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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER 0-28834
ABACUS DIRECT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-1118166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8774 YATES DRIVE,
WESTMINSTER, COLORADO 80030
(Address of principal executive offices) (Zip Code)
(303) 657-2800
(Registrants telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
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 [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 5, 1999 is $648,041,156 (based on the close bid
price of $68.875 per share as reported for the Nasdaq National Market Issues).
The number of shares outstanding of the registrant's Common Stock,
$0.001 par value, as of March 5, 1999 was 9,875,946.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be filed pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 in
connection with the registrant's 1999 Annual Meeting of Stockholders are
incorporated by reference in Part III.
Exhibits to the following documents are incorporated by reference in
Part IV: (i) Annual Report on Form 10-KSB of the registrant for the fiscal year
ended December 31, 1996; (ii) portions of the registrant's Registration
Statement which includes the Prospectus, dated September 26, 1996; and (iii)
Quarterly Reports on Form 10-Q of the Company for the quarterly periods ended
June 30, 1998 and September 30, 1998.
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PART I
ITEM 1. BUSINESS.
Abacus Direct Corporation ("Abacus" or the "Company") is a leading
provider of information products and marketing research services to the direct
marketing industry. Abacus has developed a comprehensive and predictive source
of information regarding consumer purchasing behavior by creating a database
which includes consumer purchasing data from over 1,050 merchandise catalogs.
Abacus uses this proprietary database and its advanced statistical modeling
technology to provide direct marketers with information and analysis which
allows them to increase response rates and profits from their marketing
campaigns.
As the global market for consumer goods and services has become
increasingly competitive, the Company believes that businesses are seeking to
enhance their market position by strengthening relationships with existing
customers and targeting new markets and customers. As a result, the Company
believes that a growing number of businesses are using direct marketing programs
to identify and reach large numbers of consumers in a cost-effective manner.
Direct marketing programs are used to promote a wide variety of products and
services in numerous industries including retail, business and technology,
publishing, financial services, telecommunications, and fund raising.
Direct marketers, particularly consumer catalog companies, have long
considered consumers' past purchasing patterns to be the best predictor of
future purchasing behavior and, therefore, the best indicator for targeting
marketing efforts. It has historically been difficult, however, for direct
marketers to obtain a comprehensive view of consumers' purchasing patterns. Such
companies have, therefore, attempted to expand their customer bases by
augmenting their existing customer lists with lists of rented or exchanged names
of prospects who have purchased merchandise from other catalogs and continuing
to use those lists that generate sufficiently high response rates and profit
levels and abandoning those lists that do not. Although this traditional
approach has allowed many catalog companies to expand their customer bases,
increasing competition and rising costs of direct marketing activities have
created a need for a comprehensive source of consumer catalog purchasing
information to allow more cost-effective targeting of their marketing efforts.
The Company has addressed the need for a comprehensive source of
information on purchasing behavior by forming the Abacus Alliance, a cooperative
arrangement through which direct marketers contribute their customers'
purchasing histories to the Company in exchange for access to the Company's
information products and marketing research services. The Company's services
allow such companies to improve the profitability of their mailing campaigns by
enabling them to (i) target new consumers whose past purchasing behavior
indicates that they are likely to purchase a particular product at a given time,
(ii) prioritize existing customers by the probability of a positive response
based on historical buying patterns, (iii) eliminate prospects from rented or
exchanged lists that have a low probability of responding, and (iv) properly
position their products and develop marketing strategies through market
research.
As of December 31, 1998, the Abacus database contained over 88 million
detailed buyer profiles compiled from records of over 2 billion catalog
purchasing transactions. The Company receives this data from the more than 1,050
members of the Abacus Alliance. The Company believes the Abacus Alliance members
include over 75% of the largest consumer merchandise catalogs in the United
States. The Company works closely with each client to determine its needs, and
applies advanced statistical modeling techniques to extract from the database
the names of consumers most likely, or least likely, to buy a product offering.
The Company's database is continually enhanced as members contribute current
sales transaction information and additional companies join the Abacus Alliance.
By continually adding new data to its database, increasing the
performance of its existing information and marketing research services,
providing new types of value added services and continuing
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to invest in new technology, the Company seeks to increase revenue from existing
clients, develop new sources of revenue and maintain its high client retention
rate. The Company believes that the favorable results that its clients have
achieved using the Company's information products and marketing research
services have led to a retention rate of more than 90% from 1997 to 1998, from
1996 to 1997 and from 1995 to 1996, respectively, excluding those clients that
are no longer operating catalogs.
RECENT DEVELOPMENTS
During the year ended December 31, 1998, Abacus continued to expand its
database and the Abacus Alliance. The number of participating catalogs increased
to 1,052 catalogs as of December 31, 1998 from 874 as of December 31, 1997,
representing an increase of approximately 20%. This growth has enhanced the
predictive capability of the Company's prospective services and the quality of
its housefile scoring and list optimization services. To more effectively
deliver these services, the Company increased its staff by 43% during the year
ended December 31, 1998. The Company also continued to make investments in
technology and systems capabilities, significantly increasing its computing
capacity. This has enabled the Company to increase its revenue by expanding the
use of its existing services and providing more value-added services to its
existing clients. In addition, the Company has been leveraging the resources and
capabilities it developed in serving its catalog clients by applying those
resources and capabilities to provide services to other direct marketing clients
in the retail, business and technology, publishing, financial services,
telecommunications, and fund raising industries.
To further leverage its database and analytical capabilities, the
Company entered into an agreement with VNU Business Information Europe B.V.
("VNU"), a Dutch publishing and business information company, providing for the
creation of a Netherlands joint venture in which the Company has a 50% ownership
interest. The joint venture, Abacus Direct Europe B.V., was formed to create an
alliance similar to the Abacus Alliance and to provide services similar to those
of the Company to the European Community. Abacus Direct Europe B.V. is equally
owned and managed by the Company and VNU. During 1999, Abacus and VNU will each
contribute approximately $2.0 million in debt and equity. In addition, Abacus
Direct Europe B.V. will be provided with services and information by the Company
and VNU including management, consulting, administrative, modeling and
information processing services. The Company has also granted Abacus Direct
Europe B.V. a license to use the name Abacus Direct in connection with the joint
venture.
The Company also formed a strategic alliance with Catalog City, Inc.
("Catalog City"), an on-line catalog web site offering on-line shopping services
to catalog shoppers, to jointly promote each others services and share certain
e-commerce data. Catalog City granted to the Company an exclusive license to use
certain e-commerce data, including consumer traffic and similar data such as
e-mail and corporate addresses and phone numbers, catalog requests, e-commerce
transactions and click data, solely in connection with the operation of the
Company's database and the Abacus Alliance or the development, marketing or sale
of the Company's products and services. 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 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.
The Company's predecessor, Abacus Direct Corporation, was incorporated
in Colorado in May, 1989. The Company was reincorporated in Delaware on
September 9, 1996. The term "Company" as used herein refers to Abacus Direct
Corporation, a Colorado corporation prior to the reincorporation and the
successor Delaware corporation thereafter. The principal executive offices of
the Company are located at 8774 Yates Drive, Westminster, Colorado 80030 and its
telephone number is (303) 657-2800.
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SERVICES
The Company provides four general categories of information products
and marketing research services to its clients: prospect lists, housefile
scoring, list optimization and marketing information reports.
Prospect Lists. The Company's prospect lists service provides a client
with a list of prospective consumers which is ranked according to the likelihood
that such consumers will respond to a particular direct marketing campaign. The
criteria for ranking include recency, frequency, time of year and dollar amount
of catalog purchases. This service enables catalog companies to expand their
business base and offset consumer attrition. The Company also allows other
non-catalog direct marketing clients, primarily large consumer companies in
industries such as retail, business and technology, publishing, financial
services, telecommunications, and fund raising, to use Abacus data to target
their existing customers and for prospecting new customers. Typically, this
involves overlaying the Company's proprietary database variables onto its
clients' files which provides additional information regarding the client's
customers. The client may then use this information to target a promotion at its
existing customer base or rent a list with customer profiles similar to its
targeted profile.
Housefile Scoring. The Company's housefile scoring service provides a
client with a ranking of the consumers contained on the client's own customer
list according to the probability that an individual consumer will make a repeat
purchase. This service also allows a client to identify inactive customers who
are most likely to respond to a renewed sales initiative. The Company provides
these services by analyzing its database of active direct marketing consumers
with a client's housefile list through the use of advanced statistical models.
The housefile program enables client companies to profitably manage promotional
programs targeted at their existing customers and cost effectively determine
when to solicit customers who have not made recent purchases.
List Optimization. The Company's list optimization service eliminates
stale or unresponsive names from lists that a client has purchased from or
exchanged with other companies, enabling the client to identify and target the
most likely buyers. This process not only increases the profitability of lists a
client currently uses, but permits the client to use lists that were previously
considered unprofitable.
Marketing Information Reports. The Company's marketing information
reports service provides a client with detailed information regarding the
catalog industry, which was not previously available to catalog companies. The
Company uses the data contributed by the Abacus Alliance members to create
comprehensive reports that accurately describe catalog market size, share,
activity and other key marketing data that allow clients to develop their
strategic marketing initiatives. The marketing information reports provide
clients information on: (i) seasonality, to help identify optimal mail dates;
(ii) cross-category catalog purchasing behavior, to allow the refinement of the
catalog's merchandise mix; and (iii) transaction histories and demographics, to
aid in planning, advertising, promotions and mail frequency. These reports are
also used by other non-catalog direct marketing clients, including specifically
designed reports for retailers, which provide information to assist with new
store site selection, evaluation of market expansion opportunities and media
planning. Clients in the publishing, financial services, and fund raising
industries have also used reports to profile their customers' purchasing
behavior and demographics.
TECHNOLOGY
The Company has made significant investments to develop its proprietary
database and technology. Key elements of the Company's technology include its
proprietary database management and modeling software.
Database. The Abacus Alliance database is primarily comprised of
transactional data contributed by the Abacus Alliance members on a daily,
monthly, quarterly or semi-annual basis. The database contains information
regarding each consumer purchase transaction, including the catalog name,
catalog product category, date of purchase and amount of purchase. Millions of
new transactions are added to the database each week, providing an increasingly
detailed purchase profile underlying each catalog consumer
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in the database. Transaction updates received from Abacus Alliance members are
converted to the Company's format and processed through a rigorous quality
assurance program. The data is enhanced with externally sourced demographic
data. The Company's database contains records of over 2.0 billion consumer
catalog transactions collected over the past six years.
Proprietary Software. The Company's proprietary database management
software is able to manage large databases, facilitating rapid and
cost-effective delivery of modeling and production functions. The Company's
proprietary modeling software utilizes predictive scoring and analytical
techniques to improve list performance. The Company has also developed process
automation software which integrates and automates virtually all stages of model
development and list production and allows the Company to quickly and cost
effectively generate dozens of models for a given client.
Computer Technology. The Company has adopted client server computer
architecture which (i) enables parallel processing, permitting large numbers of
tasks to be executed simultaneously at high speed, (ii) is highly scalable,
allowing ongoing capacity increases, and (iii) provides system and data
redundancies that protect against system failures. The Company attempts to
maintain a secure environment for both systems and data by protecting against
unauthorized electronic access. The Company's database is backed up regularly,
utilizing a secure offsite location. The Company operates its data center 24
hours a day, 7 days a week.
SALES AND MARKETING
The Company markets and sells its services through a direct sales and
marketing force comprised of 75 people. The Company believes that its sales
representatives have an in-depth understanding of the client's industry, which
allows them to function as marketing resources for their clients. The Company's
sales strategy includes (i) adding new members to the Abacus Alliance, (ii)
increasing penetration of existing clients by selling additional prospect names
and offering new value added services and (iii) leveraging the Company's
database to serve clients in the retail, business and technology, publishing,
financial services, telecommunications, and fund raising industries that also
use direct marketing to reach their customers. As part of this strategy, the
Company increased its sales force by 23 during the year ended December 31, 1998
which helped reduce the average number of catalog clients serviced by an account
manager, improve customer service and sell services to other direct marketing
clients in the retail, business and technology, publishing, financial services,
telecommunications, and fund raising industries. Selling and marketing expenses
for the year ended December 31, 1998 were 26.9% of net revenues.
The Company has significantly increased its efforts to educate the
catalog industry on the unique marketing services it offers to its clients by
regularly publishing an industry newsletter that highlights a particular
catalog's use of the Company's database and by having Company employees
regularly speak at industry conventions. The Company also hosted its third
annual catalog company symposium in January 1999.
CUSTOMERS AND CONTRACTS
The Abacus Alliance consists of more than 1,050 members. Members
typically operate under a three-year contract which provide that a client (i)
submit complete customer history transaction information to the Company on a
regular basis, (ii) license Abacus to use the data and (iii) pay for the
Company's services based upon an established price schedule. Such contracts may
generally be terminated at any time and do not obligate the Company's clients to
use the Company's services or pay the Company any guaranteed fees. The Company
has also allowed a limited number of clients to have access to its services
under a fixed fee arrangement. These agreements typically expire within one year
and do not automatically renew.
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COMPETITION
The market for the Company's services is highly competitive. The
Company believes that the principal competitive factors in this market are
consistent delivery of (i) lists which generate high response rates, in a timely
fashion, at competitive prices, (ii) large quantities of high response names,
and (iii) individualized customer support. The Company competes with various
other companies which collect and manage information relating to consumer
purchase transactions contributed by large numbers of catalog companies. The
Company also competes with a wide variety of companies which own and generate
lists. In addition, the Company competes indirectly with a good number of direct
marketing information service businesses. Many of the Company's existing
competitors, and many potential new competitors, have longer operating
histories, greater name recognition and significantly greater financial,
technical and marketing resources than the Company. Such competitors may be able
to undertake more extensive marketing campaigns and make more attractive offers
to potential employees, distribution partners, and database contributors.
PROPRIETARY TECHNOLOGY
The Company regards much of its software, database management methods,
modeling techniques and other data base information strategies as proprietary
trade secrets and relies on a combination of trade secret, copyright, unfair
competition and other intellectual property laws as well as contractual
agreements to protect its rights to such intellectual property. Due to the
difficulty of monitoring unauthorized use of and access to the Company's
intellectual property, however, such measures may not provide adequate
protection. In addition, there can be no assurance that the courts will enforce
the contractual arrangements which the Company has entered into to protect its
proprietary technology. In addition, there has been substantial litigation in
the information services and computer industry involving the ownership and scope
of intellectual property rights. The Company may bring or be subject to
litigation to defend against claimed infringement of its rights or of the rights
of others or to determine the scope and validity of the intellectual property
rights of the Company and others. Adverse determinations in such litigation
could result in the loss or compromise of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties, or prevent the Company from selling its services
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION, PRIVACY ISSUES
Growing concern about privacy and the collection, distribution and use
of information about individuals has led to self-regulation of such practices by
the direct marketing industry and to increased federal and state regulation. The
DMA has adopted guidelines regarding the fair use of such information which it
recommends be followed by participants in the direct marketing industry. The
Company is also subject to various federal and state regulations concerning the
collection, distribution and use of information regarding individuals. Such laws
include the Federal Drivers Privacy Protection Act of 1994 and other state laws
which limit or preclude the use of voter registration and drivers license
information, as well as laws which govern the collection and release of consumer
credit information. Although the Company's compliance with the DMA's guidelines
and such federal and state regulations has not had a material adverse effect on
the Company, no assurance can be given that the DMA will not adopt additional
guidelines or that additional federal or state laws or regulations (including
antitrust and consumer privacy laws) will not be enacted or applied to the
Company or its clients. Any such guidelines, laws or regulations would adversely
affect the ability of the Company to collect and distribute consumer and other
information or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, such
guidelines, laws or regulations might restrict or increase the cost of the
activities of companies engaged in direct marketing, potentially reducing their
demand for the Company's
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services which would have a material adverse effect on the Company's business,
financial condition and results of operations. To the extent the Company's
clients do not comply with such guidelines, laws or regulations, the Company may
incur liabilities which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has also
adopted other policies to address these privacy concerns, including restricting
access to its database, requiring each employee to sign a nondisclosure and
confidentiality agreement and implementing data security systems at the
Company's data center. The Company has typically entered into three year
contracts with its catalog clients and there can be no assurance that a private
litigant or governmental entity will not challenge such arrangements under any
applicable antitrust or other laws.
PRINCIPAL CUSTOMERS
The Company's ten largest customers accounted for 18.5% of the
Company's net revenues for the year ended December 31, 1998. No customer
accounted for more than 5.0% of the Company's net revenues in the year ended
December 31, 1998.
RESEARCH AND DEVELOPMENT
During the year ended December 31, 1998, the Company spent $1.7 million
for research and development, as compared to $1.5 million and $913,000 in the
years ended December 31, 1997 and 1996, respectively. The Company's research and
development activities during the past year consisted primarily of developing
technologies and processes to deliver new and better data service products to
existing and prospective direct marketing clients.
EMPLOYEES
As of December 31, 1998, the Company employed 221 people on a full time
basis, including 104 in data processing, programming and data production, 75 in
sales and marketing, 15 in statistical and product development, and 27 in
general and administration. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
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
revenues are usually lower and operating profit is usually higher during the
second half of each year.
RISK FACTORS
In addition to other information in this Annual Report on Form 10-K
(including all exhibits hereto), the following risk factors should be carefully
considered in evaluating the Company and its business, as such factors currently
have a significant impact, or may have significant impact in the future, on the
Company's business, results of operations, financial condition and the value of
its outstanding securities.
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Dependence on Industries Served; Impact of Competing Industries. The
Company's future success is dependent in large part on continued demand for the
Company's services from the direct marketing industry, including, the catalog
industry, as well as the continued willingness of catalog operators to
contribute their data to the Company. The Company's clients are comprised
primarily of large consumer merchandise catalogs operators in the United States,
which results in the concentration of the Company's receivables in the catalog
industry. A significant downturn in the direct marketing industry generally,
including the catalog industry, or withdrawal by a substantial number of
catalogs operators from the Abacus Alliance, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Although the Company has maintained a retention rate of over 90% from 1997 to
1998, from 1996 to 1997, and from 1995 to 1996, exclusive of clients who have
discontinued their catalog operations, there can be no assurance that the
Company will maintain such retention rate in the future. Many industry experts
predict that electronic commerce, including the purchase of merchandise and the
exchange of information via the Internet or other media, will increase
significantly in the future. To the extent such an increase occurs, companies
which now rely on catalogs or other direct marketing avenues to market their
products may reallocate resources toward such direct marketing channels and away
from catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for the Company's services. In addition, the
effectiveness of direct mail as a direct marketing tool may decrease as a result
of consumer saturation and increased consumer resistance to direct mail in
general.
Seasonality and Quarterly Fluctuations. The direct marketing industry,
and in particular the catalog industry, is characterized by significant
seasonality. As a result, the Company's revenue and profits have been subject to
significant seasonal fluctuations, with the largest percentage of annual revenue
and profits being realized in the third and fourth fiscal quarters due to the
increase in direct marketing activity in anticipation of the holiday buying
season. The Company expects this trend to continue in the future. In addition, a
number of other factors have resulted in significant fluctuations in quarterly
revenue and results of operations, including postal rates, paper prices and
overall economic conditions, as well as factors specific to a client such as the
client's advertising budget and choice of advertising media. Other causes of
significant fluctuations may include the number, timing and significance of new
product announcements by the Company and its competitors, the ability of the
Company to develop, market and introduce new and enhanced versions of its
services on a timely basis, the level of product and price competition, changes
in operating expenses, changes in the Company's sales incentive strategy, hiring
of new employees and computer capacity upgrades in anticipation of future
growth. Any one or more of these factors could have a material adverse effect on
the Company's business, financial condition and results of operations. Due to
these factors, the Company believes period-to-period comparisons of results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future results of operations. As a result of the potential
fluctuations as described above, the Company's operating results may, in some
future quarters, not be consistent with predictions made by securities analysts,
which could have a material adverse effect on the price of the Company's Common
Stock. The Company's operating expenses are determined, in part, based on the
Company's expectations of future revenue growth and are substantially fixed. As
a result, unexpected changes in revenue levels will have a disproportionate
effect on net income in any given period.
Regulation; Privacy Issues. Growing concern about privacy and the
collection, distribution and use of information about individuals has led to
self-regulation of such practices by the direct marketing industry and to
increased federal and state regulation. The Direct Marketing Association (the
"DMA"), the leading trade association of direct marketers, has adopted
guidelines regarding the fair use of such information which it recommends
participants in the direct marketing industry follow. The Company is also
subject to various federal and state regulations concerning the collection,
distribution and use of information regarding individuals. Such laws include the
Federal Drivers Privacy Protection Act of 1994 and other state laws which limit
or preclude the use of voter registration and drivers license information, as
well as laws which govern the collection and release of consumer credit
information. Although the Company's compliance with the DMA's guidelines and
applicable federal and state regulations has not had a material adverse effect
on the Company, no assurance can be made that the DMA will not adopt additional,
more burdensome guidelines or that additional, more burdensome federal or state
laws or
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regulations (including antitrust and consumer privacy laws) will not be enacted
or applied to the Company or its clients, which may have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is dependent upon licenses, granted to the Company by members of the
Abacus Alliance, to use the data contributed by them in connection with the
products and services provided by the Company. The inability of the Company to
obtain appropriate licenses for such use could have a material adverse effect on
the Company's business, financial condition and results of operations.
Postal Rates and Paper Prices. The direct marketing activities of the
Company's clients are adversely affected by postal rate increases, especially
increases that are imposed without sufficient advance notice to allow
adjustments to be made to marketing budgets. Higher postal rates may result in
fewer mailings of direct marketing materials, with a corresponding decline in
the need for certain of the direct marketing services offered by the Company.
Increased postal rates can also lead to pressure on the Company from its clients
to reduce prices for its services to offset the postal rate increase. In
addition, higher paper prices may cause catalog companies to conduct fewer or
smaller mailings which could cause a corresponding decline in the need for the
Company's services. Clients may aggressively seek price reductions for the
services offered by the Company to offset any increased materials cost. Any such
occurrences could have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition. See "BUSINESS - Competition" above.
Development of Services. The Company is currently developing new
services, as well as new applications of its existing services. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of these services,
or that its new or enhanced services will adequately meet the requirements of
its current or prospective clients. Failure of the Company to successfully
design, develop, test and introduce such new services, or the failure of the
Company's recently introduced services to achieve market acceptance, could
prevent the Company from maintaining existing client relationships, gaining new
clients or expanding its markets and could have a material adverse effect on the
Company's business, financial condition and results of operations.
Management of Growth. In recent years, the Company has experienced
significant growth that has placed considerable demands on the Company's
managerial, operational and financial resources. There can be no assurance that
if the Company continues to grow, management will be effective in attracting and
retaining additional qualified personnel, expanding the Company's physical
facilities, integrating acquired businesses or otherwise managing growth. There
can be no assurance that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that the Company's management
will be able to achieve the rapid execution necessary to successfully offer its
services and implement its business plan. Any inability to manage growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's growth
may depend to some extent on its ability to successfully complete strategic
acquisitions and alliances to expand or complement its existing business. There
can be no assurance that suitable acquisitions or alliances can be identified,
consummated or successfully integrated into the Company's operations.
Dependence on Proprietary Technology. The Company regards much of its
software, database management methods, modeling techniques and other database
information strategies as proprietary trade secrets and relies on a combination
of trade secrets, copyrights, unfair competition and as well as contractual
agreements to protect its rights to such intellectual property. Due to the
difficulty of monitoring unauthorized use of and access to the Company's
intellectual property, however, such measures may not provide adequate
protection. In addition, there can be no assurance that the courts will enforce
the contractual arrangements which the Company has entered into to protect its
proprietary technology. Any misappropriation of the Company's intellectual
property could have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Computer Technology; Risk of Loss of Client Data. The
computer and other technologies in which the Company has invested are rapidly
evolving and characterized as having short
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product life cycles, which require the Company to anticipate and rapidly adapt
to technological changes. The failure of the Company to successfully anticipate
or adapt to technological changes or select and develop new and enhanced
technology on a timely basis could affect the quality of the services the
Company provides to its clients, or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's operations are dependent on its ability to protect its computer
systems and data centers against damage from fire, power loss, security breach,
telecommunications failure or similar events. No assurance can be given that the
precautions that the Company has taken to protect itself from such events, such
as off-site storage of backup data and limitation of access to its proprietary
information and computerized database, will be adequate. Any damage to the
Company's data center, failure of telecommunication links or breach of the
security of the Company's database could result in an interruption of the
Company's operations or other loss which may not be covered by the Company's
insurance. Any such event could have a material adverse effect on the Company's
business, financial condition and results of operations.
Volatility of Stock Price. The trading price of the Company's Common
Stock has been and may hereafter be subject to wide fluctuations in response to
a variety of factors, including quarterly variations in operating results, new
services by the Company, its clients or its competitors, general conditions in
the direct marketing industry, and general economic and market conditions.
Additionally, the stock market in general, and the market for technology stocks
in particular, has experienced extreme price volatility in recent years. This
volatility, as well as broad market fluctuations generally, have often had a
substantial effect on the market prices of many technology companies for reasons
unrelated or disproportionate to the operating performance of such companies.
Year 2000 Issue. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," below.
ITEM 2. PROPERTIES.
The Company has entered into a lease agreement (the "El Dorado Ridge
Lease"), dated May 22, 1998, with Western States Ventures LLC for approximately
75,000 square feet of office space in Broomfield, Colorado. This facility will
be used to consolidate the Company's two present principal operations located in
Westminster, Colorado in April 1999 and to provide space for growth. The
existing facilities consist of 27,218 and 11,298 square feet of office space
pursuant to lease agreements which expire in September 1999 and March 1999,
respectively. The El Dorado Ridge Lease commences on April 1, 1999 and has a
term of seven years that is renewable for two consecutive five year terms. In
1999, the aggregate annual rental payments for its Colorado properties will be
approximately $1.0 million. The Company also leases office space in New York,
New York (6,378 square feet); Atlanta, Georgia (4,144 square feet); and
Hawthorne, New York (1,424 square feet). Leases for the New York, Atlanta and
Hawthorne facilities expire in September 2002, December 2001, and December 1999,
respectively, and require aggregate annual rental payments of $239,000, $89,000
and $26,000, respectively. In addition, the Company rents, under short-term
leases, general office space in San Francisco, California and Northbrook,
Illinois. The Company believes that its existing facilities are adequate for its
present needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded under the symbol "ABDR" in the
Nasdaq National Market System. There were approximately 3,600 beneficial holders
of the Company's Common Stock at March 5, 1999. The table below sets forth high
and low bid prices for the Company's Common Stock for each quarter for the years
ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
HIGH LOW
----------- ------------
<S> <C> <C>
January-March 1997 $ 30.25 $ 18.00
April-June 1997 $ 33.25 $ 17.00
July-September 1997 $ 34.25 $ 26.50
October-December 1997 $ 44.25 $ 31.38
January-March 1998 $ 52.25 $ 32.88
April-June 1998 $ 58.38 $ 44.00
July-September 1998 $ 57.50 $ 38.50
October-December 1998 $ 59.75 $ 33.75
</TABLE>
The Company has not declared or paid a cash dividend since its
organization and has no present intention of paying any such dividend in the
foreseeable future.
During 1998 the Company issued an aggregate of 220,095 shares of Common
Stock upon exercise of options granted under each of the Company's Amended and
Restated 1989 Stock Option Plan, as amended, and its Amended and Restated 1996
Stock Option Plan, at a weighted average exercise price of $12.00 per share.
Certain of such issuances were exempt from the registration provisions of the
Securities Act of 1933 pursuant to Section 4(2) thereof and the rules
promulgated thereunder, and the securities issued in connection therewith were
deemed to be restricted securities. The remainder of such issuances were covered
by the Company's Registration Statement on Form S-8. No underwriter was engaged
in connection with such sales of Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except supplemental operating and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $46,979 $30,971 $17,532 $ 9,331 $ 6,451
Income from operations 17,791 11,509 6,370 3,174 2,395
Income before taxes 18,492 11,806 6,254 2,976 2,072
Net income 11,426 7,497 3,865 2,426 2,012
Net income per common share-- basic $ 1.17 $ 0.78 $ 0.43 $ 0.27 $ 0.57
Net income per common share-- diluted $ 1.12 $ 0.74 $ 0.40 $ 0.27 $ 0.23
Weighted average number of outstanding
common shares-- basic 9,727 9,546 9,094 9,079 3,513
Weighted average number of outstanding
common shares-- diluted 10,216 10,058 9,614 9,120 8,743
SUPPLEMENTAL OPERATING DATA:
Abacus Alliance catalogs 1,052 874 700 565 393
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $24,263 $10,490 $ 5,924 $ 1,345 $ 1,856
Working capital 32,358 16,127 8,218 2,424 2,386
Total assets 43,320 22,592 12,064 5,050 4,244
Long-term obligations 613 15 29 -- 160
Stockholders' equity (deficit) 36,304 19,177 10,012 1,190 (1,233)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Abacus believes it has developed the most comprehensive and predictive
source of catalog consumer purchasing behavior in the United States by creating
a database which includes consumer purchasing data from over 1,050 catalogs. The
Company's information and marketing research services allow companies, primarily
in the catalog industry, to improve the profitability of their direct mailing
campaigns by enabling them to (i) target new consumers whose past purchasing
behavior indicates that they are likely to purchase a particular product at a
given time, (ii) prioritize existing customers by the probability of a positive
response based on historical buying patterns, (iii) eliminate prospects from
rented or exchanged lists that have a low probability of responding, and (iv)
properly position their products and develop marketing strategies through market
research.
During the last three years, the Company has experienced rapid growth
of its client base, revenue and operating income. The Abacus Alliance grew from
700 to over 1,050 catalogs and the Company's net revenues for the years ended
December 31, 1996, 1997 and 1998 increased by 87.9%, 76.7% and 51.7%
respectively, while its operating profit increased from $6.4 million in 1996 to
$17.8 million in 1998. The Company attributes its revenue and operating profit
growth to the widespread acceptance of Abacus' services within the catalog
industry, increased penetration of the Company's services among its existing
clients, a larger client base, a broader service line and an increase in
revenues generated from other non-catalog direct marketing clients. Annual
operating margins for the years ended December 1996, 1997 and 1998 were 36.3%,
37.2% and 37.9%, respectively as the Company continued to leverage its costs of
revenues and operating expenses. The Company believes that Abacus Alliance
members represent over 75% of the largest consumer merchandise catalogs in the
United States.
The Company's principal sources of revenue are derived from prospecting
lists, housefile scoring, list optimization, and marketing research services.
The Company creates prospect lists for its clients by selecting names from the
Abacus Alliance database of consumers who have purchased merchandise in response
to direct mail campaigns. Revenues from prospecting services represented 74% of
the Company's total net revenues for the year ended December 31, 1998. The
Company's housefile and optimization services, which enable client companies to
more profitably manage promotional programs directed to existing and prospective
customers, accounted for 24% of net revenues for the year ended December 31,
1998. The Company's marketing information reports service, which primarily
provides catalog clients with comprehensive industry information, accounted for
2% of net revenues in 1998.
The Company's cost of revenues includes expenses associated with
creating, updating and managing the Company's database as well as building
statistical models. Selling and marketing expenses include the costs of salaries
and related benefits, commissions, travel and promotion. General and
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<PAGE> 14
administrative expenses include legal, accounting, insurance, human resources,
corporate communications and administrative salaries and related benefits.
Operating margins have been higher in the second half of each calendar year, as
second half revenues have historically been favorably affected by holiday
related direct marketing campaigns, while operating costs have not had a
corresponding seasonal increase. The Company's operating expenses are
determined, in part, based upon the Company's expectations of future revenue
growth and are substantially fixed in the short term. As a result, unexpected
changes in revenue growth could have a disproportionate effect on net income in
any given period.
RESULTS OF OPERATIONS
Twelve Months Ended December 31, 1998 Compared to Twelve Months Ended December
31, 1997
Net Revenues. Net revenues increased 51.7% to $47.0 million for the
twelve months ended December 31, 1998 from $31.0 million for the twelve months
ended December 31, 1997 due primarily to an increase in sales to existing and
new catalog clients and revenues generated from other direct marketing clients.
All of the Company's service lines grew significantly with prospecting growing
41.4%, optimization 99.0%, housefile 61.2%, and marketing information services
60.8%. During the twelve months ended December 31, 1998, the Company's
prospecting, housefile and optimization, and marketing information reports
services represented 74%, 24%, and 2% of net revenues, respectively.
Cost of Revenues. Cost of revenues increased 61.2% to $9.6 million for
the twelve months ended December 31, 1998 from $5.9 million for the twelve
months ended December 31, 1997, due primarily to increases in staff, contract
labor, depreciation and processing costs associated with supporting higher
revenues. Cost of revenues increased as a percentage of net revenues to 20.4% in
1998 from 19.2% in 1997 due primarily to an increase in employee and
non-employee staffing levels and higher software, hardware and systems
processing costs required to support higher revenues.
Selling and Marketing Expenses. Selling and marketing expenses
increased 57.9% to $12.6 million or 26.9% of net revenues for the twelve months
ended December 31, 1998 from $8.0 million or 25.8% of net revenues for the
twelve months ended December 31, 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 selling the Company's services to
other non-catalog direct marketing clients. 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.
General and Administrative. General and administrative expenses
increased 26.0% to $4.9 million of net revenues for the twelve months ended
December 31, 1998 from $3.9 million for the twelve months ended December 31,
1997. The increase in general and administrative expenses resulted primarily
from an increase in staff to support overall Company growth along with higher
performance bonuses and salary increases, higher recruiting and higher legal and
other professional fees. General and administrative expenses decreased as a
percentage of net revenues to 10.5% for the twelve months ended December 31,
1998 from 12.6% for the twelve months ended December 31, 1997 due primarily to
the fixed cost nature of certain expenses which did not increase proportionately
with the growth in net revenues.
Facility Relocation and Other. During the twelve months ended December
31, 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, in which the
Company's executive offices and principal operations are 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 lease payments, for its primary Westminster facility, to be
paid after such facility is planned to be vacated
14
<PAGE> 15
through the expiration of the lease in September 1999. The charge of $102,000
during the twelve months ended December 31, 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
12.2% for the twelve months ended December 31, 1998 to $1.7 million from $1.5
million for the twelve months ended December 31, 1997. The increase in research
and development expenses resulted primarily from an increase in staff and
related expenses to develop technologies and processes to deliver new and better
data service products to existing and prospective clients and to adapt the
Company's statistical techniques to support the addition of other non-catalog
direct marketing clients. Since the increase in the amount of expenses did not
increase at the same rate as net revenues for the twelve months ended December
31, 1998, research and development expenses decreased as a percentage of net
revenues to 3.6% in 1998 compared to 4.9% for the same period in 1997.
Operating Profit. Operating profit increased 54.6% for the twelve
months ended December 31, 1998 to $17.8 million or 37.9% of net revenues from
$11.5 million or 37.2% of net revenues for the twelve months ended December 31,
1997. The increases in operating profit and operating margin are due primarily
to the combined effect of higher net 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 additional expenditures to
provide services to other non-catalog direct marketing clients as well as higher
investments in information technology and higher staffing levels throughout the
Company.
Equity in Losses of Joint Venture. Equity in losses of joint venture
for the twelve months ended December 31, 1998, of $53,000 represents the
Company's share of losses in Abacus Direct Europe, its joint venture with VNU,
which commenced operations during the fourth quarter of 1998. The Company
anticipates that it will recognize additional losses in Abacus Direct Europe
during 1999 as well as invest approximately $2.0 million to develop its
operations.
Interest and Other Income, Net. Net interest income for the twelve
months ended December 31, 1998 increased to $754,000 from $297,000 for the same
period in 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 twelve
months ended December 31, 1998 increased to $7.1 million from $4.3 million for
the same period in 1997. The increase reflects a higher average tax rate due
primarily to higher pre-tax income, which places the Company in a higher tax
bracket, higher state income taxes resulting from the Company's presence in more
states, and the reduced impact of a business research expenditure credit
available to the Company. For the twelve months ended December 31, 1998, the
Company's effective tax rate increased to 38.2% from 36.5% during the same
period in 1997.
Net Income. Net income for the twelve months ended December 31,1998 was
$11.4 million or $1.12 per diluted common share compared with net income of $7.5
million or $0.74 per diluted common share for the twelve months ended December
31, 1997. The increase in net income and net income per common share reflects
higher operating income and net interest income.
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December
31, 1996
Net Revenues. Net revenues increased 76.7% to $31.0 million for the
twelve months ended December 31, 1997 from $17.5 million for the twelve months
ended December 31, 1996 due primarily to increased sales to existing customers
and, to a lesser extent, new customers. All of the Company's service lines grew
significantly with prospecting growing 75.4%, optimization 113.2%, housefile
57.6%, and marketing information reports 135.3%. During the twelve months ended
December 31, 1997, the
15
<PAGE> 16
Company's prospecting, housefile and optimization, and marketing information
reports services represented 78%, 20%, and 2% of net revenues, respectively.
Cost of Revenues. Cost of revenues increased 58.4% to $5.9 million for
the twelve months ended December 31, 1997 from $3.8 million for the twelve
months ended December 31, 1996, due primarily to increased staff, depreciation
and processing costs associated with supporting higher revenues. Cost of
revenues decreased as a percentage of net revenues to 19.2% in 1997 from 21.4%
in 1996, due primarily the fixed nature of a large portion of software, hardware
and systems processing costs which did not increase at the same rate as the
growth in net revenues.
Selling and Marketing Expenses. Selling and marketing expenses
increased 86.3% to $8.0 million for the twelve months ended December 31, 1997
from $4.3 million for the twelve months ended December 31, 1996. The increase in
selling and marketing expenses is due primarily to increases in the Company's
sales force and related expenses, higher commissions as a result of
significantly higher revenues, and the hiring of new marketing personnel
dedicated to selling services to other non-catalog direct marketing clients. As
a percentage of net revenues, selling and marketing expenses increased to 25.8%
in 1997 from 24.5% in 1996. The increase was due to an increase in spending of
$1.1 million, or 3.6% of net revenues, to provide services to other non-catalog
direct marketing clients, which were partly offset by enhanced productivity in
serving catalog clients of the Company. During this initial stage of
development, the Company incurred 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 clients.
General and Administrative. General and administrative expenses
increased 77.5% to $3.9 million for the twelve months ended December 31, 1997
from $2.2 million for the twelve months ended December 31, 1996. The increase in
general and administrative expenses resulted primarily from increased staff to
support overall Company growth along with increased performance bonuses and
salary increases, higher recruiting and legal expenses and other expenses
associated with being a public company. General and administrative expenses
during 1997 remained unchanged as a percentage of net revenues at 12.6% from the
twelve months ended December 31, 1996.
Facility Relocation and Other. The charge of $102,000 for the twelve
months ended December 31, 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
65.0% for the twelve months ended December 31, 1997 to $1.5 million from
$913,000 for the twelve months ended December 31, 1996. As a percent of net
revenues, research and development expenses decreased to 4.9% in 1997 compared
to 5.2% in 1996. The increase in expense resulted from additional development
efforts to achieve increased product performance and new product development. In
addition, expenses increased due to start-up development costs for an electronic
network and for statistical development costs to support the development of
services to other non-catalog direct marketing clients. These increases,
however, were less than the increase in net revenues for the year resulting in
slightly lower research and development expenses as a percentage of net revenues
during 1997.
Operating Profit. Operating profit increased 80.7% for the twelve
months ended December 31, 1997 to $11.5 million or 37.2% of net revenues from
$6.4 million or 36.3% of net revenues for the twelve months ended December 31,
1996. The increases in operating profit and operating margin are due to higher
net revenues along with the low variable nature of certain costs, which were
partially offset by growing expenditures to provide services to other
non-catalog direct marketing clients.
Interest and Other Income (Expense), Net. Net interest income for the
twelve months ended December 31, 1997 increased to $297,000 from net interest
expense of ($116,000) for the twelve months ended December 31, 1996. The
increase in net interest income was due primarily to the retirement of the
16
<PAGE> 17
Company's subordinated debentures and interest earned on higher Company cash
balances resulting from the Company's initial public offering (IPO) in
September, 1996 and from internally generated funds.
Income Taxes. The Company's effective income tax rate for the twelve
months ended December 31, 1997 was 36.5% compared to 38.2% for the twelve months
ended December 31, 1996. The Company achieved a lower income tax rate primarily
due to a lower provision for state income taxes.
Net Income. Net income for the twelve months ended December 31,1997 was
$7.5 million or $0.74 per diluted common share compared with net income of $3.9
million or $0.40 per diluted common share in 1996. The increase in net income
and net income per common share reflects higher operating income and net
interest income and a lower effective tax rate.
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
revenues are usually lower and operating profit is usually higher during the
second half of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operating activities for the twelve
months ended December 31, 1998 was $13.5 million compared to $6.7 million for
the twelve months ended December 31, 1997. For the twelve months ended December
31, 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 previous year. As of December 31, 1998, net working capital
increased by $16.3 million to $32.4 million compared to $16.1 million as of
December 31, 1997.
Cash used in investing activities was $2.3 million for the twelve
months ended December 31, 1998 and 1997. These activities represent capital
expenditures for computer equipment and peripheral systems and office equipment
necessary to support revenue growth. 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 a joint
venture with VNU, the Company plans to invest approximately $2.0 million to
develop the operations of the joint venture during 1999.
During the twelve months ended December 31, 1998, net cash generated
from financing activities was $2.6 million compared to $197,000 for the twelve
months ended December 31, 1997 due primarily to proceeds received from the
exercise of employee stock options that were partially offset by principal
payments on capital lease obligations.
The Company's principal sources of liquidity are cash generated from
operations as well as cash and cash equivalents, which totaled $24.3 million at
December 31, 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.
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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 has completed the assessment of its Year 2000 readiness for
its internal information technology systems and non-information technology
systems. As part of the Company's remediation efforts, it will 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 Issues related to its internal systems 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 members of the
Abacus Alliance to determine the extent to which the Company is vulnerable to
the Abacus Alliance members' failure to remediate their own Year 2000 Issues. As
a result of its own internal assessment of the transactional files contributed
by the Abacus Alliance members, the Company has determined that those files
which contain date-sensitive data may require require modification or conversion
to recognize the correct century prior to loading to the Abacus Alliance
database. Similarly, demographic and change of address information that is
obtained from third parties and used to enhance the transactional data on the
Abacus Alliance database may also require conversion or modification to be Year
2000 compliant.
The Company has also communicated with a significant number of its
external suppliers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 Issues. Primarily,
the Year 2000 Issues from external suppliers relates to the Company's accounting
and invoicing software systems, statistical software, data sorting software, and
payroll processing. Some of these vendors have certified their products to be
Year 2000 compliant while others are preparing to make them compliant in 1999.
In the event the Company is operating a version of software or using a vendor's
product that is not Year 2000 ready, it will either upgrade to the new version
or product or seek substitutes that are 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 its Year 2000 project in September 1999. The total remaining
cost of the Year 2000 project is estimated at $600,000 to $800,000 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
December 31, 1998, the Company has incurred and expensed approximately $340,000
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.
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<PAGE> 19
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will be required to apply recently issued accounting
standards in its future financial statements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which is effective for the Company's fiscal year 2000. SFAS 133
establishes standards that require companies to value derivative financial
instruments, including those used for hedging foreign currency exposures, at
current market value with the impact of any change in market value being charged
against earnings in each period. The Company does not expect SFAS 132 to have a
material impact on the Company's results of operations.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP
98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires companies to capitalize certain costs of
computer software developed or obtained for internal use, provided that those
costs are not research and development. The Company expects to adopt the
provisions of SOP 98-1 in fiscal 1999 and such adoption is not expected to have
a material effect on the Company's results of operations or financial position.
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-K 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, existing and potential
partnerships, strategic alliances and joint ventures, 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
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-K.
19
<PAGE> 20
ITEM 7A. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this item concerning the Company's
directors is incorporated by reference to the information set forth in the
sections entitled "Proposal 1 Election of Directors" and "Executive Officers of
the Company" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders (the "1999 Proxy Statement") to be filed with the Commission within
120 days after the end of the Company's year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item regarding executive compensation
is incorporated by reference to the information set forth in the section
entitled "Executive Compensation" in the Company's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Stock Ownership of Certain
Beneficial Owners and Management" in the Company's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item regarding certain relationships
and related transactions is incorporated by reference to the information set
forth in the section entitled "Certain Relationships and Related Transactions"
in the Company's 1999 Proxy Statement.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements and Schedules. The following Financial
Statements of the Company are included herein:
<TABLE>
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets-- December 31, 1998 and 1997 F-2
Consolidated Statements of Operations-- Years ended December 31, 1998, 1997 and
1996 F-3
Consolidated Statements of Changes in Stockholders' Equity-- Years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows-- Years ended December 31, 1998, 1997 and
1996 F-5
Notes to Consolidated Financial Statements F-6
2. Consolidated Financial Statement Schedules
The following consolidated financial statement schedule of the Company
for each of the years ended December 31, 1998, 1997 and 1996 is filed as part of
this Form 10-K, and should be read in conjunction with the Consolidated
Financial Statements, and the related notes thereto of the Company.
Schedule II -- Valuation and Qualifying Accounts S-1
</TABLE>
Schedules other than those listed above have been omitted because they
are not applicable or the required information is shown in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
The following documents heretofore filed by the Company with the
Securities and Exchange Commission are hereby incorporated by reference:
<S> <C> <C>
3.01 -- Certificate of Incorporation of Abacus Direct Corporation.
Incorporated by reference to Exhibit 3.01 to the Registration
Statement on Form SB-2 (Registration No. 333-5380) filed by the
Company on August 7, 1996 as amended (the "Registration
Statement").
3.02 -- By-laws of Abacus Direct Corporation. Incorporated by reference
to Exhibit 3.02 to the Registration Statement.
10.01* -- Amended and Restated 1989 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.0 to the Registration Statement.
10.02* -- Amended and Restated 1996 Stock Incentive Plan. Incorporated by
reference to Exhibit A to the definitive proxy statement filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual
Meeting of Stockholders.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
10.03* -- Employment Agreement dated August 6, 1996 between the
Company and M. Anthony White. Incorporated by reference
to Exhibit 10.03 to the Registration Statement.
10.04* -- Employment Agreement dated August 6, 1996 between the Company
and Daniel C. Snyder. Incorporated by reference to Exhibit 10.04
to the Registration Statement.
10.05* -- Employment Agreement dated April 25, 1997 between the Company and
Carlos E. Sala. Incorporated by reference to Exhibit 10.05 to
the Annual Report on Form 10-K for the year ended December 31,
1997.
10.06 -- Lease dated November 19, 1996, as amended, between Sheridan
Realty Partners, L.P. and the Company for suites 100, 200, 210
and 310, Sheridan Park One, 8774 Yates Drive, Westminster, CO
80030. Incorporated by reference to Exhibit 10.06 to the Annual
Report on Form 10-KSB of the Company for the fiscal year ended
December 31, 1996.
10.07 -- Lease dated December 2, 1997, between Westpike LLC, Garfield
Limited Liability Company, 520 Cooper Limited Liability Company
and Philip M. Holstein, as landlord, and the Company for suite
110 at 8700 Turnpike Drive, Westminster, CO 80030. Incorporated
by reference to Exhibit 10.07 to the Annual Report on Form 10-K
for the year ended December 31, 1997.
10.08 -- Sublease dated May 15, 1997, between The Really Useful Company,
Inc. and the Company for a portion of the 15th floor at One
Rockefeller Plaza, New York, New York. Incorporated by reference
to Exhibit 10.08 to the Annual Report on Form 10-K for the year
ended December 31, 1997.
10.09* -- Form of Indemnification Agreement entered into between the Company
and each of its officers and directors. Incorporated by reference
to Exhibit 10.10 to the Registration Statement.
10.10 -- Form of agreement between the Company and members of the Abacus
Alliance. Incorporated by reference to Exhibit 10.11 to the
Registration Statement.
10.11 -- Registration Rights Agreement dated as of August 5, 1996 among
the Company and certain shareholders of the Company named
therein. Incorporated by reference to Exhibit 10.18 to the
Registration Statement.
10.12* -- Forms of Stock Option Agreements used under the Amended and Restated
1989 Stock Option Plan, as amended. Incorporated by reference to Exhibit
10.19 to the Registration Statement.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
10.13 -- Lease dated May 22, 1998, between Western States Ventures, LLC,
as Landlord, and the Company. Incorporated by reference to
Exhibit 10.01 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
10.14 -- Master Lease dated September 2, 1998, between COMDISCO, Inc. as
Lessor, and the Company. Incorporated by reference to Exhibit
10.01 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998.
10.15* -- Employment Agreement dated November 2, 1998 between the Company
and Christopher M. Dice. Incorporated by reference to Exhibit
10.02 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998.
The following documents are filed herewith:
10.16* -- Letter Agreement dated December 3, 1998 between the Company and
Daniel C. Snyder.
10.17* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and M. Anthony White.
10.18* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Daniel C. Snyder.
10.19* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Carlos E. Sala.
10.20* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Christopher M. Dice.
10.21* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and M. Anthony White.
10.22* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and Daniel C. Snyder.
10.23* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and Carlos E. Sala.
10.24 -- Joint Venture Agreement between Abacus Direct International, Inc.
and VNU Business Information Europe B.V. ("VNU").
21.01 -- Subsidiaries of the Registrant.
23.01 -- Consent of PricewaterhouseCoopers LLP.
27.01 -- Financial Data Schedule.
</TABLE>
* This Exhibit represents a management contract or compensatory plan.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Abacus Direct Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)1. and 2. on page 21 present fairly, in all
material respects, the financial position of Abacus Direct Corporation and its
subsidiary at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 1, 1999
F-1
<PAGE> 25
ABACUS DIRECT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,263 $ 10,490
Accounts receivable (less allowance for doubtful accounts
of $963 and $787 at December 31, 1998 and December 31,
1997, respectively) 12,034 8,120
Prepaid expenses and other current assets 630 391
Income taxes receivable 1,107 52
Deferred taxes 727 474
------------ ------------
Total current assets 38,761 19,527
Property and equipment, net 4,488 3,065
Deferred taxes and other assets 71 --
============ ============
Total assets $ 43,320 $ 22,592
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 614 $ 220
Accrued expenses and other 5,463 3,166
Current obligations under capital leases 326 14
------------ ------------
Total current liabilities 6,403 3,400
Obligations under capital leases, net of current portion 613 15
Commitments and contingencies (Note 7) -- --
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; 9,858
and 9,638 shares issued and outstanding at December 31, 1998
and December 31, 1997, respectively 10 10
Additional paid-in capital 12,603 6,902
Retained earnings 23,691 12,265
------------ ------------
Total stockholders' equity 36,304 19,177
------------ ------------
Total liabilities and stockholders' equity $ 43,320 $ 22,592
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 26
ABACUS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues $ 46,979 $ 30,971 $ 17,532
Cost of revenues 9,581 5,942 3,751
---------- ---------- ----------
Gross profit 37,398 25,029 13,781
Operating expenses:
Selling and marketing 12,628 8,000 4,294
General and administrative 4,928 3,911 2,204
Research and development 1,691 1,507 913
Facility relocation and other 360 102 --
---------- ---------- ----------
Total operating expenses 19,607 13,520 7,411
---------- ---------- ----------
Income from operations 17,791 11,509 6,370
Equity in losses of joint venture (53) -- --
Interest and other income (expense), net 754 297 (116)
---------- ---------- ----------
Income before income taxes 18,492 11,806 6,254
Provision for income taxes 7,066 4,309 2,389
========== ========== ==========
Net income $ 11,426 $ 7,497 $ 3,865
========== ========== ==========
Net income per common share -- basic $ 1.17 $ 0.78 $ 0.43
Net income per common share -- diluted $ 1.12 $ 0.74 $ 0.40
Weighted average number of outstanding
common shares -- basic 9,727 9,546 9,094
Weighted average number of outstanding
common shares -- diluted 10,216 10,058 9,614
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 27
ABACUS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 9,046 $ 9 $ 277 $ 903 $ 1,189
Issuance of common stock, net 455 1 4,957 -- 4,958
Net income -- -- -- 3,865 3,865
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1996 9,501 $ 10 $ 5,234 $ 4,768 $ 10,012
Issuance of common stock, net 137 -- 212 -- 212
Tax benefit related to stock options -- -- 1,456 -- 1,456
Net income -- -- -- 7,497 7,497
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 9,638 $ 10 $ 6,902 $ 12,265 $ 19,177
Issuance of common stock, net 220 -- 2,640 -- 2,640
Tax benefit related to stock options -- -- 3,061 -- 3,061
Net income -- -- -- 11,426 11,426
============= ============= ============= ============= =============
Balance at December 31, 1998 9,858 $ 10 $ 12,603 $ 23,691 $ 36,304
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 28
ABACUS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,426 $ 7,497 $ 3,865
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,650 1,038 683
Equity in losses of joint venture 53 -- --
Facility relocation and other 185 10 9
Deferred income tax benefit (323) (190) (164)
Changes in assets and liabilities:
Accounts receivable, net (3,914) (4,385) (1,338)
Prepaid expenses and other current assets (239) (93) (140)
Accounts payable 394 (5) 146
Accrued expenses 2,297 1,658 995
Income taxes receivable 2,003 1,128 (84)
---------- ---------- ----------
Net cash provided by operating activities 13,532 6,658 3,972
INVESTING ACTIVITIES
Purchases of property and equipment (2,257) (2,299) (1,492)
Proceeds from sales of equipment -- 10 5
Investment in joint venture (54) -- --
---------- ---------- ----------
Net cash used in investing activities (2,311) (2,289) (1,487)
FINANCING ACTIVITIES
Principal payments on capital leases and long-term debt (88) (15) (2,864)
Issuance of common stock 2,640 212 4,957
---------- ---------- ----------
Net cash provided by financing activities 2,552 197 2,093
----------
---------- ----------
Net increase in cash 13,773 4,566 4,578
Cash and cash equivalents at beginning of period 10,490 5,924 1,346
========== ========== ==========
Cash and cash equivalents at end of period $ 24,263 $ 10,490 $ 5,924
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 23 $ 5 $ 210
Income taxes paid 6,155 1,893 2,601
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Purchase of equipment under capital lease 1,000 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 29
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abacus Direct Corporation ("Abacus" or the "Company"), is a leading
provider of specialized consumer information and analysis for the direct
marketing industry. The Company provides its services through its proprietary
database and advanced modeling technology.
PRINCIPLES OF CONSOLIDATION
The accounts of the Company have been consolidated. All intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company generally provides services to its clients that result in a
deliverable product in the form of marketing data or customized written reports.
The Company's clients are billed and revenue is generally recognized when such
product is shipped to a client. In certain cases, the Company also provides
subscriptions to unlimited products for a fixed fee and over a fixed period of
time. Revenue from these arrangements is recognized ratably over the life of the
arrangement.
CASH EQUIVALENTS
Cash equivalents consist of commercial paper and money market
investments purchased with original maturities of three months or less. Such
cash equivalents aggregated approximately $22,969 and $9,937 at December 31,
1998 and 1997, respectively. Cash equivalents are carried at amortized cost,
which approximates fair value. The Company considers all of its investments to
be available for current operations and maintains its investments in securities
which are highly liquid and would not result in losses if sold prior to
maturity.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
Office and data processing equipment 3-10 years
Computer software 3 years
Leasehold improvements Shorter of estimated useful
life or lease term
Upon retirement or disposition, the cost and accumulated depreciation
of assets disposed of are removed from the accounts, with any resulting gain or
loss included in current operations. The Company evaluates the possible
impairment of assets whenever events and circumstances indicate the carrying
value of the assets may not be recoverable. Accordingly, the Company recorded a
non-recurring charge of $183 for the impairment of fixed assets (primarily
office furniture, fixtures and equipment) that will not be relocated to the
Company's new headquarters building in April 1999.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
F-6
<PAGE> 30
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to potential
concentrations of credit risks consist primarily of trade receivables. Since the
Company's customers are primarily comprised of direct marketing companies,
credit risk is principally affected by general economic conditions within the
direct marketing industry. The Company performs periodic credit evaluations of
its customers' financial condition and maintains allowances for potential credit
losses. No single customer accounted for more than ten percent of the Company's
net revenues for the years ended December 31, 1998, 1997 and 1996 or accounts
receivable at December 31, 1998 and 1997.
ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities as well as the reported
amounts of revenue and expenses. Actual results could differ from those
estimates making it reasonably possible that a change in these estimates could
occur in the near term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, trade receivables and payables, approximate fair
values due to the short-term maturity of these instruments. The estimated fair
value of capital lease obligations was determined based upon the present value
of future expected cash flows, expected maturities and the borrowing rate of
interest available to the Company with similar terms. At December 31, 1998, the
fair value of the capital lease obligations approximates the carrying amount.
STOCK COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock-based
compensation plans. The Company has adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation."
EARNINGS PER SHARE
Earnings per share ("EPS") are computed in accordance with Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings Per Share," which
specifies the computation, presentation, and disclosure requirements of basic
and diluted EPS. Basic EPS excludes all dilution and is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Common equivalent shares are excluded from the computation in periods in which
they have an anti-dilutive effect. The Company adopted SFAS 128 for the fiscal
year ended December 31, 1997. Basic and diluted net income per common share were
arrived at using the following calculations:
F-7
<PAGE> 31
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income available to common shareholders $ 11,426 $ 7,497 $ 3,865
Denominator:
Weighted average number of outstanding common
shares 9,727 9,546 9,094
Dilutive effect of:
Stock options 489 512 520
--------- --------- ---------
Weighted average number of outstanding common
shares and common share equivalents 10,216 10,058 9,614
Earnings per common share-- basic $ 1.17 $ 0.78 $ 0.43
Earnings per common share-- diluted $ 1.12 $ 0.74 $ 0.40
</TABLE>
The dilutive effects of stock options were arrived at by applying the
treasury stock method, assuming the Company was to purchase common shares with
the proceeds from stock option exercises. The Company has no issued preferred
stock from which dividends would reduce earnings available to common
shareholders.
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Deferred tax assets or liabilities are recorded for the estimated future
tax effects of temporary differences between the amounts reported in the
financial statements and the tax basis of assets and liabilities as well as for
tax credit carryforwards. Valuation allowances may be provided against deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
RECENT PRONOUNCEMENTS
The Company will be required to apply recently issued accounting
standards in its future financial statements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which is effective for the Company's fiscal year 2000. SFAS 133
establishes standards that require companies to value derivative financial
instruments, including those used for hedging foreign currency exposures, at
current market value with the impact of any change in market value being charged
against earnings in each period. The Company does not expect SFAS 132 to have a
material impact on the Company's results of operations.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP
98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires companies to capitalize certain costs of
computer software developed or obtained for internal use, provided that those
costs are not research and development. The Company expects to adopt the
provisions of SOP 98-1 in fiscal 1999 and such adoption is not expected to have
a material effect on the Company's results of operations or financial position.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 and 1996 financial
statements to conform to the 1998 presentation.
F-8
<PAGE> 32
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. ABACUS DIRECT EUROPE
The Company entered into an agreement with VNU Business Information
Europe B.V. ("VNU"), a Dutch publishing and business information company,
providing for the creation of a Netherlands joint venture in which the Company
has a 50% ownership interest. The joint venture, Abacus Direct Europe B.V., was
formed to create an alliance similar to the Abacus Alliance and to provide
services similar to those of the Company to the European Community. The Company
uses the equity method of accounting to account for its investment in Abacus
Direct Europe B.V. During 1998, the Company contributed approximately $54 to the
joint venture and recognized losses of $53. Abacus and VNU will each contribute
approximately $2,000 in debt and equity during 1999 as well as certain services,
information and licenses.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Office and data processing equipment $ 6,130 $ 4,223
Computer software 1,423 1,138
Leasehold improvements 479 417
Equipment under capital leases 1,062 63
---------- ----------
9,094 5,841
Accumulated depreciation and amortization (4,606) (2,776)
---------- ----------
Property and equipment, net $ 4,488 $ 3,065
========== ==========
</TABLE>
4. ACCRUED EXPENSES AND OTHER
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Sales commissions $ 502 $ 397
Bonuses 1,389 1,149
Vacations 539 371
Payroll, taxes and related expenses 1,660 549
Third party commissions 596 207
Facility relocation 177 --
Other 600 493
---------- ----------
$ 5,463 $ 3,166
========== ==========
</TABLE>
F-9
<PAGE> 33
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. STOCK OPTION PLANS
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
The Company adopted an Amended and Restated 1989 Stock Option Plan (the
"1989 Plan") in March 1989 for officers, directors, employees and consultants of
the Company which provided for the granting of options to purchase up to 1,836
shares of Common Stock. As of December 31, 1998, ten year options under the 1989
Plan to purchase an aggregate of 430 shares of the Common Stock at a weighted
average exercise price of $3.70 per share were outstanding. Options granted to
employees pursuant to the 1989 Plan may be either Incentive Stock Options
("ISOs") or non-ISOs. The exercise price per share of a nonqualified stock
option to directors or consultants could not be less than 85% of the fair market
value at the time of grant as determined by the board of directors. The exercise
price per share of an incentive stock option to key employees could not be less
than 100% of the fair market value at the time of grant.
The options granted under the 1989 Plan vest either in either four or
five equal annual installments commencing on the first anniversary of the date
of grant, or immediately, subject to repurchase at the exercise price of any
shares purchased upon exercise in the event of termination of the optionee's
employment with the Company (other than due to death or disability). The
Company's repurchase right is reduced by either twenty percent (20%) or twenty
five percent (25%) on each anniversary of the grant date. The options may be
exercised either by payment in cash of the exercise price or, at the discretion
of the Board of Directors, by tendering shares of Common Stock having a fair
market value equal to the option exercise price. The Company determined not to
grant further options under the 1989 Plan after September 1996.
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
The Company has adopted the 1996 Plan (the "1996 Plan") for officers,
directors, employees, and consultants of the Company or any of its subsidiaries.
The 1996 Plan currently authorizes the issuance of up to 1,100 shares of Common
Stock upon the exercise of stock options or in connection with the issuance of
restricted stock. As of December 31, 1998, ten year options under the 1996 Plan
to purchase an aggregate of 779 shares of the Common Stock at a weighted average
exercise price of $34.39 per share were outstanding. The 1996 Plan authorizes
the granting of stock options and restricted stock to employees, officers,
directors and consultants of the Company and its subsidiaries and
non-discretionary automatic awards of stock options to non employee directors of
the Company.
Options granted to employees may either be ISOs or non-ISOs. Each
option has a maximum term of ten years from the date of the grant, subject to
early termination. The Board of Directors may determine the exercise price
provided that such price may not be less than the fair market value of the
Common Stock on the date of grant. At the discretion of the Board of Directors,
the exercise price of the options may be paid in cash or by tendering of shares
of Common Stock having a fair market value equal to the exercise price of such
option. At December 31, 1998, there were 230 shares available for grant under
the 1996 Plan.
The status of total stock options outstanding and exercisable under the
1989 and 1996 Plans as of December 31, 1998 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE
RANGE OF NUMBER OF REMAINING WEIGHTED NUMBER OF WEIGHTED
EXERCISE SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
PRICES AT 12/31/98 LIFE (YEARS) EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.32-- $4.20 379 6.90 $ 2.31 101 $ 2.73
14.00-- 21.50 176 8.01 19.33 30 18.07
21.75-- 34.50 300 8.58 27.24 21 25.89
35.00-- 44.06 206 9.25 43.83 -- --
46.00-- 51.00 148 9.79 46.59 8 49.50
--------------- ---------------
1.32-- 51.00 1,209 8.23 23.48 160 10.97
=============== ===============
</TABLE>
F-10
<PAGE> 34
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE OPTIONS EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 510 $ 1.30 5 $ 0.06
Options granted 235 8.86
Less options forfeited (1) 1.32
Less options exercised -- --
------- -------
Outstanding at December 31, 1996 744 $ 3.69 102 $ 1.25
Options granted 494 24.73
Less options forfeited (35) 11.05
Less options exercised (137) 1.55
------- -------
Outstanding at December 31, 1997 1,066 $ 13.46 575 $ 3.78
Options granted 409 44.14
Less options forfeited (46) 29.74
Less options exercised (220) 12.00
------- -------
Outstanding at December 31, 1998 1,209 $ 23.48 160 $ 10.97
======= =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock-based compensation plans. Accordingly, no compensation
expense has been recognized in the financial statements. If compensation expense
for the Company's stock option plans been determined on the basis of the fair
value of the awards at the date of grant under the plan consistent with the
method of accounting prescribed by SFAS 123, the Company's net income and income
per share would have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income
As reported $11,426 $7,497 $ 3,865
Pro forma 8,653 5,713 3,681
Net income per common share -- basic
As reported $ 1.17 $ 0.78 $ 0.43
Pro forma 0.89 0.60 0.40
Net income per common share -- diluted
As reported $ 1.12 $ 0.74 $ 0.40
Pro forma 0.85 0.57 0.38
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the years ended December 31, 1998, 1997 and 1996,
respectively: dividend yield of zero in all years; expected volatility of 58.7%,
64.8%, and 78.4%; risk-free interest rates ranging from 4.22% to 5.64%; 5.75% to
5.80% and 6.03% to 6.25%; and an expected term of five years. The risk-free rate
used in the calculation is the yield on the grant date of a U.S. Treasury Note
with a maturity equal to the expected term of the option.
F-11
<PAGE> 35
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The weighted average fair value of options granted during the year
ended December 31, 1998, 1997 and 1996 was $20.21, $14.15, and $6.29 per share,
respectively.
6. INCOME TAXES
The Company's provision for income taxes is comprised of the following
for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense
Federal $ 6,204 $ 3,998 $ 2,269
State 1,185 501 284
---------- ---------- ----------
Total current expense 7,389 4,499 2,553
Deferred tax benefit
Federal (276) (186) (164)
State (47) (4) --
---------- ---------- ----------
Total deferred tax benefit (323) (190) (164)
---------- ---------- ----------
Total provision for income taxes $ 7,066 $ 4,309 $ 2,389
========== ========== ==========
</TABLE>
The Company's deferred tax assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 375 $ 288
Depreciation and amortization 70 43
Fixed asset impairment reserve 140 --
Accruals and other 212 143
---------- ----------
$ 797 $ 474
========== ==========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the U.S. federal income tax rate of 35% for 1998 and 34% for 1997 and
1996 to income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
U.S. federal income tax expense at statutory rate $ 6,473 $ 4,014 $ 2,126
Increases (decreases) resulting from:
State income taxes, net of federal benefit 723 327 173
Utilization of research and development credits (33) (108) (20)
Nondeductible items (97) 76 110
---------- ---------- ----------
Provision for income taxes $ 7,066 $ 4,309 $ 2,389
========== ========== ==========
</TABLE>
F-12
<PAGE> 36
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. OBLIGATIONS UNDER CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
The following is a schedule by year of future gross minimum payments
for all leases and the present value of minimum capital lease payments as of
December 31, 1998:
<TABLE>
<CAPTION>
TOTAL OPERATING CAPITAL
------------- ------------- -------------
<S> <C> <C> <C>
1999 $ 1,770 $ 1,376 $ 394
2000 1,871 1,493 378
2001 1,776 1,493 283
2002 1,360 1,360 --
2003 1,241 1,241 --
Thereafter 2,793 2,793 --
------- ------- -------
Total minimum lease payments $10,811 $ 9,756 $ 1,055
------- ------- -------
Less: Amount representing interest (116)
-------
Present value of minimum capital lease payments 939
Less: Current portion (326)
------
Long-term obligations under capital leases at December 31, 1998 $ 613
======
</TABLE>
The Company leases office space under certain non-cancelable operating
leases which expire through March 31, 2006 and provide for options to renew at
the end of the primary terms. Rent expense under these operating leases during
the years ended December 31, 1998, 1997 and 1996 was $904, $517 and $254,
respectively.
The Company entered into a lease agreement (the "El Dorado Ridge
Lease"), dated May 22, 1998, for approximately 75,000 square feet of office
space in Broomfield, Colorado. This facility will be used to consolidate the
Company's present executive offices and principal operations located in
Westminster, Colorado, in April 1999. The existing facilities consist of 27,218
and 11,298 square feet of office space pursuant to lease agreements which expire
in September 1999 and March 1999, respectively. The El Dorado Ridge Lease
commences on April 1, 1999 and has a term of 7 years that is renewable for two
consecutive five year terms. In association with the Company's planned move to a
new headquarters facility, the Company recorded a non-recurring charge of $177
that represents lease payments for its largest Westminster facility to be paid
after such facility is planned to be vacated through the expiration of the
existing lease in September 1999.
On September 2, 1998, the Company entered into an equipment lease
agreement providing for the lease of $1,000 in computer equipment at $32 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. The Company also has certain telephone equipment under a
capital lease that will expire in December 1999.
8. EMPLOYEE SAVINGS PLAN
During 1995, the Company implemented a 401(k) plan for the benefit of
its employees. The Company matches 50% of employee contributions up to 6% of an
individual's salary under this plan. During 1998, 1997 and 1996, the Company's
matching contribution totaled $216, $163 and $124, respectively.
F-13
<PAGE> 37
ABACUS DIRECT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial data for
the years 1998 and 1997:
<TABLE>
<CAPTION>
EARNINGS
PER
COMMON SHARE
GROSS NET -------------------------
SALES PROFIT INCOME BASIC DILUTED
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1998 $ 9,082 $ 7,111 $ 1,689 $ 0.17 $ 0.17
June 30, 1998 9,367 7,111 1,801 0.19 0.18
September 30, 1998 16,008 13,634 4,990 0.51 0.49
December 31, 1998 12,522 9,542 2,946 0.30 0.29
-------- -------- -------
$ 46,979 $ 37,398 $ 11,426
======== ======== =======
March 31, 1997 $ 5,525 $ 4,222 $ 981 $ 0.10 $ 0.10
June 30, 1997 5,986 4,700 1,085 0.11 0.11
September 30, 1997 10,756 9,117 3,377 0.35 0.33
December 31, 1997 8,704 6,990 2,054 0.21 0.20
-------- -------- -------
$ 30,971 $ 25,029 $ 7,497
======== ======== =======
</TABLE>
F-14
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1999 ABACUS DIRECT CORPORATION
By: /s/ M. ANTHONY WHITE
------------------------------------
M. Anthony White
Chairman of the Board and
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Abacus
and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ M. ANTHONY WHITE Chairman of the Board and Chief March 31, 1999
- ----------------------------------------- Executive Officer and Director
M. Anthony White
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ CARLOS E. SALA Senior Vice President-- Finance, March 31, 1999
- ----------------------------------------- Chief Financial Officer, Secretary
Carlos E. Sala and Treasurer
DIRECTORS:
/s/ DANIEL C. SNYDER President, Emerging Markets, March 31, 1999
- ----------------------------------------- Chairman -- Abacus Direct Europe
Daniel C. Snyder and Director
/s/ FRANK KENNY Director March 31, 1999
- -----------------------------------------
Frank Kenny
/s/ ANTONY H. LEE Director March 31, 1999
- -----------------------------------------
Antony H. Lee
/s/ ROBERT L. NORTH Director March 31, 1999
- -----------------------------------------
Robert L. North
</TABLE>
<PAGE> 39
SCHEDULE II
ABACUS DIRECT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END
OF PERIOD OPERATIONS WRITE-OFFS OF PERIOD
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended:
December 31, 1996 $ 126 $ 326 $ (77) $ 375
December 31, 1997 $ 375 $ 2,068 $ (1,656) $ 787
December 31, 1998 $ 787 $ 2,494 $ (2,318) $ 963
</TABLE>
S-1
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
The following documents heretofore filed by the Company with the
Securities and Exchange Commission are hereby incorporated by reference:
<S> <C> <C>
3.01 -- Certificate of Incorporation of Abacus Direct Corporation.
Incorporated by reference to Exhibit 3.01 to the Registration
Statement on Form SB-2 (Registration No. 333-5380) filed by the
Company on August 7, 1996 as amended (the "Registration
Statement").
3.02 -- By-laws of Abacus Direct Corporation. Incorporated by reference
to Exhibit 3.02 to the Registration Statement.
10.01* -- Amended and Restated 1989 Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.0 to the Registration Statement.
10.02* -- Amended and Restated 1996 Stock Incentive Plan. Incorporated by
reference to Exhibit A to the definitive proxy statement filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual
Meeting of Stockholders.
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
10.03* -- Employment Agreement dated August 6, 1996 between the
Company and M. Anthony White. Incorporated by reference
to Exhibit 10.03 to the Registration Statement.
10.04* -- Employment Agreement dated August 6, 1996 between the Company
and Daniel C. Snyder. Incorporated by reference to Exhibit 10.04
to the Registration Statement.
10.05* -- Employment Agreement dated April 25, 1997 between the Company and
Carlos E. Sala. Incorporated by reference to Exhibit 10.05 to
the Annual Report on Form 10-K for the year ended December 31,
1997.
10.06 -- Lease dated November 19, 1996, as amended, between Sheridan
Realty Partners, L.P. and the Company for suites 100, 200, 210
and 310, Sheridan Park One, 8774 Yates Drive, Westminster, CO
80030. Incorporated by reference to Exhibit 10.06 to the Annual
Report on Form 10-KSB of the Company for the fiscal year ended
December 31, 1996.
10.07 -- Lease dated December 2, 1997, between Westpike LLC, Garfield
Limited Liability Company, 520 Cooper Limited Liability Company
and Philip M. Holstein, as landlord, and the Company for suite
110 at 8700 Turnpike Drive, Westminster, CO 80030. Incorporated
by reference to Exhibit 10.07 to the Annual Report on Form 10-K
for the year ended December 31, 1997.
10.08 -- Sublease dated May 15, 1997, between The Really Useful Company,
Inc. and the Company for a portion of the 15th floor at One
Rockefeller Plaza, New York, New York. Incorporated by reference
to Exhibit 10.08 to the Annual Report on Form 10-K for the year
ended December 31, 1997.
10.09* -- Form of Indemnification Agreement entered into between the Company
and each of its officers and directors. Incorporated by reference
to Exhibit 10.10 to the Registration Statement.
10.10 -- Form of agreement between the Company and members of the Abacus
Alliance. Incorporated by reference to Exhibit 10.11 to the
Registration Statement.
10.11 -- Registration Rights Agreement dated as of August 5, 1996 among
the Company and certain shareholders of the Company named
therein. Incorporated by reference to Exhibit 10.18 to the
Registration Statement.
10.12* -- Forms of Stock Option Agreements used under the Amended and Restated
1989 Stock Option Plan, as amended. Incorporated by reference to Exhibit
10.19 to the Registration Statement.
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
10.13 -- Lease dated May 22, 1998, between Western States Ventures, LLC,
as Landlord, and the Company. Incorporated by reference to
Exhibit 10.01 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
10.14 -- Master Lease dated September 2, 1998, between COMDISCO, Inc. as
Lessor, and the Company. Incorporated by reference to Exhibit
10.01 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998.
10.15* -- Employment Agreement dated November 2, 1998 between the Company
and Christopher M. Dice. Incorporated by reference to Exhibit
10.02 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998.
The following documents are filed herewith:
10.16* -- Letter Agreement dated December 3, 1998 between the Company and
Daniel C. Snyder.
10.17* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and M. Anthony White.
10.18* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Daniel C. Snyder.
10.19* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Carlos E. Sala.
10.20* -- Amendment No. 1 to the Employment Agreement dated as of January
7, 1999 between the Company and Christopher M. Dice.
10.21* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and M. Anthony White.
10.22* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and Daniel C. Snyder.
10.23* -- Omnibus amendment to Stock Option Agreements dated as of January
7, 1999 between the Company and Carlos E. Sala.
10.24 -- Joint Venture Agreement between Abacus Direct International, Inc.
and VNU Business Information Europe B.V. ("VNU").
21.01 -- Subsidiaries of the Registrant.
23.01 -- Consent of PricewaterhouseCoopers LLP.
27.01 -- Financial Data Schedule.
</TABLE>
* This Exhibit represents a management contract or compensatory plan.
<PAGE> 1
EXHIBIT 10.16
ABACUS DIRECT CORPORATION
8774 Yates Drive
Westminster, Colorado 80030
December 3, 1998
Mr. Daniel C. Snyder
c/o 8774 Yates Drive
Westminster, Colorado 80030
Dear Dan:
This letter shall set forth our mutual understanding and agreement in
connection with certain matters relating to your employment as follows:
1. Reference is hereby made to that certain Employment Agreement (the
"Employment Agreement"), dated as of August 6, 1996, between you and Abacus
Direct Corporation (the "Company"). You and the Company hereby acknowledge and
agree that your job title set forth in Section 1(b) of the Employment Agreement
shall be changed to "President-New Markets and Chairman-Abacus Europe" and that
all references to "President and Chief Operating Officer" shall be deleted in
their entirety from the Employment Agreement and replaced with "President-New
Markets and Chairman-Abacus Europe" in lieu thereof.
2. Reference is hereby made to that certain Stock Option Agreement (the
"Option Agreement"), dated as of September 15, 1998, between you and the
Company. As you know, the Option Agreement grants the Company certain repurchase
rights which terminate in 20% increments (each such 20% increment, a "Repurchase
Share") on each anniversary of the date of grant. This shall serve to confirm
that in the event the Company terminates your Employment Agreement for any
reason other than for Cause (as defined in the Employment Agreement) prior to
September 15, 1999, the Company shall be deemed to have waived a pro rata
portion of the Repurchase Share which would have terminated on September 15,
1999, based upon the amount of time you were employed by the Company during the
12 month period ending on such date.
3. Except as expressly set forth in this letter agreement, each of the
Employment Agreement and the Option Agreement shall remain in full force and
effect as the same was in effect immediately prior to the date of this letter
agreement.
Kindly indicate your agreement with the foregoing by signing in the
space marked "ACKNOWLEDGED AND AGREED" below.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS SALA
----------------------------
Name: Carlos Sala
Title: CFO
ACKNOWLEDGED AND AGREED:
/s/ DANIEL C. SNYDER
- ----------------------------
Daniel C. Snyder
<PAGE> 1
EXHIBIT 10.17
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT
AMENDMENT #1 TO EMPLOYMENT AGREEMENT dated as of January 7, 1999
("Amendment #1") by and between ABACUS DIRECT CORPORATION, a Delaware
corporation having an office located at 8774 Yates Drive, Westminster, Colorado
80030 (the "Corporation"), and M. ANTHONY WHITE ("Executive").
WITNESSETH:
WHEREAS, the Corporation and Executive are desirous of amending that
certain Employment Agreement dated as of August 6, 1996 (the "Employment
Agreement") to which each is a party on the terms hereinafter set forth.
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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 to amend the Employment Agreement as follows:
1. Section 9(a)(iii)(B) shall be amended in its entirety as
follows:
"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, no later than the fifth (5th) day
following the Date of Termination, a lump-sum severance payment in an
amount equal to the sum of (x) twenty-four (24) months of the Base
Salary then in effect and (y) an amount equal to two (2) times any
incentive compensation earned in the most recently completed fiscal
year of the Corporation."
Except as expressly set forth in this Amendment #1, the Employment
Agreement shall remain in full force and effect as the same was in effect
immediately prior to the effectiveness of this Amendment #1.
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment #1 to Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS E. SALA
--------------------------------
Name: Carlos E. Sala
Title: CFO
EXECUTIVE
/s/ M. ANTHONY WHITE
-----------------------------------
M. Anthony White
<PAGE> 1
EXHIBIT 10.18
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT
AMENDMENT #1 TO EMPLOYMENT AGREEMENT dated as of January 7, 1999
("Amendment #1") by and between ABACUS DIRECT CORPORATION, a Delaware
corporation having an office located at 8774 Yates Drive, Westminster, Colorado
80030 (the "Corporation"), and DANIEL C. SNYDER ("Executive").
WITNESSETH:
WHEREAS, the Corporation and Executive are desirous of amending that
certain Employment Agreement dated as of August 6, 1996 (the "Employment
Agreement") to which each is a party on the terms hereinafter set forth.
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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 to amend the Employment Agreement as follows:
1. Section 9(a)(iii)(B) shall be amended in its entirety as
follows:
"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, no later than the fifth (5th) day
following the Date of Termination, a lump-sum severance payment in an
amount equal to the sum of (x) twenty-four (24) months of the Base
Salary then in effect and (y) an amount equal to two (2) times any
incentive compensation earned in the most recently completed fiscal
year of the Corporation."
Except as expressly set forth in this Amendment #1, the Employment
Agreement shall remain in full force and effect as the same was in effect
immediately prior to the effectiveness of this Amendment #1.
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment #1 to Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS E. SALA
---------------------------------
Name: Carlos E. Sala
Title: CFO
EXECUTIVE
/s/ DANIEL C. SNYDER
------------------------------------
Daniel C. Snyder
<PAGE> 1
EXHIBIT 10.19
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT
AMENDMENT #1 TO EMPLOYMENT AGREEMENT dated as of January 7, 1999
("Amendment #1") by and between ABACUS DIRECT CORPORATION, a Delaware
corporation having an office located at 8774 Yates Drive, Westminster, Colorado
80030 (the "Corporation"), and CARLOS E. SALA ("Executive").
WITNESSETH:
WHEREAS, the Corporation and Executive are desirous of amending that
certain Employment Agreement dated as of May 2, 1997 (the "Employment
Agreement") to which each is a party on the terms hereinafter set forth.
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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 to amend the Employment Agreement as follows:
1. Section 9(a)(iii)(B) shall be amended in its entirety as
follows:
"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, no later than the fifth (5th) day
following the Date of Termination, a lump-sum severance payment in an
amount equal to the sum of (x) twenty-four (24) months of the Base
Salary then in effect and (y) an amount equal to two (2) times any
incentive compensation earned in the most recently completed fiscal
year of the Corporation."
Except as expressly set forth in this Amendment #1, the Employment
Agreement shall remain in full force and effect as the same was in effect
immediately prior to the effectiveness of this Amendment #1.
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment #1 to Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By: /s/ DANIEL C. SNYDER
-----------------------------------
Name: Daniel C. Snyder
Title: President, Emerging Markets
EXECUTIVE
/s/ CARLOS E. SALA
-----------------------------------
Carlos E. Sala
<PAGE> 1
EXHIBIT 10.20
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT
AMENDMENT #1 TO EMPLOYMENT AGREEMENT dated as of January 7, 1999
("Amendment #1") 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 ("Executive").
WITNESSETH:
WHEREAS, the Corporation and Executive are desirous of amending that
certain Employment Agreement dated as of November 2, 1998 (the "Employment
Agreement") to which each is a party on the terms hereinafter set forth.
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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 to amend the Employment Agreement as follows:
1. Section 9(a)(iii)(B) shall be amended in its entirety as
follows:
"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, no later than the fifth (5th) day
following the Date of Termination, a lump-sum severance payment in an
amount equal to the sum of (x) twenty-four (24) months of the Base
Salary then in effect and (y) an amount equal to two (2) times any
incentive compensation earned in the most recently completed fiscal
year of the Corporation."
Except as expressly set forth in this Amendment #1, the Employment
Agreement shall remain in full force and effect as the same was in effect
immediately prior to the effectiveness of this Amendment #1.
<PAGE> 2
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment #1 to Employment Agreement on the date first above
written.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS SALA
----------------------------------
Name: Carlos Sala
Title: CFO
EXECUTIVE
/s/ CHRISTOPHER M. DICE
-------------------------------------
Christopher M. Dice
<PAGE> 1
EXHIBIT 10.21
OMNIBUS AMENDMENT TO
STOCK OPTION AGREEMENTS
OMNIBUS AMENDMENT TO STOCK OPTION AGREEMENTS dated as of January 7,
1999 ("Amendment Agreement") by and between ABACUS DIRECT CORPORATION, a
Delaware corporation having an office located at 8774 Yates Drive, Westminster,
Colorado 80030 (the "Corporation"), and M. ANTHONY WHITE ("Executive").
WITNESSETH:
WHEREAS, the Corporation has granted Executive certain options pursuant
to agreements described on Exhibit A hereto (the "96 Plan Agreements") under the
Amended and Restated Abacus Direct Corporation 1996 Stock Incentive Plan, As
Amended (the "96 Plan").
WHEREAS, the Corporation has granted Executive certain options pursuant
to agreements described on Exhibit B hereto (the "89 Plan Agreements") under the
Abacus Direct Corporation Amended and Restated 1989 Stock Option Plan, As
Amended (the "89 Plan").
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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. Notwithstanding anything to the contrary contained in any of
the 96 Plan Agreements between the Corporation and Executive
pursuant to which options were granted by the Corporation to
Executive under the 96 Plan, the 96 Plan Agreements are hereby
amended to provide that in the event of a Change in Control
(as defined in the 96 Plan) of the Corporation such options
issued pursuant to the 96 Plan Agreements shall immediately
vest and become exercisable by Executive with respect to one
hundred (100%) percent of the shares subject to such options.
2. Notwithstanding anything to the contrary contained in any of
the 89 Plan Agreements between the Corporation and Executive
pursuant to which options were granted by the Corporation to
Executive under the 89 Plan, the 89 Plan Agreements are hereby
amended to provide that in the event of a Change in Control
(as defined in the 96 Plan) of the Corporation, the
Corporation hereby waives its right to repurchase any or all
of the shares that may be or have been acquired by Executive
pursuant to the exercise of such options issued pursuant to
the 89 Plan Agreements.
<PAGE> 2
Except as expressly set forth in this Amendment Agreement, the 96 Plan
Agreements and the 89 Plan Agreements between the Corporation and Executive
shall remain in full force and effect as the same were in effect immediately
prior to the effectiveness of this Amendment Agreement.
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment Agreement on the date first above written.
ABACUS DIRECT CORPORATION
By: /s/ CARLOS SALA
----------------------------------
Name: Carlos Sala
Title: CFO
EXECUTIVE
/s/ M. ANTHONY WHITE
-------------------------------------
M. Anthony White
<PAGE> 3
EXHIBIT A
1. Stock Option Agreement dated February 12, 1997 between Abacus Direct
Corporation and M. Anthony White granting 1,632 options.
2. Stock Option Agreement dated February 12, 1997 between Abacus Direct
Corporation and M. Anthony White granting 23,368 options.
3. Stock Option Agreement dated April 7, 1998 between Abacus Direct
Corporation and M. Anthony White granting 2,269 options.
4. Stock Option Agreement dated April 7, 1998 between Abacus Direct
Corporation and M. Anthony White granting 35,731 options.
5. Stock option grant dated January 1999 by Abacus Direct Corporation to
M. Anthony White.
<PAGE> 4
EXHIBIT B
1. Stock Option Agreement dated May 3, 1996 between Abacus Direct
Corporation and M. Anthony White.
<PAGE> 1
EXHIBIT 10.22
OMNIBUS AMENDMENT TO
STOCK OPTION AGREEMENTS
OMNIBUS AMENDMENT TO STOCK OPTION AGREEMENTS dated as of January 7,
1999 ("Amendment Agreement") by and between ABACUS DIRECT CORPORATION, a
Delaware corporation having an office located at 8774 Yates Drive, Westminster,
Colorado 80030 (the "Corporation"), and DANIEL C.
SNYDER ("Executive").
WITNESSETH:
WHEREAS, the Corporation has granted Executive certain options pursuant
to agreements described on Exhibit A hereto (the "96 Plan Agreements") under the
Amended and Restated Abacus Direct Corporation 1996 Stock Incentive Plan, As
Amended (the "96 Plan").
WHEREAS, the Corporation has granted Executive certain options pursuant
to agreements described on Exhibit B hereto (the "89 Plan Agreements") under the
Abacus Direct Corporation Amended and Restated 1989 Stock Option Plan, As
Amended (the "89 Plan").
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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. Notwithstanding anything to the contrary contained in any of
the 96 Plan Agreements between the Corporation and Executive
pursuant to which options were granted by the Corporation to
Executive under the 96 Plan, the 96 Plan Agreements are hereby
amended to provide that in the event of a Change in Control
(as defined in the 96 Plan) of the Corporation such options
issued pursuant to the 96 Plan Agreements shall immediately
vest and become exercisable by Executive with respect to one
hundred (100%) percent of the shares subject to such options.
2. Notwithstanding anything to the contrary contained in any of
the 89 Plan Agreements between the Corporation and Executive
pursuant to which options were granted by the Corporation to
Executive under the 89 Plan, the 89 Plan Agreements are hereby
amended to provide that in the event of a Change in Control
(as defined in the 96 Plan) of the Corporation, the
Corporation hereby waives its right to repurchase any or all
of the shares that may be or have been acquired by Executive
pursuant to the exercise of such options issued pursuant to
the 89 Plan Agreements.
<PAGE> 2
Except as expressly set forth in this Amendment Agreement, the 96 Plan
Agreements and the 89 Plan Agreements between the Corporation and Executive
shall remain in full force and effect as the same were in effect immediately
prior to the effectiveness of this Amendment Agreement.
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment Agreement on the date first above written.
ABACUS DIRECT CORPORATION
By: /s/ M. ANTHONY WHITE
----------------------------------
Name: M. Anthony White
Title: CEO
EXECUTIVE
/s/ DANIEL C. SNYDER
-------------------------------------
Daniel C. Snyder
<PAGE> 3
EXHIBIT A
1. Stock Option Agreement dated February 12, 1997 between Abacus
Direct Corporation and Daniel C. Snyder granting 17,776
options.
2. Stock Option Agreement dated February 12, 1997 between Abacus
Direct Corporation and Daniel C. Snyder granting 224 options.
3. Stock Option Agreement dated April 7, 1998 between Abacus
Direct Corporation and Daniel C. Snyder granting 2,269
options.
4. Stock Option Agreement dated April 7, 1998 between Abacus
Direct Corporation and Daniel C. Snyder granting 20,731
options.
5. Stock option grant dated January 1999 by Abacus Direct
Corporation to Daniel C. Snyder.
<PAGE> 4
EXHIBIT B
1. Stock Option Agreement dated September 15, 1995 between Abacus
Direct Corporation and Daniel C. Snyder.
<PAGE> 1
EXHIBIT 10.23
OMNIBUS AMENDMENT TO
STOCK OPTION AGREEMENTS
OMNIBUS AMENDMENT TO STOCK OPTION AGREEMENTS dated as of January 7,
1999 ("Amendment Agreement") by and between ABACUS DIRECT CORPORATION, a
Delaware corporation having an office located at 8774 Yates Drive, Westminster,
Colorado 80030 (the "Corporation"), and CARLOS E.
SALA ("Executive").
WITNESSETH:
WHEREAS, the Corporation has granted Executive certain options pursuant
to agreements described on Exhibit A hereto (the "96 Plan Agreements") under the
Amended and Restated Abacus Direct Corporation 1996 Stock Incentive Plan, As
Amended (the "96 Plan").
WHEREAS, the Corporation has determined that it is in its best
interests, and the best interests of its shareholders, to assure that the
Corporation will have the continued dedication of Executive, notwithstanding the
possibility, threat or occurrence of a change of control of the Corporation.
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. Notwithstanding anything to the contrary contained in any of
the 96 Plan Agreements between the Corporation and Executive
pursuant to which options were granted by the Corporation to
Executive under the 96 Plan, the 96 Plan Agreements are hereby
amended to provide that in the event of a Change in Control
(as defined in the 96 Plan) of the Corporation such options
issued pursuant to the 96 Plan Agreements shall immediately
vest and become exercisable by Executive with respect to one
hundred (100%) percent of the shares subject to such options.
Except as expressly set forth in this Amendment Agreement, the 96 Plan
Agreements between the Corporation and Executive shall remain in full force and
effect as the same were in effect immediately prior to the effectiveness of this
Amendment Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the Corporation and Executive have executed and
delivered this Amendment Agreement on the date first above written.
ABACUS DIRECT CORPORATION
By: /s/ M. ANTHONY WHITE
----------------------------------
Name: M. Anthony White
Title: CEO
EXECUTIVE
/s/ CARLOS E. SALA
-------------------------------------
Carlos E. Sala
<PAGE> 3
EXHIBIT A
1. Stock Option Agreement dated June 6, 1997 between Abacus
Direct Corporation and Carlos E. Sala.
2. Stock Option Agreement dated April 7, 1998 between Abacus
Direct Corporation and Carlos E. Sala granting 2,269 options.
3. Stock Option Agreement dated April 7, 1998 between Abacus
Direct Corporation and Carlos E. Sala granting 20,731 options.
4. Stock option grant dated January 1999 by Abacus Direct
Corporation to Carlos E. Sala.
<PAGE> 1
EXHIBIT 10.24
DATED 1999
ABACUS DIRECT INTERNATIONAL, INC. (1)
- AND -
VNU BUSINESS INFORMATION EUROPE B.V. (2)
----------------------------------
JOINT VENTURE AGREEMENT
----------------------------------
<PAGE> 2
<TABLE>
<S> <C> <C>
CONTENTS
1. Definitions and Interpretation
2. Scope of Agreement
3. Formation of the Company and the Subsidiaries
4. Key Issues, Fundamental Issues and Deadlock Provisions
5. Representations and Warranties of Claritas
6. Representations and Warranties of Abacus
7. Indemnity
8. Competition
9. Financial Management of the Group
10. Dividends and Distribution of Profits
11. Rights to Transfer Interests in the Company
12. Termination
13. Notices
14. Miscellaneous
15. Arbitration
SCHEDULES
Schedule 1 Part 1: Claritas Proprietary Data
Schedule 1 Part 2: The Transactional Database
Schedule 2: The Trade Marks
APPENDICES
Appendix 1: Articles of Association of the Company
Appendix 2: Abacus Licence
Appendix 3: Claritas Service Agreement
Appendix 4: Abacus Service Agreement
Appendix 5: Claritas Loan Agreement
Appendix 6: Abacus Loan Agreement
Appendix 7: Alliance Agreement
Appendix 8: Alliance Terms and Conditions
Appendix 9: Business Plan
</TABLE>
<PAGE> 3
THIS AGREEMENT is dated the day of 1999
BETWEEN:
1. ABACUS DIRECT INTERNATIONAL, INC. a company incorporated under the laws
of Delaware in the United States of America and whose principal place
of business is at 8774 Yates Drive, Westminster, Colorado 80030 USA
(hereinafter referred to as "Abacus"); and
2. VNU BUSINESS INFORMATION EUROPE B.V. a company incorporated with
limited liability under the laws of the Netherlands and whose principal
place of business is at Ceylonpoort 5-25, Postbus 4028, 2003 EA,
Haarlem, Amsterdam, the Netherlands (hereinafter referred to as
"Claritas");
(Abacus and Claritas being collectively referred to as the
"Shareholders").
WHEREAS:
Claritas and Abacus wish amongst other things to form the Company together in
time with the Subsidiaries in order to carry out the Business within the
Territory, subject to the terms and conditions of this Agreement and the
Schedules and Appendices attached hereto.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
Definitions
1.1 In this Agreement, which term shall be construed as including the
Recital, the Schedules and Appendices attached hereto, the following
expressions shall, except where the context otherwise requires, have the
meanings respectively ascribed thereto:
"ABACUS ALLIANCE" means the co-operative arrangement
developed and operated by Abacus
US through which direct marketers
contribute customer purchasing
histories in exchange for access
to the products and services of
Abacus US;
"ABACUS DATABASE" means the proprietary database of
Abacus US comprised of data
contributed by the Abacus Alliance
members;
"ABACUS DIRECT TRADE MARK" means that trade mark further
particulars of which are set out
in Part 1 of Schedule 2;
"ABACUS LICENCE" means that licence agreement for
the Trade Marks and in particular
for the Abacus Direct Trade Mark
in the form or substantially in
the form of Appendix 2, the Abacus
Licence to be completed on or
shortly after the Effective Date
along with the other Associated
Agreements;
"ABACUS PROPRIETARY PRODUCTS" means the proprietary data and
services of Abacus or its
Affiliates (the 'Abacus
Proprietary Data') including any
updates, improvements and other
such modifications as are made
available by Abacus from time to
time licensed to the Company and
the Subsidiaries in accordance
with the Abacus Service Agreement
and the Abacus Licence and used in
each Transactional Database;
"ABACUS US" means Abacus Direct Corporation, a
Delaware Corp.;
<PAGE> 4
"AFFILIATE" means a company directly
affiliated with either Claritas or
Abacus where either party is
beneficial owner of shares (or
their equivalent) controlling
greater than fifty per centum
(50.00%) of votes exercisable at a
general meeting (or its
equivalent) of such company. The
Company shall never for the
purposes of this definition
constitute an Affiliate under the
terms and conditions of this
Agreement;
"ALLIANCE AGREEMENT" means that agreement to be entered
into between an End-User and a
Subsidiary for the purpose of the
End-User placing its data in a
Transactional Database, such
agreement to be in the form or
substantially in the form of
Appendix 7;
"ALLIANCE TERMS AND CONDITIONS" means those terms and conditions
to be entered into between an
End-User and a Subsidiary for the
licence by the End-User of certain
data extracted from a
Transactional Database, such
licence to be in the form or
substantially in the form of
Appendix 8;
"APPENDIX" has the meaning given to it in
Clause 1.4 below;
"ARTICLES OF ASSOCIATION" means the articles of association
of the Company in the form or
substantially in the form set out
at Appendix 1;
"ASSOCIATED AGREEMENTS" means the Loan Agreements, the
Service Agreements, and the Abacus
Licence;
"BUSINESS" means the business of the Company
and the Subsidiaries as further
set out in Clause 2.2 below;
"BUSINESS DAYS" means a day other than a Saturday
or a Sunday on which banks in the
City of London are open for all
normal business;
"BUSINESS PLAN" means the business plan of the
Company and the Subsidiaries in
the form or substantially in the
form of Appendix 9;
"CLARITAS PROPRIETARY PRODUCTS" means, inter alia, that
proprietary data of Claritas or
its Affiliates (the 'Claritas
Proprietary Data') as further
described in Schedule 1 Part 1
(and including any updates,
improvements and other such
modifications as are made
available by Claritas from time to
time) together with other
proprietary products of Claritas
licensed to the Company and the
Subsidiaries in accordance with
the Claritas Service Agreement and
used in each Transactional
Database;
"COMPANY" means that company to be
incorporated by the Shareholders
pursuant to the terms of this
Agreement and in particular Clause
3 below and which will be the
parent company of the Subsidiaries
throughout the Territory;
<PAGE> 5
"COMPANY BOARD" means the board of directors of
the Company validly constituted in
accordance with Clause 3.7 below;
"COMPANY MANAGING DIRECTOR" means the managing director of the
Company validly appointed in
accordance with Clause 3.8 below;
"EFFECTIVE DATE" means 9th October 1998;
"END-USER" means a client of a Subsidiary
that provides its proprietary data
to a Subsidiary for the purpose of
inclusion in a Transactional
Database in accordance with an
Alliance Agreement and which
subsequently licences data from a
Transactional Database in
accordance with the Alliance Terms
and Conditions;
"EURO" means the proposed currency of the
European Union member states
(excluding the United Kingdom,
Sweden, Denmark and Greece) which
shall be adopted as legal currency
by those member states on 1
January 1999;
"GUILDERS" means the legal currency of the
Netherlands;
"LAWS" means the laws of the Netherlands;
"LOAN AGREEMENTS" means the loan agreements to be
completed on or shortly after the
Effective Date by each of Claritas
and Abacus in the form or
substantially in the form of
Appendix 5 and 6 respectively;
"POUNDS" means the legal currency of the
United Kingdom;
"SCHEDULE" has the meaning given to it in
Clause 1.3 below;
"SERVICE AGREEMENTS" means those service agreements to
be signed on or shortly after the
Effective Date by each of Claritas
and Abacus in the form or
substantially in the form of
Appendix 3 and 4 respectively;
"SUBSIDIARIES" means those wholly owned
subsidiaries of the Company which
shall be established throughout
the Territory from time to time in
accordance with the terms and
conditions of this Agreement and
"Subsidiary" shall be construed
accordingly;
"SUBSIDIARY BOARD" means the board of the Subsidiary
validly constituted in accordance
with Clause 3.10 below;
"SUBSIDIARY MANAGING DIRECTOR" means the managing director of the
Subsidiary validly appointed in
accordance with Clause 3.11 below;
"TERRITORY" means Switzerland, Poland, the
Czech Republic, Hungary and the
European Economic Area and such
other country or territory as the
Shareholders may from time to time
agree in writing;
<PAGE> 6
"TRADE MARKS" means as at the date of this
Agreement, those trade marks
detailed at Schedule 2, together
with such other trade marks as are
considered appropriate and
available for application and
registration by Abacus from time
to time throughout the Territory
for the term of this Agreement and
in accordance with the Abacus
Licence; and
"TRANSACTIONAL DATABASE(s)" means a transactional database
compiled from data of End Users
together with the Claritas
Proprietary Products and the
Abacus Proprietary Products drawn
from a country or region within
the Territory which shall be
created, maintained and owned by
each relevant Subsidiary, further
details of the scope of such
Transactional Database being set
forth in Schedule 1 Part 2.
1.2 Interpretation
1.2.1 Unless the context otherwise requires, reference herein to any
clauses and sub-clauses shall be to the Clauses and
Sub-Clauses of this Agreement.
1.2.2 In the event of any inconsistency between the main body of
this Agreement and any Schedule or Appendix, the provisions of
the Agreement shall prevail. In the event of any inconsistency
between the main body of the Schedules and the Appendices, the
provisions of the Appendices shall prevail.
1.2.3 The titles of Clauses and Sub-Clauses in this Agreement are
inserted for convenience of reference only and shall not be
construed to effect the meaning thereof.
1.2.4 References to singular shall include plural and vice-versa and
reference to any gender shall include reference to all
genders.
1.3 Schedules
The following Schedules, which are attached hereto, are incorporated
herein by reference:
Schedule 1 Part 1: Claritas Proprietary Data
Schedule 1 Part 2: Description of the Transactional Database
Schedule 2: Part 1: Abacus Direct Trade Mark
Schedule 2: Part 2: The Trade Marks
Wherever in this Agreement reference is made to a Schedule, it is to
the Schedule as attached hereto as the same may from time to time be
amended, revised and/or substituted by the written agreement of the
Shareholders.
1.4 Appendices
The following Appendices, which are attached hereto, are incorporated
herein by reference:
Appendix 1: Articles of Association of the Company
Appendix 2: ABACUS LICENCE
Appendix 3: Service Agreement (Claritas)
<PAGE> 7
Appendix 4: Service Agreement (Abacus)
Appendix 5: Loan Agreement (Claritas)
Appendix 6: Loan Agreement (Abacus)
Appendix 7: Alliance Agreement
Appendix 8: Alliance Terms and Conditions
Appendix 9: The Business Plan
Wherever in this Agreement reference is made to an Appendix, it is to the
Appendix as attached hereto as the same may from time to time be amended,
revised and/or substituted by the written agreement of the Shareholders.
2. SCOPE OF AGREEMENT
2.1 The Shareholders have entered into this Agreement to provide for the
incorporation of the Company and, in time, the Subsidiaries, for the
purposes of carrying out the Business described in the Business Plan
and as further set forth in Clause 2.2 below within the Territory and
in respect of such matters the rights, liabilities and obligations of
the Parties shall be governed by this Agreement. For the avoidance of
doubt, the Company and in time the Subsidiaries shall not be engaged in
activities involving the supply and delivery of Claritas Proprietary
Data or the Abacus Proprietary Data on a stand-alone basis or in any
manner other than as an enhancement to data which is proprietary to the
Company and the Subsidiaries.
2.2 Without prejudice to the generality of Clause 2.1, the scope of this
Agreement shall extend to:
(a) the formation of the Company as a holding company for the
Subsidiaries to be established throughout the Territory;
(b) the formation of a Transactional Database(s) for each
Subsidiary within the Territory;
(c) a Transactional Database(s) relevant to a Subsidiary will be
owned by each appropriate Subsidiary in accordance with Clause
3.5 below;
(d) Claritas and its Affiliates shall provide services and license
during the term of this Agreement to the Company and the
Subsidiaries in accordance with the terms of the Claritas
Service Agreement attached at Appendix 3 the Claritas
Proprietary Products for inclusion in each Transactional
Database. The amount of any royalties or fees for such licence
and services shall be subject to agreement between the boards
of the respective Shareholders unanimously;
(e) Abacus and its Affiliates shall provide for use by the
Business in the Territory those services to the Company and
its Subsidiaries as further set forth in the Abacus Service
Agreement attached at Appendix 4, and a licence to the Abacus
Direct Trademark in accordance with the Abacus Licence. The
Shareholders acknowledge that processing services for the
Transactional Database(s) shall be provided in the United
Kingdom;
(f) the Abacus Trade Mark and the Trade Marks shall be owned by
and licensed by Abacus US in accordance with Clause 3.5 below;
and
(g) the Shareholders shall induce the Company to complete as soon
as reasonably practicable the formation of an English company
as a Subsidiary (hereinafter referred to as the `UK
Subsidiary') as the first such Subsidiary to operate the
Business within the country of the United Kingdom within the
Territory.
The above together with the proposed business as set out in the Business
Plan shall constitute the "Business" of the Company and the Subsidiaries
for the purposes of this Agreement.
<PAGE> 8
2.3 The Shareholders agree and acknowledge that the Territory may be
extended by the written agreement of the Shareholders to include but
not be limited to certain markets in Asia PROVIDED THAT neither
Shareholder shall be prevented or delayed from entering such markets in
Asia of its own accord and outside the terms and conditions of this
Agreement. Upon agreement, such country shall become part of the
Territory, unless otherwise agreed upon. Each of the Shareholders also
agrees to exercise their interest in the Company to ensure that the
Company complies with its obligations under the Abacus Licence, the
Abacus Service Agreement and the Claritas Service Agreement.
2.4 This Agreement (together with the Recital, the Schedules and
Appendices) represents the entire understanding of the Shareholders in
relation to the matters dealt with herein as at the Effective Date. Any
extension of the Business of the Company and the Subsidiaries and/or
the scope of this Agreement will require the prior written agreement of
the Shareholders.
3. FORMATION OF THE COMPANY AND THE SUBSIDIARIES
3.1 FORMATION
The Shareholders hereby agree to incorporate the Company in the
Netherlands pursuant to the Laws, said Company to be called "Abacus
Direct Europe B.V." to be established at Haarlem PROVIDED THAT a
ministerial certificate of non-
objection ("the Certificate") is issued for it by the Ministry of
Justice in accordance with the Laws.
If the Certificate is refused by the Ministry of Justice or the
Certificate is not issued by the Ministry of Justice as a result of an
objection to the contents of the Articles of Association the
Shareholders will consult with each other immediately and in good faith
agree to replace the rejected or contested provisions of the Articles
of Association so that the replacement provisions deviate as little as
possible, having regard to the nature and content of the provisions of
this Agreement, from the original Articles of Association so that the
Certificate can be issued.
3.2 Articles of Association
The Articles of Association of the Company shall be in the form or
substantially in the form of Appendix 1.
3.3 Ownership of the Company by the Shareholders
3.3.1 The authorised share capital of the Company shall be two
hundred thousand two hundred Guilders (NLG 200,200) divided
into one thousand (1,000) class A shares of one hundred
Guilders (NGL 100) each, and one thousand (1,000) class B
shares of one hundred Guilders (NGL100) each and two (2) class
C five per centum (5%) preference shares of one hundred
Guilders (NGL 100) each.
3.3.2 The issued share capital of the Company shall be forty
thousand Guilders (NLG 40,000) consisting of two hundred (200)
A shares and two hundred (200) B shares.
3.3.3 The shares of the Company shall be held as follows:
o the class A shares shall be held by Claritas
absolutely;
o the class B shares shall be held by Abacus
absolutely; and
o the two class C shares shall be subject to two (2)
options to purchase; one option to purchase one (1)
class C share shall be exercisable at par by Claritas
immediately
<PAGE> 9
preceding the sale by Claritas of its interest in the
Company in accordance with the terms hereof and at
the sole discretion of Claritas and one option to
purchase one class C share shall be exercisable at
par by Abacus at any time and at the sole discretion
of Abacus.
3.3.4 All profits, losses, capital and income contributions shall be
made in accordance with the above percentages or as otherwise
as required under this Agreement. The class C 5% preference
shares shall, if issued, only be entitled to a yearly dividend
equal and not exceeding the amount of five per centum (5.00%)
of the nominal value of the respective shares(s), to the
extent that the Company has a positive cashflow in that given
year.
3.4 Application for Incorporation and Registration of the Company
3.4.1 As soon as reasonably practicable after the Effective Date
Claritas shall on behalf of the Shareholders incorporate and
register the Company at the Chamber of Commerce in the
Netherlands in accordance with the Laws. The civil law notary
for the Company shall effect the incorporation of the Company
on behalf of the Shareholders by notarial deed. Costs and
expenses of incorporation of the Company shall be met by the
Company. Prior to incorporation of the Company, the Company
shall operate as a "company in formation" in accordance with
the Laws.
3.4.2 Upon formation of the Company the Shareholders shall each
ensure and shall further ensure that the Company Managing
Director shall ensure as soon as possible after incorporation
that confirmation is given that all legal and other actions
entered into by the Company as a "company in formation" are
valid.
3.5 Ownership of the Transactional Databases, the Trade Marks, the Claritas
Proprietary Products and the Abacus Proprietary Products
3.5.1 Each Transactional Database(s) developed by and for the
Subsidiaries throughout any country or region within the
Territory shall be owned by such Subsidiary.
3.5.2 The Trade Marks shall be licensed in accordance with the
Abacus Licence.
3.5.3 All other Trade Marks required for the purposes of the
Business shall be applied for and shall be owned by Abacus US
and shall be licensed in accordance with the Abacus Licence on
an exclusive basis for use in the Territory by Abacus to the
Company together with the right to sub-license to the
Subsidiaries. Any costs incurred in this respect shall be
borne equally by Abacus US and the Company. The Shareholders
agree that on or before the Effective Date Abacus shall
pursuant to the Abacus Licence apply for a European Community
trade mark for "Abacus Direct" substantially similar to the
Abacus Direct Trade Mark.
3.5.4 Abacus acknowledges that the Claritas Proprietary Products are
proprietary to Claritas and/or its Affiliates and shall be
licensed by Claritas to the Company and the Subsidiaries in
accordance with the terms of the Claritas Service Agreement.
Abacus, the Company and the Subsidiaries undertake and warrant
to return the Claritas Proprietary Products upon termination
of this Agreement in accordance with Clause 11. On but subject
to the provisions of termination contained in this Agreement,
the Company Board, any Subsidiary Board which holds all or
part of the Claritas Proprietary Products and the board of
Abacus shall confirm in writing that they have returned the
Claritas Proprietary Products and that each no longer holds
any copies of the same, has ceased to use the same and has
deleted the same within five (5) Business Days of such
termination. At no time during the term of this Agreement will
the Claritas Proprietary Products be licensed or otherwise
sold directly to those clients or suppliers of Abacus detailed
at Clause 8.6.
<PAGE> 10
3.5.5 Claritas acknowledges that the Abacus Proprietary Products and
the Trade Marks are proprietary to Abacus and/or its
Affiliates and shall be licensed by Abacus to the Company and
the Subsidiaries in accordance with the terms of the Abacus
Service Agreement and the Abacus Licence. Claritas, the
Company and the Subsidiaries undertake and warrant to return
the Abacus Proprietary Products upon termination of this
Agreement in accordance with Clause 11. On but subject to the
provisions of termination contained in this Agreement, the
Company Board, any Subsidiary Board which holds all or part of
the Abacus Proprietary Products and the board of Claritas
shall confirm in writing that they have returned the Abacus
Proprietary Products and that each no longer holds any copies
of the same, has ceased to use the same and has deleted the
same within five (5) Business Days of such termination. At no
time during the term of this Agreement will the Abacus
Proprietary Products be licensed or otherwise sold directly to
those clients or suppliers of Claritas detailed at Clause 8.6.
3.6 Loans and Contributions to the Company and to the Subsidiaries by the
Shareholders
3.6.1 Each Shareholder or an Affiliate shall individually contribute
eight hundred thousand Guilders (NGL 800,000) which sum shall
each be paid by a Shareholder to the Company within ten (10)
Business Days from the written notification by the civil law
notary for the Company that the Company is able to conduct
business. The said sums shall be referred to as the "Primary
Capital" and shall be paid to the bank account of the Company
as the Company in formation shall direct at that time by
telegraphic transfer.
3.6.2 Each Shareholder or an Affiliate of the Shareholder shall
individually make available for loan to the UK Subsidiary the
sum of six hundred and fifty thousand Pounds ((pound)650,000).
The said sum shall be referred to as the "Primary Loan" and
shall be paid to the bank account of the UK Subsidiary within
ten (10) Business Days of receipt of a written request from
the Subsidiary Managing Director PROVIDED THAT one
representative of Abacus and/or Claritas present on the
Company Board shall have approved in writing such request
within five (5) Business Days from receipt of such request
from the Subsidiary Managing Director the approval of such
request not to be withheld if made in accordance with the
Business Plan. Once approved, the Primary Loan shall be
transferred to the bank account of the UK Subsidiary as the
Subsidiary Board shall direct at that time by telegraphic
transfer. The Primary Loan by Claritas to the UK Subsidiary
shall be in the form or substantially in the form of the Loan
Agreement attached at Appendix 6. The Primary Loan by Abacus
to the UK Subsidiary shall be in the form or substantially in
the form of the Loan Agreement attached at Appendix 7. Both
Loan Agreements shall then be signed and/or executed on or
shortly after the Effective Date. The Primary Loan shall be
applied and used in accordance with the Business Plan.
3.6.3 Subject to Clause 3.6.4 the Shareholders have sole discretion
as to whether they wish to make further Primary Loans to other
Subsidiaries on the same terms and conditions as set forth in
the Loan Agreements as and when the same are incorporated
throughout the Territory.
3.6.4 Should the UK Subsidiary have been loaned the Primary Loan by
each of the Shareholders (or an Affiliate as the case may be)
and should a Subsidiary Managing Director request a further
loan (said loan being referred to as the "Further Loan") and
one of the Shareholders declines to loan that Subsidiary its
portion of such Further Loan (being fifty per centum (50.00%)
of the Further Loan stated in the request) the other
Shareholder will be entitled to loan the entire Further Loan
amount to the UK Subsidiary. The Further Loan shall be up to a
maximum of four hundred thousand Pounds (L. 400,000) and
such Further Loan shall be loaned to the UK Subsidiary subject
to loan agreements to be entered into between the consenting
Shareholder (or its Affiliate as the case may be) and the UK
Subsidiary, such loan agreement to contain wording to the
effect that such Further Loan shall be secured against the
Subsidiary and its assets as a fixed and floating
<PAGE> 11
charge over the assets of such UK Subsidiary and registered
with the appropriate authorities. No Shareholder will be under
any obligation to grant any Further Loan to the UK Subsidiary.
3.6.5 For the avoidance of doubt, any Further Loan made to a
Subsidiary by a Shareholder shall not alter the share
ownership of the Company as set forth in Clause 3.3 above.
3.7 The Company Board
3.7.1 The Company Board will consist of six (6) representatives
appointed as a director, three (3) representatives being
nominated by each Shareholder after written notification to
the other Shareholder.
3.7.2 The Board shall be initially constituted as follows:
- by Abacus:
1. M. Anthony White (the "Abacus Lead")
2. Daniel C. Snyder
3. Carlos E. Sala
(together the `Abacus Representatives'); and
- by Claritas:
1. J Schilder (the "Claritas Lead")
2. Mark Patron
3. Richard Halpenny
(together the `Claritas Representatives');
and individually referred to as a `Representative').
3.7.3 A Shareholder may replace any of its Representatives by
another individual at any time either on a permanent or on a
temporary basis after due notification to the other
Shareholder and each Shareholder agrees to vote in a manner to
give effect to such replacement.
3.7.4 Either the Claritas Lead or the Abacus Lead shall be appointed
the Chairman of the Company from time to time. For the period
commencing from the Effective Date until the year ending 31
December 1999 the Chairman shall be the Abacus Lead. For the
next calendar year (being 1 January 2000 until 31 December
2000) the Chairman shall be the Claritas Lead. For each
subsequent calendar year the Chairman shall be rotated between
the Claritas Lead and the Abacus Lead. The Chairman shall not
have a casting vote and any Deadlock (as detailed in Clause
4.below) of the Company Board shall be resolved in accordance
with Clause 4. below.
3.7.5 The Chairman's duties shall be advised to the Chairman by the
Company Board in writing from time to time. The Company Board
shall be responsible for setting the remuneration of the
Company Managing Director.
3.7.6 Any further or replacement appointment to the Company Board
shall be carried out as soon as possible by the Shareholders
upon the written request to the Shareholders. If the Chairman
or a Representative of the Company Board is replaced or
removed, the Shareholder which had jurisdiction to appoint the
Chairman or such Representative during that particular
calendar year shall appoint the Chairman's or such
Representative's replacement.
<PAGE> 12
3.7.7 The Company shall be validly represented by one Representative
from Abacus and one Representative from Claritas or by the
Company Managing Director who has been given a proxy by one of
each of the said Abacus and Claritas Representatives.
3.7.8 Either Shareholder shall cause all directors nominated by them
to resign from office forthwith upon the sale of all the
shares in the Company owned by such Shareholder for whatever
reason.
3.8 The Company Managing Director
The first Company Managing Director shall be Chris Morris Thereafter
appointment and removal of the Company Managing Director shall be in
accordance with Clause 4.3.1 below. For the avoidance of doubt, the
Company Managing Director shall at no time be a Representative of the
Company Board.
3.9 Meetings of the Company Board
The appropriate Shareholder shall bear the expenses for attendance of
its Representatives at a Company Board meeting. Company Board meetings
shall be held at least quarterly at the offices of the Company in
Haarlem and at the offices of Abacus in New York on an alternate basis
(or at such other place or at such other periodic times as the Company
Board shall agree) to review the results of operations and performance
against budgets provided for in Clause 8 and to discuss the Business of
the Company and the Subsidiaries.
At regular meetings scheduled by the Company Board the time and place
of the next regular meeting shall be set. Any such schedule may be
revised from time to time by the Company Board. Special Company Board
meetings may be called at any time by a director. Notice needs to be
given for regular meetings, but notice of the time, place and purpose
of any special Company Board meeting shall be given in writing or
orally (to be confirmed as soon as possible in writing) at least ten
(10) Business Days prior to the date of any special meeting. Failure to
give such timely notice may be waived before or after a meeting and
shall be deemed waived by participation in a meeting. A director will
be deemed to be present at a Company Board meeting if he is available
on the telephone.
In order to be voted upon, any matter requiring a vote of a director
(unless otherwise waived by all of the directors of the Company Board)
must appear on an agenda of any regular or special meeting thereof,
which agenda shall have been submitted to each director of the Company
Board in writing or by facsimile or other electronic transmission at
least ten (10) Business Days prior to the date of any such meeting.
At any regular or special meetings of the Company Board, the quorum of
an equal number of Representatives nominated by each Shareholder
consisting of at least two (2) Representatives nominated by each
Shareholder (in person or by proxy) shall be required for the carrying
out the day-to-day Business and the taking of any actions by or on
behalf of the Company.
All Company Board resolutions taken at a Board meeting shall require
the affirmative vote of at least one representative nominated by each
Shareholder and at least sixty seven per centum (67.00%) of the persons
present at the Board meeting (in person or by telephone).
Minutes shall be prepared in the English language and shall be regarded
as true and correct if signed by the Company Managing Director and the
company secretary of the Company. Minutes of the meeting shall be
circulated to the Company Board within ten (10) Business Days of the
meeting.
The Company Board shall form as soon as reasonably practicable an audit
committee (for accounting purposes) and a compensation committee (for
human resource purposes). Such
<PAGE> 13
committees shall consist of an equal number of persons nominated by
each of the Shareholders. Such committees shall advise the Company
Board of any matters regarding its designated tasks.
3.10 The Subsidiary Board
A Subsidiary Board will be represented (unless laws within the
Territory pertinent to the Subsidiary dictate otherwise) as set forth
in Clause 3.7 above, such that the provisions of Clause 3.7 shall apply
mutatis mutandis to the Subsidiary Board as they do to the Company
Board.
The Subsidiary Board will at all times comply with the requirements of
laws applicable to the local jurisdiction in which it was formed within
the Territory.
3.11 The Subsidiary Managing Director
The first Subsidiary Managing Director of the UK Subsidiary shall be
Chris Morris. Appointment of all other Subsidiary Managing Directors
shall be subject to clause 4.3 below. Subject to Clause 4.3 below, the
day-to-day operations of each of the Subsidiaries shall be managed by a
Subsidiary Managing Director. The Subsidiary Managing Director shall
report to the Company Managing Director and shall have such specific
powers, duties and responsibilities as are designated to him by the
Company Managing Director. The Subsidiary Managing Director shall act
in accordance with any business or operating plan or budgets approved
by the Company Board and shall have no authority to take any action
with respect to any of those matters set forth in Clause 4. below. The
Subsidiary Managing Director or his designee shall attend Subsidiary
Board meetings. In performance of his duties, the Subsidiary Managing
Director's authority and responsibilities shall include, but not be
limited to, the following:
(a) the preparation and submission to the Subsidiary Board and the
Company Board of the annual operating and cash and capital
expenditure budgets and a three (3) year rolling budget and
profit plan for the Subsidiary to be submitted not later than
15 November each year;
(b) the preparation of operating plans for the Subsidiary; and
(c) keeping the Company and the Shareholders fully informed of the
activities and operations of the Subsidiary through the
preparation and submission of periodic reports, including the
monthly operating statements described in Clause 9 below.
3.12 Meetings of the Subsidiary Board
The appropriate Shareholder shall bear the expenses for attendance of
its Representatives at a Subsidiary Board meeting. Subsidiary Board
meetings shall be held at least quarterly at the principal offices of
the Subsidiary (or at such other place or at such other periodic times
as the Subsidiary Board shall agree) to review the results of
operations and performance against budgets provided for in Clause 9 and
to discuss general business matters of the Subsidiary.
At regular meetings scheduled by the Subsidiary Board the time and
place of the next regular meeting shall be set. Any such schedule may
be revised from time to time by the Subsidiary Board. Special
Subsidiary Board meetings may be called at any time by any director.
Notice needs to be given for regular meetings, but notice of the time,
place and purpose of any special meeting shall be given in writing or
orally (to be confirmed as soon as possible in writing) at least ten
(10) Business Days prior to the date of any special meeting. Failure to
give such timely notice may be waived before or after a meeting and
shall be deemed waived by participation in a meeting. A director will
be deemed to be present at a Subsidiary Board meeting if he is
available on the telephone.
<PAGE> 14
In order to be voted upon, any matter requiring a vote of a director
(unless otherwise waived by all of the directors of the Subsidiary
Board) must appear on an agenda of any regular or special meeting
thereof, which agenda shall have been submitted to each director of the
Subsidiary Board in writing or by facsimile or other electronic
transmission at least ten (10) Business Days prior to the date of any
such meeting.
At any regular or special meetings of the Subsidiary Board, the quorum
of an equal number of directors nominated by each Shareholder
consisting of at least two (2) directors nominated by each Shareholder
(in person or by proxy) shall be required for the carrying out of the
day-to-day Business and taking of any actions by or on behalf of a
Subsidiary .
All Subsidiary Board resolutions, taken at a Subsidiary Board meeting
shall require the affirmative vote of at least one representative
nominated by each Shareholder and at least sixty seven per centum
(67.00%) of the persons present at the Subsidiary Board meeting (in
person or by telephone).
Minutes shall be prepared in the English language and shall be regarded
as true and correct if signed by the Subsidiary Managing Director and
the company secretary of the Subsidiary. Minutes of the meeting shall
be circulated to the Subsidiary Board within ten (10) Business Days of
the meeting.
The Subsidiary Board shall form as soon as reasonably practicable an
audit committee (for accounting purposes) and a compensation committee
(for human resource purposes). Such committees shall consist of an
equal number of persons nominated by each of the Shareholders. Such
committees shall advise the Subsidiary Board of any matters regarding
its designated tasks.
4. FUNDAMENTAL ISSUES AND DEADLOCK PROVISIONS
4.1 Fundamental Issues concerning the Company and the Subsidiaries which
require unanimous approval by the Shareholders shall be an issue as set
forth below:
(a) a proposed material change in the strategy and general
policies of the Company or a Subsidiary;
(b) a proposal to adopt the budget of the Company or a Subsidiary
(as defined in Clause 4.3.2 subject to the provisions of
Clause 9);
(c) a proposal to adopt the bi-annual profit and cash flow
forecast of a Subsidiary or the Company if more than fifteen
per centum (15.00%) below the annual budget;
(d) a proposal for greater than ten per centum (10.00%) variance
in the aggregate of costs and expenses over budgeted amounts
on an annual basis with respect to a Subsidiary or the Company
except for increased data production costs, sales commissions
and/or cost of sales as a result of larger than budgeted
volumes of data traded;
(e) The proposed entry into any joint venture or partnership by a
Subsidiary or the Company;
(f) the proposed settlement of any action, suit or proceedings to
which the Company or a Subsidiary is a party if such
settlement involves the payment or receipt of more than the
equivalent in local currencies of seventy five thousand Euros
(Euro 75,000) or which relates to the Abacus Licence or the
Claritas Proprietary Products, or the Abacus Proprietary
Products or the start of any action, suit or proceedings to be
initiated by the Company or a Subsidiary involving an amount
in dispute of more than the equivalent in local currencies of
seventy five thousand Euros (Euro 75,000);
<PAGE> 15
(g) the acquisition, sale or disposal of part or all of the stock
or other securities of any corporation or other entity, or the
acquisition, sale or disposal of assets with a fair market
value in excess of one hundred thousand pounds
(L. 100,000) or the equivalent thereof in Euros or all or
a portion of the assets of any corporation or other entity
owned by the Company or a Subsidiary constituting ten per
centum (10.00%) or more of the of the undertaking to be
disposed;
(h) the Company or a Subsidiary entering into loan agreements or
credit arrangements incurring any indebtedness for borrowed
money or pursuant to purchase money obligations, when such
agreements, arrangements or indebtedness (save as to those
Loan Agreements contemplated in this Agreement) which:
(i) are not in the ordinary course of the Business; or
(ii) exceed in any one year an aggregate amount of the
equivalent in local currencies of seventy five
thousand Euros (Euro 75,000);
(i) the Company or a Subsidiary granting any loans to officers
other than reasonable expense advances;
(j) the Company or a Subsidiary extending guarantees or
endorsements with respect to third party obligations other
than in the ordinary course of the Business;
(k) the Company or a Subsidiary entering into:
(i) any contract with a Shareholder or an Affiliate; or
(ii) any amendment modification or termination of any such
contract to the extent any such contract is not
required to be approved by the Shareholders or the
Company pursuant to this Agreement, any law or the
Laws;
(l) the Company or a Subsidiary purchasing, selling or granting
mortgages or any rights in real property or constructing
buildings or other facilities which are not included in the
Budget Plan or other budget contemplated under Clause 9 and
which are not in the ordinary course of the Business;
(m) granting any security, interest in, lien on, or pledge of, any
personal property of the Company or a Subsidiary except in the
case of the granting of the Further Loan by a Shareholder to a
Subsidiary in accordance with Clause 3.6.4 above;
(n) unless approved in the Budget Plan or any current budget or
budget of a previous year a change in accounting policy
(unless required by the relevant laws in the Territory),
adoption or amendment of pension, group compensation, profit
sharing or other incentive or employee benefit plans by the
Company or a Subsidiary;
(o) unless approved in the budget or any budget of a previous
year, during any one (1) year period, entering into any
contract or lease which commits the Company or a Subsidiary
for more than two (2) years or to an aggregate expenditure of
more than the equivalent in local currencies of one hundred
and seventy thousand Euros (Euro 170,000);
(p) unless approved in the budget by the Company or a Subsidiary
entering into any employment contract which provides for an
annual salary in excess of the equivalent in local currencies
of one hundred and seventy thousand Euros (Euro 170,000);
(q) any proposed business arrangement by the Company or a
Subsidiary with any Affiliate which has cost implications in
one transaction in excess of the equivalent in local
<PAGE> 16
currencies of fifteen thousand Euros (Euro 15,000) other than
arrangements made pursuant to the Service Agreements or other
prior approved arrangements;
(r) a proposed material change in the Company's or Subsidiary's
stated purposes or the Business and any other changes in the
Articles of Association or the appropriate articles of
association of a Subsidiary;
(s) the approval of the annual accounts of the Company or a
Subsidiary;
(t) the distribution of dividends of the Company or a Subsidiary;
(u) the issuance of any security or debt instrument of the Company
or a Subsidiary save as contemplated by the Loan Agreements;
(v) any change in the capital structure of the Company or a
Subsidiary;
(w) the increase or reduction of the Primary Capital of the
Company;
(x) the Company or a Subsidiary seeking relief under any
bankruptcy, insolvency or similar statutes within the
Territory; or
(y) the Company deciding to incorporate a Subsidiary within the
Territory to engage in the Business.
Fundamental Issues shall be resolved by the Shareholders in accordance
with Clause 4.4 below (the `Deadlock Provisions').
4.2 Key Issues
The following issues (referred to as the "Key Issues or individually as
a "Key Issue") shall be an issue as set forth below:
(a) selection or discharge of the Company Managing
Director or a Subsidiary Managing Director; or
(b) approval of the budget of the Company or a Subsidiary
; or
(c) profit distributions of the Company or a Subsidiary
as provided in this Agreement.
Key Issues shall be decided upon as set forth in Clause 4.3 below,
failing which reference shall be made to the Deadlock Provisions set
forth at Clause 4.4.
4.3 Resolution of Key Issues Prior to the Deadlock Provisions;
4.3.1 Selection or discharge of the Company Managing Director or Subsidiary
Managing Director
The first Subsidiary Managing Director shall be proposed by Claritas
after consultation with Abacus. After Claritas submits it's selection
to Abacus, Abacus shall have ten (10) days to approve or disapprove the
selection. Should Abacus disapprove of the selection it shall
communicate its reasons orally or in writing to Claritas and thereafter
the Shareholders shall make a good faith effort to resolve the dispute.
If after forty-five (45) days from the date of Abacus' submission to
Claritas, there is still no agreement between the Shareholders, the
matter shall be submitted to the chief executive officers of the
Shareholders. The chief executive officers shall have ten (10) days
from the date of submission to attempt a resolution. If after such ten
(10) days the issue has not been resolved then Claritas' selection
shall prevail. The same procedure shall be
<PAGE> 17
followed for the selection of the subsequent Subsidiary Managing
Director upon the resignation or dismissal of the first Subsidiary
Managing Director, it being understood that Abacus may then select an
individual and Abacus' selection will prevail (subject to notifying
Claritas).
For any subsequent selection of a Subsidiary Managing Director or a
Company Managing Director the same procedure shall be followed, it
being understood that each Shareholder on a rotating basis has the
right to select the Subsidiary Managing Director.
4.3.2 Approval of the Budget of a Subsidiary
If, after thirty (30) days from the submission to the Company Board by
the Subsidiary Managing Director of a proposed budget for the ensuing
year, the Company Board has not agreed to a final budget, then the
budget for such ensuing year shall be the prior year's budget for that
Subsidiary plus the average rate of inflation in the country in which
it operates within the Territory for the prior year plus five per
centum (5.00%) for the prior year's budget (hereinafter referred to as
the "Budget Formula"). If the budget for three (3) successive years has
resulted each year in resort to the Budget Formula and the Shareholders
again cannot agree on the budget for the ensuing year, a Shareholder
may revert to the Deadlock Provisions.
4.3.3 Profit Distributions
If for any year the Company or a Subsidiary has earned a profit and the
Shareholder or the Company cannot agree on an amount to be retained for
working capital and/or for capital investment from the distributions
provided for in Clause 10 below then any Shareholder shall have the
right to require in any year (but not the same Shareholder in a
successive year) the retention of a reasonable amount to be withheld
from distributable profit for working capital and any capital
investment approved by the Shareholders in the budget for the ensuing
year. Any Shareholder making such a demand shall not have the right to
do so in the next successive year. Notwithstanding anything to the
contrary contained herein or elsewhere in this Agreement, the Company
shall make a mandatory distribution to each of Abacus and Claritas in
an amount equal to any tax that is payable by Abacus or Abacus US or
Claritas by virtue of the Company's or the Subsidiaries operations
PROVIDED THAT such mandatory dividend shall not be payable if payment
of the same would contravene any local law or the Laws or if there is a
Further Loan outstanding in respect of which repayment to a
Shareholder, other than the Shareholder to whom the mandatory dividend
would be payable, is in arrears.
4.4 Deadlock Provisions
4.4.1 In the event the Company Board cannot agree with respect to a Key Issue
or a Fundamental Issue the matter shall be resolved as follows:
a. The Company Board shall set the Key Issue or the Fundamental
Issue aside for a period of forty-five (45) days. During that
period, the Representatives of the Company Board shall
consider in good faith ways of alleviating or avoiding the
Deadlock.
b. At the end of the said period, the Company Board shall again
meet to discuss the suggestions for alleviating and/or
avoiding the Deadlock. If no such resolution is achieved, the
Key Issue or the Fundamental Issue shall be referred to the
chief executive officers of the Shareholders for resolution by
such chief executive officers. If the matter has not been
resolved by such chief executive officers in writing at the
close of business on the forty-fifth (45th) day of such
referral (unless the chief executive officers agree to extend
such period), a Deadlock shall be deemed to have occurred in
relation to the Key Issue or Fundamental Issue which Deadlock
shall be notified in writing to each Shareholder within five
(5) Business Days from declaration of the Deadlock.
<PAGE> 18
4.4.2 In the event a Deadlock occurs, and neither Shareholder is willing to
sell or otherwise dispose of its interest in the Company to the other
Shareholder within forty-five (45) days after the notice of the
occurrence of the Deadlock, nor is willing to accept the interest of
the other Shareholder within such time frame, then the Shareholders
shall jointly select a qualified international financial institution
(the "Agent") for the purposes of disposal of the Company. If the
Shareholders cannot agree within thirty (30) days after the declaration
of the Deadlock on such appointment of an Agent then each Shareholder
shall select an agent who shall jointly select a third agent to act as
the Agent for the purposes of disposal of the Company. If disposal of
the Company cannot be completed to the point of signature of a sale and
purchase agreement relating to the Company within one (1) year from the
date of the notification of the Deadlock or a Shareholder has failed to
consent to the proposed purchaser (such consent not to be unreasonably
withheld or delayed), the Company shall be liquidated in accordance
with the provisions of its applicable law and the proceeds of such
liquidation distributed equally to each Shareholder after repayment of
all debts due and by the Company and in particular the Further Loan
referred to in Clause 3.6.4 above, and further subject to proprietary
rights belonging to either Shareholder and in particular the Claritas
Proprietary Products and the Abacus Proprietary Products.
Pending resolution of the disposal of the Company the Company Managing
Director shall operate the Company and a Subsidiary Managing Director
shall operate a Subsidiary in accordance with past and best practices
and shall not implement any material proposal or change.
4.4.3 Meeting of the Shareholders
Resolutions of the Shareholders shall require the affirmative vote of
sixty per centum (60.00%) of the issued share capital of the Company or
a Subsidiary. A vote may be given in person or by proxy and shall be
confirmed to the other Shareholder in writing within five (5) Business
Days of the vote.
4.5 Service Agreements
Upon receipt of a written request of a Subsidiary Managing Director to
a Shareholder the Shareholder shall use all reasonable endeavours to
enter into or shall use all reasonable endeavours to ensure that an
Affiliate shall enter into a Service Agreement in the form or
substantially in the form of Appendix 3 (in the case of Claritas) and
Appendix 4 (in the case of Abacus).
5. REPRESENTATIONS AND WARRANTIES OF CLARITAS
Claritas represents and warrants to Abacus that:
5.1 Existence and Power
It is a company, duly incorporated and existing under the Laws and has
the power to carry on its business as now being conducted and has full
power and authority to execute, deliver and perform this Agreement and
each ancillary document to which it is a party and perform and observe
the terms and provisions hereof and thereof.
5.2 Necessary Action
It has taken all actions necessary for the authorisation, execution,
delivery and performance of this Agreement and each ancillary document
to which it is a party and its officers executing this Agreement and
each ancillary document to which it is a party are duly and properly in
office and fully authorised to execute the same.
<PAGE> 19
5.3 Consents
No consent, permission, authorisation, recording, filing or
registration with, or notice of any governmental agency or authority
are necessary in connection with the execution and delivery of this
Agreement and each ancillary document to which it is a party.
5.4 No conflicts
The execution and delivery of this Agreement and the consummation of
the transactions contemplated (in particular the Business) will not
violate any existing provisions of any order, writ, judgement,
injunction or decree of any court or any other governmental department,
commission, board, bureau, agency or instrumentality applicable to it
or conflict with or result in breach of any of the terms, conditions,
or provisions of the certificate of incorporation, articles of
association or other of its organisational documents or any material
agreement to which it is a party, or by which any of its properties are
bound, or constitute an event which might permit an early termination
of any such agreement.
5.5 Data Protection Legislation and European Community Laws
The Company and the Subsidiaries shall observe all appropriate national
and European Community data protection legislation at all times and
Claritas shall ensure that any services provided by Claritas, its
employees and agents as set out in the Service Agreements shall comply
with applicable data protection legislation as at the time of the
provision of the services.
6. REPRESENTATIONS AND WARRANTIES OF ABACUS
Abacus represents and warrants to Claritas that:
6.1 Existence and Power Existence and Power
It is a company, duly incorporated and existing under the laws of the
state of Delaware in the United States of America and has the power to
carry on its business as now being conducted and has full power and
authority to execute, deliver and perform this Agreement and each
ancillary document to which it is a party and perform and observe the
terms and provisions hereof and thereof.
6.2 Necessary Action
It has taken all actions necessary for the authorisation, execution,
delivery and performance of this Agreement and each ancillary document
to which it is a party and its officers executing this Agreement are
duly and properly in office and fully authorised to execute the same.
6.3 Consents
No consent, permission, authorisation, recording, filing or
registration with, or notice of any governmental agency or authority
are necessary in connection with the execution and delivery of this
Agreement and each ancillary document to which it is a party.
6.4 No conflicts
The execution and delivery of this Agreement and each ancillary
document to which it is a party and the consummation of the
transactions contemplated in particular the Business will not violate
any existing provisions of any order, writ, judgement, injunction or
decree of any court or any other governmental department, commission,
board, bureau, agency or instrumentality applicable to it or conflict
with or result in breach of any of the terms, conditions or provisions
of the
<PAGE> 20
certificate of incorporation, articles of association or other of its
organisational documents or any material agreement to which it is a
party, or by which any of its properties are bound, or constitute an
event which might permit an early termination of any such agreement.
6.5 Data Protection Legislation and European Community Laws
The Company and the Subsidiaries shall observe all appropriate national
and European Community data protection legislation at all times and
shall use all reasonable endeavours to inform Abacus of its and its
affiliates obligations thereunder with respect to services provided by
it hereunder and subject to the foregoing Abacus shall use all
reasonable efforts to ensure that any services provided by Abacus, its
employees and agents as set out in the Service Agreements shall as at
the time of the provision of the services comply with applicable data
protection legislation and as specifically explained and described to
it in writing by the Company and the Subsidiaries in accordance with
such legislation. Notwithstanding the foregoing, Abacus shall not be
required to incur any additional costs or expenses in order to comply
with such data protection legislation without the prior mutual
agreement of the Shareholders as to who shall bear responsibility for
any such costs and expenses.
7. INDEMNITY
7.1 The Company shall indemnify and hold harmless each Representative, the
Subsidiary Board directors, the Company Managing Director, the Company
Chairman and the Subsidiary Managing Director (individually, in each
case an "Indemnitee") to the fullest extent permitted by law from and
against any and all losses, claims, demands, costs, damages,
liabilities joint or several), expenses of any nature (including
reasonable legal fees and disbursements), judgements, fines,
settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, whether civil, criminal, administrative
or otherwise in which the Indemnitee may be involved or threatened to
be involved, as a party otherwise, arising out of or incidental to the
Business of the Company, regardless of whether the Indemnitee continues
to hold such office PROVIDED THAT this provision shall not eliminate or
limit the liability of any Indemnitee:
(a) for any breach of the Indemnitee's duty of loyalty to the
Company or its Subsidiaries;
(b) for acts or omissions which involve gross or wilful
misconduct, fraud or fraudulent misrepresentation; or
(c) for any transaction from which the Indemnitee received any
improper personal benefit.
7.2 The indemnity provided above shall be in addition to any other rights
to which an Indemnitee may be entitled under any agreement, vote of the
Company Board or a Subsidiary Board, as a matter of law or equity, or
otherwise, both as to an action in the Indemnitee's capacity as an
officer thereof, and as to an action in another capacity, and shall
continue as to an Indemnitee who has ceased to serve in such capacity
and shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee;
7.3 The Company may purchase and maintain professional indemnity insurance
on behalf of the Business of the Company and its Subsidiaries against
any liability that may be asserted against or expense that may be
incurred by such persons in connection with the offering of interests
in the company or the Business of the Company.
7.4 An Indemnitee shall not be denied indemnity in whole or part under this
Clause 7 or otherwise by reason of the fact that the Indemnitee had an
interest in the transaction with respect to which the indemnity applies
if the transaction was otherwise permitted or not expressly prohibited
by the terms of this Agreement.
<PAGE> 21
8. COMPETITION
8.1 The Shareholders on behalf of themselves and each of their Affiliates
covenant and undertake that (subject to the provisions mentioned
hereinafter) during the term of this Agreement and for a period of two
(2) years from the date of termination thereof neither of them or their
Affiliates shall:
(a) carry out the Business in the Territory other than through the
Company or a Subsidiary; or
(b) assist a third party (whether at arms-length or otherwise) to
carry out the Business in the Territory other than through the
Company or a Subsidiary (including, without limitation, the
provision of the Claritas proprietary Data or the Abacus
Proprietary Data to such third party); or
(c) have an interest in any business directly or indirectly in
competition with the Business other than through the Company
or a Subsidiary.
Nothing herein shall be construed to prevent Claritas and its
Affiliates from carrying out their existing activities which include
(but are not limited to) activities with respect to individual
transactional databases, co-operative transactional databases based on
data from retailers who do not publish mail order catalogues, bureau
activities, list rental, profiling and development and sale of micro
marketing products in the Territory and/or as otherwise carried on by
Claritas and its Affiliates as at the Effective Date (as the same may
change, modify and develop from time to time) nor from having an
interest in any venture which carries out any of these aforesaid
activities (hereinafter referred to as "Excluded Activities").
8.2.1 Without prejudice to the foregoing Clause 8.1, if a Shareholder or
Affiliate thereof (hereinafter referred to as the "Offeror") intends to
acquire any interest in any business which consists of more than thirty
per centum (30.00%) (of the total revenues of the business intended to
be acquired), of a competitive activity (as defined hereinafter and for
the purposes of this Sub-Clause to be referred to as the "Competitive
Activity") the Offeror shall inform the other Shareholder in writing as
soon as possible and in any event prior to its intended acquisition and
shall offer the Company (or its Subsidiary), as the Shareholder may
elect) (hereinafter referred to as the "Offeree") an option to purchase
the Competitive Activity. The Offeror shall not be entitled to vote in
such a decision regarding the option to purchase the Competitive
Activity. In such event the acquisition price for the Competitive
Activity shall be that percentage of the purchase price for the
business fairly attributable to the Competitive Activity in the opinion
of the auditors of the Offeree. The offer made by the Offeror shall be
submitted by registered letter to the Offeree, which letter shall
include full and sufficient financial statements relating to the
business to be acquired including a business plan prepared by the
Offeror for the business to be acquired, and full and sufficient
disclosures of all relevant documents with respect to the intended
acquisition.
8.2.2 The Offeree must respond to the Offeror's notification given under
Clause 8.3.1 above within thirty (30) days of the Offeree's receipt of
the registered letter containing the offer. If the Offeree's response
is to exercise the option to purchase from the Offeror the Offeror and
Offeree use all reasonable endeavours to complete the purchase
reflected in the option within sixty (60) days. If the Offeree:
(a) does not respond to the offer within the said thirty (30) day
period; or
(b) responds to the Offeror in writing within thirty (30) days of
receipt of the notice from the Offeror that it does not want
to participate in the purchase,
the Offeror shall be entitled to proceed with the acquisition even
though it may be a Competitive Activity.
<PAGE> 22
The Offeror shall abstain from taking any decision of the Company as
Shareholder in the Company contrary to any decision taken by the other
party with respect to the offer made by the Offeror. The Offeror as
Shareholder of the Company shall fully co-operate with the other
Shareholders and the Offeree to implement and effectuate the decision
taken by the other party with respect to the offer made by the Offeror.
8.2.3 A Competitive Activity for the purposes of this Clause 8.3 is defined
to mean any activity which might compete with the Business but shall
exclude the "Excluded Activities".
8.3 The Shareholders hereby acknowledge and agree:
(a) that each of the covenants contained in this Clause
8. constitute an entirely separate and independent
covenant; and
(b) that the extent and application of each of the
restrictions are no greater than as necessary for the
protection of the interests of the Business.
8.4 Whilst the restrictions contained in this Clause 8. are considered by
the Shareholders to be reasonable in all the circumstances as at the
date of this Agreement it is acknowledged that restrictions of this
nature may be invalid because of changing circumstances or other
unforeseen reasons and accordingly it is hereby agreed and declared
that if any one or more of those restrictions is judged to be void as
going beyond what is reasonable in all the circumstances for the
protection of the interests of each of the Shareholders but would be
valid if part of the wording of the restriction was deleted or the
range of activities covered by it was reduced in scope then each
restriction(s) shall apply with such modification(s) as may be
necessary to make it valid and effective and any such modification
shall not thereby affect the validity of any other such restriction
contained in this Clause 8.
8.5 During the term of this Agreement, a Shareholder shall not (without the
prior written approval of the other Shareholder) permit the Company or
any of the Subsidiaries to contract within the Territory all or any
part of the Transactional Database to the following direct competitors
of the Shareholders:
a. Experian and its Affiliates;
b. Compudata and its Affiliates; or
c. Axciom and its Affiliates or any other individual or entity in
a business competitive with Abacus in the United States of
America.
8.6 During the term of this Agreement, Claritas undertakes not to purchase
any of the shares of Common Stock (or equivalent thereto) of Abacus
(US) issued on the NASDAQ National Market System or otherwise. If,
however, a third party which undertakes an activity which is
competitive with that of the Business or of Abacus US purchases more
than five per centum (5.00%) of the shares of Common Stock (or their
equivalent) in Abacus US, (which shall be notified through the delivery
of a "Form 13D" or any public announcement from Abacus (US), whichever
comes first) then Claritas shall be released from this undertaking and
shall be free to purchase any share (or equivalent thereto) in Abacus.
8.7 Abacus warrants that it shall not sell, dispose or otherwise licence
the Abacus Proprietary Products to a third party throughout the
Territory except as otherwise contemplated in this Agreement.
<PAGE> 23
9. FINANCIAL AND ACCOUNTING MATTERS
9.1 Accounting periods and books of accounts
9.1.1 The Company and each Subsidiary shall keep true and accurate
books of account, (separate from those for any third party)
and financial and related records in accordance with generally
accepted accounting principles applied on a consistent basis
and in conformity with any mandatory requirements of the
respective laws governing the principal place of business or
the place of incorporation of a Subsidiary or the Company. If
requested by Abacus such books of account shall also be
maintained (for the convenience and at the cost of Abacus) in
accordance with generally accepted accounting principles in
the United States of America (hereinafter referred to as "US
GAAP"). If requested by Claritas such books of account shall
also be maintained (for the convenience and at the cost of
Claritas) in accordance with the generally accepted accounting
principles under the Laws (hereinafter referred to as "NL
GAAP").
9.1.2 The fiscal year of the Company and each Subsidiary shall run
from 1 January to 31 December. The first fiscal period for the
Company and each Subsidiary shall end 31 December 1998. The
books of account of the Company and each Subsidiary shall be
closed on an annual basis at the end of each fiscal year and
financial statements shall be drawn annually as of 31 December
and audited by a recognised firm of international standing.
9.1.3 Within thirty (30) days after the end of each calendar month
of operations, the Company and any Subsidiary shall prepare
and submit to each Shareholder (or its designee) financial
information indicating revenues and expenses and cash in bank
for each month and such other financial information as the
Shareholders shall reasonably request.
9.1.4 Within thirty (30) days after the end of each quarter of
operations, the Company and any Subsidiary shall prepare and
submit to each Shareholder (or its designee) an unaudited
statement of profits and losses resulting from the Business of
the Company and each Subsidiary for each such quarter. The
said unaudited statements of profits and losses shall be
prepared in accordance with US GAAP if so requested by Abacus
and with NL GAAP if so requested by Claritas.
9.1.5 Each Shareholder or its duly authorised representative shall
at its own cost and expense have access during regular
business hours upon three (3) Business Day's notice to the
Company Managing Director or the Subsidiary Managing Director
(as the case may be) to all books and records (including but
not limited to work papers) of the Company or a Subsidiary
containing information (statistical, financial or otherwise)
relating to the Business of the Company or a Subsidiary and
shall have the right, at its own expense, to make copies
thereof provided THAT any such information disclosed to or
obtained by any Shareholder or its duly authorised
representative will be treated as confidential and used solely
for the purposes stated in this Agreement.
9.2 Audit
Within one (1) month after the close of each fiscal year, the Company
shall cause the auditors of the Company and each Subsidiary
respectively to prepare and submit to each Shareholder an audited
statement of profit and loss from operations, an audited balance sheet
and a source and application of funds or equivalent thereto under the
relevant jurisdiction prepared in accordance with acceptable accounting
principles, and for the convenience of Abacus with US GAAP if so
requested by Abacus and for the convenience of Claritas with NL GAAP if
so requested by Claritas.
9.3 Deposits and Investments
The funds of the Company or a Subsidiary shall be deposited in accounts
opened in the name of the Company or a Subsidiary in banks or banking
institutions designated by the Shareholders in such manner as shall be
authorised jointly by them.
<PAGE> 24
10. DIVIDENDS AND DISTRIBUTION OF PROFITS
10.1 Principles of Distribution
Unless otherwise agreed by the Shareholders, and subject to Clause
4.3.3 hereof, the annual profit of the Company shall be distributed in
equal amounts to each Shareholder less that amount as they shall agree
must be retained for working capital purposes or if they cannot agree
then less the amount provided for in Clause 4.3.3.
The annual profit of any Subsidiary shall be distributed to the Company
less that amount as the Shareholders shall agree must be retained for
working capital purposes or, if they cannot agree, then less the amount
provided for in Clause 4.3.3. No distribution of profits shall take
place so long as any Further Loan granted by one Shareholder (or its
Affiliate) to any Subsidiary is outstanding.
10.2 Payments of Dividends
All payments to be made by the Company to each Shareholder (or his
designee) shall initially be made in Guilders and transferred by
telegraphic transfer to such account as each Shareholder shall
designate in writing without any deduction therefrom which may be
required to be withheld under the Laws provided that the Company
obtains and sends to each Shareholder (or their designee) as soon as
practicable all original governmental tax receipts indicating who is
the payer of such taxes. Any blocked monies shall be deposited in trust
for a Shareholder who was to receive such payments in a commercial bank
in the Netherlands designated by each Shareholder subject to such
governmental rule, regulation or order.
11. RIGHTS OF TRANSFER OF AN INTEREST IN THE COMPANY
11.1 General Rule on Transfers
Except as provided in this Agreement no Shareholder shall sell, assign,
pledge or in any manner transfer or encumber any interest in the
Company without first complying with Sub-Clause 11.2 below.
11.2 Transfers
Transfer during the Restricted Period
11.2.1 During the five (5) year period commencing on the Effective
Date and ending five years thereafter (hereinafter referred to
as the `Restricted Period') any Shareholder may only offer all
or part of its interest in the Company for sale only to the
other Shareholder.
11.2.2 Any Shareholder so offering its interest in the Company for
sale shall notify the other Shareholder in writing and, for a
period of thirty (30) days after having given such notice, the
Shareholder (the "Selling Shareholder") shall negotiate in
good faith with respect to the sale of that Shareholder's
interest in the Company to the remaining Shareholder (the
"Remaining Shareholder").
Transfer after the Restricted Period
11.2.3 After the Restricted Period the Selling Shareholder shall have
the right to offer all or part of its interest to a third
party bona fide purchaser provided THAT upon the Selling
Shareholder receiving a bona fide third party offer the
Selling Shareholder shall notify the Remaining Shareholder of
the terms of such offer and the Remaining Shareholder shall
have a thirty (30) day period to decide whether or not it or
an Affiliate shall acquire
<PAGE> 25
the Selling Shareholder's interest on terms which are, in all
material respects, identical to the terms of the bona fide
third party offer. In the event the other Shareholder
determines not to buy the Selling Shareholder's interest, the
latter may sell such interest to the bona fide third party
within thirty (30) days making such offer on the same terms as
set forth in the notice of such offer to the Remaining
Shareholder.
11.2.4 The Selling Shareholder may not sell its interest in the
Company to such bona fide third party unless said bona fide
third party shall have agreed to be bound by the terms and
conditions of the Articles of Association of the Company and
of this Agreement, assumes all the obligations of the selling
Shareholder and shall be in good financial standing and
reputation to effect the Business hereby contemplated.
11.2.5 In the case of such a transfer or sale of the shares of the
Company to a bona fide third party, both Shareholders shall
use all reasonable endeavours to co-operate with the transfer
of the shares of the Company to said third party (including
the continuance by the Shareholders where required by the new
shareholder(s) of any obligations under the terms of the
Service Agreements for a further minimum period of 12 months)
and shall do all such acts and execute all such agreements
necessary to complete the transaction. Any existing agreements
by way of Alliance Agreements and Alliance Terms and
Conditions shall remain in full force and effect until
termination in accordance with the provisions thereof.
11.3 Permitted Transfers to an Affiliate
All or part of the interest of a Shareholder in the Company may be
assigned or transferred, directly or indirectly, without compliance
with Sub Clause 11.2 above or 11.4 below to an Affiliate of a
Shareholder PROVIDED THAT:
(a) any such Affiliate assignee shall assume the liabilities and
obligations of the assignor in connection with this Agreement
and the Company and shall take such further and reasonable
steps in connection therewith as may be requested by any
Shareholder; and
(b) the ultimate corporate parent of such Affiliate assignee shall
give a guarantee as to the performance of its obligations
under this Agreement.
11.4 Meaning of the sale, transfer or assignment of an interest
As used in this Clause 11, all references to the sale, transfer or
assignment of an interest in the Company means:
(a) the sale of the Selling Shareholder's interest in the Company;
together with
(b) the transfer of all of the Selling Shareholder's rights and
obligations under any of the Selling Shareholder's loans made
to the Company.
11.5 The Selling Shareholder will only ask for the approval of the Remaining
Shareholder for a transfer of all or part of its interest as referred
to in the articles of association of the Company if it complies with
this Clause 11. The Remaining Shareholder will grant such approval and
shall do all such acts and execute all such agreements necessary in
that respect if the Selling Shareholder complies with this Clause. If
the Selling Shareholder does not comply with this Clause, the Remaining
Shareholder is allowed to designate itself as prospective purchaser as
referred to in the articles of association of the Company.
<PAGE> 26
12. TERMINATION RIGHTS
12.1 Subject to Clause 12.2.3, this Agreement shall terminate upon the
mutual written agreement of the Shareholders or upon the occurrence of
any of the following events:
(a) if either Shareholder (either through itself or through an
Affiliate) acquires the entire interest of the other
Shareholder in the Company; or
(b) either Shareholder decides to terminate this Agreement, by
notice in writing to the other, upon the occurrence of any of
the following events:
(i) the other Shareholder materially breaches any of its
obligations of either this Agreement or any Appendix
attached hereto and after a period of thirty (30)
days the material breach has not been remedied or
rectified or the material breach is incapable of
remedy; or
(ii) any order is made by a competent court for the
winding up or dissolution or for the appointment of a
liquidator, receiver, trustee or similar officer of
the other Shareholder; or
(iii) a Shareholder ceases to carry on its principal
business carried on by it as at the Effective Date;
or
(iv) a Shareholder undergoes a Change of Control. For the
purposes of this Sub-Clause a 'Change of Control'
shall mean the purchase or other acquisition by a
person or entity, together with its affiliates, of at
least twenty four per centum (24.00%) of the shares
of common stock or other equity interest having
voting powers of such Shareholder. In such instance,
the Company shall be available for disposal to the
other Shareholder in accordance with Clause 11.
12.2 Effects of Termination
12.2.1 If a Shareholder gives notice to terminate this Agreement in
accordance with Sub-Clause 12.1 (b) (i), (ii), (iii) or (iv)
as a result of conduct by the other Shareholder, that
notifying Shareholder (without prejudice to any other right to
claim for damages that said Shareholder may have) may elect to
purchase the interest of the defaulting Shareholder in the
Company within thirty (30) days of such notice to terminate
this Agreement. If the notifying Shareholder elects to
purchase such interest the purchase price shall be equal to
the fair market value of the Company as such value is
determined by the auditors retained by both Shareholders in
accordance with the principles of valuation (hereinafter
referred to as the "Principles of Valuation") set out in
Clause 12.2.2 below. If both Shareholders cannot agree on such
auditors then they shall each select an auditor not being an
auditor of the Company, or a Subsidiary or either Shareholder,
to determine at each Shareholder's cost and expense the fair
market value of the Company taking into account the
determination made by both original auditors.
12.2.2 For the purposes of this Clause 12.2 the Principles of
Valuation shall be as follows:
(a) valuing the net assets of the Company (including
goodwill) and all other intangible assets on an arm's
length basis as between a willing vendor and a
willing purchaser;
(b) the Company shall continue the Business as a going
concern with its assets and profits being valued
accordingly;
<PAGE> 27
(c) provisions and adjustments for bad and doubtful debts
and otherwise as the auditors may consider
appropriate but excluding any allowance or provision
for deferred taxation;
(d) the application on a consistent basis in all other
respects of generally accepted accounting principles;
(e) references to the Company as used in Sub-Clauses (a)
through (d) above shall mean the underlying value of
any unpaid principal amount of loans made by the
Shareholders to the Company and any remaining
interest thereon;
(f) any Service Agreements and/or Alliance Agreements or
Alliance Terms and Conditions continuing for the
period specified in such agreement after the
termination of this Agreement and any license
arrangements detailed in this Agreement between the
Subsidiary, a Shareholder (or Affiliate) and the
Company including, for the avoidance of doubt, the
Abacus Licence.
(g) the class C 5% preference shares shall have no value
in determining the purchase price.
12.2.3 The provisions of Clauses 7, 8, 12.4, 14 and 15 will survive
the termination of this Agreement.
12.3 Dissolution of the Company
In the event that this Agreement is terminated in accordance with
Clause 12.1 above and a Shareholder has not exercised its acquisition
rights pursuant to Clause 12.2, either Shareholder shall have the right
to require the dissolution of the Company, in which event, the
Shareholders shall procure and cause the dissolution of the Company
and:
(a) any outstanding liabilities to third parties shall be
satisfied from the assets of the Company after payment of the
Final Loans;
(b) any surplus remaining such as, but not limited to, cash or
assets convertible to cash) shall be divided pro rata amongst
the Shareholders in accordance with their percentage interests
in the Company, provided that if a buyer acceptable to the
Shareholders agrees to purchase the Company at a price
agreeable to them, and such payment is due no later than one
hundred and eighty (180) days after the Shareholders have
agreed to discontinue the Business and dissolve the Company,
then the proceeds from such purchase shall be divided pro-rata
to their shareholding in the Company.
12.4 The Shareholders agree that in case of a liquidation or dissolution of
the Company pursuant to this Clause 12 and/or Clause 4.4.2 the
Shareholders shall not within the Territory start or engage in the
Business or a Competitive Activity for a period of twenty four (24)
months from the date of cessation or liquidation of the Company's and
Subsidiaries activities and Business or use the proprietary products of
the other Shareholder at any time. In the event of a breach by one
Party of the provisions of this Clause 12.4, the non-breaching Party
shall in addition to any other remedy available to it at law or in
equity have the right to seek specific performance, injunctive relief
and other equitable remedies in order to prevent a breach hereof. The
breaching Party agrees that such relief is necessary to protect the
rights of the non-breaching Party and agrees that the non-breaching
Party need not post a bond in order to obtain any such relief.
13. NOTICES
13.1 Any notice under this Agreement shall be in writing and signed by or on
behalf of the Shareholders and may be served by leaving it or sending
it by facsimile, prepaid recorded delivery or registered
<PAGE> 28
post to the address and for the attention of the relevant party set out
below (or as otherwise notified from time to time hereunder). Any
notice so served by facsimile or post shall be deemed to have been
received:
13.1.1 in the case of facsimile, the next Business Day;
13.1.2 in the case of recorded delivery or registered post,
forty-eight (48) hours from the date of posting.
13.2 the addresses of the Shareholders for the purpose of this Agreement are
as follows:
(a) For Claritas:
Peter Tordoir
Address for Claritas aforementioned
E-mail/telephone/facsimile
(b) For Abacus
Carlos E Sala
Address for Abacus aforementioned
E-mail/telephone/facsimile
14. MISCELLANEOUS
14.1 Entire Agreement
This Agreement (together with the Recital, the Appendices, the
Schedules and the Associated Agreements) represents the entire
agreement of the Shareholders.
14.2 Fees and expenses
Each Shareholder shall bear all the expenses, costs and fees incurred
by it in connection with the preparation and execution of this
Agreement.
14.3 Governing Law
This Agreement and the rights and obligations of the Shareholders shall
be exclusively governed by and interpreted in accordance with the Laws
and the Shareholders submit to the exclusive jurisdiction of the Dutch
Courts unless otherwise specially provided for herein.
14.4 Amendment
This Agreement may be amended at any time, in whole or in part, by the
written agreement of the Shareholders.
14.5 Severability
If any provision of this Agreement is found (by a court of competent
jurisdiction) to be void or unenforceable, such provision shall be
deemed to be deleted from this Agreement and the remaining provisions
of this Agreement shall continue in full force and effect PROVIDED THAT
the Shareholders shall, in such event, meet to negotiate in good faith
and seek to agree a mutually
<PAGE> 29
satisfactory valid and enforceable provision to be substituted for the
provision so found to be void or unenforceable.
14.6 Further Assurances
The Shareholders shall do all further things and execute all further
documents necessary to give full and complete effect to the provisions
of this Agreement including, but not limited to, Shareholder
Resolutions.
14.7 Announcements
Neither Shareholder nor the Company, a Subsidiary or any Affiliate
shall, without the prior written consent of the other Shareholder (such
consent not to be unreasonably withheld or delayed) issue or make any
public announcement or statement regarding this Agreement or any matter
the subject of this Agreement, unless it is necessary for the
Shareholder or such Affiliate to make such public announcement or
statement in order to comply in the Territory or elsewhere with a
statutory obligation, or with a competent government agency or other
regulatory body, or a recognised stock exchange on which a Shareholder
or such Affiliate has it shares listed or are on the unlisted
securities market in which its shares are dealt in which event a copy
of the same shall be furnished to the other shareholder as soon as
practicable prior to publication.
15. ARBITRATION
Should any disagreement arise between the Shareholders under this
Agreement which falls outside the scope of Clause 4. the Shareholders
agree that the disputed matter shall be settled in accordance with the
rules of the Netherlands Arbitration Institute ("NAI"), pursuant to the
rules and regulations of the NAI. Each Shareholder to bear its own
costs and expenses of such arbitration proceedings and the losing party
to bear the costs of the arbitration panel. The Arbitral Tribunal shall
be composed of three arbitrators. The place of arbitration shall be
Amsterdam. The Arbitration procedure shall be conducted in the English
language. If the Shareholders jointly submit an issue to be determined
by the NAI, they shall share the costs of the arbitration panel.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day of 1999.
SIGNED for and on behalf of )
ABACUS DIRECT )
CORPORATION )
by: )
SIGNED for and on behalf of )
VNU BUSINESS )
INFORMATION EUROPE B.V. )
by: )
<PAGE> 30
SCHEDULE 1
PART 1
CLARITAS PROPRIETARY DATA
That proprietary data owned by the Affiliate of Claritas known as Claritas Group
Limited, such proprietary data being
The Lifestyle Universe as more specifically described in the Claritas Services
Agreement to include all updates and enhancements thereto .
PART 2
The Transactional Database(s)
The formation of a transactional database from data supplied by End-Users
(together with the use of the Claritas Proprietary Products and Abacus
Proprietary Products) for a particular country or region within the Territory
specific to the mail order industry and retail industry which specifically
publishes mail order catalogues and applicable to a particular region or country
within the Territory enhanced by various demographic, lifestyle and promotional
responsive or purchase history data supplied and updated pursuant to the
Alliance Agreements and the Service Agreements.
The Transactional Database(s) defined above will be used to:
(i) sell selected modelled names and addresses from a Transactional
Database to End Users only for use in prospecting new clients for such
End-Users, enhancing End-User in-house databases and purchased lists
and for the provision of market tracking and analysis reports;
(ii) optimise and / or enhance lists or datasets that the End User may have
obtained from non Abacus sources for the purpose of gaining mailing
efficiencies;
(iii) derive segmentation datasets similar to the Claritas Proprietary Data
or other proprietary products of Claritas such as "Prizm" (R)(TM) or
"PSYCL(pound) (R)(TM) or Abacus US from a Transactional Database in
order to compare and contrast groups of consumers by End Users or
non-participating companies from market sectors other than the specific
mail order and merchandise retail industries relevant to a region;
(iv) simultaneously compile the Transactional Database(s) for the business
to business sector for the purposes envisaged in paragraphs (i) and
(ii) above.
The Transactional Database shall never constitute the Claritas Proprietary Data
or the Abacus Proprietary Data on its own. However, subject to the terms and
conditions of this Agreement and at the sole discretion of the Shareholders
Claritas (or its Affiliates) and Abacus (or its affiliates) may license Abacus
or Claritas as appropriate to license all or part of the Claritas Proprietary
Data or the Abacus Proprietary Data to potential licensed purchasers, on a basis
and at costs to be agreed between the Shareholders.
<PAGE> 31
SCHEDULE 2
PART 1
THE ABACUS TRADE MARK
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MARK NUMBER CLASS GOODS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ABACUS DIRECT 1536998 35 Business marketing Services relating to the
compilation, analysis and licensing of
consumer information, all included in Class
35.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
PART 2
THE TRADE MARK(s)
Application for a Community Mark for Abacus Direct
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION
------------------ ------------
<S> <C>
Abacus Direct International, Inc. Delaware
Abacus Direct Europe B.V.* Netherlands
</TABLE>
- -----------
* The Company holds a 50% ownership interest in this entity.
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-41043) of Abacus Direct Corporation of our report
dated March 1, 1999 appearing on page F-1 of this Annual Report on Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,294
<SECURITIES> 22,969
<RECEIVABLES> 12,998
<ALLOWANCES> 963
<INVENTORY> 0
<CURRENT-ASSETS> 38,761
<PP&E> 9,094
<DEPRECIATION> 4,606
<TOTAL-ASSETS> 43,320
<CURRENT-LIABILITIES> 6,403
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 36,294
<TOTAL-LIABILITY-AND-EQUITY> 43,320
<SALES> 0
<TOTAL-REVENUES> 46,979
<CGS> 9,581
<TOTAL-COSTS> 9,581
<OTHER-EXPENSES> 19,607
<LOSS-PROVISION> 2,494
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 18,492
<INCOME-TAX> 7,066
<INCOME-CONTINUING> 17,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,426
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.12
</TABLE>
