-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFNZ4mpaXbhx0gQ+fY29FlYhTik/lpCCpst+dI51Eet5WUtyUZwkNW2s3hJ96mQx mVVjQLUnuG1vF1bLRTQf6Q== 0000950133-96-002178.txt : 19961015 0000950133-96-002178.hdr.sgml : 19961015 ACCESSION NUMBER: 0000950133-96-002178 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19961011 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDIT MANAGEMENT SOLUTIONS INC CENTRAL INDEX KEY: 0001024339 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521549401 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14007 FILM NUMBER: 96642754 BUSINESS ADDRESS: STREET 1: 5950 SYMPHONY WOODS RD CITY: COLUMBIA STATE: MD ZIP: 21044 BUSINESS PHONE: 4107401000 MAIL ADDRESS: STREET 1: 5950 SYMPHONY WOODS RD STREET 2: SUITE 301 CITY: COLUMBIA STATE: MD ZIP: 21044 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CREDIT MANAGEMENT SOLUTIONS, INC. ------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 7371 52-1549401 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION)
5950 SYMPHONY WOODS ROAD COLUMBIA, MARYLAND 21044 (410)740-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) ------------------------ JAMES R. DEFRANCESCO PRESIDENT AND CHIEF EXECUTIVE OFFICER CREDIT MANAGEMENT SOLUTIONS, INC. 5950 SYMPHONY WOODS ROAD COLUMBIA, MARYLAND 21044 (410) 740-6712 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: PETER R. GILBERT, ESQ. MANATT, PHELPS & PHILLIPS, LLP 1501 M STREET, N.W. WASHINGTON, D.C. 20005 ALEXANDER D. LYNCH, ESQ. BROBECK, PHLEGER & HARRISON LLP 1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box: / / - ------------ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ------------ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value................ 2,990,000 shares $13.00 $38,870,000.00 $11,779
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Includes 390,000 shares that may be purchased by the Underwriters to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. ----------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996 PROSPECTUS CREDIT MANAGEMENT SOLUTIONS, INC. 2,600,000 Shares of Common Stock Of the 2,600,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), offered hereby, 2,200,000 shares are being sold by Credit Management Solutions, Inc. ("CMSI" or the "Company") and 400,000 shares are being sold by certain stockholders (collectively, the "Selling Stockholders") of the Company (collectively, the "Shares"). The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholders. See "Principal and Selling Stockholders." Prior to this offering (the "Offering"), there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "CRED." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES. --------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO COMMISSIONS AND PROCEEDS TO THE THE SELLING PUBLIC DISCOUNTS(1) COMPANY(2)(3) STOCKHOLDERS - ------------------------------------------------------------------------------------------------- Per Share.................... $ $ $ $ - ------------------------------------------------------------------------------------------------- Total........................ $ $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several Underwriters. (2) Before deducting expenses payable by the Company estimated at $900,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an aggregate of 390,000 additional shares of Common Stock at the Price to Public, less the Underwriting Commissions and Discounts, solely to cover over-allotments, if any. If the Underwriters exercise such option in full, the total Price to Public, Underwriting Commissions and Discounts and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." The Shares are offered subject to receipt and acceptance by the Underwriters, to prior sale and to the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Shares will be made at the office of Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia, or through the facilities of The Depository Trust Company, on or about , 1996. --------------------------------------------- FRIEDMAN, BILLINGS, RAMSEY UNTERBERG HARRIS & CO., INC. THE DATE OF THIS PROSPECTUS IS , 1996. 3 [GRAPHIC TO BE INSERTED] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET (INCLUDING THE NASDAQ NATIONAL MARKET) OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise noted, all information in this Prospectus (i) assumes the filing of an amendment to the Articles of Incorporation of the Company prior to the consummation of the Offering which, among other things, will increase the number of authorized shares of Common Stock, (ii) assumes the reincorporation of the Company in Delaware prior to the consummation of the Offering and (iii) assumes no exercise of the Underwriters' over-allotment option. All share totals stated herein reflect the Company's 32,734-for-1 stock split effected in October 1996. THE COMPANY CMSI is a leading developer and provider of software solutions and services for automating the consumer and small business credit analysis, decisioning and funding process. Drawing upon over 10 years of experience in the credit processing industry, the Company has developed and provides open-architecture software products and services which manage volume-intensive credit operations over wide-area networks. The Company's products and services allow its customers to automate the entire credit application process by enabling the rapid transmission of credit applications to multiple funding sources, expediting credit application analysis and decisioning and facilitating compliance with federal and state regulatory requirements. These products and services are designed to enable credit originators, such as automobile dealerships and retailers, and lenders, such as banks and finance companies, to improve operating efficiencies by increasing productivity, enhance customer satisfaction by reducing turnaround time on credit decisions, and decrease portfolio risk by applying consistent underwriting standards. The Company's core product, CreditRevue, analyzes credit applications by automatically accessing third-party credit bureau reports, consulting the lending institution's internal loan guidelines and incorporating the loan "scorecards" used by lending institutions. Using CreditRevue, decision response time generally ranges from a matter of seconds for automated decisions to several minutes in cases where review by a credit analyst is required. The Company's CreditRevue customers include some of the largest financial institutions and finance companies in the United States, such as NationsBank Corp., BancOne Corp., Wells Fargo Bank and The Associates Bancorp, Inc. In addition, the Company has introduced CreditRevue to the telecommunications industry through a joint venture between AirTouch Cellular, Inc. and US West New Vector Group, Inc. To further support the needs of the lending industry, the Company developed Credit Connection, which became commercially available in July 1996. Credit Connection, a software-based service, links sources of credit origination through an online network that allows applications to be transmitted to multiple funding sources and credit decisions to be delivered back to the point of origin in a matter of minutes. The Company is introducing Credit Connection to the marketplace through the Company's sales force, the sales forces of lending institutions and various remarketers. The Company recently signed a letter of intent to form a strategic alliance with the Dealer Services Group of ADP, Inc. ("ADP") to remarket Credit Connection. This division of ADP is one of the largest providers of computing and consulting services for automobile and truck dealers worldwide. By facilitating the flow of applications to multiple funding sources through Credit Connection, and by automating the credit application analysis, decisioning and funding process through CreditRevue, the Company believes it is well positioned to capitalize on the growth in the consumer and small business credit markets. The Company's products have been designed to work together and complement each other to provide a seamless credit application process. The Company believes that its CreditRevue customer base and proposed strategic alliance with ADP will enhance its marketing efforts for the Credit Connection service. In addition, the Company believes that the implementation of Credit Connection will create new marketing opportunities for CreditRevue. The Company's objective is to be the leading provider of software solutions for automating the credit analysis, decisioning and funding process and for electronically transmitting credit related transactions 3 5 between points of origination and multiple funding sources. In pursuit of these objectives, the Company has adopted the following key strategies: (i) expand presence in the credit automation market; (ii) continue the rollout of Credit Connection; (iii) increase transaction-based revenues; (iv) leverage key relationships; and (v) extend technology leadership. The Company was incorporated in 1987 as a Maryland corporation and intends to reincorporate in Delaware prior to the consummation of the Offering. The Company's principal executive offices are located at 5950 Symphony Woods Road, Columbia, Maryland 21044 and its telephone number is (410) 740-1000. THE OFFERING Common Stock offered by the Company.......... 2,200,000 shares(1) Common Stock offered by the Selling Stockholders............................... 400,000 shares Common Stock to be outstanding after the Offering................................... 7,210,100 shares(2) Use of Proceeds.............................. The Company intends to use the net proceeds from the offering for expansion of the Company's sales, marketing, technical and customer support organizations, capital expenditures and other general corporate and working capital purposes. Proposed Nasdaq National Market symbol....... CRED
- --------------- (1) Excludes 390,000 shares of Common Stock subject to the Underwriters' over-allotment option granted by the Company. (2) Excludes (i) an aggregate of 2,289,900 shares of Common Stock issuable upon exercise of stock options at a weighted-average exercise price of $5.05 per share, of which options to purchase 542,234 shares of Common Stock will be exercisable after the Offering, and (ii) 360,100 additional shares of Common Stock reserved for future issuance under the Company's stock option plan. At June 30, 1996, an aggregate of 2,362,540 shares of Common Stock were issuable upon exercise of stock options, of which options to purchase 100,000 shares will be exercised by certain Selling Stockholders immediately prior to the consummation of the Offering. See "Management -- Stock Option Plan." 4 6 SUMMARY CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------- -------------------------- 1993 1994 1995 1995 1996 ---------- ---------- ----------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Revenues......................... $3,368,068 $3,951,456 $10,231,452 $4,105,512 $5,270,454 Income (loss) from operations.... 97,672 (408,371) 759,031 477,112 (219,068) Historical net income (loss)..... 318,857 (144,931) 957,932 577,663 (127,240) Pro forma net income (loss)(1)... 737,314 (21,467) Pro forma net income (loss) per share.......................... $ 0.12 $ (0.00) Shares used in pro forma net income (loss) per share calculations................... 6,293,720 6,293,720
JUNE 30, 1996 ------------------------------------------------- PRO FORMA AS ACTUAL PRO FORMA(1) ADJUSTED(2) ----------- ------------ -------------- BALANCE SHEET DATA: Working capital (deficit).............................. $(1,718,626) $(1,314,892) $ 22,837,108 Total assets........................................... 3,870,121 4,273,855 28,425,855 Stockholder loans, long-term debt, and capital lease obligations, less current portion.................... 512,373 512,373 512,373 Total stockholders' equity (deficit)................... (704,218) (632,486) 23,519,514
- --------------- (1) The Company has operated as a Subchapter S Corporation for federal and state income tax purposes since its inception in 1987, and, therefore, the historical financial statements do not include a provision for federal and state income taxes for such periods. Pro forma net income (loss) has been computed as if the Company had been subject to federal and state income taxes based on the tax laws in effect during the respective periods. See Note 2 of Notes to Consolidated Financial Statements. (2) Adjusted to reflect (i) the sale by the Company of 2,200,000 shares of Common Stock offered by the Company hereby, assuming an initial public offering price of $12.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, and (ii) the exercise of options to purchase 100,000 shares of Common Stock by certain Selling Stockholders immediately prior to the consummation of this Offering resulting in proceeds to the Company of $500,000. See "Use of Proceeds," "Capitalization" and "Underwriting." ------------------------ "CreditRevue," "Credit Connection" and "INCredit" are registered trademarks of the Company. "CrossSell," "CreditRevue Service Bureau," "CreditRevue Data Server," "Credit Connection for Windows," "Credit Connection Online," "Credit Connection LenderLink" and the Company logo are trademarks of the Company. This Prospectus also includes the trademarks and tradenames of companies other than the Company. 5 7 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing shares of the Common Stock offered hereby. This Prospectus contains forward-looking statements relating to future events or future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the following factors and other factors set forth in this Prospectus which could cause actual results to differ materially from those indicated by such forward-looking statements. Uncertainty of Future Results of Operations; Fluctuations in Quarterly Results of Operations. Prior growth rates in the Company's revenue and net income should not be considered indicative of future results of operations. Future results of operations will depend upon many factors, including market acceptance of new services, including the Company's Credit Connection and CreditRevue Service Bureau, the demand for the Company's products and services, the successful transition from predominantly license fee-based revenue to predominantly transaction fee-based revenue, the timing of new product and service introductions and software enhancements by the Company or its competitors, the level of product, service and price competition, the length of the Company's sales cycle, the size and timing of individual transactions, the delay or deferral of customer implementations, the Company's success in expanding its customer support organization, direct sales force and indirect distribution channels, the nature and timing of significant marketing programs, the mix of products and services sold, the timing of new hires, the ability of the Company to develop and market new products and services and control costs, competitive conditions in the industry and general economic conditions. In addition, the decision to implement the Company's products or services typically involves a significant commitment of customer resources and is subject to the budget cycles of the Company's customers. Licenses of CreditRevue generally reflect a relatively high amount of revenue per order. The loss or delay of individual orders, therefore, would have a significant impact on the Company's revenue and quarterly results of operations. The timing of revenue is difficult to predict because of the length and variability of the Company's sales cycle, which has ranged to date from two to 18 months from initial customer contact to the execution of a license agreement. In addition, since a substantial portion of the Company's revenue is recognized on a percentage-of-completion basis, the timing of revenue recognition for its licenses may be materially and adversely affected by delays or deferrals of customer implementations. Such delays or deferrals may also increase expenses associated with such implementations which would materially and adversely affect related operating margins. The Company's operating expenses are based in part on planned product and service introductions and anticipated revenue trends and, because a high percentage of these expenses are relatively fixed, a delay in the recognition of revenue from a limited number of transactions could cause significant variations in operating results from quarter-to-quarter and could result in operating losses. To the extent such expenses precede, or are not subsequently followed by, increased revenues, the Company's results of operations would be materially and adversely affected. As a result of these and other factors, revenues for any quarter are subject to significant variation, and the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. There can be no assurance that the Company will be profitable in any future quarter or that such fluctuations in results of operations will not result in volatility in the price of the Company's Common Stock. Due to all of the foregoing factors, it is likely that in some future quarter the Company's results of operations will be below the expectations of public market analysts and investors. In such event, the market price of the Company's Common Stock will be materially and adversely affected. See "-- Market Acceptance of Credit Connection; Transition to Transaction-Based Revenue" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Information." Dependence on CreditRevue Product Line. License fees, maintenance fees and third-party computer hardware sales associated with licenses and installations of CreditRevue accounted for all of the Company's revenues through June 30, 1996. Although the Company has recently introduced its Credit Connection service, the Company expects that revenues generated from licenses and installations of CreditRevue will continue to account for a significant portion of the Company's revenues for the foreseeable future. The life cycles of the Company's products and services are difficult to predict due to the effect of new product and service 6 8 introductions or software enhancements by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products and services, and competition in the Company's marketplace. A decline in the demand for CreditRevue, whether as a result of competition, technological change, price reductions or otherwise, would have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Lengthy Sales and Implementation Cycle. The licensing of the Company's software products and services is often an enterprise-wide decision by prospective customers and generally requires the Company to provide a significant level of education to prospective customers regarding the use and benefits of the Company's products and services. In addition, the implementation of the Company's software products involves a significant commitment of resources by prospective customers and is commonly accompanied by substantial reengineering efforts and a review of the customer's credit analysis, decisioning and funding processes. The cost to the customer of the Company's products and services is typically only a portion of the related hardware, software, development, training and integration costs associated with implementing a large-scale automated credit origination information system. For these and other reasons, the period between initial customer contact and the implementation of the Company's products is often lengthy (ranging from between two and 18 months) and is subject to a number of significant delays over which the Company has little or no control. The Company's implementation cycle could be lengthened by increases in the size and complexity of its license transactions and by delays or deferrals in its customers' implementation of appropriate interfaces and networking capabilities. Delays in the sale or implementation of a limited number of license transactions could have a material adverse effect on the Company's business, results of operations and financial condition and cause the Company's results of operations to vary significantly from quarter to quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Market Acceptance of Credit Connection; Transition to Transaction-Based Revenue. The Company's Credit Connection service has recently been commercially introduced and the Company's CreditRevue Service Bureau service is under development and is expected to be introduced in late 1997. These services are projected to account for a significant portion of the Company's revenues in the future. As a result, demand and market acceptance for these services are subject to a high level of uncertainty, and the Company will be heavily dependent on their market acceptance. There can be no assurance that these services will be commercially successful. The failure of the Company to generate demand for Credit Connection or CreditRevue Service Bureau or the occurrence of any significant technological problems with such services would have a material adverse effect on the Company's business, results of operations and financial condition. Historically, all of the Company's revenues have been derived from license fees, maintenance fees and hardware sales associated with licenses and installations of CreditRevue. Under the terms of its license agreements, a majority of the Company's revenues are realized during the configuration and installation of CreditRevue. However, the Company anticipates that a significant portion of the Company's future revenues will be derived from per-usage transaction-based fees charged to credit originators and financial institutions for transactions originated from the Credit Connection and CreditRevue Service Bureau services. There can be no assurance that the Company will successfully manage the transition of a significant portion of its revenues from license-based revenue to transaction-based revenue. The failure of the Company to successfully manage the transition to a transaction-based revenue stream would have a material adverse effect on the Company's business, results of operations and financial condition. Reliance on Certain Relationships. The Company has established relationships with a number of companies that it believes are important to its sales, marketing and support activities, as well as to its product, service and software development efforts. The Company has relationships with automated scorecard companies, hardware vendors and credit bureaus and has also entered into a letter of intent to form a strategic alliance with ADP for remarketing Credit Connection. There can be no assurance that these companies, most of which have significantly greater financial and marketing resources than the Company, will not develop or market products and services which will compete with the Company's products and services in the future or that these companies will not otherwise discontinue their relationships with or support of the Company. The failure by the Company to maintain its existing relationships or to establish new relationships in the future, because of a divergence of interests, acquisition of one or more of these third parties or other reasons, could 7 9 have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Strategic Alliance with ADP." Dependence on Large License Fee Contracts and Customer Concentration. A relatively small number of customers have accounted for a significant percentage of the Company's revenues. Revenues generated by the Company's 10 largest customers accounted for 77.4% and 75.6% of total revenues in 1995 and the first six months of 1996, respectively. Two of the Company's customers accounted for 19.9% and 12.9% of total revenues, respectively, in 1995. The Company expects that a limited number of customers will continue to account for a significant percentage of revenue for the foreseeable future. The loss of any major customer or any reduction or delay in orders by any such customer, delay or deferral in configurations or enhancements by such customers or the failure of the Company to successfully market its products or services to new customers, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Consumer Retail Lending Industry; Cyclical Nature of Consumer Lending. The Company's business is currently concentrated in the consumer lending industry and is expected to be so concentrated for the foreseeable future, thereby making the Company susceptible to a downturn in the consumer lending industry. For example, a decrease in consumer lending could result in a smaller overall market for the Company's products and services. Furthermore, banks in the United States are continuing to consolidate, decreasing the overall potential number of customers for the Company's products and services. In addition, demand for consumer loans has been historically cyclical, in large part based on general economic conditions and cycles in overall consumer indebtedness levels. Changes in general economic conditions that adversely affect the demand for consumer loans, the willingness of financial institutions to provide funds for such loans, changes in interest rates and the overall consumer indebtedness level, as well as other factors affecting the consumer lending industry, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Management of Changing Business. The Company has experienced significant changes in its business, such as an expansion in the Company's staff and customer base and the development of new products, services and enhancements to its software, including the recent commercial release of Credit Connection. Such changes have placed and may continue to place a significant strain upon the Company's management, systems and resources. As of September 30, 1996, the Company had grown to 133 employees from 106 employees at December 31, 1995. The Company's ability to compete effectively and to manage future changes will require the Company to continue to improve its financial and management controls, reporting systems and procedures and budgeting and forecasting capabilities on a timely basis and expand its sales and marketing work force, and train and manage its employee work force. There can be no assurance that the Company will be able to manage such changes successfully. The Company's failure to do so could have a material adverse effect upon the Company's business, results of operations and financial condition. See "Business -- Sales and Marketing" Dependence on Key Personnel. The Company's future performance depends in significant part upon the continued service of its key technical, sales and senior management personnel, particularly James R. DeFrancesco, President and Chief Executive Officer, and Scott L. Freiman, Executive Vice President. The loss of the services of one or more of the Company's executive officers could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's future success also depends on its continuing ability to attract and retain highly qualified technical, customer support, sales and managerial personnel. In particular, the Company has encountered difficulties in hiring sufficient numbers of programmers and technical personnel. Competition for qualified personnel is intense, and there can be no assurance that the Company will be able to retain its key technical, sales and managerial employees or that it can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future. See "Management." Rapid Technological Change; Risk Associated with New Products, Services or Enhancements. The credit processing software products and services industry in which the Company competes is characterized by rapid technological change, frequent introductions of new products and services, changes in customer demands and 8 10 evolving industry standards. The introduction or announcement of new products, services or enhancements by the Company or one or more of its competitors embodying new technologies or changes in industry standards or customer requirements could render the Company's existing products or services obsolete or unmarketable. Accordingly, the life cycles of the Company's products are difficult to estimate. The Company's future results of operations will depend, in part, upon its ability to enhance its products and services and to develop and introduce new products and services on a timely and cost-effective basis that will keep pace with technological developments and evolving industry standards, as well as address the increasingly sophisticated needs of the Company's customers. There can be no assurance that these new products and services will gain market acceptance or that the Company will be successful in developing and marketing new products or services that respond to technological change, evolving industry standards and changing customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products or services, or that its new products or services will adequately meet the requirements of the marketplace and achieve any significant degree of market acceptance. In addition, a majority of the Company's current products operate in the UNIX operating system. Although the Company's software is designed to work with other operating environments, a requirement to port to a different operating system could be costly and time consuming and could have a material adverse effect on the Company's business, results of operations and financial condition. Failure of the Company to develop and introduce, for technological or other reasons, new products and services in a timely and cost-effective manner could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, the introduction or announcement of new product or service offerings or enhancements by the Company or the Company's competitors may cause customers to defer or forgo purchases of the Company's products or services, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Product Development." System Interruption and Security Risks; Potential Liability; Lack of Insurance; and System Inadequacy. The Company's operations are dependent, in part, on its ability to protect its system from interruption by damage from fire, earthquake, power loss, telecommunication failure, unauthorized entry or other events beyond the Company's control. The Company's computer equipment constituting its central computer system, including its processing operations, is located at a single site. The Company intends to acquire and implement by the second quarter of 1997 a back-up, off-site processing system capable of supporting its operations in the event of system failure. Prior to such implementation, the Company's operations are subject to substantial risks, including temporary interruptions resulting from damage caused by any one or more of the foregoing factors or due to other causes including computer viruses, hackers or similar disruptive problems. The Company has not purchased any business interruption insurance to cover the risk of system failure or interruption. While the Company maintains property insurance and errors and omissions insurance, such insurance may not be adequate to compensate the Company for all losses that may occur or to provide for costs associated with business interruption. Any damage or failure that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, results of operations and financial condition. Persistent problems continue to affect public and private data networks. For example, in a number of networks, hackers have bypassed firewalls and have appropriated confidential information. Such computer break-ins and other disruptions may jeopardize the security of information stored in and transmitted through the computer systems of the parties utilizing the Company's services, which may result in significant liability to the Company and also may deter potential customers from using the Company's services. In addition, while the Company attempts to be careful with respect to the employees it hires and maintain controls through software design, security systems and accounting procedures to prevent unauthorized employee access, it is possible that, despite such safeguards, an employee of the Company could obtain access, which would also expose the Company to a risk of loss or litigation and possible liability to users. The Company attempts to limit its liability to customers, including liability arising from the failure of the security features contained in the Company's system and services, through contractual provisions. However, there can be no assurance that such limitations will be enforceable. There can be no guarantee that the growth of the Company's customer base will not strain or exceed the capacity of its computer and telecommunications systems and lead to degradations in performance or system failure. Any damage, failure or delay that causes interruptions in the 9 11 Company's operations could have a material adverse effect on the Company's business, results of operations and financial condition. Risk of Defects, Development Delays and Lack of Market Acceptance. Software products and services as sophisticated as those offered by the Company often encounter development delays and may contain defects or failures when introduced or when new versions are released. The Company has in the past and may in the future experience delays in the development of software and has discovered, and may in the future discover, software defects in certain of its products. Such delays and defects may result in lost revenues during the time corrective measures are being taken. Although the Company has not experienced material adverse effects resulting from any such defects to date, there can be no assurance that, despite testing by the Company, errors will not be found in its existing software in future releases or enhancements, or that the Company will not experience development delays, resulting in delays in the commercial release of new products and services, the loss of market share or the failure to achieve market acceptance. Any such occurrence could have a material adverse effect upon the Company's business, results of operations and financial condition. See "Business -- Products and Services" and "-- Product Development." Future Capital Needs; Uncertainty of Additional Financing. The Company currently anticipates that its available cash resources combined with the net proceeds of this Offering, as well as anticipated funds from operations, will be sufficient to meet its presently anticipated working capital and capital expenditure requirements through 1997. Thereafter, the Company may need to raise additional funds. The Company may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced products and services, to respond to competitive pressures or to acquire complementary businesses or technologies. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. There can be no assurance that additional financing will be available when needed on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may be unable to develop or enhance its products and services, take advantage of future opportunities or respond to competitive pressures, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Dilution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Dependence on Proprietary Rights; Risks of Infringement. The Company's success is heavily dependent upon its proprietary technology. The Company regards its software products and services as proprietary, and relies primarily on a combination of contract, copyright and trademark law, trade secrets, confidentiality agreements and contractual provisions to protect its proprietary rights. The Company has no patents on its products currently in commercial use, and existing trade secrets and copyright laws afford only limited protection. The Company has applied for a United States patent on portions of Credit Connection. There can be no assurance that a patent will be granted pursuant to the Company's application or that, if granted, such patent would survive a legal challenge to its validity or provide adequate protection. Furthermore, there can be no assurance that others will not design around any patents issued to the Company. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. It is the Company's policy to enter into confidentiality and assignment agreements with its employees. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use the Company's products or technology without authorization, to obtain and use information that the Company regards as proprietary, or to develop similar or superior products or technology independently. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem, particularly in international markets and as a result of the growing use of the Internet. The Company has in the past and may in the future make source code for one or more of its products available to certain of its customers and strategic partners which may increase the likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no 10 12 assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company is not aware that any of its products, services, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products or services. The Company has obtained a perpetual, worldwide license for the use of the registered trademark Credit Connection. As the number of software products and services in the industry increases and the functionality of these products and services further overlaps, the Company believes that software developers may become increasingly subject to infringement claims. Furthermore, there can be no assurance that former employers of the Company's present and future employees will not assert claims that such employees have improperly disclosed confidential or proprietary information to the Company. Any such claims, with or without merit, can be time consuming and expensive to defend, cause product and service delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, or at all, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Intellectual Property and Other Proprietary Rights." Competition; Future Price Erosion. The credit processing software and services industry is intensely competitive and rapidly changing. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new products and services and enhancements developed by the Company and its competitors, including (i) application software companies, (ii) management information systems departments of potential customers, (iii) third party professional services organizations, and (iv) computer services outsourcing providers which offer service bureau-based credit processing solutions. Competitors for CreditRevue include American Management Systems, Inc., Appro Systems, Inc., CFI ProServices, Inc., Fair, Isaac and Company, Inc. and Affinity Technology Group, Inc. Competitors for Credit Connection include The Reynolds & Reynolds Company and International Business Machines Corporation ("IBM"), which has recently announced a system for processing automobile loans over the Internet in conjunction with The Chase Manhattan Bank. Many of the Company's competitors are substantially larger than the Company and have significantly greater financial, technical and marketing resources and established, extensive direct and indirect channels of distribution. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products and services than the Company. As is typical in the software industry, many actual or potential customers of the Company may become competitors by developing competitive technology internally. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies as the credit processing software market continues to develop and expand. The Company also expects that competition will increase as a result of software industry consolidations. The Company's competitors may develop or acquire products or services that provide functionality that is similar to that produced by the Company's products and services and such products and services may be offered at a significantly lower price or bundled with other products and services. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Competition." Government Regulation and Uncertainties of Future Regulation. The Company's current and prospective customers, which consist of state and federally chartered banks, saving and loan associations, credit unions, consumer finance companies and other consumer lenders, as well as customers in the industries that the Company may target in the future, operate in markets that are subject to extensive and complex federal and state regulations. While the Company is not itself directly subject to such regulations, the Company's 11 13 products and services must be designed to work within the extensive and evolving regulatory constraints in which its customers operate. These constraints include federal and state truth-in-lending disclosure rules, state usury laws, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Community Reinvestment Act. Furthermore, some consumer groups have expressed concern regarding the privacy and security of automated credit processing, the use of automated credit scoring tools in credit underwriting, and whether electronic lending is a desirable technological development in light of the current level of consumer debt. The failure by the Company's products and services to support customers' compliance with current regulations and to address changes in customers' regulatory environment, or to adapt to such changes in an efficient and cost-effective manner, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Government Regulation." Discretion as to Use of Proceeds. The primary purposes of this Offering are to create a public market for the Company's Common Stock, to facilitate future access to public markets and to obtain additional working capital. As of the date of this Prospectus, the Company has no specific plans to use the net proceeds from this Offering other than for expenses relating to the expansion of the Company's sales, marketing, technical and customer support organizations, capital expenditures and other general corporate and working capital purposes. Accordingly, the Company's management will retain broad discretion as to the allocation of the net proceeds from this Offering. Pending any such uses, the Company plans to invest the net proceeds in investment-grade, interest-bearing securities. See "Use of Proceeds." Control by Existing Stockholders. Upon completion of this Offering, assuming no exercise of outstanding options, James R. DeFrancesco, the Company's President and Chief Executive Officer, and Scott L. Freiman, the Company's Executive Vice President, will collectively own 63.9% of the outstanding shares of Common Stock (60.7% if the Underwriters' over-allotment option is exercised in full). As a result, these stockholders will be able to exercise control over matters requiring stockholder approval, including the election of directors, and the approval of mergers, consolidations and sales of all or substantially all of the assets of the Company. This may prevent or discourage tender offers for the Company's Common Stock unless the terms are approved by such stockholders. See "Principal and Selling Stockholders." Shares Eligible for Future Sale. Sales of a substantial number of shares of Common Stock in the public market following this Offering could adversely affect the market price of the Common Stock. Upon completion of the Offering, the Company will have outstanding an aggregate of 7,210,100 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option. Of these shares, all of the shares sold in this Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless such shares are purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The remaining 4,610,100 shares of Common Stock are held by Messrs. DeFrancesco and Freiman and are "restricted securities" as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 under the Securities Act. As a result of contractual restrictions and subject to the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: (i) no Restricted Shares will be eligible for immediate sale on the date of this Prospectus, (ii) 1,536,700 Restricted Shares (plus shares of Common Stock issuable to employees pursuant to stock options that are then vested) will be eligible for sale upon expiration of the lock-up agreements 180 days after the date of this Prospectus, (iii) an additional 1,536,700 Restricted Shares will be eligible for sale pursuant to the terms of the lock-up agreements 360 days after the date of this Prospectus, and (iv) the remaining 1,536,700 Restricted Shares will be eligible for sale pursuant to the terms of the lock-up agreements 540 days after the date of this Prospectus. The Company intends to file a registration statement on Form S-8 following the date of this Prospectus registering a total of 2,650,000 shares of Common Stock subject to outstanding stock options, or reserved for issuance under the Company's stock option plan. Shares issued after the effective date of the registration statement on Form S-8 will be eligible for resale by non-affiliates in the public market without limitation, subject to contractual restrictions, and by Affiliates subject to the requirements set forth in Rule 144, except for the holding period limitation of Rule 144. See "Management -- Stock Option Plan," "Shares Eligible for Future Sale" and "Underwriting." 12 14 No Prior Public Market for Common Stock; Possible Volatility of Stock Price. Prior to this Offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined through negotiations between the Company, the representatives of the Selling Stockholders and the Underwriters. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The trading price of the Company's Common Stock could be subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant orders, changes in earning estimates by analysts, announcements of technological innovations or new products by the Company or its competitors, general conditions in the consumer lending and software industries, credit processing software and services and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations which have affected the market price for many companies in industries similar or related to that of the Company and which have been unrelated to the operating performance of these companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. Effect of Certain Charter Provisions; Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law. Following the consummation of this Offering, the Company's Board of Directors will have the authority to issue up to 1,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights of those shares without any further vote or action by the stockholders. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the Common Stock. The rights of the holders of Common Stock will be subject to, and may be adversely affected by the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Further, certain provisions of the Company's Certificate of Incorporation, including provisions that create a classified Board of Directors, and certain provisions of the Company's Bylaws and of Delaware law could delay or make more difficult a merger, tender offer or proxy contest involving the Company. See "Description of Capital Stock." Immediate and Substantial Dilution. New investors participating in this Offering will incur immediate and substantial dilution of $8.76 per share from the initial public offering price. To the extent outstanding options to purchase the Common Stock are exercised, there will be further dilution. See "Dilution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Absence of Dividends. The Company has never paid or declared any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any future earnings for use in its business. In addition, the Company's bank line of credit prohibits the payment of cash dividends without the bank's prior written consent. See "Dividend Policy." 13 15 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,200,000 shares of the Common Stock offered by the Company hereby are estimated to be approximately $23.7 million ($28.0 million if the Underwriters' over-allotment option is exercised in full) after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company and assuming an initial public offering price of $12.00 per share. The primary purposes of this Offering are to create a public market for the Common Stock, to facilitate future access by the Company to public markets and obtain additional working capital. The Company will not receive any proceeds from the sale of the shares of the Common Stock by the Selling Stockholders. The Company expects to use the net proceeds for the expansion of the Company's sales, marketing, technical and customer support organizations, capital expenditures (including purchases of test and development hardware and installation of redundant systems) and other general corporate and working capital purposes. The amounts actually expended by the Company will vary significantly depending upon a number of factors, including future revenue growth and the amount of cash generated by the Company's operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Furthermore, the Company expects from time to time to evaluate the acquisition of products, businesses and technologies which complement the Company's business, for which a portion of the net proceeds may be used. Currently, however, the Company does not have any understandings, commitments or agreements and is not in any negotiations with respect to any such acquisitions. Pending such uses, the Company intends to invest the net proceeds in United States government securities and in short-term, interest-bearing investment grade securities. In addition, the Company will receive proceeds of $500,000 from the exercise of options to purchase 100,000 shares of Common Stock by certain Selling Stockholders immediately prior to the consumption of the Offering. DIVIDEND POLICY The Company has been a Subchapter S Corporation for federal and state income tax purposes since its inception in 1987. As a result, the net income of the Company for federal and state income tax purposes was reported by, and taxed directly to, the Company's stockholders. The Company made distributions to its stockholders of $105,000 in 1994 and $52,500 in 1995 to fund stockholder tax liabilities resulting from the Company's status as an S Corporation. The Company currently intends to retain its earnings following the Offering for use in its business. Consequently, the Company currently does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's bank line of credit prohibits the payment of cash dividends without the bank's prior written consent. 14 16 CAPITALIZATION The following table sets forth as of June 30, 1996 (i) the actual capitalization of the Company, (ii) the pro forma capitalization of the Company after giving effect to the termination of the Company's S Corporation status and (iii) the capitalization of the Company as adjusted to give effect to the sale of the shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share, the application of the estimated net proceeds to the Company therefrom as described under "Use of Proceeds," and the receipt of $500,000 from certain Selling Stockholders in connection with the exercise of options to purchase 100,000 shares immediately prior to the consummation of the Offering. This information is qualified in its entirety by, and should be read in conjunction with, the consolidated financial statements of the Company, and related notes thereto, appearing elsewhere in this Prospectus.
AT JUNE 30, 1996 ------------------------------------- ACTUAL PRO FORMA AS ADJUSTED --------- --------- ----------- Current portion of long-term debt and capital lease obligations............................................ $ 225,879 $ 225,879 $ 225,879 ========== ========== ========== Stockholder loans, long-term debt and capital lease obligations, less current portion...................... $ 512,373 $ 512,373 $ 512,373 STOCKHOLDERS' EQUITY (DEFICIT): Common stock, par value $0.01: 10,000,000 shares authorized; 4,910,100 shares outstanding, actual and pro forma; 7,210,100 shares outstanding, as adjusted(1)(2)......................... 49,101 49,101 72,101 Additional paid-in capital............................... -- -- 24,129 Accumulated (deficit).................................... (753,319) (681,587) (681,587) ---------- ---------- ---------- Total stockholders' equity (deficit)................ (704,218) (632,486) 23,519,514 ---------- ---------- ---------- Total capitalization........................... $(191,845) $(120,113) $24,031,887 ========== ========== ==========
- --------------- (1) Excludes 390,000 of Common Stock subject to the Underwriters' over-allotment option granted by the Company. (2) Excludes (i) an aggregate of 2,289,900 shares of Common Stock issuable upon exercise of stock options at a weighted-average exercise price of $5.05 per share, of which options to purchase 542,234 shares of Common Stock will be exercisable after the offering, and (ii) 360,100 additional shares of Common Stock reserved for future issuance under the Company's stock option plan. At June 30, 1996, an aggregate of 2,362,540 shares of Common Stock were issuable upon exercise of stock options, of which options to purchase 100,000 shares will be exercised by certain Selling Stockholders immediately prior to the consummation of the Offering. See "Management -- Stock Option Plan." 15 17 DILUTION The net tangible book value (deficit) of the Company as of June 30, 1996 was $(860,215), or $(.17) per share of Common Stock. Net tangible book value (deficit) per share of Common Stock is determined by dividing the Company's tangible net worth (deficit) by the number of shares of Common Stock outstanding. The pro forma net tangible book value (deficit), after giving effect to the net deferred income tax asset recorded as a result of the termination of the Company's S Corporation status, would be a deficit of $(788,483) or $(.16) per share. After giving effect to the sale by the Company of 2,200,000 shares of Common Stock in this Offering (at an assumed initial public offering price of $12.00 per share), the application of the estimated net proceeds therefrom, and the receipt of $500,000 from certain Selling Stockholders in connection with the exercise of options to purchase 100,000 shares immediately prior to the consummation of the Offering, the pro forma net tangible book value of the Company as of June 30, 1996 would have been $22,363,517 or $3.24 per share. This represents an immediate increase in pro forma net tangible book value of $3.40 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $8.76 per share to new investors purchasing shares of Common Stock in the Offering. The following table illustrates the per share dilution: Assumed initial public offering price per share of Common Stock...................................................... $12.00 Net tangible book value (deficit) per share at June 30, 1996.................................................... (0.17) Pro forma adjustments (see above).......................... 0.01 ------ Pro forma net tangible book value (deficit) per share as of June 30, 1996.............................................. (0.16) Increase in net tangible book value (deficit) per share of Common Stock attributable to new investors................. 3.40 ------ Pro forma net tangible book value per share of Common Stock after the Offering......................................... 3.24 ------ Dilution per share to new investors.......................... $ 8.76 ======
The following table summarizes, on a pro forma basis as of June 30, 1996, the differences between existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ----------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE --------- ------- ----------- ------- --------- Existing stockholders(1)............... 4,910,100 69.1% $ 2,500 -- $ 0.00 New investors(1)(2).................... 2,200,000 30.9% 26,400,000 100.0% 12.00 ---------- ------ ----------- ------ Total........................ 7,110,100 100.0% $26,402,500 100.0% ========== ====== =========== ======
- --------------- (1) Sales by Selling Stockholders in this Offering will reduce the number of shares held by existing stockholders to 4,610,100 or 63.9% of the total number of shares of Common Stock outstanding after this Offering (60.6% if the Underwriters' over-allotment option is exercised in full), and will increase the number of shares held by new investors to 2,600,000 or 36.1% of the total number of shares of Common Stock outstanding after the Offering (34.2% if the Underwriters' over-allotment option is exercised in full). See "Principal and Selling Stockholders." (2) Excludes 100,000 shares of Common Stock sold by certain Selling Stockholders in the Offering. These shares will be acquired by the certain Selling Stockholders immediately prior to the consummation of the Offering through the exercise of stock options that provides $500,000 of cash proceeds to the Company. The foregoing tables exclude (i) an aggregate of 2,289,900 shares of Common Stock issuable upon exercise of stock options at a weighted-average exercise price of $5.05 per share, of which options to purchase 542,234 shares of Common Stock will be exercisable after the Offering, and (ii) 360,100 additional shares of Common Stock reserved for future issuance under the Company's stock option plan. At June 30, 1996, an aggregate of 2,362,540 shares of Common Stock were issuable upon exercise of stock options, which 100,000 shares will be exercised by Selling Stockholders in connection with the Offering. See "Management -- Stock Option Plan." To the extent outstanding options are exercised, there will be further dilution to new investors. 16 18 SELECTED CONSOLIDATED FINANCIAL DATA The consolidated statement of operations data set forth below for the fiscal years ended December 31, 1993, 1994 and 1995 and the consolidated balance sheet data at December 31, 1993, 1994 and 1995 are derived from, and should be read in conjunction with, the audited consolidated financial statements of the Company, and the notes thereto, which are included elsewhere in this Prospectus. The consolidated statements of operations data for the fiscal years ended December 31, 1991 and 1992 and the consolidated balance sheet data at December 31, 1991 and 1992 are derived from unaudited consolidated financial statements of the Company not included herein. The selected financial data at June 30, 1995 and 1996 and for the six months ended June 30, 1995 and 1996 are derived from unaudited consolidated financial statements included elsewhere in this Prospectus. The unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments and accruals) that in the opinion of management are necessary for a fair presentation of the financial information set forth therein. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1996. The selected financial data set forth below are qualified in their entirety by, and should be read in conjunction with, the consolidated financial statements, the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------------------------------------------- JUNE 30, 1992 1993 1994 1995 ------------------------- ----------- ----------- ----------- ----------- 1995 1996 (UNAUDITED) ----------- ----------- 1991 (UNAUDITED) (UNAUDITED) ----------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: REVENUES License and software development fees........................... $ 1,274,659 $ 1,781,619 $ 2,911,539 $ 2,934,450 $ 7,207,581 $ 2,950,527 $ 4,009,981 Maintenance fees................. 131,548 157,371 375,510 700,861 1,170,447 473,493 851,011 Computer hardware sales.......... 65,161 9,851 81,019 316,145 1,853,424 681,492 409,462 ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,471,368 1,948,841 3,368,068 3,951,456 10,231,452 4,105,512 5,270,454 COSTS AND EXPENSES Cost of license and software development fees............... 572,180 819,929 785,622 1,482,036 3,559,798 1,207,122 2,348,080 Cost of maintenance fees......... -- 32,347 40,776 151,346 280,176 144,223 208,584 Cost of computer hardware sales.......................... 8,777 1,509 77,979 315,262 1,500,816 425,390 371,211 Selling, general and administrative expenses........ 900,446 1,379,929 2,234,816 2,244,031 3,966,265 1,817,453 2,380,299 Research and development......... -- -- 131,203 167,152 165,366 34,213 181,348 ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,481,403 2,233,744 3,270,396 4,359,827 9,472,421 3,628,400 5,489,522 Income (loss) from operations.... (10,035) (284,903) 97,672 (408,371) 759,031 477,112 (219,068) OTHER INCOME (EXPENSE) Interest expense................. (205,653) (80,034) (32,774) (41,310) (105,849) (51,824) (60,547) Minority interest share of loss........................... 115,451 181,676 -- -- -- -- -- Amortization of excess of assigned value of identifiable assets over cost of an acquired interest....................... -- -- 253,959 304,750 304,750 152,375 152,375 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (90,202) 101,642 221,185 263,440 198,901 100,551 91,828 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................ $ (100,237) $ (183,261) $ 318,857 $ (144,931) $ 957,932 $ 577,663 $ (127,240) =========== =========== =========== =========== =========== =========== =========== Pro forma data (unaudited): Historical income (loss)....... $ 957,932 $ (127,240) Pro forma income tax expense (benefit).................... 220,618 (105,773) ----------- ----------- Pro forma net income (loss).... $ 737,314 $ (21,467) =========== =========== Pro forma net income (loss) per share........................ $ .12 $ -- =========== =========== Shares used in pro forma net income (loss) per share calculations................. 6,293,720 6,293,720
DECEMBER 31, ------------------------------------------------------------------- 1993 1994 1995 ----------- ----------- ----------- JUNE 30, ------------------------- 1991 1992 1996 1996 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) ACTUAL PRO FORMA ----------- ----------- (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents........ $ 46,516 $ 253,092 $ 108,554 $ 75,840 $ 120,255 $ 1,918 $ 1,918 Working capital deficiency....... (15,508) (230,537) (246,748) (1,073,896) (1,181,894) (1,718,626) (1,314,892) Total assets..................... 898,320 637,678 797,465 1,581,751 4,035,323 3,870,121 4,273,855 Long term debt, capital lease obligations and stockholder loans, less current portion.... 649,231 778,710 237,288 416,136 623,304 512,373 512,373 Stockholders' equity (deficit)... (1,389,753) (1,551,336) (1,232,479) (1,482,410) (576,978) (704,218) (632,486)
17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains forward-looking statements relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements. OVERVIEW The Company was incorporated in 1987 to commercialize an automated credit processing system developed by James R. DeFrancesco, the Company's President and Chief Executive Officer, and Scott L. Freiman, the Company's Executive Vice President, while they were employed by American Financial Corporation ("AFC") an automobile finance servicing company owned by Mr. DeFrancesco. AFC was acquired in October 1987 by Perpetual Savings Bank, FSB. Mr. DeFrancesco and Mr. Freiman retained ownership of AFC's credit processing software which formed the basis for CreditRevue. CreditRevue was initially released in 1988. Since its initial release, the Company has continually enhanced CreditRevue in response to the needs of its customers. Credit Connection became commercially available in July 1996. Fees from licenses of CreditRevue and related maintenance fees and resales of third-party computer hardware and software associated with installations of CreditRevue accounted for all of the Company's revenue through June 30, 1996. See "Risk Factors -- Dependence on CreditRevue Product Line." License fees for CreditRevue are recognized based on a percentage-of-completion method, measured generally on a cost-incurred basis. The Company typically charges a nonrefundable fee of 25% of the preliminary estimate of the total license fee to develop an analysis of the customer's credit operations and a plan for the configuration and implementation of CreditRevue according to the customer's requirements. Costs consist primarily of direct labor and temporary contract labor. Contracts in progress are reviewed periodically, and revenues and earnings are adjusted based on revisions in contract value and estimated time to completion. For a description of certain risks associated with the lengthy implementation time associated with installations of CreditRevue, see "Risk Factors -- Lengthy Sales and Implementation Cycle." The Company recognizes revenue for maintenance fees pro rata over the term of the related agreement, which is generally one year. Maintenance fees received in advance of revenue recognition are included in deferred maintenance fees. In addition, as a convenience to its customers, the Company offers third-party computer hardware through various reseller arrangements. However, third-party hardware sales are not a focus of the Company's overall marketing strategy. Revenues from resales of third-party computer hardware are recognized at the time of shipment. Certain of the Company's products and services, including Credit Connection and CreditRevue Service Bureau, are, or will be, charged on a per transaction basis. As a result, the Company anticipates that transaction-based revenue will be an increasing proportion of the Company's revenue. The Company's sales and marketing efforts will no longer be exclusively targeted at generating license-based revenue but will be increasingly focused on generating transaction-based revenue from prospective customers. The Company's anticipated future growth is based, in large part, on the success of these products and services and the transition to a transaction-based revenue stream. Accordingly, the failure by the Company to generate demand for Credit Connection or CreditRevue Service Bureau or the occurrence of any significant technological problems or the failure of the Company to successfully manage the transition to a transaction-based revenue stream would have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors -- Market Acceptance of Credit Connection; Transition to Transaction-Based Revenue." Since 1987, the Company has continually invested in the development and introduction of new products, services and enhancements to its software. Research and development expenditures are expensed as incurred. Certain software development costs are capitalized subsequent to the establishment of technological feasibility 18 20 in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Based on the Company's current research and development process, technological feasibility is established upon completion of a working model. The Company intends to continue to expend substantial resources on developing new products and services and enhancements to its software to incorporate technological developments and satisfy evolving customer needs. The Company intends to hire a significant number of additional sales personnel in the future to help the Company expand its market presence. Competition for such personnel is intense, and there can be no assurance that the Company can retain its existing sales personnel or that it can attract, assimilate or retain additional highly qualified sales persons in the future. If the Company is unable to hire such personnel on a timely basis, the Company's business, results of operations and financial condition could be materially and adversely affected. The Company operates as a Subchapter S Corporation and, therefore, does not accrue federal corporate taxes on its earnings. Upon consummation of the Offering, the Company's Subchapter S Corporation status will terminate and the Company will be subject to federal and state income tax at the corporate level. See Note 2 to the Consolidated Financial Statements included elsewhere in this Prospectus. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of total revenues for the periods indicated (subtotals not adjusted for rounding):
SIX MONTHS YEARS ENDED DECEMBER ENDED 31, JUNE 30, ----------------------- -------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- PERCENTAGES OF TOTAL REVENUES: Revenues: License and software development fees............... 86.5% 74.3% 70.5% 71.9% 76.1% Maintenance fees.................................... 11.1 17.7 11.4 11.5 16.1 Computer hardware sales............................. 2.4 8.0 18.1 16.6 7.8 ----- ----- ----- ----- ----- 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Costs and Expenses: Cost of license and software development fees....... 23.3 37.5 34.8 29.4 44.6 Cost of maintenance fees............................ 1.2 3.8 2.7 3.6 4.0 Cost of computer hardware sales..................... 2.3 8.0 14.7 10.3 7.0 ----- ----- ----- ----- ----- Selling, general and administrative expenses........ 66.4 56.8 38.8 44.3 45.2 Research and development............................ 3.9 4.2 1.6 0.8 3.4 ----- ----- ----- ----- ----- 97.1 110.3 92.6 88.4 104.2 Income (loss) from operations............................ 2.9 (10.3) 7.4 11.6 (4.2) Other income (expense): Interest expense.................................... (1.0) (1.0) (1.0) (1.3) (1.1) Amortization of excess of assigned value of identifiable assets over the cost of an acquired interest.......................................... 7.6 7.6 3.0 3.8 2.9 ----- ----- ----- ----- ----- 6.6 6.6 2.0 2.5 1.8 ----- ----- ----- ----- ----- Net income (loss)........................................ 9.5% (3.7)% 9.4% 14.1% (2.4)% ===== ===== ===== ===== ===== Pro forma data (unaudited): Historical income (loss)............................... 9.4% (2.4)% Pro forma income tax expense (benefit)................. 2.2 (2.0) ----- ----- Pro forma net income (loss)............................ 7.2% (0.4)% ===== =====
Total Revenues. Total revenues increased 28.4% from $4.1 million in the six months ended June 30, 1995 to $5.3 million in the six months ended June 30, 1996. Total revenues increased 17.3% from $3.4 million in 1993 to $4.0 million in 1994 and 158.9% to $10.2 million in 1995. The Company's revenues are derived from three sources: license and software development fees, maintenance fees and computer hardware sales. The Company's 10 largest customers accounted for 77.3% and 75.5% of total revenues in 1995 and the first six months of 1996, respectively. One of the Company's customers accounted for 11.6% of total revenues in the 19 21 first six months of 1996. Two of the Company's customers accounted for 19.8% and 12.9% of total revenues, respectively, in 1995. Four of the Company's customers accounted for 17.4%, 15.9%, 12.4% and 10.2% of total revenues, respectively, in 1994. Six of the Company's customers accounted for 18.3%, 15.9%, 13.0%, 11.8%, 11.1% and 11.0% of total revenues, respectively, in 1993. License and Software Development Fees. CreditRevue accounted for all of the Company's license and software development fee revenue through June 30, 1996. License and software development fees increased 35.9% from $3.0 million in the six months ended June 30, 1995 to $4.0 million in the six months ended June 30, 1996. License and software development fees remained constant at $2.9 million in 1993 and 1994 and increased 145.6% to $7.2 million in 1995. The increases during these periods resulted from increased market acceptance of CreditRevue. Maintenance Fees. Maintenance fees include fees from software maintenance agreements. Maintenance fees increased by 79.7% from $0.5 million in the six months ended June 30, 1995 to $0.9 million in the six months ended June 30, 1996. Maintenance fees increased 86.6% from $0.4 million in 1993 to $0.7 million in 1994 and 67.0% to $1.2 million in 1995. The growth in these revenues during the periods presented was the result of increased maintenance fees associated with the increased number of licenses of CreditRevue outstanding during such periods. Computer Hardware Sales. Computer hardware sales revenue decreased 39.9% from $0.7 million in the six months ended June 30, 1995 to $0.4 million in the six months ended June 30, 1996. Computer hardware sales revenue increased 290.2% from $0.1 million in 1993 to $0.3 million in 1994 and 486.3% to $1.9 million in 1995. Computer hardware sales revenue consists of revenues received from resales of third-party hardware in connection with the license and installation of the Company's software. The increase in such revenues in 1993, 1994 and 1995 reflects the increase in licenses and installations of the Company's CreditRevue software. The decrease in such revenues in the six months ended June 30, 1996 represents decreased consumer demand for purchasing third-party hardware from the Company and the decreased per unit sales price of computer hardware due to technological advances in the computer hardware industry. Cost of License and Software Development Fees. Cost of license and software development fees consist primarily of salaries and benefits for in-house programmers and the cost of temporary contract labor. Cost of license and software development fees increased by 94.5% from $1.2 million in the six months ended June 30, 1995 to $2.3 million in the six months ended June 30, 1996. Cost of license and software development fees increased by 88.6% from $0.8 million in 1993 to $1.5 million in 1994 and 140.2% to $3.6 million in 1995. As a percentage of license fee and software development revenue, cost of license and software development fees were 27.0%, 50.5%, 49.4%, 40.9% and 58.6% in 1993, 1994, 1995 and the six months ended June 30, 1995 and 1996, respectively. The variability of the cost of license and software fees as a percentage of license and software development fees between 1993 and 1995 is primarily related to higher hourly labor costs associated with temporary contractors during periods in which the Company experienced increased demand for its products. In late 1995 and into 1996, the Company increased internal staffing levels commensurate with the expected growth in revenues. These increased staffing levels are expected to reduce the dependency on temporary contractors upon the completion of their training in the Company's proprietary products and technology, resulting in a corresponding increase in the margins related to these revenues. Total labor costs as a percentage of revenue are also expected to decrease as the Company and its customers move to a greater level of product standardization. Costs of Maintenance Fees. Cost of maintenance fees consists primarily of personnel and related costs for customer maintenance and support. Cost of maintenance fees increased from $0.1 million in the six months ended June 30, 1995 to $0.2 million in the six months ended June 30, 1996. Cost of maintenance fees increased from $0.1 million in 1993 to $0.2 million in 1994 to $0.3 million in 1995. As a percentage of maintenance fee revenue, cost of maintenance fees were 10.9%, 21.6%, 23.9%, 30.5% and 24.5% in 1993, 1994, 1995 and the six months ended June 30, 1995 and 1996, respectively. The dollar increase in the cost of maintenance fees reflects the growth in license fees for CreditRevue during the periods presented and the 20 22 resultant increase in the number of installations. The increase in the percentage of cost of maintenance fees to maintenance fee revenue in the six months ended June 30, 1996 resulted from an increase in salaries and personnel costs due to the full period effect of related employees hired during the six months ended June 30, 1995. Cost of Computer Hardware Sales. Cost of computer hardware sales consists primarily of the Company's cost of hardware resold to the Company's customers that are licensing CreditRevue. Cost of computer hardware sales decreased by 13% from $0.4 million in the six months ended June 30, 1995 to $0.4 million in the six months ended June 30, 1996. Cost of computer hardware sales increased from $0.1 million in 1993 to $0.3 million in 1994 and to $1.5 million in 1995. As a percentage of computer hardware sales revenue, cost of computer hardware sales was 96.2%, 99.7%, 81.0%, 62.4% and 90.7% in 1993, 1994, 1995 and the six months ended June 30, 1995 and 1996, respectively. The dollar decrease in the cost of computer hardware sales reflects the decrease in computer hardware sales during the periods presented. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 31.0% from $1.8 million in the six months ended June 30, 1995 to $2.4 million in the six months ended June 30, 1996. Selling, general and administrative expenses remained relatively constant at $2.2 million in 1993 and 1994 and increased 76.7% to $4.0 million in 1995. Selling, general and administrative expenses includes (i) salaries, commissions and bonuses paid to sales and marketing personnel, as well as travel and promotional expenses, and (ii) salaries of administrative, executive and financial personnel, and (iii) outside professional fees. The increase in these expenses is attributable to several factors. The increase in such expenses was a result of an increase in sales and marketing staff. In addition, such expenses increased due to an increase in administrative staff and expenses associated with the growth of the Company and an increase in legal fees associated with the protection of the Company's proprietary intellectual property. Amortization of Assigned Value Over Cost of an Acquired Interest. From September 1988 through March 1993, the Company was the sole general partner of a limited partnership. In March 1993, the Company purchased the other partner's limited partnership interest for $0.2 million. The acquisition was accounted for as an acquisition of a minority interest using the purchase method of accounting. The assigned value of the identifiable net assets acquired over the cost of the acquired interest was $1.2 million. This amount is being amortized into income using the straight-line method over four years. Interest Expense. Interest expense was $0.1 million in the six months ended June 30, 1995 and $0.1 million in the six months ended June 30, 1996. Interest expense was $32,774, $41,310 and $0.1 million in 1993, 1994 and 1995, respectively. The increase in interest expense over such periods resulted from increased borrowings under the Company's line of credit. PRO FORMA ADJUSTMENTS FOR INCOME TAXES From its inception in 1987, the Company has been treated for income tax purposes as a corporation subject to federal and state taxation under Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code") and comparable state laws. As a result, for federal and state income tax purposes, the Company's earnings have been taxed directly to the Company's stockholders. The pro forma adjustments for income taxes were calculated as if the Company were subject to tax under the federal and state income tax laws in effect for the respective periods using the criteria established under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." See Note 2 to "Notes to Consolidated Financial Statements," included elsewhere in this Prospectus. 21 23 QUARTERLY INFORMATION The following tables set forth certain unaudited quarterly consolidated financial information for each of the four quarters in 1995 and for each of the two quarters in the six months ended June 30, 1996. The Company believes that this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere in this Prospectus and all necessary adjustments (consisting only of normal recurring adjustments) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
THREE MONTHS ENDED ------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1995 1995 1995 1995 1996 1996 ---------- ---------- ------------- ------------ ---------- ---------- Revenues License and software development fees....... $1,187,692 $1,762,835 $ 1,851,879 $2,405,175 $1,776,593 $2,233,388 Maintenance fees......... 221,908 251,585 400,583 296,371 418,237 432,774 Hardware sales........... 288,971 392,521 395,233 776,699 404,388 5,074 ---------- ---------- ---------- ---------- ---------- ---------- Total 1,698,571 2,406,941 2,647,695 3,478,245 2,599,218 2,671,236 ---------- ---------- ---------- ---------- ---------- ---------- Costs and Expenses Cost of license and software development fees................... 755,404 451,718 957,785 1,394,891 1,071,257 1,276,823 Cost of maintenance fees................... 74,176 70,046 70,924 65,030 110,591 97,993 Cost of hardware sales... 181,292 244,098 317,564 757,862 336,025 35,186 Selling, general and administrative......... 542,633 1,274,820 957,169 1,191,643 1,353,402 1,026,897 Research and development............ 20,160 14,053 58,336 72,817 90,667 90,681 ---------- ---------- ---------- ---------- ---------- ---------- 1,573,665 2,054,735 2,361,778 3,482,243 2,961,942 2,527,580 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from operations................. 124,906 352,206 285,917 (3,998) (362,724) 143,656 Other income (expense) Interest expense......... (20,810) (31,014) (31,206) (22,819) (31,147) (29,400) Amortization of excess of assigned value of identifiable assets over cost of an acquired interest............... 76,188 76,187 76,188 76,187 76,187 76,188 ---------- ---------- ---------- ---------- ---------- ---------- 55,378 45,173 44,982 53,368 45,040 46,788 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss)............ $ 180,284 $ 397,379 $ 330,899 $ (50,632) $ (317,684) $ 190,444 ========== ========== ========== ========== ========== ========== Pro forma data (unaudited): Historical income (loss)... $ 180,284 $ 397,379 $ 330,899 $ 49,370 $ (317,684) $ 190,444 Pro forma income tax expense (benefit)........ 41,465 91,397 99,400 11,355 (263,678) 157,905 ---------- ---------- ---------- ---------- ---------- ---------- Pro forma net income (loss)................... $ 138,819 $ 305,982 $ 231,499 $ 38,015 $ (54,006) $ 32,539 ========== ========== ========== ========== ========== ==========
Prior growth rates in the Company's revenue and net income should not be considered indicative of future results of operations. Future results of operations will depend upon many factors, including market acceptance of new services, including the Company's Credit Connection and CreditRevue Service Bureau, the demand for the Company's products and services, the successful transition from predominantly license fee-based revenue to predominantly transaction fee-based revenue, the timing of new product and service introductions and software enhancements by the Company or its competitors, the level of product, service and price competition, the length of the Company's sales cycle, the size and timing of individual transactions, the delay or deferral of customer implementations, the Company's success in expanding its customer support organization, direct sales force and indirect distribution channels, the nature and timing of significant marketing programs, the mix of products and services sold, the timing of new hires, the ability of the Company to develop and market new products and services and control costs, competitive conditions in the industry and general economic conditions. In addition, the decision to implement the Company's products or services typically involves a 22 24 significant commitment of customer resources and is subject to the budget cycles of the Company's customers. Licenses of CreditRevue generally reflect a relatively high amount of revenue per order. The loss or delay of individual orders, therefore, would have a significant impact on the Company's revenue and quarterly results of operations. The timing of revenue is difficult to predict because of the length and variability of the Company's sales cycle, which has ranged to date from two to 18 months from initial customer contact to the execution of a license agreement. In addition, since a substantial portion of the Company's revenue is recognized on a percentage-of-completion basis, the timing of revenue recognition for its licenses may be materially and adversely affected by delays or deferrals of customer implementations. Such delays or deferrals may also increase expenses associated with such implementations which would materially and adversely affect related operating margins. The Company's operating expenses are based in part on planned product and service introductions and anticipated revenue trends and, because a high percentage of these expenses are relatively fixed, a delay in the recognition of revenue from a limited number of transactions could cause significant variations in operating results from quarter-to-quarter and could result in operating losses. To the extent such expenses precede, or are not subsequently followed by, increased revenues, the Company's results of operations would be materially and adversely affected. As a result of these and other factors, revenues for any quarter are subject to significant variation, and the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. There can be no assurance that the Company will be profitable in any future quarter or that such fluctuations in results of operations will not result in volatility in the price of the Company's Common Stock. Due to all of the foregoing factors, it is likely that in some future quarter of the Company's results of operations will be below the expectations of public market analysts and investors. In such event, the market price of the Company's Common Stock will be materially and adversely affected. See "Risk Factors -- Uncertainty of Future Results of Operations; Fluctuations in Quarterly Results of Operations." LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its working capital needs and investments in property and equipment from net cash flows from operations. During the year ended December 31, 1995 and the six months ended June 30, 1996, the Company generated net cash from operating activities of $0.8 million and $0.6 million, respectively. Despite these positive net cash flows from operating activities, the Company reported a working capital deficiency of $1.2 million and $1.8 million at December 31, 1995 and June 30, 1996. This working capital deficiency is primarily caused by the deferral of certain billings on contracts to develop software and related maintenance contracts for financial reporting purposes. Net deferred revenue at December 31, 1995 and June 30, 1996 was $0.9 million and $2.1 million, respectively. The Company purchased property and equipment of $0.4 million and $0.2 million during the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. In addition, the Company entered into capital lease obligations of $0.5 during the year ended December 31, 1995. These amounts consist principally of additional equipment needs resulting from growth and planned future growth in operations. The Company does not have any material commitments for the purchase of property and equipment at June 30, 1996. The Company maintains a secured bank line of credit in the amount of $0.5 million, under which no amounts were outstanding at June 30, 1996. The line of credit bears interest at the bank's prime rate plus 1% per annum (9.5% at June 30, 1996). The Company is obligated to a stockholder for $0.3 million of loans bearing interest at 7% per annum and due on demand after October 1, 1997. The Company currently anticipates that its available cash resources, expected cash flows from operations, and its bank line of credit, combined with the net proceeds of the Offering, will be sufficient to meet its presently anticipated working capital, capital expenditure and debt repayment requirements through 1997. 23 25 BUSINESS OVERVIEW CMSI is a leading developer and provider of software solutions and services for automating the consumer and small business credit analysis, decisioning and funding process. Drawing upon over 10 years of experience in the credit processing industry, the Company has developed and provides open-architecture software products and services which manage volume-intensive credit operations over wide-area networks. The Company's products and services allow its customers to automate the entire credit application process by enabling the rapid transmission of credit applications to multiple funding sources, expediting credit application analysis and decisioning and facilitating compliance with federal and state regulatory requirements. These products and services are designed to enable credit originators, such as automobile dealerships and retailers, and lenders, such as banks and finance companies, to improve operating efficiencies by increasing productivity, enhance customer satisfaction by reducing turnaround time on credit decisions, and decrease portfolio risk by applying consistent underwriting standards. The Company's core product, CreditRevue, analyzes credit applications by automatically accessing third-party credit bureau reports, consulting the lending institution's internal loan guidelines and incorporating the loan "scorecards" used by lending institutions. Using CreditRevue, decision response time generally ranges from a matter of seconds for automated decisions to several minutes in cases where review by a credit analyst is required. The Company's CreditRevue customers include some of the largest financial institutions and finance companies in the United States, such as NationsBank Corp., BancOne Corp., Wells Fargo Bank and The Associates Bancorp, Inc. In addition, the Company has introduced CreditRevue to the telecommunications industry through a joint venture between AirTouch Cellular, Inc. and US West New Vector Group, Inc. To further support the needs of the lending industry, the Company developed Credit Connection, which became commercially available in July 1996. Credit Connection, a software-based service, links sources of credit origination through an online network that allows applications to be transmitted to multiple funding sources and credit decisions to be delivered back to the point of origin in a matter of minutes. The Company is introducing Credit Connection to the marketplace through the Company's sales force, the sales forces of lending institutions and various remarketers. The Company recently signed a letter of intent to form a strategic alliance with the Dealer Service Group of ADP to remarket Credit Connection. This division of ADP is one of the largest providers of computing and consulting services for automobile and truck dealers worldwide. By facilitating the flow of applications to multiple funding sources through Credit Connection, and by automating the credit application analysis, decisioning and funding process through CreditRevue, the Company believes it is well positioned to capitalize on the growth in the consumer and small business credit markets. The Company's products have been designed to work together and complement each other to provide a seamless process of credit application process. The Company believes that its CreditRevue customer base and proposed strategic alliance with ADP will enhance its marketing efforts for the Credit Connection service. In addition, the Company believes that the implementation of Credit Connection will create new marketing opportunities for CreditRevue. INDUSTRY OVERVIEW The number and dollar volume of consumer credit transactions have increased in recent years. Consumer credit transactions include automobile loans, small business loans, home equity loans, credit cards, cellular telephone service activations, student loans and equipment and automobile leasing. The funding sources in these transactions include banks, savings and loan associations, finance companies, sub-prime lenders, leasing companies and student lenders. Sources of credit origination include automobile dealers, retailers and telecommunications companies as well as the branch networks of banks and finance companies. Several factors have influenced the growth in consumer credit. New types of consumer credit have developed and gained widespread acceptance. For example, automobile leasing has become an increasingly popular automobile financing alternative, resulting in the introduction of automobile leasing programs by many financial institutions and automobile dealers. In addition, the use of credit analysis is spreading to new 24 26 industries, such as telecommunications, insurance, utilities and health care. Moreover, new types of credit providers have entered the market, in particular, sub-prime finance companies that target borrowers who are unable or unwilling to obtain credit from traditional sources. Lastly, credit providers have established new access channels for credit, designed to make credit more easily obtainable by consumers. Credit applications can be received over the telephone, through kiosks that function like automated teller machines and via computers through home banking software and the Internet. Each consumer credit transaction begins with the completion of a credit application by a borrower. The credit application is sent from a branch office of a lending institution or from the source of credit origination, such as an automobile dealer or retailers, to a credit processing department. The application is then assigned to a credit analyst who retrieves reports from one or more credit bureaus, verifies employment and income and obtains a home appraisal, as appropriate, and then examines the information and computes key ratios, such as debt-to-income and loan-to-value. The information and ratios are then compared to one or more scorecards developed by the lender or a third party to determine if the applicant meets predetermined criteria. The credit application is then compared to the lending institution's underwriting guidelines. The analyst then approves or denies the request for credit and the decision is communicated to the consumer. If approved, the credit analyst produces and prints the loan documents, verifies such documents for completeness and accuracy and has the applicant's information entered into the financial institution's accounting or loan servicing system. This labor-intensive and manual process, which may take up to several days depending on the complexity of the loan request and the sophistication of the borrower, may be carried out multiple times for a transaction as the applicant seeks credit from multiple sources. As the number and dollar volume of consumer credit transactions have increased, competition among lenders has also increased. Accordingly, lenders are seeking to shorten application processing time and lower the cost of credit processing while maintaining their qualifying criteria and complying with the extensive federal and state regulations applicable to credit transactions. Lenders are also seeking to increase market share while decreasing overall portfolio risk. As a result, lenders are moving from a manual credit application process to an automated process. Through automation, a lender can reduce the overall time to render a credit decision while reducing risk and improving customer service. Automating the credit application process is both complex and difficult and lending institutions must implement sophisticated systems which enhance efficiency and cost effectiveness while providing adaptability to continually evolving technologies. Existing software solutions are generally mainframe-based or PC-based. Mainframe-based solutions are functionally limited, expensive to maintain and not easily adaptable to new business requirements. PC-based solutions are also functionally limited and impractical for large volume credit operations. Furthermore, existing solutions may not be sufficient to address emerging industry trends. These trends include cross-selling loan products, sub-prime lending and rate-to-risk pricing, which involves the adjustment of a loan's interest rate to reflect the relative credit risk. Automobile dealers and retail establishments typically maintain relationships with a number of lending institutions to service customers with varying credit histories. The ability to send credit applications to those multiple funding sources is critical to their business, especially during non-bank hours, such as evenings and weekends. Many automobile manufacturer-based credit companies (often referred to as "captive lenders") are directly connected to their automobile dealerships. However, these proprietary systems do not allow dealers to send credit applications to non-captive lenders. This issue of connectivity is not limited to retail establishments. For example, prime lenders often send their declined credit applications and receive credit decisions from multiple sub-prime finance companies, a process which can increase overhead to both types of institutions in the absence of an electronic connection. THE CMSI SOLUTION CMSI provides software products and services for automating the credit analysis, decisioning and funding process and for connecting credit originators with multiple funding sources. The Company's original product, CreditRevue, automates and streamlines the credit origination process and eliminates paperwork by automatically accessing credit bureau reports and consulting the lender's underwriting guidelines, incorporating one or 25 27 more scorecards utilized by the lender, analyzing and verifying the application and facilitating the funding of the loan. Credit Connection links a credit originator with multiple funding sources through an online network that transmits credit applications which can then be evaluated using CreditRevue or another credit automation system. The Company's 10 years of experience in developing information systems, software and services for automating consumer credit transactions has provided the Company with significant insight into the credit application process and the needs of credit originators and lenders which is reflected in both the design of its products and the quality of its customer service. CMSI's family of products and services incorporates the following key attributes: - Streamlined Credit Decisioning and Funding Process. CreditRevue and Credit Connection reduce credit application processing and decision time to a matter of minutes. In addition, they facilitate the process for funding and initiating the servicing of the loan. The Company believes that this results in greater consumer satisfaction and increased productivity in the credit processing departments of lenders. Customers utilizing CreditRevue and Credit Connection can reduce the personnel and overhead costs of their credit application processing departments while increasing the number of credit applications that can be processed and funded. - Extensive Connectivity. Credit Connection offers connectivity between any number of credit originators and multiple funding sources. Using Credit Connection, credit originators, such as automobile dealers and retailers, can route a single credit application to multiple funding sources to increase the likelihood that the credit application will be approved and to accelerate the credit application process. Credit Connection also provides connectivity between prime and sub-prime lending sources. A single interface between the funding source and Credit Connection is sufficient to communicate with any number and type of credit originators. - Enhanced Risk Management Capabilities. By automating credit application processing, CreditRevue enables lenders to use specific, consistent criteria and scoring for evaluating various types of credit applications. The software checks each application for completeness and fraud. In addition, CreditRevue automatically accesses reports from consumer and business credit bureaus and utilizes vehicle valuation and identification data to further reduce the risk management profile of each transaction. The credit score given each application can be used to determine the recommended credit decision, qualify the customer for specific products and apply a rate-to-risk pricing matrix. - Sophisticated Tracking and Reporting Functionality. CreditRevue and Credit Connection track each stage of the credit application process. CreditRevue routes applications to senior analysts when the dollar amount of the loan exceeds the authority of the original analyst or when the loan does not meet the lender's credit policy. Both CreditRevue and Credit Connection incorporate extensive reporting capabilities which enhance the customer's financial reporting functions and support regulatory compliance. - Targeted Solutions. CreditRevue can be configured to meet each lender's needs. The Company offers versions of CreditRevue that are targeted at lending institutions with higher volumes of credit applications that require a full range of features and functionality. The Company is developing a solution for small to medium lending institutions that do not require the same degree of configuration as a large institution. The Company also designs interfaces between CreditRevue and the lender's other systems, including branch automation software, customer information repositories and loan servicing software. - Scalability and Interoperability. CreditRevue is designed to support any size financial institution from a single location to multiple distributed locations with hundreds of users. The underlying open architecture of CreditRevue is designed to operate across multiple hardware and software platforms. In addition, the open nature of CreditRevue also enables users to access information regardless of the computing environment in which it resides. CreditRevue is typically deployed in an enterprise which has heterogeneous computing platforms. 26 28 STRATEGY The Company's objective is to be the leading provider of software solutions for automating the credit analysis, decisioning and funding process and for electronically transmitting credit related transactions between points of origination and multiple funding sources. In pursuit of these objectives, the Company has adopted the following key strategies: Expand Presence in the Credit Automation Market. The Company has established a presence with leading institutions in the consumer lending market, including banks, finance companies, leasing companies and other lenders. The Company intends to expand its sales and marketing efforts to leverage and expand its established presence in these market segments. The Company believes that its customer base of more than 25 financial services companies represents an important source of references for new customers as the Company seeks to expand market acceptance of its products and services in the telecommunications, utilities and healthcare industries. The Company's next version of CreditRevue, expected to be released in mid-1997, is being designed to allow the Company to reduce configuration and installation time and provide more flexible pricing and product options to appeal to a broader customer base. Continue the Rollout of Credit Connection. In July 1996, the Company commercially released Credit Connection to its existing financial services clients as well as other financial institutions and automobile dealers. The Company is introducing Credit Connection to the marketplace through the Company's own sales force, the sales forces of lending institutions and various remarketers. The Company's proposed strategic alliance with ADP will allow the Company to leverage ADP's worldwide automobile and truck dealer customer base to complement the Company's own marketing efforts in the rollout of Credit Connection. The Company also intends to establish relationships with other dealer business systems vendors and the dealer services sales divisions of lending institutions to expand the market presence of Credit Connection. Increase Transaction-Based Revenues. Historically, the Company's revenues have been generated from license fees and services. Credit Connection revenues are transaction-based. The Company is developing CreditRevue Service Bureau which will allow customers to access CreditRevue on a per transaction basis while minimizing the up-front investment in hardware and software costs of an in-house system. As a result of Credit Connection and CreditRevue Service Bureau, the Company anticipates that transaction-based revenue will increase as a percentage of total revenue. Leverage Key Relationships. In addition to its proposed strategic alliance with ADP, the Company has developed relationships with automated scorecard companies, hardware vendors and credit bureaus. The Company believes that these relationships accelerate the introduction and market acceptance of its products and services, extend its product and service offerings, increase the functionality of its products and services, and facilitate the development of new products and services. The Company intends to continually identify potential strategic relationship opportunities in the future. Extend Technology Leadership. The Company intends to continue to extend its position as a technology leader in developing and marketing credit processing software and services. CMSI's products and services are based on its software technology, which is enhanced regularly to address the evolving needs of the consumer credit industry. The Company has designed, developed and implemented an open architecture programming interface and related software specifically to enable the Company to provide flexible, fully integrated solutions to customers with specialized needs and to interface with other software. The Company is focused on continually upgrading its current products to enhance their features, functionality and performance and to incorporate technological developments to meet its customers' needs. CUSTOMERS The Company has over 25 customers, including banks, savings and loan associations, finance companies, sub-prime lenders, leasing companies, student lenders and a telecommunications company. The Company intends to continue to focus on the financial services industry and to target the insurance, utilities and healthcare industries. See "Management's Discussion and Analysis of Financial Condition and Results of 27 29 Operations" for a discussion of those customers who have accounted for more than 10% of the Company's revenues in any of the past three years. The following representative list of the Company's customers with active licenses or contracts as of June 30, 1996 consists of customers which have generated over $50,000 of license and maintenance fee revenue since January 1, 1995: Airtouch/US West The Associates Bancorp, Inc. BancOne Corp. Bank One Financial Services, Inc. Boatmens Bancshares, Inc. Circuit City Stores, Inc. The CIT Group, Inc. Citizens Bank (of Maryland) Citizens Bank (of Rhode Island) Dauphin Deposit Corp. First Merchants Acceptance Corporation NationsBank Corp. Nellie Mae, Inc. Oxford Resources Corp. US Bancorp Wachovia Corp. Wells Fargo Bank Western Financial Bank, FSB The following examples illustrate how the Company's products are being utilized by some of its customers. The benefits achieved by these customers will not necessarily be achieved by every customer. A large financial institution, which processes over 100,000 credit applications per month, decided to replace its in-house mainframe system with CreditRevue to address its need to more efficiently deliver immediate and consistent credit application decisions. Since the installation of CreditRevue, the bank has reduced the number of its credit processing centers while significantly increasing the number of credit applications processed and its overall loan volume. The ease of use of CreditRevue also reduced the bank's underwriter training time. In addition, the bank piloted Credit Connection commencing in January 1996 until its commercial introduction in July 1996. A bank with a large consumer lending business required a centrally administered processing system for credit automation of all of its consumer loans. The bank installed CreditRevue which provided a centrally administered flexible solution which allows it to effectively and efficiently manage its numerous remote affiliates and its high application processing volume. A sub-prime lender, which finances the purchase of automobiles from multiple locations, selected CreditRevue to automate its national indirect lending, underwriting, contract booking and funding operations. Recently, this lender has agreed to use Credit Connection to receive sub-prime applications from prime lending institutions. A major telecommunications company desired an automated credit processing system which could review up to 5,000 credit applications per hour, including credit bureau retrieval, policy checking and setting of an appropriate deposit level. In response, the Company developed a version of CreditRevue specifically designed for the telecommunications industry and licensed this version to the telecommunications company. PRODUCTS AND SERVICES CreditRevue. The cornerstone of the Company's product line is CreditRevue, a UNIX-based software solution designed to automate the entire credit application process from the entry of the credit application to the credit decision and through the transfer of the funding information to the lender's servicing system. Using CreditRevue, a lender can automate the analysis of a wide range of consumer lending products, including vehicle loans and leases, home equity loans and credit cards. Before CreditRevue is installed, the Company completes a review of the customer's credit application processing environment. CreditRevue is then configured to address the lender's specifications, including the lender's underwriting, approval and funding processes. The Company designs interfaces to the lender's other related systems, such as their branch automation software, customer information repository, and loan servicing software. 28 30 The credit analysis, decisioning and funding process using CreditRevue is illustrated in the following diagram: [A flowchart will be provided that graphically illustrates the credit analysis, decisioning and funding process from the entry of the credit application through the return of the decision on the credit application utilizing CreditRevue, as described in the preceding paragraph.] Key features of CreditRevue include the following: - Supports large credit operations with multiple products and lending divisions - Centralizes control over policies and procedures for each division or product - Facilitates a logical workflow for the entire application decisioning process - Automates the retrieval and analysis of consumer and business credit bureau reports - Provides built in fraud checks and tracks regulatory compliance - Incorporates multiple scorecards and the lender's policies and procedures - Audits the contract administration and funding process - Streamlines the retrieval and analysis of home appraisals, flood insurance verifications, title reports and document preparation - Interfaces with other lender systems such as branch automation software, customer information repositories and loan servicing software - Generates a comprehensive set of standard and custom management reports The Company markets the following supplemental CreditRevue products: CrossSell adds call center management to the credit origination process. With CrossSell, a lender can design in-bound or out-bound telemarketing scripts for use by customer service representatives to market a variety of products to potential customers. INCredit automates credit origination for loans to small businesses. With INCredit, application and credit details can be gathered, scored and analyzed for both the business and its principals or guarantors. CreditRevue Data Server enables the lender's other software applications to communicate with CreditRevue. CreditRevue Data Server is used by the Company's customers to connect CreditRevue to the Credit Connection, as well as bank branches, order entry systems and voice response units. In addition to these products, the Company is developing CreditRevue Service Bureau, which will allow lenders to connect multiple terminals or personal computers to the Company's service bureau system to access CreditRevue. CreditRevue Service Bureau will be targeted to small and medium sized financial institutions seeking to minimize the up-front hardware and software costs of an in-house system. The Company will charge an initial set up fee for CreditRevue Service Bureau and transaction fees for each credit application 29 31 processed. Additional charges will be assessed for other value-added services, such as reporting. CreditRevue Service Bureau is expected to be available in late 1997. The Company is designing a new version of CreditRevue that will allow the software to be configured without extensive coding. The Company believes this will reduce the current implementation time from eight to 10 months to four to six months. The new version will also allow the Company to improve the way its existing products are leveraged to create new applications for other markets. The Company expects that the new version will be completed in the third quarter of 1997. Credit Connection. Credit Connection offers connectivity between points of credit origination, such as automobile dealers, and multiple funding sources. Credit Connection allows a dealer to enter a credit application for a consumer loan or lease. The dealer can request one or more credit bureaus which can then be reviewed in several different formats. The dealer can select one or more lending institutions to which the credit application should be sent and can specify criteria which determines how the application is to be sequenced and automatically forwarded to secondary sources (e.g., if the first lending institution does not respond within 10 minutes). The dealer can then view the credit decisions online. When the lending institution supports automated funding, the dealer can have the funds for the loan transferred to the dealer's bank account without having to wait for the actual contract to arrive at the funding source. Credit Connection provides several other features to dealerships, including online vehicle valuation guides and funding source news. For the funding source, Credit Connection provides a single interface to communicate with any number and type of credit originators. The following diagram illustrates the architecture of Credit Connection: [A schematic diagram will be provided that graphically illustrates the connectivity that Credit Connection provides between credit originators, funding sources and credit bureaus, as described in the preceding paragraph]. Key features of Credit Connection include the following: - Supports instantaneous transmission of credit applications from the dealer to funding sources during normal or off hours, and immediate online response to the dealer once the credit decision is made - Allows for application data to be entered into the system only once and routed to the appropriate funding sources as directed by the dealer - Automates application tracking and manages workflow - Includes sophisticated credit analysis tools to aid a dealer in reviewing consumer credit quality - Expedites online funding provided by the lender to the dealer - Integrates vehicle valuation guides and other third-party services - Provides online news facility, allowing lenders to publish information regarding rates, sales promotions and other pertinent data The Company is also marketing Credit Connection LenderLink, which facilitates the electronic transfer of credit applications and decisions between lending institutions through the Credit Connection network. Using 30 32 Credit Connection LenderLink, a prime lender can automatically forward credit applications which it has declined to a sub-prime lender. The sub-prime lender can return a decision electronically to the prime lender, which then communicates the decision to the credit originator. Credit Connection LenderLink benefits all three parties, the credit originator, the prime lender and the sub-prime lender. The credit originator gets a higher rate of approvals since applications declined by the prime lender have additional opportunities to be approved. The prime lender gets a referral fee from the sub-prime lender, and the sub-prime lender gets a source for additional customers. In addition, the Company is developing the following Credit Connection products and services: Credit Connection for Windows is a graphical, client/server version of the dealer software that connects to the Credit Connection host using the Internet or a private network. This new software reduces communication costs and provides easier deployment, an improved user interface and additional functionality. The Company expects that Credit Connection for Windows will become commercially available in the second quarter of 1997. Credit Connection Online will allow consumers to use the World Wide Web to apply for loans and receive online decisions from lenders subscribing to Credit Connection. Consumers can enter applications at the Company's Web site, a subscribing lender's Web site or a third-party remarketer's Web site. Credit Connection Online will be used initially to originate automobile loans from ADP's AutoConnect(TM) Web site and forward those loans to NationsBank through Credit Connection. The Company expects to release this service in the second quarter of 1997. STRATEGIC ALLIANCE WITH ADP In October 1996, the Company entered into a letter of intent to form a strategic alliance with the Dealer Services Group of ADP. This division of ADP is one of the largest providers of computing and consulting services for automobile and truck dealers worldwide. Under the proposed alliance, the Company and ADP will work to integrate Credit Connection with ADP's automated dealership management and operations systems. ADP proposes to cooperate with the Company to remarket Credit Connection to ADP's automobile dealer customers. ADP proposes to provide direct sales efforts to remarket Credit Connection as well as installation, training and customer support services to its dealers. In exchange for its services, ADP will be entitled to a percentage of the net revenues from transactions generated by ADP's dealers. ADP has also proposed to promote Credit Connection Online through its AutoConnect(TM) Web site. PRODUCT DEVELOPMENT Since its inception, the Company has made substantial investments in product development and has a dedicated product development organization which periodically releases new products and enhancements to existing products. The Company believes that its future performance will depend in large part on the Company's ability to enhance its current products and services and to develop new products on a timely and cost-effective basis that will keep pace with technological developments and evolving industry standards, as well as address the increasingly sophisticated needs of the Company's customers. The Company plans to introduce and market several new products and services and enhancements to its existing products and services in 1997, including a new version of CreditRevue, CreditRevue Service Bureau, Credit Connection for Windows and Credit Connection Online. See "Business -- Products and Services." While the Company anticipates that certain new products and services will be developed internally, the Company may, based on timing and cost considerations, acquire or license technology or software from third parties when appropriate. There can be no assurance that the Company will be successful in developing and marketing new products or services that respond to technological change, evolving industry standards and changing customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products or services, or that its new products or services will adequately meet the requirements of the marketplace and achieve any significant degree of market acceptance. Failure of the Company to develop and introduce, for technological or other reasons, new products 31 33 and services in a timely and cost-effective manner could have a material adverse effect on the Company's business, results of operations and financial condition. Software products and services as sophisticated as those offered by the Company often encounter development delays and may contain defects or failures when introduced or when new versions are released. The Company has in the past and may in the future experience delays in the development of software and has discovered, and may in the future discover, software defects in certain of its products. Such delays and defects may result in lost revenues during the time corrective measures are being taken. Although the Company has not experienced material adverse effects resulting from any such defects to date, there can be no assurance that, despite testing by the Company, errors will not be found in its existing software in future releases or enhancements, or that the Company will not experience development delays, resulting in delays in the commercial release of new products or services, the loss of market share or the failure to achieve market acceptance, each of which could have a material adverse effect on the Company's business, results of operations or financial condition. As of September 30, 1996, the Company's product development staff consisted of nine employees. The Company anticipates that it will continue to commit resources to product development in the future. CUSTOMER SERVICE AND SUPPORT The Company believes that its success is dependent in part upon its ability to provide customers with responsive, prompt and efficient support and training. Each customer has a maintenance agreement, which is typically coterminous with the license agreement, providing for service, support and product enhancements. The Company offers its clients a wide range of support services to assist its customers in deriving the most effective use of the Company's products and services, including technical support, formalized training and a user hotline. The Company's services also include implementation planning and assistance, software installation, software operations training and software maintenance. As of September 30, 1996, the Company's dedicated customer service and support team included nine employees. CMSI's support personnel are available to its customers 24 hours a day, seven days a week through a hotline. The Company tracks each customer's service history to identify trends or problem areas and to recommend solution strategies. Most customer support questions are answered during the initial call. The Company can access a customer's system through a modem to diagnose the situation and implement corrective measures, if necessary. The Company also makes on-site visits for emergency or serious problem situations. The Company believes that its customers typically base their decisions to purchase the Company's products and services partly on the support and maintenance offered with such products and services. The Company intends to continue to strengthen its support team and reputation by adding professional personnel with significant experience in the financial services and software industries. SALES AND MARKETING The Company sells its CreditRevue products through a direct sales organization. The sales cycle begins with the generation of a sales lead or the receipt of a request for proposals from a prospective customer. While the sales cycle varies substantially from customer to customer, it typically requires six to eight months. The Company's sales and marketing organization consists of seven employees based at the Company's corporate headquarters in Columbia, Maryland. To support its sales force, the Company conducts comprehensive marketing programs, which include direct mail, public relations, seminars, trade shows and ongoing customer communications programs. The Company also sponsors an annual users' group meeting for its CreditRevue customers. The sales effort for Credit Connection comprises both direct and indirect marketing activities. Direct sales efforts are concentrated on selling the service to financial institutions, automobile superstores and finance and insurance systems providers. Direct sales efforts are supported by participation in both financial and automotive trade shows and conferences, financial press relations and targeted mailings. The Company also 32 34 supports the indirect sales efforts of the sales organizations of certain financial institutions which have well-established relationships with many of the automobile dealerships in the United States. The Company supports its indirect sales channels through a variety of marketing communications efforts including the development of brochures and direct mail pieces, production of sales videos, participation in trade shows and conferences, support for bank dealer focus groups, advertising, press relations and seminar support. Through its proposed strategic alliance with ADP, ADP will remarket Credit Connection to ADP's customer base of automobile and truck dealers and to new customers developed jointly by ADP and CMSI. The Company also intends to establish relationships with other dealer business systems vendors to expand the market presence of Credit Connection. See "-- Strategic Alliance with ADP." COMPETITION The credit processing software and services industry is intensely competitive and rapidly changing. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new products and services and enhancements developed by the Company and its competitors, including (i) application software companies, (ii) management information systems departments of potential customers, (iii) third-party professional services organizations, and (iv) computer services outsourcing providers which offer service bureau-based credit processing solutions. Competitors for CreditRevue include American Management Systems, Inc., Appro Systems, Inc., CFI ProServices, Inc., Fair, Isaac and Company, Inc. and Affinity Technology Group, Inc. Competitors for Credit Connection include The Reynolds & Reynolds Company and IBM, which has recently announced a system for processing automobile loans over the Internet in conjunction with The Chase Manhattan Bank. Many of the Company's competitors are substantially larger than the Company and have significantly greater financial, technical and marketing resources and established, extensive direct and indirect channels of distribution. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products and services than the Company. As is typical in the software industry, many actual or potential customers of the Company may become competitors by developing competitive technology internally. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies as the credit processing software market continues to develop and expand. The Company also expects that competition will increase as a result of software industry consolidations. The Company anticipates that its competitors may develop or acquire products or services that provide functionality that is similar to that produced by the Company's products and services, and that such products and services may be offered at a significantly lower price or bundled with other products and services. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors -- Competition; Future Price Erosion." INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS The Company's success is heavily dependent upon its proprietary technology. The Company regards its software products and services as proprietary, and relies primarily on a combination of contract, copyright and trademark law, trade secrets, confidentiality agreements and contractual provisions to protect its proprietary rights. The Company has no patents on its products currently in commercial use, and existing trade secrets and copyright laws afford only limited protection. The Company has applied for a United States patent on portions 33 35 of Credit Connection. There can be no assurance that a patent will be granted pursuant to the Company's application or that, if granted, such patent would survive a legal challenge to its validity or provide adequate protection. Furthermore, there can be no assurance that others will not design around any patents issued to the Company. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. It is the Company's policy to enter into confidentiality and assignment agreements with its employees. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use the Company's products or technology without authorization, to obtain and use information that the Company regards as proprietary, or to develop similar or superior products or technology independently. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem, particularly in international markets and as a result of the growing use of the Internet. The Company has in the past and may in the future make source code for one or more of its products available to certain of its customers and strategic partners which may increase the likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company has obtained a perpetual worldwide license for the use of the registered trademark Credit Connection. "CreditRevue" and "INCredit" are registered trademarks of the Company. "Cross Sell," "CreditRevue Service Bureau," "CreditRevue Data Server," "Credit Connection for Windows," "Credit Connection Online," "Credit Connection LenderLink" and the Company logo are trademarks of the Company. The Company is not aware that any of its products, services, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products or services. As the number of software products and services in the industry increases and the functionality of these products and services further overlaps, the Company believes that software developers may become increasingly subject to infringement claims. Furthermore, there can be no assurance that former employers of the Company's present and future employees will not assert claims that such employees have improperly disclosed confidential or proprietary information to the Company. Any such claims, with or without merit, can be time consuming and expensive to defend, cause product and service delays, or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, or at all, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors -- Dependence on Proprietary Rights; Risks of Infringement." GOVERNMENT REGULATION The Company's current and prospective customers, which consist of state and federally chartered banks, saving and loan associations, credit unions, consumer finance companies and other consumer lenders, as well as customers in the industries that the Company may target in the future, operate in markets that are subject to extensive and complex federal and state regulations. While the Company is not itself directly subject to such regulations, the Company's products and services must be designed to work within the extensive and evolving regulatory constraints in which its customers operate. These constraints include federal and state truth-in-lending disclosure rules, state usury laws, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Community Reinvestment Act. Furthermore, some consumer groups have expressed concern regarding the privacy and security of automated credit processing, the use of automated credit scoring tools in credit underwriting, and whether electronic lending is a desirable technological development in light of the current level of consumer debt. The failure by the Company's products and services to support customers' compliance with current regulations and to address changes in customers' regulatory environment, or to adapt to such changes in an efficient and cost-effective manner, could have a material adverse effect on the 34 36 Company's business, results of operations and financial condition. See "Risk Factors -- Government Regulation and Uncertainties of Future Regulation." EMPLOYEES As of September 30, 1996, the Company had 133 full time employees, including nine in product development, 101 in technical operations, nine in sales and marketing and 15 in finance and administration. The Company's employees are not covered by any collective bargaining agreements. The Company believes that its relations with its employees are good. FACILITIES The Company's principal executive offices are located in Columbia, Maryland in a leased facility consisting of approximately 34,600 square feet of office space under several leases that expire in 1998, subject to five and six year renewal options, respectively. The Company has a right of first refusal on additional office space in the same building. The Company believes that its existing facilities are adequate to meet its current needs and that suitable additional space will be available in the future, if necessary, on commercially reasonable terms. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 35 37 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION - ------------------------------------------ --- -------------------------------- James R. DeFrancesco...................... 48 President, Chief Executive Officer and Chairman of the Board of Directors Scott L. Freiman.......................... 34 Executive Vice President and Director James C. Alsobrook, Jr.................... 41 Senior Vice President, Credit Connection Miles H. Grody............................ 40 Senior Vice President, Secretary, General Counsel and Director Charles F. Riordan........................ 41 Senior Vice President, Software Sales Robert P. Vollono......................... 47 Senior Vice President, Treasurer, Chief Financial Officer and Director Nancy L. Weil............................. 52 Senior Vice President, Marketing Stephen X. Graham......................... 43 Director
James R. DeFrancesco, co-founder of the Company, has served as the Company's President, Chief Executive Officer and Chairman of the Board of Directors since 1987. From 1987 to 1992, Mr. DeFrancesco served as President of Perpetual Leasing Services, Inc., the automobile leasing subsidiary of Perpetual Savings Bank, FSB to which American Financial Corporation was sold. From 1976 to 1987, Mr. DeFrancesco founded and served as President and Chief Executive Officer of American Financial Corporation, an automobile finance/leasing company. Scott L. Freiman, co-founder of the Company, has served as the Company's Executive Vice President and a Director since 1987. From 1985 to 1987, Mr. Freiman served as Technology Director of American Financial Corporation, an automobile finance/leasing company, where he worked with Mr. DeFrancesco to develop the Company's credit origination software. Prior to 1985, Mr. Freiman served as a development engineer for IBM and AT&T Bell Laboratories. James C. Alsobrook, Jr. has served as the Company's Senior Vice President, Credit Connection since December 1994. From April 1994 to November 1994, Mr. Alsobrook served as Director of Sales and Marketing of ILC Holding Corp., a computer software company. From 1984 to February 1994, Mr. Alsobrook served in several officer capacities for Disc Incorporated, a computer software company, including Vice President North American Sales, Vice President Banking Sales and Regional Manager, ACCESS Products Group. From 1979 to 1984, Mr. Alsobrook served as Senior Account Manager for NCR Corporation, Data Processing Center Division. Miles H. Grody has served as the Company's Senior Vice President and General Counsel since June 1995, and as the Company's Secretary and a Director since October 1996. From January 1993 to June 1995, he served as Chief Operating Officer of Tomahawk II, Inc., a document imaging and conversion services company. From January 1992 to January 1993, Mr. Grody was a partner in the law firm of Rowan & Grody, P.C. From 1988 to January 1992, Mr. Grody served as Corporate Counsel for Perot Systems Corporation. Charles F. Riordan has served as the Company's Senior Vice President, Software Sales since February 1989. From 1985 to February 1989, Mr. Riordan served as Vice President, Sales Representative for MTech Corp/Electronic Data System. Robert P. Vollono has served as the Company's Senior Vice President and Chief Financial Officer since June 1995 and as the Company's Treasurer and a Director since October 1996. From 1988 to June 1995, Mr. Vollono served as Vice President and Chief Financial Officer of Carey International, Inc. a transportation services company. From 1986 to 1988, Mr. Vollono served as Vice President and Chief Financial Officer of Commercial Office Environments, Inc. 36 38 Nancy Weil has served as the Company's Senior Vice President, Marketing since February 1994. From 1984 to February 1994, she served as Manager, Product Marketing for Intelus Corp., a systems integration company. From 1981 to 1984, she served as Manager, Product Marketing Communications for the Manufacturing Division of Martin Marietta Data Systems. Stephen X. Graham has served as a Director since October 1996. Since 1988, he has been the President and Chief Executive Officer of Graham, Hamilton & Dwyer, Inc., a private investment banking firm. From 1982 to 1988, Mr. Graham was a Vice President of Kidder, Peabody & Co. Each executive officer serves at the discretion of the Board of Directors. Each of the Company's executive officers and employee Directors devotes substantially all of his or her time to the affairs of the Company. The Company's Bylaws permit the Board of Directors to establish by resolution the authorized number of Directors, and the Company currently has five Directors authorized. There are no family relationships among any of the Directors or executive officers of the Company. At present, all Directors are elected annually and serve until the next annual meeting of the stockholders or until the election and qualification of their successors. Prior to the consummation of the Offering, the Company will be reincorporated in Delaware and the Certificate of Incorporation will provide that the Board of Directors will be divided into three classes with each class of Directors serving for a staggered three-year term. Thereafter, at each annual meeting of stockholders, Directors will be re-elected or elected for a full term of three years to succeed those Directors whose terms are expiring. See "Description of Capital Stock -- Delaware Law and Certain Charter and Bylaw Provisions." COMMITTEES OF THE BOARD OF DIRECTORS Prior to the consummation of the Offering, the Board of Directors intends to appoint a Compensation Committee and an Audit Committee. The Compensation Committee will be responsible for recommending to the Board of Directors the Company's executive compensation policies for senior officers. The Audit Committee will be responsible for recommending independent auditors, reviewing the audit plan, the adequacy of internal controls, the audit report and management letter, and performing such other duties as the Board of Directors may from time to time prescribe. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1995, the Company did not have a Compensation Committee or other committee of the Board of Directors performing similar functions. Decisions concerning executive officer compensation for 1995 were made by the Board of Directors of the Company, consisting of Messrs. DeFrancesco and Freiman, each of whom was and continues to be an executive officer of the Company. Prior to the consummation of this Offering, the Board of Directors of the Company intends to establish a Compensation Committee to address compensation issues relating to executive officers of the Company. See "-- Committees of the Board of Directors." DIRECTOR COMPENSATION Directors are not currently compensated by the Company for service as Directors other than reimbursement for ordinary and necessary travel expenses related to such Director's attendance at Board of Directors and committee meetings. In the future, the Company intends to pay each nonemployee Director a $2,000 fee for each meeting of the Board of Directors or any committee thereof attended. In addition, such nonemployee Directors shall be granted a non-qualified stock option to purchase 15,000 shares of Common Stock pursuant to the Company's Stock Option Plan. Such options will vest ratably over a three year period commencing on the date of grant . 37 39 EXECUTIVE COMPENSATION The following table summarizes all the compensation paid by the Company during the fiscal year ended December 31, 1995 to the Company's Chief Executive Officer and the two other most highly compensated executive officers (collectively, the "Named Executive Officers") whose salary and bonus for services rendered in all capacities to the Company exceeded $100,000 during such fiscal year. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------ ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION - ---------------------------------------------------------- ---- ------------ --------------- James R. DeFrancesco...................................... 1995 $186,750 $45,741(1) President, Chief Executive Officer and Chairman of the Board Scott L. Freiman.......................................... 1995 $187,300 $32,396(2) Executive Vice President and Director Charles F. Riordan........................................ 1995 $157,376 $ 4,800(3) Senior Vice President, Software Sales
- --------------- (1) Includes $35,000 distributed by the Company to Mr. DeFrancesco to fund the payment of federal and state taxes owed by Mr. DeFrancesco by virtue of the Company's status as a Subchapter S Corporation for federal and state income tax purposes, $5,941 for premiums on health insurance for Mr. DeFrancesco's benefit, and an automobile allowance of $4,800. (2) Includes $17,500 distributed by the Company to Mr. Freiman to fund the payment of federal and state taxes owed by Mr. Freiman by virtue of the Company's status as a Subchapter S Corporation for federal and state income tax purposes, $10,096 for premiums on health insurance for Mr. Freiman's benefit, and an automobile allowance of $4,800. (3) Consists of an automobile allowance of $4,800. During 1995, no options or stock appreciation rights were granted to the Named Executive Officers. In addition, the Named Executive Officers have not exercised any options to date. For a discussion of options granted to the Named Executive Officers, see "-- Stock Option Plan." STOCK OPTION PLAN In June 1996, the Company's Board of Directors and stockholders adopted a Non-Qualified Stock Option Plan (the "Stock Option Plan"). The Company has reserved for issuance 2,750,000 shares of Common Stock pursuant to the terms and conditions of the Stock Option Plan (the "Options"). The purpose of the Stock Option Plan is to provide incentives to Directors and employees through the opportunity to acquire an ownership interest in the Company. The Stock Option Plan has a term of 10 years, subject to early termination by the Board of Directors. If Options should expire, become unexercisable or be forfeited for any reason without having been exercised or having become vested in full, the shares of Common Stock subject to such Options would be available for the grant of additional Options under the Stock Option Plan. The Stock Option Plan is being administered by a committee of at least two Directors of the Company (the "Option Committee") which has the authority to determine to whom Options are granted, the number of shares to be subject to such Options, and the terms and conditions of such Options. The Option Committee consists of Messrs. DeFrancesco and Freiman. It is intended that Options granted under the Stock Option Plan will not qualify for favorable tax treatment to recipients pursuant to Section 422 of the Code. In the case of non-qualified stock options, no income is generally recognized by the optionee at the time of the grant of the option. Under present law, the optionee will generally recognize ordinary income at the time the nonqualified stock option is exercised equal to the aggregate fair market value of the shares acquired less the option price. Ordinarily income from a non-qualified stock option will constitute compensation for which reporting or withholding is required under federal and state law. The Company will generally be entitled to a 38 40 deduction equal to the ordinary income (i.e., compensation) portion of the gain recognized by the optionee in connection with the exercise of a non-qualified stock option provided the Company complies with any reporting or withholding requirements of federal and state law. The exercise price for any particular Option may not be less than 100% of the fair market value of a share of Common Stock on the date of the grant. The Stock Option Plan permits the Option Committee to impose transfer restrictions, such as a right of first refusal, on the Common Stock that optionees may purchase. No Option shall be exercisable after the expiration of 10 years from the date it is granted. An otherwise unexpired Option shall, unless otherwise determined by the Option Committee, cease to be exercisable upon (i) an employee's or Director's termination of employment or directorship for "just cause" (as defined in the Stock Option Plan), (ii) the date three months after an employee terminates service for a reason other than just cause, death or disability, (iii) the date two years after an employee terminates service due to disability, or (iv) the date two years after termination of such service due to the employee's death. Options granted to Directors or employees at the time of the implementation of the Stock Option Plan are expected to become exercisable at the rate the Option Committee may provide. No Option is assignable or transferable except by will or the laws of descent and distribution, or pursuant to the terms of a "qualified domestic relations order" (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder). The Company will receive no monetary consideration for the granting of Options under the Stock Option Plan, and will receive no monetary consideration other than the Option exercise price for each share issued to optionees upon the exercise of Options. The Option exercise price may be paid in cash or Common Stock or a combination of cash and Common Stock or by promissory note. The exercise of Options will be subject to such terms and conditions established by the Option Committee as are set forth in a written agreement between the Option Committee and the optionee. In June 1996, the Option Committee granted stock options under the Stock Option Plan to purchase an aggregate of 2,362,540 shares of Common Stock to certain of the Company's executive officers, including Messrs. Alsobrook, Grody, Riordan and Vollono and Ms. Weil, and to certain employees (the "June Options"). Of the June Options, 332,600 options vest at the rate of 10% at the time of grant, 20% on each of the first, second, third and fourth anniversaries of the date of grant, and 10% on the fifth anniversary of the grant. The remaining June Options vest at the rate of 30% at the time of grant, 20% on each of the first and second anniversaries of the date of grant and 10% on each of the third, fourth and fifth anniversaries of the date of the grant. The June Options have an exercise price of $5.00 per share. In October 1996, the Option Committee granted 27,360 stock options under the Stock Option Plan (the "October Options"). The October Options have an exercise price of $9.60 per share and vest at a rate of 10% at the time of grant, 20% on each of the second, third and fourth anniversaries of the date of grant and 10% on the fifth anniversary of the date of grant. 401(K) PLAN The Company participates in a tax-qualified employee savings and retirement plan (the "401(k) Plan") which covers all of the Company's employees with six months of service. Pursuant to the 401(k) Plan, employees may elect to contribute to the 401(k) Plan up to 15% of their current compensation, subject to statutorily prescribed limitations. The 401(k) Plan also permits the Company to provide a 20% matching contribution, up to the first $1,000 contributed by such employees, subject to statutory limitations. The 401(k) Plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, so that contributions by employees or by the Company and the income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Company, if any, will be deductible by the Company when made. All employee contributions to the 401(k) Plan are fully vested at all times and Company contributions, if any, vest ratably over a six year period based on the participant's years of service. Benefits under the 401(k) Plan are paid upon a participant's retirement, death, disability or termination of employment and are based upon the amount of participant contributions and vested employer contributions, as adjusted for gains, losses and earnings. 39 41 CERTAIN TRANSACTIONS On December 31, 1995, the Company borrowed $214,498 from James R. DeFrancesco, the Company's President and Chief Executive Officer, pursuant to a demand promissory note due on or after October 1, 1997. Interest on the note accrues at the rate of 7% per annum. Mr. DeFrancesco owns 50% of the outstanding stock of Business Liner, Inc., a company which leases an airplane to the Company for business travel. The Company pays an hourly fee for its use of the airplane and a portion of the monthly cost of maintaining the airplane. The Company believes that the amounts paid for the lease of the airplane are comparable to the amounts the Company would have otherwise paid for comparable services from unaffiliated parties. For the fiscal year ended December 31, 1995, the Company paid Business Liner, Inc. $50,857 under this leasing arrangement. Miles H. Grody, Senior Vice President and General Counsel of the Company, performed legal services for the Company prior to his employment in June 1995. For the fiscal year ended December 31, 1995, fees paid to Mr. Grody did not exceed 5% of his income during that year. In August 1996, the Company entered into a settlement agreement and general release with a former officer of the Company. The agreement provides that the Company will pay the former officer his salary for a period of one year. In addition, the agreement requires the Company to pay the former officer $240,000 if a change in control of the Company occurs before January 18, 1997 or $120,000 if a change in control occurs before July 18, 1997. If an initial public offering of the Company's Common Stock is consummated prior to a change in control, the agreement provides that the Company will pay the former officer $240,000 if the Offering is consummated prior to January 18, 1997 or $120,000 if the Offering occurs before July 18, 1997. At the Company's discretion, any payments required to be made to the former officer may be in the form of cash or stock. The Company distributed $35,000 and $17,500 to each of Messrs. DeFrancesco and Freiman, respectively, for the payment of federal and state income taxes owed by each of them by virtue of the Company's status as a Subchapter S Corporation in 1995 and $70,000 and $35,000 to each of Messrs. DeFrancesco and Freiman, respectively, for such purposes in 1994. For information concerning stock options granted to certain of the Company's executive officers, see "Management -- Stock Option Plan." 40 42 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of September 30, 1996, and as adjusted to reflect the sale of the shares of Common Stock offered hereby, assuming no exercise of the Underwriters' over-allotment option, (i) by each of the Named Executive Officers, (ii) by each of the Company's directors, (iii) by each Selling Stockholder, and (iv) by all current executive officers and directors as a group. Other than as shown in the table, no person beneficially owns 5% or more of the Common Stock.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING(1) OFFERING(1) --------------------- SHARES BEING --------------------- BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT - -------------------------------------- --------- ------- ------------ --------- ------- NAMED EXECUTIVE OFFICERS AND DIRECTORS James R. DeFrancesco................ 3,273,400 65.34% 200,000 3,073,400 42.63% Scott L. Freiman.................... 1,636,700 32.67% 100,000 1,536,700 21.31% Charles F. Riordan(2)............... 121,794 2.42% 20,000 101,794 1.39% Miles H. Grody(3)................... 121,794 2.42% 20,000 101,794 1.39% Robert P. Vollono(4)................ 121,794 2.42% 20,000 101,794 1.39% Stephen X. Graham................... -- * -- -- * OTHER SELLING STOCKHOLDERS James C. Alsobrook, Jr.(5).......... 121,794 2.42% 20,000 101,794 1.39% Nancy L. Weil(6).................... 121,794 2.42% 20,000 101,794 1.39% All executive officers and Directors as a group (8 persons)(7)........... 5,519,070 100% 400,000 5,119,070 66.32%
- --------------- * Less than one percent. (1) Gives effect to the shares of Common Stock issuable within 60 days of September 30, 1996 upon the exercise of all options and other rights beneficially owned by the indicated stockholders on that date. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares. (2) Consists of 121,794 shares of Common Stock issuable upon exercise of a stock option. (3) Consists of 121,794 shares of Common Stock issuable upon exercise of a stock option. (4) Consists of 121,794 shares of Common Stock issuable upon exercise of a stock option. (5) Consists of 121,794 shares of Common Stock issuable upon exercise of a stock option. (6) Consists of 121,794 shares of Common Stock issuable upon exercise of a stock option. (7) See Notes (2) through (6). 41 43 DESCRIPTION OF CAPITAL STOCK The following description of the Company's capital stock does not purport to be complete and is subject in all respects to applicable Delaware law and to the provisions of the Company's Certificate of Incorporation and Bylaws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Upon consummation of this Offering, the authorized capital stock of the Company will consist of 25,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $0.01 per share. COMMON STOCK Holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." Each holder of Common Stock is entitled to one vote for each share held of record by him or her. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. Holders of Common Stock have no preemptive rights and have no rights to convert their Common Stock into any other securities and there are no redemption provisions with respect to such shares. All of the outstanding shares of Common Stock are fully paid and non-assessable. PREFERRED STOCK The Company's Board of Directors has the authority to issue up to 1,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, without any further vote or action by the Company's stockholders. The rights of the holders of the Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has no current plans to issue shares of Preferred Stock. DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an 42 44 interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Certain provisions in the Certificate of Incorporation and the Bylaws could have the effect of delaying, deferring or preventing changes in control of the Company. Among other things, upon the Company's reincorporation in Delaware prior to the consummation of the Offering, the Certificate of Incorporation will divide the members of the Board of Directors into three different classes of Directors who are elected by holders of the Common Stock and who serve three-year staggered terms, require advance notice of stockholder proposals and nominations of Directors and authorize the issuance of "blank check" Preferred Stock. See "Risk Factors--Effect of Certain Charter Provisions; Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law." TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is American Stock Transfer and Trust Company. SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market could adversely affect the market price of the Common Stock. Upon completion of this Offering, the Company will have outstanding an aggregate of 7,210,100 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option. Of these shares, the 2,600,000 shares sold in the Offering will be freely tradeable without restriction or further registration under the Securities Act, except for any of such shares which may be purchased by Affiliates. The remaining 4,610,100 shares of Common Stock are held by Messrs. DeFrancesco and Freiman and were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. All such outstanding shares will be subject to the "lock-up" agreements described below on the date of this Prospectus. Upon expiration of lock-up agreements 180 days, 360 days and 540 days after the date of this Prospectus, 1,536,700, 1,536,700 and 1,536,700 shares will become eligible for sale, respectively, subject to the limitations of Rule 144. As of June 30, 1996, there were a total of 2,362,540 shares of Common Stock subject to outstanding options, 642,234 of which were exercisable. However, these shares are subject to lock-up agreements. All shares issuable upon exercise of outstanding options are subject to a 180 day lock-up agreement with the Representatives. In general, under Rule 144 as currently in effect, a person (or person whose shares are aggregated) who has beneficially owned shares for at least two years (including the holding period of any prior owner except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of (i) 1% of the number of shares of Common Stock then outstanding (approximately 72,101 shares immediately after this Offering) or (ii) generally, the average weekly trading volume in the Common Stock during the four calendar weeks preceding the required filing of a Form 144 with respect to such sale. Sales under Rule 144 are generally subject to the availability of current public information about the Company. Under Rule 144(k), a person who is deemed not to have been an Affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares upon exercise of options granted prior to the effective date of this Offering are entitled to sell such shares 90 days after the effective date of this Offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. 43 45 The Company intends to file a registration statement on Form S-8 after the effective date of the Offering to register shares of Common Stock reserved for issuance under the Stock Option Plan, thus permitting the resale of such shares by non-affiliates and by Affiliates, subject to contractual restrictions and Rule 144 volume limitations applicable thereto, in the public market without restrictions under the Securities Act. Such registration statement will become effective immediately upon filing. All existing stockholders of the Company have agreed that they will not, subject to certain limited exceptions, directly or indirectly, offer, sell or otherwise dispose of a certain number of shares of Common Stock or any securities convertible into or exchangeable or exercisable for any such shares for a period of 180 days, 360 days and 540 days, respectively, from the date of this Prospectus without the prior written consent of Friedman, Billings, Ramsey & Co., Inc. 44 46 UNDERWRITING Subject to the terms and conditions set forth in the underwriting agreement between the Company, the Selling Stockholders and the Underwriters (the "Underwriting Agreement"), the Company and the Selling Stockholders have agreed to sell to each of the Underwriters named below, and the Underwriters, for whom Friedman, Billings, Ramsey & Co., Inc. and Unterberg Harris are acting as representatives (collectively, the "Representatives"), have severally agreed to purchase from the Company and the Selling Stockholders, the respective number of shares of Common Stock set forth opposite their respective name. Under the Underwriting Agreement, the Underwriters are obligated to purchase all of the 2,600,000 shares of Common Stock offered hereby if any are purchased.
NUMBER OF NAME SHARES -------------------------------------------------------------------------- --------- Friedman, Billings, Ramsey & Co., Inc..................................... Unterberg Harris.......................................................... ------- =======
The Underwriters have advised the Company and the Selling Stockholders that the Underwriters propose to initially offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. After the shares of Common Stock have been released for sale to the public, the price to the public and such concessions may be changed. The Company has granted the Underwriters an option, exercisable for 30 days after the date on this Prospectus, to purchase up to 390,000 additional shares of Common Stock solely to cover over-allotments, if any, at the initial public offering price, less the underwriting discount and commission, shown on the cover page of this Prospectus. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. The Company, its directors, officers and holders of its Common Stock, and certain holders of options to purchase its Common Stock, have each agreed, not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, or any security convertible into or exercisable for shares of Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives. In the Underwriting Agreement, the Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act. Each of the Underwriters may be deemed to be an "underwriter" for purposes of the Securities Act in connection with the Offering. The Company will reimburse the Underwriters for their reasonable out-of-pocket expenses, including legal fees and expenses, incurred in connection with the Offering. Prior to this Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiation between the Company, the representatives of the Selling Stockholders and the Underwriters. Among the factors to be considered in determining the initial public offering price will be prevailing market and economic conditions, revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. Additionally, consideration will be given to the status of the securities markets, market conditions for new offerings of securities and the prices of similar securities of comparable companies. The Company intends to apply to include the Common Stock for quotation in the Nasdaq National Market under the symbol "CRED". In order to meet one of the requirements for including the Common Stock on the Nasdaq National Market, the Underwriters have undertaken to sell shares of Common Stock to a minimum of 400 beneficial holders. There can be no assurance, however, that the Company will be able to 45 47 maintain the inclusion of the Common Stock in the Nasdaq National Market or that an active trading market will develop. The Company has also engaged Graham, Hamilton & Dwyer, Inc. ("Graham, Hamilton") as its financial advisor in connection with this Offering and other matters. As compensation, the Company has paid to Graham, Hamilton a nonrefundable engagement fee of $50,000 and has agreed to pay Graham, Hamilton a fee of 1% of the net proceeds of this Offering, such fee not to exceed $400,000. The Company has also agreed to indemnify Graham, Hamilton against liabilities resulting from the performance of its duties as financial advisor, except for any liability resulting from Graham, Hamilton's gross negligence or willful misconduct. LEGAL MATTERS The validity of the securities offered hereby will be passed upon for the Company by Manatt, Phelps & Phillips, LLP, Washington, D.C. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York. EXPERTS The consolidated financial statements of the Company at December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus and the Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Securities Act, of which this Prospectus is a part, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents and when any such document is an exhibit to the Registration Statement, each such statement is qualified in its entirety by reference to the copy of such document filed with the Commission. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, and the Commission's Regional Offices at 75 Park Place, Room 1288, New York, New York 10017, and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and copies may be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. 46 48 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors........................................................ F-2 Consolidated Balance Sheets........................................................... F-3 Consolidated Statements of Operations................................................. F-4 Consolidated Statements of Stockholders' Deficit...................................... F-5 Consolidated Statements of Cash Flows................................................. F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 49 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Credit Management Solutions, Inc. We have audited the accompanying consolidated balance sheets of Credit Management Solutions, Inc. and subsidiary as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Credit Management Solutions, Inc. and subsidiary at December 31, 1994 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Baltimore, Maryland October 7, 1996, except for Note 14, as to which the date is October 10, 1996 F-2 50 CREDIT MANAGEMENT SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, PRO FORMA ---------------------------- JUNE 30, JUNE 30, 1994 1995 1996 1996 ------------ ------------ ----------- ------------------ (UNAUDITED) (UNAUDITED--NOTE 2) ASSETS Current assets: Cash and cash equivalents........................ $ 75,840 $ 120,255 $ 1,918 $ 1,918 Accounts receivable, net of allowance of $0, $98,095 and $98,095 in 1994, 1995 and June 1996, respectively............................. 830,364 1,744,347 1,804,589 1,804,589 Costs and estimated earnings in excess of billings on uncompleted contracts.............. -- 263,365 146,775 146,775 Prepaid expenses and other current assets........ 7,634 323,595 186,892 186,892 Deferred income taxes............................ -- -- -- 403,734 ------------ ------------ ----------- ---------- Total current assets..................... 913,838 2,451,562 2,140,174 2,543,908 Property and equipment: Computer equipment and software.................. 804,318 1,464,421 1,666,662 1,666,662 Office furniture and equipment................... 170,101 360,319 394,999 394,999 Leasehold improvements........................... 23,933 96,504 96,504 96,504 ------------ ------------ ----------- ---------- 998,352 1,921,244 2,158,165 2,158,165 Accumulated depreciation and amortization........ (390,662) (639,465) (818,233) (818,233) ------------ ------------ ----------- ---------- 607,690 1,281,779 1,339,932 1,339,932 Software development costs....................... 49,553 268,129 359,163 359,163 Other assets..................................... 10,670 33,853 30,852 30,852 ------------ ------------ ----------- ---------- Total assets............................. $ 1,581,751 $4,035,323 $3,870,121 $4,273,855 ============ ============ =========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................. $ 127,048 $1,372,616 $ 610,694 $ 610,694 Accrued payroll and related expenses............. 385,066 614,876 731,213 731,213 Billings in excess of costs and estimated earnings on uncompleted contracts.............. 841,537 592,457 968,823 968,823 Deferred maintenance and service fees............ 426,674 588,895 1,322,191 1,322,191 Short-term borrowings............................ 130,000 250,000 -- -- Current portion of long-term debt and capital lease obligations.............................. 77,409 214,612 225,879 225,879 ------------ ------------ ----------- ---------- Total current liabilities................ 1,987,734 3,633,456 3,858,800 3,858,800 Deferred income taxes............................ -- -- -- 332,002 Stockholder loans................................ 206,404 214,498 222,006 222,006 Capital lease obligations, less current portion........................................ 180,241 397,011 278,572 278,572 Long-term debt, less current portion............. 29,491 11,795 11,795 11,795 Excess of assigned value of identifiable assets over cost of an acquired interest, net of accumulated amortization of $558,709, $863,459 and $1,015,834 in 1994, 1995 and June 1996, respectively................................... 660,291 355,541 203,166 203,166 ------------ ------------ ----------- ---------- Total liabilities................................ 3,064,161 4,612,301 4,574,339 4,906,341 Commitments and contingent liabilities........... -- -- -- -- Stockholders' deficit: Common stock, $.01 par value; 10,000,000 shares authorized; 4,910,100 shares issued and outstanding at December 31, 1994, December 31, 1995 and June 30, 1996, respectively............................... 49,101 49,101 49,101 49,101 Accumulated deficit.......................... (1,531,511) (626,079) (753,319) (681,587) ------------ ------------ ----------- ---------- Total stockholders' deficit...................... (1,482,410) (576,978) (704,218) (632,486) ------------ ------------ ----------- ---------- Total liabilities and stockholders' deficit...... $ 1,581,751 $4,035,323 $3,870,121 $4,273,855 ============ ============ =========== ==========
The accompanying notes are an integral part of these financial statements. F-3 51 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, YEAR ENDED -------------------------- DECEMBER 31, 1995 1996 -------------------------------------- ----------- ----------- 1993 1994 1995 ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) Revenues: License and software development fees............ $2,911,539 $2,934,450 $7,207,581 $ 2,950,527 $ 4,009,981 Maintenance fees.............. 375,510 700,861 1,170,447 473,493 851,011 Computer hardware sales....... 81,019 316,145 1,853,424 681,492 409,462 ---------- ---------- ---------- ----------- ----------- 3,368,068 3,951,456 10,231,452 4,105,512 5,270,454 ---------- ---------- ---------- ----------- ----------- Costs and expenses: Costs of license and software development fees............ 785,622 1,482,036 3,559,798 1,207,122 2,348,080 Cost of maintenance fees...... 40,776 151,346 280,176 144,222 208,584 Cost of computer hardware sales....................... 77,979 315,262 1,500,816 425,390 371,211 Selling, general and administrative expenses..... 2,234,816 2,244,031 3,966,265 1,817,453 2,380,299 Research and development costs....................... 131,203 167,152 165,366 34,213 181,348 ---------- ---------- ---------- ----------- ----------- 3,270,396 4,359,827 9,472,421 3,628,400 5,489,522 ---------- ---------- ---------- ----------- ----------- Income (loss) from operations...... 97,672 (408,371) 759,031 477,112 (219,068) Other income (expense): Interest expense.............. (32,774) (41,310) (105,849) (51,824) (60,547) Amortization of excess of assigned value of identifiable assets over cost of an acquired interest................. 253,959 304,750 304,750 152,375 152,375 ---------- ---------- ---------- ----------- ----------- 221,185 263,440 198,901 100,551 91,828 ---------- ---------- ---------- ----------- ----------- Net income (loss).................. $ 318,857 $ (144,931) $ 957,932 $ 577,663 $ (127,240) ========= ========= ========= ========= ========= Pro forma data (unaudited -- Note 2): Historical income (loss)...... $ 957,932 $ (127,240) Pro forma income tax expense (benefit)................... 220,618 (105,773) ---------- ----------- Pro forma net income (loss)... $ 737,314 $ (21,467) ========== =========== Pro forma net income (loss) per share................... $ .12 $ -- ========== ===========
The accompanying notes are an integral part of these financial statements. F-4 52 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK -------------------- NUMBER ACCUMULATED OF SHARES AMOUNT DEFICIT TOTAL --------- ------- ----------- ----------- Balance at January 1, 1993...................... 4,910,100 $49,101 $(1,600,437) $(1,551,336) Net income for 1993........................ -- -- 318,857 318,857 --------- -------- ----------- ----------- Balance at December 31, 1993.................... 4,910,100 49,101 (1,281,580) (1,232,479) Net loss for 1994.......................... -- -- (144,931) (144,931) Distributions to stockholders.............. -- -- (105,000) (105,000) --------- -------- ----------- ----------- Balance at December 31, 1994.................... 4,910,100 49,101 (1,531,511) (1,482,410) Net income for 1995........................ -- -- 957,932 957,932 Distributions to stockholders.............. -- -- (52,500) (52,500) --------- -------- ----------- ----------- Balance at December 31, 1995.................... 4,910,100 49,101 (626,079) (576,978) Net loss for the six months ended June 30, 1996 (unaudited)......................... -- -- (127,240) (127,240) --------- -------- ----------- ----------- Balance at June 30, 1996 (unaudited)............ 4,910,100 $49,101 $ (753,319) $ (704,218) ========= ======== =========== ===========
The accompanying notes are an integral part of these financial statements. F-5 53 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------------------ ---------------------- 1993 1994 1995 1995 1996 --------- --------- ---------- --------- --------- (UNAUDITED) ---------------------- Operating activities: Net income (loss).................... $ 318,857 $(144,931) $ 957,932 $ 577,663 $(127,240) Adjustments: Depreciation....................... 66,882 136,847 265,772 113,154 178,768 Amortization of excess of assigned value of identifiable assets over cost of an acquired interest........................ (253,959) (304,750) (304,750) (152,375) (152,375) Loss on disposal of property and equipment....................... -- 11,272 3,972 9,242 -- Changes in operating assets and liabilities: Accounts receivable, net........ (382,725) (358,251) (913,983) (523,630) (60,242) Prepaid expenses and other current assets................ 5,945 (7,434) (315,961) (192,300) 136,703 Other assets.................... 15,850 (5,928) (23,183) (10,348) 3,001 Accounts payable................ 150,600 (96,041) 1,245,568 398,441 (761,922) Accrued payroll and related expenses...................... 238,575 (7,443) 229,810 (60,281) 116,337 Net billings in excess of costs and estimated gross profit on uncompleted contracts......... 97,267 781,505 (512,445) (125,267) 492,956 Deferred maintenance and service fees.......................... 59,901 288,792 162,221 214,721 733,296 Accrued interest on stockholder loans......................... 12,600 13,804 8,094 7,224 7,508 --------- --------- ---------- --------- --------- Net cash provided by operating activities......................... 329,793 307,442 803,047 256,244 566,790 Investing activities: Capitalized software development costs.............................. -- (49,553) (218,576) (139,874) (91,034) Proceeds from sale of property and equipment.......................... -- 1,300 86,824 -- -- Purchases of property and equipment.......................... (198,448) (236,016) (492,333) (251,386) (227,863) Payment for acquired interest........ (150,000) -- -- -- -- --------- --------- ---------- --------- --------- Net cash used in investing activities......................... (348,448) (284,269) (624,085) (391,260) (318,897) Financing activities: Net short-term borrowings............ -- 130,000 120,000 195,000 (250,000) Repayments of stockholder loans...... (110,855) -- -- -- -- Payments under capital lease obligations........................ -- (66,784) (184,013) (74,101) (108,144) Repayments of long-term debt......... (15,028) (14,103) (18,034) (7,457) (8,086) Distributions to stockholders........ -- (105,000) (52,500) -- -- --------- --------- ---------- --------- --------- Net cash (used in) provided by financing activities............... (125,883) (55,887) (134,547) 113,442 (366,230) --------- --------- ---------- --------- --------- Net change in cash and cash equivalents........................ (144,538) (32,714) 44,415 (21,574) (118,337) Cash and cash equivalents at beginning of period................ 253,092 108,554 75,840 75,840 120,255 --------- --------- ---------- --------- --------- Cash and cash equivalents at end of period............................. $ 108,554 $ 75,840 $ 120,255 $ 54,266 $ 1,918 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-6 54 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Description of Business Credit Management Solutions, Inc. (the "Company") develops and provides software solutions and services for automating the consumer and small business credit analysis, decisioning and funding process. The Company's customers are primarily banks and other financial institutions located throughout the United States. Principles of Consolidation The accompanying 1995 and 1996 consolidated financial statements include the accounts of the Company and its subsidiary, Credit Connection LLC. The subsidiary was established on January 5, 1995 to operate an automated service bureau which electronically assembles and transmits between merchants and credit grantors credit applications of the merchants' customers. All material intercompany accounts and transactions have been eliminated upon consolidation. The accompanying 1993 consolidated financial statements include the accounts of the Company and CMSI Group Limited Partnership through March 4, 1993, the date the partnership was terminated upon the purchase of the minority partnership interest (see Note 5). Unaudited Interim Financial Statements The consolidated financial statements for the six months ended June 30, 1995 and 1996 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. These statements are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial information set forth herein. The operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Property and Equipment Property and equipment is stated at cost and depreciated using the straight-line method based on estimated useful lives of between three and seven years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. Assets held under capital leases are stated at the lesser of the present value of future minimum payments using the Company's incremental borrowing rate at the inception of the lease or the fair value of the property at the F-7 55 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) inception of the lease. The assets recorded under capital leases are amortized over the lesser of the lease term or the estimated useful life of the assets in a manner consistent with the Company's depreciation policy for owned assets. Software Development Costs Software development costs consist of direct labor and applicable overhead related to the development of a software product named "Credit Connection." These costs were capitalized beginning in September 1994 upon the determination that the software was technologically feasible. Credit Connection was commercially released in July 1996 and amortization over the estimated useful life of three years commenced at that date. Revenue Recognition Revenues from long-term software license contracts are recognized on the percentage-of-completion method, measured generally on a cost incurred basis. Costs consist primarily of direct labor and applicable overhead. Contracts in progress are reviewed periodically as the work progresses, and revenues and earnings are adjusted in current accounting periods based on revisions in contract value and estimates to complete. The Company recognizes revenue for software maintenance fees pro rata over the term of the agreement, which generally have a one-year term. Fees received in advance of revenue recognition are included in deferred maintenance and service fees. Revenues from sales of hardware and software are recognized at time of shipment and when collection of the receivable is probable. Advertising Costs All advertising costs are expensed when incurred. Costs which are included in selling, general and administrative expense for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 and for the six months ended June 30, 1995 and June 30, 1996 are $64,242, $62,594, $101,741, $57,708 and $67,082, respectively. Stock Options Granted to Employees The Company records compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995, the Financial Accounting Standards Board issued FASB Statement No. 123, Accounting for Stock- Based Compensation, which encourages companies to recognize expense for stock-based awards based on their estimated fair value on the date of grant. Statement No. 123, effective for 1996, does not require companies to change their existing accounting for stock-based awards, but if the new fair value method is not adopted, pro forma income and earnings per share data should be provided in the notes to the financial statements. The Company intends to continue to account for stock-based compensation plans using the intrinsic value method and will supplementally disclose in its 1996 financial statements the required pro forma information as if the fair value method had been adopted. Income Taxes The stockholders have elected under Subchapter S of the Internal Revenue Code to include the Company's income in their personal income tax returns for Federal and state income tax purposes. Accordingly, the Company was not subject to Federal and state income taxes during the periods presented. The Company currently anticipates completing an initial public offering of its common stock in late 1996, which will result in the termination of the Company's Subchapter S status. F-8 56 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. PRO FORMA INFORMATION (UNAUDITED) Pro Forma Balance Sheet Upon completion of its initial public offering, the Company's S Corporation status will terminate and the Company will be subject to income tax at the corporate level. The pro forma balance sheet of the Company as of June 30, 1996 reflects the deferred tax asset and liability which would have been recorded upon termination by the Company if its S Corporation status was terminated at that date. The pro forma deferred tax asset and liability represent the tax effect of the cumulative differences between the financial reporting and income tax bases of certain assets and liabilities as of June 30, 1996. The actual deferred tax asset and liability recorded will be adjusted to reflect the effect of operations of the Company for the period from July 1, 1996 through the date immediately preceding the termination of its S Corporation status. The significant items comprising the Company's pro forma net deferred income tax asset as of June 30, 1996 are as follows: Pro forma deferred tax assets: Revenue recognition.......................................................... $317,475 Accrued vacation............................................................. 48,375 Provision for bad debts...................................................... 37,884 -------- Total deferred tax assets......................................................... 403,734 Deferred tax liabilities: Capitalized software development costs....................................... (138,709) Depreciation................................................................. (193,293) -------- Total deferred tax liabilities.................................................... (332,002) -------- Pro forma net deferred tax asset.................................................. $ 71,732 ========
Pro Forma Statement of Operations Data Shortly before the closing of the public offering the Company will terminate its status as an S Corporation and will be subject to federal and state income taxes thereafter. Accordingly, for informational purposes, the accompanying statements of operations data for the year ended December 31, 1995 and the six months ended June 30, 1996 include an unaudited pro forma adjustment for income taxes which would have been recorded if the Company had not been an S Corporation, based on the tax laws in effect during the respective periods. Pro forma income tax expense (benefit) consists of the following:
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- Current: Federal......................................................... $ -- $ 4,053 State........................................................... -- 2,034 ------------ ---------- -- 6,087 Deferred: Federal......................................................... 180,630 (91,585) State........................................................... 39,988 (20,275) ------------ ---------- 220,618 (111,860) ------------ ---------- Pro forma income tax expense (benefit)............................... $220,618 $ (105,773) ========== =========
F-9 57 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's pro forma expense (benefit) for income taxes would result in effective tax rates that vary from the statutory federal income tax rate as follows:
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- Expected federal income tax provision at 34%......................... $325,697 $ (43,262) Income not recognizable for tax purposes............................. (89,878) (45,338) State income taxes, net of federal benefit........................... (15,201) (6,362) Other................................................................ -- (10,811) ------------ ---------- $220,618 $ (105,773) ========== =========
Pro Forma Earnings (Loss) Per Share The following table summarizes the computations of share amounts used in the computation of pro forma earnings (loss) per share presented in the accompanying statements of operations:
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- Weighted average number of shares of common stock outstanding during the period......................................................... 4,910,100 4,910,100 Effect of options to purchase common stock issued within one year of registration statement............................................. 1,383,620 1,383,620 ------------ ---------- Total common and common equivalent shares of stock considered outstanding during the period...................................... 6,293,720 6,293,720 ========== ========
Pro forma earnings (loss) per common and common equivalent share is based on the average number of shares of common stock outstanding during each period. As required by the Securities and Exchange Commission, all options to purchase common stock issued by the Company at exercise prices below the expected initial public offering price during the twelve-month period prior to the anticipated offering date have been included in the computations as if they were outstanding for all periods presented using the treasury stock method, even if the result is anti-dilutive. F-10 58 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. HISTORICAL EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE The following table summarizes the computations of historical earnings (loss) per common and common equivalent share.
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------------------ ----------------------- 1993 1994 1995 1995 1996 --------- ---------- --------- --------- ---------- Net income (loss)..................... $ 318,857 $ (144,931) $ 957,932 $ 577,663 $ (127,240) ========= ========== ========= ========= ========== Weighted average number of shares outstanding......................... 4,910,100 4,910,100 4,910,100 4,910,100 4,910,100 Effect of options to purchase common stock issued within one year of registration statement.............. 1,383,620 1,383,620 1,383,620 1,383,620 1,383,620 --------- ---------- --------- --------- ---------- Total common and common equivalent shares of stock considered outstanding during the period....... 6,293,720 6,293,720 6,293,720 6,293,720 6,293,720 ========= ========== ========= ========= ========== Earnings (loss) per common and common equivalent share.................... $ 0.05 $ (0.02) $ 0.15 $ 0.09 $ (0.02) ========= ========== ========= ========= ==========
Earnings (loss) per common and common equivalent share is based on the average number of shares of common stock outstanding during each period. As required by the Securities and Exchange Commission, all options to purchase common stock issued by the Company at exercise prices below the expected initial public offering price during the twelve-month period prior to the anticipated offering date have been included in the computations as if they were outstanding for all periods presented using the treasury stock method, even if the result is anti-dilutive. 4. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES As discussed in Note 5, in 1993 the Company purchased a limited partner's interest in a partnership for $225,000, of which $75,000 was financed through the issuance of a note payable. In connection with the purchase, an excess of assigned value of the identifiable net assets over the cost of an acquired interest was recorded as follows: Acquired interest............................................................... $ 758,000 Forgiveness of debt............................................................. 813,000 Used to reduce noncurrent assets to zero........................................ (127,000) Issuance of note payable........................................................ (75,000) Cash paid....................................................................... (150,000) ---------- Excess of assigned value of identifiable assets over cost of an acquired interest...................................................................... $1,219,000 ==========
Capital lease obligations of $309,228, $538,324, $274,422 and $9,058 were incurred when the Company entered into leases for new equipment during the years ended December 31, 1994 and December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996, respectively. No interest or income taxes were paid during 1993, 1994 and 1995. Interest paid for the six months ended June 30, 1995 and June 30, 1996 totaled $51,921 and $61,370 respectively. F-11 59 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PARTNERSHIP INTEREST IN CMSI GROUP LIMITED PARTNERSHIP From September 1988 through March 4, 1993 the Company was the sole general partner of CMSI Group Limited Partnership, a partnership which conducted what are now the Company's principal operations. During this period, the Company's ownership interest in the partnership varied between 49% and 67%, and it accounted for the partnership as a consolidated subsidiary in its financial statements. In March 1993 the Company purchased the other partner's limited partnership interest for $225,000. The Company accounted for the acquisition of the limited partner's interest as the acquisition of a minority interest and used the purchase method of accounting. The assigned value of the identifiable net assets acquired over the cost of the acquired interest was $1,219,000, after reducing intangible assets and property and equipment to zero for the portion of those assets represented by the acquired interest. This amount is being amortized into income using the straight-line method over four years. 6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Uncompleted contracts consist of the following components:
BALANCE SHEET CAPTION ------------------------ COSTS AND ESTIMATED BILLINGS EARNINGS IN IN EXCESS OF EXCESS COSTS AND OF ESTIMATED BILLINGS EARNINGS TOTAL ---------- ---------- ---------- December 31, 1994: Costs and estimated earnings........................ $ -- $1,826,899 $1,826,899 Billings............................................ -- 2,668,436 2,668,405 ========= ========= ========= $ -- $ (841,537) $ (841,537) ---------- ---------- ---------- December 31, 1995: Costs and estimated earnings........................ $1,552,292 $2,044,454 $3,596,701 Billings............................................ 1,288,927 2,636,911 3,925,793 ---------- ---------- ---------- $ 263,365 $ (592,457) $ (329,092) ========= ========= ========= June 30, 1996 (unaudited): Costs and estimated earnings........................ $ 781,595 $3,012,493 $3,794,088 Billings............................................ 634,820 3,981,316 4,616,136 ---------- ---------- ---------- $ 146,775 $ (968,823) $ (822,048) ========= ========= =========
All receivables on contracts in-progress are expected to be collected within twelve months. 7. SHORT-TERM BORROWINGS At December 31, 1994, December 31, 1995 and June 30, 1996 the Company maintained a short-term line of credit arrangement with a bank which allowed for aggregate borrowings of $500,000. Borrowings under this arrangement, which are personally guaranteed by the stockholders of the Company, are secured by essentially all of the Company's assets and bear interest at the bank's prime rate plus 1% per annum (weighted average borrowing rate of 9.4% and 9.8% for the year ended December 31, 1994 and 1995, respectively). Under the terms of the credit arrangement, the Company is required to comply with certain covenants. F-12 60 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STOCKHOLDER LOANS Amounts due to stockholders accrue interest at 7% per annum and are payable on demand after October 1, 1997. 9. CAPITAL LEASE OBLIGATIONS The Company leases equipment under capital leases. Property and equipment includes the following amounts for leases that have been capitalized:
DECEMBER 31 -------------------- 1994 1995 -------- -------- Computer equipment...................................................... $227,240 $561,279 Office furniture and equipment.......................................... 81,988 265,337 -------- -------- 309,228 826,616 Less: accumulated amortization.......................................... 27,851 188,155 -------- -------- $281,377 $638,461 ======== ========
Amortization of leased assets is included in depreciation expense. Future minimum payments under capital lease obligations consist of the following at December 31, 1995: 1996.............................................................. $262,321 1997.............................................................. 244,008 1998.............................................................. 140,209 1999.............................................................. 61,206 2000 and thereafter............................................... 25,753 -------- Total minimum lease payments...................................... $733,497 Less amounts representing interest................................ 138,252 -------- Present value of minimum capital lease payments (including current portion of $198,234)............................................ $595,245 ========
10. STOCK OPTIONS In 1996 the Company adopted the 1996 Credit Management Solutions, Inc. Non-Qualified Stock Option Plan (the "Plan"). The Plan provides for the granting of non-qualified options to purchase an aggregate of up to 2,750,000 shares of common stock to employees and directors of the Company. In June 1996 the Company granted options to purchase 2,362,540 shares of common stock for an exercise price of $5.00 per share, the estimated fair value of a share of common stock at the date of grant as determined by an independent appraisal. These options have a term of 10 years, and at June 30, 1996, 642,234 options are vested and exercisable. In October 1996 the Company granted options to purchase 27,360 shares of common stock for an exercise price of $9.60 per share, the estimated fair value of a share of common stock at the date of grant. At the date of grant, 2,736 options became immediately vested and exercisable. All options granted under the Plan are subject to vesting provisions at the discretion of the Board of Directors. Options granted through October 1996 vest in varying percentages through 2001. F-13 61 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. PROFIT SHARING PLAN The Company maintains a 401(k) profit sharing plan which covers all employees with at least six months of service. In addition, the Company may make a discretionary contribution based on each eligible participant's compensation. Participant contributions vest immediately and employer contributions vest over a six year period. In January 1996, the Company began matching 20% per annum of the first $1,000 contributed to the plan by each employee. Contributions for the six months ended June 30, 1996 were $9,800. 12. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of accounts receivable. To date, accounts receivable have been derived from revenues earned primarily from banks and other financial institutions located in the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses; historically, such losses have been insignificant and within management's expectations. At December 31, 1995, 31% of accounts receivable was due from one customer. The following table summarizes the percentage contribution of revenues by customer when sales to such customers exceeded 10% of net revenues.
YEAR ENDED DECEMBER 31, ------------------------ 1993 1994 1995 ---- ---- ---- Customer A........................................................... 11% -- -- Customer B........................................................... 13% -- -- Customer C........................................................... 16% -- -- Customer D........................................................... 11% -- -- Customer E........................................................... 18% -- -- Customer F........................................................... 12% -- -- Customer G........................................................... -- 17% 20% Customer H........................................................... -- 10% -- Customer I........................................................... -- 12% -- Customer J........................................................... -- 17% -- Customer K........................................................... -- -- 13%
13. OPERATING LEASES The Company leases certain office space and equipment under non-cancelable operating lease agreements which expire through 2007. Future minimum lease payments at December 31, 1995 for leases with initial terms of one year or more consist of the following: 1996............................................................ $ 504,320 1997............................................................ 508,074 1998............................................................ 461,004 1999............................................................ 81,539 2000 and thereafter............................................. 40,470 ---------- Total minimum lease payments.................................... $1,595,407 =========
Rent expense under all operating leases for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996 was $26,985, $171,346, $398,530, $195,014 and $214,655, respectively. F-14 62 CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. SUBSEQUENT EVENTS In August 1996, the Company entered into a settlement agreement and general release with a former officer of the Company. The agreement provides that the Company will pay the former officer his salary for a period of one year. In addition, the agreement requires the Company to pay the former officer $240,000 if a change in control of the Company occurs before January 18, 1997 or $120,000 if a change in control occurs before July 18, 1997. If an initial public offering of the Company's common stock is consummated prior to a change in control, the agreement provides that the Company will pay the former officer $240,000 if the offering is consummated prior to January 18, 1997 or $120,000 if the offering occurs before July 18, 1997. At the Company's discretion, any payments required to be made to the former officer may be in the form of cash or stock. In August 1996 the Company accrued $240,000 of expense related to this agreement based on the assessment that it is probable that this amount will be due to the former officer. On October 10, 1996, the Board of Directors approved a 32,734 for 1 stock split of the Company's common stock. All references in the accompanying financial statements to share and per share amounts have been retroactively restated to reflect the stock split. F-15 63 =============================================================================== NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 6 Use of Proceeds....................... 14 Dividend Policy....................... 14 Capitalization........................ 15 Dilution.............................. 16 Selected Consolidated Financial Data................................ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 18 Business.............................. 24 Management............................ 36 Certain Transactions.................. 40 Principal and Selling Stockholders.... 41 Description of Capital Stock.......... 42 Shares Eligible for Future Sale....... 43 Underwriting.......................... 45 Legal Matters......................... 46 Experts............................... 46 Additional Information................ 46 Index to Financial Statements......... F-1
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. =============================================================================== =============================================================================== SHARES CREDIT MANAGEMENT SOLUTIONS, INC. [LOGO] COMMON STOCK --------------------- PROSPECTUS --------------------- FRIEDMAN, BILLINGS, RAMSEY & CO, INC. UNTERBERG HARRIS , 1996 =============================================================================== 64 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses and costs (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. All the amounts shown are estimates except for the registration fee, the NASD filing fee and the Nasdaq National Market application fee: Securities and Exchange Commission registration fee............... $ 11,779 NASD filing fee................................................... 4,387 Nasdaq National Market listing fee................................ 20,525 Commissions payable to Graham, Hamilton & Dwyer, Inc.............. 200,000 Legal fees and expenses........................................... 300,000 Blue Sky fees and expenses........................................ 25,000 Accounting fees and expenses...................................... 125,000 Printing and engraving fees....................................... 125,000 Transfer agent and registrar fees................................. 10,000 Miscellaneous..................................................... 78,309 -------- Total................................................... $900,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The Articles of Incorporation of the Registrant, consistent with Maryland law, provides that the Registrant shall indemnify its past, present and future directors and officers from judgments, fines, penalties, settlements and defense costs and expenses (including reasonable attorneys' fees) incurred in threatened, pending or completed actions, suits or proceedings against him or her, whether civil, criminal, administrative or investigative, to which such person was or is a party or threatened to be made a party by reason of his or her being or having been a director or officer of the Registrant or, at the Registrant's request, or any other corporation, partnership or enterprise and from which he or she is not otherwise entitled to be indemnified. The Registrant shall advance expenses in the investigation and defense of any such proceeding, provided the director or officer agrees to reimburse the Registrant if it is found that the director or officer did not act in good faith, that the director or officer did not reasonably believe that his or her acts or omissions were not opposed to the best interests of the Registrant, that the acts or omissions of the director or officer were not the result of active and deliberate dishonesty, or that the acts or omissions of the director or officer did not result in the receipt by him or her of an improper personal benefit. If the director or officer is alleged to have defrauded the Registrant or to have derived an improper personal benefit, no indemnification shall be afforded unless a disinterested majority of the stockholders or of the Board of Directors determines that such indemnification is appropriate or it is adjudged in the proceeding that the director or officer did not defraud the Registrant or receive an improper benefit. (b) The Registrant intends to reincorporate in Delaware prior to the consummation of this Offering. The Registrant's Certificate of Incorporation, together with its Bylaws, will provide that the Registrant shall indemnify officers and directors, and may indemnify its other employees and agents, to the fullest extent permitted by law. The laws of the State of Delaware permit, and in some cases require, corporations to indemnify officers, directors, agents and employees who are or have been a party to or are threatened to be made a party to litigation against judgments, fines, settlements and reasonable expenses under certain circumstances. The Registrant's Certificate of Incorporation will limit the liability of its directors and officers to the fullest extent permitted by the laws of the State of Delaware. Under the Registrant's Certificate of Incorporation, and as permitted by the laws of the State of Delaware, a director or officer will not be liable to II-1 65 the Registrant or its stockholders for damages for breach of fiduciary duty. Such limitations of liability will not affect liability for (i) breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) any transaction from which the director derived an improper personal benefit, or (iv) the payment of any unlawful distribution. Under the form of Underwriting Agreement, to be filed as Exhibit 1.1, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant intends to purchase a general liability insurance policy which covers certain liabilities of directors and officers of the Registrant arising out of claims based on acts or omissions in their capacity as directors or officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In June, 1996, the Option Committee granted stock options to purchase an aggregate of 2,029,900 shares of Common Stock to certain of the Company's executive officers, including Messrs. Alsobrook, Grody, Riordan and Vollono and Ms. Weil (the "Executive Options"). The Executive Options have an exercise price of $5.00 per share and a term of 10 years. The Executive Options vest at a rate of 30% at the time of grant, 20% on each of the first and second anniversaries and 10% on each of the third, fourth and fifth anniversaries of the date of grant, the Option Committee granted 27,360 stock options under the Stock Option Plan (the "October Options"). The October Options have an exercise price of $9.60 per share and vest at a rate of 10% at the time of grant, 20% on each of the second, third and fourth anniversaries of the date of grant and 10% on the fifth anniversary of the date of grant. The Options were granted pursuant to exemption from registration by virtue of Section 4(2) of the Securities Act and Rule 701 promulgated under the Securities Act. Certain Selling Stockholders intend to exercise 100,000 of the Executive Options immediately prior to the consummation of the Offering. Such exercise will result in proceeds to the Company of $500,000. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The Exhibits filed as part of this Registration Statement are as follows:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ -------------------------------------------------------------------------------------------- 1 Form of Underwriting Agreement* 3.1 Certificate of Incorporation of the Company* 3.2 Bylaws of the Company* 4 Specimen certificate for Common Stock of the Company* 5 Opinion of Manatt, Phelps & Phillips, LLP regarding legality of the securities being registered* 10.1 Form of Project Commencement Agreement 10.2 Form of Software License Agreement 10.3 Form of Software Maintenance Agreement 10.4 Form of Professional Services Agreement 10.5 Form of Credit Connection Lender Agreement (for CreditRevue Licensees) 10.6 Form of Credit Connection Lender Agreement (for non-CreditRevue Licensees) 10.7 Form of Credit Connection Dealer Subscription Agreement 10.8.1 Office Building Lease between Symphony Woods Limited Partnership and the Company dated October 29, 1993 10.8.2 Office Building Lease between Symphony Woods Limited Partnership and the Company dated February 10, 1995 10.8.3 First Amendment to Lease dated March 29, 1995 10.8.4 Second Amendment to Lease dated August 12, 1996 10.9 Promissory Note dated December 31, 1995 given by the Company to James R. DeFrancesco 10.10 Business Loan Agreement between The Columbia Bank and the Company dated June 10, 1994 10.11 1996 Credit Management Solutions, Inc. Non-Qualified Stock Option Plan 21 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5)* 24 Power of Attorney (included on Page II-4) 27 Financial Data Schedule
- --------------- * To be filed by amendment. (b) Schedules have been omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. II-2 66 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as a part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-3 67 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Columbia, State of Maryland, on October 11, 1996. CREDIT MANAGEMENT SOLUTIONS, INC. BY: /s/ JAMES R. DEFRANCESCO ----------------------------------- James R. DeFrancesco President and Chief Executive Officer Each person whose signature appears below constitutes and appoints James R. DeFrancesco and Scott L. Freiman, and each of them acting individually or together, as his or her true and lawful attorney-in-fact and agent, with full power of substitution for him or her and in his or her name, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in counterparts. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. /s/ JAMES R. DEFRANCESCO President, Chief Executive October 11, 1996 - --------------------------------------------- Officer and Chairman of the James R. DeFrancesco Board of Directors (Principal Executive Officer) /s/ SCOTT L. FREIMAN Executive Vice President October 11, 1996 - --------------------------------------------- and Director Scott L. Freiman /s/ MILES H. GRODY Senior Vice President, October 11, 1996 - --------------------------------------------- Secretary, General Counsel Miles H. Grody and Director /s/ ROBERT P. VOLLONO Senior Vice President, October 11, 1996 - --------------------------------------------- Treasurer, Chief Financial Robert P. Vollono Officer and Director (Principal Financial and Accounting Officer) /s/ STEPHEN X. GRAHAM Director October 11, 1996 - --------------------------------------------- Stephen X. Graham
II-4 68 EXHIBIT INDEX
PAGE AT WHICH EXHIBIT APPEARS IN EXHIBIT SEQUENTIALLY NUMBER DOCUMENT NUMBERED COPY ------- -------- ------------- 1 Form of Underwriting Agreement*..................................... 3.1 Certificate of Incorporation of the Company*........................ 3.2 Bylaws of the Company*.............................................. 4 Specimen certificate for Common Stock of the Company*............... 5 Opinion of Manatt, Phelps & Phillips, LLP regarding legality of the securities being registered*........................................ 10.1 Form of Project Commencement Agreement.............................. 10.2 Form of Software License Agreement.................................. 10.3 Form of Software Maintenance Agreement.............................. 10.4 Form of Professional Services Agreement............................. 10.5 Form of Credit Connection Lender Agreement (for CreditRevue Licensees).......................................................... 10.6 Form of Credit Connection Lender Agreement (for non-CreditRevue Licensees).......................................................... 10.7 Form of Credit Connection Dealer Subscription Agreement............. 10.8.1 Office Building Lease between Symphony Woods Limited Partnership and the Company dated October 29, 1993.................................. 10.8.2 Office Building Lease between Symphony Woods Limited Partnership and the Company dated February 10, 1995................................. 10.8.3 First Amendment to Lease dated March 29, 1995....................... 10.8.4 Second Amendment to Lease dated August 12, 1996..................... 10.9 Promissory Note dated December 31, 1995 given by the Company to James R. DeFrancesco................................................ 10.10 Business Loan Agreement between The Columbia Bank and the Company dated June 10, 1994................................................. 10.11 1996 Credit Management Solutions, Inc. Non-Qualified Stock Option Plan................................................................ 21 Subsidiaries of the Company......................................... 23.1 Consent of Ernst & Young LLP........................................ 23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5)*................................................................. 24 Power of Attorney (included on Page II-4)........................... 27 Financial Data Schedule.............................................
- --------------- * To be filed by amendment. EX-10.1 2 FORM OF PROJECT COMMENCEMENT AGREEMENT 1 EXHIBIT 10.1 PROJECT COMMENCEMENT AGREEMENT (CMSI CREDITREVUE(R) SOFTWARE) THIS AGREEMENT is made this ______ day of __________________, 1996 (the "Effective Date"), by and between Credit Management Solutions, Inc. ("CMSI"), with its principal place of business at 5950 Symphony Woods Road, Suite 301, Columbia, Maryland, 21044, and _________________ ("Licensee"), with its principal place of business at ____________________________________. BACKGROUND CMSI is the licensor of a proprietary software system utilized for lending purposes named CreditRevue(R), including various CMSI proprietary optional software packages, some of which may be referred to by another name (CreditRevue(R) and such optional software packages are hereinafter referred to collectively as the "Software"). Licensee is a financial institution which intends to enter into a license agreement and a maintenance agreement with CMSI for the Software, including various system options and customizations. The system options and customizations which will be contained in the initial Software package to be licensed by Licensee shall be outlined in the Functional Specifications document to be developed by CMSI and agreed to by Licensee during the term of this Agreement. Additionally, CMSI shall develop with Licensee's cooperation a Project Plan Schedule for implementation of the Software system by Licensee, and CMSI and Licensee shall negotiate pricing for Licensee's customized version of the Software, during the term of this Agreement. During the term of this Agreement, CMSI may make the Software available to Licensee, solely for development and project planning purposes, and CMSI shall devote the resources necessary to prepare the Functional Specifications and to perform such other tasks as may reasonably be appropriate so that the parties can finalize and execute a definitive CreditRevue(R) Software License Agreement (the "License Agreement") and a definitive CreditRevue(R) Software Maintenance Agreement (the "Maintenance Agreement"). CMSI and Licensee anticipate that they shall execute the License Agreement and Maintenance Agreement, permitting Licensee to utilize the Software for production purposes, within sixty (60) days after the Project Commencement Date (as defined below). Neither the Software, nor any associated third party software provided by CMSI and used in conjunction with the Software, shall be available to Licensee or its Affiliates for production purposes until after such time as the License Agreement and Maintenance Agreement are executed. For the purposes of this Agreement, "Affiliate" shall mean any person or entity (i) that owns more than fifty percent (50%) of the voting capital stock of Licensee, or (ii) more than fifty percent (50%) of whose voting capital stock is owned by Licensee, or (iii) more than fifty percent (50%) of whose voting capital stock is owned by another person or entity that at such time owns more than fifty percent (50%) of the voting capital stock of Licensee. A person's or entity's status as an Affiliate shall terminate if it undergoes a change in ownership such that it no longer satisfies the common ownership provisions of the previous sentence. TERMS AND CONDITIONS 1. This Agreement will be for a ________________________ (___) concurrent user Software system. Upon execution of this Agreement, Licensee will make an initial payment to CMSI of $________________________ (the "Initial Payment") in compensation for its development of the Functional Specifications and related efforts hereunder. CMSI and Licensee agree that the full pricing for a production license for a ________________________ (___) concurrent user Software system to Licensee shall be finalized upon the completion of the Functional Specifications document, if not earlier, and will be dependent upon Licensee's customization requirements for the Software. In the event that any specific Affiliate or group of Affiliates requests CMSI to perform customization services specific to their particular requirements, such Affiliate or group of Affiliates shall not be required to acquire a separate license to the Software, but CMSI reserves the right to charge its standard project fees as if such customizations represented a new and independent project. 2. Licensee acknowledges that CMSI shall not start work under this Agreement upon the Effective Date. Instead, CMSI shall notify Licensee in writing of the date upon which it shall commence work (the "Project Commencement Date"), and in no event shall the Project Commencement Date be later than ________________, 1996. Upon the Project Commencement Date, CMSI will begin working with Licensee on the Functional Specifications document, the negotiation of final pricing, and a Project Plan Schedule for the implementation of the Software at Licensee's designated 2 site(s). CMSI shall proceed with the development of the Functional Specifications in a diligent manner and shall use all reasonable efforts to allocate such skilled personnel and other resources to the project as shall be necessary to complete the Functional Specifications within sixty (60) days of the Project Commencement Date. Licensee shall provide all information, assistance and decisions reasonably requested by CMSI in a timely fashion so as to not inhibit CMSI's ability to complete the Functional Specifications within sixty (60) days of the Project Commencement Date, and Licensee acknowledges that the period for completing the Functional Specifications may be extended to the extent that Licensee's failure to meet this obligation causes project delay(s) Additionally, CMSI and Licensee agree to promptly begin and proceed with good faith negotiations and the finalization of the License Agreement and Maintenance Agreement. Such agreements and documentation shall include the applicable terms and conditions set forth in this Agreement and in Exhibit A attached hereto, unless otherwise agreed in writing by the parties. Upon their execution, the License Agreement and Maintenance Agreement shall supersede the terms of this Agreement. 3. If the Functional Specifications document has not been completed and/or approved by Licensee within sixty (60) days following the Project Commencement Date for reason other than CMSI's failure to perform as required in Section 2 above, and Licensee does not provide CMSI with written notice of its intent to terminate this Agreement, then CMSI shall be entitled to additional compensation for continued work that it performs on the Functional Specifications and the Software. Such additional compensation shall be in the amount of $30,000.00 per month, commencing with the period beginning sixty (60) days after the Project Commencement Date. CMSI shall invoice Licensee monthly in arrears for any such additional compensation. Upon execution of a document which constitutes final written agreement with respect to the License Agreement and Maintenance Agreement and such other documentation prepared in accordance with this Agreement, and final pricing for the Software, CMSI shall credit Licensee under the License Agreement for the Initial Payment. If the parties fail to reach final agreement on the License Agreement, Licensee's sole liability to CMSI in connection with the matters set forth in this Agreement shall be the Initial Payment and any monthly payments paid and/or owed to CMSI under this Section 3 prior to the termination of this Agreement. In the event of any such failure to reach agreement on the License Agreement, CMSI shall have no further obligation toward Licensee with respect to the Functional Specifications and Software, Licensee's rights to review or utilize the Functional Specifications and Software shall terminate, and Licensee shall promptly upon CMSI's request return to CMSI all copies of (i) the Software, (ii) any associated third party software provided by CMSI and used in conjunction with the Software, (iii) the Functional Specifications, and (iv) any other documentation relating thereto. Licensee's failure to make payments when due under this Agreement and not to cure such failure within ten (10) days after written notice from CMSI shall constitute a breach hereof, entitling CMSI in its discretion to terminate this Agreement. 4. The parties hereto recognize that as a result of the arrangements contemplated hereby, both parties will have access to, will acquire, and will assist in developing confidential and proprietary information relating to the business and operations of the other party and its affiliates, including without limiting the generality of the foregoing, information systems and customers. The parties acknowledge that such information has been and will be of central importance to each parties' business and that disclosures of it or its use by others could cause substantial loss to the other party. Each party accordingly agrees that it will keep confidential any trade secrets or confidential or proprietary information of the other party that it may gain access to as a result of its association with the other party, and shall not at any time directly or indirectly disclose such information to any person, firm, or corporation, or use the same in any way other than as necessary in connection with the arrangements contemplated by the Agreement. The foregoing shall not prohibit or limit the use by either party hereunder of purportedly proprietary or confidential information of the other party (i) independently developed by the party using it, (ii) rightfully previously known or acquired by the party using it from a third party without continuing restriction on use, or (iii) which is or becomes part of the public domain through no breach of this Agreement by the party using it. Moreover, it is understood by the parties that CMSI has performed substantial independent development relating to computer technology and associated products. Neither this Agreement nor receipt by CMSI of any confidential or proprietary information of Licensee will limit CMSI's independent development and marketing of products or systems involving technology or ideas similar to those disclosed to it pursuant to this Agreement, nor will receipt by CMSI of such information hereunder prevent CMSI from undertaking similar efforts or discussions with third parties, including but not limited to competitors of Licensee. 5. Licensee represents and warrants that, with respect to all material and information which Licensee discloses to CMSI in connection with CMSI's development of the Functional Specifications document or other services performed by CMSI hereunder (such material and information hereinafter referred to as "Licensee Provided Information"), that Licensee either (i) owns all right, title, and interest in the Licensee Provided Information and is authorized to disclose same to CMSI for use in any way in connection with this Agreement; or (ii) is otherwise authorized to disclose same to CMSI, for use in any way in connection with this Agreement. 2 3 6. Each party agrees that in the event of a breach by it (including its employees or agents) of the provisions of this Agreement, the other party may have no adequate remedy in money or damages and, accordingly, shall be entitled to seek an injunction against such breach, in addition to any other legal or equitable remedies available to the non-breaching party. 7. Each party agrees that the failure of the other party to enforce at any time any of the provisions of this Agreement or any rights with respect thereto or to exercise any election herein provided shall in no way be considered a waiver of such provisions, rights or elections or in any way affect the validity of this Agreement. The exercise by either party of any of its rights herein shall not preclude or prejudice that party from exercising any other right it may have under this Agreement, irrespective of any previous action or proceeding taken by that party hereunder. 8. In the event that any provision of this Agreement is determined by any judicial body to be invalid and unenforceable, such provision shall be construed to be enforceable to the maximum extent permitted by the law. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 9. Licensee shall reimburse CMSI for its reasonable travel and related expenses incurred in connection with the services provided during the term of this Agreement. 10. Licensee is responsible for all taxes and duties based upon amounts payable hereunder (exclusive of taxes based upon the net income of CMSI). 11. The provisions set forth in Sections 3, 4, 6 and 12 of this Agreement shall survive the termination of this Agreement, unless and until such sections are superseded by corresponding provisions in the executed License Agreement and Maintenance Agreement. 12. This Agreement shall be governed and construed in accordance with the laws, other than choice of law rules, of the State of Maryland, and shall benefit and be binding upon the parties hereto and their respective successors and assigns. Accepted and Agreed by: Accepted and Agreed by: CREDIT MANAGEMENT SOLUTIONS, INC. ----------------------------- ("CMSI") ("Licensee") - ------------------------------------ ----------------------------- Signature Signature - ------------------------------------ ----------------------------- Print Name/Title Print Name/Title - ------------------------------------ ----------------------------- Date Date 3 EX-10.2 3 FORM OF SOFTWARE LICENSE AGREEMENT 1 EXHIBIT 10.2 SOFTWARE LICENSE AGREEMENT This Agreement is made as of the __ day of _______, 1996 by and between Credit Management Solutions, Inc. ("CMSI"), with its principal place of business at 5950 Symphony Woods Road, Suite 301, Columbia, Maryland 21044 and ______________________________________________ ("Licensee"), with a place of business at ______________________________________________. Sections 1 through 14 of this Agreement are hereinafter referred to as the "General Terms and Conditions" and are fully applicable to every Exhibit or Schedule attached to this Agreement, which Exhibits and Schedules are hereby incorporated into this Agreement by reference. This Agreement will commence on the date first above written (the "Effective Date") and will remain in force for as long as any Schedule or Exhibit to this Agreement remains in effect. CMSI and Licensee hereby agree as follows: 1. Generally. Licensee operates a data processing facility and wishes to obtain a license to and operate the Software (as defined below) in accordance with the terms and conditions of this Agreement. 2. Definitions. The definitions set forth below will govern the meaning of the capitalized terms used in the Agreement. (a) "Acceptance Date" means the earlier of (i) the date on which the Licensee determines if the product(s) delivered are operational on Licensee's premises and provide the functionality for which they were intended in accordance with Section 3 of Exhibit B hereto, or (ii) the date on which Licensee begins to utilize the Software for production purposes. (b) "Authorized Affiliate" means any person or entity (i) that owns more than fifty percent (50%) of the voting capital stock of Licensee, or (ii) more than fifty percent (50%) of whose voting capital stock is owned by Licensee, or (iii) more than fifty percent (50%) of whose voting capital stock is owned by another person or entity that at such time owns more than fifty percent (50%) of the voting capital stock of Licensee. For the purposes of establishing the rights and obligations of Authorized Affiliates under this Agreement, a person or entity shall be considered an Authorized Affiliate only so long as it continues to satisfy the criteria for an Authorized Affiliate established in this Subsection 2(b). (c) "Documentation" means the standard Software operating and training manuals and any written functional specifications relating to the Software provided by CMSI to Licensee, plus any modifications, updates or revisions to such documents that may be provided by CMSI to Licensee from time to time. (d) "Equipment" means the computer hardware equipment and/or operating system software identified in Exhibit B. (e) "Implementation Schedule" means a detailed schedule attached and included as part of the functional specifications document which sets forth the timeframes for installing and implementing the Software at the Site, including Licensee's obligations with respect to (i) ensuring that the appropriate Equipment and facilities are available and prepared, and (ii) making all other decisions, which are a prerequisite to CMSI completing its tasks within the timeframes specified in the Implementation Schedule. (f) "Installation Date" for an item of Software means either (i) the date on which such Software has been installed by CMSI on the Equipment or (ii) if Licensee performs such installation, two days after such Software has been sent by CMSI to Licensee. (g) "Licensed Products" means the Software and the Documentation. (h) "Licensee" means the entity designated in the introductory paragraph above, exclusive of any other entities. (i) "Licensee Enhancements" means any modifications, enhancements or alterations to the Licensed Products made by Licensee independently of CMSI. (j) "Site" means the physical location(s), specified in Exhibit B hereto, of the Equipment on which the Software will be installed. The Site must at all times be located within the United States. 2 (k) "Software" means the computer programs identified in Exhibit A hereto in object code, machine readable form only, any customization of such programs, and any enhancements, update or upgrades thereto. (l) "Source Code" means the Software programs which are in a form that is human readable and maintainable. 3. License. (a) In accordance with the terms of this Agreement, CMSI grants, and Licensee accepts, a non-exclusive and non-transferable license to use the Licensed Products within the United States on the Equipment at the location(s) specified in Exhibit B for its own internal business purposes and the internal business purposes of Authorized Affiliates, and to permit its employees, or its agents (and employees or agents of Authorized Affiliates) to interact with the Software through remote computer terminals. Use of the Software for the internal business purposes of Licensee and Authorized Affiliates means that the Software may be used to support Licensee's core line of business, but the Software may not be used in a service bureau or similar environment for the purpose of supporting a core line of business of any third party. Software for use on a network system or other multi-user environment may be used on only the number of terminals or workstations designated herein. This license specifically does not include any grant of rights to Licensee to write or otherwise utilize programs, other than those specifically authorized by CMSI, which assign or introduce data to the Software's database. Licensee may prepare two backup copies of the Software and Documentation so long as such copies contain the proprietary notices appearing on the copies initially furnished to Licensee. Unless otherwise specified in this Agreement, Software shall be installed at the Site(s) (as established in Exhibit B hereto) on any computer system(s) with no more than the number of concurrent users specified in Exhibit A. Licensee shall ensure that all Authorized Affiliates, and their employees and agents, comply with the terms and conditions of this Agreement and the obligations of Licensee hereunder. (b) CMSI retains all rights to the Licensed Products not specifically granted to Licensee under this Agreement. All revisions, modifications and derivative works to the Software, Documentation or Source Code developed by CMSI or any other party, including all updates, enhancements or modifications to the Licensed Products, and all Licensee Enhancements, will be the sole and exclusive property of CMSI and will be subject to all of the use and nondisclosure restrictions which apply to the Licensed Products under this Agreement. Licensee agrees to assign to CMSI in writing any proprietary interest which may be conferred upon Licensee by law in any such revisions, modifications, derivative works or Licensee Enhancements. (c) The license to the Software granted hereunder specifically excludes the right to use the Software to interface with the Internet or otherwise receive applications or any other information related to credit underwriting, by means of the Internet or any third party provider. If Licensee desires to expand its license to include such right, such right shall be subject to mutual written agreement between the parties. (d) If CMSI incorporates the software of any third parties in the Software, those third parties will be entitled to the benefit of the obligations incurred by Licensee under this Agreement with respect to the use and protection of such third-party software. Licensee also agrees to comply with the terms and conditions of any third party from which Licensee obtains software for use in connection with its use of the Software, including, but not limited to, any obligations of confidentiality or nondisclosure by which Licensee may be bound with respect to the software of such third party. 4. Object Code Rights and Source Code Escrow. (a) This is an object code only license, and entitles Licensee to utilize the Software in object code, machine readable format. Licensee may write independent routines that access the Software's database provided that such routines are restricted to read-only access to the database. Licensee is not entitled under this Agreement to obtain the Source Code unless (i) CMSI and Licensee agree in writing to amend this Agreement to allow Licensee to access the Source Code, and Licensee agrees to pay all additional fees and to observe all limitations with respect to the Source Code required by CMSI, or (ii) a Source Code release condition, as specified in Section 4(b) below, occurs and Licensee requests a copy of the Source Code. (b) CMSI will escrow with Fort Knox Secured Data the Source Code in machine readable form of the then-current version of CreditRevue on or before six (6) months following the Acceptance Date. For the term of this Agreement, CMSI will escrow the Source Code of the then-current version of CreditRevue and any subsequent scheduled releases of Software within sixty (60) days of the release date. In the event of CMSI's insolvency or bankruptcy, or involvement in an involuntary proceeding for protection of its creditors, whereby CMSI can no longer satisfy its obligation to support Licensee under the Software Maintenance Agreement, a copy of the escrowed material shall be delivered to Licensee on Licensee's demand following Licensee's payment of the escrow agent's reasonable material and processing costs. CMSI's obligations under this 2 3 Section 4(b) are conditional upon the execution of an appropriate Source Code Escrow Agreement by CMSI, Licensee and Fort Knox Secured Data and Licensee's timely payment to Fort Knox Secured Data of all fees required thereunder. (c) In the event that Licensee does obtain the Source Code in accordance with the terms of this Agreement, the Source Code will be subject to all of the terms and conditions of this Agreement relating to the Software and will be subject to the following additional restrictions: (i) the Source Code may be used by Licensee only at the Site, for the sole purpose of maintaining the Software and its use in accordance with the scope of license granted under Section 3 above, (ii) the Source Code may not be used to develop interfaces to or from any third party systems which are not licensed by Licensee and utilized by Licensee in its internal credit underwriting and credit application processing operations, (iii) the Source Code may not be used for developing any system intended to perform the same or similar functions to the Software, and (iv) the Source Code must be maintained in a locked and secure area, and will be made available only to those employees of Licensee who both (1) have significant data processing responsibilities relating to Licensee's business and (2) have agreed to the confidentiality and proprietary provisions of this Agreement. Licensee will be responsible for compliance by its employees with the terms and conditions of this Agreement. Any customizations of the Software by Licensee utilizing the Source Code shall be included under the definition of Licensee Enhancements. Licensee is not obligated to share any such Licensee Enhancements with CMSI. The foregoing notwithstanding, CMSI shall be the sole owner of all Licensee Enhancements. Licensee acknowledges that CMSI will not support any Licensee Enhancements through services provided under the Software Maintenance Agreement executed by Licensee and CMSI for support of the Software. Licensee agrees to indemnify and hold CMSI harmless against any claim (including all costs, damages and attorneys' fees) by any third party alleging that the Licensee Enhancements infringe a patent or copyright in the United States. 5. Delivery, Installation and Training. Licensee is responsible for preparing and maintaining the Site and installing the Equipment in accordance with the specifications of the appropriate suppliers, and is responsible for supplying all hardware on which the Software is operated and all related software programs, operating systems, program languages and utility programs necessary for the proper operation of the Software, including, but not limited to, the proper maintenance and performance of such items. Unless otherwise specified in Exhibit B, the Software and Documentation will be delivered to the Site by physical delivery of an electronic medium containing the Software in object code form with the serial number and release number as indicated in Exhibit A, and Licensee will thereafter install the Software by having the medium read into the host computer at the Site. CMSI will provide Licensee with training concerning the use of the Software in accordance with Exhibit B, at such mutually convenient times and places as are agreed upon by the parties. Licensee will be responsible for converting (at its own expense) its existing data into the form required by the Software. 6. Payments and Payment Terms. CMSI's obligations and Licensee's rights under this Agreement are conditional upon Licensee's payment of the fees and other charges described in this Agreement. Amounts payable by Licensee to CMSI under this Agreement are due and payable on the date specified in Exhibit A of this Agreement or, if not specified, thirty (30) days after the date of the invoice. Late payments will bear interest at the lesser rate of one and one half percent (1 1/2%) per month on the unpaid amount for each month (or fraction thereof) that such amount remains unpaid or the maximum rate permitted by law. Licensee is responsible for all taxes and duties based upon amounts payable hereunder (exclusive of taxes based upon the net income of CMSI) and upon Licensee's ownership of the license, use or possession of the Licensed Products. 7. Protection of Proprietary Rights. (a) Licensee acknowledges (i) that the Licensed Products are valuable confidential and proprietary property belonging to CMSI or to third parties who have granted CMSI the right to distribute such property, and (ii) that by receiving access to the Licensed Products, Licensee is entering into a relationship of trust and confidence with CMSI pursuant to which Licensee agrees to take such steps as are necessary to preserve the confidential and proprietary nature of the Licensed Products. Licensee will use, copy and disclose the Licensed Products only as permitted under Sections 3 and 4 above, will grant access to the Licensed Products only to those employees or agents of Licensee or Authorized Affiliates on a "need to know" basis, and will ensure that any persons or entities receiving such access are obligated to protect the Licensed Products in a manner consistent with the terms of this Agreement. Except as expressly permitted herein, Licensee agrees that it will not, at any time, without written permission of CMSI, (i) copy, duplicate or permit any other person, corporation or entity to copy or duplicate the Licensed Products or any part thereof; (ii) create, attempt to create, or permit others to create or attempt to create the source program and/or object program associated with the Software which may be licensed under this Agreement; (iii) use the Software or any part thereof, on any computer other than the Equipment or at the Site specified in Exhibit B; or (iv) decompile, disassemble or reverse engineer the Software for the purpose of revealing the proprietary information contained therein or otherwise use the Licensed Products to develop functionally similar computer software or modify, alter or delete any of the copyright notices embedded in or affixed to the copies of the Licensed Products, or permit any third party to do any of the foregoing. Licensee will notify CMSI promptly of any violation of CMSI's proprietary rights in the Licensed Products of 3 4 which Licensee becomes aware and will assist CMSI as necessary to remedy the violation. Licensee agrees at CMSI's request (and, if not occasioned by Licensee's or any Authorized Affiliate's breach of this Agreement, at CMSI's expense) to institute legal proceedings and/or to join in any lawsuit or other action by CMSI against any such third party to enforce these provisions, to cooperate fully with CMSI in such litigation, and to permit CMSI to assume exclusive control of all aspects of such suit or action. (b) Licensee agrees that it shall protect the confidentiality of the terms of this Agreement, including without limitation all terms relating to pricing and payments, and that it shall not disclose the terms of this Agreement to any third party, or to any of its own employees or agents without a need to know. 8. Licensee Responsibilities. (a) In order to enable CMSI to more effectively perform its obligations under this Agreement, within ten (10) days after the Effective Date of this Agreement Licensee will designate a "Licensee Representative" who will be authorized to make decisions, approve plans and grant requests on behalf of Licensee in connection with CMSI's performance. Licensee agrees to provide CMSI with access to Licensee's computer system and Licensee's facility together with adequate working space at all reasonable times to enable CMSI to perform its obligations, and to cooperate fully with CMSI by making available to CMSI Licensee information, resources and personnel reasonably required by CMSI to perform its obligations hereunder. Licensee shall reimburse CMSI for its reasonable travel and related expenses incurred in connection with this Agreement. Licensee will be responsible for, and will use its best efforts to keep and maintain, backup copies of its files and information which it uses in conjunction with the Licensed Products. Licensee agrees that, commencing on the Acceptance Date and throughout the entire term of this Agreement it shall maintain a current Software Maintenance Agreement with CMSI for support of the Software, and that the License granted hereunder shall terminate automatically if and when such Software Maintenance Agreement is terminated. (b) Licensee represents and warrants, with respect to all material and information which Licensee discloses to CMSI in connection with CMSI's customization and/or enhancement of the Licensed Products or which Licensee utilizes in connection with the development of any Licensee Enhancements (such material and information hereinafter referred to as "Licensee Provided Information"), that Licensee either (i) owns all right, title, and interest in the Licensee Provided Information and is authorized to disclose same to CMSI for use in any way in connection with, or incorporation into, the Licensed Products; or (ii) is otherwise authorized to disclose same to CMSI, for use in any way in connection with, or incorporation into, the Licensed Products. Licensee agrees to indemnify CMSI and hold CMSI harmless from any loss or damage (including, but not limited to, reasonable attorney's fees and costs and any amounts agreed to pursuant to a settlement agreement) stemming from any suit or proceeding brought against CMSI, insofar as such suit or proceeding is based upon a claim that the Licensed Products infringe or constitute wrongful use of any patent, copyright, trade secret or other right of any third party, and provided that the third party right allegedly infringed by the Licensed Products and/or CMSI relates to goods or services that were the subject matter of the Licensee Provided Information. 9. Infringement Claims of Third Parties. (a) At its own expense, CMSI will defend Licensee against any claim by any third party alleging that the Software infringes a patent or copyright in the United States, and CMSI will pay all costs, damages and attorneys' fees finally awarded to any such third party in any resulting infringement action (or such amounts as may be agreed upon by CMSI in any settlement), provided that Licensee provides prompt written notice to CMSI of such claim, and allows CMSI sole control of, and fully cooperates with CMSI in, the defense of such claims and all related negotiations. (b) CMSI's obligations under this Section 9 are conditional upon Licensee's agreement that if the Software is, or in CMSI's opinion is likely to become, subject to a claim of infringement, CMSI, at its option and expense, may either (i) procure for Licensee the right to continue using the Software; or (ii) replace or modify it to make it non-infringing in a manner that does not materially impair its functionality, or (iii) if none of the foregoing alternatives reasonably is available to CMSI, Licensee will cease using such Software and return it to CMSI, and CMSI will refund to Licensee the amount computed by amortizing the Software evenly over a five (5) year period commencing upon the Effective Date of this Agreement. CMSI will also refund the unused portion of any maintenance and support fees prepaid by Licensee. (c) CMSI will have no obligation with respect to any actual or threatened infringement claim based in whole or in part upon (i) Licensee Enhancements, (ii) Licensee's failure to use all enhancements, updates, upgrades or modifications to the Licensed Products offered by CMSI, (iii) Licensee's failure to use the Licensed Products in accordance with this Agreement or 4 5 (iv) Licensee's combination, operation, or use of the Licensed Products with non-CMSI software. Licensee shall indemnify and hold CMSI harmless from any damages, losses or costs associated with such claims. (d) This Section states CMSI's entire obligation to Licensee with respect to actual or threatened third-party infringement claims. 10. Software Warranties. (a) CMSI warrants that for ninety (90) days after the final Acceptance Date, the Software identified in Exhibit A will function in all material respects as specified in the Documentation. If Licensee notifies CMSI in writing during such ninety (90) day period that any such program does not function as warranted, CMSI, at its expense, will use its best efforts to confirm the existence of and correct any reported nonconformity. (b) During the warranty period described in Section 10(a) above, Licensee will provide CMSI remote access to the Software through a dial-up communication line (consistent with the method established in Section 2(b) of the Software Maintenance Agreement) so that CMSI may provide warranty assistance both on-site at the facility and remotely from CMSI's facility. Updates and new releases of Software are not included in warranty service. Updates and new releases of the Software will be offered to Licensee separately under CMSI's maintenance agreement(s). (c) The foregoing warranty does not apply to the failure of the Software to perform as warranted (i) because of any of the conditions set forth in Section 9(c) above or any Licensee Enhancements, (ii) for purposes or uses outside of the specifications for the Software, (iii) because of its operation on equipment which is operating outside of the environmental requirements of the equipment manufacturer or which is operating improperly due to Licensee's failure to maintain the equipment appropriately or other improper care of the equipment, or (iv) on account of failures caused by catastrophe, misuse, abuse, accident or negligence of Licensee, or other problems not directly related to the Licensed Products or any services provided by CMSI. Licensee will perform reasonable problem determination procedures before calling CMSI. (d) If during the warranty period Licensee desires correction of any problems which are not covered by the warranty set forth above, CMSI will, subject to personnel availability, make every reasonable effort to correct such problems, and will be compensated at its then current time and materials rates for performing such corrective services. (e) THE WARRANTIES SET FORTH IN SECTION 10(a) ARE IN LIEU OF, AND CMSI HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE LICENSED PRODUCTS, EQUIPMENT, AND ANY OTHER MATERIALS, PRODUCTS OR SERVICES PROVIDED UNDER THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 11. Limitation of Liability. (a) CMSI'S LIABILITY TO LICENSEE WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WILL BE LIMITED TO THE CHARGES ACTUALLY PAID BY LICENSEE UNDER THIS AGREEMENT FOR THE PORTION OF THE SOFTWARE TO WHICH SUCH LIABILITY RELATES. IN NO EVENT WILL CMSI BE LIABLE TO LICENSEE FOR LOST PROFITS, LOST SAVINGS, LOSS OF USE, LOSS OF DATA, OR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY THIRD PARTY CLAIM AGAINST LICENSEE IN CONNECTION WITH OR CONCERNING THE LICENSED PRODUCTS OR ARISING OUT OF OR IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT. (b) Licensee is solely responsible for operating the Software and for the accuracy and adequacy of information and data furnished for processing. Licensee will have full responsibility for any decisions and/or analyses in which any element of the Software may be used or relied upon. Any reliance by it upon the Software will not diminish that responsibility, and Licensee agrees to hold CMSI harmless from, and indemnify it against, all claims, expenses, losses or liabilities (including legal fees) in connection with any claim by any third party relating to any decisions or analyses made by Licensee while using the Software. (c) No action, regardless of form, arising out of the transactions under this Agreement may be brought by either party more than two (2) years after the cause of action has arisen. 5 6 12. Default and Termination. CMSI may terminate this Agreement immediately by giving Licensee written notice of termination if Licensee breaches any of its obligations under Section 7 above or Section 13 below to protect CMSI's proprietary information. CMSI may terminate this Agreement upon thirty (30) days prior written notice if Licensee fails to make any payment hereunder when due and such failure is not corrected following CMSI's notice to Licensee of such delinquency. Either party may terminate this Agreement ninety (90) days after written notice of a material breach of this Agreement by the other party which remains uncured after such ninety (90) day period or, with respect to those defaults which cannot reasonably be cured within ninety (90) days, if the defaulting party fails to proceed within ninety (90) days to commence curing the default and to proceed with all due diligence substantially to cure the same, then the party not in default may terminate this Agreement by providing the defaulting party with a written termination notice. Upon termination of this Agreement, Licensee will cease using and return to CMSI the Licensed Products, including all Licensee Enhancements, and all CMSI proprietary information then in its possession. The right of either party to terminate this Agreement under this Section 12 will not be deemed to be an exclusive remedy, and each party will be entitled to such other rights and remedies as are available to it at law or in equity, subject to the limitation of liability provisions contained herein. 13. Non-Disclosure of Proprietary Information. In addition to the obligations established under Section 7 above, Protection of Proprietary Rights, CMSI and Licensee accept the obligations set forth in this Section 13. For the purposes of this Section 13, "disclosing party" shall mean the party which discloses its own confidential information to the other party, and "recipient party" shall mean the party receiving such confidential information. (a) During the term of this Agreement either party may have access to confidential information regarding the other party (including Authorized Affiliates). The recipient party agrees that it shall (i) maintain in confidence all of the disclosing party's confidential information (ii) not disclose any of the disclosing party's confidential information to anyone except the recipient party's employees authorized to receive it and third parties to whom such disclosure is specifically authorized in writing by the disclosing party, and (iii) not to use the disclosing party's confidential information for any purpose other than that for which it is disclosed. (b) Information considered confidential may include, without limitation, (i) matters of a technical nature such as trade secret processes or devices, data formulas, inventions, specifications, (ii) matters of a business nature such as information about costs, profits, pricing policies, markets, sales, suppliers, customer lists, employees, product plans and marketing plans or strategies, (iii) other information of a similar nature not generally disclosed by a party to the public; and (iv) confidential information of a party's customers and/or third parties disclosed to a party under a non-disclosure agreement. (c) The foregoing shall not prevent a party from disclosing information that belongs to the other party that is (i) already known by the recipient party without an obligation of confidentiality, (ii) publicly known or becomes publicly known through no unauthorized act of the recipient party, (iii) rightfully received from a third party, (iv) independently developed by the recipient party without use of the other party's information, (v) disclosed without similar restriction to a third party by the party owning the information, (vi) approved by the other party for disclosure, or (vii) required to be disclosed pursuant to a requirement of a governmental agency or law so long as the disclosing party provides the other party with prompt written notice of such requirement prior to any such disclosure. (d) Upon the termination of this Agreement and/or the license granted hereunder, will promptly return all documentation relating to the Proprietary Information received in tangible form to CMSI, and shall certify to CMSI that all Proprietary Information in tangible form (including all copies thereof) has been either returned to CMSI or destroyed. 14. Miscellaneous. (a) Maintenance Services. CMSI will provide maintenance services to Licensee under a separate agreement for such services (i.e., the Software Maintenance Agreement), which Licensee must execute concurrently with this Agreement, and which must remain in effect during the entire term of this Agreement in accordance with Section 8 above, Licensee Responsibilities. (b) Entire Agreement; Waiver, Modifications and Amendments; Headings. This Agreement is the entire agreement between the parties with respect to the subject matter hereof, and there are no other terms or conditions, expressed or implied, written or oral. This Agreement supersedes all prior oral or written representations, agreements, promises, or other communications, concerning or relating to the subject matter of this Agreement. This Agreement may not be amended or 6 7 modified except by a written agreement signed by authorized representatives of each party. The failure of CMSI or Licensee in any one or more instances to insist upon strict performance of any of the terms or provisions of this Agreement will not be construed as a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or provisions on any future occasion. No terms or conditions of any Licensee purchase order or other form will be effective as a modification of the terms and conditions of this Agreement. The headings in this Agreement are for convenience only and do not affect the meaning of this Agreement. (c) Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, such provision or requirement will be enforced only to the extent it is not in violation of such law or is not otherwise unenforceable and all other provisions and requirements of this Agreement will remain in full force and effect. (d) Force Majeure. Neither party will be liable for any delay or failure of performance resulting from causes beyond its control and without its fault or negligence. (e) Notices. Each party shall promptly notify the other party in writing of any claims, demands or actions having any bearing on this Agreement. Whenever under this Agreement one party is required or permitted to give notice to the other, such notice shall be deemed given when (i) delivered in hand and a receipt or other certification of delivery is obtained, or (ii) upon receipt when mailed by registered or certified United States mail, return receipt requested, postage prepaid, or when sent by a reputable courier service with package tracing capabilities sufficient to ensure that delivery has occurred. Notices shall be addressed as follows: In the case of CMSI: Credit Management Solutions, Inc. 5950 Symphony Woods Road, Suite 301 Columbia, MD 21044 ATTN: President (with a copy to General Counsel) In the case of Licensee: ________________________________ ________________________________ ________________________________ ATTN:___________________________ Either party hereto may from time to time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. (f) Successors and Assigns. This License Agreement may not be assigned by Licensee without the prior written consent of CMSI, and any attempted unauthorized assignment will be void. No assignment will relieve Licensee or the assignee of its obligations under this Agreement. (g) Nondisclosure. Neither party, without the prior written consent of the other, will disclose the terms and conditions of this Agreement or disclose any information concerning the details of this Agreement, except as may be required for internal corporate, accounting or legal review or as required by law, and shall exercise all reasonable efforts to limit any such disclosures to the maximum extent possible. (h) Independent Contractors; Third Party Beneficiaries. CMSI will perform all services under this Agreement as an independent contractor and not an agent, employee, partner, or joint venture of or with Licensee. No person or entity not a party hereto, including but not limited to Licensee clients, will be deemed to be a third party beneficiary of this Agreement or any provision hereof. (i) Hiring Restriction. Licensee agrees that, during the term of this Agreement and for twenty-four (24) months thereafter, neither it nor any of its subsidiaries or affiliates shall, except with the prior written consent of CMSI, offer employment to or employ any person employed then or within the preceding twenty-four (24) months by CMSI or any subsidiary or affiliate of CMSI. 7 8 (j) Formal Negotiations. The parties hereto this Agreement represent and warrant that formal contract licensing and contract negotiations between the parties including, but not limited to, computer hardware equipment, software and related services, have not been undertaken prior to January 27, 1993. (k) Survival of Confidentiality and Payment Provisions. All provisions of this Agreement relating to the protection or non-disclosure of a party's confidential or proprietary information, and to payment obligations incurred prior to the termination of this Agreement, shall survive the termination or expiration for any reason of this Agreement. (l) Section Headings. The captions to sections of this Agreement are for convenience of reference only and do not in any way limit or amplify the terms or conditions hereof. (m) Audit Rights. CMSI, or any agent duly authorized by CMSI, shall have the right upon thirty (30) days prior written notice to Licensee once every six (6) months to review Licensee's data processing environment and related records for the sole purpose and to the extent necessary to ensure Licensee's compliance with the terms of this Agreement. Such review(s) shall be conducted at CMSI's own expense. Licensee agrees to cooperate with CMSI in all reasonable respects regarding such review(s) and to provide CMSI with appropriate access to its data processing equipment and all reasonably necessary documentation related thereto. In the event that Licensee has been utilizing the Software beyond the scope of the license granted hereunder, (i) Licensee shall immediately upon notice from CMSI cease using the Software except as permitted within the scope of the license granted hereunder, (ii) Licensee shall pay CMSI as liquidated damages for the unauthorized use of the Software an amount equal to the license fees that would have been charged by CMSI if Licensee (or, if applicable, any third party that Licensee has permitted to access the Software without authority) had purchased a license(s) that would have included within its scope such use of the Software (such amount to be determined in accordance with CMSI's then current standard licensing practices), and (iii) Licensee shall promptly reimburse CMSI for all of its documented and reasonable costs incurred in connection with the review. (n) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, exclusive of its choice of law rules. The parties agree that any disputes under this Agreement shall be submitted for adjudication in the State or Federal courts located within Howard County, Maryland. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CREDIT MANAGEMENT SOLUTIONS, INC. -------------------------------- ("CMSI") ("Licensee") - -------------------------------- -------------------------------- Signature Signature - -------------------------------- -------------------------------- Print Name/Title Print Name/Title - -------------------------------- -------------------------------- Date Date 8 9 SOFTWARE LICENSE AGREEMENT EXHIBIT A Dated ____________ 1. Software - - CreditRevue Release _________________________ Serial number _________________________ 2. Fees and Payments Licensee will pay to CMSI the fees and other amounts described below ("License Fee") in accordance with this Exhibit and with the other provisions of the Agreement. - - CreditRevue Base System (___ user) $________ Enhancements $________ Sub Total $________ Modifications and Customization $________ Grand Total $________ For the fully paid-up non-exclusive license to use the Software in accordance with the General Terms and Conditions, Licensee agrees to pay ________________________________ as follows: (a) Licensee agrees to pay __________ upon execution of this Agreement and will continue to pay ___________ in _____ equal installments due on the ____ of each month beginning on _______, 1996. (b) Licensee agrees to pay ________ upon the Acceptance Date of the Software. (c) Licensee agrees to pay annual software maintenance Support Charges in accordance with its Software Maintenance Agreement with CMSI. Licensee acknowledges that CMSI's maintenance Support Charges are based upon the number of each specific licensee's users who are allowed to access the Software (the "User Category"). In the event that Licensee and CMSI agree to an increase in Licensee's User Category, Licensee agrees that CMSI shall be permitted to increase Licensee's annual maintenance Support Charges to conform to the then current fees CMSI charges for maintenance to licensees of that User Category. 3. Training Charges. The training set forth in Exhibit B is included in the License Fees set forth in this Exhibit. Training in addition to that set forth in Exhibit B may be performed at CMSI's then current rate. 4. Additional Charges. (a) Other Services and Products. Licensee will pay CMSI at CMSI's then current rates for all other services and products which Licensee obtains from or through CMSI at Licensee's request. Licensee's requests for services and products will be in writing. (b) Supplemental Services. All additional services ("Supplemental Services"), if any, performed by CMSI for Licensee in addition to the Software Support provided by CMSI under Section 2 of this Exhibit, will entitle CMSI to additional compensation at its then current time and materials rates, including reimbursement for travel and related expenses. Supplemental Services will include any services provided by CMSI to Licensee or on behalf of Licensee's Authorized 9 10 Affiliates, clients, agents, or vendors. Further, any future enhancement services requested by Licensee which are not included in the functional specifications or Licensee's then current customized version of the Software, including without limitation the upgrading of a license or purchase of additional options, shall be subject to CMSI's then current pricing and schedule policy unless otherwise agreed in writing by the parties. CMSI reserves the right, depending upon the volume of Supplemental Services which Licensee may request, to require that such services be performed under a separate task order services agreement relating thereto. (c) Supplemental Charges. The Fees and Payments Schedule specified in Section 2 of this Exhibit A includes the completion of software modifications which represent the expectations of the parties as to the timing of the various stages of the software development, as incorporated in a mutually agreed Implementation Schedule. Licensee's failure to meet its obligations under the Implementation Schedule, including without limitation such obligations that are prerequisites to CMSI continuing in a timely fashion with its obligations under the Implementation Schedule, shall result in additional expense and costs to CMSI. Accordingly, Licensee agrees that any extension in the Implementation Schedule as a result of Licensee's failure to meet its obligations under the Implementation Schedule will result in Licensee paying CMSI an additional charge equal to the prorated portion of the License Fees for the period of extension. (d) Change Orders. Licensee acknowledges and agrees that any changes it may request to the customization of the Software specified in Functional Specifications Document prior to the installation and implementation of the Software for production purposes shall result in an additional charge to Licensee. CMSI shall not be required to undertake any such changes until Licensee approves in writing a Change Order, prepared by CMSI, establishing the price for the changes, the schedule for their implementation and any related revisions to the Implementation Schedule, and any additional charges which may be applicable due to any changes to the original Implementation Schedule. If Licensee fails to execute the Change Order, then CMSI shall be under no obligation to perform such changes, and implementation of the Software shall proceed as originally planned under the Functional Specifications Document and the approved, unmodified Implementation Schedule. (e) Baseline Pricing Adjustments. In the event that the monthly average of the fees paid to CMSI throughout the Project (commencing with the Project Commencement Date and ending upon acceptance of the Software) is less than $80,000, and such monthly average has resulted from delays in the agreed Project Plan Schedule where Licensee has been a material contributing factor, the fees paid to CMSI shall be adjusted retrospectively to equal a monthly average of $80,000. By way of example, Licensee shall be deemed to be a material contributing factor toward a delay if (i) Licensee fails to perform such tasks and/or to provide CMSI with information or approvals as may reasonably be necessary for CMSI to perform identified tasks relating to the Project and does not correct such failure within one (1) week after notice from CMSI (provided the response is reasonable to accomplish within one (1) week, and if not, the response shall be provided as soon as reasonably possible thereafter), or (ii) Licensee requests CMSI to delay its work on the Project or to extend the Project Plan schedule (including, but not limited to, user acceptance testing) for reasons other than mutually agreed additions to the scope of the Project, or (iii) the description in the Functional Specifications of Licensee's requirements fails to accurately describe the functionality that Licensee requires, and such failure is not based upon Licensee's legitimate misunderstanding of language used in the Functional Specifications, and despite the parties' good faith efforts, correcting the description and subsequent development of the required code results in a delay to the Project. (f) Additional Phases. In the event that Licensee requires an implementation of the Software in more than one (1) phase, CMSI reserves the right to charge a phase commencement fee, in addition to any project management, software module license fees, or customization fees, for each phase of the implementation following the first phase. Any such additional phases shall be subject to prior written agreement by the parties. Licensee acknowledges that CMSI's ability to commence additional phases may be subject to the availability of appropriate CMSI personnel, that CMSI makes no advance representation that one phase will automatically follow a preceding phase without interruption, and that unless otherwise agreed in writing, CMSI shall not be required to maintain the availability of resources from a previous phase on any subsequent phase. Licensee shall be required to purchase a reasonably appropriate training program from CMSI for each additional phase, or other major Software enhancement, that Licensee requests. Licensee acknowledges that the training included at no additional charge under this Agreement only addresses training for the first phase of the Software installation, and that additional charges will be associated with training required for any additional phase or other major Software enhancement. (g) Third Party Software Maintenance Charges. CMSI shall pass through to Licensee all maintenance charges associated with Licensee's license of third party software incorporated in or utilized in conjunction with CreditRevue (including without limitation the Progress software), which Licensee shall be solely responsible for paying in a timely manner. 10 11 (h) Travel and Related Expenses. Licensee shall reimburse CMSI for its reasonable travel and related expenses incurred in connection with this Agreement and any services related thereto. CREDIT MANAGEMENT SOLUTIONS, INC. -------------------------------- ("CMSI") ("Licensee") - -------------------------------- -------------------------------- Signature Signature - -------------------------------- -------------------------------- Print Name/Title Print Name/Title - -------------------------------- -------------------------------- Date Date 11 12 SOFTWARE LICENSE AGREEMENT EXHIBIT B SOFTWARE INSTALLATION AND TRAINING Dated _________ Capitalized terms in this Exhibit have the same meaning as set forth in Section 2 of the General Terms and Conditions or as indicated herein. 1. Operating Environment and Location(s). Licensee is authorized to use the Software(s) located at __________________________________, or any alternate site provided CMSI is notified of such relocation by Licensee. 2. Performance Schedule; Location of Performance. CMSI will use every reasonable effort to commence and complete the installation and training services described in this Exhibit in accordance with a schedule mutually agreed to by the parties. Except where otherwise indicated, all such services will be performed at CMSI's facility. 3. Installation and Acceptance. CMSI will configure the Software to operate as set forth in the Agreement. CMSI will then test the Software in accordance with CMSI's standard acceptance tests by loading test data and running a set of test programs. Upon successful completion of such tests as determined by CMSI, installation of the Software will be deemed to have been completed and will then be recorded by letter from CMSI to Licensee. The Software will be deemed accepted within fifteen (15) days after the Installation Date (i) if Licensee begins to use the Software on an on-going basis for production purposes, or (ii) unless Licensee notifies CMSI prior to such fifteenth (15th) day that the Software fails to perform as warranted, and provides written specification of deficiencies, in which case CMSI will perform such additional services as are necessary to complete its installation obligations, and the Software will then be deemed accepted within fifteen (15) days of the date the additional services have been completed. CMSI will also perform the "Additional Installation Services", if any, described in this Exhibit. Unless otherwise indicated in this Exhibit, CMSI will not be responsible for converting Licensee's current files and records into a format required by the Software. 4. Customization Services. CMSI will render the customization services, if any, described in this Exhibit. Software resulting from such customization services may be used in the same manner, and subject to the same restrictions on use and disclosure, as permitted for the Software under the Agreement. All copyrights, trade secrets, patents, and other proprietary rights resulting from any customization services by CMSI will be owned by CMSI. At CMSI's request and expense, Licensee will assign to CMSI in writing any proprietary interest in the custom Software conferred upon Licensee by operation of law. If no customization services are specified in this Exhibit, CMSI will not be obligated to modify in any way the standard functionality of the Software. Any customization requested which is not specified in this Exhibit will, if feasible, be performed by CMSI at its then current rates for customization services. 5. Training. CMSI will provide Licensee with training concerning use of the Software as specified in this Exhibit. Training will be made available to the number of Licensee's personnel indicated in this Exhibit. Training will be scheduled mutually during the course of the project. Licensee's personnel will thereafter be responsible for training the balance of Licensee's staff and will support subsequent training by Licensee. CMSI will furnish, free of charge, the number of standard user manuals and training guides specified in this Exhibit for both the training of the initially designated Licensee personnel and the ongoing training to be carried out by Licensee. Additional copies of such documentation will be available at CMSI's then current rates. Additional training requested by Licensee from CMSI may be provided by CMSI, at its option, at its then current rates. CMSI Site 1 Class of 4 days of System Training for up to 8 people Included 1 Class of 1 day of System Administration Training for up to 8 people Included Documentation 3 Reference Manual Included 3 System Administration Manuals Included Training and Quick Reference Guides as required Included
6. Licensee Responsibilities. During the performance of the Services, Licensee will provide the information, services, materials and resources reasonably required by CMSI in order to perform its duties hereunder. Licensee will provide to CMSI at Licensee's facility adequate machine time, qualified and technically competent operators and other relevant personnel and 12 13 such other media and facilities as may be necessary or appropriate for efficient and trouble free installation of the Software. Licensee understands that the successful performance of the Services depends on Licensee fulfilling its responsibilities and making its best efforts to cooperate with CMSI. Any failure by Licensee to fulfill its responsibilities may cause an extension of the dates for performance and/or an increase in the Service charges, and if material, a default under the General Terms and Conditions. 7. Equipment. Licensee is solely responsible for maintaining Equipment, for preparing and maintaining the location of the Equipment and the Equipment operating environment, for obtaining the Equipment, and for any other Equipment items necessary for operation of the Software, in accordance with the specifications of the respective suppliers of such items. Furthermore, Licensee's Equipment must meet specifications outlined by CMSI. Licensee will be responsible for any damages, and repair and replacement costs resulting from Licensee's failure to comply with such specifications. CREDIT MANAGEMENT SOLUTIONS, INC. ------------------------------------- ("CMSI") ("Licensee") - ------------------------------------- ------------------------------------- Signature Signature - ------------------------------------- ------------------------------------- Print Name/Title Print Name/Title - ------------------------------------- ------------------------------------- Date Date 13 EX-10.3 4 FORM OF SOFTWARE MAINTENANCE AGREEMENT 1 EXHIBIT 10.3 SOFTWARE MAINTENANCE AGREEMENT This Agreement is made as of the _____ day of _____ , 1996, by and between Credit Management Solutions, Inc. ("CMSI"), with its principal place of business at 5950 Symphony Woods Road, Suite 301, Columbia, Maryland 21044 and ____________________________ ("Licensee"), with its principal place of business at ________________________________________________. CMSI and licensee hereby agree as follows: 1. Definitions. Capitalized terms in this Agreement have the same meaning as they have in the Software License Agreement (the "Software License Agreement") between CMSI and Licensee dated _______________________, 1996. 2. Support Services. (a) CMSI will take all reasonable steps to correct the failure of the Software to operate substantially in accordance with its Documentation and specifications (as revised from time to time), and will provide updates, corrections, new releases and modifications of the Software made generally available at no charge to CMSI's other software licensees receiving Software support similar to the support provided under this Agreement (collectively, "Enhancements"). New software programs, modules and/or products (including, but not limited to, significant new software functionality which is not made generally available to CMSI's other customers at no additional charge) are not provided under this Agreement, but will be made available at CMSI's then-current fees for such items. (b) Licensee may request corrective maintenance by telephone during the hours of 8:30 A.M. to 5:00 P.M. Monday through Friday (excluding national holidays) of the time zone of Licensee's principle business location (the "Principal Period of Support"). In connection with all telephone support, Licensee shall (i) provide CMSI with an "800" dial-in telephone number and (ii) reimburse CMSI for all support related telephone charges incurred by CMSI in the event that Licensee's "800" dial-in telephone number is unavailable at any time Licensee requires telephone support. Excluding national holidays, CMSI will provide emergency telephone support during non Principal Period of Support hours. Licensee's request for emergency telephone support will be subject to CMSI's then current time and material charges. Licensee will provide CMSI with all information and assistance requested by CMSI to detect, simulate and correct the failure of the Software to operate substantially in accordance with the Documentation (a "Program Error"). CMSI will provide Licensee with Software revisions or avoidance procedures to correct the Program Error within sixty (60) days after confirming the existence of a Program Error, for non-business critical Program Errors. However, CMSI will use its best efforts to resolve Program Errors that are considered business critical in order to minimize business interruption on the part of Licensee. CMSI will provide corrective maintenance from its business premises, unless in its reasonable opinion CMSI determines that such corrective maintenance may be more effectively performed at Licensee's premises. Subject to Licensee's responsibilities under section 5(e) of this Agreement, Corrective Maintenance will be provided. (c) Unless otherwise specified by CMSI, Licensee will install all Program Error corrections with reasonable telephone assistance from CMSI, and such corrections and Enhancements will be provided in a manner sufficient to permit installation by Licensee. (d) If Licensee requests CMSI to correct problems caused by any of the following factors, and CMSI elects to do so, such corrective services performed by CMSI will be deemed Supplemental Services governed in accordance with Section 6 below. (1) Licensee's modifications to the Software (including any Licensee Enhancements) (2) Licensee's failure to use Enhancements or Program Error corrections or the most current release of the Software provided by CMSI (3) Problems with hardware, operating system software, networking software, or any other software not provided by CMSI for use with the Software (4) Licensee's failure to use the Software in accordance with the terms of its Software License Agreement (5) Licensee's combination, operation, or use of the Software with non-CMSI software or hardware or in an operating environment outside of the environment recommended by CMSI. 2 3. Term. This Agreement will commence on the Acceptance Date of the Software as defined in the License Agreement and will remain in full force and effect unless terminated as provided in Section 8 below. The Software License Agreement, and Licensee's license thereunder, shall terminate on the date of termination of this Agreement. 4. Payment Terms. (a) For Software Support provided during the first year of the Agreement, Licensee will pay the fees set forth in Exhibit A hereto (the "Support Charges"). For Software Support provided after the first year, Licensee shall Support Charges determined in accordance with this Agreement and Exhibit A hereto. (b) Following the first year of this Agreement, increases in the Support Charges will not occur more frequently than once per twelve (12) month period and will not increase by more than ten percent (10%) of the prior year's annual Support Charges. (c) CMSI shall be entitled to increase the Support Charges payable by Licensee beyond the limitation set forth in Section 4(b) above in the event that CMSI and Licensee mutually agree to expand the number of concurrent users authorized to access the Software beyond the number specified in Exhibit A to the Software License Agreement. Licensee may not expand the number of concurrent users in the absence of CMSI's agreement thereto. CMSI's maintenance Support Charges are based upon the number of concurrent users who are allowed to access the Software (the "User Category"). In the event that Licensee and CMSI agree to an increase in Licensee's User Category, Licensee agrees that CMSI shall be permitted to increase Licensee's annual maintenance Support Charges to conform to the then current fees CMSI charges for maintenance to licensees of that User Category. The limitation on increase in annual Support Charges established in Section 4(b) above shall then apply to subsequent annual increases in Support Charges charged to Licensee for the new User Category. (d) Licensee shall reimburse CMSI for its reasonable travel and related expenses incurred in connection with this Agreement. Licensee is responsible for all taxes and duties based upon amounts payable hereunder (exclusive of taxes based upon the net income of CMSI) and upon Licensee's ownership of the license, use or possession of the Licensed Products. 5. Licensee's Responsibilities. Licensee understands that in order for CMSI to provide Software Support, Licensee must: (a) Provide, at Licensee's expense, the "Remote Dial-up Capability" specified by CMSI (e.g., "800" telephone number dial-in capability); and (b) Identify to CMSI one person and one alternate to serve as Licensee's support contact (the "Licensee Representative"). Only the Licensee Representative will be authorized to request and receive Software Support on behalf of Licensee. Licensee may change its Licensee Representative by written notice to CMSI; and (c) Provide CMSI with such access to the Software, Licensee hardware and Licensee data as may reasonably be required by CMSI in order for it to perform its duties hereunder. Access to such data will be used exclusively for Software Support purposes and will be subject to CMSI's obligations to protect the trade secrets and confidential and proprietary information of Licensee. Licensee will cooperate fully with CMSI's reasonable requests for information, personnel and time necessary to provide Software Support. (d) Complete proper problem determination procedures as documented by CMSI before calling CMSI, and then perform problem definition activities and remedial actions, as reasonably requested by CMSI. (e) Remain on the most current release of the Software which CMSI has made available to Licensee within sixty (60) days after receipt of such release. 6. Supplemental Services. All services, if any, performed by CMSI for Licensee, in addition to the Software Support provided by CMSI under Section 2 above ("Support Services"), will entitle CMSI to additional compensation at its then current time and materials rates, including reimbursement for travel and related expenses. Further, Licensee shall be responsible for all telephone charges incurred by CMSI in order to dial into Licensee's system. Supplemental Services will include any services provided by CMSI to Licensee or on behalf of Licensee's Authorized Affiliates, clients, agents, or vendors. 2 3 7. Warranties and Limitation of Remedies. (a) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, CMSI MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, WITH RESPECT TO THE SERVICES OR PRODUCTS PROVIDED IN CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. (b) CMSI'S LIABILITY TO LICENSEE FOR ANY LOSSES OR DAMAGES, DIRECT OR INDIRECT, ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT WILL BE LIMITED TO THOSE ACTUAL, DIRECT, OUT-OF-POCKET EXPENSES AND COSTS WHICH ARE REASONABLY INCURRED BY LICENSEE, AND WILL NOT EXCEED THE CHARGES WHICH WOULD BE DUE FOR THE THEN CURRENT TWELVE (12) MONTH PERIOD OF SOFTWARE SUPPORT FOR THE SPECIFIC CMSI SOFTWARE MODULE FROM WHICH CMSI'S LIABILITY ARISES. CMSI WILL NOT BE LIABLE FOR: (I) ANY CLAIM ARISING FROM LICENSEE'S FAILURE TO PERFORM LICENSEE'S RESPONSIBILITIES AS DOCUMENTED, OR (II) INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN ANY EVENT, OR (III) FOR ANY CLAIM AGAINST LICENSEE BY ANY OTHER PARTY. 8. Suspension of Services; Termination. If Licensee fails to fulfill its responsibilities set forth in Section 5 above or to pay the Support Charges payable under this Agreement, CMSI may suspend Software Support until such failure is corrected. Either party may terminate this Agreement ninety (90) days after written notice of a material breach of this Agreement by the other party which remains uncured after such ninety (90) day period or, with respect to those defaults which cannot reasonably be cured within ninety (90) days, if the defaulting party fails to proceed within ninety (90) days to commence curing the default and to proceed with all due diligence substantially to cure the same, then the party not in default may terminate this Agreement by providing the defaulting party with a written termination notice. If Licensee terminates this Agreement with cause in accordance with this Section 8, CMSI promptly will refund to Licensee all charges previously paid by Licensee for Software Support to be rendered during the balance of the then current annual coverage period. This refund constitutes Licensee's sole and exclusive remedy and CMSI's maximum liability for breach of this Agreement. 9. Miscellaneous. (a) Entire Agreement; Modifications and Amendments; Headings. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, and there are no other terms or conditions, agreements, or representations, expressed or implied, written or oral, except for the matters set forth in the Software License Agreement. This Agreement may not be amended or modified except by written agreement signed by each party hereto. The headings are for convenience only and do not affect the meaning of this Agreement. (b) Notices. Any notices required under this Agreement will be given in writing in accordance with the "Notices" provision in Section 14(e) of the Software License Agreement (c) Successors and Assigns. This Agreement may be assigned by Licensee or CMSI to the same extent, and in the same manner, as assignment of the Software License Agreement is permitted under the Software License Agreement. (d) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, exclusive of its choice of law rules. The parties agree that any disputes under this Agreement shall be submitted for 3 4 adjudication in the State or Federal courts located within Howard County, Maryland. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CREDIT MANAGEMENT SOLUTIONS, INC. -------------------------------- ("CMSI") ("Licensee") - -------------------------------- -------------------------------- Signature Signature - -------------------------------- -------------------------------- Print Name/Title Print Name/Title - -------------------------------- -------------------------------- Date Date 4 5 MAINTENANCE AGREEMENT EXHIBIT A SUPPORT CHARGES Dated __________ Support services fee for the first year of this Agreement will be as follows: The "Support Charges" for Support Services for the first year of this Agreement will be fifteen percent (15%) of the fees paid for the Software pursuant to Exhibit A of the Software License Agreement (including all fees for enhancements or modifications thereto provided pursuant to the Functional Specifications or otherwise provided prior to the Acceptance Date under the Software License Agreement); the Support Charges, as adjusted below, are payable annually in advance. After the first year of this Agreement, CMSI may annually increase the Support Charges for any such renewal period over the Support Charges in effect for the preceding year by a percentage not exceeding ten percent (10%). The Support Charges will be increased by fifteen percent (15%) of the fees charged for any requested Software customizations, modification, or Source Code license which are provided to Licensee after the Effective Date of the Software License Agreement; any such increases will first be implemented for the annual billing period in which such customizations or modifications are first provided to Licensee and will be subject to annual increases in the same manner as provided in the preceding two paragraphs. CREDIT MANAGEMENT SOLUTIONS, INC. -------------------------------- ("CMSI") ("Licensee") - -------------------------------- -------------------------------- Signature Signature - -------------------------------- -------------------------------- Print Name/Title Print Name/Title - -------------------------------- -------------------------------- Date Date 5 EX-10.4 5 FORM OF PROFESSIONAL SERVICES AGREEMENT 1 EXHIBIT 10.4 CMSI PROFESSIONAL SERVICES AGREEMENT 1. This Agreement is made as of the _____ day of ________________, 1996 by and between Credit Management Solutions, Inc. ("CMSI") and ______________________. ("Licensee"). During the term of this Agreement CMSI will perform for Licensee: (i) Customization and enhancement services related to Licensee's license and use of CreditRevue(R) Software under the Software License Agreement (the "License Agreement") between CMSI and Licensee dated _________________, ____, as amended from time to time. (ii) System integration services related to the configuration of Licensee's CreditRevue computing environment. (iii) Such other services, including without limitation consulting or training services, upon which the parties may mutually agree. Such customization and enhancement services, systems integration services, and/or other services are hereinafter referred to as "Services." The Services to be provided under this Agreement shall be set forth on each Task Order hereunder, executed by an authorized representative of each party, and shall be subject to the terms and conditions of this Agreement. All Services provided under any Task Order shall be in addition to software support services provided by CMSI to Licensee under the parties' Software Maintenance Agreement (the "Maintenance Agreement") dated ________________, ____. Any computer code and related documentation provided to Licensee by CMSI under any Task Order hereunder shall be deemed Software and Documentation respectively (collectively referred to hereinafter as "Licensed Products"), and Licensee's rights in and to such Licensed Products shall be subject to the terms of the License Agreement and the Maintenance Agreement unless expressly stated in writing in this Agreement or the applicable Task Order. All copyrights, trade secrets, patents, and other proprietary rights resulting from any Services provided hereunder will be owned by CMSI, and, at CMSI's request and expense, Licensee agrees to assign to CMSI in writing any proprietary interest in deliverables provided hereunder which may be conferred upon Licensee by operation of law. Capitalized terms used in this Agreement and any Task Order shall have the same meaning as capitalized terms used in the License Agreement and Maintenance Agreement unless specifically stated otherwise. 2. In consideration for performance of Services, Licensee shall make payment to CMSI at the rates and in the amounts shown on the applicable Task Order. Amounts payable by Licensee to CMSI under each Task Order shall be due and payable on the date specified in such Task Order or, if not specified, shall be invoiced monthly in arrears and shall be due and payable thirty (30) days after the date of the invoice. Late payments will bear interest at the lesser rate of one and one half percent (1 1/2%) per month on the unpaid amount for each month (or fraction thereof) that such amount remains unpaid or the maximum rate permitted by law. Licensee is responsible for all taxes and duties based upon amounts payable hereunder (exclusive of taxes based upon the net income of CMSI). 3. Either party may terminate this Agreement, with or without cause, upon thirty (30) days written notice to the other party. The termination of this Agreement shall not act as the termination of any Task Order whose term (including renewal terms) extends beyond the Agreement termination date. Each such Task Order which requires performance beyond the termination of this Agreement shall be so performed, and shall continue to be subject to the terms of this Agreement as if this Agreement had not been terminated. CMSI may terminate any and all Task Orders (and this Agreement) immediately by giving Licensee written notice of termination if Licensee breaches any of its obligations under the License Agreement, the Maintenance Agreement or otherwise regarding the confidentiality of, and non-disclosure to or use by unauthorized parties of, the Software and/or other CMSI proprietary information. In the event Licensee fails to make any payment under a Task Order when due, CMSI may terminate such Task Order fifteen (15) days after providing Licensee with written notice of such delinquency if the delinquency remains uncorrected after such fifteen (15) day period. In the event of a material breach by one party (the "Breaching Party") of a Task Order, the other party (the "Non-Breaching Party") may terminate such Task Order thirty (30) days after written notice of such breach to the Breaching Party if (i) the breach remains uncured after such thirty (30) day period or, (ii) with respect to those breaches which cannot reasonably be cured within thirty (30) days, if the Breaching Party fails to commence curing the breach within thirty (30) days after the Non-Breaching Party's notice and to proceed with all due diligence substantially to cure the same. Further, either party 2 may terminate this Agreement and any or all Task Orders in the event of the termination of the License Agreement. A party terminating this Agreement or any Task Order as provided under this Section 3 shall do so by providing the other party with a written termination notice. The right of either party under this Section 3 to terminate this Agreement or any Task Order will not be deemed to be an exclusive remedy, and each party will be entitled to such other rights and remedies as are available to it at law or in equity, subject to the limitation of liability provisions contained herein. 4. Within ten (10) days after the Effective Date of each Task Order Licensee will designate a "Licensee Representative" who will be authorized to make decisions, approve plans and grant requests on behalf of Licensee in connection with CMSI's performance thereunder (in the absence of such a designation by Licensee, the individual then serving as the Licensee Representative under the License Agreement shall be deemed the Licensee Representative under the Task Order). With respect to each Task Order, Licensee agrees to provide CMSI with reasonable access to Licensee's computer system and Licensee's facility together with adequate working space at all reasonable times to enable CMSI to perform its obligations. Further, Licensee agrees to cooperate with CMSI by making available to CMSI on a timely basis Licensee information, resources and personnel reasonably required by CMSI to perform its obligations. Licensee understands that the successful performance of the Services depends on Licensee fulfilling its responsibilities and making all reasonable and timely efforts to cooperate with CMSI. Any failure by Licensee to fulfill its responsibilities may cause an extension of the dates for performance and/or an increase in the Service charges, and if material, may result in CMSI's termination of the Task Order for breach. Further, if any Task Order requires CMSI to dedicate personnel and/or resources (collectively "Resources") exclusively to a Licensee project and such Resources cannot perform their functions due to Licensee's failure to meet its obligations under this Section 4, CMSI shall be entitled to bill Licensee and Licensee shall pay CMSI for such Resources at CMSI's standard hourly rates (unless other rates are specified under the applicable Task Order) during the period that such Resources remain dedicated to Licensee's project. Unless otherwise requested in writing by Licensee, CMSI shall use reasonable efforts to reassign such Resources to other projects during the period of delay, and in the event of any such reassignment CMSI shall not be required to return such Resources to Licensee's project if and when the project resumes. Further, CMSI shall be entitled to revise the implementation schedule(s), if any, relating to the Task Order as reasonably appropriate to account for any delay in performance caused by Licensee and any further delays resulting from CMSI's reassignment of its Resources. 5. Licensee acknowledges that any changes it may request to Services agreed to in writing under a Task Order may result in additional charges to Licensee. CMSI shall not be required to undertake any such changes until Licensee approves in writing a Change Order, prepared by CMSI, establishing the price for the changes and the additional or modified Services required under the Task Order, and any additional charges which may be applicable due to such changes. If Licensee fails to execute the Change Order, then CMSI shall be under no obligation to perform such changes, and Services shall proceed as originally planned under the unmodified Task Order. 6. CMSI warrants that it will perform all Services provided under each Task Order in a technically proficient and workmanlike manner consistent with good practice in the computer services industry. THE WARRANTIES SET FORTH IN THIS SECTION 6 ARE IN LIEU OF, AND CMSI HEREBY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE SERVICES AND ANY OTHER DELIVERABLES PROVIDED UNDER A TASK ORDER INCLUDING, BUT NOT LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 7. Unless otherwise specified in the applicable Task Order, Licensee shall reimburse CMSI on a monthly basis for all reasonable out-of-pocket expenses including, but not limited to, travel and travel-related expenses, incurred and reasonably documented by CMSI in connection with its performance of Services. 8. Licensee acknowledges that CMSI does not accept any liability or responsibility relating to Licensee's ability to permit CMSI the right to use any third party software or system installed at any Licensee facility. Licensee agrees to indemnify CMSI and its agents for all losses, damages and costs incurred as a result of any claims brought against CMSI or its agents based upon CMSI's use of any such system or software. In addition, if any such action is brought against CMSI and/or Licensee, CMSI may, at its option, terminate the applicable Task Order. 2 3 9. Licensee agrees that, during the term of any Task Order and for twenty-four (24) months thereafter, neither it nor any of its subsidiaries or affiliates shall, except with the prior written consent of CMSI, offer employment to or employ any person employed then or within the preceding twenty-four (24) months by CMSI or any subsidiary or affiliate of CMSI. 10. CMSI'S LIABILITY TO LICENSEE WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WILL BE LIMITED TO THE FEES PAID BY LICENSEE TO CMSI UNDER THE APPLICABLE TASK ORDER FOR THE MONTH IMMEDIATELY PREVIOUS TO THE EVENT GIVING RISE TO THE CLAIM. IN NO EVENT WILL CMSI BE LIABLE TO LICENSEE FOR LOST PROFITS, LOST SAVINGS, LOSS OF USE, LOSS OF DATA, OR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY THIRD PARTY CLAIM AGAINST LICENSEE IN CONNECTION WITH OR CONCERNING THE LICENSED PRODUCTS OR ARISING OUT OF OR IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT. WITH RESPECT TO SERVICES AND DELIVERABLES PROVIDED HEREUNDER, THIS SECTION 10 SUPERSEDES ANY CONFLICTING TERMS IN THE LIMITATIONS OF LIABILITY ESTABLISHED UNDER THE LICENSE AGREEMENT AND/OR THE MAINTENANCE AGREEMENT. 11. This Agreement is subject to all terms and conditions of the License Agreement and the Maintenance Agreement except as such terms and conditions may be expressly modified by this Agreement. Licensee shall be entitled to order Services hereunder for the benefit of its affiliates and/or subsidiaries which are entitled to access the Licensed Products under the License Agreement, and in such event Licensee shall ensure such affiliates' and subsidiaries' compliance with the terms and conditions of this Agreement. 12. This Agreement, each executed Task Order hereunder, and the License Agreement and Maintenance Agreement as incorporated herein by reference, constitute the entire agreement between CMSI and Licensee with respect to the subject matter of this Agreement and the applicable Task Order. No representation or statement not contained in this Agreement or an applicable Task Order shall be binding upon either party. This Agreement may not be assigned by Licensee without the prior written consent of CMSI, which consent shall not be unreasonably withheld or delayed. This Agreement may be amended only by a written instrument executed by both parties. Accepted and Agreed by: Accepted and Agreed by: CREDIT MANAGEMENT SOLUTIONS, INC. --------------------------- ("CMSI") ("Licensee") - -------------------------------------- --------------------------- Signature Signature - -------------------------------------- --------------------------- Print Name/Title Print Name/Title - -------------------------------------- --------------------------- Date Date 3 EX-10.5 6 FORM OF CR. CON. LEND. AGR. (FOR CR) 1 EXHIBIT 10.5 CREDIT CONNECTION(R) LENDER AGREEMENT This CREDIT CONNECTION(R) LENDER AGREEMENT is made as of the ____ day of _______, 1996 (the "Effective Date") by and between CREDIT CONNECTION, L.L.C. ("CREDIT CONNECTION"), with its principal place of business at 5950 Symphony Woods Road, Columbia, MD 21044, and ABC Bank ("ABC"), with its principal place of business at _______________________________________________________. Explanatory Statement CREDIT CONNECTION operates under the service mark "Credit Connection(R)"(1) an automated service which, in order to facilitate the credit approval process for consumer loans, electronically assembles and transmits credit applications between various parties, including automobile dealers, merchants, and banks and lenders. The parties have agreed that ABC will subscribe to the Credit Connection service. This AGREEMENT sets forth the terms and conditions of ABC's subscription. Agreements IN CONSIDERATION OF the mutual covenants and agreements set forth herein, CREDIT CONNECTION and ABC, intending to be legally bound, agree as follows: 1. Definitions. As used in this AGREEMENT, the following capitalized terms have the indicated meanings, unless the context in which a term is used requires a different meaning. a. "ACCEPTANCE DATE" means the date upon which the ABC SYSTEM is first capable of interfacing with the SERVICE to receive credit application data from a CREDIT CONNECTION DEALER, and to transmit a notice of acceptance or rejection back to such CREDIT CONNECTION DEALER. b. "AGREEMENT" means this CREDIT CONNECTION(R) LENDER AGREEMENT, as it may from time to time be amended or modified by the parties or in accordance with its terms, all addenda hereto executed by both parties, and all exhibits attached hereto, as they may from time to time be modified. c. "ABC AFFILIATE" means any person or entity (i) that owns, directly or indirectly, through one or more affiliates, at least a majority of the voting capital stock of ABC, or (ii) at least a majority of whose voting capital stock is owned, directly or indirectly, through one or more affiliates, by ABC, or (iii) at least a majority of whose voting capital stock is owned directly or indirectly, through one or more affiliates, by another person or entity that at such time also owns, directly or indirectly, through one or more affiliates, at least a majority of the voting capital stock of ABC. For the purpose of establishing the rights and obligations of ABC AFFILIATES under this Agreement, a person or entity shall be considered an ABC AFFILIATE only so long as it continues to satisfy the criteria for a ABC AFFILIATE established in this Section 1(c). d. "ABC COMPUTER(S)" means the computer(s) controlled and operated by ABC or ABC AFFILIATES on which ABC or ABC AFFILIATES maintain their automatic credit application processing functions with which the SERVICE is to interface. e. "ABC SOFTWARE" means any and all of ABC's, and any ABC AFFILIATES', credit underwriting software package(s) (whether internally developed, or licensed, by ABC or an ABC AFFILIATE) for which an INTERFACE(s) with the SERVICE is established and maintained. As of the EFFECTIVE DATE, the only component - ---------------------------------- (1) Patent Pending. CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 2 of ABC SOFTWARE to which ABC requires an INTERFACE for purposes of utilizing the SERVICE is CMSI's proprietary software product entitled CreditRevue(R). f. "ABC SYSTEM" means, collectively, the INTERFACE, the ABC SOFTWARE, the ABC COMPUTER(S), and all operating or system software installed on the ABC COMPUTER(S). g. "CMSI" means Credit Management Solutions, Inc., which is the licensor of the proprietary CreditRevue software system which ABC utilizes for automating its loan origination processes. CMSI is an affiliate of CREDIT CONNECTION. h. "CREDIT CONNECTION DEALER" means an automobile dealer or other merchant who is a subscriber to the SERVICE. i. "DATA" means (i) credit application data encompassing the information set forth on the credit application form(s) utilized by the SERVICE, (ii) notices of the acceptance or rejection of such credit applications, all as posted in electronic form on the SERVICE by ABC (or any ABC AFFILIATE) or any CREDIT CONNECTION DEALER, and (iii) any third party data (e.g., value guide information) which may be accessed or requested by means of the SERVICE. CREDIT CONNECTION may in its sole discretion, from time to time and with prior written notice, add additional data fields to, or as appropriate delete certain data fields from, the SERVICE. Data entered on the SERVICE in such additional fields shall be included in the term "DATA." j. "DOCUMENTATION" means the system and user documentation for the SERVICE provided by CREDIT CONNECTION to LENDER SUBSCRIBERS generally, as modified by CREDIT CONNECTION from time to time. k. "EFFECTIVE DATE" means the date first set forth above when this AGREEMENT becomes legally binding upon the parties. l. "INTERFACE" means all software code developed by CMSI for ABC based on the INTERFACE REQUIREMENTS DOCUMENT, and installed on the ABC COMPUTER(S), to permit the electronic transfer of DATA from CREDIT CONNECTION's computer(s) to the ABC COMPUTER(S) in a format that permits the DATA to be (i) uploaded from the SERVICE into the ABC SYSTEM for processing, and (ii) downloaded from the ABC SYSTEM back to the SERVICE upon completion of such processing. m. "INTERFACE EQUIPMENT" means all equipment (including without limitation hardware, software and telecommunications devices) used by ABC and the ABC AFFILIATES to establish the capability for ABC COMPUTER(S), by means of the SERVICE, to receive DATA from and send DATA to CREDIT CONNECTION's computer(s). n. "INTERFACE REQUIREMENTS DOCUMENT" means the document (as revised from time to time) provided by CREDIT CONNECTION to CMSI describing the technical requirements which the INTERFACE must meet in order to allow ABC and ABC AFFILIATES to utilize the SERVICE. o. "LENDER" means any bank or other financial institution which is in the business of funding credit applications submitted by customers of automobile dealers or other merchants, and therefore either is, or is a candidate to become, a LENDER SUBSCRIBER. p. "LENDER SUBSCRIBER" means any LENDER who is a subscriber to the SERVICE, including without limitation ABC. q. "MARK" means the service mark under which the SERVICE is operated by CREDIT CONNECTION. CREDIT CONNECTION may from time to time adopt a new service mark(s) under which the SERVICE is operated, and thereafter the term "MARK" shall be expanded to include the new service mark(s). CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 2 3 r. "SERVICE" means the Credit Connection(R) automated electronic credit application assembly and transfer service described and provided for in this AGREEMENT plus, as the context permits, all equipment, computer programs, patents, trade secrets, designs, documentation, manuals and specifications thereof or incorporated therein, exclusive of the ABC SYSTEM. 2. Subscription to and On-Going Operation of the SERVICE. a. ABC hereby subscribes to the SERVICE, and CREDIT CONNECTION agrees to provide the SERVICE to ABC and ABC AFFILIATES, for the term of this AGREEMENT. The SERVICE shall commence upon the ACCEPTANCE DATE. b. CREDIT CONNECTION shall operate the SERVICE so that it performs in all material respects in accordance with the DOCUMENTATION. CREDIT CONNECTION shall not be responsible for operational problems affecting use of the SERVICE to the extent such problems result from the performance or non-performance of ABC or any third parties. The foregoing notwithstanding, CREDIT CONNECTION shall exercise all reasonable efforts to cooperate and work with ABC and/or such third parties in order to correct promptly any circumstances causing such problems. c. CREDIT CONNECTION shall be responsible for supporting ABC's and ABC AFFILIATES' use of the SERVICE in accordance with the LENDER Support Document attached hereto as Exhibit A, as may be revised with prior written notice from time to time by CREDIT CONNECTION. ABC shall be responsible for submitting all support requests in accordance with the procedures set forth in the LENDER Support Document. ABC shall be responsible for paying CREDIT CONNECTION for all support requested when such support is not offered as a non-chargeable component of the SERVICE (as identified in the LENDER Support Document). d. Throughout the term of this AGREEMENT, except as provided under this Section 2(d), ABC shall maintain the ABC SYSTEM in accordance with the configuration and operational capacity in place as of the ACCEPTANCE DATE. Any changes to the ABC SYSTEM authorized or otherwise made by ABC shall be performed in a reasonably prudent manner so as to avoid or minimize any disruption to the operation of the SERVICE. The parties acknowledge that. CMSI is responsible for supporting and enhancing/modifying CreditRevue as a component of the ABC SOFTWARE, in accordance with the applicable agreements between ABC and CMSI. In accordance with such agreements, ABC shall request any changes to the ABC SOFTWARE to be made by CMSI rather than CREDIT CONNECTION unless, and only to the extent that, CMSI notifies ABC that it has authorized CREDIT CONNECTION to serve as its agent for the purposes of coordinating such requests. ABC acknowledges that CREDIT CONNECTION shall have no responsibility for any failures of the SERVICE caused in whole or in part by any failure to perform changes to the ABC SYSTEM in accordance with the terms of this Section 2(d). e. Throughout the term of this AGREEMENT, ABC (and, as applicable, ABC AFFILIATES) shall be responsible for maintaining the INTERFACE EQUIPMENT configuration in accordance with the applicable maintenance standards of the equipment manufacturer so as to not adversely impact the performance of the SERVICE. Additionally, throughout the term of this AGREEMENT, ABC (and, as applicable, ABC AFFILIATES) shall be responsible for contracting with CMSI to maintain the INTERFACE to ABC's licensed version of CreditRevue, in accordance with the INTERFACE REQUIREMENTS DOCUMENT, so as to not adversely impact the performance of the SERVICE. f. The parties agree to use all reasonable efforts to finalize and agree upon an ABC CREDIT CONNECTION(R) Marketing Plan within sixty (60) days after EFFECTIVE DATE. The Marketing Plan shall describe the respective efforts of the parties to encourage dealers with which ABC ordinarily conducts credit underwriting activities to join the SERVICE as subscribers. ABC acknowledges that the Application Transmission Credit program provided for in Exhibit B is granted in consideration of ABC's substantial contributions to enrolling dealers as subscribers and to providing initial training and other support to such dealers. Following approval of the ABC CREDIT CONNECTION(R) Marketing Plan by CREDIT CONNECTION and ABC, the parties agree to use all reasonable efforts to conduct their marketing activities relating to the SERVICE and ABC's subscription thereto consistent with the ABC CREDIT CONNECTION(R) Marketing Plan. CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 3 4 3. License. a. In accordance with the terms of this AGREEMENT and for the term hereof, CREDIT CONNECTION grants ABC a non-exclusive and non-transferable license to use the SERVICE for its own internal business purposes (and those of ABC AFFILIATES), and to permit its employees and agents (and employees and agents of ABC AFFILIATES) to interact with the SERVICE through remote computer terminals solely for ABC's internal business purposes (and those of ABC AFFILIATES). Use of the SERVICE for the internal business purposes of ABC and ABC AFFILIATES means that the SERVICE may be used to support credit applications to be evaluated for funding by ABC or ABC AFFILIATES, but not by any third party. ABC has no right to make any changes or modifications to the SERVICE except as directed by CREDIT CONNECTION. b. In accordance with the terms of this AGREEMENT and for the term hereof, CREDIT CONNECTION grants ABC and ABC AFFILIATES a non-exclusive and non-transferable license to use the MARK for the sole purpose of identifying that it/they are licensed to use the SERVICE. The MARK, which is a registered trademark, is the following: CREDIT CONNECTION(R) Due to certain restrictions regarding CREDIT CONNECTION's rights to the trademark "Credit Connection," ABC acknowledges that CREDIT CONNECTION DEALERS may not use the mark or the words "Credit Connection" in advertising or other media regarding the availability of the SERVICE in any of the following states: Iowa, Illinois, Wisconsin or Missouri. CREDIT CONNECTION retains all rights to the MARK not specifically granted to ABC under this AGREEMENT. ABC has no right to make any changes or modifications to the MARK except as directed by CREDIT CONNECTION. c. CREDIT CONNECTION may from time to time by thirty (30) days prior written notice to ABC impose regulations upon the use of the MARK, provided that the regulations are applicable to LENDER SUBSCRIBERS generally. ABC shall comply with all such regulations on the use of the MARK. ABC shall not adopt or use any trade name, trademark, service mark or other name or identification for the SERVICE other than the MARK, without the prior written consent of CREDIT CONNECTION. d. CREDIT CONNECTION retains all rights to the SERVICE and the MARK not specifically granted to ABC under this AGREEMENT. All revisions, modifications and derivative works to the SERVICE developed by CREDIT CONNECTION or any other party, including all updates, enhancements or modifications to the SERVICE, will be the sole and exclusive property of CREDIT CONNECTION and will be subject to all of the use and nondisclosure restrictions which apply to the SERVICE under this AGREEMENT. e. If and to the extent that CREDIT CONNECTION incorporates the software of any third party in the SERVICE, and use of such third party software is not subject to the terms of a license agreement directly between ABC (and any ABC AFFILIATE, if applicable) and the third party licensor, the license of ABC and all ABC AFFILIATES to such third party software shall be defined and limited by the license to the SERVICE granted by CREDIT CONNECTION under this AGREEMENT. ABC specifically acknowledges that the licensors of such third party software and any data contained therein shall retain all ownership rights thereto, and ABC agrees that it shall not decompile, disassemble or reverse engineer such third party software for the purpose of revealing the proprietary information contained therein, or otherwise use such third party software to develop functionally similar computer software, or modify, alter or delete any of the copyright notices embedded in or affixed thereto, or permit any ABC AFFILIATE to do any of the foregoing. f. ABC acknowledges that the right or ability of CREDIT CONNECTION to license other LENDERS to use the SERVICE or MARK is not restricted in any manner by this AGREEMENT, and that it is CREDIT CONNECTION's intention to license a number of other LENDERS, in addition to automobile dealers and other merchants, to use the SERVICE and MARK under separate agreement. ABC also agrees that CREDIT CONNECTION shall be free to transmit credit applications from any CREDIT CONNECTION DEALERS, at the CREDIT CONNECTION DEALERS' request, to other LENDER SUBSCRIBERS and non-subscribing LENDERS. ABC acknowledges that CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 4 5 CREDIT CONNECTION is free to terminate its agreement with any CREDIT CONNECTION DEALER in accordance with the terms of that agreement and CREDIT CONNECTION's judgment on whether to invoke such terms. CREDIT CONNECTION shall have no liability to ABC for any such action. 4. Connection of ABC SYSTEM to the SERVICE. a. In the event that any components of the ABC SYSTEM require installation by CREDIT CONNECTION (or its third party contractors) of computer equipment at an ABC or ABC AFFILIATE site, ABC shall be responsible for the following: i. ABC will arrange access for CREDIT CONNECTION or CREDIT CONNECTION's contractors to the location(s) of the ABC COMPUTER(S) on an as needed basis. ii. ABC will pay any charges, including, but not limited to, reasonable travel and related expenses, associated with access to the location(s) of the ABC COMPUTER(S) by CREDIT CONNECTION or CREDIT CONNECTION's contractors. iii. ABC will reimburse CREDIT CONNECTION for (i) the time of CREDIT CONNECTION's or its contractors' personnel (at CREDIT CONNECTION's, or its contractors', respective then current standard time and materials rates unless otherwise agreed in advance), and (ii) actual expenses, if the services intended to be performed by such personnel, and agreed upon by the parties, are delayed due to delays by ABC in arranging or allowing access by such personnel to (1) the location(s) of the ABC COMPUTER(S) or (2) such information as may reasonably be required to perform the services. b. In the event that ABC shall at any time change the configuration of the ABC SYSTEM in a manner which interrupts (i) the transfer of DATA between CREDIT CONNECTION's computer(s) and the ABC COMPUTER(S), and/or (ii) the processing of DATA by the ABC SOFTWARE, ABC shall be responsible, at its expense, for implementing such changes to the ABC SYSTEM as may be appropriate to remedy such interruption. Except as expressly provided in a change order executed by the parties, CREDIT CONNECTION shall not be responsible for any interruption in ABC's use of the SERVICE caused by such change(s) to the ABC SYSTEM configuration or any components thereof. c. In the event that CREDIT CONNECTION at any time makes any generally released change to the programs supporting the SERVICE on CREDIT CONNECTION's computer(s), and such change makes an alteration to the INTERFACE necessary or advisable, CREDIT CONNECTION shall give ABC at least ninety (90) days prior written notice of the change. ABC shall be responsible, at its expense, for securing any alteration to the INTERFACE made necessary or advisable by such change, and CREDIT CONNECTION shall exercise all reasonable efforts to assist ABC in this regard. CREDIT CONNECTION shall not be responsible for any interruption in ABC's or any ABC AFFILIATE's use of the SERVICE caused by such change. d. ABC shall be responsible for training its operators in the operation of the ABC COMPUTER(S) hardware or operating software. e. CREDIT CONNECTION may suspend the electronic connection between the ABC COMPUTER(S) and CREDIT CONNECTION's computer(s) at any time that such connection for any reason is materially degrading the performance of CREDIT CONNECTION's computer(s) or the SERVICE. In the event that a suspension of the electronic connection between the ABC COMPUTER(S) and CREDIT CONNECTION's computer(s) should become necessary, the parties agree to cooperate in good faith to resolve any problems as quickly as reasonably possible so that the electronic connection can be re-established with minimal delay. The foregoing notwithstanding, if the degradation in the performance of CREDIT CONNECTION's computer(s) or the SERVICE is not caused by any action or inaction by ABC, ABC shall be entitled, as its sole remedy for the disconnection of ABC COMPUTER(S) and CREDIT CONNECTION's computer(s) and the resulting interruption in ABC's use of the SERVICE, to a pro rated refund of the monthly subscription/licensing fee paid by ABC which is allocable to the period of time that the computers remained disconnected. CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 5 6 5. Access Security; Unauthorized Use. Access to the SERVICE will be restricted to persons logging in with the proper user identification code/password. ABC will be responsible for limiting access to its user identification code(s)/password(s) to authorized personnel and for the charges due to CREDIT CONNECTION with respect to all use of the SERVICE under its user identification code(s)/password(s), including the misuse or unauthorized use thereof. ABC agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, causes of action, losses, liabilities or expenses (including attorneys' fees) arising in connection with any misuse or unauthorized use of ABC's user identification code(s)/password(s). 6. Term of AGREEMENT; Termination. a. The term of this AGREEMENT shall begin on the Effective Date, and shall continue for a period of five (5) years (the "Initial Term") unless sooner terminated as provided below. Upon expiration of the Initial Term, and thereafter each Renewal Term (as defined below), this AGREEMENT shall renew for additional two (2) year terms ("Renewal Term(s)") unless terminated by either party by notice of termination given not less than one hundred and eighty (180) days prior to the expiration of the then current term. b. CREDIT CONNECTION may terminate this AGREEMENT without cause, effective at any time on or after three (3) months after the Effective Date, upon sixty (60) days written notice to ABC, if the aggregate of three (3) consecutive months revenues paid to CREDIT CONNECTION by LENDER SUBSCRIBERS for telecommunication charges is less than the CompuServe or other network providers fees charged to CREDIT CONNECTION for the same three (3) month period. Prior to terminating the AGREEMENT under this Section 6(b) CREDIT CONNECTION will endeavor in good faith to re-negotiate lower monthly minimum network telecommunications charges with CompuServe or other network providers. c. Either party may terminate this AGREEMENT for cause at any time if the other party fails to cure a breach of any term of this AGREEMENT within thirty (30) days after notice of the breach is given, or, with respect to those breaches which cannot reasonably be cured within thirty (30) days, if the breaching party fails within thirty (30) days to commence curing the breach and thereafter to proceed with all due diligence substantially to cure the same. Notwithstanding the foregoing, CREDIT CONNECTION may terminate this AGREEMENT, after giving ABC notice of non-payment and an opportunity to cure, at any time that a payment due from ABC is more than forty-five (45) days past due. 7. Payments and Payment Terms. a. ABC agrees to pay CREDIT CONNECTION when due the fees and charges on the Schedule of Fees and Charges set forth in Exhibit B attached hereto. Unless otherwise specified, all fees and charges shall be due and payable thirty (30) days after receipt of invoice. b. No more than once every twelve (12) months CREDIT CONNECTION may, upon at least thirty (30) days prior notice to ABC, modify any of the charges provided in the Schedule of Fees and Charges, provided that the modified charges conform to the standard charges then quoted by CREDIT CONNECTION to potential LENDER SUBSCRIBERS and charged by CREDIT CONNECTION to its existing LENDER SUBSCRIBERS generally, subject to volume usage discounts. Further, CREDIT CONNECTION reserves the right to increase its prices annually based on increases in the Consumer Price Index. c. Late payments will bear interest at the lesser rate of one and one-half percent (1 1/2%) per month or the maximum rate permitted by law on any unpaid amount due CREDIT CONNECTION under this AGREEMENT for each month (or fraction thereof) that such amount remains unpaid. 8. Warranties by CREDIT CONNECTION. a. CREDIT CONNECTION warrants to ABC that: CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 6 7 i. CREDIT CONNECTION is the owner of the SERVICE or otherwise has obtained the right to grant to ABC and ABC AFFILIATES the license specified in this AGREEMENT to use the SERVICE and the MARK. ii. Throughout the term of this AGREEMENT, subject to maintenance and periods of shutdown caused by equipment failure, software failure, power failure or causes beyond CREDIT CONNECTION's control, the SERVICE will operate substantially as provided in the DOCUMENTATION. iii. Services performed by CREDIT CONNECTION pursuant to this AGREEMENT will be of a professional and workmanlike manner in accordance with the standards set forth in this AGREEMENT or, in the absence thereof, at a minimum in accordance with industry standards and practices. iv. The SERVICE shall operate without any adverse impact due to date related processing associated with the year 2000. This warranty does not include operational or other problems which may result from the SERVICE interfacing with any third party system that cannot operate without any adverse impact due to date related processing associated with the year 2000. b. THE WARRANTIES SET FORTH IN THIS SECTION 8 ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY CREDIT CONNECTION. SUCH WARRANTIES ARE IN LIEU OF, AND CREDIT CONNECTION EXPRESSLY HEREBY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE SERVICE OR THE MARK INCLUDING, BUT NOT LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 9. Infringement Claims of Third Parties. a. At its own expense, CREDIT CONNECTION will defend ABC against any claim by any third party alleging that the SERVICE or the MARK infringes a patent or copyright in the United States, and CREDIT CONNECTION will pay all costs, damages and attorneys' fees finally awarded to any such third party in any infringement action or negotiated by CREDIT CONNECTION in settlement; provided that ABC provides prompt written notice to CREDIT CONNECTION of such claim (if ABC has knowledge), and allows CREDIT CONNECTION sole control of, and fully cooperates with CREDIT CONNECTION in, the defense of such claims and all related negotiations. b. CREDIT CONNECTION's obligations under this Section 9 are conditional upon ABC's agreement that if the SERVICE and/or the MARK are, or in CREDIT CONNECTION's opinion are likely to become, subject to a claim of infringement, CREDIT CONNECTION, at its option and expense, may either (i) procure for ABC and the ABC AFFILIATES the right to continue using the SERVICE and/or the MARK; or (ii) modify the SERVICE and/or the MARK to make it/them non-infringing in a manner that does not materially impair its/their functionality. If neither of these two options is reasonably available to CREDIT CONNECTION, then CREDIT CONNECTION may terminate this AGREEMENT by notice to ABC. c. CREDIT CONNECTION will have no obligation with respect to any actual or threatened infringement claim based in whole or in part upon (i) any enhancements, upgrades or modifications to the SERVICE and/or the MARK made by ABC, any ABC AFFILIATE, or any party that ABC authorizes or directs to make an enhancement, upgrade or modification, or (ii) ABC's (or any ABC AFFILIATE's) failure to use all enhancements, updates, upgrades, or modifications to the SERVICE and/or the MARK offered by CREDIT CONNECTION, or (iii) ABC's (or any ABC AFFILIATE's) failure to use the SERVICE and/or the MARK in accordance with this AGREEMENT or the DOCUMENTATION, or (iv) ABC's (or any ABC AFFILIATE's) combination, operation, or use of the SERVICE and/or the INTERFACE with software or systems created by parties other than CREDIT CONNECTION (with the sole exception of CREDIT CONNECTION's affiliate CMSI). ABC shall indemnify and hold CREDIT CONNECTION harmless from any damages, losses or costs associated with such claims. Further, CREDIT CONNECTION will have no obligation with respect to any actual or threatened infringement claim, to the extent such claim is based on third party services or products provided to ABC (or any ABC AFFILIATE's) as part of the SERVICE, except to pass CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 7 8 through to ABC any infringement indemnification related obligations of such third party to LENDER SUBSCRIBERS which have been established by contract between CREDIT CONNECTION and such third party. d. This Section 9 states CREDIT CONNECTION's entire obligation to ABC with respect to actual or threatened third-party infringement claims. 10. Warranties by ABC. a. ABC warrants to CREDIT CONNECTION that its execution, delivery and performance of this AGREEMENT do not violate the terms of any law, regulation, court order or material agreement to which ABC or any ABC AFFILIATE who may use the SERVICE or MARK is subject. ABC also warrants that ABC and all ABC AFFILIATES shall comply with applicable laws, statutes, regulations and ordinances related to this AGREEMENT and its subject matter. ABC acknowledges and agrees that, to the extent ABC or any ABC AFFILIATE does not maintain in good standing its contractual relationship(s) with any third party where such relationship(s) is a prerequisite for CREDIT CONNECTION to meet its obligations hereunder, CREDIT CONNECTION shall be excused from such obligations. b. With respect to its/their rights, obligations and performance in connection with this AGREEMENT, ABC, and the ABC AFFILIATES shall not infringe, misappropriate, or violate any third party copyrights, patent, contractual, or other proprietary rights. 11. Protection of Proprietary Rights. a. ABC acknowledges that the SERVICE and the MARK are valuable confidential and/or proprietary rights, trade secrets and property belonging to CREDIT CONNECTION or to third parties who have granted CREDIT CONNECTION the right to distribute such property, and that title to the SERVICE and the MARK remains in CREDIT CONNECTION or such third parties. Additionally, ABC acknowledges that by receiving access to the SERVICE and the limited right to use the MARK, ABC is entering into a relationship of trust and confidence with CREDIT CONNECTION pursuant to which ABC agrees to take such steps, consistent with the same steps which ABC takes to protect its own highly confidential and proprietary information and systems, as are necessary to preserve the confidential and/or proprietary nature of the SERVICE and the MARK. b. ABC and the ABC AFFILIATES will use the SERVICE, and will use, copy and disclose the DOCUMENTATION and the MARK, only as permitted under this AGREEMENT. Further, ABC and the ABC AFFILIATES will grant access to the SERVICE and the DOCUMENTATION only to those employees or agents of ABC and the ABC AFFILIATES only on a "need to know" basis, and will ensure that any persons or entities receiving such access are obligated to protect the SERVICE and the DOCUMENTATION in a manner consistent with the terms of this AGREEMENT. Except as expressly permitted herein, ABC agrees that neither it nor any ABC AFFILIATES will, at any time, without written permission of CREDIT CONNECTION, (i) copy, duplicate or permit any other person, corporation or entity to copy or duplicate the SERVICE or any part thereof; (ii) create, attempt to create, or permit others to create or attempt to create the source program and/or object program associated with any software component of the SERVICE; or (iii) decompile, disassemble or reverse engineer any software component of the SERVICE for the purpose of revealing the proprietary information contained therein or otherwise use the SERVICE to develop functionally similar computer software or services, or modify, alter or delete any of the copyright notices embedded in or affixed to the copies of any components of the SERVICE, or permit any third party to do any of the foregoing. c. ABC will notify CREDIT CONNECTION promptly of any violation of CREDIT CONNECTION's proprietary rights in the SERVICE, DOCUMENTATION or MARK of which ABC becomes aware when such violation is related to the rights granted to or the obligations incurred by ABC hereunder, and will assist CREDIT CONNECTION as reasonably necessary to remedy the violation. In such case, ABC agrees at CREDIT CONNECTION's request (and, if not occasioned by ABC's or any ABC AFFILIATE's breach of this AGREEMENT, at CREDIT CONNECTION's expense) to institute legal proceedings and/or join in any lawsuit or other action by CREDIT CONNECTION against any such third party to enforce these provisions, to cooperate fully with CREDIT CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 8 9 CONNECTION in such litigation, and, unless CREDIT CONNECTION has requested ABC to institute such suit or action, to permit CREDIT CONNECTION to assume exclusive control of all aspects of such suit or action. d. ABC shall ensure the compliance by ABC AFFILIATES with the provisions of this Section 11. 12. Non-Disclosure of Confidential Information. a. During the term of this AGREEMENT, ABC and CREDIT CONNECTION may have access to confidential and/or proprietary information regarding the other party or the other party's affiliates (including without limitation ABC AFFILIATES and CMSI or third party contractors or suppliers). Both parties agree during the term of this AGREEMENT and at all times thereafter (i) to maintain in confidence all such information acquired from the other party (including their affiliates and their third party contractors or suppliers), (ii) not to disclose any such information to anyone except the disclosing party's employees authorized to receive it and third parties to whom such disclosure is specifically authorized in writing by the other party, and (iii) not to use the other party's confidential and/or proprietary information for any purpose other than that for which it is disclosed. b. Information considered confidential and/or proprietary shall include, without limitation, (i) matters of a technical nature such as trade secret processes or devices, data formulas, inventions and specifications, (ii) matters of a business nature such as information about costs, profits, pricing policies, markets, sales, suppliers, employees, product plans and marketing plans or strategies, (iii) other information of a similar nature not generally disclosed by a party to the public, (iv) information containing confidential and/or proprietary notices, and (v) confidential and/or proprietary information of third parties disclosed to a party under a non-disclosure agreement and appropriately identified as confidential and/or proprietary. c. The foregoing shall not prevent a party from using or disclosing information that has been disclosed by or otherwise is claimed as belonging to the other party if such information is (i) already known by the recipient party without an obligation of confidentiality, (ii) publicly known or becomes publicly known through no unauthorized act of the recipient party, (iii) rightfully received from a third party, (iv) independently developed by the recipient party without use of the other party's information, (v) disclosed without similar restriction to a third party by the party owning the information, (vi) approved by the other party for disclosure, or (vii) required to be disclosed pursuant to a requirement of a governmental agency or law so long as the disclosing party provides the other party with prompt written notice of such requirement prior to any such disclosure. d. Both parties agree that during the term of this AGREEMENT and at all times thereafter they shall protect the confidentiality of the terms of this AGREEMENT. 13. Limitation of Liability. a. In the event of the loss or damage of any DATA on CREDIT CONNECTION's computer(s) or in data transfers between the ABC COMPUTER(S), any CREDIT CONNECTION DEALERS' terminals/computers, and CREDIT CONNECTION's computer(s), due to a cause for which CREDIT CONNECTION is responsible, the sole remedy of ABC against CREDIT CONNECTION shall be to require CREDIT CONNECTION to allow ABC and the CREDIT CONNECTION DEALERS to re-enter the lost or damaged DATA on CREDIT CONNECTION's computer(s) without any additional fees accruing to CREDIT CONNECTION. b. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 13(a) ABOVE, CREDIT CONNECTION'S LIABILITY TO ABC WITH RESPECT TO EACH CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WILL BE LIMITED TO THE CHARGES ACTUALLY PAID BY ABC UNDER THIS AGREEMENT FOR THE TRANSACTION OR PERIOD OF TIME TO WHICH SUCH CLAIM OR CAUSE OF ACTION RELATES, PROVIDED THAT CREDIT CONNECTION'S LIABILITY ON EACH CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT SHALL BE LIMITED TO THE AGGREGATE AMOUNT OF FEES AND CHARGES PAID BY ABC UNDER THIS AGREEMENT IN THE TWO (2) MONTHS PRECEDING THE ACCRUAL OF THE CLAIM OR CAUSE OF ACTION. IN NO EVENT WILL CREDIT CONNECTION BE LIABLE TO CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 9 10 ABC FOR LOST PROFITS, LOST SAVINGS, LOSS OF USE, LOSS OF DATA (EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT TO THE CONTRARY), OR FOR INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES OR FOR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY THIRD PARTY CLAIM AGAINST ABC IN CONNECTION WITH OR CONCERNING THE SERVICE, OR ARISING OUT OF OR IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, EXCEPT FOR ANY CLAIM OF INFRINGEMENT FOR WHICH INDEMNIFICATION IS REQUIRED AS PROVIDED UNDER SECTION 9 ABOVE. c. CREDIT CONNECTION shall have no duty to verify the content or accuracy of, or in any manner to analyze, DATA. As such, CREDIT CONNECTION is not acting as a credit bureau reporting agency in and of itself, and ABC is to refer to the specific credit bureau(s) when making reference to the credit reporting. ABC will have full responsibility for any decisions and/or analyses in which the SERVICE or any DATA may be used or relied upon. Any reliance by ABC upon any DATA or the SERVICE shall not diminish that responsibility, and ABC agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, expenses, losses or liabilities (including legal fees) in connection with any claim by any third party relating to any decisions or analyses made by ABC while using any DATA or the SERVICE. 14. ABC's Project Authority. At all times during the term of this AGREEMENT, ABC shall designate one person and one alternate to serve as ABC's primary contact and project authority on the INTERFACE and the SERVICE, and shall disclose the identities of such persons to CREDIT CONNECTION. The project authority and alternate will be authorized to make all decisions, to request and receive services from CREDIT CONNECTION, and to modify or waive the terms of this AGREEMENT on behalf of ABC. ABC may change the project authority and alternate at any time by written notice to CREDIT CONNECTION. CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 10 11 15. Miscellaneous. a. Publicity. ABC agrees to permit CREDIT CONNECTION to include ABC's name in reference and user lists of LENDER SUBSCRIBERS for advertising and other promotional purposes. Other than as required by law, all advertisements, media releases, public announcements and public disclosures by either party, or their employees or agents, relating to this Agreement or the name of ABC, any ABC AFFILIATE, CREDIT CONNECTION, or any CREDIT CONNECTION affiliate, shall be coordinated with and approved by the other party in writing prior to the release thereof. b. Entire Agreement. This AGREEMENT sets forth the entire agreement between the parties with respect to the subject matter hereof, and no party shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein, or in any prior existing written agreement between the parties. This AGREEMENT supersedes all prior oral or written representations, agreements, promises, or other communications, concerning or relating to the subject matter of this AGREEMENT. No terms or conditions of any ABC purchase order or other form originated by ABC will be effective as a modification of the terms and conditions of this AGREEMENT. No changes to the terms and conditions of this Agreement will be considered valid unless the changes are mutually accepted by both parties. c. Modifications and Amendments; Waiver. Except as otherwise expressly provided in this AGREEMENT, this AGREEMENT may not be amended or modified except by a written agreement signed by authorized representatives of each party. The failure of CREDIT CONNECTION or ABC in any one or more instances to insist upon strict performance of any of the terms or provisions of this AGREEMENT will not be construed as a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or provisions on any future occasion. d. Sections Surviving Termination. Sections 3(d), 5, 7(c), 9, 11, 12, 13, 15(i), 15(m), 15(n) of this AGREEMENT shall remain in effect following the termination of this AGREEMENT and shall be binding upon the parties thereafter. Payment obligations and claims arising or accruing under this AGREEMENT prior to termination or as a result of termination shall remain in effect until barred as provided in Section 14(i) below. e. Headings. The captions to sections of this AGREEMENT are for convenience of reference only and do not in any way limit or amplify the terms or conditions hereof. f. Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, such provision or requirement will be enforced only to the extent it is not in violation of such law or is not otherwise unenforceable and all other provisions and requirements of this AGREEMENT will remain in full force and effect. g. Force Majeure. Neither party shall be liable for damages for delay in performance hereunder arising out of causes beyond its control and without its fault or negligence, including, but not limited to, interruptions of telecommunications or network services provided by third parties, credit bureau outages or downtime, acts of God or the public enemy, governmental acts, fires, floods, epidemics, strikes, labor disturbances or freight embargoes (but not including delays caused by subcontractors or suppliers). Without limiting the generality of the foregoing, CREDIT CONNECTION shall not be liable for the failure of any CREDIT CONNECTION DEALER to access and utilize the SERVICE in any particular manner or to maintain its authorization with ABC or license with CREDIT CONNECTION to use the SERVICE. h. Notices. Where notice, approval or similar action by either party is permitted or required by any provision of this AGREEMENT, such action shall not be unreasonably delayed or withheld. Any notice, demand or other communication required or permitted under the terms of this AGREEMENT shall be in writing and shall be made by Federal Express, Express Mail, or other similar overnight delivery service, telegram, telex, facsimile or electronic transmitter or certified or registered mail, return receipt requested. A notice shall be deemed to be received by the addressee: one (1) business day after sending, if sent by Federal Express, Express Mail, or other similar overnight delivery service; on the date of sending, if sent by telegram, telex, facsimile or electronic transmitter; and three (3) business days after mailing, if sent by certified or registered mail. Notices shall be addressed as follows: CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 11 12 In the case of notices to ABC: -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- Attn: President (with a copy to General Counsel) In the case of notices to CREDIT CONNECTION: Credit Connection, L.L.C. 5950 Symphony Woods Road, Suite 301 Columbia, MD 21044 Attn: President (with a copy to General Counsel) Any party hereto may from time to time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. i. Limitation of Actions. No suit, action, or proceeding may be brought or instituted on or with respect to this AGREEMENT or any transaction hereunder more than five (5) years after the cause of action on which the suit is based accrued, unless otherwise limited by the applicable statute of limitations. j. Successors and Assigns. This AGREEMENT may not be assigned by either party without the prior written consent of the other party, and any attempted unauthorized assignment will be void; provided, however, that a party may assign this AGREEMENT to any of its affiliates upon prompt written notice to the other party. No assignment will relieve the assignor or the assignee of its obligations under this AGREEMENT. Notwithstanding the foregoing, either party may assign any of its rights and obligations under this AGREEMENT to the surviving corporation with or into which that party may merge or consolidate, or an entity to which that party transfers all, or substantially all, of its business and assets. k. Independent Contractors; Third Party Beneficiaries. CREDIT CONNECTION will perform all services under this AGREEMENT as an independent contractor and not an agent, employee, partner, or joint venturer of or with ABC or any CREDIT CONNECTION DEALER. Except for third parties whose software is incorporated into the SERVICE as provided in Section 3(e) above, no person or entity not a party hereto, including but not limited to CREDIT CONNECTION DEALERS/MERCHANTS, will be deemed to be a third party beneficiary of this AGREEMENT or any provision hereof. l. Hiring Restriction. Each party agrees that, during the term of this AGREEMENT and for twenty-four (24) months thereafter, neither it nor any of its subsidiaries or affiliates shall, except with the prior written consent of the other party, offer employment to or employ any person employed then or within the preceding twenty-four (24) months by the other party (including any of that party's subsidiaries or affiliates). m. Governing Law; Jurisdiction. This AGREEMENT will be governed by and construed and enforced in accordance with the laws of the State of Maryland, exclusive of its choice of law rules and without application of the rule of contract construction that ambiguities in a contract are construed against the interests of the party drafting the contract. The parties consent to the jurisdiction of the courts of the State of Maryland, and the United States District Court for the District of Maryland, as to any issues related to this AGREEMENT, including the validity, enforceability, or interpretation thereof, which require judicial resolution. n. Explanatory Statement, Definitions and Exhibits. The Explanatory Statement and definitions set forth at the top of this AGREEMENT and the exhibits referred to in the text of this AGREEMENT, as they may be modified in according with the terms hereof, are incorporated by reference herein and shall constitute substantive parts of this AGREEMENT. As of the EFFECTIVE DATE, this AGREEMENT includes the following exhibits: CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 12 13 Exhibit A: LENDER Support Document Exhibit B: Schedule of Fees, Charges and CREDITS (Credit Applications from CREDIT CONNECTION DEALERS) IN WITNESS WHEREOF, the parties hereto have signed and affixed their seals to this AGREEMENT effective as of the day and year first written above. CREDIT CONNECTION, L.L.C. ABC BANK - ---------------------------------- ----------------------------- Signature Signature - ---------------------------------- ----------------------------- Print Name/Title Print Name/Title - ---------------------------------- ----------------------------- Date Date CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 13 14 Exhibit A LENDER SUPPORT DOCUMENT ORGANIZATION CREDIT CONNECTION will utilize a three (3) tiered customer support hierarchy. All calls from participating CREDIT CONNECTION LENDERS ("LENDERS") and CREDIT CONNECTION DEALERS ("DEALERS") will enter through an 800 number and the calls will be sequenced by the AT&T telephone system to the next available help desk person. The caller may be issued a pre-recorded message depending on the nature of the call. Incoming calls will be answered by the CREDIT CONNECTION help desk first. After the initial help desk diagnosis, unresolved problems will be passed to technical support for further diagnosis and resolution. Technical support will also initiate calls to third party providers as needed for such issues as telecommunications problems or hardware malfunctions. When notifying CREDIT CONNECTION, the following information should be available: - - Institution ID, User ID of user who encountered the problem - - Application number - - Station or screen where problem occurred - - Exact error message and error number, if available - - Detailed description of problem This information is very important for CREDIT CONNECTION to ensure a quick and accurate resolution. SUPPORT CATEGORIES There are several categories of support supplied by the CREDIT CONNECTION staff. LENDER INSTALLATION SUPPORT During and immediately after the installation of the SERVICE at a LENDER, the following kinds of support will be available: - - Supply to the LENDER relevant SERVICE information, CompuServe User Identification Code (UIC) and other information required to have the LENDER complete installation. - - Assist the LENDER's installation staff to install the SERVICE. - - Setup the LENDER on the SERVICE. - - Test the LENDER's connection with CompuServe. - - Test the LENDER's configuration with the SERVICE. - - Test a simulated DEALER connection with the LENDER. - - Follow-up on additional training issues through the help desk. Credit Connection (7/23/96) 15 ONGOING LENDER SUPPORT After the installation phase the following types of support are available through the CREDIT CONNECTION help desk: - - LENDER is not receiving applications. - - LENDER is receiving corrupted data from the SERVICE. - - The level of activity has decreased but not stopped. - - LENDER cannot send responses to the SERVICE. - - LENDER begins receiving faxed applications from DEALER(s). - - LENDER is not getting proper or timely responses from DEALER(s), credit bureaus or other remote sites. - - Link to the SERVICE is down. DEALER INSTALLATION SUPPORT During and immediately following the installation of a new DEALER onto the SERVICE the following kinds of support will be available: - - Provide the LENDER and DEALER with the information required to setup the DEALER on the SERVICE (DEALER #, Compuserve UIC). - - Assist setup of the DEALER's configuration. - - Test the DEALER's connection with CompuServe. - - Test the DEALER's configuration with the SERVICE. - - Test the DEALER's connection with the LENDER. - - Follow-up on additional training issues through the help desk. ONGOING DEALER SUPPORT After the installation phase the following types of support are available through the CREDIT CONNECTION help desk: - - DEALER cannot startup the terminal. - - DEALER cannot connect to CompuServe. - - DEALER cannot log into the SERVICE because of problems or is no longer a subscriber to the SERVICE. - - DEALER is disconnected from the SERVICE. - - DEALER needs training to perform a new function. - - DEALER cannot enter or process an application properly. - - DEALER is not getting proper or timely responses from LENDER, credit bureaus or other remote sites. - - DEALER cannot process the statistical reports properly. Credit Connection (7/23/96) Exhibit A--Page2 16 PROBLEM DIAGNOSIS & ESCALATION PROCEDURES CREDIT CONNECTION will take all reasonable steps to correct the failure of the SERVICE to operate substantially in accordance with its DOCUMENTATION and will provide updates, corrections, new releases and modifications of the SERVICE. CREDIT CONNECTION will use its best efforts to resolve critical SERVICE Program Errors in order to minimize business interruption on the part of Licensee. Business critical Program Errors involve errors such as an inability to call credit bureaus, a database is down and/or unavailable for use, loans cannot be entered into the SERVICE or decisioned, or comparable problems with the SERVICE. CREDIT CONNECTION reserves the right to determine, in its good faith judgment, the priority and criticality of Program Errors reported by Licensee. CREDIT CONNECTION defines three types of support calls to prioritize responses. In each case, CREDIT CONNECTION will take all reasonable steps to correct problems and address concerns. Priority A - - Indicates that a problem has effectively interrupted the LENDER's business to the degree that the LENDER is unable to operate or function. Priority A problems will be addressed immediately on a best efforts basis. Priority B - - Indicates that the SERVICE is operating at less than its full functionality and the LENDER's business is moderately affected. Priority B problems will be addressed during normal business hours. Priority C - - Indicates that the operation of the SERVICE has an identifiable problem but the LENDER's business is only slightly affected. Priority C problems will be resolved within a mutually established time frame.
PROBLEM POINT OF CONTACT DIAGNOSIS & ESCALATION PROCEDURES CREDIT CONNECTION terminal/communication CREDIT CONNECTION 1. CREDIT CONNECTION Customer equipment at DEALER site non-functional Help Desk Support 2. Technical Support 3. Local 3rd party support will be dispatched by Technical Support if required CompuServe not responding (no login to CREDIT CONNECTION 1. CREDIT CONNECTION Customer CompuServe or the SERVICE) Help Desk Support 2. Technical Support 3. CompuServe Help Desk Login to CompuServe but not the SERVICE CREDIT CONNECTION 1. CREDIT CONNECTION Customer Help Desk Support 2. Technical Support CREDIT CONNECTION Software Application CREDIT CONNECTION 1. CREDIT CONNECTION Customer Problems Help Desk Support 2. Technical Support The SERVICE cannot deliver/receive data CREDIT CONNECTION 1. CREDIT CONNECTION Customer with/from LENDER Help Desk Support 2. Technical Support 3. CompuServe Help Desk (if network)
Credit Connection (7/23/96) Exhibit A--Page3 17 CREDIT CONNECTION is not required to perform corrective maintenance to malfunctions of the SERVICE caused by the following: - - LENDER's modifications to the SERVICE - - LENDER's failure to use enhancements or error corrections or to operate according to the most recently distributed SERVICE DOCUMENTATION. - - Misuse of the SERVICE. - - Problems with non-CREDIT CONNECTION provided hardware, network, operating system software, or other third-party software. - - Failure to use the SERVICE in accordance with the terms of the LENDER's CREDIT CONNECTION AGREEMENT. - - Use of the SERVICE with non-CREDIT CONNECTION software/hardware or in an operating environment outside of the environment recommended by CREDIT CONNECTION HOURS OF OPERATION(1) Monday through Friday 6:00 AM to 10:00 PM Saturday 7:00 AM to 9:30 PM Sunday 11:00 AM to 8:00 PM Closed Easter and Christmas
(1) All times are Eastern Time Administrative functions such as DEALER and LENDER additions, deletions or changes should occur Monday through Friday from 9AM-5PM. Credit Connection (7/23/96) Exhibit A--Page4 18 Exhibit B SCHEDULE OF FEES, CHARGES AND CREDITS (Credit Applications from CREDIT CONNECTION DEALERS) The following fees, charges and credits shall apply to ABC's subscription to the SERVICE: FEES AND CHARGES 1. ABC shall pay to CREDIT CONNECTION a monthly subscription/licensing fee of ___________ Dollars ($_______) for each calendar month or part of a calendar month that the AGREEMENT remains in effect, invoiced monthly and due thirty (30) days after the date of the invoice. 2. For the purposes of this Exhibit B, an "Application Transmission" is defined as the transmission of a credit application by means of the SERVICE to a LENDER. ABC shall pay to CREDIT CONNECTION a ___ dollar ($____) fee for each Application Transmission to ABC or any ABC AFFILIATE. CREDIT CONNECTION shall invoice ABC monthly for such fees, which shall be due thirty (30) days after receipt of the invoice. 3. ABC shall pay CREDIT CONNECTION's then current time and materials rates (unless otherwise agreed) for any additional services provided by CREDIT CONNECTION at ABC's request. 4. ABC shall be solely responsible for all taxes and duties, federal, state or otherwise imposed, resulting from this AGREEMENT or based upon amounts payable hereunder (exclusive of taxes based upon the net income of CREDIT CONNECTION) or upon ABC's or any ABC AFFILIATE's license or use of the SERVICE and/or the MARK. 5. ABC shall pay CREDIT CONNECTION an interface implementation fee of $________ which (1) includes interface installation and implementation related support, and (2) the purchase price of a CREDIT CONNECTION PC server. CREDITS ABC shall be entitled to a credit of $____ for each Application Transmission initiated by an ABC Dealer to a LENDER (an "Application Transmission Credit"). For the purposes of this Exhibit B, an ABC Dealer is any CREDIT CONNECTION DEALER (1) which is enrolled as a subscriber to the SERVICE by ABC (including ABC obtaining the CREDIT CONNECTION DEALER's execution of a standard Credit Connection Dealer Subscription Agreement) and (2) with which ABC assists CREDIT CONNECTION in providing initial training and on-going support throughout the term of the Credit Connection Dealer Subscription Agreement. The ____ dollar ($_____) Application Transmission Credit shall apply to each Application Transmission from an ABC Dealer to a LENDER, regardless of whether the Application Transmission is sent to ABC or any ABC AFFILIATE. By way of example, if an ABC Dealer sends an Application Transmission to ABC and to two (2) other LENDERS, ABC shall be entitled to a total of _____ dollars ($____) in Application Transmission Credits. If an ABC Dealer sends an Application Transmission to a total of three (3) LENDERS, none of which includes ABC, ABC still shall be entitled to a total of ____ dollars ($___) in Application Transmission Credits. The Application Transmission Credit program specified under this "CREDITS" section shall not apply to any credit applications transmitted by means of the SERVICE by automobile superstores ("SUPERSTORES"), as opposed to traditional franchise automobile dealerships. SUPERSTORES include business operations such as CARmax, AutoNation, Car America, Car Choice, Drivers Mart, or other similar companies, including automobile retailers Credit Connection (10/2/96) Confidential and Proprietary 19 which conduct sales through mass merchandising and/or non-dealer related marketing activities like direct marketing. The Application Transmission Credit program specified under this "CREDITS" section shall not apply for any credit applications originated from CREDIT CONNECTION DEALERS that have been enrolled in the SERVICE by, or that are receiving SERVICE related training and/or support from, a CREDIT CONNECTION value added reseller partner (a "VAR"). A VAR includes any entity (1) that is in the business of providing automated systems relating to dealership management and operations (e.g., any finance and insurance vendor), and (2) with which CREDIT CONNECTION establishes a value added marketing arrangement. CREDIT CONNECTION DEALERS shall have discretion in electing whether to obtain SERVICE related training and support from ABC or a VAR. In the event that any CREDIT CONNECTION DEALER which ABC has enrolled and for which ABC has been providing support elects to receive on-going support instead from a VAR, ABC shall cease earning Application Transmission Credits with respect to such CREDIT CONNECTION DEALER as of the date that such VAR assumes support for the CREDIT CONNECTION DEALER. ABC's Application Transmission Credits shall be applied against the monthly subscription and licensing fee and the Application Transmission fees owed by ABC. CREDIT CONNECTION shall be responsible for collection efforts related to any ABC Dealer which refuses or fails to pay to CREDIT CONNECTION any Application Transmission fees owed. Based on the refusal or failure of an ABC Dealer to pay for Application Transmission fees owed, and CREDIT CONNECTION's non-collection of such fees, CREDIT CONNECTION reserves the right to adjust the amount of Application Transmission Credits credited to ABC. The result of such adjustment shall be that ABC shall not receive a $____ Application Transmission Credit when a $____ Application Transmission fee has not been collected by CREDIT CONNECTION. THIRD PARTY FEES AND CHARGES ABC shall be responsible for paying all charges and costs of third party products and services which ABC orders or procures in connection with the SERVICE. Such payment shall be made by ABC in accordance with the applicable payment terms relating to such third party products and services. Credit Connection (10/2/96) Exhibit B--Page 2 Confidential and Proprietary EX-10.6 7 FORM OF CR. CON. LEND. AGR. (FOR NON-CR) 1 EXHIBIT 10.6 CREDIT CONNECTION(R) LENDER AGREEMENT This CREDIT CONNECTION(R) LENDER AGREEMENT is made as of the ____ day of _______, 1996 (the "Effective Date") by and between CREDIT CONNECTION, L.L.C. ("CREDIT CONNECTION"), with its principal place of business at 5950 Symphony Woods Road, Columbia, MD 21044, and ABC Bank ("ABC"), with its principal place of business at _______________________________________________________. Explanatory Statement CREDIT CONNECTION operates under the service mark "Credit Connection(R)"1 an automated service which, in order to facilitate the credit approval process for consumer loans, electronically assembles and transmits credit applications between various parties, including automobile dealers, merchants, and banks and lenders. The parties have agreed that ABC will subscribe to the Credit Connection service. This AGREEMENT sets forth the terms and conditions of ABC's subscription. Agreements IN CONSIDERATION OF the mutual covenants and agreements set forth herein, CREDIT CONNECTION and ABC, intending to be legally bound, agree as follows: 1. Definitions. As used in this AGREEMENT, the following capitalized terms have the indicated meanings, unless the context in which a term is used requires a different meaning. a. "ACCEPTANCE DATE" means the date upon which the ABC SYSTEM is first capable of interfacing with the SERVICE to receive credit application data from a CREDIT CONNECTION DEALER, and to transmit a notice of acceptance or rejection back to such CREDIT CONNECTION DEALER. b. "AGREEMENT" means this CREDIT CONNECTION(R) LENDER AGREEMENT, as it may from time to time be amended or modified by the parties or in accordance with its terms, all addenda hereto executed by both parties, and all exhibits attached hereto, as they may from time to time be modified. c. "ABC AFFILIATE" means any person or entity (i) that owns, directly or indirectly, through one or more affiliates, at least a majority of the voting capital stock of ABC, or (ii) at least a majority of whose voting capital stock is owned, directlyor indirectly, through one or more affiliates, by ABC, or (iii) at least a majority of whose voting capital stock is owned directly or indirectly, through one or more affiliates, by another person or entity that at such time also owns, directly or indirectly, through one or more affiliates, at least a majority of the voting capital stock of ABC. For the purpose of establishing the rights and obligations of ABC AFFILIATES under this Agreement, a person or entity shall be considered an ABC AFFILIATE only so long as it continues to satisfy the criteria for an ABC AFFILIATE established in this Section 1(c). d. "ABC COMPUTER(S)" means the computer(s) on which ABC or ABC AFFILIATES maintain their automatic credit application processing functions with which the SERVICE is to interface. e. "ABC SOFTWARE" means any and all of ABC's, and any ABC AFFILIATES', credit underwriting software package(s) (whether internally developed, or licensed, by ABC or an ABC AFFILIATE) for which an INTERFACE(s) with the SERVICE is established and maintained. - -------------------- (1) Patent Pending. CREDIT CONNECTION (10/3/96) CONFIDENTIAL AND PROPRIETARY 2 f. "ABC SYSTEM" means, collectively, the INTERFACE, the ABC SOFTWARE, the ABC COMPUTER(S), and all operating or system software installed on the ABC COMPUTER(S). g. "CREDIT CONNECTION DEALER" means an automobile dealer or other merchant who is a subscriber to the SERVICE. h. "DATA" means (i) credit application data encompassing the information set forth on the credit application form(s) utilized by the SERVICE, (ii) notices of the acceptance or rejection of such credit applications, all as posted in electronic form on the SERVICE by ABC (or any ABC AFFILIATE) or any CREDIT CONNECTION DEALER, and (iii) any third party data (e.g., value guide information) which may be accessed or requested by means of the SERVICE. CREDIT CONNECTION may in its sole discretion, from time to time and with prior written notice, add additional data fields to, or as appropriate delete certain data fields from, the SERVICE. Data entered on the SERVICE in such additional fields shall be included in the term "DATA." i. "DOCUMENTATION" means the system and user documentation for the SERVICE provided by CREDIT CONNECTION to LENDER SUBSCRIBERS generally, as modified by CREDIT CONNECTION from time to time. j. "EFFECTIVE DATE" means the date first set forth above when this AGREEMENT becomes legally binding upon the parties. j. "INTERFACE" means all software code developed by or under the direction of ABC based on the INTERFACE REQUIREMENTS DOCUMENT, and installed on the ABC COMPUTER(S), to permit the electronic transfer of DATA between CREDIT CONNECTION's computer(s) and the ABC COMPUTER(S) in a format that permits the DATA to be (i) uploaded from the SERVICE into the ABC SYSTEM for processing, and (ii) downloaded from the ABC SYSTEM back to the SERVICE upon completion of such processing. l. "INTERFACE EQUIPMENT" means all equipment (including without limitation hardware, software and telecommunications devices) used by ABC and the ABC AFFILIATES to establish the capability for ABC COMPUTER(S), by means of the SERVICE, to receive DATA from and send DATA to CREDIT CONNECTION's computer(s). m. "INTERFACE REQUIREMENTS DOCUMENT" means the document (as revised from time to time) provided by CREDIT CONNECTION to ABC describing the technical requirements which the INTERFACE must meet in order to allow ABC and ABC AFFILIATES to utilize the SERVICE. n. "LENDER" means any bank or other financial institution which is in the business of funding credit applications submitted by customers of automobile dealers or other merchants, and therefore either is, or is a candidate to become, a LENDER SUBSCRIBER. o. "LENDER SUBSCRIBER" means any LENDER who is a subscriber to the SERVICE, including without limitation ABC. p. "MARK" means the service mark under which the SERVICE is operated by CREDIT CONNECTION. CREDIT CONNECTION may from time to time adopt a new service mark(s) under which the SERVICE is operated, and thereafter the term "MARK" shall be expanded to include the new service mark(s). q. "SERVICE" means the Credit Connection(R) automated electronic credit application assembly and transfer service described and provided for in this AGREEMENT plus, as the context permits, all equipment, computer programs, patents, trade secrets, designs, documentation, manuals and specifications thereof or incorporated therein, exclusive of the ABC SYSTEM. CREDIT CONNECTION (10/3/96) 2 CONFIDENTIAL AND PROPRIETARY 3 2. Subscription to and On-Going Operation of the SERVICE. a. ABC hereby subscribes to the SERVICE, and CREDIT CONNECTION agrees to provide the SERVICE to ABC and ABC AFFILIATES, for the term of this AGREEMENT. The SERVICE shall commence upon the ACCEPTANCE DATE. b. CREDIT CONNECTION shall operate the SERVICE so that it performs in all material respects in accordance with the DOCUMENTATION. CREDIT CONNECTION shall not be responsible for operational problems affecting use of the SERVICE to the extent such problems result from the performance or non-performance of ABC or any third parties. The foregoing notwithstanding, CREDIT CONNECTION shall exercise all reasonable efforts to cooperate and work with ABC and/or such third parties in order to correct promptly any circumstances causing such problems. c. CREDIT CONNECTION shall be responsible for supporting ABC's and ABC AFFILIATES' use of the SERVICE in accordance with the LENDER Support Document attached hereto as Exhibit A, as may be revised with prior written notice from time to time by CREDIT CONNECTION. ABC shall be responsible for submitting all support requests in accordance with the procedures set forth in the LENDER Support Document. ABC shall be responsible for paying CREDIT CONNECTION for all support requested when such support is not offered as a non-chargeable component of the SERVICE (as identified in the LENDER Support Document). d. Throughout the term of this AGREEMENT, ABC shall maintain the INTERFACE in accordance with the INTERFACE REQUIREMENTS DOCUMENT and any further INTERFACE specifications which may be provided or approved by CREDIT CONNECTION from time to time. Further, any changes to the ABC SYSTEM authorized or otherwise made by ABC shall be performed in a reasonably prudent manner so as to avoid or minimize any disruption to the operation of the SERVICE. ABC acknowledges that CREDIT CONNECTION shall have no responsibility for any failures of the SERVICE caused in whole or in part by any failure to maintain the INTERFACE and/or to perform changes to the ABC SYSTEM in accordance with the terms of this Section 2(d). e. Throughout the term of this AGREEMENT, ABC (and, as applicable, ABC AFFILIATES) shall be responsible for maintaining the INTERFACE EQUIPMENT configuration in accordance with the applicable maintenance standards of the equipment manufacturer, so as to not adversely impact the performance of the SERVICE. f. The parties agree to use all reasonable efforts to finalize and agree upon an ABC CREDIT CONNECTION(R) Marketing Plan within sixty (60) days after EFFECTIVE DATE. The Marketing Plan shall describe the respective efforts of the parties to encourage dealers with which ABC ordinarily conducts credit underwriting activities to join the SERVICE as subscribers. ABC acknowledges that the Application Transmission Credit program provided for in Exhibit B is granted in consideration of ABC's substantial contributions to enrolling dealers as subscribers and to providing initial and ongoing training and other support to such dealers throughout the terms of their subscriptionsto the SERVICE. Following approval of the ABC CREDIT CONNECTION(R) Marketing Plan by CREDIT CONNECTION and ABC, the parties agree to use all reasonable efforts to conduct their marketing activities relating to the SERVICE and ABC's subscription thereto consistent with the ABC CREDIT CONNECTION(R) Marketing Plan. 3. License. a. In accordance with the terms of this AGREEMENT and for the term hereof, CREDIT CONNECTION grants ABC a non-exclusive and non-transferable license to use the SERVICE for its own internal business purposes (and those of ABC AFFILIATES), and to permit its employees and agents (and employees and agents of ABC AFFILIATES) to interact with the SERVICE through remote computer terminals solely for ABC's internal business purposes (and those of ABC AFFILIATES). Use of the SERVICE for the internal business purposes of ABC and ABC AFFILIATES means that the SERVICE may be used to support credit applications to be evaluated for funding by ABC or ABC AFFILIATES, but not by any third party. ABC has no right to make any changes or modifications to the SERVICE except as directed by CREDIT CONNECTION. CREDIT CONNECTION (10/3/96) 3 CONFIDENTIAL AND PROPRIETARY 4 b. In accordance with the terms of this AGREEMENT and for the term hereof, CREDIT CONNECTION grants ABC and ABC AFFILIATES a non-exclusive and non-transferable license to use the MARK for the sole purpose of identifying that it/they are licensed to use the SERVICE. The MARK, which is a registered trademark, is the following: CREDIT CONNECTION(R) Due to certain restrictions regarding CREDIT CONNECTION's rights to the trademark "Credit Connection," ABC acknowledges that CREDIT CONNECTION DEALERS may not use the mark or the words "Credit Connection" in advertising or other media regarding the availability of the SERVICE in any of the following states: Iowa, Illinois, Wisconsin or Missouri. CREDIT CONNECTION retains all rights to the MARK not specifically granted to ABC under this AGREEMENT. ABC has no right to make any changes or modifications to the MARK except as directed by CREDIT CONNECTION. c. CREDIT CONNECTION may from time to time by thirty (30) days prior written notice to ABC impose regulations upon the use of the MARK, provided that the regulations are applicable to LENDER SUBSCRIBERS generally. ABC shall comply with all such regulations on the use of the MARK. ABC shall not adopt or use any trade name, trademark, service mark or other name or identification for the SERVICE other than the MARK, without the prior written consent of CREDIT CONNECTION. d. CREDIT CONNECTION retains all rights to the SERVICE and the MARK not specifically granted to ABC under this AGREEMENT. All revisions, modifications and derivative works to the SERVICE developed by CREDIT CONNECTION or any other party, including all updates, enhancements or modifications to the SERVICE, will be the sole and exclusive property of CREDIT CONNECTION and will be subject to all of the use and nondisclosure restrictions which apply to the SERVICE under this AGREEMENT. e. If and to the extent that CREDIT CONNECTION incorporates the software of any third party in the SERVICE, and use of such third party software is not subject to the terms of a license agreement directly between ABC (and any ABC AFFILIATE, if applicable) and the third party licensor, the license of ABC and all ABC AFFILIATES to such third party software shall be defined and limited by the license to the SERVICE granted by CREDIT CONNECTION under this AGREEMENT. ABC specifically acknowledges that the licensors of such third party software and any data contained therein shall retain all ownership rights thereto, and ABC agrees that it shall not decompile, disassemble or reverse engineer such third party software for the purpose of revealing the proprietary information contained therein, or otherwise use such third party software to develop functionally similar computer software, or modify, alter or delete any of the copyright notices embedded in or affixed thereto, or permit any ABC AFFILIATE to do any of the foregoing. f. ABC acknowledges that the right or ability of CREDIT CONNECTION to license other LENDERS to use the SERVICE or MARK is not restricted in any manner by this AGREEMENT, and that it is CREDIT CONNECTION's intention to license a number of other LENDERS, in addition to automobile dealers and other merchants, to use the SERVICE and MARK under separate agreement. ABC also agrees that CREDIT CONNECTION shall be free to transmit credit applications from any CREDIT CONNECTION DEALERS, at the CREDIT CONNECTION DEALERS' request, to other LENDER SUBSCRIBERS and non-subscribing LENDERS. ABC acknowledges that CREDIT CONNECTION is free to terminate its agreement with any CREDIT CONNECTION DEALER in accordance with the terms of that agreement and CREDIT CONNECTION's judgment on whether to invoke such terms. CREDIT CONNECTION shall have no liability to ABC for any such action. 4. Connection of ABC SYSTEM to the SERVICE. a. In the event that any components of the ABC SYSTEM require installation by CREDIT CONNECTION (or its third party contractors) of computer equipment at an ABC or ABC AFFILIATE site, ABC shall be responsible for the following: i. ABC will arrange access for CREDIT CONNECTION or CREDIT CONNECTION's contractors to the location(s) of the ABC COMPUTER(S) on an as needed basis. CREDIT CONNECTION (10/3/96) 4 CONFIDENTIAL AND PROPRIETARY 5 ii. ABC will pay any charges, including, but not limited to, reasonable travel and related expenses, associated with access to the location(s) of the ABC COMPUTER(S) by CREDIT CONNECTION or CREDIT CONNECTION's contractors. iii. ABC will reimburse CREDIT CONNECTION for (i) the time of CREDIT CONNECTION's or its contractors' personnel (at CREDIT CONNECTION's, or its contractors', respective then current standard time and materials rates unless otherwise agreed in advance), and (ii) actual expenses, if the services intended to be performed by such personnel, and agreed upon by the parties, are delayed due to delays by ABC in arranging or allowing access by such personnel to (1) the location(s) of the ABC COMPUTER(S) or (2) such information as may reasonably be required to perform the services. b. In the event that ABC shall at any time change the configuration of the ABC SYSTEM in a manner which interrupts (i) the transfer of DATA between CREDIT CONNECTION's computer(s) and the ABC COMPUTER(S), and/or (ii) the processing of DATA by the ABC SOFTWARE, ABC shall be responsible, at its expense, for implementing such changes to the ABC SYSTEM as may be appropriate to remedy such interruption. Except as expressly provided in a change order executed by the parties, CREDIT CONNECTION shall not be responsible for any interruption in ABC's use of the SERVICE caused by such change(s) to the ABC SYSTEM configuration or any components thereof. c. In the event that CREDIT CONNECTION at any time makes any generally released change to the programs supporting the SERVICE on CREDIT CONNECTION's computer(s), and such change makes an alteration to the INTERFACE necessary or advisable, CREDIT CONNECTION shall give ABC at least ninety (90) days prior written notice of the change. ABC shall be responsible, at its expense, for securing any alteration to the INTERFACE made necessary or advisable by such change, and CREDIT CONNECTION shall exercise all reasonable efforts to assist ABC in this regard. CREDIT CONNECTION shall not be responsible for any interruption in ABC's or any ABC AFFILIATE's use of the SERVICE caused by such change(s), provided that such change(s) have not been made by CREDIT CONNECTION until at least ninety (90) days have elapsed after CREDIT CONNECTION's notice to ABC of its intent to make the change(s). d. ABC shall be responsible for training its operators in the operation of the ABC COMPUTER(S) hardware or operating software. e. CREDIT CONNECTION may suspend the electronic connection between the ABC COMPUTER(S) and CREDIT CONNECTION's computer(s) at any time that such connection for any reason is materially degrading the performance of CREDIT CONNECTION's computer(s) or the SERVICE. In the event that a suspension of the electronic connection between the ABC COMPUTER(S) and CREDIT CONNECTION's computer(s) should become necessary, the parties agree to cooperate in good faith to resolve any problems as quickly as reasonably possible so that the electronic connection can be re-established with minimal delay. 5. Access Security; Unauthorized Use. Access to the SERVICE will be restricted to persons logging in with the proper user identification code/password. ABC will be responsible for limiting access to its user identification code(s)/password(s) to authorized personnel and for the charges due to CREDIT CONNECTION with respect to all use of the SERVICE under its user identification code(s)/password(s), including the misuse or unauthorized use thereof. ABC agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, causes of action, losses, liabilities or expenses (including attorneys' fees) arising in connection with any misuse or unauthorized use of ABC's user identification code(s)/password(s). 6. Term of AGREEMENT; Termination. a. The term of this AGREEMENT shall begin on the Effective Date, and shall continue for a period of five (5) years (the "Initial Term") unless sooner terminated as provided below. Upon expiration of the Initial Term, and thereafter each Renewal Term (as defined below), this AGREEMENT shall renew for additional two (2) year terms CREDIT CONNECTION (10/3/96) 5 CONFIDENTIAL AND PROPRIETARY 6 ("Renewal Term(s)") unless terminated by either party by notice of termination given not less than one hundred and eighty (180) days prior to the expiration of the then current term. b. Either party may terminate this AGREEMENT for cause at any time if the other party fails to cure a breach of any term of this AGREEMENT within thirty (30) days after notice of the breach is given, or, with respect to those breaches which cannot reasonably be cured within thirty (30) days, if the breaching party fails within thirty (30) days to commence curing the breach and thereafter to proceed with all due diligence substantially to cure the same. Notwithstanding the foregoing, CREDIT CONNECTION may terminate this AGREEMENT, after giving ABC notice of non-payment and an opportunity to cure, at any time that a payment due from ABC is more than forty-five (45) days past due. 7. Payments and Payment Terms. a. ABC agrees to pay CREDIT CONNECTION when due the fees and charges on the Schedule of Fees and Charges set forth in Exhibit B attached hereto. Unless otherwise specified, all fees and charges shall be due and payable thirty (30) days after receipt of invoice. b. No more than once every twelve (12) months CREDIT CONNECTION may, upon at least thirty (30) days prior notice to ABC, modify any of the charges provided in the Schedule of Fees and Charges, provided that the modified charges conform to the standard charges then quoted by CREDIT CONNECTION to potential LENDER SUBSCRIBERS and charged by CREDIT CONNECTION to its existing LENDER SUBSCRIBERS generally, subject to volume usage discounts. Further, CREDIT CONNECTION reserves the right to increase its prices annually based on increases in the Consumer Price Index. c. Late payments will bear interest at the lesser rate of one and one-half percent (1 1/2%) per month or the maximum rate permitted by law on any unpaid amount due CREDIT CONNECTION under this AGREEMENT for each month (or fraction thereof) that such amount remains unpaid. 8. Warranties by CREDIT CONNECTION. a. CREDIT CONNECTION warrants to ABC that: i. CREDIT CONNECTION is the owner of the SERVICE or otherwise has obtained the right to grant to ABC and ABC AFFILIATES the license specified in this AGREEMENT to use the SERVICE and the MARK. ii. Throughout the term of this AGREEMENT, subject to maintenance and periods of shutdown caused by equipment failure, software failure, power failure or causes beyond CREDIT CONNECTION's control, the SERVICE will operate substantially as provided in the DOCUMENTATION. iii. Services performed by CREDIT CONNECTION pursuant to this AGREEMENT will be of a professional and workmanlike manner in accordance with the standards set forth in this AGREEMENT or, in the absence thereof, at a minimum in accordance with industry standards and practices. iv. The SERVICE shall operate without any adverse impact due to date related processing associated with the year 2000. This warranty does not include operational or other problems which may result from the SERVICE interfacing with any third party system that cannot operate without any adverse impact due to date related processing associated with the year 2000. b. THE WARRANTIES SET FORTH IN THIS SECTION 8 ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY CREDIT CONNECTION. SUCH WARRANTIES ARE IN LIEU OF, AND CREDIT CONNECTION EXPRESSLY HEREBY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE SERVICE OR THE MARK INCLUDING, BUT NOT CREDIT CONNECTION (10/3/96) 6 CONFIDENTIAL AND PROPRIETARY 7 LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 9. Infringement Claims of Third Parties. a. At its own expense, CREDIT CONNECTION will defend ABC against any claim by any third party alleging that the SERVICE or use of the MARK in accordance with Section 3(b) above infringes a patent or copyright in the United States, and CREDIT CONNECTION will pay all costs, damages and attorneys' fees finally awarded to any such third party in any infringement action or negotiated by CREDIT CONNECTION in settlement; provided that ABC provides prompt written notice to CREDIT CONNECTION of such claim (if ABC has knowledge), and allows CREDIT CONNECTION sole control of, and fully cooperates with CREDIT CONNECTION in, the defense of such claims and all related negotiations. b. CREDIT CONNECTION's obligations under this Section 9 are conditional upon ABC's agreement that if the SERVICE and/or the MARK are, or in CREDIT CONNECTION's opinion are likely to become, subject to a claim of infringement, CREDIT CONNECTION, at its option and expense, may either (i) procure for ABC and the ABC AFFILIATES the right to continue using the SERVICE and/or the MARK; or (ii) modify the SERVICE and/or the MARK to make it/them non-infringing in a manner that does not materially impair its/their functionality. If neither of these two options is reasonably available to CREDIT CONNECTION, then CREDIT CONNECTION may terminate this AGREEMENT by notice to ABC. c. CREDIT CONNECTION will have no obligation with respect to any actual or threatened infringement claim based in whole or in part upon (i) the ABC System, or (ii) any enhancements, upgrades or modifications to the SERVICE and/or the MARK made by ABC, any ABC AFFILIATE, or any party that ABC authorizes or directs to make an enhancement, upgrade or modification, or (iii) ABC's (or any ABC AFFILIATE's) failure to use all enhancements, updates, upgrades, or modifications to the SERVICE and/or the MARK offered by CREDIT CONNECTION, or (iv) ABC's (or any ABC AFFILIATE's) failure to use the SERVICE and/or the MARK in accordance with this AGREEMENT or the DOCUMENTATION, or (v) ABC's (or any ABC AFFILIATE's) combination, operation, or use of the SERVICE and/or the INTERFACE with software or systems created by parties other than CREDIT CONNECTION. ABC shall indemnify and hold CREDIT CONNECTION harmless from any damages, losses or costs associated with such claims. Further, CREDIT CONNECTION will have no obligation with respect to any actual or threatened infringement claim, to the extent such claim is based on third party services or products provided to ABC (or any ABC AFFILIATE's) as part of the SERVICE, except to pass through to ABC any infringement indemnification related obligations of such third party to LENDER SUBSCRIBERS which have been established by contract between CREDIT CONNECTION and such third party. d. This Section 9 states CREDIT CONNECTION's entire obligation to ABC with respect to actual or threatened third-party infringement claims. 10. Warranties by ABC. a. ABC warrants to CREDIT CONNECTION that its execution, delivery and performance of this AGREEMENT do not violate the terms of any law, regulation, court order or material agreement to which ABC or any ABC AFFILIATE which may use the SERVICE or MARK is subject. ABC also warrants that ABC and all ABC AFFILIATES shall comply with applicable laws, statutes, regulations and ordinances related to this AGREEMENT and its subject matter. ABC acknowledges and agrees that, to the extent ABC or any ABC AFFILIATE does not maintain in good standing its contractual relationship(s) with any third party where such relationship(s) is a prerequisite for CREDIT CONNECTION to meet its obligations hereunder, CREDIT CONNECTION shall be excused from such obligations. b. With respect to its/their rights, obligations and performance in connection with this AGREEMENT, ABC, and the ABC AFFILIATES, shall not infringe, misappropriate, or violate any third party copyrights, patent, contractual, or other proprietary rights. CREDIT CONNECTION (10/3/96) 7 CONFIDENTIAL AND PROPRIETARY 8 11. Protection of Proprietary Rights. a. ABC acknowledges that the SERVICE, DOCUMENTATION, INTERFACE REQUIREMENTS DOCUMENT and the MARK are valuable confidential and/or proprietary rights, trade secrets and property belonging to CREDIT CONNECTION or to third parties who have granted CREDIT CONNECTION the right to distribute such property, and that title to the SERVICE, DOCUMENTATION, INTERFACE REQUIREMENTS DOCUMENT, and the MARK remains in CREDIT CONNECTION or such third parties. Additionally, ABC acknowledges that by receiving access to the SERVICE and the limited right to use the MARK, ABC is entering into a relationship of trust and confidence with CREDIT CONNECTION pursuant to which ABC agrees to take such steps, consistent with the same steps which ABC takes to protect its own highly confidential and proprietary information and systems, as are necessary to preserve the confidential and/or proprietary nature of the SERVICE, DOCUMENTATION, INTERFACE REQUIREMENTS DOCUMENT, and the MARK. b. ABC and the ABC AFFILIATES will use the SERVICE, and will use, copy and disclose the DOCUMENTATION and the MARK, only as permitted under this AGREEMENT. Further, ABC and the ABC AFFILIATES will grant access to the SERVICE and the DOCUMENTATION to employees or agents of ABC and the ABC AFFILIATES only on a "need to know" basis, and will ensure that any persons or entities receiving such access are obligated to protect the SERVICE and the DOCUMENTATION in a manner consistent with the terms of this AGREEMENT. Except as expressly permitted herein, ABC agrees that neither it nor any ABC AFFILIATES will, at any time, without written permission of CREDIT CONNECTION, (i) copy, duplicate or permit any other person, corporation or entity to copy or duplicate the SERVICE or any part thereof; (ii) create, attempt to create, or permit others to create or attempt to create the source program and/or object program associated with any software component of the SERVICE; or (iii) decompile, disassemble or reverse engineer any software component of the SERVICE for the purpose of revealing the proprietary information contained therein or otherwise use the SERVICE to develop functionally similar computer software or services, or modify, alter or delete any of the copyright notices embedded in or affixed to the copies of any components of the SERVICE, or permit any third party to do any of the foregoing. c. ABC will notify CREDIT CONNECTION promptly of any violation of CREDIT CONNECTION's proprietary rights in the SERVICE, DOCUMENTATION or MARK of which ABC becomes aware when such violation is related to the rights granted to or the obligations incurred by ABC hereunder, and will assist CREDIT CONNECTION as reasonably necessary to remedy the violation. In such case, ABC agrees at CREDIT CONNECTION's request (and, if not occasioned by ABC's or any ABC AFFILIATE's breach of this AGREEMENT, at CREDIT CONNECTION's expense) to institute legal proceedings and/or join in any lawsuit or other action by CREDIT CONNECTION against any such third party to enforce these provisions, to cooperate fully with CREDIT CONNECTION in such litigation, and, unless CREDIT CONNECTION has requested ABC to institute such suit or action, to permit CREDIT CONNECTION to assume exclusive control of all aspects of such suit or action. d. ABC shall ensure the compliance by ABC AFFILIATES with the provisions of this Section 11. 12. Non-Disclosure of Confidential Information. a. During the term of this AGREEMENT, ABC and CREDIT CONNECTION may have access to confidential and/or proprietary information regarding the other party or the other party's affiliates (including without limitation ABC AFFILIATES and CMSI or third party contractors or suppliers). Both parties agree during the term of this AGREEMENT and at all times thereafter (i) to maintain in confidence all such information acquired from the other party (including their affiliates and their third party contractors or suppliers), (ii) not to disclose any such information to anyone except the disclosing party's employees authorized to receive it and third parties to whom such disclosure is specifically authorized in writing by the other party, and (iii) not to use the other party's confidential and/or proprietary information for any purpose other than that for which it is disclosed. b. Information considered confidential and/or proprietary shall include, without limitation, (i) matters of a technical nature such as trade secret processes or devices, data formulas, inventions and specifications, (ii) matters of a business nature such as information about costs, profits, pricing policies, employees, product plans and marketing plans CREDIT CONNECTION (10/3/96) 8 CONFIDENTIAL AND PROPRIETARY 9 or strategies, (iii) other information of a similar nature not generally disclosed to the public, (iv) information containing confidential and/or proprietary notices, and (v) confidential and/or proprietary information of third parties disclosed to a party under a non-disclosure agreement and appropriately identified as confidential and/or proprietary. c. The foregoing shall not prevent a party from using or disclosing information that has been disclosed by or otherwise is claimed as belonging to the other party if such information is (i) already known by the recipient party without an obligation of confidentiality, (ii) publicly known or becomes publicly known through no unauthorized act of the recipient party, (iii) rightfully received from a third party, (iv) independently developed by the recipient party without use of the other party's information, (v) disclosed without similar restriction to a third party by the party owning the information, (vi) approved by the other party for disclosure, or (vii) required to be disclosed pursuant to a requirement of a governmental agency or law so long as the disclosing party provides the other party with prompt written notice of such requirement prior to any such disclosure. d. Both parties agree that during the term of this AGREEMENT and at all times thereafter they shall protect the confidentiality of all pricing and payment related terms associated with this AGREEMENT. 13. Limitation of Liability. a. In the event of the loss or damage of any DATA on CREDIT CONNECTION's computer(s) or in data transfers between the ABC COMPUTER(S), any CREDIT CONNECTION DEALERS' terminals/computers, and CREDIT CONNECTION's computer(s), due to a cause for which CREDIT CONNECTION is responsible, the sole remedy of ABC against CREDIT CONNECTION shall be to require CREDIT CONNECTION to allow ABC and the CREDIT CONNECTION DEALERS to re-enter the lost or damaged DATA on CREDIT CONNECTION's computer(s) without any additional fees accruing to CREDIT CONNECTION. b. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 13(a) ABOVE, CREDIT CONNECTION'S LIABILITY TO ABC WITH RESPECT TO EACH CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WILL BE LIMITED TO THE CHARGES ACTUALLY PAID BY ABC UNDER THIS AGREEMENT FOR THE TRANSACTION OR PERIOD OF TIME TO WHICH SUCH CLAIM OR CAUSE OF ACTION RELATES, PROVIDED THAT CREDIT CONNECTION'S LIABILITY ON EACH CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT SHALL BE LIMITED TO THE AGGREGATE AMOUNT OF FEES AND CHARGES PAID BY ABC UNDER THIS AGREEMENT IN THE TWO (2) MONTHS PRECEDING THE ACCRUAL OF THE CLAIM OR CAUSE OF ACTION. IN NO EVENT WILL CREDIT CONNECTION BE LIABLE TO ABC FOR LOST PROFITS, LOST SAVINGS, LOSS OF USE, LOSS OF DATA (EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT TO THE CONTRARY), OR FOR INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES OR FOR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY THIRD PARTY CLAIM AGAINST ABC IN CONNECTION WITH OR CONCERNING THE SERVICE, OR ARISING OUT OF OR IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, EXCEPT FOR ANY CLAIM OF INFRINGEMENT FOR WHICH INDEMNIFICATION IS REQUIRED AS PROVIDED UNDER SECTION 9 ABOVE. c. CREDIT CONNECTION shall have no duty to verify the content or accuracy of, or in any manner to analyze, DATA. As such, CREDIT CONNECTION is not acting as a credit bureau reporting agency in and of itself, and ABC is to refer to the specific credit bureau(s) when making reference to the credit reporting. ABC will have full responsibility for any decisions and/or analyses in which the SERVICE or any DATA may be used or relied upon. Any reliance by ABC upon any DATA or the SERVICE shall not diminish that responsibility, and ABC agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, expenses, losses or liabilities (including legal fees) in connection with any claim by any third party relating to any decisions or analyses made by ABC while using any DATA or the SERVICE. 14. ABC's Project Authority. At all times during the term of this AGREEMENT, ABC shall designate one person and one alternate to serve as ABC's primary contact and project authority on the INTERFACE and the CREDIT CONNECTION (10/3/96) 9 CONFIDENTIAL AND PROPRIETARY 10 SERVICE, and shall disclose the identities of such persons to CREDIT CONNECTION. The project authority and alternate will be authorized to make all decisions, to request and receive services from CREDIT CONNECTION, and to modify or waive the terms of this AGREEMENT on behalf of ABC. ABC may change the project authority and alternate at any time by written notice to CREDIT CONNECTION. 15. Miscellaneous. a. Publicity. ABC agrees to permit CREDIT CONNECTION to include ABC's name in reference and user lists of LENDER SUBSCRIBERS for advertising and other promotional purposes. Other than as required by law, all advertisements, media releases, public announcements and public disclosures by either party, or their employees or agents, relating to this Agreement or the name of ABC, any ABC AFFILIATE, CREDIT CONNECTION, or any CREDIT CONNECTION affiliate, shall be coordinated with and approved by the other party prior to the release thereof. b. Entire Agreement. This AGREEMENT sets forth the entire agreement between the parties with respect to the subject matter hereof, and no party shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein. This AGREEMENT supersedes all prior oral or written representations, agreements, promises, or other communications, concerning or relating to the subject matter of this AGREEMENT. No terms or conditions of any ABC purchase order or other form originated by ABC will be effective as a modification of the terms and conditions of this AGREEMENT. No changes to the terms and conditions of this Agreement will be considered valid unless the changes are mutually accepted by both parties. c. Modifications and Amendments; Waiver. Except as otherwise expressly provided in this AGREEMENT, this AGREEMENT may not be amended or modified except by a written agreement signed by authorized representatives of each party. The failure of CREDIT CONNECTION or ABC in any one or more instances to insist upon strict performance of any of the terms or provisions of this AGREEMENT will not be construed as a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or provisions on any future occasion. d. Sections Surviving Termination. Sections 3(d), 5, 7(c), 9, 11, 12, 13, 15(i), 15(l), 15(m) of this AGREEMENT shall remain in effect following the termination of this AGREEMENT and shall be binding upon the parties thereafter. e. Headings. The captions to sections of this AGREEMENT are for convenience of reference only and do not in any way limit or amplify the terms or conditions hereof. f. Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, such provision or requirement will be enforced only to the extent it is not in violation of such law or is not otherwise unenforceable and all other provisions and requirements of this AGREEMENT will remain in full force and effect. g. Force Majeure. Neither party shall be liable for damages for delay in performance hereunder arising out of causes beyond its control and without its fault or negligence, including, but not limited to, interruptions of telecommunications or network services provided by third parties, credit bureau outages or downtime, acts of God or the public enemy, governmental acts, fires, floods, epidemics, strikes, labor disturbances or freight embargoes (but not including delays caused by subcontractors or suppliers). Without limiting the generality of the foregoing, CREDIT CONNECTION shall not be liable for the failure of any CREDIT CONNECTION DEALER to access and utilize the SERVICE in any particular manner or to maintain its authorization with ABC or its subscription and license with CREDIT CONNECTION to use the SERVICE. h. Notices. Where notice, approval or similar action by either party is permitted or required by any provision of this AGREEMENT, such action shall not be unreasonably delayed or withheld. Any notice, demand or other communication required or permitted under the terms of this AGREEMENT shall be in writing and shall be made by Federal Express, Airborne Express, or other similar overnight delivery service, telegram, telex, facsimile or electronic CREDIT CONNECTION (10/3/96) 10 CONFIDENTIAL AND PROPRIETARY 11 transmitter or certified or registered mail, return receipt requested. A notice shall be deemed to be received by the addressee: one (1) business day after sending, if sent by Federal Express, Airborne Express, or other similar overnight delivery service; on the date of sending, if sent by telegram, telex, facsimile or electronic transmitter; and three (3) business days after mailing, if sent by certified or registered mail. Notices shall be addressed as follows: In the case of notices to ABC: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Attn: President (with a copy to General Counsel) In the case of notices to CREDIT CONNECTION: Credit Connection, L.L.C. 5950 Symphony Woods Road, Suite 301 Columbia, MD 21044 Attn: President (with a copy to General Counsel) Any party hereto may from time to time change its address for notification purposes by giving the other prior written notice of the new address and the date upon which it will become effective. i. Limitation of Actions. No suit, action, or proceeding may be brought or instituted on or with respect to this AGREEMENT or any transaction hereunder more than five (5) years after the cause of action on which the suit is based accrued, unless otherwise limited by the applicable statute of limitations. j. Successors and Assigns. This AGREEMENT may not be assigned by either party without the prior written consent of the other party, and any attempted unauthorized assignment will be void; provided, however, that a party may assign this AGREEMENT to any of its affiliates upon prompt written notice to the other party. No assignment will relieve the assignor or the assignee of its obligations under this AGREEMENT. Notwithstanding the foregoing, either party may assign any of its rights and obligations under this AGREEMENT to the surviving corporation with or into which that party may merge or consolidate, or an entity to which that party transfers all, or substantially all, of its business and assets. k. Independent Contractors; Third Party Beneficiaries. CREDIT CONNECTION will perform all services under this AGREEMENT as an independent contractor and not an agent, employee, partner, or joint venturer of or with ABC or any CREDIT CONNECTION DEALER. Except for third parties whose software is incorporated into the SERVICE as provided in Section 3(e) above, no person or entity not a party hereto, including but not limited to CREDIT CONNECTION DEALERS, will be deemed to be a third party beneficiary of this AGREEMENT or any provision hereof. l. Hiring Restriction. Each party agrees that, during the term of this AGREEMENT and for twenty-four (24) months thereafter, neither it nor any of its subsidiaries or affiliates shall, except with the prior written consent of the other party, offer employment to or employ any person employed then or within the preceding twenty-four (24) months by the other party (including any of that party's subsidiaries or affiliates). m. Governing Law; Jurisdiction. This AGREEMENT will be governed by and construed and enforced in accordance with the laws of the State of Maryland, exclusive of its choice of law rules and without application of the rule of contract construction that ambiguities in a contract are construed against the interests of the party drafting the contract. The parties consent to the jurisdiction of the courts of the State of Maryland, and the United States District Court for the District of Maryland, as to any issues related to this AGREEMENT, including the validity, enforceability, or interpretation thereof, which require judicial resolution. CREDIT CONNECTION (10/3/96) 11 CONFIDENTIAL AND PROPRIETARY 12 n. Explanatory Statement, Definitions and Exhibits. The Explanatory Statement and definitions set forth at the top of this AGREEMENT and the exhibits referred to in the text of this AGREEMENT, as they may be modified in according with the terms hereof, are incorporated by reference herein and shall constitute substantive parts of this AGREEMENT. As of the EFFECTIVE DATE, this AGREEMENT includes the following exhibits: Exhibit A: LENDER Support Document Exhibit B: Schedule of Fees, Charges and CREDITS (Credit Applications from CREDIT CONNECTION DEALERS) IN WITNESS WHEREOF, the parties hereto have signed and affixed their seals to this AGREEMENT effective as of the day and year first written above. CREDIT CONNECTION, L.L.C. ABC Bank - ------------------------------- ----------------------------------- Signature Signature - ------------------------------- ----------------------------------- Print Name/Title Print Name/Title - ------------------------------- ----------------------------------- Date Date CREDIT CONNECTION (10/3/96) 12 CONFIDENTIAL AND PROPRIETARY 13 Exhibit A LENDER SUPPORT DOCUMENT ORGANIZATION CREDIT CONNECTION will utilize a three (3) tiered customer support hierarchy. All calls from participating CREDIT CONNECTION LENDERS ("LENDERS") and CREDIT CONNECTION DEALERS ("DEALERS") will enter through an 800 number and the calls will be sequenced by the AT&T telephone system to the next available help desk person. The caller may be issued a pre-recorded message depending on the nature of the call. Incoming calls will be answered by the CREDIT CONNECTION help desk first. After the initial help desk diagnosis, unresolved problems will be passed to technical support for further diagnosis and resolution. Technical support will also initiate calls to third party providers as needed for such issues as telecommunications problems or hardware malfunctions. When notifying CREDIT CONNECTION, the following information should be available: - - Institution ID, User ID of user who encountered the problem - - Application number - - Station or screen where problem occurred - - Exact error message and error number, if available - - Detailed description of problem This information is very important for CREDIT CONNECTION to ensure a quick and accurate resolution. SUPPORT CATEGORIES There are several categories of support supplied by the CREDIT CONNECTION staff. LENDER INSTALLATION SUPPORT During and immediately after the installation of the SERVICE at a LENDER, the following kinds of support will be available: - - Supply to the LENDER relevant SERVICE information, CompuServe User Identification Code (UIC) and other information required to have the LENDER complete installation. - - Assist the LENDER's installation staff to install the SERVICE. - - Setup the LENDER on the SERVICE. - - Test the LENDER's connection with CompuServe. - - Test the LENDER's configuration with the SERVICE. - - Test a simulated DEALER connection with the LENDER. - - Follow-up on additional training issues through the help desk. Credit Connection (7/23/96) 14 ONGOING LENDER SUPPORT After the installation phase the following types of support are available through the CREDIT CONNECTION help desk: - - LENDER is not receiving applications. - - LENDER is receiving corrupted data from the SERVICE. - - The level of activity has decreased but not stopped. - - LENDER cannot send responses to the SERVICE. - - LENDER begins receiving faxed applications from DEALER(s). - - LENDER is not getting proper or timely responses from DEALER(s), credit bureaus or other remote sites. - - Link to the SERVICE is down. DEALER INSTALLATION SUPPORT During and immediately following the installation of a new DEALER onto the SERVICE the following kinds of support will be available: - - Provide the LENDER and DEALER with the information required to setup the DEALER on the SERVICE (DEALER #, Compuserve UIC). - - Assist setup of the DEALER's configuration. - - Test the DEALER's connection with CompuServe. - - Test the DEALER's configuration with the SERVICE. - - Test the DEALER's connection with the LENDER. - - Follow-up on additional training issues through the help desk. ONGOING DEALER SUPPORT After the installation phase the following types of support are available through the CREDIT CONNECTION help desk: - - DEALER cannot startup the terminal. - - DEALER cannot connect to CompuServe. - - DEALER cannot log into the SERVICE because of problems or is no longer a subscriber to the SERVICE. - - DEALER is disconnected from the SERVICE. - - DEALER needs training to perform a new function. - - DEALER cannot enter or process an application properly. - - DEALER is not getting proper or timely responses from LENDER, credit bureaus or other remote sites. - - DEALER cannot process the statistical reports properly. Credit Connection (7/23/96) Exhibit A--Page2 15 PROBLEM DIAGNOSIS & ESCALATION PROCEDURES CREDIT CONNECTION will take all reasonable steps to correct the failure of the SERVICE to operate substantially in accordance with its DOCUMENTATION and will provide updates, corrections, new releases and modifications of the SERVICE. CREDIT CONNECTION will use its best efforts to resolve critical SERVICE Program Errors in order to minimize business interruption on the part of Licensee. Business critical Program Errors involve errors such as an inability to call credit bureaus, a database is down and/or unavailable for use, loans cannot be entered into the SERVICE or decisioned, or comparable problems with the SERVICE. CREDIT CONNECTION reserves the right to determine, in its good faith judgment, the priority and criticality of Program Errors reported by Licensee. CREDIT CONNECTION defines three types of support calls to prioritize responses. In each case, CREDIT CONNECTION will take all reasonable steps to correct problems and address concerns. Priority A - - Indicates that a problem has effectively interrupted the LENDER's business to the degree that the LENDER is unable to operate or function. Priority A problems will be addressed immediately on a best efforts basis. Priority B - - Indicates that the SERVICE is operating at less than its full functionality and the LENDER's business is moderately affected. Priority B problems will be addressed during normal business hours. Priority C - - Indicates that the operation of the SERVICE has an identifiable problem but the LENDER's business is only slightly affected. Priority C problems will be resolved within a mutually established time frame.
PROBLEM POINT OF CONTACT DIAGNOSIS & ESCALATION PROCEDURES CREDIT CONNECTION terminal/communication CREDIT CONNECTION 1. CREDIT CONNECTION Customer equipment at DEALER site non-functional Help Desk Support 2. Technical Support 3. Local 3rd party support will be dispatched by Technical Support if required CompuServe not responding (no login to CREDIT CONNECTION 1. CREDIT CONNECTION Customer CompuServe or the SERVICE) Help Desk Support 2. Technical Support 3. CompuServe Help Desk Login to CompuServe but not the SERVICE CREDIT CONNECTION 1. CREDIT CONNECTION Customer Help Desk Support 2. Technical Support CREDIT CONNECTION Software Application CREDIT CONNECTION 1. CREDIT CONNECTION Customer Problems Help Desk Support 2. Technical Support The SERVICE cannot deliver/receive data CREDIT CONNECTION 1. CREDIT CONNECTION Customer with/from LENDER Help Desk Support 2. Technical Support 3. CompuServe Help Desk (if network)
Credit Connection (7/23/96) Exhibit A--Page3 16 CREDIT CONNECTION is not required to perform corrective maintenance to malfunctions of the SERVICE caused by the following: - - LENDER's modifications to the SERVICE - - LENDER's failure to use enhancements or error corrections or to operate according to the most recently distributed SERVICE DOCUMENTATION. - - Misuse of the SERVICE. - - Problems with non-CREDIT CONNECTION provided hardware, network, operating system software, or other third-party software. - - Failure to use the SERVICE in accordance with the terms of the LENDER's CREDIT CONNECTION AGREEMENT. - - Use of the SERVICE with non-CREDIT CONNECTION software/hardware or in an operating environment outside of the environment recommended by CREDIT CONNECTION HOURS OF OPERATION(1) Monday through Friday 6:00 AM to 10:00 PM Saturday 7:00 AM to 9:30 PM Sunday 11:00 AM to 8:00 PM Closed Easter and Christmas
(1) All times are Eastern Time Administrative functions such as DEALER and LENDER additions, deletions or changes should occur Monday through Friday from 9AM-5PM. Credit Connection (7/23/96) Exhibit A--Page4 17 Exhibit B SCHEDULE OF FEES, CHARGES AND CREDITS (Credit Applications from CREDIT CONNECTION DEALERS) The following fees, charges and credits shall apply to ABC's subscription to the SERVICE: FEES AND CHARGES 1. ABC shall pay to CREDIT CONNECTION a monthly subscription/licensing fee of ___________ Dollars ($_______) for each calendar month or part of a calendar month that the AGREEMENT remains in effect, invoiced monthly and due thirty (30) days after the date of the invoice. 2. For the purposes of this Exhibit B, an "Application Transmission" is defined as the transmission of a credit application by means of the SERVICE to a LENDER. ABC shall pay to CREDIT CONNECTION a ___ dollar ($____) fee for each Application Transmission to ABC or any ABC AFFILIATE. CREDIT CONNECTION shall invoice ABC monthly for such fees, which shall be due thirty (30) days after receipt of the invoice. 3. ABC shall pay CREDIT CONNECTION's then current time and materials rates (unless otherwise agreed) for any additional services provided by CREDIT CONNECTION at ABC's request. 4. ABC shall be solely responsible for all taxes and duties, federal, state or otherwise imposed, resulting from this AGREEMENT or based upon amounts payable hereunder (exclusive of taxes based upon the net income of CREDIT CONNECTION) or upon ABC's or any ABC AFFILIATE's license or use of the SERVICE and/or the MARK. 5. ABC shall pay CREDIT CONNECTION an interface implementation fee of $________ which (1) includes interface installation and implementation related support, and (2) the purchase price of a CREDIT CONNECTION PC server. CREDITS ABC shall be entitled to a credit of $____ for each Application Transmission initiated by an ABC Dealer to a LENDER (an "Application Transmission Credit"). For the purposes of this Exhibit B, an ABC Dealer is any CREDIT CONNECTION DEALER (1) which is enrolled as a subscriber to the SERVICE by ABC (including ABC obtaining the CREDIT CONNECTION DEALER's execution of a standard Credit Connection Dealer Subscription Agreement) and (2) with which ABC assists CREDIT CONNECTION in providing initial training and on-going support throughout the term of the Credit Connection Dealer Subscription Agreement. The ____ dollar ($_____) Application Transmission Credit shall apply to each Application Transmission from an ABC Dealer to a LENDER, regardless of whether the Application Transmission is sent to ABC or any ABC AFFILIATE. By way of example, if an ABC Dealer sends an Application Transmission to ABC and to two (2) other LENDERS, ABC shall be entitled to a total of _____ dollars ($____) in Application Transmission Credits. If an ABC Dealer sends an Application Transmission to a total of three (3) LENDERS, none of which includes ABC, ABC still shall be entitled to a total of ____ dollars ($___) in Application Transmission Credits. The Application Transmission Credit program specified under this "CREDITS" section shall not apply to any credit applications transmitted by means of the SERVICE by automobile superstores ("SUPERSTORES"), as opposed to traditional franchise automobile dealerships. SUPERSTORES include business operations such as CARmax, AutoNation, Car America, Car Choice, Drivers Mart, or other similar companies, including automobile retailers Credit Connection (10/2/96) Confidential and Proprietary 18 which conduct sales through mass merchandising and/or non-dealer related marketing activities like direct marketing. The Application Transmission Credit program specified under this "CREDITS" section shall not apply for any credit applications originated from CREDIT CONNECTION DEALERS that have been enrolled in the SERVICE by, or that are receiving SERVICE related training and/or support from, a CREDIT CONNECTION value added reseller partner (a "VAR"). A VAR includes any entity (1) that is in the business of providing automated systems relating to dealership management and operations (e.g., any finance and insurance vendor), and (2) with which CREDIT CONNECTION establishes a value added marketing arrangement. CREDIT CONNECTION DEALERS shall have discretion in electing whether to obtain SERVICE related training and support from ABC or a VAR. In the event that any CREDIT CONNECTION DEALER which ABC has enrolled and for which ABC has been providing support elects to receive on-going support instead from a VAR, ABC shall cease earning Application Transmission Credits with respect to such CREDIT CONNECTION DEALER as of the date that such VAR assumes support for the CREDIT CONNECTION DEALER. ABC's Application Transmission Credits shall be applied against the monthly subscription and licensing fee and the Application Transmission fees owed by ABC. CREDIT CONNECTION shall be responsible for collection efforts related to any ABC Dealer which refuses or fails to pay to CREDIT CONNECTION any Application Transmission fees owed. Based on the refusal or failure of an ABC Dealer to pay for Application Transmission fees owed, and CREDIT CONNECTION's non-collection of such fees, CREDIT CONNECTION reserves the right to adjust the amount of Application Transmission Credits credited to ABC. The result of such adjustment shall be that ABC shall not receive a $____ Application Transmission Credit when a $____ Application Transmission fee has not been collected by CREDIT CONNECTION. THIRD PARTY FEES AND CHARGES ABC shall be responsible for paying all charges and costs of third party products and services which ABC orders or procures in connection with the SERVICE. Such payment shall be made by ABC in accordance with the applicable payment terms relating to such third party products and services. Credit Connection (10/2/96) Exhibit B--Page 2 Confidential and Proprietary EX-10.7 8 FORM OF CREDIT CONNECTION DEALER SUBSCRIPTION 1 EXHIBIT 10.7 CREDIT CONNECTION(R) DEALER SUBSCRIPTION AGREEMENT DEALER Name and Address: - ---------------------------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- Named Contact: Phone No.: - ---------------------------------------------------------------- (hereinafter referred to as "DEALER") This DEALER SUBSCRIPTION AGREEMENT is made as of the _____ day of _____________________, 1996 (the "Effective Date"), by and between CREDIT CONNECTION, L.L.C., a Maryland limited liability company ("CREDIT CONNECTION"), and DEALER. This AGREEMENT sets forth the terms and conditions under which DEALER has agreed to become a subscriber of the Credit Connection(R) SERVICE (patent pending). 1. Definitions. The definitions set forth below will govern the meaning of capitalized terms used in this AGREEMENT. a. "AGREEMENT" means this Dealer Subscription Agreement (including all exhibits referred to herein), as this Dealer Subscription Agreement and its exhibits may from time to time be amended or modified. b. "DATA" means any records, information and other data, relating in any manner to credit applications, electronically entered or displayed on the SERVICE by DEALER, any LENDER SUBSCRIBER, or any other third party. c. "DOCUMENTATION" means the description of the SERVICE set forth in the Credit Connection(R) Service Summary, and the SERVICE's Quick Reference Guide, as such documents may be supplemented and modified by CREDIT CONNECTION from time to time. d. "EQUIPMENT" means the computer and related hardware, software and telecommunications components required to be installed at a DEALER site in order for DEALER personnel to utilize the SERVICE. e. "LENDER COMPUTERS" means the computers of LENDER SUBSCRIBERS on which the credit application processing software programs of LENDER SUBSCRIBERS are housed. f. "LENDER SUBSCRIBER" means a bank or other financial institution which subscribes to the SERVICE and which has authorized DEALER to electronically transmit, by means of the SERVICE, credit applications to its LENDER COMPUTER. g. "MARK" means the service mark under which the SERVICE is operated by CREDIT CONNECTION. CREDIT CONNECTION may from time to time adopt a new service mark(s) under which the SERVICE is operated, and thereafter the term "MARK" shall be expanded to include the new service mark(s). h. "SERVICE" means the Credit Connection(R) automated electronic credit application assembly and transfer service described in the DOCUMENTATION and provided for in this AGREEMENT plus, as the context permits, all computer programs, patents, trade secrets, designs, documentation, and specifications thereto. 2. Subscription To SERVICE. For the term of this AGREEMENT, CREDIT CONNECTION agrees to provide the SERVICE to DEALER, and DEALER agrees to accept and subscribe to the SERVICE. Subject to the terms and conditions of this Agreement, DEALER shall be entitled to all features and benefits of the SERVICE as are made generally available to dealers that subscribe to the SERVICE. 3. License. CREDIT CONNECTION grants DEALER a non-exclusive and non-transferable license to use the SERVICE (i) for purposes of transmitting credit applications of its retail customers to LENDER SUBSCRIBERS and other financial institutions, and receiving responses thereto. CREDIT CONNECTION grants DEALER a non-exclusive and non-transferable license to use the MARK for the sole purpose of identifying that it is a dealer licensed to use the SERVICE. The MARK, which is a registered trademark, is the following: CREDIT CONNECTION(R) DEALER EXPRESSLY ACKNOWLEDGES THAT DEALER MAY NOT USE THE MARK OR THE WORDS "CREDIT CONNECTION" IN ADVERTISING OR OTHER MEDIA REGARDING THE AVAILABILITY OF THE SERVICE IN ANY OF THE FOLLOWING STATES: IOWA, ILLINOIS, WISCONSIN OR MISSOURI. CREDIT CONNECTION retains all rights to the SERVICE (including all of its components) and the MARK not specifically granted to DEALER under this AGREEMENT. DEALER has no right to make any changes or modifications to the SERVICE or the MARK except as directed by CREDIT CONNECTION. 4. DEALER EQUIPMENT. In accordance with the Installation Order Form executed by DEALER, the Installation Worksheet to be completed by DEALER, and the Installation Schedule prepared by CREDIT CONNECTION, DEALER will install (or arrange to be installed) the EQUIPMENT at the DEALER sites from which the SERVICE will be used. DEALER acknowledges that, with respect to EQUIPMENT which requires installation or maintenance/support by third parties, CREDIT CONNECTION will not be responsible to DEALER for the performance of such third parties. Dealer is required to maintain its EQUIPMENT consistent with CREDIT CONNECTION's standards as a prerequisite to proper operation of the SERVICE. 5. Password Security. Access to the SERVICE by DEALER will be restricted by a confidential password security system. DEALER shall limit access to its confidential password(s) to authorized personnel, and shall use best efforts to prevent the misuse or unauthorized use of its password(s) and the SERVICE. DEALER shall be responsible for the charges due to CREDIT CONNECTION with respect to all use and misuse of its password(s), including the unauthorized use thereof. DEALER agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, causes of action, losses, liabilities or expenses (including attorneys' fees) arising in connection with any misuse or unauthorized use of DEALER's password(s). 6. Lenders And Credit Bureaus. DEALER shall be responsible for maintaining appropriate relationships with all LENDER SUBSCRIBERS to which it wishes to electronically transmit credit applications and/or receive responses thereto by means of the SERVICE. DEALER shall be responsible for maintaining accounts in good standing with all credit bureaus from which it wishes to electronically retrieve credit reports on the SERVICE. All charges and fees imposed by credit bureaus shall be governed by DEALER's arrangements with such credit bureaus, and shall be the exclusive responsibility of DEALER. 7. Term Of AGREEMENT. The term of this AGREEMENT shall begin on the Effective Date and continue for a term of two (2) years. Thereafter, this AGREEMENT shall be automatically renewed annually on the anniversary of the Effective Date unless either party provides written notice of its intent to terminate at least ninety (90) days prior to such renewal date. Either party may terminate this AGREEMENT for cause at any time if the other party fails to cure a breach of any term of this AGREEMENT within thirty (30) days after notice of the breach is given. 8. Payments And Payment Terms a. DEALER agrees to pay CREDIT CONNECTION the fees and charges set forth in the Credit Connection(R) Payment Schedule attached hereto. CREDIT CONNECTION shall begin billing DEALER on the date that the EQUIPMENT is installed at DEALER's site. CREDIT CONNECTION may at any time and from time to time upon at least thirty (30) days prior notice to DEALER modify any of the fees and charges specified in the Credit Connection(R) Payment Schedule, provided that the modified charges conform to the standard charges then quoted and charged by CREDIT CONNECTION generally to other dealer customers. DEALER is responsible for all taxes and duties, if any, based upon amounts payable hereunder. b. DEALER shall reimburse CREDIT CONNECTION for its reasonable travel and related expenses incurred in connection with this AGREEMENT. c. Late payments will bear interest at the lesser rate of one and one half percent (1 1/2%) per month or the maximum rate permitted by law for each month (or fraction thereof) that such amounts remain unpaid. In the event that DEALER has not paid any fees or charges which are more than thirty (30) days past due, CREDIT CONNECTION may, upon ten (10) days written notice, suspend or terminate the electronic connection between the EQUIPMENT at any DEALER site(s) and the CREDIT CONNECTION computer(s). DEALER shall be responsible for all costs of collection of late fees or charges which CREDIT CONNECTION incurs, including attorneys' fees. 9. Warranties By CREDIT CONNECTION. CREDIT CONNECTION warrants to DEALER that throughout the term of this AGREEMENT, subject to maintenance and periods of shutdown resulting from causes specified in Section 13(e) below, the SERVICE will operate substantially as provided in the DOCUMENTATION. THE WARRANTIES SET FORTH IN THIS SECTION 9 ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY CREDIT CONNECTION. SUCH WARRANTIES ARE IN LIEU OF, AND CREDIT CONNECTION EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THIS AGREEMENT OR THE SERVICE, EQUIPMENT OR MARK, INCLUDING BUT NOT LIMITED TO ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CREDIT CONNECTION (8/7/96) 2 10. DEALER Regulatory Compliance. DEALER shall be responsible for obtaining from each of its credit applicants a written consent authorizing DEALER and/or any other lenders or purchasers of installment sales contracts which may be involved in the review of such applications (DEALER, together with such lenders and purchasers, are referred to as "Authorized Parties") to obtain and exchange among such Authorized Parties any consumer reports and other credit-related information (including without limitation the application itself and any evaluation of such application) regarding the applicant. In compliance with the Fair Credit Reporting Act, Dealer agrees to provide each Customer with the name and address of each lender to which DEALER sends the credit application by means of the Service. In addition, DEALER agrees to comply with all applicable provisions of the federal Truth in Lending Act and Regulation Z thereof, and all other applicable federal, state and local laws and regulations. 11. Protection Of Proprietary Rights and Non-Disclosure of Confidential Information. During the term of this AGREEMENT either party may have access to proprietary or confidential information ("Proprietary Information") of the other party (the party owning the information is referred to as the "Disclosing Party" and the party receiving the information is referred to as the "Recipient Party"). Both parties agree during the term of this AGREEMENT and at all times thereafter (i) to maintain in confidence all Proprietary Information of the Disclosing Party, (ii) not to disclose any such Proprietary Information to anyone except the Recipient Party's employees authorized to receive it and third parties to whom such disclosure is specifically authorized by the Disclosing Party, and (iii) not to use the Disclosing Party's Proprietary Information for any purpose unrelated to participation in the SERVICE. Upon the termination of this Agreement the Recipient Party shall either return or destroy all Proprietary Information of the Disclosing Party and, upon the Disclosing Party's request, certify in writing that it has complied with the provisions of this Section 11. 12. Limitation Of Liability a. In the event of the loss or damage of any DATA due to a cause for which CREDIT CONNECTION is solely responsible, the sole remedy of DEALER against CREDIT CONNECTION shall be to require CREDIT CONNECTION to allow DEALER and the LENDER SUBSCRIBERS (if applicable) to re-enter the lost or damaged DATA on the SERVICE without any additional fees or charges by CREDIT CONNECTION. b. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 12(a) ABOVE, CREDIT CONNECTION'S LIABILITY TO DEALER WITH RESPECT TO ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WILL BE LIMITED TO THE AGGREGATE AMOUNT OF FEES AND CHARGES ACTUALLY PAID BY DEALER TO CREDIT CONNECTION UNDER THIS AGREEMENT IN THE TWO (2) MONTHS PRECEDING THE ACCRUAL OF THE CLAIM OR CAUSE OF ACTION. IN NO EVENT WILL CREDIT CONNECTION BE LIABLE TO DEALER FOR LOST PROFITS, LOST SAVINGS, LOSS OF USE, LOSS OF DATA (EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT TO THE CONTRARY), OR FOR INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OR FOR SIMILAR DAMAGES. c. DEALER is solely responsible for operating the EQUIPMENT and for the accuracy and adequacy of DATA it keys in to the CREDIT CONNECTION computer for transmission to Lenders. DEALER acknowledges that CREDIT CONNECTION is not acting as a credit bureau reporting agency in and of itself, and DEALER is to refer to the specific credit bureau(s) when making reference to any credit reporting. CREDIT CONNECTION shall have no liability for the accuracy of information furnished by or to DEALER over the SERVICE. DEALER will have sole responsibility for any decisions and/or analyses in which any DATA transmitted or in any way processed by the SERVICE may be used or relied upon. DEALER agrees to hold CREDIT CONNECTION harmless from, and indemnify it against, all claims, causes of action, losses, liabilities or expenses (including attorneys' fees) arising in connection with or relating to DEALER's obligations under Section 10 above, and/or any decisions or analyses made by DEALER using DATA transmitted or in any way processed by the SERVICE. 13. Miscellaneous a. Entire Agreement. This AGREEMENT, including its exhibits, sets forth the entire agreement between the parties with respect to its subject matter, and neither party shall be bound by any conditions, understandings or representations other than as expressly provided herein. This AGREEMENT supersedes all prior oral or written representations or communications concerning or relating to the subject matter of this AGREEMENT. No terms or conditions of any DEALER purchase order or other form originated by DEALER will be effective as a modification of the terms and conditions of this AGREEMENT. Except as otherwise expressly provided in this AGREEMENT, this AGREEMENT may not be amended except by a written agreement signed by an authorized representative of each party. The failure of either party in any one or more instances to insist upon strict performance of any of the terms or provisions of this AGREEMENT will not be construed as a waiver or relinquishment of the right to assert or rely upon any such terms or provisions on any future occasion. b. Sections Surviving Termination. Sections 10-13 of this AGREEMENT shall remain binding and in effect following the termination of this AGREEMENT, as well as any payment obligations hereunder arising prior to termination. c. Headings. Headings are for convenience only and do not affect the meaning of this AGREEMENT. d. Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, such provision or requirement will be enforced only to the extent it is not invalid or unenforceable. e. Force Majeure. CREDIT CONNECTION shall not be liable for any delay or failure to perform its obligations under this AGREEMENT or otherwise if such delay or failure arises from any cause or causes beyond CREDIT CONNECTION's reasonable control. Without limiting the foregoing, CREDIT CONNECTION shall not be liable for the failure of any LENDER SUBSCRIBER to access and utilize the SERVICE in any particular manner or to maintain its subscription to the SERVICE. f. Notices. Any notice required or permitted under the terms of this AGREEMENT shall be in writing and shall be made by overnight delivery service or certified or registered mail, return receipt requested. Notices to CREDIT CONNECTION shall be addressed to: Credit Connection, L.L.C., 5950 Symphony Woods Road, Suite 301, Columbia, MD 21044, Attn: Program Director (with a copy to General Counsel). Notices to DEALER shall be addressed to the attention of the Named Contact at the DEALER address first cited above. g. Successors And Assigns. This AGREEMENT may not be assigned by DEALER without the prior written consent of CREDIT CONNECTION, and any attempted unauthorized assignment will be void. h. Independent Contractors. CREDIT CONNECTION will perform all services under this AGREEMENT as an independent contractor and not an agent, employee or partner of DEALER. i. Governing Law; Jurisdiction. This AGREEMENT will be governed by and enforced in accordance with the laws of the State of Maryland, exclusive of its choice of law rules. The parties consent to the jurisdiction of the courts of the State of Maryland, and the United States District Court for the District of Maryland, as to any issues related to this AGREEMENT. j. List Of Exhibits. The following exhibits are attached to and are a part of this AGREEMENT: (i) Credit Connection(R) Service Summary, and (ii) Credit Connection(R) Payment Schedule. AGREED AND ACCEPTED: DEALER: By: ---------------------------------------------------------- Printed Name: ------------------------------------------------ Title: ------------------------------------------------------- CREDIT CONNECTION, LLC: By: ---------------------------------------------------------- Printed Name/Title: ------------------------------------------ Title: ------------------------------------------------------- 3 CREDIT CONNECTION(R) SERVICE EXHIBIT A Description of the Credit Connection Service THIS DOCUMENT, DESCRIBING THE OPERATION OF THE CREDIT CONNECTION(R) SERVICE (THE "SERVICE"), IS AN EXHIBIT TO THE CREDIT CONNECTION(R) DEALER SUBSCRIPTION AGREEMENT (THE "AGREEMENT"). THIS DOCUMENT EXPLAINS THE OPERATION OF THE SERVICE, THE BENEFITS WHICH IT MAKES AVAILABLE TO THE DEALER, AND THE SUPPORT AVAILABLE TO ASSIST THE DEALER IN USING THE SERVICE. THE SERVICE IS COMPRISED OF THE FOLLOWING COMPONENTS, EACH OF WHICH IS DESCRIBED IN DETAIL BELOW: 1. ELECTRONIC TRANSMISSION OF APPLICATIONS 2. ELECTRONIC RECEIPT OF DECISIONS AND STATUS CHECKING 3. ELECTRONIC CREDIT REPORT PULLING WITH BUREAU SUMMARIES 4. ACTIVITY REPORTS OVER SELECTED PERIODS (MONTHLY, QUARTERLY, ETC.) 5. SERVICE RELATED NEWS 6. DEALER TRAINING AND SUPPORT 1. ELECTRONIC TRANSMISSION OF APPLICATIONS. The Service conveniently provides the Dealer with the ability, after keying an Application into the Service, to send that application either simultaneously or successively to several different financial institutions. The process of electronically transmitting an application to financial institutions involves the following steps: a. Keying an Application. The Dealer must key the credit information provided by the applicant into the Application form contained on the Service's Application screens. The Application form used by the Service is a standard form of the Consumer Banking Association. b. Selecting Financial Institutions. Upon completing the form, the Dealer selects the financial institutions that the Dealer wishes to have evaluate the Application. When selecting financial institutions, the Dealer can select the priority and sequence in which an Application is sent to different financial institutions, and the time interval between sending the Application to one financial institution and the next. This way, if a financial institution does not approve the Application within the designated time interval, or if the financial institutions returns on-line a rejection of the Application, the Service will automatically transmit the Application to the next financial institutions. c. Lender Subscribers and Other Financial Institutions. The Service includes the ability to send Applications to financial institutions that are not connected on-line to the Service, as well as to financial institutions that are connected on-line (called "Lender Subscribers"). In selecting financial institutions, it is important for the Dealer to understand the differences between these two categories of financial institutions and how the Service performs in each instance, which can be summarized as follows: i. When the Dealer selects a Lender Subscriber, the Application will be automatically transmitted on-line into the Lender Subscriber's credit processing system without the requirement for Lender Subscriber personnel to perform any additional data entry in order to initiate the credit evaluation. Additionally, only Lender Subscribers have the ability to transmit responses via the Service back to the Dealer. ii. When the Dealer selects a financial institution which is not a Lender Subscriber, the Service's fax forwarding capability will automatically fax a copy of the application to the financial institution. The Dealer can then coordinate in its customary manner with credit analysts at the financial institution regarding the review and decisioning of the Application. Because the financial institution is not connected to the Service as a Lender Subscriber, the Dealer should note that the response to the Application will not be provided on-line via the Service in this instance. CREDIT CONNECTION SERVICE EXHIBIT (6/19/96) 4 d. Ending the Process of Transmitting an Application. The Service will automatically stop sending an Application to subsequent financial institutions sequenced by the Dealer when an approval has been received via the Service from a Lender Subscriber. If the Dealer receives an approval from a financial institution other than the Service, the Dealer can enter a command which will terminate any further transmissions of the Application. PLEASE NOTE: The Dealer is responsible for establishing directly with each financial institution, whether a Lender Subscriber or not, an appropriate relationship authorizing the receipt and review of Applications. For example, a Dealer is responsible for having in place its own Nonrecourse Reserve Agreement or comparable agreement with each financial institution to which it transmits Applications via the Service. A Lender Subscriber has the right to designate which Dealers may transmit Applications electronically to it by means of the Service. In addition to having a Nonrecourse Reserve Agreement or similar agreement with the Lender Subscriber, the Dealer also must obtain from the Lender Subscriber the authorization code permitting the Dealer to send Applications to that particular Lender Subscriber. 2. ELECTRONIC RECEIPT OF DECISIONS AND STATUS CHECKING. The Service offers the Dealer the ability to receive on-line credit decisions from Lender Subscribers, and to check at any time the status of any pending Application. Receiving decisions on-line and status checking include the following capabilities: a. Receiving Decisions from Lender Subscribers. Lender Subscribers can transmit over the Service decisions regarding any Application which they have received through the Service. Since the Dealer typically remains on-line with the Service, the Service will provide immediate notification when a response has been received from any Lender Subscriber. If a Dealer has terminated connection with the Service, upon re-initiating the connection with the Service the Dealer can obtain all responses which have been sent during the period of disconnection. b. Credit Approvals, Conditional Approvals, and Rejections. Lender Subscribers can approve Applications on-line by means of the Service. The Service recognizes credit approvals when they are transmitted, and automatically discontinues transmitting the Application to any other financial institutions that the Dealer may have sequenced, as further review of the Application is not necessary. Lender Subscribers also can transmit conditional approvals and rejections of specific Applications over the Service. In either instance, the Service will continue to transmit the Application to other financial institutions designated by the Dealer until (1) an approval over the Service is received, (2) the Application has been sent to all of the financial institutions designated by the Dealer, or (3) the Dealer terminates further transmissions of the Application. In the case of conditional approvals, additional information requested by the Lender Subscriber may be transmitted by means of the Service, depending upon the nature of the request. Alternatively, the Dealer may want to consider contacting the Lender Subscriber directly by telephone to discuss the Application. c. Status Checking. At any time after an Application has been entered into the Service a pending decisions queue and lender decision screen may be requested allowing the Dealer to check the status of the Application. The report will include a summary of which financial institutions have been sent the Application, the response of any Lender Subscribers that have reviewed and decisioned the Application, finance terms offered, and a list of the financial institutions to which the Dealer has requested the Application be sent in the event that a credit approval has not been received. d. Transmissions to Non-Lender Subscribers. As explained above, the Service's fax forwarding capability allows Dealers to send Applications over the Service to financial institutions that are not Lender Subscribers. The Dealer should remember that because the Service sends the Application to such financial institutions by means of fax rather than on-line, the financial institutions will not be able to respond to the Application over the Service. The Dealer will need to communicate with such financial institutions by telephone or otherwise in order to receive credit decisions. When a credit approval is received independently of the Service, it is recommended that the Dealer enter the appropriate command in the Service to terminate transmission of the Application to any additional financial institutions that may have been pre-selected. CREDIT CONNECTION SERVICE EXHIBIT (6/19/96) 2 5 3. ELECTRONIC CREDIT REPORT PULLING WITH BUREAU SUMMARIES. The Service provides the Dealer with the ability to request and receive on-line credit bureau reports from Equifax, TRW and Trans Union. Additionally, the Service summarizes the bureau report information in an easily readable format in order to greatly enhance the Dealer's ability to evaluate the creditworthiness of each customer and better target financial institutions most likely to approve the customer's Application. The credit report pulling capability includes the following: a. Requesting the Credit Bureau Report. The information entered into the Service as part of a customer's Application includes all of the information required in order to pull a credit report on that customer. There is no additional information required, nor is there any need to duplicate the entry of customer information. In order to request a credit report, all the Dealer has to do is designate the credit bureau services from which reports are being requested and transmit the request. b. Bureau Summaries. Credit bureau reports obtained by means of the Service offer a significant convenience to Dealers through the bureau summarization capability. Raw credit bureau report data can be difficult to decipher and interpret. The Service summarizes this data and presents in an easily readable format. This format may be identical to the format available to credit analysts reviewing the Application at any Lender Subscriber. In this case, the Service provides the Dealer with the opportunity to review credit bureau data in the same format as is utilized by the credit analyst, and to have access on screen to the same information that the credit analyst is using in the event of any need to discuss with the credit analyst any customer's Application. PLEASE NOTE: The Dealer is responsible for establishing directly with each credit bureau service an appropriate relationship authorizing the Dealer to obtain credit reports. In other words, while the Service provides the capability to retrieve credit reports from the credit bureau services, the Dealer must establish its own business arrangement with each credit bureau for access to this information. 4. ACTIVITY REPORTS OVER SELECTED PERIODS. The Service includes a feature providing on-line, on-demand statistical reporting on a Dealer's utilization of the Service and activity with respect to the various financial institutions to which the Dealer sends credit applications. This statistical reporting feature includes the following capabilities: a. Reports Itemizing Activity by Lenders. The Service can produce reports which itemize by lender the total applications sent and the action taken, such as approved, conditionally approved, booked, and declined. Additionally, the reports calculate by lender the percentages of applications approved and booked. This reporting capability provides a quick, concise and organized format for the Dealer to review and analyze the results received from various financial institutions, and offers an objective method of measuring and comparing their respective performance and their impact on the Dealer's business. b. Daily Updating of Reports. The Service automatically updates reports on a daily basis so that the Dealer can have access to the most current and complete performance from the Dealer's lender relationships. The report periods can include a 30, 60 and 90 day analysis of performance by lender. c. Security Access to Reporting Capability. Access to this lender reporting data is protected by security code. The Dealer can select which users the Dealer wants reviewing this information in order to enhance his ability to target as quickly as possible appropriate lenders. 5. SERVICE RELATED NEWS. An on-line news function is incorporated with the Service in order to facilitate real-time communication between all users of the Service, including Dealers, Lender Subscribers and the Credit Connection. The news function alerts Dealers to new developments or offerings that may increase the value or benefits gained through using the Service, and enhances the ability of any user or Dealer to take immediate advantage of these as soon as they become generally available. a. Selective Routing of News. Credit Connection recognizes that some news may be of interest or concern only to a select group of users of the Service, rather than to all subscribers. Consequently, the news service CREDIT CONNECTION SERVICE EXHIBIT (6/19/96) 3 6 includes the ability to designate information for all subscribers, selected groups of subscribers, or even individual subscribers. b. Updates From Credit Connection. The news service provides a fast and convenient means for Credit Connection to communicate to its Dealer Subscribers and Lender Subscribers any information or updates that may impact the use of the system. Operational issues and matter which may benefit generally all users or a group of users can be quickly and efficiently communicated in order to minimize time that might otherwise be spent communicating information and updates. c. Updates From Lender Subscribers. Lender Subscribers can avail themselves of the news service in order to inform their Dealer base regarding operational issues, promotional programs, credit procedures, or other matters that may mutually enhance the transaction of business between Dealers and Lenders. d. Time and Date Stamping. All news items are time and date stamped, and include expiration dates, so that the news service remains a fast and efficient means for remaining current with the latest credit processing issues and opportunities. 6. DEALER TRAINING AND SUPPORT. Credit Connection offers Dealers the information, training and support necessary to use the Service effectively and to address any questions or problems that may arise: a. Reference Materials and Initial Training. The Service includes at no additional charge reference materials and initial training which will allow Dealer personnel to immediately begin using the Service and taking advantage of its functionality. Initial training will be scheduled when the Dealer first signs up for the Service. Additionally, Credit Connection will supplement the reference materials first provided with updates so that Dealers can quickly begin utilizing product enhancements that may be offered. b. Support Line/Help Desk. For support issues that may arise while using the Service, such as software, equipment, telecommunications or operator questions, the Service offers a toll-free Help Desk number. The Help Desk operates seven days a week. Help Desk hours of operation applicable to the time zone in which the Dealer is located will be provided to the Dealer upon joining the Service. c. Additional Training. At any time following the initial training, Credit Connection offers additional training if a Dealer so desires. Such additional training is available either on-site or by telephone, depending upon the Dealer's requirements. Dealers may contact their Credit Connection representative for scheduling such additional training and obtaining current information relating to applicable training rates and charges. CREDIT CONNECTION SERVICE EXHIBIT (6/19/96) 4 7 CREDIT CONNECTION(R) PAYMENT SCHEDULE The following fees and charges are due from the DEALER to CREDIT CONNECTION, at the times indicated, in accordance with the terms of the Credit Connection(R) Dealer Subscription Agreement (the "AGREEMENT"): One Time Fees 1. An initial, non-refundable setup fee of ________________ Dollars ($_____) per DEALER ID. This fee shall be due on the date the AGREEMENT is executed. 2. A CompuServe installation fee of $_____ for an eight port PAD. This fee applies if DEALER's configuration includes a dedicated leased line for two or more terminals up to eight. This fee shall be invoiced following execution of the AGREEMENT with payment due net thirty days. Recurring Fees 1. A monthly subscription fee of $______ per DEALER ID, payable each month for the preceding calendar month. If the DEALER's subscription begins on a date other than the first day of a month, there shall be no pro-rating of the $_____ monthly subscription fee for any partial month, and the entire $______ will be charged for that month. 2. A per transmission application fee of ____ Dollars ($_____) for each transmission of an application sent via the SERVICE to a CREDIT GRANTOR. Transmissions of the same application to more than one CREDIT GRANTOR shall be subject to a fee of $______ for each CREDIT GRANTOR to which the application is transmitted. These fees shall be invoiced monthly and due thirty (30) days after the date of the invoice. 3. A fee of ____ Dollars ($_____) for each quick application (credit bureau report and analysis) accessed by DEALER through the SERVICE. These credit bureau fees shall be invoiced monthly and due thirty (30) days after the date of the invoice. Credit bureau fees charged by CREDIT CONNECTION apply to DEALER's use of the SERVICE to obtain quick applications (credit bureau report and analysis). The DEALER shall be responsible for any fees charged by the credit bureau in order to obtain the report. 4. A CompuServe telecommunications network fee according to "a" or "b" below, as applicable: a. $____ per month for each 9.6 baud eight port PAD ordered by DEALER; or b. $____ per month if DEALER is using only a single terminal and a dial-up line to access the SERVICE (rather than a dedicated leased line for up to eight terminals connected through an eight port PAD). CompuServe telecommunications network fees will be invoiced monthly with payment due thirty (30) days after the invoice date. Changes in CompuServe's charges for the CompuServe telecommunications network fees may result in changes to the CompuServe telecommunications network fees chargeable hereunder. 5. All taxes and duties, federal, state or otherwise imposed, resulting from the AGREEMENT or based upon amounts payable hereunder (exclusive of taxes based upon the net income of CREDIT CONNECTION) or upon DEALER's use of the SERVICE. Such taxes and duties shall be paid within thirty (30) days of being invoiced. DEALER may contract directly with CREDIT CONNECTION to receive additional training, documentation or services. CREDIT CONNECTION reserves the right to charge DEALER at CREDIT CONNECTION's then current rates for any such additional items. This Payment Schedule excludes any charges which DEALER may incur in connection with the SERVICE, such as computer or other equipment charges, and which DEALER pays directly to a third party rather than to CREDIT CONNECTION. CREDIT CONNECTION (6/19/96) EX-10.8.1 9 OFFICE BUILDING LEASE DATED OCTOBER 29, 1993 1 Exhibit 10.8.1 Suite 400 OFFICE BUILDING LEASE BETWEEN Symphony Woods Limited Partnership - ------------------------------------------------------------------------------- (Landlord) AND Credit Management Solutions, Incorporated - ------------------------------------------------------------------------------- (Tenant) * Symphony Woods Office Building * - ------------------------------------------------------------------------------- OFFICE BUILDING Columbia Maryland - ----------------------- ----------------------- (City) (State) 2 STATE OF MARYLAND COUNTY OF HOWARD LEASE AGREEMENT is made and entered into this 29 day of October, 1993, by and between the Landlord and Tenant hereinafter named. DEFINITIONS AND BASIC PROVISIONS The following definitions and basic provisions shall be construed in conjunction with and limited by the references thereto in other provisions of this lease: (a) "Landlord": Symphony Woods Limited Partnership (b) "Tenant": Credit Management Solutions, Incorporated (c) "Demised Premises": approximately 11,565 square feet on Floor four, suite no. 400 in the building(s) located at 5950 Symphony Woods Road, Columbia, Maryland ("Building") such premises being shown and outlined on the plan attached hereto as Exhibit A. (d) "Lease Term": a period of Sixty (60) months commencing on October 15, 1993, and ending on October 31, 1998. (e) "Basic Rental": a total sum of $884,722.46 payable by Tenant, subject to adjustment as provided herein, on the first day of each calendar month of the Lease year, in advance, at the office of the Landlord in monthly installments as follows: From the Commencement Date through the last day of the twelfth (12th) month of the Lease Term, equal monthly payments of $13,492.50; From the first day of the thirteenth (13th) month through the last day of the twenty-fourth (24th) month of the Lease Term, equal monthly payments of $14,456.25; From the first day of the twenty-fifth (25th) month through the last day of the thirty-sixth (36th) month of the Lease Term, equal monthly payments of $14,938.12 (see rider); All rental payments shall be paid to the order of Symphony Woods Limited Partnership without notice, offset, reduction or abatement, subject to adjustment as set forth in this Lease. If the term shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, on or before the commencement date of the term the monthly installment of Basic Rental prorated on a per diem basis with respect to that fractional calendar month. All rental payments thereafter will be for a full calendar month and will be in the amount as specified in clause (e) above. (f) "Prepaid Rental": $0 representing payment of rental for the first full month and partial month, if any, of the Lease Term. (g) "Security Deposit": $13,492.50 (h) "Permitted Use": Tenant shall, continuously and without interruption throughout the term, occupy and use the demised premises for, and only for general offices, subject to and in accordance with all applicable zoning and other Governmental regulations. (i) "Prorata Share": initially 12.44% (j) "Rider(s)" consisting of three page(s) with sections numbered consecutively 55 through 62 attached hereto and made a part hereof. (k) "Guarantor(s)": N/A GRANTING CLAUSE In consideration of the obligation of Tenant to pay Basic Rental, Operating Expenses, and Taxes as herein provided and in consideration of the other terms, covenants and conditions hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord, the Demised Premises to have and to hold the same for the Lease Term specified herein, all upon the terms and conditions set forth in this Lease. SERVICES BY LANDLORD Landlord agrees to furnish Tenant while occupying the Demised Premises the following services: (a) Hot and cold water at those points of supply provided for general use of all Building tenants. (b) Air conditioning, heat and electric current (for lighting and fractional horsepower machines only) during reasonable hours of generally recognized business days, as determined by Landlord in such quantity and of such quality as Landlord determines in its sole judgement is reasonably necessary for Tenant's comfortable use and enjoyment of the Demised Premises. (c) Elevator service, if any, in common with other tenants for ingress to and egress from the Demised Premises. (d) Janitorial cleaning services as may in the judgment of Landlord be reasonably required. (e) Electrical lighting for public areas and special service areas of the Building in the manner and to the extent deemed by Landlord to be standard. Revised 3/90 1 3 Landlord shall have no obligation to furnish services to Tenant other than those specified above. Should Landlord provide additional services to Tenant, Tenant shall pay separately for such additional services (including, but not limited to, heating and air conditioning services provided during hours other than as set forth in the applicable provisions of this paragraph) at rates to be established from time to time by Landlord. Charges for any service for which Tenant is required to pay shall be due and payable within ten (10) days after they are billed. If Tenant fails to make payment for any such services, Landlord, in addition to all other rights and remedies available to Landlord under this Lease, or at law or in equity, may, with notice to Tenant, discontinue any or all of such additional services and such discontinuance shall not be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Demised Premises or relieve Tenant from paying Basic Rental or performing any of its other obligations under this Lease. Failure to any extent to furnish, or any stoppage of these defined services, resulting from causes beyond control of Landlord or from any cause, shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant or work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery break down, or for any cause cease to function properly, Landlord shall use reasonable diligence to repair same promptly, but Tenant shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. This lease is conditioned upon faithful performance by Tenant of the following agreements, covenants, rules and regulations, herein set out and agreed to by Tenant. PAYMENTS 1. (A) To pay all rents and sums provided to be paid by Tenant hereunder at the times and in the manner herein provided. The obligation of Tenant to pay Basic Rental is an independent covenant, and no act or circumstance whether constituting breach of covenant by Landlord or not, shall release Tenant of the obligation to pay Basic Rental, Operating Expenses and Taxes. (B) To pay Landlord, on a retail cost basis, for parts and labor, for all replacements of electric lamps, fluorescent and otherwise and ballasts following the initial installation of same, upon demand, by Landlord. (C) On each annual anniversary date of the commencement date of the term of this Lease, the Basic Rental shall be subject to adjustment, and Tenant shall pay to Landlord such adjustment based upon the following formula. (i) To the Basic Rental payable annually during the previous twelve months shall be added that sum representing the resulting amount, if any, after multiplying such Basic Rental payable during the previous twelve months, by a fraction the numerator of which shall be the Consumer Price Index (CPI) now known as the "U.S. Department of Labor, Bureau of Labor Statistics Consumer Price Index, Average for Urban Wage Earners and Clerical Workers, all Items (1982-84 = 100)", for the month which is two months prior to the last month of the previous twelve months, and the denominator of which shall be such CPI for the month which is two months prior to the first month of such previous twelve months, and subtracting from such product the Basic Rental payable during the previous twelve months. (ii) The resulting new Basic Rental, which in each instance, shall in no event be less than the Basic Rental payable during the preceding twelve months, shall be payable in twelve equal monthly installments on the first day of each month of the applicable year. (iii) In the event the CPI is discontinued, ceases to incorporate a significant number of items now incorporated herein, or if a substantial change is made in such CPI, comparable statistics on the purchasing power of the consumer dollar, as published at the time of said discontinuation or revision, by a responsible financial periodical of recognized authority, shall be used for making such computation. REPAIRS BY TENANT 2. Tenant will, at Tenant's own cost and expense, keep the Demised Premises and all other improvements to the extent covered by this Lease in sound condition and good repair, and shall repair or replace any damage or injury done to the Building or any part thereof by Tenant or Tenant's agents, employees, invitees and visitors, and if Tenant fails to make such repair or replacements promptly, or within 15 days after occurrence, and to the satisfaction of Landlord, Landlord may at its option make such repair or replacement, and Tenant shall repay the cost thereof plus interest at the Interest Rate (as hereinafter defined) to Landlord on demand. Tenant waives all right to make repairs at the expense of Landlord, or to deduct the cost thereof from the rent. Tenant will not commit or allow any waste or damage to be committed on any portion of the Demised Premises, and shall at the termination of this Lease by lapse of time or otherwise, deliver up the Demised Premises to Landlord in as good condition as at the date of possession, ordinary wear and tear excepted, and upon such termination of this Lease Landlord shall have the right to re-enter and resume possession of the Demised Premises. ASSIGNMENT OR SUBLETTING 3. Tenant will not sell, mortgage, transfer, or assign this Lease, or allow same to be assigned by operation of law or otherwise, or sublet the Demised Premises, or any part thereof, or use or permit same to be used for any purpose other than stated in the use clause hereof without the prior written consent of Landlord, which consent will not be unreasonably withheld. Notwithstanding the foregoing, in the event the Tenant desires to assign or sublet the Demised Premises, Tenant shall provide Landlord with not less than ninety (90) days written notice of Tenant's request, specifying in detail any and all terms of such assignment or sublease. Landlord reserves the right to cancel and terminate this Lease within thirty (30) days upon receipt of such notice from Tenant of its request to assign or sublet the Demised Premises. In the event Landlord consents to an assignment or sublease of the Demised Premises, which assignment or sublease results in rental payments in excess of the monthly payments due and owing under the terms of this Lease Agreement, such excess rental payments shall be deemed to be rental payments due and owing Landlord. Any sale, hypothecation, transfer, assignment or subletting which is not in compliance with the provisions of this Article shall be voidable by Landlord and shall, at the option of Landlord, constitute a default under this Lease. Landlord's acceptance of rent directly from any subtenant, assignee or other transferee shall not be construed as Landlord's approval or consent thereto nor Landlord's agreement to accept the attornment of any subtenant in the event of any termination of this Lease. In no event shall Landlord's consent to an assignment or subletting be construed as (i) relieving Tenant from the obligation to obtain Landlord's express written consent to any further assignment or subletting or (ii) releasing Tenant from any liability or obligation hereunder whether or not then accrued, and Tenant shall continue to be fully, jointly and severally liable hereunder. As a further condition to Landlord's consent to any subleasing, assignment or other transfer of part or all of Tenant's interest in the Premises (i) Tenant shall be required to pay Landlord's reasonable attorneys' fees and other costs incurred in connection with the review and execution thereof; (ii) any sublessee of part or all of Tenant's interest in the Premises shall agree that in the event Landlord gives such sublessee notice that Tenant is in default under this Lease, such sublessee shall thereafter make all sublease or other payments directly to Landlord, which payments will be received by Landlord without any liability whether to honor the sublease or otherwise (except to credit such payments against sums due under this Lease), and such sublessee shall agree to attorn to Landlord, or its successors and assigns, at its request, should this Lease be terminated for any reason, except that in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and (iii) Landlord may require that Tenant not then be in default under this Lease in any respect. In the event that Tenant files any type of petition in bankruptcy or has same filed against it and Landlord does not elect to terminate this Lease or is deemed to have waived its right to terminate this Lease, and in the event that the trustee or receiver appointed by the bankruptcy court attempts to assume this Lease and thereupon assign it to a third party, then Landlord shall have the right to terminate this Lease within thirty (30) days upon gaining actual knowledge of such attempted assumption and assignment, or upon being given written notice of same by Tenant, whichever is later. ALTERATIONS, ADDITIONS AND IMPROVEMENTS 4. Tenant will not make or allow to be made any alterations, additions, or improvements in or to the Demised Premises without the written consent of Landlord before performance; such consent will not be unreasonably withheld, but Landlord may impose, as a condition of such consent, such requirements as Landlord in its sole discretion may deem reasonable or desirable, including, without limiting the generality of the foregoing, requirements as to the manner in which, the time or times at which, and the contractor by whom such work shall be done. Tenant shall not incorporate any hazardous materials (as hereinafter defined) into the Demised Premises during the performance of the alterations, additions, or improvements. All alterations, additions, or improvements when made to the Demised Premises by Tenant shall be surrendered to Landlord and become the property of Landlord upon termination in any manner of this Lease, but this clause shall not apply to movable non-attached fixtures or furniture of Tenant. If, however, prior to termination of this Lease, or within fifteen (15) days thereafter, Landlord so directs by written notice to Tenant, Tenant shall promptly remove such alterations, additions, or improvements, which were placed in or on the Demised Premises by Tenant and which are designated in said notice and shall repair any damage occasioned by such removal and in default thereof Landlord may effect said removals and repairs at Tenant's sole cost and expense. All work with respect to alterations, additions, and improvements must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the improvements on the Demised Premises shall at all times be a complete unit except during the period of work. Any such alterations, additions and improvements shall be performed and done strictly in accordance with the laws and ordinances relating 2 4 Underwriters, Fire Rating Bureau, or similar organization. Tenant shall obtain at its sole cost and expense all required licenses permits. In performing the work of any such alterations, additions or improvements, Tenant shall have the work performed in such a manner so as not to obstruct the access to the Building or the demised premises of any other tenant. Before commencing any such work or construction in or about the Demised Premises, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall have the right at any time and from time to time to post and maintain on the Demised Premises such notices as Landlord deems necessary to protect the Demised Premises and Landlord from the liens of mechanics, laborers, materialmen, suppliers or vendors. If any mechanic's lien is filed against the Demised Premises or the real estate of which the Demised Premises form a part, which lien concerns the Tenant and/or the Demised Premises, Tenant shall cause same to be discharged within ten (10) days after the lien is filed by Tenant paying or bonding over said lien. Notwithstanding the foregoing, Tenant shall use Landlord's contractors for alterations to or alterations affecting any of the following: heating, ventilation, air conditioning, electrical, plumbing and life safety systems. Tenant shall promptly pay to Landlord's contractors, when due, the cost of all such alterations. Tenant shall also pay to Landlord a fifteen percent (15%) administrative fee to reimburse Landlord for all overhead, general conditions, fees and other costs and expenses arising from the involvement of Landlord or landlord's agent with the alterations. Said percentage shall be payable within thirty (30) days after completion of the alterations. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE 5. Tenant will not occupy or use, nor permit any portion of the Demised Premises to be occupied or used for any business or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous on account of fire, nor permit anything to be done which will in any way increase the rate of fire insurance on the Building or contents, and in the event that, by reason of acts of Tenant, there shall be any increase in rate of insurance on the Building or contents created by Tenant's acts or conduct of business, then Tenant hereby agrees to pay such increase. Nor will Tenant use or occupy the Premises or permit the same to be used for any purpose whatsoever other than the Permitted Use defined herein. Tenant acknowledges and understands that the proper tenant mix of the Office Building is essential to the successful operation of the Office Building and that the restriction against the unauthorized use of the premises is not intended to act as a restraint on trade but to protect and insure the correct tenant mix. LAWS AND REGULATIONS 6. Tenant will maintain the Demised Premises in a clean and healthful condition and comply with all laws, ordinances, orders, rules, and regulations (state, federal, municipal, and other agencies or bodies having any jurisdiction thereof) with reference to conditions or occupancy of the Demised Premises. Tenant shall not cause or permit any hazardous material to be brought upon, stored, produced, emitted, disposed or used upon, above or beneath the Building by Tenant, its agents, employees or contractors. Hazardous material means any material or substance defined as a "hazardous substance" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act as amended, or as defined in any other federal, state or local statute, law, ordinance or regulation. INDEMNITY, LIABILITY AND LOSS OR DAMAGE 7. By moving into the Demised Premises or taking possession thereof, Tenant accepts the Demised Premises as suitable for the purposes for which the same are leased and accepts the Building and each and every appurtenance thereof, and Tenant by said acts waives any and all defects therein. Landlord shall not be liable to Tenant or Tenant's agents, employees, guests, invitees or to any person claiming by, through or under Tenant for any injury to person, loss or damage to property, or for loss or damage to Tenant's business, occasioned by or through the acts or omissions of Landlord or any other person, or due to the Building or the Demised Premises or any part thereof or any appurtenances thereto becoming out of repair, due to the happening of any accident or event in or about the Building or the Demised Premises, or by any other cause whatsoever except Landlord's gross negligence or willful wrong to the extent Landlord is not prevented by law from contracting against such liability. Tenant shall indemnify Landlord and save it harmless from all suits, actions, damages, liability and expense in connection with loss of life, bodily or personal injury or property damage arising from or out of any occurrence in, upon, at or from the Demised Premises or the occupancy or use by Tenant of the Demised Premises or any part thereof, if occasioned wholly or in part by any action or omission of Tenant, its agents, contractors, employees, servants, invitees, or licensees. If Landlord shall without fault on its part, be made a party to any action commenced by or against Tenant, the Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses, and reasonable attorneys' fees. BUILDING RULES AND REGULATIONS 8. Tenant and Tenant's agents, employees, and invitees will comply fully with all requirements of the Building Rules and Regulations which are attached as Exhibit B and made a part hereof as though fully set out herein. Landlord shall at all times have the right to change such Rules and Regulations or to amend them in such reasonable manner as may be deemed advisable for safety, care and cleanliness of the premises and for the preservation of good order therein, all of which Rules and Regulations, changes and amendments will be forwarded to Tenant in writing and shall be carried out and observed by Tenant. ENTRY FOR REPAIRS AND INSPECTION 9. Tenant will permit Landlord or owner, or their officers, agents and representatives, the right to enter into and upon all parts of the Demised Premises, at all reasonable hours to inspect same or clean or make repairs or alterations or additions as Landlord may deem necessary, and Tenant shall not be entitled to any abatement or reduction of rent by reason thereof. In the event of an emergency, Tenant hereby grants to Landlord the right to enter the Demised Premises at any time. In addition, Tenant shall permit Landlord or Landlord's agent and any other person authorized by the same to enter the Demised Premises during the last six months of the Lease Term for the purpose of exhibiting the Demised Premises to prospective lessees. NUISANCE 10. Tenant will conduct its business, and control its agents, employees, invitees and visitors in such a manner as not to create any nuisance, interfere with, annoy or disturb other tenants or Landlord in the management of the Building. EMINENT DOMAIN AND FORCE MAJEURE 11. (A) If, in the reasonable opinion of the Landlord, the whole of the Demised Premises or, so much thereof as to render the balance unusable by Tenant is taken under power of eminent domain, or sold, transferred or conveyed in lieu thereof, this Lease shall automatically terminate as of the date of such condemnation, or as of the date possession is taken by the condemning authority, whichever is later. No award for any partial or entire taking shall be apportioned and Tenant hereby releases any claim to and assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof, provided, however, that nothing contained herein shall be deemed to give Landlord any interest in, or to require Tenant to assign to Landlord, any award made to Tenant for the taking of personal property and fixtures belonging to Tenant and removable by Tenant at the expiration of the term hereof as provided hereunder or for the interruption of, or damage to, Tenant's business. In the event of a partial taking, or a sale, transfer or conveyance in lieu thereof, which does not result in a termination of this Lease, pursuant to the foregoing, the Basic Rental shall be apportioned according to the ratio that the part of the Demised Premises remaining usable by the Tenant bears to the total area of the Demised Premises. (B) Landlord shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of a government body or authority, or other matter beyond the control of Landlord or for any damage or inconvenience which may arise through repair or alteration of any part of the Building or failure to make any such repairs, or from any cause whatever, unless caused solely by Landlord's gross negligence. LIEN FOR RENT 12. In consideration of the mutual benefits arising by virtue of this Lease, Tenant does hereby mortgage unto Landlord all property of Tenant now or hereafter placed in or upon the Demised Premises (except such part of Tenant's property or merchandise as may be exchanged, replaced or sold from time to time in the ordinary course of operations or trade), and such property is hereby subjected to a lien in favor of Landlord and shall be and remain subject to such lien of Landlord for payment of all Basic Rental, Operating Expenses and Taxes and other sums agreed to be paid by Tenant herein. Said lien shall be in addition to and cumulative of the Landlord's lien provided by law. At any time and from time to time, upon request by Landlord, Tenant will make, execute and deliver or cause to be made, executed and delivered, to Landlord, and where appropriate, filed and from time to time thereafter to be refiled at such time and in such offices and places as shall be deemed desirable by Landlord, any and all security agreements, financing statements, and other documents ("Instrument") as may, in the opinion of Landlord, be necessary or desirable in order 3 5 to effectuate, complete, enlarge or perfect, or to continue and preserve (a) the obligations of Tenant under this Lease, and (b) the lien and security interest granted by this paragraph as a first and prior lien and security interest upon Tenant's interest in this Lease and the personal property of Tenant located in the Demised Premises, whether now or hereafter acquired by Tenant. Upon any failure by Tenant so to do, Landlord may make, execute, file, or refile any and all such instruments for and in the name of Tenant, and Tenant hereby irrevocably appoints Landlord the agent and attorney-in-fact of Tenant so to do. The lien and security interest hereof will automatically attach, without further act, to all after acquired personal property attached to and/or used in the operation of the Tenant's business in the Demised Premises or any part thereof. ABANDONMENT 13. If the Demised Premises are abandoned or vacated by Tenant, Landlord shall have the right, but not the obligation, to: (a) relet same for the remainder of the period covered hereby; and if the Basic Rental, Operating Expenses and Taxes are not received through such reletting at least equal to the Basic Rental, Operating Expenses and Taxes provided hereunder, Tenant shall pay and satisfy any deficiencies between the amount of Basic Rental, Operating Expenses and Taxes called for under this Lease and that received through reletting and all expenses incurred by any such reletting, including but not limited to, the cost of advertising, brokerage fees, renovating, altering and decorating for a new tenant, and/or (b) provide for the storage of any personal property remaining in the Demised Premises without liability of any kind or for the cost of storage or the return of the personal property to Tenant or take title to the abandoned personal property which title shall pass to Landlord under this lease as a Bill of Sale without additional payments or credit from Landlord to Tenant. Notwithstanding the foregoing, during the last ninety (90) days of the term of this Lease, if Tenant removes a substantial portion of Tenant's property or Tenant has been in physical absence for ten (10) days it shall constitute a vacation and Landlord may enter the Demised Premises for purposes of renovating, altering and decorating the Demised Premises for occupancy at the end of the term by a new tenant without in any way affecting Tenant's obligation to pay Basic Rental, Operating Expenses and Taxes and comply with all other terms and conditions of this Lease. Nothing herein shall be construed as in any way denying Landlord the right, in case of abandonment, vacation of the Demised Premises, or other breach of the contract by Tenant, to treat the same as an entire breach, and, at Landlord's option, immediately sue for the entire breach of this contract and any and all damages occasioned Landlord thereby. HOLDING OVER 14. In addition to performing all of Tenant's other obligations set forth in this Lease, Tenant shall pay to Landlord an amount equal to 200% of the monthly installment of Basic Rental and 200% of the monthly installment of Operating Expenses and Taxes payable by Tenant during the last month of the Lease Term on the 1st day of each month or a portion thereof for which Tenant shall retain possession of the Demised Premises or any part thereof after the expiration or termination of the Lease Term or of Tenant's right of possession, whether by lapse of time or otherwise, and also shall pay all costs incurred and damages sustained by Landlord, whether direct or consequential, on account of such holding over. The provisions of this paragraph shall not be deemed to limit or constitute a waiver of any rights or remedies of Landlord provided herein or at law. No holding over by Tenant after the terms of this Lease, either with or without the consent and acquiescence of Landlord, shall operate to extend this Lease for a longer period than one month; and holding over with the consent of Landlord in writing shall thereafter constitute this agreement a Lease from month to month. The foregoing provisions of this Article 14 are in addition to and do not affect Landlord's right of re-entry or any other rights of Landlord hereunder or as otherwise provided by law. ATTORNEYS' FEES 15. In the event Tenant defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease, and Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Basic Rental, Operating Expenses or Taxes due, or to become due hereunder or recovery of the possession of the Demised Premises in the hands of an attorney or files suit upon the same, Tenant agrees to pay Landlord reasonable attorneys' fees, and payment of the same shall be secured in like manner as is herein provided, as to all remedies which may be invoked by Landlord to secure payment of Basic Rental, Operating Expenses and Taxes. DAMAGE OR DESTRUCTION 16. If the Demised Premises or the Building shall be damaged by any cause or means whatsoever not caused or contributed to by the negligence or fault of Tenant, its employees, agents, invitees or visitors, and if insurance proceeds have been made available therefore, and if said damage can be repaired within a period of ninety (90) working days by using standard working methods and procedures, Landlord shall within a reasonable time after the occurrence of said damage, and to the extent of the insurance proceeds available therefore, enter and make repairs, and this Lease shall not be affected but shall continue in full force and effect. However, if said damage cannot be repaired within a period of ninety (90) working days by using standard working methods and procedures, then this Lease shall cease and terminate as of the date of such occurrence, and Tenant shall pay Basic Rental, Operating Expenses or Taxes hereunder to such date and immediately surrender the Demised Premises to Landlord, unless within a period of sixty (60) days from the date of such occurrence Landlord shall elect to keep this Lease in force and to restore the Demised Premises to substantially the condition as existed prior to the date of such occurrence by giving Tenant written notice of such election within said sixty (60) day period. If Landlord so elects to continue the Lease and restore the Demised Premises, Landlord shall within a reasonable time after the date of the notice of said election enter and make repairs, and this Lease shall not be affected, except that Basic Rental hereunder shall be reduced or abated while such repairs are being made for the period of time and in the proportion that the Demised Premises are untenantable. If, however, such damage is contributed to or results from the fault of Tenant, Tenant's employees, agents, invitees or visitors, and if Landlord does not have insurance covering such damage, such damage shall be repaired by and at the expense of Tenant under the control, direction and supervision of Landlord, and the Basic Rental, Operating Expenses and Taxes shall continue without abatement or reduction. The completion of the repairs of all such damages is subject to reasonable delays resulting from survey of such damage, obtaining plans and letting contracts for repair, adjustment or insurance loss, strikes, labor difficulties, unavailability of material, or other causes beyond the control of the party obligated to make such repairs. Notwithstanding anything to the contrary contained in this Article 16, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Demised Premises on account of the damage resulting from any casualty covered under this Article 16 which occurs during the last twelve (12) months of the term of this Lease (or any extension thereof), nor shall Landlord be required to expend funds to repair, reconstruct or restore beyond the extent of insurance proceeds received by Landlord. Landlord shall not be required to repair any injury or damage by any cause, or to make any repairs or replacement of any property insured in the Demised Premises by Tenant. INSURANCE 17. Tenant agrees during the term hereof to carry a broad form comprehensive policy of commercial general liability insurance covering the Demised Premises in an amount of not less than $2,000,000.00 combined single limit per occurrence, personal injury and property damage insurance with companies satisfactory to Landlord in the name of Tenant (with Landlord and, if requested by Landlord, any mortgagee, trust deed holder, ground lessors agent or secured party with a substantial interest in this Lease and/or the Building named as additional insureds in the policy or by endorsement). Tenant also agrees to pay the premiums therefore and to deliver copies of said policies and/or endorsements thereto to Landlord, and the failure of Tenant to either obtain said insurance or deliver copies of said policies or certificates thereof to Landlord shall permit Landlord to procure said insurance and pay the requisite premiums therefor, which premiums shall be repayable to Landlord with the next monthly rental payment. Each insurer under the policies required hereunder shall agree by endorsement on the policy issued by it or by independent instrument furnished to Landlord that will give Landlord no less than thirty (30) days written notice before the policy or policies in question shall be altered or cancelled. All such insurance policies shall be primary, noncontributing and shall contain cross-liability coverage or an endorsement. The amounts of such insurance required hereunder shall be subject to adjustment from time to time as requested by Landlord based upon Landlord's determination as to the amounts of such insurance generally required at such time for comparable tenants, premises and buildings in the general geographical location of the Building or as requested by any ground lessor or lender with an interest in the Building or property on which the Building is situated. TRANSFER OF LANDLORD'S RIGHTS 18. Landlord shall have the right to transfer and assign, in whole or in part, all and every feature of its rights and obligations hereunder and in the Building and property referred to herein. DEFAULT CLAUSE 19. In the event: (a) Tenant fails to comply with any term, provision, condition, or covenant of this Lease or any of the Rules and Regulations now or hereafter established for the government of the Building; (b) Tenant deserts or vacates the Demised Premises; (c) any petition is filed by or against Tenant under any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or under any similar law or statute of the United States or of any state thereof; (d) Tenant becomes insolvent or makes a transfer in fraud of creditors; (e) Tenant makes an assignment for benefit of creditors; (f) a receiver is appointed for Tenant or any of the assets of Tenant; or (g) any representation or warranty made by Tenant is not accurate and correct, then in any of such events this Lease, at the sole discretion and election of Landlord, shall terminate and Landlord shall have the option to do any one or more of the following without any notice or demand, in addition to and not in limitation of any other remedy permitted by law or by this Lease: (1) Take immediate possession of the Demised Premises, but if Tenant shall fail to vacate the Demised Premises, Landlord may, 4 6 without notice and without prejudice to any other remedy Landlord may have, enter upon and take possession of the Demised Premises and expel or remove Tenant and its effects, by force if necessary, without being liable to prosecution or any claim for damages therefor, and Tenant agrees to indemnify Landlord for all loss, damage and expense including reasonable attorneys' fees which Landlord may suffer by reason of such termination. (2) Declare the entire amount of the Basic Rental, Operating Expenses and Taxes which would have become due and payable during the remainder of the term of this Lease to be due and payable immediately, in which event, Tenant agrees to pay the same at once, together with all Basic Rental, Operating Expenses and Taxes theretofore due, to Landlord at the address specified herein or hereunder, provided, however, that such payments shall not constitute a penalty or forfeiture or liquidated damages, but shall merely constitute payment in advance of the Basic Rental, Operating Expenses and Taxes for the remainder of the said term. The acceptance of such payment by Landlord shall not constitute a waiver of any failure of Tenant thereafter occurring to comply with any term, provision, condition or covenant of this Lease. (3) Relet the Demised Premises and receive the rent therefor, and in such event, Tenant shall pay Landlord the cost of advertising, brokerage fees, renovating, repairing and altering the Demised Premises for a new tenant or tenants and any deficiency that may arise by reason of such reletting, on demand, at the address of Landlord specified herein or hereunder, provided, however, the failure or refusal of Landlord to relet the Demised Premises shall not release or affect Tenant's liability for Basic Rental, Operating Expenses and Taxes or for damages and such Basic Rental, Operating Expenses and Taxes and damages shall be paid by Tenant on the dates specified herein. (4) Landlord may, as agent of Tenant, do whatever Tenant is obligated to do by the provisions of this Lease and may enter the Demised Premises, by force if necessary, without being liable to prosecution or any claim for damages therefor, in order to accomplish this purpose. Tenant agrees to reimburse Landlord immediately upon demand for any expenses which Landlord may incur in thus effecting compliance with this Lease on behalf of Tenant, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law. CROSS DEFAULTS 20. In the event Tenant, or Tenant's subsidiary or affiliate, shall have other leases for other premises in the Building, any default by Tenant or its subsidiary or affiliate under any lease shall be deemed to be a default under all other leases and Landlord shall be entitled to enforce all rights and remedies against all such leases as provided for a default herein. BINDING EFFECT 21. This Lease shall also inure to the benefit of the successors and assigns of Landlord, and, with the written consent of Landlord first had and obtained, but not otherwise, to the benefit of the heirs, executors and/or administrators, successors and assigns of Tenant. REMEDIES 22. No act or thing done by Landlord or its agents during the term hereof shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept a surrender of the Demised Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy Landlord might have, either in law or in equity, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease contained or any of the Rules and Regulations attached hereto or hereafter adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Basic Rental, Operating Expenses and Taxes with knowledge of the breach of any covenant in this Lease contained shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations attached hereto, or hereafter adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver. Waiver of said Rules or Regulations by Landlord shall be in writing and signed by Landlord. In case it should be necessary or proper for Landlord to bring any action under this Lease to consult or place said Lease or any amount payable by Tenant thereunder with an attorney concerning or for the enforcement of any of the Landlord's rights hereunder, then Tenant agrees in each and any such case to pay to Landlord reasonable attorneys' fees. QUIET POSSESSION 23. Landlord hereby covenants that Tenant, upon paying Basic Rental, Operating Expenses and Taxes as herein reserved, and performing all covenants and agreements herein contained on part of Tenant, shall and may peacefully and quietly have, hold and enjoy the Demised Premises. IMPROVEMENTS 24. If any improvements are made with respect to the Demised Premises at the Tenant's expense or under any agreement with the Tenant whereby the Tenant is given an allowance or rent reduction in exchange for Landlord's agreement to install or allow to be installed leasehold improvements such as by way of example but not limitation: wall coverings, floor coverings or carpet, paneling, doors and hardware, any and all of such improvements shall become the property of the Landlord and shall in no event be removed by the Tenant. POSSESSION 25. If for any reason the Demised Premises shall not be ready for occupancy by Tenant at the time of commencement of this Lease, this Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof, but no Basic Rental, Operating Expenses or Taxes shall be payable for the period during which the Demised Premises shall not be ready for occupancy. All claims for damages arising out of any such delay are waived and released by Tenant. With respect to the foregoing, if delivery of possession of the Demised Premises shall be delayed beyond the date specified for the commencement of the Lease Term. It is understood and agreed that the commencement of the Lease Term shall be extended to the date that the Demised Premises are tendered to the Tenant in which event the termination date of the Lease Term shall be correspondingly extended. In the event of such delay in tendering the Demised Premises to the Tenant the Landlord shall not be liable to Tenant for any damage whatsoever resulting from the delay in the delivery of possession of the Demised Premises. Notwithstanding the foregoing, it is understood that if and to the extent that Landlord is unable to deliver timely possession of the Demised Premises to Tenant due to delays by Tenant, then the Basic Rental, Operating Expenses and Taxes reserved shall commence to accrue on the date possession of the Premises would have been delivered to Tenant but for the delays of Tenant. If permission is given to Tenant to occupy the Demised Premises prior to the date of commencement of the term hereof, such occupancy shall be subject to all of the provisions of this Lease (including the payment of Basic Rental, Operating Expenses and Taxes, however, the Lease term shall be extended by the number of days of such early occupancy. CONDITION OF PREMISES 26. Tenant acknowledges that neither Landlord nor any agent of Landlord have made any representation or warranty with respect to the Demised Premises or the Building or with respect to the suitability of either for the conduct of Tenant's business or profession. The taking of possession of the Demised Premises by Tenant shall conclusively establish that the Demised Premises and the Building were at such time in satisfactory condition. ESTOPPEL CERTIFICATE 27. Tenant shall at any time and from time to time, upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the dates to which the Basic Rental, Operating Expenses and Taxes and other charges, if any, are paid in advance and the amount of Tenant's security deposit, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults, on the part of Landlord hereunder, and that there are no events or conditions then in existence which, with the passage of time or notice or both, would constitute a default on the part of Landlord hereunder, or specifying such defaults, events or conditions, if any are claimed, and such further matters regarding the Lease or the Demised Premises as Landlord may request. It is expressly understood and agreed that any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or Property on which the Building is situated. Tenant's failure to deliver such statement within such time shall, at the option of Landlord, constitute a default under this Lease and, in any event, shall be conclusive upon Tenant that this Lease is in full force and effect without modification except as may be represented by Landlord in any such certificate prepared by Landlord and delivered to Tenant for execution. SIGNS 28. Tenant will not place or suffer to be placed or maintained on any exterior door, wall or window of the Demised Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the Demised Premises without first obtaining Landlord's prior written 5 7 approval and consent in each instance. Tenant further agrees to maintain any such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved, in good condition at all sites. PERSONAL PROPERTY TAXES 29. With respect to Tenant's fixtures, furnishings, equipment and all other personal property located in the Demised Premises, Tenant shall pay prior to delinquency all taxes assessed against or levied thereon and when possible, shall cause same to be assessed and billed separately from the property of Landlord, but if same shall be assessed and taxed with the property of Landlord, Tenant shall pay to Landlord its share of such taxes within ten (10) days after Landlord's delivery to Tenant of a statement in writing setting forth the amount of such taxes applicable to Tenant's property. In addition Tenant shall pay promptly when due all taxes imposed upon Tenant's rents, gross receipts, charges and business operations. SUBORDINATION 30. Tenant hereby subordinates this Lease and all rights of Tenant hereunder to any mortgage or mortgages, or vendor's lien, or similar Instruments which now are or which may from time to time be placed upon the premises covered by this Lease, and such mortgage or mortgages or liens or other instruments shall be superior to and prior to this Lease. Tenant further covenants and agrees that if the mortgagee or other lien holder acquired the Demised Premises as a purchaser at any such foreclosure sale (any such mortgagee or other lien-holder or purchaser at the foreclosure sale being each hereinafter referred to as the "Purchaser at Foreclosure"), Tenant shall thereafter, but only at the option of the Purchaser at Foreclosure, as evidenced by the written notice of its election given to Tenant within a reasonable time thereafter, remain bound by novation or otherwise to the same effect as if a new and identical Lease between the Purchaser at Foreclosure, as Landlord, and Tenant, as tenant, had been entered into for the remainder of the term of the Lease in effect at the institution of the foreclosure proceedings. No Purchaser at Foreclosure shall be liable for any default by Landlord or any other matter which occurred prior to the date such successor succeeded to Landlord's interest in this Lease nor shall such Purchaser at Foreclosure be bound by or subject to any offsets or defenses which Tenant may have against Landlord. No Purchaser at Foreclosure shall be bound to recognize any prepayment by more than thirty (30) days of Basic Rental or Tenant's share of Operating Expenses and Taxes. Tenant agrees to execute any instrument or instruments which may be deemed necessary or desirable further to effect the subordination of this Lease to each such mortgage, lien or instrument or to confirm any election to continue the Lease in effect in the event of foreclosure, as above provided. Tenant hereby irrevocably appoints Landlord as its special attorney-in-fact to execute and deliver any document or documents provided for herein for and in the name of Tenant. Such power, being coupled with an interest, is irrevocable. SEVERABILITY CLAUSE 31. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision that is illegal, invalid or unenforceable, there be added as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. The caption of each paragraph hereof is added as a matter of convenience only and shall be considered to be of no effect in the construction of any provision or provisions of this Lease. SECURITY DEPOSIT 32. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy use the Security Deposit paid to Landlord by Tenant as herein provided to the extent necessary to make good any arrears of Basic Rental, Operating Expenses, Taxes and any other damage, injury, expense or liability caused to Landlord by such event of default. If any portion of said deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount. Tenant shall not be entitled to interest on the security deposit. Tenant shall not grant anyone a security interest of any kind in such security deposit and no such security agreement shall be binding on Landlord. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit, or any balance thereof remaining, shall be returned to Tenant at the expiration of the Lease term and upon Tenant's vacation of the Premises. Such Security Deposit shall not be considered an advance payment of rental or a measure of Landlord's damages in case of default by Tenant. In the event the Landlord should have good cause to doubt the full and faithful performance of every provision of this lease by the Tenant, the Landlord shall have the right to demand that the Tenant post an additional Security Deposit in an amount equal to the current monthly amount of Basic Rental, Operating Expenses and Taxes. Upon the showing by the Tenant that this full and faithful performance is no longer in doubt, the additional Security Deposit shall be returned to the Tenant. WAIVER OF SUBROGATION 33. Each of Landlord and Tenant hereby waives any and every claim for recovery from the other for any and all loss or damage to the Building or Demised Premises or to the contents thereof, whether such loss or damage is due to the negligence of Landlord or Tenant or its respective agents or employees, to the extent that the amount of such loss or damage is recovered under its policies of insurance; provided, however, that the foregoing waiver shall not be operative in any case where the effect thereof is to invalidate any insurance coverage of the waiving party or increase the cost of such insurance coverage; provided further, however, that Landlord and Tenant each agree to give written notice of the terms of this mutual waiver to each insurance company which has issued, or in the future may issue, policies of physical damage to it, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waiver. ADJUSTMENT OF RENTAL 34. (a) Operating Expenses: (1) The term "Operating Expenses" shall mean all costs of management, operating and maintenance of the land, the Building and other improvements thereon and appurtenances thereto of which the Demised Premises are a part, all accrued and based on a calendar year period, including by way of illustration but not limitation, utilities, insurance premiums, management fees, janitorial and cleaning services, compliance with laws, ordinances, rules and regulations, licenses, permits and inspection fees, heating and cooling, maintenance and repairs, general administration costs and expenses, labor and supplies, capital expenditures which are intended to result in labor or cost saving device or operation and capital expenditures required by any governmental ordinance, law, rule or regulation in which case the capital expenditures may be amortized as reasonably determined by Landlord with interest thereon and included on an annual basis in the Operating Expenses, whether such Operating Expenses, or any portion thereof, are paid by the Landlord, or paid directly by the Tenant, excluding, however, depreciation; principal and interest payments on mortgage loans; costs of repairs, alterations or replacements caused by casualty losses to the extent customarily insured against by owners of office buildings of similar size, age, and construction in the area; cost of tenant improvements and commissions paid for leasing. (2) It is agreed that the Basic Rental provided for herein includes the Tenant's Prorata Share of Operating Expenses. If the amount of such Operating Expenses for the entire Building exceeds 1994 Base Year or $5.92 Per Rentable Square Foot in any calendar year, Tenant shall pay its Prorata Share of the excess in the manner hereinafter set forth. If is further agreed that if the Actual Operating Expenses for the entire Building for any calendar year exceeds the greater of the (i) estimated Annual Operating Expenses or (ii) the Actual Operating Expenses for the entire Building the Tenant shall pay the Landlord without reduction or setoff, within ten (10) days of billing, as additional rental the Tenant's share of such excess. (3) If the amount of Actual Annual Operating Expenses for the entire Building for the immediately preceding year is less than the estimated Annual Operating Expenses for such year, Landlord shall credit the Tenant, Tenant's share of such amount and shall reimburse Tenant by deducting, monthly, from its estimated payments of Operating Expenses for the current year, one-twelfth (1/12) of such share. (4) It is further agreed and understood that approximately January 1st of each calendar year or as soon thereafter as the information can be obtained, Landlord shall estimate the Annual Operating Expenses for the current calendar year. The Landlord shall notify Tenant of such calculations and (i) effective each January 1st, during the lease term and on the first (1st) day of each of the succeeding eleven (11) months of each calendar year, Tenant shall pay the Landlord one-twelfth (1/12) of its share of the estimated Annual Operating Expenses for the current year. (b) Taxes: It is agreed that the Basic Rental provided for herein includes the Tenant's Prorata Share of all real property taxes, other similar charges on real property or improvements, personal property taxes or any other tax, assessment, or water and sewer charge and all costs and fees incurred in connection therewith ("Taxes"), which may be levied or assessed by any lawful authority against the land and improvements or the Building. If the amount of such taxes, assessments, costs, fees and 6 8 charges exceeds 1994 base rt. of $1.58 per rentable sq. ft. in any calendar year, Tenant shall pay its Prorata Share of the excess in the same manner as provided above for payment of Operating Expenses. (c) Operating Expenses and Taxes shall at all times herein be computed separately. (d) If the average occupancy in any calendar year is less than ninety percent (90%), then the Operating Expenses for such year shall be adjusted to reflect what the Operating Expenses would have been at an average occupancy of ninety-five percent (95%). (e) It is further agreed that the provisions of Article 34 shall survive the termination of this Lease and be applicable to such portion of the calendar year as this Lease was in effect. (f) In no event shall any provision of this Article 34 result in any reduction in the Basic Rental. (g) Delay in computing any item of Operating Expenses or Taxes shall neither be deemed a default by Landlord or a waiver of the right to collect the item of Operating Expenses or Taxes in question. Notwithstanding anything seemingly to the contrary in this Lease, Tenant shall make monthly payments on account of each Item of Operating Expenses and Taxes, the amount of which is to be estimated by Landlord, based on the amount that Landlord's most recent estimate thereof exceeds the amount of Operating Expenses and Taxes included in Basic Rental, until Landlord notifies Tenant of a revision to such estimate. (h) Tenant acknowledges that the amounts of Operating Expenses and Taxes included in the Basic Rental in Section 34 hereof are amounts agreed upon by Landlord and Tenant and do not purport to be estimates of the Operating Expenses and Taxes for the year in which the Lease Term commences or for any other year. NET WORTH 35. Tenant shall maintain at all times a net worth in excess of that at the signing of this Lease. If at any time Tenant's net worth should not exceed that amount, Tenant shall notify Landlord of this fact in writing. DEFAULTS BY TENANT ON THIRD PARTY AGREEMENTS 36. Tenant shall not default on any of its covenants under any loan agreements with any lending, mortgage or financial institution. Nor shall Tenant default on any loan or financial agreement with any third party wherein there is an outstanding balance owed by Tenant. Tenant immediately shall advise Landlord in writing if any such default by Tenant should occur. SALE OF ASSETS 37. Tenant shall not transfer any portion of its assets and/or its equity, and/or its stock outside the ordinary course of its business so that the effect causes the Tenant to default under paragraph 36 of this lease. INTEREST ON PAST DUE OBLIGATIONS 38. All payments becoming due under this Lease and remaining unpaid when due shall bear interest until paid at a rate per annum (the "Interest Rate") equal to 18%. Tenant recognizes that late payment of Basic Rental or any other sum due hereunder will result in administrative expenses to Landlord, the extent of which additional expenses are extremely difficult and economically impractical to ascertain and Tenant hereby agrees that the amounts discussed herein are reasonable. Tenant therefore agrees that when Basic Rental, Operating Expenses, Taxes or any other sum is due and payable from Tenant to Landlord pursuant to the terms of this Lease, and such amount remains unpaid five (5) days after such amount is due, the amount of such unpaid Basic Rental, Operating Expenses, Taxes or other sum shall be increased by a late charge to be paid to Landlord by Tenant equal to the greater of (a) $100.00 or (b) 10% of the unpaid Basic Rental or other sum. The provisions of this Paragraph shall in no way relieve Tenant of the obligation to pay Basic Rental, Operating Expenses, Taxes or other payments on or before the date on which they are due, nor shall the collection by Landlord of any amount under this paragraph impair (a) the ability of Landlord to collect the amount charged under this paragraph or (b) Landlord's Remedies set forth in Section 19 of this Lease. RELOCATION 39. (a) At any time hereafter, Landlord shall have the right to substitute for the Demised Premises then being leased or to be leased hereunder (the "Existing Premises") other premises within the Building herein referred to as the "New Premises" provided that the New Premises shall be of at least substantially the same size and shall either have substantially the same perimeter configuration or a perimeter configuration substantially as usable for the purposes for which the Existing Premises were being used by Tenant or, if possession of the Existing Premises had not yet been received by Tenant, then for the purposes for which the Existing Premises were to be used by Tenant. (b) If Tenant shall not have received possession of the Existing Premises, then, as of the date Landlord gives notice of a substitution, such substitution shall be effective, the New Premises shall be the Demised Premises hereunder and the Existing Premises shall cease to be the Demised Premises hereunder. (c) The provisions of this subparagraph (c) shall apply if Tenant shall have already received possession of the Existing Premises as of the date Landlord gives notice of substitution. Tenant shall vacate and surrender the Existing Premises not later than the later of the 30th day after the date that Landlord shall notify Tenant of Landlord's intent to make the substitution in question on the 15th day after Landlord shall have substantially completed the work to be done by Landlord in the New Premises pursuant to this subparagraph (c). As of the sooner of such 15th day or the date of such surrender and vacation, the New Premises shall be the Demised Premises leased under this Lease and the Existing Premises shall cease to be the Demised Premises leased under this Lease. Landlord shall (A) pay the actual and reasonable out-of-pocket expenses of Tenant's moving of its property from the Existing Premises to the New Premises, and (B) shall improve the New Premises so that they are substantially similar to the Existing Premises and promptly reimburse Tenant for its actual and reasonable out-of-pocket costs in connection with the relocation of any telephone or other communications equipment from the Existing Premises to the New Premises. However, instead of only paying the expenses of Tenant's moving of its property, Landlord may elect to either move Tenant's property or provide personnel to do so under Tenant's direction, in which event such move may not be made except during evenings, weekends or holidays, so as to incur the least inconvenience to Tenant. (d) Tenant shall not be entitled to any compensation for any inconvenience or interference with Tenant's business nor to any abatement or reduction in Basic Rental, nor shall Tenant's obligations under this Lease be otherwise affected, as a result of the substitution, except as otherwise provided in this Section 39. Tenant agrees to cooperate with Landlord so as to facilitate the prompt completion by Landlord of its obligations under this subparagraph. Without limiting the generality of the preceding sentence, Tenant agrees to promptly provide to Landlord such approvals, instructions, plans, specifications or other information as may be reasonably requested by Landlord. INABILITY TO PERFORM 40. This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike or other labor troubles, or act of God, or any other cause beyond the control of Landlord. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS 41. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. Any written addenda to this Lease, when signed or initiated by the contracting parties shall be deemed a part of this Lease to the same full extent as if incorporated herein. GENDER 42. Throughout this Lease the masculine gender shall be deemed to include the feminine and the neuter and the singular, the plural and vice versa. ACCORD AND SATISFACTION 43. No payment by Tenant or receipt by Landlord of a lesser amount than that stipulated herein for Basic Rental, Operating Expenses, Taxes or any other charge shall be deemed to be other than on account of the earliest stipulated Basic Rental, Operating Expenses, Taxes or other charge then due, nor shall any endorsement or statement on a check or letter accompanying any check or payment be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's rights to Revised 3/90 7 9 recover the balance of such Basic Rental, Operating Expenses, Taxes or other charges or pursue any other remedy in this Lease, at law or in equity. TIME OF ESSENCE 44. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. BROKERS 45. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only N/A ("Broker") and that Tenant knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. Tenant agrees to indemnify, defend and hold Landlord harmless from and against all claims made by any broker or finder other than the above-named broker for a commission in connection with this Lease, provided that Landlord has not retained such broker. LEASE EFFECTIVE UPON EXECUTION NOTICE 46. Delivery of this Lease, duly executed by Tenant, constitutes an offer to lease the Demised Premises as herein set forth, and under no circumstances shall such delivery be deemed to create an option or reservation to lease the Demised Premises for the benefit of Tenant. This Lease shall only become effective and binding upon execution hereof by Landlord and delivery of a signed copy to Tenant. 47. Any notice required or permitted to be given hereunder by one party to the other shall be deemed to be given when deposited in the United States Mail, with sufficient postage prepaid, or overnight courier addressed to the respective party to whom notice is intended to be given at the following address of such party: If to Landlord: Symphony Woods Limited Partnership c/o Balcor Property Management 5950 Symphony Woods Road Columbia, MD 21044 with copies in the case of Landlord to: Balcor Property Management --, Inc. 4849 Golf Road Skokie, IL 60077 Attn: Legal Department If to Tenant: Credit Management Solutions, Inc. 5950 Symphony Woods Road Suite 301 Columbia, MD 21044 with copies in the case of Tenant to: SURRENDER OF POSSESSION 48. Upon the expiration of the Lease Term or upon the termination of Tenant's right of possession, whether by lapse of time or at the option of Landlord as herein provided, Tenant shall forthwith surrender the Demised Premises to Landlord in good order, repair and condition, ordinary wear excepted. Prior to the expiration or termination of the Lease Term or of Tenant's right of possession of the Demised Premises, Tenant shall remove its office furniture, trade fixtures, office equipment, telephone and computer systems (and all wiring related thereto) and all other items of Tenant's property (including, without limitation, any alterations made or installed after the commencement of the Lease Term other than the alterations approved pursuant to Section 4 hereof) from the Demised Premises and shall surrender the Demised Premises to Landlord in broom-clean condition. In addition, Landlord may require removal of extraordinary improvements that were installed by Landlord or Tenant prior to the commencement of the Lease Term. Extraordinary improvements include, but shall not be limited to, raised floors or safes. Tenant shall pay to Landlord upon demand the cost of repairing any damage to the Demised Premises and to the Building caused by any such removal. PROHIBITION AGAINST RECORDING 49. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election. ONLY LANDLORD/TENANT RELATIONSHIP 50. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Basic Rental nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. GOVERNING 51. Interpretation of this Lease shall be governed by the internal laws of the state where the Building is located. AUTHORIZED SIGNATORY 52. If Tenant is a corporation or partnership, each signatory of Tenant personally represents and warrants that he is a duly authorized signatory for and on behalf of the Tenant, and agrees that if the representation and warranty contained in this paragraph is false, each signatory shall be personally liable under this Lease. FINANCIAL INFORMATION 53. Tenant represents and warrants that all financial information heretofore and hereafter delivered to Landlord is true and correct and that no material misstatements, misrepresentations or omissions exist therein. LIMITATION ON LANDLORD'S LIABILITY 54. It is expressly understood and agreed by Tenant that none of Landlord's covenants, or undertakings or agreements are made or intended as personal covenants, undertakings or agreements by Landlord or the partners in Landlord, and any liability of Landlord or the partners in Landlord for damages or breach or nonperformance by Landlord or otherwise arising under or in connection with this Lease or the relationship of Landlord and Tenant hereunder, shall be collectible only out of Landlord's Interest in the Building and the land upon which the Building is located (or if Landlord is the beneficiary of a land trust, Landlord's right, title and interest in such land trust), in each case as the same may then be encumbered, and no personal liability is assumed by, nor at any time may be asserted against, Landlord or the partners in Landlord or any of its or their officers, agents, employees, legal representatives, successors or assigns, all such liability, if any, being expressly waived and released by Tenant. IN WITNESS WHEREOF this lease is entered into by the parties hereto on the date and year first set forth above. LANDLORD: Symphony Woods Limited Partnership Balcor Property Management, Inc. Its authorized agent By: /s/ Roger H. Kahn Title: SVP ATTEST: _____________________________________ Title: ______________________________________ TENANT: Credit Management Solutions Inc. By: Jim DeFrancesco Title: President ATTEST: _____________________________________ Title: ______________________________________ 10 ACKNOWLEDGMENT - LANDLORD STATE OF ) ) SS COUNTY OF ) I, _____________________________________, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ______________________, personally known to me to be the __________________(Title), of Balcor Property Management ______________________, Inc., an Illinois corporation, and _________________________, personally known to be to be the __________________ Secretary of said corporation and personally known to me to be the same persons whose names are subscribed to the foregoing instrument, appeared before me this day in person and severally acknowledged that they signed and delivered the said instrument as their free and voluntary act and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this _______ day of _____________, 19__. -------------------------------------------- Notary Public My Commission Expires: - ------------------------------------------------------------------------------- ACKNOWLEDGMENT - TENANT (CORPORATION) STATE OF ) ) SS COUNTY OF ) I, _____________________________________, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ______________________, personally known to me to be the __________________ President of ____________________________, a(n) __________________________ corporation, and ________________________________________, personally known to me to be the __________________ Secretary of said corporation and personally known to me to be the same persons whose names are subscribed to the foregoing instrument, appeared before me this day in person and severally acknowledged that they signed and delivered the said instrument as their free and voluntary act and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this _______ day of _____________, 19__. -------------------------------------------- Notary Public My Commission Expires: - ------------------------------------------------------------------------------- ACKNOWLEDGMENT - TENANT (INDIVIDUAL) STATE OF ) ) SS COUNTY OF ) I, _____________________________________, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ________________________________________, appeared before me this day in person and acknowledged that (he) (they) signed and delivered the said instrument as (his/her) (their) free and voluntary act for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this _______ day of _____________, 19__. -------------------------------------------- Notary Public My Commission Expires: 11 EXHIBIT "A" OFFICE PLAN [SYMPHONY WOODS LOGO] September 30, 1992 [SYMPHONY WOODS FOURTH FLOOR PLAN] Floor plan of entire floor on which Demised Premises is located and Detailed Interior floor plan of Demised Premises [BALCOR PROPERTY MANAGEMENT LOGO] 12 EXHIBIT "B" BUILDING RULES AND AGREED REGULATIONS 1. Tenant agrees to make a deposit, in an amount fixed by Landlord from time to time, for each key or security access card issued by Landlord to Tenant for its offices, and upon termination of this Lease, to return all keys to Landlord. Tenant shall not make duplicate copies of such keys and in the event of the Tenant's loss of a key, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such a change. 2. Directories will be placed by Landlord in inconspicuous places in the Building at the sole discretion of Landlord. No other directories shall be permitted, unless previously consented to by Landlord in writing. 3. Tenants will refer all contractors, contractor's representatives and installation technicians, rendering any service to Tenant, to Landlord for Landlord's supervision, approval, and control before performance of any contractual service. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments, and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building. 4. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require use of elevators or stairways, or movement through Building entrances or lobby shall be restricted to hours designated by Landlord. All such movement shall be under supervision of Landlord and in the manner agreed between Tenant and Landlord by prearrangement before performance. Such prearrangement initiated by Tenant will include determination by Landlord and subject to its decision and control, as to the time, method, and routing of movement and as to limitations imposed for safety or other concerns which may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all risk as to damage to articles moved and injury to persons or the public engaged or not engaged in such movement, including equipment, property, and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for Tenant, from time of entering property to completion of work, and Landlord shall not be liable for acts of any person engaged in, or any damage or loss to any of said property or persons resulting from any act in connection with such service performed for Tenant. 5. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors, or other parts of the Building, except of color, size and style and in such places, as shall be first approved in writing by Landlord. No nails, hooks or screws shall be driven or inserted in any part of the Building, except by the Building maintenance personnel, nor shall any part be defaced by Tenant. All signs will be contracted for by Landlord at the rate fixed by Landlord from time to time, and Tenant will be billed and pay for such service accordingly. 6. Canvassing, soliciting, peddling or begging in or around the Building are prohibited and Tenant shall report such activities to Landlord and cooperate to prevent such conduct. 7. Tenant shall not place, install or operate in the Demised Premises or in any part of the Building, any engine or machinery, or maintain, use or keep any inflammable, explosive, or hazardous material without the express written consent of Landlord. 8. Landlord will not be responsible for lost or stolen personal property, equipment, money, or jewelry from Tenant's area or public rooms regardless of whether such loss occurs when the area is locked against entry or not. 9. No birds or animals shall be brought into or kept in or about Building. 10. Employees of Landlord shall not receive or carry messages for or to Tenant or any other person, nor contract with or render free or paid services to Tenant's agents, employees, or invitees. 11. Landlord shall have the right, from time to time, to designate smoking and non-smoking areas in, around or throughout the Building and shall further be permitted to prohibit or limit such activity in order to fully comply with any applicable governmental ordinance, law or regulation. 12. The entries, passages, doors, elevators, elevator doors, hallways or stairways shall not be blocked or obstructed; no rubbish, litter, trash, or material of any nature shall be placed, emptied or thrown into these areas; and such areas shall not be used at any time except for ingress or egress by Tenant, Tenant's agents, employees, invitees or visitors to or from the Demised Premises. 13. Plumbing fixtures and appliances shall be used only for purposes for which constructed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant shall be repaired and replaced at Tenant's sole cost and expense, and Landlord shall not in any case be responsible therefor. 14. Tenant shall not do, or permit anything to be done in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein, or obstruct or interfere with the rights of, or otherwise injure or annoy, other tenants, or do anything in conflict with the valid pertinent laws, rules or regulations of any governmental authority. 15. The Landlord desires to maintain the highest standards of environmental comfort and convenience for the tenantry. It will be appreciated if any undesirable conditions or lacks of courtesy or attention are reported directly to the management. 16. The work of the janitor or cleaning personnel shall not be hindered by Tenant after 5:30 p.m. and such work may be done at any time when the offices are vacant; the windows, doors, and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles, cabinets, book cases, map cases, etc., necessary to prevent unreasonable hardship to Landlord in discharging its obligation regarding cleaning service. 17. Landlord shall have the right to determine and prescribe the weight and proper position of any unusually heavy equipment including safes, file systems, etc., that are to be placed in the Building, and only those which in the opinion of Landlord might not with reasonable probability do damage to the floors, structure and/or freight elevator, may be moved into said Building. Any damage occasioned in connection with the moving or installing of such aforementioned articles in said Building or the existence of same in said Building shall be paid for by Tenant, unless otherwise covered by insurance. 18. Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant, which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability for the executive offices of Landlord or of other tenants, and, upon written notice from Landlord, Tenant will refrain from or discontinue such publicity. 19. The Demised Premises shall not be used for lodging, sleeping, or cooking or for any immoral or illegal purpose or for any purpose that will damage the Demised Premises or the Building or the reputation thereof, or for any purpose other than that specified in the lease covering the premises. 13 LEASE RIDER RIDER ATTACHED TO AND MADE A PART OF THE LEASE AGREEMENT DATED OCTOBER 27TH, 1993, BY AND BETWEEN Symphony Woods Limited Partnership (hereinafter referred to as "Landlord") and Credit Management Solutions, Incorporated (hereinafter referred to as "Tenant") CONCERNING THE PREMISES KNOWN AS Suite 400 IN THE Symphony Woods Office Center. In the event of any conflict between the terms and conditions of the Lease and the terms and conditions of this Rider, the terms and conditions contained in this Rider shall control. 55. Basic Rental: From the first day of the thirty-seventh (37th) month through the last day of the sixtieth (60th) month of the Lease Term, equal monthly payments of $15,420.00. 56. The following is hereby added as Section 34(i) to the Lease: "(i) Notwithstanding any of the foregoing to the contrary, in no event shall Tenant be obligated to pay a Prorata Share of Operating Expenses and Taxes for any one calendar year during the term of this Lease which exceeds $7.90 per rentable square foot. In the event Tenant's Prorata Share of Operating Expense and Taxes for any one calendar year during the Term of this Lease totals less than $7.20 per rentable square foot, then Tenant agrees that its Prorata Share of Operating Expenses and Taxes for such calendar year shall be equal to $7.20 per rentable square foot." 57. Tenant Improvements: Tenant to take space in "as-is" condition with the following modifications to be made by the Landlord (The "Tenant Improvements"): 1) Landlord to furnish and install a demising wall in accordance with the architect drawings attached hereto and labeled as Exhibit "C". 2) Landlord shall shampoo the entire carpet prior to Tenant occupying the Demised Premises. 2) Landlord to paint all walls in the Demised Premises, in building standard colors approved by Tenant. 3) Landlord shall purchase on behalf of Credit Management Solutions, Inc. certain furniture and equipment from Apple Computers, Inc., for Credit Management Solutions, Inc. exclusive use. Said furniture and equipment is more accurately described in Exhibit "D", attached hereto and made a part hereof. 4) In no event shall the Landlord be obligated to pay more than $5.00 per rentable square foot towards the cost of providing the Tenant Improvements. 58. Right of First Refusal: (for designated space) So long as this Lease is in full force and effect and Tenant: (i) Is occupying and doing the business from the premises at the time of the election is exercised; and (ii) is not in default under the Lease either at the time of the election or at the effective date thereof; and (iii) has maintained a history of payments within the applicable grace period, if any, provided under the Lease; Landlord agrees that prior to renting Suite 410 (more fully identified on Exhibit "E" attached hereto and incorporated herein and containing approximately 7,290 square feet) (the "First Refusal Space"), Landlord will submit to Tenant a copy of the unexecuted proposed Lease or a summary of the business and economic terms of the lease which the Landlord is willing to accept from the third party (the "Offered Lease"). On or before the third (3rd) business day after Tenant's receipt of such notice, Tenant will have the right (the "First Refusal Right") to send Landlord a notice stating that Tenant elects to rent the First Refusal Space upon the identical terms and conditions set forth in the Offered Lease. To be timely, such notice must be postmarked within the three (3) day period. If Tenant timely exercises the First Refusal Right, Landlord and Tenant will promptly enter into a lease or lease amendment agreement for the First Refusal Space (the "New Lease") on the 14 Offered Lease Terms. If for any reason Tenant fails to timely exercise the First Refusal Right, or if Tenant properly exercises it but thereafter for any reason (except for delays caused by Landlord) does not execute the New Lease within five business days after its submission to Tenant, Landlord will be free to rent the First Refusal Space to any other prospective tenant and the First Refusal Right will be null and void without further force and effect throughout the remainder of the term of this Lease or its extensions, modifications or amendments thereof. Additionally, if Tenant exercises the Right of First Refusal, but then fails to timely execute the New Lease, and should the previously-interested third party Tenant no longer be willing to sign the Offered Lease, then Tenant shall be liable for any and all rental obligations due Landlord under the terms of the New Lease. Notwithstanding any contrary provisions hereof: (a) the New Lease must (i) be guaranteed by the guarantor(s) of this Lease, if any, upon a guaranty from which is identical to the guaranty form applicable to this Lease, and (ii) stipulate that any default by Tenant thereunder will be deemed to constitute a like default under this Lease; (b) Tenant agrees that any default by it under this Lease will be deemed to constitute a like default under the New Lease; and (c) this Right of First Refusal is personal and unique to Tenant and is not transferable to any assignee, sublessee or other successor in interest. 59. Option to Rent Additional Space 1. Not later than March 15, 1998 Tenant named herein may notify Landlord, not more than once, that Tenant would like to rent additional space, specifying the needed square footage of such additional space. Such notice (the "Notice") must be postmarked on or before the above-specified date and sent by registered or certified mail, return receipt requested. If for any reason the Notice is not duly and timely given, Tenant's rights under this Article will be null and void and without further notice and effect. If the notice is properly given, Landlord within thirty (30) days of receipt of such notice, shall notify Tenant that: (a) Within one hundred and twenty (120) days of receipt of such notice (subject to extension by reason of delays beyond Landlord's reasonable control), Landlord will make available to Tenant additional space of substantially the size specified by Tenant (the "Additional Space"); or (b) Landlord will not be able to make the Additional Space available to Tenant. 2. If Landlord's Notice is as specified in clause "(a)" of paragraph "57" above, the Additional Space will be deemed demised to Tenant on the date on which it becomes available for Tenant's occupancy, and on that date (the "Availability Date") this Lease will be deemed modified in the following respects: (a) the description of the Premises will include the Additional Space (b) the percentage specified elsewhere in this Lease as "Tenant's Proportionate Share" will be increased to reflect inclusion of the number of rentable square feet of the Additional Space (the "Additional Footage"); and (c) the annual rental rate payable hereunder will be modified by an amount equal to the product of the Additional Footage multiplied by the rate which on the Availability Date, Landlord is charging for comparable space in the Building for a comparable term and size tenant. Although no written agreement will be necessary to evidence such modifications, upon request, Tenant agrees to execute and deliver to Landlord an agreement prepared by Landlord confirming that this Lease as so modified is then in full force and effect and is ratified, confirmed and approved in all respects. If Landlord and Tenant do not reach agreement on all terms of the rental of the Additional Footage within thirty (30) days of Landlord's notice of the availability of the Additional Space, then Tenant's option for Additional Space will be null and void. 3. The Additional Space will be deemed available for Tenant's occupancy upon substantial completion, notwithstanding that minor details of construction, decoration, or 15 mechanical adjustment remains to be done. The parties will agree in writing on "punch list" items, which Landlord will complete during Landlord's normal business hours while Tenant occupies the Additional Space, without affecting Tenant's monetary and other obligations under this Lease. Notwithstanding anything above, if Tenant uses all or any portion of the Additional Space on a date earlier than that on which it is available for Tenant's occupancy, all of Tenant's monetary and other obligations respecting the Additional Space will commence as of the earlier date. 60. Option to Renew: So long as the Lease is in full force and effect and Tenant either at the time of exercising this option to renew or at the time of the commencement of the following described Option Period: (i) Is occupying and doing the business from the premises at the time of the election is exercised; and (ii) is not in default under the Lease either at the time of the election or at the effective date thereof; and (iii) has maintained a history of payments within the applicable grace period, if any, provided under the Lease; Tenant is hereby granted an option to renew this Lease for one (1) successive renewal term, commencing upon the day next following the expiration of the initial lease term. The Option Period shall be for a term of five (5) years. The terms of this Lease during the Option Period shall be the same as during the current Lease period, except as provided below. The Option must be exercised no less than one hundred eighty (180) days prior to the expiration of this Lease by written notice to the Landlord. In the event Tenant fails to notify Landlord, in the manner herein specified, this clause shall be of no further force and effect. The Basic Rental for the Option Period shall be the then current market rate for the Demised Premises fixed as of the date of commencement of the Option Period. Landlord's determination of the market rate shall be conclusive on Tenant. This option to renew shall be deleted from the Renewal lease and no further options to renew shall be in effect. Unless expressly set forth herein, any tenant concessions initially provided for in the Lease shall not be deemed applicable to any renewal period. In no event shall the Basic Rental during the Option Period decrease below the Basic Rental then paid by tenant at the expiration of the current lease term. Further, this Option to Renew is personal and unique to Tenant and is not transferrable to any assignee, sublessee or any other successor in interest to the initial Tenant under this Lease. 61. Rental Abatement: Landlord shall abate the first six (6) months of the Basic Rental during the Original Lease Term. 62. Additional HVAC: Landlord shall provide air conditioning until 7:30 p.m., Monday through Saturday in the months of June, July and August, unless otherwise directed by Tenant. Any additional air conditioning required by Tenant will be billed at the current hourly rate for the office building and will require prior authorization by the Tenant. DATED THIS _______ Day of October, 1993. LANDLORD: TENANT: Symphony Woods Limited Partnership Credit Management Solutions, Inc. by Balcor Property Management, Inc. as Managing Agent /s/ Roger H. Kahn /s/ Jim DeFrancesco - -------------------------------- ------------------------------- Roger H. Kahn Jim DeFrancesco Senior Vice President President Witness: Georgia Vernenistos Witness: ---------------------- ---------------------- EX-10.8.2 10 OFFICE BUILDING LEASE DATED FEB. 10, 1995 1 EXHIBIT 10.8.2 Suite 301/305 ADD'TL OFFICE SPACE OFFICE BUILDING LEASE Between Symphony Woods Limited Partnership ---------------------------------- (Landlord) and Credit Management Solutions, Inc. ---------------------------------- (Tenant) "Symphony Woods Office Center" ---------------------------------- OFFICE BUILDING Columbia Maryland - --------------------- -------------------- (City) (State) Revised 3/90 2 THIS LEASE AGREEMENT is made and entered into this 10 day of February, 1995, by and between the Landlord and Tenant hereinafter named. DEFINITIONS AND BASIC PROVISIONS The following definitions and basic provisions shall be construed in conjunction with and limited by the references thereto in other provisions of this lease: (a) "Landlord": Symphony Woods Limited Partnership (b) "Tenant": Credit Management Solutions, Inc. (c) "Demised Premises": approximately 8,075 square feet on Floor three, suite no. 301/305 in the building(s) located at 5950 Symphony Woods Road, Columbia, MD 21044 ("Building") such premises being shown and outlined on the plan attached hereto as Exhibit A. (d) "Lease Term": a period of forty-five and 1/2 (45.5) months commencing on February 15, 1995, and ending on November 30, 1998. (e) "Basic Rental": a total sum of $515,286.01 payable by Tenant, subject to adjustment as provided herein, on the first day of each calendar month of the Lease year, in advance, at the office of the Landlord in monthly installments as follows: From the Commencement Date through the last day of the first (1st) month of the Lease Term, equal monthly payments of $5,551.57; From the first day of the second (2nd) month through the last day of the twenty-fifth (25th) month of the Lease Term, equal monthly payments of $11,103.13; From the first day of the twenty-sixth (26th) month through the last day of the thirty-seventh (37th) month of the Lease Term, equal monthly payments of $11,439.58; From the first day of the thirty-eighth (38th) month through the last day of the forty-sixth (46th) month of the Lease Term, equal monthly payments of $11,776.04; All rental payments shall be paid to the order of Symphony Woods Limited Partnership without notice, offset, reduction or abatement, subject to adjustment as set forth in this Lease. If the term shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, on or before the commencement date of the term the monthly installment of Basic Rental prorated on a per diem basis with respect to that fractional calendar month. All rental payments thereafter will be for a full calendar month and will be in the amount as specified in clause (e) above. (f) "Prepaid Rental": $5,551.57 representing payment of rental for the first full month and partial month, if any, of the Lease Term. (g) "Security Deposit": $11,103.13 (h) "Permitted Use": Tenant shall, continuously and without interruption throughout the Term, occupy and use the Demised Premises for, and only for, sales, marketing and administrative purposes, subject to and in accordance with all applicable zoning and other Governmental regulations. (i) "Prorata Share": Initially 8.68% (j) "Rider(s)" consisting of 6 page(s) with sections numbered consecutively 55 through 65 attached hereto and made a part hereof. (k) "Guarantor(s)": N/A GRANTING CLAUSE In consideration of the obligation of Tenant to pay Basic Rental, Operating Expenses, and Taxes as herein provided and in consideration of the other terms, covenants and conditions hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord, the Demised Premises to have and to hold the same for the Lease Term specified herein, all upon the terms and conditions set forth in this Lease. SERVICES BY LANDLORD Landlord agrees to furnish Tenant while occupying the Demised Premises the following services: (a) Hot and cold water at those points of supply provided for general use of all Building tenants. (b) Air conditioning, heat and electric current (for lighting and fractional horsepower machines only) during reasonable hours of generally recognized business days, as determined by Landlord in such quantity and of such quality as Landlord determines in its sole judgement is reasonably necessary for Tenant's comfortable use and enjoyment of the Demised Premises. (c) Elevator service, if any, in common with other tenants for ingress to and egress from the Demised Premises. (d) Janitorial cleaning services as may in the judgment of Landlord be reasonably required. (e) Electrical lighting for public areas and special service areas of the Building in the manner and to the extent deemed by Landlord to be standard. Revised 3/90 3 Landlord shall have no obligation to furnish services to Tenant other than those specified above. Should Landlord provide additional services to Tenant, Tenant shall pay separately for such additional services (including, but not limited to, heating and air conditioning services provided during hours other than as set forth in the applicable provisions of this paragraph) at rates to be established from time to time by Landlord. Charges for any services for which Tenant is required to pay shall be due and payable within ten (10) days after they are billed. If Tenant fails to make payment for any such services, Landlord, in addition to all other rights and remedies available to Landlord under this Lease, or at law or in equity, may, with notice to Tenant, discontinue any or all of such additional services and such discontinuance shall not be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Demised Premises or relieve Tenant from paying Basic Rental or performing any of its other obligations under this Lease. Failure to any extent to furnish, or any stoppage of these defined services, resulting from causes beyond control of Landlord or from any cause, shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant or work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery break down, or for any cause cease to function properly, Landlord shall use reasonable diligence to repair same promptly, but Tenant shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. This lease is conditioned upon faithful performance by Tenant of the following agreements, covenants, rules and regulations, herein set out and agreed to by Tenant. PAYMENTS 1. (A) To pay all rents and sums provided to be paid by Tenant hereunder at the times and in the manner herein provided. The obligation of Tenant to pay Basic Rental is an independent covenant, and no act or circumstance whether constituting breach of covenant by Landlord or not, shall release Tenant of the obligation to pay Basic Rental, Operating Expenses and Taxes. (B) To pay Landlord, on a retail cost basis, for parts and labor, for all replacements of electric lamps, fluorescent and otherwise and ballasts following the initial installation of same, upon demand, by Landlord. REPAIRS BY TENANT 2. Tenant will, at Tenant's own cost and expense, keep the Demised Premises and all other improvements to the extent covered by this Lease in sound condition and good repair, and shall repair or replace any damage or injury done to the Building or any part thereof by Tenant or Tenant's agents, employees, invitees and visitors, and if Tenant fails to make such repair or replacements promptly, or within 15 days after occurrence, and to the satisfaction of Landlord, Landlord may at its option make such repair or replacement, and Tenant shall repay the cost thereof plus interest at the Interest Rate (as hereinafter defined) to Landlord on demand. Tenant waives all right to make repairs at the expense of Landlord, or to deduct the cost thereof from the rent. Tenant will not commit or allow any waste or damage to be committed on any portion of the Demised Premises, and shall at the termination of this Lease by lapse of time or otherwise, deliver up the Demised Premises to Landlord in as good condition as at the date of possession, ordinary wear and tear excepted, and upon such termination of this Lease Landlord shall have the right to re-enter and resume possession of the Demised Premises. ASSIGNMENT OR SUBLETTING 3. Tenant will not sell, mortgage, transfer, or assign this Lease, or allow same to be assigned by operation of law or otherwise, or sublet the Demised Premises, or any part thereof, or use or permit same to be used for any purpose other than stated in the use clause hereof without the prior written consent of Landlord, which consent will not be unreasonably withheld. Notwithstanding the foregoing, in the event the Tenant desires to assign or sublet the Demised Premises, Tenant shall provide Landlord with not less than thirty (30) days written notice of Tenant's request, specifying in detail any and all terms of such assignment or sublease. Landlord reserves the right to cancel and terminate this Lease within thirty (30) days upon receipt of such notice from Tenant of its request to assign or sublet the Demised Premises. In the event Landlord consents to an assignment or sublease of the Demised Premises, which assignment or sublease results in rental payments in excess of the monthly payments due and owing under the terms of this Lease Agreement, such excess rental payments shall be deemed to be rental payments due and owing Landlord. Any sale, hypothecation, transfer, assignment or subletting which is not in compliance with the provisions of this Article shall be voidable by Landlord and shall, at the option of Landlord, constitute a default under this Lease. Landlord's acceptance of rent directly from any subtenant, assignee or other transferee shall not be construed as Landlord's approval or consent thereto nor Landlord's agreement to accept the attornment of any subtenant in the event of any termination of this Lease. In no event shall Landlord's consent to an assignment or subletting be construed as (i) relieving Tenant from the obligation to obtain Landlord's express written consent to any further assignment or subletting or (ii) releasing Tenant from any liability or obligation hereunder whether or not then accrued, and Tenant shall continue to be fully, jointly and severally liable hereunder. As a further condition to Landlord's consent to any subleasing, assignment or other transfer of part or all of Tenant's interest in the Premises (i) Tenant shall be required to pay Landlord's reasonable attorneys' fees and other costs incurred in connection with the review and execution thereof; (ii) any sublessee of part or all of Tenant's interest in the Premises shall agree that in the event Landlord gives such sublessee notice that Tenant is in default under this Lease, such sublessee shall thereafter make all sublease or other payments directly to Landlord, which payments will be received by Landlord without any liability whether to honor the sublease or otherwise (except to credit such payments against sums due under this Lease), and such sublessee shall agree to attorn to Landlord, or its successors and assigns, at its request, should this Lease be terminated for any reason, except that in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and (iii) Landlord may require that Tenant not then be in default under this Lease in any respect, in the event that Tenant files any type of petition in bankruptcy or has same filed against it and Landlord does not elect to terminate this Lease or is deemed to have waived its right to terminate this Lease, and in the event that the trustee or receiver appointed by the bankruptcy court attempts to assume this Lease and thereupon assign it to a third party, then Landlord shall have the right to terminate this Lease within thirty (30) days upon gaining actual knowledge of such attempted assumption and assignment, or upon being given written notice of same by Tenant, whichever is later. See Lease Rider #65. ALTERATIONS, ADDITIONS AND IMPROVEMENTS 4. Tenant will not make or allow to be made any alterations, additions, or improvements in or to the Demised Premises without the written consent of Landlord before performance; such consent will not be unreasonably withheld, but Landlord may impose, as a condition of such consent, such requirements as Landlord in its sole discretion may deem reasonable or desirable, including, without limiting the generality of the foregoing, requirements as to the manner in which, the time or times at which, and the contractor by whom such work shall be done. Tenant shall not incorporate any hazardous materials (as hereinafter defined) into the Demised Premises during the performance of the alterations, additions, or improvements. All alterations, additions, or improvements when made to the Demised Premises by Tenant shall be surrendered to Landlord and become the property of Landlord upon termination in any manner of this Lease, but this clause shall not apply to movable non-attached fixtures or furniture of Tenant. If, however, prior to termination of this Lease, or within fifteen (15) days thereafter, Landlord so directs by written notice to Tenant, Tenant shall promptly remove such alterations, additions, or improvements, which were placed in or on the Demised Premises by Tenant and which are designated in said notice and shall repair any damage occasioned by such removal and in default thereof Landlord may effect said removals and repairs at Tenant's sole cost and expense. All work with respect to alterations, additions, and improvements must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the improvements on the Demised Premises shall at all times be a complete unit except during the period of work. Any such alterations, additions and improvements shall be performed and done strictly in accordance with the laws and ordinances relating Revised 3/90 2 4 Underwriters, Fire Rating Bureau, or similar organization. Tenant shall obain at its sole cost and expense all required licenses and permits. In performing the work of any such alterations, additions or improvements, Tenant shall have the work performed in such a manner so as not to obstruct the access to the Building or the demised premises of any other tenant. Before commencing any such work or construction in or about the Demised Premises, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall have the right at any time and from time to time to post and maintain on the Demised Premises such notices as Landlord deems necessary to protect the Demised Premises and Landlord from the liens of mechanics, laborers, materialmen, suppliers or vendors. If any mechanic's lien is filed against the Demised Premises or the real estate of which the Demised Premises form a part, which lien concerns the Tenant and/or the Demised Premises, Tenant shall cause same to be discharged within ten (10) days after the lien is filed by Tenant paying or bonding over said lien. Notwithstanding the foregoing, Tenant shall use Landlord's contractors for alterations to or alterations affecting any of the following: heating, ventilation, air conditioning, electrical, plumbing and life safety systems. Tenant shall promptly pay to Landlord's contractors, when due, the cost of all such alterations. Tenant shall also pay to Landlord a fifteen percent (15%) administrative fee to reimburse Landlord for all overhead, general conditions, fees and other costs and expenses arising from the involvement of Landlord or landlord's agent with the alterations. Said percentage shall be payable within thirty (30) days after completion of the alterations. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE 5. Tenant will not occupy or use, nor permit any portion of the Demised Premises to be occupied or used for any business or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous on account of fire, nor permit anything to be done which will in any way increase the rate of fire insurance on the Building or contents, and in the event that, by reason of acts of Tenant, there shall be any increase in rate of insurance on the Building or contents created by Tenant's acts or conduct of business, then Tenant hereby agrees to pay such increase. Nor will Tenant use or occupy the Premises or permit the same to be used for any purpose whatsoever other than the Permitted Use defined herein. Tenant acknowledges and understands that the proper tenant mix of the Office Building is essential to the successful operation of the Office Building and that the restriction against the unauthorized use of the premises is not intended to act as a restraint on trade but to protect and insure the correct tenant mix. LAWS AND REGULATIONS 6. Tenant will maintain the Demised Premises in a clean and healthful condition and comply with all laws, ordinances, orders, rules, and regulations (state, federal, municipal, and other agencies or bodies having any jurisdiction thereof) with reference to conditions or occupancy of the Demised Premises. Tenant shall not cause or permit any hazardous material to be brought upon, stored, produced, emitted, disposed or used upon, above or beneath the Building by Tenant, its agents, employees or contractors. Hazardous material means any material or substance defined as a "hazardous substance" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act as amended, or as defined in any other federal, state or local statute, law, ordinance or regulation. INDEMNITY, LIABILITY AND LOSS OR DAMAGE 7. By moving into the Demised Premises or taking possession thereof, Tenant accepts the Demised Premises as suitable for the purposes for which the same are leased and accepts the Building and each and every appurtenance thereof, and Tenant by said acts waives any and all defects therein. Landlord shall not be liable to Tenant or Tenant's agents, employees, guests, invitees or to any person claiming by, through or under Tenant for any injury to person, loss or damage to property, or for loss or damage to Tenant's business, occasioned by or through the acts or omissions of Landlord or any other person, or due to the Building or the Demised Premises or any part thereof or any appurtenances thereto becoming out of repair, due to the happening of any accident or event in or about the Building or the Demised Premises, or by any other cause whatsoever except Landlord's gross negligence or willful wrong to the extent Landlord is not prevented by law from contracting against such liability. Tenant shall indemnify Landlord and save it harmless from all suits, actions, damages, liability and expense in connection with loss of life, bodily or personal injury or property damage arising from or out of any occurrence in, upon, at or from the Demised Premises or the occupancy or use by Tenant of the Demised Premises or any part thereof, if occasioned wholly or in part by any action or omission of Tenant, its agents, contractors, employees, servants, invitees, or licensees. If Landlord shall without fault on its part, be made a party to any action commenced by or against Tenant, the Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses, and reasonable attorneys' fees. BUILDING RULES AND REGULATIONS 8. Tenant and Tenant's agents, employees, and invitees will comply fully with all requirements of the Building Rules and Regulations which are attached as Exhibit B and made a part hereof as though fully set out herein. Landlord shall at all times have the right to change such Rules and Regulations or to amend them in such reasonable manner as may be deemed advisable for safety, care and cleanliness of the premises and for the preservation of good order therein, all of which Rules and Regulations, changes and amendments will be forwarded to Tenant in writing and shall be carried out and observed by Tenant. ENTRY FOR REPAIRS AND INSPECTION 9. Tenant will permit Landlord or owner, or their officers, agents and representatives, the right to enter into and upon all parts of the Demised Premises, at all reasonable hours to inspect same or clean or make repairs or alterations or additions as Landlord may deem necessary, and Tenant shall not be entitled to any abatement or reduction of rent by reason thereof. In the event of an emergency, Tenant hereby grants to Landlord the right to enter the Demised Premises at any time. In addition, Tenant shall permit Landlord or Landlord's agent and any other person authorized by the same to enter the Demised Premises during the last six months of the Lease Term for the purpose of exhibiting the Demised Premises to prospective lessees. NUISANCE 10. Tenant will conduct its business, and control its agents, employees, invitees and visitors in such a manner as not to create any nuisance, interfere with, annoy or disturb other tenants or Landlord in the management of the Building. EMINENT DOMAIN AND FORCE MAJEURE 11. (A) If, in the reasonable opinion of the Landlord, the whole of the Demised Premises or, so much thereof as to render the balance unusable by Tenant is taken under power of eminent domain, or sold, transferred or conveyed in lieu thereof, this Lease shall automatically terminate as of the date of such condemnation, or as of the date possession is taken by the condemning authority, whichever is later. No award for any partial or entire taking shall be apportioned and Tenant hereby releases any claim to and assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof, provided, however, that nothing contained herein shall be deemed to give Landlord any interest in, or to require Tenant to assign to Landlord, any award made to Tenant for the taking of personal property and fixtures belonging to Tenant and removable by Tenant at the expiration of the term hereof as provided hereunder or for the interruption of, or damage to, Tenant's business. In the event of a partial taking, or a sale, transfer or conveyance in lieu thereof, which does not result in a termination of this Lease, pursuant to the foregoing, the Basic Rental shall be apportioned according to the ratio that the part of the Demised Premises remaining usable by the Tenant bears to the total area of the Demised Premises. Landlord shall notify Tenant of any condemnation proceeding which affects the Demised Premises. (B) Landlord shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of a government body or authority, or other matter beyond the control of Landlord or for any damage or inconvenience which may arise through repair or alteration of any part of the Building or failure to make any such repairs, or from any cause whatever, unless caused solely by Landlord's gross negligence. LIEN FOR RENT 12. In consideration of the mutual benefits arising by virtue of this Lease, Tenant does hereby mortgage unto Landlord all property of Tenant now or hereafter placed in or upon the Demised Premises (except such part of Tenant's property or merchandise as may be exchanged, replaced or sold from time to time in the ordinary course of operations or trade), and such property is hereby subjected to a lien in favor of Landlord and shall be and remain subject to such lien of Landlord for payment of all Basic Rental, Operating Expenses and Taxes and other sums agreed to be paid by Tenant herein. Said lien shall be in addition to and cumulative of the Landlord's lien provided by law. At any time and from time to time, upon request by Landlord, Tenant will make, execute and deliver or cause to be made, executed and delivered, to Landlord, and where appropriate, filed and from time to time thereafter to be refiled at such time and in such offices and places as shall be deemed desirable by Landlord, any and all security agreements, financing statements, and other documents ("Instrument") as may, in the opinion of Landlord, be necessary or desirable in order Revised 3/90 3 5 to effectuate, complete, enlarge or perfect, or to continue and preserve (a) the obligations of Tenant under this Lease, and (b) the lien and security interest granted by this paragraph as a first and prior lien and security interest upon Tenant's interest in this Lease and the personal property of Tenant located in the Demised Premises, whether now or hereafter acquired by Tenant. Upon any failure by Tenant to do so, Landlord may make, execute, file, or refile any and all such instruments for and in the name of Tenant, and Tenant hereby irrevocably appoints Landlord the agent and attorney-in-fact of Tenant so to do. The lien and security interest hereof will automatically attach, without further act, to all after acquired personal property attached to and/or used in the operation of the Tenant's business in the Demised Premises or any part thereof. ABANDONMENT 13. If the Demised Premises are abandoned or vacated by Tenant, Landlord shall have the right, but not the obligation, to: (a) relet same for the remainder of the period covered hereby; and if the Basic Rental, Operating Expenses and Taxes are not received through such reletting at least equal to the Basic Rental, Operating Expenses and Taxes provided hereunder, Tenant shall pay and satisfy any deficiencies between the amount of Basic Rental, Operating Expenses and Taxes called for under this Lease and that received through reletting and all expenses incurred by any such reletting, including but not limited to, the cost of advertising, brokerage fees, renovating, altering and decorating for a new tenant, and/or (b) provide for the storage of any personal property remaining in the Demised Premises without liability of any kind or for the cost of storage or the return of the personal property to Tenant or take title to the abandoned personal property which title shall pass to Landlord under this lease as a Bill of Sale without additional payments or credit from Landlord to Tenant. Notwithstanding the foregoing, during the last ninety (90) days of the term of this Lease, if Tenant removes a substantial portion of Tenant's property or Tenant has been in physical absence for ten (10) days it shall constitute a vacation and Landlord may enter the Demised Premises for purposes of renovating, altering and decorating the Demised Premises for occupancy at the end of the term by a new tenant without in any way affecting Tenant's obligation to pay Basic Rental, Operating Expenses and Taxes and comply with all other terms and conditions of this Lease. Nothing herein shall be construed as in any way denying Landlord the right, in case of abandonment, vacation of the Demised Premises, or other breach of the contract by Tenant, to treat the same as an entire breach, and, at Landlord's option, immediately sue for the entire breach of this contract and any and all damages occasioned Landlord thereby. HOLDING OVER 14. In addition to performing all of Tenant's other obligations set forth in this Lease, Tenant shall pay to Landlord an amount equal to 200% of the monthly installment of Basic Rental and 200% of the monthly installment of Operating Expenses and Taxes payable by Tenant during the last month of the Lease Term on the 1st day of each month or a portion thereof for which Tenant shall retain possession of the Demised Premises or any part thereof after the expiration or termination of the Lease Term or of Tenant's right of possession, whether by lapse of time or otherwise, and also shall pay all costs incurred and damages sustained by Landlord, whether direct or consequential, on account of such holding over. The provisions of this paragraph shall not be deemed to limit or constitute a waiver of any rights or remedies of Landlord provided herein or at law. No holding over by Tenant after the terms of this Lease, either with or without the consent and acquiescence of Landlord, shall operate to extend this Lease for a longer period than one month; and holding over with the consent of Landlord in writing shall thereafter constitute this agreement a Lease from month to month. The foregoing provisions of this Article 14 are in addition to and do not affect Landlord's right of re-entry or any other rights of Landlord hereunder or as otherwise provided by law. ATTORNEY'S FEES 15. In the event Tenant defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease, and Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Basic Rental, Operating Expenses or Taxes due, or to become due hereunder or recovery of the possession of the Demised Premises in the hands of an attorney or files suit upon the same, Tenant agrees to pay Landlord reasonable attorneys' fees, and payment of the same shall be secured in like manner as is herein provided, as to all remedies which may be invoked by Landlord to secure payment of Basic Rental, Operating Expenses and Taxes. DAMAGE OR DESTRUCTION 16. If the Demised Premises or the Building shall be damaged by any cause or means whatsoever not caused or contributed to by the negligence or fault of Tenant, its employees, agents, invitees or visitors, and if insurance proceeds have been made available therefore, and if said damage can be repaired within a period of ninety (90) working days by using standard working methods and procedures, Landlord shall within a reasonable time after the occurrence of said damage, and to the extent of the insurance proceeds available therefore, enter and make repairs, and this Lease shall not be affected but shall continue in full force and effect. However, if said damage cannot be repaired within a period of ninety (90) working days by using standard working methods and procedures, then this Lease shall cease and terminate as of the date of such occurrence, and Tenant shall pay Basic Rental, Operating Expenses or Taxes hereunder to such date and immediately surrender the Demised Premises to Landlord, unless within a period of sixty (60) days from the date of such occurrence Landlord shall elect to keep this Lease in force and to restore the Demised Premises to substantially the condition as existed prior to the date of such occurrence by giving Tenant written notice of such election within said sixty (60) day period. If Landlord so elects to continue the Lease and restore the Demised Premises, Landlord shall within a reasonable time after the date of the notice of said election enter and make repairs, and this Lease shall not be affected, except that Basic Rental hereunder shall be reduced or abated while such repairs are being made for the period of time and in the proportion that the Demised Premises are untenantable. If, however, such damage is contributed to or results from the fault of Tenant, Tenant's employees, agents, invitees or visitors, and if Landlord does not have insurance covering such damage, such damage shall be repaired by and at the expense of Tenant under the control, direction and supervision of Landlord, and the Basic Rental, Operating Expenses and Taxes shall continue without abatement or reduction. The completion of the repairs of all such damages is subject to reasonable delays resulting from survey of such damage, obtaining plans and letting contracts for repair, adjustment or insurance loss, strikes, labor difficulties, unavailability of material, or other causes beyond the control of the party obligated to make such repairs. Notwithstanding anything to the contrary contained in this Article 16, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Demised Premises on account of the damage resulting from any casualty covered under this Article 16 which occurs during the last twelve (12) months of the term of this Lease (or any extension thereof), nor shall Landlord be required to expend funds to repair, reconstruct or restore beyond the extent of insurance proceeds received by Landlord Landlord shall not be required to repair any injury or damage by any cause, or to make any repairs or replacement of any property insured in the Demised Premises by Tenant. INSURANCE 17. Tenant agrees during the term hereof to carry a broad form comprehensive policy of commercial general liability insurance covering the Demised Premises in an amount of not less than $2,000,000.00 combined single limit per occurrence, personal injury and property damage insurance with companies satisfactory to Landlord in the name of Tenant (with Landlord and, if requested by Landlord, any mortgagee, trust deed holder, ground lessors agent or secured party with a substantial interest in this Lease and/or the Building named as additional insureds in the policy or by endorsement). Tenant also agrees to pay the premiums therefore and to deliver copies of said policies and/or endorsements thereto to Landlord, and the failure of Tenant to either obtain said insurance or deliver copies of said policies or certificates thereof to Landlord shall permit Landlord to procure said insurance and pay the requisite premiums therefor, which premiums shall be repayable to Landlord with the next monthly rental payment. Each insurer under the policies required hereunder shall agree by endorsement on the policy issued by it or by independent instrument furnished to Landlord that will give Landlord no less than thirty (30) days written notice before the policy or policies in question shall be altered or cancelled. All such insurance policies shall be primary, noncontributing and shall contain cross-liability coverage or an endorsement. The amounts of such insurance required hereunder shall be subject to adjustment from time to time as requested by Landlord based upon Landlord's determination as to the amounts of such insurance generally required at such time for comparable tenants, premises and buildings in the general geographical location of the Building or as requested by any ground lessor or lender with an interest in the Building or property on which the Building is situated. TRANSFER OF LANDLORD'S RIGHTS 18. Landlord shall have the right to transfer and assign, in whole or in part, all and every feature of its rights and obligations hereunder and in the Building and property referred to herein. DEFAULT CLAUSE 19. In the event: (a) Tenant fails to comply with any term, provision, condition, or covenant of this Lease or any of the Rules and Regulations now or hereafter established for the government of the Building; (b) Tenant deserts or vacates the Demised Premises; (c) any petition is filed by or against Tenant under any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or under any similar law or statute of the United States or of any state thereof; (d) Tenant becomes insolvent or makes a transfer in fraud of creditors; (e) Tenant makes an assignment for benefit of creditors; (f) a receiver is appointed for Tenant or any of the assets of Tenant; or (g) any representation or warranty made by Tenant is not accurate and correct, then in any of such events this Lease, at the sole discretion and election of Landlord, shall terminate and Landlord shall have the option to do any one or more of the following without any notice or demand, in addition to and not in limitation of any other remedy permitted by law or by this Lease: (1) Take immediate possession of the Demised Premises, but if Tenant shall fail to vacate the Demised Premises, Landlord may, 4 6 without notice and without prejudice to any other remedy Landlord may have, enter upon and take possession of the Demised Premises and expel or remove Tenant and its effects, by force if necessary, without being liable to prosecution or any claim for damages therefor, and Tenant agrees to indemnify Landlord for all loss, damage and expense including reasonable attorneys' fees which Landlord may suffer by reason of such termination. (2) Declare the entire amount of the Basic Rental, Operating Expenses and Taxes which would have become due and payable during the remainder of the term of this Lease to be due and payable immediately, in which event, Tenant agrees to pay the same at once, together with all Basic Rental, Operating Expenses and Taxes theretofore due, to Landlord at the address specified herein or hereunder, provided, however, that such payments shall not constitute a penalty or forfeiture or liquidated damages, but shall merely constitute payment in advance of the Basic Rental, Operating Expenses and Taxes for the remainder of the said term. The acceptance of such payment by Landlord shall not constitute a waiver of any failure of Tenant thereafter occurring to comply with any term, provision, condition or covenant of this Lease. (3) Relet the Demised Premises and receive the rent therefor, and in such event, Tenant shall pay Landlord the cost of advertising, brokerage fees, renovating, repairing and altering of the Demised Premises for a new tenant or tenants and any deficiency that may arise by reason of such reletting, on demand, at the address of Landlord specified herein or hereunder, provided, however, the failure or refusal of Landlord to relet the Demised Premises shall not release or affect Tenant's liability for Basic Rental, Operating Expenses and Taxes or for damages and such Basic Rental, Operating Expenses and Taxes and damages shall be paid by Tenant on the dates specified herein. (4) Landlord may, as agent of Tenant, do whatever Tenant is obligated to do by the provisions of this Lease and may enter the Demised Premises, by force if necessary, without being liable to prosecution or any claim for damages therefor, in order to accomplish this purpose. Tenant agrees to reimburse Landlord immediately upon demand for any expenses which Landlord may incur in thus effecting compliance with this Lease on behalf of Tenant, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law. CROSS DEFAULTS 20. In the event Tenant, or Tenant's subsidiary or affiliate, shall have other leases for other premises in the Building, any default by Tenant or its subsidiary or affiliate under any lease shall be deemed to be a default under all other leases and Landlord shall be entitled to enforce all rights and remedies against all such leases as provided for a default herein. BINDING EFFECT 21. This Lease shall also inure to the benefit of the successors and assigns of Landlord, and, with the written consent of Landlord first had and obtained, but not otherwise, to the benefit of the heirs, executors and/or administrators, successors and assigns of Tenant. REMEDIES 22. No act or thing done by Landlord or its agents during the term hereof shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept a surrender of the Demised Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy Landlord might have, either in law or in equity, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease contained or any of the Rules and Regulations attached hereto or hereafter adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Basic Rental, Operating Expenses and Taxes with knowledge of the breach of any covenant in this Lease contained shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations attached hereto, or hereafter adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver. Waiver of said Rules or Regulations by Landlord shall be in writing and signed by Landlord. In case it should be necessary or proper for Landlord to bring any action under this Lease to consult or place said Lease or any amount payable by Tenant thereunder with an attorney concerning or for the enforcement of any of the Landlord's rights hereunder, then Tenant agrees in each and any such case to pay to Landlord reasonable attorneys' fees. QUIET POSSESSION 23. Landlord hereby covenants that Tenant, upon paying Basic Rental, Operating Expenses and Taxes as herein reserved, and performing all covenants and agreements herein contained on part of Tenant, shall and may peacefully and quietly have, hold and enjoy the Demised Premises. IMPROVEMENTS 24. If any improvements are made with respect to the Demised Premises at the Tenant's expense or under any agreement with the Tenant whereby the Tenant is given an allowance or rent reduction in exchange for Landlord's agreement to install or allow to be installed leasehold improvements such as by way of example but not limitation: wall coverings, floor coverings or carpet, paneling, doors and hardware, any and all of such improvements shall become the property of the Landlord and shall in no event be removed by the Tenant. POSSESSION 25. If for any reason the Demised Premises or any part thereof shall not be ready for occupancy by Tenant at the time of commencement of this Lease, this Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof, but no Basic Rental, Operating Expenses or Taxes for the applicable portion of the Demised Premises shall be payable for the period during which the applicable portion of the Demised Premises shall not be ready for occupancy. All claims for damages arising out of any such delay are waived and released by Tenant. With respect to the foregoing, if delivery of possession of the entire Demised Premises shall be delayed beyond the date specified for the commencement of the Lease Term, it is understood and agreed that the commencement of the Lease Term shall be extended to the date that the Demised Premises are tendered to the Tenant. In the event of such delay in tendering the Demised Premises or any part thereof to the Tenant the Landlord shall not be liable to Tenant for any damage whatsoever resulting from the delay in the delivery of possession of the Demised Premises. Notwithstanding the foregoing, it is understood that if and to the extent that Landlord is unable to deliver timely possession of the Demised Premises or any part thereof to Tenant due to delays by Tenant, then the Basic Rental, Operating Expenses and Taxes reserved shall commence to accrue on the date possession of the Premises would have been delivered to Tenant but for the delays of Tenant. If permission is given to Tenant to occupy the Demised Premises prior to the date of commencement of the term hereof, such occupancy shall be subject to all of the provisions of this Lease (including the payment of Basic Rental, Operating Expenses and Taxes), however, the Lease term shall be extended by the number of days of such early occupancy. CONDITION OF PREMISES 26. Tenant acknowledges that neither Landlord nor any agent of Landlord have made any representation or warranty with respect to the Demised Premises or the Building or with respect to the suitability of either for the conduct of Tenant's business or profession. The taking of possession of the Demised Premises by Tenant shall conclusively establish that the Demised Premises and the Building were at such time in satisfactory condition. ESTOPPEL CERTIFICATE 27. Tenant shall at any time and from time to time, upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the dates to which the Basic Rental, Operating Expenses and Taxes and other charges, if any, are paid in advance and the amount of Tenant's security deposit, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults, on the part of Landlord hereunder, and that there are no events or conditions then in existence which, with the passage of time or notice or both, would constitute a default on the part of Landlord hereunder, or specifying such defaults, events or conditions, if any are claimed, and such further matters regarding the Lease or the Demised Premises as Landlord may request. It is expressly understood and agreed that any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or Property on which the Building is situated. Tenant's failure to deliver such statement within such time shall, at the option of Landlord, constitute a default under this Lease and, in any event, shall be conclusive upon Tenant that this Lease is in full force and effect without modification except as may be represented by Landlord in any such certificate prepared by Landlord and delivered to Tenant for execution. SIGNS 28. Tenant will not place or suffer to be placed or maintained on any exterior door, wall or window of the Demised Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the Demised Premises without first obtaining Landlord's prior written 5 Revised 3/90 7 approval and consent in each instance. Tenant further agrees to maintain any such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved, in good condition at all times. PERSONAL PROPERTY TAXES 29. With respect to Tenant's fixtures, furnishings, equipment and all other personal property located in the Demised Premises, Tenant shall pay prior to delinquency all taxes assessed against or levied thereon and when possible, shall cause same to be assessed and billed separately from the property of Landlord, but if same shall be assessed and taxed with the property of Landlord, Tenant shall pay to Landlord its share of such taxes within ten (10) days after Landlord's delivery to Tenant of a statement in writing setting forth the amount of such taxes applicable to Tenant's property. In addition Tenant shall pay promptly when due all taxes imposed upon Tenant's rents, gross receipts, charges and business operations. SUBORDINATION 30. Tenant hereby subordinates this Lease and all rights of Tenant hereunder to any mortgage or mortgages, or vendor's lien, or similar instruments which now are or which may from time to time be placed upon the premises covered by this Lease, and such mortgage or mortgages or liens or other instruments shall be superior to and prior to this Lease. Tenant further covenants and agrees that if the mortgagee or other lien holder acquired the Demised Premises as a purchaser at any such foreclosure sale (any such mortgagee or other lien-holder or purchaser at the foreclosure sale being each hereinafter referred to as the "Purchaser at Foreclosure"), Tenant shall thereafter, but only at the option of the Purchaser at Foreclosure, as evidenced by the written notice of its election given to Tenant within a reasonable time thereafter, remain bound by novation or otherwise to the same effect as if a new and identical Lease between the Purchaser at Foreclosure, as Landlord, and Tenant, as tenant, had been entered into for the remainder of the term of the Lease in effect at the institution of the foreclosure proceedings. No Purchaser at Foreclosure shall be liable for any default by Landlord or any other matter which occurred prior to the date such successor succeeded to Landlord's interest in this Lease nor shall such Purchaser at Foreclosure be bound by or subject to any offsets or defenses which Tenant may have against Landlord. No Purchaser at Foreclosure shall be bound to recognize any prepayment by more than thirty (30) days of Basic Rental or Tenant's share of Operating Expenses and Taxes. Tenant agrees to execute any instrument or instruments which may be deemed necessary or desirable further to effect the subordination of this Lease to each such mortgage, lien or instrument or to confirm any election to continue the Lease in effect in the event of foreclosure, as above provided. Tenant hereby irrevocably appoints Landlord as its special attorney-in-fact to execute and deliver any document or documents provided for herein and in the name of Tenant. Such power, being coupled with an interest, is irrevocable. SEVERABILITY CLAUSE 31. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision that is illegal, invalid or unenforceable, there be added as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. The caption of each paragraph hereof is added as a matter of convenience only and shall be considered to be of no effect in the construction of any provision or provisions of this Lease. SECURITY DEPOSIT 32. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy use the Security Deposit paid to Landlord by Tenant as herein provided to the extent necessary to make good any arrears of Basic Rental, Operating Expenses Taxes and any other damage, injury, expense or liability caused to Landlord by such event of default. If any portion of said deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount. Tenant shall not be entitled to interest on the security deposit. Tenant shall not grant anyone a security interest of any kind in such security deposit and no such security agreement shall be binding on Landlord. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit, or any balance thereof remaining, shall be returned to Tenant at the expiration of the Lease term and upon Tenant's vacation of the Premises. Such Security Deposit shall not be considered an advance payment of rental or a measure of Landlord's damages in case of default by Tenant. In the event the Landlord should have good cause to doubt the full and faithful performance of every provision of this lease by the Tenant, the Landlord shall have the right to demand that the Tenant post an additional Security Deposit in an amount equal to the current monthly amount of Basic Rental, Operating Expenses and Taxes. Upon the showing by the Tenant that this full and faithful performance is no longer in doubt, the additional Security Deposit shall be returned to the Tenant. WAIVER OF SUBROGATION 33. Each of Landlord and Tenant hereby waives any and every claim for recovery from the other for any and all loss or damage to the Building or Demised Premises or to the contents thereof, whether such loss or damage is due to the negligence of Landlord or Tenant or its respective agents or employees, to the extent that the amount of such loss or damage is recovered under its policies of insurance; provided,however, that the foregoing waiver shall not be operative in any case where the effect thereof is to invalidate any insurance coverage of the waiving party or increase the cost of such insurance coverage; provided further, however, that Landlord and Tenant each agree to give written notice of the terms of this mutual waiver to each insurance company which has issued, or in the future may issue, policies of physical damage to it, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waiver. ADJUSTMENT OF RENTAL 34. (a) Operating Expenses: (1) The term "Operating Expenses" shall mean all costs of management, operating and maintenance of the land, the Building and other improvements thereon and appurtenances thereto of which the Demised Premises are a part, all accrued and based on a calendar year period, including by way of illustration but not limitation, utilities, insurance premiums, management fees, janitorial and cleaning services, compliance with laws, ordinances, rules and regulations, licenses, permits and inspection fees, heating and cooling, maintenance and repairs, general administration costs and expenses, labor and supplies, capital expenditures which are intended to result in labor or cost saving device or operation and capital expenditures required by any governmental ordinance, law, rule or regulation in which case the capital expenditures may be amortized as reasonably determined by Landlord with interest thereon and included on an annual basis in the Operating Expenses, whether such Operating Expenses, or any portion thereof, are paid by the Landlord, or paid directly by the Tenant, excluding, however, depreciation; principal and interest payments on mortgage loans; costs of repairs, alterations or replacements caused by casualty losses to the extent customarily insured against by owners of office buildings of similar size, age, and construction in the area; cost of tenant improvements and commissions paid for leasing. (2) It is agreed that the Basic Rental provided for herein includes the Tenant's Prorata Share of Operating Expenses. If the amount of such Operating Expenses for the entire Building exceeds actual 1995 Operating Expenses, in any calendar year, Tenant shall pay its Prorata Share of the excess in the manner hereinafter set forth. It is further agreed that if the Actual Operating Expenses for the entire Building for any calendar year exceeds the greater of the (i) estimated Annual Operating Expenses or (ii) the Actual Operating Expenses for the entire Building the Tenant shall pay the Landlord without reduction or setoff, within ten (10) days of billing, as additional rental the Tenant's share of such excess. (3) If the amount of Actual Annual Operating Expenses for the entire Building for the immediately preceding year is less than the estimated Annual Operating Expenses for such year, Landlord shall credit the Tenant, Tenant's share of such amount and shall reimburse Tenant by deducting, monthly, from its estimated payments of Operating Expenses for the current year, one-twelfth (1/12) of such share. (4) It is further agreed and understood that approximately January 1st of each calendar year or as soon thereafter as the information can be obtained, Landlord shall estimate the Annual Operating Expenses for the current calendar year. The Landlord shall notify Tenant of such calculations and (i) effective each January 1st, during the lease term and on the first (1st) day of each of the succeeding eleven (11) months of each calendar year, Tenant shall pay the Landlord one-twelfth (1/12) of its share of the estimated Annual Operating Expenses for the current year. See Lease Rider 62 (b) Taxes: It is agreed that the Basic Rental provided for herein includes the Tenant's Prorata Share of all real property taxes, other similar charges on real property or improvements, personal property taxes or any other tax, assessment, or water and sewer charge and all costs and fees incurred in connection therewith ("Taxes"), which may be levied or assessed by any lawful authority against the land and improvements or the Building. If the amount of such taxes, assessments, costs, fees and Revised 3/90 6 8 (c) Charges exceeds $ _______ in any calendar year, Tenant shall pay its Prorata Share of the excess in the same manner as provided above for payment of Operating Expenses. Operating Expenses and Taxes shall at all times be computed separately. (d) If the average occupancy in any calendar year is less than ninety percent (90%), then the Operating Expenses for such year shall be adjusted to reflect what the Operating Expenses would have been at an average occupancy of ninety-five percent (95%). (e) It is further agreed that the provisions of Article 34 shall survive the termination of this Lease and be applicable to such portion of the calendar year as this Lease was in effect. (f) In no event shall any provision of this Article 34 result in any reduction in the Basic Rental. (g) Delay in computing any item of Operating Expenses or Taxes shall neither be deemed a default by Landlord or a waiver of the right to collect the Item of Operating Expenses or Taxes in question. Notwithstanding anything seemingly to the contrary in this Lease, Tenant shall make monthly payments on account of each Item of Operating Expenses and Taxes, the amount of which is to be estimated by Landlord, based on the amount that Landlord's most recent estimate thereof exceeds the amount of Operating Expenses and Taxes included in Basic Rental, until Landlord notifies Tenant of a revision to such estimate. (h) Tenant acknowledges that the amounts of Operating Expenses and Taxes included in the Basic Rental in Section 34 hereof are amounts agreed upon by Landlord and Tenant and do not purport to be estimates of the Operating Expenses and Taxes for the year in which the Lease Term commences or for any other year. NET WORTH 35. Tenant shall maintain at all times a net worth in excess of that at the signing of this Lease. If at any time Tenant's net worth should not exceed that amount, Tenant shall notify Landlord of this fact in writing. DEFAULTS BY TENANT ON THIRD PARTY AGREEMENTS 36. Tenant shall not default on any of its covenants under any loan agreements with any lending, mortgage or financial institution. Nor shall Tenant default on any loan or financial agreement with any third party wherein there is an outstanding balance owed by Tenant. Tenant immediately shall advise Landlord in writing if any such default by Tenant should occur. SALE OF ASSETS 37. Tenant shall not transfer any portion of his assets outside the ordinary course of his business so that the effect causes the Tenant to default under paragraph 36 of this lease. INTEREST ON PAST DUE OBLIGATIONS 38. All payments becoming due under this Lease and remaining unpaid when due shall bear interest until paid at a rate per annum (the "Interest Rate") equal to 18%. Tenant recognizes that late payment of Basic Rental or any other sum due hereunder will result in administrative expenses to Landlord, the extent of which additional expenses are extremely difficult and economically impractical to ascertain and Tenant hereby agrees that the amounts discussed herein are reasonable. Tenant therefore agrees that when Basic Rental, Operating Expenses, Taxes or any other sum is due and payable from Tenant to Landlord pursuant to the terms of this Lease, and such amount remains unpaid thirty (30) days after such amount is due, the amount of such unpaid Basic Rental, Operating Expenses, Taxes or other sum shall be increased by a late charge to be paid to Landlord by Tenant equal to the greater of (a) $100.00 or (b) 10% of the unpaid Basic Rental or other sum. The provisions of this Paragraph shall in no way relieve Tenant of the obligation to pay Basic Rental, Operating Expenses, Taxes or other payments on or before the date on which they are due, nor shall the collection by Landlord of any amount under this paragraph impair (a) the ability of Landlord to collect the amount charged under this paragraph or (b) Landlord's Remedies set forth in Section 19 of this Lease. RELOCATION 39. (a) At any time hereafter, Landlord shall have the right to substitute for the Demised Premises then being leased or to be leased hereunder (the "Existing Premises") other premises within the Building herein referred to as the "New Premises" provided that the New Premises shall be of at least substantially the same size and shall either have substantially the same perimeter configuration or a perimeter configuration substantially as usable for the purposes for which the Existing Premises were being used by Tenant or, if possession of the Existing Premises had not yet been received by Tenant, then for the purposes for which the Existing Premises were to be used by Tenant. (b) If Tenant shall not have received possession of the Existing Premises, then, as of the date Landlord gives notice of a substitution, such substitution shall be effective, the New Premises shall be the Demised Premises hereunder and the Existing Premises shall cease to be the Demised Premises hereunder. (c) The provisions of this subparagraph (c) shall apply if Tenant shall have already received possession of the Existing Premises as of the date Landlord gives notice of substitution. Tenant shall vacate and surrender the Existing Premises not later than the later of the 30th day after the date that Landlord shall notify Tenant of Landlord's intent to make the substitution in question or the 15th day after Landlord shall have substantially completed the work to be done by Landlord in the New Premises pursuant to this subparagraph (c). As of the sooner of such 15th day or the date of such surrender and vacation, the New Premises shall be the Demised Premises leased under this Lease and the Existing Premises shall cease to be the Demised Premises leased under this Lease. Landlord shall (A) pay the actual and reasonable out-of-pocket expenses of Tenant's moving of its property from the Existing Premises to the New Premises, and (B) shall improve the New Premises so that they are substantially similar to the Existing Premises and promptly reimburse Tenant for its actual and reasonable out-of-pocket costs in connection with the relocation of any telephone or other communications equipment from the Existing Premises to the New Premises. However, instead of only paying the expenses of Tenant's moving of its property, Landlord may elect to either move Tenant's property or provide personnel to do so under Tenant's direction, in which event such move may not be made except during evenings, weekends or holidays, so as to incur the least inconvenience to Tenant. (d) Tenant shall not be entitled to any compensation for any inconvenience or interference with Tenant's business nor to any abatement or reduction in Basic Rental, nor shall Tenant's obligations under this Lease be otherwise affected, as a result of the substitution, except as otherwise provided in this Section 39. Tenant agrees to cooperate with Landlord so as to facilitate the prompt completion by Landlord of its obligations under this subparagraph. Without limiting the generality of the preceding sentence, Tenant agrees to promptly provide to Landlord such approvals, instructions, plans, specifications or other information as may be reasonable requested by Landlord. INABILITY TO PERFORM 40. This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike or other labor troubles, or act of God, or any other cause beyond the control of Landlord. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS 41. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. Any written addenda to this Lease, when signed or initiated by the contracting parties shall be deemed a part of this Lease to the same full extent as if incorporated herein. GENDER 42. Throughout this Lease the masculine gender shall be deemed to include the feminine and the neuter and the singular, the plural and vice versa. ACCORD AND SATISFACTION 43. No payment by Tenant or receipt by Landlord of a lesser amount than that stipulated herein for Basic Rental, Operating Expenses, Taxes or any other charge shall be deemed to be other than on account of the earliest stipulated Basic Rental, Operating Expenses, Taxes or other charge then due, nor shall any endorsement or statement on a check or letter accompanying any check or payment be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's rights to Revised 3/90 7 9 recover the balance of such Basic Rental, Operating Expenses, Taxes or other charges or pursue any other remedy in this Lease, at law or in equity. TIME OF ESSENCE 44. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. BROKERS 45. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only none ("Broker") and that Tenant knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. Tenant agrees to indemnify, defend and hold Landlord harmless from and against all claims made by any broker or finder other than the above-named broker for a commission in connection with this Lease, provided that Landlord has not retained such broker. LEASE EFFECTIVE UPON EXECUTION 46. Delivery of this Lease, duly executed by Tenant, constitutes an offer to lease the Demised Premises as herein set forth, and under no circumstances shall such delivery be deemed to create an option or reservation to lease the Demised Premises for the benefit of Tenant. This Lease shall only become effective and binding upon execution hereof by Landlord and delivery of a signed copy to Tenant. NOTICES 47. Any notice required or permitted to be given hereunder by one party to the other shall be deemed to be given when deposited in the United States Mail, with sufficient postage prepaid, or overnight courier addressed to the respective party to whom notice is intended to be given at the following address of such party: If to Landlord: Symphony Woods Limited Partnership c/o Insignia Commercial Group, Inc. 5950 Symphony Woods Road Columbia, MD 21044 with copies In the case of Landlord to: 4849 Golf Road Skokie, IL 60077 Attn: Legal Department If to Tenant: Credit Management Solutions, Inc. 5950 Symphony Woods Road, Suite 301 Columbia, MD 21044 with copies In the case of Tenant to: SURRENDER OF POSSESSION 48. Upon the expiration of the Lease Term or upon the termination of Tenant's right of possession, whether by lapse of time or at the option of Landlord as herein provided, Tenant shall forthwith surrender the Demised Premises to Landlord in good order, repair and condition, ordinary wear excepted. Prior to the expiration or termination of the Lease Term or of Tenant's right of possession of the Demised Premises, Tenant shall remove its office furniture, trade fixtures, office equipment, telephone and computer systems (and all wiring related thereto) and all other items of Tenant's property (including, without limitation, any alterations made or installed after the commencement of the Lease Term other than the alterations approved pursuant to Section 4 hereof) from the Demised Premises and shall surrender the Demised Premises to Landlord in broom-clean condition. In addition, Landlord may require removal of extraordinary improvements that were installed by Landlord or Tenant prior to the commencement of the Lease Term. Extraordinary improvements include, but shall not be limited to, raised floors or safes. Tenant shall pay to Landlord upon demand the cost of repairing any damage to the Demised Premises and to the Building caused by any such removal. PROHIBITION AGAINST RECORDING 49. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election. ONLY LANDLORD/TENANT RELATIONSHIP 50. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Basic Rental nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. GOVERNING 51. Interpretation of this Lease shall be governed by the internal laws of the state where the Building is located. AUTHORIZED SIGNATORY 52. If Tenant is a corporation or partnership, each signatory of Tenant personally represents and warrants that he is a duly authorized signatory for and on behalf of the Tenant, and agrees that if the representation and warranty contained in this paragraph is false, each signatory shall be personally liable under this Lease. FINANCIAL INFORMATION 53. Tenant represents and warrants that all financial information heretofore and hereafter delivered to Landlord is true and correct and that no material misstatements, misrepresentations or omissions exist therein. LIMITATION ON LANDLORD'S LIABILITY 54. It is expressly understood and agreed by Tenant that none of Landlord's covenants, or undertakings or agreements are made or intended as personal covenants, undertakings or agreements by Landlord or the partners in Landlord, and any liability of Landlord or the partners in Landlord for damages or breach or nonperformance by Landlord or otherwise arising under or in connection with this Lease or the relationship of Landlord and Tenant hereunder, shall be collectible only out of Landlord's interest in the Building and the land upon which the Building is located (or if Landlord is the beneficiary of a land trust, Landlord's right, title and interest in such land trust), in each case as the same may then be encumbered, and no personal liability is assumed by, nor at any time may be asserted against, Landlord or the partners in Landlord or any of its or their officers, agents, employees, legal representatives, successors or assigns, all such liability, if any, being expressly waived and released by Tenant. IN WITNESS WHEREOF this lease is entered into by the parties hereto on the date and year first set forth above. LANDLORD: Symphony Woods Limited Partnership an Illinois limited partnership By: Symphony Woods Partners, Inc. an Illinois corporation its general partner By: /s/ Daniel Duhig Title: Dan Duhig, an Authorized Agent ATTEST: /s/ Jerry M. Ogle Title: Jerry M. Ogle Vice President and Secretary TENANT: Credit Management Solutions, Inc. By: /s/ James DeFrancesco Title: Jim DeFrancesco, President ATTEST: _____________________________________ Title: ______________________________________ Revised 3/90 8 10 ACKNOWLEDGMENT - LANDLORD STATE OF ILLINOIS) ) SS COUNTY OF COOK) I, Elizabeth Kamajian, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Dan Duhig, personally known to me to be the Authorized Agent (Title), of Symphony Woods Partners, Inc., an Illinois corporation, and Jerry M. Ogle, personally known to me to be the Vice President Secretary of said corporation and personally known to me to be the same persons whose names are subscribed to the foregoing instrument, appeared before me this day in person and severally acknowledged that they signed and delivered the said instrument as their free and voluntary act and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 10th day of February, 1995. /s/ Elizabeth Kamajian -------------------------------------------- Notary Public My Commission Expires: OFFICIAL SEAL ELIZABETH KAMAJIAN NOTARY PUBLIC STATE OF ILLINOIS MY COMMISSION EXP. JAN. 24, 1996 - ------------------------------------------------------------------------------- ACKNOWLEDGMENT - TENANT (CORPORATION) STATE OF MARYLAND) ) SS COUNTY OF HOWARD) I, Michael Reuter, a Notary Public in and for said County, in the State aforesaid, do hereby certify that James DeFrancesco, personally known to me to be the President of Credit Management Solutions, Inc., a(n) Maryland corporation, and _______________________________________, personally known to me to be the __________________ Secretary of said corporation and personally known to me to be the same persons whose names are subscribed to the foregoing instrument, appeared before me this day in person and severally acknowledged that they signed and delivered the said instrument as their free and voluntary act and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 3rd day of February, 1995. /s/ Michael J. Reuter -------------------------------------------- Notary Public My Commission Expires: 11/21/98 - ------------------------------------------------------------------------------- ACKNOWLEDGMENT - TENANT (INDIVIDUAL) STATE OF ) ) SS COUNTY OF ) I, _____________________________________, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ________________________________________, appeared before me this day in person and acknowledged that (he) (they) signed and delivered the said instrument as (his/her) (their) free and voluntary act for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this _______ day of _____________, 19__. -------------------------------------------- Notary Public My Commission Expires: 9 11 [THIRD FLOOR PLAN] Floor plan of entire floor on which Demised Premises is located and Detailed Interior floor plan of Demised Premises Revised 3/90 10 12 EXHIBIT "B" BUILDING RULES AND AGREED REGULATIONS 1. Tenant agrees to make a deposit, in an amount fixed by Landlord from time to time, for each key or security access card issued by Landlord to Tenant for its offices, and upon termination of this Lease, to return all keys to Landlord. Tenant shall not make duplicate copies of such keys and in the event of the Tenant's loss of a key, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such a change. 2. Directories will be placed by Landlord in inconspicuous places in the Building at the sole discretion of Landlord. No other directories shall be permitted, unless previously consented to by Landlord in writing. 3. Tenants will refer all contractors, contractor's representatives and installation technicians, rendering any service to Tenant, to Landlord for Landlord's supervision, approval, and control before performance of any contractual service. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments, and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building. 4. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require use of elevators or stairways, or movement through Building entrances or lobby shall be restricted to hours designated by Landlord. All such movement shall be under supervision of Landlord and in the manner agreed between Tenant and Landlord by prearrangement before performance. Such prearrangement initiated by Tenant will include determination by Landlord and subject to its decision and control, as to the time, method, and routing of movement and as to limitations imposed for safety or other concerns which may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all risk as to damage to articles moved and injury to persons or the public engaged or not engaged in such movement, including equipment, property, and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for Tenant, from time of entering property to completion of work, and Landlord shall not be liable for acts of any person engaged in, or any damage or loss to any of said property or persons resulting from any act in connection with such service performed for Tenant. 5. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors, or other parts of the Building, except of color, size and style and in such places, as shall be first approved in writing by Landlord. No nails, hooks or screws shall be driven or inserted in any part of the Building, except by the Building maintenance personnel, nor shall any part be defaced by Tenant. All signs will be contracted for by Landlord at the rate fixed by Landlord from time to time, and Tenant will be billed and pay for such service accordingly. 6. Canvassing, soliciting, peddling or begging in or around the Building are prohibited and Tenant shall report such activities to Landlord and cooperate to prevent such conduct. 7. Tenant shall not place, install or operate in the Demised Premises or in any part of the Building, any engine or machinery, or maintain, use or keep any inflammable, explosive, or hazardous material without the express written consent of Landlord. 8. Landlord will not be responsible for lost or stolen personal property, equipment, money, or jewelry from Tenant's area or public rooms regardless of whether such loss occurs when the area is locked against entry or not. 9. No birds or animals shall be brought into or kept in or about Building. 10. Employees of Landlord shall not receive or carry messages for or to Tenant or any other person, nor contract with or render free or paid services to Tenant's agents, employees, or invitees. 11. Landlord shall have the right, from time to time, to designate smoking and non-smoking areas in, around or throughout the Building and shall further be permitted to prohibit or limit such activity in order to fully comply with any applicable governmental ordinance, law or regulation. 12. The entries, passages, doors, elevators, elevator doors, hallways or stairways shall not be blocked or obstructed; no rubbish, litter, trash, or material of any nature shall be placed, emptied or thrown into these areas; and such areas shall not be used at any time except for ingress or egress by Tenant, Tenant's agents, employees, invitees or visitors to or from the Demised Premises. 13. Plumbing fixtures and appliances shall be used only for purposes for which constructed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant shall be repaired and replaced at Tenant's sole cost and expense, and Landlord shall not in any case be responsible therefor. 14. Tenant shall not do, or permit anything to be done in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein, or obstruct or interfere with the rights of, or otherwise injure or annoy, other tenants, or do anything in conflict with the valid pertinent laws, rules or regulations of any governmental authority. 15. The Landlord desires to maintain the highest standards of environmental comfort and convenience for the tenantry. It will be appreciated if any undesirable conditions or lacks of courtesy or attention are reported directly to the management. 16. The work of the janitor or cleaning personnel shall not be hindered by Tenant after 5:30 p.m. and such work may be done at any time when the offices are vacant; the windows, doors, and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles, cabinets, book cases, map cases, etc., necessary to prevent unreasonable hardship to Landlord in discharging its obligation regarding cleaning service. 17. Landlord shall have the right to determine and prescribe the weight and proper position of any unusually heavy equipment including sales, file systems, etc., that are to be placed in the Building, and only those which in the opinion of Landlord might not with reasonable probability do damage to the floors, structure and/or freight elevator, may be moved into said Building. Any damage occasioned in connection with the moving or installing of such aforementioned articles in said Building or the existence of same in said Building shall be paid for by Tenant, unless otherwise covered by insurance. 18. Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant, which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability for the executive offices of Landlord or of other tenants, and, upon written notice from Landlord, Tenant will refrain from or discontinue such publicity. 19. The Demised Premises shall not be used for lodging, sleeping, or cooking or for any immoral or illegal purpose or for any purpose that will damage the Demised Premises or the Building or the reputation thereof, or for any purpose other than that specified in the lease covering the premises. 13 LEASE RIDER RIDER ATTACHED TO AND MADE A PART OF THE LEASE AGREEMENT (the "Lease") DATED February __, 1995, BY AND BETWEEN SYMPHONY WOODS LIMITED PARTNERSHIP (hereinafter referred to as "Landlord") AND CREDIT MANAGEMENT SOLUTIONS, INC. (hereinafter referred to as "Tenant") CONCERNING THE PREMISES KNOWN AS Suite 301/305 IN THE Symphony Woods Office Center Building. In the event of any conflict between the terms and conditions of the Lease and the terms and conditions of this Rider, the terms and conditions contained in this Rider shall control. 55. Expansion of Demised Premises: Commencing as of the earlier to occur of (i) April 1, 1995 and (ii) the date the Expansion Space (as hereinafter defined) is ready for Tenant's occupancy (the "Expansion Space Commencement Date"), the Demised Premises shall be expanded from 8,075 rentable square feet to include an additional 605 rentable square feet of space (the "Expansion Space") as more fully described on the attached Exhibit C resulting in a total of 8,680 rentable square feet. The Term for the Expansion Space shall be coterminous with the Term of the Lease. Tenant shall accept the Expansion Space in its then "As Is" condition. Commencing as of the Expansion Space Commencement Date, Paragraph (i) of the Definitions and Basic Provisions Section of the Lease shall be amended to increase the Prorata Share of Tenant to 9.33% to reflect the increase in the number of rentable square feet in the Demised Premises as a result of the addition of the Expansion Space. Prior to Tenant's occupancy of the Expansion Space, Tenant shall increase its security deposit to $11,935.00. If for any reason the Expansion Space shall not be ready for occupancy by Tenant by April 1, 1995, this Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof, but no Basic Rental, Operating Expenses or Taxes due for the Expansion Space shall be payable for the period during which the Expansion Space shall not be ready for occupancy. All claims for damages arising out of any such delay are waived and released by Tenant. In the event of such delay in tendering the Expansion Space to the Tenant the Landlord shall not be liable to Tenant for any damage whatsoever resulting from the delay in the delivery of possession of the Expansion Space. Notwithstanding the foregoing, it is understood that if and to the extent that Landlord is unable to deliver timely possession of the Expansion Space to Tenant due to delays by Tenant, then the Basic Rental, Operating Expenses and Taxes reserved for the Expansion Space shall commence to accrue on the date possession of the Expansion Space would have been delivered to Tenant but for the delays of Tenant. 56. BASIC RENTAL: Tenant shall pay to Landlord as Basic Rental for the Expansion Space, the total sum of $37,459.63. Such amount shall be payable by Tenant commencing on the Expansion Space Commencement Date and continuing thereafter on the first day of each calendar month during the Term of the Lease at the office of the Landlord in monthly installments in advance as follows: The total monthly Basic Rental payable for the Expansion Space for the period from the Expansion Space Commencement Date through December 31, 1996 shall be $831.88 per month ($16.50 per rentable square foot) so that the total monthly Basic Rental payable during such period for the entire Demised Premises (including the Expansion Space) shall be $11,935.01 per month. 1 14 The total monthly Basic Rental payable for the Expansion Space for the period January 1, 1997 through December 31, 1997 shall be $857.08 per month ($17.00 per rentable square foot) so that the total monthly Basic Rental payable during such period for the entire Demised Premises (including the Expansion Space) shall be $12,296.66 per month. The total monthly Basic Rental payable for the Expansion Space for the period January 1, 1998 through November 30, 1998 shall be $882.29 per month ($17.50 per rentable square foot) so that the total monthly Basic Rental payable during such period for the entire Demised Premises (including the Expansion Space) shall be $12,658.33 per month. Should the term for the Expansion Space commence upon a day other than the first day of the calendar month, Tenant shall pay the monthly installment of Basic Rental prorated on a per diem basis with respect to that fractional calendar month. All rental payments thereafter will be for a full calendar month and will be in the amount as specified above. 57. Improvements to Premises: Landlord agrees to contribute Six Dollars and Fifty Cents ($6.50) per rentable square foot of the initial Demised Premises, and Six Dollars and Fifty Cents ($6.50) per rentable square foot of the Expansion Space (the "Tenant Allowance") towards the cost of constructing certain tenant improvements (the "Tenant Improvements") for the initial Demised Premises and the Expansion Space in accordance with the space plans (the "Plans") to be approved by both Landlord and Tenant and attached hereto as Exhibit D. Of such Tenant Allowance, $.65 per rentable square foot shall be applied for costs incurred for space planning, and $.35 per rentable square foot shall be applied for costs incurred for construction drawings prepared by Landlord's architect. It is understood and agreed that Landlord's contractors shall perform the work in connection with the Tenant Improvements except that Tenant shall use its own contractors to perform certain tenant improvement work to the Tenant's proposed computer room provided that Landlord has first approved in writing the contractors to be used by Tenant and the work to be performed by such contractors. The Tenant Improvements to be constructed by Landlord pursuant to the Plans is hereinafter referred to as the "Landlord's Work". If the Landlord's cost to construct the Landlord's Work pursuant to the Plans exceeds the Tenant Allowance, then with ten (10) days of Tenant's receipt of an invoice from Landlord, Tenant shall pay Landlord, as additional rent, by certified or cashier's check, an amount equal to the difference between the cost to construct the Landlord's Work and the Tenant Allowance. Tenant agrees it shall not make any changes to the Plans without obtaining the prior written consent of Landlord. In the event Tenant shall make changes to the Plans that are approved by Landlord and which result in an additional cost to Landlord of completing the Landlord's Work in excess of the Tenant Allowance, Tenant shall pay to Landlord prior to construction of such changes, as additional rent, any increase in the Landlord's cost of completing the Landlord's Work in excess of the Tenant Allowance resulting from such changes in the Plans. In the event Tenant, its employees or agents, causes any delay or is otherwise responsible, in whole or in part, for any additional costs in excess of the Tenant Allowance incurred by Landlord in constructing the Landlord's Work (other than additional costs arising due to changes to the Plans as described above), Tenant shall pay to Landlord within ten (10) business days of receipt of written notice from Landlord, as additional rent, any such additional costs in excess of the Tenant Allowance incurred by Landlord. Tenant's failure to timely pay any such amounts to be paid by Tenant as set forth in this Paragraph, at the time and in the manner set forth in this Paragraph, shall be an event of default. Tenant shall not commence any of the tenant improvements to the Tenant's computer room until Landlord has approved the plans prepared by Tenant and the contractors to be used by Tenant in connection with such work. The Landlord shall reimburse the Tenant for costs associated with all such tenant improvement work to the Tenant's computer room up to an amount (the Tenant's TI Allowance") equal to the excess, if any, of the Tenant Allowance remaining after deducting the costs actually incurred by Landlord to construct the Landlord's Work. Tenant shall indemnify and hold Landlord harmless from any loss, liability, damage, claim, judgement, cost or expense incurred by Landlord (including but not limited to attorneys' fees and expenses and costs) resulting from or relating to any work performed 2 15 by Tenant, or Tenant's contractors or subcontractors. Prior to performing any of the tenant improvement work to the Tenant's computer room, Tenant, and all of Tenant's contractors and subcontractors shall provide Landlord with certificates of insurance evidencing insurance policies of a type and amount satisfactory to Landlord, however, said type and amounts shall be no less than that required of Tenant under the terms of the Lease. Such policies shall name Landlord, Allegiance Realty Group, Inc. and any other managing agent, ground lessor or mortgagee of which Tenant is made aware, as named additional insureds. Such insurance shall be maintained by Tenant and all of Tenant's contractors and subcontractors at all times during the performance of the tenant improvement work to the Tenant's computer room. All tenant improvement work to the Tenant's computer room shall be performed in accordance with all federal, state and local laws, codes, ordinances, rules and regulations. All tenant improvement work to the Tenant's computer room when made shall be removed by Tenant upon termination in any manner of the Lease so that the Tenant's computer room shall be returned to Landlord in substantially the same condition as it existed prior to the commencement of such tenant improvement work, subject to ordinary wear and tear. Reimbursement for the Tenant's TI Allowance, if any, will be paid to Tenant after Tenant has satisfied all of the following requirements: 1) Completion of all tenant improvement work to the Tenant's computer room shown on and in accordance with the plans approved by Landlord; 2) Presentation to Landlord of a Certificate of Occupancy from the applicable governmental agencies, if required; 3) Presentation to Landlord of properly executed affidavits and waivers of lien from all contractors, subcontractors and materialmen supplying materials and services in the construction of the tenant improvement work to the Tenant's computer room; 4) Inspection by representatives of Landlord showing the tenant improvement work to the Tenant's computer room to be completed to the reasonable satisfaction of Landlord. 5) Occupancy of the Demised Premises by Tenant, and commencement of its operations at the Demised Premises. 6) Presentation to Landlord of statements and evidence of payment for all leasehold improvements performed by Tenant's contractors. Within thirty (30) days after Tenant has satisfied all of the above requirements reflected in this Paragraph, and providing Tenant is not then in default of any Lease provision, Tenant shall receive from Landlord that portion of the Tenant's TI Allowance equal to the amount which has been previously paid by Tenant to its contractors, subcontractors and materialmen as evidenced by the foregoing documents. 58. HVAC: Landlord shall provide heating, ventilating and air conditioning ("HVAC") service to the Demised Premises which shall be in similar quality to other Class A office buildings of the same size and age found in the Columbia, Maryland market at no additional charge to Tenant during the following hours: Monday through Friday - 7:00 a.m. to 6:00 p.m. Saturday - 10:00 a.m. to 3:00 p.m. During the months of June, July and August, Landlord shall provide HVAC at no additional charge to Tenant during the following hours: Monday through Friday - 7:00 a.m. to 6:00 p.m. Saturday - 10:00 a.m. to 4:00 p.m. Sunday - 10:00 a.m. to 3:00 p.m. 3 16 Landlord shall provide adequate HVAC to the Demised Premises during such other hours as Tenant shall specifically request in writing at the initial rate of Thirty Dollars ($30.00) per hour. Such rate may be subsequently changed by Landlord at any time during the remaining Term of the Lease or any extensions, modifications or amendments thereof. 59. FIRST REFUSAL RIGHT: So long as this Lease is in full force and effect and Tenant: (i) Is occupying and doing business from the Demised Premises at the time the election is exercised; and (ii) Is not in default under the Lease either at the time of the election or at the effective date thereof; and (iii) has maintained a history of payments within the applicable grace period, if any, provided under the Lease; Landlord agrees that prior to renting Suite 201, Suite 207, Suite 300, Suite 310, Suite 311, or Suite 318, as the same is more fully identified on Exhibit E, attached hereto and incorporated herein (the "First Refusal Space"), Landlord will submit to Tenant a copy of the unexecuted proposed Lease or a summary of the business and economic term of the Lease which the Landlord is willing to accept from the third party (the "Offered Lease"). On or before the fifth (5th) business day after the Tenant's receipt of such notice, Tenant will have the right (the "First Refusal Right") to send Landlord a notice stating Tenant elects to rent the applicable First Refusal Space upon the identical terms and conditions set forth in the Offered Lease. To be timely, such notice must be postmarked within the five (5) business day period. If Tenant timely exercises the First Refusal Right, Landlord and Tenant will promptly enter into a lease or lease amendment agreement for the applicable First Refusal Space (the "New Lease") on the Offered Lease terms. If for any reason Tenant fails to timely exercise the First Refusal Right, or if Tenant properly exercises it but thereafter for any reason (except for delays caused by the Landlord) does not execute the New Lease within five business days after its submission to Tenant, Landlord will be free to rent all or any portion of the First Refusal Space to any other prospective tenant and the First Refusal Right will be null and void without further force and effect throughout the remainder of the Term of this Lease or its extensions, modifications or amendments thereof with respect to the entire First Refusal Space, whether or not the entire First Refusal Space was included as part of the New Lease. Additionally, if Tenant exercises the First Refusal Right, but then fails to timely execute the New Lease, and should the previously-interested third party tenant no longer be willing to sign the Offered Lease, then Tenant shall be liable for any and all rental obligations due Landlord under the terms of the New Lease. Notwithstanding any contrary provisions hereof: (a) the New Lease must (i) be guaranteed by the guarantor(s) of this Lease, if any, upon a guaranty form which is identical to the guaranty form applicable to this Lease, and (ii) stipulate that any default by Tenant thereunder will be deemed to constitute a like default under this Lease ; (b) Tenant agrees that any default by it under this Lease will be deemed to constitute a like default under the New Lease; and (c) this Right of First Refusal is transferrable to any assignee or purchaser of CMSI but may not be assigned or transferred to any sublessee of CMSI. Notwithstanding any of the foregoing to the contrary, Tenant's right to exercise this First Refusal Right shall be subject and subordinate to the right of Innovative System Developers, Inc. to suite 310 and suite 318 and to any other existing rights of refusal, offer, expansion or renewal previously granted to any current tenant of the Building, or any of their successors, sublessees or assigns for the First Refusal Space. Tenant acknowledges and agrees that notwithstanding the fact that Tenant may properly exercise its rights with respect to the First Refusal Space, Tenant's right to exercise its First Refusal Right shall be null and void if any current tenant in the Building, or any of their successors, sublessees or assigns exercises any rights previously granted to them with respect to the First Refusal Space. In such event, neither Landlord nor Tenant shall have any liabilities to the other party as a result of the First Refusal Right becoming null and void. 4 17 60. Renewal Option: So long as the Lease is in full force and effect and Tenant either at the time of exercising this option to renew or at the time of the commencement of the following described Option Period: (i) is occupying and doing business from the Demised Premises at the time the election is exercised; and (ii) is not in default under the Lease either at the time the election or at the time of commencement of the following described Option Period; and (iii) has maintained a history or payments within the applicable grace period, if any, provided under the Lease; Tenant is hereby granted two successive options to renew this Lease (each an "Option to Renew") each for a term of three (3) years (each an "Option Period"), each commencing upon the day next following the expiration of the current lease term. The terms of this Lease during the Option Periods shall be the same as during the current Lease term, except as provided below and except that there are no other Options to Renew other than as provided here. Each Option must be exercised no less than one hundred eighty (180) days prior to the expiration of the current lease term, or the Option Period, as the case may be, by written notice to Landlord. In the event Tenant fails to notify Landlord, in the manner herein specified, this clause shall be of no further force and effect. The Basic Rental during each Option Period shall be the greater of the rate for the Demised Premises for the immediately preceding year, or 95% of the then current market rate for space in the Building. Tenant shall increase its security deposit prior to the beginning of each Option Period to an amount proportionate to the amount of the rental increase. Landlord's determination of the market rate shall be conclusive on Tenant. Unless expressly set forth herein, any tenant concessions initially provided for in the Lease shall not be deemed applicable to the Option Period. In no event shall the Basic Rental during each Option Period decrease below the Basic Rental then paid by Tenant at the expiration of the current Lease Term. This Option to Renew is transferrable to any assignee or purchaser of CMSI. This Option to Renew may not be assigned or transferred to any sublessee of CMSI. 61. Rental Abatement: No Basic Rental payments for the period January 1, 1995 through January 31, 1995 shall be paid by the Tenant to the Landlord and any such Basic Rental due for said period shall abate (the "Rental Abatement"). The total value of the Rental Abatement is $11,103.13. The Rental Abatement is for Basic Rental only and does not affect Tenant's obligation to pay additional rent or other sums otherwise due and payable under the terms of the Lease during the period of the Rental Abatement. In the event that Tenant defaults under the terms of the Lease, which default is not timely cured, Tenant's right to such Rental Abatement shall terminate and Tenant shall promptly pay to Landlord all rental amounts which have been abated prior to the expiration of the applicable cure period for the default in addition to any and all other charges or damages for which Landlord is entitled to recover. Further, any further rights of Tenant to Rental Abatement expressly set forth under the terms of this Lease shall be null and void and of no further force and effect. 62. The following language is hereby added to the provisions of Paragraph 34(a): (5) Provided Tenant is not in default under the Lease, Tenant or its representative shall have the right, during normal business hours and upon at least ten (10) days prior notice to Landlord, to examine Landlord's books and records with respect to the items in the Landlord's annual statement of the actual Annual Operating Expenses during normal business hours where such records are normally maintained, at any time within sixty (60) days following the furnishing by Landlord to Tenant of such statement. Unless Tenant shall take written exception of any item within sixty (60) days after the furnishing of the foregoing statement, such statement shall be considered as final and accepted by Tenant. Any amount due to the Landlord as shown on any such statement, whether or not written 5 18 exception is taken thereto, shall be paid by Tenant within ten (10) days after the Landlord shall have submitted the statement, without prejudice to any such written exception. 63. Notice of Sale of Building Tenant considers the opportunity to purchase the Symphony Woods Building in the future, as a material incentive for his executing this Lease, and any future leases for additonal space. In consideration for the Tenant signing this Lease and any future leases within the building, Landlord agrees to use reasonable efforts to notify Tenant that it has entered into serious negotiations with a bonafide third party relating to a sale of the Building. Nothing contained herein shall preclude Tenant from making an offer to purchase the Building at any time. 64. Signage Provided (i) Tenant shall have obtained written approval from appropriate governmental authorites that a sign may be placed on the Building without Landlord having to change the name of the Building and (ii) that Tenant shall occupy for the conduct of business at least 30,000 square feet of rentable area in the Building, Tenant shall have the right to install tenant identification on the top of the Building. Tenant shall submit for Landlord's approval, which shall not be unreasonably withheld, plans detailing the design, materials, location and manner of installation of the sign. Tenant shall maintain the sign and shall remove the sign from the Building if the Tenant maintains less than the required amount of rental space within the Building or upon expiration or termination of the Lease. 65. Insert at end of Paragraph 3 of Lease: "Notwithstanding the foregoing, Tenant may sell, transfer or assign the Lease in connection with any sale of all or substantially all of the assets of Tenant, provided that such transferee expressly executes an assumption of all Tenant's obligations under this Lease and such transferee has a net worth substantially comparable to the net worth of Tenant at the time this Lease was executed upon Landlord's consent which shall not be unreasonably withheld. Landlord agrees to review such request within fifteen (15) business days. In connection with any such sell, transfer or assignment, Landlord agrees that it shall not exercise its right to terminate the Lease on account of such sell, transfer or assignment." DATED THIS ___ Day of February, 1995. LANDLORD: TENANT: Symphony Woods Limited Partnership Credit Management Solutions, Inc. an Illinois limited partnership By: Symphony Woods Partners, Inc., an Illinois corporation its general partner /s/ Dan Duhig /s/ Jim DeFrancesco ------------------------------ ---------------------------------- Dan Duhig Jim DeFrancesco an Authorized Agent President Witness: Jerry M. Ogle Witness: ---------------------- -------------------------- Jerry M. Ogle Vice President and Secretary 6 19 MUTUAL RELEASE AND TERMINATION OF LEASE This Mutual Release and Termination of Lease (the "Agreement") is entered into this 1st day of December, 1994 by and between Symphony Woods Limited Partnership (successor in interest to Columbia Tennis Barn Associates), ("Landlord") and Credit Management Solutions, Inc., ("Tenant"). WHEREAS, Tenant entered into a Lease (the "Lease") with Landlord dated February 22, 1988, for premises (the "Demised Premises") in the property known as Symphony Woods Office Center (the "Building"), County of Howard, State of Maryland; and WHEREAS, Landlord and Tenant wish to cancel and terminate, effective as of February 14, 1995, (the "Effective Date") all rights and obligations between and among them to the extent set forth herein with respect to said Lease, and any amendments and other documents executed in connection with the Demised Premises; NOW, THEREFORE, in consideration of the mutual covenants, conditions and provisions herein contained, it is agreed by and among the parties as follows: 1. Except as otherwise provided herein, and except for (i) that certain lease dated as of even date herewith (the "New Lease") by and between Landlord and Tenant for Suite 301 in the Building, and (ii) that certain lease dated October 29, 1993 (the "Suite 400 Lease") by and between Landlord and Tenant for Suite 400 in the Building, as of the Effective Date each of the undersigned parties, for themselves and all persons and concerns claiming by, through or under them, shall hereby release, acquit and discharge each other party hereto and their respective officers, directors, agents, guarantors and employees, of and from any and all obligations, claims, debts, demands, covenants, contracts, promises, agreements, liabilities, costs, attorney's fees, actions or causes of action whatsoever, whether known or unknown, which any party had, has, claims to have, or may later have against any other party hereto, accruing or arising out of, or pursuant to, or related to the aforesaid Lease and any and all amendments, correspondence, representations, certifications, warranties, promises or acts made in reliance upon any one or more of same, whether oral or written. Notwithstanding the foregoing, Tenant acknowledges that to the extent Landlord determines, at any future date, that the Building or Demised Premises contain any hazardous material or toxic substances which violate any applicable environmental, federal, state, municipal, or local law, ordinance, rule or regulation (the "Contamination") and such Contamination is due, in whole or in part, to the acts or omissions of Tenant, its agents or employees, Tenant shall remain liable to Landlord, its successors or assigns, for any and all cost, damage, loss or liability (including but not limited to attorneys' fees and costs) incurred by Landlord, as a result thereof, any and all such rights of Landlord being expressly reserved herein. 2. Except as hereinafter provided, as of the Effective Date, all documents other than the New Lease and the Suite 400 Lease heretofore executed by, between or among any one or more of the parties hereto and agreeing or purporting to create an interest in real property, or the right to occupy the Demised Premises, or creating an obligation to pay rent or any other sums of money, shall hereby be terminated and cancelled and shall be of no further force and effect, and Tenant shall hereby release, relinquish, and quitclaim to Landlord any and all rights, title, interest or demand to possess or claim in or to the Demised Premises. 3. Each of the parties hereto warrants and represents that it has not and shall not as of the Effective Date have sold, assigned, granted or transferred to any other person, firm or concern, any claim, demand or cause of action, or any participation or share in any same, covered by the terms of this Agreement or any part hereof. Tenant warrants and represents that Tenant has not, and shall not as of the Effective Date have committed, executed or suffered any act, deed, matter or thing whatsoever whereby the Demised 20 Premises or any part thereof, are or shall, or may, can or shall be in any way encumbered. Each of the parties hereto further warrants and represents that the person or persons on whose behalf the execution is made has been fully authorized and empowered by the party to so act and bind the party for which it enters into this Agreement. This Agreement shall be binding in all respects upon the successors and assigns of each of the parties hereto. 4. Notwithstanding anything to the contrary contained hereinabove, it is expressly agreed and understood between the parties that Tenant shall remain liable to Landlord for, and is not released from Tenant's obligations arising under the Lease for Base Rent, Operating Expenses, additional rent and all other sums due under the Lease which have accrued up to and including the Effective Date. If at any time in the future, Landlord is required to repay or relinquish all or any part of the sums payable under this Agreement by Tenant to Landlord, whether pursuant to the order of any bankruptcy court or administrative body, or for any reason whatsoever, the parties hereto agree that in such event Landlord shall have a claim against Tenant, its estates, affiliates, successors and assigns, in the full and entire amount of all such sums due Landlord under the remaining term of the Lease as if this Agreement had never been entered into. The obligations set forth in this Paragraph shall survive the termination of the Lease as provided hereunder. 5. The submission of an executed copy of this Agreement to Landlord is only deemed to be an offer by Tenant to enter into this Agreement. No agreement to terminate shall be deemed effective until such time as this Agreement has been executed by both parties and a fully executed copy is delivered to Tenant by Landlord. THE UNDERSIGNED HAVE READ THE FOREGOING AGREEMENT, HAVE RECEIVED THE ADVICE OF LEGAL COUNSEL AND FULLY UNDERSTAND THE TERMS AND CONDITIONS CONTAINED HEREIN. LANDLORD: TENANT: Symphony Woods Limited Partnership Credit Management Solutions, Inc. - ---------------------------------- ---------------------------------- an Illinois limited partnership By: Symphony Woods Partners, Inc., an Illinois corporation its general partner By /s/ Tom Molina By /s/ Jim DeFrancesco ------------------------- -------------------------------- Tom Molina Jim DeFrancesco an Authorized Agent President EX-10.8.3 11 FIRST AMENDMENT TO LEASE DATED MARCH 29, 1995 1 EXHIBIT 10.8.3 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "Agreement") is made and entered into this 29th day of March, 1995, BY AND BETWEEN SYMPHONY WOODS LIMITED PARTNERSHIP (hereinafter referred to as "Landlord") and CREDIT MANAGEMENT SOLUTIONS, INC. (hereinafter referred to as "Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant have previously entered into a lease agreement dated February 10, 1995 for the use and occupancy of certain premises by Tenant located in the Symphony Woods Office Center building; and WHEREAS, LANDLORD and TENANT do hereby intend to amend and modify the Lease as hereinafter set forth in order to set forth the actual commencement date of the Expansion Space as outlined in Section 55 of the Lease Rider and to expand into Suite 100 and Suite 310. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The Suite 316 Expansion Space Commencement Date as outlined in Section 55 of the Lease Rider shall be April 1, 1995. The Term for the Expansion Space shall be coterminous with the Term of the Lease unless sooner terminated or extended as provided therein. 2. Suite 100 Expansion Space. Commencing as of the earlier to occur of (i) April 1, 1995 and (ii) the date the Suite 100 Expansion Space (as hereinafter defined) is ready for Tenant's occupancy (the "Suite 100 Expansion Space Commencement Date"), Suite 100, comprising approximately 3,760 rentable square feet in the Symphony Woods Office Center, on the area shown on the attached site plan identified as Exhibit A, and incorporated herein, (the "Suite 100 Expansion Space") shall be added to the Demised Premises. The Term for the Suite 100 Expansion Space shall be coterminous with the Term of the Lease. If for any reason the Suite 100 Expansion Space shall not be ready for occupancy by Tenant by April 1, 1995, the Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof, but no Basic Rental, Operating Expenses or Taxes due for the Suite 100 Expansion Space shall be payable for the period during which the Suite 100 Expansion Space shall not be ready for occupancy. In such event, the commencement of Tenant's rights and obligations with respect to the Suite 100 Expansion Space shall be extended to the date that the Suite 100 Expansion Space is ready for Tenant's occupancy. The Suite 100 Expansion Space shall be deemed to be ready for occupancy by Tenant when the Suite 100 Expansion Space Tenant Improvements are substantially complete subject to minor punchlist items. All claims for damages arising out of any such delay are waived and released by Tenant. In the event of such delay in tendering the Suite 100 Expansion Space to the Tenant the Landlord shall not be liable to Tenant for any damage whatsoever resulting from the delay in the delivery of possession of the Suite 100 Expansion Space. Notwithstanding the foregoing, it is understood that if and to the extent that Landlord is unable to deliver timely possession of the Suite 100 Expansion Space to Tenant due (i) changes to the plans with respect to the Suite 100 Expansion Space made by Tenant after approval thereof by Landlord, (ii) the performance of any work in the Suite 100 Expansion Space by Tenant or on behalf of Tenant by a person, firm or corporation employed by Tenant, (iii) the incorporation by Tenant of non-building standard materials, finishes or installation or other items requiring a long lead time into the work contemplated by the plans with respect to the Suite 100 Expansion Space, and (iv) any other act or omission caused by or on behalf of Tenant, then the Basic Rental, Operating Expenses and Taxes reserved for the Suite 100 Expansion Space shall commence to accrue on the date possession of the Suite 100 Expansion Space would have been delivered to Tenant but for such delays. 3. Suite 310 Expansion Space. Commencing as of the earlier to occur of (i) September 1, 1995 and (ii) the date the Suite 310 Expansion Space (as hereinafter defined) is ready for Tenant's occupancy (the "Suite 310 Expansion Space Commencement Date"), Suite 310, comprising approximately 1,825 rentable square feet in the Symphony Woods Office Center, on the area 2 shown on the attached site plan identified as Exhibit B, and incorporated herein, (the "Suite 310 Expansion Space") shall be added to the Demised Premises. The Term for the Suite 310 Expansion Space shall be coterminous with the Term of the Lease. If for any reason the Suite 310 Expansion Space shall not be ready for occupancy by Tenant by September 1, 1995, the Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof, but no Basic Rental, Operating Expenses or Taxes due for the Suite 310 Expansion Space shall be payable for the period during which the Suite 310 Expansion Space shall not be ready for occupancy. In such event, the commencement of Tenant's rights and obligations with respect to the Suite 310 Expansion Space shall be extended to the date that the Suite 310 Expansion Space is ready for Tenant's occupancy. The Suite 310 Expansion Space shall be deemed to be ready for occupancy by Tenant when the Suite 310 Expansion Space Tenant Improvements are substantially complete subject to minor punchlist items. All claims for damages arising out of any such delay are waived and released by Tenant. In the event of such delay in tendering the Suite 310 Expansion Space to the Tenant the Landlord shall not be liable to Tenant for any damage whatsoever resulting from the delay in the delivery of possession of the Suite 310 Expansion Space. Notwithstanding the foregoing, it is understood that if and to the extent that Landlord is unable to deliver timely possession of the Suite 310 Expansion Space to Tenant due (i) changes to the plans with respect to the Suite 310 Expansion Space made by Tenant after approval thereof by Landlord, (ii) the performance of any work in the Suite 310 Expansion Space by Tenant or on behalf of Tenant by a person, firm or corporation employed by Tenant, (iii) the incorporation by Tenant of non-building standard materials, finishes or installation or other items requiring a long lead time into the work contemplated by the plans with respect to the Suite 310 Expansion Space, and (iv) any other act or omission caused by or on behalf of Tenant, then the Basic Rental, Operating Expenses and Taxes reserved for the Suite 310 Expansion Space shall commence to accrue on the date possession of the Suite 310 Expansion Space would have been delivered to Tenant but for such delays. 4. Demised Premises: From the date hereof through the Suite 316 Expansion Space Commencement Date, approximately 8,075 square feet, comprised of suite numbers 301 and 305; From and after the Suite 316 Expansion Space Commencement Date through the day preceding the Suite 100 Expansion Space Commencement Date, 8,680 square feet, comprised of suite numbers 301, 305 and 316; From and after the Suite 100 Expansion Space Commencement Date through the day preceding the Suite 310 Expansion Space Commencement Date, 12,440 square feet, comprised of suite numbers 301, 305, 316 and 100; From and after the Suite 310 Expansion Space Commencement Date, 14,265 square feet, comprised of suite numbers 301, 305, 316, 100 and 310; 5. Basic Rental. Section 56 of the Lease Rider shall be deleted in its entirety and shall be replaced with the following: The Basic Rental for the Demised Premises shall be the sum of the amount shown in (e) of Definitions of the Lease, plus the amounts shown below: SUITE 316 EXPANSION SPACE RENTAL Tenant shall pay to Landlord as Basic Rental for the Suite 316 Expansion Space the total sum of $37,459.63, subject to adjustment as provided herein, on the first day of each calendar month of the Lease year, in advance, at the office of the Landlord in monthly installments as follows: The Basic Rental for the Suite 316 Expansion Space for the period April 1, 1995 through December 31, 1996 shall be $831.88 per month ($16.50 per rentable square foot). The Basic Rental for the Suite 316 Expansion Space for the period January 1, 1997 through December 31, 1997 shall be $857.08 per month ($17.00 per rentable square foot). The Basic Rental for the Suite 316 Expansion Space for the period January 1, 1998 through November 30, 1998 shall be $882.29 per month ($17.50 per rentable square foot). SUITE 100 EXPANSION SPACE RENTAL Tenant shall pay to Landlord as Basic Rental for the Suite 100 Expansion Space the total sum of $234,373.48 subject to adjustment as provided herein, on the first day of each calendar month of the Lease year, in advance, at the office of the Landlord in monthly installments as follows: 3 The Basic Rental for the Suite 100 Expansion Space effective as of the Suite 100 Expansion Space Commencement Date through the last day of the Lease Term shall be $5,326.67 per month ($17.00 per rentable square foot). SUITE 310 EXPANSION SPACE RENTAL Tenant shall pay to Landlord as Basic Rental for the Suite 310 Expansion Space the total sum of $100,831.38 subject to adjustment as provided herein, on the first day of each calendar month of the Lease year, in advance, at the office of the Landlord in monthly installments as follows: The Basic Rental for the Suite 310 Expansion Space effective as of the Suite 310 Expansion Space Commencement Date through the last day of the Lease Term shall be $2,585.42 per month ($17.00 per rentable square foot). If the commencement date for the expansion space shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, on or before the commencement date of the term the monthly installment of Basic Rental prorated on a per diem basis with respect to that fractional calendar month. All rental payments thereafter will be for a full calendar month and will be in the amount as specified in clause (e) of the Lease and above. 6. Security Deposit: Clause (g) of the Definitions of the Lease shall be deleted in its entirety and replaced with the following: From the date hereof through the Suite 316 Expansion Space Commencement Date $11,103.13; From and after the Suite 316 Expansion Space Commencement Date through the day preceding the Suite 100 Expansion Space Commencement Date, $11,935.01; From and after the Suite 100 Expansion Space Commencement Date through the day preceding the Suite 310 Expansion Space Commencement Date, $17,261.68; From and after the Suite 310 Expansion Space Commencement Date, $19,847.10. 7. Prorata Share: Clause (i) of the Definitions of the Lease shall be deleted in its entirety and replaced with the following: From the date hereof through the Suite 316 Expansion Space Commencement Date 8.68%; From and after the Suite 316 Expansion Space Commencement Date through the day preceding the Suite 100 Expansion Space Commencement Date, 9.33%; From and after the Suite 100 Expansion Space Commencement Date through the day preceding the Suite 310 Expansion Space Commencement Date, 13.38%; From and after the Suite 310 Expansion Space Commencement Date, 15.34%. 8. Suite 100 Tenant Improvements. Tenant shall take the Suite 100 Expansion Space in its "as-is" condition with the following modifications to be made by the Landlord (the "Suite 100 Expansion Space Tenant Improvements"): Landlord agrees to provide Tenant with the total allowance of $6.16 per square foot of the Suite 100 Expansion Space (Twenty Three Thousand One Hundred Sixty Two Dollars ($23,162.00)) (the "Suite 100 Expansion Space Tenant Allowance") toward the construction of Suite 100 Expansion Space Tenant Improvements to be made to the Suite 100 Expansion Space by Landlord in accordance with the plans (the "Plans") to be attached hereto as Exhibit C, which plans will be approved by both Landlord and Tenant. If the cost to construct the Suite 100 Expansion Space Tenant Improvements pursuant to the Plans exceeds the Suite 100 Expansion Space Tenant Allowance, Tenant shall pay Landlord within ten (10) days of Tenant's receipt of an invoice from Landlord, as additional rent in cash or certified funds, an amount equal to the difference between the cost to construct the Suite 100 Expansion Space Tenant Improvements and the Suite 100 Expansion Space Tenant Allowance. Tenant agrees it shall not make any changes to the Plans without obtaining the prior written consent of Landlord. In the event Tenant shall make changes to the Plans that are approved by Landlord and which result in an additional cost to Landlord of completing the Suite 100 Expansion Space Tenant Improvements in excess of the Suite 100 Expansion Space Tenant Allowance, Tenant shall pay to Landlord prior to construction of such changes, as additional rent, any increase in the cost of completing the Suite 100 Expansion Space Tenant Improvemnents resulting from such changes in the Plans. In the event Tenant, its employees or agents, causes any delays or is otherwise responsible, in whole or in part, for any additional costs in excess of the Suite 100 Expansion Space Tenant Allowance incurred by Landlord in constructing the Suite 4 100 Expansion Space Tenant Improvements (other than additional costs arising due to changes to the Plans as described above), Tenant shall pay to Landlord within ten (10) business days of receipt of written notice from Landlord, as additional rent, any such additional costs incurred by Landlord. Tenant's failure to timely pay any such amounts to be paid by Tenant as set forth in this paragraph, at the time and in the manner set forth in this paragraph shall be an event of default. Provided that Tenant is not in default under any Lease provision, in the event the costs incurred by Landlord in connection with the Suite 100 Expansion Space Tenant Improvements are less than the Suite 100 Expansion Space Tenant Allowance, such excess amounts shall be payable to Tenant by way of a credit due against the Basic Rental due hereunder. 9. Suite 310 Tenant Improvements. Tenant shall take the Suite 310 Expansion Space in its "as-is" condition with the following modifications to be made by the Landlord (the "Suite 310 Expansion Space Tenant Improvements"): Landlord agrees to provide Tenant with the total allowance of $5.35 per square foot of the Suite 310 Expansion Space (Nine Thousand Seven Hundred Sixty Four Dollars ($9,764.00)) (the "Suite 310 Expansion Space Tenant Allowance") toward the construction of Suite 310 Expansion Space Tenant Improvements to be made to the Suite 310 Expansion Space by Landlord in accordance with the plans (the "Plans") to be attached hereto as Exhibit D, which plans will be approved by both Landlord and Tenant. If the cost to construct the Suite 310 Expansion Space Tenant Improvements pursuant to the Plans exceeds the Suite 310 Expansion Space Tenant Allowance, Tenant shall pay Landlord within ten (10) days of Tenant's receipt of an invoice from Landlord, as additional rent in cash or certified funds, an amount equal to the difference between the cost to construct the Suite 310 Expansion Space Tenant Improvements and the Suite 310 Expansion Space Tenant Allowance. Tenant agrees it shall not make any changes to the Plans without obtaining the prior written consent of Landlord. In the event Tenant shall make changes to the Plans that are approved by Landlord and which result in an additional cost to Landlord of completing the Suite 310 Expansion Space Tenant Improvements in excess of the Suite 310 Expansion Space Tenant Allowance, Tenant shall pay to Landlord prior to construction of such changes, as additional rent, any increase in the cost of completing the Suite 310 Expansion Space Tenant Improvements resulting from such changes in the Plans. In the event Tenant, its employees or agents, causes any delays or is otherwise responsible, in whole or in part, for any additional costs in excess of the Suite 310 Expansion Space Tenant Allowance incurred by Landlord in constructing the Suite 310 Expansion Space Tenant Improvements (other than additional costs arising due to changes to the Plans as described above), Tenant shall pay to Landlord within ten (10) business days of receipt of written notice from Landlord, as additional rent, any such additional costs incurred by Landlord. Tenant's failure to timely pay any such amounts to be paid by Tenant as set forth in this paragraph, at the time and in the manner set forth in this paragraph shall be an event of default. Provided that Tenant is not in default under any Lease provision, in the event the costs incurred by Landlord in connection with the Suite 310 Expansion Space Tenant Improvements are less than the Suite 310 Expansion Space Tenant Allowance, such excess amounts shall be payable to Tenant by way of a credit due against the Basic Rental due hereunder. 10. Suite 316 Rental Abatement. No Basic Rental payments for the period April 1, 1995 through April 30, 1995 shall be paid by the Tenant to the Landlord for the first thirty (30) days and any such Basic Rental due for said period shall abate (the "Suite 316 Rental Abatement"). The total value of the Suite 316 Rental Abatement is $831.88. The Suite 316 Rental Abatement is for Basic Rental only and does not affect Tenant's obligation to pay additional rent or other sums otherwise due and payable under the terms of the Lease during the period of the Suite 316 Rental Abatement. In the event that Tenant defaults under the terms of the Lease, which default is not timely cured, Tenant's right to such Suite 316 Rental Abatement shall terminate and Tenant shall promptly pay to Landlord all rental amounts which have been abated prior to the expiration of the applicable cure period for the default in addition to any and all other charges or damages for which Landlord is entitled to recover. Further, any further rights of Tenant to the Suite 316 Rental Abatement expressly set forth under the terms of this Lease shall be null and void and of no further force and effect. 11. Suite 100 Rental Abatement. No Basic Rental payments for the period April 1, 1995 through April 30, 1995 shall be paid by the Tenant to the Landlord for the first thirty (30) days and any such Basic Rental due for said period shall abate (the "Suite 100 Rental Abatement"). The total value of the Suite 100 Rental Abatement is $5,326.67. The Suite 100 Rental Abatement is for Basic Rental only and does not affect Tenant's obligation to pay additional rent or other sums otherwise due and payable under the terms of the Lease during the period of the Suite 100 Rental Abatement. In the event that Tenant defaults under the terms of the Lease, which default is not timely cured, Tenant's right to such Suite 100 Rental Abatement shall terminate and Tenant shall promptly pay to Landlord all rental amounts which have been abated prior to the 5 expiration of the applicable cure period for the default in addition to any and all other charges or damages for which Landlord is entitled to recover. Further, any further rights of Tenant to the Suite 100 Rental Abatement expressly set forth under the terms of this Lease shall be null and void and of no further force and effect. 12. Suite 310 Rental Abatement. No Basic Rental payments for the period September 1, 1995 through September 30, 1995 shall be paid by the Tenant to the Landlord for the first thirty (30) days and any such Basic Rental due for said period shall abate (the "Suite 310 Rental Abatement"). The total value of the Suite 310 Rental Abatement is $2,620.83. The Suite 310 Rental Abatement is for Basic Rental only and does not affect Tenant's obligation to pay additional rent or other sums otherwise due and payable under the terms of the Lease during the period of the Suite 310 Rental Abatement. In the event that Tenant defaults under the terms of the Lease, which default is not timely cured, Tenant's right to such Suite 310 Rental Abatement shall terminate and Tenant shall promptly pay to Landlord all rental amounts which have been abated prior to the expiration of the applicable cure period for the default in addition to any and all other charges or damages for which Landlord is entitled to recover. Further, any further rights of Tenant to the Suite 310 Rental Abatement expressly set forth under the terms of this Lease shall be null and void and of no further force and effect. 13. Conflict of Terms. Except as expressly amended herein, all terms and conditions in the Lease shall remain in full force and effect, and all capitalized terms not otherwise defined herein shall have the meaning set forth in the Lease. In the event of any conflict between the terms and conditions of the Lease and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control. DATED THIS 29 Day of March, 1995. LANDLORD: TENANT: Symphony Woods Limited Partnership Credit Management Solutions, Inc. an Illinois limited partnership By: Symphony Woods Partners, Inc. an Illinois corporation its general partner /s/ TOM MOLINA /s/ JIM DEFRANCESCO - ------------------------------------- ----------------------------------- Tom Molina Jim DeFrancesco an Authorized Agent Witness: /s/ Julie Leil Witness: ----------------------------- --------------------------- 6 EXHIBIT A - SUITE 100 [FIRST FLOOR PLAN GRAPHIC] 7 EXHIBIT B - SUITE 310 [THIRD FLOOR PLAN GRAPHIC] 8 EXHIBIT C - SUITE 100 TENANT IMPROVEMENTS [CONSTRUCTION PLAN GRAPHIC] 9 EXHIBIT D - SUITE 310 TENANT IMPROVEMENTS [CONSTRUCTION PLAN GRAPHIC] EX-10.8.4 12 SECOND AMENDMENT TO LEASE DATED AUGUST 12, 1996 1 EXHIBIT 10.8.4 SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE (the "Agreement") is made and entered into this 12 day of August 1996, by and between SYMPHONY WOODS LIMITED PARTNERSHIP ("Landlord"), and CREDIT MANAGEMENT SOLUTIONS, INC. ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant have previously entered into a lease agreement dated February 10, 1995, as amended by the First Amendment to lease dated March 29, 1995 (collectively, the "Lease") for the use and occupancy of certain premises by Tenant commonly known as Suites 301, 305, 310, 316 and 100 (collectively, the "Demised Premises") in the building located at 5950 Symphony Woods Road, Columbia, Maryland (the "Building"); and WHEREAS, Landlord and Tenant do hereby intend to amend and modify the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Expansion Space. Effective September 1, 1996 (the "First Expansion Space Commencement Date"), Suite 204, comprising approximately 1,170 rentable square feet in the Building, on the area indicated on the site plan as shown on Exhibit A, which is attached hereto and incorporated herein, (the "Expansion Space") shall be added to the Demised Premises so that as of the First Expansion Space Commencement Date, the Demised Premises shall consist of approximately 15,435 rentable square feet. Tenant's occupancy of the First Expansion Space shall be subject to all of the general terms and conditions contained in the Lease. Effective as of November 1, 1996 (the "Second Expansion Space Commencement Date"), Suite 311, comprising approximately 1,250 rentable square feet and Suite 318, comprising approximately 807 rentable square feet in the Building, in the areas indicated on the site plan as shown on Exhibit "B", which is attached hereto and incorporated herein (collectively, the "Second Expansion Space") shall be added to the Demised Premises so that as of the Second Expansion Space Commencement Date, the Demised Premises shall consist of approximately 17,492 rentable square feet. Tenant's occupancy of the Second Expansion Space shall be subject to all of the general terms and conditions contained in the Lease. 2. Rental. The Basic Rental for the Demised Premises, including the First and Second Expansion Spaces shall be payable in advance, in accordance with the provisions of the Lease, in monthly installments as follows: Lease Period Monthly Basic Rental ------------ -------------------- September 1, 1996 - October 31, 1996 $21,553.35 November 1, 1996 - December 31, 1996 $24,553.14 January 1, 1997 - February 28. 1997 $24,578.34 March 1, 1997 - August 31, 1997 $24,914.79 September 1, 1997 - December 31, 1997 $25,060.00 January 1, 1998 - February 28, 1998 $25,085.21 March 1, 1998 - August 31, 1998 $25,421.67 September 1, 1998 - November 30, 1998 $25,566.89 2 Tenant's Prorata Share of Operating Expenses and Taxes, as set forth in the Lease, shall be increased to 16.6% as of the First Expansion Space Commencement Date and 18.8% as of the Second Expansion Space Commencement Date. Tenant's security deposit shall be increased to $21,553.35 on the First Expansion Space Commencement Date and to $24,553.14 on the Second Expansion Space Commencement Date. 3. Tenant Improvements. Landlord agrees to contribute an amount of money calculated at $0.105 per rentable square foot of each of the Expansion Spaces, multiplied by the number of months remaining in the Lease Term, as extended hereby, as of the respective Expansion Space Commencement Dates (the "Tenant Allowance") towards the cost of constructing certain tenant improvements (the "Tenant Improvements") for the First Expansion Space and the Second Expansion Space in accordance with the space plan (the "Plan") to be approved by both Landlord and Tenant within 10 days of the date of execution of this Agreement. It is understood and agreed that Landlord's contractors shall perform the work in connection with the Tenant Improvements. Landlord shall bid the construction contract to no less than three (3) unaffiliated general contractors; provided, however, such contractors shall be reputable, properly licensed to perform the Tenant Improvement Work and shall maintain the types and amounts of insurance required by Landlord. If the cost to construct the Tenant Improvements pursuant to the Plan exceeds the Tenant Allowance as to either or both Expansion Spaces, then within ten (10) days of Tenant's receipt of an invoice from Landlord, Tenant shall pay Landlord, as additional rent, by certified or cashier's check, an amount equal to the difference between the cost to construct the Tenant Improvements and the Tenant Allowance for the respective Expansion Space. Tenant agrees it shall not make any changes to the Plan without obtaining the prior written consent of Landlord. In the event Tenant shall make changes to the Plan that are approved by Landlord and which result in an additional cost to Landlord of completing the Tenant Improvements in excess of the Tenant Allowance for either or both of the Expansion Spaces, Tenant shall pay to Landlord prior to construction of such changes, as additional rent, any increase in the cost of completing the Tenant Improvements in excess of the Tenant Allowance resulting from such changes in the Plan. In the event Tenant, its employees or agents, causes any delays or is otherwise responsible, in whole or in part, for any additional costs in excess of the Tenant Allowance incurred by Landlord in constructing the Tenant Improvements (other than additional costs arising due to changes to the Plan as described above), Tenant shall pay to Landlord within ten (10) business days of receipt of written notice from Landlord, as additional rent, any such additional costs in excess of the Tenant Allowance incurred by Landlord. Tenant's failure to timely pay any such amounts to be paid by Tenant as set forth in this Article, at the time and in the manner set forth in this Article, shall be an event of default. If for any reason (i) either of the Expansion Spaces shall not be ready for occupancy by Tenant on or before the applicable Expansion Space Commencement Dates, or (ii) the Tenant Improvements are not completed on or before the applicable Expansion Space Commencement Dates, the Lease shall not be affected thereby, nor shall Tenant have any claim against Landlord by reason thereof. All claims for damages arising out of any such delay are hereby waived and released by Tenant. 4. No Brokers. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Agreement and that Tenant knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Agreement. Tenant agrees to indemnify and hold Landlord harmless from and against all claims made by any broker or finder for a commission in connection with this Agreement provided that Landlord has not retained such broker. 5. Release. Tenant expressly acknowledges that it has no, and hereby releases Landlord from any cause of action, defense, claim or demand of which Tenant has knowledge, in law or in equity, against Landlord as of the date hereof, for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of time to this date, arising out of, related to or in connection with the Lease, the Demised Premises or the Building. -2- 3 6. Conflict of Terms. Except as expressly amended herein, all terms and conditions in the Lease shall remain unchanged and in full force and effect, and all capitalized terms not otherwise defined herein shall have the meaning set forth in the Lease. In the event of any conflict between the terms and conditions of the Lease and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control. LANDLORD: TENANT: SYMPHONY WOODS LIMITED PARTNERSHIP, CREDIT MANAGEMENT SOLUTIONS, INC. an Illinois limited partnership By: Symphony Woods Partners, Inc., an Illinois corporation, its general partner By: /S/ TOM MOLINA By: /s/ JIM DEFRANCESCO --------------------------------- ------------------------------- Its: Vice President Its: --------------------------------- ------------------------------- Witness: Witness: ----------------------------- --------------------------- Date: Date: 8/12/96 -------------------------------- ------------------------------ -3- 4 ADDENDUM This Addendum shall be attached to and made a part of the Second Amendment to Lease made by and between Symphony Woods Limited Partnership and Credit Management Solutions, Inc. dated 8/12/96. The following is a schedule of the rental rates for the respective suites of the Demised Premises, as expanded by the Second Amendment to Lease: Suite Suites Suite Suite Suites 100 301/305 310 316 204/311/318 ----- ------- ----- ------ ----------- 9/l/97 - 12/31/96 17.00 16.50 17.00 16.50 17.50 1/l/97 - 2/28/97 17.00 16.50 17.00 17.00 17.50 3/l/97 - 8/31/97 17.00 17.00 17.00 17.00 17.50 9/l/97 - 12/31/97 17.00 17.00 17.00 17.00 18.04 1/l/98 - 8/31/98 17.00 17.00 17.00 17.50 18.04 3/l/98 - 8/31/98 17.00 17.50 17.00 17.50 18.04 9/l/98 - 11/30/98 17.00 17.50 17.00 17.50 18.58 EX-10.9 13 PROMISSORY NOTE 1 EXHIBIT 10.9 PROMISSORY NOTE $214,498.39 Date: December 31, 1995 For value received, the undersigned Credit Management Solutions, Inc. ("the Promisor") promises to pay to the order of James R. DeFrancesco, (the "Payee"), at 7311 Swan Point Way, Columbia, Maryland 21045, (or at such other place as the Payee may designate in writing) the sum of $214,498.39 with interest from December 31, 1995, on the unpaid principal at the rate of 7.00% annually. The unpaid principal shall be payable on demand. All payments on this Note shall be applied first in payment of accrued interest and any remainder in payment of principal. If any installment is not paid when due, the remaining unpaid balance and accrued interest shall become due immediately at the option of the Payee. The Promisor reserves the right to prepay this Note (in whole or in part) prior to the due date with no prepayment penalty. If any payment obligation under this Note is not paid when due, the Promisor promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process. If any of the following events of default occur, this Note and any other obligations of the Promisor to the Payee, shall become due immediately, without demand or notice: 1) the failure of the Promisor to pay the principal and any accrued interest in full on or before the Due Date; 2) the death of the Promisor(s) or Payee(s); 3) the filing of bankruptcy proceedings involving the Promisor as a Debtor 4) the application for appointment of a receiver for the Promisor; 5) the making of a general assignment for the benefit of the Promisor's creditors; 2 6) the insolvency of the Promisor; or 7) the misrepresentation by the Promisor to the Payee for the purpose of obtaining or extending credit. If any one or more of the provisions of this Note are determined to be unenforceable, in whole or in part, for any reason, the remaining provisions shall remain fully operative. All payments of principal and interest on this Note shall be paid in the legal currency of the United States. Promisor waives presentment for payment, protest, and notice of protest and nonpayment of this Note. No renewal or extension of this Note, delay in enforcing any right of the Payee under this Note, or assignment by Payee of this Note shall affect the liability of the Promisor. All rights of the Payee under this Note are cumulative and may be exercised concurrently or consecutively at the Payee's option. This Note shall be construed in accordance with the laws of the State of Maryland. Signed this 23 day of Sept. 1996 at Columbia, Maryland. First Promisor Credit Management Solutions, Inc. By: /s/ JAMES R. DEFRANCESCO ---------------------------------------- James R. DeFrancesco President Page 2 of 3 3 To Whom it May Concern: The undersigned agrees that the Promissory Note dated December 31, 1995 in the amount of $214,498 given by Credit Management Solutions Inc. to the Undersigned is due and payable on demand after October 1, 1997. Dated: October 11, 1996 /s/ James R. DeFrancesco --------------------------------- James R. DeFrancesco EX-10.10 14 BUSINESS LOAN AGREEMENT 1 EXHIBIT 10.10 BUSINESS LOAN AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials $500,000.00 06-01-1995 rjh
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: Credit Management Solutions, Inc. Lender: The Columbia Bank 5950 Symphony Wood Road, Suite 301 9151 Baltimore National Pike Columbia, MD 21044 Ellicott City, MD 21042
THIS BUSINESS LOAN AGREEMENT between Credit Management Solutions, Inc. ("BORROWER") AND THE COLUMBIA BANK ("LENDER") IS MADE ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS". BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH lOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT. TERM. This Agreement shall be effective as of June 1, 1994, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. BORROWER. The word "Borrower" means Credit Management Solutions, Inc. and its successors and assigns. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. ERISA. The word "ERISA" means the Employee Retirement Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of Default" mean and include any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." GRANTOR. The word "Grantor" means and includes each and all of the persons or entities granting a Security Interest in any Collateral for the indebtedness, and their personal representatives, successors and assigns. GUARANTOR. The word "Guarantor" means and includes without limitation, each and all of the guarantors, sureties, and accommodation parties in connection with any indebtedness and their personal representatives, successors and assigns. INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, including all principal, interest and other fees, costs and charges, if any, together with all other present and future liabilities and obligations of Borrower, or any one or more of them, to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several, or joint and several, and no matter how the same may be evidenced or shall arise. LENDER. The word "Lender" means The Columbia Bank, its successors and assigns. LOAN. The word "Loan" or "Loans" means and includes any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security interest. SECURITY INTEREST. The words "Security Interest" mean and include without limitation any and all types of liens and encumbrances, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of the date of this Agreement and as of the date of each disbursement of Loan proceeds: ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Maryland. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, 2 BUSINESS LOAN AGREEMENT Page 2 (Continued) governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et. seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, or about any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, or about any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. BINDING EFFECT. This Agreement, the Note and all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, and (iii) no steps have been taken to terminate any such plan. LOCATION OF BORROWER'S OFFICES AND RECORDS. The chief place of business of Borrower and the office or offices where Borrower keeps its records concerning the Collateral is located at 5950 Symphony Wood Road, Suite 301, Columbia, MD 21044. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and agrees that Lender is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Loan and Note shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all litigation and claims and all threatened litigation and claims affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. 3 BUSINESS LOAN AGREEMENT (Continued) ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may from time to time reasonably require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, on Lender's forms, and in the amounts and by the guarantors named below:
GUARANTORS AMOUNTS ---------- ------- Scott Freiman $500,000.00* Hyson S. Freiman $500,000.00* James R. DeFrancesco $500,000.00* *subject to the provisions of the Guaranty.
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in all other instruments and agreements between Borrower and Lender in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement. OPERATIONS. Substantially maintain its present executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, dissolve or transfer or sell Collateral out of the ordinary course of business, or (c) pay any dividends on Borrower's stock (other than dividends payable in its stock and except as may be statutorily required for Subchapter S corporations) or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under 4 BUSINESS LOAN AGREEMENT PAGE 4 (Continued) the terms of this Agreement or any of the Related Documents or any other agreement that Borrower of any Guarantor has with Lender; (b) Borrower becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure even though no Event of Default shall have occurred. FINANCIAL REPORTING. The Borrower shall submit to the Lender (i) within ninety (90) days after the close of the Borrowers's fiscal year, annual CPA reviewed financial statements; (ii) with ten (10) days after the end of each month, internally prepared accounts receivable aging reports; and (iii) within thirty (30) days after the end of each quarter, CPA prepared financial statements. ADDITIONAL COVENANTS. (a) Liabilities due from the Borrower to any guarantor after June 1, 1994 shall be fully and totally subordinated to the Lender. If Borrower's debt-to-tangible net worth is equal to or less than 5.25:1, payments may occur to the extent that the debt-to-tangible net worth ratio does not rise above 5.25:1. (b) The Borrower shall maintain all of its corporate accounts with the Lender. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Indebtedness. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, or a trustee or receiver is appointed for Borrower or for all or a substantial portion of the assets of Borrower, or Borrower makes a general assignment for the benefit of Borrower's creditors, or Borrower files for bankruptcy, or an involuntary bankruptcy petition is filed against Borrower and such involuntary petition remains undismissed for sixty (60) days. CREDITOR OF FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent or any Guarantor revokes any guaranty of the Indebtedness. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. INSECURITY. Lender, in good faith, deems itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all sums owing in connection with the Loans, including all principal, interest, and all other fees, costs and charges, if any, will become immediately due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Maryland. LENDER AND BORROWER EACH HEREBY WAIVE TRAIL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER OR BORROWER MAY BE PARTIES, ARISING OUT OF, OR IN ANY WAY PERTAINING TO, THIS AGREEMENT. IT IS AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY LENDER AND BORROWER, AND LENDER AND BORROWER EACH HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER FURTHER REPRESENTS THAT BORROWER HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF BORROWER'S OWN FREE WILL, AND THAT BORROWER HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. CONSENT TO JURISDICTION. Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the State of Maryland over any suit, action, or proceeding arising out of or relating to this Agreement. Borrower irrevocably waives, to the fullest extent permitted by law, any objection that Borrower may now or hereafter have to the laying of venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon Borrower and may be enforced in any court in which Borrower is subject to jurisdiction by a suit upon such judgment provided that service of process is effected upon Borrower as provided in this Agreement or as otherwise permitted by applicable law. 5 BUSINESS LOAN AGREEMENT (CONTINUED) PAGE 5 ================================================================================ CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's out-of-pocket expenses incurred in connection with this Agreement or in connection with the Loans made pursuant to this Agreement. Subject to any limits under applicable law, if Lender hires an attorney to help enforce this Agreement or to collect any indebtedness, borrower agrees to pay Lender's attorney's fees, and all of Lender's other collection expenses, whether or not there is a lawsuit and including legal expenses for bankruptcy proceedings. NOTICES. All notices required to be given under this Agreement shall be given in writing and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight courier or deposited as certified or registered mail in the Untied States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and agreements of Borrower in this Agreement shall survive the making of the Loan or Loans contemplated hereby, and shall be deemed made and redated by Borrower at the time of the making of each disbursement of Loan proceeds. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Indulgence by Lender with respect to any of the terms and conditions of this Agreement or the failure of Lender to exercise any of its rights under this Agreement shall not constitute a waiver thereof, and Borrower shall remain liable for the strict performance of such terms and conditions until this Agreement shall be terminated. No provision of this Agreement may be waived or modified orally, but all such waivers or modifications shall be in writing. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in one instance shall not constitute Lender's continuing consent in subsequent instances, and in all cases such consent may be granted or withheld in the sole discretion of Lender. THIS BUSINESS LOAN AGREEMENT IS SIGNED, SEALED AND DELIVERED EFFECTIVE IN ALL RESPECTS AS OF 6/10/94. BORROWER: CREDIT MANAGEMENT SOLUTIONS, INC. - ----------------------------------- BY: JAMES R. DEFRANCESCO By: Scott Freiman --------------------------------(SEAL) -------------------------- JAMES R. DEFRANCESCO SCOTT FREIMAN LENDER: THE COLUMBIA BANK By: Robert Hoffman -------------------------------- Authorized Officer ================================================================================ 6 [THE COLUMBIA BANK LETTERHEAD] August 2, 1996 Mr. James DeFrancesco President Credit Management Solutions, Inc. 5950 Symphony Wood Road Suite 301 Columbia, MD 21044 Re: Promissory Note in the Principal Amount of $500,000.00 from Credit Management Solutions, Inc. to the order of The Columbia Bank (the "Note"). Dear Jim: On behalf of The Columbia Bank ("Bank"), we are pleased to advise you that the Bank has approved the modification of certain provisions of the Note as set forth below: Maturity - Subject to the current provisions of the Note for payment on demand or otherwise upon maturity of the Note, the Bank hereby agrees to extend the outside date of maturity for payment of the entire unpaid balance of the Principal Amount and all unpaid interest accrued thereon to July 1, 1997. Except as hereinabove provided, the provisions of the Note and the other Loan Documents referred to in the letter have not been altered, and the modifications set forth herein shall not be deemed to constitute a novation of any of the obligations of the Borrower to the Bank. Unless otherwise provided in this letter, all terms described herein shall have the meaning set forth in the Note or the other Loan Documents. This letter, which I have signed below on behalf of the Bank, shall become effective only upon your signature and return of this letter to me. The fully executed letter will then be included in your loan file with the Bank. A copy of this letter should be retained for your records. Very truly yours, Robert J. Hoffman Robert J. Hoffman Vice President 7 Mr. James DeFrancesco August 2, 1996 Page 2 AGREED TO AND ACCEPTED this 6 day of August, 1996. BORROWER: Credit Management Solutions, Inc. James DeFrancesco - ------------------------------------ James DeFrancesco, President GUARANTORS: James DeFrancesco - ------------------------------------ James DeFrancesco, as guarantor Scott Freiman - ------------------------------------ Scott Freiman, as guarantor EX-10.11 15 1996 CMSI NON-QUALIFIED STOCK OPTION PLAN 1 EXHIBIT 10.11 1996 CREDIT MANAGEMENT SOLUTIONS, INC. NON-QUALIFIED STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. The purpose of this 1996 Credit Management Solutions, Inc. Non-Qualified Stock Option Plan (the "Plan") is to advance the interests of Credit Management Solutions, Inc. (the "Company") by attracting and retaining non-Employee Directors and Employees who have significantly contributed, and will significantly contribute, to the growth and earnings of the Company by providing them with the opportunity to acquire Shares. By encouraging such stock ownership, the Company seeks to attract, retain and motivate the best available personnel for positions of substantial responsibility and to provide additional incentive to non-Employee Directors and Employees of the Company or any Affiliate to promote the success of the business. 2. DEFINITIONS. As used herein, the following definitions shall apply. (a) "Affiliate" shall mean any "parent corporation" or "subsidiary corporation" of the Company, as such terms are defined in Section 424(e) and (f), respectively, of the Code, and any other subsidiary corporations of a parent corporation of the Company. (b) "Agreement" shall mean a written agreement entered into in accordance with Paragraph 5(c) hereof. (c) "Board" shall mean the Board of Directors of the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Committee" shall mean the Stock Option Committee appointed by the Board in accordance with Paragraph 5(a) hereof. (f) "Common Stock" shall mean the common stock, par value $.01 per share, of the Company. (g) "Company" shall mean Credit Management Solutions, Inc. (h) "Continuous Service" shall mean the absence of any interruption or termination of service as an Employee or Director of the Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between payroll locations of the Company or between the Company, an Affiliate or a successor. (i) "Director" shall mean any member of the Board, and any member of the board of directors of any Affiliate that the Board has by resolution designated as being eligible for participation in this Plan. (j) "Effective Date" shall mean the date specified in Paragraph 12 hereof. 2 (k) "Employee" shall mean any person employed by the Company or an Affiliate who is an employee for federal tax purposes. (l) "Exercise Price" shall mean the price per Optioned Share at which an Option may be exercised. (m) "Market Value" shall mean the fair market value of the Common Stock, as determined under Paragraph 7(b) hereof. (n) "Option" means an option to purchase Common Stock. (o) "Optioned Shares" shall mean Shares granted pursuant to this Plan. (p) "Participant" shall mean any Employee or other person who receives an Option pursuant to the Plan. (q) "Share" shall mean one share of Common Stock. 3. TERM OF THE PLAN AND OPTIONS. (a) Term of the Plan. The Plan shall continue in effect for a term of 10 years from the Effective Date or the date the Plan is adopted by the Board (whichever period ends earlier), unless sooner terminated pursuant to Paragraph 14 hereof. No Option shall be granted under the Plan after such ten year term. (b) Term of Options. The term of each Option granted under the Plan shall be established by the Committee, but shall not exceed 10 years. 4. SHARES SUBJECT TO THE PLAN. Except as otherwise required by the provisions of Paragraph 9 hereof, the aggregate number of Shares deliverable pursuant to Options shall not exceed 2,750,000 Shares. Such Shares may either be authorized but unissued Shares or Shares held in treasury. If any Options should expire, become unexercisable, or be forfeited for any reason without having been exercised or become vested in full, the Optioned Shares shall, unless the Plan shall have been terminated, be available for the grant of additional Options under the Plan. 5. ADMINISTRATION OF THE PLAN. (a) Composition of the Committee. The Plan shall be administered by the Committee, which shall consist of not less than two (2) members of the Board. Members of the Committee shall serve at the pleasure of the Board. (b) Powers of the Committee. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion (i) to select Participants and grant Options, (ii) to determine the form and content of Options to be issued and the form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules and regulations relating to the Plan, and (v) to make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be deemed the action of the Committee. 2 3 (c) Agreement. Each Option shall be evidenced by a written agreement containing such provisions as may be approved by the Committee. Each such Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of such Agreement, shall be bound by the terms and restrictions of the Plan and of such Agreement. The terms of each such Agreement shall be in accordance with the Plan, but each Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, the Committee shall set forth in each Agreement (i) the Exercise Price of an Option, (ii) the number of Shares subject to, and the expiration date of, the Option, (iii) the manner, time and rate (cumulative or otherwise) of exercise or vesting of such Option, and (iv) the restrictions, if any, to be placed upon such Option, or upon Shares which may be issued upon exercise of such Option. The Chairman of the Committee and such other Directors and officers of the Company as shall be designated by the Committee are hereby authorized to execute Agreements on behalf of the Company and to cause them to be delivered to the recipients of Options. (d) Effect of the Committee's Decisions. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. (e) Indemnification. In addition to such other rights of indemnification as they may have, the members of the Committee shall be indemnified by the Company in connection with any claim, action, suit or proceeding relating to any action taken or failure to act under or in connection with the Plan or any Option, granted hereunder to the full extent provided for under the Company's governing instruments with respect to the indemnification of Directors. 6. GRANT OF OPTIONS. (a) Employees shall be eligible to receive discretionary grants of Options pursuant to the Plan. (b) Non-Employee Directors shall each receive an Option for 5,000 Optioned Shares at the commencement of each year of such directorship up to a maximum of 25,000 Shares. 7. EXERCISE PRICE FOR OPTIONS. (a) Limits on Committee Discretion. The Exercise Price as to any particular Option shall not be less than 100% of the Market Value of the Optioned Shares on the date of grant. (b) Standards for Determining Exercise Price or Measurement Price. If the Common Stock is listed on a national securities exchange (including the NASDAQ National Market or Small Cap System) on the date in question, then the Market Value per Share shall be the average of the highest and lowest selling price on such exchange on such date, or if there were no sales on such date, then the Exercise Price shall be the mean between the bid and asked price on such date. If the Common Stock is traded otherwise than on a national securities exchange on the date in question, then the Market value per Share shall be the mean between the bid and asked price on such date, or, if there is no bid and asked price on such date, then on the next prior business day on which there was a bid and asked price. If no such bid and asked price is available, then the Market Value per Share shall be its fair market value as determined by the Committee, in its sole and absolute discretion. 8. EXERCISE OF OPTIONS. (a) Generally. Subject to (e) below, any Option granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Agreement granted to a Participant. An Option may not be exercised for a fractional Share. 3 4 (b) Procedure for Exercise. A Participant may exercise Options, subject to provisions relative to its termination and limitations on its exercise, only by (1) written notice of intent to exercise the option with respect to a specified number of Shares, and (2) payment to the Company (contemporaneously with delivery of such notice) in cash, in Common Stock, or a combination of cash and Common Stock, or in the sole discretion of the Committee, Participant's promissory note, for the amount of the Exercise Price for the number of Shares with respect to which the option is then being exercised. Each such notice (and payment where required) shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Company at the Company's executive offices. Common Stock utilized in full or partial payment of the Exercise Price for options shall be valued at its Market Value at the date of exercise. (c) Period of Exercisability. Except to the extent otherwise provided in more restrictive terms of an Agreement, an Option may be exercised by a Participant only with respect to the vested portion of such Option and only while he is an Employee or Director and has maintained Continuous Service from the date of the grant of the Option, or within three months after termination of such Continuous Service (but not later than the date on which the Option would otherwise expire), except if the Employee's or Director's Continuous Service terminates by reason of: (1) "Just Cause" which for purposes hereof shall have the meaning set forth in any unexpired employment agreement between the Participant and the Company (and, in the absence of any such agreement, shall mean termination because of the Employee's or Director's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation, other than traffic violations or similar offenses) then the Participant's rights to exercise such Option shall expire on the date of such termination; (2) death, then all Options of the deceased Participant which have vested and which vest within two years of the date of death may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or person or persons to whom his rights under such Option shall have passed by will or by laws of descent and distribution; (3) Permanent and Total Disability (as such term is defined in Section 22(e)(3) of the Code), then all Options of the disabled Participant which have vested and which vest within two years of the date of such disability may be exercised within one year from the date of such Permanent and Total Disability, but not later than the date on which the Option would otherwise expire. (d) Effect of the Committee's Decisions. The Committee's determination whether a Participant's Continuous Service has ceased, and the effective date thereof, shall be final and conclusive on all persons affected thereby. (e) Options shall vest and be exercisable as determined by the Committee subject to the foregoing. 4 5 9. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN. (a) Recapitalizations; Stock Splits, Etc. The number and kind of shares reserved for issuance under the Plan, and the number and kind of shares subject to outstanding Options (and the Exercise Price thereof) shall be proportionately adjusted for any increase, decrease, change or exchange of Shares for a different number or kind of shares or other securities of the Company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Company. (b) Transactions in which the Company Is Not the Surviving Entity. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving entity, or (iii) the sale or disposition of all or substantially all of the Company's assets (any of the foregoing to be referred to herein as a "Transaction"), all outstanding Options shall be surrendered. With respect to each Option so surrendered as to which the holder has become vested, the Committee shall in its sole and absolute discretion, determine whether the holder of the vested surrendered Option shall receive: (1) for each Share then subject to an outstanding Option the number and kind of shares into which each outstanding Share (other than Shares held by dissenting stockholders) is changed or exchanged, together with an appropriate adjustment to the Exercise Price; or (2) a cash payment (from the Company or the successor corporation), in an amount equal to the Market Value of the Shares subject to the Option on the date of the Transaction, less the Exercise Price of the Option. (c) Conditions and Restrictions on New, Additional or Different Shares or Securities. If, by reason of any adjustment made pursuant to this Paragraph, a Participant becomes entitled to new, additional or different shares of stock or securities, such new, additional or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares pursuant to the Option before the adjustment was made. (d) Other Issuances. Except as expressly provided in this Paragraph, the issuance by the Company or an Affiliate of shares of stock of any class, or of securities convertible into Shares or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, shall not affect, and no adjustment shall be made with respect to, the number, class, Exercise Price or Measurement Price of Shares then subject to Options or reserved for issuance under the Plan. 10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, or pursuant to the terms of a "qualified domestic relations order" (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder). An Option may be exercised only by a Participant, the Participant's personal representative or a permitted transferee. 11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the later of the date on which the Committee makes the determination of granting such Option, and the Effective Date. Notice of the determination shall be given to each Participant to whom an Option is so granted within a reasonable time after the date of such grant. 5 6 12. EFFECTIVE DATE. The Plan shall become effective as of June 27, 1996, the date it was authorized and established by the Board of Directors and stockholders of the Company. 13. MODIFICATION OF OPTIONS. At any time, and from time to time, the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Option, provided no such modification shall confer on the holder of said Option any right or benefit which could not be conferred on him by the grant of a new Option at such time, or impair the Option without the consent of the holder of the Option. 14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may from time to time amend the terms of the Plan and, with respect to any Shares at the time not subject to Options, suspend or terminate the Plan. Shareholder approval must be obtained for any amendment of the Plan that would change the number of Shares subject to the Plan (except in accordance with Section 9 above), change the category of persons eligible to be Participants, or materially increase the benefits under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of any affected holders of an Option, alter or impair any rights or obligations under any Option theretofore granted. 15. CONDITIONS UPON ISSUANCE OF SHARES. (a) Compliance with Securities Laws. Shares of Common Stock shall not be issued with respect to any Option unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. (b) Special Circumstances. The inability of the Company to obtain approval from any regulatory body or authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares. As a condition to the exercise of an option, the Company may require the person exercising the Option to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. (c) Committee Discretion. The Committee shall have the discretionary authority to impose in Agreements such restrictions on Shares as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal or to establish repurchase rights or both of these restrictions. (d) Restriction on Sale of Optioned Shares. For a period of 180 days commencing on the date of the Prospectus used in connection with the initial public offering of the Company's Shares pursuant to a Registration Statement on Form S-1 filed with the Securities and Exchange Commission, no Participant will directly or indirectly, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any Optioned Shares without the prior written consent of the managing underwriter of such initial public offering or pursuant to the terms and conditions of that certain underwriting agreement to be entered into by and between the Company and the underwriters of such initial public offering. 16. RESERVATION OF SHARES. The Company, during the term of the Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan. 6 7 17. WITHHOLDING TAX. The Company's obligation to deliver Shares upon exercise of Options shall be subject to the Participant's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that he already owns, having a value equal to the amount required to be withheld. The value of Shares to be withheld, or delivered to the Company, shall be based on the Market Value of the Shares on the date the amount of tax to be withheld is to be determined. As an alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. 18. NO EMPLOYMENT OR OTHER RIGHTS. In no event shall an Employee's or Director's eligibility to participate or participation in the Plan create or be deemed to create any legal or equitable right of the Employee, Director, or any other party to continue service with the Company or any Affiliate of such corporations. 7 EX-21 16 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 Subsidiaries of the Company Name of Subsidiary Jurisdiction of Organization - ------------------ ---------------------------- Credit Connection, LLC Maryland EX-23.1 17 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 7, 1996 (except Note 14, as to which the date is October 10, 1996), in the Registration Statement (Form S-1 No. 333-_____) and related Prospectus of Credit Management Solutions, Inc. for the registration of 2,600,000 shares of its common stock. Ernst & Young LLP Baltimore, Maryland October 10, 1996 EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED FINANCIAL STATEMENTS OF CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS 12-MOS DEC-31-1995 DEC-31-1995 JAN-01-1996 JAN-01-1995 JUN-30-1996 DEC-31-1995 1,918 120,255 0 0 1,804,589 1,744,347 98,095 98,095 0 0 2,140,174 2,451,562 2,158,165 1,921,244 818,233 639,465 3,870,121 4,035,323 3,858,800 3,633,456 0 0 0 49,101 0 0 49,101 0 0 0 3,870,121 4,035,323 469,402 1,853,424 5,270,454 10,231,452 2,927,875 5,340,790 5,489,522 9,472,421 0 0 0 0 60,547 105,849 (127,240) 957,932 (105,773) 220,618 0 0 0 0 0 0 0 0 (21,462) 737,314 0 0 0 .12
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