UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 1993 Commission File No. 1-10411
SAFECARD SERVICES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware 13-2650534
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3001 E. Pershing Blvd, Cheyenne, Wyoming 82001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(307) 771-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 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. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant (based on the closing market price on January 25, 1994):
$434,053,000.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of January 25, 1994: Common Stock, $.01 Par Value -
24,182,815 shares.
Documents Incorporated By Reference
Portions of the Annual Report to Shareholders for the year ended October 31,
1993 are incorporated by reference into Part II.
Portions of the Proxy Statement for the 1994 Annual Meeting of Shareholders
are incorporated by reference into Part III.
<PAGE>
PART I
Item 1. BUSINESS
Background
SafeCard Services, Incorporated ("SafeCard") has been in the business of
selling subscriptions by mail and telephone for continuity services that it
operates or administers. Continuity services are services provided pursuant
to subscriptions which typically continue annually or periodically unless
cancelled by the subscriber. SafeCard is a Delaware corporation organized in
1969. During 1992, the Company* relocated its headquarters and operational
facility from Ft. Lauderdale, Florida to Cheyenne, Wyoming. The Company's
executive offices are located at 3001 E. Pershing Blvd., Cheyenne, Wyoming,
82001, and its telephone number is (307) 771-2700. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note E of Notes to Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data).
Subscriptions are primarily sold to credit cardholders through
arrangements with credit card issuers, including banks and financial services
companies, major oil companies, retail department stores and others.
Subscriber acquisition material printed for the Company that describes its
services and how to subscribe is inserted in the credit card issuer's monthly
billing statements or mailed by the Company directly to credit cardholders.
Credit cardholders are also asked to subscribe by means of telephone calls.
Subscription fees are generally billed to subscribers' credit card accounts
and remitted to the Company by the credit card issuer.
The Company's principal service is credit card loss notification ("Hot-
Line"), whereby the Company gives prompt notice to credit card issuers upon
being informed that a subscriber's credit cards have been lost or stolen
(plus a variety of ancillary service features). Other continuity services
offered by the Company include those related to fee-based credit cards,
reminder services, a personal credit information service, a discount travel
service and a legal plan. Certain of the Company's services include
incidental insurance coverage underwritten by its insurance subsidiary. In
1993, the Company also began placing greater emphasis on the development of
new products and services. For information regarding the Company's revenue,
earnings and financial condition, see Item 6. Selected Financial Data, Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data.
In December 1993, the Board of Directors elected Paul G. Kahn as Chairman
of the Board and Chief Executive Officer. Under Mr. Kahn's leadership, the
Company's strategy is to broaden its scope so as to become an
entrepreneurial, market-driven consumer services company. While expansion of
the business and the development of new areas of business may not contribute
significantly to revenues in 1994, the Company may incur certain expenses in
1994 in developing these new areas of business. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
References herein to the years 1993, 1992 and 1991 refer to the Company's
fiscal years ended October 31.
*Unless otherwise noted or where the context otherwise requires, the term
"Company" refers to SafeCard Services, Incorporated, including its 100%-owned
subsidiaries, SafeCard Services Insurance Company, SafeCard Travel Services,
Inc., SafeCard Marketing, Inc. and one inactive subsidiary. <PAGE>
Services Provided
Hot-Line Credit Card Loss Notification Service
Hot-Line is the Company's original service and has been its major source
of revenue and earnings. A subscriber's credit cards may be registered with
the Company's operations center where the data is maintained. If a
subscriber notifies the Company of the loss or theft of his/her credit cards,
the Company retrieves (or, if cards have not previously been registered,
obtains) the necessary information, and then promptly notifies the credit
card issuers of the loss, simultaneously requesting replacement. A variety
of ancillary services are typically also made available to subscribers. In
1993, the Company increased the price of certain annual membership fees from
$12 to $15. The Company also sells multi-year subscriptions, generally for
three year periods at prices historically ranging from $36-$39, which provide
for payment in advance of the full subscription price. The Company increased
the price of certain multi-year membership fees from $36 - $39, to $45 in
1993. The Company sometimes offers to subscribers an initial trial period at
either no fee or a nominal fee.
In most states Hot-Line includes liability insurance against fraudulent
use of credit cards, issuance of fraud-deterrent stickers to be affixed to
credit cards, notification to card issuers of a subscriber's address change,
and in some instances, issuance of an emergency medical card containing a
microfilm history of certain medical data provided by the subscriber. The
Company will also typically wire a $100 to $1500 cash advance or send an
airplane ticket to subscribers under certain conditions. Such advances and
the cost of such tickets are typically repayable in thirty days. Other
services available to subscribers include a nationwide toll-free message
service (similar to an answering service) and a lost key return service.
During 1993, 1992 and 1991, Hot-Line provided 73%, 73% and 72%,
respectively, of the Company's subscription revenue. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Fee-Based Credit Card Services
The Company, through arrangements with credit card issuers, markets fee-
based credit cards, generally to the issuer's existing no fee cardholders.
For an annual fee of $15 to $25, cardholders who subscribe to the fee-based
credit cards typically receive a new credit card, issued by the credit card
issuer, and various services such as credit card registration, discounts on
travel, insurance and other services provided or obtained by the Company.
The card issuer is responsible for the collection of all charges made to the
credit card and may also provide other services to the cardholder. During
1993, 1992 and 1991, Fee Card programs provided 13%, 12% and 12%,
respectively, of the Company's subscription revenue. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
Reminder Services
The date reminder services ("Reminder Services") provide subscribers, by
mail, a monthly computer-generated reminder listing personal dates and events
registered by the subscriber in addition to standard holidays. Subscribers
add dates and events as desired, either by mail or by calling the Company's
toll-free, 24 hour-a-day operations center. The Reminder Services include
either a large plastic-laminated wall calendar, and/or a personal Desk
Appointment Book, and/or a Pocket Appointment Book. During 1993, 1992 and
1991, Reminder Services provided less than 10% of the Company's subscription
revenue.
CreditLine Services
CreditLine is a personal credit information service. Subscribers receive
a comprehensive personal credit report biography either annually or upon
request and other services such as a date reminder service and a social
security update service. The subscriber's credit information is obtained
from national credit bureaus and reorganized into a user-friendly format.
The annual fees are typically $29. The Company also sometimes markets
CreditLine in conjunction with other services at higher prices. The credit
reporting business is subject to existing regulation, as well as future
regulation, if any. During 1993, 1992 and 1991, CreditLine Services provided
less than 10% of the Company's subscription revenue.
The Company began marketing CreditLine in 1989. The Company markets
CreditLine pursuant to an agreement ("the CreditLine Agreement") with
CreditLine Corporation, a corporation owned by Peter and Steven J. Halmos,
the Company's co-founders and their families. Billings, costs and any
resulting profits or losses, are shared 50% by the Company and 50% by
CreditLine Corporation. In June 1993, the Company was notified by CreditLine
Corporation that the license agreement under which the Company markets
certain credit information products and services known as CreditLine would
not be renewed effective November 1, 1993. However, the Company believes it
has certain continuing marketing rights under the license agreement. In
addition, the CreditLine Agreement is the subject of litigation between Peter
Halmos and related entities and the Company. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Item 8. Financial Statements and Supplementary Data.
New Services Under Development
In 1993, the Company began placing greater emphasis on the development of
new products and services and is currently test marketing three new services
with various credit card issuer clients. Results to date are too preliminary
to determine the viability of these services. New products and services
which are test marketed are frequently not successful.
<PAGE>
Other Services
The Company offers a discount travel service, either separately or in
conjunction with other programs. Although the Company is no longer actively
marketing its prepaid legal and home protection services, it does provide
these services to existing subscribers who renew their subscriptions. In
past years, the Company marketed certain reference services ("Reference
Services") which included either the Guiness Book of World Records, The World
Almanac and Book of Facts or The J.K. Lasser Tax Guide. While the Company is
not marketing these programs at the present time, the Company continues to
provide services to existing subscribers who renew their subscriptions.
During 1993, 1992 and 1991, these other services collectively provided less
than 10% of the Company's subscription revenue.
Subscriber Acquisition
The Company sells subscriptions for its services primarily through
arrangements with credit card issuers, to consumers who use credit cards.
The Company's subscriber acquisition strategy includes direct mail (generally
"Solo Mailings" and "Billing Inserts") and telephone sales. The Company's
subscriber acquisition campaigns are typically based on internally-developed
strategies, research, formats, copy and graphics and often include multiple
solicitations within an overall strategy.
The Company's Solo Mailings are generally those created and mailed
directly by the Company to holders of credit cards from listings supplied to
the Company by the issuers of such credit cards. The printing is typically
done by others under contract with SafeCard. While Solo Mailings vary in
type and content, they generally include a descriptive brochure, a letter and
other subscriber acquisition materials, as well as a postage-paid return
subscription form. Each Solo Mailing typically must be approved by the
credit card issuer and generally contains materials (i.e., letter, envelope,
etc.) bearing the credit card issuer's name and logo.
Billing Inserts are generally created by the Company and printed by
others under contract and are inserted in the monthly billing statements of
credit card issuers. Billing Inserts have the advantage of low cost (because
postage is generally paid by credit card issuers). Each Billing Insert
mailing typically must be approved by the credit card issuer. Due to the
comparatively low cost of Billing Inserts and the limitation on the number of
inserts which may be placed in any single billing statement, there is intense
competition for insert space.
The current average cost of Solo Mailings is approximately $230 per
thousand pieces of mail, as compared with about $30 per thousand pieces for
Billing Inserts. While Solo Mailings are more costly, primarily due to the
fact that the Company pays the postage, Solo Mailings typically generate a
higher response rate. In addition, Solo Mailings may be sent to all
cardholders of a card issuer, whereas Billing Inserts are mailed only to
cardholders who are receiving a statement in the month of insertion. A U.S.
postal rate increase is anticipated in 1995. Since postage represents the
largest component of direct mail cost, this will have a direct impact on the
Company.
<PAGE>
The Company also sells subscriptions (primarily Hot-Line) by telephone.
Although the cost of telephone sales is typically higher, as compared to Solo
Mailing and Billing Inserts, the response rates are generally higher and the
initial subscription period for telephone sales is often for more than one
year, with payment to the Company in advance. Mailings result in both single
year and multi year subscribers, with a larger percentage being single year.
During 1993, 1992 and 1991, approximately 54%, 58% and 50%, respectively
of all subscriptions for Hot-Line were acquired through telephone sales. See
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Subscriber acquisition costs are the Company's largest expense category.
Subscriber fees are the primary source of revenue. The relationship of these
costs to subscription revenues is dependent on a variety of factors including
prices, net response rates (gross enrollments less cancellations), marketing
costs and renewal rates. These factors are affected by economic conditions,
interest rates, other factors affecting the number of credit cards in use,
demographic trends, consumers' propensity to buy, the degree of market
penetration and the effectiveness of subscriber acquisition concepts, copy
and marketing strategies, and other factors. In addition, cardholders of
certain credit card issuer clients respond more favorably than others to
similar promotions. In 1993, subscriber acquisition and service costs, as a
percentage of subscription revenue, increased by approximately 2% over the
prior year (primarily due to a decline in certain net response rates,
primarily in telemarketing). See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Relationships with Credit Card Issuers
The Company acquires its subscribers primarily through contractual
arrangements with credit card issuers (including banks and financial services
companies, major oil companies, retail department stores and others) for the
mail and telephone sales of its services to the issuers' credit card
customers. The Company also provides, to a limited extent, on a wholesale
basis, its services to large membership groups which are affiliated with
credit card issuers, such as oil company travel clubs. New marketing with
particular credit card issuers varies from year to year based on both the
Company's and the credit card issuer's strategies as well as contractual
requirements.
The Company has written agreements with a few large credit card issuers
which account for a large percentage of its subscription revenue.
Termination of any of these contracts would adversely affect the Company.
Contracts with Citicorp (South Dakota), N.A. and related entities
contributed 34%, 37% and 41% of the Company's consolidated subscription
revenue in 1993, 1992 and 1991, respectively. The Company has had contracts
with Citicorp since 1981. The principal Citicorp contract, which had an
initial term through June 1993, was amended on March 31, 1992 to extend the
contract to December 31, 1997 and again on September 1, 1993 to extend the
contract to December 31, 1999. Citicorp has a right to terminate the
contract in the event of the sale of a majority of the shares of the Company
to specified credit card issuers, to banks and their corporate affiliates,
and to entities that do not have equity of at least $25 million.
<PAGE>
Contracts with Sears, Roebuck and Co. contributed approximately 10% of the
Company's subscription revenue during 1993 (and less than 10% in 1992 and
1991). The agreement, which contains a provision for cancellation without
cause upon 90 days notice, is subject to renewal annually.
Contracts with Shell Oil Company accounted for approximately 10% of the
Company's consolidated subscription revenue in 1991 (and less than 10% in
1993 and 1992). The Shell Oil Company contracts have varying initial terms
but automatically renew on an annual basis unless terminated by either party.
Credit card issuers from time to time may adopt a change in business
strategy which may affect the Company. For example, in October 1993, Shell
Oil Company and a major bank announced the joint marketing of a co-branded
card. In addition, certain consolidations of credit card issuers and market
share shifts have occured and may continue to occur. To date, the Company
has not noted any material impact as a result of these changes in business
strategy.
The Company's many contracts with credit card issuers generally (though
not always) have a one-year or two-year initial term, provide for automatic
annual renewal thereafter unless cancelled by either party, and are subject
to the fulfillment of certain contractual obligations. These contracts
generally provide for the mail and/or telephone sales of subscriptions to the
issuer's credit card customers, for the billing (to the subscriber's credit
card account) and collection of subscription fees by the card issuers and for
payment to the card issuers of commissions or fees. In certain cases, the
Company enters into profit-sharing arrangements with credit card issuers, in
which the Company pays compensation to credit card issuers based on
profitability (as defined in the agreement with the credit card issuer).
Authorization for each mailing and/or telephone sales campaign typically
must be obtained by the Company from the card issuer, although some contracts
contain minimum marketing volume requirements. The Company's ability to
obtain such authorization is critical and is dependent on many factors,
including the business strategies of the credit card issuer clients; the
volume, profitability and efficiency of subscriber acquisitions; quality and
efficiency of the Company's subscriber servicing; and competition for the
limited subscriber acquisition volume which may be allowed by any one issuer.
Additional important factors in the maintenance of these contracts are the
Company's knowledge of the differing operational requirements of each credit
card issuer, including compatible data processing software, innovative
subscriber acquisition strategies, operational efficiency and financial
stability.
The Company generally does not have proprietary or other rights to the
issuers' credit card customer lists should a credit card issuer terminate its
contract with the Company. In that event, with the majority of issuers, the
Company would continue to provide services to, and receive its revenue from,
existing subscribers after termination. The Company's right to continue to
bill existing subscribers after termination of client contract generally
continues as long as there is an active credit card or until such subscribers
cancel their subscriptions or for certain contractually specified periods of
time.
<PAGE>
Competition
Competition in securing contracts with credit card issuers for sales of
subscriptions to the issuers' cardholders -- i.e., the third party endorsed
segment of the credit card industry -- is intense. Among the factors
affecting the outcome of such competition are the quality and reliability of
the services to be offered, subscriber acquisition strategy and expertise
(which is highly dependent upon creative talents), operational capability,
reputation, financial stability of the company supplying the services, the
confidence of credit card issuers in management of the company and the
compensation or fee paid to the credit card issuer. Additionally, the
Company must maintain security over credit card and credit data of which it
has custody.
The Company believes it has greater than 50% of the market share (within
the United States) for credit card registration. Competitors in the credit
card registration business include Credit Card Sentinel, CUC International,
American Express and others. Fee-based credit cards are sometimes directly
marketed and/or serviced by certain credit card issuers. Certain national
credit bureaus, as well as CUC International, offer or have offered personal
credit information services in competition with CreditLine. CreditLine is
dependant upon the purchase of consumer credit data from such credit bureaus
and there is no other comparable source for such data. In addition, some of
the new products and services which the Company may be exploring, developing
or testing, are currently marketed by competitors. The Company's competition
is not limited to companies offering similar products and services. Since
the Company competes for "advertising space" of various credit card issuers,
it competes with companies who market other products and services through
credit card issuers. Certain of the Company's competitors may have greater
resources and/or other competitive advantages.
The Company's competition is not confined to any particular region of the
country.
The Company has a non-compete with Steven J. Halmos, the Company's co-
founder, which expires in the year 2000. See Note I of Notes to Consolidated
Financial Statements under Item 8. Financial Statements and Supplementary
Data.
Employees
As of December 31, 1993, the Company employed 435 persons, including 12
part-time employees, as compared to 372 employees (including 27 part-time
employees) as of December 31, 1992.
Other Information
Printing of subscriber acquisition materials is generally contracted to
commercial printers. The Company copyrights most of this material and
registers its trademarks. Telephone sales are made using the services of
independent contractors with the Company developing and dictating sales
strategies, methods and controls. These strategies, methods and controls are
subject to approval by the credit card issuers. Currently the Company has
contracted with several independent telemarketing contractors, with one such
contractor accounting for what may be considered a material portion of the
volume, to execute its telephone sales using scripts and procedures provided
by the Company. There are other independent telephone sales contractors who
could provide similar services for the Company.
Certain copyrights and trademarks of the Company, such as the name "Hot-
Line", may be material to its business. The earliest expiration date of any
such copyright is 2002. Various trademarks of the Company are registered
under applicable federal law. These trademarks, which expire periodically,
are subject to renewal, and the Company presently intends to renew all such
trademarks. The agreement pursuant to which the Company markets CreditLine
provides that logos, trademarks, tradenames, service marks and copyrights do
not belong to the Company. This agreement is subject to litigation. In June
1993, the Company was notified by CreditLine Corporation, that the license
agreement under which the Company markets certain credit information products
and services would not be renewed on November 1, 1993. See Note K of Notes
to Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data and Item 13. Certain Relationships and Related
Transactions.
Due to the nature of the Company's business, the Company views security
as a significant function, a breach of which could have a material adverse
impact on the Company. As such, the Company places a great deal of emphasis
on security of its assets and information. No security systems/procedures
are foolproof. In fact, many aspects of the Company's activities involve
some degree of security risk.
The Company's business is not generally seasonal in nature, except that
the Company avoids subscriber acquisition campaigns prior to and during
certain holiday periods, i.e., Thanksgiving, Christmas and Independence Day.
The Company's cash receipts and disbursements are also related to the timing
of advertising campaigns.
All raw materials, primarily paper, plastic and printer's ink, are
readily available.
Subscribers to the Company's services are entitled to receive the
benefits of their subscriptions immediately; consequently, the Company has no
backlog.
Management believes there are no material adverse effects upon the
Company from current federal, state and local laws and regulations with
respect to the discharge of materials into the environment.
The Company's operations for mail and telephone sales are conducted on a
nationwide basis and the Company does not derive its revenue from any
particular geographic area of the United States. During the period 1991
through 1993, the Company did not conduct any significant operations, nor
derive any material portion of its sales or revenue, from subscribers in
foreign countries.
Item 2. PROPERTIES
During 1992, the Company relocated its headquarters and operational
facility from Ft. Lauderdale, Florida to Cheyenne, Wyoming where it occupies
an approximately 115,000 square foot building on approximately 17 acres.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is defending or prosecuting three complex litigations against
Peter Halmos, former Chairman of the Board and Executive Management
Consultant to the Company, and parties related to him. See Note K of Notes
to Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data.
The Company is involved in certain other claims and litigation, which are
not currently considered material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information called for by this item is incorporated by reference to
the "Market Prices and Distributions" section of the 1993 Annual Report.
Item 6. SELECTED FINANCIAL DATA
The information called for by this item is incorporated by reference to
the "Five Year Financial Summary" section of the 1993 Annual Report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information called for by this item is incorporated by reference to
the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section of the 1993 Annual Report.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item and listed below is incorporated
by reference to the 1993 Annual Report.
Index to Financial Statements and Supplementary Data
Description
Report of Independent Accountants
Consolidated Balance Sheets as of
October 31, 1993 and 1992
Consolidated Statements of Earnings -
Three Years Ended October 31, 1993
Consolidated Statements of Changes in Stockholders'
Equity - Three Years Ended October 31, 1993
Consolidated Statements of Cash Flows -
Three Years ended October 31, 1993
Notes to Consolidated Financial Statements
Individual unconsolidated financial statements of SafeCard Services, Inc.
have been omitted since consolidated financial statements have been
presented. SafeCard is primarily an operating company, and its subsidiaries
are not material.
Schedules other than those listed in Item 14. Exhibits, Financial
Statement Schedules and Reports on Form 8-K have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements or the notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item with regard to Directors and
Executive Officers who are also Directors is incorporated by reference to the
Company's definitive proxy statement which is to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 in connection with
the Company's annual meeting of shareholders.
Other Executive officer information is as follows:
Name of Individual Position Age
John Bochak Senior Vice President 42
Joanne J. Seehousen Executive Vice President 46
Agneta K. Breslin Executive Vice President 46
and Assistant Secretary
David Gallimore Executive Vice President 33
Lynn C. Torrent Chief Financial Officer 29
John Bochak has been associated with SafeCard since 1978. He became
Executive Vice President, Data Processing in 1981, Executive Vice President,
Operations in 1987 and Senior Vice President, Operations in 1992.
Joanne J. Seehousen has been associated with SafeCard since 1978. She
has been an Executive Vice President, Sales since 1980.
Agneta K. Breslin has been associated with SafeCard since 1981. She
became Vice President in 1983 and Executive Vice President in 1987 and
Assistant Secretary in October 1990.
David Gallimore has been associated with SafeCard since 1981. He became
Assistant Vice President of Operations in 1987 and in 1989 moved into a sales
role. In 1993, Mr. Gallimore became an Executive Vice President of
Marketing.
Lynn C. Torrent became Chief Financial Officer in 1992. She joined
SafeCard as an Assistant Controller in 1989 and became Controller in 1990.
She was previously with the international accounting firm of Arthur Anderson
& Company.
Item 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement which is to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 in connection with
the Company's annual meeting of shareholders.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement which is to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 in connection with
the Company's annual meeting of shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item and listed below is incorporated
by reference to the 1993 Annual Report.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Certain of the agreements listed below, including, but not limited to,
the Property Lease identified as Exhibit 10(j), are the subject of litigation
with Peter Halmos and parties related to him.
(a)1. Financial Statements
The Financial Statements are in the Index thereto set forth in Item
8. Financial Statements and Supplementary Data.
(a)2. Financial Statement Schedules Page
Report of Independent Accountants 19
Schedule I 20-22
Schedule VIII 23
(a)3. Exhibits
3(a) SafeCard Services, Incorporated's Certificate of
Incorporation, incorporated by reference to Exhibit 3(a) of the Company's
Annual Report on Form 10-K for its fiscal year ended October 31, 1992.
3(b) SafeCard Services, Incorporated's Certificate of
Amendment of Certificate of Incorporation, as filed with the Secretary of
State of Delaware, Division of Corporations on August 20, 1987, incorporated
by reference to Exhibit 3(g) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1987.
3(c) SafeCard Services Insurance Company's Certificate of
Incorporation, incorporated by reference to Exhibit 3(e) of the Company's
Annual Report on Form 10-K for its fiscal year ended October 31, 1987.
3(d) SafeCard Services Insurance Company's By-Laws,
incorporated by reference to Exhibit 3(f) of the Company's Annual Report on
Form 10-K for its fiscal year ended October 31, 1987.
3(e) SafeCard Services, Incorporated By-Laws as amended
through September 13, 1993, incorporated by reference to Exhibit 10(c) of the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended July 31,
1993.
10(a) Description of 1979 Stock Option Plan, incorporated by
reference to Exhibit 10(b) to the Company's Registration Statement on Form
S-1, No. 2-72966, as filed with the Securities and Exchange Commission on
June 26, 1981.
10(b) Form of Non-Qualified Stock Option Agreement dated August
30, 1989 between the Company and each of William T. Bacon and Richard W.
Nixon, incorporated by reference to Exhibit 10(a) of the Company's Quarterly
Report on Form 10-Q for its fiscal quarter ended July 31, 1989.
10(c) Form of 1987 Non-Qualified Stock Option Agreement dated
August 30, 1989 between the Company and each of various employees of the
Company, incorporated by reference to Exhibit 10(b) of the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended July 31, 1989.
10(d) Form of Non-Qualified Stock Option Agreement dated August
30, 1989 between the Company and each of six officers of the Company,
incorporated by reference to Exhibit 10(c) of the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended July 31, 1989.
10(e) Form of Non-Qualified Stock Option Agreement dated August
30, 1989 between the Company and each of Peter Halmos and Steven J. Halmos,
incorporated by reference to Exhibit 10(d) of the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended July 31, 1989.
10(f) Form of 1989 Stock Option Plan Amended Non-Qualified
Stock Option Agreement between the Company and each of various employees of
the Company, effective November 9, 1990, incorporated by reference to Exhibit
10(f) of the Company's Annual Report on Form 10-K for its fiscal year ended
October 31, 1990.
10(g) Form of Non-Qualified Stock Option Agreement, effective
as of November 29, 1989, between the Company and Steven J. Halmos,
incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended April 30, 1990.
10(h) Form of Termination Agreements dated August 31, 1989
between the Company and each of six officers of the Company, incorporated by
reference to Exhibit 10(f) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1989.
10(i) Form of letter amending Termination Agreements between
the Company and each of six officers of the Company, incorporated by
reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for
its fiscal quarter ended April 30, 1990.
10(j) Property Lease, dated March 1, 1985, between the Company
and a partnership consisting of Peter Halmos and Steven J. Halmos,
incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K, for its fiscal year ended October 31, 1986.
10(k) Agreement with Citicorp (South Dakota), N.A., effective
January 1, 1989, incorporated by reference to the Company's Form 8 Amendment
No. 3, dated November 10, 1989, to its Quarterly Report on Form 10-Q for its
fiscal quarter ended April 30, 1989.
10(l) Agreement with Peter Halmos, dated November 1, 1988,
regarding a marketing license for credit information services, incorporated
by reference to Exhibit 10(e) of the Company's Annual Report on Form 10-K,
for its fiscal year ended October 31, 1988.
10(m) First Amendment to Agreement, dated January 25, 1991,
regarding marketing license for credit information services, incorporated by
reference to Exhibit 10(m) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1990.
10(n) Form of Non-Qualified Stock Option Agreement dated
October 16, 1991 between the Company and an outside director, incorporated by
reference to Exhibit 10(n) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1991.
10(o) Form of Non-Qualified 1991 Employee Stock Option Plan
dated October 16, 1991 between the Company and twenty key employees,
incorporated by reference to Exhibit 10(o) of the Company's Annual Report on
Form 10-K for its fiscal year ended October 31, 1991.
10(p) Public Relations Consulting Agreement dated October 1,
1991 between the Dilenschneider Group, Inc. and the Company, incorporated by
reference to Exhibit 10(p) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1991.
10(q) Letter Agreement dated January 27, 1992, between
CreditLine Corporation and the Company, incorporated by reference to Exhibit
10(q) of the Company's Annual Report on Form 10-K for its fiscal year ended
October 31, 1991.
10(r) Confirmation Agreement between Peter Halmos, High Plains
Capital Corporation, CreditLine Corporation and the Company dated January 27,
1992, incorporated by reference to Exhibit 10(r) of the Company's Annual
Report on Form 10-K for its fiscal year ended October 31, 1991.
10(s) Board of Directors' Resolution dated December 6, 1991
establishing a non-employee director retirement plan, incorporated by
reference to Exhibit 10(s) of the Company's Annual Report on Form 10-K for
its fiscal year ended October 31, 1991.
10(t) SafeCard Services, Incorporated Employee Relocation
Incentive Package, incorporated by reference to Exhibit 10(a) to the Company'
Quarterly Report on Form 10-Q for its fiscal quarter ended April 30, 1992.
10(u) Second Amendment to Agreement with Citicorp (South
Dakota), N.A. dated March 31, 1992 incorporated by reference to Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended
April 30, 1992.
10(v) Letter Agreement dated May 28, 1992 between SafeCard
Services, Incorporated and Gerald R. Cahill incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended July 31, 1992.
10(w) Letter Agreement dated October 26, 1992 between SafeCard
Services, Incorporated and WM Stalcup incorporated by reference to Exhibit
10(w) to the Company's Annual Report on Form 10-K for its fiscal year ended
October 31, 1992.
10(x) Indemnification Agreements for the Company's Directors
and certain of the Company's executive officers dated October 2, 1992
incorporated by reference to Exhibit 10(x) to the Company's Annual Report on
Form 10-K for its fiscal year ended October 31, 1992.
10(y) Memorandum of Understanding between SafeCard Services,
Incorporated and Steven J. Halmos dated December 19, 1992, incorporated by
reference to Exhibit 1 of the Company's report on form 8-K as filed with the
Securities and Exchange Commission on December 19, 1992.
10(z) Amended Complaint filed February 24, 1993 in Peter Halmos
v. SafeCard Services, Incorporated, Civil Case No. 93-04354 (Circuit Court
for the 17th Judicial Circuit in and for Broward County) incorporated by
reference to Exhibit 10(c) of the Company's Quarterly Report on Form 10-Q for
its fiscal quarter ended April 30, 1993.
10(aa) Answer and Affirmative Defenses, Counterclaims and Third
Party Complaint, and Demand for Jury Trail of SafeCard Services, Incorporated
filed May 26, 1993 in Peter Halmos v. SafeCard Services, Incorporated, Civil
Case No. 93-04354 (Circuit Court for the 17th Judicial Circuit in and for
Broward County, Florida) incorporated by reference to Exhibit 10(d) of the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended April
30, 1993.
10(ab) Complaint filed May 26, 1993 in Peter Halmos, et al. v.
SafeCard Services, Incorporated, et al., Case No. 93-CH-4807 (Circuit Court
of Cook County, Illinois, County Department, Chancery Division) incorporated
by reference to Exhibit 10(e) of the Company's Quarterly Report on Form 10-Q
for its fiscal quarter ended April 30, 1993.
10(ac) Agreements between SafeCard Services, Incorporated and
Steven J. Halmos as follows:
* Standstill, Voting and Right of First Refusal Agreement dated
April 1, 1993 between SafeCard Services, Incorporated and Steven
J. Halmos.
* The first Amended and Restated Memorandum of Understanding dated
April 1, 1993 between SafeCard Services, Incorporated and Steven
J. Halmos.
* Side Letter Agreement dated April 1, 1993 between SafeCard
Services, Incorporated and Steven J. Halmos referred to in
Paragraph 10.1.1 of the First Amended and Restated Memorandum of
Understanding.
incorporated by reference to Exhibit 1 of the Company's report on Form 8-K
as filed with the Securities and Exchange Commission on April 1, 1993.
10(ad) Complaint filed August 11, 1993 in SafeCard Services,
Incorporated v. Peter A. Halmos, et al., Doc. 134, No. 192 (District Court,
First Judicial District, Laramie County, Wyoming) incorporated by reference
to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q for its
fiscal quarter ended July 31, 1993.
10(ae) Second Amended Complaint filed July 27, 1993 in Halmos
Trading & Investment Co., a Florida general partnership, by and through Peter
Halmos, as managing general partner v. SafeCard Services, Incorporated, et
al., Case No. 93-04354 (06) (Circuit Court, 17th Judicial Circuit, Broward
County, Florida, Civil Division) incorporated by reference to Exhibit 10(b)
of the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended
July 31, 1993.
10(af) Investor Relations Consulting Agreement dated June 21,
1993, effective January 1, 1993 between the Dilenschneider Group, Inc. and
the Company incorporated by reference to Exhibit 10(d) of the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended July 31, 1993.
10(ag) Investor Relations Consulting Agreement dated June 21,
1993, effective January 1, 1993 between Eugene Miller and the Company
incorporated by reference to Exhibit 10(e) of the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended July 31, 1993.
10(ah) Third Amendment to the Agreement with Citibank (South
Dakota), N.A., dated August 30, 1993.
10(ai) Indemnification Agreements for two of the Company's
Directors dated February 11, 1993 and September 1, 1993.
10(aj) Forms of Non-Qualified Stock Option Agreements dated
February 11, 1993 and September 1, 1993 between the Company and two outside
directors.
10(ak) 1994 Long Term Stock-Based Incentive Plan, incorporated
by reference to the Company's definitive proxy statement.
10(al) Counterclaim filed January 14, 1994 by Peter Halmos in
Halmos Trading & Investment Co., a Florida general partnership, by and
through Peter Halmos, as managing general partner v. SafeCard Services,
Incorporated, et al., Case No. 93-04354 (06) (Circuit Court, 17th Judicial
Circuit, Broward County, Florida, Civil Division) incorporated by reference
to Exhibit 1 of the Company's Current Report on Form 8-K filed on January 14,
1994.
10(am) Amended complaint filed December 1, 1993 in Peter Halmos,
et al. v. SafeCard Services, Inc., et al., Case No. 93-CH-4807 (circuit Court
of Cook County, Illinois, County Department, Chancery Division.
10(an) Employment Agreement, effective as of December 1, 1993,
between the Company and Paul G. Kahn incorporated by reference to Exhibit 1
of the Company's Current Report on Form 8-K filed on December 6, 1993.
10(ao) Investor relations letter agreement dated January 6,
1994, effective January 1, 1994 between the Company and the Dilenschneider
Group, Inc.
10(ap) Investor relations letter agreement dated December 20,
1993, effective January 1, 1994 between the Company and Eugene Miller.
10(aq) Letter Agreement dated May 28, 1992 between SafeCard
Services, Incorporated and Lynn C. Torrent.
10(ar) Letter Agreement dated December 4, 1992 between SafeCard
Services, Incorporated and David Gallimore.
11(a) Computation of Primary Earnings Per Share.
11(b) Computation of Fully Diluted Earnings Per Share.
13 SafeCard Services, Incorporated 1993 Annual Report.
15 Consent of Independent Accountants to incorporation by
reference of their report in Prospectuses constituting part of Registration
Statements on Forms S-3 and S-8.
22 Subsidiaries of the Registrant.
(b) Reports on Form 8-K
NONE
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of SafeCard Services, Incorporated
Our audits of the consolidated financial statements referred to in our
report dated December 10, 1993 appearing in the SafeCard Services,
Incorporated 1993 Annual Report to Shareholders (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial Statement
Schedules listed in Item 14(a)2 of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
Denver, Colorado
December 10, 1993
<PAGE>
<TABLE>
SAFECARD SERVICES INC. AND SUBSIDIARIES
SCHEDULE 1
OCTOBER 31, 1993
<CAPTION>
Fin Statement
Par Total Market Carrying
ISSUER AND TITLE Value Cost Value Value
INVESTMENT SECURITIES, MATURING AFTER ONE YEAR:
<S> <C> <C> <C> <C>
SANTA FE CNTY NEW MEXICO $ 192,000 $ 209,000 $ 205,000 $ 202,000
NEW JERSEY HWY AUTH GO PRFD 1/1/95 1,500,000 1,760,000 1,648,000 1,625,000
GA MUN ELC AUTH PWR REV PRFD 1/1/95 1,000,000 1,134,000 1,099,000 1,075,000
FT BEND TX INDPT SCH DST ESC TO MAT 200,000 222,000 215,000 212,000
WASHINGTON ST FGIC PRFD 2/1/95 250,000 275,000 269,000 265,000
VIRGINIA BCH VA PUB IMP PRFD 2/1/95 100,000 109,000 107,000 104,000
N EAST INDPT SCH DIST TEX PRFD 2/1/95 330,000 373,000 359,000 351,000
ILLINOIS ST UT PRFD 2/1/95 360,000 402,000 400,000 394,000
TRINITY RIVER AUTH TEX PROJ PRFD 2/1/95 900,000 1,034,000 996,000 974,000
HARRIS CNTY TX TL RD UNLTD PRFD 2/1/95 1,000,000 1,177,000 1,114,000 1,094,000
OCONEE CNTY SC SCH DIST RG PRFD 3/1/95 300,000 331,000 325,000 317,000
SCRANTON LACKWNNA PA HTH/WFR PRFD 3/1/95 570,000 659,000 632,000 617,000
SOUTHERN IL UN REV HSG AXLRY PRFD 4/1/95 200,000 233,000 222,000 218,000
FARMER BRNCH CARROLLTON TX PRFD 4/1/95 2,500,000 2,830,000 2,723,000 2,658,000
PHILAD PA HOSP & HGHR ED PRFD 4/1/95 1,200,000 1,407,000 1,338,000 1,310,000
JOHNSON CITY TENN PRFD 5/1/95 300,000 335,000 330,000 319,000
N CNTRL AUSTIN TX GRWTH PRFD 5/1/95 1,000,000 1,128,000 1,112,000 1,080,000
PLANO TX WTRWK & SWR SYS REV PRFD 5/1/95 125,000 141,000 138,000 135,000
WILLIAMSON CNTY TN HOSP INC PRFD 5/1/95 450,000 512,000 500,000 488,000
NORTH TEX MUN WTR DIST TEX PRFD 6/1/95 225,000 258,000 248,000 241,000
WICHITA KANSAS 200,000 225,000 219,000 216,000
UNIVERSITY N MX UNIV REVS PRFD 6/1/95 2,000,000 2,356,000 2,253,000 2,199,000
HAWAII ST SER BB PRFD 6/1/95 500,000 553,000 545,000 529,000
FL ST BRD ED CAP OUTLAY PRFD 6/1/95 800,000 913,000 887,000 865,000
S COLUMBIA BASIN IR DST WA PRFD 6/1/95 1,000,000 1,154,000 1,113,000 1,080,000
DIST COLUMBIA SER C - PRFD 6/1/95 710,000 818,000 792,000 772,000
JACKSONVILLE FLA HLTH FAC PRFD 6/1/95 1,000,000 1,123,000 1,105,000 1,073,000
MARION CNTY IND CON & RCTL PRFD 6/1/95 300,000 339,000 332,000 327,000
METROPOLITAN FR & EXPO IL PRFD 6/1/95 5,720,000 6,792,000 6,482,000 6,337,000
REDWOOD CITY CALIF PUB FAC PRFD 6/1/95 285,000 319,000 313,000 304,000
STEPHENSVILLE TX UTL SYS PRFD 6/1/95 820,000 944,000 904,000 882,000
REDWOOD CITY CALIF PUB FAC PRFD 6/1/95 190,000 213,000 208,000 203,000
OHIO ST WTR DEV AUTH REV PRFD 6/1/95 1,500,000 1,750,000 1,687,000 1,665,000
WISCONSIN ST PRFD 6/1/95 1,500,000 1,742,000 1,675,000 1,653,000
SHELBY CTY TN HLTH ED & HSG PRF 6/1/95 3,800,000 4,347,000 4,223,000 4,116,000
DELAWARE ST SER B PRFD 7/1/95 500,000 580,000 561,000 554,000
INTERMNT PWR AGY UT PWR RV PRFD 7/1/95 1,150,000 1,297,000 1,271,000 1,248,000
LOUISIANA ST RECOVERY DIST PRFD 7/1/95 2,900,000 3,244,000 3,169,000 3,128,000
PIMA CTY AZ UNI SCH DIST 102 PRFD 7/1/95 250,000 277,000 269,000 266,000
MARICOPA CNTY AR SCH DIST 11 PRFD 7/1/95 750,000 870,000 842,000 831,000
UNIV TEX PERM UNIV FD PRFD 7/1/95 850,000 956,000 930,000 910,000
UT ASD MUN PWR SYS RV HUNT PRFD 7/1/95 1,000,000 1,159,000 1,127,000 1,098,000
IN ST TOLL FIN AUTH TOLL RD PRFD 7/1/95 900,000 1,019,000 1,002,000 972,000
FT WAYNE IND HOSP AUTH REV PRFD 7/1/95 500,000 578,000 561,000 553,000
SC ST PUB SVC AUTH ELC REV PRFD 7/1/95 2,000,000 2,331,000 2,251,000 2,222,000
NEVADA ST UNIV SYS PROJ PRFD 8/1/95 500,000 561,000 550,000 542,000
DUVAL CNTY FL SCH DIST PRFD 8/1/95 500,000 553,000 544,000 536,000
SAN ANTONIO TX RFG SR A IMT PRFD 8/1/95 350,000 391,000 383,000 373,000
PALM BCH CNTY FL SCH DIST PRFD 8/1/95 1,600,000 1,786,000 1,771,000 1,738,000
MESQUITE TX INDT SCH DIST PRFD 8/15/95 1,000,000 1,095,000 1,084,000 1,055,000
HARRIS CNTY TX MN UTL DST 16 PRF 9/1/95 260,000 316,000 301,000 297,000
BEAUMONT TEX FGIC PRFD 9/1/95 250,000 282,000 275,000 271,000
AZ HLTH FAC AUTH HSP SYS RV PRFD 9/1/95 880,000 1,025,000 997,000 982,000
CONN ST DEV AUTH HLTH CARE PRFD 9/1/95 600,000 691,000 672,000 661,000
DALLAS TEXAS MUNI BOND ETM 1,000,000 959,000 1,039,000 987,000
DALLAS TX WTRWK & SWR SYS PRFD 10/1/95 1,000,000 1,097,000 1,086,000 1,058,000
HARRIS CNTY TX PRFD 10/1/95 1,600,000 1,816,000 1,769,000 1,737,000
BIRMINGHAM AL PRFD 10/1/95 500,000 579,000 565,000 556,000
HARRIS CTY TX FLD CTL DST PRFD 10/1/95 3,210,000 3,731,000 3,582,000 3,538,000
MONROEVILLE PA HSP AUTH PRFD 10/01/95 275,000 326,000 313,000 307,000
MASS ST HLT & EDL FAC AUTH PRFD 10/1/95 800,000 906,000 895,000 867,000
LAFAYETTE LA PUB PWR AUTH PRFD 11/1/95 400,000 469,000 456,000 450,000
TOPEKA KS PUB BLD COMN REV PRFD 11/1/95 200,000 228,000 223,000 219,000
MONTGOMERY CNTY PA HGHR ED & HLTH PRFD 500,000 592,000 573,000 565,000
LYCOMING CNTY PA AUTH HSP LSE REV PRFD 2,125,000 2,501,000 2,410,000 2,382,000
CHESTERFIELD CTY VA WTR & SWR REV PRFD 1,000,000 1,138,000 1,122,000 1,092,000
CO SPRINGS COLO UTIL REV PRFD 11/15/95 5,400,000 6,053,000 5,922,000 5,815,000
AUSTIN TX UTIL SYS REV PRFD 11/15/95 1,600,000 1,816,000 1,781,000 1,748,000
N JERSEY DIST WTR SUPPLY PRFD 11/15/95 1,765,000 1,946,000 1,928,000 1,875,000
JEFFERSON CNTY CO SCH DST PRFD 12/1/95 3,150,000 3,527,000 3,460,000 3,392,000
DOUGLAS CNTY CO SCH DST PRFD 12/1/95 1,525,000 1,789,000 1,733,000 1,691,000
DIST COLUMBIA GO PRFD 12/1/95 100,000 117,000 115,000 111,000
WASH DC UNLIMITED TAX GO PRFD 12/1/95 500,000 586,000 575,000 556,000
KING CNTY WASH PRFD 12/1/95 300,000 341,000 334,000 322,000
MERIDIAN MET DST CO AMBAC PRFD 12/1/95 1,600,000 1,854,000 1,808,000 1,765,000
JOHNSON CNTY KS WTR DIST PRFD 12/1/95 500,000 584,000 563,000 557,000
FT COLLINS COLO SEWER REV PRFD 12/1/95 750,000 863,000 840,000 821,000
MESA CNTY CO SALE TAX REV PRFD 12/1/95 2,000,000 2,319,000 2,261,000 2,226,000
SWARTHMORE BORO AUTH PA PRFD 12/1/95 1,475,000 1,721,000 1,675,000 1,652,000
MUNI SUB DST NTHRN CO WTR PRFD 12/1/95 2,000,000 2,286,000 2,253,000 2,179,000
N CAROLINA EASTN MN PWR AGY PRFD 1/1/96 255,000 296,000 283,000 276,000
ILLINOIS ST TOLL HWY AUTH PRFD 1/1/96 750,000 828,000 826,000 816,000
PIEDMONT MUN PWR AGY SC RV PRFD 1/1/96 1,000,000 1,178,000 1,158,000 1,132,000
STHRN MINN MUN PWR AGY PWR PRFD 1/1/96 1,000,000 1,087,000 1,078,000 1,061,000
N CAROLINA MUN PWR AGY N 1 PRFD 1/1/96 1,000,000 1,132,000 1,124,000 1,101,000
SALT RVR ARPROJ AGRIC IMPT & PWR PRFD 250,000 276,000 276,000 270,000
CHESTERFIELD CNTY VA UT PRFD 1/15/96 1,000,000 1,098,000 1,100,000 1,074,000
HARRISON CNTY MS WSTWTR MGT PRFD 2/1/96 700,000 776,000 777,000 767,000
DULUTH MN INDPT SCH DST 709 PRFD 2/1/96 825,000 909,000 906,000 888,000
PLANO TEX PRFD 3/1/96 1,600,000 1,746,000 1,737,000 1,713,000
JOHNSON CNTY KS UNI SCH DIST 233 PRFD 1,000,000 1,073,000 1,074,000 1,056,000
MINNEAPOLIS MN CONV CTR PRFD 4/1/96 1,000,000 1,115,000 1,116,000 1,090,000
NW IL SUBN MUN JT ACTION PRFD 5/1/96 2,000,000 2,213,000 2,215,000 2,189,000
SAN ANTONIO TX SWR REV REF LIEN PRRD 1,000,000 1,105,000 1,108,000 1,082,000
NEW YORK ST HSG FIN AGY PRFD 5/1/96 500,000 567,000 563,000 554,000
DIST COLUMBIA SER A PRFD 6/1/96 1,175,000 1,323,000 1,322,000 1,307,000
OH ST WTR DV AUTH REV SR A PRFD 6/1/96 1,000,000 1,133,000 1,130,000 1,112,000
COLUMBUS OH SWR REV SER A PRFD 6/1/96 3,900,000 4,392,000 4,400,000 4,311,000
ILLINOIS ST PRFD 6/1/96 7,500,000 8,389,000 8,425,000 8,200,000
OH ST WTR DEV AUTH REV SER A AMBAC PRF 2,000,000 2,260,000 2,263,000 2,208,000
METRO FAIR & EXPO AUTH IL PRFD 6/1/96 2,645,000 2,997,000 2,984,000 2,925,000
ALLEGHENY CNTY PA HOSP DEV PRFD 6/1/96 2,500,000 2,835,000 2,828,000 2,763,000
PLATTE RIVER PWR AUTH COLO PRFD 6/1/96 1,000,000 1,116,000 1,121,000 1,092,000
KY ST TPK AUTH ECN DEV REV PRFD 7/1/96 1,000,000 1,127,000 1,128,000 1,118,000
CLARKE CNTY GA SCH DIST UT PRFD 7/1/96 1,900,000 2,089,000 2,093,000 2,074,000
AZ ST TRANS BRD HWY REV PRFD 7/1/96 525,000 598,000 594,000 588,000
AUSTIN TX INDPT SCH DIS UT PRFD 8/1/96 1,000,000 1,078,000 1,077,000 1,064,000
TEMPE ARIZ PRFD 7/1/96 750,000 846,000 843,000 835,000
KY ST TPK AUTH ECN DEV REV PRFD 7/1/96 1,500,000 1,695,000 1,692,000 1,673,000
ANCHORAGE ALASKA PRFD 8/1/96 200,000 225,000 225,000 221,000
WASH ST PUB PWR SUPPLY SYS PRFD 7/1/96 695,000 897,000 884,000 873,000
BIRMINGHAM E END AL MED CLNC PUT 7/1/96 410,000 500,000 492,000 499,000
RHODE ISLAND HLTH ED CORP PRFD 7/1/96 875,000 1,057,000 1,048,000 1,039,000
DUVAL CNTY FL SCH DIST UT PRFD 8/1/96 2,000,000 2,256,000 2,253,000 2,233,000
PHILADELPHIA PA SER A CALL PRFD 8/1/96 200,000 224,000 225,000 223,000
JACKSONVILLE FL EXCS TXS PRFD 10/1/96 400,000 455,000 455,000 451,000
BRWD CNTY FL ARPT SYS REV PRFD 10/1/96 855,000 1,010,000 1,005,000 992,000
CHICAGO ILL WTR REV PRFD 11/1/96 1,355,000 1,485,000 1,482,000 1,466,000
GR N ORLEANS EXPWY COMN LA PFD 11/1/96 270,000 309,000 309,000 307,000
UNIV MICH UNIV REVS PRFD 12/1/96 2,000,000 2,274,000 2,274,000 2,257,000
ANCHORAGE AK ELC UTIL REV PRFD 12/1/96 1,000,000 1,124,000 1,119,000 1,109,000
HOUSTON TX WTR SYS PR LN PRFD 12/1/96 1,000,000 1,160,000 1,150,000 1,139,000
BOULDER VLY CO SCH DST RE 2 PRFD 12/96 2,020,000 2,231,000 2,228,000 2,199,000
DALLAS CNTY TX UTL RECLAM DST PRD 2/97 250,000 279,000 278,000 275,000
ORANGE CNTY FL HSG FN SPSNK AV LF 3.5Y 1,935,000 1,933,000 2,169,000 1,933,000
NC HSG FIN AGY SPSNK AMT AVG LF 2.33Y 655,000 655,000 678,000 655,000
MO ST HG DV GNMA SPSNK AMT AVG LF 3.5Y 1,245,000 1,242,000 1,370,000 1,242,000
WA ST SNGL FMLY SPSNK AMT AVG LF 3.5Y 660,000 660,000 726,000 660,000
DALLAS TX HSG FN GNMA SPSNK AVG LF 3.5Y 470,000 470,000 471,000 470,000
ND ST HSG & MTG FIN AGY REV AVG LF 5Y 755,000 755,000 677,000 755,000
TARRANT CNTY TX HSG SPSNK AMT AV LF 3.5Y 455,000 455,000 456,000 455,000
NJ ST HSG & MTG FIN SPSNK AMT AV LF 4Y 1,170,000 1,169,000 1,023,000 1,169,000
PIMA CTY AZ INDL SPSNK AMT AV LF 3.5Y 2,180,000 2,182,000 2,195,000 2,181,000
ID HSG SGL FMLY B SPSNK AMT AV LF 3.5Y 330,000 329,000 344,000 329,000
OH HSG AGY SNGL FML SPSNK AMT AV LF 3.5Y 625,000 625,000 660,000 625,000
NV HSG DIV SNGL FMLY SPSNK AV LF 3.5Y 1,825,000 1,822,000 1,839,000 1,821,000
OTHER SECURITY INVESTMENTS 180,000 180,000 180,000 180,000
----------- ----------- ----------- -----------
$153,332,000 $172,512,000 $170,015,000 $166,704,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
SAFECARD SERVICES, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- --------- -------- -------- ---------- ----------
Reserves deducted
from assets to
which they apply:
Year Ended October 31, 1993
- ---------------------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $350,000 ($200,000)(1) $150,000
Deferred Commission $347,000 ($50,000)(1) $297,000
Allowance for Cancellations $7,587,000 $35,529,000(2) ($34,223,000)(3) $8,893,000
Year Ended October 31, 1992
- ---------------------------
Accounts Receivable $296,000 $137,000 ($83,000)(4) $350,000
Deferred Commission $350,000 ($3,000)(4) $347,000
Deferred Subscriber Acquisition Costs $800,000 ($800,000)(5) --
Allowance for Cancellations $6,990,000 $22,830,000(2) ($22,233,000)(3) $7,587,000
Year Ended October 31, 1991
- ---------------------------
Accounts Receivable $438,000 ($142,000)(6) $296,000
Deferred Commission $248,000 $142,000(6) ($40,000)(4) $350,000
Deferred Subscriber Acquisition Costs -- $800,000(7) $800,000
Allowance for Cancellations $6,758,000 $22,049,000(2) ($21,817,000)(3) $6,990,000
<FN>
(1) Reversal of uncollectable accounts receivable or commission reserves.
(2) Charged to balance sheet accounts "Deferred Subscriber Acquisition -
Commission" and "Subscriber Advance Payments".
(3) Charges for refunds upon subscriber cancellations.
(4) Uncollectable accounts receivable or commissions written off.
(5) Reserve balance written off against deferred subscriber acquisition cost
balance.
(6) Reclassification from accounts receivable to deferred commission reserve.
(7) Reserve for Hot-Line multi-year subscriber acquisition costs to reflect
decrease in renewal rates.
</TABLE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SAFECARD SERVICES, INCORPORATED
By: /s/ Paul G. Kahn
------------------------------
Paul G. Kahn
Chief Executive Officer
January 28, 1994
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 and in the capacities and on the dates indicated.
Date Signature Title
- ---- --------- -----
January 28, 1994 /s/ Paul G. Kahn Chief Executive Officer,
---------------- Chairman of the Board
Paul G. Kahn and Director
January 28, 1994 /s/ William T. Bacon, Jr. Director
--------------------------
William T. Bacon, Jr.
January 28, 1994 /s/ Robert L. Dilenschneider Director
----------------------------
Robert L. Dilenschneider
January 28, 1994 /s/ Eugene Miller Director
-----------------
Eugene Miller
January 28, 1994 /s/ Marshall Burman Director
--------------------
Marshall Burman
January 28, 1994 /s/ WM Stalcup, Jr. President and
-------------------- Director
WM Stalcup, Jr.
January 28, 1994 /s/ Gerald R. Cahill Chief Operating Officer
-------------------- and Director
Gerald R. Cahill
January 28, 1994 /s/ Lynn C. Torrent Chief Financial Officer
------------------- (Principal Financial and
Lynn C. Torrent Accounting Officer) <PAGE>
Exhibit Index
Exhibit Page Numbers
3(a) SafeCard Services, Incorporated Incorporated by reference to
Certificate of Incorporation. Exhibit 3(a) of the Company's
Annual Report on Form 10-K
for its fiscal year ended
October 31, 1992.
3(b) SafeCard Services, Incorporated Incorporated by reference to
Certificate of Amendment of Exhibit 3(g) of the Company's
Certificate of Incorporation, as Annual Report on Form 10-K for
filed with the Secretary of State its fiscal year ended October
of Delaware, Division of Corporations 31, 1987.
on August 20, 1987.
3(c) SafeCard Services Insurance Incorporated by reference to
Company's Certificate of Exhibit 3(e) of the Company's
Incorporation. Annual Report on Form 10-K for
its fiscal year ended October
31, 1987.
3(d) SafeCard Services Insurance Incorporated by reference to
Company's By-Laws. Exhibit 3(f) of the Company's
Annual Report on Form 10-K for
its fiscal year ended October
31, 1987.
3(e) SafeCard Services, Incorporated Incorporated by reference to
By-Laws as amended through Exhibit 10(c) of the Company's
September 13, 1993. Quarterly Report on Form 10-Q
for its fiscal quarter ended
July 31, 1993.
10(a) Description of 1979 Incorporated by reference to
Stock Option Plan. Exhibit 10(b) to the Company's
Registration Statement on Form
S-1, No. 2-72966, as filed
with the Securities and
Exchange Commission on June
26, 1981.
10(b) Form of Non-Qualified Stock Option Incorporated by reference to
Agreement dated August 30, 1989 Exhibit 10(a) of the Company's
between the Company and each of Quarterly Report on Form 10-Q
William T. Bacon and Richard W. Nixon. for its fiscal quarter ended
July 31, 1989.
10(c) Form of 1987 Non-Qualified Stock Incorporated by reference to
Option Agreement dated August 30, Exhibit 10(b) of the Company's
1989 between the Company and each Quarterly Report on Form 10-Q
of Peter Halmos and Steven J. Halmos. of its fiscal quarter ended
July 31, 1989.
10(d) Form of Non-Qualified Stock Option Incorporated by reference to
Agreement dated August 30, 1989 Exhibit 10(c) of the Company's
between the Company and each of Report on Form 10-Q of its
six officers. fiscal quarter ended July 31,
1989.
Exhibit Index
Exhibit Page Numbers
10(e) Form of Non-Qualified Stock Option Incorporated by reference to
Agreement dated August 30, 1989 Exhibit 10(d) of the Company's
between the Company and each of Quarterly Report on Form 10-Q
Peter Halmos and Steven J. Halmos. for its fiscal quarter ended
July 31, 1989.
10(f) Form of 1989 Stock Option Plan Incorporated by reference to
Amended Non-Qualified Stock Option Exhibit 10(f) of the Company's
Agreement between the Company and Annual Report on Form 10-K for
each of various employees of the its fiscal year ended October
Company, effective November 9, 1990. 31, 1990.
10(g) Form of Non-Qualified Stock Option Incorporated by reference to
Agreement, effective as of November Exhibit 10(c) to the Company's
29, 1989, between the Company and Quarterly Report on Form 10-Q
Steven J. Halmos. for its fiscal quarter ended
April 30, 1990.
10(h) Form of Termination Agreements dated Incorporated by reference to
August 31, 1989 between the Company Exhibit 10(f) of the Company's
and each of six officers of the Annual Report on Form 10-K for
Company. its fiscal year ended October
31, 1989.
10(i) Form of letter amending Termination Incorporated by reference to
Agreements between the Company and Exhibit 10(b) to the Company's
each of six officers of the Company. Quarterly Report on Form 10-Q
for its fiscal quarter ended
April 30, 1990.
10(j) Property Lease, dated March 1, 1985, Incorporated by reference to
between the Company and a partnership Exhibit 10(c) to the Company's
consisting of Peter Halmos and Steven Annual Report on Form 10-K for
J. Halmos. its fiscal year ended October
31, 1986.
10(k) Agreement with Citicorp (South Incorporated by reference to
Dakota), N.A., effective January 1, the Company's Form 8 Amendment
1989. No. 3, dated November 10,
1989, to its Quarterly Report
on Form 10-Q for its fiscal
quarter ended April 30, 1989.
10(l) Agreement with Peter Halmos, dated Incorporated by reference to
November 1, 1988, regarding a marketing Exhibit 10(e) to the Company's
for credit information services. Annual license Report on Form
10-K for its fiscal year ended
October 31, 1988.
10(m) First Amendment to Agreement, dated Incorporated by reference to
January 25, 1991, regarding marketing Exhibit 10(m) of the Company's
license for credit information Annual Report on Form 10-K for
services. its fiscal year ended October
31, 1990.
Exhibit Index
Exhibit Page Numbers
10(n) Form on Non-Qualified Stock Option Incorporated by reference to
Agreement dated October 16, 1991 Exhibit 10(n) of the Company's
between the Company and an outside Annual Report on Form 10-K
director. for its fiscal year ended
October 31, 1991.
10(o) Form of Non-Qualified Stock Option Incorporated by reference to
Plan dated October 16, 1992 between Exhibit 10(o) of the Company's
the Company and twenty key employees. Annual Report on Form 10-K for
its fiscal year ended October
31, 1991.
10(p) Public Relations Consulting Agreement Incorporated by reference to
dated October 1, 1992 between The Exhibit 10(p) of the Company's
Dilenschneider Group, Inc. and Annual Report on Form 10-K for
the Company. its fiscal year ended october
31, 1991.
10(q) Letter Agreement dated January 27, Incorporated by reference to
1992, between CreditLine Corporation Exhibit 10(q) of the Company's
and the Company. Annual Report on Form 10-K for
its fiscal year ended October
31, 1991.
10(r) Confirmation Agreement between Peter Incorporated by reference to
Halmos, High Plains Capital Exhibit 10(r) of the Company's
Corporation, CreditLine Corporation Annual Report on Form 10-K for
and the Company dated January 27, 1992. its fiscal year ended October
31, 1992.
10(s) Board of Directors' Resolution dated Incorporated by reference to
December 6, 1991 establishing non- Exhibit 10(s) of the Company's
employee director retirement plan. Annual Report on Form 10-K for
its fiscal year ended October
31, 1991. <PAGE>
Exhibit Index
Exhibit Page Numbers
10(t) SafeCard Services, Incorporated Incorporated by reference to
Employee Relocation Incentive Packages. Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q
for its fiscal quarter ended
April 30, 1992.
10(u) Second Amendment to Agreement with Incorporated by reference to
Citicorp (South Dakota), N.A. Exhibit 10(b) to the Company's
dated March 31, 1992. Quarterly Report on Form 10-Q
for its fiscal quarter ended
April 30,1992.
10(v) Letter Agreement dated May 28, 1992 Incorporated by reference to
between SafeCard Services, Exhibit 10(a) to the Company's
Incorporated and Gerald R. Cahill. Quarterly Report on Form 10-Q
for its fiscal quarter ended
July 31, 1992.
10(w) Letter Agreement dated October 26, Incorporated by reference to
1992 between SafeCard Services, Exhibit 10(w) to the Company's
Incorporated and WM Stalcup. Annual Report on Form 10-K for
its fiscal year ended October
31, 1992.
10(x) Indemnification Agreements for the Incorporated by reference to
Company's Directors and certain of Exhibit 10(x) to the Company's
the Company's executive officers Annual Report on Form 10-K for
dated October 2, 1992. its fiscal year ended October
31, 1992.
10(y) Memorandum of Understanding between Incorporated by reference to
SafeCard Services, Incorporated and Exhibit 1 of the Company's
Steven J. Halmos dated December 19, report on form 8-K as filed
1992. with the Securities and
Exchange Commission on
December 19, 1992.
10(z) Amended Complaint filed February 24, Incorporated by reference to
1993 in Peter Halmos v. SafeCard Exhibit 10(c) of the Company's
Services, Incorporated, Civil Case Quarterly Report on Form 10-Q
No. 93-04354 (Circuit Court for the for its fiscal quarter ended
17th Judicial Circuit in and for April 30, 1993.
Broward County).
10(aa) Answer and Affirmative Defenses, Incorporated by reference to
Counterclaims and Demand for Exhibit 10(d) of the Company's
Jury Trial of SafeCard Services, Quarterly Report on Form 10-Q
Incorporated May 26, 1993 in Peter for its fiscal quarter ended
Halmos v. SafeCard Services, April 30, 1993.
Incorporated, Civil Case No. 93-
04354 (Circuit Court for the 17th
Judicial Circuit in and for Broward
County, Florida).
Exhibit Index
Exhibit Page Numbers
10(ab) Complaint filed May 26, 1993 in Incorporated by reference to
Peter Halmos et al. v. SafeCard Exhibit 10(e) of the Company's
Services, Incorporated, et al., Quarterly Report on Form 10-Q
Case No. 93-CH-4807 (Circuit Court for its fiscal quarter ended
of Cook County, Illinois, County April 30, 1993.
Department, Chancery Division).
10(ac) Agreements between SafeCard Services, Incorporated by reference to
Incorporated and Steven J. Halmos. Exhibit 1 of the Company's
report on Form 8-K as filed
with the Securities and
Exchange Commission on April
1, 1993.
10(ad) Complaint filed August 11, 1993 in Incorporated by reference to
SafeCard Services, Incorporated v. Exhibit 10(a) of the Company's
Peter A. Halmos et al., Doc. 134, Report on Form 10-Q for its
No. 192 (District Court, First fiscal quarter ended July 31,
Judicial District, Laramie County, 1993.
Wyoming).
10(ae) Second Amended Complaint filed July Incorporated by reference to
27, 1993 Halmos Trading & Investment Exhibit 10(b) of the Company's
Co., a Florida general partnership, Quarterly Report on Form 10-Q
by and through Peter Halmos, as for its fiscal quarter ended
managing general partner v. SafeCard July 31, 1993.
Services, Incorporated, et al., Case
No. 93-04354(06) (Circuit Court, 17th
Judicial District, Laramie County,
Wyoming).
10(af) Investor Relations Consulting Agreement Incorporated by reference to
dated June 21, 1993, effective January Exhibit 10(d) of the Company's
1, 1993 between The Dilenschneider Quarterly Report on Form 10-Q
Group Inc. and the Company. for its fiscal quarter ended
July 31, 1993.
10(ag) Investor Relations Consulting Agreement Incorporated by reference to
dated June 21, 1993, effective January Exhibit 10(e) of the Company's
1, 1993 between Eugene Miller and the Quarterly Report on Form 10-Q
Company. for its fiscal quarter ended
July 31, 1993.
10(ah) Third Amendment to the Agreement with 33 - 36
Citibank (South Dakota), N.A. dated
August 30, 1993.
10(ai) Indemnification Agreements for two of 37 - 54
the Company's Directors dated February
11, 1993 and September 1, 1993.
10(aj) Forms of Non-Qualified Stock Option 55 - 67
Agreements dated February 11, 1993
and September 1, 1993 between the
Company and two outside directors.
10(ak) 1994 Long Term Stock-Based Incorporated by reference to
Incentive Plan. the Company's 1993 definitive
proxy statement.
Exhibit Index
Exhibit Page Numbers
10(al) Counterclaim filed January 14, 1994 Incorporated by reference to
by Peter Halmos in Halmos Trading & Exhibit 1 of the Company's
Investment Co., a Florida general Current Report on Form 8-K
partnership, by and through Peter filed on January 14, 1994.
Halmos, as managing general partner
v. SafeCard Services Incorporated,
et al., Case No. 93-04354 (06)
(Circuit Court, 17th Judicial
Circuit, Broward County, Florida
Civil Division).
10(am) Amended Complaint filed December 1, 1993 68 - 125
in Peter Halmos, et al. v. SafeCard
Services, Incorporated, et al., Case No.
93-CH-4807 (Circuit Court of Cook County,
Illinois, County Department, Chancery Division.
10(an) Employment Agreement, effective as of Incorporated by reference to
December 1, 1993, between the Company Exhibit 1 of the Company's
and Paul G. Kahn. Current Report on Form 8-K
filed on December 6, 1993.
10(ao) Investor relations letter agreement dated 126
January 6, 1994, effective January 1, 1994
between the Company and the Dilenschneider
Group, Inc.
10(ap) Investor relations letter agreement dated 127
December 20, 1993, effective January 1, 1994
between the Company and Eugene Miller.
10(aq) Letter Agreement dated May 28, 1992 between 128
SafeCard Services, Incorporated and
Lynn C. Torrent.
10(ar) Letter Agreement dated December 4, 1992 129
between SafeCard Services, Incorporated
and David Gallimore.
11(a) Computation of Primary Earnings Per Share. 130
11(b) Computation of Fully Diluted Earnings Per Share. 131
13 SafeCard Services, Incorporated 132 - 157
1993 Annual Report.
15 Consent of Independent Accountants to incorporate 158
by reference their report in Prospectuses
constituting part of the Registration Statements on
Forms S-3 and S-8.
22 Subsidiaries of the Registrant. 159
<PAGE>
EXHIBITS
PAGE LEFT BLANK<PAGE>
EXHIBIT 10(ah)
THIRD AMENDMENT
TO THE AGREEMENT
BY AND BETWEEN
CITIBANK (SOUTH DAKOTA), N.A.
AND
SAFECARD SERVICES, INC.
This Amendment entered into on the 30th day of August, 1993,
by and between CITIBANK (SOUTH DAKOTA), N.A. ("CBSD"), having its
offices at 701 East 60th Street North, Sioux Falls, South Dakota
57117, and SAFECARD SERVICES, INC. ("SafeCard"), having offices at
3001 East Pershing Boulevard, Cheyenne, Wyoming 82001.
WHEREAS, pursuant to an agreement dated as of January 1, 1989
between CBSD and SafeCard, as amended, (the "Agreement"), SafeCard
provides a card registration service to CBSD Cardholders; and
WHEREAS, CBSD and SafeCard now desire to change the Agreement
(as previously amended) as set forth herein, said changes to be
effective as of the date first above written unless otherwise noted
below;
NOW, THEREFORE, CBSD and SafeCard agree as follows:
1. Article 2.1 (d) will be replaced in its entirety with the
following. The remainder of Article 2.1 (i.e., Articles 2.1 (a),
(b), (c), (e), (f), and (g)) will remain in effect as currently
written.
"(d) At SafeCard's expense, SafeCard and/or its
agents will conduct Telemarketing solicitations. The
number of Cardholders SafeCard will call and the timing
of such solicitations shall be determined by mutual
agreement, except that each year (July 1 to June 30 or
prorated portion thereof) this Agreement is in effect,
CBSD will provide SafeCard with and allow SafeCard to
call _________________________________________________
_______________________________________________________
________________________________________________; and
___________________ Cardholders at least once each year
(or part thereof). SafeCard shall cause its Phone Agents
to meet the Performance Standards for Telephone
Solicitations as set forth in Schedule 2.1(d)-1 attached
hereto and the Telemarketing Ethics Statement attached
hereto as Schedule 2.1(d)-2.
"New Accounts" is defined as all Cardholders who have
been Cardholders _______________________, except for
Choice Cardholders for whom New Accounts will mean Choice
Cardholders who have been Choice Cardholders
____________________.
With respect to the above referenced New Accounts, it is
the intent of the parties that SafeCard be allowed to
call _____________________________________ that CBSD and
SafeCard mutually agree presents a marketing opportunity,
except those that CBSD is prohibited from allowing
SafeCard to call under the specific terms of written
agreement(s) CBSD has or may enter into with a third
party with whom CBSD offers a co-branded bankcard.
2. Article 1 of the Agreement will be amended to replace
articles 1.6 and 1.7 (which were added pursuant to the Second
Amendment to the Agreement) as follows:
"1.6 Second Term will be defined as the period from
July 1, 1993 until December 31, 1999."
"1.7 Cardholders will be defined to mean holders of
CBSD Cards, collectively including, but not limited to,
Classic Cardholders, Preferred Cardholders, AAdvantage
Cardholders, Choice Cardholders, and any holders of any
new Visa or MasterCard cards CBSD introduces during the
term of the Agreement, excluding business and corporate
cards."
3. Article 7.1 (which was amended by the Second Amendment)
will be amended to replace "December 31, 1997" with "December 31,
1999."
4. A new Article 9.18 will be added to the Agreement as
follows:
"9.18 New Program Tests. CBSD agrees to allow
SafeCard to conduct Solicitations to Cardholders on a
test basis (as set forth below) regarding at least the
following three new SafeCard services (the "New
Services"):
(i) Protection Plus Wallet Coverage (enhanced
version of the Program)
(ii) Protection Plus and CreditLine (credit
monitoring combination service
(iii) CreditLine (credit monitoring service)
For purposes of this Article 9.18, CBSD agrees to allow
SafeCard to conduct said tests as follows:
a. The parties agree to conduct Solicitations for the
tests of (i) Protection Plus Wallet Coverage and
(ii) Protection Plus and CreditLine (combination
service) in the form of Solo Mailings, Inserts, and
Telemarketing to __________________ Cardholders for
each of the New Services. The timing of such
Solicitations will be as mutually agreed, but will
take place as soon as possible (but at the latest
_________________ from the date of this Third
Amendment).
b. Because it would be difficult to establish specific
criteria for measuring the success of each test
Solicitation (particularly for such things as
customer service activity generated by the test),
the parties agree that ___________________________
__________________________________________________
__________________________________________________
__________________________________________________
________________________________________. SafeCard
is entering into this Third Amendment based upon
CBSD's assurances thereof.
c. If the above-referenced combination tests (Item
(ii) above) is deemed successful by both parties,
then CBSD will agree to test the stand-alone
CreditLine service (item (iii)) by allowing
SafeCard to conduct solicitations to cardholders
that CBSD and SafeCard mutually agree upon on a
test basis as set forth in items a and b above.
d. Will respect to the Solicitations relating to the
test, the general terms (but not the financial
terms) of the Agreement will apply to the New
Services. The financial arrangements under which
the test will be conducted will be
___________________________, with net sales defined
as gross sales, less credits resulting from
cancellations. Financial terms for roll-out of the
New Services will be __________________________.
e. In addition to the two New Services set forth
above, CBSD will allow SafeCard to do a test
regarding SafeCard's PAWS pet savings program if
and when CBSD's agreement with the service provider
for the competitive program CBSD is testing allows
CBSD to test with SafeCard.
5. Regarding Choice Cardholders: SafeCard has heretofore
offered a service similar to the Program under SafeCard's trade
name, Hot-Line Credit Card Protection, to Citibank's Choice
Cardholders pursuant to an agreement dated December 12, 1990, which
agreement has been terminated. Future marketing to, and servicing
of renewals of, Choice Cardholders will henceforth be governed by
the Agreement, using for renewals of currently-existing members and
new member solicitations either the Hot-Line name of (if the
parties so agree) the Protection Plus name.
On the Reconciliation Statement set forth in Section 3.2
of the Agreement, SafeCard will include five additional categories
of Participating Cardholders, those who are Choice Cardholders.
These additional categories will represent Choice Cardholders who
became Participating Cardholders on a one-year membership basis
prior to the date hereof via mail solicitations and via
telemarketing solicitations (Categories J and K respectively);
Choice Cardholders who became Participating Cardholders on a three-
year membership basis prior to the date hereof via mail
solicitations and via telemarketing solicitations (Categories L and
M respectively); and Choice Cardholders who become Participating
Cardholders on or after the date hereof (Category N).
All of the provisions of subsection 3.2(b) will apply to
said additional Categories J, K, and L and the sum of each of said
Categories as determined pursuant to subsection 3.2(b) will be
multiplied by the following percentages:
Category J ______
Category K ______
Category L ______
Category M ______
Category N ______
6. SafeCard has proposed certain new business opportunities
to Citicorp Retail Services, Inc. ("CRS"). CBSD agrees to
encourage CRS to work with SafeCard and not to impede SafeCard's
efforts to convince CRS to do so.
7. Protection Plus Pricing. Participating Cardholders in
Protection Plus currently pay a fee of $15 for one year memberships
and $39 for three year memberships.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________.
8. In the event of contradiction(s) between any provision(s)
of this Third Amendment and those of the Agreement (as previously
amended), then this Third Amendment will govern.
Except as set forth herein, the Agreement will remain in
full force and effect as currently written.
CITIBANK (SOUTH DAKOTA), N.A. SAFECARD SERVICES, INC.
By: /s/ Ronald F. Williamson By: /s/ WM Stalcup, Jr.
------------------------- ---------------------
Name: Ronald F. Williamson Name: WM Stalcup, Jr.
----------------------- -------------------
Title: President and CEO Title: President
---------------------- ------------------
Date: August 30, 1993 Date: August 25, 1993
----------------------- --------------------
EXHIBIT 10(ai)
INDEMNITY AGREEMENT
-------------------
AGREEMENT, as of February 11, 1993 (the "Agreement"), between
SafeCard Services, Inc., a Delaware corporation (the "Company"),
and Eugene Miller (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or an officer of the
Company;
WHEREAS, both the Company and Indemnitee recognize the increased
risk of litigation and other claims being asserted against
directors and officers of public companies in today's environment;
WHEREAS, the By-laws (the "By-laws") and Certificate of
Incorporation (the "Certificate") of the Company require the
Company to indemnify and advance expenses to its directors and
officers to the fullest extent permitted by law, and the Indemnitee
has been serving and continues to serve as a director and/or an
officer of the Company in part in reliance on such provisions in
the By-laws and Certificate;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance
Indemnitee's continued service to the Company in an effective
manner and Indemnitee's reliance on the foregoing provisions in the
By-laws and Certificate, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by such
provisions in the By-laws and Certificate will be available to
Indemnitee (regardless of, among other things, any amendment to or
revocation of such provisions in the By-laws or Certificate or any
change in the composition of the Company's Board of Directors (the
"Board") or acquisition transaction relating to the Company), the
Company wishes to provide in this Agreement for the indemnification
of and the advancing of expenses to Indemnitee to the fullest
extent permitted by law and as set forth in this Agreement, and, to
the extent insurance is maintained, for the continued coverage of
Indemnitee under Company directors' and officers' liability
insurance policies;
NOW, THEREFORE, in consideration of the premises and of
Indemnitee continuing to serve the Company directly or, at its
request, with another enterprise, and intending to be legally bound
hereby, the parties hereto agree as follows;
<PAGE>
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred
upon any of the following events:
(i) The acquisition in one or more transactions by any
"Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"), provided,
however, that for purposes of this Section 1(a)(i), the Voting
Securities acquired directly from the Company by any Person shall
be excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities shall
be included in the calculation of the total number of Voting
Securities then outstanding); or
(ii) The individuals who, as of February 11, 1993, are
members of the Board (the "Incumbent Board"), cease for any reason
to constitute at least two-thirds of the Board; provided, however,
that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member
of the Incumbent Board; or
(iii)Approval by stockholders of the Company of (A) a merger
or consolidation involving the Company if the stockholders of the
Company immediately before such merger or consolidation do not own,
directly or indirectly immediately following such merger or
consolidation, more than seventy-five percent (75%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or (B)
a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially
all of the assets of the Company.
(iv) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty-five percent
(25%) or more of the then outstanding Voting Securities is acquired
by (i) a trustee or other fiduciary holding securities under one or
more employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation that, immediately prior to
such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such
acquisition.
(v) Moreover, notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject
Person, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of
Voting Securities by the Company, and after such share acquisition
by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(b) Claim: any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative or other, including, without limitation, an action by
or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, whether predicated on
foreign, federal, state or local law and whether formal or
informal.
(c) Expenses: include attorneys' fees and all other costs,
charges and expenses paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related
to the fact that Indemnitee is or was or has agreed to become a
director, officer, employee, agent or fiduciary of the Company, or
is or was serving or has agreed to serve in any capacity, at the
request of the Company, in any other corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such
capacity.
(e) Potential Change in Control: shall be deemed to have
occurred if (i) the Company enters into an agreement or
arrangement, the consummation of which would result in the
occurrence of a Change in Control; or (ii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(f) Voting Securities: any securities of the Company that
vote generally in the election of directors.
2. Basic Indemnification Arrangement:
(a) In the event Indemnitee was, is or becomes a party to
or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, a Claim by reason of
(or arising in part out of) an Indemnifiable Event, the Company
shall indemnify Indemnitee (without regard to the negligence or
other fault of the Indemnitee) to the fullest extent permitted by
applicable law, as soon as practicable but in no event later than
thirty days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties, excise
taxes and amounts paid or to be paid in settlement (including all
interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines,
penalties, excise taxes or amounts paid or to be paid in
settlement) of such Claim. If Indemnitee makes a request to be
indemnified under this Agreement, the Board of Directors (acting by
a quorum consisting of directors who are not parties to the Claim
with respect to an Indemnifiable Event or, if such a quorum is not
obtainable, acting upon an opinion in writing of independent legal
counsel ("Board Action")) shall, as soon as practicable but in no
event later than thirty days after such request, authorize such
indemnification. Notwithstanding anything in the Certificate, the
By-laws or this Agreement to the contrary, following a Change in
Control, Indemnitee shall be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by
Indemnitee.
(b) Notwithstanding anything in the Certificate, the By-
laws or this Agreement to the contrary, if so requested by
Indemnitee, the Company shall advance (within two business days of
such request) any and all Expenses relating to a Claim to
Indemnitee (an "Expense Advance"), upon the receipt of a written
undertaking by or on behalf of Indemnitee to repay such Expense
Advance if a judgment or other final adjudication or determination
adverse to Indemnitee establishes that Indemnitee, with respect to
such Claim, is not eligible for indemnification.
(c) If there has been no Board Action or Arbitration (as
defined in Section 3), or if Board Action determines that
Indemnitee would not be permitted to be indemnified, in any
respect, in whole or in part, in accordance with Section 2(a) of
this Agreement, Indemnitee shall have the right to commence
litigation in the court that is hearing the action or proceeding
relating to the Claim for which indemnification is sought or in any
court in the States of Delaware or Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an
initial determination by the court or challenging any Board Action
or any aspect thereof, and the Company hereby consents to service
of process and to appear in any such proceeding. Notwithstanding
anything in the Certificate, the By-laws or this Agreement to the
contrary, if Indemnitee has commenced legal proceedings in a court
of competent jurisdiction or Arbitration to secure a determination
that Indemnitee should be indemnified under this Agreement, the By-
laws of the Company or applicable law, any Board Action that
Indemnitee would not be permitted to be indemnified in accordance
with Section 2(a) of this Agreement shall not be binding. Any
Board Action not followed by such litigation or Arbitration shall
be conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a
Change in Control, Indemnitee, by giving written notice to the
Company and the American Arbitration Association (the "Notice"),
may require that any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
by arbitration (the "Arbitration") in Fort Lauderdale, Florida in
accordance with the Rules of the American Arbitration Association
(the "Rules"). The Arbitration shall be conducted by a panel of
three arbitrators selected in accordance with the Rules within
thirty days of delivery of the Notice. The decision of the panel
shall be made as soon as practicable after the panel has been
selected, and the parties agree to use their reasonable efforts to
cause the panel to deliver its decision within ninety days of its
selection. The Company shall pay all fees and expenses of the
Arbitration. The Arbitration shall be conclusive and binding on
the Company and Indemnitee and the Company or Indemnitee may cause
judgment upon the award rendered by the arbitrators to be entered
in any court having jurisdiction thereof.
4. Establishment of Trust. In the event of a Potential Change
in Control or a Change in Control, the Company shall, promptly upon
written request by Indemnitee, create a Trust for the benefit of
Indemnitee and from time to time, upon written request of
Indemnitee to the Company, shall fund such Trust in an amount, as
set forth in such request, sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and
defending any Claim relating to an Indemnifiable Event, and any and
all judgments, fines, penalties and settlement amounts of any and
all Claims relating to an Indemnifiable Event from time to time
actually paid or claimed, reasonably anticipated or proposed to be
paid. The terms of the Trust shall provide that upon a Change in
Control (i) the Trust shall not be revoked or the principal thereof
invaded, without the written consent of Indemnitee; (ii) the
Trustee shall advance, within two business days of a request by
Indemnitee, any and all Expenses to Indemnitee, not advanced
directly by the Company to Indemnitee (and Indemnitee hereby agrees
to reimburse the Trust under the circumstances under which
Indemnitee would be required to reimburse the Company under Section
2(b) of this Agreement); (iii) the Trust shall continue to be
funded by the Company in accordance with the funding obligation set
forth above; (iv) the Trustee shall promptly pay to Indemnitee all
amounts for which Indemnitee shall be entitled to indemnification
pursuant to this Agreement or otherwise; and (v) all unexpended
funds in such Trust shall revert to the Company upon a final
determination by Board Action or Arbitration or a court of
competent jurisdiction, as the case may be, that Indemnitee has
been fully indemnified under the terms of this Agreement. The
Trustee shall be chosen by Indemnitee. Nothing in this Section 4
shall relieve the Company of any of its obligations under this
Agreement.
5. Indemnification for Additional Expenses. The Company shall
indemnify Indemnitee against any and all expenses (including
attorneys' fees) and, if requested by Indemnitee, shall (within two
business days of such request) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any claim
asserted by or action brought by Indemnitee for (i) indemnification
or advance payment of Expenses by the Company under law, this
Agreement, or any other agreement or By-law of the Company now or
hereafter in effect relating to Claims for Indemnifiable Events
and/or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as
the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, fines, penalties,
excise taxes and amounts paid or to be paid in settlement of a
Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein,
including, without limitation, dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses,
judgments, fines, penalties, excise taxes and amounts paid or to be
paid in settlement of such Claim. In connection with any
determination by Board Action, Arbitration or a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment,
order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted
by applicable law or this Agreement.
8. Contribution. In the event that the indemnification
provided for in this Agreement is unavailable to Indemnitee for any
reason whatsoever, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount incurred by Indemnitee, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any
Claim relating to an Indemnifiable Event, in such proportion as is
deemed fair and reasonable in light of all of the circumstances of
such action by Board Action or Arbitration or by the court before
which such action was brought in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such action; and/or
(ii) the relative fault of the Company (and its other directors,
officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s). Indemnitee's right to
contribution under this Paragraph 8 shall be determined in
accordance with, pursuant to and in the same manner as, the
provisions in Paragraphs 2 and 3 hereof relating to Indemnitee's
right to indemnification under this Agreement.
9. Notice to the Company by Indemnitee. Indemnitee agrees to
notify the Company promptly in writing upon being served with or
having actual knowledge of any citation, summons, compliant,
indictment or any other similar document relating to any action
which may result in a claim of indemnification or contribution
hereunder.
10. Non-exclusivity, Etc. The rights of the Indemnitee
hereunder shall be in addition to any other rights Indemnitee may
have under the Company's Certificate or By-laws or the Delaware
General Corporation Law or otherwise, and nothing herein shall be
deemed to diminish or otherwise restrict Indemnitee's right to
indemnification under any such other provision. To the extent
applicable law or the Certificate of Incorporation or the By-laws
of Company, as in effect on the date hereof or at any time in the
future, permit greater indemnification than as provided for in this
Agreement, the parties hereto agree that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by such law or
provision of the Certificate of Incorporation or By-laws and this
Agreement shall be deemed amended without any further action by the
Company or Indemnitee to grant such greater benefits. Indemnitee
may elect to have Indemnitee's rights hereunder interpreted on the
basis of applicable law in affect at the time of execution of this
Agreement, at the time of the occurrence of the Indemnifiable Event
giving rise to a Claim or at the time indemnification is sought.
11. Liability Insurance.
-------------------
(a) To the extent the Company maintains at any time an
insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any other Company director or
officer under such insurance policy. The purchase and maintenance
of such insurance shall not in any way limit or affect the rights
and obligations of the parties hereto, and the execution and
delivery of this Agreement shall not in any way be construed to
limit or affect the rights and obligations of the Company and/or of
the other parties under any such insurance policy.
(b) For seven years after the Indemnitee no longer serves
as a director or officer of the Company, the Company shall continue
to provide directors' and officers' liability coverage for
liabilities of the Indemnitee occurring during his service with the
Company on terms no less favorable in terms of coverage and amount
than such insurance maintained by the Company at the date of the
Indemnitee's separation from the Company. In the event such
coverage is not available, the maximum available coverage shall be
maintained pursuant to this covenant.
12. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Company
or any affiliate of the Company against Indemnitee, Indemnitee's
spouse, heirs, executors or personal or legal representatives after
the expiration of two years from the date of accrual of such cause
of action, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted
by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter
period shall govern.
13. Amendments, Etc. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
14. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to
all of the rights of recovery with respect to such payment of
Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
15. No-Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any
claim made against Indemnitee to the extent Indemnitee has
otherwise actually received payment (under any insurance policy,
By-law or otherwise) of the amounts otherwise indemnifiable
hereunder.
16. Binding Effect, Etc. This Agreement shall be binding upon
and inure to the benefit of and be enforceable against and by the
parties hereto and their respective successors, assigns (including
any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business and/or
assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the
business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in
effect regardless of whether Indemnitee continues to serve as a
director and/or officer of the Company or of any other enterprise
at the Company's request.
17. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions thereof
(including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted
by law.
18. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered by hand
or when mailed by certified registered mail, return receipt
requested, with postage prepaid:
A. If to Indemnitee, to:
____________________
____________________
or to such other person or address which Indemnitee shall furnish
to the Company in writing pursuant to the above.
B. If to the Company, to:
SafeCard Services, Inc.
3001 East Pershing Boulevard
Cheyenne, Wyoming 82001
Attention: President or Chief Operating Officer
or to such person or address as the Company shall furnish to
Indemnitee in writing pursuant to the above.
19. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such
State without giving effect to the principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the 11th day of February, 1993.
SAFECARD SERVICES, INC.
By: /s/ W.M. Stalcup
------------------
Name: W.M. Stalcup
Title: President
INDEMNITEE
----------------------
<PAGE>
EXHIBIT 10(ai)
INDEMNITY AGREEMENT
-------------------
AGREEMENT, as of September 1, 1993 (the "Agreement"), between
SafeCard Services, Inc., a Delaware corporation (the "Company"),
and Marshall L. Burman (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or an officer of the
Company;
WHEREAS, both the Company and Indemnitee recognize the increased
risk of litigation and other claims being asserted against
directors and officers of public companies in today's environment;
WHEREAS, the By-laws (the "By-laws") and Certificate of
Incorporation (the "Certificate") of the Company require the
Company to indemnify its directors and officers to the fullest
extent permitted by law, and the Indemnitee has been serving and
continues to serve as a director and/or an officer of the Company
in part in reliance on such provisions in the By-laws and
Certificate;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance
Indemnitee's continued service to the Company in an effective
manner and Indemnitee's reliance on the foregoing provisions in the
By-laws and Certificate, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by such
provisions in the By-laws and Certificate will be available to
Indemnitee (regardless of, among other things, any amendment to or
revocation of such provisions in the By-laws or Certificate or any
change in the composition of the Company's Board of Directors (the
"Board") or acquisition transaction relating to the Company), the
Company wishes to provide in this Agreement for the indemnification
of and the advancing of expenses to Indemnitee to the fullest
extent permitted by law and as set forth in this Agreement, and, to
the extent insurance is maintained, for the continued coverage of
Indemnitee under Company directors' and officers' liability
insurance policies;
NOW, THEREFORE, in consideration of the premises and of
Indemnitee continuing to serve the Company directly or, at its
request, with another enterprise, and intending to be legally bound
hereby, the parties hereto agree as follows;
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred
upon any of the following events:
(i) The acquisition in one or more transactions by any
"Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"), provided,
however, that for purposes of this Section 1(a)(i), the Voting
Securities acquired directly from the Company by any Person shall
be excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities shall be
included in the calculation of the total number of Voting
Securities then outstanding); or
(ii) The individuals who, as of August 31, 1993, are members
of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; provided, however,
that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member of the
Incumbent Board; or
(iii)Approval by stockholders of the Company of (A) a merger
or consolidation involving the Company if the stockholders of the
Company immediately before such merger or consolidation do not own,
directly or indirectly immediately following such merger or
consolidation, more than seventy-five percent (75%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or (B)
a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially
all of the assets of the Company.
(iv) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty-five percent
(25%) or more of the then outstanding Voting Securities is acquired
by (i) a trustee or other fiduciary holding securities under one or
more employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation that, immediately prior to
such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such
acquisition.
(v) Moreover, notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject
Person, provided that if a Change in Control would occur (but for
the opera-tion of this sentence) as a result of the acquisition of
Voting Securities by the Company, and after such share acquisition
by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(b) Claim: any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative or other, including, without limitation, an action by
or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, whether predicated on
foreign, federal, state or local law and whether formal or
informal.
(c) Expenses: include attorneys' fees and all other costs,
charges and expenses paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related
to the fact that Indemnitee is or was or has agreed to become a
director, officer, employee, agent or fiduciary of the Company, or
is or was serving or has agreed to serve in any capacity, at the
request of the Company, in any other corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such
capacity.
(e) Potential Change in Control: shall be deemed to have
occurred if (i) the Company enters into an agreement or
arrangement, the consummation of which would result in the
occurrence of a Change in Control; or (ii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(f) Voting Securities: any securities of the Company that
vote generally in the election of directors.
2. Basic Indemnification Arrangement:
(a) In the event Indemnitee was, is or becomes a party to
or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, a Claim by reason of
(or arising in part out of) an Indemnifiable Event, the Company
shall indemnify Indemnitee (without regard to the negligence or
other fault of the Indemnitee) to the fullest extent permitted by
applicable law, as soon as practicable but in no event later than
thirty days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties, excise
taxes and amounts paid or to be paid in settlement (including all
interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines,
penalties, excise taxes or amounts paid or to be paid in
settlement) of such Claim. If Indemnitee makes a request to be
indemnified under this Agreement, the Board of Directors (acting by
a quorum consisting of directors who are not parties to the Claim
with respect to an Indemnifiable Event or, if such a quorum is not
obtainable, acting upon an opinion in writing of independent legal
counsel ("Board Action")) shall, as soon as practicable but in no
event later than thirty days after such request, authorize such
indemnification. Notwithstanding anything in the Certificate, the
By-laws or this Agreement to the contrary, following a Change in
Control, Indemnitee shall be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by
Indemnitee.
(b) Notwithstanding anything in the Certificate, the By-
laws or this Agreement to the contrary, if so requested by
Indemnitee, the Company shall advance (within two business days of
such request) any and all Expenses relating to a Claim to
Indemnitee (an "Expense Advance"), upon the receipt of a written
undertaking by or on behalf of Indemnitee to repay such Expense
Advance if a judgment or other final adjudication or determination
adverse to Indemnitee establishes that Indemnitee, with respect to
such Claim, is not eligible for indemnification.
(c) If there has been no Board Action or Arbitration (as
defined in Section 3), or if Board Action determines that
Indemnitee would not be permitted to be indemnified, in any
respect, in whole or in part, in accordance with Section 2(a) of
this Agreement, Indemnitee shall have the right to commence
litigation in the court that is hearing the action or proceeding
relating to the Claim for which indemnification is sought or in any
court in the States of Delaware or Florida having subject matter
jurisdiction thereof and in which venue is proper seeking an
initial determination by the court or challenging any Board Action
or any aspect thereof, and the Company hereby consents to service
of process and to appear in any such proceeding. Notwithstanding
anything in the Certificate, the By-laws or this Agreement to the
contrary, if Indemnitee has commenced legal proceedings in a court
of competent jurisdiction or Arbitration to secure a determination
that Indemnitee should be indemnified under this Agreement, the By-
laws of the Company or applicable law, any Board Action that
Indemnitee would not be permitted to be indemnified in accordance
with Section 2(a) of this Agreement shall not be binding. Any
Board Action not followed by such litigation or Arbitration shall
be conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a
Change in Control, Indemnitee, by giving written notice to the
Company and the American Arbitration Association (the "Notice"),
may require that any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
by arbitration (the "Arbitration") in Fort Lauderdale, Florida in
accordance with the Rules of the American Arbitration Association
(the "Rules"). The Arbitration shall be conducted by a panel of
three arbitrators selected in accordance with the Rules within
thirty days of delivery of the Notice. The decision of the panel
shall be made as soon as practicable after the panel has been
selected, and the parties agree to use their reasonable efforts to
cause the panel to deliver its decision within ninety days of its
selection. The Company shall pay all fees and expenses of the
Arbitration. The Arbitration shall be conclusive and binding on
the Company and Indemnitee and the Company or Indemnitee may cause
judgment upon the award rendered by the arbitrators to be entered
in any court having jurisdiction thereof.
4. Establishment of Trust. In the event of a Potential Change
in Control or a Change in Control, the Company shall, promptly upon
written request by Indemnitee, create a Trust for the benefit of
Indemnitee and from time to time, upon written request of
Indemnitee to the Company, shall fund such Trust in an amount, as
set forth in such request, sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and
defending any Claim relating to an Indemnifiable Event, and any and
all judgments, fines, penalties and settlement amounts of any and
all Claims relating to an Indemnifiable Event from time to time
actually paid or claimed, reasonably anticipated or proposed to be
paid. The terms of the Trust shall provide that upon a Change in
Control (i) the Trust shall not be revoked or the principal thereof
invaded, without the written consent of Indemnitee; (ii) the
Trustee shall advance, within two business days of a request by
Indemnitee, any and all Expenses to Indemnitee, not advanced
directly by the Company to Indemnitee (and Indemnitee hereby agrees
to reimburse the Trust under the circumstances under which
Indemnitee would be required to reimburse the Company under Section
2(b) of this Agreement); (iii) the Trust shall continue to be
funded by the Company in accordance with the funding obligation set
forth above; (iv) the Trust-ee shall promptly pay to Indemnitee all
amounts for which Indemnitee shall be entitled to indemnification
pursuant to this Agreement or otherwise; and (v) all unexpended
funds in such Trust shall revert to the Company upon a final
determination by Board Action or Arbitration or a court of
competent jurisdiction, as the case may be, that Indemnitee has
been fully indemnified under the terms of this Agreement. The
Trustee shall be chosen by Indemnitee. Nothing in this Section 4
shall relieve the Company of any of its obligations under this
Agreement.
5. Indemnification for Additional Expenses. The Company shall
indemnify Indemnitee against any and all expenses (including
attorneys' fees) and, if requested by Indemnitee, shall (within two
business days of such request) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any claim
asserted by or action brought by Indemnitee for (i) indemnification
or advance payment of Expenses by the Company under law, this
Agreement, or any other agreement or By-law of the Company now or
hereafter in effect relating to Claims for Indemnifiable Events
and/or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as
the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, fines, penalties,
excise taxes and amounts paid or to be paid in settlement of a
Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify In-demnitee for the portion
thereof to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein,
including, without limitation, dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses,
judgments, fines, penalties, excise taxes and amounts paid or to be
paid in settlement of such Claim. In connection with any
determination by Board Action, Arbitration or a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment,
order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted
by applicable law or this Agreement.
8. Contribution. In the event that the indemnification
provided for in this Agreement is unavailable to Indemnitee for any
reason whatsoever, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount incurred by Indemnitee, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any
Claim relating to an Indemnifiable Event, in such proportion as is
deemed fair and reasonable in light of all of the circumstances of
such action by Board Action or Arbitration or by the court before
which such action was brought in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such action; and/or
(ii) the relative fault of the Company (and its other directors,
officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s). Indemnitee's right to
contribution under this Paragraph 8 shall be determined in
accordance with, pursuant to and in the same manner as, the
provisions in Paragraphs 2 and 3 hereof relating to Indemnitee's
right to indemnification under this Agreement.
9. Notice to the Company by Indemnitee. Indemnitee agrees to
notify the Company promptly in writing upon being served with or
having actual knowledge of any citation, summons, compliant,
indictment or any other similar document relating to any action
which may result in a claim of indemnification or contribution
hereunder.
10. Non-exclusivity, Etc. The rights of the Indemnitee
hereunder shall be in addition to any other rights Indemnitee may
have under the Company's Certificate or By-laws or the Delaware
General Corporation Law or otherwise, and nothing herein shall be
deemed to diminish or otherwise restrict Indemnitee's right to
indemnification under any such other provision. To the extent
applicable law or the Certificate of Incorporation or the By-laws
of Company, as in effect on the date hereof or at any time in the
future, permit greater indemnification than as provided for in this
Agreement, the parties hereto agree that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by such law or
provision of the Certificate of Incorporation or By-laws and this
Agreement shall be deemed amended without any further action by the
Company or Indemnitee to grant such greater benefits. Indemnitee
may elect to have Indemnitee's rights hereunder interpreted on the
basis of applicable law in affect at the time of execution of this
Agreement, at the time of the occurrence of the Indemnifiable Event
giving rise to a Claim or at the time indemnification is sought.
11. Liability Insurance.
-------------------
(a) To the extent the Company maintains at any time an
insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any other Company director or
officer under such insurance policy. The purchase and maintenance
of such insurance shall not in any way limit or affect the rights
and obligations of the parties hereto, and the execution and
delivery of this Agreement shall not in any way be construed to
limit or affect the rights and obligations of the Company and/or of
the other parties under any such insurance policy.
(b) For seven years after the Indemnitee no longer serves
as a director or officer of the Company, the Company shall continue
to provide directors' and officers' liability coverage for
liabilities of the Indemnitee occurring during his service with the
Company on terms no less favorable in terms of coverage and amount
than such insurance maintained by the Company at the date of the
Indemnitee's separation from the Company. In the event such
coverage is not available, the maximum available coverage shall be
maintained pursuant to this covenant.
12. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Company
or any affiliate of the Company against Indemnitee, Indemnitee's
spouse, heirs, executors or personal or legal representatives after
the expiration of two years from the date of accrual of such cause
of action, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted
by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter
period shall govern.
13. Amendments, Etc. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
14. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to
all of the rights of recovery with respect to such payment of
Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
15. No-Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any
claim made against Indemnitee to the extent Indemnitee has
otherwise actually received payment (under any insurance policy,
By-law or otherwise) of the amounts otherwise indemnifiable
hereunder.
16. Binding Effect, Etc. This Agreement shall be binding upon
and inure to the benefit of and be enforceable against and by the
parties hereto and their respective successors, assigns (including
any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business and/or
assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the
business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in
effect regardless of whether Indemnitee continues to serve as a
director and/or officer of the Company or of any other enterprise
at the Company's request.
17. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions thereof
(including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted
by law.
18. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered by hand
or when mailed by certified registered mail, return receipt
requested, with postage prepaid:
A. If to Indemnitee, to:
c/o Wildman, Harrold, Allen & Dixon
225 West Wacker Drive, 27th Floor
Chicago, Illinois 60606-1229
or to such other person or address which Indemnitee shall furnish
to the Company in writing pursuant to the above.
B. If to the Company, to:
SafeCard Services, Inc.
3001 East Pershing Boulevard
Cheyenne, Wyoming 82001
Attention: President or Chief Operating Officer
or to such person or address as the Company shall furnish to
Indemnitee in writing pursuant to the above.
19. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such
State without giving effect to the principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the 1st day of September, 1993.
SAFECARD SERVICES, INC.
By: /s/ Gerald Cahill
--------------------
Name: Gerald Cahill
Title: Chief Operating Officer
INDEMNITEE
------------------------
Marshall L. Burman
EXHIBIT 10(aj)
SAFECARD SERVICES, INCORPORATED
EUGENE MILLER
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option" or
"Agreement") dated as of February 11, 1993, by and between SAFECARD
SERVICES, INCORPORATED, a Delaware corporation ("SafeCard") and
Eugene Miller, a director of SafeCard ("Optionee").
A. SafeCard wishes to promote the interests of SafeCard and its
stockholders by enhancing the value of SafeCard's common stock,
$.01 par value per share ("Common Stock"), and SafeCard believes
that the grant of options to acquire shares of Common Stock to
outside directors will increase the personal interest and special
efforts of such directors in providing for the continued success
and progress of SafeCard and will enhance the efforts of SafeCard
to retain competent and well-motivated outside directors.
B. Optionee is an outside director of SafeCard.
C. SafeCard desires to enter into this Agreement in order to
effectuate the purpose and intent of actions taken by its Board of
Directors by resolution on February 11, 1993.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option. SafeCard hereby confirms the grant to
Optionee of the right and option to purchase all or any part of an
aggregate of 100,000 shares of Common Stock (the "Option Shares"),
on the terms and conditions set forth in this Agreement, such
grants to be effective as of the date specified in Section 2 below.
2. Term and Time of Exercise of Option; Option Price.
(a) This Option shall have a term of five years, commencing
on the date of grant, February 11, 1993 (the "Grant Date"), and
ending at the close of business on February 11, 1998 (the
"Termination Date"), except to the extent such term may be reduced
pursuant to Section 6 hereof. Upon the Termination Date, or upon
such earlier date as may be applicable pursuant to Section 6, the
Option shall become null and void.
(b) This Option shall be exercisable effective on the Grant
Date in whole or in part.
(c) This Option shall be exercisable at the purchase price
equal to the closing price per share of Common Stock on February
11, 1993 ($10.50 per share) (the "Option Price").
3. Exercise of Option.
(a) Subject to the terms and conditions of this Agreement,
this Option may be exercised in whole or in part by delivery of
written notice to SafeCard at its principal office, now located at
3001 East Pershing Boulevard, Cheyenne, Wyoming 82001, to the
attention of the Chief Financial Officer. Such notice shall state
the election to exercise the Option and the number of Option Shares
with respect to which it is being exercised, and shall be signed by
the person or persons exercising the Option. Full payment of the
applicable Option Price shall accompany such notice. If the person
exercising the Option is not the Optionee, he or she shall also
deliver with the notice appropriate proof of his or her right to
exercise the Option. No fractional shares may be purchased.
Payment of the Option Price shall be by certified check payable to
the order of SafeCard, by shares of Common Stock (valued as
provided in Section 3(b)), or by a combination thereof; provided,
however, that payment by shares of Common Stock shall be permitted
only for so long as a public trading market in the Common Stock
exists. For purposes of this Section 3(a), a public trading market
in the Common Stock shall be deemed to exist if shares of the
Common Stock are listed either on (i) the New York Stock Exchange
or any other national securities exchange or (ii) the National
Association of Securities Dealers ("NASD") Automated Quotation
System.
(b) If payment is made in shares of Common Stock, such
shares shall be rounded to the lowest whole number of shares, and
the balance of the Option Price shall be paid by certified check.
The value of any shares of Common Stock tendered in payment of the
Option Price shall be the mean of the high and low trading prices
for such shares (as reported in the Wall Street Journal or other
reputable publication) on the trading day preceding the date notice
of exercise is given to SafeCard. All shares of Common Stock
utilized for the payment of the Option Price shall be delivered by
Optionee free and clear of all liens and encumbrances and in
transferable form.
(c) Upon the payment of the Option Price, SafeCard shall
issue and deliver to Optionee certificates representing the Option
Shares with respect to which the Option has been exercised. All
shares so issued shall be fully paid and nonassessable. Optionee
thereupon shall have full dividend and voting rights with respect
to such shares. This Option will remain in full force and effect
to the extent it has not been exercised or otherwise terminated.
<PAGE>
4. Limitations on Exercise of Option.
(a) Notwithstanding any other provision of this Agreement,
Option Shares shall not be issued unless the exercise of the Option
and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended.
(b) As a condition to the exercise of the Option, SafeCard
may require Optionee to represent and warrant at the time of such
exercise that the Option Shares purchased pursuant to the Option
are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of
counsel for SafeCard, such a representation is or may be required
by any of the aforementioned relevant provisions of law.
5. Option Not Transferable Except in Event of Death. During
Optionee's lifetime, this Option shall be exercisable only by
Optionee, and neither this Option nor any right hereunder shall be
transferable except by will or the laws of descent and
distribution.
6. Early Termination of Option Upon Termination of
Directorship.
(a) If Optionee's directorship with SafeCard terminates
prior to the Termination Date for a reason other than death, the
Option shall, to the extent not theretofore exercised or
terminated, terminate and become null and void if not exercised
within thirty (30) days.
(b) If Optionee's directorship with SafeCard terminates
prior to the Termination Date due solely to the death of Optionee,
Optionee's legal representative may, at any time within a period of
six months after the date of Optionee's death, exercise this Option
to the extent (and only to the extent) this Option was exercisable
on the date of Optionee's death. Upon the expiration of the
foregoing six-months period, the Option shall, to the extent not
theretofore exercised or terminated, terminate and become null and
void.
(c) Notwithstanding anything contained in Section 6(b), in
no event may the Option be exercised after the Termination Date.
7. Adjustment to Option Shares. If any change is made in the
Common Stock (through merger, without regard to which entity shall
survive, consolidation, reorganization, recapitalization, stock
dividend, spin-off, split-up, combination of shares, exchange of
shares, issuance of rights to subscribe, change in capital
structure or otherwise), the Board of Directors shall make such
adjustment to the number and kind of shares and price per share of
stock subject to this Option as the Board of Directors deems
equitable to prevent dilution or enlargement of the Option rights,
such adjustment to be final, conclusive and binding on the
Optionee.
8. Registration of the Option Shares. Optionee understands
that the Option Shares have not been registered under the
Securities Act of 1933 and must be held indefinitely unless they
are subsequently registered under such Act or an exemption from
such registration is available upon disposition. SafeCard may, but
shall not be required to, register all or any part of the Option
Shares. Optionee further acknowledges that if, in the opinion of
Counsel to SafeCard, such a legend is or may be required,
certificates for shares issued pursuant to exercise of this Option
shall bear on their face the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred,
pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act
of 1933, as amended, unless in the opinion of Counsel to the
Company such registration is not required.
Optionee further acknowledges that prior to registration as
provided above such a legend is required.
9. Miscellaneous.
(a) The captions and section headings used herein are for
convenience only, shall not be deemed part of this Agreement, and
shall not in any way restrict or modify the context and substance
of any section or paragraph hereof.
(b) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
(c) This Option is not intended to qualify as an incentive
stock option within the meaning of Section 422A of the Internal
Revenue Code of 1954, as amended.
(d) This Agreement shall inure to the benefit of and be
binding upon SafeCard's successors and assigns. All obligations
imposed upon Optionee and all rights granted to Optionee under this
Agreement shall be binding upon Optionee's heirs, executors,
administrators, and successors.
(e) Withholding Tax. Where the Optionee is entitled to
receive Option Shares pursuant to the exercise of this Option,
SafeCard shall have the right to require the Optionee to pay to
SafeCard the amount of any federal, state, local or other taxes
which SafeCard is required to withhold with respect to such
exercise, or, in lieu thereof, to retain, or sell without notice,
a sufficient number of such shares to cover the amount required to
be withheld, or in lieu of any of the foregoing, to withhold a
sufficient sum from the Optionee's compensation payable by SafeCard
to satisfy SafeCard's tax withholding requirements. SafeCard's
method of satisfying its withholding obligations shall be solely in
the discretion of SafeCard, subject to applicable federal, state,
and local laws.
(g) Notices. Any notice hereunder to SafeCard shall be
addressed to it as follows:
SafeCard Services, Inc.
3001 East Pershing Blvd.
Cheyenne, WY 82001
Attention: Chief Financial Officer
and any notice hereunder to the Optionee shall be addressed to him
or her as follows:
[Miller's Address]
subject to the right of either party to designate by written notice
to the other at any time hereafter some other address for this
purpose.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option as of
the day and year first above written.
SAFECARD SERVICES, INCORPORATED
By /s/ Gerald Cahill
------------------------
Gerald Cahill
Chief Operating Officer
------------------------
Eugene Miller
Optionee
<PAGE>
SAFECARD SERVICES, INCORPORATED
MARSHALL BURMAN
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option" or
"Agreement") dated as of September 1, 1993, by and between SAFECARD
SERVICES, INCORPORATED, a Delaware corporation ("SafeCard") and
Marshall Burman, a director of SafeCard ("Optionee").
A. SafeCard wishes to promote the interests of SafeCard and its
stockholders by enhancing the value of SafeCard's common stock,
$.01 par value per share ("Common Stock"), and SafeCard believes
that the grant of options to acquire shares of Common Stock to
outside directors will increase the personal interest and special
efforts of such directors in providing for the continued success
and progress of SafeCard and will enhance the efforts of SafeCard
to retain competent and well-motivated outside directors.
B. Optionee is an outside director of SafeCard.
C. SafeCard desires to enter into this Agreement in order to
effectuate the purpose and intent of actions taken by its Board of
Directors by resolution on August 31, 1993.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option. SafeCard hereby confirms the grant to
Optionee of the right and option to purchase all or any part of an
aggregate of 100,000 shares of Common Stock (the "Option Shares"),
on the terms and conditions set forth in this Agreement, such
grants to be effective as of the date specified in Section 2 below.
2. Term and Time of Exercise of Option; Option Price.
(a) This Option shall have a term of five years, commencing
on September 1, 1993 (the "Grant Date"), and ending at the close of
business on August 31, 1998 (the "Termination Date"), except to the
extent such term may be reduced pursuant to Section 6 hereof. Upon
the Termination Date, or upon such earlier date as may be
applicable pursuant to Section 6, the Option shall become null and
void.
(b) This Option shall become exercisable on September 1,
1994, the first anniversary of the Grant Date.
(c) This Option shall be exercisable at the purchase price
equal to the closing price per share of Common Stock on September
1, 1993 ($13.00 per share) (the "Option Price").
3. Exercise of Option.
(a) Subject to the terms and conditions of this Agreement,
this Option may be exercised in whole or in part by delivery of
written notice to SafeCard at its principal office, now located at
3001 East Pershing Boulevard, Cheyenne, Wyoming 82001, to the
attention of the Chief Financial Officer. Such notice shall state
the election to exercise the Option and the number of Option Shares
with respect to which it is being exercised, and shall be signed by
the person or persons exercising the Option. Full payment of the
applicable Option Price shall accompany such notice. If the person
exercising the Option is not the Optionee, he or she shall also
deliver with the notice appropriate proof of his or her right to
exercise the Option. No fractional shares may be purchased.
Payment of the Option Price shall be by certified check payable to
the order of SafeCard, by shares of Common Stock (valued as
provided in Section 3(b)), or by a combination thereof; provided,
however, that payment by shares of Common Stock shall be permitted
only for so long as a public trading market in the Common Stock
exists. For purposes of this Section 3(a), a public trading market
in the Common Stock shall be deemed to exist if shares of the
Common Stock are listed either on (i) the New York Stock Exchange
or any other national securities exchange or (ii) the National
Association of Securities Dealers ("NASD") Automated Quotation
System.
(b) If payment is made in shares of Common Stock, such
shares shall be rounded to the lowest whole number of shares, and
the balance of the Option Price shall be paid by certified check.
The value of any shares of Common Stock tendered in payment of the
Option Price shall be the mean of the high and low trading prices
for such shares (as reported in The Wall Street Journal or other
reputable publication) on the trading day preceding the date notice
of exercise is given to SafeCard. All shares of Common Stock
utilized for the payment of the Option Price shall be delivered by
Optionee free and clear of all liens and encumbrances and in
transferable form.
(c) Upon the payment of the Option Price, SafeCard shall
issue and deliver to Optionee certificates representing the Option
Shares with respect to which the Option has been exercised. All
shares so issued shall be fully paid and nonassessable. Optionee
there-upon shall have full dividend and voting rights with respect
to such shares. This Option will remain in full force and effect
to the extent it has not been exercised or otherwise terminated.
<PAGE>
4. Limitations on Exercise of Option.
(a) Notwithstanding any other provision of this Agreement,
Option Shares shall not be issued unless the exercise of the Option
and the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended.
(b) As a condition to the exercise of the Option, SafeCard
may require Optionee to represent and warrant at the time of such
exercise that the Option Shares purchased pursuant to the Option
are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of
counsel for SafeCard, such a representation is or may be required
by any of the aforementioned relevant provisions of law.
5. Option Not Transferable Except in Event of Death. During
Optionee's lifetime, this Option shall be exercisable only by
Optionee, and neither this Option nor any right hereunder shall be
transferable except by will or the laws of descent and
distribution.
6. Early Termination of Option Upon Termination of
Directorship.
(a) If Optionee's directorship with SafeCard terminates
prior to the Termination Date for a reason other than death, the
Option shall, to the extent not theretofore exercised or
terminated, terminate and become null and void if not exercised
within thirty (30) days.
(b) If Optionee's directorship with SafeCard terminates
prior to the Termination Date due solely to the death of Optionee,
Optionee's legal representative may, at any time within a period of
six months after the date of Optionee's death, exercise this Option
to the extent (and only to the extent) this Option was exercisable
on the date of Optionee's death. Upon the expiration of the
foregoing six-months period, the Option shall, to the extent not
theretofore exercised or terminated, terminate and become null and
void.
(c) Notwithstanding anything contained in Section 6(b), in
no event may the Option be exercised after the Termination Date.
7. Adjustment to Option Shares. If any change is made in the
Common Stock (through merger, without regard to which entity shall
survive, consolidation, reorganization, recapitalization, stock
dividend, spin-off, split-up, combination of shares, exchange of
shares, issuance of rights to subscribe, change in capital
structure or otherwise), the Board of Directors shall make such
adjustment to the number and kind of shares and price per share of
stock subject to this Option as the Board of Directors deems
equitable to prevent dilution or enlargement of the Option rights,
such adjustment to be final, conclusive and binding on the
Optionee.
8. Registration of the Option Shares. Optionee understands
that the Option Shares have not been registered under the
Securities Act of 1933 and must be held indefinitely unless they
are subsequently registered under such Act or an exemption from
such registration is available upon disposition. SafeCard may, but
shall not be required to, register all or any part of the Option
Shares. Optionee further acknowledges that if, in the opinion of
Counsel to SafeCard, such a legend is or may be required,
certificates for shares issued pursuant to exercise of this Option
shall bear on their face the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred,
pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act
of 1933, as amended, unless in the opinion of Counsel to the
Company such registration is not required.
Optionee further acknowledges that prior to registration as
provided above such a legend is required.
9. Miscellaneous.
(a) The captions and section headings used herein are for
convenience only, shall not be deemed part of this Agreement, and
shall not in any way restrict or modify the context and substance
of any section or paragraph hereof.
(b) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
(c) This Option is not intended to qualify as an incentive
stock option within the meaning of Section 422A of the Internal
Revenue Code of 1954, as amended.
(d) This Agreement shall inure to the benefit of and be
binding upon SafeCard's successors and assigns. All obligations
imposed upon Optionee and all rights granted to Optionee under this
Agreement shall be binding upon Optionee's heirs, executors, admin-
istrators, and successors.
(e) Withholding Tax. Where the Optionee is entitled to
receive Option Shares pursuant to the exercise of this Option,
SafeCard shall have the right to require the Optionee to pay to
SafeCard the amount of any federal, state, local or other taxes
which SafeCard is required to withhold with respect to such
exercise, or, in lieu thereof, to retain, or sell without notice,
a sufficient number of such shares to cover the amount required to
be withheld, or in lieu of any of the foregoing, to withhold a
sufficient sum from the Optionee's compensation payable by SafeCard
to satisfy SafeCard's tax withholding requirements. SafeCard's
method of satisfying its withholding obligations shall be solely in
the discretion of SafeCard, subject to applicable federal, state,
and local laws.
(g) Notices. Any notice hereunder to SafeCard shall be
addressed to it as follows:
SafeCard Services, Inc.
3001 East Pershing Blvd.
Cheyenne, WY 82001
Attention: Chief Financial Officer
and any notice hereunder to the Optionee shall be addressed to him
or her as follows:
c/o Wildman, Harrold, Allen & Dixon
225 West Wacker Drive, 27th Floor
Chicago, Illinois 60606-1229
subject to the right of either party to designate by written notice
to the other at any time hereafter some other address for this
purpose.
IN WITNESS WHEREOF, the parties have executed this Option as of
the day and year first above written.
SAFECARD SERVICES, INCORPORATED
By /s/ Gerald Cahill
-----------------------
Gerald Cahill
Chief Operating Officer
By /s/ Marshall Burman
-----------------------
Marshall Burman
Optionee
EXHIBIT 10(am)
In The Circuit Court of Cook County, Illinois
County Department, Chancery Division
Peter Halmos, )
Cherry & Flynn )
Illinois law partnership, )
Myron M. Cherry, P.C. )
an Illinois professional corporation, )
and Myron M. Cherry, )
an Illinois resident, and )
Creditline Corporation, )
)
Plaintiffs, )
)
v. ) No. 93 CH 4807
)
Safecard Services, Inc., ) Jury trial demanded
a corporation doing business in Illinois ) on all issues so
) triable
and William T. Bacon, Jr., )
an Illinois resident, )
)
Defendants. )
Amended Complaint
-----------------
Plaintiffs Peter Halmos, Cherry & Flynn, an Illinois
law partnership, Myron M. Cherry, P.C., an Illinois professional
corporation, Myron M. Cherry, an Illinois resident, and CreditLine
Corporation, a corporation doing business in Illinois, complain of
defendants SafeCard Services, Inc., a corporation doing business in
Illinois, and William T. Bacon, Jr., an Illinois resident, as
follows:
Parties, Jurisdiction and Venue
-------------------------------
1. Plaintiff Peter Halmos ("Halmos") and his
brother Steven founded SafeCard Services, Inc. ("SafeCard") in
1969. Halmos became its Chief Executive Officer, the Chairman of
its Board of Directors, and a Director. Halmos, a resident of
Florida, conducts substantial business in Illinois and keeps many
business-related documents in Illinois.
2. Plaintiff Cherry & Flynn ("C&F") is an
Illinois law partnership. Plaintiff Myron M. Cherry, P.C., an
Illinois professional corporation wholly owned by plaintiff Myron
M. Cherry ("Cherry"), an Illinois resident and member of the
Illinois Bar, is a partner in C&F. Since March 1991 Cherry and C&F
have served as Halmos' personal counsel, and incident thereto have
rendered services to SafeCard from Illinois.
3. Plaintiff CreditLine Corporation ("CLC"), a
Wyoming corporation, was organized by Halmos in 1987. CLC provides
credit report information and related counseling and other services
to consumers in Illinois and elsewhere.
4. Defendant SafeCard, a Delaware corporation
whose principal place of business was in Florida from 1969 until
late 1992 and is now in Wyoming, is engaged in creating, operating,
and marketing credit card enhancement and protection services such
as "HotLine," whereby Illinois residents and other subscribers can
register their credit card numbers and similar data with SafeCard,
which if the subscriber's credit cards are lost or stolen will
notify the card issuers to cancel the cards and issue new ones.
5. SafeCard is subject to this Court's
jurisdiction pursuant to 735 ILCS 5/2-209(a)(1), (2), and (7) and
735 ILCS 5/2-209(b)(4) (Ill. Rev. Stats., ch. 110, section
2-209(a)(1), (2), and (7) and 2-209(b)(4)). SafeCard is and at all
relevant times has been doing business in Illinois, including but
not limited to the following:
a. On an annual basis since approximately 1978,
SafeCard has used Chicago, Illinois as the location from which it
mails millions of (up to 100 million) pieces per year of
advertising and promotional literature for its products and
services;
b. SafeCard's March 10, 1992 and April 8, 1993
Annual Meetings, and many of its Directors' meetings relevant to
this Complaint, including its November 16, 1992 Directors' meeting,
were held in Cook County, Illinois;
c. SafeCard contracts and does business with
credit card issuers located in Illinois and in Cook County,
including Marshall Field & Co., Sears Roebuck & Co., and Spiegel's,
and in connection with its business has maintained and on
information and belief now maintains bank accounts in Illinois;
d. SafeCard's public offering of stock has been
conducted and underwritten by Bacon, Whipple & Co. in Chicago,
Illinois; and
e. SafeCard has solicited and received investment
banking and other advice from Bacon, Whipple & Co. and defendant
Bacon, located in Chicago, Illinois (including when SafeCard agreed
to acquire CCC Information Systems, Inc., then located in Chicago,
Illinois).
6. As is more fully set forth in this Complaint,
SafeCard is and has been transacting business in Illinois, has
committed tortious acts in Illinois for which this Complaint seeks
redress, and has made contracts and promises substantially
connected with Illinois of which this Complaint seeks performance
and/or redress for breach.
7. Defendant William T. Bacon, Jr. has been a SafeCard
Director since 1977. Bacon is the only current SafeCard Director
who was in office throughout the events covered by this Complaint
and by defendants' wrongful conduct described herein.
8. Bacon is subject to this Court's jurisdiction
pursuant to 735 ILCS 5/2-209(a)(1) and (2) and 735 ILCS
5/2-209(b)(2) and (4) (Ill. Rev. Stats., ch. 110, section
2-209(a)(1) and (2) and 2-209(b)(2) and (4)). Bacon is and for
many years has been a resident of Illinois; he is and for many
years has been doing and transacting business in Chicago, Illinois,
where he is associated with Bacon, Whipple, a Division of Stifel,
Nicolaus & Co., an Illinois investment banking firm; he has
attended numerous SafeCard Directors' and shareholders' meetings in
Cook County, Illinois; he has conducted SafeCard investment
meetings with SafeCard shareholders and analysts in Illinois,
including in Cook County; and he has committed tortious acts in
Illinois for which this Complaint seeks redress.
9. Venue is properly laid in this Court pursuant to 735
ILCS 5/2-101(1) and (2) and 735 ILCS 5/2-102(a) (Ill. Rev. Stats.,
ch. 110, section 2-101(1) and (2) and 2-102(a)). SafeCard is a
resident of Cook County for venue purposes. Many of the
transactions out of which plaintiffs' causes of action set forth in
this Complaint arose occurred in whole or in part in Cook County.
Causes of Action Alleged
------------------------
Count I
(For Indemnification)
---------------------
10. Halmos incorporates by reference paragraphs 1-9 above
as though fully set forth herein.
11. The written By-Laws and Articles of Incorporation of
SafeCard require SafeCard to indemnify and to advance expenses to
its officers and directors to the fullest extent permitted by law,
and permit SafeCard to indemnify employees and agents "similarly"
at the discretion of the Board. Copies of said By-Laws and
Articles are attached to the original complaint herein.
<PAGE>
12. On or about July 1, 1988, SafeCard's Board of
Directors, for valuable and sufficient consideration, including for
the purpose of inducing Halmos to resume a more active role in
SafeCard's affairs, promised, agreed, and undertook to provide
Halmos with indemnity to the greatest extent permitted by law for
all past and future damage, expense, and harm suffered by Halmos as
a result of his association with SafeCard. On or about that time,
SafeCard's Board, through its outside counsel, further agreed,
promised, and undertook that SafeCard would do "everything" to
"make [Halmos] whole," and to compensate him fully for all of the
expense, harm, and damage to his personal and business reputation
and career he had incurred or might incur in the future as a result
of his association with SafeCard "as long as it is legal." As
described hereinafter, including in paragraphs 14 and 15, those
SafeCard promises were confirmed by SafeCard in writing.
13. As a result of and in reliance on those promises,
Halmos - who had previously announced his intention to phase
himself out of SafeCard to pursue other business interests -
resumed an active day-to-day supervisory management role in
SafeCard's affairs, as requested by SafeCard. Without the
aforementioned SafeCard indemnification promises, Halmos would not
have done so.
14. In September 1988 SafeCard stated in writing that it
had "agreed to indemnify . . . Peter Halmos with regard to [his]
relationship with SafeCard to the fullest extent . . . permitted"
by "applicable law."
15. In January 1989 SafeCard further stated in writing
that it had agreed to provide "indemnification" to Halmos "to the
maximum extent permitted by law."
16. Copies of the aforementioned writings are submitted
herewith as Exhibits N and O.
17. Halmos has sustained loss and damage as a result of
his association with SafeCard. Included among such are the
following.
18. In October 1988 Halmos and SafeCard learned that for
several months Ernest A. Varvoutis III, an accountant SafeCard had
participated in hiring, had been engaged in a lengthy series of
surreptitious copying and thefts of SafeCard records and of Halmos'
personal financial documents. Varvoutis, an IRS-controlled
informant, had been prompted to steal those documents and to
deliver them to agents of the IRS as a result of Halmos'
association with SafeCard, including among other things by media
attacks on Halmos and his role at SafeCard resulting from an Amex
cancellation of a SafeCard contract, Grant Thornton's departure as
SafeCard's auditors, and SEC investigations of SafeCard.
19. Among the documents taken by Varvoutis was a copy of
the first page of SafeCard's 1987 tax return, which SafeCard's
accounting staff had prepared and filed. Varvoutis surreptitiously
delivered that document to an IRS agent (and former SafeCard
employee), stating that SafeCard's return showed that "Halmos is
understating income by $14 million."
20. Unknown to Halmos, who signed it on SafeCard's
behalf, SafeCard's 1987 tax return, which was prepared by a
SafeCard employee who was formerly an IRS agent, did contain an
error of approximately $14 million. The error was due to improper
deductions by SafeCard employees for certain future expenses, which
resulted from the improper use, contrary to established SafeCard
accounting policies, of months-old estimates rather than up-to-date
actual information. SafeCard's Chief Financial Officer and its
outside tax accountants did not detect the error before SafeCard's
1987 tax return was filed.
21. On October 14, 1988 agents of the IRS obtained a
search warrant on the basis of information provided by Varvoutis
and on the basis of newspaper articles referring to Grant
Thornton's "resignation" as SafeCard auditors, IRS agents raided
SafeCard's offices, took large amounts of financial documents and
information, and commenced a criminal tax investigation aimed at
Halmos personally, as a result of Halmos' association with
SafeCard.
22. During the pendency of the IRS criminal tax
investigation which resulted from Halmos' association with
SafeCard, SafeCard, through its outside counsel, told Halmos that
advancing Halmos' expenses resulting from Varvoutis' conduct and
from the IRS investigation during the pendency of that IRS
investigation would "look bad," and advised and requested that
Halmos not seek indemnification from SafeCard until the IRS
investigation was finally resolved, at which time he should seek
and SafeCard would provide full indemnification for that and all
other matters for which Halmos was entitled to indemnification.
Relying on this SafeCard advice, request, and representation,
Halmos agreed to and did do so.
23. In January 1989 SafeCard, having discovered the 1987
tax return error described in paragraph 20 above, filed an amended
return and paid $6 million in taxes. Contemporaneously, but for
entirely unrelated reasons, SafeCard asked the IRS to approve
changes in its tax accounting, from methods used by its then-tax
accountants to methods preferred by tax counsel at SafeCard's
outside counsel. Both the tax payment and the accounting change
were widely and falsely portrayed in The Wall Street Journal,
Barron's, and other media as the result of questionable SafeCard
accounting practices for which Halmos was falsely blamed as a
result of his association with SafeCard.
24. SafeCard specifically refrained from correcting the
false accusations against Halmos described in paragraph 23 above in
order to protect SafeCard's own reputation, thus further damaging
Halmos as a result of his association with SafeCard.
25. In March 1989, the combination of SafeCard's amended
1987 tax return, the "resignation" of SafeCard's auditors Grant
Thornton, the 1987 cancellation of the SafeCard-Amex contract, and
the criminal tax investigation aimed at Halmos personally, led to
the filing of a class-action suit, Wolfe, et al. v. SafeCard
Services, Inc., et al., Case No. 89-6198 Gonzalez-CIV (S.D. Fla.)
("the Wolfe case"), in which Halmos was named as a defendant as a
result of his association with SafeCard. This action spawned a
further barrage of media attacks in which Halmos, as a result of
his association with SafeCard, was personally blamed for the
events giving rise to that suit.
26. Halmos undertook the burden of defending the Wolfe
case on behalf of SafeCard as well as himself. In March 1991
Halmos hired plaintiffs Cherry and C&F to represent Halmos and the
SafeCard Directors in that suit. With the cooperation of SafeCard
and its outside counsel - Fried, Frank, Harris, Shriver and
Jacobson ("Fried, Frank") - C&F conducted an extensive
investigation for the purpose of disclosing the facts to the Wolfe
plaintiffs' counsel in order to end that litigation, met
extensively with the Wolfe plaintiffs' counsel for several months,
and successfully persuaded the Wolfe plaintiffs and their counsel
to dismiss the Wolfe case as groundless. In September 1991 that
suit was dismissed with prejudice on the Wolfe plaintiffs' motion.
27. On November 10, 1992 the criminal tax investigation
aimed at Halmos was formally closed with no finding of any
wrongdoing and no charges having been brought.
28. In compliance with and in reliance upon SafeCard's
request through outside counsel that he refrain from demanding that
SafeCard honor its indemnity promises, inducements, and
representations until after the successful conclusion of the IRS
criminal investigation, promptly after the November 10, 1992
conclusion of that IRS investigation Halmos called upon SafeCard to
honor its written promises of indemnification.
29. Halmos presented demands for indemnification to
SafeCard's Board of Directors and to its outside counsel on or
about November 16 to 18, 1992, in Chicago, Illinois. In those
demands, Halmos demanded that he be indemnified for the expenses,
damage, and harm suffered by him as a result of his association
with SafeCard in connection with:
a. Varvoutis' wrongful activities, which resulted
from Halmos' association with SafeCard;
b. Halmos, et al. v. Varvoutis, et al., No.
92-6336-CIV (S.D. Fla.), a suit against Varvoutis and his former
employer which resulted from Halmos' association with SafeCard;
c. The IRS criminal tax investigation which suit
resulted from Halmos' association with SafeCard;
d. Halmos, et al. v. Long, et al., No.
92-7024-CIV (S.D. Fla.), a suit against the IRS agents who had
controlled Varvoutis' thefts and raided SafeCard's and Halmos'
offices, which resulted from Halmos' association with SafeCard;
e. Other expenses arising out of Halmos'
association with SafeCard, including in defending against the
attacks of SafeCard shareholders, including litigation in which
SafeCard was a party plaintiff against a SafeCard shareholder by
the name of Lennane and a potential proxy fight for control of
SafeCard;
f. Florida taxes and audit and litigation
expenses incurred in connection therewith relating to SafeCard's
headquarters building in Florida, arising out of Halmos'
association with SafeCard and his lease to SafeCard of said
headquarters;
g. Damage to Halmos' reputation and career
arising from the above acts and omissions of SafeCard and its
employees for which Halmos was blamed as a result of his
association with SafeCard but which he did not cause, and for a
continuing stigma arising out of and as a result of his association
with SafeCard.
30. Halmos made further demands that SafeCard indemnify
him for the foregoing on subsequent occasions, including on
November 22 and November 24, 1992. That demand is reflected in
writing in SafeCard's Board of Directors minutes of November 24,
1992. Halmos also made such demands on November 25, 1992, on
December 6, 1992 and during 1993. On or about June 18, 1993,
Halmos also demanded that SafeCard indemnify, reimburse, and
compensate him for the expenses, damage, and harm suffered by him
in connection with three lawsuits filed by SafeCard against Halmos
and his counsel in Wyoming, two of which lawsuits have already been
dismissed, and also in connection with the instant litigation filed
in Illinois, all of which arose as a result of his association with
SafeCard. All of those lawsuits allege causes of action by or
against SafeCard on the one hand and Halmos on the other arising
out of Halmos' relationship with SafeCard.
31. The matters and amounts for which Halmos sought and
herein seeks indemnification arose by reason of Halmos' association
with SafeCard and were actually and reasonably incurred by him.
They were incurred as a result of actions by Halmos taken in good
faith and in a manner he reasonably believed to be in the best
interest of and not opposed to the best interests of SafeCard.
32. In making his demands for indemnification, Halmos
provided specific information to SafeCard concerning the amounts
expended, the losses suffered, and the circumstances for which
indemnification was being sought.
33. Halmos has duly kept and performed all acts and
things required by his indemnification agreement to be kept and
performed on his part.
34. Consequently, it has become the duty of SafeCard to
indemnify Halmos for the above matters.
35. Though repeatedly requested so to do, SafeCard has
failed and refused, and still fails and refuses, to pay Halmos any
indemnification.
36. The indemnification sought by Mr. Halmos is
permitted, and in part required, to be provided by SafeCard under
section 145 of the Delaware Corporation Law and is required to be
provided by SafeCard under the agreements of SafeCard acknowledged
in writing by SafeCard and described hereinabove "to the maximum
extent permitted by law."
37. In connection with Varvoutis' wrongful activities and
the four-year-long criminal IRS investigation of Halmos resulting
therefrom, Halmos incurred actual and reasonable expenses,
including attorneys' fees, in an amount which has not yet been
precisely and fully ascertained but which has aggregated to at
least $6,000,000. All of these expenses arose out of and were
incurred as a result of Halmos' association with SafeCard, were
actually and reasonably incurred, were incurred as a result of
actions by Halmos taken in good faith and in a manner he reasonably
believed to be in the best interest of and not opposed to the best
interest of SafeCard, and are required to be indemnified by
SafeCard pursuant to the indemnification agreements of SafeCard set
forth by SafeCard in writing as set forth in paragraphs 11-16
above. These expenses include the expenses associated with Halmos'
suit against Varvoutis and Varvoutis' former employer described
above, one of whom was an ex-SafeCard employee who not only
assisted Varvoutis in the conduct described herein, but also sent
anonymous letters to the media discussing the IRS investigation
while that investigation was in progress. In connection with this
Halmos suit, SafeCard concluded that it was also in SafeCard's best
interests to file suit against those persons.
38. In connection with other litigation which arose out
of Halmos' association with SafeCard, including Halmos' defense of
SafeCard and himself against the attacks of SafeCard shareholder
Lennane, and other SafeCard-related matters, including a potential
proxy fight by others for control of SafeCard, Halmos incurred
additional actual and reasonable expenses, including attorneys'
fees, in an amount which has not yet been precisely and fully
ascertained but which exceeds $1,500,000. All of these expenses
arose out of and were incurred as a result of Halmos' association
with SafeCard, were actually and reasonably incurred, were incurred
as a result of actions by Halmos taken in good faith and in a
manner he reasonably believed to be in the best interest of and not
opposed to the best interest of SafeCard, and are required to be
indemnified by SafeCard pursuant to the indemnification agreement
of SafeCard set forth by SafeCard in writing as set forth in
paragraphs 11-16 above.
39. In connection with the sales tax audit and litigation
related to SafeCard's headquarters building described at paragraph
20 above, Halmos incurred actual and reasonable expenses, including
attorneys' fees, in an amount which has not yet been precisely and
fully ascertained but which exceeds his 50% share of $1,300,000,
namely $650,000. All of these expenses arose out of and were
incurred as a result of Halmos' association with SafeCard, were
actually and reasonably incurred, were incurred as a result of
actions by Halmos taken in good faith and in a manner he reasonably
believed to be in the best interest of and not opposed to the best
interest of SafeCard, and are required to be indemnified by
SafeCard pursuant to the indemnification agreement of SafeCard set
forth by SafeCard in writing as set forth in paragraphs 11-16
above.
40. Halmos has not yet been able to calculate with
certainty the dollar amount of the additional damage done to him
and to his business and to his business and professional reputation
for character and integrity and to his career due to his
association with SafeCard and the facts complained of herein, and
the cost of correcting same, but Halmos is informed and believes,
and therefore alleges, that it exceeds the sum of $10,000,000. All
of these damages and expenses arose out of and were incurred as a
result of Halmos' association with SafeCard, were actually and
reasonably incurred, were incurred as a result of actions by Halmos
taken in good faith and in a manner he reasonably believed to be in
the best interest of and not opposed to the best interest of
SafeCard, and are required to be indemnified by SafeCard pursuant
to the indemnification agreement of SafeCard set forth by SafeCard
in writing as set forth in paragraphs 11-16 above.
41. In connection with the litigation in Wyoming and
Illinois, Halmos has incurred actual and reasonable expenses,
including attorneys' fees, in excess of $350,000. Further such
expenses are continuing to be incurred therein. All of these
expenses arose out of and were incurred as a result of Halmos'
association with SafeCard, were actually and reasonably incurred,
were incurred as a result of actions by Halmos taken in good faith
and in a manner he reasonably believed to be in the best interest
of and not opposed to the best interest of SafeCard, and required
to be indemnified by SafeCard pursuant to the indemnification
agreement of SafeCard set forth by SafeCard in writing as set forth
in paragraphs 11-16 above.
42. In connection with each of the lawsuits and events
described herein, Halmos is embroiled in litigation and will
continue to incur significant expenses, costs and fees, all of
which arose out of and were incurred as a result of Halmos'
association with SafeCard, were actually and reasonably incurred,
were incurred as a result of actions by Halmos taken in good faith
and in a manner he reasonably believed to be in the best interest
of and not opposed to the best interest of SafeCard, and are
required to be indemnified by SafeCard pursuant to the
indemnification agreement of SafeCard set forth by SafeCard in
writing as set forth in paragraphs 11-16 above.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard:
a. Awarding Halmos damages in an amount to be
proved at trial but not less than $20,500,000.00;
b. Declaring that, pursuant to SafeCard's written
promises, representations, charter, and bylaws, and the Delaware
indemnification statutes, Halmos' involvement in litigation arising
out of his relationship with SafeCard (specifically including, but
not limited to, the lawsuits regarding Varvoutis and the wrongful
IRS investigation, the instant lawsuit, the Wyoming lawsuits, a
contemplated SafeCard proxy fight, and the non-payment by SafeCard
of Florida lease taxes) constitute indemnifiable events for which
SafeCard must continue to indemnify Halmos for all of his future
costs, expenses, fees and other injuries; and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count II
(Breach Of First Contract For Incentive Compensation)
-----------------------------------------------------
43. Halmos incorporates by reference paragraphs 1-9 above
as though fully set forth herein.
44. At its October 27, 1988 Board of Directors meeting,
SafeCard agreed, and later confirmed in writing that it had agreed,
to pay Halmos, among other things, "incentive compensation." This
agreement by SafeCard was entered into for good and valuable
consideration, including to induce Halmos to reconsider his
decision to disengage from SafeCard and to agree to resume an
active day-to-day supervisory role in SafeCard's affairs.
45. In reliance on that promise of incentive
compensation, as SafeCard knew and intended, Halmos agreed to and
did resume an active day-to-day supervisory role with SafeCard and
Halmos provided numerous hours of personal services to SafeCard. <PAGE>
46. On or about January 23, 1989 SafeCard confirmed in
writing that it had agreed to pay incentive compensation to Peter
Halmos in order to obtain his personal services for a term ending
at SafeCard's 1990 Annual Meeting. That incentive compensation,
SafeCard stated in writing at that time, included:
"[A]n [i]ncentive compensation component to each of Steven
and Peter Halmos designed to give each of them the economic
equivalent of the increase, if any, in the market value of
1,950,000 shares of unissued [SafeCard] common stock
subsequent to January 25, 1989."
Said SafeCard writing is attached as Exhibit J to the original
complaint filed herein. SafeCard made further written statements
thereafter admitting the existence of this incentive compensation
agreement between it and Halmos, including in its 1988 Annual
Report issued by SafeCard on or about January 1989, a copy of which
is submitted herewith as Exhibit O.
47. Halmos performed all of the services required of him
by that incentive compensation agreement.
48. On November 25, 1992 Halmos requested that SafeCard
pay him the "economic equivalent" incentive compensation promised
to him in writing above.
49. In violation of its agreement, SafeCard refused and
failed to pay Halmos that incentive compensation.
50. SafeCard contends that it is not required to pay that
incentive compensation because the agreement between SafeCard and
Halmos resulted from "domination" by Halmos of SafeCard's Board of
Directors, and because Halmos allegedly engaged in "insider
trading" in SafeCard stock. These contentions were first made by
SafeCard in a supposedly "authorized for filing" complaint provided
to Halmos by SafeCard on or about April 1993, and are also made by
SafeCard in a Wyoming state court lawsuit filed subsequently to the
instant action. A copy of the Wyoming state court complaint is
submitted herewith as Exhibit P. SafeCard's contentions are false.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard on this Count:
a. Awarding Halmos judgment for $15,600,000, the
net increase in the value of 1,950,000 shares of SafeCard common
stock since January 25, 1989, together with interest thereon to the
date of judgment herein; and
b. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count III
(For Breach Of Second
Contract For Incentive Compensation
For The Period From October 1990 To March 1992)
-----------------------------------------------
51. Halmos incorporates by reference paragraphs 1-9 &
43-47 above as though fully set forth herein.
52. The incentive compensation agreement of SafeCard set
forth in the preceding Count was entered into by SafeCard for the
purpose of obtaining the personal services of Halmos.
53. By agreement with SafeCard, which agreement SafeCard
acknowledged in writing, these services of Halmos were provided
pursuant to an agreement (hereinafter the "1989 Management
Agreement") that SafeCard simultaneously made and entered into for
good and valuable consideration with Halmos and Company, Inc.
("HCI"), subsequently known as High Plains Capital Corporation
("HPCC"), a corporation owned by Halmos and his brother Steven. On
or about January 1989, at the same time as SafeCard confirmed in
writing that it had agreed to pay to Halmos the incentive
compensation set in the preceding Count, SafeCard stated in writing
that it had entered into that 1989 Management Agreement. In that
writing, a copy of which is submitted herewith as Exhibit O,
SafeCard stated in writing that:
In January 1989, the Board of Directors and HCI
reached a verbal agreement on the substantive terms
of a new management agreement. The agreement expires
in 1990 . . . . The agreement provides for an
incentive compensation component which will be
designed to compensate each of Peter and Steven J.
Halmos by the economic equivalent of the increase, if
any, in the fair market value of 1.95 million
unissued shares of Company common stock subsequent to
January 25, 1989. The agreement also provides for
indemnification to the maximum extent permitted by
law.
54. The 1989 Management Agreement with HCI was entered
into by SafeCard for the benefit inter alia of Halmos, as well as
SafeCard and HCI. Halmos was a party thereto. In the alternative,
Halmos was a direct and an intended third-party beneficiary thereof
and was expressly identified as such therein. Halmos and HCI did
all that was required of them pursuant to the agreement, whereupon
Halmos became and was entitled to the benefits of the contract in
his behalf made.
55. By its terms, and as SafeCard stated in writing, the
1989 Management Agreement between the parties expired on October
12, 1990, the date of SafeCard's 1990 Annual Meeting.
56. On or about February 1990, SafeCard confirmed in
writing that the 1989 Management Agreement would by its terms be in
effect only until SafeCard's 1990 Annual Meeting. One such written
statement by SafeCard is contained in SafeCard's 1989 Form 10-K
filed with the SEC, a copy of which is submitted herewith as
Exhibit Q.
57. After October 12, 1990 Halmos was requested by
SafeCard to, and Halmos did, continue to perform services for
SafeCard, and SafeCard continued to accept Halmos' performance of
those services.
58. The parties' 1989 Management Agreement, which
resulted from the October 27, 1988 Board meeting and which extended
until the 1990 Annual Meeting, was for a two-year term, ending at
the second Annual Meeting after that Agreement was made. This was
one in a series of Management Agreements entered into between
SafeCard and HCI. With the exception of the parties' 1987
Management Agreement (Exhibit D to the original complaint herein,
which was for a one-year term), prior to and in connection with the
1989 Management Agreement the parties' Management Agreements had
historically been for approximately two- year terms ending at the
second Annual meeting, renewed from time to time.
59. SafeCard continued to request and to receive Halmos'
services after October 12, 1990. SafeCard further stated in
writing after October 12, 1990 that it and Halmos continued to
perform pursuant to a renewed Management Agreement which
incorporated the terms of the 1989 Management Agreement. Said
writing by SafeCard included its 1991 Form 10-K filed by SafeCard
with the SEC on or about December 1991, a copy of which is
submitted as Exhibit R.
60. By reason of the facts set forth above, there arose
a written contract between the parties on the same terms as the
1989 Management Agreement, including its "incentive compensation"
component, and for a like two-year period, namely from October 12,
1990 until the second Annual Meeting thereafter, which occurred on
March 10, 1992. In the alternative, by reason of the facts set
forth above there arose an implied contract between the parties on
those same terms, the existence and terms of which SafeCard
acknowledged and affirmed in writing, including in Exhibit R.
61. In detrimental reliance thereon, Halmos and HPCC
fully and duly performed their duties and services under the
parties' contract from October 12, 1990 through March 10, 1992,
including the provision by Halmos to SafeCard of numerous hours of
Halmos' personal services on SafeCard's behalf.
62. By reason of the facts set forth above, SafeCard was
and is obligated to pay to each of Peter Halmos and Steve Halmos
incentive compensation for their services for the period after
October 12, 1990 in an amount equal to the rise in the market value
of 1,950,000 shares of SafeCard common stock after October 12,
1990. Pursuant to said obligation, SafeCard paid such incentive
compensation to Steven Halmos, but has not paid such to Peter
Halmos.
63. Despite repeated requests by Halmos, SafeCard has
breached the terms of the contract described in this Count by
failing and refusing to pay Halmos thereunder the incentive
compensation described in the preceding paragraph to which he is
entitled.
64. SafeCard's breach of this contract has damaged Halmos
in the amount of $13,893,750, the amount by which the value of
1,950,000 shares of SafeCard's stock has exceeded the value of
those shares on October 12, 1990 (at the then-market price of $6
per share), together with interest thereon until the date of
judgment.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard on this Count:
a. Awarding Halmos judgment for $13,893,750,
together with interest thereon to the date of judgment herein; and
b. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count IV
(For Breach Of Third
Contract For Incentive
Compensation For The Period After March 1992)
---------------------------------------------
65. Halmos incorporates by reference paragraphs 1-9,
43-47 & 52-62 above as though fully set forth herein.
66. The 1989 Management Agreement between the parties
referenced in the preceding Count expired on March 10, 1992, the
date of SafeCard's 1992 Annual Meeting.
67. After March 10, 1992 and until he was terminated by
SafeCard on December 16, 1992, Halmos continued to perform services
for SafeCard. SafeCard requested that he do so and continued to
accept Halmos' performance of those services. SafeCard further
stated in writing that the 1989 Management Agreement continued in
force. Said writing by SafeCard included its Notice of Annual
Meeting of Stockholders To Be Held April 8, 1993, a copy of which
is submitted herewith as Exhibit H.
68. By reason of the facts set forth above, there arose
another written contract between the parties and the third-party
beneficiaries on the same terms as the 1989 Management Agreement,
including its "incentive compensation" component, and for a like
period, namely from March 10, 1992 until the second Annual Meeting
thereafter. In the alternative, by reason of the facts set forth
above there arose an implied contract between the parties and the
third- party beneficiaries on the same terms.
69. In detrimental reliance thereon, Halmos and HPCC
fully and duly performed their duties and services under this
contract from March 10, 1992 until SafeCard terminated Halmos on
December 16, 1992, including the provision by Halmos to SafeCard of
numerous hours of Halmos' personal services on SafeCard's behalf.
70. By reason of the facts set forth above, SafeCard was
and is obligated to provide Halmos with incentive compensation for
his services for the period after March 10, 1992 in an amount equal
to the rise in the market price of 1,950,000 shares of SafeCard
common stock from March 10, 1992.
71. Despite repeated requests by Halmos, SafeCard has
breached the terms of the contract described in this Count by
failing and refusing to pay to Halmos thereunder the incentive
compensation described in the preceding paragraph to which he is
entitled thereunder.
72. SafeCard's breach of this contract has damaged Halmos
in an amount in excess of $6,337,500, the amount by which the value
of 1,950,000 shares of SafeCard's stock has exceeded the value of
those shares on March 10, 1992 (at the then-market price of $9-7/8
per share), together with interest thereon until the date of
judgment.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard on this Count:
a. Awarding Halmos judgment for an amount in
excess of $6,337,500, together with interest thereon to the date of
judgment herein; and
b. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count V
(Alternative Count For Reformation Of Stock Option Agreement)
-------------------------------------------------------------
In the alternative to Count II, Halmos pleads as follows:
73. Halmos incorporates by reference paragraphs 1-9 &
43-50 above as though fully set forth herein.
74. At the January 23, 1989 Board meeting, SafeCard did
not implement any specific mechanisms to bring about the "incentive
compensation" described in Count II above.
75. In or about August 1989, SafeCard issued written
options to Halmos keyed to the 1989 Management Agreement's term and
vesting at various times until the end of the Agreement's term, to
acquire 1,950,000 shares of SafeCard common stock at $5 1/8 per
share, the January 25, 1989 closing price. The aforesaid written
options are attached as Exhibit K to the original complaint herein.
76. Pursuant to that written option agreement, Halmos'
option may be exercised by paying for the option shares in stock,
so that Halmos would as a result receive a net number of shares
having a total value (the "economic equivalent") equal to the
difference between the option shares' exercise price and their
then-market value.
77. SafeCard also agreed that the option agreement would
not act as a limitation on Halmos' right pursuant to the agreement
previously reached and confirmed in writing to receive the
"economic equivalent" of the increase in value of 1,950,000 shares
of SafeCard's stock as provided in the 1989 Management Agreement,
including the right to require that SafeCard pay that "economic
equivalent" in cash. Accordingly, Halmos added to the option
agreement a handwritten paragraph to that effect. That paragraph
provided that the terms of the 1989 Management Agreement would
control over the stock option agreement. That written paragraph
was agreed to and initialed in writing for SafeCard by W.M.
Stalcup, SafeCard's President.
78. Though SafeCard had agreed in writing at the January
23, 1989 Board meeting that SafeCard would retain a compensation
consultant to review the terms of the 1989 Management Agreement and
to assist in further memorializing the parties' agreement, SafeCard
failed to do so. Drafts were prepared without benefit of the
compensation consultant, but a further-memorialized version was not
drafted by SafeCard counsel and therefore could not be formally
signed.
79. On or about November 25, 1992 Halmos exercised his
stock options in accordance with their terms and requested SafeCard
to pay the incentive compensation promised to him. In violation of
the agreement confirmed in writing by SafeCard, SafeCard refused
and failed to pay Halmos the incentive compensation promised.
80. SafeCard also stated to Halmos, by and through
SafeCard's counsel, that he was then unable to trade in SafeCard
stock until SafeCard filed certain documents with the SEC. As
SafeCard knew and intended, the effect of that warning was to
frustrate Halmos from exercising his stock options in any manner
other than payment by SafeCard of the "economic equivalent"
incentive compensation promised to him in writing by SafeCard
until, at the earliest, SafeCard filed those documents.
81. SafeCard then arbitrarily and unilaterally terminated
Halmos. SafeCard then purposely did not file the aforesaid public
documents until more than 30 days after terminating Halmos, and
then announced that Halmos' options had lapsed because they were
not exercised within 30 days after his termination. Contrary to
SafeCard's statement, however, Halmos had exercised his options
prior thereto in accordance with their terms. In the alternative,
to any extent those options were not exercised in accordance with
their terms, it was because SafeCard's own conduct described above
had frustrated that exercise.
82. Halmos is entitled to the benefit of his bargain with
SafeCard, including its "incentive compensation" component. If
SafeCard is permitted to deprive him of that incentive compensation
through the wrongful conduct described above, SafeCard will be
unjustly enriched in the amount of that incentive compensation. By
its conduct, SafeCard is estopped to deny that Halmos' options were
properly exercised.
83. Unless this Court enters judgment in favor of Halmos
on Count II above, or alternatively enforces and/or reforms the
parties' stock option agreement in conformity with its "economic
equivalent" purpose described above and thereby to conform with the
parties' agreement, Halmos will be wholly deprived of the benefit
of that agreement and SafeCard will be unjustly enriched by the
amount of the incentive compensation it promised to, but did not,
pay to Halmos.
84. Absent entry of a judgment in his favor on Count II
above, Halmos has no adequate remedy at law. He cannot buy
SafeCard shares on the open market at the "incentive compensation"
option exercise price of $5.125 per share. Even were he able to do
so, moreover, that would not give him his incentive compensation as
promised.
Wherefore, Halmos prays the Court for the entry of an
alternative judgment to Count II in his favor and against SafeCard
on this Count:
a. Reforming Exhibit K to the original Complaint
filed in this action so that its terms conform with its "economic
equivalent" "incentive compensation" purpose and with the parties'
agreement described in this Count and in Count II;
b. Awarding Halmos judgment for $15,600,000, the
net increase in the value of 1,950,000 shares of SafeCard common
stock since January 25, 1989, together with interest thereon to the
date of judgment herein; and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
<PAGE>
Count VI
(Alternative Count For Breach Of Contract)
------------------------------------------
In the alternative to Count II and the preceding Count,
Halmos complains of SafeCard as follows:
85. Halmos incorporates by reference paragraphs 1-9,
43-50 & 74-84 above as though fully set forth herein.
86. SafeCard's conduct described above was a wilful and
deliberate breach of their "incentive compensataion" agreement with
Halmos and was designed to, and did, frustrate and prevent Halmos
from obtaining the incentive compensation promised him due to
SafeCard's improper termination of his rights.
87. Pursuant to their terms, Halmos had the right to
exercise options granted to him until the expiration of 30 days
after proper termination of his relationship with SafeCard.
88. January 15, 1993 was the thirtieth day after Halmos'
termination by SafeCard. Had Halmos been issued his stock on that
date pursuant to Exhibit K hereto, he would have received 1,950,000
shares of SafeCard common stock at a price of $5 1/8 per share. At
that time, the market price of SafeCard's common stock was $10 1/8
per share, and it increased thereafter.
89. SafeCard's breach of contract set forth in this Count
deprived Halmos of, and damaged him in the amount of $15,600,000,
profits to which he is entitled.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard on this Count:
a. Awarding Halmos an amount in excess of
$15,600,000, together with interest thereon to the date of judgment
herein; and
b. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count VII
(Alternative Count For Conversion)
----------------------------------
In the alternative to Count II and the preceding two Counts,
Halmos complains of SafeCard as follows:
90. Halmos incorporates by reference paragraphs 1-9,
43-50, 74-84 & 86-89 above as though fully set forth herein.
91. SafeCard's conduct described above was a wilful and
deliberate breach of Halmos' rights set forth in Exhibit M, and was
designed to, and did, prevent Halmos from exercising those rights.
92. Halmos was the owner of the stock options and was
entitled to immediate possession of the 1,950,000 shares of
SafeCard stock represented by those options.
93. SafeCard was in possession of the 1,950,000 shares of
stock. By its actions, SafeCard engaged in an unauthorized and
wrongful assumption of control, dominion, and ownership over
Halmos' stock options and the 1,950,000 shares of SafeCard stock
represented by those options, and unlawfully converted and disposed
thereof.
94. That property was then and there of the value of
$15,600,000.
95. As a direct result of the conversion set forth above,
Halmos has been damaged in the amount of $15,600,000, together with
interest thereon until the date of judgment.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard on this Count:
a. Awarding Halmos judgment for $15,600,000, together
with interest thereon to the date of judgment herein; and
b. Awarding Halmos his costs and expenses of this suit
and such other and further relief as is just and equitable.
Count VIII
(For Declaratory Judgment
Rescission, And Accounting Re
CreditLine Agreement and Related Non-Compete)
---------------------------------------------
Halmos and CLC complain of SafeCard as follows:
96. Halmos and CLC incorporate by reference paragraphs
1-9 above as though fully set forth herein.
<PAGE>
97. The written Management Agreements pursuant to which
Peter Halmos provided services to SafeCard during the period of
1983 to March of 1987 (Exhibit C to the original Complaint herein),
provide that,
"HCI, Peter Halmos and Steven Halmos may each engage in other
business activities provided (i) those activities are not
rendered to a business which competes with the business of
[SafeCard] as same exists at the time such activities commence
and (ii) HCI, Peter Halmos and Steven Halmos in good faith
discharge their responsibilities under this Agreement."
98. The written Management Agreement pursuant to which
Halmos provided services to SafeCard during the 1987 to 1988 period
(Exhibit D to the original Complaint herein) again acknowledged
that,
"HCI, Peter Halmos and Steven Halmos may each engage in other
business activities provided (i) those activities are not
rendered to a business which directly or indirectly competes
(as defined below) with the business of [SafeCard] as same
exists at the time such activities commence. The term
'compete' ... means the sale and/or operation of services and
products identical or substantially similar to those being
sold and/or operated by [SafeCard]. HCI, Peter Halmos and
Steven Halmos further agree to discharge in good faith their
responsibilities under this Agreement."
99. While this agreement was in force, in 1987 Halmos
independently conceived and developed methods of providing
"user-friendly" credit report information and related counseling
and other services to consumers. At that same time, Halmos also
organized LifeFax Corporation, which later became plaintiff
CreditLine Corporation ("CLC"), to engage in that business. CLC is
now owned by Halmos, his brother Steven, and their families.
100. Later in 1987, Halmos proposed to SafeCard that they
jointly form a new corporation to expand LifeFax's business.
101. A possible contract by Safecard with LifeFax and/or
Halmos was discussed at several SafeCard Board of Directors
meetings durng 1988. These discussions included advice from
SafeCard's counsel regarding "the doctrine of corporate
opportunity" and "the fiduciary duty of the Board of Directors, and
in particular of the independent Directors" (defendant Bacon and
then-Director Nixon).
102. When the credit bureau with which LifeFax had been
dealing refused to honor its contract with LifeFax, no new jointly
owned corporation was established with SafeCard and SafeCard made
no investment in LifeFax.
103. However, as a result of these same Board of Directors
discussions, on November 1, 1988 SafeCard did enter into a written
contract with Halmos concerning the credit report business (the
"CreditLine Contract," a copy of which was submitted with the
original Complaint herein as Exhibit E).
104. The written CreditLine Contract states - in language
drafted by SafeCard's counsel - that SafeCard's "Independent Board"
(then Bacon and Nixon), "acting independently of Halmos and any
relative of Halmos," had "made the business judgment that it is not
in the best interests of SafeCard to enter into the Credit Card
Report Business and has affirmatively declined to do so." However,
the written CreditLine Contract also states that Bacon and Nixon
had also "determined that it is in [SafeCard's] best interests" to
agree with Halmos "to market the Credit Report Products and
Services through certain credit card issuers." In addition, the
written CreditLine Contract provides that all costs, and any
profits, of doing so will be divided 50% to Halmos and 50% to
SafeCard. The written CreditLine Contract provides for a term of
one year, renewable annually.
105. As contemplated by the written CreditLine Contract,
Halmos assigned his rights and obligations under the written
CreditLine Contract to HCI. HCI in turn assigned its rights and
obligations thereunder to plaintiff CLC.
106. After the execution of the written CreditLine
Contract in mid-1991, SafeCard initiated discussions with First
Financial Management Corporation ("FFMC"), looking to FFMC to
purchase SafeCard at a price beneficial to SafeCard's shareholders.
107. FFMC said that it would not proceed with these
discussions unless Halmos participated in the discussions with FFMC
on behalf of himself, CreditLine, and the Halmoses' other
companies.
108. During these discussions, FFMC sought assurance that
SafeCard would be able to continue to market CreditLine products
even if the written CreditLine Contract (which was only for
renewable one-year terms) terminated.
109. Without consideration and solely in order to
facilitate the FFMC discussions for SafeCard's benefit, in January
1992 Halmos and CreditLine amended the written CreditLine Contract
by:
a. Granting SafeCard a perpetual interest to
market CreditLine's products and services to the holders of credit
cards issued by any card issuer with which SafeCard (i) was doing
business at the time the CreditLine contract terminated and (ii)
entered into an agreement to market CreditLine products or services
before, or within three years after, the CreditLine agreement was
terminated, and
b. Agreeing that neither CreditLine nor Halmos
would compete, nor license others to compete, with such marketing
by SafeCard.
110. Copies of this January 1992 amendment, and of a
contemporaneous agreement confirming it (all drafted by SafeCard's
counsel) were submitted with the original Complaint herein as
Exhibits G and H.
111. Halmos and CLC executed the January 1992 amendment to
the written CreditLine Contract without consideration, solely for
the purpose of facilitating, for SafeCard's benefit, the
then-pending FFMC discussions.
112. SafeCard was not inconvenienced or prejudiced in any
way by this January 1992 amendment to the written CreditLine
Contract.
113. The discussions between FMCC and SafeCard did not
ultimately result in any agreement between FFMC and SafeCard.
114. No consideration was given by SafeCard for the 1992
amendment to the written CreditLine Contract. That amendment
should therefore be rescinded and/or declared unenforceable.
Nothing of value flowed from SafeCard to CreditLine in exchange for
CreditLine's agreement not to compete with SafeCard after the
termination of the written CreditLine Contract. Further, SafeCard
did not suffer any inconvenience or prejudice as a result of the
execution of that 1992 amendment. The purpose of the amendment -
the consummation of a sale of SafeCard to FFMC - was also
frustrated, as SafeCard did not consummate a sale to FFMC.
115. As is more fully stated above, the purported effect
of the 1992 amendment to the written CreditLine Contract is to
prohibit Halmos and CLC from competing with SafeCard with respect
to the business of CLC even after termination of the CreditLine
Contract. As is also more fully stated above, but for this 1992
amendment to the written CreditLine Contract, CLC and Halmos would
be free to compete with SafeCard regarding the business of CLC
after termination of the CreditLine contract.
116. The 1992 amendment to the written CreditLine Contract
should also be rescinded and/or declared void and unenforceable
because it violates public policy. It is an overbroad restraint on
competition, as it seeks to bar Halmos and CLC from competing with
SafeCard after the written CreditLine Contract terminates as to
customers who have not entered into any CLC-related marketing
agreement with SafeCard prior to that termination.
117. In short, the 1992 amendment to the written
CreditLine Contract must be rescinded and/or declared unenforceable
for three reasons: (1) failure of consideration; (2) frustration
of purpose; and (3) violation of public policy as an overbroad
restraint on competition.
118. Pursuant to the written CreditLine Contract, CLC has
the right to audit SafeCard's books and records pertaining to
SafeCard's activities relating to that contract.
119. CLC has repeatedly asked SafeCard to permit CLC to
conduct such an audit. SafeCard has refused to do so.
120. CLC believes that SafeCard has failed to disclose
accurately to CLC the revenues and profits received by SafeCard
pursuant to that written contract, and has failed to pay CLC's
proper share of those revenues and profits to CLC.
121. For the purpose of hindering Halmos and CLC from
pursuing and exercising their rights to rescission and for an
accounting and to seize CLC and its business for its own benefit
without compensating Halmos or CLC, SafeCard has alleged the false
claims that the CreditLine contract is "inherently unfair" to
SafeCard, that it was entered into as a result of Halmos'
"domination" of SafeCard, and that CLC is a SafeCard "corporate
opportunity" Halmos usurped. These allegations are contained in a
supposedly "authorized for filing" complaint provided to Halmos by
SafeCard in April 1993, as well as in a Wyoming federal court
lawsuit filed by SafeCard and now dismissed, and in a Wyoming state
court lawsuit filed subsequent to the instant action. A copy of
the Wyoming state court complaint is submitted herewith as
Exhibit P. SafeCard's allegations are false.
122. The written CreditLine Contract is fair to SafeCard
and was properly approved by SafeCard's Independent Board.
123. Steven Halmos, SafeCard's former CEO, so informed
SafeCard's counsel on April 26, 1993 (Exhibit I to the original
Complaint herein), stating that all dealings with "Halmos-related
entities were in fact approved by the Board. Nobody held a gun to
the Board members' heads . . . . In addition, the Board had
counsel both in the form of in-house and outside counsel."
124. CLC is also not a corporate opportunity of SafeCard
usurped by Halmos. As stated above in paragraphs 97-99 and as
SafeCard has repeatedly admitted in written public filings, the
agreements under which Halmos provided services to SafeCard during
the period Halmos developed the credit report business explicitly
preserved his right to develop new business "for his own account"
and did not prohibit Halmos from competing with SafeCard after his
relationship with SafeCard terminates.
125. Thus, Halmos independently organized and developed
CLC with no aid from SafeCard, and offered SafeCard the opportunity
to be involved in CLC, which SafeCard's Independent Board,
including Bacon, declined save for the marketing agreement. <PAGE>
126. As Steven Halmos wrote to SafeCard on April 26, 1993,
"I recall a meeting with the other Board members . . . at which
Pete reviewed in detail the 'deal' proposed for CreditLine. I
clearly believe that the Board understood the proposed arrangement
and approved it . . . ."
127. The original written CreditLine Contract was drafted
by SafeCard's outside counsel, was duly considered, approved, and
executed by SafeCard's non-Halmos Directors, including Bacon, after
receiving counsel's advice, and was publicly disclosed and
discussed in SafeCard's publicly-disseminated documents.
SafeCard's allegations to the contrary are false.
128. There is an actual, present, and subsisting
controversy between plaintiffs and SafeCard regarding whether the
1992 amendment to the written CreditLine contract is valid and
enforceable in the future and regarding CLC's right to an
accounting under the CreditLine contract.
129. As a result of SafeCard's false allegations,
CreditLine is being and will in the future be hindered in its
ability to do business with entities other than SafeCard.
Plaintiffs have no adequate remedy at law to enforce their ability
fairly to compete with SafeCard in the future in the face of
SafeCard's enjoining threats and the 1992 amendment to the written
CreditLine Contract, or to enforce their right to an accounting in
the face of SafeCard's control of the books and records relating to
the CreditLine Contract, to which SafeCard refuses to permit
plaintiffs access.
Wherefore, CLC and Halmos pray the Court for the entry of
judgment in their favor and against SafeCard:
a. Declaring, after hearing, that for all future
purposes CLC is the legitimate owner of all of the business and
property of CLC and is entitled in the future to deal with such
without interference from SafeCard, and that SafeCard has no valid
future claim to own CLC or the business or property of CLC;
b. Cancelling and rescinding the 1992 amendment
to the written CreditLine Contract, and declaring that SafeCard has
no future rights pursuant to that amendment and that CLC and Halmos
has the right to compete with SafeCard in the future;
c. Ordering SafeCard to account to CLC for, and
to the extent not previously done to pay over to CLC its proper
share of, all revenues and profits received by SafeCard pursuant to
the CreditLine contract; and
d. Awarding CLC and Halmos their costs and
expenses of this suit and such other and further relief as is just
and equitable.
Count IX
(For Declaratory Judgment
Re Alleged Conflict of Interest)
--------------------------------
Plaintiffs complain of SafeCard and Bacon as follows:
130. Plaintiffs incorporate by reference paragraphs 1-9
above as though fully set forth herein.
131. On November 16, 1992, SafeCard's Board of Directors
met in Chicago, Illinois and on November 17 and 18, 1992.
SafeCard's outside counsel met with Halmos and C&F lawyers at C&F's
offices in Chicago, for the purpose of reviewing Halmos'
indemnification claims against SafeCard. (Halmos' indemnification
claims are set forth in Count I herein). This led to further
negotiations during 1992 and continuing into 1993 between SafeCard
counsel on the one hand and C&F as Halmos's counsel on the other.
Those negotiations included discussions related to Halmos' claims
against Bacon for defamation, as described inter alia in Count X
herein.
132. On November 22, 1992, SafeCard's outside counsel sent
a letter to Halmos formally waiving on behalf of SafeCard and Bacon
any conflict of interest that might arise from C&F's representation
of Halmos in those negotiations. This purported waiver, however,
purported to be limited to negotiations.
133. C&F and Halmos believe and have consistently asserted
that C&F and Cherry have no conflict of interest that would prevent
C&F or Cherry from representing Halmos or CLC against SafeCard or
Bacon, including in litigation. The contentions of Cherry & Flynn
and Halmos in this regard are set forth in detail in Halmos'
opposition to defendants' motions to disqualify Latham & Watkins,
previously filed herein, which is hereby incorporated by reference.
134. SafeCard and Bacon assert that C&F and Cherry do have
a conflict of interest that prevents C&F from representing Halmos
or CLC against SafeCard or Bacon. The contentions of SafeCard and
Bacon in this regard are set forth in detail in their motions to
disqualify Latham & Watkins, previously filed herein, which is
hereby incorporated by reference. For the reasons set forth in
Halmos' opposition thereto, the assertion by Bacon and SafeCard of
a conflict of interest is incorrect.
135. Although this Court has denied motions by SafeCard
and Bacon to disqualify Halmos' counsel Latham & Watkins, on
grounds that also apply pursuant to principles of res judicata and
collateral estoppel to C&F and Cherry, and although C&F has entered
an appearance herein on behalf of plaintiffs against SafeCard and
Bacon, SafeCard and Bacon continue to take the position that a
conflict exists which prevents C&F from representing Halmos or CLC
against SafeCard or Bacon, now and in the future.
136. There is thus an actual, present, and subsisting
controversy between plaintiffs and defendants. Plaintiffs wish
Cherry and C&F to be able to appear for them and to represent them
in the future not only in this but also in other litigation against
SafeCard and Bacon, while SafeCard and Bacon continue to assert,
despite this Court's denial of SafeCard's and Bacon's
disqualification motions, that Cherry and C&F are disqualified from
doing so.
Wherefore, plaintiffs pray the Court for the entry of
judgment in their favor and against SafeCard:
a. Declaring, after hearing, that Cherry and C&F
are not disqualified from representing Halmos or CreditLine in the
future in claims against defendants, and that Cherry and C&F may
appear for and on behalf of Halmos and CreditLine Corporation and
represent them in the future in this and other actions.
Count X
(For Defamation Per Se)
-----------------------
Plaintiff Halmos complains of defendants SafeCard and Bacon
as follows:
137. Halmos incorporates by reference paragraphs 1-9 above
as though fully set forth herein.
Statements Complained Of
- ------------------------
138. On or about December 16, 1992, defendant SafeCard
abruptly and summarily terminated Halmos.
139. On or about December 20, 1992, defendant Bacon, while
in Illinois, made statements concerning Halmos to Kyle Pope, a Wall
Street Journal reporter. Among the statements made by Bacon were
the following:
a. "Peter Halmos is trying to rob the SafeCard
treasury;"
b. Halmos "is trying to steal 100 million"
dollars from SafeCard; and
c. Halmos was using SafeCard as his personal
"piggy bank," and Halmos "regarded the company [SafeCard] as his
fiefdom."
140. Bacon's statements to Pope described in paragraph 139
were made by Bacon on behalf of himself and SafeCard, and were made
with the authority, approval, and knowledge of SafeCard.
Defamation Per Se
- -----------------
141. On its face, each of Bacon's statements set forth in
paragraph 139 was and is false.
142. On its face, each of Bacon's statements set forth in
paragraph 139 imputes to Halmos a want of integrity in the
discharge by him of his duties on behalf of SafeCard.
143. On its face, each of Bacon's statements set forth in
paragraph 139 prejudices Halmos, and impute to him a lack of
ability, in his trade, profession, and business. On its face, each
of the statements of Bacon set forth in paragraph 139 imputes to
Halmos the commission of a criminal offense.
144. On their face, each of the statements by Bacon
described in paragraph 139 accuse Halmos of engaging in unethical,
immoral and criminal acts. Those statements were made to explain
why Halmos was abruptly and summarily terminated by SafeCard.
145. Each of the statements described in paragraph 139
above was and is false. By reason of the facts described in
paragraphs 141-144, each of those statements was and is defamatory
per se. Those statements are not susceptible to an innocent
construction.
146. The statements by Bacon did not concern an issue that
would affect the general public or any appreciable segment thereof.
The statements concerned only a private matter, namely SafeCard's
termination of Halmos. SafeCard did not file an SEC form 8-K
reporting Halmos' termination.
Not Protected Opinion
- ---------------------
147. Each of the statements made by Bacon and described in
paragraph 139 above purported to contain factual assertions
regarding Halmos' acts and conduct. Each of those statements was
capable of objective verification as true or false. Each such
statement was made as a matter of fact by a person who held himself
out as having, and with apparent credibility regarding, knowledge
of the facts and authority to speak on behalf of SafeCard.
148. By reason of the facts set forth in paragraph 147,
none of the statements made by Bacon as described in paragraph 149
can be construed to be an opinion. Alternatively, by reason of
those facts, any such statement which could in whole or in part be
construed to be an opinion, which Halmos denies, is in the form of
an opinion which implies the existence of undisclosed defamatory
facts as the basis therefor and further implies that the speaker
(Bacon) has knowledge of those undisclosed defamatory facts.
Actual Malice
- -------------
149. At the time he made each of the statements described
in paragraph 139 above, Bacon knew that each of those statements
was false. At the very least, Bacon made each of those statements
with reckless disregard of its falsity, despite a high degree of
awareness of its probable falsity, and while entertaining serious
doubts as to its truth. As a Director of SafeCard, at all material
times Bacon had fully and ready access to the actual facts
regarding the false statements.
150. Just one month before he made the false statements
described in paragraph 139 above, on November 9, 1992, Bacon stated
in writing, voluntarily and without solicitation, that Halmos'
"principles and dedication are the highest," and that "nothing will
ever let me [Bacon] or my SafeCard team engage in any
recriminations" against or regarding Halmos. A copy of that
writing by Bacon is Exhibit A to the original Complaint herein.
151. Bacon made the statements described in paragraph 139
above for the purpose and with the specific intent of injuring
Peter Halmos personally and professionally, causing Peter Halmos
physical, mental, and emotional pain, suffering, and injury,
smearing his reputation for integrity and character, and subjecting
him to public obloquy and to extreme anguish and distress.
152. At the time Bacon made the statements described in
paragraph 139 on behalf of himself and SafeCard, Bacon and SafeCard
knew and intended that the hearer of the statements would believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
153. At the time Bacon made the statements described in
paragraph 139 on behalf of himself and SafeCard, Bacon and SafeCard
knew that the immediate hearer of those statements was a reporter
for the Wall Street Journal and knew and intended that the
statements would, directly or indirectly, cause the media, the
general public and the business and financial community to believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
154. By reason of the facts set forth in paragraphs
149-153 above, the statements described in paragraph 139, made by
Bacon on behalf of both himself and SafeCard, were made with actual
malice.
Damages
- -------
155. As a result of Bacon's statements described in
paragraph 139, on December 21, 1992, the Wall Street Journal -- one
of the most widely read business publications in the United States,
as SafeCard and Bacon knew at the time Bacon's statements were made
- --published an article based on and influenced by Bacon's false
statements, and incorporating, inter alia, a part of Bacon's false
statement described in paragraph 139(c). That article, which
resulted from statements made by Bacon in Illinois, was published
extensively throughout Illinois, including in Cook County.
156. As a direct and proximate result of defendants'
defamation described in this Count, Halmos has been damaged by
smearing his character and reputation, and by impairing his ability
to conduct a proxy fight and his ability to complete fairly and
rightfully with SafeCard and otherwise to develop and pursue his
lawful and proper business interests (including the raising of
capital and the pursuit of litigation). Halmos has not yet fully
ascertained the amount of the damage done to him by defendants'
false statements, but is informed and believes, and accordingly
alleges, that such damage exceeds the sum of $25,000,000.
157. By reason of the intentional, deliberate, wilful, and
malicious defamation described in this Count, which was undertaken
for the improper purposes of injuring Halmos without regard to the
truth and preventing Halmos from competing fairly with SafeCard,
Halmos is entitled to an award of punitive damages.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against defendants, jointly and severally:
a. Awarding Halmos compensatory damages against
defendants in an amount to be proven at trial, but not less than
$25,000,000.00;
b. Awarding Halmos punitive damages against
defendants and each of them in an amount to be set by the Court;
and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count XI
(Alternative Count For Defamation Per Quod)
-------------------------------------------
Plaintiff Halmos complains of defendants SafeCard and Bacon
as follows:
158. Halmos incorporates by reference paragraphs 1-9 above
as though fully set forth herein.
Statements Complained Of
- ------------------------
159. On or about December 16, 1992, defendant SafeCard
abruptly and summarily terminated Halmos.
160. On or about December 20, 1992, defendant Bacon, while
in Illinois, made statements concerning Halmos to Kyle Pope, a Wall
Street Journal reporter. Among the statements made by Bacon were
the following:
a. "Peter Halmos is trying to rob the SafeCard
treasury;"
b. Halmos "is trying to steal 100 million"
dollars from SafeCard; and
c. Halmos was using SafeCard as his personal
"piggy bank," "regarded the company [SafeCard] as his fiefdom," and
was "using SafeCard as a vehicle for his personal litigation."
Defamation Per Quod
- -------------------
161. Each of the statements described in paragraph 160 was
and is false.
162. Each of the statements by Bacon described in
paragraph 160 was made in the course and context of purportedly
explaining to Kyle Pope, a reporter for the Wall Street Journal,
why SafeCard had abruptly and summarily terminated Halmos. In
their context, those statements accused Halmos of engaging in
unethical, immoral, and criminal conduct.
163. Because each of the statements by Bacon described in
paragraph 160 was made in the course and context of explaining why
Halmos was abruptly and summarily terminated by SafeCard, the
natural and obvious meaning and implication from those statements
(both individually and taken together) was that SafeCard fired
Halmos for highly improper and illegal acts and conduct.
164. As defendants knew and intended, the defamatory
meaning of Bacon's statements described in paragraph 160, and the
damage to Halmos caused by those false statements, were and are
aggravated by the pre-existing damage to Halmos' reputation which
Halmos suffered while performing duties for SafeCard and as a
result of his association with SafeCard. As defendants knew and
intended, Bacon's false statements described in paragraph 160 were
and are defamatory in light of certain extrinsic facts, and
appeared to confirm prior false statements concerning Halmos'
character and integrity and caused it to appear that SafeCard had
abruptly and summarily terminated him for the same or similar
conduct and acts, in that, among other things:
a. At the time of Bacon's defamatory statements,
SafeCard had abruptly terminated its longstanding relationship with
Halmos and was attempting to avoid its statutory, common-law, and
contractual obligations to indemnify Halmos (who had provided
SafeCard with evidence that his claims for indemnification could
aggregate to over $100 million);
b. At the time of Bacon's defamatory statements,
Bacon and SafeCard -- aware that after its abrupt termination of
Halmos, Halmos would undertake to raise capital for his private
companies through the public markets in order that, among other
things, he could then compete rightfully with SafeCard -- desired
to find ways to prevent Halmos from raising such capital, and to
that end, through Bacon's statements accusing Halmos of financial
wrongdoing, specifically sought to disparage and did falsely
disparage Halmos' character, conduct, and financial honesty as an
executive of a publicly-held company;
c. By means of Bacon's defamatory statements,
Bacon and SafeCard sought to disparage and denigrate Halmos and
subject him to public scorn and obloquy by re-raising, by
implication, prior false allegations concerning Halmos. For
example, Bacon's false statements that Halmos was using SafeCard
for personal gain and "regarded the company as his fiefdom" and "is
trying to steal 100 million" dollars were intended to and did raise
the false implication that Halmos was a habitual financial
criminal; in 1984 and again in 1989, Halmos had falsely been
accused of using SafeCard for his personal financial gain in the
form of insider trading, which allegations had been disproved at
the time. Similarly, Bacon's false statements that Halmos was
using SafeCard as his "piggy bank" were intended to and did re-
raise in the public eye, by implication, an IRS criminal
investigation of Halmos which had been formally concluded and
dropped without any charges against Halmos; and
d. By reason of the foregoing, Bacon's false
statements implied that Halmos was financially and personally
untrustworthy, if not criminal, and imputed to Halmos a want of
integrity in the discharge by him of his duties on behalf of
SafeCard and a lack of ability in his trade, profession, or
business activities.
165. Each of the statements made by Bacon and described in
paragraph 160 above purported to contain factual assertions
regarding Halmos' acts and conduct. Each of those statements was
capable of objective verification as true or false. Each such
statement was made as a matter of fact by a person who held himself
out as having, and with apparent credibility regarding, knowledge
of the facts and authority to speak on behalf of SafeCard.
166. By reason of the facts set forth in paragraph 165,
none of the statements made by Bacon as described in paragraph 160
can be construed to be an opinion. Alternatively, by reason of
those facts, any such statement which could in whole or in part be
construed to be an opinion, which Halmos denies, is in the form of
an opinion which implies the existence of undisclosed defamatory
facts as the basis therefor and further implies that the speaker
(Bacon) has knowledge of those undisclosed defamatory facts.
167. By reason of the facts described in paragraphs
161-166, each of Bacon's statements described in paragraph 160 was
and is defamatory per quod. Those statements are not susceptible
to an innocent construction.
168. The statements by Bacon did not concern an issue that
would affect the general public or any appreciable segment thereof.
The statements concerned only a private matter, namely SafeCard's
termination of Halmos. SafeCard did not file an SEC form 8-K
reporting Halmos' termination.
Actual Malice
- -------------
169. At the time he made each of the statements described
in paragraph 160 above, Bacon knew that each of those statements
was false. At the very least, Bacon made each of those statements
with reckless disregard of its falsity, despite a high degree of
awareness of its probable falsity, and while entertaining serious
doubts as to its truth. As a Director of SafeCard, at all material
times Bacon had full and ready access to the actual facts regarding
the false statements.
170. Just one month before he made the false statements
described in paragraph 160 above, on November 9, 1992, Bacon stated
in writing, voluntarily and without solicitation, that Halmos'
"principles and dedication are the highest," and that "nothing will
ever let me [Bacon] or my SafeCard team engage in any
recriminations" against or regarding Halmos. A copy of that
writing by Bacon is Exhibit A to the original Complaint herein.
171. Bacon made the statements described in paragraph 160
above for the purpose and with the specific intent of injuring
Peter Halmos personally and professionally, causing Peter Halmos
physical, mental, and emotional pain, suffering, and injury,
smearing his reputation for integrity and character, and subjecting
him to public obloquy and to extreme anguish and distress.
172. At the time Bacon made the statements described in
paragraph 160 on behalf of himself and SafeCard, Bacon and SafeCard
knew and intended that the hearer of the statements would believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
173. At the time Bacon made the statements described in
paragraph 160 on behalf of himself and SafeCard, Bacon and SafeCard
knew that the immediate hearer of those statements was a reporter
for the Wall Street Journal and knew and intended that the
statements would, directly or indirectly, cause the media, the
general public and the business and financial community to believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
174. By reason of the facts set forth in paragraphs
169-173 above, the statements described in paragraph 160, made by
Bacon on behalf of both himself and SafeCard, were made with actual
malice.
Damages
- -------
175. As a result of Bacon's statements described in
paragraph 160, on December 21, 1992 the Wall Street Journal -- one
of the most widely read business publications in the United States,
as SafeCard and Bacon knew at the time Bacon's statements were made
- --published an article based on and influenced by Bacon's false
statements, and incorporating, inter alia, part of Bacon's false
statements described in paragraph 160(c). That article, which
resulted from statements made by Bacon in Illinois, was published
extensively throughout Illinois, including in Cook County.
176. Halmos desires to conduct a proxy fight for control
of SafeCard. As a result of defendants' defamation described
above, Halmos has suffered special damages in the form of
impairment and prevention of his ability to conduct his desired
proxy fight for control of SafeCard.
177. Defendants knew that it was likely that Halmos would
conduct such a proxy fight after defendants summarily and abruptly
terminated Halmos, and defendants intended that their defamation
would have the damaging effect described in paragraph 176.
178. Halmos further desires to raise capital to form a
public company to engage in businesses analogous to, and some of
which would be competitive with, some of the businesses of
SafeCard. As a result of defendants' defamation described above,
Halmos has suffered special damages in the form of impairment and
prevention of his ability to raise capital to form that public
company.
179. Defendants knew that it was likely that Halmos would
form one or more such public companies after SafeCard abruptly
terminated him, and defendants intended that their defamation would
have the damaging effect described in paragraph 178.
180. As a direct and proximate result of defendants'
defamation described in this Count, Halmos has been damaged by
smearing his character and reputation, and by impairing his ability
to conduct a proxy fight and his ability to compete fairly and
rightfully with SafeCard and otherwise to develop and pursue his
lawful and proper business interests (including the raising of
capital and the pursuit of litigation). Halmos has not yet fully
ascertained the amount of the damage done to him by defendants'
false statements, but is informed and believes, and accordingly
alleges, that such damage exceeds the sum of $25,000,000.
181. By reason of the intentional, deliberate, wilful, and
malicious defamation described in this Count, which was undertaken
for the improper purposes of injuring Halmos without regard to the
truth and of preventing Halmos from competing fairly with SafeCard,
Halmos is entitled to an award of punitive damages.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against defendants, jointly and severally:
a. Awarding Halmos compensatory damages against
defendants in an amount to be proven at trial, but not less than
$25,000,000.00;
b. Awarding Halmos punitive damages against
defendants and each of them in an amount to be set by the Court;
and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count XII
(False Light Invasion Of Privacy)
---------------------------------
Plaintiff Halmos complains of defendants SafeCard and Bacon
as follows:
182. Halmos incorporated by reference paragraphs 1-9 above
as though fully set forth herein.
Defendants' False Light Conduct
- -------------------------------
183. On or about December 16, 1992, defendant SafeCard
abruptly and summarily terminated Halmos.
184. On or about December 20, 1992, defendant Bacon, while
in Illinois, made statements concerning Halmos to Kyle Pope, a Wall
Street Journal reporter. Among the statements made by Bacon were
the following:
a. "Peter Halmos is trying to rob the SafeCard
treasury;"
b. Halmos "is trying to steal 100 million"
dollars from SafeCard; and
c. Halmos was using SafeCard as his personal
"piggy bank," "regarded the company [SafeCard] as his fiefdom," and
was "using SafeCard as a vehicle for his personal litigation."
185. Bacon's statements to Pope described in paragraph 184
were made by Bacon on behalf of himself and SafeCard, and were made
with the authority, approval, and knowledge of SafeCard. Bacon was
not forced or coerced to make those statements; they were entirely
voluntary on his part.
186. As a result of Bacon's statements described in
paragraph 184, on December 21, 1992 the Wall Street Journal -- one
of the most widely read business publications in the United States,
as SafeCard and Bacon knew at the time Bacon's statements were made
- --published an article based on an influenced by Bacon's false
statements, and incorporating certain of Bacon's false statements
described in paragraph 184. That article, which resulted from
statements made by Bacon in Illinois, was published extensively
throughout Illinois, including in Cook County.
187. Each of Bacon's statements described in paragraph 184
was and is false. Those statements are not capable of an innocent
construction.
188. As a result of Bacon's voluntary statements described
in paragraph 184. Halmos was placed in a false light before the
public.
Offensive To A Reasonable Person
- --------------------------------
189. Each of the statements by Bacon described in
paragraph 184 was made in the course and context of purportedly
explaining to Kyle Pope, a reporter for the Wall Street Journal,
why SafeCard had abruptly and summarily terminated Halmos. In
their context, those statements accused Halmos of being unethical
and immoral, of engaging in unethical, immoral, and illegal
conduct, and of wrongfully and unlawfully causing SafeCard to pay
for personal lawsuits filed by Halmos for his personal benefit.
190. Because each of the statements by Bacon described in
paragraph 184 was made in the course and context of explaining why
Halmos was abruptly and summarily terminated by SafeCard, the
natural and obvious meaning and implication from those statements
(both individually and taken together) was that SafeCard filed
Halmos for highly improper and illegal acts and conduct.
191. For the reasons stated in paragraphs 189 and 190, the
false light in which Halmos was placed by defendants' false
statements would be highly offensive in a reasonable person. The
defendants knew, at the time of Bacon's statements described in
paragraph 184, that Halmos, as a reasonable man, would be justified
in the eyes of the community in feeling seriously offended and
aggrieved by the publicizing of defendants' false statements. The
defendants specifically intended that Halmos should and would, as
in fact he did, feel seriously offended and aggrieved by the false
publicity to which he was exposed by Bacon's gratuitous and
unnecessary false statements.
192. The statements by Bacon did not concern an issue that
would affect the general public or any appreciable segment thereof.
The statements concerned only a private matter, namely SafeCard's
termination of Halmos. SafeCard did not file an SEC form 8-K
reporting Halmos' termination.
Actual Malice
- -------------
193. At the time he made each of the statements described
in paragraph 184 above, Bacon knew that each of those statements
was false. At the very least, Bacon made each of those statements
with reckless disregard of its falsity, despite a high degree of
awareness of its probable falsity, and while entertaining serious
doubts as to its truth. As a Director of SafeCard, at all material
times Bacon had full and ready access to the actual facts regarding
the false statements.
194. Just one month before he made the false statements
described in paragraph 184 above, on November 9, 1992, Bacon stated
in writing, voluntarily and without solicitation, that Halmos'
"principles and dedication are the highest," and that "nothing will
ever let me [Bacon] or my SafeCard team engage in any
recriminations" against or regarding Halmos. A copy of that
writing by Bacon is Exhibit A to the original Complaint herein.
195. Bacon made the statements described in paragraph 184
above for the purpose and with the specific intent of injuring
Peter Halmos personally and professionally, causing Peter Halmos
physical, mental, and emotional pain, suffering, and injury,
smearing his reputation for integrity and character, and subjecting
him to public obloquy and to extreme anguish and distress.
196. At the time Bacon made the statements described in
paragraph 184 on behalf of himself and SafeCard, Bacon and SafeCard
knew and intended that the hearer of the statements would believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
197. At the time Bacon made the statements described in
paragraph 184 on behalf of himself and SafeCard, Bacon and SafeCard
knew that the immediate hearer of those statements was a reporter
for the Wall Street Journal and knew and intended that the
statements would, directly or indirectly, cause the media, the
general public and the business and financial community to believe
that Halmos had been fired by SafeCard for highly improper and
illegal acts and conduct.
198. By reason of the facts set forth in paragraphs
193-197 above, the statements described in paragraph 184, made by
Bacon on behalf of both himself and SafeCard, were made with actual
malice.
Damages
- -------
199. As a result of Bacon's statements described in
paragraph 184, on December 21, 1992, the Wall Street Journal -- one
of the most widely read business publications in the United States,
as SafeCard and Bacon knew at the time Bacon's statements were made
- --published an article based on an influenced by Bacon's false
statements, and incorporating certain of Bacon's false statements
described in paragraph 184. That article, which resulted from
statements made by Bacon in Illinois, was published extensively
throughout Illinois, including in Cook County.
200. Halmos desires to conduct a proxy fight for control
of SafeCard. As a result of defendants' wrongful conduct and false
statements described in this Count, Halmos has suffered special
damages in the form of impairment and prevention of his ability to
conduct his desired proxy fight for control of SafeCard.
201. Defendants knew that it was likely that Halmos would
conduct such a proxy fight after defendants summarily and abruptly
terminated Halmos, and defendants intended that their wrongful
conduct and false statements described in this Count would have the
damaging effect described in paragraph 200.
202. Halmos further desires to raise capital to form a
public company to engage in businesses analogous to, and some of
which would be competitive with, some of the businesses of
SafeCard. As a result of defendants' wrongful conduct and false
statements described in this Count, Halmos has suffered special
damages in the form of impairment and prevention of his ability to
raise capital to form that public company.
203. Defendants knew that it was likely that Halmos would
form one or more such public companies after SafeCard summarily and
abruptly terminated him, and defendants intended that their
wrongful conduct and false statements described in this Count would
have the damaging effect described in paragraph 202.
204. As a direct and proximate result of defendant's
wrongful conduct and false statements described in this Count,
Halmos has been damaged by smearing his character and reputation,
and by impairing his ability to conduct a proxy fight and his
ability to compete fairly and rightfully with SafeCard and
otherwise to develop and pursue his lawful and proper business
interests (including the raising of capital and the pursuit of
litigation). Halmos has not yet fully ascertained the amount of
the damage done to him by defendants' false statements, but is
informed and believes, and accordingly alleges, that such damage
exceeds the sum of $25,000,000.
205. By reason of defendants' intentional, deliberate,
wilful, and malicious wrongful conduct and false statements
described in this Count, which were undertaken for the improper
purposes of injuring Halmos without regard to the truth and
preventing Halmos from competing fairly with SafeCard, Halmos is
entitled to an award of punitive damages.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against defendants, jointly and severally:
a. Awarding Halmos compensatory damages against
defendants in an amount to be proven at trial, but not less than
$25,000,000.00;
b. Awarding Halmos punitive damages against
defendants and each of them in an amount to be set by the Court;
and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count XIII
(For Breach Of Contract For Payment Of Attorneys Fees)
------------------------------------------------------
C&F, Myron M. Cherry, P.C., Cherry, and Halmos complain of
SafeCard as follows:
206. C&F, Myron M. Cherry, P.C., Cherry and Halmos
incorporate by reference paragraphs 1-9 above as though fully set
forth herein..
207. In 1992, Halmos and SafeCard decided to bring
appropriate actions by each against the Internal Revenue Service
and its agents for wrongful conduct, including, among other things,
abuse of process and illegal searches and seizures, Halmos at his
own expense (but subject to indemnification per SafeCard's promises
and obligations), had discovered the evidence of the wrongdoing.
208. Halmos and SafeCard met with their respective counsel
in 1992 and agreed upon a joint plan to cooperate and develop
parallel lawsuits by each, involving many common issues of fact and
law, and to cooperate in completing their preparation and filing by
October of 1992, a limitations period for said lawsuit which was
less than one year away. SafeCard agreed with Halmos and with C&F
that it would pay that portion of the fees of C&F incurred during
1992 in pursuit of this cooperation which benefitted SafeCard.
209. In reliance upon this agreement, C&F thereupon
performed services during 1992 which benefitted SafeCard, related
to the development and filing of those parallel claims. Because
SafeCard and its counsel failed to perform all of the work SafeCard
had agreed to undertake in the matter, C&F also performed some of
SafeCard's work in order to ensure that the lawsuits would be filed
by October 1992. SafeCard agreed with Halmos and C&F that SafeCard
would pay for that additional work by C&F as well, which work would
be completed by October 1992. In reliance upon this further
agreement, C&F performed this additional work. These services and
work were performed in Chicago, Illinois. On October 9, 1992, both
Halmos and SafeCard filed lawsuits and Federal Tort Claims Act
claims against the United States and its IRS agents. C&F is
entitled, pursuant to the agreement described in paragraph 208
above, to reimbursement by SafeCard of a portion of its fees for
its services, in the amount of $30,000.
210. C&F billed SafeCard $30,000, representing a portion
of fees for its work relating to these matters. This bill was
mailed from Chicago, Illinois. C&F billed Halmos for the remaining
portion of its work relating to these matters.
211. SafeCard refused to pay C&F any part of the $30,000.
212. Because C&F performed the services described above,
and because they relate to Halmos' pending claims against the
United States and its agents, if SafeCard does not pay those fees
Halmos may be required to reimburse C&F for those fees, with Halmos
ultimately entitled to look to SafeCard for reimbursement per
SafeCard's indemnification promises and obligations.
Wherefore, C&F, Myron M. Cherry, P.C., Cherry and Halmos
pray the Court for the entry of judgment in their favor and against
defendant SafeCard:
a. Awarding C&F the sum of $30,000 against SafeCard (the
amount of C&F's fees incurred and billed); and
b. Awarding C&F, Myron M. Cherry, P.C., Cherry and
Halmos their costs and expenses of this suit and such other and
further relief as is just and equitable.
Count XIV
(Quantum Meruit)
----------------
C&F, Myron M. Cherry, P.C., Cherry and Halmos complain of
SafeCard as follows:
213. C&F, Myron M. Cherry, P.C., Cherry and Halmos
incorporate by reference paragraphs 1-9 & 206-212 above as though
fully set forth herein.
214. C&F's services were performed for the benefit of, and
did benefit, SafeCard. Cherry & Flynn's services were performed
with the knowledge and approval of SafeCard, and with the
expectation that SafeCard would reimburse C&F for the reasonable
value therefor. That expectation was reasonable.
215. C&F is entitled to fees from SafeCard for these
services pursuant to quantum meruit. The reasonable value of those
fees and services to SafeCard is $30,000.
Wherefore, C&F, Myron M. Cherry, P.C., Cherry and Halmos
pray the Court for the entry of judgment in their favor and against
defendant SafeCard:
a. Awarding C&F the sum of $30,000 against
SafeCard (the amount of C&F's fees incurred and billed); and
b. Awarding C&F, Myron M. Cherry, P.C, Cherry and
Halmos their costs and expenses of this suit and such other and
further relief as is just and equitable.
Count XV
(For Conversion Of 396,886-Share Stock
Certificate And The Shares Relating Thereto)
--------------------------------------------
216. Halmos complains of SafeCard and Bacon as follows:
217. Halmos incorporates by reference paragraphs 1-9 above
as though fully set forth herein.
218. During 1987 SafeCard, acting through Bacon and its
other non-Halmos Director Richard W. Nixon, since deceased, decided
to acquire certain assets from Steven Halmos, the brother of
plaintiff Halmos. Five days before a scheduled meeting of
SafeCard's Board, Steven Halmos, acting as SafeCard's Chief
Executive Officer (and a Director) and with the informal
authorization of Bacon and Nixon, caused SafeCard to pay HCI $2
million as part of the purchase price for those assets.
219. On the advice of SafeCard's counsel, and in order
fully to protect SafeCard until its Board formally authorized that
payment, Halmos and Steven Halmos caused HCI to deliver a $2
million demand note to SafeCard. To secure that note, Halmos
delivered to SafeCard a certificate for 396,886 shares of SafeCard
stock owned by him, which at all relevant times was worth more than
$8 million.
220. On August 20, 1987, the date of the pledge and
transfer to SafeCard of Halmos' 396,886 shares of SafeCard stock as
described above, SafeCard's stock was trading at from $20 1/2 to $21 1/2
per share on the open market. Throughout the period from August
20, 1987 through August 25, 1987 the SafeCard stock pledged to
SafeCard by plaintiff Halmos was wroth at least $8,136,163, and as
much as $8,830,713.50, on the open market.
221. At a meeting of SafeCard's Board of Directors on
August 25, 1987, in Chicago, Illinois, SafeCard's Board, acting
through its non-Halmos Directors Bacon and Nixon, formally approved
and ratified the payment to HCI described above. As a result, the
HCI demand note described above was cancelled and returned to HCI.
222. Plaintiff Halmos' 396,886-share stock certificate
given to SafeCard to secure that note was not then returned to
Halmos. SafeCard's personnel told Halmos that they were looking
for that stock certificate in order to return it to Halmos, but had
not yet been able to locate it. SafeCard's personnel stated to
Halmos that they would return it to Halmos when it was located or,
should Halmos need it before it was located, they would issue to
him a replacement certificate for those 396,886 shares.
223. At all times prior to about April 1993, SafeCard
conceded that the stock certificate and the shares represented
thereby belonged to and were the property of Halmos. At all times
prior to about April 1993, SafeCard carried the 396,886 shares
represented by the certificate on its books as registered to
Halmos. SafeCard never asserted any ownership claim over the
certificate or the shares until about April 1993.
224. In April 1993, in a supposedly "authorized for
filing" complaint delivered to Halmos and others, SafeCard and
Bacon for the first time contended that Halmos was not entitled to
return of the stock certificate and the shares represented thereby.
In that April 1993 "authorized for filing" complaint, SafeCard and
Bacon contended for the first time that Halmos had improperly
caused SafeCard to make the $2 million payment described above, and
wrongfully reneged on the $2 million HCI note described above, and
had caused SafeCard to "shred" said Note, and that SafeCard was
therefore entitled to retain the certificate.
225. Halmos demanded the return of that certificate. In
response, Defendants refused that demand and are using those April
1993 allegations, which are wholly false and which defendants know
to be wholly false, to deprive Halmos of his stock certificate and
396,886 shares of SafeCard stock represented thereby.
226. Halmos has a present, absolute, and unconditional
right to the immediate possession of the 396,886 shares of SafeCard
stock, and the stock certificate for those shares. Defendants are
now engaged in an unauthorized and wrongful assumption and control,
dominion, and ownership over the stock certificate and the 396,886
shares. Defendants' conduct constitutes a conversion of Halmos'
stock certificate and his 396,886 shares of stock. That conversion
occurred on or about April 1993, when SafeCard first asserted a
right to dominion, ownership, and control over the stock
certificate and the shares represented thereby.
<PAGE>
227. From August 25, 1987 until the present, the highest
intervening value of SafeCard common stock was $22.50 per share on
August 27 and 28, 1987. At the close of business on November 26,
1993, the value of SafeCard common stock was 12 1/4.
228. As a direct result of SafeCard's wrongful conduct set
forth above, Halmos has been damaged in an amount between
$4,861,854 and $8,929,935.00.
229. Defendant Bacon had actual knowledge of the accuracy
of the facts set forth in this Count. Despite having knowledge
that the certificate and shares were the rightful property of
Halmos, on or about March 1993 Bacon orally urged, encouraged and
caused SafeCard to refuse to return the certificate and shares to
Halmos, despite Halmos' right thereto. Bacon thereby substantially
assisted and participated in, and aided and abetted in SafeCard's
wrongful and inequitable conversion of the stock certificate and
shares. Bacon did so willfully, without regard for the truth, to
unjustly enrich SafeCard thereby, and for the improper purpose of
injuring Halmos.
230. By reason of the deliberate, wilful, and malicious
conduct described in this Count, which was undertaken for the
purpose and with the intent of injuring Halmos, depriving him of
his SafeCard stock, and unjustly enriching SafeCard without regard
to the truth, Halmos is entitled to an award of punitive damages.
231. By their conduct and representations, defendants
fraudulently concealed from Halmos the cause of action alleged in
this Count until on or about April 1993. SafeCard did not claim to
have any right to the share certificate or the shares represented
thereby prior to about 1993. Instead, SafeCard represented to
Halmos prior to that time that the certificate and shares belonged
to Halmos and that the certificate would be returned to Halmos when
found, or a new one issued. By this conduct and these
representations, defendants caused Halmos to believe that it was
unnecessary for him to take any action. Halmos first discovered he
had the cause of action alleged in this Count on or about April
1993, and he commended this action immediately thereafter, well
within five years of that discovery.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard and Bacon on this Count, jointly
and severally:
a. Awarding Halmos compensatory damages against
defendants in the amount between $4,861,854 and $8,929,935.00,
together with interest thereon until the entry of judgment herein;
b. Awarding Halmos punitive damages against
defendants and each of them in an amount to be set by the Court;
and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count XVI
(Wrongful Termination)
----------------------
232. Halmos incorporates by reference paragraphs 1-9,
52-62 & 66-69 above as though fully set forth herein.
233. Halmos provided his services to SafeCard pursuant to
Management Agreements between SafeCard and High Plains Capital
Corporation ("HPCC"), then known as Halmos & Company, Inc. ("HCI"),
an entity owned 50% by Halmos. SafeCard was aware at all times
that Halmos was an intended third-party beneficiary of all such
Management Agreements.
234. In March 1988 the then-effective written Management
Agreement expired. Halmos informed SafeCard that the Management
Agreement would not be renewed as to him and as of March 15, 1988
Halmos caused HCI to cease accepting any compensation from SafeCard
attributable to him.
235. During meetings in July and October 1988, SafeCard's
Board of Directors importuned Halmos to reconsider his decision to
disengage from SafeCard and asked him to resume an active
day-to-day supervisory management role in SafeCard's affairs.
236. After extensive discussion, in January 1989 Halmos
and SafeCard reached an agreement, which agreement SafeCard
acknowledged in writing, that future services of Halmos would be
provided to SafeCard pursuant to an agreement (hereinafter the
"1989 Management Agreement") that SafeCard simultaneously made and
entered into for good and valuable consideration with Halmos and
Company, Inc. ("HCI"), subsequently known as High Plains Capital
Corporation ("HPCC"), a corporation owned by Halmos and his brother
Steven.
237. On or about January 1989, SafeCard stated in writing
that it had entered into that 1989 Management Agreement. In that
writing, a copy of which is submitted herewith as Exhibit O,
SafeCard stated in writing that:
In January 1989, the Board of Directors and HCI reached
a verbal agreement on the substantive terms of a new
management agreement. The agreement expires in 1990 . .
. . The agreement provides for an incentive compensation
component which will be designed to compensate each of
Peter and Steven J. Halmos by the economic equivalent of
the increase, if any, in the fair market value of 1.95
million unissued shares of Company common stock
subsequent to January 25, 1989. The agreement also
provides for indemnification to the maximum extent
permitted by law.
238. The 1989 Management Agreement with HCI was entered
into by SafeCard for the benefit inter alia of Halmos, as well as
SafeCard and HCI. Halmos was a party thereto. In the alternative,
Halmos was a direct and an intended third-party beneficiary thereof
and was expressly identified as such therein. Halmos and HCI did
all that was required of them pursuant to the agreement, whereupon
Halmos became and was entitled to the benefits of the contract in
his behalf made.
239. By its terms, and as SafeCard stated in writing, the
1989 Management Agreement between the parties expired on October
12, 1990, the date of SafeCard's 1990 Annual Meeting. One such
written statement by SafeCard is contained in SafeCard's 1989 Form
10-K filed with the SEC, a copy of which is submitted herewith as
Exhibit Q.
240. After October 12, 1990 Halmos was requested by
SafeCard to, and Halmos did, continue to perform services for
SafeCard, and SafeCard continued to accept Halmos' performance of
those services. SafeCard further stated in writing after October
12, 1990 that the 1989 Management Agreement continued in force.
Said writing by SafeCard included its 1991 Form 10-K filed by
SafeCard with the SEC on or about December 1991, a copy of which is
submitted herewith as Exhibit R. Said writing by SafeCard further
included its Notice of Annual Meeting of Stockholders To Be Held
April 8, 1993, a copy of which is attached hereto as Exhibit S.
241. By reason of the facts set forth above, after October
12, 1990 there arose further written Management Agreement contracts
between the parties on the same terms as the 1989 Management
Agreement. In the alternative, by reason of the facts set forth
above, there arose further implied Management Agreement contracts
between the parties on the same terms as the 1989 Management
Agreement. These contracts were entered into by SafeCard for the
benefit inter alia of Halmos.
242. In detrimental reliance thereon, Halmos and HPCC
fully and duly performed their duties and services under the
parties' contracts from October 12, 1990 through December 16, 1992,
including the provision by Halmos to SafeCard of numerous hours of
Halmos' personal services on SafeCard's behalf.
243. Pursuant to the agreement of the parties, and as
stated by SafeCard in writing, SafeCard was not entitled to
terminate Halmos except for good cause, which is defined as Halmos'
conviction of a non-trivial criminal offense. SafeCard stated as
follows in writing in its Minutes of the Board of Directors'
meeting for January 23, 1989, a copy of which is attached to the
original complaint herein as Exhibit U:
The term [of the 1989 Management Agreement] will be until
the 1990 stockholders meeting. There will be a right to
discharge in the event of conviction of a non-trivial
criminal offense and a right to resign in the event of a
change in control.
244. Although SafeCard has contended otherwise, Halmos
never agreed to a modification of this termination provision of the
agreement with SafeCard pursuant to which he provided services with
SafeCard. This termination provision was still in effect on
December 15, 1992. Halmos has not been convicted of (nor charged
with) any such criminal offense.
245. On December 15, 1992 defendants summarily terminated
Halmos, in violation of the agreements by SafeCard to which Halmos
was an intended third-party beneficiary.
246. SafeCard's conduct in summarily terminating Halmos
was undertaken wilfully, with actual malice, for the purpose of
injuring Halmos, for the purpose of wrongfully depriving him of the
benefit of SafeCard's promises and obligations to him, for the
purpose of preventing him from fairly and rightfully competing with
SafeCard (as defendants have repeatedly acknowledged is his right
after disengaging from SafeCard), and in order that SafeCard might
unjustly enrich itself at his expense.
247. SafeCard's conduct in summarily terminating Halmos
was undertaken with the deliberate and malicious intent of injuring
Halmos, smearing his reputation for integrity and character, and
subjecting him to public obloquy and extreme anguish and distress.
248. As SafeCard knew and intended, these injuries to
Halmos were and are aggravated by the pre-existing damage to
Halmos' reputation which Halmos suffered while performing duties
for SafeCard and as a result of his association with SafeCard.
249. As a direct and proximate result of SafeCard's
wrongful conduct described in this Count, Halmos has been damaged
in an amount which cannot yet be precisely ascertained but which
Halmos is informed and believes, and therefore alleges, exceeds the
sum of $25,000,000.
250. By reason of the deliberate, wilful, and malicious
conduct described in this Count, which was undertaken for the
purpose and with the intent of injuring Halmos without regard to
the truth or his legal rights, and unjustly enriching SafeCard,
Halmos is entitled to an award of punitive damages.
Wherefore, Halmos prays the Court for the entry of judgment
in his favor and against SafeCard:
a. Awarding Halmos compensatory damages against
defendants in an amount to be proven at trial, but not less than
$25,000,000;
b. Awarding Halmos punitive damages against
defendants and each of them in an amount to be set by the Court;
and
c. Awarding Halmos his costs and expenses of this
suit and such other and further relief as is just and equitable.
Count XVII
(Unjust Enrichment)
-------------------
251. Halmos incorporates by reference paragraphs 43-89
above as though fully set forth herein.
252. As set forth in paragraphs 44-46, 52-62, 66-71, 74-84
& 86-89 above, the parties had an agreement pursuant to which
Halmos performed personal services for SafeCard.
253. Halmos duly and fully performed his obligations under
the parties' agreement. SafeCard, however, for its part refused to
provide Halmos the compensation that SafeCard had promised to
Halmos, and SafeCard was unjustly enriched by having obtained
Halmos' services without providing appropriate compensation
therefor.
254. Halmos was damaged thereby and SafeCard was unjustly
enriched thereby.
Wherefore, Halmos prays the Court for the entry of judgment
against Defendant SafeCard on this Count:
a. Awarding Hamos damages in an amount to be
proved at trial but no less than $35,831,250; and
b. Awarding Halmos his costs, attorneys' fees and
expenses of this suit and such other and further relief as is just
and equitable.
<PAGE>
CONCLUSION
Wherefore, plaintiffs pray that the Court award them relief
as prayed for in each of the Counts set forth above.
Plaintiffs demand trial by jury on all issues so triable.
Peter Halmos, Cherry & Flynn,
Myron M. Cherry, p.c., Myron
M. Cherry, and Creditline
Corporation, Plaintiffs
By: Latham & Watkins
By: /s/
-----------------------
One of Their Attorneys
Latham & Watkins Edward T. Joyce, Esq.
Firm ID No. 11705 Atty. ID No. 20135
5800 Sears Tower One North Franklin Street,
Chicago, Illinois 60606 Suite 2300
Chicago, Illinois 60606
(312) 876-7700 (312) 641-2600
James G. Hunter, Jr., Esq. Additional Counsel for
Nancy Scheurwater Hunter, Esq. Plaintiffs
Christopher J. Peters, Esq. Cherry & Flynn, Myron M.
Carrie L. DeValk, Esq. Cherry, P.C., and Myron M.
Cherry
Cherry & Flynn
Firm ID No. 91229
30 North LaSalle Street, Suite 2300
Chicago, Illinois 60602
(312) 372-2100
Myron M. Cherry, P.C.
Jeffrey M. Wagner, Esq.
Counsel for Plaintiffs
EXHIBIT 10(ao)
January 6, 1994
Mr. Robert L. Dilenschneider
The Dilenschneider Group, Inc.
200 Park Avenue, 26th Floor
New York, NY 10166
Dear Mr. Dilenschneider:
The current investor relations agreement SafeCard has with you
has a term of January 1, 1993 through December 31, 1993. As you
know, we had hoped to have an investor relations person by now, but
that has not occurred.
SafeCard would like to extend the current agreement on a
month-by-month basis under the same terms and conditions, however,
either party may terminate at any time by giving written notice of
cancellation of this agreement.
If you concur with the above, please sign one copy of this
letter and return it to me at your next convenience.
Sincerely,
/s/ Gerald R. Cahill
Gerald R. Cahill
Chief Operating Officer
GRC/ech
cc: Paul Kahn
Lynn Torrent
AGREED TO THIS 10 DAY OF JANUARY, 1994
/s/ Robert L. Dilenschneider
- ----------------------------
Robert L. Dilenschneider
EXHIBIT 10(ap)
December 20, 1993
Mr. Gerald Cahill
SafeCard Services, Inc.
3001 East Pershing Boulevard
Cheyenne, WY 82001
Dear Gerry:
As you know, my consulting agreement dealing with
investor relations work runs out at the end of this December. I
know you had hoped to hire a full-time investor relations person by
now but that has not occurred for a variety of reasons. In the
meantime, we are moving into a particularly busy and hectic period
investor relations-wise what with a new chief executive and an
upcoming annual meeting.
This is to let you know that I would be willing to
continue as the Company's investor relations consultant starting
January 1, 1994 on a month-to-month basis and on the same terms as
our previous agreement. In the event that I spend more time on
this activity than the average outlined in my current agreement, I
would request additional reimbursement.
If you want to discontinue this arrangement, please give
me 30 days advance notice, and I will do likewise.
If this is agreeable, please sign one copy and return to
me.
Sincerely,
/s/ Eugene Miller
Eugene Miller
Signed for SafeCard by Signed for Eugene Miller
/s/ Gerald Cahill /s/ Eugene Miller
- ------------------------ -------------------------
Gerald Cahill 7351 Ballantrae Court
Boca Raton, FL 33496
EXHIBIT 10(aq)
May 28, 1992
Ms. Lynn Torrent
Controller
SafeCard Services, Incorporated
6400 Northwest Sixth Way
Fort Lauderdale, Florida 33309
Dear Lynn:
As additional inducement for you to relocate with SafeCard to Cheyenne,
Wyoming (over and above the incentives outlined in the standard Relocation
Policy which you have received), the following provisions will apply if and
when you relocate to Cheyenne:
1. You will become Chief Financial Officer of SafeCard.
2. SafeCard will loan you up to 20% of the purchase price
(up to a maximum purchase price of $150,000) of a home in
Cheyenne. This amount will be evidenced by a note payable to
SafeCard and will be secured by a second mortgage on your home.
The loan will be non interest bearing for a period of two years.
You are to repay the principal balance from the net proceeds from
any bonuses which you may receive during that two year period. At
the end of the two year period, any unpaid principal balance will
be due in its entirety.
3. To alleviate your concern that you may not adjust to
Cheyenne after being there a couple of years, the
following will apply. If you for any reason give written
notice of termination of your employment with SafeCard
not less than twenty-four (24) months but not more than
thirty-six (36) months after your Relocation Date (as defined in
the Relocation Agreement), then, if you have purchased a home in
Cheyenne for your residence, SafeCard will, at your option,
purchase the home from you at that time for the price you paid for
that home plus the cost of permanent capital improvements. You of
course may sell the home yourself and be entitled to any profit
which you may make on such sale.
I trust that this will provide the additional comfort in relocating to
Wyoming.
Sincerely,
/s/ Steven J. Halmos
Steven J. Halmos
Agreed:
/s/ Lynn Torrent 5/26/92
- --------------------- -------------
Lynn Torrent Date
EXHIBIT 10(ar)
December 4, 1992
Mr. David Gallimore
SafeCard Services, Inc.
3001 E. Pershing Blvd.
Cheyenne, WY 82001
Dear David,
As additional inducement for you to relocate to Cheyenne,
Wyoming (over and above the incentives outlined in the standard
relocation policy which you have received), you and I previously
agreed verbally to the provision below. We now wish to memorialize
that agreement in writing.
To alleviate your concern that you and your family may not
adjust to Cheyenne, SafeCard agrees that if you, for any reason,
give written notice of termination of your employment with SafeCard
not less than twenty-four (24) months but not more than twenty-
seven (27) months after you close on the purchase of a home in
Cheyenne, SafeCard will, at your option, purchase the home from you
at that time for the price you paid plus the cost of permanent
capital improvements. You, of course, may sell the home yourself
and be entitled to any profit which you make on such sale.
I trust this will provide you with additional comfort in
relocating to Cheyenne.
Sincerely,
/s/ Steven J. Halmos
Steven J. Halmos
Chief Executive Officer
SJH:ljs
Agreed:
- --------
/s/ David Gallimore 12/4/92
- ------------------- -------
David Gallimore Date
EXHIBIT 11
Exhibit 11(a) - Computation of Primary Earnings Per Share
Fiscal Years Ended October 31, 1993 1992 1991
Net earnings $31,477,000 $22,498,000 $29,713,000
Adjustment (1) 324,000
Adjusted net earnings $31,477,000 $22,498,000 $30,037,000
===== ===== =====
Average common shares
outstanding 25,499,000 26,498,000 26,278,000
Assumed equivalent shares from
stock options converted to
common shares (1) 3,073,000 3,660,000 3,047,000
Total weighted average number
of common and common
equivalent shares 28,572,000 30,158,000 29,325,000
===== ===== =====
Earnings per share $1.10 $.75 $1.02
== == ==
(1) Earnings per share are computed using the weighted average number of
shares of common stock and common stock equivalents (common stock issuable
upon exercise of stock options) outstanding. In computing earnings per
share, the Company utilizes the treasury stock method. This method assumes
that stock options, under certain conditions, are exercised and treasury
shares are assumed to be purchased (not to exceed 20% of the common stock
outstanding) from the proceeds using the average market price of the
Company's common stock for the period. Any excess proceeds not utilized for
the purchase of treasury shares are assumed first to reduce any outstanding
capitalized lease obligation, if any, and any remainder invested in interest-
bearing securities with net earnings increased for the hypothetical interest
savings or interest income, net of income taxes. Due to the hypothetical
interest savings or interest income, net earnings divided by the weighted
average number of common and common equivalent shares will not always equal
earnings per share.
<PAGE>
Exhibit 11(b) - Computation of Fully Diluted Earnings Per Share
Fiscal Years Ended October 31, 1993 1992 1991
Net earnings $31,477,000 $22,498,000 $29,713,000
Adjustment (1) 59,000 --
Adjusted net earnings $31,477,000 $22,557,000 $29,713,000
===== ===== =====
Average common shares
outstanding 25,499,000 26,498,000 26,278,000
Assumed equivalent shares from
stock options converted to
common shares (1) 3,378,000 3,660,000 3,507,000
Total weighted average number
of common and common
equivalent shares 28,877,000 30,158,000 29,785,000
===== ===== =====
Earnings per share $1.09(2) $.75(2) $1.00(2)
=== == ===
(1) Earnings per share are computed consistent with (1) on Exhibit 11(a) -
Computation of Primary Earnings Per Share except in computing fully diluted
earnings per share, the treasury stock method uses the market price of the
Company's common stock at the close of the period rather than the average
market price during the period.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by Footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
EXHIBIT 13
SafeCard Services, Inc.
Financial Highlights
Selected Statement of Earnings Data (In thousands, except per share data)
Years ended October 31, 1993 1992 1991 1990 1989
Subscription revenue, net $156,600 $146,265 $140,557 $124,133 $106,371
Earnings from operations(1) $ 31,919 $ 16,988 $ 30,215 $ 27,379 $ 20,909
Interest and other income $ 10,526 $ 11,366 $ 11,327 $ 10,119 $ 8,765
Net earnings(1) $ 31,477 $ 22,498 $ 29,713 $ 26,863 $ 24,603
Earnings per share(1) $1.10 $.75 $1.02 $.93 $.82
Weighted average number of
common and common
equivalent shares(2) 28,572 30,158 29,325 29,240 29,936
Cash dividends per share $.20 $.15 $.15 $.125 $.10
Selected Balance Sheet Data(3) (In thousands)
October 31, 1993 1992 1991 1990 1989
Total cash and cash
equivalents and investment
securities(2) $170,039 $187,301 $178,670 $155,860 $128,140
Total assets $378,287 $377,418 $351,566 $324,726 $281,394
Stockholders' equity(2) $157,695 $165,498 $144,903 $119,496 $ 96,812
(1)During 1992, the Company recorded a pre-tax charge of $17.5 million
against earnings in connection with its estimated costs of relocation from
Ft. Lauderdale, Florida to Cheyenne, Wyoming.
(2)During fiscal 1993, the Company repurchased approximately 3.5 million
shares of its common stock at a cost of approximately $41.7 million. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Liquidity and Capital Resources.
(3)The Company has no long-term debt, but did record, in periods ended prior
to October 31, 1992, an obligation arising from the capitalization of the Ft.
Lauderdale Lease. See Notes I and K of Notes to Consolidated Financial
Statements.
SafeCard Services, Inc.
Market Prices and Distributions
The Company's common stock trades on the New York Stock Exchange under the
symbol "SSI". The following table sets forth the quarterly high and low sales
prices of SafeCard's common stock as reported on the New York Stock Exchange
as well as cash dividends paid during the two years ended October 31, 1993.
Dividend
Quarter Ended High Low Paid
January 31, 1992 11.88 8.63 --
April 30, 1992 11.63 9.00 $.075
July 31, 1992 10.75 9.50 --
October 31, 1992 10.00 7.75 $.075
January 31, 1993 10.38 8.00 $.05
April 30, 1993 13.13 9.88 $.05
July 31, 1993 13.75 11.63 $.05
October 31, 1993 14.00 11.75 $.05
Closing price of the Company's stock of December 31, 1993 was $18.88.
In December 1992, the Board of Directors changed the Company's dividend
policy from $.075 per share on a semi-annual basis to $.05 per share on a
quarterly basis, thus increasing the Company's annual dividends from $.15 per
share to $.20 per share. The Company's dividend policy is subject to change
at the discretion of the Board.
The Company had 1,096 shareholders of record on December 31, 1993.
<PAGE>
SafeCard Services, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1. Results of Operations
Subscription Revenue, Net
Years ended October 31, 1993 1992 1991
$156,600,000 $146,265,000 $140,557,000
Certain changes have been made in the presentation of 1991 and 1992 financial
information to conform with 1993 presentation.
References herein to the years 1993, 1992 and 1991 refer to the Company's
fiscal years ended October 31st.
The Company's subscription revenue is derived from payments by subscribers
for its service programs and is reported net of an allowance for
cancellations. Billings for subscriptions, as well as expenditures for
subscriber acquisition costs and commissions, are deferred and amortized to
revenue or expense, as applicable. Billings and commissions are amortized
over the related subscription periods while subscriber acquisition costs are
amortized over the estimated future periods of benefit. See Note A of Notes
to Consolidated Financial Statements for a description of those accounting
policies.
Subscription revenue increased 7% (to reach a record $156.6 million) in 1993
and 4% in 1992. The increase in 1993 was primarily due to an increase in the
number of Hot-Line subscribers as well as increases in Fee Card and
CreditLine programs. Also contributing to the increase in 1993 was the price
increase of certain Hot-Line subscriptions which the Company began billing in
1993. The increase in 1992 subscription revenue was primarily due to an
increase in the number of Hot-Line subscribers which was largely the result
of increased marketing with an existing client.
In 1993, 1992 and 1991 Hot-Line accounted for 73%, 73% and 72%, respectively,
of subscription revenue. In 1993, 1992 and 1991, Fee Card represented 13%,
12% and 12%, respectively, of the Company's net subscription revenue.
Commencing in July 1993, the Company discontinued providing services on a
wholesale -- i.e. flat fee per customer with the Company incurring no
marketing costs or commissions -- basis to a group of cardholders of one of
its card issuer clients. Management anticipates that the effect on earnings
before income taxes in 1994 as compared to 1993 from the elimination of the
wholesale program will be approximately $1.6 million. While the Company does
have the right to do new marketing to the same group of cardholders on a
retail -- i.e. with the Company receiving revenues and incurring commissions
and marketing costs -- basis, management cannot predict the extent of offset,
if any.
Renewal rates for single-year Hot-Line subscriptions were 75%, 77% and 76%
for 1993, 1992 and 1991, respectively. Multi-year (primarily three year
subscriptions) renewal rates for Hot-Line subscriptions were 50%, 45% and 45%
for the same periods. Renewal rates for Fee Card subscriptions (primarily
marketed as single-year subscriptions) were 75%, 79% and 80% for 1993, 1992
and 1991, respectively.
Renewal rates of subscribers are affected by a variety of factors including
the mix of subscribers renewing, economic factors, changes in the credit card
industry and certain other factors, which may be beyond the Company's
control. The decrease in the 1993 Hot-Line single year renewal rate was
caused, in part, by the price increase referred to above, as well as an
increase in the number of non-billable accounts. Non-billable accounts
represent card issuer customer accounts which have either been closed or are
in arrears. The increase in the Hot-Line multi-year renewal rate in 1993 was
primarily due to the timing of renewals of a large card issuer whose overall
renewal rate is above the overall average for all card issuers clients. In
addition, a billing policy change by a large card issuer which initially
resulted in a decrease in the multi-year Hot-Line renewal rate in 1991, was
again changed, and had a favorable effect in 1993. The Company anticipates
that Hot-Line renewal rates may decrease in 1994 as a result of the price
increase mentioned earlier. However, the net effect of the price increase
should continue to have a positive effect on revenue and earnings. The
decrease in the 1993 Fee Card renewal rate was primarily caused by a large
number of renewals of certain retailer card issuers, which generally renew at
lower rates than other card issuers (primarily petroleum card issuers).
Credit card issuers from time to time may adopt a change in business strategy
which may affect the Company. For example, in October 1993, Shell Oil Company
and a major bank announced the joint marketing of a co-branded card. To date
the Company has not noted any material impact as a result of these changes in
business strategy.
In 1993, the Company began placing greater emphasis on the development of new
products and services and is currently test marketing three new services with
various credit card issuer clients. Results to date are too preliminary to
determine the viability of these services. New products and services which
are test marketed are frequently not successful. While the Company believes
that modest growth in Hot-Line through domestic credit card issuers may be
achievable in the future, the Company believes that the successful
development of new products and services, new channels of distribution and
the development of new areas of businesses will become increasingly important
to the future revenue and earnings growth of the Company.
In June 1993, the Company was notified by CreditLine Corporation, a company
owned by Peter Halmos and Steven J. Halmos, the Company's co-founders, and
their families, that the license agreement under which the Company markets
certain credit information products and services known as CreditLine would
not be renewed effective November 1, 1993. Notwithstanding its termination,
the CreditLine Agreement gives the Company certain continuing marketing
rights. The CreditLine Agreement, including the continuing marketing rights,
is the subject of litigation between the Company and Peter Halmos. See Notes
I and K of Notes to Consolidated Financial Statements.
Subscriber Acquisition Costs
Years ended October 31, 1993 1992 1991
$95,248,000 $86,828,000 $83,953,000
As a percentage of
subscription
revenue 61% 59% 60%
The cost of subscriber acquisition, which represents the amortization of
deferred subscriber acquisition costs and commissions, increased $8.4
million, or 10%, in 1993 and $2.9 million, or 3%, in 1992 primarily because
of expenditures made to acquire new subscribers in the current and prior
years (see "Financial Condition - Expenditures of Subscriber Acquisition
Costs and Commissions").
Subscriber acquisition costs, as a percentage of subscription revenue,
increased by approximately 2% in 1993. The relationship of these costs to
subscription revenues is dependent on a variety of factors including prices,
net response rates (gross enrollments less cancellations), marketing costs
and renewal rates. These factors are effected by economic conditions,
interest rates, other factors effecting the number of credit cards in use,
demographic trends, consumers' propensity to buy, the degree of market
penetration and the effectiveness of subscriber acquisition concepts, copy
and marketing strategies, and other factors. In addition, certain cardholder
files respond more favorably than others to similar promotions. In 1993, the
Company noted a decline in certain net response rates, primarily in
telemarketing, which have continued through most of 1993. This decline, as
well as the discontinuance of the wholesale services discussed under
"Subscription Revenue, Net" and the change in amortization described in the
next paragraph, has increased subscriber acquisition costs as a percentage of
subscription revenue and may also cause increases in future quarters.
In connection with a review conducted in 1992 of the Company's contractual
relationships, the Company decided to shorten the period for amortization of
subscriber acquisition expenditures made under its contract with Sears,
Roebuck & Co. starting in fiscal 1993. This accelerated amortization will
have a negative impact on the next several years' reported earnings. The
change in amortization period did not have a material impact in 1993. The
Company currently estimates that the additional amortization in 1994, as
compared to 1993, as a result of the change, will be less than $1 million.
An U.S. postal rate increase is anticipated in 1995. Since postage represents
the largest component of direct mail costs, this could have a direct impact
on the Company.
<PAGE>
General, Administrative and Service Costs
Years ended October 31, 1993 1992 1991
$29,433,000 $24,949,000 $26,389,000
As a percentage of
subscription
revenue 19% 17% 19%
General, administrative and service costs increased by approximately $4.5
million in 1993. The increase was primarily the result of increases in legal
and related fees, which were approximately $7.1 million, $1.7 million and
$4.7 million in 1993, 1992 and 1991, respectively, as well as increases in
payroll and related expenses which were partially offset by a decrease in
management fees.
Legal fees in 1993 related primarily to the Company's litigation with Peter
Halmos. See Note K of Notes to the Consolidated Financial Statements and
"Pending Litigation". The Company expects that legal fees will continue to
remain at high levels during the pendency of this litigation.
Legal fees in 1991 include $2 million for a contingent legal fee paid (in
1992) to former counsel to the Company.
As described under "Subscription Revenue, Net", the Company is placing
greater emphasis on the development of new products and services and the
development of new areas of business. The Company's strategy is to broaden
its scope so as to become an entrepreneurial, market-driven consumer services
company. While the development of new products and services, and the
development of other areas of new business, may not contribute significantly
to revenues in 1994, the Company may incur certain expenses in 1994 in
developing these new areas of business.
Relocation to Cheyenne, Wyoming
As discussed in Note E of Notes to Consolidated Financial Statements, the
Company physically relocated, over a period of several months during the
second half of 1992, its headquarters and operations center from Ft.
Lauderdale, Florida to Cheyenne, Wyoming, and recorded a $17.5 million pre-
tax charge to earnings in 1992 in connection with the move.
Interest and Other Income
Years ended October 31, 1993 1992 1991
$10,526,000 $11,366,000 $11,327,000
Interest and other income is predominantly composed of interest income. See
Note B of Notes to Consolidated Financial Statements. The decrease in
interest income in 1993 is primarily due to a decrease in interest rates as
well as lower cash and investment balances as a result of the Company's
repurchase of its common stock. See "Financial Condition --Liquidity and
Capital Resources." Interest and other income was relatively constant in 1992
and 1991, despite higher cash and investment balances at October 31, 1992 as
compared to October 31, 1991, primarily due to an overall decrease in
interest rates. Since interest rates have declined in recent periods, as the
Company's investments mature, or are sold, these funds have been, and may
continue to be, reinvested at lower interest rates than were previously
available.
Income Tax Expense
See Notes A and G of Notes to Consolidated Financial Statements for
information regarding the Company's effective income tax rate.
Pending Litigation
The Company is defending or prosecuting three complex litigations against
Peter Halmos, former Chairman of the Board and Executive Management
Consultant to the Company, and parties related to him. See Note K of Notes to
Consolidated Financial Statements. The Company believes that it has proper
and meritorious claims and defenses in these lawsuits which it intends
vigorously to pursue. Peter Halmos is also a plaintiff in two other lawsuits,
one against an officer and one against a director of the Company, in which
the Company is not named as a defendant.
As a result of the Peter Halmos-related litigation, the Company has incurred
substantial legal fees, to some extent had a diversion of its executives
attention, and the litigation has also had an impact on the Company's
business. Management is seeking to reduce, to the extent it deems reasonable
and feasible, the adverse effects of these lawsuits, but there can be no
assurance that such efforts will be successful. The Company does not expect
the litigation to affect its ability to service its customers.
Resolution of any or all of the Peter Halmos-related litigation could have a
material impact -- either favorable or unfavorable depending on the outcome -
- - upon the results of our operations and financial condition of the Company.
2. Financial Condition
Liquidity and Capital Resources
Historically, the Company has generated the cash needed to finance its
operations and growth from its earnings. In 1993, 1992 and 1991 cash flow
from operations before income taxes and litigation settlement was $50.3
million, $37.1 million and $45.3 million, respectively. The increase in 1993
is primarily a result of increases in net cash received from subscribers,
partially offset by increases in cash expenditures for subscriber
acquisition, commissions and operations. The increase in net cash received
from subscribers is primarily due to an increase in net billings (multi-year
subscriptions, in particular) over the prior year. The $8.2 million decrease
in 1992 is primarily due to $6.1 million of cash expenditures related to the
Company's relocation to Cheyenne.
On February 16, 1993, the Company announced that its Board of Directors
authorized the Company to repurchase up to 4 million shares of its
outstanding common stock through February 28, 1994. In September, 1993, the
Company's Board of Directors approved an additional repurchase of 2 million
shares, for a total of up to 6 million shares. The total authorized
repurchases may be made from time to time through October 31, 1994, depending
on the then current market, financial and corporate conditions, through open
market purchases, block trades or private negotiated transactions. As of
October 31, 1993 approximately 3.5 million shares had been repurchased at an
aggregate cost of approximately $41.7 million. Under the plan, there is no
obligation or assurance that any further repurchases will be made.
In connection with the Company's relocation to Cheyenne, in 1991 the Company
acquired approximately 14 acres of land and an approximately 115,000 square
foot building in Cheyenne and in 1992 made capital expenditures of
approximately $6.4 million in connection with the renovation and upgrade of
the facility and the purchase of equipment for that facility.
As described in Note G of Notes to Consolidated Financial Statements, the
Company's income tax payments in 1990 through 1993 increased as a result of
the changes in the Company's income tax accounting methods. These changes
will result in a continued higher level of income tax payments over the next
two years, and may also increase subsequent years' tax payments.
Consequently, the Company's cash flow from operations will continue to be
affected by these higher tax payments for at least two more years. However,
the Company has experienced significant state income tax savings from its
relocation to Wyoming, which has no state income tax.
The Company believes that its cash flow from operations and the Company's
cash and investment balances (which totaled $170.0 million, a portion of
which is restricted, as of October 31, 1993) are adequate to meet the
Company's current liquidity needs. See Note A of Notes to Consolidated
Financial Statements. The Company has no short or long term debt.
The Company's cash flow is materially affected by subscriber acquisition
costs (see "Expenditures of Subscriber Acquisition Costs and Commissions").
Expenditures of Subscriber Acquisition Costs and Commissions Subscriber
acquisition expenditures directly relate to the acquisition of new
subscribers through "direct response" type marketing campaigns and include
payments for telemarketing, printing, postage, mailing services, certain
salaries and other costs incurred to acquire new subscribers.
Expenditures for subscriber acquisition costs in 1993 were $63.7 million
compared to $55.1 million and $47.3 million in 1992 and 1991, respectively.
Total subscriber acquisition campaign volume (mail and telephone contacts)
increased in 1993 as compared to 1992. Contributing to the higher volumes are
increases in telemarketing hours of approximately 9% and a 22% increase in
direct mail volume. The increase in telemarketing hours occurred during the
first three quarters of 1993, while in the fourth quarter of 1993,
telemarketing hours declined 23% compared to the prior year. The Company
expects this decline in telemarketing hours will continue through the first
quarter of 1994. The decrease in telemarketing volume is due primarily to
reduced volume with a few non-bank credit card issuer clients. The decrease
in volume relates to the decline in certain net response rates discussed
under "Results of Operations - Subscriber Acquisition Costs". Part of the
increase in direct mail volume in 1993 was due to the Company's mailing a
greater number of "insert" type mailings which generally have significantly
lower costs and response rates (as compared to "solo" type mailings).
Subscriber acquisition campaign volume increased 20% in 1992 due primarily to
increased marketing levels and the timing of marketing campaigns.
Gross enrollments (new enrollments before cancellations) from new marketing
increased over the prior year. Certain offers that the Company marketed in
1993 produced higher upfront response rates than offers marketed by the
Company in the prior year. However, some of these programs resulted in higher
cancellation rates than experienced in 1992. Also a substantial portion of
new enrollments essentially replaces existing subscribers who do not renew.
This portion of new enrollments, therefore does not generate an increase in
total subscription revenue. On a net basis (gross enrollments net of
attrition), the Company's membership base increased over the prior year.
The volume and type of subscriber acquisition expenditures, as well as
enrollments, fluctuate periodically; such fluctuations are not unusual. Due
to timing differences between periods, there may not always be a direct
correlation between subscriber acquisition expenditures and new enrollments
in a particular period. In addition, historical response rates may not be an
indication of future response rates.
Commissions paid to credit card issuers were $49.5 million in 1993 as
compared to $41.0 million in 1992 and $39.6 million in 1991. The 21% increase
in 1993 and the 4% increase in commissions in 1992 were primarily a result of
increases in billings.
Billings to Subscribers, Net
Net billings were a record $173.8 million in 1993 compared to $150.5 million
in 1992 and $141.4 million in 1991. The 15% increase in 1993 was primarily
due to an increase in Hot-Line (multi year, in particular), Fee Card and
CreditLine billings. The 6% increase in 1992 was primarily a result of
increased new marketing with an existing client.
<PAGE>
SafeCard Services, Inc.
Consolidated Balance Sheets
Assets
October 31, 1993 1992
Cash and cash equivalents $ 3,335,000 $ 8,208,000
Investment securities,
maturing within one year 22,916,000
Accrued interest receivable 4,403,000 4,385,000
Accounts receivable, net 8,443,000 12,886,000
Income tax receivable 5,252,000
Deferred subscriber costs
Commissions 28,149,000 24,028,000
Subscriber acquisition costs 47,987,000 42,674,000
----------- -----------
Total 97,569,000 115,097,000
----------- -----------
Investment Securities, maturing after one year 166,704,000 156,177,000
Property And Equipment, net 8,420,000 8,448,000
Subscriber Costs And Other Assets
Deferred commissions 12,825,000 11,558,000
Deferred subscriber acquisition costs 91,976,000 84,646,000
Other assets 793,000 1,492,000
----------- -----------
Total 105,594,000 97,696,000
----------- -----------
$378,287,000 $377,418,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SafeCard Services, Inc.
Liabilities and Stockholders' Equity
October 31, 1993 1992
Current Liabilities
Accounts payable $ 14,961,000 $ 11,497,000
Accrued expenses 16,573,000 22,496,000
Income taxes currently payable 3,439,000
Allowance for cancellations 8,893,000 7,587,000
Total, excluding deferred credits 40,427,000 45,019,000
Deferred credits, current portion
Subscribers' advance payments 94,460,000 82,159,000
Deferred income taxes 10,554,000 11,366,000
Total 145,441,000 138,544,000
Subscribers' Advance Payments,
less current portion 47,603,000 42,735,000
Deferred Income Taxes,
less current portion 27,548,000 30,641,000
Commitments And Contingencies (Note K)
Stockholders' Equity
Common stock--authorized 35,000,000 shares
of $.01 par value; issued 34,196,000 shares
(33,426,048 in 1992); outstanding 24,118,184
shares (26,646,033 in 1992) 342,000 334,000
Additional paid-in capital 15,990,000 9,625,000
Retained earnings 220,898,000 194,534,000
----------- -----------
237,230,000 204,493,000
Less cost of common shares in treasury
(10,077,816 in 1993 and
6,780,015 in 1992) (79,535,000) (38,995,000)
----------- -----------
Total 157,695,000 165,498,000
$378,287,000 $377,418,000
=========== ===========
<PAGE>
SafeCard Services, Inc.
Consolidated Statements of Earnings
Years ended October 31, 1993 1992 1991
Subscription Revenue, net $156,600,000 $146,265,000 $140,557,000
Operating Costs And Expenses
Subscriber acquisition costs 95,248,000 86,828,000 83,953,000
General,administrative
and service costs 29,433,000 24,949,000 26,389,000
Estimated relocation expenses 17,500,000
----------- ----------- -----------
124,681,000 129,277,000 110,342,000
----------- ----------- -----------
Earnings From Operations 31,919,000 16,988,000 30,215,000
Interest and other income 10,526,000 11,366,000 11,327,000
Gain from litigation 550,000
----------- ----------- -----------
Earnings Before Income Taxes 42,445,000 28,904,000 41,542,000
----------- ----------- -----------
Income Tax Expense
Currently payable 15,709,000 17,802,000 18,390,000
Deferred (4,741,000) (11,396,000) (6,561,000)
----------- ----------- -----------
10,968,000 6,406,000 11,829,000
----------- ----------- -----------
Net Earnings $ 31,477,000 $ 22,498,000 $ 29,713,000
========== ========== ==========
Earnings Per Share $1.10 $.75 $1.02
==== === ====
Weighted average number of common
and common equivalent shares 28,572,000 30,158,000 29,325,000
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SafeCard Services, Inc.
Consolidated Statements of Changes in
Stockholders' Equity
Additional
Commmon Stock Total
Common Stock Paid-In RetainedIn Treasury Stockholders'
Shares Amount Capital Earnings Shares
Amount Equity
Balance at October 31, 1990 33,108,148 $331,000 $ 7,150,000
$150,235,000
(6,719,584) ($38,220,000) $119,496,000 Net earnings
29,713,000
29,713,000 Cash dividends paid,
$.15 per share
(3,939,000) (3,939,000) Exercise of employee
stock options 22,000 176,000
210,331 753,000 929,000 Purchase of treasury stock
(263,174) (1,296,000)
(1,296,000) Balance at October 31, 1991 33,130,148 $331,000 $
7,326,000 $176,009,000 (6,772,427) ($38,763,000) $144,903,000 Net
earnings
22,498,000 22,498,000 Cash dividends paid,
$.15 per share
(3,973,000) (3,973,000) Exercise of employee
stock options
and related tax benefit 295,900 3,000 2,299,000
54,662 313,000 2,615,000 Purchase of treasury
stock
(62,250) (545,000) (545,000) Balance at October 31, 1992
33,426,048 $334,000 $ 9,625,000 $194,534,000 (6,780,015)
($38,995,000) $165,498,000 Net earnings
31,477,000
31,477,000 Cash dividends paid,
$.20 per share
(5,113,000) (5,113,000) Exercise of employee
stock options
and related tax benefit 769,952 8,000 6,365,000
172,059 1,159,000 7,532,000 Purchase of treasury
stock
(3,469,860) (41,699,000) (41,699,000) Balance at October 31, 1993
34,196,000 $342,000 $15,990,000 $220,898,000 (10,077,816)
($79,535,000)
$157,695,000
The accompanying notes are an integral part of these consolidated financial
statements.
SafeCard Services, Inc.
Consolidated Statements of Cash Flows
Years ended October 31, 1993 1992 1991
Cash Flows From Operating Activities
Net cash received from subscribers $175,596,000 $153,303,000 $140,737,000
Cash expenditures for subscriber
acquisition, commissions
and operations (137,537,000) (120,306,000) (106,885,000)
Relocation expenditures (1,753,000) (6,104,000)
Interest received 13,952,000 10,675,000 12,059,000
Interest paid (428,000) (606,000)
Cash flow from operations before
income taxes and litigation
settlement 50,258,000 37,140,000 45,305,000
Income taxes paid, net (21,413,000) (18,518,000) (15,903,000)
Gain from litigation settlement 550,000
----------- ----------- -----------
Net cash provided by operating
activities 28,845,000 19,172,000 29,402,000
----------- ----------- -----------
Cash Flows From Investing Activities
Purchase of investment securities (63,174,000) (167,760,000) (164,564,000)
Proceeds from sale of investment
securities 71,607,000 153,730,000 149,557,000
Payments for property and equipment (975,000) (6,380,000) (1,821,000)
Sale of property and equipment 56,000
---------- ---------- -----------
Net cash provided by (used in)
investing activities 7,714,000 (20,410,000) (16,828,000)
---------- ----------- -----------
Cash Flows From Financing Activities
Dividends paid (5,113,000) (3,973,000) (3,939,000)
Payments for purchase of
treasury shares (41,699,000) (545,000) (1,296,000)
Proceeds from exercise of
stock options 5,380,000 1,940,000 929,000
Principal payments on the Ft.
Lauderdale Lease (155,000) (132,000)
----------- ---------- ----------
Net cash used in financing
activities (41,432,000) (2,733,000) (4,438,000)
----------- ---------- ----------
Net Increase (Decrease) In Cash (4,873,000) (3,971,000) 8,136,000
Cash and cash equivalents at
beginning of period 8,208,000 12,179,000 4,043,000
----------- ----------- ----------
Cash and cash equivalents at
end of period $ 3,335,000 $ 8,208,000 $ 2,179,000
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
SafeCard Services, Inc.
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
SafeCard Services, Inc. ("SafeCard") sells subscriptions, principally through
credit card issuers, by mail and telephone for continuity services it
provides to subscribers. Subscriptions for continuity services typically
continue annually or periodically unless cancelled by the subscriber.
SafeCard's principal service is credit card loss notification ("Hot-Line"),
whereby SafeCard gives prompt notice to credit card issuers upon being
informed that a subscriber's credit cards have been lost or stolen. SafeCard
also markets other continuity services including those related to fee-based
credit cards, reminder services, a personal credit information service
("CreditLine") and others.
Certain changes have been made in the presentation of 1991 and 1992 financial
information to conform with 1993 presentation.
References herein to the years 1993, 1992 and 1991 refer to the Company's
fiscal years ended October 31st.
1. Principles of Consolidation
The consolidated financial statements include the accounts of SafeCard, its
100% owned subsidiaries, SafeCard Services Insurance Company, SafeCard Travel
Services, Inc., SafeCard Marketing, Inc. and one inactive subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.
The term "Company" as used herein refers to SafeCard and its subsidiaries.
2. Cash and Cash Equivalents and Investment Securities
Included in cash and cash equivalents are all amounts invested in overnight
U.S. Treasury Bond repurchase agreements, U.S. Treasury Bills, certificates
of deposit and tax-exempt securities which either have maturities of 3 months
or less from the date of purchase by the Company, or have "put" options that
can be exercised by the Company within 3 months from date of purchase.
Current and non-current investments in securities, which consist primarily of
tax-exempt municipal securities, are carried at cost, adjusted for the
amortization of any premium or accretion of any discount. The Company
classifies its investment securities as either current or non-current in
accordance with its current investment policy to generally hold the
securities until their various maturity dates, or if the securities have put
options that can be exercised by the Company at an earlier date, until the
date of the put option. Accordingly, investment securities with maturity
dates, or put dates, less than 1 year from the balance sheet date are
classified as current; all other investment securities are classified as
non-current.
Approximately $106 million of these investments at October 31, 1993 were held
in escrow for advance payments of multi-year subscriptions (see "Revenue
Recognition/Cost Amortization") or pursuant to the CreditLine Agreement. See
Note I - Transactions with Related Parties.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which generally requires companies
under certain circumstances to record investments in marketable securities at
market value. Based on current investment policies, management does not
anticipate the adoption to have a material impact on the Company's earnings
or financial position in the year of adoption. The Company is required to
adopt the Statement no later than the first quarter of fiscal 1995.
3. Property, Equipment and Leaseholds
Property and equipment are recorded at cost. Depreciation is recorded in
amounts sufficient to charge the cost of depreciable assets to operations,
using the straight-line method, over their estimated useful lives.
Capitalized lease amounts have been amortized over the estimated useful life
of the asset, or the lease term, whichever is shorter.
4. Revenue Recognition/Cost Amortization
Subscription Revenue and Commission Expense
The Company generally receives advance payments from subscribers for its
services. The subscription period and advance payments are generally for
periods of 12 or 36 months. These advance payments, less an appropriate
allowance for cancellations, are deferred and amortized to revenue ratably
over the subscription period. Credit card issuers earn and are generally paid
commissions based on percentages of subscription billings or other profit
sharing arrangements. Such commissions, less an appropriate allowance for
cancellations, are also deferred and amortized to expense ratably over the
subscription period.
The allowance for cancellations, net of related commissions, relates to
amounts which may be refunded at a future time to subscribers who may cancel
their subscriptions. Previously paid commissions related to cancelled
subscriptions are reimbursed to the Company by the credit card issuer.
Subscribers' advance payments for multi-year subscriptions are restricted and
not available until earned. The restriction is released ratably over the
subscription period, which coincides with the recognition of revenue.
Unearned subscribers' advance payments for multi-year subscriptions were
approximately $105 million at October 31, 1993 and $93 million at October 31,
1992. Interest earned on these funds is not restricted.
Subscriber Acquisition Costs
Subscriber acquisition expenditures directly relate to the
acquisition of new subscribers through "direct response" type marketing
campaigns and primarily include payments for telemarketing, printing,
postage, mailing services, certain salaries and other costs incurred to
acquire new subscribers. These expenditures are deferred and amortized to
expense in proportion to expected revenue over the expected subscription
periods, including expected renewal periods. Historically, a significant
percentage of the Company's subscribers renew for additional years beyond the
initial subscription period. Renewal rates for single-year Hot-Line
subscriptions were between 75% and 77% during the period 1991 through 1993.
Multi-year Hot-Line renewal rates (primarily three year subscriptions) were
between 45% and 50% during the same period. Renewal rates for Fee Card, which
to date has primarily been marketed as a single-year program, were between
75% and 80% during the same period. Based on the Company's renewal rate
experience, subscriber acquisition expenditures are amortized to expense
using an accelerated rate of amortization to reflect subscriber attrition
over renewal periods. Expenditures relating to the acquisition of Hot-Line
and Fee Card subscribers are generally amortized over a 10-12 year period;
other program expenditures are generally amortized over a 3 year period. See
Note F - Subscriber Acquisition Costs. Subscription renewal rates are
continually monitored. If current estimates of future revenues from renewals
are significantly lower than anticipated in the Company's amortization
models, the Company adjusts the amortization rate to reflect the revised
estimates.
In December 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 93-7, "Reporting on
Advertising Costs" which will be effective for the Company in fiscal 1995.
The SOP, which among other things, deals with the reporting of advertising
costs for companies in the direct response industry, is not expected to have
a material effect on the Company's reported earnings or financial position.
5. CreditLine
The Company markets CreditLine under an agreement with CreditLine Corporation
("CLC"), a corporation owned by Steven J. Halmos and Peter Halmos, the
Company's co-founders, and their families. Pursuant to the agreement with
CLC, all billings, costs and any resulting profits or losses are to be shared
50% by the Company and 50% by CLC. Accordingly, the Company records 50% of
CreditLine billings and costs in its financial statements. In June 1993, the
Company was notified by CLC that the license agreement under which the
Company markets CreditLine would not be renewed effective November 1, 1993.
See Note I - Transactions with Related Parties. The CreditLine agreement is
also the subject of litigation. See Note K - Commitments and Contingencies.
6. Income Taxes
Certain transactions are accounted for in different periods for tax purposes
than for financial reporting purposes and, accordingly, provisions for
deferred taxes applicable to such timing differences are made in the
Company's consolidated financial statements. The Company accounts for
deferred taxes using the deferred method (see below) and computes deferred
taxes on timing differences using the "gross change" method under which
deferred taxes are provided on timing differences originating in the current
period using the current period's tax rate. Deferred taxes are reversed as
the corresponding timing differences reverse at the tax rates in effect
during the periods when the timing differences originated.
In February 1992, the FASB issued Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Application of Statement
No. 109 will require a change from the deferred method to the liability
method of accounting for income taxes. One of the principal differences from
the deferred method used in these financial statements is that changes in tax
rates and laws will be reflected in income from continuing operations in the
period such changes are enacted. Under the deferred method, such changes are
reflected over time, if at all. The Company intends to adopt Statement No.
109 on a prospective basis in the first quarter of fiscal 1994. Management
estimates that such adoption will have a one-time positive effect on the
Company's reported earnings in fiscal 1994 of approximately $2 million,
(which is the cumulative effect of adoption at November 1, 1993), but will
also increase slightly the Company's effective tax rate once adopted.
7. Earnings Per Share
Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents (common stock issuable upon
exercise of stock options) outstanding. In computing earnings per share, the
Company utilizes the treasury stock method. This method assumes that stock
options, under certain conditions, are exercised and treasury shares are
assumed to be purchased (not to exceed 20% of the common stock outstanding)
from the proceeds using the average market price of the Company's common
stock for the period. Any excess proceeds not utilized for the purchase of
treasury shares are assumed first to reduce any outstanding capitalized lease
obligation, if any, and any remainder invested in interest-bearing securities
with net earnings increased for the hypothetical interest savings or interest
income, net of income taxes. Due to the hypothetical interest savings or
interest income, net earnings, as presented in the Company's Consolidated
Statements of Earnings, divided by the weighted average number of common and
common equivalent shares, will not always equal earnings per share.
B. Investment Securities
A majority of the Company's investment portfolio is invested in tax-exempt
municipal bonds. Because there is not a regularly published source of
accurate current market values for tax-exempt municipal bonds, the Company's
investment adviser estimates market value for the Company's investment
securities using a pricing matrix commonly used in the municipal bond
industry, or in certain cases, by soliciting quotations from municipal bond
dealers. The financial statement carrying amount and estimated market value
of the Company's investment securities were as follows:
October 31, 1993
Financial Statement
Carrying Amount* Market Value
------------------- ------------
Current
Non-Current $166,704,000 $170,015,000
----------- -----------
Total $166,704,000 $170,015,000
=========== ===========
October 31, 1992
Financial Statement
Carrying Amount* Market Value
------------------- ------------
Current $ 22,916,000 $ 23,198,000
Non-Current 156,177,000 158,350,000
----------- -----------
Total $179,093,000 $181,548,000
=========== ===========
*Cost adjusted for amortization of premium or accretion of discount.
Interest income for the years 1993, 1992 and 1991 totaled $8.7 million, $10.0
million and $10.8 million, respectively.
C.Accounts Receivable
Accounts receivable, primarily from credit card issuers, and the related
allowance for doubtful accounts were as follows:
October 31, 1993 1992
Accounts receivable $8,593,000 $13,236,000
Allowance for doubtful accounts (150,000) (350,000)
-------- ---------
$8,443,000 $12,886,000
========= ==========
D. Property and Equipment
Property and equipment consisted of the following:
Estimated
Useful October 31,
Life 1993 1992
Building 30 years $5,215,000 $5,102,000
Equipment, furniture
and fixtures 3-7 years 4,390,000 4,072,000
--------- ---------
9,605,000 9,174,000
Less: accumulated
depreciation (1,632,000) (1,173,000)
---------- ----------
7,973,000 8,001,000
Land 447,000 447,000
--------- ---------
$8,420,000 $8,448,000
========= =========
E.Estimated Relocation Expenses
During 1992, the Company relocated its headquarters and operational facility
from Ft. Lauderdale, Florida to Cheyenne, Wyoming. In connection with the
relocation, the Company recorded pre-tax charges against earnings of $11
million and $6.5 million in the second and fourth quarters of 1992,
respectively, for a total of $17.5 million. These charges included the
Company's estimated cost of moving the Company's operations and certain
employees from Ft. Lauderdale to Cheyenne, certain other one-time costs
associated with the relocation and the Company's then estimated net
obligation under a contested lease ("the Ft. Lauderdale Lease") of its former
Ft. Lauderdale headquarters. The Company no longer occupies this premises
and is no longer making payments on the Ft. Lauderdale Lease, which is now
the subject of litigation. See Note K -Commitments and Contingencies.
Included within "Accrued Expenses" as of October 31, 1993 and 1992 is
approximately $10.6 million and $12.4 million, respectively, relating to the
relocation expenses described above. The accrued relocation expenses at
October 31, 1993 relate primarily to the Ft. Lauderdale Lease.
F.Subscriber Acquisition Costs
Subscriber acquisition costs (current and deferred) consisted of the
following:
October 31, 1993 1992
Hot-Line $121,061,000 $114,323,000
Fee Card 5,470,000 3,518,000
Other services 13,432,000 9,479,000
----------- -----------
Total subscriber
acquisition costs 139,963,000 127,320,000
Less: Amount classified
as a current asset (47,987,000) (42,674,000)
----------- -----------
Non-current subscriber
acquisition costs $ 91,976,000 $ 84,646,000
=========== ===========
G.Income Taxes
The Company's effective income tax rate varies from the statutory U.S.
federal income tax rate because of the following factors:
Years ended October 31, 1993 1992 1991
Statutory federal income tax rate 34.8% 34.0% 34.0%
Increase (reduction) in tax
rates resulting from:
State income tax, net of federal benefit 1.2 2.4 3.6
Tax-exempt interest income (6.8) (13.8) (7.0)
Reversal of prior years' deferred taxes
at the rates in effect at that time (2.9) (1.1) (1.2)
Other (.5) .7 (.9)
----- ----- -----
Effective tax rate 25.8% 22.2% 28.5%
<PAGE>
The deferred income tax benefit resulted from the following items:
Years ended October 31, 1993 1992 1991
Subscriber costs, net $ 450,000 ($ 15,000) ($1,518,000)
Multi-year subscription revenues (7,310,000) (7,993,000) (3,736,000)
Reminder/reference subscription
revenue 1,952,000 1,194,000 (508,000)
Relocation expenses 698,000 (4,389,000)
Other (531,000) (193,000) (799,000)
--------- ---------- ---------
($4,741,000) ($11,396,000) ($6,561,000)
========= ========== =========
As a result of legislation enacted in August 1993, the federal corporate
income tax rate increased from 34% to 35% effective January 1, 1993. This
resulted in a blended federal tax rate for the Company's fiscal year ended
October 31, 1993 of 34.8%.
During 1989, the Company requested that the Internal Revenue Service ("IRS")
approve certain changes in its tax accounting methods. In August 1990, the
IRS approved these changes, effective commencing in 1990. These requested
changes caused the Company in 1990 through 1993, and will cause the Company
in the future, to pay taxes on a current basis on a significant portion of
income which would, under the Company's prior tax accounting methods, have
been deferred. In addition, the Company is recognizing approximately $105
million of previously deferred taxable income as additional taxable income
spread evenly over a 6 year period which commenced in 1990. The expected
income taxes on the portion of the $105 million of taxable income remaining
to be recognized in 1994 and 1995, at the current statutory rates, are
approximately $12 million, or $6 million per year in 1994 and 1995.
These changes in tax accounting had no material effect on income tax expense
recorded in the Company's financial statements, nor should they effect future
income tax expense. Rather, these changes affect the timing of the Company's
tax payments.
As a result of the Company's relocation to Cheyenne, Wyoming, the Company's
state tax provision has been significantly reduced.
<PAGE>
H.Common Stock And Stock Options
The following table represents information for the previous three years with
respect to options granted and outstanding is as follows:
Shares Under Option
Outstanding Outstanding Option
Optionat beginning
at end of Plan Price Range of period
Granted Cancelled Exercised period Year ended October 31, 1991
1979 Plan $5.875 141,040
141,040 Outside Directors' Options $5.513-9.00
400,000 100,000 (200,000) 300,000 1987 Plan
$5.875 450,000 (4,000) (22,000)
424,000 1989 Executive Options $5.125 1,100,000
1,100,000 1989 Employee Stock
Option Plan $6.00 450,000
(10,000) (10,331) 429,669 Peter & Steven J.
Halmos $5.125-5.50 5,850,000
5,850,000 1991 Employee Stock
Option Plan $9.00 162,000
162,000
8,391,040 262,000 (14,000) (232,331) 8,406,709
Year ended October 31, 1992
1979 Plan $5.875 141,040
141,040 Outside Directors' Options $5.513-9.00
300,000 (100,000) 200,000 1987 Plan
$5.875 424,000 (75,900)
348,100 1989 Executive Options $5.125 1,100,000
(120,000) 980,000 1989 Employee Stock
Option Plan $6.00 429,669
(14,003) (54,662) 361,004 Peter & Steven J.
Halmos $5.125-5.50 5,850,000
5,850,000 1991 Employee Stock
Option Plan $9.00 162,000
(24,000) 138,000
8,406,709 (38,003) (350,562) 8,018,144
Year ended October 31, 1993
1979 Plan $5.875 141,040
(141,040) 0 Outside Directors'
Options $6.375-13.00 200,000 200,000
(100,000) 300,000(2) 1987 Plan $5.875
348,100 (348,100) 0 1989 Executive
Options $5.125 980,000
(230,000) 750,000 1989 Employee Stock
Option Plan $6.00 361,004
(5,333) (102,671) 253,000 Peter & Steven J.
Halmos $5.125-5.50 5,850,000
(1,950,000) 3,900,000 1991 Employee Stock
Option Plan $9.00 138,000
(24,333) (38,334) 75,333(3) 1992 Employee Stock Option Plan
$8.875 75,000 (12,500)
62,500(4) 8,018,144
275,000 (1,992,166) (960,145) 5,340,833(1)
PAGE 34
<PAGE>
(1) Unless otherwise noted, all shares outstanding are exercisable and no
additional shares are available for granting options under each plan.
(2) Of the 300,000 stock options outstanding under the Outside Directors'
Options, 200,000 are exercisable at October 31, 1993. The remaining 100,000
vest in September 1994.
(3) Of the 75,333 stock options outstanding under the 1991 Employee Stock
Option Plan, 42,997 were exercisable at October 31, 1993. The remaining
32,336 vest equally in 1994 and 1995.
(4) Of the 62,500 stock options outstanding under the 1992 Employee Stock
Option Plan, none were exercisable at October 31, 1993 as they vest over a
three-year period beginning in November, 1993.
On December 5, 1993, the Company's Compensation Committee approved, and the
Board of Directors adopted, subject to shareholder approval, a 1994 long term
Stock-Based Incentive Plan (the "1994 Plan"). The 1994 Plan provides for the
award of stock options, stock appreciation rights and restricted stock
covering a maximum of 2,400,000 shares. The Company's new Chief Executive
Officer and Chairman of the Board, Paul G. Kahn, has been granted a ten-year
option to acquire 1,000,000 of these shares. The 1994 Plan will be submitted
for shareholder approval at the 1994 meeting of the shareholders. If the 1994
Plan is not approved, option grants made thereunder will become null and
void.
All stock options granted in fiscal 1993 and prior thereto were administered
by the Board of Directors and were granted at market price on the date of
grant or amendment. As of October 31, 1993, options to acquire 5,145,997
shares were exercisable under the option plans.
As of October 31, 1993, 4,590,833 of the shares held in treasury and 750,000
unissued shares of the Company's common stock were reserved for the issuance
of shares under the above described stock options.
I. Transactions with Related Parties
Until his resignation as Chief Executive Officer and Director on December 19,
1992, Steven J. Halmos, the Company's co-founder, provided his services to
the Company through High Plains Capital Corporation ("HPCC"), a company owned
by himself and his brother, Peter Halmos, the Company's other co-founder.
Since that date, Steven J. Halmos, acting in the capacity of an Advisor on
Marketing and Operational Strategy, has provided services directly to the
Company pursuant to a written agreement with the Company (as amended and
restated as of April 1, 1993, the "Steven J. Halmos Agreement"). In 1993, the
Company paid Steven J. Halmos (or HPCC for Steven J. Halmos' services) a
total of approximately $2.1 million. In the years 1992 and 1991 the annual
aggregate fee paid to HPCC for Steven J. Halmos' services was approximately
$2.7 million, with an additional $1.5 million being paid to HPCC each year
for the services of Peter Halmos. In addition, the Company paid or accrued
$14,000 and $362,000 in 1992 and 1991, respectively, for direct and allocated
expenses that the Company was advised had been incurred by HPCC.
The Steven J. Halmos Agreement provides for a consulting
arrangement, contains certain non-compete provisions, and includes a
standstill, voting and right of first refusal agreement. The Steven J. Halmos
Agreement also provided the Company would repurchase certain shares of the
Company's common stock owned by Steven J. Halmos pursuant to the Company's
stock repurchase program.
Under the consulting arrangement, Steven J. Halmos provides the Company, for
a period of five years, with his full-time services for annual compensation
in the amount of $750,000. This arrangement will terminate in 1998.
In addition, Steven J. Halmos, agreed not to compete with the Company until
the year 2000. He also entered a standstill, voting and right of first
refusal agreement which, among other things, limits his future acquisition of
shares of Company common stock to the additional 3,950,000 shares ("Option
Shares") of stock he could acquire pursuant to previously granted stock
options, commits him to vote the Option Shares with management and subjects
the Option Shares to a right of first refusal in favor of the Company.
subject to the terms of the Steven J. Halmos Agreement, the Company will pay
him $1,250,000 a year for five years for the non-compete and standstill,
voting and right of first refusal undertakings.
The agreements also called for Steven J. Halmos to sell the 1,645,760 shares
of Company stock he owned (this representing approximately 6.2% of total
outstanding shares at April 1, 1993) to the Company as part of the Company's
stock repurchase program. The shares were acquired by the Company on April
21, 1993 for a price of $11.50 per share, a price equal to the average
trading price of the Company's common stock over a specific period of days
following public disclosure of the repurchase.
The Company markets certain credit information products and services. The
Company markets CreditLine pursuant to an agreement (as amended, the
"CreditLine Agreement") with CLC. The CreditLine Agreement grants the Company
an exclusive license to market CreditLine through certain credit card issuers
(including all issuers with which the Company has contractual relationships)
and provides that all billings, costs and any resulting profits and losses,
if any, are shared equally between CLC and the Company. Net CreditLine
billings to subscribers totaled approximately $15.8 million, $9.7 million and
$8.4 million while marketing and other expenditures totaled $13.4 million,
$6.2 million and $7.8 million in 1993, 1992 and 1991, respectively. In June
1993, the Company was notified by CLC, that the CreditLine Agreement would
not be renewed effective November 1, 1993.
Notwithstanding its termination, the CreditLine Agreement, gives the Company
the perpetual right to continue to service existing CreditLine subscribers
and to participate in the resulting income. In addition, an amendment to the
CreditLine Agreement provides that the Company has the perpetual right to
market CreditLine, and participate in the resulting income, through all of
its existing card issuer clients with which it either has a CreditLine
marketing agreement on November 1, 1993 or enters into such a marketing
agreement within the following three years. This amendment has been
challenged in the Cook County, Illinois, litigation described below.
As discussed in Note K - Commitments and Contingencies, the Company is
engaged in litigation with Peter Halmos and certain related parties,
including CLC. In an action brought by the Company in state court in Wyoming,
the Company alleges, among other things, that the CreditLine Agreement
represents a misappropriation of corporate opportunity and breach of
fiduciary duty on Peter Halmos' part and seeks, among other things, monetary
damages and equitable relief including protection of the Company's CreditLine
business free of interference from Peter Halmos and CLC. In litigation
brought by Peter Halmos and certain related parties in Cook County, Illinois,
Mr. Halmos seeks rescission of an amendment to the CreditLine Agreement and
an accounting. The Company believes it has substantial defenses to Peter
Halmos' claim and intends to defend its position, and pursue its own claims,
vigorously.
In 1993, CreditLine and certain services marketed in conjunction with
CreditLine, accounted for approximately $6.5 million or 4.2% of the Company's
subscription revenues and approximately $1.9 million or 4.5% of the Company's
pre tax earnings.
The CreditLine Agreement provides for the creation of an escrow in the case
of certain disputes between the parties. Effective September, 1993 the
Company began depositing its share and CLC's share of CreditLine profits in
escrow accounts. As of October 31, 1993, approximately $.9 million of the
Company's non current investment securities have been deposited in the escrow
account. See Note A - Summary of Significant Accounting Policies.
The Company made payments under the Ft. Lauderdale Lease to a partnership
consisting of Peter Halmos and Steven J. Halmos, (the "Halmos Partnership").
Payments made to the Halmos Partnership for the years 1993, 1992 and 1991 for
the land and building, were approximately $.7 million, $1.2 million and $1.2
million, respectively. During 1992 and 1991 the Company also leased
warehouse space from the Halmos Partnership and made lease payments of
approximately $47,000 and $72,000, respectively. The warehouse leases were
month-to-month and were terminated in 1992. The Company no longer occupies
the operations center and is no longer making payments on the Ft. Lauderdale
Lease which is now the subject of litigation. See Note K - Commitments and
Contingencies.
On October 1, 1991, the Company and The Dilenschneider Group entered into a
consulting agreement, which was renewed in October 1992 and again in October
1993, to provide public relations counsel and advice to the Company for an
annual retainer of $180,000. Robert L. Dilenschneider, a SafeCard Director,
is the majority owner and Chief Executive Officer of The Dilenschneider
Group. In January 1993, for an additional annual retainer of $150,000, the
arrangements with The Dilenschneider Group were expanded to include
consulting on, and assistance with, investor relations.
J. Employee Pension Plan
In June 1993, the Company implemented a 401(k) and Profit-Sharing Plan for
its employees who are at least 20 years of age, who have worked at least 100
hours in the past year and have completed one year of service. Continuation
of, and contributions to, the 401(k) and Profit-Sharing Plan are voluntary,
at the discretion of the Company and are paid to each eligible employee's
account. The total expense recorded under the Plan in 1993 was approximately
$240,000.
Prior to 1993, the Company maintained a Simplified Employer Pension Plan
(SEP/IRA) for its employees over 21 years of age, who had worked for the
Company for some period of time in any 3 of the previous 5 calendar years.
Amounts recorded for the Company's contributions to the SEP/IRA for 1993,
1992 and 1991 were $75,000, $402,000 and $388,000, respectively.
K. Commitments and Contingencies
1. Contracts
The Company has written agreements with a few large credit card issuers which
account for a large percentage of its subscription revenue. Termination of
any of these contracts would adversely affect the Company.
Contracts with Citicorp (South Dakota), N.A. and related entities contributed
34%, 37% and 41% of the Company's consolidated subscription revenue in 1993,
1992 and 1991, respectively. The principal Citicorp contract, which had an
initial term through June 1993, was amended on March 31, 1992 to extend the
contract to December 31, 1997 and again on September 1, 1993 to extend the
contract to December 31, 1999. Citicorp has a right to terminate the contract
in the event of the sale of a majority of the shares of the Company to
specified credit card issuers, to banks and their corporate affiliates, and
to entities that do not have equity of at least $25 million.
Contracts with Sears, Roebuck and Co. contributed approximately 11% of the
Company's consolidated subscription revenue in 1993 (and less than 10% in
1992 and 1991). The agreement, which contains a provision for cancellation
without cause by either party upon 90 days notice, is subject to renewal
annually.
Contracts with Shell Oil Company accounted for approximately 10% of the
Company's consolidated subscription revenue during 1991 (and less than 10% in
1993 and 1992). The Shell contracts have varying initial terms, but
automatically renew on an annual basis unless terminated by either party.
On April 1, 1993, the Company entered into the Steven J. Halmos Agreement.
See Note I - Transactions with Related Parties.
2. Pending Litigation
The Company is defending or prosecuting three complex litigations against
Peter Halmos, former Chairman of the Board and Executive Management
Consultant to the Company, and parties related to him. Peter Halmos is also
a plaintiff in two other lawsuits, one against an officer and one against a
director of the Company. The three cases in which the Company is a party are:
A suit initiated by Peter Halmos, related entities, and Myron Cherry (a
former lawyer for the Company) in Cook County Circuit Court in Illinois
against the Company and one of its directors, purporting to state claims
aggregating in excess of $100 million, principally relating to alleged rights
to "incentive compensation," stock options or their equivalent,
indemnification, wrongful termination, libel and the CreditLine Agreement
pursuant to which the Company markets CreditLine. The Company and the
director moved to dismiss this lawsuit. In November 1993, the court granted
the motions to dismiss all parts of the complaint, but gave the plaintiffs
leave to replead, which they did. The Company and the director have sought
dismissal of the revised complaint.
A suit by Peter Halmos, purportedly in the name of the Halmos Partnership,
against the Company and one of its officers in Circuit Court in Broward
County, Florida, making a variety of claims related to the Ft. Lauderdale
Lease. The Company has vacated the building, ceased making payments related
to the Ft. Lauderdale Lease and has filed counterclaims. The court has denied
motions to dismiss filed by both Peter Halmos and the Company. Discovery is
proceeding. No trial date has yet been set.
A suit filed by the Company in Laramie County Circuit Court in Wyoming
against Peter Halmos and related entities alleging that Peter Halmos
dominated and controlled the Company, breached his fiduciary duties to the
Company, and misappropriated material non-public information to make $48
million in profits on sales of Company stock. This suit was filed after
similar litigation brought by the Company in Federal Court for the District
of Wyoming was dismissed on federal venue grounds. Peter Halmos secured an
injunction from the Cook County Circuit Court in Illinois barring the Company
from pursuing these claims in the Wyoming state court until further order of
the Cook County Circuit Court. The Company appealed the issuance of the
injunction and sought a stay of the injunction pending appeal. On September
10, 1993, a three-judge panel of the Appellate Court, State of Illinois,
First District, granted the Company's emergency motion to stay the
injunction. The Wyoming court has denied the Peter Halmos parties' initial
motion to dismiss and has set the case for trial on September 12, 1994.
Discovery is proceeding.
The Company believes that it has proper and meritorious claims and defenses
in these lawsuits which it intends to vigorously pursue.
The Company is involved in certain other claims and litigation which are not
currently considered material.
<PAGE>
L. Statement Of Cash Flows
Supplemental cash flow disclosures are presented below.
Reconciliation of net earnings to net cash provided by operating activities:
Years ended October 31, 1993 1992 1991
Net Earnings $ 31,477,000 $ 22,498,000 $ 29,713,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 864,000 769,000 865,000
Income tax expense 10,968,000 6,406,000 11,829,000
Income tax payments, net (16,161,000) (18,518,000) (15,903,000)
Net (increase) decrease in
interest receivable (18,000) (1,786,000) 649,000
Net (increase) decrease in
accounts receivable 4,643,000 (2,641,000) (1,186,000)
Net increase in income
tax receivable (5,252,000)
Net amortization of bond
premiums/discounts 5,233,000 2,439,000 659,000
Provision for uncollectible
accounts and commissions (250,000) 137,000
Billings to subscribers, net 173,769,000 150,495,000 141,435,000
Amortization of subscribers'
advance payments to revenue (156,600,000 (146,265,000) (140,557,000)
Expenditures for subscriber
acquisition costs (63,717,000) (55,065,000) (47,334,000)
Payment of commissions, net (49,511,000) (41,024,000) (39,556,000)
Amortization of subscriber
acquisition costs 51,075,000 46,516,000 43,862,000
Amortization of commissions 44,173,000 40,312,000 40,091,000
Net increase in allowance
for cancellations 1,306,000 597,000 232,000
Net increase (decrease) in
accounts payable and
accrued expenses (2,459,000) 15,680,000 5,138,000
Gain on sale of investment
securities (1,277,000) (1,011,000) (321,000)
(Gain) loss on sale/disposition
of equipment (117,000) 271,000 44,000
Net (increase) decrease in
other assets 699,000 (638,000) (258,000)
----------- ----------- -----------
Net cash provided by
operating activities $ 28,845,000 $ 19,172,000 $ 29,402,000
=========== =========== ===========
M. Unaudited Quarterly Financial Data
Quarters Ended
1993 January 31 April 30 July 31 October 31
Subscription Revenue,net $37,570,000 $39,116,000 $39,717,000 $40,197,000
Gross Profit(A) $15,409,000 $15,334,000 $15,392,000 $15,217,000
Net Earnings $ 8,896,000 $ 8,528,000 $ 7,492,000 $ 6,561,000
Earnings per Share $.30 $.29 $.27 $.24
Weighted average number
of common and common
equivalent shares 29,312,000 29,360,000 27,814,000 27,465,000
Quarters Ended
1992 January 31 April 30 July 31 October 31
Subscription Revenue, net $36,441,000 $36,597,000 $36,563,000 $36,664,000
Gross Profit(A) $14,762,000 $15,143,000 $14,987,000 $14,545,000
Net Earnings(B) $ 8,162,000 $ 1,016,000 $ 9,046,000 $ 4,274,000
Earnings per Share(B) $.27 $.03 $.30 $.14
Weighted average number
of common and common
equivalent shares 30,249,000 30,263,000 30,342,000 29,738,000
(A) Certain amounts have been reclassified to conform with the 1993
Consolidated Financial Statements.
(B) The second and fourth quarters of 1992 include pre-tax charges against
earnings of $11.0 million and $6.5 million, respectively, in connection
with the Company's relocation to Cheyenne, Wyoming (see Note E - Estimated
Relocation Expenses).
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of SafeCard Services, Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of SafeCard Services, Incorporated and its subsidiaries at October
31, 1993 and 1992, and the results of their operations and their cash flows
for each of the three years in the period ended October 31, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note K to the financial statements, the Company's former
Executive Management Consultant has asserted certain claims against the
Company. The ultimate outcome of these claims cannot presently be determined.
Accordingly, no provision for any liability for these claims has been made in
the accompanying financial statements.
PRICE WATERHOUSE
Denver, Colorado
December 10, 1993
<PAGE>
Corporate Information
Board of Directors
William T. Bacon Jr.
Bacon, Whipple
Division of Stifel, Nicolaus & Co., Inc.
Marshall Burman
Of Counsel
Wildman, Harrold, Allen & Dixon
Gerald R. Cahill
Chief Operating Officer of the Company
Robert J. Dilenschneider
Chief Executive Officer
The Dilenschneider Group, Inc.
Paul G. Kahn
Chairman of the Board and
Chief Executive Officer of the Company
Eugene Miller*
Retired, Former Vice Chairman and Chief
Financial Officer, USG Corporation
W.M. Stalcup Jr.
President of the Company
*Vice Chairman of the Board and lead outside Director
Transfer Agent/Registrar
American Stock Transfer and Trust
Form 10-K
A copy of the Company's Form 10-K Annual Report filed with the Securities and
Exchange Commission may be obtained by shareholders by writing the Company's
Investor Relations department at the address listed.
<PAGE>
Corporate Officers
Paul G. Kahn
Chairman of the Board and Chief Executive Officer
W.M. Stalcup Jr.
President
Gerald R. Cahill
Chief Operating Officer
John Bochak
Senior Vice President
Agenta K. Breslin
Executive Vice President &
Assistant Secretary
David Gallimore
Executive Vice President
Joanne J. Seehousen
Executive Vice President
Lynn C. Torrent
Chief Financial Officer
Executive Offices
3001 East Pershing Boulevard
Cheyenne, WY 82001
(307) 771-2700
Exhibit 15
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of SafeCard Services, Incorporated
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on
Forms S-3 and S-8 (Nos. 33-48317 and 33-51439) of SafeCard
Services, Incorporated of our report dated December 10, 1993
appearing on page 41 of the Annual Report to Shareholders which is
incorporated in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial
Statement Schedules, which appears on page 19 of this Form 10-K.
PRICE WATERHOUSE
Denver, Colorado
January 28, 1994
Exhibit 22 - Subsidiaries
of the Registrant
SafeCard Services Insurance Company
SafeCard Travel Services, Incorporated
SafeCard Marketing, Incorporated
All other subsidiaries are inactive and insignificant.
