-----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, DMGFYz8BPQpxqtUW6U9OAzeBV67lancf8jAnTsGkjPsy7lyPw2c3za4vrTrxSJqM XMnRINfOkeO97ZEQcpatNA== 0000950144-99-010126.txt : 19990816 0000950144-99-010126.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950144-99-010126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 333-20975 FILM NUMBER: 99688354 BUSINESS ADDRESS: STREET 1: 8880 FREEDOM CROSSING TRAIL CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9047321000 MAIL ADDRESS: STREET 1: 8880 FREEDOM CROSSING TRAIL CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-Q 1 KOGER EQUITY, INC. 1 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 JUNE 30, 1999 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 Identification No.) incorporation or organization) 8880 FREEDOM CROSSING TRAIL JACKSONVILLE, FLORIDA 32256 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 732-1000 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 latest practicable date. Class Outstanding at July 30, 1999 Common Stock, $.01 par value 26,718,030 shares 2 KOGER EQUITY, INC. AND SUBSIDIARIES INDEX
PAGE NO. PART I. FINANCIAL INFORMATION Independent Accountants' Report................................................................................ 3 Item 1. Financial Statements: Condensed Consolidated Balance Sheets June 30, 1999 and December 31, 1998......................................................................... 4 Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 1999 and 1998...................................................................................... 5 Condensed Consolidated Statement of Changes in Shareholders' Equity for the Six Month Period Ended June 30, 1999......................................................................................... 6 Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 1999 and 1998...................................................... 7 Notes to Condensed Consolidated Financial Statements for the Three and Six Month Periods Ended June 30, 1999 and 1998...................................................................................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................................................................... 14 Item 4. Submission of Matters to a Vote of Security Holders..................................................... 14 Item 5. Other Information....................................................................................... 15 Item 6. Exhibits and Reports on Form 8-K........................................................................ 18 Signatures....................................................................................................... 19
2 3 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 June 30, 1999 and the related condensed consolidated statements of operations for the three and six month periods ended June 30, 1999 and 1998, the condensed consolidated statement of changes in shareholders' equity for the six month period ended June 30, 1999 and the condensed consolidated statements of cash flows for the six month periods ended June 30, 1999 and 1998. 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, 1998, 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 February 12, 1999, 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, 1998 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 July 30, 1999 3 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1999 1998 --------- ------------ ASSETS Real Estate Investments: Operating properties: Land $ 140,431 $ 137,047 Buildings 761,880 731,558 Furniture and equipment 2,846 3,578 Accumulated depreciation (142,350) (129,682) --------- --------- Operating properties - net 762,807 742,501 Properties under construction: Land 10,728 11,318 Buildings 39,446 31,562 Undeveloped land held for investment 16,502 19,272 Undeveloped land held for sale, net of allowance 1,263 1,263 Cash and temporary investments 5,403 4,827 Accounts receivable, net of allowance for uncollectible accounts of $395 and $436 9,041 6,158 Investment in Koger Realty Services, Inc. 1,955 1,661 Cost in excess of fair value of net assets acquired, net of accumulated amortization of $940 and $855 1,615 1,700 Other assets 14,629 14,733 --------- --------- TOTAL ASSETS $ 863,389 $ 834,995 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages and loans payable $ 334,290 $ 307,903 Accounts payable 7,109 12,139 Accrued real estate taxes payable 8,037 4,407 Accrued liabilities - other 8,943 9,288 Dividends payable 9,351 7,971 Advance rents and security deposits 6,614 5,432 --------- --------- Total Liabilities 374,344 347,140 --------- --------- Minority interest 23,768 23,092 --------- --------- Commitments and Contingencies Shareholders' Equity: Common stock 287 286 Capital in excess of par value 456,945 454,988 Retained earnings 29,057 30,020 Treasury stock, at cost (21,012) (20,531) --------- --------- Total Shareholders' Equity 465,277 464,763 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 863,389 $ 834,995 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 5 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTH PERIOD SIX MONTH PERIOD ENDED JUNE 30, ENDED JUNE 30, ------------------ ---------------- 1999 1998 1999 1998 ------- ------- ------- ------- REVENUES Rental and other rental services $39,062 $32,384 $77,183 $62,719 Management fees 504 706 1,094 1,191 Interest 47 124 95 307 Income (Loss) from Koger Realty Services, Inc. (167) 441 446 855 Gain on sale of assets 4 3 4 3 ------- ------- ------- ------- Total revenues 39,450 33,658 78,822 65,075 ------- ------- ------- ------- EXPENSES Property operations 15,294 13,213 29,968 24,827 Depreciation and amortization 7,688 6,970 15,289 13,650 Mortgage and loan interest 5,448 3,985 11,012 7,267 General and administrative 2,333 1,756 4,054 3,257 Direct cost of management fees 223 347 663 646 Undeveloped land costs 54 99 113 193 ------- ------- ------- ------- Total expenses 31,040 26,370 61,099 49,840 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 8,410 7,288 17,723 15,235 Income taxes (39) 327 173 610 ------- ------- ------- ------- INCOME BEFORE MINORITY INTEREST 8,449 6,961 17,550 14,625 Minority interest 325 -- 676 -- ------- ------- ------- ------- NET INCOME $ 8,124 $ 6,961 $16,874 $14,625 ======= ======= ======= ======= EARNINGS PER SHARE: Basic $ 0.30 $ 0.26 $ 0.63 $ 0.56 ======= ======= ======= ======= Diluted $ 0.30 $ 0.26 $ 0.63 $ 0.55 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES: Basic 26,683 26,515 26,632 26,012 ======= ======= ======= ======= Diluted 27,020 27,203 26,953 26,744 ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. 5 6 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
COMMON STOCK ------------------- CAPITAL IN TREASURY STOCK TOTAL PAR EXCESS OF RETAINED -------------------- SHAREHOLDERS' SHARES VALUE PAR VALUE EARNINGS SHARES COST EQUITY ------ ------- --------- -------- ------ -------- ------------- Balance, December 31, 1998 28,560 $ 286 $454,988 $30,020 1,989 $(20,531) $464,763 Common stock sold 96 (14) 120 216 Treasury stock reissued 123 (20) 162 285 Treasury stock purchased 54 (852) (852) 401(k) Plan contribution 139 (16) 129 268 Restricted stock issued 22 Options exercised 130 1 1,599 3 (40) 1,560 Dividends declared (17,330) (17,330) Distributions to limited partners (507) (507) Net income 16,874 16,874 ------ ------- -------- ------- ------ -------- -------- Balance, June 30, 1999 28,712 $ 287 $456,945 $29,057 1,996 $(21,012) $465,277 ====== ======= ======== ======= ====== ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 7 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
SIX MONTH PERIOD ENDED JUNE 30, ------------------------ 1999 1998 ---- ---- OPERATING ACTIVITIES Net income $ 16,874 $ 14,625 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,289 13,650 Income from Koger Realty Services, Inc. (446) (855) Provision for uncollectible accounts 120 38 Minority interest 676 -- Gain on sale or disposition of assets (4) (3) Increase in accounts payable, accrued liabilities and other liabilities 126 785 Increase in receivables and other assets (2,684) (645) -------- -------- Net cash provided by operating activities 29,951 27,595 -------- -------- INVESTING ACTIVITIES Property acquisitions -- (73,783) Building construction expenditures (28,169) (26,676) Tenant improvements to first generation space (2,717) (1,833) Tenant improvements to existing properties (5,778) (4,643) Building improvements (1,560) (1,361) Energy management improvements (6) -- Deferred tenant costs (1,288) (957) Additions to furniture and equipment (572) (231) Dividends received from Koger Realty Services, Inc. 152 228 Proceeds from sales of assets 6 3 -------- -------- Net cash used in investing activities (39,932) (109,253) -------- -------- FINANCING ACTIVITIES Proceeds from exercise of stock options 1,424 688 Proceeds from sales of common stock 216 20,318 Proceeds from mortgages and loans 53,943 81,800 Dividends paid (15,950) (12,978) Distributions paid to limited partners (507) -- Treasury stock purchased (852) -- Principal payments on mortgages and loans (27,556) (23,363) Financing costs (161) (122) -------- -------- Net cash provided by financing activities 10,557 66,343 -------- -------- Net increase (decrease) in cash and cash equivalents 576 (15,315) Cash and cash equivalents - beginning of period 4,827 16,955 -------- -------- Cash and cash equivalents - end of period $ 5,403 $ 1,640 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest, net of amount capitalized $ 10,938 $ 7,187 ======== ======== Cash paid during the period for income taxes $ 94 $ 887 ======== ========
See Notes to Condensed Consolidated Financial Statements. 7 8 KOGER EQUITY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 (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 - Vanguard Partners, L.P. (the "Company"). All material 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, 1998, included in the Company's Form 10-K Annual Report for the year ended December 31, 1998. The balance sheet at December 31, 1998, 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 six month period ended June 30, 1999, are not necessarily indicative of the results to be expected for the full year. Certain 1998 amounts have been reclassified to conform with 1999 presentations. 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. Koger - Vanguard Partners, L.P. ("KVP") is a Delaware limited partnership, for which KE is the general partner. 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 16 office buildings owned by Centoff Realty Company, Inc. ("Centoff"), a subsidiary of Morgan Guaranty Trust Company of New York. 3. FEDERAL INCOME TAXES. The Company is operated in a manner so as to qualify, and has elected tax treatment, as a real estate investment trust under the Internal Revenue Code (a "REIT"). As a REIT, the Company is required to distribute annually at least 95 percent of its REIT taxable income to its shareholders. Since the Company had no REIT taxable income during 1998 and does not expect to have REIT taxable income during 1999, no provision has been made for Federal income taxes. However, the Company has recorded a provision of $300,000 for alternative minimum tax for the six month period ended June 30, 1999. This provision has been partially offset by a refund of 1998 alternative minimum tax which totaled $250,000. To the extent that the Company pays dividends equal to 100 percent of REIT taxable income, the earnings of the Company are not taxed at the corporate level. However, the use of net operating loss carryforwards, which may reduce REIT taxable income to zero, are limited for alternative minimum tax purposes. 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 six month period ended June 30, 1999, the Company contributed 15,603 shares of common stock to the Company's 401(k) Plan. These shares had a value of approximately $268,000 based on the closing price of the Company's common stock on the American Stock Exchange on December 31, 1998. In addition, the Company issued 19,695 shares of common stock as payment for certain 1998 bonuses for senior management. These shares had a value of approximately $285,000 based on the closing price of the Company's common stock on the American Stock Exchange on 8 9 February 18, 1999. During the six month period ended June 30, 1998, the Company contributed 9,197 shares of common stock to the Company's 401(k) Plan. These shares had a value of approximately $202,000 based on the closing price of the Company's common stock on the American Stock Exchange on December 31, 1997. During January 1998, the Company assumed a mortgage loan with an outstanding balance of approximately $8,501,000 in conjunction with the acquisition of an office building. 5. EARNINGS PER COMMON SHARE. Basic earnings per common share has been computed based on the weighted average number of shares of common stock outstanding for each period. Diluted earnings per common share is similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares (options) had been issued. The treasury stock method is used to calculate dilutive shares which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised. 6. MORTGAGES AND LOANS PAYABLE. At June 30, 1999, the Company had $334,290,000 of loans outstanding, which are collateralized by mortgages on certain operating properties. Annual maturities for mortgages and loans payable are as follows (in thousands):
YEAR ENDING DECEMBER 31, ------------------------ 1999 $ 1,915 2000 3,584 2001 123,892 2002 11,927 2003 4,385 Subsequent Years 188,587 -------- Total $334,290 ========
7. DIVIDENDS. The Company paid a quarterly dividend of $0.30 per share on February 4, 1999, to shareholders of record on December 31, 1998. The Company paid a quarterly dividend of $0.30 per share on May 6, 1999, to shareholders of record on March 31, 1999. During the quarter ended June 30, 1999, the Company's Board of Directors declared a quarterly dividend of $0.35 per share payable on August 5, 1999, to shareholders of record on June 30, 1999. The Company currently expects that all dividends paid during 1999 will be treated as ordinary income for income tax purposes. 8. SUBSEQUENT EVENTS. During July 1999, the Company signed an agreement to sell the Jacksonville Central Center and the Charlotte East Center. The sale of these properties is expected to close during the quarter ending September 30, 1999. Selective information for these properties, as of June 30, 1999, is provided below:
Jacksonville Charlotte Central East ------------ --------- 1. Operating Properties A. Number of buildings 31 11 B. Gross square feet 828,200 574,800 C. Net rentable square feet 666,000 468,900 D. Percent leased 85% 79% E. Net book value (in thousands) $ 36,928 $ 27,736 2. Vacant Land A. Acres 1.4 3.9 B. Book basis (in thousands) $ 95 $ 468
9 10 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, 1998. RESULTS OF OPERATIONS. Rental and other rental services revenues totaled $39,062,000 for the quarter ended June 30, 1999, compared to $32,384,000 for the quarter ended June 30, 1998. This increase in rental revenues resulted primarily from (i) increases in the Company's average rental rate and (ii) increases in rental revenues ($4,701,000) from the properties acquired and construction completed during 1998 and 1999. At June 30, 1999, the Company's buildings were on average 90 percent leased with an average rental rate of $16.31. Rental and other rental services revenues increased to $77,183,000 during the six month period ended June 30, 1999, compared to $62,719,000 during the same period last year. This increase resulted primarily from (i) increases in the Company's average rental rate and (ii) increases in rental revenues ($10,627,000) from the properties acquired and construction completed during 1998 and 1999. Management fee revenues totaled $504,000 for the quarter ended June 30, 1999, compared to $706,000 for the quarter ended June 30, 1998. This decrease was due primarily to the reduction in (i) construction management fees earned and (ii) fees earned under the management contract with Centoff. Management fee revenues decreased to $1,094,000 during the six month period ended June 30, 1999, compared to $1,191,000 during the same period last year, due to the reduction in construction management fees earned. During March 1999, Centoff sold one of the centers for which the Company had provided management services. The Company earned management fee revenues totaling $194,000 for the management and leasing of this property during 1999. Another agreement to manage one commercial office building was terminated by the Company during February 1999. The Company earned fees of $82,000 for the management of this building during 1999. Income (loss) from Koger Realty Services, Inc. totaled $(167,000) for the quarter ended June 30, 1999, compared to $441,000 for the quarter ended June 30, 1998. This decrease was due primarily to the increased accrual for compensation expense related to a bonus plan which is based on KE's common stock price. For the six months ended June 30, 1999, income from Koger Realty Services, Inc. declined $409,000, compared to the same period last year, primarily due to (i) the increased accrual for compensation expense related to a bonus plan and (ii) an increase in general and administrative expenses. Property operations expense includes such charges as utilities, real estate taxes, janitorial, maintenance, property insurance, provision for uncollectible rents and management costs. The amount of property operations expense and its percentage of total rental revenues for the applicable periods are as follows:
PERCENT OF TOTAL PERIOD AMOUNT RENTAL REVENUES ------ ------ ---------------- June 30, 1999 - Quarter $15,294,000 39.2% June 30, 1998 - Quarter 13,213,000 40.8% June 30, 1999 - Six Months 29,968,000 38.8% June 30, 1998 - Six Months 24,827,000 39.6%
Property operations expense increased primarily due to (i) increased accruals for real estate taxes, (ii) increased property management costs and (iii) increases in property operations expense ($1,860,000 and $4,287,000, respectively, for the three month and six month periods ended June 30, 1999) for the properties acquired and construction completed during 1998 and 1999. 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 $666,000 and $1,560,000, respectively, for the three and six month periods ended June 30, 1999, compared to the same periods last year, due to the properties acquired and construction 10 11 completed during 1998 and 1999. Amortization expense increased $52,000 and $79,000, respectively, for the three and six month periods ended June 30, 1999, compared to the same periods last year, due primarily to deferred tenant costs which were incurred after June 30, 1998. Interest expense increased by $1,463,000 and $3,745,000, respectively, during the three and six month periods ended June 30, 1999, compared to the same periods last year, primarily due to the increase in the average balance of mortgages and loans payable. At June 30, 1999, the weighted average interest rate on the Company's outstanding debt was approximately 7.7 percent. General and administrative expenses for the three month periods ended June 30, 1999 and 1998, totaled $2,333,000 and $1,756,000, respectively, which is 1.0 percent and 0.9 percent (annualized) of average invested assets. This increase in general and administrative expenses was primarily due to increases in (i) compensation expense and certain employee benefit accruals, (ii) legal fees and (iii) franchise taxes. General and administrative expenses for the six month periods ended June 30, 1999 and 1998, totaled $4,054,000 and $3,257,000, respectively, which is 0.9 percent and 0.8 percent (annualized) of average invested assets. Direct costs of management contracts decreased $124,000 for the three month period ended June 30, 1999, compared to the same period last year, due to decreased costs associated with providing property management services for all management contracts. Compared to the prior year, direct costs of management contracts remained basically unchanged for the six months ended June 30, 1999. During the six months ended June 30, 1999, the Company incurred costs totaling $138,000 for the management and leasing of the property which was sold by Centoff. Net income totaled $8,124,000 for the quarter ended June 30, 1999, compared to net income of $6,961,000 for the corresponding period of 1998. This improvement is due primarily to the increase in rental revenues and the reduction in income tax expense. These items were partially offset by the increases in (i) property operations expense, (ii) depreciation and amortization expense, (iii) interest expense and (iv) general and administrative expense. Net income increased $2,249,000 during the six month period ended June 30, 1998, compared to the same period last year, due to the same items detailed above. LIQUIDITY AND CAPITAL RESOURCES. OPERATING ACTIVITIES - During the six months ended June 30, 1999, the Company generated approximately $30 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 Centoff. As a REIT for Federal income tax purposes, the Company 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, the Company has paid out dividends in amounts at least equal to its REIT taxable income. The Company believes that its cash provided by operating activities will be sufficient to cover debt service payments and to pay the dividends required to maintain REIT status through 1999. The level of cash flow generated by rents depends primarily on the occupancy rates of the Company's buildings and changes in rental rates on new and renewed leases and under escalation provisions in existing leases. At June 30, 1999, leases representing approximately 10.3 percent of the gross annualized rent from the Company's properties, without regard to the exercise of options to renew, were due to expire during the remainder of 1999. This represents 561 leases for space in buildings located in 23 of the 25 centers or locations in which the Company owns buildings. Certain of these tenants may not renew their leases or may reduce their demand for space. During the six months ended June 30, 1999, leases were renewed on approximately 68 percent of the Company's net rentable square feet which were scheduled to expire during the six month period. For those leases which renewed during the six months ended June 30, 1999, the average rental rate increased from $14.78 to $ 17.55. Based upon the number of leases which will expire during 1999 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 improvement costs and in certain markets reduced rents during initial lease periods. 11 12 The Company continues to benefit 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, 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 20.9 percent of the Company's leased space at June 30, 1999, 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. The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the Year 2000 Compliance issue. As the year 2000 approaches, such systems may be unable to accurately process certain date-based information. All significant accounting applications used by the Company are packaged software products licensed from various computer software companies. As of July 1999, all of the Company's significant accounting applications have been upgraded to either Windows-based software or versions of Dos-based software, which are Year 2000 compliant. The Company has also completed its initial assessment of its critical building operating systems (HVAC, lighting, security and elevators) regarding Year 2000 Compliance. This assessment determined that the costs of dealing with timing devices which are not Year 2000 Compliant would not be material to the Company's financial position or results of operations. The Company is continuing to inventory all building operating systems to confirm the Company's assessment of these devices with the applicable manufacturers. The total cost to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete these application conversions are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. Due to the general uncertainty inherent in the Year 2000 Compliance issue, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and tenants, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Company is exposed to the potential risk that its vendors and service providers may not be Year 2000 compliant. However, this risk is reduced by the availability of multiple vendors in the 15 cities in which the Company owns properties. Failures by utility vendors to provide regulated services would have the greatest impact on the Company's normal business operations. For this reason, the Company has requested information from each of its utility vendors concerning their Year 2000 readiness. Currently, the Company has received responses from substantially all of its utility vendors. All respondents have acknowledged that they are currently working on the problem and many have outlined their respective plans of implementation. The Company is exposed to the risk that its tenants could be impacted by the Year 2000 Compliance issue such that they would be unable to pay their rent on time. However, the Company has a diverse tenant base and its success is not closely tied to the success of any particular tenant. Also, the Company's leases with its tenants protect the Company in the event of tenant default and requires the payment of delinquent fees on late rental payments. The Company does not expect any adverse effects caused by its accounting and property management systems that would affect the Company's ability to meet its financial and reporting requirements. 12 13 The Company has developed contingency plans for dealing with timing devices in building operating systems, which are not Year 2000 compliant, in case these devices are not replaced by the end of 1999. Testing of these contingency plans and decisions whether implementation of a contingency plan is required will be completed by September 30, 1999. The Company has sufficient internal resources and personnel to implement any required contingency plans related to its building operating systems. INVESTING ACTIVITIES - At June 30, 1999, 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 six month period ended June 30, 1999, the Company's expenditures for improvements to existing properties increased $1,340,000 from the corresponding period of the prior year primarily due to the increase in expenditures for tenant improvements. The Company has nine buildings under construction which will contain approximately 752,000 net rentable square feet. Expenditures for construction of these nine buildings are expected to total approximately $69.9 million, excluding land and tenant improvement costs. FINANCING ACTIVITIES - The Company has a $150 million secured revolving credit facility ($120 million of which was outstanding on June 30, 1999) provided by First Union National Bank of Florida, AmSouth Bank, N.A., Citizens Bank of Rhode Island, Compass Bank and Guaranty Federal Bank. At June 30, 1999, the Company had 64 office buildings, containing 2,412,600 net rentable square feet, which were unencumbered. Loan maturities and normal amortization of mortgages and loans payable are expected to total approximately $3.7 million over the next 12 months. Significant maturities of the Company's remaining mortgages and loans payable do not begin to occur until 2001. The Company has filed shelf registration statements with respect to the possible issuance of up to $300 million of its common and/or preferred stock. The Company has issued $91.6 million of its common stock under such registration statements. The foregoing discussion contains forward-looking statements concerning 1999. The actual results of operations for 1999 could differ materially from those projected because of factors affecting the financial markets, reactions of the Company's existing and prospective investors, the ability of the Company to identify and execute development projects and acquisition opportunities, the ability of the Company to renew and enter into new leases on favorable terms, and other risk factors. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - - Cautionary Statement Relevant to Forward-Looking Information for Purpose of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995" in the Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. The Company currently has a $150 million secured revolving credit facility with variable interest rates. The Company may incur additional variable rate debt in the future to meet its financing needs. Increases in interest rates on such debt could increase the Company's interest expense, which would adversely affect the Company's cash flow and its ability to pay distributions to its shareholders. The Company has not entered into any interest rate hedge contracts in order to mitigate the interest rate risk with respect to the secured revolving credit facility. As of June 30, 1999, the Company had $120 million outstanding under the secured revolving credit facility. If the weighted average interest rate on this variable rate debt is 100 basis points higher or lower, annual interest expense would be increased or decreased by approximately $1.2 million. 13 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held its 1999 Annual Meeting of Shareholders on May 20, 1999. (b) Not Applicable. (c) At the Company's 1999 Annual Meeting of Shareholders in addition to the election of directors, the following matter was considered, voted upon and approved: To amend the Company's Articles of Incorporation to provide that actions of shareholders may only be accomplished at a shareholders meeting and not by written consent: SHARES VOTED FOR: 13,251,105 SHARES VOTED AGAINST: 7,686,625 SHARES ABSTAINED: 40,642 BROKER NON-VOTE: 2,968,847
14 15 ITEM 5. OTHER INFORMATION (a) The following table sets forth, with respect to each Koger Center or location at June 30, 1999, gross square feet, net rentable square feet, percentage leased, and the average annual rent per net rentable square foot leased.
AVERAGE ANNUAL NET RENT PER GROSS RENTABLE PERCENT SQUARE KOGER CENTER/ LOCATION SQUARE FEET SQUARE FEET LEASED(1) FOOT(2) - ---------------------- ----------- ----------- --------- -------- Atlanta Chamblee 1,114,700 912,100 99% $17.39 Atlanta Gwinnett(3) 171,200 139,400 90% 18.98 Atlanta Perimeter 184,000 151,600 100% 18.58 Austin 458,400 370,900 100% 20.26 Birmingham Colonnade 326,300 279,300 98% 15.91 Birmingham Colonnade-Retail 112,600 112,600 90% 11.69 Charlotte Carmel(3) 339,200 283,300 88% 18.50 Charlotte East 574,800 468,900 79% 14.72 Charlotte Vanguard 548,200 481,700 89% 11.69 El Paso 364,100 298,300 88% 15.87 Greensboro South 749,200 610,700 81% 15.97 Greensboro Wendover(3) 98,300 80,300 44% 18.82 Greenville Park Central 161,700 134,000 94% 17.70 Greenville Roper Mt. 431,000 350,900 96% 17.08 Jacksonville Baymeadows 793,400 664,200 98% 15.50 Jacksonville Central 828,200 666,000 85% 13.56 Jacksonville JTB 29,600 23,000 100% 22.65 Memphis Germantown(3) 478,900 392,700 94% 18.93 Orlando Central 699,700 554,400 96% 15.78 Orlando University 270,400 222,300 89% 19.47 Richmond Paragon 154,300 127,700 90% 19.59 San Antonio Airport 258,800 200,100 86% 18.47 San Antonio West(3) 1,102,200 906,800 84% 15.61 St. Petersburg 625,700 509,000 90% 15.52 Tallahassee 960,300 789,600 95% 18.21 Tulsa 581,100 476,400 87% 12.75 ---------- ---------- Total 12,416,300 10,206,200 ========== ========== Weighted Average - Total Company 90% $16.31 === ====== Weighted Average - Operational Buildings 91% $16.21 === ====== Weighted Average - Buildings in Lease-up 69% $19.48 === ======
(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 base rents (which excludes expense pass-throughs and reimbursements) for a Koger Center or location as of June 30, 1999 by (b) the net rentable square feet applicable to such total annualized rents. (3) Includes a building which is currently in the lease-up period. 15 16 (b) The following schedule sets forth for all of the Company's buildings (i) the number of leases which will expire during the remainder of calendar year 1999 and calendar years 2000 through 2007, (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 annualized rents represented by such leases, and (vi) the percentage of gross annualized rents contributed by such leases. This information is based on the buildings owned by the Company on June 30, 1999 and on the terms of leases in effect as of June 30, 1999, 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 68 percent of the Company's net rentable square feet which were scheduled to expire during the six month period ended June 30, 1999.
PERCENTAGE OF AVERAGE PERCENTAGE TOTAL SQUARE ANNUAL RENT TOTAL OF TOTAL NUMBER OF NUMBER OF FEET LEASED PER SQUARE ANNUALIZED ANNUAL RENTS LEASES SQUARE FEET REPRESENTED BY FOOT UNDER RENTS UNDER REPRESENTED BY PERIOD EXPIRING EXPIRING EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES - ------ --------- ----------- --------------- --------------- --------------- --------------- 1999 561 995,847 10.8% $ 15.52 $ 15,451,167 10.3% 2000 772 1,647,844 17.9% 16.22 26,729,949 17.8% 2001 546 1,887,085 20.5% 16.12 30,423,345 20.2% 2002 305 1,079,593 11.7% 16.45 17,763,117 11.8% 2003 228 1,424,359 15.4% 16.56 23,583,426 15.7% 2004 193 1,035,452 11.2% 15.09 15,628,311 10.4% 2005 21 130,036 1.4% 16.95 2,204,548 1.5% 2006 13 229,339 2.5% 19.61 4,496,446 3.0% 2007 9 275,213 3.0% 17.78 4,892,058 3.2% OTHER 22 515,679 5.6% 17.94 9,253,233 6.1% ----- --------- ----- ------------ ----- TOTAL 2,670 9,220,447 100.0% $ 16.31 $150,425,600 100.0% ===== ========= ===== ========= ============ =====
(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 Six Month Period Ended June 30, Ended June --------------------- ------------------------ 1999 1998 1999 1998 ------- ------- -------- -------- Net Income $ 8,124 $ 6,961 $ 16,874 $ 14,625 Depreciation - real estate 6,914 6,254 13,803 12,260 Amortization - deferred tenant costs 442 363 828 695 Amortization - goodwill 43 43 85 85 Minority interest 325 -- 676 -- Gain on sale or disposition of assets -- (3) (4) (3) ------- -------- -------- -------- Funds from Operations $15,848 $ 13,618 $ 32,262 $ 27,662 ======= ======== ======== ========
16 17 (d) If a shareholder intends to present a proposal for action at the 2000 Annual Meeting and wishes to have such proposal considered for inclusion in the Company's proxy materials in reliance on Rule 14a-8 under the Securities Exchange Act of 1934, the proposal must be submitted in writing and received by the Company by December 19, 1999. Such proposals must also meet the other requirements of the rules of the Securities and Exchange Commission relating to shareholders' proposals. The by-laws of the Company establish an advance notice procedure with regard to certain matters, including shareholder proposals and nominations of individuals for election to the Board of Directors in order for such matters to be presented at a shareholder's meeting, which is outside Rule 14a-8. In general, such notice of a shareholder proposal or a director nomination for a shareholders' meeting must be received by the Company not less than 70 days, nor more than 90 days before the date of the annual meeting and must contain specified information and conform to certain requirements, as set forth in the by-laws. If the presiding officer at any shareholders' meeting determines that a shareholder proposal or director nomination was not made in accordance with the by-laws, the Company may disregard such proposal or nomination. In order for a notice by a shareholder to the Company to be timely in regard to (i) a matter which a shareholder desires to be considered at the meeting or (ii) the nomination at the meeting of a person to the Company's Board of Directors by a shareholder, the notice must be received not later than March 10, 2000 nor prior to February 18, 2000. In addition, if a shareholder submits a proposal outside of Rule 14a-8 for the 2000 Annual Meeting, and the proposal fails to comply with the advance notice procedure prescribed by the by-laws, then the Company's proxy may confer discretionary authority on the persons who have been appointed as proxies on behalf of management to vote on the proposal. Proposals and nominations should be addressed to the Corporate Secretary of the Company, W. Lawrence Jenkins, Koger Equity, Inc., Post Office Box 58120, Jacksonville, Florida 32241-8120. 17 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(a)(1) Articles of Amendment and Restatement of the Articles of Incorporation of Koger Equity, Inc., dated May 20, 1999. 3(b) Koger Equity, Inc. By-Laws, as Amended and Restated on May 20, 1999. 10(a) Form of Koger Equity, Inc. Restricted Stock Award effective as of May 1, 1999. 10(b) Amended and Restated Supplemental Executive Retirement Plan, effective as of May 20, 1999. 10(c) Change of Control Agreement between Koger Equity, Inc. and Victor A. Hughes, Jr., effective as of May 20, 1999. 10(d) Change of Control Agreement between Koger Equity, Inc. and James C. Teagle, effective as of May 20, 1999. 10(e) Change of Control Agreement between Koger Equity, Inc. and David B. Hiley, effective as of May 20, 1999. 11 Earnings Per Share Computations. 15 Letter re: Unaudited interim financial information. 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K On February 16, 1999, the Company filed a Form 8-K (dated December 30, 1998) reporting under Item 5, Other Events, that the Company had increased its secured revolving credit facility to $150 million with First Union National Bank, AmSouth Bank, Guaranty Federal Bank F.S.B., Citizens Bank of Rhode Island and Compass Bank and providing under Item 7, Financial Statements and Exhibits, copies of the loan documents evidencing the $150 million secured revolving credit facility. 18 19 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 (DAVID B. HILEY) ------------------------------ DAVID B. HILEY EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Dated: August 11, 1999 (JAMES L. STEPHENS) ------------------------------ JAMES L. STEPHENS VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER 19 EX-3.(A)(1) 2 ARTICLES OF AMENDMENT AND RESTATEMENT 1 EXHIBIT 3(a)(1) ARTICLES OF AMENDMENT AND RESTATEMENT of the ARTICLES OF INCORPORATION of KOGER EQUITY, INC. 1. These Articles of Amendment amend and restate the Amended and Restated Articles of Incorporation of Koger Equity, Inc. 2. The Amended and Restated Articles of Incorporation of Koger Equity, Inc. are hereby amended to add a new Article XI to read as follows: ARTICLE XI - ACTION BY SHAREHOLDERS Actions shall be taken by the shareholders of the Company only at annual or special meetings of shareholders, and shareholders may not act by written consent. 3. This amendment was voted on by shareholders at their meeting on May 20, 1999, and the number of votes cast for the amendment by the shareholders was sufficient for approval of the amendment. 4. The new Amended and Restated Articles of Incorporation of Koger Equity, Inc. are attached hereto as Exhibit A and, by this reference, made a part hereof. IN WITNESS WHEREOF, the undersigned Chairman of the Board and the Secretary of this Corporation have executed these Articles of Amendment, this 20th day of May, 1999. KOGER EQUITY, INC. Attest: /s/ W. Lawrence Jenkins /s/ Victor A. Hughes, Jr. - -------------------------- -------------------------- W. Lawrence Jenkins Victor A. Hughes, Jr. Secretary Chairman of the Board and Chief Executive Officer 1 2 STATE OF FLORIDA COUNTY OF DUVAL BEFORE ME, a notary public authorized to take acknowledgements in the state and county set forth above, personally appeared VICTOR A. HUGHES, JR. and W. LAWRENCE JENKINS, known to me and known by me to be the persons who executed the foregoing Articles of Amendment, and they acknowledged before me that they executed these Articles of Amendment. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, in the state and county aforesaid, this 20th day of May, 1999. /s/ Harold F. McCart ------------------------------ Notary Public, State of Florida at Large My Commission Expires: February 27, 2002 2 3 EXHIBIT A AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KOGER EQUITY, INC. These Amended and Restated Articles of Incorporation of Koger Equity, Inc. amend and restate the Amended and Restated Articles of Incorporation as filed with the Secretary of State of the State of Florida on May 19, 1994. These Amended and Restated Articles of Incorporation were adopted by the Board of Directors on May 20, 1999, in accordance with Section 607.1007 of the Florida Business Corporation Act and include an amendment which was approved by the shareholders of Koger Equity, Inc. on May 20, 1999, in accordance with Section 607.1003 of the Florida Business Corporation Act. The substantive amendment to the Articles of Incorporation made in the Amended and Restated Articles of Incorporation is contained in Article XI hereof. ARTICLE I - NAME The name of the Company is KOGER EQUITY, INC. (the "Company"). ARTICLE II - DURATION The period of duration of the Company is perpetual. ARTICLE III - PURPOSE The purpose for which the Company is formed is to engage in any lawful act or activity for which corporations may be organized under the General Laws of the State of Florida as now or hereafter in force. ARTICLE IV - PRINCIPAL OFFICE AND MAILING ADDRESS The principal office and the mailing address of the Company in the State of Florida are 8880 Freedom Crossing Trail, Jacksonville, Florida 32256-8280. ARTICLE V - CAPITAL STOCK The total number of shares of stock that this corporation shall have authority to issue is 100,000,000 shares of Common Stock, each of which shall have a par value of $.01 per share (the "Common Stock") and 50,000,000 shares of Preferred Stock, each of which shall have a par value of $.01 per share (the 1 4 "Preferred Stock"). The board of directors is authorized to issue the Preferred Stock from time to time in one or more classes or series thereof, each such class or series to have such voting powers (if any), conversion rights (if any), designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be determined by the board of directors and stated and expressed in a resolution or resolutions thereof providing for the issue of such Preferred Stock. Subject to the powers, preferences and rights of any Preferred Stock, including any class or series thereof, having any preference or priority over, or rights superior to, the Common Stock and except as otherwise provided by law, the holders of the Common Stock shall have and possess all powers and voting and other rights pertaining to the stock of this corporation and each share of Common Stock shall be entitled to one vote. Except as otherwise provided in the Articles of Incorporation and subject to the rights of the holders of Preferred Stock, the following is a description of the voting rights, limitations as to dividends, preemptive rights, restrictions, and terms and conditions of redemption of the Common Stock of the Company: (A) Voting Rights At every annual or special meeting of stockholders of the Company, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in the stockholder's name on the books of the Company in the election of directors and upon all other matters submitted to a vote of the stockholders of the Company. (B) Dividends and Liquidation Rights. 1. Dividends. The holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Company which are legally available therefor, dividends payable either in cash, in property or in shares of Common Stock. 2. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation, or winding up of the affairs of the Company after payment or provision for payment of the debts and other liabilities of the Company, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Company. 2 5 (C) Preemptive Rights. No stockholder of the Company shall have any preemptive or other right to purchase or subscribe for any shares of the Common Stock of the Company which it may issue or sell, whether now or hereafter authorized, other than such right, if any, as the Board of Directors in its discretion from time to time may determine. (D) Restrictions on Transfer; Redemption. 1. The stockholders shall upon demand disclose to the Board of Directors in writing such information with respect to direct and indirect ownership of the Common Stock of the Company as the Board of Directors deems necessary to comply with the provisions of the Internal Revenue Code of 1986, as amended or as hereafter amended if such amendments are applicable to the Company (the "Code"), pertaining to the qualification of the Company as a real estate investment trust (a "REIT") or to comply with the requirements of any taxing authority or governmental entity or agency. 2. Whenever it is deemed by the Board of Directors to be reasonably necessary to protect the tax status of the Company as a REIT, the Board of Directors may require a statement or affidavit from any stockholder or proposed transferee of shares of Common Stock setting forth the number of shares of Common Stock already owned by the stockholder and any related Person (as hereinafter defined) specified in the form prescribed by the Board of Directors for that purpose. If, in the opinion of the Board of Directors, which opinion shall be conclusive on the proposed transferor and transferee, the proposed transfer may jeopardize the qualification of the Company as a REIT, the Board of Directors has the right, but not a duty, to refuse to transfer the shares of Common Stock to the proposed transferee. All contracts for the sale or other transfer of shares of Common Stock shall be subject to this provision. 3. Notwithstanding any other provision of these Articles of Incorporation to the contrary and subject to the provisions of Section 6 of Paragraph (D) of this Article V, no person shall at any time directly or indirectly acquire ownership in the aggregate of more than 9.8% of the outstanding shares of Common Stock of the Company (the "Limit"). Shares of Common Stock owned by a Person in excess of the Limit at any time shall be deemed excess shares ("Excess Shares"). For purposes of this Article V a person shall be deemed to own shares of Common Stock actually owned by such Person after applying the rules of Section 544 of the Code as modified in the case of a REIT by 3 6 Section 856(a)(6), Section 856(d)(3), and Section 856(h) of the Code. All shares of Common Stock which any Person has the right to acquire upon exercise of outstanding rights, options, and warrants, and upon conversion of any securities convertible into shares of Common Stock, if any, shall be considered outstanding for purposes of the Limit if such inclusion will cause such Person to own more than the Limit. 4. If at any time the Board of Directors shall in good faith determine that direct or indirect ownership of shares of Common Stock of the Company by any Person or Persons has or may become concentrated to the extent which would cause the Company to fail to qualify or to be disqualified as a REIT or that any Person has acquired Excess Shares (including shares of Common Stock that remain or become Excess Shares because of the decrease in the outstanding shares of Common Stock resulting from such redemption), the Board of Directors shall have the power to call for the purchase from any stockholder of the Company, by notice to such stockholder, of a number of shares of Common Stock sufficient in the opinion of the Board of Directors to maintain or to bring the direct or indirect ownership of shares of Common Stock into conformity with the provisions of the Code pertaining to the qualification of the Company as a REIT and/or to redeem all shares of Common Stock that are Excess Shares owned by such Person. From and after the date fixed for redemption by the Board of Directors, the holder of any shares of Common Stock so called for redemption shall cease to be entitled to distributions, voting rights, and other benefits with respect to such shares of Common Stock, excepting only the right to payment by the Company of the redemption price pursuant to this Article V as set forth in the following paragraph. The redemption price of each share of Common Stock called for redemption shall be: (a) the average daily per share composite closing sales price if the shares of the Company are listed on a national securities exchange, and if the shares are not so listed shall be the mean between the average per share closing bid prices and the average per share closing asked prices, in each case during the twenty (20) trading day period ending on the business day prior to the redemption date, or (b) if there have been no sales on a national securities exchange and no published bid quotations and no published asked quotations with respect to shares of the Company during such twenty (20) trading day period, the redemption price shall be the price determined in good faith by the Board of Directors. 4 7 In order to assure further that ownership of the shares of Common Stock of the Company does not become concentrated so as to cause the Company to fail to qualify or to be disqualified as a REIT, any transfer of shares that would prevent the Company from continuing to be qualified as a REIT under the Code, including any attempt to effect a transfer that was prohibited by the Board of Directors under Section 6 of Paragraph (D) of this Article V, shall be void ab initio and the intended transferee of such shares shall be deemed never to have had any legal or equitable interest therein. If the foregoing provision is determined to be void and invalid by virtue of any legal decision, statute, rule, or regulation, then the transferee of such shares of Common Stock shall be deemed, at the option of the Company, to have acted as agent on behalf of the Company in acquiring such shares of Common Stock and to hold such shares of Common Stock on behalf of the Company. A conspicuous legend noting the restrictions on transfer set forth in these Articles of Incorporation shall be placed on each certificate evidencing ownership of shares of Common Stock of the Company. 5. Notwithstanding any other provision of these Articles of Incorporation or the By-Laws to the contrary, any purported acquisition of shares of Common Stock of the Company which results in the disqualification of the Company as a REIT under the Code shall be null and void. All contracts for the sale or other transfer of shares of Common Stock shall be subject to this provision. 6. The Limit set forth in Section 3 of this Article V shall not apply to acquisitions of shares of Common Stock pursuant to a cash tender offer made for all outstanding shares of Common Stock of the Company (including securities convertible into shares of Common Stock) in conformity with applicable federal and state securities laws where two-thirds (2/3) of the outstanding shares of Common Stock (not including shares of Common Stock or securities convertible into shares of Common Stock held by the tender offerer and/or any "affiliates" or "associates" thereof within the meaning of the Securities Exchange Act of 1934, as amended) are duly tendered and accepted pursuant to the cash tender offer; nor shall the limit apply to the acquisition of shares of Common Stock by an underwriter in a public offering of shares of Common Stock, or in any transaction involving the issuance of shares of Common Stock by the Company in which the Board of Directors determines that the underwriter or other person or party initially acquiring such shares of Common Stock will make a timely distribution of such shares of Common Stock to or among other holders such that, following such distribution, none of such shares 5 8 of Common Stock will be Excess Shares. The Board of Directors in its discretion may exempt from the Limit ownership of certain designated shares of Common Stock while owned by a Person who has provided the Company with evidence and assurances acceptable to the Board of Directors that the qualification of the Company as a REIT would not be jeopardized thereby. 7. As used in this Article V the word "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint venturers, companies, trusts, banks, trust companies, land trusts, business trusts, estates, or other entities and governments and agencies and political subdivisions thereof and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. 8. Nothing contained in this Article V or in any other provision of these Articles of Incorporation shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Company and the interests of the stockholders by preserving the Company's qualification as a REIT under the Code. 9. If any provision of this Article V or any application of any such provision is determined to be invalid by any court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. To the extent this Article V may be inconsistent with any other provision of these Articles of Incorporation or the By-Laws, this Article V shall be controlling. ARTICLE VI - MANAGEMENT The following provisions shall apply to the management of the business and to the conduct of the affairs of the Company and its directors, officers, and stockholders: (A) Further Powers of the Board of Directors. 1. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to do the following: (a) To make, adopt, alter, amend, and repeal any of the By-Laws to the extent provided in the By-Laws; provided that the stockholders may make, adopt, alter, 6 9 amend, and repeal any of the By-Laws; (b) To cause the redemption by the Company of shares of the Company's Common Stock, and to restrict the transfer of shares of Common Stock in the manner provided for in these Articles of Incorporation and the By-Laws; (c) To authorize, subject as may be required by any applicable governmental statute, rule, or regulation, or as provided in the By-Laws for stockholder approval and other conditions, if any, the execution and performance by the Company of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general), or other organization whereby, subject to the supervision and control of the Board of Directors, any such other person, corporation, association, company, trust, partnership (limited or general), or other organization shall render or make available to the Company, managerial, investment advisory, and/or related services and facilities (including, if deemed advisable by the Board of Directors, the management or supervision of the investments of the Company) upon such terms and conditions as may be provided in such agreement or agreements (including, if deemed fair and reasonable by the Board of Directors, the compensation payable thereunder by the Company); (d) To authorize any agreement of the character described in Section 1(c) of this Paragraph (A) of this Article VI or other transaction with any person, corporation, association, company, trust, partnership (limited or general), or other organization, even though one or more of the members of the Board of Directors or officers of the Company may be the other party to any such agreement or an officer, director, stockholder, or member of such other party, and no such agreement or transaction shall be invalidated or rendered voidable solely by reason of the existence of any such relationship if (i) the existence is disclosed or known to: (x) the Board of Directors, and the Board of Directors authorizes, approves, or ratifies the agreement or transaction by the affirmative vote of a majority of the disinterested directors, even if the disinterested directors constitute less than a quorum; or (y) the stockholders of the Company entitled to vote, and the agreement or transaction is authorized, approved, or ratified by a majority of votes cast by such stockholders without regard to the votes of shares owned of record or beneficially by the interested director or such other party; or (ii) the contract is 7 10 fair and reasonable to the Company. Provided the disclosure, ratification, or fairness provisions of this subparagraph are satisfied, any member of the Board of Directors who is also a director or officer of such other party or who is so interested or associated with such other party may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such agreement or transaction, and may vote thereat to authorize any such agreement or transaction, as if the director were not such director or officer of such other party or not so interested or so associated; (e) To allot and authorize the issuance of the authorized but unissued shares of Common Stock of the Company for such consideration as the Board of Directors may deem advisable, subject to such limitations as may be set forth in these Articles of Incorporation or the By-Laws of the Company; and (f) To authorize the issuance and fix the terms, conditions, and provisions of options to purchase and subscribe for shares of Common Stock of the Company, including the option price or prices for which shares of Common Stock of the Company may be purchased or subscribed. 2. The determination as to any of the following matters made by or pursuant to the direction of the Board of Directors consistent with these Articles of Incorporation and in the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties, shall be final and conclusive and shall be binding upon the Company and every holder of the shares of its Common Stock: (a) the amount of net income of the Company for any period and the amount of assets at any time legally available for the payment of dividends; (b) the amount of paid-in surplus, other surplus, annual or other net profit, or net assets in excess of capital, undivided profits, or excess of profits over losses on sales of assets; (c) the amount, purpose, time of creation, increase or decrease, alteration, or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); (d) the fair values, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Company; and (e) any matter relating to the acquisition, holding, and disposition of any assets by the Company. 3. The enumeration and definition of particular powers of the Board of Directors included in this Article VI shall 8 11 in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of these Articles of Incorporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board of Directors under the Florida Business Corporation Act of the State of Florida as now or hereafter in force. ARTICLE VII - AMENDMENTS The Company reserves the right to make any amendments to its Articles of Incorporation which may be now or hereafter authorized by law, including any amendments changing the terms or contract rights of any of its outstanding stock by classification, reclassification, or otherwise, provided such amendment shall have been authorized by the affirmative vote of a majority of the aggregate number of shares entitled to vote thereon at a meeting of the stockholders of the Company or in writing by the stockholders of the Company with or without a meeting. All rights and powers conferred by these Articles of Incorporation on stockholders, directors, and officers are granted subject to this reservation. ARTICLE VIII - INDEMNIFICATION The Company shall indemnify each of its officers and directors to the fullest extent permitted by the Florida Business Corporation Act as now or hereafter in force, including the advance of expenses and reasonable counsel fees. ARTICLE IX - CONFLICT The officers and directors of the Company may without restriction make real estate investments for their own account or for the account of others, and the directors are not required to bring to the Company's attention investment opportunities meeting the Company's investment criteria. The directors of the Company are not prohibited from engaging in the same activities or lines of business as the Company. ARTICLE X - LIABILITY The liability of the directors and officers of the Company to the Company or its stockholders for money damages shall be limited to the maximum extent that the liability of directors and officers of corporations organized and existing under the laws of the State of Florida is permitted to be limited by Florida law, including the Florida Business Corporation Act, as now or hereafter in effect. Neither the amendment nor repeal of this Article, nor the adoption of any provision of the Articles of Incorporation or By-Laws inconsistent with this Article, shall 9 12 apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. ARTICLE XI - ACTION BY SHAREHOLDERS Actions shall be taken by the shareholders of the Company only at annual or special meetings of shareholders, and shareholders may not act by written consent. IN WITNESS WHEREOF, the undersigned Vice President and Corporate Secretary of Koger Equity, Inc. has executed these Amended and Restated Articles of Incorporation this 20th day of May, 1999. KOGER EQUITY, INC. By: /s/ W. Lawrence Jenkins --------------------------------- W. Lawrence Jenkins 10 EX-3.(B) 3 KOGER EQUITY,INC. BY-LAWS 1 EXHIBIT 3(b) KOGER EQUITY, INC. BY-LAWS AS AMENDED AND RESTATED ON MAY 20, 1999 ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the Company shall be in the State of Florida and shall be at such place as the Board of Directors of the Company (the "Board of Directors") may determine. SECTION 2. Principal Executive Office. The principal executive office of the Company shall be in the City of Jacksonville, State of Florida, or in such other place as the Board of Directors may from time to time determine. SECTION 3. Other Offices. The Company may also have offices at such other places, both within and outside of the State of Florida as the Board of Directors may from time to time determine. ARTICLE II STOCKHOLDERS SECTION 1. Place of Meetings. Meetings of the stockholders of the Company shall be held at such place, either within or outside of the State of Florida as shall be determined from time to time by the Board of Directors and stated in a notice of meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual Meeting. The annual meeting of the stockholders shall be held on such day in the month of May, or in such other month, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Except as the Articles of Incorporation of the Company (the "Articles of Incorporation") or the Florida Business Corporation 1 2 Act (the "Act") may provide otherwise, any business may be considered at an annual meeting. Failure to hold an annual meeting does not invalidate the Company's existence or affect any otherwise valid corporate acts. SECTION 3. Special Meeting. Except as the Articles of Incorporation or the Act may otherwise provide, Special Meetings of the stockholders, for any purpose or purposes, may be called by the Chairman of the Board of Directors, by the Vice Chairman of the Board of Directors, by the President or by a majority of the Board of Directors or upon the written request of stockholders holding in the aggregate at least ten percent (10%) in amount of the entire outstanding capital stock of the Company issued and outstanding and entitled to vote at such meeting. If a special meeting is called at the written request of stockholders, such request shall state with specificity the purpose or purposes of such meeting and the matters proposed to be acted on. Any business of the Company transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice thereof. SECTION 4. Notice of Meetings and Waiver of Notice. Not less than ten (10) days nor more than sixty (60) days before the date of any meeting of stockholders, written or printed notice of the meeting shall be given to each stockholder entitled to vote at the meeting and to each other stockholder not entitled to vote who is entitled by statute to receive notice of the meeting. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder's residence or usual place of business, or mailed to the stockholder at the stockholder's address as it appears on the records of the Company. If such notice is mailed with postage thereon prepaid, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder's post office address as it appears on the records of the Company. In the case of a special meeting of stockholders convened at the written request of the stockholders, as provided for in Section 3 of this Article II, the notice herein provided for shall be given in the manner herein provided, not less than ten (10) days nor more than sixty (60) days before the date of the meeting. Notwithstanding the foregoing provisions, each person who is entitled to notice of any meeting of stockholders waives notice if the stockholder attends such meeting in person or by proxy, or if the stockholder, before or after the meeting, submits a signed waiver of the notice which is filed with the records of stockholders' meetings. When a meeting of stockholders is adjourned to another time and place, unless the Board of Directors after the adjournment shall fix a new record date for an adjourned meeting, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment was taken. SECTION 5. Quorum and Voting. The holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall 2 3 constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by the Act or the Articles of Incorporation. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question, unless such question is one upon which by express provision of the Act or the Articles of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, by majority vote and without notice other than announcement at the meeting, except as required by Section 4 of this Article II, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. In the event that at any meeting a quorum exists for the transaction of some business but does not exist for the transaction of other business, the business as to which a quorum is present may be transacted by the holders of stock present in person or by proxy who are entitled to vote thereon. SECTION 6. General Right to Vote and Proxies. Each outstanding share of stock is entitled to one (1) vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may vote the stock the stockholder owns as shown on the record of stockholders of the Company as of the record date, determined pursuant to Section 7 of this Article II, either in person or by written proxy signed by the stockholder or by the stockholder's duly authorized attorney-in-fact, but no proxy shall be voted or acted upon after eleven (11) months from its date, unless the proxy provides for a longer period. SECTION 7. Fixing of Record Date and List of Stockholders. In order that the Company may determine the stockholders (a) entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or (b) entitled to receive payment of any dividend or other distribution or allotment of any rights, or (c) entitled to exercise any rights with respect to any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall not be less than ten (10) days nor more than seventy (70) days before the date then fixed for the holding of any meeting of the stockholders, nor more than seventy (70) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. At any meeting of stockholders, a full, true and complete list of all stockholders entitled to vote at such meeting, showing the number and class of shares held by each and certified by the transfer agent for such class or by the Secretary, shall be furnished by the Secretary. SECTION 8. Organization and Order of Business. At each meeting of the stockholders, the Chairman of the Board of Directors, or in the Chairman's absence or inability to act, the Vice Chairman of the Board or in the Chairman's or Vice Chairman's absence or inability to act, the 3 4 President, or in the absence or inability to act of the Chairman of the Board, Vice Chairman of the Board or the President, a Vice President designated by the Board of Directors shall act as Chairman of the meeting. The Secretary, or in the Secretary's absence or inability to act, any person appointed by the Chairman of the Board or the presiding Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. The order of business of all meetings of the stockholders shall be determined by the Chairman of the meeting, who shall have the authority in his discretion to regulate the conduct of such meeting, including, without limitation, to impose restrictions on the persons (other than stockholders of the corporation or their duly appointed proxies) who may attend such meeting, to regulate and restrict the making of statements or asking of questions at such meeting and to cause the removal from such meeting of any person who has disrupted or appears likely to disrupt the proceedings at such meeting. At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given as provided in these by-laws, (b) otherwise properly brought before the meeting by or at the direction of a majority of the Board of Directors then in office, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and the stockholder must be a stockholder of record at the time such notice is given. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than seventy (70) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that the date of the meeting is not publicly announced by the Corporation by mail, press release or otherwise more than seventy (70) days prior to the meeting, notice by the stockholder to be timely must be delivered to the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such announcement of the date of the meeting was made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as it appears on the corporation's books, of the stockholder proposing such business, (c) the number of shares of the corporation's common stock which are beneficially owned by the stockholder, and (d) any material financial interest of the stockholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 8, and if the Chairman of the meeting should so determine, he shall so declare to the meeting any such business not properly brought before the meeting shall not be transacted Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. SECTION 9. Conduct of Voting. At all meetings of stockholders, the proxies and ballots shall be received, and all questions concerning the qualifications of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting. 4 5 ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Company shall be managed under the direction of its Board of Directors. All powers of the Company may be exercised by or under authority of the Board of Directors, except as conferred on or reserved to the stockholders by the Act, the Articles of Incorporation or these By-Laws. SECTION 2. Number of Directors. The number of Directors which shall constitute the whole Board of Directors shall not be less than one (1), with the exact number of Directors as may be fixed from time to time by resolution of the Board of Directors. The initial Board of Directors shall consist of three (3) Directors until changed as herein provided, a majority of which Directors shall be persons who are not Affiliates (as defined in Section 4 of Article IX of these By-Laws) or employees of any independent contractor of the Company or an Affiliate (as defined in Section 4 of Article IX of these By-Laws) of such independent contractor. Directors need not be stockholders of the Company. SECTION 3. Nomination, Election and Tenure of Directors. Nominations for the election of Directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of Directors. Any stockholder entitled to vote for the election of Directors at a meeting may nominate persons for election as Directors by giving timely notice thereof in proper written form to the secretary accompanied by a petition signed by at least one hundred (100) record holders of the common stock of the corporation which shows the number of shares held by each person and which represent in the aggregate one percent (1%) of the outstanding shares entitled to vote in the election of Directors. To be timely, notice shall be delivered to or mailed and received at the principal executive offices not less than seventy (70) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to the stockholders, to be timely, notice by the stockholder must be received at the principal executive offices not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper written form, a stockholder's notice shall set forth in writing (i) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the corporation's books, of such stockholder and (y) the number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the secretary the information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. In the event that a stockholder seeks to nominate one or more 5 6 Directors, the secretary shall appoint one or more inspectors to determine whether a stockholder has complied with this Section 3. If the inspectors shall determine that a stockholder has not complied with this Section 3, the inspectors shall direct the Chairman of the meeting to declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the by-laws, and the Chairman shall so declare to the meeting and the defective nomination shall be disregarded. Except as provided in Section 5 of this Article III, the Directors shall be elected at the annual meeting of stockholders and shall hold office until the next annual meeting and until their successors are elected and qualified, unless sooner displaced. Directors are eligible for re-election, and a Director may resign at any time by giving written notice to the Company. SECTION 4. Removal of Director. The stockholders may remove any Director or Directors at any time, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast for the election of Directors and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of the removed Directors. A majority of the Directors may remove a Director for cause. SECTION 5. Vacancies on the Board of Directors. A majority of the remaining Directors, whether or not sufficient to constitute a quorum, or a sole remaining Director, may fill a vacancy on the Board of Directors which results from any cause except an increase in the number of Directors, and a majority of the entire Board of Directors may fill a vacancy which results from an increase in the number of Directors. A Director elected by the Board of Directors to fill a vacancy serves for the balance of the term of the replaced Director, unless sooner displaced. SECTION 6. Regular Meetings. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business. No notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. Any other regular meeting of the Board of Directors shall be held at such time and at any place within or outside of the State of Florida as may be determined by the Board of Directors, the Chairman of the Board, Vice Chairman of the Board or the President of the Company. SECTION 7. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President of the Company, or by a majority of the Board of Directors by vote at a meeting, or by a majority of the Board of Directors in writing without a meeting. A special meeting of the Board of Directors shall be held on such date and at any place within or outside of the State of Florida as may be designated from time to time by the Chairman of the Board, the Vice Chairman of the Board of Directors, the President of the Company or the Board of Directors. SECTION 8. Notice of Meeting. Except for regular meetings held after a meeting of the stockholders as provided in Section 6 of this Article III, the Secretary of the Company, or in the 6 7 Secretary's absence or inability to act, any officer of the Company appointed by the Chairman of the Board, the Vice Chairman of the Board of Directors or the President of the Company, shall give notice to each Director of each regular and special meeting of the Board of Directors. The notice shall state the date and place of the meeting. Notice is given to a Director when it is delivered personally to him, left at his residence or usual place of business, or sent by telegraph, cablegram, or telephonic communication, at least twenty-four (24) hours prior to the time of the meeting or, in the alternative, by first-class mail, postage prepaid, addressed to the Director at his post office or his address as it appears on the records of the Company, at least four (4) days before the day on which such meeting is to be held. If mailed with postage prepaid, such notice shall be deemed to be given when deposited in the United States mail addressed to the Director at his address as it appears in the records of the Secretary. The notice need not state the business to be transacted at or the purpose of the meeting. No notice of any meeting of the Board of Directors need be given to any Director who attends, or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 9. Action by Directors. The action of a majority of the Directors present at a meeting at which a quorum of the Board of Directors is present constitutes action of the Board of Directors, except as otherwise provided in the Act, the Articles of Incorporation, or these By-Laws in respect of any investment or action by the Company which involves a potential conflict of interest between the Company and any independent contractor retained by the Company or any Affiliate (as defined in Section 4 of Article IX of these By-Laws) of any such independent contractor. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business. In the absence of a quorum, the Directors present, by majority vote and without notice other than by announcement, may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 10. Organization. The Chairman of the Board of Directors of the Company shall preside at each meeting of the Board of Directors. In the absence or inability of the Chairman of the Board to preside at a meeting, the Vice Chairman of the Board of Directors of the Company shall preside at a meeting. In the absence or inability of either of the Chairman or Vice Chairman of the Board to preside at a meeting, the President of the Company shall preside at a meeting. In the absence or inability of the Chairman of the Board, Vice Chairman of the Board or the President to preside at a meeting, another Director chosen by a majority of the Directors present, shall act as Chairman of the meeting and preside thereat. The Secretary of the Company or, in the Secretary's absence or inability to act, any person appointed by the Chairman of the Board or the presiding Chairman shall act as Secretary of the meeting and keep the minutes thereof. SECTION 11. Meeting by a Conference Telephone. Members of the Board of Directors or of any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear 7 8 each other at the same time. Participation in a meeting by these means shall constitute presence in person at a meeting. SECTION 12. Consent in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent or consents are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 13. Compensation. Directors may receive compensation for services to the Company in their capacities as Directors in such manner and in such amounts as may be fixed from time to time by the Board of Directors, and expenses, if any, of attendance at each regular or special meeting of the Board of Directors, or any committee of the Board of Directors, or any meeting of stockholders. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. ARTICLE IV COMMITTEES OF DIRECTORS SECTION 1. Committees. The Board of Directors may, by resolution adopted by a majority of the full Board of Directors, appoint or designate one or more committees, each committee of the Board of Directors to consist of two (2) or more Directors, and may delegate to such committees any of the powers of the Board of Directors except such powers as are required to be performed by the Board of Directors under the Act, the Articles of Incorporation, or these By-Laws. SECTION 2. Minutes and Reports. Each committee of the Board of Directors shall keep minutes of its proceedings and shall report the same to the Board of Directors, and any action taken by the committees shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration. SECTION 3. Notice. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors, and a waiver thereof in writing, signed by the Director entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the committee meeting in person shall be deemed equivalent to the giving of such notice to such Director. SECTION 4. Quorum, Voting and General. One-third (1/3), but not less than two (2), of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of the majority present shall be the act of such committee. The Board of Directors or the Chairman of the Board of Directors may designate a chairman of any committee and such chairman or any two members of 8 9 any committee may fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. ARTICLE V OFFICERS SECTION 1. The officers of the Company shall consist of a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors at the first meeting of directors immediately following the annual meeting of shareholders of the Company, and shall serve until their successors are chosen and qualified. Such other officers and assistant officers and agents, as may be deemed necessary, may be elected or appointed by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors or the President from time to time. Any two (2) or more offices may be held by the same person. The failure to elect a Chairman of the Board of Directors, Vice Chairman of the Board of Directors, President, Secretary or Treasurer shall not affect the existence of the Company. SECTION 2. Duties. The officers of the Company shall have the following duties: The CHAIRMAN OF THE BOARD OF DIRECTORS shall have general supervisory authority over the management of the business and affairs of this corporation subject to the direction of the Board of Directors and shall preside at all meetings of Shareholders and the Board of Directors of this corporation. The VICE CHAIRMAN OF THE BOARD OF DIRECTORS shall have general supervisory authority over the management of the business and affairs of this corporation subject to the direction of the Chairman of the Board of Directors and the Board of Directors and in the absence of the Chairman of the Board of Directors shall preside at all meetings of the Shareholders and the Board of Directors. The PRESIDENT shall have general and active management of the business and affairs of the corporation subject to the directions of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors and the Board of Directors, and in the absence of the Chairman of the Board of Directors and the Vice Chairman of the Board of Directors, shall preside at all meetings of the shareholders and the Board of Directors. The SECRETARY shall have custody of, and maintain, all of the corporate records except the financial records; shall record the minutes of all meetings of the shareholders and Board of Directors, send all notices of meetings out, and perform such other duties as may be prescribed by the Board of Directors, Chairman of the Board of Directors, Vice Chairman of the Board of Directors or the President. 9 10 The TREASURER shall have custody of all corporate funds and financial records, shall keep full and accurate accounts of receipts and disbursements and render accounts thereof at the annual meetings of shareholders and whenever else required by the Board of Directors or the President, and shall perform such other duties as may be prescribed by the Board of Directors, Chairman of the Board of Directors, Vice Chairman of the Board of Directors or the President. The functions of the CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, and CHIEF ACCOUNTING OFFICER of the Company shall be performed by those officers designated as such by the Board of Directors of the Company. SECTION 3. Removal of Officers. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board whenever in its judgment the best interests of the Company will be served thereby. Any officer or agent elected by the shareholders may be removed only by vote of the shareholders, unless the shareholders shall have authorized the Directors to remove such officer or agent. Any officer or agent elected or appointed by any of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors or the President may be removed by the officer who appointed such officer or by the Board of Directors. Any vacancy, however occurring, in any office may be filled by the Board of Directors. Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; however, election or appointment of an officer or agent shall not of itself create contractual rights. ARTICLE VI INVESTMENT POLICIES SECTION 1. General. The Board of Directors shall determine the Company's investment policies and shall review those policies at least annually to determine that the policies are being followed by the Company and are in the best interests of its stockholders. It shall be the duty of the Board of Directors to insure that the purchase, sale, retention and disposal of Company assets, and the investment policies of the Company and the limitations thereon or amendment thereof are at all times in compliance with the restrictions applicable to real estate investment trusts pursuant to the Internal Revenue Code of 1986, as it may be amended from time to time (the "Internal Revenue Code"). 10 11 The Company will not, without the approval of a majority of the Board of Directors, acquire from or sell to a Director, an officer or employee of the Company, any person in which a Director owns more than a one percent (1%) interest, or any Affiliate (as defined in Section 4 of Article IX of these By-Laws) of any of the foregoing, any of the assets or other property of the Company, or make loans to any of the foregoing. SECTION 2. Limitations. Each of the following limitations shall apply only to the extent that each limitation must be satisfied in order for the Company to qualify as a real estate investment trust under the Internal Revenue Code, and to the extent that each limitation is required for such qualification, each limitation may not be changed without the approval of the holders of a majority of the outstanding shares: (1) the Company may not hold property primarily for sale to customers in the ordinary course of business; (2) the Company may not issue "redeemable securities" as defined in the Investment Company Act of 1940; (3) the Company may not invest in any real estate investment trust which holds investments or engages in activities which the Company would be prohibited from engaging in by these By-Laws; (4) the Company may not invest in commodities or commodity future contracts other than "financial futures" contracts intended to hedge the Company against losses from its temporary investments; (5) the Company may not invest more than one percent (1%) of its assets in real estate contracts of sale, unless such contracts are recordable in the chain of title; and (6) the Company may not engage in trading (as compared with investment activities) or engage in the underwriting or the agency distribution of securities issued by others. ARTICLE VII STOCK SECTION 1. Certificate for Stock. Every holder of stock in the Company shall be entitled to have a certificate or certificates which represents and certifies the number and kind and class of shares of stock owned by each such stockholder in the Company. Certificates for fractional shares shall not be issued. Each stock certificate shall include on its face the name of the Company, the name of the stockholder or other person to whom it is issued, the class of stock and the number of shares represented by the certificate. It shall be in such form, not inconsistent with the Act or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or a Vice President, and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. Where a certificate is countersigned: (i) by a transfer agent other than the Company or its employee; or (ii) by a registrar other than the Company or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar, who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may nevertheless be issued 11 12 by the Company with the same effect as if such officer, transfer agent or registrar had not ceased to be such as of the date of its issue. SECTION 2. Transfers. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined. SECTION 3. Stock Ledger. The Company shall maintain a stock ledger which contains the name and address of each stockholder of the Company and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form capable of producing copies for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of the transfer agent, within or outside the State of Florida, or, if none, at the principal executive office of the Company. SECTION 4. Lost, Destroyed or Mutilated Certificates. Subject to such rules, regulations and procedures as may be determined or set by the Board of Directors, the holder of any certificates representing shares of stock in the Company shall immediately notify the Company of any loss, destruction or mutilation of such certificate, and the Company may issue a new certificate of stock in the place of any certificate theretofore issued by the Company upon the making of an affidavit of that fact by the person claiming the certificate of stock to be stolen, lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such stolen, lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and to give the Company a bond, with sufficient surety, to indemnify it against any loss or claim which may arise by reason of the issuance of a new certificate. SECTION 5. Payment of Redeemed Shares. Any shares of stock in the Company, redeemed by the Company as Excess Shares pursuant to the provisions of Paragraph (d) of Article V - CAPITAL STOCK of the Articles of Incorporation, shall be paid for by the Company at the redemption price, as provided in Article V of the Articles of Incorporation, as soon as reasonably practicable after the receipt by the stockholder of the notice calling the Excess Shares for redemption by the Company. ARTICLE VIII FINANCE SECTION 1. Checks, Drafts, Etc. All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness issued in the name of the Company shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. 12 13 SECTION 2. Fiscal Year. The fiscal year of the Company shall be the calendar year. ARTICLE IX SUNDRY PROVISIONS SECTION 1. Books and Records. The Company shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors. SECTION 2. Distributions to Stockholders. Each distribution to stockholders of income or capital assets shall be accompanied by a written statement disclosing the source of the funds distributed. The amount and date of distributions to stockholders shall be determined in the sole discretion of the Board of Directors of the Company. SECTION 3. Transactions With Affiliates. Except as otherwise provided in the Articles of Incorporation or these By-Laws, the Company shall not enter into any transaction with any independent contractor retained by the Company or any Affiliate (as defined in Section 4 below) of such independent contractor, or with any officer or Director, or any Affiliate of any officer of Director unless: (i) such transaction is approved by a majority of the Directors, who are not Affiliates (as defined in Section 4 below) of such independent contractor or a party to the transaction or (ii) such transaction is approved by the stockholders of the Company; or (iii) such transaction is fair and reasonable to the Company and its stockholders; or (iv) the terms of such transaction are at least as favorable as the terms of any comparable transaction made on an arm's length basis and known to the Board of Directors; or (v) the appraised value of any property being acquired in such transaction is not less than the total consideration paid by the Company in such transaction. SECTION 4. Affiliates Defined. As used in these By-Laws, the term "Affiliate" of another person shall mean any person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other person; any person, five percent (5%) or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such person; any person directly or indirectly controlling, controlled by, or under common control with, such other person; and any officer, Director, or employee of such person. The term "person" includes a natural person, company, corporation, trust, partnership (limited or general) or any other organization. SECTION 5. Company Seal. There shall be a suitable seal, bearing the name of the Company, which shall be in the charge of the Secretary. It shall be in such form, not inconsistent with the Act or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 13 14 SECTION 6. Amendments. Any and all provisions of these By-Laws may be altered or repealed and new By-Laws may be adopted by the stockholders of the Company at any regular or special meeting in accordance with Section 5 of Article II of these By-Laws, or by the Board of Directors. 14 EX-10.(A) 4 RESTRICTED STOCK AWARD 1 EXHIBIT 10(a) Form of KOGER EQUITY, INC. RESTRICTED STOCK AWARD This is a restricted stock award (the "Award") granted by action of the Compensation Committee of the Board of Directors of Koger Equity, Inc. (the "Company") to __________________ (the "Executive and/or Director") under the Company's 1998 Equity and Cash Incentive Plan (the "Plan") on March 5, 1999, to be effective May 1, 1999, and the grant was ratified by the Board of Directors of the Company on May 20, 1999. Subject to the terms and conditions set forth below and the additional terms and conditions set forth in the Plan, the Executive and/or Director is granted _______ shares of Koger Equity, Inc. common stock (the "Shares"). Until a Share becomes vested, it will be nontransferable and forfeitable. Vesting will be determined as follows: (1) All the Shares will become vested as of December 31, 1999 (the "Determination Date"), if for the year ending on the Determination Date, the Company achieves a per common share increase in funds from operations of 10.6% or greater. (2) Fifty percent of the Shares will become vested as of the Determination Date if, for the year ending on the Determination Date, the Company achieves a per common share increase in funds from operation of at least 8% but less than 10.6%. (3) All the Shares will become vested immediately if a Change of Control (as defined in Exhibit A hereof) occurs on or before the Determination Date. All Shares that do not become vested on or before the Determination Date will be forfeited as of that Date, and the Executive and/or Director will have no further rights to or interest in such Shares. Prior to the Determination Date the certificates representing the Shares will be held by the Corporate Secretary during which time the Executive and/or Director will be entitled to vote, and receive dividends and any other distributions with respect to the Shares. Koger Equity, Inc. By: /s/ W. Lawrence Jenkins ----------------------------- W. Lawrence Jenkins Vice President Administration and Corporate Secretary 2 EXHIBIT A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner, directly or indirectly, of more than 25% of the Company's Common Stock; or (2) individuals who, on the Effective Date constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least 75% of such Board (a "Board Change"); provided, however, that an individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least 75% of the Continuing Directors will be treated for this purpose as a Continuing Director, but excluding from treatment as a Continuing Director any such individual whose initial assumption of office occurs as a result of (i) either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) any acquisition, merger, reorganization or consolidation or other transaction to which the Company is a party and which contemplates a Board Change; or (3) there is executed an agreement of acquisition, merger ,reorganization, consolidation or other transaction which contemplates either (i) that all or substantially all of the business and/or assets of the Company will be owned or controlled by a Person or Persons other than the Persons owning or controlling such business and assets on the Effective Date or (ii) that a Board Change will occur, provided, however, that if such agreement requires, as a condition precedent, approval by the Company's shareholders, a Change of Control will not be deemed to have occurred until such approval has been obtained. For purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, however, that the term Common Stock will not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of the Company expressly so determines in any future transaction. 3 A Person will be deemed to be the "owner" of any Common Stock of which the Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" will have the meaning used in Section 13(d) of the Exchange Act, except that "Person" will not include (i) the Executive, an Executive Related Party, or any group of which the Executive or an Executive Related Party is a member, (ii) the Company or a wholly owned subsidiary of the Company or (iii) an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" will mean any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" will have the meanings ascribed in Rule 12b-2 under the Exchange Act. The term "registrant" in the definition of "associate" means, in this case, the Company. 2 EX-10.(B) 5 AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN 1 EXHIBIT 10(b) AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR EXECUTIVES OF KOGER EQUITY, INC. AND PARTICIPATING RELATED ENTITIES ARTICLE 1. INTRODUCTION 1.1 Purpose of Plan. The purpose of the Plan is to facilitate the retirement of select key executive employees by supplementing their benefits under the Koger 401(k) Plan. 1.2 Status. The Plan is intended to be a plan that is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA), and shall be interpreted and administered accordingly. ARTICLE 2. DEFINITIONS Unless otherwise defined, any word, phrase or term used in this Plan has the meaning given to it in the Basic Plan. However, the following terms have the following meanings unless a different meaning is clearly required by the context: 2.1 "Base Pay" means a Participant's average monthly base salary during his final thirty-six calendar months as an Employee, multiplied by 12. 2.2 "Basic Plan" means the Koger 401(k) Plan, as amended and in effect from time to time. Reference to any provision of the Basic Plan includes reference to any comparable or successor provisions of the Basic Plan, as amended from time to time. 2.3 "Basic Plan Benefit" means the value of the Participant's account in the Basic Plan attributable to all Company Profit-Sharing Contributions. If, at the time of determination of a Participant's benefit under this Plan, there have been previous withdrawals or other distributions from such account, then, for purposes of determining the benefit offsets described in Sections 5.1(a)(ii), 5.2(a)(ii) and 5.3(a)(ii), such Participant's Basic Plan Benefit shall instead be equal to the greater of (i) the value of the account at the time of determination or (ii) the last known market value of the account prior to such withdrawals or other distributions. 2.4 "Board" means the Board of Directors of the Company. 1 2 2.5 "Cause" means conviction of a felony, gross neglect of duties, willful misconduct or willful failure of the Participant to perform duties pursuant to direction given by the Board. The Participant shall not be deemed to have been terminated for Cause until the later to occur of (i) the 30th day after notice of termination is given and (ii) the delivery to the Participant of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board at a meeting held for that purpose (after reasonable notice to the Participant), and at which the Participant together with his or her counsel was given an opportunity to be heard, finding that the Participant was guilty of conduct described above in this definition and specifying the particulars thereof in detail. 2.6 "Change of Control" is defined in Schedule A. 2.7 "Committee" means the Compensation Committee of the Board or such other person or persons designated to administer the Plan in accordance with Article 7. 2.8 "Company" means Koger Equity, Inc. 2.9 "Disability" has the meaning given it in the Company's long-term disability plan. A Participant's employment shall be deemed terminated for Disability when the Participant is entitled to receive long-term disability compensation under such plan. 2.10 "Effective Date" means June 28, 1995. 2.11 "Employee" means an individual employed by the Company or a Related Entity. 2.12 "Normal Retirement Date" means the first day of the month coincident with or next following the later of (i) the date the Participant attains age 65 and (ii) the date the Participant satisfies the vesting requirements of Section of 3.2. 2.13 "Participant".12 Participant means any executive Employee selected to participate in the Plan in accordance with Section 3.1. 2.14 "Plan".13 Plan means this Supplemental Executive Retirement Plan for Executives of Koger Equity, Inc. and Participating Related Entities as set forth herein and in all subsequent amendments hereto. 2.15 "Related Entity" means Koger Realty Services, Inc. or any subsidiary of the Company. "Participating Related Entity" means Koger Realty Services, Inc. and any other Related Entity designated by the Board to become a party to the Plan. 2.16 "Social Security Benefit" means the annual amount of Old Age Insurance Benefit payable to the Participant commencing at Normal Retirement Date, as calculated at the time of his or her retirement or as calculated at such earlier time as he or she ceases to be an Employee under the provisions of the Social Security Act then in effect and, in the case of a Participant whose benefits commence on or after June 21, 1996, determined without regard to any reduction of such Benefit on account of "excess earnings." In the case of a Participant who, for any reason, ceases to be an Employee prior to his or her Normal Retirement Date, the Social Security Benefit shall be determined by assuming that his or her compensation will continue until Normal Retirement Date at the then current base salary rate. 2.17 "Years of Service" means Years of Service as defined in the Basic Plan for purposes of vesting and includes for purposes of this Plan service with a Related Entity and service with Koger Properties, Inc., The Koger Company or their respective subsidiaries. 2 3 ARTICLE 3. PARTICIPATION AND VESTING 3.1 Selection of Participants. The Committee will select from time to time those executive Employees who will be Participants in the Plan. The executives set forth in the attached Schedules B, C and E have or will become Participants on the Effective Date or on such subsequent dates as may be set forth opposite their names on such Schedules. If and when additional Participants are named by the Committee, they will be added to the appropriate Schedule and will become Participants at that time. 3.2 Vesting. (a) Except as provided in paragraph (b) and in Section 6, a Participant will be vested under this Plan only if he or she satisfies the following requirements: (i) If the Participant becomes a Participant prior to attaining age 60, he or she must remain an Employee for at least five full years from the date he or she became a Participant. (ii) If the Participant becomes a Participant after attaining age 60 but before age 63, he or she must remain an Employee until age 65. (iii) If the Participant becomes a Participant after attaining age 63, he or she must remain an Employee for at least two years from the date he or she became a Participant. A Participant who does not satisfy the requirements of this Section 3.2 will forfeit all rights under the Plan, except as otherwise provided in the case of a "Qualified Termination." Notwithstanding any other provision of the Plan to the contrary, under no circumstance shall a Participant at any time be more than 100% vested in his or her benefits under the Plan. (b) A Participant who ceases to be an Employee because of death or Disability before satisfying the requirements of paragraph (a) shall become vested immediately and entitled to receive benefits subject to the other provisions of the Plan. ARTICLE 4. SOURCE OF BENEFIT PAYMENTS 4.1 Obligations of Company and Participating Related Entities. The Company and Participating Related Entities will establish on their books liabilities for obligations to pay benefits under the Plan. With respect to all benefits payable under the Plan, each Participant (or other person entitled to receive benefits with respect to a Participant) will be an unsecured general creditor of the Company and of any Participating Related Entity by which the Participant has been employed. Payments with respect to a Participant who has been an employee of a Participating Related Entity will be allocated between the Company and such Participating Related Entity in accordance with Section 4.2. However, all the initial Participants who are employed by the initial Participating Related Entity, Koger Realty Services, Inc., have also provided substantial past services as employees of the Company, and the Plan has been established in recognition of such past services as well as future services. Therefore, all obligations under the Plan to such initial Participants are joint and several liabilities of the Company and Koger Realty Services, Inc. 3 4 4.2 Allocation of Payments. Payments under the Plan with respect to a Participant who has been an employee of a Participating Related Entity will be allocated as follows: Each Participating Related Entity will pay that percentage share of the total payments to the Participant under the Plan that is equal to the total base salary payments made by the Participating Related Entity to the Participant during his or her final thirty-six months as an Employee divided by the combined total base salary payments made to the Participant by the Company and all Participating Related Entities during such thirty-six months; the remainder of the payments will be made by the Company. 4.3 No Funding Required.3 No Funding Required. Nothing in the Plan will be construed to obligate the Company or a Related Entity to fund the Plan. However, the Company may establish a trust of which it is treated as the owner under Subpart E of Subchapter J, Chapter 1 of the Internal Revenue Code of 1986, as amended (a "rabbi trust"). In the event of a Change of Control, or in the event that an ad hoc committee of three non-employee and independent members of the Board determines that a Change of Control is imminent, the Company shall establish such a rabbi trust, the trustee or trustees of which shall be chosen by the Schedule B and Schedule E Participants. The Company and, as appropriate, Participating Related Entities shall at that time deposit with the trustee of the trust either cash or a letter of credit sufficient to satisfy the accrued benefits provided under the Plan, as determined by an actuary who is a Member of the American Academy of Actuaries and is an Enrolled Actuary under ERISA. 4.4 No Claim to Specific Assets. Nothing in the Plan will be construed to give any individual rights to any specific assets of the Company, or any other person or entity. ARTICLE 5. RETIREMENT BENEFITS 5.1 Schedule B Participants. (a) Subject to Section 5.4, the annual benefit payable under the Plan to a Participant listed on Schedule B (a "Schedule B Participant") will be (i) minus (ii) minus (iii), where (i) is 50% of the Participant's Base Pay; (ii) is the annual benefit payable commencing at Normal Retirement Date in the form of a 50% joint and survivor annuity (with the Participant's spouse as contingent annuitant) that is the actuarial equivalent of the Participant's Basic Plan Benefit (using the actuarial assumptions set forth in Schedule D as that Schedule may from time to time be amended by the Board or the Committee) (If the Participant has no currently living spouse at the time the actuarial equivalent of the Participant's Basic Plan Benefit is determined, the Participant shall be assumed to have a spouse five years younger than the Participant.); and (iii) is 50% of the Participant's Social Security Benefit. (b) Subject to Section 5.4, the Schedule B Participant's annual benefit will commence at his or her Normal Retirement Date (or such later date on which the Participant actually retires) and continue for his or her lifetime. If the Participant dies leaving a surviving spouse, an annual benefit equal to 50% of the Participant's annual benefit will thereafter be paid to the surviving spouse for the lifetime of the surviving spouse. 4 5 (c) A Schedule B Participant and his or her spouse will be entitled for the remainder of their respective lives to receive medical insurance coverage equivalent to that provided to the then current senior executive officers of the Company as such coverage may be changed from time to time, with any contribution required of the recipient to be no greater than that contribution required for coverage from the then current senior executive officers. If at any time the Company ceases to provide its senior executive officers with medical insurance coverage or if the Company is unable to continue to include the Schedule B Participants on its medical insurance coverage, the Company shall provide to each Schedule B Participant the same or substantially equivalent medical insurance, or if less expensive to the Company than the cost of providing such coverage, pay to the Participant $10,000 per year for the remainder of the Participant's and his or her spouse's lives, such amount to be reduced to $5,000 upon the death of either the Schedule B Participant or his or her spouse. 5.2 Schedule C Participants. (a) Subject to paragraph (c) and Section 5.4, the annual benefit payable under the Plan to a Participant listed on Schedule C (a "Schedule C Participant") will be (i) minus (ii) minus (iii), where (i) is 50% of the Participant's Base Pay; (ii) is the annual benefit payable commencing at Normal Retirement Date in the form of a 15-year term certain that is the actuarial equivalent of the Participant's Basic Plan Benefit (using the actuarial assumptions set forth in Schedule D as that Schedule may from time to time be amended by the Board or the Committee); and (iii) is 50% of the Participant's Social Security Benefit. (b) Subject to Section 5.4, the Schedule C Participant's annual benefit will commence at his or her Normal Retirement Date (or such later date on which the Participant actually retires) and continue for 15 years. If the Participant dies before all payments have been made, the remaining payments will be made to the Participant's Beneficiary. (c) The annual benefit payable to a Schedule C Participant (or his or her Beneficiary) if the Participant has less than 20 Years of Service upon the commencement of benefits shall be the annual benefit calculated in accordance with paragraph (a) multiplied by a fraction the numerator of which is his or her Years of Service and the denominator of which is 20. 5.3 Schedule E Participants. (a) Subject to paragraph (d) and Section 5.4, the annual benefit payable under the Plan to a Participant listed on Schedule E (a "Schedule E Participant") will be (i) minus (ii) minus (iii) where (i) is 35% of the Participant's Base Pay; (ii) is the annual benefit payable commencing at Normal Retirement Date in the form of a 50% joint and survivor annuity (with the Participant's spouse as contingent annuitant) that is the actuarial equivalent of the Participant's Basic Plan Benefit (using the actuarial assumptions set forth in Schedule D as that Schedule may from time to time be amended by the Board or the Committee). (If the Participant has 5 6 no currently living spouse at the time the actuarial equivalent of the Participant's Basic Plan Benefit is determined, the Participant shall be assumed to have a spouse five years younger than the Participant.); and (iii) is 50% of the Participant's annual Social Security Benefit. (b) Subject to Section 5.4, the Schedule E Participant's annual benefit will commence at his or her Normal Retirement Date (or such later date on which the Participant actually retires) and continue for his or her lifetime. If the Participant dies leaving a surviving spouse, an annual benefit equal to 50% of the Participant's annual benefit will be paid to his or her surviving spouse for the lifetime of the surviving spouse. (c) A Schedule E Participant and his or her surviving spouse will be entitled to medical insurance coverage to the same extent as a Schedule B Participant under the terms of Section 5.1(c). (d) The annual benefit payable to a Schedule E Participant (or his or her surviving spouse) who has fewer that five Years of Service shall be the annual benefit calculated in accordance with paragraph (a) multiplied by a fraction the numerator of which is his or her Years of Service and the denominator of which is five. 5.4 Company Approved Early Retirement, Disability Retirement, or Pre-Retirement Death. A vested Participant who ceases to be an Employee before Normal Retirement Date because of retirement with the consent of the Company or because of Disability or because of Pre-Retirement Death may thereafter elect (or his or her spouse or Beneficiary, as applicable, may elect) to have his or her annual benefit under the Plan commence any time after the Participant attains (or would have attained) age 62 (but not later than the Participant's Normal Retirement Date). If an election is made under this Section 5.4 (whether by the Participant, a surviving spouse or a Beneficiary) to have an annual benefit commence prior to the Participant's Normal Retirement Date, such benefit will be reduced actuarially in accordance with Schedule D, as that Schedule may from time to time be amended by the Board or the Committee. In the case of a Schedule C Participant or the Beneficiary of a Schedule C Participant, this reduction is in addition to any reduction required by Section 5.2(c). In the case of a Schedule B or E Participant dying before commencement of benefits, the Participant's surviving spouse will receive the annual spousal benefit described in Section 5.1(b) or 5.3(b), as applicable. Such surviving spouse may elect to have the benefit commence at any time thereafter, but not earlier than the date the Participant would have attained age 62 and not later than the Participant's Normal Retirement Date. In the case of a Schedule C Participant dying before commencement of benefits, the Participant's Beneficiary may elect to have the benefit described in Section 5.2(b) commence at any time thereafter, but not earlier than the date the Participant would have attained age 62 and not later than the Participant's Normal Retirement Date. 5.5 Other Termination of Employment Prior to Retirement. In general, the annual benefit payable with respect to a vested Participant who ceases to be an Employee for any reason other than retirement with consent of the Company, Disability retirement, or Pre-Retirement Death will commence on the Participant's Normal Retirement Date. However, the Committee may, in its sole discretion, cause the present value of such benefit to be paid to the Participant in 6 7 a single lump sum payment at the time of termination of employment. For this purpose, the actuarial assumptions in Schedule D shall be applied. ARTICLE 6. SEVERANCE BENEFITS 6.1 Schedule B Participants. In the event of a "Qualified Termination," a Schedule B Participant shall, notwithstanding any other provision of the Plan, immediately become fully vested in his or her retirement benefits as described in Section 5.1, and payment of such benefits shall commence immediately without reduction under Section 5.4. 6.2 Schedule C Participants. In the event of a "Qualified Termination," a Schedule C Participant shall, notwithstanding any other provision of the Plan, choose either to (a) continue to receive his or her base salary, as in effect on the date of the Change of Control, for a period of 18 months, or at the Participant's option, his or her vested benefits under this Plan, subject to the provisions of the Plan, including the vesting requirements of Article 3 and the reduction requirements of Sections 5.2 (c) and 5.4; or (b) (i) immediately become fully vested in his or her retirement benefits as described in Section 5.2, (ii) receive one year of annual base salary, in a lump sum payment, and (iii) continue to be provided all medical and other insurance benefits which are incident to employment with the Company for one year following termination. 6.3 Schedule E Participants. In the event of either (a) a "Qualified Termination" of a Schedule E Participant, or (b) the termination of a Schedule E Participant's employment following the expiration of the original term of the Participant's employment agreement with the Company and as a result of a decision by the Company not to extend such employment agreement, (i) the Participant will, notwithstanding any other provision of the Plan, immediately become fully vested in his or her retirement benefits under Section 5.3, and (ii) such benefits will be calculated without any reduction for fewer than five Years of Service that might otherwise be required under Section 5.3(d). 6.4 "Qualified Termination." Qualified Termination means termination of the Participant's status as an Employee within a period of 24 months following a Change of Control (a) by the Company other than for Cause,or (b) by the Participant for any of the following reasons: (i) assignment to the Participant of any duties inconsistent with his or her positions, duties, responsibilities, reporting requirements, or status with the Company or a Related Entity immediately prior to the Change of Control; a substantive diminution in the Participant's titles or offices as in effect immediately prior to the Change of Control; or any removal of the Participant from or any failure to reelect him or her to such positions; or (ii) reduction in the Participant's total cash compensation opportunities, including base salary, cash incentive compensation opportunities and contributions to retirement plans, for any fiscal year to less than 100 percent of the total amounts paid to or on behalf of the Participant in the completed fiscal year of the Company last ended prior to the Change of Control, except for any such reduction of compensation or 7 8 benefits that is made as part of a reduction of compensation or benefits implemented by the Board for all salaried employees; and provided that a reduction in actual cash incentive compensation paid to a Participant shall not by itself constitute a Qualified Termination; or (iii) material reduction in the health, disability or life insurance benefits that the Company or a Related Company is providing to the Participant at the time of the Change of Control, except for any such reduction of benefits that is made as part of a reduction of benefits implemented by the Board for all salaried employees; or (iv) relocation of the Participant's principal business office more than 75 miles from the place where he or she was located immediately prior to the Change of Control. ARTICLE 7. GROSSUPS 7.1 Parachute Tax. In the event that it is determined that any payment or benefit provided by the Company to or for the benefit of a Participant, under this Plan, under any other plan, award, arrangement or 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 the Participant. 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 the Participant 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 7.1 will be made by the Company's independent auditors unless the Participant has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by the Participant 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 the Participant 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 the Participant 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 the Participant 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 the Participant to the Company. The Company will bear all expenses of the controversy and will gross the Participant up for any additional taxes that may be imposed upon the Participant as a result of its payment of such expenses. 7.2 FICA. The Company will pay to or for the benefit of the Participant a "gross- 8 9 up payment" that is 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 the Participant whole for the FICA obligation due with respect to the SERP benefits. In determining this payment, the actuarial present value of the SERP benefit for each Participant will be determined based in the actuarial assumption in Schedule D and will be treated as though it were the first amount of compensation subject to the FICA taxes in that year, even though the benefit may actually not have begun to be paid until later that year. ARTICLE 8. ADMINISTRATION 8.1 In General. The Plan will be administered by the Committee. The Committee will have full discretionary authority to interpret the provisions of the Plan and decide all questions and settle all disputes that may arise in connection with the Plan. The Committee may establish its own operative and administrative rules and procedures in connection with the Plan, provided such procedures are consistent with the requirements of Section 503 of ERISA and the regulations thereunder. All interpretations, decisions and determinations made by the Committee will be binding on all persons concerned. The Committee in its sole discretion may delegate certain of its duties and responsibilities to an appropriate Employee or Employees. For purposes of the Plan, any action taken by the delegate Employee pursuant to such delegation will be considered to have been taken by the Committee. The Company agrees to indemnify and to defend to the fullest possible extent permitted by law any member of the Committee and any delegate of the Committee (including any person who formerly served as a member of the Committee or delegate) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. 8.2 Claims Procedure. Any person claiming a benefit under the Plan (a "Claimant") shall present the claim, in writing, to the Committee. Within 90 days after receiving the claim, the Committee shall give a written response. If the claim is denied, the response shall state (a) reasons for the denial, with references to the Plan provisions on which the denial is based; (b) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or information is necessary; and (c) an explanation of the claims review procedure. Any claim not granted or denied within the 90-day period shall be deemed to have been denied. Any Claimant whose claim is denied may, within sixty (60) days after receipt of notice of the denial, or after the date of the deemed denial, request a review by written notice to the Committee which shall review the claim and may, but is not required to, grant the Claimant a hearing. In the review process, the Claimant may have representation, examine pertinent documents, and submit issues and comments in writing. The Committee shall give the Claimant a written decision within sixty (60) days after receipt of the request for review, stating the reasons for the decision and giving references to the Plan provisions on which decision is based. If the decision on review is not communicated to the Claimant within the sixty (60) day period, the claim shall be deemed to have been denied upon review. 9 10 ARTICLE 9. AMENDMENT OR TERMINATION OF PLAN The Company hopes and expects to continue the Plan in effect, but the Board necessarily reserves the right to amend the Plan at any time, and from time to time, or to terminate the Plan, provided that such amendment or termination shall not materially adversely affect any accrued right or benefit of a Participant. Any amendment or termination shall be stated in an instrument in writing and signed by a duly authorized representative of the Board. ARTICLE 10. MISCELLANEOUS 10.1 No Assignment or Alienation. None of the benefits, payments, proceeds or claims of any person under this Plan shall be subject to any claim of any creditor of the person or to attachment or garnishment or other legal process by any such creditor; nor shall any person have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits, payments or proceeds which he or she may expect to receive, contingently or otherwise, under the Plan. 10.2 Limitation of Rights. Neither the establishment of the Plan, nor any amendment thereof, nor the payment of any benefits will be construed as giving any individual any legal or equitable right against the Company, a Related Entity, or the Committee except for those rights explicitly provided for in the Plan. 10.3 Payment for the Benefit of an Incapacitated Individual. If the payments due to a Participant under the Basic Plan must be paid to another individual because of a Participant's incapacity, benefits that would otherwise be payable to the Participant under the Plan will be paid to the Participant's legal representative. 10.4 Governing Law. The Plan will be construed, administered, and governed under the laws of the State of Florida,to the extent not preempted by federal law. 10.5 Severability. If any provision of this Plan is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. IN WITNESS WHEREOF, the Company and Participating Related Entities have caused this Amended and Restated Plan to be executed by their duly authorized officers this 20th day of May, 1999. KOGER EQUITY, INC. By: Victor A. Hughes, Jr. ---------------------- KOGER REALTY SERVICES, INC. By: Victor A. Hughes, Jr. ---------------------- 10 11 SCHEDULE A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner, directly or indirectly, of more than 25% of the Company's Common Stock; or (2)individuals who, on the Effective Date, constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least 75% of such Board (a "Board Change"); provided, however, that an individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least 75% of the Continuing Directors will be treated for this purpose as a Continuing Director, but excluding from treatment as a Continuing Director any such individual whose initial assumption of office occurs as a result of (i) either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) any acquisition, merger, reorganization, consolidation or other transaction to which the Company is a party and which contemplates a Board Change; or (3)there is executed an agreement of acquisition, merger, reorganization, consolidation or other transaction which contemplates either (i) that all or substantially all of the business and/or assets of the Company will be owned or controlled by a Person or Persons other than the Persons owning or controlling such business and assets on the Effective Date or (ii) that a Board Change will occur, provided, however, that if such agreement requires, as a condition precedent, approval by the Company's shareholders, a Change of Control will not be deemed to have occurred until such approval has been obtained. For purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, however, that the term Common Stock will not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of the Company expressly so determines in any future transaction. 11 12 A Person will be deemed to be the "owner" of any Common Stock of which the Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" will have the meaning used in Section 13(d) of the Exchange Act, except that "Person" will not include (i) the Participant, a Participant Related Party, or any group of which the Participant or Participant Related Party is a member, (ii) the Company or a wholly owned subsidiary of the Company or (iii) an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. A "Participant Related Party" will mean any affiliate or associate of the Participant in question other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" will have the meanings ascribed in Rule 12b-2 under the Exchange Act; the term "registrant" in the definition of "associate" means, in this case, the Company. 12 13 SCHEDULE B Participants Participant's Effective Date ------------ ---------------------------- Irvin H. Davis 6/28/95 Victor A. Hughes, Jr. 6/28/95 James C. Teagle 6/28/95 as a Schedule C Participant, moved to Schedule B effective 6/21/96 1 14 SCHEDULE C Participants Participant's Effective Date ------------ ---------------------------- Michael F. Beale 6/28/95 Robert N. Bridger 6/28/95 Philip J. Bruce 6/28/95 Bradford A. Chaffin 6/28/95 Wade L. Hampton 6/28/95 Bryan F. Howell 6/28/95 W. Lawrence Jenkins 6/28/95 J. Velma Keen 6/28/95 Luther W. Kiger 6/28/95 Kenneth D. Lund 6/21/96 Thomas C. McGeachy 2/18/99 James L. Stephens 6/28/95 James W. Walker 6/28/95 1 15 SCHEDULE D Actuarial Assumptions: Mortality: Pre-retirement - none Post-retirement - GA83 50/50 Blend Interest: 7.50% Early Retirement Reduction Factors:
Schedule B & E Schedule C Age at Retirement Reduction Factors Reduction Factors - ----------------- ----------------------------------------------- 62 0.7361 0.8050 63 0.8136 0.8653 64 0.9010 0.9302 65 1.0000 1.0000
1 16 SCHEDULE E Participant Participant's Effective Date - ----------- ---------------------------- David B. Hiley 4/1/98 1 EX-10.(C) 6 CONTROL AGREEMENT BETWEEN KOGER AND VICTOR A. HUGH 1 EXHIBIT 10(c) CHANGE OF CONTROL AGREEMENT This is an agreement (the "Agreement") between Koger Equity, Inc. (the "Company"), a Florida corporation with its principal place of business at 8880 Freedom Crossing Trail, Jacksonville, Florida 32256, and Victor A. Hughes, Jr. of 4265 Yacht Club Road, Jacksonville, Florida 32210 (the "Executive"), effective as of May 20, 1999, (the "Effective Date"). The Company wishes to ensure the continued dedication of management to Company duties in the event of an actual or threatened change of control of the Company. The Executive has an important position in the management of the Company and wishes to continue in that position or such other position as may be assigned by the Company. The parties therefore agree as follows: 1. If the Executive's employment with the Company terminates other than by death or disability within 24 months following a "Change of Control" (as defined in Exhibit A), the Executive may become entitled to benefits as described below. 2. The Agreement will terminate immediately, and the Company will have no further obligation to the Executive under the Agreement, if: (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment without Good Reason, (iii) the Executive's employment terminates as a result of his death or Disability, or (iv) the Executive's employment terminates at any time other than during the 24 months following a Change of Control. "Cause" means only (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. The Company may treat a termination of the Executive's employment as termination for Cause only after (A) giving the Executive written notice of the intention to terminate for Cause and of his right to a hearing and (B) conducting a hearing at least 10 days after such notice at which the Executive may be represented by counsel. Termination by the Executive for "Good Reason" means termination within 60 days following (i) a diminution in, or assignment of duties inconsistent with, the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities in effect immediately before the Change of Control, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice of the matter by the Executive, (ii) a failure to pay the Executive an annual base salary at least equal to the annual base salary in effect immediately before the Change of Control, (iii) a failure to pay the Executive annual bonuses 1 2 at least equal to the average of the annual bonuses paid to him with respect to the three full years (or for such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the Change of Control, except to the extent that such failure results from a general reduction in bonus payments that is consistent with the Company's then current bonus policy applicable to its senior executives, (iv) exclusion of the Executive from stock option programs or other incentive compensation programs in which other Company executives holding materially equivalent positions are permitted to participate, (v) exclusion of the Executive from life, health or accident insurance plans or other material welfare benefit plans in which other senior executives of the Company are permitted to participate, (vi) failure to provide the Executive with an office and secretarial support materially equivalent to that provided immediately prior to the Change of Control, (vii) relocation of the Executive's principal place of work without his consent to a location more than 75 miles from its location immediately prior to the Change of Control, or (viii) failure by the Company to comply with the provisions of Section 8 of this Agreement. "Disability" means eligibility by the Executive for benefits under the Company's long term disability insurance arrangement. 3. If, within 24 months following a Change of Control, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, the Company will provide benefits as follows: (a) Within 30 days following the termination of employment, the Company will pay to the Executive a lump-sum cash amount equal to 300% of the sum of (i) the Executive's annual base salary in effect at the time of the termination of employment (or if the Executive's annual base salary has been reduced within 61 days prior to the termination, the base salary in effect immediately prior to the reduction), plus (ii) the average of the annual bonuses earned by the Executive with respect to the three full years (or such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the termination of employment, or if the Executive has been eligible for less than a full year, an amount equal to 50% of his base salary in effect at the time of termination. (b) The Company will continue for a period of 36 months following the date of termination to provide the Executive with any medical, dental, disability and life insurance and automobile allowance benefits in effect at the time of his termination (or, if his level of benefits has been reduced within 61 days of the termination, his level of benefits in effect prior to the reduction). If the Executive so elects, the Company will instead pay to the Executive, within 30 days of termination, a lump sum cash payment equal to the greater of the Company's cost of such benefits or the Executive's individual replacement cost for such benefits. (c) The Executive will become fully vested in his benefits under the Company's Supplemental Executive Retirement Plan (the "SERP"), and his benefits under the SERP will 2 3 commence immediately and without reduction either for early commencement or for failure to complete any otherwise-applicable service requirement. (d) Any restricted stock held by the Executive under the Company's stock compensation plans or arrangements will become fully vested. 4. In the event of a Change of Control, regardless of whether or not the Executive remains in the employ of the Company, any options to purchase Company stock held by the Executive under the Company's stock compensation plans and arrangements will become immediately exercisable notwithstanding any contrary provisions in the documents otherwise governing the options and remain exercisable for the period of time during which such options would otherwise have been exercisable had the Executive remained in the employ of the Company. 5. In the event that it is determined that any payment or benefit provided by the Company to or for the benefit of the 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 the 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 the 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 will be made by the Company's independent auditors unless the Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by the 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 the 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 the 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 the 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 the Executive to the Company. The Company will bear all expenses of the controversy and will gross the Executive up for any additional taxes that may be imposed upon the Executive as a result of its payment of such expenses. 3 4 6. All payments made by the Company under this Agreement will be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 7. The Company will indemnify the Executive for all 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 (including any action to enforce this right of indemnity) in which action the Executive prevails. 8. Except as provided in this Section 8, 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 must require that any entity with which it merges or consolidates or to which it agrees to transfer a substantial portion of its assets expressly assume the obligations of the Company under this Agreement and that any successor or successors of such an entity, whether by merger, consolidation or transfer of assets, also expressly assume such obligations. 9. 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. However, severance benefits payable under this Agreement are not intended to duplicate severance benefits under any employment agreement between the Executive and the Company. Therefore, to the extent severance benefits are payable under this Agreement, they will offset severance benefits otherwise payable under any such employment agreement. 10. 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. 11. This is a Florida contract and is to be construed and enforced under and be governed in all respects by the laws of the State of Florida. 4 5 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. KOGER EQUITY, INC. /s/ Victor A. Hughes, Jr. By: /s/ W. Lawrence Jenkins - --------------------------------- ----------------------- Victor A. Hughes, Jr. Vice President 5 6 EXHIBIT A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner, directly or indirectly, of more than 25% of the Company's Common Stock; or (2) individuals who, on the Effective Date constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least 75% of such Board (a "Board Change"); provided, however, that an individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least 75% of the Continuing Directors will be treated for this purpose as a Continuing Director, but excluding from treatment as a Continuing Director any such individual whose initial assumption of office occurs as a result of (i) either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) any acquisition, merger, reorganization or consolidation or other transaction to which the Company is a party and which contemplates a Board Change; or (3) there is executed an agreement of acquisition, merger, reorganization, consolidation or other transaction which contemplates either (i) that all or substantially all of the business and/or assets of the Company will be owned or controlled by a Person or Persons other than the Persons owning or controlling such business and assets on the Effective Date or (ii) that a Board Change will occur, provided, however, that if such agreement requires, as a condition precedent, approval by the Company's shareholders, a Change of Control will not be deemed to have occurred until such approval has been obtained. For purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, however, that the term Common Stock will not include shares of preferred stock or convertible debt or options or warrants to acquire shares of 6 7 Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of the Company expressly so determines in any future transaction. A Person will be deemed to be the "owner" of any Common Stock of which the Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" will have the meaning used in Section 13(d) of the Exchange Act, except that "Person" will not include (i) the Executive, an Executive Related Party, or any group of which the Executive or an Executive Related Party is a member, (ii) the Company or a wholly owned subsidiary of the Company or (iii) an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" will mean any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" will have the meanings ascribed in Rule 12b-2 under the Exchange Act. The term "registrant" in the definition of "associate" means, in this case, the Company. 7 EX-10.(D) 7 CONTROL AGREEMENT BETWEEN KOGER AND JAMES TEAGLE 1 EXHIBIT 10(d) CHANGE OF CONTROL AGREEMENT This is an agreement (the "Agreement") between Koger Equity, Inc. (the "Company"), a Florida corporation with its principal place of business at 8880 Freedom Crossing Trail, Jacksonville, Florida 32256, and James C. Teagle of 3622 Cathedral Cove Road, Jacksonville, Florida 32217 (the "Executive"), effective as of May 20, 1999, (the "Effective Date"). The Company wishes to ensure the continued dedication of management to Company duties in the event of an actual or threatened change of control of the Company. The Executive has an important position in the management of the Company and wishes to continue in that position or such other position as may be assigned by the Company. The parties therefore agree as follows: 1. If the Executive's employment with the Company terminates other than by death or disability within 24 months following a "Change of Control" (as defined in Exhibit A), the Executive may become entitled to benefits as described below. 2. The Agreement will terminate immediately, and the Company will have no further obligation to the Executive under the Agreement, if: (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment without Good Reason, (iii) the Executive's employment terminates as a result of his death or Disability, or (iv) the Executive's employment terminates at any time other than during the 24 months following a Change of Control. "Cause" means only (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. The Company may treat a termination of the Executive's employment as termination for Cause only after (A) giving the Executive written notice of the intention to terminate for Cause and of his right to a hearing and (B) conducting a hearing at least 10 days after such notice at which the Executive may be represented by counsel. Termination by the Executive for "Good Reason" means termination within 60 days following (i) a diminution in, or assignment of duties inconsistent with, the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities in effect immediately before the Change of Control, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice of the matter by the Executive, (ii) a failure to pay the Executive an annual base salary at least equal to the annual base salary in effect immediately before the Change of Control, (iii) a failure to pay the Executive annual bonuses at least equal to the average of the annual bonuses paid to him with respect to the three full 1 2 years (or for such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the Change of Control, except to the extent that such failure results from a general reduction in bonus payments that is consistent with the Company's then current bonus policy applicable to its senior executives, (iv) exclusion of the Executive from stock option programs or other incentive compensation programs in which other Company executives holding materially equivalent positions are permitted to participate, (v) exclusion of the Executive from life, health or accident insurance plans or other material welfare benefit plans in which other senior executives of the Company are permitted to participate, (vi) failure to provide the Executive with an office and secretarial support materially equivalent to that provided immediately prior to the Change of Control, (vii) relocation of the Executive's principal place of work without his consent to a location more than 75 miles from its location immediately prior to the Change of Control, or (viii) failure by the Company to comply with the provisions of Section 8 of this Agreement. "Disability" means eligibility by the Executive for benefits under the Company's long term disability insurance arrangement. 3. If, within 24 months following a Change of Control, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, the Company will provide benefits as follows: (a) Within 30 days following the termination of employment, the Company will pay to the Executive a lump-sum cash amount equal to 300% of the sum of (i) the Executive's annual base salary in effect at the time of the termination of employment (or if the Executive's annual base salary has been reduced within 61 days prior to the termination, the base salary in effect immediately prior to the reduction), plus (ii) the average of the annual bonuses earned by the Executive with respect to the three full years (or such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the termination of employment, or if the Executive has been eligible for less than a full year, an amount equal to 50% of his base salary in effect at the time of termination. (b) The Company will continue for a period of 36 months following the date of termination to provide the Executive with any medical, dental, disability and life insurance and automobile allowance benefits in effect at the time of his termination (or, if his level of benefits has been reduced within 61 days of the termination, his level of benefits in effect prior to the reduction). If the Executive so elects, the Company will instead pay to the Executive, within 30 days of termination, a lump sum cash payment equal to the greater of the Company's cost of such benefits or the Executive's individual replacement cost for such benefits. (c) The Executive will become fully vested in his benefits under the Company's Supplemental Executive Retirement Plan (the "SERP"), and his benefits under the SERP will commence immediately and without reduction either for early commencement or for failure to complete any otherwise-applicable service requirement. 2 3 (d) Any restricted stock held by the Executive under the Company's stock compensation plans or arrangements will become fully vested. 4. In the event of a Change of Control, regardless of whether or not the Executive remains in the employ of the Company, any options to purchase Company stock held by the Executive under the Company's stock compensation plans and arrangements will become immediately exercisable notwithstanding any contrary provisions in the documents otherwise governing the options and remain exercisable for the period of time during which such options would otherwise have been exercisable had the Executive remained in the employ of the Company. 5. In the event that it is determined that any payment or benefit provided by the Company to or for the benefit of the 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 the 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 the 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 will be made by the Company's independent auditors unless the Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by the 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 the 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 the 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 the 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 the Executive to the Company. The Company will bear all expenses of the controversy and will gross the Executive up for any additional taxes that may be imposed upon the Executive as a result of its payment of such expenses. 3 4 6. All payments made by the Company under this Agreement will be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 7. The Company will indemnify the Executive for all 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 (including any action to enforce this right of indemnity) in which action the Executive prevails. 8. Except as provided in this Section 8, 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 must require that any entity with which it merges or consolidates or to which it agrees to transfer a substantial portion of its assets expressly assume the obligations of the Company under this Agreement and that any successor or successors of such an entity, whether by merger, consolidation or transfer of assets, also expressly assume such obligations. 9. 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. However, severance benefits payable under this Agreement are not intended to duplicate severance benefits under any employment agreement between the Executive and the Company. Therefore, to the extent severance benefits are payable under this Agreement, they will offset severance benefits otherwise payable under any such employment agreement. 10. 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. 11. This is a Florida contract and is to be construed and enforced under and be governed in all respects by the laws of the State of Florida. 4 5 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. KOGER EQUITY, INC. /s/ James C. Teagle By: /s/ W. Lawrence Jenkins - --------------------- ------------------------- James C. Teagle Vice President 5 6 EXHIBIT A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner, directly or indirectly, of more than 25% of the Company's Common Stock; or (2) individuals who, on the Effective Date constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least 75% of such Board (a "Board Change"); provided, however, that an individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least 75% of the Continuing Directors will be treated for this purpose as a Continuing Director, but excluding from treatment as a Continuing Director any such individual whose initial assumption of office occurs as a result of (i) either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) any acquisition, merger, reorganization or consolidation or other transaction to which the Company is a party and which contemplates a Board Change; or (3) there is executed an agreement of acquisition, merger, reorganization, consolidation or other transaction which contemplates either (i) that all or substantially all of the business and/or assets of the Company will be owned or controlled by a Person or Persons other than the Persons owning or controlling such business and assets on the Effective Date or (ii) that a Board Change will occur, provided, however, that if such agreement requires, as a condition precedent, approval by the Company's shareholders, a Change of Control will not be deemed to have occurred until such approval has been obtained. For purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, however, that the term Common Stock will not include shares of preferred stock or convertible debt or options or warrants to acquire shares of 6 7 Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of the Company expressly so determines in any future transaction. A Person will be deemed to be the "owner" of any Common Stock of which the Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" will have the meaning used in Section 13(d) of the Exchange Act, except that "Person" will not include (i) the Executive, an Executive Related Party, or any group of which the Executive or an Executive Related Party is a member, (ii) the Company or a wholly owned subsidiary of the Company or (iii) an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" will mean any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" will have the meanings ascribed in Rule 12b-2 under the Exchange Act. The term "registrant" in the definition of "associate" means, in this case, the Company. 7 EX-10.(E) 8 CONTROL AGREEMENT BETWEEN KOGER AND DAVID HILEY 1 EXHIBIT 10(e) CHANGE OF CONTROL AGREEMENT This is an agreement (the "Agreement") between Koger Equity, Inc. (the "Company"), a Florida corporation with its principal place of business at 8880 Freedom Crossing Trail, Jacksonville, Florida 32256, and David B. Hiley of 120 N. Lake Julia Drive, Ponte Vedra Beach, FL 32082 (the "Executive"), effective as of May 20, 1999, (the "Effective Date"). The Company wishes to ensure the continued dedication of management to Company duties in the event of an actual or threatened change of control of the Company. The Executive has an important position in the management of the Company and wishes to continue in that position or such other position as may be assigned by the Company. The parties therefore agree as follows: 1. If the Executive's employment with the Company terminates other than by death or disability within 24 months following a "Change of Control" (as defined in Exhibit A), the Executive may become entitled to benefits as described below. 2. The Agreement will terminate immediately, and the Company will have no further obligation to the Executive under the Agreement, if: (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment without Good Reason, (iii) the Executive's employment terminates as a result of his death or Disability, or (iv) the Executive's employment terminates at any time other than during the 24 months following a Change of Control. "Cause" means only (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. The Company may treat a termination of the Executive's employment as termination for Cause only after (A) giving the Executive written notice of the intention to terminate for Cause and of his right to a hearing and (B) conducting a hearing at least 10 days after such notice at which the Executive may be represented by counsel. Termination by the Executive for "Good Reason" means termination within 60 days following (i) a diminution in, or assignment of duties inconsistent with, the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities in effect immediately before the Change of Control, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice of the matter by the Executive, (ii) a failure 2 to pay the Executive an annual base salary at least equal to the annual base salary in effect immediately before the Change of Control, (iii) a failure to pay the Executive annual bonuses at least equal to the average of the annual bonuses paid to him with respect to the three full years (or for such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the Change of Control, except to the extent that such failure results from a general reduction in bonus payments that is consistent with the Company's then current bonus policy applicable to its senior executives, (iv) exclusion of the Executive from stock option programs or other incentive compensation programs in which other Company executives holding materially equivalent positions are permitted to participate, (v) exclusion of the Executive from life, health or accident insurance plans or other material welfare benefit plans in which other senior executives of the Company are permitted to participate, (vi) failure to provide the Executive with an office and secretarial support materially equivalent to that provided immediately prior to the Change of Control, (vii) relocation of the Executive's principal place of work without his consent to a location more than 75 miles from its location immediately prior to the Change of Control, or (viii) failure by the Company to comply with the provisions of Section 8 of this Agreement. "Disability" means eligibility by the Executive for benefits under the Company's long term disability insurance arrangement. 3. If, within 24 months following a Change of Control, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, the Company will provide benefits as follows: (a) Within 30 days following the termination of employment, the Company will pay to the Executive a lump-sum cash amount equal to 300% of the sum of (i) the Executive's annual base salary in effect at the time of the termination of employment (or if the Executive's annual base salary has been reduced within 61 days prior to the termination, the base salary in effect immediately prior to the reduction), plus (ii) the average of the annual bonuses earned by the Executive with respect to the three full years (or such fewer number of years for which the Executive has been eligible for the bonuses from the Company) preceding the termination of employment, or if the Executive has been eligible for less than a full year, an amount equal to 50% of his base salary in effect at the time of termination. (b) The Company will continue for a period of 36 months following the date of termination to provide the Executive with any medical, dental, disability and life insurance and automobile allowance benefits in effect at the time of his termination (or, if his level of benefits has been reduced within 61 days of the termination, his level of benefits in effect prior to the reduction). If the Executive so elects, the Company will instead pay to the Executive, within 30 days of termination, a lump sum cash payment equal to the greater of the Company's cost of such benefits or the Executive's individual replacement cost for such benefits. 3 (c) The Executive will become fully vested in his benefits under the Company's Supplemental Executive Retirement Plan (the "SERP"), and his benefits under the SERP will commence immediately and without reduction either for early commencement or for failure to complete any otherwise-applicable service requirement. (d) Any restricted stock held by the Executive under the Company's stock compensation plans or arrangements will become fully vested. 4. In the event of a Change of Control, regardless of whether or not the Executive remains in the employ of the Company, any options to purchase Company stock held by the Executive under the Company's stock compensation plans and arrangements will become immediately exercisable notwithstanding any contrary provisions in the documents otherwise governing the options and remain exercisable for the period of time during which such options would otherwise have been exercisable had the Executive remained in the employ of the Company. 5. In the event that it is determined that any payment or benefit provided by the Company to or for the benefit of the 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 the 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 the 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 will be made by the Company's independent auditors unless the Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by the 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 the 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 the 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 the 4 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 the Executive to the Company. The Company will bear all expenses of the controversy and will gross the Executive up for any additional taxes that may be imposed upon the Executive as a result of its payment of such expenses. 6. All payments made by the Company under this Agreement will be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 7. The Company will indemnify the Executive for all 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 (including any action to enforce this right of indemnity) in which action the Executive prevails. 8. Except as provided in this Section 8, 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 must require that any entity with which it merges or consolidates or to which it agrees to transfer a substantial portion of its assets expressly assume the obligations of the Company under this Agreement and that any successor or successors of such an entity, whether by merger, consolidation or transfer of assets, also expressly assume such obligations. 9. 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. However, severance benefits payable under this Agreement are not intended to duplicate severance benefits under any employment agreement between the Executive and the Company. Therefore, to the extent severance benefits are payable under this Agreement, they will offset severance benefits otherwise payable under any such employment agreement. 10. 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. 11. This is a Florida contract and is to be construed and enforced under and be governed in all respects by the laws of the State of Florida. 5 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. KOGER EQUITY, INC. /s/ David B. Hiley By: /s/ W. Lawrence Jenkins - --------------------- ------------------------- David B. Hiley Vice President 6 EXHIBIT A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner, directly or indirectly, of more than 25% of the Company's Common Stock; or (2) individuals who, on the Effective Date constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least 75% of such Board (a "Board Change"); provided, however, that an individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least 75% of the Continuing Directors will be treated for this purpose as a Continuing Director, but excluding from treatment as a Continuing Director any such individual whose initial assumption of office occurs as a result of (i) either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) any acquisition, merger, reorganization or consolidation or other transaction to which the Company is a party and which contemplates a Board Change; or (3) there is executed an agreement of acquisition, merger, reorganization, consolidation or other transaction which contemplates either (i) that all or substantially all of the business and/or assets of the Company will be owned or controlled by a Person or Persons other than the Persons owning or controlling such business and assets on the Effective Date or (ii) that a Board Change will occur, provided, however, that if such agreement requires, as a condition precedent, approval by the Company's shareholders, a Change of Control will not be deemed to have occurred until such approval has been obtained. For purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or 7 otherwise; provided, however, that the term Common Stock will not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of the Company expressly so determines in any future transaction. A Person will be deemed to be the "owner" of any Common Stock of which the Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" will have the meaning used in Section 13(d) of the Exchange Act, except that "Person" will not include (i) the Executive, an Executive Related Party, or any group of which the Executive or an Executive Related Party is a member, (ii) the Company or a wholly owned subsidiary of the Company or (iii) an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" will mean any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" will have the meanings ascribed in Rule 12b-2 under the Exchange Act. The term "registrant" in the definition of "associate" means, in this case, the Company. EX-11 9 EARNINGS PER SHARE COMPUTATIONS 1 EXHIBIT 11 EARNINGS PER SHARE COMPUTATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTH PERIOD SIX MONTH PERIOD ENDED JUNE 30, ENDED JUNE 30, --------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- EARNINGS PER COMMON AND DILUTIVE POTENTIAL SHARE: Net Income $ 8,124 $ 6,961 $16,874 $14,625 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding - Basic 26,683 26,515 26,632 26,012 Effect of dilutive securities (a): Stock options 337 688 321 732 ------- ------- ------- ------- Adjusted common shares - Diluted 27,020 27,203 26,953 26,744 ======= ======= ======= ======= EARNINGS PER SHARE - DILUTED $ 0.30 $ 0.26 $ 0.63 $ 0.55 ======= ======= ======= =======
(a) Shares issuable were derived using the "Treasury Stock Method" for all dilutive potential shares. EX-15 10 LETTER RE: UNAUDITED INTERIM FINANCAIL INFORMATION 1 EXHIBIT 15 August 11, 1999 Koger Equity, Inc. 8880 Freedom Crossing Trail Jacksonville, Florida 32256 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Koger Equity, Inc. and subsidiaries for the periods ended June 30, 1999 and 1998, as indicated in our report dated July 30, 1999, because we did not perform an audit, we expressed no opinion on such financial information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated by reference in Registration Statement No. 33-55179 of Koger Equity, Inc. on Form S-3, Registration Statement No. 33-54617 of Koger Equity, Inc. on Form S-8, Registration Statement No. 333-20975 of Koger Equity, Inc. on Form S-3, Registration Statement No. 333-23429 of Koger Equity, Inc. on Form S-8 and Registration Statement No. 333-37919 of Koger Equity, Inc. on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Jacksonville, Florida EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF KOGER EQUITY INC. FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 5,403 0 9,436 395 0 0 973,096 142,350 863,389 0 334,290 0 0 287 464,990 863,389 0 78,822 0 30,511 19,456 120 11,012 17,723 173 16,874 0 0 0 16,874 0.63 0.63
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