SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q/A
AMENDMENT NO. 1 TO QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
Commission File No. 1-11465
IDEON GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
(Former Name of Registrant: SafeCard Services, Incorporated)
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
Common Stock, $.01 Par Value
Outstanding at May 10, 1996 27,983,164 Shares
Total Number of Pages 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheet
(in thousands, except share data)
March 31, December 31,
1996 1995
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,449 $ 25,071
Securities available for sale, maturing within one year 12,916 33,741
Receivables, net 84,290 71,953
Income taxes receivable 18,862 16,153
Deferred subscriber acquisition costs and
related commissions, amortizing within one year 87,268 91,150
Deferred income tax asset 3,370
Other current assets 3,591 3,228
-------------- --------------
Total current assets 226,376 244,666
Securities available for sale, maturing after one year 15,380 13,328
Deferred subscriber acquisition costs and
related commissions, amortizing after one year 42,382 40,403
Property and equipment, net 31,361 32,389
Intangible assets, net 63,465 45,002
Deferred income tax asset, noncurrent 5,244 5,223
Other assets 7,073 4,899
-------------- --------------
Total assets $ 391,281 $ 385,910
============== ==============
Liabilities
Current liabilities:
Notes payable to bank $ 19,855 $ 15,414
Accounts payable 46,087 32,523
Accrued expenses 22,034 35,165
Product abandonment and related liabilities 14,270 20,796
Subscribers' advance payments, amortizing
within one year 118,586 119,805
Allowance for cancellations 6,524 9,548
Deferred income tax liability 2,707
--------------
Total current liabilities 230,063 233,251
Subscriber advance payments, amortizing after one year 54,098 49,799
-------------- --------------
Total liabilities 284,161 283,050
-------------- --------------
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, 27,981,831 shares
outstanding 349 349
Additional paid-in capital 41,230 41,230
Retained earnings 123,469 118,999
Unrealized gain on securities available for sale 135 345
-------------- --------------
165,183 160,923
Less cost of 6,964,169 common shares in treasury (58,063) (58,063)
-------------- --------------
Total stockholders' equity 107,120 102,860
-------------- --------------
Total liabilities and stockholders' equity $ 391,281 $ 385,910
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
(in thousands, except share data)
Three Months Ended
March 31,
1996 1995
----------------- ----------
(unaudited)
<S> <C> <C>
Revenues
Membership and subscription revenue, net $ 46,339 $ 43,597
Card acquisition and services revenue 7,173 4,910
Consumer marketing revenue 9,452 8,173
Interest income 677 1,885
Other income 7,059 1,163
-------------- --------------
70,700 59,728
-------------- --------------
Costs and expenses
Subscriber acquisition costs and
related commissions 30,273 26,926
Other costs of revenue 8,023 6,017
Research and product development costs 421 2,016
Service costs and other operating expenses 11,504 8,409
General and administrative expenses 11,450 7,870
Cost relating to products abandoned
and restructuring 8,061
61,671 59,299
-------------- --------------
Income before provision for income taxes 9,029 429
Provision for income taxes 3,160 128
-------------- --------------
Net income $ 5,869 $ 301
============== ==============
Earnings per share $ .21 $ .01
============= =============
Weighted average common and
common equivalent shares 28,097,000 29,870,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(in thousands)
Three Months Ended
March 31,
1996 1995
--------------- ----------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Cash received from subscribers/customers $ 63,155 $ 65,407
Cash paid to suppliers and employees (69,980) (74,069)
Interest received 1,499 4,288
Income tax refunds (payments), net (275) 1,500
-------------- --------------
Net cash used in operating activities (5,601) (2,874)
-------------- --------------
Cash Flows From Investing Activities
Purchases of investments (9,757) (31,633)
Proceeds from sales of investments 23,830 84,980
Proceeds from maturing investments 4,649 7,274
Cost of acquisitions, net of cash acquired (18,471) (12,977)
Acquisitions of property and equipment, net (2,611) (10,891)
-------------- --------------
Net cash (used in) provided by investing activities (2,360) 36,753
-------------- --------------
Cash Flows From Financing Activities
Net borrowings on notes payable to bank 4,441 2,246
Repayment of debt acquired in UBS
acquisition (703)
Proceeds from exercise of stock options 57
Dividends paid (1,399) (1,447)
-------------- --------------
Net cash provided by financing activities 2,339 856
-------------- --------------
Net increase in cash and cash equivalents (5,622) 34,735
Cash and cash equivalents at beginning of period 25,071 9,315
-------------- --------------
Cash and cash equivalents at end of period $ 19,449 $ 44,050
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Notes To Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Ideon Group, Inc. ("Ideon" or the "Company") is a holding company with
current operating business units as follows: SafeCard Services,
Incorporated ("SafeCard"); Wright Express Corporation ("WEX") and National
Leisure Group, Inc. ("NLG"). The Company's Ideon Marketing and Services
business unit which manages the PGA TOUR Partners and the Collections of
the Vatican Museums programs has been consolidated with SafeCard. The
operations of United Bank Services ("UBS"), acquired February 16, 1996 (see
Note 2 - Acquisition), have also been consolidated into SafeCard. The
operations of an additional business unit, Family Protection Network, Inc.,
were discontinued in 1995.
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 month period ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Ideon's Annual Report on Form 10-K for the
year ended December 31, 1995.
Prior year financial statements have been reclassified to conform to
1996 presentations.
Price Waterhouse LLP has performed a review, and not an audit, of the
unaudited consolidated financial information of the Company for the three
months ended March 31, 1996 (based on procedures adopted by the American
Institute of Certified Public Accountants) as set forth in their separate
report dated April 29, 1996, 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.
2. Acquisition
On February 16, 1996, SafeCard acquired 100% of the outstanding stock
of UBS for $18,328,000. UBS is a provider of value-added products and
services through a diverse group of financial institutions. Products and
services offered by UBS include CardMiles (an airline frequent flyer
rewards program), rebate travel, insurance enhancements, customer loyalty
programs (designed to aid in card acquisition or increase credit card
usage) and credit card merchant reward programs (designed as packages of
enhancements offered by credit card merchant processors). Terms of the
acquisition include additional payments of up to $4,000,000 in each of the
years 1996, 1997 and 1998 based on the attainment of certain earnings
hurdles and fulfillment of certain conditions. In addition, the sellers are
entitled to 50% of UBS' share of the profits from a foreign joint venture
over the next three years, up to a maximum of $10,000,000.
The acquisition was accounted for under the purchase method and
accordingly the results of operations of UBS are included in the Company's
consolidated financial statements from the date of acquisition. In
connection with the acquisition, SafeCard recorded $14,699,000 of goodwill
(excess cost over fair value of net assets acquired) and $4,400,000 of
other intangible assets. The goodwill is being amortized over 25 years and
the other intangible assets are being amortized over 5 years. In connection
with the acquisition, SafeCard assumed $703,000 of debt which was repaid
shortly after the close of the transaction.
Pro forma results of operations of the Company and UBS as if combined
throughout the first quarter of 1996 and 1995 are not materially different
from actual results presented in the consolidated financial statements and
therefore, are not presented herein.
3. 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 are deferred and amortized to
expense in proportion to expected revenues over the initial subscription
period (generally one or three years).
Deferred subscriber acquisition costs and related commissions were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -----------
<S> <C> <C>
Hot-Line $ 59,797,000 $ 65,232,000
CreditLine and related products 7,185,000 7,130,000
Fee Card 3,856,000 5,597,000
Other services 11,062,000 8,775,000
----------------- -----------------
Total deferred subscriber acquisition costs 81,900,000 86,734,000
Commissions 47,750,000 44,819,000
----------------- -----------------
Total deferred subscriber acquisition
costs and commissions $ 129,650,000 $ 131,553,000
================= =================
</TABLE>
<PAGE>
4. Other Income
Included within "Accrued expenses" at December 31, 1995 was a disputed
liability recorded in 1992 of $10,534,000 relating to the Company's estimated
net obligation under a contested lease of its former Ft. Lauderdale, Florida
headquarters. In March 1996, the Company reached a settlement with Peter Halmos,
the lessor (see Note 7 - Commitments and Contingencies), which resulted in the
payment of $3,800,000 to Halmos. Other income for the first quarter of 1996
includes a reversal of the remaining accrual of $6,734,000.
5. Income Taxes
The Company's effective income tax rate for the three months ended
March 31, 1996 and 1995 differs from the applicable statutory rate due to
tax-exempt interest received on investments in municipal debt securities,
non-deductible goodwill amortization and the federal tax benefit of state
income taxes.
At March 31, 1996, the Company had a net noncurrent deferred tax asset
of $5,244,000 and a net current deferred tax liability of $2,707,000. The
deferred tax asset primarily relates to the timing of recognition of
multi-year revenues. 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.
<PAGE>
6. Supplemental Cash Flow Information
The reconciliation of net income to net cash (used in) provided by
operating activities, as presented in the consolidated statement of cash
flows, is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1995
----------------- ----------
<S> <C> <C>
Net income $ 5,869,000 $ 301,000
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,053,000 1,366,000
Amortization of investment
premiums/discounts, net 42,000 880,000
Realized gain on sales of securities
available for sale (201,000) (952,000)
Loss on impairment of assets 2,912,000
Income tax expense 3,160,000 128,000
Income tax refunds (payments), net (275,000) 1,500,000
Restricted stock expense 50,000
Billings to subscribers, net 50,683,000 46,550,000
Amortization of subscribers' advance
payments to revenue (47,603,000) (46,430,000)
Expenditures for subscriber acquisition costs (13,927,000) (18,486,000)
Payment of commissions, net (16,320,000) (11,488,000)
Amortization of subscriber acquisition costs 18,761,000 16,070,000
Amortization of commissions 13,389,000 12,837,000
Decrease in allowance for cancellations (3,024,000) (4,876,000)
Changes in assets and liabilities, net of effects of business
acquisitions:
Receivables, net (10,910,000) 7,573,000
Other current assets (227,000) (57,000)
Other assets (1,883,000) 118,000
Accounts payable and
accrued expenses (1,574,000) (7,958,000)
Product abandonment and
related liabilities (6,526,000)
Net cash used in operating activities $ (5,601,000) $ (2,874,000)
================ ================
</TABLE>
<PAGE>
7. Commitments and Contingencies
The Company is defending or prosecuting claims in eleven complex
lawsuits involving 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 three other lawsuits, one
against a former officer, one against a director of the Company and one
against SafeCard's outside counsel, in which neither SafeCard nor the
Company have been named as defendant. The eleven 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 appealed this
ruling; the initial brief, the answer brief and the reply brief have
been filed. No date for oral argument has been set. 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. On December 28, 1995, the court stayed Halmos'
indemnification claims pending resolution of a declaratory judgment
action filed by the Company in Delaware Chancery Court.
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
$48,000,000 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. On March 14, 1996, the
Wyoming Supreme Court reversed the trial court's ruling that certain of
SafeCard's claims were barred by the statute of limitations. Trial has
been scheduled to begin on October 7, 1996.
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 this case has been stayed pending a ruling on the motion to dismiss.
On August 16, 1995, the United States Magistrate Judge filed a Report
and Recommendation that the case be dismissed. The parties have filed
various briefs and memoranda in response to this Report. On January 4,
1996, the Magistrate recommended ruling that the statute of limitations
was tolled during pendency of the case in federal court and the
plaintiffs' state law claims were thus not time-barred. Defendants have
filed an objection to this recommendation.
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 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. The complaint was amended on September 13, 1995, to
join James L. Binder individually and as custodian for the James L.
Binder, D.D.S., P.C. Profit Sharing Trust II. SafeCard and the
individual defendants have filed a motion to dismiss. There has been
limited discovery on class certification and identification of "John
Doe" defendant issues. The Company filed its opposition to the pending
motion for class certification on December 11, 1995. Plaintiff's reply
was filed on March 19, 1996.
A suit seeking monetary damages and injunctive relief by LifeFax, Inc.
and Continuity Marketing Corporation, companies affiliated with Peter
Halmos, in the Circuit Court in Palm Beach County, Florida in April
1995 against the Company, Family Protection Network, Inc., SafeCard,
one of the Company's directors and the Company's former 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 individual defendants filed a
motion to dismiss the amended complaint. A hearing was held on the
motion to dismiss on October 13, 1995. On November 27, 1995, the court
entered an order denying the Company's motion to dismiss. On December
12, 1995, the defendants filed their answer and affirmative defenses to
the amended complaint. Preliminary discovery is proceeding.
A suit seeking monetary damages and declaratory relief by Peter Halmos,
individually and as trustee for the Peter A. Halmos Revocable Trust
dated January 20, 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 violation of the federal securities laws, 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. There has been limited discovery on
class certification issues. The Company filed its opposition to the
pending motion for class certification on December 11, 1995.
Plaintiff's reply was filed on March 19, 1996.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard and the
Company against SafeCard, the Company, two of their officers, and the
Company's Board of Directors in the United States District Court for
the Southern District of Florida. This litigation involves claims that
the officers and directors of SafeCard and the Company have improperly
refused to accede to Peter Halmos' litigation and indemnification
demands against the Company. The Company and the individual defendants
have filed motions to dismiss the first amended complaint. On September
29, 1995, Pisano filed a second amended complaint which made additional
allegations of waste and mismanagement against the Company's officers
and directors in connection with the Family Protection Network and PGA
TOUR Partners products. On December 26, 1995, the Company filed motions
to dismiss the second amended complaint for: (i) failure to join an
indispensable party (Halmos) and failure to allege demand on the Board
of Directors with particularity; and (ii) the failure of Pisano to
comply with the fairness and adequacy requirements of Federal Rule of
Civil Procedure 23.1. On January 25, 1996, the plaintiff filed a
memorandum in opposition to motion to dismiss. The Company filed its
reply to the memorandum in opposition on February 23, 1996.
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. 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 filed a motion
to dismiss and on March 28, 1996 the court entered an agreed order
denying SafeCard's motion to dismiss as moot in light of an agreement
that plaintiff would file an amended complaint. The amended complaint
is due by June 26, 1996.
A declaratory judgment action by the Company and its directors against
Peter Halmos in Delaware Chancery Court, New Castle County. This action
seeks a declaration regarding the Company's advance indemnification
obligations, if any, to Peter Halmos who has made numerous advance
indemnification demands on the Company in connection with his many
lawsuits. Halmos filed a motion to dismiss on jurisdictional grounds on
November 17, 1995. The Company filed a brief in opposition and an
amended complaint on February 14, 1996. On April 22, 1996, Halmos filed
an answer and amended counterclaims in which High Plains Capital
Corporation and Halmos Trading & Investment Company were added as
additional parties. The amended counterclaims seek advancement and/or
indemnification for Halmos, High Plains Capital Corporation and Halmos
Trading & Investment Company for certain litigations and an IRS
investigation. The amended counterclaims also seek recovery against
individual defendant directors based on allegations they willfully and
unjustly denied Halmos indemnification and/or advancement.
A suit by High Plains Capital Corporation against SafeCard, the
Company, two of its directors and The Dilenschneider Group, Inc. in
Circuit Court in Palm Beach County, Florida. This litigation involves
claims by High Plains Capital Corporation, a corporation with which
Peter Halmos is affiliated, for certain incentive compensation arising
out of Halmos' affiliation with SafeCard. The complaint includes claims
for breach of written agreements regarding additional services and
expenses, an alternative claim for quantum meruit based on written
agreement and a count for tortious interference with advantageous
business relationship. The complaint appears to attempt to revive the
incentive compensation claims which have been dismissed with prejudice
in Illinois. On November 30, 1995, the Company filed a motion to
strike, a motion to dismiss and a motion to transfer. On March 29,
1996, the court denied the Company's motion to dismiss or to stay. On
April 5, 1996, the court entered an agreed order withdrawing without
prejudice the defendant's motion to strike. The Company subsequently
filed a motion for final summary judgment and a hearing is scheduled on
this motion for June 7, 1996. Discovery has been stayed pending a
ruling on this motion.
A suit filed by High Plains Capital Corporation against the Company and
SafeCard in Circuit Court in Broward County, Florida. This litigation
involves claims by High Plains Capital Corporation, a corporation with
which Peter Halmos is affiliated, for alleged breach of oral contract,
alleged violation of Florida's Uniform Trade Secrets Act, alleged
misappropriation of trade secrets and for declaration that certain
alleged trade secrets are the property of High Plains Capital
Corporation. The Company filed motions to dismiss and to transfer on
December 15, 1995.
<PAGE>
In addition to the above Halmos related lawsuits, the Company has
resolved a suit filed by Peter Halmos, purportedly in the name of Halmos
Trading & Investment Company, seeking monetary damages and specific
performance against SafeCard, one of its former 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 had vacated the building, ceased making
payments related to the Ft. Lauderdale lease. After a number claims and
counterclaims were filed, trial of the lawsuit began February 26, 1996. On
March 25, 1996, the parties entered into a Settlement Agreement under which
the Company made a payment of $3,800,000 to settle all claims currently
pending or previously brought in this lawsuit.
The Company is involved in certain other claims and litigation as follows:
A suit by Lois Hekker on behalf of herself and all others similarly
situated seeking monetary damages against the Company and its former
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 common 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. Defendants
filed a motion to dismiss on October 2, 1995. On January 3, 1996, the
court stayed all merits discovery pending rulings on the motion to
dismiss and on the plaintiff's motion for class certification.
A suit filed by SafeCard on April 17, 1996, against Museum Art
Properties, Inc. in state court in Duval County, Florida. This action
involves a complaint for declaratory judgment for a determination of
SafeCard's rights under the termination provisions of a Marketing and
Distribution Agreement between SafeCard and Museum Art Properties dated
November 25, 1994 and subsequently amended on February 27, 1995 and
December 18, 1995.
A suit filed by Museum Art Properties, Inc. on April 18, 1996, seeking
monetary damages against SafeCard in State Court for New York County,
New York in which Museum Art Properties, Inc. seeks damages purportedly
in the amount of $50,000,000 for SafeCard's alleged breaches of its
contractual obligations to Museum Art Properties, Inc. in connection
with a mail order catalog for "Collections of the Vatican Museums."
The Company believes that it has proper and meritorious claims and
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. The Company is
unable to estimate to potential loss or range of loss, if any, with respect
to these litigation matters.
<PAGE>
8. Subsequent Event
On April 22, 1996, the Company announced the signing of a definitive
merger agreement with CUC International Inc. ("CUC"), an international
membership services company, whereby CUC will acquire Ideon in a
stock-for-stock transaction valued at approximately $375 million. The
transaction is expected to close in early to mid-summer and is subject to
customary closing requirements and approval by Ideon stockholders.
Under the terms of the agreement, each share of Ideon common stock
outstanding on the effective date of the proposed merger will be converted
into the right to receive CUC common stock with an aggregate value of
$13.50 per share if the average closing price per share of CUC common stock
over a specified fifteen day period prior to the date of the Ideon
stockholder meeting called to vote upon the proposed merger (the "Average
Stock Price") is within the collar described below. The exact ratio of
shares of CUC common stock to be issued per outstanding share of Ideon
stock will be determined by dividing $13.50 by the Average Stock Price.
However, the number of shares of CUC common stock to be issued in exchange
for each share of Ideon common stock will in no event be greater than .6136
(if the Average Stock Price is at or below $22.00 per share) nor less than
.3750 (if the Average Stock Price is at or above $36.00 per share).
CUC intends to account for the acquisition as a pooling-of-interests
and it is intended that the merger be tax-free to Ideon stockholders.
<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. as of March 31, 1996 and 1995, and the related consolidated statements of
operations and of cash flows for the three month periods then ended, appearing
in the Company's Form 10-Q for the quarter ended March 31, 1996. 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 Ideon Group, Inc. as of December 31, 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended (not presented herein), and in
our report dated February 2, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the accompanying consolidated
balance sheet information as of December 31, 1995, 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
April 29, 1996
<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: June 20, 1996 /s/ G. Thomas Frankland
-------------------------
G. Thomas Frankland
Vice Chairman and
Chief Financial Office
