-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TbOOEUkVilrjm+ZSwGvgzAKh4YgP+yRxcabcDpczB3bJwwHFCQjrLSxuvJdNjv2s PEyssGO/GGkbMJWTNVHtWw== 0000919607-96-000130.txt : 19961113 0000919607-96-000130.hdr.sgml : 19961113 ACCESSION NUMBER: 0000919607-96-000130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOGER EQUITY INC CENTRAL INDEX KEY: 0000835664 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 592898045 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09997 FILM NUMBER: 96659753 BUSINESS ADDRESS: STREET 1: 3986 BLVD CTR DR STE 101 CITY: JACKSONVILLE STATE: FL ZIP: 32207 BUSINESS PHONE: 9043983403 MAIL ADDRESS: STREET 1: 3986 BLVD CTR DR STREET 2: SUITE 101 CITY: JACKSONVILLE STATE: FL ZIP: 32207 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES and EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 1-9997 KOGER EQUITY, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-2898045 (State or other jurisdiction of (I.R.S. Employer incorporation or organizatio Identification No.) 3986 BOULEVARD CENTER DRIVE, SUITE 101 JACKSONVILLE, FLORIDA 32207 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 398-3403 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date. Class Outstanding at November 1, 1996 Common Stock, $.01 par value 20,886,436 shares KOGER EQUITY, INC. AND SUBSIDIARIES INDEX Page Number PART I. FINANCIAL INFORMATION Independent Accountants' Report............................... 2 Item 1. Financial Statements: Condensed Consolidated Balance Sheets September 30, 1996 and December 31, 1995................... 3 Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 1996 and 1995................................ 4 Condensed Consolidated Statement of Changes in Shareholders' Equity for the Nine Month Period Ended September 30, 1996................................... 5 Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1996 and 1995................................................... 6 Notes to Condensed Consolidated Financial Statements for the Three and Nine Month Periods Ended September 30, 1996 and 1995.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 14 Item 5. Other Information............................................ 15 Item 6. Exhibits and Reports on Form 8-K............................. 18 Signatures ........................................................ 19 1 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Shareholders of Koger Equity, Inc. Jacksonville, Florida We have reviewed the accompanying condensed consolidated balance sheet of Koger Equity, Inc. and subsidiaries (the "Company") as of September 30, 1996, and the related condensed consolidated statements of operations for the three and nine month periods ended September 30, 1996 and 1995, the condensed consolidated statement of changes in shareholders' equity for the nine month period ended September 30, 1996 and the condensed consolidated statements of cash flows for the nine month periods ended September 30, 1996 and 1995. These financial statements are 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 of 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 such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1995, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 4, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet 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. DELOITTE & TOUCHE LLP Jacksonville, Florida November 4, 1996 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - See Independent Accountants' Report) (In thousands) September 30, December 31, 1996 1995 ---- ---- ASSETS Real Estate Investments: Operating properties: Land $ 98,567 $ 98,727 Buildings 478,672 471,145 Furniture and equipment 1,697 1,566 Accumulated depreciation (77,446) (62,885) ---------- ---------- Operating properties - net 501,490 508,553 Properties under construction: Land 2,083 Buildings 248 Undeveloped land held for investment 19,227 21,150 Undeveloped land held for sale 7,881 9,131 Cash and temporary investments 34,102 25,650 Accounts receivable, net of allowance for uncollectible rents of $245 and $391 4,061 5,260 Cost in excess of fair value of net assets acquired from KPI, net of accumulated amortization of $473 and $345 2,083 2,211 Other assets 16,591 7,427 ---------- ----------- TOTAL ASSETS $587,766 $579,382 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgages and loans payable $249,925 $254,909 Accounts payable 1,978 2,641 Accrued interest 293 206 Accrued real estate taxes payable 5,754 2,222 Accrued liabilities - other 6,158 5,133 Advance rents and security deposits 4,187 3,574 ----------- ----------- Total Liabilities 268,295 268,685 --------- --------- Commitments (Notes 6 and 9) - - Shareholders' Equity Common stock 206 205 Capital in excess of par value 319,496 318,609 Warrants 2,244 2,250 Retained earnings 20,695 13,210 Treasury stock, at cost (23,170) (23,577) ---------- ---------- Total Shareholders' Equity 319,471 310,697 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $587,766 $579,382 ======== ======== See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - See Independent Accountants' Report) (In thousands, except per share data) Three Month Period Nine Month Period Ended September 30, Ended September 30, ------------------- ------------------- 1996 1995 1996 1995 ---- ---- ---- ---- REVENUES Rental $24,515 $23,762 $72,660 $71,499 Other rental services 95 119 366 393 Management fees ($0, $320, $0 and $2,201 from TKPL) 2,145 1,489 5,838 4,243 Interest 505 13,471 1,307 14,130 Gain on TKPL note to Southeast 55 5,988 (21) 5,988 Gain on early retirement of debt 739 886 -------- -------- -------- -------- Total 27,315 45,568 80,150 97,139 -------- -------- -------- -------- EXPENSES Property operations 10,930 10,774 31,194 30,323 Depreciation and amortization 5,543 4,906 15,693 13,788 Mortgage and loan interest 4,968 5,610 14,865 18,693 General and administrative 1,235 2,142 4,103 5,762 Direct cost of management fees 1,650 1,040 4,426 2,888 Provision for loss on land held for sale 970 970 Undeveloped land costs 131 130 398 444 Litigation costs (182) 83 371 83 Loss on sale or disposition of assets 29 185 452 188 Other 18 742 18 742 -------- -------- -------- -------- Total 24,322 26,582 71,520 73,881 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 2,993 18,986 8,630 23,258 Income taxes 732 3 1,139 45 -------- -------- -------- -------- NET INCOME $ 2,261 $18,983 $ 7,491 $23,213 ======== ======= ======= ======= EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE: Primary $ 0.12 $ 1.05 $ 0.40 $ 1.30 ========= ========= ========= ========= Fully Diluted $ 0.12 $ 1.04 $ 0.40 $ 1.29 ========= ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING: Primary 18,961 18,157 18,741 17,916 ======== ======== ======== ======== Fully Diluted 19,043 18,317 18,778 17,970 ======== ======== ======== ======== See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited - See Independent Accountants' Report) (In thousands) Common Stock Capital in Share- Par Excess of Retained Treasury Stock holders' Shares Value Par Value Warrants Earnings Shares Cost Equity ------ ----- --------- -------- -------- ------ ---- ------ Balance, January 1, 1996 20,477 $205 $318,609 $2,250 $13,210 2,723 $(23,577) $310,697 Treasury Stock Reissued 151 (55) 454 605 Warrants Exercised 2 26 (6) 20 Stock Options Exercised 50 1 440 4 (47) 394 Stock Appreciation Rights Exercised 23 270 270 Koger Realty Services, Inc. Dividends Paid (6) (6) Net Income 7,491 7,491 ------ ---- -------- ------ ------- ----- -------- -------- Balance, September 30, 1996 20,552 $ 206 $ 319,496 $ 2,244 $ 20,695 2,672 $(23,170) $319,471 ====== ====== ========= ======== ======== ===== ======== ======== See Notes to Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - See Independent Accountants' Report) (In thousands) Nine Month Period Ended September 30, ------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES Net income $ 7,491 $23,213 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,693 13,788 Provision for loss on land held for sale 970 Loss on sale or disposition of assets 452 188 Provision for litigation settlements 50 Gain on TKPL unsecured note to Southeast 21 (5,988) Loss / (Gain) on early debt repayment 18 (886) Accrued interest added to principal 112 457 Amortization of mortgage discounts 132 131 Provision for uncollectible rents 125 Increase in accounts payable, accrued liabilities and other liabilities 5,364 7,387 Increase in receivables and other assets (6,511) (3,766) Increase in receivable from TKPL (337) -------- -------- Net cash provided by operating activities 22,772 35,332 -------- -------- INVESTING ACTIVITIES Tenant improvements to existing properties (4,353) (5,986) Building improvements to existing properties (2,030) (2,158) Energy management improvements (1,764) (1,309) Building construction expenditures (248) Deferred tenant costs (1,561) (660) Additions to furniture and equipment (131) (262) Purchase of TKPL mortgage notes (18,192) Proceeds from TKPL mortgage notes 18,192 Proceeds from TKPL unsecured note to Southeast 12,400 Proceeds from sale of assets 1,266 25,252 Cash acquired in purchase of assets from KPI 308 -------- -------- Net cash provided by (used in) investing activities (8,821) 27,585 -------- -------- FINANCING ACTIVITIES Proceeds from sale of stock under Stock Investment Plan 140 155 Proceeds from exercise of warrants and stock options 312 2 Koger Realty Services, Inc. dividends paid (6) Principal payments on mortgages and loans ( 5,245) (67,492) Financing costs (700) (16) -------- -------- Net cash used in financing activities (5,499) (67,351) -------- -------- Net increase (decrease) in cash and cash equivalents 8,452 (4,434) Cash and cash equivalents - beginning of period 25,650 23,315 -------- -------- Cash and cash equivalents - end of period $34,102 $18,881 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest $14,542 $18,909 ======= ======= Cash paid during the period for income taxes $ 1,139 $ 42 ======== ========== See Notes to Condensed Consolidated Financial Statements.
6 KOGER EQUITY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited - See Independent Accountants' Report) 1. BASIS OF PRESENTATION. The condensed consolidated financial statements include the accounts of Koger Equity, Inc., its wholly-owned subsidiaries and Koger Realty Services, Inc. (the "Company"). All significant intercompany transactions have been eliminated. The financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission related to interim financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995, included in the Company's Form 10-K Annual Report for the year ended December 31, 1995. The balance sheet at December 31, 1995, has been derived from the audited financial statements at that date and is condensed. All adjustments of a normal recurring nature which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods have been made. Results of operations for the nine month period ended September 30, 1996, are not necessarily indicative of the results to be expected for the full year. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). Adoption of SFAS 121 had no impact on the financial statements for the nine month period ended September 30, 1996. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") which will be effective for the Company beginning January 1, 1996. SFAS 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principles Board Opinion No. 25 ("APB 25"), which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. 2. ORGANIZATION. Koger Equity, Inc. ("KE"), a Florida corporation, was incorporated in 1988 for the purpose of investing in the ownership of income producing properties, primarily commercial office buildings. KE is totally self-administered and self-managed. In addition to managing its own properties, KE, through certain related entities, provides property management services to third parties. In conjunction with Koger Real Estate Services, Inc. ("KRES"), a Florida corporation and a wholly-owned subsidiary of KE, KE manages 21 office buildings owned by Centoff Realty Company, Inc. ("Centoff"), a subsidiary of Morgan Guaranty Trust Company of New York. More significantly, Koger Realty Services, Inc. ("KRSI"), a Delaware corporation and an entity in which KE has a significant economic interest, manages 95 buildings owned by Koala Realty Holding Company, Inc. ("Koala"), an investment entity for which J.P. Morgan Investment Management, Inc. acts as the investment manager. KRSI was incorporated during 1995 to, among 7 other things, provide leasing and property management services to owners of commercial office buildings. KE has purchased all of the preferred stock of KRSI, which preferred stock represents at least 95 percent of the economic value of KRSI. Such preferred stock is non-voting but is convertible into voting common stock. Accordingly, KE has consolidated KRSI in the financial statements. 3. FEDERAL INCOME TAXES. KE is operated in a manner so as to qualify and has elected tax treatment as a real estate investment trust under the Code (a "REIT"). As a REIT, KE is required to distribute annually at least 95 percent of its REIT taxable income to its shareholders. Since, KE had no REIT taxable income during 1995 and does not expect to have REIT taxable income during 1996, no provision has been made for Federal income taxes. However, KE has recorded a provision of $180,000 for alternative minimum tax for the nine month period ended September 30, 1996. To the extent that KE pays dividends equal to 100 percent of REIT taxable income, the earnings of KE are not taxed at the corporate level; however, under existing loan covenants KE may be prohibited from paying dividends in excess of amounts necessary to maintain its status as a REIT. See Note 8, Dividends. KRSI has recorded a provision of $627,500 for Federal income tax for the nine month period ended September 30, 1996. The Internal Revenue Service has completed its examination of the Company's 1992 and 1993 Federal income tax returns and the Koger Properties, Inc. ("KPI") final Federal income tax return. The Internal Revenue Service submitted their Report to the Company and proposed disallowing certain deductions on KPI's final Federal income tax return, the result of which reduced the net operating loss carryforwards acquired from KPI from approximately $98 million to $30 million and required the payment of approximately $173,000 of alternative minimum tax plus interest. Management has accepted these adjustments to KPI's final Federal income tax return. 4. STATEMENTS OF CASH FLOWS. Cash in excess of daily requirements is invested in short-term monetary securities. Such temporary cash investments have an original maturity date of less than three months and are deemed to be cash equivalents for purposes of the statements of cash flows. During the nine month period ended September 30, 1996, the Company contributed 43,804 shares of common stock to the Company's 401(K) Plan. These shares had a value of approximately $465,000 based on the closing price of the Company's common stock on the American Stock Exchange on December 31, 1995. During the nine month period ended September 30, 1995, the Company contributed 122,441 shares of common stock to the Company's 401(K) Plan. These shares had a value of approximately $888,000 based on the closing price of the Company's stock on the American Stock Exchange on December 30, 1994. 5. EARNINGS PER COMMON SHARE. Earnings per common share have been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the applicable periods. 6. MORTGAGES AND LOANS PAYABLE. At September 30, 1996, the Company had $249,925,000 of loans outstanding, which are collateralized by mortgages on certain operating properties. The Company repaid approximately $2.2 million of the outstanding balances of mortgages and loans payable during the quarter ended September 30, 1996. These early repayments resulted in the release of three buildings, containing 86,740 net rentable square feet, which had been collateral for these loans. 8 On July 29, 1996, the Company signed a loan application with Northwestern Mutual Life Insurance Company ("Northwestern") for a $190 million non-recourse loan which will be secured by 10 office parks. This loan will be divided into (i) a tranche in the amount of $100.5 million with a 10 year maturity and an interest rate of 8.25 percent and (ii) a tranche in the amount of $89.5 million with a maturity of 12 years and an interest rate of 8.33 percent. In order to set the interest rates for this loan on the date the loan application was signed, the Company transferred $5.7 million to Northwestern as a refundable earnest money deposit. This loan application was accepted by Northwestern on September 10, 1996. Currently, management expects to close on this loan during the quarter ended December 31, 1996. Annual maturities for mortgages and loans payable, which are gross of $748,000 of discounts, are as follows (in thousands): Year Ending December 31, 1996 $ 1,018 1997 12,748 1998 19,320 1999 5,653 2000 86,519 Subsequent Years 125,415 --------- Total $250,673 In addition to reporting and other requirements, the Company's debt agreements contain provisions limiting the amount of annual dividends, limiting additional borrowings, and limiting general and administrative expenses. The Company is also required to maintain certain financial ratios. 7. LEGAL PROCEEDINGS. Pursuant to the merger of KPI with and into the Company during 1993, the Company agreed to indemnify the former non-officer directors of KPI (the "Indemnified Persons") in respect of amounts to which such Indemnified Persons would be otherwise entitled to indemnification under Florida law, the articles of incorporation or the by-laws of KPI arising out of acts or omissions prior to September 25, 1991. Certain of the former non-officers directors of KPI are defendants in a Pension Plan class action suit (the "Roby Case"). The Company has signed an agreement to settle the Roby Case and has placed in escrow $100,000 for its contribution to such settlement for the Indemnified Persons. 8. DIVIDENDS. The terms of the secured debt of the Company provide that the Company will be subject to certain dividend limitations which, however, will not restrict the Company from paying the dividends required during 1996 to maintain its qualification as a REIT. In the event that the Company no longer qualifies as a REIT, additional dividend limitations would be imposed by the terms of such debt. In addition, two of the Company's bank lenders have required that until the Company has raised an aggregate of $50 million of equity the following limitations on dividends will be applied: (a) in 1996 and 1997, $11 million unless imposition of the limit would cause loss of REIT status and (b) in 1998 and 1999, $11 million regardless of impact on REIT status. On October 10, 1996, KE completed a private placement of 3 million shares of its common stock to an affiliate of Apollo Real Estate Investment Fund II, L.P. for an aggregate sales price of $43.5 million. 9 9. COMMITMENTS. The Company has entered into an agreement (the "Loan Agreement") with Wellspring Resources, L.L.C. ("Wellspring") to make certain loans to Wellspring if, and only if, such loans are requested in writing no later than January 2, 1997. The Loan Agreement provides that the Company has agreed to lend approximately $5.6 million (the "Primary Loan") at an interest rate of 11 percent per annum and approximately $4 million (the "Secondary Loan") at an interest rate of 14 percent per annum. These loans may be used by Wellspring for any purpose including, without limitation, tenant improvements to the Gunti Building for which Wellspring has signed a lease. The Primary Loan and the Secondary Loan will be evidenced by separate promissory notes from Wellspring. In addition, State Street Bank and Trust Company and Watson Wyatt and Company will each deliver an irrevocable, unconditional guaranty of Wellspring's obligations under the Loan Agreement. These loans require monthly payments of principal and interest with final repayment on October 14, 2006. 10. SUBSEQUENT EVENTS. On October 10, 1996, KE completed a private placement of 3 million shares of its common stock to an affiliate of Apollo Real Estate Investment Fund II, L.P. for an aggregate sales price of $43.5 million. KE applied the proceeds from this sale to the repayment of indebtedness with an average interest rate of approximately 8 percent. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q, and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the period ended December 31, 1995. RESULTS OF OPERATIONS. Rental revenues totalled $24,515,000 for the quarter ended September 30, 1996, compared to $23,762,000 for the quarter ended September 30, 1995. The increase in rental revenues resulted primarily from the increase in the Company's average rental rate. The Company sold three buildings (containing 233,980 net rentable square feet) on July 31, 1995. The effect of the decrease in the total net rentable square feet owned by the Company was completely offset by the increase in the Company's average rental rate. At September 30, 1996, the Company's buildings were on average 90 percent leased with an average rental rate of $13.97. Rental revenues increased to $72,660,000 during the nine month period ended September 30, 1996, compared to $71,499,000 during the same period last year. This increase resulted primarily from (i) the increase in the Company's average rental rate and (ii) increases in the revenues from operating cost escalations and other items passed through to tenants. Management fee revenues totalled $2,145,000 for the quarter ended September 30, 1996, compared to $1,489,000 for the quarter ended September 30, 1995. This increase was due primarily to (i) an increase in fees earned for construction management services, (ii) an increase in fees earned from the management of buildings sold by The Koger Partnership, Ltd. ("TKPL") to Koala on August 1, 1995, (iii) the management fees earned from the three buildings sold by the Company to Koala, and (iv) an increase in fees earned under the management contract with Centoff. Management fee revenues increased to $5,838,000 during the nine month period ended September 30, 1996, compared to $4,243,000 during the same period last year, primarily for the same reasons mentioned above. 10 Interest revenues decreased $12,966,000 and $12,823,000 respectively, for the three and nine month periods ended September 30, 1996, compared to the same periods last year, due to the interest revenue earned during 1995 on the TKPL mortgage notes which were retired by TKPL during 1995 ($13,068,000). Property operating expenses include such charges as utilities, taxes, janitorial, maintenance, provision for uncollectible rents and management costs. The amounts of property operating expenses and their percentages of total rental revenues for the applicable periods are as follows: Percent of Total Rental Period Amount Revenues -------------------------------- -------------- ------------ September 30, 1996 - Quarter $10,930,000 44.4% September 30, 1995 - Quarter $10,774,000 45.1% September 30, 1996 - Nine Months $31,194,000 42.7% September 30, 1995 - Nine Months $30,323,000 42.2% Property operating expenses increased primarily due to increases in maintenance costs. Depreciation expense has been calculated on the straight line method based upon the useful lives of the Company's depreciable assets, generally 3 to 40 years. Depreciation expense increased $818,000 and $2,186,000, respectively, for the three and nine month periods ended September 30, 1996, compared to the same periods last year, due to improvements made to the Company's existing properties during 1995 and 1996. Amortization expense decreased $181,000 and $281,000, respectively, for the three and nine month periods ended September 30, 1996, compared to the same periods last year, due primarily to the reduction in goodwill recorded during the quarter ended September 30, 1995. Interest expense decreased by $642,000 and $3,828,000, respectively, during the three and nine month periods ended September 30, 1996, compared to the same periods last year, primarily due to the reduction in the average balance of mortgages and loans payable. At September 30, 1996, the weighted average annual interest rate on the Company's outstanding debt was approximately 7.7 percent. General and administrative expenses for the three month periods ended September 30, 1996 and 1995, totalled $1,235,000 and $2,142,000, respectively, which is 0.8 percent and 1.4 percent (annualized) of average invested assets. General and administrative expenses for the nine month periods ended September 30, 1996 and 1995, totalled $4,103,000 and $5,762,000, respectively, which is 0.9 percent and 1.3 percent (annualized) of average invested assets. These decreases were primarily due to (i) decreases in the accrual for compensation expense related to stock appreciation rights granted in conjunction with stock options, (ii) decreases in professional and legal fees incurred, (iii) decreases in certain insurance expenses, and (iv) decreases in the accrual for the Company's contribution to the 401(k) Plan. Direct costs of management contracts increased $610,000 and $1,538,000, respectively, for the three and nine month periods ended June 30, 1996, compared to the same periods last year, due to increased costs associated with (i) providing property management services for all management contracts and (ii) providing construction management services. 11 During the quarter ended September 30, 1996, the Company demolished a building containing 11,040 net rentable square feet because the building no longer met the Company's investment criteria. The Company has recorded a loss on disposition of assets which totals $468,000 due to the demolition of this building. Net income totalled $2,261,000 for the quarter ended September 30, 1996, compared to net income of $18,983,000 for the corresponding period of 1995. This decrease is due primarily to (i) the interest revenue earned during 1995 on the TKPL mortgage notes which were retired by TKPL during 1995 and (ii) the gain associated with the partial repayment of a TKPL note to Southeast during 1995. Net income decreased $15,722,000 during the nine month period ended September 30, 1996, compared to the same period last year, due to the same items detailed above. LIQUIDITY AND CAPITAL RESOURCES. Operating Activities - During the nine months ended September 30, 1996, the Company generated approximately $22.8 million in net cash from operating activities. The Company's primary internal sources of cash are (i) the collection of rents from buildings owned by the Company and (ii) the receipt of management fees paid to the Company in respect of properties managed on behalf of Koala, Centoff, and others. As a REIT for Federal income tax purposes, KE is required to pay out annually, as dividends, 95 percent of its REIT taxable income (which, due to non-cash charges, including depreciation and net operating loss carryforwards, may be substantially less than cash flow). In the past, KE has paid out dividends in amounts at least equal to its REIT taxable income. However, KE currently expects that it will not be required to pay any dividends during 1996 to maintain its REIT status. The Company believes that its cash provided by operating activities will be sufficient to cover debt service payments through 1996. The level of cash flow generated by rents depends primarily on the occupancy rates of the Company's buildings and increases in rental rates on new and renewed leases and under escalation provisions in existing leases. At September 30, 1996, leases representing approximately 9.8 percent of the gross annual rent from the Company's properties, without regard to the exercise of options to renew, were due to expire during the remainder of 1996. This represents 368 leases for space in buildings located in 16 of the 17 centers in which the Company owns buildings. Certain of these tenants may not renew their leases or may reduce their demand for space. During the nine months ended September 30, 1996, leases were renewed on approximately 61 percent of the Company's net rentable square feet which were scheduled to expire during the nine month period. For those leases which renewed during the nine months ended September 30, 1996, the average rental rate increased from $14.23 to $15.00. Based upon the significant number of leases which will expire during 1996 and 1997 and the competition for tenants in the markets in which the Company operates, the Company has and expects to continue to offer incentives to certain new and renewal tenants. These incentives may include the payment of tenant improvements costs and in certain markets reduced rents during initial lease periods. During 1994, 1995 and 1996, the Company has benefitted from improving economic conditions and reduced vacancy levels for office buildings in many of the metropolitan areas in which the Company owns buildings. The Company believes that the southeastern and southwestern regions of the United States provide significant economic growth potential due to their diverse regional economies, 12 expanding metropolitan areas, skilled work force and moderate labor costs. However, the Company cannot predict whether such economic growth will continue. Cash flow from operations could be reduced if economic growth were not to continue in the Company's markets and if this resulted in lower occupancy rates for the Company's buildings. Governmental tenants (including the State of Florida and the United States Government) which account for approximately 21.8 percent of the Company's leased space at September 30, 1996, may be subject to budget reductions in times of recession and governmental austerity measures. Consequently, there can be no assurance that governmental appropriations for rents may not be reduced. Additionally, certain of the private sector tenants which have contributed to the Company's rent stream may reduce their current demands, or curtail their future need, for additional office space. Investing Activities - At September 30, 1996, substantially all of the Company's invested assets were in real properties. Improvements to the Company's existing properties have been financed through internal operations. During the nine month period ended September 30, 1996, the Company's expenditures for improvements to existing properties decreased by $1,306,000 over the corresponding period of the prior year primarily due to reductions in expenditures for tenant improvements, which reductions were partially offset by increased expenditures for energy management improvements to the Company's buildings. On August 12, 1996, the Company sold a 30 acre land parcel located in Birmingham, Alabama for $1,350,000. The Company has started the construction of two buildings which will contain approximately 106,000 net rentable square feet. Expenditures for construction of these two buildings are expected to total approximately $7.6 million, excluding land and tenant improvement costs. The terms of the Company's existing indebtedness require that a substantial portion of any debt or equity financing achieved by the Company during the foreseeable future be applied to the reduction of the current secured indebtedness of the Company and contain limitations on incurrence of additional debt and other restrictions. Financing Activities - The Company has no open lines of credit, but has a cash balance at September 30, 1996 of $34,102,000. During the three months ended September 30, 1996, the Company repaid approximately $2.2 million of the outstanding balances of mortgages and loans payable. These early repayments resulted in the release of three buildings, containing 86,740 net rentable square feet, which had been collateral for these loans. At September 30, 1996, the Company had 89 buildings, containing 2,602,970 net rentable square feet, which were unencumbered. Loan maturities and normal amortization of mortgages and loans payable are expected to total approximately $12.6 million over the next 12 months. The Company believes that these obligations will be paid from cash provided by operations or from current cash balances. Significant maturities of the Company's mortgages and loans payable do not begin to occur until 1998. On August 22, 1994, the Company filed a shelf registration statement with respect to the possible issuance of up to $100,000,000 of its common and/or preferred stock. 13 On October 10, 1996, KE completed a private placement of 3 million shares of its common stock to an affiliate of Apollo Real Estate Investment Fund II, L.P. for an aggregate sales price of $43.5 million. KE applied the proceeds from this sale to the repayment of indebtedness with an average interest rate of approximately 8 percent. The Company is currently implementing its plan to refinance or restructure the Company's existing debt in order to eliminate certain restrictive covenants. To assist in implementing the debt refinancing, the Company has engaged J.P. Morgan and Company as its financial adviser. Currently, management expects to complete the refinancing during the quarter ended December 31, 1996. On July 29, 1996, the Company signed a loan application with Northwestern Mutual Life Insurance Company ("Northwestern") for a $190 million non-recourse loan which will be secured by 10 office parks. This loan will be divided into (i) a tranche in the amount of $100.5 million with a 10 year maturity and an interest rate of 8.25 percent and (ii) a tranche in the amount of $89.5 million with a maturity of 12 years and an interest rate of 8.33 percent. In order to set the interest rates for this loan on the date the loan application was signed, the Company transferred $5.7 million to Northwestern as a refundable earnest money deposit. The loan application was accepted by Northwestern on September 10, 1996. This represents the Company's first step in its plan to refinance the Company's existing debt in order to eliminate certain restrictive covenants. Currently, management expects to close on this loan during the quarter ended December 31, 1996. PART II. OTHER INFORMATION Item 1. Legal Proceedings None. 14 Item 5. Other Information (a) The following table sets forth, with respect to the Company's centers at September 30, 1996, number of buildings, net rentable square feet, percentage leased, and the average annual rent per net rentable square foot leased.
Average Net Annual Number Rentable Rent Per of Square Percent Square Koger Center Buildings Feet Leased(1) Foot (2) - ------------- --------- ---------- ---------- ----------- Atlanta Chamblee 22 947,920 91% $14.27 Austin 12 370,860 98% 16.76 Charlotte Carmel 1 109,600 100% 15.17 Charlotte East 11 468,820 77% 13.08 El Paso 14 251,930 95% 14.08 Greensboro South 13 610,470 93% 13.69 Greenville 8 290,560 95% 14.24 Jacksonville Baymeadows 4 468,000 100% 15.58 Jacksonville Central (3) 31 666,500 89% 11.54 Memphis Germantown 3 258,400 99% 17.27 Orlando Central 22 565,220 90% 14.36 Orlando University 2 159,600 98% 16.49 San Antonio 26 788,670 91% 12.18 St. Petersburg 15 519,320 96% 12.99 Tallahassee Apal. Pkwy 14 408,500 82% 15.93 Tallahassee Cap. Circle 4 300,700 73% 17.33 Tulsa 13 476,280 81% 10.37 ----- ---------- TOTAL 215 7,661,350 90% $13.97 ==== ========= ===== ======
(1) The percent leased rates have been calculated by dividing total net rentable square feet leased in an office building by net rentable square feet in such building, which excludes public or common areas. (2) Rental rates are computed by dividing (a) total annualized rents for a center as of September 30, 1996 by (b) the net rentable square feet applicable to such total annualized rents. (3) The Company has demolished a building containing 11,040 net rentable square feet. This building has been removed from this table. 15 (b) The following schedule sets forth for all of the Company's office buildings (i) the number of leases which will expire during the remainder of calender year 1996 and calendar years 1997 through 2004, (ii) the total net rentable area in square feet covered by such leases, (iii) the percentage of total net rentable square feet represented by such leases, (iv) the average annual rent per square foot for such leases, (v) the current annual rental represented by such leases, and (vi) the percentage of gross annual rental contributed by such leases. This information is based on the buildings owned by the Company on September 30, 1996 and on the terms of leases in effect as of September 30, 1996, on the basis of then existing base rentals, and without regard to the exercise of options to renew. Furthermore, the information below does not reflect that some leases have provisions for early termination for various reasons, including, in the case of government entities, lack of budget appropriations. Leases were renewed on approximately 61 percent of the Company's net rentable square feet which were scheduled to expire during the nine month period ended September 30, 1996.
Percentage of Average Percentage Total Square Annual Rent of Total Number of Number of Feet Leased per Square Total Annual Annual Rents Leases Square Feet Represented by Foot Under Rents Under Represented by Period Expiring Expiring Expiring Leases Expiring Leases Expiring Leases Expiring Leases - ------ ------------- --------------- --------------- --------------- --------------- --------------- 1996 368 701,478 10.1% $13.55 $ 9,505,450 9.8% 1997 964 1,645,344 23.7% 13.96 22,974,963 23.7% 1998 534 1,531,899 22.1% 13.61 20,844,969 21.5% 1999 389 1,103,734 15.9% 13.57 14,980,607 15.4% 2000 120 620,907 8.9% 14.88 9,241,983 9.5% 2001 86 774,042 11.1% 15.02 11,625,431 12.0% 2002 13 168,976 2.4% 13.15 2,222,307 2.3% 2003 13 108,623 1.6% 13.80 1,499,030 1.5% 2004 3 74,069 1.1% 14.28 1,057,466 1.1% OTHER 9 212,261 3.1% 14.37 3,050,883 3.2% -------- ---------- -------- ------------- -------- TOTAL 2,499 6,941,333 100.0% $13.97 $97,003,089 100.0% ===== ========= ====== ====== =========== ======
16 (c) The Company believes that Funds from Operations is one measure of the performance of an equity real estate investment trust. Funds from Operations should not be considered as an alternative to net income as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with generally accepted accounting principles) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Funds from Operations is calculated as follows (in thousands):
Three Month Period Nine Month Period Ended September 30, Ended September 30, -------------------- -------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net Income $ 2,261 $18,983 $ 7,491 $23,213 Depreciation - real estate 5,156 4,350 14,534 12,396 Amortization - deferred tenant costs 227 193 661 472 Amortization - goodwill 43 148 128 473 Litigation costs (182) 83 371 83 Loss on sale or disposition of assets 29 185 452 188 Provision for loss on land held for sale 970 970 Gain on TKPL note to Southeast (55) (5,988) 21 (5,988) Loss / (Gain) on early retirement of debt 18 (739) 18 (886) ------- ------- -------- ------- Funds from Operations $ 7,497 $18,185 $23,676 $30,921 ======= ======= ======= =======
The 1995 calculated Funds from Operations includes $13,068 of interest revenue associated with the TKPL mortgage notes which KE acquired during 1995. These mortgage notes were retired by TKPL during 1995. 17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------ ----------- 4(b)(1)(D) Third Amendment to Rights Agreement, dated as of October 10, 1996, between Koger Equity, Inc. and First Union National Bank of North Carolina, a national association. Incorporated by reference to Exhibit 6 to Amendment to Registration Statement on Form 8-A/A of Registrant (File No. 1-9997). 10(y)(1) Employment Agreement between Koger Equity, Inc. and Victor A. Hughes, Jr. effective as of June 21, 1996. 10(y)(2) Employment Agreement between Koger Equity, Inc. and James C. Teagle, effective as of June 21, 1996. 10(z) Registration Rights Agreement, dated as of October 10, 1996, between Koger Equity, Inc. and AP-KEI Holdings, LLC, a Delaware limited liability company. Incorporated by reference to Exhibit A of the Stock Purchase Agreement, dated as of October 10, 1996, between Koger Equity, Inc. and AP-KEI Holdings, LLC. which is Exhibit 7 to Amendment to Registration Statement on Form 8-A/A (File No. 1-9997). 10(aa) Stock Purchase Agreement, dated as of October 10, 1996, between Koger Equity, Inc. and AP-KEI Holdings, LLC, a Delaware limited liability company. Incorporated by reference to Exhibit 7 to Amendment to Registration Statement on Form 8-A/A of Registrant (File No. 1-9997). 10(ab) Consulting Agreement, dated as of June 21, 1996, between Koger Equity, Inc. and Irvin H. Davis. 10(ac) Consulting Agreement, dated as of March 14, 1996, between Koger Equity, Inc. and David B. Hiley. 11 Earnings Per Share Computations. 15 Letter re: Unaudited interim financial information. 27 Financial Data Schedule. (b) Reports on Form 8-K On August 16, 1996, the Company filed a Form 8-K reporting under Item 5, Other Events, that the Company had issued a News Release and providing under Item 7, Financial Statements and Exhibits, a copy of the Koger Equity, Inc. News Release, dated August 16, 1996. On August 22, 1996, the Company filed a Form 8-K/A reporting under Item 5, Other Events, that (i) the Company had amended its By-Laws and (ii) the Company had issued its Quarterly Report to Shareholders, and providing under Item 7, Financial Statements and Exhibits, a copy of (i) Koger Equity, Inc. By-Laws, as Amended and Restated on August 21, 1996 and (ii) Koger Equity, Inc. Quarterly Report to Shareholders for the quarter ended June 30, 1996. 18 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. KOGER EQUITY, INC. Registrant (VICTOR A. HUGHES, JR.) ------------------------ VICTOR A. HUGHES, JR. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Dated: November 6, 1996 (JAMES L. STEPHENS) -------------------- JAMES L. STEPHENS VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER 19 EX-10 2 EXHIBIT 10(AB) 6/18/96 CONSULTING AGREEMENT This Agreement is made by and between Koger Equity, Inc., a Florida corporation (the "Company"), and Irvin H. Davis ("Consultant") of Jacksonville, Florida, as of the 21st day of June 1996. FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES, TERMS, PROVISIONS AND CONDITIONS CONTAINED IN THIS AGREEMENT, the parties hereby agree: 1. Employment. The Company hereby offers and Consultant hereby accepts employment as a consultant subject to the terms and conditions set forth in this Agreement. 1.1. Term. Effective as of the date hereof, Consultant shall cease to be an officer of the Company but shall continue as an employee of the Company through December 31, 1996; commencing on June 21, 1996 and ending on December 31, 1999 (the "Consulting Period"), the Company shall retain Consultant to provide consulting services subject to the terms and conditions specified below, and Consultant agrees to serve as a consultant to the Company. 1.2. Duties and Performance. During the Consulting Period, Consultant shall serve as a consultant to the Company to provide advice and assistance to the Company as may be requested from time to time by the Board of Directors or its chief executive officer to whom he shall report, including at the direction of the Company's chief executive officer (i) making national and regional sales calls to key tenants and prospective tenants in support of the Company's marketing department's plan, (ii) assisting the Company in market research with respect to development of new markets and for new office products and (iii) assisting the Company in its review and improvement of its operational systems and such other assignments consistent with his experience as are determined by the Company's chief executive officer. From June 21, 1996 through December 31, 1996, Consultant shall continue as an employee of the Company and shall consult to the Company on a full-time basis. Commencing January 1, 1997, Consultant's services as an employee of the Company shall terminate, and he shall become an independent consultant and shall devote not less than five days per month to the Company through the remainder of the Consulting Period. Consultant shall render such Consulting services during customary business hours and at convenient times at the principal executive offices of the Company. During his employment hereunder, Consultant shall devote his best efforts, business judgment, skill and knowledge to the advancement of the Company's interests and to the discharge of his duties and responsibilities hereunder. -1- 1.3. Compensation. During the Consulting Period, the Company shall reimburse Consultant for all reasonable out-of-pocket business expenses incurred by executive in performing such consulting services, including telephone and telecopy and transportation, hotel and meal expenses if such services are performed at other than the Company's principal office, subject to such reasonable substantiation and documentation as may be specified by the Company. During the Consulting Period, the Company shall pay Consultant, as compensation for all services performed during the Consulting Period, at a rate of $250,000 per annum until December 31, 1996, and thereafter at a rate of $50,000 per annum, payable monthly and prorated for any partial period. 1.4. Benefits. Consultant shall be entitled until December 31, 1996 to participate in any and all employee benefit plans, medical insurance plans, life insurance plans, disability income plans, retirement plans, incentive compensation plans and other benefit plans from time to time in effect for executives of the Company generally; thereafter, Consultant shall cease to participate in such plans, except that effective as of January 1, 1997, Consultant will commence receiving benefits under the Company's Supplemental Executive Retirement Plan (the "SERP"), and he shall continue to be covered under the Company's medical insurance coverage as specified in the SERP. Such participation in employee benefit plans shall be subject to (i) the terms of the applicable plan documents, (ii) generally applicable Company policies and (iii) the discretion of the Board of Directors or any administrative or other committee provided for in or contemplated by such plan. 2. Termination. Consultant's consulting shall terminate under the following circumstances: 2.1. Death. In the event of Consultant's death during his employment under this Agreement, Consultant's consulting hereunder shall immediately and automatically terminate. 2.2. Disability. (a) The Company may terminate Consultant's employment and consulting hereunder, upon written notice to Consultant, in the event that Consultant becomes disabled during the Consulting Period through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities hereunder for 90 days during any period of 365 consecutive calendar days or for any consecutive 90-day period. (b) In the event Consultant receives disability income payments under the Company's disability income plan (as a result of disability prior to December 31, 1996), Consultant shall not be entitled to receive any compensation under Section 1.3. -2- (c) If any question shall arise as to whether during any period Consultant is disabled through any illness, injury, accident or condition of either a physical or psychological nature so as to be unable to perform substantially all of his duties and responsibilities hereunder, Consultant may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom Consultant or his guardian has no reasonable objection to determine whether Consultant is so disabled and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and Consultant shall fail to submit to such medical examination, the Company's determination of the issue shall be binding on Consultant . 2.3. Termination by the Company for Cause. The Company may terminate Consultant's employment hereunder for Cause at any time upon written notice setting forth in reasonable detail the nature of the Cause. The following, as determined by the Board in its reasonable judgment, will constitute Cause: (a) Consultant's failure to perform his material duties and responsibilities to the Company, notwithstanding reasonable notice and an opportunity to cure on the part of Consultant, or Consultant's gross negligence in the performance of his duties and responsibilities; (b) fraud, embezzlement or other material dishonesty by Consultant with respect to the Company; or (c) Consultant's conviction of, or plea of nolo contendere to, a felony or other crime involving moral turpitude. Upon termination of Consultant's employment for Cause, the Company shall have no further obligations under this Agreement other than to pay to Consultant any amounts that have been earned but not paid. 2.4. Termination by Consultant . Consultant may terminate his consulting arrangement hereunder upon 30 days' prior written notice to the Company. In the event of termination by Consultant pursuant to this Section 2.4, the Company shall have no further obligation to Consultant other than for compensation earned to the date of termination. 3. Effect of Termination. 3.1. Payment by the Company of any compensation that may be due Consultant under the applicable termination provision of Section 2 shall constitute the entire obligation of the Company to Consultant under this Agreement and performance by the Company shall constitute full settlement of any claim that Consultant might otherwise assert against the Company under this Agreement or any of those connected with it on account of such termination. -3- 3.2. Provisions of this Agreement shall survive any termination if so provided herein or if necessary or desirable fully to accomplish the purposes of such provisions, including, without limitation, the obligations of Consultant under Section 4. Consultant recognizes that no compensation is earned after termination of his consulting. 4. Nondisclosure; Restricted Activities. 4.1. During the Consulting Period and as a result of his prior employment by the Company, Consultant may become aware of information which is nonpublic, confidential or proprietary in nature with respect to the Company or with respect to other companies, persons, entities, ventures or business opportunities in which the Company has, or, if it were disclosed to the Company, the Company might have, an interest ("Confidential Information"). All Confidential Information will be kept strictly confidential by Consultant and Consultant shall not: (a) copy, reproduce, distribute or disclose any Confidential Information to any third party except in the course of his employment by the Company; (b) use any Confidential Information for any purpose other than in connection with his employment by the Company; or (c) use any Confidential Information in any way that is detrimental to the Company. Confidential Information shall not include information which Consultant can demonstrate: (a) is or becomes generally available to the public other than by breach by Consultant of his agreement herein; (b) is disclosed by Consultant, pursuant to obligations under law, regulation or court order; or (c) was known to Consultant on a nonconfidential basis. Upon termination of Consultant's engagement, he shall immediately return or destroy all Confidential Information, including all notes, copies, reproductions, summaries, analyses, or extracts thereof, then in his possession. Such return or destruction shall not abrogate the continuing obligations of Consultant under this Agreement. In the event that Consultant is requested or required (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, he shall provide the Company with prompt written notice so that it may seek a protective order or other appropriate remedy. In the event such protection or other remedy is not obtained, Consultant shall furnish only that portion of the Confidential Information which he is advised by counsel is legally required and shall exercise best efforts to obtain assurance that confidential treatment will be accorded to such Confidential Information. 4.2. Consultant agrees that until the expiration of five years from the date of termination of his engagement by the Company, he will not without the prior written approval of the Company (i) in any manner acquire, agree to acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property of the Company or any of its subsidiaries, whether such agreement or proposal is with Consultant or with a third party, other than shares of common stock he is entitled to acquire under the terms of stock options he holds at the date hereof, (ii) propose to enter into, directly or indirectly, any merger or other business combination involving the -4- Company or any of its subsidiaries, (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other party or any of its subsidiaries, (v) otherwise act, alone or in concert with others, to seek to control or, except in his capacity as a director of the Company, influence the management, board of directors or policies of the Company, (vi) disclose any intention, plan or arrangement inconsistent with the foregoing or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other persons in connection with any of the foregoing. 4.3. Consultant hereby acknowledges that he is aware that the United States securities laws prohibit any person who has material, nonpublic information concerning the Company from purchasing or selling securities of the Company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. 4.4. Consultant further agrees that during his consulting and for a period of five years thereafter, he will not hire or attempt to hire any individual who has been at the date hereof or during the Consulting Period becomes an employee of the Company, assist in such hiring by any other person, encourage any such employee to terminate his or her relationship with the Company (unless such individual has voluntarily terminated his or her employment, or the Company terminated such individual's employment without cause, greater than one year prior to the first instance of Consultant's conduct described in this Section), or solicit or encourage any tenant or other customer of the Company to terminate its relationship with the Company or to conduct with any person any business or activity which such customer conducts or could conduct with Company. 4.5. The obligations of Consultant stated in this Section 4 shall, except where expressly limited as to time, continue without limit as to time and without regard to the employment status of Consultant. 5. Relief, Interpretation; Expenses. Consultant agrees that the Company shall, in addition to any other remedies available to it, be entitled to preliminary and permanent injunctive relief against any breach by him of the covenants contained in Section 4, without having to post bond. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. In the event -5- that any provision of Section 4 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. For purposes of Section 4, the term "Company" shall mean the Company and any of its subsidiaries and affiliates who are such during the term of Consultant's consulting for the Company. Costs and expenses, including reasonable attorneys' fees, shall be paid to the prevailing party in any action brought to enforce the provisions of this Agreement by the other party hereto. 6. Conflicting Agreements. Consultant hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound, and that he is not now subject to any covenants against competition or similar covenants which would affect the performance of his obligations hereunder. 7. Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 8. Assignment. Neither the Company nor Consultant may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of Consultant to any affiliate thereof or in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into any other person or transfer all or substantially all of its properties or assets to any other person, so long as the Company remains liable for its obligations hereunder and the assignee assumes all obligations arising under this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and Consultant, their respective successors, executors, administrators, heirs and permitted assigns. 9. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 10. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to be effectively given upon (i) confirmation of facsimile, (ii) when sent by overnight delivery and (iii) mailed by registered or certified mail, return receipt requested and postage prepaid at the following addresses, -6- to the Company: Koger Equity, Inc. 3986 Boulevard Center Drive Jacksonville, Florida 32207 Attention: Chairman to Consultant: Irvin H. Davis 3986 Boulevard Center Drive Jacksonville, Florida 32207 Any party may change the address to which notices, requests, demands or other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of Consultant's employment. 12. Amendment. This Agreement may be amended or modified only by a written instrument signed by Consultant and by a duly authorized representative of the Company. 13. Governing Law. This contract shall be construed and enforced under and be governed in all respects by the laws of the State of Florida, without regard to the conflict of laws principles thereof. -7- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized officer, and by Consultant, as of the date first above written. CONSULTANT: KOGER EQUITY, INC. ______________________ By: ________________________ Irvin H. Davis Title: ______________________ -8- EX-10 3 EXHIBIT 10(AC) Exhibit 10(ac) -------------- Koger March 14, 1996 Mr. David B. Hiley Mount Holly Road Kantonah, NY 10536 Dear David: This is to memorialize the arrangement pursuant to which you have been providing and will continue to provide certain financial consulting services to Koger Equity, Inc. Such services, which are subject to the direction of the Company's chief financial officer, Victor A. Hughes, Jr., include advising the Company's management, board of directors and the finance committee of the board on financial aspects of (i) development and implementation of the Company's strategic plan and in particular refinancing or restructuring the Company's debt or arranging for new debt equity and (ii) other strategic matters such as business combinations and dispositions. Such services are in addition to your service as a member of the Company's board of directors and of its finance committee. Such services may be complimentary with or in addition to services of other advisers to the Company. To date, you have expended approximately 107 hours in providing such services, commencing in January, 1996, for which the company will pay you a fee of $32,100. Henceforth, the Company will pay you a retainer fee of $12,000 per month, payable monthly in advance beginning this date (pro rated for partial months). It is our intention that the fees paid to you hereunder will be periodically evaluated, particularly upon completion of particular strategic events with respect to which you have been advising, and that the board (or its executive committee) will then consider your contribution and determine in its discretion whether to increase the fee paid to you for such services. The Company will promptly reimburse you for all reasonable expenses you incur in providing such services. The Company also agrees to indemnify you as provided in Exhibit A hereto. Either you or the Company may terminate this consulting arrangement at any time by giving written notice to the other party. Mr. David B. Hiley March 14, 1996 Page Two Please indicate your concurrence with this statement of our agreement by signing and returning to me the enclosed copy of this letter. Very truly yours, /s/ IRVIN H. DAVIS - ----------------------------- Irwin H. Davis Vice Chairman Chief Executive Officer IHD/fj dha.ihd Concur: /s/ DAVID B. HILEY - ----------------------------- David B. Hiley 2 Exhibit A --------- In connection with the agreement of David B. Hiley to provide certain services to Koger Equity, Inc., as stated in a letter agreement dated March 14, 1996, the Company agrees to indemnify David B. Hiley (the indemnified party) from and against any and all losses, claims, damages and liabilities, joint or several, to which the indemnified party may become subject under any applicable federal or state law otherwise, related to or arising out of the performance by the indemnified party of services under such letter agreement, and will reimburse such indemnified party for all expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of any pending or threatened claim, action or proceeding. The Company will not be liable under this agreement to the extent that any loss, claim, damage or liability is found in a final judgement by a court of competent jurisdiction to have resulted from the indemnified partys willful misconduct or gross negligence. The Company agrees that the indemnified party shall not have any liability (whether direct or indirect, in contract, tort or otherwise) to the Company related to or arising out of the performance by the indemnified party of services under such letter agreement, except to the extent any losses, claims, damages or liabilities are found in a final judgement by a court of competent jurisdiction to have resulted from the indemnified partys willful misconduct or gross negligence. This agreement of the Company with respect to indemnification and limiting the liability of the indemnified party shall survive any termination of the Companys agreement with Mr. Hiley with respect to his providing services to the Company. 1 EX-10 4 EXHIBIT 10(Y)(1) EMPLOYMENT AGREEMENT This is an agreement (the "Agreement") between Koger Equity, Inc. (the "Company"), a Florida corporation with its principal place of business at Jacksonville, Florida, and Victor A. Hughes, Jr., of Jacksonville, Florida (the "Executive"), effective as of June 21, 1996 (the "Effective Date"). WHEREAS, the operations of the Company require direction and leadership in a variety of areas; and WHEREAS, the Executive has experience and expertise, including service with the Company as a senior executive, that qualify him to provide that direction and leadership, and the Company therefore wishes to employ him as its Chairman and chief executive officer, and he wishes to accept such employment. NOW, THEREFORE, the parties agree as follows: 1. Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers and the Executive hereby accepts employment. 2. Term. Subject to earlier termination as provided in Section 5 below, the term of the Executive's employment hereunder (the "Term of Employment") shall be a period starting on June 21, 1996 and ending on the third anniversary of the beginning of the Term of Employment or, if later, the 180th day following the date on which either the Company or the Executive gives written notice to the other that he or it is terminating the Term of Employment under this Agreement. The Term of Employment may be otherwise extended or renewed only by a written agreement signed by the Executive and an expressly authorized representative of the Company. 3. Capacity and Performance. During the Term of Employment, the Executive shall: (a) serve the Company on a full-time basis as its Chairman and chief executive officer with his principal place of employment at the Company's executive offices in Jacksonville, Florida; (b) perform such duties and responsibilities on behalf of the Company as may be designated from time to time by the Board of Directors of the Company (the "Board") consistent with the position of Chairman and chief executive officer; (c) devote substantially all of his business time and his best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and to the discharge of his duties and responsibilities under this Agreement, and he shall not engage in any other business activity or serve in any industry, trade, professional, -1- governmental or academic position during the Term of Employment, except (i) service as a director of business, industry, trade, professional, governmental or academic organizations which service does not interfere in any material way with the performance of the Executive's duties and responsibilities hereunder; and (ii) as may otherwise be expressly approved by the Board. (d) The Company agrees to use its best efforts to cause the election of the Executive to the Board during the Term of Employment. 4. Compensation and Benefits. (a) Base Salary. During the Term of Employment, the Company shall pay the Executive base salary ("Base Salary") at the rate of $250,000 per year, prorated for any partial period. All Base Salary shall be payable in accordance with the payroll practices of the Company for its executives and subject to increase from time to time by the Board (or its Compensation Committee) in its sole discretion. (b) Discretionary Bonuses. The Executive will be considered for year-end bonuses if the Company performs well, and will be treated the same as all executives who are included in Schedule B of the Company's Supplemental Executive Retirement Plan for Executives of the Company (the "SERP") for such purpose, but the determination whether or not any such bonuses will be paid shall be in the sole discretion of the Compensation Committee of the Board, provided that in the event of the disability or death of Executive or his termination by the Company other than for Cause, Executive shall be paid an amount at least equal to a Stipulated Bonus. A Stipulated Bonus shall be equal to the average bonus paid to Executive in respect of the three years prior to termination for death, disability or other than for Cause (or such lesser time as Executive has been employed by the Company), prorated through the date of termination in the case of death or disability or for the balance of the Term of Employment in the case of termination other than for Cause (disregarding such termination). (c) Vacations. During the Term of Employment the Executive shall be entitled to five weeks of vacation per year, prorated for partial calendar years, to be taken at such times and intervals as he wishes, subject to the reasonable business needs of the Company. The Executive shall be entitled to cash compensation for vacation time not taken only to the extent approved by the Board. (d) Other Benefits. During the Term of Employment the Executive shall be entitled to participate in all employee benefit plans (including insurance plans) of the Company that cover senior executives of the Company generally. The Executive's participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, supplement or delete its employee benefit plans at any time as it sees fit, without recourse by the Executive. -2- (e) Business Expenses. The Company shall pay or reimburse the Executive for all reasonable, customary business expenses incurred or paid by the Executive in the performance of the duties and responsibilities of his position, subject to any restrictions on such expenses set by the Board or in Company policies and to such reasonable substantiation and documentation as may be required by the Company. 5. Termination of Employment. (a) Death. If the Executive dies during the Term of Employment, the Company shall have no further obligations under this Agreement other than to pay to the Executive's estate Base Salary through the end of the calendar month of his death, any Stipulated Bonus as provided for herein, and any other compensation hereunder that has been earned but not paid. The Company agrees to keep in force during the Term of Employment group life insurance, substantially equivalent to that in effect generally for the Company's executives on the Effective Date. (b) Disability. The Company may terminate the Executive's employment by written notice in the event that, for any reason, he becomes disabled, either physically or psychologically, and is unable to perform substantially all of his duties and responsibilities under this Agreement for 180 days during any period of 365 consecutive days. In the event of such a termination, the Company shall have no further obligations under this Agreement other than to pay to the Executive Base Salary through the end of the calendar month of his termination, any Stipulated Bonus as provided for herein, and any other compensation hereunder that has been earned but not paid. The Company agrees to keep in force during the Term of Employment group disability income insurance, substantially equivalent to that in effect generally for the Company's executives on the Effective Date. The Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company, to whom the Executive or his duly appointed guardian has no reasonable objection, to determine whether the Executive is disabled. Such determination shall be conclusive. If the Executive fails to submit to such medical examination, the Company's determination of the Executive's disability shall be conclusive. (c) Termination by the Company for Cause. The Company may terminate the Executive's employment hereunder for Cause at any time upon written notice setting forth in reasonable detail the nature of the Cause. The following, as determined by the Board in its reasonable judgment, will constitute Cause: (i) fraud, embezzlement or other material dishonesty by the Executive with respect to the Company; or -3- (ii) the Executive's conviction of, or plea of nolo contendere to, a felony or other crime involving moral turpitude. Upon termination of the Executive's employment for Cause, the Company shall have no further obligations under this Agreement other than to pay to the Executive any Base Salary and any other amounts that have been earned but not paid. (d) Termination by the Company Other Than for Cause. The Company may terminate the Executive's employment hereunder other than for Cause at any time upon written notice. In the event of such termination, the Company shall: (i) at the election of the Executive, either continue to pay Base Salary to the Executive during the remainder of the Term of Employment or pay to him the present value (using the prime rate as reported in The Wall Street Journal on the date of termination to calculate the discount factor) of such Base Salary in a lump sum; (ii) at the election of the Executive, either continue to contribute to the cost of the Executive's participation in the Company's medical and life insurance arrangements during the remainder of the Term of Employment or pay to him in a lump sum the present value (determined as provided in clause (i) above) of the greater of the Company's contribution to such cost or the amount required to purchase individual coverage with substantially equivalent benefits if Executive is no longer eligible to participate in such medical and life insurance arrangements, provided that if the Executive as a result of such termination of employment is then eligible under the terms of the SERP to receive medical benefits as provided for therein, the Executive shall not be entitled to participation or payment under this Section 5(d)(ii) with respect to medical insurance arrangements; (iii) pay to Executive any other compensation hereunder that has been earned but not paid including any Stipulated Bonus; and (iv) treat the Executive as having satisfied the vesting requirements of the Supplemental Executive Retirement Plan for Executives of the Company (the "SERP"), the provisions of Section 3.2(a) of the SERP to the contrary notwithstanding, and with respect to stock options awarded to Executive such that options which would otherwise become vested during the full Term of Employment shall become immediately vested upon such termination. The Company shall have no other obligations under this Agreement. The Executive shall have no obligation to mitigate. -4- (e) Termination by the Executive. (i) If the Executive terminates his employment during the Term of Employment because the Company has breached this Agreement by failing to pay Base Salary in accordance with Section 4(a) or failing to pay other compensation or expenses contemplated hereby or because the Company otherwise commits a material breach of its obligations to the Executive hereunder (including the Company's not using its best efforts to cause the Executive to be elected as a director with the result that the Executive ceases to be a director of the Company notwithstanding his willingness to serve, assignment of duties and responsibilities inconsistent with his position, any change in his permanent place of employment or any other action that is materially inconsistent with Executive's position as a senior executive and a director of the Company), the termination shall, for purposes of this Agreement, be treated as a termination by the Company other than for Cause and governed by Section 5(d). (ii) If the Executive terminates his employment with the Company for any other reason, the Company shall have no further obligations under this Agreement other than to pay to the Executive any Base Salary that has been earned but not paid. (f) Gross-up Payment. The payments and benefits called for by this agreement are not in any way conditioned on a change of ownership or control of the Company. The Company intends such payments and benefits to be reasonable compensation for services rendered by the Executive, and intends that the Executive receive the full economic benefit of such payments and benefits. Therefore, in the event that it is determined that any payment or benefit provided by the Company to or for the benefit of Executive, either under this Agreement or otherwise, will be subject to the excise tax imposed by section 4999 of the Internal Revenue Code or any successor provision ("section 4999"), the Company will, prior to the date on which any amount of the excise tax must be paid or withheld, make an additional lump-sum payment (the "gross-up payment") to Executive. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make Executive whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. Determinations under this Section 5(f) will be made by the Company's independent auditors unless Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Executive after consultation with the Company (the firm making the determinations to be referred to as the "Firm"). The determinations of the Firm will be binding upon the Company and Executive except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by the Company. -5- If the Internal Revenue Service asserts a claim that, if successful, would require the Company to make a gross-up payment or an additional gross-up payment, the Company and Executive will cooperate fully in resolving the controversy with the Internal Revenue Service. The Company will make or advance such gross-up payments as are necessary to prevent Executive from having to bear the cost of payments made to the Internal Revenue Service in the course of, or as a result of, the controversy. The Firm will determine the amount of such gross-up payments or advances and will determine after resolution of the controversy whether any advances must be returned by Executive to the Company. The Company will bear all expenses of the controversy and will gross Executive up for any additional taxes that may be imposed upon Executive as a result of its payment of such expenses. 6. Nondisclosure. During the Term of Employment, the Executive may become aware of information which is nonpublic, confidential or proprietary in nature with respect to the Company or with respect to other companies, persons, entities, ventures or business opportunities in which the Company has, or, if it were disclosed to the Company, the Company might have, an interest ("Confidential Information"). All Confidential Information will be kept strictly confidential by the Executive and the Executive shall not: (a) copy, reproduce, distribute or disclose any Confidential Information to any third party except in the course of his employment by the Company; (b) use any Confidential Information for any purpose other than in connection with his employment by the Company; or (c) use any Confidential Information in any way that is detrimental to the Company. Confidential Information shall not include information which the Executive can demonstrate: (a) is or becomes generally available to the public other than by breach by the Executive of his agreement herein; (b) is disclosed by the Executive, pursuant to obligations under law, regulation or court order; or (c) was prior to the Effective Date, or thereafter becomes, known to the Executive on a nonconfidential basis. Upon termination of the Executive's employment, he shall immediately return or destroy all Confidential Information, including all notes, copies, reproductions, summaries, analyses, or extracts thereof, then in his possession. Such return or destruction shall not abrogate the continuing obligations of the Executive under this Agreement. In the event that the Executive is requested or required (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, he shall provide the Company with prompt written notice so that it may seek a protective order or other appropriate remedy. In the event such protection or other remedy is not obtained, the Executive shall furnish only that portion of the Confidential Information which he is advised by counsel is legally required and shall exercise best efforts to obtain assurance that confidential treatment will be accorded to such Confidential Information. The Executive agrees that until the expiration of five years from the date of termination of his employment by the Company, he will not without the prior written approval of the Company (i) in any manner acquire, agree to -6- acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property of the Company or any of its subsidiaries, whether such agreement or proposal is with the Executive or with a third party, other than shares of common stock he is entitled to acquire under the terms of this Agreement or any Company stock option, bonus, or other employee or director benefit plan, (ii) propose to enter into, directly or indirectly, any merger or other business combination involving the Company or any of its subsidiaries, (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other party or any of its subsidiaries, (v) otherwise act, alone or in concert with others, to seek to control or influence the management, board of directors or policies of the Company, (vi) disclose any intention, plan or arrangement inconsistent with the foregoing or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other persons in connection with any of the foregoing. The Executive hereby acknowledges that he is aware that the United States securities laws prohibit any person who has material, nonpublic information concerning the Company from purchasing or selling securities of the Company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. The obligations of the Executive stated in this Section 6 shall, except where expressly limited as to time, continue without limit as to time and without regard to the employment status of the Executive. 7. Conflicting Agreements. The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound and that he is not now subject to any covenants against competition or similar covenants that would affect the performance of his obligations hereunder. The Executive will not disclose to or use on behalf of the Company any proprietary information of a third party without such party's consent. 8. Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 9. Cost of Enforcement. The Company shall pay reasonable costs and expenses (including fees and expenses of counsel) incurred by the Executive in connection with an action to enforce his rights under this Agreement in which action the Executive prevails. 10. Indemnification. The Company shall, to the maximum extent permitted from time to time under the law of the State of Florida, indemnify and upon request shall advance expenses to the Executive in the event he is or was a party or is threatened to be made a party to any threatened, pending or -7- completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to be a director, officer or employee of the Company or while a director, officer or employee is or was serving at the request of the Company as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require the Company to indemnify or advance expenses to the Executive in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of the Executive. The Executive shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. The provisions of this Section 10 shall be in addition to any right of indemnification to which the Executive may be entitled under the Company's charter or by-laws, pursuant to any other contract, or by operation of law. 11. Assignment. Except as provided in this Section 11, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other. The Company may without the consent of the Executive assign its rights and obligations under this Agreement to any wholly-owned subsidiary of the Company or to any corporation or other business entity into which the Company has merged or with which it has consolidated or which has acquired substantially all of the Company's assets, provided that no such assignment shall relieve the Company of its obligations under this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the subject matter hereof. The Executive may have other rights and obligations under other agreements, insurance policies and plans and employee benefit and welfare plans of the Company, including, without limitation, the SERP. 13. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company. 14. Governing Law. This is a Florida contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Florida. -8- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written. VICTOR A. HUGHES, JR. KOGER EQUITY, INC. By: ------------------------------ -9- EX-10 5 EXHIBIT 10(Y)(2) EMPLOYMENT AGREEMENT This is an agreement (the "Agreement") between Koger Equity, Inc. (the "Company"), a Florida corporation with its principal place of business at Jacksonville, Florida, and James C. Teagle, of Jacksonville, Florida (the "Executive"), effective as of June 21, 1996 (the "Effective Date"). WHEREAS, the operations of the Company require direction and leadership in a variety of areas; and WHEREAS, the Executive has experience and expertise, including service with the Company as a senior executive, that qualify him to provide that direction and leadership, and the Company therefore wishes to employ him as its Executive Vice President and chief operating officer, and he wishes to accept such employment. NOW, THEREFORE, the parties agree as follows: 1. Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers and the Executive hereby accepts employment. 2. Term. Subject to earlier termination as provided in Section 5 below, the term of the Executive's employment hereunder (the "Term of Employment") shall be a period starting on June 21, 1996 and ending on the third anniversary of the beginning of the Term of Employment or, if later, the 180th day following the date on which either the Company or the Executive gives written notice to the other that he or it is terminating the Term of Employment under this Agreement. The Term of Employment may be otherwise extended or renewed only by a written agreement signed by the Executive and an expressly authorized representative of the Company. 3. Capacity and Performance. During the Term of Employment, the Executive shall: (a) serve the Company on a full-time basis as its Executive Vice President and chief operating officer with his principal place of employment at the Company's executive offices in Jacksonville, Florida; (b) perform such duties and responsibilities on behalf of the Company as may be designated from time to time by the Board of Directors of the Company (the "Board") or its chief executive officer to whom the Executive shall report, consistent with the position of Executive Vice President and chief operating officer; -1- (c) devote substantially all of his business time and his best efforts, business judgment, skill and knowledge exclusively to the advancement of the business and interests of the Company and to the discharge of his duties and responsibilities under this Agreement, and he shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the Term of Employment, except (i) service as a director of business, industry, trade, professional, governmental or academic organizations which service does not interfere in any material way with the performance of the Executive's duties and responsibilities hereunder; and (ii) as may otherwise be expressly approved by the Board. 4. Compensation and Benefits. (a) Base Salary. During the Term of Employment, the Company shall pay the Executive base salary ("Base Salary") at the rate of $180,000 per year, prorated for any partial period. All Base Salary shall be payable in accordance with the payroll practices of the Company for its executives and subject to increase from time to time by the Board (or its Compensation Committee) in its sole discretion. (b) Discretionary Bonuses. The Executive will be considered for year-end bonuses if the Company performs well, and will be treated the same as all executives who are included in Schedule B of the Company's Supplemental Executive Retirement Plan for Executives of the Company (the "SERP") for such purpose, but the determination whether or not any such bonuses will be paid shall be in the sole discretion of the Compensation Committee of the Board, provided that in the event of the disability or death of Executive or his termination by the Company other than for Cause, Executive shall be paid an amount at least equal to a Stipulated Bonus. A Stipulated Bonus shall be equal to the average bonus paid to Executive in respect of the three years prior to termination for death, disability or other than for Cause (or such lesser time as Executive has been employed by the Company), prorated through the date of termination in the case of death or disability or for the balance of the Term of Employment in the case of termination other than for Cause (disregarding such termination). (c) Vacations. During the Term of Employment the Executive shall be entitled to five weeks of vacation per year, prorated for partial calendar years, to be taken at such times and intervals as he wishes, subject to the reasonable business needs of the Company. The Executive shall be entitled to cash compensation for vacation time not taken only to the extent approved by the Board. (d) Other Benefits. During the Term of Employment the Executive shall be entitled to participate in all employee benefit plans (including insurance plans) of the Company that cover senior executives of the Company generally. The Executive's participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, supplement or delete its employee benefit plans at any time as it sees fit, without recourse by the Executive. As of the Effective Date, the Executive shall be removed from Schedule C and added to Schedule B of the SERP in which he is a participant. -2- (e) Business Expenses. The Company shall pay or reimburse the Executive for all reasonable, customary business expenses incurred or paid by the Executive in the performance of the duties and responsibilities of his position, subject to any restrictions on such expenses set by the Board or in Company policies and to such reasonable substantiation and documentation as may be required by the Company. 5. Termination of Employment. (a) Death. If the Executive dies during the Term of Employment, the Company shall have no further obligations under this Agreement other than to pay to the Executive's estate Base Salary through the end of the calendar month of his death, any Stipulated Bonus as provided for herein, and any other compensation hereunder that has been earned but not paid. The Company agrees to keep in force during the Term of Employment group life insurance, substantially equivalent to that in effect generally for the Company's executives on the Effective Date. (b) Disability. The Company may terminate the Executive's employment by written notice in the event that, for any reason, he becomes disabled, either physically or psychologically, and is unable to perform substantially all of his duties and responsibilities under this Agreement for 180 days during any period of 365 consecutive days. In the event of such a termination, the Company shall have no further obligations under this Agreement other than to pay to the Executive Base Salary through the end of the calendar month of his termination, any Stipulated Bonus as provided for herein, and any other compensation hereunder that has been earned but not paid. The Company agrees to keep in force during the Term of Employment group disability income insurance, substantially equivalent to that in effect generally for the Company's executives on the Effective Date. The Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company, to whom the Executive or his duly appointed guardian has no reasonable objection, to determine whether the Executive is disabled. Such determination shall be conclusive. If the Executive fails to submit to such medical examination, the Company's determination of the Executive's disability shall be conclusive. (c) Termination by the Company for Cause. The Company may terminate the Executive's employment hereunder for Cause at any time upon written notice setting forth in reasonable detail the nature of the Cause. The following, as determined by the Board in its reasonable judgment, will constitute Cause: -3- (i) fraud, embezzlement or other material dishonesty by the Executive with respect to the Company; or (ii) the Executive's conviction of, or plea of nolo contendere to, a felony or other crime involving moral turpitude. Upon termination of the Executive's employment for Cause, the Company shall have no further obligations under this Agreement other than to pay to the Executive any Base Salary and any other amounts that have been earned but not paid. (d) Termination by the Company Other Than for Cause. The Company may terminate the Executive's employment hereunder other than for Cause at any time upon written notice. In the event of such termination, the Company shall: (i) at the election of the Executive, either continue to pay Base Salary to the Executive during the remainder of the Term of Employment or pay to him the present value (using the prime rate as reported in The Wall Street Journal on the date of termination to calculate the discount factor) of such Base Salary in a lump sum; (ii) at the election of the Executive, either continue to contribute to the cost of the Executive's participation in the Company's medical and life insurance arrangements during the remainder of the Term of Employment or pay to him in a lump sum the present value (determined as provided in clause (i) above) of the greater of the Company's contribution to such cost or the amount required to purchase individual coverage with substantially equivalent benefits if Executive is no longer eligible to participate in such medical and life insurance arrangements, provided that if the Executive as a result of such termination of employment is then eligible under the terms of the SERP to receive medical benefits as provided for therein, the Executive shall not be entitled to participation or payment under this Section 5(d)(ii) with respect to medical insurance arrangements; (iii) pay to Executive any other compensation hereunder that has been earned but not paid including any Stipulated Bonus; and (iv) treat the Executive as having satisfied the vesting requirements under the SERP, the provisions of Section 3.2(a) of the SERP to the contrary notwithstanding and with respect to stock options awarded to Executive such that options which would otherwise become vested during the full Term of Employment shall become immediately vested upon such termination. The Company shall have no other obligations under this Agreement. The Executive shall have no obligation to mitigate. -4- (e) Termination by the Executive. (i) If the Executive terminates his employment during the Term of Employment because the Company has breached this Agreement by failing to pay Base Salary in accordance with Section 4(a) or failing to pay other compensation or expenses contemplated hereby or because the Company otherwise commits a material breach of its obligations to the Executive hereunder (including assignment of duties and responsibilities inconsistent with his position, any change in his permanent place of employment or any other action that is materially inconsistent with Executive's position as a senior executive of the Company), the termination shall, for purposes of this Agreement, be treated as a termination by the Company other than for Cause and governed by Section 5(d). (ii) If the Executive terminates his employment with the Company for any other reason, the Company shall have no further obligations under this Agreement other than to pay to the Executive any Base Salary that has been earned but not paid. (f) Gross-up Payment. The payments and benefits called for by this agreement are not in any way conditioned on a change of ownership or control of the Company. The Company intends such payments and benefits to be reasonable compensation for services rendered by the Executive, and intends that the Executive receive the full economic benefit of such payments and benefits. Therefore, in the event that it is determined that any payment or benefit provided by the Company to or for the benefit of Executive, either under this Agreement or otherwise, will be subject to the excise tax imposed by section 4999 of the Internal Revenue Code or any successor provision ("section 4999"), the Company will, prior to the date on which any amount of the excise tax must be paid or withheld, make an additional lump-sum payment (the "gross-up payment") to Executive. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make Executive whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. Determinations under this Section 5(f) will be made by the Company's independent auditors unless Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Executive after consultation with the Company (the firm making the determinations to be referred to as the "Firm"). The determinations of the Firm will be binding upon the Company and Executive except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by the Company. If the Internal Revenue Service asserts a claim that, if successful, would require the Company to make a gross-up payment or an additional gross-up payment, the Company and Executive will cooperate fully in resolving the controversy with the Internal Revenue Service. -5- The Company will make or advance such gross-up payments as are necessary to prevent Executive from having to bear the cost of payments made to the Internal Revenue Service in the course of, or as a result of, the controversy. The Firm will determine the amount of such gross-up payments or advances and will determine after resolution of the controversy whether any advances must be returned by Executive to the Company. The Company will bear all expenses of the controversy and will gross Executive up for any additional taxes that may be imposed upon Executive as a result of its payment of such expenses. 6. Nondisclosure. During the Term of Employment, the Executive may become aware of information which is nonpublic, confidential or proprietary in nature with respect to the Company or with respect to other companies, persons, entities, ventures or business opportunities in which the Company has, or, if it were disclosed to the Company, the Company might have, an interest ("Confidential Information"). All Confidential Information will be kept strictly confidential by the Executive and the Executive shall not: (a) copy, reproduce, distribute or disclose any Confidential Information to any third party except in the course of his employment by the Company; (b) use any Confidential Information for any purpose other than in connection with his employment by the Company; or (c) use any Confidential Information in any way that is detrimental to the Company. Confidential Information shall not include information which the Executive can demonstrate: (a) is or becomes generally available to the public other than by breach by the Executive of his agreement herein; (b) is disclosed by the Executive, pursuant to obligations under law, regulation or court order; or (c) was prior to the Effective Date, or thereafter becomes, known to the Executive on a nonconfidential basis. Upon termination of the Executive's employment, he shall immediately return or destroy all Confidential Information, including all notes, copies, reproductions, summaries, analyses, or extracts thereof, then in his possession. Such return or destruction shall not abrogate the continuing obligations of the Executive under this Agreement. In the event that the Executive is requested or required (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, he shall provide the Company with prompt written notice so that it may seek a protective order or other appropriate remedy. In the event such protection or other remedy is not obtained, the Executive shall furnish only that portion of the Confidential Information which he is advised by counsel is legally required and shall exercise best efforts to obtain assurance that confidential treatment will be accorded to such Confidential Information. The Executive agrees that until the expiration of five years from the date of termination of his employment by the Company, he will not without the prior written approval of the Company (i) in any manner acquire, agree to acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property of the Company or any of its subsidiaries, whether such agreement or proposal is with the Executive or with a third party, other than -6- shares of common stock he is entitled to acquire under the terms of this Agreement or any stock option, bonus, or other employee or director benefit plan, (ii) propose to enter into, directly or indirectly, any merger or other business combination involving the Company or any of its subsidiaries, (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other party or any of its subsidiaries, (v) otherwise act, alone or in concert with others, to seek to control or influence the management, board of directors or policies of the Company, (vi) disclose any intention, plan or arrangement inconsistent with the foregoing or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other persons in connection with any of the foregoing. The Executive hereby acknowledges that he is aware that the United States securities laws prohibit any person who has material, nonpublic information concerning the Company from purchasing or selling securities of the Company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. The obligations of the Executive stated in this Section 6 shall, except where expressly limited as to time, continue without limit as to time and without regard to the employment status of the Executive. 7. Conflicting Agreements. The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound and that he is not now subject to any covenants against competition or similar covenants that would affect the performance of his obligations hereunder. The Executive will not disclose to or use on behalf of the Company any proprietary information of a third party without such party's consent. 8. Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 9. Cost of Enforcement. The Company shall pay reasonable costs and expenses (including fees and expenses of counsel) incurred by the Executive in connection with an action to enforce his rights under this Agreement in which action the Executive prevails. 10. Indemnification. The Company shall, to the maximum extent permitted from time to time under the law of the State of Florida, indemnify and upon request shall advance expenses to the Executive in the event he is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to be a director, officer or employee of the Company or while a director, officer or employee is or was serving at the request of the Company as a -7- director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require the Company to indemnify or advance expenses to the Executive in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of the Executive. The Executive shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. The provisions of this Section 10 shall be in addition to any right of indemnification to which the Executive may be entitled under the Company's charter or by-laws, pursuant to any other contract, or by operation of law. 11. Assignment. Except as provided in this Section 11, neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other. The Company may without the consent of the Executive assign its rights and obligations under this Agreement to any wholly-owned subsidiary of the Company or to any corporation or other business entity into which the Company has merged or with which it has consolidated or which has acquired substantially all of the Company's assets, provided that no such assignment shall relieve the Company of its obligations under this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the subject matter hereof. The Executive may have other rights and obligations under other agreements, insurance policies and plans and employee benefit and welfare plans of the Company, including, without limitation, the SERP. 13. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company. 14. Governing Law. This is a Florida contract and shall be construed and enforced under and be governed in all respects by the laws of the State of Florida. -8- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Executive, as of the date first above written. JAMES C. TEAGLE KOGER EQUITY, INC. By: ---------------------- -9- EX-27 6 FINANCIAL DATA SCHEDULE
5 The Company does not file a classfied balance sheet, therefore these not provided. 5-02(9), 5-02(21) 1000 DOLLARS 9-MOS DEC-31-1996 SEP-30-1996 1 34,102 0 4,306 245 0 0 608,375 77,446 587,766 0 249,925 0 0 206 319,265 587,766 0 80,150 0 35,620 21,035 0 14,865 8,630 1,139 7,491 0 0 0 7,491 0.40 0.40
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