SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission File No. 1-11465
-------
IDEON GROUP, INC.
-----------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 59-3293212
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
7596 Centurion Parkway, Jacksonville, Florida 32256
- --------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (904) 218-1800
--------------
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common Stock, $.01 Par Value
- ----------------------------
Outstanding at August 11, 1995 28,496,132 Shares
Total Number of Pages 110
1
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IDEON GROUP, INC.
Index to Form 10-Q
For the Quarterly Period Ended June 30, 1995
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1995 and
October 31, 1994 3
Consolidated Statement of Operations for the Three and Six
Months Ended June 30, 1995 and April 30, 1994 4
Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1995 and April 30, 1994 5
Notes to Consolidated Financial Statements 6-16
Report of Independent Accountants 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders 34-36
Item 5. None
Item 6. Exhibits and Reports on Form 8-K 37-38
SIGNATURES 39
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
(in thousands, except share data)
June 30, October 31,
1995 1994
-------- -----------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 29,191 $ 17,921
Securities available for sale maturing within one year 47,370 39,249
Receivables, net 53,903 42,449
Income taxes receivable 621 2,114
Deferred subscriber acquisition costs and
related commissions amortizing within one year 104,493 83,449
Deferred income tax asset 36,526 8,540
Other current assets 2,852 799
-------------- --------------
Total current assets 274,956 194,521
Securities available for sale maturing after one year 21,331 127,363
Deferred subscriber acquisition costs and
related commissions amortizing after one year 25,180 111,948
Property and equipment, net 35,038 16,410
Excess of cost over fair value of net assets acquired 45,566 28,739
Other assets 1,955 1,392
-------------- --------------
Total assets $ 404,026 $ 480,373
============== ==============
Liabilities
Current liabilities:
Notes payable to bank $ 16,947 $ 11,793
Accounts payable 32,072 30,833
Accrued expenses 41,539 24,654
Product abandonment and related liabilities 25,587
Subscribers' advance payments amortizing
within one year 116,451 106,563
Allowance for cancellations 6,076 7,656
-------------- --------------
Total current liabilities 238,672 181,499
Subscriber advance payments amortizing after one year 46,539 51,991
Deferred income tax liability 5,119 29,291
-------------- --------------
Total liabilities 290,330 262,781
-------------- --------------
Stockholders' Equity
Preferred stock--authorized 10,000,000 shares ($.01 par
value); no shares issued or outstanding
Common stock--authorized 90,000,000 shares ($.01 par value);
34,946,000 shares issued (34,946,000 at October 31, 1994);
28,496,132 shares outstanding (28,933,599 at
October 31, 1994) 349 349
Additional paid-in capital 41,088 41,058
Retained earnings 124,802 225,459
Unrealized gain (loss) on securities available for sale 450 (607)
-------------- --------------
166,689 266,259
Less cost of 6,449,868 common shares in treasury
(6,012,401 shares at October 31, 1994) (52,993) (48,667)
-------------- --------------
Total stockholders' equity 113,696 217,592
-------------- --------------
Total liabilities and stockholders' equity $ 404,026 $ 480,373
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
Consolidated Statement of Operations
(in thousands, except share data)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, April 30, June 30, April 30,
1995 1994 1995 1994
-------- --------- -------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Membership and subscription revenue, net $ 44,106 $ 39,791 $ 87,703 $ 78,619
Card acquisition and services revenue 5,791 10,701
Consumer marketing revenue 6,049 2,764 14,222 5,327
Gain from litigation settlements 4,257 4,257
Interest income 1,703 2,051 3,588 4,052
Other income 83 449 1,246 752
------------- ---------- ------------ --------
57,732 49,312 117,460 93,007
------------- ---------- ------------ --------
Costs and expenses
Subscriber acquisition costs and
related commissions 27,601 24,030 54,527 47,583
Other costs of revenue 5,416 1,955 11,433 3,840
Research and product development costs 3,088 5,104
Service costs and other operating expenses 9,434 5,669 17,843 10,382
General and administrative expenses 11,983 4,498 19,853 8,889
Costs related to products abandoned
and restructuring 73,091 7,900 81,152 7,900
------------- ---------- ------------ --------
130,613 44,052 189,912 78,594
------------- ---------- ------------ --------
Income (loss) before provision for income taxes (72,881) 5,260 (72,452) 14,413
Provision for (benefit from) income taxes (26,211) 1,456 (26,083) 4,165
------------- ---------- ------------ --------
Income (loss) before cumulative effect of change
in accounting for income taxes (46,670) 3,804 (46,369) 10,248
Cumulative effect of change in accounting
for income taxes 2,000
------------- ---------- ------------ --------
Net income (loss) $ (46,670) $ 3,804 $ (46,369) $ 12,248
============= ========== ============ ========
Earnings per share:
Income (loss) before cumulative effect of
accounting change $ (1.62) $ .14 $ (1.60) $ .38
Cumulative effect of accounting change .07
------------- ---------- ------------ --------
Net income (loss) per common share $ (1.62) $ .14 $ (1.60) $ .45
============= ========== ============ ========
Weighted average common and
common equivalent shares 28,860 27,761 28,900 27,472
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(in thousands)
Six Months Ended
----------------
June 30, April 30,
1995 1994
-------- ---------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Cash received from subscribers/customers $ 112,461 $ 95,654
Cash paid to suppliers and employees (157,891) (81,199)
Gain from litigation settlements 4,257
Interest received 4,075 7,021
Income tax refunds (payments), net 1,500 (1,692)
--------------- -------------
Net cash (used in) provided by operating activities (39,855) 24,041
--------------- -------------
Cash Flows From Investing Activities
Purchases of investments (31,943) (57,979)
Proceeds from sales of investments 113,832 45,413
Proceeds from maturing investments 9,591 5,370
Cost of acquisitions, net of cash acquired (12,977)
Acquisitions of property and equipment, net (16,445) (1,259)
--------------- -------------
Net cash provided by (used in) investing activities 62,058 (8,455)
--------------- -------------
Cash Flows From Financing Activities
Net borrowings on notes payable to bank 4,864
Proceeds from exercise of stock options 280 3,908
Dividends paid (2,895) (2,426)
Payments for purchase of treasury shares (4,576) (483)
--------------- -------------
Net cash (used in) provided by financing activities (2,327) 999
--------------- -------------
Net increase in cash and cash equivalents 19,876 16,585
Cash and cash equivalents at beginning of period 9,315 3,335
--------------- -------------
Cash and cash equivalents at end of period $ 29,191 $ 19,920
=============== =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
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Notes To Consolidated Financial Statements
(Unaudited)
1. Reorganization
On April 27, 1995, the stockholders of SafeCard Services, Incorporated
("SafeCard") approved a plan of reorganization whereby SafeCard became a
wholly-owned subsidiary of Ideon Group, Inc. ("Ideon" or the "Company"), a
newly formed Delaware corporation. All shares of SafeCard common stock were
converted into shares of Ideon common stock. Ideon is a holding company
with current business units as follows: SafeCard Services, Incorporated,
Wright Express Corporation, National Leisure Group, Inc. and Ideon
Marketing and Services Company. The operations of an additional business
unit, Family Protection Network, Inc., have been discontinued as described
below.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six month periods ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995. For further information, refer to the consolidated financial
statements and footnotes thereto included in SafeCard's Annual Report on
Form 10-K for the year ended October 31, 1994.
On February 14, 1995, SafeCard filed a Transition Period Form 10-Q for
the two months ended December 31, 1994 in order to effect a change in its
year end from October 31 to December 31. Financial statements for the three
and six months ended April 30, 1994 (the end of the second quarter under
the prior October 31 fiscal year) are presented for comparative purposes.
Management does not believe that preparation of financial statements for
the three and six months ended June 30, 1994 would result in any more
comparable information and, therefore, the additional costs which would
have been incurred to prepare such financial statements would not be
justified. The previously reported interim period ended April 30, 1994 is
comparable to the present interim period as there are no significant
seasonal differences among the periods presented which would materially
affect comparability. As discussed in Note 6, the Company changed the
amortization periods of deferred subscriber acquisition costs on December
31, 1994.
Prior period financial statements have been reclassified to conform
to current presentations.
6
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Price Waterhouse LLP has performed a review, and not an audit, of the
unaudited consolidated financial information of the Company for the three
and six month periods ended June 30, 1995 (based on procedures adopted by
the American Institute of Certified Public Accountants) as set forth in
their separate report dated July 31, 1995, 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.
3. Product Abandonment and Related Liabilities
Included in costs related to products abandoned and restructuring in
the Statement of Operations for the three and six-months ended June 30,
1995 is a special charge of $34,156,000 related to the abandonment of
certain new product developmental efforts and the related impairment of
certain assets as discussed below. The charge represents accrued
liabilities of $25,587,000 and asset impairments of $8,569,000.
At June 30, 1995, product abandonment and related liabilities included
the following components:
Severance and other employee costs $ 6,455,000
Costs to terminate equipment and facilities leases 8,737,000
Liability for contract impairments 8,400,000
Other costs 1,995,000
----------------
$ 25,587,000
================
PGA TOUR Partners
In late March and early April 1995, the Company launched an expanded
PGA TOUR Partners program through its Ideon Marketing and Services
subsidiary. The program provides various benefits to members including
access to PGA TOUR events and a co-branded credit card. Consumer response
rates since the launch have been significantly less than management's
expectations and it was determined that the product as currently configured
was not economically viable. The Company has discontinued marketing this
product as configured and is returning to a developmental mode to research
and test alternative product offerings.
In connection with this decision, the Company has recorded a special
charge of $17,991,000 for costs associated with the abandonment of the
product including employee severance payments ( approximately 130
employees), costs to terminate equipment and facilities leases, costs for
contract impairments and write-downs taken for asset impairments.
Family Protection Network
In April 1995, Family Protection Network, Inc. launched a nationwide
child registration and missing child search program. Consumer response
rates from the initial product launch lower than anticipated and the
Company has discontinued the
7
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operation. As a result, the Company recorded an $8,989,000 charge to cover
severance payments (approximately 100 employees), costs to terminate
equipment and facilities leases and write-downs taken for asset
impairments.
Corporate Restructuring
As a result of the discontinuance of these products, the Company is
undertaking an overall restructuring of its operations, including a
significant reduction of its workforce at its corporate headquarters and at
SafeCard. The Company expects to record an additional charge of up to
$5,000,000 in the third quarter of 1995 in connection with the
restructuring. The decision to abandon these products and restructure the
Company resulted in the recording of a charge of $7,176,000 in the second
quarter of 1995 to cover costs to terminate certain operating leases and
write-down certain assets to their estimated net realizable value.
Management believes that the accruals described above are sufficient to
cover the estimated costs associated with the product abandonments. The
Company anticipates completion of the product abandonments and
restructuring by the end of 1995.
4. Acquisition
On February 10, 1995, the Company completed its acquisition of
substantially all of the assets and liabilities of National Leisure Group,
Inc., a provider of vacation travel packages to credit card companies,
retailers and wholesale clubs in the United States. The Company paid cash
of $15,048,000 and guaranteed the issuance of $1,400,000 of common stock on
the third anniversary of the acquisition. Also, up to $2,800,000 of
additional common stock is issuable based on the attainment of certain
earnings hurdles. The acquisition was effective as of January 1, 1995 and
was accounted for under the purchase method. Accordingly, the consolidated
results of operations of the Company include the results of operations of
National Leisure Group for the three and six month periods ended June 30,
1995.
As part of the transaction, the Company acquired $5,944,000 of assets,
which included $2,395,000 of cash, and assumed liabilities of $7,093,000.
The Company recorded $17,954,000 of excess of cost over fair value of net
assets acquired. This excess is being amortized on a straight-line
basis over 25 years. Amortization expense through June 30, 1995 related to
this acquisition was approximately $360,000.
Revenue from the sale of vacation packages, which is included in the
"Consumer marketing revenue" caption in the consolidated statement of
income, is recognized at the date when substantially all obligations to the
customer have been performed and at least 90 percent of the total booking
price has been received.
8
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5. Investments
On October 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS 115"), "Accounting for Investments in
Certain Debt and Equity Securities." Upon adoption of FAS 115, the Company
classified its securities portfolio, consisting of municipal bonds, as
available for sale and disclosed an unrealized loss as a separate component
of stockholders' equity. During the two months ended December 31, 1994, the
Company experienced further market value declines in its investment
portfolio as a result of the increasing interest rate environment. Given
the Company's strategy to redeploy its investment resources into operating
assets and in view of the interest rate environment, management elected to
shorten the overall maturity of the portfolio. In connection with this
decision, the Company determined that the investment portfolio had suffered
an other than temporary market value impairment and the net unrealized
losses, previously recognized as an offset to stockholders' equity, were
charged against earnings for the two months ended December 31, 1994.
During the first quarter of 1995, the Company effected the
repositioning of the investment portfolio. Municipal bond securities with
maturities later than 1996 were sold and the proceeds were reinvested in
short term United States Treasury securities or used to fund the launch of
new businesses and the acquisition of National Leisure Group. This
repositioning will allow the Company to take advantage of its current tax
net operating loss position and provides for greater liquidity. The Company
continues to classify the securities portfolio as available for sale.
6. Subscriber Acquisition Costs
Subscriber acquisition expenditures directly relate to the acquisition
of new subscribers through "direct-response" type marketing campaigns and
primarily include payments for telemarketing, printing, postage, mailing
services, certain direct salaries and other direct costs incurred to
acquire new subscribers. These expenditures have historically been deferred
and amortized to expense in proportion to expected revenues over the
expected subscription periods, including renewal periods (life of
subscriber).
After a general review of the Company's business plans and related
accounting practices, the Company's board of directors approved a change in
the amortization periods for deferred subscriber acquisition costs. The
change was made in response to the Company's plans to incur additional
marketing expenditures to enhance renewal rates. Under generally accepted
accounting principles, if additional expenditures are incurred to maintain
or enhance the renewal stream, the Company would not be allowed to amortize
such subscriber acquisition costs over periods greater than the initial
subscription period. Accordingly, based on efforts to enhance renewal
rates, the Company changed its amortization periods. Prior to December 31,
1994, subscriber acquisition costs were generally amortized up to ten years
for single year subscriptions and up to twelve years for multi-year
subscriptions. These amortization periods represented the estimated life of
the subscriber. During the Transition Period ended December 31, 1994, the
amortization periods were shortened to one year and three years for single
year and multi-
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year subscriptions, respectively (initial subscription period without
regard for anticipated renewals). The effect of reducing the amortization
periods resulted in a one-time, non-cash, pre-tax charge to earnings
during the two months ended December 31, 1994 as reported in the Company's
Transition Period report on Form 10-Q.
The change in the amortization periods for deferred subscriber
acquisition costs does not affect the amortization of commissions which
continue to be amortized over the one to three year subscription period, as
appropriate.
<TABLE>
<CAPTION>
Deferred subscriber acquisition costs and related commissions were as
follows:
June 30, October 31,
1995 1994
-------- -----------
<S> <C> <C>
Hot-Line $ 61,986,000 $ 123,775,000
Fee Card 8,061,000 9,185,000
Other services 15,798,000 18,796,000
----------------- -----------------
Total deferred subscriber acquisition costs 85,845,000 151,756,000
Commissions 43,828,000 43,641,000
----------------- -----------------
Total deferred subscriber acquisition
costs and commissions $ 129,673,000 $ 195,397,000
================= =================
</TABLE>
7. Income Taxes
The Company's effective income tax rate for the three and six months
ended June 30, 1995 and April 30, 1994 differs from the applicable
statutory rate due to tax-exempt interest received on investments in
municipal debt securities and the federal tax benefit of state income
taxes. The effective income tax rate for the three and six months ended
June 30, 1995 was based on the estimated effective income tax rate for the
tax year ending October 31, 1995.
At June 30, 1995, the Company had a net current deferred tax asset of
$36,526,000 and a net noncurrent deferred tax liability of $5,119,000. The
deferred tax asset primarily relates to the Company's net operating loss
which is expected to be fully utilized through a carryback of net operating
losses to recover taxes paid in prior years. Management believes that
based on available information, it is more likely than not that the net
deferred tax asset will be realized, and accordingly a valuation allowance
has not been recorded.
On November 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes."
The adoption of FAS 109 resulted in a cumulative credit to earnings of
$2,000,000 for the six months ended April 30, 1994.
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8. Stock Repurchase Plan
On May 30, 1995, the Company's board of directors reinstated a
previously adopted stock repurchase program authorizing the Company to
purchase up to an additional 2,500,000 shares of outstanding common stock
on the open market. The program which had ended October 31, 1994,
authorized the Company to purchase a total of 6,000,000 shares, of which
approximately 3,500,000 shares had been previously purchased. As of June
30, 1995, the Company had purchased 469,800 shares for $4,576,000 under the
reinstated program.
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9. Supplemental Cash Flow Information
The reconciliation of net (loss) income to net cash (used in) provided
by operating activities, as presented in the consolidated statement of cash
flows, is as follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, April 30,
1995 1994
-------- ---------
Net (loss) income $ (46,369,000) $ 12,248,000
<S> <C> <C>
cash (used in) provided by operating activities:
Depreciation and amortization 3,096,000 446,000
Cumulative effect of change in accounting
for income taxes (2,000,000)
Amortization of investment
premiums/discounts, net 918,000 2,627,000
Realized gain on sales of securities
available for sale (983,000) (602,000)
Loss on impairment of property
and equipment 4,117,000
Change in deferred income taxes (26,083,000) (2,135,000)
Billings to subscribers, net 84,284,000 100,444,000
Amortization of subscribers' advance
payments to revenue (93,359,000) (83,946,000)
Expenditures for subscriber acquisition costs (33,494,000) (29,773,000)
Payment of commissions, net (22,879,000) (28,621,000)
Amortization of subscriber acquisition costs 32,716,000 27,063,000
Amortization of commissions 25,901,000 24,356,000
(Decrease) increase in allowance
for cancellations (3,121,000) 784,000
Changes in assets and liabilities, net of
effects of business acquisitions:
Receivables, net 6,155,000 (6,026,000)
Income taxes receivable 1,500,000 5,252,000
Other current assets 1,320,000 (204,000)
Other assets (707,000) (601,000)
Accounts payable and accrued expenses 1,546,000 4,729,000
Product abandonment and related
liabilities 25,587,000
---------------- ----------------
Net cash (used in) provided by
operating activities $ (39,855,000) $ 24,041,000
================ ================
</TABLE>
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10. Commitments and Contingencies
Legal Matters
The Company is defending or prosecuting claims in ten complex lawsuits,
nine of which involve Peter Halmos, former Chairman of the Board and
Executive Management Consultant to SafeCard, and various parties related to
him as adversaries. Peter Halmos is also a plaintiff in two other lawsuits,
one against a former officer and one against a director of the Company, in
which neither SafeCard nor the Company have been named as defendent. The
ten cases in which the Company or its subsidiaries is a party are as
follows:
A suit initiated by Peter Halmos, related entities, and Myron Cherry (a
former lawyer for SafeCard) in April 1993 in Cook County Circuit Court
in Illinois against SafeCard and one of the Company's directors,
purporting to state claims aggregating in excess of $100 million,
principally relating to alleged rights to "incentive compensation,"
stock options or their equivalent, indemnification, wrongful
termination and defamation. SafeCard and the director moved to dismiss
this lawsuit. In November 1993, the court granted the motions to
dismiss all parts of the complaint, but gave the plaintiffs leave to
replead, which they did. Again in March 1994, the court granted the
motions to dismiss all of the complaints but permitted the plaintiffs
to replead which they did in June 1994. On February 7, 1995, the court
dismissed with prejudice Peter Halmos' claims regarding alleged rights
to "incentive compensation," stock options or their equivalent,
wrongful termination and defamation. Mr. Halmos has stated that he will
appeal this ruling. SafeCard has filed an answer to the remaining
indemnification claims. Its obligation to file an answer to the claims
of Myron Cherry have been stayed pending settlement discussions.
A suit by Peter Halmos, purportedly in the name of Halmos Trading &
Investment Company, seeking monetary damages and specific performance
against SafeCard, one of its officers and one of the Company's
directors in Circuit Court in Broward County, Florida, making a variety
of claims related to the contested lease of SafeCard's former Ft.
Lauderdale headquarters. SafeCard 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 SafeCard. In May 1994, the court dismissed Peter
Halmos' amended counterclaim for breach of contract for indemnity and
intentional infliction of emotional distress but gave leave to amend.
In June 1994 Peter Halmos filed a second amended counterclaim
purporting to state claims for intentional infliction of emotional
distress, fraud and negligent misrepresentation and declaratory
judgment based on alleged breach of contract for indemnity or, in the
alternative, promissory estoppel, related to indemnification of legal
expenses in this lawsuit. SafeCard's motion to dismiss the second
amended counterclaim was denied, and it has filed an answer to the
second amended counterclaim. In January 1995, Peter Halmos filed a
third amended counterclaim which was identical in all material respects
to the second amended counterclaim. On January 17, 1995, SafeCard filed
its answer to
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the third amended counterclaim. Discovery is proceeding. A trial date
is expected in early 1996.
A suit which seeks monetary damages and certain equitable relief filed
by SafeCard in August 1993 in Laramie County Circuit Court in Wyoming
against Peter Halmos and related entities alleging that Peter Halmos
dominated and controlled SafeCard, breached his fiduciary duties to
SafeCard, and misappropriated material non-public information to make
$48 million in profits on sales of SafeCard stock. In March 1994, Mr.
Halmos and related entities filed a counterclaim in which claims were
made of conspiracy in restraint of trade, monopolization and attempted
monopolization, unfair competition and restraint of trade, breach of
contract for indemnity and intentional infliction of emotional
distress. SafeCard's motion to sever the conspiracy, monopolization and
restraint of trade claims was granted in May 1994. The claims for the
conspiracy, monopolization, restraint of trade and unfair competition
were dismissed without prejudice in June 1994. On April 12, 1995, the
trial court granted the motion of Mr. Halmos and certain related
entities to amend their counterclaims. The amended counterclaims
include claims for indemnification for legal expenses incurred in the
action and a claim that SafeCard's contract with CreditLine should be
rescinded. On April 19, 1995, the trial court granted Mr. Halmos'
motion for summary judgment that certain of SafeCard's claims against
him were barred by the statute of limitations. SafeCard has filed an
appeal, and the Court has entered an order staying all action on both
the counterclaims and the Company's claims pending appeal.
A suit seeking monetary damages by Peter Halmos, purportedly in his
name and in the name of CreditLine Corporation and Continuity Marketing
Corporation against SafeCard, one of its officers and three of the
Company's directors in United States District Court in the Southern
District of Florida, in September 1994 purporting to state various tort
claims, state and federal antitrust claims and claims of copyright
infringement. The claims principally relate to the allegation by Peter
Halmos and his companies that SafeCard has taken action to prevent him
from being a successful competitor. On December 9, 1994 SafeCard, its
officer and the Company's directors moved to dismiss the lawsuit. On
March 8, 1995, the court granted Mr. Halmos' motion to file a second
amended complaint. On March 28, 1995, SafeCard, its officer and the
Company's directors again moved to dismiss the lawsuit. All discovery
in the case has been stayed pending a ruling on the motion to dismiss.
A suit seeking monetary damages by Peter Halmos, as trustee for the
Peter A. Halmos revocable trust dated January 24, 1990 and the Halmos
Foundation, Inc., individually and James L. Binder as custodian for
Elizabeth Binder; Edward Dubois; Sheila Ann Dubois, as personal
representative of the Estate of Winifred Dubois; G. Neal Goolsby, John
E. Masters, individually and as custodian for Gregory Halmos and
Nicholas Halmos; and J.B. McKinney on behalf of themselves and all
others similarly situated against SafeCard, one of its officers, one of
its former officers and three of the Company's directors in the United
States District Court for the Southern District of Florida in December
1994. This litigation
14
<PAGE>
involves claims by a putative class of sellers of SafeCard stock for
the period January 11, 1993 through December 8, 1994 for alleged
violations of the federal and states securities laws in connection with
alleged improprieties in SafeCard's investor relations program. The
complaint also includes individual claims made by Peter Halmos in
connection with the sale of stock by the two trusts controlled by him.
SafeCard and the individual defendants have filed a motion to dismiss.
A suit seeking monetary damages and injunctive relief by LifeFax, Inc.
and Continuity Marketing Corporation, companies affiliated with Peter
Halmos, in the State Circuit Court in West Palm Beach, Florida in April
1995 against the Company, Family Protection Network, Inc., SafeCard,
one of the Company's directors and the Company's Chief Executive
Officer purporting to state various statutory and tort claims. The
claims principally relate to the allegation by these companies that
SafeCard's Early Warning Service and Family Protection Network were
conceived and commercialized by, among others, Peter Halmos and have
been improperly copied. An amended complaint filed on June 14, 1995
seeking monetary damages adds to the prior claims certain claims by
Nicholas Rubino that principally relate to the allegation that
SafeCard's Pet Registration Product was conceived by Mr. Rubino and has
been improperly copied. The Company and the individual defendants have
filed a Motion to Dismiss the Amended Complaint.
A suit seeking monetary damages and declaratory relief by Peter Halmos,
individually and as trustee for the Peter A. Halmos Revocable Trust
dated January 24, 1990 and by James B. Chambers, individually and on
behalf of himself and all others similarly situated against the
Company, SafeCard, each of the members of the Company's Board of
Directors, three non-board member officers of the Company, the
Company's outside auditor and one of the Company's outside counsel in
the United States District Court for the Southern District of Florida
in June 1995. The litigation involves claims by a putative class of
purchasers of the Company stock between December 14, 1994 and May 25,
1995 and on behalf of a separate class of all record holders of
SafeCard stock as of April 27, 1995. The putative class claims are for
alleged violations of the federal securities laws, for alleged breach
of fiduciary duty and alleged negligence in connection with certain
matters voted on at the Annual Meeting of SafeCard stockholders held on
April 27, 1995. The Company and the individual defendants have filed a
motion to dismiss these claims.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard and
Ideon Group, Inc. against SafeCard, Ideon Group Inc., two of their
officers, and the Company's directors in United States District Court,
Southern District of Florida. This litigation involves claims that the
officers and directors of SafeCard have improperly refused to accede
Peter Halmos' litigation and indemnification demands against the
Company. The Company and the individual defendants have filed motions
to dismiss the first amended complaint.
A suit seeking monetary damages filed by Peter Halmos against SafeCard,
one of its directors, its former general counsel, and its legal counsel
in the Circuit Court, Fifteenth Judicial Circuit, in and for Palm Beach
County, Florida on August 10, 1995.
15
<PAGE>
This litigation involves claims by Peter Halmos for breach of fiduciary
duty and constructive fraud, fraud, and negligent misrepresentation
and is based on allegations arising out of the resolution of a
shareholder class action lawsuit in 1991 and SafeCard's subsequent
filing of an action against Halmos and his related companies in Wyoming
in 1993. SafeCard has not yet been formally served with the complaint
but intends to vigorously defend its position.
A suit by Lois Hekker on behalf of herself and all others similarly
situated seeking monetary damages against the Company and its Chief
Executive Officer in the United States District Court for the Middle
District of Florida on July 28, 1995. The litigation involves claims by
a putative class of purchasers of the Company's stock for the period
April 25, 1995 through May 25, 1995 for alleged violation of the
federal securities laws in connection with statements made about the
Company's business and financial performance.
The Company believes that it has proper and meritorious defenses in
these lawsuits which it intends to vigorously pursue. Resolution of any or
all of these litigation matters could have a material impact (either
favorable or unfavorable depending on the outcome) upon the Company's
operations, liquidity and financial condition.
Other Matters
In May 1995, the Company announced the signing of a definitive purchase
agreement to acquire a 350,000 square foot building and related property
for approximately $39,000,000. As part of the agreement, the Company paid
$3,900,000 into an escrow account as a nonrefundable deposit pending the
completion of the purchase in early 1996. Management is evaluating various
options with respect to the building. In light of the product abandonment
and restructuring discussed in Note 3, management has included an amount
related to the impairment of this deposit in the corporate charge of
$7,176,000.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Ideon Group, Inc.
We have reviewed the accompanying consolidated balance sheet of Ideon Group,
Inc. (formerly SafeCard Services, Incorporated) as of June 30, 1995, the related
consolidated statements of income for the three-month and six-month periods then
ended and the consolidated statement of cash flows for the six-month period
ended June 30, 1995, appearing in the Company's Form 10-Q for the quarter ended
June 30, 1995. We also have reviewed the consolidated statements of income for
the three-month and six-month periods ended April 30, 1994 and the consolidated
statement of cash flows for the six-month period ended April 30, 1994 appearing
in the Company's Form 10-Q for the quarter ended June 30, 1995. 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 of SafeCard Services, Incorporated as of October
31, 1994, 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 5, 1994, except for Note 1, as to
which the date is March 24, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the accompanying consolidated
balance sheet information as of October 31, 1994, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
PRICE WATERHOUSE LLP
Tampa, Florida
July 31, 1995
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References herein to the second quarter 1995 and to the second quarter 1994
refer to the three months ended June 30, 1995 and April 30, 1994, respectively.
References to 1995 and 1994 refer to the six months ended June 30, 1995 and
April 30, 1994, respectively. Management does not believe that preparation of
financial statements for the three or six months ended June 30, 1994 would
result in any more comparable information and, therefore, the additional costs
which would have been incurred to prepare such financial statements would not be
justified.
Ideon Group, Inc. resulted from the reorganization of SafeCard Services,
Inc. approved by shareholders on April 27, 1995. As a result of the
reorganization, Ideon is a holding company with current business units including
SafeCard Services, Inc., Wright Express Corporation, National Leisure Group,
Inc. and Ideon Marketing and Services Company. The operations of an additional
business unit, Family Protection Network, Inc., have been discontinued as
described below.
RESULTS OF OPERATIONS
CONSOLIDATED
Overview
The Company reported a pre-tax loss of $72,881,000, resulting in a net loss
of $46,670,000, or $1.62 per share, for the second quarter 1995. The pre-tax
loss includes a special charge of $34,156,000 for costs associated with the
abandonment of certain new product developmental efforts. The Company attempted
to launch two new businesses late in the first quarter and early in the second
quarter of 1995. Consumer response rates to the products offered by these
businesses were significantly lower than management's expectations and these
products proved not to be economically viable. The Company has closed its Family
Protection Network business unit and significantly reduced the size of its Ideon
Marketing and Services business unit, returning it to a developmental mode.
After abandonment of these new product initiatives, management reviewed the
Company's overall organization and structure. As a result, the Company also
anticipates recording a restructuring charge of up to $5,000,000 in the third
quarter to cover costs associated with streamlining its SafeCard business unit
and downsizing its corporate headquarters.
The Company expects to record a loss for the year ended December 31, 1995
as a result of the actions described above.
Revenues
Revenues increased $8,420,000, or 17.1%, for the second quarter 1995 and
$24,453,000, or 26.3%, for the six months ended June 30, 1995 over the
comparable periods in 1994. The increases are primarily due the acquisitions of
Wright Express in September 1994 and National Leisure Group during the first
quarter 1995, coupled with revenue growth at SafeCard.
18
<PAGE>
Operating Income
The Company incurred pre-tax operating losses of $72,881,000 and
$72,452,000 during the three and six months ended June 30, 1995, compared to
pre-tax operating income of $5,260,000 and $14,413,000 during the three and six
months ended April 30, 1994. The decline in operating income was the result of
the expenses incurred in connection with the launch and subsequent
abandonment of the two new product development initiatives discussed above.
The 1995 operating loss includes a $34,156,000 special charge for costs
associated with the abandonment of these product development efforts. The
charge includes severance payments to terminated employees, costs to terminate
equipment and facilities leases and write-downs of these assets which are
impaired as a result of these actions. The 1995 operating loss also includes
increased marketing and operational costs incurred in connection with the
new product launches and a corporate infrastructure designed to support
previously anticipated growth.
19
<PAGE>
The following tables summarize operating results by business unit. The
"Developmental Operations" column includes the operating results of Ideon
Marketing and Services and Family Protection Network, the Company's
developmental stage business units. Prior year financial information includes
the operating results of SafeCard and general corporate activities.
<TABLE>
<CAPTION>
For the three months ended June 30, 1995 (in thousands):
National Develop- Corporate
Wright Leisure mental and
SafeCard Express Group Operations Other Total
-------- -------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Membership and
subscription revenue $ 44,106 $ 44,106
Card acquisition and
services revenue $ 5,791 5,791
Consumer marketing
revenue 2,625 $ 3,424 6,049
Interest and other
income 82 4 $ 1,700 1,786
--------- --------- --------- -------- --------
Total revenue 46,813 5,791 3,428 1,700 57,732
--------- --------- --------- -------- --------
Total costs and
expenses 38,547 5,090 3,068 $65,915 17,993 130,613
--------- --------- --------- --------- -------- --------
Income (loss) before
provision for income
taxes $ 8,266 $ 701 $ 360 $(65,915) $(16,293) $(72,881)
========= ========= ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the three months ended April 30, 1994 (in thousands):
National Develop- Corporate
Wright Leisure mental and
SafeCard Express Group Operations Other Total
--------- --------- --------- ---------- --------- ------
<S> <C> <C> <C>
Membership and
subscription revenue $ 39,791 $ 39,791
Card acquisition and
services revenue
Consumer marketing
revenue 2,764 2,764
Interest and other
income 55 $ 6,702 6,757
--------- -------- -------
Total revenue 42,610 6,702 49,312
--------- -------- -------
Total costs and
expenses 31,593 12,459 44,052
--------- -------- -------
Income (loss) before
provision for income
taxes $ 11,017 $(5,757) $ 5,260
========= ======== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
For the six months ended June 30, 1995 (in thousands):
National Develop- Corporate
Wright Leisure mental and
SafeCard Express Group Operations Other Total
-------- ------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Membership and
subscription revenue $ 87,703 $ 87,703
Card acquisition and
services revenue $ 10,701 10,701
Consumer marketing
revenue 5,171 $ 9,051 14,222
Interest and other
income 293 24 $ 4,517 4,834
------ ------ ----- ------ -------
Total revenue 93,167 10,701 9,075 4,517 117,460
------ ------ ----- ------ -------
Total costs and
expenses 74,527 9,330 7,035 $73,976 25,044 189,912
------ ------ ----- ------- ------ -------
Income (loss) before
provision for income
taxes $ 18,640 $ 1,371 $ 2,040 $(73,976) $(20,527) $(72,452)
========= ========= ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the six months ended April 30, 1994 (in thousands):
National Develop- Corporate
Wright Leisure mental and
SafeCard Express Group Operations Other Total
-------- ------- -------- ---------- --------- -----
<S> <C> <C> <C>
subscription revenue $ 78,619 $ 78,619
Card acquisition and
services revenue
Consumer marketing
revenue 5,327 5,327
Interest and other
income 149 $ 8,912 9,061
--------- -------- --------
Total revenue 84,095 8,912 93,007
--------- -------- --------
Total costs and
expenses 62,017 16,577 78,594
--------- -------- --------
Income (loss) before
provision for income
taxes $ 22,078 $ (7,665) $ 14,413
========= ======== ========
</TABLE>
21
<PAGE>
SAFECARD SERVICES
Business Overview
SafeCard is a provider of credit card enhancement and continuity products.
Subscriptions for continuity services are primarily marketed through credit card
issuers by using mail and telemarketing solicitations. SafeCard's principal
service is credit card registration and loss notification ("Hot-Line"), whereby
SafeCard gives prompt notice to credit card issuers upon being informed that a
subscriber's credit cards have been lost or stolen. Subscriptions for continuity
services typically continue annually or periodically unless canceled by the
subscriber. SafeCard also markets other continuity services including fee-based
credit cards ("Fee Card"), reminder services and a personal credit information
service ("CreditLine").
SafeCard markets its products and services through approximately 160 credit
card issuers including banks, oil companies and retailers. New contracts have
been signed with six existing clients during 1995, including an extension of the
Company's contract with Citibank through the year 2000. SafeCard also increased
marketing to seven additional brands within its existing clients, as well as
agreed to expand existing business with ten clients for 1995 and fourteen
clients for 1996. As previously reported, SafeCard has ceased new marketing with
Texaco.
While modest growth in Hot-Line subscription revenues through credit
card issuers may be achievable in the future, the Company believes that
successful development of new products and services will become increasingly
important to the future growth of SafeCard revenues and operating income.
However, the viability of new products and services under development is not
assured and the timing of bringing such new prodcuts and services to market
cannot be estimated.
Revenues
Membership and subscription revenue, net increased 10.8% from $39,791,000
in the second quarter 1994 to $44,106,000 in the second quarter 1995. Membership
and subscription revenue increased 11.6% to $87,703,000 for the six months ended
June 30, 1995 from $78,619,000 for the six months ended April 30, 1994.
Membership and subscription revenue represents the amortization of advance
payments received from subscribers to SafeCard's credit card enhancement and
continuity services such as Hot-Line and Fee Card. The increases are due to a
combination of factors, including an increase in the number of subscribers to
SafeCard's Hot-Line, Fee Card and CreditLine services, a shift in sales mix to
higher priced products, such as Fee Card and CreditLine and a price increase for
certain Hot-Line subscriptions which began in 1993. Membership and subscription
revenue are reported net of an allowance for cancellations. Billings for
subscriptions are deferred and amortized to revenue over the related
subscription periods, generally one or three years.
The following table details renewal rates for the six months ended June 30,
1995 and April 30, 1994:
Subscription Product 1995 1994
-------------------- ---- ----
Single year Hot-Line 76% 75%
Multi-year Hot-Line 47% 49%
Fee Card (primarily single year) 82% 81%
22
<PAGE>
The decline in renewal rates for multi-year Hot-Line subscriptions
(primarily three year subscriptions) is primarily due to increasing involuntary
cancellations by card issuer clients (see description of involuntary
cancellations below) and the price change previously discussed. Renewal rates
are computed by comparing the number of paid subscribers at the end of the
period for each subscriber campaign pool to the number of paid subscribers at
the beginning of the period. SafeCard monitors renewal rates by product by
client on a monthly basis. Renewal rates of subscribers are affected by a
variety of factors, including the number and mix of subscribers renewing,
economic factors, changes in the credit card industry and other factors, some of
which may be beyond SafeCard's control, as well as the effectiveness of
retention programs, which are in SafeCard's control.
The following table details subscriber activity for the six months ended
June 30, 1995 and April 30, 1994 for SafeCard's credit card enhancement and
continuity services. SafeCard reported record membership of 13,139,000 at June
30, 1995, an increase of 504,000 subscribers over 1994.
<TABLE>
<CAPTION>
Beginning New Ending
Subscribers Subscribers Cancellations Subscribers
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1995 13,046,000 1,994,000 (1,901,000) 13,139,000
1994 12,043,000 2,416,000 (1,824,000) 12,635,000
</TABLE>
New subscribers represent fee-paying subscribers obtained through various
marketing channels. Free trial subscriptions which are offered periodically as a
marketing technique are excluded from the subscriber activity above.
Cancellations consist of both voluntary and involuntary membership losses.
Voluntary cancellations result from members electing to discontinue their
subscriptions. Involuntary cancellations result from the closure of card
accounts or other events beyond SafeCard's control.
Membership and subscription revenues are dependent on a variety of factors
including subscription fees, net response rates (gross enrollments less
cancellations), the extent of new marketing activities and renewal rates. These
factors are further affected by economic conditions, interest rates, 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, solicitation materials and marketing strategies.
Changes in marketing emphasis and the extent of new marketing with credit
card issuers affects the number of potential subscribers. In addition, certain
card issuers, including Citibank, have begun to limit telemarketing performed by
SafeCard and other enhancement providers to their customer lists. As a result,
SafeCard has developed alternative marketing channels, such as solicitation
efforts during credit card activation. In addition, SafeCard is expanding its
use of customer modeling in order to more effectively solicit likely purchasers.
SafeCard expects that these efforts will offset the negative effects of reduced
telemarketing contacts. To date SafeCard has not noted any material impact on
earnings as a result of such changes in business strategy by its card issuer
clients. However, future adverse changes in business strategy by credit
card issuers could have a material impact on the revenues and earnings of
SafeCard.
23
<PAGE>
SafeCard also generated consumer marketing revenue from its discount travel
service and date reminder service, including the sale of calendars and
appointment books. Consumer marketing revenue decreased 5.0% to $2,625,000 in
the second quarter 1995 as compared to $2,764,000 in the second quarter 1994 and
decreased 2.9% to $5,171,000 for the six months ended June 30, 1995 as compared
to $5,327,000 for the six months ended April 30, 1994.
Operating Income
Operating income decreased 25.0% to $8,266,000 in the second quarter 1995
compared to $11,017,000 in the second quarter 1994 and 15.6% to $18,640,000 for
the six months ended June 30, 1995 as compared to $22,078,000 for the six months
ended April 30, 1994. The decrease in operating income was primarily the result
of the change in amortization of subscriber acquisition costs adopted in
December 1994, increased marketing and new product development costs and
increased facilities and equipment costs.
Operating income decreased approximately $500,000 and $1,700,000,
respectively, for the three and six-month periods ended June 30, 1995 from 1994
levels due to the change in amortization of deferred subscriber acquisition
costs. In the prior year, deferred subscriber acquisition costs were amortized
over the expected life of the subscriber including renewal periods (10 to 12
years for single year and multi-year subscriptions, respectively). During the
transition period ended December 31, 1994, the amortization periods were
shortened to match the initial subscription period (1 to 3 years). As a result
of the change, deferred subscriber acquisition costs are recognized on a more
accelerated method as compared to the prior year.
Beginning in late 1994 and continuing through the second quarter 1995,
SafeCard increased its marketing and new product development efforts in order to
expand its product lines and better target new customers. These efforts
translated into higher marketing and product development expenses of $2,500,000
and $3,200,000 for the three and six-month periods ended June 30, 1995,
respectively, which were partially offset by higher revenues.
SafeCard also experienced higher facilities and equipment expenses during
1995 compared to 1994 due to increased depreciation associated with capital
expenditures in 1994 and 1995. Since October 31, 1994, capital expenditures have
totaled $12,400,000, including $7,500,000 for the expansion of the Cheyenne
operating center. The remainder represents upgraded computer equipment and
systems.
As previously discussed, the Company has reviewed and evaluated SafeCard's
organization and structure. A restructuring charge of up to $3,000,000 will be
recorded in the third quarter 1995 to cover the associated costs of streamlining
SafeCard's operating structure. Approximately 70 positions will be eliminated
and several functions will be restructured to take advantage of operational
efficiencies obtained from automation programs recently implemented.
24
<PAGE>
WRIGHT EXPRESS
Business Overview
Wright Express, acquired in September 1994, provides transaction and
information processing services to oil companies and commercial transportation
fleets primarily through a national credit card network program, the Wright
Express Universal Fleet card ("the WEX card"). The WEX card is accepted at
approximately 90,000 fueling locations in the United States and is used by
fleets covering one-half million vehicles. Wright Express also manages private
label fleet fueling programs for numerous petroleum marketers, as well as
co-branded fleet fueling programs for many of the nation's vehicle leasing
companies.
Wright Express is continuing the development of products which will take
advantage of the vast amount of fuel and transaction data it gathers on a daily
basis. Wright Express expects to analyze, interpret and format this data into a
series of ongoing reports which can be made available to economists, fleet
managers, oil companies and government agencies for the purpose of projecting
fuel consumption and retail pricing.
Competition for Wright Express primarily exists in the form of oil company
credit cards. What differentiates Wright Express from other credit card issuers
is the array of ancillary information processing services that are offered in
addition to the basic credit card service. These oil companies and certain other
competitors are larger and have greater financial and other resources than
Wright Express or the Company. There can be no assurance that Wright Express
will not face increased competition in the future.
Revenues
Card acquisition and services revenue was $10,701,000 for the six months
ended June 30, 1995, reflecting revenue of $5,791,000 in the second quarter 1995
compared to $4,910,000 in the first quarter 1995, a 17.9% increase. Card
acquisition and services revenue is principally in the form of transaction fees
deducted from amounts remitted to retail fueling merchants and annual fees
charged to fleet customers. The volume of fuel purchased on both the WEX and
private label program cards has increased from 108 million gallons in the first
quarter 1995 to 123 million gallons in the second quarter 1995. This volume
represents less than 1% of the 30-35 billion gallon automobile and light truck
fueling market, which is part of a larger 50-55 billion gallon commercial
fueling market.
Operating Income
Operating income was $701,000 in the second quarter 1995 compared to
$670,000 in the first quarter 1995, a 4.6% increase. The increase in operating
income is due to the increase in card acquisition and services revenue, as
described above, offset by a slight increase in operating expenses and product
development costs.
NATIONAL LEISURE GROUP
Business Overview
As discussed in Note 4 of Notes to Consolidated Financial Statements,
National Leisure Group was acquired effective January 1995. National Leisure
Group provides vacation travel packages and cruises directly to the public in
partnership with
25
<PAGE>
established retailers and warehouse clubs throughout New England and credit card
issuers and travel club members nationwide. The majority of bookings have
historically been generated in New England retail stores such as Filene's
Basement. However, sales through credit card issuers and travel clubs are
becoming significant new sources of growth.
Revenues
Consumer marketing revenue for National Leisure Group was $9,051,000 for
the six months ended June 30, 1995, reflecting revenue of $3,424,000 in the
second quarter 1995 compared to $5,627,000 in the first quarter 1995, a 39.2%
decrease. National Leisure Group's revenues have historically come primarily
from retail outlets in the New England area and are highly seasonal in nature
with the majority of sales in the winter months (first and fourth quarters).
Revenues are primarily generated from commissions representing the difference
between the gross booking price received on the sale of a vacation package and
the cost of purchasing that package directly from the travel vendor.
Operating Income
Operating income was $360,000 in the second quarter 1995 compared to
$1,680,000 in the first quarter of 1995. The $1,320,000, or 78.6%, decrease from
the first quarter is due to the seasonality of National Leisure Group's business
in which most bookings occur during the first and fourth quarters of each year
(i.e. the fall and winter months).
DEVELOPMENTAL OPERATIONS
The "Developmental Operations" column of the business units table includes
the operating results of Family Protection Network and Ideon Marketing and
Services. Revenues generated from these developmental efforts are not material
and have been netted against operating expenses for financial statement
presentation. The losses presented in the table include the actual losses from
operations and the associated product abandonment costs recorded in the second
quarter 1995.
Business Overview
Family Protection Network
Family Protection Network ("FPN") was initiated as a nationwide child
registration and search product. The Company expended approximately $7,000,000
to develop the concept through March 31, 1995. These costs were expensed as
research and new product development costs as incurred and are included in costs
related to products abandoned and restructuring in the Statement of Operations.
The Company launched the new business in April 1995.
In late May 1995, preliminary launch results indicated lower than
anticipated consumer response rates and the Company announced its plans to
reduce marketing expenditures while analyzing product designs as well as
distribution channels. During June 1995, FPN used in-market mailings to test
different product configurations and price points and to verify the initial
determination that the products were not economically viable. As a result of the
unsuccessful product launch and the subsequent unsuccessful test mailings, the
Company has discontinued Family Protection Network.
26
<PAGE>
Ideon Marketing and Services Company
Ideon Marketing and Services ("IMS") activities were initiated in 1994 as a
platform to develop, manage, market and service co-branded credit cards. The
first product to result from this developmental effort was an initiative between
the Company, the PGA TOUR and SunTrust BankCard N.A. to develop and market an
expanded PGA TOUR Partners program, including a co-branded credit card. IMS has
proceeded on two developmental tracks--development and launch of the expanded
Partners program and continued research and development of additional
co-branding opportunities. From inception through March 31, 1995, $9,000,000 of
costs incurred in both research and development efforts (multiple co-branding
opportunities and the Partners program) were expensed as incurred as research
and new product development costs and are included in costs related to products
abandoned and restructuring in the Statement of Operations.
An expanded Partners program was launched in late March and early April
1995. In late May 1995, preliminary launch results indicated lower than
anticipated consumer response rates and the Company announced its plans to
reduce marketing expenditures while analyzing product designs as well as
distribution channels. During June 1995, the Company began in-market test
mailings to determine product viability and test alternative product
configurations. The results of these test mailings were not satisfactory. While
the Company has ceased marketing the PGA TOUR Partners program as currently
configured, it will continue the development and testing of new PGA TOUR
Partners offerings.
Approximately two-thirds of IMS' marketing and customer service positions
have been eliminated. The remaining employee base will attempt to reconfigure
the Partners program and develop an economically viable product offering.
Certain milestones have been set to control the investment in these
developmental efforts. The Company expects to terminate future investment in
this effort if it fails to satisfactorily complete any one of these milestones.
These milestones include evaluating recent test mailings, renegotiating the
Company's contractual relationships, redesigning the Partners program to attain
an economically viable product and conducting a test mailing and evaluation of
the results of the reconfigured product during the fourth quarter. The Company
plans to make a final decision whether to launch a reconfigured PGA TOUR
Partners program product by December 31, 1995. IMS will continue to explore
additional co-branding opportunities.
IMS will also continue testing its Collections of the Vatican Museums
program, with catalog mailings scheduled during the third quarter 1995. IMS has
spent approximately $1,000,000 on this program in 1995 and expects to incur an
additional $1,500,000 over the remainder of the year to complete test marketing
efforts. The future development of this program will be evaluated based on the
results of the catalog test marketing.
Operating Loss
FPN and IMS incurred a combined operating loss of $65,915,000 and
$73,976,000 for the three and six-month periods ended June 30, 1995, including
special charges of $26,980,000 taken in the second quarter 1995 to cover costs
associated with product abandonments.
27
<PAGE>
FPN incurred an operating loss of $26,266,000 for the second quarter 1995,
of which $17,279,000 related to marketing and operational costs incurred during
the quarter and $8,987,000 related to the cost of employee severance, costs to
terminate equipment and facilities leases and the write-down resulting from the
related impairment of certain assets. Marketing and operational costs incurred
for the six months ended June 30, 1995 totaled $20,778,000.
For the second quarter 1995, IMS had an operating loss of $39,649,000,
including $21,656,000 related to marketing and operational costs incurred and
$17,993,000 related to the cost of employee severance, costs to terminate
equipment and facilities leases, costs for contract impairments and the
write-down resulting from the related impaired assets. Marketing and operational
costs incurred for the six months ended June 30, 1995 totaled $26,218,000.
CORPORATE
Overview
Corporate headquarters expenditures have risen primarily since the end of
1994 as the Company developed the infrastructure necessary to support previously
anticipated growth, including corporate marketing and information technology
support. Prospectively, the corporate staff will determine overall corporate
strategy, structure, values and policies. In addition, it will provide support
services that can only be effectively and economically performed centrally.
The corporate operating loss in the business unit table includes the
following:
For the three months ended June 30, 1995 and April 30, 1994 (in thousands):
Three Months Three Months
Ended Ended
June 30, 1995 April 30, 1994
------------- --------------
General corporate overhead expenses $ 8,503 $ 2,404
Litigation and other legal expenses 1,570 2,155
Corporate research and development 744 -
Asset impairment and restructuring charges 7,176 7,900
Interest income (1,700) (2,051)
Other income - (4,651)
---------- ---------
$ 16,293 $ 5,757
========== =========
28
<PAGE>
For the six months ended June 30, 1995 and April 30, 1994:
Six Months Six Months
Ended Ended
June 30, 1995 April 30, 1994
------------- --------------
General corporate overhead expenses $ 12,415 $ 3,924
Litigation and other legal expenses 2,888 4,753
Corporate research and development 2,565 -
Asset impairment and restructuring charges 7,176 7,900
Interest income (3,564) (4,052)
Other income (953) (4,860)
---------- ---------
$ 20,527 $ 7,665
========== =========
General Corporate Overhead Expenses
General corporate overhead expenses increased $6,099,000 (254%) for the
second quarter 1995 compared to the second quarter 1994 and $8,491,000 (216%)
for the six months ended June 30, 1995 as compared to the six months ended April
30, 1994. These increases were the result of indirect costs incurred for new
product launches, acquisition efforts and a larger corporate infrastructure
designed to support previously anticipated growth. Increases in corporate
overhead expenses for the three and six months ended June 30, 1995 included
increases in payroll and related expenses of $941,000 and $2,226,000,
respectively; increases in outside services of $1,020,000 and $1,643,000,
respectively; and increases in corporate operating expenses of $4,138,000 and
$4,622,000.
As previously discussed, the Company reviewed and evaluated its
organization and structure. The Company has instituted expense reduction efforts
and will have reduced its corporate staff by 60% by the end of the third quarter
1995. A restructuring charge of up to $2,000,000 will be recorded in the third
quarter to cover the associated costs of downsizing the Company's corporate
infrastructure.
Litigation and Other Legal Expenses
The Company incurred approximately $1,570,000 and $2,888,000 of litigation
and other legal expenses during the three and the six months ended June 30, 1995
compared to $2,155,000 and $4,753,000 during the three and six months ended
April 30, 1994. Litigation expenses anticipated in future periods cannot be
quantified. By their very nature, such expenses are dependent on a number of
factors beyond the Company's control (see Note 10 of Notes to Consolidated
Financial Statements and Item 1. "Legal Proceedings" under Part II "Other
Information").
Corporate Research and Development
Corporate research and development includes the costs of developing new
products and services and new areas of business that are not directly related to
the Company's existing business units. There were no corporate research and
development efforts in process during the 1994 periods presented.
29
<PAGE>
Asset Impairment and Restructuring Charges
The 1995 asset impairment charge is for the write-down of certain assets
related to the product abandonments and downsizing of its corporate headquarters
staff.
The 1994 restructuring charge was for a reorganization of operations, the
appointment of a new senior management team and a related settlement with a
former chief executive officer. These charges included the costs to close the
Ft. Lauderdale, Florida sales office, employee severance and lease termination
costs.
Interest and Other Income
Interest income decreased $351,000 (17.1%) during the second quarter 1995
as compared to the second quarter 1994 and $488,000 (12.0%) during the six
months ended June 30, 1995 as compared to the six months ended April 30, 1994.
Interest income is primarily derived from earnings on the Company's municipal
bonds and U.S. Treasury securities portfolio, as well as earnings on cash
invested in money market funds and overnight repurchase agreements. The decrease
in interest income is due to lower interest rates and lower levels of investment
holdings during the period as the Company redeployed its investment resources to
fund the launch of new businesses and the acquisition of National Leisure Group.
The impact of the decrease in investment holdings was partially offset by the
repositioning of a significant portion of the municipal bond portfolio into
higher yielding short-term taxable securities during the six months ended June
30, 1995.
Other income decreased $3,907,000 (80.4%) for the six months ended June 30,
1995 as compared to the six months ended April 30, 1994 due to $4,257,000 of
gains from litigation settlements in March and April 1994. This decrease was
offset by realized gains on sales of securities available for sale of $983,000
during the six months ended June 30, 1995 compared to securities gains of
$603,000 during the six months ended April 30, 1994. The 1995 sales were part of
the Company's previously announced plans to shorten the portfolio's overall
maturity and increase its investments in taxable securities.
Provision for Income Taxes
For interim reporting purposes, the Company provides income taxes based
upon an estimated effective income tax rate for the tax year containing the
interim reporting period. For information regarding the Company's effective
income tax rate and deferred income tax assets and liabilities, see Note 7 of
Notes to Consolidated Financial Statements.
Effective November 1, 1993, the Company prospectively adopted FAS 109. The
adoption of FAS 109 required a change from the deferred method to the liability
method of accounting for income taxes. The impact of the adoption of FAS 109 had
a cumulative positive effect on the Company's reported earnings of $2,000,000
during the six months ended April 30, 1994. This positive impact was primarily
the result of deferred income taxes being provided in prior periods at tax rates
higher than those currently in effect.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash used in operating activities was $39,855,000 in 1995 compared to
$24,041,000 provided by operating activities in 1994. The decrease in cash flow
from operations is principally the result of a $76,692,000 increase in cash paid
to suppliers and employees, which includes cash expenditures for research and
product development and a $4,257,000 decrease in gain from litigation
settlements. The increase in cash paid to suppliers and employees was offset by
a $16,807,000 increase in cash received from subscribers and customers.
Of the $76,692,000 increase in cash paid to suppliers and employees,
approximately $23,378,000 was expended for the development and launching of the
PGA TOUR Partners program, $19,105,000 for Family Protection Network and
$1,235,000 for Collections of the Vatican Museums. In addition, approximately
$16,365,000 was expended for the operations of Wright Express and National
Leisure Group. Neither of these business units were included in the consolidated
results of operations for 1994.
In addition to the increase in cash paid for the development and launching
of new businesses, products and services, expenditures for subscriber
acquisition costs increased $3,721,000 in 1995 as compared to 1994. The increase
in expenditures includes the costs of a program which was recently initiated to
enhance renewal rates. The volume and type of subscriber acquisition
expenditures, as well as enrollments, fluctuate periodically and 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.
A postal rate increase became effective in January 1995. Since postage
represents the largest component of direct mail costs, this rate of increase has
a direct impact on the Company by increasing subscriber acquisition costs.
During 1995, deferred subscriber acquisition costs increased by approximately
$800,000 for additional expenditures for postage as a result of the rate
increase. The Company is working with its card issuer clients to better target
its direct mailings, is considering changes in its mix of direct mailings and is
taking other steps to reduce the impact of the postal rate increase. In
addition, provisions in some card issuer client contracts allow for the recovery
of postal rate increases from the card issuer.
Offsetting the increase in expenditures for subscriber acquisition costs
was a $5,742,000 decrease in commissions paid to credit card issuers. The
decrease in commissions paid was related to the decrease in net billings for
credit card enhancement continuity services as discussed below.
The remaining increase in cash paid to suppliers and employees is the
result of a larger corporate infrastructure and increased spending on research
and product development activities at SafeCard and corporate headquarters.
31
<PAGE>
Of the $16,807,000 increase in cash received from subscribers and
customers, the operations of Wright Express and National Leisure Group generated
approximately $16,251,000. The remaining increase is due to a decrease in
accounts receivable for credit card enhancement continuity services.
Net billings for credit card enhancement continuity services were
$84,284,000 in 1995 compared to $100,444,000 in 1994. This decrease in net
billings in 1995 compared to 1994 was primarily due to the timing of merchandise
billings. Additionally, the decline in billings reflects the impact of the
renegotiation of contracts with certain large credit card issuers and reduction
in the number of customer contacts permitted by credit card issuers resulting in
more targeted marketing. New marketing began increasing at the end of the second
quarter.
Investing Activities
Cash provided by investing activities was $62,058,000 in 1995 compared to
$8,455,000 used in investing activities in 1994. Proceeds from sales and
maturities of investment securities, net of securities purchased increased
$98,676,000 in 1995 as compared to 1994. As previously discussed, the Company
actively repositioned its investment portfolio in order to shorten the overall
maturity of the portfolio and to take advantage of higher yielding short term
taxable securities. In addition, the Company continued to redeploy its
investment resources to fund the launch of new businesses and the acquisition of
National Leisure Group. The Company paid $12,977,000 (net of cash acquired) to
acquire the net assets of National Leisure Group (see Note 4 of Notes to
Consolidated Financial Statements).
The Company also expended $15,186,000 more for capital assets in 1995 than
in 1994, principally due to the Company's expansion and renovation of its
operations center in Cheyenne, Wyoming and company-wide information technology
enhancements. The renovations and expansion of the Cheyenne facility are
essentially complete.
Financing Activities
Cash flow used in financing activities was $2,327,000 in 1995 compared to
cash flow provided by financing activities of $999,000 in 1994. Cash flow used
in financing activities increased $4,093,000 due an increase in treasury share
purchases and a $469,000 increase in dividends paid. These increases were offset
by $4,864,000 of net borrowings on Wright Express' revolving credit facility and
a $3,628,000 decrease in proceeds from the exercise of stock options.
On May 30, 1995, the Company's board of directors reinstated a stock
repurchase program authorizing the Company to purchase up to 2,500,000 shares of
outstanding common stock on the open market. The program, which had ended
October 31, 1994, authorized the Company to purchase a total of 6,000,000
shares, of which approximately 3,500,000 shares had been previously purchased.
As of June 30, 1995, the Company had purchased 469,800 shares for $4,576,000
under the reinstated plan. Through August 11, 1995, The Company had purchased
784,600 shares at an aggregate cost of $7,609,000.
Wright Express' borrowings are a part of its working capital management
structure and are required periodically to fund its accounts receivable. The
increase in dividends paid was solely due to an increase in the number of common
shares outstanding during 1995 as compared to 1994.
32
<PAGE>
Liquidity
Historically, the Company has generated the cash needed to finance its
operations and growth from its operations. The Company's primary liquidity
requirements are to fund membership and subscriber acquisition marketing
programs, support the development and operation of new products and services and
fund acquisitions. In addition, Wright Express requires resources to fund
receivable balances on its fleet credit cards. Management does not foresee any
material changes in funding needs or uses over the long term except as set forth
in the following paragraphs.
As a result of the abandonment of certain product development efforts
previously discussed and the restructuring of the Company in the third quarter
1995, the Company has committed approximately $25-30 million for employee
severance, lease terminations and other costs associated with these decisions
over the next 12 months. This commitment is based upon management's best
estimates and is subject to change as the restructuring plan is implemented.
Management believes that this estimate is adequate to cover the estimated costs
associated with the product abandonments and related restructuring liabilities.
As previously discussed, the Company has reinstated a stock repurchase
program. While the Company is not obligated to purchase any stock under the
program, if the full amount of authorized shares are repurchased at the current
market price, the Company would spend approximately $20 million to acquire its
stock.
The Company expects to invest approximately $4,900,000 in the third quarter
1995, of which $2,400,000 has already been committed, in the PGA TOUR Partners
program. The amount of investment in future periods is heavily dependent on the
results of the test marketing underway as discussed above.
The Company expects to invest an additional $1,500,000 in 1995 to complete
the test marketing of its Collections of the Vatican Museums, nearly all of
which has been committed.
In May 1995, the Company announced the signing of a definitive purchase
agreement to acquire a 350,000 square foot building and related property for
approximately $39,000,000. As part of the agreement, the Company paid $3,900,000
million into an escrow account as a nonrefundable deposit pending the
completion of the purchase in early 1996. Management is evaluating various
options with respect to the building, but does not expect any option to have any
impact on the Company's liquidity needs.
The amount of the expected costs or commitments to develop or acquire new
businesses, products and services in future periods other than those discussed
above are not quantifiable. In addition, legal and litigation expenses to be
incurred in future periods, including amounts paid in resolution thereof, cannot
be quantified. Such amounts could be material to liquidity or results of
operations. The Company believes that its cash flow from operations and the
Company's cash and investment balances ($97,892,000 as of June 30, 1995) are
adequate to meet the Company's current and long term liquidity needs.
33
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is defending or prosecuting claims in ten complex lawsuits,
nine of which involve Peter Halmos, former Chairman of the Board and Executive
Management Consultant to SafeCard, and parties related to him as adversaries.
These lawsuits are described in Note 10 of Notes to Consolidated Financial
Statements under Part I. "Financial Information." The Company believes that it
has proper and meritorious defenses in these lawsuits which it intends to pursue
vigorously. Peter Halmos is also a plaintiff in two other lawsuits, one against
a former officer and one against a director of the Company, in which neither
SafeCard nor the Company is named as a defendant.
The Company is involved in certain other claims and litigation which are not
considered material to the operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following is a summary of matters submitted to a vote at the Annual
Meeting of Stockholders of SafeCard, as predecessor to the Company, on April 27,
1995 (the "Annual Meeting"). A total of 26,070,561 shares, or 90% of the total
shares entitled to vote at the Annual Meeting, were represented at the meeting.
(a) Reorganization of Corporate Structure
A proposal to reorganize the corporate structure of SafeCard pursuant
to which SafeCard would become a wholly owned subsidiary of Ideon and
the shares of common stock of SafeCard would be automatically converted
into an equal number of shares of common stock of Ideon.
Votes Votes Votes
For Against Abstained
----- ------- ---------
25,917,052 64,364 89,144
(b) Authorization of Common Stock
A proposal to authorize the capital structure of Ideon to include
90,000,000 shares of common stock.
Votes Votes Votes
For Against Abstained
----- ------- ---------
23,722,873 2,305,545 42,142
34
<PAGE>
(c) Authorization of Preferred Stock
A proposal to authorize the capital structure of Ideon Group to include
10,000,000 shares of preferred stock.
Votes Votes Votes Broker
For Against Abstained Non-Votes
----- ------- --------- ---------
18,655,403 3,316,880 45,102 4,053,176
(d) Election of Directors
Election of two (2) directors to hold office until the Company's 1998
Annual Meeting of Stockholders or until their successors are elected
and qualified:
Votes Votes
For Against
----- -------
Robert L. Dilenschneider 25,195,984 874,377
John Ellis Bush 25,192,149 878,412
The term of office of the following directors continued after the
meeeting:William T. Bacon, Jr., Marshall L. Burman, Adam W. Herbert,
Jr., Paul G. Kahn, Eugene Miller and Thomas F. Petway, III.
(e) Approval of Amendment of the 1994 Long Term Stock-Based Incentive Plan
A proposal to amend the 1994 Long Term Stock-Based Incentive Plan to
increase the number of shares of common stock issuable thereunder by
1,340,000 shares.
Votes Votes Votes
For Against Abstained
----- ------- ---------
22,989,928 2,998,219 82,413
(f) Approval of the Directors Stock Plan
A proposal to approve the Directors Stock Plan.
Votes Votes Votes
For Against Abstained
----- ------- ---------
24,707,878 1,270,864 91,818
35
<PAGE>
(g) Ratifying Appointment of Independent Accountants
A proposal to ratify the appointment of Price Waterhouse LLP as
independent accountants for the fiscal year ending December 31, 1995.
Votes Votes Votes
For Against Abstained
----- ------- ---------
26,021,648 27,852 21,061
36
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(2) Plan of Reorganization and Agreement of Merger dated as
of January 23, 1995 between SafeCard, theCompany and the Ideon
Merger Company, incorporated by reference to Appendix A of
SafeCard's 1995 definitive proxy statement which was included
in the Company's Registration Statement on Form S-4 (No.
33-58273) filed as of March 28, 1995.
3(a) The Company's Amended and Restated Certificate of
Incorporation, incorporated by reference to Appendix B of
SafeCard's 1995 definitive proxy statement which was included
in the Company's Registration Statement on Form S-4 (No.
33-58273) filed as of March 28, 1995.
3(b) Certificate of Amendment to the Company's Amended and
Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(b) of the Company's Registration
Statement on Form 8-B filed as of May 5, 1995.
3(c) The Company's By-Laws, incorporated by reference to
Appendix B of SafeCard's 1995 definitive proxy statement
which was included in the Company's Registration Statement on
Form S-4 (No. 33-58273)filed as of March 28, 1995.
Management Contracts and Compensatory Plans
10(a) Directors Deferral Plan.
10(b) Directors Stock Plan, incorporated by reference to
Appendix D of SafeCard's definitive proxy statement which
was included in the Company's Registration Statement on Form
S-4 (No 33-58273) filed as of May 5, 1995.
10(c) Form of Assignment and Amendment of Employment
Agreement, incorporated by reference to Exhibit 10(s) of the
Company's Registration Statement on Form 8-B filed as of May
5, 1995.
10(d) Amendment to Executive Deferred Compensation Plan,
incorporated by reference to Exhibit 10(u) of the Company's
Registration Statement on Form 8-B filed as of May 5, 1995.
10(e) Form of Amendment and Assignment of Executive Agreement,
incorporated by reference to Exhibit 10(w) of the Company's
Registration Statement on Form 8-B filed as of May 1995.
37
<PAGE>
10(f) Form of Amendment and Assignment of Indemnification
Agreement with certain outside directors, incorporated by
reference to Exhibit 10(aa) of the Company's Registration
Statement on Form 8-B filed as of May 5, 1995.
Other Material Contracts
10(g) Agreement with Citibank (South Dakota), N.A., effective
January 1, 1995 and executed in June 1995.*
10(h) Purchase and Sale Agreement with American Express
Centurion Service Corporation and American Express Travel
Related Services Company, Inc., dated April 27, 1995.
11(a) Computation of Primary Earnings Per Share
11(b) Computation of Fully Diluted Earnings Per Share
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
*Portions of Exhibit 10(g) have been omitted and filed
separately with the Commission pursuant to a confidential
treatment request.
(b) Reports on Form 8-K
None
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IDEON GROUP, INC.
(Registrant)
Date: August 14, 1995 /s/ Paul G. Kahn
Paul G. Kahn
Chairman of the Board and
Chief Executive Officer
Date: August 14, 1995 /s/ G. Thomas Frankland
G. Thomas Frankland
Vice Chairman and
Chief Financial Officer
39
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT Pagination by Sequential
NUMBER DESCRIPTION Numbering System
<S> <C> <C>
(2) Plan of Reorganization and Agreement of Incorporated by reference to
Merger dated January 23, 1995, between Appendix A of SafeCard's 1995
SafeCard, the Company and Ideon definitive proxy statement which
Merger Company. was included in the Company's
Registration Statement on Form
S-4 (No. 33-58273) filed as of
March 28, 1995.
3(a) The Company's Amended and Restated Incorporated by reference to
Certificate of Incorporation. Appendix B of SafeCard's 1995
definitive proxy statement which
was included in the Company's
Registration Statement on Form
S-4 (No. 33-58273) filed as of
March 28, 1995.
3(b) Certificate of Amendment to the Incorporated by reference to
Company's Amended and Restated Exhibit 3(b) of the Registration
Certificate of Incorporation Statement on Form 8-B filed as of
May 5, 1995.
3(c) The Company's By-Laws Incorporated by reference to
Appendix B of SafeCard's 1995
definitive proxy statement which
was included in the Company's
Registration Statement on Form
S-4 (No. 33-58273) filed as of
March 28, 1995.
Management Contracts and Compensatory Plans
10(a) Directors Deferral Plan 42-44
10(b) Directors Stock Plan Incorporated by reference to
Appendix D of SafeCard's
definitive proxy statement which
was included in the Company's
Registration Statement on Form
S-4 (No. 33-58273) filed as of
May 5, 1995.
40
<PAGE>
10(c) Form of Assignment and Amendment Incorporated by reference to
of Employment Agreement. Exhibit 10(s) of the Company's
Registration Statement on Form
8-B filed as of May 5, 1995.
10(d) Amendment to Executive Deferred Incorporated by reference to
Compensation Plan. Exhibit 10(u) of the Company's
Registration Statement on Form
8-B filed as of May 5, 1995.
10(e) Form of Amendment and Assignment Incorporated by reference to
of Executive Agreement. Exhibit 10(w) of the Company's
Registration Statement on Form
8-B filed as of May 5, 1995.
10(f) Form of Amendment and Assignment Incorporated by reference to
of Indemnification Agreement with Exhibit 10(aa) of the Company's
certain outside directors. Registration Statement on Form
8-B filed as of May 5, 1995.
Other Material Contracts
10(g)* Agreement with Citibank (South Dakota), 45-64
N.A., effective January 1, 1995 and
executed in June 1995.
10(h) Purchase and Sale Agreement with 65-105
American Express Centurion Services
Corporation and American Travel Related
Services Company, Inc., dated April 27,
1995.
11 Statement of Computation of Earnings per 106-109
share
15 Letter regarding unaudited interim 110
financial information
27 Financial Data Schedule
*Portions of Exhibit 10(g) have been omitted and filed separately with
the Commission pursuant to a confidential treatment request.
</TABLE>
41
<PAGE>
EXHIBIT 10(a)
DIRECTORS DEFERRAL PLAN
1. Purpose of the Plan.
The purpose of this Directors Deferral Plan (the "Plan") is to attract
and retain the services of well-qualified directors who are not employees of
Ideon Group, Inc. (the "Company") by providing directors with flexibility in the
form of payment of annual retainers and meeting fees. The Plan provides for
non-employee directors to elect to defer receipt of all or a portion of their
cash retainer or meeting fees.
2. Definitions.
For purposes of the Plan, the following capitalized terms shall have
the meanings set forth below:
2.0 "Board" means the Board of Directors of the Company.
2.1 "Change in Control" means the occurrence during the term of the
Plan 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 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 total 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, a "Change in Control"
shall not be deemed to occur if the foregoing events 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 date the Plan was adopted.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
42
<PAGE>
2.3 "Committee" means the Compensation Committee of the Board or such
other committee as may be designated from time to time by the Board.
2.4 "Eligible Director" means any person who is a member of the Board
and who is not an employee, full time or part time, of the Company.
2.5 "Exchange Act" means the Securities Exchange Act 1934, as amended.
2.6 "Plan" means this Directors Deferral Plan.
3. Administration of the Plan.
The Committee shall administer the Plan and shall have authority to
adopt such rules and regulations, and to make such determinations as are not
inconsistent with the Plan and are necessary or desirable for its implementation
and administration.
4. Termination and Amendment of the Plan.
The Plan shall become effective upon its adoption by the Board unless
sooner terminated in accordance with the terms hereof. The Board may terminate,
amend, modify or suspend the Plan at any time and from time to time in such
respects as the Board may deem advisable, subject to any stockholder or
regulatory approval required by law or regulation.
5. Deferral of Fees and Retainer.
5.0 Election to Defer. Any Eligible Director may elect to defer receipt
of a fixed percentage or fixed amount of the annual retainer and/or meeting fees
payable to such director. Such election to defer receipt of the retainer and/or
meeting fees must be received in writing by the administrator of the Plan prior
to the payment of the scheduled quarterly retainer or prior to any meeting at
which such meeting fees will be earned, and may specify whether the total amount
deferred at the election of such director (the "Deferred Amount") shall be paid
(a) in a lump sum or (b) over a period of five, ten, fifteen or twenty years,
from the date the Deferred Amount and any interest thereon would otherwise
become payable. The election pursuant to (a) or (b) above shall apply to all
Deferred Amounts. Any election to defer receipt of the retainer and/or fees
shall continue in effect until revoked in writing by the director. The Deferred
Amount and any interest thereon become payable upon the later of the director's
termination of service to the Company or upon reaching 65 years of age.
Notwithstanding the foregoing, the Deferred Amount and any interest thereon
shall immediately become payable in accordance with the director's election upon
a Change in Control.
5.1 Interest on Deferred Amounts. The Company shall pay to a director
participating in the Plan a further sum of money equal to the interest accrued
on the Deferred Amount. The Deferred Amount shall accrue simple interest,
commencing at the end of the calendar quarter for which the Deferred Amount
would have been payable, at a rate equal to the quarterly long term "applicable
federal rate" (as defined in
43
<PAGE>
Section 1274(d) of the Code) in effect at the end of each calendar quarter to
the date of actual payment. Such interest shall be computed on the basis of a
360 day year consisting of twelve thirty day months.
5.2 Rights in Deferred Amounts. Any rights to the Deferred Amount and
any interest thereon created under the Plan shall be unsecured contractual
rights of participants in the Plan and their beneficiaries against the Company
and will be subject to the claims of the Company's general creditors under
federal and state law.
5.3 Timing of Distributions. Any distributions of the Deferred Amount
and any interest thereon shall be paid on the first January 15 after such
Deferred Amount and interest become payable in accordance with Section 5.0. If
an election is made pursuant to Section 5.0(b) to receive the Deferred Amount
and interest in equal annual installments, the initial annual installment shall
be paid on the first January 15 after the Deferred Amount and interest become
payable and all succeeding annual installments shall be paid on January 15 of
each succeeding year. If January 15 is not a business day for any given year,
distributions shall be paid on the next succeeding business day.
6. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to
confer any right on any person at any time to continued service to the Company.
7. Effective Date and Term.
The Plan shall be effective as of the date of its adoption by the
Board, and shall remain in effect until amended or terminated by action of the
Board.
8. Withholding.
Whenever the Company proposes or is required to distribute any Deferred
Amount an interest pursuant to Sections 5.0 or 5.1 of the Plan, the Company
shall have the right to require the director to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any such distribution. The Company, at its option, may
make any distributions net of an amount of cash sufficient to satisfy any such
federal, state or local withholding tax liability.
9. Governing Law.
The Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Florida.
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EXHIBIT 10(g)
AGREEMENT
Agreement dated as of January 1, 1995, by and between CITIBANK (SOUTH
DAKOTA), N.A., a National Banking Association having its principal place of
business at 701 East 60th Street North, Sioux Falls, South Dakota 57117
("CBSD"), and SAFECARD SERVICES, INC., a Delaware corporation having its
principal place of business at 7596 Centurion Parkway, Jacksonville, Florida
32256 ("SafeCard").
WITNESSETH:
WHEREAS, CBSD issues MasterCard and Visa credit cards, including
co-branded credit cards ("CBSD Cards"), and provides marketing services for
MasterCard and Visa credit cards issued by CBSD; and
WHEREAS, pursuant to a long standing business and contractual
relationship between CBSD and SafeCard, SafeCard markets to and services a card
registration service denominated "Protection Plus" to holders of CBSD Cards; and
WHEREAS, the parties desire to transform their relationship to a
strategic alliance consistent with their respective corporate objectives in
which the parties will continue the marketing, servicing and billing of
Protection Plus (the "Program") to holders of CBSD Cards (collectively
"Cardholders"), and engage in agreeable cooperative endeavors with respect to
and apart from Protection Plus (including other mutually agreeable programs)
designed to enhance Cardholder and Program membership acquisition and retention,
subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained in this Agreement, CBSD and SafeCard agree as follows:
ARTICLE 1. DEFINITIONS
1.1 "CBSD Cardholder" - Means a holder of a CBSD Card, including any holders of
any new Visa or MasterCard cards CBSD introduces during the term of this
Agreement (excluding Diners Club and business and corporate cards).
1.2 "Participating Cardholder" - Means a CBSD Cardholder who has accepted an
offer to enroll as a member in the Program.
1.3 "New CBSD Accounts" - Means accounts of CBSD Cardholders' which are one
month old or less.
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1.4 "Reissue CBSD Accounts" - Means accounts of CBSD Cardholders' which are
other than New CBSD Accounts.
1.5 "Solicitation Contact" - Means a CBSD Cardholder reached by a Program
solicitation. Outbound telemarketing solicitation contacts are defined as the
CBSD Cardholders who are called and are the subject of an outbound telemarketing
presentation. Outbound telemarketing solicitation contacts do not include CBSD
Cardholders who have not been reached. Direct mail solicitation contacts are
defined as the CBSD Cardholders who are mailed a solicitation mailer.
1.6 [Confidential Treatment Requested]
1.7 [Confidential Treatment Requested]
1.8 "Initial Term" - Means the term of the Agreement from its inception
(January 1, 1995) until December 31, 2000.
1.9 "Contract Year" - Means each calendar year period under this Agreement from
January 1, 1995.
ARTICLE 2. SOLICITATION AND ENROLLMENT
2.1 Solicitations
(a) SafeCard shall solicit CBSD Cardholders for membership in the
Program. CBSD shall provide SafeCard with lists of CBSD Cardholders in
a mutually acceptable format in order for SafeCard to solicit such
Cardholders for Program Membership. The scheduling, format and volume
of solicitation activity shall be mutually agreed upon by CBSD and
SafeCard, subject to Article 2.1(b), (c) and (d) below.
(b) [Confidential Treatment Requested]
(c) [Confidential Treatment Requested]
(d) [Confidential Treatment Requested]
(e) [Confidential Treatment Requested]
(f) SafeCard shall, where telemarketing is authorized, cause its phone
agents to meet the Performance Standards for Telephone Solicitations as
set forth in Schedule 4 attached hereto and the Telemarketing Ethics
Statement attached hereto as Schedule 5. All telemarketing scripts
shall be adhered to; all telemarketing solicitations shall comply with
the laws and regulations applicable to telemarketing; and the status of
pending telemarketing regulations shall be diligently monitored by
SafeCard and all adopted changes complied with.
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(g) At its expense, where provided for or otherwise agreed upon
pursuant to this Agreement, SafeCard shall print and mail solo mailers,
print and supply inserts, envelopes or carriers to CBSD specifications
and conduct outbound telemarketing. Upon agreement in regard to expense
or other particulars by way of addendum to this Agreement, SafeCard
shall also conduct [Confidential Treatment Requested] other agreed
upon direct response marketing. Solicitation materials shall include
the following:
(i) Reference to the Program as "Protection Plus" and
identification of SafeCard as the service provider
responsible for arranging the Program.
(ii) Notification of the applicable membership fee ("Membership
Fee"), which shall be $15.00 for a one year membership and
$45.00 for a three year membership (except that for
testing purposes the parties may agree to test different
price points); and
(iii) Notification that Membership Fees shall automatically be
charged to Participating Cardholder's account for the year
in which they are due and shall renew automatically,
unless the Participating Cardholder notifies SafeCard or
CBSD of his/her desire to cancel membership in the
Program; and
(iv) Notification that the Participating Cardholder may cancel
membership in the Program at any time and receive a full
refund of his/her membership fee billed for the then
current membership period; and
(v) An endorsement or introduction from CBSD in letter form
for mailings and verbally for Telemarketing.
(h) SafeCard shall develop at its expense, all materials necessary to
operate the Program, including membership kits and ongoing customer
service correspondence. In addition, SafeCard agrees to develop an
annual communication piece to be mailed to Participating Cardholders
which will be designed to improve Program membership awareness and
retention by informing them as members about the Program and
encouraging utilization of the Program features and benefits. SafeCard
further agrees to develop a renewal notice to be mailed to
Participating Cardholders prior to the expiration of their current
membership period which will inform them that their Program membership
will be renewed and their account billed, the timing of the billing,
and of the amount to be billed if different from the membership fee
previously billed and which will describe how the Participating
Cardholder may cancel his or her Program membership without further
obligation. SafeCard may format the annual communication piece referred
to in this paragraph to serve, where appropriate, as the renewal
notice.
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2.2 CBSD Approval.
(a) SafeCard shall submit to CBSD for timely written approval: (i) all
the materials it proposes to use in connection with the Program at a
reasonable time prior to production, based upon a milestone plan to be
established by the parties, which will include written proposals of
marketing objectives and strategies, pricing, marketing programs and
creatives, solicitation materials, enrollment forms, membership kits,
renewal notice and membership retention materials, customer
correspondence, and the like; and (ii) the names of any agents it
desires to hire to help meet the requirements of this Agreement. CBSD's
approval shall not be unreasonably withheld. However, if CBSD requires
any reasonable changes to such materials as a condition of its
approval, SafeCard shall promptly make such changes at its sole
expense. CBSD agrees that where its approval is required in accordance
with this paragraph, it will use its best efforts to render its
decision to SafeCard within five business days following the
submission. Any agent hired by SafeCard shall permit CBSD to audit its
operations periodically.
(b) Mailing pieces and telemarketing scripts approved by CBSD for use
by SafeCard as solicitations during the term of this Agreement shall be
subject to periodic review on a yearly basis and to any modification
that may be required to conform such materials to applicable legal
requirements and to the CBSD Graphics Standards normally used for all
CBSD solicitations.
2.3 Enrollments
(a) Enrollment in the Program in response to a mailing solicitation is
effective when the Cardholder completes and returns the appropriate
form to SafeCard or calls SafeCard. Where enrollment in the Program is
by response to a telemarketing solicitation, enrollment shall take
effect only if the Cardholder verbally agrees to enroll and SafeCard
informs the Cardholder: (i) of the amount of the Membership Fee and
that CBSD will bill it to his/her account, and (ii) that the fee will
renew at expiration unless the Cardholder cancels.
(b) SafeCard shall keep imaged copies of enrollment forms and
telemarketing enrollment records for a period of at least four (4)
years after their receipt and will periodically supply CBSD with copies
thereof (for Participating Cardholders) upon its reasonable request,
provided such request is for a limited number of Participating
Cardholders and is only in connection with customer service issues or
for marketing purposes.
(c) CBSD acknowledges that Participating Cardholders as members in the
Program are to be considered SafeCard's customers to the full extent
necessary for SafeCard to perform its obligations and exercise the
rights accorded to it in its agreement with the member, including the
obligation to implement and service the member on an on-going basis and
the right to receive payment therefrom deriving from Program membership
in accordance with the terms of this Agreement.
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2.4 Program Services.
(a) SafeCard will provide the Program services set forth in Schedule 6
attached hereto to all Participating Cardholders, including the
Preferred Cardholders referenced in Article 2.1(e).
(b) The Program shall conform to the specifications, representations,
warranties and covenants contained in this Agreement, including
Schedule 6 hereto, and to the solicitation and fulfillment materials
regarding the Program.
(c) All information concerning the Program contained in the
solicitation and fulfillment materials provided and utilized by
SafeCard pursuant to this Agreement is and will be, at the time of
dissemination, true and accurate. All claims, statements and
representations therein shall, upon CBSD's request, be substantiated by
SafeCard to the reasonable satisfaction of CBSD.
2.5 Participating File
(a) [Confidential Treatment Requested]
(b) [Confidential Treatment Requested]
2.6 Operations Policy and Procedures Manual. The Operations Policy and
Procedures Manual for Customer Service used in connection with the
Program is currently undergoing revision. The parties shall consult
with each other in connection with such revisions which shall be
mutually agreed upon. Modifications to the revised Manual may
thereafter be made at the request of either party, which approval by
the other shall not be unreasonably withheld.
ARTICLE 3. BILLING : PAYMENTS
3.1 Participating Cardholder Billing
(a) [Confidential Treatment Requested]
(b) [Confidential Treatment Requested]
(c) [Confidential Treatment Requested]
(d) [Confidential Treatment Requested]
(e) Should a Participating Cardholder terminate his/her participation
in the Program by writing to or calling SafeCard, or by contacting a
CBSD customer service representative who so notifies SafeCard, and
retention efforts as provided for under the
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Agreement are otherwise unsuccessful, SafeCard shall stop future
renewal charges and provide the Participating Cardholder with a full
refund or credit of the Participating Cardholders' current paid
membership fee in the Program.
3.2 Payments
(a) [Confidential Treatment Requested]
(b) [Confidential Treatment Requested]
(c) [Confidential Treatment Requested]
(d) [Confidential Treatment Requested]
3.3 Payment for CBSD Solicitation Costs. SafeCard shall reimburse CBSD,
within 30 days of billing, for any costs CBSD reasonably incurs in
connection with a Solicitation, provided: (i) such cost is not
otherwise covered by this Agreement; (ii) CBSD supports its billing
invoice with appropriate detailed information; (iii) the cost was
incurred by CBSD in good faith in pursuit of the objectives of this
Agreement; (iv) SafeCard has agreed to such cost in advance, but
SafeCard will not unreasonably deny approval; and (v) SafeCard will
then include such cost in the next Reconciliation as a Solicitation
cost.
3.4 Reimbursement for Cancelled Solicitations. CBSD may delay or cancel any
solicitation for any reason. If CBSD cancels a solicitation, it shall
within thirty (30) days of receipt of invoice from SafeCard reimburse
SafeCard its reasonable expenses in producing the materials prepared
for that solicitation, unless CBSD's decision, made in good faith, was
in response to a failure by SafeCard to meet Citibank's Graphic
Standards or to unacceptable performance by SafeCard, which SafeCard
failed to cure promptly after notice from CBSD.
3.5 [Confidential Treatment Requested]
ARTICLE 4. SERVICING AND RETENTION
4.1 Cardholder Servicing Facility. SafeCard shall maintain a Cardholder
servicing facility to which Cardholders may communicate any complaints
or inquiries regarding the Program. A dedicated 24-hour 800 toll-free
telephone number and address shall be set forth in all membership kits.
CBSD may, at its expense, conduct an on-site audit of any such customer
servicing facility from time to time during normal business hours.
4.2 Service Quality. SafeCard shall continue to meet the on-going Service
Quality Levels set forth in Schedule 9. If at any time SafeCard fails
to meet such Service Levels, upon written notice to SafeCard by CBSD,
SafeCard shall have [Confidential Treatment Requested] in which to cure
the problem, unless such problem was caused by CBSD or
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by a force majeure event, whereupon the parties will cooperate to
resolve the same promptly.
4.3 Claims and Disputes. All claims and disputes of any kind and for any
reason whatsoever by any Participating Cardholder concerning Program
services covered hereunder shall be resolved directly between SafeCard
and the Participating Cardholder member. Credits and adjustments shall
not be paid in cash, but by means of SafeCard crediting the
Participating Cardholder's credit card account as evidenced by a
properly completed credit memorandum. CBSD may debit SafeCard for the
amount of any dispute concerning Program services which SafeCard cannot
resolve within 45 days. CBSD will credit the account of the applicable
Participating Cardholder within five (5) days. If SafeCard fails to
resolve a legitimate dispute, and if the Cardholder requests, SafeCard
shall refund at its own expense the membership fee paid by that
Cardholder within five (5) days of receipt of the request.
4.4 Retention Efforts
(a) [Confidential Treatment Requested]
(b) [Confidential Treatment Requested]
ARTICLE 5. TRADEMARKS AND TRADE NAMES
5.1 Trademarks and Tradenames. Each party hereto: (i) acknowledges the
other's proprietary interest in and to all of their own logos,
trademarks, trade names and service marks (collectively, the "Marks");
(ii) grants to the other, to the extent necessary to meet its and the
other party's responsibilities under this Agreement, a limited license
to use the other's Marks, subject to the prior approval in writing of
such party; (iii) acknowledges that it acquires no right in the Marks
of the other party by virtue of such use; and (iv) acknowledges and
hereby ratifies their respective current uses of such Marks. SafeCard's
use of the "Protection Plus" service mark shall be subject to the
requirements of this Section.
ARTICLE 6. INDEMNIFICATION, INSURANCE AND BONDING
6.1 Indemnification. Each party (the "Indemnitor") hereby agrees to
indemnify, defend, and hold harmless the other party, and its parents,
subsidiaries and affiliates, and their officers, directors and
employees (the "Indemnitees") from and against any and all claims,
damages, losses, costs or expenses (including any and all reasonable
attorneys' and experts' fees), which the Indemnitee might suffer, incur
or be subjected to by reason of any legal action, proceeding,
arbitration or other claim, whether commenced or threatened, arising
out of or as a result of the Indemnitor's performance under this
Agreement; provided, however, that, (i) the Indemnitee notifies the
Indemnitor promptly
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of any such claim or action; and (ii) such claims, damages, losses,
costs or expenses are not attributable to any negligent act or
omission by the Indemnitee, its partners, affiliates, subsidiaries or
any of their employees or agents; and (iii) the Indemnitee provides
the Indemnitor with all assistance and information necessary for the
Indemnitor to prosecute its defense of the action. The Indemnitor shall
bear all expenses in connection with the defense and/or settlement of
any such claim or suit. The Indemnitee shall have the right, at its own
expense, to participate in the defense of any claim against which it is
indemnified and which has been assumed by the obligation or indemnity
hereunder; however, it shall have no right to control the defense,
consent to judgment, or agree to settle any such claim without the
consent of the Indemnitor. The Indemnitor, in the defense of any such
claim, except with the written consent of the Indemnitee, shall not
consent to entry of any judgment or enter into any settlement which
either (A) does not include, as an unconditional term, the grant by the
claimant to the Indemnitee of a release of all liabilities in respect
of such claims, or (B) otherwise adversely affects the rights of the
Indemnitee. This provision shall survive the termination or expiration
of this Agreement.
6.2 Insurance. During the term of this Agreement, SafeCard shall maintain
general liability and umbrella insurance policies in a form and
substance satisfactory to CBSD (acting in good faith) in the aggregate
amount of at least twenty million dollars ($20,000,000). Such policies
shall name CBSD as beneficiary. Each policy shall provide for thirty
(30) days notice to CBSD by the insurance company of intent to change,
not to renew, or modify the policy. In the event such insurance lapses,
SafeCard shall immediately notify CBSD and shall promptly secure
comparable replacement insurance.
6.3 Bonding. SafeCard will maintain fidelity bonding covering all its
employees with a limit of $1,000,000. In the event of any lapse in
coverage, SafeCard shall secure replacement coverage, if available at
reasonable cost and shall promptly notify CBSD in the event it is
unable to secure replacement coverage. No lapse of coverage shall be
considered a material breach.
ARTICLE 7. MUTUAL OBLIGATIONS AND REPRESENTATIONS
7.1 Deadlines. The parties hereto shall inform each other of their
deadlines for submitting material for approval and shall assist each
other in meeting such deadlines or in obtaining variances from such
deadlines as may be necessary from time to time.
7.2 Preservation of Good Will. Neither party shall intentionally publish
any inappropriate statement or undertake any inappropriate activity
which would maliciously demean or tarnish the products and image of the
other party (including its parents, affiliates, and subsidiaries).
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7.3 Confidentiality
(a) The parties agree that all information provided by the other party
is confidential and proprietary to such party and that neither party
shall use any information provided by the other party for any purpose
other than as permitted or required for performance under this
Agreement. The parties further agree not to disclose or provide any
information provided by the other party to any third party (with the
exception of an affiliate or subsidiary) and agree to take all
reasonable measures, including, without limitation, measures taken by
each party to safeguard its own confidential information, to prevent
any such disclosure by its employees, registered representatives,
agents or contractors. Nothing provided herein shall prevent SafeCard
or CBSD from disclosing information which: (i) is or hereafter becomes
part of the public domain through no fault of its own; (ii) is received
from a third party; (iii) is independently developed by it; (iv) is
disclosed pursuant to the requirements of a law upon giving notice to
the other party; or (v) either party already knew prior to January 1,
1981. This provision shall survive the termination or expiration of
this Agreement.
(b) SafeCard recognizes the value of the Cardholder lists to CBSD and
that any improper use of the same will cause irreparable injury to
CBSD. SafeCard shall not assign, sell, or otherwise transfer names or
lists of names of Cardholders or other information relating to
Cardholders, provided to it by CBSD to any person or entity and shall
not use such names or lists of names or other Cardholder information
provided to it by CBSD, except as otherwise expressly authorized
pursuant to this Agreement, and , except as otherwise provided in this
Agreement, such right or usage will terminate upon termination or
expiration of this Agreement. In the event of unauthorized use of such
names, or lists of names by SafeCard, [Confidential Treatment
Requested] SafeCard shall be obligated to pay CBSD's actual damages,
plus any pecuniary gain realized by SafeCard from the unauthorized use
if applicable. This provision shall survive the termination or
expiration of this Agreement.
(c) SafeCard shall, when reasonably possible, keep all CBSD related
records segregated from its other business in accordance with
procedures which may be reasonably requested by CBSD. Notwithstanding
the above, SafeCard will keep the list of Cardholders provided to it by
CBSD and Participating Cardholder lists segregated from its other
business files. SafeCard also agrees that any dissemination of CBSD
records within its own business entity shall be on a "need to know"
basis for the purpose of performance hereunder.
(d) If either party hires another party to assist it in the performance
of any term of this Agreement, it shall cause such other party to meet
the terms of this Article in full, as applicable.
7.4 Authority. Each party represents and warrants to the other that it has
the authority to enter into and perform this Agreement according to its
terms and that its performance will not violate any federal, state or
local laws and regulations applicable to it, including Visa and
MasterCard Rules and Merchant Regulations and Federal Trade Commission
Rules,
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Guides and Interpretations, nor contravene the terms of any other
contract, agreement or instrument to which it is a party.
7.5 Licenses, Permits, Patents, Etc. The parties each have obtained, now
hold, and shall preserve and protect all licenses, permits,
certifications, trade marks, approvals and the like required by
applicable law for the purpose of performing this Agreement. SafeCard
will make all registrations and filings which may be required to do
business and to carry out its obligations under this Agreement under
the laws of each state in which the Program shall be provided.
7.6 Regulatory Inquiries. SafeCard will submit initially to CBSD for its
review and approval, which approval shall not be unreasonably withheld,
the relevant portions of filings or communications it submits to any
regulatory authority in connection with any Program inquiry that refers
to the respective roles of CBSD or its affiliates in connection with
the services provided hereunder. In the event any regulatory authority
determines (after providing SafeCard with notice and opportunity to be
heard) that the (Protection Plus) Program violates federal, state or
local laws or regulations, SafeCard may, with CBSD's approval which may
not be unreasonably withheld, make such changes as are necessary in the
Program to comply with such laws or regulations or at its option make
or cause to be made the necessary filing to bring the Program into
compliance with such laws or regulations at the sole expense of
SafeCard or the permitted subcontractor. In the event SafeCard fails to
make such changes or filings, CBSD, at its option, may require SafeCard
to cease marketing the Program in the applicable jurisdiction.
7.7 Sales Or Use Tax. To the extent required by applicable law, SafeCard
shall file in a timely manner all sales or use tax returns and remit to
the appropriate tax authorities all such sales and use taxes in
connection with sales arising out of this Agreement. SafeCard shall be
solely responsible for all sales or use taxes arising out of this
Agreement regardless of the party against whom such taxes may be
assessed. This paragraph shall survive the termination of this
Agreement and remain in effect until the statute of limitations on such
sales or use tax expires.
7.8 Litigation Against Each Other; Jury Trial Waiver. In the event of
litigation arising out of this Agreement (whether for violation of law,
breach of contract, or otherwise), each party agrees: (i) the
prevailing party shall be entitled to recover the attorney fees it
reasonably incurs in pursuit of its claim, and (ii) to waive its right
to a jury trial of such litigation.
7.9 Meetings. The parties shall endeavor to meet periodically: (i) to
discuss operations under this Agreement and provide detailed
information with respect to the performance of both parties concerning
their respective responsibilities hereunder; (ii) to discuss and
exchange information about promotional and planning programs; (iii) to
assess the performance of the marketing programs for the Program and to
recommend improvements thereof; and (iv) to discuss systems and
customer service matters and the improvements thereof.
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ARTICLE 8. TERMINATION
8.1 Termination Without Cause. Either party may terminate this Agreement
for any reason whatsoever on December 31, 2000 or [Confidential
Treatment Requested]. This Agreement shall not be subject to
termination prior to said December 31, 2000 date, unless by mutual
agreement or by reason of Article 8.2, 8.3, 8.4 or 8.5.
8.2 Termination for Bankruptcy; Going Out of Business. In the event either
party shall:
(i) elect to be wound up and dissolved;
(ii) become insolvent;
(iii) make any involuntary assignment for the benefit of creditors;
(iv) file a voluntary petition in bankruptcy for reorganization
or be adjudicated as bankrupt or insolvent;
(v) have a liquidator or trustee appointed over its affairs and
such appointment shall not have been terminated and discharged
within thirty (30) days, or
(vi) go out of business,
then the other party may terminate this Agreement upon written notice
to the other.
8.3 Termination for Judicial or Regulatory Constraints. If any governmental
body with legislative, rule making, prosecutional, or judicial
authority enacts a new rule or law or issues an order or the like which
in CBSD's good faith opinion will prevent CBSD from substantially
performing this Agreement, or which materially restricts CBSD's ability
to freely bill and collect Program fees, the parties will endeavor, if
mutually agreed upon, to restructure the arrangement called for by this
Agreement in such agreed upon manner as will alleviate the relevancy
and impact of the constraint. In the absence of such, CBSD may
terminate this Agreement upon written notice to SafeCard. Such
termination shall be effective the earlier of 30 days from such notice
or the date CBSD must cease performance pursuant to law. In such event,
CBSD shall reimburse SafeCard upon billing for any reasonable
out-of-pocket printing and related expenses incurred by SafeCard in
connection with any planned solicitation pursuant to this Agreement,
provided such expenses had been previously consented to by CBSD in
writing. Such reimbursement shall be the exclusive remedy for such a
termination, subject to Article 8.7 hereof.
8.4 Termination for Material Breach
(a) If SafeCard fails to perform any of its material obligations
hereunder and such failure remains uncured after ninety (90) days prior
written notice provided to it by CBSD, then CBSD may terminate this
Agreement upon providing prior written notice to SafeCard.
(b) SafeCard shall have the right to terminate this Agreement upon
prior written notice to CBSD, if CBSD fails to perform any of its
material obligations hereunder and CBSD fails to cure the breach to the
reasonable satisfaction of SafeCard within ninety (90) days after being
so notified of the breach by SafeCard. In such event, Article 8.7
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shall apply with respect to the servicing and billing of existing
Program members, except that SafeCard will not be required to pay
CBSD as otherwise set forth in Article 3.2.
8.5 Termination for Change in Control. In the event of a sale of a majority
of the shares of SafeCard to an unaffiliated third party, SafeCard
shall promptly notify CBSD. If CBSD reasonably disapproves of such
party and SafeCard nevertheless completes the sale, then CBSD shall
have the right to terminate this Agreement upon written notice to
SafeCard as of the date of such sale except that CBSD's right to
terminate herein will apply only if the third party acquiring SafeCard:
(a) is American Express, Discover, Sears, any Visa or MasterCard
issuer, or a bank or a corporate affiliate thereof, or (b) does not
have equity of at least $25,000,000.
8.6 Substitute Vendors: Return of Records. [Confidential Treatment
Requested] SafeCard also shall return to CBSD all records, in whatever
form maintained, on all Participating Cardholders. For a period of
eight (8) months after SafeCard has returned the Protection Plus file
to CBSD, SafeCard shall reimburse CBSD for SafeCard's share of any
membership cancellations for active Participating Cardholders who were
billed for Protection Plus within [Confidential Treatment Requested]
prior to termination and who paid SafeCard any membership fees.
8.7 [Confidential Treatment Requested]
8.8 Use of Trademarks.
(a) The parties acknowledge that their respective names, logos and
marks (the "Marks") possess a special, unique, and extraordinary
character which makes difficult the assessment of the monetary damage
which would be sustained by unauthorized use and, as such, recognize
that irreparable injury would be caused to the other party, and its
affiliates and subsidiaries, by unauthorized use of such marks. The
parties agree that injunctive and other equitable relief would be
appropriate in the event of a breach of this undertaking, and that such
remedy would not be exclusive of other legal remedies available to the
injured party. Therefore, after the termination of the Agreement, the
parties shall refrain from the use of any such Marks of the other
party, except if such use is necessary to: (i) convert or sell the
Cardholder accounts during the period after termination; (ii) wind down
the Program; (iii) bill and collect outstanding Program fees; or (iv)
implement the continued servicing pursuant to Article 8.7 hereof.
(b) SafeCard may continue to use the Protection Plus mark after a
termination covered by Article 8.7 where so permitted in accordance
therewith, provided; (i) the name of "Citibank" or any of its
affiliates is not used in connection with the mark or the related
product or service; (ii) if it is used in connection with a
solicitation of any kind, that such solicitation is not directed to any
Cardholder who has previously refused or cancelled membership or whose
name SafeCard received from a list provided to SafeCard by CBSD; or
(iii) if a Participating Cardholder cancels enrollment in the Program,
SafeCard
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promptly processes the cancellation and will not institute a
proactive solicitation to re-enroll such Cardholder (in response to the
cancellation) in the Program.
ARTICLE 9. EXCLUSIVITY AND NEW PROGRAM OPPORTUNITIES
9.1 Protection Plus Exclusivity.
(a) During the term of this Agreement, CBSD agrees not to offer the
Program or any other substantially similar Program, under the
Protection Plus name or any other trade name, to CBSD Cardholders which
is sold or operated by an entity other than SafeCard (including by
itself).
(b) [Confidential Treatment Requested]
9.2 Other Programs
(a) It is the intention of the parties that proposals from SafeCard for
marketing of new products and services as additional program offerings
to CBSD's Cardholders be encouraged by CBSD, and that where reasonably
possible based upon a good faith analysis of the proposal, the new
product and/or service be tested to CBSD's Cardholders as a new program
pursuant to such terms as the parties may in good faith agree. The
parties shall use their good faith efforts to test, if available, at
least one new product or service a year to CBSD Cardholders,
[Confidential Treatment Requested].
(b) [Confidential Treatment Requested]
(c) CBSD and SafeCard agree to mutually explore opportunities for
incorporating the travel services of National Leisure Group ("NLG")
and SafeCard Travel Services, Inc. ("STS") as an enhancement to
existing CBSD program offerings to CBSD Cardholders or as the basis
for a new service offering to CBSD Cardholders (including beyond what,
at the execution of this Agreement, is the present relationship
between CBSD and NLG). [Confidential Treatment Requested]
ARTICLE 10. GENERAL PROVISIONS
10.1 MIS / Reporting. SafeCard shall meet the MIS Reporting Specifications
set forth in Schedule 10.
10.2 Independent Contractor. Nothing in this Agreement or in the performance
thereof shall be construed to create a sales, agency, dealer or
employment relationship between SafeCard and CBSD. CBSD and SafeCard
are and shall remain independent contractors.
10.3 [Confidential Treatment Requested]
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10.4 Access to SafeCard's Records. Until the expiration or termination of
this Agreement, SafeCard shall give CBSD and its duly authorized
representatives full and complete access to any records reasonably
related to the performance of this Agreement, upon reasonable notice
during normal business hours.
10.5 Force Majeure. SafeCard shall not be liable for or deemed to be in
default of this Agreement for any delay or failure in performance
resulting from circumstances beyond its control, including but not
limited to accidents, fires, explosions, riots, acts of God, utilities
failures, and work stoppage (other than those of employees or agents of
SafeCard provided that SafeCard has acted in due diligence as the
circumstances require). Notwithstanding the above, SafeCard shall use
its best efforts to implement a contingency plan to limit any break in
service to Participating Cardholders to seventy-two (72) hours.
10.6 Applicable Law. The laws of the State of South Dakota shall govern the
enforcement and interpretation of this Agreement and the rights, duties
and obligations of the parties hereto.
10.7 Merger Clause. The parties acknowledge that this Agreement, together
with the attached Schedules, is the complete and exclusive statement
and understanding between the parties with respect to the subject
matter hereof, supersedes all prior agreements and understandings
between the parties with respect to such subject matter (including, but
not limited to, the agreement between SafeCard and CBSD dated January
1, 1989, and amendments thereto, concerning Protection Plus) and no
change or modification to this Agreement shall be made except in
writing duly signed by the parties hereto.
10.8 Severability. If any part of this Agreement shall be held to be void or
unenforceable, such part shall be severable from the rest, leaving
valid the remainder of this Agreement, notwithstanding the part or
parts found to be void or unenforceable, and effect shall be given to
the intent manifested by the portion held invalid or inoperative.
10.9 Notices. All notices or other documents required to be given pursuant
to this Agreement shall be effective when received and shall be
sufficient if given in writing, hand delivered, sent by telegraph or
certified United States Mail, return receipt requested, addressed as
follows:
Citibank (South Dakota), N.A.
701 E. 60th Street North
Sioux Falls, S.D. 57117
Attention: General Counsel
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SafeCard Services, Inc.
7596 Centurion Parkway
Jacksonville, FL 32256
Attention: Robert M. Frechette
President and Chief Executive Officer
With a duplicate copy to: Marc F. Joseph
General Counsel
The parties hereto may at any time change the name and
addresses of persons to whom must be sent all notices or other
documents required to be given under this Agreement by giving written
notice to the other party.
10.10 Binding Nature of Agreement. This Agreement is and shall be binding
upon and inure to the benefit of the parties hereto, and their
respective legal representatives, successors and permitted assigns.
10.11 Headings. The paragraph headings used herein do not form a part of this
Agreement, but are for convenience only and shall not limit or be
deemed or construed in any way to affect or limit the meaning of the
language of the paragraph.
10.12 Coordination of Public Statements. Neither party will make any public
announcement of the Program or provide any information concerning the
Program to any representative of any news media without the prior
approval of the other, and will not respond to any inquiry from any
public or governmental authority concerning the Program without prior
consultation and coordination with the other unless and as required
under SEC or NYSE rules and regulations.
10.13 Assignment. This Agreement may not be assigned or transferred by either
party without the prior written consent of the other party, except that
either party may assign or transfer this Agreement to a corporate
parent, subsidiary, or affiliate upon notice to the other. The party
effecting such assignment shall continue to remain fully responsible to
the other for the performance of the contractual obligations so
assigned.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CITIBANK (SOUTH DAKOTA), N.A. SAFECARD SERVICES, INC.
By: /s/Ronald F. Williamson By: /s/Robert M. Frechette
(Signature) (Signature)
Name Ronald F. Williamson Name: Robert M. Frechette
Title: President and CEO Title: President & Chief Executive Officer
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SCHEDULE 1
(ACCOUNTS PROVIDED FOR SOLICITATION ACTIVITY)
[Confidential Treatment Requested]
SCHEDULE 2
(1995 PROTECTION PLUS MARKETING PLAN)
[Confidential Treatment Requested]
SCHEDULE 3
(REISSUE ACCOUNT TARGET MODELING)
[Confidential Treatment Requested]
SCHEDULE 4
(OUTBOUND TELEMARKETING OPERATIONAL POLICY AND PROCEDURES)
[Confidential Treatment Requested]
SCHEDULE 5
(PROTECTION PLUS TELEMARKETING ETHICS STATEMENT)
[Confidential Treatment Requested]
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SCHEDULE 6
(PROTECTION PLUS PROGRAM SERVICES
GENERAL DESCRIPTIONS TO WHICH SOME RESTRICTIONS APPLY)
a) SafeCard shall provide lost/stolen notification for all credit cards
registered with Protection Plus.
b) SafeCard shall be responsible for the Participating Cardholder's
liability for any and all fraudulent charges made on a Participating
Cardholder's credit card from the time the Participating Cardholder
notifies Protection Plus that the credit card is lost or stolen and for
which such Participating Cardholder is held liable (See Important
Notice concerning cardholder liability for fraudulent charges under
law).
c) SafeCard shall wire up to $1,500 in emergency cash advances, if
requested, to a Participating Cardholder charged to the Participating
Cardholder's CBSD Card (Must have sufficient available balance on your
cash advance line on your Citibank card).
d) SafeCard shall provide emergency airline tickets, if requested, charged
to the Participating Cardholder's CBSD Card (Must be traveling and have
a sufficient available balance on your Citibank card).
e) SafeCard shall provide a Participating Cardholder with change of
address notification to an unlimited number of magazines and up to five
(5) friends and relatives and to the Participating Cardholder's credit
card issuers whose policy is to accept such notifications.
f) SafeCard shall send Participating Cardholders confirmation letters of
the lost/stolen notification sent to the Participating Cardholder's
credit card issuers.
g) SafeCard shall provide "Warning Stickers" for a Participating
Cardholder's credit cards, as well as replacement of the same.
h) SafeCard shall update a Participating Cardholder's credit card
registration whenever the Participating Cardholder notifies SafeCard of
additions and/or deletions of credit cards.
i) SafeCard shall provide Participating Cardholders with car rental
discounts.
j) SafeCard shall pay a Credit Card Theft Reward for information leading
to the arrest and conviction of someone fraudulently using a
Participating Cardholder's CBSD Card (Participating Cardholder, his or
her spouse and law enforcement personnel not eligible for reward).
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k) SafeCard shall provide Participating Cardholders with a document
registration service under which Participating Cardholders may list, on
the registration form provided, important documents.
l) SafeCard shall provide Emergency Communication Message Service under
which Participating Cardholders, if stranded while traveling, may call
the toll-free number to leave messages for relatives/associates, and
request that up to three people be called anywhere in the U.S. to
inform them of an emergency message. If Participating Cardholders need
to speak directly with family or friends, they will be patched through.
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SCHEDULE 7
(COSTS AND EXPENSES CHARGEABLE)
[Confidential Treatment Requested]
SCHEDULE 8
(APPLICABLE PAYMENT PERCENTAGES)
[Confidential Treatment Requested]
SCHEDULE 9
(SERVICE QUALITY PERFORMANCE STANDARDS AND REQUIREMENTS)
[Confidential Treatment Requested]
SCHEDULE 10
(MIS REPORTING)
[Confidential Treatment Requested]
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EXHIBIT 10(h)
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of April,
1995, by and between AMERICAN EXPRESS CENTURION SERVICES CORPORATION, a Delaware
corporation ("Centurion"), and AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY,
INC., a New York corporation ("Travel Related") (collectively, the "Sellers"),
and IDEON GROUP, INC., a Delaware corporation (the "Purchaser"). In
consideration of the mutual covenants and promises herein set forth, the parties
agree as follows:
1. Sale and Purchase. Sellers agree to sell and convey unto
Purchaser, and Purchaser agrees to purchase and accept from Sellers, for the
price and subject to the terms, covenants, conditions and provisions herein
set forth, the following:
(a) All of that land, including all improvements (the
"Improvements") thereon, commonly known as the Optima Regional Operations
Center, and being more particularly described on Exhibit "A" attached hereto
(the "Land"). Centurion is the sole owner of the Improvements and that portion
of the Land described in Exhibit "A-1" attached hereto and Travel Related is the
sole owner of the balance of the Land.
(b) All right, title and interest, if any, of Sellers, in
and to any land lying in the bed of any street, road or access way, opened or
proposed, in front of, at a side of or adjoining the Land or Improvements to the
centerline thereof (the "Property Rights");
(c) All right, title and interest of Sellers, reversionary
or otherwise, in and to all easements in or upon or benefiting the Land and all
other rights and appurtenances belonging or in anywise pertaining thereto (the
"Appurtenances");
(d) The fixtures located on the Improvements, other than
those items sold as part of the Personalty under subparagraph (e) below and
which could be deemed to be a "fixture".
(e) The specific items of furniture, draperies, appliances,
office furniture, equipment, machinery, and other personal property owned by
Centurion set forth in the schedules of personal property being delivered
simultaneously herewith by Sellers to Purchaser and initialed by Sellers and
Purchaser (the "Personalty Schedule"), together with deletions and additions as
described in paragraph 18 below (the "Personalty"); and
(f) Sellers' interest in the equipment leases and assignable
service, supply and maintenance contracts relating to the Land, Improvements,
Fixtures or Personalty which Purchaser elects to assume under paragraph 12
below, together with any new contracts permitted under paragraph 12 below (the
"Contracts");
(g) Centurion's interest in and to the tenant leases for
space in the Improvements set forth in Exhibit "B" attached hereto (the
"Leases").
The items described in (a) through (g) of this Article I are
hereinafter collectively referred to as the "Property".
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2. Purchase Price; Terms of Payment. The purchase price to be paid by
Purchaser to Sellers for the Property, other than the Personalty, is THIRTY NINE
MILLION AND NO/100 DOLLARS ($39,000,000.00). The purchase price for the
Personalty (which shall be paid by Purchaser to Centurion) shall be equal to the
net book value of the Personalty as reflected in Centurion's internal financial
statements at the time of the closing of the transaction contemplated hereby
(the "Closing") (the aggregate purchase price for the Property is hereinafter
referred to as the "Purchase Price"); provided, however, that as set forth in
paragraph 19 below, the Purchase Price for those items of Personalty Purchaser
is obligated to purchase prior to Closing as a result of Purchaser leasing
Vacated Space (as defined in paragraph 19) shall be determined on the net book
value of those items as reflected in the Personalty Schedule, at the time
Purchaser is obligated to purchase those items from Centurion. It is
acknowledged and agreed that the Personalty Schedule sets forth the net book
value of the Personalty as currently reflected in Centurion's internal financial
statements and the net book value of the Personalty on scheduled future dates.
The Purchase Price, subject to prorations and adjustments as hereinafter set
forth and less the portion thereof paid for Personalty prior to Closing, shall
be paid by Buyer at Closing by wire transfer to Centurion of immediately
available federal funds. The Deposit (as described below) shall be part of said
funds and credited against the Purchase Price for the Property, exclusive of the
Personalty, due at Closing.
3. Deposit. To secure the performance by Purchaser of its obligations
under this Agreement, Purchaser has delivered to the law firms of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. and Martin, Ade, Birchfield &
Mickler, P.A., as co-escrow agents (the "Escrow Agents"), the sum of THREE
MILLION NINE HUNDRED THOUSAND ($3,900,000.00) Dollars (the "Deposit") by check,
the proceeds of which shall be held as an earnest money deposit. The Escrow
Agents shall use their good efforts to invest the Deposit in an interest-bearing
account or investment as agreed to by Sellers and Purchaser. All interest
accrued or earned thereon shall be paid to Sellers (without credit to Purchaser)
at the time the Deposit is released by Escrow Agents, except that if the Deposit
is returned to Purchaser either as a result of a default by Sellers under this
Agreement or pursuant to paragraphs 4, 8, 17 [item (ii)] or 25, the interest
accrued or earned thereon shall be paid to Purchaser.
4. Title. Within twenty (20) days following execution of this Agreement
by both parties, Purchaser, at Purchaser's cost, shall obtain a title commitment
(the "Commitment") for an owner's ALTA Form B Marketability title insurance
policy from Lawyer's Title Insurance Corporation (or other national title
company) (the "Title Company") in favor of Purchaser in the amount of
$39,000,000. The Commitment shall show Sellers to be vested with fee simple
title to the Land, subject to the following (the "Permitted Exceptions"):
(a) ad valorem real estate taxes for 1995 and subsequent years;
(b) all laws, ordinances, and governmental regulations, including,
but not limited to, all applicable building, zoning, land use and
environmental ordinances and regulations;
(c) matters which would be disclosed by an accurate survey of the Land;
(d) the Leases;
(e) those matters set forth on Exhibit "C" attached hereto; and
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(f) any improvement liens assumed by Purchaser pursuant to paragraph 15
below.
Purchaser shall have ten (10) days from receipt of the Commitment
within which to examine same. If Purchaser finds title to be defective (i.e.,
matters which materially, adversely affect the value or utility of the Land and
are not Permitted Exceptions), Purchaser shall, no later than the expiration of
such ten (10) day period, notify Sellers in writing specifying the defect(s),
provided that if Purchaser fails to give Sellers written notice of defect(s)
before the expiration of said ten (10) day period, the defects shown in the
Commitment shall be deemed to be waived as title objections to closing this
transaction, anything in this Agreement not withstanding, and Sellers shall be
under no obligation whatsoever to take any corrective action with respect to
same nor to warrant title to same in its special warranty deed of conveyance. If
Purchaser has given Sellers timely written notice of defect(s) and the defect(s)
render the title other than as required by this Agreement, Sellers shall use
their reasonable efforts to cause such defects to be cured by the date of
Closing. Sellers agree to remove by payment, bonding, or otherwise, any lien or
encumbrance in a liquidated amount against the Property which was created by
Sellers and which is removable by the payment of money or posting of a bond. In
no event shall Sellers be obligated to bring suit or to expend any sums of money
to buy-out or to settle any other lien, encumbrance or claim against the
Property or to cure any other title defect unless such lien, encumbrance or
claim arose from, or was caused by, Sellers' act or omission. In the event that
Sellers do not eliminate all timely raised title defects as of the date
specified in this agreement for Closing, Purchaser shall have the option of
either: (i) closing and accepting the title "as is," without reduction in the
Purchase Price and without claim against Sellers therefor, or (ii) canceling
this Agreement, in which event the Escrow Agents shall return the Deposit and
all interest earned thereon to Purchaser, whereupon both parties shall be
released from all further obligations under this Agreement.
5. Survey. Purchaser, at Purchaser's expense, within the time allowed
for delivery of the Commitment and examination of same, may have the Property
surveyed and certified by a registered Florida surveyor. If said survey (the
"Survey") reveals encroachments on the Property, or shows that the Improvements
encroach on setback lines, easements, lands of others or violate any
restrictions, covenants or applicable governmental regulations, the same shall
be treated as a title defect pursuant to paragraph above.
6. Inspection Period. Purchaser shall have a period of time from the
date of this Agreement until May 16, 1995 (the "Inspection Period") to make such
physical, zoning and other examinations, inspections and investigations of the
Property which Purchaser, in Purchaser's sole discretion, may determine to make.
Purchaser shall notify Sellers, in writing, of its intention, or the intention
of its agents or representatives, to enter the Property prior to such intended
entry, and shall obtain Sellers' written consent, not to be unreasonably
withheld or delayed, to any proposed tests of any invasive nature or which could
damage the Property. Purchaser shall bear the cost of all inspections and tests.
At Sellers' option, Sellers may be present for any inspection or test. During
the Inspection Period, Sellers shall make available to Purchaser all
documentation maintained by Sellers at the Property which pertains to the costs
and expenses incurred by Sellers in connection with the ownership and operation
of the
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Improvements (and not Sellers' business) over the prior three years
("Sellers' Operating Records").
7. Inspection Obligations. Purchaser and its agents and representatives
shall: (a) not disturb the Sellers, or any of Sellers' agents, contractors and
employees in their use of the Land or Improvements; (b) not interfere with the
operation and maintenance of the Land or Improvements; (c) not damage any part
of the Land, the Improvements, the Personalty or any personal property owned or
held by Sellers, Sellers' agents, contractors, or employees; (d) not injure or
otherwise cause bodily harm to Sellers, its agents, contractors and employees;
(e) maintain general liability (occurrence) insurance in terms and amounts
satisfactory to Sellers covering any accident arising in connection with the
presence of Purchaser, its agents and representatives on the Land and, upon
request of Seller, shall deliver a certificate of insurance verifying such
coverage to Sellers prior to entry upon the Property; (f) promptly pay when due
the costs of all tests, investigations, and examinations done with regard to the
Property and with Purchaser's authorization; (g) not permit any liens to attach
to the Land or Improvements by reason of the exercise of its rights hereunder;
(h) restore the Property to the condition in which the same was found before any
such inspection or tests were undertaken; and (i) not reveal or disclose any
information obtained during the Inspection Period concerning the Property to
anyone outside of Purchaser's organization, other than Purchaser's agents,
representatives and consultants. Purchaser indemnifies and holds Sellers
harmless from and against any and all liens, claims, causes of action, and
expenses (including reasonable attorneys' fees) arising out of any violation of
the provisions of this paragraph . The Deposit shall secure this indemnification
and Purchaser grants to Sellers a right of set-off against the Deposit to pay
the cost of curing any violation of this paragraph . In the event that Purchaser
is entitled to receive the return of the Deposit under the terms of this
Agreement, but Sellers are then claiming a right of set-off against the Deposit
under this paragraph , the Deposit shall remain in escrow until Sellers' claim
is resolved. Notwithstanding any provision of this Agreement, no termination
hereof shall terminate Purchaser's obligations pursuant to this paragraph , and
the limitation of damages set forth in paragraph shall not be applicable to any
cause of action arising pursuant to this paragraph .
8. Material Defects; Termination. If Purchaser's inspection of the
Property reflects any Material Defects (as hereinafter defined), Purchaser shall
be entitled to terminate this Agreement by delivering to Sellers prior to the
expiration of the Inspection Period a copy of the inspection report(s)
reflecting the Material Defects, together with a statement from Purchaser that
it is electing to terminate this Agreement as a result of the Material Defects;
provided, however, that Sellers shall have the right to negate Purchaser's
notice, in which case Purchaser's termination of this Agreement shall be null
and void and this Agreement shall remain in full force and effect, if Sellers,
within five (5) business days of the receipt of Purchaser's notice and said
inspection reports, notify Purchaser that Sellers shall repair (or clean up) the
Material Defects (to the extent the cost thereof exceeds $100,000.00) prior to
Closing or at Closing Purchaser shall receive a credit against the Purchase
Price in an amount equal to the cost estimated by Sellers and Purchaser to
complete said repairs (or clean up) in excess of $100,000 (i.e., if the
estimated cost of repairs (or clean up) is $150,000, Purchaser's credit would be
$50,000). If Sellers and Purchaser cannot agree upon said cost, each party shall
obtain a written
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proposal for the making of the appropriate repairs from a responsible licensed
contractor (and/or site remediation contractor, if applicable) it chooses, and
the amount of the credit shall be the average of the two cost estimates so
obtained. If this Agreement is so terminated, neither Sellers nor Purchaser
shall have any further obligation or liability to the other hereunder, except as
provided in Paragraph 7 hereof. Upon Purchaser's delivery to Sellers of all
reports, test results and other information regarding any part of the Property
obtained by Purchaser (collectively, "Purchaser's Information"), the Deposit,
together with interest accrued thereon, shall be returned to Purchaser, subject
to the operation of Paragraph 7. The term "Material Defects" shall mean (i)
defects in the roof, structure, mechanical system, plumbing system or electrical
system of the Improvements which, in each case, costs more than $25,000 to
remedy, and (ii) hazardous materials located on the Land in violation of any
applicable law, collectively costing more than $100,000.00 to repair and/or to
clean up, as the case may be. For purposes of determining whether the aforesaid
$25,000.00 threshold under Item (i) is met, repairs of the same type may be
aggregated. By way of illustration and not limitation, the $25,000.00 threshold
would be met if 1000 windows needed recaulking at a cost of $300.00 per window.
9. Property Conveyed "AS IS". NOTWITHSTANDING ANYTHING CONTAINED HEREIN
TO THE CONTRARY, IT IS UNDERSTOOD AND AGREED THAT SELLERS ARE NOT MAKING AND
SPECIFICALLY DISCLAIM ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR
CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY, EXCEPT AS CONTAINED
IN THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS
AS TO MATTERS OF TITLE (OTHER THAN SELLERS' WARRANTY OF TITLE SET FORTH IN THE
SPECIAL WARRANTY DEED TO BE DELIVERED AT CLOSING), ZONING, TAX CONSEQUENCES,
PHYSICAL OR ENVIRONMENTAL CONDITIONS, AVAIL ABILITY OF ACCESS, INGRESS OR
EGRESS, VALUATION, GOVERNMENTAL APPROVALS, GOVERNMENTAL REGULATIONS OR ANY OTHER
MATTER OR THING RELATING TO OR AFFECTING THE PROPERTY, INCLUDING, WITHOUT
LIMITATION, (I) THE VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF THE PROPERTY, (II) THE
MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO ANY OF THE
PROPERTY AND (III) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY. PURCHASER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY
OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLERS OR ANY AGENT OF
SELLERS. PURCHASER REPRESENTS THAT IT IS A KNOWLEDGEABLE PURCHASER OF REAL
ESTATE AND THAT IT IS RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF
PURCHASER'S CONSULTANTS IN PURCHASING THE PROPERTY. PURCHASER WILL CONDUCT SUCH
INSPECTIONS AND INVESTIGATIONS OF THE PROPERTY AS PURCHASER DEEMS NECESSARY,
INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS
THEREOF, AND SHALL RELY UPON SAME. UPON CLOSING, PURCHASER SHALL ASSUME THE RISK
THAT ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL AND
ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INSPECTIONS
AND INVESTIGATIONS. PURCHASER ACKNOWLEDGES
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AND AGREES THAT UPON CLOSING, SELLERS SHALL SELL AND CONVEY TO PURCHASER AND
PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS," WITH ALL FAULTS.
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THERE ARE NO ORAL AGREEMENTS,
WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE PROPERTY BY
SELLERS, ANY AGENT OF SELLERS OR ANY THIRD PARTY. THE TERMS AND CONDITIONS OF
THIS PARA- GRAPH SHALL EXPRESSLY SURVIVE THE CLOSING AND NOT MERGE WITH THE
PROVISIONS OF ANY CLOSING DOCUMENTS. SELLERS ARE NOT LIABLE OR BOUND IN ANY
MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION
PERTAINING TO THE PROPERTY FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE,
SERVANT OR OTHER PERSON, UNLESS THE SAME ARE SPECIFICALLY SET FORTH OR REFERRED
TO HEREIN.
10. Sellers' Representations and Warranties. Notwithstanding
the provisions of paragraph 9, Sellers represent and warrant to Purchaser as
follows:
(a) Sellers have no notice or knowledge of any leases, service
contracts, employment agreements or other con tracts or
agreements which would affect the Property after Closing,
other than the equipment leases and contracts which Sellers
provide to Purchaser under paragraph 12 below, and the
Permitted Exceptions.
(b) Sellers shall be responsible for and shall promptly pay all
amounts owed for labor and services rendered, and materials
supplied, to the Property at the request of Sellers prior to
Closing.
(c) Each of the Sellers is a corporation duly organized, validly
existing and in good standing under the laws of the State of
its incorporation. This Agreement is binding on Sellers and
enforceable against Sellers in accordance with its terms. No
consent of any other person or entity to such execution,
delivery and performance is required.
(d) Each of the Sellers is not a "foreign person" within the
meaning of the United States tax laws and to which reference
is made in Internal Revenue Code Section 1445(b)(2). At
Closing, Sellers shall deliver to Purchaser a certificate to
such effect.
(e) During the period between the end of the Inspection
Period and Closing, Centurion shall continue to operate and
maintain the Improvements and the Personalty in a manner
consistent with its present practice (as evidenced by
Centurion's records over the 12 months pre ceding the date
of this Agreement), subject to any applicable terms of the
Pre-Closing Lease (as herein after defined). During this
period, Centurion shall continue to make necessary repairs
to the Property in the ordinary course of business, provided
that, except as set
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forth in Paragraph 8, Centurion shall not be obligated under
this Agreement to make any repairs or replacements which
would be considered of a capital nature under generally
accepted accounting principles unless prior to the
making of such repair(s) or replacement(s) Purchaser agrees
with Sellers that, at Closing, Sellers shall receive a
credit for the unamortized portion of the cost of such
repair(s) or replacement(s), based on the remaining useful
life thereof, as determined in accordance with generally
accepted accounting principles. Subject to the foregoing
limitation and any damage covered by paragraph 25, the
Improvements and the Personalty shall be in substantially
the same general condition on the date of conveyance to
Purchaser as existed on the date of this Agreement,
reasonable wear and tear, or damage caused by Purchaser,
excepted.
(f) Sellers are not aware of any written notice of violations
having been received by Sellers and which are currently
outstanding from any municipal, county, federal or state
governmental agency or any insurance company or affiliate
thereof with regard to violations of any rules, ordinances,
orders, requirements or regulations imposed on or affecting
the Property except as set forth on Exhibit "D" attached
hereto. Sellers shall promptly deliver to Purchaser any such
notices received by Sellers during the term of this
Agreement.
(g) There is not now pending or threatened any action, suit or
proceeding before any court, governmental agency, or body,
which might result in any adverse change in the financial
condition of the Sellers which would adversely affect
Sellers' ability to perform under this Agreement.
(h) Centurion shall not make any structural changes to the
Improvements of a material nature prior to Closing with out
Purchaser's consent, which consent shall not be unreasonably
withheld or delayed.
(i) Within five (5) business days from the date of this
Agreement, Sellers shall deliver to Purchaser a current
schedule of all leases affecting the Property, setting forth
the name of each tenant, the space affected, the rent, the
term and any prepaid rents. Prior to Closing, Centurion
shall not modify any lease, except to (x) extend the term
thereof to June 30, 1996 or, if sooner, upon 15 days prior
written notice from the lessee thereunder, or (y) modify the
rental payable thereunder to a rate not less than the rental
rate under the Post-Closing Lease.
(j) During the term of this Agreement, Centurion shall not make
any changes of a material nature to the structure of the
Improvements without Purchaser's prior written consent.
(k) Sellers have not knowingly brought onto, stored or disposed
of from the Property any hazardous materials in violation of
any applicable law which could impose liability upon
Purchaser after Closing.
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(l) Sellers have no actual knowledge of any non-compliance of
the Improvements with the American's With Disabilities Act.
(m) To the best of Sellers' knowledge, Sellers' Operating
Records are accurate in all material respects.
(n) Sellers have not knowingly taken any action which has
impaired the development rights for the Property under the
Development Order for Deerwood Park.
This paragraph shall survive for a period of 12 months after Closing,
except that Sellers' representations and warranties shall remain in effect with
respect to any space in the Improvements occupied by Sellers after Closing for a
period of twelve (12) months after such space is vacated by Sellers.
11. Purchaser's Representations. Purchaser represents to Sellers
as follows:
(a) Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware. The execution, delivery and performance of this
Agreement by Purchaser have been duly authorized, and this
Agreement is binding on Purchaser and enforceable against
Purchaser in accordance with its terms. No consent of any
other person or entity to such execution, delivery and
performance is required.
(b) There is not now pending or threatened any action, suit or
proceeding before any court, governmental agency or body
which might result in any adverse change in the financial
condition of the Purchaser which would adversely affect
Purchaser's ability to perform under this Agreement.
12. Future Contracts; Assignment of Contracts. Within thirty (30) days
of the date of this Agreement, Sellers shall deliver to Purchaser copies of all
equipment leases and all service, supply and maintenance contracts relating to
the Land, Improvements, Fixtures or Personalty and which may be assigned by
Sellers to Purchaser. By no later than November 1, 1995, Purchaser shall notify
Sellers in writing of those equipment leases and contracts which Purchaser, in
Purchaser's discretion, elects to assume; provided, however, if prior thereto,
Purchaser leases from Centurion Vacated Space, Purchaser must, at that time,
elect which leases and contracts pertaining to such Vacated Space Purchaser
elects to assume. Any lease or contract which Purchaser elects not to assume
shall not be assigned to Purchaser and shall remain the obligation of Sellers.
Sellers shall provide Purchaser with a copy of any contracts hereafter entered
into by Sellers which would affect the Property after Closing. After the
expiration of the Inspection Period, Sellers shall not modify any existing
contract nor enter into any new contract(s) without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld or delayed;
provided, however, no such consent shall be required for extensions of any of
the existing service contracts and/or the entering into of any new contract
which terminates prior to Closing or which Purchaser shall not be obligated to
assume at Closing. On
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each occasion that Purchaser leases from Centurion Vacated Space prior to
Closing pursuant to paragraph 19 below, Centurion shall assign to Purchaser, and
Purchaser shall assume all obligations of Centurion thereafter arising under,
those Contracts pertaining to the portion of the Personalty then being purchased
by Purchaser in connection with such leasing or covering property located in the
Vacated Space then being leased by Purchaser. At Closing, Sellers shall assign
to Purchaser and Purchaser shall assume all obligations of Sellers thereafter
arising under all remaining Contracts, except for those Contracts pertaining to
Personalty which Centurion shall lease pursuant to the Post-Closing Lease (as
described in paragraph 20 below) or covering property located in the space being
leased under the Post Closing Lease. Each time that space in the Improvements is
thereafter vacated by Centurion and removed from the Post-Closing Lease,
Centurion shall assign to Purchaser, and Purchaser shall assume all obligations
of Centurion thereafter arising under, those Contracts applicable to such space.
13. Default Provisions. Neither party shall be deemed in default of
this Agreement because of a breach of the terms of this Agreement, or a
misrepresentation made in this Agreement, unless and until it is notified in
writing by the other party of the alleged breach (or misrepresentation) and
fails to remedy said breach within 20 days after its receipt of said notice (if
necessary, the date of the Closing shall be postponed until the end of said
curative period or, if sooner, until the breach or misrepresentation is
corrected), provided that such notice and curative period shall not apply if the
breach is a failure to timely close in accordance with the terms of this
Agreement, in which case such failure shall automatically constitute a default
under this Agreement.
In the event of a default by Purchaser under this Agreement resulting
from Purchaser's failure to close in accordance with the terms and provisions of
this Agreement, without default on Sellers' part, Sellers shall receive the
Deposit, together with all interest earned thereon, as Sellers' sole and
exclusive remedy and as agreed and liquidated damages, whereupon the parties
shall be relieved of all further obligations hereunder. Purchaser and Sellers
acknowledge and agree that, in such event, actual damages are difficult or
impossible to ascertain and the Deposit, together with all interest earned
thereon, is a fair and reasonable estimation of the damages of Sellers. Sellers
shall be entitled to seek actual damages against Purchaser for any other default
by Purchaser under this Agreement.
In the event of a default by Sellers under this Agreement, without any
default of Purchaser, Purchaser at its option shall have the right, as its sole
and exclusive remedy, to either: (i) receive the return of the Deposit together
with all interest earned thereon, whereupon this Agreement shall terminate, the
parties shall be released from all further obligations hereunder, or,
alternatively, (ii) seek specific performance of the Sellers' obligations
hereunder; provided, however, that if Sellers' default consists primarily of
Sellers' wrongful refusal to close with Pur- chaser, then Purchaser may,
alternatively, seek damages against Sellers. In such event, Purchaser's damages
shall be limited to the amount of $3,900,000 unless Sellers' wrongful refusal to
close with Purchaser was primarily to enable Sellers to sell the Property to
another party, in which case the ceiling amount of $3,900,000 shall be
inapplicable. Notwithstanding anything herein to the contrary, Purchaser shall
be deemed to have elected to terminate this Agreement if Purchaser fails to
deliver to Sellers written notice of its intention to file a claim or
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assert a cause of action against Sellers within forty-five (45) days following
the date upon which Sellers' alleged default occurred or, having given such
notice, fails to file a lawsuit asserting said claim or cause of action within
ninety (90) days following the date upon which Sellers' alleged default
occurred.
14. Prorations, Deposits. Real estate taxes, personal property taxes on
those items being conveyed to Purchaser, items of income and expense, rents
under the Pre-Closing Lease, Deerwood Park Owner's Association assessments and
all other proratable items shall be prorated as of 12:01 a.m. of the date of
Closing. Water, sewer, electricity, fuel and other utility charges will be
apportioned based upon meter readings taken as of the day immediately prior to
Closing, but Purchaser and Sellers agree to pay their respective shares of all
utility bills received subsequent to Closing, prorated as of 12:01 a.m. on the
date of Closing. However, Sellers shall pay all sales tax due on rents received
prior to Closing and Purchaser shall pay all sales tax due on rents received
after Closing. In the event the real estate taxes for the year of Closing are
unknown, the tax proration will be based upon the taxes for the prior year, and
at the request of either party, the taxes for the year of Closing shall be
reprorated and adjusted when the tax bill for such year is received and the
actual amount of taxes is known. Sellers shall be reimbursed or credited at
Closing for all utility deposits and utility and fuel supplies. At Closing,
Sellers shall receive a credit for all prepaid charges under the Contracts being
assigned at Closing, together with a credit for any deposits thereunder and
Purchaser shall receive a prorated credit for any amounts attributable to the
period prior to Closing with respect to said Contracts and not yet paid by
Sellers. It is understood and agreed, however, that Purchaser shall not be
charged under this paragraph for the amount of any item of expense to the extent
paid by Purchaser under the Pre-Closing Lease (as hereinafter defined.) The
provisions of this paragraph shall survive the Closing.
15. Improvement Liens. Certified, confirmed or ratified liens for
governmental improvements as of the date of closing, if any, shall be paid in
full by Sellers, and all other liens for governmental improvements (whether
hereafter certified or pending) shall be assumed by the Purchaser.
Notwithstanding the foregoing, to the extent any of the foregoing certified,
confirmed or ratified liens are payable in installments, Purchaser shall take
title subject to such lien(s) and assume the balance of such installment
payments. In such event, the installment payment for the year of Closing shall
be prorated as of 12:01 a.m. of the date of Closing.
16. Closing Costs. Sellers shall pay the cost of the documentary stamp
taxes on the special warranty deed. Purchaser shall pay all other costs
associated with the recording of the special warranty deed and the premium
(calculated at minimum risk rate), reinsurance charges and any other related
fees and costs for the owner's title policy. Sellers shall pay the recording
costs of any documents necessary to clear title at Closing.
17. Closing. Subject to any other provisions of this Agreement for
extension, the Closing shall be held on January 12, 1996 at the offices of the
attorneys for the Purchaser, Martin, Ade, Birchfield & Mickler, P.A., at One
Independent Drive, Jacksonville, Florida 32202; provided that Purchaser shall
not be obligated to close prior to Centurion vacating at least 150,000 square
feet of rentable space in the Improvements. If necessary, the date of Closing
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shall be postponed until June 30, 1996 to enable the aforedescribed condition to
be satisfied. If this condition is still not satisfied by that date, Purchaser
shall have the option of either (i) closing, without reduction in the Purchase
Price and without claim against Sellers therefore, except for the right to evict
Centurion from sufficient space in the Improvements so that 150,000 square feet
of rentable space in the Improvements has been vacated by Centurion, or (ii)
canceling this Agreement, in which event the Escrow Agents shall return the
Deposit and all interest earned therein to Purchaser, whereupon both parties
shall be released from all further obligations under this Agreement. Sellers
shall notify Purchaser in writing by December 12, 1995 if Centurion will not be
vacating 150,000 square feet of rentable space in the Improvements prior to
January 12, 1996. Sellers' notice shall specify the date by which Sellers
reasonably anticipate such space will be vacated by Centurion. Sellers covenant
with Purchaser that, in any event, Centurion shall have vacated at least 80,000
feet of rentable space in the Improvements prior to December 31, 1995.
At Closing, Sellers or, where indicated, Centurion shall execute and/or
deliver (as applicable) to Purchaser the following closing documents:
(a) a special warranty deed conveying the Land subject to the
Permitted Exceptions (and any other matters either consented
to or not timely objected to by Purchaser after Purchaser's
review of title pursuant to paragraph above);
(b) a bill of sale from Centurion for all Personality which has
not been previously conveyed to Purchaser in connection with
Pre-Closing Leases;
(c) appropriate assignments of all other Property included in
this transaction, including any Contracts being assigned at
Closing;
(d) a "non-foreign" affidavit or certificate pursuant to
Internal Revenue Code Section 1445;
(e) a mechanic's lien affidavit;
(f) an assignment of the Leases from Centurion;
(g) an affidavit of exclusive possession, subject to the rights
of Purchaser under the Pre-Closing Lease (as hereinafter
defined);
(h) an assignment of Sellers' rights under the Development Order
for Deerwood Park; and
(i) a corporate resolution and/or such other evidence of
authority and good standing with respect to Sellers as may
be reasonably required by the Title Company.
At Closing, Purchaser shall execute and/or deliver (as applicable) to
Sellers:
(a) the balance of the Purchase Price due at Closing;
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(b) an assumption agreement for all obligations of Sellers
arising after Closing under and with respect to the
Contracts being assigned at Closing, whereby Purchaser shall
fully assume and agree to be responsible for all obligations
arising after Closing (but not before) under and in
connection with said Contracts;
(c) an assumption agreement for all obligations of Centurion
arising after Closing under the Leases;
(d) evidence that Purchaser and/or the persons signing on
Purchaser's behalf, have the legal capacity and authority to
enter into this Agreement, and to consummate the transaction
contemplated hereby;
Centurion and Purchaser shall execute and deliver the Post Closing
Lease (as provided below) and Sellers and Purchaser shall execute counterpart
closing statements and such other documents as are reasonably necessary to
consummate this transaction.
18. Personalty; Inventory. Prior to Closing, Centurion may make
additions, removals and substitutions from and to the Personalty, so long as the
value of the Personalty (determined as of the date of this Agreement) is not
increased or decreased, in the aggregate, by more than 10%. Any substitution
must be of generally comparable utility to, and must have a remaining economic
life at least as long as that of, the item(s) it replaces. Within 10 days prior
to Closing, Sellers and Purchaser shall jointly take an inventory of the actual
Personalty to be sold and transferred by Sellers to Purchaser at Closing. The
personal property owned by Travel Related which is located in the space leased
by Travel Related in the Improvements shall be removed by Travel Related when
such space is vacated by Travel Related.
19. Pre-Closing Lease. After the expiration of the Inspection Period,
Purchaser shall have the option, as hereinafter set forth, to lease from
Centurion until Closing those portions of the Improvements which are vacated by
Centurion and are made available by Centurion to Purchaser to lease ("Vacated
Space") pursuant to a lease in the form attached hereto as Exhibit "E" (the
"Pre-Closing Lease"). Exhibit "F" attached hereto and made a part hereof
describes the portion of the Improvements that Centurion has vacated and is
making available to Purchaser as of the date of this Agreement. Centurion
anticipates vacating the Improvements in stages and notification will be given
from time to time by Centurion to Purchaser of space hereafter vacated by
Centurion which Centurion is making available to Purchaser. Any space Centurion
makes available to Purchaser shall be placed in "broom clean" condition by
Centurion prior to the commencement of Purchaser's tenancy thereof.
If at any time Purchaser desires to lease Vacated Space (or any
portion(s) thereof) made available by Centurion, Purchaser shall notify
Centurion in writing of the Vacated Space which Purchaser desires to lease.
Purchaser's notice shall specify the date upon which Purchaser desires to take
occupancy and shall include, for Centurion's approval, a schematic drawing of
the applicable space showing Purchaser's proposed layout for its use. Centurion
shall have the right
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to review Purchaser's plans to determine that hallways, access ways and other
areas of the Vacated Space which Purchaser desires to lease, but which are
necessary for Centurion's use and enjoyment of the balance of the Improvements,
shall be available to Centurion. In the event that Centurion disapproves of
Purchaser's plans, Centurion shall notify Purchaser within ten (10) days after
Centurion's receipt of same. In order for Purchaser to be able to lease the
applicable Vacated Space, Purchaser agrees to make such changes to Purchaser's
plans as Centurion may reasonably require.
Purchaser shall pay to Centurion as annual base rental an amount equal
to the sum of (i) the product resulting from the following formula:
the then current 1 year U.S. T-bill interest rate x
square feet of area being leased/330,000 x $39,000,000
and (ii) the product resulting from multiplying the number of square feet of
area being leased x $12.13. The T-bill rate in effect on the date the
Pre-Closing Lease is executed shall be applicable to the entire term of the
Pre-Closing Lease and all space leased thereby. Base rental shall be payable in
equal monthly installments and shall commence to be payable on the earlier of
(i) thirty (30) days after Purchaser's tenancy of the applicable Vacated Space
begins, or (ii) the date Purchaser commences to operate its business in the
applicable Vacated Space. Prior to Purchaser leasing a particular portion of
Vacated Space, Centurion and Purchaser shall agree upon the square footage of
the Vacated Space to be leased by Purchaser. For purposes of determining square
footage of leased space, measurements shall be made from the interior plane of
exterior walls and from the middle of interior demising walls. No deduction
shall be made for stairwells, support columns, elevator shafts or the like. If
at any time Centurion and Purchaser cannot agree upon the square footage of
Vacated Space to be leased by Purchaser, their respective architects shall
select a third party architect (whose fees shall be split equally between the
parties), whose determination shall be binding.
Purchaser shall be responsible to make, at Purchaser's own expense, all
alterations, modifications and improvements necessary in order for Purchaser to
make use of the Vacated Space which it leases, whether as a result of
governmental requirements or otherwise. The foregoing shall include any
modifications necessary to comply with building codes and other governmental
requirements applicable to multi-tenancy floors (it being understood and agreed
that the Improvements were not necessarily designed for multi-tenant use).
On the first occasion that Purchaser leases Vacated Space from
Centurion, Centurion and Purchaser shall execute the Pre-Closing Lease.
Thereafter, at any time Purchaser leases additional Vacated Space, Centurion and
Purchaser shall execute an appropriate amendment to the Pre-Closing Lease
reflecting the additional Vacated Space being leased by Purchaser and the
corresponding additional base rental to be paid by Purchaser. On each occasion
that Purchaser leases Vacated Space, and at the time the applicable tenancy
commences, Purchaser shall purchase from Centurion the portion of the Personalty
located within the specific Vacated Space being leased by Purchaser and
Centurion shall assign to Purchaser and Purchaser shall assume
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those Contracts pertaining to the Personalty purchased by Purchaser or covering
property located in the Vacated Space being leased to Purchaser. Upon receipt of
the applicable Purchase Price (determined in accordance with paragraph 2 above
and subject to adjustment for prepaid sums and unpaid sums under the Contracts)
Centurion shall deliver to Purchaser an appropriate bill of sale for the
specific items of Personalty purchased by Purchaser and Centurion and Purchaser
shall execute an appropriate assignment and assumption agreement for those
Contracts then being assigned by Centurion in form and content mutually
acceptable to Centurion and Purchaser, whereby Centurion shall assign to
Purchaser Centurion's interest in the applicable Contracts and Purchaser shall
assume all obligations of Centurion arising thereafter under said Contract.
20. Post-Closing Lease. At Closing, Centurion shall have the right to
lease back from Purchaser space in the Improvements which Centurion is then
occupying and which Centurion desires to continue to occupy after Closing
("Occupied Space"), together with those items of the Personalty located in the
Occupied Space at the time of Closing pursuant to a lease in the form attached
hereto as Exhibit "G" (the "Post-Closing Lease"). Centurion's tenancy of
Occupied Space shall end no later than June 30, 1996. It is understood that
Centurion shall be vacating Occupied Space after Closing in stages and as
Centurion vacates a portion of Occupied Space, Centurion shall turn over
occupancy of such space to Purchaser and Centurion's tenancy in broom-clean
condition (and Centurion's obligation to pay rent and other charges with respect
to such vacated Occupied Space) shall then terminate provided that Centurion
must give to Purchaser at least thirty (30) days written notice that it is
vacating a portion of the Occupied Space prior to such termination. If such
notice was not timely given by Centurion, Centurion's obligation to pay rent and
other charges with respect to the applicable Vacated Space shall continue until
30 days after said written notice is given by Centurion to Purchaser.
At least ten (10) days prior to Closing, Centurion shall notify
Purchaser of the specific space in the Improvements which shall be occupied by
Centurion after Closing and which shall constitute the initial Occupied Space.
The rental and other charges that Centurion shall pay with respect to Occupied
Space shall be the same as that paid by Purchaser prior to Closing for Vacated
Space under the Pre-Closing Lease (no charge shall be made for the Personalty
covered by the Post-Closing Lease), with the amount of rental fixed at the time
of Closing based on the formula applicable to Purchaser's Pre-Closing tenancy.
At Closing, Centurion and Purchaser shall enter into the Post-Closing Lease.
Whenever Centurion vacates a portion of Occupied Space and turns such space over
to Purchaser, Centurion and Purchaser shall execute an amend ment to the
Post-Closing Lease reflecting the Occupied Space being withdrawn from the
Post-Closing Lease and the corresponding reduction in rental and, in addition,
shall execute an assignment and assumption agreement (in form and content
identical to the assignment and assumption agreement referred to in paragraph
19) for those Contracts then being assigned by Centurion and being assumed by
Purchaser. In addition, an appropriate payment shall be made from one party to
the other based on prepaid sums and unpaid sums under said Contracts. If at any
time Centurion and Purchaser cannot agree upon the rentable square footage of
Occupied Space, the dispute shall be resolved in the same manner as set forth in
paragraph 19 for resolving disputes regarding the rentable square footage of
Vacated Space leased by Purchaser under the Pre-Closing Lease. The Post-Closing
Lease shall be superior to any mortgages placed on the
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Property at Closing by Purchaser and, at Closing, Purchaser shall provide to
Centurion an appropriate non-disturbance agreement from the holder of each such
mortgage and/or any party taking title to the Property at Closing in connection
with a sale/ leaseback financing arrangement with Purchaser.
21. Brokers. The parties each represent and warrant to the other that
no real estate broker(s), salesman (salesmen) or finder(s) are involved in this
transaction. If a claim for commissions in connection with this transaction is
made by any broker, salesman or finder claiming to have dealt through or on
behalf of one of the parties hereto ("Indemnitor"), Indemnitor shall indemnify,
defend and hold harmless the other party hereunder ("Indemnitee"), and
Indemnitee's officers, directors, agents and representatives, from and against
all liabilities, damages, claims, costs, fees and expenses whatsoever (including
reasonable attorney's fees and court costs at trial and all appellate levels)
with respect to said claim for commissions. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of this paragraph shall
survive the Closing and any cancellation or termination of this Agreement.
22. Assignability. Except as set forth in the next sentence, Purchaser
shall not be entitled to assign its rights here under without the prior written
consent of Sellers which may be given or withheld by Sellers in Sellers' sole
discretion. After notice to Sellers and provided the proposed assignee agrees in
writing with Sellers to assume Purchaser's obligations under this Agreement,
Purchaser may assign this Agreement to any entity con trolling, controlled by,
or under common control with the Purchaser, or to any entity designated by
Purchaser to acquire the Property and which shall, at Closing, lease the
Property back to the Purchaser. An assignment shall not release Ideon Group,
Inc. from liability under this Agreement.
23. Escrow Agent. Neither of the Escrow Agents shall be liable for any
actions taken by it in good faith, but only for its negligence or willful
misconduct. The parties hereby indemnify and agree to hold harmless each of the
Escrow Agents from and against all liabilities, damages, claims, costs, fees and
expenses whatsoever (including reasonable attorneys' fees and court costs at all
trial and appellate levels) said Escrow Agent may incur or be exposed to in its
capacity as escrow agent hereunder, except for its negligence or willful
misconduct. If there be any dispute as to disposition of any proceeds held by
the Escrow Agents pursuant to the terms of this Agreement, the Escrow Agents are
hereby authorized to interplead the disputed amount or the entire proceeds with
any court of competent jurisdiction and thereby be released from all of their
obligations hereunder. The parties acknowledge that the Escrow Agents are the
law firms representing Sellers and Purchaser, respectively, and hereby agree
that neither of said law firms shall be disqualified from representing its
client in any litigation pursuant to this Agreement solely because of its
capacity as Escrow Agent. The Escrow Agents shall not be liable for any failure
of the depository.
24. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given if
delivered by hand, sent by recognized overnight courier (such as Federal
Express) or mailed by certified or registered mail, return receipt requested, in
a postage prepaid envelope, and addressed as follows:
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If to the Sellers at: American Express Centurion
Services Corporation
7777 Centurion Parkway
Jacksonville, Florida 33256
Attn: Jim Sullivan and
American Express
200 Vesey Street
New York, N.Y. 10285
Attn: Walter S. Berman
With a copy to: Steven E. Goldman, Esq.
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
If to the Purchaser at: Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 33256
Attn: Marc Joseph, Esq.
With a copy to: Robert O. Mickler, Esq.
Martin, Ade, Birchfield &
Mickler,P.A
3000 Independent Square
Jacksonville, Florida 33202
Notices personally delivered or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given three (3) days after deposit in the U.S.
mails.
25. Risk of Loss. In the event that either (i) a portion of vacant Land
extending more than 30 feet from any existing street or (ii) any portion of the
Improvements (either, a "Material Portion") is taken by eminent domain prior to
Closing, Purchaser shall have the option of either: (i) canceling this Agreement
and receiving a refund of the Deposit and all interest earned thereon, whereupon
both parties shall be relieved of all further obligations under this Agreement,
or (ii) proceeding with Closing without reduction of the Purchase Price, in
which case Purchaser shall be entitled to all condemnation awards and
settlements, if any. In the event only a non-Material Portion of the Land is
taken by eminent domain prior to Closing, then Purchaser shall be required to
proceed with Closing without reduction of Purchase Price, but
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Purchaser shall be entitled to all condemnation awards and settlements, if any.
In the event that fifty percent (50%) or less of the rentable square footage of
space in the Improvements are damaged or destroyed by fire or other casualty and
are not repaired prior to Closing, then Purchaser shall be required to proceed
with Closing. However, at Closing, Purchaser shall receive a credit against the
Purchase Price in an amount equal to the cost of repairing damage or destruction
not repaired prior to Closing. If Sellers and Purchaser cannot reach agreement
as to the cost of making repairs, they shall each obtain a written proposal from
a contractor of their own choosing, and Purchaser's credit shall be an amount
equal to the average of the two bids so obtained. If more than fifty percent
(50%) of the rentable square footage of space in the Improvements are damaged or
destroyed by fire or other casualty and not repaired prior to closing, Purchaser
shall have the option of either (i) closing this transaction in accordance with
the terms of this Agreement and receiving at Closing a credit against the
Purchase Price as set forth in the preceding two sentences or (ii) canceling
this transaction, in which event the Escrow Agents shall return the Deposit,
together with all interest earned thereon, to Purchaser, whereupon both parties
shall be released from all further obligations under this Agreement. In all
events, Sellers shall retain the right to receive all insurance proceeds payable
as a result of such damage.
26. Radon Gas. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS
THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY
PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON
THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN
FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE
OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT. [NOTE: THIS PARAGRAPH IS PROVIDED
FOR INFORMATIONAL PURPOSES PURSUANT TO SECTION 404.056(8), FLORIDA STATUTES,
(1988).]
27. Miscellaneous.
(a) This Agreement shall be construed and governed in accordance
with the laws of the State of Florida. All of the parties to
this Agreement have participated fully in the negotiation
and preparation hereof, and, accordingly, this Agreement
shall not be more strictly construed against any one of the
parties hereto.
(b) Without the prior written consent of Sellers, there shall
be no recordation of either this Agreement or any memorandum
hereof, or any affidavit pertaining hereto and any such
recordation of this Agreement or memorandum hereto by
Purchaser without the prior written consent of Sellers shall
constitute a default hereunder by Purchaser.
(c) In the event any term or provision of this Agreement be
determined by appropriate judicial authority to be illegal
or otherwise invalid, such provision shall be given its
nearest legal meaning or be construed as deleted as such
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authority determines, and the remainder of this Agreement
shall be construed to be in full force and effect.
(d) In the event of any litigation between the parties under
this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees and court costs at all trial and
appellate levels.
(e) In construing this Agreement, the singular shall be held to
include the plural, the plural shall be held to include the
singular, the use of any gender shall be held to include
every other and all genders, and captions and paragraph
headings shall be disregarded.
(f) All of the exhibits attached to this Agreement are
incorporated in, and made a part of, this Agreement.
(g) Unless expressly set forth herein, the terms and provisions
of this Agreement shall not survive the Closing and such
terms and provisions shall be deemed merged into the special
warranty deed and extinguished at Closing.
(h) Time shall be of the essence for each and every provision of
this Agreement.
28. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matter hereof
and there are no other agreements, representations or warranties other than as
set forth herein. This Agree ment may not be changed, altered or modified except
by an instrument in writing signed by the party against whom enforcement of such
change would be sought. This Agreement shall be binding upon the parties hereto
and their respective successors and permitted assigns.
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EXECUTED as of the date first above written in several counterparts, each of
which shall be deemed an original, but all constituting only one agreement.
Signed in the presence of: Sellers:
AMERICAN EXPRESS CENTURION
SERVICES CORPORATION, a
Delaware corporation
______________________________________ By: ____________________________
Name:___________________________
Title:__________________________
______________________________________
(As to Sellers) (Corporate Seal)
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC., a New
York corporation
______________________________________ By: ____________________________
Name:___________________________
Title:__________________________
______________________________________
(As to Sellers) (Corporate Seal)
Purchaser:
IDEON GROUP, INC., a Delaware
corporation
______________________________________ By: ____________________________
Name:___________________________
Title:__________________________
______________________________________
(As to Sellers) (Corporate Seal)
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EXHIBIT "A"
A portion of Section 13, Township 3 South, Range 27 East, Duval County,
Florida, being more particularly described as follows:
Commence at the Northeast corner of Said Section 13, said corner lying on the
centerline of J. Turner Butler Boulevard, (a 300 foot right-of-way as presently
established); thence along the Easterly line of said Section 13, South 00' 36'
15" East, 979.31 feet to a point lying in a curve, said curve being concave
Southeasterly, having a radius of 1,100 feet and a central angle of 27' 34' 10";
thence along the arc of said curve, a distance of 529.29 feet to a point lying
on the curve, said arc being subtended by a chord bearing and distance of South
51' 10' 10" West, 524.20 feet; thence departing said curve South 69' 13' 10"
West, 98.51 feet to the Point of Beginning; from the Point of Beginning thus
described, said point lying in a curve concave Southeasterly, having a radius of
1,155.00 feet and a central angle of 10' 15' 55"; thence along the arc of said
curve, a distance of 206.93 feet to the point o f tangency, said curve being
subtended by a chord bearing and distance of South 28' 05' 48" West, 206.66
feet; thence run South 22' 57' 50" West, 703.14 feet to the point of curvature
of a curve concave Northwesterly, having a radius of 1,550.00 feet and a central
angle of 22' 00' 00"; thence along the arc of said curve, a distance of 595.16
feet to the point of tangency, said arc being subtended by a chord bearing and
distance of South 33' 57' 50" West, 591.51 feet, thence South 44' 57' 50" West,
484.73 feet to a point lying on the Northwesterly line of Deerwood Park
Boulevard (a 110 foot right-of-way as presently established in Deed of
Dedication recorded in O.R. Volume 6516, Page 1929); thence along said
Northwesterly right-of-way line, South 44' 57' 50" West, 55.27 feet to a point
of curvature of a curve concave Northwesterly, having a radius of 30.00 feet and
a central angle of 90' 00' 00"; thence a distance of 47.12 feet along the arc of
said curve to the point of tangency, said point of tangency lying on the
Northeasterly right-of-way line of Perimeter Drive, (a 100 foot right-of-way as
presently established in Deed of Dedication recorded in O.R. Volume 6516, Page
1933); said curve being subtended by a chord bearing and distance of South 89'
57' 50" West, 42.43 feet; thence along the Northeasterly right-of-way line of
said Perimeter Drive, North 45' 02' 10" West, a distance of 595.20 feet to a
point of curvature of a curve concave Northeasterly, having a radius of 919.47
feet and a central angle of 50' 00' 00", thence 802.39 feet along the arc of
said curve and said right-of-way line, said curve being subtended by a chord
bearing and distance of North 20' 02' 10" West, 777.17 feet; thence along said
right-of-way line; run North 04' 57' 50" East, a distance of 170.00 feet to a
point of curvature of a curve concave Southeasterly, having a radius of 950.00
feet and a central angle of 50' 00' 00"; thence 829.03 feet along the arc of
said curve and said right-of-way line to the point of tangency, said arc being
subtended by a chord bearing and distance of North 29' 57' 50" East, 802. 97
feet; thence run North 54' 57' 50" East, 131.12 feet to the point of terminus of
the Southeasterly right-of-way line of said Perimeter Drive and to a point of
curvature of a curve concave Southeasterly, having a radius of 657.12 feet and a
central angle of 68' 24' 57"; thence along the arc of said curve, a distance of
784.66 feet to the point of tangency, said curve being subtended by a chord
bearing and distance of North 89' 10' 19" East, 738.87 feet; thence run South
56' 37' 13" East, a distance of 650.32 feet to a point of curvature of a curve
concave Southwesterly, having a radius of 30.00 feet and a central angle of 89'
50' 58"; thence along the arc of said curve, a distance of 47.04 feet to the
point of tangency,
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said arc being subtended by a curve bearing and distance of South 11' 41' 44"
East, 42.37 feet and the Point of Beginning.
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EXHIBIT "A-1"
AMERICAN EXPRESS PARCEL
A tract of land being a portion of the lands of Section 13, Township 3 South,
Range 27 East, Duval County, Florida, being more particularly described as
follows:
Commence at the Northeasterly corner of said Section 13, said corner lying on
the centerline of J. Turner Butler Boulevard, (a 300 foot right-of-way as
presently established); thence along the Easterly line of said Section 13, run
South 00' 36' 35" East, a distance of 919.20 feet to a point lying on a curve
being concave Southeasterly, having a radius of 1155.00 feet and a central angle
of 32' 57' 31"; thence along the arc of said curve, a distance of 664.40 feet,
said arc being subtended by a chord bearing and distance of South 49' 42' 31"
West, 655.28 feet to the Point of Beginning.
From the Point of Beginning thus described, said point lying in a curve being
concave Southwesterly, having a radius of 30.00 feet and a central angle of 89'
50' 58"; thence a long the arc of said curve, a distance of 47.05 feet to the
point of tangency, said arc being subtended by a chord bearing and distance of
North 11' 41' 44" West, 42.37 feet; thence run North 66' 37' 13" West, a
distance of 650.32 feet to a point of curvature of a curve concave
Southeasterly, having a radius of 657.12 feet and a central angle of 68' 24'
57"; thence along the arc of said curve, a distance of 784.66 feet, said arc
being subtended by a chord bearing and distance of South 89' 10' 19" West,
738.87 feet to the point of terminus of the Southeasterly right-of-way line of
Perimeter Drive North as recorded in Official Records Volume 6516, Page 1933
through 1936, of the Current Public Records of said Duval County, Florida;
thence along said Southeasterly right-of-way line of Perimeter Drive North, (a
100 foot right-of-way as presently established); run South 54' 57' 50" West, a
distance of 131.12 feet to the point of curvature of a curve concave
Southeasterly, having a radius of 950.00 feet and a central angle of 50' 00'
00"; thence along the arc of said curve and said right-of-way line, a distance
of 829.03 feet to the point of tangency, said arc being subtended by a chord
bearing and distance of South 29' 57' 50" West, 802.97 feet; thence along said
right-of-way line, run South 04' 57' 50" West, a distance of 130.07 feet; thence
departing said right-of-way line, run South 86' 03' 06" East, a distance of
499.28 feet; thence run South 04' 02' 30" West, a distance of 52.00 feet; thence
run South 86' 03' 06" East, a distance of 89.94 feet; thence run North 40' 18'
05" East, a distance of 39.11 feet; thence run South 86' 03' 06" East, a
distance of 880.66 feet; thence run South 67' 02' 09" East, a distance of 30.24
feet; thence run North 22' 57' 50" East, a distance of 504.65 feet to a point of
curvature of a curve concave Southeasterly, having a radius of 1135.00 feet and
a central angle of 10' 15' 55"; thence along the arc of said curve, a distance
of 206.93 feet, said arc being subtended by a chord bearing and distance of
North 28' 05' 48" East, 206.65 feet to the Point of Beginning.
The lands described herein are subject to any easements, restrictions and
rights-of-way of record and contain a total of 34.54 acres, more or less.
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EXHIBIT "B"
Description of Leases
1. Lease Agreement between American Express Centurion Services Corporation
and American Express Travel Related Services Company, Inc., dated
January 1, 1993 for certain space located on the third floor of the
Improvements.
2. Oral Lease Agreement between American Express Centurion Services
Corporation and American Express Travel Related Services Company, Inc.
for certain space located off of, and behind, the reception area on the
first floor of the Improvements.
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EXHIBIT "C"
TITLE EXCEPTIONS
1. Reservations contained in that certain Warranty Deed recorded
in O. R. Book 7503, Page 2298, of the Public Records of Duval
County, Florida.
2. Deerwood Park Lake Easement Agreement recorded in O.R. Book
6575, Page 2321; together with Notice recorded in O.R. Book
6653, Page 1 and Amendment recorded in O.R. Book 7029, Page
1224, of the Public Records of Duval County, Florida.
3. Grant of Easement to American Express Travel Related Services
Company, Inc., recorded in O.R. Book 6575, Page 2386, of the
Public Records of Duval County, Florida.
4. Easement to Jacksonville Electric Authority, recorded in O.R.
Book 6744, Page 308, of the Public Records of Duval County,
Florida.
5. Grant of Easement to Southern Bell Telephone and Telegraph
Company, recorded in O. R. Book 6938, Page 1762, of the Public
Records of Duval County, Florida.
6. Restatement of the Protective Covenants recorded in O.R. Book
6575, Page 2276; together with Amendments recorded in O.R.
Book 7362, Page 739 and O.R.Book 7029, Page 1224; Supplement
recorded in O.R. Book 6575, Page 2305 and Amendment recorded
in O.R. Book 6863, Page 539; Designation of Successor
Developer recorded in O.R. Book 6575, Page 2312; Approval of
Plans recorded in O.R. Book 7343, Page 254 and Consent and
Grant to use recorded in O.R. Book 7448, Page 768, all of the
Public Records of Duval County, Florida.
7. Notice of Development Order recorded in O.R. Book 6408, page
118; together with Allocations recorded in O.R. Book 6575,
Page 2315, O.R. Book 6575, Page 2376, O.R. Book 6863, Page
543, O.R. Book 7029, Page 1234, O.R. Book 7068, Page 1896,
O.R. Book 7068, Page 1908, O.R. Book 7350, Page 122, O.R. Book
7362, Page 750, O.R. Book 7458, Page 1990, O.R. Book 7653,
Page 1383, O.R. Book 7852, Page 673; Suballocation recorded in
O.R. Book 7503, Page 2302; Declarations of Conversion recorded
in O.R. Book 6863, Page 541, O.R. Book 7362, Page 730 and O.R.
Book 7653, Page 1362, all of the Public Records of Duval
County, Florida.
8. Declaration of Preservation Area recorded in O.R. Book 6590,
Page 2200, of the Public Records of Duval County, Florida.
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9. Easements, Restrictions and Covenants in Warranty Deed
recorded in Official Records Volume 5518, Page 2143, current
Public Records of Duval County, Florida. (as to Easement
parcels only)
10. The terms and conditions of the Grant of Easement (Drainage)
recorded under Clerk's File No. 88-93079, current Public
Records of Duval County,Florida. (as to Easement Parcels only)
89
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EXHIBIT "D"
Violation Notices
None
90
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EXHIBIT E
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made as of _________ __, 1995,
by and between American Express Centurion Services Corporation ("Lessor") and
Ideon Group, Inc. ("Lessee").
WITNESSETH: That, for and in consideration of the rent and the mutual
covenants herein set forth, Lessor and Lessee agree:
1. PREMISES. Lessor leases to Lessee, and Lessee rents from Lessor, the
premises described on Exhibit A hereto (the "Premises") which are in the
building located at 7777 Centurion Parkway, Jacksonville, Florida 32256 and also
commonly known as American Express Optima Regional Operations Center in the
Deerwood Park Office Complex, Jacksonville, Florida (the "Building"), together
with the nonexclusive right of ingress and egress, to the extent of Lessor's
rights, over all lobby and common areas, subject to Lessor's reasonable security
requirements, and all streets, sidewalks and parking areas serving the Premises;
provided, however, that all parking areas serving the Building shall be for the
nonexclusive use of employees, customers and other invitees of Lessee and
others. The Premises are hereby stipulated to contain ____ square feet of
rentable area.
2. TERM. The term of this Lease shall commence on the date hereof and
unless sooner terminated as provided herein, shall end on the date that Closing
occurs under the Purchase and Sale Agreement between Lessor and American Express
Travel Related Services Company, Inc., as Sellers, and Lessee, as Purchaser,
pursuant to which this Lease is being executed and delivered (the "Sale
Agreement") provided that (i) if Closing fails to occur under the Sale Agreement
because of a default by Lessee under the Sale Agreement, then this Lease shall
terminate 90 days after the date that Closing would have occurred under the Sale
Agreement if not for Lessee's default, or (ii) if Closing fails to occur under
the Sale Agreement because of a default by Lessor under the Sale Agreement, then
this Lease shall terminate on a date within 180 days after the date that Closing
would have occurred under the Sale Agreement if not for Lessor's default, as
designated by Lessee upon at least ten days prior written notice to Lessor.
3. USE. The Premises may be used only for office use, including all
services customarily rendered in connection therewith, and for no other purposes
without Lessor's prior written consent.
4. RENT. Lessee covenants to pay to Lessor rent in monthly installments
of ____________ (calculated on an annual rental charge of $___________ per
square foot of rentable space in the Premises), on the first day of every
calendar month, in advance and without notice from and after the "Rent
Commencement Date". The Rent Commencement Date shall be that date which is
thirty (30) days from the date of this Lease or, if sooner, upon Lessee
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commencing to operate its business in the Premises. Beginning or ending periods
of less than a whole calendar month shall be prorated. Lessee shall pay to
Lessor a late charge equal to 5% of any rent payment not received by Lessor
within 5 calendar days of its due date.
5. TAXES. Lessee shall pay all sales and other taxes on the rent and
other sums due hereunder at the same time as the rent and other sums are
payable. Lessee shall also pay directly to the governing municipality and all
applicable governmental agencies all personal property taxes or the equivalent
on Lessee's personal property, furniture, fixtures and equipment.
6. LESSOR'S SERVICES. Lessor shall provide security, HVAC, electricity
for lighting and normal office use, cleaning, janitorial and other Building
services at a level and of a quality at least equal to that provided in the
Building during the 12 month period prior to the date of this Lease and shall
maintain the Building in a manner consistent with the manner in which the
Building has been maintained during said 12 month period, provided that the
foregoing shall not obligate Lessor to make any repair or replacement which it
is not obligated to make under the Sale Agreement. All other services, including
telephone service, shall be provided by Lessee. If Lessee exceeds the utility
use described herein, Lessee shall reimburse Lessor for the cost of such excess.
7. MAINTENANCE. Lessee agrees to maintain the interior of the Premises
in good condition and repair including the doors, windows, inside walls, ceiling
and floor, and shall be responsible for all glass and casualty damage caused by
Lessee's negligence or willful act. Upon any termination of this Lease, Lessee
shall surrender possession of the Premises (including tenant improvements, if
any, and fixtures which cannot be removed without damaging the Premises), broom
clean and in good and tenantable repair, reasonable wear and tear excepted.
8. INSURANCE. Lessee shall maintain and provide general liability
insurance naming Lessor and Lessee as insureds during the term of this Lease in
the amounts of not less than One Million Dollars ($1,000,000) for injury to any
one person, Two Million Dollars ($2,000,000) for injury to more than one person,
both arising out of any one accident or occurrence and Five Hundred Thousand
Dollars ($500,000) for damage to property. Such insurance may be by way of
blanket insurance coverage with such self-insurance deductibles as Lessee
customarily carries with respect to its other leased premises and shall name
Lessor as an additional insured on such liability policy. Lessee shall insure
Lessee's furniture, fixtures, equipment and personal property.
Lessor shall insure the building against risks covered by a standard
fire and extended coverage policy in amounts appropriate for buildings of
similar type.
Lessor and Lessee agree to waive any and all rights that each may have
against the other arising out of loss or damage that they may suffer with
respect to the building or their respective personal property and will obtain
the endorsement of their insurers evidencing waiver of subrogation in such
cases.
9. ALTERATIONS. Lessee shall not make any alterations involving
structural changes or any changes to the interior or exterior of the Premises or
the Building without
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obtaining Lessor's prior written consent, which as to structural changes or the
exterior of the Premises, Lessor may grant or withhold in Lessor's sole and
absolute discretion and which as to the interior of the Premises, Lessor's prior
written consent shall not be unreasonably withheld or delayed. Alterations which
are consented to by Lessor shall be performed in a good and workmanlike manner
and without cost to Lessor. The interest of Lessor in the Building shall not be
subject to liens for improvements made by Lessee and Lessee agrees to defend and
indemnify Lessor against all such claims and costs, including, attorney's fees,
in connection therewith.
10. TRADE AND OTHER FIXTURES. Lessee may install or cause to be
installed such furniture, equipment and trade and other fixtures as are
necessary for the operation of Lessee's business in the Premises. Subject to the
other applicable provisions hereof, such furniture, equipment and trade and
other fixtures shall remain personal property, and title thereto shall continue
in the owner thereof, regardless of the manner in which same may be attached or
affixed to the Premises. In no event shall Lessor be liable for any theft, loss,
damage or destruction for any property located at the Premises.
11. USE OF COMMON AREAS. Lessee's right to the use of common areas in
the Building shall include the right to use, on a nonexclusive basis with Lessor
and the other occupants of the Building, telephone conduits, electrical conduits
and other similar facilities (collectively, "Facilities") within the Building,
provided that such use by Lessee shall be at Lessee's sole risk and expense and
shall not interfere with nor disrupt the use of the Facilities by Lessor or any
other occupant of the Building. In addition, Lessee shall have the right, at its
own expense, to install conduits and other similar connection facilities within
the common areas of the Building at locations approved in advance by Lessor.
Lessee, in its use of the Facilities and common areas pursuant to this
paragraph, shall use its best efforts not to interfere with the use and
enjoyment of the common areas and the balance of Building and shall not cause
any damage to any portion of the common areas of the Building. Lessee shall
indemnify and hold Lessor harmless from any and all losses or damages resulting
from Lessee's use and enjoyment of the Facilities and common areas of the
Building pursuant to this paragraph.
12. CASUALTY DAMAGE. In the event the Building or the Premises are
damaged so as to render the Premises untenable in whole or in part for Lessee's
use, either party shall have the right to terminate this Lease (in its entirety,
or only as to the affected space) upon notice to the other party given within 30
days after such damage occurred, otherwise this Lease shall remain in full force
and effect in its entirety. Lessee's obligation to pay rent and any other sums
due hereunder during the period shall abate or be equitably reduced to the
extent that the Premises (or any portion thereof) or access to the Premises are
not reasonably usable by Lessee for Lessee's ordinary business in the Premises.
13. COMPLIANCE WITH LAWS. Lessee shall promptly comply with and
abide by all applicable and valid laws, ordinances and regulations of all
federal, state, county, municipal and other lawful authority pertaining to its
use and occupancy of the Premises and the business conducted therein.
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14. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this Lease or
sublease the whole or any part of the Premises, except to an affiliate of
Lessee, without the prior written consent of Lessor which may be given or
withheld in Lessor's sole discretion. Lessor's consent to any such assignment or
sublease shall not relieve Lessee of Lessee's liability for the payment of rent
and the performance of the other terms and conditions of this Lease.
15. BANKRUPTCY. Should Lessee make an assignment for the benefit of
creditors, file a petition in bankruptcy or be adjudicated bankrupt, or should
an involuntary petition in bankruptcy be brought against Lessee which is not
dismissed within sixty (60) days, such action shall constitute a breach of this
Lease for which Lessor, at Lessor's option, may terminate all rights of Lessee
or Lessee's successors in interest under this Lease, unless precluded from doing
so by applicable law.
16. EMINENT DOMAIN. If all or any substantial part of the Building or
the Premises is taken under the power of eminent domain or conveyed by voluntary
deed in lieu of condemnation proceedings, Lessor, at Lessor's option, may
terminate this Lease effective as of the date Lessee is required to vacate the
Premises. If all or a substantial part of the Premises are taken under the power
of eminent domain or conveyed by voluntary deed in lieu of condemnation
proceedings, Lessee, at Lessee's option, may terminate the Lease effective as of
the date Lessee is required to vacate the Premises.
17. ATTORNEYS' FEES. If any suit is commenced to enforce any covenant
of this Lease or for the breach of any covenant or condition herein contained,
the parties hereto agree that the losing party therein shall pay to the
prevailing party all costs thereof, including reasonable attorneys' fees, which
shall be fixed by the court. Lessee also agrees to pay all costs of collection
of rent and other sums due hereunder, including reasonable attorneys' fees,
whether or not a suit is commenced.
18. DEFAULT. In the event Lessee shall fail to pay any installment of
rent as provided herein within fifteen (15) days after receipt of written notice
from Lessor or if Lessee fails to cure any other default under this Lease within
thirty (30) days after receipt of written notice of such default by Lessor,
unless such default cannot be cured within thirty (30) days in which event
Lessee shall commence cure within thirty (30) days and proceed in good faith to
cure the default in a timely fashion, Lessor may terminate this Lease without
further notice and may immediately recover from Lessee all rent and other sums
due from Lessee hereunder. In lieu of terminating this Lease, from time to time
or at any time, Lessor may bring an action or actions for recovery of the rent
due and unpaid or for any installment or installments thereof, or for any other
sum of money due Lessor hereunder.
19. LESSOR'S COVENANTS. Lessor covenants that Lessor has good title
to the Building and that the same is subject to no leases, tenancies,
agreements, restrictions or defects in title adversely affecting Lessee's
right to occupy the Premises as provided for herein.
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20. QUIET ENJOYMENT. Lessee, upon paying the rent and performing
the covenants and agreements of the Lease, shall quietly have, hold and enjoy
the Premises and all rights granted Lessee herein during the term hereof.
21. NOTICES. All rent and any notice required or permitted hereunder
shall be in writing and delivered by United States certified mail, return
receipt requested, postage fully prepaid, or by any regular overnight courier
service, to the following addresses (or to such other address as either party
may designate in writing and deliver as herein provided) and shall be deemed
delivered upon the earlier of (i) receipt or (ii) three business days after
mailing:
LESSOR: American Express Centurion
Services Corporation
7777 Centurion Parkway
Jacksonville, Florida 32256
Attn: Jim Sullivan
LESSEE: Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Attn: Marc Joseph, Esq.
With a copy to: Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Attn: Peter Knauth
22. MISCELLANEOUS. Subject to the provisions hereof, this Lease shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
23. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
24. GOVERNING LAW. This Lease and the rights and obligations of
the parties hereto shall be interpreted, constructed, and enforced in accordance
with the laws of the State of Florida.
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25. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed
or construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provisions contained herein, nor
any acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of landlord and tenant.
26. RULES AND REGULATIONS. Lessor may adopt such reasonable rules
and regulations as may be necessary for the safe and proper operation of the
Building after consultation with Lessee. Such rules shall be applicable to
Lessor and shall be binding upon Lessee upon notice thereof.
27. ACCESS BY LESSOR. Lessor shall have the right, upon reasonable
notice and at reasonable times, to enter the Premises to inspect the same and
perform repairs and make improvements as Lessor deems necessary.
28. HOLDOVER. In the event Lessee shall hold over beyond the
termination hereof such holdover shall be on a month to month basis only and
at the rental rates stated herein. Nothing herein shall prevent Lessor from
exercising Lessor's right to recover possession of the Premises.
29. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT,
WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT
HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT
EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA.
ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM
YOUR COUNTY PUBLIC HEALTH UNIT. [NOTE: THIS PARAGRAPH IS PROVIDED FOR
INFORMATIONAL PURPOSES PURSUANT TO SECTION 404.056(8), FLORIDA STATUTES,
(1988).]
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IN WITNESS WHEREOF this Lease has been executed as of the day and year
first above written.
Signed and delivered
in the presence of:
LESSOR:
AMERICAN EXPRESS CENTURION
SERVICES CORPORATION
______________________________________ By: ____________________________
______________________________________
LESSEE:
IDEON GROUP, INC.
______________________________________ By: ____________________________
______________________________________
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EXHIBIT "F"
Description of Vacated Space
Approximately 40,000 square feet on the south side of
the fourth floor.
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EXHIBIT "G"
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made as of _________ __, 1996, by
and between Ideon Group, Inc. ("Lessor") and American Express Centurion Services
Corporation ("Lessee").
WITNESSETH: That, for and in consideration of the rent and the mutual
covenants herein set forth, Lessor and Lessee agree:
1. PREMISES. Lessor leases to Lessee, and Lessee rents from Lessor,
the premises described on Exhibit A hereto (these premises, as reduced from time
to time in accordance with paragraph 30 below, are hereinafter referred to as
the "Premises") which are in the building located at 7777 Centurion Parkway,
Jacksonville, Florida 32256 and also commonly known as American Express Optima
Regional Operations Center in the Deerwood Park Office Complex, Jacksonville,
Florida (the "Building"), together with the nonexclusive right of ingress and
egress, to the extent of Lessor's rights, over all lobby and common areas,
subject to Lessor's reasonable security requirements, and all streets, sidewalks
and parking areas serving the Premises; provided, however, that all parking
areas serving the Building shall be for the nonexclusive use of employees,
customers and other invitees of Lessee and others. The Premises are hereby
stipulated to contain ____ square feet of rentable area.
2. TERM. The term of this Lease shall commence on the date
hereof and unless sooner terminated as provided herein, shall end on June 30,
1996.
3. USE. The Premises may be used only for office use, including
all services customarily rendered in connection therewith, and for no other
purposes without Lessor's prior written consent.
4. RENT. Subject to reduction in the event Lessee turns over to
Lessor occupancy of space within the Premises as described in paragraph 30
below, Lessee covenants to pay to Lessor rent in monthly installments of _______
(calculated on an annual rental charge of $___________ per square foot of
rentable space in the Premises), on the first day of every calendar month, in
advance and without notice, from and after the date hereof. Beginning or ending
periods of less than a whole calendar month shall be prorated. Lessee shall pay
to Lessor a late charge equal to 5% of any rent payment not received by Lessor
within 5 calendar days of its due date.
5. TAXES. Lesse shall pay all sales and other taxes on the rent and
other sums due hereunder at the same time as the rent and other sums are
payable. Lessee shall also pay directly to the governing municipality and all
applicable governmental agencies all personal property taxes or the equivalent
on Lessee's personal property, furniture, fixtures and equipment.
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6. LESSOR'S SERVICES. Lessor shall provide security, HVAC,
electricity for lighting and normal office use, cleaning, janitorial and other
Building services at a level and of a quality at least equal to that provided
in the Building during the 12 month period prior to the date of this Lease and
shall maintain the Building in a manner consistent with the manner in which the
Building has been maintained during said 12 month period. All other services,
including telephone service, shall be provided by Lessee. If Lessee exceeds the
utility use described herein, Lessee shall reimburse Lessor for the cost of such
excess.
7. MAINTENANCE. Lessee agrees to maintain the interior of the
Premises in good condition and repair including the doors, windows, inside
walls, ceiling and floor, and shall be responsible for all glass and casualty
damage caused by Lessee's negligence or willful act.Upon any termination of this
Lease, Lessee shall surrender possession of the Premises (including tenant
improvements, if any, and fixtures which cannot be removed without damaging the
Premises), broom clean and in good and tenantable repair, reasonable wear
and tear excepted.
8. INSURANCE. Lessee shall maintain and provide general liability
insurance naming Lessor and Lessee as insureds during the term of this Lease in
the amounts of not less than One Million Dollars ($1,000,000) for injury to any
one person, Two Million Dollars ($2,000,000) for injury to more than one person,
both arising out of any one accident or occurrence and Five Hundred Thousand
Dollars ($500,000) for damage to property. Such insurance may be by way of
blanket insurance coverage with such self-insurance deductibles as Lessee
customarily carries with respect to its other leased premises and shall name
Lessor as an additional insured on such liability policy. Lessee shall insure
Lessee's furniture, fixtures, equipment and personal property.
Lessor shall insure the building against risks covered by a standard
fire and extended coverage policy in amounts appropriate for buildings of
similar type.
Lessor and Lessee agree to waive any and all rights that each may have
against the other arising out of loss or damage that they may suffer with
respect to the building or their respective personal property and will obtain
the endorsement of their insurers evidencing waiver of subrogation in such
cases.
9. ALTERATIONS. Lessee shall not make any alterations involving
structural changes or any changes to the interior or exterior of the Premises or
the Building without obtaining Lessor's prior written consent, which as to
structural changes or the exterior of the Premises, Lessor may grant or withhold
in Lessor's sole and absolute discretion and which as to the interior of the
Premises, Lessor's prior written consent shall not be unreasonably withheld or
delayed. Alterations which are consented to by Lessor shall be performed in a
good and workmanlike manner and without cost to Lessor. The interest of Lessor
in the Building shall not be subject to liens for improvements made by Lessee
and Lessee agrees to defend and indemnify Lessor against all such claims and
costs, including, attorney's fees, in connection therewith.
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<PAGE>
10. TRADE AND OTHER FIXTURES. Lessee may install or cause to be
installed such furniture, equipment and trade and other fixtures as are
necessary for the operation of Lessee's business in the Premises. Subject to the
other applicable provisions hereof, such furniture, equipment and trade and
other fixtures shall remain personal property, and title thereto shall continue
in the owner thereof, regardless of the manner in which same may be attached or
affixed to the Premises. In no event shall Lessor be liable for any theft, loss,
damage or destruction for any property located at the Premises.
11. USE OF COMMON AREAS. Lessee's right to the use of common areas in
the Building shall include the right to use, on a nonexclusive basis with Lessor
and the other occupants of the Building, telephone conduits, electrical conduits
and other similar facilities (collectively, "Facilities") within the Building,
provided that such use by Lessee shall be at Lessee's sole risk and expense and
shall not interfere with nor disrupt the use of the Facilities by Lessor or any
other occupant of the Building. In addition, Lessee shall have the right, at its
own expense, to maintain conduits and other similar connection facilities within
the common areas of the Building which are in place as of the date of this Lease
and to install other conduits and other similar connection facilities within the
common areas of the Building at locations approved in advance by Lessor. Lessee,
in its use of the Facilities and common areas pursuant to this paragraph, shall
use its best efforts not to interfere with the use and enjoyment of the common
areas and the balance of Building and shall not cause any damage to any portion
of the common areas of the Building. Lessee shall indemnify and hold Lessor
harmless from any and all losses or damages resulting from Lessee's use and
enjoyment of the Facilities and common areas of the Building pursuant to this
paragraph.
12. CASUALTY DAMAGE. In the event the Building or the Premises are
damaged so as to render the Premises untenable in whole or in part for Lessee's
use, either party shall have the right to terminate this Lease (in its entirety,
or only as to the affected space) upon notice to the other party given within 30
days after such damage occurred, otherwise this Lease shall remain in full force
and effect in its entirety. Lessee's obligation to pay rent and any other sums
due hereunder during the period shall abate or be equitably reduced to the
extent that the Premises (or any portion thereof) or access to the Premises are
not reasonably usable by Lessee for Lessee's ordinary business in the Premises.
13. COMPLIANCE WITH LAWS. Lessee shall promptly comply with and
abide by all applicable and valid laws, ordinances and regulations of all
federal, state, county, municipal and other lawful authority pertaining to its
use and occupancy of the Premises and the business conducted therein.
14. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this Lease or
sublease the whole or any part of the Premises, except to an affiliate of
Lessee, without the prior written consent of Lessor which may be given or
withheld in Lessor's sole discretion. Lessor's consent to any such assignment or
sublease shall not relieve Lessee of Lessee's liability for the payment of rent
and the performance of the other terms and conditions of the Lease.
101
<PAGE>
15. BANKRUPTCY. Should Lessee make an assignment for the benefit of
creditors, file a petition in bankruptcy or be adjudicated bankrupt, or should
an involuntary petition in bankruptcy be brought against Lessee which is not
dismissed within sixty (60) days, such action shall constitute a breach of the
Lease for which Lessor, at Lessor's option, may terminate all rights of Lessee
or Lessee's successors in interest under this Lease, unless precluded from doing
so by applicable law.
16. EMINENT DOMAIN. If all or any substantial part of the Building or
the Premises is taken under the power of eminent domain or conveyed by voluntary
deed in lieu of condemnation proceedings, Lessor, at Lessor's option, may
terminate this Lease effective as of the date Lessee is required to vacate the
Premises. If all or a substantial part of the Premises are taken under the power
of eminent domain or conveyed by voluntary deed in lieu of condemnation
proceedings, Lessee, at Lessee's option, may terminate this Lease effective as
of the date Lessee is required to vacate the Premises.
17. ATTORNEYS' FEES. If any suit is commenced to enforce any covenant
of this Lease or for the breach of any covenant or condition herein contained,
the parties hereto agree that the losing party therein shall pay to the
prevailing party all costs thereof, including reasonable attorneys' fees, which
shall be fixed by the court. Lessee also agrees to pay all costs of collection
of rent and other sums due hereunder, including reasonable attorneys' fees,
whether or not a suit is commenced.
18. DEFAULT. In the event Lessee shall fail to pay any installment of
rent as provided herein within fifteen (15) days after receipt of written notice
from Lessor or if Lessee fails to cure any other default under this Lease within
thirty (30) days after receipt of written notice of such default by Lessor,
unless such default cannot be cured within thirty (30) days in which event
Lessee shall commence cure within thirty (30) days and proceed in good faith to
cure the default in a timely fashion, Lessor may terminate this Lease without
further notice and may immediately recover from Lessee all rent and other sums
due from Lessee hereunder. In lieu of terminating this Lease, from time to time
or at any time, Lessor may bring an action or actions for recovery of the rent
due and unpaid or for any installment or installments thereof, or for any other
sum of money due Lessor hereunder.
19. LESSOR'S COVENANTS. Lessor covenants that Lessor has good title
to the Building and that the same is subject to no leases, tenancies,
agreements, restrictions or defects in title adversely affecting Lessee's right
to occupy the Premises as provided for herein.
20. QUIET ENJOYMENT. Lessee, upon paying the rent and performing the
covenants and agreements of the Lease, shall quietly have, hold and enjoy the
Premises and all rights granted Lessee herein during the term hereof.
102
<PAGE>
21. NOTICES. All rent and any notice required or permitted hereunder shall be in
writing and delivered by United States certified mail, return receipt requested,
postage fully prepaid, or by any regular overnight courier service, to the
following addresses (or to such other address as either party may designate in
writing and deliver as herein provided) and shall be deemed delivered upon the
earlier of (i) receipt or (ii) three business days after mailing:
LESSEE: American Express Centurion Services Corporation
7777 Centurion Parkway
Jacksonville, Florida 32256
Attn: Jim Sullivan
LESSOR: Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Attn: Marc Joseph, Esq.
With a copy to:
Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Attn: Peter Knauth
29. MISCELLANEOUS. Subject to the provisions hereof, this Lease
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
30. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
31. GOVERNING LAW. This Lease and the rights and obligations of the
parties hereto shall be interpreted, constructed, and enforced in accordance
with the laws of the State of Florida.
32. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed
or construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of
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<PAGE>
rent, nor any other provisions contained herein, nor any acts of the parties
herein, shall be deemed to create any relationship between the parties hereto
other than the relationship of landlord and tenant.
33. RULES AND REGULATIONS. Lessor may adopt such reasonable rules
and regulations as may be necessary for the safe and proper operation of the
Building, after consultation with Lessee. Such rules shall be applicable to
Lessee and shall be binding upon Lessee upon notice thereof.
34. ACCESS BY LESSOR. Lessor shall have the right, upon reasonable
notice and at reasonable times, to enter the Premises to inspect the same and
perform repairs and make improvements as Lessor deems necessary.
35. HOLDOVER. In the event Lessee shall hold over beyond the
termination hereof such holdover shall be on a month to month basis only and at
the rental rates stated herein. Nothing herein shall prevent Lessor from
exercising Lessor's right to recover possession of the Premises.
36. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT,
WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT
HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT
EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN
FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE
OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT. [NOTE: THIS PARAGRAPH IS PROVIDED
FOR INFORMATIONAL PURPOSES PURSUANT TO SECTION 404.056(8), FLORIDA STATUTES,
(1988).]
37. VACATION OF PREMISES. Lessee intends to vacate portions of the
Premises during the term of this Lease. As Lessee from time to time vacates
space in the Premises, Lessee shall turn over occupancy of such space to Lessor
in broom clean condition and Lessee's tenancy (and Lessee's obligation to pay
rent with respect to such space) shall terminate as of the date of such
turnover, provided that Lessee must give to Lessor at least thirty (30) days
prior written notice before Lessee's obligation to pay rent with respect to the
applicable space shall terminate. Whenever Lessee vacates a portion of the
Premises and turns over such space to Lessor, Lessee and Lessor shall execute an
appropriate amendment to this Lease reflecting the portion of the Premises being
withdrawn from this Lease and the corresponding reduction in Rent.
104
<PAGE>
IN WITNESS WHEREOF this Lease has been executed as of the day and year first
above written.
Signed and delivered
in the presence of:
LESSOR:
IDEON GROUP, INC.
______________________________________ By:___________________________
______________________________________
LESSEE:
AMERICAN EXPRESS CENTURION
SERVICES CORPORATION
______________________________________ By:___________________________
______________________________________
105
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11(a)
Computation of Primary Earnings Per Share
Three Months Ended
------------------
June 30, April 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
Net (loss) income $ (46,670,000) $ 3,804,000
Adjustment
---------------- ---------------
Adjusted net (loss) income $ (46,670,000) $ 3,804,000
================ ===============
Average common shares
outstanding (1) 28,860,000 24,442,000
Assumed equivalent shares from
stock options converted to
common shares (2) 3,319,000
---------------- ---------------
Total weighted average number
of common and common
equivalent shares 28,860,000 27,761,000
================ ===============
Earnings per share
(Loss) income before cumulative effect of
accounting change $ (1.62) $ .14
Cumulative effect of accounting change
---------------- ---------------
Net (loss) income per common share $ (1.62) $ .14
================ ===============
</TABLE>
(1) Average shares outstanding for the three months ended June 30, 1995 does
not assume the exercise of options since an increase in average shares
outstanding would be dilutive to net loss per share.
(2) 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 from the proceeds using the average
market price of the Company's common stock for the period.
106
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11(a)
Computation of Primary Earnings Per Share
Six Months Ended
----------------
June 30, April 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
Net (loss) income $ (46,369,000) $ 12,248,000
Adjustment
---------------- ---------------
Adjusted net (loss) income $ (46,369,000) $ 12,248,000
================ ===============
Average common shares
outstanding (1) 28,900,000 24,284,000
Assumed equivalent shares from
stock options converted to
common shares (2) 3,188,000
---------------- ---------------
Total weighted average number
of common and common
equivalent shares 28,900,000 27,472,000
================ ===============
Earnings per share
Income (loss) before cumulative effect of
accounting change $ (1.60) $ .38
Cumulative effect of accounting change .07
---------------- ---------------
Net (loss) income per common share $ (1.60) $ .45
================ ===============
</TABLE>
(1) Average shares outstanding for the six months ended June 30, 1995 does not
assume the exercise of options since an increase in average shares
outstanding would be dilutive to net loss per share.
(2) 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 from the proceeds using the average
market price of the Company's common stock for the period.
107
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11(b)
Computation of Fully Diluted Earnings Per Share
Three Months Ended
------------------
June 30, April 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
Net (loss) income $ (46,670,000) $ 3,804,000
Adjustment
---------------- ---------------
Adjusted net (loss) income $ (46,670,000) $ 3,804,000
================ ===============
Average common shares
outstanding (1) 28,860,000 24,442,000
Assumed equivalent shares from
stock options converted to
common shares (2) 3,358,000
---------------- ---------------
Total weighted average number
of common and common
equivalent shares 28,860,000 27,800,000
================ ===============
Earnings per share
(Loss) income before cumulative effect of
accounting change $ (1.62) $ .14
Cumulative effect of accounting change
---------------- ---------------
Net (loss) income per common share(3) $ (1.62) $ .14
================ ===============
</TABLE>
(1) Average shares outstanding for the three months ended June 30, 1995 does
not assume the exercise of options since an increase in average shares
outstanding would be dilutive to net loss per share.
(2) Earnings per share are computed consistent with footnote (2) on Exhibit
11(a) - Computation of Primary Earnings Per Share except in computing
fully diluted earnings per share, the treasury stock method uses the
market price of the Company's common stock at the close of the period
rather than the average market price during the period.
(3) 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%.
108
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11(b)
Computation of Fully Diluted Earnings Per Share
Six Months Ended
----------------
June 30, April 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
Net (loss) income $ (46,369,000) $ 12,248,000
Adjustment
---------------- ---------------
Adjusted net (loss) income $ (46,369,000) $ 12,248,000
================ ===============
Average common shares
outstanding (1) 28,900,000 24,284,000
Assumed equivalent shares from
stock options converted to
common shares (2) 3,425,000
---------------- ---------------
Total weighted average number
of common and common
equivalent shares 28,900,000 27,709,000
================ ===============
Earnings per share
(Loss) income before cumulative effect of
accounting change $ (1.60) $ .37
Cumulative effect of accounting change .07
---------------- ---------------
Net (loss) income per common share(3) $ (1.60) $ .44
================ ===============
</TABLE>
(1) Average shares outstanding for the six months ended June 30, 1995 does not
assume the exercise of options since an increase in average shares
outstanding would be dilutive to net loss per share.
(2) Earnings per share are computed consistent with footnote (2) on Exhibit
11(a) - Computation of Primary Earnings Per Share except in computing
fully diluted earnings per share, the treasury stock method uses the
market price of the Company's common stock at the close of the period
rather than the average market price during the period.
(3) 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%.
109
<PAGE>
Exhibit 15
August 11, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that Ideon Group, Inc. has included our report dated July 31, 1995
(issued pursuant to the provisions of Statement on Auditing Standards No. 71) in
the Prospectus constituting part of the Registration Statements on Forms S-3 and
S-8 (Nos. 33-39023, 33-48317, 33-51439, 33-55581, 33-55585, 33-57071, 33-59247
and 33-59249) filed on or about February 14, 1991, June 2, 1992, December 15,
1993, September 22, 1994, December 23, 1994 and May 11, 1995. We are also aware
of our responsibilities under the Securities Act of 1933.
PRICE WATERHOUSE LLP
Tampa, Florida
110
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000943097
<NAME> IDEON GROUP INC.
<MULTIPLIER> 1000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 29,191
<SECURITIES> 68,701
<RECEIVABLES> 55,924
<ALLOWANCES> (2,021)
<INVENTORY> 0
<CURRENT-ASSETS> 274,956
<PP&E> 45,358
<DEPRECIATION> (10,320)
<TOTAL-ASSETS> 404,026
<CURRENT-LIABILITIES> 238,672
<BONDS> 0
<COMMON> 349
0
0
<OTHER-SE> 113,347
<TOTAL-LIABILITY-AND-EQUITY> 404,026
<SALES> 55,946
<TOTAL-REVENUES> 57,732
<CGS> 33,017
<TOTAL-COSTS> 130,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (72,881)
<INCOME-TAX> (26,211)
<INCOME-CONTINUING> (46,670)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,670)
<EPS-PRIMARY> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
