SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- --------
Commission File Number
0-16439
FAIR, ISAAC AND COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1499887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 North Redwood Drive, San Rafael, California 94903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 472-2211
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ____.
The number of shares of Common Stock, $0.01 par value per share,
outstanding on August 6, 1998, was 13,963,873.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.............................................................. 3
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................. 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................. 15
SIGNATURES..................................................................................... 16
EXHIBIT INDEX.................................................................................. 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and September 30, 1997
(dollars in thousands)
June 30 September 30
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,757 $ 13,209
Short-term investments 13,742 6,108
Accounts receivable, net 37,831 36,147
Unbilled work in progress 20,568 18,176
Prepaid expenses and other current assets 7,737 3,673
Deferred income taxes 4,383 4,517
--------- ---------
Total current assets 101,018 81,830
Long-term investments 17,482 13,261
Property and equipment, net 37,078 34,486
Intangibles, net 10,636 8,361
Deferred income taxes 3,369 3,369
Other assets 3,578 3,921
--------- ---------
$ 173,161 $ 145,228
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 12,516 $ 8,228
Accrued compensation and employee benefits 19,902 19,160
Billings in excess of earned revenues 8,438 6,346
Capital lease obligations 409 369
--------- ---------
Total current liabilities 41,265 34,103
Other liabilities 7,330 6,753
Capital lease obligations 895 1,183
--------- ---------
Total liabilities 49,490 42,039
--------- ---------
Stockholders' equity:
Preferred stock --------- ---------
Common stock 139 135
Paid in capital in excess of par value 31,235 26,025
Retained earnings 92,484 77,453
Less treasury stock (11,097 shares at cost at 6/30/98;
12,114 at 9/30/97) (397) (433)
Cumulative translation adjustments (284) (308)
Unrealized gains on investments 494 317
--------- ---------
Total stockholders' equity 123,671 103,189
--------- ---------
$ 173,161 $ 145,228
========= =========
See accompanying notes to the consolidated financial statements.
3
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
For the nine month and three month periods ended June 30, 1998 and 1997
(dollars in thousands, except per share data)
Nine Months Ended Three Months Ended
June 30 June 30
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 177,808 $ 142,777 $ 64,642 $ 51,074
Costs and expenses:
Cost of revenues 63,746 52,912 22,114 18,715
Sales and marketing 26,612 21,265 9,283 8,061
Research and development 20,925 12,755 6,945 5,013
General and administrative 38,822 29,743 14,707 10,750
Amortization of intangibles 982 961 406 306
----------- ----------- ----------- -----------
Total costs and expenses 151,087 117,636 53,455 42,845
----------- ----------- ----------- -----------
Income from operations 26,721 25,141 11,187 8,229
Other income (expense), net 518 (1,218) (21) (885)
----------- ----------- ----------- -----------
Income before income taxes 27,239 23,923 11,166 7,344
Provision for income taxes 11,385 9,561 4,767 3,050
----------- ----------- ----------- -----------
Net income $ 15,854 $ 14,362 $ 6,399 $ 4,294
=========== =========== =========== ===========
Earnings per share:
Diluted $ 1.11 $ 1.01 $ .45 $ .30
=========== =========== =========== ===========
Basic $ 1.16 $ 1.08 $ .46 $ .32
=========== =========== =========== ===========
Shares used in computing earnings per share:
Diluted 14,340,000 14,282,000 14,359,000 14,325,000
=========== =========== =========== ===========
Basic 13,696,000 13,349,000 13,894,000 13,395,000
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements.
4
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997
(dollars in thousands)
Nine Months Ended
June 30
------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 15,854 $ 14,362
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 11,125 8,793
Deferred compensation 408 --
Gain on sale of investment (165) --
Equity loss in investment 8 1,618
Deferred income taxes 311 (16)
Change to reflect change in Risk Management
Technologies fiscal year -- (214)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,660) (3,340)
Increase in unbilled work in progress (2,392) (5,266)
Increase in prepaid expenses and other assets (4,064) (2,245)
Decrease (increase) in other assets 343 (551)
Increase in accounts payable and other accrued liabilities 4,835 596
Increase (decrease) in accrued compensation
and employee benefits 2,149 (801)
Increase in billings in excess of earned revenues 2,092 1,823
Increase (decrease) in other liabilities (47) 2,312
-------- --------
Net cash provided by operating activities 28,797 17,071
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (11,447) (16,410)
Proceeds from sale of property and equipment -- 340
Payments for acquisitions of subsidiaries (3,146) (78)
Purchases of investments (16,708) (8,615)
Proceeds from maturities of investments 5,010 7,493
-------- --------
Net cash used by investing activities (26,291) (17,270)
-------- --------
Cash flows from financing activities:
Principal payments of capital lease obligations (288) (263)
Issuance of common stock 2,181 779
Dividends paid (823) (759)
Repurchase of company stock (28) (232)
-------- --------
Net cash provided (used) by financing activities 1,042 (475)
-------- --------
Increase (decrease) in cash and cash equivalents 3,548 (674)
Cash and cash equivalents, beginning of period 13,209 _11,487
-------- --------
Cash and cash equivalents, end of period $ 16,757 $ 10,813
======== ========
See accompanying notes to the consolidated financial statements.
5
FAIR, ISAAC AND COMPANY, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Earnings Per Share
The following reconciles the numerators and denominators of diluted and basic earnings per share (EPS):
Nine months ended June 30, Three months ended June 30,
(dollars in thousands, except per share data) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Numerator - Net income $ 15,854 $ 14,362 $ 6,399 $ 4,294
======== ======== ======== ========
Denominator - Shares:
Diluted weighted-average shares and assumed conversions 14,340 14,282 14,359 14,325
of stock options
Effect of dilutive securities - employee stock options (644) (933) (465) (930)
-------- -------- -------- --------
Basic weighted-average shares 13,696 13,349 13,894 13,395
======== ======== ======== ========
Earnings per share:
Diluted $ 1.11 $ 1.01 $ .45 $ .30
======== ======== ======== ========
Basic $ 1.16 $ 1.08 $ .46 $ .32
======== ======== ======== ========
Total options outstanding included 959,000 and 361,000 options to purchase
shares of common stock at prices ranging from $36.50 to $45.63 and $38.25 to
$41.88 at June 30, 1998 and 1997, respectively. These options were not included
in the computation of diluted EPS because the exercise price for such options
was greater than the average market price of the common shares for the nine and
three months ended June 30, 1998 and 1997.
Note 2 Cash Flow Statement
Supplemental disclosure of cash flow information:
Nine months ended June 30,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Income tax payments $12,489 $13,121
Interest paid $ 89 $ 246
Non-cash investing and financing activities:
Issuance of common stock to ESOP $ 1,323 $ 969
Tax benefit of stock options $ 1,171 $ ---
Purchase of CRMA with common stock $ 111 $ ---
Vesting of restricted stock $ 84 $ ---
Capital lease obligations $ 40 $ ---
Contributions of treasury stock to ESOP $ --- $ 499
6
Note 3 Merger
In July 1997, the Company issued 1,252,665 shares of its common stock
(including 544,218 shares underlying options assumed by the Company) in
connection with the merger with Risk Management Technologies (RMT). The
acquisition has been accounted for under the pooling-of-interests method.
Accordingly, the financial statements have been restated for all prior periods
to include RMT. Further, all common share and per share data have been restated
for prior periods.
RMT previously used the fiscal year ended December 31 for its financial
reporting. RMT's operating results for the year ended December 31, 1996 are
included in the accompanying balance sheet at September 30, 1997 in the line
item retained earnings. The statement of income's comparative 1997 results
reflect the operations of the Company and RMT for the nine-month period ended
June 30, 1997. Accordingly, the duplication of RMT's net income for the three
months ended December 31, 1996, has been adjusted by a $214,000 charge to
retained earnings in fiscal 1997.
Note 4 Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting
comprehensive income and its components in financial statements. This statement
requires that all items which are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income is equal to net income plus the change in
"other comprehensive income." SFAS No. 130 requires that an entity: (a) classify
items of other comprehensive income by their nature in a financial statement,
and (b) report the accumulated balance of other comprehensive income separately
from common stock and retained earnings in the equity section of the statement
of financial position. This statement is effective for financial statements
issued for fiscal years beginning after December 15, 1997. Beginning with fiscal
year 1999, management intends to conform its consolidated financial statements
to this pronouncement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
publicly held entities to follow in reporting information about operating
segments in annual financial statements and requires that those entities report
selected information about operating segments in interim financial statements.
This statement also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement is effective
for financial statements issued for fiscal years beginning after December 15,
1997. Beginning with fiscal year 1999, management intends to conform its
consolidated financial statements to this pronouncement.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 97-2, "Software Revenue Recognition,"
which supersedes SOP 91-1. The Company will be required to adopt SOP 97-2 for
software transactions entered into beginning October 1, 1998, and retroactive
application to years prior to adoption is prohibited. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
(i.e., software products, upgrades/enhancements, postcontract customer support,
installation, training, etc.) to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on evidence which is specific to the vendor. The revenue allocated to software
products (including specified upgrades/enhancements) generally is recognized
upon delivery of the products. The revenue allocated to postcontract customer
support generally is recognized ratably over the term of the support and revenue
allocated to service elements (such as training and installation) generally is
recognized as the services are performed. If a vendor does not have evidence of
the fair value for all elements in a multiple-element arrangement, all revenue
from the arrangement is deferred until such evidence exists or until all
elements are delivered. The Company's management anticipates that the adoption
of SOP 97-2 will not have a material impact on the Company's results of
operations. Beginning with fiscal year 1999, management intends to conform its
consolidated financial statement to this pronouncement.
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits." The statement standardizes
the disclosure requirements for pension and other postretirement benefits. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
impact of the disclosure.
7
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This statement is effective for all quarters of fiscal years beginning
after June 15, 1999. As of June 30, 1998, the Company did not have any
derivative instruments or engage in hedging activities.
Note 5 Leases
In May, 1998, the Company entered into a synthetic lease agreement to lease
undeveloped land in San Rafael, California and improvements comprising the first
phase of an office complex facility to be constructed on the land. A synthetic
lease is asset-based financing structured to be treated as a lease for
accounting purposes but as a loan for tax purposes. The office complex facility
is intended to accommodate the future growth of the Company.
The Company had exercised an option (the "Option") to purchase the
undeveloped land in December, 1997, at an approximate cost of $9.35 million plus
certain other costs incurred by the seller as defined in the Option agreement.
The Option was assigned to the lessor under the synthetic lease. The lessor
under the synthetic lease has committed to spend up to $55 million for the
purchase of the land and construction of this first phase of the facility, and
the Company will act as construction agent for the lessor. The lease term began
as of May, 1998 and continue thereafter for five years. Rent payments will
commence on the completion of construction which is expected to occur in
January, 2001. With the approval of the lessor, the Company may extend the lease
term for up to three one-year periods or one three-year period. The Company has
the option either to purchase the entire facility at a purchase price
approximating lessor's then accumulated total costs or only certain portions of
the facility at a pre-set price, at any time during the term or, at the
expiration of the lease term, to cause the facility to be sold to a third party.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Fair, Isaac and Company, Incorporated, provides products and services
designed to help a variety of businesses use data to make better decisions on
their customers, prospective customers and existing portfolios. The Company's
products include statistically derived, rule-based analytical tools, software
designed to implement those analytical tools and consulting services to help
clients use and track the performance of those tools. The Company also provides
a range of credit scoring and credit account management services in conjunction
with credit bureaus and credit card processing agencies. Its DynaMark subsidiary
provides data processing and database management services to businesses engaged
in direct marketing activities, many of which are in the credit and insurance
industries.
On July 21, l997, the Company acquired Risk Management Technologies (RMT),
a privately held company which provides enterprise-wide risk management and
performance measurement solutions to major financial institutions. The Company's
historical financial statements for prior periods have been restated to account
for the Company's merger with RMT on a pooling-of-interests basis.
The Company is organized into business units that correspond to its
principal markets: consumer credit, insurance, direct marketing (DynaMark),
enterprise-wide financial risk management (RMT) and a new unit, healthcare
information. Sales to the consumer credit industry have traditionally accounted
for the bulk of the Company's revenues. Products developed specifically for a
single user in this market are generally sold on a fixed-price basis. Such
products include application and behavior scoring algorithms (also known as
"analytic products" or "scorecards"), credit application processing systems
(ASAP(TM) and CreditDesk(R)) and custom credit account management systems,
including those marketed under the name TRIAD(TM). Software systems usually also
have a component of ongoing maintenance revenue, and CreditDesk systems have
also been sold under time- or volume-based price arrangements. Credit scoring
and credit account management services sold through credit bureaus and
third-party credit card processors are generally priced based on usage. Products
sold to the insurance industry are generally priced based on the number of
policies in force, subject to contract minimums. DynaMark and RMT employ a
combination of fixed-fee and usage-based pricing, and the Healthcare Information
unit intends to employ a combination of fixed-fee and usage-based pricing for
its products.
This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes. In addition to historical
information, this report includes certain forward-looking statements regarding
events and trends that may affect the Company's future results. Such statements
are subject to risks and uncertainties that could cause the Company's actual
results to differ materially. Such factors include, but are not limited to,
those described in this discussion and analysis.
9
Results of Operations
Revenues
The following table sets forth for the fiscal periods indicated (a) the
percentage of revenues represented by fixed-price and usage-priced revenues from
the Credit business unit, and the percentage of revenues contributed by the
DynaMark, RMT, Insurance and Healthcare Information business units; and (b) the
percentage change in revenues within each category from the corresponding period
in the prior fiscal year. Fixed-price revenues from the Credit business unit
include all revenues from custom scorecard, software and consulting projects.
Most credit usage revenues are generated through third-party alliances such as
those with credit bureaus and third-party credit card processors. In addition,
some credit scorecards and software products are licensed under volume-based fee
arrangements and these are included in usage-priced revenues.
Percentage of Percentage of
Revenue Revenue
Three Months Ended Percentage Nine Months Ended Percentage
June 30, Change June 30, Change
------------------ ---------- ----------------- ----------
1998 1997 1998 1997
---- ---- ---- ----
Credit
Fixed-price 25% 28% 12% 25% 29% 8%
Usage-priced 48% 47% 29% 48% 49% 24%
DynaMark 21% 17% 55% 20% 15% 63%
RMT 2% 4% (29)% 3% 4% (13%)
Insurance 4% 3% 70% 4% 3% 52%
Healthcare Information <1% 1% (57)% <1% <1% 17%
---- ---- ---- ----
Total revenues 100% 100% 27% 100% 100% 25%
==== ==== ==== ====
The increase in fixed-price credit revenues in the quarter ended June 30,
1998 and in the nine months ended June 30, 1998 was due primarily to increased
revenues from Credit and Risk Management Associates, Inc. (CRMA), a subsidiary
acquired in September 1996; sales of credit application scorecards and credit
application processing software; and its end-user credit account management
systems ("TRIAD") and behavior scoring projects. CRMA's revenues were up 47
percent in the quarter and 85 percent in the nine months ended June 30, 1998,
compared with the same periods of the prior fiscal year. Compared with the same
periods of fiscal 1997, revenues from sales of credit application scorecards and
credit application processing software increased by approximately 17 percent in
the quarter and by 12 percent in the nine months ended June 30, 1998. Revenues
from end-user credit account management systems ("TRIAD") and behavior scoring
projects in the three- and nine-month periods ended June 30, 1998, were up 42
percent and 28 percent, respectively, from the same periods of fiscal 1997 due
primarily to the release of the new version of TRIAD software.
The increase in usage revenues from the Credit business unit in the quarter
and nine-months ended June 30, 1998, compared with the same periods the prior
year, was due to continuing growth in (a) usage of the Company's scoring
services distributed through the three major credit bureaus in the United States
and (b) the number of bankcard accounts being managed by the Company's account
management services delivered through third-party processors. Revenues from the
credit bureau scoring services in the nine-months ended June 30, 1998, were
approximately 24 percent higher than in the first nine months of fiscal 1997;
approximately one-twelfth of this increase was due to the recognition of usage
revenue pertaining to prior fiscal years from settlement of audits with alliance
partners. Revenues from credit account management services delivered through
third-party processors in the most recent three months were 17 percent higher
than in the corresponding period of fiscal 1997.
Revenues from credit bureau-related services have increased rapidly in each
of the last three fiscal years and accounted for approximately 35 percent of
revenues in fiscal 1997. Revenues from services provided through bankcard
processors also increased in each of these years, due primarily to increases in
the number of accounts at each of the major processors.
10
Revenues derived from alliances with credit bureaus and credit card
processors have accounted for much of the Company's revenue growth and
improvement in operating margins over the last three fiscal years. While the
Company has been very successful in extending or renewing such agreements in the
past, and believes it will generally be able to do so in the future, the loss of
one or more such alliances could have a significant impact on revenues and
operating margin. Revenues generated through the Company's alliances with
Equifax, Inc., Experian Information Solutions, Inc. (formerly TRW Information
Systems & Services), and Trans Union Corporation each accounted for
approximately eight to ten percent of the Company's total revenues in fiscal
1996 and 1997.
On November 14, 1996, it was announced that Experian had been acquired by
CCN Group Ltd., a subsidiary of Great Universal Stores, PLC. CCN is the
Company's largest competitor, worldwide, in the area of credit scoring.
TRW/Experian has offered scoring products developed by CCN in competition with
those of the Company for several years. The acquisition has had no apparent
impact on the Company's revenues from Experian.
On September 30, 1997, amendments to the federal Fair Credit Reporting Act
became effective. The Company believes these changes to the federal law
regulating credit reporting will be favorable to the Company and its clients.
Among other things, the new law expressly permits the use of credit bureau data
to prescreen consumers for offers of credit and insurance and allows affiliated
companies to share consumer information with each other subject to certain
conditions. There is also a seven-year moratorium on new state legislation on
certain issues. However, the states remain free to regulate the use of credit
bureau data in connection with insurance underwriting. The Company believes
enacted or proposed state regulation of the insurance industry has had a
negative impact on its efforts to sell insurance risk scores through credit
reporting agencies.
Since its acquisition, DynaMark has taken on an increasing share of the
mainframe batch processing requirements of the Company's other business units.
During fiscal 1997, such intercompany revenue represented more than fourteen
percent of DynaMark's total revenues. Accordingly, DynaMark's externally
reported revenues tend to understate DynaMark's growth and contribution to the
Company as a whole. The increase in DynaMark's revenues shown in the foregoing
table, which excludes such intercompany revenues, was due primarily to increased
revenues from customers in the financial services industry. RMT's revenues
decreased in the three- and nine-month periods ended June 30, l998 compared to
the same periods in fiscal 1997 due to the impact of bank consolidations.
The increases in Insurance revenues for the three- and nine-months ended
June 30, 1998, compared with the same periods in fiscal 1997, were due primarily
to continuing strong growth in insurance scoring services offered through
consumer reporting agencies. In the quarter and nine-months ended June 30, 1998,
the Company's newest business unit, Healthcare Information, derived revenues
from providing analytical marketing services to a large pharmaceuticals
manufacturer to help improve customer relationships and management of
prescription compliance (i.e., patient's fulfillment of prescriptions and taking
them to completion). The corresponding periods in fiscal 1997 included some
revenues for earlier quarters due to timing of revenue recognition.
Revenues derived from outside of the United States represented
approximately 18 percent of total revenues in the quarter and nine-months ended
June 30, 1998, compared with 15 percent of total revenues in the quarter and
nine-months ended June 30, 1997.
Revenues from software maintenance and consulting services each accounted
for less than 10 percent of revenues in each of the three years in the period
ended September 30, 1997, and in the nine-months ended June 30, 1998. The
Company does not expect revenues from either of these sources to exceed 10
percent of revenues in the foreseeable future.
During the period since 1990, while the rate of account growth in the U.S.
bankcard industry has been slowing and many of the Company's largest
institutional clients have merged and consolidated, the Company has generated
above-average growth in revenues--even after adjusting for the effect of
acquisitions--from its bankcard-related scoring and account management business
by deepening its penetration of large banks and other credit issuers. The
Company believes much of its future growth prospects will rest on its ability
to: (1) develop new, high-value products, (2) increase its penetration of
established or emerging credit markets outside the U.S. and Canada and (3)
expand--either directly or through further acquisitions--into relatively
undeveloped or underdeveloped markets for its products and services, such as
direct marketing, insurance, small business lending and healthcare information
management.
11
Over the long term, in addition to the factors discussed above, the
Company's rate of revenue growth--excluding growth due to acquisitions--is
limited by the rate at which it can recruit and absorb additional professional
staff. Management believes this constraint will continue to exist indefinitely.
On the other hand, despite the high penetration the Company has already achieved
in certain markets, the opportunities for application of its core competencies
are much greater than it can pursue. Thus, the Company believes it can continue
to grow revenues, within the personnel constraint, for the foreseeable future.
At times management may forego short-term revenue growth in order to devote
limited resources to opportunities that it believes have exceptional long-term
potential. This occurred in the period from 1988 through 1990 when the Company
devoted significant resources to developing the usage-priced services
distributed through credit bureaus and third-party processors.
Expenses
The following table sets forth for the periods indicated (a) the percentage
of revenues represented by certain line items in the Company's consolidated
statements of income and (b) the percentage change in such items from the same
periods in the prior fiscal year.
Nine Months Three Months
Ended Percentage Ended Percentage
June 30, Change June 30, Change
-------- ------ -------- ------
1998 1997 1998 1997
---- ---- ---- ----
Revenues 100% 100% 25% 100% 100% 27%
Costs and expenses:
Cost of revenues 36 37 20% 34 37 18%
Sales and marketing 15 15 25% 14 16 15%
Research and development 12 9 64% 11 10 39%
General and administrative 21 20 31% 23 20 37%
Amortization of intangibles 1 1 2% 1 1 33%
--- --- ---- ----
Total costs and expenses 85 82 28% 83 84 25%
--- --- ---- ----
Income from operations 15 18 6% 17 16 36%
Other income and expense -- 1 (143%) 0 (2) (98%)
--- --- ---- ----
Income before income taxes 15 17 14% 17 14 52%
Provision for income taxes 6 7 19% 7 6 56%
--- --- ---- ----
Net income 9% 10% 10% 10% 8% 49%
=== === ==== ====
Cost of Revenues
Cost of revenues consists primarily of personnel, travel, and related
overhead costs; costs of computer service bureaus; and the amounts paid by the
Company to credit bureaus for scores and related information in connection with
the ScoreNet(R) service. The cost of revenues, as a percentage of revenues,
declined in the three- and nine-months ended June 30, 1998, as compared with the
same periods a year earlier, principally because certain personnel whose primary
assignment had been production and delivery have been reassigned to research and
development activities.
Sales and Marketing
Sales and marketing expenses consist principally of personnel, travel,
overhead, advertising and other promotional expenses. As a percentage of
revenues, these expenses were essentially unchanged in the nine-month period
ended June 30, 1998, compared with the same period in fiscal 1997. These
expenses, as a percentage of revenues, declined for the quarter ended June 30,
1998, due largely to the offset of income in excess of expenses generated by the
Company's InterAct`98 conference for clients, as compared with losses from the
Company's conference in Barcelona in the same period a year earlier.
12
Research and Development
Research and development expenses include the personnel and related
overhead costs incurred in developing products, researching mathematical and
statistical algorithms, and developing software tools that are aimed at
improving productivity and management control. Research and development expenses
for fiscal 1998 increased significantly over the corresponding nine-month period
and slightly over the corresponding three-month period of fiscal 1997. After
several years of concentrating on developing new markets--either geographical or
by industry--for its existing technologies, the Company has increased emphasis
on developing new technologies, especially in the area of software development.
Research and development expenditures in the three- and nine-months ended June
30, l998 were primarily related to new bankruptcy scoring products for Visa
(Integrated Solutions Concept) and Trans Union, new fraud detection software
products, joint product development projects with Deluxe Financial Services,
Inc., healthcare receivables management products and Year 2000 conversion work.
General and Administrative
General and administrative expenses consist mainly of compensation expenses
for certain senior management, corporate facilities expenses, the costs of
administering certain benefit plans, legal expenses, expenses associated with
the exploration of new business opportunities and the costs of operating
administrative functions such as finance and computer information systems. As a
percentage of revenues, these expenses increased in the three- and nine-month
periods ended June 30, 1998, compared with the same periods in fiscal 1997,
principally because of additional bad debt allowances, higher performance
incentives and telecommunications upgrades and computer information systems
conversions.
Amortization of intangibles
The Company is amortizing the intangible assets arising from various
acquisitions over periods ranging from two to fifteen years. The level of
amortization expense in future years will depend, in part, on the amount of
additional payments (earnouts) to the former shareholders of Credit & Risk
Management Associates, Inc., a privately held company acquired in 1996.
Other income and expense
Interest income, derived from the investment of funds surplus to the
Company's immediate operating requirements, was essentially the same as in the
three- and nine-month periods a year earlier. In the corresponding three- and
nine-months periods in the prior fiscal year the Company recorded costs related
to the acquisition of RMT and losses related to its equity investment in an
early stage development company that has since been sold.
Provision for income taxes
The Company's effective tax rate increased to 42.7% and 41.8%,
respectively, in the three- and nine-month periods ended June 30, 1998, from
41.5% and 40.0%, respectively, in the corresponding periods of fiscal 1997, due
to lower effective tax rate for RMT in the 1997 periods resulting from
utilization of net operating loss carryforwards.
Financial Condition
Working capital increased from $47,727,000 at September 30, 1997 to
$59,753,000 at June 30, 1998. Cash and marketable investments increased from
$27,941,000 at September 30, 1997, to $44,266,000 at June 30, 1998.
On December 1, 1997, the Company exercised an option to purchase
undeveloped land in San Rafael, California, with the intention of constructing
an office complex to accommodate future growth. Development has commenced, and
as of May 15, 1998 the Company entered into a synthetic lease arrangement, which
will materially increase the Company's future operating lease expenses. Rental
payments will commence upon completion of construction which is expected to be
in January, 2001. With this external financing, the Company believes that the
cash and marketable securities on hand, along with cash expected to be generated
by operations, will be adequate to meet its capital and liquidity needs for both
the current year and the foreseeable future.
13
Interim Periods
The Company believes that all the necessary adjustments have been included
in the amounts shown in the consolidated financial statements contained in Item
1 above for the three- and nine-month periods ended June 30, 1998 and 1997, to
state fairly the results for such interim periods. This includes all normal
recurring adjustments that the Company considers necessary for a fair statement
thereof, in accordance with generally accepted accounting principles. This
report should be read in conjunction with the Company's 1997 Form 10-K.
Quarterly results may be affected by fluctuations in revenues associated
with credit card solicitations, by the timing of orders for and deliveries of
certain ASAP and TRIAD systems, and by the seasonality of ScoreNet purchases.
With the exception of the cost of ScoreNet data purchased by the Company, most
of its operating expenses are not affected by short-term fluctuations in
revenues; thus short-term fluctuations in revenues may have a significant impact
on operating results. However, in recent years, these fluctuations were
generally offset by the strong growth in revenues from services delivered
through credit bureaus and third-party bankcard processors. Management believes
that neither the quarterly variation in revenues and net income, nor the results
of operations for any particular quarter, are necessarily indicative of results
of operations for full fiscal years. Accordingly, management believes that the
Company's results should be evaluated on an annual basis.
YEAR 2000
The Company is performing Year 2000 conversion work on its software
products marketed to customers. The updated versions of most of its software
products currently being shipped to customers are Year 2000 compliant. Certain
international versions of the Company's software products are not yet Year 2000
compliant, but the Company expects to ship upgrade "patches" for these products
by the end of calendar 1998. The Year 2000 conversion work for most earlier
versions of the Company's software installed at customer sites will be performed
as part of the Company's normal upgrade and maintenance process. The Company has
decided to discontinue support for some software products prior to the end of
calendar 1999, and Year 2000 upgrades for these products will not be available.
Revenues from such products are not significant. The Company does not expect to
incur significant expenses or disruptions in revenues in connection with Year
2000 issues related to its own software products.
Additionally, the Company has substantially completed its Year 2000 audit
of internal systems and applications and determined that approximately 95
percent of its internally developed systems are Year 2000 compliant.
Applications supplied by third parties are either Year 2000 compliant or have
"patches" currently available to bring them into compliance. The Company expects
all major internal systems to be fully compliant by the end of fiscal l998. The
Company is still in the process of inventorying and testing desktop and other
secondary internal systems for Year 2000 compliance. Based on its current
assessment of Year 2000 testing and conversion work for internal systems the
Company estimates that costs of Year 2000 compliance for such systems will not
have a material effect on the Company's business, results of operations or
financial condition.
The Company has also initiated communications with third parties on which
it is dependent for essential services and for the distribution of its services
to determine how they are addressing Year 2000 issues and to evaluate any impact
on the Company's operations. Although the Company intends to work with these
third parties to resolve Year 2000 issues, the lack of resolution of Year 2000
issues by these parties--especially the credit bureaus and credit card
processors through which the Company distributes credit scoring and account
management services--could have a significant negative impact on the Company's
future business operations, financial condition and results of operations.
At this time the Company cannot quantify the potential impact of the
third-party Year 2000 issues, nor has it developed contingency plans for the
possibility that one or more of such third parties experiences a significant
disruption due to Year 2000 issues. Since the Company currently does not expect
significant disruption of its revenues or operations from the Year 2000 issues
associated with its products or its internal systems, it has not made an
assessment of the potential impact of failing to complete its own Year 2000
conversion work nor has it developed any contingency plans for such event.
14
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.37A Chase Database Agreement, dated October 29, 1997, by and
among Dynamark, Inc. and Chase Manhattan Bank USA, National
Association. Confidential treatment has been requested for
certain portions for this document. Such portions have been
omitted from the filing and have been filed separately with
the Commission.
24.1 Power of Attorney (see page 16 of this Form 10-Q).
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
One report on Form 8-K was filed during the quarter ended June 30,1998.
On June 12 , 1998, the Company filed a report announcing that it had entered
into a synthetic lease agreement to lease undeveloped land in San Rafael,
California and improvements comprising the first phase of an office facility to
be constructed on this land. The office complex facility is intended to
accommodate future growth of the Company.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIR, ISAAC AND COMPANY, INCORPORATED
DATE: August 13, 1998
By PETER L. MCCORKELL
-----------------------------------
Peter L. McCorkell
Senior Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints PETER L. McCORKELL his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any
amendments to this Report on Form 10-Q and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the date indicated.
DATE: August 13, 1998
By PATRICIA COLE
-----------------------------------
Patricia Cole
Senior Vice President and Chief Financial Officer
16
EXHIBIT INDEX
TO FAIR, ISAAC AND COMPANY, INCORPORATED
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
Sequentially
Exhibit No. Exhibit Numbered Page
- ----------- ------- -------------
10.37A Chase Database Agreement, dated October 29, 1997, by and 18
among Dynamark, Inc. and Chase Manhattan Bank
USA, National Association. (Confidential Treatment Requested)
24.1 Power of Attorney 16
27.1 Financial Data Schedule 50
17
EXHIBIT 10.37A
CONFIDENTIAL TREATMENT REQUESTED
The asterisks in this document indicate where the confidential portions have
been omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment under
17 C.F.R. s.s. 200.80(b)(4), 200.83 and 240.24b-2.
October 29, 1997
Page 1 of 31
CHASE DATABASE AGREEMENT
This Agreement is made and entered into as of October 1, 1997, by and among
DynaMark, Inc. a Minnesota corporation (hereinafter referred to as "DynaMark"),
and Chase Manhattan Bank USA, National Association, (hereinafter referred to as
"Customer").
RECITALS:
WHEREAS, DynaMark will design, develop, produce and operate as set
forth herein a database for use by Customer for analysis and modeling in
connection with targeting potential customers for its products and services (the
"Chase Database"). The Chase Database as further defined below, will be the sole
and exclusive property of Customer, including but not limited to, any and all
intellectual property rights inherent in and appurtenant to the Chase Database,
although the Chase Database shall be physically maintained at DynaMark as part
of the services DynaMark provides hereunder; and
WHEREAS, DynaMark will bear the costs of designing and developing the
Chase Database in consideration of Customer's agreement to utilize the services
of DynaMark, in conjunction with the Chase Database, for an initial five (5)
year term as set forth herein.
WHEREAS, Customer during the term of the Agreement desires to have
DynaMark design, produce and operate the Chase Database and to obtain a license
to use DynaLink(R) Database Access PC software (hereinafter referred to as the
"DynaLink(R) Software") and on-line analytical processing ("OLAP") software to
access the data in the Chase Database.
WHEREAS, Customer desires to license the DynaLink(R) Software which
DynaMark has developed and which may be used by Customer in order to access the
Chase Database at DynaMark as well as certain other Third Party software (the
DynaLink(R) Software and Third Party software sometimes collectively called the
"Access Software") to access the data in the Chase Database;
NOW, THEREFORE, in consideration of the foregoing recitals and the
obligations herein made and undertaken, and intending to be legally bound, the
parties hereto covenant and agree as follows:
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 2 of 31
SECTION 1. DEFINITIONS.
1.1 Certain Defined Terms. The following terms used in this Agreement
shall have the following meanings:
"Access Software" means the Third Party software * or other software
developed by DynaMark that DynaMark provides to Customer for use by Customer to
access data in the Chase Database maintained at DynaMark. The term "access"
refers to Customer extracting, viewing or displaying data which resides in the
Chase Database in such a way that supports data analysis and/or selection of
marketing populations, but which will not be deemed to result in Customer's
having received any consumer credit report or any identifying information on
individual consumers contained in any consumer credit report.
"Affiliate" means with respect to a person, another person controlled
by, controlling or under common control with that person. Control exists when a
person directly or indirectly owns fifty percent (50%) or more of the
outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) of another person, but such
person shall be deemed an Affiliate only so long as such ownership exists.
"Business Day" means a day Monday to Friday, inclusive, but excluding
holidays recognized by DynaMark and days on which banks in New York are not
authorized or permitted by law or regulation to be open for business to the
public.
"Compiled Data" means all the data included in the Chase Database, and
which is either (1) Imported Data stored without modification from its original
source (which may be either Customer, DynaMark as agent for a Third Party or
Third Party) or (2) data calculated or derived from Imported Data.
"Custom Software" shall have the meaning ascribed to it in Section 8.2
hereof.
"Customer's Computer Site" refers to the Customer's computer network
system located in a building from which Customer conducts its business in the
continental United States of America or the Servicer's computer network system
located in a building from which Servicer conducts its business and supports
Customer in the continental United States of America. The current number of
Customer's Computer Sites at which the Access Software may be used is set forth
on the Chase Database Fee Schedule annexed as Exhibit C hereto, which may be
amended from time to time as provided in Section 3 hereof. The Customer's
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October 29, 1997
Page 3 of 31
Computer Site(s) may include but is not limited to Customer's office in
Hicksville, New York or Customer's office in Wilmington, Delaware.
"Database Management Software" or "DBMS Software" means the Third Party
software in which the Chase Database will be implemented and which resides on
the hardware located at DynaMark, and which executes within the operating system
functioning on that hardware. DBMS Software is a type of Access Software.
"Date of Execution" means, as applicable, the date or dates on which
this document or any subsequent Addenda shall have been signed by authorized
representatives of both parties.
"Exported Data" means the data selected and obtained by or on behalf of
Customer from the Chase Database.
"Imported Data" means the agreed upon data which is selected and
obtained on behalf of or by Customer and provided to DynaMark for inclusion in
the Chase Database.
"Party" refers to a party to this Agreement.
"Person" includes any individual, company, corporation, firm,
partnership, joint venture, association, organization, trust, state or agency of
a state (in each case, whether or not having separate legal personality), and
its successors and assigns.
"Chase Database" means:
(i) all Compiled Data,
(ii) the atomic database in which data is stored in its smallest
discrete parts,
(iii) the business relationships and rules by which the atomic parts
of the data may be reassembled,
(iv) the data tables and files, into which data is organized,
(v) the data model consisting of the design of the database and
the tables that will be implemented in the Database Management
Software,
(vi) the set of business relationships which allow Customer to
further review and analyze data (known as star schema) which
include the metadata and the analysis which resulted in the
metadata; and
(vii) those portions of Custom Software which permit data to be
loaded or extracted from the Chase Database and which perform
the editing and cleaning processes on the data within the
Chase Database.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 4 of 31
"* Software" means the Third Party Database Management Software in
which the Chase Database has been implemented and which resides on the hardware
located at DynaMark. The * Software is used to organize the data within the
Chase Database and enables communication between the Access Software and the
Chase Database.
"Service Request Form" refers to a form to be used by Customer to
request additional services offered by DynaMark (current form is attached hereto
as Exhibit "A").
"Servicer" refers to The Chase Manhattan Bank and/or Chase Bankcard
Services, Inc., each of which is an Affiliate of Customer that provides services
to Customer in support of its credit related products and services; and, such
other Affiliate of Customer that provides services to Customer in support of its
credit related products and services that Customer designates in writing to
DynaMark.
"Third Party" refers to a Person who is not a Party to this Agreement.
SECTION 2. CHASE DATABASE DEVELOPMENT.
2.1 Chase Database Description. (a) DynaMark will develop for use
exclusively by Customer and its Servicers on behalf of Customer (by the Date of
Execution) the Chase Database which shall be organized into a set of modules as
described in Exhibit B hereto, which is incorporated into and made a part
hereof, populated with data supplied by or on behalf of Customer for use in
connection with Chase Database. * While maintained at DynaMark, DynaMark agrees
that it shall provide Customer Access Software that can be used by Customer to
access the Chase Database.
(b) Population of Chase Database. The modules of the Chase
Database shall be populated with Imported Data which shall be obtained by
Customer or at the request of and on behalf of Customer. The Imported Data shall
be provided to DynaMark by or on behalf of Customer in a format mutually agreed
upon by the Parties and with agreed upon frequency. Customer is responsible for
ensuring that the Third Parties from which Customer obtains data for use
hereunder, including the Imported Data, transmit such data to DynaMark in the
agreed upon format.
(c) Agreements with National Consumer Reporting Agencies.
Customer shall use commercially reasonable efforts to, by or shortly after the
Date of Execution hereof, enter into properly executed agreement with one or
more National Consumer Reporting Agencies (each of which agreements shall
hereinafter be referred to as a "National Consumer Reporting Agency-Chase
Agreement") for the provision to Customer of therein agreed upon *
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 5 of 31
information from consumer reports for inclusion and use hereunder in the Chase
Database *. * Each National Consumer Reporting Agency-Chase Agreement shall also
be for the provision of agreed upon * consumer report information, * for
inclusion in the Chase Database *.
Consumer shall promptly notify DynaMark of the name of each National Consumer
Reporting Agency with whom Customer is negotiating a National Consumer Reporting
Agency-Chase Agreement. Upon receipt of such notice, DynaMark shall use
commercially reasonable efforts to, promptly enter negotiations with the subject
National Consumer Reporting Agency of agreement by which DynaMark, at the
direction and control of the applicable National Consumer Reporting Agency,
shall be authorized to provide the data processing services required to provide
Customer the * Information * under the applicable National Consumer Reporting
Agency-Chase Agreement. Customer shall promptly notify DynaMark of the execution
of any National Consumer Reporting Agency-Chase Agreement. DynaMark shall use
commercially reasonable efforts to, by or shortly after the date of full
execution of a National Consumer Reporting Agency-Chase Agreement, enter into
properly executed agreement with the National Consumer Reporting Agency that is
party to said National Consumer Reporting Agency-Chase Agreement (each of which
agreements shall hereinafter be referred to as a "DynaMark Agency Agreement") by
which DynaMark, at the direction and control of the applicable National Consumer
Reporting Agency, shall be authorized to provide the data processing services
required to provide Customer * under the applicable National Consumer Reporting
Agency-Chase Agreement.
2.2 Additional Modules. Customer may request to have modules in
addition to those listed on Exhibit B developed by DynaMark for Customer
pursuant to a written request. All terms and conditions set forth herein shall
apply to such additional modules to the Chase Database developed by DynaMark for
Customer, unless expressly agreed in writing otherwise.
2.3 Project Description. The Chase Database project will consist of the
three (3) phases described in the Task Listing attached as Appendix A hereto.
During the three phases of the project, the Parties will perform the tasks
listed on the Task Listing attached as Appendix A. The Parties agree that the
dates in the Task Listing may require revisions to the date(s) of expected
completion of subsequent tasks in the event Customer instructs DynaMark to
undertake additional or varied tasks or by delays caused by Customer, a Third
Party or any cause beyond DynaMark's reasonable control in completion of earlier
tasks. The Parties will use their best efforts to honor any final completion
date(s) mutually agreed upon by them in writing.
SECTION 3. LICENSE.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 6 of 31
3.1 Software License. From the Date of Execution, through the term of
this Agreement, DynaMark grants Customer a non-transferable, non-exclusive
license for Customer, its Servicers or persons performing services on behalf of
Customer to use the * software at Customer's Computer Site to access only the
data in the Chase Database at DynaMark. DynaMark also grants Customer a
non-transferable, non-exclusive license for Customer, its Servicers or persons
performing services on behalf of Customer to use the * , the * software, and
other Access Software identified in Section C (Access Software Access Charges)
of the Chase Database Fee Schedule annexed as Exhibit C hereto installed at
DynaMark to access the Chase Database at DynaMark, only. This * software and
other Access Software identified in Section C (Access Software Access Charges)
of Exhibit C is licensed to DynaMark by Third Parties. The API front end
(personal computer) interface of the * software may be installed at Customer's
Computer Site and is hereby sub-licensed to Customer by DynaMark only for such
purpose. The number of employees of Customer or its Servicers who are authorized
to use the * Software, and/or the other Access Software, the number of computers
and sites on which said software may be used is set forth on the Chase Database
Fee Schedule annexed as Exhibit C hereto, which is incorporated into and made a
part hereof. Customer agrees that the Access Software shall only be used as
expressly licensed in this Agreement. This license may be terminated by DynaMark
upon sixty days prior written notice to Customer if Customer has breached any
material provision of this Agreement and the breach remains unremedied at the
close of this notice period. Upon such termination of the license by DynaMark,
the Agreement also terminates and Customer may request transition services under
Section 6.4 (Termination For Cause-Transition Services).
3.2 Limits on Usage. The manner in which Customer and its Servicers
access and populate the Chase Database or direct that the Chase Database be
populated shall comply with the FCRA. Customer and its Servicers shall use the
Chase Database in a manner that complies with the FCRA and the Equal Credit
Opportunity Act and Regulation B thereto. Customer shall prohibit each of its
Servicers from accessing any data in the Chase Data which under the FCRA may not
be shared with Customer's Affiliate. Customer may make a back-up copy of the
Access Software provided to Customer by DynaMark for use at the Customer's
Computer Site and other than written materials for the DynaLink Software, agrees
not to make copies of any of the written material for the Access Software
provided by DynaMark. Customer and its Servicers shall not modify, disassemble,
decompile, or reverse engineer any of the Access Software; and may not attempt
to disclose, transfer, sell, sublease, assign or rent any of the Access Software
or any part or modification thereof or work derived therefrom. Customer, its
Servicers and Affiliates shall not use any of the Access Software to access any
data at DynaMark which is not in the Chase Database. Customer and its Servicers
shall not use any of the Access Software in a time-sharing or service bureau
environment, which shall not include use by a Servicer on the Servicer's
computer network
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 7 of 31
system to support Customer, or for the processing, tracking or analysis of data
associated with the accounts or prospects of others without DynaMark's
permission.
3.3 Access Software Maintenance. Customer will without additional
charge receive prompt corrections of any problems in the Access Software, the
DBMS Software and Custom Software as applicable, and which significantly affect
the functioning of the Access Software, the DBMS Software and Custom Software as
applicable in accessing data in the Chase Database at DynaMark or which
significantly impair the Customer's use of the Chase Database at DynaMark while
it is maintained by DynaMark (an "Error"). DynaMark must be promptly notified of
the Error and Customer agrees to cooperate, to the extent reasonably possible,
with DynaMark and help DynaMark duplicate the problem. DynaMark will use
reasonable efforts to provide Customer with a cure to an Error in the Access
Software, the DBMS Software and Custom Software as applicable, provided to
Customer hereunder as soon as is reasonably practicable after receipt of
Customer's notice thereof. Corrections will be made by DynaMark and must be
promptly installed once Customer receives such correction. If repair of the
Error is not effective after three attempts, then DynaMark will use commercially
reasonable efforts to obtain replacement for such defective Access Software, the
DBMS Software or Custom Software as applicable, and if it is unable to do so,
the parties will (to the extent possible) utilize a previous release of the
affected Access Software, the DBMS Software or Custom Software. DynaMark's
obligation to correct any Error in the Access Software, the DBMS Software and
Custom Software does not include, and Customer specifically assumes the cost of,
the following: (a) to the extent any loss is attributable to the fault or
negligence of Customer; (b) failure to operate the Access Software, the DBMS
Software or Custom Software in accordance with operating instructions; or (c)
problem affected by Customer-modified portions of the Access Software, the DBMS
Software or Custom Software without DynaMark's consent. Corrections for Errors
substantially caused by Customer's actions, negligence or unauthorized changes
in the Access Software, the DBMS Software or Custom Software shall be billed at
DynaMark's standard time and material charges. Customer may receive and must
promptly install any updated versions of the Access Software or the DBMS
Software it receives which do not significantly interfere with Customer's then
current use of such Access Software ("Updates"). Should Customer fail to
implement such Updates, Customer shall, if requested by DynaMark, be required to
pay some additional reasonable fee to resume support and maintenance of
back-level versions of the Access Software and the DBMS Software. Customer shall
be responsible for acquiring and paying for the hardware and software required
for it to use the Access Software, the DBMS Software and Custom Software at
Customer's Computer Site and shall stop using the Access Software and return all
copies of the Access Software and associated materials to DynaMark upon the
expiration or termination of this Agreement.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 8 of 31
In the event that DynaMark is unable to repair an Error after three attempts, it
shall use all reasonable efforts to obtain replacement Access Software, DBMS
Software or Custom Software as applicable, which performs substantially similar
functions as the Access Software, DBMS Software or Custom Software replaced and
will not substantially disrupt Customer access of the Chase Database. In the
event an Error attributable to DynaMark cannot be repaired after three attempts
or the Access Software DBMS Software or Custom Software replaced or a previous
release of the subject Access Software, DBMS Software or Custom Software can not
be utilized, DynaMark shall be liable for direct damages actually sustained by
Customer as a result of such Error attributable to DynaMark.
DynaMark will as set forth in Section C (i) Customer Payment For Software and
Equipment of Exhibit C (Chase Database Fees) hereto, arrange for maintenance
including Updates and Error correction or hardware malfunction correction of
therein referenced software and dedicated hardware.
3.4 License and Use By Affiliates. Customer reserves the right to
request, and DynaMark agrees that it shall grant, additional licenses to use the
Access Software to any Affiliate of Customer for the sole purpose of that
Affiliate of Customer accessing only the data in the Chase Database; provided,
that any grant of such license shall be conditioned upon the approval of the
Third Party Access Software provider to so increase or decrease the number of
licenses or sites; payment by Customer of agreed amounts for additional licenses
to the Access Software, and written agreement to be bound by the terms of this
Agreement by each such Affiliate of Customer, including provision that DynaMark
can seek redress directly from the applicable Affiliate of Customer in event of
material breach of the terms of this Agreement by said Affiliate of Customer.
Customer further agrees that it reserves the right by written notice to DynaMark
to request, and DynaMark agrees that it shall agree to increase or decrease the
number of sites and Customer's employees with access; provided, that its
agreement to increase or decrease the number of sites and employees shall be
conditioned upon the approval of the Third Party Access Software provider to
said increase or decrease and payment by Customer of agreed amount for increased
or decreased number of sites and employees. Exhibit C shall then be amended
accordingly. Customer agrees that it shall designate a representative to
coordinate requests for additional licenses to the Access Software as well as
requests for usage of or services regarding the Chase Database by Affiliates of
Customer.
The Customer's Affiliates shall be permitted by Customer to access only that
data in the Chase Database which may be shared with its Affiliates under the
Fair Credit Reporting Act. All references to Customer in this Agreement shall be
deemed to include the Affiliates of Customer who are licensed to use the Access
Software or to request services from DynaMark regarding the Chase Database. The
Customer representative shall inform DynaMark, in
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Page 9 of 31
writing, if an Affiliate of Customer who is licensed to use the Access Software
is authorized to obtain services from DynaMark regarding the Chase Database and
DynaMark shall subject to the terms of this Agreement, provide such Affiliate
with such services which shall be coordinated through the designated Customer
representative. Unless otherwise agreed by the parties, Customer shall be
invoiced for and shall pay all fees due for license, access and use of the Chase
Database by the Affiliates of Customer and for services from DynaMark regarding
the Chase Database obtained by the Affiliates of Customer.
SECTION 4. CHASE DATABASE SERVICES.
4.1 Chase Database Services. The "Chase Database Services" shall
consist of DynaMark loading the Imported Data received into the modules
described in Exhibit B hereto and executing the directions transmitted to
DynaMark by Customer with respect to the data actions set forth on Exhibit C to
be taken as well as providing maintenance services specified above in Section
3.3. DynaMark shall take action that Customer requests it to take in connection
with the Chase Database and the data therein. DynaMark also shall maintain the
Chase Database at DynaMark in accordance with the security procedures set forth
in Section 13 and the obligations regarding confidentiality in Sections 8 and 9.
DynaMark further agrees to maintain, fix or arrange for the maintenance of the
environment and equipment on which the Chase Database resides, at Customer's
expense as set forth in subpart (i) of Section C (Access SoftwareAccess Charges)
of Exhibit C as well as providing maintenance services specified above in
Section 3.3. DynaMark shall have no responsibility or liability to Customer or
its Affiliates with respect to the execution of data actions in connection with
the Chase Database by or on behalf of Customer or an Affiliate or the execution
by DynaMark of data actions requested by or on behalf of Customer or an
Affiliate including data actions that were transmitted by Customer or an
Affiliate to DynaMark but not intended by Customer or the Affiliate, or with
respect to the execution of data actions transmitted to DynaMark on behalf of
Customer or a Affiliate that were changed from what Customer or the Affiliate
intended. DynaMark may terminate this Agreement, in whole or part, upon thirty
days notice to Customer if: (i) the Customer has failed to deliver the necessary
data or specifications for DynaMark to provide Chase Database Service(s) within
sixty (60) days of its receipt of written notice from DynaMark specifying such
failure to deliver requisite data or specifications
4.2 Change And Control. Customer will in writing advise DynaMark of the
positions, titles and or names of those persons employed by Customer or
Servicers who are authorized to direct DynaMark to execute data actions on
behalf of Customer which substantially change the modules in the Chase Database
described in Exhibit B, which
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 10 of 31
substantially change the functionality of the Access Software, or who are
authorized to submit requests for services under this Agreement.
4.3 Inspection and Review. Following completion of any service or
obligation by DynaMark, Customer shall promptly and carefully test the data and
inspect said service and associated reports or output and shall promptly
identify and advise DynaMark of any errors in said data, service, report or
output (and in no event more than 30 days after receipt). Customer shall
carefully inspect the Chase Database including without limitation the modules
described in Exhibit B into which it is organized, prior to the Date of
Execution and periodically thereafter in order for Customer to satisfy itself
that the Chase Database complies with the FCRA.
4.4 Performance Standards For Chase Database Services. Early in the
term of this Agreement, DynaMark and Customer shall each appoint a
representative to discuss and use best efforts to reach mutual agreement on
performance standards for DynaMark's performance hereunder of the Chase Database
Services, and means of measuring the agreed upon performance standards as well
as identifying any remedies available for the failure to meet or maintain such
performance standards. Such performance standards, and methods of measurement of
them may be modified over time by mutual agreement of the parties. The parties
shall agree to, and document, priorities and accomplishments. If the parties
have agreed upon performance standards for DynaMark's performance hereunder of
the Chase Database Services (the "Performance Standards"), method of measuring
the Performance Standards (the "Measurement"), and means of advising one another
of the ongoing results of such, each such Performance Standard shall be so
measured on an unofficial basis for three (3) months, during which time such
Performance Standard(s) may be adjusted by mutual agreement of all the parties
as necessary. At the conclusion of the three (3) month period, each Performance
Standard for DynaMark's performance hereunder of the Chase Database Services and
the Measurement of it as modified, shall be deemed "Official". Each Official
Performance Standard shall thereafter be measured by the Official Measurement.
In the event that in any quarter, DynaMark fails to meet an Official Performance
Standard(s) measured against its corresponding Official Measurement as agreed
upon by the parties pursuant to this Section 4.4 (Performance Standards For
Chase Database Services), Customer shall promptly and specifically in writing
advise DynaMark of its ongoing deficient results on such Official Performance
Standard and then DynaMark shall apply a credit on its next invoice to Customer
in the amount of ten (10) percent of all charges billed to Customer directly
related to said deficient Official Performance Standard for the quarter in which
such Official Performance Standard was not met. If DynaMark has been so advised
by Customer of its ongoing deficient results on such Official Performance
Standard, then the failure of DynaMark to meet Official Performance Standards
for two consecutive calendar
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quarters, shall entitle Customer to terminate this Agreement upon thirty days
written notice to DynaMark provided in accordance with Section 6.3 (Termination
For Cause). Upon such notification, Customer shall pay DynaMark all amounts then
properly due for services provided under and in accordance with this Agreement,
up to and including the effective date of termination.
4.6 Customer Provided Software. Customer may request that DynaMark
install certain software acquired by Customer from a Third Party ("Customer
Software") on the Dedicated Equipment as defined in Section C of Exhibit C for
use hereunder. If mutually agreed upon by the parties and technically feasible
for DynaMark to do so, then DynaMark will install the Customer Software on the
Dedicated Equipment for use hereunder by DynaMark and its Affiliates and by and
on behalf of Customer. Customer represents and warrants that it owns or
possesses all rights and interests in the Customer Software as are necessary for
DynaMark to install the Customer Software on the Dedicated Equipment for use by
Customer, its Servicers and Affiliates and by DynaMark and its Affiliates
hereunder, and that this installation and use of the hereunder of the Customer
Software shall not infringe upon the legally protected proprietary rights of any
Third Party. Customer represents and warrants that Customer will indemnify and
hold DynaMark, its Affiliates, and their agents and employees, harmless from any
loss, damage or liability (including reasonable attorney's fees) for
infringement of any United States patent right, copyright, or other legally
protected proprietary right with respect to the installation and use of the
Customer Software hereunder so long as Customer is notified promptly in writing
and is given authority and information reasonably required for the defense of
same. Customer shall pay DynaMark rates mutually agreed upon by Customer and
DynaMark for such installation of the Customer Software, plus expenses incurred
in connection with the installation of the Customer Software. Customer shall be
solely responsible for obtaining the rights necessary for DynaMark to install
the Customer Software on the Dedicated Equipment for use by Customer, its
Servicers and Affiliates and by DynaMark and its Affiliates hereunder. Customer
shall be solely responsible for the costs of acquiring and maintaining the
Customer Software and for arranging for maintenance including Updates and Error
correction of the Customer Software. The provision in Section 11.3 (Limitation
of Liability - Customer) shall not be construed to in any way limit Customer's
indemnification obligations as provided above in this Section 4.6. The indemnity
and hold harmless obligations of Customer in this Section shall survive
termination of this Agreement.
SECTION 5. DYNAMARK START-UP SERVICES.
5.1 Start-up Training Sessions. Early in the term of this Agreement,
DynaMark shall conduct for Customer, at a site selected by Customer the training
sessions as described
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in the Chase Database Task Listing attached as Appendix A. During the term of
this Agreement, DynaMark shall also conduct for Customer, at a site selected by
Customer and at mutually agreed upon times, the additional training sessions as
itemized in the Chase Database Task Listing (Appendix A). Customer will be
responsible for the expense incurred in having its representatives attend such
training session including but not limited to, the cost of travel, lodging, and
meals. This training will occur in the time frame set forth in the Task Listing
attached as Appendix A, unless the parties mutually agree otherwise.
5.2 DynaLink Software Documentation. Within 60 days of the Date of
Execution, DynaMark shall furnish to Customer the DynaLink Software and
documentation describing the features and functions of DynaLink Software.
5.3 Assistance with Initial Chase Database Access and Implementation.
DynaMark shall supply to Customer telephone assistance in installing the
DynaLink Software and other Access Software and using it to access the Chase
Database. Such telephone assistance shall be for * within 90 days subsequent to
the Date of Commencement. Thereafter, a reasonable amount of telephone
assistance in using the Access Software to access the Chase Database, shall be
available to Customer through the DynaMark Technical Helpline during DynaMark's
normal business hours on Business Days, at no additional charge.
SECTION 6. TERM
6.1 Term. The initial term of this Agreement shall be from Date of
Execution until five (5) years from the Date of Execution. Thereafter, this
Agreement shall automatically renew for successive terms of one year each unless
and until one party shall give to the other party written notice of termination
at least sixty (60) days prior to the conclusion of the then-current term.
Notwithstanding anything in this Agreement to the contrary, licenses granted to
Customer for use of data from a Third Party or Third Party software in
connection with this Agreement shall terminate immediately upon the expiration
or termination of the agreement between DynaMark and the Third Party for use of
said data or software. In event of such termination, DynaMark will use
reasonable efforts to obtain replacement for such data or software.
Notwithstanding anything in this Agreement to the contrary, this Agreement may
be terminated immediately by Customer upon notice to DynaMark in the event that
Customer enters into a National Consumer Reporting Agency-Chase Agreement with
one or more National Consumer Reporting Agencies by or shortly after the Date of
Execution hereof; and despite using its commercially reasonable efforts, * or
shortly after the date of full execution
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October 29, 1997
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of the National Consumer Reporting Agency-Chase Agreement(s) or * despite using
its commercially reasonable efforts, to maintain in effect * during the term
hereof while Customer maintains in effect at least one National Consumer
Reporting Agency-Chase Agreement. In the event that this Agreement is * during
such time during the term hereof that Customer maintains in effect at least one
National Consumer Reporting Agency-Chase Agreement, then * thirty (30) days of
the date of Customer's written notice of such termination, the sum set forth
below for the applicable period during which such * occurred:
Period During Which * Occurs Amount of * Fee
- ---------------------------- ---------------
Within the * from *
the Date of Execution *
Within the * from *
the Date of Execution *
Within the * from *
the Date of Execution *
The parties agree that these Termination Fees are reasonable under the
circumstances and that these termination fees have been carefully considered and
agreed to by the Parties in view of the difficulty in ascertaining actual
damages because of the complexities of the transaction and the substantial
initial investment borne by DynaMark prior to the Date of Execution.
6.2 Termination Due To Bankruptcy. Either party shall have the right to
immediately suspend or terminate this Agreement at anytime prior to the
expiration of its stated term with notice to the other party if the other party
ceases operations or commences a voluntary case under the Bankruptcy Code or
consents to or fails to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under the Bankruptcy Code or makes
assignments for the benefit of creditors or is unable to fulfill its obligations
under this Agreement due to bankruptcy, insolvency, receivership, or other
cessation of its activities as an ongoing business. Termination under this
Section 6.2 shall be effective upon the other party's receipt of notice issued
by the terminating party in accordance with this Section.
6.3 Termination For Cause. (a) Either party shall have the right to
immediately terminate this Agreement upon written notice to the other party in
event of the other party's material breach of its confidentiality obligations in
Section 8 (Confidential Treatment of Information) of this Agreement.
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(b) Additionally this Agreement may be terminated for cause pursuant to
and in accordance with Section 3.1 (Software License), Section 4.1 (Chase
Database Services), Section 4.4 (Performance Standards For Chase Database
Services) and Section 7.3 (Payment) upon written notice issued in accordance
with Section 3.1, 4.1, 4.4 or 7.3 from the party specified in Section 3.1, 4.1,
4.4 or 7.3 to the other.
(c) Termination under this Section 6.3 shall be effective upon the
other party's receipt of notice issued by the terminating party in accordance
with this Section 6.3. Termination of this Agreement in accordance with its
terms shall not, unless expressly otherwise provided in this Agreement, affect
any right accruing to or obligation of either party arising prior to termination
which by their terms are intended to survive.
6.4 Termination For Cause-Transition Services. In the event of a
termination of this Agreement by Customer pursuant to Section 6.1 (Term) for
failure of DynaMark to enter into at least one DynaMark Agency Agreement or
failure of DynaMark to maintain in effect at least one DynaMark Agency Agreement
during the term hereof while Customer maintains in effect at least one National
Consumer Reporting Agency -Chase Agreement or pursuant to Section 6.2
(Termination Due To Bankruptcy) or Section 6.3 (Termination For Cause) above,
DynaMark shall upon receipt of Customer's written request, furnish Customer all
copies, in what ever media, partial or complete, of the Chase Database at
DynaMark, which shall include without limitation, the data in the Chase Database
from DynaMark's mainframe computer system which will be downloaded to the
dedicated hardware equipment described in Section C of Exhibit C and the
Compiled Data in the Chase Database modules, in the format compiled at the time
of such termination. DynaMark's obligation to furnish Customer this Chase
Database data is subject to the Third Party data suppliers express approval of
such provision of such portion of the Compiled Data, if applicable; and
DynaMark's receipt of all payment properly due under and in accordance with the
terms of this Agreement, up to and including the effective date of termination.
Such payment shall include, without limitation, full payment of all costs
incurred or which DynaMark is contractually committed to incur in acquiring,
maintaining and updating the Dedicated Equipment and any Other Dedicated
Equipment as those terms are defined in Section C of Exhibit C which is leased
or otherwise acquired by DynaMark under Section C of Exhibit C that have not
already been billed to and paid by Customer, including any payment required for
Customer to assume assignment or ownership of the Dedicated Equipment and any
Other Dedicated Equipment or all costs related to acquiring, maintaining and
updating the Dedicated Equipment and any Other Dedicated Equipment that have
already been contractually committed to by DynaMark in accordance with the terms
hereof, if assignment or ownership transfer is not permitted by the Third Party
provider. Customer agrees that it shall reimburse DynaMark for DynaMark's actual
cost to produce the Compiled Data, plus expenses. Upon termination of this
Agreement pursuant to Section 6.2 or Section 6.3 above, DynaMark shall (upon
written request from Customer) also provide Customer with a copy of the Source
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Page 15 of 31
Code for the most recent version of any Custom Software; provided that the
payment then properly due for the Custom Software has been fully paid for by
Customer. Additionally, if requested by Customer, DynaMark may provide
assistance in the relocation of the Chase Database in a manner which facilitates
Customer's use of the Chase Database. Customer shall reimburse DynaMark's actual
reasonable costs for all time spent by DynaMark assisting in the relocation of
the Compiled Data from the Chase Database, plus all reasonable travel expenses
incurred by DynaMark in connection therewith for travel that is preapproved by
Customer.
6.5 Other Early Termination. In circumstances other than those
described above in Section 6.1 (Term) for failure of DynaMark to enter into at
least one DynaMark Agency Agreement or failure of DynaMark to maintain in effect
at least one DynaMark Agency Agreement during such time during the term hereof
that Customer maintains in effect at least one National Consumer Reporting
Agency -Chase Agreement or in Section 6.2 (Termination Due To Bankruptcy) or
Section 6.3 (Termination For Cause), this Agreement may be terminated prior to
the expiration of its stated term by Customer providing DynaMark at least sixty
days prior written notice of termination. This termination shall become
effective within a mutually agreed time following notification. In the event of
termination under this Section 6.5, DynaMark shall be, and following such
termination, shall remain entitled to receive: the Termination Fee as set forth
in Section 6.6 below, payment from Customer of all fees and charges properly due
hereunder at the time of such termination, and full payment of all costs
incurred or which DynaMark is contractually committed to incur in acquiring,
maintaining and updating the Dedicated Equipment and any Other Dedicated
Equipment as those terms are defined in Section C of Exhibit C which is leased
or otherwise acquired by DynaMark under Section C of Exhibit C that have not
already been billed to and paid by Customer, including any payment required for
Customer to assume assignment or ownership of the Dedicated Equipment and any
Other Dedicated Equipment or all costs related to acquiring, maintaining and
updating the Dedicated Equipment and any Other Dedicated Equipment that have
already been contractually committed to by DynaMark in accordance with the terms
hereof, if assignment or ownership transfer is not permitted by the Third Party
provider.
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October 29, 1997
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6.6 Termination Fee. *
The parties agree that these Termination Fees are reasonable under the
circumstances and that these termination fees have been carefully considered and
agreed to by the Parties in view of the difficulty in ascertaining actual
damages because of the complexities of the transaction and the substantial
initial investment borne by DynaMark prior to the Date of Execution. The parties
agree that the Termination Fees set forth above in this Section 6.6 (Termination
Fee) will not apply in the event that this Agreement is terminated by Customer
pursuant to Section 6.1 (Term) for failure of DynaMark to enter into at least
one DynaMark Agency Agreement or failure of DynaMark to maintain in effect at
least one DynaMark Agency Agreement during such time during the term hereof that
Customer maintains in effect at least one National Consumer Reporting Agency
- -Chase Agreement.
6.7 Additional Transition Services. Upon the termination of this
Agreement for whatever reasons, DynaMark agrees that it shall provide Customer
reasonably requested assistance, at Customer's expense, in obtaining permission
of the Third Party Access Software provider for Customer to have the right to
the Third Party Access Software necessary for Customer to utilize the Chase
Database in another environment. Customer agrees to cooperate with DynaMark in
the provision of such services and to reimburse DynaMark for its time expended
at consulting rates to be mutually agreed upon by Customer and DynaMark plus
expenses incurred in the provision of such services. Additionally, if requested
by Customer, DynaMark may provide a reasonable amount of assistance in the
relocation of the Compiled Data from the Chase Database. Customer shall pay
DynaMark a reasonable mutually agreed upon amount for DynaMark's assistance in
the relocation of the Compiled Data, plus all reasonable travel expenses
incurred by DynaMark in connection therewith for travel that is preapproved by
Customer.
SECTION 7. FEES.
7.1 Chase Database Fees. Beginning on the Date of Execution and during
the term of this Agreement, Customer shall pay to DynaMark the Chase Database
fees set forth on Exhibit C attached hereto, as it may be modified from time to
time as provided in this Agreement. The initial Chase Database Fee Schedule set
forth on Exhibit C shall remain in effect for the first year of the initial term
of this Agreement. Thereafter, the rates and charges on Exhibit C are subject to
increase once per calendar year upon ninety (90) days prior written notice to
Customer. *
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October 29, 1997
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7.2 Additional Service Fees. DynaMark will issue and Customer shall pay
monthly invoices for the additional services provided to Customer including
those provided pursuant to a Service Request or any addendum or amendment
hereto. Supporting documentation for amounts invoiced for additional services
shall be provided to Customer upon request.
7.3 Payment. All payments for services rendered pursuant to this
Agreement shall be due on the date of the invoice. The amount of any invoice not
paid within 60 days after the date of the invoice shall incur interest at a
monthly rate of 1% from the date of the invoice until paid. Customer also agrees
to pay reasonable attorney's fees and other costs incurred in collection of any
amounts not paid when due.
Should Customer fail to pay any invoice, which is not subject to prior good
faith dispute, within 75 days of the date of the invoice, DynaMark, at its sole
option, may suspend providing services hereunder to Customer, all invoiced
amounts remaining due and payable. Should Customer fail to pay any invoice
within 90 days of the date of the invoice, DynaMark may terminate this
Agreement, in whole or part, upon thirty days notice to Customer, all invoiced
amounts remaining due and payable.
7.4 Taxes. In addition to the prices provided for herein, Customer
shall pay DynaMark the amount of any sales, use or other taxes now or hereafter
imposed by any federal state or local authority upon or with respect to the
transactions under this Agreement or a Service Request hereunder other than
taxes imposed on the net income of DynaMark and personal property taxes.
SECTION 8. OWNERSHIP OF SYSTEMS AND MATERIALS.
8.1 DynaMark Materials. All DynaLink Software, DynaMatch(R) merge/purge
software and other software of DynaMark used in connection with the Chase
Database, including all custom Access Software, software, systems, programs,
operating instructions and associated documentation prepared by DynaMark and all
proprietary information provided by DynaMark about its pricing, systems and
business plans shall be and remain the property of DynaMark (the "DynaMark
Materials").
8.2 Customer Materials. The Chase Database shall be the property of *
shall have all intellectual property rights inherent therein and appurtenant
thereto, including but not limited to patent, copyright or trade secret rights,
* in accordance with the terms hereof. Additionally, Imported Data and other
data of Customer which is furnished by or on behalf of Customer to DynaMark in
accordance with and for use under this Agreement shall belong
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October 29, 1997
Page 18 of 31
exclusively to *. * shall own all copies of these materials (the "* Materials")
as well as all intellectual property rights inherent therein and appurtenant
thereto, including but not limited to patent, copyright or trade secret rights.
Any and all Customer Materials produced by DynaMark at the request of Customer
hereunder shall be the property of Customer, to the extent that such work may be
designated a work made for hire, and DynaMark hereby transfers and assigns to
Customer in perpetuity any and all copyrights and other proprietary rights and
ownership in and to such works, to which DynaMark may otherwise be entitled
effective upon receipt by DynaMark of full payment due hereunder. Additionally,
all software originally authored by DynaMark under this Agreement pursuant to
written request of Customer and solely for use by Customer ("* Software") shall
be the property of * are hereby * effective upon * in accordance with the terms
hereof. * Software does not include modifications or enhancements to Third Party
software. Upon termination of this Agreement, * shall (upon written request from
*) provide * with a copy of * for the most recent version of any * Software;
provided that the payment then due for the * Software has been fully paid for by
Customer. Customer shall not have the right to disclose, sell or otherwise
transfer any of such * Software or any associated documentation to any Third
Party on other than a confidential basis, *. DynaMark will advise Customer of
the recommended operating environment for the * Software but DynaMark does not
guarantee that the * Software will run on Customer's *. In * licensed by
DynaMark which Customer requires in order to utilize the * Software. DynaMark
agrees to provide reasonable requested assistance to Customer, at Customer's
expense, to obtain such rights to the extent possible. Upon termination of this
Agreement all data, materials and property belonging to one party shall be
returned to that party.
8.3 Third Party Materials. All Third Party software used or provided by
DynaMark in connection with the Chase Database, including the Access Software
and DBMS Software licensed to DynaMark by Third Parties, i.e., any * Software of
*, * software and any * Software, is and shall remain the property of the Third
Party.
SECTION 9. CONFIDENTIAL TREATMENT OF INFORMATION.
9.1 Customer Information. (a) DynaMark will safeguard and hold
confidential from disclosure to any Third Party or entity, except a person or
entity approved in writing in advance by Customer at Customer's sole discretion,
the Chase Database, including any data therein, all Custom Software, all
Imported Data, all Depersonalized Attributes and Prescreen Information,
proprietary marketing strategies, programs, specifications and associated
documentation, promotion plans and promotion tracking results which DynaMark
receives for use hereunder from or on behalf of Customer during the course of
this Agreement (hereinafter, the "Confidential Information"). The use of such
Confidential Information by
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October 29, 1997
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DynaMark shall be solely limited to the purpose(s) specified in this Agreement
or Service Request Forms and DynaMark shall not otherwise transfer, sell, reveal
or otherwise communicate directly or indirectly any of Customer's Confidential
Information, except as authorized by Customer or Servicer in writing. DynaMark
agrees to hold Customer harmless from and against any claim, loss or expense
that Customer may suffer as a result of DynaMark's negligent failure to
safeguard Customer's Confidential Information through use of the same standard
of care that DynaMark uses to protect its own confidential information, which
standard of care shall not be less than a standard of reasonable care. The
Compiled Data in the Chase Database and the Custom Software shall be provided to
Customer upon termination of this Agreement in accordance with the Subsections
of Section 6 (Term). All other Confidential Information which DynaMark receives
from or on behalf of Customer shall be returned to Customer upon termination of
this Agreement or earlier if requested by Customer and no longer needed for
purposes of this Agreement or Service Request Forms. Confidential Information
subject to this paragraph shall not include information: which is or becomes
part of the public domain other than by an act or omission of DynaMark; or,
which is demanded by lawful order from any court or any body empowered to issue
such an order; or, which is independently developed by personnel of DynaMark; or
is or becomes known to DynaMark other than through DynaMark's receipt of
Confidential Information hereunder; or, which is or becomes known to DynaMark
from third parties not under an obligation of confidence to Customer. DynaMark's
obligations under this Subsection 9.1(a) are limited to diligent compliance with
the same methods and procedures that DynaMark uses to protect its own
confidential information from disclosure. The provisions of this Section 9.1
(Customer Information) and subsections thereto shall survive any termination of
this Agreement and shall bind the parties, their successors and assigns.
(b) If DynaMark is requested or required (by subpoena, civil investigative
demand or similar legal process) to disclose any Confidential Information,
DynaMark will promptly notify Customer of such request or requirement so that
Customer may at its expense seek an appropriate protective order; however,
DynaMark shall have no obligation to obtain such protective order or otherwise
contest such legal process. Then, DynaMark may disclose Confidential Information
of Customer if still compelled to do so pursuant to legal process.
(c) Customer agrees that auditors from or retained by a National Consumer
Reporting Agency with whom Customer has entered into a National Consumer
Reporting Agency-Chase Agreement may be permitted to audit DynaMark's procedures
for handling and processing of data in connection with the PreScreen Services,
including without limitation DynaMark's procedures relating to the handling and
processing of Depersonalized Attributes and PreScreen Information upon
reasonable notice. Customer shall reasonably cooperate with respect to such
audit.
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9.2 DynaMark Information. Customer and its Servicers will safeguard the
DynaMark Materials and the Access Software and hold them confidential from
disclosure to any Third Party or entity, except a person or entity approved in
writing in advance by DynaMark. No aspects of the DynaMark Materials, including
the DynaLink Software, or the other Access Software, and without limitation,
programs, specifications, documentation and methods of processing, shall be
sold, revealed, disclosed or otherwise communicated, directly or indirectly by
Customer or its Servicers to any person, company or institution whatsoever.
Customer agrees to hold DynaMark harmless from and against any claim, loss or
expense that DynaMark may suffer as a result of Customer's or its Servicers
negligent failure to so safeguard the DynaMark Materials and the Access Software
through use of the same standard of care that Customer uses to protect its own
Confidential Information which standard of care shall not be less than a
standard of reasonable care. It is understood that except for the License
described herein, no title to or rights in the DynaMark Materials or the other
Access Software, or any part thereof, is transferred to Customer or to its
Servicer by this Agreement. However, Customer and its Servicers have no
obligation to safeguard any material provided by DynaMark if such material is or
becomes publicly available other than by an act or omission of Customer; is
independently developed by personnel of Customer; is or becomes known to
Customer other than through Customer's receipt of the DynaMark Materials or the
Access Software provided by DynaMark hereunder; which is or becomes known to
Customer from third parties not under an obligation of confidence to DynaMark;
or, is demanded by a lawful order from any court or any body empowered to issue
such an order. Customer agrees to notify DynaMark promptly of the receipt of any
such order, and to provide DynaMark with a copy of the order. Customer's
obligations under this Subsection 9.2 are limited to diligent compliance with
the same methods and procedures that Customer uses to protect its own
Confidential Information from disclosure. The provisions of this paragraph shall
survive any termination of this Agreement and shall bind the parties, their
successors and assigns.
9.3 Injunctive Relief. In the event of any breach of the obligations
under this Section 9 (Confidential Treatment of Information), each party
acknowledges that the other party would have no adequate remedy at law, since
the harm caused by such a breach would not be easily measured and compensated
for in damages, and that in addition to such other remedies as may be available
to the other party, the other party may obtain injunctive relief including, but
not limited to, specific performance.
9.4 Non-exclusive Agreement. Nothing in this Section 9 (Confidential
Treatment of Information) or in this Agreement is intended to prevent Customer
from obtaining database, products or services of a same or similar nature to
those obtained by it from DynaMark under this Agreement from parties other than
DynaMark; nor is anything in this Agreement intended to prevent DynaMark from
providing a database, products and
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services of a same or similar nature to that provided by it to Customer under
this Agreement to parties other than Customer. Further, nothing in this Section
9 (Confidential Treatment of Information) or in this Agreement is intended to
prevent DynaMark from developing and subsequently utilizing with others any
constituent elements of the Chase Database, including but without limitation:
the structure of data tables and files, the data model consisting of the design
of the database and of the tables that will be implemented in the database
management system, the star schema, and the metadata, even if they are the same
or similar to those in the Chase Database.
SECTION 10. WARRANTIES.
10.1 Software. DynaMark warrants that the DynaLink Software will
perform the technical functions described in DynaLink Software Users Guide and
can be used by Customer to access data in the modules of the Chase Database
described on Exhibit B, provided that Customer has not modified the DynaLink
Software. DynaMark does not warrant that the DynaLink Software or the other
Access Software is or will be totally error free or its operation uninterrupted.
DynaMark does not warrant that the DynaLink Software or the other Access
Software will run on every computer, network, or operating system. To the extent
permitted by its agreement(s) with the Third Party software licensor(s) of the
other Access Software, DynaMark warrants that such other Access Software as
delivered will substantially perform the technical functions set forth in the
documentation related thereto provided by the respective Third Party software
licensor. Nothing in this section is intended to derogate DynaMark's obligations
to provide maintenance services as set forth in Section 3.3 of this Agreement.
10.2 Patent, Copyright or Trade Secret Infringement. DynaMark warrants
that it owns or possesses all rights and interests in the DynaLink Software and
the other Access Software, as are necessary to enter into this Agreement, and
that Services DynaMark provides hereunder shall not infringe upon the legally
protected proprietary rights of any Third Party and that it will indemnify and
hold Customer, its agents and employees, harmless from any loss, damage or
liability (including reasonable attorney's fees) for infringement of any United
States patent right, copyright, or other legally protected proprietary right
with respect to the DynaLink Software as provided so long as DynaMark is
notified promptly in writing and is given authority and information reasonably
required for the defense of same. DynaMark shall not be responsible for any
cost, expense, or compromise incurred or made by the Customer without DynaMark's
prior written approval. If, at any time, DynaMark is of the opinion that the
DynaLink Software is likely to become the subject of any such action, DynaMark
may, at its sole option and expense, (a) obtain the right to continue to use the
software; or if (a) is not commercially feasible then (b) replace or modify such
software,
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provided that no such replacement or modification shall impair the performance
of software, and if (a) and (b) are not commercially feasible then (c) remove
such software; provided, however, that if such removal materially impairs the
services to be provided to Customer hereunder, Customer may terminate this
Agreement and DynaMark shall refund Customer all fees paid hereunder for use of
the Chase Database for each full calendar month after removal of such software.
Notwithstanding the foregoing, the parties agree that DynaMark shall have no
obligation hereunder to indemnify and hold harmless Customer for an alleged
infringement related, directly or indirectly, to the interconnection by Customer
of the DynaLink Software with hardware or software not provided by DynaMark. The
provision in Section 11.2 (Limitation of Liability -DynaMark) shall not be
construed to in any way limit DynaMark's indemnification obligations as provided
above in this Section 10.2. The indemnity and hold harmless obligations of
DynaMark in this Section shall survive termination of this Agreement.
10.3 Accuracy. DynaMark will use reasonable efforts to accurately input
the Imported Data into the Chase Database and will use reasonable efforts to
accurately transmit the Exported Data to Customer. DynaMark does not warrant or
guarantee that any information or data it utilizes or provides, including the
Imported Data and the Exported Data, is accurate or up-to-date. DynaMark cannot
and does not guarantee the accuracy or completeness of the Depersonalized
Attributes or PreScreen Information or of any of the credit bureau records which
are prescreened or used incident hereto. Further, DynaMark cannot and does not
guarantee the accuracy or completeness of the data or information of any type
communicated by a Third Party, be it a credit bureau or other vendor incident
hereto or otherwise associated with Customer's marketing programs.
10.4 Warranty. THE WARRANTIES AND REMEDIES STATED IN THIS AGREEMENT ARE
IN LIEU OF ALL OTHERS, WHETHER EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WHICH ARE
HEREBY DISCLAIMED.
SECTION 11. LIABILITY.
11.1 Liability. DynaMark will use due diligence in performing its
obligations under this Agreement and the performance by DynaMark of all its
services provided under this Agreement shall be consistent with industry
standards. DynaMark shall indemnify and hold harmless Customer and its employees
from and against any and all liability, loss or damage Customer may suffer as a
result of claims, demands, costs or judgments against Customer arising out of
DynaMark's negligent failure to comply with the performance standard in the
first sentence of this Section; provided, that DynaMark's obligation to
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 23 of 31
indemnify Customer shall be limited to the actual losses by Customer resulting
from DynaMark's negligent failure to comply and shall exclude any indirect,
special, consequential, or punitive damages. The liability of DynaMark for any
claims, losses or damages arising out of or related to this Agreement or the
Chase Database shall be limited as provided in Subsection 11.2 of this
Agreement. The liability of Customer for any claims, losses or damages arising
out of or related to this Agreement or the Chase Database shall be limited as
provided in Subsection 11.3 of this Agreement. Neither Party shall be liable to
the other Party or any Affiliates of the other Party for any claims, damages,
losses or expenses arising out of the performance of the services to be
performed by it pursuant to this Agreement if such claims, damages, losses or
expenses are due to causes that are beyond its reasonable control.
11.2 Limitation of Liability - DynaMark. DynaMark shall not be liable
for any loss, cost, or expense of Customer, any Affiliates of Customer or any
Third Party resulting from or related to the data with which the Chase Database
is populated or the manner in which the Chase Database is used provided that
DynaMark has acted in accordance with the terms hereof or at the direction of
Customer, its Servicers or authorized Affiliates. Notwithstanding any contrary
provision contained in this Agreement, in no event other than for fulfillment by
DynaMark of its indemnification obligation under Section 10.2 (Patent, Copyright
or Trade Secret Infringement) or for liability with respect to use of the Access
Software by DynaMark in willful breach of its Agreement with the Third Party
Access Software Provider or for liability resulting from its willful breach of
its confidentiality obligations under Section 9.1(a), shall the total liability
of DynaMark for any claims, losses or damages arising out of or related to this
Agreement, the Chase Database or its services hereunder or from breach of its
warranties in this Agreement exceed the total amount of fees and charges paid by
Customer pursuant to this Agreement during the 6-month period preceding the
claim for the product, service or module to which the liability relates. IN NO
EVENT OTHER THAN FOR FULFILLMENT BY DYNAMARK OF ITS INDEMNIFICATION OBLIGATION
UNDER SECTION 10.2 (PATENT, COPYRIGHT OR TRADE SECRET INFRINGEMENT) OR FOR
LIABILITY RESULTING FROM ITS WILLFUL BREACH OF ITS CONFIDENTIALITY OBLIGATIONS
UNDER SECTION 9.1(A), SHALL DYNAMARK'S, ITS OFFICERS', DIRECTORS' OR EMPLOYEES'
LIABILITY OF ANY KIND FOR ANY MATTER OR THING WHATSOEVER, BASED UPON, RELATING
TO, OR ARISING OUT OF THIS AGREEMENT, INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA OR USE, EVEN
IF DYNAMARK SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SUCH
POTENTIAL LOSS OR DAMAGE.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 24 of 31
11.3 Limitation of Liability - Customer. Notwithstanding any contrary
provision contained in this Agreement, except for fulfillment of its payment
obligation under the Subsections of Section 6 (Term) and Subsections of Section
7 (Fees), under Section 15.6 (Customer Responsibility), for liability with
respect to use of the Access Software by Customer or a Customer Affiliate in
willful breach of the Agreement, for fulfillment by Customer of its
indemnification obligation under Section 4.6 (Customer Provided Software) or for
liability resulting from its willful breach of its confidentiality obligations
under Section 9.2, in no other event shall the total liability of Customer for
any claims, losses or damages arising out of or related to this Agreement, the
Chase Database or from breach of its obligations in this Agreement exceed the
total amount of fees and charges to be paid by Customer pursuant to this
Agreement during the 6-month period preceding the claim for the product, service
or module to which the liability relates. IN NO EVENT OTHER THAN FOR FULFILLMENT
BY CUSTOMER OF ITS INDEMNIFICATION OBLIGATION UNDER SECTION 4.6 (CUSTOMER
SOFTWARE) OR FOR LIABILITY RESULTING FROM ITS WILLFUL BREACH OF ITS
CONFIDENTIALITY OBLIGATIONS UNDER SECTION 9.2, SHALL CUSTOMER'S, ITS OFFICERS',
DIRECTORS' OR EMPLOYEES' LIABILITY OF ANY KIND FOR ANY MATTER OR THING
WHATSOEVER, BASED UPON, RELATING TO, OR ARISING OUT OF THIS AGREEMENT, INCLUDE
ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF
PROFITS, REVENUE, DATA OR USE, EVEN IF CUSTOMER SHALL HAVE BEEN ADVISED OF THE
POSSIBILITY OR LIKELIHOOD OF SUCH POTENTIAL LOSS OR DAMAGE. The foregoing
Section shall not be construed to in any way limit Customer's indemnification
obligations as provided in Section 15.6 (Customer Responsibility).
SECTION 12. FAILURE OF PERFORMANCE.
12.1 DynaMark shall not be liable for any failure to perform its
obligations under this Agreement if prevented from doing so by a cause or causes
beyond its reasonable control. Without limiting the generality of the foregoing,
such causes include acts of God or the public enemy, nature, fires, floods,
storms, tornadoes, earthquakes, riots, strikes, blackouts, wars or war
operations, restraints of government, walkouts or shortages or inability to
obtain materials, labor, fuel, energy, or machinery at reasonable prices or from
regular sources, the failure of Customer or a Third Party to perform its
obligations related to this Agreement or other cause or causes which could not
with reasonable diligence be controlled or prevented by DynaMark. Should
DynaMark at any time be unable, due to any of the aforesaid causes, to supply
its own and all of its Customers' requirements (including customers not under
contract), DynaMark will allocate its available production capacity to its
customers on such terms as it may deem advisable and in such event Customer,
upon written notice to
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 25 of 31
DynaMark, may withdraw Service Requests upon which DynaMark has not begun
preparation. For purposes hereof, DynaMark's Customers shall be deemed to
include Affiliates of DynaMark. DynaMark shall maintain a Contingency Plan for
site backup in case of natural disaster or other disaster. This Contingency Plan
shall provide for a fully operational site back-up for batch processing within
72 hours of the occurrence of the disaster, provided the backup site is not
disrupted by disaster.
SECTION 13. SECURITY PROCEDURES
13.1 DynaMark shall, during the term of this Agreement, maintain at its
sole expense the following Security Procedures:
a) No visitor is to be permitted on DynaMark premises without
first signing in and receiving a visitor's badge;
b) All visitors must be escorted while on secured areas of
DynaMark's premises;
c) On weekends and holidays, an employee of DynaMark or a bonded
guard must be present at secured areas of DynaMark's premises;
d) Upon receipt of any tape containing Confidential Information,
DynaMark shall secure it immediately in a card accessed
control area or locked control area;
e) Customer's files shall be stored on magnetic tape in a secured
library or a secured offsite vault;
f) Customer's tapes (which shall not include tapes provided to
DynaMark pursuant to a National Consumer Reporting Agency
-Chase Agreement) shall be logged in upon receipt and returned
upon completion of the job (foreign tapes immediately after
completion of the job but work tapes must be maintained at a
DynaMark approved site for a minimum of ninety (90) days and
can only be scratched upon Customer's written approval). After
ninety (90) days, a storage fee of $.50 per reel per month
will be charged by DynaMark to Customer;
g) The Customer's account representatives and authorized
personnel at DynaMark shall be the only individuals permitted
to handle Confidential Information in whatever form;
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 26 of 31
h) Only DynaMark personnel with authorization or visitors
accompanied by authorized DynaMark personnel may enter the
computer room;
i) DynaMark shall instruct all pertinent personnel with respect
to the confidentiality of all Confidential Information and the
procedures set forth herein.
j) To the extent set forth in Exhibit C, the Chase Database shall
be maintained on a dedicated platform. The Chase Database
shall be maintained with appropriate firewalls implemented to
maintain the confidentiality of the Chase Database.
k) DynaMark agrees to be bound by, and shall implement and
maintain such additional information security procedures as
are mutually agreed upon by the Parties and which shall be
attached hereto as Exhibit D.
13.2 RIGHT TO AUDIT. Customer (or an independent certified auditor
designated in writing by Customer or an authorized government regulator of
Customer which is designated in writing by Customer) shall have the right upon
reasonable notice to DynaMark, during normal business hours, to conduct
reasonable on-site inspections of DynaMark's premises in accordance with
DynaMark's security procedures to audit DynaMark's compliance with the Security
Procedures set forth above in this Section of the Agreement.
SECTION 14. NOTICES
14.1 Any notices provided for in this agreement shall be given in
writing and transmitted by personal delivery, facsimile transmission or prepaid
first class registered or certified mail, return receipt requested, addressed as
follows:
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 27 of 31
If to Customer:
Chase Manhattan Bank USA, National Association
802 Delaware Avenue
Wilmington, DE 19801
Attn: Michael J. Barret, President
With Copy to:
The Chase Manhattan Bank
100 Duffy Ave
Hicksville, NY 11801
Attn: Philip Lankford
If to DynaMark:
DynaMark, Inc.
4295 Lexington Avenue North
St. Paul, MN 55126-6164
ATTN: President
With copy to:
Fair, Isaac and Company, Inc.
120 North Redwood Drive
San Rafael, California 94903
ATTN: Senior Vice President and General Counsel
SECTION 15. MISCELLANEOUS.
15.1 Delaware Law. This Agreement, and the performance hereunder, shall
be governed by and construed in accordance with the laws of the State of
Delaware.
15.2 Binding Effect. The terms and provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
15.3 Section Headings. The headings of the sections or subsections in
this Agreement are for the purpose of reference only and shall not limit or
otherwise affect the meaning of any of the provisions of this Agreement.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 28 of 31
15.4 Incorporation of Exhibits. Each of the exhibits referred to herein
and attached hereto are incorporated herein and shall be deemed to be a part of
this Agreement.
15.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
15.6 Customer Responsibility. DynaMark shall have no liability for any
actions, delays, errors, misrepresentations, or failures to act on the part of
any Third Party retained by or on behalf of Customer, be it a credit bureau,
letter shop, list vendor, or other participant in any aspect of the Customer's
marketing efforts. Pricing and service considerations for the Depersonalized
Attributes, PreScreen Information and PreScreen Services, or for use of a
national credit bureau's prescreening facility are to be negotiated between
Customer and the relevant credit bureau and shall be paid for by the Customer.
It is specifically agreed that Customer is solely responsible for the
determination of exclusion criteria, customer credit criteria and selection
strategies utilized in connection with the PreScreen Services and for the
communication of all exclusion and customer credit criteria and other prescreen
selection criteria to the appropriate credit bureaus and to their designated
agent for the provision of data processing services related to the PreScreen
Services. It is specifically agreed that Customer is solely responsible for the
determination of exclusion criteria, customer selection criteria and selection
strategies utilized in connection with the non-prescreen selections and for the
communication of all exclusion and selection strategies to DynaMark for the
provision of data processing services related to the non-prescreen selections.
Customer shall be solely responsible for its and its Servicers'
compliance with all federal, state and local laws and regulations to which it is
subject incident hereto. Customer is solely responsible for the manner in which
Customer and its Servicers use, access and populate the Chase Database or direct
that the Chase Database be populated and for all actions taken in connection
with the Chase Database by or at the direction of Customer or its Servicers.
Customer is also solely responsible for the accuracy, adequacy and formatting of
programs and data transmitted to DynaMark by or for Customer and the Exported
Data obtained by or for Customer. Customer shall indemnify and hold DynaMark and
all of its Affiliates, agents, subcontractors and employees harmless from and
against any and all liabilities, damages, losses, claims, costs and expenses
(including attorneys' fees) actually incurred arising out of or related to use
of the Chase Database by or at the direction of Customer or a Servicer, actions
taken by or at the direction of Customer or a Servicer in connection with the
Chase Database, a prescreened solicitation or marketing campaign and the data
included in the Chase Database by or at the direction of Customer or a Servicer
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 29 of 31
("Losses"), except for any Losses to the extent that such Losses are
attributable to DynaMark's grossly negligent failure to follow the direction
expressly given to DynaMark by Customer or a Servicer concerning an action to be
taken by DynaMark in connection with the Chase Database. Customer waives all
claims against DynaMark arising out of any actions taken by DynaMark or use of
the Chase Database by or on behalf of Customer or a Servicers in violation of
the FCRA or the Equal Credit Opportunity Act and Regulation B thereto, (even if
DynaMark has obtained data on behalf of Customer, performed analysis, PreScreen
Services or other work in connection with such use) and will indemnify and hold
DynaMark harmless against any loss or expense incurred by DynaMark as the result
of such actions or use, except for any loss or expense incurred by DynaMark to
the extent that such loss or expense is attributable to DynaMark's grossly
negligent failure to follow the direction expressly given to DynaMark by
Customer or a Servicer concerning a use DynaMark was to make of the Chase
database or an action to be taken by DynaMark in connection with the Chase
Database. Customer shall assume, pay, indemnify, defend, hold harmless and
reimburse DynaMark, all of its Affiliates, agents and employees and its
successors and assigns for any and all liabilities, damages, claims suits,
judgments, losses, costs, and expenses (including reasonable attorney's fees and
court costs) directly or indirectly incurred by DynaMark in connection with
claims that Customer or a Servicer failed to comply with any law or regulations
to which it is subject incident hereto; or, in connection with any trademarks or
other proprietary rights relating to that portion of any service specified by
Customer. The provision in Section 11.3 (Limitation of Liability - Customer)
shall not be construed to in any way limit Customer's indemnification
obligations as provided above in this Section 15.6. The indemnity and hold
harmless obligations of Customer in this Section shall survive termination of
this Agreement.
15.7 Insurance. DynaMark shall maintain, throughout the term of this
Agreement, a policy of worker's compensation insurance with coverage limits as
may be required by the law of the state in which the services are to be
performed. DynaMark further agrees to maintain adequate (i) general liability
insurance and (ii) automobile liability insurance providing coverage against
liability for bodily injury, death and property damage which may arise out of or
be based upon any act or omission of any of its employees, agents or
subcontractors under this Agreement. Upon written request, DynaMark shall
promptly provide certificate(s) from its insurers indicating the amount of such
coverage, the nature of such coverage and the expiration date of each applicable
policy.
15.8 Equal Employment Opportunity. Unless exempt, then to the extent
that it is hereby legally required to do so, DynaMark will comply with U.S.
Department of Labor regulations regarding (a) equal employment opportunity
obligations of government contractors and subcontractors, 41 Code of Federal
Regulations ("C.F.R.") s. 60-1.4 (a) (1)-(7); (b) employment by government
contractors of Vietnam-era and disabled veterans, 41
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 30 of 31
C.F.R. s. 60-250.4 (a)-(m); (c) employment of the physically handicapped by
government contractors and subcontractors, 41 C.F.R. s. 60-741.4 (a)-(f); (d)
developing written affirmative action programs, 41 C.F.R. s. 60-2.1, 60-250.5,
and 60-741.5; (e) certifying no segregated facilities, 41 C.F.R. s. 60-1.8; (f)
filing annual EEO-1 reports, 41 C.F.R. s. 60-1.7; and (g) utilizing
minority-owned and female-owned business concerns, 48 C.F.R. s.s. 512-219.9 and
52-219.12 all of which are incorporated by reference herein to the extent to
which they apply.
15.9 No Assignment. This Agreement may be assigned by Customer to an
Affiliate of Customer upon Customer's receipt of the express written consent of
DynaMark, which consent shall not be unreasonably withheld. This Agreement may
not be otherwise assigned by Customer without the express written consent of
DynaMark. This Agreement may not be assigned by DynaMark without the express
written consent of Customer. Customer hereby agrees that DynaMark shall have the
right to perform any or all of the services to be provided hereunder through any
existing or future direct or indirect parent company of DynaMark or any existing
or future direct or indirect subsidiary of such parent company or any of
DynaMark's Affiliates. However, DynaMark shall not provide services hereunder
through any Affiliate of DynaMark if provision of such services by said
Affiliate of DynaMark would conflict with the obligations of that Affiliate of
DynaMark to provide the data processing services required to provide Customer
the Depersonalized Attributes, PreScreen Information and PreScreen Services
under an agency agreement with a National Consumer Reporting Agency.
15.10 Entire Agreement. This Agreement is the complete and exclusive
statement of the agreement between the parties concerning the subject matter
hereof. This Agreement supersedes and merges all prior proposals, undertakings,
and all other agreements, oral and written, between the parties relating to the
subject matters thereof. This Agreement may not be modified or altered except by
written instrument duly executed by all parties hereto. No purported waiver of
any provision hereof shall be binding unless set forth in a written document
signed by the party to be charged. Any waiver shall be limited to the
circumstance or event specifically referenced in the written waiver document and
shall not be deemed a waiver of any other provision of this Agreement or of the
same circumstance or event upon any recurrence thereof.
No party hereto is bound by the terms of a National Consumer Reporting
Agency-Chase Agreement or a DynaMark Agency Agreement if it is not a party to
such agreement.
CONFIDENTIAL TREATMENT REQUESTED
October 29, 1997
Page 31 of 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Chase Manhattan Bank USA,
National Association
By: _________________________
Title: ______________________
DynaMark, Inc.
By: _________________________
Title: ______________________
5
1,000
9-MOS
SEP-30-1998
OCT-01-1997
JUN-30-1998
16,757
13,742
38,930
1,099
0
101,018
75,298
38,220
173,161
41,265
895
0
0
139
123,532
173,161
0
177,808
0
63,746
26,612
430
938
27,239
11,385
15,854
0
0
0
15,854
1.16
1.11
