Form 10-Q
UNITED STATES 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 JANUARY 31, 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 Identification Number)
Incorporation or Organization)
3001 E. Pershing Blvd. Cheyenne, Wyoming 82001
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (307) 771-2700
--------------
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 January 31, 1994 24,182,815 Shares
PART I. FINANCIAL INFORMATION
- -------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
SafeCard Services, Incorporated
Consolidated Balance Sheets
ASSETS
January 31, October 31,
1994 1993
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 13,550,000 $ 3,335,000
Investment securities,
maturing within one year 1,594,000
Accrued interest receivable 2,981,000 4,403,000
Accounts receivable, net 16,885,000 8,443,000
Income tax receivable 1,237,000 5,252,000
Deferred subscriber costs
Commissions 31,039,000 28,149,000
Subscriber acquisition costs 48,944,000 47,987,000
----------- -----------
Total 116,230,000 97,569,000
----------- -----------
INVESTMENT SECURITIES, maturing after one year 167,078,000 166,704,000
----------- -----------
PROPERTY AND EQUIPMENT, net 8,731,000 8,420,000
----------- -----------
SUBSCRIBER COSTS AND OTHER ASSETS
Deferred commissions 13,792,000 12,825,000
Deferred subscriber acquisition costs 91,744,000 91,976,000
Other assets 1,177,000 793,000
----------- -----------
Total 106,713,000 105,594,000
----------- -----------
$398,752,000 $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
January 31, October 31,
1994 1993
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 11,224,000 $ 14,961,000
Accrued expenses 18,584,000 16,573,000
Allowance for cancellations 10,623,000 8,893,000
----------- -----------
Total, excluding deferred credits 40,431,000 40,427,000
----------- -----------
Deferred credits, current portion
Subscribers' advance payments 108,214,000 94,460,000
Deferred income taxes 11,647,000 10,554,000
----------- -----------
Total 160,292,000 145,441,000
----------- -----------
SUBSCRIBERS' ADVANCE PAYMENTS,
less current portion 49,825,000 47,603,000
----------- -----------
DEFERRED INCOME TAXES, less current portion 23,604,000 27,548,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - authorized 35,000,000
shares of $.01 par value; issued 34,276,000
shares in 1994 (34,196,000 in 1993); outstanding
24,182,815 shares in 1994 (24,118,184 in 1993) 343,000 342,000
Additional paid-in capital 16,420,000 15,990,000
Retained earnings 228,135,000 220,898,000
----------- -----------
244,898,000 237,230,000
Less cost of common shares in
treasury (10,093,185 in 1994 and
10,077,816 in 1993) (79,867,000) (79,535,000)
----------- -----------
Total 165,031,000 157,695,000
----------- -----------
$398,752,000 $378,287,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SafeCard Services, Incorporated
Consolidated Statements of Earnings
First Quarter Ended
January 31,
-------------------
1994 1993
---- ----
(Unaudited)
SUBSCRIPTION REVENUE, NET $41,391,000 $37,570,000
OPERATING COSTS AND EXPENSES
Subscriber acquisition costs 25,437,000 22,161,000
General, administrative and service costs 9,105,000 6,329,000
---------- ----------
34,542,000 28,490,000
---------- ----------
EARNINGS FROM OPERATIONS 6,849,000 9,080,000
INTEREST AND OTHER INCOME 2,304,000 2,789,000
---------- ----------
EARNINGS BEFORE INCOME TAXES 9,153,000 11,869,000
INCOME TAX EXPENSE (2,709,000) (2,973,000)
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 6,444,000 8,896,000
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,000,000
---------- ----------
NET EARNINGS $ 8,444,000 $ 8,896,000
========= =========
EARNINGS PER SHARE
Earnings Before Cumulative Effect
of Accounting Change $.24 $.30
Cumulative Effect of Accounting Change .07
--- ---
Net Earnings $.31 $.30
== ==
Weighted average number of
common and common
equivalent shares 27,608,000 29,312,000
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
SafeCard Services, Incorporated
Consolidated Statements Of Cash Flows
First Quarter Ended
January 31,
-------------------
1994 1993
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash received from subscribers $ 51,392,000 $ 47,295,000
Cash expenditures for subscriber
acquisition, commissions and operations (41,021,000) (38,998,000)
Interest received 4,735,000 4,828,000
----------- -----------
Cash flow from operations before
income taxes 15,106,000 13,125,000
Income taxes paid, net (188,000) (3,410,000)
----------- -----------
Net cash provided by operating activities 14,918,000 9,715,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities (20,020,000) (27,634,000)
Proceeds from sale of investment securities 16,951,000 29,041,000
Payments for property and equipment (525,000) (436,000)
----------- -----------
Net cash provided (used) by
investing activities (3,594,000) 971,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,207,000) (1,332,000)
Payments for purchases of treasury shares (483,000)
Proceeds from exercise of stock options 581,000
----------- -----------
Net cash used in financing activities (1,109,000) (1,332,000)
----------- -----------
NET INCREASE IN CASH 10,215,000 9,354,000
Cash and cash equivalents at beginning
of period 3,335,000 8,208,000
Cash and cash equivalents at end of period $ 13,550,000 $ 17,562,000
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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 January 31, 1994 and the results of its
operations and cash flows for the first quarters ended January 31, 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 E.
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 first quarter ended January 31, 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 three month periods
ended January 31, 1994 and 1993 (based on procedures adopted by the American
Institute of Certified Public Accountants) as set forth in their separate
report dated February 25, 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 first quarter 1993
financial information to conform with the 1994 presentation.
References herein to the first quarters 1994 and 1993 refer to the
Company's first fiscal quarters ended January 31st.
B. Restricted Investments
For many years the Company followed a policy of restricting all advance
payments for multi year subscriptions by placing them in an escrow account
with a bank. In March 1994, the Company changed its policy such that it will
now place funds in the escrow account only when it is required to do so by
contract with credit card issuer clients. The total amount considered
restricted by the Company as of January 31, 1994 was approximately $110
million, but would have been approximately $11 million under the new policy.
The restrictions under both the old and new policies are released
ratably over the subscription period, which coincides with the period of
revenue recognition. Restricted amounts have been invested primarily in
tax-exempt municipal securities.
Also considered restricted as of January 31, 1994 is approximately $.3
million, pursuant to an agreement with CreditLine Corporation, which is the
subject of litigation. See Note F 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:
First Quarter Ended
January 31,
--------------------
1994 1993
---- ----
(Unaudited)
Net earnings $ 8,444,000 $ 8,896,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 214,000 205,000
Income tax expense 2,709,000 2,973,000
Income tax payments, net (188,000) (3,410,000)
Cumulative effect of accounting change (2,000,000)
Net decrease in interest receivable 1,422,000 1,270,000
Net increase in accounts receivable (8,442,000) (2,417,000)
Net decrease in income tax receivable 643,000
Net amortization of bond premiums/
discounts 1,311,000 1,270,000
Billings to subscribers, net 57,368,000 52,009,000
Amortization of subscribers' advance
payments to revenue (41,391,000) (37,570,000)
Expenditures for subscriber
acquisition costs (14,136,000) (16,740,000)
Payment of commissions, net (15,884,000) (13,706,000)
Amortization of subscriber
acquisition costs 13,409,000 11,914,000
Amortization of commissions 12,028,000 10,247,000
Net increase in allowance
for cancellations 1,730,000 2,067,000
Net decrease in accounts payable
and accrued expenses (1,726,000) (7,180,000)
Gain on sale of investment securities (209,000) (348,000)
Net (increase) decrease in other assets (384,000) 237,000
Net cash provided by operating activities $ 14,918,000 $ 9,715,000
========== =========
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.
E. 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 as of January 31, 1994:
Current Portion Long-Term Portion
Deferred Income Taxes Deferred Income Taxes
--------------------- ---------------------
Deferred Tax Liability $25,008,000 $43,666,000
Deferred Tax Asset 13,361,000 20,062,000
---------- ----------
Net Deferred Tax Liability $11,647,000 $23,604,000
========== ==========
F. 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:
A suit initiated by Peter Halmos, related entities, and Myron Cherry (a
former lawyer for the Company) in Cook County Circuit Court in Illinois
against the Company and one of its directors, purporting to state claims
aggregating in excess of $100 million, principally relating to alleged
rights to "incentive compensation," stock options or their equivalent,
indemnification, wrongful termination, libel and the CreditLine
Agreement pursuant to which the Company markets CreditLine. The Company
and the director moved to dismiss this lawsuit. In November 1993, the
court granted the motions to dismiss all parts of the complaint, but
gave the plaintiffs leave to replead, which they did. The Company and
the director have sought dismissal of the amended complaint.
A suit by Peter Halmos, purportedly in the name of the Halmos
Partnership, 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 Ft. Lauderdale lease. The Company has vacated
the building, ceased making payments related to the Ft. Lauderdale Lease
and has filed counterclaims. The court has denied motions to dismiss
filed by both Peter Halmos and the Company. Discovery is proceeding.
No trial date has yet been set.
A suit filed by the Company in Laramie County Circuit Court in Wyoming
against Peter Halmos and related entities alleging that Peter Halmos
dominated and controlled the Company, breached his fiduciary duties to
the Company, and misappropriated material non-public information to make
$48 million in profits on sales of Company stock. This suit was filed
after similar litigation brought by the Company in Federal Court for the
District of Wyoming was dismissed on federal venue grounds. Peter
Halmos secured an injunction from the Cook County Circuit Court in
Illinois barring the Company from pursuing these claims in the Wyoming
state court until further order of the Cook County Circuit Court. The
Company appealed the issuance of the injunction and sought a stay of the
injunction pending appeal. On September 10, 1993, a three-judge panel
of the Appellate Court, State of Illinois, First District, granted the
Company's emergency motion to stay the injunction. The Wyoming court
has denied the Halmos parties' motion to dismiss and has set the case
for trial on September 12, 1994. Discovery is proceeding.
The Company believes that it has proper and meritorious claims and
defenses in these lawsuits which it intends to vigorously pursue.
In March 1994, the Company settled litigation with a prior vendor to the
Company, which will result in a pre-tax gain in the second quarter of 1994 of
approximately $3.5 million.
The Company is involved in certain other claims and litigation, which
are not currently considered material.
<PAGE>
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 January 31, 1994 and the
related consolidated statements of earnings and cash flows for the three
month periods ended January 31, 1994 and 1993 appearing in the Company's Form
10-Q for the quarter ended January 31, 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
February 25, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1. RESULTS OF OPERATIONS
SUBSCRIPTION REVENUE, NET
Quarter Ended January 31, 1994 1993
$41,391,000 $37,570,000
Certain changes have been made in the presentation of first
quarter 1993 financial information to conform with the 1994 presentation.
References herein to the first quarters 1994 and 1993 refer to the
Company's first fiscal quarters ended January 31st.
The Company's subscription revenue is derived from payments by
subscribers for its service programs and is reported net of an allowance for
cancellations. Billings for subscriptions, as well as expenditures for
subscriber acquisition costs and commissions, are deferred and amortized to
revenue or expense, as applicable. Billings and commissions are amortized
over the related subscription periods while subscriber acquisition costs are
amortized over 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 those accounting policies.
Subscription revenue increased 10% (to reach a record
$41.4 million) in the first quarter of 1994, compared to the same period in
1993, 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 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 in the first quarter of 1994 as compared to the first
quarter of 1993 from the elimination of the wholesale program was
approximately $.6 million; while management anticipates the decrease for the
year to be approximately $1.6 million. While the Company does have the right
to do new marketing to the same group of cardholders on a retail -- i.e. with
the Company receiving revenues and incurring commissions and marketing costs
- -- basis, management cannot predict the extent of offset, if any.
Renewal rates of subscribers are affected by a variety of factors
including the mix of subscribers renewing, economic factors, changes in the
credit card industry and certain other factors, which may be beyond the
Company's control. To date, the Company's renewal rates remain stable 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 four new services with various credit card issuer clients. Results to
date are too preliminary and the scope of the tests have been too limited to
determine the viability of these services. New products and services which
are test marketed are usually not successful. In the first quarter of 1994
the Company began expanding and strengthening its management team in this and
other areas in order to accelerate future growth. While the Company believes
that modest growth in Hot-Line through domestic credit card issuers may be
achievable in the future, the Company believes that the successful
development of new products and services, new channels of distribution and
the development of new areas of businesses will become increasingly important
to the future revenue and earnings growth of the Company.
In June 1993, the Company was notified by CreditLine
Corporation, a company owned by Peter Halmos and Steven J. Halmos, the
Company's co-founders, and their families, that the license agreement under
which the Company markets certain credit information products and services
known as CreditLine would not be renewed effective November 1, 1993.
Notwithstanding its termination, the CreditLine Agreement gives the Company
certain continuing marketing rights. 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 has a CreditLine
marketing agreement on November 1, 1993 or enters into such an agreement
within the following three years. In the first quarter of 1994, CreditLine
and certain services marketed in conjunction with CreditLine accounted for
approximately $2.2 million, or 5.3% of the Company's subscription revenues
and approximately $.7 million, or 4.4% of the Company's 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 F of
Notes to Consolidated Financial Statements.
SUBSCRIBER ACQUISITION COSTS
Quarter Ended January 31, 1994 1993
$25,437,000 $22,161,000
As a percentage of subscription
revenue, net 61% 59%
The cost of subscriber acquisition, which represents
the amortization of deferred subscriber acquisition costs and commissions,
increased $3.3 million or 14.8%, over the comparable period in the prior
year. Subscriber acquisition costs, as a percentage of subscription revenue,
increased by approximately 2% over the first quarter of 1993. 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 and renewal rates. These
factors are effected by economic conditions, interest rates, other factors
effecting the number of credit cards in use, demographic trends, consumers'
propensity to buy, the degree of market penetration and the effectiveness of
subscriber acquisition concepts, copy and marketing strategies, and other
factors. In addition, certain cardholder files respond more favorably than
others to similar promotions. In 1993, the Company noted a decline in
certain net response rates, primarily in telemarketing 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 first quarter 1994, as compared to the first quarter 1993, as a result of
the change, was approximately $200,000; 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 an impact on the Company.
GENERAL, ADMINISTRATIVE AND SERVICE COSTS
Quarter Ended January 31, 1994 1993
$9,105,000 $6,329,000
As a percentage of
subscription revenue 22% 17%
General, administrative and services costs increased by
approximately $2.8 million or 44% when compared to the first quarter of 1993.
The increase was primarily due to an increase in legal and related fees,
which were approximately $2.6 million and $.4 million in the first quarter of
1994 and 1993, respectively, as well as increases in payroll and related
expenses.
Legal fees in the first quarter of 1994 relate primarily to the
Company's litigation with Peter Halmos. See Note F of Notes to the
Consolidated Financial Statements and "Pending Litigation". The Company is
seeking to reduce legal fees relating to this matter, but there can be no
assurance that such efforts will be successful.
Payroll and certain other expenses relating to the hiring of a new
Chief Executive Officer and certain other employees resulted in an increase
general and administrative expense in the first quarter of 1994 of
approximately one million dollars. The higher salaries and related costs
resulted from recent hirings which have been made to strengthen the SafeCard
management team in order to accelerate the Company's future growth. These
investments in resources, which may continue in the future, are aimed at
expansion of the existing business, the development of new business and
improved customer service. These investments in the future will most likely
result in higher levels of expense in 1994.
INTEREST AND OTHER INCOME
Quarter Ended January 31, 1994 1993
$2,304,000 $2,789,000
Interest and other income is predominantly composed of interest
income. Cash and investment balances totaled $182 million at January 31,
1994 compared to $194 million at January 31, 1993. Interest and other income
in the first quarter of 1994 decreased over the first quarter of 1993
primarily due to a decrease in interest rates as well as lower cash and
investment balances as a result of the Company's repurchase of its common
stock. See "Financial Condition - Liquidity and Capital Resources". Since
interest rates have declined in recent periods, as the Company's investments
mature, or are sold, these funds have been, and may continue to be,
reinvested at lower interest rates than were previously available.
INCOME TAXES
Quarter Ended January 31, 1994 1993
$2,709,000 $2,973,000
As a percentage of earnings
before income taxes 29.6% 25.0%
The effective tax rate in 1994 increased by 4.6% compared to 1993.
The increase was primarily caused by 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 E of Notes to
Consolidated Financial Statements.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
See Note E 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 F of Notes
to Consolidated Financial Statements. The Company believes that it has
proper and meritorious claims and defenses in these lawsuits which it intends
vigorously to pursue. Peter Halmos is also a plaintiff in two other
lawsuits, one against an officer and one against a director of the Company,
in which the Company is not named as a defendant.
As a result of the Peter Halmos-related litigation, the Company
has incurred substantial legal fees, to some extent had a diversion of its
executives attention, and the litigation has also had an impact on the
Company's business. Management is seeking to reduce, to the extent it deems
reasonable and feasible, the adverse effects of these lawsuits, but there can
be no assurance that such efforts will be successful. The Company does not
expect the litigation to affect its ability to service its customers.
Resolution of any or all of the Peter Halmos-related litigation
could have a material impact -- either favorable or unfavorable depending
on the outcome -- upon the results of operations and financial condition of
the Company.
2. FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1994, operations provided $14.9
million of cash compared to $9.7 million in the first quarter of 1993. The
increase is primarily a result of an increase in net cash received from
subscribers and a decrease in income tax payments, partially offset by an
increase in operating expenditures.
During 1993, the Board of Directors authorized the Company to
repurchase up to 6 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. During the first quarter of 1994 the Company repurchased
36,700 shares at an aggregate cost of $483,000. The total repurchases under
the plan through January 31, 1994 is 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 security balances (which totaled $182 million,
a portion of which is restricted, as of January 31, 1994) are adequate to
meet the Company's current liquidity needs. In March 1994, the Company
changed its policy on the restriction of advance payments for multi-year
subscriptions. See Note B of Notes to the Consolidated Financial Statements.
The Company has no short or long-term debt.
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 quarter
of 1994 were $14.1 million compared to $16.7 million in the first quarter
of 1993. Total subscriber acquisition campaign volume (mail and telephone
contacts) increased approximately 12% in the first quarter of 1994 compared
to the first quarter of 1993. Contributing to the higher volumes was an
approximate 18% increase in direct mail volume partially offset by an
approximate 36% decrease in telemarketing contacts. The decrease in
telemarketing volume, which is generally more costly than direct mail, is the
primary reason for the decrease in expenditures.
Gross enrollments (new enrollments before cancellations) from new
marketing decreased over the prior year. Contributing to the decrease in new
enrollments was the decrease in telemarketing contacts discussed above as
well as the timing of marketing programs. A substantial portion of new
enrollments essentially replaces existing subscribers who do not renew. This
portion of new enrollments, therefore does not generate an increase in total
subscription revenue. On a net basis (gross enrollments net of attrition),
the Company's membership base increased over the prior year.
The volume and type of subscriber acquisition expenditures, as
well as enrollments, fluctuate periodically; such fluctuations are not
unusual. Due to timing differences between periods, there may not always be
a direct correlation between subscriber acquisition expenditures and new
enrollments in a particular period. In addition, historical response rates
may not be an indication of future response rates.
Commissions paid to credit card issuers were $15.9 million in the
first quarter of 1994 compared to $13.7 million in the first quarter of 1993.
The 16.1% increase in commission payments is primarily the result of
increases in billings as well as the credit card issuer composition of
billings.
BILLINGS
Net billings were a record $57.4 million in the first quarter of
1994, compared to $52.0 million in the corresponding period in 1993. This
overall increase of approximately 10% is primarily due to increases in
Hot-Line, Fee Card, CreditLine and related services and Reminder/Reference
billings.
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 F of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
March 7, 1994 for the purpose of electing three members to the Board of
Directors, approving the Company's 1994 Long Term Stock-Based Incentive Plan
and ratifying the appointment of Price Waterhouse as the Company's
independent auditors. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to the Company's solicitations.
The proposal for the election of three directors (Paul
G. Kahn, Marshall L. Burman and William T. Bacon, Jr.) to serve until the
Annual Meeting of Stockholders in 1997 and until their successors are elected
and qualified was approved by the following vote:
Shares
Voted Shares
"For" "Withheld"
------- ----------
Paul G. Kahn 21,242,615 656,860
Marshall L. Burman 21,233,340 666,135
William T. Bacon, Jr. 21,237,973 661,502
The proposal to approve the Company's 1994 Long Term Stock-Based
incentive plan was approved by the following vote:
Shares Shares Shares
Voted Voted Voted
"For" "Against" "Abstaining"
------ --------- ------------
13,874,516 2,953,620 144,024
The proposal to ratify the appointment of Price Waterhouse as
independent public auditors for fiscal year 1994 was approved by the
following vote:
Shares Shares Shares
Voted Voted Voted
"For" "Against" "Abstaining"
------ --------- ------------
21,764,804 74,795 59,876
After giving effect to the above election results, the Company's
Board of Directors is comprised of Mr. Paul G. Kahn, Mr. Robert L.
Dilenschneider, Mr. William T. Bacon, Jr., Mr. Eugene Miller, Mr. WM Stalcup,
Jr. and Mr. Gerald R. Cahill.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
10(a) Employment Agreement effective as of February 1,
1994, between the Company and Francis J. Marino.
(11a) Computation of Primary Earnings Per Share
(11b) Computation of Fully Diluted Earnings Per Share
(15) Letter re Unaudited Interim Financial Information
(b) Reports on Form 8-K
On December 6, 1993 the Company filed a Form 8-K to
announce that Paul G. Kahn, has been named Chairman of the
Board and Chief Executive Officer and a Director.
On January 14, 1994 the Company filed a Form 8-K to state
that Peter Halmos filed a counterclaim in the suit he
initiated in the Circuit Court for the 17th Judicial
Circuit in and for Broward County, Florida.
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: March 17, 1994 PAUL G. KAHN
------------------------
Paul G. Kahn
Chief Executive Officer
Date: March 17, 1994 GERALD R. CAHILL
------------------------
Gerald R. Cahill
Chief Operating Officer
Date: March 17, 1994 LYNN C. TORRENT
------------------------
Lynn C. Torrent
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 10(a)
- -------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, executed on the 30th day of January, 1994
(the "Execution Date"), effective as of February 1, 1994 (the
"Effective Date"), is made by and between SafeCard Services,
Incorporated, a Delaware corporation (the "Company"), and Francis
J. Marino (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 December 31, 1996; provided, however, that
commencing on December 31, 1996 and on each December 31
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 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 law firm of
Mahoney, Adams & Criser as soon as practicable consistent with
his professional responsibilities.
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 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 the
insurance policy 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 headquarters 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 Jacksonville, Florida area and the Company's executive
offices.
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 Jacksonville, Florida 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 the highest amount of incentive 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 Execution 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, or any change to the
Executive's title of Vice Chairman, 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, or
(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), 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
8.01 Executive Covenants.
(a) 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(a); (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.
(b) 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.
(c) 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.
(d) "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.
(e) 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 8.01(c) 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 8.01(c) 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.
(f) Effect of Breach. The Executive further agrees
that any breach of the terms of this Section 8.01 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.
(g) Survival. The provisions of this Section 8.01
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 Section 8.01.
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 280G(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 280G 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 X.
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 E. Pershing Blvd.
Cheyenne, Wyoming 82001
With a copy to: Fried, Frank, Harris, Shriver &
Jacobson
1001 Pennsylvania Avenue
Suite 800
Washington, D.C. 20004-2505
Telecopy: (202) 639-7003
Attn: June M. Gertig
If to the Executive: Francis J. Marino
24945 Marsh Landing Parkway
Ponte Vedra Beach, Florida 32082
Any party may from time to time designate a new address by notice
given in accordance with this Paragraph. 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
----------------------
Paul G. Kahn
Chief Executive Officer
Francis J. Marino
FRANCIS J. MARINO
----------------------
Executive
Exhibit 1
SAFECARD SERVICES, INCORPORATED
VICE CHAIRMAN
-------------
I. Position Summary.
The Vice Chairman, who reports directly to the Chairman of the
Board and Chief Executive Officer of the Company, has
responsibility for overall coordination and direction of corporate
development and governance (including the strategic planning and
legal functions), the allocation and management of corporate
resources (including human resources) and the Company's quality
initiatives in accordance with the objectives and policies
established by the Board.
II. Principal Accountabilities.
A. Corporate Strategy and Development
Ensures that adequate plans for future development and growth
of the business are prepared, and participates in the preparation;
periodically presents such plans for general review and approval by
the Board of Directors.
With the advance knowledge and approval of the Board of
Directors, plans and directs such outside opportunities as joint
ventures, investments, or possible acquisitions for the Company.
Plans and directs the investigation of potential opportunities
in foreign markets and the interpretation of domestic,
international and foreign laws and policies regarding business
development and trade in such markets.
B. Corporate Governance, Law and Public Affairs
1. Corporate Governance.
Ensures that the Company is organized and governed, and
its business conducted, in a responsible manner in accordance with
applicable law.
2. Legal
Ensures the delivery of the type and quality of legal
services that will enable the Company to achieve its business
objectives of profitability and growth of stockholder value.
3. Public Affairs
Ensures that the Board and senior managers are kept
abreast of, and the interests of the Company and its constituents
are adequately represented before federal and state governmental
bodies in connection with pending legislation and regulations.
4. Community and Industry Relations
Ensures that the interests of the Company are adequately
represented in charitable, community and industry organizations.
Ensures that the Board of Directors is advised regarding Company
support for various charitable and civic organizations.
C. Corporate Resources
1. Human Resources
Ensures the development of an innovative work culture,
shaped by shared values, that reflects a commitment to excellence,
profitability, growth and each other.
2. Resource Management
Ensures that the resources of the Company are allocated
and managed consistently with the policies of the Board of
Directors, the needs of the business and the best interests of the
Company and its stockholders.
D. Quality
Ensures the development, implementation and maintenance of
total quality management systems and activities for the Company.
III. Direct Reports.
The following executives and senior managers report directly to the
Vice Chairman:
Executive Vice President-Planning and Development. The Executive
Vice President-Planning and Development is the officer primarily
responsible for directing the long-range corporate planning and
development program to define and meet goals and objectives for
corporate growth and profitability. Responsibilities include
assisting in developing company objective - including rate of
return, rate of increase in sales or market share, and product line
objectives; developing and directing plans to achieve specific
goals; evaluating the capacity of the Company to meet objectives in
terms of finance, manpower, and facilities; reviewing proposals for
major expenditures to ensure their economic feasibility and
compatibility with corporate objectives; seeking out and assessing
such outside opportunities as joint ventures, investments, or
possible acquisitions for the Company; and assessing corporate
performance and progress in meeting established goals.
Investigating potential marketing opportunities in different
foreign markets; interpreting foreign policies regarding market
development in these locations; distributing products
internationally; and maintaining a knowledge of foreign political
activities, trade and tariff policies, and social conditions in
both market and potential market areas.
Executive Vice President-Law. The Vice President-Law is the
principal legal officer of the Company and the Corporate Secretary.
As General Counsel of the Company, responsible for counseling the
Board on the legal implications of matters before it. As principal
legal officer of the Company, responsible for: developing and
implementing legal policies, practices and procedures to guide the
legal staff in rendering advice so as to minimize the Company's
exposure to legal risk and maximize profits in the pursuit of
business objectives and goals; ensuring the development of a high
caliber legal team which will deliver legal services to the Company
in a way which is consistent with the Company's unique
organizational design and values and meets its needs in a
cost-effective manner; and ensuring the effective integration of
outside legal services and representation in order to achieve
specific strategic objectives within cost and time constraints.
Director-Public Affairs. The Director-Public Affairs is the senior
manager responsible for keeping abreast of, and representing the
interests of the Company and its constituents with respect to,
pending legislation and regulations before federal and state
legislative and regulatory bodies.
Director-Community and Industry Relations. The Director-Community
and Industry Relations is the manager responsible for representing
the Company and its interests in community and industry
associations. Providing advice to the Board of Directors regarding
Company support for various charitable and civic organizations.
Vice President-Human Resources. The Vice President-Human Resources
is the executive responsible for developing and administering
employment and personnel policies. Specific functions usually
include setting and managing hiring procedures and compensation
policies; dealing with unions and employee groups in the area of
labor relations; designing and monitoring training and development
programs, career planning services, safety and health regulations,
and employee benefits and services; directing various activities
designed to maintain a high level of employee morale; and keeping
abreast of government laws and regulations such as OSHA, ERISA, and
EEO; as well as formulating policies consistent with these rules.
Vice President-Resource Management. The Vice President-Resource
Management is the officer primarily responsible for planning,
directing and controlling the real estate activities for the
Company, including site location and acquisition by purchase or
lease, and the procurement activities for the Company (jointly with
the Company's senior information systems officer in the case of
information systems); managing the transportation needs of the
Company; and ensuring the security and integrity of the Company's
physical plant and operations in a manner that is consistent with
the Company's culture.
Vice President-Quality. The Vice President-Quality is the
executive responsible for ensuring the development, implementation
and maintenance of total quality management systems and activities
for the Company. Specific functions include undertaking and
monitoring corrective action to assure conformity with quality
specifications and process improvement; assisting with the creation
of breakthrough processes; promoting a progressive environment that
fosters involvement and contribution from all employees regarding
productivity and quality; and cultivating a quality dedication that
consistently strives for better performance in meeting the needs of
all customers and employees.
IV. Co-Direct Report.
The following executive will report to both the vice chairman and
the chairman of the board:
Vice President and Corporate Secretary. As Vice President,
responsible for coordination and direction of projects assigned by
the chairman of the board and the vice chairman. As Secretary of
the Company, responsible for the conduct and scheduling of
presentations to the Board of Directors, the recording of minutes,
and the maintenance of the corporate minutes books and records of
the Company.
Exhibit 2
STOCK OPTION AGREEMENT
FOR FRANCIS J. MARINO
THIS AGREEMENT, made as of the 24th day of January, 1994
(the "Grant Date"), between SafeCard Services, Incorporated, a
Delaware corporation (the "Company"), and Francis J. Marino (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.
1.3 The Option is granted subject to the approval of
the Plan by the shareholders of the Company, which approval shall
be sought at a meeting held within twelve months from the date
hereof. If the Plan is not approved by shareholders within
twelve months from the date hereof, the grant shall be null and
void.
2. Purchase Price.
The price at which the Optionee shall be entitled to
purchase Shares upon the exercise of the Option shall be $18.94
per Share.
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, 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'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. 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
------------------------
Paul G. Kahn
Chief Executive Officer
FRANCIS J. MARINO
-----------------------
Francis J. Marino
Optionee
Exhibit 3
STOCK OPTION AGREEMENT
FOR FRANCIS J. MARINO
THIS AGREEMENT, made as of the 24th day of January, 1994
(the "Grant Date"), between SafeCard Services, Incorporated, a
Delaware corporation (the "Company"), and Francis J. Marino (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.
1.3 The Option is granted subject to the approval of
the Plan by the shareholders of the Company, which approval shall
be sought at a meeting held within twelve months from the date
hereof. If the Plan is not approved by shareholders within
twelve months from the date hereof, the grant shall be null and
void.
2. Purchase Price.
The price at which the Optionee shall be entitled to
purchase Shares upon the exercise of the Option shall be $18.94
per Share.
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 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. 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
------------------------
Paul G. Kahn
Chief Executive Officer
FRANCIS J. MARINO
------------------------
Francis J. Marino
Optionee
Exhibit 4
INDEMNITY AGREEMENT
AGREEMENT, effective February 1, 1994 (the "Agreement"),
between SafeCard Services, Inc., a Delaware corporation (the
"Company"), and Francis J. Marino (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 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 1(a)(i), the Voting Securities acquired directly from the
Company by any Person shall be excluded from the determination of
such Person's Beneficial Ownership of Voting Securities (but such
Voting Securities shall be included in the calculation of the
total number of Voting Securities then outstanding); or
(ii) The individuals who, as of December 7, 1993, are
members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least two-thirds of the Board; provided,
however, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board; or
(iii) Approval by stockholders of the Company of (A) a
merger or consolidation involving the Company if the stockholders
of the Company immediately before such merger or consolidation do
not own, directly or indirectly immediately following such merger
or consolidation, more than seventy-five percent (75%) of the
combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger or consolidation
or (B) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
(iv) Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because twenty-five percent
(25%) or more of the then outstanding Voting Securities is
acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (ii) any corporation that,
immediately prior to such acquisition, is owned directly or
indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company immediately
prior to such acquisition.
(v) Moreover, notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any Person
(the "Subject Person") acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by
the Subject Person, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(b) Claim: any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative or other, including, without
limitation, an action by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise,
whether predicated on foreign, federal, state or local law and
whether formal or informal.
(c) Expenses: include attorneys' fees and all other
costs, charges and expenses paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence
related to the fact that Indemnitee is or was or has agreed to
become a director, officer, employee, agent or fiduciary of the
Company, or is or was serving or has agreed to serve in any
capacity, at the request of the Company, in any other
corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, or by reason of anything done or not
done by Indemnitee in any such capacity.
(e) Potential Change in Control: shall be deemed to
have occurred if (i) the Company enters into an agreement or
arrangement, the consummation of which would result in the
occurrence of a Change in Control; or (ii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(f) Voting Securities: any securities of the Company
that vote generally in the election of directors.
2. Basic Indemnification Arrangement:
(a) In the event Indemnitee was, is or becomes a party
to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Claim by
reason of (or arising in part out of) an Indemnifiable Event, the
Company shall indemnify Indemnitee (without regard to the
negligence or other fault of the Indemnitee) to the fullest
extent permitted by applicable law, as soon as practicable but in
no event later than thirty days after written demand is presented
to the Company, against any and all Expenses, judgments, fines,
penalties, excise taxes and amounts paid or to be paid in
settlement (including all interest, assessments and other charges
paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties, excise taxes or amounts
paid or to be paid in settlement) of such Claim. If Indemnitee
makes a request to be indemnified under this Agreement, the Board
of Directors (acting by a quorum consisting of directors who are
not parties to the Claim with respect to an Indemnifiable Event
or, if such a quorum is not obtainable, acting upon an opinion in
writing of independent legal counsel ("Board Action")) shall, as
soon as practicable but in no event later than thirty days after
such request, authorize such indemnification. Notwithstanding
anything in the Certificate, the By-laws or this Agreement to the
contrary, following a Change in Control, Indemnitee shall be
entitled to indemnification pursuant to this Agreement in
connection with any Claim initiated by Indemnitee.
(b) Notwithstanding anything in the Certificate, the
By-laws or this Agreement to the contrary, if so requested by
Indemnitee, the Company shall advance (within two business days
of such request) any and all Expenses relating to a Claim to
Indemnitee (an "Expense Advance"), upon the receipt of a written
undertaking by or on behalf of Indemnitee to repay such Expense
Advance if a judgment or other final adjudication or
determination adverse to Indemnitee establishes that Indemnitee,
with respect to such Claim, is not eligible for indemnification.
(c) If there has been no Board Action or Arbitration
(as defined in Section 3), or if Board Action determines that
Indemnitee would not be permitted to be indemnified, in any
respect, in whole or in part, in accordance with Section 2(a) of
this Agreement, Indemnitee shall have the right to commence
litigation in the court that is hearing the action or proceeding
relating to the Claim for which indemnification is sought or in
any court in the States of Delaware or Florida having subject
matter jurisdiction thereof and in which venue is proper seeking
an initial determination by the court or challenging any Board
Action or any aspect thereof, and the Company hereby consents to
service of process and to appear in any such proceeding.
Notwithstanding anything in the Certificate, the By-laws or this
Agreement to the contrary, if Indemnitee has commenced legal
proceedings in a court of competent jurisdiction or Arbitration
to secure a determination that Indemnitee should be indemnified
under this Agreement, the By-laws of the Company or applicable
law, any Board Action that Indemnitee would not be permitted to
be indemnified in accordance with Section 2(a) of this Agreement
shall not be binding. Any Board Action not followed by such
litigation or Arbitration shall be conclusive and binding on the
Company and Indemnitee.
3. Change in Control. The Company agrees that if there is
a Change in Control, Indemnitee, by giving written notice to the
Company and the American Arbitration Association (the "Notice"),
may require that any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be
settled by arbitration (the "Arbitration") in Fort Lauderdale,
Florida in accordance with the Rules of the American Arbitration
Association (the "Rules"). The Arbitration shall be conducted by
a panel of three arbitrators selected in accordance with the
Rules within thirty days of delivery of the Notice. The decision
of the panel shall be made as soon as practicable after the panel
has been selected, and the parties agree to use their reasonable
efforts to cause the panel to deliver its decision within ninety
days of its selection. The Company shall pay all fees and
expenses of the Arbitration. The Arbitration shall be conclusive
and binding on the Company and Indemnitee and the Company or
Indemnitee may cause judgment upon the award rendered by the
arbitrators to be entered in any court having jurisdiction
thereof.
4. Establishment of Trust. In the event of a Potential
Change in Control or a Change in Control, the Company shall,
promptly upon written request by Indemnitee, create a Trust for
the benefit of Indemnitee and from time to time, upon written
request of Indemnitee to the Company, shall fund such Trust in an
amount, as set forth in such request, sufficient to satisfy any
and all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with investigating,
preparing for and defending any Claim relating to an
Indemnifiable Event, and any and all judgments, fines, penalties
and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed,
reasonably anticipated or proposed to be paid. The terms of the
Trust shall provide that upon a Change in Control (i) the Trust
shall not be revoked or the principal thereof invaded, without
the written consent of Indemnitee; (ii) the Trustee shall
advance, within two business days of a request by Indemnitee, any
and all Expenses to Indemnitee, not advanced directly by the
Company to Indemnitee (and Indemnitee hereby agrees to reimburse
the Trust under the circumstances under which Indemnitee would be
required to reimburse the Company under Section 2(b) of this
Agreement); (iii) the Trust shall continue to be funded by the
Company in accordance with the funding obligation set forth
above; (iv) the Trustee shall promptly pay to Indemnitee all
amounts for which Indemnitee shall be entitled to indemnification
pursuant to this Agreement or otherwise; and (v) all unexpended
funds in such Trust shall revert to the Company upon a final
determination by Board Action or Arbitration or a court of
competent jurisdiction, as the case may be, that Indemnitee has
been fully indemnified under the terms of this Agreement. The
Trustee shall be chosen by Indemnitee. Nothing in this Section 4
shall relieve the Company of any of its obligations under this
Agreement.
5. Indemnification for Additional Expenses. The Company
shall indemnify Indemnitee against any and all expenses
(including attorneys' fees) and, if requested by Indemnitee,
shall (within two business days of such request) advance such
expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted by or action brought by
Indemnitee for (i) indemnification or advance payment of Expenses
by the Company under law, this Agreement, or any other agreement
or By-law of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance policies maintained
by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance
expense payment or insurance recovery, as the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled
under any provision of this Agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, fines,
penalties, excise taxes and amounts paid or to be paid in
settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is
entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on
the merits or otherwise in defense of any or all Claims relating
in whole or in part to an Indemnifiable Event or in defense of
any issue or matter therein, including, without limitation,
dismissal without prejudice, Indemnitee shall be indemnified
against any and all Expenses, judgments, fines, penalties, excise
taxes and amounts paid or to be paid in settlement of such Claim.
In connection with any determination by Board Action, Arbitration
or a court of competent jurisdiction that Indemnitee is not
entitled to be indemnified hereunder, the burden of proof shall
be on the Company to establish that Indemnitee is not so
entitled.
7. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any
particular belief or that a court has determined that
indemnification is not permitted by applicable law or this
Agreement.
8. Contribution. In the event that the indemnification
provided for in this Agreement is unavailable to Indemnitee for
any reason whatsoever, the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise
taxes, amounts paid or to be paid in settlement and/or for
Expenses, in connection with any Claim relating to an
Indemnifiable Event, in such proportion as is deemed fair and
reasonable in light of all of the circumstances of such action by
Board Action or Arbitration or by the court before which such
action was brought in order to reflect (i) the relative benefits
received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such action;
and/or (ii) the relative fault of the Company (and its other
directors, officers, employees and agents) and Indemnitee in
connection with such event(s) and/or transaction(s).
Indemnitee's right to contribution under this Paragraph 8 shall
be determined in accordance with, pursuant to and in the same
manner as, the provisions in Paragraphs 2 and 3 hereof relating
to Indemnitee's right to indemnification under this Agreement.
9. Notice to the Company by Indemnitee. Indemnitee agrees
to notify the Company promptly in writing upon being served with
or having actual knowledge of any citation, summons, compliant,
indictment or any other similar document relating to any action
which may result in a claim of indemnification or contribution
hereunder.
10. Non-exclusivity, Etc. The rights of the Indemnitee
hereunder shall be in addition to any other rights Indemnitee may
have under the Company's Certificate or By-laws or the Delaware
General Corporation Law or otherwise, and nothing herein shall be
deemed to diminish or otherwise restrict Indemnitee's right to
indemnification under any such other provision. To the extent
applicable law or the Certificate of Incorporation or the By-laws
of Company, as in effect on the date hereof or at any time in the
future, permit greater indemnification than as provided for in
this Agreement, the parties hereto agree that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such
law or provision of the Certificate of Incorporation or By-laws
and this Agreement shall be deemed amended without any further
action by the Company or Indemnitee to grant such greater
benefits. Indemnitee may elect to have Indemnitee's rights
hereunder interpreted on the basis of applicable law in affect at
the time of execution of this Agreement, at the time of the
occurrence of the Indemnifiable Event giving rise to a Claim or
at the time indemnification is sought.
11. Liability Insurance.
(a) To the extent the Company maintains at any time an
insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy
or policies, in accordance with its or their terms, to the
maximum extent of the coverage available for any other Company
director or officer under such insurance policy. The purchase
and maintenance of such insurance shall not in any way limit or
affect the rights and obligations of the parties hereto, and the
execution and delivery of this Agreement shall not in any way be
construed to limit or affect the rights and obligations of the
Company and/or of the other parties under any such insurance
policy.
(b) For seven years after the Indemnitee no longer
serves as a director or officer of the Company, the Company shall
continue to provide directors' and officers' liability coverage
for liabilities of the Indemnitee occurring during his service
with the Company on terms no less favorable in terms of coverage
and amount than such insurance maintained by the Company at the
date of the Indemnitee's separation from the Company. In the
event such coverage is not available, the maximum available
coverage shall be maintained pursuant to this covenant.
12. Period of Limitations. No legal action shall be
brought and no cause of action shall be asserted by or on behalf
of the Company or any affiliate of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause
of action of the Company or its affiliate shall be extinguished
and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however, that
if any shorter period of limitations is otherwise applicable to
any such cause of action such shorter period shall govern.
13. Amendments, Etc. No supplement, modification or
amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provisions hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
14. Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery with respect to such
payment of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
15. No-Duplication of Payments. The Company shall not be
liable under this Agreement to make any payment in connection
with any claim made against Indemnitee to the extent Indemnitee
has otherwise actually received payment (under any insurance
policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
16. Binding Effect, Etc. This Agreement shall be binding
upon and inure to the benefit of and be enforceable against and
by the parties hereto and their respective successors, assigns
(including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require
and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all, or
a substantial part, of the business and/or assets of the Company,
by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director and/or
officer of the Company or of any other enterprise at the
Company's request.
17. Severability. The provisions of this Agreement shall
be severable in the event that any of the provisions thereof
(including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent
permitted by law.
18. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered by hand or when mailed by certified registered mail,
return receipt requested, with postage prepaid:
A. If to Indemnitee, to:
24945 Marsh Landing Parkway
Ponte Vedra Beach, Florida 32082
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: 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 1st day of February, 1994.
SAFECARD SERVICES, INC.
By: PAUL G. KAHN
-----------------------
Name: Paul G. Kahn
Title: Chief Executive Officer
INDEMNITEE
FRANCIS J. MARINO
----------------------
Francis J. Marino
Exhibit 11(a) - Computation of Primary Earnings Per Share
First Quarter Ended
January 31,
-------------------
1994 1993
---- ----
(Unaudited)
Net earnings $8,444,000 $8,896,000
Adjustment (1) -- --
Adjusted net earnings $8,444,000 $8,896,000
========= =========
Average common shares
outstanding 24,130,000 26,646,000
Assumed equivalent shares from
stock options converted to
common shares (1) 3,478,000 2,666,000
Total weighted average number of
common and common equivalent
shares 27,608,000 29,312,000
========== ==========
Earnings per share
Earnings before cumulative
effect of accounting change $.24 $.30
Cumulative effect of accounting change .07
--- ---
Net Earnings $.31 $.30
== ==
(1) Earnings per share are computed using the weighted average
number of shares of common stock and common stock equivalents
(common stock issuable upon exercise of stock options) outstanding.
In computing earnings per share, the Company utilizes the treasury
stock method. This method assumes that stock options, under
certain conditions, are exercised and treasury shares are assumed
to be purchased (not to exceed 20% of the common stock outstanding)
from the proceeds using the average market price of the Company's
common stock for the period. Any excess proceeds not utilized for
the purchase of treasury shares are assumed first to reduce any
outstanding debt obligation, if any, and any remainder invested in
interest-bearing securities with net earnings increased for the
hypothetical interest savings or interest income. Due to the
hypothetical interest savings or interest income, net earnings
divided by the weighted average number of common and common
equivalent shares will not always equal earnings per share.
Exhibit 11(b) - Computation of Fully Diluted Earnings Per Share
First Quarter Ended
January 31,
-------------------
1994 1993
---- ----
(Unaudited)
Net earnings $8,444,000 $8,896,000
Adjustment (1) -- --
--------- ---------
Adjusted net earnings $8,444,000 $8,896,000
========= =========
Average common shares
outstanding 24,130,000 26,646,000
Assumed equivalent shares from
stock options converted to
common shares (1) 3,913,000 3,076,000
Total weighted average number of
common and common equivalent
shares 28,043,000 29,722,000
========== ==========
Earnings per share (2) $.30 $.30
== ==
(1) Earnings per share are computed consistent with (1) Exhibit
11(a) - Computation of Primary Earnings Per Share except in
computing fully diluted earnings per share, the treasury stock
method uses the market price of the Company's common stock at the
close of the period rather than the average market price during the
period.
(2) This calculation is submitted in accordance with Regulation
S-K item 601(b)(11) although not required by Footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution
of less than 3% before rounding.
Exhibit 15
February 25, 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 February 25, 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
