Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended APRIL 30, 1994 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 Incorporation
or Organization) Identification Number)
3001 E. Pershing Blvd., Cheyenne, Wyoming 82001
- - ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(307) 771-2700
--------------
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 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
--- ---
Common Stock, $.01 Par Value
- - ----------------------------
Outstanding at May 31, 1994 25,020,649 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
- - -------------------------------
ITEM 1. FINANCIAL STATEMENTS
- - ------------------------------
SafeCard Services, Incorporated
Consolidated Balance Sheets
Assets
April 30, October 31,
1994 1993
---- ----
(Unaudited)
Current Assets
Cash and cash equivalents $ 19,920,000 $ 3,335,000
Investment securities,
maturing within one year 26,664,000
Accrued interest receivable 4,061,000 4,403,000
Accounts receivable,net 14,811,000 8,443,000
Income tax receivable 5,252,000
Deferred subscriber costs
Commissions 31,811,000 28,149,000
Subscriber acquisition costs 49,665,000 47,987,000
----------- -----------
146,932,000 97,569,000
----------- -----------
Investment Securities,
maturing after one year 145,211,000 166,704,000
----------- -----------
Property And Equipment, net 9,233,000 8,420,000
Subscriber Costs And Other Assets
Deferred commissions 13,428,000 12,825,000
Deferred subscriber
acquisition costs 93,008,000 91,976,000
Other assets 1,598,000 793,000
----------- -----------
108,034,000 105,594,000
----------- -----------
$409,410,000 $378,287,000
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
SafeCard Services, Incorporated
Consolidated Balance Sheets
Liabilities And Stockholders' Equity
April 30, October 31,
1994 1993
---- ----
(Unaudited)
Current Liabilities
Accounts payable $ 12,232,000 $ 14,961,000
Accrued expenses 24,031,000 16,573,000
Allowance for cancellations 9,677,000 8,893,000
Subscribers' advance payments,
current portion 108,992,000 94,460,000
Deferred income taxes,
current portion 11,476,000 10,554,000
----------- -----------
166,408,000 145,441,000
----------- -----------
Subscribers' Advance Payments,
less current portion 49,569,000 47,603,000
----------- ----------
Deferred Income Taxes,
less current portion 22,491,000 27,548,000
----------- -----------
Stockholders' Equity
Common stock - authorized 35,000,000
shares of $.01 par value; issued 34,946,000
shares (34,196,000 in 1993); outstanding
25,020,649 shares in 1994
(24,118,184 in 1993) 349,000 342,000
Additional paid-in capital 19,433,000 15,990,000
Retained earnings 230,720,000 220,898,000
----------- -----------
250,502,000 237,230,000
Less cost of common shares in
treasury (9,925,351 in 1994 and
10,077,816 in 1993) (79,560,000) (79,535,000)
----------- -----------
170,942,000 157,695,000
----------- -----------
$409,410,000 $378,287,000
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
SafeCard Services, Incorporated
Consolidated Statements of Earnings
<TABLE>
Second Quarter Ended Six Months Ended
April 30, April 30,
1994 1993 1994 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Subscription revenue, net $42,555,000 $39,116,000 $83,946,000 $76,686,000
Interest and other income 2,500,000 3,112,000 4,804,000 5,901,000
Gain from litigation settlements 4,257,000 4,257,000
---------- --------- ---------- ----------
49,312,000 42,228,000 93,007,000 82,587,000
---------- ---------- ---------- ----------
Costs And Expenses
Subscriber acquisition costs 25,982,000 23,782,000 51,419,000 45,943,000
General, administrative and service costs 10,170,000 7,033,000 19,275,000 13,362,000
Restructuring costs 7,900,000 7,900,000
---------- ---------- ---------- ----------
44,052,000 30,815,000 78,594,000 59,305,000
---------- ---------- ---------- ----------
Earnings Before Income Taxes 5,260,000 11,413,000 14,413,000 23,282,000
Provision For Income Taxes (1,456,000) (2,885,000) (4,165,000) (5,858,000)
---------- ---------- ---------- ----------
Earnings Before Cumulative
Effect of Accounting Change 3,804,000 8,528,000 10,248,000 17,424,000
Cumulative Effect of Accounting Change 2,000,000
---------- ---------- ---------- ----------
Net Earnings $ 3,804,000 $ 8,528,000 $12,248,000 $17,424,000
========= ========= ========== =========
Earnings Per Share
Earnings Before Cumulative Effect
of Accounting Change $.14 $.29 $.38 $.59
Cumulative Effect of Accounting Change .07
--- --- --- ---
Net Earnings $.14 $.29 $.45 $.59
== == == ==
Weighted average number of
common and common
equivalent shares 27,761,000 29,360,000 27,472,000 29,395,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
SafeCard Services, Incorporated
Consolidated Statements Of Cash Flows
Six Months Ended
April 30,
----------------
1994 1993
---- ----
(Unaudited)
Cash Flows From Operating Activities
Net cash received from subscribers $ 95,654,000 $ 96,031,000
Cash expenditures for subscriber
acquisition, commissions
and operations (81,115,000) (71,044,000)
Relocation expenditures (84,000) (1,549,000)
Interest received 7,021,000 7,354,000
Income taxes paid, net (1,692,000) (13,274,000)
Gain from litigation settlements 4,257,000
----------- -----------
Net cash provided by
operating activities 24,041,000 17,518,000
----------- -----------
Cash Flows From Investing Activities
Purchase of investment securities (57,979,000) (35,080,000)
Proceeds from sale of
investment securities 45,413,000 50,751,000
Proceeds from maturing
investment securities 5,370,000
Payments for property and equipment (1,259,000) (554,000)
Sale of property and equipment 22,000
---------- -----------
Net cash provided (used) by
investing activities (8,455,000) 15,139,000
---------- -----------
Cash Flows From Financing Activities
Dividends paid (2,426,000) (2,666,000)
Payments for purchase of
treasury shares (483,000) (24,611,000)
Proceeds from exercise of
employee stock options 3,908,000 2,025,000
---------- -----------
Net cash provided (used) in
financing activities 999,000 (25,252,000)
---------- -----------
Net Increase In Cash 16,585,000 7,405,000
Cash and cash equivalents at
beginning of period 3,335,000 8,208,000
----------- -----------
Cash and cash equivalents at
end of period $ 19,920,000 $ 15,613,000
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements. <PAGE>
SafeCard Services, Incorporated
Notes To Consolidated Financial Statements
A. General
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the Company's financial position as
of April 30, 1994 and the results of its operations and cash
flows for the periods ended April 30, 1994 and 1993. The
accounting policies used in the preparation of these financial
statements are consistent with those used in the Company's Annual
Report for the fiscal year ended October 31, 1993 except for
the change in accounting for income taxes described in Note F.
The notes presented herein are intended to provide
supplemental disclosure of items of significance occurring
subsequent to the issuance of the Company's Annual Report for the
fiscal year ended October 31, 1993 and should be read in
conjunction with the Notes to Consolidated Financial Statements
included in the Annual Report.
Results of operations for the interim periods ended April 30,
1994 are not necessarily indicative of the results to be expected
for the full year.
Price Waterhouse has made a review, and not an audit, of the
unaudited consolidated financial information of the Company for
the second quarter and six month periods ended April 30, 1994 and
1993 (based on procedures adopted by the American Institute of
Certified Public Accountants) as set forth in their separate
report dated June 13, 1994, which is included in this Form 10-Q.
This report is not a "report" within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the independent
accountant's liability under Section 11 does not extend to it.
Certain changes have been made in the presentation of second
quarter 1993 financial information to conform with the 1994
presentation.
B. Restricted Investments
The Company previously followed a policy of restricting use
of all advance payments for multi-year subscriptions by placing
them in escrow. In March 1994, the Company changed its policy
such that it will now place funds in escrow only when it is
required to do so by contract with credit card issuer clients.
The amount restricted by contract as of April 30, 1994 was
approximately $11.6 million. Restricted funds are released
ratably over the subscription period (which coincides with the
period of revenue recognition) and have been invested primarily
in tax-exempt municipal securities.
Also restricted as of April 30, 1994 is approximately $1.6
million, pursuant to an agreement with CreditLine Corporation,
which is the subject of litigation. See Note G of Notes to
Consolidated Financial Statements.
C. Supplemental Cash Flow Information
The reconciliation of net earnings to net cash
provided by operating activities, as presented in the
Consolidated Statements of Cash Flows, is as follows:
Six Months Ended
April 30,
1994 1993
(Unaudited)
Net earnings $ 12,248,000 $ 17,424,000
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 446,000 430,000
Provision for income taxes 4,165,000 5,858,000
Income tax payments, net (1,692,000) (13,274,000)
Cumulative effect of
accounting change (2,000,000)
Net decrease in interest
receivable 342,000 143,000
Net (increase) decrease in
accounts receivable (6,368,000) 802,000
Net decrease in income
tax receivable 644,000
Net amortization of bond premiums/
discounts 2,627,000 2,598,000
Billings to subscribers, net 100,444,000 95,632,000
Amortization of subscribers'
advance payments to revenue (83,946,000) (76,686,000)
Expenditures for subscriber
acquisition costs (29,773,000) (28,560,000)
Payment of commissions, net (28,621,000) (26,959,000)
Amortization of subscriber
acquisition costs 27,063,000 24,656,000
Amortization of commissions 24,356,000 21,287,000
Net increase in allowance
for cancellations 784,000 1,811,000
Net increase (decrease) in
accounts payable and
accrued expenses 4,729,000 (6,988,000)
Gain on sale of investments (602,000) (1,010,000)
Gain on sale of assets (9,000)
Net (increase) decrease in
other assets (805,000) 363,000
----------- -----------
Net cash provided by
operating activities $ 24,041,000 $ 17,518,000
=========== ===========
D. Dividends
On December 9, 1993, the Company declared a quarterly
dividend of $.05 per share which was paid on December 28, 1993 to
stockholders of record on December 20, 1993.
On March 7, 1994 the Company declared a quarterly dividend of
$.05 per share payable on March 24, 1994 to stockholders of
record on March 17, 1994.
On June 13, 1994 the Company declared a quarterly dividend of
$.05 per share payable on June 30, 1994 to stockholders of record
on June 23, 1994.
E. Restructuring Costs
In April 1994, the Company announced a reorganization of its
operations and named a new senior management team. As a part of
the reorganization, eight senior executives left the Company.
In addition, management decided to close the Ft. Lauderdale sales
office. The Company recorded, as a result of this
reorganization, a restructuring charge of $3.5 million to cover
all severance agreements and a lease termination.
On May 26, 1994, the Company reached a settlement with Steven
Halmos to terminate various agreements between the Company and
Mr. Halmos that provided for payments to Mr. Halmos of $2 million
a year through March 31, 1998. The settlement, which arose in
connection with the Company's management restructuring in April
and a resulting decision to cease using Mr. Halmos' services,
resulted in a $4.4 million cash payment to Mr. Halmos and charge
to second quarter earnings. In connection with the termination
agreement, the Company and Mr. Halmos agreed that the options to
purchase 3,900,000 shares of the Company's stock held by Mr.
Halmos, originally exercisable through 1997, would expire on
December 31, 1994. The original option grants also contained a
30-day termination clause whereby the options would expire thirty
days after Mr. Halmos ceased providing services to the Company.
Neither party to the termination agreement was aware that the
establishment of the December 31, 1994 expiration date could be
interpreted as an extension of the options and require the
Company to record a non-cash compensation charge to income and a
corresponding increase to additional paid-in capital of
approximately $45 million. To effectuate the intent of the
parties, the Company and Mr. Halmos entered into a rescission
agreement which returned the options to their original terms.
The legal effect of the rescission was to remove the
modifications to the option exercise dates as if they had never
occurred. As a result, and although there is no direct precedent
in accounting literature, the Company has, with the concurrence
of its independent accountants, accounted for the transaction as
if the option exercise dates had not been modified.
F. Income Taxes
In February 1992, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Application of Statement No.
109 requires a change from the deferred method to the liability
method of accounting for income taxes. One of the principal
differences of the liability method from the deferred method
used in previous financial statements is that changes in tax
rates and laws are reflected in income from continuing operations
in the period such changes are enacted. Under the deferred
method, such changes were reflected over time, if at all. The
Company adopted Statement No. 109 in the first quarter of fiscal
1994, effective November 1, 1993. The impact of the adoption had
a cumulative positive effect on the Company's reported earnings
in fiscal 1994 of $2 million and also contributed to a higher
effective income tax rate. See Management's Discussion and
Analysis - Income Taxes.
The following represents the components of the Company's
Deferred Income Tax balances at April 30, 1994:
Current Portion Long-Term Portion Total
Deferred Deferred Deferred
Income Taxes Income Taxes Income Taxes
------------ ------------ ------------
Deferred Tax Liability $39,530,000 $30,361,000 $69,891,000
Deferred Tax Asset 28,054,000 7,870,000 35,924,000
Net Deferred
Tax Liability $11,476,000 $22,491,000 $33,967,000
========== ========== ==========
Net deferred tax liability of $33,967,000 resulted from the
following items:
Subscriber acquisition costs, net $ 67,939,000
Multi-year subscription revenues, net (32,540,000)
Deferred merchandise revenues, net 1,953,000
Relocation expenses (3,204,000)
Other (181,000)
----------
Total deferred tax liability $ 33,967,000
==========
G. Contingencies
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
as follows:
A suit initiated by Peter Halmos, related entities, and Myron
Cherry (a former lawyer for the Company) in April 1993 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 and defamation. 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. Again in March 1994, the court granted the motions to
dismiss all of the complaints but permitted the plaintiffs to
replead which they did in June 1994. The Company and the
director expect to seek dismissal of the second amended
complaint.
A suit by Peter Halmos, purportedly in the name of Halmos
Trading & Investment Company, against the Company, one of its
officers and one of its directors in Circuit Court in Broward
County, Florida, making a variety of claims related to the
contested lease of its former Ft. Lauderdale headquarters. 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. In May 1994, the court dismissed Peter Halmos'
amended counterclaim for breach of contract for indemnity
and intentional infliction of emotional distress but gave leave
to amend. In June 1994 Peter Halmos filed a second amended
counterclaim purporting to state claims for intentional
infliction of emotional distress, fraud and negligent
misrepresentation and declaratory judgment based on alleged
breach of contract for indemnity or, in the alternative,
promissory estoppel, related to indemnification of legal expenses
in this lawsuit. Discovery is proceeding. No trial date has yet
been set.
A suit which seeks monetary damages and certain equitable
relief, filed by the Company in August 1993 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. In March 1994, Mr.
Halmos and related entities filed a counterclaim in which claims
are made of conspiracy in restraint of trade, monopolization and
attempted monopolization, unfair competition and restraint of
trade, breach of contract for indemnity and intentional
infliction of emotional distress. The Company's motion to sever
the conspiracy, monopolization and restraint of trade claims was
granted in May 1994. The claims for the conspiracy,
monopolization, restraint of trade and unfair competition were
dismissed without prejudice in June 1994. The Wyoming court has
denied the Halmos parties' motion to dismiss and has set the case
for trial on September 12, 1994.
The Company believes that it has proper and meritorious
defenses in these lawsuits which it intends to vigorously pursue.
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 operations and
financial condition of the Company.
In March 1994, the Company settled litigation with a prior
vendor to the Company, which resulted in a pre-tax gain in the
second quarter of 1994 of approximately $3.5 million.
In April 1994, the Company settled litigation with American
Express which resulted in a pre-tax gain in the second quarter of
1994 of $.8 million.
The Company is involved in certain other claims and
litigation, which are not currently considered material.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
SafeCard Services, Incorporated
We have reviewed the accompanying consolidated balance sheet
of SafeCard Services, Inc. and subsidiaries as of April 30, 1994,
and the related consolidated statements of earnings and cash
flows for the three-month and six-month periods ended April 30,
1994 and 1993, appearing in the Company's Form 10-Q for the
quarter ended April 30, 1994. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data,
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
information for it to be in conformity with generally accepted
accounting principles.
We previously audited in accordance with generally accepted
auditing standards, the consolidated balance sheet as of October
31, 1993, and the related consolidated statements of earnings,
changes in stockholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated December
10, 1993 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
accompanying consolidated balance sheet information as of October
31, 1993, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
PRICE WATERHOUSE
Denver, Colorado
June 13, 1994
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Results of Operations
Subscription Revenue, Net
Second Quarter Ended April 30, Six Months Ended April 30,
1994 1993 1994 1993
$42,555,000 $39,116,000 $83,946,000 $76,686,000
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 in the
Company's Annual Report for the year ended October 31, 1993 for a
description of the Company's accounting policies.
Subscription revenue increased 8.8% (to a record $42.6
million) in the second quarter of 1994 and 9.5% for the six
months ended April 30, 1994, compared to the same periods in
1993. The increases are primarily due to an increase in the
number of Hot-Line, Fee Card and CreditLine subscribers. Also
contributing to the increase in revenues was the price increase
of certain Hot-Line subscriptions which the Company began billing
in mid-1993.
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. The
decrease in earnings before income taxes for the six months ended
April 30, 1994 as compared to the same period of 1993 from the
elimination of the wholesale program was approximately $1.1
million. Management anticipates the decrease for the year to be
approximately $1.6 million. While the Company does have the
right to market 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 of subscribers are affected by a variety of
factors including the product mix of subscribers renewing,
economic factors, changes in the credit card industry and certain
other factors, which may be beyond the Company's control. To
date, the Company's renewal rates remain consistent with the
rates reported for 1993. However, the Company anticipates that
Hot-Line renewal rates may decrease in 1994, primarily as a
result of the Hot-Line price increase mentioned earlier.
However, the net effect of the price increase should continue to
have a positive effect on revenue and earnings.
In 1993, the Company began placing greater emphasis on the
development of new products and services and continues to
currently test market new services with various credit card
issuer clients. Results to date are preliminary and the size and
scope of the tests have been too limited to determine the
viability of these services. Many products and services which
are test marketed are never implemented. In 1994 the Company
began expanding and strengthening its management team in this and
other areas to emphasize growth opportunities. 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 primarily by Peter Halmos and Steven
J. Halmos (the Company's co-founders), 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. 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 credit card issuer clients with which
it either had a CreditLine marketing agreement on November 1,
1993 or enters into such an agreement within the following three
years. The table below sets forth the effect that CreditLine and
certain services marketed in conjunction with CreditLine
accounted for with respect to the Company's subscription
revenues and gross margin (subscription revenue, net less
subscriber acquisition costs). The CreditLine Agreement,
including the continuing marketing rights, is the subject of
litigation between the Company and Peter Halmos. See Note G of
Notes to Consolidated Financial Statements.
<TABLE>
Percentage
of Percentage
Subscription Subscription Gross of
Revenue Revenue Margin Gross Margin
------- ------- ------ ------------
<S> <C> <C> <C> <C>
Quarter ended April 30,
- - -----------------------
1994 $2.1 million 5.0% $ .6 million 3.6%
1993 $1.5 million 3.9% $ .4 million 2.8%
Six Months ended April 30,
- - --------------------------
1994 $4.3 million 5.1% $1.3 million 3.9%
1993 $2.7 million 3.6% $ .8 million 2.5%
</TABLE>
Subscriber Acquisition Costs
Second Quarter Ended April 30, Six Months Ended April 30,
1994 1993 1994 1993
---- ---- ---- ----
$25,982,000 $23,782,000 $51,419,000 $45,943,000
As a percentage
of subscription
revenue 61% 61% 61% 60%
The cost of subscriber acquisition, which represents the
amortization of deferred subscriber acquisition costs and
commissions, increased $2.2 million, or 9.3%, and $5.5 million,
or 11.9%, in the second quarter and six months of 1994,
respectively, primarily because of expenditures made to acquire
new subscribers (see "Financial Condition - Expenditures of
Subscriber Acquisition Costs and Commissions").
Subscriber acquisition costs, as a percentage of
subscription revenue, remained constant for the quarter and six
month periods, respectively. The relationship of these costs to
subscription revenues is dependent on a variety of factors
including subscription prices, net response rates (gross
enrollments less cancellations), marketing costs, renewal rates,
economic conditions, interest rates, other factors affecting the
number of credit cards in use, demographic trends, consumers'
propensity to buy 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 of certain credit card issuer
customers. While the Company has made some progress in this
area, telemarketing response rates for certain credit card issuer
customers remain below response rates achieved in previous
periods. This decline in response rates, 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 the six months ended April 30, 1994, as compared
to the same period in 1993, as a result of the change, was
approximately $400,000; while the effect for the year is
anticipated to be less than one million dollars.
The U.S. Postal Board of Governors has requested a 10.3%
postal rate increase effective in 1995. Since postage represents
the largest component of direct mail costs, this would have a
negative impact on the Company.
General, Administrative and Service Costs
Second Quarter Ended April 30, Six Months Ended April 30,
1994 1993 1994 1993
---- ---- ---- ----
$10,170,000 $ 7,033,000 $19,275,000 $13,362,000
As a percentage
of subscription
revenue 24% 18% 23% 17%
General, administrative and service costs increased by $3.1
million or 45% and $5.9 million or 44% in the second quarter and
first six months of 1994, respectively, compared to the same
periods in 1993. The increases in the second quarter and six
months ended April 30, 1994 are primarily a result of increases
in legal fees of $.8 million and $3 million, payroll and other
related expenses of $1.2 million and $1.7 million, and outside
consulting fees of $.6 million and $.7 million.
Legal fees in the first six months of 1994 relate primarily
to the Company's continuing litigation with Peter Halmos, the
Company's co-founder. See Note G of Notes to the Consolidated
Financial Statements and "Pending Litigation". The Company is
seeking to reduce legal fees relating to this litigation, but
there can be no assurance that such efforts will be successful.
Legal fees in the second quarter of 1993, related
principally to protracted but unsuccessful efforts to reach a
negotiated resolution of the Company's disputes with Peter Halmos
and Myron Cherry and lawsuits subsequently filed. See Note G of
Notes to the Consolidated Financial Statements and "Results of
Operations - - Pending Litigation".
Payroll and other related expenses and management consulting
fees related principally to the hiring of a new Chief Executive
Officer, a reorganization of the Company's operations and the
hiring of the new senior management team. The higher salaries
and related costs resulted from recent hirings which have been
made to strengthen the SafeCard management team to accelerate the
Company's future growth.
Restructuring Costs
In April 1994, the Company announced a reorganization of its
operations and named a new senior management team. As a part of
the reorganization, eight senior executives left the Company. In
addition, management decided to close the Ft. Lauderdale sales
office. The Company recorded, as a result of this
reorganization, a restructuring charge of $3.5 million to cover
all severance agreements and a lease termination.
On May 26, 1994, the Company reached a settlement with
Steven Halmos to terminate various agreements between the Company
and Mr. Halmos that provided for payments to Mr. Halmos of $2
million a year through March 31, 1998. The settlement, which
arose in connection with the Company's management restructuring
in April and a resulting decision to cease using Mr. Halmos'
services, resulted in a $4.4 million cash payment to Mr. Halmos
and charge to second quarter earnings. In connection with the
termination agreement, the Company and Mr. Halmos agreed that the
options to purchase 3,900,000 shares of the Company's stock held
by Mr. Halmos, originally exercisable through 1997, would expire
on December 31, 1994. The original option grants also contained
a 30-day termination clause whereby the options would expire
thirty days after Mr. Halmos ceased providing services to the
Company. Neither party to the termination agreement was aware
that the establishment of the December 31, 1994 expiration date
could be interpreted as an extension of the options and require
the Company to record a non-cash compensation charge to income
and a corresponding increase to additional paid-in capital of
approximately $45 million. To effectuate the intent of the
parties, the Company and Mr. Halmos entered into a rescission
agreement which returned the options to their original terms.
The legal effect of the rescission was to remove the
modifications to the option exercise dates as if they had never
occurred. As a result, and although there is no direct precedent
in accounting literature, the Company has, with the concurrence
of its independent accountants, accounted for the transaction as
if the option exercise dates had not been modified.
Gain From Litigation Settlements
In March 1994, the Company settled litigation with a prior
vendor to the Company, which resulted in a pre-tax gain in the
second quarter of 1994 of approximately $3.5 million.
In April 1994, the Company settled litigation with American
Express which resulted in a pre-tax gain in the second quarter of
1994 of $.8 million.
Interest and Other Income
Second Quarter Ended April 30, Six Months Ended April 30,
1994 1993 1994 1993
---- ---- ---- ----
$ 2,500,000 $ 3,112,000 $ 4,804,000 $ 5,901,000
Interest and other income is predominantly composed of
interest income and gains from sales of investments. Interest
and other income decreased in the second quarter of 1994 over the
comparable period in the prior year primarily due to a decrease
in interest rates and a lower cash and investment balance. (See
"Financial Condition - Liquidity and Capital Resources"). Since
interest rates have been volatile in recent periods, as the
Company's investments mature, or are sold, these funds may be
reinvested at lower interest rates than were previously
available.
The decrease is also a result of lower gains on sale of
investments recognized in the second quarter and first six months
of 1994 when compared to the same period in 1993.
Provision for Income Taxes
Second Quarter Ended April 30, Six Months Ended April 30,
1994 1993 1994 1993
---- ---- ---- ----
($1,456,000) ($2,885,000) ($ 4,165,000) ($ 5,858,000)
As a percentage
of earnings
before income
taxes 28% 25% 29% 25%
The increase in the effective tax rate resulted primarily
from the adoption in the first quarter of 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" as well as the federal corporate income tax rate increase
from 34% to 35% which was signed into law in August 1993. See
Note F of Notes to Consolidated Financial Statements.
Cumulative Effect of Accounting Change
See Note F of Notes to Consolidated Financial Statements for
discussion of the change in accounting method.
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 G of Notes to Consolidated Financial
Statements. The Company believes that it has proper and
meritorious 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 expenses. 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
operations and financial condition of the Company.
2. Financial Condition
Liquidity and Capital Resources
For the six month period ended April 30, 1994 operations
provided $24.0 million in cash compared to $17.5 million for the
same period in 1993. The increase is primarily attributable to a
$11.6 million decrease in income tax payments and the $4.3
million gain from litigation settlements, partially offset by a
$10.1 million increase in operating expenditures. The
comparison of cash provided by operations is also affected by the
timing of the various cash receipts and payments.
During 1993, the Board of Directors authorized the Company
to repurchase up to six million shares of its outstanding common
stock. 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. The
Company repurchased 36,700 shares in the first quarter of 1994 at
an aggregate cost of $483,000. The total repurchases under the
plan through April 30, 1994 are approximately 3.5 million shares
at an aggregate cost of $41.7 million.
The Company believes that its cash flow from operations, and
the Company's cash and investment securities (which aggregated
$191.8 million, a portion, $11.6 million, of which is restricted,
as of April 30, 1994) and the $20.7 million anticipated from the
exercise of Steven Halmos' options to purchase 3.9 million shares
of the Company's stock are adequate to meet the Company's
current liquidity needs. See Note B of Notes to the Consolidated
Financial Statements. The Company has no short or long-term
debt.
Billings
Net billings were a record $100.4 million in the six months
of 1994, an increase of $4.8 million, or 5%, from the
corresponding period in 1993. This increase is primarily due to
increase in multi-year Hot-Line, Fee Card, CreditLine and related
services and Reminder/Reference billings.
Expenditures of Subscriber Acquisition Costs and Commissions
Subscriber acquisition expenditures directly relate to the
acquisition of new subscribers through "direct response"
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 the first
six months of 1994 increased 4.2% to $29.8 million compared to
$28.6 million in the first six months of 1993. Total subscriber
acquisition campaign volume (mail and telephone contacts)
increased 7.6% in the first six months of 1994 compared to the
same period in 1993. Contributing to the higher volume is a 9.7%
increase in the number of direct mail contacts offset in part by
a 15.7% decrease in telemarketing volume. Telemarketing
solicitations for the first six months of 1993 included large
marketing efforts by a few clients which were not repeated in
1994.
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 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 $28.6 million
or 28.5% of billings to subscribers, in the six months of 1994
compared to $27.0 million, or 28.2% of billings to subscribers,
in the same period in 1993. This increase is consistent with the
increase in billings as well as slightly higher commission rates.
Commission rates are dependent on a variety of factors including
client, service, type of promotion, as well as first time or
renewal billings.
Membership Base
April 30, 1993 New Members Cancellations April 30, 1994
-------------- ----------- ------------- --------------
12,999,000 4,401,000 3,678,000 13,722,000
On a net basis, the Company's membership base increased over
the prior year. Gross enrollments (new enrollments before
cancellations) from new marketing remained at the same levels as
in the first six months of 1993. 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 over the prior
year. Hot-Line, Fee Card and CreditLine services all experienced
membership increases.
PART II. OTHER INFORMATION
- - ---------------------------
ITEM 1. 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. These litigations are described in Note G of
Notes to Consolidated Financial Statements.
The Company is involved in certain other claims and
litigation, which are not considered material.
ITEM 5. OTHER INFORMATION
- - ---------------------------
On June 10, 1994 the Company announced that W.M. Stalcup,
former president of the Company, had resigned his position as a
Director of the Company, effective May 24, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ------------------------------------------
(a) Exhibits
10(a) Employment Agreement as of May 2,
1994, between the Company and G.
Thomas Frankland
10(b) Indemnification Agreement as of April
7, 1994, between the Company and one
outside director
10(c) Non-Qualified Stock Option Agreement
as of April 7, 1994, with one of the
Company's outside directors
10(d) Second Amended Complaint filed June 1,
1994 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(e) Termination Agreement dated as of May
26, 1994 between the Company and
Steven J. Halmos and Rescission
Agreement made and entered into as of
June 9, 1994 between the Company and
Steven J. Halmos
(11)a Computation of Primary Earnings Per
Share
(11)b Computation of Fully Diluted Earnings
Per Share
(15) Letter re Unaudited Interim Financial
Information
(b) Reports on Form 8-K
On April 18, 1994 the Company filed a Form 8-K
to announce that several executives in the Cheyenne headquarters
and Ft. Lauderdale offices will leave all offices held with the
Company and its affiliates, effective April 30, 1994. <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SAFECARD SERVICES, INCORPORATED
-------------------------------
(Registrant)
Date: June 13, 1994 PAUL G. KAHN
------------------------------
Paul G. Kahn
Chairman and Chief Executive
Officer
Date: June 13, 1994 G. THOMAS FRANKLAND
------------------------------
G. Thomas Frankland
Vice Chairman and Chief Financial
Officer
EXHIBIT 10(A)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of May 2, 1994 (the "Effective
Date"), by and between SafeCard Services, Incorporated, a Delaware
corporation (the "Company"), and G. Thomas Frankland (the
"Executive"),
WHEREAS, the Company desires to obtain the services of the
Executive, and the Executive is willing to render such services, in
accordance with the terms hereinafter set forth; and
WHEREAS, the Board of Directors of the Company (the "Board")
by appropriate resolutions has authorized the employment of the
Executive as provided for in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
1.01 Term. The initial term of employment under this
Agreement shall be for the period commencing on the Effective Date
and ending on May 2, 1997; provided, however, that commencing on
May 2, 1997 and on each May 2 thereafter, the term of this
Agreement shall automatically be extended for one (1) year unless
either the Company or the Executive shall have given written notice
to the other at least one hundred eighty (180) days prior thereto
that the term of this Agreement shall not be so extended. The
initial term of employment and any extension thereof shall be
referred to as the "Employment Term."
ARTICLE II
Position and Duties
2.01 Position. The Executive shall be employed as the Vice
Chairman and Chief Financial Officer of the Company.
2.02 Duties. The Executive agrees to perform the duties,
undertake the responsibilities and exercise the authority set forth
in Exhibit 1. The Company and the Executive agree that the
Executive shall report directly to the Chairman of the Board and
Chief Executive Officer. Excluding periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees that
during the Employment Term, he shall devote his full business time
to the business and affairs of the Company and to the duties and
responsibilities assigned to him hereunder. The Executive may (i)
with the written permission of the Board of Directors serve on
corporate boards, (ii) serve on civic or charitable boards or
committees, (iii) manage personal investments, and (iv) deliver
lectures and teach at educational institutions so long as such
activities do not significantly interfere with the performance of
the Executive's duties and responsibilities hereunder. The
Executive shall withdraw from the accounting firm of Price
Waterhouse prior to the Effective Date.
ARTICLE III
Compensation
3.01 Base Salary. The Company agrees to pay or cause to be
paid to the Executive during the Employment Term a base salary at
the rate of $350,000 per annum or such larger amount as the Board
of Directors may from time to time determine (hereinafter referred
to as the "Base Salary"). Such Base Salary shall be payable in
accordance with the Company's customary practices applicable to its
executives. Such rate of salary, or increased rate of salary, if
any, as the case may be, shall be reviewed at least annually by the
Board of Directors and may be further increased (but not decreased)
in such amounts as the Board of Directors in its discretion may
decide.
3.02 Sign-On Bonus. The Company shall deliver to the
Executive upon the execution of this Agreement the following:
(a) a one-time cash bonus of $32,000, and
(b) 1,000 shares of common stock of the Company, par
value $.01 (the "Restricted Shares"), which shall
be subject to the terms, conditions and
restrictions described below.
(c) If the Executive's continuous employment with the
Company shall terminate for any reason prior to the
six month anniversary of the Effective Date, all
rights of the Executive to the Restricted Shares
shall terminate. The restrictions set forth in this
Section 3.02 shall lapse on the six month
anniversary date, provided the Executive is
employed by the Company under this Agreement on
such date.
(d) Restricted Shares subject to the restrictions imposed by
clause (c) hereof shall not be sold, assigned,
transferred, pledged, hypothecated, or otherwise disposed
of prior to the lapse of restrictions applicable to such
Restricted Shares.
3.03 Short-Term Incentives. The Executive shall receive an
annual bonus in an amount determined in accordance with the Short
Term Incentive Plan for the President/COO level contained in
"Suggested Approach to the Executive Compensation Program" prepared
by Hewitt Associates ("Hewitt"), dated September 7, 1993, as
amended to date and from time to time hereafter with the consent of
the Executive (the "Short Term Incentive Plan"). The annual bonus
shall be payable at such time as other bonuses are payable under
the Short Term Incentive Plan, unless the Executive shall otherwise
elect to defer the receipt of such annual bonus.
ARTICLE IV
Other Benefits
4.01 Long Term Incentives; Parity Incentives. The Executive
shall be granted options to purchase 300,000 shares of the common
stock of the Company pursuant to the terms and conditions set forth
in the option agreements attached as Exhibits 2 and 3 hereto and
made a part hereof. The Executive shall also be eligible to
participate, on terms comparable to those applicable to other
senior executives of the Company, in such other long-term incentive
compensation plans maintained by the Company which provide
opportunities to receive compensation in addition to annual base
salary to senior executives of the Company; provided, however, that
the Company and the Executive agree that during the initial term of
this Agreement the Executive's participation in any stock option or
other stock based compensation plan, including without limitation
the SafeCard Services, Incorporated 1994 Long Term Stock-Based
Incentive Plan, shall be limited to the options granted pursuant to
this Section 4.01.
4.02 Executive Benefits. Subject to the terms of such
plans, the Executive will be covered under all retirement, medical,
dental and vision care, short-term and long-term disability, life
insurance, accident insurance and other benefit plans maintained
from time to time by the Company for its senior executives.
4.03 Disability Insurance. The Company shall use its
best efforts to secure and maintain throughout the Employment Term
a commercially available policy providing disability income to the
Executive for the period beginning on the date the Executive
experiences a Disability as defined in Section 7.04 and ending on
the earlier of (i) the date on which the Disability ceases, (ii)
the Executive's death or (iii) the date on which the Executive
attains age 65, in an amount equal to 70% of his then current Base
Salary ("Disability Income") payable in accordance with normal
payroll practices for senior executives of the Company then in
effect during the period of his Disability. Except as provided in
Section 6.02 or pursuant to a disability benefit program maintained
by the Company, the Executive shall not be entitled to receive and
the Company shall not be obligated to pay the Executive any other
compensation, including, but not limited to Base Salary or annual
bonus, in respect of a period during which the Executive is
receiving Disability Income. The disability benefit provided
pursuant to this Section 4.03 shall be integrated with the
Company's standard disability benefit programs so that upon the
Disability of the Executive in no event shall the Executive be
entitled to any amount in excess of his Disability Income.
4.04 Life Insurance. The Company shall use its best efforts
to secure one or more policies of standard term life insurance on
the life of the Executive from a "AAA" rated provider providing, in
the aggregate, a face amount of not less than $1,250,000 in the
event of the Executive's death during the Employment Term (with a
provision for double indemnity in the case of accidental death)
(the "Death Benefit") payable to a beneficiary chosen by the
Executive and to maintain such policy or policies in effect
throughout the Employment Term, and to assign such policy to or
pursuant to the directions of the Executive at the termination of
the Executive's employment. The life insurance benefit provided
pursuant to this Section 4.04 shall be integrated with the
Company's normal life insurance benefit program so that upon the
death of the Executive during the Employment Term in no event shall
the Executive's Beneficiary (as hereinafter defined) be entitled to
receive an amount in excess of the Death Benefit.
4.05 Vacation and Sick Leave. The Executive shall be
entitled to annual vacation in accordance with the policies as
periodically established by the Board of Directors for similarly
situated executives of the Company, which shall in no event be less
than twenty-five days per year. The Executive shall be entitled to
sick leave (without loss of pay) in accordance with the Company's
policies as in effect from time to time.
4.06 Expenses. The Company shall reimburse the Executive for
all reasonable travel, entertainment and other business expenses
incurred by him in accordance with Company policy regarding travel,
entertainment and business expenses in connection with the
performance of the Executive's duties under this Agreement during
the Employment Term, such reimbursement to be made in accordance
with the Company's policy and practice relating to reimbursement of
senior executives.
4.07 Executive Allowance. The Executive shall be
entitled to an annual allowance, not to exceed $12,500 for an
automobile and professional counseling (including professional
services of a financial, legal or accounting nature). The Company
will pay such amounts as expenses are incurred upon presentation by
the Executive of an itemized account of such expense.
4.08 Supplemental Retirement Benefit. The Company agrees to
enter into a Trust Agreement for the benefit of the Executive
providing for the establishment of a grantor trust (the "Rabbi
Trust"). The Company agrees to contribute 6.7 percent of the
Executive's Base Salary to the Rabbi Trust on the first anniversary
date and on each succeeding anniversary date occurring during the
Employment Term. Amounts contributed to the Rabbi Trust, plus any
investment gains, and minus any investment losses, shall be paid to
the Executive (i) upon his termination of employment other than by
the Company for Cause or (ii) if the Executive's employment is
terminated by the Company for Cause, on the first date following
such termination on which the Executive has attained age 65;
provided, however, that the amount payable hereunder shall be
reduced by the amount of any vested Company provided qualified
retirement plan benefit (other than an account balance attributable
to the Executive's contributions to a cash or deferred arrangement)
calculated as a lump sum payable at the same time as the benefit
hereunder using reasonable actuarial assumptions.
ARTICLE V
Relocation
5.01 Relocation. The Executive agrees to relocate to the
Company's principal executive offices no later than October 31,
1994. During the period beginning on the date hereof and ending on
the date on which the Executive relocates (the "Interim Period"),
the Executive agrees to spend such time at the Company's offices in
Jacksonville and Cheyenne as is reasonably necessary to perform the
Executive's duties and responsibilities under this Agreement. The
Company agrees to reimburse the Executive for all reasonable travel
costs incurred during the Interim Period commuting between the New
York area, the Jacksonville, Florida area and the Company's offices
in Cheyenne, Wyoming.
5.02 Relocation Expenses. The Executive shall be entitled to
the relocation benefits provided to an executive signing a
relocation agreement as set forth in the Company's Relocation
Policy RP1 dated February 3, 1992 under the following captions as
modified in this Section 5.02 and assuming that references in such
Policy to Fort Lauderdale or the South Florida area are references
to the New York, New York area: "Relocation Expenses," provided,
however, that the "most probable selling price" shall be determined
in a reasonable period of time for a home of similar value in an as
is condition and the maximum amount of any reimbursement under the
subcaption "Loss on Sale" shall be 15 percent of the Executive's
Base Salary; "Miscellaneous Relocation Allowance;" "Spouse
Employment Assistance;" "Complimentary Airfare;" "Time off for
Relocating;" and "Tax Assistance."
ARTICLE VI
Termination of Employment
6.01 Voluntary Resignation for Good Reason or Termination
Other than for Cause, Death or Disability. If, during the
Employment Term, the Company terminates the Executive's employment
other than for Cause, death or Disability or if the Executive
resigns his employment for Good Reason, the Company shall provide
the following to the Executive:
(a) as soon as practicable after the Termination Date (as
hereinafter defined) a lump sum cash payment equal to the
aggregate of the following:
(i) the portion of the Executive's then current Base
Salary accrued to the Termination Date but unpaid
as of the Termination Date (the "Unpaid Salary");
plus
(ii) an amount equal to the highest amount of incentive
compensation, including annual bonus, received or
deferred by the Executive for any bonus period
during the Employment Term (or, if the Termination
Date occurs prior to the completion of the first
period with respect to which the Executive would be
entitled to an annual bonus under Section 3.03 of
this Agreement (the "First Bonus Period"),
incentive compensation equal to the amount the
Executive would have received under Section 3.03 if
the maximum target levels were achieved), reduced
pro rata for that portion of the current bonus
period not completed as of the end of the month in
which the Termination Date occurs (the "Pro Rated
Bonus"); plus
(iii) severance pay in an amount equal to 150% of
the sum, of (A) the Executive's then current
Base Salary plus (B) an amount equal to
compensation, including annual bonus, received
or deferred by the Executive for any bonus
period during the Employment Term; provided,
however, if the Termination Date occurs prior
to the completion of the First Bonus Period
the incentive compensation in clause (B) shall
equal the amount the Executive would have
received under Section 3.03 if the maximum
performance levels were achieved; and
provided, further, that if the termination
occurs within three (3) years following a
Change in Control, 300% shall be substituted
for 150% (the "Severance Amount").
If the Executive's termination of employment occurs after a
reduction in all or any part of the Executive's compensation
provided under Article III, the amounts payable to him pursuant to
this Section 6.01 shall be based upon his compensation before the
reduction.
(b) The amount and value of his entire plan account and
interest under any investment plan or stock ownership
plan, and all employer contributions made or payable to
any such plan for his account prior to the end of the
month in which the Termination Date occurs shall be
deemed vested and payable to him. Such payment or
distribution shall be in accordance with the elections
made by the Executive.
(c) All stock options, stock appreciation rights, restricted
stock, and other incentive compensation granted to the
Executive by the Company shall immediately vest in their
entirety, and the Executive may exercise all such options
and rights, and shall receive payments and distributions
accordingly.
6.02 Termination in the Event of Death or Disability. If
during the Employment Term, the Company terminates the Executive's
employment due to the Executive's death or Disability, the Company
shall provide the following to the Executive (or his Beneficiary):
(a) as soon as practicable after the Termination Date a lump
sum cash payment equal to the sum of the Unpaid Salary
plus the Pro Rated Bonus.
(b) The amount and value of his entire plan account and
interest under any investment plan or stock ownership
plan, and all employer contributions made or payable to
any such plan for his account prior to the end of the
month in which the Termination Date occurs shall be
deemed vested and payable to him. Such payment or
distribution shall be in accordance with the elections
made by the Executive.
(c) All stock options, stock appreciation rights, restricted
stock, and other incentive compensation granted to the
Executive by the Company shall, to the extent vested,
remain outstanding for one (1) year from the Termination
Date. In the event that (i) the Company terminates the
Executive's employment due to Disability and (ii) the
Disability ceases (such that the Executive is no longer
entitled to receive Disability Income) prior to the
termination of the Employment Term, the Company will
continue to pay the Executive an amount equal to the
Disability Income for the remainder of the then current
Employment Term.
6.03 Termination for Cause or Voluntary Resignation other
than for Good Reason. Except as otherwise set forth in Section
4.08 or this Section 6.03, all obligations of the Company under
this Agreement shall cease if, during the Employment Term, the
Company terminates the Executive for Cause or the Executive resigns
his employment for other than Good Reason. Upon such termination
the Executive shall be entitled to receive, in a lump sum cash
payment as soon as practicable after the Termination Date, an
amount equal to the Unpaid Salary.
6.04 Payments Upon the Executive's Termination. The
foregoing payments upon the Executive's termination shall
constitute the exclusive payments due the Executive upon
termination from his employment with the Company under this
Agreement or otherwise; provided, however, that except as stated
above, such payments shall have no effect on any benefits which may
be payable to the Executive under any plan of the Company which
provides benefits after termination of employment, other than
severance pay or salary continuation pursuant to a Company plan
which amount shall be reduced by the amount of the Severance Amount
received by the Executive pursuant to this Agreement. The Executive
shall not be required to mitigate the amount of any payment
provided for after a Change in Control by seeking other employment
or otherwise, nor shall the amount of any such payment be reduced
by any compensation earned by the Executive as the result of
employment by another employer after the Termination Date.
ARTICLE VII
Certain Definitions
7.01 "Beneficiary" means the person or trust designated in
writing by the Executive to receive any payments due under this
Agreement in the event of the Executive's death and if no such
person or trust is designated, the Executive's estate.
7.02 "Cause" means (a) the Executive's material breach of
this Agreement, (b) conviction of the Executive for (i) any crime
constituting a felony in the jurisdiction in which committed, (ii)
any crime involving moral turpitude (whether or not a felony), or
(iii) any other criminal act against the Company involving
dishonesty or willful misconduct intended to injure the Company
(whether or not a felony), (c) the adjudication of the Executive as
bankrupt, (d) the failure or refusal of the Executive to follow the
lawful and proper directives of the Board of Directors, or (e)
willful malfeasance or gross misconduct by the Executive which
damages the Company; provided, however that the Company shall not
be deemed to have Cause pursuant to clauses (a) or (d) unless the
Company gives the Executive written notice that the specified
conduct or event has occurred and the Executive fails to cure the
conduct or event within thirty (30) days after receipt of such
notice. Termination of the Executive for Cause shall be
communicated by a Notice of Termination. For purposes of this
Agreement, a "Notice of Termination" shall mean delivery to the
Executive of a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the
Company's Board of Directors at a meeting of the Board called and
held for the purpose (after reasonable notice to the Executive and
reasonable opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board prior to such
vote), of finding that in the good faith opinion of the Board the
Executive was guilty of conduct constituting Cause and specifying
the particulars thereof in detail, including, with respect to the
conduct or event described in clauses (a) or (d), that the
Executive failed to cure such conduct or event during the
thirty-day period following the date on which the Company gave
written notice of the conduct or event referred to in clauses (a)
or (d). For purposes of this Agreement, no such purported
termination of the Executive's employment shall be effective
without such Notice of Termination.
7.03 "Change in Control" means the occurrence of any one
of the following events: (i) when the Company acquires actual
knowledge that any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or any of its affiliates,
is or becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then-outstanding securities, (ii) upon the first purchase
of the Company's common stock pursuant to a tender or exchange
offer (other than a tender or exchange offer made by the Company or
an employee benefit plan established or maintained by the Company
or any of its affiliates), (iii) upon the approval by the Company's
stockholders of (A) a merger or consolidation of the Company with
or into another corporation (other than a merger or consolidation
in which the Company is the surviving corporation and which does
not result in any capital reorganization or reclassification or
other change in the Company's then-outstanding shares of common
stock), (B) a sale or disposition of all or substantially all of
the Company's assets or (C) a plan of liquidation or dissolution of
the Company, or (iv) if during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least two-thirds
thereof, unless the election or nomination for the election by the
Company's stockholders of each new director was approved by a vote
of at least two-thirds of the directors then still in office who
were directors at the beginning of the period; provided however,
that notwithstanding the above, no "Change in Control" shall be
deemed to occur if the events in this Section 7.03, (x) are not
accompanied or preceded, within the previous year, by a public
disclosure made by or on behalf of the acquiring person, which
disclosure has not been approved or agreed to by the Company, of a
proposal with respect to such events, including the terms of such
proposal, and (y) are approved by a vote of at least a majority of
the directors then still in office who were directors on the date
immediately after the Effective Date.
7.04 "Disability" means any medically determinable physical or
mental impairment that renders the Executive substantially unable
to perform all of the Executive's duties required under Article I
hereof for 180 days out of any 360-day period. The date of the
Disability is the date on which the Executive is certified as
having incurred a Disability by a physician mutually acceptable to
the Executive (or the Executive's representative) and the Company.
7.05 "Good Reason" means
(a) at any time during the Employment Term, whether or not
there has been a Change in Control, the occurrence of any
one of the following events:
(i) The assignment to the Executive by the Company of
duties inconsistent with the Executive's duties and
responsibilities as Vice Chairman and Chief
Financial Officer, or any change to the Executive's
title of Vice Chairman and Chief Financial Officer,
or any material reduction in his duties or
responsibilities, except in connection with the
termination of the Executive's employment for
Cause, Disability or as a result of the Executive's
death or by the Executive other than for Good
Reason;
(ii) A reduction by the Company in the Executive's
Base Salary as in effect at the commencement
of the Employment Term or as the same may be
increased from time to time during the term of
this Agreement;
(iii) A failure by the Company to continue either
(A) the Short Term Incentive Plan described in
Section 3.03 hereof (provided that such plan
may be modified from time to time but shall be
deemed terminated if it does not remain
substantially in the form proposed by Hewitt)
or (B) plans providing the Executive with, in
the aggregate, substantially similar benefits
("Substitute Plans"), or a failure by the
Company to continue the Executive as a
participant in the Short Term Incentive Plan
on at least the same basis as the Executive
participates at the commencement of the
Employment Period or in the Substitute Plan on
at least the same basis as the Executive
participates at the date of adoption of the
Substitute Plan;
(iv) The failure by the Company to obtain the
specific assumption of this Agreement by any
successor or assign of the Company or any
person acquiring substantially all of the
Company's assets;
(v) Any material breach by the Company of this
Agreement; or
(vi) A failure by the Company to continue in effect
either (A) any material benefit or
compensation plan or stock option plan
(including any pension, profit sharing, bonus,
life insurance, health, accidental death or
dismemberment or disability plan) in which the
Executive is participating, or (B) plans
providing the Executive with, in the
aggregate, substantially similar benefits or
the taking of any action by the Company which
would adversely affect the Executive's
participation in or materially reduce the
Executive's benefits under any such plan; or
(b) following a Change in Control, the occurrence during the
Employment Term of the taking of any action by the
Company which would deprive the Executive of any material
fringe benefit enjoyed by the Executive immediately prior
to the Change in Control;
provided, however, except with respect to the events described in
Section 7.05(a)(ii),(iv),(vi) or 7.05(b), Good Reason shall not be
deemed to occur unless the Executive gives the Company written
notice that the specified conduct or event has occurred and the
Company fails to cure the conduct or event within thirty (30) days
of the receipt of such notice.
7.06 "Termination Date" means the date as of which the
Executive's employment with the Company is terminated by the
Company or by the Executive for any reason which, except in the
event of the Executive's death, shall be specified in a written
notice of termination received by either party from the other.
ARTICLE VIII
Executive Covenants
8.01 Confidential Information. The Executive agrees and
understands that in the Executive's position with the Company, the
Executive will be exposed to and receive information relating to
the confidential affairs of the Company, including but not limited
to business and marketing plans, membership lists, products,
promotions, development, financing, expansion plans, business
policies and practices, and information considered by the Company
to be confidential and in the nature of trade secrets. The
Executive agrees that during the Employment Term and thereafter the
Executive will keep such information confidential and not disclose
such information to any third person or entity without the prior
written consent of the Company. The Executive shall not be liable
for the inadvertent or accidental disclosure of such information,
if such disclosure occurs despite the exercise of a reasonable
degree of care. This confidentiality covenant shall not apply to
any knowledge or information that: (i) is or becomes available to
others, other than as a result of a breach by the Executive of this
Section 8.01; (ii) was available to the Executive on a
nonconfidential basis prior to its disclosure to the Executive
through his status as an officer or director of the Company; or
(iii) becomes available to the Executive on a nonconfidential basis
from a third party who is not bound by any confidentiality
obligation to the Company. This confidentiality covenant has no
temporal, geographical or territorial restriction. Upon termination
of this Agreement, the Executive will promptly supply to the
Company, all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, machines, technical data or any
other tangible product or document which has been produced by,
received by or otherwise submitted to the Executive during or prior
to the Employment Term.
8.02 Ownership of Trade Secrets. The Executive agrees
that any trade secret, invention, improvement, patent, patent
application or writing, and any program, method, process, systems
or novel technique or idea (whether or not capable of being
trademarked, copyrighted or patented), conceived, devised,
developed, or otherwise obtained by the Executive during the
Employment Term, shall be and become the property of the Company
and the Executive agrees to give the Company prompt written notice
of his conception, invention, authorship, development or
acquisition of any such trade secret, invention, improvement,
patent application, writing, program, method, process, system or
novel technique or idea and to execute such instruments or
transfer, assignment, conveyance or confirmation and such other
documents and to do all appropriate lawful acts as may be requested
by the Company to transfer, assign, confirm, and perfect in the
Company all legally protectable rights in any such trade secret,
invention, improvement, patent, patent application, writing,
program, method, process, system or novel technique or idea.
8.03 Non-Compete. By and in consideration of the Base
Salary, bonus and other benefits to be provided by the Company
hereunder, and further in consideration of the Executive's exposure
to the proprietary information of the Company, the Executive agrees
that the Executive will not, while employed by the Company, and for
a period of twelve (12) months after termination of employment
hereunder, directly or indirectly own, manage, operate, join,
control, be employed by, or participate in the ownership,
management, operation or control of or be connected in any manner,
including but not limited to holding the positions of shareholder,
director, officer, consultant, independent contractor, employee,
partner, or investor, with any Competing Enterprise (as hereinafter
defined); provided, however, that the Executive may invest in
stocks, bonds, or other securities of a Competing Enterprise (but
without otherwise participating in the business thereof) if (i)
such stocks, bonds, or other securities are listed on any national
securities exchange or are registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (or any successor
statute thereto); and (ii) his investment does not exceed, in the
case of any class of the capital stock of any one issuer, 5% of the
issued and outstanding shares, or in the case of bonds or other
securities, 5% of the aggregate principal amount thereof issued and
outstanding.
8.04 Competing Enterprise. For purposes of this Agreement, the
term "Competing Enterprise" shall mean any person, corporation,
partnership or other entity engaged in a business in the United
States or in any foreign jurisdiction in which the Company is
engaged in business on the date of the termination of this
Agreement, in each case which is in competition with any of the
businesses of the Company or any of its affiliates as of the date
of the termination of this Agreement.
8.05 Non-Solicitation; Published Statements. The
Executive agrees that (i) if his employment is terminated for any
reason he will not for a period until the expiration of the
covenant contained in Section 8.03 hereof, directly or indirectly,
solicit for employment, including without limitation recommending
to any subsequent employer the solicitation for employment of, or
employ any key employee employed by the Company or any of its
affiliates, and (ii) at any time during his employment and for a
period until the expiration of the covenant contained in Section
8.03 hereof, publish any statement or make any statement (under
circumstances reasonably likely to become public or that he might
reasonably expect to become public) critical of the Company, or any
of its affiliates (including its officers and directors), or
otherwise maligning the business or reputation of the Company or
any of its affiliates.
8.06 Effect of Breach. The Executive further agrees that
any breach of the terms of this Article VIII would result in
irreparable injury and damage to the Company for which the Company
would have no adequate remedy at law; the Executive therefore also
agrees that in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach
and/or continued breach by the Executive and/or any and all persons
and/or entities acting for and/or with the Executive, without
having to prove damages (or post any bond), in addition to any
other remedies to which the Company may be entitled at law or in
equity. The terms of this Article shall not prevent the Company
from pursuing any other available remedies for any breach or
threatened breach hereof, including but not limited to the recovery
of damages from the Executive. The Executive and the Company
further agree that the provisions of the covenant not to compete
are reasonable. Should a court or arbitrator determine, however,
that any provision of the covenant not to compete is unreasonable,
either in period of time, geographical area, or otherwise, the
parties hereto agree that the covenant should be interpreted and
enforced to the maximum extent which such court or arbitrator deems
reasonable.
8.07 Survival. The provisions of this Article VIII shall
survive any termination of this Agreement and the Employment Term,
and the existence of any claim or cause of action by the Executive
against the Company whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the
Company of the covenants and agreements of this Article VIII.
ARTICLE IX
Taxes
9.01 Taxes. Any amounts payable to the Executive
hereunder shall be paid to the Executive subject to all applicable
taxes required to be withheld by the Company pursuant to federal,
state or local law. The Executive or his Beneficiary, if
applicable, shall be solely responsible for all taxes imposed on
the Executive or his Beneficiary by reason of his receipt of any
amounts of compensation or benefits payable to the Executive
hereunder.
9.02 Excise Tax Payments. In the event that any payment
or benefit (within the meaning of Section 28OG(b)(2) of the
Internal Revenue Code of 1986, as amended ("the "Code")) to the
Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise
in connection with, or arising out of, his employment with the
Company or a Change in Control of the Company (a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive will be
entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes,
including Excise Tax, imposed on the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. All determinations as to
amounts payable to the Executive under this Section 9.02 shall be
made in accordance with Sections 28OG and 4999 of the Code and any
rulings and regulations promulgated thereunder and shall be made
within thirty (30) days after the Termination Date by the Company's
independent auditors, whose determinations shall be binding on the
Executive and the Company.
ARTICLE IX
Miscellaneous
10.01 Arbitration. Any controversy or claim arising out
of or relating to this Agreement or the breach of this Agreement
that cannot be resolved by the Executive and the Company, including
(i) any dispute as to the calculation of the amounts payable
pursuant to Article VI or Section 9.02 or (ii) any entitlement
under Section 10.02(a), shall, at the instance of either the
Executive or the Company, be submitted to arbitration in Delaware
in accordance with Delaware law and the procedures of the American
Arbitration Association. The determination of the arbitrator(s)
shall be conclusive and, subject to the provision for
indemnification in Section 10.02, binding on the Company and the
Executive and, subject to Section 10.09, judgment may be entered on
the arbitrator(s)' award in any court having jurisdiction.
10.02 Fees, Expenses and Indemnification.
(a) The Company shall pay all reasonable legal fees and
related expenses (including the costs of experts,
evidence and counsel) incurred by the Executive as a
result of (i) the Executive's hearing before the Board as
contemplated in Section 7.02 of this Agreement or (ii)
the Executive's seeking to obtain or enforce any right or
benefit provided by this Agreement, provided the
Executive substantially prevails in the proceeding.
(b) The Company shall indemnify the Executive as set forth in
the Indemnity Agreement attached as Exhibit 4 and made a
part thereof.
10.03 Assignment, Successors. This Agreement shall be
binding upon the Company and its successors and assigns and the
Executive and his Beneficiary.
10.04 Severability. If all or any part of this Agreement
is declared by any court or governmental authority to be unlawful
or invalid, such unlawfulness or invalidity shall not serve to
invalidate any portion of this Agreement not declared to be
unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed
in a manner which will give effect to the terms of such paragraph
or part of a paragraph to the fullest extent possible while
remaining lawful and valid.
10.05 Amendment and Waiver. This Agreement shall not be
altered, amended or modified except by written instrument executed
by the Company and the Executive. A waiver of any term, covenant,
agreement or condition contained in this Agreement shall not be
deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of
any later default thereof or of any other term, covenant, agreement
or condition.
10.06 Notices. All notices and other communications
required hereunder shall be in writing and delivered by hand or by
first class registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company: SafeCard Services, Incorporated
3001 Pershing Boulevard
Cheyenne, Wyoming 82001
Attention: Chairman
If to the Executive: G. Thomas Frankland
220 East 65th Street, Apt. 12C
New York, New York 10021
Any party may from time to time designate a new address by notice
given in accordance with this Section 10.06. Notice and
communications shall be effective when actually received by the
addressee.
10.07 Counterpart Originals. This Agreement may be
executed in several counterparts, each of which shall be deemed to
be an original but all of which together will constitute one and
the same instrument.
10.08 Entire Agreement. This Agreement and the Exhibits
attached hereto and made a part hereof forms the entire agreement
between the parties hereto with respect to any severance payments
and with respect to the subject matter contained in this Agreement.
10.09 Applicable Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by and
construed and enforced in accordance with the laws of the State of
Delaware without giving effect to the conflicts of law principles
thereof. Subject to the parties' agreement to arbitrate disputes
set forth in Section 10.01, the Executive and the Company hereby
irrevocably and unconditionally consent to submit to the exclusive
jurisdiction of the courts of the State of Delaware or the United
States of America located in the State of Delaware for any actions,
suits or proceedings arising out of or relating to this Agreement
and the transactions contemplated hereby (and the parties agree not
to commence any action, suit or proceeding relating hereto except
in such courts), and further agree that service of any process,
summons, notice or documents by United States registered mail to
either party in accordance with Section 10.06 hereof shall be
effective service or process for any action, suit or proceeding
brought against the other party in any such court and, absent any
statute, rule or order to the contrary, that each party shall have
thirty (30) days from actual receipt of any complaint to answer or
otherwise plead with respect thereto. The parties hereby
irrevocably and unconditionally waive any objection to the laying
of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby, in the courts of
the State of Delaware or the United States of America located in
the State of Delaware, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such
court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
SAFECARD SERVICES, INCORPORATED
By: ____________________________
Paul G. Kahn
Chief Executive Officer
G. THOMAS FRANKLAND
---------------------------------
Executive
SAFECARD SERVICES, INCORPORATED
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
I. Position Summary.
The Vice Chairman and Chief Financial Officer, who reports directly
to the Chairman of the Board and Chief Executive Officer of the
Company, has responsibility for the leadership and effective
management of the financial function of the Company in accordance
with the objectives and policies established by the Board.
II. Principal Accountabilities.
Manages the accounting, tax, treasury and control function.
Ensures the development of the Company's short-term and long-
term financial plans; ensures the development, implementation
and monitoring of the Company's comprehensive budgeting
process; periodically presents such plans and processes for
general review and approval by the Board of Directors.
Plans and directs the development of financial resources to
maintain growth.
Directs the planning, implementation and operation of
financial and operating systems.
Contributes to the operating and strategic planning process.
Maintains a high degree of interface and visibility within the
external financial community.
<PAGE>
STOCK OPTION AGREEMENT
FOR G. THOMAS FRANKLAND
THIS AGREEMENT, made as of the 2nd day of May, 1994 (the
"Grant Date"), between SafeCard Services, Incorporated, a Delaware
corporation (the "Company"), and G. Thomas Frankland (the
"Optionee").
WHEREAS, the Company has adopted the 1994 Long Term Stock-
Based Incentive Plan (the "Plan") in order to provide additional
incentive to selected officers, employees and directors of the
Company; and
WHEREAS, the committee responsible for administration of the
Plan has determined to grant an option to the Optionee as provided
herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the
right and option (the "Option") to purchase all or any part of an
aggregate of 120,000 whole shares of common stock of the Company,
par value $.01 ("Shares"), subject to, and in accordance with, the
terms and conditions set forth in this Agreement.
1.2 The Option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the
Code.
2. Purchase Price.
The price at which the Optionee shall be entitled to
purchase Shares upon the exercise of the Option shall be the
closing price per Share on the New York Stock Exchange on May 2,
1994.
3. Duration of Option.
The Option shall be exercisable to the extent and in the
manner provided herein for a period of ten (10) years from the
Grant Date (the "Exercise Term"); provided, however, that the
Option may be earlier terminated as provided in Section 6 hereof.
4. Exercisability of Option.
Unless otherwise provided in this Agreement, the Option
shall entitle the Optionee to purchase, in whole at any time or in
part from time to time, 40,000 Shares when the price of the Shares
has traded at or above $21.00 for twenty (20) consecutive trading
days; 40,000 Shares when the price of the Shares has traded at or
above $24.00 for twenty (20) consecutive trading days; and 40,000
Shares when the price of the Shares has traded at or above $27.00
for twenty (20) consecutive trading days; provided, however, that
the Option may not be exercised, in whole or in part, prior to the
first anniversary of the Grant Date, and provided further, that the
Option shall in all events fully vest on the ninth anniversary of
the Grant Date. For purposes of this Section 4, each trading day on
which the Company has acquired Shares in market transactions,
whether pursuant to a stock repurchase program or otherwise, shall
be excluded from the calculation of consecutive trading days.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this
Agreement, the Option may be exercised by delivery of written
notice to the Company, at its principal executive office. Such
notice shall state that the Optionee is electing to exercise the
Option and the number of Shares in respect of which the Option is
being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Committee, such person
or persons shall (i) deliver this Agreement to the Secretary of the
Company who shall endorse thereon a notation of such exercise and
(ii) provide satisfactory proof as to the right of such person or
persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1
shall be accompanied by payment of the full purchase price for the
Shares in respect of which the Option is being exercised, in cash
or by certified check.
5.3 Upon receipt of the notice of exercise and any
payment or other documentation as may be necessary pursuant to
Section 5.2 relating to the Shares in respect of which the Option
is being exercised, the Company shall take such action as may be
necessary to effect the transfer to the Optionee of the number of
Shares as to which such exercise was effective.
5.4 The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to
any Shares subject to the Option until (i) the Option shall have
been exercised pursuant to the terms of this Agreement and the
Optionee shall have paid the full purchase price for the number of
Shares in respect of which the Option was exercised, (ii) the
Company shall have issued and delivered the Shares to the Optionee,
and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company, whereupon the
Optionee shall have full voting and other ownership rights with
respect to such Shares.
6. Termination of Employment.
6.1 Voluntary Resignation for Good Reason or
Termination other than for Cause, Death or Disability. In the
event the Company terminates the Optionee's employment other than
for Cause (as defined in the Employment Agreement between the
Company and the Optionee dated as of the date hereof (the
"Employment Agreement")), death or Disability (as defined in the
Employment Agreement), or if the Optionee terminates his employment
for Good Reason (as defined in the Employment Agreement) the
Option, to the extent not yet vested shall fully vest, and the
Optionee may at any time within thirty (30) days after such
termination, exercise the Option.
6.2 Death or Disability. In the event of the
Disability of the Optionee or in the event the employment of the
Optionee is terminated as a result of his death, the Optionee may
at any time within one (1) year after such Disability or
termination of employment, exercise the Option to the extent, but
only to the extent, that the Option or portion thereof was
exercisable on the date of such Disability or termination of
employment. In the event of the Optionee's death, the Option shall
be exercisable, to the extent provided in the Plan and this
Agreement, by the legatee or legatees under the Optionee's will, or
by the Optionee's personal representatives or distributees, and
such person or persons shall be substituted for the Optionee each
time the Optionee is referred to herein.
6.3 Other Termination of Employment. If the
employment of the Optionee is terminated for any reason other than
the reasons set forth in Sections 6.1 and 6.2, the Option shall
terminate on the date of the Optionee's termination of employment
whether or not exercisable.
7. Effect of Change in Control.
Notwithstanding anything to the contrary contained in
this Agreement, in the event of a Change in Control (as defined in
the Employment Agreement), the Option, to the extent not yet
vested, shall fully vest and shall become immediately and fully
exercisable.
8. Nontransferability.
The Option shall not be transferable other than by will
or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code. During
the lifetime of the Optionee, the Option shall be exercisable only
by the Optionee.
9. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be
interpreted or construed to confer upon the Optionee any right with
respect to continuance of employment by the Company.
10. Adjustments.
In the event of a Change in Capitalization, the committee
administering the Plan may make appropriate adjustments to the
number and class of Shares or other stock or securities subject to
the Option and the purchase price for such Shares or other stock or
securities. The committee's adjustment shall be made in accordance
with the provisions of the Plan and shall be final and binding for
all purposes of the Plan and this Agreement.
11. Optionee Bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of
the Plan and agrees to be bound by all the terms and provisions
thereof.
12. Modification of Agreement.
This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but only by
a written instrument executed by the parties hereto.
13. Severability.
Should any provision of this Agreement be held by a court
of competent jurisdiction to be unenforceable or invalid for any
reason, the remaining provisions of this Agreement shall not be
affected by such holding and shall continue in full force in
accordance with their terms.
14. Governing Law.
The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of
Delaware without giving effect to the conflicts of laws principles
thereof.
15. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon any successor to the Company. This Agreement shall inure to
the benefit of the Optionee's legal representatives. All
obligations imposed upon the Optionee and all rights granted to the
Company under this Agreement shall be final, binding and conclusive
upon the Optionee's heirs, executors, administrators and
successors.
16. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation,
construction or application of this Agreement shall be determined
by the committee administering the Plan. Any determination made
hereunder shall be final, binding and conclusive on the Optionee
and Company for all purposes.
[Signatures on following page]
SAFECARD SERVICES, INCORPORATED
By: _________________________
Paul G. Kahn
Chief Executive Officer
_________________________
G. Thomas Frankland
Optionee
<PAGE>
STOCK OPTION AGREEMENT
FOR G. THOMAS FRANKLAND
THIS AGREEMENT, made as of the 2nd day of May, 1994 (the
"Grant Date"), between SafeCard Services, Incorporated, a
Delaware corporation (the "Company"), and G. Thomas Frankland
(the "Optionee").
WHEREAS, the Company has adopted the 1994 Long Term
Stock-Based Incentive Plan (the "Plan") in order to provide
additional incentive to selected officers, employees and
directors of the Company; and
WHEREAS, the committee responsible for administration of the
Plan has determined to grant an option to the Optionee as
provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the
right and option (the "Option") to purchase all or any part of an
aggregate of 180,000 whole shares of common stock of the Company,
par value $.01 ("Shares"), subject to, and in accordance with,
the terms and conditions set forth in this Agreement.
1.2 The Option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the
Code.
2. Purchase Price.
The price at which the Optionee shall be entitled to
purchase Shares upon the exercise of the Option shall be the
closing price per Share on the New York Stock Exchange on May 2,
1994.
3. Duration of Option.
The Option shall be exercisable to the extent and in
the manner provided herein for a period of ten (10) years from
the Grant Date (the "Exercise Term"); provided, however, that the
Option may be earlier terminated as provided in Section 6
thereof.
4. Exercisability of Option.
Unless otherwise provided in this Agreement, the Option
shall entitle the Optionee to purchase, in whole at any time or
in part from time to time, 25% of the total number of Shares
covered by the Option after the expiration of one (1) year from
the Grant Date and an additional 25% of the total number of
Shares covered by the Option after the expiration of each of the
second, third and fourth anniversaries of the Grant Date, and
each such right of purchase shall be cumulative and shall
continue, unless sooner exercised or terminated as herein
provided, during the remaining period of the Exercise Term. Any
fractional number of shares resulting from the application of the
percentages set forth in this Section 4 shall be rounded to the
next higher whole number of Shares.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this
Agreement, the Option may be exercised by delivery of written
notice to the Company, at its principal executive office. Such
notice shall state that the Optionee is electing to exercise the
Option and the number of Shares in respect of which the Option is
being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Committee, such person
or persons shall (i) deliver this Agreement to the Secretary of the
Company who shall endorse thereon a notation of such exercise and
(ii) provide satisfactory proof as to the right of such person or
persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1
shall be accompanied by payment of the full purchase price for the
Shares in respect of which the Option is being exercised, in cash
or by certified check.
5.3 Upon receipt of the notice of exercise and any
payment or other documentation as may be necessary pursuant to
Section 5.2 relating to the Shares in respect of which the Option
is being exercised, the Company shall take such action as may be
necessary to effect the transfer to the Optionee of the number of
Shares as to which such exercise was effective.
5.4 The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to
any Shares subject to the Option until (i) the Option shall have
been exercised pursuant to the terms of this Agreement and the
Optionee shall have paid the full purchase price for the number of
Shares in respect of which the Option was exercised, (ii) the
Company shall have issued and delivered the Shares to the Optionee,
and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company, whereupon the
Optionee shall have full voting and other ownership rights with
respect to such Shares.
6. Termination of Employment.
6.1 Voluntary Resignation for Good Reason or
Termination other than for Cause, Death or Disability. In the event
the Company terminates the Optionee's employment other than for
Cause (as defined in the Employment Agreement between the Company
and the Optionee dated as of the date hereof (the "Employment
Agreement")), death or Disability (as defined in the Employment
Agreement), or if the Optionee terminates his employment for Good
Reason (as defined in the Employment Agreement) the Option, to the
extent not yet vested shall fully vest, and the Optionee may at any
time within thirty (30) days after such termination, exercise the
Option.
6.2 Death or Disability. In the event of the
Disability of the Optionee or in the event the employment of the
Optionee is terminated as a result of his death, the Optionee may
at any time within one (1) year after such Disability or
termination of employment, exercise the Option to the extent, but
only to the extent, that the Option or portion thereof was
exercisable on the date of such Disability or termination of
employment. In the event of the Optionee's death, the Option shall
be exercisable, to the extent provided in the Plan and this
Agreement by the legatee or legatees under the Optionee's will, or
by the Optionee's personal representatives or distributees, and
such person or persons shall be substituted for the Optionee each
time the Optionee is referred to herein.
6.3 Expiration of Employment Term. In the event
the Optionee's Employment Term (as defined in Section 1.01 of the
Employment Agreement) is not extended, the Option to the extent not
yet vested shall vest and the Optionee may at any time up to thirty
(30) days after the expiration of the Employment Term, exercise the
Option.
6.4 Other Termination of Employment. If the
employment of the Optionee is terminated for any reason other than
the reasons set forth in Sections 6.1., 6.2 and 6.3, the Option
shall terminate on the date of the Optionee's termination of
employment whether or not exercisable.
7. Effect of Change in Control.
Notwithstanding anything to the contrary contained in
this Agreement, in the event of a Change in Control (as defined in
the Employment Agreement), the Option, to the extent not yet
vested, shall fully vest and shall become immediately and fully
exercisable.
8. Nontransferability.
The Option shall not be transferable other than by will
or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code. During
the lifetime of the Optionee, the Option shall be exercisable only
by the Optionee.
9. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be
interpreted or construed to confer upon the Optionee any right with
respect to continuance of employment by the Company.
10. Adjustments.
In the event of a Change in Capitalization, the committee
administering the Plan may make appropriate adjustments to the
number and class of Shares or other stock or securities subject to
the Option and the purchase price for such Shares or other stock or
securities. The committee'sadjustment shall be made in accordance
with the provisions of the Plan and shall be final and binding for
all purposes of the Plan and this Agreement.
11. Optionee Bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of the
Plan and agrees to be bound by all the terms and provisions
thereof.
12. Modification of Agreement.
This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but only by
a written instrument executed by the parties hereto.
13. Severability.
Should any provision of this Agreement be held by a court
of competent jurisdiction to be unenforceable or invalid for any
reason, the remaining provisions of this Agreement shall not be
affected by such holding and shall continue in full force in
accordance with their terms.
14. Governing Law.
The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Delaware without giving effect to the conflicts of laws
principles thereof.
15. Successors in Interest.
This Agreement shall inure to the benefit of and be
binding upon any successor to the Company. This Agreement shall
inure to the benefit of the Optionee's legal representatives. All
obligations imposed upon the Optionee and all rights granted to the
Company tinder this Agreement shall be final, binding and
conclusive upon the Optionee's heirs, executors, administrators and
successors.
16. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation,
construction or application of this Agreement shall be determined
by the committee administering the Plan. Any determination made
hereunder shall be final, binding and conclusive on the Optionee
and Company for all purposes.
SAFECARD SERVICES, INCORPORATED
By: _________________________
Paul G. Kahn
Chief Executive Officer
_________________________
G. Thomas Frankland
Optionee
<PAGE>
INDEMNITY AGREEMENT
AGREEMENT, effective May 2, 1994 (the "Agreement"), between
SafeCard Services, Inc., a Delaware corporation (the "Company"),
and G. Thomas Frankland (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 agreed
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
l(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 May 2, 1994,
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, trust, employee benefit
plan 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 under
which 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
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 transactions(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-exclusive, 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
the 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 effect 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 an 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 insure 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: G. Thomas Frankland
220 East 65th Street, Apt. 12C
New York, New York 10021
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.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the 2nd day of May, 1994.
SAFECARD SERVICES, INC.
By:________________________
Name: Paul G. Kahn
Title: Chief Executive Officer
INDEMNITEE
____________________________
G. Thomas Frankland
EXHIBIT 10(B)
INDEMNITY AGREEMENT
AGREEMENT, as of April 7, 1994 (the "Agreement"), between
SafeCard Services, Inc., a Delaware corporation (the "Company"),
and Thomas F. Petway, III (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 l(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 April 6, 1994, 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 elections 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 his
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 Jacksonville,
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, complaint,
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 effect 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:
Thomas F. Petway, III
c/o Home Builders Insurance Services
Post Office Drawer 10197
2727 Atlantic Boulevard
Jacksonville, Florida 32247
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: Chairman and Chief Executive 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.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement as of the 7th day of April, 1994.
SAFECARD SERVICES, INC.
By: PAUL G. KAHN
-----------------------
Name: Paul G. Kahn
Title: Chariman and Chief
Executive Officer
INDEMNITEE
THOMAS F. PETWAY, III
-----------------------------
Thomas F. Petway, III
EXHIBIT 10(C)
SAFECARD SERVICES, INCORPORATED
THOMAS F. PETWAY III
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option" or
"Agreement") dated as of April 7, 1994 by and between SAFECARD
SERVICES, INCORPORATED, a Delaware corporation ("SafeCard") and
Thomas F. Petway III, 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 April 6, 1994.
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 April 6, 1994 (the "Grant Date"), and ending at the
close of business on April 5, 1999 (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 April 6,
1995, 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
April 6, 1994 ($18.375 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 offices 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.
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 422 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:
c/o Home Builders Insurance Services
P.O. Drawer 10197
2727 Atlantic Boulevard
Jacksonville, Florida 32247
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 PAUL G. KAHN
----------------------------------
Paul G. Kahn
Chairman and Chief Executive Officer
By THOMAS F. PETWAY, III
-----------------------------------
Thomas F. Petway, III
Optionee
EXHIBIT 10(d)
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
PETER HALMOS, )
)
Plaintiff, )
) No. 93 CH 4807
v. )
)
SAFECARD SERVICES, INC., a )
corporation doing business in Illinois, )
and WILLIAM T. BACON, JR., ) Judge Albert Green
an Illinois resident, )
)
Defendants. )
SECOND AMENDED COMPLAINT
------------------------
Plaintiff Peter HALMOS ("HALMOS"), by his
undersigned counsel complains of defendants SafeCard Services,
Inc., a corporation doing business in Illinois ("SafeCard"), and
William T. Bacon, Jr., an Illinois resident ("Bacon"), as
follows:
Preliminary Statement and Background
------------------------------------
1. Plaintiff Peter Halmos and his brother
Steven co-founded SafeCard in 1969. For over twenty years
thereafter, until October 1990, Peter Halmos was SafeCard's
Chairman of the Board; until April 1987, he was also SafeCard's
Chief Executive Officer. After October 1990, he continued to
perform services for SafeCard, as an Executive Management
Consultant, until December 1992.
2. Defendant SafeCard is a Delaware
corporation (headquartered in Florida from 1971 until late 1992,
and now in Wyoming), which creates, operates, and markets credit
card enhancement services such as "HotLine," whereby subscribers
can register their credit card numbers and similar data with
SafeCard, and if the credit card(s) are lost or stolen, SafeCard
will notify the card issuers to cancel the cards and issue new
ones.
3. During Peter Halmos' long SafeCard career,
from 1969 through 1992, SafeCard's annual revenue rose from zero
to $157.6 million; its cash and investments rose from zero to
$187.3 million; and its annual net after-tax earnings rose from
zero to $22.5 million, all with no debt whatever. An investment
of $3.00 for one share of SafeCard stock in 1971 (the time of its
first public offering) would have been worth $492 at the end of
1992.
4. Defendant William T. Bacon, Jr. ("Bacon"),
an Illinois resident, is and since 1977 has been a Director of
SafeCard. Bacon is the only current SafeCard Director who was in
office throughout the events described in this Complaint.
5. During Peter Halmos' long SafeCard career,
the non-Halmos members of SafeCard's Board (including Bacon), and
SafeCard itself, repeatedly acknowledged that Peter Halmos'
continuing involvement was important to SafeCard's success. For
example:
a. At a Board meeting on October 20,
1987, SafeCard's "outside" Directors (including defendant Bacon)
stated that "SafeCard's founders are necessary for SafeCard's
continuing success."
b. SafeCard's April 30, 1988 SEC Form
10-Q stated: "If ...Peter Halmos ... does terminate his services
to the Company, the Company believes that this would have a
material adverse effect on the Company."
c. At an August 25, 1988 Board
meeting, Bacon "expressed the view that Peter Halmos' desire to
disengage from the Company was not in the best interest of the
Company" and asked "whether it would be possible to induce Peter
to reconsider his decision...."
d. On November 9, 1992, Bacon wrote to
Peter Halmos, praising his "dedication and principles" and
stating: "You created SafeCard, [and] should be proud ...."
6. Despite SafeCard's huge success, and
despite the fact that Peter Halmos had successfully resolved each
of the potentially ruinous legal and other battles facing the
company, in December 1992 SafeCard and two of its Directors
(defendant Bacon and Robert Dilenschneider) summarily and
abruptly terminated SafeCard's longstanding relationship with
Peter Halmos; breached and repudiated all of the promises,
representations, and agreements SafeCard and Bacon had made to
induce Halmos not to "disengage from [SafeCard]" (and on
which Halmos had relied in yielding to their pleas that he stay
on); and, in addition, falsely smeared Halmos in the public
press, in Illinois and elsewhere, and tried to extort money from
him. This suit is brought to redress those wrongs.
7. 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). SafeCard is and at all relevant times has
been doing business in Illinois. Among many other things,
SafeCard's March 10, 1992 and April 8, 1993 Annual Meetings, and
many of its Board of Directors' meetings pertinent to this
Complaint, were held in Chicago, Illinois. In addition, because
SafeCard has not followed the
"special-appearance-and-immediate-motion-to-quash" procedure set
forth in 735 ILCS 5/2-301(a), SafeCard has consented to this
Court's jurisdiction over it.
8. Bacon is subject to this Court's
jurisdiction pursuant to 735 ILCS 5/2-209(a)(1), (2), and 735
ILCS 5/2-209(b)(2), (4). Bacon is and for many years has been a
resident of Illinois, and doing and transacting business in
Chicago, Illinois, where he is employed by Bacon Whipple, an
investment banking firm. In addition, because Bacon has not
followed the "special-appearance-and-immediate-motion-to-quash"
procedure set forth in 735 ILCS 5/2-301(a), Bacon has consented
to this Court's jurisdiction over him.
9. Venue is proper in this Court under 735
ILCS 5/2-101(1), (2) and 735 ILCS 5/2-102(a). SafeCard is a Cook
County resident for venue purposes. Many of the transactions out
of which Halmos' claims arose occurred wholly or partly in Cook
County.
CAUSES OF ACTION ALLEGED
------------------------
COUNT I
(Declaratory Judgment; Breach of Written Contract:
Advance Indemnification Payments For This Action)
--------------------------------------------------
Peter Halmos complains of SafeCard as follows:
10. This Count I is a claim for declaratory
judgment and ancillary relief, based on SafeCard's breach of a
written contract, which embodied and came forward a longstanding
SafeCard custom and practice, to provide Peter Halmos " just like
other senior SafeCard personnel - with indemnification to the
maximum extent permitted by law, including mandatory
indemnification "advances" that is, "advance" payment directly to
billing counsel, as and when incurred, of potentially
indemnifiable legal fees and other expenses incurred by
Halmos in ongoing judicial, administrative, and/or investigative
proceedings. This Count I addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in this action. (Halmos has other indemnification claims
as well, some of which, relating to other matters, are set forth
in Counts IV-X.)
11. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
as paragraph 11 of this Count I, as if fully set forth herein.
SafeCard's Unbroken History Of
"Advancing" Indemnification Payments
------------------------------------
12. At all times from its founding by Peter and
Steven Halmos in 1969 until the filing of this action, SafeCard
purposely chose not to carry directors' and officers' ("D&O")
insurance. For cost and other reasons, SafeCard purposely chose
to "self-insure against the kinds of expenses (including
directors' and officers' indemnification) which a corporation
might otherwise cover through purchasing D&O insurance.
13. Delaware law regarding corporate
indemnification, specifically 8 Del. Code Section 145(e),
expressly permits a Delaware corporation (such as SafeCard) to
"advance" directors' and officers' legal fees and other costs and
expenses in any judicial, administrative or investigative
proceeding, by paying those fees and expenses directly, as and
when they are incurred and billed, rather than requiring the
officer or director personally to defray them until final
disposition of the suit or proceeding and/or a final
determination of whether the fees and expenses are
indemnifiable. Under Delaware law, this specifically includes an
of officer's or director's legal fees and other expenses in suits
or proceedings by or against the corporation itself.
14. At least since 1978 (that is, for over 15
years), and on information and belief at all times from its
founding until the filing of this action-- SafeCard, as a
self-insurer, has consistently and uniformly "advanced"
potentially indemnifiable fees and expenses incurred by
its Directors or senior officers, as permitted by Delaware law.
SafeCard has consistently and uniformly done so by paying such
fees and expenses directly to the counsel involved, as and
when they are incurred and billed and without awaiting final
disposition of the suit or proceeding or a final determination of
whether the fees and expenses are in fact indemnifiable,
all as permitted by 8 Del. Code Section 145(e). As stated at page
18 of SafeCard's SEC Registration Statement No. 33-39023 filed
February 14, 1991, for example, with specific reference to, inter
alia, indemnification "advances" under Section 145: "Any
indemnification under Section 145 ... shall be made by SafeCard,"
and can be refused only on the basis of an affirmative
"determination" that in the particular situation, indemnification
could never ultimately be proper under any possible set of
circumstances.
15. SafeCard's custom, practice, and course of
dealing of "advancing" potentially indemnifiable legal fees and
expenses, by paying them directly to billing counsel as and when
incurred and billed, and without awaiting the end of the suit or
proceeding or a final determination as to whether the fees and
expenses are in fact indemnifiable, was adopted by SafeCard, in
connection with SafeCard's decision to "self-insure" such costs
(paragraph 12 above), because SafeCard recognized that (among
other things) well-qualified officers and Directors would be
difficult to attract or retain, if they might be forced to pay
potentially large legal fees and expenses from their own pockets
for, perhaps, years before final disposition of a proceeding
and/or a final determination of indemnifiability.
16. For at least the past fifteen years (since
1978), SafeCard has uniformly and consistently applied its
custom, practice, and course of dealing regarding indemnification
"advances" as described above -- except for its breaches
complained of in this suit, in late 1992 and thereafter, with
regard to Peter Halmos. Even with regard to Peter Halmos,
moreover, prior to its breaches complained of in this suit
SafeCard uniformly applied its custom, practice, and
course of dealing, and accordingly made such "advances" on
Halmos' behalf, by paying his legal fees and expenses directly to
billing counsel as and when incurred and billed, and without
awaiting the end of the suit or proceeding or a final
determination as to whether the fees and expenses were in fact
indemnifiable.
17. SafeCard made such indemnification
"advances" on Halmos' behalf, for example, with regard to at
least the following proceedings arising from Halmos' association
with SafeCard (in all of which Halmos was ultimately vindicated,
with no finding of any wrongdoing as to him, but in all of which
SafeCard, consistent with its custom, practice, and course of
dealing described herein and as permitted by Delaware law,
"advanced" Halmos legal fees and other expenses in advance of any
final determination as to indemnifiability):
a. In May 1978 SafeCard fired one Warren Drew,
who (unknown to SafeCard) had provided a Barron's stringer and
the stockbroker of a Barron's writer with inside information on
which they traded. Drew then instigated an SEC
administrative/investigative proceeding aimed at Halmos and
others. Between 1978 and 1980 SafeCard "advanced" Halmos' legal
fees and expenses in that proceeding (which later ended in
Halmos' favor), by paying them, as and when incurred and billed,
directly to his counsel Hugo L. Black, Jr., and Mr. Black's firm
Kelly, Black, Black, Byrne, Craig & Beasley (collectively "Kelly,
Black").
b. During 1978 and 1979 SafeCard also
"advanced" Halmos' legal fees and other expenses with regard to
(i) Miedema v. SafeCard Services Inc., Peter Halmos, et al., No.
78-1691 (Cir. Ct., Broward Cty., Fla.), a Florida State Court
lawsuit in which Halmos was a counter-plaintiff as well as a
defendant, and (ii) Fineberg v. SafeCard Services, Inc., Peter
Halmos et al., No. 78 Civ. 2782 (TPG) (S.D.N.Y.), a Federal Court
lawsuit, by paying Halmos' fees and expenses, as and when
incurred and billed, directly to his counsel in those suits.
c. In addition, between 1978 and 1980 SafeCard
"advanced" Halmos' legal fees and expenses -- by paying them, as
and when incurred and billed, directly to Kelly, Black-- with
regard to (i) an FTC investigative proceeding aimed at Halmos and
others, and (ii) Mangis v. SafeCard Services, Inc., Peter Halmos,
et al., No. 78-19059 (Cir. Ct., Broward Cty., Fla.), a
shareholder derivative suit (disposed of on summary judgment),
both of which ultimately ended in Halmos' favor.
d. During 1981 SafeCard also "advanced"
Halmos' legal fees and other expenses with regard to another SEC
investigative proceeding (which ultimately ended in Halmos'
favor), by paying those fees and expenses, as and when incurred
and billed, directly to Halmos' counsel, Kelly, Black and Parker
Chapin Flattau & Klimpl ("Parker Chapin").
e. Following SafeCard's June 1983 release
(over Halmos' protest; he believed, correctly as it later turned
out, that the figures were wrong) of a second-quarter-1983
earnings report showing less than expected earnings, SafeCard's
stock price fell by 30% and Halmos - who had sold part of his
SafeCard stock to raise funds for the medical care of his
newborn, chronically ill son -- was falsely accused of insider
trading, both in an SEC administrative and investigative
proceeding and also in a shareholder derivative suit, SafeCard
Services, Inc. by Peter E. Chimicles v. Halmos, No.7269 (Chancery
Ct., New Castle Cty., Del.). SafeCard "advanced" (by paying them
directly to Halmos' counsel, Kelly, Black, Parker Chapin, and
Cherry & Flynn, as and when incurred and billed) Halmos' legal
fees and expenses with regard to that suit, which was withdrawn
when the plaintiff realized his claims were unfounded, and that
SEC proceeding, which also ended in Halmos' favor.
f. Between 1984 and 1986 SafeCard also
"advanced" (by paying them directly to Kelly, Black, as and when
incurred and billed) Halmos' legal fees and other expenses with
regard to a shareholder lawsuit, Aossey v. SafeCard Services,
Inc., Peter Halmos, Steven Halmos, et al., No. 8446658 (Cir. Ct..
Broward Cty., Fla.), which later ended in Halmos' favor.
g. In September 1987 American Express ("AmEx")
cancelled a contract with SafeCard. Though that event occurred
over six months after Halmos' last previous sale of SafeCard
stock, and though it shocked Halmos (who had time and again been
assured by SafeCard personnel that all was well with AmEx), once
again an SEC investigation was initiated. During 1987 and 1988
SafeCard advanced Halmos' legal fees and other expenses with
regard to that SEC investigation (which ultimately ended in
Halmos' favor), by paying those fees and expenses, as and when
incurred and billed, directly to Halmos' counsel, Kelly, Black
and Fried, Frank, Harris, Shriver & Jacobson ("Fried, Frank").
h. Between March 1989 and in or about
September 1991, SafeCard also "advanced" (by paying them, as and
when incurred and billed, directly to Halmos' and Bacon's
counsel, Kelly, Black; Fried, Frank; and Cherry & Flynn) the
legal fees and expenses of Halmos, of defendant William T. Bacon,
Jr. and of Steven Halmos, with regard to a shareholder class
action suit, Wolfe, et al. v. SafeCard Services, Inc., et al.,
No. 89-6198 GONZALEZ-CIV (S.D. Fla.) (arising out of the AmEx
termination, false insider trading allegations, and other
matters; plaintiffs withdrew the suit after learning, from
discovery and discussions, that their claims were groundless).
i. Between 1989 and 1992, SafeCard also
"advanced" (by paying them, as and when incurred and billed,
directly to billing counsel, Fried, Frank and Weil Gotschal &
Manges) Halmos' legal fees and other expenses, and the legal fees
and other expenses of other SafeCard personnel, with regard to an
FTC administrative proceeding asserting various violations of the
FTC Act (which also ultimately ended in Halmos' favor).
18. At all material times SafeCard's
Certificate of Incorporation and SafeCard's By-Laws provided as
follows with regard to indemnification:
a. Article EIGHTH of SafeCard's Certificate of
Incorporation (a true and correct copy of which is attached
hereto as Exhibit A) provided: "The corporation shall, to the
full extent permitted by Section 145 of the Delaware General
Corporation Law, as amended [i.e., 8 Del. Code Section 145] ...,
indemnify all persons whom it may indemnify pursuant thereto"
[emphasis added]; and
b. Article V, Section 10 of SafeCard's By-Laws
(a true and correct copy of which is attached hereto as Exhibit
B.) provided: "Each person who is or was a director or officer of
the corporation ... shall be indemnified by the corporation in
accordance with, and to the fullest extent authorized by, the
provisions of the General Corporation Law of the State of
Delaware as ... amended ...." [Emphasis added.]
19. As Halmos and SafeCard knew at all times,
the words "to the full extent permitted," and "to the fullest
extent authorized," quoted in paragraphs 18(a) and 18(b) above,
were deliberately chosen to emphasize that SafeCard's
indemnification obligation was to be broader than merely what
Delaware law "required." In particular, and as Halmos and
SafeCard knew at all times, SafeCard's custom, practice, and
course of dealing regarding indemnification "advances" was that
such "advances" were mandatory. For example, with specific regard
to such "advances" (among other things), SafeCard's February 14,
1991 SEC Registration Statement No. 33-39023 states, at page 18,
that "[a]ny indemnification under Section 145 ... shall be made
by SafeCard," and can be refused only on the basis of an
affirmative "determination" that in the particular situation,
indemnification could never ultimately be proper under any
possible set of circumstances.
20. In light of SafeCard's uniformly applied
custom, practice, and course of dealing of providing
indemnification "advances" as described above, and as expressly
permitted by 8 Del. Code Section 145(e) and documented in
SafeCard's SEC filings, Halmos reasonably understood, and
SafeCard knew that he understood, that SafeCard's charter and By-
Laws promising indemnification "to the full extent permitted by
Section 145 of the Delaware General Corporation Law [8 Del. Code
Section 145]" (Article EIGHTH of SafeCard's Certificate of
Incorporation, paragraph 18(a) above), and "to the fullest extent
authorized by ... the General Corporation Law of the State of
Delaware" (Article V, Section 10 of SafeCard's By-Laws,
paragraph 18(b) above), were intended to, and did, include
providing indemnification "advances," pursuant to and in
accordance with that custom, practice, and course of dealing.
SafeCard's Repeated Indemnification Promises To Halmos
------------------------------------------------------
21. In April 1987. Halmos resigned as
SafeCard's Chief Executive Officer, as part of a planned
"disengagement" from SafeCard prompted in part by Halmos' need to
care for a chronically ill young son (born prematurely in 1983),
in part by his desire to devote more time to other endeavors, and
in part by his weariness of the constant battles to which he was
subjected because of his highly visible position as SafeCard's
Chairman and CEO and (in effect) as the scapegoat for SafeCard's
mistakes.
22. At (for example) SafeCard's October 20,
1987, January 13, 1988, and February 21, 1988 Board of Directors
meetings, Halmos told the Board that he did not wish to continue
in his traditional role at SafeCard. At SafeCard's February 25,
1988 Board meeting, Halmos also told the Board that he did not
want to renew the management contract, under which his services
were provided to SafeCard, when it expired on March 15, 1988.
23. In fact the management contract, mentioned
in paragraph 22 above, did expire on March 15, 1988 and was not
renewed. As of March 15, 1988, Halmos ceased accepting SafeCard
compensation and told SafeCard that he would work only on
"special assignment," "case-by-case," with any payment to be
negotiated "on a project-by-project basis."
24. During and after the events described in
paragraphs 21-23 above, defendants SafeCard and Bacon represented
in writing, to both Halmos and the public. that Halmos' continued
involvement with SafeCard was important to its success. For
example:
a. The written, signed Minutes of the
October 20, 1987 meeting of SafeCard 's Board of Directors state
that the two independent, "non-Halmos" members of the Board
(Richard W. Nixon, now deceased, and defendant William F. Bacon,
Jr.) expressed their belief that Halmos, as well as his brother
Steven, was "necessary for [Safecard's] continuing success."
b. SafeCard's April 30, 1988 SEC Form
10-Q (a written, signed document filed by SafeCard for purposes
of public disclosure, with civil and criminal penalties for any
knowing material misstatement) stated that if Halmos ended his
involvement with SafeCard, that "would have a material adverse
effect on SafeCard."
c. The written, signed Minutes of the
August 25, 1988 meeting of SafeCard's Board of Directors state
that "Mr. Bacon [in Peter Halmos' absence] expressed the view
that Peter Halmos' desire to disengage from the Company was not
in the best interests of the Company."
d. The written, signed Minutes of the
October 27, 1988 meeting of SafeCard's Board of Directors state
that the independent Directors, defendant Bacon and Mr. Nixon,
acknowledged "the ever-increasing time and effort Peter Halmos
has been asked to devote to the Company," noted the Company's
"decision to request that Peter take a far more active role," and
reiterated the "very strong view that it is in the Company's best
interest to reach an agreement with ... Peter Halmos on [a]
management agreement ...."
25. Because of their views stated in paragraph
24 above, between mid-1987 and late 1988 SafeCard and its
independent, non-Halmos Directors (defendant Bacon and Mr. Nixon)
sought to persuade Halmos not to disengage from SafeCard. For
example, the Minutes of the August 25, 1988 meeting of SafeCard's
Board of Directors report that during that meeting, and in
Halmos' absence, the independent, non-Halmos Directors had a
"[d]iscussion ... as to whether it would be possible to induce
Peter [Halmos] to reconsider his decision, or at least
to modify it in some manner."
26. SafeCard stated in its written, signed
Proxy Statement dated September 2, 1988, a true and correct copy
of which is attached hereto as Exhibit C (emphasis added):
"The Management Agreement between SafeCard and Halmos &
Company, Inc. ("HCI") for the services of Messrs. Peter and
Steven Halmos, Chairman of the Board and Chief Executive Officer,
respectively, expired on March 15, 1988 and will not be renewed.
"SafeCard has entered into a verbal agreement with Steven
Halmos ... [whose] compensation ... from March 15, 1988 through
July 31, 1988 was $993,750.
"... Discussions with Peter Halmos continue for a
contract with respect to his services ....
"In addition, SafeCard is reviewing the scope of
indemnification permitted by its certificate of incorporation and
applicable law and the Board of Directors has agreed to indemnify
each of Peter Halmos and Steven Halmos, and their respective
affiliates and has agreed to pay all fees and expenses in any
legal or administrative proceeding with regard to their
relationship with SafeCard to the fullest extent so permitted."
[Emphasis added.]
27. Consistent with SafeCard's longstanding
custom, practice, and course of dealing described in paragraphs
12-20 above, and in particular the policy of paying legal fees
and expenses directly to counsel as and when incurred and billed,
SafeCard's September 1988 Proxy Statement (paragraph 26 above)
expressly states that SafeCard's obligation is to "pay" (not to
later "reimburse") "all fees and expenses ... to the fullest
extent ... permitted."
28. Pursuant to and in accordance with
SafeCard's uniformly applied custom, practice, and course of
dealing described in paragraphs 12-20 above, during and as part
of the "[d]iscussions with Peter Halmos" described in SafeCard's
September 1988 Proxy Statement (paragraph 26 above), in
connection with its "agree[ment] to indemnify ... Peter Halmos"
described in that Proxy Statement SafeCard expressly and
explicitly reaffirmed, represented, and promised to Halmos that
SafeCard had obligated itself to provide indemnification
"advances" to Halmos as permitted by Delaware law (8 Del. Code
Section 145(e)).
29. The reaffirmations, representations, and
promises described in paragraph 28 above were made to Halmos
(among other occasions) on or about July 1, 1988 by SafeCard's
counsel Gertig, in the presence and with the support of defendant
Bacon, at a meeting at the Washington, D.C. offices of Fried,
Frank, Harris, Shriver & Jacobsen ("Fried Frank"), a law firm in
which Gertig is a partner. From time to time -- including (in
connection with the SEC investigation described in paragraph
17(h) above) during the time of the meeting described in
this paragraph - Gertig and Pried Frank also represented Halmos,
as well as SafeCard.
30. Despite Peter Halmos' desire to "disengage"
from SafeCard, during the October 27, 1988 meeting of SafeCard's
Board of Directors the independent, non-Halmos" Directors
(defendant Bacon and Mr. Nixon) acknowledged "the ever-increasing
time and effort Peter Halmos has been asked to devote to the
Company," noted "the decision to request that Peter take a far
more active role," and again expressed the "very strong view that
it is in the Company's best interest to reach an agreement" with
Peter Halmos. This was consistent with SafeCard's assertion, as
stated in its September 1988 Proxy Statement (Exhibit C
hereto), that "If ... Peter Halmos ... does terminate his
services to SafeCard, SafeCard believes that this would have a
material adverse effect on SafeCard."
31. During the October 27, 1988 meeting of
SafeCard's Board of Directors. after extended discussion a number
of "consensuses" were reached. After further discussion in
January 1989, SafeCard and Peter Halmos agreed on the substantive
terms of a new Management Agreement to cover Halmos' services to
SafeCard. SafeCard embodied that Agreement in a signed writing
(the Minutes of the January 23, 1989 meeting of its Board of
Directors. a true and correct copy of which is attached hereto as
Exhibit D). In addition, SafeCard acknowledged that Agreement,
and acknowledged that as part of it Halmos was and continued to
be entitled to indemnification "to the maximum extent permitted
by law," in other signed writings the accuracy of which SafeCard
certified under oath, such as at page 19 of its 1988 Annual
Report (issued in early 1989) and at page 15 of its Proxy
Statement dated September 6, 1989, true and correct copies of
which Annual Report and Proxy Statement are attached hereto as
Exhibits E and F respectively.
32. In light of SafeCard's uniformly applied
custom, practice, and course of dealing of providing
indemnification "advances" as described above, and as expressly
permitted by 8 Del. Code Section 145(e), Halmos reasonably
understood, and SafeCard knew that he understood, that SafeCard's
acknowledgement of his right to indemnification "to the maximum
extent permitted by law" (paragraph 31 above) was intended to and
did include providing indemnification "advances," pursuant to and
in accordance with that custom, practice, and course of dealing.
As SafeCard knew and intended that he would, Peter Halmos relied
on SafeCard's uniformly applied custom, practice, and course of
dealing described above, and on SafeCard's repeated express
reaffirmations of his right to indemnification to the maximum
extent permitted by law" as described above, including his right
to indemnification "advances" as permitted by law (8 Del. Code
Section 145(e)). In reliance thereon, Peter Halmos did not
"disengage" from SafeCard, but rather accepted SafeCard's
"request that [he] take a far more active role" (paragraph 30
above); and, accordingly, he continued to provide his services to
SafeCard until December 1992. At all material times, SafeCard
knew that Halmos' continuing to provide services to it was in
reliance on his indemnification rights.
SafeCard's 1992 Written Indemnification Agreement
-------------------------------------------------
33. At the request of then-new Director Robert
Dilenschneider, prior to January 1992, SafeCard (through its
counsel Gertig, with the involvement of its Board) and Peter
Halmos had been engaged for some time in discussing and drafting
an Indemnification Agreement to spell out in convenient and
compendious detail SafeCard's uniformly applied custom, practice,
and course of dealing, and its repeated written reaffirmations
thereof, regarding indemnification, including indemnification
"advances."
34. Under date of January 6, 1992, SafeCard's
counsel Gertig sent to both Peter Halmos and SafeCard's Board of
Directors a draft of a formal Indemnification Agreement which
provided for (inter alia) mandatory indemnification "advances."
35. Under date of January 10, 1992, SafeCard's
counsel Gertig sent to both Peter Halmos and SafeCard's Board of
Directors a letter which, after referring to the January 6th
draft Indemnification Agreement, noted that Halmos had "expressed
concern" about his indemnification coverage (because at that time
he was serving, at SafeCard's request and to protect its
interests, as an "executive management consultant" rather than as
a Director). In response to that concern, Gertig flatly stated:
"Even if Peter [Halmos] is not an officer or director of
the Company, it is my view that he is entitled to indemnification
under the Company's Certificate of Incorporation ... and under
Delaware law on the same terms, and to the same extent, as the
Company's officers and directors." [Emphasis added.]
Exhibit G hereto is a true and correct copy of Gertig's January
10. 1992 letter.
36. At its meeting on January 15, 1992,
SafeCard's Board of Directors formally confirmed SafeCard counsel
Gertig's advice (stated in paragraph 35 above), and formally:
"RESOLVED, that Peter Halmos has been and continues to be
indemnified by the Company to the full extent permitted by the
Company's Articles of Incorporation, Bylaws and applicable law,
his entitlement to such indemnification to be as full as is that
of any officer of the Company, ... [and] the fact that Peter
Halmos does not [now] have an official title at the Company is
not deemed relevant to ... his entitlement to indemnification
...." [Emphasis added.]
37. At its meeting on March 10, 1992,
SafeCard's Board of Directors discussed the draft Indemnification
Agreement "previously ... distributed to the Board" and
"instructed [SafeCard's counsel] to prepare indemnification
agreements for the directors as well as for ... [certain
employees and] Peter Halmos."
38. Under date of June 12, 1992, SafeCard's
counsel Gertig -- reminding Halmos of the Board's "direction]"
that he "be entitled to all indemnification available to
officers" - sent him an updated version of the Indemnification
Agreement. Like the January 1992 draft, the June 1992 Agreement
also calls for " True and correct copies of the June 1992
Agreement and of Gertig's June 12, 1992 cover letter mandatory
indemnification "advances. are attached hereto as Exhibits H and
I respectively.
39. In her June 12, 1992 cover letter (Exhibit
I hereto), SafeCard's counsel Gertig represented to Halmos that
SafeCard's Board of Directors had already accepted the
Indemnification Agreement "in principle," and that it awaited
only Halmos' "concurrence:"
"At the Board meeting held at the time of the shareholders
meeting [i.e., March 10, 1992], the directors did agree in
principle to go forward, subject to your [Halmos'] concurrence
that the form was satisfactory to you.
40. Peter Halmos duly "concurred." On or about
July 1, 1992, he signed the Agreement as tendered, and returned
it to SafeCard's counsel. (That signed original remains in
SafeCard's possession; SafeCard has refused to produce or return
it, despite repeated demands. Exhibit H hereto is a copy of that
signed original, made by Halmos before returning the original to
SafeCard's counsel.)
41. Neither SafeCard nor its counsel Gertig
ever rejected, nor otherwise objected to, Halmos' tender of the
signed Agreement. To the contrary, on October 2, 1992 SafeCard's
Board " having earlier "agree[d] ... to go forward, subject to
[Halmos'] concurrence," and having obtained that "concurrence" as
stated in paragraphs 39-40 above -- formally approved SafeCard's
entering into that Agreement with, among others, "Peter Halmos."
42. The Agreement formally approved by
SafeCard's Board on October 2, 1992, and a copy of which is
attached to the Board's October 2, 1992 Minutes (and also, as
Exhibit 10X, to SafeCard's 1992 SEC Form 10-K, the accuracy of
which SafeCard attested under oath), is the same Agreement
SafeCard's counsel sent to Halmos on or about June 12, 1992, and
which Halmos duly signed and returned to SafeCard, as set forth
in paragraphs 39-40 above (Exhibit H hereto). That Agreement is
hereafter termed the n 1992 Agreement."
43. Among other things, the 1992 Agreement was
intended to, and did, embody and reaffirm yet again SafeCard's
uniformly applied custom, practice, and course of dealing with
regard to indemnification ", advances" as hereinabove described.
Defendant Bacon, SafeCard's other Directors, its senior officers,
and Steven Halmos. all have had and continue to have the benefit
of the 1992 Agreement. Among other things, pursuant to the
1992 Agreement and its longstanding custom, practice, and course
of dealing described above, SafeCard has advanced and continues
to advance legal fees and other litigation expenses to defendant
Bacon (for, among other things, this very suit), and to Robert
Dilenschneider, Barry Tillis, and Gerald Cahill (including, as to
Dilenschneider and Tillis, fees and expense "advances" in
litigation to which SafeCard is not even a party).
On Its Face, SafeCard's 1992 Agreement Mandates
Indemnification "Advances" In This Suit
---------------------------------------
44. On its face, SafeCard's 1992 Agreement
mandates the advance payment of Halmos' potentially indemnifiable
legal fees and other expenses incurred by him in this suit. for
two different reasons. First, the 1992 Agreement mandates that
result because (asset forth in paragraphs 45-49 below) this suit
presents "claims" arising out of "indemnifiable events, " under
the plain language of the 1992 Agreement, and because under
Delaware law (which controls, since SafeCard is a Delaware
corporation) it does not matter that Halmos' claims are asserted
against SafeCard itself. Second, the 1992 Agreement also mandates
that result as to Counts I-VII because (as set forth in
paragraphs 50-52 below) Halmos' fees and on those Counts are
incurred "in connection with "a "claim ... for ...
indemnification, "and are thus recoverable whether or not the
underlying indemnification claims are awarded.
45. Section 2(b) of the 1992 Agreement (Exhibit
H hereto) provides:
"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." [Emphasis added.]
46. Sections l(b) and l(c) of the 1992
Agreement define the terms "Claim" and "Expenses," as used in the
Agreement's Section 2(b) (quoted in paragraph 45 above):
"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.
"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."
47. Section l(d) of the 1992 Agreement defines
the term "Indemnifiable Event," as used in the Agreement's
Section l(c) (quoted in paragraph 46 above):
"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 be reason of anything done or not done by
Indemnitee in any such capacity."
48. On their face, Sections 1(b)-(d) and 2(b)
of the 1992 Agreement make mandatory: (i) the "advance" payment
(within in two business days of a request") of (ii) "any and all
Expenses" (i.e.. "attorneys' fees and all other costs, charges
and expenses paid or incurred"), (iii) "relating to a Claim"
(i.e., relating to "any threatened, pending, or completed action,
suit or proceeding"), so long as (iv) the suit concerns an
Indemnifiable Event" (i.e., "any event or occurrence related to
the fact that Indemnitee Halmos] is or was ... a director,
officer, employee, agent or fiduciary of the Company [SafeCard]
... or by reason of anything done or not done by Indemnitee
[Halmos] in any such capacity").
49. As is clear on the face of this Complaint,
this suit is an action "related to the fact that [Halmos] is or
was ... a director, officer, employee, agent or fiduciary of the
Company [SafeCard]" and/or to "[things allegedly] done or not
done by [Halmos] in any such capacity," all within the meaning of
Sections l(b)-(d) and 2(b) of the 1992 Agreement.
50. On its face, SafeCard's 1992 Agreement also
mandates the advance payment of Halmos' legal fees and other
expenses incurred by him in pursuing Counts I-X inclusive herein
(his indemnification claims), because -- in addition to (and
separately from) the reasons stated in paragraphs 45-49 above -
Section 5 of the 1992 Agreement (Exhibit H) provides:
"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 ... insurance .... whether Indemnitee
ultimately is determined to be entitled to such indemnification
[or] advance expense payment .... " [Emphasis added.]
51. On its face, Section 5 of the 1992
Agreement: (i) makes mandatory the "advance" payment ("within two
business days" of a request) of "any and all expenses (including
attorneys' fees)" which are incurred "in connection with any
claim ... or action ... for indemnification or advance payment of
Expenses - and, further, (ii) makes the reimbursement of the
expenses of pursuing an indemnification claim, and the advance
payment of those expenses "(including attorneys' fees),"
mandatory "regardless of whether Indemnitee ultimately is
determined to be entitled" to the underlying indemnification.
52. As is clear on the face of this Complaint,
this Count I, and also Counts II through X inclusive, all seek
mandatory "indemnification or advance payment of Expenses,"
within the meaning of Section 5 of the 1992 Agreement.
SafeCard's Breaches Of The 1992 Agreement
-----------------------------------------
53. Defendant Bacon, SafeCard's other
Directors, its senior officers, and Steven Halmos, all have had,
and continue to have, the benefit of the 1992 Agreement. As is
more fully set forth below, however, SafeCard, in breach of its
obligations under the 1992 Agreement (and of its Certificate of
Incorporation and By-Laws and its uniformly applied custom,
practice, and course of dealing regarding indemnification
"advances," and of its many reaffirmations, representations and
promises to Peter Halmos in that regard), has denied and
continues to deny Peter Halmos " its co-founder -- the very same
benefits of that 1992 Agreement as are enjoyed by other SafeCard
personnel.
54. On or about April 26, 1994, Peter Halmos
requested in writing that SafeCard provide him with
indemnification "advances" for his legal and other expenses in
this suit. A true and correct copy of that written request is
attached hereto as Exhibit J.
55. Pursuant to sections 2 and 5 of the 1992
Agreement, SafeCard is required to honor a request for
indemnification advances within "two business days," and if it
fails to do so, the indemnitee may treat the request as denied
and commence litigation.
56. More than "two business days" have elapsed
since Halmos' written request described in paragraph 54 above.
SafeCard has refused to honor that request, has paid Halmos
nothing whatever pursuant to that request, and has denied that it
has any obligation to Halmos under the 1992 Agreement. SafeCard's
conduct is a denial of Halmos' request.
57. Further, pursuant to SafeCard's
longstanding custom, practice, and course of dealing described
herein (and fully consistent with the 1992 Agreement), and as
expressly reaffirmed in writing by SafeCard (in, e.g., its
Registration Statement quoted in paragraph 18 above), Halmos'
written request described in paragraph 54 above must be honored
by SafeCard, and can only be refused upon an affirmative
determination that in the particular situation, indemnity could
never ultimately be proper under any possible set of
circumstances.
58. No determination of the kind referred to in
paragraph 57 above has been made in this case. No such
determination could properly be made in this case. Nevertheless,
SafeCard has refused to honor Halmos' written request described
in paragraph 54 above, has paid Halmos nothing whatever pursuant
to that request, and has denied that it has any obligation to
indemnify Halmos. SafeCard's conduct is a denial of Halmos'
request.
59. Still further:
a. Section 2(a) of the 1992 Agreement
(Exhibit H hereto), which does not control over the shorter time
period stated in Section 2(b) thereof (quoted in paragraph 45
above) but which does provide a maximum outer time limit for any
determination under the Agreement, provides: "... If Indemnitee
makes a request to be indemnified under this Agreement, the Board
... shall, as soon as practicable but in no event later than
thirty days after such request, authorize such indemnification."
[Emphasis added.]
b. Section 2(c) of the 1992 Agreement
provides: "If there has been no Board Action ..., 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 ... relating to the Claim for which indemnification is
sought ... seeking an initial determination by the court ...."
[Emphasis added.]
c. Section 2(c) of the 1992 Agreement
provides: "Notwithstanding anything in ... this Agreement to the
contrary, if Indemnitee has commenced legal proceedings ... to
secure a determination that Indemnitee should be indemnified ...,
any Board action that Indemnitee would not be permitted to be
indemnified ... shall not be binding." [Emphasis added.]
More than "thirty days" have elapsed since Halmos' written
request described in paragraph 54 above. SafeCard has refused to
honor that request, has paid Halmos nothing whatever pursuant to
that request. and has denied that it has any obligation to
indemnify Halmos. SafeCard's conduct is a denial of Halmos'
request.
60. By reason of the foregoing, under Delaware
law and the plain language of the 1992 Agreement, Halmos is
entitled to advance payment of his legal fees and other costs and
expenses in this action, because his claims against SafeCard in
this action, and any potential SafeCard counterclaims against him
in this action, all directly "relate" to "the fact that [Halmos]
... was ... a director, officer, employee, agent or fiduciary of
[SafeCard]."
61. To date, Halmos has properly made demand
upon SafeCard for payment of, and SafeCard has wrongfully refused
to pay, certain of the legal fees and other costs and expenses
actually and necessarily incurred by Halmos in this action,
totalling (as to the portion covered by Halmos' demand to date)
$747,343.94 -- far less, to Halmos' knowledge, than SafeCard
itself has spent in this action.
62. Notwithstanding SafeCard's total refusal to
honor its indemnification "advance" obligations as to Peter
Halmos, SafeCard has made and continues to make such "advances"
to other present and former personnel, including defendant Bacon
(in this very suit), Robert Dilenschneider, Gerald Cahill (who is
receiving "advances" even though he has been fired by SafeCard),
and Barry Tillis (who is receiving "advances" even though he also
has been fired by SafeCard), and including, as to Dilenschneider
and Tillis, "advances" with regard to litigation in which
SafeCard is not even named as a party.
63. This equity Court should not permit
SafeCard to twist its own breaches of the 1992 Agreement, and its
own repudiation of its Certificate of Incorporation, its By-Laws,
its uniformly applied (save for Halmos) custom, practice, and
course of dealing described herein, and its numerous
reaffirmations and promises to Halmos of full indemnification and
of at least equal treatment with other SafeCard personnel who
enjoy the benefits of the 1992 Agreement - including defendant
Bacon, with regard to this action itself " into a device for
crippling Halmos (by depriving him of funds to which he is
entitled) from seeking redress for those very wrongs.
64. On information and belief, during the past
year (1993) alone, SafeCard has spent in excess of $10 million in
its attempt to wear Halmos down. exhaust his resources, and (in
the words of its own former Chief Operating Officer, Gerald
Cahill) to "destroy" Halmos' ability to obtain redress for the
wrongs complained of herein, including SafeCard's repeated
pursuit of groundless, previously-rejected claims (e.g., its
purported disqualification motions). Unless this equity Court
acts to ensure that Halmos receives the equal, even-handed
indemnification treatment to which he is entitled, SafeCard's
misuse of its resources may yet succeed.
65. By this Count I, all Halmos asks is a level
playing field. All he asks is that SafeCard not be permitted
cynically to misuse its vast financial resources (which for 20-
plus years he was instrumental in helping SafeCard to
acquire), and its repudiation of his rights, as tools to stop him
from redressing that very repudiation. Equity demands no less.
66. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor Halmos' rights to indemnification "advances." Under Section
2(c) of the 1992 Agreement (quoted in part in paragraph 59(b)
above), this is a proper Court to declare the rights of the
parties in the premises and compel SafeCard to honor its
Agreement.
WHEREFORE, Halmos prays for judgment in his favor
and against SafeCard:
a. Declaring that SafeCard is
obligated to advance to Halmos, on a continuing, current and
timely basis and within two business days of his written request
therefor, his legal fees and other costs and expenses actually
and necessarily incurred in this action;
b. Directing SafeCard to pay Halmos an
amount to be proven at trial (but not less than $747,343.94),
including prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and
further relief as is just.
COUNT II
(Declaratory Judgment; Breach of Written Contract:
Advance Indemnification Payments For This Action)
--------------------------------------------------
In the alternative to Count I, Peter Halmos complains of SafeCard
as follows:
67. This Count II is a claim for declaratory
judgment and ancillary relief based on SafeCard's breach of a
written contract, found in its corporate charter and By Laws as
interpreted in light of its longstanding, uniformly applied
custom and practice, and also in its written, signed SEC filings,
to provide Peter Halmos --just like other senior SafeCard
personnel -- with indemnification to the maximum extent permitted
by law, including mandatory indemnification "advances;" that is,
"advance" payment directly to billing counsel, as and when
incurred, of potentially indemnifiable legal fees and other
expenses incurred by Halmos in ongoing judicial, administrative,
and/or investigative proceedings. Like Count I, to which it is an
alternative, this Count II addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in this action. (Halmos has other indemnification claims
as well, some of which, relating to other matters, are set forth
in Counts IV-X.)
68. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 68 of
this Count II, as if fully set forth herein.
SafeCard's Unbroken History Of
Advancing Indemnification Payments
----------------------------------
69. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 12-20 inclusive of
Count I (SafeCard's longstanding custom, practice, and course of
dealing as to indemnification "advances) as paragraph 69 of this
Count II, as if fully set forth herein.
SafeCard's Uniform Custom And Practice,
Its Promises To Halmos, And Its Writings,
Constitute A Written Contract Embodying That Custom
----------------------------------------------------
70. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 21-32 inclusive of
Count I (SafeCard's numerous written and oral indemnification
promises to Halmos) as paragraph 70 of this Count II, as if fully
set forth herein.
71. By reason of the foregoing facts, including
without limitation SafeCard's own SEC filings, there is a written
contract between Halmos and SafeCard covering indemnification
"advances," consisting of (i) SafeCard's Certificate of
Incorporation and ByLaw provisions quoted in paragraph 18 above
(incorporated in paragraph 69), coupled with (ii) SafeCard's
reaffirmation and further written memorialization of Halmos'
indemnification rights "to the maximum extent permitted by law"
as part of the parties' 1989 Management Agreement, as described
in paragraph 31 above (incorporated in paragraph 70), in light of
(iii) SafeCard's fifteen-year-long, uniformly applied, custom,
practice, and course of dealing regarding indemnification
"advances" as described in paragraphs 12-20 above (incorporated
in paragraph 69) -- on all of which Halmos reasonably relied, as
SafeCard knew and intended that he would.
SafeCard's 1992 Reaffirmation Of The Contract
---------------------------------------------
72. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 33-43 inclusive of Count I
(concerning SafeCard's 1992 Agreement and promises to Halmos) as
paragraph 72 of this Count II, as if fully set forth herein.
73. As is more fully described in paragraph 33-43
above (incorporated in paragraph 72), SafeCard's 1992 Agreement
further carried forward and reaffirmed the contract between
Halmos and SafeCard embodied in (i) SafeCard's charter and By-Law
provisions quoted in paragraph 18 above (incorporated in
paragraph 69), (ii) SafeCard's 15-year-long, uniformly applied,
custom, practice, and course of dealing regarding indemnification
"advances' as described in paragraphs 12-20 above (incorporated
in paragraph 69), (iii) SafeCard's further written
memorialization of Halmos' indemnification rights "to the maximum
extent permitted by law" as part of the parties' 1989 Management
Agreement, as described in paragraph 31 above (incorporated in
paragraph 70), and (iv) SafeCard's still further reaffirmation of
Halmos' indemnification rights in its Board of Directors' January
15, 1992 Minutes, as described in paragraph 36 above
(incorporated in paragraph 72).
SafeCard's Breaches Of Its Written Contract
-------------------------------------------
74. This suit and this Complaint present claims
arising out of Halmos service as an officer, Director, employee,
agent, and/or fiduciary of SafeCard, and/or acts done or not done
by or to Halmos in that regard. In addition, Counts I through X
inclusive of this Complaint directly seek indemnification and/or
indemnification "advances."
75. Under Delaware law, Halmos is entitled to advance
payment of his legal fees and other costs and expenses in this
action, because his claims against SafeCard in this action, and
any potential SafeCard counterclaims against him in this action,
all directly relate to the fact that Halmos was an officer,
Director, employee, agent. and/or fiduciary of SafeCard, and/or
to acts done or not done by or to Halmos in that regard.
76. By reason of the facts set forth in this Count II
and the plain language of the 1992 Agreement, Halmos is entitled
to advance payment of his legal fees and expenses in this action.
As is more fully set forth below, however, SafeCard, in breach of
its obligations to Peter Halmos under its Certificate of
Incorporation and By-Laws and its uniformly applied custom,
practice, and course of dealing regarding indemnification
"advances," and its many reaffirmations, representations and
promises to Peter Halmos in that regard, has denied and continues
to deny Peter Halmos -- its co-founder -- the very same
indemnification "advances" as are enjoyed by other SafeCard
personnel.
77. On or about April 26, 1994, Peter Halmos requested
in writing that SafeCard provide him with indemnification
"advances" for certain of the legal fees and other costs and
expenses actually and necessarily incurred by him in this action,
totalling (as to the portion covered by that demand)
$747,343.94 -- far less, to Halmos' knowledge, than SafeCard
itself has spent in this action. A true and correct copy of that
written request is attached hereto as Exhibit J.
78. Pursuant to SafeCard's longstanding custom,
practice, and course of dealing described herein and its
contractual obligations to Peter Halmos, and as expressly
reaffirmed in writing by SafeCard (in, for example, its
Registration Statement quoted in paragraph 19 above, incorporated
in paragraph 69), SafeCard must honor Halmos' written request
described in paragraph 77 above, and can only refuse it upon an
affirmative determination that m the particular situation,
indemnity could never be proper under any possible set of
circumstances.
79. In addition, SafeCard was and is obligated to
respond to Halmos' written request described in paragraph 77
above within a reasonable time. As SafeCard itself has determined
(in connection with the 1992 Agreement described above, Exhibit H
hereto), two business days is a "reasonable time" for SafeCard to
respond to a request for indemnification "advances" such as are
at issue in this Count II, and thirty days is a "reasonable time"
within which to respond to any other sort of indemnification
request. As SafeCard itself has determined (in connection with
that 1992 Agreement), if thirty days have elapsed with no
response, the prospective indemnitee should be entitled to seek
judicial relief.
80. No determination of the kind referred to in
paragraph 78 above has been made in this case. No such
determination could properly be made in this case. Further, more
than thirty days has elapsed since Halmos' written request
described in paragraph 77 above. Nevertheless, SafeCard has
refused to honor that request, has paid Halmos nothing whatever
pursuant to that request, and has denied that it has any
obligation to indemnify Halmos. SafeCard's conduct is a denial of
Halmos' request.
81. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 62-66 inclusive of Count I
(concerning the unfair and inequitable nature of SafeCard's
conduct, the genuineness and immediacy of this dispute, and the
need for action by this Court) as paragraph 81 of this Count II,
as if fully set forth herein.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
advance to Halmos, on a continuing, current and timely basis and
within two business days of his written request therefor, his
legal fees and other costs and expenses actually and necessarily
incurred in this action;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $747,343.94), including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT III
(Declaratory Judgment; Promissory Estoppel:
Advance Indemnification Payments For This Action)
-------------------------------------------------
In the alternative to Counts I and II, Peter
Halmos complains of SafeCard:
82. This Count III is a claim for declaratory judgment
and ancillary relief based on promissory estoppel and Halmos'
detrimental reliance. This Count III concerns SafeCard's
repudiation of its numerous promises to Peter Halmos (some in
signed writings, including SEC filings, some oral, and all relied
on by Halmos), and of its fifteen-year-long, uniformly applied
custom, practice, and course of dealing, to provide Peter
Halmos -- just like other senior SafeCard personnel, whom even
now SafeCard is indemnifying despite its promises that it would
treat them and Halmos equally -- with indemnification to the
maximum extent permitted by law, including mandatory
indemnification "advances;" that is, "advancer payment directly
to billing counsel, as and when incurred, of potentially
indemnifiable legal fees and other expenses incurred by Halmos in
ongoing judicial, administrative, and/or investigative
proceedings. Like Counts I and II (to which it is an
alternative), this Count III addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in this action. (Halmos has other indemnification claims
as well, some of which. relating to other matters, are set forth
in Counts IV-X.)
83. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 1-9 inclusive above (concerning
parties, jurisdiction, and venue) as paragraph 83 of this Count
III, as if fully set forth herein.
SafeCard's Unbroken History Of
"Advancing" Indemnification Payments
------------------------------------
84. Halmos repeats, realleges, and incorporates herein
by reference, paragraphs 12-20 inclusive of Count I (SafeCard's
longstanding custom, practice, and course of dealing as to
indemnification "advances") as paragraph 84 of this Count III, as
if fully set forth herein.
SafeCard's Repeated Indemnification Promises To Halmos
------------------------------------------------------
85. Halmos repeats and realleges. and incorporates
herein by reference, paragraphs 21-31 inclusive of Count I
(SafeCard's numerous written and oral indemnification promises to
Halmos) as paragraph 85 of this Count III, as if fully set forth
herein.
Halmos' Detrimental Reliance On SafeCard's Representations
----------------------------------------------------------
86. Halmos repeats and realleges, and incorporates
herein by reference, paragraph 32 of Count I (concerning Halmos'
reliance and SafeCard's knowledge thereof) as paragraph 86 of
this Count III, as if fully set forth herein.
87. Among the services Peter Halmos provided to
SafeCard, in reliance on its custom, practice, and course of
dealing and on its repeated oral and written promises of full
indemnification "to the maximum extent permitted by law," were
the following:
a. During 1988 Halmos, at SafeCard's request,
aided SafeCard and its counsel (including Harvey Pitt, former SEC
General Counsel and his partner June Gertig) in preparing and
coordinating SafeCard's successful response to an SEC
investigation aimed at Halmos and SafeCard;
b. During 1989, 1990, and 1991 Halmos, at
SafeCard's request, coordinated the successful defense of a
class-action suit, Wolfe, et al. v. SafeCard Services, Inc., et
al., No. 89-6198-GONZALEZ-CIV (S.D. Fla.), filed in March 1989
due to SafeCard errors and debacles which included the late 1987
cancellation of an American Express contract (which SafeCard
personnel had assured Halmos was in good standing) and SafeCard's
payment of $6 million in additional taxes due to SafeCard's
filing of an erroneous 1987 Federal tax return (which SafeCard's
accounting department had caused Halmos to sign on the
representation that it was correct);
c. During 1991 and 1992 Halmos, at SafeCard's
request, also oversaw SafeCard's response (including strengthened
internal security measures and the filing of SafeCard Services,
Inc. v. Smith, No. 9141345(03), Cir. Ct., Broward County, Fla.)
to the January 1991 theft from SafeCard of some 4 million credit
card numbers and other vital information stored on microfiche;
d. During 1991 and 1992 Halmos, at SafeCard's
request, also helped to plan SafeCard's move to larger quarters
in Wyoming, which SafeCard acquired, remodeled, and equipped with
upgraded security facilities after (and partly because of) the
1991 microfiche theft;
e. During the 1989-1992 period Halmos, at
SafeCard's request, also coordinated SafeCard's successful
defense of an FTC inquiry into SafeCard's asserted violation of a
1978 FTC agreement;
f. From 1990 to 1992, Halmos, at SafeCard's
request, also successfully extricated SafeCard from a series of
media and other attacks initiated by a disgruntled shareholder,
one Lennane (which led to the filing of Halmos v. Allstate
Research Center, No. 92-6500-CIV (S.D. Fla.), an action
handled jointly by Halmos and SafeCard); and
g. Throughout this 1988-1992 time period Halmos
continued to provide SafeCard with management services and
guidance, as a Director until October 1990 and then as an
executive management consultant.
88. Both the importance Halmos placed on SafeCard's
custom, practice, and course of dealing described above and of
its promises of full indemnification "to the maximum extent
permitted by law, " and Halmos' reliance thereon, are confirmed
by (among other things) a January 10, 1992 letter from SafeCard's
counsel Gertig to SafeCard's Board and to Halmos. In that letter,
Gertig noted that Halmos had "expressed concern" about his
indemnification coverage (because at that time he was serving, at
SafeCard's request and to protect its interests, as an executive
management consultant" rather than as a Director). In response to
Halmos' concern, Gertig flatly represented (Exhibit G hereto):
"Even if Peter [Halmos] is not an officer or director of the
Company, it is my view that he is entitled to indemnification
under the Company's Certificate of Incorporation ... and under
Delaware law on the same terms, and to the same extent. as the
Company's officers and directors." [Emphasis added.]
89. At its meeting on January 15, 1992, SafeCard's
Board of Directors --recognizing Halmos' concern about, and
reliance on, SafeCard's indemnification promises and
representations - formally confirmed SafeCard counsel Gertig's
representations to Peter Halmos (and advice to the Board)
described in paragraph 88 above, and formally:
"RESOLVED, that Peter Halmos has been and continues to be
indemnified by the Company to the full extent permitted by the
Company's Articles of Incorporation, Bylaws and applicable law,
his entitlement to such indemnification to be as full as is that
of any officer of the Company, ... [and] the fact that Peter
Halmos does not [now] have an official title at the Company is
not deemed relevant to ... his entitlement to indemnification
....[Emphasis added.]
90. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 33-34 of Count I (concerning the
parties' early-1992 discussions of a more formalized
indemnification document) as paragraph 90 of this Count m, as if
fully set forth herein.
91. As is shown by the first paragraph of SafeCard
counsel Gertig's January 10, 1992 letter (Exhibit G hereto), when
Gertig made the written representations to Peter Halmos described
in paragraph 88 above, Gertig, Halmos, and SafeCard's Board of
Directors all knew and understood that Gertig's representations
were made in the context of the "form of indemnity agreement"
which Gertig had sent the Board and Halmos "[e]arlier [that]
week" -- including its provisions for mandatory indemnification
"advances."
92. As is shown by the facts stated in paragraphs
88-91 above, when SafeCard's Board of Directors formally
confirmed SafeCard counsel Gertig's representations to Peter
Halmos as described in paragraph 89 above, SafeCard's Board of
Directors and Halmos all knew and understood Board action was
taken in the context of the "form of indemnity agreement" which
Gertig had sent the Board and Halmos on January 6, 1992 --
including its provisions for mandatory indemnification
"advances."
93. Halmos repeats, realleges. and incorporates by
reference Count I, paragraphs 37-43 inclusive (describing
SafeCard's tender of the 1992 Agreement to Halmos, his acceptance
and signing thereof, and SafeCard's formal adoption thereof) and
Count II, paragraph 73 (describing the effect of the 1992
Agreement as further reaffirming SafeCard's numerous written and
oral promises and its longstanding custom, practice, and course
of dealing regarding indemnification "advances") as paragraph 93
of this Count III, as if fully set forth herein.
94. Neither SafeCard nor its counsel Gertig ever
rejected, nor otherwise objected to, Halmos' tender of the signed
1992 Agreement. To the contrary, on October 2, 1992 SafeCard's
Board of Directors -- having previously "agreed in principle to
go forward, subject to [Halmos'] concurrence," and having
obtained that "concurrence," as more fully set forth
hereinabove - formally approved the Company's entering into that
Agreement with, among others, "Peter Halmos."
SafeCard 's Promises And Representations To
Halmos, Including The 1992 Agreement's Terms,
Mandate Indemnification "Advances" In This Suit
-----------------------------------------------
95. Halmos repeats, realleges, and incorporates by
reference Count I, paragraphs 44-52 inclusive (concerning the
provisions of the 1992 Agreement) and Count II, paragraphs 74-75
(concerning the applicability of those provisions to this suit)
as paragraph 95 of this Count III, as if fully set forth herein.
SafeCard's Repudiation Of Its Promises And Representations
----------------------------------------------------------
96. Defendant Bacon, SafeCard's other Directors, its
senior officers, and Steven Halmos -- with respect to all of whom
SafeCard promised Peter Halmos at least equal treatment as
regards indemnification -- have all had. and continue to have,
the benefit of the 1992 Agreement, and of SafeCard's Certificate
of Incorporation, By-Laws, and uniformly applied custom,
practice, and course of dealing regarding indemnification
"advances. However, contrary to its numerous explicit oral and
written promises and representations to Peter Halmos, and in
particular its promises and representations that Peter Halmos was
and would continue to be entitled to (i) mandatory
indemnification "advances," and (ii) at least equal
indemnification treatment with SafeCard's Directors and senior
officers, SafeCard has flatly denied and continues to deny Peter
Halmos -- its co-founder -- the same indemnification benefits and
"advances" as those other SafeCard personnel enjoy.
97. This suit and this Complaint present claims
arising out of Halmos service as an officer, Director, employee,
agent, and/or fiduciary of SafeCard, and/or acts done or not done
by or to Halmos in that regard. In addition, Counts I through X
inclusive of this Complaint directly seek indemnification and/or
indemnification "advances."
98. By reason of the foregoing, under Delaware law,
Halmos is entitled to advance payment of his legal fees and other
costs and expenses in this action, because his claims against
SafeCard in this action, and any potential SafeCard counterclaims
against him in this action, all directly "relate to and arise out
of "the fact that [Halmos] ... was ... a director, officer,
employee, agent or fiduciary of [SafeCard]."
99. Halmos repeats and realleges and incorporates
herein by reference, paragraphs 62-66 inclusive of Count I (the
unfair and inequitable nature of SafeCard's conduct, the
genuineness and immediacy of this dispute, and the need for
action by this Court) and paragraphs 76-80 inclusive of Count II
(SafeCard's breaches of its obligations to Halmos and its denial
of his requests for indemnification) as paragraph 99 of this
Count III, as if fully set forth herein.
100. By reason of the facts set forth in this Count
III, including SafeCard's repeated promises to Peter Halmos and
his justified and reasonable reliance thereon (a reliance of
which SafeCard knew and which it specifically encouraged, as set
forth above, so that injustice can be avoided only by enforcing
those promises), Halmos is entitled to advance payment of his
legal fees and other expenses in this action, including
$747,343.94 previously and properly demanded by him as set forth
hereinabove.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
advance to Halmos, on a continuing, current and timely basis and
within two business days of his written request therefore, his
legal fees and other costs and expenses actually and necessarily
incurred in this action;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $747,343.94), including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT IV
(Declaratory Judgment; Breach of Written Contract:
Advance Indemnification Payments For Third-Party Litigation)
- - ------------------------------------------------------------
Peter Halmos complains of SafeCard as follows:
101. This Count IV is a claim for declaratory judgment
and ancillary relief. based on SafeCard's breach of a written
contract, which embodied and carried forward a longstanding
SafeCard custom and practice, to provide Peter Halmos -- just
like other senior SafeCard personnel - with indemnification to
the maximum extent permitted by law, including mandatory
indemnification "advances;" that is, "advance" payment directly
to billing counsel, as and when incurred, of potentially
indemnifiable legal fees and other expenses incurred by Halmos in
ongoing judicial, administrative, and/or investigative
proceedings. This Count IV addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in pending actions with third parties. (Halmos has other
indemnification claims as well, some of which, relating to other
matters, are set forth in Counts I-III and VII-X.)
102. Halmos repeats and realleges. and incorporates
herein by reference, paragraphs 1-9 inclusive above as paragraph
102 of this Count IV, as if fully set forth herein.
SafeCard's Unbroken History Of
"Advancing" Indemnification Payments
------------------------------------
103. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 12-20 inclusive of Count I
(SafeCard's longstanding custom, practice, and course of dealing
as to indemnification "advances") as paragraph 103 of this Count
IV, as if fully set forth herein.
SafeCard's Repeated Indemnification Promises To Halmos
------------------------------------------------------
104. Halmos repeats and realleges, and incorporates herein by
reference, paragraphs 21-32 inclusive of Count I (SafeCard's
numerous written and oral indemnification promises to Halmos) as
paragraph 104 of this Count IV, as if fully set forth herein.
SafeCard's 1992 Written Indemnification Agreement
-------------------------------------------------
105. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 33-43 inclusive of Count I
(concerning SafeCard's 1992 Agreement, SafeCard's tender of that
Agreement to Halmos, Halmos' acceptance of it, and SafeCard's
Board's formal adoption of it) as paragraph 105 of this Count IV,
as if fully set forth herein.
On Its Face, SafeCard's 1992 Agreement Mandates
Indemnification "Advance," For Third-Party Litigation
------------------------------------------------------
106. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 44-48 inclusive of Count I
(concerning the provisions of the 1992 Agreement) as paragraph
106 of this Count IV, as if fully set forth herein.
107. On their face, the provisions of the 1992
Agreement quoted above mandate the advance payment of Halmos'
potentially indemnifiable legal fees and other expenses incurred
by him in, among other things, litigation by or against third
parties which arises out of Halmos' service as a SafeCard
officer, Director, agent, employee, and/or fiduciary. As is more
fully set forth hereinabove, such litigation constitutes
"Claim(s)" arising out of one or more "Indemnifiable Event(s)."
SafeCard 's Breaches Of The 1992 Agreement:
(i) Background Information
-------------------------------------------
108. In early 1983, Halmos' son Greg was born
prematurely and suffering from chronic, life-threatening
complications. To raise funds for his son's medical care (then
estimated to be $500,000 or more per year), Halmos sold part of
his SafeCard stock.
109. In June 1983 SafeCard released a second-
quarter-1983 earnings report showing less than expected earnings.
As a result, SafeCard's stock price fell by 30%; Peter Halmos was
accused of wrongful insider trading in August 1983 and April 1984
Barron's articles; and an SEC investigation and a Delaware
derivative lawsuit were begun against him.
110. SafeCard's second quarter-1983 earnings report
(released over Halmos' protest, because he believed it was wrong)
was erroneous. Actual earnings for that period were up, not down.
When SafeCard learned of its error, however, it did not publicly
correct the error because accounting rules did not require it to
do so retrospectively. As a result of that decision by SafeCard
to protect its own reputation at Halmos' expense, a false stigma
of insider trading and financial sharp practices clung to Halmos.
111. In September 1987 American Express ("AmEx")
cancelled a contract with SafeCard. Though that event occurred
over six months after Halmos' last sale of SafeCard stock, and
though the cancellation shocked Halmos (who had time and again
been assured by SafeCard personnel that all was well with AmEx),
the false "insider trading" stigma described in paragraph 110
above was worsened.
112. The false insider trading/financial wrongdoer
stigma attached to Halmos, as described in paragraphs 110 and 111
above, was further worsened by the late 1987 resignation of Dr.
Lee Seidler, a Director and Chairman of SafeCard's Audit
Committee, and the year-end-1987 "resignation" (actually, they
were fired) of SafeCard's then-auditors, Grant Thornton.
SafeCard 's Breach Of The 1992 Agreement:
(ii) Varvoutis' Theft And Their Aftermath
-----------------------------------------
113. Allegedly in response to a blind advertisement
placed by SafeCard. in early 1988 Ernest A. Varvoutis m applied
for a job as an in-house accountant. Unknown to SafeCard,
Varvoutis did so because he had a secret ambition to be a
Government agent, and believed (because of the stigma attached to
Halmos and the adverse publicity regarding SafeCard and Halmos
surrounding the events described in paragraphs 109-112) that if
hired, he could surreptitiously unearth some wrongdoing by
SafeCard and, as a consequence, Halmos.
114. SafeCard and Halmos contacted Deloitte & Touche
("Deloitte"), whom Varvoutis had represented to be his then-
employer. Deloitte falsely told SafeCard and Halmos that
Varvoutis was then employed by Deloitte and was a valued Deloitte
accountant. In fact, Deloitte had fired Varvoutis for
incompetence and emotional instability, including his fantasies
of becoming a G-Man," which were known to Deloitte but which
Deloitte did not disclose to SafeCard nor to Halmos.
115. Beginning less than 36 hours after he first
reported for work on May 2, 1988, Varvoutis engaged in a lengthy
series of surreptitious copyings and thefts of Halmos' personal
financial documents and records and of SafeCard documents and
records. most or all of which he clandestinely delivered to IRS
agents with whom he had made contact through an IRS agent who was
a former SafeCard employee.
116. Among the SafeCard documents Varvoutis stole was a
copy of the first page of SafeCard's 1987 Federal income tax
return, filed in July 1988, which SafeCard's accounting staff had
prepared, caused Halmos to sign (by representing to him that it
was accurate), and filed with the IRS. After writing on that
document that it showed that "[Peter] Halmos is understating
income by $14 million," Varvoutis surreptitiously delivered it to
his clandestine IRS contact, the former SafeCard employee
referred to in paragraph 115 above.
117. Unknown to Halmos, SafeCard's 1987 Federal income
tax return (prepared primarily by a SafeCard employee who was
formerly an IRS agent) did contain an "error" of approximately
$14 million. That "error" resulted from improper deductions for
certain future expenses; the deductions, in turn, resulted from
the SafeCard accounting staff's improper use, contrary to
established SafeCard accounting policies, of months-old estimates
rather than up-to-date actual data.
118. On October 12, 1988 Varvoutis abruptly quit his
employment and disclosed that he had stolen financial and tax-
related documents. Two days later, IRS agents -- having obtained
a search warrant based on SafeCard-related information provided
by Varvoutis and newspaper articles about SafeCard " raided
SafeCard's offices and took large amounts of financial documents
and information.
119. The IRS raid described in paragraph 118 above was
the beginning of a four-yearlong IRS criminal investigation, the
subjects of which were SafeCard, Halmos, and others. According to
the IRS agents involved, the raid and the investigation, during
which a number of SafeCard personnel acted as IRS informants,
would not have taken place at all but for Varvoutis' thefts and
SafeCard-related (mis)information (paragraphs 113-118) -- conduct
Varvoutis and the IRS have admitted arose from Halmos status and
service as a SafeCard officer, director, agent, and fiduciary.
120. On or about January 23, 1991, SafeCard's Board of
Directors formally determined that SafeCard should indemnify
SafeCard personnel, who were contacted during the course of the
IRS investigation described in paragraph 119 above, against legal
costs and other expenses incurred by them as a result of that
investigation. On information and belief, SafeCard did in fact
indemnify such persons (including informants) for those expenses.
121. On November 10, 1992 the IRS investigation of
Halmos (paragraphs 118-120 above) was formally closed. No charges
of any kind were brought against Halmos. No finding of wrongdoing
of any kind was made against Halmos. Halmos was cleared. The only
consequence of the investigation from Halmos' standpoint (other
than its enormous expense and damage to him) was a tax refund to
Halmos' parents.
SafeCard 's Breach Of The 1992 Agreement:
(iii) The Pending Suits And SafeCard's Refusal To Pay
-----------------------------------------------------
122. As a result of Varvoutis' and Deloitte's conduct
described above, in September 1990 and again in March 1992 Halmos
filed (in State court; Varvoutis removed the second suit to
Federal court, where it is now pending) Halmos, et al. v.
Varvoutis, et al., No. 92-6336-CIV-HURLEY (S.D. Fla.), a suit
against Varvoutis and Deloitte. This suit is hereafter termed the
"Deloitte Suit."
123. As a result of the IRS' conduct described above,
in October 1992 Halmos filed Halmos, et al. v. Long, et al., No.
92-7024-CIV-MORENO (S.D. Fla.), a suit against the IRS agents who
controlled Varvoutis' thefts and raided SafeCard's and Halmos'
offices. This suit, hereafter (together with a related Federal
Tort Claims Act suit) termed (collectively) the "IRS Suit," is
now pending.
124. The Deloitte Suit and the IRS Suit both arise from
and relate to Halmos' service as a SafeCard officer, director,
agent. and fiduciary. Both of those suits, filed during the
pendency of the IRS investigation, were designed, inter alia, to
uncover and redress unlawful IRS activity aimed at SafeCard and
Halmos. SafeCard itself recognized the connection between those
suits and SafeCard s business both (i) in January 1991, when
SafeCard agreed to indemnify SafeCard personnel, who were
contacted during the course of the IRS investigation described in
paragraph 119 above, against legal costs and other expenses
incurred by them as a result of that investigation, and also (ii)
in October 1992, when SafeCard determined that it was in
SafeCard's own best interests to file its own suit against
Varvoutis and the IRS agents, and subsequently did file such a
suit. Further, SafeCard's former General Counsel has testified
that it was in SafeCard's interest to pursue those lawsuits (and
to have Halmos pursue them), to assist Halmos in defending
against the IRS investigation, and to uncover and obtain redress
for the unlawful IRS conduct.
125. By 1990, SafeCard had learned that the IRS
investigation described above was caused in part by lapses in
SafeCard's security and in its accounting procedures (such that
SafeCard, in response, established an internal security
Committee of its Board to investigate and correct such lapses),
and that SafeCard was originally a subject -- and possibly the
target -- of the IRS investigation. By 1991, SafeCard learned,
through inter alia the affidavit of an IRS agent, that the IRS
investigation's scope included (informationally and as a focus) a
number of SafeCard's SEC and other disclosures. By 1992,
SafeCard's counsel acknowledged that SafeCard itself was a
subject of the IRS investigation.
126. By reason of the foregoing, under Delaware law and
the plain language of the 1992 Agreement, Halmos is entitled to
advance payment of his legal fees and other costs and expenses in
this action, because his claims against SafeCard in this action,
and any potential SafeCard counterclaims against him in this
action, all directly "relate" to "the fact that [Halmos] ... was
... a director, officer, employee, agent or fiduciary of
[SafeCard]."
127. By reason of the facts set forth in this Count IV
and the plain language of the 1992 Agreement, Halmos is entitled
to advance payment of his legal fees and other costs and expenses
in the Deloitte and IRS Suits. On April 5, 1993 and April 28,
1994, Halmos requested in writing that SafeCard provide him with
indemnification "advances" for the Deloitte Suit and the IRS
Suit, including immediate reimbursement of certain legal fees and
other expenses, totalling $1,221,009,95, which he had actually
and necessarily incurred and paid in those suits. True and
correct copies of Halmos' April 5, 1993 and April 28, 1994
written requests are attached hereto as Exhibits K and L
respectively.
128. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 53 and 55-59 inclusive of Count I
(concerning the provisions of the 1992 Agreement regarding
responses to requests for payment of "advances") as paragraph 128
of this Count IV. as if fully set forth herein.
129. More than thirty days (let alone "two business
days") have elapsed since Halmos' written requests described in
paragraph 127 above. SafeCard has refused to honor those
requests, has paid Halmos nothing whatever pursuant to those
requests, and has denied that it has any obligation to Halmos
under the 1992 Agreement. SafeCard's conduct is a denial of
Halmos' requests.
130. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor Halmos' rights under the 1992 Agreement. This is a proper
Court to declare the parties' rights and compel SafeCard to honor
its Agreement.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
advance to Halmos, on a continuing, current and timely basis and
within two business days of his written request therefor, his
legal fees and other costs and expenses actually and
necessarily incurred in the Deloitte Suit and the IRS Suit;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $1,221,009.95), including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT V
(Declaratory Judgment; Breach of Written Contract:
Advance Indemnification Payments For Third-Party Litigation) In
the alternative to Count IV, Peter Halmos complains of SafeCard:
----------------------------------------------------------------
131. This Count V is a claim for declaratory judgment
and ancillary relief based on SafeCard's breach of a written
contract, found in its corporate charter and By-Laws as
interpreted in light of its longstanding, uniformly applied
custom and practice, and also in its written, signed SEC filings,
to provide Peter Halmos -- just like other senior SafeCard
personnel - with indemnification to the maximum extent permitted
by law, including mandatory indemnification "advances;" that is,
"advance" payment directly to billing counsel, as and when
incurred, of potentially indemnifiable legal fees and other
expenses incurred by Halmos. Like Count IV, to which it is an
alternative, this Count V addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in pending actions with third parties. (Halmos has other
indemnification claims as well, some of which, relating to other
matters, are set forth in Counts l-III and VII-X of this
Complaint.)
132. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 1-9 inclusive above (concerning
parties, jurisdiction, and venue) as paragraph 132 of this Count
V as if fully set forth herein.
SafeCard's Unbroken History Of
Advancing Indemnification Payments
----------------------------------
133. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 12-20 inclusive of Count I
(SafeCard's longstanding custom, practice, and course of dealing
as to indemnification "advances") as paragraph 133 of this Count
V, as if fully set forth herein.
SafeCard's Uniform Custom And Practice,
Its Promises To Halmos, And Its Writings,
Constitute A Written Contract Embodying That Custom
---------------------------------------------------
134. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 21-32 inclusive of Count I
(SafeCard's numerous written and oral indemnification promises to
Halmos) as paragraph 134 of this Count V. as if fully set forth
herein.
135. By reason of the foregoing facts, including
without limitation SafeCard's own SEC filings, there is a written
contract between Halmos and SafeCard covering indemnification
"advances," consisting of (i) SafeCard's Certificate of
Incorporation and ByLaw provisions quoted in paragraph 18 above
(incorporated in paragraph 133), coupled with (ii) SafeCard's
reaffirmation and further written memorialization of Halmos'
indemnification rights "to the maximum extent permitted by law"
as part of the parties' 1989 Management Agreement, as described
in paragraph 31 above (incorporated in paragraph 134), in light
of (iii) SafeCard's fifteen-year-long, uniformly applied, custom,
practice, and course of dealing regarding indemnification
"advances" as described in paragraphs 12-20 above (incorporated
in paragraph 133) " on all of which Halmos reasonably relied, as
SafeCard knew and intended that he would.
SafeCard's 1992 Reaffirmation Of The Contract
---------------------------------------------
136. Halmos repeats and realleges, and incorporates
herein by reference paragraphs 33-43 inclusive of Count I
(concerning SafeCard's 1992 Agreement and promises to Halmos ) as
paragraph 136 of this Count V, as if fully set forth herein.
137. As is more fully described in paragraph 33-43
above (incorporated in paragraph 136), SafeCard's 1992
Indemnification Agreement further carried forward and reaffirmed
the contract between Halmos and SafeCard embodied in (i)
SafeCard's Certificate of Incorporation and By-Law provisions
quoted in paragraph 18 above (incorporated in paragraph 133),
(ii) SafeCard's fifteen-year-long, uniformly applied, custom,
practice, and course of dealing regarding indemnification
"advances" as described in paragraphs 12-20 above (incorporated
in paragraph 133), (iii) SafeCard's reaffirmation and further
written memorialization of Halmos' indemnification rights "to the
maximum extent permitted by law" as part of the parties' 1989
Management Agreement, as described in paragraph 31 above
(incorporated in paragraph 134), and (iv) SafeCard's further
reaffirmation of Halmos' indemnification rights in its Board of
Directors January 15, 1992 Minutes, as described in paragraph 36
above (incorporated in paragraph 136).
SafeCard's Breaches Of Its Written Contract
-------------------------------------------
138. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 108-127 inclusive of Count IV
(the Deloitte and IRS Suits, their background, and Halmos' right
to indemnification as to them) as paragraph 138 of this Count V,
as if fully set forth herein.
139. Pursuant to SafeCard's longstanding custom,
practice, and course of dealing described herein and its
contractual obligations to Peter Halmos, and as expressly
reaffirmed in writing by SafeCard (in, for example, its
Registration Statement quoted in paragraph 19 above, incorporated
in paragraph 133), SafeCard must honor Halmos written request
described in paragraph 127 above (incorporated in paragraph 138),
and can only refuse it upon an affirmative determination that in
the particular situation, indemnity could never be proper under
any possible set of circumstances.
140. In addition, SafeCard was and is obligated to
respond to Halmos' written request described in paragraph 127
above within a reasonable time. As SafeCard itself has determined
(in connection with the 1992 Agreement described above, Exhibit H
hereto), two business days is a "reasonable time" for SafeCard to
respond to a request for indemnification "advances" such as are
at issue in this Count II, and thirty days is a "reasonable time"
within which to respond to any other sort of indemnification
request. As SafeCard itself has determined (in connection with
that 1992 Agreement), if thirty days have elapsed with no
response the prospective indemnitee should be entitled to seek
judicial relief.
141. No determination of the kind referred to in
paragraph 140 above has been made, and no such determination
properly could be made, in this case. Further, more than thirty
days have elapsed since Halmos' written request described above;
yet SafeCard has refused to honor that request, has paid Halmos
nothing pursuant thereto. and has denied that it has any
obligation to indemnify Halmos. SafeCard's conduct is a denial of
Halmos' request.
142. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor Halmos' rights to indemnification "advances" with regard to
pending actions with third parties. This is a proper Court to
declare the rights of the parties in the premises and compel
SafeCard to honor its obligations to Halmos.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
advance to Halmos, on a continuing, current and timely basis and
within two business days of his written request therefor, his
legal fees and other costs and expenses actually and necessarily
incurred in the Deloitte Suit and the IRS Suit;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $1,221,009.95). including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT VI
(Declaratory Judgment; Promissory Estoppel:
Advance Indemnification Payments For Third-Party Litigation) ---
- - ---------------------------------------------------------
In the alternative to Counts IV and V, Peter Halmos
complains of SafeCard:
143. This Count VI is a claim for declaratory judgment
and ancillary relief based on promissory estoppel and Halmos'
detrimental reliance. This Count VI concerns SafeCard's
repudiation of its numerous promises to Peter Halmos (some in
signed writings, including SEC filings, some oral, and all relied
on by Halmos), and of its fifteen-year-long, uniformly applied
custom, practice, and course of dealing, to provide Peter
Halmos -- just like other senior SafeCard personnel, whom even
now SafeCard is indemnifying despite its promises that it would
treat them and Halmos equally -- with indemnification to the
maximum extent permitted by law, including mandatory
indemnification "advances;" that is, "advance" payment directly
to billing counsel, as and when incurred, of potentially
indemnifiable legal fees and other expenses incurred by Halmos in
ongoing judicial, administrative. and/or investigative
proceedings. Like Counts IV and V (to which it is an
alternative), this Count VI addresses only Halmos' claims for
"advances" of potentially indemnifiable fees and expenses
incurred in pending actions with third parties. (Halmos has other
indemnification claims, some of which, relating to other matters,
are set forth in Counts I-m and VII-X.)
144. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 1-9 inclusive above as paragraph
144 of this Count VI, as if fully set forth herein.
SafeCard's Unbroken History Of
"Advancing" Indemnification Payments
------------------------------------
145. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 12-20 inclusive of Count I
(SafeCard's longstanding custom, practice, and course of dealing
as to indemnification "advances) as paragraph 145 of this Count
VI, as if fully set forth herein.
SafeCard's Repeated Indemnification Promises To Halmos
------------------------------------------------------
146. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 21-31 inclusive of Count I
(SafeCard's numerous written and oral indemnification promises to
Halmos) as paragraph 146 of this Count VI, as if fully set forth
herein.
Halmos' Detrimental Reliance On SafeCard's Representations
----------------------------------------------------------
147. Halmos repeats and realleges, and incorporates herein
by reference, paragraphs 32-43 inclusive of Count I and paragraph
73 of Count II (SafeCard's 1992 Agreement and its reaffirmation
of SafeCard's many promises to Halmos and of SafeCard's
longstanding custom, practice, and course of dealing regarding
indemnification "advances"), and paragraphs 87-89, 91-92, and 94
of Count m (Halmos' reliance on SafeCard's repeated promises.
including the 1992 Agreement, and on SafeCard's uniform custom,
practice, and course of dealing as to indemnification "advances")
as paragraph 147 of this Count VI, as if fully set forth herein.
148. At the time of the March 10, 1992 Board of
Directors' meeting described above, SafeCard's Board of Directors
knew that Halmos had filed the Deloitte Suit, and knew and
intended that Halmos would, as he did, rely on SafeCard's
promises of indemnification (including mandatory indemnification
"advances") in connection therewith.
149. At the time of the October 2, 1992 Board of
Directors' meeting described above, SafeCard's Board of Directors
knew that Halmos had filed the Deloitte Suit; knew that Halmos
was about to (as in fact he did) file the IRS Suit; and knew and
intended that Halmos had relied and would, as he did, continue to
rely on SafeCard's promises of indemnification (including
mandatory indemnification "advances") in connection with both of
those suits. Indeed, the IRS Suit was one of the subjects
discussed at that Board meeting, following which SafeCard itself
also filed its own suit against the IRS agents.
SafeCard's Repudiation Of Its Promises And Representations
----------------------------------------------------------
150. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 44-48 inclusive of Count I
(concerning the provisions of the 1992 Agreement), paragraphs
108-127 inclusive of Count IV (concerning the Deloitte and IRS
Suits, their background, and Halmos' right to indemnification as
to them), and paragraphs 139-141 inclusive of Count V (concerning
SafeCard's denial of Halmos' indemnification requests regarding
those suits) as paragraph 150 of this Count VI, as if fully set
forth herein.
151. As is more fully set forth above, contrary to its
numerous explicit oral and written promises and representations
to Peter Halmos, and in particular its promises and
representations that Peter Halmos was and would continue to be
entitled to (i) mandatory advance payment of indemnification, and
(ii) at least equal indemnification treatment with SafeCard's
Directors and senior officers who enjoy the benefits of the 1992
Agreement, SafeCard has flatly denied and continues to deny Peter
Halmos -- its co-founder -- the same benefits of that Agreement
as those other SafeCard personnel enjoy.
152. By reason of the facts set forth in this Count VI,
including SafeCard's repeated promises to Peter Halmos and his
justified and reasonable reliance thereon (a reliance of which
SafeCard knew and which it specifically encouraged, as set forth
above, so that injustice can be avoided only by enforcing those
promises), Halmos is entitled to advance payment of his legal
fees and other expenses in the Deloitte Suit and the IRS Suit
including $1,221,009.95 previously and properly demanded by him
as set forth hereinabove.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
advance to Halmos, on a continuing, current and timely basis and
within two business days of his written request therefor, his
legal fees and other costs and expenses actually and necessarily
incurred in the Deloitte Suit and the IRS Suit;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $1,221,009.95), including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT VII
(Declaratory Judgment; Breach of Written Contract:
Indemnification For Successful IRS Defense)
---------------------------------------------------
Peter Halmos complains of SafeCard as follows:
153. This Count VII is a claim for declaratory judgment
and ancillary relief, based on SafeCard's breach of a written
contract to provide Peter Halmos (like other senior SafeCard
personnel) with indemnification to the maximum extent permitted
by law, including indemnification for legal fees and expenses
incurred by him in his successful, completed defense of claims
asserted against him by third parties. (Such indemnification, in
respect of a successful defense, is mandated by Delaware law as
well as by SafeCard's written contractual promises to Halmos.)
Unlike Counts I-VI, this Count VII, and alternative Counts VIII-
X, concern only Halmos' right to after-the-fact reimbursement for
legal fees and other expenses related to a successful, completed
defense.
154. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 1-9 inclusive above (concerning
parties, jurisdiction, and venue) as paragraph 154 of this Count
VII, as if fully set forth herein.
SafeCard's Indemnification Promises To Halmos
---------------------------------------------
155. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 12-32 inclusive of Count I
(concerning SafeCard's longstanding custom, practice, and course
of dealing as to indemnification "advances" and SafeCard's
numerous written and oral indemnification promises to Halmos) as
paragraph 155 of this Count VII, as if fully set forth herein.
SafeCard's 1992 Written Indemnification Agreement
-------------------------------------------------
156. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 33-43 inclusive of Count I
(concerning SafeCard's 1992 Agreement and promises to Halmos) as
paragraph 156 of this Count VII, as if fully set forth herein.
SafeCard 's 1992 Agreement Mandates Payments
For The Cost Of A Successful Administrative Defense
---------------------------------------------------
157. Section 6 of the 1992 Agreement (Exhibit H hereto)
provides:
... [N]otwithstanding 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 ...."
Section 6 further provides that the indemnitee need not prove his
entitlement to such indemnification; rather, if there is any
dispute. "the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled."
158. Sections l(b), l(c), and l(d) of the 1992
Agreement, quoted in paragraphs 46 and 47 above (which are
incorporated by reference in this paragraph 158 as if fully set
forth herein), define the terms "Claim," expenses," and
Indemnifiable Event," as used in the Agreement's Section 6
(quoted in paragraph 157 above).
159. On their face, Sections l(b)-(d) and 6 of the 1992
Agreement obligate SafeCard to reimburse: (i) "any and all
Expenses" (i.e., "attorneys' fees and all other costs, charges
and expenses paid or incurred"), (ii) "relating to a Claim"
(i.e., relating to "any threatened, pending, or completed ...
proceeding, ... administrative or investigative or other"), so
long as (iii) the proceeding concerned an "Indemnifiable Event"
(i.e., "any event or occurrence related to the fact that
indemnitee [Halmos] is or was ... a director, officer, employee,
agent or fiduciary of the Company [SafeCard] ... or by reason of
anything done or not done by Indemnitee [Halmos] in any such
capacity").
SafeCard's Breach Of The 1992 Agreement:
(i) Background Information
----------------------------------------
160. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 108-112 inclusive of Count IV
(concerning the background to Varvoutis' thefts) as paragraph 160
of this Count VII, as if fully set forth herein.
SafeCard's Breach Of The 1992 Agreement:
(ii) Varvoutis' Thefts And Their Aftermath
------------------------------------------
161. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 113-121 inclusive of Count IV
(concerning Varvoutis' thefts, the IRS investigation, and Halmos'
successful defense thereof) as paragraph 161 of this Count VII,
as if fully set forth herein.
SafeCard's Breach Of The 1992 Agreement:
(iii) SafeCard's Refusal To Pay Halmos' IRS Defense Costs
---------------------------------------------------------
162. As is more fully set forth hereinabove, Halmos was
"successful" with regard to the IRS investigation, within the
meaning of the 1992 Agreement.
163. As is more fully set forth hereinabove and in
paragraphs 124 and 125 of Count IV (which are incorporated by
reference into this paragraph 163 as if fully set forth herein),
the IRS investigation of Halmos arose from and related to Halmos'
service as a SafeCard officer, director, agent, and fiduciary,
and SafeCard itself recognized the connection between the IRS
investigation and SafeCard's business.
164. Halmos had initially requested advance payment of
indemnification with regard to the IRS investigation, shortly
after it commenced in late 1988. At that time, however, SafeCard,
acting through its counsel Gertig, told Halmos that advancing
such expenses would "look bad." Gertig, on behalf of SafeCard
(and, Halmos reasonably believed at that time, on his behalf as
well, because Gertig and Harvey Pitt had provided personal advice
and representation to Halmos only a few months earlier in 1988),
advised and requested Halmos that it would be better, for both
SafeCard and Halmos personally. it he waited until the IRS
investigation was finally resolved before seeking indemnification
for his expenses relating thereto.
165. Reasonably and justifiably relying on Gertig's
advice and representation described in paragraph 164 above,
Halmos accepted Gertig's advice and acceded to SafeCard's request
(conveyed through her). Thus, Halmos agreed to. and did, wait
until the end of the IRS investigation (successfully to him)
before requesting indemnification related thereto.
166. Promptly after the formal conclusion of the IRS
investigation in late 1992, SafeCard's Board of Directors (which
met in Chicago, Illinois on November 16, 1992) represented to
Halmos that SafeCard's counsel Gertig was a proper person to whom
to present Halmos' indemnification claims relating to the IRS
investigation.
167. On or about November 17-18, 1992, not more than
two weeks after the formal conclusion of the IRS investigation,
Halmos met with SafeCard's counsel Gertig at the offices of
Halmos' counsel in Chicago, Illinois, for the express purpose of
presenting and reviewing his indemnification claims relating to
(among other things) the IRS investigation. Halmos did present
those claims to Gertig at that time, and also demanded
indemnification from SafeCard, with respect to the IRS
investigation, in April 1993 and in mid-May 1993.
168. In addition, on April 29, 1994, Halmos requested
in writing that SafeCard provide him with indemnification for his
legal and other expenses incurred in successfully defending
against the IRS investigation. A true and correct copy of that
written request is attached hereto as Exhibit M.
169. Section 2(a) of the 1992 Agreement (Exhibit H
hereto) provides that:
"... If Indemnitee makes a request to be indemnified under
this Agreement, the Board of Directors ... shall, as soon as
practicable but in no event later than thirty days after such
request, authorize such indemnification." [Emphasis added.]
170. Section 2(c) of the 1992 Agreement provides (in
addition to the provisions quoted in paragraph 59 above, which
paragraph is incorporated herein by reference as if fully set
forth herein) that:
"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 ... to secure a
determination that Indemnitee should be indemnified ..., any
Board action that Indemnitee would not be permitted to be
indemnified ... shall not be binding." [Emphasis added.]
171. More than thirty days have passed since Halmos'
indemnification requests described above. SafeCard has refused to
honor any of those requests. has paid Halmos nothing whatever
pursuant to any of those requests, and has denied that it has any
obligation to Halmos under the 1992 Agreement. By reason of
Sections 2(a) and 2(c) of the 1992 Agreement, SafeCard's conduct
is a denial of Halmos' indemnification requests.
172. This Court is a "court of competent jurisdiction."
SafeCard has consented to this Court's jurisdiction, as more
fully stated in paragraph 7 above.
173. By reason of the facts set forth in this Count VII
and the plain language of the 1992 Agreement, Halmos is entitled
to reimbursement of his legal fees and other costs and expenses
actually and necessarily incurred in successfully defending
against the IRS investigation. As is more fully set forth in
Exhibit M hereto, those legal fees costs, and expenses currently
total $5,515.430.38.
174. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor Halmos' rights under the 1992 Agreement. This is a proper
Court to declare the parties' rights and compel SafeCard to honor
its Agreement.
WHEREFORE. Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is obligated to
reimburse Halmos for the legal fees and other costs and expenses
actually and necessarily incurred by Halmos in successfully
defending against the IRS investigation;
b. Directing SafeCard to pay Halmos an amount to
be proven at trial (but not less than $5,515,430.38), including
prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and further relief
as is just.
COUNT VIII
(Declaratory Judgment; Breach of Written Contract:
Indemnification For Successful IRS Defense)
--------------------------------------------------
In the alternative to Count VII, Peter Halmos complains of
SafeCard:
175. This Count VIII is a claim for declaratory
judgment and ancillary relief based on SafeCard's breach of a
written contract, found in its corporate charter and By-Laws as
interpreted in light of its longstanding, uniformly applied
custom and practice, and also in its written, signed SEC filings,
to provide Peter Halmos (like other senior SafeCard personnel)
with indemnification to the maximum extent permitted by law,
including indemnification for legal fees and expenses incurred by
him in his successful, completed defense of claims asserted
against him by third parties. (Such after-the-fact, reimbursement
indemnification, in respect of a successful defense, is mandated
by Delaware law as well as by SafeCard's written contractual
promises to Halmos.) Unlike Counts I-VI, this Count VIII, and
alternative Counts VII, IX, and X, concern only Halmos' right to
after-the-fact reimbursement for legal fees and other expenses
related to a successful, completed defense.
176. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 1-9 inclusive above (concerning
parties, jurisdiction, and venue) as paragraph 176 of this Count
VIII, as if fully set forth herein.
SafeCard's Unbroken History Of
Indemnification Payments
------------------------------
177. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 12-20 inclusive of Count I
(SafeCard's longstanding custom, practice, and course of dealing
as to indemnification advances) as paragraph 177 of this Count
VIII, as if fully set forth herein.
SafeCard's Uniform Custom And Practice,
Its Promises To Halmos, And Its Writings,
Constitute A Written Contract Embodying That Custom
---------------------------------------------------
178. Halmos repeats and realleges, and incorporates
herein by reference, paragraphs 21-32 inclusive of Count I
(SafeCard's numerous written and oral indemnification promises to
Halmos) as paragraph 178 of this Count VIII, as if fully set
forth herein.
179. By reason of the foregoing facts, including
without limitation SafeCard's own SEC filings, there is a written
contract between Halmos and SafeCard covering indemnification for
the legal fees and costs incident to a successful administrative
defense, consisting of (i) SafeCard's charter and By-Law
provisions quoted in paragraph 18 (incorporated in paragraph
177), plus (ii) SafeCard's reaffirmation and further written
memorialization of Halmos' indemnification rights "to the maximum
extent permitted by law" as part of the parties' 1989 Management
Agreement, as described in paragraph 31 above (incorporated in
paragraph 178), in light of (iii) SafeCard's fifteen-year-long,
uniformly applied. custom, practice, and course of dealing
regarding indemnification as described in paragraphs 12-20 above
(incorporated in paragraph 177) -- on all of which Halmos
reasonably relied, as SafeCard knew and intended that he would.
SafeCard's 1992 Reaffirmation Of The Contract
---------------------------------------------
180. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 33-43 inclusive of
Count I (concerning SafeCard's 1992 Agreement and promises to
Halmos) as paragraph 180 of this Count VIII, as if fully set
forth herein.
181. As is more fully described in paragraph
33-43 above (incorporated in paragraph 180), SafeCard's 1992
Indemnification Agreement further carried forward and reaffirmed
the contract between Halmos and SafeCard embodied in (i)
SafeCard's Certificate of Incorporation and By-Law provisions,
(ii) SafeCard's fifteen-year-long, uniformly applied, custom,
practice, and course of dealing regarding indemnification, (iii)
SafeCard's reaffirmation and further written memorialization of
Halmos' indemnification rights "to the maximum extent permitted
by law" as part of the parties' 1989 Management Agreement, and
(iv) SafeCard's further reaffirmation of Halmos' indemnification
rights in its Board of Directors' January 15, 1992 Minutes.
SafeCard's Breaches Of Its Written Contract
-------------------------------------------
182. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 78-80 inclusive of
Count II (concerning SafeCard s obligation to respond to
indemnification requests within a reasonable time, and in any
case within not more than thirty days), paragraphs 108-121
inclusive of Count IV (Varvoutis' thefts and their background,
the IRS investigation, and Halmos' successful defense thereof),
and paragraphs 162-173 inclusive of Count VII (concerning
Halmos' right to reimbursement for his legal fees and other
expenses incurred in his successful defense of the IRS
investigation, and SafeCard's wrongful refusal to reimburse him
for those fees and expenses), as paragraph 182 of. this Count
VIII, as if fully set forth herein.
183. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor Halmos' indemnification rights. This is a proper Court to
declare the rights of the parties and compel SafeCard to honor
its Agreement.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is
obligated to reimburse Halmos for the legal fees and other costs
and expenses actually and necessarily incurred by Halmos in
successfully defending against the IRS investigation;
b. Directing SafeCard to pay Halmos an
amount to be proven at trial (but not less than $5,515,430.38),
including prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and
further relief as is just.
COUNT IX
(Declaratory Judgment; Promissory Estoppel:
Indemnification For Successful IRS Defense)
-------------------------------------------
In the alternative to Counts VII and VIII, Peter Halmos
complains of SafeCard as follows:
184. This Count IX is a claim n for declaratory
judgment and ancillary relief based on promissory estoppel and
Halmos' detrimental reliance. This Count VI concerns SafeCard's
repudiation of its numerous promises to Peter Halmos (some in
signed writings, including SEC filings, some oral. and all relied
on by Halmos), and of its fifteen-year-long, uniformly applied
custom, practice, and course of dealing, to provide Peter Halmos
(just like other senior SafeCard personnel) with indemnification
to the maximum extent permitted by law, including indemnification
for legal fees and expenses incurred by him in his successful,
completed defense of claims asserted against him by third
parties. (Such after-the-fact, reimbursement indemnification, in
respect of a successful defense, is mandated by Delaware law as
well as by SafeCard's written contractual promises to Halmos.)
Unlike Counts I-VI, this Count IX, and alternative Counts VII,
III, and X, concern only Halmos' right to after-the-fact
reimbursement for legal fees and expenses of a successful,
completed defense.
185. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction. and venue) as paragraph 185 of
this Count IX, as if fully set forth herein.
SafeCard's Repeated Indemnification Promises To Halmos
------------------------------------------------------
186. Halmos repeats and realleges, and
incorporates herein by reference. paragraphs 12-31 inclusive of
Count I (SafeCard's numerous written and oral indemnification
promises to Halmos) as paragraph 186 of this Count IX, as if
fully set forth herein.
Halmos' Detrimental Reliance On SafeCard's Representations
----------------------------------------------------------
187. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 32-43 inclusive of
Count I and paragraph 73 of Count II (SafeCard's 1992 Agreement
and its reaffirmation of SafeCard's many promises to Halmos, and
of SafeCard's longstanding custom, practice, and course of
dealing regarding indemnification), paragraphs 87-89, 91-92. and
94 of Count III (Halmos' reliance on SafeCard's repeated
promises, including the 1992 Agreement, and on SafeCard's uniform
custom, practice, and course of dealing), and paragraphs 157-159
of Count VII (as to the applicability of the 1992 Agreement to
Halmos' claims for reimbursement of the legal fees and expenses
he incurred in his successful IRS defense) as paragraph 187 of
this Count IX, as if fully set forth herein.
188. Both at the time of the March 10, 1992
Board of Directors' meeting and at the time of the October 2,
1992 Board of Directors' meeting, SafeCard's Board of Directors
knew that Halmos was defending against the IRS investigation
described above, and knew and intended that Halmos would, as he
did, rely on SafeCard's promises of indemnification in connection
therewith.
SafeCard's Repudiation Of Its Promises To Halmos
------------------------------------------------
189. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 108-121 inclusive of
Count IV (Varvoutis' thefts and their background, the IRS
investigation, and Halmos' successful defense thereof), and
paragraphs 139-141 of Count V and paragraphs 162-173 inclusive of
Count VII (concerning Halmos right to reimbursement for his legal
fees and other expenses incurred in his successful defense of the
IRS investigation, and SafeCard's wrongful refusal to reimburse
him for those fees and expenses), as paragraph 189 of this Count
IX, as if fully set forth herein.
190. By reason of the facts set forth in this
Count IX, including SafeCard's repeated promises to Peter Halmos
and his justified and reasonable reliance thereon (a reliance of
which SafeCard knew and which it specifically encouraged, as set
forth above, so that injustice can be avoided only by enforcing
those promises), Halmos is entitled to indemnification and
reimbursement of his legal fees and other expenses in
successfully defending the IRS investigation. As is more fully
set forth in Exhibit M hereto, those legal fees, costs, and
expenses total $5,515,430.38 previously and properly demanded by
him.
191. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor the rights of indemnification and equal treatment which,
both orally and in signed writings, it repeatedly promised to
Peter Halmos. This is a proper Court to declare the rights of the
parties in the premises and compel SafeCard to honor its
indemnification obligations to Halmos.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is
obligated to reimburse Halmos for the legal fees and other costs
and expenses actually and necessarily incurred by Halmos in
successfully defending against the IRS investigation;
b. Directing SafeCard to pay Halmos an
amount to be proven at trial (but not less than $5,515,430.38),
including prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and
further relief as is just.
COUNT X
(Declaratory Judgment; Statutory Recovery:
Indemnification For Successful IRS Defense)
-------------------------------------------
In the alternative to Counts VII, VIII, and IX, Peter
Halmos complains of SafeCard as follows:
192. This Count X seeks declaratory judgment and
ancillary relief based on controlling Delaware statutory law
regarding indemnification. This Count X concerns SafeCard's
repudiation of its plain and direct statutory obligation, found
in 8 Del. Code Section 145(c), to provide Peter Halmos with
indemnification for legal fees and expenses incurred by him in
his successful, completed defense of claims asserted against him
by third parties. (Such indemnification, in respect of a
successful defense, is mandated by Delaware law even in the
absence of any contractual promise.) This Count X concerns only
Halmos' right to after-the-fact reimbursement for legal fees and
expenses of a successful, completed defense.
193. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 193 of
this Count X. as if fully set forth herein.
The Delaware Indemnification Statute
------------------------------------
194. Because SafeCard is a Delaware corporation,
legal issues concerning Halmos' entitlement to indemnification
must be resolved under Delaware law.
195. At all material times, 8 Del. Code Section
145(c) provided as follows:
"(c) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b), or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith." [Emphasis added.]
196. At all material times, 8 Del. Code Sections
145(a) and (b), referred to in Section 145(c) (paragraph 195
above), provided in pertinent part:
"(a) A corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation ...."
[Emphasis added.]
"(b) A corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the corporation ...." [Emphasis added.]
197. The indemnification required by 8 Del. Code
Section 145(c), quoted in paragraph 195 above, is mandatory. A
Delaware corporation must provide that indemnification.
SafeCard's Charter And By-Law Provisions
----------------------------------------
198. Halmos repeats and realleges, and
incorporates herein by reference. Paragraph 18 of Count I
(quoting certain of SafeCard's charter and By-Law provisions) as
paragraph 198 of this Count X. as if fully set forth herein.
Halmos' "SafeCard Stigma, " The Thefts By
Varvoutis. And The IRS Investigation
------------------------------------
199. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 108-121 inclusive of
Count IV (Varvoutis' thefts and their background, the IRS
investigation, and Halmos' successful defense thereof) as
paragraph 199 of this Count X, as if fully set forth herein.
SafeCard's Breach Of Its Statutory Duty
---------------------------------------
200. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 162-171 inclusive of
Count VII (Halmos' properly-made demands for indemnification
regarding the IRS investigation, and SafeCard's wrongful refusal
of those demands) as paragraph 200 of this Count X, as if fully
set forth herein.
201. In addition to presenting his IRS-related
indemnification claims in November 1992, March 1993, May 1993,
and April 1994 as described above, Halmos also presented and
reiterated those claims to SafeCard on November 22, 1992,
November 24, 1992, and November 25, 1992, among other occasions.
202. In addition to its other denials and
rejections of Halmos' IRS-related claims for indemnification
described above, on November 29, 1992 SafeCard, purporting to act
through two of its Directors (defendant Bacon and Robert
Dilenschneider) who purported to be a disinterested majority of
its Board of Directors, flatly denied and rejected Halmos'
IRS-related indemnification claims in their entirety.
203. By reason of the facts set forth in this
Count X, and the plain language of 8 Del. Code Section 145(c),
Halmos is entitled to reimbursement of his legal fees and other
costs and expenses incurred in successfully defending against the
IRS investigation.
204. There is an actual, present, subsisting
controversy between the parties regarding SafeCard's refusal to
honor its statutory indemnification obligations under 8 Del. Code
Section 145(c). This is a proper Court to declare the rights of
the parties in the premises and to compel SafeCard to honor its
statutory obligations.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is
obligated to reimburse Halmos for the legal fees and other costs
and expenses actually and necessarily incurred by Halmos in
successfully defending against the IRS investigation;
b. Directing SafeCard to pay Halmos an
amount to be proven at trial (but not less than $5,515,430.38),
including prejudgment interest on the principal sums due; and
c. Awarding Halmos such other and
further relief as is just.
COUNT XI
(Breach of Written Contract For 1989-1990 Incentive
Compensation; Rescission; Fraud, Including
Fraudulent Inducement And Fraud In The Factum)
----------------------------------------------
Peter Halmos complains of SafeCard as follows:
205. This Count XI is a claim in equity for
breach of a written contract, fraud (including fraudulent
inducement and fraud in the factum), and rescission pertaining to
Halmos' 1989-1990 "economic equivalent incentive compensation, in
the form of Stock Appreciation Rights. This Count is based on
SafeCard's double fraud -- first, SafeCard's fraud in inducing
Peter Halmos to accept, ostensibly in form only, a type of
incentive compensation to which SafeCard knew he had not agreed;
and second, SafeCard's further fraud in using false statements to
prevent Halmos from realizing any value at all from that
compensation, even in the form SafeCard had improperly induced.
206. This Count XI (like alternative Counts XII
and XIII) concerns only Halmos' incentive compensation for the
period from January 1989 to October 1990, pursuant to a written
and signed management agreement covering that time period. Counts
XIV and XV concern Halmos' incentive compensation for the period
after October 1990.
207. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 207 of
this Count XI, as if fully set forth herein.
SafeCard's Incentive Compensation Contract With Peter Halmos
------------------------------------------------------------
208. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 21-31 inclusive of
Count I (concerning Halmos' desire to "disengage" from SafeCard,
SafeCard's desire to persuade him not to do so, and the parties'
discussion of the terms of a new Management Agreement) as
paragraph 208 of this Count XI, as if fully set forth herein.
209. During the October 27, 1988 meeting of
SafeCard's Board of Directors, and after extended discussion of
the nature and terms of a new Management Agreement to replace the
prior agreement (which expired in March 1988) covering Halmos'
services to SafeCard, a number of "consensuses" were reached on
the terms of the new agreement.
210. After further discussion, at a SafeCard
Board of Directors' meeting on January 23, 1989, SafeCard and
Peter Halmos agreed on and memorialized in a signed writing the
substantive terms of a new Management Agreement to cover Halmos'
services to SafeCard for the period from January 25, 1989 until
the SafeCard stockholders' meeting in 1990, including among other
things:
"3. [An] [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 common stock
subsequent to January 25, 1989 ...." [Emphasis added.]
211. The "incentive compensation" agreement
described in paragraph 210 above was "memorialized " in a writing
signed by both Peter Halmos and SafeCard, together with the other
"substantive terms" of the new Management Agreement covering the
period from January 25, 1989 until the 1990 meeting of SafeCard's
stockholders, as part of the Minutes of SafeCard's January 23,
1989 Board of Directors' meeting, a true and correct copy of
which is attached hereto as Exhibit D.
212. SafeCard also prepared other signed
writings acknowledging and admitting the existence and terms of
the incentive compensation agreement described in paragraph 210
above, including among other things SafeCard's 1988 Annual Report
issued in early 1989 (Exhibit E hereto) and its February 10, 1989
SEC Form 10-K (a true and correct copy of which is attached
hereto as Exhibit N), both of which state in writing as follows:
"The agreement provides for ... incentive compensation ...
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 Meaning Of "Economic Equivalent"
------------------------------------
213. As reflected by SafeCard's "economic
equivalent" wording, at the time of the January 23, 1989 grant of
incentive compensation, SafeCard did not understand that the
promised incentive compensation could or would be paid in the
form of stock or stock options, because SafeCard did not have
(and knew that it did not have) sufficient authorized and
unissued (or treasury) shares available for such stock options.
Months previously, as stated in the Minutes of the October 27,
1988 Board meeting, SafeCard acknowledged that it had improperly
granted or recommended stock options "covering shares in excess
of the number of shares which [it] holds in treasury or which are
authorized but unissued."
214. Similarly, and also as reflected by
SafeCard's "economic equivalent" wording, at the time of the
January 23, 1989 grant of incentive compensation, Halmos himself
did not wish nor understand that the promised incentive
compensation could or would be paid in the form of stock or stock
options, both because of the facts stated in paragraph 213 above.
and also because Halmos was purposely decreasing his holdings of
SafeCard stock at that time. Among other things, Halmos did not
wish to risk further "insider trading" charges, to which stock
options (as opposed to a non-stock. economic equivalent" payment
method) might directly or indirectly lead.
215. At the time of the January 23, 1989 grant
of "economic equivalent" incentive compensation, SafeCard's Board
of Directors (which could not validly grant stock options,
paragraph 213 above) and Peter Halmos (who did not want stock
options in any event, paragraph 214 above) both understood that
Halmos' incentive compensation would be payable by giving him the
dollar amount of the "increase, if any, in the fair market value
of 1.95 million unissued shares" of SafeCard stock - that is, the
net dollar appreciation in the value of that many shares from the
time the compensation was granted ($5.125 per share), to the time
the compensation was paid. This net-cash-payment form of
compensation -- the "economic equivalent" of stock options, but
not using actual stock -- is known as "Stock Appreciation Rights"
(or "SARs"), and is a recognized method of executive incentive
compensation.
216. The 1989-90 Management Agreement (the "1989
Agreement") was entered into for the express benefit of, inter
alia, Peter Halmos as well as SafeCard. Peter Halmos was a party
thereto; in the alternative (and at the very least), he was an
intended, direct, and express third-party beneficiary thereof,
and was expressly identified as such therein, with respect to the
"economic equivalent" incentive compensation which SafeCard
promised to him. As SafeCard knew and intended that he would,
Peter Halmos relied on SafeCard's incentive compensation
agreement with him as described above.
217. In reliance on, inter alia, that incentive
compensation agreement, Peter Halmos did not "disengage" from
SafeCard as he had intended; rather, he accepted SafeCard's
"request that [he] take a far more active role," and continued to
work for SafeCard throughout the January 1989 October 1990 term
of the 1989 Agreement of which that incentive compensation was a
part. As is more fully described in paragraph 87 of Count III,
which Halmos incorporates in this paragraph 217 as if fully set
forth herein, throughout the term of the 1989 Agreement, Halmos
fully performed all of his duties under that Agreement and did
everything SafeCard asked of him thereunder.
SafeCard's Fraudulent Revision Of The Contract
----------------------------------------------
218. Notwithstanding the parties' understanding
and agreement that Halmos' incentive compensation was on an
economic equivalent" basis in the nature of SARs, and payable in
the form of a cash payment of the net dollar difference in the
value of 1.95 million SafeCard shares over time (paragraphs
213-217 above), SafeCard later advised Halmos that the promised
"economic equivalent" incentive compensation might present a
technical accounting problem for SafeCard, in the form of
"phantom" charges against earnings in respect of payments which
were not actually made, because of differing accounting precepts
regarding disclosure of SARs and disclosure of stock options.
219. To solve its technical accounting problem
(paragraph 218 above), SafeCard asked Halmos if he would be
willing to accept (at least pro forma) stock options, rather than
SARs, covering 1.95 million SafeCard shares. Halmos, who did not
want to increase his holdings of SafeCard stock, did not wish to
agree to that modification of the parties' contract regarding
incentive compensation. Among other reasons, in March 1989 Halmos
had been named a defendant in Wolfe, et al. v. SafeCard Services,
Inc., et al., No. 89-6198 CIV-GONZALEZ (S.D. Fla.), another false
"insider trading" suit prompted by the events described in
paragraphs 108-119 above, which paragraphs are incorporated
herein by reference, as part of this paragraph 219, as if fully
set forth herein.
220. Persistently but unsuccessfully, SafeCard
continued to importune Halmos to agree to accept stock options
rather than the economic equivalent" SARs he had been promised.
By December 1989, reaching an accommodation regarding the manner
in which the incentive compensation would be payable became
critically important to SafeCard. SafeCard wanted to settle the
point by year-end, at least in form, in order not to adversely
affect SafeCard's year-end audit and financial disclosures.
221. To fraudulently induce Halmos to agree to
what SafeCard wanted, on December 8, 1989 and on many occasions
prior thereto, SafeCard assured Halmos that the issuance, pro
forma, of a stock option document was necessary to solve
SafeCard's technical accounting problem; and SafeCard further
assured Halmos that the issuance of such a document would not, as
between Halmos and SafeCard, affect the availability to Halmos of
the net-cash-payment feature described above. At the time it made
those representations to Halmos, however, SafeCard, contrary to
its representations, actually intended to bind Halmos to the
limiting terms of the stock option document; and SafeCard's
representations to Halmos that the stock option document would
not affect the availability to Halmos of the net-cash-payment
feature described above were knowingly false and fraudulent when
made.
222. In reliance (as SafeCard knew and intended,
and as was reasonable) on SafeCard's representations set forth in
paragraph 221 above, on or about December 8, 1989 Halmos yielded
to SafeCard's importunings and agreed, for SafeCard's benefit, to
permit SafeCard to address its technical accounting problem by
(i) issuing the incentive compensation as, pro forma only, a
stock option (though permitting payment for the option shares in
stock as well as in cash, and also allowing Halmos to exercise
his rights any time through January 25, 1997); but (ii) also
preserving, as between Halmos and SafeCard, the "economic
equivalent" net-cash-payment feature described above.
223. As SafeCard knew and intended, in agreeing
to accept the pro forma issuance of a stock option document,
Halmos relied on SafeCard's express representations and
assurances that net-cash-payment feature described above would
continue to be available to him. As SafeCard knew, but for those
representations and assurances, Halmos would not have agreed to
the issuance, even pro forma, of a stock option document.
224. In order partially to evidence the facts
set forth in paragraphs 221-23 above, on or about December 8,
1989 Halmos and SafeCard added a written, signed addendum to the
stock option document which SafeCard had prepared, stating as
follows:
"Upon the execution of a written agreement between
SafeCard and Halmos & Co., Inc., providing for the executive
services of Peter Halmos and Steven Halmos ("Management
Agreement"), any provision of the Stock Option Agreement that is
contradicted by the Management Agreement will be decided and
controlled by the Management Agreement; any provision in the
Management Agreement not contained in the Stock Option Agreement
shall control and be construed as if to exist in the Stock Option
Agreement; and in any and all respects the Management Agreement
will supersede and control."
225. At the time at which the written, signed
addendum described in paragraph 224 was executed, the more formal
Management Agreement to which it referred could have been
completed within one year; the agreements described in paragraphs
221-24 above could all have been completed within one year; and
all of Halmos' "economic equivalent" incentive compensation had
vested or would fully vest, and could have been fully paid,
within one year.
226. Despite (i) SafeCard's agreement, (ii) the
direction of SafeCard's Board of Directors that a consultant
should be hired to assist in further formalizing the terms of the
parties' 1989 Agreement (see Exhibit D hereto), (iii) the
parties' anticipation of such a development (by the language of
the addendum quoted in paragraph 224 above), and (iv) Halmos' own
eventual requests that such a consultant be hired and a more
formalized agreement be prepared, SafeCard failed to do those
things. Nevertheless, in reliance on SafeCard's good faith,
Halmos continued to duly and fully perform his part of the
parties' agreements.
227. SafeCard accepted Halmos' performance under
the 1989 Management Agreement. Halmos performed so well, in fact,
that as SafeCard itself admits, SafeCard renewed that Agreement
in late 1990, after the initial term of the Agreement had
expired.
228. Halmos duly and fully performed all
obligations and duties required of him by the parties' 1989
Management Agreement, as a part of which SafeCard promised him
the "economic equivalent" incentive compensation which is the
subject of this Count XI. Halmos completed his performance under
the parties' 1989 Management Agreement, in reasonable reliance on
the terms of that Agreement, including the "economic equivalent"
incentive compensation which is the subject of this Count XI.
SafeCard's Further Fraudulent Misrepresentations To Halmos
----------------------------------------------------------
229. Although by then he had long since ceased being a
Director of SafeCard, Peter Halmos was invited to attend an
October 23, 1992 meeting of SafeCard's Board of Directors in
Washington, D.C. Halmos did attend, as also did Steven Halmos,
William Bacon, Robert Dilenschneider, and June Gertig.
230. At the October 23, 1992 Board meeting,
SafeCard's Chief Executive Officer reported to Peter Halmos and
the other persons in attendance that Gerald R. Cahill, SafeCard's
Chief Operating Officer, had completed some detailed financial
projections for SafeCard. Those projections, Halmos and the
others present were told, clearly indicated that SafeCard's
earnings had "topped out" and that SafeCard was heading "for a
fall." Halmos expressed concern at those projections, but was
assured that they were accurate. Halmos then noted that SafeCard
might well be required to disclose the projections to the public,
and was advised that SafeCard would do so in its year-end-1992
SEC Form 10-K, to be filed at the end of December 1992 or in
early January 1993.
231. Shortly after the October 23, 1992 Board
meeting, Peter Halmos was advised that there was no longer "any
role" for him "in the Company." Accordingly, on or about November
25, 1992, by written notice to SafeCard, Halmos timely and
properly requested payment of his "economic equivalent" incentive
compensation in accordance with the net-cash-payment feature
described above.
232. In response to Halmos' notice described in
paragraph 231 above, SafeCard flatly repudiated its "economic
equivalent" incentive compensation promises, representations. and
agreements described in this Count XI and refused -- and still
refuses -- to pay Halmos anything whatsoever in accordance with
the net-cash-payment feature on which he had relied.
233. SafeCard purported to "justify" its
wrongful refusal to honor its net-cash-payment promises and
representations by arguing that the stock option document-which,
as a result of SafeCard's own requests and fraudulent
representations described above, did not contain an express
reference to that net-cash-payment feature -- was controlling.
234. SafeCard was not content, however, merely
to deprive Halmos of the promised net-cash-payment feature by
misusing its own fraudulent representations and fraudulent
inducements. When Halmos responded by asking SafeCard to provide
him with a copy of his stock option document (so that he could at
least obtain some value by exercising the options), SafeCard
claimed that it could not find his stock option document and
also, through its counsel June Gertig, further falsely and
fraudulently "warned" Halmos that Halmos was an "insider."
SafeCard made those "insider" representations to Peter Halmos on
several occasions, including on November 25, 1992, on November
29, 1992, and on November 30, 1992. On December 1, 1992, Halmos
sought a clarification from SafeCard as to the basis for its
claim that he was an "insider". SafeCard refused to provide any
clarification, but reiterated its warning; and on December 15,
1992, SafeCard itself threatened to sue Halmos.
235. As SafeCard knew and intended, Peter Halmos
reasonably understood SafeCard's "insider" warnings to mean that
he could not lawfully (or at the very least without severe
financial and legal risk) exercise stock options or otherwise
trade in SafeCard stock: (i) because of potential liability under
the "insider" short-swing profits provisions of Section 16(b) of
the Securities Exchange Act of 1934, and (ii) also (due to the
financial projections discussed at the October 23, 1992 Board
meeting, paragraph 230 above) because of potential nondisclosure
liability if Halmos exercised any options or otherwise traded in
SafeCard stock before SafeCard filed its year-end-1992 SEC Form
10-K with the SEC. Those "insider" warnings came, Halmos
reasonably believed, from experts (June Gertig of Fried Frank,
whose partner Harvey Pitt was a former SEC General Counsel, and
whose partner Kenneth Gideon was formerly General Counsel to the
IRS), who had previously guided Halmos through SEC investigations
and "insider trading" lawsuits and who had previously warned
Halmos that whenever there was any question at all, Halmos should
not sell stock because "any ruthless lawyer" could concoct civil
or criminal "insider trading" claims. Hence, just as SafeCard
intended and desired, Halmos took the "insider" warnings very
seriously, relied upon them, and feared that if he exercised any
stock options he would once again subject himself to the
potential nightmare and enormous cost of criminal and civil
charges.
236. Both SafeCard's representations to Peter
Halmos at the October 23, 1992 Board meeting concerning its
financial projections and future earnings, and SafeCard's
"insider" threats and warnings (which, as described in paragraph
235 above, SafeCard intended to be understood in light of those
financial-projection representations), were utterly false:
a. When SafeCard belatedly issued its
year-end-1992 SEC Form 10-K on or about January 31, 1993,
SafeCard made no mention whatsoever of the purported financial
projections of which Halmos was told at the October 23, 1992
meeting. SafeCard has never made public disclosure of those
projections.
b. In addition, Halmos did not and
could not have any potential Section 16(b) liability (that
provision had been amended a year earlier to eliminate just such
potential liability).
237. At the time that SafeCard made the
aforementioned representations to Peter Halmos. SafeCard knew
them to be false.
238. SafeCard's false and fraudulent
representations to Peter Halmos, as described in paragraphs
229-237 above, were made for the purpose, and with the result, of
inducing Peter Halmos to believe: (i) that he was an "insider,"
so that his ability lawfully to trade in SafeCard's stock
(including any exercise of stock options) would be at least
curtailed until SafeCard made public disclosure of the aforesaid
projections; (ii) that those projections would be made public at
the end of 1992 or early in 1993, which would adversely impact
the market value of SafeCard's stock; and (iii) that Halmos
should, and indeed was required to, delay any exercise of his
stock options until, at the earliest, that disclosure had
occurred.
SafeCard Completes Its Fraudulent Scheme
----------------------------------------
239. SafeCard did not file its year-end-1992 SEC
Form 10-K until January 31, 1993 -- a date which, as SafeCard
knew, was more than thirty days after December 15, 1992, the date
upon which SafeCard arbitrarily and summarily "fired" Halmos.
240. Having thus (i) told Halmos he could not
exercise any stock options until after it filed its year-end-1992
SEC Form 10-K, and (ii) carefully refrained from filing that 10-K
until more than thirty days after summarily and arbitrarily
firing Halmos, SafeCard then completed its fraudulent scheme to
deprive Halmos of any part of his 1989-90 "economic equivalent"
incentive compensation, by telling Halmos that his stock option
rights (all that remained, due to SafeCard's initial fraud, of
his 1989-90 incentive compensation) had totally lapsed and become
void, because due to SafeCard's own fraudulent "warnings" to him,
he had not exercised those options within thirty days of his
arbitrary termination--costing Halmos, in the view of one
securities analyst firm, "about $25 million."
241. Halmos, having fully performed pursuant to
the parties' 1989 Agreement (and having performed so well that
SafeCard renewed that Agreement for a further term), is entitled
to the benefit of his bargain with SafeCard, including its
1989-90 economic equivalent" incentive compensation component.
242. Halmos will unjustly and inequitably be
deprived of the benefit of his bargain with SafeCard, and
SafeCard will be unjustly and inequitably enriched by having
obtained the benefit of Halmos' full performance under the
parties' 1989 Management Agreement without paying Halmos the full
agreed-upon compensation for that performance by Halmos, unless
this Court directs SafeCard to pay Halmos the full value of the
incentive compensation he was promised.
243. SafeCard bases its refusal to honor Halmos
net-cash-payment rights, described above, upon SafeCard's claim
that the stock option document it fraudulently induced Halmos to
accept does not provide for a net cash payment method of
exercise. Halmos asserts that SafeCard's refusal to honor his
net-cash-payment rights is wrongful, fraudulent, and a breach of
SafeCard's obligations to Halmos, because the stock option
document Halmos was induced to accept was tainted by fraud in the
inducement (paragraphs 218-227 above), and was part of a scheme
to defraud Halmos of his property, and, as such, is voidable and
is subject to rescission, leaving intact the "economic
equivalent" compensation promised to Halmos, in writing, by the
Board's January 23, 1989 Minutes.
244. In the alternative to paragraph 243 above,
Halmos asserts that SafeCard's refusal to honor his
net-cash-payment rights is wrongful, fraudulent, and a breach of
SafeCard's obligations to Halmos, because the stock option
document Halmos was induced to accept is tainted by fraud in the
factum in that SafeCard induced Halmos to accept and sign it on
the false representation that as between SafeCard and Halmos it
would not have any legal effect as a limitation on his
net-cash-payment rights (as more fully set forth in paragraphs
218-227 above), and is therefore void, leaving intact the
"economic equivalent" compensation promised to Halmos, in
writing, by the Board's January 23, 1989 Minutes.
245. Halmos has no adequate remedy at law. He
cannot today buy SafeCard shares on the open market at the
agreed-upon incentive value of $5.125 per share. Even were he
able to do so, moreover, that would not give him the promised
"economic equivalent" incentive compensation, nor would it give
him the promised increase in the value of 1.95 million unissued
shares of SafeCard stock.
246. SafeCard's breach of the parties' economic
equivalent" incentive compensation contract for the 1989-90
period (the same period as the term of the 1989 Management
Agreement, as more fully set forth hereinabove) has damaged
Halmos in the amount of that promised but unpaid compensation.
WHEREFORE, Halmos prays for judgment in his favor and
against SafeCard:
a. Declaring that SafeCard is
obligated to honor its"economic equivalent" incentive
compensation contract with Halmos by paying him, in cash, the
incentive compensation due and owing to him;
b. In accordance with (a) above,
directing SafeCard forthwith to pay to Halmos the incentive
compensation due and owing to him, in an amount to be determined
at trial: and
c. Awarding Halmos such other and
further relief as is just.
COUNT XII
(Breach of Written Contract For 1989-1990 Incentive
Compensation; Reformation; Fraud, Including
Fraudulent Inducement And Fraud In The Factum)
----------------------------------------------
In the alternative to Count XI, Halmos complains
of SafeCard as follows:
247. This Count XII is a claim in equity for
reformation of a written contract based on SafeCard's fraud
(including fraudulent inducement and fraud in the factum), and
for breach of the contract as reformed, pertaining to Halmos'
1989-1990 "economic equivalent" incentive compensation, in the
form of Stock Appreciation Rights. This Count, pleaded in the
alternative to Count XI, is based on SafeCard's double fraud --
first, in inducing Peter Halmos to accept, ostensibly in form
only, a type of incentive compensation to which SafeCard knew he
had not agreed; and second, in using false statements to prevent
Halmos from realizing any value at all from that compensation.
248. This Count XII (like alternative Counts XI
and XIII) concerns only Halmos' incentive compensation for the
period from January 1989 to October 1990. pursuant to a written
and signed management agreement covering that time period. Counts
XIV and XV concern Halmos' incentive compensation for the period
after October 1990.
249. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
as paragraph 249 of this Count XII, as if fully set forth herein.
SafeCard's Incentive Compensation Contract With Peter Halmos
------------------------------------------------------------
250. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 21-31 inclusive of
Count I and paragraphs 209-217 inclusive of Count XI (concerning
Halmos' desire to "disengage from SafeCard, SafeCard's desire
that he not do so, and the parties' agreement - and Halmos'
reliance -- on his "economic equivalent" incentive compensation)
as paragraph 250 of this Count XII, as if fully set forth herein.
SafeCard 's Fraudulent Revision Of The Contract
-----------------------------------------------
251. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 218-227 inclusive of
Count XI (SafeCard's subsequent revision of Halmos' incentive
compensation agreement, and SafeCard's fraudulent procuring of
Halmos' acquiescence therein) as paragraph 251 of this Count XII,
as if fully set forth herein.
SafeCard 's Further Fraudulent Misrepresentations
-------------------------------------------------
252. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 228-238 inclusive of
Count XI (Halmos' full performance under the parties' agreement,
SafeCard's repudiation of his net-cash-payment rights, and
SafeCard's false and fraudulent "projections" and "insider"
misrepresentations to prevent him from obtaining the value of his
compensation in any other way) as paragraph 252 of this Count
XII, as if fully set forth herein.
SafeCard Completes Its Fraudulent Scheme
----------------------------------------
253. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 239-244 inclusive of
Count XI (SafeCard s delay in filing its year-end-1992 SEC Form
10-K, and its completion of its fraudulent scheme to prevent
Halmos from realizing any value from his incentive compensation
rights) as paragraph 253 of this Count XII, as if fully set forth
herein.
254. SafeCard bases its refusal to honor Halmos'
net-cash-payment rights, described above, upon SafeCard's claim
that the stock option document it fraudulently induced Halmos to
accept does not provide for a net cash payment method of
exercise. Halmos asserts that SafeCard's refusal to honor his
net-cash-payment rights is wrongful, fraudulent, and a breach of
its obligations to him, as is more fully set forth hereinabove.
255. Even if the parties' contract documents
could be construed not to include the net-cash-payment term on
which Halmos relied as set forth above (which Halmos believes to
be an inaccurate construction, for the reasons set forth in Count
XI above), then:
a. Halmos has no adequate remedy at
law. He cannot today buy SafeCard shares on the open market at
the agreed-upon incentive value of $5.125 per share. Even were he
able to do so, that would not give him the promised "economic
equivalent" incentive compensation.
b. By reason of its promises,
representations, and conduct hereinabove set forth, and Halmos'
justifiable reliance thereon (which reliance SafeCard intended,
and of which SafeCard knew, at all material times), SafeCard is
estopped to deny that Halmos was and is entitled to payment of
his 1989-90 "economic equivalent" incentive compensation in the
form of a net-cash payment as described hereinabove.
c. Accordingly, this Court should
reform the parties' written contract documents, including the
stock option document, so that they accurately reflect the terms
of the parties' agreement, including the net-cash-payment feature
omitted from the stock option document due to SafeCard's fraud as
hereinabove described.
256. SafeCard's breach of the parties "economic
equivalent" incentive compensation contract for the 1989-90
period has damaged Halmos in the amount of that promised but
unpaid compensation.
WHEREFORE, Halmos prays for judgment in his favor
and against SafeCard:
a. Declaring that SafeCard is
obligated to honor its "economic equivalent" incentive
compensation contract with Halmos by paying him, in cash, the
incentive compensation due and owing to him;
b. In accordance with (a) above,
directing SafeCard forthwith to pay to Halmos the incentive
compensation due and owing to him, in an amount to be determined
at trial; and
c. Awarding Halmos such other and
further relief as is just.
COUNT XIII
(Breach of Written Contract For
1989-90 Incentive Compensation: Estoppel)
-----------------------------------------
In the alternative to Counts XI and XII, Halmos
complains of SafeCard:
257. This Count XIII is a claim in equity for
breach of a written contract, based upon estoppel, pertaining to
Halmos' 1989-1990 "economic equivalent" incentive compensation.
Pleaded in the alternative to Counts XI and XII, this Count XIII
is based on SafeCard 's fraudulent conduct in inducing Halmos to
defer exercising his rights under the stock option document
SafeCard foisted upon him, as a result of which SafeCard should
now be estopped from asserting that Halmos did not timely
exercise those rights.
258. This Count XIII concerns only Halmos'
incentive compensation for the period from January 1989 to
October 1990, pursuant to a written and signed management
agreement covering that time period.
259. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
as paragraph 259 of this Count XIII, as if fully set forth
herein.
SafeCard's Incentive Compensation Contract With Peter Halmos
------------------------------------------------------------
260. Halmos repeats, realleges, and incorporates
herein by reference paragraphs 21-31 inclusive of Count I and
paragraphs 209-217 inclusive of Count XI (Halmos' desire to
"disengage" from SafeCard, SafeCard's desire that he not do so,
and the parties' agreement - and Halmos' reliance - on his
"economic equivalent" incentive compensation) as paragraph 260 of
this Count XIII, as if fully set forth herein.
SafeCard's Issuance Of A Stock Option Document
----------------------------------------------
261. Halmos repeats, realleges, and incorporates
herein by reference, paragraphs 218-222 inclusive and paragraph
227 of Count XI (SafeCard's subsequent revision of Halmos'
incentive compensation, and Halmos' full performance under the
Management Agreement of which that compensation was a part) as
paragraph 261 of this Count XIII, as if fully set forth herein.
SafeCard's Fraudulent Misrepresentations
----------------------------------------
262. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 228-238 inclusive of
Count XI (Halmos' full performance under the parties' agreement,
SafeCard's repudiation of his net-cash-payment rights, and
SafeCard's false and fraudulent "projections" and "insider"
misrepresentations to prevent him from obtaining the value of his
compensation in any other way) as paragraph 262 of this Count
XIII, as if fully set forth herein.
SafeCard Completes Its Fraudulent Scheme
----------------------------------------
263. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 239-244 inclusive of
Count XI (SafeCard's delay in filing its year-end-1992 SEC Form
l0-K and its completion of its fraudulent scheme to prevent
Halmos from realizing any value from his incentive compensation
rights) as paragraph 263 of this Count XIII, as if fully set
forth herein.
264. SafeCard has based its refusal to honor
Halmos' stock option rights, as described above, on SafeCard's
claim that those rights lapsed and became void because Halmos did
not exercise them within thirty days after his services were
terminated by SafeCard. As is more fully set forth hereinabove,
however, the reason for that delay in exercising the options was
SafeCard's own fraudulent misrepresentations to Halmos. By
reason of those misrepresentations, SafeCard is estopped from
denying Halmos' option rights on the ground of a delay SafeCard
itself caused.
265. By reason of the foregoing facts, SafeCard
is estopped to deny that Halmos properly exercised his stock
options pursuant to the stock option document SafeCard delivered
to him, a true and correct copy of which is attached hereto as
Exhibit O.
266. Halmos has no adequate remedy at law. He
cannot buy SafeCard shares on the open market at the agreed-upon
incentive compensation value of $5.125 per share. His stock
option rights, of which SafeCard deprived him through its
fraudulent conduct as hereinabove described, can now be protected
only through a decree of specific performance.
WHEREFORE, Halmos prays for judgment in his favor
and against SafeCard:
a. Declaring that SafeCard is estopped
to deny Halmos' stock option rights under the stock option
document given him by SafeCard;
b. In accordance with (a) above,
directing SafeCard forthwith to issue to Halmos 1.95 million
registered shares of SafeCard's common stock, upon receipt from
Halmos of $5.125 per share in payment therefor: and
c. Awarding Halmos such other and
further relief as is just.
COUNT XIV
(Specific Performance; Breach of Written
Contract For 1990-92 Incentive Compensation)
--------------------------------------------
Peter Halmos complains of SafeCard as follows:
267. This Count XIV is a claim in equity for
specific performance of a written contract pertaining to Halmos'
1990-1992 "economic equivalent" incentive compensation. That
incentive compensation -- like the identical incentive
compensation actually given to Steven Halmos -- arose because of,
and as part of, SafeCard's admitted "renewal" of the parties'
1989-90 Management Agreement, on the same terms as that 1989--90
Agreement. By this Count XIV, Peter Halmos asks only for equal
treatment -- only for the value of the same incentive
compensation as SafeCard has already paid to Steven Halmos, under
that same renewed Management Agreement.
268. This Count XIV (like alternative Count XV)
concerns only Halmos' incentive compensation for the period from
October 1990 until SafeCard arbitrarily ended his services in
December 1992. Counts XI-XIII concern Halmos' incentive
compensation for the prior period, from January 1989 to October
1990.
269. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 269 of
this Count XIV, as if fully set forth herein.
SafeCard Renews Its Incentive Compensation Promises
---------------------------------------------------
270. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 21-31 inclusive of
Count I and paragraphs 209-217 inclusive of Count XI (concerning
Halmos' desire to "disengage" from SafeCard, SafeCard's desire
that he not do so, and the parties agreement -- and Halmos'
reliance -- on his "economic equivalent" incentive compensation
as paragraph 270 of this Count XIV, as if fully set forth herein.
271. As is more fully described in paragraph 87
of Count III, which Halmos incorporates in this paragraph 271 as
if fully set forth herein, throughout the term of the 1989
Agreement (Exhibits D and N hereto) Halmos fully performed all of
his duties under that Agreement and did everything SafeCard asked
of him thereunder.
272. SafeCard accepted Halmos' performance under
the 1989 Management Agreement. Halmos performed so well, in fact,
that as SafeCard itself admits, SafeCard renewed that Agreement
in October 1990, upon the expiration of its initial term.
273. As SafeCard knew and intended that he
would, Peter Halmos relied on SafeCard's renewal of its
Management Agreement (including its incentive compensation
component) with him. In reliance upon SafeCard's renewal of the
Agreement, Halmos continued to work for SafeCard, and continued
to fully perform all of his duties under the Agreement and to do
everything asked of him, from October 1990 through at least
December 1992, a period even longer than the duration of the
initial 1989 Agreement.
SafeCard Acknowledges The Renewal In A Signed Writing
-----------------------------------------------------
274. After Halmos had been performing under the
renewed Agreement for over a year, on January 15, 1992 SafeCard's
Board of Directors formally "memorialized" the renewed Agreement
in a signed writing. As stated in the Minutes of the January 15,
1992 meeting of SafeCard's Board of Directors, a true and correct
copy of which is attached hereto as Exhibit P.:
"Ms. Gertig [SafeCard's counsel] ... reviewed the minutes
of the January 23, 1989 Board meeting which memorialized the ...
agreement ....
"The Directors then ... confirmed their continuing
understanding that the January 23, 1989 minutes accurately
reflect the ... agreement under which the Company and [High
Plains Capital Corp.] are operating [as of January 15, 1992]
...." [Emphasis added.]
This writing was signed by both SafeCard and Peter Halmos,
confirming that it was intended to be, and was, a renewed
Management Agreement, covering the period subsequent to the
expiration of the 1989 Agreement.
275. As stated in Exhibit P hereto, the terms of
the renewed Management Agreement, as regards incentive
compensation, were identical to the terms of the 1989 Agreement
as contained in Exhibit D hereto, and were for Halmos' direct
benefit.
276. In reliance on that renewed Agreement and
its memorialization by SafeCard in a signed writing as
hereinabove described, Halmos continued to work for SafeCard, for
an even longer period than the term of the original 1989
Agreement, until SafeCard arbitrarily terminated Halmos' services
in December 1992.
SafeCard's Breach Of The Renewed Agreement
------------------------------------------
277. For a period of more than two years, until
SafeCard made it impossible for him to perform further, Halmos
duly and fully performed all obligations and duties required of
him by the parties' renewed Agreement, as a part of which
SafeCard promised him the incentive compensation which is the
subject of this Count XIV. Halmos so acted in reasonable reliance
on the terms of the renewed Agreement, including that additional
incentive compensation.
278. For a period of more than two years,
SafeCard accepted Halmos' performance under the parties' renewed
Agreement.
279. By reason of the foregoing facts and
pursuant to the renewed agreement, as described in paragraphs
273-275 above and in Exhibits D and P hereto, Halmos is entitled
to additional incentive compensation, in the form of the economic
equivalent of the "increase, if any, in the fair market value of
1.95 million unissued shares" of SafeCard stock (that is, the net
dollar appreciation in the value of that many shares from the
time the compensation was granted - on October 12, 1990, when the
1989 Agreement expired and was renewed for a further term - to
the time the compensation is paid).
280. SafeCard is clearly able to pay Halmos the
"economic equivalent" of issuing stock options in conformity with
the renewed Agreement. Alternatively, on information and belief,
SafeCard is able to issue stock to Halmos, in the quantity
described in paragraph 279 above, at a price equal to the value
of that many shares on October 12, 1990; and SafeCard did, in
fact, issue that quantity of stock to Steven Halmos at an option
price, pursuant to the renewed agreement. Nevertheless, SafeCard
has failed and refused, and continues to fail and refuse, to pay
Halmos the incentive compensation to which he is entitled as set
forth in this Count XIV.
281. Halmos has no adequate remedy at law. He
cannot buy SafeCard shares on the open market at the agreed-upon
incentive compensation value. His additional incentive
compensation stock option rights, as hereinabove described, can
now be protected only through a decree of specific performance.
WHEREFORE, Halmos prays for judgment in his favor
and against SafeCard:
a. Declaring that SafeCard is
obligated to honor the incentive compensation portion of its
renewed Agreement with Halmos;
b. In accordance with (a) above,
directing SafeCard forthwith to specifically perform the
incentive compensation portion of its renewed Agreement with
Halmos by paying him the incentive compensation he was promised
as a part of that Agreement; and
c. Awarding Halmos such other and
further relief as is just.
COUNT XV
(Specific Performance; Breach of Implied
Contract For 1990-92 Incentive Compensation)
--------------------------------------------
In the alternative to Count XIV, Halmos complains
of SafeCard as follows:
282. This Count XV, pleaded in the alternative
to Count XIV, is a claim in equity for breach of an implied
contract pertaining to Halmos' 1990-1992 "economic equivalent"
incentive compensation. That implied contract to provide
incentive compensation for the 1990-1992 period - like the
identical incentive compensation actually given to Steven Halmos
" arose because of, and as part of. SafeCard's admitted "renewal"
of the parties' 1989-90 Management Agreement, on the same terms
as that 1989-90 Agreement. By this Count XV, Peter Halmos asks
only for equal treatment - only for the value of the same
incentive compensation as SafeCard has already paid to Steven
Halmos, under that same renewed Management Agreement.
283. This Count XV (like alternative Count XIV)
concerns only Halmos' incentive compensation for the period from
October 1990 until SafeCard arbitrarily ended his services in
December 1992. Counts XI-XIII concern Halmos' incentive
compensation for the prior period, from January 1989 to October
1990.
284. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive
(concerning parties, jurisdiction, and venue), paragraphs 21-31
inclusive of Count I and paragraphs 209-217 inclusive of Count XI
(concerning Halmos' desire to "disengage" from SafeCard,
SafeCard's desire that he not do so, and the parties' agreement -
and Halmos' reliance " on his "economic equivalent" incentive
compensation), and paragraphs 271-276 inclusive of Count XIV
(concerning SafeCard's renewal of the initial 1989 Agreement,
including its "economic equivalent" incentive compensation
provisions, and Halmos' performance under and reliance upon the
renewed Agreement) as paragraph 284 of this Count XV, as if fully
set forth herein.
SafeCard's Breach Of The Renewed Agreement
------------------------------------------
285. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 277-280 inclusive of
Count XIV (concerning SafeCard's breach of the renewed Agreement
and refusal to give Halmos his promised incentive compensation)
as paragraph 285 of this Count XV, as if fully set forth herein.
286. In the alternative to Count XIV, SafeCard's
admission that the parties' 1989 Agreement continued in full
force and effect after the expiration of its initial term on
October 12, 1990, plus Halmos' continued performance under that
Agreement for a period of more than two years after the
expiration of its initial term, plus SafeCard's acceptance of
Halmos' performance throughout that period, all as is more fully
set forth hereinabove, result in an implied contract between
Halmos and SafeCard on the same terms (including the "economic
equivalent" incentive compensation component) as the initial 1989
Agreement.
287. Halmos has no adequate remedy at law. He
cannot buy SafeCard shares on the open market at the agreed-upon
incentive compensation value. His additional incentive
compensation stock option rights, as hereinabove described, can
now be protected only through a decree of specific performance.
WHEREFORE, Halmos prays for judgment in his favor
and against SafeCard:
a. Declaring that SafeCard is
obligated to honor the incentive compensation portion of its
renewed Agreement with Halmos;
b. In accordance with (a) above,
directing SafeCard forthwith to specifically perform the
incentive compensation portion of its renewed Agreement with
Halmos by paying him the incentive compensation he was promised
as a part of that Agreement; and
c. Awarding Halmos such other and
further relief as is just.
COUNT XVI
(Defamation Per Se)
-------------------
Peter Halmos complains of SafeCard and Bacon as
follows:
288. This Count XVI is a claim against SafeCard
and Bacon for defamation per se. This Count is based on Bacon's
utterly false statements to a reporter for the Wall Street
Journal accusing Peter Halmos of gross financial wrongdoing
(indeed, of crimes), as part of SafeCard's and Bacon's attempt to
ruin Halmos' earning capacity, by means of a smear campaign, and
thereby to deprive him of the ability to compete with SafeCard or
to obtain redress for the wrongs he has suffered at SafeCard's
hands.
289. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 289 of
this Count XVI, as if fully set forth herein.
Background Information
----------------------
290. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 12-65 inclusive of
Count I (concerning SafeCard's longstanding custom, practice, and
course of dealing regarding indemnification "advances," its
explicit 1992 Agreement requiring such payments, and its
repudiation thereof as to Halmos), paragraphs 87-94 inclusive of
Count III (concerning Halmos' reliance on SafeCard's
indemnification promises), paragraphs 108-129 inclusive of Count
IV and paragraphs 162-171 inclusive of Count VII (concerning
Varvoutis' thefts, the Deloitte and IRS Suits, the IRS
investigation, Halmos rights to indemnification as regards
those events, and SafeCard's repudiation of its promises and
Halmos' rights), and paragraphs 209-245 inclusive of Count XI
(concerning SafeCard's promise of "economic equivalent" incentive
compensation to Halmos, pursuant to a written contract, in a
successful effort to induce him to continue to provide services
for SafeCard, and SafeCard's egregious fraud on Halmos in order
to deprive him of the value of that compensation after having
obtained his services) as paragraph 290 of this Count XVI, as if
fully set forth herein.
291. As is more fully set forth hereinabove,
during November and December 1992 SafeCard repudiated its
promises and obligations to Halmos, deprived him of his valuable
indemnification and incentive compensation rights, and summarily
fired him:
a. In November 1992, after the IRS
investigation had ended with no finding of any wrongdoing by
Halmos, Halmos - having at SafeCard's request waited until then
to do so - presented his indemnification requests to SafeCard, as
described above, and;
b. Also in November 1992, Halmos -
having been told that there was no longer a role for him at
SafeCard -- asked SafeCard for payment of his "economic
equivalent" incentive compensation, as described above;
c. SafeCard flatly refused to pay
Halmos his "economic equivalent" incentive compensation (and told
him that he could not even obtain that compensation in the form
of stock, because, SafeCard claimed, dealing in SafeCard stock
prior to SafeCard's filing of certain public disclosure documents
would expose him to severe financial and legal risk);
d. SafeCard not only denied Halmos'
indemnification requests but tried to "revoke" all of its
indemnification duties to him; and
e. On December 15. 1992, SafeCard
fired Halmos.
Bacon's Defamation Statements
-----------------------------
292. 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 "regarded the company [SafeCard] as
his fiefdom."
293. Bacon made his statements to Pope
described in paragraph 292 above on behalf of himself and
SafeCard, and with the authority, approval, and knowledge of
SafeCard.
Defamation Per Se
-----------------
294. On its face, each of Bacon's statements set
forth in paragraph 292 above was and is false.
295. On its face, each of Bacon's statements set
forth in paragraph 292 above imputes to Halmos a want of
integrity in the discharge by him of his duties on behalf of
SafeCard.
296. On its face, each of Bacon's statements set
forth in paragraph 292 above imputes to Halmos a lack of ability,
and prejudices him, in his trade, profession, and business. On
its face, each of Bacon's statements set forth in paragraph 292
above imputes to Halmos the commission of a criminal offense.
297. On its face, each of the statements by
Bacon described in paragraph 292 above accuses Halmos of engaging
in unethical, immoral and/or criminal acts. Those statements were
made to "explain" why Halmos was abruptly and summarily
terminated by SafeCard.
298. Each of Bacon's statements described in
paragraph 292 above was and is false. By reason of the facts
described in paragraphs 294-297, each of those statements was and
is defamatory per se. Those statements are not susceptible to an
innocent construction.
299. Bacon's statements described in paragraph
292 above 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 and Bacon knew that Bacon's statements concerned
only a private matter; for example, SafeCard did not file an SEC
Form 8-K reporting Halmos' termination, as SafeCard would have
been obliged to do if it regarded that event as a material matter
requiring public disclosure.
Not Protected Opinion
---------------------
300. Each of the statements made by Bacon and
described in paragraph 292 above purported to contain factual
assertions, or at the very least opinions which implied the
existence of undisclosed facts known to SafeCard and Bacon as the
basis therefor, regarding Halmos' acts and conduct. Each of those
direct or indirect factual assertions was capable of objective
verification as true or false.
301. When Bacon made each of the statements
described in paragraph 292 above, Bacon held himself out to Pope
and to the Wall Street Journal as a long-time SafeCard Director;
an investment banker; a person intimately familiar with and
knowledgeable about SafeCard, Halmos' dealings with SafeCard, and
the purported "facts" he was stating about those dealings; and a
person who by virtue of both his position and his knowledge was
authorized to speak on behalf of SafeCard.
302. Each of Bacon's statements described in
paragraph 292 above 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.
303. SafeCard itself has used Bacon's statements
as matters of fact, and has represented that Bacon's statements
are both factual and true, in briefs filed before the Laramie
County, Wyoming District Court on or about February 2, 1994, and,
on information and belief, elsewhere as well.
304. By reason of the facts set forth in
paragraphs 300-303 above, none of Bacon's statements described in
paragraph 292 above 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 and which is a fact issue), 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
-------------
305. At the time he made each of the statements
described in paragraph 292 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 longtime
Director of SafeCard and participant in its affairs, at all
material times Bacon had full and ready access to the actual
facts regarding his false statements.
306. Bacon well knew that his false and
defamatory statements to the Wall Street Journal regarding Halmos
were, in fact, false. Among other things:
a. On November 9, 1992 - only a month
before his false and defamatory statements described in paragraph
292 above - Bacon himself stated in writing, voluntarily and
without solicitation, that Halmos' principles and dedication are
the highest;" that Halmos "created SafeCard, [and] should be
proud;" and that "nothing will ever let me [Bacon] or my SafeCard
team engage in any recriminations" against or regarding Halmos.
b. For years before that, Bacon had
repeatedly expressed his view that Halmos was necessary to
SafeCard's continuing success and that Halmos' desire to
"disengage" from SafeCard was not in SafeCard's best interest, as
more fully stated in paragraphs 24, 25, and 30 (incorporated in
paragraph 290).
307. Bacon made the false and defamatory
statements described in paragraph 292 above despite his
knowledge that they were false, despite his own often-expressed
contrary views as stated in paragraph 306 above, and 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.
308. At the time Bacon made the false and
defamatory statements described in paragraph 292 above 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.
309. At the time Bacon made the false and
defamatory statements described in paragraph 292 above 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 false and
defamatory 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.
310. By reason of the facts set forth in
paragraphs 305-309 above, the false and defamatory statements
described in paragraph 292 above, made by Bacon on behalf of both
himself and SafeCard, were made with actual malice.
Damages
-------
311. As a result of Bacon's false and defamatory
statements described in paragraph 292 above, 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 statements
described in paragraph 292(c). That article, which resulted from
statements made by Bacon in Illinois, was published extensively
throughout Illinois, including in Cook County.
312. As a direct and proximate result of
defendants' false and defamatory statements described in this
Count XVI, 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 damages are substantially in excess of
$1,000,000.00.
313. By reason of the intentional, deliberate,
wilful, and malicious defamation described in this Count XVI,
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;
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
(Defamation Per Quod)
---------------------
In the alternative to Count XVI, Peter Halmos
complains of SafeCard and Bacon as follows:
314. This Count XVII is a claim against SafeCard
and Bacon for defamation per quod. This Count is based on Bacon's
utterly false statements to a reporter for the Wall Street
Journal accusing Peter Halmos of gross financial wrongdoing
(indeed, of crimes), as part of SafeCard's and Bacon's attempt to
ruin Halmos' earning capacity, by means of a smear campaign, and
thereby to deprive him of the ability to compete with SafeCard or
to obtain redress for the wrongs he has suffered at SafeCard's
hands. This Count (pleaded in the alternative to the per se claim
set forth in Count XVI) asserts that in the context in which
those false statements were made. including both the current
context (the financial marketplace) and the historical context (a
long series of calumnies Halmos has suffered at SafeCard's hands
and to protect SafeCard's interests, which, though themselves
totally inaccurate, cause SafeCard's and Bacon's current
defamations to fall on receptive ears as more of the same"),
those false statements were defamatory.
315. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 315 of
this Count XVII, as if fully set forth herein.
Background Information
----------------------
316. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 12-65 inclusive of
Count I (concerning SafeCard's longstanding custom, practice, and
course of dealing regarding indemnification "advances," its
explicit 1992 Agreement requiring such payments, and its
repudiation thereof as to Halmos), paragraphs 87-94 inclusive of
Count III (concerning Halmos reliance on SafeCard's
indemnification promises), paragraphs 108-129 inclusive of Count
IV and paragraphs 162-171 inclusive of Count VII (concerning
Varvoutis' thefts, the Deloitte and IRS Suits, the IRS
investigation, Halmos rights to indemnification as regards
those events, and SafeCard's repudiation of its promises and
Halmos' rights), and paragraphs 209--245 inclusive of Count XI
(concerning SafeCard's promise of "economic equivalent" incentive
compensation to Halmos. pursuant to a written contract, in a
successful effort to induce him to continue to provide services
for SafeCard, and SafeCard's egregious fraud on Halmos in order
to deprive him of the value of that compensation after having
obtained his services) and paragraph 291 of Count XVI
(summarizing SafeCard's November-December 1992 attempts to
deprive Halmos of his indemnification and compensation rights,
and summarily terminating his services) as paragraph 316 of this
Count XVII, as if fully set forth herein.
Bacon's Defamation Statements
-----------------------------
317. 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."
318. Bacon made his statements to Pope described
in paragraph 317 above on behalf of himself and SafeCard, and
with the authority, approval, and knowledge of SafeCard.
Defamation Per Quod
-------------------
319. Each of Bacon's statements described in
paragraph 317 above was and is false.
320. Each of Bacon's statements described in
paragraph 317 above imputes to Halmos a want of integrity in the
discharge by him of his duties on behalf of SafeCard.
321. Each of Bacon's statements described in
paragraph 317 above imputes to Halmos a lack of ability, and
prejudices him, in his trade, profession, or business. Halmos is
a business entrepreneur, whose activities consist of organizing
(including finding financial backing for), managing, and
eventually taking public, "start-up" enterprises such as
CreditLine Corporation. Halmos' ability to obtain the necessary
funding, stock underwriting, contractual relationships, and
related essential elements of successful business development is
highly and immediately affected by defamatory statements such as
those complained of in this Count XVII, because (among other
things) (i) to the extent such statements are perceived as
true, the financial and investment community is reluctant or
unwilling to deal with Halmos for fear that he is an unsavory if
not criminal character, and (ii) within the financial and
investment community, even persons who do not perceive such
statements as true are reluctant or unwilling to deal with Halmos
because, in itself, the controversy surrounding such negative
publicity and "rumor mill" is an impediment to business dealings
and cripples or destroys the ability to raise funds from
institutional investors (who themselves often have fiduciary
obligations which deter or preclude them from becoming involved
with a person who is rumored to be a "risk," even if they do not
actually believe the rumor).
322. At all material times, both SafeCard and
Bacon knew the facts set forth in paragraph 321 above and
intended that Bacon's statements described in paragraph 317 above
would have the consequences described in paragraph 321.
323. Each of Bacon's statements described in
paragraph 317 above 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.
324. Because each of Bacon's statements 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.
325. As defendants knew and intended, Bacon's
false statements described in paragraph 317 above were and are
defamatory, and did and do appear to confirm prior false
statements concerning Halmos' character, ability, and integrity,
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
contractual and other obligations to Halmos.
b. At that time, Bacon and SafeCard --
aware that Halmos, having been abruptly terminated, would
undertake to raise capital for his private companies through the
public markets in order to (among other things) compete
rightfully with SafeCard -- sought to prevent Halmos from raising
such capital, and to that end, through Bacon's statements
accusing Halmos of financial wrongdoing, sought to 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 also sought to and did falsely
disparage and denigrate Halmos and subject him to public scorn
and obloquy by re-raising, by implication, prior false
allegations concerning Halmos. For example, in 1984 and again in
1989, Halmos had falsely been accused of wrongfully using
SafeCard for his personal financial gain. As SafeCard and Bacon
knew and intended, Bacon's false statements that Halmos was using
SafeCard for personal gain, "regarded the company as his
fiefdom," and was trying to steal 100 million" dollars, once
again recalled the earlier false allegations and, to members of
the financial and investment community, implied that Halmos was
and is a habitual financial miscreant. 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.
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.
Not Protected Opinion
---------------------
326. Each of the statements made by Bacon and
described in paragraph 317 above purported to contain factual
assertions, or at the very least opinions which implied the
existence of undisclosed facts known to SafeCard and Bacon as the
basis therefor, regarding Halmos' acts and conduct. Each of those
direct or indirect factual assertions was capable of objective
verification as true or false.
327. When Bacon made the statements described in
paragraph 317 above, Bacon held himself out to Pope and to the
Wall Street Journal as a long-time SafeCard Director; an
investment banker, intimately familiar with and knowledgeable
about SafeCard, Halmos' dealings with SafeCard, and the purported
"facts" he was stating, and a person who by virtue of both his
position and his knowledge was authorized to speak on behalf of
SafeCard.
328. Each of Bacon's statements described in
paragraph 317 above 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.
329. SafeCard itself has used Bacon's statements
as matters of fact, and has represented that Bacon's statements
are both factual and true, in briefs filed before the Laramie
County, Wyoming District Court on or about February 2, 1994, and,
on information and belief, elsewhere as well.
330. By reason of paragraphs 326-329 above, none
of Bacon's statements described in paragraph 317 can be construed
to be a mere non actionable opinion. Alternatively, by reason of
the facts set forth in paragraphs 326-329 above, any of Bacon's
statements which could in whole or in part be construed to be an
opinion (which Halmos denies, and which is an issue of fact), 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, and accordingly is not protected as
"opinion."
Actual Malice
-------------
331. By reason of the foregoing, and further by
reason of the facts set forth in paragraphs 305-309 inclusive of
Count XVI, which are incorporated into this paragraph 331 as if
fully set forth herein, the false and defamatory statements
described in paragraph 317 above, made by Bacon on behalf of both
himself and SafeCard, were made with actual malice.
Damages
-------
332. As a result of Bacon's false and defamatory
statements described in paragraph 317 above, 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 statements
described in paragraph 317. That article, which resulted from
statements made by Bacon in Illinois, was published extensively
throughout Illinois. including in Cook County.
333. Halmos desires to conduct a proxy fight for
control of SafeCard. As a result of defendants' defamation
described above, and as defendant knew and intended, 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.
334. Halmos also desires to raise capital to
form one or more public companies 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, and as defendant knew and intended,
Halmos has suffered special damages in the form of impairment and
prevention of his ability to raise capital to form such
companies.
335. 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 to develop and
pursue (including raising capital for) his lawful and proper
business interests. 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
damages are substantially in excess of $1,000,000.00.
336. By reason of the intentional, deliberate,
wilful. and malicious defamation described in this Count XVII,
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;
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 XVIII
(False Light Invasion Of Privacy)
---------------------------------
In the alternative to Counts XVI and XVII, Peter
Halmos complains of SafeCard and Bacon as follows:
337. This Count XVIII is a claim against
SafeCard and Bacon for false light invasion of privacy, based on
Bacon's utterly false statements to a reporter for the Wall
Street Journal accusing Peter Halmos of gross financial
wrongdoing (indeed. of crimes), as part of SafeCard's and Bacon's
attempt to expose Halmos to public obloquy and ridicule by means
of a calculated smear campaign, and thereby to impair or ruin
Halmos' earning capacity, his ability to compete with SafeCard,
and his ability to obtain redress for the wrongs he has suffered
at SafeCard's hands. This Count (pleaded in the alternative to
Counts XVI and XVII) asserts that in the financial marketplace in
which those false statements were made, and especially in light
of the other calumnies Halmos has suffered at SafeCard's hands
and to protect SafeCard's interests, SafeCard's and Bacon s
falsehoods were meant to, and did, place Halmos in a false light,
highly offensive to a reasonable person and doubly so to a senior
corporate executive, portraying him as a financial crook.
338. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 1-9 inclusive above
(concerning parties, jurisdiction, and venue) as paragraph 338 of
this Count XVIII, as if fully set forth herein.
Background Information
----------------------
339. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 12-65 inclusive of
Count I (concerning SafeCard's longstanding custom, practice, and
course of dealing regarding indemnification "advances," its
explicit 1992 Agreement requiring such payments, and its
repudiation thereof as to Halmos), paragraphs 87-94 inclusive of
Count In (concerning Halmos' reliance on SafeCard's
indemnification promises), paragraphs 108-129 inclusive of Count
IV and paragraphs 162-171 inclusive of Count VII (concerning
Varvoutis' thefts, the Deloitte and IRS Suits. the IRS
investigation, Halmos rights to indemnification as regards
those events, and SafeCard's repudiation of its promises and
Halmos' rights), and paragraphs 209-245 inclusive of Count XI
(concerning SafeCard's promise of "economic equivalent" incentive
compensation to Halmos, pursuant to a written contract, in a
successful effort to induce him to continue to provide services
for SafeCard, and SafeCard's egregious fraud on Halmos in order
to deprive him of the value of that compensation after having
obtained his services) and paragraph 291 of Count XVI
(summarizing SafeCard's November-December 1992 attempts to
deprive Halmos of his indemnification and compensation rights,
and summarily terminating his services) as paragraph 339 of this
Count XVIII, as if fully set forth herein.
Defendants' False Light Conduct
-------------------------------
340. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 317-318 of Count
XVII (describing Bacon's statements made to Kyle Pope, on behalf
of both Bacon and SafeCard, on or about December 20, 1992) as
paragraph 340 of this Count XVIII, as if fully set forth herein.
341. As a result of Bacon's statements described
in paragraph 340 above, 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 certain
of those false statements. That article, which resulted from
statements made by Bacon in Illinois, was published extensively
throughout Illinois, including in Cook County.
342. Each of Bacon's statements described in
paragraph 340 above was and is false, both on its face and in
context. Those statements are not capable of an innocent
construction, facially or otherwise.
343. As a result of Bacon's voluntary statements
described in paragraph 340 above, Halmos was placed in a false
light before the public, as is more fully set forth in paragraphs
319-330 inclusive of Count XVII, which paragraphs are
incorporated by reference in this paragraph 343 as if fully set
forth herein.
Offensive To A Reasonable Person
--------------------------------
344. Each of the statements by Bacon described
in paragraph 340 above 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. As is more fully stated hereinabove, 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.
345. Because each of the statements by Bacon
described in paragraph 340 above 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.
346. For the reasons stated in paragraphs 344
and 345 above, the false light in which Halmos was placed by
defendants' false statements would be highly offensive to a
reasonable person. The defendants knew, at the time of Bacon's
statements described in paragraph 340 above, 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.
347. Bacon's statements described in paragraph
340 above 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 and Bacon knew that Bacon's statements concerned
only a private matter; for example, SafeCard did not file an SEC
Form 8-K reporting Halmos' termination, as SafeCard would have
been obliged to do if it regarded that event as a material matter
requiring public disclosure.
Actual Malice
-------------
348. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 305-310 inclusive of
Count XVI as paragraph 348 of this Count XVIII, as if fully set
forth herein. By reason of those facts. Bacon's false statements
described in paragraph 340 above, made by Bacon on behalf of both
himself and SafeCard, were made with actual malice.
Damages
-------
349. Halmos repeats and realleges, and
incorporates herein by reference, paragraphs 332-336 inclusive of
Count XVII as paragraph 349 of this Count XVIII, as if fully set
forth herein.
WHEREFORE, Halmos prays the Court for the entry of
judgment in his favor and against defendants, jointly and
severally:
a. Awarding Halmos compensatory damage
against defendants in an amount to be proven at trial;
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.
Dated June 1, 1994 PETER HALMOS, Plaintiff,
By:_____________________
One of His Attorneys
Myron M. Cherry, P.C.
Peter Flynn, Esq.
Jeffrey M. Wagner, Esq.
CHERRY & FLYNN
30 N. LaSalle Street
Suite 2300
Chicago, Illinois 60602
Firm ID No. 91229
James G. Hunter, Jr., Esq.
Nancy S. Hunter, Esq.
LATHAM & WATKINS
5800 Sears Tower
Chicago, Illinois 60606
312/876-7700
Firm ID No. 11705
Edward T. Joyce, Esq.
One North Franklin Street
Suite 2300
Chicago, Illinois 60606
312/641-2600
Attorney ID No. 20135
EXHIBIT 10(E)
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Agreement") is made and dated
this 26th day of May, 1994 (the "Agreement Date") by and between
SafeCard Services, Inc., a Delaware corporation (the "Company"),
and Steven J. Halmos ("Mr. Halmos").
Preliminary Statement
The Company and Mr. Halmos are parties to the following
agreements: (a) First Amended and Restated Memorandum of
Understanding dated as of April 1, 1993 (the "Memorandum"), (b)
Standstill, Voting and Right of First Refusal Agreement dated as
of April 1, 1993 (the "Standstill Agreement"), and (c) Indemnity
Agreement dated as of October 2, 1992 (the "Indemnity
Agreement"). The Company and Mr. Halmos wish to enter into this
Agreement for the purpose of, among other things, terminating
the Memorandum and the Standstill Agreement pursuant to the terms
and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants
contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
Company and Mr. Halmos hereby agree as follows:
1. Termination of Memorandum and Standstill Agreement.
As of the Agreement Date, the Memorandum and Standstill Agreement
shall be terminated in their entirety and have no further force
or effect.
2. Continuation of Indemnity Agreement. The Indemnity
Agreement shall remain in full force and effect providing
indemnity to Mr. Halmos in connection with his prior services to
the Company; and notwithstanding Mr. Halmos' complete separation
from the Company in all capacities as of the Agreement Date, the
Company shall continue to provide indemnity to Mr. Halmos in
connection with his prior services to the Company to the fullest
extent permitted by law in accordance with the terms of the
Company's Articles of Incorporation, By-Laws and the Indemnity
Agreement. The Company shall not provide indemnity to Mr.Halmos
for any claims, actions, suits, damages, losses and expenses (a)
which do not arise out of and/or relate to Mr. Halmos' prior
services to the Company asserted by Peter Halmos, Halmos Trading
& Investment Company, High Plains Capital Company, CreditLine
Corporation, or any other entity controlled by Peter Halmos, or
(b) in connection with the execution of this Agreement.
3. Payment. Subject to the terms and conditions of this
Agreement, the Company shall provide to Mr. Halmos a lump sum
payment of Four Million Four Hundred Thousand Dollars
($4,400,000.00) by wire transfer (pursuant to written transfer
instructions received from Mr. Halmos) within forty-eight (48)
hours of the Agreement Date in total and complete satisfaction of
all amounts due Mr. Halmos pursuant to the terms of Sections 3.1
and 3.4 of the Memorandum.
4. Covenant Not To Sue.
4.1. Mr. Halmos, individually, and not in his
capacity as shareholder, partner, officer, director or other
representative of CreditLine Corporation, Halmos Trading &
Investment Company, High Plains Capital Corporation, and/or any
entity in which Mr. Halmos does not have a controlling interest,
for himself, his heirs, executors, administrators, successors and
assigns, fully and finally covenants not to sue the Company and
its subsidiaries and related companies, or their successors and
assigns, their current officers, directors, and employees for any
claims, demands, actions, causes of action, suits, damages,
losses and expenses, of any and every kind or nature whatsoever,
as a result of any form of conduct, behavior, actions or
omissions occurring prior to the Agreement Date. Specifically
included in this covenant not to sue are, among other things, any
and all claims of alleged employment discrimination, either as a
result of the termination of Mr. Halmos' employment or otherwise,
under the Age Discrimination in Employment Act, 29 U.S.C. Section 621,
et seq., Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section
2000e, et seq., the Employee Retirement Income Security Act of
1974, 29 U.S.C. Section 1001, et seq., the Americans with Disabilities
Act of 1990, 42 U.S. Section 12,101, et seq., any other federal, state
or local statute, rule or regulation, as well as any claims for
alleged wrongful discharge, negligent or intentional infliction
of emotional distress, breach of contract, fraud, or any other
unlawful behavior, the existence of which is denied by the
Company and Mr. Halmos. Mr. Halmos also agrees not to institute
administrative proceedings or a lawsuit against the Company or
its subsidiaries, related entities, successors and assigns, or
their current officers, directors or employees in regard to any
claims, demands, causes of action, damages, losses and expenses,
occurring prior to the Agreement Date, and he represents and
warrants that no other person or entity has initiated or will
initiate with his consent such administrative proceedings or
lawsuit in the name of Mr. Halmos. After the Agreement Date, Mr.
Halmos also agrees not to urge, initiate or cause Peter Halmos,
Halmos Trading & Investment Company, CreditLine Corporation, High
Plains Capital Corporation, or any other entity controlled by
Peter Halmos to initiate any administrative proceedings or
lawsuits against the Company, its subsidiaries, related entities,
successors or assigns, or their current officers, directors or
employees. The terms of this covenant notwithstanding, Mr.
Halmos and the Company acknowledge and agree that Mr. Halmos is
not authorized to and by entering into this Agreement does not
and has not in any way released or affected any actions or claims
of Peter Halmos, Halmos Trading & Investment Company (a Florida
general partnership), CreditLine Corporation, High Plains Capital
Corporation, and/or any entity in which Peter Halmos has a
beneficial interest, including, but not limited to, any and all
actions or claims by any parties listed on Exhibit A. Should any
court or tribunal determine that this covenant releases and/or
adversely affects any claims of any person or entity other than
Mr. Halmos, in his individual capacity, his heirs, executors,
administrators, successors and assigns, it shall, to that extent,
be void and of no force and effect.
4.2. The Company, on behalf of itself, its
subsidiaries, related entities, successors and assigns, fully and
finally covenants not to sue Mr. Halmos, his heirs, executors,
administrators, successors and assigns, for any and all claims,
demands, actions, causes of action, suits, damages, losses and
expenses, of any and every kind or nature whatsoever, as a result
of any form of conduct, behavior, actions or omissions occurring
prior to the Agreement Date. Specifically included in this
covenant not to sue are, among other things, any and all claims
for any violation of any federal, state or local statute, rule or
regulation, as well as for any alleged breach of contract, fraud,
negligence, breach of fiduciary duty or any claims for any other
form of unlawful behavior, the existence of which is denied by
the Company and Mr. Halmos. The Company, by entering into this
covenant, is not releasing any actions or claims it has against
Peter Halmos, Halmos Trading & Investment Company, CreditLine
Corporation, High Plains Capital Corporation, or any entity in
which Peter Halmos has a beneficial interest, including, but not
limited to, any actions or claims asserted which are listed on
Exhibit A. The Company, on behalf of itself, its subsidiaries,
related entities, successors and assigns, also agrees not to
institute administrative proceedings or a lawsuit against Mr.
Halmos in regard to any claims, demands, causes of action,
damages, losses and expenses, occurring prior to the Agreement
Date, and the Company represents and warrants that no other
person or entity affiliated with the Company has or will initiate
with its consent such administrative proceedings or lawsuit on
behalf of the Company, its subsidiaries, related entities,
successors and assigns. The Company also agrees not to cause or
initiate any administrative proceedings or lawsuits against Mr.
Halmos, his heirs, executors, administrators, successors and
assigns. The Company covenants not to execute on any judgment it
obtains against Mr. Halmos or the beneficial interest of Mr.
Halmos in any entity at any time after the date of this Agreement
for any claims, demands, causes of action, damages, losses and
expenses, of any and every kind or nature whatsoever as the
result of any form of conduct, behavior, actions or omissions of
any kind or nature whatsoever occurring prior to the Agreement
Date except that with respect to any judgment that the Company
obtains after the Agreement Date against Halmos Trading &
Investment Company, CreditLine Corporation, and/or High Plains
Capital Corporation (i) the Company will be able to execute
solely against Mr. Halmos' interest therein to the extent of any
existing assets owned by such entities at the time of entry of
judgment; and (ii) to the extent that such an entity has
transferred assets to Mr. Halmos without adequate consideration
after the Agreement Date, the Company shall be able to execute
against Mr. Halmos individually solely to the extent of the value
of the assets so transferred. Specifically excluded from the
foregoing sentence is any boat currently used and in the
possession of Mr. Halmos. Should any court or tribunal determine
that this covenant releases and/or adversely affects any claims
of any person or entity other than the Company on behalf of
itself, its subsidiaries, related entities, successors and
assigns, it shall, to that extent, be void and of no force and
effect.
4.3. Attached hereto as Exhibit A is a list which
identifies all presently pending litigation that may directly or
indirectly relate to or involve the Company and Mr. Halmos, Peter
Halmos and/or entities in which either of them may have some
beneficial interest. Notwithstanding anything contained in this
Section 4 to the contrary, Mr. Halmos is not in any way
covenanting not to sue or otherwise affecting the right and/or
ability of Peter Halmos and/or any entity in which Peter Halmos
has a beneficial interest from filing and/or prosecuting and/or
defending any claims asserted in the litigation identified on
Exhibit A and/or filing and/or prosecuting and/or defending any
other claims, suits or causes of action by and/or against the
Company at any time on behalf of Peter Halmos and/or any entity
in which he has a beneficial interest including, but not limited
to, the claims, suits and/or causes of action asserted in the
case styled Halmos Trading & Investment Company v. SafeCard
Services, Inc., et al., Case No. 93-04354 (06) (the "Broward
Case"), presently pending in the Circuit Court for Broward
County, Florida. Notwithstanding anything contained in this
Section 4 to the contrary, and except as provided otherwise in
this Agreement, the Company is not in any way covenanting not to
sue or otherwise affecting its right and/or ability to assert
and/or defend any claims, suits and/or causes of action by and/or
against any person, firm or entity, other than Mr. Halmos, his
heirs, executors, administrators, successors and assigns, for any
reason at any time, including, but not necessarily limited to,
the litigation identified on Exhibit A attached hereto.
4.4. Notwithstanding anything contained in this
Agreement to the contrary, the Company and Mr. Halmos retain all
rights and obligations under this Agreement, and in the event of
any breach of and/or dispute concerning the interpretation and/or
enforcement of the terms of this Agreement, the Company and Mr.
Halmos may fully enforce the terms of this Agreement in the
appropriate forum having jurisdiction thereof. Upon the Company
making the payment required by Section 3 of this Agreement,
neither the Company nor Mr. Halmos shall have any further rights
or obligations under the Memorandum or the Standstill Agreement.
5. Non-competition.
5.1. Mr. Halmos acknowledges that he has had access
to highly confidential and proprietary Company information and
trade secrets and he agrees that, in consideration of the
promises and undertakings set forth in this Agreement, he will
not, for a one (1) year period of time from the Agreement Date
(the "Non-competition Period"), without the prior written consent
of the Company, directly or indirectly, whether as principal,
agent, officer, director, partner, employee, independent
contractor, consultant, stockholder, licensor or otherwise alone
or in association with any other person, firm, corporation or
other business organization, carry on or be engaged, concerned or
take part in, or render services or advice to or own, share in
the earnings of or invest in the stock, bonds, or other
securities of any person, firm, or corporation engaged in any
Competitive Business (as defined hereinafter) within the United
States or within any foreign country in which the Company is at
the time either actively conducting, or actively seeking to
expand, its business. The parties hereto agree that, in light of
Mr. Halmos' past and present relationship with the Company, the
geographical scope of the covenant not to compete set forth in
the preceding sentence is reasonable. As used herein,
Competitive Business means the marketing or sale of any products
or services that are directly competitive with products and
services currently offered or currently under development for
offering by the Company (collectively, the "Company Products")
either (i) to credit card holders through arrangements with
credit card issuers (i.e. third party endorsed marketing) and
(ii) through other channels of distribution as of the Agreement
Date. The Company will provide a written list describing all
Company Products and channels of distribution to Mr. Halmos'
attorney within forty-eight (48) hours of the execution of this
Agreement and which shall be the basis for determining whether
any proposed business of Mr Halmos' may constitute a Competitive
Business as defined herein. The attorney designated by Mr.
Halmos shall inform him whether a potential business product or
service or channel of distribution contemplated by Mr. Halmos is
on such list and Mr. Halmos' attorney shall, if necessary,
consult with the Company's general counsel and advise Mr. Halmos
of whether any proposed business product or service of Mr. Halmos
is deemed by the Company to be included on such list. Mr. Halmos
agrees that during the Non-competition Period he will not,
without the prior written consent of the Company, directly or
indirectly, and whether for his own account or for the account of
any other person, firm, corporation or other business
organization, interfere with the Company's business relationship
with any client. Testimony in any legal proceeding shall not
constitute interference. Mr. Halmos will not, in any manner,
encourage, any employee, consultant or advisor of the Company to
leave the employ of the Company. The following shall not be
deemed a violation of Section 5: (a) ownership of two percent
(2%) or less of the outstanding voting securities of a publicly
held corporation and (b) owning directly or indirectly (including
through his children) a beneficial interest in or serving as an
officer, director or partner of CreditLine Corporation, High
Plains Capital Corporation and Halmos Trading & Investment
Company. The Company agrees that activities of Peter Halmos,
CreditLine Corporation, High Plains Capital Corporation, Halmos
Trading & Investment Company or any other entity in which Peter
Halmos has a beneficial interest which would otherwise constitute
a breach of Section 5 hereof, will not constitute a breach
hereunder, provided that Mr. Halmos does not personally
participate in, vote for or encourage such activities, such term
"participate in" shall include, but not be limited to,
contacting former or current clients and customers of SafeCard,
preparing solicitation materials, or formulating new products and
services for or on behalf of Peter Halmos, CreditLine
Corporation, High Plains Capital Corporation, Halmos Trading &
Investment Company or any other entity in which Peter Halmos has
a beneficial interest. Mr. Halmos shall not, within the Non-
Competition period, obtain an additional beneficial interest with
Peter Halmos in any entity to circumvent this provision.
5.2. The restrictions contained in this Section 5 are
necessary for the protection of the business and good will of the
Company and are considered by Mr. Halmos to be reasonable for
such purposes. Mr. Halmos agrees that any breach of this Section
5 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such
other remedies which may be available, the Company shall be
entitled to an injunction or injunctions restraining any such
violation, or any other appropriate decree of specific
performance, without the necessity of showing any actual damages
or that monetary damages would not provide an adequate remedy.
Further, if any restriction set forth in this Section 5 is found
by any arbitrator or court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or
over too great a range of activities or in too broad a geographic
area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic areas as to
which it may be enforceable.
6. Confidentiality.
6.1. Mr. Halmos shall keep all proprietary Company
information confidential and will not disclose such information
to a third party in the future. As used in this Agreement, the
term "proprietary Company information" includes, but is not
necessarily limited to, technical, marketing, business, financial
or other information which constitutes trade secret information
or information not available to competitors of the Company, the
use or disclosure of which might reasonably be construed to be
contrary to the interests of the Company. Mr. Halmos shall
return to the Company, on or before forty-eight (48) hours after
the execution of this Agreement, all Company property or copies
thereof, including, but not limited to, files, records, computer
access codes, computer programs, instruction manuals, documents,
business plans, and other property which he received or prepared
or helped to prepare on behalf of the Company, in connection with
the services performed by Mr. Halmos for the Company, and Mr.
Halmos also agrees to assign to the Company all right, title and
interest in such property and any advertising copy or other
written materials used by the Company in connection with its
business created by him during (but not after) the period which
Mr. Halmos performed services for the Company. Mr. Halmos shall
cooperate with any reasonable request of the Company to perfect
the Company's right, title and interest in such property and any
advertising copy or other written materials. Specifically
excluded from such assignment is any such property, advertising
copy or other written materials used by the Company in connection
with its business which is subject to any agreement between the
Company and CreditLine Corporation or subject to a dispute of
ownership by Peter Halmos or any entity in which Peter Halmos has
a beneficial interest. Nothing in this section shall prevent Mr.
Halmos from testifying or defending himself in any legal
proceeding. The obligation of Mr. Halmos to treat information
covered by this Section 6 confidentially shall not apply to any
information (a) which is publicly available when provided to him
or which thereafter becomes publicly available, otherwise than by
Mr. Halmos' breach of his undertakings under this Section 6, or
(b) which is required (after notice to the Company which shall
have, to the extent it is within Mr. Halmos' power, a right to be
heard) to be disclosed by Mr. Halmos by judicial or
administrative process in connection with any action, suit or
legal proceeding. Information shall be deemed "publicly
available" if it becomes a matter of public knowledge or is
obtained by Mr. Halmos from any source other than the Company or
its directors, officers, employees, or outside advisors,
provided, that such source has not entered into a confidentiality
agreement with the Company specifically covering such information
at the time such source discloses the information to Mr. Halmos.
6.2. The Company (and its officers, directors,
employees and agents) and Mr. Halmos agree that they will not
criticize, denigrate, or otherwise speak adversely against each
other in regard to past or present activities. Mr. Halmos
further agrees not to disclose negative information about the
operations, management, or performance of the Company or any of
its affiliates, including any director, officer, employee or
agent of any of the foregoing. This provision is not intended to
preclude testimony before a governmental agency or a court of law
by Company agents or Mr. Halmos in any manner related to one of
the parties to this Agreement. The parties agree that the
existence, nature and terms of this Agreement and facts related
to its negotiation, execution and implementation will be kept
strictly confidential; provided however, that Mr. Halmos is
entitled to inform his wife, legal counsel, personal tax or
financial advisors, creditors or potential creditors, brokerage
firms and investment bankers, or other persons assisting him in
the sale or purchase of his stock with a legitimate need to know
of the terms of this Agreement, and the Company may (a) inform
agents or employees of the Company with a legitimate need to know
of the terms of this Agreement, (b) disclose the existence of
this Agreement and any terms hereof as required by law or
regulation including, without limitation, the federal securities
laws and regulations promulgated thereunder and any rules or
regulations of the New York Stock Exchange, and (c) prepare and
issue a press release. If any party receives a request for the
production of this Agreement or receives a subpoena which
requires production of this Agreement, they shall immediately
inform the other party of the request in writing and will not
produce this Agreement (or any copies thereof) without the
written consent of all parties to the Agreement, and if
appropriate, after seeking a protective order from the court
before producing the Agreement. Notwithstanding the foregoing,
if a tribunal compels production of the Agreement, the Agreement
shall be produced in accordance with the order.
7. Stock Options, Exercise of Options and Sale of Shares.
7.1. The Company and Mr. Halmos are parties to two
(2) Non-Qualified Stock Option Agreements; one is dated August
30, 1989, effective as of January 25, 1989, and the other is
effective as of November 29, 1989 (collectively, the "Option
Agreement"). The Option Agreement provides for issuance of
3,900,000 shares of common stock of the Company upon exercise by
Mr. Halmos of the stock options and the Option Agreement is and
shall remain in full force and effect. The Company and Mr.
Halmos disagree as to the meaning of certain provisions of the
Option Agreement. Without resolving this dispute and without
admitting any interpretation or the necessity for a modification,
the parties agree that the Option Agreement shall be modified to
provide: (a) any payments due the Company under the Option
Agreement upon exercise of the options by Mr. Halmos may be
deferred by Mr. Halmos for up to thirty (30) days from the date
Mr. Halmos exercises any such options; and (b) Mr. Halmos shall
have the right to exercise his stock option(s) under the Option
Agreement until on or before December 31, 1994. The Company
shall deliver the shares upon exercise of the stock options to
Mr. Halmos or any third party designated by him upon Mr. Halmos
providing the Company with reasonable assurances and protections,
including the perfection of a security interest in such shares,
if necessary, that payment has been or will be made of all sums
due the Company for the exercise price of the options upon the
issuance and delivery of the shares. The certificates of common
stock to be delivered upon proper exercise of the stock options
shall not contain any form of legend and will not have or contain
or be subject to any form of restrictions on transfer.
7.2. The Company shall cooperate fully and completely
with Mr. Halmos in connection with any effort by Mr. Halmos to
sell the shares to be issued under the Option Agreement. The
Company's cooperation shall include, but not necessarily be
limited to, the following: (a) cause the Company's CEO to confer
with and provide reasonable and necessary financial and other
business information relating to the Company to prospective
purchasers of the shares; (b) cause the Company's senior
executives to participate in a reasonable number of "road shows"
to assist in the sale of the shares; (c) provide reasonable
written representations and assurances to brokerage firms and
prospective purchasers of the shares; and (d) execute all
documents reasonably requested by any broker, transfer agent or
purchaser of the shares to effect the sale of the shares.
8. Lease. Mr. Halmos shall have the right, subject to
the terms and conditions set forth in the attached Exhibit B, to
occupy the Company's leased premises located at 200 East Las Olas
Boulevard, Ft. Lauderdale, Florida, until the expiration of the
Company's lease of such premises on or about July 14, 1998.
9. Miscellaneous.
9.1. If any provision of this Agreement, or portion
thereof, is determined to be invalid or unenforceable under
applicable statute or rule of law, only such provision, and only
to the extent determined to be invalid or unenforceable, shall be
deemed omitted from this Agreement, the remainder of which shall
remain fully in force and effect.
9.2. The construction, interpretation and performance
of this Agreement shall be governed by the laws of the State of
Florida without regard to conflict of laws principles.
9.3. This Agreement shall not be construed as an
admission by the Company or Mr. Halmos of any liability or acts
of wrongdoing or discrimination, nor shall it be considered as
evidence of such liability, wrongdoing or discrimination.
9.4. Any claims by Mr. Halmos or the Company or any
counsel they have employed for attorneys' fees and other costs
and legal expenses as of the Agreement Date are fully and finally
resolved by the payment set forth in Section 3 above. The
parties represent that this arrangement is just and fair under
the relevant facts and circumstances. This provision shall not
in any way limit any claim for attorneys' fees and other costs
and legal expenses in connection with the actions detailed on
Exhibit A or any other action or claim which may, in the future,
be filed.
9.5. Except as otherwise provided in this Agreement
and provided this Agreement is fully and completely complied with
by the Company: (a) this Agreement terminates all aspects of the
relationship between Mr. Halmos and the Company for all time; (b)
Mr. Halmos does not and will not seek reinstatement, future
employment, or return of active employee status with the Company
or any subsidiary or related companies; and (c) the Company shall
not be under any legal or equitable obligation whatsoever to
consider him for reinstatement, employment, re-employment,
consulting or other similar status at any time. This provision
will not preclude Mr. Halmos from contracting with the Company
on behalf of another company which has employed him, nor will it
preclude the continuation of employment by Mr. Halmos with
another company later purchased or acquired by the Company.
9.6. This Agreement constitutes the entire agreement
between the Company and Mr. Halmos with respect to the subject
matter hereof and shall not be amended, modified, or amplified
without specific written provision to that effect, signed by both
parties. No oral statement of any person whosoever shall, in any
manner or degree, modify or otherwise affect the terms and
provisions of this Agreement.
9.7. By signing this Agreement, Mr. Halmos and the
Company state that (a) they have read it and have had sufficient
time to consider its terms; (b) they understand it and know that
they are giving up important rights; (c) they agree with
everything in it; (d) they are aware of their respective right to
consult and have consulted with an attorney before signing it;
and (e) they have signed it knowingly and voluntarily.
9.8. The headings in this Agreement are for
convenience only and shall not be deemed to constitute a part
hereof, nor shall they affect the construction or interpretation
of any provision of this Agreement.
9.9. This Agreement may be executed simultaneously in
one or more counterparts, by facsimile copy, which shall be
simultaneously confirmed by executing and delivering an original
copy by overnight delivery, each of which shall be deemed an
original, and all of which shall constitute one and the same
instrument.
9.10. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties
hereto and to their respective successors and permitted assigns.
9.11. Neither party hereto shall assign this Agreement
or any part hereof without the written consent of the other
party.
9.12. All notices, requests or other communications
hereunder shall be in writing, and shall be deemed to have been
duly given when delivered in person or posted by United States
registered or certified mail, postage prepaid, or by facsimile,
telex, cable or any other mechanical form of written
communication, and simultaneously confirmed by mail, postage
prepaid, or overnight delivery to the following addresses:
<PAGE>
(a) if to the Company:
SafeCard Services, Inc.
202 ATP Boulevard
Ponte Vedra, Florida 32082
Attn: General Counsel
Facsimile No. (904) 273-4908
(b) if to Mr. Halmos:
Steven J. Halmos
628 Coral Way
(after June 25, 1994: 707 Coral Way)
Ft. Lauderdale, Florida 33301
Facsimile No. (305) 764-1756
with a copy to:
Thomas H. Seymour, Esq.
Kenny Nachwalter Seymour
Arnold Critchlow & Spector, P.A.
201 South Biscayne Boulevard
1100 Miami Center
Miami, Florida 33131-4327
Facsimile No. (305) 372-1861
or to such other address or addresses as either party may from
time to time designate as to itself, by notice as provided
herein.
9.13. No waiver of any breach of this Agreement or any
objection to any act or omission connected therewith shall be
implied or claimed by either party or be deemed to constitute a
consent to any continuation of such breach, act or omission.
9.14. Each of the parties hereto shall, from time to
time at the request of the other, and without further
consideration, execute and deliver such other instruments and
take such other actions as may be required to confer to the
requesting party and his or its assignees the benefits
contemplated by this Agreement.
<PAGE>
9.15. In any action or proceeding brought to enforce
and/or interpret the terms of this Agreement, the prevailing
party shall be entitled to reimbursement of its or his reasonable
costs and expenses, including reasonable attorneys' fees,
incurred in trial, appellate and post-judgment proceedings.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
STEVEN J. HALMOS
- - ------------------------- SAFECARD SERVICES, INC.
STEVEN J. HALMOS
By PAUL G. KAHN
---------------------
Print Name Paul G. Kahn
--------------
Title Chairman and Chief
Executive Officer
------------------
STATE OF FLORIDA )
)
COUNTY OF DADE )
The foregoing instrument was acknowledged before me this
26th day of May, 1994, by STEVEN J. HALMOS, who is personally
known to me.
PATRICIA A. HARRIS
___________________________________
Print Name Patricia A. Harris
------------------------
My Commission Expires: 5-10-96
<PAGE>
STATE OF FLORIDA )
)
COUNTY OF ST. JOHNS )
The foregoing instrument was acknowledged before me this
27th day of May, 1994, by Paul G. Kahn as Chairman of SAFECARD
SERVICES, INC., a Delaware corporation, on behalf of the
corporation. He/she is personally known to me or has produced
__________________________________________ as identification.
BARBARA L. WINKO
___________________________________
Print Name Barbara L. Winko
------------------------
My Commission Expires: 7-2-96
<PAGE>
EXHIBIT A
PENDING LITIGATION
CASE CASE NUMBER AND STYLE
- - -----------------------------------------------------------------
Circuit Court-Broward County 93-04354 (CA 06), Peter Halmos
v. Safecard Services, Inc. v.
Steven Halmos, Halmos Trading &
Investment Co.
Circuit Court-Broward County 92-28030, High Plains Capital
Corp., et al. v. The Florida
Department of Revenue
USDC-S.D. Florida 92-6336-CIV-MORENO, P. Halmos,
et al. v. E. Varvoutis, Ill and
Deloite & Touche
USDC-S.D. Florida 92-7204-CIV-MORENO, P. Halmos,
et al. v. Darryl Long, Ernest
Varvoutis, Other unknown agents
of the United States, and the
United States of America
Supreme Court-NY Index No. 129681/93, Safecard
Services, Inc. V. Halmos Trading
Supreme Court-NY Index No. 131730/93, Halmos
Trading v. Safecard Services,
Inc.
Circuit Court-Broward County 94-005798, S. Halmos
(petitioner) Safecard Services,
Inc. v. Peter Halmos, High
Plains Capital Corp., and
Creditline
Circuit Court (Chancery Div.) 93-CH-004807, Peter Halmos,
Cook County, Illinois Cherry & Flynn, Myron M. Cherry,
P.C., Myron M. Cherry, and
Creditline Corporation v.
Safecard Services, Inc. and
William T. Bacon, Jr.
1st Dist. Wyoming-Laramie Co. Doc. 134, No. 192, SafeCard
Services, Inc. v. Peter Halmos,
High Plains Capital Corp., and
CreditLine
<PAGE>
EXHIBIT B
Regarding Lease of Premises located at 200 East Las Olas
Boulevard, New River Center Suite 1730, Ft. Lauderdale, Broward
County, Florida, between RIVERWALK CENTER I JOINT VENTURE,
Landlord, and SAFECARD MARKETING, INC., Tenant
for the period May 26, 1993 through July 14, 1998
SAFECARD MARKETING, INC. ("SafeCard") and STEVEN J. HALMOS ("Mr.
Halmos") agree to permit Mr. Halmos to occupy the premises leased
by SafeCard (the "Premises" or "Property") from Riverwalk Center
I Joint Venture (the "Landlord") pursuant to the following terms
and conditions:
1. Effective Date: This Agreement shall be effective on the day
after SafeCard's employees vacate the Premises which shall be no
later than January 1, 1995 (the "Effective Date"). Until the
Effective Date, Mr. Halmos may occupy the premises without any
financial obligation to pay for space or assume the obligations
herein which he will assume on the Effective Date.
2. The Premises: The Premises are those described in the Lease
dated May 26, 1993 between SafeCard and Landlord (the "Lease")
The parties incorporate by reference the description of the
Property in the Lease.
3. SafeCard's Financial Responsibility: SafeCard's financial
responsibility for the Premises is limited to all financial
obligations under the Lease through the Effective Date, hereof,
and, thereafter to: (a) the payment of Base Rent, (b) Additional
Rent as defined in the Lease, including, but not limited to,
Tenant's proportionate share of Operating Expenses of the
Building and Property and maintenance or other assessments
imposed by the Association as defined in the Lease; (c) sales tax
thereon as defined by the Lease, (d) late fees, (e) other taxes
resulting from the Lease, Property or Rent which SafeCard is or
would be obligated to pay as Tenant or as a result of the Lease
and (f) common area expenses as provided in paragraph 8.2 of the
Lease and (g) one reserved parking space.
4. Mr. Halmos' Financial Responsibility: Mr. Halmos shall be
responsible for payment of: (a) parking spaces which Mr. Halmos
wishes to use, except that identified above (b) any storage
charges for storing his personal property, (c) all after-hour
Landlord services as defined in Section 8.4 of the Lease, (d) the
cost of any extraordinary janitorial services of Landlord as set
forth in Section 8.6 of the Lease, and (e) all costs associated
with the following if Mr. Halmos decides to continue them after
SafeCard vacates:
i. The maintenance of the AT&T phone system hardware and 800
line.
ii. All telephone charges for local and long distance service.
iii. Postage meter rental paid to Pitney Bowes.
iv. Maintenance of the UPS Shipper Account.
v. Lease payments in regard to the Xerox copier.
vi. Payment obligations to Honeywell for operation and
maintenance of the security system.
Mr. Halmos and SafeCard will discuss each of these items before
SafeCard vacates and, for any items that Mr. Halmos does not wish
to continue, SafeCard will handle the discontinuation of them at
SafeCard's expense.
5. Mr. Halmos' Other Rights and Obligations: Mr. Halmos shall
have the following additional obligations which shall begin and
become effective on the Effective Date.
5.1. Except as provided in this Agreement, Mr. Halmos shall abide
by all non-rental terms of the Lease.
5.2. Mr. Halmos is responsible for maintaining the condition of
the Premises and keeping it in good condition as required by the
Lease and assumes all obligations of Tenant as set forth in
Section 8.1 of the Lease. Mr. Halmos shall accept the premises in
"as is" condition, which shall be substantially the same
condition as of May 25, 1994, ordinary wear-and tear excepted.
5.3. Mr. Halmos shall receive the Premises with the following in
place and shall own the rights thereto: all furniture, the
refrigerator, microwave, dishwasher, shredder, the computer
equipment utilized by Mr. Halmos' secretary, which is stationed
on her desk, and one of the three fax machines as SafeCard may
select, and any miscellaneous office supplies and equipment which
SafeCard and Mr. Halmos may later agree. SafeCard retains the
ownership rights to everything else, including the file cabinets,
all other computer equipment, fax machines and the TV/VCR
equipment.
5.4. If SafeCard has not removed its property, on expiration of
the Lease, SafeCard shall reimburse Mr. Halmos for the removal
and storage or shipment of the property. Mr. Halmos is
responsible for removing all furniture (including the cost
associated therewith) and restoring the Premises to the same
physical condition and layout as required by Section 9.3 of the
Lease, ordinary wear and tear excepted, upon expiration of the
Lease. Mr. Halmos shall not be responsible for damage to the
Premises caused by SafeCard's removal of its property. 5.5. Mr.
Halmos shall have all benefits and rights enjoyed by SafeCard
under the Lease and shall abide by the Tenant Rules and
Regulations.
5.6. Mr. Halmos is to bear the risk of any and all personal
injury or property damage in or about the Premises, except that
caused by the Landlord or caused, after the Effective Date, by
SafeCard, its guests, invitees, agents, employees, assigns or
representatives, and shall either maintain insurance in a form
reasonably acceptable to SafeCard insuring against such risks or
reimburse SafeCard for the cost of such insurance SafeCard is
currently maintaining as required by Section 10.1 of the Lease.
5.7. Mr. Halmos will cooperate with SafeCard in any efforts by
SafeCard to assign or sublet in the event Mr. Halmos decides to
cease occupancy of the Premises prior to the expiration of the
Lease. Mr. Halmos shall give SafeCard fifteen (15) days notice of
his intent to vacate the entire premises.
5.8. Mr. Halmos may, for his sole benefit, allow other persons or
entities to occupy the Premises. In such event, Mr. Halmos will
obtain Safecard's consent and will be responsible for securing
approval from the Landlord and will indemnify and hold SafeCard
harmless from any and all claims or damages resulting from his
failure to secure approval from the Landlord. The purpose of
Safecard's consent is to satisfy itself that the proposed
occupant can comply with the non-rental terms of the Lease which
Mr. Halmos is obligated to uphold under this Agreement. Consent
shall not be unreasonably, capriciously or arbitrarily withheld.
Halmos will secure such proposed occupants' written consent to be
bound by such terms of the Lease assumed herein by Mr. Halmos.
SafeCard shall, upon Mr. Halmos' request, assist him in obtaining
such consent from the Landlord. Neither Mr. Halmos nor his
occupants shall be obligated to pay rent to SafeCard or the
Landlord or provide financial statements as provided in paragraph
24.4 of the Lease.
5.9. Mr. Halmos may use and permit use of the Premises for any
lawful purpose which does not violate any and all applicable
ordinances, laws, rules or regulations; of any governmental body,
the Association or of Landlord provided for in Exhibit E to the
Lease, and will not do or permit any act which would constitute a
public or private nuisance or waste or which would be a nuisance
or annoyance or cause damage to Landlord or Landlord's other
tenants or which would invalidate any policies of insurance or
increase the premiums thereof, now or hereafter written on the
Building and/or Premises.
5.10. Mr. Halmos will indemnify and hold SafeCard harmless from
any and all claims or damages in connection with Mr. Halmos'
actions, omissions or negligence of those of Mr. Halmos'
invitees, guests, or occupants he obtains pursuant to Section 5.8
and their invitees and guests, and from any and all claims or
damages in connection with any accident, injury or damage
whatsoever occurring in or upon the premises save those the
Tenant is not responsible for under the Lease and those caused by
the Landlord, or caused, after the Effective Date, by the acts or
omissions of SafeCard, or its agents, assigns, representatives or
employees.
6. SafeCard's Other Obligations: SafeCard shall have the
following additional obligations:
6.1. SafeCard will keep the Lease in force, abide by the terms of
the Lease, provide Mr. Halmos use of the entire leased premises
throughout the period ending July 14, 1998, and shall indemnify
Mr. Halmos for all damages and losses, not to include
consequential damages or lost profits, which result from its
failure to comply with this Section 6.1, unless its failure is
caused by Mr. Halmos' breach of this Agreement.
6.2. SafeCard shall indemnify and hold Mr. Halmos harmless from
all claims, demands, damages, actions and matters whatsoever
arising in connection with the Premises or the Lease prior to the
Effective Date except those expressly assumed herein by Mr.
Halmos (by way of illustration, condition of the Premises) and
for all acts or omissions of SafeCard, its employees, assigns,
agents or representatives occurring in connection with the Lease
or Premises after the Effective Date except as assumed herein by
Mr. Halmos.
6.3. SafeCard shall obtain the Landlord's written consent to Mr.
Halmos' occupancy and the terms of this Agreement. Mr. Halmos, at
SafeCard's request, shall assist in obtaining such consent.
6.4. SafeCard shall promptly provide, in writing, all notices
issued pursuant to the Lease to Mr. Halmos giving him the same
time period permitted by the Lease for any act, event or
obligation.
6.5. SafeCard Services, Inc., by signing below, guarantees the
obligations of SafeCard Marketing, Inc. under this Agreement.
Witnesses: SAFECARD MARKETING, INC.
LISA ORMAND By MF JOSEPH
- - ---------------------- ----------------------
Print Name LISA ORMAND Print Name MARC F. JOSEPH
Title Vice President and
Assistant Secretary
AMY SHUBERT
- - -----------------------
Print Name AMY SHUBERT
Witnesses: SAFECARD SERVICES, INC.
LISA ORMAND By MF JOSEPH
- - ---------------------- ---------------------
Print Name LISA ORMAND Print Name MARC F. JOSEPH
Title Senior Vice
President Law &
Public Affairs
AMY SHUBERT
- - ----------------------
Print Name AMY SHUBERT
Witnesses:
PATRICIA A. HARRIS STEVEN J. HALMOS
- - ----------------------------- ---------------------
Print Name PATRICIA A. HARRIS STEVEN J. HALMOS
GLADYS ACOSTA
- - ------------------------
Print Name GLADYS ACOSTA
CONSENT TO AGREEMENT
THE UNDERSIGNED, an authorized representative of the Landlord,
Riverwalk Center I Joint Venture, hereby consents on behalf of
Landlord to the terms and conditions contained in the foregoing
Agreement. AGREED this day of , 1994 .
Witnesses: RIVERWALK CENTER I JOINT
VENTURE
- - ---------------------------- By
Print Name ----------------------
Print Name
Title
- - ----------------------------
Print Name
RESCISSION AGREEMENT
- - --------------------
THIS RESCISSION AGREEMENT ("Amendment") is made and entered into
as of the 9th day of June, 1994, by and between Safecard
Services, Inc., a Delaware corporation (the "Company"), and
Steven J. Halmos ("Mr. Halmos").
The Company and Mr. Halmos are parties to that certain
Termination Agreement dated as of May 26, 1994 (the "Termination
Agreement"). The Company and Mr. Halmos wish to enter into this
Agreement for the purpose of rescinding Section 7.1 of the
Termination Agreement substituting new Sections 7.1 and 7.3 and
ratifying all other provisions of the Termination Agreement
pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Mr.
Halmos hereby agree as follows:
1. Resiccsion. Section 7.1 of the Termination Agreement is
hereby rescinded in its entirety, so that the provisions of said
section are void ab initio.
2. Amendment. The Termination Agreement is amended by:
a. substituting a new Section 7.1 to read in its entirety as
follows:
"7.1 The Company and Mr. Halmos are parties to two (2) Non-
Qualified Stock Option Agreements; one is dated August 30, 1989,
effective as of January 25, 1989, and the other is effective as
of November 29, 1989 (collectively, the "Option Agreement"). The
Option Agreement provides for issuance of 3,900,000 shares of
common stock of the Company upon exercise by Mr. Halmos of the
stock options. The Option Agreement is and shall remain in full
force and effect. In the event Mr. Halmos gives notice of
exercise under the Option Agreement, payment of the exercise
price may be provided to the Company by electronic funds, wire
transfer, or other similar means upon Mr. Halmos' or his agent's
receipt of the share, properly issued, which shall be delivered
simultaneious with the funds transfer. In lieu of such payment,
Mr. Halmos may, in his sole discretion, deliver to the Company
his full recourse promissory note, secured and collateralized by
the shares exercised and paid for by the promissory note, bearing
a market rate of interest and payable in full not later than
January 31, 1995 which may be prepaid without penalty at any
time."
b. and, adding a new Section 7.3 to read in its entirety as
follows:
"7.3 Any exercise of the stock option(s) under the Option
Agreement shall not be made or be effective until after this
Agreement is executed by all parties hereto and is effective and
in full force and effect."
3. Full Force and Effect. Except as otherwise provided herein,
the parties agree that all other provisions of the Termination
Agreement remain in full force and effect in accordance with the
terms therof.
4. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
STEVEN J. HALMOS
- - ------------------------- SAFECARD SERVICES, INC.
STEVEN J. HALMOS
PAUL G. KAHN
--------------------------
Print Name Paul G. Kahn
Title Chairman and CEO
Exhibit 11(a) - Computation of Primary Earnings Per Share
<TABLE>
Second Quarter Ended Six Months Ended
April 30, April 30,
-------------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 3,804,000 $ 8,528,000 $12,248,000 $17,424,000
Adjustment (1)
Adjusted net earnings $ 3,804,000 $ 8,528,000 $12,248,000 $17,424,000
========= ========= ========== ==========
Average common shares
outstanding 24,442,000 26,322,000 24,284,000 26,487,000
Assumed equivalent shares
from stock options converted
to common shares (1) 3,319,000 3,038,000 3,188,000 2,908,000
Total weighted average number
of common and common
equivalent shares 27,761,000 29,360,000 27,472,000 29,395,000
========== ========== ========== ==========
Earnings per share
Earnings before cumulative effect
of accounting change $.14 $.29 $.38 $.59
Cumulative effect of accounting change .07
--- --- --- ---
Net Earnings $.14 $.29 $.45 $.59
=== === === ===
</TABLE>
(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. In computing primary
earnings per share, 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 and
any remainder invested in interest-bearing securities with net
earnings increased for the hypothetical interest savings or
interest income, net of income taxes. Because of 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.
Exhibit 11(b) - Computation of Fully Diluted Earnings Per Share
<TABLE>
Second Quarter Ended Six Months Ended
April 30, April 30,
-------------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 3,804,000 $ 8,528,000 $12,248,000 $17,424,000
Adjustment (1)
---------- ---------- ---------- ----------
Adjusted net earnings $ 3,804,000 $ 8,528,000 $12,248,000 $17,424,000
========= ========= ========== ==========
Average common shares
outstanding 24,442,000 26,322,000 24,284,000 26,487,000
Assumed equivalent shares
from stock options converted
to common shares (1) 3,358,000 3,303,000 3,425,000 3,502,000
---------- ---------- ---------- ----------
Total weighted average number
of common and common
equivalent shares 27,800,000 29,625,000 27,709,000 29,989,000
========== ========== ========== ==========
Earnings per share $.14(2) $.29(2) $.44(2) $.58(2)
=== === === ===
</TABLE>
(1) Earnings per share are computed consistent with (1) on
Exhibit 11(a) - Computation ofPrimary 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 when the market price at the close of the period is
higher than the average market price during the period. In times
of rising market price for the Company's Common Stock, all other
factors remaining constant, this will cause fully diluted
earnings per share to be less then primary earnings per share.
(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 15
June 13, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
We are aware that SafeCard Services, Inc. has included our report
dated June 13, 1994 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Prospectus
constituting part of its Registration Statements on Form S-3 and
S-8 (Nos. 33-39023, 33-48317 and 33-51439) filed on or about
February 14, 1991, June 2, 1992 and December 15, 1993. We are
also aware of our responsibilities under the Securities Act of
1933.
Yours very truly,
PRICE WATERHOUSE
