administrative Expenses. Our
other general and administrative expenses were
$22.9 million in fiscal 2009, an increase of
$3.8 million, or 20%, from fiscal 2008. This increase was
primarily the result of a $1.6 million increase in
telephone and communication expenses due to increased call
volumes as the number of active cards in our portfolio increased
and a $1.4 million increase in professional service fees
primarily associated with corporate development initiatives. We
also had increases of $0.4 million in rent due to
additional office space that we leased to support our increased
headcount and $0.4 million related to the write-off of
abandoned internal-use software. These increases were partially
offset by the reversal of a $0.5 million reserve that was
accrued in fiscal 2008 for a potential litigation settlement.
Income Tax
Expense
The following table presents the breakdown of our effective tax
rate among federal, state and other:
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
5.7
|
|
|
|
6.1
|
|
Other
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
41.4
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
Our income tax expense increased by $14.6 million from
fiscal 2008 to $26.9 million in fiscal 2009, an effective
tax rate increase of 0.9% from 41.4% to 42.0%. This increase was
primarily due to the utilization in fiscal 2008 of our remaining
net operating loss carryforwards to reduce taxable income.
42
Comparison of
Fiscal 2007 and 2008
Operating
Revenues
The following table presents the breakdown of operating revenues
among card, cash transfer and interchange revenues (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(Dollars in thousands)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
45,717
|
|
|
|
54.7
|
%
|
|
$
|
91,233
|
|
|
|
54.3
|
%
|
Cash transfer revenues
|
|
|
25,419
|
|
|
|
30.4
|
|
|
|
45,310
|
|
|
|
26.9
|
|
Interchange revenues
|
|
|
12,488
|
|
|
|
14.9
|
|
|
|
31,583
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
83,624
|
|
|
|
100.0
|
%
|
|
$
|
168,126
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues. Our card revenues totaled
$91.2 million in fiscal 2008, an increase of
$45.5 million, or 100%, from fiscal 2007. This increase was
primarily due to
year-over-year
growth of 142% in the number of GPR cards activated and 103% in
the number of active cards in our portfolio.
Cash Transfer Revenues. Our cash transfer
revenues totaled $45.3 million in fiscal 2008, an increase
of $19.9 million, or 78%, from fiscal 2007. This increase
was primarily due to
year-over-year
growth of 83% in the number of cash transfers.
Interchange Revenues. Our interchange revenues
totaled $31.6 million in fiscal 2008, an increase of
$19.1 million, or 153%, from fiscal 2007. This increase was
primarily due to
year-over-year
growth of 103% in the number of active cards in our portfolio.
Operating
Expenses
The following table presents the breakdown of operating expenses
among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
|
Percentage of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(Dollars in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
38,838
|
|
|
|
46.5
|
%
|
|
$
|
69,577
|
|
|
|
41.4
|
%
|
Compensation and benefits expenses
|
|
|
20,610
|
|
|
|
24.6
|
|
|
|
28,303
|
|
|
|
16.8
|
|
Processing expenses
|
|
|
9,809
|
|
|
|
11.7
|
|
|
|
21,944
|
|
|
|
13.0
|
|
Other general and administrative expenses
|
|
|
13,212
|
|
|
|
15.8
|
|
|
|
19,124
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
82,469
|
|
|
|
98.6
|
%
|
|
$
|
138,948
|
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses. Our sales and
marketing expenses were $69.6 million in fiscal 2008, an
increase of $30.7 million, or 79%, from fiscal 2007. This
increase was primarily the result of a $14.5 million, or
55%, increase in the sales commissions we paid to our retail
distributors and brokers and a $9.8 million increase in the
manufacturing and distribution costs of our card packaging,
placards and promotional materials. Sales commissions and
manufacturing and distribution costs increased principally due
to increased sales of GPR cards and cash loading services.
Advertising and marketing expenses also increased by
$6.4 million from fiscal 2007 to fiscal 2008 as a result of
significant television advertising in fiscal 2008.
43
Compensation and Benefits Expenses. Our
compensation and benefits expenses were $28.3 million in
fiscal 2008, an increase of $7.7 million, or 37%, from
fiscal 2007. This increase was primarily the result of a
$4.3 million increase in employee compensation and
benefits, including a $1.1 million increase in stock-based
compensation, as our headcount increased from 160 at the end of
fiscal 2007 to 209 at the end of fiscal 2008. Third-party
contractor expenses also increased by $3.3 million from
fiscal 2007 to fiscal 2008 as the number of active cards in our
portfolio and associated call volumes grew from fiscal 2007 to
fiscal 2008.
Processing Expenses. Our processing expenses
were $21.9 million in fiscal 2008, an increase of
$12.1 million, or 124%, from fiscal 2007. This increase was
primarily the result of
year-over-year
growth of 103% in the number of active cards in our portfolio.
Other General and Administrative Expenses. Our
other general and administrative expenses were
$19.1 million in fiscal 2008, an increase of
$5.9 million, or 45%, from fiscal 2007. This increase was
primarily the result of a $1.6 million increase in
professional services fees related, among other things, to an
uncompleted financing transaction, a $1.1 million increase
in telephone and communications expenses primarily related to
growth in call center volumes and a $1.1 million increase
in losses from fraud and purchase transaction overdrafts. Call
center volumes and losses from fraud and purchase transaction
overdrafts increased as the number of active cards in our
portfolio increased. Additionally, depreciation and amortization
of property and equipment increased by $0.9 million due to
expansion of our infrastructure to support our growth, we
accrued $0.5 million for a potential litigation settlement
and we had a $0.3 million increase in repair and
maintenance expenses.
Income Tax
(Benefit) Expense
The following table presents the breakdown of our effective tax
rate among federal, state and other:
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.1
|
|
|
|
5.7
|
|
Change in valuation allowance
|
|
|
(288.9
|
)
|
|
|
0.0
|
|
Other
|
|
|
(9.4
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
(257.2
|
)%
|
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
|
In fiscal 2007, we had an income tax benefit of
$3.3 million, and in fiscal 2008 we had an income tax
expense of $12.3 million. The $15.6 million change was
primarily due to federal and state net operating loss
carryforwards of $2.8 million and $2.7 million,
respectively, that were applied in 2007 to reduce taxable income
along with a $3.8 million reduction in the valuation
allowance associated with our deferred tax asset in fiscal 2007.
44
Quarterly Results
of Operations
The following tables set forth unaudited quarterly consolidated
statement of income data for fiscal 2008 and 2009 and for the
three months ended October 31, 2009, as well as the
percentage of our total operating revenues that each line item
represented. We have prepared our consolidated statements of
operations for each of these quarters on the same basis as the
audited consolidated financial statements included elsewhere in
this prospectus, except for certain consolidated statements of
operations items related to income allocated to common
stockholders and earnings per common share and, in the opinion
of our management, each statement of operations includes all
adjustments, consisting solely of normal recurring adjustments,
necessary for the fair statement of the results of operations
for these periods. This information should be read in
conjunction with the consolidated financial statements and
related notes included elsewhere in this prospectus. These
quarterly operating results are not necessarily indicative of
our operating results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
Oct. 31,
|
|
|
Jan. 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
Oct. 31,
|
|
|
Jan. 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
Oct. 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited, in thousands)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
16,981
|
|
|
$
|
21,166
|
|
|
$
|
25,787
|
|
|
$
|
27,299
|
|
|
$
|
27,635
|
|
|
$
|
28,983
|
|
|
$
|
31,376
|
|
|
$
|
31,362
|
|
|
$
|
30,532
|
|
Cash transfer revenues
|
|
|
8,531
|
|
|
|
10,498
|
|
|
|
12,770
|
|
|
|
13,511
|
|
|
|
14,556
|
|
|
|
15,216
|
|
|
|
15,634
|
|
|
|
16,990
|
|
|
|
17,807
|
|
Interchange revenues
|
|
|
4,973
|
|
|
|
7,365
|
|
|
|
9,152
|
|
|
|
10,093
|
|
|
|
10,418
|
|
|
|
11,852
|
|
|
|
14,715
|
|
|
|
16,079
|
|
|
|
17,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
30,485
|
|
|
|
39,029
|
|
|
|
47,709
|
|
|
|
50,903
|
|
|
|
52,609
|
|
|
|
56,051
|
|
|
|
61,725
|
|
|
|
64,431
|
|
|
|
66,265
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
15,437
|
|
|
|
17,456
|
|
|
|
18,331
|
|
|
|
18,353
|
|
|
|
20,538
|
|
|
|
21,437
|
|
|
|
17,840
|
|
|
|
15,971
|
|
|
|
18,165
|
|
Compensation and benefits expenses
|
|
|
6,333
|
|
|
|
6,552
|
|
|
|
7,518
|
|
|
|
7,900
|
|
|
|
9,191
|
|
|
|
9,266
|
|
|
|
9,782
|
|
|
|
11,857
|
|
|
|
12,067
|
|
Processing expenses
|
|
|
3,894
|
|
|
|
5,013
|
|
|
|
6,208
|
|
|
|
6,829
|
|
|
|
7,297
|
|
|
|
6,890
|
|
|
|
8,338
|
|
|
|
9,795
|
|
|
|
10,053
|
|
Other general and administrative expenses
|
|
|
4,069
|
|
|
|
4,276
|
|
|
|
4,838
|
|
|
|
5,941
|
|
|
|
5,747
|
|
|
|
5,532
|
|
|
|
5,408
|
|
|
|
6,257
|
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
29,733
|
|
|
|
33,297
|
|
|
|
36,895
|
|
|
|
39,023
|
|
|
|
42,773
|
|
|
|
43,125
|
|
|
|
41,368
|
|
|
|
43,880
|
|
|
|
48,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
752
|
|
|
|
5,732
|
|
|
|
10,814
|
|
|
|
11,880
|
|
|
|
9,836
|
|
|
|
12,926
|
|
|
|
20,357
|
|
|
|
20,551
|
|
|
|
17,877
|
|
Interest income
|
|
|
145
|
|
|
|
135
|
|
|
|
168
|
|
|
|
217
|
|
|
|
210
|
|
|
|
62
|
|
|
|
43
|
|
|
|
81
|
|
|
|
60
|
|
Interest expense
|
|
|
(102
|
)
|
|
|
(84
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
795
|
|
|
|
5,783
|
|
|
|
10,921
|
|
|
|
12,097
|
|
|
|
10,046
|
|
|
|
12,987
|
|
|
|
20,400
|
|
|
|
20,632
|
|
|
|
17,937
|
|
Income tax expense
|
|
|
328
|
|
|
|
2,396
|
|
|
|
4,525
|
|
|
|
5,012
|
|
|
|
4,219
|
|
|
|
5,454
|
|
|
|
8,566
|
|
|
|
8,663
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
467
|
|
|
$
|
3,387
|
|
|
$
|
6,396
|
|
|
$
|
7,085
|
|
|
$
|
5,827
|
|
|
$
|
7,533
|
|
|
$
|
11,834
|
|
|
$
|
11,969
|
|
|
$
|
10,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Total Operating Revenues
|
|
|
|
For the Three Months Ended
|
|
|
|
Oct. 31,
|
|
|
Jan. 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
Oct. 31,
|
|
|
Jan. 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
Oct. 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
|
55.7
|
%
|
|
|
54.2
|
%
|
|
|
54.0
|
%
|
|
|
53.7
|
%
|
|
|
52.5
|
%
|
|
|
51.8
|
%
|
|
|
50.9
|
%
|
|
|
48.6
|
%
|
|
|
46.1
|
%
|
Cash transfer revenues
|
|
|
28.0
|
|
|
|
26.9
|
|
|
|
26.8
|
|
|
|
26.5
|
|
|
|
27.7
|
|
|
|
27.1
|
|
|
|
25.3
|
|
|
|
26.4
|
|
|
|
26.9
|
|
Interchange revenues
|
|
|
16.3
|
|
|
|
18.9
|
|
|
|
19.2
|
|
|
|
19.8
|
|
|
|
19.8
|
|
|
|
21.1
|
|
|
|
23.8
|
|
|
|
25.0
|
|
|
|
27.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
50.6
|
|
|
|
44.7
|
|
|
|
38.4
|
|
|
|
36.1
|
|
|
|
39.0
|
|
|
|
38.2
|
|
|
|
28.9
|
|
|
|
24.8
|
|
|
|
27.4
|
|
Compensation and benefits expenses
|
|
|
20.8
|
|
|
|
16.8
|
|
|
|
15.8
|
|
|
|
15.5
|
|
|
|
17.5
|
|
|
|
16.5
|
|
|
|
15.8
|
|
|
|
18.4
|
|
|
|
18.2
|
|
Processing expenses
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
13.0
|
|
|
|
13.4
|
|
|
|
13.9
|
|
|
|
12.3
|
|
|
|
13.5
|
|
|
|
15.2
|
|
|
|
15.2
|
|
Other general and administrative expenses
|
|
|
13.3
|
|
|
|
11.0
|
|
|
|
10.1
|
|
|
|
11.7
|
|
|
|
10.9
|
|
|
|
9.9
|
|
|
|
8.8
|
|
|
|
9.7
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
97.5
|
|
|
|
85.3
|
|
|
|
77.3
|
|
|
|
76.7
|
|
|
|
81.3
|
|
|
|
76.9
|
|
|
|
67.0
|
|
|
|
68.1
|
|
|
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2.5
|
|
|
|
14.7
|
|
|
|
22.7
|
|
|
|
23.3
|
|
|
|
18.7
|
|
|
|
23.1
|
|
|
|
33.0
|
|
|
|
31.9
|
|
|
|
27.0
|
|
Interest income
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Interest expense
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2.6
|
|
|
|
14.8
|
|
|
|
22.9
|
|
|
|
23.8
|
|
|
|
19.1
|
|
|
|
23.2
|
|
|
|
33.1
|
|
|
|
32.0
|
|
|
|
27.1
|
|
Income tax expense
|
|
|
1.1
|
|
|
|
6.1
|
|
|
|
9.5
|
|
|
|
9.9
|
|
|
|
8.0
|
|
|
|
9.8
|
|
|
|
13.9
|
|
|
|
13.4
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.5
|
%
|
|
|
8.7
|
%
|
|
|
13.4
|
%
|
|
|
13.9
|
%
|
|
|
11.1
|
%
|
|
|
13.4
|
%
|
|
|
19.2
|
%
|
|
|
18.6
|
%
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total operating revenues have increased sequentially in each
of the quarters presented due primarily to a combination of
increased numbers of cash transfers sold and growth in our
portfolio of active cards. Our numbers of sales and active cards
have increased as we have sold our products in a growing number
of retail locations and increased same-store sales. Cash
transfer revenues and interchange revenues have increased
sequentially in each of the quarters presented because of steady
growth in the number of cash transfers, network acceptance
members, and active cards in our portfolio. Over the periods
presented, we have experienced fluctuations in the growth rate
of our card revenues, from a 24.6% increase between the quarters
ended October 31, 2007 and January 31, 2008, due
primarily to seasonality in the number of GPR cards activated
and to a lesser extent to the introduction of gift cards in
Walmart stores for the 2007 holiday season, to a 2.6% decrease
between the quarters ended July 31 and October 31, 2009,
due primarily to the July 2009 reduction in the new card fee for
our Green Dot-branded GPR cards, substantially offset by the
growth in sales of those cards. Monthly maintenance fees and ATM
fees, currently the other large components of card revenues
besides new card fees, have increased sequentially in each of
the quarters presented, while the remaining component of card
revenues other revenues has generally
declined. We generally experience seasonal growth in total
operating revenues during the holiday period and during tax
season due to increased sales of cards, increased reloads and
increased card usage.
Our total operating expenses have generally increased
sequentially in each of the quarters presented. The decline in
total operating expenses and sales and marketing expenses
between the quarters ended January 31 and April 30, 2009
was due primarily to lower sales commission percentages
coinciding with lower pricing on the Walmart MoneyCard effective
mid-February 2009. We continued to benefit from these lower
commission percentages in the quarters ended July 31 and
October 31, 2009. Sales and marketing expenses increased
between the quarters ended July 31 and October 31, 2009 as
a result of new revenue-sharing arrangements with two of our
largest retail distributors and increased packaging costs
associated with the relaunch of our Green Dot branded card.
Sales and marketing expenses will increase again significantly
in May 2010 as the contractual sales commission percentage that
we are obligated to pay Walmart returns to a level approximating
where it was before the decrease in mid-February 2009.
Processing expenses declined by 5.6% from the quarter ended
October 31, 2008 to the quarter ended January 31, 2009
due to lower fees charged to us under agreements with one of the
banks that issue our cards and our third-party card processor
that became effective in November 2008 and to more efficient use
of our card processor. Other
46
general and administrative expenses increased 22.8% between the
quarters ended April 30, 2008 and July 31, 2008 primarily
because we accrued a $500,000 legal reserve. This reserve was
reversed in the quarter ended April 30, 2009 due to a
favorable judgment during that period. Other general and
administrative expenses increased 29.5% between the quarters
ended July 31, 2009 and October 31, 2009 primarily because
of a $1.5 million increase in professional service fees.
This increase in professional service fees was primarily related
to our potential bank acquisition.
Liquidity and
Capital Resources
The following table sets forth the major sources and uses of
cash for our last three fiscal years ended July 31 and for the
three months ended October 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
(unaudited)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
2,461
|
|
|
$
|
35,006
|
|
|
$
|
35,297
|
|
|
$
|
(1,680
|
)
|
|
$
|
18,841
|
|
Net cash used in investing activities
|
|
|
(4,558
|
)
|
|
|
(5,163
|
)
|
|
|
(19,400
|
)
|
|
|
(1,229
|
)
|
|
|
(2,263
|
)
|
Net cash provided by (used in) financing activities
|
|
|
158
|
|
|
|
(3,264
|
)
|
|
|
(28,618
|
)
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in unrestricted cash and cash equivalents
|
|
$
|
(1,939
|
)
|
|
$
|
26,579
|
|
|
$
|
(12,721
|
)
|
|
$
|
(2,909
|
)
|
|
$
|
16,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2007, 2008 and 2009 and the three months ended
October 31, 2009, we financed our operations primarily
through our cash flows from operations. At October 31,
2009, our primary source of liquidity was unrestricted cash and
cash equivalents totaling $43.2 million.
We use trend and variance analyses to project future cash needs,
making adjustments to the projections when needed. We believe
that our current unrestricted cash and cash equivalents and cash
flows from operations will be sufficient to meet our working
capital and capital expenditure requirements for at least the
next twelve months. Thereafter, we may need to raise additional
funds through public or private financings or borrowings. Any
additional financing we require may not be available on terms
that are favorable to us, or at all. If we raise additional
funds through the issuance of equity or convertible debt
securities, our existing stockholders could suffer significant
dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders
of our Class A common stock, including shares of our
Class A common stock sold in this offering. No assurance
can be given that additional financing will be available or
that, if available, such financing can be obtained on terms
favorable to our stockholders and us.
Cash Flows
From Operating Activities
The $18.8 million of net cash provided by operating
activities in the three months ended October 31, 2009
resulted from $10.4 million of net income, the adjustment
for non-cash operating expenses of $8.6 million (including
$6.5 million for provisions for uncollectible overdrawn
accounts, $1.3 million of depreciation and amortization and
$712,000 of stock-based compensation), an increase of
$6.2 million in income taxes payable, an increase of
$1.5 million in amounts due to issuing banks for overdrawn
accounts, and an increase of $1.5 million in accounts
payable and accrued liabilities. These increases were partially
offset by a $7.3 million increase in accounts receivable
and a $1.5 million increase in prepaid expenses and other
assets. The increase in our accounts receivable balance was
primarily related to the increase in the number of our GPR cards
outstanding that are not active cards but on which we charge a
monthly maintenance fee. This increase was partially offset by a
$6.5 million provision for uncollectible overdrawn accounts
that increased the reserve held against the accounts receivable
balance.
47
The $35.3 million of net cash provided by operating
activities in fiscal 2009 resulted from $37.2 million of
net income, the adjustment for non-cash operating expenses of
$28.3 million (including $22.5 million for provisions
for uncollectible overdrawn accounts, $4.6 million for
depreciation and amortization and $2.5 million for
stock-based compensation, partially offset by a
$1.7 million deferred income tax benefit), a
$3.2 million increase in accounts payable and accrued
liabilities, a $2.3 million decrease in deferred expenses
and a $1.4 million increase in income taxes payable. These
were offset by a $29.9 million increase in accounts
receivable and a $5.3 million decrease in the amounts due
to issuing banks for overdrawn accounts. Although increases in
accounts receivable are generally partially offset by increases
in amounts due to issuing banks for overdrawn accounts, during
the year ended July 31, 2009, we amended our agreement with
one of our issuing banks, expediting the settlement timing of
amounts due to them for overdrawn card accounts.
Our $35.0 million of net cash provided by operating
activities in fiscal 2008 resulted from $17.3 million of
net income, the adjustment for non-cash operating expenses of
$21.9 million (including $16.1 million for provisions
for uncollectible overdrawn accounts, $4.4 million for
depreciation and amortization and $1.2 million for
stock-based compensation), a $10.8 million increase in the
amounts due to issuing banks for overdrawn accounts, a
$4.7 million increase in accounts payable and accrued
liabilities, a $4.4 million increase in deferred revenue
and a $3.2 million increase in income taxes payable. These
were partially offset by a $24.7 million increase in
accounts receivable, a $2.8 million increase in deferred
expenses and a $2.3 million increase in prepaid expenses
and other assets.
Our $2.5 million of net cash provided by operating
activities in fiscal 2007 resulted from $4.6 million of net
income, the adjustment for non-cash operating expenses of
$8.8 million (including $7.9 million for provision for
uncollectible overdrawn accounts and $3.5 million for
depreciation and amortization, partially offset by a
$2.6 million deferred income tax benefit), a
$3.9 million increase in the amounts due to issuing banks
for overdrawn accounts and a $2.6 million increase in
accounts payable and accrued liabilities. These were partially
offset by an $11.0 million increase in accounts receivable,
a $4.5 million decrease in income taxes payable, a
$2.0 million decrease in deferred revenue.
Cash Flows
From Investing Activities
Net cash used in investing activities in the three months ended
October 31, 2009 consisted almost entirely of the purchase
of property and equipment of $2.2 million. Net cash used in
investing activities in fiscal 2009 consisted of the purchase of
property and equipment of $6.4 million related to expanding
our operations, including the development of internal-use
software, which we capitalized, and a $13.0 million
increase in restricted cash. In fiscal 2009, we renewed our line
of credit, which is used to fund timing differences between
funds remitted by our retail distributors to the banks that
issue our cards and funds utilized by our cardholders, and
elected to increase our restricted deposits to
$15.0 million at the lending institution as collateral in
order to reduce the commitment fees we would incur on this line
of credit. Net cash used in investing activities in fiscal 2007
and 2008 consisted primarily of the purchase of computer
hardware and software and the development of internal-use
software.
Cash Flows
From Financing Activities
Our $100,000 of net cash provided by financing activities for
the three months ended October 31, 2009 was entirely the
result of the exercise of stock options. Our $28.6 million
of net cash used in financing activities in fiscal 2009 was
primarily associated with the redemption in full of our
Series D redeemable preferred stock. We entered into an
agreement in December 2008 with the sole holder of these
securities to pay $39.2 million for an early redemption of
all outstanding shares of our Series D redeemable preferred
stock and the purchase of a call option on a common stock
warrant held by this stockholder. In June 2009, we exercised the
call option on the warrant for $2.0 million. We also
received proceeds of $13.0 million related to the issuance
of our
Series C-2
preferred stock in fiscal 2009. Net cash used in financing
activities in fiscal 2008 was primarily associated with
principal
48
payments on short-term debt of $2.4 million and net
repayments on our line of credit of $2.5 million, offset by
proceeds of $1.7 million from the exercise of options. Net
cash provided by financing activities in fiscal 2007 was
primarily associated with net borrowings on our line of credit
of $2.5 million, offset by principal payments on short-term
debt of $2.6 million. In fiscal 2007, we also issued
Series D redeemable preferred stock and a freestanding
warrant for total consideration of $20.0 million and used
the proceeds to repurchase $20.0 million of common and
preferred stock from our existing stockholders.
Contractual
Obligations and Commitments
Our contractual commitments will have an impact on our future
liquidity. The following table summarizes our contractual
obligations, including both on-and off-balance sheet
transactions that represent material expected or contractually
committed future obligations, at July 31, 2009. We believe
that we will be able to fund these obligations through cash
generated from operations and from our existing cash balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than 5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
4,911
|
|
|
|
1,692
|
|
|
|
2,932
|
|
|
|
287
|
|
|
|
|
|
Purchase obligations(1)(2)
|
|
|
601
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,512
|
|
|
$
|
2,293
|
|
|
$
|
2,932
|
|
|
$
|
287
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In September 2009, we renewed our processing services agreement
with our third-party card processor through September 2012. The
terms of this agreement include minimum monthly payments. In
October 2009, we amended an existing contract with one of our
retail distributors. The amendment calls for guaranteed payments
to the retail distributor. At October 31, 2009, the minimum
aggregate commitment under these agreements was as follows (in
thousands): |
|
|
|
|
|
Year Ending July 31,
|
|
|
|
|
2010
|
|
$
|
12,853
|
|
2011
|
|
|
16,883
|
|
2012
|
|
|
6,902
|
|
2013
|
|
|
125
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,763
|
|
|
|
|
|
|
In the event we terminate our processing services agreement for
convenience, we are required to pay a single lump sum equal to
any minimum payments remaining on the date of termination.
|
|
|
(2) |
|
In November 2009, we entered into a new agreement with an
existing card issuing bank. The terms of the agreement include
future minimum annual payments. The minimum aggregate commitment
under this agreement was (in thousands): |
49
|
|
|
|
|
Year Ending July 31,
|
|
|
|
|
2010
|
|
$
|
1,440
|
|
2011
|
|
|
1,920
|
|
2012
|
|
|
1,920
|
|
2013
|
|
|
640
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,920
|
|
|
|
|
|
|
Off-Balance Sheet
Arrangements
During 2007, 2008 and 2009, we did not have any relationships
with unconsolidated organizations or financial partnerships,
such as structured finance or special purpose entities that
would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes.
Critical
Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance
with GAAP. The preparation of our consolidated financial
statements requires our management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses and related
disclosures. We base our estimates on historical experience,
current circumstances and various other assumptions that our
management believes to be reasonable under the circumstances. In
many instances, we could reasonably use different accounting
estimates, and in some instances changes in the accounting
estimates are reasonably likely to occur from period to period.
Accordingly, actual results could differ significantly from the
estimates made by our management. To the extent that there are
differences between our estimates and actual results, our future
financial statement presentation, financial condition, results
of operations and cash flows will be affected. We believe that
the accounting policies discussed below are critical to
understanding our historical and future performance, as these
policies relate to the more significant areas involving
managements judgments and estimates.
Revenue
Recognition
We recognize revenue when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the product is
sold or the service is performed, and collectibility of the
resulting receivable is reasonably assured.
We defer and recognize new card fee revenues on a straight-line
basis over the period commensurate with our service obligation
to our customers. We consider the service obligation period to
be the average card lifetime. We determine the average card
lifetime for each pool of homogeneous products (e.g., products
that exhibit the same characteristics such as nature of service
and terms and conditions) based on company-specific historical
data. Currently, we determine the average card lifetime
separately for our GPR cards and gift cards. For our GPR cards,
we measure the card lifetime as the period of time, inclusive of
reload activity, between the activation date of a card and the
date of the last positive balance on that card. We analyze GPR
cards activated between six and forty-two months prior to each
balance sheet date. We use this historical look-back period as a
basis for determining our average card lifetime because it
provides sufficient time for meaningful behavioral trends to
develop. Currently, our GPR cards have an average card lifetime
of nine months. The usage of gift cards is limited to the
initial funds loaded to the card. Therefore, we measure these
gift cards lifetime as the redemption period over which
cardholders perform the substantial majority of their
transactions. Currently, gift cards have an average lifetime of
six months. Average card lifetimes may vary in the future as
cardholder behavior changes relative to historical experience as
customers are influenced by changes in the pricing of our
services, the availability of substitute products, and other
factors.
50
We also defer and expense commissions paid to retail
distributors related to new card sales ratably over the average
card lifetime, which is currently nine months for our GPR cards
and six months for gift cards.
We report our different types of revenues on a gross or net
basis based on our assessment of whether we act as a principal
or an agent in the transaction. To the extent we act as a
principal in the transaction, we report revenues on a gross
basis. In concluding whether or not we act as a principal or an
agent, we evaluate whether we have the substantial risks and
rewards under the terms of an arrangement, whether we are the
party responsible for fulfillment of the services purchased by
the cardholders, and other factors. For all of our significant
revenue arrangements, including GPR and gift cards, we recognize
revenue on a gross basis.
Generally, customers have limited rights to a refund of the new
card fee or a cash transfer fee. We have elected to recognize
revenues prior to the expiration of the refund period, but
reduce revenues by the amount of expected refunds, which we
estimate based on actual historical refunds.
Reserve for
Uncollectible Overdrawn Accounts
Cardholder account overdrafts arise from fee assessments or from
purchase transactions that we honor, in each case in excess of
the funds in the cardholders account. We are responsible
to our issuing banks for any losses associated with these
overdrafts. Overdrawn account balances are therefore deemed to
be our receivables due from cardholders. Our card issuing banks
fund the overdrawn accounts on our behalf, and we settle our
obligations to them with respect to cardholder account
overdrafts based on the terms specified in their agreements with
us. We generally recover overdrawn account balances for some
cardholders when a customer performs a reload transaction. In
some cases, purchase transaction overdrafts are recovered
through enforcement of the payment network rules, which allow us
to recover the amounts from the merchant where the purchase
transaction was conducted.
We are exposed to losses from unrecovered cardholder account
overdrafts. We establish a reserve for uncollectible overdrawn
accounts for both fees assessed and purchase transactions in
excess of a cardholders account balance. The reserve for
uncollectible overdrawn accounts represents our estimate of the
portion of these receivables that will not be recovered. We base
our estimate of the reserve upon historical overdraft recovery
rates and our judgment regarding the overall adequacy of the
reserve. We believe our historical recovery rates are predictive
of future events because these rates have remained consistent
for several years. Our recovery rates may change in the future
in response to factors such as the pricing of reloads and new
cards and the availability of substitute products.
When a cardholder account has more than 90 days of
inactivity, we consider the probability of recovery to be remote
and we write off the full amount of the overdrawn account
balance. We include our provision for uncollectible overdrawn
accounts related to fees as an offset to card revenues in our
consolidated statements of operations. We include our provision
for uncollectible overdrawn accounts related to purchase
transactions as other general and administrative expenses in our
consolidated statements of operations.
Stock-Based
Compensation
Effective August 1, 2006, we adopted a new accounting
standard related to stock-based compensation. We adopted the new
standard using the prospective transition method, which required
us to recognize compensation expense on a prospective basis for
stock options and stock awards granted, modified, repurchased or
cancelled on or after August 1, 2006. We record
compensation expense using the fair value method of accounting.
For stock options, we base compensation expense on the option
fair values estimated at the grant date using the Black-Scholes
option-pricing model. For other stock awards, we base
compensation expense on the per share fair value of the stock
estimated at the grant date. We recognize compensation expense
for awards with only service conditions that have graded vesting
schedules on a straight-line basis over their respective vesting
periods. Vesting is based upon continued service to our company.
51
Determining the fair value of stock options requires the use of
highly subjective assumptions, including the expected term of
the option award and our expected stock price volatility. Our
assumptions, with respect to grants during the past twelve
months shown by grant date in the table below, represent our
best estimates, but these estimates involve inherent
uncertainties and the application of judgment. If factors change
and, as a result, we use different assumptions, our stock-based
compensation could be materially different in the future.
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Expected
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Term of
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Risk-Free
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Option
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Expected
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Expected Stock
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Interest Rate
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(in Years)
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Dividends
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Price Volatility
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March 19, 2009
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1.9
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%
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6.08
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56.0
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%
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June 9, 2009
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3.1
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6.08
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57.0
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August 3, 2009
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2.9
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6.08
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56.0
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November 2, 2009
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2.5
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6.08
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46.0
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February 4, 2010
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2.6
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6.08
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52.0
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The following table summarizes information by grant date for the
stock options that we granted during the preceding
12 months:
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Per Share
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Per Share Estimated
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Number of
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Fair Value of
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Weighted Average
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Shares Subject to
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Per Share Exercise
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Our Common
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Fair Value of
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Options Granted
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Price of Options
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Stock
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Options
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March 19, 2009
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50,000
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$
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10.84
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$
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10.84
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$
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5.83
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June 9, 2009
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85,800
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15.65
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15.65
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8.80
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August 3, 2009
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127,500
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17.19
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17.19
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9.62
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November 2, 2009
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1,261,750
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20.01
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20.01
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9.47
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February 4, 2010
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130,500
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25.00
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25.00
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12.98
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Additionally, in December 2009, we granted a 257,984 share
common stock award. The grant date fair value of our common
stock at the date of this award was $20.01 per share.
On each of the above dates, we granted our employees stock
options at exercise prices equal to the estimated fair value of
the underlying common stock, as determined by our board of
directors with input from management and an independent
valuation firm on a contemporaneous basis. Because there was no
public market for our common stock, our board of directors
determined the fair value of our common stock by considering a
number of objective and subjective factors including:
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the per share value of any recent preferred stock financing and
the amount of convertible preferred stock liquidation
preferences;
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any third-party trading activity in our common stock or
preferred stock;
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the illiquid nature of our common stock, including the
opportunity for any future liquidity events;
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our current and historical operating performance and current
financial condition;
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our operating and financial projections;
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our achievement of company milestones;
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the stock price performance of a peer group comprised of
selected publicly-traded companies identified as being
comparable to us; and
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economic conditions and trends in the broad market for stocks.
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Our board of directors considered and applied these and other
factors in determining the fair value of our common stock on
each stock option grant date. We have used these fair market
valuations to estimate the fair value of our common stock on the
date of grant and in calculating our stock-based compensation
expense. Our valuations for each grant date in the past
12 months are described in detail below.
52
Stock Option Grants on March 19, 2009. On
December 19, 2008, we issued 1,181,816 shares of
Series C-2
convertible preferred stock at a price of $11.00 per share and
we redeemed 2,926,458 shares of Series D convertible
preferred stock at a price of $13.38 per share.
We completed a valuation analysis using two equity allocation
methods − the option-pricing method, or OPM, and the
probability-weighted expected returns method, or
PWERM − to derive values for our preferred stock, our
common stock and the overall enterprise.
The value of each security and the enterprise was determined in
the OPM relative to the proposed sale price of our
Series C-2
convertible preferred stock. In the OPM, the value of each
security was determined using the Black-Scholes formula,
assuming a time to liquidity of 2.8 years, an asset
volatility of 50%, and a risk-free interest rate commensurate
with the estimated time to liquidity of 1.2%. Because the
Series D convertible preferred stock contained unique and
complex redemption features that increased the difficulty and
subjectivity in determining its value, we considered its
redemption value to be less reliable as an input into the OPM in
deriving an overall enterprise value.
We also utilized a PWERM that contemplated two
scenarios − a remain-private scenario and a future
liquidity event scenario. We derived our value under the
remain-private scenario by discounting projected future cash
flows to their present value as of the grant date using a 20.0%
discount rate. This rate was determined based on an estimated
weighted-average cost of capital derived from our estimated cost
of equity, our after-tax cost of debt, and the
debt-to-equity
ratio implied by the valuation. Our cost of capital was based on
publicly available information for companies in lines of
business that are the same or similar to ours.
We estimated high and low future enterprise values under the
PWERM future liquidity event scenario using high- and low-case
financial projections and market-based valuation multiples
derived from publicly traded peer group companies, transactions
involving businesses that are similar to our company, and
valuation multiples implied by the issuance of
Series C-2
preferred stock. We allocated the future enterprise values to
options, warrants and various series of preferred stock based on
their future liquidation preferences or conversion values,
whichever would be greater, and allocated the remainder to our
common stock. The allocated value was discounted to present
value at the grant date. In the final analysis, we weighted the
remain-private and future liquidity event scenarios equally as
the likelihood of either scenario was difficult to forecast with
reliability. We weighted the value indications determined under
the low- and high-case cash flow projections by 75.0% and 25.0%,
respectively. We weighted the indications of the fair value of
our common stock under the two equity allocation
methods − OPM and PWERM − 75.0% and 25.0%,
respectively, because of the level of subjectivity inherent in
the PWERM as a result of the continued turmoil in the public and
private markets and the uncertainty at the time as to when a
potential liquidity event could occur for our company.
Based on this analysis, our board of directors determined that
the estimated fair value of our common stock at March 19,
2009 was $10.84 per share on a minority, nonmarketable basis.
Stock Option Grants on June 9, 2009. For
the June 9, 2009 valuation, we determined that the
uncertainty surrounding the timing of a liquidity event had
increased the level of subjectivity in the PWERM to the point
where that methodology was no longer considered appropriate.
Therefore, we utilized only the OPM equity allocation method.
We calculated values for our securities in the OPM using the
Black-Scholes formula, assuming a time to liquidity of
2.6 years, an asset volatility of 55.0%, and a risk-free
interest rate commensurate with the estimated time to liquidity
of 1.3%. We continued to estimate the enterprise value by
discounting high- and low-case cash flow projections to present
value as of the grant dates using a 20.0% discount rate and
through the application of valuation multiples derived from
publicly traded companies engaged in lines of business that were
the same or similar to ours. Although we continued to weigh the
low- and high-case cash flow projections by 75.0% and 25.0%,
respectively, as of June 9, 2009, the enterprise value
increased as progress toward attaining the high cash flow
projections was made. Additionally, the value implied by the
public company guideline methodology increased due to
improvement in valuation multiples from increasing stock prices
for our peer group public companies.
53
Based on this analysis, our board of directors determined that
the estimated fair value of our common stock at March 19,
2009 was $15.65 per share on a minority, nonmarketable basis.
Stock Option Grants on August 3,
2009. For the August 3, 2009 valuation, we
continued to use only the OPM with the Black-Scholes formula to
calculate the value of our securities, assuming a time to
liquidity of 2.4 years, an asset volatility of 56.0%, and a
risk-free interest rate commensurate with the estimated time to
liquidity of 1.2%.
Continued progress toward the high-case cash flow scenario and
continued improvements in our peer group public company market
factors were reflected in the underlying enterprise value,
resulting in an increase in the estimated fair value of our
common stock value relative to the prior grant date.
Based on this analysis, our board of directors determined that
the estimated fair value of our common stock at August 3,
2009 was $17.19 per share on a minority, nonmarketable basis.
Stock Option Grants on November 2,
2009. In October 2009, certain existing and
third-party investors entered into a tentative agreement,
whereby the investors extended an offer to purchase
3,250,000 shares of our common stock, at a price of $20.05
less applicable selling fees, directly from our existing
stockholders. On November 9, 2009, the offering closed and
existing stockholders sold 3,000,000 shares of our common
stock at a price of $20.01 per share.
Our board of directors considered the offering to be the most
reliable estimate of the fair value of our common stock given
that the transaction was an orderly purchase and sale among
parties that had reasonable knowledge of relevant facts and that
were not under any compulsion to buy or sell the securities.
Based on these facts, our board of directors determined that the
estimated fair value of our common stock at November 2,
2009 was $20.01 per share on a minority, nonmarketable basis.
Stock Option Grants on February 4,
2010. In December 2009, an existing stockholder
transferred 400,000 shares of Series C and C-1
preferred stock for consideration of $25.00 per share to another
existing stockholder. Our board of directors considered this
transaction to be a reliable estimate of the fair value of our
common stock given that the transaction was an orderly purchase
and sale among parties that had reasonable knowledge of relevant
facts and that were not under any compulsion to buy or sell the
securities. Additionally, the liquidation preference of
Series C and C-1 preferred stock sold was equal to $1.07
per share. Relative to the purchase price of $25.00, the
preferred stock conversion option value was deeply
in-the-money
and implied no premium over common stock.
Based on these facts, our board of directors determined that the
estimated fair value of our common stock at February 4,
2010 was $25.00 per share on a minority, nonmarketable basis.
Recent Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
approved the Accounting Standards Codification, or ASC, as the
single source of authoritative accounting and reporting
standards for all nongovernmental entities, with the exception
of guidance issued by the SEC and its staff. The FASB ASC is
effective for interim or annual periods ending after
September 15, 2009. All existing accounting standards have
been superseded, and all accounting literature not included in
the FASB ASC is considered non-authoritative. Our adoption of
FASB ASC did not have an impact on our consolidated financial
statements because it only amends the referencing to existing
accounting standards.
In May 2009, the FASB issued a new standard for disclosing
events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued.
Additionally, the standard requires companies to disclose
subsequent events as defined in the standard and to disclose the
date through which we have evaluated subsequent events. The
standard is effective for interim and annual periods ending
after June 15, 2009. Our adoption of the standard did not
have a material impact on our consolidated financial statements.
See note 16 of our notes to consolidated financial
statements.
54
In April 2009, the FASB issued a new accounting standard that
requires us to include fair value disclosures of financial
instruments for each interim and annual period for which
financial statements are prepared. Our adoption of the standard
did not have a material impact on our consolidated financial
statements. See note 8 of our notes to consolidated
financial statements.
In June 2008, the FASB issued a new accounting standard on
determining whether instruments granted in share-based payment
transactions are participating securities prior to vesting and
therefore need to be included in the earnings allocation in
calculating earnings per share under the two-class method.
Unvested share-based payment awards that have non-forfeitable
rights to dividend or dividend equivalents are treated as a
separate class of securities in calculating earnings per share.
The standard is effective for fiscal years beginning after
December 15, 2008; earlier application was not permitted.
Our adoption of the standard did not have a material effect on
our results of operations or earnings per share.
Quantitative and
Qualitative Disclosures About Market Risk
Market risk is the potential for economic losses from changes in
market factors such as foreign currency exchange rates, credit,
interest rates and equity prices. We believe that we have
limited exposure to risks associated with changes in foreign
currency exchange rates, interest rates and equity prices. We
have no foreign operations, and we do not transact in foreign
currencies. We do not hold or enter into derivatives or other
financial instruments for trading or speculative purposes. We do
not consider our cash and cash equivalents to be subject to
interest rate risk due to their short periods of time to
maturity.
We do have exposure to credit risk associated with the financial
institutions that hold our cash, cash equivalents and restricted
cash and our settlement assets due from our retail distributors
that collect funds and fees from our customers. We manage the
credit risk associated with our cash and cash equivalents by
maintaining an investment policy that limits investments to
highly liquid funds with certain highly rated financial
institutions. Our policy also limits the investment
concentration that we may have with a single financial
institution. We monitor compliance with our investment policy on
an ongoing basis, including quarterly communication with our
audit committee.
We also have exposure to credit risk associated with our retail
distributors, but that exposure is limited due to the short time
period, currently an average of three days, that the retailer
settlement asset is outstanding. We perform an initial credit
review of each new retail distributor prior to signing a
distribution agreement with it, and then monitor its financial
performance on a periodic basis. We monitor each retail
distributors settlement asset exposure and its compliance
with its specified contractual settlement terms on a daily basis.
55
BUSINESS
Overview
Green Dot is a leading prepaid financial services company
providing simple, low-cost and convenient money management
solutions to a broad base of U.S. consumers. We believe
that we are the leading provider of general purpose reloadable
prepaid debit cards in the United States and that our Green Dot
Network is the leading prepaid reload network in the United
States. We sell our cards and offer our reload services
nationwide at approximately 50,000 retail stores, which provide
consumers convenient access to our products and services. Our
proprietary technology platform, Green PlaNET, enables real-time
transactions in a secure environment. The combination of our
innovative products, broad retail distribution and proprietary
technology creates powerful network effects, which we believe
enhance the value we deliver to our customers, retail
distributors and other participants in our network.
We have designed our products and services to appeal primarily
to consumers living in households that earn less than $75,000
annually across the following four segments:
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Never-banked households in which no one has ever had
a bank account;
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Previously-banked households in which at least one
member has previously had a bank account, but no one has one
currently;
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Underbanked households in which at least one member
currently has a bank account, but that also use non-bank
financial service providers to conduct routine transactions like
check cashing or bill payment; and
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Fully-banked households that primarily rely on
traditional financial services.
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We were an early pioneer in the development of prepaid financial
services in the United States. In May 2001, we sold our first
basic prepaid card with simple loading and spending
functionality targeted at low income and never-banked consumers.
As we have grown and our technological capabilities have
increased, we have broadened our offerings and their
functionality to provide consumers access to products and
services with a more comprehensive set of features. These
products and services now also appeal to more affluent
underbanked and fully-banked consumers who do not feel well
served by and cannot justify the cost and complexity of
traditional banking products and payment cards, have limited
access to credit, or find traditional bank policies and fee
schedules ill-suited to their needs.
We believe we are the leading provider of GPR cards in the
United States. GPR cards are designed for general spending
purposes and can be used anywhere the cards applicable
payment network, such as Visa or MasterCard, is accepted. Unlike
gift cards, GPR cards are reloadable for ongoing, long-term use
and require the completion of various identification,
verification and other USA PATRIOT Act-compliant processes
before a cardholder relationship can be established. As of
October 31, 2009, we had approximately 2.4 million
active cards, that is, cards that had had at least one purchase
transaction, reload transaction or ATM withdrawal during the
previous
90-day
period. In fiscal 2009, the gross dollar volume loaded on our
cards was $4.7 billion, an increase of 66% over fiscal 2008.
We distribute our products and services at the retail locations
of large national and regional chains throughout the United
States and through the Internet. We have built strong
distribution and marketing relationships with many significant
retail chains including Walmart, Walgreens, CVS, Rite Aid,
Kroger, Radio Shack, Kmart, Meijer and 7-Eleven. We market our
products under our Green Dot brand and through a number of
co-branded GPR card programs that we operate for retailers and
other business entities.
We believe the Green Dot Network is the leading reload network
for prepaid cards in the United States. Consumers can purchase
our MoneyPak product at any retail location to reload cash onto
our cards or cards issued under more than 100 third-party
programs. Furthermore, PayPal has recently become a Green Dot
Network acceptance member, enabling PayPal customers to use a
MoneyPak to fund a new or existing PayPal account.
56
Our centralized technology platform, Green PlaNET, connects all
network participants, which include consumers, retail
distributors and businesses that accept reloads or payments
through the Green Dot Network, enabling real-time transactions
across the Green Dot Network through a single and secure point
of integration and connectivity. This enables us to develop,
distribute and support a variety of products and services
effectively. Green PlaNET contains a variety of proprietary
software applications, which run our front-end, back-end,
anti-fraud, regulatory compliance and customer service
processing systems.
For the years ended July 31, 2007, 2008 and 2009 and the
three months ended October 31, 2009, our total operating
revenues were $83.6 million, $168.1 million,
$234.8 million and $66.3 million, respectively. In the
same periods, we generated operating income of
$1.2 million, $29.2 million, $63.7 million and
$17.9 million, respectively.
Industry
Background
New technologies and product innovations have expanded the
way financial services are sold and used.
Over the past 40 years, technological advances in
telecommunications, software and data processing have spurred
innovations both in the types of financial products and services
that are available and in the ways that they are distributed in
the marketplace and used by consumers. Innovations such as ATMs
and the Internet have enhanced consumers access to their
demand deposit accounts, while innovations such as credit, ATM
and debit cards and electronic checks have permitted new methods
of payment each providing consumers with
alternatives to cash and traditional financial products and
services that offer greater convenience and ease.
These innovations contributed to an increase of approximately
78% in the number of electronic payment transactions in the
United States from 2000 to 2005 and, we believe, are a major
reason that electronic payment transactions have represented the
majority of all payment transactions annually since 2005. Over
the past few years, a new series of innovative products and
technologies have been increasingly adopted. Certain products,
such as prepaid cards, prepaid electronic wallets and prepaid
mobile payments, are enabling the distribution of fast, safe and
low-cost alternative financial services in non-bank locations.
Prepaid cards represent a large and rapidly growing
segment within the electronic payments industry.
Prepaid cards have emerged as an attractive product within the
electronic payments industry. They are easy for consumers to
understand and use because they work in a manner similar to
traditional debit cards, allowing the cardholder to use a
conventional plastic card linked to an account established at a
financial institution. The consumer determines the cards
spending limit by adding money directly to the account, and can
reload the card with additional funds as needed. The consumer
can access the funds on the card at ATMs
and/or the
point of sale in retail locations using signature identification
technologies or a personal identification number. Prepaid cards
and related services offer consumers tremendous flexibility,
convenience and spending control. The Mercator Advisory Group
estimates that the total load volume in the United States for
prepaid cards, excluding single merchant, or closed
loop, cards, will grow at a 48.3% compound annual growth
rate from 2008 to 2012 and exceed $291 billion in 2012. We
believe this rapid growth results from improving underlying
technology, increasing adoption by a broader group of consumers,
increasing convenience, declining costs and increasing product
choices and capabilities that prepaid cards offer. Visa Inc.
estimates that the U.S. prepaid opportunity, defined as the
total dollars spent by the total estimated prepaid card target
audience, was $2.03 trillion in 2009, and that 56% of this
amount could potentially have been loaded on U.S. prepaid
cards in 2009.
Prepaid cards and related services are currently offered
by a wide array of specialized and partially integrated
vendors.
Although many large and well-established vendors provide
elements of prepaid cards and related services, the prepaid card
industry is fragmented. Vendors generally do not have a broad
set of product
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and service offerings or capabilities, and no single vendor
currently provides all of the elements that are necessary to
establish and operate a prepaid card program. Existing vendors
include:
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Issuing Banks Banks that are authorized by
payment networks to issue cards and that provide accounts to
hold deposits. Many issuing banks also manage settlement and
provide risk management services. A banks participation in
a prepaid card program can range from actively managing and
marketing the card program to providing passive sponsorship into
payment networks.
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Payment Networks companies, such as Visa and
MasterCard, that facilitate
point-of-sale
card acceptance, provide purchase and withdrawal transaction
routing and processing between merchant acquirers and card
issuing banks, perform certain clearing and settlement functions
and provide marketing and support services to card issuing
banks. Payment networks also establish network rules and
establish processing and security standards and customer
protections to which all participating members must adhere.
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Processors technology vendors that provide
connectivity to payment networks, maintain account balances, and
authorize purchase and withdrawal transactions. Many processors
provide additional services, including card activation and
customer service, and develop
and/or
integrate value-added cardholder applications such as online
bill payment, microlending and mobile payment services.
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Program Managers specialized vendors that
design, manage, market and operate prepaid card programs.
Prepaid card program managers may provide a range of services or
delegate that provision to other specialized vendors, such as
issuing banks, processors and distributors, and collaborate with
them as these programs are implemented. Prepaid card program
managers may also negotiate the allocation of fees and risk
management with all vendors involved in a particular prepaid
card program.
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Distributors organizations, such as
retailers, remittance vendors, tax preparers, check cashers,
payday lenders, card resellers and employers, that distribute
cards through various sales channels and may also manage
inventory fulfillment and provide
point-of-sale
integration and technology.
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Reload Networks vendors that provide products
and services, connectivity, technology and integration, which
enable
point-of-sale
locations to accept cash payments and associate those payments
with a specific account. These vendors also provide transaction
routing and processing between the point of sale and the
destination of the fund transfer. A small number of reload
networks have proprietary brands, acceptance locations and
technology, while most take advantage of the brands, technology
and
point-of-sale
relationships of other third-party vendors.
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Prepaid financial services is a large and rapidly growing
segment within the prepaid card industry.
Prepaid financial services, which includes GPR cards and
associated reload services, is currently among the largest and
fastest-growing segments within the prepaid card industry. The
GPR card category has benefited from the expanding breadth of
applications for GPR cards and the ease with which they can be
acquired. According to Mercator Advisory Groups
Prepaid Market Forecast 2009 to 2012 research
report, $8.7 billion was loaded onto GPR cards in the
United States in 2008 and $118.5 billion was loaded onto
GPR cards in the United States in 2012, reflecting a 92%
compound annual growth rate during that four-year period. We
believe increasing growth in the use of GPR cards will
contribute to a substantial increase in the demand for related
services, including reload services.
Prepaid financial services are evolving as providers
develop new ways of offering financial services.
The products offered by prepaid financial service providers are
relatively early in their lifecycles. We believe that the
flexibility, accessibility and low cost of prepaid financial
services will lead to many new, attractive payment applications
outside of traditional banking channels. By virtue of their
broad acceptance and the flexibility they provide, GPR cards
offer safe, reliable, low-cost financial services
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to a broad spectrum of U.S. consumers who do not feel well
served by and cannot justify the cost of traditional banking
products.
Our Competitive
Strengths
Our combination of innovative products and marketing expertise,
a known brand name, a nationwide retail distribution presence
and a proprietary technology platform supports our network-based
business model and has enabled us to become a leading provider
of prepaid financial services in the United States. Our
strengths include:
Innovative
Product and Marketing Expertise
We are an innovator in the development, merchandising and
marketing of prepaid financial services. Our consumer focus has
helped us to develop solutions for people who, prior to the
existence of our products, either had to settle for an
ill-suited banking relationship or, more often, simply opted out
of the financial mainstream and resorted to using check cashers,
payday lenders and cash. We believe we were the first company to
combine the products, technology platform and distribution
channel required to make retailer-distributed GPR cards a viable
product offering. We subsequently built our reload network, and
have recently expanded it to facilitate cash loading of online
accounts like PayPal. We also successfully incorporated
traditional bank account style online bill pay on
our GPR cards and launched a large-scale instant
issue program, whereby the Visa or MasterCard-branded GPR
card is enclosed in the package on the in-store display. Our
consumer focus has also led us to enhance the packaging and
product displays in retail locations to educate consumers and
promote our products and services more efficiently. In addition,
we believe we have the strongest brand in the prepaid financial
services industry, and we continue to build brand awareness
using national television advertising.
Leading Retail
Distribution
We have established a nationwide retail distribution network,
consisting of approximately 50,000 retail store locations, which
gives us access to the vast majority of the
U.S. population. According to Scarborough Research, during
the twelve months ended October 31, 2009, at least 93% of
U.S. households shopped at one or more of the stores of our
current retail distributors. We have built distribution
relationships with Walmart, CVS and Kroger, three of the five
largest retailers in the United States, and major chains like
Walgreens, Rite Aid, Radio Shack, Kmart, Meijer and 7-Eleven. In
general, our contracts with retail distributors provide us with
exclusivity relating one or more of the following: reloading GPR
cards, selling GPR cards in their stores and providing specific
co-branded card programs.
Establishing distribution relationships requires significant
investments, complex integrations and large support
infrastructures from providers and distributors. As a result, we
believe our broad and established retail distribution network
serves as one of our key competitive advantages and a
significant barrier to entry for potential competitors.
Leading Reload
Network in the United States
We believe the Green Dot Network is the leading reload network
for prepaid cards in the United States. By purchasing our
MoneyPak reload products at any of our distributors retail
locations, consumers can access the Green Dot Network and use it
for a wide variety of transactions, including cash loading onto
prepaid cards and PayPal accounts. Although a substantial
majority of the transactions on our reload network are
associated with our cards, the transaction volume from
third-party card portfolios has grown significantly as over 100
third-party prepaid programs now use the Green Dot Network for
card reloading services. Recent innovations, like our
relationship with PayPal, have also expanded our transaction
volume and consumers familiarity with the Green Dot brand.
While our reload network today is used primarily for cash
loading of prepaid cards and cash loading of PayPal accounts, we
believe that it can be expanded and adapted to many new and
evolving applications in the electronic payments industry.
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Proprietary
Technology Platform
Green PlaNET, our centralized technology platform, enables our
network participants to engage in real-time transactions across
the Green Dot Network and enables the effective development,
distribution and support of a variety of products and services.
Green PlaNET contains a variety of proprietary software
applications that run our front-end, back-end, anti-fraud,
regulatory compliance and customer service processing systems.
Green PlaNET gives us the ability to centrally develop and
distribute product applications, manage customer accounts,
authorize, process and settle transactions, enable security and
regulatory compliance, and provide customer services through the
Internet, IVR, call centers, mobile applications and email. In
addition, Green PlaNET enables network participants to easily
communicate and complete transactions, such as card purchases,
reloads and bill payments, across our network using a variety of
services and
point-of-sale
technologies, and is a central component of our network-based
business model.
Business Model
with Powerful Network Effects
The combination of our broad group of products and services,
large portfolio of active cards, nationwide footprint of retail
distributors and proprietary technology platform creates
powerful network effects. Growth in the number of products and
services that we offer or in the number of network participants
enhances the value we deliver to all network participants. For
example, we are able to attract retail distributors because of
the large number of consumers who actively use our reload
network. This network effect helps us continue to grow our
cardholder base and expand our business. We believe the breadth
and depth of our network would be difficult to replicate and
represents a significant competitive advantage, as well as a
barrier to entry for potential competitors.
Vertical
Integration
We believe that we are more vertically integrated than our
competitors, based on our distribution capabilities, processing
platform, program management skills and proprietary reload
network. This integration has allowed us to reduce costs across
our operations, and we expect it will continue to provide us
with opportunities to reduce operational costs in the future. It
also enables us to scale our business quickly in response to
rising demand and to ensure high-quality service for our
customers.
Strong
Regulatory and Compliance Infrastructure
We employ a proactive approach to licensing, regulatory and
compliance matters, which we believe provides us with an
important competitive advantage. We maintain an ongoing dialogue
with the various governmental authorities that oversee the
prepaid financial services industry. We believe that our
pro-consumer orientation and regulatory focus have enabled us to
develop strong relationships with leading retailers and
financial institutions and have also prepared us well for
changes in the regulatory environment.
Our Strategy for
Growth
The key components of our strategy include:
Increasing the
Number of Network Participants
We intend to enhance the network effects in our business model
by:
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Attracting new users by introducing new products, improving
current products to address consumers current and evolving
needs, and building demand for our offerings through promotions;
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Expanding and strengthening our distribution by establishing
relationships with additional high-quality retail chains,
increasing online distribution of our products and accelerating
our entry into new distribution channels, including
collaborating with third-party service providers, such as
electronic tax preparation providers; and
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Adding network acceptance members to and applications for the
Green Dot Network by continuing to enroll additional third-party
prepaid card program providers that want to offer their
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cardholders access to our reload network and to identify
additional uses for our reload networks cash transfer
technology.
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Increasing
Revenue per Customer
We intend to pursue greater revenue per customer by improving
cardholder retention, increasing card usage and cross-selling
complementary products and services. Our historical card usage
patterns suggest that consumers who reload additional funds onto
their cards within three months of activation tend to have
significantly higher levels of transaction activity and generate
more cash transfer and interchange revenues for us than those
who do not. Therefore, we intend to target improved cardholder
retention by offering incentives, such as fee waivers for
specified reload amounts or activities, to encourage cardholders
to reload additional funds onto their cards and extend their
relationships with us. We also intend to add new services, such
as additional reload options and new mobile applications that
enable convenient use of our products and services, to make our
products more valuable to consumers.
Improving
Operating Efficiencies
We intend to leverage our growing scale and vertical integration
to generate incremental operating efficiencies. As we continue
to expand our business operations, we plan to reduce our
marginal operating costs by continuing to implement rigorous
cost-containment programs, purchase vendor services from
low-cost providers and reduce the use of outsourced services
that can be provided internally at lower cost. For example, we
intend to improve our self-service offerings so that customers
can obtain automated customer service through our website, IVR
or mobile applications. Additionally, some of our current vendor
agreements include pricing structures that call for reduced
pricing as our customer usage volumes grow. These cost savings
will provide us with the flexibility to engage in new marketing
programs, reduce pricing and make other investments in our
business to maintain our leadership position.
Broadening
Brand and Product Awareness
We intend to broaden awareness of the Green Dot brand, which we
believe is the leading national brand in prepaid financial
services, and of our products and services through national
television advertising, online advertising and ongoing
enhancements to our packaging and merchandising. We plan to
reinforce and strengthen perceptions of the key attributes of
the Green Dot brand, which we believe are trust, security,
convenience and simplicity. We also will continue to educate
consumers, retail distributors and network acceptance members on
the functionality, convenience and cost advantages of our
products and services.
Acquiring
Complementary Businesses
We intend to pursue acquisitions that will help us achieve our
strategic objectives. We intend to acquire companies that have
the potential to enhance the distribution of our products and
services through either existing or new channels. We also intend
to pursue acquisitions that have the potential to augment the
features and functionality of our existing products and services
or to provide complementary products and services that can be
sold through our existing distribution channels. There are many
prepaid financial services providers and the market remains
fragmented, which we believe will provide us with acquisition
opportunities over time.
Our Bank
Acquisition Strategy
In February 2010, we entered into a definitive agreement to
acquire a bank holding company and its subsidiary commercial
bank, and filed applications with the appropriate federal and
state regulators seeking approvals for this transaction. This
acquisition is subject to standard closing conditions, including
regulatory approval. Upon consummation of the acquisition, we
will become a bank holding company regulated by the Federal
Reserve Board. While there can be no assurance that we will
obtain these approvals or our bank acquisition will close, we
currently expect to complete this acquisition in the second or
third quarter of calendar 2010.
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We believe that acquiring a bank charter will enable us to
(i) offer consumers FDIC-insured transactional accounts,
(ii) issue prepaid card and debit card products linked to
those transactional accounts, (iii) offer other types of
deposit products, such as savings accounts, and
(iv) provide settlement services for our reload network.
We believe that this acquisition will provide the following
strategic benefits:
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increase our efficiency in introducing and managing potential
new products and services, which are more difficult to
accomplish with multiple unaffiliated card issuing banks;
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reduce the risk that we would be negatively impacted by one of
the banks that issue our cards changing its business practices
as a result of, among other things, a change of strategic
direction, financial hardship or regulatory developments;
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reduce the sponsorship and service fees and other expenses that
we incur each year to the third-party banks that issue our
cards, and correspondingly increase funds available to us to
spend on other aspects of our business, including the ability to
invest in further reducing consumer pricing; and
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further increase the degree to which our operations are
integrated and provide increased control over our operations.
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Our Business
Model
Our business model focuses on four major elements: our
consumers; our distribution; our products and services; and our
proprietary technology, which provides functionality for and
connectivity to the Green Dot Network and is the platform that
brings the other three elements together.
Our
Consumers
We have designed our products and services to appeal primarily
to consumers living in households that earn less than $75,000
annually across the following four segments:
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Never-banked households in which no one has ever had
a bank account;
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Previously-banked households in which at least one
member has previously had a bank account, but no one has one
currently;
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Underbanked households in which at least one member
currently has a bank account, but that also use non-bank
financial service providers to conduct routine transactions like
check cashing or bill payment; and
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Fully-banked households that primarily rely on
traditional financial services.
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Based on data from the FDIC, the Federal Reserve Bank, the
U.S. Census and the Center for Financial Services
Innovation and our proprietary data, we believe these four
segments collectively represent an addressable market of
approximately 160 million people in the United States. We
believe that we currently have a significant number of customers
in each of these segments.
Customers in different segments tend to purchase and use our
products for different reasons and in different ways. For
example, we believe never-banked consumers use our products as a
safe controlled way to spend cash and as a means to access
channels of trade, such as online purchases, where cash cannot
be used. We believe previously-banked consumers use our products
as a convenient and affordable substitute for a traditional
checking account by depositing payroll checks (via direct or
in-store deposit) into a Green Dot GPR card account and use our
products to pay bills, shop online, monitor spending and
withdraw cash from ATM machines.
We believe underbanked consumers use our products in ways
similar to those of the never- and previously-banked segments,
but additionally view our products as a credit card substitute.
For example, underbanked consumers use our products to make
purchases at physical and online merchants, book travel
arrangements and guarantee reservations. We believe fully-banked
consumers use our products as companion products to their bank
checking account, segregating funds into separate accounts for a
variety of uses. For example, fully-banked consumers often use
our cards to
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shop on the Internet without providing their bank debit card
account information online. These consumers also use our
products to control spending, designate funds for specific uses,
prevent overdrafts in their checking accounts, or load funds
into specific accounts, such as a PayPal account.
Our
Distribution
We achieve broad distribution of our products and services
through our retail distributors, the Internet and relationships
with other businesses, such as Intuit. In addition our network
acceptance members encourage their customers to use our prepaid
financial services.
Retail Distributors. Our prepaid financial
services are sold in approximately 50,000 retail stores,
including those of major national mass merchandisers, national
and regional drug store and convenience store chains, and
national and regional supermarket chains. Our retail
distributors include:
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Type of Distributor
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Representative Distributors
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Mass merchandise retailers
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Walmart, Kmart, Meijer
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Drug store retailers
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Walgreens, CVS, Rite-Aid, Duane Reade
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Convenience store retailers
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The Pantry (Kangaroo Express), 7-Eleven
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Supermarket retailers
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Kroger
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Other
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RadioShack
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Most of these retailers have been our distributors for several
years and all have contracts with us, subject to termination
rights, that expire at various dates from 2011 to 2013. In
general, our agreements with our retail distributors give us the
right to provide Green Dot-branded
and/or
co-branded GPR cards and reload services in their retail
locations and require us to share with them by way of
commissions the revenues generated by sales of these cards and
reload services. We and the retail distributor generally also
agree to certain marketing arrangements, such as promotions and
advertising. Our operating revenues derived from products and
services sold at the store locations of our four largest retail
distributors (Walmart, Walgreen, CVS and Rite Aid) represented
the following percentages of our total operating revenues:
approximately 3%, 22%, 19% and 17%, respectively, for the year
ended July 31, 2007, 39%, 17%, 13% and 11%, respectively,
for the year ended July 31, 2008, 56%, 11%, 9% and 7%,
respectively, for the year ended July 31, 2009, and 64%,
9%, 8% and 6%, respectively, for the three months ended
October 31, 2009.
Our Relationship with Walmart. Walmart is our
largest retail distributor. We have been the exclusive provider
of GPR cards sold at Walmart since Walmart initiated its Walmart
MoneyCard program in 2007. In October 2006, we entered into
agreements with Walmart and GE Money Bank (the issuing bank),
which set forth the terms and conditions of our relationship
with Walmart. Pursuant to the terms of these agreements, Green
Dot designs and delivers the Walmart MoneyCard product and
provides all ongoing program support, including network IT,
regulatory and legal compliance, website functionality, customer
service and loss management. Walmart displays and sells the card
and GE Money Bank serves as the issuer of the cards and holds
the associated FDIC-insured deposits. All Walmart MoneyCard
products are reloadable exclusively on the Green Dot Network.
In November 2008, the original term of agreement among Green
Dot, Walmart and GE Money Bank was extended through November
2013. If the agreement is not terminated, it will extend
indefinitely until a party provides 180 days advance
written notice of its intent to terminate the agreement. Walmart
has the right to terminate this agreement prior to its
expiration or renewal for a number of specified reasons, such as
our failure to meet specified service levels. In addition,
starting in November 2011, Walmart may terminate the agreement
at any time with 180 days advance written notice.
Network Acceptance Members. A large number of
institutions accept funds through our reload network, using our
MoneyPak product. We provide reload services to over 100
third-party card programs, including programs offered by
H&R Block, AccountNow and Jackson Hewitt. MasterCards
RePower Reload Network also uses the Green Dot Network to
facilitate cash reloads for its own member programs.
Furthermore, in February 2009, we entered into a five-year
agreement with PayPal that enables PayPal customers to use a
MoneyPak to fund a new or existing PayPal account. As a
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result of this agreement, consumers without a bank account or
credit card are able to fund PayPal accounts.
Other Channels. An increasing portion of our
card sales is generated from our online distribution channel and
other non-retail channels. We offer Green Dot-branded cards
through our website, www.greendot.com. We promote this
distribution channel through television and online advertising.
Customers who activate their cards through this channel
typically receive an unfunded card in the mail and then can
reload the card either through a cash reload or a payroll direct
deposit transaction. In October 2009, we entered into a
joint marketing and referral agreement with Intuit. Under this
agreement, Intuit customers can elect to receive their tax
refunds via a co-branded card that we manage.
Our Products
and Services
Our principal products and services consist of Green Dot-branded
and co-branded GPR cards and MoneyPak and POS swipe reload
transactions facilitated by the Green Dot Network. We also
service general purpose gift cards, which have historically
represented only a small percentage of our operating revenues.
The GPR cards we offer are issued primarily by Columbus Bank and
Trust Company and, in the case of certain of our co-branded
cards discussed below, GE Money Bank. Card balances are
FDIC-insured and have either Visa or MasterCard zero liability
card protection.
Card
Products
Green Dot-Branded GPR Cards. Our Green
Dot-branded GPR cards provide consumers with an affordable and
convenient way to manage their money and make payments without
undergoing a credit check or possessing a pre-existing bank
account. In addition to standard prepaid Visa or
MasterCard-branded GPR cards, we also offer GPR cards marketed
for a specific use or market, such as our Online Shopping card,
our Prepaid Student card and our Prepaid NASCAR card.
We offer these GPR cards to consumers in approximately 50,000
retail locations in 49 states, including those of
Walgreens, CVS, Rite Aid, Kroger and 7-Eleven. We also offer our
GPR cards online through our web site, www.greendot.com. To
purchase a GPR card, consumers typically select the GPR card
from an in-store display and pay the cashier a one-time purchase
fee plus the initial amount they would like to reload onto their
card. Consumers then go online or call a toll-free number to
register their personal information with us so that we can
activate their temporary prepaid card and mail them a
personalized GPR card. As explained below, consumers can then
reload their personalized GPR cards using a MoneyPak or, at
enabled retailers, via a
point-of-sale
process, which we refer to as a POS swipe reload transaction.
Funds can also be loaded on the card via direct deposit of a
customers government or payroll check.
Our GPR cards are issued as Visa- or MasterCard-branded cards
and are accepted worldwide by merchants and other businesses
belonging to the applicable payment network, including for bill
payments, online shopping, everyday store purchases and ATM
withdrawals. As of December 31, 2009, Visa and MasterCard
each were accepted at approximately 29 million acceptance
locations worldwide, respectively. As of December 31, 2009,
our cardholders could complete ATM transactions at approximately
1.4 million Visa PLUS or 900,000 MasterCard Cirrus ATMs
worldwide, including over 17,000 MoneyPass surcharge-free ATMs
in all 50 states and Puerto Rico.
We offer a simple fee structure that includes a new card fee (if
the card is purchased from one of our retail distributors), a
monthly maintenance fee (which may be waived based on usage), a
cash reload fee and an ATM withdrawal fee for non-MoneyPass
ATMs. Most of the features and functions of our cards are
provided without surcharges. Our free services include account
management and balance inquiry services via Internet, telephone
and mobile applications. In addition, via an online tool, we
allow cardholders to manage household and other bills and to
make payments to companies or individuals.
For regulatory compliance, risk management, operational and
other reasons, our GPR cards and reload products have certain
limitations and restrictions, including but not limited to
maximum dollar reload amounts, number of reloads in a given time
period (e.g. per day), and limitations of uses of our temporary
cards versus permanent cards.
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Co-Branded GPR Cards. We provide co-branded
GPR cards on behalf of certain retail distributors and other
business entities. Co-branded cards generally bear the
trademarks or logos of the retail distributor or business
entity, and our trademark on the packaging and back of the card.
These cards have the same features and characteristics as our
Green Dot-branded GPR cards, and are accepted at the same
locations. We typically are responsible for managing all aspects
of these programs, including strategy, product design,
marketing, customer service and operations/compliance.
Representative co-branded cards include the Walmart MoneyCard,
the TurboTax Refund Card, the Kmart Prepaid Visa and MasterCard
cards and the Meijer Prepaid MasterCard.
Reload
Services
We generate cash transfer revenues when consumers purchase our
reload services. We offer consumers affordable and convenient
ways to reload any of our GPR cards and to conduct other cash
loading transactions through our reload network, using our
MoneyPak product or through retailers specially enabled
POS devices. MoneyPak is offered in all of the retail locations
where our GPR cards are sold. MoneyPak is a cash reload product
that we market on a display like our Green Dot-branded GPR
cards. Cash reloads using a MoneyPak involve a two-step process:
consumers pay the cashier the desired amount to be reloaded,
plus a service fee, and then go online or call a toll-free
number to submit the MoneyPak number and add the funds to a GPR
card or other account, such as a PayPal account. Alternatively,
at many retail locations, consumers can add funds directly to
their Green Dot-branded and co-branded cards at the point of
sale through a POS swipe reload transaction. Unlike a MoneyPak,
these POS swipe reload transactions involve a single-step
process: consumers pay the cashier the desired amount to be
reloaded, plus a service fee, and funds are reloaded onto the
GPR card at the point of sale without further action required on
the part of the consumer.
Our Proprietary Technology Platform Green
PlaNET
Green PlaNET is our proprietary technology platform that enables
our network participants to communicate with us in a real-time,
secure environment. Green PlaNET is a centralized, client-server
based processing system that gives us the ability to centrally
develop and distribute product applications, manage customer
accounts, authorize, process and settle transactions, ensure
security and regulatory compliance, and provide customer
services across a variety of points of contact and technologies.
Green PlaNET enables Green Dot cardholders to activate and use
their card accounts for a variety of transactions, such as cash
loads and online bill payments. Green PlaNET also provides a
single and secure point of integration for all our network
participants, enabling them to communicate with us and our
customers and facilitating the initiation, authorization and
settlement of transactions.
Green PlaNET has the following components:
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The Green PlaNET front-end processing system communicates with
the host systems of retail distributors and network acceptance
members through a proprietary application programming interface,
or API, and runs a variety of software applications that
facilitate the purchase of a card at a retail location as well
as the loading of cash onto a card or MoneyPak. It engages in
real-time transaction verification so that cards do not exceed
applicable limits, thus ensuring compliance with our anti-money
laundering program.
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The Green PlaNET back-end processing system runs a variety of
software applications that enable the activation, daily use and
maintenance of our cardholder accounts. It executes a variety of
transaction-enabling processes and initiates several customer
verification modules, such as internally developed anti-money
laundering, Know Your Customer and Office of Foreign
Assets Control requirements, and external data requests from
outsourced vendors, such as Experian and LexisNexis, that
together ensure compliance with all federal requirements for the
opening of a new account. It interfaces with our database to
generate account statements and initiate account notification
communications, such as emails and text messages. It also
interacts with the systems of other processors and executes
back-end batch processes, such as transaction fee calculations,
charge-back transactions, retailer invoicing and account
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write-offs, that facilitate the daily accounting, reconciliation
and settlement of transactions and account activity. In
addition, the Green PlaNET back-end processing system houses a
variety of security applications that provide customer and card
data encryption, fraud monitoring, information security
administration and firewalls that protect the Green PlaNET
infrastructure.
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The Green PlaNET customer-facing systems include a service
processing system and various communication systems. The Green
PlaNET service processing system includes several customer
relationship management software applications that operate a
variety of support services, providing real-time account history
access and pending transaction data, contact information,
personal identification number request and issuance services and
balance inquiry applications. It also enables consumers to
direct cash transfers using our MoneyPak product. In addition,
Green PlaNET provides our consumers, retail distributors and
network acceptance members with the ability to communicate with
us and access accounts using a variety of technologies. These
technologies integrate with our customer care applications and
allow us, among other things, to address customer inquiries and
automatically prompt customer support agents to sell upgrades
and make cross-sales. We have also integrated Green PlaNET with
our website, www.greentdot.com, to provide a full range of
interactive services, including online card sales, full
activation and personalization services, electronic funds
transfers, and access to account histories and management
services.
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Sales and
Marketing
The primary objective of our sales and marketing efforts is to
educate consumers on the utility of our products and related
services in order to generate demand, and to instruct consumers
on where they may purchase our products and services. We
accomplish this objective through various types of
consumer-oriented marketing and advertising and by expanding our
group of retail distributors to gain access to additional
customers.
Marketing to
Consumers
We believe that our marketing efforts to consumers are
fundamental to the success of our business. We market our
products to a broad group of consumers, ranging from
never-banked to fully-banked consumers. We are focusing our
current sales and marketing efforts on customer acquisition,
enhancing our brand and image, building market awareness of our
products, improving cardholder retention and increasing card
usage. To achieve these objectives, we highlight to consumers
the core benefits of our products, which we believe are
affordability, access to funds, utility, convenience,
transparency and security.
Our marketing campaigns involve creating a compelling in-store
presence and conducting television advertising, retailer
promotions such as newspaper inserts and circulars, online
advertisements, and co-op advertising with select retail
distributors. We focus on raising brand awareness while
educating our customers.
We also design, and provide to our retail distributors for use
in their stores, innovative packaging and in-store displays that
we believe generate consumer interest and differentiate our
products from other card products on their racks. Our packaging
and displays help ensure that our products are promoted in a
consistent, visual manner that is designed to invite consumers
to browse and learn about our products, and thus to increase our
sales opportunities. This packaging is designed to establish a
connection with consumers, which we believe increases the
likelihood that they will buy our products.
We employ a number of strategies to improve cardholder retention
and increase card usage. These strategies are based on research
we conduct on an ongoing basis to understand consumer behavior
and improve consumer loyalty and satisfaction. For example, we
use our points of contact with customers (e.g., our website,
email, IVR and mobile applications) to educate our customers and
promote new card features. We also provide incentives for
behaviors, such as cash reloading, establishing payroll direct
deposit and making frequent purchases with our cards, that we
believe increase cardholder retention.
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Marketing to
Retail Distributors
When marketing to potential new retail distributors, we
highlight the key benefits of our products, including our
national brand, our in-store presence and merchandising
expertise, our cash reload network, the profitability to them of
our products and our commitment to national television and other
advertising. In addition, we communicate the peripheral benefits
of our products, such as their ability to generate additional
foot traffic and sales in their stores.
Marketing to
Our Network Acceptance Members
We market our reload network to a broad range of banks,
third-party processors, program managers and others that have
uses for our reload networks cash transfer technology.
When marketing to potential network acceptance members, we
highlight the key benefits of our cash loading network,
including the breadth of our retail distributors and
distribution capabilities, our leadership position in the
industry, the profitability to them of our products, consumer
satisfaction and our commitment to national television and other
advertising and marketing support.
Customer
Service
We provide customer service for all GPR card and gift card
programs that we manage and for MoneyPak on a
24-hour per
day, 365-day
per year basis, primarily through third-party service providers
in Guatemala and the Philippines, and also through our staff in
the United States. All card activations, reloads, support and
lost/stolen inquiries are handled online and through various
toll-free numbers at these locations. We also operate our own
call center at our headquarters for handling customer and
corporate escalations. Customer service is provided in both
English and Spanish.
Competition
We operate in highly competitive and still developing markets,
which we expect to become increasingly competitive in the
future. In addition to the direct competitors described below,
we compete for access to retail distribution channels and for
the attention of consumers at the retail level.
Prepaid Card
Issuance and Program Management
We compete against the full spectrum of providers of GPR cards.
We compete with traditional providers of financial services,
such as banks that offer demand deposit accounts and card
issuers that offer credit cards, private label retail cards and
gift cards. Many of these institutions are substantially larger
and have greater resources, larger and more diversified customer
bases and greater brand recognition than we do. Many of these
companies can also leverage their extensive customer bases and
adopt aggressive pricing policies to gain market share. Our
primary competitors in the prepaid card issuance and program
management market are traditional credit, debit and prepaid card
account issuers and prepaid card program managers like First
Data, Netspend, AccountNow, PreCash, Rush Card, Western Union
and MoneyGram. Our Green-Dot branded cards also compete with our
co-branded GPR cards, such as the Walmart MoneyCard.
We believe that the principal competitive factors for the
prepaid card issuance and program management market include:
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breadth of distribution;
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brand recognition;
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the ability to reload funds;
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compliance and regulatory capabilities;
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enterprise-class and scalable IT;
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customer support capabilities; and
We believe our products compete favorably on each of these
factors.
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Reload
Networks
While we believe our Green Dot Network is the leading reload
network in the United States, a growing number of companies are
attempting to establish and grow their own reload networks. In
this market, new companies, or alliances among existing
companies, may be formed that rapidly achieve a significant
market position. Many of these companies are substantially
larger than we are and have greater resources, larger and more
diversified customer bases and greater name recognition than we
do. Our primary competitors in the reload services market are:
Visa, MasterCard, Western Union, MoneyGram, Blackhawk and
Netspend. Visa and MasterCard each have broad brand recognition
and a large base of merchant acquiring and issuing banks.
Western Union, MoneyGram, Blackhawk and Netspend each have a
national network of retail
and/or agent
locations. In addition, we compete for consumers and billers
with financial institutions that provide their retail customers
with billing, payment and funds transfer services. Many of these
institutions are substantially larger and have greater
resources, larger and more diversified customer bases and
greater brand recognition than we do.
We believe that the principal competitive factors for reload
network services include:
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the number and quality of retail locations;
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brand recognition;
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product and service functionality;
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number of cardholders and customers using the service;
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reliability of the service;
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retail price;
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enterprise class and scalable IT;
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ability to integrate quickly with multiple payment platforms and
distributors;
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customer support capabilities; and
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compliance and regulatory capabilities.
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We believe the Green Dot Network competes favorably on each of
these factors.
Prepaid Card
Distribution
We compete against the full spectrum of prepaid card
distributors and third-party processors that sell competing
prepaid card programs through retail and online channels. Many
of these institutions are substantially larger and have greater
resources, larger and more diversified customer bases and
greater brand recognition than we do. Many of these companies
can also leverage their extensive customer bases and adopt
aggressive pricing policies to gain market share. As new payment
methods are developed, we also expect to experience competition
from new entrants. Our primary competitors in the market for
prepaid cards are: InComm, Blackhawk, First Data, Netspend and
AccountNow. In addition, we face potential competition from
Western Union, MoneyGram and a number of retail banks if they
enter these markets.
We believe that the principal competitive factors for the
prepaid card distribution market include:
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brand recognition with consumers and retailers;
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the ability to reload funds;
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ability to develop and maintain strong relationship with retail
distributors;
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compliance and regulatory capabilities;
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pricing; and
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large customer base.
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We believe our products compete favorably on each of these
factors.
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Intellectual
Property
We rely on a combination of trademark and copyright laws and
trade secret protection in the United States, as well as
confidentiality procedures and contractual provisions, to
protect the intellectual property rights related to our products
and services.
We own several trademarks, including Green Dot, MoneyPak and the
Green Dot logo. These assets are essential to our business.
Through agreements with our network acceptance members, retail
distributors and customers, we authorize and monitor the use of
our trademarks in connection with their activities with us.
We have one patent application under consideration in the United
States related to the retail packaging of our cards.
Regulation
Compliance with legal and regulatory requirements is a highly
complex and integral part of our
day-to-day
operations. Our products and services are generally subject to
federal, state and local laws and regulations, including:
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anti-money laundering laws;
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money transfer and payment instrument licensing regulations;
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escheatment laws;
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privacy and information safeguard laws;
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bank regulations; and
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consumer protection laws.
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These laws are often evolving and sometimes ambiguous or
inconsistent, and the extent to which they apply to us or our
issuing banks, retail distributors, network acceptance members
or third-party processors is at times unclear. Any failure to
comply with applicable law either by us or by the
issuing banks, retail distributors, network acceptance members
or third-party processors, over which we have limited legal and
practical control could result in restrictions on
our ability to provide our products and services, as well as the
imposition of civil fines and criminal penalties and the
suspension or revocation of a license or registration required
to sell our products and services. See Risk Factors
for additional discussion regarding the potential impacts of
failure to comply.
We continually monitor and enhance our compliance program to
stay current with the most recent legal and regulatory changes.
We also continue to implement policies and programs and to adapt
our business practices and strategies to help us comply with
current legal standards, as well as with new and changing legal
requirements affecting particular services or the conduct of our
business generally. These programs include dedicated compliance
personnel and training and monitoring programs, as well as
support and guidance to our retail distributors and network
acceptance members on compliance programs.
Anti-Money
Laundering Laws
Our products and services are generally subject to federal
anti-money laundering laws, including the Bank Secrecy Act, as
amended by the USA PATRIOT Act, and similar state laws. On an
ongoing basis, these laws require us, among other things, to:
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report large cash transactions and suspicious activity;
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screen transactions against the U.S. governments
watch-lists, such as the watch-list maintained by the Office of
Foreign Assets Control;
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prevent the processing of transactions to or from certain
countries, individuals, nationals and entities;
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identify the dollar amounts loaded or transferred at any one
time or over specified periods of time, which requires the
aggregation of information over multiple transactions;
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gather and, in certain circumstances, report customer
information;
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comply with consumer disclosure requirements; and
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register or obtain licenses with state and federal agencies in
the United States and seek registration of our retail
distributors and network acceptance members when necessary.
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Anti-money laundering regulations are constantly evolving. We
continuously monitor our compliance with anti-money laundering
regulations and implement policies and procedures to make our
business practices flexible, so we can comply with the most
current legal requirements. We cannot predict how these future
regulations might affect us. Complying with future regulation
could be expensive or require us to change the way we operate
our business.
We are voluntarily registered with the Financial Crimes
Enforcement Network as a money service business. We are also
required to establish anti-money laundering compliance programs
that include: (i) internal policies and controls;
(ii) designation of a compliance officer;
(iii) ongoing employee training and (iv) an
independent review function. We have developed and deployed
compliance programs comprised of policies, procedures, systems
and internal controls to monitor and address various aspects of
legal requirements and developments. To assist in managing and
monitoring money laundering risks, we continue to enhance our
anti-money laundering compliance program. We offer our services
largely through our retail distributor and network acceptance
member relationships. We have developed an anti-money laundering
training manual and a program to assist in educating our retail
distributors on the applicable anti-money laundering laws and
regulations.
Money Transfer
and Payment Instrument Licensing Regulations
We are subject to money transfer and payment instrument
licensing regulations. We have obtained licenses to operate as a
money transmitter in 39 U.S. jurisdictions. The remaining
U.S. jurisdictions either do not currently regulate money
transmitters or we have received a regulatory determination or a
legal interpretation that the money services laws of that
jurisdiction do not require us to obtain a license in connection
with the conduct of our business. As a licensee, we are subject
to certain restrictions and requirements, including reporting,
net worth and surety bonding requirements and requirements for
regulatory approval of controlling stockholders, agent locations
and consumer forms and disclosures. We are also subject to
inspection by the regulators in the jurisdictions in which we
are licensed, many of which conduct regular examinations.
In addition, we must at all times maintain permissible
investments in an amount equivalent to all
outstanding payment obligations. While, technically,
the outstanding payment obligations represented by the balances
on our card products are liabilities of the issuing bank and not
us, it is possible that some states will require us to maintain
permissible investments in an amount equal to the outstanding
payment obligations of the bank that issues our cards. The types
of securities that are considered permissible
investments vary from state to state, but generally
include cash and cash equivalents, U.S. government
securities and other highly rated debt instruments.
Escheatment
Laws
Unclaimed property laws of every U.S. jurisdiction require
that we track certain information on our card products and
services and that, if customer funds are unclaimed at the end of
an applicable statutory abandonment period, the proceeds of the
unclaimed property are remitted to the appropriate jurisdiction.
We have agreed with the banks that issue our cards to manage
escheatment law compliance with respect to our card products and
services and have an ongoing program to comply with those laws.
Statutory abandonment periods applicable to our card products
and services typically range from three to seven years.
Privacy and
Information Safeguard Laws
In the ordinary course of our business, we collect certain types
of data, which subjects us to certain privacy and information
security laws in the United States, including, for example, the
Gramm-Leach-Bliley Act of 1999, or the GLB Act, and other laws
or rules designed to regulate consumer information and mitigate
identity theft. We are also subject to privacy laws of various
states. These
70
state and federal laws impose obligations with respect to the
collection, processing, storage, disposal, use and disclosure of
personal information, and require that financial institutions
have in place policies regarding information privacy and
security. In addition, under federal and certain state financial
privacy laws, we must provide notice to consumers of our
policies and practices for sharing nonpublic information with
third parties, provide advance notice of any changes to our
policies and, with limited exceptions, give consumers the right
to prevent use and disclosure of their nonpublic personal
information with unaffiliated third parties. Certain state laws
may, in some circumstances, require us to notify affected
individuals of security breaches of computer databases that
contain their personal information. These laws may also require
us to notify state law enforcement, regulators or consumer
reporting agencies in the event of a data breach, as well as
businesses and governmental agencies that own data. In order to
comply with the privacy and information safeguard laws, we have
confidentiality/information security standards and procedures in
place for our business activities and with network acceptance
members and our third-party vendors and service providers.
Privacy and information security laws evolve regularly,
requiring us to adjust our compliance program on an ongoing
basis and presenting compliance challenges.
Bank
Regulations
All of the GPR cards that we provide and the Walmart gift cards
we service are issued by either a federally- or state-chartered
bank. Thus, we are subject to the oversight of the regulators
for and certain laws applicable to these issuing banks. These
banking laws require us, as a servicer to the banks that issue
the cards, among other things, to undertake compliance actions
similar to those described under Anti-Money
Laundering Compliance above and to comply with the privacy
regulations promulgated under the GLB Act as discussed under
Privacy and Information Safeguard
Regulations.
In addition, we entered into a definitive agreement to acquire a
bank holding company and its subsidiary commercial bank, and
filed an application with the appropriate federal and state
regulators seeking approval for this transaction. If the
acquisition is completed, we would become a bank holding company
under the Bank Holding Company Act and our consolidated business
would be subject to the extensive supervision and examination of
the Federal Reserve Board. Moreover, our new bank subsidiary
would be subject to regulation and examination by a state
banking regulator and, because its deposits will be insured by
the FDIC, the FDIC.
The regulation of banks and bank holding companies is
comprehensive, and involves regulatory oversight and examination
of virtually every aspect of the activities and operations of
such entities. While not an exhaustive list, Green Dot and our
acquired subsidiary bank would be:
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subject to periodic reporting requirements to state and federal
banking agencies;
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subject to periodic examinations by such agencies;
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limited, in the case of Green Dot, to activities permissible for
bank holding companies (generally activities closely related to
the business of banking), and in the case of the subsidiary
bank, to activities permissible for banks;
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subject to consolidated capital requirements (in general, having
to maintain ratios of capital to assets not less than 5% of
assets and ratios of capital to risk-adjusted assets of not less
than 10%);
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subject to a panoply of consumer protection regulations
governing any lending or deposit taking activities conducted by
our acquired subsidiary bank;
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required to assess and meet the credit needs of the communities
in which the bank is located, including low- and moderate-income
neighborhoods or otherwise meet the requirements of the
Community Reinvestment Act of 1977; and
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subject to extensive enforcement powers granted the banking
agencies allowing them to institute cease and desist
proceedings, impose civil money penalties or take certain other
actions in the event we, our acquired subsidiary bank or any of
our or its officers or directors
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engage in unsafe or unsound practices, violations of laws or
regulations or certain other activities.
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Our ability or our acquired subsidiary bank to engage in new
activities, offer new products or provide products or services
from new locations could be subject to limitations or
restrictions imposed by the state or federal banking agencies.
While we believe that the acquisition of the bank will provide
us with important strategic advantages and that we will be able
to operate and execute our business plan successfully in this
regulated environment, state or federal banking agencies
exercise a high degree of discretion in the implementation of
the laws and regulations that would affect us as a bank holding
company and our acquired subsidiary bank. Accordingly, there
can be no assurance that we will realize the expected benefits
of our pending bank acquisition.
The regulation and supervision of banks and bank holding
companies will require us to incur additional compliance costs
and other expenses. For example, our acquired subsidiary bank
will be subject to assessments by the FDIC associated with
deposit insurance, and the state banking department supervising
the bank will likely impose periodic examination fees.
The U.S. Congress is considering various proposals relating to
the activities and supervision of banks and bank holding
companies, some of which could materially affect our operations
and those of our acquired subsidiary bank. While there can be
no assurance regarding the ultimate impact that adoption of
these proposals will have on us, if the proposals are enacted,
we expect that the benefits we expect to realize from our
pending bank acquisition will be reduced.
Consumer
Protection Laws
We are subject to state and federal consumer protection laws,
including laws prohibiting unfair and deceptive practices,
regulating electronic fund transfers and protecting consumer
nonpublic information. We believe that we have appropriate
procedures in place for compliance with these consumer
protection laws, but many issues regarding our service have not
yet been addressed by the federal and state agencies charged
with interpreting the applicable laws.
Although not expressly required to do so under the Electronic
Fund Transfer Act and Regulation E of the Federal
Reserve Board, we disclose, consistent with banking industry
practice, the terms of our electronic fund transfer services to
consumers prior to their use of the service, provide
21 days advance notice of material changes, establish
specific error resolution procedures and timetables, and limit
customer liability for transactions that are not authorized by
the consumer.
Card
Associations
In order to provide our products and services, we, as well as
the banks that issue our cards, must register with Visa and
MasterCard and, as a result, are subject to card association
rules that could subject us to a variety of fines or penalties
that may be levied by the card association or network for
certain acts or omissions. The banks that issue our cards are
specifically registered as members of the Visa
and/or
MasterCard card associations. Visa and MasterCard set the
standards with which we and the issuing banks must comply.
Employees
As of October 31, 2009, we had 256 employees,
including 224 in general and administrative, 25 in sales and
marketing and 7 in research and product development. None of our
employees is represented by a labor union or is covered by a
collective bargaining agreement. We have never experienced any
employment-related work stoppages and consider relations with
our employees to be good. As of October 31, 2009, we also
had arrangements with third-party call center providers in
Guatemala and the Philippines that provided us with
approximately 667 contractors for customer service and similar
functions.
Facilities
We lease approximately 56,000 square feet in Monrovia,
California for our corporate headquarters, pursuant to a
noncancelable lease agreement for approximately
49,000 square feet that expires
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in September 2012 and a sub-lease agreement for approximately
7,000 square feet that expires in December 2011. We
believe our space is adequate for our current needs and that
suitable additional or substitute space will be available to
accommodate the foreseeable expansion of our operations.
Legal
Proceedings
From time to time, we may be subject to legal proceedings and
claims in the ordinary course of business. We are not currently
a party to any material legal proceedings, and to our knowledge
none is threatened.
73
MANAGEMENT
Executive
Officers and Directors
The following table provides information regarding our executive
officers and directors as of February 22, 2010:
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Name
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Age
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Position(s)
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Steven W. Streit
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47
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Chairman, President and Chief Executive Officer
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Mark T. Troughton
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41
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President, Cards and Network
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John L. Keatley
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36
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Chief Financial Officer
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John C. Ricci
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44
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General Counsel and Secretary
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William D. Sowell
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44
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Chief Operating Officer
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Kenneth C. Aldrich*
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Director
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Timothy R. Greenleaf(1)
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53
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Director
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Virginia L. Hanna(1)(2)(3)
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59
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Director
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Michael J. Moritz(2)(3)
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55
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Director
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William H. Ott, Jr.(1)
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58
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Director
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W. Thomas Smith, Jr.(2)(3)
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63
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Director
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* |
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Lead independent director |
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Member of our audit committee. |
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Member of our compensation committee. |
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(3) |
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Member of our nominating and governance committee. |
Steven W. Streit is our founder, and has served as our
President and a director since October 1999, our Chief Executive
Officer since January 2001 and our Chairman since February 2010.
He also served as our Secretary from October 1999 to April 2000
and as our Treasurer from October 1999 to April 2004. From 1983
to 1999, Mr. Streit worked in the radio broadcasting
industry, including serving as a Vice President of Programming
at AMFM, a publically-traded radio broadcast group.
Mark T. Troughton has served as our President, Cards and
Network, since February 2007. From June 2003 to July 2004, he
served as our Executive Vice President, Business Development,
and from July 2004 to February 2007, he served as our Chief
Operating Officer and Executive Vice President of Corporate
Strategy. Prior to joining Green Dot, Mr. Troughton was
Vice President, Marketplace Services for Quadrem.com, an
Internet procurement company. Mr. Troughtons prior
experience also includes his four-year tenure at
McKinsey & Company, a management consulting firm,
where he served in various capacities, including most recently
as Engagement Manager. Mr. Troughton started his career as
a Chartered Accountant and entrepreneur in South Africa. He
holds a BCom, a BCom (Hons) and an MCom, each in finance,
accounting or related subjects, from the University of Cape Town
(South Africa).
John L. Keatley has served as our Chief Financial Officer
since October 2006. From May 2005 to October 2006, he served as
our Vice President, Finance, and from August 2004 to May 2005,
he served as our Director, Financial Planning &
Analysis. Prior to joining Green Dot, Mr. Keatley served in
various positions at McKinsey & Company, a management
consulting firm, from October 2001 to July 2004, most recently
as Engagement Manager. Mr. Keatley holds an A.B. in physics
from Princeton University and an M.B.A. from Harvard Business
School.
John C. Ricci has served as our General Counsel since
June 2004. From April 2003 to June 2004, he served as our
Director of Legal Affairs. Prior to joining Green Dot,
Mr. Ricci was an associate at the law firm of Strategic Law
Partners, LLP from November 1999 to June 2002. Mr. Ricci
began his career as an attorney in the Enforcement Division of
the SEC. Mr. Ricci holds a B.A. in
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economics and political science from the University of
California at San Diego and a J.D. from Loyola Law School.
William D. Sowell has served as our Chief Operating
Officer since March 2009. Prior to joining Green Dot,
Mr. Sowell served in a number of positions at GE Money, a
financial services company, from March 1998 to January 2006,
most recently as Vice President, Prepaid Products. From May 1998
to March 2000, Mr. Sowell served as a Master Black Belt
(Vice President, Quality) at GE Mortgage Services, a mortgage
servicing company. Mr. Sowell holds a B.S. in electronic
engineering technology from East Tennessee State University and
an M.B.A. from Southern Methodist University.
Kenneth C. Aldrich has served on our board of directors
since January 2001. Mr. Aldrich is currently Chairman of
the Board of International Stem Cell Corporation, a
biotechnology company focused on developing therapeutic and
research products through a proprietary stem cell technology. He
has served in that position since January 2008 and previously
from January 2001 through June 2006. Mr. Aldrich has also
served as President of The Aldrich Company, a real estate
investment firm, since June 1975, and on the board of directors
of WaveTec Vision Systems, Inc. since January 1999.
Mr. Aldrich previously served on the boards of directors of
Encode Bio, Inc. and International Stem Cell Corporation.
Mr. Aldrich holds an A.B. in history and literature from
Harvard University and a J.D. from Harvard Law School.
Timothy R. Greenleaf has served on our board of directors
since January 2001. Mr. Greenleaf has been the Managing
Director of Fairmont Capital, Inc., a private equity firm with a
focus on investments in middle-market consumer-related
businesses, since January 1999. Previously, Mr. Greenleaf
was a partner at the law firm of Fulbright & Jaworski
L.L.P., specializing in mergers and acquisitions, and tax and
corporate structuring. Mr. Greenleaf has served on a number
of other boards of directors, including Fairmont Capital, Garden
Fresh Restaurant Corp. (Souplantation) and Sharis
Management Corp. Mr. Greenleaf holds a dual B.A. in
administrative studies and political science from the University
of California at Riverside, a J.D. from Loyola Law School and an
L.L.M. in taxation from New York University Law School.
Virginia L. Hanna has served on our board of directors
since April 2002. Ms. Hanna has served as the President and
Chief Executive Officer of Hanna Capital Management, Inc., a
business management firm, since March 1998, as a Managing Member
of Hanna Ventures, LLC, a venture capital firm, since April
1999, and as CEO, President, and Managing Member of Hanna
Energy, LLC, an energy consulting firm since December 2009. From
1996 to April 1997, Ms. Hanna was Treasurer and Director of
Investor Relations at Intuit Inc. Ms. Hanna served as the
Vice President and Treasurer of The Vons Companies, Inc. from
1985 to 1995. Ms. Hanna holds a B.A. in liberal arts from
the University of Illinois and an M.B.A. in finance from DePaul
University.
Michael J. Moritz has served on our board of directors
since February 2003. Mr. Moritz has been a Managing Member
of Sequoia Capital since 1986. He has previously served as a
director of a variety of companies including Flextronics Ltd.,
Google Inc., PayPal, Inc., Red Envelope, Inc., Saba Software,
Inc., Yahoo! Inc. and Zappos.com, Inc. Mr. Moritz holds an
M.A. in modern history from Christ Church, Oxford.
William H. Ott, Jr. has served on our board of
directors since January 2010. Since 2003, Mr. Ott has
served as the President of PEAC Ventures, Inc., a corporate
advisory and consulting firm. From 2002 to 2003, Mr. Ott
served as the Chief Operating Officer of Visa U.S.A. Inc. From
1998 to 2002, Mr. Ott served as Group Executive in charge
of retail, small business, card services, mortgage and consumer
banking, as well as marketing, advertising and operations, for
St. George Bank, a commercial bank based in Sydney,
Australia. He serves as an advisor to the Ethics and Compliance
Officer Association. Mr. Ott previously served as Chairman
of E*TRADE Bank and as a director of CashCard Australia.
Mr. Ott holds a B.A. in English from San Jose State
University and an M.B.A. from Santa Clara University.
W. Thomas Smith, Jr. has served on our board of
directors since April 2001. Mr. Smith founded Total
Technology Ventures, LLC, a venture capital firm, and has been
its Managing Director since April 2000. Mr. Smith retired
from IBM in 2000 after 30 years of service. Mr. Smith
also serves on the
75
boards of directors of numerous private companies, including ALI
Solutions,
E-Duction,
Inc. and Silverpop. Mr. Smith holds a B.S. in industrial
management from The Georgia Institute of Technology and
completed the executive program at Dartmouth Colleges Amos
Tuck School of Business.
Our executive officers are elected by, and serve at the
discretion of, our board of directors. There are no familial
relationships among our directors and officers.
Board of
Directors Composition
Under our restated bylaws, our board of directors may set the
authorized number of directors. Our board of directors currently
consists of seven members. Upon the completion of this offering,
our Class A common stock will be listed on the NYSE. The
rules of the NYSE require that a majority of the members of our
board of directors be independent within specified periods
following the completion of this offering. Our board of
directors has determined that the following six members of our
board of directors are currently independent as determined under
the rules of the NYSE: Messrs. Aldrich, Greenleaf, Moritz,
Ott and Smith and Ms. Hanna.
Pursuant to an investors rights agreement, as amended
through February 2010, Messrs. Aldrich, Greenleaf, Moritz,
Ott, Smith and Streit and Ms. Hanna were designated to
serve as members of our board of directors. Pursuant to that
agreement, Messrs. Aldrich, Ott and Smith and
Ms. Hanna were selected as the representatives of our
preferred stock, as a class. Mr. Moritz was selected as the
representative of our Series C, C-1 and C-2 Preferred Stock
and the remaining members of our board of directors were
selected by all of the holders of our common stock. Our
currently serving members of the board will continue to serve as
directors until their resignations or until their successors are
duly elected by the holders of our common stock, despite the
fact that the investors rights agreement will terminate
upon the completion of this offering.
Our board of directors is divided into three classes of
directors who serve staggered three-year terms, as follows:
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Class I directors are Messrs. Ott and Smith (current
terms expiring in 2011);
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Class II directors are Mr. Aldrich and Ms. Hanna
(current terms expiring in 2012); and
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Class III directors are Messrs. Greenleaf, Moritz and
Streit (current terms expiring in 2013).
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At each annual meeting of our stockholders, successors to the
directors whose terms expire at that meeting will be elected to
serve until the third annual meeting after their election or
until their successors have been elected. As a result, only one
class of directors will be elected at each annual meeting of our
stockholders, with the other classes serving for the remainder
of their respective terms.
Committees of Our
Board of Directors
Our board of directors has established an audit committee, a
compensation committee and a nominating and governance
committee. The composition and responsibilities of each
committee are described below. Following the completion of this
offering, copies of the charters for each committee will be
available without charge, upon request in writing to Green Dot
Corporation, 605 East Huntington Drive, Suite 205,
Monrovia, California 91016, Attn: General Counsel or on the
investor relations portion of our website, www.greendot.com.
Members serve on these committees until their resignations or
until otherwise determined by our board of directors.
Audit
Committee
Our audit committee is comprised of Mr. Greenleaf, who is
the chair of the audit committee, and Ms. Hanna and
Mr. Ott. The composition of our audit committee meets the
requirements for independence under the current NYSE and SEC
rules and regulations. Each member of our audit committee is
financially literate as required by current NYSE listing
standards. In addition, our board of directors has determined
that Mr. Greenleaf is an audit committee financial expert
within the meaning of Item 407(d) of
Regulation S-K
under the Securities Act. Our audit committee recommended, and
our board of directors adopted, an amended and restated charter
for our audit
76
committee, which will be posted on the investor relations
portion of our website, www.greendot.com, following the
completion of this offering. Our audit committee, among other
things:
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oversees our corporate accounting and financial reporting
process;
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appoints, compensates, retains and oversees the work of any
registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit,
review or attest services for our company, including:
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selection of our independent registered public accounting firm
to audit our consolidated financial statements;
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evaluation of our independent registered public accounting
firms qualifications, independence and performance;
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review and approval of the scope of the annual audit and
quarterly review services;
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discussion with management and our independent registered public
accounting firm regarding the results of the annual audit and
the review of our quarterly consolidated financial statements;
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approval or pre-approval, as required by SEC and other
applicable rules and regulations, of the retention of our
independent registered public accounting firm to perform any
proposed permissible non-audit services; and
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monitoring of the rotation of partners of our independent
registered public accounting firm on our companys audit
engagement team as required by law;
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reviews our critical accounting policies and estimates;
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establishes procedures for the receipt, retention and treatment
of complaints regarding accounting, internal accounting controls
and auditing matters, including procedures for the confidential,
anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
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considers the adequacy of our internal control over financial
reporting;
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oversees our internal audit function; and
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annually reviews the audit committee charter and the audit
committees performance.
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The audit committee will operate under a written charter that
will satisfy the applicable standards of the SEC and the NYSE.
Compensation
Committee
Our compensation committee is comprised of Mr. Smith, who
is the chair of the compensation committee, and Ms. Hanna
and Mr. Moritz. The composition of our compensation
committee meets the requirements for independence under the
current NYSE and SEC rules and regulations. The purpose of our
compensation committee is to discharge the responsibilities of
our board of directors relating to compensation of our executive
officers. Our compensation committee recommended, and our board
of directors adopted a charter for our compensation committee,
which will be posted on the investor relations portion of our
website, www.greendot.com, following the completion of this
offering. Our compensation committee, among other things:
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reviews and determines, or makes recommendations to our board of
directors regarding, the compensation of our executive officers;
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administers our stock and equity incentive plans;
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reviews and makes recommendations to our board of directors with
respect to incentive compensation and equity plans; and
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establishes and reviews general policies relating to
compensation and benefits of our employees.
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77
Nominating and
Governance Committee
The nominating and governance committee is comprised of
Ms. Hanna, who is the chair of the nominating and
governance committee, and Messrs. Moritz and Smith. The
composition of our nominating and governance committee meets the
requirements for independence under the current NYSE and SEC
rules and regulations. The nominating and governance committee
recommended, and our board of directors adopted a charter for
our nominating and governance committee, which will be posted on
the investor relations portion of our website, www.greendot.com,
following the completion of this offering. Our nominating and
governance committee, among other things:
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identifies, evaluates and recommends nominees to our board of
directors and its committees;
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evaluates the performance of our board of directors and of
individual directors;
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considers and makes recommendations to our board of directors
regarding composition of the board and its committees;
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reviews related party transactions and proposed waivers of our
code of conduct;
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reviews developments in corporate governance practices;
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evaluates the adequacy of our corporate governance practices and
reporting; and
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makes recommendations to our board of directors concerning
corporate governance matters.
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Compensation
Committee Interlocks and Insider Participation
Since August 1, 2008, the following directors and former
directors have at one time been members of our compensation
committee: Messrs. Moritz and Smith, Ms. Hanna and a
former director, Donald B. Wiener. None of them has at any time
been one of our officers or employees. None of our executive
officers serves or in the past has served as a member of the
board of directors or compensation committee of any entity that
has one or more of its executive officers serving on our board
of directors or our compensation committee.
Preferred
Stock Financings
In December 2008, entities associated with Sequoia Capital
purchased 1,181,818 shares of
Series C-2
Preferred Stock. Mr. Moritz was then and is currently a
General Partner of Sequoia Capital.
Warrant
Exercises
In November 2006, Mr. Wiener exercised warrants to purchase
224,132 shares of our Class B common stock for his own
account and on behalf of a number of individuals who have
appointed him to be their attorney-in-fact with respect to
certain matters related to interests in our capital stock.
In March 2007, David W. Hanna, Trustee, David William Hanna
Trust dated October 30, 1989 exercised warrants to purchase
145,348 shares of our Class B common stock.
Mr. Hanna is the spouse of Virginia L. Hanna.
Director
Compensation
The following table provides information for the fiscal year
ended July 31, 2009 regarding all plan and non-plan
compensation awarded to, earned by or paid to each non-employee
who served as a director for some portion or all of that year.
In fiscal 2009, none of our directors received compensation for
his or her services as a director except the chairman of our
audit committee, who received an equity award, with a grant date
fair value of $39,990, for serving in that role. Other than
reimbursement of reasonable travel and related expenses incurred
by non-employee directors in connection with their attendance at
meetings of our board of directors and its committees, we did
not pay any other
78
fees or make any equity or non-equity awards to or pay any other
compensation to our non-employee directors in fiscal 2009.
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Name
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Stock Awards
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Kenneth C. Aldrich
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Timothy R. Greenleaf
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$
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39,990
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(1)
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Virginia L. Hanna
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Michael J. Moritz
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William H. Ott, Jr.(2)
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W. Thomas Smith, Jr.
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Michael S. Fisher*
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Donald B. Wiener*
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Former director. |
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Represents the grant date fair value of 3,720 fully-vested
shares of our common stock that were issued to
Mr. Greenleaf as compensation for his services as chairman
of the audit committee on December 11, 2008 under our 2001
Stock Plan. |
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Mr. Ott was appointed to our board of directors after the
completion of fiscal 2009 and did not receive any compensation
for fiscal 2009. |
In December 2009, we began to compensate our non-employee
directors with a combination of cash and equity awards. Each
non-employee director will receive annual base compensation of
$20,000 and $3,000 per meeting day attended. In addition, each
non-employee director who is not affiliated with a holder of our
preferred stock prior to completion of this offering will
receive an initial equity award of an option to purchase
17,000 shares of our Class B common stock or, if
awarded after completion of this offering, Class A common
stock. In addition, the chairperson of our audit committee will
receive annual cash compensation of $40,000 for serving in that
role. Other members of the audit committee will also receive
annual cash compensation of $5,000 for serving on our audit
committee, provided they are not affiliated with a holder of our
preferred stock prior to completion of this offering.
In February 2010, in connection with his appointment to our
board of directors, we awarded Mr. Ott an option to
purchase 17,000 shares of our Class B common stock,
with an exercise price of $25.00 per share. This award had a
grant date fair value of $220,660.
79
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following discussion describes and analyzes our compensation
program for the five executive officers who are identified in
the Summary Compensation Table below (our
named executive officers). For fiscal 2009, our
named executive officers were:
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Steven W. Streit, Chairman, President and Chief Executive
Officer, or CEO;
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Mark T. Troughton, President, Cards and Network;
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John L. Keatley, Chief Financial Officer;
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John C. Ricci, General Counsel and Secretary; and
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William D. Sowell, Chief Operating Officer.
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Compensation
Philosophy and Objectives
Our executive compensation program is designed to:
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attract and retain talented and experienced executives in our
industry;
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motivate and reward executives whose knowledge, skills and
performance are critical to our success;
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link compensation to company performance and individual
achievement;
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link specific cash-based elements of compensation to our
near-term financial performance; and
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align the interests of our executive officers and those of our
stockholders by providing our executive officers with long-term
incentives to increase stockholder value.
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We have endeavored to create an executive compensation program
that provides a mix of short-term and long-term payments and
awards, cash payments and equity awards, and fixed and variable
payments and awards that we believe appropriately motivates our
executive officers and discourages them from taking excessive or
unnecessary risks. We view these components of compensation as
related but distinct. Although our compensation committee
considers the value of total compensation of our executive
officers, neither our board of directors nor our compensation
committee believes that significant compensation derived from
one component of compensation should negate or reduce
compensation derived from other components. Except as described
below, neither our compensation committee nor our board of
directors has adopted any formal or informal policies or
guidelines for allocating total target compensation between
short-term and long-term compensation, between cash payments and
equity awards or between fixed and variable payments and awards.
However, in general, our compensation committee and our board of
directors believe a significant portion of the value of total
target compensation for each named executive officer should be
in the form of performance-based compensation. In addition, our
compensation committee and our board of directors strive to keep
cash compensation at a competitive level while providing
executive officers with the opportunity to be well rewarded
through equity awards if our company performs well over time.
From time to time, special business conditions may warrant
additional compensation to attract, retain or motivate executive
officers. Examples of these conditions include the need to
recruit or retain individuals with specific or unique talents,
and to recognize exceptional contributions. In these situations,
we consider our business needs and the potential costs and
benefits of special rewards. For instance, in fiscal 2009, we
awarded Mr. Sowell a housing and travel allowance under his
offer letter.
80
Historical Compensation Decision Process
Our compensation committee oversees the compensation of our
named executive officers and our executive compensation programs
and initiatives. Our compensation committee typically reviews
executive officer compensation, both base salary levels and the
target levels for variable cash incentive awards, following the
end of each fiscal year. In connection with this review, our
compensation committee considers any input it may receive from
our CEO (with respect to executive officers other than himself)
to evaluate the performance of each executive officer and sets
each executive officers total target cash compensation for
the current year based on this review and the other factors
described below. We pay cash incentive awards under our
management cash incentive plan, which is designed to compensate
our named executive officers for their contribution to achieving
semi-annual financial goals contained in our company financial
plan, as explained in further detail below. This plan informally
resets each year when our board of directors approves our
company financial plan for the next fiscal year unless and until
our compensation committee or our board of directors determines
otherwise. In connection with its annual review and any reviews
that occur during the fiscal year, our compensation committee
also recommends to our board of directors any equity
compensation to be awarded to the named executive officers.
Authority to make equity award grants to our named executive
officers currently rests with our board of directors.
We have based most, if not all, of our prior compensation
determinations, including those made for fiscal 2009, on a
variety of factors, including our performance, financial
condition and available resources, individual performance, our
need for a particular position to be filled and the
recommendations of our CEO (other than with respect to his own
compensation). In addition, we have based our prior compensation
determinations on our compensation committees
and/or our
board of directors evaluation of the competitive market
based on their respective members experience with other
companies and the competitive market, compensation survey data
available from outside sources and, to a lesser degree, the
compensation levels of our other executive officers, each as of
the time of the applicable compensation decision. Although our
compensation committee members refer to compensation survey
data, they do not formally benchmark executive compensation
against a particular set of comparable companies or use a
formula to set the compensation for our executives in relation
to survey data. Substantially all of our compensation
committees discussions and decisions about executive
compensation occur outside of formal meetings through
e-mails and
other informal communications. In establishing compensation for
executive officers other than our CEO, our compensation
committee gives weight to the recommendations of our CEO, which
are communicated to the chair of our compensation committee, but
final decisions about the compensation of our named executive
officers are typically made solely by our compensation committee.
We expect that the specific direction, emphasis and components
of our executive compensation program will continue to evolve as
we gain experience operating as a public company. Accordingly,
the compensation paid to our named executive officers for fiscal
2009 is not necessarily indicative of how we will compensate our
named executive officers following this offering.
Elements of Compensation
Our current executive compensation program consists of the
following primary components:
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base salary;
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variable and other cash incentive awards linked to corporate
and/or
individual objectives; and
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periodic grants of long-term equity-based awards.
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Base Salary. We seek to provide each member of
our senior management with a base salary that is appropriate for
his roles and responsibilities, and that provides him with a
level of income stability. Our compensation committee reviews
the base salaries of our executive officers annually, with
significant input from our CEO, to determine whether any
adjustment is warranted. In considering a base salary
adjustment, our compensation committee considers our
companys overall performance and the executive
officers performance, individual contribution, changes in
responsibilities and prior experience. Our compensation
committee may also take into account the executive
officers current
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salary and equity ownership and the amounts paid to other
executive officers of our company. Our compensation committee
relies upon its members experience with the compensation
practices of other companies, compensation survey data available
from outside sources and its members familiarity with the
competitive market.
For fiscal 2009, we determined the base salaries of each named
executive officer by evaluating our companys overall
performance and his performance, contributions and prior
experience. Our compensation committee made its compensation
decisions for fiscal 2009 based on its subjective judgment
taking into account the available information, including our
CEOs recommendations and the experience of the members of
our compensation committee with the compensation practices of
other companies, compensation survey data available from outside
sources and their familiarity with the competitive market. After
careful consideration, in October 2008, our compensation
committee increased the base salaries of Messrs. Keatley,
Ricci and Troughton by $50,000 (to $300,000), $25,000 (to
$275,000) and $50,000 (to $350,000), respectively. Our
compensation committee made these adjustments to make these base
salaries more competitive with those of other companies and to
compensate these named executive officers for increased
responsibilities associated with our companys growth.
Consistent with his request, Mr. Streit did not receive a
base salary increase. Our compensation committee believed
Mr. Streits then-current salary level was
competitive, and his salary, together with his equity ownership
in our company and vested stock option awards, would serve as an
effective means of retaining and incentivizing him.
In connection with the hiring of Mr. Sowell as our Chief
Operating Officer in March 2009, we negotiated an employment
arrangement with him that provided for an annual base salary of
$235,000. In negotiating and setting Mr. Sowells base
salary, we offered him the amount of compensation we believed
was necessary to attract a qualified candidate, taking into
account the other cash compensation and personal benefits
offered, including Mr. Sowells $4,000 per month
housing and travel allowance. See Other
Executive Benefits and Perquisites for a description of
this benefit. In July 2009, we increased Mr. Sowells
base salary by $50,000 (to $285,000) in recognition of the fact
that Mr. Sowells responsibilities within our company
were greater than originally anticipated and to achieve internal
equity among our named executive officer team.
The actual base salaries paid to our named executive officers in
fiscal 2009 are set forth in the Summary Compensation
Table below.
Cash Incentive Awards. We utilize cash bonuses
to incentivize our executive officers to achieve company
and/or
individual performance goals on a semi-annual basis, and to
reward extraordinary accomplishments. We establish bonus targets
for variable cash incentive awards annually, following the end
of the fiscal year, and we pay bonuses following the applicable
performance period (i.e., the first and second halves of each
fiscal year). Each executive officers target bonus amount
is a pre-determined amount that is intended to provide a
competitive level of compensation if the executive officer
achieves his performance targets. Performance targets consist of
one or more company performance objectives
and/or
individual objectives established by our CEO for the particular
executive officer. In general, we use performance targets to
ensure that our executive compensation program aligns the
interests of each of the named executive officers with those of
our stockholders and that we provide the named executive
officers with incentives to maximize their efforts throughout
the year. Our annual variable cash incentive awards are intended
to compensate our named executive officers for their
contribution to achieving semi-annual financial goals contained
in our company financial plan and for success in meeting any
individual performance objectives. We determine the actual bonus
award for each named executive officer according to his level of
achievement of his performance objectives. For more information
about our variable cash incentive awards, see
FY2009 Management Cash Incentive Compensation
Plan below.
Our compensation committee may grant non-plan cash incentive
awards at any time during the fiscal year to reward an executive
officer who accomplishes pre-established extraordinary or
nonrecurring business objectives on behalf of our company. To
date, the compensation committee has granted these awards
infrequently. In October 2008, our compensation committee
approved a $50,000 award
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to Mr. Troughton, conditioned upon his success at securing
a key commercial agreement on acceptable terms. We paid
Mr. Troughton this amount in full in January 2009 pursuant
to the terms of the award.
The actual cash incentive awards paid to our named executive
officers in fiscal 2009, as determined in accordance with our
management cash incentive compensation plan (described below) or
otherwise, are set forth in the Summary Compensation
Table below under the column captioned Non-Equity
Incentive Plan Compensation.
FY2009 Management Cash Incentive Compensation
Plan. We calculated all variable cash incentive
awards under our FY2009 Management Cash Incentive Compensation
Plan by multiplying the individuals on-target bonus amount
by the percentage of achievement of corporate objectives and, if
applicable, by the percentage of achievement of individual
objectives, or IOP. In keeping with past practice, in early
fiscal 2009 we established no individual objectives for our
named executive officers for any of the periods under the plan.
In March 2009, we tied our new Chief Operating Officers
cash incentive award to both corporate objectives and individual
objectives, as explained below.
Target Bonus. For fiscal 2009, our
compensation committee set the annual on-target bonus amount for
each executive officer at a value that it believed would provide
a competitive level of compensation if the executive officer
achieved his performance targets, based on its subjective
judgment taking into account the available information,
including our CEOs recommendations and its members
experience with the compensation practices of other companies,
compensation survey data available from outside sources and its
members familiarity with the competitive market. For
fiscal 2009, the individual on-target bonus amounts for the
named executive officers ranged from 15% to 36% of their
respective base annual salaries. The on-target bonus amounts for
our named executive officers for fiscal 2009 were as follows:
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On-Target
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Executive Officer
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Bonus Amount
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Steven W. Streit
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$
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75,000
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Mark T. Troughton
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100,000
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John L. Keatley
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100,000
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John C. Ricci
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100,000
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William D. Sowell
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28,471
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Mr. Sowells annual on-target bonus amount was
$70,500, prorated based on his date of hire of March 2,
2009. In connection with the hiring of Mr. Sowell as our
Chief Operating Officer in March 2009, we negotiated an
employment arrangement with him that provided for an on-target
bonus amount equal to 30% of his base annual salary, which we
believed was the level of variable cash incentive compensation
required to attract qualified candidates and provide the
candidate selected with appropriate incentives during his first
year of service. |
The actual on-target bonus amounts in each of the applicable
semi-annual periods were 50% of the amounts stated above. As
explained below, the actual amount of any variable cash
incentive award paid to a named executive officer could be less
than 100% of the applicable on-target bonus amount, depending on
the percentage of achievement of corporate and individual
objectives. The management cash incentive compensation plan
provides that the amount of the actual bonus payment cannot
exceed the on-target bonus amount.
Our board of directors approves a financial plan for our company
for each fiscal year and, in practice, that action resets our
management cash incentive plan for that year, establishing the
corporate objective under the plan. For fiscal 2009, the bonuses
were earned and paid semi-annually based upon attainment of the
semi-annual goals contained in our company financial plan for
profit before tax, or PBT, which is calculated by adding the
amount of stock-based compensation to the amount of Income
before income taxes reflected in our consolidated statements of
income. PBT was originally chosen as the corporate objective
under the plan because we believed it to be the best
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indicator of financial success and stockholder value creation
for our company. We also believe that the focus on PBT as the
corporate objective discourages inappropriate risk taking by our
executives as it encourages them to take a balanced approach
that focuses on corporate profitability. The PBT targets were
set at levels that were intended to reward the named executive
officers for achieving results that met our expectations. We
believe that, to provide for an appropriate incentive effect,
the goals should be such that to achieve 100% of the objective,
the performance for the applicable period must be aligned with
our company financial plan, and that named executive officers
should not be rewarded for company performance that did not
approximate our company financial plan. Accordingly, as
discussed below, we would have paid our named executive officers
nothing if the minimum achievement threshold level of a
particular goal was not met, i.e., was less than 90% of the PBT
target.
For the first and last six months of fiscal 2009, the PBT
targets under the plan were $24.3 million (145% growth) and
$36.4 million (69% growth), respectively, and actual
results were $24.2 million (144% growth) and
$42.4 million (96% growth), respectively. We determined
that the company objective percentage was 100% for both periods,
which under the above formula resulted in 100% of the awards
being payable to the executive officer participants, subject to
the impact of any individual objective(s) established for the
participants.
We may also set individual objectives under our management cash
incentive compensation plan to promote achievement of
non-financial operational goals. According to the plan, these
objectives should be:
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directly or indirectly linked to our companys achievement
of its objectives;
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aspirational i.e., their achievement should
represent a bonus-worthy accomplishment; and
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linked to the executive officers job description and
direct responsibilities.
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For purposes of the formula contained in the FY2009 Management
Cash Incentive Compensation Plan, we based the percentage of
achievement of individual objectives on the degree to which each
of the objectives is achieved, as determined by the assessments
and recommendations of our CEO. Any particular individual
objective that is achieved at less than 90% of the target for
that objective will be counted as zero, causing the amount that
has been allocated to the IOP for that objective to be zero and
reducing the total IOP.
For fiscal 2009, our compensation committee determined not to
establish individual objectives for our named executive officers
other than our new Chief Operating Officer, Mr. Sowell,
because it believed that, in general, their cash incentive
compensation should be based solely on our financial
performance. In October 2008, our compensation committee, to
ensure internal equity among executive officers under the plan,
approved a $50,000 non-plan incentive award to
Mr. Troughton that was conditioned upon his success at
securing a key commercial agreement on acceptable terms and that
was paid in full in January 2009.
As a managerial decision, in connection with the commencement of
the employment of our new Chief Operating Officer,
Mr. Sowell, our CEO established individual objectives for
Mr. Sowell under our FY2009 Management Cash Incentive
Compensation Plan for the second half of fiscal 2009. The fiscal
2009 individual objectives of Mr. Sowell focused on
operational objectives within his area of responsibility,
including the re-launch of our Green Dot-branded GPR card,
integration of PayPal as a network acceptance member and
developing enterprise processes for coordinating new product
development and assessing organizational risk. For the last six
months of fiscal 2009, our CEO determined that Mr. Sowell
achieved at least 90% of each of the individual objectives
contained in his cash incentive award. This resulted in an IOP
of 91.5%, which under the plan formula resulted in 91.5% of the
on-target bonus award amount being payable to Mr. Sowell.
84
Long-Term Equity-Based Awards
We utilize equity awards, principally stock options, to ensure
that our named executive officers have a continuing stake in our
long-term success. Because we award our executive officers stock
options with an exercise price equal to or greater than the fair
market value of our common stock on the date of grant, the
determination of which is discussed below, these options will
have value to our named executive officers only if the market
price of our common stock increases after the date of grant.
Typically, our stock options vest and become exercisable at a
rate of 25% of the shares subject to the option on the first
anniversary of the grant date, with the remainder of the shares
vesting monthly in equal installments over the next three years.
Our board of directors believes that these features of the
awards align the interests of our named executive officers with
those of the stockholders because they create the incentive to
build stockholder value over the long-term. In addition, equity
awards improve our ability to attract and retain our executives
by providing compensation that is competitive with market levels.
We typically grant stock options to executive officers upon
hiring or promotion, in connection with a significant change in
responsibilities, to recognize extraordinary performance, or to
achieve internal equity. At least annually, our compensation
committee
and/or our
board of directors review the equity ownership of our executive
officers and consider whether to make additional awards.
Typically, our board of directors determines to make equity
awards upon the recommendation of our compensation committee. In
making its recommendation or determination, our compensation
committee or our board of directors (as applicable) takes into
account, on a subjective basis, various factors. These factors
include the responsibilities, past performance and anticipated
future contributions of the executive officer, and the
competitiveness of the executives overall compensation
package, as well as the executive officers existing equity
holdings, the extent to which these holdings are vested, the
potential reward to the executive officer if the market value of
our common stock appreciates, and the recommendations of our
CEO. Frequently, the amount of each award is determined with
reference to a specified percentage of equity ownership in our
company that is deemed appropriate for the individual, based on
the foregoing factors.
We grant stock options with an exercise price equal to or
greater than the fair value of our stock on the applicable date
of grant. During fiscal 2009, our board of directors determined
the value of our common stock based on the methodologies and
other relevant factors discussed under Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates Stock-Based Compensation. Upon
completion of this offering, we expect to determine fair value
for purposes of stock option pricing based on the closing price
of our common stock on the NYSE on the date of grant.
During fiscal 2009, our compensation committee reviewed equity
compensation for the named executive officers and, with input
from our CEO, determined that it was appropriate to provide
additional incentive for Messrs. Keatley and Ricci to help
us achieve our long-term growth objectives. Accordingly, in
December 2008, upon the recommendation of our compensation
committee, our board of directors approved grants of options to
purchase 225,000 and 100,000 shares of our common stock to
Messrs. Keatley and Ricci, respectively, each with an
exercise price of $10.75 per share. The determination of the
number of shares of our common stock underlying each stock
option grant was made with reference to a specified percentage
of equity ownership in our company based on our compensation
committees recommendation in light of those
individuals respective performances, equity ownership and
level of vesting and the equity positions of our other named
executive officers. Based on our compensation committees
determination that the February 2008 stock option grants to
Messrs. Streit and Troughton were providing them with
sufficient incentive to help us achieve our long-term growth
objectives, our compensation committee did not recommend and our
board of directors did not grant awards of stock options to
Messrs. Streit or Troughton in fiscal 2009. However, based
on our CEOs recommendation, our compensation committee
converted the vesting terms of an option to purchase
400,000 shares of our common stock granted to
Mr. Troughton in February 2008 from vesting conditioned
upon our achievement of annual revenue goals to time-based
vesting because, in
85
view of our revenue growth during the first eight months of his
vesting period and other factors, our board of directors
determined that the performance goals were no longer necessary.
In connection with the hiring of Mr. Sowell in March 2009,
we negotiated an employment arrangement with him that provided
for an option to purchase 40,000 shares of our common
stock, which our compensation committee believed was the level
of compensation required to attract a qualified candidate and
retain and provide him with incentives to perform as required
over the duration of vesting of that award. In March 2009, our
board of directors approved a grant of options to purchase
40,000 shares of our common stock to Mr. Sowell with
an exercise price of $10.84 per share, pursuant to
Mr. Sowells employment arrangement. In July 2009, our
compensation committee recommended that our board of directors
grant Mr. Sowell an option to purchase 100,000 shares
of our common stock with an exercise price of $17.19. Our
compensation committee made this recommendation based on our
CEOs recommendation and in recognition of the fact that
Mr. Sowells responsibilities within our company were
greater than originally anticipated, as well as to promote
internal equity among our named executive officer team. This
award was granted in August 2009.
In the case of each of the stock option grants described above,
the exercise price of the stock options equaled 100% of the fair
value on the date of grant in accordance with the terms of the
2001 Plan. Each stock option vests and becomes exercisable at a
rate of 25% of the shares subject to the option on the first
anniversary of the grant date, with the remainder of the shares
vesting monthly in equal installments over the next three years.
Each of these stock options has a ten-year term.
In general, our stock option grants to date have been made under
our 2001 Stock Plan. We expect to adopt a new equity incentive
plan. The 2010 Equity Incentive Plan will replace our 2001 Stock
Plan and will afford greater flexibility in making a wide
variety of equity awards, including stock options, shares of
restricted stock and stock appreciation rights, to executive
officers and our other employees. See Executive
Compensation Employee Benefit Plans for
descriptions of our 2001 Plan and 2010 Equity Incentive Plan.
Severance and
Change of Control Agreements
As the result of arms-length negotiations in connection
with the offer letter to Mr. Sowell and the employment
agreement we entered into with Mr. Troughton, we have
agreed to provide each of them severance benefits if their
employment is terminated by our company without cause or, in the
case of Mr. Troughton, if he is constructively terminated
as a result of a material diminution in pay or duties. In such
an event, Mr. Sowell would be entitled to continued payment
of his base salary for twelve months and Mr. Troughton
would be entitled to continued payment of his base salary for
six months. The value of our severance arrangements for these
named executive officers was not a material factor in our
compensation committees or our board of directors
determination of the level of any other element of their
compensation.
We have routinely granted and will continue to grant our named
executive officers stock options under our equity incentive
plans. As further described in Executive
Compensation Severance and Change of Control
Agreements below, some of the option agreements for our
executive officers provide for acceleration of vesting of the
awards for up to 100% of the unvested shares in the event of a
change of control.
Other
Executive Benefits and Perquisites
We provide the following benefits to our executive officers on
the same basis as our other eligible employees:
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health insurance;
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vacation, personal holidays and sick days;
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life insurance and supplemental life insurance;
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short-term and long-term disability; and
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a 401(k) profit-sharing plan with matching contributions.
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86
We believe these benefits are generally consistent with those
offered by other companies and specifically with those companies
with which we compete for employees.
In addition to the foregoing, we reimburse
Mr. Streits cost of insurance premiums under our
healthcare plans, continuing the benefit we provided him under
our employment agreement with him that expired in January 2004.
Under the terms of his offer letter, we provide Mr. Sowell
with a housing and travel allowance of up to $4,000 per month.
We believed that this personal benefit was necessary to attract
and retain Mr. Sowell, who resides in Texas and was not
willing to relocate to the Southern California on a full-time
basis. In the event that Mr. Sowell terminates his
employment with us before March 2, 2011, he is required to
reimburse us for all amounts reimbursed to him under this
allowance.
Other
Compensation Practices and Policies
Stock Ownership Guidelines. We do not
currently have equity securities ownership guidelines.
Tax Considerations. Section 162(m) of the
Internal Revenue Code of 1986, as amended, or the Code,
disallows a tax deduction for any publicly-held corporation for
individual compensation exceeding $1.0 million in any
taxable year for its chief executive officer and each of the
other named executive officers (other than its chief financial
officer), unless compensation is performance-based. As we are
not currently publicly-held, our board of directors has not
previously taken the deductibility limit imposed by
Section 162(m) into consideration in setting compensation.
We expect, however, that our compensation committee will adopt a
policy that, where reasonably practicable, we will seek to
qualify the variable compensation paid to our executive officers
for an exemption from the deductibility limitations of
Section 162(m). Thus, in approving the amount and form of
compensation for our executive officers in the future, our
compensation committee will consider all elements of the cost to
our company of providing this compensation, including the
potential impact of Section 162(m). However, our
compensation committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes these payments are
appropriate to attract and retain executive talent.
Policy Regarding the Timing of Equity
Awards. Because we are a privately-held company,
there has been no market for our common stock. Accordingly, in
fiscal 2009, we had no program, plan or practice pertaining to
the timing of stock option grants to executive officers relative
to the timing of the release of material nonpublic information.
We do not, as of yet, have any plans to implement such a
program, plan or practice after becoming a public company.
However, we intend to implement policies to ensure that equity
awards are granted at fair market value on the date that the
grant occurs.
Policy Regarding Restatements. We do not have
a formal policy regarding adjustment or recovery of awards or
payments if the relevant performance measures upon which they
are based are restated or otherwise adjusted in a manner that
would reduce the size of the award or payment. Under those
circumstances, our board of directors or our compensation
committee would evaluate whether adjustments or recoveries of
awards were appropriate based upon the facts and circumstances
surrounding the restatement.
87
Executive
Compensation Tables
The following table provides information regarding all plan and
non-plan compensation awarded to, earned by or paid to our
principal executive officer, our principal financial officer and
our three other most highly compensated executive officers
serving as such at July 31, 2009 for all services rendered
in all capacities to us during fiscal 2009. We refer to these
five executive officers as our named executive officers.
Summary
Compensation Table
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Non-Equity
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Option
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Incentive Plan
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All Other
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Name and Principal Position
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Salary(1)
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Bonus
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Awards(2)
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Compensation(3)
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Compensation
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Total(4)
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Steven W. Streit
President and Chief Executive Officer
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$
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450,000
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$
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75,000
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$
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3,209
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(5)
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$
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528,209
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Mark T. Troughton
President, Cards and Network
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339,231
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150,000
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(6)
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489,231
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John L. Keatley
Chief Financial Officer
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289,231
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1,262,215
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100,000
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1,651,446
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John C. Ricci
General Counsel
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269,615
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560,985
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100,000
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930,600
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William D. Sowell(7)
Chief Operating Officer
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94,904
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233,055
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26,051
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24,176
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(8)
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378,186
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(1) |
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Effective in October 2008, the following named executive
officers received an increase in annual base salary to the
amounts set forth after their names:
Mr. Keatley $300,000;
Mr. Troughton $350,000 and
Mr. Ricci $275,000. Effective in July 2009,
Mr. Sowell received an increase in annual base salary to
$285,000. Effective in January 2010, the following named
executive officers received an increase in annual base salary to
the amounts set forth after their names:
Mr. Streit $525,000;
Mr. Troughton $475,000;
Mr. Keatley $425,000; and
Mr. Ricci $350,000. |
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(2) |
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The amounts in this column represent the grant date fair values
for equity awards granted to the named executive officers for
fiscal 2009 as discussed in note 11 of our notes to
consolidated financial statements included elsewhere in this
prospectus. See the Fiscal 2009 Grants of Plan-Based
Awards table for information on stock option grants made
in fiscal 2009. These amounts reflect our stock-based
compensation expense for these awards, and do not correspond to
the actual value that may be recognized by the named executive
officers. |
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(3) |
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The amounts in this column represent total performance-based
bonuses under our FY2009 Management Cash Incentive Compensation
Plan earned for services rendered in fiscal 2009. |
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(4) |
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The amounts in this column represent the sum of the compensation
amounts reflected in the other columns of this table. |
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(5) |
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Represents a health insurance premium paid on behalf of
Mr. Streit. |
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(6) |
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Includes a $50,000 incentive bonus awarded in January 2009 for
Mr. Troughtons success at securing a key commercial
agreement on acceptable terms. This bonus was not awarded under
our FY2009 Management Cash Incentive Compensation Plan. |
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(7) |
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Mr. Sowell joined our company in March 2009 and his
compensation represents the amount earned from that date through
the end of fiscal 2009. |
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(8) |
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Represents perquisites and personal benefits received in fiscal
2009 pursuant to Mr. Sowells housing and travel
allowance. |
In December 2008, we amended an option to purchase
400,000 shares of our common stock that was granted to
Mr. Troughton in February 2008 to change the terms of
vesting from performance-
88
based to time-based vesting. See Compensation
Discussion and Analysis Long-Term
Equity-Based
Awards above for further discussion of this award.
Following July 31, 2009, we awarded options to purchase
shares of our Class B common stock to the following
executive officers on the grant dates, in the amounts and with
the exercise prices, grant date fair values and expiration dates
set forth opposite their names:
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Number of
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Shares
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Option
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Option
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Underlying
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Exercise
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Grant Date
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Expiration
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Name
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Grant Date
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Options
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Price
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Fair Value
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Date
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(In thousands)
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Steven W. Streit
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11/02/09
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400,000
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$
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20.01
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$
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3,788
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11/02/19
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Mark T. Troughton
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11/02/09
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200,000
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20.01
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1,894
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11/02/19
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John L. Keatley
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11/02/09
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150,000
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20.01
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1,421
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11/02/19
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John C. Ricci
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11/02/09
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100,000
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20.01
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947
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11/02/19
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William D. Sowell
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08/03/09
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100,000
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17.19
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962
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08/03/19
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These options were granted under our 2001 Stock Plan and vest as
to 25% of the shares of common stock underlying the option on
the first anniversary of the vesting commencement date, with the
remainder vesting monthly in equal installments over the next
three years.
In December 2009, our board of directors awarded
257,984 shares of common stock to Mr. Streit to
compensate him for past services rendered to our company. The
number of shares awarded was equal to the number of fully-vested
stock options that were unintentionally allowed to expire
unexercised in June 2009. The aggregate grant date fair value of
the December 2009 award was approximately $5.2 million,
based on an estimated fair value of our common stock of $20.01,
as determined by our board of directors on the date of the award.
The following table provides information with regard to
potential cash bonuses paid or payable in fiscal 2009 under our
performance-based, non-equity incentive plan, and with regard to
each stock option granted to a named executive officer during
fiscal 2009. There were no equity incentive plan
awards made in fiscal 2009.
Fiscal 2009
Grants of Plan-Based Awards
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Number of
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Shares
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Exercise
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Estimated Possible Payouts Under
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Underlying
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Price of
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Grant
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Non-Equity Incentive Plan Awards
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Option
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Option
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Name
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Date
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Threshold
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Target
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Maximum
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Awards(1)
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Awards(2)
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Steven W. Streit
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(3
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$
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37,500
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$
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75,000
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$
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75,000
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Mark T. Troughton
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(3
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50,000
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100,000
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100,000
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(4
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50,000
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50,000
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50,000
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John L. Keatley
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(3
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50,000
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100,000
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100,000
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12/11/08
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225,000
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$
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10.75
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John C. Ricci
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(3
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50,000
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100,000
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100,000
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12/11/08
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100,000
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10.75
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William D. Sowell
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(3
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)(5)
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1,325
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32,708
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32,708
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03/19/09
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40,000
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10.84
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(1) |
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These option awards vest as to 25% of the shares of common stock
underlying the option on the first anniversary of the vesting
commencement date, with the remainder of the shares vesting
monthly in equal installments over the next three years. All
options were granted under our 2001 Stock Plan, which is
described below under Employee Benefit
Plans, and contain provisions that call for accelerated
vesting upon certain events following a change of control event,
as discussed above in Compensation Discussion
and Analysis and below in Severance and
Change of Control Agreements. |
89
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(2) |
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Represents the fair market value of a share of our common stock,
as determined by our board of directors, on the options
grant date. Please see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates
Stock-Based
Compensation above for a discussion of how we have valued
our common stock. |
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(3) |
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These rows represent possible cash incentive awards under our
FY2009 Management Cash Incentive Compensation Plan upon our
achievement of corporate profit goals. Actual awards are only
payable if the corporate objectives (i.e., PBT targets) are
achieved at a level of 90%. Actual awards cannot exceed 100% of
the target amount and are adjusted downward in the event
corporate objectives are achieved at a level between 90% and
100% by subtracting the actual percentage achievement from 100%,
multiplying that percentage by 5 and subtracting the resulting
percentage from 100%, which is then multiplied against the
target bonus amount. Bonuses were paid on a semi-annual basis.
See Compensation Discussion and Analysis
above for further discussion of these awards. |
|
(4) |
|
Represents a cash incentive award conditioned upon
Mr. Troughtons success at securing a key commercial
agreement on acceptable terms. See
Compensation Discussion and Analysis
above for additional information regarding this award. |
|
(5) |
|
Mr. Sowells award under our FY2009 Management Cash
Incentive Compensation Plan was also based on individual
objectives intended to promote achievement of non-financial
operational goals within his area of responsibility, as further
discussed in Compensation Discussion and
Analysis above, including the launch of the new Green
Dot-branded GPR card, integration of PayPal as a network
acceptance member and developing enterprise processes for
coordinating new product development and assessing
organizational risk. |
The following table provides information regarding each
unexercised stock option held by our named executive officers as
of July 31, 2009.
Outstanding
Equity Awards at July 31, 2009
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Option
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Option
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Number of Securities Underlying Unexercised Options(1)
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Exercise
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Expiration
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Name
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Exercisable
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Unexercisable
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Price(2)
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Date
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Steven W. Streit
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536,602
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$
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1.55
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6/05/14
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95,833
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104,167
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4.64
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2/12/18
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Mark T. Troughton
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109,375
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43,750
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1.41
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1/17/16
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215,625
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234,375
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4.64
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2/12/18
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John L. Keatley
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4,375
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1.41
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9/15/14
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3,125
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1.41
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8/22/15
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17,709
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6,250
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1.41
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1/17/16
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19,166
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9,375
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1.41
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4/24/16
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143,750
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156,250
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4.64
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2/12/18
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225,000
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10.75
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12/9/18
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John C. Ricci
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69,412
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0.83
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4/25/13
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218,750
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31,250
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1.41
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1/17/16
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59,895
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65,105
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4.64
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2/12/18
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100,000
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10.75
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12/9/18
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William D. Sowell
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40,000
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10.84
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3/17/19
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(1) |
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All options vest as to 25% of the shares of common stock
underlying the option on the first anniversary of the vesting
commencement date, with the remainder of the shares vesting
monthly in equal installments over the next three years. |
90
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(2) |
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Represents the fair market value of a share of our common stock,
as determined by our board of directors, on the options
grant date. Please see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates Stock-Based Compensation for a
discussion of how we have valued our common stock. |
No shares were acquired pursuant to the exercise of options by
our named executive officers during fiscal 2009.
Employment
Agreements, Offer Letters and Arrangements
Steven W. Streit. Mr. Streits
current annual salary is $525,000, and his maximum bonus under
our FY2010 Management Cash Incentive Compensation Plan is
$75,000.
Mark T. Troughton. Our employment agreement
with Mr. Troughton, dated July 30, 2004, provides for
an initial annual salary, eligibility for standard benefits and
bonus programs and company sponsorship of an application for a
green card. Mr. Troughtons current annual salary is
$475,000, and his maximum bonus under our FY2010 Management Cash
Incentive Compensation Plan is $100,000. This employment
agreement continues until it is terminated by Mr. Troughton
or us, and Mr. Troughton is required to provide
180 days written notice of his termination. As
discussed in Severance and Change of Control
Agreements, if we terminate Mr. Troughton without
cause (as defined in his agreement) or Mr. Troughton
terminates his employment for good reason (as defined in his
agreement), we have agreed to pay him six months of his
then-current salary.
John L. Keatley. Mr. Keatleys
current annual salary is $425,000, and his maximum bonus under
our FY2010 Management Cash Incentive Compensation Plan is
$100,000. Mr. Keatleys employment is at will and may
be terminated at any time, with or without formal cause.
John C. Ricci. Mr. Riccis current
annual salary is $350,000, and his maximum bonus under our
FY2010 Management Cash Incentive Compensation Plan is $100,000.
Mr. Riccis employment is at will and may be
terminated at any time, with or without formal cause.
William D. Sowell. Our offer letter to
Mr. Sowell, dated January 28, 2009, provides for an
initial annual salary and eligibility for our standard benefits
and bonus programs. Pursuant to the offer letter,
Mr. Sowell also received an option to purchase
40,000 shares of our common stock with an exercise price
equal to the fair market value of our common stock on the date
of grant. Mr. Sowells current annual salary is
$285,000, and his maximum bonus under our FY2010 Management Cash
Incentive Compensation Plan is 40% of his base salary. In
addition, we have agreed to provide Mr. Sowell with a
housing and travel allowance of up to $4,000 per month for
housing and travel expenses. In the event that Mr. Sowell
terminates his employment with us before March 2, 2011, he
will be required to reimburse us for the cumulative amounts
advanced to him in connection with this allowance.
Mr. Sowells employment is at will and may be
terminated at any time, with or without formal cause. As
discussed in Severance and Change of Control
Agreements, if we terminate Mr. Sowells
employment without cause (as defined in his offer letter), we
have agreed to pay him twelve months of his then-current salary.
Severance and
Change of Control Agreements
Mark T. Troughtons Severance
Arrangement. Under our employment agreement with
Mr. Troughton discussed above, we have agreed to pay him
six months of his then-current salary if we terminate him
without cause (as defined in his agreement) or he terminates his
employment for good reason (as defined in his agreement).
Assuming a qualifying termination as of July 31, 2009,
Mr. Troughton would have been entitled to receive $175,000
pursuant to his agreement with us.
William D. Sowells Severance
Arrangement. Under our offer letter with
Mr. Sowell discussed above, we have agreed to pay him
twelve months of his then-current salary if we terminate him
without cause (as defined in his agreement). Assuming a
qualifying termination as of July 31, 2009, Mr. Sowell
would have been entitled to receive $285,000 pursuant to his
offer letter.
Change in Control Arrangements. Certain option
agreements for the executive officers listed in the table below
provide for full vesting of the awards of the unvested shares in
the event of a change
91
in control. The following table summarizes the value of the
payouts to these executive officers pursuant to these awards,
assuming a qualifying termination as of July 31, 2009.
Values are based upon the per share market price of the shares
of our common stock underlying options as of July 31, 2009,
which is assumed to be the midpoint of the price range set forth
on the cover page of this prospectus minus the exercise price:
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Accelerated
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Name
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Stock Options
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Steven W. Streit
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$
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Mark T. Troughton
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John L. Keatley
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John C. Ricci
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William D. Sowell
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Employee Benefit
Plans
2001 Stock
Plan
Our board of directors adopted, and our stockholders approved,
our 2001 Stock Plan in January 2001. The 2001 Stock Plan was
amended and restated in February 2008. The 2001 Stock Plan
provides for the grant of both incentive stock options, which
qualify for favorable tax treatment to their recipients under
Section 422 of the Code and nonstatutory stock options, as
well as for the issuance of shares of restricted stock. We may
grant incentive stock options only to our employees. We may
grant nonstatutory stock options to our employees, directors,
consultants, independent contractors and advisors. The exercise
price of each stock option must be at least equal to the fair
market value of our common stock on the date of grant. The
exercise price of incentive stock options granted to 10%
stockholders must be at least equal to 110% of the fair market
value of our common stock on the date of grant. The maximum
permitted term of options granted under our 2001 Stock Plan is
ten years. In the event of a change in control, as
defined in the 2001 Stock Plan, the 2001 Stock Plan provides
that, unless the applicable option agreement provides otherwise,
options held by current employees, directors and consultants
will vest in full if they are not assumed or substituted or if
the employee, director or consultant is involuntarily terminated
within six months of the change in control.
As of October 31, 2009, we had reserved
9,943,134 shares of our common stock for issuance under our
2001 Stock Plan. As of October 31, 2009, options to
purchase 4,489,536 of these shares had been exercised, options
to purchase 4,963,547 of these shares remained outstanding and
443,075 of these shares remained available for future grant. In
addition, we had granted restricted stock awards for
46,985 shares of common stock. The options outstanding as
of October 31, 2009 had a weighted average exercise price
of $4.25. Our 2010 Equity Incentive Plan will be effective upon
the date of this prospectus. As a result, we will not grant any
additional options under the 2001 Stock Plan following that date
and the 2001 Stock Plan will terminate. However, any outstanding
options granted under the 2001 Stock Plan will remain
outstanding, subject to the terms of our 2001 Stock Plan and
stock option agreements, until they are exercised or until they
terminate or expire by their terms. Options granted under the
2001 Stock Plan have terms similar to those described below with
respect to options granted under our 2010 Equity Incentive Plan,
except
that .
2010 Equity
Incentive Plan
We anticipate that we will adopt a 2010 Equity Incentive Plan
that will become effective on the date of this prospectus and
will serve as the successor to our 2001 Stock Plan. We
anticipate that we will
reserve shares
of our common stock to be issued under our 2010 Equity Incentive
Plan. In addition, the following shares will again be available
for grant and issuance under our 2010 Equity Incentive Plan:
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shares subject to options granted under our 2010 Equity
Incentive Plan that cease to be subject to the option for any
reason other than exercise of the option;
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92
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shares subject to awards granted under our 2010 Equity Incentive
Plan that are subsequently forfeited or repurchased by us at the
original issue price; and
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shares subject to awards granted under our 2010 Equity Incentive
Plan that otherwise terminate without shares being issued.
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We anticipate that our 2010 Equity Incentive Plan will terminate
ten years from the date our board of directors approves the
plan, unless it is terminated earlier by our board of directors.
Our 2010 Equity Incentive Plan authorizes the award of stock
options, restricted stock awards, stock appreciation rights,
restricted stock units and stock bonuses. No person will be
eligible to receive more
than shares
in any calendar year under our 2010 Equity Incentive Plan other
than a new employee of ours, who will be eligible to receive no
more
than shares
under the plan in the calendar year in which the employee
commences employment.
Our 2010 Equity Incentive Plan will be administered by our
compensation committee, all of the members of which are
non-employee directors under applicable federal securities laws
and outside directors as defined under applicable federal tax
laws. The compensation committee will have the authority to
construe and interpret our 2010 Equity Incentive Plan, grant
awards and make all other determinations necessary or advisable
for the administration of the plan.
We anticipate that our 2010 Equity Incentive Plan will provide
for the grant of incentive stock options that qualify under
Section 422 of the Code only to our employees. All awards
other than incentive stock options may be granted to our
employees, directors, consultants, independent contractors and
advisors, provided the consultants, independent contractors and
advisors render services not in connection with the offer and
sale of securities in a capital-raising transaction. The
exercise price of stock options must be at least equal to the
fair market value of our common stock on the date of grant. The
exercise price of incentive stock options granted to 10%
stockholders must be at least equal to 110% of that value.
Our compensation committee may provide for options to be
exercised only as they vest or to be immediately exercisable
with any shares issued on exercise being subject to our right of
repurchase that lapses as the shares vest. In general, options
will vest over a four-year period. The maximum term of options
granted under our 2010 Equity Incentive Plan is ten years.
A restricted stock award is an offer by us to sell shares of our
common stock subject to restrictions. The price (if any) of a
restricted stock award will be determined by the compensation
committee. Unless otherwise determined by the compensation
committee at the time of award, vesting will cease on the date
the participant no longer provides services to us and unvested
shares will be forfeited to us.
Stock appreciation rights provide for a payment, or payments, in
cash or shares of our common stock, to the holder based upon the
difference between the fair market value of our common stock on
the date of exercise and the stated exercise price up to a
maximum amount of cash or number of shares. Stock appreciation
rights may vest based on time or achievement of performance
conditions.
Restricted stock units represent the right to receive shares of
our common stock at a specified date in the future, subject to
forfeiture of that right because of termination of employment or
failure to achieve certain performance conditions. If a
restricted stock unit has not been forfeited, then on the date
specified in the restricted stock unit agreement, we will
deliver to the holder of the restricted stock unit whole shares
of our common stock (which may be subject to additional
restrictions), cash or a combination of our common stock and
cash.
Stock bonuses may be granted as additional compensation for
service and/ or performance, and therefore, not be issued in
exchange for cash.
Awards granted under our 2010 Equity Incentive Plan may not be
transferred in any manner other than by will or by the laws of
descent and distribution or as determined by our compensation
committee. Unless otherwise restricted by our compensation
committee, awards that are nonstatutory stock options may be
exercised during the lifetime of the optionee only by the
optionee, the optionees guardian or legal representative,
or a family member of the optionee who has acquired the option
by a
93
permitted transfer. Awards that are incentive stock options may
be exercised during the lifetime of the optionee only by the
optionee or the optionees guardian or legal
representative. Options granted under our 2010 Equity Incentive
Plan generally may be exercised for a period of three months
after the termination of the optionees service to us.
Options will generally terminate immediately upon termination of
employment for cause.
If we are dissolved or liquidated or have a change in control
transaction, outstanding awards, including any vesting
provisions, may be assumed or substituted by the successor
company. Outstanding awards that are not assumed or substituted
will expire upon the dissolution, liquidation or closing of a
change in control transaction. In the discretion of our
compensation committee, the vesting of these awards may be
accelerated upon the occurrence of these types of transactions.
401(k)
Plan
We sponsor a retirement plan intended to qualify for favorable
tax treatment under Section 401(k) of the Code. Employees
who have attained at least 21 years of age are generally
eligible to participate in the plan on the first day of the
calendar month following the month in which employees commence
service with us. Participants may make pre-tax contributions to
the plan from their eligible earnings up to the statutorily
prescribed annual limit on pre-tax contributions under the Code.
Participants who are 50 years of age or older may
contribute additional amounts based on the statutory limits for
catch-up
contributions. We also make a matching contribution equal to 50%
of the first 6% of the eligible earnings that a participant
contributes to the plan. Pre-tax contributions by participants
and any employer contributions that we make to the plan and the
income earned on those contributions are generally not taxable
to participants until withdrawn. Employer contributions that we
make to the plan are generally deductible when made. Participant
contributions are held in trust as required by law. No minimum
benefit is provided under the plan. An employees interest
in his or her pre-tax deferrals is 100% vested when contributed.
We are permitted to contribute to the plan on a discretionary
basis and did contribute $73,000, $8,000 and $58,000 for the
years ended July 31, 2007, 2008 and 2009, respectively.
Limitation of
Liability and Indemnification of Directors and
Officers
Our restated certificate of incorporation contains provisions
that limit the liability of our directors for monetary damages
to the fullest extent permitted by Delaware law. Consequently,
our directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary
duties as directors, except for liability:
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for any breach of their duty of loyalty to our company or our
stockholders;
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for any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
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for any transaction from which they derived an improper personal
benefit.
|
Our restated bylaws provide that we will indemnify, to the
fullest extent permitted by law, any person who is or was a
party or is threatened to be made a party to any action, suit or
proceeding by reason of the fact that he or she is or was one of
our directors or officers or is or was serving at our request as
a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. Our restated bylaws provide
that we may indemnify to the fullest extent permitted by law any
person who is or was a party or is threatened to be made a party
to any action, suit or proceeding by reason of the fact that he
or she is or was one of our employees or agents or is or was
serving at our request as an employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise. Our restated bylaws also provide that we must
advance expenses incurred by or on behalf of a director or
officer in advance of the final disposition of any action or
proceeding, subject to very limited exceptions.
We have obtained insurance policies under which, subject to the
limitations of the policies, coverage is provided to our
directors and officers against loss arising from claims made by
reason of
94
breach of fiduciary duty or other wrongful acts as a director or
officer, including claims relating to public securities matters,
and to us with respect to payments that may be made by us to
these officers and directors pursuant to our indemnification
obligations or otherwise as a matter of law.
Prior to completion of this offering, we intend to enter into
indemnification agreements with each of our directors and
executive officers that may be broader than the specific
indemnification provisions contained in the Delaware General
Corporation Law. These indemnification agreements may require
us, among other things, to indemnify our directors and executive
officers against liabilities that may arise by reason of their
status or service. These indemnification agreements may also
require us to advance all expenses incurred by the directors and
executive officers in investigating or defending any such
action, suit or proceeding. We believe that these agreements are
necessary to attract and retain qualified individuals to serve
as directors and executive officers.
At present, we are not aware of any pending litigation or
proceeding involving any person who is or was one of our
directors, officers, employees or other agents or is or was
serving at our request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, for which indemnification is sought, and we
are not aware of any threatened litigation that may result in
claims for indemnification.
The underwriting agreement provides for indemnification by the
underwriters of us and our officers, directors and employees for
certain liabilities arising under the Securities Act or
otherwise.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling our company pursuant to the foregoing
provisions, we have been informed that, in the opinion of the
SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
95
TRANSACTIONS WITH
RELATED PARTIES, FOUNDERS AND CONTROL PERSONS
In addition to the compensation arrangements, including
employment, termination of employment and
change-in-control
arrangements and indemnification arrangements, discussed, when
required, above under Management and Executive
Compensation, and the registration rights described below
under Description of Capital stock
Registration Rights, the following is a description of
each transaction since August 1, 2006 and each currently
proposed transaction in which:
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we have been or are to be a participant;
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the amount involved exceeded or exceeds $120,000; and
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any of our directors, executive officers or holders of more than
5% of our capital stock, or any immediate family member of or
person sharing the household with any of these individuals, had
or will have a direct or indirect material interest.
|
Repurchase of
Common and Preferred Stock
In January 2007, we repurchased 2,926,458 shares of our
capital stock for $6.8342 per share, or an aggregate of
$20.0 million. As part of this transaction, we repurchased
shares of our common stock from certain of our directors,
executive officers and holders of more than 5% of our capital
stock, as follows: Steven W. Streit
1,359,892 shares; TTP Fund, L.P.
199,711 shares; Mark T. Troughton
48,483 shares; and John C. Ricci
5,294 shares. In addition, Kenneth C. Aldrich donated
36,115 shares of our common stock to a charitable
organization, which were repurchased by us in connection with
the January 2007 repurchase transaction.
Series C-2
Preferred Stock Financing
In December 2008, we issued and sold 1,181,818 shares of
Series C-2
Preferred Stock for $11.00 per share, or $13.0 million. All
shares in the financing were sold to entities affiliated with
Sequoia Capital, a holder of more than 5% of our capital stock,
as follows: Sequoia Capital Franchise Fund
775,774 shares, Sequoia Capital IX.1 Holdings
LLC 288,247 shares, Sequoia Capital Franchise
Partners 105,787 shares and Sequoia Capital
Entrepreneurs Annex Fund 12,010 shares.
Each of the shares of
Series C-2
Preferred Stock will automatically convert into one share of our
Class B common stock immediately prior to the closing of
this offering. The proceeds from this offering were used to
repurchase a portion of our Series D Preferred Stock.
Series D
Preferred Stock Repurchase
In December 2008, we repurchased all of our 2,926,458
outstanding shares of Series D Preferred Stock from GE
Capital Equity Investments, Inc., then a holder of more than 5%
of our capital stock and an affiliate of Michael S. Fisher, a
former member of our board of directors, for $13.38 per share,
or approximately $39.2 million. As part of this
transaction, we also purchased a call option that gave us the
right to repurchase from GE Capital Equity Investments, Inc. an
outstanding warrant to purchase 500,000 shares of our
common stock. This call option was exercisable at any time
between March 1, 2009 and September 1, 2009. In June
2009, we exercised the call option and repurchased the warrant
for $2.0 million.
Warrant
Exercises
In November 2006, Donald B. Wiener, a former member of our board
of directors, exercised warrants to purchase 224,132 shares
of our Class B common stock for his own account and on
behalf of a number of individuals who have appointed him to be
their attorney-in-fact with respect to certain matters related
to interests in our capital stock.
In March 2007, David W. Hanna, Trustee, David William Hanna
Trust dated October 30, 1989, exercised warrants to
purchase 145,348 shares of our Class B common stock.
Mr. Hanna is the spouse of Virginia L. Hanna, a member of
our board of directors.
96
Loans to
Executive Officers
In March 2004 and February 2006, we loaned $3.0 million and
$800,000, respectively, to Steven W. Streit, our Chairman,
President and Chief Executive Officer. These loans bore interest
at rates of 3.5% and 4.5%, respectively, compounded
semi-annually, and would have matured in March 2011. The notes
were secured by 2,500,000 shares of our common stock owned
by Mr. Streit. In November 2009, Mr. Streit repaid in
full the principal and all accrued interest under these notes.
In May 2006, we loaned $622,000 to Mark T. Troughton, our
President, Cards and Network, and monthly from June 2006 through
October 2006, we loaned him $17,800. In May 2008, we loaned him
an additional $364,000. These loans, aggregating
$1.1 million, bore interest at rates of 2.72% to 5.14%,
compounded annually, and would have matured in May 2013. They
were secured by 898,000 shares of our common stock owned by
Mr. Troughton. In November 2009, Mr. Troughton repaid
in full the principal and all accrued interest under this note.
In February 2008, we loaned $120,000 to John L. Keatley, our
Chief Financial Officer. This loan bore interest at the rate of
3.48%, compounded semi-annually, and would have matured in
February 2015. It was secured by 85,000 shares of our
common stock. In November 2009, Mr. Keatley repaid in full
the principal and all accrued interest under this note.
Review, Approval
or Ratification of Transactions with Related Parties
Our policy and the charters of the nominating and governance
committee and the audit committee adopted by our board of
directors
on ,
2010 require that any transaction with a related party that must
be reported under applicable rules of the SEC (other than
compensation-related matters) must be reviewed and approved or
ratified by the nominating and governance committee, unless the
related party is, or is associated with, a member of that
committee, in which event the transaction must be reviewed and
approved by the audit committee. These committees have not
adopted policies or procedures for review of, or standards for
approval of, related party transactions.
97
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table presents information as to the beneficial
ownership of our common stock as of February 22, 2010, and
as adjusted to reflect our sale of Class A common stock in
this offering assuming no exercise of the underwriters
option to purchase additional shares, by:
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each stockholder known by us to be the beneficial owner of more
than 5% of our common stock;
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each of our directors;
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each of our named executive officers;
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all of our directors and executive officers as a group; and
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each selling stockholder.
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Beneficial ownership is determined in accordance with the rules
of the SEC and thus represents sole or shared voting or
investment power with respect to our securities. Unless
otherwise indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment
power with respect to all shares that they beneficially owned,
subject to community property laws where applicable. Shares of
our common stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of
February 22, 2010 are deemed to be outstanding and to be
beneficially owned by the person holding the option or warrant
for the purpose of computing the percentage ownership of that
person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
Percentage ownership of our common stock before this offering is
based on 37,017,459 shares of our Class B common stock
outstanding on February 22, 2010, which includes
24,941,521 shares of common stock resulting from the
automatic conversion of all outstanding shares of our preferred
stock upon the completion of this offering, as if this
conversion had occurred as of February 22, 2010. Percentage
ownership of our Class A and Class B common stock
after the offering also assumes our sale
of shares
of Class A common stock by us and the automatic conversion
of shares
Class B common stock
into shares
of Class A common stock in connection with and immediately
prior to the sale of such shares in this offering. Unless
otherwise indicated, the address of each of the individuals and
entities named below is
c/o Green
Dot Corporation, 605 East Huntington Drive, Suite 205,
Monrovia, California 91016.
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Shares Beneficially
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Shares Beneficially Owned Prior to
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Owned after
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the Offering
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Shares of
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the Offering
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Class B
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Class A
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Class A
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Class B
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% Total
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Common Stock
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Common Stock
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Common Stock
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Common Stock
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Voting
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Name and Address of Beneficial Owner
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Shares
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%
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Being Offered
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Shares
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%
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Shares
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%
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Power
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Sequoia Capital(1)
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12,099,373
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32.7
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%
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Michael J. Moritz
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Steven W. Streit(2)
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5,011,521
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13.3
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TTP Fund, L.P.(3)
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4,106,783
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11.1
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W. Thomas Smith Jr.
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Mark T. Troughton(4)
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1,191,991
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3.2
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Virginia L. Hanna(5)
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1,176,790
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3.2
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Timothy R. Greenleaf(6)
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580,879
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1.6
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YKA Partners Ltd.(7)
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400,630
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1.1
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Kenneth C. Aldrich
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John C. Ricci(8)
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384,244
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1.0
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John L. Keatley(9)
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345,708
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*
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William D. Sowell(10)
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10,833
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*
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William H. Ott, Jr.
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All directors and executive officers as a group
(11 persons)(11)
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25,308,752
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65.1
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Other selling stockholders(12)
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* |
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Represents beneficial ownership of less than 1% of our
outstanding shares of common stock. |
98
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** |
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The shares of Class A common stock being offered will be
acquired through the exercise of options at the closing of the
offering, and thus the number of shares shown in the footnotes
as being subject to options will be reduced by the same number
after the offering. |
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Each share of Class B common stock is immediately
convertible into one share of Class A common stock. As of
February 22, 2010, there were no shares of Class A
common stock outstanding. Accordingly, as of February 22,
2010, the percentage of Class B shares beneficially owned
by each person is equal to both the total beneficial ownership
percentage and the percentage of total voting power. |
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Each share of Class B common stock is immediately
convertible into one share of Class A common stock.
Accordingly, for the purpose of computing the percentage of
Class A shares beneficially owned by each person who holds
Class B common stock after the offering, each share of
Class B common stock is deemed to have been converted into
a share of Class A common stock, but such shares of
Class B common stock are not deemed to have been converted
into Class A common stock for the purpose of computing the
percentage ownership of any other person. |
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Holders of Class A common stock are entitled to one vote
per share and holders of Class B common stock are entitled
to ten votes per share. Holders of common stock vote together as
a single class on all matters submitted to a vote of
stockholders, unless otherwise required by law. For the purpose
of computing the percentage of total voting power after the
offering, each share of Class B common stock is deemed not
to have been converted into a share of Class A common
stock, and thus represents 10 votes per share. |
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(1) |
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Represents 7,778,099 shares owned by Sequoia Capital
Franchise Fund, 1,850,387 shares owned by Sequoia Capital
IX, 1,246,945 shares owned by Sequoia Capital US Growth
Fund IV, L.P., 1,060,650 shares owned by Sequoia
Capital Franchise Partners and 163,292 shares owned by
Sequoia Capital Entrepreneurs Annex Fund. SCFF Management,
LLC is the sole general partner of Sequoia Capital Franchise
Fund and Sequoia Capital Franchise Partners. SCIX Management,
LLC is the sole general partner of Sequoia Capital IX and
Sequoia Capital Entrepreneurs Annex Fund. SCGF IV Management, LP
(Cayman) is the mid-tier general partner and SCGF GenPar, Ltd.
(Cayman) is the top tier general partner of Sequoia Capital US
Growth Fund IV, LP. Michael J. Moritz, one of our
directors, is a Managing Director of SCGF GenPar, Ltd. (Cayman),
and he is a Managing Member of SCFF Management, LLC, SCIX
Management, LLC, SCGF IV Management, LP and SCGF IV Management,
LP (Cayman). Mr. Moritz may be deemed to have shared voting
and investment power over the shares held by Sequoia Capital
Franchise Fund, Sequoia Capital IX, Sequoia Capital US Growth
Fund IV, L.P., Sequoia Capital Franchise Partners and
Sequoia Capital Entrepreneurs Annex Fund, as applicable.
Mr. Moritz disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein. The
address for Mr. Moritz and each of these entities is 3000
Sand Hill Road, Building 4, Suite 250, Menlo Park,
California 94025. |
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Represents 4,311,713 shares owned by the Steven W. Streit
Family Trust, of which Mr. Streit is the trustee,
34,040 shares owned by his children and 665,768 shares
subject to options held by Steven W. Streit that are exercisable
within 60 days of February 22, 2010. |
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(3) |
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W. Thomas Smith, Jr., one of our directors, is a managing
partner of Total Technology Ventures, LLC, the general partner
of TTP Fund, L.P. The other managing partner is Gardiner W.
Garrard. The address for TTP Fund, L.P. is 1230 Peachtree
Street, Promenade II, Suite 1190, Atlanta, Georgia 30309. |
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Includes 443,750 shares subject to options held by
Mr. Troughton that are exercisable within 60 days of
February 22, 2010. |
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Represents 1,029,955 shares held by the David William Hanna
Trust dated October 30, 1989, 78,635 shares held by
Tim J. Morgan, Trustee, of the Hanna 2008 Annuity
Trust Dated 6/5/08 and 68,200 shares held by the
Virginia L. Hanna Trust dated August 16, 2001.
Ms. Hanna disclaims beneficial ownership of the shares held
by the David William Hanna Trust dated |
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October 30, 1989 and the shares held by Tim J. Morgan,
Trustee of the Hanna 2008 Annuity Trust dated 6/5/08, except to
the extent of her economic interest therein. The address of
these trusts is
c/o Hanna
Capital Management, 8105 Irvine Center Drive, Suite 1170,
Irvine, California 92618. |
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Represents 330,190 shares held by The Greenleaf Family
Trust Dated May 16, 1999, of which Timothy R.
Greenleaf is the trustee, and 250,689 shares held by
Mr. Greenleaf. |
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Represents shares held by YKA Partners Ltd., of which Kenneth C.
Aldrich, one of our directors, is the agent of the general
partner. |
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(8) |
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Represents 5,234 shares held by John C. Ricci,
4,460 shares held by his minor children and
374,550 shares subject to options held by John C. Ricci
that are exercisable within 60 days of February 22,
2010. |
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(9) |
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Represents 25,000 shares held by John L. Keatley,
3,000 shares held by his minor daughters and
317,708 shares subject to options held by Mr. Keatley
that are exercisable within 60 days of February 22,
2010. This amount does not include 10,000 shares held by
the Keatley Family Trust, of which he is neither a trustee nor a
beneficiary. |
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Represents shares subject to options held by Mr. Sowell
that are exercisable within 60 days of February 22,
2010. |
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(11) |
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Includes 1,812,609 shares subject to options that are
exercisable within 60 days of February 22, 2010. |
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(12) |
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Represents shares
held
by
selling stockholders, no one of whom owns more than 1% of our
outstanding shares of common stock or is selling more than
shares. |
100
The following table presents information as to the beneficial
ownership of our common stock as of February 22, 2010, and
as adjusted to reflect our sale of Class A common stock in
this offering assuming exercise in full of the
underwriters option to purchase additional shares, by:
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each stockholder known by us to be the beneficial owner of more
than 5% of our common stock;
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each of our directors;
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each of our named executive officers;
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all of our directors and executive officers as a group; and
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each selling stockholder.
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Beneficial ownership is determined on the same basis described
in the previous table, including the footnotes.
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Shares Beneficially Owned
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after Offering if the
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Number of Shares
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Underwriters Option is
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to be Sold if the
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Exercised in Full
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Underwriters
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Class A
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Class B
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% Total
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Option is
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Common Stock
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Common Stock
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Voting
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Name and Address of Beneficial Owner
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Exercised in Full
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Shares
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%
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Shares
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%
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Power
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Sequoia Capital
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Michael J. Moritz
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Steven W. Streit
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TTP Fund, L.P.
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W. Thomas Smith Jr.
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Virginia L. Hanna
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Mark T. Troughton
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Timothy R. Greenleaf
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YKA Partners Ltd.
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Kenneth C. Aldrich
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John C. Ricci
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John L. Keatley
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William D. Sowell
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William H. Ott, Jr.
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All directors and executive officers as a group (11 persons)
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Other selling stockholders
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101
DESCRIPTION OF
CAPITAL STOCK
Upon the completion of this offering, our authorized capital
stock will consist
of shares
of Class A common stock, $0.001 par value per
share, shares
of Class B common stock, $0.001 par value per share,
and 5,000,000 shares of undesignated preferred stock,
$0.001 par value per share. The following description
summarizes the most important terms of our capital stock.
Because it is only a summary, it does not contain all the
information that may be important to you. For a complete
description, you should refer to our restated certificate of
incorporation and restated bylaws, which are included as
exhibits to the registration statement of which this prospectus
forms a part, and to the provisions of applicable Delaware law.
Common
Stock
As of October 31, 2009, there were no shares of our
Class A common stock outstanding. Assuming the conversion
of all shares of our preferred stock into shares of our
Class B common stock, which will occur immediately prior to
the closing of this offering, as of October 31, 2009, there
were 37,017,459 shares of our Class B common stock
outstanding, held
by
stockholders of record, and no shares of our preferred stock
outstanding. After this offering, there will
be shares
of our Class A common stock
and shares
of our Class B common stock
and shares
of our Class B common stock outstanding. Our board of
directors is authorized, without stockholder approval, to issue
additional shares of Class A and Class B common stock.
Dividend Rights. Subject to preferences that
may apply to any shares of preferred stock outstanding at the
time, the holders of outstanding shares of our Class A and
Class B common stock are entitled to receive dividends out
of funds legally available at the times and in the amounts that
our board of directors may determine.
Voting Rights. Holders of our Class A and
Class B common stock have identical rights, except that
holders of our Class A common stock are entitled to one
vote per share and holders of our Class B common stock are
entitled to 10 votes per share. Holders of shares of our
Class A common stock and Class B common stock will
vote together as a single class on all matters (including the
election of directors) submitted to a vote of stockholders,
unless otherwise required by law. Delaware law could require
either our Class A common stock or our Class B common
stock to vote separately as a single class in the following
circumstances:
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If we were to seek to amend our certificate of incorporation to
increase the authorized number of shares of a class of stock, or
to increase or decrease the par value of a class of stock, then
that class would be required to vote separately to approve the
proposed amendment; and
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If we were to seek to amend our certificate of incorporation in
a manner that altered or changed the powers, preferences or
special rights of a class of stock in a manner that affected
them adversely, then that class would be required to vote
separately to approve the proposed amendment.
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We have not provided for cumulative voting for the election of
directors in our certificate of incorporation.
No Preemptive or Similar Rights. Neither our
Class A nor our Class B common stock is entitled to
preemptive rights, and neither is subject to redemption.
Conversion. Our Class A common stock is
not convertible into any other shares of our capital stock. Each
share of our Class B common stock is convertible at any
time at the option of the holder into one share of our
Class A common stock. In addition, each share of our
Class B common stock will convert automatically into one
share of our Class A common stock upon any transfer,
whether or not for value, except for estate planning,
intercompany and other similar transfers or upon the date that
the total number of shares of our Class B common stock
outstanding represents less than 10% of the total number of
shares of our Class A and Class B common stock
outstanding. Once transferred and converted into Class A
common stock, the Class B common stock may not be reissued.
No class
102
of our common stock may be subdivided or combined unless the
other class of our common stock concurrently is subdivided or
combined in the same proportion and in the same manner.
Right to Receive Liquidation
Distributions. Upon our liquidation, dissolution
or
winding-up,
the assets legally available for distribution to our
stockholders would be distributable ratably among the holders of
our Class A and Class B common stock and any
participating preferred stock outstanding at that time after
payment of liquidation preferences, if any, on any outstanding
shares of preferred stock and payment of other claims of
creditors.
Fully Paid and Non-Assessable. All of the
outstanding shares of our Class B common stock are, and the
shares of our Class A common stock to be issued pursuant to
this offering will be, fully paid and non-assessable.
Preferred
Stock
Following this offering, our board of directors will be
authorized, subject to limitations prescribed by Delaware law,
to issue preferred stock in one or more series, to establish
from time to time the number of shares to be included in each
series, and to fix the designation, powers, preferences and
rights of the shares of each series and any of its
qualifications, limitations or restrictions, in each case
without further action by our stockholders. Our board of
directors can also increase or decrease the number of shares of
any series of preferred stock, but not below the number of
shares of that series then outstanding, unless approved by the
affirmative vote of the holders of a majority of our capital
stock entitled to vote, or such other vote as may be required by
the certificate of designation establishing the series. Our
board of directors may authorize the issuance of preferred stock
with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of our common stock.
The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in our control and
might adversely affect the market price of our common stock and
the voting and other rights of the holders of our common stock.
We have no current plan to issue any shares of preferred stock.
Warrants
As of October 31, 2009, we had outstanding the following
warrants to purchase shares of our capital stock:
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Total Number of
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Shares Subject
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Exercise Price
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Type of Capital Stock
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to Warrants
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per Share
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Expiration Date
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Class B common stock*
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4,283,456(1
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)
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$
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23.70
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March 3, 2017(2)
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Series C-1
preferred stock(3)
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283,786
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1.41
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February 11, 2012
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* |
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This warrant is redeemable for cash if we fail to perform under
our commercial agreement with the holder. In addition, we have
the right to repurchase any shares previously issued upon the
exercise of the warrant if the holder fails to perform under the
same agreement. |
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(1) |
|
Of these shares, 3,426,765 shares will vest and become
exercisable only upon the achievement of certain performance
goals prior to the earlier of March 3, 2014 or the
termination of our commercial agreement with the holder, and the
remaining shares will vest and become exercisable only if
certain other performance goals also take place prior to the
same deadline. |
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(2) |
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The warrant may expire earlier than this date. The warrant
provides that it expires on the earlier of March 3, 2014 or
the termination of our commercial agreement with the holder if
none of the shares subject to the warrant have vested prior to
the earlier event. Should any of the shares subject to the
warrant vest, the warrant expires on the earliest of the date on
which our commercial agreement with the holder is terminated,
the date of a change in control of our company or March 3,
2017. |
103
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(3) |
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Any warrants to purchase shares of our
Class C-1
preferred stock that remain outstanding following the completion
of this offering will become exercisable for a like number of
shares of our Class B common stock. |
Registration
Rights
Pursuant to the terms of our eighth amended and restated
registration rights agreement, immediately following this
offering, the holders of
approximately shares
of our Class B common stock will be entitled to rights with
respect to the registration of these shares under the Securities
Act, as described below.
Demand Registration Rights. At any time
beginning six months after the completion of this offering, the
holders of at least 50% of the then-outstanding shares having
registration rights can request that we file a registration
statement covering registrable securities with an anticipated
aggregate offering price of at least $5.0 million. We are
only required to file two registration statements upon exercise
of these demand registration rights. We may postpone the filing
of a registration statement for up to 90 days once in a
12-month
period if we determine that the filing would be detrimental to
us.
Piggyback Registration Rights. If we register
any of our Class A common stock for public sale, holders of
shares having registration rights will have the right to include
their shares in the registration statement. However, this right
does not apply to a registration relating to any of our employee
benefit plans, a registration relating to a corporate
reorganization or acquisition or a registration in which the
only common stock being registered is common stock issuable upon
conversion of debt securities that are also being registered.
The managing underwriter of any underwritten offering will have
the right, in its sole discretion, to limit, because of
marketing reasons, the number of shares registered by these
holders, in which case the number of shares to be registered
will be apportioned pro rata among these holders, according to
the total amount of securities entitled to be included by each
holder, or in a manner mutually agreed upon by the holders.
However, the number of shares to be registered by these holders
cannot be reduced below 25% of the total shares covered by the
registration statement.
Form S-3
Registration Rights. The holders of at least 20%
of the then-outstanding shares having registration rights can
request that we register all or part of their shares on
Form S-3
if we are eligible to file a registration statement on
Form S-3
and if the aggregate price to the public of the shares offered
is at least $1.0 million. The stockholders may only require
us to file two registration statements on
Form S-3
in a
12-month
period. We may postpone the filing of a registration statement
on
Form S-3
for up to 90 days once in a
12-month
period if we determine that the filing would be detrimental to
us and our stockholders.
Expenses of Registration Rights. We will pay
all expenses, other than underwriting discounts and commissions
and the fees and disbursements of more than one counsel for the
selling stockholders, incurred in connection with the
registrations described above, except for the expenses incurred
pursuant to the third registration following the exercise of the
Form S-3
registration rights described above in a
12-month
period.
Expiration of Registration Rights. The
registration rights described above will expire, with respect to
any particular holder of these rights, on the earlier of the
fifth anniversary of the completion of this offering or when
that holder can sell all of its registrable securities in any
three-month period under Rule 144 of the Securities Act.
Anti-Takeover
Provisions
The provisions of Delaware law, our dual class structure, our
restated certificate of incorporation and our restated bylaws
may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.
Delaware Law. We are governed by the
provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the date of
104
the transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes
mergers, asset sales or other transactions resulting in a
financial benefit to the stockholder. An interested
stockholder is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of
the corporations outstanding voting stock. These
provisions may have the effect of delaying, deferring or
preventing a change in our control.
Dual Class Structure. As discussed above, our
Class B common stock has ten votes per share, while our
Class A common stock, which is the class of stock we and
the selling stockholders are selling in this offering and which
will be the only class of stock which is publicly traded, has
one vote per share. After the offering, our current directors,
executive officers, holders of more than 5% of our common stock
and their respective affiliates will, in the aggregate,
beneficially own approximately % of
our outstanding Class B common stock, representing
approximately % of the total voting
power of our outstanding capital stock
(approximately % and
approximately %, respectively, if
the underwriters exercise their over-allotment option in full).
Because of our dual class structure, the holders of our
Class B common stock will continue to be able to control
all matters submitted to our stockholders for approval even if
they own significantly less than 50% of the shares of our
outstanding common stock. This concentrated control could
discourage others from initiating any potential merger, takeover
or other change of control transaction that other stockholders
might view as beneficial. Our board of directors is authorized,
without stockholder approval, to issue additional shares of
Class A and Class B common stock.
Restated Certificate of Incorporation and Restated Bylaw
Provisions. Our restated certificate of
incorporation and our restated bylaws provide for a dual class
structure and includes a number of other provisions that could
deter hostile takeovers or delay or prevent changes in control
of our management team, including the following:
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Board of Directors Vacancies. Our restated
certificate of incorporation and restated bylaws authorize only
our board of directors to fill vacant directorships. In
addition, the number of directors constituting our board of
directors is permitted to be set only by a resolution adopted by
a majority vote of our entire board of directors. These
provisions would prevent a stockholder from increasing the size
of our board of directors and then gaining control of our board
of directors by filling the resulting vacancies with its own
nominees.
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Classified Board. Our restated certificate of
incorporation and restated bylaws provide that our board is
classified into three classes of directors. This could delay a
successful tender offeror from obtaining majority control of our
board of directors, and the prospect of that delay might deter a
potential offeror. In addition, stockholders are not permitted
to cumulate their votes for the election of directors.
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Stockholder Action; Special Meeting of
Stockholders. Our restated certificate of
incorporation provides that our stockholders may not take action
by written consent, but may only take action at annual or
special meetings of our stockholders. Our restated bylaws
further provide that special meetings of our stockholders may be
called only by a majority of our board of directors, the
chairman of our board of directors, our chief executive officer
or our president.
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Advance Notice Requirements for Stockholder Proposals and
Director Nominations. Our restated bylaws provide advance
notice procedures for stockholders seeking to bring business
before our annual meeting of stockholders, or to nominate
candidates for election as directors at our annual meeting of
stockholders. Our restated bylaws also specify certain
requirements regarding the form and content of a
stockholders notice. These provisions might preclude our
stockholders from bringing matters before our annual meeting of
stockholders or from making nominations for directors at our
annual meeting of stockholders.
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Limits on Voting Power. Our restated
certificate of incorporation provides that a holder, or group of
affiliated holders, of more than 24.9% of our common stock may
not vote shares representing more than 14.9% of the voting power
represented by the outstanding shares of our Class A and
Class B common stock. These provisions might make it more
difficult or
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105
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discourage an attempt by such a stockholder to obtain control of
us by means of a merger, tender offer, proxy contest or other
means.
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Issuance of Undesignated Preferred Stock. Our
board of directors has the authority, without further action by
the stockholders, to issue up
to shares
of undesignated preferred stock with rights and preferences,
including voting rights, designated from time to time by our
board of directors. The existence of authorized but unissued
shares of preferred stock would enable our board of directors to
render more difficult or to discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy contest
or other means.
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Listing
We intend to apply for the listing of our Class A common
stock on the NYSE under the symbol
.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock
is .
106
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
Class A common stock, and we cannot predict the effect, if
any, that market sales of shares of our Class A common
stock or the availability of shares of our Class A common
stock for sale will have on the market price of our Class A
common stock prevailing from time to time. Nevertheless, sales
of substantial amounts of our Class A common stock, or the
perception that those sales could occur, including shares of
Class A common stock issued upon conversion of Class B
common stock issued upon exercise of outstanding options or
warrants, in the public market after this offering could
adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through the sale of
our equity securities.
Upon the completion of this offering, based on the number of
shares outstanding as
of ,
2010, we will have a total
of shares
of our Class A and Class B common stock outstanding.
Of these outstanding shares, all of
the shares
of Class A common stock sold in this offering will be
freely tradable, except that any shares held by our affiliates,
as that term is defined in Rule 144 under the Securities
Act, may only be sold in compliance with the limitations
described below.
The remaining outstanding shares of our Class B common
stock will be deemed restricted securities as defined in
Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701
promulgated under the Securities Act, which rules are summarized
below. In addition, all of our security holders, except for the
holders of warrants to purchase up to 283,786 shares of our
Class B common stock, have entered into market standoff
agreements with us or
lock-up
agreements with the underwriters under which they have agreed,
subject to specific exceptions, not to sell any of our stock for
at least 180 days following the date of this prospectus.
Subject to the provisions of Rule 144 or Rule 701,
based on an assumed offering date
of ,
2010, shares will be available for sale in the public market as
follows:
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shares
will be eligible for sale immediately upon completion of this
offering;
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shares
will be eligible for sale beginning 90 days after the date
of this prospectus; and
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shares
will be eligible for sale upon the expiration of the
lock-up
and/or
market standoff agreements described below, subject in some
cases to the volume and other restrictions of Rule 144 and
Rule 701 also described below.
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Lock-Up
Agreements
All of our directors and officers and all of our security
holders other than the holders of warrants to purchase up to
283,786 shares of our Class B common stock are subject
to lock-up
agreements that, subject to exceptions described in the
Underwriting section below, prohibit them from
offering for sale, selling, contracting to sell, granting any
option for the sale of, transferring or otherwise disposing of
any shares of our common stock, options or warrants to acquire
shares of our common stock or any security or instrument related
to this common stock, option or warrant for a period of at least
180 days following the date of this prospectus without the
prior written consent of J.P. Morgan Securities Inc. and
Morgan Stanley & Co. Incorporated. In addition, all of
our security holders, other than the holder of warrants to
purchase up to 283,786 shares of our Class B common stock,
are subject to market standoff provisions that contain
restrictions similar to those contained in the lock-up
agreements.
Rule 144
In general, under Rule 144 as currently in effect, once we
have been subject to public company reporting requirements for
at least 90 days, a person who is not deemed to have been
one of our affiliates for purposes of the Securities Act at any
time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least
six months, including the holding period of any prior owner
other than our affiliates, is entitled to sell those shares
without complying with the manner of sale, volume limitation or
notice provisions of Rule 144, subject to compliance with
the public information requirements of Rule 144. If such a
person has beneficially owned the shares
107
proposed to be sold for at least one year, including the holding
period of any prior owner other than our affiliates, then that
person would be entitled to sell those shares immediately
without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our
affiliates or persons selling shares on behalf of our affiliates
are entitled to sell upon expiration of the
lock-up
agreements described above, within any three-month period, a
number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of our Class A common
stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
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Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased
shares of our common stock pursuant to a written compensatory
plan or contract and who is not deemed to have been an affiliate
of our company during the immediately preceding 90 days to
sell these shares in reliance upon Rule 144, but without
being required to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144.
Rule 701 also permits affiliates of our company to sell
their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144.
All holders of Rule 701 shares, however, are required
to wait until 90 days after the date of this prospectus
before selling those shares pursuant to Rule 701.
Stock
Options
We intend to file a registration statement on
Form S-8
under the Securities Act covering all of the shares of our
Class B common stock subject to options outstanding and the
shares of our Class A Common Stock and Class B Common
Stock reserved for issuance under our stock plans. We expect to
file this registration statement as soon as practicable after
the completion of this offering. In addition, we intend to file
a registration statement on
Form S-8
or such other form as may be required under the Securities Act
for the resale of shares of our Class B common stock issued
upon the exercise of options that were not granted under
Rule 701. We expect to file this registration statement as
soon as permitted under the Securities Act. However, the shares
registered on
Form S-8
may be subject to the volume limitations and the manner of sale,
notice and public information requirements of Rule 144 and
will not be eligible for resale until expiration of the
lock-up
agreements to which they are subject.
Warrants
As of October 31, 2009, we had an outstanding warrant to
purchase 283,786 shares of Class B common stock. This
warrant contains a net exercise provision. This
provision allows a holder to exercise the warrant for a lesser
number of shares of Class B common stock in lieu of paying
cash. The number of shares that would be issued in this case
would be based upon the market price of the Class B common
stock at the time of the net exercise. Because the warrant has
been held for at least one year, any shares of Class B
common stock issued upon net exercise of that warrant could be
publicly sold under Rule 144 following completion of this
offering. After the
lock-up and
market standoff agreements described above expire, an unvested
warrant to purchase up to 4,283,456 shares of our
Class B common stock, which also contains a net exercise
provision, will have been outstanding for at least one year, and
any shares of Class B common stock issued upon net exercise
of that warrant could be publicly sold under Rule 144. This
warrant vests and becomes exercisable only upon achievement of
certain performance goals. See Description of Capital
Stock Warrants.
108
Registration
Rights
We have granted demand, piggyback and
Form S-3
registration rights to certain of our stockholders to sell our
common stock. For a further description of these rights, see
Description of Capital Stock Registration
Rights.
109
UNDERWRITING
We are offering the shares of Class A common stock
described in this prospectus through a number of underwriters.
J.P. Morgan Securities Inc. and Morgan Stanley &
Co. Incorporated are acting as joint book-running managers of
the offering and as representatives of the underwriters. We have
entered into an underwriting agreement with the underwriters.
Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each
underwriter has severally agreed to purchase, at the public
offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus, the number of
shares of our Class A common stock listed next to its name
in the following table:
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Number of
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Name
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Shares
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J.P. Morgan Securities Inc.
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Morgan Stanley & Co. Incorporated
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Piper Jaffray & Co.
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UBS Securities LLC
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Total
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The underwriters are committed to purchase all the shares of our
Class A common stock offered by us if they purchase any
shares. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting
underwriters may also be increased or the offering may be
terminated.
The underwriters propose to offer the Class A common stock
directly to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside the
United States may be made by affiliates of the underwriters. The
representatives have advised us that the underwriters do not
intend to confirm discretionary sales in excess of 5% of the
Class A common stock offered in this offering.
The underwriters have an option to buy up
to
additional shares of our Class A common stock from us and
the selling stockholders to cover over-allotments, if any. The
underwriters have 30 days from the date of this prospectus
to exercise this over-allotment option. If any shares are
purchased with this over-allotment option, the underwriters will
purchase shares in approximately the same proportion as shown in
the table above. If any additional shares of our Class A
common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the shares
are being offered.
The underwriting fee is equal to the public offering price per
share of our Class A common stock less the amount paid by
the underwriters to us per share of our Class A common
stock. The underwriting fee is $
per share. The following table shows the per share and total
underwriting discounts and commissions to be paid to the
underwriters assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
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Without Over-
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With Full Over-
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Allotment Exercise
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Allotment Exercise
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Per share
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$
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$
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Total
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$
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$
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We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ .
110
A prospectus in electronic format may be made available on the
web sites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
We have agreed that we will not (i) offer, pledge, announce
the intention to sell, 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 dispose of, directly or indirectly, or file with the
SEC a registration statement under the Securities Act relating
to, any shares of our Class A common stock or securities
convertible into or exchangeable or exercisable for any shares
of our Class A common stock, or publicly disclose the
intention to make any offer, sale, pledge, disposition or
filing, or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences
associated with the ownership of any shares of our Class A
common stock or any such other securities (regardless of whether
any of these transactions are to be settled by the delivery of
shares of our Class A common stock or such other
securities, in cash or otherwise), in each case without the
prior written consent of J.P. Morgan Securities Inc. and
Morgan Stanley & Co. Incorporated for a period of
180 days after the date of this prospectus, other than
(A) the shares of our Class A common stock to be sold
hereunder, (B) grants and settlements of awards under our
stock plans that are described in this prospectus, (C) the
filing of a registration statement in connection with an
employee stock compensation plan and (D) the issuance of
securities in connection with certain acquisitions, joint
ventures or other strategic transactions, provided that the
aggregate number of shares issued in all such transactions under
this clause (D) may not exceed 10% of our outstanding stock
upon the consummation of this initial public offering and any
recipient of any such shares agrees to be subject to the
restrictions set forth in the following paragraph.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Our directors, executive officers and all of our security
holders have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with limited exceptions, for a period of 180 days
after the date of this prospectus, may not, without the prior
written consent of J.P. Morgan Securities Inc. and Morgan
Stanley & Co. Incorporated, (1) offer, pledge,
announce the intention to sell, 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 our Class A common stock or any securities
convertible into or exercisable or exchangeable for our
Class A common stock (including, without limitation,
Class A common stock or such other securities which may be
deemed to be beneficially owned by such directors, executive
officers, managers and members in accordance with the rules and
regulations of the SEC and securities which may be issued upon
exercise of a stock option or warrant) or (2) enter into
any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of our
Class A common stock or such other securities, whether any
such transaction described in clause (1) or (2) above
is to be settled by delivery of our Class A common stock or
such other securities, in cash or otherwise, or (3) make
any demand for or exercise any right with respect to the
registration of any shares of our Class A common stock or
any security convertible into or exercisable or exchangeable for
our Class A common stock. Notwithstanding the foregoing, if
(1) during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the
111
restrictions described above shall continue to apply until the
expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of our Class A common stock
in the open market for the purpose of preventing or retarding a
decline in the market price of our Class A common stock
while this offering is in progress. These stabilizing
transactions may include making short sales of our Class A
common stock, which involves the sale by the underwriters of a
greater number of shares of our Class A common stock than
they are required to purchase in this offering, and purchasing
shares of our Class A common stock in the open market to
cover positions created by short sales. Short sales may be
covered shorts, which are short positions in an
amount not greater than the underwriters over-allotment
option referred to above, or may be naked shorts,
which are short positions in excess of that amount. The
underwriters may close out any covered short position either by
exercising their over-allotment option, in whole or in part, or
by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which the underwriters may
purchase shares through the over-allotment option. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
our Class A common stock in the open market that could
adversely affect investors who purchase shares in this offering.
To the extent that the underwriters create a naked short
position, they will purchase shares in the open market to cover
the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of our Class A common stock, including the
imposition of penalty bids. This means that, if the
representatives of the underwriters purchase our Class A
common stock in the open market in stabilizing transactions or
to cover short sales, the representatives can require the
underwriters that sold those shares as part of this offering to
repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining
the market price of our Class A common stock or preventing
or retarding a decline in the market price of our Class A
common stock, and, as a result, the price of our Class A
common stock may be higher than the price that otherwise might
exist in the open market. If the underwriters commence these
activities, they may discontinue them at any time. The
underwriters may carry out these transactions on the NYSE, in
the
over-the-counter
market or otherwise.
Prior to this offering, there has been no public market for our
Class A common stock. The initial public offering price
will be determined by negotiations between us, the selling
stockholders and the representatives of the underwriters. In
determining the initial public offering price, we and the
representatives of the underwriters expect to consider a number
of factors including:
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|
|
the information set forth in this prospectus and otherwise
available to the representatives;
|
|
|
|
our prospects and the history and prospects for the industry in
which we compete;
|
|
|
|
an assessment of our management;
|
|
|
|
our prospects for future earnings;
|
|
|
|
the general condition of the securities markets at the time of
this offering;
|
|
|
|
the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
|
|
|
|
other factors deemed relevant by the underwriters and us.
|
Neither we nor the underwriters can assure investors that an
active trading market will develop for our Class A common
stock, or that the shares will trade in the public market at or
above the initial public offering price.
112
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities 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 such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to 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 securities offered
by this prospectus in any jurisdiction in which such an offer or
a solicitation is unlawful.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such securities will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive (the EU
Prospectus Directive) is implemented in that Relevant
Member State (the Relevant Implementation Date), an
offer of securities described in this prospectus may not be made
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares that has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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|
|
to legal entities that are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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|
to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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|
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running managers for any
such offer; or
|
|
|
|
in any other circumstances that do not require the publication
by the issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
|
For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Relevant Member State and the expression EU Prospectus Directive
means Directive 2003/71/EC and includes any relevant
implementing measure in each Relevant Member State.
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services to us and those
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. In addition, from time to time, certain of the
underwriters and their affiliates may effect transactions for
113
their own account or the accounts of customers, and hold on
behalf of themselves or their customers, long or short positions
in our debt or equity securities or loans, and may do so in the
future.
LEGAL
MATTERS
Fenwick & West LLP, Mountain View, California, will
pass upon the validity of the issuance of the shares of our
Class A common stock offered by this prospectus. Cravath,
Swaine & Moore LLP, New York, New York, will act as
counsel to the underwriters.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements at July 31, 2008 and 2009, and for each of the
three fiscal years in the period ended July 31, 2009, as
set forth in their report. We have included our consolidated
financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young
LLPs report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to our Class A common
stock. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information
set forth in the registration statement, some items of which are
contained in exhibits to the registration statement as permitted
by the rules and regulations of the SEC. For further information
with respect to us and our Class A common stock, we refer
you to the registration statement, including the exhibits and
the consolidated financial statements and notes filed as a part
of the registration statement. Statements contained in this
prospectus concerning the contents of any contract or any other
document are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement,
please see the copy of the contract or document that has been
filed. Each statement in this prospectus relating to a contract
or document filed as an exhibit is qualified in all respects by
the filed exhibit. The exhibits to the registration statement
should be reviewed for the complete contents of these contracts
and documents. A copy of the registration statement, including
the exhibits and the consolidated financial statements and notes
filed as a part of the registration statement, may be inspected
without charge at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be
obtained from the SEC upon the payment of fees prescribed by it.
You may call the SEC at
1-800-SEC-0330
for more information on the operation of the public reference
facilities. The SEC maintains a website at
http://www.sec.gov
that contains reports, proxy and information statements and
other information regarding companies that file electronically
with it.
As a result of this offering, we will become subject to the
information and reporting requirements of the Exchange Act and,
in accordance with this law, will file periodic reports, proxy
statements and other information with the SEC. These periodic
reports, proxy statements and other information will be
available for inspection and copying at the SECs public
reference facilities and the website of the SEC referred to
above.
114
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Green Dot Corporation
We have audited the accompanying consolidated balance sheets of
Green Dot Corporation (the Company) as of July 31, 2008 and
2009, and the related consolidated statements of operations,
changes in redeemable convertible preferred stock and in
stockholders equity (deficit), and cash flows for each of
the three years in the period ended July 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Green Dot Corporation at July 31,
2008 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended July 31, 2009 in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
February 26, 2010
F-2
Green Dot
Corporation
Consolidated
Balance Sheets
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|
|
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|
October 31,
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|
|
|
|
|
|
|
|
2009
|
|
|
|
July 31,
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|
|
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|
Pro Forma
|
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|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
(Note 2)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash and cash equivalents
|
|
$
|
39,285
|
|
|
$
|
26,564
|
|
|
$
|
43,242
|
|
|
|
|
|
Settlement assets
|
|
|
17,445
|
|
|
|
35,570
|
|
|
|
52,813
|
|
|
|
|
|
Accounts receivable, net
|
|
|
14,080
|
|
|
|
19,967
|
|
|
|
20,663
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
5,700
|
|
|
|
6,317
|
|
|
|
7,840
|
|
|
|
|
|
Income taxes receivable
|
|
|
1,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
4,446
|
|
|
|
5,681
|
|
|
|
5,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
82,044
|
|
|
|
94,099
|
|
|
|
130,239
|
|
|
|
|
|
Restricted cash
|
|
|
2,328
|
|
|
|
15,367
|
|
|
|
15,381
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
1,357
|
|
|
|
1,456
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|
|
|
|
|
Prepaid expenses and other assets
|
|
|
829
|
|
|
|
1,115
|
|
|
|
1,111
|
|
|
|
|
|
Property and equipment, net
|
|
|
7,096
|
|
|
|
8,679
|
|
|
|
9,908
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|
|
|
|
|
Deferred expenses
|
|
|
4,949
|
|
|
|
2,652
|
|
|
|
3,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
97,246
|
|
|
$
|
123,269
|
|
|
$
|
161,628
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
4,464
|
|
|
$
|
8,359
|
|
|
$
|
8,035
|
|
|
|
|
|
Settlement obligations
|
|
|
17,445
|
|
|
|
35,570
|
|
|
|
52,813
|
|
|
|
|
|
Amounts due to card issuing banks for overdrawn accounts
|
|
|
23,578
|
|
|
|
18,269
|
|
|
|
19,809
|
|
|
|
|
|
Other accrued liabilities
|
|
|
9,360
|
|
|
|
6,865
|
|
|
|
9,091
|
|
|
|
|
|
Deferred revenue
|
|
|
8,351
|
|
|
|
7,404
|
|
|
|
7,759
|
|
|
|
|
|
Income tax payable
|
|
|
|
|
|
|
337
|
|
|
|
6,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
63,198
|
|
|
|
76,804
|
|
|
|
104,072
|
|
|
|
|
|
Other accrued liabilities
|
|
|
571
|
|
|
|
2,561
|
|
|
|
2,465
|
|
|
|
|
|
Deferred revenue
|
|
|
169
|
|
|
|
138
|
|
|
|
109
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
2,024
|
|
|
|
1,528
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
65,962
|
|
|
|
81,031
|
|
|
|
108,174
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D redeemable convertible preferred stock,
$0.001 par value:
2,926 shares authorized, issued and outstanding at
July 31, 2008, reported at redemption value; no shares
issued and outstanding at July 31, 2009 or October 31,
2009 (unaudited)
|
|
|
26,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.001 par value:
24,372 shares authorized, 23,837 shares issued and
outstanding as of July 31, 2008; 25,554 shares
authorized, 24,942 shares issued and outstanding as of
July 31, 2009 and October 31, 2009 (unaudited);
liquidation preference of $18,345 as of July 31, 2008 and
$31,322 as of July 31, 2009 and October 31, 2009
(unaudited)
|
|
|
18,345
|
|
|
|
31,322
|
|
|
|
31,322
|
|
|
$
|
|
|
Common stock, $0.001 par value: 50,000 shares
authorized as of July 31, 2008 and 2009 and
October 31, 2009 (unaudited); 11,753, 12,040 and
12,076 shares issued and outstanding as of July 31,
2008 and 2009 and October 31, 2009 (unaudited), respectively
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
|
|
37
|
|
Additional paid-in capital
|
|
|
3,593
|
|
|
|
2,955
|
|
|
|
3,822
|
|
|
|
35,119
|
|
Related party notes receivable
|
|
|
(5,235
|
)
|
|
|
(5,814
|
)
|
|
|
(5,869
|
)
|
|
|
(5,869
|
)
|
Retained earnings (accumulated deficit)
|
|
|
(12,247
|
)
|
|
|
13,763
|
|
|
|
24,167
|
|
|
|
24,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,468
|
|
|
|
42,238
|
|
|
|
53,454
|
|
|
$
|
53,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders equity
|
|
$
|
97,246
|
|
|
$
|
123,269
|
|
|
$
|
161,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
Green Dot
Corporation
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
45,717
|
|
|
$
|
91,233
|
|
|
$
|
119,356
|
|
|
$
|
27,635
|
|
|
$
|
30,532
|
|
Cash transfer revenues
|
|
|
25,419
|
|
|
|
45,310
|
|
|
|
62,396
|
|
|
|
14,556
|
|
|
|
17,807
|
|
Interchange revenues
|
|
|
12,488
|
|
|
|
31,583
|
|
|
|
53,064
|
|
|
|
10,418
|
|
|
|
17,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
83,624
|
|
|
|
168,126
|
|
|
|
234,816
|
|
|
|
52,609
|
|
|
|
66,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
38,838
|
|
|
|
69,577
|
|
|
|
75,786
|
|
|
|
20,538
|
|
|
|
18,165
|
|
Compensation and benefits expenses
|
|
|
20,610
|
|
|
|
28,303
|
|
|
|
40,096
|
|
|
|
9,191
|
|
|
|
12,067
|
|
Processing expenses
|
|
|
9,809
|
|
|
|
21,944
|
|
|
|
32,320
|
|
|
|
7,297
|
|
|
|
10,053
|
|
Other general and administrative expenses
|
|
|
13,212
|
|
|
|
19,124
|
|
|
|
22,944
|
|
|
|
5,747
|
|
|
|
8,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
82,469
|
|
|
|
138,948
|
|
|
|
171,146
|
|
|
|
42,773
|
|
|
|
48,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,155
|
|
|
|
29,178
|
|
|
|
63,670
|
|
|
|
9,836
|
|
|
|
17,877
|
|
Interest income
|
|
|
771
|
|
|
|
665
|
|
|
|
396
|
|
|
|
210
|
|
|
|
60
|
|
Interest expense
|
|
|
(625
|
)
|
|
|
(247
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,301
|
|
|
|
29,596
|
|
|
|
64,065
|
|
|
|
10,046
|
|
|
|
17,937
|
|
Income tax expense (benefit)
|
|
|
(3,346
|
)
|
|
|
12,261
|
|
|
|
26,902
|
|
|
|
4,219
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,647
|
|
|
$
|
17,335
|
|
|
$
|
37,163
|
|
|
$
|
5,827
|
|
|
$
|
10,404
|
|
Dividends, accretion, and allocated earnings of preferred stock
|
|
|
(5,157
|
)
|
|
|
(13,650
|
)
|
|
|
(29,000
|
)
|
|
|
(4,409
|
)
|
|
|
(7,013
|
)
|
Net income (loss) allocated to common stockholders
|
|
$
|
(510
|
)
|
|
$
|
3,685
|
|
|
$
|
8,163
|
|
|
$
|
1,418
|
|
|
$
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.34
|
|
|
$
|
0.68
|
|
|
$
|
0.12
|
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.26
|
|
|
$
|
0.52
|
|
|
$
|
0.09
|
|
|
$
|
0.22
|
|
Weighted-average common shares issued and outstanding
|
|
|
11,100
|
|
|
|
10,757
|
|
|
|
12,036
|
|
|
|
12,026
|
|
|
|
12,060
|
|
Weighted-average diluted common shares issued and outstanding
|
|
|
11,100
|
|
|
|
14,154
|
|
|
|
15,712
|
|
|
|
16,034
|
|
|
|
15,318
|
|
Pro forma earnings per common share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
|
|
|
$
|
0.28
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.91
|
|
|
|
|
|
|
$
|
0.26
|
|
Pro forma weighted-average shares issued and outstanding
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
36,978
|
|
|
|
|
|
|
|
37,002
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
40,654
|
|
|
|
|
|
|
|
40,260
|
|
See notes to consolidated financial statements.
F-4
Green Dot
Corporation
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and in Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
(Accumulated
|
|
|
Total
|
|
|
|
Convertible
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Party
|
|
|
Deficit)
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Notes
|
|
|
Retained
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Earnings
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
24,088
|
|
|
$
|
18,540
|
|
|
|
11,508
|
|
|
$
|
12
|
|
|
$
|
1,318
|
|
|
$
|
(4,020
|
)
|
|
$
|
(9,695
|
)
|
|
$
|
6,155
|
|
Exercise of warrants and options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,361
|
|
|
|
1
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
1,066
|
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(711
|
)
|
|
|
|
|
|
|
(711
|
)
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
Issuance of new shares and repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of existing shares, net
|
|
|
2,926
|
|
|
|
18,701
|
|
|
|
|
(251
|
)
|
|
|
(195
|
)
|
|
|
(2,675
|
)
|
|
|
(3
|
)
|
|
|
(2,191
|
)
|
|
|
|
|
|
|
(16,419
|
)
|
|
|
(18,808
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
3,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,635
|
)
|
|
|
(3,635
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,647
|
|
|
|
4,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
2,926
|
|
|
|
22,336
|
|
|
|
|
23,837
|
|
|
|
18,345
|
|
|
|
10,194
|
|
|
|
10
|
|
|
|
539
|
|
|
|
(4,922
|
)
|
|
|
(25,102
|
)
|
|
|
(11,130
|
)
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559
|
|
|
|
2
|
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
1,623
|
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
1,240
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
(4,480
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,335
|
|
|
|
17,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
2,926
|
|
|
|
26,816
|
|
|
|
|
23,837
|
|
|
|
18,345
|
|
|
|
11,753
|
|
|
|
12
|
|
|
|
3,593
|
|
|
|
(5,235
|
)
|
|
|
(12,247
|
)
|
|
|
4,468
|
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
415
|
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
|
|
|
|
(364
|
)
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,468
|
|
|
|
|
|
|
|
|
|
|
|
2,468
|
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,956
|
)
|
|
|
(1,956
|
)
|
Issuance of new shares and repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of existing shares, net
|
|
|
(2,926
|
)
|
|
|
(28,772
|
)
|
|
|
|
1,105
|
|
|
|
12,977
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(1,778
|
)
|
|
|
|
|
|
|
(9,197
|
)
|
|
|
2,002
|
|
Exercise of call option on warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,163
|
|
|
|
37,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
24,942
|
|
|
|
31,322
|
|
|
|
12,040
|
|
|
|
12
|
|
|
|
2,955
|
|
|
|
(5,814
|
)
|
|
|
13,763
|
|
|
|
42,238
|
|
Exercise of options (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Interest on related party notes receivable (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
Net income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,404
|
|
|
|
10,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2009 (Unaudited)
|
|
|
|
|
|
$
|
|
|
|
|
|
24,942
|
|
|
$
|
31,322
|
|
|
|
12,076
|
|
|
$
|
12
|
|
|
$
|
3,822
|
|
|
$
|
(5,869
|
)
|
|
$
|
24,167
|
|
|
$
|
53,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
Green Dot
Corporation
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,647
|
|
|
$
|
17,335
|
|
|
$
|
37,163
|
|
|
$
|
5,827
|
|
|
$
|
10,404
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,524
|
|
|
|
4,407
|
|
|
|
4,593
|
|
|
|
1,145
|
|
|
|
1,296
|
|
Provision for uncollectible overdrawn accounts
|
|
|
7,909
|
|
|
|
16,135
|
|
|
|
22,548
|
|
|
|
5,214
|
|
|
|
6,486
|
|
Stock-based compensation
|
|
|
156
|
|
|
|
1,240
|
|
|
|
2,468
|
|
|
|
586
|
|
|
|
712
|
|
Provision (benefit) for uncollectible trade receivables
|
|
|
(133
|
)
|
|
|
50
|
|
|
|
61
|
|
|
|
75
|
|
|
|
22
|
|
Impairment of capitalized software
|
|
|
|
|
|
|
|
|
|
|
405
|
|
|
|
89
|
|
|
|
36
|
|
Deferred income tax (benefit) expense
|
|
|
(2,635
|
)
|
|
|
40
|
|
|
|
(1,731
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement assets
|
|
|
(2,544
|
)
|
|
|
(2,033
|
)
|
|
|
(18,125
|
)
|
|
|
(21,049
|
)
|
|
|
(17,243
|
)
|
Accounts receivable
|
|
|
(11,001
|
)
|
|
|
(24,717
|
)
|
|
|
(29,853
|
)
|
|
|
(6,837
|
)
|
|
|
(7,303
|
)
|
Prepaid expenses and other assets
|
|
|
(551
|
)
|
|
|
(2,263
|
)
|
|
|
(903
|
)
|
|
|
(383
|
)
|
|
|
(1,544
|
)
|
Deferred expenses
|
|
|
(862
|
)
|
|
|
(2,750
|
)
|
|
|
2,297
|
|
|
|
(139
|
)
|
|
|
(881
|
)
|
Accounts payable and accrued liabilities
|
|
|
2,607
|
|
|
|
4,665
|
|
|
|
3,170
|
|
|
|
731
|
|
|
|
1,519
|
|
Settlement obligations
|
|
|
3,983
|
|
|
|
4,529
|
|
|
|
18,125
|
|
|
|
21,049
|
|
|
|
17,243
|
|
Amounts due to card issuing banks for overdrawn accounts
|
|
|
3,888
|
|
|
|
10,785
|
|
|
|
(5,309
|
)
|
|
|
(11,871
|
)
|
|
|
1,540
|
|
Deferred revenue
|
|
|
(2,000
|
)
|
|
|
4,394
|
|
|
|
(978
|
)
|
|
|
(243
|
)
|
|
|
326
|
|
Income taxes payable (receivable)
|
|
|
(4,527
|
)
|
|
|
3,189
|
|
|
|
1,366
|
|
|
|
4,126
|
|
|
|
6,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,461
|
|
|
|
35,006
|
|
|
|
35,297
|
|
|
|
(1,680
|
)
|
|
|
18,841
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(260
|
)
|
|
|
(43
|
)
|
|
|
(13,039
|
)
|
|
|
(10
|
)
|
|
|
(14
|
)
|
Purchase of property and equipment
|
|
|
(4,298
|
)
|
|
|
(5,120
|
)
|
|
|
(6,361
|
)
|
|
|
(1,219
|
)
|
|
|
(2,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,558
|
)
|
|
|
(5,163
|
)
|
|
|
(19,400
|
)
|
|
|
(1,229
|
)
|
|
|
(2,263
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on short-term debt
|
|
|
(2,584
|
)
|
|
|
(2,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on line of credit
|
|
|
(148,560
|
)
|
|
|
(76,961
|
)
|
|
|
(12,404
|
)
|
|
|
|
|
|
|
|
|
Borrowings from line of credit
|
|
|
151,056
|
|
|
|
74,465
|
|
|
|
12,404
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants and options
|
|
|
355
|
|
|
|
1,678
|
|
|
|
110
|
|
|
|
|
|
|
|
100
|
|
Exercise of call option on warrant
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
|
|
Issuance of preferred shares and freestanding warrant
|
|
|
20,000
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
Redemption of preferred and common shares
|
|
|
(20,109
|
)
|
|
|
|
|
|
|
(39,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
158
|
|
|
|
(3,264
|
)
|
|
|
(28,618
|
)
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in unrestricted cash and cash equivalents
|
|
|
(1,939
|
)
|
|
|
26,579
|
|
|
|
(12,721
|
)
|
|
|
(2,909
|
)
|
|
|
16,678
|
|
Unrestricted cash and cash equivalents, beginning of year
|
|
|
14,645
|
|
|
|
12,706
|
|
|
|
39,285
|
|
|
|
39,285
|
|
|
|
26,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash and cash equivalents, end of year
|
|
$
|
12,706
|
|
|
$
|
39,285
|
|
|
$
|
26,564
|
|
|
$
|
36,376
|
|
|
$
|
43,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
427
|
|
|
$
|
100
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
Cash paid for income taxes
|
|
$
|
3,805
|
|
|
$
|
8,104
|
|
|
$
|
27,403
|
|
|
$
|
92
|
|
|
$
|
1,306
|
|
See notes to consolidated financial statements.
F-6
Green Dot
Corporation
Green Dot Corporation (we, us and
our refer to Green Dot Corporation and its
wholly-owned subsidiary, Next Estate Communications, Inc.) is
one of the leading providers of general purpose reloadable
prepaid debit cards and cash loading and transfer services in
the United States. Our products include Green Dot
MasterCard®
and
Visa®-branded
prepaid debit cards; several co-branded reloadable prepaid card
programs; Visa-branded prepaid non-reloadable (gift) cards; and
our
MoneyPak®
and swipe reload proprietary products, collectively referred to
as our cash transfer products, which enable cash loading and
transfer services through our Green Dot Network. The Green Dot
Network enables consumers to use cash to reload our prepaid
debit cards or to transfer cash to any of our Green Dot Network
acceptance members, including competing prepaid card programs
and other online accounts.
We market our cards and financial services to banked,
underbanked, and unbanked consumers in the United States using
distribution channels other than traditional bank branches, such
as retailer locations nationwide and the Internet. Our prepaid
debit cards are issued by third-party issuing banks, and we have
relationships with several large card issuers including GE Money
Bank, Columbus Bank and Trust Company, and National Bank of
South Carolina. We also have distribution arrangements with many
large and medium-sized retailers, such as Walmart, Walgreens,
CVS, Rite Aid, Kroger, 7-Eleven, Radio Shack, Kmart, and Meijer,
and with various industry resellers, such as Incomm, PaySpot,
and Coinstar. We refer to participating retailers collectively
as our retail distributors.
|
|
2.
|
Summary of
Significant Accounting Policies
|
Basis of
Presentation
We have prepared the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States, or GAAP. We have eliminated all
significant intercompany balances and transactions in
consolidation. Subsequent to July 31, 2009, we intend to
issue our consolidated financial statements as of
December 31, 2009 and for the five-month period then ended.
Thereafter, we intend to issue our consolidated financial
statements on a calendar year basis.
We consider an operating segment to be any component of our
business whose operating results are regularly reviewed by our
chief operating decision-maker to make decisions about resources
to be allocated to the segment and assess its performance based
on discrete financial information. Our Chief Executive Officer,
our chief operating decision-maker, reviews our operating
results on an aggregate basis and manages our operations and the
allocation of resources as a single operating
segment prepaid cards and related services.
Unaudited Pro
Forma Information
In February 2010, our board of directors authorized us to file a
Registration Statement with the Securities and Exchange
Commission, or the SEC, to permit us to proceed with an initial
public offering of our common stock. Upon the consummation of
the initial public offering contemplated, all of the outstanding
shares of convertible preferred stock will automatically convert
into shares of common stock. We prepared unaudited pro forma
stockholders equity as of October 31, 2009 assuming
the conversion of the convertible preferred stock outstanding as
of that date into 24,941,521 shares of common stock. The
pro forma stockholders equity as of October 31, 2009
reflects the impact of the conversion as if the offering was
consummated on October 31, 2009. We computed unaudited pro
forma earnings per common share for the year ended July 31,
2009 and the three months ended October 31, 2009 using the
weighted average number of common shares outstanding, including
the pro forma effect of the conversion of all currently
outstanding convertible preferred stock into shares of our
common stock, as if such conversion had occurred at the
beginning of the respective periods. Our
F-7
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
pro forma earnings per common share calculation for the year
ended July 31, 2009 also included the effect of the
redemption of our Series D redeemable convertible preferred
stock as if that redemption had occurred at the beginning of the
year ended July 31, 2009.
Unaudited Interim
Financial Statements
The accompanying unaudited October 31, 2009 consolidated
balance sheet, the consolidated statement of changes in
redeemable convertible preferred stock and in stockholders
equity (deficit) for the three months ended October 31,
2009 and the consolidated statements of operations and cash
flows for the three months ended October 31, 2008 and
October 31, 2009 and the related interim information
contained within the notes to the consolidated financial
statements have been prepared in accordance with the rules and
regulations of the SEC for interim financial information.
Accordingly, they do not include all of the information and the
notes required by GAAP for complete financial statements. In our
opinion, the unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal and recurring
adjustments, necessary for the fair presentation of our
financial position at October 31, 2009 and results of our
operations and our cash flows for the three months ended
October 31, 2008 and 2009. The results for the three months
ended October 31, 2009 are not necessarily indicative of
future results.
Recent Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
approved the Accounting Standards Codification, or ASC, as the
single source of authoritative accounting and reporting
standards for all nongovernmental entities, with the exception
of guidance issued by the SEC and its staff. The FASB ASC is
effective for interim or annual periods ending after
September 15, 2009. All existing accounting standards have
been superseded, and all accounting literature not included in
the FASB ASC is considered nonauthoritative. Our adoption of
FASB ASC did not have an impact on our consolidated financial
statements because it only amends the referencing to existing
accounting standards.
In May 2009, the FASB issued a new standard for disclosing
events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued.
Additionally, the standard requires companies to disclose
subsequent events as defined in the standard and to disclose the
date through which we have evaluated subsequent events. The
standard is effective for interim and annual periods ending
after June 15, 2009. Our adoption of the standard did not
have a material impact on our consolidated financial statements.
See Note 16 Subsequent Events for
additional details.
In April 2009, the FASB issued a new accounting standard that
requires us to include fair value disclosures of financial
instruments for each interim and annual period for which
financial statements are prepared. Our adoption of the standard
did not have a material impact on our consolidated financial
statements. See Note 8 Fair Values of
Financial Instruments for additional details.
In June 2008, the FASB issued a new accounting standard on
determining whether instruments granted in share-based payment
transactions are participating securities prior to vesting and
therefore need to be included in the earnings allocation in
calculating earnings per share under the two-class method.
Unvested share-based payment awards that have non-forfeitable
rights to dividend or dividend equivalents are treated as a
separate class of securities in calculating earnings per share.
The standard is effective for fiscal years beginning after
December 15, 2008; earlier application was not permitted.
Our adoption of the standard did not have a material effect on
our results of operations or earnings per share.
F-8
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
Use of Estimates
and Assumptions
The preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements,
including the accompanying notes. We base our estimates and
assumptions on historical factors, current circumstances, and
the experience and judgment of management. We evaluate our
estimates and assumptions on an ongoing basis. Actual results
could differ from those estimates.
Unrestricted Cash
and Cash Equivalents
We consider all unrestricted highly liquid investments with an
original maturity of three months or less to be unrestricted
cash and cash equivalents.
Restricted
Cash
We maintain restricted deposits in bank accounts to support our
line of credit.
Settlement Assets
and Obligations
Our retail distributors collect customer funds for purchases of
new cards and cash transfer products and then remit these funds
directly to bank accounts established on behalf of those
customers by the third-party card issuing banks. The remittance
of these funds by our retail distributors takes an average of
three business days.
Settlement assets represent the amounts due from our retail
distributors for customer funds collected at the point of sale
that have not yet been remitted to the card issuing banks.
Settlement obligations represent the amounts due from us to the
card issuing banks for funds collected but not yet remitted by
our retail distributors and not funded by our line of credit.
We have no control over or access to customer funds remitted by
our retail distributors to the bank accounts. Customer funds
therefore are not our assets, and we do not recognize them in
our consolidated financial statements. As of July 31, 2008
and 2009 and October 31, 2009 (unaudited), total funds held
in the bank accounts on behalf of our customers totaled
$86.7 million, $127.5 million and $141.5 million,
respectively, of which $7.6 million, $13.0 million and
$11.6 million, respectively, related to funds for prepaid
debit cards and cash transfer products that had not yet been
activated by the customers.
Accounts
Receivable, Net
Accounts receivable is comprised principally of overdrawn
account balances due from cardholders, trade accounts
receivable, new card and cash transfer fees due from card
issuing banks, other receivables due from card issuing banks,
and other receivables. We record accounts receivable net of
reserves for estimated uncollectible accounts.
Overdrawn Account Balances Due from Cardholders and
Reserve for Uncollectible Overdrawn Accounts
Cardholder account overdrafts arise from fee assessments or from
purchase transactions that we honor, in each case in excess of
the funds in a cardholders account. We are exposed to
losses from unrecovered cardholder account overdrafts. We
establish a reserve for uncollectible overdrawn accounts for
both fees assessed and purchase transactions in excess of a
cardholders account balance. The reserve for uncollectible
overdrawn accounts represents our estimate of the portion of
these receivables that will not be recovered. We base our
estimate of the reserve upon historical overdraft recovery rates
and our judgment regarding overall adequacy of the reserve. When
a cardholder account has more than 90 days of inactivity,
we consider the probability of recovery to be
F-9
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
remote and we charge off the full amount of the overdrawn
account balance. We include our provision for uncollectible
overdrawn accounts related to fees as an offset to card revenues
in the accompanying consolidated statements of operations. We
include our provision for uncollectible overdrawn accounts
related to purchase transactions as other general and
administrative expenses in the accompanying consolidated
statements of operations.
Property and
Equipment
We carry our property and equipment at cost less accumulated
depreciation and amortization. We generally compute depreciation
on property and equipment using the straight-line method over
the estimated useful lives of the assets, except for
internal-use software in development, which is not depreciated.
We generally compute amortization on tenant improvements using
the straight-line method over the shorter of the related lease
term or estimated useful lives of the improvements. We expense
expenditures for maintenance and repairs as incurred.
The estimated useful lives of the respective classes of assets
are as follows:
|
|
|
Computer equipment, furniture and office equipment
|
|
3 4 years
|
Computer software purchased
|
|
3 years
|
Capitalized internal-use software
|
|
2 years
|
Tenant improvements
|
|
Shorter of the useful life or the lease term
|
We capitalize certain internal and external costs incurred to
develop internal-use software during the application development
stage. We also capitalize the cost of specified upgrades and
enhancements to internal-use software that result in additional
functionality. Once a development project is substantially
complete and the software is ready for its intended use, we
begin depreciating these costs on a straight-line basis over the
internal-use softwares estimated useful life.
Impairment of
Long Lived Assets
We evaluate long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of expected
undiscounted future cash flows from an asset is less than the
carrying amount of the asset, we recognize an impairment loss.
We measure the loss as the amount by which the carrying amount
exceeds its fair value calculated using the present value of
estimated net future cash flows. Included in other general and
administrative expenses in our consolidated statements of
operations for the year ended July 31, 2009 and three
months ended October 31, 2008 (unaudited) and 2009
(unaudited) were $405,000, $89,000 and $36,000 of recognized
impairment losses on internal-use software. We identified no
indicators of impairment during the years ended July 31,
2007 and 2008.
Amounts Due to
Issuing Banks for Overdrawn Accounts
Our card issuing banks fund overdrawn cardholder account
balances on our behalf. Amounts funded are due from us to the
issuing banks based on terms specified in the agreements with
the card issuing banks. Generally, we expect to settle these
obligations within 12 months.
Amounts Due Under
Line of Credit
After a consumer purchases a new card or cash transfer product
at a retail location, we make the funds immediately available
once the consumer goes online or calls a toll-free number to
activate the new card or add funds from a cash transfer product.
Since our retail distributors do not remit funds to our card
issuing banks, on average, for three business days, we maintain
a line of credit with certain
F-10
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
card issuing banks that is available to fund any cash
requirements related to the timing difference between funds
remitted by our retail distributors to the card issuing banks
and funds utilized by consumers. We repay any draws on this line
of credit when our retail distributors remit the funds to the
card issuing banks bank accounts.
Revenue
Recognition
Our operating revenues consist of card revenues, cash transfer
revenues, and interchange revenues. We recognize revenue when
the price is fixed or determinable, persuasive evidence of an
arrangement exists, the product is sold or the service is
performed, and collectibility of the resulting receivable is
reasonably assured.
Card revenues consist of new card fees, monthly maintenance
fees, ATM fees, and other revenues. We charge new card fees when
a consumer purchases a new card in a retail store. We defer and
recognize new card fees on a straight-line basis over our
average card lifetime, which is currently nine months for our
reloadable prepaid debit cards and six months for our
non-reloadable cards. We determine the average card lifetime
based on our recent historical data for comparable products. We
measure card lifetime for our reloadable prepaid debit cards as
the period of time, inclusive of reload activity, between sale
(or activation) of the card and the date of the last positive
balance. We measure the card lifetime for our non-reloadable
(gift) cards as the redemption period during which cardholders
perform the substantial majority of their transactions. We
report the unearned portion of new card fees as a component of
deferred revenue in our consolidated balance sheets. We charge
maintenance fees on a monthly basis pursuant to the terms and
conditions in the applicable cardholder agreements. We recognize
monthly maintenance fees ratably over the month for which they
are assessed. We charge ATM fees to cardholders when they
withdraw money or conduct other transactions at ATMs in
accordance with the terms and conditions in the applicable
cardholder agreements. We recognize ATM fees when the withdrawal
is made by the cardholder, which is the same time the fees are
assessed. Other revenues consist of customer service fees, and
fees associated with optional products or services, which we
generally offer to consumers during the card activation process.
We charge customer service fees pursuant to the terms and
conditions in the applicable cardholder agreements and recognize
them when the underlying services are completed. Optional
products and services that generate other revenues include
providing a second card for an account, expediting delivery of
the personalized debit card that replaces the temporary card
obtained at the retail store, and upgrading a cardholder account
to one of our upgrade programs. We generally recognize revenue
related to optional products and services when the underlying
services are completed, but we treat revenues related to our
upgrade programs in a manner similar to new card fees and
monthly maintenance fees.
We generate cash transfer revenues when consumers purchase our
cash transfer products (reload services) in a retail store. We
recognize these revenues when the cash transfer transactions are
completed, generally within three business days from the time of
sale of these products.
We earn interchange revenues from fees remitted by the
merchants bank, which are based on rates established by
Visa and MasterCard, when cardholders make purchase transactions
using our cards. We recognize interchange revenues as these
transactions occur.
We report our different types of revenues on a gross or net
basis based on our assessment of whether we act as a principal
or an agent in the transaction. To the extent we act as a
principal in the transaction, we report revenues on a gross
basis. In concluding whether or not we act as a principal or an
agent, we evaluate whether we have the substantial risks and
rewards under the terms of the revenue-generating arrangements,
whether we are the party responsible for fulfillment of the
services
F-11
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
purchased by the cardholders, and other factors. For all of our
significant revenue arrangements, including reloadable and
non-reloadable cards, we record revenues on a gross basis.
Generally, customers have limited rights to a refund of a new
card fee or a cash transfer fee. We have elected to recognize
revenues prior to the expiration of the refund period, but
reduce revenues by the amount of expected refunds, which we
estimate based on actual historical refunds.
On occasion, we enter into incentive agreements with our retail
distributors designed to increase product acceptance and sales
volume. We capitalize incentive payments that we make in
instances where we receive a preferred product placement for a
negotiated period of time. We amortize capitalized amounts as a
reduction of revenues over that period.
Sales and
Marketing Expenses
Sales and marketing expenses primarily consist of sales
commissions, advertising and marketing expenses, and the costs
of manufacturing and distributing card packages, placards, and
promotional materials to our retail distributors locations
and providing personalized debit cards to consumers who have
activated their cards.
We pay our retail distributors commissions based on sales of our
prepaid debit cards and cash transfer products in their stores.
We defer and expense commissions related to new cards sales
ratably over the average card lifetime, which is currently nine
months for our reloadable prepaid debit cards and six months for
our non-reloadable cards. We expense commissions related to cash
transfer products when the cash transfer transactions are
completed. Sales commissions were $26.2 million,
$40.7 million, and $50.8 million for the years ended
July 31, 2007, 2008, and 2009, respectively, and
$12.0 million and $11.6 million for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively.
We expense costs for the production of advertising as incurred.
The cost of media advertising is expensed when the advertising
first takes place. Advertising and marketing expenses were
$7.2 million, $13.6 million, and $7.0 million for
the years ended July 31, 2007, 2008, and 2009,
respectively, and $5.2 million and $0.8 million for
the three months ended October 31, 2008 (unaudited) and
2009 (unaudited), respectively.
We record the costs associated with card packages and placards
as prepaid expenses, and we record the costs associated with
personalized debit cards as deferred expenses. We recognize the
prepaid cost of card packages and placards over the related
sales period, currently six months, and we amortize the deferred
cost of personalized cards, when activated, over the average
card lifetime, currently nine months. Our manufacturing and
distributing costs were $5.5 million, $15.3 million,
and $18.0 million for the years ended July 31, 2007,
2008, and 2009, respectively, and $3.3 million and
$5.7 million for the three months ended October 31,
2008 (unaudited) and 2009 (unaudited), respectively. Included in
our manufacturing and distributing costs were shipping and
handling costs of $0.5 million, $1.3 million, and
$2.3 million for the years ended July 31, 2007, 2008,
and 2009, respectively, and $0.5 million and
$0.7 million for the three months ended October 31,
2008 (unaudited) and 2009 (unaudited), respectively. Also
included in our manufacturing and distributing costs was the
liability that we incur for use tax to various states related to
purchases of materials since no sales tax is charged to
customers when new cards or cash transfer transactions are
purchased.
Stock-Based
Compensation
Effective August 1, 2006, we adopted a new accounting
standard related to stock-based compensation. We adopted the new
standard using the prospective transition method, which required
F-12
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
compensation expense to be recognized on a prospective basis,
and therefore prior period financial statements do not include
the impact of our adoption of this standard. Compensation
expense recognized relates to stock options granted, modified,
repurchased, or cancelled on or after August 1, 2006. We
record compensation expense using the fair value method of
accounting. We base compensation expense on per option fair
values, estimated at the grant date using the Black-Scholes
option-pricing model. We recognize compensation expense for
awards with only service conditions that have graded vesting
schedules on a straight-line basis over the vesting period of
the award. Vesting is based upon continued service to our
company.
We continued to account for stock options granted to employees
prior to August 1, 2006, using the intrinsic value method.
Under the intrinsic value method, compensation associated with
stock awards to employees was determined as the difference, if
any, between the fair value of the underlying common stock on
the grant date, and the price an employee must pay to exercise
the award. For additional information, refer to
Note 11 Stock-Based Compensation.
We also measure the fair value of equity instruments issued to
non-employees using the Black-Scholes option-pricing model and
recognize related expense in the same periods that the goods or
services are received. For additional information, refer to
Note 10 Redeemable Convertible Preferred
Stock and Stockholders Equity (Deficit).
Income
Taxes
Our income tax expense is comprised of current and deferred
income tax expense. Current income tax expense approximates
taxes to be paid or refunded for the current period. Deferred
income tax expense results from the changes in deferred tax
assets and liabilities during the periods. These gross deferred
tax assets and liabilities represent decreases or increases in
taxes expected to be paid in the future because of future
reversals of temporary differences between the bases of assets
and liabilities as measured by tax laws and their bases as
reported in our consolidated financial statements. We also
recognize deferred tax assets for tax attributes such as net
operating loss carryforwards and tax credit carryforwards. We
record valuation allowances to reduce deferred tax assets to the
amounts we conclude are more
likely-than-not
to be realized in the foreseeable future.
We recognize and measure income tax benefits based upon a
two-step model: 1) a tax position must be more
likely-than-not
to be sustained based solely on its technical merits in order to
be recognized, and 2) the benefit is measured as the
largest dollar amount of that position that is more
likely-than-not
to be sustained upon settlement. The difference between the
benefit recognized for a position and the tax benefit claimed on
a tax return is referred to as an unrecognized tax benefit. We
accrue income tax related interest and penalties, if applicable,
within income tax expense.
For additional information, refer to Note 6
Income Taxes.
Earnings (Loss)
Per Common Share
The holders of our preferred stock are entitled to participate
in dividends and earnings of our company. Therefore, we apply
the two-class method in calculating earnings per common share.
The two-class method requires net income, after deduction of any
preferred stock dividends, deemed dividends on preferred stock
redemptions, and accretions in the carrying value on preferred
stock, to be allocated between the common and preferred
stockholders based on their respective rights to receive
dividends, whether or not declared. Basic earnings (loss) per
common share is then calculated by dividing net income (loss)
allocated to common stockholders, after the reduction for
earnings allocated to preferred stock, by the weighted-average
common shares issued and outstanding.
F-13
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
2.
|
Summary of
Significant Accounting Policies (Continued)
|
In addition, for diluted earnings per common share, the
conversion of convertible preferred stock can affect net income
(loss) allocated to common stockholders. Where the effect of
this conversion is dilutive, we adjust net income (loss)
allocated to common stockholders by the associated preferred
dividends. We divide adjusted net income by the weighted-average
number of common shares issued and outstanding for each period
plus amounts representing the dilutive effect of outstanding
stock options and outstanding warrants, and the dilution
resulting from the conversion of convertible preferred stock, if
applicable. We exclude the effects of convertible preferred
stock and outstanding warrants and stock options from the
computation of diluted earnings (loss) per common share in
periods in which the effect would be antidilutive. We calculate
dilutive potential common shares using the treasury stock
method, if-converted method and the two-class method, as
applicable.
For additional information, refer to Note 12
Earnings Per Common Share.
Accounts receivable consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Overdrawn account balances due from cardholders
|
|
$
|
9,231
|
|
|
$
|
10,165
|
|
|
$
|
10,774
|
|
Reserve for uncollectible overdrawn accounts
|
|
|
(5,277
|
)
|
|
|
(6,448
|
)
|
|
|
(7,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net overdrawn account balances due from cardholders
|
|
|
3,954
|
|
|
|
3,717
|
|
|
|
3,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
5,887
|
|
|
|
9,727
|
|
|
|
10,533
|
|
Reserve for uncollectible trade receivables
|
|
|
(248
|
)
|
|
|
(114
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trade receivables
|
|
|
5,639
|
|
|
|
9,613
|
|
|
|
10,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New card fees and cash transfer fees due from card issuing banks
|
|
|
3,660
|
|
|
|
4,416
|
|
|
|
4,781
|
|
Other receivables due from card issuing banks
|
|
|
|
|
|
|
1,870
|
|
|
|
1,996
|
|
Other receivables
|
|
|
827
|
|
|
|
1,708
|
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
14,080
|
|
|
$
|
21,324
|
|
|
$
|
22,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the reserve for uncollectible overdrawn accounts
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance, beginning of the year
|
|
$
|
2,104
|
|
|
$
|
2,718
|
|
|
$
|
5,277
|
|
|
$
|
6,448
|
|
Provision for uncollectible overdrawn accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
6,519
|
|
|
|
13,652
|
|
|
|
20,187
|
|
|
|
5,947
|
|
Purchase transactions
|
|
|
1,390
|
|
|
|
2,483
|
|
|
|
2,361
|
|
|
|
539
|
|
Charge-offs
|
|
|
(7,295
|
)
|
|
|
(13,576
|
)
|
|
|
(21,377
|
)
|
|
|
(5,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,718
|
|
|
$
|
5,277
|
|
|
$
|
6,448
|
|
|
$
|
7,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
4.
|
Property and
Equipment
|
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Computer equipment, furniture, and office equipment
|
|
$
|
6,296
|
|
|
$
|
7,812
|
|
|
$
|
8,624
|
|
Computer software purchased
|
|
|
2,062
|
|
|
|
2,879
|
|
|
|
3,213
|
|
Capitalized internal-use software
|
|
|
9,470
|
|
|
|
13,078
|
|
|
|
14,402
|
|
Tenant improvements
|
|
|
882
|
|
|
|
1,097
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,710
|
|
|
|
24,866
|
|
|
|
27,365
|
|
Less accumulated depreciation and amortization
|
|
|
(11,614
|
)
|
|
|
(16,187
|
)
|
|
|
(17,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
7,096
|
|
|
$
|
8,679
|
|
|
$
|
9,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $3.5 million,
$4.4 million, and $4.6 million for the years ended
July 31, 2007, 2008, and 2009, respectively, and
$1.1 million and $1.3 million for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively. Included in those amounts are depreciation expense
related to internal-use software of $1.7 million,
$2.4 million, and $2.5 million for the years ended
July 31, 2007, 2008, and 2009, respectively, and
$0.6 million and $0.7 million for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively. The net carrying value of capitalized internal-use
software was $3.0 million, $3.6 million,
$4.7 million and $5.3 million at July 31, 2007,
2008, and 2009 and October 31, 2009 (unaudited),
respectively.
|
|
5.
|
Related Party
Transactions
|
We loaned $3.0 million in March 2004 and $0.8 million
in February 2006 to our current Chief Executive Officer bearing
interest at rates of 3.5% and 4.5%, respectively, compounded
semiannually. All principal and unpaid interest outstanding
under the loans is due in March 2011. The loans are
collateralized by 2,500,000 shares of our common stock
owned by the officer and pledged under a stock pledge agreement.
We classified the outstanding balance of these loans, including
capitalized interest of $575,000, $735,000 and $776,000 at
July 31, 2008 and 2009 and October 31, 2009
(unaudited), respectively, as a reduction in stockholders
equity. We recorded interest on these loans of $150,000,
$155,000, and $160,000 for the years ended July 31, 2007,
2008, and 2009, respectively, and $40,000 and $41,000 for the
three months ended October 31, 2008 (unaudited) and 2009
(unaudited), respectively, as additional
paid-in-capital.
During the three-year period ended July 31, 2009, we loaned
an aggregate amount of $1.1 million to an executive to
purchase common stock. The $1.1 million was loaned in seven
installments, each installment ranging from $18,000 to $622,000.
The interest rate on the loan is specified for each installment
and ranges from 2.72% to 5.14%, compounded semiannually. All
principal and unpaid interest outstanding under the loan is due
in May 2013. The loan is collateralized by 898,000 shares
of our common stock owned by the officer and a full recourse
promissory note. We classified the outstanding balance of the
loan, including capitalized interest of $77,000, $127,000 and
$140,000 at July 31, 2008 and 2009 and October 31,
2009 (unaudited), respectively, as a reduction in
stockholders equity. We recorded interest on these loans
of $41,000, $36,000, and $50,000 for the years ended
July 31, 2007, 2008, and 2009, respectively, and $10,000
and $13,000 for the three months ended October 31, 2008
(unaudited) and 2009 (unaudited), respectively, as additional
paid-in-capital.
F-15
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
5.
|
Related Party
Transactions (Continued)
|
We loaned $120,000 in February 2008 to our current Chief
Financial Officer to purchase common stock. The loan bears an
interest rate of 3.48%, compounded semiannually. All principal
and unpaid interest outstanding under the loan is due in
February 2015. The loan is collateralized by 85,000 shares
of our common stock owned by the officer and a full recourse
promissory note. We classified the outstanding balance of the
loan, including capitalized interest of $2,000, $7,000 and
$8,000 at July 31, 2008 and 2009 and October 31, 2009
(unaudited), respectively, as a reduction in stockholders
equity. We recorded interest on the loan of $2,000 and $5,000
for the years ended July 31, 2008 and 2009, respectively,
and $1,000 and $1,000 for the three months ended
October 31, 2008 (unaudited) and 2009 (unaudited),
respectively, as additional
paid-in-capital.
As discussed in Note 16 Subsequent
Events, all of these related party notes receivable were
repaid in full subsequent to October 31, 2009.
The components of income tax expense (benefit) for the years
ended July 31, 2007, 2008, and 2009 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(629
|
)
|
|
$
|
9,611
|
|
|
$
|
22,645
|
|
State
|
|
|
(82
|
)
|
|
|
2,610
|
|
|
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense (benefit)
|
|
|
(711
|
)
|
|
|
12,221
|
|
|
|
28,633
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,121
|
)
|
|
|
74
|
|
|
|
(1,662
|
)
|
State
|
|
|
(514
|
)
|
|
|
(34
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
(2,635
|
)
|
|
|
40
|
|
|
|
(1,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(3,346
|
)
|
|
$
|
12,261
|
|
|
$
|
26,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) for the years ended July 31,
2007, 2008 and 2009 varied from the amount computed by applying
the federal statutory income tax rate to income before income
taxes. A reconciliation between the expected federal income tax
expense using the federal statutory tax rate of 35% and our
actual income tax expense (benefit) for the years ended
July 31, 2007, 2008 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.1
|
|
|
|
5.7
|
|
|
|
6.1
|
|
Change in valuation allowance
|
|
|
(288.9
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(9.4
|
)
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(257.2
|
)%
|
|
|
41.4
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense was $4.2 million and $7.5 million
for the three months ended October 31, 2008 (unaudited) and
2009 (unaudited), respectively, with an effective tax rate of
42%. The effective tax rate for the three months ended
October 31, 2008 (unaudited) and 2009 (unaudited) differ
from
F-16
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
6.
|
Income Taxes
(Continued)
|
the expected federal statutory tax rate of 35% primarily due to
state income taxes, net of the federal benefit.
The tax effects of temporary differences that give rise to
significant portions of our deferred tax assets and liabilities
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserve for overdrawn accounts
|
|
$
|
3,102
|
|
|
$
|
2,827
|
|
State income taxes
|
|
|
696
|
|
|
|
1,898
|
|
Stock-based compensation
|
|
|
600
|
|
|
|
1,002
|
|
Other
|
|
|
648
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,046
|
|
|
|
6,683
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Internal-use software costs
|
|
|
(975
|
)
|
|
|
(2,019
|
)
|
Deferred expenses
|
|
|
(1,572
|
)
|
|
|
(364
|
)
|
Property and equipment, net
|
|
|
(77
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(2,624
|
)
|
|
|
(2,530
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,422
|
|
|
$
|
4,153
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets and liabilities are included in
our consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Current net deferred tax assets
|
|
$
|
4,446
|
|
|
$
|
5,681
|
|
Noncurrent net deferred tax liabilities
|
|
|
(2,024
|
)
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,422
|
|
|
$
|
4,153
|
|
|
|
|
|
|
|
|
|
|
In assessing whether a valuation allowance is needed for our
deferred tax assets, we consider whether it is more
likely-than-not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of our deferred tax assets is
dependent upon our generation of sufficient taxable income of
the appropriate character during the periods in which those
temporary differences become deductible. We consider the
scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Based upon the
level of our historical taxable income and projections of our
future taxable income over the periods in which the temporary
differences resulting in the deferred tax assets are deductible,
we believe it is more likely than not that we will realize the
benefits of our deferred tax assets. Accordingly, we recorded no
valuation allowance as of July 31, 2008 and 2009.
During the year ended July 31, 2008, we utilized
approximately $2.8 million of federal and approximately
$2.7 million of state net operating loss carryforwards. As
of July 31, 2009, we have no unutilized net operating loss
carryforwards.
In accounting for income taxes, we followed the guidance related
to uncertainty in income taxes. The guidance prescribes a
comprehensive framework for the financial statement recognition,
measurement, presentation, and disclosure of uncertain income
tax positions that we have taken or anticipate taking in a tax
return, and includes guidance on de-recognition, classification,
interest and
F-17
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
6.
|
Income Taxes
(Continued)
|
penalties, accounting in interim periods, and transition rules.
We have concluded that we have no significant unrecognized tax
benefits. We are subject to examination by the Internal Revenue
Service, or IRS, and various state tax authorities. Our
consolidated federal income tax returns for the years ended
July 31, 2005 and 2008 have been examined by the IRS, and
there have been no material changes in our tax liabilities for
those years. We generally remain subject to examination of our
federal income tax returns for the year ended July 31, 2006
and later years. We generally remain subject to examination of
our various state income tax returns for a period of four to
five years from the respective dates the returns were filed.
In March 2009, we increased the balance available on our line of
credit from $12.0 million to $15.0 million. This line
of credit matures on March 24, 2010, and bears interest at
LIBOR (as published in The Wall Street Journal) plus
1.50%. The line of credit is collateralized by substantially all
of our assets, including a restricted cash deposit at the
lending institution of $15.0 million. There was no
outstanding borrowing on this line of credit at July 31,
2008 and 2009 or October 31, 2009 (unaudited).
|
|
8.
|
Fair Values of
Financial Instruments
|
Our financial instruments, including unrestricted cash and cash
equivalents, restricted cash, settlement assets and obligations,
accounts receivable, certain other assets, accounts payable, and
other accrued liabilities, are short-term, and, accordingly, we
believe their carrying amounts approximate their respective fair
values.
|
|
9.
|
Concentrations of
Credit Risk
|
Financial instruments that subject us to concentration of credit
risk consist primarily of unrestricted cash and cash
equivalents, restricted cash, accounts receivable, and
settlement assets. We deposit our unrestricted cash and cash
equivalents and our restricted cash with regional and national
banking institutions, including certain of our card issuing
banks, that we periodically monitor and evaluate for
creditworthiness. Credit risk for our accounts receivable is
concentrated with card issuing banks and our customers, and this
risk is mitigated by the relatively short collection period and
our large customer base. We do not require or maintain
collateral for accounts receivable. We maintain reserves for
uncollectible overdrawn accounts and uncollectible trade
receivables. Credit risk for our settlement assets is
concentrated with our retail distributors, which we periodically
monitor.
|
|
10.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit)
|
Redeemable
Convertible Preferred Stock
In October 2006, we entered into an agreement with a card
issuing bank to provide a co-branded GPR card program with a
major retail distributor. We also entered into equity financing
transactions with the bank and an affiliated investment entity,
under which we issued a warrant to purchase 500,000 shares
of our common stock in October 2006 and 2.9 million shares
of Series D redeemable convertible preferred stock, or
Series D, in December 2006. We received cash consideration
of $20.0 million from the equity financing transactions.
The holder of Series D was entitled to receive
noncumulative dividends at a per annum rate of $0.547 per share
and to participate in dividends on common stock on an
as-converted basis, subject to the declaration by our board of
directors out of funds legally available. Series D was
redeemable for cash at the option of the holder on the seventh
anniversary of its issuance. Series D was also convertible
into our common stock any time prior to redemption, at the
option of the holder, based on a conversion ratio. In the event
of any liquidation,
F-18
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
10.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit) (Continued)
|
dissolution or winding up of our company, the holder of
Series D was entitled to receive an amount equal to $6.834
per share plus 20% per annum from the date of issuance.
The freestanding warrant we issued entitled the holder to
purchase 500,000 shares of our common stock at a per share
price of $6.834 any time prior to the earliest of: a) the
date of our initial public offering; b) the date of a
change in control of our company; or c) October 27,
2013. The warrant was not redeemable.
We allocated the proceeds from the issuance of the Series D
and the freestanding warrant to these instruments on a relative
fair value basis. The initial allocated value of the warrant
calculated using an option-pricing model was $1.3 million.
As the warrant allowed settlement only in the underlying common
stock, it was recorded at its initial allocated value as a
component of additional paid-in capital.
Due to the nature of the redemption feature and other
provisions, we classified Series D as temporary equity at
its initial allocated value of $18.7 million. We determined
that Series D did not contain any beneficial conversion
features. We accreted the carrying value of the stock to its
redemption value at each reporting period with a charge to
retained earnings.
On December 19, 2008, we entered into an agreement with the
sole holder of Series D for an early redemption of the
2,926,458 outstanding shares. The agreed redemption value was
$39.2 million, or $13.38 per share, which we paid in cash
on December 19, 2008. Upon redemption, the Series D
preferred shares were canceled.
In addition, on December 19, 2008, we purchased a call
option, which entitled us to purchase the freestanding warrant
on 500,000 shares of common stock at an exercise price of
approximately $2.0 million. The call option was exercisable
any time during the period March 1, 2009 to
September 1, 2009. In June 2009, we exercised the call
option and repurchased the warrant.
Convertible
Preferred Stock
Our convertible preferred stock at July 31, 2008 and 2009
and October 31, 2009 (unaudited) consisted of the following
(in thousands):
July 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds Net of
|
|
|
|
Number of Shares
|
|
|
Liquidation
|
|
|
Issuance
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Costs
|
|
|
Series A
|
|
|
6,520
|
|
|
|
6,481
|
|
|
$
|
1,953
|
|
|
$
|
1,899
|
|
Series B
|
|
|
3,197
|
|
|
|
3,177
|
|
|
|
2,186
|
|
|
|
2,008
|
|
Series C
|
|
|
10,114
|
|
|
|
9,939
|
|
|
|
8,230
|
|
|
|
8,136
|
|
Series C-1
|
|
|
4,541
|
|
|
|
4,240
|
|
|
|
5,976
|
|
|
|
5,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,372
|
|
|
|
23,837
|
|
|
$
|
18,345
|
|
|
$
|
18,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
10.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit) (Continued)
|
July 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds Net of
|
|
|
|
Number of Shares
|
|
|
Liquidation
|
|
|
Issuance
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Costs
|
|
|
Series A
|
|
|
6,520
|
|
|
|
6,404
|
|
|
$
|
1,930
|
|
|
$
|
1,877
|
|
Series B
|
|
|
3,197
|
|
|
|
3,177
|
|
|
|
2,186
|
|
|
|
2,008
|
|
Series C
|
|
|
10,114
|
|
|
|
9,939
|
|
|
|
8,230
|
|
|
|
8,136
|
|
Series C-1
|
|
|
4,541
|
|
|
|
4,240
|
|
|
|
5,976
|
|
|
|
5,976
|
|
Series C-2
|
|
|
1,182
|
|
|
|
1,182
|
|
|
|
13,000
|
|
|
|
12,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,554
|
|
|
|
24,942
|
|
|
$
|
31,322
|
|
|
$
|
30,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2009 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds Net of
|
|
|
|
Number of Shares
|
|
|
Liquidation
|
|
|
Issuance
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Costs
|
|
|
Series A
|
|
|
6,520
|
|
|
|
6,404
|
|
|
$
|
1,930
|
|
|
$
|
1,877
|
|
Series B
|
|
|
3,197
|
|
|
|
3,177
|
|
|
|
2,186
|
|
|
|
2,008
|
|
Series C
|
|
|
10,114
|
|
|
|
9,939
|
|
|
|
8,230
|
|
|
|
8,136
|
|
Series C-1
|
|
|
4,541
|
|
|
|
4,240
|
|
|
|
5,976
|
|
|
|
5,976
|
|
Series C-2
|
|
|
1,182
|
|
|
|
1,182
|
|
|
|
13,000
|
|
|
|
12,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,554
|
|
|
|
24,942
|
|
|
$
|
31,322
|
|
|
$
|
30,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Certificate of Incorporation specifies the following rights,
preferences, and privileges for our preferred stockholders.
Voting
Each share of Series A, B, C, C-1, and C-2 convertible
preferred stock has voting rights equal to the number of shares
of common stock into which it is convertible and votes together
as one class with the common stock. Our preferred stockholders
are entitled to elect four directors. Additionally, the holders
of our Series C, C-1 and C-2 shares, voting together,
are entitled to elect one director. The approval of at least 67%
of the then-outstanding number of shares of convertible
preferred stock and a majority of the then-outstanding
Series C, C-1 and C-2 convertible preferred stock, voting
together as a separate class, is required to, among other
things: change the rights and preferences of our preferred
stock; change our authorized share capital; redeem shares of our
capital stock; increase the number of shares available for
issuance under our stock plan; declare or pay any dividend; take
any action that results in a merger, sale of control, or any
other transaction in which all or substantially all of our
assets or more than 50% of the voting power of our company is
disposed of; and the dissolution or winding up of our company.
Dividends
Our Series A, B, C, C-1, and C-2 convertible preferred
stockholders are entitled to receive noncumulative dividends at
the per annum rates of $0.024, $0.055, $0.066, $0.113, and
$0.88, respectively, when and if declared by our board of
directors. The holders of Series A, B, C, C-1, and C-2
convertible preferred stock will also be entitled to participate
in dividends on our common stock, when and if declared by our
board of directors, on an as-converted basis. Our board of
directors did
F-20
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
10.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit) (Continued)
|
not declare any dividends on our convertible preferred stock or
common stock during the three-year period ended July 31,
2009.
Liquidation
In the event of any liquidation, dissolution, or winding up of
our company, the available funds and assets that may be legally
distributed to our stockholders will be distributed, without
preference, to the holders of our Series A, B, C, C-1, and
C-2 convertible preferred stock at amounts equal to $0.30,
$0.69, $0.83, $1.41, and $11.00 per share, respectively. Upon
completion of the distributions to each series of convertible
preferred stock, all remaining funds and assets available for
distribution are required to be distributed on a pro rata basis
among holders of our common stock. If upon any liquidation,
dissolution, or winding up of our company, the available funds
and assets are insufficient to permit the payment to holders of
each series of convertible preferred stock of the full
preferential amounts, then the entire remaining funds and assets
will be distributed on a pro rata basis among holders of each
series of convertible preferred stock in proportion to their
preferential amounts.
A liquidation, dissolution, or winding up of our company
includes the acquisition of our company by another entity by
merger, consolidation, sale of voting control, or any other
transaction or series of transactions in which all our
stockholders immediately prior to such transaction hold less
than 50% of the voting power of the surviving entity. Upon such
an event, all of the holders of each class of stock are eligible
to participate in all available remaining funds and assets.
Conversion
Each share of Series A, B, C, C-1, and C-2 convertible
preferred stock is convertible into our common stock, at the
option of the holder, according to a conversion ratio, subject
to adjustment for dilution. Each share of Series A, B, C,
C-1, and C-2 convertible preferred stock automatically converts
into the number of shares of common stock into which such shares
are convertible at the then-effective conversion ratio upon:
(1) the closing of a public offering of common stock at a
per share price of at least $2.48 per share with gross proceeds
of at least $25 million, or (2) the consent of the
holders of the majority of our convertible preferred stock,
provided, however, that no shares of Series C, C-1, or C-2
convertible preferred stock will automatically be converted
pursuant to such consent unless a majority of the
then-outstanding Series C, C-1, and C-2 convertible
preferred stockholders, voting together as separate class, also
consent to such conversion.
Registration
Rights Agreement
We are a party to a registration rights agreement with certain
of our investors, pursuant to which we have granted those
persons or entities the right to register shares of common stock
held by them under the Securities Act of 1933, as amended, or
the Securities Act. Holders of these rights are entitled to
demand that we register their shares of common stock under the
Securities Act so long as certain conditions are satisfied and
require us to include their shares of common stock in future
registration statements that may be filed, either for our own
account or for the account of other security holders exercising
registration rights. In addition, after an initial public
offering, these holders have the right to request that their
shares of common stock be registered on a
Form S-3
registration statement so long as certain conditions are
satisfied and the anticipated aggregate sales price of the
registered shares as of the date of filing of the
Form S-3
registration statement is at least $1 million. The
foregoing registration rights are subject to various conditions
and limitations, including the right of underwriters of an
offering to limit the number of registrable securities that may
be included in an offering. The registration rights terminate as
to any particular shares on the date on which the holder sells
such shares to the public in a registered offering or pursuant
to Rule 144 under the Securities
F-21
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
10.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit) (Continued)
|
Act. We are generally required to bear all of the expenses of
these registrations, except underwriting commissions, selling
discounts and transfer taxes.
We are not obligated under the registration rights agreement to
transfer consideration, whether in cash, equity instruments, or
adjustments to the terms of the financial instruments that are
subject to the registration payment arrangement, to the
investors, if the registration statement is not declared
effective within the specified time or if effectiveness of the
registration statement is not maintained.
Stock Repurchase
Agreement
On January 22, 2007, we entered into a Stock Repurchase
Agreement with Related Stock Cancellation Provisions with
certain stockholders to repurchase 2,926,458 common and
preferred shares. In addition, we purchased a call option from
these stockholders that gave us the right to obtain and cancel
an additional 2,926,458 shares from these stockholders. We
paid an aggregate consideration of $20.0 million related to
these transactions. Upon redemption of all Series D
preferred stock, the call option was canceled on
December 19, 2008.
Non-Employee
Stock-Based Payments
At July 31, 2009 and October 31, 2009, options to
purchase 283,786 shares of
Series C-1
preferred stock at an exercise price of $1.41 per share were
outstanding. These options were issued in 2005, and are
exercisable any time prior to their expiration date of
February 11, 2012. We recognized stock-based compensation
of $319,000 for these options during 2005, 2006, and 2007 and
included it as a component of additional paid-in capital.
On March 3, 2009, we entered into a sales and marketing
agreement with a third party that contained a contingent warrant
feature. The warrant provides the third party with an option to
purchase 3,426,765 shares of our common stock at a per
share price of $23.70 if certain sales volume or revenue targets
are achieved. A further 856,691 shares become eligible for
purchase under the warrant should either of these targets be
achieved and additional specified marketing and promotional
activities take place.
The shares become eligible for purchase under the warrant at any
time the targets are achieved prior to the earlier of
March 3, 2014 or the termination of the sales and marketing
agreement. Once eligible for purchase, the purchase option
expires on the earliest of: (1) the date at which the sales
and marketing agreement with the third-party is terminated;
(2) the date of a change of control transaction of our
company; or (3) March 3, 2017.
The warrant is not redeemable for cash by the holder unless we
fail to perform in accordance with the customary contractual
terms of the sales and marketing agreement. Should the third
party fail to perform in accordance with the terms of the sales
and marketing agreement, we obtain an option to repurchase any
shares previously issued under the warrant.
As the option to purchase shares under the warrant is contingent
upon the achievement of certain sales volume or revenue targets,
there is a possibility that no shares will become eligible for
purchase. Based on different possible outcomes, we developed a
range of fair values for the warrant, and we measured the
warrant at its current lowest aggregate fair value within that
range. As none of the performance conditions have been met, the
lowest aggregate fair value is zero. Accordingly, we have not
assigned any value to the warrant in our consolidated financial
statements as of July 31, 2009 or October 31, 2009
(unaudited).
F-22
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
11.
|
Stock-Based
Compensation
|
Stock
Plan
In January 2001, we adopted the 2001 Stock Plan, or the Plan.
The Plan provides for the granting of incentive stock options,
nonqualified stock options and other stock awards. Our officers,
employees, outside directors, and consultants are eligible to
receive stock-based awards under the Plan; however, incentive
stock options may only be granted to our officers and employees.
During the year ended July 31, 2009, we increased the
number of shares of common stock reserved for issuance under the
Plan from 9,643,134 shares to 9,943,134 shares.
Options granted under the Plan generally vest over four years
and expire five or ten years from the date of grant.
The total stock-based compensation expense recognized was
$0.2 million, $1.2 million, and $2.5 million for
the years ended July 31, 2007, 2008, and 2009,
respectively, and $0.6 million and $0.7 million for
the three months ended October 31, 2008 (unaudited) and
2009 (unaudited), respectively. The total income tax benefit
recognized as a component of income tax expense for stock-based
compensation arrangements was $0, $0.3 million, and
$0.4 million for the years ended July 31, 2007, 2008,
and 2009, respectively, and $0.1 million and
$0.1 million for the three months ended October 31,
2008 (unaudited) and 2009 (unaudited), respectively.
We estimated the fair value of each employee option grant on the
date of grant using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
Three Months Ended October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Risk-free interest rate
|
|
|
4.52
|
%
|
|
|
2.98
|
%
|
|
|
2.26
|
%
|
|
|
3.32
|
%
|
|
|
2.88
|
%
|
Expected term (life) of options (in years)
|
|
|
6.08
|
|
|
|
6.08
|
|
|
|
6.08
|
|
|
|
6.08
|
|
|
|
6.08
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
54.3
|
%
|
|
|
54.3
|
%
|
|
|
53.2
|
%
|
|
|
48.0
|
%
|
|
|
56.0
|
%
|
Determining the fair value of stock-based awards at their
respective grant dates requires considerable judgment, including
estimating expected volatility and expected term (life). We
based our expected volatility on the historical volatility of
comparable public companies over the options expected
term. We calculated our expected term based on the simplified
method, which is the mid-point between the weighted-average
graded-vesting term of 2.16 years and the contractual term
of 10 years, resulting in 6.08 years. The simplified
method was chosen as a means to determine expected term as there
is limited historical option exercise experience due to our
company being privately held. We derived the risk-free rate from
the average yield for the five-and seven-year zero-coupon
U.S. Treasury Strips. We estimate forfeitures at the grant
date based on our historical forfeiture rate since the
Plans inception and revise the estimate, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
The weighted-average fair value of options granted was $2.17,
$2.49, and $6.98 per share for the years ended July 31,
2007, 2008, and 2009, respectively, and $10.36 and $9.50 per
share for the three months ended October 31, 2008
(unaudited) and 2009 (unaudited), respectively.
Stock Option
Modification
On December 11, 2008, our board of directors approved the
modification of options to purchase 155,500 shares of
common stock previously granted on August 12, 2008, to
decrease the exercise price from $17.90 to $10.75. The stock
option modification resulted in incremental stock-based
compensation expense of $214,000, of which $38,000 was
recognized for the year ended July 31, 2009 and $176,000
will be recognized over the remaining vesting period.
F-23
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
11.
|
Stock-Based
Compensation (Continued)
|
Option activity for the years ended July 31, 2007, 2008 and
2009 and the three months ended October 31, 2009 was as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
Number
|
|
|
Weighted-Average
|
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
Balance at July 31, 2006
|
|
|
5,164
|
|
|
$
|
1.00
|
|
Additional shares reserved
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
410
|
|
|
|
4.36
|
|
Options canceled
|
|
|
(444
|
)
|
|
|
1.7
|
|
Options exercised
|
|
|
(264
|
)
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
4,866
|
|
|
|
1.22
|
|
Additional shares reserved
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,914
|
|
|
|
4.64
|
|
Options canceled
|
|
|
(163
|
)
|
|
|
2.81
|
|
Options exercised
|
|
|
(1,822
|
)
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
4,795
|
|
|
|
2.76
|
|
Additional shares reserved
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
812
|
|
|
|
11.32
|
|
Options canceled
|
|
|
(664
|
)
|
|
|
4.24
|
|
Options exercised
|
|
|
(35
|
)
|
|
|
3.21
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009
|
|
|
4,908
|
|
|
|
3.88
|
|
Additional shares reserved (unaudited)
|
|
|
|
|
|
|
|
|
Options granted (unaudited)
|
|
|
128
|
|
|
|
17.19
|
|
Options canceled (unaudited)
|
|
|
(36
|
)
|
|
|
1.41
|
|
Options exercised (unaudited)
|
|
|
(36
|
)
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2009 (unaudited)
|
|
|
4,964
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
The total shares available for grant under the Plan were 443,075
as of October 31, 2009 (unaudited).
F-24
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
11.
|
Stock-Based
Compensation (Continued)
|
The following table summarizes information with respect to stock
options outstanding and exercisable at July 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Currently Exercisable
|
|
|
|
|
Weighted-Average
|
|
Weighted-
|
|
|
|
Weighted-Average
|
|
Weighted-
|
|
|
|
|
Remaining
|
|
Average
|
|
Number
|
|
Remaining
|
|
Average
|
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Currently
|
|
Contractual
|
|
Exercise
|
Exercise Price
|
|
Outstanding
|
|
Life (in Years)
|
|
Price
|
|
Exercisable
|
|
Life (in Years)
|
|
Price
|
|
$0.16-$0.35
|
|
|
358,022
|
|
|
|
2.6
|
|
|
|
$0.32
|
|
|
|
358,022
|
|
|
|
2.6
|
|
|
$
|
0.32
|
|
$0.83-$1.41
|
|
|
1,363,035
|
|
|
|
5.4
|
|
|
|
1.19
|
|
|
|
1,246,037
|
|
|
|
5.3
|
|
|
|
1.17
|
|
$1.55-$4.00
|
|
|
683,102
|
|
|
|
5.4
|
|
|
|
2.08
|
|
|
|
638,007
|
|
|
|
5.2
|
|
|
|
1.94
|
|
$4.64-$10.75
|
|
|
2,414,875
|
|
|
|
8.7
|
|
|
|
6.10
|
|
|
|
942,299
|
|
|
|
8.5
|
|
|
|
4.82
|
|
$10.84-$15.65
|
|
|
89,000
|
|
|
|
9.7
|
|
|
|
12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,908,034
|
|
|
|
|
|
|
|
|
|
|
|
3,184,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information with respect to stock
options outstanding and exercisable at October 31, 2009
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Currently Exercisable
|
|
|
|
|
Weighted-Average
|
|
Weighted-
|
|
|
|
Weighted-Average
|
|
Weighted-
|
|
|
|
|
Remaining
|
|
Average
|
|
Number
|
|
Remaining
|
|
Average
|
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Currently
|
|
Contractual
|
|
Exercise
|
Exercise Price
|
|
Outstanding
|
|
Life (in Years)
|
|
Price
|
|
Exercisable
|
|
Life (in Years)
|
|
Price
|
|
$0.16-$0.35
|
|
|
323,378
|
|
|
|
2.4
|
|
|
|
$0.32
|
|
|
|
323,378
|
|
|
|
2.4
|
|
|
$
|
0.32
|
|
$0.83-$1.41
|
|
|
1,347,192
|
|
|
|
5.1
|
|
|
|
1.20
|
|
|
|
1,287,059
|
|
|
|
5.1
|
|
|
|
1.19
|
|
$1.55-$4.00
|
|
|
683,102
|
|
|
|
5.1
|
|
|
|
2.08
|
|
|
|
647,164
|
|
|
|
5.0
|
|
|
|
1.97
|
|
$4.64-$10.75
|
|
|
2,393,375
|
|
|
|
8.4
|
|
|
|
6.11
|
|
|
|
1,067,055
|
|
|
|
8.2
|
|
|
|
5.00
|
|
$10.84-$17.19
|
|
|
216,500
|
|
|
|
9.6
|
|
|
|
15.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,963,547
|
|
|
|
|
|
|
|
|
|
|
|
3,324,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits realized from the exercise of stock options were
$0, $0.9 million and $0 for the years ended July 31,
2007, 2008 and 2009, respectively, and $0 for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited).
Cash proceeds from the exercise of stock options were
$0.3 million, $1.2 million, and $0.1 million for
the years ended July 31, 2007, 2008, and 2009,
respectively, and $0 and $0.1 million for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively. There were 3,184,365 vested and 1,723,669 unvested
outstanding options at July 31, 2009 and 3,324,656 vested
and 1,638,891 unvested outstanding options at October 31,
2009 (unaudited). The aggregate unrecognized compensation cost
for unvested stock options issued subsequent to August 1,
2006, and expected to be recognized in compensation expense in
future periods was $6.4 million and $6.7 million at
July 31, 2009 and October 31, 2009 (unaudited),
respectively, and the related weighted-average period over which
it is expected to be recognized was estimated at 2.5 years
and 2.6 years, respectively. No stock-based compensation
expense was reflected in our consolidated statements of
operations for those stock option grants issued prior to
August 1, 2006. At July 31, 2009, 2,140,661 vested and
116,998 unvested outstanding options represented options granted
prior to August 1, 2006. At October 31, 2009
(unaudited), 2,147,039 vested and 60,133 unvested outstanding
options represented options granted prior to August 1, 2006.
F-25
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
12.
|
Earnings per
Common Share
|
Our preferred stockholders are entitled to participate with
common stockholders in the distributions of earnings through
dividends. We calculated earnings per common share using the
two-class method. Refer to Note 2 Summary of
Significant Accounting Policies for a discussion of the
calculation of earnings (loss) per common share.
The calculation of basic earnings (loss) per common share and
diluted earnings (loss) per common share, or EPS, for the years
ended July 31, 2007, 2008 and 2009 and the three months
ended October 31, 2008 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
Three Months Ended October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,647
|
|
|
$
|
17,335
|
|
|
$
|
37,163
|
|
|
$
|
5,827
|
|
|
$
|
10,404
|
|
Accretion of redeemable convertible preferred stock
|
|
|
(3,635
|
)
|
|
|
(4,480
|
)
|
|
|
(1,956
|
)
|
|
|
(1,261
|
)
|
|
|
|
|
Deemed dividend on preferred stock redemptions
|
|
|
(1,522
|
)
|
|
|
|
|
|
|
(9,634
|
)
|
|
|
|
|
|
|
|
|
Allocated earnings to preferred stock
|
|
|
|
|
|
|
(9,170
|
)
|
|
|
(17,410
|
)
|
|
|
(3,148
|
)
|
|
|
(7,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
|
(510
|
)
|
|
|
3,685
|
|
|
|
8,163
|
|
|
|
1,418
|
|
|
|
3,391
|
|
Weighted-average common shares issued and outstanding
|
|
|
11,100
|
|
|
|
10,757
|
|
|
|
12,036
|
|
|
|
12,026
|
|
|
|
12,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.34
|
|
|
$
|
0.68
|
|
|
$
|
0.12
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
$
|
(510
|
)
|
|
$
|
3,685
|
|
|
$
|
8,163
|
|
|
$
|
1,418
|
|
|
$
|
3,391
|
|
Weighted-average common shares issued and outstanding
|
|
|
11,100
|
|
|
|
10,757
|
|
|
|
12,036
|
|
|
|
12,026
|
|
|
|
12,060
|
|
Dilutive potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,747
|
|
|
|
2,978
|
|
|
|
3,259
|
|
|
|
2,997
|
|
Warrants
|
|
|
|
|
|
|
650
|
|
|
|
698
|
|
|
|
749
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares issued and outstanding
|
|
|
11,100
|
|
|
|
14,154
|
|
|
|
15,712
|
|
|
|
16,034
|
|
|
|
15,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.26
|
|
|
$
|
0.52
|
|
|
$
|
0.09
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We excluded from the computation of basic EPS for the year ended
July 31, 2009 shares issuable under the contingent
warrant referred to in Note 10 Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit) as the related performance conditions have not
been satisfied.
F-26
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
12.
|
Earnings per
Common Share (Continued)
|
For the years ended July 31, 2007, 2008 and 2009 and for
the three months ended October 31, 2008 (unaudited) and
2009 (unaudited), we excluded convertible preferred stock and
certain stock options outstanding, which could potentially
dilute basic EPS in the future, from the computation of diluted
EPS as their effect was anti-dilutive. The following table shows
the weighted-average number of anti-dilutive shares excluded
from the diluted EPS calculation for the years ended
July 31, 2007, 2008 and 2009 and the three months ended
October 31, 2008 (unaudited) and 2009 (unaudited) (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
Three Months Ended October 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Options to purchase common stock
|
|
|
3,307
|
|
|
|
392
|
|
|
|
97
|
|
|
|
21
|
|
|
|
66
|
|
Conversion of convertible preferred stock
|
|
|
25,707
|
|
|
|
26,763
|
|
|
|
25,674
|
|
|
|
26,763
|
|
|
|
24,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options and conversion of convertible preferred stock
|
|
|
29,014
|
|
|
|
27,155
|
|
|
|
25,771
|
|
|
|
26,784
|
|
|
|
25,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
12.
|
Earnings per
Common Share (Continued)
|
The calculation of unaudited pro forma basic earnings per common
share and diluted earnings per common share, or EPS, for the
year ended July 31, 2009 and the three months ended
October 31, 2009 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Pro forma basic earnings per common share
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
8,163
|
|
|
$
|
3,391
|
|
Accretion of redeemable convertible preferred stock
|
|
|
1,956
|
|
|
|
|
|
Deemed dividend on preferred stock redemptions
|
|
|
9,634
|
|
|
|
|
|
Allocated earnings to preferred stock
|
|
|
17,410
|
|
|
|
7,013
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
37,163
|
|
|
$
|
10,404
|
|
Weighted-average common shares issued and outstanding
|
|
|
12,036
|
|
|
|
12,060
|
|
Adjustment to reflect assumed effect of conversion of
convertible preferred stock
|
|
|
24,942
|
|
|
|
24,942
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average common shares issued and outstanding
|
|
|
36,978
|
|
|
|
37,002
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per common share
|
|
$
|
1.00
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per common share
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
8,163
|
|
|
$
|
3,391
|
|
Accretion of redeemable convertible preferred stock
|
|
|
1,956
|
|
|
|
|
|
Deemed dividend on preferred stock redemptions
|
|
|
9,634
|
|
|
|
|
|
Allocated earnings to preferred stock
|
|
|
17,410
|
|
|
|
7,013
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
37,163
|
|
|
$
|
10,404
|
|
Weighted-average common shares issued and outstanding
|
|
|
12,036
|
|
|
|
12,060
|
|
Dilutive potential common shares:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2,978
|
|
|
|
2,997
|
|
Warrants
|
|
|
698
|
|
|
|
261
|
|
Adjustment to reflect assumed weighted effect of conversion of
convertible preferred stock
|
|
|
24,942
|
|
|
|
24,942
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted weighted-average common shares issued and
outstanding
|
|
|
40,654
|
|
|
|
40,260
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per common share
|
|
$
|
0.91
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2004, we established a defined contribution
savings plan under Section 401(k) of the Internal Revenue
Code. The plan is available to all employees upon completion of
three months of employment and allows participants to defer a
portion of their annual compensation on a pretax basis. We may
contribute to the plan at the discretion of our board of
directors. We made contributions to the plan of $73,000, $8,000,
and $58,000 for the years ended July 31, 2007, 2008, and
2009, respectively, and $59,000 and $0 for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively.
|
|
14.
|
Commitments and
Contingencies
|
We lease approximately 49,000 square feet of office space
at our headquarters in Monrovia, California, under a
noncancelable lease expiring in September 2012. We also lease a
data center in Los Angeles, California under a noncancelable
lease expiring in November 2010. Our total rental
F-28
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
14.
|
Commitments and
Contingencies (Continued)
|
expense for these leases amounted to $1.0 million,
$1.2 million, and $1.4 million for the years ended
July 31, 2007, 2008, and 2009, respectively, and
$0.3 million and $0.4 million for the three months
ended October 31, 2008 (unaudited) and 2009 (unaudited),
respectively.
At October 31, 2009 (unaudited), the minimum aggregate
rental commitment under all non-cancelable operating leases was
(in thousands):
|
|
|
|
|
Year Ending July 31,
|
|
|
|
|
2010
|
|
$
|
1,386
|
|
2011
|
|
|
1,493
|
|
2012
|
|
|
1,439
|
|
2013
|
|
|
287
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,605
|
|
|
|
|
|
|
At July 31, 2009 and October 31, 2009 (unaudited), we
had a $4.0 million letter of credit outstanding, issued on
our behalf, to collateralize surety bonds issued in connection
with our state money transmitter licenses.
We renewed our processing services agreement with a key vendor
with an effective date of September 1, 2009. The terms of
the agreement include future minimum annual payments. We also
amended an existing contract with one of our retail
distributors. The amendment calls for guaranteed payments to the
retail distributor. At October 31, 2009 (unaudited), the
minimum aggregate commitment under these agreements was (in
thousands):
|
|
|
|
|
Year Ending July 31,
|
|
|
|
|
2010
|
|
$
|
12,853
|
|
2011
|
|
|
16,883
|
|
2012
|
|
|
6,902
|
|
2013
|
|
|
125
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,763
|
|
|
|
|
|
|
In the event we terminate our processing services agreement for
convenience, we are required to pay a single lump sum equal to
any minimum payments remaining on the date of termination.
We have retained outside regulatory counsel to survey and
monitor the laws of all 50 states to identify state laws or
regulations that apply to prepaid debit cards and other stored
value products. Many state laws do not specifically address
stored value products and what, if any, legal or regulatory
requirements (including licensing) apply to the sale of these
products. We have obtained money transmitter licenses (or
similar such licenses) where applicable, based on advice of
counsel or when we have been requested to do so. If we were
found to be in violation of any laws and regulations governing
banking, money transmitters, electronic fund transfers, or money
laundering in the United States or abroad, we could be subject
to penalties or could be forced to change our business practices.
In the ordinary course of business, we are a party to various
legal proceedings. We review these actions on an ongoing basis
to determine whether it is probable that a loss has occurred and
use that information when making accrual and disclosure
decisions. We have not established reserves or
F-29
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
14.
|
Commitments and
Contingencies (Continued)
|
possible ranges of losses related to these proceedings because,
at this time in the proceedings, the matters do not relate to a
probable loss
and/or the
amounts are not reasonably estimable.
From time to time we enter into contracts containing provisions
that contingently require us to indemnify various parties
against claims from third parties. These contracts primarily
relate to (i) contracts with our card issuing banks, under
which we are responsible to them for any unrecovered overdrafts
on cardholders accounts; (ii) certain real estate
leases, under which we may be required to indemnify property
owners for environmental and other liabilities, and other claims
arising from our use of the premises, (iii) certain
agreements with our officers, directors, and employees, under
which we may be required to indemnify these persons for
liabilities arising out of their relationship with us,
(iv) contracts under which we may be required to indemnify
our retail distributors, suppliers, vendors and other parties
with whom we have contracts against third-party claims that our
products infringe a patent, copyright, or other intellectual
property right claims arising from our acts, omissions, or
violation of law.
Generally, a maximum obligation under these contracts is not
explicitly stated. Because the obligated amounts associated with
these types of agreements are not explicitly stated, the overall
maximum amount of the obligation cannot be reasonably estimated.
With the exception of overdrafts on cardholders accounts,
historically, we have not been required to make payments under
these and similar contingent obligations, and no liabilities
have been recorded for these obligations in our consolidated
balance sheets. For additional information regarding overdrafts
on cardholders accounts, refer to
Note 3 Accounts Receivable.
|
|
15.
|
Significant
Customer Concentrations
|
A credit concentration may exist if customers are involved in
similar industries, economic sectors, and geographic regions.
Our retail distributors operate in similar economic sectors but
diverse domestic geographic regions. The loss of a significant
retail distributor could have a material adverse effect upon our
card sales, profitability, and revenue growth.
Revenues derived from our products sold at our four largest
retail distributors, Walmart, Walgreens, CVS, and Rite Aid,
represented approximately 3%, 22%, 19%, and 17%, respectively,
of our operating revenues for the year ended July 31, 2007,
39%, 17%, 13%, and 11%, respectively, for the year ended
July 31, 2008, 56%, 11%, 9%, and 7%, respectively, for the
year ended July 31, 2009.
Revenues derived from our products sold at our four largest
retail distributors, Walmart, Walgreens, CVS, and Rite Aid,
represented approximately 50%, 15%, 12%, and 10%, respectively,
of our operating revenues for the three months ended
October 31, 2008 (unaudited) and 64%, 9%, 8% and 6%,
respectively, for the three months ended October 31, 2009
(unaudited).
In determining the customer concentration, we attributed new
card fees and cash transfer revenues to the retail distributor
where the sale of the new cards and cash transfer products
occurred.
The concentration of sales of new cards (in units) for these
retail distributors, in the aggregate, was 84%, 94%, and 95% for
the years ended July 31, 2007, 2008, and 2009,
respectively, and 95% and 95% for the three months ended
October 31, 2008 (unaudited) and 2009 (unaudited),
respectively. The concentration of sales of cash transfer
products (in units) for these retail distributors, in the
aggregate, was 78%, 89%, and 92% for the years ended
July 31, 2007, 2008, and 2009, respectively, and 91% and
94% for the three months ended October 31, 2008 (unaudited)
and 2009 (unaudited), respectively.
Our four largest retail distributors also comprised 51%, 30%,
17%, and 10%, respectively, of the settlement assets recorded on
our consolidated balance sheet as of July 31, 2008, 83%,
10%, 0%, and 5%, respectively, as of July 31, 2009 and 83%,
8%, 0%, and 5%, respectively, as of October 31, 2009
(unaudited).
F-30
Green Dot
Corporation
Notes to
Consolidated Financial
Statements (Continued)
|
|
15.
|
Significant
Customer Concentrations (Continued)
|
During the years ended July 31, 2007, 2008, and 2009, and
during the three months ended October 31, 2008 (unaudited)
and 2009 (unaudited), the majority of our customer funds
underlying our products were held bank accounts at two card
issuing banks. These funds are held in trust for the benefit of
the customers, and we have no legal rights to the customer funds
or deposits at the card issuing banks. The failure of either of
these card issuing banks could result in significant business
disruption, a potential material adverse affect on our ability
to service our customers, and potential contingent obligations
by us to customers.
We evaluate subsequent events that have occurred after our most
recent balance sheet date but before the financial statements
are issued or are available to be issued. There are two types of
subsequent events: (1) recognized, or those that provide
additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the
process of preparing financial statements, and
(2) nonrecognized, or those that provide evidence about
conditions that did not exist at the date of the balance sheet
but arose after that date. We evaluated subsequent events
through February 26, 2010, the issuance date of our
financial statements.
Based on the evaluation, we did not identify any recognized
subsequent events that would have required adjustment to the
consolidated financial statements. The following were
nonrecognized subsequent events we identified:
In October 2009, certain existing and third-party investors
extended an offer to all our existing stockholders to purchase
3,250,000 shares at a price of $20.05, less applicable
selling fees. On November 9, 2009, the offering closed and
existing stockholders sold 3,033,661 shares at a price of
$20.01 per share.
In November 2009, we entered into a new agreement with an
existing card issuing bank. The terms of the agreement include
future minimum annual payments. The minimum aggregate commitment
under this agreement was (in thousands):
|
|
|
|
|
Year Ending July 31,
|
|
|
|
|
2010
|
|
$
|
1,440
|
|
2011
|
|
|
1,920
|
|
2012
|
|
|
1,920
|
|
2013
|
|
|
640
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,920
|
|
|
|
|
|
|
In November 2009, all related-party notes receivable were repaid
in full, including accrued interest of $936,000.
In November 2009, our board of directors approved an increase in
the number of shares of common stock reserved for issuance under
the Plan from 9,943,134 shares to 11,208,384 shares.
In December 2009, our board of directors awarded
257,984 shares of common stock to our Chief Executive
Officer to compensate him for past services rendered to our
company. The number of shares awarded was equal to the number of
shares subject to fully vested options that were unintentionally
allowed to expire unexercised in June 2009. The aggregate grant
date fair value of the December 2009 award was approximately
$5.2 million, based on an estimated fair value of our
common stock of $20.01, as determined by our board of directors
on the date of the award. We recorded the aggregate grant date
fair value as compensation and benefits expense on the date of
the award.
F-31
Shares
Class A
Common Stock
Prospectus
|
|
J.P.
Morgan |
Morgan Stanley |
|
|
Piper
Jaffray |
UBS
Investment Bank |
,
2010
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
Other Expenses
of Issuance and Distribution.
|
The following table sets forth the costs and expenses to be paid
by the Registrant in connection with the sale of the shares of
Class A common stock being registered hereby. All amounts
are estimates except for the SEC registration fee, the FINRA
filing fee and the NYSE listing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
10,695.00
|
|
FINRA filing fee
|
|
|
15,500.00
|
|
NYSE listing fee
|
|
|
*
|
|
Printing and engraving
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Road show expenses
|
|
|
*
|
|
Blue sky fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be provided by amendment. |
|
|
ITEM 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers under
certain circumstances and subject to certain limitations. The
terms of Section 145 of the Delaware General Corporation
Law are sufficiently broad to permit indemnification under
certain circumstances for liabilities, including reimbursement
of expenses incurred, arising under the Securities Act of 1933,
as amended (the Securities Act).
As permitted by the Delaware General Corporation Law, the
Registrants restated certificate of incorporation contains
provisions that eliminate the personal liability of its
directors for monetary damages for any breach of fiduciary
duties as a director, except for liability:
|
|
|
|
|
for any breach of the directors duty of loyalty to the
Registrant or its stockholders;
|
|
|
|
for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
|
|
|
|
under Section 174 of the Delaware General Corporation Law
(regarding unlawful dividends and stock purchases); or
|
|
|
|
for any transaction from which the director derived an improper
personal benefit.
|
As permitted by the Delaware General Corporation Law, the
Registrants restated bylaws provide that:
|
|
|
|
|
the Registrant is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to very limited exceptions;
|
|
|
|
the Registrant may indemnify its other employees and agents as
set forth in the Delaware General Corporation Law;
|
|
|
|
the Registrant is required to advance expenses, as incurred, to
its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General
Corporation Law, subject to very limited exceptions; and
|
|
|
|
the rights conferred in the bylaws are not exclusive.
|
II-1
Prior to the completion of the offering that is the subject of
this Registration Statement, the Registrant intends to enter
into indemnification agreements with each of its current
directors and executive officers to provide these directors and
executive officers additional contractual assurances regarding
the scope of the indemnification set forth in the
Registrants restated certificate of incorporation and
restated bylaws and to provide additional procedural
protections. At present, there is no pending litigation or
proceeding involving a director, executive officer or employee
of the Registrant regarding which indemnification is sought.
Reference is also made to Section 9 of the Underwriting
Agreement, which provides for the indemnification of executive
officers, directors and controlling persons of the Registrant
against certain liabilities. The indemnification provision in
the Registrants restated certificate of incorporation,
restated bylaws and the indemnification agreements entered into
or to be entered into between the Registrant and each of its
directors and executive officers may be sufficiently broad to
permit indemnification of the Registrants directors and
executive officers for liabilities arising under the Securities
Act.
The Registrant has directors and officers liability
insurance for securities matters.
In addition, Mr. Moritz is indemnified by his employer with
regard to his serving on the Registrants board of
directors.
Reference is made to the following documents filed as exhibits
to this Registration Statement regarding relevant
indemnification provisions described above and elsewhere herein:
|
|
|
|
|
Exhibit Document
|
|
Number
|
|
Form of Underwriting Agreement
|
|
|
1
|
.01
|
Form of Restated Certificate of Incorporation of the Registrant
|
|
|
3
|
.02
|
Form of Restated Bylaws of the Registrant
|
|
|
3
|
.04
|
Eighth Amended and Restated Registration Rights Agreement by and
among the Registrant and certain investors of the Registrant
|
|
|
4
|
.02
|
Form of Indemnity Agreement
|
|
|
10
|
.01
|
|
|
ITEM 15.
|
Recent Sales
of Unregistered Securities.
|
Since January 1, 2007, the Registrant has issued and sold
the following securities:
1. In February and March 2007, the Registrant issued
197,672 shares of common stock pursuant to the exercise of
warrants with a per share exercise price of $0.3014 for an
aggregate purchase price of $59,578.
2. In December 2008, the Registrant sold
1,181,818 shares of Series C-2 preferred stock to four
entity affiliates with Sequoia Capital, a venture capital firm,
for an aggregate purchase price of $13.0 million.
3. In March 2009, the Registrant issued a warrant to
purchase up to 4,283,456 shares of common stock to PayPal,
Inc.
4. Since January 1, 2007, the Registrant has issued
options to employees, consultants and directors to purchase an
aggregate of 4,415,921 shares of common stock under its
2001 Stock Plan.
5. Since January 1, 2007, the Registrant has issued
2,693,242 shares of common stock to its employees,
directors, consultants and other service providers upon exercise
of options granted by it under its 2001 Stock Plan, with
exercise prices ranging from $0.16 to $10.75 per share, for an
aggregate purchase price of $2,622,703.
The sales of the securities described in paragraphs
(1) (3) above were deemed to be exempt from
registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act or Regulation D
promulgated thereunder. The recipients of the securities in each
of these transactions represented their intentions to acquire
the securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were placed upon the share certificates
issued in these transactions. All recipients had adequate
access, through their
II-2
relationships with us, to information about the Registrant. The
sales of the securities described in paragraphs (4) and
(5) above were deemed to be exempt from registration under
the Securities Act in reliance upon Rule 701 promulgated
under Section 3(b) of the Securities Act as transactions
pursuant to benefit plans and contracts relating to compensation
as provided under Rule 701.
|
|
ITEM 16.
|
Exhibits and
Financial Statement Schedules.
|
(a) Exhibits.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.01*
|
|
Form of Underwriting Agreement.
|
|
3
|
.01*
|
|
Ninth Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.02*
|
|
Form of Restated Certificate of Incorporation of the Registrant,
to be effective upon the consummation of this offering.
|
|
3
|
.03
|
|
Bylaws of the Registrant.
|
|
3
|
.04*
|
|
Form of Restated bylaws of the Registrant, to be effective upon
closing of this offering.
|
|
4
|
.01*
|
|
Form of Registrants Class A Common Stock certificate.
|
|
4
|
.02*
|
|
Eighth Amended and Restated Registration Rights Agreement by and
among the Registrant and the preferred stockholders and certain
warrant holders of the Registrant.
|
|
5
|
.01*
|
|
Opinion of Fenwick & West LLP regarding the legality
of the securities being registered.
|
|
10
|
.01*
|
|
Form of Indemnity Agreement.
|
|
10
|
.02*
|
|
2001 Stock Plan and form of option grant.
|
|
10
|
.03*
|
|
2010 Equity Incentive Plan and form of option grant.
|
|
10
|
.04
|
|
Lease Agreement between Registrant and Foothill Technology
Center, dated July 8, 2005, as amended on August 21,
2008 and July 30, 2009.
|
|
10
|
.05*
|
|
Prepaid Card Program Agreement dated as of October 20, 2006
by and among the Registrant, Wal-Mart Stores, Inc., Wal-Mart
Stores Texas, L.P., Wal-Mart Louisiana, LLC, Wal-Mart Stores
East, Inc., and Wal-Mart Stores, L.P. and GE Money Bank, as
amended.
|
|
10
|
.06*
|
|
Card Program Services Agreement, dated as of October 27,
2006, by and between the Registrant and GE Money Bank, as
amended.
|
|
10
|
.07*
|
|
Program Agreement, dated as of November 1, 2009, by and
between the Registrant and Columbus Bank and Trust Company.
|
|
10
|
.08*
|
|
Agreement for Services, dated as of September 1, 2009, by
and between the Registrant and Total System Services, Inc.
|
|
10
|
.09*
|
|
Master Services Agreement, dated as of May 28, 2009, by and
between the Registrant and Genpact International, Inc.
|
|
10
|
.10
|
|
Fifth Amended and Restated Loan and Line of Credit Agreement
between Columbus Bank and Trust Company and Registrant,
dated March 24, 2009.
|
|
10
|
.11
|
|
Offer letter to William D. Sowell from the Registrant, dated
January 28, 2009.
|
|
10
|
.12
|
|
Employment Agreement between the Registrant and Mark T.
Troughton, dated July 20, 2004.
|
|
10
|
.13
|
|
FY2009 Management Cash Incentive Compensation Plan.
|
|
10
|
.14
|
|
Description of FY2010 Management Cash Incentive Compensation
Plan.
|
|
10
|
.15*
|
|
Warrant to purchase shares of common stock of the Registrant.
|
|
10
|
.16
|
|
Preferred Stock Warrant to purchase shares of
Series C-1
preferred stock of the Registrant.
|
|
23
|
.01*
|
|
Consent of Fenwick & West LLP (included in
Exhibit 5.01).
|
|
23
|
.02
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
24
|
.01
|
|
Power of Attorney (included on
page II-5).
|
|
|
|
* |
|
To be filed by amendment. |
II-3
|
|
(b)
|
Financial
Statement Schedules.
|
All financial statement schedules are omitted because they are
not applicable or the information is included in the
Registrants consolidated financial statements or related
notes.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to provisions
described in Item 14 above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Monrovia, State of California, on
February 26, 2010.
GREEN DOT CORPORATION
Steven W. Streit
President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose
signature appears below constitutes and appoints Steven W.
Streit, John C. Ricci and John L. Keatley, and each of them, his
or her true and lawful attorneys-in-fact and agents with full
power of substitution, for him or her and in his or her 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 sign any registration statement
for the same offering covered by the Registration Statement that
is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act, and all post-effective
amendments thereto, and to file the same, with all exhibits
thereto and all 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 each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his, her or
their substitute or substitutes, may lawfully do or cause to be
done or by virtue hereof.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
Principal Executive Officer:
|
|
|
|
|
|
|
|
|
|
/s/ Steven
W. Streit
Steven
W. Streit
|
|
Chairman, President and
Chief Executive Officer
|
|
February 26 , 2010
|
|
|
|
|
|
Principal Financial Officer:
|
|
|
|
|
|
|
|
|
|
/s/ John
L. Keatley
John
L. Keatley
|
|
Chief Financial Officer
|
|
February 26, 2010
|
|
|
|
|
|
|
|
Principal Accounting Officer:
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Simon
M. Heyrick
Simon
M. Heyrick
|
|
Chief Accounting Officer
|
|
February 26, 2010
|
II-5
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
Additional Directors:
|
|
|
|
|
|
|
|
|
|
/s/ Kenneth
C. Aldrich
Kenneth
C. Aldrich
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Timothy
R. Greenleaf
Timothy
R. Greenleaf
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Virginia
L. Hanna
Virginia
L. Hanna
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Michael
J. Moritz
Michael
J. Moritz
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William
H. Ott, Jr.
William
H. Ott, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ W.
Thomas Smith, Jr.
W.
Thomas Smith, Jr.
|
|
Director
|
|
February 26, 2010
|
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
1
|
.01*
|
|
Form of Underwriting Agreement.
|
|
3
|
.01*
|
|
Ninth Amended and Restated Certificate of Incorporation of the
Registrant.
|
|
3
|
.02*
|
|
Form of Restated Certificate of Incorporation of the Registrant,
to be effective upon the consummation of this offering.
|
|
3
|
.03
|
|
Bylaws of the Registrant.
|
|
3
|
.04*
|
|
Form of Restated bylaws of the Registrant, to be effective upon
closing of this offering.
|
|
4
|
.01*
|
|
Form of Registrants Class A Common Stock certificate.
|
|
4
|
.02*
|
|
Eighth Amended and Restated Registration Rights Agreement by and
among the Registrant and the preferred stockholders and certain
warrant holders of the Registrant.
|
|
5
|
.01*
|
|
Opinion of Fenwick & West LLP regarding the legality
of the securities being registered.
|
|
10
|
.01*
|
|
Form of Indemnity Agreement.
|
|
10
|
.02*
|
|
2001 Stock Plan and form of option grant.
|
|
10
|
.03*
|
|
2010 Equity Incentive Plan and form of option grant.
|
|
10
|
.04
|
|
Lease Agreement between Registrant and Foothill Technology
Center, dated July 8, 2005, as amended on August 21,
2008 and July 30, 2009.
|
|
10
|
.05*
|
|
Prepaid Card Program Agreement dated as of October 20, 2006
by and among the Registrant, Wal-Mart Stores, Inc., Wal-Mart
Stores Texas, L.P., Wal-Mart Louisiana, LLC, Wal-Mart Stores
East, Inc., and Wal-Mart Stores, L.P. and GE Money Bank, as
amended.
|
|
10
|
.06*
|
|
Card Program Services Agreement, dated as of October 27,
2006, by and between the Registrant and GE Money Bank, as
amended.
|
|
10
|
.07*
|
|
Program Agreement, dated as of November 1, 2009, by and
between the Registrant and Columbus Bank and Trust Company.
|
|
10
|
.08*
|
|
Agreement for Services, dated as of September 1, 2009, by
and between the Registrant and Total System Services, Inc.
|
|
10
|
.09*
|
|
Master Services Agreement, dated as of May 28, 2009, by and
between the Registrant and Genpact International, Inc.
|
|
10
|
.10
|
|
Fifth Amended and Restated Loan and Line of Credit Agreement
between Columbus Bank and Trust Company and Registrant,
dated March 24, 2009.
|
|
10
|
.11
|
|
Offer letter to William D. Sowell from the Registrant, dated
January 28, 2009.
|
|
10
|
.12
|
|
Employment Agreement between the Registrant and Mark T.
Troughton, dated July 20, 2004.
|
|
10
|
.13
|
|
FY2009 Management Cash Incentive Compensation Plan.
|
|
10
|
.14
|
|
Description of FY2010 Management Cash Incentive Compensation
Plan.
|
|
10
|
.15*
|
|
Warrant to purchase shares of common stock of the Registrant.
|
|
10
|
.16
|
|
Preferred Stock Warrant to purchase shares of
Series C-1
preferred stock of the Registrant.
|
|
23
|
.01*
|
|
Consent of Fenwick & West LLP (included in
Exhibit 5.01).
|
|
23
|
.02
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
24
|
.01
|
|
Power of Attorney (included on
page II-5).
|
|
|
|
* |
|
To be filed by amendment. |