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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-28834
ABACUS DIRECT CORPORATION
(Name of Small Business Issuer in Its Charter)
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DELAWARE 84-111816 6
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8774 YATES DRIVE, WESTMINSTER, COLORADO 80030
(Address of principal executive offices) (Zip Code)
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(303) 657-2800
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is NOT contained herein and will not be contained, to the best of the
registrant's knowledge, in the Proxy Statement incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. YES [X]
The issuer's revenues for its fiscal year ended December 31, 1996 are
$17,532,006.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1997 is $201,439,955.
The number of shares outstanding of the issuer's Common Stock as of March
1, 1997 is 9,507,822.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
Portions of the definitive proxy statement to be filed pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the issuer's 1997 Annual Meeting of Stockholders are
incorporated by reference herein.
Portions of the issuer's Registration Statement which includes the
Prospectus, dated September 26, 1996, of the issuer filed pursuant to Rule
424(b) promulgated under the Securities Act of 1933, are incorporated by
reference herein.
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PART I
ITEM 1. BUSINESS.
Abacus Direct Corporation ("Abacus" or the "Company") is a leading provider
of information products and marketing research services to the direct marketing
industry, specifically, the catalog industry. Abacus has developed a
comprehensive and predictive source of information regarding catalog consumer
purchasing behavior by creating a database which includes consumer purchasing
data from 700 merchandise catalogs. Abacus uses this proprietary database and
its advanced statistical modeling technology to provide direct marketers with
information and analysis which allows them to increase response rates and
profits from their marketing campaigns.
As the global market for consumer goods and services has become
increasingly competitive, businesses are seeking to enhance their market
position by strengthening relationships with existing customers and targeting
new markets and customers. As a result, a growing number of businesses are using
direct marketing programs to identify and reach large numbers of consumers in a
cost-effective manner. Direct marketing programs are used for a wide variety of
products and services, including catalog merchandise, books and periodicals,
financial services, telecommunications products and services and fundraising.
Consumer catalog companies have long considered consumers' past catalog
purchasing patterns to be the best predictor of future purchasing behavior and,
therefore, the best indicator for targeting marketing efforts. However, it has
historically been difficult for any particular catalog company to obtain a
comprehensive view of consumers' catalog purchasing patterns. Catalog companies
have, therefore, attempted to expand their customer base by augmenting their
existing customer lists with lists of rented or exchanged names of prospects who
have purchased merchandise from other catalogs and continuing to use those lists
that generate sufficiently high response rates and profit levels and abandoning
those lists that do not. Although this traditional approach has allowed many
catalog companies to expand their customer base, increasing competition and
rising costs of direct marketing activities have created a need for a
comprehensive source of consumer catalog purchasing information to allow more
cost-effective targeting of their marketing efforts.
The Company has addressed the need for a comprehensive source of
information on catalog purchasing behavior by forming the Abacus Alliance, a
cooperative arrangement through which catalog companies contribute their
customers' purchasing histories to the Company in exchange for access to the
Company's information products and marketing research services. The Company's
services allow catalog companies to improve the profitability of their mailing
campaigns by enabling them to (i) target new consumers whose past purchasing
behavior indicates that they are likely to purchase a particular product at a
given time, (ii) prioritize existing customers by the probability of a positive
response based on historical buying patterns, (iii) eliminate prospects from
rented or exchanged lists that have a low probability of responding, and (iv)
properly position their products and develop marketing strategies through market
research.
As of December 31, 1996, the Abacus database contained over 88 million
detailed buyer profiles compiled from records of over 600 million catalog
purchasing transactions. The Company receives this data from the 700 members of
the Abacus Alliance. The Company believes Abacus Alliance members represent over
75% of the largest consumer merchandise catalogs in the United States. The
Company works closely with each client to determine its needs, and applies
advanced statistical modeling techniques to extract from the database the names
of consumers most likely, or least likely, to buy a product offering. The
Company's database is continually enhanced as members contribute current sales
transaction information and additional catalog companies join the Abacus
Alliance.
In order for clients to use the Company's services, they must pay for each
service according to a fee schedule established by the Company from time to
time, every time they conduct a mailing campaign. By continually adding new data
to its database, increasing the performance of its existing
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information products and marketing research services, providing new types of
value added services and continuing to invest in new technology, the Company
seeks to increase revenue from existing clients, develop new sources of revenue
and improve its high client retention rate. The Company believes that the
favorable results that its clients have achieved using the Company's information
products and marketing research services led to a retention rate of more than
90% from 1995 to 1996, from 1994 to 1995 and from 1995 to 1996, respectively,
excluding those clients that are no longer operating catalogs. In addition, the
Company believes it can leverage the resources and capabilities it has developed
to serve the catalog industry by applying those resources and capabilities to
other industries which use direct marketing techniques.
The Company's information products and market research services are
designed to enable catalog companies to increase the response rates and profits
from a mailing. Furthermore, the cooperative nature of the Abacus Alliance and
the use of advanced technology are designed to allow the Company to provide
services to clients in a cost-effective manner. As a result, the cost to a
catalog company of using the Company's services is typically less than 10% of
the overall cost of a given mailing.
On October 2, 1997, the Company consummated an initial public offering (the
"Offering") of 5,068,000 shares of its Common Stock, par value $.001 per share
(the "Common Stock"), of which 4,613,455 shares were sold by certain
stockholders (the "Selling Stockholders") of the Company. On October 28, 1997,
the Company consummated the sale of 760,200 shares of Common Stock to the
Selling Stockholders solely to cover over-allotments. The Common Stock was sold
in the Offering at a price of $14.00 per share less underwriters discounts and
commissions of $.98 per share. The Offering was underwritten on a firm
commitment basis by Robertson, Stephens & Company LLC, Hambrecht & Quist LLC and
William Blair & Company LLC, as representatives of the underwriters.
The Company's predecessor, Abacus Direct Corporation, was incorporated in
Colorado in May, 1989. The Company was reincorporated in Delaware on September
9, 1996. The term "Company" as used herein refers to Abacus Direct Corporation,
a Colorado corporation prior to the reincorporation and the successor Delaware
corporation thereafter. The principal executive offices of the Company are
located at 8774 Yates Drive, Westminster, Colorado 80030 and its telephone
number is (303) 657-2800.
RECENT DEVELOPMENTS
During the year ended December 31, 1996, Abacus continued to expand its
database and the Abacus Alliance, which is now 700 members. In addition, the
Company continued making investments in technology and systems capabilities,
significantly increasing its computing capacity. This growth has enhanced the
predictive capability of the Company's database and the quality of its
housefile, scoring and list optimization products. To more effectively exploit
the benefits of these changes, the Company increased its sales staff by 57%
during the year ended December 31, 1996. This has enabled the Company to
increase its revenue by expanding the use of its existing services and providing
more value-added services to its existing clients.
To accelerate the distribution of data products to the catalog industry and
to other industry segments, Abacus has recently launched two initiatives. The
first, the Abacus E-Net, is a consortium of industry service bureaus who have
agreed to distribute Abacus data services to their customers using an Abacus
standard electronic just-in-time product delivery system. The second initiative
is a joint venture involving the marketing of Abacus data products to the credit
card industry.
The Company has also expanded applications of its database and analytical
services to other industries which use direct marketing techniques through the
introduction of its data enhancement service, which provides strategic market
data to the financial services, telecommunications and insurance industries.
These reports provide previously unavailable information about market,
seasonality and competition.
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SERVICES
The Company provides five general categories of information products and
marketing research services to its clients: prospect lists, housefile scoring,
list optimization, marketing research and data enhancement.
Prospect Lists. The Company's prospect lists service provides a client with
a list of prospective consumers which is ranked according to the likelihood that
such consumers will respond to a particular direct marketing campaign. The
criteria for ranking include recency, frequency, time of year and dollar amount
of catalog purchases. This service enables catalog companies to expand their
business base and offset consumer attrition.
Housefile Scoring. The Company's housefile scoring service provides a
client with a ranking of the consumers contained on the client's housefile
according to the probability that a particular consumer will make a repeat
purchase from a catalog. This service also allows a client to identify inactive
consumers who are most likely to respond to a renewed sales initiative. The
Company provides these services by matching the Company's database of active
direct marketing consumers with a client's housefile. The housefile program
enables catalog companies to profitably manage promotional programs targeted at
their existing customers and cost effectively determine when to solicit
customers who have not made recent purchases from the catalog.
List Optimization. The Company's list optimization service eliminates stale
or unresponsive names from lists that a client has purchased from or exchanged
with other catalog companies, enabling the client to identify and target the
most likely buyers. This process not only increases the profitability of lists a
client currently uses, but permits the client to use lists that were previously
considered unprofitable.
Marketing Research. The Company's marketing research service provides a
client with detailed information regarding the catalog industry which was not
previously available to catalog companies. The Company uses the data contributed
by the Abacus Alliance members to create comprehensive written reports which
accurately describe catalog market size, share, activity and other key marketing
data that allow clients to develop their marketing initiatives. The marketing
research service reports provide clients information on (i) seasonality, to help
identify optimal mail dates, (ii) cross-category catalog purchasing behavior, to
allow the refinement of the catalog's merchandise mix, and (iii) transaction
histories, to aid in planning advertising, cross-promotion and mail frequency.
Data Enhancement. The Company's data enhancement service allows clients
outside the catalog industry to use Abacus data to target their customers. The
Company achieves this by overlaying its proprietary database variables onto its
clients' files which provides additional information to clients regarding their
customers. This service is offered to large consumer companies in industries
such as financial services, telecommunications and insurance industries.
TECHNOLOGY
The Company has made significant investments to develop its proprietary
database and technology. Key elements of the Company's technology include its
proprietary database management and modeling software.
Database. The Abacus Alliance database is primarily comprised of
transactional data contributed by the Abacus Alliance members on a monthly,
quarterly or semi-annual basis. The database contains information regarding each
consumer purchase transaction, including the catalog name, catalog product
category, date of purchase and amount of purchase. Millions of new transactions
are added to the database each week, providing an increasingly detailed purchase
profile underlying each catalog consumer in the database. Transaction updates
received from Abacus Alliance members are converted to the Company's format and
processed through a rigorous quality assurance program. The data is enhanced
with externally sourced demographic data. The Company's database contains
records of over 500 million consumer catalog transactions collected over the
past five years. Based on the Direct
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Marketing Association's ("DMA") estimate that approximately 82 million consumers
in the United States have purchased from catalog companies during the past 12
months, the Company believes its database includes virtually all catalog
consumers in the United States.
Proprietary Software. The Company's proprietary database management
software is able to manage large databases, facilitating rapid and
cost-effective delivery of modeling and production functions. The Company's
proprietary modeling software utilizes predictive scoring and analytical
techniques to improve list performance. The Company has also developed process
automation software which integrates and automates virtually all stages of model
development and list production and allows the Company to quickly and cost
effectively generate dozens of models for a given client.
Computer Technology. The Company has adopted client server computer
architecture which (i) enables parallel processing, permitting large numbers of
tasks to be executed simultaneously at high speed, (ii) is highly scalable,
allowing ongoing capacity increases, and (iii) provides system and data
redundancies that protect against system failures. The Company's principal
hardware platform is a series of Sun Microsystems Sparc 1000, 8-way symmetric
multi-processors recently augmented with a Sun Enterprise 4000 server.
The Company attempts to maintain a secure environment for both systems and
data by protecting against unauthorized electronic access. The Company's
database is backed up regularly, utilizing four separate offsite locations. The
Company has a disaster recovery plan that is designed to facilitate a rapid
recovery from a full-scale disaster by employing a readily available supply of
replacement equipment with a series of offsite software and systems backups. The
Company operates its data center 24 hours a day, 7 days a week with a team of 28
system and technical professionals and 14 other staff dedicated to client
service and support.
SALES AND MARKETING
The Company markets and sells its services through a direct sales and
marketing force comprised of 27 people. The Company believes that its sales
representatives have an in-depth understanding of the catalog industry which
allows them to function as marketing resources for their clients. The Company's
sales strategy includes (i) adding new members to the Abacus Alliance, (ii)
increasing penetration of existing clients by selling additional prospect names
and offering new value added services and (iii) leveraging the Company's
database to serve non-catalog industries that also use direct marketing to reach
their customers.
The Company has significantly increased its efforts to educate the catalog
industry on the unique marketing services it offers to its clients by regularly
publishing an industry newsletter that highlights a particular catalog's use of
the Company's database and by having Company employees regularly speak at
industry conventions. The Company also hosted what it hopes will become an
annual catalog company symposium in January 1997, attended by representatives
from over 130 catalog companies. Selling and marketing expenses for the year
ended December 31, 1996 were 25.6% of revenue. The Company believes that selling
and marketing expenses will remain relatively stable as a percentage of revenue
during the next fiscal year.
CUSTOMERS AND CONTRACTS
The Abacus Alliance consists of 700 members. Members typically operate
under a three-year contract which provides that a client (i) submit complete
customer history transaction information to the Company on a regular basis, (ii)
license Abacus to use the data and (iii) pay for the Company's services based
upon an established price schedule. Such three year contracts do not obligate
the Company's clients to use the Company's services or pay the Company any
guaranteed fees. The contracts generally provide for automatic thirty-six month
renewals unless either party elects not to renew.
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COMPETITION
The market for the Company's services is highly competitive. The Company
believes that the principal competitive factors in this market are consistent
delivery of (i) lists which generate high response rates, in a timely fashion,
and at competitive prices, (ii) large quantities of high response names, and
(iii) individualized customer support. The Company competes directly with
Smartbase, a division of Acxiom Corporation, and Direct Marketing Technology,
each of which collect and manage information relating to consumer purchase
transactions contributed by large numbers of catalog companies. The Company also
competes with a wide variety of companies which own and generate lists. In
addition, the Company competes indirectly with a number of direct marketing
information service businesses including Metromail Corp., Database America
Information Services, Inc., Donnelley Marketing, Inc. and R.L. Polk. Many of the
Company's existing competitors, and many potential new competitors, have longer
operating histories, greater name recognition and significantly greater
financial, technical and marketing resources than the Company. Such competitors
may be able to undertake more extensive marketing campaigns and make more
attractive offers to potential employees, distribution partners, and database
contributors.
PROPRIETARY TECHNOLOGY
The Company regards much of its software, database management methods,
modeling techniques and other data base information strategies as proprietary
trade secrets and relies on a combination of trade secret, copyright, unfair
competition and other intellectual property laws as well as contractual
agreements to protect its rights to such intellectual property. Due to the
difficulty of monitoring unauthorized use of and access to the Company's
intellectual property, however, such measures may not provide adequate
protection. In addition, there can be no assurance that the courts will enforce
the contractual arrangements which the Company has entered into to protect its
proprietary technology. In addition, there has been substantial litigation in
the information services and computer industry involving the ownership and scope
of intellectual property rights. The Company may bring or be subject to
litigation to defend against claimed infringement of its rights or of the rights
of others or to determine the scope and validity of the intellectual property
rights of the Company and others. Adverse determinations in such litigation
could result in the loss or compromise of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties, or prevent the Company from selling its services
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION; PRIVACY ISSUES.
Growing concern about privacy and the collection, distribution and use of
information about individuals has led to self-regulation of such practices by
the direct marketing industry and to increased federal and state regulation. The
DMA has adopted guidelines regarding the fair use of such information which it
recommends be followed by participants in the direct marketing industry. The
Company is also subject to various federal and state regulations concerning the
collection, distribution and use of information regarding individuals. Such laws
include the Federal Drivers Privacy Protection Act of 1994 and other state laws
which limit or preclude the use of voter registration and drivers license
information, as well as laws which govern the collection and release of consumer
credit information. Although the Company's compliance with the DMA's guidelines
and such federal and state regulations has not had a material adverse effect on
the Company, no assurance can be given that the DMA will not adopt additional
guidelines or that additional federal or state laws or regulations (including
antitrust and consumer privacy laws) will not be enacted or applied to the
Company or its clients. Any such guidelines, laws or regulations would adversely
affect the ability of the Company to collect and distribute consumer information
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, such guidelines, laws or
regulations might restrict or increase the cost of the activities of companies
engaged in direct marketing, potentially reducing their demand for the Company's
services which would have a material
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adverse effect on the Company's business, financial condition and results of
operations. To the extent the Company's clients do not comply with such
guidelines, laws or regulations, the Company may incur liabilities which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has also adopted other policies to
address these privacy concerns, including restricting access to its database,
requiring each employee to sign a nondisclosure and confidentiality agreement
and implementing data security systems at the Company's data center. The Company
has typically entered into three year contracts with its catalog clients and
there can be no assurance that a private litigant or governmental entity will
not challenge such arrangements under any applicable antitrust or other laws.
PRINCIPAL CUSTOMERS
The Company's ten largest customers accounted for 22.2% of the Company's
net sales for the year ended December 31, 1996. No customer accounted for more
than 5% of the Company's consolidated net sales in the fiscal years ended
December 31, 1996 and December 31, 1995.
RESEARCH AND DEVELOPMENT
During the year ended December 31, 1996, the Company spent $761,000 for
research and development, as compared to $407,000 and $262,000 in the fiscal
years ended December 31, 1995 and 1994, respectively. The Company's research and
development activities during the past year consisted primarily of developing
technologies and processes to deliver new and better data service products to
existing and prospective clients and industry segments.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 96 people on a
full time basis, including 32 in data processing and programming, 27 in sales
and marketing, 12 in statistical and product development, 14 in client services
and support and 11 in administration. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.
ITEM 2. PROPERTIES.
The Company's executive office and principal operations are located in a
17,530 square feet facility that it leases in Westminster, Colorado pursuant to
an agreement which expires September, 1999. In 1997, the aggregate annual rental
payments for the facility will be approximately $320,000. The Company also
leases 1,700, 1,424 and 1,983 square feet of general office space in New York
City, Hawthorne, New York and Atlanta, Georgia, respectively. The Company
believes that its existing facilities are adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the Nasdaq National Market System.
There were 2,045 holders of record of the Company's Common Stock at March 1,
1997. The table below sets forth high and low bid prices for the Company's
Common Stock for each quarter since the Offering.
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HIGH LOW
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September 1996.............................................. $21 $17
October-December 1996....................................... $32.50 $15.75
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The Company has not declared or paid a cash dividend since its organization
and has no present intention of paying any such dividend in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Abacus believes it has developed the most comprehensive and predictive
source of catalog consumer purchasing behavior in the United States by creating
a database which includes consumer purchasing data from 700 merchandise
catalogs. The Company's information products and marketing research services
allow catalog companies to improve the profitability of their catalog mailing
campaigns by enabling them to (i) target new consumers whose past purchasing
behavior indicates that they are likely to purchase a particular product at a
given time, (ii) prioritize existing customers by the probability of a positive
response based on historical buying patterns, (iii) eliminate prospects from
rented or exchanged lists that have a low probability of responding, and (iv)
properly position their products and develop marketing strategies through market
research.
Since 1991, the Company has experienced rapid growth of its client base,
database, revenue and operating income. Between December 31, 1991 and December
31, 1996, the Abacus Alliance grew from 81 to 700 catalogs and the Company's
database grew from 26 million to approximately 88 million households. The
Company's revenue for the years ended December 31, 1994, 1995 and 1996 increased
by 55.2%, 44.6%, and 87.9% respectively, while its operating profits increased
from $2.4 million to $6.4 million. In the years preceding 1994, revenue and
operating profit growth principally resulted from incremental revenue from new
clients. In the years ended December 31, 1995 and 1996, revenue and operating
profit growth was attributable to both incremental revenue from new clients,
increased revenue from existing clients and new products. Annual operating
margins for the years ended December 1994, 1995 and 1996 were 37.1%, 34.0% and
36.3%, respectively as the Company continued to leverage its costs of revenue
and operating expenses. The Company attributes its revenue and operating profit
growth to the widespread acceptance of Abacus' services within the catalog
industry, an increased number of clients, a broadening of its product line and
increased product penetration among its clients. The Company believes that
Abacus Alliance members represent over 75% of the largest consumer merchandise
catalogs in the United States. To the extent that overall industry growth
moderates, the Company's revenue may moderate.
The Company's principal sources of revenue are derived from prospecting
lists, housefile scoring and list optimization services. The Company creates
prospect lists for its clients by selecting names from the Abacus Alliance
database of consumers who have purchased merchandise from similar types of
catalogs. Revenue from prospecting services represented 78.2% of the Company's
revenue for the year ended December 31, 1996. The Company's housefile and
optimization services enable catalog companies to profitably manage promotional
programs to existing and prospective customers, accounted for 19.8% of revenue
for the year ended December 31, 1996. The Company's recently introduced
marketing research services provides clients with comprehensive catalog industry
information. Also recently introduced were data enhancement services which offer
industries outside the
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catalog market the opportunity to improve the performance of their direct
marketing efforts. These two product launches contributed 2.0% of revenue during
the year ended December 31, 1996.
The Company's cost of revenue includes expenses associated with creating,
updating and managing the Company's database, constructing statistical models
and the expense of sharing income from data enhancement services with
participating Alliance customers. Selling and marketing expenses include the
costs of salaries and related benefits for such personnel, travel and promotion.
General and administrative expenses include the costs of finance and accounting,
human resources and employee benefits. Operating margins have been higher in the
second half of each calendar year, as second half revenue has been favorably
affected by the holiday season, while operating costs have not had a
corresponding seasonal increase. The Company's operating expenses are
determined, in part, based on the Company's expectations of future revenue
growth and are substantially fixed in the short term. As a result, unexpected
changes in revenue growth will have a disproportionate effect on net income in
any given period.
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenue. Revenue increased 87.9% to $17.5 million for the year ended
December 31, 1996 from $9.3 million for the year ended December 31, 1995,
principally due to increased sales of prospect lists to existing clients and, to
a lesser extent, new clients. New clients during 1996 represented 8.1% of
revenue for the year ended December 31, 1996. Further contributing to the
increased sales were the growth of revenues from housefile scoring, 88.4%, and
list optimization, 103.3% along with early stage revenue from marketing research
services and data enhancement services that the Company recently introduced.
Cost of Revenue. Cost of revenue increased 72.0% to $3.2 million for the
year ended December 31, 1996 from $1.9 for the year ended December 31, 1995,
primarily due to increased costs associated with the Company's decision to hire
additional data processing staff to support growth in the Company's client base
and enhancements to the Company's database. Cost of revenue decreased as a
percentage of revenue to 18.5% from 20.2%.
Selling and Marketing Expenses. Selling and marketing expenses increased
82.4% to $4.5 million for the year ended December 31, 1996 from $2.5 million for
the year ended December 31, 1995, principally due to increased costs associated
with the Company's decision to hire additional sales and marketing staff to
support the growth in the Company's client base. Selling and marketing expenses
decreased as a percentage of revenue to 25.6% from 26.3%.
General and Administrative Expenses. General and administrative expenses
increased 90.2% to $2.7 million for the year ended December 31, 1996 from $1.4
million for the year ended December 31, 1995, primarily due to the addition of a
Chief Operating Officer and employee bonuses during the year and, to a lesser
extent, increased employee benefits associated with increased staff. General and
administrative expenses increased slightly as a percentage of revenue to 15.3%
from 15.1%.
Research and Development Expenses. Research and development expenses
increased 86.9% to $761,000 for the year ended December 31, 1996 from $407,000
for the year ended December 31, 1995, principally due to increased costs
associated with hiring increased research and development staff to pursue basic
research and customized modeling. Research and development expenses decreased
slightly as a percentage of revenue to 4.3% from 4.4%.
Interest and Other Income (Expense). Net interest income and expense
decreased 41.4% to ($116,000) for the year ended December 31, 1996 from
($198,000) for the year ended December 31, 1995, primarily due to the retirement
of the Company's subordinated debentures and due to increased interest income
earned on higher Company cash balances resulting from the Company's Offering and
ordinary business operations.
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Provision for Income Taxes. Provision for income tax expense increased to
$2.4 million for the year ended December 31, 1996 from $550,000 for the year
ended December 31, 1995, primarily due to the utilization of all available net
operating loss carryforwards during 1995.
Fiscal Year 1995 Compared to Fiscal Year 1994
Revenue. Revenue increased 44.6% to $9.3 million in 1995 from the $6.5
million in 1994. This increase was principally due to increased demand for the
Company's prospect lists from existing and new clients, which were approximately
equal in magnitude. To a lesser extent, demand for housefile scoring increased
as the Company's clients sought to improve returns on their mailings in response
to higher postal and paper costs.
Cost of Revenue. Cost of revenue increased 27.9% to $1.9 million in 1995
from $1.5 million in 1994, primarily due to increased costs associated with the
Company's decision to hire additional data processing staff to support growth in
the Company's client base. Cost of revenue decreased as a percentage of revenue
to 20.2% from 22.9%.
Selling and Marketing Expenses. Selling and marketing expenses increased
65.8% to $2.5 million from $1.5 million for 1994, principally due to growth in
the Company's client base and, to a lesser extent, the Company's decision to
increase the ratio of selling staff to clients. Selling and marketing expenses
increased as a percentage of revenue to 26.3% from 23.0%.
General and Administrative Expenses. General and administrative expenses
increased 68.0% to $1.4 million in 1995 from $838,000 in 1994, principally due
to the addition of a Chief Operating Officer and, to a lesser extent, increased
employee benefits associated with increased staff and the expense of the
employee savings plan. General and administrative expenses increased as a
percentage of revenue to 15.1% from 13.0%.
Research and Development Expenses. Research and development expenses
increased 55.3% to $407,000 in 1995 from $262,000 in 1994, principally due to
increased costs associated with hiring additional research and development staff
to improve service to Abacus Alliance members. Research and development expenses
increased as a percentage of revenue to 4.4% from 4.1%.
Interest and Other Income (Expense). Interest expense decreased 38.7% to
($198,000) in 1995 from ($323,000) in 1994 due to a reduction in the outstanding
balances on the Company's debentures.
Provision for Income Taxes. Provision for income tax expense increased to
$550,000 in 1995 from $60,000 in 1994, due to increased pretax income in 1995 as
well as the utilization of all remaining net operating loss carryforwards during
1995. At December 31, 1995, the Company had no remaining net operating loss
carryforwards or tax credit carryforwards as such carryforward benefits had been
fully realized. At December 31, 1995, the Company had deferred tax assets
associated with future tax deductions of $120,000, against which no valuation
allowance was recorded. At December 31, 1994, the Company had deferred tax
assets of $510,000, primarily resulting from net operating loss carryforwards,
which were offset by a valuation allowance. This valuation allowance was
recorded by the Company based on the weight of available evidence, both positive
and negative, of the likelihood of future realization of these assets. Based on
this evidence, the Company determined it was more likely than not that such
benefits would not be realized. The Company based this conclusion on its limited
history of profitable operations, uncertainty regarding the market conditions
within the industry, and the uncertainty regarding the market impact of recent
and significant increases in postal rates and paper costs. The Company believes
that no valuation allowance was appropriate at December 31, 1995 because of the
Company's conclusion at such time that, based upon its strong earnings
performance during 1995, it was more likely than not that its future tax
benefits of $120,000 would be realized.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced and expects to continue to experience
significant quarterly variations in operating results, principally as a result
of the seasonal nature of the catalog industry.
9
<PAGE> 11
Other factors which can result in quarterly variations include the timing and
amount of new business generated by the Company, the timing of new product
introductions, the Company's revenue mix, the timing of additional selling,
general and administrative expenses to support the anticipated growth and
development of new business units and the competitive and fluctuating economic
conditions in the direct marketing industry. The Company has historically
generated higher revenue in the third and fourth quarters due to increased
client mailing activity prior to the holiday season.
The Company typically expands its operations in the first quarter to
support anticipated business growth beginning in the second quarter. As a
result, cost of revenue, selling, general and administrative costs typically
increase in the first quarter without a commensurate increase in revenue, which
results in decreased profitability for the first quarter versus the third and
fourth quarters of the previous fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded operations through cash flow from
operations and debt and equity financing.
Cash provided by operating activities was $4.0 million for the year ended
December 31, 1996 compared to $2.4 million for the same period in 1995. Cash
provided by operating activities was $2.1 million in 1994. The increases in each
period were due to higher net income before depreciation and amortization, which
was partially offset by the cash used for working capital. The working capital
increases were principally related to higher accounts receivable balances
resulting from increases in net revenue.
Cash used for investing activities was $1.5 million for the year ended
December 31, 1996 compared to $642,000 for the same period in 1995. Cash of
$261,000 was provided by investing activities in 1994. These activities
represent purchases and maturities of U.S. Treasury Bills as well as
expenditures necessary to support growth in the Company's revenue. During the
period January 1, 1994 through December 31, 1996, the Company's capital
expenditures totaled $2.8 million.
Cash provided by financing activities was $2.1 million compared to $2.3
million used in the same period in 1995. Cash used by financing activities was
$572,000 in 1994. The increase in 1996 was due to the net proceeds from the
Offering partially offset by cash used to retire long term debt. In 1995 and
1994 cash was used principally to retire long term debt and to redeem Series A
Preferred Stock.
The Company believes that its activities will continue to require increases
in capital equipment expenditures. The Company, though, believes that the funds
generated from operations will be sufficient to finance its current operations
and planned capital expenditures at least through 1997.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included in Item 13.
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
10
<PAGE> 12
PART III
In accordance with General Instruction E(3), the information called for by
Part III (Items 9 through 12) is incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934 in connection with the Company's 1996
Annual Meeting of Stockholders.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a)1. Financial Statements. The following Financial Statements of the Company
(which appear beginning at sequential page number 14) are included herein:
Report of Independent Accountants
Balance Sheet -- December 31, 1996 and 1995
Statement of Operations -- Years Ended December 31, 1996, 1995 and 1994
Statement of Changes in Stockholders' Equity (Deficit) -- Years Ended
December 31, 1996, 1995 and 1994
Statement of Cash Flows -- Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Schedules, for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission, have been omitted because
they are not applicable or the required information is shown in the Financial
Statements or the Notes thereto.
2. Exhibits:
<TABLE>
<CAPTION>
<C> <S>
3.01 -- Certificate of Incorporation of Abacus Direct
Corporation. Incorporated by reference to Exhibit 3.01 to
the Registration Statement on Form SB-2 (Registration No.
333-5380) filed by the Company on August 7, 1996 as
amended (the "Registration Statement").
3.02 -- By-laws of Abacus Direct Corporation. Incorporated by
reference to Exhibit 3.02 to the Registration Statement.
10.01 -- Amended and Restated 1989 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.01 to the
Registration Statement.
10.02 -- 1996 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.02 to the Registration Statement.
10.03 -- Employment Agreement dated August 6, 1996 between the
Company and M. Anthony White. Incorporated by reference
to Exhibit 10.03 to the Registration Statement.
10.04 -- Employment Agreement dated August 6, 1996 between the
Company and Daniel C. Snyder. Incorporated by reference
to Exhibit 10.04 to the Registration Statement.
10.05 -- Employment Agreement dated August 6, 1996 between the
Company and Karl M. Friedman. Incorporated by reference
to Exhibit 10.05 to the Registration Statement.
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
<C> <S>
10.06 -- Lease dated November 19, 1996, as amended, between
Sheridan Realty Partners, L.P. and the Registrant for
suites 100, 200, 210 and 310, Sheridan Park One, 8774
Yates Drive, Westminster, CO 80030. (Appearing at
sequential page number 26).
10.07 -- Agreement of Sublease dated May 21, 1991, as extended and
modified, between Riverbank Realty Company and Abacus
Colorado for a portion of the fifteenth floor at 590
Fifth Avenue, New York, New York. Incorporated by
reference to Exhibit 10.09 to the Registration Statement.
10.08 -- Form of Indemnification Agreement entered into between
the Company and each of its officers and directors.
Incorporated by reference to Exhibit 10.10 to the
Registration Statement.
10.09 -- Form of agreement between the Company and members of the
Abacus Alliance. Incorporated by reference to Exhibit
10.11 to the Registration Statement.
10.10 -- Registration Rights Agreement dated as of August 5, 1996
among the Company and certain shareholders of the Company
named therein. Incorporated by reference to Exhibit 10.18
to the Registration Statement.
10.11 -- Forms of Stock Option Agreements used under the Amended
and Restated 1989 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.19 to the
Registration Statement.
27.01 -- Financial Data Schedule.
</TABLE>
(b) Reports of Form 8-K:
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 26, 1997 ABACUS DIRECT CORPORATION
By: /s/ M. ANTHONY WHITE
---------------------------------
M. Anthony White
Chairman of the Board and Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Abacus and in
the capacities and on the dates indicated.
<TABLE>
<S> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ M. ANTHONY WHITE Chairman of the Board and Chief March 26, 1997
- ----------------------------------------------------- Executive Officer and
M. Anthony White Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ KARL M. FRIEDMAN Senior Vice March 26, 1997
- ----------------------------------------------------- President -- Finance and
Karl M. Friedman Director
DIRECTORS:
/s/ DANIEL C. SYNDER President, Chief Operating March 26, 1997
- ----------------------------------------------------- Officer and Director
Daniel C. Synder
/s/ FRANK KENNY Director March 26, 1997
- -----------------------------------------------------
Frank Kenny
/s/ ANTONY H. LEE Director March 26, 1997
- -----------------------------------------------------
Antony H. Lee
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Abacus Direct Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Abacus Direct
Corporation at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
January 30, 1997
Boulder, Colorado
<PAGE> 16
ABACUS DIRECT CORPORATION
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,923,934 $1,345,479
Accounts receivable (less allowance for doubtful accounts
of $375,273 and $126,152 at December 31, 1996, and
1995, respectively).................................... 3,734,646 2,396,887
Prepaid expenses and other assets......................... 260,193 121,259
Deferred tax assets....................................... 284,000 120,000
----------- ----------
Total current assets.............................. 10,202,773 3,983,625
Note receivable from stockholder............................ 37,500 37,500
Property and equipment, net................................. 1,823,534 1,028,694
----------- ----------
$12,063,807 $5,049,819
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 224,901 $ 79,385
Accrued expenses:
Sales commissions...................................... 165,024 53,164
Bonuses................................................ 647,395 194,787
Vacations.............................................. 261,355 142,333
Other accruals......................................... 435,908 124,454
Current maturities of long-term debt...................... 12,580 604,522
Income taxes payable...................................... 276,277 360,700
----------- ----------
Total current liabilities......................... 2,023,440 1,559,345
Long-term debt.............................................. 28,652 2,300,689
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.001 par value; 25,000,000 shares
authorized; 9,501,072 and 9,046,527 shares issued and
outstanding at December 31, 1996 and 1995,
respectively........................................... 9,501 9,046
Additional paid-in capital................................ 5,233,479 276,704
Retained earnings......................................... 4,768,735 904,035
----------- ----------
Total stockholders' equity........................ 10,011,715 1,189,785
----------- ----------
$12,063,807 $5,049,819
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
ABACUS DIRECT CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenue................................................... $17,532,006 $9,330,942 $6,451,054
Cost of revenue........................................... 3,243,949 1,886,430 1,474,806
----------- ---------- ----------
Gross profit.................................... 14,288,057 7,444,512 4,976,248
----------- ---------- ----------
Operating expenses:
Selling and marketing................................... 4,480,204 2,456,207 1,481,257
General and administrative.............................. 2,677,674 1,407,596 838,125
Research and development................................ 760,572 406,966 262,019
----------- ---------- ----------
Total operating expenses........................ 7,918,450 4,270,769 2,581,401
----------- ---------- ----------
Income from operations.................................... 6,369,607 3,173,743 2,394,847
----------- ---------- ----------
Interest and other income (expense), net.................. (116,001) (198,063) (323,116)
----------- ---------- ----------
Income before income taxes................................ 6,253,606 2,975,680 2,071,731
Provision for income taxes................................ (2,388,906) (550,000) (60,000)
----------- ---------- ----------
Net income................................................ 3,864,700 $2,425,680 $2,011,731
=========== ========== ==========
Net income per common share............................... $ 0.40 $ 0.26 $ 0.22
=========== ========== ==========
Weighted average number of common and common equivalent
shares outstanding...................................... 9,682,003 9,256,312 9,194,227
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
ABACUS DIRECT CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... 2,163,780 $2,164 $ 220,869 $(3,533,376) $(3,310,343)
Conversion of preferred stock to common
stock................................ 6,156,151 6,156 16,644 22,800
Exercise of stock options.............. 774,209 774 42,237 43,011
Net income............................. 2,011,731 2,011,731
--------- ------ ---------- ----------- -----------
Balance at December 31, 1994........... 9,094,140 9,094 279,750 (1,521,645) (1,232,801)
Repurchase of common stock............. (48,963) (49) (3,120) (3,169)
Exercise of stock options.............. 1,350 1 74 75
Net income............................. 2,425,680 2,425,680
--------- ------ ---------- ----------- -----------
Balance at December 31, 1995........... 9,046,527 9,046 276,704 904,035 1,189,785
Issuance of common stock, net.......... 454,545 455 4,956,775 4,957,230
Net income............................. 3,864,700 3,864,700
--------- ------ ---------- ----------- -----------
Balance at December 31, 1996........... 9,051,072 $9,501 $5,233,479 $ 4,768,735 $10,011,715
========= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
ABACUS DIRECT CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $3,864,700 $2,425,680 $2,011,731
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 683,411 464,930 378,908
Loss on sale or disposal of equipment.................. 8,846 5,402 32,456
Provision for doubtful accounts receivable............. 249,121 3,787 29,350
Deferred tax assets.................................... (164,000) (120,000) --
Changes in:
Accounts receivable................................. (1,586,880) (993,479) (366,860)
Prepaid expenses and other assets................... (138,934) (34,752) (40,540)
Accounts payable.................................... 145,516 15,496 44,099
Accrued expenses.................................... 994,944 287,831 (17,711)
Income taxes payable................................ (84,423) 360,700 --
---------- ---------- ----------
Net cash provided by operating activities...... 3,972,301 2,415,595 2,071,433
---------- ---------- ----------
INVESTING ACTIVITIES
Maturities of marketable securities...................... -- -- 906,205
Purchases of property and equipment...................... (1,491,609) (640,213) (645,242)
Proceeds from sale or disposal of equipment.............. 4,512 6,010 --
Note receivable from stockholder......................... -- (7,500) --
---------- ---------- ----------
Net cash provided by (used in) investing
activities................................... (1,487,097) (641,703) 260,963
---------- ---------- ----------
FINANCING ACTIVITIES
Principal payments on long-term debt..................... (2,863,979) (581,085) (627,960)
Issuances (repurchases) of stock......................... 4,957,230 (3,094) 55,811
Redemption of Series A preferred stock................... -- (1,700,000) --
---------- ---------- ----------
Net cash provided by (used in) financing
activities................................... 2,093,251 (2,284,179) (572,149)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... 4,578,455 (510,287) 1,760,247
Cash and cash equivalents at beginning of period......... 1,345,479 1,855,766 95,519
---------- ---------- ----------
Cash and cash equivalents at end of period............... $5,923,934 $1,345,479 $1,855,766
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................ $ 209,655 $ 281,873 $ 323,197
Income taxes paid........................................ 2,601,231 309,000 56,785
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligations incurred....................... $ -- $ -- $ 60,346
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abacus Direct Corporation ("Abacus" or the "Company"), is a leading
provider of specialized consumer information and analysis for the direct
marketing industry, specifically the catalog industry. The Company provides its
services through its proprietary database and advanced modeling technology.
REVENUE RECOGNITION
The Company generally provides services to its clients that result in a
deliverable product in the form of marketing data or customized written reports.
The Company's clients are billed and revenue is recognized when such product is
shipped to a client.
CASH EQUIVALENTS
Cash equivalents consist of money market investments purchased with
original maturities of three months or less. Such cash equivalents aggregated
approximately $5,258,000 and $500,000 at December 31, 1996 and 1995,
respectively. Cash equivalents are carried at amortized cost which approximates
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Office and data processing equipment........................ 3-10 years
Computer software........................................... 3 years
Leasehold improvements...................................... Lease term
</TABLE>
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
CONCENTRATIONS OF CREDIT RISK
The Company's customers are primarily comprised of large direct-marketing
companies. The Company performs periodic credit evaluations of its customers'
financial condition and does not generally require collateral.
ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as well as the reported amounts of revenue
and expenses. Significant estimates have been made by management in several
areas including the collectibility of accounts receivable. Actual results could
differ from those estimates making it reasonably possible that a change in these
estimates could occur in the near term.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average
number of common shares outstanding and gives effect to certain adjustments
described below. Common equivalent shares are not included in the per share
calculation where the effect of their inclusion would be antidilutive, except
that, in conformity with SEC requirements, 1996, 1995 and 1994 net income per
common share
<PAGE> 21
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
include common and common equivalent shares issued during the twelve-month
period prior to the filing of the Company's September 1996 initial public
offering have been included in the calculation as if they were outstanding for
all periods, using the treasury stock method and the initial public offering
price.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, short-term receivables and payables and long-term debt, approximate fair
values.
STOCK COMPENSATION PLANS
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock option plans. The Company has adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Office and data processing equipment.................... $ 2,839,246 $ 1,933,990
Computer software....................................... 629,979 169,473
Leasehold improvements.................................. 369,250 269,223
----------- -----------
3,838,475 2,372,686
Accumulated depreciation and amortization............... (2,014,941) (1,343,992)
----------- -----------
Property and equipment, net............................. $ 1,823,534 $ 1,028,694
=========== ===========
</TABLE>
<PAGE> 22
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
-------- ----------
<S> <C> <C>
Subordinated Notes to stockholders dated December 15, 1992,
interest at 8.51% (increased to prime plus 2% on December
1, 1995) principal and interest payable quarterly based
on cash flows, original maturity November 1997,
unsecured................................................ $ -- $ 715,684
Subordinated Notes to stockholders dated December 5, 1991,
interest at 8.51% (increased to prime plus 2% on December
1, 1995) principal and interest payable quarterly based
on cash flows, original maturity November 1997,
unsecured................................................ -- 1,075,929
Subordinated Notes to stockholders dated November 30, 1990,
interest at 8.51% (increased to prime plus 2% on December
1, 1995) principal and interest payable quarterly based
on cash flows, original maturity November 1997,
unsecured................................................ -- 1,061,076
Capital leases............................................. 41,232 52,522
-------- ----------
41,232 2,905,211
Less current portion....................................... (12,580) (604,522)
-------- ----------
$ 28,652 $2,300,689
======== ==========
</TABLE>
In October 1996, the Company retired all of its outstanding subordinated
debentures totaling $2,445,000. There were no penalties associated with the
early retirement of such subordinated debentures.
Future minimum payments under capitalized lease obligations as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $16,447
1998........................................................ 16,447
1999........................................................ 15,460
-------
48,354
Less: amount representing interest.......................... (7,122)
-------
Present value of minimum lease payments..................... $41,232
=======
</TABLE>
Property and equipment includes approximately $63,000 at December 31, 1996
and 1995, for leases that have been capitalized. Accumulated depreciation for
these assets is approximately $32,000 and $19,000 at December 31, 1996 and 1995,
respectively. Amortization of these assets is included in depreciation expense.
4. STOCK OPTION PLAN
1989 Plan
The Company's Amended and Restated 1989 Stock Option Plan (the 1989 Plan)
provided for the granting of options to purchase up to 1,836,000 shares of
Common Stock to key employees and others associated with the Company. The
exercise price per share of a nonqualified stock option to directors or
consultants could not be less than 85% of the fair market value at the time of
grant as determined by
<PAGE> 23
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the board of directors. The exercise price per share of an incentive stock
option to key employees could not be less than 100% of the fair market value at
the time of grant. In 1994, the 1989 Plan was amended to provide for immediate
vesting in all stock options with the Company having certain repurchase rights
at the price paid by optionee. These repurchase rights generally lapse over a
five-year period. The Board of Directors has resolved that no additional options
would be granted from this plan after September, 1996.
1996 Plan
In August 1996, the Company adopted a stock incentive plan with 400,000
shares reserved for issuance to employees and directors of the Company. Options
granted under this plan expire ten years from the date of grant and generally
vest over a period of four years.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
-------- --------------
<S> <C> <C>
Outstanding at December 31, 1993............................ 719,923 .06
Granted................................................... 64,006 .06
Exercised................................................. (774,209) .06
-------- -----
Outstanding December 31, 1994............................... 9,720 .06
Granted (445,819 were non-qualified)...................... 502,519 1.32
Forfeited................................................. (945) .06
Exercised................................................. (1,350) .06
-------- -----
Outstanding December 31, 1995............................... 509,944 1.30
Granted................................................... 235,000 8.86
Forfeited................................................. (675) 1.32
Exercised................................................. -- --
-------- -----
Outstanding December 31, 1996............................... 744,269 3.69
======== =====
</TABLE>
The following table summarizes information about exercisable stock options
as of the following dates:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
December 31, 1994........................................... 3,542 $ .06
December 31, 1995........................................... 4,876 .06
December 31, 1996........................................... 102,479 1.25
</TABLE>
<PAGE> 24
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF OUTSTANDING REMAINING
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE
--------------- ----------- ----------------
<C> <C> <C>
$ .06 7,425 5.18
1.32 501,843 8.69
4.20 135,000 9.34
14.00 90,000 9.74
21.75 4,000 9.78
27.75 6,000 9.85
------- -----
744,268 8.91
======= =====
</TABLE>
At December 31, 1996 there were 390,000 shares available for grant under
the stock option plan.
The Company applies APB Opinion 25 in accounting for its stock compensation
plans, and no compensation expense has been recognized in the financial
statements. Had compensation expense for the Company's stock option plan been
determined based on the fair values at the grant dates for awards under the plan
consistent with the method of accounting prescribed by FASB Statement 123, the
Company's net income and income per share would have been decreased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Net income.............................. As reported $3,864,700 $2,425,680
Pro forma 3,680,682 2,407,639
Net income per common share............. As reported $ 0.40 $ .26
Pro forma .38 .26
</TABLE>
In accordance with the guidance provided under SFAS 123, fair values are
based on minimum values. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December 31,
1996: dividend yield of zero; expected volatility of .784; risk-free interest
rates ranging from 6.03% to 6.25%; and an expected term of three years. The
risk-free rate used in the calculation is the yield on the grant date of a U.S.
Treasury Note with a maturity equal to the expected term of the option.
The weighted average fair value of options granted during the year ended
December 31, 1996 and 1995 was $6.29 per share and $.36 per share, respectively.
<PAGE> 25
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The Company's provision for income taxes is comprised of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- -------
<S> <C> <C> <C>
Current tax expense
Federal......................................... $2,154,730 $ 590,000 $50,000
State........................................... 284,176 80,000 10,000
---------- --------- -------
Total current expense............................. 2,438,906 670,000 60,000
---------- --------- -------
Deferred tax benefit
Federal......................................... (50,000) (110,000) --
State........................................... -- (10,000) --
---------- --------- -------
Total deferred tax benefit........................ (50,000) (120,000) --
---------- --------- -------
Total provision for income taxes.................. $2,388,906 $ 550,000 $60,000
========== ========= =======
</TABLE>
The Company's deferred tax assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Allowance for doubtful accounts............................. $142,300 $ 45,000
Depreciation and amortization............................... 26,700 35,000
Accruals and other.......................................... 115,000 40,000
-------- --------
$284,000 $120,000
======== ========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
U.S. federal income tax expense at statutory
rate......................................... $2,126,226 $1,011,731 $ 704,389
Increases (decreases) resulting from:
State income taxes, net of federal benefit... 172,614 62,435 6,523
Utilization of net operating loss
carryforwards and research and development
credits................................... (20,000) (510,170) (663,841)
Nondeductible items.......................... 62,081 14,255 12,929
Other........................................ 47,985 (28,251)
---------- ---------- ---------
Provision for income taxes..................... $2,388,906 $ 550,000 $ 60,000
========== ========== =========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space under certain non-cancelable operating
leases which expire through September 30, 1999 and provide for options to renew
at the end of the primary terms. Rent expense under these operating leases
during the years ended December 31, 1996 and 1995 was $253,903 and $210,232,
respectively. Future minimum payments under these operating leases as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 370,158
1998........................................................ 387,489
1999........................................................ 274,453
----------
$1,032,100
==========
</TABLE>
<PAGE> 26
ABACUS DIRECT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company implemented a 401(K) plan for the benefit of its
employees. The Company matches 50% of employee contributions up to 6% of an
individual's salary under this plan. During 1996 and 1995, the Company's
matching contribution totaled $124,469, and $25,368, respectively.
7. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial data for the
years 1996 and 1995 (in thousands except per share amounts):
<TABLE>
<CAPTION>
EARNINGS
PER
GROSS NET COMMON
SALES PROFIT INCOME SHARE
------- ------- ------ --------
<S> <C> <C> <C> <C>
March 31, 1996.......................... $ 2,780 $ 2,033 $ 252 $.03
June 30, 1996........................... 3,267 2,544 383 .04
September 30, 1996...................... 6,368 5,514 1,975 .21
December 31, 1996....................... 5,117 4,197 1,255 .12
------- ------- ------
$17,532 $14,288 $3,865
======= ======= ======
March 31, 1995.......................... $ 1,738 $ 1,276 $ 181 $.02
June 30, 1995........................... 1,615 1,185 43 .00
September 30, 1995...................... 3,105 2,625 1,122 .12
December 31, 1995....................... 2,873 2,359 1,080 .11
------- ------- ------
$ 9,331 $ 7,445 $2,426
======= ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 10.06
LEASE
This lease is made and entered into this 19 day of November, 1996,
between Sheridan Realty Partners, L.P. ("Landlord"), and Abacus Direct,
("Tenant"). Trade Name: Abacus Direct.
PREMISES.
1.1 Landlord leases to Tenant approximately 27,218 square feet of net
rentable floor space on the 1st, 2nd and 3rd floors of Sheridan Park One (the
"Building"), 8774 Yates Drive, Westminister, CO 80030 be known as Suite Nos.
100, 200, 210 and 310 (the "Premises") as marked on Exhibit "A-1", to be used
for general offices and for no other purpose, on the terms and conditions set
forth herein. The Premises are more particularly described in Exhibit "A"
attached hereto.
TERM.
2.1 The term of this Lease shall be for three (3) years and zero (0)
months commencing on the 1st day of October, 1996, or such other date set forth
in Article 9 herein, and shall end on the 30th day of September, 1999 unless
sooner terminated pursuant to any of the provisions of this Lease. Landlord and
Tenant agree to execute a written addendum setting forth the commencement date
and termination date if different than set forth above.
BASE RENT.
3.1 Tenant agrees to pay to Landlord at the principal office of
Landlord, or to such other place or party as may be designated from time to
time by Landlord, as Base Rent for the Premises, without setoff, abatement or
deduction, and without demand, the total sum of $1,006,011.09 payable in
advance in equal monthly installments as follows:
Year 1: 10/1/96-12/31/96 $19,029.55/mo.
1/1/97-3/31/97 $24,610.10/mo.
4/1/97-9/30/97 $26,379.65/mo.
Year 2: 10/1/97-9/30/98 $29,490.76/mo.
Year 3: 10/1/98-1/31/99 $29,490.76/mo.
2/1/99-9/30/99 $30,620.26/mo.
LATE CHARGES.
4.1 If Tenant fails to make any installment of Base Rent, Additional
Rent or any sum due Landlord hereunder within five (5) days after such amount
is due, then such late payments shall bear a late charge equal to five percent
(5%) of the delinquent payment for the month or portion thereof after the date
such payment was due. Such late charge shall be earned from the day after the
due date to the date paid.
ADDITIONAL RENT.
5.1 In addition to all other payments to Landlord by Tenant required
hereunder, Tenant shall pay to Landlord in each year or portion thereof during
the term of this lease, or any renewal or extension thereof, as Additional
Rent, Tenant's Pro Rata Share of the amount by which the annual Operating
Expenses, as defined in Article 6, exceeds the budgeted operating expenses for
1996 of $6.26 for 18,931 square feet and the actual operating expenses for 1997
for 8,287 square feet of net rentable area per year. (The "Expense Stop").
5.2 The term, "Tenant's Pro Rate Share" means the ratio of the net
rentable square feet of floor space of the Premises to the total net rentable
square feet of floor space in the Building and is agreed to be seventy two
point nine one percent (72.91%).
1
<PAGE> 2
5.3 Landlord shall provide to Tenant a statement of Tenant's projected
Pro Rata Share of Operating Expenses at the beginning of each calendar year,
and Tenant shall pay the entire amount due and owing in twelve (12) equal
monthly installments together with the Base Rent payments, to Landlord at the
following address:
Attn: Ms. Colleen Overocker
Sheridan Realty Partners, L.P.
1800 Glenarm Place, Suite 1200
Denver, CO 80202
In the event Tenant's Pro Rata Share of the actual Operating Expenses for such
calendar year shall exceed the aggregate of the projected Operating Expenses
installments actually collected by the Landlord from Tenant, Tenant shall pay
to Landlord within thirty (30) days following Tenant's receipt of a statement,
the amount of such excess. However, if Tenant's Pro Rata Share of the actual
Operating Expenses for such calendar year is less than the aggregate of the
projected Operating Expenses installments actually collected by Landlord from
Tenant, Landlord shall pay to Tenant within thirty (30) days after Tenant's
receipt of the statement, the amount of the overpayment of the projected
Operating Expenses installments. If the expiration or termination of this Lease
occurs other than on the last day of a calendar year, the amount to be paid by
Tenant or reimbursed to Tenant hereunder shall be a pro rata amount based on
the ratio of the number of days of the term of this lease in such last calendar
year to 365 days.
5.4 The obligation of Tenant for the payment of Base Rent and
Additional Rent shall survive the termination of this Lease. Failure or delay
of Landlord in connection with this paragraph shall not constitute a waiver or
renunciation of its rights therein.
OPERATING EXPENSES.
6.1 For the purpose of this Lease, Operating Expenses shall mean the
total amounts incurred or paid by Landlord in connection with the ownership,
management, maintenance, repair, replacement and operation of the Building.
Such expenses shall include, but shall not be limited to: janitorial and
cleaning contracts; cleaning supplies and equipment; all management costs;
heating and air conditioning; electricity (other than additional electricity
supplied to and paid by individual tenants); maintenance or repair of the
exterior and interior of the Building including the roof and parking surface;
insurance premiums; landscaping services; leasing or amortization of capital
improvements made to the Building after the date of the execution of this Lease
that reduce the operating or energy expenses, improve life safety or security
systems, or are required under any governmental law or regulation that was not
applicable at the time the Building was constructed, such cost to be amortized
over such reasonable period as determined at Landlord's sole discretion,
together with interest on the unamortized balance at a rate equal to twelve
percent (12%) per annum at the time such capital improvement is put into
service; and taxes. Taxes, for the purposes of this paragraph, shall mean:
personal property taxes on property and equipment used in the operation and
maintenance of the Building; all real estate taxes including state equalization
factor, if any, payable (adjusted after protest or litigation, if any) for any
part of the term of this Lease, exclusive of penalties or discounts, on the
property; any taxes which shall be levied in lieu of any such taxes on the
gross rentals of the Building; any special assessments against the Property
which shall be required to be paid during the calendar year in respect to which
taxes are being determined; and expense of contesting the amount or validity of
any such taxes, charges, or assessments, including tax consultant fees, such
expense to be applicable to the period of the item contested.
SECURITY FOR PERFORMANCE OF LEASE.
7.1 On the date of the execution of this Lease, Tenant has deposited
with Landlord the sum of Sixteen thousand six hundred eighty and 63/100's
Dollars ($16,680.63), and will deposit with this Lease an additional Twelve
thousand eight hundred ten and 13/100's Dollars ($12,810.13) for a total of
Twenty nine thousand four hundred ninety and 76/100 Dollars ($29,490.76) as
security for the full and faithful performance by Tenant of the Terms of this
Lease. Landlord may use, apply, or retain the whole or any part of said
security to the extent required for the payment of any rent as to which Tenant
is in default, or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default in respect of any of the terms of this
Lease. Any sums so used or applied by Landlord from said security deposit shall
immediately be repaid by Tenant to Landlord after notice. Upon termination of
this Lease, Landlord shall return to Tenant within thirty (30) days the
security deposit hereinabove provided for, less any sums used or applied upon
any default and not reimbursed. In the event of a bona fide sale subject to
this Lease, Landlord shall have the right to transfer the security deposit to
the purchaser, and upon such transfer Landlord shall be released by tenant from
all liability for the return of such security.
2
<PAGE> 3
7.2 Intentionally omitted.
IMPROVEMENTS AND FINISH.
8.1 Landlord shall construct and finish the interior of the Premises
pursuant to the tenant finish allowance, attached hereto as Exhibit "B", and the
plans and specifications mutually approved in writing by Landlord and Tenant,
attached hereto as Exhibit "C". Any work in addition to any of the items
specifically enumerated in the plans and specifications shall be performed by
Tenant at Tenant's cost and expense. Any equipment or work other than those
items specifically enumerated in the plans and specifications which Landlord
installs or constructs on the Premises on Premises on Tenant's behalf shall be
paid for by Tenant within fifteen (15) days after receipt of a statement
thereof at cost. Any additional work requested by Tenant shall be commenced
only if approved by written change orders signed by both Landlord and Tenant.
POSSESSION.
9.1 If Landlord, for any reason whatsoever, cannot deliver possession
of the Premises to Tenant on or before the commencement date set forth in
Article 2, this Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom. In such event, the
rent as set forth herein shall not commence until possession of the Premises is
made available to Tenant. If the Premises are ready for occupancy prior to the
commencement date set forth in Article 2, and Tenant takes early occupancy, the
term of the lease shall commence on such occupancy date and shall continue
through the ending date set forth in Article 2, and Tenant shall pay rental for
such early period of occupancy at a rate proportionate to the rental reserved
herein during the first year of the Lease.
9.2 Possession of the Premises shall be deemed delivered when tendered
for occupancy and the tenant improvements agreed to between Landlord and Tenant
have been substantially and reasonably approved by Tenant completed. Tenant
agrees to take possession upon substantial completion. If only minor or
unsubstantial details of construction, decoration, or mechanical adjustments
remain to be completed on the Premises, then the commencement of the term of the
Lease shall not be delayed and the payment of rent under the Lease will
commence on the commencement date set forth in the Lease regardless of any
contrary provisions of the Lease. If a delay in substantial completion shall be
due to special work, changes, alterations, or additions to the Premises
required by or made by Tenant; or if such delay is due to Tenant's delay or
default in submitting plans, supplying information, approving plans or
specifications, or authorizing changes or otherwise; or if such delay is caused
by any other delay or default of Tenant, then the Premises shall be deemed
substantially complete and ready for occupancy on the commencement date.
ACCEPTANCE OF PREMISES.
10.1 By occupying the Premises, Tenant accepts the same and
acknowledges that the Premises are in the condition called for hereunder,
unless Tenant furnishes Landlord with a notice in writing specifying any defect
in the Premises within ten (10) days after taking possession thereof.
USE.
11.1 Tenant will occupy the Premises for general office use and for no
other purpose. Tenant will not use or permit in the premises anything that will
increase the rate of fire insurance thereon or which would prevent Landlord
from obtaining reduced rates for long term insurance policies, or maintain
anything that may be dangerous to life or limb, or in any manner, deface,
injure or commit waste in, on, or about said Building or any portion thereof, or
overload the floors, or permit any objectionable noise or odor to escape or be
emitted from said Premises, or permit anything to be done upon the Premises in
any way tending to create a nuisance or to disturb any other tenants of the
Building, or to injure the reputation of the Building or to use or permit the
use of the Premises for lodging or sleeping purposes, or for any immoral or
illegal purposes. Tenant will comply, at Tenant's own cost and expense, with all
3
<PAGE> 4
orders, notices, regulations, or requirements of any municipality, state or
other governmental authority respecting the use of the Premises.
SERVICES.
12.1 Landlord shall furnish elevator service, adequate water, climate
control and janitorial services during normal business hours as set forth in
the rules and regulations attached hereto as Exhibit "D". Such climate control
shall be furnished in accordance with said rules and regulations. The business
hours may be changed to other reasonable hours as solely prescribed by any
applicable policies or regulations adopted by any utility or governmental
agency. In no event shall hours be less than 8 a.m. to 6 p.m. daily Monday
through Friday excluding holidays, weekends and other times upon reasonable
notice by Tenant. Landlord shall not be liable for the stoppage or interruption
of any said services or utilities caused by riots, strikes, labor disputes,
accidents, necessary repairs or any conditions beyond Landlord's control.
Landlord shall reasonably determine as to the amount and kind of services and
utilities to be provided under the provisions hereof, and any additional
services or utilities required by Tenant shall be at Tenant's sole cost and
expense. Tenant agrees not to connect to or alter any utilities or equipment
provided by Landlord without obtaining Landlord's prior written consent.
USE OF ELECTRICITY.
13.1 Tenant's use of electricity in the Premises shall be for the
operation of building standard lighting, electrical fixtures, typewriters,
personal computers and other small office machines and lamps and shall not at
any time exceed the capacity of any of the electrical conductors and equipment
in or serving the Premises.
13.2 In order to ensure that such capacity is not exceeded and to avert
possible adverse effect on the Building's electrical service, Tenant shall not,
without Landlord's prior written consent in each instance, connect any
additional fixtures, appliance or equipment (other than normal office
electrical fixtures and copying machinery, lamps, typewriters, and similar
small office machines) to the Building's electric system of the Premises
existing at the commencement of the term hereof. If Landlord grants such
consent, the cost of all additional risers and other equipment required
therefore shall be paid as additional rent by Tenant to Landlord upon demand.
Furthermore, Tenant shall pay on demand as additional rent to Landlord the cost
of any electric current or other energy used and consumed by Tenant for any
other purpose, including, without limitation, the operation of heavy duty
accounting equipment, copy equipment and computer equipment.
13.3 Tenant shall pay as additional rent, on demand, the cost of any
metering which may be required by Landlord to measure any excess usage of
electricity, water or other utility or energy.
ALTERATIONS.
14.1 Tenant will make no alterations in, or additions to, the Premises
without obtaining the prior written consent of Landlord. Landlord may impose
such conditions on its consent as Landlord deems appropriate.
TENANT REPAIR.
15.1 If any of the elevators, or other apparatus, or elements of the
Building used for the purpose of climate control or operating the elevators, or
if the water pipes, drainage pipes, electric lighting or the room or outside
walls of the Building or parking facilities of Landlord become damaged or
destroyed through the negligence, carelessness or misuse of Tenant, its agents,
employees, or anyone permitted by Tenant to be in the Building, then the cost
of the necessary repairs, replacements or alterations shall be borne by Tenant,
who shall pay the same on demand to Landlord as Additional Rent.
15.2 Tenant shall keep the Premises in as good order, condition and
repair as when they were entered upon, loss by fire (unless caused by the
negligence of Tenant, its agents, employees or invitees), accident or ordinary
wear and tear excepted. If Tenant fails to keep the Premises in such good
order, condition and repair as required hereunder to the reasonable
satisfaction of Landlord, as soon as reasonably possible after written demand,
Landlord may restore the Premises to such good order and condition and make
such repairs without liability to Landlord and upon completion thereof, Tenant
shall pay to Landlord, as additional rent, upon demand, the cost of restoring
the Premises to such good order and condition as the making of such repairs.
4
<PAGE> 5
TRADE AND OTHER FIXTURES.
16.1 Any and all installations, alterations, changes, additions,
partitions, fixtures, or improvements to the Premises, other than Tenant's
trade fixtures, including, but not limiting the generality of the foregoing,
all fixtures, lighting fixtures, cooling equipment, built-ins, partitions, wall
coverings, tile, linoleum and power wiring shall be the property of the
Landlord upon any termination of this Lease. Notwithstanding anything herein
contained, Landlord shall be under no obligation to repair, maintain, or insure
such installation, changes, alterations, additions, partitions, fixtures, or
improvements made or installed by or on behalf of Tenant. Upon termination of
the Lease, or within thirty (30) days thereof, Landlord, at its sole
discretion, may remove all installations or alterations made by or on behalf of
Tenant pursuant to this Article and Landlord may elect to have the Premises
restored to their original condition, ordinary wear and tear expected. Tenant
agrees to pay to Landlord all costs and expenses of such removal and
restorations within five (5) days of receipt from Landlord of notice of said
expenses or costs incurred. The obligation to pay such expenses or costs shall
survive the termination of the Lease.
LIEN PROTECTION.
17.1 Tenant agrees that at no time during the term of this Lease will
Tenant permit a lien or encumbrance of any kind or nature to come into
existence against the Premises or the Building. If at any time a lien or
encumbrance is filed against the Premises, Tenant agrees it will deposit with
Landlord in cash an amount equal to one hundred fifty percent (150%) of the
amount of the lien and shall leave the same on deposit with Landlord until said
lien is discharged. Landlord shall have the option, but not the responsibility,
to satisfy any such lien or encumbrance, and if Landlord pays any such lien or
encumbrance, Tenant shall pay to Landlord as Additional Rent, the amount of
such payment on the next following day when monthly installments of rent are
due hereunder. If Landlord satisfies any such lien or encumbrance, it may make
such payment without inquiry into the accuracy of the amount of such lien or
encumbrance or the validity of the lien or encumbrance.
INSURANCE.
18.1 In addition to Tenant's obligation to pay its Pro Rata Share of
the cost of insurance pursuant to Article 6 hereof, Tenant shall pay all
premiums due in connection with the insurance Tenant is required to carry under
the terms of this Lease and shall furnish Landlord with copies of Certificate
of Insurance evidencing the payment thereof. All such policies shall be written
with companies satisfactory to Landlord and authorized to do business in the
State of Colorado. Landlord shall not unreasonably withhold its consent to the
placement of insurance with companies proposed by Tenant, so long as the
proposed companies have a rating of at least B XIII in the "Best's Key Rating
Guide".
18.2 During the term of this Lease, Tenant shall keep the Premises
insured for the protection of Landlord and Landlord's assignees who shall be so
named as additional insured in any such policies, by maintaining bodily injury
and property damage insurance including blanket contractual liability broad
form property damage, personal injury, completed operations products commercial
general liability form. Such insurance shall be written on a combined single
limit basis in an amount of not less than One Million Dollars ($1,000,000.00)
and such higher limits as the Landlord may reasonably require from time to
time. Tenant shall maintain, at its sole cost and expense, any other form or
forms of insurance in amounts and for such risks as Landlord may reasonably
require from time to time including but not limited to, insurance for the full
replacement cost of Tenant's personal property and fixtures located on the
Premises on an open perils basis insuring against "all risks of direct physical
loss." Workman's Compensation Insurance as required by statute including
employer's liability insurance in the limits of $100,000/$500,000/$100,000. All
policies of insurance required shall name Landlord as additional insured and
Tenant as insureds and provide that the proceeds of such insurance shall be
payable to Landlord and Tenant, as their interests may appear. Tenant shall
deliver to Landlord not more than thirty (30) days after execution of this
Lease and thereafter at least thirty (30) days prior to expiration of such
policy, Certificates of Insurance evidencing the above coverage which shall
expressly provide that at least thirty (30) days prior written notice shall be
given to Landlord in the event of a material alteration or cancellation of the
coverage.
18.3 If Tenant shall at any time fail, neglect, or refuse to provide
and maintain such insurance, Landlord shall have the option, but shall not be
required, to pay for such insurance and any amounts paid therefore by Landlord
shall be deemed additional rent due Landlord and shall be paid by Tenant to
Landlord at the next rental payment date after any such payment, with interest
thereon at the rate of eighteen percent (18%) per annum at the time that such
insurance is obtained.
18.4 Tenant agrees to pay any increase in premiums of insurance carried
by Landlord if, in the reasonable determination of Landlord, such increase is
reasonably and directly related or caused by Tenant's use of the Premises.
5
<PAGE> 6
WAIVER OF SUBROGATION.
19.1 The parties shall obtain from their respective property insurance
carriers Waivers of Subrogation against the other party, agents, employees,
and, as to Tenant, invitees. Neither party shall be liable to the other for any
loss or damage caused by fire or any of the risks enumerated in the standard
fire insurance policy with an extended coverage endorsement if such insurance
was obtainable at the time of such loss or damage.
CASUALTY DAMAGE.
20.1 In the event of fire or other casualty, against which Landlord is
insured, and which is not caused by the negligence of Tenant, Base Rent shall
abate in the proportion that the unusable portion of the Premises as reasonably
determined by Landlord is to the total area of the Premises until the Premises
are rebuilt, and upon receipt by Landlord of such insurance proceeds, Landlord
agrees that it will with reasonable diligence repair the Premises, unless
Tenant is obligated to repair under the terms hereof, or unless this Lease is
terminated as hereinafter provided, subject to the provisions of Article 20.2
and 20.3.
20.2 If the Premises are damaged or destroyed by any cause whatsoever,
and if, in the reasonable opinion of Landlord, the Premises cannot be rebuilt
or made fit for the purposes of Tenant within one hundred twenty (120) days of
the damage or destruction, Tenant at its option may terminate this Lease upon
30 days notice, or Landlord, instead of rebuilding or making the Premises fit
for Tenant, may at its option terminate this Lease by giving Tenant within
sixty (60) days after such damage and destruction, notice of termination, and
thereupon rent and any other payments for which Tenant is liable under this
Lease shall be apportioned and paid to the date of such damage and Tenant shall
immediately deliver up possession of the Premises to Landlord provided,
however, that those provisions of this Lease which are designated to cover
matters of terminations and thereafter, shall survive the termination hereof.
20.3 Irrespective of whether the Premises are damaged or destroyed, in
the event that fifty percent (50%) or more of the area in the Building is
damaged or destroyed by any cause whatsoever, and if, in the reasonable opinion
of Landlord, the said area cannot be rebuilt or made fit for the purpose of the
tenants of such space within one hundred eighty (180) days after the damage or
destruction, Tenant at its option may terminate this Lease upon 30 days notice,
or Landlord may at its option terminate this Lease by giving to Tenant within
sixty (60) days after such damage, notice of termination requiring it to vacate
the Premises sixty (60) days after delivery of the notice of termination and
thereupon rent and any other payments shall be apportioned and paid to the date
on which possession is relinquished and Tenant shall deliver up possession of
the Premises to Landlord in accordance with such notice or termination.
EMINENT DOMAIN.
21.1 If the Premises or a substantial part thereof, shall be taken in
eminent domain, or conveyed under threat of condemnation proceedings, then this
Lease shall forthwith terminate and end upon the taking hereof as if the
original term provided in said Lease expired at the time of such taking. If
only such part or portion of the Premises is taken which would not
substantially and materially interfere with or adversely affect the business of
the Tenant conducted at the Premises, then Landlord, at Landlord's option to be
exercised in writing within thirty (30) days of the taking thereof, may
repair, rebuild or restore the Premises, and this Lease shall continue in
effect. If, however, because of such taking, the Premises should be rendered
untenantable or partially untenantable, then the rent, or a portion thereof,
shall abate until the Premises shall have been restored.
21.2 In the event that an award is made for taking of such property and
parcels of the Premises or the Building in condemnation proceedings, Landlord
shall be entitled to receive and retain the amounts awarded or paid for such
taking or conveyance; provided, however, that Tenant shall be entitled to
receive and retain such amounts as are specifically awarded to it in such
proceedings because of the taking of its furniture, or fixtures, and its
leasehold improvements which have not become a part of the realty. It is
understood and agreed that any amounts specifically awarded in any such taking
for the damage to the business of Tenant, done on the Premises and awarded to
it as a result of interference with the access to the Premises or for any
other damage to said business and trade done at the Premises shall be the
property of Tenant, provided said award does not reduce the award to Landlord.
21.3 It is understood and agreed that in the event of the termination
of this Lease as provided under this paragraph, Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease and no right
or claim to any part of the award made on account thereof.
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INDEMNIFICATION AND WAIVER OF CERTAIN CLAIMS.
22.1 Tenant hereby agrees to indemnify and hold harmless Landlord, its
subsidiaries, Directors, Officers, Agents, Attorneys and Employees from and
against any and all damage, loss, liability, or expense including, but not
limited to, attorney's fees and legal costs suffered by same directly or by
reason of any claim, suit or judgement brought by or in favor of any person or
persons for damage, loss, or expense due to, but not limited to, bodily injury,
including death resulting anytime therefrom, and property damage sustained by
such person or persons which arises out of, is occasioned by, or is in any way
attributable to the use or occupancy of the Premises and adjacent areas by
Tenant, the acts or omissions of Tenant, its agents, employees or any
contractors brought onto the Premises by Tenant, except that caused by sole
negligence of Landlord or its employees and agents. Such loss or damage shall
include, but not be limited to, any injury or damage to Landlord's personnel
(including death resulting anytime therefrom) or real or personal property.
Tenant agrees that the obligations assumed herein shall survive this Lease.
22.2 Landlord shall not be liable for any damage or injury including
business interruption, either proximate or remote, occurring through or caused
by the carelessness, negligence or improper conduct on the part of any
co-Tenant or anyone other than Landlord, or for any damage to person or
property resulting from any condition of the Premises or other cause including,
but not limited to damage occasioned by defective electric wiring, breaking or
stoppage of plumbing or sewer, whether said breakage or stoppage resulted from
freezing or otherwise, not resulting from the negligence of Landlord. Tenant
shall give Landlord prompt notice of any defects in the Premises, except that
which results from Landlord's negligence.
RIGHT OF ENTRY.
23.1 Landlord may, upon reasonable prior notice to Tenant, exhibit the
Premises to prospective tenants during the last twelve (12) months of the term,
and to any prospective purchaser, mortgagee, or assignee of any mortgage on the
property and to others having a legitimate interest at any time in the event of
an emergency, and otherwise at reasonable times, to take any and all measures,
including inspections, repairs, alterations, additions and improvements to the
Premises or the Building, as may be necessary or desirable for the safety,
protection, or the preservation of the Premises of the Building of the
Landlord's possessive interest therein, or as may be necessary or desirable in
the operation or improvement of the Building or in order to comply with all
laws, orders, and requirements of governmental or other authority. Tenant,
pursuant to this Article 23, hereby waives any claim for damages for any injury
or inconvenience to or interference with Tenant's business, occupancy or quiet
enjoyment of the Premises.
SURRENDER OF PREMISES.
24.1 Tenant agrees to deliver, at the expiration of the Term hereof, or
earlier termination, the Premises in good repair and in a state of broom
cleanliness, subject to ordinary wear and tear.
DEFAULT BY TENANT.
25.1 The occurrence of any one or more of the following events shall
constitute a breach of the Lease and default by Tenant;
25.2 Failure by Tenant to pay when due any payment of rent, taxes, or
any other sum required to be paid by Tenant hereunder and such failure to pay
continues for a period of five (5) days from the date that such sum became due
and payable;
25.3 Vacation or abandonment of the Premises without the prior written
consent of Landlord;
25.4 Failure of Tenant to perform any one or more of its covenants and
agreements under this Lease within ten (10) days after written notice to Tenant
specifying the duties or covenants Tenant has failed to perform; provided,
however, that Tenant shall not be deemed to be in default under this Article if
Tenant shall, within said ten-day period, commence the cure of such default and
diligently prosecute the same to completion.
25.5 If Tenant or any guarantor of Tenant's obligations under this
Lease shall file a voluntary petition in bankruptcy or shall be adjudicated
bankrupt or insolvent; or shall take the benefit of any relevant legislation
that may be enforced for bankrupt or insolvent debtors; or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for statute, law, or
regulation; or if any proceeding shall be taken by Tenant or any Guarantor
hereof under and relevant bankruptcy act in force in any jurisdiction available
to Tenant or any Guarantor; or if Tenant or any Guarantor hereof shall seek,
consent, or acquiesce in the
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appointment of any trustee, receiver or liquidator of Tenant or any Guarantor
of all or any substantial part of his properties or of the Premises, or shall
make any general assignment for the benefit of creditors; or if petition shall
be filed against Tenant or any Guarantor seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future federal, state or other statute, law or
regulation and shall remain undismissed for an aggregate of sixty (60) days; or
if any trustee, receiver, or liquidator of Tenant or any Guarantor hereof or of
all or any substantial part of its properties or of the Premises shall be
appointed without the consent of acquiescence of Tenant or any Guarantor and
such appointment shall remain unvacated for an aggregate of sixty (60) days.
REMEDIES TO LANDLORD.
26.1 All rights and remedies of Landlord enumerated herein shall be
cumulative, and none shall exclude any other right or remedy allowed by law. In
addition to other remedies in this Lease provided, the Landlord shall be
entitled to the restraint by injunction of the violation or attempted violation
of any of the covenants, agreements, or conditions of this Lease.
26.2 Landlord shall have the right, as its election, in the event of
default by Tenant and upon giving prior written notice if required in Article
25.3 herein, to:
26.2.1 Institute suit against Tenant to collect each installment
of rent or other sum as it becomes due or to enforce any obligation under this
Lease;
26.2.2 Re-enter and take possession of the Premises and all
personal property therein and remove Tenant and Tenant's agents and employees
therefrom, and either (i) terminate this Lease and sue Tenant for damages or
breach and default under the Lease; or (ii) without terminating the Lease,
relet, assign, or sublet the Premises and personal property as the agent and
for the account of Tenant in the name of Tenant or otherwise on such terms and
conditions and for such rent as Landlord may deem best, and collect (a) the
rent therefrom, provided Landlord shall, in no way, be responsible or liable
for any failure to collect any rent due upon any such re-letting, and (b) an
amount equal to the then present value of the Base Rent and Additional Rent
provided in this Lease for the remainder of the Lease term, less the present
rental value of the Premises for the remainder of the term. In so acting,
Landlord shall not be deemed to have trespassed in any manner, nor shall
Landlord's actions be construed to be a waiver or relinquishment of any of
Landlords rights or remedies. In this event, the rents received on any such
re-letting shall be applied first to the expenses of re-letting and collecting
including, without limitation, all repossession costs, attorney's fees, court
costs, broker's commissions, alteration costs, and expenses of preparing the
Premises for re-letting, and thereafter for payment of the rent and any other
amounts payable to Tenant to Landlord. If the sum realized shall not be
sufficient to pay such rent and other charges, Tenant agrees to pay Landlord
within five (5) days after demand any such deficiency as it accrues.
26.3 In the event Landlord elects to re-enter or take possession of the
Premises, Tenant agrees to quit and peaceably surrender the Premises to
Landlord, and Landlord may enter upon and re-enter the Premises and possess and
repossess itself thereof, by force, summary proceedings, ejectment or
otherwise, and may dispossess and remove Tenant and may have, hold, and enjoy
the Premises and the right to receive all rental income of and from the same.
No such re-entry and taking of possession by Landlord shall be construed as an
election on Landlord's part to terminate or surrender this Lease unless
Landlord gives notice to Tenant specifically terminating the Lease, unless a
written notice of such intention is served on Tenant, notwithstanding the
service of Demand for the Payment of Rent and Possession, and Landlord and
Tenant expressly agree that the service of posting of such demand will not
constitute an election on the part of the Landlord to terminate this Lease.
26.4 If Landlord elects to terminate this Lease in accordance with the
provisions herein, Landlord shall be entitled to recover as damages attorneys'
fees and costs, the cost of removing Tenant, all costs of refurbishing and
repairing the Premises for re-letting, all sums due Landlord by Tenant.
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.
27.1 If Tenant shall default in the performance of any covenant or
provision of this Lease to be performed on Tenant's part, Landlord may, after
fifteen (15) days written notice to Tenant, or without notice if in Landlord's
option an emergency exists, perform the same for the account and at the expense
of Tenant. If Landlord shall incur any expense, including reasonable attorney's
fees, in instituting, prosecuting, or defending any action of Tenant, Tenant
shall reimburse Landlord for the amount of such expense with interest at the
rate of eighteen percent (18%) per annum from the date of Landlord's advance
or advances therefore. Should Tenant, pursuant to this Lease, become obligated
to reimburse or otherwise pay Landlord one or more sums of money pursuant to
this Article 27, the amount thereof
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shall by paid by Tenant to Landlord within two (2) days of Landlord's written
demand thereof, and if Tenant fails to make such payment, such failure shall be
deemed an event of default as set forth is Article 25 hereof. The provisions
hereof shall survive the termination of this Lease. The provisions hereof shall
neither impose a duty on Landlord nor excuse any failure on Tenant's part to
perform or observe any covenant or condition in this Lease contained on
Tenant's part to be performed or observed.
ASSIGNMENT AND SUBLEASE.
28.1 Tenant shall not voluntarily or by operation of law assign,
license, transfer, mortgage or otherwise transfer or encumber all or any part
of Tenant's interest in this Lease or in the Premises, shall not sell or
otherwise transfer more than 50% or the value of the assets of Tenant, and
shall not sublet or license all or any part of the Premises, without the prior
written consent of Landlord such consent shall not be unreasonably withheld in
each instance, and any attempted assignment, sale, transfer, mortgage,
encumbrance or subletting without such consent shall be wholly void. Without in
any way limiting Landlord's right to refuse to give consent for any other
reason or reasons, Landlord reserves the right to refuse to give such consent
if in Landlord's reasonable discretion and opinion the quality of business
operation of the Building is or may be in any way adversely affected during the
term of the Lease.
28.2 No subletting or assignment, even with the consent of Landlord,
shall relieve Tenant of its obligation to pay the Base Rent and Additional Rent
and to perform all of the other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any subletting, assignment, or other
transfer. Consent to one assignment, subletting or other transfer shall not be
deemed to constitute consent to any subsequent assignment, subletting or other
transfer.
SUBORDINATION, ESTOPPEL LETTER AND ATTORNMENT.
29.1 This Lease is subject and subordinate to all first mortgages or
first deeds of trust which now or hereafter may affect the Premises or the
building, and Tenant shall execute and deliver upon demand of Landlord any and
all instruments subordinating this Lease, in the manner requested by Landlord,
to any new or existing mortgage or deed of trust. In the event that Tenant's
interest is subordinated, said mortgagee shall agree that it shall not disturb
Tenant's possession, provided that Tenant is not in default under the terms and
condition of this Lease. Further, Tenant shall at any time and from time to
time, upon not less than five (5) 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) and the dates to which rent and other
charges are paid in advance, in any, and acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder,
or specifying such defaults, if any are claimed, and certifying as to such
other matters Landlord may reasonably request.
29.2 In the event that Landlord or its principal sells, conveys,
transfers or grants the Building or the Premises to any person, firm,
corporation, company, or entity during the term hereby demised, Tenant agrees
to attorn to such new owner, and Landlord and its principal shall be released
from performance hereunder.
QUIET ENJOYMENT.
30.1 So long as the Tenant shall observe and perform the covenants and
agreements binding on it hereunder, the Tenant shall, at all times during the
term herein granted, peacefully and quietly have and enjoy possession of the
Premises without any encumbrance or hindrance by, from, or through Landlord.
30.2 To the best of Landlord's knowledge, Suites 200 and 310 (totaling
7,992 rsf) meet building codes. Tenant warrants that the remaining Premises
(Suites 210 and 100 totaling 19,283 rsf) meet building codes. The Landlord
shall not require the Tenant to provide additional funds to meet any building
code or federal requirements other than those provided for in Paragraph 6.1.
HOLDING OVER.
31.1 Unless otherwise agreed to in writing by Landlord and Tenant, if
Tenant retains possession of the Premises or any part thereof after the
termination of the term, such holding over shall be deemed to be tenancy from
month-to-month at a monthly rental equal to one hundred fifty percent (150%) of
the monthly installment of Base Rent due under the terms of the Lease from the
month next preceding the commencement of the holdover period, and Tenant shall
remain liable for all other payments provided for hereunder, and such holding
over shall be subject to all of the other terms and conditions of the Lease. In
addition to rent, Tenant agrees to pay the Landlord for all damages,
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consequential as well as direct, sustained by Landlord resulting or arising
from tenant's possession. No such holding over shall be deemed to constitute a
renewal or extension of the term of the Lease.
32.1 Intentionally omitted.
NOTICES.
33.1 Any notice required or permitted hereunder or which any part
elects to give shall be in writing and delivered either personally to the other
party or the other party's authorized agent set forth below (or as changed by
written notice), or by depositing such notice in the United States Certified
Mail, Return Receipt Requested, postage fully prepaid, to the person at the
address set forth below, or to such other address as either party may later
designate in writing:
Landlord: Sheridan Realty Partners, L.P.
1800 Glenarm Place, Suite 200
Denver, CO 80202
Tenant: Abacus Direct
8774 Yates Drive, Suite 200
Westminster, CO 80030
DEFINITION OF LANDLORD.
34.1 The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of the Landlord are concerned, shall be limited to mean
and include only the owner or owners of the Landlord's interest in this Lease
at the time in question, and in the event of any transfer or transfers of such
interest, the Landlord herein named (and in case of any subsequent transfer,
then transferor) shall be automatically freed and relieved from and after the
date of such transfer of all liability as respects the performance of any
covenants or agreements on the part of the Landlord contained in this Lease
thereafter to be performed.
WAIVER.
35.1 No waiver or any breach of any one of the agreements, terms,
conditions, or covenants of this Lease by Landlord or Tenant shall be deemed to
imply or constitute a waiver of any other agreement, term, condition, or
covenant of this Lease. The failure of either party to insist on strict
performance of any agreement, term, condition, or covenant, herein set forth,
shall not constitute or be construed as a waiver of the rights of either or of
the other thereafter to enforce any other default of such agreement, term,
condition, or covenant; neither shall such failure to insist upon strict
performance be deemed sufficient grounds to enable either party hereto to
forego or subvert or otherwise disregard any other agreement term, condition,
or covenant of the Lease.
SUCCESSOR.
36.1 All of the agreements, terms, conditions, and covenants set forth
in this Lease shall inure to the benefit of and be binding upon the heirs legal
representatives, successors, executors, and assigns of the parties, except that
no assignment or subletting by Tenant in violation of the provisions of this
Lease shall vest any rights in the assignee or in
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CORPORATE RESOLUTION.
37.1 If a corporation executes this Lease as a Tenant, Tenant shall
promptly provide Landlord with certified corporate resolutions attesting to the
authority of the officers to execute this Lease on behalf of such corporation.
ENFORCEMENT OF LEASE - ATTORNEY'S FEES.
38.1 In the event that either Landlord or Tenant commences any action
for the enforcement of or arising out of a breach of the terms of this Lease,
then the party who is awarded judgment in such action shall be awarded, in
addition to any other award made thereof, an amount to be fixed by the Court
for court costs and reasonable attorney's fees.
INVALIDITY OF PARTICULAR PROVISIONS.
39.1 If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule,
decision, or regulation of any governmental body or entity, the intention of
the parties hereto is that the remaining parts or provisions of this Lease
shall not be affected thereby.
ARTICLE HEADINGS.
40.1 The article headings throughout this Lease are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction, or
meanings of the provisions of this Lease.
GOVERNING LAW.
41.1 This Lease shall be deemed to have been made and shall be
construed in accordance with the laws of the State of Colorado.
TIME.
42.1 Time is of the essence of this Agreement.
RECORDING OF LEASE.
43.1 This lease shall not be recorded by either Landlord or Tenant
without the prior written consent of the other.
EXCULPATION.
44.1 Not withstanding anything to the contrary contained herein,
Landlord's liability under this Lease shall be limited strictly to its interest
in the Building.
RULES AND REGULATIONS.
45.1 Tenant agrees that Tenant, Tenant's employees and agents or any
other permitted by Tenant to occupy or enter the Premises shall abide by the
rules and regulations attached hereto as Exhibit "D" and made a part hereof.
Landlord shall have the right to amend, modify or change in any way the rules
and regulations provided that said amendments are not inconsistent with the
terms of this Lease, and Tenant agrees to comply with all such rules and
regulations upon notice from Landlord thereof. A breach of any of such Rules
and Regulations shall be deemed a default under the Lease and Landlord shall
have all remedies as set forth in Article 26.
PARKING.
46.1 Tenant and its employees and invitees shall have the non-exclusive
privilege to use non-reserved parking spaces in common with other tenants of
Landlord pursuant to the rules and regulations relating to parking adopted by
Landlord from time to time. Tenant agrees not to overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in its
discretion to determine whether parking facilities are becoming crowded and, in
such event, to allocate specific parking spaces among Tenant and other tenants
or to take my other steps necessary to correct such condition.
<PAGE> 12
SIGNS.
47.1 Tenant shall not install any signs, window lettering or other
advertisement in, upon or around the Premises without the prior written
approval of Landlord. Landlord shall have absolute discretion in approving or
disapproving any proposed sign. Tenant shall have the right to the existing
line on the building lobby directory, which the landlord shall provide.
BROKERS.
48.1 Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction and that no broker,
agent or other person brought this transaction other than Sheridan Properties,
L.L.C. and Tenant agrees to indemnify and hold Landlord harmless from and
against any claims by any broker, agent, or other person claiming a commission
or other form of compensation by virtue of having dealt with Tenant with
regards to this Leasing transaction. The provision of this Article shall
survive the termination of the Lease.
ENTIRE AGREEMENT.
49.1 The within Lease constitutes the entire agreement of the parties
hereto. No representations, promises, terms, conditions, obligations or
warranties whatsoever referring to the subject matters hereof, other than those
expressly set forth herein, shall be of any binding legal force or effect
whatsoever. No modification, change, or alteration of this Lease shall be any
legal force or effect whatsoever unless in writing, signed by all parties
hereto.
ATTACHMENTS.
Addendum
Exhibit A - Legal Description and Premises
Exhibit B - Tenant Finish Allowance
Exhibit C - Plans and Specifications
Exhibit D - Rules and Regulations
Exhibit E - Right of First Refusal
Exhibit F - Option to Extend
Exhibit G - Option to Renew
Exhibit H - Signage
In witness whereof, the Parties hereto execute this Lease the day and year
first above written.
LANDLORD:
Sheridan Realty Partners, L.P.
By: Sheridan Realty Corp., General Partner
By: /s/ LAURIE M. ADAMS
------------------------------------------
Laurie M. Adams
Title: Vice President
Address: 1800 Glenarm Place, Suite 1200
Denver, CO 80202
TENANT:
Abacus Direct
By: /s/ KARL FRIEDMAN
-------------------------------------------
Title: Senior V.P. Finance
----------------------------------------
Address: 8774 Yates Drive, Suite 200
Westminster, CO 80030
<PAGE> 13
EXHIBIT A
Legal Description
Lot 4,
Block 1,
First Amended Plat of SHERIDAN PARK, Filing #4,
County of Adams,
State of Colorado.
1st
FLOOR PLAN
[BLUEPRINT]
A-1
<PAGE> 14
EXHIBIT A
Legal Description
Lot 4,
Block 1,
First Amended Plat of SHERIDAN PARK, Filing #4,
County of Adams,
State of Colorado.
2nd
FLOOR PLAN
[BLUEPRINT]
A-2
<PAGE> 15
EXHIBIT A
Legal Description
Lot 4,
Block 1,
First Amended Plat of SHERIDAN PARK, Filing #4,
County of Adams,
State of Colorado.
3rd
FLOOR PLAN
[BLUEPRINT]
A-3
<PAGE> 16
EXHIBIT B
Tenant Finish Allowances
Landlord shall provide $28,000.00 towards Tenant's finish. Tenant has elected
to apply this tenant finish as a rent reduction in the first year covering the
period 1/1/91 through 9/30/97.
B-1
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EXHIBIT C
Plans and Specifications
Wall and door not added
[BLUEPRINT]
C-1
<PAGE> 18
EXHIBIT D
Rules and Regulations
1. The sidewalks, entrances, halls and corridors of the Building shall be
kept clear of debris and shall not be obstructed or used for storage or
as a waiting or lounging place by Tenant, its agents, servants,
employees, invitees licenses and visitors.
2. Landlord reserves the right to refuse admittance to the Building at any
time other than between the hours of 7:00 a.m. through 6:00 p.m. Monday
through Friday and Saturdays 8:00 a.m. through 1:00 p.m., except for
holidays, to any person not producing both a key to the Leased Premises
and/or a pass issued by Landlord. In case of invasion, riot, public
excitement or other commotions, Landlord also reserves the right to
prevent access to the Building during the continuance of same. Landlord
shall in no case be liable for damages for the admission or exclusion of
any person to or from the Building.
3. Landlord will furnish to each Tenant existing new keys to each door lock
in the Leased Premises and existing building access cards, and Landlord
may make a reasonable charge for any additional keys and/or access cards
requested by Tenant. Tenant shall not alter any lock, or install new or
additional locks or bolts, on any door without the prior written consent
of Landlord. If a lock alteration or installment is made, the new lock
must accept the master key for the building or Tenant must provide
Landlord with duplicate pass keys for all such locks and bolts. Each
Tenant, upon the expiration or termination of its tenancy, shall deliver
to Landlord all keys and access cards in any such Tenant's possession
for all locks and bolts to the building.
4. In order that the Building may be kept in a state of cleanliness, each
Tenant shall during the term of each respective Lease, permit Landlord's
employees (or Landlord's agent's employees) to take care of and clean
the Leased Premises. No Tenant shall cause any unnecessary labor by
reason of such Tenant's carelessness or indifference in the preservation
of good order and cleanliness of the Leased Premises. Tenant will see
that (a) the windows are closed, (b) the doors are securely locked, and
(c) all water faucets and other utilities are shut off (so as to
prevent waste or damage), each day after leaving the Leased Premises.
In the event Tenant must dispose of crates, boxes, etc., which will not
fit into office waste paper baskets, it will be the responsibility of
Tenant to dispose of same.
5. Landlord reserves the right to prescribe the date, time, method, and
conditions that any personal property, equipment, trade fixtures,
merchandise and other similar items shall be delivered to or removed
from the Building. No iron safe or other heavy or bulky object shall be
delivered to or removed from the Building, except by experienced safe
men, movers or riggers approved in writing by Landlord. All damage done
to the Building by the delivery or removal of such items, or by reason
of their presence in the Building, shall be paid to Landlord, upon
demand, by Tenant, through or under whom such damage was done. There
shall not be used in any space or in the public halls of the Building
either by Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand-trucks, except those equipped with rubber tires.
6. The walls, partitions, skylights, windows, doors and transoms that
reflect or admit light into passageways or into any other part of the
Building shall not be covered or obstructed by any Tenant.
7. The toilet-rooms, toilets, urinals, wash bowls and water apparatus shall
not be used for any purpose other than for those for which they were
constructed or installed, and no sweeping, rubbish, chemicals or other
unsuitable substances shall be thrown or placed therein. The expense of
any breakage, stoppage or damage resulting from violations of this rule
by Tenant or by Tenant's agents, servants, employees, invitees,
licensees or visitors, shall be borne by Tenant.
8. No sign, name, place card advertisement, or notice visible from the
exterior of any Leased Premises, shall be inscribed, painted or affixed
by any tenant on any part of the Building or Project without the prior
written approval of the Landlord. A directory containing the names of
all tenants of the Building shall be provided by Landlord at an
appropriate place on the first floor of the Building.
D-1
<PAGE> 19
9. No signaling, telegraphic, or telephonic instruments of devices, shall
be installed in connection with any Leased Premises without the prior
written approval of Landlord. Such installations, and the boring or
cutting for wires, shall be made at the sole cost and expense of Tenant
and under the control and direction of Landlord, other than phone
outlets normally provided by Landlord as part of the Lease. Landlord
retains in all cases the right to require (a) the installation and use
of such electrical projection devices that prevent the transmission of
excessive currents of electricity into or through the Building, (b)
the changing of the wires and of their installation and arrangements
underground or otherwise as Landlord may direct, and (c) compliance on
the part of all using or seeking access to such wires with such rules
as Landlord may establish relating thereto. All such wires used by
Tenant must be clearly tagged at the distribution boards and junction
boxes and elsewhere in the Building, with the number of the Leased
Premises to which said wires lead, the purpose for which said wires are
used, and the name of the company operating same.
10. Tenant, its agents, servants, employees, shall not (a) go upon the roof
of the Building, (b) use any additional method of heating or air
conditioning in the Leased Premises, (c) sweep or throw any dirt or
other substances from the Leased Premises into any of the halls or
corridors of the Building, (d) bring in or keep in or about the Leased
Premises any vehicles or animals of any kind, (e) install any radio or
television antennae or any other device or item on the roof, exterior
walls, windows or window sills of the Building, (f) place objects
against glass partitions, doors or window which would be unsightly from
the interior or exterior of the building, or (g) use any portion of the
Leased Premises: (i) for the storage of merchandise for sale to the
general public, (ii) for lodging or sleeping, (iii) for cooking (except
that the use by any Tenant of Underwriter's Laboratory equipment for
brewing coffee, tea and similar beverages for the use of by Tenant of a
similarly approved microwave oven shall be permitted, provided that such
use is in compliance with law), or (iv) for the selling or display of
any goods, items or merchandise, either at wholesale or retail. Tenant,
its agents, servants and employees, invitees, licensees, or visitors
shall not permit the operation of any musical or sound producing
instruments or device which may be heard outside the Leased Premises,
Building or garage facility, or which may emit electrical waives which
will impair radio or television broadcast or reception from or into the
Building.
11. Tenant shall not store or use in any Leased Premises any (a) ether,
naphtha, phosphorous, benzol, gasoline, benzine, petroleum, crude or
refined earth or coal oils, flashlight power, kerosene or camphene, (b)
any other flammable, combustible, explosive or illuminative fluid, gas
or material of any kind, or (c) any other fluid, gas or material of any
kind having an offensive odor.
12. No canvassing, soliciting, distribution of hand bills or other written
material, or pedaling shall be permitted in the Building, Tenant shall
cooperate with Landlord in prevention and elimination of same.
13. Tenant shall give Landlord prompt notice of all accidents to, or defects
in, air conditioning equipment, plumbing, electrical facilities, or any
part of the appurtenances of the Leased Premises.
14. If the Leased Premises demised to Tenant becomes infested with vermin,
Tenant, at its sole cost and expense, shall cause the Leased Premises to
be exterminated from time to time to the satisfaction of Landlord and
shall employ such exterminators as shall be approved by Landlord.
15. The landscaped grounds adjacent to the Building shall be used for the
enjoyment of Tenant, its agents, servants and employees, without
restriction so long as such parties conduct themselves in a manner so as
not to disturb, destroy, or litter said grounds. All parties using the
grounds shall comply will all laws, ordinances, and rules and
regulations of federal, state and local authorities.
16. Landlord reserves the right to allocate specific parking spaces among
Tenant and other tenants, police the parking areas, and have vehicles
towed at the owner's expense. If Tenant, its employees, contractors or
invitees are deemed by Landlord to be contributing to overcrowding of
the parking areas, Landlord shall be entitled to charge the portion of
the cost thereof to Tenant which Landlord shall reasonably determine to
be caused by the failure of Tenant, its employees, contractors, agents
and invitees to use the parking in compliance with the Lease and these
Rules and Regulations.
D-2
<PAGE> 20
Landlord may, at its own discretion, change the location and nature of
the reserved and non-reserved parking spaces available to Tenant, its
employees and invitees, provided that after such change, there shall be
available to Tenant and its employees and invitees approximately the
same number of spaces as available before the change, which spaces shall
be approximately located in the Building.
17. Landlord reserves the right to make reasonable amendments,
modifications, and additions to the rules and regulations heretofore set
forth, and to make additional reasonable rules and regulations, as in
Landlord's sole judgement may from time to time be needed for the
safety, care, cleanliness, and preservation of good order of the
Building.
D-3
<PAGE> 21
EXHIBIT E
RIGHT OF FIRST REFUSAL
Provided Tenant is not in default under any of the terms of this Lease, Tenant
will have a Right of First Refusal on any unoccupied or unleased space in
Sheridan Park 1. Should another party present an offer to lease to Landlord
that would be acceptable to Landlord, Landlord will present said offer to
Tenant. Tenant must respond to Landlord within three (3) business days of
receipt of notice of Tenant's intent to exercise said Right of First Refusal.
Should Tenant not respond within said three business days, Landlord will be
free to lease the space to that party and the Right of First Refusal will
automatically cancel if said other party signs a lease.
If Tenant doesn't exercise its Right of First Refusal at any time, it shall
retain such right for any future options on that space subject to its Right of
First Refusal, excluding renewals on existing tenants.
As of the date of this Lease, no other Right of First Refusal exists in the
Building. Tenant's Right of First Refusal with this Lease is equal to or
superior to Tenant's rights under the prior Lease dated January 20, 1992 and
those rights will not be lessened (except as in the case of Tenant's default)
during the term of this Lease and Options (if exercised).
E-1
<PAGE> 22
EXHIBIT F
OPTION TO EXTEND
Provided Tenant is not in default under any of the terms of this Lease. Tenant
shall have a two (2) year option to extend this Lease at the Base Rent of
$13.50/rsf plus an increase based on the Denver CPI increase from 6/30/96 to
6/30/99. All other terms and conditions of the Lease will remain the same.
F-1
<PAGE> 23
EXHIBIT G
OPTION TO RENEW
Provided Tenant is not in default under any of the terms of this Lease. Tenant
shall have two (2) three (3) year Options to Renew at 90% of the then current
market rates. To exercise this option Tenant must provide written notice to
Landlord at lease six (6) months prior to the expiration of the current term.
G-1
<PAGE> 24
EXHIBIT H
SIGNAGE
Tenant will be allowed Building Signage with Landlord's prior written approval
at Tenant's sole cost and expense, subject to applicable Westminster codes.
Tenant shall be responsible for repairing any damage to the building if the
sign is removed.
H-1
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0
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