<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
Commission file number 0-28834
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Abacus Direct Corporation
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(Exact name of small business issuer as specified in its charter)
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)
(303) 657-2800
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(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of the issuer's class of common equity,
as of the last practicable date: common stock, $.001 par value; 9,538,903
shares outstanding as of May 8, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
---- ----
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
ABACUS DIRECT CORPORATION
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Revenue from operations $ 5,525 $ 2,780
Cost of Revenue 1,080 747
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Gross Profit 4,445 2,033
Other Operating Costs
Sales and marketing 1,445 787
General and administration 1,231 626
Research and development 287 140
------- -------
Total Operating Expenses 2,963 1,553
Operating Profit 1,482 480
Interest and Other Income (Expense) 63 (61)
------- -------
Net income Before Income Taxes 1,545 419
Income tax expense 564 168
------- -------
Net Income $ 981 $ 251
======= =======
Earnings Per Common Share $ 0.10 $ 0.03
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 10,136 9,510
======= =======
</TABLE>
See notes to condensed financial statements
<PAGE> 3
ABACUS DIRECT CORPORATION
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,448 $ 5,924
Accounts receivable (less allowance for doubtful accounts of $408
and $375, respectively) 4,613 3,735
Prepaid expenses and other assets 483 260
Deferred tax assets 284 284
--------- ---------
Total current assets 10,828 10,203
Note receivable from stockholder 38 38
Property and equipment, net 2,464 1,823
========= =========
$ 13,330 $ 12,064
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 237 225
Accrued expenses:
Sales commissions 157 165
Bonuses 195 647
Vacations 304 261
Other accruals 744 436
Current maturities of long-term debt 13 13
Income tax payable 662 276
--------- ---------
Total Current Liabilities 2,312 2,023
Long-term debt 25 29
STOCKHOLDERS' EQUITY
Common stock, $.001 par value 10 10
Additional paid-in capital 5,234 5,233
Retained earnings 5,749 4,769
--------- ---------
Total Stockholders' equity 10,993 10,012
--------- ---------
$ 13,330 $ 12,064
========= =========
</TABLE>
See notes to condensed financial statements
<PAGE> 4
ABACUS DIRECT CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH ENDED
MARCH 31,
------------------
1997 1996
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OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 981 $ 251
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 240 140
Provision for doubtful accounts receivable 32 6
Changes in:
Accounts receivable (910) (99)
Prepaid expenses and other assets (223) (58)
Accounts payable 12 (30)
Accrued expenses (110) 14
Income taxes payable 386 (167)
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Net cash provided by operating activities 408 57
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INVESTING ACTIVITIES
Purchases of property and equipment (881) (117)
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Net cash used in investing activities (881) (117)
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FINANCING ACTIVITIES
Principal payments on long-term debt (3) (251)
------- -------
Net cash used in financing activities (3) (251)
------- -------
Net decrease in cash and cash equivalents (476) (311)
Cash and cash equivalents at beginning of period 5,924 1,345
------- -------
Cash and cash equivalents at end of period $ 5,448 $ 1,034
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid 1 74
Income taxes paid 178 319
</TABLE>
See notes to condensed financial statements
<PAGE> 5
ABACUS DIRECT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 - Interim Financial Information
The condensed financial statements included herein have been prepared by Abacus
Direct Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's 10-KSB dated March 26, 1997.
Note 2 - Earnings 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, net income per common share includes common
and common equivalent shares issued during the twelve-month period prior to the
filing of the Company's September 1996 initial public offering as they were
outstanding for all periods, using the treasury stock method and the initial
public offering price.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("FAS 128"). FAS 128
changes the computation, presentation and disclosure requirements of earnings
per share that has been previously followed by the Company. FAS 128 is
effective for years ending after December 15, 1997 and early adoption is not
permissible. If the provisions of FAS 128 were adopted for the three month
periods ended March 31, 1997 and 1996, the Company's pro forma basic earnings
per share and its pro forma diluted earnings per share would have been
unchanged from earnings per common share presented in the accompanying
statement of operations.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
The Company's revenue from operations in the first quarter of 1997 increased
98.7% to $5.5 million from $2.8 million in the first quarter of 1996. Net sales
rose primarily due to higher sales penetration with each client, increased new
clients and to a lesser extent an expanded product line.
The first quarter cost of operations increased 44.6% to $1,081,000 from
$747,000 in the first quarter last year. As a percent of revenue, cost of
operations decreased from 26.9% in last year's first quarter to 19.6% in 1997.
Although the Company made substantial investments in increasing capacity to
facilitate the rapid increase in sales, the Company benefited from earlier
investments in its software, hardware and processing systems which resulted in
a lower cost of revenue.
Sales and marketing expenses increased 83.6% to $1,445,000 in the first quarter
this year from $787,000 in the same quarter last year. As a percent of revenue,
sales and marketing expenses decreased to 26.1% in the first quarter of 1997
from 28.3% in the first quarter of 1996. The increased expenses reflects the
Company's emphasis on expanding its selling staff and marketing activities in
previously untapped industry segments. Further contributing to the higher level
of expense was the sales staff commission program which provides incentives for
overachieving sales targets.
Research and development expenses increased 105.7% to $287,000 in the first
quarter this year from $140,000 in the same quarter last year. As a percent of
revenue, research and development increased to 5.2% in the first quarter from
5.0% in 1996. The increase in expense resulted from the Company intensifying
it's research and development efforts to achieve increased product performance
for clients and to develop new products to expand use of its database. In the
first quarter, expenses included start-up development costs for the Abacus
E-Net and for statistical development for the credit card, insurance and
publishing industries.
General and administrative expenses increased 96.7% for the first quarter this
year to $1,231,000 from $626,000 in the same quarter last year. As a percent of
revenue, general and administrative expenses decreased from 22.5% in last
year's first quarter to 22.3% this year. The increase in expense resulted
primarily from benefits, taxes and other costs associated with a 52% increase
in Company staff and to a lesser degree costs associated with increased
executive compensation and performance bonuses along with CFO transition and
recruiting expenses. The expense ratio decreased due to rapid revenue growth
and due to many costs being of a lower variable nature.
Operating profit increased 208.2% during the quarter ending March 31, 1997 to
$1,482,000 from $480,000 in the same quarter of 1996. As a percent of revenue,
operating profits in the first quarter rose to 26.8% from 17.3% in 1996. The
increase can be attributed to increased revenue, economies of scale and the
Company's ability to leverage its database resource among new and existing
clients. Due to the significant seasonality of the Company's revenues,
operating profit margins in the first and second quarters are typically much
lower than the margins recorded in the third and fourth quarters of each year.
During the first quarter of 1997, the company recorded $63,000 of interest
income net of interest expense. This compares to a net interest expense of
$61,000 in the same quarter of 1996 when the Company had $2.6 million of
outstanding debentures payable.
The Company's effective income tax rate for the first quarter of 1997 was
calculated on an estimated annualized rate of 36.5% compared to an estimated
rate of 40.0% for the same period in 1996. The Company achieved lower tax
rates due to some of its income not being taxed at the state level.
Net income in the first quarter of 1997 was $981,000 or $.10 per share compared
with net income of $251,000 or $.03 per share in the first quarter last year.
<PAGE> 7
SEASONALITY
The Company's business is seasonal in nature. The third and fourth quarters of
each year, include the peak selling season during which the Company is
supplying the catalog industry with data services in advance of the fall and
holiday seasons. In the first and second quarters, orders are fewer and
smaller. As a result, cost of operations, sales and marketing, research and
development, and general and administrative expenses as a percentage of
revenues are usually higher and operating profit is usually lower during the
first half of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Company met its short-term liquidity needs and its capital requirements
through $408,000 generated from operations. Investing activities were comprised
of $881,000 used for capital expenditures. An equipment lease payable for
$38,000 was the only form of long term debt or borrowing the Company had
outstanding at March 31, 1997.
The Company believes that its cash flow from operations will provide adequate
resources to meet its capital requirements and operational needs for the
foreseeable future.
<PAGE> 8
PART II
ITEM 5. OTHER INFORMATION.
The Company has entered into an employment agreement (the "Employment
Agreement"), dated May 2, 1997, with Carlos E. Sala (the "Executive"),
pursuant to which he will serve as Senior Vice President-Finance, Chief
Financial Officer, Secretary and Treasurer of the Company commencing May 19,
1997. The Executive was hired to fill the vacancy created by the resignation of
Karl M. Friedman, Senior Vice President-Finance, Chief Financial Officer,
Secretary and Treasurer of the Company, who will be resigning effective May 19,
1997.
The Employment Agreement has an initial term of one year and provides
for automatic renewal for up to three additional one year periods, unless the
Company or the Executive elects to terminate the Employment Agreement by written
notice. The Employment Agreement provides for an initial annual base salary of
$230,000, with future increases based on increases in the consumer price index
or by such higher amount as determined by the Company's Board of Directors. The
Employment Agreement also provides that the Executive may be granted a bonus of
up to fifty percent (50%) of the Executive's base salary based on the Company's
financial performance, and any additional bonus the Company's Board of Directors
may deem appropriate. In addition, the Employment Agreement provides for (i) the
grant of stock options to purchase 300,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant,
which become exercisable in four equal annual installments commencing the first
anniversary of the date of grant, and (ii) compensation of the Executive, in a
mutually agreeable form, for the value of the Executive's stock options granted
to him by his previous employer, which the Executive is forfeiting in connection
with the commencement of his employment with the Company.
The Company may terminate the Employment Agreement for disability or
with or without cause. The Executive may terminate his Employment Agreement in
the event of (i) a material breach of the agreement by the Company, (ii) the
Executive's removal from his current position without cause, or (iii) "a change
in control" of the Company. In the event the Company terminates the Executive's
employment for a reason other than disability or cause, or if the Executive
terminates his employment as set forth
<PAGE> 9
above, or if the Employment Agreement is not renewed, the Executive will be
entitled to receive a payment equal to his annual base salary then in effect
and the bonus amount the Executive would have been eligible for on the date of
the termination. Under the Employment Agreement, "change in control" of the
Company means (i) the acquisition by any person of beneficial ownership of
forty percent (40%) or more of the voting stock of the Company or (ii) the
approval by the Board of Directors of a sale of all or substantially all of the
assets of the Company unless the Executive is a member of the Board of
Directors who affirmatively votes in favor of such sale transaction resulting
in the "change of control."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
The following Exhibits are hereby filed as part of this Quarterly
Report on Form 10-QSB:
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
10.1 Employment Agreement, dated
May 2, 1997, between the
Company and Carlos E. Sala.
11.1 Statement re: computation of
earnings per share.
27.1 Financial Data Schedule (for EDGAR
filing only).
</TABLE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 14, 1997 ABACUS DIRECT CORPORATION
s/ Karl M. Friedman
-------------------------------
Karl M. Friedman
Senior Vice President - Finance and Chief
Financial Officer
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Page Number
- ------ ------- -----------
<S> <C>
10.1 Employment Agreement, dated 11
May 2, 1997, between the
Company and Carlos E. Sala.
11.1 Statement re: computation of 21
earnings per share.
27.1 Financial Data Schedule (for EDGAR 22
filing only).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of May 2, 1997 (the Agreement")
by and between ABACUS DIRECT CORPORATION, a Delaware corporation having an
office located at 8774 Yates Drive, Westminster, Colorado 80030 (the
"Corporation"), and Carlos E. Sala, having an address at 3606 Ainsworth Drive,
Dallas, Texas 75229 ("Executive").
W I T N E S E T H:
WHEREAS, the Corporation desires to employ Executive in an
executive capacity and to be assured of his services as such on the terms and
conditions hereinafter set forth.
WHEREAS, Executive is willing to accept such employment on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby, the
Corporation and Executive hereby agree as follows:
1. Employment.
1) Subject to the terms and conditions set forth in
this Agreement, the Corporation offers and the Executive hereby accepts
employment, effective as of the time of May 19, 1997 (the "Commencement Date").
2) The Corporation hereby employs Executive as
the Senior Vice President - Finance, Chief Financial Officer, Secretary and
Treasurer of the Corporation subject to the supervision and direction of the
Chairman of the Board and Chief Executive Officer of the Corporation and the
Board of Directors of the Corporation. Executive shall be responsible for the
financial and accounting matters of the Corporation, together with such other
responsibilities and duties consistent with his executive position and of such
nature as are usually associated with his office as may be designated from time
to time by the Chairman of the Board and Chief Executive Officer of the
Corporation or the Board of Directors of the Corporation. Such duties shall be
performed primarily in the Denver, Colorado area and subject to travel outside
of such area as may be necessary for Executive to perform his duties.
3) Executive shall faithfully and diligently
discharge his duties hereunder and use his best efforts to implement the
policies established by the
<PAGE> 2
Chairman of the Board and Chief Executive Officer and the Board of Directors of
the Corporation. Executive agrees to devote substantially all of his time and
attention exclusively to the rendering of services hereunder.
2. Compensation.
1) During the Term of Executive's employment
hereunder, the Corporation shall cause Executive to receive a base salary in
the amount of Two Hundred Thirty Thousand ($230,000.00) Dollars, which base
salary shall be increased for each year of the Term thereafter in proportion to
the increase during the preceding year in the Consumer Price Index (All Urban
Consumers) published by the U.S. Department of Labor or by such higher amount
as the Corporation's Board of Directors shall in the exercise of its reasonable
discretion determine. Such base salary, as from time to time increased, is
hereafter referred to as the "Base Salary". The Base Salary shall be payable
in accordance with the present payroll practices of the Corporation. In
addition, Executive may receive such additional compensation (in the form of
bonuses, etc.) that the Corporation's Board of Directors shall, in the exercise
of its good faith and reasonable discretion, determine.
2) In addition to the salary described in Section
2(a) above, for each fiscal or partial fiscal year of the Corporation during
the Term hereof, Executive shall be entitled to receive incentive compensation
(as described below) to be paid on or before the 90th day following the end of
the Corporation's fiscal year (a "Fiscal Year"). Executive's entitlement to
incentive compensation for any fiscal year of the Corporation shall be
predicated upon successful accomplishment of annual business related
performance goals for the Corporation established by the Compensation Committee
of the Board of Directors of the Corporation. The incentive compensation under
this subparagraph (b) for any year shall not exceed fifty percent (50%) of
Executive's Base Salary. For any Fiscal Year in which the Executive is
employed by the Company hereunder for a period constituting less than an entire
Fiscal Year (such period, a "Partial Year"), the incentive compensation payable
hereunder in respect of any such period shall be (i) based upon the Company's
level of performance during the Partial Year, and (ii) shall be in an amount
equal to the incentive compensation which would be so payable if such period
constituted the entire Fiscal Year in which it occurs multiplied by a fraction,
the numerator of which shall be the number of days in the Partial Year and the
denominator of which shall be 365. The incentive compensation payable
hereunder in respect of the 1997 Fiscal Year shall be $71,521 (the product of
$115,000 times a fraction, the numerator of which is the number of days between
the Commencement Date and December 31, 1997 and the denominator of which is
365).
3) The Corporation shall reimburse Executive, up to
a maximum of $40,000, for expenses directly relating to his relocation to the
Denver, Colorado area including moving van costs, up to thirty (30) days of
temporary housing and travel to the Denver area, upon submission of appropriate
receipts and invoices therefore.
<PAGE> 3
3. Benefits, Etc. Executive shall be entitled to receive such
fringe benefits normally provided by the Corporation to executives in his
position (including life insurance and disability coverage, vacation,
sickleave, medical and dental insurance, travel and accident insurance,
participation in the Corporation' 401(k) Plan, stock options, incentive
compensation plans and other benefits generally available to senior executives
of the Corporation at any time during the term of this Agreement). The
Corporation agrees during the Term hereof that it will not terminate any
compensation plan or benefit program in which Executive participates or
terminate Executive's participation in any such plan or program, unless an
equitable agreement embodied in an ongoing substitute or alternative plan or
program has been made except to the extent that Executive is receiving benefits
pursuant to Section 9(b) hereof.
4. Term. Subject to earlier termination as hereinafter provided,
the original term of this Agreement shall commence on the Commencement Date and
shall continue in effect for a one year period ending on the first anniversary
of the Commencement Date; provided, however, that the term of this Agreement
shall automatically be extended for three (3) additional consecutive one year
periods commencing on each of the first, second and third anniversaries of the
Commencement Date, unless not later than ninety (90) days prior to each such
anniversary date, Executive or the Corporation shall have given notice that
such party does not wish to so extend this Agreement. The term of this
Agreement is referred to herein as the "Term".
5. Termination by The Corporation. The Corporation shall have
the right to terminate this Agreement for "Disability", "Cause" or without
"Cause".
1) Disability. Disability shall be used herein
to mean that if, as a result of Executive's incapacity due to physical or
mental illness, Executive shall have been absent from his duties with the
Corporation on a full-time basis for six (6) consecutive months, and within
thirty (30) days after written notice of termination is given, Executive shall
not have returned to the full-time performance of Executive's duties, the
Corporation may terminate Executive's employment by reason of his "Disability."
2) Cause. Termination by the Corporation of
Executive's employment for "Cause" shall mean termination as a result of: (i)
breach by Executive of any material provision of this Agreement; (ii) gross
negligence or willful misconduct of Executive in connection with the
performance of his duties under this Agreement, or Executive's willful refusal
to perform any of his material duties or responsibilities required pursuant to
this Agreement; (iii) Executive's misappropriation for personal use of assets
or business opportunities of the Corporation; (iv) Executive's embezzlement of
the Company's funds or property, or fraud on the part of Executive; or (v)
Executive's conviction of any Felony.
6. Termination by Executive. (a) Executive shall be
entitled to terminate his employment (i) in the event that the Corporation
materially breaches any of its obligations hereunder and such breach continues
for thirty (30) days after the
<PAGE> 4
Corporation receives written notice from Executive of such breach or if at any
time Executive is not reelected to serve as Chief Financial Officer of the
Corporation or Executive is removed as Chief Financial Officer of the
Corporation without "Cause" or (b) if there is a "change in control" of the
Corporation.
For purposes of this Agreement, a "change in control" of the
Corporation shall be deemed to have occurred if (a) any "Person" (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing Forty per cent (40%) or more of the combined
voting power of the Corporation's then outstanding securities; or (b) the Board
of Directors of the Corporation shall approve a sale of all or substantially
all the assets of the Corporation unless the Executive is a member of the Board
of Directors who affirmatively votes in favor of such sale transaction giving
rise to a "change in control".
In the event that Executive becomes entitled to terminate his
employment hereunder by reason of the occurrence of a "change in control" of
the Corporation or for any reason other than a "change in control", Executive
shall be entitled to terminate his employment immediately after the occurrence
of the event giving rise to such right, which right shall continue for a period
of four (4) months from the earlier of the date on which either the Corporation
informs Executive, or Executive otherwise determines, that Executive is
entitled to exercise such right.
7. Notice of Termination. Any purported termination by
the Corporation or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 14 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
8. Date of Termination, Etc. "Date of Termination"
shall mean (a) if Executive's employment is terminated by the Corporation for
Cause, the date specified in the Notice of Termination, which date shall be no
earlier than the date of such Notice; (b) if Executive's employment is
terminated by the Corporation for Disability, thirty (30) days after Notice of
Termination is given (provided that Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period); (c) if Executive's employment is terminated by the Corporation without
Cause, the date specified in the Notice of Termination, which date shall be no
earlier than the date that such notice is deemed given; (d) if Executive's
employment is terminated by Executive for any of the reasons specified in
Section 6, such date as Executive shall specify in Executive's Notice of
Termination, which date shall be no less than thirty (30) days after such
Notice of Termination is given.
<PAGE> 5
9. Compensation Upon Termination, During Disability,
Death or in the Event of a Change in Control.
1) In addition to any benefits to which Executive is
entitled under any insurance program or pension or benefit plan then in effect,
or any stock plan or restricted stock agreement, in lieu of all other payments
of salary or other compensation to which Executive would otherwise be entitled
hereunder, Executive shall be entitled to the following:
(i) If Executive's employment shall be terminated for
Cause, the Corporation shall pay his full Base Salary
through the Date of Termination at the rate in effect
at the time Notice of Termination is given and the
Corporation shall have no further obligations to
Executive under this Agreement unless it shall be
finally determined by a court of competent
jurisdiction that such purported termination for
Cause was not justified or was inappropriate in the
circumstances.
(ii) If Executive's employment with the Corporation shall
be terminated other than in anticipation of or in
connection with a "change in control" (A) by the
Corporation without Cause, (B) by Executive for any
of the reasons specified in clause (a) of the first
paragraph of Section 6 hereof, or (C) at the
expiration of this Agreement by virtue of it not
being renewed, in lieu of any further salary payments
to Executive for periods subsequent to the Date of
Termination (including any payments relating to any
bonus or incentive compensation), Executive shall be
entitled to receive a severance payment in an amount
equal to twelve (12) months of the Base Salary then
in effect and incentive compensation, if earned,
payable in respect of a Partial Year pursuant to
Section 2(b) hereof relating to the period commencing
on the first day of such Fiscal Year and ending on
the Date of Termination, which severance shall be
paid either in accordance with the Corporation's
customary payroll practices or in a lump sum, upon
expiration of such term, as Executive may elect, in
either case, subject to normal payroll deductions.
(iii) If Executive's employment with the Corporation shall
be terminated by Executive or by the Corporation upon
or within four (4) months following a "change in
control" pursuant to clause (b) of the first
paragraph of Section 6 hereof, then Executive shall
be entitled to the benefits provided below:
(A) the Corporation shall pay Executive
his full Base Salary through the
Date of Termination at the rate in
effect at the time Notice of
Termination is given;
<PAGE> 6
(B) In lieu of any further salary
payments to Executive for periods
subsequent to the Date of
Termination (including any payments
relating to any bonus or incentive
compensation), the Corporation shall
pay as severance pay to Executive,
not later than the fifth (5th) day
following the Date of Termination, a
lump-sum severance payment in an
amount equal to twelve (12) months
of the Base Salary then in effect
and incentive compensation, if
earned, payable in respect of a
Partial Year pursuant to Section
2(b) hereof relating to the period
commencing on the first day of such
Fiscal Year and ending on the Date
of Termination.
2) For a twelve (12) month period after such
termination, other than for Cause, the Corporation shall arrange to provide
Executive and his family with life, disability and health insurance benefits
substantially similar to those which Executive is receiving immediately prior
to the Notice of Termination.
3) Anything in this Agreement to the contrary
notwithstanding, in the event that any payment and the value of any benefit,
including the vesting of options or restricted stock, received or to be
received by Executive upon a Change of Control (collectively, a "Payment")
would result in all or a portion of such Payment being subject to excise tax
under Section 4999 of the Internal Revenue Code, then Executive's Payment shall
be either (A) the full Payment or (B) the maximum amount which would result in
no portion of the Payment being subject to excise tax under Section 4999 of the
Internal Revenue Code, whichever of the foregoing amounts specified in
subparagraphs (A) or (B) above, taking into account the applicable Federal,
state, and local employment taxes, income taxes, and the excise tax imposed by
Section 4999 of the Internal Revenue Code (and also taking into account
Executive's particular tax circumstances and filing status), results in the
receipt by Executive of the greatest amount notwithstanding that all or some
portion of such amount may be taxable under Section 4999 of the Internal
Revenue Code; provided, however, that Executive will be entitled to receive the
full Payment only if the after tax amount of the full payment described in
subparagraph (A) above exceeds the after tax amount resulting from the amount
described in subparagraph (B) above by at least $10,000. In the event that the
Payment, or any portion of the Payment, is reduced pursuant to this Section
9(c) to the amount described in subparagraph (B) above, the present value of
the amount to be received by Executive (for purposes of Section 280G) must be
reduced in such a way that the total amount to be received by Executive
(without regard to present value principles) is maximized. All computations
required to be made under this Section 9 (c) shall be made by a nationally
recognized accounting firm which is the Corporation's outside auditor at the
time of such determination (the "Accounting Firm"). The Corporation shall
cause the Accounting Firm to provide detailed supporting calculations of the
amounts described herein to the Corporation and Executive within one business
day after an event entitling Executive to a Payment hereunder. The
<PAGE> 7
Executive may accept, but shall not be bound to accept, the computations made
by the Accounting Firm and shall have the right to challenge any such
computations in litigation or otherwise.
10. Stock Options.
(a) The Corporation agrees to grant and issue to
Executive, under the 1996 Stock Incentive Plan of the Corporation (the "Plan"),
the following Options, as such term is defined in the Plan, to purchase common
stock (the "Common Stock") of the Corporation, as such term is defined in the
Plan:
(i) The Corporation agrees to grant and
issue to Executive, on the Commencement Date, a stock option under the Plan to
purchase 220,000 shares of Common Stock, having a term of ten years, at an
exercise price equal to the Fair Market Value on the date preceding the date
hereof, as defined in the Plan, and becoming exercisable in four equal annual
installments commencing the first anniversary of the date of grant.
(ii) Subject to and within ten (10) days
of the approval by the stockholders of the Corporation of the authorization of
325,000 additional shares of Common Stock under the Plan at the Corporation's
upcoming Annual Meeting of Stockholders or at any time thereafter, the
Corporation agrees to grant and issue to Executive stock options under the Plan
to purchase 80,000 shares of Common Stock, having a term of ten years, at an
exercise price equal to the Fair Market Value on June 6, 1997, as defined in
the Plan, and becoming exercisable in four equal annual installments commencing
the first anniversary of the date of grant.
(b) The Corporation agrees to compensate the
Executive, in the form of restricted stock or options or such other form to be
mutually agreed to by Executive and the Corporation, for the value of
Executive's stock options of Dal-Tile International Inc. which Executive is
forfeiting in connection with the commencement of his employment with the
Corporation.
(c) The terms and provisions of the Options and
any other compensation paid pursuant to Section 10 (b) above, shall be more
fully set forth in stock option agreements and other appropriate agreements to
be entered into by the Executive and the Corporation. The grant thereof shall
be subject to the execution of such agreements.
11. Intellectual Property Rights. All rights in inventions,
designs and intellectual property (including without limitation patents,
copyright, trade mark, registered designs, design rights and know-how) to which
Executive may become entitled by reason of activities in the course of
Executive's employment shall vest automatically in the Corporation and
Executive shall, at the request and expense of the Corporation, provide the
Corporation with all information, drawings and documents
<PAGE> 8
requested by the Corporation and execute such documents and do such things as
may be required by the Corporation to evidence such vesting. The provisions of
this Section 11 shall survive the termination of this Agreement.
12. Non-Competition and Non-Disclosure. The parties hereto
each acknowledge and agree that they have entered into a Non-compete, Non-
disclosure Agreement and Assignment Agreement, of even date herewith ("Non-
Disclosure and Non-Competition Agreement") and that such Non-Disclosure and
Non-Competition Agreement shall remain in full force and effect throughout the
Term hereof and shall survive the termination of this Agreement. Executive
acknowledges that the provisions of the Non-Competition and Non-Disclosure
Agreement are fair and reasonable and necessary to protect the good will and
interest of the Corporation and its subsidiaries and shall constitute separate
and severable undertakings given for the benefit of each of the Corporation and
each subsidiary and may be enforced by the Corporation on behalf of any of
them.
13. Successors; Binding Agreement.
1) The Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Corporation to
expressly assume and agree to perform this Agreement in the manner and to the
same extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement, and for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "the Corporation"
shall mean the Corporation as hereinbefore defined and any successor to its
business and/or assets, as aforesaid, which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
2) This Agreement shall inure to the benefit of
and be enforceable by the Corporation, its successors and assigns, and by
Executive, his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should
die while any amount would still be payable to him hereunder if Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his devisee, legatee or
other designee or, if there is no such designee, to Executive's estate.
14. Notice. For purposes of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered by hand, telecopied
(receipt acknowledged) or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Corporation shall be directed to the attention of the
<PAGE> 9
Board with a copy to the Secretary of the Corporation or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
15. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to, in writing, and signed by Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in this
Agreement. Each party acknowledges that the services to be rendered under this
Agreement are unique and of extraordinary character, and in the event of a
breach by either party of any of the terms of this Agreement, the other party
shall be entitled, if it so elects, to institute and prosecute proceedings in
any court of competent jurisdiction, either at law or in equity, to obtain
damages for any breach of the terms and provisions hereunder, to enforce
specific performance by the breaching party of its obligations hereunder and to
enjoin the breaching party from acting in violation of this Agreement. Such
remedies are in addition to those otherwise available at law or in equity to
the Corporation. The validity, interpretation, construction and performance of
this Agreement shall be governed by the internal laws of the State of Colorado
(other than the choice of law principles thereof).
16. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Prior Agreement. Executive represents, warrants and
covenants that the execution, delivery and performance by Executive of this
Agreement, does not and will not contravene, conflict with or constitute a
default under or violation of any law, regulation, judgment, decree, agreement,
contract or other instrument binding upon or applicable to Executive. Upon the
effectiveness of this Agreement, all prior agreements between Executive and the
Corporation will be terminated and of no further force and effect, except for
the Non-Competition and Non-Disclosure Agreement.
<PAGE> 10
IN WITNESS WHEREOF, the Corporation and Executive have
executed and delivered this Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By: /s/ M. Anthony White
---------------------------
Name: M. Anthony White
Title: Chairman of the Board and
Chief Executive Officer
EXECUTIVE
/s/ Carlos E. Sala
----------------------------------
Carlos E. Sala
<PAGE> 1
EXHIBIT 11.1
ABACUS DIRECT CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------- --------------
<S> <C> <C>
Net Income $980,674 $251,410
Average shares of common stock
outstanding during the period 9,504,973 9,046,534
Incremental shares from assumed
exercise of stock options and
grants (primary) 630,946 463,018
-------------- ---------------
10,135,919 9,509,552
Earnings Per Common Share $0.10 $0.03
============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,448
<SECURITIES> 0
<RECEIVABLES> 5,020
<ALLOWANCES> 408
<INVENTORY> 0
<CURRENT-ASSETS> 10,828
<PP&E> 4,717
<DEPRECIATION> 2,253
<TOTAL-ASSETS> 13,330
<CURRENT-LIABILITIES> 2,312
<BONDS> 25
0
0
<COMMON> 10
<OTHER-SE> 10,983
<TOTAL-LIABILITY-AND-EQUITY> 13,330
<SALES> 0
<TOTAL-REVENUES> 5,525
<CGS> 1,081
<TOTAL-COSTS> 2,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1,545
<INCOME-TAX> 564
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 981
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
