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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] 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
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ABACUS DIRECT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-1118166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8774 YATES DRIVE, 80030
WESTMINSTER, COLORADO (Zip Code)
(Address of principal executive offices)
</TABLE>
(303) 657-2800
(Registrants telephone number, including area code)
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Indicate by checkmark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common Stock, $0.001 par
value: 9,807,415 shares outstanding as of November 10, 1998.
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ABACUS DIRECT CORPORATION
INDEX TO FORM 10-Q
SEPTEMBER 30, 1998
PART I. FINANCIAL INFORMATION
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PAGE
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ITEM 1. FINANCIAL STATEMENTS
Statements of Operations.................................... 3
Balance Sheets.............................................. 4
Statements of Cash Flows.................................... 5
Notes to Condensed Financial Statements..................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 12
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION........................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 15
SIGNATURE............................................................ 16
INDEX TO EXHIBITS.................................................... 17
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
ABACUS DIRECT CORPORATION
STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
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Net revenues........................................... $16,008 $10,756 $34,458 $22,267
Cost of revenues....................................... 2,374 1,639 6,602 4,228
------- ------- ------- -------
Gross profit......................................... 13,634 9,117 27,856 18,039
Operating expenses:
Selling and marketing................................ 3,489 2,395 9,425 5,759
General and administrative........................... 1,283 1,047 3,527 2,763
Research and development............................. 400 329 1,251 1,040
Facility relocation and other........................ 360 102 360 102
------- ------- ------- -------
Total operating expenses..................... 5,532 3,873 14,563 9,664
------- ------- ------- -------
Income from operations................................. 8,102 5,244 13,293 8,375
Interest and other income, net......................... 191 74 496 195
------- ------- ------- -------
Income before income taxes............................. 8,293 5,318 13,789 8,570
Provision for income taxes............................. 3,303 1,941 5,309 3,128
------- ------- ------- -------
Net income................................... $ 4,990 $ 3,377 $ 8,480 $ 5,442
======= ======= ======= =======
Net income per common share -- basic................... $ 0.51 $ 0.35 $ 0.87 $ 0.57
Net income per common share -- diluted................. $ 0.49 $ 0.34 $ 0.83 $ 0.54
Weighted average number of outstanding common shares --
basic................................................ 9,721 9,569 9,702 9,535
Weighted average number of outstanding common shares --
diluted.............................................. 10,202 10,043 10,195 10,003
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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(UNAUDITED)
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Current assets:
Cash and cash equivalents................................. $17,213 $10,490
Accounts receivable (less allowance for doubtful accounts
of $1,053 and $787 at September 30, 1998 and December
31, 1997, respectively)................................ 14,065 8,120
Prepaid expenses and other assets......................... 437 391
Income tax receivable..................................... -- 52
Deferred tax assets....................................... 474 474
------- -------
Total current assets.............................. 32,189 19,527
Property and equipment, net................................. 4,234 3,065
------- -------
Total assets...................................... $36,423 $22,592
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 271 $ 220
Accrued expenses.......................................... 3,739 3,166
Obligations under capital leases.......................... 323 14
Income taxes payable...................................... 2,656 --
------- -------
Total current liabilities......................... 6,989 3,400
Obligations under capital leases, net of current portion.... 694 15
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized;
no shares issued and outstanding....................... -- --
Common stock, $0.001 par value; 25,000 shares authorized;
9,724 and 9,638 shares issued and outstanding at
September 30, 1998 and December 31, 1997,
respectively........................................... 10 10
Additional paid-in capital................................ 7,984 6,902
Retained earnings......................................... 20,746 12,265
------- -------
Total stockholders' equity........................ 28,740 19,177
------- -------
Total liabilities and stockholders' equity........ $36,423 $22,592
======= =======
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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1998 1997
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Operating Activities
Net income................................................ $ 8,480 $ 5,442
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,157 820
Loss on disposal of equipment.......................... 1 1
Facility relocation and other.......................... 183 --
Changes in assets and liabilities:
Accounts receivable, net.................................. (5,945) (5,934)
Prepaid expenses and other assets......................... (46) (140)
Accounts payable.......................................... 51 208
Accrued expenses.......................................... 573 833
Income taxes payable...................................... 3,150 1,295
------- -------
Net cash provided by operating activities......... 7,604 2,525
Investing Activities
Purchases of property and equipment....................... (1,510) (2,084)
Proceeds from sales of equipment.......................... -- 10
------- -------
Net cash provided by (used in) investing
activities....................................... (1,510) (2,074)
Financing Activities
Principal payments on capital leases...................... (10) (11)
Issuance (repurchases) of stock........................... 639 451
------- -------
Net cash provided by (used in) financing
activities....................................... 629 440
------- -------
Net increase (decrease) in cash............................. 6,723 891
Cash and cash equivalents at beginning of period............ 10,490 5,924
------- -------
Cash and cash equivalents at end of period.................. $17,213 $ 6,815
======= =======
Supplemental Disclosure of Cash Flow Information
Interest paid............................................. $ 2 $ 1
Income taxes paid......................................... $ 2,264 $ 1,478
Supplemental Schedule of Non-Cash Investing Activities
Purchase of equipment under capital lease................. $ 1,000 --
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL INFORMATION.
These condensed financial statements are unaudited and have been prepared
by ABACUS Direct Corporation (the "Company") in accordance with generally
accepted accounting principles for interim financial information and with the
instructions under Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been reflected in these
condensed financial statements. Operating results for the quarter are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. Certain reclassifications have been made in the fiscal 1997
financial statements to conform to the 1998 presentation. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net Revenues. Net revenues increased 48.8% to $16.0 million for the three
months ended September 30, 1998 from $10.8 million for the three months ended
September 30, 1997 due primarily to an increase in sales to existing customers,
revenues from new customers and revenues from tests associated with developing
direct marketing initiatives outside the consumer catalog industry.
Cost of Revenues. Cost of revenues increased 44.9% to $2.4 million for the
three months ended September 30, 1998 from $1.6 million for the three months
ended September 30, 1997 due primarily to increases in staff, depreciation and
processing costs associated with supporting higher revenues. Cost of revenues
decreased as a percentage of net revenues to 14.8% for the three months ended
September 30, 1998 from 15.2% for the three months ended September 30, 1997 due
primarily to the fixed cost nature of certain expenses which did not increase
proportionately with the growth in revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased
45.7% to $3.5 million or 21.8% of net revenues for the three months ended
September 30, 1998 from $2.4 million or 22.3% of net revenues for the three
months ended September 30, 1997. The increase in selling and marketing expenses
is due primarily to an increase in sales staff and associated expenses, higher
commissions as a result of significantly higher revenues, and the addition of
marketing personnel dedicated to developing new direct marketing initiatives
outside of the consumer catalog industry. The increase in the Company's sales
force is intended to reduce the average number of accounts serviced by an
account manager, improve customer service, and derive more revenues from
customers. The Company continued its development of direct marketing initiatives
outside the consumer catalog industry during the third quarter of 1998. Through
the initial stages of development, the Company has incurred, and expects to
continue to incur, costs in personnel, statistical modeling and other related
areas without an offsetting increase in revenues. While early testing in these
areas and initial customer response appear favorable, there can be no assurance
that meaningful revenues will be generated from these initiatives.
General and Administrative. General and administrative expenses increased
22.5% to $1.3 million for the three months ended September 30, 1998 from $1.0
million for the three months ended September 30, 1997. The increase in general
and administrative expenses resulted primarily from increases in performance
bonuses, rent, professional fees and an increase in staff to support overall
Company growth. General and administrative expenses for the three months ended
September 30, 1998 decreased to 8.0% of net revenues compared to 9.7% for the
three months ended September 30, 1997 due primarily to the fixed cost nature of
certain expenses which did not increase proportionately with the growth in
revenues.
Research and Development. Research and development expenses increased 21.5%
to $400,000 or 2.5% of net revenues for the three months ended September 30,
1998 from $329,000 or 3.1% of net revenues for the three months ended September
30, 1997. The increase in expense resulted from additional staff and development
efforts to achieve performance improvements in service efficiency in addition to
the development of new services.
Facility Relocation and Other. During the third quarter of 1998, the
Company recorded a non-recurring charge of $360,000 for expenses related to its
planned move to a new headquarters facility. The move will consolidate two
leased facilities in Westminster, Colorado, where the Company's executive
offices and principal operations are currently located, into approximately
75,000 square feet of office space in Broomfield, Colorado in April 1999.
Included in the non-recurring charge is $183,000 for the impairment of fixed
assets (primarily office furniture, fixtures and equipment) that will not be
relocated to the Company's new
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headquarters building. The remaining amount represents noncancelable lease
payments for its primary Westminster facility from the anticipated relocation
date through the expiration of the lease in September 1999. The charge of
$102,000 during the three months ended September 30, 1997 resulted from the
early termination of a consulting agreement with the Company's previous Chief
Financial Officer.
Operating Profit. Operating profit increased 54.5% for the three months
ended September 30, 1998 to $8.1 million or 50.6% of net revenues from $5.2
million or 48.8% of net revenues for the three months ended September 30, 1997.
The increases in operating profit and operating margin are due primarily to the
combined effect of higher revenues and the fixed cost nature of certain
expenses, which did not increase proportionately. The improvement in operating
profit and margin was partially offset by growing investments in the development
of direct marketing initiatives outside the consumer catalog industry and the
increase in sales staff. Typically, revenue is much higher during the third
quarter of each year which results from a seasonal revenue pattern inherent in
the business of the Company. Accordingly, the margins achieved during the third
quarter are not indicative of the operating margin expected for the fourth
quarter and year ended December 31, 1998.
Interest and Other Income, Net. Net interest income for the three months
ended September 30, 1998 increased 158.5% to $191,000 from $74,000 for the three
months ended September 30, 1997. The increase in interest income was due
primarily to interest earned on higher Company cash balances resulting from
internally generated funds.
Income Taxes. The Company's provision for income taxes for the three months
ended September 30, 1998 increased to $3.3 million from $1.9 million for the
same period in 1997. The increase reflects a higher average tax rate due
primarily to higher pre-tax income and the expiration of a business research
expenditure credit available to the Company through June 30, 1998. For the three
months ended September 30, 1998, the Company's effective tax rate increased to
38.5% from an annual rate of 36.5% that was in effect during the same period in
1997.
Net Income. Net income for the three months ended September 30, 1998
increased 47.8% to $5.0 million or $0.49 per common share (diluted) compared
with net income of $3.4 million or $0.34 per common share (diluted) for the
three months ended September 30, 1997. The increase in net income and net income
per common share reflects higher operating and net interest income.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Net Revenues. Net revenues increased 54.7% to $34.5 million for the nine
months ended September 30, 1998 from $22.3 million for the nine months ended
September 30, 1997 due primarily to an increase in sales to existing customers,
revenues from new customers and revenues from tests associated with developing
direct marketing initiatives outside the consumer catalog industry.
Cost of Revenues. Cost of revenues increased 56.1% to $6.6 million for the
first nine months ended September 30, 1998 from $4.2 million for the first nine
months ended September 30, 1997, due primarily to increases in staff,
depreciation and processing costs associated with supporting higher revenues.
Cost of revenues increased as a percentage of net revenues to 19.2% for the nine
months ended September 30, 1998 from 19.0% for the nine months ended September
30, 1997, due primarily to an increase in staffing levels and higher software,
hardware and systems processing costs required to support higher revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased
63.6% to $9.4 million or 27.4% of net revenues for the nine months ended
September 30, 1998 from $5.8 million or 25.9% of net revenues for the nine
months ended September 30, 1997. The increase in selling and marketing expenses
is due primarily to an increase in sales staff and associated expenses, higher
commissions as a result of significantly higher revenues, and the addition of
marketing personnel dedicated to developing new direct marketing initiatives
outside of the consumer catalog industry. The increase in the Company's sales
force is intended to reduce the average number of accounts serviced by an
account manager, improve customer service, and derive more revenues from
customers. The Company continued its development of direct marketing initiatives
outside the consumer catalog industry during the third quarter of 1998. Through
the
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initial stages of development, the Company has incurred, and expects to continue
to incur, costs in personnel, statistical modeling and other related areas
without an offsetting increase in revenues. While early testing in these areas
and initial customer response appear favorable, there can be no assurance that
meaningful revenues will be generated from these initiatives.
General and Administrative. General and administrative expenses increased
27.7% to $3.5 million for the nine months ended September 30, 1998 from $2.8
million for the nine months ended September 30, 1997. The increase in general
and administrative expenses resulted primarily from increases in performance
bonuses, rent, professional fees and an increase in staff to support overall
Company growth. General and administrative expenses for the nine months ended
September 30, 1998 decreased to 10.2% of net revenues compared to 12.4% for the
nine months ended September 30, 1997 due primarily to the fixed cost nature of
certain expenses which did not increase proportionately with the growth in
revenues.
Facility Relocation and Other. During the third quarter of 1998, the
Company recorded a non-recurring charge of $360,000 for expenses related to its
planned move to a new headquarters facility. The move will consolidate two
leased facilities in Westminster, Colorado, where the Company's executive
offices and principal operations are currently located, into approximately
75,000 square feet of office space in Broomfield, Colorado in April 1999.
Included in the non-recurring charge is $183,000 for the impairment of fixed
assets (primarily office furniture, fixtures and equipment) that will not be
relocated to the Company's new headquarters building. The remaining amount
represents noncancelable lease payments for its primary Westminster facility
from the anticipated relocation date through the expiration of the lease in
September 1999. The charge of $102,000 during the nine months ended September
30, 1997 resulted from the early termination of a consulting agreement with the
Company's previous Chief Financial Officer.
Research and Development. Research and development expenses increased 20.3%
to $1.3 million or 3.6% of net revenues for the nine months ended September 30,
1998 from $1.0 million or 4.7% of net revenues for the nine months ended
September 30, 1997. The increase in expense resulted from additional staff and
development efforts to achieve performance improvements in service efficiency in
addition to the development of new services.
Operating Profit. Operating profit increased 58.7% for the nine months
ended September 30, 1998 to $13.3 million or 38.6% of net revenues from $8.4
million or 37.6% of net revenues for the nine months ended September 30, 1997.
The increases in operating profit and operating margin are due primarily to the
combined effect of higher revenues and the fixed cost nature of certain
expenses, which did not increase proportionately. The improvement in operating
profit and margin was partially offset by growing investments in the development
of direct marketing initiatives outside the consumer catalog industry and the
increase in sales staff.
Interest and Other Income, Net. Net interest income for the nine months
ended September 30, 1998 increased 154.4% to $496,000 from $195,000 for the nine
months ended September 30, 1997. The increase in interest income was due
primarily to interest earned on higher Company cash balances resulting from
internally generated funds.
Income Taxes. The Company's provision for income taxes for the nine months
ended September 30, 1998 increased to $5.3 million from $3.1 million for the
same period in 1997. The increase reflects a higher average tax rate due
primarily to higher pre-tax income and the expiration of a business research
expenditure credit available to the Company through June 30, 1998. For the nine
months ended September 30, 1998, the Company's effective income tax rate
increased to 38.5% from an annual rate of 36.5% that was in effect during the
same period in 1997.
Net Income. Net income for the nine months ended September 30, 1998
increased 55.8% to $8.5 million or $0.83 per common share (diluted) compared
with net income of $5.4 million or $0.54 per common share (diluted) for the nine
months ended September 30, 1997. The increase in net income and net income per
common share reflects higher operating and net interest income.
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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 supplies
the direct marketing 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, general and
administrative, and research and development expenses as a percentage of net
revenues are usually higher and operating profit is usually lower during the
first half of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operating activities for the nine months
ended September 30, 1998 was $7.6 million compared to $2.5 million for the nine
months ended September 30, 1997. For the nine months ended September 30, 1998,
the increase in operating cash flow was due primarily to higher net income,
which was partially offset by additional investment in working capital
(primarily accounts receivable) to support the increase in net revenues as
compared to the same period during the previous year. As of September 30, 1998,
net working capital increased by $9.1 million to $25.2 million as of September
30, 1998 compared to $16.1 million as of December 31, 1997.
Cash used in investing activities was $1.5 million for the nine months
ended September 30, 1998 compared to $2.1 million for the nine months ended
September 30, 1997. These activities represent capital expenditures for computer
equipment and peripheral systems and office equipment necessary to support
revenue growth. For the remainder of 1998, the Company anticipates making
additional investments in its computing infrastructure. As a result of the
Company's planned relocation to a new headquarters facility in Broomfield,
Colorado in April 1999, the Company anticipates that it will spend approximately
$2.2 million for office furniture, leasehold improvements and other relocation
expenses. Funding for these expenditures will come from existing cash reserves,
operating cash flow and lease financing. On September 2, 1998, the Company
entered into an equipment lease agreement providing for the lease of $1.0
million in computer equipment at $31,530 per month for a period of 36 months.
The obligations of the Company under such agreement are secured by the leased
equipment and the lease is accounted for as a capital lease. As part of its
recently announced plans for a joint venture with VNU, the Company plans to
invest approximately $2.0 million to develop the operations of the joint venture
during the next twelve months.
During the nine months ended September 30, 1998, net cash generated from
financing activities was $629,000 compared to $440,000 for the nine months ended
September 30, 1997 due primarily to proceeds received from the exercise of
employee stock options that were partially offset by principal payments on an
existing capital lease obligation.
The Company's principal sources of liquidity are cash generated from
operations as well as cash and cash equivalents, which totaled approximately
$17.2 million at September 30, 1998. Historically, the Company has funded its
operations through cash flow from operations and debt and equity financing. The
Company believes that its cash flow from operations and cash on hand will
provide sufficient resources to meet its capital requirements and operational
needs for the foreseeable future.
YEAR 2000 ISSUE
For many years, computer systems and applications were often programmed to
assume that the century portion of a date was "19" to conserve the use of
storage and memory. This assumption resulted in the use of two-digits (rather
than four) to define an applicable year. Accordingly, computer systems that rely
on two-digits to define an applicable year may recognize a date using "00" as
the year 1900, rather than the year 2000 (the "Year 2000 Issue"). This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process or transmit data
or engage in normal business activities.
The Company is currently in the process of assessing its Year 2000
readiness. This assessment includes a review of the Company's internal
information technology systems, non-information technology systems and
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the systems of third parties upon which the Company's systems may rely.
Preliminarily, it appears that the Company will be required to modify or replace
its proprietary software so that its computer systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and, in certain instances, conversions to new
software, the Year 2000 Issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material adverse impact on the operations of the Company.
The Company is in the process of communicating with all of its significant
suppliers and members of the Abacus Alliance to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. Presently, the Company is reviewing the transactional files
contributed by the Abacus Alliance members to determine if those files contain
date-sensitive data which may require modification or conversion to recognize
the correct century prior to loading to the Abacus Alliance database. Similarly,
demographic information that is obtained from a third party and used to enhance
the transactional data on the Abacus Alliance database may also require
conversion or modification to be Year 2000 compliant. To the extent that the
systems of third parties or other companies on which the Company's systems rely
are not timely converted or if such conversion is incompatible with the
Company's systems, the Company's operations may be adversely affected.
The Company is utilizing both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. Costs incurred by
the Company in its Year 2000 remediation efforts must be expensed as incurred.
In addition, the replacement of computer hardware or software to comply with the
Year 2000 Issue may result in a charge to income. The Company plans to complete
the Year 2000 project in 1999. The total remaining cost of the Year 2000 project
is estimated at $400,000 to $600,000 and is being funded through operating cash
flow and is not expected to have a material effect on the results of operations
or financial condition of the Company. Through the third quarter of 1998, the
Company has incurred and expensed approximately $150,000 related to the
assessment of, and preliminary efforts in connection with, its Year 2000 project
and the development of a remediation plan. The Company has not yet developed any
contingency plans in the event its Year 2000 remediation efforts are
unsuccessful, but plans to do so in 1999. While the Company has not identified a
reasonably likely worst case scenario in the event it doesn't become Year 2000
compliant, the Company continues to evaluate the Year 2000 Issue and is
attempting to address any Year 2000 deficiencies.
The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of a third
party's Year 2000 Issue, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. The cost of
the project and the date on which the Company plans to complete the Year 2000
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q and elsewhere (such as in other
filings by the Company with the Securities and Exchange Commission, press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
include those relating to future opportunities, the outlook of customers, the
expansion of the Abacus Alliance, the reception of new services and
technologies, resolution of the Year 2000 Issue, the VNU joint venture, the
success of new initiatives and the likelihood of incremental revenues offsetting
expenses related to those new initiatives. In addition, such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may
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cause the actual results, performance or achievements of the Company to be
materially different from any future results expressed or implied by such
forward-looking statements. Such factors include: (i) demand for the Company's
services from the direct marketing industry; (ii) governmental regulation
regarding privacy issues; (iii) the actions of current and potential new
competitors; (iv) changes in technology; (v) the seasonality and cyclical nature
of the direct marketing industry; (vi) changes in postal rates and paper prices;
(vii) the nature and amount of the Company's revenues and expenses; and (viii)
overall economic conditions and other risks detailed from time to time in the
Company's periodic earnings releases and reports filed with the Securities and
Exchange Commission, as well as the risks and uncertainties discussed in this
Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities, which is
designed for safety of principal, liquidity and diversification. Such
investments are subject to inherent interest rate risk as they mature and are
renewed at current market rates. The Company does not presently use derivative
financial instruments to adjust its risk profile. The Company is subject to
competitive and fluctuating economic conditions of the direct marketing industry
as a result of the Company's activities in such industry.
12
<PAGE> 13
PART II
ITEM 5. OTHER INFORMATION.
OFFICER AND DIRECTOR ADDITIONS
The Board of Directors of the Company has appointed Robert L. North as a
Director. Since 1987, Mr. North has served as President and Chief Executive
Officer of HNC Software, Inc., a publicly traded software development company.
The Company has entered into an employment agreement (the "Employment
Agreement"), dated November 2, 1998, with Christopher M. Dice, pursuant to which
he will serve as President and Chief Operating Officer of the Company. Mr. Dice
was hired to fill the vacancy created by Daniel C. Snyder, who has assumed the
position as President of Emerging Markets and Chairman of ABACUS Direct Europe.
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 Mr. Dice elects to terminate the Employment Agreement by written
notice. The Employment Agreement provides for an initial annual base salary of
$225,000, 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 Mr. Dice may be granted a bonus of up to
fifty percent (50%) of Mr. Dice'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 the grant of
stock options to purchase 125,000 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.
The Company may terminate the Employment Agreement for disability or with
or without cause. Mr. Dice may terminate his Employment Agreement in the event
of (i) a material breach of the agreement by the Company, (ii) Mr. Dice's
removal from his current position without cause, or (iii) "a change in control"
of the Company. In the event the Company terminates Mr. Dice's employment for a
reason other than disability or cause, or if Mr. Dice terminates his employment
as set forth above, or if the Employment Agreement is not renewed, Mr. Dice will
be entitled to receive a payment equal to his annual base salary then in effect
and the bonus amount Mr. Dice 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 Mr. Dice is a member of the Board of Directors who affirmatively
votes in favor of such sale transaction resulting in the "change of control."
In connection with the appointment of Messrs. North and Dice, the Company
entered into its standard form of agreement for its officers and directors
providing for indemnification for liability for acts and omissions as directors
and officers of the Company.
JOINT VENTURE AND STRATEGIC ALLIANCE
The Company anticipates signing a definitive agreement with VNU Business
Information Europe B.V. ("VNU"), a Dutch publishing and business information
company, providing for the creation of a joint venture in which the Company will
have a 50% ownership interest. The joint venture, ABACUS Direct Europe, is being
formed to create an alliance similar to the ABACUS Alliance, which will provide
services similar to those of the Company to the European Community. ABACUS and
VNU will contribute approximately $2.0 million in debt and equity during the
next 12 months as well as certain services, information and licenses.
On October 6, the Company formed a strategic alliance with Catalog City,
Inc. ("Catalog City"), an on-line portal offering on-line shopping services to
catalog shoppers, to jointly promote each others services and share certain
accrued e-commerce data. In connection with the formation of the strategic
alliance, the Company was granted rights to acquire certain stock of Catalog
City, and M. Anthony White, Chairman of
13
<PAGE> 14
the Board and Chief Executive Officer of the Company, or another executive
officer of the Company designated by Mr. White, has agreed to serve on the Board
of Directors of Catalog City.
EQUIPMENT LEASE
On September 2, 1998, the Company entered into an equipment lease agreement
with COMDISCO, Inc. providing for the lease of $1.0 million in computer
equipment at $31,530 per month for a period of 36 months. The obligations of the
Company under such agreement are secured by the leased equipment and the lease
is accounted for as a capital lease.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibit is hereby filed as part of this Quarterly Report on
Form 10-Q.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.01 -- Master Lease dated September 2, 1998, between COMDISCO,
Inc. as Lessor, and the Company.
10.02 -- Employment Agreement dated November 2, 1998 between the
Company and Christopher M. Dice.
10.03 -- Form of Indemnification Agreement entered into between
the Company and each of its officers and directors.
Incorporated by reference to Exhibit 3.01 to the
Registration Statement on Form SB-2 filed by the Company
on August 7, 1996 (Registration No. 333-5380).
27.01 -- Financial Data Schedule (for electronic filing only).
</TABLE>
14
<PAGE> 15
SIGNATURE
In accordance with the requirements 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.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS E. SALA
----------------------------------
Carlos E. Sala
Senior Vice President -- Finance
and Chief Financial Officer
(Principal Financial and
Accounting
Officer and duly authorized
officer)
Dated: November 16, 1998
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.01 -- Master Lease dated September 2, 1998, between COMDISCO,
Inc. as Lessor, and the Company.
10.02 -- Employment Agreement dated November 2, 1998 between the
Company and Christopher M. Dice.
10.03 -- Form of Indemnification Agreement entered into between
the Company and each of its officers and directors.
Incorporated by reference to Exhibit 3.01 to the
Registration Statement on Form SB-2 filed by the Company
on August 7, 1996 (Registration No. 333-5380).
27.01 -- Financial Data Schedule (for electronic filing only).
</TABLE>
<PAGE> 1
[COMDISCO LOGO]
MASTER LEASE AGREEMENT
01-M09451-00
A TECHNOLOGY SERVICES COMPANY
MASTER LEASE AGREEMENT dated September 2, 1998 by and between COMDISCO, INC.
("Lessor") and Abacus Direct Corporation ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.13):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Schedule. In
the event of a conflict, the terms of a Schedule prevail over this Master Lease.
2. TERM.
On the Commencement Date Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the term
of a Schedule will begin and continue through the Initial Term and thereafter
until terminated by either party upon prior written notice received during the
Notice Period. No termination may be effective prior to the expiration of the
Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment
is not made when due, Lessee will pay interest at the Overdue Rate.
4. SELECTION AND WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that,
so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER
WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR
PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or
expense of any kind (including strict liability in tort) caused by the Equipment
except for any loss or damage caused by the negligent acts of Lessor. In no
event is Lessor responsible for special, incidental or consequential damages.
5. TITLE AND ASSIGNMENT
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, to prepare, execute and file in Lessee's name
precautionary Uniform Commercial Code financing statements showing the interest
of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to
insert serial numbers in Schedules as appropriate. Except as provided in
Sections 5.2 and 7.2, Lessee will, at its expense, keep the Equipment free and
clear from any liens or encumbrances of any kind (except any caused by Lessor)
and will indemnify and hold Lessor, Owner, any Assignee and Secured Party
harmless from and against any loss caused by Lessee's failure to do so.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) the sublease is
not to a leasing entity affiliated with the manufacturer of the Equipment
described on the Schedule. Lessor acknowledges Lessee's right to sublease for a
term which extends beyond the expiration of the Initial Term. If Lessee
subleases the Equipment for a term extending beyond the expiration of such
Initial Term of the applicable Schedule, Lessee shall remain obligated upon the
expiration of the Initial Term to return such Equipment, or, at Lessor's sole
discretion to (i) return Like Equipment or (ii) negotiate a mutually acceptable
lease extension or purchase. If the parties cannot mutually agree upon the terms
of an extension or purchase, the term of the Schedule will extend upon the
original terms and conditions until terminated pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the applicable Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the obligations
of Lessor. The Secured Party will not disturb Lessee's quiet and
peaceful possession and unrestricted use of the Equipment so long as
Lessee is not in default and the Secured Party continues to receive
all Rent payable under the Schedule;
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor.
Lessee reserves its right to have recourse directly against Lessor
for any defense or claim; and
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the
extent of the Secured Party's rights in that Equipment.
6. NET LEASE AND TAXES AND FEES.
6.1 Net Lease. Each Schedule constitutes a net lease. Lessee's obligation
to pay Rent and all other amounts is absolute and unconditional and is not
subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property tax
returns for the Equipment and pay all property taxes due. Lessee will reimburse
Lessor for property taxes within thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE, ATTACHMENTS AND RECONFIGURATIONS AND INSPECTION
BY LESSOR.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available, Lessee will
maintain in force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and upon request will provide
Lessor with a complete copy of that contract. If Lessee has the Equipment
maintained by a party other than the manufacturer, Lessee agrees to pay any
costs necessary for the manufacturer to bring the Equipment to then current
release, revision and engineering change levels, and to re-certify the Equipment
as eligible for manufacturer's maintenance at the expiration of the lease term.
The lease term will continue upon the same terms and conditions until
recertification has been obtained.
7.2 Attachments and Reconfigurations. Upon prior written notice to Lessor,
Lessee may reconfigure and install Attachments on the Equipment. In the event of
such a Reconfiguration or Attachment, Lessee shall, upon return of the
Equipment, at its expense, restore the Equipment to the original configuration
specified on the Schedule in accordance with the manufacturer's specifications
and in the same operating order, repair and appearance as when installed (normal
wear and tear excluded). If any parts are removed from the Equipment during the
Reconfiguration or Attachment, the restoration will include, at Lessee's option,
the installation of either the original removed parts or Like Parts.
Alternatively, with Lessor's prior written consent which will not be
unreasonably withheld, Lessee may return the Equipment with any Attachment or
upgrade. If any parts of the Equipment are removed during a Reconfiguration or
Attachment, Lessor may require Lessee to provide additional security,
satisfactory to the Lessor, in order to ensure performance of Lessee's
obligations set forth in this subsection. Neither Attachments nor parts
installed on Equipment in the course of Reconfiguration shall be accessions to
the Equipment.
However, if the Reconfiguration or Attachment (i) adversely affects
Lessor's tax benefits relating to the Equipment; (ii) is not capable of being
removed without causing material damage to the Equipment; or (iii) if at the
time of the Reconfiguration or Attachment the manufacturer does not offer on a
commercial basis a means for the removal of the additional items; then such
Reconfiguration or
<PAGE> 2
Attachment is subject to the prior written consent of Lessor.
7.3 Inspection by Lessor. Upon request, Lessee, during reasonable business
hours and subject to Lessee's security requirements, will make the Equipment and
its related log and maintenance records available to Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE.
Lessee represents and warrants that for the Master Lease and each Schedule:
(a) The execution, delivery and performance of the Lessee have been duly
authorized by all necessary corporate action;
(b) The individual executing was duly authorized to do so;
(c) The Master Lease and each Schedule constitute legal, valid and
binding agreements of the Lessee enforceable in accordance with their
terms; and
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee assumes the full expense of transportation and in-transit insurance
to Lessee's premises and for installation of the Equipment. Upon expiration or.
termination of each Schedule, Lessee will, at Lessor's instructions and at
Lessee's expense (including transportation and in-transit insurance), have the
Equipment deinstalled, audited by the manufacturer, packed and shipped in
accordance with the manufacturer's specifications and returned to Lessor in the
same operating order, repair and appearance as when installed (ordinary wear and
tear excluded), to a location within the continental United States as directed
by Lessor. All items returned to Lessor in addition to the Equipment become
property of Lessor.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. INDEMNITY.
Lessee will indemnify and hold Lessor, any Assignee and any Secured Party
harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable attorney's fees, arising out of the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
12.1 Lessee's Risk of Loss. It the Schedule indicates that the Lessee has
responsibility for the risk of loss of the Equipment, then the following terms
will apply:
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration. The Lessee will furnish
appropriate evidence of such insurance.
Lessee shall promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
12.2 Lessor's Risk of Loss. If the Schedule indicates that the Lessor has
responsibility for the risk of loss of the Equipment, then the following terms
will apply:
Effective upon delivery and throughout the Initial Term of a Schedule and
any extension, Lessor agrees to insure the Equipment against physical damage to
or loss or destruction due to external cause as specified by the terms of
Lessor's then current insurance policy. Lessor relieves Lessee of responsibility
for physical damage to or loss or destruction of Equipment reimbursed by that
insurance. Lessee will give Lessor prompt notice of any damage, loss or
destruction to any item of Equipment and Lessor will determine within fifteen
(15) days of its receipt of that notice whether the item has suffered a Casualty
Loss.
If any item of Equipment suffers damage or a Casualty Loss which is
reimbursable under Lessor's insurance, upon payment by Lessee of Lessor's
deductible, Lessor will: (i) (for damaged Equipment) arrange and pay for the
repair of any damaged item of Equipment; or (ii) (for any Casualty Loss) at
Lessor's option either replace the item of Equipment with Like Equipment, or
upon payment of all other amounts due by Lessee terminate the relevant Schedule
as it relates to that item of Equipment.
If any item of Equipment suffers damage or a Casualty Loss which is not
reimbursable under Lessor's insurance. then Lessee will comply with the
provisions of the last paragraph of Section 12.1 regarding repair, replacement
or payment of Casualty Value.
If Lessor fails to maintain insurance coverage as required by this
subsection 12.2, Lessee will assume such risk of loss and, at the request of any
Assignee or Secured Party, will promptly provide insurance coverage. This
paragraph does not relieve Lessor of its obligations to maintain coverage of the
Equipment.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for ten (10) days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty
made by the Lessee in the Schedule or in any document or certificate
furnished to the Lessor hereunder if that failure or inaccuracy
continues for fifteen (15) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under
any bankruptcy or insolvency law or for the appointment of a trustee
or other officer with similar powers, the adjudication of Lessee as
insolvent, the liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent
due under the defaulted Schedule (discounted at the same rate of
interest at which such defaulted Schedule was discounted with a
Secured Party plus any prepayment fees charged to Lessor by the
Secured Party or, if there is no Secured Party, then discounted at
6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter Lessee's premises to remove
and repossess the Equipment without being liable to Lessee for
damages due to the repossession, except those resulting from
Lessor's. its assignees', agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term
less the Default Costs; or
(b) if leased. the present value (discounted at three points over the
prime rate as referenced in the Wall Street Journal at the time of
the mitigation) of the rentals for a term not to exceed the Initial
Term, less the Default costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor
may recover, the amount by which the proceeds are less than the liquidated
damages and other sums due to Lessor from Lessee.
<PAGE> 3
14. ADDITIONAL PROVISIONS.
14.1 Entire Agreement. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.2 No Waiver. No action taken by Lessor or Lessee shall be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.3 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.4 Survival of Obligations. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.5 Notices. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
facsimile transmission if receipt is verified by the receiving party.
14.6 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.7 Severability. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.8 Counterparts. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
14.9 Nonspecified Features and Licensed Products. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee shall obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.10 Additional Documents. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with an aggregate Rent
in excess of $2,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel regarding the representations and warranties in Section 8.
Lessee will furnish, upon request, audited financial statements for the most
recent period.
14.11 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.12 Lessor's Right to Match. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party offer
and Lessor will have three (3) business days to match the offer. Lessee shall
obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.13 Definitions.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
ATTACHMENT - means any accessory, equipment or device and the installation
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT CERTIFICATE - means the Lessor provided certificate which must be
signed by Lessee within ten days of the Commencement Date as requested by
Lessor.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
EQUIPMENT - means the property described on a Schedule and any replacement for
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INSTALLATION DATE - means the day on which Equipment is installed and qualified
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
LIKE PART - means a substituted part which is lien free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
NOTICE PERIOD - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
OVERDUE RATE - means the lesser of 18% per year or the maximum rate permitted by
the law of the state where the Equipment is located.
OWNER - means the owner of Equipment.
RECONFIGURATION - means any change to Equipment that would upgrade or downgrade
the performance capabilities of the Equipment in any way.
RENT - means the rent, including Interim Rent, Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means an Equipment Schedule which incorporates all of the terms and
conditions of this Master Lease and, for purposes of Section 14.8, its
associated Commencement Certificate(s).
SECURED PARTY - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
Abacus Direct Corporation
- -------------------------------- COMDISCO, INC.,
as Lessee as Lessor
By: /s/ CARLOS SALA By: /s/ MICHAEL J. ROSS
----------------------------- --------------------------
Title: CFO Title:
-------------------------- -----------------------
rmh
<PAGE> 4
ADDENDUM
TO MASTER LEASE AGREEMENT DATED SEPTEMBER 2, 1998
BETWEEN
ABACUS DIRECT CORPORATION, AS LESSEE,
AND
COMDISCO, INC., AS LESSOR
WITNESSETH
WHEREAS, Lessee and Lessor will enter into a Master Lease Agreement dated as of
September 2, 1998 (the "Master Lease");
WHEREAS, Lessee and Lessor desire to add this addendum to the Master Lease
effective September 2, 1998;
NOW THEREFORE, for and in consideration of the agreements herein contained and
for other good and valuable consideration receipt and sufficiency of which is
hereby acknowledged, Lessee and Lessor agree as follows:
1) Section 14.6; Applicable Law.
In line 3 and line 4 delete the word "Illinois" and replace it with the
word "Colorado".
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be executed
as of the date first written above.
ABACUS DIRECT CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ CARLOS SALA By: /s/ MICHAEL J. ROSS
--------------------------- -------------------------
Title: CFO Title:
------------------------ -----------------------
Date: Date:
------------------------- -----------------------
<PAGE> 5
EQUIPMENT SCHEDULE NO. 1
DATED SEPTEMBER 2, 1998
TO MASTER LEASE AGREEMENT DATED SEPTEMBER 2, 1998 ("Master Lease")
LESSEE: ABACUS DIRECT CORPORATION LESSOR: COMDISCO, INC.
ADDRESS FOR LEGAL NOTICES: ADDRESS FOR ALL NOTICES:
8774 Yates Drive 6111 North River Road
Westminster, CO 80030 Rosemont, Illinois 60018
Attn: Client Server Product
Group
ATTN: Corporate Secretary
ADDRESS FOR ADMINISTRATIVE CORRESPONDENCE: ADDRESS FOR INVOICES:
8774 Yates Drive 8774 Yates Drive
Westminster, CO 80030 Westminster, CO 80030
ATTN: Mr. John Sullivan ATTN: Mr. John Sullivan
PHONE: 303-487-5402
FAX: 303-487-5454 LESSEE REFERENCE NO:
(24 digits maximum)
INITIAL TERM/
LOCATION OF EQUIPMENT: RENT INTERVAL: 36 months
8774 Yates Drive LEASE RATE FACTOR: .027779
Westminster, CO 80030
ATTN: Mr. John Sullivan ESTIMATED RENT: $29,317.12/month
PHONE: 303-487-5402
TRANSPORTATION CHARGES:
----------------------
Lessee Pays Vendor Directly
EQUIPMENT (AS DEFINED BELOW):
<TABLE>
<CAPTION>
ITEM MACHINE MODEL/
NO. QTY. MFG. TYPE FEATURE DESCRIPTION SERIAL NUMBER
- --- ---- ---- ---- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
SEE ATTACHED INVOICE #0004809-IN, 0004810-IN DATED 7/31/98 FROM BERGER & CO. AND
INVOICE #INV-0010090 DATED 7/24/98, BB1 057367, BB1 057361 DATED 6/29/98 FROM
ADVANCED SYSTEMS GROUP ATTACHED FOR EQUIPMENT DESCRIPTION PURPOSES ONLY.
<PAGE> 6
RISK OF LOSS: Pursuant to the Master Lease, Lessor and Lessee agree that the
risk of loss is the responsibility of the Lessee.
NOTICE PERIOD: The Notice Period will be not less than ninety (90) days nor more
than twelve (12) months prior to the expiration of the Initial Term, or any
extension thereof. If Lessee gives proper written notice of termination but
fails to return the Equipment on the expiration date of the Initial Term, or any
extension thereof, the Schedule will continue in full force and effect and
Lessee will be required to provide an additional sixty (60) days written notice
of termination. Such termination will be effective at the end of the month in
which the last day of the sixty (60) day notice requirement occurs. The Rent
will continue at the current rate until the effective date of the written notice
of termination and the Equipment is properly returned.
SPECIAL TERMS: The following additional terms are a part of this Equipment
Schedule. The terms and conditions of the Master Lease Agreement as they pertain
to this Equipment Schedule are modified and amended as follows:
1. COMMENCEMENT DATE AND PURCHASE/LEASEBACK
The Commencement Date for each item of Equipment will be the day on which
that item is installed and qualified for a commercially available
manufacturer's standard maintenance contract or warranty coverage, if
available. For Equipment not being provided by IBM, Lessee agrees to
confirm the Commencement Date by providing Lessor with either a
Commencement Certificate in the form provided by Lessor or the vendor's
invoice containing the Equipment location, description, serial number,
manufacturer part number and cost, the Commencement Date and Lessee's
signature, within ten (10) days of the Commencement Date. Lessor will not
be obligated to pay any invoice which does not contain the manufacturer's
part number. The Initial Term will begin on the first day of the calendar
quarter following the Commencement Date for all items of Equipment.
Lessor's obligations under this Equipment Schedule and the periodic Rent
described in this Equipment Schedule are contingent upon Lessor purchasing
the Equipment for an aggregate amount of approximately $1,055,373.00
pursuant to satisfactory purchase documentation. Lessee acknowledges that
it has either received or approved Lessor's purchase documentation for the
Equipment. If the Commencement Date occurs later than October 1, 1998
("Outside Date"), if the Commencement Certificate or vendor invoices are
not provided within ten (10) days of the Commencement Date, or if the cost
or configuration of the Equipment changes, Lessor may adjust the Lease
Rate Factors or the periodic Rent to reflect any additional costs or
expense resulting from those changes.
2. INTEREST RATE CHANGE
The Lease Rate Factors or the periodic Rent described in this Equipment
Schedule have been calculated using an interest rate based on the 3-year
U.S. Treasury Constant Maturity of 5.35% as described in the Federal
Reserve Statistical Release H.15 ("Treasury Rate"). If the Commencement
Date for the last item of Equipment prior to the beginning of the Initial
Term occurs later than October 1, 1998 and the Treasury Rate is greater,
or there is an adverse change in Lessee's credit standing, Lessor may
adjust the Lease Rate Factors or the periodic Rent for all items of
Equipment accordingly.
3. VENDOR CREDITS
If after the Commencement Date for an item of Equipment, Lessee finds such
item of Equipment to be inoperable; Lessee will seek recourse solely
against the vendor of the Equipment for resolution of any problems
concerning performance of the Equipment. If the item of Equipment is
replaced by the vendor, Lessee agrees to provide Lessor with the serial
number for the replacement equipment within 10 days of replacement. Lessor
will not process any invoices associated with the Equipment being returned
to vendor or the replacement equipment.
Notwithstanding the foregoing, if after the Commencement Date for an item
of Equipment, Lessee finds that (i) the vendor has over-charged for an
item of Equipment, or (ii) the vendor has shipped an incorrect item of
Equipment, upon 30 days prior written notice from Lessee, Lessor agrees to
process any credits received from the vendor and apply the credits to the
Rent hereunder. The rental adjustment will be effective on Lessor's next
billing cycle following the 30-day notice period.
<PAGE> 7
4. MODEL UPGRADE
During the Initial Term of this Equipment Schedule, so long as Lessee is
not in default and there has been no material adverse change in Lessee's
credit standing at the time, Lessee will lease and Lessor will finance new
or supply used, all model upgrades to the Equipment pursuant to mutually
agreeable terms and conditions and at an amount which would be obtainable
at the commencement of the Initial Term for the model upgrade in an
arm's-length transaction between an informed and willing lessee/user and
an informed and willing lessor/dealer under no compulsion to lease.
5. RECERTIFICATION
Lessee may return the Equipment to Lessor recertified pursuant to Section
7.1 of the Master Lease or Lessee may return the Equipment to Lessor
without the Equipment being recertified, provided however, Lessee will pay
all costs and expenses incurred by Lessor to bring the Equipment to the
then current release, revisions and engineering change levels, and to
re-certify the Equipment as eligible for manufacturer's maintenance upon
the expiration of the lease term.
MASTER LEASE: This Equipment Schedule is issued pursuant to the Master Lease
identified on page 1 of this Equipment Schedule. All of the terms and conditions
of the Master Lease are incorporated in and made a part of this Equipment
Schedule as if expressly described in this Equipment Schedule, and this
Equipment Schedule constitutes a separate lease for the Equipment. The parties
reaffirm all of the terms and conditions of the Master Lease (including, without
limitation, the representations and warranties set forth in the Master Lease)
except as modified by this Equipment Schedule. This Equipment Schedule may not
be amended or rescinded except by writing signed by both parties.
ABACUS DIRECT CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ CARLOS SALA By: /s/ WILLIAM J. SKRZYPCZAK
---------------------------- ------------------------------
Title: CFO Title: Vice President, Client Server
Systems
------------------------- ---------------------------
Date: Date:
-------------------------- ---------------------------
<PAGE> 8
ASSIGNMENT OF ON-ORDER EQUIPMENT
Assignor: ABACUS DIRECT CORPORATION Assignee: COMDISCO, INC.
8774 Yates Drive 6111 North River Road
Westminster, CO 80030 Rosemont, IL 60018
Attn: Mr. John Sullivan Attn: Client Server Product
Group
Vendor: ADVANCED SYSTEMS GROUP
12301 North Grant Street, Suite 130
Denver, CO 80241
Attn: Ms. Flo Harlor
Effective September 2, 1998, Assignor assigns to Assignee the right to purchase
the equipment (the "Equipment") described on the attached Invoices dated July
24, 1998 and June 29, 1998 which Assignor presently has on order with the Vendor
(the "Purchase Agreement"). Assignee accepts the assignment by Assignor to
purchase the Equipment in accordance with the terms of the Purchase Agreement
and this Assignment Agreement.
1. LEASE
The parties agree that this agreement has been entered on the basis that
the Equipment will be leased by Assignee to Assignor pursuant to Equipment
Schedule No. 1 to the Master Lease Agreement dated as of September 2, 1998
between Assignor and Assignee (collectively the "Lease").
2. TITLE
Vendor and Assignor agree that title to each item of Equipment will vest
in Assignee on the date that item of Equipment is shipped to Assignor.
Assignee agrees that Vendor will have a purchase money security interest
in each item of Equipment until full payment of the purchase price is made
to Vendor for that item.
3. PURCHASE AGREEMENT OBLIGATIONS/PAYMENT
Assignee will be obligated to pay the purchase price for the Equipment.
Assignor will be responsible for all other obligations of Purchaser under
the Purchase Agreement. Assignee's obligation to pay the purchase price
will only be for Equipment which is installed and accepted by Assignor and
will be payable promptly following the receipt by Assignee of (i) a
Commencement Certificate in a form satisfactory to Assignee evidencing
Assignor's acceptance of such Equipment, and (ii) an invoice which
contains the manufacturer part number and which has been approved by
Assignor for the Equipment. Assignee will not be obligated to pay any
invoice which does not contain the manufacturer's part number. Vendor will
look solely to Assignor for payment prior to the date Assignee is
obligated to pay if the Purchase Agreement requires earlier payment, and
Assignee will reimburse Assignor the purchase price Assignor has paid
following Assignor's acceptance of the Equipment, provided, however, title
to the Equipment will nevertheless vest in Assignee as provided above.
Payment may be expedited to Vendor following the satisfaction of the conditions
precedent set forth above in the following circumstances and manner.
(a) If Assignee has received a duplicate EDI invoice (ANSI-810) from
Vendor or Assignor, contemporaneously with matching such invoice
issuance by Vendor, payment and related remittance advice
(ANSI-820) will be issued on or about three (3) business days
after Assignee's receipt of the last item constituting a condition
precedent to such payment.
<PAGE> 9
Assignor and Assignee agree to deliver to Vendor in a timely fashion, all
documents required for submission to Vendor, to permit the assignment and
purchase of the Equipment.
ASSIGNOR: ABACUS DIRECT CORPORATION ASSIGNEE: COMDISCO, INC.
By: /s/ CARLOS SALA By: /s/ WILLIAM J. SKRZYPCZAK
-------------------------------- -----------------------------
Title: CFO Title: VP Client Server Systems
------------------------------ ---------------------------
VENDOR ADVANCED SYSTEMS GROUP
By: /s/ VICKIE SCHULTZ
---------------------------------
Title: Operations Manager
-----------------------------
<PAGE> 10
ASSIGNMENT OF ON-ORDER EQUIPMENT
Assignor: ABACUS DIRECT CORPORATION Assignee: COMDISCO, INC.
8774 Yates Drive 6111 North River Road
Westminster, CO 80030 Rosemont, IL 60018
Attn: Mr. John Sullivan Attn: Client Server Product
Group
Vendor: BERGER & CO.
1350 Seventeenth Street, Suite 300
Denver, CO 80202
Attn: Mr. Paul Schwappach
Effective September 2, 1998, Assignor assigns to Assignee the right to purchase
the equipment (the "Equipment") described on the attached Invoices dated July
31, 1998 which Assignor presently has on order with the Vendor (the "Purchase
Agreement"). Assignee accepts the assignment by Assignor to purchase the
Equipment in accordance with the terms of the Purchase Agreement and this
Assignment Agreement.
1. LEASE
The parties agree that this agreement has been entered on the basis that
the Equipment will be leased by Assignee to Assignor pursuant to Equipment
Schedule No. 1 to the Master Lease Agreement dated as of September 2, 1998
between Assignor and Assignee (collectively the "Lease").
2. TITLE
Vendor and Assignor agree that title to each item of Equipment will vest
in Assignee on the date that item of Equipment is shipped to Assignor.
Assignee agrees that Vendor will have a purchase money security interest
in each item of Equipment until full payment of the purchase price is made
to Vendor for that item.
3. PURCHASE AGREEMENT OBLIGATIONS/PAYMENT
Assignee will be obligated to pay the purchase price for the Equipment.
Assignor will be responsible for all other obligations of Purchaser under
the Purchase Agreement. Assignee's obligation to pay the purchase price
will only be for Equipment which is installed and accepted by Assignor and
will be payable promptly following the receipt by Assignee of (i) a
Commencement Certificate in a form satisfactory to Assignee evidencing
Assignor's acceptance of such Equipment, and (ii) an invoice which
contains the manufacturer part number and which has been approved by
Assignor for the Equipment. Assignee will not be obligated to pay any
invoice which does not contain the manufacturer's part number. Vendor will
look solely to Assignor for payment prior to the date Assignee is
obligated to pay if the Purchase Agreement requires earlier payment, and
Assignee will reimburse Assignor the purchase price Assignor has paid
following Assignor's acceptance of the Equipment, provided, however, title
to the Equipment will nevertheless vest in Assignee as provided above.
Payment may be expedited to Vendor following the satisfaction of the conditions
precedent set forth above in the following circumstances and manner.
(a) If Assignee has received a duplicate EDI invoice (ANSI-810) from
Vendor or Assignor, contemporaneously with matching such invoice
issuance by Vendor, payment and related remittance advice
(ANSI-820) will be issued on or about three (3) business days
after Assignee's receipt of the last item constituting a condition
precedent to such payment.
<PAGE> 11
Assignor and Assignee agree to deliver to Vendor in a timely fashion, all
documents required for submission to Vendor, to permit the assignment and
purchase of the Equipment.
ASSIGNOR: ABACUS DIRECT CORPORATION ASSIGNEE: COMDISCO, INC.
By: /s/ CARLOS SALA By: /s/ WILLIAM J. SKRZYPCZAK
-------------------------------- -----------------------------
Title: CFO Title: VP Client Server Systems
------------------------------ ---------------------------
VENDOR: BERGER & CO.
By: /s/ [ILLEGIBLE]
---------------------------------
Title: Senior Account Executive/ BTI
Division Manager
------------------------------
<PAGE> 12
COMMENCEMENT CERTIFICATE
This Certificate dated September 2, 1998 is executed pursuant to
Equipment Schedule No. 1 to the Master Lease Agreement dated September between
Comdisco, Inc. ("Lessor") and Abacus direct Corporation ("Lessee").
1. EQUIPMENT:
<TABLE>
<CAPTION>
EQUIPMENT
QTY. MFG. TYPE/MODEL SERIAL # LOCATION
- ---- ---- ----------- -------- --------
<S> <C> <C> <C> <C>
</TABLE>
SEE ATTACHED INVOICE #0004809-IN, 0004810-IN DATED 7/31/98 FROM BERGER & CO. AND
INVOICE #INV-0010090 DATED 7/24/98, BB1 057367, BB1 057361 DATED 6/29/98 FROM
ADVANCED SYSTEMS GROUP ATTACHED FOR EQUIPMENT DESCRIPTION PURPOSES ONLY.
2. COMMENCEMENT DATE: 9-1-98
3. TOTAL EQUIPMENT COST: $ 1,055,373.00
(Please total attached invoices)
4. REPRESENTATIONS OF LESSEE:
The Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by
the Lessee on the Commencement Date.
ABACUS DIRECT CORPORATION
as Lessee
By: /s/ CARLOS SALA
--------------------------------
Title: CFO
-----------------------------
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of November 2, 1998 (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 CHRISTOPHER M. DICE, having an address at 9100 Vance Street,
Westminster, CO 80021 ("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; and
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.
(a) Subject to the terms and conditions set forth
in this Agreement, the Corporation offers and the Executive hereby accepts
employment, effective as of October 26, 1998 (the "Commencement Date").
(b) The Corporation hereby employs Executive as the
President and Chief Operating Officer 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 operation of the Corporation's business
and recent initiatives in the United States, 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, including
participation in the overall development of the Corporation's business
strategies. 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.
<PAGE> 2
(c) Executive shall faithfully and diligently
discharge his duties hereunder and use his best efforts to implement the
policies established by the 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.
(a) During the Term of Executive's employment
hereunder, the Corporation shall cause Executive to receive a base salary in the
amount of Two Hundred Twenty Five Thousand ($225,000.00) 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.
(b) 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. 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.
-2-
<PAGE> 3
(c) In connection with the Executive's relocation
to the Denver, Colorado area, 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 up to thirty (30) days of temporary housing and
air fare from Denver, Colorado to Florida every other weekend until January 1,
1999, upon submission of appropriate receipts and invoices therefore in
accordance with the practices of the Corporation. The Corporation shall also
reimburse Executive for the income tax gross up associated with such
reimbursement to the extent taxable to Executive.
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, bonus
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".
(a) 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
-3-
<PAGE> 4
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."
(b) 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 Corporation receives written notice from Executive of such
breach or if at any time Executive is not reelected to serve as President and
Chief Operating Officer of the Corporation or Executive is removed as President
and Chief Operating 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.
-4-
<PAGE> 5
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.
9. Compensation Upon Termination, During Disability, Death or
in the Event of a Change in Control.
(a) 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.
-5-
<PAGE> 6
(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;
(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
-6-
<PAGE> 7
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.
(b) 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.
(c) 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
-7-
<PAGE> 8
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 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 Amended and Restated 1996 Stock Incentive Plan, as amended,
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, as of the date hereof, a stock option under the Plan to
purchase 125,000 shares of Common Stock, having a term of ten years, at an
exercise price equal to the Fair Market Value on the date of grant, as defined
in the Plan, and becoming exercisable in four equal annual installments
commencing the first anniversary of the date of grant.
(b) 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 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
-8-
<PAGE> 9
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.
(a) 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.
(b) 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 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.
-9-
<PAGE> 10
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.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Corporation and Executive have
executed and delivered this Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By:
------------------------------------
Name:
Title:
EXECUTIVE
----------------------------------------
Christopher M. Dice
-11-
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 17,213
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<RECEIVABLES> 15,118
<ALLOWANCES> 1,053
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<CURRENT-ASSETS> 32,189
<PP&E> 4,234
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,423
<CURRENT-LIABILITIES> 6,989
<BONDS> 694
0
0
<COMMON> 10
<OTHER-SE> 28,730
<TOTAL-LIABILITY-AND-EQUITY> 36,423
<SALES> 0
<TOTAL-REVENUES> 34,458
<CGS> 6,602
<TOTAL-COSTS> 14,563
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<LOSS-PROVISION> 266
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<INCOME-PRETAX> 13,789
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