<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999 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 organization) Identification No.)
8880 FREEDOM CROSSING TRAIL
JACKSONVILLE, FLORIDA 32256
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (904) 732-1000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
1. Common Stock, Par Value $.01 New York Stock Exchange
2. Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
NONE
==============
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 2000 was approximately $447,897,000.
The number of shares of registrant's Common Stock outstanding on March 1, 2000
was 27,042,820.
Documents Incorporated by Reference
The Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Act of 1934 for the 2000 Annual Meeting of Shareholders is
incorporated by reference in Part III of this report.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE NO.
PART I
<S> <C> <C>
1. BUSINESS.................................................................................... 3
2. PROPERTIES.................................................................................. 5
3. LEGAL PROCEEDINGS........................................................................... 10
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 10
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................................................... 10
6. SELECTED FINANCIAL DATA.................................................................... 11
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................................... 12
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................ 24
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................................................... 44
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................... 44
11. EXECUTIVE COMPENSATION..................................................................... 45
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................................................... 45
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................. 45
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K...................................................................... 46
15. SIGNATURES................................................................................. 54
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Koger Equity, Inc. ("KE") is a self-administered and self-managed equity
real estate investment trust (a "REIT") which develops, owns, operates and
manages suburban office buildings (the "Office Buildings") primarily located in
22 office centers (each a "Koger Center") located in 15 metropolitan areas
throughout the southeastern and southwestern United States. As of December 31,
1999, KE owns 218 Office Buildings, of which 214 are in Koger Centers and four
are outside Koger Centers but in metropolitan areas where Koger Centers are
located. Koger-Vanguard Partners, L.P. ("KVP") is a limited partnership, for
which KE is the general partner, which owns suburban office buildings located in
a Koger Center. As of December 31, 1999, KVP owns 13 Office Buildings. The
Office Buildings contain approximately 9.8 million net rentable square feet and
were on average 93 percent leased as of December 31, 1999. During 1999, KE began
construction of three buildings, which will contain approximately 216,900 net
rentable square feet and will be ready for occupancy at various times throughout
2000. While KE expects to continue the development of suburban office properties
for its own account, it may from time to time acquire developed properties
compatible with its properties in other markets primarily in the Southeast and
Southwest if such acquisitions can be made on terms favorable to KE.
KE owns approximately 122 acres of unencumbered land held for development
and approximately 17 acres of unencumbered land held for sale. A majority of the
land held for development adjoins Office Buildings in 12 Koger Centers, which
have infrastructure, including roads and utilities, in place. KE intends over
time to develop and construct office buildings using this land and currently has
six buildings under construction on approximately 33 acres of the 122 acres of
land held for development. KE expects to acquire additional land for
development. In addition, KE provides leasing, management and other customary
tenant-related services for the Koger Centers.
In addition to managing its own properties, KE provides property
management services through its wholly-owned subsidiaries, Southeast Properties
Holding Corporation ("Southeast") and Koger Real Estate Services, Inc. ("KRES"),
for office buildings owned by unaffiliated parties. In conjunction with KRES, KE
currently manages eight office buildings, containing approximately 440,000 net
rentable square feet, owned by Centoff Realty Company, Inc. ("Centoff"), a
subsidiary of Morgan Guaranty Trust Company of New York (KE, KVP, Southeast and
KRES are hereafter referred to as the "Company").
KE operates in a manner to qualify as a REIT under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company
will not, with certain limited exceptions, be taxed at the corporate level on
taxable income distributed to its shareholders on a current basis. The Company
distributes at least 95 percent of its annual REIT taxable income (which term is
used herein as defined and modified in the Code) to its shareholders. To qualify
as a REIT, a corporation must meet certain substantive tests: (a) at least 95
percent of its gross income must be derived from certain passive and real estate
sources; (b) at least 75 percent of its gross income must be derived from
certain real estate sources; (c) at the close of each calendar quarter, it must
meet certain tests designed to ensure that its assets consist principally (at
least 75 percent by value) of real estate assets, cash and cash equivalents and
that its holdings of securities are adequately diversified; (d) each year, it
must distribute at least 95 percent of its REIT taxable income; and (e) at no
time during the second half of any calendar year may the Company be "closely
held" (i.e., have more than 50 percent in value of its outstanding stock owned,
directly, indirectly or constructively, by not more than five individuals). The
constructive ownership rules, among other things, treat the shareholders of a
corporation as owning proportionately any stock in another corporation owned by
the first corporation. Management fee revenue does not qualify as real estate or
passive income for purposes of determining whether the Company has met the REIT
requirements that at least 95 percent of the Company's gross income be derived
from certain real estate and passive sources and that at least 75 percent of its
gross income be derived from certain real estate sources. Accordingly, in the
event the Company derives income in excess of five percent from management and
other "non-real estate" and "non-passive" activities, the Company would no
longer qualify as a REIT for federal income tax purposes and would be required
to pay federal income taxes as a business corporation.
3
<PAGE> 4
No tenant leases more than 10 percent of the net rentable area of the
Company's buildings. However, a major governmental tenant, when all of its
respective departments and agencies which lease space in the Company's buildings
are combined, contributes more than 10 percent of the Company's annualized
rentals as of December 31, 1999. At that date, the State of Florida accounted
for an aggregate of 10.9 percent of the Company's total annualized rental
revenues. Some of the Company's principal tenants are the State of Florida, the
United States of America, Blue Cross and Blue Shield of Florida, United
Healthcare, Landstar System Holdings, Wellspring Resources, General Electric,
Ford Motors, Hoechst Celanese Corp. and Hanover Insurance. Governmental tenants
(including the State of Florida and the United States of America), which account
for 19.3 percent of the Company's leased space, may be subject to budget
reductions in times of recession and governmental austerity measures. There can
be no assurance that governmental appropriations for rents may not be reduced.
Additionally, certain 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.
COMPETITION
The Company competes in the leasing of office space with a considerable
number of other realty concerns, including local, regional and national, some of
which have greater resources than the Company. Through its ownership and
management of suburban office parks, the Company seeks to attract tenants by
offering office space convenient to residential areas. In recent years local,
regional and national concerns have built competing office parks and single
buildings in suburban areas in which the Company's Office Buildings are located.
In addition, the Company competes for tenants with large high-rise office
buildings generally located in the downtown business districts of these
metropolitan areas. Although competition from other lessors of office space
varies from city to city, the Company has been able to attain and maintain what
it considers satisfactory occupancy levels at satisfactory rental rates.
INVESTMENT POLICIES
The Company is currently in a position to capitalize on some of its
strengths, such as the value of its franchise in the suburban office park market
and its operating systems, development expertise, acquisition expertise and
unimproved land available for development. The Company intends to continue to
develop and construct office buildings primarily using its existing inventory of
122 acres of land held for development, most of which is partially or wholly
improved with streets and/or utilities and is located in various metropolitan
areas where the Company currently operates suburban office parks. The Company
may also acquire existing office buildings or additional land for development in
other markets primarily in the Southeast and Southwest that the Company
considers favorable. Although all of the Company's properties are located in the
Southeast and Southwest, management does not consider that the Company's
development and acquisitions activities are limited to any particular area. The
Company may also sell Office Buildings or Koger Centers located in certain
markets. In addition, the Company has adopted a plan to repurchase up to 2.65
million shares of its common stock.
The investment policies of the Company may be changed by its directors at
any time without notice to, or a vote of, shareholders. Although the Company has
no fixed policy which limits the percentage of its assets which may be invested
in any one type of investment or the geographic areas in which the Company may
acquire properties, the Company intends to continue to operate so as to qualify
for tax treatment as a REIT. The Company may in the future invest in other types
of office buildings, apartment buildings, shopping centers, and other
properties. The Company also may invest in the securities (including mortgages)
of companies primarily engaged in real estate activities; however, it does not
intend to become an investment company regulated under the Investment Company
Act of 1940.
For the year ended December 31, 1999, all of the Company's rental revenues
were derived from buildings purchased or constructed by the Company. The
Company's 1999 interest revenues were derived from temporary cash investments.
4
<PAGE> 5
EMPLOYEES
The Company has a combined financial, administrative, leasing, and center
maintenance staff of 227 employees. A resident general manager is responsible
for the leasing and operations of all buildings in a Koger Center or
metropolitan area. The Company has approximately 92 employees who perform
maintenance activities.
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1999, the Company owns 218 Office Buildings located in
the 15 metropolitan areas of Birmingham, Alabama; Jacksonville, Orlando, St.
Petersburg, and Tallahassee, Florida; Atlanta, Georgia; Charlotte and
Greensboro, North Carolina; Tulsa, Oklahoma; Greenville, South Carolina;
Memphis, Tennessee; Austin, El Paso, and San Antonio, Texas; and Richmond,
Virginia. In addition, the Company has six buildings under construction. The
Koger Centers have been developed in campus-like settings with extensive
landscaping and ample tenant parking. The Office Buildings are generally one to
five-story structures of contemporary design and constructed of masonry,
concrete and steel, with facings of brick, concrete and glass. The Koger Centers
are generally located with easy access, via expressways, to the central business
district and to shopping and residential areas in the respective communities.
The properties are well maintained and adequately covered by insurance.
Leases on the Office Buildings vary between net leases (under which the
tenant pays some operating expenses, such as utilities, insurance and repairs)
and gross leases (under which the Company pays all such items). Most leases are
on a gross basis and are for terms generally ranging from three to five years.
In some instances, such as when a tenant rents the entire building, leases are
for terms of up to 20 years. As of December 31, 1999, the Office Buildings were
on average 93 percent leased and the average annual rent per net rentable square
foot leased was $16.79. The buildings are occupied by numerous tenants
(approximately 2,300 leases), many of whom lease relatively small amounts of
space, conducting a broad range of commercial activities.
New leases and renewals of existing leases are negotiated at the current
market rate at the date of execution. The Company endeavors to include
escalation provisions in all of its gross leases. As of December 31, 1999,
approximately 18 percent of the Company's annualized gross rental revenues were
derived from existing leases containing rental escalation provisions based upon
changes in the Consumer Price Index (some of which contain maximum rates of
increases); approximately 78 percent of such revenues were derived from leases
containing escalation provisions based upon fixed steps or real estate tax and
operating expense increases; and approximately 4 percent of such revenues were
derived from leases without escalation provisions. Some of the Company's leases
contain options which allow the lessee to renew for varying periods, generally
at the same rental rate and subject, in most instances, to Consumer Price Index
escalation provisions.
The Company owns approximately 149 acres of unimproved land (122 acres
held for development, 17 acres held for sale and 10 acres not suitable for
development) located in the metropolitan areas of Birmingham, Alabama;
Jacksonville, Orlando and St. Petersburg, Florida; Atlanta, Georgia; Charlotte
and Greensboro, North Carolina; Tulsa, Oklahoma; Columbia and Greenville, South
Carolina; Memphis, Tennessee; Austin, Texas; and Richmond, Virginia. Each of
these parcels of land has been partially or wholly developed with streets and/or
utilities. The Company currently has six buildings under construction on
approximately 33 acres of this unimproved land.
5
<PAGE> 6
PROPERTY LOCATION AND OTHER INFORMATION
The following table sets forth information relating to the properties
owned by the Company as of December 31, 1999.
<TABLE>
<CAPTION>
AVERAGE LAND
NUMBER AGE OF NET IMPROVED UNIMPROVED
OF BUILDINGS RENTABLE WITH BLDGS. LAND
KOGER CENTER/LOCATION BUILDINGS (IN YEARS)(1) SQ. FT. (IN ACRES) (IN ACRES)
- --------------------- --------- -------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Atlanta Chamblee 20 18 907,900 72.4 6.3(2)
Atlanta Gwinnett 2 5 139,400 8.9 26.6(3)
Atlanta Perimeter 1 14 151,600 5.3
Austin 12 19 370,900 29.6 1.8
Birmingham Colonnade 4 10 279,300 24.1 23.4(4)
Birmingham Colonnade - Retail 1 10 112,600 15.7
Charlotte Carmel 3 4 283,300 25.3 7.7
Charlotte University 2 2 162,000 18.7
Charlotte Vanguard 13 17 481,700 39.7 17.1
Columbia Spring Valley 1.0
El Paso 17 24 317,100 25.1
Greensboro South 13 17 610,700 46.0
Greensboro Wendover 1 80,300 7.8 10.7
Greenville Park Central 3 15 136,000 9.9 3.5
Greenville Roper Mt. 9 14 350,900 29.2
Jacksonville Baymeadows 7 7 664,200 51.1
Jacksonville JTB 3 1 276,200 24.3 7.7
Memphis Germantown 5 7 392,700 29.8 4.8(5)
Orlando Central 21 28 554,400 44.7 1.3
Orlando Lake Mary 2 1 269,000 20.2
Orlando University 3 8 222,300 18.4 8.7(6)
Richmond Paragon 1 14 127,700 8.1
Richmond South 5.6
San Antonio Airport 2 15 200,100 7.9
San Antonio West 27 19 906,800 70.7
St. Petersburg 14 19 509,000 62.9 12.5(7)
Tallahassee 19 17 789,600 62.7
Tulsa 13 20 476,400 39.4 10.0
---- --------- ----- -----
Total 218 9,772,100 797.9 148.7
==== ========= ===== =====
Average 15
==
</TABLE>
(1) The age of each building was weighted by the net rentable square feet
for such building to determine the weighted average age of (a) the
buildings in each Koger Center or location and (b) all buildings owned
by the Company.
(2) The Company currently has a building under construction on
approximately 3.8 acres of this parcel.
(3) The Company currently has a building under construction on
approximately 7.0 acres of this parcel.
(4) The Company currently has a building under construction on
approximately 6.9 acres of this parcel.
(5) The Company currently has a building under construction on
approximately 4.8 acres of this parcel.
(6) The Company currently has a building under construction on
approximately 4.6 acres of this parcel.
(7) The Company currently has a building under construction on
approximately 5.8 acres of this parcel.
6
<PAGE> 7
PERCENT LEASED AND AVERAGE RENTAL RATES
The following table sets forth, with respect to each Koger Center or
location, the number of buildings, number of leases, net rentable square feet,
percent leased, and the average annual rent per net rentable square foot leased,
in each case as of December 31, 1999.
<TABLE>
<CAPTION>
NET AVERAGE
NUMBER NUMBER RENTABLE ANNUAL
OF OF SQUARE PERCENT RENT PER
KOGER CENTER/LOCATION BUILDINGS LEASES FEET LEASED (1) SQUARE FOOT(2)
- --------------------- --------- ------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Atlanta Chamblee 20 161 907,900 99% $18.06
Atlanta Gwinnett 2 31 139,400 95% 20.35
Atlanta Perimeter 1 14 151,600 97% 21.70
Austin 12 177 370,900 96% 21.14
Birmingham Colonnade 4 32 279,300 96% 15.91
Birmingham Colonnade-Retail 1 31 112,600 92% 11.63
Charlotte Carmel 3 40 283,300 88% 18.89
Charlotte University 2 19 162,000 96% 19.56
Charlotte Vanguard 13 76 481,700 91% 11.89
El Paso(3) 17 182 317,100 87% 16.20
Greensboro South 13 197 610,700 86% 16.11
Greensboro Wendover(3) 1 10 80,300 54% 19.18
Greenville Park Central 3 55 136,000 92% 18.03
Greenville Roper Mt. 9 142 350,900 97% 17.31
Jacksonville Baymeadows 7 43 664,200 98% 13.13(4)
Jacksonville JTB(3) 3 6 276,200 100% 12.66
Memphis Germantown 5 70 392,700 95% 19.34
Orlando Central 21 162 554,400 95% 16.01
Orlando Lake Mary 2 21 269,000 96% 21.81
Orlando University 3 59 222,300 93% 20.07
Richmond Paragon 1 27 127,700 93% 19.54
San Antonio Airport 2 66 200,100 88% 19.22
San Antonio West(3) 27 269 906,800 86% 15.94
St. Petersburg 14 143 509,000 95% 15.88
Tallahassee 19 113 789,600 96% 18.73
Tulsa 13 153 476,400 89% 13.18
---- ------ ---------
Total 218 2,299 9,772,100
==== ====== =========
Weighted Average - Total Company 93% $16.79
== ======
Weighted Average - Operational Buildings 94% $16.74
== ======
Weighted Average - Buildings in Lease-up 71% $19.19
== ======
</TABLE>
(1) The percent leased rates have been calculated by dividing total net
rentable square feet leased in a 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 base rents
(which excludes expense pass-throughs and reimbursements) for a Koger
Center or location as of December 31, 1999 by (b) the net rentable square
feet applicable to such total annualized base rents.
(3) Includes a building which is currently in the lease-up period.
(4) Excludes corporate office space from calculation. Includes the effect of
three net leases where tenants lease the entire building and pay certain
operating costs in addition to base rent.
7
<PAGE> 8
LEASE EXPIRATIONS ON THE COMPANY'S PROPERTIES
The following schedule sets forth with respect to all of the Office
Buildings (a) the number of leases which will expire in calendar years 2000
through 2008, (b) the total net rentable area in square feet covered by such
leases, (c) the percentage of total net rentable square feet leased represented
by such leases, (d) the average annual rent per square foot for such leases, (e)
the current annualized rents represented by such leases, and (f) the percentage
of gross annualized rents contributed by such leases. This information is based
on the buildings owned by the Company on December 31, 1999 and on the terms of
leases in effect as of December 31, 1999, 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 66
percent, 60 percent and 65 percent of the Company's net rentable square feet,
which were scheduled to expire during 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE PERCENTAGE
TOTAL SQUARE ANNUAL RENT TOTAL OF TOTAL
NUMBER OF NUMBER OF FEET LEASED PER SQUARE ANNUALIZED 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>
2000 869 1,696,600 18.7% $16.69 $ 28,320,029 18.6%
2001 489 1,742,465 19.3% 16.00 27,878,568 18.3%
2002 377 1,287,553 14.2% 17.60 22,658,353 14.9%
2003 225 1,415,997 15.6% 16.85 23,863,371 15.7%
2004 259 1,357,252 15.0% 16.24 22,035,113 14.5%
2005 32 272,932 3.0% 18.96 5,174,932 3.4%
2006 13 239,893 2.7% 20.63 4,948,515 3.3%
2007 9 292,843 3.2% 15.43 4,520,010 3.0%
2008 11 170,132 1.9% 19.73 3,356,718 2.2%
Other 15 575,919 6.4% 16.04 9,235,333 6.1%
------- ---------- ------- ------------ -----
Total 2,299 9,051,586 100.0% $16.79 $151,990,942 100.0%
======= ========== ======= ======= ============ =====
</TABLE>
BUILDING IMPROVEMENTS, TENANT IMPROVEMENTS AND DEFERRED TENANT COSTS ON THE
COMPANY'S PROPERTIES
The following table sets forth certain information with respect to the
building improvements made, and tenant improvement costs and deferred tenant
costs (leasing commissions and tenant relocation costs) incurred, by the Company
during the three years ended December 31, 1999. The information set forth below
is not necessarily indicative of future expenditures for these items.
<TABLE>
<CAPTION>
BUILDING IMPROVEMENTS TENANT IMPROVEMENTS DEFERRED TENANT COSTS
------------------------------ ---------------------------- -----------------------
PER AVERAGE PER AVERAGE PER AVERAGE
NET SQUARE NET SQUARE NET SQUARE
YEAR TOTAL FT. OWNED TOTAL FT. OWNED TOTAL FT. OWNED
----- ---------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997(1) $3,116,000 $0.39 $ 7,513,000 $0.94 $1,902,000 $0.24
1998(2) 4,255,000 0.48 11,655,000 1.31 1,755,000 0.20
1999(3) 4,545,000 0.50 13,204,000 1.46 1,736,000 0.19
</TABLE>
(1) Excludes the two buildings for which construction was completed during 1997.
(2) Excludes the eight buildings for which construction was completed during
1997 and 1998.
(3) Excludes the 14 buildings for which construction was
completed during 1997, 1998 and 1999.
8
<PAGE> 9
FIXED RATE INDEBTEDNESS ON THE COMPANY'S PROPERTIES
The following table sets forth with respect to each Koger Center or
location the principal amount (dollars in thousands) of, and the weighted
average interest rate on, the indebtedness of the Company having a fixed
interest rate and encumbering the Company's properties in such Koger Center or
location as of December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED
MORTGAGE AVERAGE
LOAN INTEREST
KOGER CENTER/LOCATION BALANCE RATE
---------------------- ---------- --------------
<S> <C> <C>
Atlanta Chamblee $ 0 --
Atlanta Gwinnett 0 --
Atlanta Perimeter 0 --
Austin 16,328 8.33%
Birmingham Colonnade 0 --
Birmingham Colonnade - Retail 0 --
Charlotte Carmel 0 --
Charlotte University 0 --
Charlotte Vanguard 21,788 8.13%
El Paso 8,645 8.33%
Greensboro South 0 --
Greensboro Wendover 0 --
Greenville Park Central 0 --
Greenville Roper Mt. 14,456 8.00%
Jacksonville Baymeadows 38,086 7.95%
Jacksonville JTB 0 --
Memphis Germantown 25,064 7.81%
Orlando Central 24,012 8.33%
Orlando Lake Mary 0 --
Orlando University 14,665 7.10%
Richmond Paragon 8,232 8.00%
San Antonio Airport 0 --
San Antonio West 22,600 8.25%
St. Petersburg 19,234 8.25%
Tallahassee 44,418 7.99%
Tulsa 0 --
--------
Total $257,528 8.09%
======== ====
</TABLE>
For additional information on these loans see Note 3, "Mortgages and Loans
Payable" of the Notes to Consolidated Financial Statements.
INDEBTEDNESS WITH VARIABLE INTEREST RATES
As of December 31, 1999, the Company had a $150 million secured revolving
credit facility with variable interest rates and encumbering certain of the
Company's properties. The following table sets forth historical information with
respect to indebtedness having variable interest rates (dollars in thousands):
9
<PAGE> 10
<TABLE>
<CAPTION>
WEIGHTED APPROXIMATE APPROXIMATE
BALANCE AVERAGE MAXIMUM AVERAGE WTG AVG INT
YEAR ENDED AT END INT RATE AT AMOUNT AMOUNT RATE DURING
DECEMBER 31 OF PERIOD END OF PERIOD OUTSTANDING OUTSTANDING THE PERIOD
----------- --------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1999 $94,000 8.0% $128,000 $95,277 6.7%
1998 92,000 7.1% 92,000 45,181 7.0%
1997 1 8.5% 40,000 8,077 8.0%
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective March 9, 2000, the Company's common stock is listed on the New
York Stock Exchange under the ticker symbol KE. Prior to that date, the
Company's common stock was listed on the American Stock Exchange. The high and
low closing sales prices for the periods indicated in the table below were:
<TABLE>
<CAPTION>
YEARS
---------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- -------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
March 31 $17 9/16 $12 11/16 $23 3/4 $20 5/8 $18 5/8 $17 1/4
June 30 18 7/16 12 7/8 22 1/2 18 5/8 18 1/4 15 3/8
September 30 18 15 1/2 21 13/16 16 3/8 20 13/16 17 11/16
December 31 16 7/8 14 1/4 18 1/4 15 5/8 23 3/8 20 1/8
</TABLE>
Any dividend paid in respect of the Company's common stock during the
last quarter of each year will, if necessary, be adjusted to satisfy the REIT
qualification requirement that at least 95 percent of the Company's REIT taxable
income for such taxable year be distributed. The Company's secured revolving
credit facility requires the Company to maintain certain financial ratios, which
includes a limitation on dividends. However, this covenant does not restrict the
Company from paying the dividends required to maintain its qualification as a
REIT.
Set forth below are the dividends per share paid during the three years
ended December 31, 1999.
<TABLE>
<CAPTION>
YEARS
-----------------------------
QUARTER ENDED 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
March 31 $.30 $.25 $.05
June 30 .30 .25 .05
September 30 .35 .30 .10
December 31 35 .30 .15
</TABLE>
On February 3, 2000, the Company paid a quarterly dividend of $0.35 per
share to shareholders of record on December 31, 1999. In addition, the Company's
Board of Directors has declared a quarterly dividend of $0.35 per share payable
on May 4, 2000, to shareholders of record on March 31, 2000.
On March 1, 2000, there were approximately 1,227 shareholders of record
and the closing price of the Company's common stock on the American Stock
Exchange was $16.5625.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements (as defined below) and the
notes thereto.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AND PROPERTY DATA)
--------------------------------------------------------------------
INCOME INFORMATION 1999 1998 1997 1996 1995
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Rental revenues and other rental services $156,153 $133,663 $109,501 $ 98,805 $ 95,443
Interest revenues 457 446 1,274 1,951 14,440
Total revenues 160,093 138,082 113,989 104,072 125,750
Property operations expense 60,582 53,719 44,453 41,597 40,830
Depreciation and amortization 32,314 28,381 24,073 21,127 19,102
Mortgage and loan interest 21,893 16,616 16,517 18,701 23,708
Net income 36,586 29,602 21,204 10,501 28,990
Earnings per share - diluted 1.35 1.10 .94 .54 1.61
Dividends declared per common share 1.35 1.15 .55 .05
Weighted average shares outstanding - diluted 27,019 26,901 22,495 19,500 18,011
BALANCE SHEET INFORMATION
Operating properties (before depreciation) $927,523 $872,183 $681,249 $582,972 $571,313
Undeveloped land 17,137 20,535 14,761 27,108 30,281
Total assets 885,739 834,995 656,097 584,666 578,756
Mortgages and loans payable 351,528 307,903 181,963 203,044 254,909
Total shareholders' equity 467,826 464,763 444,262 364,135 310,697
OTHER INFORMATION
Funds from operations (1) $ 65,011 $ 56,486 $ 42,324 $ 33,154 $ 36,707
Income before interest, income taxes,
depreciation and amortization $ 90,980 $ 75,555 $ 62,729 $ 51,144 $ 71,866
Number of buildings (at end of period) 218 251 228 215 216
Percent leased (at end of period) 93% 90% 92% 92% 91%
</TABLE>
(1) The Company believes that Funds from Operations is one measure of the
performance of an equity REIT. 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 GAAP) 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>
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income $ 36,586 $ 29,602 $ 21,204 $10,501 $28,990
Depreciation - real estate 28,800 25,146 21,795 19,538 17,363
Amortization - deferred tenant costs 2,132 1,464 1,031 929 656
Amortization - goodwill 170 170 170 171 504
Minority interest 1,174 139
Litigation costs 424 176
Loss (gain) on sale or disposition of assets (3,851) (35) (1,955) 497 255
Provision (recovery) for loss on land held for sale (379) 970
Gain on note to Southeast (292) (11,288)
Loss (gain) on early retirement of debt 458 1,386 (919)
-------- -------- -------- ------- -------
Funds from Operations $ 65,011 $ 56,486 $ 42,324 $33,154 $36,707
======== ======== ======== ======= =======
</TABLE>
The 1995 calculated Funds from Operations includes $13,066 of interest revenue
associated with mortgage notes, which KE acquired during 1995. These mortgage
notes were retired during 1995.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
selected financial data and the consolidated financial statements (the
"Consolidated Financial Statements") appearing elsewhere in this report.
Historical results and percentage relationships in the Consolidated Financial
Statements, including trends which might appear, should not be taken as
indicative of future operations or financial position. The Consolidated
Financial Statements include the accounts of KE, Southeast, KRES and KVP
(collectively, the "Company").
GENERAL
The Company has prepared, and is responsible for, the accompanying
Consolidated Financial Statements and the related consolidated financial
information included in this report. Such Consolidated Financial Statements were
prepared in accordance with generally accepted accounting principles and include
amounts determined using management's best judgments and estimates of the
expected effects of events and transactions that are being accounted for
currently.
The Company's independent auditors have audited the accompanying
Consolidated Financial Statements. The objective of their audit, conducted in
accordance with generally accepted auditing standards, was to express an opinion
on the fairness of presentation, in all material respects, of the Company's
consolidated financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. They evaluated the
Company's internal control structure to the extent considered necessary by them
to determine the audit procedures required to support their report on the
Consolidated Financial Statements and not to provide assurance on such
structure.
The Company maintains accounting and other control systems which
management believes provide reasonable assurance that the Company's assets are
safeguarded and that the Company's books and records reflect the authorized
transactions of the Company, although there are inherent limitations in any
internal control structure, as well as cost versus benefit considerations. The
Audit Committee of the Company's Board of Directors, which is composed
exclusively of directors who are not officers of the Company, directs matters
relating to audit functions, annually appoints the auditors subject to
ratification of the Company's Board of Directors, reviews the auditors'
independence, reviews the scope and results of the annual audit, and
periodically reviews the adequacy of the Company's internal control structure
with its external auditors, its internal auditors and its senior management.
RESULTS OF OPERATIONS
RENTAL REVENUES. Rental revenues increased $22,390,000 or 16.8 percent
from the year ended December 31, 1998 to the year ended December 31, 1999. This
increase resulted primarily from (i) the increase in the Company's average
rental rate and (ii) increases in the rental revenues ($19,281,000) from
properties acquired and construction completed during 1998 and 1999. For 1998,
rental revenues increased $24,152,000 or 22.2 percent from the year ended
December 31, 1997. This increase resulted primarily from (i) increases in the
Company's average rental rate and (ii) increases in the rental revenues
($18,915,000) from properties acquired and construction completed during 1997
and 1998. As of December 31, 1999, the Company's buildings were on average 93
percent leased. As of December 31, 1998 and 1997, the buildings owned by the
Company were on average 90 and 92 percent leased, respectively.
MANAGEMENT FEE REVENUES. For 1999, management fee revenues increased
$107,000, as compared to 1998, due primarily to an increase in construction
management fees earned. During March 1999, Centoff sold one of the centers for
which the Company had provided property management services. The Company earned
management fee revenues totaling $194,000 for the management and leasing of this
property during 1999. Another agreement to manage one commercial office building
was terminated by the Company during February 1999. The Company earned fees of
$82,000 for the management of this building during 1999. Management fee revenues
decreased $360,000 for 1998, as compared to 1997, due primarily to a decrease in
leasing fees earned under the Centoff management contract.
12
<PAGE> 13
INCOME FROM KOGER REALTY SERVICES, INC. For 1999, income from Koger
Realty Services, Inc. decreased $597,000, as compared to 1998, due primarily to
an increase in the accrual for compensation expense related to a bonus plan
which is based on KE's common stock price. Income from Koger Realty Services,
Inc. increased $1,119,000 for 1998, as compared to 1997, due primarily to the
decrease in the accrual for compensation expense related to a bonus plan.
INTEREST REVENUES. For 1999, interest revenues remained basically
unchanged from those earned in 1998. Interest revenues decreased $828,000 for
1998, as compared to 1997, due to the lower average balance of cash to invest.
EXPENSES. Property operations expense includes such charges as
utilities, real estate taxes, janitorial, maintenance, property insurance,
provision for uncollectible rents and management costs. During 1999, property
operations expense increased by $6,863,000 or 12.8 percent, compared to 1998,
primarily due to (i) increases in property operations expense ($7,634,000) for
properties acquired and construction completed during 1998 and 1999 and (ii)
increases in real estate taxes. These increases were partially offset by the
decrease in property operations expense ($1,993,000) for the properties sold
during 1999. During 1998, property operations expense increased by $9,266,000 or
20.8 percent, compared to 1997, primarily due to (i) increases in property
operations expense ($7,512,000) for the properties acquired and construction
completed during 1997 and 1998, (ii) increased real estate taxes, (iii)
increased utility costs and (iv) increased property management costs. For 1999,
1998 and 1997, property operations expense as a percentage of total rental
revenues was 38.8 percent, 40.2 percent and 40.6 percent, respectively.
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. For 1999, depreciation expense increased $3,499,000 or 13.6 percent,
compared to the prior year, due to the properties acquired and construction
completed during 1998 and 1999. For 1998, depreciation expense increased
$3,442,000 or 15.5 percent, compared to the prior year, due to the properties
acquired and construction completed during 1997 and 1998.
Amortization expense increased $434,000 during 1999, compared to 1998,
due to deferred tenant costs incurred during 1999. For 1998, amortization
expense increased $866,000, compared to 1997, due primarily to (i) financing
costs incurred for increasing the secured revolving credit facility from $50
million to $100 million and (ii) deferred tenant costs incurred during 1998.
Interest expense increased by $5,277,000 during 1999, compared to 1998,
primarily due to the increase in the average balance of mortgages and loans
payable. Compared to 1997, interest expense remained basically unchanged during
1998. During 1999, 1998, and 1997, the weighted average interest rate on the
Company's variable rate loans was 6.7 percent, 7.0 percent and 8.0 percent,
respectively. The Company's average outstanding amount under such loans during
1999, 1998, and 1997 was $95,277,000, $45,181,000 and $8,077,000, respectively.
During 1999, 1998, and 1997, the weighted average interest rate on the Company's
fixed rate loans was 8.2 percent, 8.3 percent and 8.4 percent, respectively. The
Company's average outstanding amount under its fixed rate loans during 1999,
1998, and 1997 was $225,391,000, $195,592,000 and $199,551,000, respectively.
General and administrative expenses were 0.9 percent, 0.8 percent, and
1.0 percent of average invested assets for 1999, 1998 and 1997, respectively.
For 1999, general and administrative expenses increased $1,680,000, compared to
1998, primarily due to increases in (i) legal and other professional fees, (ii)
compensation expense and certain employee benefit accruals and (iii) franchise
taxes. For 1998, general and administrative expenses increased $579,000,
compared to 1997, primarily due to (i) increases in group insurance costs, (ii)
costs for corporate office relocation and (iii) legal fees incurred for
organization of KVP.
Direct costs of management fees increased $64,000 during 1999, compared
to 1998, due primarily to increased costs of providing construction management
services. For 1998, direct costs of management fees decreased $528,000, compared
to 1997, due to decreased costs associated with providing property management
services for all management contracts.
13
<PAGE> 14
Other expenses increased $760,000 during 1999, compared to 1998, due to
professional fees incurred for certain corporate strategic issues.
Based on the proceeds received from the sale of the Miami land parcel
and the Company's analysis of the fair value of the remaining land parcels held
for sale during 1997, the Company reversed $379,000 of the provision for loss on
land held for sale, which had been previously recorded.
Management periodically reviews its investment in properties for
evidence of other than temporary impairments in value. Factors considered
consist of, but are not limited to, the following: current and projected
occupancy rates, market conditions in different geographic regions, and
management's plans with respect to its properties. Where management concludes
that expected cash flows will not enable the Company to recover the carrying
amount of its investments, losses are recorded and asset values are reduced. No
such impairments in value existed during 1999, 1998 or 1997.
OPERATING RESULTS. Net income totaled $36,586,000, $29,602,000 and
$21,204,000 for 1999, 1998 and 1997, respectively. For 1999, net income
increased $6,984,000 or 23.6 percent over the prior year due primarily to (i)
the increase in rental revenues, which was partially offset by the increases in
property operations expense, depreciation and amortization expense, interest
expense and general and administrative expense and (ii) the increase in gain on
sale or disposition of assets. For 1998, net income increased $8,398,000 or 39.6
percent over the prior year due primarily to (i) the increase in rental
revenues, which was partially offset by the increases in property operations
expense and depreciation and amortization expense and (ii) the increase in
income from Koger Realty Services, Inc.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During the year ended December 31, 1999, the
Company generated approximately $65.5 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 Centoff. As a REIT for Federal income tax purposes, the Company 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, the
Company has paid out dividends in amounts at least equal to its REIT taxable
income. The Company believes that its cash provided by operating activities will
be sufficient to cover debt service payments and to pay the dividends required
to maintain REIT status through 2000.
The level of cash flow generated by rents depends primarily on the
occupancy rates of the Company's buildings and changes in rental rates on new
and renewed leases and under escalation provisions. As of December 31, 1999,
approximately 96 percent of the Company's annualized gross rental revenues were
derived from existing leases containing provisions for rent escalations.
However, market conditions may prevent the Company from escalating rents under
such provisions.
As of December 31, 1999, leases representing approximately 18.6 percent
of the gross annualized rent from the Company's properties, without regard to
the exercise of options to renew, were due to expire during 2000. This
represents 869 leases for space in buildings located in 22 of the 25 Koger
Centers or locations in which the Company owns buildings. Certain of these
tenants may not renew their leases or may reduce their demand for space. Leases
were renewed on approximately 66 percent, 60 percent and 65 percent of the
Company's net rentable square feet, which were scheduled to expire during 1999,
1998 and 1997, respectively. For those leases, which renewed during 1999, the
average rental rate increased from $15.32 to $17.37. However, current market
conditions in certain markets may require that rental rates at which leases are
renewed or at which vacated space is leased be lower than rental rates under
existing leases. Based upon the amount of leases which will expire during 2000
and the competition for tenants in the markets in which the Company operates,
the Company has offered, and expects to continue to offer, incentives to certain
new and renewal tenants. These incentives may include the payment of tenant
improvement costs and, in certain markets, reduced rents during initial lease
periods.
14
<PAGE> 15
The Company continues to benefit 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, 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 of America) which accounted for 19.3 percent of the Company's leased
space as of December 31, 1999 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.
On January 1, 2000, the Company had a management contract for the
management of eight commercial office properties. On March 31, 1999, the
management agreement to manage these commercial office buildings owned by
Centoff was automatically extended to March 31, 2000. This management agreement
provides that, so long as no default has occurred, the management agreement will
be automatically extended from year to year until such time as the management
agreement is terminated. The Company earned fees of $846,000 for the management
of these properties during 1999. At the end of 1999, Centoff terminated the
management agreement with the Company related to eight commercial office
buildings. The Company earned fees of $780,000 for the management and leasing of
these properties during 1999. Another agreement to manage one commercial office
building was terminated by the Company during February 1999. During 1999, the
Company earned fees of $82,000 for the management of this building.
INVESTING ACTIVITIES. At December 31, 1999, 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 1999,
the Company's expenditures for improvements to existing properties increased by
approximately $1.8 million from the prior year, primarily due to increases in
expenditures for tenant improvements and building improvements. The Company
purchased four buildings during 1999.
During 1999, the Company completed the construction of six buildings,
which contain 532,900 net rentable square feet. During 1998, the Company
completed the construction of six buildings, which contain 503,300 net rentable
square feet. During 1997, the Company completed the construction of two
buildings, which contain 101,900 net rentable square feet. The Company has six
buildings under construction, on approximately 33 acres of undeveloped land,
which will contain approximately 476,400 net rentable square feet. Expenditures
for construction of these six buildings are expected to total approximately
$45.6 million, excluding land and tenant improvement costs.
On November 1, 1999, the Company acquired four buildings, containing
431,000 net rentable square feet, located in Charlotte, North Carolina and
Orlando, Florida for a purchase price of $64.1 million. During 1998, the Company
acquired 20 buildings, containing 1,020,300 net rentable square feet, for a
total purchase price of $121.9 million in four separate transactions. One of
these transactions was structured as a contribution of the property to a
down-REIT partnership (Koger-Vanguard Partners, L.P.), whose general partner is
KE. In addition, KE acquired 70.3 acres of land for a total purchase price of
$13.6 million. During 1997, the Company acquired 11 buildings, containing
717,900 net rentable square feet, for a total purchase price of $74.8 million in
seven separate transactions. In addition, the Company acquired 5.9 acres of land
for a purchase price of $0.5 million.
On August 31, 1999, the Company sold the Jacksonville Central Center
(containing 666,000 net rentable square feet and 1.4 acres of undeveloped land)
and the Charlotte East Center (containing 468,900 net rentable square feet and
3.9 acres of undeveloped land) for approximately $68,761,000, net of selling
costs. During 1997, the Company sold (i) 8.1 acres of unimproved land located in
Miami, Florida for approximately $2,907,000, net of selling costs and (ii) 17.2
acres of unimproved land located in Richmond, Virginia for approximately
$3,434,000, net of selling costs.
15
<PAGE> 16
FINANCING ACTIVITIES. The Company's primary external sources of cash
are bank borrowings, mortgage financings, and public and private offerings of
equity securities. The proceeds of these financings are used by the Company to
acquire buildings and land or to refinance debt. The Company has a $150 million
secured revolving credit facility provided by First Union National Bank of
Florida, AmSouth Bank, N.A., Citizens Bank of Rhode Island, Compass Bank and
Guaranty Federal Bank.
During 1997, the Company's Board of Directors approved the repurchase
of up to one million shares of the Company's common stock (the "Shares") and the
Company repurchased 372,600 Shares for approximately $5.75 million. The Company
repurchased 35,600 Shares for approximately $583,000 during 1998 and repurchased
54,000 Shares for approximately $852,000 during 1999.
During July 1997, the Company's Board of Directors approved the
redemption of warrants outstanding on August 29, 1997 (the "Redemption Date")
for $3.81 per warrant. Each warrant gave the holder the right to purchase one
Share at a price of $8.00 per share, until the Redemption Date. The Company
redeemed 99,871 warrants for $379,000 following the Redemption Date. The
remaining warrants were exercised by the holders either on or prior to the
Redemption Date.
On March 27, 1998, the Company sold one million shares of its common
stock to Wheat First Securities, Inc. for an aggregate sales price of $20.2
million. The Company applied approximately $15 million of the proceeds from this
sale to the repayment of indebtedness with an average interest rate of
approximately 7.94 percent. During December 1997, the Company completed a public
offering of 3.5 million shares of its common stock, three million shares of
which were sold in an underwritten offering for an aggregate sales price of
$60.75 million ($20.25 per share less an underwriting discount of $1.11 per
share), and 500,000 of such shares were sold to AREIF II Realty Trust, Inc., an
affiliate of Apollo Real Estate Fund II, L.P. (together referred to as
"Apollo"), for an aggregate sales price of $9.57 million ($19.14 per share). The
Company applied approximately $51.6 million of the proceeds from this sale to
the repayment of indebtedness with an average interest rate of approximately 8.6
percent.
During 1999, the Company increased its non-recourse loan with
Northwestern Mutual Life Insurance Company ("Northwestern") by $45 million to a
total of $235 million, which is secured by 11 office parks. This loan is divided
into (i) a tranche in the amount of $100.5 million with a 10 year maturity and
an average interest rate of 8.19 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,
(iii) a tranche in the amount of $14.7 million which matures January 2, 2007 and
an interest rate of 7.1 percent and (iv) a tranche in the amount of $30.3
million which matures on January 2, 2009 and an interest rate of 7.1 percent.
Amortization with respect to this indebtedness is based on equal monthly
installments over a 25 year amortization period. This indebtedness requires the
Company to maintain certain financial ratios.
In conjunction with the acquisition of certain office buildings during
1998, the Company assumed mortgage loans with outstanding balances of $30.7
million and a weighted average interest rate of 8.09 percent. Amortization with
respect to this indebtedness is based on an equal monthly installment over 25
year amortization periods.
During December 1998, the Company increased its secured revolving
credit facility from $100 million to $150 million. This facility provides for
monthly interest payments, requires the Company to maintain certain financial
ratios and matures in December 2001.
Loan maturities and normal amortization of mortgages and loans payable
during the year 2000 are expected to total approximately $4.2 million. 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 will begin in 2001.
At December 31, 1999, the Company had 31 buildings (containing
approximately 2.45 million net rentable square feet) which were unencumbered.
16
<PAGE> 17
In order to generate funds sufficient to make principal payments in
respect of indebtedness of the Company over the long term, as well as necessary
capital and tenant acquisition expenditures, the Company will be required to
successfully refinance its indebtedness or procure additional equity capital.
However, there can be no assurance that any such refinancing or equity financing
will be achieved or will generate adequate funds on a timely basis for these
purposes. If additional funds are raised by issuing equity securities, further
dilution to existing shareholders may result. Unfavorable conditions in the
financial markets, the degree of leverage of the Company and various other
factors may limit the ability of the Company to successfully undertake any such
financings, and no assurance can be given as to the availability of alternative
sources of funds. The Company has filed shelf registration statements with
respect to the issuance of up to $300 million of its common and/or preferred
stock. The Company has issued $91.6 million of its common stock under such
registration statements.
In addition, in the event the Company is unable to generate sufficient
funds both to meet principal payments in respect of its indebtedness and to
satisfy distribution requirements of 95 percent of annual REIT taxable income to
its shareholders, the Company may be unable to qualify as a REIT. In such an
event, the Company (i) will incur federal income taxes and perhaps penalties,
(ii) if the Company is then paying dividends, may be required to decrease any
dividend payments to its shareholders, and (iii) the market price of the
Company's common stock may decrease. The Company would also be prohibited from
requalifying as a REIT for five years.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR PURPOSE OF
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their businesses without fear of
litigation so long as those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those projected in
such statements. The Company desires to take advantage of the "safe harbor"
provisions of the Act.
This Annual Report on Form 10-K contains forward-looking statements,
together with related data and projections, about the Company's projected
financial results and its future plans and strategies. However, actual results
and needs of the Company may vary materially from forward-looking statements and
projections made from time to time by the Company on the basis of management's
then-current expectations. The business in which the Company is engaged involves
changing and competitive markets and a high degree of risk, and there can be no
assurance those forward-looking statements and projections will prove accurate.
Accordingly, the Company hereby identifies the following important factors,
which could cause the Company's actual performance and financial results to
differ materially from any results, which might be projected, forecast,
estimated or budgeted by the Company.
REAL ESTATE FINANCING RISKS
EXISTING DEBT. The Company is subject to risks normally associated with
debt financing, including (a) the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, (b) the risk
that the existing debt in respect of the Company's properties (which in
substantially all cases will not have been fully amortized at maturity) will not
be able to be refinanced and (c) the risk that the terms of any refinancing of
any existing debt will not be as favorable as the terms of such existing debt.
The Company currently has outstanding debt of approximately $351.5 million, all
of which is secured by certain of the Company's properties. Approximately $255
million of such debt will mature before 2008, with the majority of the remaining
balance maturing in 2009. The $150 million secured revolving credit facility
($94 million of which was outstanding at year end) matures in December 2001. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, the Company
expects that its cash flow will not be sufficient to repay all such maturing
debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing than the interest rates
on the existing debt, the interest expense relating to such refinanced debt
would increase, which would adversely affect the Company's cash flow and the
amount of distributions
17
<PAGE> 18
the Company would be able to make to its shareholders. If the Company has
mortgaged a property to secure payment of debt and the Company is unable to meet
the mortgage payments, then the mortgagee may foreclose upon, or otherwise take
control of, such property, with a consequent loss of income and asset value to
the Company.
RISK OF RISING INTEREST RATES AND VARIABLE RATE DEBT. The Company
currently has a $150 million secured revolving credit facility with variable
interest rates. The Company may incur additional variable rate debt in the
future. Increases in interest rates on such debt could increase the Company's
interest expense, which would adversely affect the Company's cash flow and its
ability to pay distributions to its shareholders.
EXISTING LEVERAGE; NO LIMITATION ON DEBT. As of December 31, 1999, the
debt to total market capitalization ratio of the Company was approximately 43
percent. The Company's policy regarding this ratio (i.e., total consolidated
debt as a percentage of the sum of the market value of issued and outstanding
capital stock plus total consolidated debt) is not subject to any limitation in
the organizational documents of the Company. Accordingly, the Board of Directors
could establish policies which would increase the Company's debt to total market
capitalization ratio. If this action were taken, the Company could become more
highly leveraged, resulting in an increase in debt service that (a) could
adversely affect the Company's cash flow and, consequently, the amount of cash
available for distribution to shareholders and (b) could increase the risk of
default on the Company's debt.
For purposes of establishing and evaluating its debt policy, the
Company measures its leverage by reference to the total market capitalization of
the Company rather than by reference to the book value of its assets. The
Company has used total market capitalization because it believes that the book
value of its assets (which to a large extent is comprised of the depreciated
value of real property, the Company's primary tangible asset) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company also considers factors other
than its market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties, and the Company as a whole, to generate cash
flow to cover expected debt service.
GEOGRAPHIC CONCENTRATION
The Company's revenues and the value of its properties may be affected
by a number of factors, including the regional and local economic climates of
the metropolitan areas in which the Company's buildings are located (which may
be adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and regional and local real estate
conditions in such areas (such as oversupply of, or reduced demand for, office
and other competing commercial properties). All of the Company's properties are
located in the southeastern and southwestern United States. There is also the
problem of over building in certain sub-markets located in markets which the
Company currently serves. While the Company has avoided acquiring or developing
property in these sub-markets such over built condition may move over into the
sub-markets where the Company has property. The Company's performance and its
ability to make distributions to its shareholders are, therefore, dependent on
economic conditions in these market areas. The Company's historical growth has
occurred during periods when the economy in the southeastern and southwestern
United States has out-performed the national economy. There can be no assurance
as to the continued growth of the economy in the southeastern and southwestern
United States or the future growth rate of the Company.
RISING PETROLEUM COSTS
Although the Company has not yet been adversely affected by the recent
rise in oil prices, the increasing costs of gasoline may affect commuting
patterns thereby adversely effecting the desirability of suburban office
property like those owned by the Company.
18
<PAGE> 19
RENEWAL OF LEASES AND RELETTING OF SPACE
The Company is subject to the risks that upon expiration of leases for
space located in its buildings (a) such leases may not be renewed, (b) such
space may not be relet or (c) the terms of renewal or reletting (taking into
account the cost of required renovations) may be less favorable than current
lease terms. Leases on a total of 18.7 percent and 19.3 percent of the total net
rentable square feet leased in the Company's buildings will expire in 2000 and
2001, respectively. If the Company is unable to promptly relet, or renew the
leases for, all or a substantial portion of the space located in its buildings,
or if the rental rates upon such renewal or reletting are significantly lower
than expected rental rates, or if the Company's reserves for these purposes
prove inadequate, then the Company's cash flow and its ability to make expected
distributions to its shareholders may be adversely affected.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees
of risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including current levels of debt service, tenant improvements, leasing
commissions and other capital expenditures, the Company may have to borrow
additional amounts to cover fixed costs and the Company's cash flow and its
ability to make distributions to its shareholders will be adversely affected.
The Company must obtain external financing to meet future debt maturities.
The Company's net revenues and the value of its properties may be
adversely affected by a number of factors, including the national, regional and
local economic climates; regional and local real estate conditions; the
perceptions of prospective tenants as to the attractiveness of the property; the
ability of the Company to provide adequate management, maintenance and
insurance; and increased operating costs (including real estate taxes and
utilities). In addition, real estate values and income from properties are also
affected by such factors as applicable laws, including tax laws, interest rate
levels and the availability of financing.
ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are
relatively illiquid. Such illiquidity will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
COMPETITION. Numerous office buildings compete with the Company's
buildings in attracting tenants to lease space. Some of these competing
buildings are newer, better located or better capitalized than some of the
Company's buildings. Moreover, the Company believes that major national or
regional commercial property developers will continue to seek development
opportunities in the southeastern and southwestern United States. These
developers may have greater financial resources than the Company. The number of
competitive commercial properties in a particular area could have a material
adverse effect on the Company's ability to lease space in its buildings or at
newly developed or acquired properties and the rents charged.
CHANGES IN LAWS. Because increases in income, service or transfer taxes
are generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to its shareholders. The Company's properties are also subject to various
federal, state and local regulatory requirements, such as requirements of the
Americans with Disabilities Act (the "ADA") and state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that its properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's cash flow and
expected distributions.
UNINSURED LOSS. The Company presently carries comprehensive liability,
fire, and flood (where appropriate), extended coverage and rental loss insurance
with respect to its properties, with policy specifications and insured limits
customary for similar properties. There are, however, certain types of losses
(such as from wars) that may be either
19
<PAGE> 20
uninsurable or not economically insurable. Should an uninsured loss or a loss
exceeding policy limits occur, the Company could lose both its capital invested
in, and anticipated profits from, one or more of its properties.
BANKRUPTCY AND FINANCIAL CONDITION OF TENANTS. At any time, a tenant of
the Company's buildings may seek the protection of the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and thereby
cause a reduction in the cash flow available for distribution by the Company. No
assurance can be given that tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
If a tenant's lease is not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's income may be adversely affected.
AMERICANS WITH DISABILITIES ACT COMPLIANCE. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements relating to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the requirements of the ADA could
require removal of access barriers and non-compliance could result in imposition
of fines by the U.S. Government or an award of damages to private litigants.
Although the Company believes that its properties are substantially in
compliance with these requirements, the Company may incur additional costs to
comply with the ADA. Although the Company believes that such costs will not have
a material adverse effect on the Company, if required changes involve a greater
expenditure than the Company currently anticipates, the Company's ability to
make distributions to its shareholders could be adversely affected.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIP AND JOINT
VENTURES. Although the Company owns fee simple interests in all but 13 of its
properties, in the future the Company could, if then permitted by the covenants
in its loan agreements and its financial position, participate with other
entities in property ownership through partnerships or joint ventures. KE is
currently the general partner of Koger-Vanguard Partners, L.P., which owns 13
office buildings. Partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present in property ownership,
including the possibility that (a) the Company's partners or co-ventures might
become bankrupt, (b) such partners or co-ventures might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and (c) such partners or co-ventures
may be in a position to take action contrary to the instructions or the requests
of the Company or contrary to the Company's policies or objectives, including
the Company's policy to maintain its qualification as a REIT. The Company will,
however, seek to maintain sufficient control of such participants or joint
ventures to permit the Company's business objectives to be achieved. There is no
limitation under the Company's organizational documents as to the amount of
available funds that may be invested in partnerships or joint ventures.
IMPACT OF INFLATION. The Company may experience increases in its
expenses, including debt service, as a result of inflation. The Company's
exposure to inflationary cost increases in property level expenses is reduced by
escalation clauses, which are included in most of its leases. However, market
conditions may prevent the Company from escalating rents. Inflationary pressure
may increase operating expenses, including labor and energy costs (and,
indirectly, real estate taxes) above expected levels at a time when it may not
be possible for the Company to increase lease rates to offset such higher
operating expenses. In addition, inflation can have secondary effects upon
occupancy rates by decreasing the demand for office space in many of the markets
in which the Company operates.
Although, inflation has historically often caused increases in the
value of income-producing real estate through higher rentals, the Company can
provide no assurance that inflation will increase the value of its properties in
the future and, in fact, the rate of inflation over recent years has been
considerably below that which has been experienced previously.
RISK OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
Within the constraints of its policy concerning leverage, the Company
has and will continue to develop and construct office buildings, particularly on
its undeveloped land. Risks associated with the Company's development and
construction
20
<PAGE> 21
activities, including activities relating to its undeveloped land, may include:
abandonment of development opportunities; construction costs of a property
exceeding original estimates and possibly making the property uneconomical;
insufficient occupancy rates and rents at a newly completed property to make the
property profitable; unavailability of financing on favorable terms for
development of a property; and the failure to complete construction and lease-up
on schedule, resulting in increased debt service expense and construction costs.
In addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention. Development activities are subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
The Company will continue to acquire office buildings. Acquisitions of
office buildings entail risks that investments will fail to perform in
accordance with expectations. Estimates of the cost of improvements to bring an
acquired building up to standards established for the market position intended
for such building may prove inaccurate. In addition, there are general
investment risks associated with any new real estate investment.
The Company anticipates that any future developments and acquisitions
would be financed through a combination of internally generated cash, equity
investments and secured or unsecured financing. If new developments are financed
through construction loans, there is a risk that, upon completion of
construction, permanent financing for newly developed properties may not be
available or may be available only on disadvantageous terms.
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company, as well as its policies with respect to all other activities, including
growth, debt, capitalization and operations, are determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the shareholders of
the Company. A change in these policies could adversely affect the financial
condition or results of operations of the Company or the market price of the
Common Stock.
LIMITATIONS OF REIT STATUS ON BUSINESS OF SUBSIDIARIES
Certain requirements for REIT qualification may in the future limit the
Company's ability to increase fee development, management and leasing operations
conducted, and related services offered, by the Company's subsidiaries without
jeopardizing the Company's qualification as a REIT.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company believes it has operated so as to qualify as a REIT under
the Internal Revenue Code since its inception in 1988. Although management of
the Company intends that the Company continue to operate so as to qualify as a
REIT, no assurance can be given that the Company will remain qualified as a
REIT. Qualification as a REIT involves the application and satisfaction of
highly technical and complex Code requirements for which there are only limited
judicial and administrative interpretations. Uncertainty in the application of
such requirements, as well as circumstances not entirely within the Company's
control, may affect the Company's ability to qualify as a REIT. In addition, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to third parties for property damage and for
21
<PAGE> 22
investigation and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner knew, or caused the presence, of the
contaminants, and the liability under such laws has been interpreted to be joint
and several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The costs of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure to properly remediate the contamination on such property, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Any person who arranges for the disposal or
treatment of hazardous or toxic substances at a disposal or treatment facility
also may be liable for the costs of removal or remediation of a release of
hazardous or toxic substances at such disposal or treatment facility, whether or
not such facility is owned or operated by such person. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs that it incurs in connection with the
contamination. Finally, the owner of a site may be subject to common law claims
by third parties based on damages and costs resulting from environmental
contamination emanating from a site.
Certain federal, state and local laws, regulations and ordinances
govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACM") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws may
impose liability for release of ACM and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACM. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs. All ACM in the
Company's buildings has been found to be in good condition and non-friable, and
should not present a risk as long as it continues to be properly managed.
The Company's environmental assessments of its properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on its business, assets or results of operations taken
as a whole, nor is the Company aware of any such material environmental
liability. Nevertheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that future laws, ordinances or regulations will not impose any material
environmental liability or the current environmental condition of the Company's
properties will not be affected by tenants, by the condition of land or
operations in the vicinity of such properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the
Company's common stock in public markets will be the annual dividend yield on
the share price reflected by dividend distributions by the Company. An increase
in market interest rates could reduce cash available for distribution by the
Company to its shareholders and, accordingly, adversely affect the market price
of the common stock.
INFORMATION SYSTEMS AND THE YEAR 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As
dates in the year 2000 are required, such systems may be unable to accurately
process certain date-based information. All significant accounting applications
used by the Company are packaged software products licensed from various
computer software companies. During 1998, the Company began implementing its
existing plan to upgrade its significant accounting applications from DOS-based
software to Windows-based software. As of July 1999, all of the Company's
significant accounting applications had been upgraded to either Windows-based
software or versions of DOS-based software, which are Year 2000 compliant.
The Company completed an assessment of its critical building operating
systems (HVAC, lighting, security and elevators) regarding Year 2000 Compliance.
This assessment determined that the costs of dealing with timing devices which
are not Year 2000 Compliant would not be material to the Company's financial
position or results of operations. The
22
<PAGE> 23
Company has experienced no material problems with its building operating systems
during 2000. The total cost to the Company of these Year 2000 Compliance
activities has not been and is not anticipated to be material to its financial
position or results of operations in any given year.
ADDITIONAL INFORMATION
For additional disclosure of risk factors to which the Company is
subject, see the other sections of "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company currently has a $150 million secured revolving credit
facility with variable interest rates. The Company may incur additional variable
rate debt in the future to meet its financing needs. Increases in interest rates
on such debt could increase the Company's interest expense, which would
adversely affect the Company's cash flow and its ability to pay distributions to
its shareholders. The Company has not entered into any interest rate hedge
contracts in order to mitigate the interest rate risk with respect to the
secured revolving credit facility. As of December 31, 1999, the Company had $94
million outstanding under the secured revolving credit facility. If the weighted
average interest rate on this variable rate debt were 100 basis points higher or
lower, annual interest expense would be increased or decreased by approximately
$940,000.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Independent Auditors' Report..................................... 25
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999
and 1998................................................. 26
Consolidated Statements of Operations for Each
of the Three Years in the Period Ended
December 31, 1999........................................ 27
Consolidated Statements of Changes in Shareholders'
Equity for Each of the Three Years in the
Period Ended December 31, 1999......................... 28
Consolidated Statements of Cash Flows for Each
of the Three Years in the Period Ended
December 31, 1999........................................ 29
Notes to Consolidated Financial Statements for
Each of the Three Years in the Period Ended
December 31, 1999........................................ 30
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
for the Three Years Ended December 31, 1999.............. 40
Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1999..................... 41
</TABLE>
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Koger Equity,
Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedules listed in the
Index at Item 8. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Koger Equity, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Jacksonville, Florida
February 18, 2000
25
<PAGE> 26
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Real estate investments:
Operating properties:
Land $ 140,061 $ 137,047
Buildings 784,769 731,558
Furniture and equipment 2,693 3,578
Accumulated depreciation (137,452) (129,682)
--------- ---------
Operating properties - net 790,071 742,501
Properties under construction:
Land 8,347 11,318
Buildings 41,912 31,562
Undeveloped land held for investment 16,034 19,272
Undeveloped land held for sale, net of allowance 1,103 1,263
Cash and temporary investments -- 4,827
Accounts receivable, net of allowance for uncollectible
accounts of $440 and $436 10,512 6,158
Investment in Koger Realty Services, Inc. 2,319 1,661
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of $1,025 and $855 1,530 1,700
Other assets 13,911 14,733
--------- ---------
TOTAL ASSETS $ 885,739 $ 834,995
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and loans payable $ 351,528 $ 307,903
Accounts payable 12,716 12,139
Accrued real estate taxes payable 1,383 4,407
Accrued liabilities - other 13,162 9,288
Dividends payable 9,370 7,971
Advance rents and security deposits 6,570 5,432
--------- ---------
Total Liabilities 394,729 347,140
--------- ---------
Minority interest 23,184 23,092
--------- ---------
Commitments and contingencies (Notes 2 and 10)
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares
authorized; issued: none
Common stock, $.01 par value; 100,000,000 shares
authorized; issued: 28,756,121 and 28,559,751 shares;
outstanding: 26,770,862 and 26,571,068 shares 288 286
Capital in excess of par value 457,945 454,988
Retained earnings 30,546 30,020
Treasury stock, at cost; 1,985,259 and 1,988,683 shares (20,953) (20,531)
--------- ---------
Total Shareholders' Equity 467,826 464,763
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 885,739 $ 834,995
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 27
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
REVENUES
Rental $155,466 $133,076 $ 108,924
Other rental services 687 587 577
Management fees 2,384 2,277 2,637
Income from Koger Realty Services, Inc. 1,099 1,696 577
Interest 457 446 1,274
-------- -------- ---------
Total revenues 160,093 138,082 113,989
-------- -------- ---------
EXPENSES
Property operations 60,582 53,719 44,453
Depreciation and amortization 32,314 28,381 24,073
Mortgage and loan interest 21,893 16,616 16,517
General and administrative 8,633 6,953 6,374
Direct cost of management fees 1,432 1,368 1,896
Other 1,143 383 413
Recovery of loss on land held for sale -- -- (379)
-------- -------- ---------
Total expenses 125,997 107,420 93,347
-------- -------- ---------
INCOME BEFORE GAIN ON SALE OR DISPOSITION OF
ASSETS, INCOME TAXES, MINORITY INTEREST
AND EXTRAORDINARY ITEM 34,096 30,662 20,642
Gain on sale or disposition of assets 3,851 35 1,955
-------- -------- ---------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM 37,947 30,697 22,597
Income taxes 187 956 935
-------- -------- ---------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 37,760 29,741 21,662
Minority interest 1,174 139 --
-------- -------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 36,586 29,602 21,662
Extraordinary loss on early retirement of debt -- -- 458
-------- -------- ---------
NET INCOME $ 36,586 $ 29,602 $ 21,204
======== ======== =========
EARNINGS PER SHARE:
Basic -
Income before extraordinary item $ 1.37 $ 1.13 $ 1.01
Extraordinary loss -- -- (0.02)
-------- -------- ---------
Net Income $ 1.37 $ 1.13 $ 0.99
======== ======== =========
Diluted -
Income before extraordinary item $ 1.35 $ 1.10 $ 0.96
Extraordinary loss -- -- (0.02)
-------- -------- ---------
Net Income $ 1.35 $ 1.10 $ 0.94
======== ======== =========
WEIGHTED AVERAGE SHARES:
Basic 26,689 26,294 21,374
======== ======== =========
Diluted 27,019 26,901 22,495
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 28
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL TOTAL
COMMON STOCK IN EXCESS SHARE-
---------------------
SHARES PAR OF PAR RETAINED TREASURY HOLDERS'
ISSUED VALUE VALUE WARRANTS EARNINGS STOCK EQUITY
-------- ------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 23,560 $ 236 $ 362,127 $ 2,243 $22,666 $(23,137) $364,135
Common stock sold 3,500 35 66,439 166 66,640
Treasury stock reissued 150 128 278
Treasury stock purchased (5,750) (5,750)
Warrants redeemed (236) (143) (379)
Warrants exercised 994 10 9,945 (2,007) 7,948
Options exercised 335 3 2,542 (22) 2,523
401(k) Plan contribution 248 195 443
Dividends declared (12,780) (12,780)
Net income 21,204 21,204
------- ------ --------- ------- ------- -------- --------
BALANCE,
DECEMBER 31, 1997 28,389 284 441,451 0 30,947 (28,420) 444,262
Common stock sold 12,104 8,430 20,534
Treasury stock purchased (583) (583)
Options exercised 171 2 1,307 (34) 1,275
401(k) Plan contribution 126 76 202
Dividends declared (30,529) (30,529)
Net income 29,602 29,602
------- ------ --------- ------- ------- -------- --------
BALANCE,
DECEMBER 31, 1998 28,560 286 454,988 0 30,020 (20,531) 464,763
Common stock sold 207 235 442
Treasury stock reissued 123 162 285
Treasury stock purchased (852) (852)
Options exercised 174 2 2,120 (40) 2,082
Restricted stock issued 22 368 (56) 312
401(k) Plan contribution 139 129 268
Dividends declared (36,060) (36,060)
Net income 36,586 36,586
------- ------ --------- ------- ------- -------- --------
BALANCE,
DECEMBER 31, 1999 28,756 $ 288 $ 457,945 $ 0 $30,546 $(20,953) $467,826
======= ====== ========= ======= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 29
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 36,586 $ 29,602 $ 21,204
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 32,314 28,381 24,073
Income from Koger Realty Services, Inc. (1,099) (1,696) (577)
Provision for uncollectible accounts 349 300 224
Minority interest 1,174 139 --
Gain on sale or disposition of assets (3,851) (35) (1,955)
Loss on early retirement of debt -- -- 458
Recovery of loss on land held for sale -- -- (379)
Amortization of mortgage discounts -- -- 86
Changes in assets and liabilities:
Increase in accounts payable, accrued
liabilities and other liabilities 3,677 8,095 7,906
Increase in accounts receivable and other assets (3,665) (1,735) (842)
--------- --------- ---------
Net cash provided by operating activities 65,485 63,051 50,198
--------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sales of assets 68,763 35 6,244
Dividends received from Koger Realty Services, Inc. 441 507 364
Property acquisitions (64,158) (83,337) (75,774)
Building construction expenditures (55,979) (53,137) (26,099)
Tenant improvements to first generation space (7,053) (5,020) (701)
Tenant improvements to existing properties (13,204) (11,655) (7,513)
Building improvements (4,573) (4,267) (3,116)
Energy management improvements (245) (283) (572)
Deferred tenant costs (2,663) (2,702) (1,997)
Additions to furniture and equipment (427) (1,358) (651)
--------- --------- ---------
Net cash used in investing activities (79,098) (161,217) (109,815)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgages and loans 171,052 136,002 56,300
Proceeds from sales of common stock 442 20,534 66,640
Proceeds from exercise of warrants and stock options 1,835 1,128 10,252
Principal payments on mortgages and loans (127,427) (40,749) (77,749)
Dividends paid (34,661) (28,910) (7,473)
Distributions paid to limited partners (1,082) -- --
Treasury stock purchased (852) (583) (5,750)
Warrants redeemed -- -- (379)
Financing costs (521) (1,384) (984)
--------- --------- ---------
Net cash provided by financing activities 8,786 86,038 40,857
--------- --------- ---------
Net decrease in cash and cash equivalents (4,827) (12,128) (18,760)
Cash and cash equivalents - beginning of year 4,827 16,955 35,715
--------- --------- ---------
Cash and cash equivalents - end of year $ 0 $ 4,827 $ 16,955
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
ORGANIZATION. Koger Equity, Inc. ("KE") was incorporated in Florida on
June 21, 1988. KE has two wholly-owned subsidiaries, which are Southeast
Properties Holding Corporation ("Southeast"), a Florida corporation, and Koger
Real Estate Services, Inc. ("KRES"), a Florida corporation. Koger-Vanguard
Partners, L.P. ("KVP") is a Delaware limited partnership, for which KE is the
general partner.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of KE, its wholly-owned subsidiaries and KVP (the
"Company"). All material intercompany accounts have been eliminated in
consolidation.
INVESTMENT IN KOGER REALTY SERVICES, INC. Koger Realty Services, Inc.,
a Delaware corporation ("KRSI"), provides leasing and property management
services to owners of commercial office buildings. The Company owns 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 and is not
convertible into the common stock of KRSI while held by the Company. The Company
has accounted for its investment in the preferred stock of KRSI using the equity
method.
REAL ESTATE INVESTMENTS. Operating properties, properties under
construction, furniture and equipment, and undeveloped land held for investment
are stated at cost less accumulated depreciation. Undeveloped land held for sale
is carried at the lower of cost or fair value less selling costs.
Periodically, management reviews its portfolio of operating properties,
undeveloped land held for investment and related goodwill and in those instances
where properties have suffered an impairment in value, the properties and
related goodwill will be reduced to their fair value. This review includes a
quarterly analysis of occupancy levels and rental rates for the Company's
properties in order to identify properties, which may have suffered an
impairment in value. Management prepares estimates of future cash flows for
these properties to determine whether the Company will be able to recover its
investment. In making such estimates, management considers the conditions in the
commercial real estate markets in which the properties are located, current and
expected occupancy rates, current and expected rental rates, and expected
changes in operating costs. As of December 31, 1999, there were no such
impairments in value. Maintenance and repairs are charged to operations.
Acquisitions, additions, and improvements are capitalized.
MINORITY INTEREST. During October 1998, KE acquired a suburban office
park for a purchase price of $52.3 million. The transaction was structured as a
contribution of the property to KVP in exchange for limited partner units valued
at $22.95 million. In connection with this transaction, KVP assumed $22.2
million of debt and received a contribution of $7.2 million from KE in exchange
for general partner interests. The limited partner units are entitled to a
cumulative preferred return, which approximates the average dividend rate on
KE's shares. In addition, the limited partner units carry with them the right to
redeem the units for common shares of KE on a one-unit-for-one-share basis or,
at the option of KE, the units may be redeemed for cash. KE has reported KVP's
assets, liabilities and operations in its consolidated financial statements. The
limited partnership units and earnings thereon are reported as minority
interests.
DEPRECIATION AND AMORTIZATION. The Company uses the straight-line
method for depreciation and amortization. Acquisition costs, building
improvements and tenant improvements are depreciated over the periods benefited
by the expenditures which range from 3 to 40 years. Deferred tenant costs
(leasing commissions and tenant relocation costs) are amortized over the term of
the related leases. Deferred financing costs are amortized over the terms of the
related agreements. Cost in excess of fair value of net assets acquired is being
amortized over 15 years.
30
<PAGE> 31
REVENUE RECOGNITION. Rentals are generally recognized as revenue over
the lives of leases according to provisions of the lease agreements. However,
the straight-line basis, which averages annual minimum rents over the terms of
leases, is used to recognize minimum rental revenues under leases which provide
for material varying rents over their terms. For 1999, 1998 and 1997, the
recognition of rental revenues on this basis for applicable leases increased
rental revenues by $1,764,000, $1,335,000 and $454,000, respectively, over the
amount which would have been recognized based upon the contractual provisions of
these leases. Interest revenue is recognized on the accrual basis for
interest-earning investments.
FEDERAL INCOME TAXES. The Company is qualified and has elected tax
treatment as a real estate investment trust under the Internal Revenue Code (a
"REIT"). Accordingly, the Company distributes at least 95 percent of its REIT
taxable income to its shareholders. To the extent that the Company pays
dividends equal to 100 percent of REIT taxable income, the earnings of the
Company are taxed at the shareholder level. However, the use of net operating
loss carryforwards, which may reduce REIT taxable income to zero, are limited
for alternative minimum tax purposes.
EARNINGS PER COMMON SHARE. Basic earnings per common share has been
computed based on the weighted average number of shares of common stock
outstanding for each period. Diluted earnings per common share is similar to
basic earnings per share except that the weighted average number of common
shares outstanding is increased to include the number of additional common
shares that would have been outstanding if the dilutive common shares (options
and warrants) had been issued. The treasury stock method is used to calculate
dilutive shares which reduces the gross number of dilutive shares by the number
of shares purchasable from the proceeds of the options and warrants assumed to
be exercised. Following is a reconciliation of number of shares (in thousands)
used in the computation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average number of common
shares outstanding - Basic 26,689 26,294 21,374
Effect of dilutive securities:
Stock options 330 607 736
Warrants 385
------ ------ ------
Adjusted common shares - Diluted 27,019 26,901 22,495
====== ====== ======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company believes that the
carrying amount of its financial instruments (temporary investments, accounts
receivable, accounts payable, and mortgages and loans payable) is a reasonable
estimate of fair value of these instruments.
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 of less than three months and are deemed to be cash
equivalents for purposes of the statements of cash flows.
During 1997, the Company contributed 23,657 shares of common stock to
the Company's 401(k) Plan. These shares had a value of approximately $443,000
based on the closing price of the Company's common stock on the American Stock
Exchange on December 31, 1996. During 1998, the Company contributed 9,197 shares
of common stock to the Company's 401(k) Plan. These shares had a value of
approximately $202,000 based on the closing price of the Company's common stock
on the American Stock Exchange on December 31, 1997. The Company assumed certain
mortgage loans with outstanding balances of $30.7 million in conjunction with
certain property acquisitions during 1998. In addition, KVP issued $22,953,000
of limited partner units in conjunction with a property acquisition during 1998.
During 1999, the Company contributed 15,603 shares of common stock to the
Company's 401(k) Plan. These shares had a value of approximately $268,000 based
on the closing price of the Company's common stock on the American Stock
Exchange on December 31, 1998. In addition, the Company issued 19,695 shares of
common stock as payment for certain 1998 bonuses for senior management. These
shares had a value of approximately $285,000 based on the closing price of the
Company's common stock on the American Stock Exchange on February 18, 1999.
31
<PAGE> 32
For 1999, 1998 and 1997, total interest payments (net of amounts
capitalized) were $21,353,000, $15,015,000 and $16,426,000, respectively, for
the Company. Interest capitalized during 1999, 1998 and 1997 totaled $3,343,000,
$2,974,000 and $914,000, respectively. For 1999, 1998 and 1997, payments for
income taxes totaled $455,000, $1,233,000 and $690,000, respectively.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during each
reporting period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH RELATED PARTIES.
Three directors were elected to the Company's Board of Directors under
the terms of an agreement dated October 10, 1996 between the Company and an
affiliate of Apollo Real Estate Investment Fund II, L.P. ("Apollo") pursuant to
which Apollo purchased three million shares of common stock from the Company for
$43.5 million ($14.50 per share). Such agreement granted to Apollo registration
rights and a conditional exemption from certain of the Company's takeover
defenses for a period of three years, which period ended on October 10, 1999.
In connection with a public offering of 3.5 million shares of the
Company's common stock (the "Shares") which closed in December 1997, the Company
entered a purchase agreement with AREIF II Realty Trust, Inc., an affiliate of
Apollo, whereby the latter acquired 500,000 of the publicly offered Shares at a
price of $19.14 per share or aggregate proceeds to the Company of $9.57 million.
The price to the public of the remaining 3,000,000 Shares was $20.25 or an
aggregate offering price of $60.75 million. The underwriting discount on these
Shares was $1.11 making the per share proceeds to the Company of $19.14 or
aggregate proceeds of $57.42 million.
3. MORTGAGES AND LOANS PAYABLE.
The Company has $235 million of non-recourse loans ($227.5 million of
which was outstanding on December 31, 1999) with Northwestern Mutual Life
Insurance Company ("Northwestern") which are secured by 11 office parks. These
loans are divided into (i) a tranche in the amount of $100.5 million with a 10
year maturity and an average interest rate of 8.19 percent, (ii) a tranche in
the amount of $89.5 million with a maturity of 12 years and an interest rate of
8.33 percent, (iii) a tranche in the amount of $14.7 million which matures on
January 2, 2007 and an interest rate of 7.1 percent and (iv) a tranche in the
amount of $30.3 million which matures on January 2, 2009 and an interest rate of
7.1 percent. Monthly payments on this loan include principal amortization based
on a 25 year amortization period. This indebtedness requires the Company to
maintain certain financial ratios and is collateralized by properties with a
carrying value of approximately $324.1 million at December 31, 1999.
The Company has a $150 million secured revolving credit facility ($94
million of which was outstanding on December 31, 1999) provided by First Union
National Bank of Florida, AmSouth Bank, N.A., Citizens Bank of Rhode Island,
Compass Bank and Guaranty Federal Bank. Based on the Company's election, the
interest rate on this revolving credit facility (8.0 percent at December 31,
1999) will be either (i) the lender's LIBOR rate plus either 130, 145 or 160
basis points (depending on the Company's leverage ratio) or (ii) the lender's
prime rate. Interest payments will be due monthly on this credit facility which
has a term of three years. This credit facility requires the Company to maintain
certain financial ratios, which includes a limitation on dividends, and is
collateralized by properties with a carrying value of approximately $226.7
million at December 31, 1999. This credit facility matures in December 2001.
During 1998, the Company assumed other non-recourse loans with
outstanding balances of $30.7 million ($30 million of which was outstanding on
December 31, 1999) in conjunction with certain property acquisitions. The
contractual interest rates on these loans range from 7.25 percent to 8.2
percent. Amortization with respect to this indebtedness is based on equal
monthly installments based on 25-year amortization periods. These three loans
mature in 2002, 2006 and 2021.
32
<PAGE> 33
The annual maturities of mortgages and loans payable, as of December
31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
DECEMBER 31, (IN THOUSANDS)
------------ -------------
<S> <C>
2000 $ 4,241
2001 98,606
2002 12,704
2003 5,202
2004 5,632
Subsequent Years 225,143
--------
Total $351,528
========
</TABLE>
4. LEASES.
The Company's operations consist principally of owning and leasing of
office space. Most of the leases are for terms of three to five years.
Generally, the Company pays all operating expenses, including real estate taxes
and insurance. At December 31, 1999, approximately 96 percent of the Company's
annualized rentals were subject to rent escalations based on changes in the
Consumer Price Index, fixed rental increases or increases in real estate taxes
and certain operating expenses. A substantial number of leases contain options
that allow leases to renew for varying periods.
The Company's leases are operating leases and expire at various dates
through 2014. Minimum future rental revenues from leases in effect at December
31, 1999, determined without regard to renewal options, are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
DECEMBER 31, (IN THOUSANDS)
------------ -------------
<S> <C>
2000 $139,616
2001 116,328
2002 94,899
2003 68,839
2004 43,624
Subsequent Years 101,262
--------
Total $564,568
========
</TABLE>
The above minimum future rental revenue does not include contingent
rentals that may be received under provisions of the lease agreements.
Contingent rentals amounted to $9,638,000, $4,724,000 and $2,850,000 for the
years 1999, 1998, and 1997, respectively.
At December 31, 1999, annualized rental revenues totaled approximately
$16,534,000 for the State of Florida, when all of its departments and agencies
which lease space in the Company's buildings were combined.
5. STOCK OPTIONS AND RIGHTS.
1988 STOCK OPTION PLAN. The Company's Amended and Restated 1988 Stock
Option Plan (the "1988 Plan") provides for the granting of options to purchase
up to 500,000 shares of its common stock to key employees of the Company and its
subsidiaries. To exercise the option, payment of the option price is required
before the option shares are delivered. These options expire seven years from
the date of grant and are generally exercisable beginning one year from the date
of the grant at the rate of 20 percent per annum of the shares covered by each
option on a cumulative basis being fully exercisable five years after the date
of grant.
33
<PAGE> 34
1993 STOCK OPTION PLAN. The Company's 1993 Stock Option Plan (the "1993
Plan") provides for the granting of options to purchase up to 1,000,000 shares
of its common stock to key employees of the Company and its affiliates. To
exercise the option, payment of the option price is required before the option
shares are delivered. These options expire ten years from the date of grant and
are generally exercisable beginning one year from the date of the grant at the
rate of 20 percent per annum of the shares covered by each option on a
cumulative basis being fully exercisable five years after the date of grant.
1996 STOCK OPTION PLAN. The Company's 1996 Stock Option Plan (the "1996
Plan") provides for the granting of options to purchase up to 650,000 shares of
its common stock to key employees of the Company. To exercise the option,
payment of the option price is required before the option shares are delivered.
These options expire ten years from the date of grant and are exercisable
beginning one year from the date of the grant at the rate of 20 percent per
annum of the shares covered by each option on a cumulative basis being fully
exercisable five years after the date of grant.
1998 EQUITY AND CASH INCENTIVE PLAN. The Company's 1998 Equity and Cash
Incentive Plan (the "1998 Plan") provides for the issuance of up to 1,000,000
shares of its common stock pursuant to the grant of awards under this plan which
may include stock options, stock appreciation rights, restricted stock,
unrestricted stock, deferred stock and performance awards (in cash or stock or
combinations thereof). Options granted pursuant to the 1998 Plan would expire
ten years from the date of grant.
INFORMATION CONCERNING OPTIONS GRANTED. Substantially all of the
options granted have been granted with an exercise price equal to the market
value at the date of grant. If compensation cost for stock option grants had
been determined based on the fair value at the grant dates for 1999, 1998 and
1997 consistent with the method prescribed by SFAS No. 123, the Company's net
earnings and earnings per share would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net income - As reported $36,586,000 $29,602,000 $21,204,000
- Pro forma $35,208,000 $27,688,000 $19,355,000
Diluted earnings per share - As reported $ 1.35 $ 1.10 $ 0.94
- Pro forma $ 1.30 $ 1.03 $ 0.86
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant using the binomial option-pricing model with the following
weighted average assumptions used for grants in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
1988 PLAN
Dividend yield -- -- 5.00%
Expected volatility -- -- 23.71%
Risk-free interest rates -- -- 5.94%
Expected lives (months) -- -- 38
1999 1998 1997
------ ------ -------
1993 PLAN, 1996 PLAN, 1998 PLAN AND OTHER
Dividend yield -- 6.50% 5.00%
Expected volatility -- 20.29% 23.71%
Risk-free interest rates -- 5.47% 6.11%
Expected lives (months) -- 67 65
</TABLE>
34
<PAGE> 35
A summary of the status of fixed stock option grants as of December 31,
1999, 1998 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 2,514,721 $15.68 1,756,773 $11.98 1,928,959 $10.51
Granted -- -- 934,000 21.05 171,392 18.80
Exercised (174,571) 10.74 (170,556) 6.80 (335,261) 6.94
Expired -- -- -- -- -- --
Forfeited (82,857) 18.17 (5,496) 19.81 (8,317) 14.85
--------- --------- --------
Outstanding - end of year 2,257,293 $15.97 2,514,721 $15.68 1,756,773 $11.98
========= ====== ========= ====== ========= ======
</TABLE>
There were no options granted during 1999. The weighted average fair
values of options granted during 1998 and 1997 were $2.71 and $4.35 per option,
respectively.
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE OPTIONS OPTIONS WEIGHTED AVERAGE
PRICE OUTSTANDING EXERCISABLE REMAINING LIFE
----- ----------- ----------- --------------
(Months)
<S> <C> <C> <C>
$ 7.5000 130,700 90,148 60
7.6250 346,933 346,933 42
8.1250 3,600 2,400 64
11.5000 135,464 115,388 65
15.3750 631,214 399,914 83
19.1250 10,000 4,000 91
19.8125 101,882 46,768 91
20.0000 428,000 85,600 104
21.2500 25,000 25,000 101
21.5625 36,500 7,300 97
21.8750 283,000 93,924 98
22.8125 125,000 41,663 98
--------- ---------
2,257,293 1,259,038 82
========= ========= ====
</TABLE>
Remaining non-exercisable options as of December 31, 1999 become
exercisable as follows:
<TABLE>
<CAPTION>
NUMBER
YEAR OF OPTIONS
---- ----------
<S> <C>
2000 450,411
2001 353,544
2002 100,800
2003 93,500
-------
998,255
=======
</TABLE>
SHAREHOLDER RIGHTS PLAN. Pursuant to a Shareholder Rights Plan (the
"Rights Plan"), on September 30, 1990, the Board of Directors of the Company
declared a dividend of one Common Stock Purchase Right for each outstanding
share of common stock of the Company. Under the terms of the Rights Plan, the
rights which were distributed to the shareholders of record on October 11, 1990,
trade together with the Company's Shares and are not exercisable until the
occurrence of certain events (none of which have occurred through December 31,
1999), including acquisition of, or commencement of a tender offer for, 15
percent or more of the Company's common stock. In such event, each right
35
<PAGE> 36
entitles its holder (other than the acquiring person or bidder) to acquire
additional shares of the Company's common stock at a fifty percent discount from
the market price. The rights are redeemable under circumstances as specified in
the Rights Plan. The Rights Plan was amended effective October 10, 1996 for a
certain shareholder and its affiliates. See Note 2 for further discussion of
this amendment.
6. STOCK INVESTMENT PLAN.
The Company has a monthly stock investment plan (the "SIP") which
provides for regular purchases of the Company's Shares by all employees and
directors. The SIP provides for monthly payroll and directors' fees deductions
up to $1,700 per month with the Company making monthly contributions for the
account of each participant as follows: (i) 25 percent of amounts up to $50;
(ii) 20 percent of amounts between $50 and $100; and (iii) 15 percent of amounts
between $100 and $1,700, which amounts are used by an unaffiliated Administrator
to purchase Shares from the Company.
The Company has reserved a total of 200,000 Shares for issuance under
the SIP. The Company's contribution and the expenses incurred in administering
the SIP totaled approximately $54,700, $58,500 and $59,300 for 1999, 1998 and
1997, respectively. Through December 31, 1999, 115,349 Shares have been issued
under the SIP.
7. EMPLOYEE BENEFIT PLANS.
The Company has a 401(k) plan (the "401(k) Plan") which permits
contributions by employees. For 1997, the Company's Board of Directors approved
a Company contribution to the 401(k) Plan in the form of the Company's Shares
(9,197 Shares which had a value of approximately $202,000 on December 31, 1997).
The contribution for 1997 was made during February 1998. For 1998, the Company's
Board of Directors approved a Company contribution to the 401(k) Plan in the
form of the Company's Shares (15,603 Shares which had a value of approximately
$268,000 on December 31, 1998). The contribution for 1998 was made during
February 1999. For 1999, the Company's Board of Directors approved a Company
contribution to the 401(k) Plan in the form of the Company's Shares (15,358
Shares which had a value of approximately $259,000 on December 31, 1999). The
contribution for 1999 was made on February 18, 2000.
The Company has a supplemental executive retirement plan (the "SERP"),
an unfunded defined benefit plan. The purpose of the SERP is to facilitate the
retirement of select key executive employees by supplementing their benefits
under the Company's 401(k) Plan. The benefits are based on years of service and
the employee's average base salary during the last three calendar years of
employment.
Net periodic pension cost for the SERP for 1999, 1998 and 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ---- ----
<S> <C> <C> <C>
Service cost $ 182 $ 28 $ 25
Interest cost 481 328 287
Amortization of unrecognized prior service cost 418 203 203
Amortization of unrecognized net loss 39 67 41
------ ---- ----
Total $1,120 $626 $556
====== ==== ====
</TABLE>
Assumptions used in the computation of net periodic pension cost for
the SERP were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Rate of increase in salary levels 5.0% 5.0% 5.0%
</TABLE>
36
<PAGE> 37
The following table provides a reconciliation of benefit obligations,
the status of the unfunded SERP and the amounts included in accrued
liabilities-other in the Consolidated Balance Sheet at December 31, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 4,681 $ 4,092
Service cost 182 28
Interest cost 481 328
Amendments 1,788 0
Actuarial (gain)/loss (19) 339
Benefits paid (132) (106)
------- -------
Benefit obligation at end of year 6,981 4,681
======= =======
Change in plan assets
Fair value of plan assets at beginning of year 0 0
Expected return on plan assets 0 0
Employer contribution 132 106
Benefits paid (132) (106)
------- -------
Fair value of plan assets at end of year 0 0
======= =======
Funded status (6,981) (4,681)
Unrecognized prior service cost 3,257 1,888
Unrecognized actuarial loss 1,048 1,106
------- -------
Net amount recognized (2,676) (1,687)
======= =======
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability (2,676) (1,687)
Additional minimum liability (2,362) (1,724)
Intangible asset 2,362 1,724
------- -------
Net amount recognized $(2,676) $(1,687)
======= =======
</TABLE>
8. DIVIDENDS.
During 1999, 1998 and 1997, the Company paid a total of $1.30, $1.10
and $0.35 per share of dividends, respectively. The Company intends that the
quarterly dividend payout in the last quarter of each year will be adjusted to
reflect the distribution of at least 95 percent of the Company's REIT taxable
income as required by the Federal income tax laws. The Company's secured
revolving credit facility requires the Company to maintain certain financial
ratios, which includes a limitation on dividends. During December 1999, the
Company's Board of Directors declared a quarterly dividend of $0.35 per share
payable on February 3, 2000, to shareholders of record on December 31, 1999.
9. FEDERAL INCOME TAXES.
The Company is operated in a manner so as to qualify and has elected
tax treatment as a REIT. For the year ended December 31, 1999, the Company's
taxable income prior to the dividends paid deduction was approximately
$34,661,000 (which equals the Company's 1999 dividends paid deduction). The
Company's taxable income prior to the dividends paid deduction for the years
ended December 31, 1998 and 1997 was approximately $28,910,000 and $7,473,000,
respectively. The difference between net income for financial reporting purposes
and taxable income results primarily from different methods of accounting for
bad debts, depreciable lives related to the properties owned, advance rents
received and net operating loss carryforwards. At December 31, 1999, the net
book basis of the Company's assets and liabilities exceeded the net tax basis of
assets and liabilities in the amount of approximately $37.3 million.
37
<PAGE> 38
The Company utilized approximately $1,901,000 and $15,610,000 of net
operating loss carryforwards to reduce REIT taxable income for 1998 and 1997,
respectively. The Company's net operating loss carryforward available to offset
REIT taxable income for 1999 is approximately $5,020,000. The use of net
operating loss carryforwards and other tax attributes by the Company is subject
to certain limitations imposed by Internal Revenue Code Sections 382 and 383.
These limitations apply to both regular and alternative minimum taxes. These net
operating loss carryforwards and other tax attributes can be used in varying
degrees to offset REIT taxable income or tax through 2007. For 1998 and 1997,
the Company incurred alternative minimum taxes of approximately $380,000 and
$603,000, respectively, and recorded a provision for alternative minimum taxes
of approximately $135,000 for 1999.
10. COMMITMENTS AND CONTINGENCIES.
At December 31, 1999, the Company had commitments for the construction
of buildings and improvements to existing buildings of approximately $10
million.
11. SUBSEQUENT EVENTS (UNAUDITED).
On February 17, 2000, the Company's Board of Directors (the "Board")
approved a program to lend up to $2.5 million to executive officers and
department heads for the purpose of exercising options. The loans will have a
term of 60 months and will bear interest at 150 basis points over the applicable
LIBOR rate. These loans will be recourse loans and will be collateralized by the
stock obtained from the option exercise. In addition, each loan may not exceed
75 percent of the value of the collateral.
On February 17, 2000, the Board adopted severance agreements for the
three senior executive officers of the Company. These agreements provide for the
following upon termination: (1) immediate vesting of all benefits under the
Company's Supplemental Executive Retirement Plan; (2) immediate vesting of all
options granted; and (3) severance payments (of approximately $3.7 million)
based upon the formula of 300 percent of annual base salary plus the average
annual bonus for the prior three years.
Effective March 1, 2000, Thomas J. Crocker was appointed Chief
Executive Officer and Robert E. Onisko was appointed Chief Financial Officer. In
addition, Mr. Crocker was elected to the Company's Board of Directors.
The Company granted options to purchase 1,146,000 shares of its common
stock to certain key employees on February 17, 2000. All options were granted
with an exercise price equal to the market value at the date of grant.
In conjunction with the Company's plan to repurchase up to 2.65 million
shares of its common stock, the Board granted to Thomas Crocker, Chief Executive
Officer, the right to purchase up to 500,000 Shares and to Robert Onisko, Chief
Financial Officer, the right to purchase up to 150,000 Shares. These officers
are entitled to make purchases of one Share of every three Shares purchased by
the Company as part of this plan. The Shares may be purchased at the same time
and for the same price as the Company purchases Shares. In addition, the Company
will loan up to 75 percent of the purchase price for these Shares to Mr. Crocker
and Mr. Onisko. These loans will be collateralized by the Shares purchased and
will be without recourse. The loan amount can not exceed 75 percent of the
collateral value at any point in time. These loans will bear interest at 150
basis points over the applicable LIBOR rate.
38
<PAGE> 39
12. INTERIM FINANCIAL INFORMATION (UNAUDITED).
Selected quarterly information for the two years in the period ended
December 31, 1999 is presented below (in thousands except per share amounts):
<TABLE>
<CAPTION>
TOTAL DILUTED
RENTAL TOTAL NET EARNINGS
QUARTERS ENDED REVENUES REVENUES INCOME PER SHARE
-------------- -------- -------- ------- ---------
<S> <C> <C> <C> <C>
March 31, 1998 $30,335 $31,417 $ 7,664 $ .29
June 30, 1998 32,384 33,658 6,961 .26
September 30, 1998 34,476 35,315 7,738 .29
December 31, 1998 36,468 37,692 7,239 .26
March 31, 1999 38,121 39,372 8,750 .33
June 30, 1999 39,062 39,446 8,124 .30
September 30, 1999 (1) 39,157 40,458 11,538 .43
December 31, 1999 39,813 40,817 8,174 .30
</TABLE>
(1) The results for the quarter ended September 30, 1999 were affected by a gain
on the sale of assets, which totaled $3,861.
39
<PAGE> 40
SCHEDULE II
KOGER EQUITY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1999
- ----
Allowance for uncollectible accounts $ 436 $ 349 $ 0 $ 345(a) $ 440
======== ========= ========== ======== ========
Valuation allowance - land held for sale $ 279 $ 0 $ 0 $ 0 $ 279
======== ========= ========== ======== ========
1998
- ----
Allowance for uncollectible accounts $ 250 $ 300 $ 0 $ 114(a) $ 436
======== ========= ========= ======== ========
Valuation allowance - land held for sale $ 279 $ 0 $ 0 $ 0 $ 279
======== ========= ========= ======== ========
1997
- ----
Allowance for uncollectible accounts $ 231 $ 224 $ 0 $ 205(a) $ 250
======== ========= ========= ======== ========
Valuation allowance - land held for sale $ 1,020 $ (679) $ 0 $ 62(b) $ 279
======== ========= ========= ========= ========
</TABLE>
(a) Receivable balance which was determined to be uncollectible and written-off
in the applicable year.
(b) Land parcel was sold for which valuation allowance had been recorded.
<PAGE> 41
SCHEDULE III
KOGER EQUITY, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT
INITIAL COST TO ACQUISITION TOTAL COST
------------------- -------------------- ------------------------------ (d)
BLDGS & IMPROVE CARRYING BLDGS & (b)(c) ACCUM.
CENTER/LOCATION LAND IMPROV. MENTS COSTS LAND IMPROV. TOTAL DEPR.
- --------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REAL ESTATE:
ATLANTA CHAMBLEE $ 12,800 $ 61,419 $ 13,420 $0 $ 12,800 $ 74,839 $ 87,639 $ 20,156
ATLANTA GWINNETT 1,763 12,669 1,194 0 1,763 13,863 15,626 818
ATLANTA PERIMETER 2,785 18,407 552 0 2,785 18,959 21,744 1,178
AUSTIN 4,274 13,650 4,192 0 4,274 17,842 22,116 4,657
BIRMINGHAM COLONNADE 6,054 33,689 292 0 6,054 33,981 40,035 1,502
BIRMINGHAM RETAIL 5,055 6,479 90 0 5,055 6,569 11,624 300
CHARLOTTE CARMEL 3,170 23,075 3,855 0 3,170 26,930 30,100 3,265
CHARLOTTE UNIVERSITY 3,132 20,003 0 0 3,132 20,003 23,135 85
CHARLOTTE VANGUARD 5,136 48,019 780 0 5,136 48,799 53,935 1,500
EL PASO 4,111 14,335 5,565 0 4,111 19,900 24,011 5,604
GREENSBORO SOUTH 6,384 38,700 6,821 0 6,384 45,521 51,905 11,105
GREENSBORO WENDOVER 691 6,391 547 0 691 6,938 7,629 244
GREENVILLE PARK CENTRAL 1,237 12,377 923 0 1,237 13,300 14,537 1,022
GREENVILLE ROPER MT. 4,782 21,227 4,774 0 4,782 26,001 30,783 6,553
JACKSONVILLE BAYMEADOWS 10,514 40,253 1,930 0 10,514 42,183 52,697 5,271
JACKSONVILLE JTB 4,189 25,932 1,528 0 4,189 27,460 31,649 543
MEMPHIS GERMANTOWN 7,017 32,368 4,362 0 7,017 36,730 43,747 7,888
ORLANDO CENTRAL 8,092 29,825 9,544 0 8,092 39,369 47,461 12,476
ORLANDO LAKE MARY 5,506 35,517 0 0 5,506 35,517 41,023 152
ORLANDO UNIVERSITY 4,163 17,221 2,668 0 4,163 19,889 24,052 3,339
RICHMOND PARAGON 1,422 15,144 890 0 1,422 16,034 17,456 895
ST. PETERSBURG 6,534 28,963 6,466 0 6,534 35,429 41,963 9,869
SAN ANTONIO AIRPORT 3,243 12,791 975 0 3,243 13,766 17,009 1,132
SAN ANTONIO WEST 11,068 37,882 13,247 0 11,068 51,129 62,197 13,610
TALLAHASSEE 10,624 59,536 10,280 0 10,624 69,816 80,440 17,188
TULSA 6,315 17,134 5,456 0 6,315 22,590 28,905 6,336
-------- -------- -------- -- -------- -------- -------- --------
SUBTOTALS 140,061 683,006 100,351 0 140,061 783,357 923,418 136,688
FURNITURE & EQUIPMENT 2,693 2,693 2,693 764
IMPROVEMENTS IN PROGRESS 1,412 1,412 1,412
-------- -------- -------- -- -------- -------- -------- --------
TOTAL OPERATING REAL ESTATE $140,061 $685,699 $101,763 $0 $140,061 $787,462 $927,523 $137,452
-------- -------- -------- -- -------- -------- -------- --------
<CAPTION>
(a)
MORT- DATE DEPRECIABLE
CENTER/LOCATION GAGES ACQUIRED LIFE
- --------------- ------- ------------- -------------
<S> <C> <C> <C>
OPERATING REAL ESTATE:
ATLANTA CHAMBLEE $ 0 1988 - 1993 3 - 40 YRS.
ATLANTA GWINNETT 0 1993 - 1998 3 - 39 YRS.
ATLANTA PERIMETER 0 1997 3 - 39 YRS.
AUSTIN 16,328 1990 - 1993 3 - 40 YRS.
BIRMINGHAM COLONNADE 0 1998 3 - 39 YRS.
BIRMINGHAM RETAIL 0 1998 3 - 39 YRS.
CHARLOTTE CARMEL 0 1993 - 1998 3 - 40 YRS.
CHARLOTTE UNIVERSITY 0 1999 3 - 39 YRS.
CHARLOTTE VANGUARD 21,788 1998 3 - 40 YRS.
EL PASO 8,645 1990 - 1999 3 - 40 YRS.
GREENSBORO SOUTH 0 1988 - 1993 3 - 40 YRS.
GREENSBORO WENDOVER 0 1993 - 1999 3 - 39 YRS.
GREENVILLE PARK CENTRAL 0 1997 3 - 39 YRS.
GREENVILLE ROPER MT. 14,456 1988 - 1998 3 - 40 YRS.
JACKSONVILLE BAYMEADOWS 38,086 1993 - 1998 3 - 40 YRS.
JACKSONVILLE JTB 0 1997 - 1999 3 - 39 YRS.
MEMPHIS GERMANTOWN 25,064 1988 - 1998 3 - 40 YRS.
ORLANDO CENTRAL 24,012 1988 - 1993 3 - 40 YRS.
ORLANDO LAKE MARY 0 1999 3 - 39 YRS.
ORLANDO UNIVERSITY 14,665 1990 - 1999 3 - 40 YRS.
RICHMOND PARAGON 8,232 1998 3 - 39 YRS.
ST. PETERSBURG 19,234 1988 - 1993 3 - 40 YRS.
SAN ANTONIO AIRPORT 0 1997 3 - 39 YRS.
SAN ANTONIO WEST 22,600 1990 - 1999 3 - 40 YRS.
TALLAHASSEE 44,418 1988 - 1997 3 - 40 YRS.
TULSA 0 1990 - 1993 3 - 40 YRS.
--------
SUBTOTALS 257,528
FURNITURE & EQUIPMENT 3 - 15 YRS.
IMPROVEMENTS IN PROGRESS
--------
TOTAL OPERATING REAL ESTATE $257,528
--------
</TABLE>
41
<PAGE> 42
SCHEDULE III
KOGER EQUITY, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT
INITIAL COST TO ACQUISITION TOTAL COST
------------------- -------------------- ----------------------------- (d)
BLDGS & IMPROVE- CARRYING BLDGS & (b)(c) ACCUM.
CENTER/LOCATION LAND IMPROV. MENTS COSTS LAND IMPROV. TOTAL DEPR.
- --------------- ------- -------- -------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES UNDER CONSTRUCTION:
ATLANTA CHAMBLEE $ 1,867 $ 7,103 $ 0 $ 0 $ 1,867 $ 7,103 $ 8,970 $ 0
ATLANTA GWINNETT 1,337 7,291 0 0 1,337 7,291 8,628 0
BIRMINGHAM COLONNADE 2,232 10,948 0 0 2,232 10,948 13,180 0
GREENVILLE PARK CENTRAL 0 112 0 0 0 112 112 0
JACKSONVILLE JTB 0 2,265 0 0 0 2,265 2,265 0
MEMPHIS GERMANTOWN 1,455 5,976 0 0 1,455 5,976 7,431 0
ORLANDO UNIVERSITY 855 3,138 0 0 855 3,138 3,993 0
ST. PETERSBURG 601 5,079 0 0 601 5,079 5,680 0
-------- -------- -------- ------ -------- -------- -------- --------
TOTAL UNDER CONSTRUCTION 8,347 41,912 0 0 8,347 41,912 50,259 0
-------- -------- -------- ------ -------- -------- -------- --------
UNIMPROVED LAND:
ATLANTA GWINNETT 3,743 0 0 0 3,743 0 3,743 0
BIRMINGHAM COLONNADE 4,886 0 0 0 4,886 0 4,886 0
CHARLOTTE CARMEL 991 0 0 0 991 0 991 0
CHARLOTTE VANGUARD 1,516 0 0 0 1,516 0 1,516 0
COLUMBIA SPRING VALLEY 76 0 0 0 76 0 76 0
GREENSBORO WENDOVER 800 0 0 0 800 0 800 0
GREENVILLE PARK CENTRAL 438 0 0 0 438 0 438 0
JACKSONVILLE JTB 1,366 0 0 0 1,366 0 1,366 0
ORLANDO CENTRAL 822 0 0 0 822 0 822 0
ORLANDO UNIVERSITY 762 0 0 0 762 0 762 0
RICHMOND SOUTH 481 0 0 0 481 0 481 0
ST. PETERSBURG 710 0 0 0 710 0 710 0
TULSA 546 0 0 0 546 0 546 0
-------- -------- -------- ------ -------- -------- -------- --------
TOTAL UNIMPROVED LAND 17,137 0 0 0 17,137 0 17,137 0
-------- -------- -------- ------ -------- -------- -------- --------
TOTAL $165,545 $727,611 $101,763 $ 0 $165,545 $829,374 $994,919 $137,452
======== ======== ======== ====== ======== ======== ======== ========
<CAPTION>
(a)
MORT- DATE DEPRECIABLE
CENTER/LOCATION GAGES ACQUIRED LIFE
- --------------- --------- ---------- ------------
<S> <C> <C> <C>
PROPERTIES UNDER CONSTRUCTION:
ATLANTA CHAMBLEE $ 0
ATLANTA GWINNETT
BIRMINGHAM COLONNADE 0
GREENVILLE PARK CENTRAL 0
JACKSONVILLE JTB 0
MEMPHIS GERMANTOWN 0
ORLANDO UNIVERSITY 0
ST. PETERSBURG 0
--------
TOTAL UNDER CONSTRUCTION 0
--------
UNIMPROVED LAND:
ATLANTA GWINNETT 0 1993
BIRMINGHAM COLONNADE 0 1998
CHARLOTTE CARMEL 0 1993
CHARLOTTE VANGUARD 0 1998
COLUMBIA SPRING VALLEY 0 1993
GREENSBORO WENDOVER 0 1993
GREENVILLE PARK CENTRAL 0 1997
JACKSONVILLE JTB 0 1998
ORLANDO CENTRAL 0 1989
ORLANDO UNIVERSITY 0 1993
RICHMOND SOUTH 0 1993
ST. PETERSBURG 0 1993
TULSA 0 1993
--------
TOTAL UNIMPROVED LAND 0
--------
TOTAL $257,528
========
</TABLE>
42
<PAGE> 43
SCHEDULE III
KOGER EQUITY, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
(a) At December 31, 1999, the outstanding balance of mortgages payable was
$257,528. In addition, the Company has a secured revolving credit
facility with variable interest rates which is collaterialized by
mortgages on a pool of buildings. At December 31, 1999, the outstanding
balance of the secured revolving credit facility was $94,000.
(b) Aggregate cost basis for Federal income tax purposes was $1,016,626 at
December 31, 1999.
(c) Reconciliation of total real estate carrying value for the years ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 935,598 $ 723,596 $ 613,093
Acquisitions and construction 120,564 191,472 102,524
Improvements 25,075 21,225 11,902
Sale of unimproved land (628) -- (4,287)
Sale or disposition of operating real estate (85,690) (695) (15)
Recovery of loss - land parcels -- -- 379
--------- --------- ---------
Balance at close of year $ 994,919 $ 935,598 $ 723,596
========= ========= =========
</TABLE>
(d) Reconciliation of accumulated depreciation for the years ended December
31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 129,682 $ 104,700 $ 82,478
Depreciation expense:
Operating real estate 28,800 25,146 21,795
Furniture and equipment 376 531 440
Sale or disposition of operating real estate (21,406) (695) (13)
--------- --------- ---------
Balance at close of year $ 137,452 $ 129,682 $ 104,700
========= ========= =========
</TABLE>
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors of the Company who are not executive
officers is contained in the Company's Proxy Statement (the "2000 Proxy
Statement") and is incorporated herein by reference.
The following tabulation lists the executive officers of the Company,
their ages and their occupations for the past five years:
<TABLE>
<S> <C>
Victor A. Hughes, Jr. .................. Chairman of the Board
Thomas J. Crocker....................... Chief Executive Officer and Director
James C. Teagle......................... President, Chief Operating Officer and Director
Robert E. Onisko........................ Chief Financial Officer
Robert N. Bridger....................... Senior Vice President
W. Lawrence Jenkins .................... Vice President of Administration and Corporate Secretary
James L. Stephens....................... Vice President and Chief Accounting Officer
</TABLE>
Mr. Hughes, age 64, was elected Chairman of the Board on June 21, 1996.
He also served as Chief Executive Officer from June 21, 1996 to February 29,
2000. He held the position of Chief Financial Officer of the Company from March
31, 1991 to April 1, 1998, and the position of President from August 22, 1995 to
November 14, 1997. Mr. Hughes also held the position of Senior Vice President of
the Company from May 20, 1991 to August 21, 1995. Mr. Hughes was elected to the
Board of Directors of the Company on July 27, 1992.
Mr. Crocker, age 46, became Chief Executive Officer of the Company on
March 1, 2000, and was elected to the Board of Directors of the Company on
February 17, 2000. He previously held the position of Chief Executive Officer of
Crocker Realty Trust, Inc., a private real estate investment trust, from
November 1997 to February 29, 2000, and Chief Executive Officer of Crocker &
Associates, L.P., a private real estate limited partnership, from July 1996 to
November 1997. Mr. Crocker served as Chairman and Chief Executive Officer of
Crocker Realty Trust, Inc., a public real estate investment trust, from July 1,
1995 to June 30, 1996. Mr. Crocker also served as Chairman and Chief Executive
Officer of Crocker Realty Investors, Inc., a public real estate investment
trust, from September 30, 1993 to July 1, 1995. Mr. Crocker was Chief Executive
Officer of Crocker & Sons, Inc., a private real estate company, from January 1,
1995 to June 30, 1995.
Mr. Teagle, age 58, was elected President on November 14, 1997, and has
been Chief Operating Officer of the Company since June 21, 1996. He previously
held the positions of Executive Vice President from June 21, 1996 to November
14, 1997, Senior Vice President from May 10, 1994 to June 21, 1996, and Vice
President from December 21, 1993 to May 10, 1994. Mr. Teagle was elected to the
Board of Directors of the Company on October 10, 1996.
Mr. Onisko, age 52, became Chief Financial Officer of the Company on
March 1, 2000. He previously held the position of Secretary and Treasurer of
Crocker Realty Trust, Inc., a private real estate investment trust, from
November 1997 to February 29, 2000. From July 1996 to November 1997, Mr. Onisko
served as Secretary and Treasurer of Crocker & Associates, L.P., a private real
estate limited partnership. He was Executive Vice President, Chief Financial
Officer and Secretary of Crocker Realty Trust, Inc., a public real estate
investment trust, from July 1, 1995 to June 30, 1996. From January 1, 1995 to
June 30, 1995, he served as Executive Vice President and Chief Financial Officer
of Crocker Realty Investors, Inc., a private real estate investment trust, and
as Executive Vice President of Crocker & Sons, Inc., a private real estate
company.
44
<PAGE> 45
Mr. Bridger, age 63, was elected Senior Vice President of Development
on November 14, 1997. He had held the position of Vice President since May 10,
1994.
Mr. Jenkins, age 56, has been the Corporate Secretary of the Company
since December 21, 1993, and Vice President of the Company since May 10, 1994.
Mr. Stephens, age 42, has been Vice President of the Company since May
7, 1996, and was the Treasurer of the Company from March 31, 1991 to May 7,
1996. He has served as Chief Accounting Officer of the Company since March 31,
1991.
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers file with the Securities and Exchange
Commission (the "SEC") and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of the Company's equity
securities. Executive officers and directors are required by regulations of the
SEC to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, the
Company's executive officers and directors complied with all Section 16(a)
filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by
reference to the section headed "Executive Compensation" in the 2000 Proxy
Statement (except for information contained under the headings "Compensation
Committee Report on Executive Compensation" and "Shareholder Return Performance
Presentation").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The stock ownership of each person known to the Company to be the
beneficial owner of more than five percent (5%) of its outstanding common stock
is incorporated by reference to the section headed "Principal Holders of Voting
Securities" of the 2000 Proxy Statement. The beneficial ownership of common
stock of all directors of the Company is incorporated by reference to the
section headed "Election of Directors" contained in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Item 1. "Business," 2. "Properties," 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 "Transactions With Related Parties" to the Notes to
Consolidated Financial Statements contained in this Report and to the heading
"Certain Relationships and Transactions" contained in the 2000 Proxy Statement
for information regarding certain relationships and related transactions which
information is incorporated herein by reference.
45
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) See "Item 8 - Financial Statements and Supplementary Data - Index
to Consolidated Financial Statements and Financial Statement
Schedules" for a list of the financial statements included in
this report.
(2) The consolidated supplemental financial statement schedules
required by Regulation S-X are included on pages 40 through 43 in
this Form.
(b) Reports on Form 8-K:
On November 17, 1999, the Company filed a Form 8-K (dated
September 2, 1999) reporting under Item 5, Other Events, that the
Company was filing copies of loan documents dated as of September
2, 1999 evidencing a $45 million secured loan with Northwestern
Mutual Life Insurance Company and providing under Item 7,
Financial Statements and Exhibits, copies of the loan documents
evidencing the $45 million secured loan.
(c) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1 Underwriting Agreement dated December 12, 1997, between
Koger Equity, Inc. and J.P. Morgan Securities, Inc., Bear
Stearns and Company, Inc. and BT Alex Brown Incorporated, as
Representatives of the several underwriters. Incorporated by
reference to Exhibit 1 of the Form 8-K, dated December 12,
1997, filed by the Registrant on December 15, 1997 (File No.
1-9997).
1(a) Underwriting Agreement dated March 24, 1998, between Koger
Equity, Inc. and Wheat, First Securities, Inc. Incorporated
by reference to Exhibit 1 of the Form 8-K, dated March 24,
1998, filed by the Registrant on March 30, 1998 (File No.
1-9997).
2 Agreement and Plan of Merger, dated as of December 21, 1993
between the Company and Koger Properties, Inc. Incorporated
by reference to Exhibit 2 of Form 10-K filed by the
Registrant for the period ended December 31, 1993 (File No.
1-9997).
3(a) Amended and Restated Articles of Incorporation of Koger
Equity, Inc. Incorporated by reference to Exhibit 3 of the
Form 8-K, dated May 10, 1994, filed by the Registrant on
June 17, 1994 (File No. 1-9997).
3(a)(1) Articles of Amendment and Restatement of Articles of
Incorporation of Koger Equity, Inc., dated May 20, 1999.
Incorporated by reference to Exhibit (3)(a)(1) of the Form
10-Q filed by the Registrant for the quarter ended June 30,
1999 (File No. 1-9997).
3(b) Koger Equity, Inc. By Laws, as Amended and Restated on May
20, 1999. Incorporated by reference to Exhibit 3(b) of the
Form 10-Q filed by the Registrant for the quarter ended June
30, 1999 (File No. 1-9997).
4(a) Common Stock Certificate of Koger Equity, Inc. Incorporated
by reference to Exhibit 4(a) to Registration Statement on
Form S-11 (Registration No. 33-22890).
4(b)(1)(A) Koger Equity, Inc. Rights Agreement (the "Rights Agreement")
dated as of September 30, 1990 between the Company and
Wachovia Bank and Trust Company, N.A. as Rights Agent
("Wachovia"). Incorporated by reference to Exhibit 1 to a
Registration Statement on Form 8-A, dated October 3, 1990
(File No. 1-9997).
4(b)(1)(B) First Amendment to the Rights Agreement, dated as of March
22, 1993, between the Company and First Union National Bank
of North Carolina, as Rights Agent ("First Union"), entered
into for the purpose of replacing Wachovia. Incorporated by
reference to Exhibit 4(b)(4) of the Form 10-Q filed by the
Registrant for the quarter ended March 31, 1993 (File No.
1-9997).
4(b)(1)(C) Second Amendment to the Rights Agreement, dated as of
December 21, 1993, between the Company and First Union.
Incorporated by reference to Exhibit 5 to an Amendment on
Form 8-A/A, dated December 21, 1993, to a Registration
Statement of the Registrant on Form 8-A, dated October 3,
1990 (File No. 1-9997).
4(b)(1)(D) Third Amendment to Rights Agreement, dated as of October 10,
1996, between Koger Equity, Inc. and First Union.
Incorporated by reference to Exhibit 6 to an Amendment on
Form 8-A/A, dated November 7, 1996, to a Registration
Statement of the Registrant on Form 8-A, dated October 3,
1990 (File No. 1-9997).
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4(b)(1)(E) Fourth Amendment to Rights Agreement, dated as of February
27, 1997, between Koger Equity, Inc. and First Union.
Incorporated by reference to Exhibit 8 to an Amendment on
Form 8-A/A, dated March 17, 1997, to a Registration
Statement of the Registrant on Form 8-A, dated October 3,
1990 (File No. 1-9997).
4(b)(1)(F) Fifth Amendment to Rights Agreement, dated as of November
23, 1999, between Koger Equity, Inc. and Norwest Bank
Minnesota, National Association, as successor Rights Agent.
Incorporated by reference to Exhibit 11 to an Amendment on
Form 8-A/A, dated November 23, 1999, to a Registration
Statement of the Registrant on Form 8-A, dated October 3,
1990 (File No. 1-9997).
4(b)(2) Form of Common Stock Purchase Rights Certificate (attached
as Exhibit A to the Rights Agreement). Pursuant to the
Rights Agreement, printed Common Stock Purchase Rights
Certificates will not be mailed until the Distribution Date
(as defined in the Rights Agreement).
4(b)(3) Summary of Common Stock Purchase Rights (attached as Exhibit
B to the Rights Agreement, Exhibit 4(b)(1)(A)).
4(c)(1) Warrant Agreement, dated as of December 21, 1993, between
the Company and First Union (the "Warrant Agreement").
Incorporated by reference to Exhibit 2 to an Amendment on
Form 8-A/A, dated December 21, 1993, to a Registration
Statement on Form 8-A, dated September 30, 1993 (File No.
1-9997).
4(c)(2) Form of a Common Share Purchase Warrant issued pursuant to
the Warrant Agreement. Incorporated by reference to Exhibit
1 to an Amendment on Form 8-A/A, dated December 21, 1993, to
a Registration Statement on Form 8-A, dated September 30,
1993 (File No. 1-9997).
10(a)(1)(A) Koger Equity, Inc. Amended and Restated 1988 Stock Option
Plan. Incorporated by reference to Exhibit 10(e)(1)(A) of
Form 10-Q filed by the Registrant for the quarter ended June
30, 1992 (File No. 1-9997).
10(a)(1)(B) Form of Stock Option Agreement pursuant to Koger Equity,
Inc. Amended and Restated 1988 Stock Option Plan.
Incorporated by reference to Exhibit 10(e)(2)(A) of Form
10-Q filed by the Registrant for the quarter ended June 30,
1992 (File No. 1-9997).
10(a)(1)(C) Form of Amendment to Stock Option Agreement pursuant to
Koger Equity, Inc. Amended and Restated 1988 Stock Option
Plan. Incorporated by reference to Exhibit 10(a)(1)(C) of
Form 10-K filed by the Registrant for the period ended
December 31, 1996 (File No. 1-9997).
10(a)(2)(A) Koger Equity, Inc. 1993 Stock Option Plan. Incorporated by
reference to Exhibit II to Registrant's Proxy Statement
dated June 30, 1993 (File No. 1-9997).
10(a)(2)(B) Form of Stock Option Agreement pursuant to Koger Equity,
Inc. 1993 Stock Option Plan. Incorporated by reference to
Exhibit 10(e)(3)(B) of Form 10-K filed by the Registrant for
the period ended December 31, 1994 (File No. 1-9997).
10(a)(2)(C) Form of Amendment to Stock Option Agreement pursuant to
Koger Equity, Inc. 1993 Stock Option Plan. Incorporated by
reference to Exhibit 10(a)(2)(C) of Form 10-K filed by the
Registrant for the period ended December 31, 1996 (File No.
1-9997).
10(a)(3)(A) Koger Equity, Inc. 1996 Stock Option Plan. Incorporated by
reference to Exhibit 10(a)(3)(A) of Form 10-K filed by the
Registrant for the period ended December 31, 1996 (File No.
1-9997).
10(a)(3)(B) Form of Stock Option Agreement pursuant to Koger Equity,
Inc. 1996 Stock Option Plan. Incorporated by reference to
Exhibit 10(a)(3)(B) of Form 10-K filed by the Registrant for
the period ended December 31, 1996 (File No. 1-9997).
10(a)(4) Form of Koger Equity, Inc. Restricted Stock Award effective
as of May 1, 1999. Incorporated by reference to Exhibit
10(a) on Form 10-Q filed by the Registrant for the quarter
ended June 30, 1999 (File No. 1-9997).
10(b)(1) Shareholders Agreement, dated August 9, 1993, between the
Company and TCW Special Credits, a California general
partnership. Incorporated by reference to Exhibit 10(o) of
Form 10-K filed by the Registrant for the period ended
December 31, 1993 (File No. 1-9997).
10(b)(2) Registration Rights Agreement, dated as of August 9, 1993,
between the Company and TCW Special Credits, a California
general partnership. Incorporated by reference to Exhibit
10(p) of Form 10-K filed by the Registrant for the period
ended December 31, 1993 (File No. 1-9997).
</TABLE>
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10(c) License Agreement, dated as of July 28, 1995, between Koger
Equity, Inc. and Koger Realty Services, Inc. Incorporated by
reference to Exhibit 10(v) of Form 10-Q filed by the
Registrant for the quarter ended June 30, 1995 (File No.
1-9997).
10(d)(1) Amended and Restated Supplemental Executive Retirement Plan,
effective as of May 20, 1999. Incorporated by reference to
Exhibit 10(b) of Form 10-Q filed by the Registrant for the
quarter ended June 30, 1999 (File No. 1-9997).
10(d)(2) Amendment No. 1 to Supplemental Executive Retirement Plan,
effective June 21, 1996. Incorporated by reference to
Exhibit 10(d)(2) of Form 10-K filed by the Registrant for
the period ended December 31, 1997 (File No. 1-9997).
10(d)(3) Amendment No. 2 to Supplemental Executive Retirement Plan,
effective May 19, 1998. Incorporated by reference to Exhibit
10(d)(3) of Form 10-K filed by the Registrant for the period
ended December 31, 1998 (File No. 1-9997).
10(d)(4) Amendment No. 3 to Supplemental Executive Retirement Plan,
effective May 19, 1998. Incorporated by reference to Exhibit
10(d)(4) of the Form 10-K filed by the Registrant for the
period ended December 31, 1998 (File No. 1-9997).
10(e) Form of Indemnification Agreement between Koger Equity, Inc.
and its Directors and certain of its officers. Incorporated
by reference to Exhibit 10(x) of Form 10-K filed by the
Registrant for the year ended December 31, 1995 (File No.
1-9997).
10(f)(1) Amended and Restated Employment Agreement between Koger
Equity, Inc. and Victor A. Hughes, Jr. effective as of April
1, 1998. Incorporated by reference to Exhibit 10(f)(1) of
Form 10-K filed by the Registrant for the period ended
December 31, 1998 (File No. 1-9997).
10(f)(2) Amended and Restated Employment Agreement between Koger
Equity, Inc. and James C. Teagle, effective as of April 1,
1998. Incorporated by reference to Exhibit 10(f)(2) of Form
10-K filed by the Registrant for the period ended December
31, 1998 (File No. 1-9997).
10(f)(3) Employment Agreement between Koger Equity, Inc. and David B.
Hiley, effective as of April 1, 1998. Incorporated by
reference to Exhibit 10(f)(3) of Form 10-K filed by the
Registrant for the period ended December 31, 1998 (File No.
1-9997).
10(f)(4) Change of Control Agreement between Koger Equity, Inc. and
Victor A. Hughes, Jr., effective as of May 20, 1999.
Incorporated by reference to Exhibit 10(c) of Form 10-Q
filed by the Registrant for the quarter ended June 30, 1999
(File No. 1-9997).
10(f)(5) Change of Control Agreement between Koger Equity, Inc. and
James C. Teagle, effective as of May 20, 1999. Incorporated
by reference to Exhibit 10(d) of Form 10-Q filed by the
Registrant for the quarter ended June 30, 1999 (File No.
1-9997).
10(f)(6) Change of Control Agreement between Koger Equity, Inc. and
David B. Hiley, effective as of May 20, 1999. Incorporated
by reference to Exhibit 10(e) of Form 10-Q filed by the
Registrant for the quarter ended June 30, 1999 (File No.
1-9997).
10(g)(1)(A) 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 an Amendment on Form 8-A/A, dated
November 7, 1996, to a Registration Statement of the
Registrant on Form 8-A, dated October 3, 1990 (File No.
1-9997).
10(g)(1)(B) 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 an Amendment on
Form 8-A/A, dated November 7, 1996, to a Registration
Statement on Form 8-A, dated October 3, 1990 (File No.
1-9997).
</TABLE>
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10(g)(2)(A) Amendment No. 1 to Stock Purchase Agreement, dated as of
February 27, 1997, between Koger Equity, Inc. and AP-KEI
Holdings, LLC. Incorporated by reference to Exhibit 9 to an
Amendment on Form 8-A/A, dated March 17, 1997, to a
Registration Statement of the Registrant on Form 8-A, dated
October 3, 1990 (File No. 1-9997).
10(g)(2)(B) Assignment and Assumption Agreement, dated as of February
27, 1997, among and between Koger Equity, Inc. and AP-KEI
Holdings, LLC and AREIF II Realty Trust, Inc. Incorporated
by reference to Exhibit 10 to an Amendment on Form 8-A/A,
dated March 17, 1997, to a Registration Statement of the
Registrant on Form 8-A, dated October 3, 1990 (File No.
1-9997).
10(g)(3) Purchase Agreement, dated December 12, 1997, between Koger
Equity, Inc. and AREIF II Realty Trust, Inc. Incorporated by
reference to Exhibit 10 of the Form 8-K, dated December 12,
1997, filed by the Registrant on December 15, 1997 (File No.
1-9997).
10(h) Consulting Agreement, dated as of June 21, 1996, between
Koger Equity, Inc. and Irvin H. Davis. Incorporated by
reference to Exhibit 10(ab) of Form 10-Q filed by the
Registrant for the quarter ended September 30, 1996 (File
No. 1-9997).
10(j)(1) Loan Application, dated July 29, 1996, by Koger Equity, Inc.
to The Northwestern Mutual Life Insurance Company.
Incorporated by reference to Exhibit 10(j)(1) on Form 8-K,
dated December 16, 1996, filed by the Registrant on March
10, 1997 (File No. 1-9997).
10(j)(2)(A) Koger Equity, Inc. Tranche A Promissory Note, dated December
16, 1996, in the principal amount of $100,500,000 payable to
The Northwestern Mutual Life Insurance Company. Incorporated
by reference to Exhibit 10(j)(2)(A) on Form 8-K, dated
December 16, 1996, filed by the Registrant on March 10, 1997
(File No. 1-19997.
10(j)(2)(B) Koger Equity, Inc. Tranche B Promissory
Note, dated December 16, 1996, in the principal amount of
$89,500,000 payable to The Northwestern Mutual Life
Insurance Company. Incorporated by reference to Exhibit
10(j)(2)(B) on Form 8-K, dated December 16, 1996, filed by
the Registrant on March 10, 1997 (File No. 1-9997).
10(j)(2)(C) Koger Equity, Inc. Tranche C Promissory
Note, dated September 2, 1999, in the principal amount of
$14,700,000 payable to The Northwestern Mutual Life
Insurance Company. Incorporated by reference to Exhibit
10(j)(6) on Form 8-K, dated September 2, 1999, filed by the
Registrant on November 17, 1999 (File No. 1-9997)
10(j)(2)(D) Koger Equity, Inc. Tranche D Promissory
Note, dated September 2, 1999, in the principal amount of
$30,300,000 payable to The Northwestern Mutual Life
Insurance Company. Incorporated by reference to Exhibit
10(j)(7) on Form 8-K, dated September 2, 1999, filed by the
Registrant on November 17, 1999 (File No. 1-9997).
10(j)(3)(A) Master Lien Instrument from Koger
Equity, Inc. to The Northwestern Mutual Life Insurance
Company, dated December 16, 1996, (1) with Mortgage and
Security Agreement for Duval, Leon, Orange and Pinellas
Counties, Florida and (2) with Deed of Trust and Security
Agreement for Greenville County, South Carolina, Shelby
County, Tennessee and Bexar, El Paso and Travis Counties,
Texas. Incorporated by reference to Exhibit 10(j)(3)(A) on
Form 8-K, dated December 16, 1996, filed by the Registrant
on March 10, 1997 (File No. 1-9997). 10(j)(3)(B) Absolute
Assignment of Leases and Rents from Koger Equity, Inc. to
The Northwestern Mutual Life Insurance Company, dated
December 16, 1996, for Duval, Leon, Orange, and Pinellas
Counties, Florida, Greenville County, South Carolina, Shelby
County, Tennessee and Bexar, El Paso and Travis Counties,
Texas. Incorporated by reference to Exhibit 10(j)(3)(B) on
Form 8-K, dated December 16, 1996, filed by the Registrant
on March 10, 1997 (File No. 1-9997).
</TABLE>
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10(j)(3)(C) Master Lien Instrument from Koger Equity, Inc. to The
Northwestern Mutual Life Insurance Company, dated September
2, 1999, for Duval, Leon, Orange and Pinellas Counties,
Florida, Greenville County, South Carolina, Shelby County,
Tennessee, and Bexar, El Paso and Travis Counties, Texas.
Incorporated by reference to Exhibit 10(j)(8) on Form 8-K,
dated September 2, 1999, filed by the Registrant on November
17, 1999 (File No. 1-9997).
10(j)(3)(D) Leasehold Deed of Trust and Security Agreement, dated
September 2, 1999, between Koger Equity, Inc., and John S.
Shoaf, Jr. ("Trustee"), and The Northwestern Mutual Life
Insurance Company for Shelby County, Tennessee. Incorporated
by reference to Exhibit 10(j)(9) on Form 8-K, dated
September 2, 1999, filed by the Registrant on November 17,
1999 (File No. 1-9997).
10(j)(3)(E) IDB Deed of Trust and Security Agreement, dated September 2,
1999, between the Industrial Development Board of the City
of Memphis and County of Shelby, Koger Equity, Inc., and
Trustee and The Northwestern Mutual Life Insurance Company
for Shelby County, Tennessee. Incorporated by reference to
Exhibit 10(j)(10) on Form 8-K, dated September 2, 1999,
filed by the Registrant on November 17, 1999 (File No.
1-9997).
10(j)(3)(F) Absolute Assignment of Leases and Rents from Koger Equity,
Inc. to The Northwestern Mutual Life Insurance Company,
dated September 2, 1999, for Duval, Leon, Orange and
Pinellas Counties, Florida, Greenville County, South
Carolina, Shelby County, Tennessee, and Bexar, El Paso and
Travis Counties, Texas. Incorporated by reference to Exhibit
10(j)(11) on Form 8-K, dated September 2, 1999, filed by the
Registrant on November 17, 1999 (File No. 1-9997).
10(j)(4)(A) Environmental Indemnity Agreement, dated December 16, 1996,
between Koger Equity, Inc. and The Northwestern Mutual Life
Insurance Company and others. Incorporated by reference to
Exhibit 10(j)(4) on Form 8-K, dated December 16, 1996, filed
by the Registrant on March 10, 1997 (File No. 1-9997).
10(j)(4)(B) Environmental Indemnity Agreement, dated September 2, 1999,
between Koger Equity, Inc. and The Northwestern Mutual Life
Insurance Company and others. Incorporated by reference to
Exhibit 10(j)(12) on Form 8-K, dated September 2, 1999,
filed by the Registrant on November 17, 1999 (File No.
1-9997).
10(j)(5)(A) Certificate of Borrower contained in letter, dated December
16, 1996, from Koger Equity, Inc. to The Northwestern Mutual
Life Insurance Company. Incorporated by reference to Exhibit
10(j)(5) on Form 8-K, dated December 16, 1996, filed by the
Registrant on March 10, 1997 (File No. 1-9997).
10(j)(5)(B) Certificate of Borrower contained in letter, dated September
2, 1999, from Koger Equity, Inc. to The Northwestern Mutual
Life Insurance Company. Incorporated by reference to Exhibit
10(j)(13) on Form 8-K, dated September 2, 1999, filed by the
Registrant on November 17, 1999 (File No. 1-9997).
10(k)(1) The Second Amended and Restated Revolving Credit Loan
Agreement dated as of December 30, 1998 between and among
Koger Equity, Inc., and First Union National Bank of
Florida, AmSouth Bank, Guaranty Federal Bank F.S.B.,
Citizens Bank of Rhode Island and Compass Bank (the
"Lenders"). Incorporated by reference to Exhibit 10(k)(1) on
Form 8-K, dated December 30, 1998, filed by the Registrant
on February 16, 1999 (File No. 1-9997).
10(k)(2)(A) The Substitution Revolving Promissory Note dated December
30, 1998 issued by Koger Equity, Inc. to First Union
National Bank of Florida in the principal amount of up to
$45,000,000. Incorporated by reference to Exhibit
10(k)(2)(a) on Form 8-K, dated December 30, 1998, filed by
the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(2)(B) The Substitution Revolving Promissory Note dated December
30, 1998 issued by Koger Equity, Inc. to AmSouth Bank in the
principal amount of up to $35,000,000. Incorporated by
reference to Exhibit 10(k)(2)(b) on Form 8-K, dated December
30, 1998, filed by the Registrant on February 16, 1999 (File
No. 1-9997).
10(k)(2)(C) The Substitution Revolving Promissory Note dated December
30, 1998 issued by Koger Equity, Inc. to Guaranty Federal
Bank F.S.B. in the principal amount of up to $35,000,000.
Incorporated by reference to Exhibit 10(k)(2)(c) on Form
8-K, dated December 30, 1998, filed by the Registrant on
February 16, 1999 (File No. 1-9997).
</TABLE>
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10(k)(2)(D) The Revolving Promissory Note, dated December 30, 1998,
issued by Koger Equity, Inc. to Citizens Bank of Rhode
Island in the principal amount of up to $20,000,000.
Incorporated by reference to Exhibit 10(k)(2)(d) on Form
8-K, dated December 30, 1998, filed by the Registrant on
February 16, 1999 (File No. 1-9997).
(10(k)(2)(E) The Revolving Promissory Note, dated December 30, 1998,
issued by Koger Equity, Inc. to Compass Bank in the
principal amount of up to $15,000,000. Incorporated by
reference to Exhibit 10(k)(2)(e) on Form 8-K, dated December
30, 1998, filed by the Registrant on February 16, 1999 (File
No. 1-9997).
10(k)(3)(A) The Mortgage, Assignment of Leases and Rents, and Security
Agreement, dated as of December 30, 1998, relating to that
portion of the Collateral located in the State of Alabama.
Incorporated by reference to Exhibit 10(k)(3)(a) on Form
8-K, dated December 30, 1998, filed by the Registrant on
February 16, 1999 (File No. 1-9997).
10(k)(3)(B) The Assignment of Leases and Rents, dated as of December 30,
1998, relating to that portion of the Collateral located in
the State of Alabama. Incorporated by reference to Exhibit
10(k)(3)(b) on Form 8-k, dated December 30, 1998, filed by
the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(3)(C) The Assignment of Contracts, Licenses and Permits, dated as
of December 30, 1998, relating to that portion of the
Collateral located in the State of Alabama. Incorporated by
reference to Exhibit 10(k)(3)(c) on Form 8-K, dated December
30, 1998, filed by the Registrant on February 16, 1999 (File
No. 1-9997).
10(k)(3)(D) The Environmental Indemnification Agreement, dated as of
December 30, 1998, relating to that portion of the
Collateral located in the State of Alabama. Incorporated by
reference to Exhibit 10(k)(3)(d) on Form 8-K, dated December
30, 1998, filed by the Registrant on February 16, 1999 (File
No. 1-9997).
10(k)(4)(A)(i) The Second Amended and Restated Deed to Secure Debt,
Assignment of Leases and Rents, and Security Agreement dated
as of December 30, 1998 relating to that portion of the
Collateral located in Dekalb County, State of Georgia
granted by Koger Equity, Inc. to, and in favor of, the
Lenders. Incorporated by reference to Exhibit 10(k)(4)(a)(i)
on Form 8-K, dated December 30, 1998, filed by the
Registrant on February 16, 1999 (File No. 1-9997).
10(k)(4)(A)(ii) The Amendment to Assignment of Leases and Rents dated as of
December 30, 1998 relating to that portion of the Collateral
located in Dekalb County, State of Georgia granted by Koger
Equity, Inc. to, and in favor of, the Lenders. Incorporated
by reference to Exhibit 10(k)(4)(a)(ii) on Form 8-K, dated
December 30, 1998, filed by the Registrant on February 16,
1999 (File No. 1-9997).
10(k)(4)(A)(iii) The Amendment to Environmental Indemnification Agreement
dated as of December 30, 1998 relating to that portion of
the Collateral located in Dekalb County, State of Georgia
between and among Koger Equity, Inc. and the Lenders.
Incorporated by reference to Exhibit 10(k)(4)(a)(iii) on
Form 8-K, dated December 30, 1998, filed by the Registrant
on February 16, 1999 (File No. 1-9997).
10(k)(4)(A)(iv) The Amendment to Assignment of Contracts, Licenses and
Permits dated as of December 30, 1998 relating to that
portion of the Collateral located in Dekalb County, State of
Georgia from Koger Equity, Inc. to, and in favor of, the
Lenders. Incorporated by reference to Exhibit
10(k)(4)(a)(iv) on Form 8-K, dated December 30, 1998, filed
by the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(4)(B)(i) The Deed to Secure Debt, Assignment of Leases and Rents, and
Security Agreement, dated as of December 30, 1998, relating
to that portion of the Collateral located in Gwinnett
County, State of Georgia. Incorporated by reference to
Exhibit 10(k)(3)(b)(i) on Form 8-K, dated December 30, 1998,
filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(4)(B)(ii) The Assignment of Leases and Rents, dated as of December 30,
1998, relating to that portion of the Collateral located in
Gwinnett County, State of Georgia. Incorporated by reference
to Exhibit 10(k)(4)(b)(ii) on Form 8-K, dated December 30,
1998, filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(4)(B)(iii) The Environmental Indemnification Agreement, dated as of
December 30, 1998, relating to that portion of the
Collateral located in Gwinnett County, State of Georgia.
Incorporated by reference to Exhibit 10(k)(4)(b)(iii) on
Form 8-K, dated December 30, 1998, filed by the Registrant
on February 16, 1999 (File No. 1-9997).
</TABLE>
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10(k)(4)(B)(iv) The Amendment to Assignment of Contracts, Licenses and
Permits, dated as of December 30, 1998, relating to that
portion of the Collateral located in Gwinnett County, State
of Georgia. Incorporated by reference to Exhibit
10(k)(4)(b)(iv) on Form 8-K, dated December 30, 1998, filed
by the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(5)(A)(i) The Second Amended and Restated Deed of Trust, Assignment of
Leases and Rents and Security Agreement, dated as of
December 30, 1998, relating to that portion of the
Collateral located in Guilford County, State of North
Carolina granted by Koger Equity, Inc. to, and in favor of,
the Lenders. Incorporated by reference to Exhibit
10(k)(5)(a)(i) on Form 8-K, dated December 30, 1998, filed
by the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(5)(A)(ii) The Amended and Restated Assignment of Leases and Rents,
dated as of December 30, 1998, relating to that portion of
the Collateral located in Guilford County, State of North
Carolina from Koger Equity, Inc. to, and in favor of, the
Lenders. Incorporated by reference to Exhibit
10(k)(5)(a)(ii) on Form 8-K, dated December 30, 1998, filed
by the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(5)(A)(iii) The Amendment to Environmental Indemnification Agreement,
dated as of December 30, 1998, relating to that portion of
the Collateral located in both Guilford and Mecklenburg
Counties, State of North Carolina between and among Koger
Equity, Inc. and the Lenders. Incorporated by reference to
Exhibit 10(k)(5)(a)(iii) on Form 8-K, dated December 30,
1998, filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(5)(A)(iv) The Amendment to Assignment of Contracts, Licenses and
Permits, dated as of December 30, 1998, relating to that
portion of the Collateral located in both Guilford and
Mecklenburg Counties, State of North Carolina from Koger
Equity, Inc. to, and in favor of, the Lenders. Incorporated
by reference to Exhibit 10(k)(5)(a)(iv) on Form 8-K, dated
December 30, 1998, filed by the Registrant on February 16,
1999 (File No. 1-9997).
10(k)(5)(B)(i) The Amended and Restated Deed of Trust, Assignment of Leases
and Rents and Security Agreement, dated as of December 30,
1998, relating to that portion of the Collateral located in
Mecklenburg County, State of North Carolina granted by Koger
Equity, Inc. to, and in favor of, the Lenders. Incorporated
by reference to Exhibit 10(k)(5)(b)(i) on Form 8-K, dated
December 30, 1998, filed by the Registrant on February 16,
1999 (File No 1-9997).
10(k)(5)(B)(ii) The Amended and Restated Assignment of Leases and Rents,
dated as of December 30, 1998, relating to that portion of
the collateral located in Mecklenburg County, State of North
Carolina. Incorporated by reference to Exhibit
10(k)(5)(b)(ii) on Form 8-K, dated December 30, 1998, filed
by the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(5)(B)(iii) The Amended and Restated Mortgage, Assignment of Leases and
Rents and Security Agreement, dated as of December 30, 1998,
relating to that portion of the Collateral located in the
State of South Carolina granted by Koger Equity, Inc. to,
and in favor of, the Lenders. Incorporated by reference to
Exhibit 10(k)(5)(b)(iii) on Form 8-K, dated December 30,
1998, filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(6)(A) The Amendment to Assignment of Leases and Rents, dated as of
December 30, 1998, relating to that portion of the
Collateral located in the State of South Carolina from Koger
Equity, Inc. to, and in favor of, the Lenders. Incorporated
by reference to Exhibit 10(k)(6)(a) on Form 8-K, dated
December 30, 1998, filed by the Registrant on February 16,
1999 (File No. 1-9997).
10(k)(6)(B) The Amendment to Environmental Indemnification Agreement,
dated as of December 30, 1998, relating to that portion of
the Collateral located in the State of South Carolina among
and between Koger Equity, Inc. and the Lenders. Incorporated
by reference to Exhibit 10(k)(6)(b) on Form 8-K, dated
December 30, 1998, filed by the Registrant on February 16,
1999 (File No. 1-9997).
10(k)(6)(C) The Amendment to Assignment of Contracts, Licenses and
Permits, dated as of December 30, 1998, relating to that
portion of the Collateral located in the State of South
Carolina among and between Koger Equity, Inc. and the
Lenders. Incorporated by reference to Exhibit 10(k)(6)(c) on
Form 8-K, dated December 30, 1998, filed by the Registrant
on February 16, 1999 (File No. 1-9997).
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10(k)(7)(A) The Deed of Trust, Assignment of Leases and Rents, and
Security Agreement, dated as of December 30, 1998, relating
to that portion of the Collateral located in the State of
Texas. Incorporated by reference to Exhibit 10(k)(7)(a) on
Form 8-K, dated December 30, 1998, filed by the Registrant
on February 16, 1999 (File No. 1-9997).
10(k)(7)(B) The Assignment of Leases and Rents dated as of December 30,
1998, relating to that portion of the Collateral located in
the State of Texas. Incorporated by reference to Exhibit
10(k)(7)(b) on Form 8-K, dated December 30, 1998, filed by
the Registrant on February 16, 1999 (File No. 1-9997).
10(k)(7)(C) The Environmental Indemnification Agreement dated as of
December 30, 1998, relating to that portion of the
Collateral in the State of Texas. Incorporated by reference
to Exhibit 10(k)(7)(c) on Form 8-K, dated December 30, 1998,
filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(7)(D) The Assignment of Contracts, Licenses and Permits, dated as
of December 30, 1998, relating to that portion of the
Collateral in the State of Texas. Incorporated by reference
to Exhibit 10(k)(7)(d) on Form 8-K, dated December 30, 1998,
filed by the Registrant on February 16, 1999 (File No.
1-9997).
10(k)(8) Unconditional Guaranty dated December 30, 1998, of Koger
Real Estate Services, Inc. and Southeast Properties Holding
Corporation, Inc. both wholly owned of Koger Equity, Inc. to
perform and make payments pursuant to the Second Amended and
Restated Revolving Credit Loan Agreement. Incorporated by
reference to Exhibit 10(k)(8) on Form 8-K, dated December
30, 1998, filed by the Registrant on February 16, 1999 (File
No. 1-9997).
11 Earnings Per Share Computations.*
12 Amended and Restated Agreement of Limited Partnership of
Koger-Vanguard Partners, L.P., dated as of October 22, 1998,
between Koger Equity, Inc. as General Partner and certain
persons as Limited Partners of Koger-Vanguard Partners, L.P.
Incorporated by reference to Exhibit 12 on Form 8-K, dated
October 22, 1998, filed by the Registrant on December 31,
1998 (File No. 1-9997).
21 Subsidiaries of the Registrant.*
23 Independent Auditors' Consent.*
27 Financial Data Schedule (for SEC use only).*
</TABLE>
*Previously filed.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Koger Equity, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
KOGER EQUITY, INC.
By: Victor A. Hughes, Jr.
---------------------
Victor A. Hughes, Jr.
Chairman of the Board
Date: March 20, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Victor A. Hughes, Jr. Chairman of the Board March 20, 2000
- --------------------------------------
(VICTOR A. HUGHES, JR.)
Thomas J. Crocker Chief Executive Officer March 20, 2000
- -------------------------------------- and Director
(THOMAS J. CROCKER)
James C. Teagle President, Chief March 20, 2000
- -------------------------------------- Operating Officer and Director
(JAMES C. TEAGLE)
Robert E. Onisko Chief Financial Officer March 20, 2000
- --------------------------------------
(ROBERT E. ONISKO)
James L. Stephens Vice President and Chief March 20, 2000
- -------------------------------------- Accounting Officer
(JAMES L. STEPHENS)
D. Pike Aloian Director March 20, 2000
- ---------------------------------------
(D. PIKE ALOIAN)
Benjamin C. Bishop Director March 20, 2000
- --------------------------------------
(BENJAMIN C. BISHOP)
Irvin H. Davis Director March 20, 2000
- --------------------------------------
(IRVIN H. DAVIS)
David B. Hiley Director March 20, 2000
- --------------------------------------
(DAVID B. HILEY)
John R. S. Jacobsson Director March 20, 2000
- --------------------------------------
(JOHN R. S. JACOBSSON)
G. Christian Lantzsch Director March 20, 2000
- --------------------------------------
(G. CHRISTIAN LANTZSCH)
William L. Mack Director March 20, 2000
- --------------------------------------
(WILLIAM L. MACK)
Lee S. Neibart Director March 20, 2000
- --------------------------------------
(LEE S. NEIBART)
George F. Staudter Director March 20, 2000
- --------------------------------------
(GEORGE F. STAUDTER)
S. D. Stoneburner Director March 20, 2000
- --------------------------------------
(S. D. STONEBURNER)
</TABLE>
54
