UNITED STATES
SECURITIES and EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 OR
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 1-9997
KOGER EQUITY, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2898045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organizatio Identification No.)
3986 BOULEVARD CENTER DRIVE, SUITE 101
JACKSONVILLE, FLORIDA 32207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 398-3403
Indicate by check mark 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at November 1, 1996
Common Stock, $.01 par value 20,886,436 shares
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KOGER EQUITY, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Independent Accountants' Report............................... 2
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995................... 3
Condensed Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
September 30, 1996 and 1995................................ 4
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Nine Month Period
Ended September 30, 1996................................... 5
Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September 30, 1996
and 1995................................................... 6
Notes to Condensed Consolidated Financial
Statements for the Three and Nine Month Periods
Ended September 30, 1996 and 1995.......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 14
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 18
Signatures ........................................................ 19
1
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Jacksonville, Florida
We have reviewed the accompanying condensed consolidated balance sheet of Koger
Equity, Inc. and subsidiaries (the "Company") as of September 30, 1996, and the
related condensed consolidated statements of operations for the three and nine
month periods ended September 30, 1996 and 1995, the condensed consolidated
statement of changes in shareholders' equity for the nine month period ended
September 30, 1996 and the condensed consolidated statements of cash flows for
the nine month periods ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1995, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 4, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1995 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 4, 1996
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - See Independent Accountants' Report)
(In thousands)
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Real Estate Investments:
Operating properties:
Land $ 98,567 $ 98,727
Buildings 478,672 471,145
Furniture and equipment 1,697 1,566
Accumulated depreciation (77,446) (62,885)
---------- ----------
Operating properties - net 501,490 508,553
Properties under construction:
Land 2,083
Buildings 248
Undeveloped land held for investment 19,227 21,150
Undeveloped land held for sale 7,881 9,131
Cash and temporary investments 34,102 25,650
Accounts receivable, net of allowance for
uncollectible rents of $245 and $391 4,061 5,260
Cost in excess of fair value of net assets acquired from
KPI, net of accumulated amortization of $473 and $345 2,083 2,211
Other assets 16,591 7,427
---------- -----------
TOTAL ASSETS $587,766 $579,382
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $249,925 $254,909
Accounts payable 1,978 2,641
Accrued interest 293 206
Accrued real estate taxes payable 5,754 2,222
Accrued liabilities - other 6,158 5,133
Advance rents and security deposits 4,187 3,574
----------- -----------
Total Liabilities 268,295 268,685
--------- ---------
Commitments (Notes 6 and 9) - -
Shareholders' Equity
Common stock 206 205
Capital in excess of par value 319,496 318,609
Warrants 2,244 2,250
Retained earnings 20,695 13,210
Treasury stock, at cost (23,170) (23,577)
---------- ----------
Total Shareholders' Equity 319,471 310,697
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $587,766 $579,382
======== ========
See Notes to Condensed Consolidated Financial Statements.
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3
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Independent Accountants' Report)
(In thousands, except per share data)
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Rental $24,515 $23,762 $72,660 $71,499
Other rental services 95 119 366 393
Management fees ($0, $320, $0 and
$2,201 from TKPL) 2,145 1,489 5,838 4,243
Interest 505 13,471 1,307 14,130
Gain on TKPL note to Southeast 55 5,988 (21) 5,988
Gain on early retirement of debt 739 886
-------- -------- -------- --------
Total 27,315 45,568 80,150 97,139
-------- -------- -------- --------
EXPENSES
Property operations 10,930 10,774 31,194 30,323
Depreciation and amortization 5,543 4,906 15,693 13,788
Mortgage and loan interest 4,968 5,610 14,865 18,693
General and administrative 1,235 2,142 4,103 5,762
Direct cost of management fees 1,650 1,040 4,426 2,888
Provision for loss on land held for sale 970 970
Undeveloped land costs 131 130 398 444
Litigation costs (182) 83 371 83
Loss on sale or disposition of assets 29 185 452 188
Other 18 742 18 742
-------- -------- -------- --------
Total 24,322 26,582 71,520 73,881
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 2,993 18,986 8,630 23,258
Income taxes 732 3 1,139 45
-------- -------- -------- --------
NET INCOME $ 2,261 $18,983 $ 7,491 $23,213
======== ======= ======= =======
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE:
Primary $ 0.12 $ 1.05 $ 0.40 $ 1.30
========= ========= ========= =========
Fully Diluted $ 0.12 $ 1.04 $ 0.40 $ 1.29
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 18,961 18,157 18,741 17,916
======== ======== ======== ========
Fully Diluted 19,043 18,317 18,778 17,970
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
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4
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited - See Independent Accountants' Report)
(In thousands)
Common Stock Capital in Share-
Par Excess of Retained Treasury Stock holders'
Shares Value Par Value Warrants Earnings Shares Cost Equity
------ ----- --------- -------- -------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 20,477 $205 $318,609 $2,250 $13,210 2,723 $(23,577) $310,697
Treasury Stock Reissued 151 (55) 454 605
Warrants Exercised 2 26 (6) 20
Stock Options Exercised 50 1 440 4 (47) 394
Stock Appreciation Rights
Exercised 23 270 270
Koger Realty Services, Inc.
Dividends Paid (6) (6)
Net Income 7,491 7,491
------ ---- -------- ------ ------- ----- -------- --------
Balance, September 30, 1996 20,552 $ 206 $ 319,496 $ 2,244 $ 20,695 2,672 $(23,170) $319,471
====== ====== ========= ======== ======== ===== ======== ========
See Notes to Condensed Consolidated Financial Statements.
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5
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Independent Accountants' Report)
(In thousands)
Nine Month Period
Ended September 30,
-------------------
1996 1995
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 7,491 $23,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,693 13,788
Provision for loss on land held for sale 970
Loss on sale or disposition of assets 452 188
Provision for litigation settlements 50
Gain on TKPL unsecured note to Southeast 21 (5,988)
Loss / (Gain) on early debt repayment 18 (886)
Accrued interest added to principal 112 457
Amortization of mortgage discounts 132 131
Provision for uncollectible rents 125
Increase in accounts payable, accrued
liabilities and other liabilities 5,364 7,387
Increase in receivables and other assets (6,511) (3,766)
Increase in receivable from TKPL (337)
-------- --------
Net cash provided by operating activities 22,772 35,332
-------- --------
INVESTING ACTIVITIES
Tenant improvements to existing properties (4,353) (5,986)
Building improvements to existing properties (2,030) (2,158)
Energy management improvements (1,764) (1,309)
Building construction expenditures (248)
Deferred tenant costs (1,561) (660)
Additions to furniture and equipment (131) (262)
Purchase of TKPL mortgage notes (18,192)
Proceeds from TKPL mortgage notes 18,192
Proceeds from TKPL unsecured note to Southeast 12,400
Proceeds from sale of assets 1,266 25,252
Cash acquired in purchase of assets from KPI 308
-------- --------
Net cash provided by (used in) investing activities (8,821) 27,585
-------- --------
FINANCING ACTIVITIES
Proceeds from sale of stock under Stock Investment Plan 140 155
Proceeds from exercise of warrants and stock options 312 2
Koger Realty Services, Inc. dividends paid (6)
Principal payments on mortgages and loans ( 5,245) (67,492)
Financing costs (700) (16)
-------- --------
Net cash used in financing activities (5,499) (67,351)
-------- --------
Net increase (decrease) in cash and cash equivalents 8,452 (4,434)
Cash and cash equivalents - beginning of period 25,650 23,315
-------- --------
Cash and cash equivalents - end of period $34,102 $18,881
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $14,542 $18,909
======= =======
Cash paid during the period for income taxes $ 1,139 $ 42
======== ==========
See Notes to Condensed Consolidated Financial Statements.
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6
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KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited - See Independent Accountants' Report)
1. BASIS OF PRESENTATION. The condensed consolidated financial statements
include the accounts of Koger Equity, Inc., its wholly-owned subsidiaries and
Koger Realty Services, Inc. (the "Company"). All significant intercompany
transactions have been eliminated. The financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission related to interim financial statements.
The financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1995,
included in the Company's Form 10-K Annual Report for the year ended December
31, 1995. The balance sheet at December 31, 1995, has been derived from the
audited financial statements at that date and is condensed.
All adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present a fair statement of the results for the
interim periods have been made. Results of operations for the nine month period
ended September 30, 1996, are not necessarily indicative of the results to be
expected for the full year.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). Adoption of SFAS 121 had no impact on the
financial statements for the nine month period ended September 30, 1996. In
October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") which will be effective for the Company beginning
January 1, 1996. SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
Accounting Principles Board Opinion No. 25 ("APB 25"), which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB 25 to its stock based compensation awards
to employees and will disclose the required pro forma effect on net income and
earnings per share.
2. ORGANIZATION. Koger Equity, Inc. ("KE"), a Florida corporation, was
incorporated in 1988 for the purpose of investing in the ownership of income
producing properties, primarily commercial office buildings. KE is totally
self-administered and self-managed.
In addition to managing its own properties, KE, through certain related
entities, provides property management services to third parties. In conjunction
with Koger Real Estate Services, Inc. ("KRES"), a Florida corporation and a
wholly-owned subsidiary of KE, KE manages 21 office buildings owned by Centoff
Realty Company, Inc. ("Centoff"), a subsidiary of Morgan Guaranty Trust Company
of New York. More significantly, Koger Realty Services, Inc. ("KRSI"), a
Delaware corporation and an entity in which KE has a significant economic
interest, manages 95 buildings owned by Koala Realty Holding Company, Inc.
("Koala"), an investment entity for which J.P. Morgan Investment Management,
Inc. acts as the investment manager. KRSI was incorporated during 1995 to, among
7
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other things, provide leasing and property management services to owners of
commercial office buildings. KE has purchased all of the preferred stock of
KRSI, which preferred stock represents at least 95 percent of the economic value
of KRSI. Such preferred stock is non-voting but is convertible into voting
common stock. Accordingly, KE has consolidated KRSI in the financial statements.
3. FEDERAL INCOME TAXES. KE is operated in a manner so as to qualify and
has elected tax treatment as a real estate investment trust under the Code (a
"REIT"). As a REIT, KE is required to distribute annually at least 95 percent of
its REIT taxable income to its shareholders. Since, KE had no REIT taxable
income during 1995 and does not expect to have REIT taxable income during 1996,
no provision has been made for Federal income taxes. However, KE has recorded a
provision of $180,000 for alternative minimum tax for the nine month period
ended September 30, 1996. To the extent that KE pays dividends equal to 100
percent of REIT taxable income, the earnings of KE are not taxed at the
corporate level; however, under existing loan covenants KE may be prohibited
from paying dividends in excess of amounts necessary to maintain its status as a
REIT. See Note 8, Dividends. KRSI has recorded a provision of $627,500 for
Federal income tax for the nine month period ended September 30, 1996.
The Internal Revenue Service has completed its examination of the Company's 1992
and 1993 Federal income tax returns and the Koger Properties, Inc. ("KPI") final
Federal income tax return. The Internal Revenue Service submitted their Report
to the Company and proposed disallowing certain deductions on KPI's final
Federal income tax return, the result of which reduced the net operating loss
carryforwards acquired from KPI from approximately $98 million to $30 million
and required the payment of approximately $173,000 of alternative minimum tax
plus interest. Management has accepted these adjustments to KPI's final Federal
income tax return.
4. STATEMENTS OF CASH FLOWS. Cash in excess of daily requirements is
invested in short-term monetary securities. Such temporary cash investments have
an original maturity date of less than three months and are deemed to be cash
equivalents for purposes of the statements of cash flows. During the nine month
period ended September 30, 1996, the Company contributed 43,804 shares of common
stock to the Company's 401(K) Plan. These shares had a value of approximately
$465,000 based on the closing price of the Company's common stock on the
American Stock Exchange on December 31, 1995. During the nine month period ended
September 30, 1995, the Company contributed 122,441 shares of common stock to
the Company's 401(K) Plan. These shares had a value of approximately $888,000
based on the closing price of the Company's stock on the American Stock Exchange
on December 30, 1994.
5. EARNINGS PER COMMON SHARE. Earnings per common share have been
computed based on the weighted average number of shares of common stock and
common stock equivalents outstanding during the applicable periods.
6. MORTGAGES AND LOANS PAYABLE. At September 30, 1996, the Company had
$249,925,000 of loans outstanding, which are collateralized by mortgages on
certain operating properties. The Company repaid approximately $2.2 million of
the outstanding balances of mortgages and loans payable during the quarter ended
September 30, 1996. These early repayments resulted in the release of three
buildings, containing 86,740 net rentable square feet, which had been collateral
for these loans.
8
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On July 29, 1996, the Company signed a loan application with Northwestern
Mutual Life Insurance Company ("Northwestern") for a $190 million non-recourse
loan which will be secured by 10 office parks. This loan will be divided into
(i) a tranche in the amount of $100.5 million with a 10 year maturity and an
interest rate of 8.25 percent and (ii) a tranche in the amount of $89.5 million
with a maturity of 12 years and an interest rate of 8.33 percent. In order to
set the interest rates for this loan on the date the loan application was
signed, the Company transferred $5.7 million to Northwestern as a refundable
earnest money deposit. This loan application was accepted by Northwestern on
September 10, 1996. Currently, management expects to close on this loan during
the quarter ended December 31, 1996.
Annual maturities for mortgages and loans payable, which are gross of $748,000
of discounts, are as follows (in thousands):
Year Ending December 31,
1996 $ 1,018
1997 12,748
1998 19,320
1999 5,653
2000 86,519
Subsequent Years 125,415
---------
Total $250,673
In addition to reporting and other requirements, the Company's debt agreements
contain provisions limiting the amount of annual dividends, limiting additional
borrowings, and limiting general and administrative expenses. The Company is
also required to maintain certain financial ratios.
7. LEGAL PROCEEDINGS. Pursuant to the merger of KPI with and into the
Company during 1993, the Company agreed to indemnify the former non-officer
directors of KPI (the "Indemnified Persons") in respect of amounts to which such
Indemnified Persons would be otherwise entitled to indemnification under Florida
law, the articles of incorporation or the by-laws of KPI arising out of acts or
omissions prior to September 25, 1991. Certain of the former non-officers
directors of KPI are defendants in a Pension Plan class action suit (the "Roby
Case"). The Company has signed an agreement to settle the Roby Case and has
placed in escrow $100,000 for its contribution to such settlement for the
Indemnified Persons.
8. DIVIDENDS. The terms of the secured debt of the Company provide that
the Company will be subject to certain dividend limitations which, however, will
not restrict the Company from paying the dividends required during 1996 to
maintain its qualification as a REIT. In the event that the Company no longer
qualifies as a REIT, additional dividend limitations would be imposed by the
terms of such debt. In addition, two of the Company's bank lenders have required
that until the Company has raised an aggregate of $50 million of equity the
following limitations on dividends will be applied: (a) in 1996 and 1997, $11
million unless imposition of the limit would cause loss of REIT status and (b)
in 1998 and 1999, $11 million regardless of impact on REIT status. On October
10, 1996, KE completed a private placement of 3 million shares of its common
stock to an affiliate of Apollo Real Estate Investment Fund II, L.P. for an
aggregate sales price of $43.5 million.
9
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9. COMMITMENTS. The Company has entered into an agreement (the "Loan
Agreement") with Wellspring Resources, L.L.C. ("Wellspring") to make certain
loans to Wellspring if, and only if, such loans are requested in writing no
later than January 2, 1997. The Loan Agreement provides that the Company has
agreed to lend approximately $5.6 million (the "Primary Loan") at an interest
rate of 11 percent per annum and approximately $4 million (the "Secondary Loan")
at an interest rate of 14 percent per annum. These loans may be used by
Wellspring for any purpose including, without limitation, tenant improvements to
the Gunti Building for which Wellspring has signed a lease. The Primary Loan and
the Secondary Loan will be evidenced by separate promissory notes from
Wellspring. In addition, State Street Bank and Trust Company and Watson Wyatt
and Company will each deliver an irrevocable, unconditional guaranty of
Wellspring's obligations under the Loan Agreement. These loans require monthly
payments of principal and interest with final repayment on October 14, 2006.
10. SUBSEQUENT EVENTS. On October 10, 1996, KE completed a private
placement of 3 million shares of its common stock to an affiliate of Apollo Real
Estate Investment Fund II, L.P. for an aggregate sales price of $43.5 million.
KE applied the proceeds from this sale to the repayment of indebtedness with an
average interest rate of approximately 8 percent.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Form 10-Q, and the Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's Annual Report on Form 10-K
for the period ended December 31, 1995.
RESULTS OF OPERATIONS.
Rental revenues totalled $24,515,000 for the quarter ended September 30, 1996,
compared to $23,762,000 for the quarter ended September 30, 1995. The increase
in rental revenues resulted primarily from the increase in the Company's average
rental rate. The Company sold three buildings (containing 233,980 net rentable
square feet) on July 31, 1995. The effect of the decrease in the total net
rentable square feet owned by the Company was completely offset by the increase
in the Company's average rental rate. At September 30, 1996, the Company's
buildings were on average 90 percent leased with an average rental rate of
$13.97. Rental revenues increased to $72,660,000 during the nine month period
ended September 30, 1996, compared to $71,499,000 during the same period last
year. This increase resulted primarily from (i) the increase in the Company's
average rental rate and (ii) increases in the revenues from operating cost
escalations and other items passed through to tenants.
Management fee revenues totalled $2,145,000 for the quarter ended September 30,
1996, compared to $1,489,000 for the quarter ended September 30, 1995. This
increase was due primarily to (i) an increase in fees earned for construction
management services, (ii) an increase in fees earned from the management of
buildings sold by The Koger Partnership, Ltd. ("TKPL") to Koala on August 1,
1995, (iii) the management fees earned from the three buildings sold by the
Company to Koala, and (iv) an increase in fees earned under the management
contract with Centoff. Management fee revenues increased to $5,838,000 during
the nine month period ended September 30, 1996, compared to $4,243,000 during
the same period last year, primarily for the same reasons mentioned above.
10
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Interest revenues decreased $12,966,000 and $12,823,000 respectively, for the
three and nine month periods ended September 30, 1996, compared to the same
periods last year, due to the interest revenue earned during 1995 on the TKPL
mortgage notes which were retired by TKPL during 1995 ($13,068,000).
Property operating expenses include such charges as utilities, taxes,
janitorial, maintenance, provision for uncollectible rents and management costs.
The amounts of property operating expenses and their percentages of total rental
revenues for the applicable periods are as follows:
Percent of
Total Rental
Period Amount Revenues
-------------------------------- -------------- ------------
September 30, 1996 - Quarter $10,930,000 44.4%
September 30, 1995 - Quarter $10,774,000 45.1%
September 30, 1996 - Nine Months $31,194,000 42.7%
September 30, 1995 - Nine Months $30,323,000 42.2%
Property operating expenses increased primarily due to increases in maintenance
costs.
Depreciation expense has been calculated on the straight line method based upon
the useful lives of the Company's depreciable assets, generally 3 to 40 years.
Depreciation expense increased $818,000 and $2,186,000, respectively, for the
three and nine month periods ended September 30, 1996, compared to the same
periods last year, due to improvements made to the Company's existing properties
during 1995 and 1996. Amortization expense decreased $181,000 and $281,000,
respectively, for the three and nine month periods ended September 30, 1996,
compared to the same periods last year, due primarily to the reduction in
goodwill recorded during the quarter ended September 30, 1995.
Interest expense decreased by $642,000 and $3,828,000, respectively, during the
three and nine month periods ended September 30, 1996, compared to the same
periods last year, primarily due to the reduction in the average balance of
mortgages and loans payable. At September 30, 1996, the weighted average annual
interest rate on the Company's outstanding debt was approximately 7.7 percent.
General and administrative expenses for the three month periods ended September
30, 1996 and 1995, totalled $1,235,000 and $2,142,000, respectively, which is
0.8 percent and 1.4 percent (annualized) of average invested assets. General and
administrative expenses for the nine month periods ended September 30, 1996 and
1995, totalled $4,103,000 and $5,762,000, respectively, which is 0.9 percent and
1.3 percent (annualized) of average invested assets. These decreases were
primarily due to (i) decreases in the accrual for compensation expense related
to stock appreciation rights granted in conjunction with stock options, (ii)
decreases in professional and legal fees incurred, (iii) decreases in certain
insurance expenses, and (iv) decreases in the accrual for the Company's
contribution to the 401(k) Plan.
Direct costs of management contracts increased $610,000 and $1,538,000,
respectively, for the three and nine month periods ended June 30, 1996, compared
to the same periods last year, due to increased costs associated with (i)
providing property management services for all management contracts and (ii)
providing construction management services.
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During the quarter ended September 30, 1996, the Company demolished a building
containing 11,040 net rentable square feet because the building no longer met
the Company's investment criteria. The Company has recorded a loss on
disposition of assets which totals $468,000 due to the demolition of this
building.
Net income totalled $2,261,000 for the quarter ended September 30, 1996,
compared to net income of $18,983,000 for the corresponding period of 1995. This
decrease is due primarily to (i) the interest revenue earned during 1995 on the
TKPL mortgage notes which were retired by TKPL during 1995 and (ii) the gain
associated with the partial repayment of a TKPL note to Southeast during 1995.
Net income decreased $15,722,000 during the nine month period ended September
30, 1996, compared to the same period last year, due to the same items detailed
above.
LIQUIDITY AND CAPITAL RESOURCES.
Operating Activities - During the nine months ended September 30, 1996,
the Company generated approximately $22.8 million in net cash from operating
activities. The Company's primary internal sources of cash are (i) the
collection of rents from buildings owned by the Company and (ii) the receipt of
management fees paid to the Company in respect of properties managed on behalf
of Koala, Centoff, and others. As a REIT for Federal income tax purposes, KE is
required to pay out annually, as dividends, 95 percent of its REIT taxable
income (which, due to non-cash charges, including depreciation and net operating
loss carryforwards, may be substantially less than cash flow). In the past, KE
has paid out dividends in amounts at least equal to its REIT taxable income.
However, KE currently expects that it will not be required to pay any dividends
during 1996 to maintain its REIT status. The Company believes that its cash
provided by operating activities will be sufficient to cover debt service
payments through 1996.
The level of cash flow generated by rents depends primarily on the occupancy
rates of the Company's buildings and increases in rental rates on new and
renewed leases and under escalation provisions in existing leases.
At September 30, 1996, leases representing approximately 9.8 percent of the
gross annual rent from the Company's properties, without regard to the exercise
of options to renew, were due to expire during the remainder of 1996. This
represents 368 leases for space in buildings located in 16 of the 17 centers in
which the Company owns buildings. Certain of these tenants may not renew their
leases or may reduce their demand for space. During the nine months ended
September 30, 1996, leases were renewed on approximately 61 percent of the
Company's net rentable square feet which were scheduled to expire during the
nine month period. For those leases which renewed during the nine months ended
September 30, 1996, the average rental rate increased from $14.23 to $15.00.
Based upon the significant number of leases which will expire during 1996 and
1997 and the competition for tenants in the markets in which the Company
operates, the Company has and expects to continue to offer incentives to certain
new and renewal tenants. These incentives may include the payment of tenant
improvements costs and in certain markets reduced rents during initial lease
periods. During 1994, 1995 and 1996, the Company has benefitted from improving
economic conditions and reduced vacancy levels for office buildings in many of
the metropolitan areas in which the Company owns buildings. The Company believes
that the southeastern and southwestern regions of the United States provide
significant economic growth potential due to their diverse regional economies,
12
<PAGE>
expanding metropolitan areas, skilled work force and moderate labor costs.
However, the Company cannot predict whether such economic growth will continue.
Cash flow from operations could be reduced if economic growth were not to
continue in the Company's markets and if this resulted in lower occupancy rates
for the Company's buildings.
Governmental tenants (including the State of Florida and the United States
Government) which account for approximately 21.8 percent of the Company's leased
space at September 30, 1996, may be subject to budget reductions in times of
recession and governmental austerity measures. Consequently, there can be no
assurance that governmental appropriations for rents may not be reduced.
Additionally, certain of the private sector tenants which have contributed to
the Company's rent stream may reduce their current demands, or curtail their
future need, for additional office space.
Investing Activities - At September 30, 1996, substantially all of the
Company's invested assets were in real properties. Improvements to the Company's
existing properties have been financed through internal operations. During the
nine month period ended September 30, 1996, the Company's expenditures for
improvements to existing properties decreased by $1,306,000 over the
corresponding period of the prior year primarily due to reductions in
expenditures for tenant improvements, which reductions were partially offset by
increased expenditures for energy management improvements to the Company's
buildings.
On August 12, 1996, the Company sold a 30 acre land parcel located in
Birmingham, Alabama for $1,350,000.
The Company has started the construction of two buildings which will contain
approximately 106,000 net rentable square feet. Expenditures for construction of
these two buildings are expected to total approximately $7.6 million, excluding
land and tenant improvement costs.
The terms of the Company's existing indebtedness require that a substantial
portion of any debt or equity financing achieved by the Company during the
foreseeable future be applied to the reduction of the current secured
indebtedness of the Company and contain limitations on incurrence of additional
debt and other restrictions.
Financing Activities - The Company has no open lines of credit, but has a
cash balance at September 30, 1996 of $34,102,000. During the three months ended
September 30, 1996, the Company repaid approximately $2.2 million of the
outstanding balances of mortgages and loans payable. These early repayments
resulted in the release of three buildings, containing 86,740 net rentable
square feet, which had been collateral for these loans. At September 30, 1996,
the Company had 89 buildings, containing 2,602,970 net rentable square feet,
which were unencumbered.
Loan maturities and normal amortization of mortgages and loans payable are
expected to total approximately $12.6 million over the next 12 months. The
Company believes that these obligations will be paid from cash provided by
operations or from current cash balances. Significant maturities of the
Company's mortgages and loans payable do not begin to occur until 1998. On
August 22, 1994, the Company filed a shelf registration statement with respect
to the possible issuance of up to $100,000,000 of its common and/or preferred
stock.
13
<PAGE>
On October 10, 1996, KE completed a private placement of 3 million shares of its
common stock to an affiliate of Apollo Real Estate Investment Fund II, L.P. for
an aggregate sales price of $43.5 million. KE applied the proceeds from this
sale to the repayment of indebtedness with an average interest rate of
approximately 8 percent.
The Company is currently implementing its plan to refinance or restructure the
Company's existing debt in order to eliminate certain restrictive covenants. To
assist in implementing the debt refinancing, the Company has engaged J.P. Morgan
and Company as its financial adviser. Currently, management expects to complete
the refinancing during the quarter ended December 31, 1996. On July 29, 1996,
the Company signed a loan application with Northwestern Mutual Life Insurance
Company ("Northwestern") for a $190 million non-recourse loan which will be
secured by 10 office parks. This loan will be divided into (i) a tranche in the
amount of $100.5 million with a 10 year maturity and an interest rate of 8.25
percent and (ii) a tranche in the amount of $89.5 million with a maturity of 12
years and an interest rate of 8.33 percent. In order to set the interest rates
for this loan on the date the loan application was signed, the Company
transferred $5.7 million to Northwestern as a refundable earnest money deposit.
The loan application was accepted by Northwestern on September 10, 1996. This
represents the Company's first step in its plan to refinance the Company's
existing debt in order to eliminate certain restrictive covenants. Currently,
management expects to close on this loan during the quarter ended December 31,
1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
14
<PAGE>
Item 5. Other Information
(a) The following table sets forth, with respect to the Company's centers
at September 30, 1996, number of buildings, net rentable square feet,
percentage leased, and the average annual rent per net rentable square
foot leased.
<TABLE>
<CAPTION>
Average
Net Annual
Number Rentable Rent Per
of Square Percent Square
Koger Center Buildings Feet Leased(1) Foot (2)
- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Atlanta Chamblee 22 947,920 91% $14.27
Austin 12 370,860 98% 16.76
Charlotte Carmel 1 109,600 100% 15.17
Charlotte East 11 468,820 77% 13.08
El Paso 14 251,930 95% 14.08
Greensboro South 13 610,470 93% 13.69
Greenville 8 290,560 95% 14.24
Jacksonville Baymeadows 4 468,000 100% 15.58
Jacksonville Central (3) 31 666,500 89% 11.54
Memphis Germantown 3 258,400 99% 17.27
Orlando Central 22 565,220 90% 14.36
Orlando University 2 159,600 98% 16.49
San Antonio 26 788,670 91% 12.18
St. Petersburg 15 519,320 96% 12.99
Tallahassee Apal. Pkwy 14 408,500 82% 15.93
Tallahassee Cap. Circle 4 300,700 73% 17.33
Tulsa 13 476,280 81% 10.37
----- ----------
TOTAL 215 7,661,350 90% $13.97
==== ========= ===== ======
</TABLE>
(1) The percent leased rates have been calculated by dividing total net
rentable square feet leased in an office building by net rentable
square feet in such building, which excludes public or common areas.
(2) Rental rates are computed by dividing (a) total annualized rents for a
center as of September 30, 1996 by (b) the net rentable square feet
applicable to such total annualized rents.
(3) The Company has demolished a building containing 11,040 net rentable
square feet. This building has been removed from this table.
15
<PAGE>
(b) The following schedule sets forth for all of the Company's office
buildings (i) the number of leases which will expire during the
remainder of calender year 1996 and calendar years 1997 through 2004,
(ii) the total net rentable area in square feet covered by such leases,
(iii) the percentage of total net rentable square feet represented by
such leases, (iv) the average annual rent per square foot for such
leases, (v) the current annual rental represented by such leases, and
(vi) the percentage of gross annual rental contributed by such leases.
This information is based on the buildings owned by the Company on
September 30, 1996 and on the terms of leases in effect as of September
30, 1996, on the basis of then existing base rentals, and without
regard to the exercise of options to renew. Furthermore, the
information below does not reflect that some leases have provisions for
early termination for various reasons, including, in the case of
government entities, lack of budget appropriations. Leases were renewed
on approximately 61 percent of the Company's net rentable square feet
which were scheduled to expire during the nine month period ended
September 30, 1996.
<TABLE>
<CAPTION>
Percentage of Average Percentage
Total Square Annual Rent of Total
Number of Number of Feet Leased per Square Total Annual Annual Rents
Leases Square Feet Represented by Foot Under Rents Under Represented by
Period Expiring Expiring Expiring Leases Expiring Leases Expiring Leases Expiring Leases
- ------ ------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1996 368 701,478 10.1% $13.55 $ 9,505,450 9.8%
1997 964 1,645,344 23.7% 13.96 22,974,963 23.7%
1998 534 1,531,899 22.1% 13.61 20,844,969 21.5%
1999 389 1,103,734 15.9% 13.57 14,980,607 15.4%
2000 120 620,907 8.9% 14.88 9,241,983 9.5%
2001 86 774,042 11.1% 15.02 11,625,431 12.0%
2002 13 168,976 2.4% 13.15 2,222,307 2.3%
2003 13 108,623 1.6% 13.80 1,499,030 1.5%
2004 3 74,069 1.1% 14.28 1,057,466 1.1%
OTHER 9 212,261 3.1% 14.37 3,050,883 3.2%
-------- ---------- -------- ------------- --------
TOTAL 2,499 6,941,333 100.0% $13.97 $97,003,089 100.0%
===== ========= ====== ====== =========== ======
</TABLE>
16
<PAGE>
(c) The Company believes that Funds from Operations is one measure of the
performance of an equity real estate investment trust. Funds from
Operations should not be considered as an alternative to net income as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with generally accepted
accounting principles) as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the
Company's needs. Funds from Operations is calculated as follows (in
thousands):
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 2,261 $18,983 $ 7,491 $23,213
Depreciation - real estate 5,156 4,350 14,534 12,396
Amortization - deferred tenant costs 227 193 661 472
Amortization - goodwill 43 148 128 473
Litigation costs (182) 83 371 83
Loss on sale or disposition of assets 29 185 452 188
Provision for loss on land held for sale 970 970
Gain on TKPL note to Southeast (55) (5,988) 21 (5,988)
Loss / (Gain) on early retirement of debt 18 (739) 18 (886)
------- ------- -------- -------
Funds from Operations $ 7,497 $18,185 $23,676 $30,921
======= ======= ======= =======
</TABLE>
The 1995 calculated Funds from Operations includes $13,068 of interest revenue
associated with the TKPL mortgage notes which KE acquired during 1995. These
mortgage notes were retired by TKPL during 1995.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
4(b)(1)(D) Third Amendment to Rights Agreement, dated as of
October 10, 1996, between Koger Equity, Inc. and
First Union National Bank of North Carolina, a
national association. Incorporated by reference
to Exhibit 6 to Amendment to Registration
Statement on Form 8-A/A of Registrant (File No.
1-9997).
10(y)(1) Employment Agreement between Koger Equity, Inc.
and Victor A. Hughes, Jr. effective as of June
21, 1996.
10(y)(2) Employment Agreement between Koger Equity, Inc.
and James C. Teagle, effective as of June 21,
1996.
10(z) Registration Rights Agreement, dated as of
October 10, 1996, between Koger Equity, Inc. and
AP-KEI Holdings, LLC, a Delaware limited
liability company. Incorporated by reference to
Exhibit A of the Stock Purchase Agreement, dated
as of October 10, 1996, between Koger Equity,
Inc. and AP-KEI Holdings, LLC. which is Exhibit 7
to Amendment to Registration Statement on Form
8-A/A (File No. 1-9997).
10(aa) Stock Purchase Agreement, dated as of October 10,
1996, between Koger Equity, Inc. and AP-KEI
Holdings, LLC, a Delaware limited liability
company. Incorporated by reference to Exhibit 7
to Amendment to Registration Statement on Form
8-A/A of Registrant (File No. 1-9997).
10(ab) Consulting Agreement, dated as of June 21, 1996,
between Koger Equity, Inc. and Irvin H. Davis.
10(ac) Consulting Agreement, dated as of March 14, 1996,
between Koger Equity, Inc. and David B. Hiley.
11 Earnings Per Share Computations.
15 Letter re: Unaudited interim financial
information.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On August 16, 1996, the Company filed a Form 8-K reporting under
Item 5, Other Events, that the Company had issued a News Release
and providing under Item 7, Financial Statements and Exhibits, a
copy of the Koger Equity, Inc. News Release, dated August 16,
1996.
On August 22, 1996, the Company filed a Form 8-K/A reporting under
Item 5, Other Events, that (i) the Company had amended its By-Laws
and (ii) the Company had issued its Quarterly Report to
Shareholders, and providing under Item 7, Financial Statements and
Exhibits, a copy of (i) Koger Equity, Inc. By-Laws, as Amended and
Restated on August 21, 1996 and (ii) Koger Equity, Inc. Quarterly
Report to Shareholders for the quarter ended June 30, 1996.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOGER EQUITY, INC.
Registrant
(VICTOR A. HUGHES, JR.)
------------------------
VICTOR A. HUGHES, JR.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Dated: November 6, 1996
(JAMES L. STEPHENS)
--------------------
JAMES L. STEPHENS
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
19
6/18/96
CONSULTING AGREEMENT
This Agreement is made by and between Koger Equity, Inc., a Florida
corporation (the "Company"), and Irvin H. Davis ("Consultant") of Jacksonville,
Florida, as of the 21st day of June 1996.
FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES, TERMS,
PROVISIONS AND CONDITIONS CONTAINED IN THIS AGREEMENT, the parties
hereby agree:
1. Employment. The Company hereby offers and Consultant hereby accepts
employment as a consultant subject to the terms and conditions set forth in this
Agreement.
1.1. Term. Effective as of the date hereof, Consultant shall
cease to be an officer of the Company but shall continue as an employee of the
Company through December 31, 1996; commencing on June 21, 1996 and ending on
December 31, 1999 (the "Consulting Period"), the Company shall retain Consultant
to provide consulting services subject to the terms and conditions specified
below, and Consultant agrees to serve as a consultant to the Company.
1.2. Duties and Performance. During the Consulting Period,
Consultant shall serve as a consultant to the Company to provide advice and
assistance to the Company as may be requested from time to time by the Board of
Directors or its chief executive officer to whom he shall report, including at
the direction of the Company's chief executive officer (i) making national and
regional sales calls to key tenants and prospective tenants in support of the
Company's marketing department's plan, (ii) assisting the Company in market
research with respect to development of new markets and for new office products
and (iii) assisting the Company in its review and improvement of its operational
systems and such other assignments consistent with his experience as are
determined by the Company's chief executive officer. From June 21, 1996 through
December 31, 1996, Consultant shall continue as an employee of the Company and
shall consult to the Company on a full-time basis. Commencing January 1, 1997,
Consultant's services as an employee of the Company shall terminate, and he
shall become an independent consultant and shall devote not less than five days
per month to the Company through the remainder of the Consulting Period.
Consultant shall render such Consulting services during customary business hours
and at convenient times at the principal executive offices of the Company.
During his employment hereunder, Consultant shall devote his best efforts,
business judgment, skill and knowledge to the advancement of the Company's
interests and to the discharge of his duties and responsibilities hereunder.
-1-
<PAGE>
1.3. Compensation. During the Consulting Period, the Company
shall reimburse Consultant for all reasonable out-of-pocket business expenses
incurred by executive in performing such consulting services, including
telephone and telecopy and transportation, hotel and meal expenses if such
services are performed at other than the Company's principal office, subject to
such reasonable substantiation and documentation as may be specified by the
Company. During the Consulting Period, the Company shall pay Consultant, as
compensation for all services performed during the Consulting Period, at a rate
of $250,000 per annum until December 31, 1996, and thereafter at a rate of
$50,000 per annum, payable monthly and prorated for any partial period.
1.4. Benefits. Consultant shall be entitled until December 31,
1996 to participate in any and all employee benefit plans, medical insurance
plans, life insurance plans, disability income plans, retirement plans,
incentive compensation plans and other benefit plans from time to time in effect
for executives of the Company generally; thereafter, Consultant shall cease to
participate in such plans, except that effective as of January 1, 1997,
Consultant will commence receiving benefits under the Company's Supplemental
Executive Retirement Plan (the "SERP"), and he shall continue to be covered
under the Company's medical insurance coverage as specified in the SERP. Such
participation in employee benefit plans shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable Company policies and (iii)
the discretion of the Board of Directors or any administrative or other
committee provided for in or contemplated by such plan.
2. Termination. Consultant's consulting shall terminate under the
following circumstances:
2.1. Death. In the event of Consultant's death during his
employment under this Agreement, Consultant's consulting hereunder shall
immediately and automatically terminate.
2.2. Disability.
(a) The Company may terminate Consultant's employment and
consulting hereunder, upon written notice to Consultant, in the event that
Consultant becomes disabled during the Consulting Period through any illness,
injury, accident or condition of either a physical or psychological nature and,
as a result, is unable to perform substantially all of his duties and
responsibilities hereunder for 90 days during any period of 365 consecutive
calendar days or for any consecutive 90-day period.
(b) In the event Consultant receives disability income
payments under the Company's disability income plan (as a result of disability
prior to December 31, 1996), Consultant shall not be entitled to receive any
compensation under Section 1.3.
-2-
<PAGE>
(c) If any question shall arise as to whether during any
period Consultant is disabled through any illness, injury, accident or condition
of either a physical or psychological nature so as to be unable to perform
substantially all of his duties and responsibilities hereunder, Consultant may,
and at the request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom Consultant or his guardian has no
reasonable objection to determine whether Consultant is so disabled and such
determination shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and Consultant shall fail to submit to such
medical examination, the Company's determination of the issue shall be binding
on Consultant .
2.3. Termination by the Company for Cause. The Company may
terminate Consultant's employment hereunder for Cause at any time upon written
notice setting forth in reasonable detail the nature of the Cause. The
following, as determined by the Board in its reasonable judgment, will
constitute Cause:
(a) Consultant's failure to perform his material duties and
responsibilities to the Company, notwithstanding reasonable notice and an
opportunity to cure on the part of Consultant, or Consultant's gross negligence
in the performance of his duties and responsibilities;
(b) fraud, embezzlement or other material dishonesty by
Consultant with respect to the Company; or
(c) Consultant's conviction of, or plea of nolo contendere to,
a felony or other crime involving moral turpitude.
Upon termination of Consultant's employment for Cause, the Company shall have no
further obligations under this Agreement other than to pay to Consultant any
amounts that have been earned but not paid.
2.4. Termination by Consultant . Consultant may terminate his
consulting arrangement hereunder upon 30 days' prior written notice to the
Company. In the event of termination by Consultant pursuant to this Section 2.4,
the Company shall have no further obligation to Consultant other than for
compensation earned to the date of termination.
3. Effect of Termination.
3.1. Payment by the Company of any compensation that may be
due Consultant under the applicable termination provision of Section 2 shall
constitute the entire obligation of the Company to Consultant under this
Agreement and performance by the Company shall constitute full settlement of any
claim that Consultant might otherwise assert against the Company under this
Agreement or any of those connected with it on account of such termination.
-3-
<PAGE>
3.2. Provisions of this Agreement shall survive any
termination if so provided herein or if necessary or desirable fully to
accomplish the purposes of such provisions, including, without limitation, the
obligations of Consultant under Section 4. Consultant recognizes that no
compensation is earned after termination of his consulting.
4. Nondisclosure; Restricted Activities.
4.1. During the Consulting Period and as a result of his prior
employment by the Company, Consultant may become aware of information which is
nonpublic, confidential or proprietary in nature with respect to the Company or
with respect to other companies, persons, entities, ventures or business
opportunities in which the Company has, or, if it were disclosed to the Company,
the Company might have, an interest ("Confidential Information"). All
Confidential Information will be kept strictly confidential by Consultant and
Consultant shall not: (a) copy, reproduce, distribute or disclose any
Confidential Information to any third party except in the course of his
employment by the Company; (b) use any Confidential Information for any purpose
other than in connection with his employment by the Company; or (c) use any
Confidential Information in any way that is detrimental to the Company.
Confidential Information shall not include information which Consultant can
demonstrate: (a) is or becomes generally available to the public other than by
breach by Consultant of his agreement herein; (b) is disclosed by Consultant,
pursuant to obligations under law, regulation or court order; or (c) was known
to Consultant on a nonconfidential basis. Upon termination of Consultant's
engagement, he shall immediately return or destroy all Confidential Information,
including all notes, copies, reproductions, summaries, analyses, or extracts
thereof, then in his possession. Such return or destruction shall not abrogate
the continuing obligations of Consultant under this Agreement. In the event that
Consultant is requested or required (by interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, he shall provide the Company
with prompt written notice so that it may seek a protective order or other
appropriate remedy. In the event such protection or other remedy is not
obtained, Consultant shall furnish only that portion of the Confidential
Information which he is advised by counsel is legally required and shall
exercise best efforts to obtain assurance that confidential treatment will be
accorded to such Confidential Information.
4.2. Consultant agrees that until the expiration of five years
from the date of termination of his engagement by the Company, he will not
without the prior written approval of the Company (i) in any manner acquire,
agree to acquire or make any proposal to acquire, directly or indirectly, any
securities, assets or property of the Company or any of its subsidiaries,
whether such agreement or proposal is with Consultant or with a third party,
other than shares of common stock he is entitled to acquire under the terms of
stock options he holds at the date hereof, (ii) propose to enter into, directly
or indirectly, any merger or other business combination involving the
-4-
<PAGE>
Company or any of its subsidiaries, (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
used in the proxy rules of the Securities and Exchange Commission) to vote, or
seek to advise or influence any person with respect to the voting of, any voting
securities of the Company or any of its subsidiaries, (iv) form, join or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) with respect to any voting securities of the
other party or any of its subsidiaries, (v) otherwise act, alone or in concert
with others, to seek to control or, except in his capacity as a director of the
Company, influence the management, board of directors or policies of the
Company, (vi) disclose any intention, plan or arrangement inconsistent with the
foregoing or (vii) advise, encourage, provide assistance (including financial
assistance) to or hold discussions with any other persons in connection with any
of the foregoing.
4.3. Consultant hereby acknowledges that he is aware that the
United States securities laws prohibit any person who has material, nonpublic
information concerning the Company from purchasing or selling securities of the
Company or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.
4.4. Consultant further agrees that during his consulting and
for a period of five years thereafter, he will not hire or attempt to hire any
individual who has been at the date hereof or during the Consulting Period
becomes an employee of the Company, assist in such hiring by any other person,
encourage any such employee to terminate his or her relationship with the
Company (unless such individual has voluntarily terminated his or her
employment, or the Company terminated such individual's employment without
cause, greater than one year prior to the first instance of Consultant's conduct
described in this Section), or solicit or encourage any tenant or other customer
of the Company to terminate its relationship with the Company or to conduct with
any person any business or activity which such customer conducts or could
conduct with Company.
4.5. The obligations of Consultant stated in this Section 4
shall, except where expressly limited as to time, continue without limit as to
time and without regard to the employment status of Consultant.
5. Relief, Interpretation; Expenses. Consultant agrees that the Company
shall, in addition to any other remedies available to it, be entitled to
preliminary and permanent injunctive relief against any breach by him of the
covenants contained in Section 4, without having to post bond. If any portion or
provision of this Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances
other than those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law. In the event
-5-
<PAGE>
that any provision of Section 4 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great
a time, too large a geographic area or too great a range of activities, it shall
be interpreted to extend only over the maximum period of time, geographic area
or range of activities as to which it may be enforceable. For purposes of
Section 4, the term "Company" shall mean the Company and any of its subsidiaries
and affiliates who are such during the term of Consultant's consulting for the
Company. Costs and expenses, including reasonable attorneys' fees, shall be paid
to the prevailing party in any action brought to enforce the provisions of this
Agreement by the other party hereto.
6. Conflicting Agreements. Consultant hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
7. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
8. Assignment. Neither the Company nor Consultant may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of Consultant to any affiliate thereof or in the
event that the Company shall hereafter effect a reorganization, consolidate
with, or merge into any other person or transfer all or substantially all of its
properties or assets to any other person, so long as the Company remains liable
for its obligations hereunder and the assignee assumes all obligations arising
under this Agreement. This Agreement shall inure to the benefit of and be
binding upon the Company and Consultant, their respective successors, executors,
administrators, heirs and permitted assigns.
9. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
10. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to be
effectively given upon (i) confirmation of facsimile, (ii) when sent by
overnight delivery and (iii) mailed by registered or certified mail, return
receipt requested and postage prepaid at the following addresses,
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<PAGE>
to the Company:
Koger Equity, Inc.
3986 Boulevard Center Drive
Jacksonville, Florida 32207
Attention: Chairman
to Consultant:
Irvin H. Davis
3986 Boulevard Center Drive
Jacksonville, Florida 32207
Any party may change the address to which notices, requests, demands or other
communications hereunder are to be delivered by giving the other party notice in
the manner herein set forth.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes any prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
Consultant's employment.
12. Amendment. This Agreement may be amended or modified only by a
written instrument signed by Consultant and by a duly authorized representative
of the Company.
13. Governing Law. This contract shall be construed and enforced under
and be governed in all respects by the laws of the State of Florida, without
regard to the conflict of laws principles thereof.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by Consultant, as
of the date first above written.
CONSULTANT: KOGER EQUITY, INC.
______________________ By: ________________________
Irvin H. Davis
Title: ______________________
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Exhibit 10(ac)
--------------
Koger
March 14, 1996
Mr. David B. Hiley
Mount Holly Road
Kantonah, NY 10536
Dear David:
This is to memorialize the arrangement pursuant to which you have been providing
and will continue to provide certain financial consulting services to Koger
Equity, Inc. Such services, which are subject to the direction of the Company's
chief financial officer, Victor A. Hughes, Jr., include advising the Company's
management, board of directors and the finance committee of the board on
financial aspects of (i) development and implementation of the Company's
strategic plan and in particular refinancing or restructuring the Company's debt
or arranging for new debt equity and (ii) other strategic matters such as
business combinations and dispositions. Such services are in addition to your
service as a member of the Company's board of directors and of its finance
committee. Such services may be complimentary with or in addition to services of
other advisers to the Company.
To date, you have expended approximately 107 hours in providing such services,
commencing in January, 1996, for which the company will pay you a fee of
$32,100. Henceforth, the Company will pay you a retainer fee of $12,000 per
month, payable monthly in advance beginning this date (pro rated for partial
months).
It is our intention that the fees paid to you hereunder will be periodically
evaluated, particularly upon completion of particular strategic events with
respect to which you have been advising, and that the board (or its executive
committee) will then consider your contribution and determine in its discretion
whether to increase the fee paid to you for such services.
The Company will promptly reimburse you for all reasonable expenses you incur in
providing such services. The Company also agrees to indemnify you as provided in
Exhibit A hereto.
Either you or the Company may terminate this consulting arrangement at any time
by giving written notice to the other party.
Mr. David B. Hiley
March 14, 1996
Page Two
Please indicate your concurrence with this statement of our agreement by signing
and returning to me the enclosed copy of this letter.
Very truly yours,
/s/ IRVIN H. DAVIS
- -----------------------------
Irwin H. Davis
Vice Chairman
Chief Executive Officer
IHD/fj
dha.ihd
Concur:
/s/ DAVID B. HILEY
- -----------------------------
David B. Hiley
2
Exhibit A
---------
In connection with the agreement of David B. Hiley to provide certain services
to Koger Equity, Inc., as stated in a letter agreement dated March 14, 1996, the
Company agrees to indemnify David B. Hiley (the indemnified party) from and
against any and all losses, claims, damages and liabilities, joint or several,
to which the indemnified party may become subject under any applicable federal
or state law otherwise, related to or arising out of the performance by the
indemnified party of services under such letter agreement, and will reimburse
such indemnified party for all expenses (including reasonable counsel fees and
expenses) as they are incurred in connection with the investigation of,
preparation for, or defense of any pending or threatened claim, action or
proceeding. The Company will not be liable under this agreement to the extent
that any loss, claim, damage or liability is found in a final judgement by a
court of competent jurisdiction to have resulted from the indemnified partys
willful misconduct or gross negligence. The Company agrees that the indemnified
party shall not have any liability (whether direct or indirect, in contract,
tort or otherwise) to the Company related to or arising out of the performance
by the indemnified party of services under such letter agreement, except to the
extent any losses, claims, damages or liabilities are found in a final judgement
by a court of competent jurisdiction to have resulted from the indemnified
partys willful misconduct or gross negligence. This agreement of the Company
with respect to indemnification and limiting the liability of the indemnified
party shall survive any termination of the Companys agreement with Mr. Hiley
with respect to his providing services to the Company.
1
<PAGE>
EMPLOYMENT AGREEMENT
This is an agreement (the "Agreement") between Koger Equity, Inc. (the
"Company"), a Florida corporation with its principal place of business at
Jacksonville, Florida, and Victor A. Hughes, Jr., of Jacksonville, Florida (the
"Executive"), effective as of June 21, 1996 (the "Effective Date").
WHEREAS, the operations of the Company require direction and leadership
in a variety of areas; and
WHEREAS, the Executive has experience and expertise, including service
with the Company as a senior executive, that qualify him to provide that
direction and leadership, and the Company therefore wishes to employ him as its
Chairman and chief executive officer, and he wishes to accept such employment.
NOW, THEREFORE, the parties agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. Term. Subject to earlier termination as provided in Section 5 below,
the term of the Executive's employment hereunder (the "Term of Employment")
shall be a period starting on June 21, 1996 and ending on the third anniversary
of the beginning of the Term of Employment or, if later, the 180th day following
the date on which either the Company or the Executive gives written notice to
the other that he or it is terminating the Term of Employment under this
Agreement. The Term of Employment may be otherwise extended or renewed only by a
written agreement signed by the Executive and an expressly authorized
representative of the Company.
3. Capacity and Performance. During the Term of Employment, the
Executive shall:
(a) serve the Company on a full-time basis as its Chairman and chief
executive officer with his principal place of employment at the Company's
executive offices in Jacksonville, Florida;
(b) perform such duties and responsibilities on behalf of the Company
as may be designated from time to time by the Board of Directors of the Company
(the "Board") consistent with the position of Chairman and chief executive
officer;
(c) devote substantially all of his business time and his best efforts,
business judgment, skill and knowledge exclusively to the advancement of the
business and interests of the Company and to the discharge of his duties and
responsibilities under this Agreement, and he shall not engage in any other
business activity or serve in any industry, trade, professional,
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governmental or academic position during the Term of Employment, except (i)
service as a director of business, industry, trade, professional, governmental
or academic organizations which service does not interfere in any material way
with the performance of the Executive's duties and responsibilities hereunder;
and (ii) as may otherwise be expressly approved by the Board.
(d) The Company agrees to use its best efforts to cause the election of
the Executive to the Board during the Term of Employment.
4. Compensation and Benefits.
(a) Base Salary. During the Term of Employment, the Company shall pay
the Executive base salary ("Base Salary") at the rate of $250,000 per year,
prorated for any partial period. All Base Salary shall be payable in accordance
with the payroll practices of the Company for its executives and subject to
increase from time to time by the Board (or its Compensation Committee) in its
sole discretion.
(b) Discretionary Bonuses. The Executive will be considered for
year-end bonuses if the Company performs well, and will be treated the same as
all executives who are included in Schedule B of the Company's Supplemental
Executive Retirement Plan for Executives of the Company (the "SERP") for such
purpose, but the determination whether or not any such bonuses will be paid
shall be in the sole discretion of the Compensation Committee of the Board,
provided that in the event of the disability or death of Executive or his
termination by the Company other than for Cause, Executive shall be paid an
amount at least equal to a Stipulated Bonus. A Stipulated Bonus shall be equal
to the average bonus paid to Executive in respect of the three years prior to
termination for death, disability or other than for Cause (or such lesser time
as Executive has been employed by the Company), prorated through the date of
termination in the case of death or disability or for the balance of the Term of
Employment in the case of termination other than for Cause (disregarding such
termination).
(c) Vacations. During the Term of Employment the Executive shall be
entitled to five weeks of vacation per year, prorated for partial calendar
years, to be taken at such times and intervals as he wishes, subject to the
reasonable business needs of the Company. The Executive shall be entitled to
cash compensation for vacation time not taken only to the extent approved by the
Board.
(d) Other Benefits. During the Term of Employment the Executive shall
be entitled to participate in all employee benefit plans (including insurance
plans) of the Company that cover senior executives of the Company generally. The
Executive's participation shall be subject to (i) the terms of the applicable
plan documents and (ii) generally applicable Company policies. The Company may
alter, modify, supplement or delete its employee benefit plans at any time as it
sees fit, without recourse by the Executive.
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<PAGE>
(e) Business Expenses. The Company shall pay or reimburse the Executive
for all reasonable, customary business expenses incurred or paid by the
Executive in the performance of the duties and responsibilities of his position,
subject to any restrictions on such expenses set by the Board or in Company
policies and to such reasonable substantiation and documentation as may be
required by the Company.
5. Termination of Employment.
(a) Death. If the Executive dies during the Term of Employment, the
Company shall have no further obligations under this Agreement other than to pay
to the Executive's estate Base Salary through the end of the calendar month of
his death, any Stipulated Bonus as provided for herein, and any other
compensation hereunder that has been earned but not paid. The Company agrees to
keep in force during the Term of Employment group life insurance, substantially
equivalent to that in effect generally for the Company's executives on the
Effective Date.
(b) Disability. The Company may terminate the Executive's employment by
written notice in the event that, for any reason, he becomes disabled, either
physically or psychologically, and is unable to perform substantially all of his
duties and responsibilities under this Agreement for 180 days during any period
of 365 consecutive days. In the event of such a termination, the Company shall
have no further obligations under this Agreement other than to pay to the
Executive Base Salary through the end of the calendar month of his termination,
any Stipulated Bonus as provided for herein, and any other compensation
hereunder that has been earned but not paid. The Company agrees to keep in force
during the Term of Employment group disability income insurance, substantially
equivalent to that in effect generally for the Company's executives on the
Effective Date.
The Executive may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Company, to whom the
Executive or his duly appointed guardian has no reasonable objection, to
determine whether the Executive is disabled. Such determination shall be
conclusive. If the Executive fails to submit to such medical examination, the
Company's determination of the Executive's disability shall be conclusive.
(c) Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause at any time upon written notice
setting forth in reasonable detail the nature of the Cause. The following, as
determined by the Board in its reasonable judgment, will constitute Cause:
(i) fraud, embezzlement or other material dishonesty by the
Executive with respect to the Company; or
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<PAGE>
(ii) the Executive's conviction of, or plea of nolo contendere
to, a felony or other crime involving moral turpitude.
Upon termination of the Executive's employment for Cause, the Company shall have
no further obligations under this Agreement other than to pay to the Executive
any Base Salary and any other amounts that have been earned but not paid.
(d) Termination by the Company Other Than for Cause. The Company may
terminate the Executive's employment hereunder other than for Cause at any time
upon written notice. In the event of such termination, the Company shall:
(i) at the election of the Executive, either continue to pay
Base Salary to the Executive during the remainder of the Term of
Employment or pay to him the present value (using the prime rate as
reported in The Wall Street Journal on the date of termination to
calculate the discount factor) of such Base Salary in a lump sum;
(ii) at the election of the Executive, either continue to
contribute to the cost of the Executive's participation in the
Company's medical and life insurance arrangements during the remainder
of the Term of Employment or pay to him in a lump sum the present value
(determined as provided in clause (i) above) of the greater of the
Company's contribution to such cost or the amount required to purchase
individual coverage with substantially equivalent benefits if Executive
is no longer eligible to participate in such medical and life insurance
arrangements, provided that if the Executive as a result of such
termination of employment is then eligible under the terms of the SERP
to receive medical benefits as provided for therein, the Executive
shall not be entitled to participation or payment under this Section
5(d)(ii) with respect to medical insurance arrangements;
(iii) pay to Executive any other compensation hereunder that
has been earned but not paid including any Stipulated Bonus; and
(iv) treat the Executive as having satisfied the vesting
requirements of the Supplemental Executive Retirement Plan for
Executives of the Company (the "SERP"), the provisions of Section
3.2(a) of the SERP to the contrary notwithstanding, and with respect to
stock options awarded to Executive such that options which would
otherwise become vested during the full Term of Employment shall become
immediately vested upon such termination.
The Company shall have no other obligations under this Agreement. The Executive
shall have no obligation to mitigate.
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<PAGE>
(e) Termination by the Executive.
(i) If the Executive terminates his employment during the
Term of Employment because the Company has breached this Agreement by
failing to pay Base Salary in accordance with Section 4(a) or failing
to pay other compensation or expenses contemplated hereby or because
the Company otherwise commits a material breach of its obligations to
the Executive hereunder (including the Company's not using its best
efforts to cause the Executive to be elected as a director with the
result that the Executive ceases to be a director of the Company
notwithstanding his willingness to serve, assignment of duties and
responsibilities inconsistent with his position, any change in his
permanent place of employment or any other action that is materially
inconsistent with Executive's position as a senior executive and a
director of the Company), the termination shall, for purposes of this
Agreement, be treated as a termination by the Company other than for
Cause and governed by Section 5(d).
(ii) If the Executive terminates his employment with the
Company for any other reason, the Company shall have no further
obligations under this Agreement other than to pay to the Executive any
Base Salary that has been earned but not paid.
(f) Gross-up Payment. The payments and benefits called for by this
agreement are not in any way conditioned on a change of ownership or control of
the Company. The Company intends such payments and benefits to be reasonable
compensation for services rendered by the Executive, and intends that the
Executive receive the full economic benefit of such payments and benefits.
Therefore, in the event that it is determined that any payment or benefit
provided by the Company to or for the benefit of Executive, either under this
Agreement or otherwise, will be subject to the excise tax imposed by section
4999 of the Internal Revenue Code or any successor provision ("section 4999"),
the Company will, prior to the date on which any amount of the excise tax must
be paid or withheld, make an additional lump-sum payment (the "gross-up
payment") to Executive. The gross-up payment will be sufficient, after giving
effect to all federal, state and other taxes and charges (including interest and
penalties, if any) with respect to the gross-up payment, to make Executive whole
for all taxes (including withholding taxes) and any associated interest and
penalties, imposed under or as a result of section 4999.
Determinations under this Section 5(f) will be made by the Company's
independent auditors unless Executive has reasonable objections to the use of
that firm, in which case the determinations will be made by a comparable firm
chosen by Executive after consultation with the Company (the firm making the
determinations to be referred to as the "Firm"). The determinations of the Firm
will be binding upon the Company and Executive except as the determinations are
established in resolution (including by settlement) of a controversy with the
Internal Revenue Service to have been incorrect. All fees and expenses of the
Firm will be paid by the Company.
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<PAGE>
If the Internal Revenue Service asserts a claim that, if successful,
would require the Company to make a gross-up payment or an additional gross-up
payment, the Company and Executive will cooperate fully in resolving the
controversy with the Internal Revenue Service. The Company will make or advance
such gross-up payments as are necessary to prevent Executive from having to bear
the cost of payments made to the Internal Revenue Service in the course of, or
as a result of, the controversy. The Firm will determine the amount of such
gross-up payments or advances and will determine after resolution of the
controversy whether any advances must be returned by Executive to the Company.
The Company will bear all expenses of the controversy and will gross Executive
up for any additional taxes that may be imposed upon Executive as a result of
its payment of such expenses.
6. Nondisclosure. During the Term of Employment, the Executive may
become aware of information which is nonpublic, confidential or proprietary in
nature with respect to the Company or with respect to other companies, persons,
entities, ventures or business opportunities in which the Company has, or, if it
were disclosed to the Company, the Company might have, an interest
("Confidential Information"). All Confidential Information will be kept strictly
confidential by the Executive and the Executive shall not: (a) copy, reproduce,
distribute or disclose any Confidential Information to any third party except in
the course of his employment by the Company; (b) use any Confidential
Information for any purpose other than in connection with his employment by the
Company; or (c) use any Confidential Information in any way that is detrimental
to the Company.
Confidential Information shall not include information which the
Executive can demonstrate: (a) is or becomes generally available to the public
other than by breach by the Executive of his agreement herein; (b) is disclosed
by the Executive, pursuant to obligations under law, regulation or court order;
or (c) was prior to the Effective Date, or thereafter becomes, known to the
Executive on a nonconfidential basis.
Upon termination of the Executive's employment, he shall immediately
return or destroy all Confidential Information, including all notes, copies,
reproductions, summaries, analyses, or extracts thereof, then in his possession.
Such return or destruction shall not abrogate the continuing obligations of the
Executive under this Agreement.
In the event that the Executive is requested or required (by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, he shall provide the Company with prompt written notice so that it
may seek a protective order or other appropriate remedy. In the event such
protection or other remedy is not obtained, the Executive shall furnish only
that portion of the Confidential Information which he is advised by counsel is
legally required and shall exercise best efforts to obtain assurance that
confidential treatment will be accorded to such Confidential Information.
The Executive agrees that until the expiration of five years from the
date of termination of his employment by the Company, he will not without the
prior written approval of the Company (i) in any manner acquire, agree to
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acquire or make any proposal to acquire, directly or indirectly, any securities,
assets or property of the Company or any of its subsidiaries, whether such
agreement or proposal is with the Executive or with a third party, other than
shares of common stock he is entitled to acquire under the terms of this
Agreement or any Company stock option, bonus, or other employee or director
benefit plan, (ii) propose to enter into, directly or indirectly, any merger or
other business combination involving the Company or any of its subsidiaries,
(iii) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are used in the proxy rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence any
person with respect to the voting of, any voting securities of the Company or
any of its subsidiaries, (iv) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934)
with respect to any voting securities of the other party or any of its
subsidiaries, (v) otherwise act, alone or in concert with others, to seek to
control or influence the management, board of directors or policies of the
Company, (vi) disclose any intention, plan or arrangement inconsistent with the
foregoing or (vii) advise, encourage, provide assistance (including financial
assistance) to or hold discussions with any other persons in connection with any
of the foregoing.
The Executive hereby acknowledges that he is aware that the United
States securities laws prohibit any person who has material, nonpublic
information concerning the Company from purchasing or selling securities of the
Company or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities. The obligations of the Executive stated in
this Section 6 shall, except where expressly limited as to time, continue
without limit as to time and without regard to the employment status of the
Executive.
7. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound and that he is not now subject to any covenants against
competition or similar covenants that would affect the performance of his
obligations hereunder. The Executive will not disclose to or use on behalf of
the Company any proprietary information of a third party without such party's
consent.
8. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
9. Cost of Enforcement. The Company shall pay reasonable costs and
expenses (including fees and expenses of counsel) incurred by the Executive in
connection with an action to enforce his rights under this Agreement in which
action the Executive prevails.
10. Indemnification. The Company shall, to the maximum extent permitted
from time to time under the law of the State of Florida, indemnify and upon
request shall advance expenses to the Executive in the event he is or was a
party or is threatened to be made a party to any threatened, pending or
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completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to be a director, officer or employee of the Company or while a director,
officer or employee is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against expenses (including attorney's fees
and expenses), judgments, fines, penalties and amounts paid in settlement
incurred in connection with the investigation, preparation to defend or defense
of such action, suit, proceeding or claim; provided, however, that the foregoing
shall not require the Company to indemnify or advance expenses to the Executive
in connection with any action, suit, proceeding, claim or counterclaim initiated
by or on behalf of the Executive. The Executive shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. The provisions of this Section 10 shall be in addition to any
right of indemnification to which the Executive may be entitled under the
Company's charter or by-laws, pursuant to any other contract, or by operation of
law.
11. Assignment. Except as provided in this Section 11, neither the
Company nor the Executive may make any assignment of this Agreement or any
interest herein, by operation of law or otherwise, without the prior written
consent of the other. The Company may without the consent of the Executive
assign its rights and obligations under this Agreement to any wholly-owned
subsidiary of the Company or to any corporation or other business entity into
which the Company has merged or with which it has consolidated or which has
acquired substantially all of the Company's assets, provided that no such
assignment shall relieve the Company of its obligations under this Agreement.
This Agreement shall inure to the benefit of and be binding upon the Company and
the Executive, their respective successors, executors, administrators, heirs and
permitted assigns.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the subject matter hereof. The
Executive may have other rights and obligations under other agreements,
insurance policies and plans and employee benefit and welfare plans of the
Company, including, without limitation, the SERP.
13. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
14. Governing Law. This is a Florida contract and shall be construed
and enforced under and be governed in all respects by the laws of the State of
Florida.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Executive, as of the date first above written.
VICTOR A. HUGHES, JR. KOGER EQUITY, INC.
By:
------------------------------
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EMPLOYMENT AGREEMENT
This is an agreement (the "Agreement") between Koger Equity, Inc. (the
"Company"), a Florida corporation with its principal place of business at
Jacksonville, Florida, and James C. Teagle, of Jacksonville, Florida (the
"Executive"), effective as of June 21, 1996 (the "Effective Date").
WHEREAS, the operations of the Company require direction and leadership
in a variety of areas; and
WHEREAS, the Executive has experience and expertise, including service
with the Company as a senior executive, that qualify him to provide that
direction and leadership, and the Company therefore wishes to employ him as its
Executive Vice President and chief operating officer, and he wishes to accept
such employment.
NOW, THEREFORE, the parties agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. Term. Subject to earlier termination as provided in Section 5 below,
the term of the Executive's employment hereunder (the "Term of Employment")
shall be a period starting on June 21, 1996 and ending on the third anniversary
of the beginning of the Term of Employment or, if later, the 180th day following
the date on which either the Company or the Executive gives written notice to
the other that he or it is terminating the Term of Employment under this
Agreement. The Term of Employment may be otherwise extended or renewed only by a
written agreement signed by the Executive and an expressly authorized
representative of the Company.
3. Capacity and Performance. During the Term of Employment, the
Executive shall:
(a) serve the Company on a full-time basis as its Executive Vice
President and chief operating officer with his principal place of employment at
the Company's executive offices in Jacksonville, Florida;
(b) perform such duties and responsibilities on behalf of the Company
as may be designated from time to time by the Board of Directors of the Company
(the "Board") or its chief executive officer to whom the Executive shall report,
consistent with the position of Executive Vice President and chief operating
officer;
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<PAGE>
(c) devote substantially all of his business time and his best efforts,
business judgment, skill and knowledge exclusively to the advancement of the
business and interests of the Company and to the discharge of his duties and
responsibilities under this Agreement, and he shall not engage in any other
business activity or serve in any industry, trade, professional, governmental or
academic position during the Term of Employment, except (i) service as a
director of business, industry, trade, professional, governmental or academic
organizations which service does not interfere in any material way with the
performance of the Executive's duties and responsibilities hereunder; and (ii)
as may otherwise be expressly approved by the Board.
4. Compensation and Benefits.
(a) Base Salary. During the Term of Employment, the Company shall pay
the Executive base salary ("Base Salary") at the rate of $180,000 per year,
prorated for any partial period. All Base Salary shall be payable in accordance
with the payroll practices of the Company for its executives and subject to
increase from time to time by the Board (or its Compensation Committee) in its
sole discretion.
(b) Discretionary Bonuses. The Executive will be considered for
year-end bonuses if the Company performs well, and will be treated the same as
all executives who are included in Schedule B of the Company's Supplemental
Executive Retirement Plan for Executives of the Company (the "SERP") for such
purpose, but the determination whether or not any such bonuses will be paid
shall be in the sole discretion of the Compensation Committee of the Board,
provided that in the event of the disability or death of Executive or his
termination by the Company other than for Cause, Executive shall be paid an
amount at least equal to a Stipulated Bonus. A Stipulated Bonus shall be equal
to the average bonus paid to Executive in respect of the three years prior to
termination for death, disability or other than for Cause (or such lesser time
as Executive has been employed by the Company), prorated through the date of
termination in the case of death or disability or for the balance of the Term of
Employment in the case of termination other than for Cause (disregarding such
termination).
(c) Vacations. During the Term of Employment the Executive shall be
entitled to five weeks of vacation per year, prorated for partial calendar
years, to be taken at such times and intervals as he wishes, subject to the
reasonable business needs of the Company. The Executive shall be entitled to
cash compensation for vacation time not taken only to the extent approved by the
Board.
(d) Other Benefits. During the Term of Employment the Executive shall
be entitled to participate in all employee benefit plans (including insurance
plans) of the Company that cover senior executives of the Company generally. The
Executive's participation shall be subject to (i) the terms of the applicable
plan documents and (ii) generally applicable Company policies. The Company may
alter, modify, supplement or delete its employee benefit plans at any time as it
sees fit, without recourse by the Executive. As of the Effective Date, the
Executive shall be removed from Schedule C and added to Schedule B of the SERP
in which he is a participant.
-2-
<PAGE>
(e) Business Expenses. The Company shall pay or reimburse the Executive
for all reasonable, customary business expenses incurred or paid by the
Executive in the performance of the duties and responsibilities of his position,
subject to any restrictions on such expenses set by the Board or in Company
policies and to such reasonable substantiation and documentation as may be
required by the Company.
5. Termination of Employment.
(a) Death. If the Executive dies during the Term of Employment, the
Company shall have no further obligations under this Agreement other than to pay
to the Executive's estate Base Salary through the end of the calendar month of
his death, any Stipulated Bonus as provided for herein, and any other
compensation hereunder that has been earned but not paid. The Company agrees to
keep in force during the Term of Employment group life insurance, substantially
equivalent to that in effect generally for the Company's executives on the
Effective Date.
(b) Disability. The Company may terminate the Executive's employment by
written notice in the event that, for any reason, he becomes disabled, either
physically or psychologically, and is unable to perform substantially all of his
duties and responsibilities under this Agreement for 180 days during any period
of 365 consecutive days. In the event of such a termination, the Company shall
have no further obligations under this Agreement other than to pay to the
Executive Base Salary through the end of the calendar month of his termination,
any Stipulated Bonus as provided for herein, and any other compensation
hereunder that has been earned but not paid. The Company agrees to keep in force
during the Term of Employment group disability income insurance, substantially
equivalent to that in effect generally for the Company's executives on the
Effective Date.
The Executive may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Company, to whom the
Executive or his duly appointed guardian has no reasonable objection, to
determine whether the Executive is disabled. Such determination shall be
conclusive. If the Executive fails to submit to such medical examination, the
Company's determination of the Executive's disability shall be conclusive.
(c) Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause at any time upon written notice
setting forth in reasonable detail the nature of the Cause. The following, as
determined by the Board in its reasonable judgment, will constitute Cause:
-3-
<PAGE>
(i) fraud, embezzlement or other material dishonesty by the
Executive with respect to the Company; or
(ii) the Executive's conviction of, or plea of nolo contendere
to, a felony or other crime involving moral turpitude.
Upon termination of the Executive's employment for Cause, the Company shall have
no further obligations under this Agreement other than to pay to the Executive
any Base Salary and any other amounts that have been earned but not paid.
(d) Termination by the Company Other Than for Cause. The Company may
terminate the Executive's employment hereunder other than for Cause at any time
upon written notice. In the event of such termination, the Company shall:
(i) at the election of the Executive, either continue to pay
Base Salary to the Executive during the remainder of the Term of
Employment or pay to him the present value (using the prime rate as
reported in The Wall Street Journal on the date of termination to
calculate the discount factor) of such Base Salary in a lump sum;
(ii) at the election of the Executive, either continue to
contribute to the cost of the Executive's participation in the
Company's medical and life insurance arrangements during the remainder
of the Term of Employment or pay to him in a lump sum the present value
(determined as provided in clause (i) above) of the greater of the
Company's contribution to such cost or the amount required to purchase
individual coverage with substantially equivalent benefits if Executive
is no longer eligible to participate in such medical and life insurance
arrangements, provided that if the Executive as a result of such
termination of employment is then eligible under the terms of the SERP
to receive medical benefits as provided for therein, the Executive
shall not be entitled to participation or payment under this Section
5(d)(ii) with respect to medical insurance arrangements;
(iii) pay to Executive any other compensation hereunder that
has been earned but not paid including any Stipulated Bonus; and
(iv) treat the Executive as having satisfied the vesting
requirements under the SERP, the provisions of Section 3.2(a) of the
SERP to the contrary notwithstanding and with respect to stock options
awarded to Executive such that options which would otherwise become
vested during the full Term of Employment shall become immediately
vested upon such termination.
The Company shall have no other obligations under this Agreement. The Executive
shall have no obligation to mitigate.
-4-
<PAGE>
(e) Termination by the Executive.
(i) If the Executive terminates his employment during the
Term of Employment because the Company has breached this Agreement by
failing to pay Base Salary in accordance with Section 4(a) or failing
to pay other compensation or expenses contemplated hereby or because
the Company otherwise commits a material breach of its obligations to
the Executive hereunder (including assignment of duties and
responsibilities inconsistent with his position, any change in his
permanent place of employment or any other action that is materially
inconsistent with Executive's position as a senior executive of the
Company), the termination shall, for purposes of this Agreement, be
treated as a termination by the Company other than for Cause and
governed by Section 5(d).
(ii) If the Executive terminates his employment with the
Company for any other reason, the Company shall have no further
obligations under this Agreement other than to pay to the Executive any
Base Salary that has been earned but not paid.
(f) Gross-up Payment. The payments and benefits called for by this
agreement are not in any way conditioned on a change of ownership or control of
the Company. The Company intends such payments and benefits to be reasonable
compensation for services rendered by the Executive, and intends that the
Executive receive the full economic benefit of such payments and benefits.
Therefore, in the event that it is determined that any payment or benefit
provided by the Company to or for the benefit of Executive, either under this
Agreement or otherwise, will be subject to the excise tax imposed by section
4999 of the Internal Revenue Code or any successor provision ("section 4999"),
the Company will, prior to the date on which any amount of the excise tax must
be paid or withheld, make an additional lump-sum payment (the "gross-up
payment") to Executive. The gross-up payment will be sufficient, after giving
effect to all federal, state and other taxes and charges (including interest and
penalties, if any) with respect to the gross-up payment, to make Executive whole
for all taxes (including withholding taxes) and any associated interest and
penalties, imposed under or as a result of section 4999.
Determinations under this Section 5(f) will be made by the Company's
independent auditors unless Executive has reasonable objections to the use of
that firm, in which case the determinations will be made by a comparable firm
chosen by Executive after consultation with the Company (the firm making the
determinations to be referred to as the "Firm"). The determinations of the Firm
will be binding upon the Company and Executive except as the determinations are
established in resolution (including by settlement) of a controversy with the
Internal Revenue Service to have been incorrect. All fees and expenses of the
Firm will be paid by the Company.
If the Internal Revenue Service asserts a claim that, if successful,
would require the Company to make a gross-up payment or an additional gross-up
payment, the Company and Executive will cooperate fully in resolving the
controversy with the Internal Revenue Service.
-5-
<PAGE>
The Company will make or advance such gross-up payments as are necessary to
prevent Executive from having to bear the cost of payments made to the Internal
Revenue Service in the course of, or as a result of, the controversy. The Firm
will determine the amount of such gross-up payments or advances and will
determine after resolution of the controversy whether any advances must be
returned by Executive to the Company. The Company will bear all expenses of the
controversy and will gross Executive up for any additional taxes that may be
imposed upon Executive as a result of its payment of such expenses.
6. Nondisclosure. During the Term of Employment, the Executive may
become aware of information which is nonpublic, confidential or proprietary in
nature with respect to the Company or with respect to other companies, persons,
entities, ventures or business opportunities in which the Company has, or, if it
were disclosed to the Company, the Company might have, an interest
("Confidential Information"). All Confidential Information will be kept strictly
confidential by the Executive and the Executive shall not: (a) copy, reproduce,
distribute or disclose any Confidential Information to any third party except in
the course of his employment by the Company; (b) use any Confidential
Information for any purpose other than in connection with his employment by the
Company; or (c) use any Confidential Information in any way that is detrimental
to the Company.
Confidential Information shall not include information which the
Executive can demonstrate: (a) is or becomes generally available to the public
other than by breach by the Executive of his agreement herein; (b) is disclosed
by the Executive, pursuant to obligations under law, regulation or court order;
or (c) was prior to the Effective Date, or thereafter becomes, known to the
Executive on a nonconfidential basis.
Upon termination of the Executive's employment, he shall immediately
return or destroy all Confidential Information, including all notes, copies,
reproductions, summaries, analyses, or extracts thereof, then in his possession.
Such return or destruction shall not abrogate the continuing obligations of the
Executive under this Agreement.
In the event that the Executive is requested or required (by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, he shall provide the Company with prompt written notice so that it
may seek a protective order or other appropriate remedy. In the event such
protection or other remedy is not obtained, the Executive shall furnish only
that portion of the Confidential Information which he is advised by counsel is
legally required and shall exercise best efforts to obtain assurance that
confidential treatment will be accorded to such Confidential Information.
The Executive agrees that until the expiration of five years from the
date of termination of his employment by the Company, he will not without the
prior written approval of the Company (i) in any manner acquire, agree to
acquire or make any proposal to acquire, directly or indirectly, any securities,
assets or property of the Company or any of its subsidiaries, whether such
agreement or proposal is with the Executive or with a third party, other than
-6-
<PAGE>
shares of common stock he is entitled to acquire under the terms of this
Agreement or any stock option, bonus, or other employee or director benefit
plan, (ii) propose to enter into, directly or indirectly, any merger or other
business combination involving the Company or any of its subsidiaries, (iii)
make, or in any way participate, directly or indirectly, in any "solicitation"
of "proxies" (as such terms are used in the proxy rules of the Securities and
Exchange Commission) to vote, or seek to advise or influence any person with
respect to the voting of, any voting securities of the Company or any of its
subsidiaries, (iv) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect
to any voting securities of the other party or any of its subsidiaries, (v)
otherwise act, alone or in concert with others, to seek to control or influence
the management, board of directors or policies of the Company, (vi) disclose any
intention, plan or arrangement inconsistent with the foregoing or (vii) advise,
encourage, provide assistance (including financial assistance) to or hold
discussions with any other persons in connection with any of the foregoing.
The Executive hereby acknowledges that he is aware that the United
States securities laws prohibit any person who has material, nonpublic
information concerning the Company from purchasing or selling securities of the
Company or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities. The obligations of the Executive stated in
this Section 6 shall, except where expressly limited as to time, continue
without limit as to time and without regard to the employment status of the
Executive.
7. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound and that he is not now subject to any covenants against
competition or similar covenants that would affect the performance of his
obligations hereunder. The Executive will not disclose to or use on behalf of
the Company any proprietary information of a third party without such party's
consent.
8. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
9. Cost of Enforcement. The Company shall pay reasonable costs and
expenses (including fees and expenses of counsel) incurred by the Executive in
connection with an action to enforce his rights under this Agreement in which
action the Executive prevails.
10. Indemnification. The Company shall, to the maximum extent permitted
from time to time under the law of the State of Florida, indemnify and upon
request shall advance expenses to the Executive in the event he is or was a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to be a director, officer or employee of the Company or while a director,
officer or employee is or was serving at the request of the Company as a
-7-
<PAGE>
director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against expenses (including attorney's fees
and expenses), judgments, fines, penalties and amounts paid in settlement
incurred in connection with the investigation, preparation to defend or defense
of such action, suit, proceeding or claim; provided, however, that the foregoing
shall not require the Company to indemnify or advance expenses to the Executive
in connection with any action, suit, proceeding, claim or counterclaim initiated
by or on behalf of the Executive. The Executive shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. The provisions of this Section 10 shall be in addition to any
right of indemnification to which the Executive may be entitled under the
Company's charter or by-laws, pursuant to any other contract, or by operation of
law.
11. Assignment. Except as provided in this Section 11, neither the
Company nor the Executive may make any assignment of this Agreement or any
interest herein, by operation of law or otherwise, without the prior written
consent of the other. The Company may without the consent of the Executive
assign its rights and obligations under this Agreement to any wholly-owned
subsidiary of the Company or to any corporation or other business entity into
which the Company has merged or with which it has consolidated or which has
acquired substantially all of the Company's assets, provided that no such
assignment shall relieve the Company of its obligations under this Agreement.
This Agreement shall inure to the benefit of and be binding upon the Company and
the Executive, their respective successors, executors, administrators, heirs and
permitted assigns.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the subject matter hereof. The
Executive may have other rights and obligations under other agreements,
insurance policies and plans and employee benefit and welfare plans of the
Company, including, without limitation, the SERP.
13. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
14. Governing Law. This is a Florida contract and shall be construed
and enforced under and be governed in all respects by the laws of the State of
Florida.
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Executive, as of the date first above written.
JAMES C. TEAGLE KOGER EQUITY, INC.
By:
----------------------
-9-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Company does not file a classfied balance sheet, therefore these not
provided. 5-02(9), 5-02(21)
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 34,102
<SECURITIES> 0
<RECEIVABLES> 4,306
<ALLOWANCES> 245
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 608,375
<DEPRECIATION> 77,446
<TOTAL-ASSETS> 587,766
<CURRENT-LIABILITIES> 0
<BONDS> 249,925
0
0
<COMMON> 206
<OTHER-SE> 319,265
<TOTAL-LIABILITY-AND-EQUITY> 587,766
<SALES> 0
<TOTAL-REVENUES> 80,150
<CGS> 0
<TOTAL-COSTS> 35,620
<OTHER-EXPENSES> 21,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,865
<INCOME-PRETAX> 8,630
<INCOME-TAX> 1,139
<INCOME-CONTINUING> 7,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,491
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
