-----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, HRubeTcLcNPxSoxOG53M7Qh2N8l4+L/QJpz37qxDBXmPmCc4+Gqr2FB4wHmuXnZJ DpVKDS4/NqMaf0Y8wURpHg== 0000950144-97-011278.txt : 19971029 0000950144-97-011278.hdr.sgml : 19971029 ACCESSION NUMBER: 0000950144-97-011278 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971028 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABR INFORMATION SERVICES INC CENTRAL INDEX KEY: 0000920985 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 593228107 STATE OF INCORPORATION: FL FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24132 FILM NUMBER: 97702285 BUSINESS ADDRESS: STREET 1: 34125 US HGHWY 19 N CITY: PALM HARBOR STATE: FL ZIP: 34684 BUSINESS PHONE: 8137852819 MAIL ADDRESS: STREET 1: 34125 US HGHWY 19 N CITY: PALM HARBOR STATE: FL ZIP: 34684 10-K 1 ABR INFORMATION SERVICES, INC. FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K --------- [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1997 --------------------- Commission File Number 0-24132 ABR INFORMATION SERVICES, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-3228107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 34125 U.S. HIGHWAY 19 NORTH PALM HARBOR, FLORIDA (Address of registrant's principal executive offices) 34684-2116 (Zip Code) (813) 785-2819 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS ------------------- Voting Common Stock $.0l Par Value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of October 17, 1997, there were outstanding 27,385,734 shares of Common Stock. The aggregate market value of the voting stock held by non-affiliates of the registrant based on the last sale price reported on the Nasdaq National Market as of October 17, 1997 was $638,158,282. DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENTS FORM 10-K REFERENCE - --------- ------------------- 1997 Annual Report to Shareholders......................................................Part II Items 5, 6, 7 and 8 Proxy Statement dated November 6, 1997.........................................................Part III Items 10-12
2 ABR INFORMATION SERVICES, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE NO. -------- PART I Item 1 Business.................................................................................... 1 Item 2 Properties..................................................................................11 Item 3 Legal Proceedings...........................................................................11 Item 4 Submission of Matters to a Vote of Security Holders.........................................11 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.......................12 Item 6 Selected Financial Data.....................................................................12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................................................12 Item 8 Financial Statements and Supplementary Data.................................................12 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............................................................................12 PART III Item 10 Directors and Executive Officers of the Registrant..........................................13 Item 11 Executive Compensation......................................................................13 Item 12 Security Ownership of Certain Beneficial Owners and Management..............................13 Item 13 Certain Relationships and Related Transactions..............................................13 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................13
3 PART I ITEM 1 -- BUSINESS ABR Information Services, Inc. (the "Company") is a leading provider of comprehensive benefits administration, compliance and information services to employers seeking to outsource their benefits administration functions. The Company believes it is the leading provider of COBRA (the "Consolidated Omnibus Budget Reconciliation Act") compliance services. COBRA is a federally mandated law related to the portability of employee group health insurance. Additionally, the Company provides compliance services related to the federally mandated Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). The Company also provides benefits administration services with respect to benefits provided to retirees and inactive employees, including retiree healthcare, disability, surviving dependent, family leave and severance benefits. Additionally, the Company provides benefits administration services with respect to benefits provided to active employees, including enrollment and eligibility verification, Qualified Domestic Relations Order ("QDRO") administration, 401(k) administration services, Flexible Spending Account ("FSA") administration and pension services. All services are offered on either an "a la carte" or a total outsourcing basis, allowing customers to outsource certain benefits administration tasks which they find too costly or burdensome to perform in-house, or to outsource the entire benefits administration function. TREND TOWARD OUTSOURCING Since the late 1980s, many U.S. companies, in order to focus on core competencies and revenue-producing activities, have sought to outsource to specialized vendors certain functions or services that were historically performed in-house. In addition, the trend in recent legislation and healthcare reform proposals has been to provide employees with the ability to continue their healthcare coverage after a change in employment status and to take certain benefits with them to new employers, a concept known as "portability". Based on the following factors, the Company believes that benefits administration and compliance is often too complicated, costly and administratively burdensome to be performed in-house: - Extensive staff training and associated costs required to monitor complex and frequently changing government regulations. - Substantial exposure to liability for noncompliance with federal laws concerning benefits, such as COBRA and HIPAA. - Employer awareness of benefit plans, including the concern for adverse effects on employee relations and potential litigation due to inadequate benefits administration. - Cost of investment in specialized data processing systems requiring periodic maintenance, updates and reinvestment. - Disproportionate expenditures of management time and attention to a function that is not directly related to the generation of revenues. The Company believes that its market position, proprietary software and compliance systems and experience in benefits administration should enable the Company to capitalize on trends favoring portability and outsourcing. The Company believes it is strategically positioned to capitalize on the benefits administration outsourcing trend because of its proven ability to deliver (i) economies of location by performing administrative functions in low-cost areas, (ii) economies of scale by spreading fixed costs over a large number of customers, and (iii) economies of technology by utilizing its sophisticated information systems and proprietary databases. 1 4 STRATEGY The Company's objective is to strengthen its market position by becoming the leading provider of benefits administration services relating to portability compliance, retiree/inactive employee benefits and benefits provided to active employees. To achieve this objective, the Company has developed a strategy that includes the following key components: - Increase Portability Compliance Market Share. This market consists of approximately 650,000 employers that are required under federal law to comply with COBRA and 5.5 million employers required to comply with HIPAA. The Company believes that, based on the number of current and former employees covered by its customers' healthcare benefit plans, it is the largest COBRA compliance service provider in the United States. The Company provides portability compliance services for more than 25,000 employers, which represents approximately 4% of the potential COBRA compliance market. The Company intends to increase its market share by expanding its marketing efforts and geographic presence, and by marketing its services directly through its sales force and indirectly through the Company's agreements with insurance companies and other distribution channels. - Increase Retiree/Inactive Employee Benefits Administration Market Share. In response to demand from customers for services beyond portability compliance, the Company provides administration services to large employers for benefits provided to their retirees and inactive employees. The Company is marketing these services to its current customer base as well as to other prospects. The Company believes that this market is significant due to the large number of retirees and inactive employees who make periodic payments for healthcare and other benefits coverage, and the complexity and cost of efficiently administering such arrangements. - Expand Active Employee Benefits Administration Services. The Company has invested significant resources in proprietary information systems. The Company's databases include customer healthcare benefit plan information, such as premium rates, healthcare provider data and other employee and plan data that may be readily stored, sorted and manipulated to support additional benefit services. This data can be used to provide other services for active employees (e.g., enrollment and eligibility, QDRO administration, FSA plan administration, and pension services), thereby leveraging the Company's investment in proprietary information systems and databases. The Company's active employee benefits administration services are offered on either an "a la carte" basis or a total outsourcing basis. This flexibility allows customers to outsource certain benefits administration tasks that they find too costly or burdensome, or to outsource the total benefits administration function. The Company believes that customers who outsource certain benefits administration tasks will take advantage of the flexibility of the "a la carte" process by outsourcing an increasing number of tasks. The Company is marketing these services to its current customer base as well as to other prospects. - Acquire Complementary Businesses. The Company intends to acquire complementary businesses in order to increase its market share, expand its services and expand its geographic presence. These acquisitions will permit the Company to cross-sell additional services to its existing customer base and gain new customers and geographic bases to increase market share. - Generate Recurring Revenue. The Company's services are structured to generate revenue based on events which occur in the normal course of a customer's business and in a relatively frequent manner. Furthermore, the Company develops extensive systems and databases that are not easily duplicated, resulting in favorable customer retention. Due to the frequency of events that generate revenues, the Company's high rate of customer retention, and the monthly billing arrangements with capitation customers, the Company generates a high level of recurring revenue. 2 5 ACQUISITIONS The Company intends to acquire complementary businesses in order to increase its market share, expand its services and expand its geographic presence. These acquisitions will permit the Company to cross-sell additional services to its existing customer base and gain new customers to increase market share. The Company believes that opportunities exist in the benefits administration sector which would enable the Company to acquire complementary businesses. Since December 1995, the Company has made three acquisitions of benefits administration companies, one of which was completed by a pooling of interest. These acquisitions have enabled the Company to increase the range of benefits administration services it provides, expand its geographic presence and decrease the Company's reliance on revenues from portability compliance services. During fiscal 1996 and fiscal 1997, the Company derived approximately 69.9% and 65.6%, respectively, of its revenues from portability compliance services. Recent acquisitions are discussed below: New Jersey Acquisition. On December 15, 1995, the Company acquired all of the outstanding capital stock of Bullock Associates, Inc., ("Bullock") for $12.5 million, with an additional $2.0 million payable upon the attainment of certain revenue requirements during 1996 and 1997. As of July 1997, $863,053 of this additional amount was paid for the attainment of these revenue requirements, leaving a balance of $1,136,947 that could be paid in fiscal 1998. Bullock is located in Princeton, New Jersey and provides compliance administration, retiree insurance administration, insurance continuation billing and collection, pension benefits administration, QDRO administration and educational benefit administration services, as well as administration services for other employee benefits programs such as employee discount plans, adoption programs, program rebates and emergency loans. For the year ended December 31, 1995, Bullock had revenues of $9.3 million. Assuming the New Jersey Acquisition had occurred on August 1, 1995, the Company's revenues and net income would have been $34.7 million and $6.0 million, respectively, for the year ended July 31, 1996. As part of the New Jersey Acquisition, the Company entered into a four-year contract with Bullock's largest customer, which accounted for approximately 89.0% and 76.1% of Bullock's revenues in fiscal years 1994 and 1995, respectively. The New Jersey Acquisition expanded the Company's market share in the compliance market, provided it with a geographic presence in the northeast and expanded the number of active employee benefits administration services it provides. California Acquisition. Effective February 1, 1996, the Company acquired all of the outstanding capital stock of Total Cobra Services ("TCS") for 265,424 shares of the Company's Common Stock, subject to possible adjustment. TCS is located in Irvine, California and provides COBRA administration and retiree billing services. For the fiscal year ended December 31, 1995, TCS had revenues of less than $2.0 million. The California Acquisition has increased the Company's market share in the COBRA compliance market and enhanced its ability to market its services to clients on the west coast of the United States. Virginia Acquisition. On June 28, 1996, the Company acquired, by a pooling of interest, all of the outstanding stock of the L.P. Baier Company ("LPB") for 286,020 shares of the Company's Common Stock. LPB is located in Fairfax, Virginia and provides primarily COBRA administration and FSA administration. LPB had revenues of approximately $2.4 million in calendar year 1995. BENEFITS ADMINISTRATION SERVICES The Company provides the following benefits administration, compliance and information services to its customers, as described below: Portability Compliance Services. The Company provides comprehensive COBRA compliance services to a diverse customer base throughout the United States. Once the Company's customer or the qualified beneficiary notifies the Company of a qualifying event, the Company assumes responsibility for COBRA compliance and administration. 3 6 Under COBRA, premiums paid by continuants are generally limited to 102% of the applicable insurance premium. Eligible participants have in most cases at least 105 days after the occurrence of a qualifying event to elect to continue, and pay for, insurance coverage retroactively. As a result, COBRA claims and administration costs generally exceed premiums due primarily to adverse selection (i.e., those who are eligible for continued insurance coverage under COBRA, and have pending claims, are more likely to select coverage retroactively when the cost of claims exceeds the cost of healthcare coverage, and those who have no need for healthcare coverage typically do not elect coverage and consequently do not pay premiums). According to an annual survey published in 1997 by Charles D. Spencer & Associates, Inc., COBRA continuants have higher healthcare coverage claims than active employees. Among those survey respondents that could compare COBRA costs with the cost of active employee claims, healthcare coverage claim costs for COBRA continuants were 149% and 156% of active employee claim costs in 1996 and 1997, respectively. The Company believes that uniform determination of coverage eligibility and administration of COBRA claims in accordance with applicable requirements can in most cases reduce COBRA claim costs and, as a result, reduce healthcare costs for employers. The COBRA compliance process begins when the Company or the employer sends each employee and his or her dependents a notification of COBRA rights letter when they become eligible to participate in the employer's group healthcare plan. Thereafter, it is the employer's or the participant's responsibility to send the Company a qualifying event notice following any qualifying event. After processing the qualifying event, the Company communicates with any qualified beneficiary who elects COBRA coverage throughout the period of coverage, which typically extends for 18 to 36 months after the qualifying event. During this period, the Company: (i) processes and archives all election forms and correspondence; (ii) determines whether coverage elections have been made on a timely basis; (iii) sends premium notices to, and collects payments from, continuants; (iv) generates daily and monthly reports for customers; and (v) maintains automated and customer representative telephone services for continuant and customer inquiries. As a provider of COBRA compliance and administration services, the Company is subject to excise taxes for noncompliance with certain provisions of COBRA. Under current federal laws, the maximum amount of such taxes that may be imposed on the Company in any year for unintentional violations of COBRA is $2.0 million. In addition to the excise tax liability that may be imposed on the Company, substantial excise taxes may be imposed under COBRA on the Company's customers. Under the Company's service agreements with its customers, the Company assumes financial responsibility for the payment of such taxes assessed against its customers arising out of the Company's failure to comply with COBRA, unless such taxes are attributable to the customer's failure to comply with COBRA or with the terms of its agreement with the Company. In addition to liability for excise taxes for noncompliance with COBRA, the Company accepts financial responsibility for certain liabilities incurred by its customers that are attributable to the Company's failure to comply with COBRA or to fulfill its obligations to its customers under its agreements. These liabilities could, in certain cases, be substantial. Although there can be no assurance that the Company will not incur any material liability for noncompliance with COBRA or for its failure to comply with its agreement with any customer, as of July 31, 1997, the Company has not incurred any such material liability. The imposition of such liability on the Company in excess of any available insurance coverage could have a material adverse effect on the Company. See "--Regulatory Environment." The Company also provides comprehensive HIPAA compliance services to a diverse customer base throughout the United States. Once the Company's customer or the qualified beneficiary notifies the Company of a qualifying event, the Company assumes responsibility for HIPAA compliance and administration. HIPAA (also known as the Kennedy-Kassebaum bill when it was passed in 1996) requires employers with two or more employees and a group health plan to issue "Certificates of Creditable Coverage" to all persons who were covered by their group health plan but lost coverage for any reason since October 1, 1996. The requirement also applies to anyone losing coverage after June 1 of 1997. The certificate will serve as proof of coverage which the individual can use to obtain waivers of pre-existing condition limitations when seeking coverage under another employer's plan. 4 7 HIPAA requires employers to capture information reflecting types of coverage and coverage periods for individuals (employees and dependents) on their plan. Data must be captured as far back as July 1, 1996. They then must issue certificates to these individuals documenting the coverage periods for future insurers. Employees, covered dependents, employers and carriers may request certificates at any time up to 24 months after the loss-of-coverage event. The HIPAA compliance process begins when the Company sends each employee and his or her dependents a HIPAA certificate following any qualifying event. As a provider of HIPAA compliance and administration services, the Company is subject to excise taxes for noncompliance with certain provisions of HIPAA. Under the Company's service agreements with its customers, the Company assumes financial responsibility for the payment of such taxes assessed against its customers arising out of the Company's failure to comply with HIPAA, unless such taxes are attributable to the customer's failure to comply with HIPAA or with the terms of its agreement with the Company. Under the Internal Revenue Code, employers that are subject to HIPAA are liable to excise taxes at the rate of $100 per "qualified beneficiary" for each day during which the group healthcare is in noncompliance. These liabilities could, in certain cases, be substantial. Although there can be no assurance that the Company will not incur any material liability for noncompliance with HIPAA or for its failure to comply with its agreement with any customer, as of July 31, 1997, the Company has not incurred any such material liability. The imposition of such liability on the Company in excess of any available insurance coverage could have a material adverse effect on the Company. See "--Regulatory Environment." State Mini-COBRA Compliance. The Company provides COBRA-like services to employers in Florida as required by state laws therein. Retiree/Inactive Employee Benefits Administration. The Company's experience with benefits administration and compliance services, and the extensive databases maintained to provide these services, have enabled the Company to expand its operations to provide for the administration of various employer-sponsored benefits that are not mandated by law. For example, the Company provides benefits administration services to employers who offer healthcare benefits to their retirees. Financial accounting standards that require the accrual of certain retiree healthcare costs have increased employer awareness in this area. As a result, many employers have modified retiree healthcare benefit arrangements, often requiring retirees to pay a portion of this cost. The Company provides notification, billing, collection, record-keeping and reporting services to larger employers where a periodic benefit plan contribution is required to be made by retirees or their dependents. The Company also administers benefits provided for inactive employees, such as healthcare benefits. Active Employee Benefits Administration. The Company also provides services to large employers for benefits provided to their active employees. These services are offered on either an "a la carte" basis or a total outsourcing basis, thus allowing customers to outsource certain benefits administration tasks that they find too costly or burdensome, or to outsource the total benefits administration function. The menu of services the Company offers to customers with respect to their active employees, many of which are also provided with respect to retirees and inactive employees, includes the following: - Enrollment and Eligibility Services. Provide services for employers such as disseminating enrollment materials, processing responses, providing telephone assistance to enrollees, determining eligibility for coverage and reporting, all provided in conjunction with central employee data base administration of the employer's. - 401(k) Services. Provide active and retired employees with administration services for IRS qualified plans, including deferred contribution and 401(k) plans. - Pension Services. Provide active and retired employees who are vested in a company's pension plan with benefit information and process retirement election forms and other materials to begin the retirement payment process. Maintain Retiree and Vestee Answer Centers which provide access to benefit analysts who are proficient in client-specific plans and procedures. 5 8 - QDRO Services. Develop packages to assist QDRO participants in the process of properly and accurately dividing pension plan assets. Verify "qualification" of a domestic relations order. Respond to telephone and written inquires regarding QDRO benefits. - Educational Benefits Administration Services. Administer various educational benefit programs such as student loans, reimbursements and scholarships. Verify eligibility and process payments and loan forms. Monitor for compliance against the customer's benefit plan. - New Hire Processing Services. Process benefits administration forms and information relating to the provision of benefits to newly hired employees. - FSA Administration Services. Design and support all types of Section 125 flexible benefit formats, including plan design, legal documents, employee education, enrollment support, compliance testing, claims administration and the preparation of required IRS forms. - Other. Administer employee discount plans, adoption programs, employee emergency loan programs, product rebate programs, employee help desk, Qualified Medical Child Support Order ("QMCSO") administration, eligibility verification, tuition refund, education and other loan programs, and Family Medical Leave Act ("FMLA") insurance programs. Summary of Functions. In connection with the performance of benefits administration services, the Company generally provides one or more of the following functions: - Notification. Provide timely notifications of eligibility for coverage and healthcare benefit plan requirements to participants, employers and insurance companies. - Billing and Premium Collections. Send detailed monthly premium notice, return envelope for payment and request for ongoing certification of eligibility to participants. Remit collected premiums to employers on a monthly basis in accordance with employers' instructions. - Automated Response System. Maintain 24 hour-a-day, 365 day-a-year toll-free automated voice and facsimile response systems for certain status information available to customers and participants. - Customer Service Hotline. Respond during normal business hours to inquiries from participants or employers requiring individual attention from trained customer service representatives. - Compliance Monitoring and Determination of Eligibility. Monitor government compliance guidelines regarding availability of healthcare coverage. Determine whether applications and premium payments comply with applicable regulations and established eligibility criteria. - Reporting and Auditing. Generate daily reports for employers to monitor elections and terminations of coverage by participants. Generate monthly reports for employers providing current status of all participants. - Archive and Record-keeping Systems. Archive in an off-site facility all electronic storage media, correspondence, postmarked envelopes and copies of premium notices and checks evidencing payment. 6 9 SALES, MARKETING AND CUSTOMER SERVICE Approximately 35.2%, 39.7% and 33.5% of the Company's revenues in fiscal 1995, 1996 and 1997, respectively, were derived solely from agreements with the Company's ten largest customers. Assuming the New Jersey Acquisition had occurred on August 1, 1994, approximately 51.7% and 44.9% of the Company's revenues in fiscal 1995 and fiscal 1996, respectively, would have been attributable to the Company's ten largest customers, with approximately 24.6% and 20.8% of such revenues being derived from the largest customer of the company acquired in the New Jersey Acquisition. As part of the New Jersey Acquisition, the Company entered into a four-year contract with this customer. The Company's loss of any of these large customers could have a material adverse effect on the Company. The Company markets its services throughout the United States through a sales, marketing and support staff consisting of 39 employees as of July 31, 1997. The Company identifies prospective customers through a combination of direct mail, telemarketing and advertising. Generally, the Company markets its services in one of two ways, depending upon whether a potential customer is a large employer or insurance company, or a small employer. When a large employer or insurance company has been identified as a potential customer, the Company's sales strategy is to focus its sales and marketing efforts on developing relationships with key decision makers, such as the potential customer's chief executive officer, chief financial officer or director of human resources or benefits. The Company's sales executives make presentations that are designed to acquaint the potential customer with the Company's services and the benefits associated with outsourcing functions to the Company. A formal presentation is usually followed by a visit to the Company's facility where the prospective customer evaluates the Company's internal procedures, data processing capabilities and customer support team. With respect to potential customers who are small employers, the Company markets its services directly to the employer via telemarketing. The Company's telemarketing staff sells the Company's services by educating the potential customer about the benefits of the Company's outsourcing services without the need for face-to-face presentations. The Company is also expanding its channels of distribution, such as marketing its services through independent insurance agents. The agents typically receive a one-time commission and renewal fees for 3-5 years for each client who utilizes the Company's services. The Company also emphasizes account development to strengthen its relationship with existing customers. The Company disseminates information about its services through newsletters and various periodic reports. These activities are designed to increase existing customer awareness and understanding of the scope of benefits administration services offered by the Company. COMPUTER OPERATIONS, SOFTWARE DEVELOPMENT AND PROPRIETARY PRODUCT PROTECTION The Company's central data processing and information system consists of high-performance micro and mid-range processors linked in multiple local-area networks through high-speed routers and intelligent hubs. Installed in the data center located at the Company's new service center in Palm Harbor, Florida, the network utilizes client-server technology in a DOS and Windows environment, on a UNIX platform and Oracle database environment. The Company meets the changing information needs of its customers by developing, maintaining and enhancing its software. The Company provides its services to customers using proprietary software that is owned by the Company and is not licensed to others. The Company's computer system provides for timely system updates and modifications because of its flexible modular design. The Company's computer system works with on-line, real-time information, thus allowing its service representatives to give accurate, up-to-date information to continuants and customers. In addition, the Company believes that its ability to upload and download information to customers and insurance carriers with minimal development time provides the Company with a competitive advantage. The 7 10 Company's software and systems have supported the customer base without interruption for over eight years. As of July 31, 1997, the Company had 135 full-time equivalent employees in programming, software development, modifications and maintenance. In addition, the Company periodically utilizes contractors for various information systems services. The Company's primary data center is protected by a fire extinguishing system and by two centralized UPS (uninterruptible power supply) systems that provide short-term battery backup in the event of a power outage, reduced voltage or power surge, and dual phone and electric feeds from adjacent, but separate, power grids. Further back-up power is supplied for the primary data center by a diesel powered generator, which could continuously power the data center for 5-7 days. In addition, the facility which houses the data center is built to withstand 130+ mile per hour wind and is approximately 35 feet above sea level, in Florida. Multiple layers of password and access authorization are imposed to prevent unauthorized access, use or distribution of information. The Company maintains log-in records of all users, restricts certain key record fields and maintains audit trail records of all changes. Software and related data files are backed up three times a day and stored off-site at multiple locations. The Company believes that the quality of its systems and the ability to adapt to the changing business requirements of its customers have proven to be key factors in maintaining its current customers and obtaining new customers. The Company ensures the accuracy of data, customers' deposits and continuant records by independent double-entry of premium payments and verification and reconciliation of continuant records. The Company also has purchased certain software and license agreements from outside vendors. In conjunction with these agreements, the Company has purchased maintenance and support agreements or provided trained in-house expertise to support these applications. The Company believes that all such technology is readily replaceable through other vendors should any of its current suppliers experience any degree of business interruption. The Company carries property insurance and business interruption insurance covering interruptions that might occur as a result of damage to its business See "-- Insurance." In addition, the Company believes that it has adequate arrangements with its equipment vendors pursuant to which damaged equipment can be replaced promptly. The Company does not believe that its system faces a material risk of technological change. The Company relies upon a combination of contract provisions and trade secret laws to protect its proprietary technology. The Company attempts to protect its trade secrets and other proprietary information through agreements with employees and consultants. The Company does not hold any patents and does not have any patent applications pending. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to deter misappropriation of its proprietary rights or third party development of similar proprietary software. REGULATORY ENVIRONMENT The benefit plans administered by the Company generally are subject to various laws and regulations, including COBRA, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), proposed regulations of the Internal Revenue Service and the Public Health Service Act. These laws and regulations are administered by numerous agencies, such as the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services. The Company's internal compliance department regularly reviews the Company's operations to ensure compliance with applicable federal laws and regulations. Enacted in 1986, COBRA was amended significantly by Congress in 1987 and 1989 and is the subject of proposed regulations of the Internal Revenue Service. COBRA, which amended the Internal Revenue Code, ERISA, and the Public Health Service Act, is subject to interpretation by the federal courts and is administered jointly by several federal agencies, including the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services. In addition, COBRA is affected by certain other federal legislation and entitlement programs, such as Medicaid, Medicare, FMLA and, most recently, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). COBRA applies to virtually all employers with 20 or more employees that maintain group health insurance plans, including fully-insured, self-insured or partially-insured plans, and union or non-union plans. Church groups and the District of Columbia government are exempt from compliance with COBRA. 8 11 To comply with COBRA, an employer must provide written notice to all employees, including newly hired employees and their dependents, of their rights under COBRA. Employees and their dependents become eligible for COBRA coverage upon the occurrence of a qualifying event. The occurrence of a qualifying event triggers a series of notifications and related response and payment deadlines, including grace periods, that result in an employee's or qualified beneficiary's ability to elect continued group healthcare plan coverage retroactively, and often after the occurrence of an event leading to claims under the related coverage. The penalties for noncompliance with COBRA are substantial. As a provider of COBRA compliance and administration services, the Company's exposure under the Internal Revenue Code for excise taxes imposed for unintentional violations of certain provisions of COBRA is limited to an aggregate of $2.0 million per year. Under the Internal Revenue Code, employers that are subject to COBRA are liable for excise taxes at the rate of $100 per "qualified beneficiary" ($200 if the qualified beneficiary has covered dependents) for each day during which the group healthcare plan is in noncompliance, subject to an annual maximum for unintentional violations. When such noncompliance is not corrected before an audit by the Internal Revenue Service, the employer is subject to certain minimum excise tax obligations, depending on whether or not the violations are "de minimis." ERISA also imposes personal liability on the plan administrator for the benefit of plan participants for COBRA violations in the form of a penalty of up to $100 for each day the violation continues. In addition to liability for COBRA violations under the Internal Revenue Code and ERISA, improper denial of coverage under COBRA or failure to comply with COBRA's notification requirements may result in an employer's liability for damages and equitable remedies, including, but not limited to, healthcare coverage for a former employee or dependent retroactive to the date of the qualifying event which triggered the notification requirement. Depending on the terms of the employer's group healthcare plan, such an employer may be required to provide this type of retroactive coverage without reimbursement from its insurance carrier. The Company is not subject to federal or state regulations specifically applicable to financial and insurance institutions such as banks, thrifts, credit unions, insurance companies and third-party administrators. As a provider of COBRA compliance services to its customers, the Company is required to comply with various federal laws and regulations as noted above. The Company follows changes in federal laws and regulations related to COBRA and judicial interpretations of COBRA and promptly implements required changes to its data processing operations. HIPAA (also known as the Kennedy-Kassebaum bill when it was passed in 1996) requires employers with two or more employees and a group health plan to issue "Certificates of Creditable Coverage" to all persons who were covered by their group health plan but lost coverage for any reason since October 1, 1996. The requirement also applies to anyone losing coverage after June 1, 1997. The certificate will serve as proof of coverage which the individual can use to obtain waivers of pre-existing condition limitations when seeking coverage under another employer's plan. HIPAA requires employers to capture information reflecting type of coverage and coverage periods for individuals (employees and dependents) on their plan. Data must be captured as far back as July 1, 1996. The employers then must issue certificates to these individuals documenting the coverage periods for future insurers. Employees, covered dependents, employers and carriers may request certificates at any time up to 24 months after the loss-of-coverage event. The HIPAA compliance process begins when the Company sends each employee and his or her dependents a HIPAA certificate following any qualifying event. As a provider of HIPAA compliance and administration services, the Company is subject to excise taxes for noncompliance with certain provisions of HIPAA. Under the Company's service agreements with its customers, the Company assumes financial responsibility for the payment of such taxes assessed against its customers arising out of the Company's failure to comply with HIPAA, unless such taxes are attributable to the customer's failure to comply with HIPAA or with the terms of its agreement with the Company. Under the Internal Revenue Code, employers that are subject to HIPAA are liable to excise taxes at the rate of $100 per "qualified beneficiary" for each day during which the group healthcare is in noncompliance. These liabilities could, in certain cases, be substantial. Although there can be no assurance that the Company will not incur any material liability for noncompliance with HIPAA or for its failure to comply with its agreement with any customer, as of July 31, 1997, the Company has not incurred 9 12 any such material liability. The imposition of such liability on the Company in excess of any available insurance coverage could have a material adverse effect on the Company. COMPETITION The market for the Company's services is highly competitive. The Company's existing competitors include insurance companies, third-party administrators and other outsourcing service companies. Certain of these existing competitors, as well as a number of potential competitors, possess substantially greater resources than the Company. In addition to the Company's competitors, services offered by the Company are often provided in-house. Consequently, outsourcing may require the Company's potential customers to reduce, reassign or eliminate in-house benefits administration or human resource personnel, who often have an interest in maintaining these responsibilities in-house. The Company believes that the most significant competitive factors in the sale of its services include quality, reliability of services and integrity of data provided, flexibility in tailoring services to client needs, assumption of certain responsibilities for compliance with complex laws and regulations, experience, reputation, comprehensive services, integrated services and price. EMPLOYEES As of July 31, 1997, the Company had approximately 815 full-time equivalent employees, including 39 in sales and marketing, 596 in customer support services, 135 in programming, software development, modifications and maintenance, and 45 in management, administration and finance. The service nature of the Company's business makes its employees an important corporate asset. While the market for qualified personnel is competitive, the Company has not experienced difficulty in hiring or retaining its personnel and believes its relations with its employees are good. The Company's employees are not represented by any union. SERVICEMARKS CobraServ(R) is a registered servicemark of the Company. Other than CobraServ(R), the Company does not believe that any other intellectual property is material to its business. INSURANCE As a provider of portability compliance and administration services, the Company is subject to excise taxes for noncompliance with certain provisions of COBRA and HIPAA. In addition, the Company accepts financial responsibility for certain liabilities incurred by its customers that are attributable to the Company's failure to fulfill its obligations to its customers under its agreements. The Company maintains a professional liability policy, with a deductible of $25,000 per occurrence, and an annual per aggregate limit on coverage of $5.0 million. In addition to professional liability coverage, The Company maintains the following policies: (i) a general commercial liability policy which has an aggregate coverage of $2.0 million, with a $1.0 million limit per occurrence; (ii) an automobile liability policy with a combined single coverage limit of $1.0 million; (iii) an excess liability policy, which covers liabilities that exceed the limits of the above policies, with an aggregate and a per occurrence limit of $4.0 million; and (iv) a business interruption policy, which covers three months of operations, with an aggregate limit of $2.0 million. 10 13 ITEM 2 -- PROPERTIES The Company leases the following facilities:
SQUARE EXPIRATION RENEWAL LOCATION FOOTAGE OF LEASE OPTION -------- ------- ---------- ------- Clearwater, Florida 23,000 June 1999 None Princeton, New Jersey 20,000 May 1999 None Glenville, New York 7,000 December 1997 4 years Irvine, California 5,000 December 1997 None Fairfax, Virginia 13,000 May 2005 None
The Company maintains its 65,000 square foot headquarters in Palm Harbor, Florida. The Company purchased this facility in June 1996 for $3.5 million (including the land). In May 1997, the Company also moved into its 118,000 square foot facility in Palm Harbor, Florida. Total cost for this facility was approximately $10.7 million (including the land). In addition, the Company owns real estate in Tarpon Springs, Florida acquired at a price of $2.5 million. Subsequent to July 31, 1997, the Company acquired a 383,000 square foot office campus in St. Petersburg, Florida for $13.5 million. No formal designs or commitments presently exist for this proposed expansion. The Company expects to occupy portions of this facility starting in calendar 1998. The former owner of the facility has signed an agreement to lease back portions of the campus, prior to the Company occupying the entire facility in approximately 2000. The Company's lease income on the campus is dependent upon the amount of square footage being utilized by the former owner. The Company believes that its facilities are adequate through 2003, at which time the Company believes it may need to expand its facilities or develop the Tarpon Springs property. ITEM 3 -- LEGAL PROCEEDINGS Effective November 12, 1996, Vincent Addonisio was removed as Executive Vice President, Chief Financial Officer and Treasurer of the Company due to differences with the Board of Directors. On November 10, 1996, Mr. Addonisio resigned as a Director of the Company and withdrew as a nominee for election as a Director at the 1996 Annual Meeting of Shareholders. On November 22, 1996, Mr. Addonisio filed a lawsuit against the Company in Florida state court, alleging breach of his employment contract, and against the Company and James E. MacDougald, Chairman of the Board, President and Chief Executive Officer of the Company, alleging defamation. The Company does not believe that such litigation will have a material adverse effect on the Company's financial position but no assurances can be given in this regard. The Company is not a party to any other litigation that is expected to have a material adverse effect on the Company or its business. The Company maintains detailed records of its services for at least seven years, including physical return receipts of COBRA notifications to employees upon a qualifying event, to evidence compliance with applicable rules and regulations to reduce potential litigation and limit litigation exposure. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1997. 11 14 EXECUTIVE OFFICERS OF THE REGISTRANT As of July 31, 1997 there was one executive officer who was not also a director of the Company. James P. O'Drobinak, age 36, has been Senior Vice President and Chief Financial Officer since January 30, 1997. Prior to joining the Company, Mr. O'Drobinak served as Chief Financial Officer - North America for Danka Industries, Inc. from 1995 to 1997. From 1983 to 1995, Mr. O'Drobinak held various positions with Deloitte & Touche, LLP, most recently as a Senior Manager of the Tampa, Florida Office. Executive officers are elected annually by the Board of Directors. PART II ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Market Price Information" on the inside back cover page of the 1997 Annual Report to Shareholders (the "Annual Report") is incorporated herein by reference. The total number of shareholders of record as of October 17, 1997 was 7,303. The Company has neither declared nor paid any cash dividends on the Common Stock and does not anticipate that it will pay cash dividends in fiscal 1998. Any payment of future dividends and the amounts thereof will be dependent upon the Company's earnings, financial requirements and other factors deemed relevant by the Board of Directors. ITEM 6 -- SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 10 of the Company's Annual Report is incorporated herein by reference. ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 11 through 13 of the Company's Annual Report is incorporated herein by reference. ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Company and its independent certified public accountant's Report set forth on pages 14 through 29 of the Company's Annual Report are incorporated herein by reference: Report of Independent Certified Public Accountants; Consolidated Balance Sheets as of July 31, 1996 and 1997; Consolidated Statements of Income for the Years Ended July 31, 1995, 1996, and 1997; Consolidated Statements of Shareholders' Equity for the Years Ended July 31, 1995, 1996 and 1997; Consolidated Statements of Cash Flows for the Years Ended July 31, 1995, 1996 and 1997; and Notes to Consolidated Financial Statements. ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 12 15 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Item 1: Election of Directors" in the Company's Proxy Statement dated on or about November 6, 1997 for the Annual Meeting of Shareholders to be held December 5, 1997 (the "Proxy Statement"), the information set forth in the last paragraph under the caption "Board of Directors - General" in the Proxy Statement, and the information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy statement are incorporated herein by reference. The information set forth under "Executive Officers of the Registrant" in Part I hereof is also incorporated herein by reference. ITEM 11 -- EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference and the Company specifically excludes from such incorporation by reference any information set forth under the captions "Compensation Committee Report on Executive Compensation" and "Stock Price Performance Graph" in the Proxy Statement. ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security ownership of certain beneficial owners and management as set forth under the caption "Principal Shareholders" in the Proxy Statement is incorporated herein by reference. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of documents filed as part of this report: (1) Financial Statements. Report of Independent Certified Public Accountants. Consolidated Balance Sheets as of July 31, 1996 and 1997. Consolidated Statements of Income for the Years Ended July 31, 1995, 1996, and 1997. Consolidated Statements of Shareholders' Equity for the Years Ended July 31, 1995, 1996 and 1997. Consolidated Statements of Cash Flows for the Years Ended July 31, 1995, 1996 and 1997. Notes to Consolidated Financial Statements. 13 16 (2) Financial Statement Schedule. Report of Independent Certified Public Accountants on The Schedule. Schedule Number Description ------ ----------- II -- Valuation and Qualifying Accounts (3) Exhibits. Exhibit Number Description ------ ----------- 3.1 -- Articles of Incorporation of ABR Information Services, Inc.* 3.2 -- Bylaws of ABR Information Services, Inc.* 10.1 -- Employment Agreement between ABR Information Services, Inc. and James E. MacDougald.* 10.2 -- ABR Information Services, Inc. 1995 Non-Employee Director Stock Option Plan.** 10.3 -- ABR Information Services, Inc. 1996 Non-Employee Director Stock Option Plan.*** 10.4 -- ABR Information Services, Inc. Amended and Restated 1987 Stock Option Plan.**** 10.5 -- ABR Information Services, Inc. Amended and Restated 1993 Stock Option Plan (as amended).** 10.6 -- ABR Information Services, Inc. Incentive Bonus Plan.* 10.7 -- Revolving Line of Credit/Term Loan Agreement dated January 30, 1996 by and between NationsBank, N.A. (South) and ABR Information Services, Inc.***** 10.8 -- Employment and Non-Competition Agreement dated December 15, 1995 by and between Bullock Associates, Inc. and W. Carl Bullock.***** 10.9 -- Services Agreement between Corporate Benefits Delivery of General Electric Company and Bullock Associates, Inc. and as amended on December 15, 1995.***** 10.10 -- Agreement and Plan of Reorganization dated as of February 1, 1996 by and among ABR Information Services, Inc., Total Cobra Services and John M. Hermann.*** 10.11 -- Agreement and Plan of Reorganization dated as of June 28, 1996 by and among ABR Information Services, Inc., The L.P. Baier Company and L.P.Baier's shareholders.*** 10.12 -- Employment and Non-Competition Agreement dated June 28, 1996 by and between The L.P. Baier Company and Rick Snyder.*** 10.13 -- Stock Purchase Agreement by and among ABR Information Services, Inc., Bullock Associates, Inc., W. Carl Bullock, Barbara A. Biasotti and Nancy L. Clark dated as of December 15, 1995.****** 10.14 -- Agreement for Sale and Purchase of Property, dated October 2, 1997, by and between Florida Power Corporation (Seller) and ABR Properties, Inc. (Buyer), including commercial lease as of the same date. 11.1 -- Statement regarding computation of per share earnings. 13.1 -- 1997 Annual Report of ABR Information Services, Inc. 14 17 21.1 -- List of subsidiaries of ABR Information Services, Inc. 23.1 -- Consent of Grant Thornton LLP. 24.1 -- Powers of Attorney (included on signature page hereto). 27.1 -- Financial Data Schedule (for SEC use only) - -------------------- * Previously filed as part of the Company's Form S-1 Registration Statement (No. 33-76922) dated May 26, 1994 and incorporated herein by reference. ** Previously filed as part of the Company's Form 10-K for the fiscal year ended July 31, 1995. *** Previously filed as part of the Company's Form 10-K for the fiscal year ended July 31, 1996. **** Previously filed as part of the Company's Form 10-K for the fiscal year ended July 31, 1994. ***** Previously filed as part of the Company's Form 10-Q for the quarter ended January 31, 1996. ****** Previously filed as part of the Company's Form 8-K dated as of December 26, 1995. Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.8 and 10.12 represent management contracts and compensatory plans. (b) Reports on Form 8-K. The Company filed no Reports on Form 8-K during the quarter ended July 31, 1997. 15 18 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON THE SCHEDULE Board of Directors ABR Information Services, Inc. In connection with our audit of the consolidated financial statements of ABR Information Services, Inc. referred to in our report dated September 11, 1997, which is included on page 29 of the Annual Report to Shareholders for the year ended July 31, 1997, that is incorporated by reference in this Form 10-K for the year ended July 31, 1997, we have also audited Schedule II for each of the three years in the period ended July 31, 1997. In our opinion, the schedule presents fairly, in all material respects, the information required to be set forth therein. Tampa, Florida September 11, 1997 16 19 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ABR INFORMATION SERVICES, INC.
Column A Column B Column C Column D Column E - ------------------------------------ ------------------------------------------------------------------------------------- Additions ---------------------------------- Balance at Charge to Charged to Deductions Balance at Beginning Costs and Other Accounts Describe End of Description of Period Expenses - Describe (1) Period - ------------------------------------ ------------ ------------ ----------------- ------------- ------------ Year Ended July 31, 1995 Deducted from asset accounts: Allowance for doubtful accounts $17,553 $12,000 -- $3,351 $ 26,202 Year Ended July 31, 1996 Deducted from asset accounts: Allowance for doubtful accounts 26,202 20,000 -- 7,308 38,894 Year Ended July 31, 1997 Deducted from asset accounts: Allowance for doubtful accounts 38,894 91,500 -- 219 130,175
17 20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. October 28, 1997 ABR INFORMATION SERVICES, INC. By: /s/ James P. O'Drobinak -------------------------- James P. O'Drobinak, Senior Vice President and Chief Financial Officer --------------------------- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James E. MacDougald and James P. O'Drobinak, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON OCTOBER 28, 1997. /s/ James E. MacDougald /s/ Suzanne M. MacDougald - ---------------------------------------------- --------------------------------------------- James E. MacDougald, Chairman of the Board, Suzanne M. MacDougald, President and Chief Executive Officer and Senior Vice President, Secretary and Director Director (Principal Executive Officer) /s/ James P. O'Drobinak /s/ Thomas F. Costello - ---------------------------------------------- --------------------------------------------- James P. O'Drobinak, Senior Vice President and Thomas F. Costello, Director Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Mark M. Goldman /s/ Peter A. Sullivan - ---------------------------------------------- --------------------------------------------- Mark M. Goldman, Director Peter A. Sullivan, Director
18 21 EXHIBITS TO FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1997 ABR INFORMATION SERVICES, INC. FILE NO. 0-24132 22 ABR INFORMATION SERVICES, INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JULY 31, 1997
EXHIBIT FILED NUMBER DESCRIPTION HEREWITH ------ ----------- -------- 3.1 Articles of Incorporation of ABR Information Services, Inc.* 3.2 Bylaws of ABR Information Services, Inc.* 10.1 Form of Employment Agreement between ABR Information Services, Inc. and each of its executive officers.* 10.2 ABR Information Services, Inc. 1995 Non-Employee Director Stock Option Plan.* 10.3 ABR Information Services, Inc. 1996 Non-Employee Director Stock Option Plan.* 10.4 ABR Information Services, Inc. Amended and Restated 1987 Stock Option Plan.* 10.5 ABR Information Services, Inc. Amended and Restated 1993 Stock Option Plan (as amended).* 10.6 ABR Information Services, Inc. Incentive Bonus Plan.* 10.7 Revolving Line of Credit/Term Loan Agreement dated January 30, 1996 by and between NationsBank, N.A. (South) and ABR Information Services, Inc.* 10.8 Employment and Non-Competition Agreement dated December 15, 1995 by and between Bullock Associates, Inc. and W. Carl Bullock.* 10.9 Services Agreement between Corporate Benefits Delivery of General Electric Company and Bullock Associates, Inc. 1993-1997 and as amended on December 15, 1995.* 10.10 Agreement and Plan of Reorganization dated as of February 1, 1996 by and among ABR Information Services, Inc., Total Cobra Services and John M. Hermann.* 10.11 Agreement and Plan of Reorganization dated as of June 28, 1996 by and among ABR Information Services, Inc., The L.P. Baier Company and L.P. Baier's shareholders.* 10.12 Employment and Non-Competition Agreement dated June 28, 1996 by and between The L.P. Baier Company and Rick Snyder.* 10.13 Stock Purchase Agreement by and among ABR Information Services, Inc., Bullock Associates, Inc., W. Carl Bullock, Barbara A. Biasotti and Nancy L. Clark dated as of December 15, 1995.* 10.14 Agreement for sale and purchase of property, dated October 2, 1997, by and between Florida Power Corporation (Seller) and ABR Properties, Inc. (Buyer) including commercial lease as of the same date.
23
EXHIBIT FILED NUMBER DESCRIPTION HEREWITH ------ ----------- -------- 11.1 Statement regarding computation of per share earnings. x 13.1 1997 Annual Report of ABR Information Services, Inc. x 21.1 List of subsidiaries of ABR Information Services, Inc. x 23.1 Consent of Grant Thornton LLP. x 24.1 Powers of Attorney (included on signature page hereto). x 27.1 Financial Data Schedule (for SEC use only). x
- ------------------------ * Incorporated by reference. EX-10.14 2 AGREEMENT FOR SALE AND PURCHASE 1 EXHIBIT 10.14 AGREEMENT FOR SALE AND PURCHASE OF PROPERTY, DATED OCTOBER 2, 1997, BY AND BETWEEN FLORIDA POWER CORPORATION (SELLER) AND ABR PROPERTIES, INC. (BUYER) INCLUDING COMMERCIAL LEASE AS OF THE SAME DATE 2 AGREEMENT FOR SALE AND PURCHASE OF PROPERTY BETWEEN FLORIDA POWER CORPORATION ("SELLER") AND ABR PROPERTIES, INC. ("BUYER") 3 AGREEMENT FOR SALE AND PURCHASE OF PROPERTY THIS AGREEMENT FOR SALE AND PURCHASE OF PROPERTY (the "Agreement") is made this 2nd day of October, 1997, between FLORIDA POWER CORPORATION, a Florida corporation ("Seller"), and ABR PROPERTIES, INC., a Florida corporation ("Buyer"). 1. AGREEMENT TO SELL: PURCHASE PRICE 1.1. Agreement to Sell and Convey. Subject to the terms and conditions hereinafter set forth, Seller hereby agrees to sell and convey to Buyer and Buyer hereby agrees to purchase from Seller, all that certain parcel of land lying and being situated in the County of Pinellas, State of Florida, as described on EXHIBIT "A" attached hereto and incorporated herein together with the following: 1.1.1. Rights and Appurtenances. All and singular the rights and appurtenances pertaining thereto, including any right, title, and interest of Seller in and to adjacent streets, roads, alleys, easements and rights-of-way; and including all sewer and water infrastructure, drainageways, and other utilities and all site improvements situated thereon; and 1.1.2. Buildings and Fixtures. The twelve buildings as currently constructed and situated on the parcel described above, containing in the aggregate approximately 383,000 square feet of area, together with all fixtures permanently incorporated therein or attached thereto, unless such item is expressly excluded by this Agreement; and 1.1.3. Personal Property. Those items of tangible personal property identified on EXHIBIT "B" hereto; and 1.1.4. Other Rights, Etc. Such other rights, interests and properties as may be specified in this Agreement to be sold, transferred, assigned, or conveyed by Seller to Buyer. The parcel of land and the rights, interests, improvements, personalty and other appurtenances described above are collectively called the "Property." It is the mutual intent of the parties that the Property includes the entire office complex currently occupied by Seller, at 3201 34th Street South, St. Petersburg, Florida 33711 and by Progress Energy Corporation at 3401 34th Street South, St. Petersburg, Florida 33711. 4 1.2. Purchase Price. The purchase price ("Purchase Price") to be paid for the Property shall be THIRTEEN MILLION FIVE HUNDRED THOUSAND and 00/100 U.S. DOLLARS ($13,500,000.00). The Purchase Price shall be paid by Buyer to Seller as follows: 1.2.1. Earnest Money. Buyer has delivered to the Trust Account of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., ("Escrow Agent"), an earnest money deposit in the amount of ONE MILLION DOLLARS ($1,000,000.00) to be held in escrow in an interest bearing account pursuant to the terms of this Agreement (the earnest money deposit is referred to as the "Deposit"). All interest accrued on the Deposit shall derive to the benefit of Buyer, unless Buyer defaults, in which case the interest shall follow the Deposit. 1.2.2. Cash at Closing. At Closing (as hereafter defined), Escrow Agent shall pay the Deposit to Seller. In addition, Buyer shall pay or cause to be paid to Seller, by wire transfer of funds to the account or accounts designated by Seller, the balance of the Purchase Price, subject to closing adjustments and prorations required herein. 2. SURVEY AND TITLE COMMITMENT: PERMITTED EXCEPTIONS 2.1. Preliminary Title Report. Attached hereto as EXHIBIT "C" and incorporated herein by reference is Commonwealth Land Title Insurance Company ("Title Company"), Commitment for Title Insurance Number TP229157("Title Commitment") for the real estate which is included in the Property in the amount of the Purchase Price, accompanied by one copy of all documents affecting such real estate and which constitute exceptions to the Title Commitment. Buyer shall give Seller written notice within the earlier of (i) five (5) days after receipt of the Survey (as hereinafter defined) or (ii) the date of Closing, whether such title is or is not satisfactory, in Buyer's sole discretion. In the event that the condition of title is not acceptable, Buyer's notice shall specify which exceptions to the Title Commitment are not acceptable; provided, however, that Buyer shall not object to the matters described in EXHIBIT "D" hereto. Any matters revealed by the Title Commitment which are not cited in Buyer's notice shall be deemed to be Permitted Exceptions. In the event Seller fails to cure or remove the cited objections to the satisfaction of the Title Company prior to or at Closing, then the Closing shall be extended for an additional period of ten (10) days provided that (i) the Lease (as hereinafter defined) is modified to reflect the new closing date and (ii) Buyer acknowledges in writing that the Property is acceptable to Buyer pursuant to Section 4.1 hereof, the conditions set forth in Section 6 hereof have been met, and the Deposit is non-refundable except for failure of Seller to cure the cited objections or Seller's default. If Seller fails to cure the objections within the ten (10) day extended period, Buyer may, at its option, (i) accept title subject to the objections raised by Buyer, without an adjustment in the -2- 5 Purchase Price, in which event the objections shall be deemed to be waived for all purposes, or (ii) cancel this Agreement, whereupon, subject to the provisions of Section 4.1, of this Agreement, the Deposit shall be returned to Buyer and this Agreement shall be of no further force and effect. 2.2. Current Survey. On or before September 25, 1997, Buyer shall obtain a current survey of the Property prepared by a duly licensed land surveyor (the "Survey"). The Survey shall: 2.2.1. Metes and Bounds. Set forth an accurate metes and bounds description of the Property; 2.2.2. Easements and Rights-of-Way. Locate all existing easements and rights-of-way (setting forth the book and page number of the recorded instruments creating the same), alleys, streets, and roads; 2.2.3. Encroachments. Show any encroachments and the location of top of slope and the water level with relation to each lake; 2.2.4. Improvements. Show all existing improvements (such as buildings, parking lots, driveways, power lines, fences, etc.); 2.2.5. Certification. Contain the surveyor's certification in form and substance acceptable to the Title Company; 2.2.6. Access. Show all dedicated public streets providing access to the Property and whether such access is paved to the property line; 2.2.7. Off-Site Easements. Show the location of any easements necessary for the furnishing of off-site improvements; 2.2.8. Flood Plain Certification. Contain a certification as to whether the property is located in a flood plain; 2.2.9. Preparation. State that it is prepared for the Seller, the Buyer, Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., and the Title Company; and 2.2.10. Acreage Certification. Contain a certification as to the acreage (to the nearest .01 acre) contained within the Property. -3- 6 In the event the Survey shows any encroachments upon, from, or onto the Property, or on or between any building setback line, property line, or any easement, except those acceptable to Buyer, in Buyer's sole discretion, then, within five (5) days following its receipt of the Survey, Buyer shall notify Seller of the matters revealed by the Survey to which Buyer objects, and such encroachment or survey matters cited in Buyer's notice shall be treated in the same manner as a title defect under Section 2.1. Any matters not cited in Buyer's notice shall be deemed to be acceptable to Buyer and shall be treated as Permitted Exceptions to title. If Seller removes or cures the survey exceptions, Buyer may, at Buyer's expense, procure such additional surveying work as may be necessary or required to show removal of matters cited in Buyer's notice to Seller in a manner satisfactory to the Title Company so that the Title Policy can be issued without exceptions for such matters. 2.3. Permitted Exceptions. The Property shall be conveyed to Buyer subject to the matters acceptable to, or deemed waived by, Buyer under Sections 2.1 and 2.2 and those matters expressly set forth on EXHIBIT "D" hereto ("Permitted Exceptions"). 2.4. Copies of Materials. Seller shall make such leases, surveys, site data and information related to the Property in Seller's possession or control available to Buyer for inspection and copying upon Buyer's written request for such specific items as Buyer may desire to inspect, but Seller shall not be deemed to have warranted any information so given other than that Seller warrants and represents that it does not have knowledge that any such information is false or misleading with respect to any material fact, or omits to state any material fact which is known to Seller. As used in this Section, the term "knowledge" shall mean the actual present recollection of David L. Miller, the officer of Seller who has given substantive attention to such matters and documents, provided, however, Buyer acknowledges that neither Seller nor David L. Miller has made any independent inquiry or investigation relating to such matters and documents and Buyer agrees Seller shall not be required to conduct any such inquiry or investigation. Buyer shall verify the accuracy and details thereof in such manner as Buyer deems appropriate. Such inspection and copying shall be conducted during Seller's business hours, at Seller's offices, under supervision by one or more of Seller's employees. 3. PROVISIONS WITH RESPECT TO CLOSING. 3.1. Closing Date: Delivery of Possession. The consummation of the conveyance and purchase of the Property contemplated by this Agreement ("Closing") shall take place at the offices of Buyer's attorneys in Clearwater, Florida (or such other place as may be agreed by Seller and Buyer), on or before 10:00 a.m. local time September 30, 1997. -4- 7 3.2. Seller's Obligations at Closing. At Closing, simultaneously with Buyer's payment of the Purchase Price in current funds, Seller shall do the following: 3.2.1. Special Warranty Deed. Execute, acknowledge, and deliver to Buyer a special warranty deed conveying the Property to Buyer, which deed shall be in form for recording. The legal description of the Property contained in such deed shall be identical to the legal description of the Property contained in the Survey and the Title Commitment. 3.2.2. Bill of Sale. Execute and deliver to Buyer an absolute bill of sale with warranties of title and free of liens conveying title to the personal property described in EXHIBIT B. 3.2.3. Title Commitment. The Title Commitment shall be marked down at Closing and the standard owner's exceptions shall be deleted, where appropriate, and permitted. The Title Policy shall be delivered to Buyer promptly after Closing. 3.2.4. Lease. Subject to the provisions of Sections 9.12 and 9.13, execute and deliver the Lease attached hereto as EXHIBIT "E." 3.2.5. Affidavit of No Liens. Execute and deliver to Buyer and Title Company an affidavit in the form attached as EXHIBIT "F" to enable the Title Company to remove the construction lien, parties in possession (subject only to the lease-back arrangement set forth in Section 3.1 above), and gap standard exceptions (to the extent such exceptions relate to matters caused by persons other than Buyer and persons and parties claiming by, through or under Buyer) from the Title Commitment. 3.2.6. FIRPTA Certificate. Execute and deliver an Internal Revenue Service FIRPTA Certificate in the form attached as EXHIBIT "G." 3.2.7. Assignment of Warranties. Execute and deliver to Buyer a general assignment without recourse of all transferable warranties from third parties for improvements on the Property as well as the personal property described on EXHIBIT "B." 3.2.8. Release of Mortgage, Etc. Deliver such documents and payments as may be necessary to obtain a release of any -5- 8 existing mortgages or liens created by Seller which encumber the Property. 3.2.9. CERCLA Affidavit. Execute and deliver to Buyer a CERCLA (hazardous waste) affidavit in the form attached as EXHIBIT "H." 3.3. Buyer's Obligations at Closing. At Closing, contemporaneously with the performance by Seller of its obligations set forth in Section 3.2 above, Buyer shall do the following: 3.3.1. Payment. Deliver to Seller the payment required by Section 1.2 above. 3.3.2. Lease. Subject to the provisions of Sections 9.12 and 9.13, execute and deliver the Lease attached hereto as EXHIBIT "E." 3.3.3. Other Documents. Execute and deliver to the Title Company such other documents as the Title Company may require from or on behalf of Buyer to issue the Title Policy pursuant to the requirements in Schedule B-1 of the Commitment. 3.4. Closing Costs. 3.4.1. Seller's Costs. Seller shall pay the following costs and expenses in connection with the Closing: 3.4.1.1. Seller's attorney's fees; 3.4.1.2. The promulgated rate premium and search expense fees payable for the Title Commitment and owners Title Policy issued pursuant thereto; 3.4.1.3. Documentary stamp tax on the deed, if applicable. 3.4.1.4. Costs required to cure title defects described in Sections 2.1 and 2.2. 3.4.2. Buyer's Costs. Buyer shall pay the following closing costs: 3.4.2.1. Buyer's attorneys' fees; -6- 9 3.4.2.2. Recording fee for the deed; 3.4.2.3. The expense for preparation of the certified survey and any update or recertification thereof. 3.4.2.4. All costs for inspections and financing of the Purchase Price, if any. 3.5. Payment of Taxes. Taxes for the year of Closing shall be prorated to the date of Closing utilizing the maximum discount available for early payment. If the Closing shall occur before the tax rate is fixed for the then current year, the apportionment of taxes shall be upon the basis of the tax rate for the preceding year applied to the latest assessed valuation. Subsequent to the Closing, when the tax rate is fixed for the year in which the Closing occurs, Seller and Buyer agree to adjust the proration of taxes and, if necessary, to refund or pay, as the case may be, on or before January 1 of the year following the Closing, an amount necessary to effect such adjustments. This Section 3.5 shall survive closing. 3.6. Special Assessments. Any special assessment liens for improvements completed prior to Closing which are certified or pending against the Property prior to or as of the Closing Date shall be paid by Seller; provided, however, if the assessment is payable in installments, Seller shall be required only to pay those installments which are due and payable prior to Closing and if at the date of Closing the Property or any part thereof shall be or shall have been affected by an assessment or assessments which are payable in annual installments, of which any such annual installment covers a fiscal period which commenced less than (1) year prior to the date of Closing, such annual installment shall be apportioned pro-rata between Seller and Buyer as of the date of Closing of this transaction. 4. AFFIRMATIVE COVENANTS OF SELLER AND BUYER. 4.1. Inspection. Buyer or Buyer's agents, at Buyer's expense, shall have the right at times which will not unreasonably interfere with Seller's business operation and upon reasonable notice to enter the Property for inspection, tests, examination and architectural planning prior to Closing to determine whether, in Buyer's sole discretion, (i) the Property is suitable for Buyer's intended use thereof and (ii) whether job credits and other tax incentives and government sponsored grant programs are available and that Buyer's eligibility for such programs will not be adversely affected in connection with the proposed occupancy of the Property by Buyer's parent corporation, ABR Information Services, Inc., and any of its subsidiaries. Such inspection may include but shall not be limited to studies, investigations, and analyses regarding soil conditions, drainage, zoning, site plan, sewer, water, environmental, transportation, budget financing, architectural revisions and the projected cost thereof, and other items deemed relevant or prudent by Buyer. If the Property is determined to -7- 10 be unsuitable, Buyer may cancel this Agreement by giving written notice to Seller of such cancellation at any time prior to Closing. Buyer shall, simultaneously with such notice, deliver to Seller all copies of all reports, surveys, and other matters relating to the Property obtained by or for the benefit of Buyer, together with such evidence of payment of all such work and reports done at Buyer's request as to entitle Seller to protection from the imposition of a construction lien upon the Property as a result of Buyer's actions. Upon delivery by Buyer of such notice and items, Escrow Agent shall return to Buyer the Deposit. Thereafter, except for the indemnity stated in this Section and in the provisions of Section 9.15, Buyer and Seller shall be released from all further liability under this Agreement. The matters set forth in Section 4.1 (ii) above shall survive Closing; provided, however, in the event the credits, incentives, or programs described therein are not available to Buyer after Closing, then Buyer shall have no recourse or remedy whatsoever against Seller, including, without limitation, any right of rescission or claim for damages. Buyer covenants and agrees that in exercising its rights of entry and inspection under this Section Buyer shall not cause or permit any material damage to the Property. Buyer shall repair any damage to the Property caused by such entry or entries and work and shall restore the Property to substantially the condition existing prior to such entry. In no event shall Buyer permit its employees or agents to dispose of or permit any hazardous or toxic substances on the Property or to damage the asbestos materials on the Property. Buyer further covenants and agrees that Buyer will hold in strict confidence all documents, data and information obtained by Buyer concerning the Property except that during the Inspection Period Buyer may disclose information concerning the Property in connection with its inspection and investigation of the Property to those persons and firms performing inspections and studies of the Property on behalf of Buyer or to Buyer's purchase money lenders. Buyer shall, as a condition to its right to enter the Property, cause to be acquired and maintained adequate liability insurance (naming Seller as an additional insured party) to protect Seller fully from any claims arising in connection with Buyer's exercise of its rights of entry, investigation and inspection of the Property. A copy of such policy shall be delivered to Seller's attorneys prior to Buyer's exercise of its right of entry. 4.2. Possession and Maintenance Pending Closing. Seller shall remain in possession of the Property pending Closing. Seller covenants and agrees prior to Closing to maintain the Property, and all buildings, equipment, and other improvements situated thereon, in substantially the same condition and repair as existed on the effective date hereof, normal wear and tear, damage by casualty or the negligent or willful act of Buyer or its agents, employees or contractors and other matters beyond Seller's reasonable control as described in this Agreement excepted. 4.3. Environmental Monitoring and Remediation. Buyer acknowledges the presence of asbestos-containing products in the buildings and improvements on the Property. -8- 11 4.4. Further Assurances. In addition to the obligations required to be performed hereunder by Seller at the Closing, Seller agrees to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Closing such other instruments, documents and other materials as Buyer may reasonably request in order to effectuate the consummation of the transaction contemplated herein and to vest title to the Property in Buyer. 5. REPRESENTATIONS WITH RESPECT TO PROPERTY. 5.1. Seller's Representations. Except as hereinafter specifically set forth, the sale and purchase of the Property shall be "AS IS, WHERE IS, WITH ALL FAULTS." Notwithstanding the foregoing, Seller represents and warrants to Buyer as follows: 5.1.1. Compliance with Agreements. Performance of this Agreement will not result in any breach of, or constitute any default under, or result in the imposition of, any lien or encumbrance upon the Property under any agreement or other instrument to which Seller is a party or by which Seller or the Property might be bound. 5.1.2. Pending Litigation. Seller has no knowledge that there are any legal actions, suits or other legal or administrative proceedings pending against the Property. As used in this subsection, the term "knowledge" shall mean the actual present recollection of Kenneth E. Armstrong, the officer of Seller who has given substantive attention to the subject matter of this representation and warranty. 5.1.3. No Condemnation Pending or Threatened. To Seller's knowledge, there is no pending or threatened condemnation or similar proceeding affecting the Property or any portion thereof, nor has Seller knowledge that any such action is presently contemplated. As used in this subsection, the term "knowledge" shall mean the actual present recollection of Joseph H. Richardson and Kenneth E. Armstrong, the officers of Seller who have given substantive attention to the subject matter of this representation and warranty; provided, however, Buyer acknowledges that such officers have made no independent inquiry or investigation concerning such matters and Buyer agrees that no such independent inquiry or investigation is required by Seller or its officers for this representation. 5.1.4. Adverse Information. Except as may be disclosed in the Title Commitment, Seller has no information or knowledge -9- 12 of any action by adjacent landowners, or natural or artificial conditions upon the Property which would prevent, limit, impede, or render more costly the use of the Property consistent with current land use and zoning designations, other than those items disclosed in Section 4.3 above. As used in this subsection, the term "knowledge" shall mean the actual present recollection of Joseph H. Richardson and Kenneth E. Armstrong, the officers of Seller who have given substantive attention to the subject matter of this representation and warranty; provided, however, Buyer acknowledges that such officers have made no independent inquiry or investigation concerning such matters and Buyer agrees that no such independent inquiry or investigation is required by Seller or its officers for this representation. 5.1.5. Intentionally Omitted. 5.1.6. Third-Party Commitments. Except as may be disclosed in the Title Commitment, Seller has no knowledge commitments have been made to any governmental authority, utility company, school board, church or other religious body, or any property owners association, or to any other organization, group, or individual, relating to the Property which would impose an obligation upon Buyer or its successors or assigns to make any contribution or dedications of any portion of the Property or to construct, install, or maintain any improvements of a public or private nature on the Property. As used in this subsection, the term "knowledge" shall mean the actual present recollection of Joseph H. Richardson and Kenneth E. Armstrong, the officers of Seller who have given substantive attention to the subject matter of this representation and warranty; provided, however, Buyer acknowledges that such officers have made no independent inquiry or investigation concerning such matters and Buyer agrees that no such independent inquiry or investigation is required by Seller or its officers for this representation. 5.1.7. Hazardous Waste/Refuse. Except as identified in Section 4.3 or as disclosed to Buyer's engineer, Law Engineering, Seller has no knowledge of (i) the existence of Hazardous Materials in excess of lawful limits on the Property that would subject Buyer to liability under federal, state, or local laws or (ii) any excavation, dumping or burial of any refuse on the Property. The term "Hazardous Materials" as used herein includes, without limitation, gasoline, petroleum -10- 13 products, explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, polychlorinated biphenyls or related or similar materials, asbestos or any material containing asbestos, or any other substance or material as is now defined as a hazardous or toxic substance by any Federal, state or local environmental law, ordinance, rule, or regulation including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (42 U.S.C. Section 1801, et seq.) the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 1251, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.) and in the regulations promulgated pursuant thereto. As used in this subsection, the term "knowledge" shall mean the actual present recollection of David L. Miller, the officer of Seller who has given substantive attention to the subject matter of this representation and warranty; provided, however, Buyer acknowledges that such officer has made no independent inquiry or investigation concerning such matters and Buyer agrees that no such independent inquiry or investigation is required by Seller or its officers for this representation. 5.1.8. Survival of Representations and Warranties. The representations and warranties set forth in this Article 5 shall be continuing and shall be true and correct on and as of the Closing Date with the same force and effect as if made at that time. All representations and warranties set forth herein shall survive Closing for a period of two (2) years. 5.2. Buyer's Representations. Buyer represents and warrants to Seller as follows: 5.2.1. Ability to Perform. Buyer is a solvent corporation and has the financial resources and ability to perform Buyer's obligations under this Agreement. 5.2.2. Compliance with Agreements. Performance of this Agreement will not result in any breach of, or constitute any default under, or result in the imposition of, any lien or encumbrance upon the Property under any agreement or other instrument to which Buyer is a party or by which Buyer or the Property might be bound. -11- 14 6. CONDITIONS TO CLOSING. 6.1. Conditions to Buyer's Obligations. The obligation of Buyer hereunder to consummate the Closing contemplated hereby is subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part in writing by Buyer at or prior to the Closing): 6.1.1. Correctness of Representations and Warranties. The representations and warranties of Seller set forth herein shall be true on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. 6.1.2. Compliance by Seller. Seller shall have performed, observed and complied with all of the covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Seller prior to or as of the Closing. If any contingency is not satisfied, or waived in writing, the Deposit hereunder, and all interest thereon, shall be returned to Buyer, and, except for the provisions of Sections 4.1 and 9.15 hereof, this Agreement shall be of no further force and effect. 7. PROVISIONS WITH RESPECT TO DEFAULT AND DEPOSIT. 7.1. Default by Seller. If this Agreement is not canceled by Buyer pursuant to the provisions permitting Buyer to cancel, then in the event that Seller is able, but refuses to perform its obligations under this Agreement, Buyer as its sole remedies: (i) may enforce specific performance of this Agreement or (ii) Buyer may elect to cancel this Agreement, whereby Buyer shall not be required to purchase and Seller shall not be required to convey the Property and the Deposit made hereunder shall be returned to Buyer. 7.2. Default by Buyer. In the event this transaction does not close on account of Buyer's default, the Deposit paid or required to be paid by Buyer under the provisions of this Agreement and all interest earned thereon shall be paid to Seller as Seller's sole remedy and as agreed and liquidated damages on account of Buyer's failure to purchase the Property pursuant to the terms of this Agreement. In that event, except as hereafter expressly provided, both parties shall be released from all further obligations to each other under this Agreement. Buyer acknowledges that payment of the earnest money deposit is reasonable as liquidated damages for withdrawal of the Property from the real estate market because the precise amount of the damages to be suffered by Seller as a result of the withdrawal of the property from the real estate market for the term of this Agreement is impossible to ascertain on the effective date. Anything herein to the contrary notwithstanding, the parties -12- 15 acknowledge that such liquidated damages relate only to any loss to Seller occurring as a result of withdrawal of the Property from the real estate market and do not relate to nor approximate damages to be suffered by Seller as a result of Buyer's failure to perform its obligations described in Section 4.1 or Section 9.15 in the manner prescribed therein or to pay for all tests and inspections of the Property (or damage or contamination to or of the Property) made pursuant to the provisions of Section 4.1 of this Agreement. The parties further acknowledge that Buyer's indemnities under Sections 4.1 and 9.15 are the subject of separate and distinct consideration, and nothing herein shall be deemed to supersede nor limit Seller's ability to enforce all of Seller's rights under the indemnity provisions of Sections 4.1 and 9.15 nor to release or cancel Buyer's indemnity obligations under the provisions of Sections 4.1 and 9.15. 7.3. Mutuality of Remedies. Each of the parties acknowledges that the remedies stated herein have been negotiated and provide mutual, satisfactory and adequate and proper compensation and consideration to each of the parties and that such remedies take into account the peculiar risks of each of the parties. 8. COMMISSIONS. Seller warrants and represents to Buyer, and Buyer warrants and represents to Seller, that no brokers are involved in this transaction except for Echelon Real Estate Services, Inc., whose commission shall be the sole responsibility of Seller pursuant to the provisions of a separate agreement between such broker and Seller. Seller agrees that if any claims for brokerage commissions or fees are made against Buyer by such broker in connection with this transaction, all such claims shall be paid by Seller. Seller and Buyer further agree to indemnify and hold each other harmless from and against any and all other claims or demands with respect to any brokerage fees or agents' commissions or other compensation asserted against the other party by any person, firm or corporation claiming through the indemnifying party in connection with this Agreement or the transaction contemplated hereby. This Section shall survive the Closing. 9. OTHER CONTRACTUAL PROVISIONS. 9.1. Assignability. Buyer may not assign its rights under this Agreement except as follows: (i) the party to whom such assignment is made shall be a subsidiary of Buyer (as that term is defined under United States Securities Exchange Commission Rule 1-02 under Regulation S-X, 17 CFR Part 210.1-02); (ii) the party to whom such assignment is made shall be a parent of Buyer (as that term is defined under United States Securities Exchange Commission Rule 1-02 under Regulation S-X, 17 CFR Part 210.1-02); (iii) the party to whom such assignment is made shall furnish evidence satisfactory to Seller of its ability to pay the Purchase Price; (iv) no such assignment shall delay closing nor shall it increase Seller's costs and expense, nor impair Seller's ability to perform its obligations under this Agreement; (v) an executed copy of such assignment is furnished to Seller within twenty-four (24) hours following -13- 16 the assignment, and (vi) any such assignee shall, in such written assignment, assume and agree to perform all of Buyer's obligations under this Agreement. 9.2. Notices. Any notice to be given or to be served upon any party hereto in connection with this Agreement must be in writing, and may be given by certified mail, hand delivery, or overnight receipt delivery service, and shall be deemed to have been given and received when delivered to and received by the party to whom it is addressed. Such notices shall be given to the parties hereto at the following addresses: FOR BUYER: FOR SELLER: ABR Properties, Inc. Florida Power Corporation 34125 U.S. Highway 19 North 3201 34th Street South Palm Harbor, FL 34684-2116 St. Petersburg, FL 33711 Attn: Mr. Joseph C. Lukason, Attn: Kenneth E. Armstrong, Esq. President WITH A COPY TO: WITH A COPY TO: Timothy A. Johnson, Jr. Ruth Barnes Kinsolving Johnson, Blakely, et al Carlton Fields P. 0. Box 1368 P. O. Box 3239 Clearwater, FL 33757 Tampa, FL 33601-3239 Any party hereto may, at any time by giving five (5) days' written notice to the other party hereto, designate any other address in substitution of the foregoing address to which such notice shall be given and other parties to whom copies of all notices hereunder shall be sent. 9.3. Entire Agreement: Modification. This Agreement embodies and constitutes the entire understanding between the parties with respect to the transaction contemplated herein. All prior or contemporaneous agreements, understandings, representations, and statements, oral or written, are merged into this Agreement. Neither this Agreement nor any provision hereof may be waived, modified, amended, discharged, or canceled except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument. 9.4. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Florida. Venue shall lie exclusively in Pinellas County, Florida. -14- 17 9.5. Binding Affect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. 9.6. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 9.7. Time for Acceptance: Date of Contract. This Agreement shall be null and void and of no effect unless signed by Seller and Buyer on or before 5:00 p.m. local time on October 2, 1997. 9.8. Effective Date of Agreement. For all purposes herein, the "date" or "effective date" of this Agreement shall be the date it is executed by the latter of Seller and Buyer. 9.9. Earnest Money Deposit and Provisions Relating to Escrow. 9.9.1. Disbursement of Earnest Money Deposit. If Buyer shall not elect to cancel this Agreement prior to Closing, then at Closing, Escrow Agent shall disburse the Deposit to the Seller. If Buyer shall elect to cancel this Agreement prior to Closing, then, subject to Section 4.1, the Deposit shall be returned to Buyer. 9.9.2. Duties. The Escrow Agent agrees to hold and disburse all monies paid in escrow in accordance with the terms and conditions of this Agreement. All such escrowed funds paid by Buyer shall be invested in an interest bearing account. Wherever the terms of this Agreement require the Escrow Agent to disburse the escrowed funds, the Escrow Agent shall also simultaneously pay all accrued interest earned thereon to the party to whom such escrowed funds are payable under this Agreement. The parties acknowledge and agree that if the sale and purchase of the Property is closed pursuant to the terms of this Agreement, then interest earned on the Deposit shall be credited against the cash due from Buyer at closing. 9.9.3. Dispute. If there is any dispute as to whether Escrow Agent is obligated to deliver the Deposit, or as to whom the Deposit is to be delivered, Escrow Agent will not be obligated to make any delivery of the Deposit, but in such event may hold the Deposit until receipt by Escrow Agent of an authorization in writing signed by all of the persons -15- 18 having an interest in such dispute, directing the disposition of the sum, or in the absence of such authorization, Escrow Agent may hold the Deposit until a court of competent jurisdiction shall determine the rights of the parties in an appropriate proceeding. If such written authorization is not given, or proceedings for such determination are not begun and diligently continued, Escrow Agent may, but is not required, to hold the Deposit until (i) the parties mutually agree to the disbursement thereof, or (ii) a judgment of court of competent jurisdiction shall determine the rights of the parties, or Escrow Agent may deposit same into the registry of the court, and interplead the parties, and upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall cancel, except to the extent of accounting for the money delivered out of escrow. Once Escrow Agent has tendered into the registry or custody of any court of competent jurisdiction all money and/or property in its possession under this Agreement, Escrow Agent shall be discharged from all duties arising and shall have no further liability hereunder as Escrow Agent. Seller acknowledges that Escrow Agent is the law firm which represents Buyer in connection with the transaction contemplated by this Agreement and consents to such law firm representing Buyer or in the event of any dispute with respect to the Deposit on this Agreement. 9.9.4. Confirmation of Deposit. Escrow Agent confirms that Escrow Agent is holding the Deposit pursuant hereto. 9.10. Gender. Whenever the context permits, the singular shall include the plural and one gender shall include all. 9.11. Radon. Radon is a naturally occurring radioactive gas that, when it has accumulated in a buildings in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon testing may be obtained from your county public health unit. 9.12. Risk of Loss by Condemnation. If after the date hereof and prior to Closing, all or a part of the Property is subjected to a bona fide threat of condemnation by a body other than Seller having the power of eminent domain or is taken other than by Seller by eminent domain or condemnation (or sale in lieu thereof), Buyer may, by written notice to Seller, elect to cancel this Agreement within five (5) days of Buyer's receipt of notice of such taking or the Closing (whichever is earlier), in which event both parties shall be relieved and released of and from any further liability hereunder, and the Deposit made by Buyer hereunder shall forthwith be returned to -16- 19 Buyer, whereupon this Agreement shall become null and void and be considered canceled, except for Section 9.15 hereof. If no such election to cancel is made, this Agreement shall remain in full force and effect and the purchase contemplated herein, less any interest taken by eminent domain or condemnation, shall be effected with no adjustment in Purchase Price, and at Closing Seller shall assign, transfer, and set over to Buyer all of the right, title and interest of Seller in and to any awards that have been or that may thereafter be made for the fee simple title to the Property so taken; provided, however, Seller shall not assign nor release any awards made for the taking of Seller's post-closing leasehold estate, if any, nor for Seller's business relocation and moving expenses. Seller covenants that it will not exercise any right of eminent domain it may have with respect to the Property. 9.13. Risk of Loss by Casualty. The risk of loss or damage to the Premises by casualty up to the date of Closing is assumed by Seller. If the Property is damaged by fire or other casualty before Closing and the cost thereof exceeds five percent (5%) of the Purchase Price, Seller may elect either to pay the cost of repair and restoration to substantially the same condition as existed prior to such casualty or to advise Buyer that Seller does not elect to make such repairs. If Seller does not elect to make such repairs, Buyer shall have the option of either taking the Property "as is" together with all insurance proceeds (including self insurance) that may be payable or credited to Seller as a result of such damage to the Property or Buyer may cancel this Agreement and receive a return of the Deposit, subject to the provisions of Sections 4.1 and 9.15. If Buyer does not elect to cancel as a result of such damage within five (5) days of Buyer's receipt of Seller's notice that Seller will not pay the costs or make the repairs, Buyer shall be deemed to have waived Buyer's right to cancel and the parties shall close the sale and purchase of the Property in the manner described in this Agreement; provided, however, if the Property is damaged to the extent that Seller does not desire to occupy the Property after Closing, then if Buyer does not elect to cancel this Agreement, Seller may elect to decline to leaseback the Property. If Seller elects to decline to leaseback the Property, then, at Buyer's option, Buyer may (i) close and Seller shall deliver possession of the Property to Buyer at Closing or (ii) elect to cancel this Agreement, in which event, subject to the provisions of Section 4.1 hereof, the Deposit shall be returned to the Buyer. At Closing, Seller shall pay or assign to Buyer the insurance proceeds (including self insurance) paid or payable to Seller as a result of the damage to the Property. 9.14. Executed Counterparts. This Agreement may be executed in several counterparts, each constituting a duplicate original, but all such counterparts constituting one and the same Agreement. 9.15. Confidentiality. Buyer and Seller acknowledge to one another that that the agreement of each not to divulge to any third party certain information is a material inducement to each party to execute and perform its obligations under this Agreement. -17- 20 9.15.1. Buyer's Failure to Close. If Buyer should fail to consummate the purchase of the Property for any reason, then anything in this Agreement to the contrary notwithstanding, neither Buyer nor Seller (i) shall disclose the reason or reasons the transaction was not closed to any third party, and (ii) Buyer and Seller shall keep the contents of this Agreement and the results of all studies and inspections obtained by Buyer in connection with the Property strictly confidential except as required to enforce the parties' rights under this Agreement. 9.15.2. Public Disclosure. Except as otherwise required by law or the rules of any applicable national securities exchange or as mutually agreed, neither Buyer nor Seller shall make, or cause to be made, any public disclosure or other formal announcement to the press or any media with respect to the transactions contemplated hereby without the prior consent and approval (oral or written) of the other party. In the event either party is advised by its counsel that public disclosure is so required, such party shall provide the other party with a reasonable opportunity to comment on the text of the proposed disclosure prior to its release. 9.15.3. Confidentiality. Buyer agrees that it will treat in confidence (i) all documents, materials and other information which it shall have obtained regarding the Property during the course of the negotiations leading to the consummation of the transactions contemplated hereby (whether obtained before or after the effective date) (the "Confidential Information") and, in the event the transactions contemplated hereby shall not be consummated, Buyer will return to Seller all copies of all documents and materials which have been furnished in connection therewith. Such Confidential Information shall not be communicated to any third person (other than Buyer's design representatives and advisors, including without limitation, Buyer's lenders, officers, attorneys, consultants, and contractors ("Buyer's Representatives"), all of whom shall likewise be bound by this requirement for confidentiality. A breach of such requirement by such representatives shall be deemed a breach by Buyer). Buyer shall not use any Confidential Information in any manner whatsoever except solely for the purpose of evaluating the proposed purchase of the Property. The obligation of Buyer to treat such Confidential Information in confidence shall not apply to any information which (i) is on the date hereof or hereafter is a public -18- 21 record, or (ii) which becomes generally available to the public other than as a result of a disclosure, directly or indirectly, by the Buyer or Buyer's Representatives of such Confidential Information after the date hereof or (iii) becomes available on a nonconfidential basis from a source other than the Seller or its representatives which source was not itself bound by a confidentiality agreement with the disclosing party or its representatives. 9.15.4. Breach. In the event of either party's breach of the foregoing confidentiality requirement, (1) the non-breaching party shall be entitled without prejudice to the rights and remedies otherwise available to the non-breaching party at law or in equity, to equitable relief by way of injunction if the breaching party or its representatives breach or threaten to breach the provisions of this Section; and (2) the breaching party shall indemnify the other party in respect of any and all claims, losses, costs, liabilities, and expenses recoverable at law (excluding attorneys' fees) , resulting directly or indirectly from or arising out of any breach of the provisions of this Section by the breaching party or its representatives. 9.16. Time of Essence. Time is of the essence in the performance of and compliance with each of the provisions and conditions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SELLER: WITNESSES: FLORIDA POWER CORPORATION, a Florida corporation /s/ Kenneth E. Armstrong By: /s/ David L. Miller - ---------------------------- --------------------------------- David L. Miller /s/ Title: Vice President - ---------------------------- Date: October 2nd, 1997 -19- 22 BUYER: ABR PROPERTIES, INC., a Florida corporation /s/ John W. Popron By: /s/ Joseph C. Lukason - ---------------------------- --------------------------------- Mr. Joseph C. Lukason /s/ Title: President - ---------------------------- Date: October 2, 1997 ESCROW AGENT: JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A. By: /s/ Timothy A. Johnson, Jr. --------------------------------- Name: Timothy A. Johnson, Jr. Title: President -20- 23 EXHIBIT "A" LEGAL DESCRIPTION PARCEL 1: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 67, page 59 and 60, said lands situate, lying and being in Pinellas County, Florida. PARCEL 2: Lot 1, Block "A" FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. PARCEL 3: The West 710.00 feet of the SE 1/4 of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida, less the South 450.00 feet thereof, and less the West 50.00 feet thereof for road right-of-way; together with that part of the North 267.72 feet of said SE 1/4 of the SE 1/4, less the West 710.00 feet thereof, lying west of Broadwater Plaza, as recorded in Plat Book 75, Page 63 Public Records of Pinellas County, Florida, being more particularly described as follows: Commence at the SE corner of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida; thence N 89 degrees 54'56" W., along the South boundary of said SE 1/4, a distance of 1323.05 feet to the SW corner of the SE 1/4 of said SE 1/4; thence N 0 degrees 15'08" E., along the West boundary of said SE 1/4 of the SE 1/4, a distance of 450.00 feet; thence S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 50.00 feet to a point on the last right-of-way line of 37th Street South and the point of beginning; thence continue S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 660.00 feet; thence N 0 degrees 15'08" E., 710.00 feet from and parallel with said West boundary, a distance of 609.45 feet to a point on an extension of the South boundary of Lot 1, Block 1, BROADWATER PLAZA, as recorded I Plat Book 75, Page 63, of the Public Records of Pinellas County, Florida; thence S 89 degrees 52'40" E., along said extension, 23.00 feet to the SW corner of said Lot 1; thence N 0 degrees 15'08" E., along the West boundary of said Lot 1, a distance of 267.72 feet to the NW corner of said Lot 1, thence N 89 degrees 52'40" W., along the South boundary of Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, as recorded in Plat Book 67, Pages 59 and 60, Public Records of Pinellas County, Florida, a distance of 683.00 feet to the SW corner of said Lot 1; thence S 0 degrees 15'08" W., along the East right-of-way line of said 37th Street South, 50.00 feet from and parallel with the West boundary of said SE 1/4 of the SE 1/4, a distance of 877.61 feet to the point of beginning. All being in the SE 1/4 of Section 34, Township 31 South , Range 16 East, Pinellas County, Florida. LESS THAT PORTION THEREOF DESCRIBED AS: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. 2 24 PARCEL 4: Lot 1, Block 2, BROADWATER PLAZA, according to the Plat thereof on file in the office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 75, page 63, said lands situate, lying and being in Pinellas County, Florida. PARCEL 5: Lot 1, Block A, PERRY'S SKYVIEW SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 36, page 4, said lands situate, lying and being in Pinellas County, Florida. END OF LEGAL DESCRIPTION 25 EXHIBIT "B" SCHEDULE OF SELLER'S TANGIBLE PERSONAL PROPERTY (except where expressly excluded below) 1. SECURITY SYSTEM a. All Westinghouse Proximity Readers b. All Panasonic Cameras, Recorders, Switches & Controllers which pertain only to the G.O.C. Site c. On site processing computer using Westinghouse 5850 Software d. Two (2) Security Golf Carts The following items shall be excluded from this sale and conveyance: All Wide Area Network System components, software and auxiliary equipment, including but not limited to , Video and Remote Site Alarm monitoring, which shall be retained by Seller. 2. UNINTERRUPTED POWER SUPPLY Emerson UPS system, 600 kva with 300 kva redundant, expandable to 1200 kva total. Two string 450 kw battery with 2000 amp switchgear 3. ALL CAFETERIA SUPPLIES, EQUIPMENT AND UTENSILS (1) 55" x 33" Refrigerator (2) 28" x 27" Refrigerator (6) Side by Side Refrigerators (2) Grills (2) Deep Freezers (1) Bun Warmer (1) General Warmer (1) Oven (1) 28' x 38" Mixer (6) Refrigerated Units (2) 5' Round Tables (2) 6' Round Tables (25) 3' Round Tables (100) Chairs (1) Sandwich Bar (1) Salad Bar (1) Soup Bar (1) Steam Table (1) Cold Table 26 The following items are owned by vendors and will be excluded from this sale and conveyance: (2) Ice Machines (1) Juice Dispenser (1) Soft Drink Dispenser (1) Coffee Maker (1) Yogurt Dispenser 4. MAINTENANCE SUPPLIES, EQUIPMENT AND VEHICLES a. Four (4) Golf Carts b. 50% of the on site Service Carts c. All items in the Maintenance Store Room and in the Electrical Shed except for all tools which are the property of third party Vendors d. The Upright UL-24 Electrical Lift 5. GENERATING EQUIPMENT & SWITCH GEAR a. Onan/Cummins 300kw emergency power generator and transfer scheme b. Caterpillar 1000kw emergency power generator c. Fuel System, 3 @ 2,000 gallon Convault tanks with Omron automated pumping and leak detection system - 200 gallon day tanks on both gensets 6. ALL ROOF ANTENNAS AND AUXILIARY COMMUNICATION EQUIPMENT USED FOR INTER G.O.C. COMMUNICATION The following items will be excluded: a. All equipment related to intra G.O.C. communication b. The Microwave Dish which is Property of USF 7. AUDITORIUM EQUIPMENT a. All built-in Audio & Video equipment used exclusively to support Auditorium operations shall become property of the buyer, which includes: (1) Projector-Optical Radiation Corporation (1) Screen (2) Speakers JBL (1) Sony Reel to Reel Tape Recorder (1) York Controls Decoder (1) JBL Amplifier (1) Podium and Controls (2) 8' Folding Tables 27 All Black and Chrome Chairs All PA Equipment The Seller shall use good faith efforts to label all disconnected wires b. All Video Production Equipment which does not support the operation of the Auditorium shall remain as Personal Property of the Seller c. All portable Audio & Video equipment shall remain as personal property of the Seller 28 EXHIBIT "C" COMMONWEALTH LAND TITLE INSURANCE COMPANY COMMITMENT FOR TITLE INSURANCE SCHEDULE A Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO Effective Date: August 29, 1997 at 8:00 A.M. Policy or Policies to be issued: OWNER'S: $ (TO BE DETERMINED) ALTA Owners Policy (10/17/92) with Florida modifications Proposed Insured: TO BE DETERMINED LOAN: Proposed Insured: NONE The estate or interest in the land described or referred to in this Commitment and covered herein is a fee simple, and title thereto is at the effective date hereof vested in: FLORIDA POWER CORPORATION, a Florida corporation The land referred to in this Commitment is described as follows: LEGAL DESCRIPTION IS ATTACHED HERETO AND MADE A PART HEREOF Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. One Harbor Place P.O. Box 3239 Tampa, FL 33601 (813) 223-7000 Countersigned: ________________________________ Authorized Officer or Agent VALID ONLY IF FACE PAGE, SCHEDULE B AND COVER ARE ATTACHED 1 29 Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO LEGAL DESCRIPTION PARCEL 1: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 67, page 59 and 60, said lands situate, lying and being in Pinellas County, Florida. PARCEL 2: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. PARCEL 3: The West 710.00 feet of the SE 1/4 of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida, less the South 450.00 feet thereof, and less the West 50.00 feet thereof for road right-of-way; together with that part of the North 267.72 feet of said SE 1/4 of the SE 1/4, less the West 710.00 feet thereof, lying west of Broadwater Plaza, as recorded in Plat Book 75, Page 63, Public Records of Pinellas County, Florida, being more particularly described as follows: Commence at the SE corner of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida; thence N 89 degrees 54'56" W., along the South boundary of said SE 1/4, a distance of 1323.05 feet to the SW corner of the SE 1/4 of said SE 1/4; thence N 0 degrees 15'08" E., along the West boundary of said SE 1/4 of the SE 1/4, a distance of 450.00 feet; thence S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 50.00 feet to a point on the East right-of-way line of 37th Street South and the point of beginning; thence continue S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 660.00 feet; thence N 0 degrees 15'08" E., 710.00 feet from and parallel with said West boundary, a distance of 609.45 feet to a point on an extension of the South boundary of Lot 1, Block 1, BROADWATER PLAZA, as recorded in Plat Book 75, Page 63, of the Public Records of Pinellas County, Florida; thence S 89 degrees 52'40" E., along said extension, 23.00 feet to the SW corner of said Lot 1, thence N 0 degrees 15'08" E., along the West boundary of said Lot 1, a distance of 267.72 feet to the NW corner of said Lot 1; thence N 89 degrees 52'40" W., along the South boundary of Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, as recorded in Plat Book 67, Pages 59 and 60, Public Records of Pinellas County, Florida, a distance of 683.00 feet to the SW corner of said Lot 1; thence S 0 degrees 15'08" W., along the East right-of-way line of said 37th Street South, 50.00 feet from and parallel with the West boundary of said SE 1/4 of the SE 1/4, a distance of 877.61 feet to the point of beginning. All being in the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida. LESS THAT PORTION THEREOF DESCRIBED AS: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. 2 30 Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO PARCEL 4: Lot 1, Block 1, BROADWATER PLAZA, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 75, page 63, said lands situate, lying and being in Pinellas County, Florida. PARCEL 5: Lot 1, Block A, PERRY'S SKYVIEW SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 36, page 4, said lands situate, lying and being in Pinellas County, Florida. END OF LEGAL DESCRIPTION 3 31 Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO SCHEDULE B-SECTION 1 The following are the requirements to be complied with: 1. Payment of the full consideration to or for the account of the grantors or mortgagors. 2. Instrument(s) creating the estate or interest to be insured must be approved, executed and filed for record: a) Warranty Deed from FLORIDA POWER CORPORATION, a Florida corporation to TO BE DETERMINED. 3. Payment of all taxes, charges, assessments, levied and assessed against subject premises, which are due and payable. 4. Submit proof from the City of St. Petersburg, that any outstanding municipal assessments due, have been paid. 5. Partial release of the insured land from that certain Indenture by and between FLORIDA POWER CORPORATION AND MORGAN GUARANTEE TRUST COMPANY OF NEW YORK, dated January 1, 1944 and recorded in Mortgage Book 566, page 1, as amended by 38 Supplemental Indentures, the most recent recorded July 25, 1994 in Official Records Book 8734, page 1574, of the Public Records of Pinellas County, Florida, whereby FIRST CHICAGO TRUST COMPANY OF NEW YORK, as Trustee, has succeeded to the interest of Trustee under the Indenture and all Supplemental Indentures. 6. No liability is incurred by this Commitment until the nominee of, and/or the Proposed Insured is disclosed and approved by this Company, or the issuing agent herein. 7. Upon receipt of this Commitment, you must obtain written authorization from the Company to issue the commitment if the amount of the policy or policies to be issued exceeds your agency limits. END OF SCHEDULE B-SECTION 1 4 32 Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO SCHEDULE B-SECTION 2 Schedule B of the policy or policies to be issued will contain exceptions to the following matters unless the same are disposed of to the satisfaction of the company: 1. Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the public records or attaching subsequent to the effective date hereof but prior to the date the proposed Insured acquires for value of record the estate or interest or mortgage thereon covered by this Commitment. 2. Rights or claims of parties in possession not shown by the public records. 3. Easements or claims of easements not shown by the public records. 4. Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey or inspection of the premises. 5. Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records. 6. Any claim that any part of said land is owned by the State of Florida by right of sovereignty, and riparian rights, if any. 7. Taxes for the year of the effective date of this Commitment and taxes or assessments which are not shown as existing liens by the public records or which may be levied or assessed subsequent to the date hereof. Said taxes become a lien as of January 1 of each year, but are not due and payable until November 1 of that same year, pursuant to section 197.333 F.S. 8. Taxes or assessments for the year 1997 and subsequent years, and taxes or assessments which are not shown as existing liens by the public records. 9. Restrictions, covenants and conditions as contained in the Warranty Deeds recorded June 9, 1970 and June 10, 1970, respectively in Official Records Book 3339, page 710 and in Official Records Book 3340, page 443, of the Public Records of Pinellas County, Florida. (Affects Parcels 2 and 4) 10. Terms and conditions of Sidewalk Covenant recorded October 18, 1971 in Official Records Book 3644, page 217, of the Public Records of Pinellas County, Florida. (Affects Parcels 1 and 4) 11. Easement in favor of THE CITY OF ST. PETERSBURG contained in instrument recorded October 25, 1976 in Official Records Book 4470, page 1286, and Resolution Accepting Grant of Easement recorded October 25, 1976 in Official Records Book 4470, page 1285, of the Public Records of Pinellas County, Florida. (Affects Parcel 2) 12. Restrictions, covenants, conditions and easements as shown on the Plat of FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, recorded in Plat Book 94, page 3 of the Public Records of Pinellas County, Florida, which shows an easement of 20 feet along the NORTH property line for SANITARY SEWER purposes, as set out and reserved on said Plat. (Affects Parcel 2) 13. Easement in favor of FLORIDA POWER CORPORATION contained in instrument recorded October 8, 1976 in Official Records Book 4465, page 367, of the Public Records of Pinellas County, Florida. (Affects Parcel 4) 5 33 Commitment No. Company File No. TP229157 Agent File No. FLORIDA POWER CO. 14. Restrictions, covenants, conditions and easements as shown on the Plat of BROADWATER PLAZA, recorded in Plat Book 75, page 63 of the Public Records of Pinellas County, Florida, which shows an easement of 10 feet along the West property line for utility purposes, as set out and reserved on said Plat. (Affects Parcel 4) 15. Easement over the West 5 feet of Parcel 5 herein for public utilities, as shown and noted upon the plat of PERRY'S SKYVIEW SUBDIVISION, recorded in Plat Book 36, page 4, Public Records of Pinellas County, Florida. (Affects Parcel 5) 16. Easement in favor of FLORIDA POWER CORPORATION contained in instrument recorded February 5, 1969 in Official Records Book 3008, page 431, of the Public Records of Pinellas County, Florida. (Affects Parcel 5) 17. Easement in favor of the CITY OF ST. PETERSBURG contained in instrument recorded February 10, 1969 in Official Records Book 3011, page 344, of the Public Records of Pinellas County, Florida. (Affects Parcel 5) 18. Easement in favor of COMMUNITY BANKS OF FLORIDA, INC. contained in instrument recorded November 10, 1977 in Official Records Book 4621, page 919, of the Public Records of Pinellas County, Florida. (Affects Parcel 5) 19. Easement in favor of COMMUNITY BANKS OF FLORIDA, INC. contained in instrument recorded March 22, 1978 in Official Records Book 4673, page 593, of the Public Records of Pinellas County, Florida. (Affects Parcel 5) 20. Title to any portion of the premises lying within the bounds of State Road No. 55, as shown by plat recorded in Deed Book 1172, page 521, Public Records of Pinellas County, Florida. (Affects Parcel 5) 21. Terms and conditions of unrecorded leases, if any. Note: Item 7 above is hereby deleted. END OF SCHEDULE B-SECTION 2 6 34 EXHIBIT "D" Permitted Exceptions 1. 1997 ad valorem real estate taxes. 2. Restrictions, covenants, and conditions and easements as shown on the Plat of Florida Power Headquarters Subdivision First Addition, recorded in Plat Book 94, page 3 of the Public Records of Pinellas County, Florida. 35 EXHIBIT "E" LEASE COMMERCIAL LEASE THIS COMMERCIAL LEASE ("Lease") is made and entered into as of the 2nd day of October, 1997, by and between ABR PROPERTIES, INC., a Florida corporation, having its offices at 34125 U.S. Highway 19 North, Palm Harbor, Florida, as landlord ("Landlord"), and FLORIDA POWER CORPORATION, a Florida corporation, having its offices at 3201 34th Street South, St. Petersburg, Florida, as tenant ("Tenant"). W I T N E S S E T H: 1. LEASED PREMISES. Landlord hereby leases to Tenant, for the Term (as defined in Paragraph 2), at the Rent (as defined in Paragraph 3), and upon the other terms and conditions hereinafter set forth, that certain office complex consisting of that certain real property located in the County of Pinellas, State of Florida, and being more particularly described on EXHIBIT "A" TO LEASE attached hereto and incorporated herein by reference, containing 51.47 acres, more or less ("Property"), together with the following: a. All and singular the rights and appurtenances pertaining thereto, including any right, title and interest of Landlord in and to adjacent streets, roads, alleys, easements and rights of way, and including all sewer and water infrastructure, drainageways and other utilities, and all site improvements situated thereon; and b. The twelve (12) buildings ("Buildings") as currently constructed and situated on the Property, together with all fixtures, equipment and other improvements attendant thereto; and c. Those items of tangible personal property ("Personalty") identified on EXHIBIT "B" TO LEASE attached to this Lease and incorporated herein by this reference. Any security system and uninterrupted power supply systems constituting a portion of the Personalty, may sometimes be collectively referred to in this Lease as the "Systems." The Property, Buildings, rights, interests, improvements, and other appurtenances described above (other than the Personalty) are collectively called the "Leased Premises." It is the mutual intent of the parties that the Leased Premises initially shall include the entire office complex and grounds situated at 3201 34th Street South, St. Petersburg, Florida, and at 3401 34th Street South, St. Petersburg, Florida, together with the 36 Personalty (the "Entire Complex"). tenant shall vacate and release to Landlord (and such area and associated Personalty shall thereupon be released and excluded from the Leased Premises covered by this Lease) that portion of the Leased Premises comprised of all of the third floor and the portion of the first floor known as the PBX room of Building B, on March 31, 1998. This portion of the Property and term shall be referred to herein as "Phase IA." Tenant shall vacate and release to Landlord (and such area and associated Personalty shall thereupon be released and excluded from the Leased Premises) that portion of the Leased Premises comprised of the balance of Building B and the area fifteen (15) feet from the front of such building and twenty-five (25) feet from the sides and back of such building, on May 31, 1998. This portion of the Property and term shall be referred to herein as "Phase IB." Phase IA and Phase IB may hereinafter collectively be referred to as Phase I. Tenant shall vacate and release to Landlord (and such area and associated Personalty shall thereupon be released and excluded from the leased Premises) that portion of the Leased Premises comprised of Buildings C, D (and the expansions/additions to Buildings C and D), F and K and the area fifteen (15) feet from the front of such buildings and twenty-five (25) feet from the sides and backs of such buildings, on September 30, 1998. This portion of the Property and term shall be referred to herein as "Phase II." The remaining Leased Premises, and associated Personalty, and term shall be referred to herein as "Phase III." Prior to vacation by Tenant of Phase I and Phase II, Tenant, at Tenant's sole cost, shall install electric meters for the buildings (individually or in the aggregate) comprising the vacated Phase. 2. TERM. The term of this Lease ("Term") shall be for a period of approximately eighteen (18) months, commencing on October 2, 1997, and ending on March 31, 1999. In no event shall Tenant have the right to extend the Term or occupy the Leased Premises beyond March 31, 1999. 3. RENT. Subject to the other provisions of this Lease, Tenant covenants and agrees to pay Landlord rent ("Rent") for the Leased Premises and the Personalty during the Term in the amount of Five Million Seven Hundred Fourteen Thousand Eighteen and no/100 Dollars ($5,714,018.00). Tenant shall pay Rent to Landlord as follows: a. Five equal monthly installments, exclusive of applicable sales tax, of Four hundred Fifty-Seven Thousand Nine Hundred Fifty-Eight and 33/100 Dollars ($457,958.33) shall be payable in advance on the first day of each calendar month during the period November 1, 1997, through March 31, 1998. b. Six equal monthly installments, exclusive of applicable sales tax, of Three Hundred Eight Thousand Six Hundred Twenty and 83/100 Dollars ($308,620.83) shall be payable in advance on the first day or each calendar month during the period April 1, 1998, through September 30, 1998. -2- 37 c. Six equal monthly installments, exclusive of applicable sales tax, of One Hundred Eighty-Five Thousand Seven Hundred Fifty-Seven and 16/100 Dollars ($185,757.16) shall be payable in advance on the first day of each calendar month during the period October 1, 1998, through March 31, 1999. In addition to the foregoing, concurrently with Landlord's execution and delivery of this Lease, Tenant shall deliver to Landlord the payment of Rent for the month of October, 1997, in the amount of Four Hundred Fifty-Seven Thousand Nine Hundred Fifty-Eight and 33/100 Dollars ($457,958.33). All Rent shall be paid in the form of a wire transfer to Landlord's designated account. A late charge of five percent (5%) shall be immediately due and owing with respect to each installment of rent not received by Landlord's bank within five (5) days after its due date. Except as may hereinafter specifically be set forth, no adjustment shall be made in the Rent on account of the unavailability to Tenant of any Personalty as a result of Tenant's election not to repair or replace such Personalty during the Term. 4. SALES TAX. Along with and in addition to each monthly payment of Rent under this Lease, Tenant shall pay to Landlord, as additional rent under this Lease, sales or privilege tax required by Section 212.031, Florida Statutes, and any amendments or replacements thereof, to the extent applicable to this Lease. Such tax is presently payable at the rate of seven percent (7%) of the total Rent. 5. USE. Tenant agrees that Tenant will use the Leased Premises in the manner consistent with Tenant's use of the Premises prior to the Landlord's acquisition of title to the Leased Premises. 6. SERVICES AND OPERATION. Tenant shall be responsible for, at Tenant's sole cost and expense, any and all utilities and services required for those portions of the Leased Premises with respect to which Tenant is required to pay Rent hereunder, and the associated Personalty and/or necessary for the routine maintenance, upkeep and operation of the Leased Premises and the Systems, or applicable portions thereof, in the manner in which the Leased Premises and the Systems were maintained, kept and operated prior to the commencement of the Term. Tenant shall provide general security, utilities, and other services for the Leased Premises in the manner in which such services are provided prior to the Landlord's acquisition of title to the Leased Premises. Tenant acknowledges that all services for the Leased Premises covered by this Lease from time to time during the Term, including, without limitation, electricity, gas, telephone, water and sewer, are, as of the commencement date of this Lease, in Tenant's name and shall remain in Tenant's name for the Term, provided, however, that the services for portions of the Leased Premises released to Landlord shall be transferred to Landlord's name, if practical, upon the commencement of Phase II and Phase III, respectively. In the event that -3- 38 charges with respect to such utilities or services which are thus transferred are not readily ascertainable, then Landlord shall pay to Tenant the Landlord's proportionate share of services within ten (10) days of Tenant's notice of the amount due from Landlord. Landlord's proportionate share shall be the ratio which the Building area released to Landlord at the time the expense was incurred bears to 383,000 square feet. Such payments shall be reconciled on a quarterly basis. Tenant shall pay any and all amounts due for such utilities or services which are not separately metered applicable to the Entire Complex before they are delinquent, and shall keep the Entire Complex free and clear of any and all liens arising from Tenant's contracts for, and use of such utilities or services. Except as hereinafter provided in this Paragraph and Paragraph 9, in no event shall Tenant be relieved of its obligation to timely pay the Rent on account of any interruption or cessation of utilities or services, nor shall any such interruption or cessation place Landlord in default or alter in any way the obligations of Tenant under this Lease. If such an interruption or cessation (i) is caused by the negligent act or omission of Landlord or Landlord's agents, employees, or contractors and continues for more than five (5) days or (ii) Landlord fails with the exercise of due diligence to complete a repair or replacement required by this Lease to be made by Landlord within the later of (x) five (5) days after receiving notice that the need therefor exists or (y) the period after receipt of such notice within which Tenant could reasonably have completed the repair or replacement itself had it commenced to undertake to do so on the date Landlord receives such notice, then Tenant's obligation to pay the Rent shall be reduced proportionately to reflect the area of the Leased Premises affected by the interruption or cessation and the length of such interruption or cessation following the applicable allowable repair period. 7. REAL ESTATE TAXES. Landlord shall pay all real estate taxes and general and special fees or assessments, foreseen or unforeseen, attributable to the Leased Premises for all of calendar year 1997 (taxes having been prorated upon the purchase of the Leased Premises from Tenant by Landlord) and any period of time included within the Term. 8. QUIET ENJOYMENT. Landlord covenants that so long as Tenant is not in material default hereunder (beyond the expiration of any applicable cure period), Tenant shall, and may peaceably and quietly have, hold and enjoy the rights conferred by this Lease and exclusive possession of those portions of the Leased Premises entitled to be occupied by Tenant from time to time during the Term. Notwithstanding the foregoing, during Tenant's business hours, Tenant shall allow Landlord access to an area of Building B during Tenant's occupancy for the installation of communications and data equipment. Such access shall be provided and utilized only through areas designated by Tenant. -4- 39 9. MAINTENANCE AND REPAIR. a. The parties acknowledge that Tenant has occupied the Leased Premises prior to the commencement of this Lease and Tenant is familiar with the Leased Premises. Tenant accepts the Leased Premises and the Personalty in their condition at the beginning of the Term, and acknowledges that the Leased Premises and the Personalty are in satisfactory condition and assumes responsibility throughout the Term, at Tenant's sole cost and expense, to perform such ordinary and routine maintenance as may be required to maintain the Leased Premises and the Personalty in a manner consistent with the condition of the Leased Premises and the Personalty at the beginning of the Term (normal wear and tear, damage by casualty, design defect or obsolescence excepted). Tenant shall use reasonable precautions to prevent waste, damage or injury thereto. Tenant's maintenance obligations under this Paragraph shall include, without limitation, customary maintenance of the Personalty, the Buildings, all generators, heating and air conditioning systems, elevators, electrical systems, plumbing systems, other mechanical equipment, and the site and grounds, including, without limitation, driveways, parking areas, drainage and other utility structures, walkways, canopies, patios, common areas and landscaped areas. Anything in the foregoing provisions to the contrary notwithstanding, Tenant shall not be required to replace any Personalty or portions of the Leased Premises if the cost of such item is a capital expenditure which may be depreciated for purposes of federal income taxes, nor shall Tenant be required to replace, repair or restore structural portions of the Leased Premises or the roof, floors and major equipment on the Leased Premises. Notwithstanding any of the foregoing to the contrary Tenant shall not be responsible for, and Landlord shall repair at its sole cost and expense, any damage to the Leased Premises caused by Landlord or its servants, agents, employees or contractors and shall make and perform all repairs (except as to any items listed on EXHIBIT "B," as to which Landlord has no repair or replacement responsibility) which are not the Tenant's responsibility. Tenant shall have no obligation for any portions of the Entire Complex released to Landlord except for continued provision of maintenance services for the grounds, landscaping, and common areas until the end of Phase II (September 30, 1998) and general security services through the Term of this Lease. No less than twenty (20) days prior to the end of the Term, Tenant shall make available to Landlord at reasonable times Tenant's maintenance staff for the purpose of educating Landlord with respect to maintenance of the Leased Premises. b. Tenant agrees that Landlord or Landlord's representative(s) shall have the right upon reasonable notice and during customary business hours to enter upon and to inspect the Leased Premises and Personalty to ascertain that Tenant is carrying out the terms, conditions and provisions of this Lease and to make repairs for which the Landlord is responsible, provided no such entry or access shall disturb or interfere with Tenant's lease operations on the Premises. If such inspections identify any failure of the condition of the Leased Premises or the Personalty to comply with Tenant's obligations under this Lease, then Landlord shall so notify Tenant in writing, and Tenant shall immediately effect such repairs and/or replacements as are necessary -5- 40 to insure compliance by Tenant with Tenant's obligations under this Lease. In the event that Tenant fails to effect any such repairs and/or replacements, curing Tenant's default, then Landlord shall be entitled (but not required) to effect such repairs and/or replacements, at Tenant's sole cost and expense, and Tenant shall reimburse Landlord for such cost and expense immediately upon demand therefor. c. If Landlord has failed to comply with Landlord's repair or replacement obligations under this Lease, then Tenant shall so notify Landlord in writing, and Landlord shall immediately effect such repairs and/or replacements as are necessary to insure compliance by Landlord with Landlord's obligations under this Lease. In the event that Landlord fails to effect any such repairs and/or replacements, curing Landlord's default, then Tenant shall be entitled (but not required) to effect such repairs and/or replacements, at Landlord's sole cost and expense, and Landlord shall reimburse Tenant for such cost and expense immediately upon demand therefor. 10. HAZARDOUS MATERIALS. a. Hazardous Materials. (1) Tenant and Tenant's Affiliates shall not (i) excavate, dump, or bury any refuse on the Leased Premises or (ii) use, handle, store, display or generate Hazardous Materials in, on, around or under the Leased Premises in a manner that violates applicable laws. For purposes of this Lease, the term "Hazardous Materials" shall mean those substances defined as "hazardous substances," "hazardous materials," "hazardous waste," or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ss.9601, et seq.); the Hazardous Materials Transportation Act (49 U.S.C. ss.1801, et seq.); the Resource Conservation and Recovery Act (42 U.S.C. ss.6901, et seq.); and in any regulations adopted and promulgated pursuant to the foregoing, and any state, county or local laws, regulations and ordinances enacted with respect to any of such materials or substances. Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and against any and all claims, lawsuits, liabilities, losses, damages and expenses (including, without limitation, clean up costs and reasonable attorneys' fees arising by reason of Tenant's unlawful use, handling, storage, display, generation, removal, release, or discharge of Hazardous Materials during the Term) arising from, out of, or by reason of any breach of this Paragraph 10.a., occurring during the Term. (2) In addition to any other inspection and access rights that Landlord may have under the terms of this Lease, Landlord shall have the right to have third party professionals inspect and monitor those portions of the Leased Premises which may contain asbestos-containing materials to determine whether such materials exist, the extent and scope of their presence, and the projected cost of removal and/or containment thereof; provided that Landlord will not perform any remediation activities except as to the portions of the Entire Complex then released to Landlord, -6- 41 and, further, that Landlord shall exercise its inspection and access rights in a manner that does not cause a release of Hazardous Materials or unreasonably interfere with Tenant's business. Tenant agrees to cooperate with Landlord in Landlord's investigation. Landlord's access shall be made across and through areas reasonably designated by Tenant. Tenant acknowledges that Landlord will be conducting asbestos removal and construction activities with respect to those portions of the Entire Complex which have been vacated by Tenant as provided herein; PROVIDED, HOWEVER, (i) LANDLORD MAY NOT CONDUCT ASBESTOS OR OTHER HAZARDOUS MATERIALS REMOVAL ACTIVITIES IN BUILDING B SO LONG AS TENANT REMAINS IN OCCUPANCY OF ANY PORTION THEREOF AND (ii) LANDLORD'S OTHER ACTIVITIES IN BUILDING B PRIOR TO TENANT'S VACATION THEREOF SHALL NOT INTERFERE WITH TENANT'S BUSINESS OPERATIONS. Such activities shall be conducted in a commercially reasonable manner and in compliance with all laws, rules regulations and ordinances of all agencies and authorities having jurisdiction. Tenant will take all reasonable precautions to exclude its officers, directors, employees, guests and invitees from those areas where such activities are being conducted. To the extent feasible, Landlord shall utilize the portions of the Entire Complex vacated by Tenant for staging of equipment and personnel and parking for the forces performing such removal and construction activities. Tenant shall authorize Landlord to utilize portions of the Entire Complex still in the possession of Tenant and reasonably designated by Tenant for the staging of equipment which cannot feasibly be accommodated on the portions of the Entire Complex vacated by Tenant. (3) Landlord and Landlord's Affiliates shall not use, handle, store, display, generate, remove, release, or discharge Hazardous Materials in, on, around or under the Entire Complex in a manner that violates applicable laws rules regulations and ordinances of all agencies and authorities having jurisdiction. Landlord hereby agrees to defend, indemnify and hold Tenant harmless from and against any and all claims, lawsuits, liabilities, losses, damages and expenses (including, without limitation, clean up costs and reasonable attorneys' fees arising by reason of Landlord's activities relating to Hazardous Materials during the Term) arising from, out of, or by reason of any breach of this Paragraph 10.a., occurring during the Term. b. Tenant, for itself and Tenant's Affiliates, hereby releases Landlord, and its officers, directors, employees, agents and representatives from, and waives any rights of indemnification or contribution that Tenant, or Tenant's Affiliates, may have against Landlord, its officers, employees, agents or representatives with respect to the presence or release of Hazardous Materials at, on, under or about the Leased Premises, except to the extent that Landlord, or its servants, agents, employees or contractors cause or permit such presence or release to occur in connection with their activities at the Leased Premises or in the Entire Complex. 11. INTENTIONALLY OMITTED. -7- 42 12. ACCESS TO PREMISES. Landlord or Landlord's agents and designees shall have the right, but not the obligation, to enter upon the Leased Premises at reasonable times and after reasonable notice, in a manner that will not unreasonably interfere with Tenant's business, to examine the Leased Premises for any and all purposes necessary to carry out the terms and provisions of this Lease, including, without limitation, for planning for any architectural alterations to be made by Landlord in anticipation of the expiration of each Phase or the Term, and for any and all other purposes relative to Landlord's exercise of Landlord's rights and remedies under the terms of this Lease. 13. LIABILITY. Except as provided in Paragraph 15 below, Tenant agrees to and shall indemnify, defend and hold Landlord and its officers, directors, agents, servants and employees harmless from and against all causes of action, claims, damages, losses and expenses, excluding attorneys' fees, resulting from or arising out of bodily injury, sickness, disease or death, or injury to or destruction of tangible property, occurring at, on, in or about the those portions of the Leased Premises occupied by Tenant from time to time hereunder, except to the extent caused by Landlord or Landlord's servants, employees, agents or contractors. Landlord shall not be liable for any damage or injury to the Leased Premises, the Personalty, Tenant's property, Tenant, or Tenant's Affiliates arising from any use or condition of the Leased Premises or the Personalty, including, without limitation, any sidewalk or entranceway, or any damage or injury resulting from the presence or release of Hazardous Materials at, on, under or about the Leased Premises, or the malfunction of any equipment or apparatus serving the Leased Premises, including, without limitation, the Personalty, except to the extent caused by Landlord or Landlord's servants, employees, agents or contractors. In addition to the indemnities provided in Paragraphs 10(a)(3) and 15, Landlord agrees to and shall indemnify, defend and hold Tenant and its officers, directors, agents, servants and employees harmless from and against all causes of action, claims, damages, losses, and expenses, except attorneys' fees, resulting from or arising out of bodily injury, sickness, disease or death, or injury to or destruction of tangible property, resulting from or arising out of the acts of Landlord or Landlord's servants, employees, agents or contractors 14. LIABILITY INSURANCE. Tenant shall, at its sole cost and expense, at all times during the Term, maintain in full force and effect a policy or policies of general commercial liability insurance, including property damage, written by one or more responsible insurance companies licensed to do business in the State of Florida, insuring Tenant, and naming Landlord as an additional insured, against claims for loss of life, bodily injury and property damage occurring in, on or about the Leased Premises or with respect to the business operated by Tenant in the Leased Premises. The limit on public liability coverage shall not be less than Five Million and no/100 Dollars ($5,000,000.00) for combined single-limit bodily injury, death, and property damage liability. A copy of a certificate of such insurance shall be delivered to Landlord concurrently with Tenant's execution of this Lease, and copies or certificates with respect to all renewals, extensions or replacements thereof shall be thereafter -8- 43 furnished to Landlord at least ten (10) days prior to the expiration or cancellation of any policies which they replace. 15. TENANT AND LANDLORD RISK. Tenant agrees that all personal property brought into the Leased Premises by Tenant or Tenant's Affiliates shall be at the sole risk of Tenant and Tenant's Affiliates. Landlord shall not be liable for theft thereof or of any money deposited therein or for any damages thereto unless such loss or damage is caused by the willful or negligent act of Landlord or Landlord's employees, contractors or agents. Tenant hereby assumes all risk of personal injury arising on, or in connection with the Leased Premises suffered by Tenant or Tenant's Affiliates, and indemnifies, defends and holds Landlord harmless from and against any and all damages and liabilities that may arise in connection with any such injury, except to the extent caused by Landlord or its servants, employees, agents or contractors. Landlord hereby assumes all risk of personal injury arising on, or in connection with the Leased Premises suffered by Landlord or Landlord's Affiliates, and indemnifies, defends and holds Tenant harmless from and against any and all damages and liabilities that may arise in connection with any such injury, except to the extent caused by the willful or negligent act of Tenant or its servants, employees, agents or contractors. 16. FIRE OR OTHER CASUALTY: CASUALTY INSURANCE. a. In case of fire or other casualty to the Leased Premises, or any portion thereof, Tenant shall immediately give notice thereof to Landlord. b. If any of the Buildings shall be partially or totally destroyed by fire or other casualty so as to render the Leased Premises or portions thereof untenantable, Tenant may elect, by delivering written notice to Landlord within thirty (30) days of the occurrence of such destruction, to either (i) require Landlord to repair, restore and rebuild the Leased Premises (but not the Personalty) at Landlord's cost and expense); or (ii) cancel this Lease or the portion thereof attributable to any or all Buildings(s) or the Personalty suffering damage, effective as of the date of such damage; provided, however, that (i) in the event the repairs required to be made by the Landlord cannot be completed within six (6) months and the Leased Premises will be inadequate for Tenant's business purposes as a result of the casualty (as reasonably determined by Tenant), or (ii) in the event any material damage occurs within the final six (6) months of the Term, then this Lease shall cancel on the date of such damage as to the Building(s) and the Personalty are so damaged and Tenant shall not have the option to require the Landlord to rebuild. If Tenant fails to timely notify Landlord of any election available to Tenant hereunder, then Tenant shall be deemed to have elected to require the Landlord to repair and restore the Leased Premises, taking into consideration Landlord's future plans for the Leased Premises. Anything herein to the contrary notwithstanding, during the period any such portion of the Leased Premises shall be untenantable or if this Lease is canceled as a result of such damage or destruction, then rent for the Premises shall be reduced by an amount -9- 44 equal to the ratio of untenantable area to the entire Leased Premises together with an equitable adjustment for any remaining portion for which Tenant's continued use or access is impaired as a result of such damage or destruction. Any unearned prepaid rent shall be refunded to Tenant within ten (10) days after the casualty. c. Landlord shall keep the Leased Premises fully insured against such contingencies as are normally covered by fire and extended coverage insurance with "all risk" or "all perils" coverage for the full cost of replacement of the Leased Premises and the Personalty, together with an inflation endorsement. Tenant agrees that it also will be responsible for and will maintain such insurance covering its own property located at the Leased Premises as Tenant deems appropriate, and will not hold Landlord responsible for any such loss or damage. All insurance proceeds from casualty damage to the Leased Premises and/or Personalty shall be deemed the property of Landlord, and Tenant shall have no claim thereto. 17. WAIVER OF SUBROGATION. All insurance policies carried by Landlord covering the Leased Premises, as required by the provisions of this Lease, shall expressly waive any right on the part of the insurer to make any claim against the Tenant. Landlord and Tenant each hereby waive all claims, causes of action and rights of recovery against the other and their respective agents, officers and employees, for any damage to, or destruction of, persons, property or business which shall occur on or about the Leased Premises and the Personalty and shall result from any of the perils insured under any and all policies of insurance maintained by Landlord and Tenant, regardless of cause, including the negligence and intentional wrongdoing of either party and their respective agents, officers and employees, but only to the extent of recovery, if any, under such policy or policies of insurance; provided, however, that this waiver shall be null and void to the extent that any such insurance shall be invalidated by reason of this waiver. 18. EMINENT DOMAIN. a. If all or any material portion of the Leased Premises is taken by any condemning authority (other than Tenant) by statute or right of eminent domain, Tenant may elect to either (i) cancel this Lease either totally or for that portion of the Leased Premises so taken, and in the event of a partial termination, this Lease shall be amended to reflect the release of the canceled portion and a reduction in Rent equal to the proportion of the Buildings released (based upon the square footage of the portion of the Building so taken relative to the total square footage of all of the Buildings), or (ii) continue the Lease in full with a proportionate reduction in Rent for the period the portion of the Leased Premises is not useable by Tenant, and during such period, the taken portion shall be released from the terms of this Lease. Such election shall be made in writing within thirty (30) days of the date possession is required by the condemning authority. In the event Tenant elects to continue this Lease, either totally or partially, then Landlord and Tenant shall cooperate in good faith to prepare plans and specifications for repairs reasonably necessary to restore the remaining portion of -10- 45 the Leased Premises to a tenantable condition, considering Landlord's future plans for the Leased Premises. Landlord shall make available to Tenant that portion of the condemnation proceeds allocable (in the reasonable judgment of the parties) to the Buildings to be repaired up to the full costs of repairs. If the parties cannot reach agreement on the scope and nature of the necessary repairs, the plans and specifications for such repairs or the use of the condemnation proceeds in connection with such repairs, then Tenant may cancel this Lease upon written notice to Landlord, and any unearned prepaid rent shall be refunded to Tenant. b. All awards and proceeds payable on account of any taking, whether whole or partial, shall be paid to Landlord and Tenant as their interests may appear. Nothing herein shall limit Tenant's right to seek damages from the condemning authority for business loss or interruption or relocation expense. c. Tenant agrees that Tenant shall not exercise any right or power it may have to condemn the Leased Premises, or the Personalty, or any portion thereof, during the Term. 19. DEFAULT. a. In case of (i) failure by Tenant to pay any installment of Rent, additional rent, or other charges within five (5) days after such payment is due, or (ii) failure of Tenant to commence to cure any non-monetary default within twenty (20) days after written notice of such default from Landlord to Tenant (or Tenant's failure to pursue such cure to completion within a reasonable time thereafter), then Landlord shall have the following rights under the provisions of this Lease or by law, and at Landlord's option: (1) Landlord may cancel this Lease by written notice to Tenant, without, however, waiving Landlord's right to collect all installments of Rent and other payments due or owing for the period up to the time Landlord regains occupancy. (2) As Tenant's agent, without canceling this Lease, Landlord may enter upon and rent the Leased Premises at the best price obtainable by reasonable effort and by private negotiations and for any term Landlord deems proper. Tenant shall be liable to Landlord for the deficiency, if any, between the Rent due under this Lease and the total rental applicable to the lease obtained by Landlord on re-letting, after deducting Landlord's expenses in restoring the Leased Premises and all costs incident to such re-letting, including, without limitation, brokerage commissions. The total rental applicable to the term obtained by Landlord on such re-letting shall be the property of the Landlord, and Landlord shall not be liable to Tenant for any excess thereof over the rental reserved hereunder, the rights to any such excess, if any, being hereby waived by Tenant. -11- 46 (3) If Landlord shall pay any charge or expense or make any expenditures for which Tenant is responsible under this Lease, or if Tenant should fail to make any payment, including, without limitation, Rent and additional rent, which Tenant is obligated to make under the terms and provisions of the Lease, or if Tenant should fail to perform any maintenance or make any repairs which Tenant is obligated to perform or make under the terms and provisions of this Lease, then Tenant shall reimburse Landlord for such charge or expense, including, without limitation, the cost and expense of performing any maintenance or making any repair, and such reimbursement shall be due and payable upon demand by Landlord and shall bear interest at the lesser of 18% annually or the highest lawful rate from the time of demand until paid. (4) All rights and remedies of Landlord set forth above shall be cumulative and shall not exclude any other right or remedy allowed by this Lease, at law or in equity, including, without limitation, Landlord's rights to enjoin any default or breach of Tenant, and to invoke or pursue any summary proceedings. b. If Landlord fails to perform any covenant or agreement required of it in this Lease to be performed, then, if such default continues for twenty (20) days after written notice of such default from Tenant to Landlord, Tenant may (but shall not be required to) cure such default on behalf of and at the expense of Landlord, and Landlord shall reimburse Tenant the amount so paid by Tenant together with interest at the lesser of 18% annually or the highest lawful rate from the time of demand until paid. If the default cannot be cured within twenty (20) days, then unless Tenant's business operations shall be interrupted or its property damaged or threatened, Landlord shall not be in default if Landlord shall have commenced within such period to correct the default and if Landlord shall complete the cure of such default within the period after receipt of such notice within which Tenant could reasonably have completed the repair or replacement itself had it commenced to undertake to do so on the date Landlord receives such notice. All rights and remedies of Tenant set forth above shall be cumulative and shall not exclude any other right or remedy allowed by this Lease, at law or in equity, including, without limitation, Tenant's rights to enjoin any default or breach of Landlord, and to invoke or pursue any summary proceedings. 20. FAILURE TO INSIST ON STRICT PERFORMANCE. The failure of either party to insist, in any one or more instances, upon strict performance of any covenant of this Lease shall not be construed as a waiver or relinquishment thereof, but the same shall continue and remain in full force and effect. The receipt by Landlord of Rent with knowledge of the breach of any covenant of Tenant hereunder, or the payment by Tenant of Rent with the knowledge of the breach of any covenant of Landlord hereunder, shall not be deemed a waiver of the rights of either party with respect to such breach, and no waiver by either party of any provision hereof shall be deemed to have been made unless expressed in writing and signed by the party benefited by such provision. -12- 47 21. SURRENDER OF LEASED PREMISES. a. Surrender. Tenant shall, upon the termination of each Phase and of this Lease, by lapse of time, default of Tenant and exercise by Landlord of Landlord's remedies, or otherwise, return the Leased Premises and the Personalty to Landlord in substantially as good condition as when received, ordinary wear, excepted, and damage by casualty, condemnation or the acts of Landlord and Landlord's agents, employees, contractors, and licensees, and matters for which Tenant is not responsible under this Lease, excepted. b. Alterations, Improvements and Remodeling. During the term of this Lease, Tenant shall have the right to make any alterations, changes and improvements to the Leased Premises, at its own expense, provided Tenant obtains all governmental permits and approvals required in connection with such work and the approval of Landlord, which approval will not be unreasonably withheld or delayed. Tenant shall also have the right to make other on-site improvements and alterations to the existing Buildings provided Tenant obtains all governmental permits and approvals required in connection with such work and the approval of Landlord, which approval will not be unreasonably withheld or delayed. Tenant is hereby authorized to make non-structural changes to the interior of the Buildings which do not include the movement of any walls. Tenant agrees to remove its signs from the Leased Premises at the expiration of this Lease and to repair any damage caused by such removal. Tenant shall have the right, at its sole expense, to remove any and all alterations, improvements, and equipment installed by Tenant on the Leased Premises during the term of this Lease as long as Tenant repairs any damage caused to the Leased Premises by such removal. Any and all alterations and improvements made by Tenant during the term of this Lease and not so removed shall become the property of Landlord following expiration of the Lease term. c. Equipment. Tenant may install in, and remove from, the Leased Premises, such furniture, equipment, and machinery as may be necessary or appropriate to its business on the Leased Premises. If Tenant shall remove such property from the Leased Premises, it shall repair any damage done by such installation and removal. Any items of personal property including those owned by Tenant that are not removed from the Leased Premises within thirty (30) days after the expiration or earlier termination with respect to each Phase of this Lease shall be deemed abandoned by Tenant and shall become the property of Landlord. 22. HOLDING OVER. If Tenant occupies any Phase or the Leased Premises after the termination of such Phase or of this Lease without Landlord's prior written consent, which consent may be withheld in Landlord's sole and absolute discretion, as applicable, then Tenant shall be a tenant-at-sufferance only, subject to all of the terms and provisions of this Lease at twice the then-effective Rent. Such a holding over shall not constitute an extension or renewal of this Lease. -13- 48 23. INTENTIONALLY OMITTED. 24. SUBORDINATION: ATTORNMENT. This Lease shall be subject and subordinate to any mortgage or other financing which now or hereafter encumbers or affects the Leased Premises, or any portion thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof, provided any such mortgagee will agree that as long as Tenant is not in default under any of its obligations hereunder and shall fulfill such obligations within applicable grace periods, then Tenant's rights and possession under this Lease shall not be disturbed by such mortgagee. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee or Landlord. In confirmation of such subordination, however, Tenant shall, within ten (10) business days after Landlord's request therefor, execute an instrument which confirms the terms of this Section. In the event of the enforcement by the holder of any such instrument of the remedies provided for by law or by such mortgage, then, so long as the Landlord's obligations shall be performed, (i) Tenant shall automatically become the tenant of such successor in interest without change in the terms or other provision of this Lease, and attorn to such successor in interest under this Lease, and (ii) such successor in interest shall attorn to Tenant under this Lease, each party being bound by all of the terms and provisions of this Lease. The attornment provided for in this Paragraph shall be self-operative, however, upon request by either party, the other party shall execute and deliver an instrument or instruments confirming the attornment provided for herein. 25. ESTOPPEL CERTIFICATE. Each party shall, from time to time, upon not less than ten (10) days' prior written request by the other party, execute, acknowledge and deliver to such other party a written estoppel certificate in such form and in favor of such parties as such other party may reasonably require, certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications), the dates to which the Rent and other charges have been paid, whether or not to the best of the certifying party's knowledge the other party is in default hereunder (and, if so, specifying the nature of the default), and such other matters as may be required by the requesting party, or the holder of any mortgage to which the Leased Premises are or may hereafter be subject, it being intended that any such statement delivered pursuant to this Paragraph 25 may be relied upon by a mortgagee of Landlord's interest or assignee of any mortgage upon Landlord's interest in the Leased Premises. 26. NO ASSIGNMENT OR SUBLETTING. Tenant shall not assign, sublease, mortgage or encumber this Lease, the Leased Premises, the Systems or any part of the Leased Premises without Landlord's prior written consent, except (1) pursuant to that certain Indenture of Tenant dated as of July 1, 1944, as amended and supplemented from time to time and (2) to a subsidiary, parent or other affiliated entity. Notwithstanding any assignment or subletting to such affiliate, the Leased -14- 49 Premises shall not be utilized for any new business or service function for which it is not utilized at the initial commencement of the Term hereunder, unless Landlord consents to such new use. 27. SUCCESSORS AND ASSIGNS. The covenants, agreements, stipulations and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant, as appropriate, and to their respective legal representatives, heirs, and successors and assigns. 28. NOTICES. Any notice to be given or to be served under this Lease by Landlord to Tenant, or by Tenant to Landlord, shall be considered as duly given if made in writing, and may be given by certified mail, hand delivery, overnight receipt delivery service, and shall be deemed to have been given and received when delivered to and received by the party to whom it is addressed. Such notices shall be given to the parties at the addresses set forth in the preamble of this Lease or to such other address as each of the parties may from time to time designate in writing. 29. GOVERNING LAW. This Lease shall be governed by, and interpreted and enforced under and in accordance with, the laws of the State of Florida. Venue for the resolution of any dispute between the parties shall lie exclusively in Pinellas County, Florida. 30. CONSTRUCTION OF LEASE. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for nor against either Landlord or Tenant. Paragraph headings in this Lease are for convenience only and are not to be construed as part of this Lease or in any way defining, limiting or amplifying the provisions thereof. Landlord and Tenant agree that in the event any term, covenant or condition herein contained is held to be invalid, illegal or unenforceable for any reason, by any court of competent jurisdiction, the invalidity or unenforceability of any such term, covenant or condition herein contained, it being the intention of the parties to this Lease that in lieu of each such term, condition or covenant that is invalid or unenforceable, there be added as a part of this Lease a provision as similar in term to such invalid or unenforceable term, condition or covenant as may be possible and be valid and enforceable. 31. ENTIRE AGREEMENT: MODIFICATION. This Lease contains the entire agreement of the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, between the Landlord and Tenant not embodied herein, shall be of any force or effect. Any agreement hereafter made between Landlord and Tenant shall be ineffective to modify, release or otherwise affect this Lease, in whole or in part, unless such agreement is in writing and signed by both Landlord and Tenant. -15- 50 32. CORPORATE AUTHORITY. a. For Tenant. The person executing this Lease on behalf of Tenant does hereby covenant and warrant that (a) Tenant is a duly authorized and existing corporation, and is qualified to do business in Florida; (b) the corporation has full right and authority to enter into this Lease; and (c) each of the persons signing on behalf of the corporation are duly authorized to do so. b. For Landlord. The person executing this Lease on behalf of Landlord does hereby covenant and warrant that (a) Landlord is a duly authorized and existing corporation, and is qualified to do business in Florida; (b) the corporation has full right and authority to enter into this Lease; and (c) each of the persons signing on behalf of the corporation are duly authorized to do so. 33. LANDLORD'S CONSENT. Whenever in this Lease Landlord's consent is required, Landlord's consent shall not be unreasonably withheld or delayed. 34. TIME OF ESSENCE. Time is of the essence in the performance of and compliance with each of the provisions and conditions of this Lease. 35. BROKER AND INDEMNITY. Landlord and Tenant warrant and represent, each to the other, that it has not authorized or employed, or acted by implication to authorize or to employ, any real estate broker or salesman to act for it in connection with this Lease other than Echelon Real Estate Services, Inc., whose commission, if any, shall be the sole obligation of Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims by any other real estate broker or salesman for a commission or finder's fee as a result of Tenant's acts. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims by any other real estate broker or salesman for a commission or finder's fee as a result of Landlord's acts. 36. RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a buildings in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon testing may be obtained from your county public health unit. 37. WAIVER OF LANDLORD'S LIEN. Landlord shall not have or acquire, and hereby waives, any lien, statutory or otherwise, on the Tenant's inventory, goods fixtures, equipment, or property. 38. COUNTERPARTS. This Lease may be executed in one or more separate counterparts, each constituting a duplicate original, but all such counterparts constituting one and the same Lease. -16- 51 IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the date first above written. WITNESS: LANDLORD: ABR PROPERTIES, INC., a Florida corporation BY: - -------------------------------- --------------------------------- Joseph C. Lukason - -------------------------------- Its: President WITNESSES: TENANT: FLORIDA POWER CORPORATION, a Florida corporation By: - -------------------------------- --------------------------------- David L. Miller - -------------------------------- Its: Vice President -17- 52 Exhibit A to Lease LEGAL DESCRIPTION PARCEL 1: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 67, page 59 and 60, said lands situate, lying and being in Pinellas County, Florida. PARCEL 2: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. PARCEL 3: The West 710.00 feet of the SE 1/4 of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida, less the South 450.00 feet thereof, and less the West 50.00 feet thereof for road right-of-way; together with that part of the North 267.72 feet of said SE 1/4 of the SE 1/4, less the West 710.00 feet thereof, lying west of Broadwater Plaza, as recorded in Plat Book 75, Page 63, Public Records of Pinellas County, Florida, being more particularly described as follows: Commence at the SE corner of the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida; thence N 89 degrees 54'56" W., along the South boundary of said SE 1/4, a distance of 1323.05 feet to the SW corner of the SE 1/4 of said SE 1/4; thence N 0 degrees 15'08" E., along the West boundary of said SE 1/4 of the SE 1/4, a distance of 450.00 feet; thence S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 50.00 feet to a point on the East right-of-way line of 37th Street South and the point of beginning; thence continue S 89 degrees 54'56" E., 450.00 feet from and parallel with said South boundary, a distance of 660.00 feet; thence N 0 degrees 15'08" E., 710.00 feet from and parallel with said West boundary, a distance of 609.45 feet to a point on an extension of the South boundary of Lot 1, Block 1, BROADWATER PLAZA, as recorded in Plat Book 75, Page 63, of the Public Records of Pinellas County, Florida; thence S 89 degrees 52'40" E., along said extension, 23.00 feet to the SW corner of said Lot 1; thence N 0 degrees 15'08" E., along the West boundary of said Lot 1, a distance of 267.72 feet to the NW corner of said Lot 1, thence N 89 degrees 52'40" W., along the South boundary of Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION, as recorded in Plat Book 67, Pages 59 and 60, Public Records of Pinellas County, Florida, a distance of 683.00 feet to the SW corner of said Lot 1; thence S 0 degrees 15'08" W., along the East right-of-way line of said 37th Street South, 50.00 feet from and parallel with the West boundary of said SE 1/4 of the SE 1/4, a distance of 877.61 feet to the point of beginning. All being in the SE 1/4 of Section 34, Township 31 South, Range 16 East, Pinellas County, Florida. LESS THAT PORTION THEREOF DESCRIBED AS: Lot 1, Block "A", FLORIDA POWER HEADQUARTERS SUBDIVISION FIRST ADDITION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 94, page 3, said lands situate, lying and being in Pinellas County, Florida. 2 53 PARCEL 4: Lot 1, Block 1, BROADWATER PLAZA, according to the Plat thereof on file in the office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 75, page 63, said lands situate, lying and being in Pinellas County, Florida. PARCEL 5: Lot 1, Block A, PERRY'S SKYVIEW SUBDIVISION, according to the Plat thereof on file in the Office of the Clerk of the Circuit Court in and for Pinellas County, Florida recorded in Plat Book 36, page 4, said lands situate, lying and being in Pinellas County, Florida. END OF LEGAL DESCRIPTION 3 54 EXHIBIT "B" TO LEASE PERSONALTY SCHEDULE OF SELLER'S TANGIBLE PERSONAL PROPERTY (except where expressly excluded below) 1. SECURITY SYSTEM a. All Westinghouse Proximity Readers b. All Panasonic Cameras, Recorders, Switches & Controllers which pertain only to the G.O.C. Site c. On site processing computer using Westinghouse 5850 Software d. Two (2) Security Golf Carts The following items shall be excluded from this sale and conveyance: All Wide Area Network System components, software and auxiliary equipment, including but not limited to, Video and Remote Site Alarm monitoring, which shall be retained by Seller. 2. UNINTERRUPTED POWER SUPPLY Emerson UPS System, 600 kva with 300 kva redundant, expandable to 1200 kva total. Two string 450 kw battery with 2000 amp switchgear 3. ALL CAFETERIA SUPPLIES, EQUIPMENT AND UTENSILS (1) 55" x 33" Refrigerator (2) 28" x 27" Refrigerator (6) Side by Side Refrigerators (2) Grills (2) Deep Freezers (1) Bun Warmer (1) General Warmer (1) Oven (1) 28' x 38" Mixer (6) Refrigerated Units (2) 5' Round Tables (2) 6' Round Tables (2.5) 3' Round Tables (100) Chairs (1) Sandwich Bar (1) Salad Bar (1) Soup Bar (1) Steam Table (1) Cold Table 55 The following items are owned by vendors and will be excluded from this sale and conveyance: (2) Ice Machines (1) Juice Dispenser (1) Soft Drink Dispenser (1) Coffee Maker (1) Yogurt Dispenser 4. MAINTENANCE SUPPLIES, EQUIPMENT AND VEHICLES a. Four (4) Golf Carts b. 50% of the one site Service Carts c. All items in the Maintenance Store Room and in the Electrical Shed except for all tools which are the property of third party Vendors d. The Upright UL-24 Electrical Lift 5. GENERATING EQUIPMENT & SWITCH GEAR a. Onan/Cummins 300kw emergency power generator and transfer scheme b. Caterpillar 1000kw emergency power generator c. Fuel System, 3 @ 2,000 gallon Convault tanks with Omron automated pumping and leak detection system - 200 gallon day tanks on both gensets 6. ALL ROOF ANTENNAS AND AUXILLARY COMMUNICATION EQUIPMENT USED FOR INTER G.O.C. COMMUNICATION The following items will be excluded: a. All equipment related to intra G.O.C. communication b. The Microwave Dish which is Property of USF 7. AUDITORIUM EQUIPMENT a. All built-in Audio & Video equipment used exclusively to support Auditorium operations shall become property of the buyer, which includes: (1) Projector-Optical Radiation Corporation (1) Screen (2) Speakers JBL (1) Sony Reel to Reel Tape Recorder (1) York Controls Decoder (1) IBL Amplifier (1) Podium and Controls (2) 8' Folding Tables 56 All Black and Chrome Chairs All PA Equipment The Seller shall use good faith efforts to label all disconnected wires b. All Video Production Equipment which does not support the operation of the Auditorium shall remain as Personal Property of the Seller c. All portable Audio & Video equipment shall remain as personal property of the Seller 57 EXHIBIT "C" TO LEASE SKETCH [DELIBERATELY OMITTED] EX-11.1 3 STATEMENT OF EARNINGS PER SHARE 1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS 2 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS ABR INFORMATION SERVICES, INC.
YEAR ENDED JULY 31, -------------------------------------------- 1995 1996 1997 ---- ---- ---- Primary: Average shares outstanding 19,680,322 22,353,988 27,320,151 Net effect of dilutive stock options - based on the treasury stock method using average market price 321,168 713,066 494,643 ------------- ----------- ----------- TOTAL 20,001,490 23,067,054 27,814,794 Net income per financial statements $ 2,793,679 $ 5,673,783 $12,228,652 Per share amount $.14 $.25 $.44 ==== ==== ==== Fully Diluted: Average shares outstanding 19,680,322 22,353,988 27,320,151 Net effect of dilute stock options - based on the treasury stock method using the year end price, higher than average market price 435,922 804,862 609,975 ------------- ----------- ----------- TOTAL 20,116,244 23,158,850 27,930,126 Net income per financial statements $ 2,793,679 $ 5,673,783 $12,228,652 Per share amount $.14 $.25 $.44 ==== ==== ====
EX-13.1 4 ANNUAL REPORT OF ABR INFORMATION SERVICES, INC. 1 EXHIBIT 13.1 1997 ANNUAL REPORT OF ABR INFORMATION SERVICES, INC. 2 1997 ANNUAL REPORT ABR INFORMATION SERVICES, INC. 3 A STRATEGY OF GROWTH CONTENTS 1 Financial Highlights 2 Letter to Shareholders 3 1997 Accomplishments 4 Company Overview 10 Selected Financial Data 11 Management's Discussion & Analysis 14 Consolidated Statements of Income 15 Consolidated Balance Sheets 16 Consolidated Statements of Shareholders' Equity 17 Consolidated Statements of Cash Flows 18 Notes to Consolidated Financial Statements 29 Report of Independent CPA 30 Market Price Information 31 Corporate and Shareholder Information 32 Directors and Officers ABR Information Services, Inc. is a company that has distinguished itself in the marketplace through a history of rapid growth. In the field of Portability Administration Services, ABR has excelled. When a new law called COBRA (the Consolidated Omnibus Budget Reconciliation Act) took effect in 1986, ABR was among the first to offer comprehensive services to deal with its requirements on behalf of employers. ABR's CobraServ operation is now the largest independent COBRA compliance service provider in the country. Subsequently, when another new law called HIPAA (Health Insurance Portability and Accountability Act of 1996) began its phase-in period in 1997, ABR responded by leveraging its existing systems to quickly provide compliance services to its existing client base. Now, ABR believes that it is the largest independent provider of HIPAA compliance services in the nation. ABR's ability to quickly adapt to marketplace opportunities and client demands defines our strategy of growth. This responsiveness has enabled us to position ourselves favorably to benefit from one of today's largest business trends -- benefits administration outsourcing. No longer limited to a single niche of the employee benefits administration industry (COBRA compliance), ABR's suite of services has expanded to encompass more than 20 service lines that address the many needs of the $10 billion potential market for full-range benefits administration services. In contrast to its primary competitors, consultants and insurance carriers, ABR takes a service bureau approach to the business -- offering efficiency and value through economies of scale, technology and location. A final element of ABR's growth strategy is the accumulation of complementary and supplementary resources through acquisition. To date, key acquisitions have expanded the scope of ABR's service capabilities, significantly enhanced revenues and opened doors to major business opportunities. ABR continues to actively pursue major opportunities in the rapidly developing benefits outsourcing market. We expect to continue our success through a well-planned "Strategy of Growth." 4 *FINANCIAL HIGHLIGHTS (In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------------------- Results of Operations - Year Ended July 31, 1996 1997 Change - --------------------------------------------------------------------------------------------- Revenue $31,162 $50,079 60.7% Operating income $ 6,362 $12,135 90.7% Net income $ 5,674 $12,229 115.5% Net income per share $ .25 $ .44 76.0% Weighted average shares outstanding, primary 23,067 27,815 20.6%
[CHART] [CHART] [CHART] [CHART] *Restated for a two-for-one stock split completed on February 19, 1997. 5 TO OUR SHAREHOLDERS [PICTURE] James E. MacDougald Chairman of the Board President and Chief Executive Officer Fiscal 1997 was a great year for ABR. Revenues were $50.1 million, an increase of 60.7% from the prior year, and profits increased to $12.2 million, up 115.5% from 1996. For our shareholders, these numbers translated into earnings per share of $.44, up 76% in fiscal 1997. Further, we believe our three-plus year track record as a public company is unparalleled in our industry. Since going public in 1994, ABR has posted 14 consecutive quarters of revenue growth over 30% and compound annual profitability increases of 110%. To our original public shareholders, this financial performance has translated into an 1150% increase in the value of their ABR common stock as of July 31, 1997. As we look forward into 1998 and beyond, the strength of ABR's financial condition, including $156 million in cash and investments, zero debt, and a current ratio of 6.1 to 1, positions us to take full advantage of the continuing trend toward outsourcing and our enviable status as the industry leader in benefits outsourcing administration. During 1997, we added to our core services in a number of exciting ways. First, federal legislation mandated compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) for most American employers. The short- and long-term benefits to ABR from the enactment of HIPAA are profound. Foremost, we believe HIPAA entrenches COBRA as the driver of healthcare portability. As the nation's leading provider of COBRA services, we were able to leverage our technology, compliance expertise and large client base to leap to the forefront of HIPAA outsourcing administration. Longer-term, we feel the effect of our combined portability product (COBRA and HIPAA) will continue to be the driving engine of ABR's industry dominance. In addition, ABR also added 401(k) and state "mini-COBRA" administrative services in 1997. The extension of our services into these growing service areas meshes well with our existing core compliance competencies. Late in 1997, our vision of the benefits outsourcing operations center of the future became reality. ABR Center, a 118,000 square foot state-of-the-art facility, opened on-time and on-budget in May. In addition, shortly after our fiscal year-end, we announced the acquisition of a 380,000 square foot complex in St. Petersburg, Florida, sufficient to serve our needs for the next 3-5 years. Subsequent to year-end, ABR consolidated its five operating subsidiaries into a single operating unit, ABR Benefits Services, Inc. This new name better represents our mission, to be a large, national benefits outsourcing administrator. To our customers, this change will be seen in a merged marketing and service presence. To our valued shareholders, this change typifies the theme of this year's annual report, "A Strategy of Growth." Through this and other changes, we believe that 1998 will continue our trend of being "ABR's best year ever." We appreciate your support for this and the upcoming year. Cordially, /s/ James E. MacDougald 2 6 1997 ACCOMPLISHMENTS - - Fourteen consecutive record quarters of more than 30% growth in revenues. - - Fourteen consecutive quarters of meeting or exceeding analysts' consensus earnings estimates. - - Increased analyst coverage to four nationally-known brokerage firms: Robert W. Baird, Montgomery Securities, Raymond James and Salomon Brothers. - - Stock split two-for-one on February 19, 1997. - - Customer base increased to more than 25,000 employers. - - Integrated operations of three subsidiaries into Florida location. - - Opened ABR Center, believed to be the nation's largest operations center devoted to employee benefits administration outsourcing. - - Achieved full integration of several complementary technologies, including OCR (Optical Character Recognition), IVR (Interactive Voice Response), and EDI (Electronic Data Interchange). - - Implemented internally-developed software applications to greatly increase efficiency, including Double Data Entry (DDE), Automated Fax-Back and Electronic Client Notification systems. - - Named by Forbes magazine for the third year in a row as one of the "200 Best Small Companies in America." - - Launched new service lines to administer requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), 401(k) plans and state- mandated portability laws. IMPROVING PROFIT MARGINS [GRAPH] REVENUE DIVERSIFICATION [GRAPH] 3 7 A STRATEGY OF GROWTH MARKET LEADERSHIP Through our growth and the breadth of our expertise and service offerings, ABR has secured its leadership position in the benefits administration outsourcing industry. We are one of the industry leaders in revenues, and our client base and resources devoted exclusively to benefits administration outsourcing are impressive. We believe such leadership can only be achieved through years of developing systems, procedures and staff. Our experience puts us at the leading edge of our industry. As ABR continues to leverage its existing capabilities and grow from a starting point that our competition is still trying to attain, we believe we can further solidify our position of industry leadership. ABR enjoys a competitive advantage through the realization of economies of scale and technology. These economies are a direct result of our growth -- and, in turn, they facilitate continued, more efficient growth. We continuously leverage these economies when responding to a new market opportunity, such as HIPAA, by being able to respond more quickly, offer greater value, and adapt our existing systems to these demands. These capabilities distinguish ABR from its competitors. An additional distinction that sets ABR apart from its competition is that we operate as a true service bureau. Whereas many of our competitors derive a substantial portion of their revenues from consultation and planning services, or often sell administration services as a non-core service accommodation to their MARKET POTENTIAL Benefits Administration Outsourcing Opportunity $10 Billion Existing Business $50 Million [CHART] [PICTURE] 4 8 - - Providing 20 different benefits administration services, all of which are available "a la carte." - - Serving more than 25,000 employers and their employees, dependents and retirees. - - Portability prospect universe of more than 650,000 employers with more than 20 employees. - - More than 12,000 large employer prospects who employ more than 1,000 employees each. - - Most employers, approximately 94%, administer in-house. - - Increasingly complex government regulations make in-house administration by employers more difficult. - - State-of-the-art technology in place provides competitive advantage and barrier to entry. - - Blue chip customer base with approximately 100 of Fortune 500 companies. clients, ABR derives its revenue from our core competency of supplying fist-rate administration services. Given our commitment to benefits administration outsourcing, we offer something far different than many of our competitors -- independence. Every dollar invested in a relationship with ABR goes directly toward providing administrative services -- and not proprietary insurance or consulting products. Our goal is to sell benefits administration services. Therefore, we provide the highest possible value by delivering the maximum amount of administrative work for each dollar spent by our clients. [PICTURE] This distinction is much more significant than a simple difference in our advertising, positioning or mission statements. The value of our service bureau status is the advantage it provides in competitive bidding situations. In this regard, we enjoy an extremely high success rate. As a result, we have taken on numerous large-scale benefits administration outsourcing contracts with major employers -- approximately 100 of the Fortune 500 companies. To date, our commitment to administrative excellence has propelled the expansion of our benefits administration outsourcing operations beyond even our optimistic projections. [PICTURE] This year, our leadership position was clearly demonstrated following the enactment of a new law -- the Health Insurance Portability and Accountability Act (HIPAA) -- which imposed new benefits administration mandates on more than 5.5 million employers in the U.S. We were able to rapidly modify our systems to fulfill the administrative requirements of the new law, then quickly communicate with the market to offer expertise that could not be found elsewhere. By offering rapid compliance with extremely tight deadlines, ABR established itself as the market leader in HIPAA compliance services within months of the issuance of the law's interim final regulations. We believe ABR is in a strong position to further leverage its leadership position in the area of portability administration services and to establish itself as a market leader among each of the specialized areas of benefits administration that we are targeting. In each, we expect to apply our capabilities, leverage and resources to gain an immediate advantage. 5 9 A STRATEGY OF GROWTH INFRASTRUCTURE AND RESOURCES Facilities -- and their location -- have always been factors critical to ABR's success. Our headquarters location in west-central Florida provides us fixed cost advantages that provide immediate savings over administration costs experienced by employers elsewhere in the country. In response to our rapid growth, ABR has embarked on a program of rapidly-expanding physical infrastructure. In May 1997, ABR completed a major renovation and moved into the 118,000 square foot ABR Center -- the only facility we know of designed specifically for the purpose of employee benefits administration. ABR Center is operated as a "hot site" and configured with a special disaster recovery area -- literally a hardened bunker with reinforced concrete and the ability to remain operational under virtually any circumstances. Specially constructed features of the bunker include dual power and telephone feeds and redundant information systems which ensure continuous operation. Other facilities have been purchased to accommodate our rapid expansion for the coming years, with an additional 380,000 square feet of office space purchased in October 1997 available to meet our needs starting in late 1998. [PICTURE] ABR has also established a physical presence nationally with sales and service centers on the East and West Coasts of the United States, as well as in Florida. This geographic diversity affords ABR ready access to prospective business regardless of the area of the country. Sales functions take place in all ABR locations, while several back-office operations have been consolidated in Florida for greater efficiency. Strategic growth requires more than facilities -- it requires capabilities that are in demand in the marketplace. ABR is a company built on capabilities and commitment that cannot be found elsewhere. The best people. Compliance expertise. The best information systems, refined through ten years of operations. Our experience in the industry puts us years ahead of our competition. This expertise has been developed internally and acquired by recruiting the best industry talent available. It is supported by the latest technology. Our practices are kept current through daily online research into the industry's most comprehensive databases of legal, legislative and industry research. Our information systems make that research instantly accessible at the touch of a key. Through continual training, all ABR staff members are kept current on industry trends and compliance requirements. Also, our customer service department is fully equipped to provide timely and accurate answers for clients and their employees who call on us for our expertise. Technology fuels the flow of information to and from our operations. At the heart of our systems is one of the most powerful client-server computer platforms available in the world. Our system can be accessed 24 hours a day via Interactive Voice Response (IVR) technology, 6 10 [PICTURE] [PICTURE] [PICTURE] supplemented by automated fax-back fulfillment of information requests. Electronic Data Interchange (EDI) systems and Optical Character Recognition (OCR) aid in the processing of hundreds of thousands of documents on an ongoing basis. Wherever possible, online communications is being phased in as a replacement for paper transactions. When data is obtained, much of it is "double-entered" and cross-verified to ensure accuracy -- especially where legal compliance is of concern. At the heart of ABR's operations is the new ABR Center (above)--the only facility we know of designed and remodeled specifically for the purpose of benefits administration. Service center facilities are also located in Virginia, New Jersey and California. [PICTURE] [PICTURE] [PICTURE] 7 11 A STRATEGY OF GROWTH CAPABILITIES AND SERVICES ABR has targeted key areas of benefits administration most commonly needed by employers of all sizes -- with the goal of providing all of those services through a "one-stop" benefits administration outsourcing resource. Capabilities to perform those services are being developed or acquired at a rapid pace. Some of this development is being fueled by the needs of clients who have already entered into multi-service benefits administration outsourcing arrangements with ABR. Other capabilities are added as we acquire complementary businesses with extensive experience in specialized benefits administration fields. All of our services are available "a la carte." Delivery of our services is transparent to our clients and to their employees and dependents, although various ABR operations throughout the country may be involved in the administrative activities required. Delivery of our services is enhanced through an integrated system that takes advantage of ABR's expertise, systems, and the efficiency of its operations. Our services fall into three categories: Portable Healthcare -- ABR delivers employee health benefits "portability" administration services primarily through its CobraServ operation, the nation's largest independent COBRA and HIPAA compliance service bureau. ABR helps employers deal with these two complex federal portability laws by performing the most difficult, time-consuming and risky aspects of these laws on their behalf. We also perform administrative functions related to state-level COBRA-like portability laws. [PICTURE] [PICTURE] Retiree and Inactive Employee Services--ABR assists employers by servicing the benefits needs of their ex-employees and their dependents. Employers must deliver their benefits commitments to these individuals, but must also retain a primary focus on their active employees, dependents and operations. ABR provides services such as retiree billing, vestee servicing, retiree services, open enrollment administration and general billing services for non-employees. 8 12 Active Employee Administration -- Represents the largest and fastest-growing market opportunity for ABR. Presently, ABR offers services to virtually every employer, including: Enrollment and Eligibility -- maintaining, updating and servicing clients' central benefits eligibility databases; Employee Communications Services -- creating and disseminating benefits-related employee communications; Open Enrollment Administration -- coordinating new enrollments, re-enrollments and changes of group health benefit option selections; Section 125 Administration -- helping employers structure their benefits programs with tax-exempt status, with services including Premium-Only Plan and Flexible Spending Account (FSA) administration; FMLA Administration -- meeting benefits continuation requirements of the Family Medical Leave Act; QDRO Administration -- administering Qualified Domestic Relations Orders; QMCSO Administration -- administering Qualified Medical Child Support Orders; Qualified Plan Services -- providing defined contribution/ 401(k) pension plan administration; Education and Family Services -- administering emergency loan, tuition reimbursement and educational loan programs. [PICTURE] [PICTURE] [PICTURE] [PICTURE] 9 13 Selected Financial Data
YEARS ENDED JULY 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- -------- -------- (In thousands except per share data) Statement of Income Data: Revenue $ 9,028 $13,465 $18,835 $ 31,162 $ 50,079 Cost of services 5,632 7,689 10,410 17,864 28,179 Selling, general and administrative expenses 1,878 3,250 4,448 6,575 9,765 Acquisition costs -- -- -- 361 -- ------- ------- ------- -------- -------- Operating income 1,518 2,526 3,977 6,362 12,135 Interest income 4 65 572 2,872 7,081 ------- ------- ------- -------- -------- Income before provision for income taxes 1,522 2,591 4,549 9,234 19,216 Income tax provision 570 981 1,755 3,560 6,987 ------- ------- ------- -------- -------- Net income $ 952 $ 1,610 $ 2,794 $ 5,674 $ 12,229 ======= ======= ======= ======== ======== Per share data (1): Net income per share $ .07 $ .11 $ .14 $ .25 $ .44 ======= ======= ======= ======== ======== Weighted average shares outstanding (2) 13,401 14,965 20,001 23,067 27,815
YEARS ENDED JULY 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- -------- -------- (IN THOUSANDS) Balance Sheet Data (1): Working capital $ 1,781 $13,676 $14,192 $145,825 $127,839 Total assets 11,947 27,186 33,191 202,574 222,017 Total long term debt, excluding current portion 476 -- -- -- -- Redeemable preferred stock, excluding current portion 127 -- -- -- -- Total shareholders' equity 2,753 16,113 19,213 181,150 194,096
(1) Restated for two-for-one stock split completed on February 19, 1997. (2) Includes Common Stock and Common Stock equivalents. 10 14 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Overview The Company's revenues currently are generated from three sources: portability compliance services, administration services with respect to benefits provided to retirees and inactive employees, and administration services with respect to benefits provided to active employees. The first source of the Company's revenue is providing portability compliance services primarily through its qualifying event agreements with employers and capitation agreements with insurance companies. Through qualifying event agreements, the Company receives a fixed, per occurrence, fee from its customers for each qualifying event. A qualifying event occurs when an employee or his or her dependents experience a loss or change of coverage under a group healthcare plan. The amount of the fixed fee varies depending on the type of qualifying event (i.e., COBRA (the "Consolidated Omnibus Budget Reconciliation Act") or HIPAA (the "Health Insurance Portability and Accountability Act of 1996")) and the method of the qualifying event notification mailing, which is selected by the customer. Through capitation agreements, insurance companies designate the Company as the administrator of compliance for their group insurance clients that are subject to COBRA, HIPAA or state mandated continuation coverage health portability laws. The Company is paid a monthly fee for each employee covered by the group plan. The revenue generated under a capitation agreement is not dependent on the triggering of a qualifying event, but is determined based on the number of employees covered by the group plan at the beginning of each month. The Company also receives an administrative fee typically equal to 2% of the monthly health insurance premium that is paid by or on behalf of each COBRA continuant. In addition, the Company generates revenues from customers for additional compliance and healthcare administration services, both on a one-time and continuous basis. During fiscal 1996 and fiscal 1997, 69.9% and 65.6%, respectively, of the Company's revenues were attributable to portability compliance services. The second source of the Company's revenue is providing administration services with respect to benefits provided to retirees and inactive employees, including retiree healthcare, disability, surviving dependent, family leave and severance benefits. During fiscal 1996 and fiscal 1997, 15.5% and 14.4%, respectively, of the Company's revenues were attributable to the Company's administration services for retirees and inactive employees. The third source of the Company's revenue is providing administration services with respect to benefits provided to active employees, including open enrollment, employee enrollment and eligibility, QDRO ("Qualified Domestic Relations Order") administration, Flexible Spending Account administration, 401(k) plan administration, and other pension services. During fiscal 1996 and fiscal 1997, 14.6% and 20%, respectively, of the Company's revenues were attributable to benefits administration services for active employees. The Company has experienced significant growth in recent years, with revenues increasing from $13.5 million in fiscal 1994 to $50.1 million in fiscal 1997, and net income increasing from $1.6 million in fiscal 1994 to $12.2 million in fiscal 1997. Cost of services includes direct personnel, occupancy and other costs associated with providing services to customers, such as mailing and printing costs. Selling, general and administrative expenses include administrative, marketing and certain other indirect costs. RESULTS OF OPERATIONS The following table sets forth the percentage of revenue represented by certain items reflected in the Company's statements of income.
PERCENTAGE OF REVENUES ------------------------- YEARS ENDED JULY 31, ------------------------- 1995 1996 1997 ----- ----- ----- Revenue 100.0% 100.0% 100.0% Cost of services 55.3 57.3 56.3 Selling, general & administrative expenses 23.6 21.1 19.5 Acquisition costs -- 1.2 -- ----- ----- ----- Operating income 21.1 20.4 24.2 Interest income 3.0 9.2 14.2 Income taxes 9.3 11.4 14.0 ----- ----- ----- Net income 14.8% 18.2% 24.4% ===== ===== =====
11 15 YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996 Revenues increased $18.9 million, or 60.7%, to $50.1 million during the year ended July 31, 1997 from $31.2 million in the year ended July 31, 1996. Of the $18.9 million increase in revenues, $11.1 million was attributable to increased revenues from portability compliance services, $2.4 million was attributable to increased revenues from retiree/inactive employee benefits administration and approximately $5.4 million was due to increased revenues from active employee benefits administration. The increase in portability compliance revenues was primarily attributable to the addition of new customers and new service product offerings. New products pertain to clients having to comply with newly passed state-mandated continuation coverage health portability laws and the federally-mandated HIPAA law. The increase in retiree/inactive employee benefits administration revenues was primarily attributable to the addition of new customers obtained by the Company and as a result of the acquisitions during the year ended July 31, 1996 being included for a full year in fiscal 1997. The increase in revenues from active employee benefits administration was primarily attributable to the addition of new customers obtained by the Company and new service product offerings in enrollment and eligibility administration during the year ended July 31, 1997. Cost of services increased $10.3 million, or 57.7%, to $28.2 million during the year ended July 31, 1997 from $17.9 million during the year ended July 31, 1996. The increase in cost of services was attributable to the addition of data processing, information systems and customer service personnel to support revenue growth along with the amortization of software placed in service as completed. As a percentage of revenues, cost of services decreased to 56.3% in 1997 from 57.3% for the prior year as a result of operating efficiencies associated with the allocation of these expenses over a larger revenue base. Selling, general and administrative expenses increased $3.2 million, or 48.5%, to $9.8 million during the year ended July 31, 1997 from $6.6 million in the year ended July 31, 1996. The increase in selling, general and administrative expenses was primarily attributable to the addition of marketing, management and administrative personnel to support the Company's growth, and to additional marketing costs. As a percentage of revenues, selling, general and administrative expenses decreased to 19.5% in 1997 from 21.1% for the prior year. The decrease as a percentage of revenues resulted primarily from operating efficiencies from the allocation of these expenses over a larger revenue base. Interest income increased $4.2 million, or 146.5%, to $7.1 million during the year ended July 31, 1997 from $2.9 million in the year ended July 31, 1996. This increase is a result of the proceeds from the secondary stock offering completed in March 1996 being invested for a full year in fiscal 1997. Income taxes increased 96.3% to $7.0 million during the year ended July 31, 1997 from $3.6 million during the year ended July 31, 1996, however, the Company's effective tax rate decreased to 36.4% for the year ended July 31, 1997 from 38.6% for the previous year. This decrease reflects the Company's move to more tax-free investments in 1997. As a result of the foregoing, the Company's net income increased $6.5 million, or 115.5%, to $12.2 million during the year ended July 31, 1997 from $5.7 million in the year ended July 31, 1996. Net income per share was $.44 for the year ended July 31, 1997 compared to $.25 for the prior year. YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995 Revenues increased $12.3 million, or 65.5%, to $31.2 million for the year ended July 31, 1996 from $18.8 million for the year ended July 31, 1995. Of the $12.3 million increase in revenues, $6.0 million was attributable to increased revenues from COBRA compliance services, $3.5 million was attributable to increased retiree/inactive employee benefits administration and approximately $2.8 million was due to increased revenues from active employee benefits administration. The increase in portability compliance revenues was primarily attributable to the addition of new customers and as a result of acquisitions during fiscal 1996. The increase in retiree/inactive employee benefits administration revenues was primarily attributable to the addition of new customers obtained by the Company and as a result of the acquisitions during fiscal 1996. The increase in active employee benefits administration revenues was primarily attributable to the addition of new customers obtained by the Company and as a result of an acquisition during fiscal 1996. Cost of services increased $7.5 million, or 71.6%, to $17.9 million for the year ended July 31, 1996 from $10.4 million for the year ended July 31, 1995. The increase in cost of services was attributable to the 12 16 addition of data processing, information systems and customer service personnel to support growth as well as the result of the acquisitions. As a percentage of revenues, cost of services increased to 57.3% from 55.3% for the same period. This increase as a percentage of revenues resulted from increasing the operating infrastructure to support the Company's growth. Selling, general and administrative expenses increased $2.1 million, or 47.8%, to $6.6 million for the year ended July 31, 1996 from $4.5 million for the year ended July 31, 1995. The increase in selling, general and administrative expenses was primarily attributable to the addition of marketing, management and administrative personnel to support the Company's growth. As a percentage of revenues, selling, general and administrative expenses decreased to 21.1% from 23.6% for the same periods. The decrease as a percentage of revenues resulted primarily from operating efficiencies from the allocation of these expenses over a larger revenue base. Interest income increased $2.3 million, or 401.6%, to $2.9 million during the year ended July 31, 1996 from $573,000 in the year ended July 31, 1995. This increase is a result of the proceeds from the secondary stock offering completed in March 1996 being invested. Income taxes increased 102.9% to $3.6 million during the year ended July 31, 1996 from $1.8 million during the year ended July 31, 1995. The Company's effective tax rate remained the same for both periods at 38.6%. As a result of the foregoing, the Company's net income increased $2.9 million, or 103.1%, to $5.7 million during the year ended July 31, 1996 from $2.8 million in the year ended July 31, 1995. Net income per share was $.25 for the year ended July 31, 1996 compared to $.14 for the prior year. LIQUIDITY AND CAPITAL RESOURCES In March 1996, the Company completed a secondary stock offering which provided net cash, after offering expenses, of $151 million. Net cash provided by operating activities was $16.4 million for the year ended July 31, 1997 compared to $11.5 million for the same period of 1996. As of July 31, 1997 and 1996, the Company's working capital and current ratio were $127.8 million and 6.1-to-1 and $145.8 million and 8.1-to-1, respectively. The Company invests excess cash balances primarily in short-term investment grade securities, such as money market investments, obligations of the U.S. government and its agencies and obligations of state and local government agencies. During the year ended July 31, 1997, the Company's capital expenditures were $21.5 million. In December 1995, the Company purchased a 118,000 square foot facility situated on 12.7 acres of land in Palm Harbor, Florida. This facility became operational in May of 1997. Total cost of the renovations and purchase was $9.2 million. In 1996, the Company also purchased 72 acres of land in Tarpon Springs, Florida for $2.4 million. The land is to be used for future corporate expansion, although no formal commitments or designs presently exist for this proposed expansion. Subsequent to year-end, the Company purchased a complex of buildings in St. Petersburg, Florida containing 380,000 square feet of office space for $13.5 million. No formal designs or commitments presently exist for this proposed expansion. Management estimates that as of July 31, 1997, approximately $9.8 million will be required in order for the Company to purchase additional equipment, furniture and hardware, and complete its currently defined software projects. The Company has a five-year, $15.0 million unsecured credit facility. The Company has agreed to maintain all of its assets free and clear of all liens, encumbrances and pledges, except purchase money security interests in specific equipment in an aggregate amount of less than $500,000 as long as the credit facility remains outstanding or any indebtedness thereunder remains unpaid. Interest on the principal balance outstanding under this line of credit accrues at a floating interest rate equal to the prime rate or, at the Company's option, to the 30-day London Interbank Offering Rate (LIBOR), plus an applicable interest rate margin between 1% and 2% based on certain financial ratios. The credit facility contains certain financial covenants requiring the maintenance of cash and cash equivalents and investments equal to or greater than customer account deposits, a funded debt to EBITDA ratio of a maximum of 2.25-to-1, a debt service coverage ratio of not less than 1.35-to-1, as well as the maintenance of a certain funded debt to tangible net worth ratio. As of July 31, 1997, the Company was in compliance with all such covenants and there were no amounts outstanding under the credit facility. The Company believes that its cash, investments, cash flows from operations and the funds available from its credit facility will be adequate to meet the Company's expected capital requirements for the foreseeable future. 13 17 ABR Information Services, Inc. Consolidated Statements of Income Years ended July 31, 1995, 1996 and 1997
Years ended July 31, --------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenue $18,834,636 $31,162,181 $50,078,842 Operating expenses: Cost of services 10,410,197 17,863,588 28,178,925 Selling, general and administrative 4,448,319 6,575,390 9,765,500 Acquisition costs -- 361,198 -- ----------- ----------- ----------- Operating income 3,976,120 6,362,005 12,134,417 Interest income 572,569 2,872,145 7,081,238 ----------- ----------- ----------- Income before provision for income taxes 4,548,689 9,234,150 19,215,655 Income tax provision 1,755,011 3,560,366 6,987,003 ----------- ----------- ----------- Net income $ 2,793,678 $ 5,673,784 $12,228,652 =========== =========== =========== Net income per share $ .14 $ .25 $ .44 =========== =========== =========== Weighted average shares outstanding 20,001,490 23,067,054 27,814,794 =========== =========== ===========
The accompanying notes are an integral part of these statements. 14 18 ABR Information Services, Inc. Consolidated Balance Sheets As of July 31, 1996 and July 31, 1997 ASSETS
July 31, --------------------------- 1996 1997 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 14,088,396 $ 33,322,734 Investments 147,111,102 108,499,196 Accounts receivable, net 3,870,539 8,295,884 Prepaid expenses and other 1,282,952 2,595,306 ------------ ------------ Total current assets 166,352,989 152,713,120 LONG-TERM INVESTMENTS -- 14,128,644 PROPERTY AND EQUIPMENT, net 14,539,898 27,790,354 SOFTWARE DEVELOPMENT COSTS, net 6,181,973 11,767,211 GOODWILL, INTANGIBLES AND OTHER ASSETS, net 15,498,745 15,617,519 ------------ ------------ TOTAL ASSETS $202,573,605 $222,016,848 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 615,663 $ 613,138 Accrued expenses 762,442 512,035 Customer accounts deposits 18,019,405 23,133,381 Unearned revenue 647,093 594,524 Income taxes payable 483,663 20,770 ------------ ------------ Total current liabilities 20,528,266 24,873,848 ------------ ------------ DEFERRED INCOME TAXES 895,555 3,047,243 ------------ ------------ SHAREHOLDERS' EQUITY Preferred Stock - authorized 2,000,000 shares of $.01 par value; no shares issued -- -- Common Stock - authorized 100,250,000 shares of $.01 par value; issued and outstanding, 13,588,194 and 27,376,356 shares, respectively 135,882 273,763 Additional paid in capital 169,879,717 170,459,157 Retained earnings 11,134,185 23,362,837 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 181,149,784 194,095,757 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $202,573,605 $222,016,848 ============ ============
The accompanying notes are an integral part of these statements. 15 19 ABR Information Services, Inc. Consolidated Statements of Shareholders' Equity Years ended July 31, 1995, 1996 and 1997
Common Stock Additional --------------------- Paid-in Retained Shares Amount Capital Earnings Total ---------- -------- ------------- ----------- ------------- Balance at July 31, 1994 4,436,547 $ 44,365 $ 13,402,351 $ 2,666,723 $ 16,113,439 Common stock split 2,165,931 21,659 (22,364) -- (705) Exercise of stock options 38,336 384 231,846 -- 232,230 Tax benefit related to exercise of certain stock options -- -- 74,329 -- 74,329 Net income -- -- -- 2,793,678 2,793,678 ---------- -------- ------------- ----------- ------------- Balance at July 31, 1995 6,640,814 66,408 13,686,162 5,460,401 19,212,971 Common stock split 3,248,882 32,489 (33,917) -- (1,428) Exercise of stock options 145,911 1,459 666,890 -- 668,349 Tax benefit related to exercise of certain stock options -- -- 1,426,563 -- 1,426,563 Shares issued in conjunction with acquisitions 132,712 1,327 3,048,848 -- 3,050,175 Secondary stock offering, net of offering costs of $381,092 3,419,875 34,199 151,085,171 -- 151,119,370 Net income -- -- -- 5,673,784 5,673,784 ---------- -------- ------------- ----------- ------------- Balance at July 31, 1996 13,588,194 135,882 169,879,717 11,134,185 181,149,784 Common stock split 13,685,918 136,859 (136,859) -- -- Exercise of stock options 102,244 1,022 659,693 -- 660,715 Tax benefit related to exercise of certain stock options -- -- 56,606 -- 56,606 Net income -- -- -- 12,228,652 12,228,652 ---------- -------- ------------- ----------- ------------- Balance at July 31, 1997 27,376,356 $273,763 $ 170,459,157 $23,362,837 $ 194,095,757 ========== ======== ============= =========== =============
The accompanying notes are an integral part of these statements. 16 20 ABR Information Services, Inc. Consolidated Statements of Cash Flows Years ended July 31, 1995, 1996 and 1997
Years ended July 31, ---------------------------------------------- 1995 1996 1997 ------------ ------------- ------------- Cash flows from operating activities: Net income $ 2,793,678 $ 5,673,784 $ 12,228,652 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and other amortization 569,385 1,547,343 2,807,485 Amortization of software 52,217 95,411 690,549 Deferred income taxes 362,379 328,514 2,151,688 Tax benefit related to exercise of certain stock options 74,329 1,426,563 56,606 Increase in allowance for doubtful accounts 8,649 12,692 91,281 Change in operating assets and liabilities: Accounts receivable (918,172) (771,537) (4,516,626) Prepaid expenses and other (173,240) (528,798) (1,312,354) Income taxes recoverable 176,165 -- -- Other assets (61,942) (8,953) (112,693) Accounts payable 8,660 (674,980) (2,525) Accrued expenses 420,601 (130,668) (250,407) Customer accounts deposits 1,704,471 4,228,527 5,113,976 Unearned revenue 271,375 23,931 (52,569) Income taxes payable 134,573 298,695 (462,893) ------------ ------------- ------------- Net cash provided by operating activities 5,423,128 11,520,524 16,430,170 ------------ ------------- ------------- Cash flows from investing activities: Additions to investments (5,445,720) (314,607,394) (394,805,395) Maturities of investments 17,508,872 172,470,327 419,288,657 Additions to property and equipment (1,135,622) (12,537,101) (15,192,338) Additions to software development costs (2,366,075) (3,292,648) (6,275,787) Acquisitions, net -- (10,656,020) (871,684) ------------ ------------- ------------- Net cash provided by (used in) investing activities 8,561,455 (168,622,836) 2,143,453 ------------ ------------- ------------- Cash flows from financing activities: Proceeds from bank borrowings -- 6,000,000 -- Principal payments under bank borrowings -- (6,000,000) -- Exercise of stock options/warrants 232,230 668,349 660,715 Public offerings, net of cost -- 151,119,370 -- Other (705) (101) -- ------------ ------------- ------------- Net cash provided by financing activities 231,525 151,787,618 660,715 ------------ ------------- ------------- Net increase (decrease) in cash and cash equivalents 14,216,108 (5,314,694) 19,234,338 Cash and cash equivalents at beginning of year 5,186,982 19,403,090 14,088,396 ------------ ------------- ------------- Cash and cash equivalents at end of year $ 19,403,090 $ 14,088,396 $ 33,322,734 ============ ============= =============
Cash paid for income taxes total $913,530, $1,663,102 and $5,241,601 for 1995, 1996 and 1997 respectively. The accompanying notes are an integral part of these statements. 17 21 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS ABR Information Services, Inc. (the "Company") is a leading provider of comprehensive benefits administration, compliance and information services to employers seeking to outsource their benefits administration functions. The Company believes it is the leading provider of COBRA (the "Consolidated Omnibus Budget Reconciliation Act") compliance services. Additionally, the Company provides compliance services related to the federally-mandated Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). COBRA and HIPAA are federally-mandated laws related to the portability of employee group health insurance. The Company also provides benefits administration services with respect to benefits provided to retirees and inactive employees, including retiree healthcare, disability, surviving dependent, family leave and severance benefits. Additionally, the Company provides benefits administration services with respect to benefits provided to active employees, including enrollment and eligibility verification, qualified domestic relations order ("QDRO") administration, 401(k) administration services, flexible spending account ("FSA") administration, and pension services. All services are offered on either an "a la carte" basis or a total outsourcing basis, allowing customers to outsource certain benefits administration tasks which they find too costly or burdensome to perform in-house, or to outsource the entire benefits administration function. The Company is headquartered in Palm Harbor, Florida and provides information and support services to more than 25,000 employers, including Fortune 500 companies, insurance companies and other employers. The Company's operations are in a single business segment, the information services business. Effective September 8, 1997, the Company consolidated a number of its subsidiaries into one operating subsidiary called ABR Benefits Services, Inc. The financial statements have been restated to reflect the three-for-two stock splits completed July 1995 and February 1996, a two-for-one stock split completed February 1997 and an acquisition (see Note M) by a pooling of interest completed June 1996. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Principles of Consolidation The financial statements include the accounts of ABR Information Services, Inc. and all of its subsidiaries. All material intercompany balances and transactions have been eliminated. 2. Revenue Recognition Revenues are recognized when the related services have been provided. Advance payments received from customers for services not provided are included in unearned revenue. 3. Cost of Services Cost of services includes personnel, occupancy and other costs associated with providing services to customers, such as mailing and printing costs. 4. Customer Accounts Deposits As part of the services provided to customers, the Company bills and collects for its customers and maintains the funds in segregated accounts until the funds are remitted. For financial statement purposes, the segregated funds are included in cash and investments (as the funds are not restricted) with the corresponding liability presented as customer accounts deposits. 5. Cash and Cash Equivalents The Company considers all highly liquid investments, with a maturity of 30 days or less when purchased, as cash equivalents. 18 22 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED As of July 31, 1996 and 1997, substantially all of the Company's cash is invested in overnight repurchase agreements of mortgage-backed or government securities. The Company has a security interest in the specific investment underlying the repurchase agreements. 6. Investments Effective August 1, 1994, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The Company's investments are classified as either "Held-to-Maturity" or "Available-for-Sale" investment securities. "Held-to-Maturity" investments are securities which the Company has the ability and positive intent to hold to maturity and are stated at cost, adjusted for amortization of premiums and accretion of discounts which are computed by the interest method. Declines in fair value that are other than temporary are recorded as incurred. "Available-for-Sale" securities are measured at fair value. 7. Contract Set-Up Costs Under contractual arrangements with certain customers, the Company incurs set-up costs. These costs are capitalized and amortized over the contract period, but no longer than twelve months, using the straight-line method. As of July 31, 1996 and 1997 unamortized set-up costs of $370,335 and $1,013,789, respectively, are included in prepaid expenses. During 1995, 1996 and 1997, amortization of set-up costs totalled $405,299, $569,755 and $989,612, respectively. 8. Property and Equipment Property and equipment is stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Accelerated methods are used for income tax purposes. 9. Software Development Costs Software development costs consist primarily of purchased software, consulting services, salaries and certain other expenses related to the development and modification of software capitalized in accordance with the provisions of SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Capitalization of such cost begins only upon the establishment of technological feasibility as defined in SFAS No. 86. Such capitalized costs are amortized when the software is available to service customers using the straight-line method over an estimated life of four to five years or based on the ratio of current gross revenue to the anticipated gross revenue, whichever is greater, with amortization expense of $52,217, $95,411 and $690,549, for the years ended 1995, 1996 and 1997, respectively. Accumulated amortization of software development costs totalled $220,535 and $911,084 at July 31, 1996 and 1997, respectively. Software development costs that were expensed and not capitalized under SFAS No. 86 totalled $1,138,639, $1,312,653 and $3,113,157, for the years ended 1995, 1996 and 1997, respectively. The Company estimates the cost to complete the current software projects will be $6.2 million. 10. Income Taxes Deferred income taxes principally result from expensing certain software development costs for income tax return purposes while capitalizing and amortizing certain of these costs for financial statement purposes. 11. Net Income Per Share The FASB has issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which is effective for financial statements issued after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The effect of adopting this new standard has not been determined. Net income per share has been computed using the weighted average of the outstanding Common Stock plus the dilutive Common Stock equivalents (stock options), using the treasury or the modified treasury stock method (see Note G). Primary and fully diluted calculations result in the same net income per share. 19 23 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued 12. Reclassifications Certain amounts in prior years' financials statements have been reclassified to conform with the July 31, 1997 presentation. 13. New Accounting Pronouncements Effective in fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which required impairment losses to be recorded on long-lived assets used in operations when impairment indicators are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The Company's adoption and application of SFAS No. 121 had no effect on the Company's financial statements. Effective in fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock Based Compensation," which relates to stock options granted to employees. SFAS No. 123 permits companies to continue using the accounting method promulgated by the Accounting Principles Board Opinion No. 25 ("APB No. 25") "Accounting for Stock Issued to Employees" to measure compensation or to adopt the fair value based method prescribed by SFAS No. 123. The Company elected to continue using the method under APB No. 25 and the required pro forma disclosures are presented in Note G to the financial statements. The adoption of SFAS No. 123 has no effect on the basic financial statements, except for additional disclosures. 14. Goodwill and Other Intangibles Amortization is based upon the allocation of the total purchase price (see Note M) and amortization periods, using the straight-line method, as follows:
Estimated Useful Allocation Lives -------------- --------- Non-competition agreements $ 600,000 5 years Contracts 2,000,000 10 years Goodwill 14,060,600 25 years
Amortization expense totaled $0, $482,708 and $865,603 for the years ended July 31, 1995, 1996 and 1997, respectively. The accumulated amortization totalled $482,708 and $1,348,310 at July 31, 1996 and 1997, respectively of which $237,953 and $843,311 relate to goodwill. 15. Use of Estimates in Financial Statements In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 16. Fair Value of Financial Instruments At July 31, 1996 and 1997, the carrying amount of cash, accounts receivable, accounts payable, accrued expenses and customer account deposits approximate fair value because of the short-term maturities of these items. 20 24 NOTE C - INVESTMENTS The Company classifies debt and equity securities in two categories: Available-for-Sale securities and Held-to-Maturity securities. Available-for-Sale securities are measured at fair value, with net unrealized gains and losses reported in equity. There were no net unrealized holding losses at July 31, 1997 and 1996. Held-to-Maturity securities are carried at amortized cost. The amortized cost, unrealized gains and losses, and fair values of the Company's Available-for-Sale and Held-to-Maturity investment securities are summarized as follows:
Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ---------- ---------- ------------ At July 31, 1997: Available-for-Sale Securities Obligations of local, state and federal governmental agencies $ 68,119,451 $ -- $ -- $ 68,119,451 Held-to-Maturity Securities Obligations of local, state and federal governmental agencies 54,508,389 65,363 107,178 54,466,574 ------------ ------- -------- ------------ Total $122,627,840 $65,363 $107,178 $122,586,025 ============ ======= ======== ============ At July 31, 1996: Held-to-Maturity Securities Commercial paper $146,111,102 $ -- $ 22,949 $146,088,153 Obligations of local and state governmental agencies 1,000,000 -- -- 1,000,000 ------------ ------- -------- ------------ Total $147,111,102 $ -- $ 22,949 $147,088,153 ============ ======= ======== ============
The following table lists the maturities of debt securities held at July 31, 1997 and 1996 classified as Available-for-Sale and Held-to-Maturity:
Available-for-Sale Held-to-Maturity ------------------------- --------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ----------- ----------- ------------ ------------ At July 31, 1997: Due in one year or less $68,119,451 $68,119,451 $ 40,379,745 $ 40,340,845 Due after one year through five years -- -- 14,128,644 14,125,729 ----------- ----------- ------------ ------------ Total $68,119,451 $68,119,451 $ 54,508,389 $ 54,466,574 =========== =========== ============ ============ At July 31, 1996: Due in one year or less $ -- $ -- $147,111,102 $147,088,153 ----------- ----------- ------------ ------------ Total $ -- $ -- $147,111,102 $147,088,153 =========== =========== ============ ============
There were no sales of securities classified as Available-for-Sale in 1997 and 1996. The Company uses the specific identification method to determine the cost of securities sold. Interest earned on investment securities and cash and cash equivalents was $1,214,971, $3,846,102 and $8,252,011 for the years ended July 31, 1995, 1996 and 1997, respectively. A portion of these amounts is included in revenues and the remainder is reported separately as interest income in the Consolidated Statements of Income. 21 25 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE D - PROPERTY AND EQUIPMENT
July 31, --------------------------- Estimated 1996 1997 Life ----------- ----------- ------------- Land and building $ 9,687,256 $17,007,404 39 Years Equipment 6,518,977 12,908,421 5 Years Furniture and fixtures 732,394 1,930,115 10 Years Leasehold improvements 293,753 439,085 Life of Lease ----------- ----------- 17,232,380 32,285,025 Accumulated depreciation (2,692,482) (4,494,671) ----------- ----------- Total property and equipment, net $14,539,898 $27,790,354 =========== ===========
Depreciation for the years ended 1995, 1996 and 1997 was $569,386, $1,064,635 and $1,941,882, respectively. NOTE E - LINES OF CREDIT On January 30, 1996, the Company entered into a five year, $15.0 million unsecured credit facility. The Company has agreed to maintain all of its assets free and clear of all liens, encumbrances and pledges, except purchase money security interests in specific equipment in an aggregate amount of less than $500,000 as long as the credit facility remains outstanding or any indebtedness thereunder remains unpaid. Interest on the principal balance outstanding under this line of credit accrues at a floating interest rate equal to the prime rate or, at the Company's option, to the 30-day London Interbank Offering Rate (LIBOR), plus an applicable interest rate margin between 1% and 2% based on certain financial ratios. The credit facility contains certain financial covenants requiring the maintenance of cash and cash equivalents and investments equal to or greater than customer account deposits, a funded debt to EBITDA ratio of a maximum of 2.25-to-1, a debt service coverage ratio of not less than 1.35-to-1, as well as the maintenance of a certain funded debt to tangible net worth ratio. As of July 31, 1997, the Company was in compliance with all such covenants, and there were no amounts outstanding under the credit facility. NOTE F - SHAREHOLDERS' EQUITY Common Stock The authorized Common Stock of the Company consists of 100,000,000 shares of voting Common Stock, and 250,000 shares of nonvoting Common Stock. The shares of nonvoting Common Stock have the same rights as the shares of voting Common Stock, except that the holders of nonvoting Common Stock are not entitled to vote on matters submitted to shareholders, except as required by applicable law. As of July 31, 1997, there were no shares of nonvoting Common Stock issued and outstanding. On July 13, 1995 and on February 19, 1996, the Company completed three-for-two stock splits, on February 19, 1997 the Company completed a two-for-one stock split, and on June 28, 1996 the Company completed an acquisition by a pooling of interest. The weighted average shares outstanding, earnings per share and stock options have been restated to reflect the stock splits and the acquisition by a pooling of interest. 22 26 NOTE F - SHAREHOLDERS' EQUITY-Continued Preferred Stock The Board of Directors of the Company has the authority to issue up to 2,000,000 shares of Preferred Stock (par value of $.01 per share) in one or more series and to fix the number of shares constituting any such series and the rights and preferences thereof, including dividend rates, terms of redemption (including sinking fund provision), redemption price or prices, voting rights, conversion rights and liquidation preferences of the shares constituting such series. As of July 31, 1997, there were no shares of Preferred Stock issued and outstanding. NOTE G - STOCK OPTIONS The Company has established the 1987 and 1993 Stock Option Plans and the 1996 Non-Employee Director Stock Option Plan. Under the 1987 and 1993 Plans, 774,000 and 1,800,000 shares of Common Stock, respectively, have been authorized for issuance. Under the 1996 Plan (which replaces the Company's previous 1995 Non-Employee Director Stock Option Plan), 400,000 shares of Common Stock have been authorized for issuance. During the years ended 1995, 1996 and 1997, all option prices at date of grant equaled or exceeded the estimated fair value of the Company's Common Stock as determined by the terms of the stock option plans. The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," as it relates to employment awards. It applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company's net income and earnings per share would be reduced to the pro forma amounts indicated below:
1996 1997 ------------- ------------- Net Income As reported $ 5,673,784 $ 12,288,652 Pro forma (unaudited) $ 4,674,893 $ 9,874,324 Net Income per share As reported $ .25 $ .44 Pro forma (unaudited) $ .20 $ .36
The fair value of each option grant is estimated on the date of grant using the Binomial options-pricing model with the following weighted-average assumptions used for grants in 1996 and 1997, respectively, no dividend yield for all years, expected volatility of 45% for both years; risk-free interest rates of 5.6% and 6.2% percent, and expected option holding periods of 3.5 and 2.6 years. 23 27 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE G - STOCK OPTIONS-Continued A summary of the status of the Company's fixed stock option plans as of July 31, 1995, 1996 and 1997, and changes during the years ending on those dates is present below:
Weighted Shares Average Voting Exercise Price --------- -------------- Options Options outstanding at July 31, 1994 600,124 $1.63 Options granted 545,498 5.60 Options exercised (172,626) 1.35 Options cancelled (39,394) 2.92 --------- Options outstanding at July 31, 1995 933,602 3.95 Options granted 570,376 13.37 Options exercised (291,822) 2.29 Options cancelled (44,448) 5.05 --------- Options outstanding at July 31, 1996 1,167,708 8.93 Options granted 642,300 25.75 Options exercised (199,968) 3.31 Options cancelled (236,596) 16.73 --------- Options outstanding at July 31, 1997 1,373,444 16.27 =========
The following table summarizes information concerning currently outstanding and exercisable stock options:
Weighted Average Remaining Weighted Range of Contractual Life Average Exercise Prices Number Outstanding (Years) Exercise Price --------------- ------------------ ---------------- -------------- Outstanding Shares $ 1.55 - 4.09 112,356 1.8 $ 2.82 $ 6.49 - 6.77 356,232 8.0 6.59 $13.24 - 16.63 352,500 8.6 15.70 $20.14 - 34.33 552,356 9.2 25.60 --------- Total 1,373,444 Exercisable Shares $ 1.55 - 4.09 112,356 N/A 2.82 $ 6.49 - 6.77 139,238 N/A 6.55 $13.24 - 16.63 86,250 N/A 15.68 $20.14 - 34.33 -- N/A -- --------- Total 337,844
24 28 NOTE H - INCOME TAXES The following tables summarize the Company's income tax position:
Years ended July 31, ------------------------------------ 1995 1996 1997 ---------- ---------- ---------- Currently payable Federal $1,112,399 $1,492,683 $3,957,785 State 205,904 312,606 820,924 ---------- ---------- ---------- 1,318,303 1,805,289 4,778,709 Deferred 362,379 328,514 2,151,688 Tax benefit from the exercise of certain stock options 74,329 1,426,563 56,606 ---------- ---------- ---------- Total income tax provision $1,755,011 $3,560,366 $6,987,003 ========== ========== ==========
Reconciliation of the federal statutory income tax rate to the Company's effective income tax rates are as follows:
Years ended July 31, ---------------------- 1995 1996 1997 ---- ---- ---- Federal statutory income tax rate 34.0% 34.0% 35.0% State income taxes, net of federal income tax benefit 3.6 3.6 4.3 Tax-exempt interest (2.2) (0.4) (2.6) Acquisition costs -- 3.4 -- Other 3.2 (2.0) (0.3) ---- ---- ---- Effective income tax rate 38.6% 38.6% 36.4% ==== ==== ====
Deferred tax asset and liability components were as follows:
July 31, ----------------------- 1996 1997 ---------- ---------- Deferred tax assets: Acquired net operating loss carryforward (1) $ 428,000 $ 265,000 Reserve for doubtful accounts 35,900 60,000 Other -- 113,757 ---------- ---------- 463,900 438,757 ---------- ---------- Deferred tax liabilities: Depreciation 199,900 220,000 Software development costs 1,159,555 3,266,000 ---------- ---------- 1,359,455 3,486,000 ---------- ---------- Net deferred tax liability $ 895,555 $3,047,243 ========== ==========
(1) Expires in 2001 25 29 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE I - COMMITMENTS AND CONTINGENCIES The Company leases office space under noncancellable leases which are accounted for as operating leases. The leases are subject to an escalation clause using a CPI index. The leases expire between November 1997 through May 2005. Future minimum lease payments under noncancellable operating leases are as follows as of July 31, 1997:
July 31, ------------------------------- 1998 $ 964,455 1999 780,955 2000 251,329 2001 238,523 2002 206,709 Thereafter 588,875
Rent expense for all operating leases for the years ending July 31, 1995, 1996 and 1997 was $673,391, $1,129,738 and $1,083,000, respectively. The Company is engaged in various litigation arising from the ordinary course of its business. In the opinion of management, the ultimate outcome of litigation is not expected to be material to the Company's financial position, results of operations or liquidity. As a provider for Portability compliance and administration services, the Company is subject to excise taxes for noncompliance with certain provisions of COBRA and HIPAA. In addition, the Company accepts financial responsibility for certain liabilities incurred by its customers that are attributable to the Company's failure to fulfill its obligations to its customers under its agreements. The Company maintains a professional liability policy, with a deductible of $25,000 per occurrence, and an annual per aggregate limit on coverage of $5.0 million. Although there can be no assurance that the Company will not incur any material liability for noncompliance with COBRA or HIPAA for its failure to comply its agreement with any customer, from the Company's inception through July 31, 1997, the Company has not incurred material liability as a provider. NOTE J - INCENTIVE BONUS PLAN AND SAVINGS PLAN Effective January 1, 1992, the Company established a defined contribution savings plan (the "Savings Plan") covering substantially all employees. The Savings Plan consists of an employee elective contribution and a Company matching contribution for each eligible participant. The Company's matching contribution is determined by the Board of Directors on a discretionary basis. The Company's contributions under the Savings Plan in fiscal 1995, 1996 and 1997 were approximately $124,500, $167,969 and $261,944, respectively. Effective August 1, 1993, the Company adopted an incentive bonus plan (the "Incentive Bonus Plan"), which provides for the discretionary payment of annual incentive awards to key employees from a pool equal to 10% of the Company's pre-tax profits (income before income taxes), adjusted upward or downward based on the attainment of pre-established goals related to the Company's pre-tax margin (income before income taxes divided by revenues) and its revenue growth (based on annual increases in revenues). Payments under the Incentive Bonus Plan are discretionary, based on the determination of the Board of Directors of the Company and are subject to certain limitations as provided in the Incentive Bonus Plan. In fiscal 1995, 1996 and 1997, $777,633, $790,000 and $1,112,809, respectively, of incentive bonus was expensed. 26 30 NOTE K - MAJOR CUSTOMER During fiscal 1996 and 1997, one of the Company's customers accounted for approximately 15.0% and 14.5%, respectively, of revenues. This customer became a client of the Company as a result of the New Jersey acquisition. In fiscal 1995, no individual customer accounted for 10% or more of revenues. NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the quarterly periods of fiscal 1995, 1996 and 1997:
1995 First Second Third Fourth Total - ---- Revenue $ 4,321,754 $ 4,493,809 $ 4,734,637 $ 5,284,436 $18,834,636 Operating income 876,305 912,000 985,361 1,202,454 3,976,120 Net income 628,655 660,050 696,135 808,838 2,793,678 Net income per share $ .03 $ .03 $ .03 $ .04 $ .14 1996 - ---- Revenue $ 5,614,304 $ 6,851,136 $ 9,067,901 $ 9,628,840 $31,162,181 Operating income 1,138,977 1,597,305 1,768,907 1,856,816 6,362,005 Net income 783,436 1,047,632 1,645,273 2,197,443 5,673,784 Net income per share $ .04 $ .05 $ .07 $ .08 $ .25 1997 - ---- Revenue $10,389,193 $11,714,389 $13,188,827 $14,786,433 $50,078,842 Operating income 2,267,008 2,796,707 3,275,809 3,794,893 12,134,417 Net income 2,611,363 2,936,465 3,184,585 3,496,239 12,228,652 Net income per share $ .09 $ .11 $ .12 $ .13 $ .44
NOTE M - ACQUISITIONS New Jersey Acquisition On December 15, 1995, the Company, in an acquisition accounted for as a purchase, acquired all of the outstanding capital stock of Bullock Associates, Inc. ("Bullock") for $12.5 million, with an additional $2.0 million payable upon the attainment of certain revenue requirements during 1996 and 1997. During fiscal 1997, $863,053 of this additional amount was paid for the attainment of these revenue requirements, leaving a balance of $1,136,947 that could be paid in fiscal 1998. Bullock is located in Princeton, New Jersey and provides COBRA administration, retiree insurance administration, insurance continuation billing and collection, pension benefits administration services, QDRO administration and educational benefit administration services as well as administration for other employee benefits programs such as employee discount plans, adoption programs, program rebates and emergency loans. The following pro forma balances have been derived from the historical financial statements of the Company and Bullock and adjusts such information to give effect to the acquisition of Bullock. The balances for the years ended July 31, 1995 and 1996 assume that the acquisition of Bullock occurred on August 1, 1994. The unaudited pro forma financial information is not necessarily indicative of the results which would actually have occurred had the transaction been in effect on the dates and for the periods indicated or which may result in the future.
Years ended July 31, ------------------------- 1995 1996 ------- ------- (in thousands except per share data) Revenue $27,819 $34,740 Operating income 5,840 7,245 Net income 3,483 6,015 Net income per share $ .18 $ .26 ======= =======
27 31 ABR Information Services, Inc. Notes to Consolidated Financial Statements July 31, 1995, 1996 and 1997 NOTE M - ACQUISITIONS-Continued California Acquisition Effective February 1, 1996, the Company acquired all of the outstanding capital stock of Total Cobra Services, Inc. ("TCS") for 265,424 shares of restricted Common Stock. This acquisition was accounted for as a purchase. TCS is located in Irvine, California and provides COBRA administration and retiree billing services. For the fiscal year ended December 31, 1995, TCS had revenues of less than $2 million. Pro forma information is not provided for TCS due to its immateriality. Virginia Acquisition On June 28, 1996, the Company completed a merger of the The L.P. Baier Company ("LPB") where 286,020 shares of the Company's stock was exchanged for all of the outstanding stock of LPB. LPB is located in Fairfax, Virginia and provides primarily FSA (Flexible Spending Account) administration services and COBRA administration. The merger was accounted for as a pooling of interest, and accordingly, the accompanying financial statements have been restated to include the accounts and operations of LPB for all periods prior to the merger, including restating the retained earnings at July 31, 1994 to reflect the difference between the par value of the Company stock issued and the total shareholders' equity of LPB. Separate results of the combining entities for previously reported periods are as follows:
Years ended July 31, ----------------------------- 1995 1996 ----------- ----------- Revenue ABR Information Services, Inc. $16,692,376 $28,449,980 The L.P. Baier Company 2,142,260 2,712,201 ----------- ----------- $18,834,636 $31,162,181 =========== =========== Net Income ABR Information Services, Inc. $ 2,641,788 $ 5,578,144 The L.P. Baier Company 151,890 95,640 ----------- ----------- $ 2,793,678 $ 5,673,784 =========== ===========
In connection with this merger, $361,198 of acquisition costs were incurred and have been charged to expense in the fourth quarter for 1996. 28 32 Report of Independent Certified Public Accountants Board of Directors ABR Information Services, Inc. We have audited the accompanying consolidated balance sheets of ABR Information Services, Inc. as of July 31, 1996 and 1997 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended July 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ABR Information Services, Inc. as of July 31, 1996 and 1997, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended July 31, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Tampa, Florida September 11, 1997 29 33 ABR Information Services, Inc. Market Price Information* July 31, 1995, 1996 and 1997 The following table sets forth the high and low sale price of the Company's Common Stock since its initial public offering on May 26, 1994 as reported by Nasdaq and restated for the three-for-two stock splits completed on July 13, 1995 and February 19, 1996, and the two-for-one stock split completed on February 19, 1997:
1997 1996 1995 1994 High Low High Low High Low High Low First Quarter $37 3/4 $25 1/2 $ 9 59/64 $ 6 1/2 $3 19/32 $2 29/64 $ -- $ -- Second Quarter 33 1/2 19 11/16 16 27/64 9 43/64 4 49/64 3 1/16 -- -- Third Quarter 24 3/8 16 11/16 31 1/2 16 3/32 5 5/8 4 43/64 -- -- Fourth Quarter 32 3/4 20 5/6 32 1/2 19 7 27/32 5 13/64 2 59/64 2 9/32 Year 37 3/4 16 11/16 32 1/2 6 1/2 7 27/32 2 29/64 2 59/64 2 9/32
The Company has never declared nor paid any cash dividends on the Common Stock. The Company currently anticipates that all of its earnings will be retained for development and expansion of the Company's business and does not anticipate paying any cash dividends in the foreseeable future. STOCK PRICE PERFORMANCE* [GRAPH] *As restated for the three-for-two stock splits completed on July 13, 1995 and February 19, 1996 and the two-for-one stock split completed on February 19, 1997. 30 34 CORPORATE AND SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS ABR Information Services, Inc. 34125 U.S. Highway 19 North Palm Harbor, Florida 34684-2141 813-785-2819 INTERNET ADDRESS http://www.abr.com ANNUAL MEETING The Annual Meeting of ABR Information Services, Inc. will be held at 3:00 p.m. (EST) on December 5, 1997, at the Hyatt Regency Westshore in Tampa, Florida. FORM 10-K A copy of the ABR Information Services, Inc. annual report to the Securities and Exchange Commission on Form 10-K may be obtained without cost by request from the Corporate Headquarters, Attention: Investor Relations. LISTING The Company's Common Stock trades on The Nasdaq Stock Market under the symbol ABRX. TRANSFER AGENT AND REGISTRAR First Union National Bank Corporate Trust Client Services 1525 West W.T. Harris Boulevard, 3C3, NC1153 Charlotte, North Carolina 28288-1153 704-590-7598 LEGAL COUNSEL Foley & Lardner Tampa, Florida Proskauer Rose LLP New York, New York INDEPENDENT AUDITORS Grant Thornton LLP Tampa, Florida SHAREHOLDER INFORMATION ABR Information Services, Inc. 34125 U.S. Highway 19 North Attention: Investor Relations Palm Harbor, Florida 34684-2141 813-785-2819 31 35 DIRECTORS AND OFFICERS BOARD OF DIRECTORS JAMES E. MACDOUGALD THOMAS F. COSTELLO MARK M. GOLDMAN Chairman of the Board, Chairman and Vice Chairman President and Chief Chief Executive Officer Phone Programs, Inc. Executive Officer The Costello Group ABR Information Services, Inc. SUZANNE M. MACDOUGALD PETER A. SULLIVAN Senior Vice President and Secretary President ABR Information Services, Inc. Arlen Corporation Officers of ABR Information Services, Inc. JAMES E. MACDOUGALD JAMES P. O'DROBINAK SUZANNE M. MACDOUGALD Chairman of the Board, Senior Vice President and Senior Vice President and President and Chief Chief Financial Officer Secretary Executive Officer Officers of ABR Benefits Services, Inc. CHIEF EXECUTIVE James E. MacDougald - President and Chief Executive Officer FINANCE James P. O'Drobinak - Senior Vice President and Chief Financial Officer Reva R. Maskewitz - Vice President and Controller Robert A. Smolinski - Vice President and Treasurer INFORMATION SERVICES Andrew D. Swenson - Senior Vice President and Chief Information Officer John E. Hazuka - Vice President, Software Development MERGERS AND ACQUISITIONS Dennis A. Sweeney - Senior Vice President, Mergers and Acquisitions OPERATIONS William R. Povilus - Senior Vice President, Operations Lauren M. Ringuette - Managing Vice President, Portability Administration Robert F. Skrok - Managing Vice President, Enrollment and Eligibility Services Shari N. Arzate - Vice President, Major Account Implementation Denise A. Elko - Vice President, Major Account Implementation SALES AND MARKETING Robert H. Pariseau - Senior Vice President, Sales and Marketing Brian R. Annis - Vice President, Telemarketing Operations Dagmar S. De Stefano - Vice President John Doyle - Vice President Karlene K. Dunkelberger - Vice President Patrick R. Manders - Vice President, Communications STRATEGIC DEVELOPMENT Randolph C. Metcalfe - Senior Vice President, Strategic Development HUMAN RESOURCES Janet H. Till - Vice President, Corporate Human Resources CALIFORNIA SERVICE CENTER William E. Evans - Senior Vice President, California Service Center NEW JERSEY SERVICE CENTER W. Carl Bullock - Senior Vice President, New Jersey Service Center Barbara A. Biasotti - Managing Vice President Nancy L. Clark - Vice President VIRGINIA SERVICE CENTER Rick L. Snyder - Senior Vice President, Virginia Service Center Tina A. McIntosh - Managing Vice President Glen V. Armand - Vice President, Sales and Marketing Christine Erickson - Vice President, Sales and Marketing Rhonda E. Reeves - Vice President, Section 125 Services Officers of ABR Properties, Inc. James E. MacDougald - Chief Executive Officer Joseph C. Lukason - President James P. O'Drobinak - Senior Vice President and Chief Financial Officer Suzanne M. MacDougald - Senior Vice President and Secretary Reva R. Maskewitz - Vice President, Controller and Treasurer 32 EX-21.1 5 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF ABR INFORMATION SERVICES, INC. 2 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF ABR INFORMATION SERVICES, INC. 1. ABR Properties, Inc. (A Florida Corporation) 2. ABR Benefits Services, Inc. (A Florida Corporation) EX-23.1 6 CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.1 CONSENT OF GRANT THORNTON LLP 2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated September 11, 1997 accompanying the consolidated financial statements and schedule of ABR Information Services, Inc. that are included in or incorporated by reference in the Company's Form 10-K for the year ended July 31, 1997. We hereby consent to the incorporation by reference of said reports in the Registration Statements of ABR Information Services, Inc. on Forms S-8 (File No. 33-86520 and 333-17195, effective November 18, 1994 and December 3, 1996, respectively). /S/ GRANT THORNTON LLP GRANT THORNTON LLP Tampa, Florida October 14, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ABR INFORMATION SERVICES, INC. ANNUAL 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS YEAR JUL-31-1997 AUG-01-1996 JUL-31-1997 1 33,322,734 108,499,196 8,426,059 130,175 0 152,713,120 32,285,025 4,494,671 222,016,848 24,873,848 0 0 0 273,763 193,821,994 222,016,848 50,078,842 50,078,842 28,178,925 9,765,500 0 0 7,081,238 19,215,655 6,987,003 12,228,652 0 0 0 12,228,652 .44 .44
-----END PRIVACY-ENHANCED MESSAGE-----