10-K
1
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission file number 0-10175
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0723125
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(803)735-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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.
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $784,457,736 at March 10,
1995 based on the closing market price of the Common Stock on
such date, as reported by the New York Stock Exchange.
The total number of shares of the registrant's Common Stock,
$.01 per share par value, outstanding at March 10, 1995 was
19,362,984.
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the registrants 1995 Proxy Statement in
connection with its 1995 Annual Meeting of Stockholders are
incorporated by reference in Part III hereof.
Item 4 of Registrant's Report on Form 8-K, dated August 17, 1993,
is incorporated by reference in Part III hereof.
2
PART I
Item 1. Business
The Company
Organization and General Development
Policy Management Systems Corporation ("Company"), a leading
provider of standardized insurance software systems and
automation, administration and information services to the
worldwide insurance industry, is a South Carolina corporation
incorporated in 1980.
Prior to 1985, the Company operated primarily as a provider of
insurance software systems and related automation support
services to the property and casualty insurance market in the
United States. Since that time the Company has expanded
geographically into Canada, Europe and Australia, as well as into
the life and health insurance markets and the information
services market. The Company has also further expanded its
software product and services offerings through client/server
computing, strategic alliances, outsourcing and acquisitions,
thereby strengthening the Company's ability to serve the global
insurance marketplace.
Geographic Expansion
The Company initially realized that developing international
customers and marketplaces was essential in becoming a leading
provider of insurance solutions and systems to the worldwide
insurance industry. The Company opened its Canadian office in
1977, and since that time has expanded operations to include
several European countries and the Pacific region. The Company
currently has international customers in 29 different countries
around the world (see Segment Information).
The Company's acquisition of Vital Data, located in Bergen,
Norway, in 1993 expanded its international growth in the Nordic
countries. This acquisition provides the Company with an
important outsourcing center as well as a development center for
the Company's European life systems (see Acquisitions).
The Company further strengthened its position in Europe and other
foreign markets, with the acquisition of Creative Holdings
Group, Limited ("Creative") in December 1994 (see Acquisitions).
Creative provides software solutions and professional services to
medium-sized general insurance companies, and is headquartered in
the United Kingdom with offices in England, Australia and
Southeast Asia.
Client/Server Technology
Prior to 1989 the Company offered insurance software systems to
the property and casualty insurance industry, designed to run on
traditional mainframe, midrange and personal computers. In 1987,
the Company began development of an integrated relational
database client/server solution for the insurance industry known
as Series III. Using relational databases and cooperative
processing between hardware platforms and allowing access to data
from multiple sources through advanced networks, Series III
provides a seamless flow of information between insurance agents,
branch offices and the home office of insurance companies. With
the completion of Release 7 in 1994, Series III, with the
exception of workers' compensation insurance, is a comprehensive
solution for all facets of the property and casualty insurance
industry worldwide, and will also serve as the platform for
certain life and health insurance industry solutions.
The Company also continues to provide solutions to the insurance
industry through its Series II products, an earlier generation of
solutions which are traditional mainframe or personal computer
products, and the POINT system, which is a midrange platform
typically marketed to small-to medium-sized insurers.
The Company's acquisition of CYBERTEK in August, 1993 (see
Acquisitions) provided the Company with the CK/4 Enterprise
Solution, a totally integrated solution for the life insurance
industry. The Company is also currently integrating the CYBERTEK
functionality into the development of an integrated client/server
solution for the life insurance industry, known as CYBERLife.
Strategic Alliances
To expand its software product and services offerings, the
Company has formed certain strategic alliances. For example, the
Company's efforts on Series III development continue to be
enhanced by a Development and Marketing Agreement between the
Company and International Business Machines Corporation ("IBM").
The Company also
3
entered into a Value-Added Reseller agreement with IBM for the
AS/400 business computer system in conjunction with the Company's
mid-range POINT system.
The Company also supports an open systems strategy, which allows
the host-based components of Series III to be
portable across other technology platforms. The Company's
recently formed strategic alliance with AT&T Global Information
Solutions ("AT&T Global") in 1994 resulted in the general
availability of Series III technology for the full range of
scalable UNIX-based platforms provided by AT&T Global (see
Product Development).
As part of the open systems initiative, the Company joined
Oracle's Business Alliance Program and Sybase's Open Solutions
Partners Program. As Value-Added Resellers for both Oracle and
Sybase, the Company positioned itself for developing its
solutions to the insurance industry based on customer demand.
Outsourcing
In 1987, the Company began to place more emphasis on outsourcing
and facilities management services market for both the private
and public sectors, and today provides a full range of
outsourcing services. These services range from providing
processing for highly regulated lines of business to furnishing
complete processing capabilities for all of an insurer's
business. The Company has also added complete systems management,
systems maintenance, facilities management and processing. An
important sector of the Company's outsourcing business is Total
Policy Management ("TPM"). Unlike traditional outsourcing that
focuses on information systems, TPM combines automation,
information and policy processing to provide the highest level of
outsourcing to insurance companies.
The Company provides outsourcing services from data centers
located in North America, Europe and Australia.
Acquisitions
During 1985, the Company initiated an expansion into the property
and casualty information services business, to assist insurers in
risk selection, pricing and claims adjusting. By 1988, through
acquisitions of regional providers of these information services,
the Company had developed a nationwide network to provide the
full range of information services. These services were further
expanded from 1990 through 1994, with the acquisition of
companies that provide information services primarily related to
the life and health insurance industries.
Between 1986 and 1989, the Company, through business
acquisitions, took initial steps towards becoming a major
supplier of automation solutions for the life and health
insurance markets. Since then, the Company has continued to
expand its product and services offerings and in August 1993,
acquired CYBERTEK Corporation ("CYBERTEK") of Dallas, Texas.
CYBERTEK is a leading provider of information management systems
and processing solutions designed to meet the needs of the life
insurance and financial services industries. The Company is
currently enhancing and integrating the business functions of
CYBERTEK products with certain of the Company's Series III
industry applications.
In 1993 the Company acquired Vital Data in Bergen, Norway to
expand the Company's international growth into the Scandinavian
countries of Norway, Finland, Sweden, and Denmark. In 1994, the
Company, through its subsidiary PMS Norden, began developing
systems for individual life and group and life pensions, and
began researching the integration of these systems with Series
III, for the European market.
To further strengthen its position in Europe and other foreign
markets, the Company acquired Creative Holdings Group, Limited
("Creative") in December 1994. Creative, headquartered in the
United Kingdom with offices in England, Australia, and Southeast
Asia, provides services and products to medium-sized general
insurance companies.
This acquisition positions the Company to capitalize on business
opportunities throughout Europe, the Pacific Rim, and Australia.
Business Strategy
The Company's business strategy is to offer value to customers by
structuring long-term relationships and agreements that provide
its customers with continuously updated solutions, while
providing a high degree of recurring revenues to the Company.
During the early stages of the Company's development, a major
portion of the Company's revenues was derived from systems
licensing activities (43.7% in 1985). As the Company has
continued to enhance its position as a provider of a full range
of business solutions to the worldwide insurance industry, the
portion of the Company's revenues derived from systems licensing
activities has declined, representing 18.1% of total revenues in
1994. The remainder of the Company's revenues are derived
primarily from outsourcing, professional services and information
services activities.
As a result of this strategy, initial license charges, that
portion of license charges from systems licensing activities
which is generally recognized as revenue upon execution of a
license obligation and delivery of the product, have declined,
representing 7.7% of total revenues in 1994, compared to 16.4% in
1985.
4
Segment Information
The Company operates in one business segment, the providing of
computer software systems and automation and administration
support and information services to the worldwide insurance
industry.
The majority of the Company's revenues are generated from
products and services provided in the United States, although the
Company does have customers in a total of 29 foreign countries.
The following table illustrates the relative percentages of total
revenue represented by the Company's products and services in the
United States and foreign countries.
Percent of Revenue
Year ended December 31,
1994 1993 1992
United States 84.8% 87.1% 84.5%
Canada 4.1% 4.3% 3.5%
Europe 6.7% 5.5% 8.3%
Asia 4.4% 3.1% 3.7%
Software Products
The Company offers over 137 business solutions, which include
more than 90 application software systems, designed to meet the
needs of the property and casualty, life and health insurance
markets.
The Company's primary software systems currently run on mid-
range and large scale IBM computers or IBM compatible equipment
utilizing most IBM operating systems. In addition, a number of
systems run on intelligent workstations. The Company also
supports an open systems strategy, which provides for the host-
based software components to be converted to certain Unix
platforms, allowing customers the capability of adding cost-
effective increments of processing power (see Product
Development).
The Company's software products automate most insurance
processing functions, including various underwriting, claims,
accounting, financial and regulatory reporting and cash
management functions. The systems have been designed to permit
ease of use, providing flexibility in adapting them to a
particular customer's requirements and modifying them as
business conditions change. The systems are modular in structure
and facilitate the application of updates and enhancements, as
well as the interfacing and integration to different systems.
Most of the systems will operate on either a stand-alone basis
or in conjunction with each other.
Series III client/server technologies serve as a platform for the
Company's systems for the property and casualty, life and health
insurance markets. A primary objective of Series III is the full
integration of the information and data gathering, processing,
underwriting, claims handling and reporting processes for
providers of insurance, creating a cooperative processing
environment. In this cooperative processing environment,
insurance professionals, using advanced intelligent workstations,
can process multiple tasks concurrently with minimal clerical
support and data entry. The foundation of Series III is the
Company's Integrated Application Platform ("IAP"), more fully
described below. Series III uses advanced and emerging
technologies such as relational databases, graphical user
interfaces and imaging. Series III technologies provide for
system upgrades, additions and interfaces to be implemented more
quickly and at reduced costs, with minimum disruption to ongoing
operations.
The Company obtains from third parties licenses for a wide range
of software products and services which are used in varying
degrees to develop and enhance the Company's products and in
performing services for its customers. Such products range from
mainframe operating systems to graphical user interfaces.
Although such products licensed from third parties are important
to the products and services offered by the Company, there is
generally no single product licensed from a third party that, if
discontinued, would significantly impact the Company's
development of its products and performance of its services.
Insurance Industry Software Products
Billing and Collection
BILLING AND COLLECTION MANAGEMENT SYSTEM ("BCMS") - An on- line
system that automates management of billing and collections for
single, consolidated, third party, agency, and account current
disciplines. Personal and commercial lines are supported and may
be collected and paid through on-line cash entry, lockbox,
optical character readers ("OCR"), or electronic funds transfer
("EFT") methods. The system features user defined pay plans,
finance and service charges and delinquency plans and supports
payroll deduction plans.
5
BILLING AND COLLECTION WORKSTATION ("BCWS") - Client/server
solution that automates the management of billing and collections
for property and casualty, individual life and health, and group
life and health lines of business. Multiple billing disciplines
(including single policy, account bill, third party, agency) and
collection methods (including cash entry, lockbox, OCR, EFT, and
credit card) are designed to offer enhanced flexibility to the
user.
Client
CLIENT INFORMATION SYSTEM ("CIS") - DB/2-based mainframe system
with a CICS front-end which serves as a common repository of
information relating to an insurance company's clients and
provides an index to other corporate data. CIS bridges computer
systems, regardless of the software product and vendor, and
displays various business relationships that exist between the
client and the insurance company.
CLIENT INFORMATION WORKSTATION ("CIWS") - Client/server solution
that automates the management of information about a person,
company, prospect or provider who has a relationship with an
insurance company.
Financial
FINANCIAL WORKSTATION ("FWS") - Client/server solution that
provides financial balancing and summarization for general ledger
interaction.
FINANCIAL MANAGEMENT SYSTEM ("FMS") - VSAM-based on- line, real
time integrated general ledger solution that allows for the
allocation of expenses, budgeting, reporting, transaction
balancing, and file updating.
Management Information
MANAGEMENT DECISION SUPPORT ("MDS") - Workstation tool that
provides insurance professionals with the capability to design
and run queries against information contained in relational
databases and allows on-line access to current and historical
versions of various standard reports.
Reinsurance
REINSURANCE MANAGEMENT SYSTEM ("RMS") - Client/server solution
that provides data capture of reinsurance rules that are used to
generate and manage cessions and retrocessions to provide an
accurate analysis of reinsurance placement for premiums and
losses.
General Office
WORK IN PROCESS ("WIP") - Client/server solution that facilitates
the management, including tracking, assigning, reassigning and
controlling, of various tasks generated in an insurance company
environment.
Architecture
INTEGRATED APPLICATION PLATFORM ("IAP") - A technical platform
which, using client/server technology, provides the capability to
develop applications and link software systems, whether they are
those of the Company or another party. Includes data models,
process models and other Series III architecture foundations.
Property & Casualty Software Products
Underwriting And Policy Administration
POLICY MANAGEMENT SYSTEM ("PMS") - PMS, the Company's most
comprehensive and widely used mainframe system, performs the
functions essential to all phases of the management of property
and casualty insurance policies. This system is designed to
reduce paper work dependency, facilitate rapid access to
information and improve service. Principal automated functions
performed by PMS are policy rating and premium calculation,
policy printing, renewal and endorsement generation and certain
reinsurance processing.
UNDERWRITING WORKSTATION ("UWS") - Client/server solution that
stores and manages policy information in a central location to
improve the accuracy and consistency of underwriting decisions.
Automates rate, quote, and policy issuance, eliminating the need
for manual intervention. "Rating Processor- and "Underwriting
Decision Support- ("UDS") are subcomponents of Underwriting
Workstation that may be licensed separately.
MICRO MAINFRAME SYSTEM ("MMS") - An intelligent workstation based
system designed to meet the policy processing and rating needs of
property and casualty insurance companies. MMS emulates mainframe
functions on a workstation allowing the maintenance of software
rating applications that run in either a mainframe or workstation
environment.
6
Claims
CLAIMS HANDLING SYSTEM ("CHS") - An intelligent workstation based
system which automates most claims handling related functions of
property and casualty insurance companies, including claims
payments, and facilitates the uploading and downloading of claims
information between host and remote computers.
CLAIMS WORKSTATION ("CWS") - Client/server solution that
automates the claims handling processes, as well as providing
access to the various claims functions and information in a
distributed environment.
Management Information And Reinsurance
INSURANCE MANAGEMENT INFORMATION SYSTEM ("IMIS") - A management
information and reporting system that provides premium, loss
experience, reinsurance and actuarial reporting to satisfy
insurance company management and statutory reporting requirements
for property and casualty insurance companies.
MANAGEMENT INFORMATION SYSTEMS ("MIS") - Client/server system
that provides data generation and manipulation capabilities to
fulfill the management, annual statement, actuarial, bureau, and
other reporting requirements of a broad range of insurance
companies.
Midrange Platform
POINT - An integrated midrange property and casualty processing
system designed to run on IBM's AS/400 computer. Provides
policy, claims, financial and reinsurance management, coupled
with a relational database for general insurance companies based
in the Americas.
ALL LINES RATING - A midrange solution that automates rate,
quote, premium generation and policy issuance for personal and
commercial lines for POINT. Supports new business, endorsements
and renewals.
INSURE/90 - A fully integrated, on-line system designed to run on
IBM's AS/400 platform. Provides comprehensive functions for the
back office administration and management needs for European,
Canadian and Pacific Rim general insurance companies of all
sizes.
Sales And Marketing
ADVANCED COMMUNICATIONS ACCESS ("ACA") - A bridge between
application systems that interfaces IBM mainframe- based company
systems with mini- and micro-based systems. ACA provides
communications, data translation, and routing capabilities, and
supports ACORD and SCIO standards for several lines of business.
Life Software Products
CK4/VS - An advanced administration system that provides real-
time processing for advanced or traditional life, annuity and
health insurance products. CK4/VS' exclusive Product Line
Architecture allows the user to define unique, competitive
products without costly modifications. CK4/VS offers fast
product introduction, increased productivity and strong agent and
policyholder service because of its real-time processing and
communication structure.
CK4 WORKSTATION ADVISOR - Allows the Personal Computer to be
utilized to provide an intelligent administrative workstation for
mainframe and client/server based applications. A scripting
facility allows business processes to be re-engineered to improve
productivity and enhance customer service.
SALESPRO - An integrated sales illustration system used by
agents, which produces advanced sales illustrations for products
like universal life, variable universal life, interest sensitive
life, whole life and annuities. Options for split dollar,
comparisons, executive bonus plans, and deferred compensation are
also available.
NEW BUSINESS EXPEDITOR - Integrates several existing systems to
automate the processing of a new policy application, including
the initial sales proposal, policy submission, underwriting,
information gathering, and final policy issuance. New Business
Expeditor integrates with CK4/VS and other individual life
insurance administrative systems.
CK4 UNDERWRITING ADVISOR - Uses the COGENSYS Judgment Processor
combined with Auto/Issue and an application entry component to
automate the underwriting process.
CK4 INFORMATION EXPEDITOR - Uses electronic data interchange to
manage the information coming into the home office from third
party information providers. Reports from information providers
such as blood test results and inspection reports are receipted
and matched with the application file electronically.
COGENSYS JUDGMENT PROCESSOR - A software system designed to
emulate the decision-making logic of an effective human expert in
a variety of business application areas, including life insurance
and property and casualty underwriting.
7
COGENSYS INFORMATION MANAGER - A front-end system with the
ability to create and manipulate electronic versions of forms
which are used in conjunction with Judgment Processor. The
system is flexible and multilingual and provides an automatic
interface between spreadsheets and existing microcomputer and
mainframe databases within a customer's company.
COGENSYS APPLICATION MANAGER - A scheduling and tracking system
that manages the activities of the COGENSYS Judgment Processor
and Information Manager. It integrates the entire COGENSYS
Judgment software line of products and provides query and
management reports of the entire process.
PRIVATE LIFE INSURANCE SYSTEM ("PLIS") - European automatic user-
controlled computer system for processing of individual life
insurance policies which covers all functions in the production
of individual life insurance and pension plans including:
signing of new policies, policy endorsements, reimbursements,
premium payments, simulation and statistics and case processing.
BELIV - European application for administration of life and
pension insurance. Beliv provides all functionality from quoting,
administration of contract and employee information,
disbursements and termination of the contract. The Beliv
application is modular and integrates with other Series III
systems, as well as non-Series III systems.
Health Software Products
HEALTH ENTERPRISE SOLUTION ("HES") - A comprehensive series of
systems designed for the administration and management of most
indemnity and managed care health products. Functions supported
include point of service, capitation and a full array of other
managed care requirements. HES includes ADMIN and CAPS (as
described below) as sub-systems.
CLAIMS ADMINISTRATION AND PAYMENT SYSTEM ("CAPS") - A claims
administration and payment system with advanced capabilities
supporting the cost management and extensive data collection
needs of most health insurers.
CLAIMS ADMINISTRATION SYSTEM ("CAS II") - An on-line immediate
update claims system that supports cost management programs, such
as Preferred Provider Organizations, precertifications and second
surgical opinions for medium-sized insurance companies or self-
administered clients.
GROUP ADMINISTRATION AND BILLING SYSTEM ("ADMIN") - A group
health insurance billing and administration system which
automates and integrates membership, premium calculation, billing
and collection, receivables, arrears and information management.
PROVIDER INFORMATION MANAGEMENT SYSTEM ("PIMS") - A relational
database provider information solution that retains information
on demographics and pricing solutions in order to administer HMO
and managed care business requirements.
Product Support and Services
Most customers licensing the Company's software systems pay a
monthly license fee which entitles the customer to MESA
(Maintenance, Enhancements and Services Availability). Under the
maintenance provisions of MESA the Company provides telephone
support and error correction to current base versions of licensed
systems. The enhancement provisions of MESA provide any additions
or modifications to the licensed systems, if and when they become
generally available as a result of the Company's continuing
research and development efforts. Services availability allows
customers access to professional services, other than maintenance
and enhancements, which are provided under separate arrangements
during the MESA term.
The Company offers professional services, which include systems
implementation, systems migration and integration assistance,
consulting and educational services. These services are available
under services agreements and are charged for separately. These
services are generally provided under time and material contracts
and in some circumstances under fixed price arrangements.
Additionally, the Company offers outsourcing and information
services ranging from making available software licensed from the
Company on a remote processing basis from the Company's data
centers to automated information services through the Company's
North America telecommunications network using the Company's
database products. Outsourcing services are typically provided
under contracts having terms from three to ten years.
Professional Services
BUSINESS NEEDS ANALYSIS - Maps a customer's strategic plan in
conjunction with the rollout of future Series III releases and
defines the sequence, time frame, and effort of tactical projects
necessary to meet that strategy.
8
CONSULTING SERVICES - Experienced personnel are available for
consultation in the areas of insurance and data processing.
Consulting services can range from project management to
programming.
EDUCATION SERVICES - Offers a comprehensive selection of hands-on
classes to familiarize customers with the use of systems. Classes
can be taught at the customer's site or at the Company's home
office. Education Services also provides a Resource, Evaluation,
and Planning Service to help customers identify their training
needs, as well as Series III University enrollment and
curriculum.
IMPLEMENTATION SUPPORT - The Company's project teams provide the
customer their expertise in planning, customization,
modification, installation and testing. Packages are available
for all of the Company's systems.
Outsourcing Services
The Company offers comprehensive outsourcing services from its
data centers located in North America, Europe and Australia.
These services range from providing processing capabilities for
highly regulated lines of business such as Massachusetts
automobile and automobile assigned risk plans to providing
complete processing capabilities for all or most of a customer's
business by making available software systems licensed from the
Company on a remote basis; to assuming complete systems
management, processing and administration support
responsibilities for a customer, including complete policyholder
services and claims support.
Information Services
The Company offers a wide range of information services which are
packaged to facilitate efficient review of underwriting risks and
may be ordered and received on an automated basis through the
Company's nationwide telecommunications network. These
information services, which are designed to assist insurance
professionals in making better decisions about risk selection,
pricing and claims settlement, currently include motor vehicle
reports (driving record), credit reports and histories, property
inspection and valuation reports, property claims estimating,
premium audits, physician reports and medical histories, as well
as undisclosed driver information, driver mileage verification
and claims histories provided through the Company's database
services.
Product Development
Historically, the computer software and services industry has
experienced rapid technological changes in hardware and software.
Additionally, the insurance industry is constantly subject to
regulatory changes and new requirements. This combination of
change requires the Company to develop new products and enhance
its existing products to constantly meet the automation needs of
the worldwide insurance industry.
An example of the Company's continuing product development effort
is the Company's new generation of systems; Series III for
property and casualty and CYBERLife for the financial services
industry (see Software Products above).
Although development efforts for the full release of Series III
for the property and casualty insurance industry will continue,
major components of Series III have been delivered since
development began in 1987. With the completion of Release 7 in
1994, Series III, with the exception of worker's compensation
insurance, offers a comprehensive solution to the property and
casualty industry worldwide.
CYBERLife represents a significant investment to rearchitect the
existing suite of CYBERTEK enterprise solutions into a true
client/server environment. CYBERLife will offer a completely
integrated solution to the financial services industry with
releases beginning in 1995.
While the Company intends to continue to develop applications for
IBM architecture platforms, it also supports open systems. This
open systems approach, which allows the host-based components to
be converted to various platforms, will allow separate software
products to be integrated with one another, as well as with the
customer's existing and future systems, whether provided by the
Company or other vendors.
The first agreement to support open systems development is with
NCR Corporation, an AT&T subsidiary, now known as AT&T Global
Information Solutions ("AT&T Global"). The Company and AT&T
Global are jointly marketing the Company's Series III systems
worldwide to insurance companies implementing AT&T Global's UNIX-
based solutions. AT&T Global has provided a full range of
scalable platforms to the Company and in 1994 the Company
successfully ported the Series III host-based components to run
on AT&T's 3555, a symmetric multiprocessor system. In addition,
AT&T Global has made a commitment to support the marketing of the
Series III software and to participate in the funding of the
conversion of the Series III host-based software to AT&T Global's
UNIX-based platforms.
The Company is also in the process of re-engineering its POINT
system, a midrange solution designed for use by mid-sized
property and casualty insurance companies, to make it portable
across different hardware platforms. The POINT Open system, with
this open systems direction, will offer insurance companies
increased flexibility in adding functionality and processing
power.
9
In an effort to maintain and strengthen its competitive position,
the Company expends substantial amounts on internal product
development. Expenditures for internal product development, which
were capitalized, were $30.7, $24.7, and $24.3 million in 1994,
1993, and 1992, respectively, representing 6.2%, 5.5%, and 5.0%,
respectively, of total revenues. In addition to its continuing
development efforts, the Company, in the past several years, has
expended significant amounts on business and software product
acquisitions in an effort to expand its product and services
offerings and its presence in the marketplace. The Company
acquired software products with a cost basis of $2.0, $25.1, and
$17.7 million in 1994, 1993, and 1992, respectively, representing
.4%, 5.5%, and 3.6%, respectively, of total revenues.
The Company intends to continue to expand its product and
services offerings through internal development and acquisitions.
Marketing and Customers
The Company markets its products and services to several thousand
property and casualty insurance companies, life insurance
companies, health insurance organizations and independent agents
and adjusters. In addition, the Company offers its software
products and automation and administration support services in 37
foreign countries. At December 31, 1994, the Company was
providing its products and services to more than 8,700 insurance
companies, agents and adjusters. No one customer accounted for
more than 10% of revenues during the year ended December 31,
1994.
The Company markets its products and services through a staff of
approximately 200 employees, including salesmen and marketing
support personnel, most of whom are specialists in the insurance
industry and data processing. The Company's marketing force
works extensively with each prospective customer, analyzing its
specific requirements. Consequently, the marketing process may
extend over several months for a prospective customer seeking a
major automation or information solution.
In addition to its own software products, the Company markets
certain third party software products to its customers.
Typically, these products are designed to perform noninsurance
functions or to improve the control and productivity of computer
resources.
Licenses and Product Protection
The Company's revenues are generated primarily by licensing to
customers standardized insurance software systems and providing
outsourcing, professional services and information services to
the worldwide insurance industry.
Software systems are licensed under the terms of substantially
standard nonexclusive and nontransferable license agreements,
which generally have a noncancelable minimum term of six years
and provide for an initial license charge and a monthly license
charge. The initial license charge grants a right to use the
software system available at the time the license is signed. The
monthly license charge, which covers the right to use during the
term of the agreement, also provides access to Maintenance,
Enhancements and Services Availability ("MESA") (See description
under Product Support and Services).
The Company relies upon contract, intellectual property,
copyright and other bodies of law to protect its products as
trade secrets and confidential proprietary information. The
Company's agreements with its customers and prospective customers
prohibit disclosure of the Company's trade secret and proprietary
information to third parties without the consent of the Company
and generally restrict their use of the Company's products to
only their operations. The Company also informs its employees of
the proprietary nature of its products and obtains from them an
agreement not to disclose trade secrets and proprietary
information. Notwithstanding those restrictions, it may be
possible for competitors of the Company to obtain unauthorized
access to the Company's trade secrets and proprietary
information. The Company also has registered service marks or
pending applications for registration for many of its software
products.
Competition
The computer software and services industry is highly
competitive. Based upon its knowledge of the industry, the
Company believes it is a leading provider of comprehensive
insurance software systems and related outsourcing, professional
services and information services to the worldwide insurance
industry. Very large insurers, which internally develop systems
similar to those of the Company, along with their affiliates, may
not become major customers of the Company for software. There
are also a number of independent companies who offer software
systems which perform certain, but not all of the functions
performed by the Company's systems.
There are a number of larger companies, including computer
manufacturers, computer service and software companies and
insurance companies, that have greater financial resources than
the Company and the technological abili
10
ty to develop software products similar to those offered by the
Company. There are also a number of companies that provide
information services similar to those provided by the Company to
the insurance industry. These companies present a significant
competitive challenge to the Company's information services
business.
The Company competes on the basis of its service, price, system
functionality and technological advances. However, the Company
believes the most important considerations for potential
consumers of its products and services are product capability,
ease of installation and use, reliability and quality of
technical support, documentation and training, integration of the
products and services capabilities and the experience and
financial resources of the Company.
Employees
At December 31, 1994, the Company had 4,340 full-time employees
and 4,678 total employees located in offices worldwide.
Item 2. Properties
The Company owns its 700,000 square foot headquarters complex
located on 145 acres in Columbia, South Carolina. The Company
leases space at 37 various locations domestically for its
regional and branch offices throughout the United States.
Internationally, the Company has 14 locations in 7 countries
throughout Canada, Europe and the Pacific Rim.
The Company, through its data centers located in North America,
Europe and Australia, utilizes 16 mid-range and mainframe
computers. All computers are owned or held under long-term
leases. In total, these computers have 7,464 megabytes of memory
and are capable of processing approximately 772.2 million
instructions per second. The Company is currently utilizing 70%
to 90% of this capacity.
Item 3. Legal Proceedings
As previously disclosed, the Company did not meet its earnings
plan for the first quarter of 1993, due principally to the
deterioration in the Company's health insurance systems business.
Following this announcement, the Company's stock price dropped by
over 40% and, within 24 hours, litigation was commenced in the
United States District Court for the District of South Carolina
against the Company and certain of its present and former
officers and directors in the form of a class action on behalf of
purchasers of the Company's common stock between March 18, 1992,
and ultimately, July 8, 1993. The lawsuit alleged that, among
other things, the Company had failed to prepare its financial
statements in accordance with generally accepted accounting
principles and omitted to disclose certain information in
violation of federal securities laws.
Partly in response to these allegations, the Company conducted
its own internal review of its accounting practices and financial
statements for the years 1990 through 1993. The Company engaged
new independent accountants to review its internal controls and
to conduct a special audit of the Company's financial statements
covering the year 1992 and the first six months of 1993. The
special audit and detailed internal review required several
adjustments to the Company's previously reported financial
statements. These adjustments are reported in Item 6 of Part II
and Note 2 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K/A for the year ended
December 31, 1993, and resulted in an increase in earnings per
share for the year 1992 of 10 cents per share and a $5.1 million
increase in retained earnings as of December 31, 1992, as
compared to prior publicly reported results. There was no change
in annual earnings per share for 1990 or 1991. The Company
implemented new control procedures recommended as part of the
controls review and expanded its management team.
In December 1994, the Company reached an agreement, subject to
court approval, to settle the shareholder class action. The
settlement of $31 million will be paid by the Company's
Directors' and Officers' Liability Insurance Carrier, the
Company's former accountants and the Company. The Company's
portion of the settlement and associated litigation costs
resulted in a special one-time charge of $34.2 million ($21.3
million after tax) which has been recognized as an expense in the
accompanying Consolidated Statement of Operations for the year
ended December 31, 1994. This represents the Company's portion
of the total settlement, plus the Company's litigation costs of
$18.1 million ($11.2 million after tax), less the recovery from
the insurance company.
In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as
11
well as trading in the Company's securities. The SEC has issued
a formal order of investigation which provides the SEC staff with
the power to subpoena documents and to compel testimony in
connection with their investigation. The United States Attorney
for the District of South Carolina also is conducting an
investigation into certain of these matters. The Company is
cooperating with these investigations.
In addition to the litigation described above, the Company is
presently involved in litigation arising out of the Company's
change in the direction of its future life software systems
development following the acquisition of CYBERTEK and an early
version of its Series III software. There are also various other
litigation proceedings and claims arising in the ordinary course
of business. The Company believes it has meritorious defenses
and is vigorously defending these matters. While the resolution
of these matters could have a material adverse effect on the
results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its
consolidated financial position. The Company, however, is unable
to predict the ultimate outcome or the potential financial impact
of these matters.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held October 13,
1994, the Company's stockholders approved the election of three
Directors, Roy L. Faulks (17,477,827 votes for and 172,435
abstentions), Frederick B. Karl (17,474,328 votes for and 175,934
abstentions) and Richard G. Trub (17,470,026 votes for and
180,236 abstentions), to serve a term of three years and one
Director, Steven A. Denning, to serve a term of two years
(17,476,983 votes for and 173,279 abstentions), approved the
ratification of the selection of independent auditors (17,555,619
votes for, 28,558 against and 66,085 abstentions) and approved a
proposal to amend the Company's Articles of Incorporation to
remove the mandatory retirement age for members of the Board of
Directors (16,359,664 votes for, 307,261 votes against and
983,337 abstentions). On the matters presented for shareholder
vote, there were no broker non-votes.
12
Executive Officers of the Registrant
Name Age Position
G. Larry Wilson 48 Chairman of the Board, President and
Chief Executive Officer
David T. Bailey 48 Executive Vice President
Charles E. Callahan 46 Executive Vice President
Donald A. Coggiola 55 Executive Vice President
Robert L. Gresham 52 Executive Vice President and Treasurer
Stephen G. Morrison 45 Executive Vice President, Secretary
and General Counsel
Timothy V. Williams 45 Executive Vice President and Chief
Financial Officer
James P. Brown 48 Senior Vice President
G. Larry Wilson - Chairman of the Board (since 1985), President
and Chief Executive Officer of the Company (since 1980) and his
current term as Director will expire in 1995; Director of LEGENT
Corporation, Vienna, Virginia. Employed by the Company since its
inception.
David T. Bailey - Executive Vice President of the Company since
1986. Responsible for the Property and Casualty Insurance Group.
Employed by the Company since 1981.
Charles E. Callahan - Executive Vice President of the Company
since 1989. Responsible for the Life, Health and Information
Services Group. Employed by the Company since 1983.
Donald A. Coggiola - Executive Vice President of the Company
since 1986. Responsible for the Industry Markets Group. Employed
by the Company since 1979.
Robert L. Gresham - Executive Vice President of the Company since
1986. Responsible for the Corporate Services Group. Employed by
the Company since 1978.
Stephen G. Morrison - Executive Vice President, Secretary and
General Counsel of the Company since January 1994. Responsible
for the administration of the legal affairs of the Company.
Employed by the Company since January 1994. Prior to joining the
Company, Mr. Morrison was engaged full time in the practice of
law as Senior Partner with Nelson, Mullins, Riley & Scarborough
in Columbia, South Carolina. In that capacity, Mr. Morrison
served as the Company's chief outside litigation counsel for
matters other than those described in Note 8 to the Financial
Statements. Mr. Morrison will continue his affiliation with
Nelson, Mullins, Riley & Scarborough and continues to perform
certain services in that capacity on a declining basis.
Timothy V. Williams - Executive Vice President and Chief
Financial Officer of the Company since February 1994.
Responsible for the Financial Services Group. Employed by the
Company since February 1994. Prior thereto, Mr. Williams served
in senior management capacities with Holiday Inn Worldwide, based
in Atlanta, Georgia, most recently as Executive Vice President of
Corporate Services and Chief Financial Officer.
James P. Brown - Senior Vice President of the Company since
1992. Responsible for the Total Policy Management Group since
February 1994. Employed by the Company since 1982.
13
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
The Company's common stock is traded on the New York Stock
Exchange, symbol PMS. The Company has never paid or declared a
cash dividend on its common stock. The following table sets
forth for the calendar periods indicated the high and low market
prices for the Company's common stock.
1994
High Low
First Quarter...... $39 3/4 $28 3/4
Second Quarter..... 35 1/8 25 3/4
Third Quarter...... 41 1/2 32 1/4
Fourth Quarter..... 47 3/4 37 1/4
1993
High Low
First Quarter...... $87 1/4 $74 1/2
Second Quarter..... 86 1/4 32 7/8
Third Quarter...... 36 3/4 21 5/8
Fourth Quarter..... 31 3/8 22 1/4
Title of Class
Common Stock, $.01 par value
Number of Record Holders as of March 10, 1995
1,619
14
Item 6. Selected Consolidated Financial Data
(Unaudited) (Unaudited)
Results of Operations 1994 1993 1992 1991 1990
(In Thousands, Except Per Share Data)
Revenues......................... $492,706 $453,099 $489,261 $411,156 $341,692
Operating income (loss).......... (19,745) (77,053) 78,971 63,659 51,207
Other income and expenses, net... 1,256 10,656 11,792 9,117 4,222
Income (loss) before income
taxes (benefit)................ (18,489) (66,397) 90,763 72,776 55,429
Net income (loss)................ $ (9,658) $(56,134) $ 61,522 $ 42,596 $ 37,166
Net income (loss) per share...... $ (.46) $ (2.46) $ 2.65 $ 2.21 $ 1.92
Fully diluted net
income per share............... - - - $ 2.14 $ 1.80
Financial Condition
Cash and equivalents, marketable
securities and investments..... $ 34,304 $156,772 $238,521 $197,414 $152,994
Current assets................... 167,725 287,737 343,913 299,750 246,461
Current liabilities.............. 76,856 80,981 57,226 67,505 46,363
Working capital.................. 90,869 206,756 286,687 232,245 200,098
Total assets..................... 524,031 659,803 706,942 632,692 529,249
Long-term debt (excludes
current portion)............... 4,162 5,655 6,001 5,976 102,633
Total liabilities................ 147,109 182,831 127,866 132,813 201,841
Stockholders' equity............. 376,922 476,972 579,076 499,879 327,408
The above should be read in conjunction with the Consolidated
Financial Statements, Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations
appearing in this Annual Report. The results of operations in
1994 and 1993 reflect special charges of $71.9 million (after
taxes $44.2 million, or $2.27 per share) and $98.8 million (after
taxes $76.2 million, or $3.29 per share), respectively. Earnings
per share, before special charges, were $1.65 and $.83 for 1994
and 1993, respectively. See Quarterly Consolidated Results of
Operations on page 45 and Note 12 of Notes to Consolidated
Financial Statements on page 42.
15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:
Percent
Increase (Decrease)
Percentage of Revenue 1994 1993
Year Ended December 31, vs vs
1994 1993 1992 1993 1992
Revenues:
Licensing................... 18.1% 16.5% 14.9% 19.3% 2.3%
Services.................... 81.9 83.5 85.1 6.7 (9.1)
100.0 100.0 100.0 8.7 (7.4)
Costs and Expenses:
Employee compensation
and benefits.............. 35.5 37.0 34.4 4.3 (.3)
Computer and communications
expenses.................. 5.2 4.9 4.3 13.3 6.1
Information services and
data acquisition costs.... 26.9 28.8 19.0 1.7 40.3
Impairment and restructuring
charges, net.............. 6.3 17.8 - (61.9) -
Purchased research and
development............... .5 - - - -
Litigation settlement and
expense, net.............. 6.9 - - - -
Depreciation and amortization
of property, equipment and
intangibles............... 11.6 13.1 10.8 (3.3) 12.0
Other operating costs and
expenses.................. 11.1 15.4 15.4 (21.3) (7.3)
104.0 117.0 83.9 (3.3) 29.2
Operating income (loss)....... (4.0) (17.0) 16.1 74.4 (197.6)
Other income and
expenses, net............... .2 2.3 2.4 (88.2) (9.6)
Income (loss) before income
taxes (benefit)............. (3.8) (14.7) 18.5 72.2 (173.2)
Income taxes (benefit)........ (1.8) (2.3) 6.0 (14.0) 135.1
Net income (loss)............. (2.0)% (12.4)% 12.5% 82.8 (191.2)
The Company's revenues are generated principally by licensing to
customers standardized insurance software systems and providing
automation and administrative support and information services to
the worldwide insurance industry. Licensing revenues are
provided for under the terms of nonexclusive and nontransferable
license agreements, which generally have a noncancelable minimum
term of six years and provide for an initial license charge and a
monthly license charge. Services revenues are derived from
professional support services, which include implementation and
integration assistance, consulting and education services,
information and outsourcing services ranging from making
available software licensed from the Company on a remote
processing basis
16
from the Company's data centers, to complete systems management,
processing, administration support and automated information
services through the Company's nationwide telecommuni-
cations network using the Company's database products.
Revenues
Licensing 1994 Change 1993 Change 1992
(Dollars In Millions)
Initial charges.... $38.1 43.8% $26.5 (3.6)% $27.5
Monthly charges.... 51.0 5.8% 48.2 5.9 % 45.5
$89.1 19.3% $74.7 2.3 % $73.0
Percentage of
revenues......... 18.1% 16.5% 14.9%
Initial license revenues for 1994 increased $11.6 million (43.8%)
compared to 1993. The increase is principally related to new
systems licensed by life insurers ($10.4 million) and to an
expanded license agreement with a large Blue Cross Blue Shield
organization and other licensing activities in the health
insurance systems business ($6.5 million). Increased system
licensing in the life insurance market reflects growing customer
interest in the Company's CK/4 Enterprise and impending release
of CYBERLife software system solutions. These system solutions
incorporate and capitalize on the capabilities of software
products acquired in the acquisition of CYBERTEK Corporation in
August 1993 and components of the Company's Series III
technology. The Company does not expect to see recurring
transactions such as the large Blue Cross Blue Shield license
expansion ($5.9 million) in the near term as health insurers, for
the most part, are still reluctant to make major systems
decisions. The increase in initial license revenues, experienced
by the life and health insurance systems businesses, was
partially offset by a reduction in system licensing revenues from
property and casualty insurers. Although down $5.3 million
(20.1%) for the year, property and casualty initial licensing
revenues increased $7.4 million (135.3%) for the combined third
and fourth quarters of 1994, compared to the corresponding period
in 1993. This increase reflects growing customer acceptance of
the Company's integrated client/server technology available in
Series III and the Company's POINT system, which is typically
marketed to small- to medium-sized insurers. Larger insurers
also licensed POINT for their specialized niche markets and
subsidiary companies.
Initial license revenues for 1993 decreased $1.0 million (3.6%)
compared to 1992. This decrease was due principally to a
decrease in both the life ($5.3 million) and health ($5.0
million) insurance systems businesses. The decrease in licensing
revenues attributable to the life business arose from the
Company's decision to develop new releases of certain of its life
systems based on the business functions of CYBERTEK software
rather than to continue licensing the Company's existing life
products. The Company's development work on new releases began
in September 1993 and the Company began making new releases of
its CK/4 Enterprise systems generally available in the second
quarter of 1994. The Company believes the decline in licensing
revenues attributable to the health business was directly related
to the uncertainty created by the national debate over proposals
to restructure the country's healthcare system and the
unwillingness of insurers to make commitments for any significant
new enterprise-wide systems, while the move from indemnity to
managed care products is rapidly evolving. These decreases were
partially offset by an increase in initial license revenues
related to the property and casualty insurance business of $9.3
million. A significant portion of property and casualty
licensing activity occurred during the first half of 1993.
Subsequent to April 1993, the Company believes the property and
casualty licensing activity was negatively affected by the
Company's special audit and related activities, which were not
concluded until February 1994. Subsequent to April 1994, when
the Company announced its third and fourth quarter and annual
1993 operating results, property and casualty licensing revenues
began to reflect a more traditional level of activity.
Monthly license revenues for 1994 increased $2.8 million (5.8%)
compared to 1993. This increase is principally related to an
increase attributable to licenses acquired as part of the
acquisition of CYBERTEK Corporation in August 1993 and to other
new licensing activities in both the domestic and international
life insurance markets. This increase was partially offset by a
$1.6 million decline in other licensing activity, principally in
the health insurance systems business.
17
Monthly license revenues for 1993 increased $2.7 million (5.9%)
compared to 1992. This increase is principally related to an
increase of $2.1 million attributable to licenses acquired as
part of the acquisition of CYBERTEK Corporation and to $.6
million related to the health insurance systems business.
Monthly license revenues related to property and casualty
business remained relatively unchanged due principally to the
decline in licensing activity during the second half of 1993, as
stated above.
Services 1994 Change 1993 Change 1992
(Dollars In Millions)
Professional and
outsourcing...... $208.6 13.7 % $183.5 (28.6)% $256.9
Information........ 193.0 .7 % 191.7 23.8 % 154.8
Other.............. 2.0 (37.5)% 3.2 (30.4)% 4.6
$403.6 19.3 % $378.4 (9.1)% $416.3
Percentage of
revenues......... 81.9% 83.5% 85.1%
Professional and outsourcing services revenues for 1994 increased
$25.1 million (13.7%) compared to 1993. This increase was
principally related to additional services from existing and new
contracts with property and casualty insurance companies and
residual markets of $25.9 million for total policy management
outsourcing services, an increase of $10.2 million in services
arising out of the acquisition of CYBERTEK Corporation in August
1993 and $13.8 million of additional services from the Company's
European life insurance business, principally related to new
customers and the acquisition of a data center, including its
workforce, in Bergen, Norway, in December 1993. These increases
were partially offset by the wind-down of the New Jersey Market
Transition Facility (MTF) project, where revenues from this
property and casualty business decreased from $19.7 million in
1993 to $3.4 million in 1994 and to a decrease of $6.7 million in
the Company's health insurance systems business. As a result of
an increased role in servicing additional new contracts with
insurance companies and residual markets, the Company started to
replace revenues lost from the MTF, during 1994. The increase in
new outsourcing services in Europe is principally the result of
signing one of the largest outsourcing agreements in the
Company's history in December 1993.
Professional and outsourcing services revenues for 1993 decreased
$73.4 million (28.6%) compared to 1992. The decrease was
principally related to a decline in services provided by the
Company's health insurance systems business and to the wind-down
of the MTF project. Prior to the wind-down of the MTF, annual
MTF revenues in 1992 were $68.4 million. The Company believes
the decline in health revenues was directly related to the
significant restructuring proposals discussed above. For a more
detailed discussion of the effects of healthcare reform, see
Costs and Expenses below.
Information services revenues for 1994 increased $1.3 million
(.7%) compared to 1993. This increase is principally related to
$2.5 million of life information services (principally attending
physician statements and personal medical history interviews),
which was partially offset by a reduction in revenues associated
with the Company's property and casualty risk information
services business.
Information services revenues for 1993 increased $36.9 million
(23.8%) compared to 1992. This increase is principally related
to $35.6 million of new services provided to the independent
agency market and new customers, and to $8.2 million of life
information services (principally attending physician statements
and personal medical history interviews). These increases were
partially offset by a $6.9 million reduction in revenues
associated with the Company's domestic property and casualty risk
information services business.
The Company believes that decreases associated with the Company's
domestic property and casualty automobile and risk information
services business, described above, relate principally to
significant changes in the property and casualty insurance
industry. As a result of the catastrophic losses arising from
several natural disasters in 1992 and 1993, insurers have
experienced significant underwriting margin erosion. In some
cases, insurance companies were forced to discontinue writing
business in certain high-risk areas and in general have reduced
new business activity. Consequently, the demand for information
services has declined, intensifying competition
18
among information providers and placing downward pressure on
price. Although faced with lower volumes and reductions in its
price structure, the Company was able to compete, through its
national information gathering network, by delivering information
electronically and integrating the information into its policy
and claims administration systems. During the first quarter of
1994 there was a major earthquake in California and, by the
second quarter, several insurance companies that used the
Company's information services had stopped writing business in
that state. With the loss of key customers and the prospect of a
further decline in sales resulting from this changing industry
environment, the Company undertook a detailed assessment to
determine future expectations for this business. For a more
detailed discussion of the effects of this assessment, see Costs
and Expenses below.
Costs and Expenses
Employee compensation and benefits increased $7.1 million (4.3%)
for 1994 compared with 1993, and is principally related to an
increase of $16.1 million in costs associated with the
acquisition of CYBERTEK Corporation in August 1993, the
acquisition of a data center, including its workforce, in Bergen,
Norway, in December 1993, and the increased use of temporary
labor throughout the year. The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits of $7.8 million resulting from a
downsizing in the Company's health insurance services staff from
388 at the end of 1993 to 220 at the end of 1994. These staff
reductions are part of the Company's restructuring of its health
business (see Note 12 of Notes to Consolidated Financial
Statements).
Although employee compensation and benefits remained relatively
unchanged from 1992 to 1993, the Company did experience a
reduction in compensation and other benefits resulting from the
downsizing in the Company's health insurance systems staff, which
was partially offset by costs associated with the acquisition of
CYBERTEK Corporation in August 1993.
Computer and communications expenses increased $3.0 million
(13.3%) to $25.4 million for 1994 compared to $22.4 million for
1993. This increase results primarily from increased costs
associated with business acquisitions. The increase of $1.3
million (6.1%) for 1993 compared to 1992 is primarily related to
costs associated with the CYBERTEK acquisition.
Information services and data acquisition costs increased $2.2
million (1.7%) for 1994 compared with the corresponding period in
1993, due primarily to an increase in the volume of state fees
for motor vehicle reports, which is part of the Company's
property and casualty automobile information services business,
and an increase in the volume of fees for medical reports
provided by the Company's life information services business.
Information services and data acquisition costs increased $37.5
million (40.3%) to $130.3 million for 1993 compared to $92.8
million for 1992. This increase is principally related to
services provided to the independent agency market and new
customers, and to a lessor degree, life information services
(principally attending physician statements and personal medical
history interviews).
The Company recorded certain impairment and restructuring
charges/credits amounting to $30.7 and $80.7 million for 1994 and
1993, respectively. The amount recorded in October 1994 includes
a $21.6 million charge related to the impairment of identifiable
intangible assets and goodwill associated with acquired
businesses, principally the property and casualty automobile and
risk information services business, an $11.5 million charge
related to the impairment of acquired software products, which
were discontinued, a $4.4 million credit related to a change in
the Company's estimates associated with certain restructuring
reserves established in June 1993 and a $2.0 million charge
related to established liabilities for the costs of terminating
certain lease obligations in the United Kingdom and related costs
of consolidating the Company's existing operations with those of
an acquired business in the United Kingdom. Impairment charges
were recorded in June 1993 to reduce the carrying value of
certain identifiable intangible assets and goodwill related to
its health insurance systems business of $54.9 million and
restructuring charges of $25.2 million associated with employee
severance and outplacement ($5.2 million), and to an ongoing
lease obligation and/or termination for the planned future
abandonment of certain leased office facilities ($20.0 million).
The Company also recorded other restructuring charges of $.6
million at June 30, 1993 (see Note 12 of Notes to Consolidated
Financial Statements).
19
The Company, as a result of significant changes in the property
and casualty insurance industry (see Revenues above), experienced
a $5.1 million operating loss (before interest and income taxes)
in its property and casualty domestic automobile and risk
information services business in 1994. Revenues associated with
this business amounted to $128.9 and $133.0 million for 1994 and
1993, respectively. Although the Company took actions during
1994 to improve the overall performance of this business, such as
implementing management changes, realignment and consolidation of
field offices, and refining and enhancing current product
offerings, this business continued to reflect declining sales and
earnings, with the loss of business from key customers. (For a
further discussion see Revenues above.)
As a result of a detailed business assessment, revised forecast
of discounted expected future cash flows and the application of
the Company's accounting policy to evaluate recoverability, the
Company determined that the carrying value of certain intangible
assets of this business was not fully recoverable. The Company
recorded impairment charges of $19.1 million to write-off the
carrying value of certain identifiable intangible assets ($6.4
million) and goodwill ($12.7 million) related to its property and
casualty automobile and risk information services business.
The acquisition of CYBERTEK provided the Company with the
opportunity to develop new releases of certain of its life
software systems based on the business functions of CYBERTEK
software, and to assess strategic changes in direction related to
the Company's development of its future life software systems. As
a result, the Company determined in the fourth quarter of 1994
that certain business operations and software systems acquired in
Austria would not be compatible with the Company's future
direction. The Company decided that it would cease operations
related to this business and would no longer market or license
the acquired software system. Consequently, the Company recorded
impairment charges to write-off the carrying value of certain
identifiable intangible assets, goodwill and acquired software,
of $2.2 million related to this prior business acquisition.
These non-cash impairment charges include acquired software of
$1.5 million and identifiable intangible assets and goodwill of
$.7 million.
The Company decided that it would cease to do business in certain
markets with respect to the CAPSIL business and operations
acquired from Capsco Pallm Systems, Inc. The Company determined
that the functionality and technical platform represented by
acquired software systems would be replaced by software that is
being and has been developed in conjunction with its future
strategic direction. As a result of its evaluation, the Company
determined that no write-down of the software is necessary. The
Company did, however, record impairment charges of $1.8 million
to reduce the carrying value of certain identifiable intangible
assets ($.7 million) and goodwill ($1.1 million), relating to the
acquired business in the United States.
Due to a decision by one of the Company's property and casualty
insurance customers not to license software acquired by the
Company for integration into its property and casualty software
systems and the Company's decision not to market or license such
software, the Company recorded impairment charges of $1.9 million
to write-off the carrying value of such software. During the
fourth quarter of 1994, the Company also decided it would no
longer market or license its Agency Workstation System ("AWS"),
an automated insurance agency sales and marketing software
system, acquired from Agency Automation Partners Limited. As
more of the Company's customers have become operational on Series
III and plan the full implementation of Series III functions, the
Company changed its strategy for integrated system solutions
between the insurance company and its agents (or independent
agents) or direct marketers. As a result, the Company will
change its dependency on AWS and integrate new agency software
system tools with its Series III functions. Consequently, the
Company recorded impairment charges of $8.1 million to write-off
the carrying value of AWS.
During 1994, the Company as a result of new events occurring
changed its estimates and reduced its restructuring reserves
associated with its health insurance systems business,
established in June 1993, by $4.4 million, $2.6 million of which
resulted from a change in the scheduled downsizing of the
Company's health staff and a corresponding reduction in amounts
established for severance and outplacement costs and $1.8 million
of which resulted from a lease termination at amounts less than
those established for the planned future abandonment of certain
leased office facilities.
20
The Company established reserves of $2.0 million at December 31,
1994, in connection with the acquisition of Creative Group
Holdings, Limited ("Creative"), to provide for the costs of
terminating the Company's existing lease obligations in the
United Kingdom and relocation and severance costs associated with
consolidating its existing operations. The Company also expensed
$2.6 million of purchased research and development, related to
the Creative acquisition, at December 31, 1994 (see Note 2 of
Notes to Consolidated Financial Statements).
The Company announced, in December 1994, that it reached an
agreement in principle, subject to court approval, to settle the
securities class action pending against the Company. The
settlement of $31 million will be paid by the Company's
Directors' & Officers' Liability Insurance Carrier, the Company's
former accountants and the Company. The Company's portion of the
settlement and associated litigation costs resulted in a special
one-time charge of $34.2 million ($21.3 million after tax) in the
fourth quarter of 1994. This represents the Company's portion
of the settlement, plus the Company's litigation costs of $18.1
million ($11.3 million after tax), less the recovery from the
insurance company (see Note 8 of Notes to Consolidated Financial
Statements).
Depreciation and amortization expense decreased $2.0 million
(3.3%) for 1994 compared with 1993. This decrease is principally
related to a reduction in amortization charges of $5.1 million
associated with the impairment of certain identifiable intangible
assets, goodwill and software products principally related to the
Company's health insurance systems and property and casualty
information services businesses. This reduction was partially
offset by an increase in amortization charges of $3.5 million
associated with identifiable intangible assets, goodwill and
software products related to the CYBERTEK acquisition in August
1993.
Depreciation and amortization expense increased $6.3 million
(12.0%) for 1993 compared with 1992. This increase is
principally related to an increase in amortization charges of
$3.1 million associated with purchased software, $2.6 million
associated with a change in the useful lives for goodwill,
effective January 1, 1993 (see Note 1 of Notes to Consolidated
Financial Statements), $3.1 million associated with additional
property and equipment placed in service and $1.7 million
associated with identifiable intangible assets, goodwill and
software products principally related to the CYBERTEK acquisition
in August 1993. These increases were partially offset by a
decrease of $2.4 million associated with the impairment of
certain identifiable intangible assets, goodwill and software
products related to the Company's health insurance systems
business and $1.8 million associated with a change in the
estimated useful life of the Company's internally developed
software from four to five years, effective January 1, 1993.
Other operating costs and expenses for 1994 decreased $14.8
million (21.3%) compared with 1993. The decrease is primarily
attributable to $16.4 million of charges related to early project
terminations, the deductible under the Company's Directors' and
Officers' liability insurance policy in response to shareholder
litigation, cost overruns on certain projects and other related
charges recorded in June, 1993. In addition to these charges,
other operating costs and expenses declined as a result of a
reduction in the cost of equipment sold, a decrease in costs
associated with the wind-down of the New Jersey MTF project, a
decrease associated with the recovery of certain receivables
previously written off, and an increase in amounts capitalized
principally related to the internal development of the Company's
life software systems. These decreases were partially offset by
an increase in operating costs associated with providing total
policy management outsourcing services for new customers.
Other operating costs and expenses for 1993 decreased $5.5
million (7.3%) compared with 1992. This decrease principally
relates to a reduction in costs associated with the wind-down of
the MTF project. However, the June 1993 one-time charges of
$16.4 million partially offset this reduction in costs.
Operating Income
The Company incurred operating losses of $19.7 and $77.1 million
for 1994 and 1993, respectively. These losses were solely
attributable to various special charges aggregating $71.9 and
$98.8 million for 1994 and 1993, respectively. As discussed
above, special charges in 1994 relate to impairment and
restructuring charges ($35.1 million), charges related to the
write-off of
21
purchased research and development costs arising out of the
Company's acquisition of Creative in December 1994 ($2.6 million)
and charges related to settling the Company's securities class
action ($34.2 million). The special charges in 1993 of $98.8
million relate to impairment and restructuring charges of $80.7
million and $18.1 million related to the June, 1993 special
charge discussed above.
Operating income, excluding impairment and restructuring charges
and other special charges described above, amounted to $52.2 and
$21.7 million for 1994 and 1993, respectively, compared to $79.0
million in 1992. As a percentage of revenues, operating income,
excluding special charges, increased to 10.6% for 1994 from 4.8%
for 1993, down from 16.1% in 1992.
A significant portion of both the Company's revenues and its
operating income is derived from initial licensing charges
received as part of the Company's software licensing activities.
Because a substantial portion of these revenues are recorded at
the time new systems are licensed, there can be significant
fluctuations from quarter-to-quarter and year-to-year in the
revenues and operating income derived from licensing activities.
This is attributable principally to the timing of customers'
decisions to enter into license agreements with the Company,
which the Company is unable to control.
Set forth below is a comparison of initial license revenues by
quarter expressed as a percentage of total initial license
revenues and total revenues for each of the years presented:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
Initial license revenues.... 9.5% 27.4% 37.6% 25.5% 100.0%
Total revenues.............. 3.1% 8.4% 11.3% 7.8% 7.7%
1993
Initial license revenues.... 31.1% 45.0% 12.8% 11.1% 100.0%
Total revenues.............. 6.9% 10.2% 3.1% 2.7% 5.8%
1992
Initial license revenues.... 25.4% 23.9% 16.3% 34.4% 100.0%
Total revenues.............. 5.9% 5.4% 3.6% 7.5% 5.6%
The information services businesses, which include property and
casualty as well as life information services, produced an
operating loss for 1994 of $2.9 million. The property and
casualty business produced an operating loss of $6.1 million.
These results were weaker than for 1993 when the property and
casualty business produced an operating loss of $4.6 million,
resulting in operating income of $.4 million for all information
services. The 1994 performance in property and casualty is
reflective of increasing price competition and changing market
conditions.
During 1994, the Company's life insurance systems business
benefited from an increase of $14.8 million in licensing revenues
and $24.4 million in professional and outsourcing services, which
includes the results of CYBERTEK. The Company's decision to
develop new releases of certain of its life systems based on the
business functions of CYBERTEK software and the process of
integrating CYBERTEK functionality into certain existing Series
III applications, had the effect of significantly reducing
revenues and operating income from the life insurance services
business in the short-term.
The Company's health insurance systems business benefited in 1994
from a significant license agreement expansion with a Blue Cross
Blue Shield organization resulting in the recognition of $5.9
million in revenue and from a reduction in operating costs
associated with amortization charges for certain identifiable
intangible assets and goodwill, which were written off at June
30, 1993, and rental expense related to lease terminations and
compensation and other benefit costs through the downsizing of
staff. The Company has engaged an investment banking firm to
assist in evaluating its health insurance systems business.
22
Investment income decreased $3.8 million for 1994 compared with
1993, as a result of a lower level of investable funds, resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation ($59.7 million) in August 1993, the repurchase in
April 1993 of 970,668 shares of the Company's common stock ($48.7
million), the repurchase in May 1994 of 2,278,537 of the
3,797,561 shares of common stock held by IBM ($56.6 million), the
repurchase of 995,500 shares of the Company's outstanding common
stock on the open market ($35.3 million) under its 2.5 million
share repurchase authorization, and to a decrease in interest
income related to long-term accounts receivable. Investment
income decreased $2.2 million for 1993 compared to 1992, as a
result of a lower level of investable funds, resulting from large
cash expenditures in 1993.
As part of the Company's repurchase of 2,278,537 of the 3,797,561
shares of its common stock held by IBM, at a price of $24.71 per
share, and the open market repurchase of 995,500 shares of common
stock, the Company liquidated a portion of its marketable
securities portfolio. The Company incurred a loss on the sale of
securities of $1.9 million related directly to this liquidation
during 1994 (see Note 11 of Notes to Consolidated Financial
Statements).
Interest expense and other charges increased $.4 million for 1994
compared with 1993, primarily as a result of the amortization of
discounts associated with long-term restructuring liabilities
recorded at June 30, 1993. These liabilities, which are part of
restructuring charges established to recognize as a loss the
planned future abandonment of certain facilities relating to the
restructuring of the Company's health insurance services
business, were reduced $1.8 million during 1994 (see Note 12 of
Notes to Consolidated Financial Statements).
Interest expense and other charges increased $1.3 million for
1993 compared to 1992, primarily as a result of the amortization
of discounts associated with long-term restructuring liabilities
recorded in 1993.
The effective income tax (benefit) rate (income taxes expressed
as a percentage of pre-tax income) was (47.8%), (15.5%), and
32.2% for the years ended December 31, 1994, 1993, and 1992,
respectively. The effective tax benefit rate in 1993 was
significantly lower than the statutory rate due to the nontaxable
write-off of goodwill related to impairment (see Note 12 of Notes
to Consolidated Financial Statements). The effective tax benefit
rate in 1994 changed significantly, due principally to the
Company's settlement with the Internal Revenue Service relating
to all issues in the 1985 through 1990 examination. As a result
of this settlement, the Company's 1994 provision for income taxes
reflected a $6.0 million reduction of taxes provided in prior
periods. The effective income tax benefit rate for 1994 includes
the impact of the increase in the highest marginal corporate tax
rate resulting from the enactment of the Omnibus Budget
Reconciliation Act of 1993. The decrease in the effective rate
for 1992 was due primarily to an increase in nontaxable
investment income.
Liquidity and Capital Resources
December 31,
1994 1993
(In Millions)
Cash and equivalents,
marketable securities
and investments.................. $ 34.3 $156.8
Current assets..................... 167.7 287.7
Current liabilities................ 76.8 81.0
Working capital.................... 90.9 206.7
Long-term debt..................... 4.2 5.7
Cash provided by operations........ 59.9 80.8
Cash provided (used) by
investing activities............. 33.9 (38.9)
Cash used by financing activities.. (98.9) (49.8)
23
The Company's financial condition remained strong at December 31,
1994. Working capital was $90.9 million, including cash, cash
equivalents and marketable securities of $28.7 million and
excluding $5.6 million of long-term investments. Cash, cash
equivalents, marketable securities and investments were $34.3
million at December 31, 1994, as compared to $156.8 million at
December 31, 1993, a net decrease of $122.5 million resulting
primarily from the repurchase of common stock; cash payments in
connection with the Company's securities class action and to the
acquisition of Creative Group Holdings, Limited, in December 1994
for a total consideration of $19.9 million, of which $18.8
million was paid in 1994.
Cash provided by operations was $59.9 million for the year ended
December 31, 1994, compared with $80.8 million and $107.8 million
for the years ended December 31, 1993 and 1992, respectively. The
lower cash flow from operations in 1994 was principally the
result of the payments to settle the shareholder class action and
related expenses ($29.4 million) and payment of restructuring
liabilities described in greater detail below. Before the effect
of these items cash flow from operations would have been greater
for 1994 than 1993. Cash flow from operations was greater in 1992
than either 1994 or 1993 principally because of the higher levels
of net income as discussed in greater detail in preceding
sections of this analysis.
The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible
assets and goodwill related to its health insurance services
business of $54.9 million. In connection with this impairment
and write-down, the Company also decided to restructure this
business and take a restructuring charge of $25.2 million as of
June 30, 1993. Costs to restructure the health business are
composed of $5.2 million associated with employee severance and
outplacement, and $20.0 million related to an ongoing lease
obligation and/or termination for the planned future abandonment
of certain leased office facilities (see Note 12 of Notes to
Consolidated Financial Statements). Cash outlays with respect to
the restructuring charges were $12.2 million for 1994. The
Company reduced its liabilities for accrued restructuring charges
by $9.5 million ($10.7 million in cash outlays, less $1.2 million
in non-cash discount amortization) for lease terminations and
$1.5 million in cash outlays for employee severance and
outplacement costs. Additionally, the Company adjusted its
restructuring liability established for employee severance and
outplacement, and lease termination costs downward (for a further
discussion, see Costs and Expenses above). Cash outlays for
severance, outplacement and lease termination costs are expected
to be approximately $6.3 million for 1995.
Excluding short-term investments, net cash used by investing
activities amounted to $79.4 million for 1994. During 1994, net
cash used for investments included $24.8 million that was
invested in data processing and communications equipment, support
software and office furniture and equipment. Amounts capitalized
for internal software development increased to $30.7 million for
1994 compared to $24.7 million for the corresponding period in
1993, due primarily to the development of life software systems
based on the business functions of CYBERTEK software and the
process of integrating CYBERTEK software functionality with
certain existing Series III applications.
Significant expenditures anticipated for 1995, excluding any
possible business acquisitions and stock repurchases, are as
follows: acquisition of data processing and communications
equipment, support software, building improvements and office
furniture, fixtures and equipment ($10.0 million); costs relating
to the internal development of software systems ($33.0 million);
and payments relating to past business acquisitions ($6.3
million).
During the fourth quarter of 1994, the Company entered into a
$30.0 million unsecured line of credit with a bank for the
purpose of supporting temporary working capital needs. However,
there were no borrowings outstanding under this line of credit as
of December 31, 1994, which expires on January 15, 1996 (see Note
7 of Notes to Consolidated Financial Statements). The Company is
currently negotiating a $200 million medium-term line of credit
for the purpose of funding certain business activities,
including, but not limited to, the acquisition of businesses, the
repurchase of the Company's stock, the reduction of short-term
debt incurred in connection therewith or for general corporate
purposes.
24
The Company has historically used the cash generated from
operations for the development and acquisition of new products,
acquisition of businesses and repurchase of the Company's stock.
The Company anticipates that, subject to market condition, it
will continue to use its cash for all of these purposes in the
future and that projected cash from operations will be able to
meet presently anticipated needs; however, the Company may also
consider incurring debt, as discussed above, as needed to
accomplish specific objectives in these areas and for other
general corporate purposes.
Factors That May Affect Future Results
The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions, industry factors, the Company's ability to develop
and sell its products profitably, the Company's ability to
successfully increase market share in its core business while
expanding its product base into other markets and the Company's
ability to effectively manage expense growth relative to revenue
growth in anticipation of continued pressure on gross margins.
The Company's operating results could be adversely affected
should the Company be unable to anticipate customer demand
accurately, to introduce new products on a timely basis or to
effectively manage the impact on the Company of changes in the
insurance marketplace.
Contracts with governmental agencies involve a variety of special
risks, including the risk of early contract termination by the
governmental agency and changes associated with newly elected
state administrations or newly appointed regulators.
A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges
received as part of the Company's software licensing activities.
Because a substantial portion of these revenues is recorded at
the time new systems are licensed, there can be significant
fluctuations from period to period in the revenues and operating
income derived from licensing activities. This is attributable
principally to the timing of customers' decisions to enter into
license agreements with the Company, which the Company is unable
to control.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator
of future performance, and investors should not use historical
trends to anticipate results or trends in
future periods.
Seasonality and Inflation
The Company's operations have not proven to be significantly
seasonal, although quarterly revenues and net income could be
expected to vary at times. This is attributable principally to
the timing of customers entering into license agreements with the
Company and fluctuations in the amount of certain information
services used by customers, principally during holiday seasons
and periods of severe weather. The Company is unable to control
the timing of these decisions
or fluctuations.
Although the Company cannot accurately determine the amounts
attributable thereto, the Company has been affected by inflation
through increased costs of employee compensation and other
operating expenses. To the extent permitted by the marketplace
for the Company's products and services, the Company attempts to
recover increases in costs by periodically increasing prices.
Additionally, most of the Company's license agreements and long-
term services agreements provide for annual increases in charges.
25
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial
Statements and Supplementary Data
Page
Report of Independent Accountants.................... 25
Consolidated Financial Statements and Notes:
Consolidated Statements of Operations for
the years ended December 31, 1994, 1993 and 1992... 26
Consolidated Balance Sheets as of
December 31, 1994 and 1993......................... 27
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992................... 28
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992....... 29
Notes to Consolidated Financial Statements........... 30
Quarterly Consolidated Results of Operations......... 45
Supplemental Schedules:
Schedule II - Valuation and Qualifying Accounts...... 46
Report of Independent Accountants.................... 47
Supplemental schedules other than those listed above are omitted
because of the absence of conditions under which they are
required or because the required information is included in the
consolidated financial statements or in the notes thereto.
26
Policy Management Systems Corporation
Report of Independent Accountants
To the Board of Directors
Policy Management Systems Corporation
We have audited the accompanying consolidated balance sheets of
Policy Management Systems Corporation and subsidiaries as of
December 31, 1994 and 1993 and the related statements of
operations, changes in stockholders' equity and cash flows for
the years ended December 31, 1994, 1993 and 1992. 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 that
our audits provide a reasonable basis for our opinion.
As discussed in Note 8 to the consolidated financial statements,
the Company is presently involved in litigation and
investigations into possible security law violations. The
ultimate outcome of these matters cannot presently be determined.
Accordingly, no provision for liability, if any, that may result
from these uncertainties has been made in the consolidated
financial statements.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Policy Management Systems Corporation and
subsidiaries as of December 31, 1994 and 1993 and the results of
their operations and their cash flows for the years ended
December 31, 1994, 1993 and 1992 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" in 1994.
Atlanta, Georgia
February 9, 1995
27
Policy Management Systems Corporation
Consolidated Statements of Operations
Year Ended December 31,
1994 1993 1992
(In Thousands, Except Per
Share Data)
Revenues:
Licensing.................................. $ 89,083 $ 74,664 $ 73,007
Services................................... 403,623 378,435 416,254
492,706 453,099 489,261
Costs and Expenses:
Employee compensation and benefits......... 174,822 167,678 168,144
Computer and communications expenses....... 25,426 22,440 21,149
Information services and data
acquisition costs........................ 132,484 130,267 92,827
Impairment and restructuring charges, net.. 30,728 80,733 -
Purchased research and development......... 2,551 - -
Litigation settlement and expenses, net.... 34,194 - -
Depreciation and amortization of property,
equipment and intangibles................ 57,326 59,289 52,945
Other operating costs and expenses......... 54,920 69,745 75,225
512,451 530,152 410,290
Operating income (loss)...................... (19,745) (77,053) 78,971
Other Income and Expenses:
Investment income.......................... 6,114 9,898 12,073
Gain (loss) on sale of marketable
securities............................... (1,857) 3,388 1,046
Interest expense and other charges......... (3,001) (2,630) (1,327)
1,256 10,656 11,792
Income (loss) before income taxes (benefit).. (18,489) (66,397) 90,763
Income taxes (benefit)....................... (8,831) (10,263) 29,241
Net income (loss)............................ $ (9,658) $(56,134) $ 61,522
Net income (loss) per share.................. $ (.46) $ (2.46) $ 2.65
Weighted average number of shares............ 20,865 22,858 23,236
See accompanying notes.
28
Policy Management Systems Corporation
Consolidated Balance Sheets
December 31,
1994 1993
(In Thousands,
Except Share Data)
Assets
Current assets:
Cash and equivalents........................ $ 17,686 $ 24,122
Marketable securities....................... 11,051 132,650
Receivables, net of allowance for
uncollectible amounts of
$1,024 ($1,817 at 1993)................... 90,474 92,975
Income tax receivable....................... 31,072 18,764
Deferred income taxes....................... 6,644 9,491
Other....................................... 10,798 9,735
Total current assets.................... 167,725 287,737
Property and equipment, net................... 136,503 139,029
Receivables................................... 500 4,716
Goodwill and other intangibles, net........... 77,763 85,969
Capitalized software costs, net............... 118,621 117,513
Deferred income taxes......................... 12,453 21,585
Investments................................... 5,567 -
Other......................................... 4,899 3,254
Total assets............................ $524,031 $659,803
Liabilities
Current liabilities:
Accounts payable and accrued expenses....... $ 50,231 $ 42,256
Accrued restructuring charges............... 5,648 9,521
Accrued contract termination costs.......... 1,819 2,714
Current portion of long-term debt........... 4,734 6,986
Income taxes payable........................ 2,279 -
Unearned revenues........................... 11,930 19,121
Other....................................... 215 383
Total current liabilities............... 76,856 80,981
Long-term debt................................ 4,162 5,655
Deferred income taxes......................... 54,671 74,151
Accrued restructuring charges................. 10,796 19,735
Other......................................... 624 2,309
Total liabilities....................... 147,109 182,831
Commitments and contingencies (Note 8)
Stockholders' Equity
Special stock, $.01 par value, 5,000,000
shares authorized........................... - -
Common stock, $.01 par value, 75,000,000
shares authorized, 19,362,984 shares issued
and outstanding (22,637,021 at 1993)........ 194 226
Additional paid-in capital.................... 170,323 262,167
Retained earnings............................. 206,974 216,632
Foreign currency translation adjustment....... (451) (2,053)
Unrealized holding loss on
marketable securities (118) -
Total stockholders' equity............... 376,922 476,972
Total liabilities and
stockholders' equity................ $524,031 $659,803
See accompanying notes.
29
Policy Management Systems Corporation
Consolidated Statements of Changes in Stockholders' Equity
Unrealized
Foreign Holding
Additional Currency Loss on
Common Paid-In Retained Translation Marketable
Stock Capital Earnings Adjustment Securities Total
(In Thousands)
Balance,
December 31, 1991........... $231 $289,314 $211,244 $ - $ (910) $499,879
Net income.................. - - 61,522 - - 61,522
Stock options exercised
(469,483 shares).......... 4 18,592 - - - 18,596
Transfer of marketable
equity securities to
current portfolio......... - - - - 910 910
Foreign currency translation
adjustment................ - - - (1,831) - (1,831)
Balance,
December 31, 1992........... 235 307,906 272,766 (1,831) - 579,076
Net loss.................... - - (56,134) - - (56,134)
Stock options exercised
(21,777 shares)........... - 1,062 - - - 1,062
Repurchase of 970,668
shares of common stock.... (10) (48,650) - - - (48,660)
Issuance of stock to
employee benefit
plan (61,715 shares)...... 1 1,849 - - - 1,850
Foreign currency translation
adjustment................ - - - (222) - (222)
Balance,
December 31, 1993........... 226 262,167 216,632 (2,053) - 476,972
Net loss.................... - - (9,658) - - (9,658)
Repurchase of 3,274,037
shares of common stock,
net of expenses........... (32) (91,844) - - - (91,876)
Unrealized holding loss on
marketable securities..... - - - - (118) (118)
Foreign currency translation
adjustment................ - - - 1,602 - 1,602
Balance,
December 31, 1994........... $194 $170,323 $206,974 $ (451) $ (118) $376,922
See accompanying notes.
30
Policy Management Systems Corporation
Consolidated Statements of Cash Flows
Year Ended December 31,
1994 1993 1992
(In Thousands)
Operating Activities
Net income (loss)................................. $ (9,658) $ (56,134) $ 61,522
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................... 58,813 63,157 51,104
Deferred income taxes........................... (8,192) (2,997) 2,178
Loss (gain) on sale of marketable securities.... 1,857 (3,388) (2,760)
Provision for uncollectible accounts............ 955 1,768 712
Impairment charges.............................. 33,089 54,890 -
Purchased research and development.............. 2,551 - -
Changes in assets and liabilities:
Accrued restructuring and lease
termination costs............................. (11,595) 25,843 -
Receivables..................................... 10,351 19,748 (11,878)
Income tax receivable........................... (12,299) (15,873) (1,774)
Accounts payable and accrued expenses........... 2,241 (1,460) (1,108)
Income taxes payable............................ 1,104 1,327 160
Other, net...................................... (9,356) (6,058) 9,675
Cash provided by operations.................. 59,861 80,823 107,831
Investing Activities
Proceeds from sales/maturities of marketable
available-for-sale securities.................... 341,250 382,973 208,563
Purchases of available-for-sale securities........ (228,313) (296,344) (252,046)
Proceeds from maturities of held-to-maturity
securities....................................... 2,217 - -
Purchases of held-to-maturity securities.......... (1,823) - -
Acquisition of property and equipment............. (24,774) (39,272) (56,011)
Capitalized internal software development costs... (30,666) (24,698) (24,344)
Purchased software................................ (418) (4,336) (5,702)
Proceeds from disposal of property
and equipment................................... (580) 9,062 4,307
Business acquisitions............................. (22,955) (66,261) (2,194)
Cash provided (used) by investing activities.. 33,938 (38,876) (127,427)
Financing Activities
Payments on long-term debt........................ (6,992) (3,681) (2,066)
Payments on capital lease obligations - - (467)
Issuance of common stock under stock
option plans.................................... - 690 14,692
Issuance of common stock to employee
benefit plan.................................... - 1,850 -
Repurchase of outstanding common stock............ (91,876) (48,660) -
Cash provided (used) by financing activities.. (98,868) (49,801) 12,159
Effect of exchange rate changes on cash............. (1,367) 17 (213)
Net decrease in cash and equivalents................ (6,436) (7,837) (7,650)
Cash and equivalents at beginning of period......... 24,122 31,959 39,609
Cash and equivalents at end of period............... $ 17,686 $ 24,122 $ 31,959
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisition............. $ 2,347 $ 6,580 $ 2,187
Supplemental Information
Interest paid..................................... 2,342 1,579 958
Income taxes paid................................. 10,249 13,431 25,126
See accompanying notes.
31
Policy Management Systems Corporation
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared on the basis
of generally accepted accounting principles and include the
accounts of the Company and its subsidiaries, all of which are
wholly-owned. All material intercompany balances and transactions
have been eliminated. Certain amounts previously presented in the
consolidated financial statements for prior periods have been
reclassified to conform to current classifications.
Revenue Recognition
The Company's revenues are generated primarily by licensing to
customers standardized insurance software systems and providing
automation and administrative support and information services to
the insurance industry.
Software systems are licensed under the terms of substantially
standard nonexclusive and nontransferable license agreements,
which generally have a noncancelable minimum term of six years
and provide for an initial license charge and a monthly license
charge. The initial license charge, which grants a right to use
the software system currently available at the time the license
is signed, is recognized as revenue upon delivery of the product
and receipt of a signed contractual obligation, if collectibility
is probable and no significant vendor obligations remain. The
monthly license charge provides access to Maintenance,
Enhancements and Services Availability (MESA). Under the
maintenance provisions of MESA, the Company provides telephone
support and error correction to current versions of licensed
systems. Under the enhancement provisions of MESA, the Company
will provide any additions or modifications to the licensed
systems, which the Company may deliver from time to time to
licensees of those systems if and when they become generally
available. The monthly license charge is recognized as revenue
on a monthly basis throughout the term of the MESA provision of
the license agreement. Services availability allows customers
access to professional services, other than maintenance and
enhancements, which are provided under separate arrangements
during the MESA term.
The Company provides professional support services, including
systems implementation and integration assistance, consulting and
educational services, which are available under services
agreements and charged for separately. These services are
generally provided under time and material contracts and in some
circumstances under fixed price arrangements. Under fixed price
contracts, revenue is recognized on the basis of the estimated
percentage of completion of service provided using the cost-to-
cost method. Changes in estimates to complete and losses, if
any, are recognized in the period in which they are determined.
The Company does from time to time enter into certain joint
development arrangements. Although these arrangements are
varied, the Company principally will undertake custom development
of a product or enhancement and typically retain all marketing
rights and titles to such development. The Company does,
however, have certain joint marketing arrangements. Joint
development arrangements are generally provided for under fixed
price agreements and in some circumstances on a time and material
basis. The Company recognizes revenue on the same basis as
professional support services; however, where technological
feasibility has already been established, the Company will
capitalize the portion of development costs which exceed customer
funding provided under the joint development arrangement.
The Company also offers information and outsourcing services
ranging from making available software licensed from the Company
on a remote processing basis from the Company's data centers, to
complete systems management, processing, administrative support
and automated information services through the Company's
nationwide telecommunications network using the Company's data
base products. Outsourcing services are typically provided under
contracts having terms from three to ten years, while agreements
to provide information services have terms from one to five
years, and in some cases month-to-month. Revenues from
substantially all outsourcing and information services are
recognized at the time the service is performed and losses, if
any, are recognized in the period in which they are determined.
32
Marketable Securities
Prior to January 1, 1994, interest-bearing marketable securities
were stated at amortized cost, which approximated market value.
Current marketable equity securities are stated at the aggregate
of lower of cost or market and a valuation allowance is provided
for the excess, if any, of cost over market. The fair values of
marketable securities are estimated based on quoted market prices
for those or similar investments. Gains or losses on marketable
securities are determined on the specific identification method.
Investment securities with maturities of three months or less at
the time of acquisition are considered cash equivalents.
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" (FAS 115).
Pursuant to FAS 115, debt securities included in the Company's
investment portfolio for which there is a positive intent and
ability to hold to maturity are carried at amortized cost. Debt
securities that may be sold prior to maturity and all marketable
equity securities are classified as available-for-sale and
carried at fair value. The fair value is estimated based on
quoted market prices for those or similar investments. Net
unrealized gains and losses, determined on the specific
identification method, on securities classified as available-for-
sale are carried as a separate component of Stockholder's Equity.
The Company's adoption of FAS 115 did not have a material impact
on the financial statements taken as a whole.
Property and Equipment
Property and equipment, including certain equipment acquired
under capital leases and support software acquired for internal
use, are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated on a
straight-line basis over their estimated useful lives. Assets
acquired under capital leases are amortized over the term of the
related lease.
Goodwill and Other Acquired Intangible Assets
Identifiable intangible assets and goodwill are recorded and
amortized over their estimated economic lives or periods of
future benefit. The lives established for these assets are a
composite of many factors which are subject to change because of
the nature of the Company's operations. This is particularly
true for goodwill which reflects value attributable to the going
concern nature of acquired businesses, the stability of their
operations, market presence and reputation. Accordingly, the
Company evaluates the continued appropriateness of these lives
and recoverability of the carrying value of such assets based
upon the latest available economic factors and circumstances.
The Company evaluates the recoverability of all long-lived assets
including specific intangible assets and goodwill based upon a
comparison of discounted estimated future cash flows from the
related operations with the then corresponding carrying values of
those assets. A rate considered to be commensurate with the risk
involved is used to discount the cash flows. Impairment of
value, if any, is recognized in the period in which it is
determined.
For all years through December 31, 1992, the Company had
amortized goodwill over an estimated useful life of 25 years.
Effective January 1, 1993, the Company began to amortize goodwill
over an estimated life of 15 years for goodwill related to
information and computer services company acquisitions and 10
years for goodwill related to software company acquisitions. The
Company believes these lives more appropriately reflect the
current economic circumstances for such businesses and the
related period of future benefit. Longer lives will be used for
future business acquisitions only where independent third party
studies support such lives.
Other identifiable purchased intangible assets are being
amortized on a straight-line basis over their estimated period of
benefit ranging from 5 to 10 years.
Capitalized Sofware Costs
In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed" (FAS 86), certain costs
incurred in the internal development of computer software which
is to be licensed to customers and costs of purchased computer
software, consisting primarily of software acquired through
business acquisitions, are capitalized and amortized at the
greater of the amount computed using (i) the ratio that current
gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the
straight-line method over the remaining estimated economic life
of the product including the period being reported on. Costs
which are capitalized as part of
33
internally developed software primarily include direct and
indirect costs associated with payroll, computer time and
allocable depreciation and other direct allocable costs, among
others. All costs incurred prior to the establishment of
technological feasibility have been expensed as research and
development costs during the periods in which they were incurred
and amounted to $2.5, $2.7 and $13.3 million for the years ended
December 31, 1994, 1993 and 1992, respectively. The amount by
which unamortized software costs exceeds the net realizable
value, if any, is recognized in the period it is determined.
For all years through December 31, 1992, the Company amortized
internally developed software on a straight-line basis over an
estimated useful life of four years. Commencing January 1,
1993, the Company began to amortize such software over five years
and to-date has used the straight-line method over the remaining
estimated useful life.
Income Taxes
The provision for income taxes and corresponding balance sheet
accounts are determined in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). Under FAS 109, the deferred tax liabilities and assets are
determined based on temporary differences between the bases of
certain assets and liabilities for income tax and financial
reporting purposes. These differences are primarily attributable
to differences in the recognition of depreciation and
amortization of property, equipment and intangible assets and
certain software development costs and revenues.
Net Income (Loss) Per Share
Net income (loss) per share is based upon the weighted average
number of common shares outstanding. Outstanding stock options
are common stock equivalents, and are excluded from the
computation of net income (loss) per share since their effect is
antidilutive.
Foreign Currency Translation
The local currencies of the Company's foreign subsidiaries have
been determined to be the functional currencies. Assets and
liabilities of foreign subsidiaries are translated into United
States dollars at current exchange rates and resulting
translation adjustments are included as a separate component of
stockholders' equity. Revenue and expense accounts of these
operations are translated at average exchange rates prevailing
during the year. Transaction gains and losses, which were not
material, are included in the results of operations of the period
in which they occur.
Note 2. Acquisitions
On December 31, 1994, the Company acquired all of the outstanding
capital stock of Creative Group Holdings, Limited (Creative) for
an aggregate consideration of $19.6 million. Creative,
headquartered in the United Kingdom, is a British holding company
whose wholly-owned subsidiaries provide software consulting,
development, licensing and financing services to medium-sized
general insurance companies. Creative currently has offices in
England, Australia and Southeast Asia.
34
The acquistion has been recorded using the purchase method of
accounting. Accordingly, the Consolidated Statement of
Operations of the Company for the year ended December 31, 1994
does not include the results of operations of Creative for the
period. The consolidated balance sheet as of December 31, 1994
includes the assets and liabilities acquired as of that date. In
connection with the acquisition, the Company recorded an
estimated liability of $2.0 million at December 31, 1994, to
provide for the costs of terminating the Company's existing lease
obligations in the United Kingdom ($1.8 million) and relocation
and severance costs of consolidating its existing operations in
the United Kingdom with Creative ($.2 million). These costs are
included in Impairment and restructuring charges, net in the
accompanying Consolidated Statements of Operations. At December
31, 1994, the Company also recorded a write-off of $2.6 million
of the purchase price of Creative as purchased research and
development. The total cost of the acquisition was determined,
and assigned to the assets acquired, as follows:
(In Thousands)
Total consideration paid........................... $19,634
Direct costs of acquisition........................ 304
Total cost to be assigned to net assets acquired... 19,938
Add - Liabilities assumed......................... 8,789
Less - Cost assigned to tangible and identifiable
intangible assets acquired (including $1,572
purchased software cost).................... 15,560
Less - Write-off of purchased research
and development............................. 2,551
Cost assigned to goodwill.......................... $10,616
In August 1993, the Company consummated the acquistion of all of
the outstanding stock of CYBERTEK Corporation (CYBERTEK), a
computer software development, services and processing company.
The acquisition was recorded using the purchase method of
accounting and, of the total $59.7 million cost to acquire
CYBERTEK, $26.3 million was assigned to goodwill.
Supplemental pro-forma information is not presented since these
acquisitions were not material.
Note 3. Marketable Securities
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." The Company adopted the provisions of this
statement for investments held as of and acquired after January
1, 1994 and in accordance with the statement, prior period
financial statements have not been restated to reflect the change
in accounting principle.
In accordance with this statement, debt securities for which
there is a positive intent and ability to hold to maturity are
carried at amortized cost. Debt securities that may be sold
prior to maturity and all marketable equity securities are
classified as available-for-sale and carried at fair value. Net
unrealized gains and losses on securities classified as
available-for-sale are carried as a separate component of
Stockholders' Equity. The Company has no securities classified
as trading securities.
Realized gains and losses are included in net income and the cost
of securities sold is based on the specific identification
method. As of December 31, 1994, the Company received $145.9
million proceeds from sales of available-for-sale securities, and
recognized $1.9 million in gross realized losses, based on the
specific identification method. The net unrealized holding loss
on available-for-sale securities for the year ended December 31,
1994, included as a component of shareholder's equity is $.1
million. There were no sales or transfers of debt securities out
of the held-to-maturity category during the year ended December
31, 1994.
As of December 31, 1993, the amortized cost of the Company's
marketable securities was $132.6 million, with a market value of
$135.0 million.
35
The following is a summary of available-for-sale and held-to-
maturity securities included in marketable securities as of
December 31, 1994:
Gross Gross
Amortized Unrealized Unrealized
Cost Market Gains Losses
(In Thousands)
Available-for-Sale Securities:
Short-Term
Municipal bonds and notes......... $ 1,000 $ 1,000 - -
U.S. Government bonds and notes... 2,957 2,942 - $ (15)
3,957 3,942 - (15)
Long-Term
Municipal bonds and notes......... 4,033 3,946 $ 11 (98)
U.S. Government bonds and notes... 1,032 1,016 - (16)
5,065 4,962 11 (114)
Total........................... $ 9,022 $ 8,904 $ 11 $ (129)
Held-to-Maturity Securities:
Short-Term
Municipal bonds and notes......... $ 102 $ 101 $ - $ (1)
U.S. Government bonds and notes... 2,045 1,983 - (62)
2,147 2,084 - (63)
Long-Term
Municipal bonds and notes......... 5,567 5,320 - (247)
U.S. Government bonds and notes... - - - -
5,567 5,320 - (247)
Total........................... $ 7,714 $ 7,404 $ - $ (310)
The following is a maturity summary of the available-for-sale and the
held-to-maturity securities included in marketable securities as of
December 31, 1994:
Available-for-Sale Held-to-Maturity
Amortized Amortized
Cost Market Cost Market
(In Thousands)
Due within 1 year $ 3,957 $ 3,942 $ 2,147 $ 2,084
Due after 1 year through
5 years 4,065 3,962 2,735 2,677
Due after 5 years through
10 years - - 2,584 2,419
Due after 10 years 1,000 1,000 248 224
$ 9,022 $ 8,904 $ 7,714 $ 7,404
36
Note 4. Property and Equipment
A summary of property and equipment is as follows:
Estimated December 31,
Useful Life 1994 1993
(Years) (In Thousands)
Cost:
Land........................................... - $ 2,566 $ 2,557
Buildings and improvements..................... 10-40 60,456 59,618
Construction in progress....................... - 461 -
Leasehold improvements......................... 1-10 2,407 3,293
Office furniture, fixtures and equipment....... 5-15 42,828 37,630
Data processing and communications equipment
and support software......................... 2-5 149,026 134,552
Other.......................................... 3-5 4,360 4,002
262,104 241,652
Less: Accumulated depreciation
and amortization............................. (125,601) (102,623)
Property and equipment......................... $136,503 $139,029
Depreciation and amortization charged to expense was $28.7, $27.2
and $24.1 million for the years ended December 31, 1994, 1993 and
1992, respectively.
Note 5. Goodwill and Other Intangible Assets
A summary of goodwill and other intangible assets is as follows:
December 31,
1994 1993
(In Thousands)
Goodwill $ 65,961 $ 76,500
Customer lists 17,984 27,010
Covenants not to compete 2,461 4,956
Other 6,660 3,653
93,066 112,119
Less: Accumulated amortization (15,303) (26,150)
$ 77,763 $ 85,969
Goodwill and other intangible assets in the amount of $21.6
million (net of related amortization of $19.3 million) were
written off as part of the Company's impairment and restructuring
charges (see Note 12). Amortization charged to expense was $8.7,
$9.3 and $8.4 million for the years ended December 31, 1994, 1993
and 1992, respectively.
37
Note 6. Capitalized Software Costs
A summary of capitalized software costs is as follows:
December 31,
1994 1993
(In Thousands)
Internally developed software........ $154,992 $124,326
Purchased software................... 32,305 47,655
187,297 171,981
Less: Accumulated amortization....... (68,676) (54,468)
Capitalized software costs........... $118,621 $117,513
Purchased software in the amount of $11.5 million (net of related
amortization of $5.2 million) was written off as part of the
Company's impairment and restructuring charges (see
Note 12). Amortization charged to expense was $19.8, $22.4 and
$20.3 million for the years ended December 31, 1994, 1993 and
1992, respectively.
Note 7. Long-Term Debt and Other Borrowings
Long-term debt is as follows:
December 31,
1994 1993
(In Thousands)
Notes payable, due through February 2015,
interest at 3.69% to 9.00%............... $ 8,896 $ 12,641
Less: Current portion...................... 4,734 6,986
Long-term debt............................. $ 4,162 $ 5,655
During the fourth quarter of 1994, the Company entered into an
unsecured line of credit agreement with a bank for the purpose of
supporting temporary working capital needs. The rate of interest
to be charged on borrowings under this facility is the 90-day
London Interbank Bid Offer Rate (LIBOR) plus one percent. The
interest rate is adjusted at 90-day intervals and accrued
interest is payable monthly. The maximum amount which may be
outstanding under the agreement is $30 million, which matures
with unpaid accrued interest on January 15, 1996. The Company
paid a non-refundable commitment fee of .10 percent of the $30
million line of credit and pays a fee of .15 percent per annum
quarterly on the average unused portion thereof. There were no
borrowings outstanding under the line of credit as of December
31, 1994.
Note 8. Commitments and Contingencies
Commitments
The Company occupies leased facilities under various operating
leases expiring through 2014. The leases for certain facilities
contain options for renewal and provide for escalation of annual
rentals based upon increases in the lessors' operating costs.
Rent expense under leases for facilities was $7.4, $7.7 and $8.7
million for the years ended December 31, 1994, 1993 and 1992,
respectively. An amount of $1.8 million for lease abandonment
charges is included in the impairment and restructuring charges
in the accompanying statements of operations for the year ended
December 31, 1994. Amounts of $7.8 million for lease termination
costs and $12.2 million for lease abandonment charges are
included in the impairment and restructuring charges in the
accompanying statement of operations for the year ended December
31, 1993 (see Note 12).
The Company leases certain data processing and related equipment
primarily under operating leases expiring through 1995. Rent
expense under operating leases for such equipment was $5.2,
38
$4.3 and $4.3 million for the years ended December 31, 1994, 1993
and 1992, respectively. Future minimum lease obligations under
noncancelable operating leases are stated below and include
payments over 20 years aggregating $16.8 million related to a
leasehold planned for future abandonment (see Note 12):
Facilities
Year Ending December 31, (In Thousands)
1995.............................. $10,524
1996.............................. 10,189
1997.............................. 6,255
1998.............................. 3,086
1999.............................. 2,421
Thereafter........................ 10,579
Total............................... $43,054
Contingencies - Legal Proceedings
As previously disclosed, the Company did not meet its earnings
plan for the first quarter of 1993, due principally to the
deterioration in the Company's health insurance systems business.
Following this announcement, the Company's stock price dropped by
over 40% and, within 24 hours, litigation was commenced in the
United States District Court for the District of South Carolina
against the Company and certain of its present and former
officers and directors in the form of a class action on behalf of
purchasers of the Company's common stock between March 18, 1992,
and ultimately, July 8, 1993. The lawsuit alleged that, among
other things, the Company had failed to prepare its financial
statements in accordance with generally accepted accounting
principles and omitted to disclose certain information in
violation of federal securities laws.
Partly in response to these allegations, the Company conducted
its own internal review of its accounting practices and financial
statements for the years 1990 through 1993. The Company engaged
new independent accountants to review its internal controls and
to conduct a special audit of the Company's financial statements
covering the year 1992 and the first six months of 1993. The
special audit and detailed internal review required several
adjustments to the Company's previously reported financial
statements. These adjustments are reported in Item 6 of Part II
and Note 2 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K/A for the year ended
December 31, 1993, and resulted in an increase in earnings per
share for the year 1992 of 10 cents per share and a $5.1 million
increase in retained earnings as of December 31, 1992, as
compared to prior publicly reported results. There was no change
in annual earnings per share for 1990 or 1991. The Company
implemented new control procedures recommended as part of the
controls review and expanded its management team.
In December 1994, the Company reached an agreement, subject to
court approval, to settle the shareholder class action. The
settlement of $31 million will be paid by the Company's
Directors' and Officers' Liability Insurance Carrier, the
Company's former accountants and the Company. The Company's
portion of the settlement and associated litigation costs
resulted in a special one-time charge of $34.2 million ($21.3
million after tax) which has been recognized as an expense in the
accompanying Consolidated Statement of Operations for the year
ended December 31, 1994. This represents the Company's portion
of the total settlement, plus the Company's litigation costs of
$18.1 million ($11.2 million after tax), less the recovery from
the insurance company.
In June 1993, the Securities and Exchange Commission (SEC)
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities. The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with
their investigation. The United States Attorney for the District
of South Carolina also is conducting an investigation into
certain of these matters. The Company is cooperating with these
investigations.
In addition to the litigation described above, the Company is
presently involved in litigation arising out of the Company's
change in the direction of its future life software systems
development following the acquisition of CYBERTEK and an early
version of its Series III software. There are also various other
litigation proceedings and claims arising in the ordinary
38
course of business. The Company believes it has meritorious
defenses and is vigorously defending these matters. While the
resolution of these matters could have a material adverse effect
on the results of operations in future periods, the Company does
not expect these matters to have a material adverse effect on its
consolidated financial position. The Company, however, is unable
to predict the ultimate outcome or the potential financial impact
of these matters.
Note 9. Income Taxes
A reconciliation of the difference between the actual income tax
provision (benefit) and the expected provision (benefit),
computed using the applicable statutory rate is as follows:
Year ended December 31,
1994 1993 1992
Provision for taxes at the
statutory rate....................... (35.0)% (35.0)% 34.0 %
Increase (decrease) in provision from:
Goodwill amortization................ 6.5 % 22.9 % 1.2 %
Goodwill impairment.................. 18.6 % - -
Internal Revenue Service
settlement......................... (32.5)% - -
Revaluation of deferred state
income tax liability............... (5.4)% - -
Purchased research and
development........................ 4.8 % - -
Nontaxable investment income......... (6.7)% (3.6)% (3.7)%
State and local income taxes,
net of federal tax effect.......... (0.2)% (1.4)% 0.5 %
Increase in statutory rate........... - 1.6 % -
Other................................ 2.1 % - 0.2 %
(12.8)% 19.5 % (1.8)%
Effective income tax...................
provision (benefit) rate............. (47.8)% (15.5)% 32.2 %
An analysis of the income tax provision (benefit) is as follows:
Year ended December 31,
1994 1993 1992
(In Thousands)
Current taxes....................... $(5,607) $ (7,266) $27,063
Deferred income taxes relating to
temporary differences:
Depreciation and amortization
of property, equipment and
intangibles................... (7,808) 3,834 (1,907)
Capitalized internal software
development costs............. 6,481 4,914 4,458
Impairment and restructuring of
operations.................... 2,145 (12,855) -
Internal Revenue Service
settlement.................... (6,000) - -
Revaluation of deferred state
income tax liability.......... (999) - -
Other........................... 2,957 1,110 (373)
(3,224) (2,997) 2,178
Total income tax
provision (benefit)........... $(8,831) $(10,263) $29,241
40
An analysis of the net deferred income tax liability is as
follows:
December 31,
1994 1993
(In Thousands)
Current deferred assets:
Net operating loss carryforward.................. $ 411 $ 4,315
Other............................................ 6,233 5,176
Current deferred assets.......................... 6,644 9,491
Long-term deferred assets:
Impairment and restructuring of operations....... 5,743 12,855
State tax credits................................ 4,945 4,987
Other............................................ 1,765 3,743
Long term deferred assets........................ 12,453 21,585
Total deferred assets............................ $19,097 $31,076
Current deferred liabilities:
Other............................................ $ 613 -
Current deferred liabilities..................... 613 -
Long-term deferred liabilities:
Depreciation and amortization of property,
equipment and intangibles........................ 12,439 $28,272
Capitalized internal software development costs.. 39,526 32,971
Other............................................ 2,707 12,908
Long-term deferred liabilities................... 54,672 74,151
Total deferred liabilities....................... $55,285 $74,151
The Company generated a $14.5 million net operating loss for the
year ended December 31, 1994 for tax purposes. This loss, which
is anticipated to be carried forward, will expire in 2009.
Additionally, the Company has loss carryforwards of $1.1 million
at December 31, 1994 related to a business acquisition in 1991.
The acquired loss carryforwards are subject to a $.4 million
annual limitation and will expire in 2002. The entire benefit
related to the Company's loss carryforwards has been recognized
in the consolidated financial statements.
On August 10, 1993 the Omnibus Budget Reconciliation Act of 1993
was signed into law. This Act increased the highest marginal
federal income tax rate from 34% to 35%. Under the provisions of
FAS 109, deferred tax liabilities and assets are adjusted for the
effect of a change in tax laws or rates. Furthermore, the effect
is included in the income tax provision for the reporting period
that includes the enactment date. As such, the net loss for the
period ended December 31, 1993 was increased by $1.1 million to
reflect the increase in tax rates.
The Company's U.S. income tax returns for the years 1985 through
1990 have been examined by the Internal Revenue Service (IRS).
The Company reached a final settlement with the IRS related to
all issues in the 1985 through 1990 examinations. As a result of
this settlement, the Company paid $3.9 million and reduced its
provision for income taxes for the year ended December 31, 1994
by $6.0 million for taxes provided in prior periods.
41
Note 10. Employee Benefit Plans
Profit Sharing Retirement Plan
Eligible employees of the Company are covered under the Company's
profit sharing retirement plan. The Company's contribution to the
plan is determined by the Board of Directors of the Company.
Employees make no contributions to this plan. The Company made a
contribution of $.8 million in early 1993 for the plan year 1992.
No contributions were made for 1994 and 1993.
Retirement Savings Plan
The Company offers a 401(k) retirement savings plan for eligible
employees. During 1994, Participants could elect to have up to
10% of their salary withheld, on either a before-tax or an after-
tax basis, or a combination of both for investment in the
program. The Company would make a matching contribution of 50%
for the first 6% of salary contributed by the Participant on
either a before-tax or an after-tax basis as the Participant
elected, but not to both. Beginning in 1995, the Company will
make a matching contribution of 100% of the first 3% of salary
contributed by the Participant and also a matching contribution
of 50% of the next 3% of salary contributed by the Participant.
Participants may also make limited additional contributions which
are not subject to matching contributions by the Company.
Participants have several options as to how their contributions
may be invested, but through October 1993, all matching
contributions had been invested in common stock of the Company.
Company contributions made after October 1993 were, and continue
to be, invested in a government money market fund, except as
Participants may otherwise redirect such Company contributions
previously made. The Company's contribution on behalf of
participating employees was $2.2, $1.9, and $1.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively.
Stock Option Plans
The Company has various plans under which options to purchase
shares of the Company's common stock have been granted to
eligible employees and members of the Board of Directors of the
Company. In 1992, options were granted under the 1989 Stock
Option Plan to eligible employees and members of the Board of
Directors, subject to approval by the Company's stockholders of
an amendment to increase the number of shares available for grant
under that plan. In January 1993, options were also granted
under the Company's 1993 Long-Term Incentive Plan for Executives,
subject to approval by the Company's stockholders. At the annual
meeting of the Company's stockholders in April 1993, the
amendment to the 1989 Stock Option Plan and the 1993 Long-Term
Incentive Plan for Executives were approved.
In January and February 1994, options were granted under the 1993
Long-Term Incentive Plan for Executives to two new executive
officers, according to the formula in the plan. In May 1994,
options were granted under the 1989 Stock Option Plan to eligible
employees. In October 1994, additional options were granted under
the 1989 Stock Option Plan to the Directors and to certain senior
executives, a portion of which are subject to approval by the
Company's stockholders of an amendment to increase the number of
shares reserved for issuance under that plan. In November 1994,
options were granted to a new Director under the 1989 Stock
Option Plan, subject to approval by the Company's stockholders of
the aforementioned amendment. Pursuant to the formula regarding
promotions of participating officers, as set forth in the 1993
Long-Term Incentive Plan for Executives, options were granted
under this plan to certain individuals who had been promoted
since participating in the plan.
42
Option activity under all of the stock option plans is summarized
as follows:
Year Ended December 31,
1994 1993 1992
Shares under option at
beginning of year............ 1,725,119 1,202,856 1,295,297
Granted......................... 1,361,143 592,500 396,300
Exercised....................... - (21,777) (469,483)
Forfeited....................... (281,934) (48,460) (19,258)
Shares under option at
end of year................... 2,804,328 1,725,119 1,202,856
Shares under option exercisable
at end of period.............. 878,165 766,805 443,297
Shares available for
future grant.................. 174,653 1,175,916 996,939
The exercise price of options exercised under plans, other than
under the 1993 Long-Term Incentive Plan for Executives, during
the years ended December 31, 1994, 1993 and 1992, were $15.13 to
$49.63 and the exercise prices of shares under option at December
31, 1994, 1993 and 1992, other than under the 1993 Long-Term
Incentive Plan for Executives, were $15.13 to $69.38.
All options granted under plans, other than those granted under
the 1993 Long-Term Incentive Plan for Executives, have exercise
prices at 100% of market value at date of grant and other than
the October 1994 grant to the executives are exercisable at the
rate of 33 1/3% per year (cumulative) beginning one year from
date of grant. The options granted in October to the senior
executives are exercisable at the rate of 33 1/3% per year
(cumulative) beginning three years from the date of grant.
Options granted in 1993 under the 1993 Long-Term Incentive Plan
for Executives have been granted at 105% of market value at the
date of grant; all these options have an exercise price of
$81.90. (For individuals who were or may be selected later to
participate in the 1993 Long-Term Incentive Plan for Executives
or for additional options which were granted or may be granted to
participants due to promotions, said percentage is based on the
year the individual was or may be selected or promoted as
follows: 1993 - 105%; 1994 - 104%; 1995 - 103%; 1996 - 102%; 1997
- 101%; and 1998 - 100%.) Options granted under the plan in 1993
become exercisable as follows: 25% on January 1, 1995; 25% on
January 1, 1997; and 50% on January 1, 1999. For individuals who
were selected or may be selected to participate in the plan or
for additional options which were granted or may be granted to
participants due to promotions, the number of options granted and
what percentage becomes exercisable on the above dates are
determined according to formulas described in the plan.
Note 11. Certain Transactions
The Company announced on April 27, 1994, that it had agreed with
IBM to repurchase 2,278,537 of the 3,797,561 shares of the
Company's common stock held by IBM and that the remainder of the
Company's shares owned by IBM would be purchased by the General
Atlantic Partners group, a New York-based private investment
firm. The Company completed the repurchase of these shares on
May 16, 1994, at a share price of $24.71, which approximated an
aggregate cash expenditure of $56.6 million. The shares
repurchased by the Company represent 10% of its total shares
outstanding prior to the repurchase.
Pursuant to a stock repurchase program approved by the Board of
Directors in July 1994, the Company may purchase from time to
time up to 2.5 million shares of its issued and outstanding
common stock. This program is flexible as to the timing and
method of acquisition of these shares. As of December 31, 1994,
the Company had repurchased, on the open market, 995,500 shares
of its common stock for a total of $35.3 million.
43
Note 12. Impairment and Restructuring Charges
The Company, as a result of significant changes in the property
and casualty insurance industry, experienced a $5.1 million
operating loss (before interest and income taxes) in its property
and casualty domestic automobile and risk information services
business in 1994. Revenues associated with this business
amounted to $128.9 and $133.0 million for 1994 and 1993,
respectively. Although the Company took actions during 1994 to
improve the overall performance of this business, such as
implementing management changes, realignment and consolidation of
field offices, and refining and enhancing current product
offerings, this business continued to reflect declining sales and
earnings, with the loss of key customers. The Company determined
that there was a trend towards reduced sales and acceptance of
new business in the industry as a result of five years of major
catastrophic losses. The Company believes that this industry is
reacting to these catastrophic losses by focusing on risk
concentration and in many cases making deliberate decisions to
discontinue writing business in certain high risk areas, and some
insurers ceased doing business or withdrew from certain states.
This combination of factors could result in a continued decline
in demand for certain information services. Although the Company
consolidated its branch network offices to lower its fixed costs,
this did not offset the increasing variable costs incurred due to
the geographic dispersion of the Company's customer base. As
competition has increased, leading to intense price competition
among information providers, the Company's competitors, through
package pricing, are offering certain competing products to the
market below the Company's cost.
As a result of a detailed business assessment, revised forecast
of discounted expected future cash flows and the application of
the Company's accounting policy to evaluate recoverability, the
Company determined that the carrying value of certain intangible
assets of this business was not fully recoverable. The Company
recorded, at October 1, 1994, impairment charges of $19.1 million
to write-off the carrying value of certain identifiable
intangible assets ($6.4 million) and goodwill ($12.7 million)
related to its property and casualty automobile and risk
information services business.
The Company has applied its methodology for measuring impairment
(see Note 1) by discounting expected future cash flows. In
determining its forecasted future results, the Company considered
historical financial performance, current and prospective
insurance industry environment and market conditions and the
long-term opportunities for future growth in the respective
businesses. The Company believes that its forecasted future
results based on current market conditions and recent historical
trends, is the best estimate of the Company's discounted future
cash flows.
Expected future cash flows for this business are based on the
current level of operating loss continuing in the near-term with
only a modest recovery over the long-term principally because the
Company expects the negative impact of the insurance industry
market environment to continue into the future. Consequently, at
the end of the forecast period, a residual was included based on
an estimate of liquidation value. The Company used a discount
rate of 18% which reflects its weighted average cost of capital,
which includes a factor for equity commensurate with the risk
associated with the information services business. This rate was
determined using the Capital Asset Pricing Model which reflects
the return the Company should achieve on its investment.
The acquisition of CYBERTEK provided the Company with the
opportunity to develop new releases of certain of its life
software systems based on the business functions of CYBERTEK
software, and to assess strategic changes in direction related to
the Company's development of its future life software systems.
As a result, the Company determined in the fourth quarter of 1994
that certain business operations and software systems acquired in
Austria would not be compatible with the Company's future
direction. The Company decided that it would cease operations
related to this business and would no longer market or license
the acquired software system. Consequently, the Company recorded
impairment charges to write-off the carrying value of certain
identifiable intangible assets, goodwill and acquired software of
$2.2 million related to this prior business acquisition. These
non-cash impairment charges include acquired software of $1.5
million and identifiable intangible assets and goodwill of $.7
million.
44
The Company decided that it would cease to do business in certain
markets with respect to the CAPSIL business and operations
acquired from Capsco Pallm Systems, Inc. The Company determined
that the functionality and technical platform represented by
acquired software would be replaced by software that is being and
has been developed in conjunction with its future strategic
direction. As a result of its evaluation, the Company determined
that no write-down of the software is necessary. The Company
did, however, record impairment charges of $1.8 million to reduce
the carrying value of certain identifiable intangible assets ($.7
million) and goodwill ($1.1 million) relating to the acquired
business in the United States.
Due to a decision by one of the Company's property and casualty
insurance customers not to license software acquired by the
Company for integration into its property and casualty software
systems and the Company's decision not to market or license such
software, the Company recorded impairment charges of $1.9 million
to write-off the carrying value of such software.
During the fourth quarter of 1994, the Company decided it would
no longer market or license its Agency Workstation System
("AWS"), an automated insurance agency sales and marketing
software system, acquired from Agency Automation Partners
Limited. As more of the Company's customers have become
operational on Series III and plan the full implementation of
Series III functions, the Company changed its strategy for
integrated system solutions between the insurance company and its
agents (or independent agents) or direct marketers. As a result,
the Company will change its dependency on AWS and integrate new
agency software system tools with its Series III functions.
Consequently, the Company recorded impairment charges of $8.1
million to write-off the carrying value of AWS.
Impairment and restructuring charges in 1993 totaling $80.7
million resulted primarily from impairment charges to reduce the
carrying value of certain identifiable assets and goodwill
related to the Company's health insurance systems business of
$54.9 million and restructuring charges of $25.2 million
associated with employee severance and outplacement ($5.2
million), and to an ongoing lease obligation and/or termination
for the planned future abandonment of certain leased office
facilities ($20.0 million). These charges were recorded at June
30, 1993, after the Company determined that it did not have some
of the systems to respond to the most likely future initiatives
in the health care insurance industry, and that many of the
Company's existing health insurance products, primarily those
acquired in business acquisitions, would require substantial
modification or complete reformation. As a part of these non-cash
impairment charges, acquired software of $9.2 million was
written-off. Non-cash impairment charges included certain other
identifiable intangibles of $6.3 million and goodwill of $39.4
million. The Company also recorded other restructuring charges
of $.6 million.
During 1994, the Company as a result of new events occuring
changed its estimates and reduced its restructuring reserves
associated with its health insurance systems business,
established in June 1993, by $4.4 million, $2.6 million of which
resulted from a change in the scheduled downsizing of the
Company's health staff and a corresponding reduction in amounts
established for severance and outplacement costs and $1.8 million
of which resulted from a lease termination at amounts less than
those established for the planned future abandonment of certain
leased office facilities.
Since June 30, 1993, the Company has continued to downsize its
health staff from 437 to 220 at the end of 1994. Compensation
and other benefits decreased $7.8 million for 1994 as a result of
downsizing from 388 at the end of 1993. The Company has not
completed its downsizing as originally anticipated due
principally to contractual services provided to certain
customers. As services obligations are completed, downsizing
will continue as planned.
45
Note 13. Segment Information
The Company operates in one business segment, providing insurance
software systems and providing automation and administrative
support and information services to the worldwide insurance
industry. Less than ten percent of the Company's revenues to
unaffiliated customers are generated from exports, and no one
customer accounted for more than ten percent of total
consolidated revenues during the year ended December 31, 1994.
The Company operates in several geographical areas worldwide. A
summary of the Company's operations by area follows (in
thousands):
Year ended
December 31,
Net revenues 1994
United States............................... $445,462
International............................... 65,049
Eliminations................................ (17,805)
Total net revenues....................... $492,706
Income (loss) before income taxes (benefit)
United States............................... $(15,189)
International............................... (2,026)
Eliminations................................ (1,274)
Total income (loss) before income
taxes (benefit)........................ $(18,489)
Identifiable assets
United States............................... $491,768
International............................... 59,935
Eliminations................................ (27,672)
Total identifiable assets................ $524,031
Note 14. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash
equivalents, marketable securities and trade receivables. The
Company places its cash, cash equivalents and marketable
securities with high credit quality entities and limits the
amount of credit exposure with any one entity. In addition, the
Company performs ongoing evaluations of the relative credit
standing of these entities, which are considered in the Company's
investment strategy.
Concentration of credit risk with respect to trade accounts
receivable are generally diversified due to the large number of
entities comprising the Company's customer base across the
insurance industry. The Company performs ongoing credit
evaluations on certain of its customers' financial condition, but
generally does not require collateral to support customer
receivables. The Company establishes an allowance for
uncollectible accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other
information.
46
Policy Management Systems Corporation
Quarterly Consolidated Results of Operations
(Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data)
1994
Revenues $115,942 $124,741 $126,993 $125,030
Operating income (loss) 7,817 13,670 14,626 (55,858)
Other income and expenses, net 911 223 (333) 455
Income (loss) before income
taxes (benefit) 8,728 13,893 14,293 (55,403)
Net income (loss) $ 5,568 $ 8,598 $ 9,723 $ (33,547)
Net income (loss) per share $ .25 $ .40 $ .49 $ (1.73)
1993
Revenues $119,215 $116,708 $108,885 $108,291
Operating income (loss) 15,317 (97,465) 752 4,343
Other income and expenses, net 5,926 2,015 1,333 1,382
Income (loss) before income
taxes (benefit) 21,243 (95,450) 2,085 5,725
Net income (loss) $ 13,625 $ (74,048) $ 346 $ 3,943
Net income (loss) per share $ .58 $ (3.27) $ .02 $ .17
The results of operations in 1994 reflect special charges
recorded in the fourth quarter of $71.9 million (after taxes
$44.2 million, or $ 2.27 per share). As a result of the Internal
Revenue Service settlement, the Company's 1994 provision for
income taxes reflected a $6.0 million reduction of taxes provided
in prior periods (see Note 9 in the Notes to the Consolidated
Financial Statements).
The results of operations for 1993 reflect special charges of
$98.8 million (after taxes, $76.2 million, or $3.29 per share).
Special charges recorded for the three months ended June 30, 1993
reflect impairment and restructuring charges related to certain
identifiable intangible assets and acquired software of the
Company's health insurance systems business of $80.7 million
(after taxes $65.0 million, or $2.87 per share). Additionally,
the Company recorded charges of $.5 million (after taxes $.3
million, or $.01 per share) and $17.6 million (after taxes $10.9
million, or $.48 per share), for the three months ended March 31,
and June 30, 1993, respectively.
For a further discussion of these special charges see
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 of Notes to Consolidated
Financial Statements.
47
SCHEDULE II
Policy Management Systems Corporation
Valuation and Qualifying Accounts
Additions
Balance Charged
at Charged to Balance
Beginning to Other at End
Description of Period Expenses Accounts Deductions of Period
(In Thousands)
Allowance for uncollectible amounts
Year ended December 31, 1994........ $ 1,817 955 59(1) (1,807)(2) $ 1,024
Allowance for uncollectible amounts
Year ended December 31, 1993........ $ 1,630 1,768 601(1) (2,182)(2) $ 1,817
Allowance for uncollectible amounts
Year ended December 31, 1992........ $ 1,198 711 - (279)(2) $ 1,630
Accrued restructuring and lease
termination cost
Year ended December 31, 1994........ $29,256 73(3) - 12,885(4) $16,444
Accrued restructuring and lease
termination cost
Year ended December 31, 1993........ $ 0 29,696(3) - (440)(4) $29,256
Note:
(1) Amounts acquired through business acquisitions and/or recovery of amounts
previously written off.
(2) Write-off of amounts uncollectible.
(3) Principally relates to amounts estimated for employee severance and outplacement
and to ongoing lease obligations and/or terminations for the planned future
abandonment of certain leased office facilities, including credit amounts for
changes in these estimates.
(4) Principally cash payments related to lease terminations and employee severance and
outplacement costs.
48
Policy Management Systems Corporation
Report of Independent Accountants
To the Board of Directors
Policy Management Systems Corporation
Our report on the consolidated financial statements of Policy
Management Systems Corporation, which contains an emphasis
paragraph related to ongoing litigation and investigations into
possbile security law violations, is included on page 25 of this
Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule listed in the index on page 24 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Atlanta, Georgia
February 9, 1995
49
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Item 4 of the Company's Report on Form 8-K, dated August 17,
1993, is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Information other than the listing of Executive Officers of the
Company, which is set forth in Part I of this Form 10-K, is
contained under the heading "Election of Directors" in the
Company's 1995 Proxy Statement and is incorporated herein by
reference.
Item 11. Executive Compensation
The section of the Company's 1995 Proxy Statement titled
"Compensation Plans and Arrangements" is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The sections of the Company's 1995 Proxy Statement titled
"Principal Stockholders" and "Election of Directors" are
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The section of the Company's 1995 Proxy Statement titled "Certain
Transactions" is incorporated herein by reference.
50
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
Financial Statements and Schedules
See Index to Consolidated Financial Statements and Supplementary
Data on page 24.
Exhibits Filed
Exhibits required to be filed with this Annual Report on Form
10-K are listed in the following Exhibit Index. Certain of such
exhibits which have heretofore been filed with the Securities and
Exchange Commission and which are designated by reference to
their exhibit numbers in prior filings are hereby incorporated
herein by reference and made a part thereof.
Pursuant to Rule 15d-21 promulgated under the Securities Exchange
Act of 1934, the following annual report for the Company's
employee stock purchase plan will be furnished to the Commission
when the information becomes available:
Form 11-K for the Company's 401(k) Retirement Savings Plan for
the year ended December 31, 1994 is incorporated herein by
reference.
Form 8-K
The Company filed a report on Form 8-K, dated December 7, 1994
under Item 5. Other Events, relating to an agreement in
principle, subject to court approval, to settle the securities
class action pending against the Company.
51
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.
(REGISTRANT) POLICY MANAGEMENT SYSTEMS CORPORATION
BY (SIGNATURE) /s/ Timothy V. Williams
DATE March 31, 1995 Timothy V. Williams, Executive Vice
President and Chief Financial Officer
BY (SIGNATURE) /s/ Stan F. Stoudenmire
DATE March 31, 1995 Stan F. Stoudenmire, Vice President
and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
BY (SIGNATURE) /s/ G. Larry Wilson
(NAME AND TITLE) G. Larry Wilson, Chairman of the
DATE March 31, 1995 Board of Directors, President and
Chief Executive Officer
BY (SIGNATURE) /s/ Roy L. Faulks
(NAME AND TITLE) Roy L. Faulks, Vice Chairman of the
DATE March 31, 1995 Board of Directors
BY (SIGNATURE) /s/ John P. Seibels
(NAME AND TITLE) John P. Seibels, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Frederick B. Karl
(NAME AND TITLE) Frederick B. Karl, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Richard G. Trub
(NAME AND TITLE) Richard G. Trub, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Joseph D. Sargent
(NAME AND TITLE) Joseph D. Sargent, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Dr. John M. Palms
(NAME AND TITLE) Dr. John M. Palms, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Joe M. Henson
(NAME AND TITLE) Joe M. Henson, Director
DATE March 31, 1995
BY (SIGNATURE) /s/ Steven A. Denning
(NAME AND TITLE) Steven A. Denning, Director
DATE March 31, 1995
EX-99
2
EXHIBIT INDEX
1
Policy Management Systems Corporation
Exhibit Index
Exhibit
Number
3. ARTICLES OF INCORPORATION AND BY-LAWS
A. Articles of Incorporation of the Company, as amended
through October 13, 1994, incorporating all amendments thereto
subsequent to December 31, 1993 (Filed herewith)
B. Bylaws of the Company, as amended through July 19, 1994,
incorporating all amendments thereto subsequent to December 31,
1993 (Filed herewith)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
A. Articles of Incorporation of the Company, as amended
through October 13, 1994, incorporating all amendments thereto
subsequent to December 31, 1993 (See Exhibit 3A)
10. MATERIAL CONTRACTS
A. Policy Management Systems Corporation 1985 Employee
Stock Purchase Plan (Filed as Exhibit 10(z) to Form 10-K for the
year ended December 31, 1985)
B. Policy Management Systems Corporation 1986 Stock Option
Plan (Filed as Exhibit 10(ee) to Form 10-K for the year ended
December 31, 1986)
C. Policy Management Systems Corporation 1989 Stock Option
Plan (Filed Exhibit 10(Y) to Form 10-K for the year ended
December 31, 1990)
D. Deferred Compensation Agreement with G. Larry Wilson
(Filed as Exhibit 10(A) to Form 10-K for the year ended December
31, 1993)
E. Executive Compensation Agreement with G. Larry Wilson
(Filed as Exhibit 10(B) to Form 10-K for the year ended December
31, 1993)
F. Annual Bonus Program for Executive Officers (Filed as
Exhibit 10(C) to Form 10-K for the year ended December 31, 1993)
G. CYBERTEK Corporation Acquisition Agreement (Filed as
Exhibit 10(D) to Form 10-K for the year ended December 31, 1993)
H. Employment Agreement with Stephen G. Morrison (Filed as
Exhibit 10(A) to Form 10-Q for the quarter ended March 31, 1994)
I. Stock Option/Non-Compete Agreement with Stephen G.
Morrison (Filed as Exhibit 10(B) to Form 10-Q for the quarter
ended March 31, 1994)
J. Shareholders' Agreement, dated April 26, 1994, among
Policy Management Systems Corporation, General Atlantic Partners
14, L.P. and GAP Coinvestment Partners (Filed as Exhibit 10(A) to
Form 10-Q for the quarter ended September 30, 1994)
K. Registration Rights Agreement, dated April 26, 1994
among Policy Management Systems Corporation, General Atlantic
Partners 14, L.P. and GAP Coinvestment Partners (Filed as Exhibit
10(B) to Form 10-Q for the quarter ended September 30, 1994)
L. Employment Agreement with Timothy V. Williams (Filed
herewith)
M. Stock Option/Non-Compete Form Agreement for named
executive officers together with schedule identifying particulars
for each named executive officer (Filed as Exhibit 10(A) to Form
10-Q for the quarter ended September 30, 1992)
N. Stock Option/Non-Compete Form Agreement for named
executive officers together with schedule identifying particulars
for each named executive officer (Filed as Exhibit 10(C) to Form
10-Q for the quarter ended September 30, 1994)
2
O. Stock Option (Non-Compete Form Agreement for named
executive officers ) together with schedule identifying
particulars for each named executive (Filed herewith)
P. Policy Management Systems Corporation 1993 Long-Term
Incentive Plan for Executives (Filed herewith)
Q. First Amendment to the Policy Management Systems
Corporation 1989 Stock Option Plan (Filed herewith)
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Filed herewith)
21. SUBSIDIARIES OF THE REGISTRANT
(Filed herewith)
23. CONSENTS OF EXPERTS AND COUNSEL
Consent of Coopers & Lybrand (Filed herewith)
27. FINANCIAL DATA SCHEDULE
(Filed herewith)
99. ADDITIONAL EXHIBITS
Report on Form 8-K, dated August 17, 1993 (Filed herewith)
EX-3
3
EXHIBIT 3A
1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
POLICY MANAGEMENT SYSTEMS, INC.
Name Changed To Policy Management Systems Corporation
8/28/81
(File This Form in
Duplicate Originals)
(Sect. 33-7-30 of 1976 Code)
(INSTRUCTIONS ON PAGE 4)
For Use By This Space For Use By
The Secretary of State The Secretary of State
File No. D44681 /s/ John T. Campbell
Fee Paid $45 ($13 ) Secretary of State
R.N. 5382
Date: 7/18/80 Filed July 18, 1980
1. The name of the proposed corporation is POLICY MANAGEMENT SYSTEMS,
INC.
2. The initial registered office of the corporation is 1501 Lady
Street located in the city of Columbia county of Richland and the
State of South Carolina and the name of its initial registered
agent at such address is J. Smith Harrison.
3. The period of duration of the corporation shall be perpetual.
4. The corporation is authorized to issue shares of stock as follows:
Authorized No.
Class of Shares of Each Share Par Value
2
Common 1,000 $10.00
________________ ______________ ____________
________________ ______________ ____________
________________ ______________ ____________
________________ ______________ ____________
________________ ______________ ____________
If shares are divided into two or more classes or if any class of
shares is divided into series within a class, the relative rights,
preferences, and limitations of the shares of each class, and of
each series within a class, are as follows:
No exceptions
5. Total authorized capital stock 1,000 shares at $10.00 par value.
Please see instructions on Page 4.
6. It is represented that the corporation will not begin business
until there has been paid into the corporation the minimum
consideration for the issue of shares, which is $1,000.00 of which
at least $500.00 is in cash.
7. The number of directors constituting the initial board of directors
of the corporation is One (1) and the names and addresses of the
persons who are to serve as directors until the first annual
meeting of shareholders or until their successors be elected and
qualify are:
J. Smith Harrison 1501 Lady Street, Columbia, S.C. 29201
(Name) (Address)
(Name) (Address)
(Name) (Address)
(Name) (Address)
8. The general nature of the business for which the corporation is
3
organized is (it is not necessary to set forth in the purposes powers
enumerated in Section (33-3-10 of 1976 Code).
The nature of the business and the objects and purposes to be
transacted, promoted, or carried on by the Corporation are to
engage in any lawful act or activity for which any corporation may
be organized under South Carolina law; including, but not limited
to the development, manufacture, licensing, distribution, service,
sale, purchase, resale, and financing of computer software systems
and computer hardware, including supplies, materials, parts, and
equipment pertinent thereto.
9. Provisions which the incorporators elect to include in the articles
of incorporation are as follows:
A. Pre-emptive rights - No shareholder or other person shall have
any pre-emptive right whatsoever.
B. By-Laws - The initial By-Laws shall be adopted by the Board of
Directors. The Board of Directors has the power to alter,
amend, or repeal the By-Laws or adopt new By-Laws, subject to
repeal or change by action of the shareholders.
C. Indemnification - The Corporation shall indemnify those persons
permitted to be indemnified by South Carolina Code 33-13-180
(1976), as amended, and may insure such persons to the extent
permitted by such statute.
(CONTINUED ON BACK)
10. The name and address of each incorporator is:
Name Street & Box No. City County State
Seibels, Bruce 1501 Lady Street, Columbia, Richland, South Carolina
& Company
4
SEIBELS, BRUCE & COMPANY
BY: /s/ J. Smith Harrison
(Signature of Incorporator)
Date: July 18, 1980 J. Smith Harrison, Executive Vice President
(Type or Print Name)
BY: /s/ Sterling E. Beale
(Signature of Incorporator)
Sterling E. Beale, Senior Vice President
(Type or Print Name)
BY:
(Signature of Incorporator)
(Type or Print Name)
5
STATE OF SOUTH CAROLINA
OFFICE OF THE SECRETARY OF STATE
JOHN T. CAMPBELL
INSTRUCTIONS FOR PREPARING ARTICLES OF INCORPORATION
No. 1 Name - must NOT be similar to an existing corporation. The
name must also contain the word CORPORATION, INCORPORATION,
LIMITED or the abbreviation of one of these.
No. 2 Must have a complete street address (A POST OFFICE BOX IS NOT
ACCEPTABLE) and it may be the address of the corporation of
one of its officers.
The agent may be an officer or employee of the corporation or
it may be an attorney.
No. 3 Self explanatory.
No. 4 Class of shares - must be common and may include some
preferred.
Authorized shares - is the number of shares which the
corporation may issue.
Par value - will be the value of each share to be sold.
No. 5 Authorized capital - is equal to number of shares times par
value as shown by No. 4.
No. 6 Self explanatory.
No. 7 Name and complete address (street or box number) for the
initial board of directors.
The number of directors shall consist of at least three except
if shareholders are less than three - then you have one (1)
director for each shareholder.
No. 8 Must briefly state the SPECIFIC purposes for which the
corporation is organized.
6
No. 9 Usually not used.
No. 10 Must have name and address (street or box number) of EACH
incorporator (may be one or more incorporators).
No. 10 - Page 2. Each incorporator must sign.
No. 10 - Page 3. Verification must be completed and signed by EACH
incorporator.
No. 11 Certificate of attorney - must be signed by an attorney
LICENSED to practice in the STATE OF SOUTH CAROLINA.
FEES - Authorized capital NOT exceeding $100,000, fee is $45.
Authorized capital exceeding $100,000, fee is $45 PLUS $.40
for each $1,000 exceeding $100,000. MAXIMUM FEE IS $1,005.
When no par stock is used, a $10 par is assumed for the basis
of computing the filing fee.
NOTE -- These articles are filed in duplicate and must be accompanied
by the first report of corporation and check of $10, MADE
PAYABLE TO THE S.C. TAX COMMISSION.
NAME AVAILABILITY SHOULD BE CLEARED IN WRITING. CLEARANCE BY TELEPHONE
IS NOT RECOMMENDED AS IT IS NOT OFFICIAL.
ITEM 9 (CONTINUED)
D. Amendment of Articles of Incorporation - Except as otherwise
provided by statute or by these Articles of Incorporation, these
Articles may be altered, amended or repealed at any meeting of
the shareholders by the affirmative vote of the holders of
sixty-six and two-thirds percent (66 2/3%) of each class of
shares of the Corporation entitled to vote thereon.
7
STATE OF SOUTH CAROLINA
COUNTY OF RICHLAND
The undersigned J. Smith Harrison and Sterling E. Beale, Officers
of Seibels, Bruce & Company, do hereby certify that they are the
incorporators of Policy Management Systems, Inc. Corporation and are
authorized to execute this verification; that each of the undersigned
for himself does hereby further certify that he has read the foregoing
document, understands the meaning and purport of the statements therein
contained and the same are true to the best of his information and
belief.
SEIBELS, BRUCE & COMPANY
BY: /s/ J. Smith Harrison
(Signature of Incorporator)
BY: /s/ Sterling E. Beale
(Signature of Incorporator)
__________________________________
(Signature of Incorporator)
(Each Incorporator Must Sign)
CERTIFICATE OF ATTORNEY
11. I, Robert H. Uehling, an attorney licensed to practice in the State
of South Carolina, certify that the corporation, to whose articles
of incorporation this certificate is attached, has complied with
the requirements of chapter [sic] 7 of Title 33 of the South
Carolina Code of 1976, relating to the organization of
corporations, and that in my opinion, the corporation is organized
for a lawful purpose.
Date: July 18, 1980 /s/ Robert H. Uehling
(Signature)
8
Robert H. Uehling
(Type or Print Name)
Address: 1501 Lady Street
Columbia, South Carolina 29201
SCHEDULE OF FEES
(Payable at time of filing Articles
of [sic] With Secretary of State)
Fee for filing Articles ..........$
In addition to the above, $.40
for each $1,000.00 of the
aggregate value of shares which
the Corporation is authorized to
issue, but in no case less than
nor more than.....................
NOTE: THIS FORM MUST BE COMPLETED IN ITS ENTIRETY BEFORE IT WILL BE
ACCEPTED FOR FILING. THIS FORM MUST BE ACCOMPANIED BY THE FIRST
REPORT OF CORPORATIONS AND A CHECK IN THE AMOUNT OF $10 PAYABLE
TO THE SOUTH CAROLINA TAX COMMISSION.
Please see instructions on the reverse side.
9
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
To The Articles of Incorporation of
Policy Management Systems, Inc.
(File This Form in Duplicate)
For Use By This Space For Use By
The Secretary of State Secretary of State
File No. D44681
Fee Paid $61.00
R.N. 21705
Date: 8/28/81
Pursuant to Authority of Section 33-15-10 the South Carolina Code
of 1976 as amended, the undersigned Corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the Corporation is Policy Management Systems, Inc.
2. The Registered Office of the Corporation is 1501 Lady Street in the
City of Columbia, County of Richland and the State of South
Carolina and the name of the Registered Agent at such address is J.
Smith Harrison.
(Complete item 3 or 4 whichever is relevant)
3. a. The following Amendment of the Articles of Incorporation was
adopted by the shareholders of the Corporation on August 27,
1981.
(Text of Amendment)
See Attachment #1
b. At the date of adoption of the Amendment, the total number of
all outstanding shares of the Corporation was ten (10). The
total of such shares entitled to vote, and the vote of such
10
shares was:
Total Number of Number of Shares Voted
Shares Entitled
To Vote For Against
10 10 0
ATTACHMENT I
Question #3
1. Article 1: The name of the Corporation is Policy Management
Systems Corporation.
2. Article 3: The Corporation is authorized to issue shares of stock
as follows:
Common Stock 10,000,000 $.01 par value
Special Stock 5,000,000 $.01 par value
Common Stock represents an increase in the authorized Common Stock
from 1,000 shares at $10.00 par value to 10,000,000 shares at $.01 par
value.
Special Stock represents a new series of $.01 par value special
stock for which the Board of Directors shall have the right to
determine and fix the relative rights and preferences.
3. Article 5: Total Authorized Capital Stock, 15,000,000 shares at
$.01 par value.
4. Article 8: The nature of the business and the objects and
purposes to be transacted, promoted or carried on by
the Corporation shall include, but not be limited to
the development, manufacture, licensing, distribution,
service, sale, purchase, resale and financing of
Computer Software Systems including education
11
pertaining to such Systems, and Computer Hardware,
including supplies, materials, parts and equipment
thereto; and furthermore to engage in any lawful act
or activity for which any corporation may be organized
under South Carolina law.
5. Article 9 Article 9 of the original Articles of Incorporation
and including the Addendum of July 18, 1980, attached to
Addendum: the original Articles of Incorporation is repealed and
the new Addendum, dated August 28, 1981 and attached
hereto as Schedule 1 and incorporated herein by
reference, is approved as an integral part of this
Amendment.
Question #5
Ten (10) shares of the previously authorized stock had been issued
by the Corporation. These shares shall be automatically converted into
5,800,000 shares of $.01 par value Common Stock of the Corporation for
the ten (10) shares of $10.00 par value stock outstanding. All
certificates of the $10.00 par value Common Stock of the Corporation
shall be called for cancellation.
Question #6
Stated capital is changed from $10,000 to $100,000.
12
SCHEDULE I
ADDENDUM
a. Pre-emptive Rights. No shareholder or other person shall have any
pre-emptive right whatsoever.
b. By-Laws. The initial By-Laws shall be adopted by the board of
directors at the organizational meeting of the corporation. The board
of directors has the power to alter, amend, or repeal the By-Laws or
adopt new By-Laws by the affirmative vote of 2/3 of the directors then
in office. The shareholders shall also have the power to alter, amend,
or repeal the By-Laws or adopt new By-Laws by the affirmative vote of
the holders of sixty-six and two-thirds percent of each class of shares
entitled to vote thereon.
c. Indemnification; Insurance. The corporation shall indemnify those
persons permitted to be indemnified by S.C. Code [sic] Section 33-13-180 (1976),
as amended, and may insure such persons to the extent permitted by such
statute.
d. Number Classification and Election of Directors. The board of
directors shall be limited to a maximum of sixteen directors, with the
precise number thereof to be fixed as the board shall from time to time
resolve. The members of the board of directors need not be
shareholders nor need they be residents of any particular state.
Subject to the provisions of S.C. Code 33-13-50 (a), the directors
shall be classified with respect to the time for which they shall
severally hold office by dividing them into three classes, each
consisting of an approximately equal number of directors, and each
director of the corporation shall hold office until his successor shall
be elected and shall qualify.
e. Removal of Directors.
(A) Directors may be removed without cause by the affirmative vote
of the holders of a majority of the shares entitled to vote at
an election of directors, such vote being taken at a meeting of
the shareholders called for that purpose at which the holders
of eighty (80%) percent of the shares entitled to vote are
present in person or represented by proxy. No amendment,
alteration, change or repeal of this subparagraph (A) of
Article f. may be effected unless it is first approved by the
13
affirmative vote of holders of not less than eighty (80%)
percent of each class of shares of the company entitled to vote
thereon.
(B) Directors may be removed for cause by (1) the affirmative vote
of the holders of a majority of the shares entitled to vote at
an election of directors, such vote being taken at a meeting of
the shareholders called for that purpose at which a quorum as
provided in Article h. is present, or (2) the affirmative vote
of the majority of the members of the board of directors at a
specially called meeting which shall consider ony [sic] removal
and replacement of such director. "Cause" shall be defined
under the terms of Section 33-13-70 (f) of the South Carolina
Code of Laws of 1976, as amended.
(C) The removal of directors as provided in subsections (A) and (B)
(1) immediately above shall in every case be subject to the
following provision: No director who has been elected by
cumulative voting may be removed if the votes cast against his
removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if
there be classes of directors, at an election of the class of
directors of which he is a part.
f. Amendment by Shareholders. Except as otherwise provided by statute
or by these Articles of Incorporation, these Articles may be altered,
amended or repealed at any meeting of the shareholders by the
affirmative vote of the holders of sixty-six and two-thirds percent of
each class of shares of the company entitled to vote thereon.
g. Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum
at meetings of the shareholders for the transaction of business except
as otherwise provided by statute, by these Articles of Incorporation or
by the By-Laws. If a quorum is not present or represented at a meeting
of the shareholders, the shareholders entitled to vote, present in
person or represented by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At an adjourned
meeting at which a quorum is present or represented, any business may
be transacted which might have been transacted at the meeting as
originally notified.
h. Majority Vote; Withdrawal of Quorum. When a quorum is present at
14
a meeting, the vote of the holders of a majority of the shares having
voting power, present in person or represented by proxy, shall decide
any question brought before the meeting, unless the question is one on
which, by express provision of the statutes, these Articles of
Incorporation, or the By-Laws, a higher vote is required in which case
the express provision shall govern. The shareholders present at a duly
constituted meeting may continue to transact business until
adjournment, despite the withdrawal of enough shareholders to leave
less than a quorum.
i. Method of Voting. Each outstanding share of common stock shall be
entitled to one vote in each matter submitted to a vote at a meeting of
shareholders. Each outstanding share of other classes of stock, if
any, shall have such voting rights as may be prescribed by the board of
directors.
j. Business Combinations.
(A) For purposes of this Article k only, the following terms shall
have the following meanings unless the context otherwise
requires:
(1) "Company" shall mean Policy Management Systems
Corporation, South Carolina corporation.
(2) "equity security" means any stock or similar security; or
any security convertible, with or without consideration,
into such a security, or carrying any warrant to subscribe
to or purchase such a security; or any such warrant or
right.
(3) "group" means and includes persons, firms and corporations
acting in concert, whether or not as a formal group.
(4) "substantially all of the assets" means assets
representing at least thirty percent (30%) of the fair
market value of the net assets or at least twenty-five
percent (25%) of the fair market value of the gross assets
held by the person, firm or corporation immediately prior
to the proposed sale, lease or exchange.
(B) If any person, firm or corporation (hereinafter referred to in
this Article k as the "Corporation") or any person, firm or
15
corporation controlling the Corporation, controlled by the
Corporation or under common control with the Corporation, or
any group of which the Corporation or any of the foregoing
persons, firms or corporations are members, or any other group
controlling the Corporation, controlled by the Corporation, or
under common control with the Corporation, owns of record, or
owns beneficially, directly or indirectly, more than ten
percent (10%) of any class of equity security of the Company,
then any merger or consolidation of the Company with the
Corporation, or any sale, lease or exchange of substantially
all of the assets of the Company or the Corporation to the
other (any such merger, consolidation, sale, lease or exchange
being hereinafter referred to in this Article k as a "business
combination") may not be effected unless a meeting of the
shareholders of the Company is held to act thereon and the
proposed business combination is approved by the affirmative
vote of holders of not less than eighty percent (80%) of each
class of equity security of the Company entitled to vote
thereon.
(C) For the purpose of this Article k, any corporation, person or
entity will be deemed to be the beneficial owner of any equity
security of the Company:
(1) which it owns directly, whether or not of record, or
(2) which it has the right to acquire pursuant to any
agreement or arrangement or understanding or upon
exercising of conversion rights, exchange rights, warrants
or options or otherwise, or
(3) which are beneficially owned, directly or indirectly
(including shares deemed to be owned through application
of clause (2) above), by any 'affiliate' or 'associate' as
those terms as defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934
as in effect on July 1, 1978, or
(4) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of
clause (2) above) by any other corporation, person or
entity with which it or any of its 'affiliates' or
'associates' has any agreement or arrangement or
understanding for the purpose of acquiring, holding,
16
voting or disposing of equity security of the Company.
For purposes only of determining whether a corporation, person
or other entity owns beneficially, directly or indirectly, 10%
or more of the outstanding equity securities of the Company,
the outstanding equity securities of the Company will be deemed
to include any equity securities that may be issuable pursuant
to any agreement, arrangement or understanding or upon exercise
of conversion rights, exchange rights, warrants, options or
otherwise which are deemed to be beneficially owned by such
corporation, person or other entity pursuant to the foregoing
provisions of this Paragraph (C).
(D) No amendment, alteration, change or repeal of any provision of
this Article k may be effected unless first approved by the
affirmative vote of holders of not less than eighty percent
(80%) of each class of equity security of the Company entitled
to vote thereon.
(E) Anything herein to the contrary notwithstanding, the provisions
of Paragraphs (B) and (D) of this Article k requiring an eighty
percent (80%) shareholder vote shall not apply in the event at
a meeting duly called and held three-fourths (3/4) of all of
the members of the Board of Directors shall have voted in favor
of the proposed business combination or proposed amendment,
alteration, change or repeal of this Article k, and in such
event, the requisite shareholder approval, if any, shall be as
otherwise provided in these Articles, the by-laws of the
Company or by applicable law.
August 27, 1981
Action of the Sole Shareholder
of Policy Management Systems, Inc.
Taken by Unanimous Written Consent
In Lieu of A Meeting
The undersigned, being the sole shareholders of Policy Management
Systems, Inc., does hereby consent to the adoption of, and does adopt,
17
the following resolutions, which action shall have the same force and
effect as if taken by unanimous affirmative vote at a special meeting
of the Shareholders of the Corporation duly called and held, and direct
that this written consent of such action be filed with the minutes of
the proceedings of the Shareholders of the Corporation.
RESOLVED, that the Articles of Amendment attached
to the minutes of this meeting are hereby approved
by the unanimous vote of the Shareholders of the
Corporation, and the President and Secretary of the
Corporation are hereby authorized to execute and
file said Articles of Amendment.
RESOLVED, that the amended and restated By-Laws of
the Corporation attached to the minutes of this
meeting are hereby approved and adopted by the
unanimous vote of the Shareholders of the
Corporation.
RESOLVED, that Sterling E. Beale is hereby declared
elected as a director of the Corporation for a term
of office running until the next annual meeting of
the Shareholders of the Corporation, and until his
successor has been elected or appointed and has
qualified, or until his earlier resignation,
removal from office, or death, to serve as Director
pursuant to the By-Laws.
WITNESS the consent of the Sole Shareholders of the Corporation, this
28th day of August, 1981.
SEIBELS, BRUCE & COMPANY
BY: /s/ Roy L. Faulks
Roy L. Faulks,
Executive Vice President
ATTEST: /s/ J. Smith Harrison
Secretary
18
ARTICLES OF AMENDMENT (Continued)
c. At the date of adoption of the Amendment, the number of
outstanding shares of each class entitled to vote as a class on
the Amendment, and the vote of such shares, was: (if
inapplicable, insert "none")
Number of Shares Number of Shares Voted
Class Entitled to Vote For Against
NONE
4. a. Prior to the organizational meeting the Corporation and with
the consent of the subscribers, the following Amendment was
adopted by the Incorporator(s) on ______________.
(Text of Amendment)
Not Applicable
b. The number of withdrawals of subscribers, if such be the case
is N/A .
c. The number of Incorporators are N/A and the number voting
for the Amendment was ______ and the number voting against the
Amendment was ________.
5. The manner, if not set forth in the Amendment, in which any
exchange, reclassification, or cancellation or issued shares
provided for in the Amendment shall be effected, is as follows: (if
not applicable, insert "no change")
See Attachment #1
6. The manner in which the Amendment effects a change in the amount of
stated capital, and amount of stated capital, expressed in dollars,
as changed by the Amendment, is as follows: (if not applicable,
insert "no change")
See Attachment #1
Date: August 28, 1981 Policy Management Systems
19
Corporation
(Name of Corporation)
/s/ G. Larry Wilson
G. Larry Wilson, President
/s/ Robert L. Gresham
Robert L. Gresham, Secretary
Note: Any person signing this
form, shall either opposite ____________________________
or beneath his signature,
clearly and legibly state his
name and the capacity in which ____________________________
he signs. Must be signed in
accordance with Section (1.4)
Act of 1962 (12-11.4). ____________________________
Supplement Code 1962.
STATE OF South Carolina )
) ss:
COUNTY OF Richland )
The undersigned G. Larry Wilson and Robert L. Gresham do hereby
certify that they are the duly elected and acting President and
Secretary respectively, of Policy Man. Sys. Corp. and are authorized to
execute this document; that each of the undersigned for himself does
20
hereby further certify that he signed and was so authorized, has read
the foregoing document, understands the meaning and purport of the
statements therein contained and the same are true to the best of his
information and belief.
Dated at Columbia, SC, this 28th day of August, 1981
/s/ G. Larry Wilson
G. Larry Wilson
/s/ Robert L. Gresham
Robert L. Gresham
SCHEDULE OF FEES
(Payable at time of filing application
with Secretary of State)
Filing Fee $ 5.00
Taxes 40.00
Total Fee $45.00
Note: If The Amendment effects an
increase in capital stock, in
lieu of the above, the filing
fees will be as follows:
Fee for filing application ............. $ 5.00
In addition to the above. $.40 for
each $1,000.00 of the total increase
in the aggregate value of authorized
shares, but in no case less than 40.00
nor more than 1,000.00
21
D44681 /s/ John T. Campbell
$45 Secretary of State
8213
12/07/82 Filed: Dec. 7, 1982
STATE OF SOUTH CAROLINA )
) STATEMENT OF REDEMPTION OF SHARES
COUNTY OF RICHLAND )
Pursuant to Authority of Section 33-9-200 of the South Carolina Code of
1976 as amended, the following Statement of Redemption of Shares is
filed on behalf of POLICY MANAGEMENT SYSTEMS CORPORATION by G. Larry
Wilson, President and Robert L. Gresham, Secretary:
1. The name of the Corporation is POLICY MANAGEMENT SYSTEMS
CORPORATION and its principal place of business is 1321 Lady Street
(Post Office Box Ten), Columbia, South Carolina 29201.
2. The corporation has redeemed four hundred thousand (400,000) shares
of common stock.
3. The aggregate number of inssued [sic] shares in the corporation is
seven million five hundred thousand (7,500,000) shares of common
stock.
4. The amount of stated capital of the corporation after giving effect
to such redemption is seventy-five thousand and 00/00 ($75,000.00)
dollars.
5. The redeemed shares have been restored to the status of authorized
but unissued shares.
December 6, 1982 POLICY MANAGEMENT SYSTEMS
CORPORATION
/s/ G. Larry Wilson
G. Larry Wilson, President
22
/s/ Robert L. Gresham
Robert L. Gresham, Secretary
STATE OF SOUTH CAROLINA )
)
COUNTY OF RICHLAND )
The undersigned G. Larry Wilson and Robert L. Gresham do hereby
certify that they are the duly elected and acting President and
Secretary, respectively, of Policy Management Systems Corporation and
are authorized to execute this document; that each of the undersigned
for himself does hereby further certify the [sic] that he signed and
was so authorized, has read the foregoing document, understands the
meaning and purport of the statements therein contained and the same
are true to the best of his information and belief.
Dated at Columbia, South Carolina, this 6th day of December, 1982.
December 6, 1982
/s/ G. Larry Wilson
G. Larry Wilson, President
/s/ Robert L. Gresham
Robert L. Gresham, Secretary
23
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
To The Articles of Incorporation of
Policy Management Systems Corporation
(File This Form in Duplicate)
For Use By This Space For Use By
The Secretary of State The Secretary of State
File No. D44681 /s/ John T. Campbell
Fee Paid $97.00 Secretary of State
R.N. 20648
Date: 9-20-83 Filed: Sep. 20, 1983
Pursuant to Authority of Section 33-15-10 the South Carolina Code
of 1976 as amended, the undersigned Corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the Corporation is Policy Management Systems
Corporation.
2. The Registered Office of the Corporation is 1501 Lady Street in the
City of Columbia, County of Richland and the State of South
Carolina and the name of the Registered Agent at such address is J.
Smith Harrison.
(Complete item 3 of 4 whichever is relevant)
3. a. The following Amendment of the Articles of Incorporation was
adopted by the shareholders of the Corporation on September 14,
1983
(Text of Amendment)
Article 3: The period of duration of the corporation shall be
perpetual.
24
Article 4: The Corporation is authorized to issue shares of
stock as follows:
Authorized No. Par
Class of Shares of each class Value
Common Stock 33,000,000 $.01
Special Stock 5,000,000 $.01
Article 5: Total authorized capital stock 38,000,000 shares at
$.01 par value.
b. At the date of adoption of the Amendment, the total number of
all outstanding shares of the Corporation was 8,102,300. The
total of such shares entitled to vote, and the vote of such
shares was:
Total Number of Shares Number of Shares Voted
Entitled to Vote For Against
8,102,300 5,819,437 2,713
c. At the date of adoption of the Amendment, the number of
outstanding shares of each class entitled to vote as a class on
the Amendment, and the vote of such shares, was: (if
inapplicable, insert "none")
Number of Shares Number of Shares Voted
Class Entitled to Vote For Against
Common Stock 8,102,300 5,819,437 2,713
4. a. Prior to the organizational meeting [sic] the Corporation and
with the consent of the subscribers, the following Amendment
was adopted by the Incorporator(s) on __________________
(Text of Amendment)
25
Not applicable
b. The number of withdrawals of subscribers, if such be the case
is ___________
c. The number of Incorporators are _______ and the number voting
for the Amendment was _______ and the number voting against the
Amendment was _______
5. The manner, if not set forth in the Amendment, in which any
exchange, reclassification, or cancellation or issued shares
provided for in the Amendment shall be effected, is as follows: (if
not applicable, insert "no change")
No Change
6. The manner in which the Amendment effects a change in the amount of
stated capital, and amount of stated capital, expressed in dollars,
as changed by the Amendment, is as follows: (if not applicable,
insert "no change")
Stated capital is changed from $100,000.00 to $330,000.00.
Date: September 14, 1983 Policy Management Systems Corporation
(Name of Corporation)
/s/ G. Larry Wilson
G. Larry Wilson, President
/s/ Robert L. Gresham
Robert L. Gresham,
Sr. Vice President & Secretary
Note: Any person signing this
form, shall either ____________________________________
opposite or beneath his (Name and Title)
signature, clearly and
legibly state his name
and the capacity in ____________________________________
26
which he signs. Must (Name and Title)
be signed in accordance
with Section 33-1-40 of ___________________________________
the 1976 Code, as amended. (Name and Title)
STATE OF South Carolina )
) ss:
COUNTY OF Richland )
The undersigned G. Larry Wilson and Robert L. Gresham do hereby
certify that they are the duly elected and acting President and
Secretary respectively, of Policy Management Systems Corporation and
are authorized to execute this document; that each of the undersigned
for himself does hereby further certify that he signed and was so
authorized, has read the foregoing document, understands the meaning
and purport of the statements therein contained and the same are true
to the best of his information and belief.
Dated at Columbia, S.C. this 14th day of September, 1983.
/s/ G. Larry Wilson
G. Larry Wilson
/s/ Robert L. Gresham
Robert L. Gresham
SCHEDULE OF FEES
(Payable at time of filing application
with Secretary of State)
Filing Fee $ 5.00
Taxes 40.00
Total Fee $45.00
Note: If The Amendment effects an
increase in capital stock, in
lieu of the above, the filing
fees will be as follows:
27
Fee for filing application ............. $ 5.00
In addition to the above, $.40 for
each $1,000.00 of the total increase
in the aggregate value of authorized
shares, but in no case less than 40.00
nor more than 1,000.00
28
JOINT PLAN OF MERGER AND AGREEMENT OF MERGER
BETWEEN
POLICY MANAGEMENT SYSTEMS CORPORATION
AND
MUTUAL DATA, INC.
WITH
POLICY MANAGEMENT SYSTEMS CORPORATION AS SURVIVING CORPORATION
D44681 /s/ John T. Campbell
$45.00 Secretary of State
R.N. 1496
7/11/84 Filed: July 10, 1984
WHEREAS, POLICY MANAGEMENT SYSTEMS CORPORATION (hereinafter "PMSC")
is a South Carolina corporation with its principle place of business in
Columbia, South Carolina; and
WHEREAS, the authorized capital stock of PMSC consists of (1)
33,000,000 shares of Common Stock of the par value of $.005 each of
which 16,216,000 shares are issued and outstanding; 174,000 additional
shares are reserved for the grant and exercise of options, and
16,610,000 shares are authorized, but unissued and (2) 5,000,000 shares
of Special Stock of a par value of $.01 each, all of which is [sic]
authorized, but unissued; and
WHEREAS, MUTUAL DATA, INC. (hereinafter "MDI") is a Massachusetts
corporation having its principal place of business in Boston,
Massachusetts; and
WHEREAS, the authorized capital stock of MDI consists of 20,000
shares of common stock with no par value of which shares 12,948 are
outstanding and are all owned legally and beneficially by PMSC, 552
shares are held in the treasury, and 6,500 shares are authorized, but
unissued.
29
WHEREAS, the Boards of Directors of PMSC and MDI, respectively,
deem it desirable and in the best interests of the corporations and
their shareholders that the properties, businesses, assets and
liabilities of both corporations be combined into one (1) surviving
corporation which shall be PMSC;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth for the purpose of prescribing the
terms and conditions of such merger in accordance with the applicable
laws of the State of South Carolina and the Commonwealth of
Massachusetts, the parties hereto covenant and agree as follows:
1. MERGER. At the close of business on July 16, 1984 at which time
all of the following events shall have happened, viz.,
(a) This Agreement shall have been adopted and approved by the
Board of Directors of PMSC in accordance with the requirements
of Section 33-17-50 of the South Carolina Business Corporation
Act, as amended, and that fact shall have been certified by the
Secretary of PMSC under its corporate seal; and
(b) This Agreement shall have been adopted and approved by the Sole
Shareholder and Board of Directors of MDI in accordance with
the laws of the Commonwealth of Massachusetts, and that fact
shall have been certified by the Clerk of MDI under its
corporate seal; and
(c) The Articles of Merger, executed and verified shall be filed,
in accordance with the requirements of Section 33-1-60 of the
South Carolina Business Corporation Act, as amended; thereupon,
MDI shall be deemed to have merged with and into PMSC which
shall survive the merger. Such date shall be herein referred
to as the "effective date of merger."
2. TERMS AND CONDITIONS: the terms and conditions of the merger and
the mode of carrying it into effect are as follows:
(a) The corporate identity, existence, purposes, powers,
franchises, rights and immunities of PMSC (the "Surviving
Corporation") shall continue unaffected and unimpaired by the
30
merger, and the corporate identify, existence, purposes, powers,
franchises, rights and immunities of MDI as provided in Section 33-17-
60 of the South Carolina Business Corporation Act, as amended, shall be
merged into PMSC and PMSC shall be fully vested therewith. The
separate corporate existence of MDI, except insofar as the same may be
continued by statute, shall cease upon the effective date of the merger
whereupon PMSC and MDI shall become a single corporation.
(b) The Articles of Incorporation and the Bylaws, each as
heretofore amended, of PMSC shall remain in effect unaltered as
the Articles of Incorporation of the Surviving Corporation.
Such Articles of Incorporation, as amended, separate and apart
from this Joint Plan of Merger and Agreement of Merger, shall
be, and may be separately certified as the Articles of
Incorporation of PMSC after the effective date of Merger.
(c) The duly qualified and acting directors and officers of PMSC
immediately prior to the effective date of merger, as provided
herein, shall be the directors and officers of the Surviving
Corporation.
(d) The manner and basis of converting the shares of each of the
constituent corporations, and the manner and basis of making
distribution to shareholders of the constituent corporations in
extinguishment of or in substitution of their shares shall be
as follows:
(i) The merger shall effect no change in any of the shares of
PMSC stock and none of its shares shall be converted as a
result of the merger.
(ii) Each share of MDI stock issued and outstanding as of hte
[sic] effective date of merger shall, by virtue of the
merger, be canceled, and be of no further force and
effect.
(e) MDI will use its best efforts to procure from the respective
lessors in all leases in which MDI is the Lessee, and the other
party or parties to all contracts or rights to which MDI is a
party, such appropriate consents in writing to the succession
31
of PMSC to the interests of MDI in such leases, contracts and
rights as PMSC shall have requested.
(f) Upon the effective date of the merger, all rights, privileges,
powers, franchises, and interests of MDI, both of a public and
private nature, all of its property, real, personal, and mixed,
all debts due on whatever account, and every other interest of
MDI shall be deemed transferred to and shall vest in PMSC
without further act or deed as effectually as they were
theretofore vested in MDI, and all claims, demands, property,
and every other interest shall be as effectively the property
of PMSC as they were of MDI. All rights of creditors and liens
upon the property of MDI shall be preserved unimpaired, and all
debts, liabilities, restrictions and duties of MDI shall attach
to PMSC and may be enforced against it to the same extent as if
they had been incurred or contracted by it.
(g) If at any time PMSC shall consider or be advised that any
further deeds, assignments, or other instruments or any other
things are necessary or advisable to vest, perfect, or confer,
of record or otherwise, in PMSC the title to any property or
rights of MDI acquired or to be acquired by reason of the
merger, MDI and its officers and directors shall execute and
deliver all such deeds, assignments, and other instruments and
do all things necessary to vest, perfect, or confirm title to
such property or rights in PMSC or otherwise to carry out the
terms of this agreement, and the officers and directors of PMSC
are fully authorized in the name of MDI or otherwise to take
any and all such action.
(h) PMSC consents to be sued and served with process in the
Commonwealth of Massachusetts or in such other jurisdictions as
may be applicable in any proceeding for the enforcement of any
obligation of MDI, or any obligation hereafter incurred by
PMSC, and appoints the Secretary of State of the Commonwealth
of Massachusetts as its agent to accept service of process in
any such proceeding in the Commonwealth of Massachusetts.
(i) Notwithstanding any of the provisions of this Agreement, the
Directors of PMSC, at any time prior to the effective date of
merger herein contemplated, for any reason they may deem
sufficient and proper, shall have the power and authority to
abandon and refrain from making effective the contemplated
merger set forth herein, in which case this Plan and Agreement
32
shall thereby be canceled and become null and void.
(j) No term or provision of this Joint Plan of Merger and Agreement
of Merger shall be construed so as to limit, restrict of
diminish or otherwise to operate in derogation of, any of the
terms or provisions of the South Carolina Business Corporation
Act, as amended, governing or otherwise affecting the merger of
MDI into PMSC as contemplated herein.
IN WITNESS WHEREOF the parties to this Agreement have caused their
respective corporate seals to be hereunto affixed and these presents to
be signed by their respective Presidents, all as of this 10th day of
July, 1984.
PMSC
MDI
POLICY MANAGEMENT SYSTEMS MUTUAL DATA, INC.
CORPORATION
BY: /s/ G. Larry Wilson BY: /s/ Rudolph J. Laporte
(AUTHORIZED SIGNATURE)
(AUTHORIZED SIGNATURE)
G. Larry Wilson, President Rudolph J. Laporte, President
ATTEST as to PMSC: ATTEST as to MDI:
/s/ Robert L. Gresham /s/ Robert L. Gresham
Robert L. Gresham, Secretary Robert L. Gresham, Clerk
[Corporate Seal] [Corporate Seal]
33
Certificate of G. Larry Wilson
The undersigned, G. Larry Wilson, hereby certifies that:
(1) He has read and understands the meaning and purport of the
statements contained in the foregoing document;
(2) Such statements are true; and
(3) He signed the document in the capacity indicated and is authorized
so to sign; and
(4) The foregoing document has duly adopted by the Board of Directors
of Policy Management Systems Corporation and upon the date of such
adoption Policy Management Systems Corporation owned 100% percent
of the outstanding shares of stock of Mutual Data, Inc.
/s/ G. Larry Wilson
G. Larry Wilson
President of Policy Management
Systems Corporation
34
Certificate of Rudolph J. Laporte
The undersigned, Rudolph J. Laporte, hereby certifies that:
(1) He has read and understands the meaning and purport of the
statements contained in the foregoing document;
(2) Such statements are true; and
(3) He signed the document in the capacity indicated and is authorized
so to sign.
/s/ Rudolph J. Laporte
Rudolph J. Laporte
President of Mutual Data, Inc.
35
Certificate of Robert L. Gresham
The undersigned, Robert L. Gresham, hereby certifies that:
(1) He has read and understands the meaning and purport of the
statements contained in the foregoing document;
(2) Such statements are true; and
(3) He signed the document in the capacity indicated and is authorized
so to sign; and
(4) The foregoing document has been duly adopted by the Board of
Directors of Policy Management Systems Corporation and upon the
date of such adoption Policy Management Systems Corporation owned
100% percent of the outstanding shares of stock of Mutual Data,
Inc.
/s/ Robert L. Gresham
Robert L. Gresham
Secretary of Policy Management
Systems Corporation
Clerk of Mutual Data, Inc.
36
NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED
AGENT OR BOTH
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
(File This Form in Duplicate)
Filing Fee $5.00
For Use By
This Space For Use By
The Secretary of State
The Secretary of State
File No. D44681
/s/
Fee Paid
Secretary of State
C.B.
Date:
Filed Sep. 18, 1986
CHS 01/02 4973
86-013884/86-013884 16.50:20 012
09-18-86 AMT: $5.00
SECT OF STATE OF SOUTH CAROLINA
Pursuant to Section 33-5-10 of the 1976 Code, the undersigned
Corporation which is.
(A) A domestic corporation incorporated in South Carolina on July 18,
1980; or
(B) A foreign corporation incorporated in _____________________ on
______________, and authorized to do business in South Carolina on
______________ whose registered or principal office in the
jurisdiction of its incorporation is ______________ in the City of
__________________ and the State of _____________________.
now gives notice of the change of its registered office or its
37
registered agent or both, and submits the following statement:
(1) The name of the Corporation is Policy Management Systems
Corporation.
(2) The address of the present registered office is 1501 Lady Street,
Columbia, S.C.
(3) The address to which its registered office is to be changed is One
PMS Center, Blythewood, South Carolina 29016.
(4) The name of the present registered agent is J. Smith Harrison.
(5) The name of the successor registered agent is Robert L. Gresham.
(6) The address of the registered office and the address of the
business office of the registered agent, as changed, will be
identical.
(7) State whether such change was authorized by action of the Board of
Directors:
Yes
Policy Management Systems Corporation
(Name of Corporation)
BY: /s/ G. Larry Wilson
G. Larry Wilson
President
(Title)
BY: /s/ Van E. Edwards, III
Van E. Edwards, III
38
September 15, 1986 Assistant Secretary
(Date) (Title)
39
ARTICLES OF MERGER
MERGING
UNDERWRITING SERVICES OF AMERICA CORPORATION
AND
GENERAL INFORMATION SERVICES, INC.
WITH AND INTO
POLICY MANAGEMENT SYSTEMS CORPORATION
D44681 /s/ John T. Campbell
Secretary of State
Filed: Dec. 30, 1986
JUL 01/02 4973
86-019398/86-019406 09:00:20 004
12-30-86 AMT: $45.00
SECT OF STATE OF SOUTH CAROLINA
Pursuant to Section 33-17-50 of the South Carolina Business
Corporation Act, Policy Management Systems Corporation, a South
Carolina corporation (sometimes hereinafter the "Parent" or the
"Surviving Corporation") which owns one-hundred percent (100%) of the
outstanding shares of each class of Underwriting Services of America
Corporation, a South Carolina corporation, and one-hundred percent
(100%) of the outstanding shares of each class of General Information
Services, Inc., a South Carolina corporation, (sometimes hereinafter
collectively the "Subsidiaries") adopts the following Articles of
Merger:
FIRST: the name of the undersigned corporation into which the
merger is effected is Policy Management Systems Corporation.
SECOND: the effective date of the merger is December 31, 1986.
THIRD: the Plan of Merger attached hereto (the "Plan") and
incorporated herein by this reference was duly adopted by the board of
directors of Policy Management Systems Corporation as of October 14,
1986, and Policy Management Systems Corporation, as owner of all the
issued shares of the Subsidiaries, thereafter waived the mailing of a
copy of the Plan.
FOURTH: as to the Subsidiaries in the merger, the number of shares
40
outstanding, the designation and number of outstanding shares of each
owned by the Parent are as follows:
Number of Shares
Number of Owned by Policy
Name of Shares Management Systems
Corporation Outstanding Designation Corporation
Underwriting Services
of America Corporation 1,000 common 1,000
General Information
Services, Inc. 1,000 common 1,000
FIFTH: under the terms of the South Carolina Business Corporation
Act, shareholder approval is not required because the Parent owns one
hundred percent of the shares of the Subsidiaries before the merger.
IN WITNESS WHEREOF, the undersigned corporation has caused these
Articles of Merger to be executed in its name by its President and
Secretary, as of the 19 day of December, 1986.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By: /s/ G. Larry Wilson
G. Larry Wilson, President
By: /s/ Robert L. Gresham
Robert L. Gresham, Secretary
41
STATE OF SOUTH CAROLINA
COUNTY OF RICHLAND
G. Larry Wilson, being the President, and Robert L. Gresham being
the Secretary, of Policy Management Company [sic], each being duly
sworn, deposes and says that he has read and understands the meaning
and purport of the statements in the foregoing "Articles of Merger",
that he has the authority to sign the document and that the statements
therein are true and correct or that he is informed or believes that
such statements are true.
/s/ G. Larry Wilson
G. Larry Wilson, President
/s/ Robert L. Gresham
Robert L. Gresham, Secretary
Sworn to and subscribed before me this 19th day of December, A.D.
1986.
NOTARIAL SEAL /s/ Van E. Edwards, III
Notary Public
Commission Data: Expires: 8/25/95
42
PLAN OF MERGER
AMONG
POLICY MANAGEMENT SYSTEMS CORPORATION
AND
UNDERWRITING SERVICES OF AMERICA CORPORATION
AND
GENERAL INFORMATION SERVICES, INC.
WITH
POLICY MANAGEMENT SYSTEMS CORPORATION AS SURVIVING CORPORATION
WHEREAS, POLICY MANAGEMENT SYSTEMS CORPORATION (hereinafter "PMSC")
is a South Carolina corporation with its principle place of business in
Blythewood, South Carolina; and
WHEREAS, the authorized capital stock of PMSC consists of (1)
33,000,000 shares of Common Stock of the par value of $.01 each of
which 16,282,087 shares are issued and outstanding; and 16,717,913
shares are authorized, but unissued and (2) 5,000,000 shares of Special
Stock of a par value of $.01 each, all of which is authorized, but
unissued, and
WHEREAS, UNDERWRITING SERVICES OF AMERICA CORPORATION (hereinafter
"USA") is a South Carolina corporation having its principal [sic] place
of business in Blythewood, South Carolina; and
WHEREAS, the authorized capital stock of USA consists of 1,000
shares of common stock with a par value of $1.00 of which 1,000 shares
are outstanding, and are all owned legally and beneficially by PMSC;
and
WHEREAS, GENERAL INFORMATION SERVICES, INC. (hereinafter "GIS") is
a South Carolina corporation having its principal [sic] place of
business in Blythewood, South Carolina; and
43
WHEREAS, the authorized capital stock of GIS consists of 1,000
shares of common stock with a par value of $1.00 of which shares 1,000
shares are outstanding and are all owned legally and beneficially by
PMSC;
WHEREAS, the Board of Directors of PMSC deem it desirable and in
the best interests of the corporations and their shareholders that the
properties, businesses, assets and liabilities of PMSC, USA and GIS
corporations be combined into one (1) surviving corporation which shall
be PMSC:
WITNESSETH:
The following constitutes the terms and conditions of the merger of
USA and GIS with and into PMSC:
1. Merger
1.1 On the "effective date of merger" (as defined hereafter) USA
and GIS shall be merged with and into PMSC, with PMSC as the
surviving corporation, and the separate existence of USA and
GIS shall cease. The identity, existence, purpose, rights,
privileges, immunities and powers of PMSC shall continue
unaffected and unimpaired by the merger, except as otherwise
specifically set forth herein.
1.2 Effective date of merger: This Plan of Merger shall become
effective on 11:59 p.m. Eastern Standard Time on December 31,
1986.
2. TERMS AND CONDITIONS: The terms and conditions of the merger and
the mode of carrying it into effect are as follows:
2.1 The corporate identity, existence, purposes, powers,
franchises, rights and immunities of PMSC (the "Surviving
Corporation") shall continue unaffected and unimpaired by the
merger, and the corporate identity, existence, purposes,
powers, franchises, rights and immunities of USA and GIS shall
be merged into PMSC and PMSC shall be fully vested therewith,
44
as provided in the South Carolina Business Corporation Act, as
amended. The separate corporate existence of USA and GIS,
except insofar as the same may be continued by statute, shall
cease upon the effective date of the merger whereupon PMSC and
USA and GIS shall become a single corporation.
2.2 The Articles of Incorporation, as heretofore amended, of PMSC
shall remain in effect unaltered as the Articles of
Incorporation of the Surviving Corporation. Such Articles of
Incorporation, as amended, separate and apart from this Plan of
Merger, shall be, and may be separately certified as the
Articles of Incorporation of PMSC after the effective date of
merger.
2.3 The duly qualified and acting directors and officers of PMSC
immediately prior to the effective date of merger, as provided
herein, shall be the directors and officers of the Surviving
Corporation.
2.4 The manner and basis of converting the shares of each of the
constituent corporations, and the manner and basis of making
distribution to shareholders of the constituent corporations in
extinguishment of or in substitution of their shares shall be
as follows:
(i) The merger shall effect no change in any of the shares
of PMSC stock and none of its shares shall be converted
as a result of the merger.
(ii) Each share of USA and GIS stock issued and outstanding
as of the effective data of merger shall, by virtue of
the merger, be canceled, and be of no further force and
effect.
2.5 USA and GIS will use their best efforts to procure from the
respective lessors in all leases in which USA and GIS are the
Lessees, and the other party or parties to all contracts or
rights to which USA and GIS are parties, such appropriate
consents in writing to the succession of PMSC to the interests
of USA and GIS in such leases, contracts and rights as PMSC
shall have requested.
2.6 Upon the effective date of the merger, all rights, privileges,
45
powers, franchises, and interests of USA and GIS, both of a
public and private nature, all of its property, real, personal,
and mixed, all debts due on whatever account, and every other
interest of USA and GIS shall be deemed transferred to and
shall vest in PMSC without further act or deed as effectually
as they were theretofore vested in USA and GIS, and all claims,
demands, property, and every other interest shall be as
effectively the property of PMSC as they were of USA and GIS.
All rights of creditors and liens upon the property of USA and
GIS shall be preserved unimpaired, and all debts, liabilities,
restrictions and duties of USA and GIS shall attach to PMSC and
may be enforced against it to the same extent as if they had
been incurred or contracted by it.
2.7 If at any time PMSC shall consider or be advised that any
further deeds, assignments, or other instruments or any other
things are necessary or advisable to vest, perfect, or confer,
of record or otherwise, in PMSC the title to any property or
rights of USA and GIS acquired or to be acquired by reason of
the merger, USA and GIS and their officers and directors shall
execute and deliver all such deeds, assignments, and other
instruments and do all things necessary to vest, perfect, or
confirm title to such property or rights in PMSC or otherwise
to carry out the terms of this Plan of Merger, and the officers
and directors of PMSC are fully authorized in the name of USA
and GIS or otherwise to take any and all such action.
2.8 Notwithstanding any of the provisions of this Plan of Merger,
the Directors of PMSC, at any time prior to the effective date
of merger herein contemplated, for any reason they may deem
sufficient and proper, shall have the power and authority to
abandon and refrain from making effective the contemplated
merger set forth herein, in which case this Plan of Merger
shall thereby be canceled and become null and void.
2.9 No term or provision of this Plan of Merger shall be construed
so as to limit, restrict or diminish or otherwise to operate in
derogation of any of the terms or provisions of the South
Carolina Business Corporation Act, as amended, governing or
otherwise affecting the merger of USA and GIS into PMSC as
contemplated herein.
46
D44681 DEC 31 1986
ARTICLES OF MERGER
MERGING
PMS COMPUCLAIM SYSTEMS CORPORATION
AND
BUSINESS COMPUTER SYSTEMS CORPORATION
WITH AND INTO
POLICY MANAGEMENT SYSTEMS CORPORATION
JUL 01/02 4973
81-000077/87-000077 10:06:20 004
01-02-87 AMT: $45.00
SECT OF STATE OF SOUTH CAROLINA
Pursuant to Section 33-17-50 of the South Carolina Business
Corporation Act, Policy Management Systems Corporation, a South
Carolina corporation (sometimes hereinafter the "Parent" or the
"Surviving Corporation") which owns one-hundred percent (100%) of the
outstanding shares of each class of PMS Compuclaim Systems Corporation,
a Texas corporation, and Business Computer Systems Corporation, a Texas
corporation (sometimes hereinafter the "Subsidiaries") adopts the
following Articles of Merger:
FIRST: the name of the undersigned corporation into which the
merger is effected is Policy Management Systems Corporation.
SECOND: the effective date of the merger is December 31, 1986.
THIRD: the Plan of Merger attached hereto (the "Plan") and
incorporated herein by this reference was duly adopted by the board of
directors of Policy Management Systems Corporation as of October 14,
1986, and Policy Management Systems Corporation, as owner of all the
issued shares of the Subsidiaries, thereafter waived the mailing of a
copy of the Plan.
FOURTH: as to the Subsidiaries in the merger, the number of shares
outstanding, the designation and number of outstanding shares of each
owned by the Parent are as follows:
47
Number of Shares
Number of Owned by Policy
Name of Shares Management Systems
Corporation Outstanding Designation Corporation
PMS Compuclaim
Systems Corporation 1,000 common 1,000
Business Computer
Systems Corporation 11,248 common 11,248
FIFTH: under the terms of the South Carolina Business Corporation
Act, shareholder approval is not required because the Parent owns one
hundred percent of the shares of each Subsidiary before the merger.
IN WITNESS WHEREOF, the undersigned corporation has caused these
Articles of Merger to be executed in its name by its President and
Secretary, as of the 29 day of December, 1986.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: /s/ G. Larry Wilson
G. Larry Wilson, President
BY: /s/ Robert L. Gresham
Robert L. Gresham, Secretary
48
STATE OF SOUTH CAROLINA
COUNTY OF RICHLAND
G. Larry Wilson, being the President, and Robert L. Gresham being
the Secretary, of Policy Management Systems Corporation, each being
duly sworn, deposes and says that he has read and understands the
meaning and purport of the statements in the foregoing "Articles of
Merger," that he has the authority to sign the document and that the
statements therein are true and correct or that he is informed or
believes that such statements are true.
/s/ G. Larry Wilson
G. Larry Wilson, President
/s/ Robert L. Gresham
Robert L. Gresham, Secretary
Sworn to and subscribed before me this 29 day of December, A.D.
1986.
NOTARIAL SEAL /s/ Van E. Edwards, III
Notary Public
Commission Data: 8/23/95
49
PLAN OF MERGER
AMONG
POLICY MANAGEMENT SYSTEMS CORPORATION
AND
PMS COMPUCLAIM CORPORATION
AND
BUSINESS COMPUTER SYSTEMS CORPORATION
WITH
POLICY MANAGEMENT SYSTEMS CORPORATION AS SURVIVING CORPORATION
WHEREAS, POLICY MANAGEMENT SYSTEMS CORPORATION (hereinafter "PMSC")
is a South Carolina corporation with its principle place of business in
Blythewood, South Carolina; and
WHEREAS, the authorized capital stock of PMSC consists of (1)
33,000,000 shares of Common Stock of the par value of $.01 each of
which 16,282,087 shares are issued and outstanding; and 16,717,913
shares are authorized, but unissued and (2) 5,000,000 shares of Special
Stock of a par value of $.01 each, all of which is authorized, but
unissued; and
WHEREAS, PMS COMPUCLAIM CORPORATION (hereinafter "COMPUCLAIM") is
a Texas corporation having its principal [sic] place of business in
Dallas, Texas; and
WHEREAS, the authorized capital stock of COMPUCLAIM consists of
100,000 shares of common stock with a par value of $1.00 of which 1,000
shares are outstanding and are all owned legally and beneficially by
PMSC, and 99,000 shares are authorized, but unissued; and
WHEREAS, BUSINESS COMPUTER SYSTEMS CORPORATION (hereinafter "BCS")
is a Texas corporation having its principal [sic] place of business in
Dallas, Texas; and
50
WHEREAS, the authorized capital stock of BCS consists of 30,000
shares of common stock with a par value of $1.00 of which shares 11,248
are outstanding and are all owned legally and beneficially by PMSC and
18,752 shares are authorized, but unissued; and
WHEREAS, the Board of Directors of PMSC deem it desirable and in
the best interests of the corporations and their shareholders that the
properties, businesses, assets and liabilities of PMSC, COMPUCLAIM and
BCS corporations be combined into one (1) surviving corporation which
shall be PMSC;
WITNESSETH:
The following constitutes the terms and conditions of the merger of
COMPUCLAIM and BCS with and into PMSC:
1. Merger [sic]
1.1 On the "effective date of merger" (as defined hereinafter)
COMPUCLAIM and BCS shall be merged with and into PMSC, with
PMSC as the surviving corporation, and the separate existence
of COMPUCLAIM and BCS shall cease. The identity, existence,
purpose, rights, privileges, immunities and powers of PMSC
shall continue unaffected and unimpaired by the merger, except
as otherwise specifically set forth herein.
1.2 Effective date of merger: This Plan of Merger shall become
effective on December 31, 1986 at 11:59 P.M.
2. TERMS AND CONDITIONS: The terms and conditions of the merger and
the mode of carrying it into effect are as follows:
2.1 The corporate identity, existence, purposes, powers,
franchises, rights and immunities of PMSC (the "Surviving
Corporation") shall continue unaffected and unimpaired by the
merger, and the corporate identity, existence, purposes,
powers, franchises, rights and immunities of COMPUCLAIM and
BCS shall be merged into PMSC a South Carolina corporation
51
with its principle offices at One PMS Center, Blythewood,
South Carolina 29016 and PMSC shall be fully vested
therewith, as provided in the South Carolina Business
Corporation Act, as amended, and the Texas Business
Corporation Act, as amended. The separate corporate existence
of COMPUCLAIM and BCS, except insofar as the same may be
continued by statute, shall cease upon the effective date of
the merger whereupon PMSC and COMPUCLAIM and BCS shall become
a single corporation.
2.2 The Articles of Incorporation, as heretofore amended, of PMSC
shall remain in effect unaltered as the Articles of
Incorporation of the Surviving Corporation. Such Articles of
Incorporation, as amended, separate and apart from this Plan
of Merger, shall be, and may be separately certified as the
Articles of Incorporation of PMSC after the effective date of
merger.
2.3 The duly qualified and acting directors and officers of PMSC
immediately prior to the effective date of merger, as provided
herein, shall be the directors and officers of the Surviving
Corporation.
2.4 The manner and basis of converting the shares of each of the
constituent corporations, and the manner and basis of making
distribution to shareholders of the constituent corporations
in extinguishment of or in substitution of their shares shall
be as follows:
(i) The merger shall effect no change in any of the shares
of PMSC stock and none of its shares shall be converted
as a result of the merger.
(ii) Each share of COMPUCLAIM and BCS stock issued and
outstanding as of the effective date of merger shall,
by virtue of the merger, be canceled, and be of no
further force and effect.
2.5 COMPUCLAIM and BCS will use their best efforts to procure from
the respective lessors in all leases in which COMPUCLAIM and
BCS are the Lessees, and the other party or parties to all
contracts to rights to which COMPUCLAIM and BCS are parties,
52
such appropriate consents in writing to the succession of PMSC
to the interests of COMPUCLAIM and BCS in such leases,
contracts and rights as PMSC shall have requested.
2.6 Upon the effective date of the merger, all rights, privileges,
powers, franchises, and interests of COMPUCLAIM and BCS, both
of a public and private nature, all of its property, real,
personal, and mixed, all debts due on whatever account, and
every other interest of COMPUCLAIM and BCS shall be deemed
transferred to and shall vest in PMSC without further act or
deed as effectually as they were theretofore vested in
COMPUCLAIM and BCS, and all claims, demands, property, and
every other interest shall be as effectively the property of
PMSC as they were of COMPUCLAIM and BCS. All rights of
creditors and liens upon the property of COMPUCLAIM and BCS
shall be preserved unimpaired, and all debts, liabilities,
restrictions and duties of COMPUCLAIM and BCS shall attach to
PMSC and may be enforced against it to the same extent as if
they had been incurred or contracted by it.
2.7 If at any time PMSC shall consider or be advised that any
further deeds, assignments, or other instruments or any other
things are necessary or advisable to vest, perfect, or confer,
of record or otherwise, in PMSC the title to any property or
rights of COMPUCLAIM and BCS acquired or to be acquired by
reason of the merger, COMPUCLAIM and BCS and their officers
and directors shall execute and deliver all such deeds,
assignments, and other instruments and do all things necessary
to vest, perfect, or confirm title to such property or rights
in PMSC or otherwise to carry out this Plan of Merger, and the
officers and directors of PMSC are fully authorized in the
name of COMPUCLAIM and BCS or otherwise to take any and all
such action.
2.8 PMSC consents to be sued and served with process in Texas or
in such other jurisdiction as may be applicable in any
proceeding for the enforcement of any obligation of COMPUCLAIM
and/or BCS, or any obligation hereafter incurred by PMSC, and
appoints the Secretary of State of Texas as its agent to
accept service of process in any such proceeding in the State
of Texas.
2.9 Notwithstanding any of the provisions of this Plan of Merger,
the Directors of PMSC, at any time prior to the effective date
of merger herein contemplated, for any reason they may deem
53
sufficient and proper, shall have the power and authority to
abandon and refrain from making effective the contemplated
merger set forth herein, in which case this Plan of Merger
shall thereby be canceled and become null and void.
2.10 No term or provision of this Plan of Merger shall be construed
so as to limit, restrict or diminish or otherwise to operate
in derogation of any of the terms or provisions of the South
Carolina Business Corporation Act, as amended, and Texas
Business Corporation Act, as amended, governing or otherwise
affecting the merger of COMPUCLAIM and BCS into PMSC as
contemplated herein.
54
Articles of Amendment
to the
Articles of Incorporation
of
Policy Management Systems Corporation
Pursuant to [sic] Sections 33-6-102 & 33-10-102 of the Business Corporation Act
of the State of South Carolina
D44681 /s/ John T. Campbell
Secretary of State
Filed: Aug. 23, 1989
WMJ 01/02 4973
89-012439/89-012439 16.18:20 004
06-24-89 AMT: $110.00
SECT OF STATE OF SOUTH CAROLINA
Policy Management Systems Corporation, a South Carolina corporation
(the "Corporation"), hereby certifies:
1. The name of the Corporation is Policy Management Systems
Corporation.
2. A. The Articles of Incorporation of the Corporation are
hereby amended by the addition of a provision stating the number,
designation, powers, relative, participating, optional and other
special rights of a series of Special Stock of the Corporation, as
fixed by the Board of Directors of the Corporation under authority
contained in the Corporation's Articles of Incorporation.
B. To effect the foregoing, the Articles of Incorporation are
amended by adding the following provisions to Article 4 thereof:
"There is hereby established a series of the Corporation's
authorized Special Stock, to be designated as the Series A Convertible
55
Special Stock, par value $.01 per share. The relative rights,
preferences and limitations of the Series A Convertible Special Stock,
insofar as not already fixed by any other provision of these Articles
of Incorporation shall, as fixed by the Board of Directors of the
Corporation in the exercise of authority conferred by these Articles of
Incorporation, and as permitted by [sic] Sections 33-6-102 & 33-10-102 of the
South Carolina Business Corporation Act, be as follows:
(i) Designation and Number of Shares. The shares of such series
shall be designated as "Series A Convertible Special Stock" (the
"Series A Preferred Stock"). The par value of each share of the Series
A Preferred Stock shall be $.01. The number of shares initially
constituting the Series A Preferred Stock shall be 3,797,561; provided,
however, that the number of shares of Series A Preferred Stock may be
increased, by an amendment of this paragraph (i) approved by the Board
of Directors of the Corporation, if within the authority of the Board
of Directors of the Corporation under Article 4 of the Articles of
Incorporation, to such greater number of shares of Series A Preferred
Stock as are at any time issuable pursuant to the Series A Preferred
Stock Purchase Agreement, but may not otherwise be increased without
the affirmative vote of the holders of at least 66 2/3% of the
outstanding Series A Preferred Stock, voting as a separate class.
(ii) Dividends or Distributions.
(A) The holders of shares of the Series A Preferred Stock, in
preference to the holders of shares of any other series of
Preferred Stock or other class or series of capital stock,
including the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation ranking junior to the Series A
Preferred Stock with respect to the payment of dividends, shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds of the Corporation legally available
therefor, (1) cumulative cash dividends ("Regular Dividends") is an
amount equal to 3.5% of the then Liquidation Price of such shares,
payable in equal semi-annual payments on the fifteenth day of March
and September in each year (each such date being referred to herein
as a "Regular Dividend Payment Date"), commencing on March 15,
1990, less the amount of all cash dividends declared on shares of
the Series A Preferred Stock pursuant to the following clause (2)
since the immediately preceding Regular Dividend Payment Date or,
with respect to the first Regular Dividend Payment Date, since the
56
date of original issuance of the Series A Preferred Stock (the
"Issue Date") and (2) dividends payable in cash on the payment date
for each cash dividend declared on the shares of Common Stock in an
amount per share of Series A Preferred Stock equal to the number of
shares of Common Stock into which each share of Series A Preferred
is then convertible times the cash dividends then to be paid on
each share of Common Stock. Regular Dividends payable on the
Series A Preferred Stock shall only "accrue" and be payable on a
Regular Dividend Payment Date and shall not "accrue" during the
period between Regular Dividend Payment Dates; provided that
Regular Dividends payable on the first Regular Dividend Payment
Date shall be equal to (a) 3.5% of the then Liquidation Price,
multiplied by (b) the number of days that elapse between the Issue
Date and such first Regular Dividend Payment Date, divided by (c)
182.5.
(B) The Corporation shall pay a cash dividend on the Series
A Preferred Stock as provided in clause (2) of paragraph (ii)(A)
above immediately prior to or at the same time it pays a cash
dividend on the shares of Common Stock. In addition, if the
Corporation shall pay any dividend or make any distribution on the
shares of Common Stock payable in assets, securities or other forms
of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each outstanding
share of the Series A Preferred Stock a dividend or distribution in
like kind equal to the number of shares of Common Stock into which
each share of Series A Preferred Stock is then convertible times
such dividend or distribution on each share of Common Stock.
(C) Regular Dividends payable pursuant to paragraph (ii)(A)
above shall accrue and only be cumulative from the Regular Dividend
Payment Date of such dividends whether or not such Regular
Dividends have been declared and whether or not there are any funds
of the Corporation legally available for the payment of dividends.
Accrued but unpaid Regular Dividends shall not bear interest.
Regular Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such Regular Dividends at
the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
determination of holders of shares of Series A Preferred Stock
entitled to receive a dividend or distribution declared thereon,
which record date shall be (1) in the case of any cash dividend on
the Series A Preferred Stock as provided in clause (2) of paragraph
57
(ii)(A) above, the same as the record date for any corresponding
dividend on the Common Stock and (2) in all other cases, no more than
60 nor less than 10 days prior to the date fixed by the Board of
Directors for the payment thereof.
(iii) Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Each holder of Series A Preferred Stock shall be entitled
to a number of votes equal to the number of shares of Common Stock
into which each share of the Series A Preferred Stock is then
convertible, for each share of the Series A Preferred Stock held of
record on each matter on which holders of the Common Stock or
shareholders generally are entitled to vote, multiplied by the
number of votes per share which the holders of the Common Stock or
shareholders generally then have with respect to such matter.
(B) Except as otherwise provided herein or by applicable law,
the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock shall vote together as one class for the
election of directors of the Corporation and on all other matters
submitted to a vote of shareholders of the Corporation.
(C) So long as the Purchaser shall beneficially own shares of
Series A Preferred Stock representing an aggregate of at least 10%
of the Outstanding Voting Power of the Corporation, in the sole
discretion of the holders of a majority of the outstanding shares
of Series A Preferred Stock, the number of directors constituting
the Board of Directors of the Corporation shall be increased from
the number constituting the Board of Directors on the Issue Date by
one (if at such time such an increase shall not already be in
effect). In addition to voting together with the holders of Common
Stock for the election of other directors of the Corporation, the
holders of record of the Series A Preferred Stock, voting
separately as a class to the exclusion of the holders of Common
Stock, shall be entitled at any annual meeting of shareholders for
the election of directors (and at each subsequent annual meeting of
shareholders), to vote for the election of such additional
director, if any, of the Corporation, the holders of any Series A
Preferred Stock being entitled to cast one vote per share of the
Series A Preferred Stock and such director being elected by the
affirmative vote of the holders of a majority of the outstanding
shares of Series A Preferred Stock. In addition to any other vote
which may be required by the Articles of Incorporation, any
director who shall have been so elected pursuant to the next
58
preceding sentence may be removed without cause only by the
affirmative vote of the holders of the Series A Preferred Stock at
the time entitled to cast a majority of the votes entitled to be
cast for the election of any such director at a special meeting of
such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders. In the sole
discretion of the holders of a majority of the outstanding shares
of Series A Preferred Stock, the holders of the Series A Preferred
Stock shall be divested of the foregoing special voting rights,
subject to revesting at any time and from time to time in the sole
discretion of the holders of a majority of the outstanding shares
of Series A Preferred Stock. Upon the divestiture or termination
of the foregoing special voting rights, the term of office of any
person who may have been elected director pursuant to said special
voting rights shall forthwith terminate, and the number of
directors constituting the Board of Directors shall be reduced by
one. The voting rights granted by this subsection (C) shall be in
addition to any other voting rights granted to the holders of the
Series A Preferred Stock in this paragraph (iii).
(D) Except as provided herein or by applicable law, holders
of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein)
for authorizing or taking any corporate action (other than pursuant
to the Series A Preferred Stock Purchase Agreement).
(iv) Certain Restrictions.
(A) Whenever Regular Dividends payable on shares of Series A
Preferred Stock as required by paragraph (ii) are in arrears,
thereafter and until all accrued and unpaid Regular Dividends,
whether or not declared, on the outstanding shares of Series A
Preferred Stock shall have been declared and paid in full, the
Corporation shall not:
(1) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock; or
59
(2) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock.
(B) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under subparagraph (A) of this paragraph (iv), purchase or
otherwise acquire such shares at such time and in such manner.
(v) Liquidation Rights. (A) Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no
distribution shall be made to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution, or
winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of Series A Preferred Stock shall have received an amount in
cash equal to the Liquidation Price per share.
(B) In the event the assets of the Corporation available for
distribution to the holders of shares of Series A Preferred Stock
upon liquidation, dissolution or winding up of the Corporation
shall be insufficient to pay in full all amounts to which such
holders shall be entitled pursuant to paragraph (v)(A), the entire
assets of the Corporation available for distribution to the holders
of the Series A Preferred Stock shall be distributed ratably among
them.
(C) Upon any such liquidation, dissolution or winding up of
the Corporation, after the holders of the Series A Preferred Stock
shall have been paid in full the amounts to which they shall be
entitled pursuant to paragraph (v)(A), the remaining assets of the
Corporation shall be distributed to the holders of any capital
stock, including the Common Stock, ranking junior (upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock.
(D) Written notice of such liquidation, dissolution or
winding up, stating a payment date, the amount of the payment and
the place where the amounts distributable shall be payable, shall
be mailed by overnight, certified or registered mail, return
receipt requested, no less than 20 days prior to the payment date
stated therein, to each holder of shares of Series A Preferred
Stock, at such holder's address as it appears on the transfer books
of the Corporation.
(vi) Certain Events. Neither the consolidation, merger or other
60
business combinations of the Corporation with or into any other Person
or Persons nor the sale of all or substantially all of the assets of
the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of paragraph (v).
(vii) Redemption; No Sinking Fund.
(A) The Corporation may, at any time after the third
anniversary of the Issue Date, redeem the Series A Preferred Stock,
in whole but not in part, at the Redemption Prices (expressed as a
percentage of the then Liquidation Price) per share of Series A
Preferred Stock set forth below:
If redeemed during the 12-month period beginning on the anniversary
of the Issue Date falling in:
Year Redemption Price
1992 106%
1993 105
1994 104
1995 103
1996 102
1997 101
1998 and thereafter 100
(B) If the Development and Marketing Agreement (as defined in
the Series A Preferred Stock Purchase Agreement) is terminated
pursuant to its terms either (i) by the Company for cause or (ii)
by the Purchaser for convenience, the Corporation may, at any time
prior to the third anniversary of the Issue Date, by giving notice
in accordance with paragraph (vii)(C) within 60 days after such
termination, redeem the Series A Preferred Stock, in whole but not
in part, at a Redemption Price per share of Series A Preferred
Stock equal to 107% of the then Liquidation Price of such shares.
(C) The Corporation shall notify each holder of Series A
Preferred Stock at least 60 days in advance of the proposed
Redemption Date and the Redemption Price; provided that, in the
event that the Purchaser shall, after receiving such notice, notify
the Company of the exercise of its registration rights under
Section 8 of the Series A Preferred Stock Purchase Agreement, the
Redemption Date shall be extended until the public offering of the
61
Purchaser's Series A Preferred Stock shall have been completed or
abandoned. The right to convert shares of Series A Preferred Stock
shall terminate on the Redemption Date, as the same may be extended in
accordance with the preceeding [sic] sentence.
(D) The Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(viii) Ranking. The Series A Preferred Stock shall rank prior to
any other equity securities of the Corporation, including the Common
Stock, with respect to the payment of dividends and the distribution of
assets upon the liquidation, dissolution or winding up of the
Corporation.
(ix) Reacquired Shares. Any Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancelation become authorized but unissued
shares of Special Stock, without designation as to series until such
shares are once more designated as part of a particular series by
resolution of the Board of Directors.
(x) Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A
Preferred Stock as provided herein shall be amended in any manner which
would alter or change the powers, preferences, rights or privileges of
the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66 2/3% of the
outstanding Series A Preferred Stock, voting as a separate class.
(xi) Conversion. Each share of Series A Preferred Stock may be
converted at any time at the option of the holder thereof, into shares
of Common Stock, on the terms and conditions set forth in this
paragraph (xi).
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall be convertible
in the manner hereinafter set forth into one fully paid and
nonassessable share of Common Stock.
(B) The number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be subject
to adjustment from time to time as follows:
(1) In case the Corporation shall at any time or from time
62
to time declare a dividend, or make a distribution, on the
outstanding shares of Common Stock in shares of Common Stock
or subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares or combine or reclassify
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock, then, and in each such case, the
number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock which the holder of a share of Series A Preferred
Stock would have been entitled to receive after the happening
of any of the events described above had such share been
converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier. An adjustment
made pursuant to this clause (1) shall become effective (a) in
the case of any such dividend or distribution, immediately
after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (b) in the case of
any such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action
becomes effective.
(2) In case the Corporation shall at any time or from time
to time issue shares of Common Stock (or securities
convertible into shares of Common Stock) at a price per share
(or having a conversion price per share) less than $30.75
divided by the number of shares of Common Stock into which a
share of Series A Preferred Stock is then convertible (the
"Conversion Price") as of the date of issuance of such shares
or of such convertible securities, then, and in each such
case, the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be
adjusted so that the holder of each share thereof shall be
entitled to receive, upon the conversion thereof, the number
of shares of Common Stock determined by multiplying (a) the
number of shares of Common Stock into which such share was
convertible on the day immediately prior to such date by (b)
a fraction, the numerator of which shall be the sum of (I) the
number of shares of Common Stock outstanding on such date and
(II) the number of additional shares of Common Stock issued
(or into which the convertible securities may convert), and
the denominator of which shall be the sum of (I) the number of
shares of Common Stock outstanding on such date and (II) the
63
number of shares of Common Stock which the aggregate
consideration receivable by the Corporation for the total
number of shares of Common Stock so issued (or into which the
convertible securities may convert) would purchase at such
Conversion Price on such date. An adjustment made pursuant to
this clause (2) shall be made on the next Business Day
following the date on which any such issuance is made and
shall be effective retroactively immediately after the close
of business on such date. For purposes of this clause (2),
the aggregate consideration receivable by the Corporation in
connection with the issuance of shares of Common Stock or of
securities convertible into shares of Common Stock shall be
deemed to be equal to the sum of the aggregate offering price
(before deduction of reasonable underwriting discounts or
commissions and expenses) of all such securities plus the
minimum aggregate amount, if any, payable upon conversion of
any such convertible securities into shares of Common Stock.
The issuance of any shares of Common Stock (whether treasury
shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or
reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to
clause (1) of this sub-paragraph (B) shall not be deemed to
constitute an issuance of Common Stock or convertible
securities by the Corporation to which this clause (2)
applies. The issuance of any of the following shall not be
deemed to constitute an issuance of Common Stock or
convertible securities of the Corporation to which this clause
(2) applies: shares of Common Stock pursuant to any Employee
Stock Plan (as defined in the Series A Preferred Stock
Purchase Agreement) approved by the shareholders of the
Corporation; shares of Common Stock issued upon conversion,
exchange or exercise of securities convertible into Common
Stock that were issued pursuant to a dividend or other
distribution (of rights or otherwise) on the Common Stock in
which the Series A Preferred Stock shared on a pro rata basis,
according to the number of shares of Common Stock into which
one share of Series A Preferred Stock was then convertible;
and shares of Common Stock (or securities convertible into
shares of Common Stock) in connection with the pending
acquisition of Advanced Systems Applications, Inc.
(3) In case at any time the Corporation shall be a party
to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the
64
Corporation's assets, liquidation or recapitalization of the
Common Stock and excluding any transaction to which clause (1)
or (2) of this sub-paragraph (B) applies) in which the
previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Corporation or
common stock or other securities of another corporation or
interests in a noncorporate entity or other property
(including cash) or any combination of any of the foregoing
(each such transaction being herein called the "Transaction",
the date of consummation of the Transaction being herein
called the "Consummation Date", the Corporation (in the case
of a recapitalization of the Common Stock to which this clause
(3) applies or any other such transaction in which the
Corporation retains substantially all of its assets and
survives as a corporation) or such other corporation or entity
(in each other case) being herein called the "Acquiring
Company", and the common stock (or equivalent equity
interests) of the Acquiring Company being herein called the
"Acquirer's Common Stock"), then, as a condition of the
consummation of the Transaction, lawful and adequate
provisions shall be made so that each holder of shares Series
A Preferred Stock shall be entitled, at the election of the
Series A Preferred Stock as provided in the following
sentence, to the treatment accorded pursuant to sub-clause
(a)(I) or (a)(II) and, to the extent applicable, (a)(III).
The selection by the holders of shares of Series A Preferred
Stock of the treatment to be accorded such shares from among
the alternatives specified in the preceding sentence shall
require the affirmative vote of the holders of at least 66
2/3% of the outstanding shares of Series A Preferred Stock,
voting in person or by proxy, at a meeting of such
stockholders, which vote shall be taken on or before the later
of (I) the 30th day following the Consummation Date, and (II)
the 60th day following the day of delivery or mailing to such
holders of the last proxy statement relating to the vote on
the Transaction by the holders of the Common Stock, and which
vote shall bind all holders of shares of Series A Preferred
Stock and their transferees; if the holders of shares of
Series A Preferred Stock are unable to or for any other reason
do not make a selection, then the Board of Directors of the
Corporation shall make such selection, in accordance with this
clause (3), from among the alternatives specified in this
clause (3). Notwithstanding the foregoing any holder of
Series A Preferred Stock shall in all events be entitled to
the treatment accorded pursuant to sub-clause (a)(III) in the
65
event the circumstances specified therein shall occur. Any
selection made by the holders of shares of Series A Preferred
Stock in accordance with the second preceding sentence shall
be communicated in writing to the Corporation as promptly as
practicable after the vote referred to above shall have been
taken.
(a) In case of any Transaction, each share of Series A
Preferred Stock shall continue to remain outstanding and
shall be subject to all provisions of these Articles of
Amendment, as in effect prior to such Transaction except
that:
(I) each share of Series A Preferred Stock shall
thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to the
Consummation Date, shares of the Acquirer's Common
Stock, unless the Acquiring Company fails to meet the
requirements set forth in (IV), (V) and (VI) below, in
which case shares of the common stock of the corporation
(herein called a "Parent") which directly or indirectly
controls the Acquiring Company if it meets the
requirements set forth in (IV), (V) and (VI) below, at
a conversion price per share equal to the Conversion
Price in effect immediately prior to the Consummation
Date multiplied by a fraction the numerator of which is
the market price per share (determined in the same
manner as provided in the definition of Current Market
Price) of the Acquirer's Common Stock or the Parent's
common stock, as the case may be, immediately prior to
the Consummation Date and the denominator of which is
the Current Market Price per share of Common Stock
immediately prior to the Consummation Date (subject in
each case to adjustments from and after the Consummation
Date as nearly equivalent as possible to the adjustments
provided for in this paragraph (xi));
(II) each share of Series A Preferred Stock shall
thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to the
Consummation Date, the amount of securities or other
property to which such holder would actually have been
entitled as a holder of shares of Common Stock upon the
consummation of the Transaction if such holder had
converted such shares of Series A Preferred Stock
66
immediately prior to such Transaction (subject to
adjustments from and after the Consummation Date as
nearly equivalent as possible to the adjustments
provided for in this paragraph (xi)); provided that if
in connection with the Transaction a tender or exchange
offer shall have been made and there shall have been
acquired pursuant thereto more than 50% of the
outstanding shares of Common Stock, and if the holders
of shares of Series A Preferred Stock so designate in
the notice given to the Corporation which specifies
their selection of this alternative (a)(II), each holder
of such shares shall be entitled to receive upon
conversion thereof, the amount of securities or other
property to which such holder would actually have been
entitled as a holder of shares of Common Stock if such
holder had converted such shares of Series A Preferred
Stock prior to the expiration of such tender or exchange
offer and accepted such offer and had sold therein the
percentage of all the shares of Common Stock issuable
upon conversion of its shares of Series A Preferred
Stock equal to the percentage of shares of the then
outstanding Common Stock so purchased in the tender or
exchange offer, with the remaining portion of its shares
or Series A Preferred Stock thereafter being convertible
into the amount of securities or other property to which
such holder would actually have been entitled upon the
consummation of the Transaction as a holder of shares of
Common Stock if such holder had converted such shares of
Series A Preferred Stock immediately prior to such
Transaction (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to
the adjustments provided for in this paragraph (xi)); or
(III) if neither the Acquiring Company nor the
Parent meets the requirements set forth in (IV), (V) and
(VI) below, each share of Series A Preferred Stock shall
thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to the
Consummation Date, an amount in cash equal to the Fair
Market Value in cash, as of the Consummation Date
(computed without interest), of the shares of capital
stock or other securities or property (other than cash)
to which the holder of shares of Series A Preferred
Stock would be entitled, pursuant to (II) above
(including the proviso thereof, if applicable) upon
67
conversion of each such share, as determined by an
independent investment banking firm (with an established
national reputation as a valuer of equity securities)
selected by the Corporation, plus the cash, if any, into
which each such share of Series A Preferred Stock would
be convertible pursuant to (II) above.
The Corporation agrees to obtain, and deliver to each
holder of shares of Series A Preferred Stock a copy of the
determination of such an independent investment banking
firm within 15 days after the Consummation Date of any
Transaction to which (III) above is applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after
the Consummation Date:
(IV) it is a solvent corporation or other entity
organized under the laws of any State of the United
States of America having its common stock or, in the
case of an entity other than a corporation, equivalent
equity securities, listed on the New York Stock Exchange
or the American Stock Exchange or quoted by the NASDAQ
National Market System or any successor thereto or
comparable system, and such common stock or equivalent
equity security continues to meet the requirements for
such listing or quotation;
(V) it is required to file, and in each of its
three fiscal years immediately preceding the
Consummation Date (or since its inception) has filed,
reports with the Securities and Exchange Commission (the
"Commission") pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(VI) in the case of the Parent, such Parent is
required to include the Acquiring Company in the
consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the
Commission and is not itself included in the
68
consolidated financial statements of any other Person
(other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary,
the Corporation shall not effect any Transaction unless
prior to the consummation thereof each corporation or
entity (other than the Corporation) which may be required
to deliver any securities or other property upon the
conversion of shares of Series A Preferred Stock, or the
satisfaction of conversion rights as provided herein, shall
assume, by written instrument delivered to each holder of
shares of Series A Preferred Stock, the obligation to
deliver to such holder such securities or other property to
which, in accordance with the foregoing provisions, such
holder may be entitled, and such corporation or entity
shall have similarly delivered to each holder of shares of
Series A Preferred Stock an opinion of counsel for such
corporation or entity, which opinion shall state that the
right, powers and privileges of the outstanding shares of
Series A Preferred Stock, including, without limitation,
the conversion provisions applicable thereto, if any, shall
thereafter continue in full force and effect and shall be
enforceable against such corporation or entity in
accordance with the term hereof and thereof.
All calculations under this paragraph (B) shall be made to the
nearest one one-hundredth of a share.
(C) If any adjustment in the number of shares of Common Stock
into which each share of Series A Preferred Stock may be converted
required pursuant to this paragraph (xi) would result in an
increase or decrease of less than one-half of one percent in the
number of shares of Common Stock into which each share of Series A
Preferred Stock is then convertible, the amount of any such
adjustment shall be carried forward and adjustment with respect
thereto shall be made at the earlier of (1) the time of and
together with any subsequent adjustment, which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate at least one-half of one-percent of the number of shares
of Common Stock into which each share of Series A Preferred Stock
is then convertible or (2) three years after the date on which such
adjustment otherwise would have been made.
(D) The Board of Directors may increase the number of shares
of Common Stock into which each share of Series A Preferred Stock
69
may be converted, in addition to the adjustments required by this
paragraph (xi), as shall be determined by it (as evidenced by a
resolution of the Board of Directors) to be advisable in order to
avoid or diminish any income deemed to be received by any holder
for federal income tax purposes of shares of Common Stock or Series
A Preferred Stock resulting from any events or occurrences giving
rise to adjustments pursuant to this paragraph (xi) or from any
other similar event.
(E) The holder of any shares of Series A Preferred Stock may
exercise its right to convert such shares into shares of Common
Stock by surrendering for such purpose to the Corporation, at its
principal office or at such other office or agency maintained by
the Corporation for that purpose, a certificate or certificates
representing the shares of Series A Preferred Stock to be converted
accompanied by a written notice stating that such holder elects to
convert all or a specified whole number of such shares in
accordance with the provisions of this paragraph (xi) and
specifying the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued. In case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by
payment of all transfer taxes payable upon the issuance of shares
of Common Stock in such name or names. Other than such taxes, the
Corporation will pay any and all issue and other taxes (other than
taxes based on income) that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of Series A
Preferred Stock pursuant hereto. As promptly as practicable, and
in any event within five business days after the surrender of such
certificate or certificates and the receipt of such notice relating
thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such
taxes have been paid), the Corporation shall deliver or cause to be
delivered (1) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common Stock to
which the holder of shares of Series A Preferred Stock so converted
shall be entitled and (2) if less than the full number of shares of
Series A Preferred Stock evidenced by the surrendered certificate
or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by
such surrendered certificate or certificates less the number of
shares converted. Such conversion shall be deemed to have been
made at the close of business on the date of giving of such notice
and of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted
70
so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of
Common Stock in accordance herewith, and the person entitled to
receive the shares of Common stock shall be treated for all
purposes as having become the record holder of such shares of
Common Stock at such time. The Corporation shall not be required
to convert, and no surrender of shares of Series A Preferred Stock
shall be effective for that purpose, while the transfer books of
the Corporation for the Common Stock are closed for any purpose
(but not for any period in excess of 15 days); but the surrender of
shares of Series A Preferred Stock for conversion during the period
while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such shares of Series A
Preferred Stock were surrendered, and at the conversion rate in
effect at the date of such surrender.
(F) Upon conversion of any shares of Series A Preferred
Stock, the holder thereof shall be entitled to receive any accrued
but unpaid dividends on such shares of Series A Preferred Stock.
(G) In connection with the conversion of any shares of Series
A Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash
adjustment in respect of such fractional interest in any amount
equal to such fractional interest multiplied by the Current Market
Price per share of Common Stock on the day on which such shares of
Series A Preferred Stock are deemed to have been converted.
(H) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
then outstanding shares of Series A Preferred Stock. The
Corporation shall from time to time, in accordance with the laws of
South Carolina, increase the authorized amount of Common Stock if
at any time the number of authorized shares of Common Stock
remaining unissued shall not be sufficient to permit the conversion
at such time of all then outstanding shares of Series A Preferred
Stock.
(I) In the event that one of the events described in Section
12 of the Series A Preferred Stock Purchase Agreement shall have
occurred, and the Purchaser shall have received the certificate and
71
the opinion referred to in such Section 12, all shares of the
Series A Preferred Stock shall be deemed to have been converted
into, and shall (without any action of the holder thereof) becomes,
that number of shares of Common Stock into which the Series A
Preferred Stock was then convertible in accordance with the
provisions hereof and the shares of Series A Preferred Stock shall
be returned to the status of authorized but unissued shares.
(xii) Reports as to Adjustments. Whenever the number of shares of
Common Stock into which each share of Series A Preferred Stock is
convertible is adjusted as provided in paragraph (xi), the Corporation
shall promptly mail to the holders of record of the outstanding shares
of Series A Preferred Stock at their respective addresses as the same
shall appear in the Corporation's stock records a notice stating that
the number of shares of Common Stock into which the shares of Series A
Preferred Stock are convertible has been adjusted and setting forth the
new number of shares of Common Stock (or describing the new stock,
securities, cash or other property) into which each share of Series A
Preferred Stock is convertible as a result of such adjustment, a brief
statement of the facts requiring such adjustment and the computation
thereof, and when such adjustment became effective.
(xiii) Notice of Certain Events. In case:
(A) the Corporation shall declare a dividend, or make a
distribution on the outstanding shares of Common Stock in shares of
Common Stock or subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
(B) the Corporation shall issue shares of Common Stock (or
securities convertible into shares of Common Stock) at a price per
share (or having a conversion price per share) less than the
Conversion Price as of the date of issuance of such shares or of
such convertible securities;
(C) the Corporation shall declare, order, pay or make a
dividend or other distribution on its Common Stock, other than
shares of Common Stock; or
(D) the Corporation shall be a party to any Transaction;
then the Corporation shall promptly (but in any event at least 10 days
prior to the applicable record date, effective date or date of
72
issuance) mail to the holders of record of the outstanding shares of
Series A Preferred Stock at their respective addresses as the same
shall appear on the Corporation's stock records a notice stating the
date on which a record is to be taken for the purpose of such dividend
or other distribution, the date or anticipated date on which such
subdivision, reclassification or combination is expected to become
effective, the date or anticipated date on which such issuance is to
occur or the Consummation Date of such Transactions (and which notice
shall also state, if applicable, the date as of which it is expected
that holders of shares of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property).
(xiv) Certain Definitions. For the purposes of these Articles of
Amendment:
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
A Person shall be deemed the "beneficial owner" of, and shall be
deemed to "beneficially own", any securities (a) which such Person or
any of its Affiliates is deemed to "beneficially own" within the
meaning of Rule 13d.3 under the Securities Exchange Act of 1934, and
the rules and regulations thereunder or (b) which such Person or any of
its Affiliates has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding or upon the exercise of any
right of conversion or exchange, warrant, option or otherwise.
"Business Day" shall mean any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Current Market Price" per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices per share of
Common Stock for the 20 consecutive Trading Days immediately prior to
such date; provided that such 20 consecutive Trading Days shall in no
event include any Trading Day (A) before the first full Trading Day
73
after the first public announcement of the issuance of the dividend or
other distribution or (B) after the last full Trading Day prior to the
commencement of "ex-dividend" trading on the exchange or market
specified in the following sentence. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale
price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date
the Common Stock is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock selected by the Board of
Directors. If the Common Stock is not publicly held or so listed or
publicly traded, "Current Market Price" shall mean the Fair Market
Value per share as determined in good faith by the Board of Directors
of the Corporation.
"Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"Liquidation Price" measured per share of Series A Preferred Stock
a [sic] of any particular date shall mean the sum of (a) $30.75 plus
(b) an amount equal to all unpaid Regular Dividends, whether or not
declared, accrued on such share through the date as of which the
Liquidation Price is being paid.
"Outstanding Voting Power of the Corporation" shall mean the total
number of votes which may be cast in the election of directors of the
Corporation at any meeting of shareholders of the Corporation if all
Voting Securities then outstanding were present and voted at such
meeting, other than votes that may be cast only by one class or series
of stock (other than Common Stock) or upon the happening of a
contingency.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of
74
such entity.
"Purchaser" shall mean International Business Machines Corporation,
a New York corporation.
"Series A Preferred Stock Purchase Agreement" shall mean the Stock
Purchase Agreement dated July 26, 1989, between the Purchaser and the
Corporation, as it may be amended from time to time.
"Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Voting Securities" shall mean the shares of Common Stock and any
other securities of the Corporation entitled to vote generally in the
election of directors of the Corporation, and any other securities
(including rights and options) convertible into, exchangeable for or
exercisable for, any of the foregoing (whether or not presently
convertible, exchangeable or exercisable), including the Series A
Preferred Stock."
3. The amendment to the Articles of Incorporation of the
Corporation set forth in Article 2 of these Articles of Amendment was
authorized and adopted by the Board of Directors of the Corporation at
a meeting duly held on July 26, 1989. No shareholder action was
required for the adoption of these Articles of Amendment.
IN WITNESS WHEREOF, Policy Management Systems Corporation has
caused these Articles of Amendment to be duly executed by its President
and Chief Executive Officer and attested to by its Secretary and has
caused its corporate seal to be affixed hereto, as of this 23rd day of
August, 1989.
75
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: /s/ G. Larry Wilson
G. Larry Wilson
President and Chief
Executive Officer
(Corporate Seal)
ATTEST:
/s/ Robert L. Gresham
Robert L. Gresham
Secretary
76
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
POLICY MANAGEMENT SYSTEMS CORPORATION
D44681 /s/ John T. Campbell
Secretary of State
Filed: Oct. 25, 1989
JSR 01/02 4973
09-015403/89-015403 16:01:00 004
10-27-89 AMT: $110.00
SECT OF STATE OF SOUTH CAROLINA
Policy Management Systems Corporation (the "Corporation"), hereby
certifies:
1. The name of the Corporation is Policy Management Systems
Corporation.
2. The Articles of Incorporation of the Corporation are hereby
amended to delete all of the provisions of Article 2 of those Articles
of Amendment filed by the Corporation with the South Carolina Secretary
of State on August 23, 1989; and that the 3,797,561 shares of Special
Stock designated to be Series A Convertible Special Stock in such
Articles of Amendment filed on August 23, 1989, are hereby returned to
the status of authorized but unissued and undesignated shares of the
class of Special Stock, $.01 par value per share, and the Corporation
shall have 5,000,000 shares of such class of Special Stock authorized
for which the Board of Directors shall have the right to determine and
fix the relative rights and preferences.
3. The amendment to the Articles of Incorporation set forth in
Article 2 of these Articles of Amendment was proposed and recommended
for approval to the shareholders by the Board of Directors of the
Corporation. On the record date for determining shareholders entitled
to vote at the special meeting of shareholders held on October 25,
1989, there were 15,397,023 shares of Common Stock outstanding and
3,797,561 shares of Series A Convertible Special Stock outstanding, of
which all shares of both classes were entitled to vote as a single
77
voting group and of which the 3,797,561 shares of Series A Convertible
Special Stock were entitled to vote as a separate voting group, and
11,378,811 shares of Common Stock and all shares of Series A
Convertible Special Stock were indisputably represented at the Special
Meeting. 10,301,080 shares of Common stock voted for the amendment,
1,043,867 shares of Common Stock voted against the amendment, and all
shares of Series A Convertible Special Stock voted for the amendment.
The number of votes cast for the amendment by each voting group was
sufficient for approval by each voting group.
IN WITNESS WHEREOF, Policy Management Systems Corporation has
caused these Articles of Amendment to be duly executed by its President
and Chief Executive Officer and attested by its Secretary and has
caused its corporate seal to be affixed hereto as of this 25th day of
October, 1989.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: /s/ G. Larry Wilson
G. Larry Wilson
President and Chief
Executive Officer
(Corporate Seal)
ATTEST:
/s/ Robert L. Gresham
Robert L. Gresham
Secretary
78
ARTICLES OF MERGER
OF
ADVANCED SYSTEM APPLICATIONS, INC.
WITH AND INTO
POLICY MANAGEMENT SYSTEMS CORPORATION
D44681 /s/ John T. Campbell
Secretary of State
Filed: Dec. 28, 1990
MBC 01/02/4973
90-018291/90-018291 15 20:20 004
12-28-90 AMT: $110.00
SECT OF STATE OF SOUTH CAROLINA
Pursuant to the provisions of Section 33-11-104 of the South
Carolina Business Corporation Act of 1988, POLICY MANAGEMENT SYSTEMS
CORPORATION, a corporation organized and existing under the laws of the
State of South Carolina (the "Surviving Corporation"), and ADVANCED
SYSTEM APPLICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware ("ASA"), hereby execute the following
Articles of Merger.
1. The Plan of Merger, providing for the merger of ASA with and
into the Surviving Corporation (the "Merger") is set forth as Exhibit
A to these Articles of Merger.
2. The Surviving Corporation, Policy Management Systems
Corporation, shall be the surviving corporation resulting from the
Merger and shall continue to conduct its business under the name
"Policy Management Systems Corporation".
3. All of the outstanding shares of ASA were held by the
Surviving Corporation when the Plan of Merger was approved, and no
amendment of the Articles of Incorporation of the Surviving Corporation
was adopted; therefore, no action of the shareholders of either PMSC or
ASA was required for approval of such Plan of Merger.
79
4. The Merger shall be effective on the later of (i) 12:01 a.m.
Eastern Standard Time on January 1, 1991, (ii) the time these Articles
of Merger are filed with the Secretary of State of the State of South
Carolina or (iii) the time a certificate of ownership and merger is
filed with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, each of the undersigned corporation has caused
these Articles of Merger to be duly executed in its name this 16th day
of October, 1990.
The Surviving Corporation:
POLICY MANAGEMENT SYSTEMS
CORPORATION
Attest:
/s/ Robert L. Gresham BY: /s/ G. Larry Wilson
Robert L. Gresham G. Larry Wilson
Executive Vice President, Chairman of the Board and
Treasurer and Secretary President
ASA:
Attest: ADVANCED SYSTEM APPLICATIONS, INC.
/s/ Robert L. Gresham BY: /s/ G. Larry Wilson
Robert L. Gresham G. Larry Wilson
Treasurer and Secretary Chairman and President
80
EXHIBIT A
PLAN OF MERGER
THIS PLAN OF MERGER (hereinafter referred to as the "Plan of Merger")
by and between POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina
corporation (sometimes hereinafter referred to as "PMSC" or the
"Surviving Corporation"), and ADVANCED SYSTEM APPLICATIONS, INC., a
Delaware corporation (sometimes hereinafter referred to as "ASA") (PMSC
and ASA are sometimes hereinafter collectively referred to as the
"Constituent Corporations").
W I T N E S S E T H:
WHEREAS, PMSC is the sole beneficial owner of all of the outstanding
capital stock of ASA; and
WHEREAS, THE [sic] Board of Directors of PMSC has determined that it is
in the best interest of PMSC and ASA for ASA to be merged with and into
PMSC on the terms set forth below;
The following constitutes the terms and conditions of the merger of ASA
with and into PMSC:
1. Merger.
1.1 Names of Constituent Corporations; Merger. The names of the
corporations proposing to merge hereunder are: (i) Policy
Management Systems Corporation, a South Carolina corporation,
and (ii) Advanced System Applications, Inc., a Delaware
corporation. On the Effective Date (as defined in Section 1.2
hereof), ASA shall be merged with and into PMSC and the
separate existence of ASA shall cease. The Constituent
Corporations shall become a single corporation which shall be
a South Carolina corporation and which shall continue in
existence as the Surviving Corporation under the name "Policy
Management Systems Corporation." Except as otherwise
specifically set forth herein, the identity, existence,
purposes, powers, franchises, rights and immunities of the
Surviving Corporation shall continue unaffected and unimpaired
81
by the merger.
1.2 Effective Date. This Plan of Merger shall become effective as
of the time the articles of merger referred to in Section 4
hereof have been filed with the Secretary of State of the
State of South Carolina as required by the laws of the State
of South Carolina.
2. Terms and Conditions of the Merger.
2.1 Articles of Incorporation and Bylaws of Surviving Corporation.
On the Effective Date, the Articles of Incorporation of PMSC,
as heretofore amended, shall remain in effect unaltered as the
Articles of Incorporation of the Surviving Corporation. Such
Articles of Incorporation, as amended, separate and apart from
this Plan of Merger, shall be, and may be separately certified
as the Articles of Incorporation of PMSC after the Effective
Date. The Bylaws of PMSC, as in effect immediately prior to
the Effective Date, shall continue in full force and effect as
the Bylaws of the Surviving Corporation until altered or
amended as provided therein or in accordance with the laws of
the State of South Carolina. The duly qualified and acting
officers and directors of PMSC immediately prior to the
Effective Date shall continue to be the directors and officers
of the Surviving Corporation.
2.2 Property and Liabilities. On the Effective Date, the separate
existence of ASA shall cease, and ASA shall be merged with and
into PMSC. As the Surviving Corporation, PMSC shall, from and
after the Effective Date, possess all the rights, privileges,
immunities, powers and franchises of whatever nature and
description, and shall be subject to all the restrictions,
duties, obligations and liabilities of each of the parties
hereto; and all rights, privileges, immunities, powers and
franchises of each of the parties hereto; and all property
(real, personal and mixed) and all debts due to either of the
Constituent Corporations on whatever account, including
subscriptions to shares, and all other choses [sic] in action,
and all and every other interest, of or belonging to any of
them shall be vested in the Surviving Corporation; and all
property, rights, privileges, immunities, powers and
franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving
82
Corporation as they were the Constituent Corporations; and the
title to any real estate vested by deed or otherwise in any of
them shall not revert to or be in any way impaired by reason
of such merger. All rights of creditors and liens upon the
property of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, obligations and duties
of the Constituent Corporations shall henceforth attach to and
be the liabilities of the Surviving Corporation and may be
enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
Any claim existing or action or proceeding pending by or
against the Constituent Corporations may be prosecuted as if
the merger had not taken place, or the Surviving Corporation
may be substituted in any such action or proceeding. If at
any time the Surviving Corporation shall consider or be
advised that any further assignments, assurances in law, or
other acts or instruments are necessary or desirable to vest,
perfect, or confirm in the Surviving Corporation the title to
any property or rights of the Constituent Corporations, the
Constituent Corporations and their proper officers and
directors shall and will do all such acts and things as may be
necessary or proper to vest, effect, or confirm title to such
property or rights in the Surviving Corporation and otherwise
to carry out the purposes of this Plan of Merger.
3. Manner and Basis of Conversion and Exchange of Shares.
3.1 Stock of PMSC. The merger shall effect no change in any of
the shares of PMSC stock, and none of its shares shall be
converted or otherwise affected as a result of the Merger.
3.2 Stock of ASA. All of the capital stock of ASA shall cease to
exist and shall be deemed cancelled, retired and eliminated
and be of no further force and effect.
4. Additional Matters.
PMSC and ASA shall cause articles of merger or certificates of
ownership and merger and such other documents as may be required
under the laws of the States of South Carolina and Delaware to be
executed, and the Surviving Corporation shall cause such articles
of merger, certificates of ownership and merger and other documents
to be filed as required by the laws of the States of South Carolina
83
and Delaware and shall cause all fees with respect thereto to be
paid and all notices with respect thereto to be properly given or
published.
IN WITNESS WHEREOF, each of the undersigned corporations has caused
these Articles of Merger to be duly executed in its name this 16th day
of October, 1990.
The Surviving Corporation:
POLICY MANAGEMENT SYSTEMS
CORPORATION
Attest:
/s/ Robert L. Gresham BY: /s/ G. Larry Wilson
Robert L. Gresham G. Larry Wilson
Executive Vice President, Chairman of the Board and
Treasurer and Secretary President
ASA:
Attest: ADVANCED SYSTEM APPLICATIONS, INC.
/s/ Robert L. Gresham BY: /s/ G. Larry Wilson
Robert L. Gresham G. Larry Wilson
Treasurer and Secretary Chairman and President
84
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
/s/ Jim Miles
Secretary of State
Filed May 30, 1991
Pursuant [sic] Section 3-10-106 of the 1976 South Carolina Code,
as amended, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
1. The name of the corporation is Policy Management Systems
Corporation.
2. On May 14, 1991, the corporation adopted the following Amendment(s)
of its Articles of Incorporation:
(Type or attach the complete text of Each Amendment)
(See Attachment A)
3. The manner, if not set forth in the amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the Amendment shall be effected, is as follows: (if
not applicable, insert "not applicable" or "NA").
N/A
4. Complete either a or b, whichever is applicable.
a. [x] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to vote
separately on the Amendment, and the vote of such shares was:
85
Number of Number of Number of Votes Number of Undisputed*
Outstanding Votes Entitled Represented at Shares Voted
Voting Group Shares to be Cast the meeting For Against
Common Stock 19,606,252 19,606,252 16,529,231 14,724,404 1,668,760
Special Stock -0- ------ ------ ------- ------
NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of undisputed shares cast for
the amendment by each voting group together with a statement that
the number of [sic] cast for the amendment by each voting group was
sufficient for approval by that voting group.
b. [ ] The Amendment(s) was duly adopted by the incorporators or board
of directors without shareholder approval pursuant to [sic] Section
33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina
Code as amended, and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendment shall be the date of acceptance for filing by the
Secretary of State (See [sic] Section 33-1-230(b)): N/A
DATE: May 14, 1991 Policy Management Systems Corporation
(Name of Corporation)
BY: /s/ Robert L. Gresham
(Signature)
86
Robert L. Gresham
(Type or Print Name and Office)
Executive Vice President
Secretary and Treasurer
87
ATTACHMENT A
Article 4 is deleted in its entirety and replaced with:
4. The Corporation is authorized to issue shares of stock as follows:
Authorized No. Par
Class of Shares of each class Value
Common Stock 75,000,000 $.01
Special Stock 5,000,000 $.01
Special Stock is a class of $.01 par value special stock for
which the Board of Directors shall have the right to
determine the preferences, limitations and relative rights,
within the limits set forth in Section 33-6-101 of the Code
of Laws of South Carolina 1976, and any amended or successor
provisions thereof.
Article 5 is deleted in its entirety and is replaced with:
5. Total authorized capital stock 80,000,000 shares at $.01 par value.
88
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
/s/ Jim Miles
Secretary of State
Filed October 31,1994
Pursuant [sic] Section 3-10-106 of the 1976 South Carolina Code, as
amended, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
1. The name of the corporation is Policy Management Systems Corporation.
2. On October 13, 1994, the corporation adopted the following Amendment(s)
of its Articles of Incorporation:
Article 9.e. is deleted in its entirety
from the Articles of
Incorporation of the Company and the
remaining provisions of Article 9 are
relettered accordingly.
3. The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert
"not applicable" or "NA").
N/A
4. Complete either a or b, whichever is applicable.
a. [x] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to vote
89
separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed*
Outstanding Votes Entitled Represented at Shares Voted
Voting Group Shares to be Cast the meeting For Against
Common Stock 20,358,484 20,358,484 17,650,262 16,359,664 307,261
Special Stock -0- ------ ------ ------- ------
NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of undisputed shares cast for
the amendment by each voting group together with a statement that the
number of [sic] cast for the amendment by each voting group was
sufficient for approval by that voting group.
b. [ ] The Amendment(s) was duly adopted by the incorporators or board
of directors without shareholder approval pursuant to [sic] Section
33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina
Code as amended, and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendment shall be the date of acceptance for filing by the
Secretary of State (See [sic] Section 33-1-230(b)): N/A
DATE: October 26, 1994 Policy Management Systems Corporation
(Name of Corporation)
BY: /s/ Stephen G. Morrison
(Signature)
90
Stephen G. Morrison
(Type or Print Name and Office)
Executive Vice President
Secretary,and General Counsel
RETURN FORM(S) TO:
Office of Secretary of State
Corporations Division
P.O. Box 11350
Columbia, S.C. 29211
Form Approved by South Carolina
Secretary of State 1/89
91
FILING INSTRUCTIONS
1. Two copies of this form, the original and either a duplicate original
or a comformed copy, must be filed.
If the space in this form is insufficient, please attach additional
sheets containing a reference to the appropriate paragraph in this
form.
3. Filing fees and taxes payable to the Secretary of State at time of
filing application.
Filing Fee $ 10.00
Filing Tax 100.00
Total $110.00
EX-3
4
EXHIBIT 3B
1
AMENDED AND RESTATED BYLAWS
OF
POLICY MANAGEMENT SYSTEMS CORPORATION
JULY 19, 1994
2
POLICY MANAGEMENT SYSTEMS CORPORATION
TABLE OF CONTENTS
ARTICLE 1
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1: Registered Office and Agent. . . . . . . . . . . . 1
Section 2: Other Offices. . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1: Place of Meetings. . . . . . . . . . . . . . . . . 1
Section 2: Annual Meetings. . . . . . . . . . . . . . . . . . 1
Section 3: Special Meetings . . . . . . . . . . . . . . . . . 1
Section 4: Notice . . . . . . . . . . . . . . . . . . . . . . 2
Section 5: Quorum . . . . . . . . . . . . . . . . . . . . . . 2
Section 6: Majority Vote; Withdrawal of Quorum. . . . . . . . 3
Section 7: Method of Voting . . . . . . . . . . . . . . . . . 3
Section 8: Record Date. . . . . . . . . . . . . . . . . . . . 3
Section 9: Shareholder Proposals. . . . . . . . . . . . . . . 3
ARTICLE 3
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1: Management . . . . . . . . . . . . . . . . . . . . 4
Section 2: Number, Classification and Election of
Directors . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3: Election of Directors. . . . . . . . . . . . . . . 4
Section 4: Nomination of Directors. . . . . . . . . . . . . . 5
Section 5: Removal of Directors . . . . . . . . . . . . . . . 5
Section 6: Vacancies. . . . . . . . . . . . . . . . . . . . . 6
Section 7: Place of Meetings. . . . . . . . . . . . . . . . . 6
Section 8: Regular Meetings . . . . . . . . . . . . . . . . . 6
Section 9: Special Meetings . . . . . . . . . . . . . . . . . 6
Section 10: Telephone and Similar Meetings. . . . . . . . . . 6
Section 11: Quorum; Majority Vote . . . . . . . . . . . . . . 6
Section 12: Compensation. . . . . . . . . . . . . . . . . . . 6
Section 13: Procedure . . . . . . . . . . . . . . . . . . . . 7
Section 14: Action Without Meeting. . . . . . . . . . . . . . 7
ARTICLE 4
BOARD COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1: Designation. . . . . . . . . . . . . . . . . . . . 7
3
Section 2: Executive Committee. . . . . . . . . . . . . . . . 7
Section 3: Audit Committee. . . . . . . . . . . . . . . . . . 7
Section 4: Nominating Committee . . . . . . . . . . . . . . . 8
Section 5: Compensation Committee . . . . . . . . . . . . . . 8
Section 6: Other Committees . . . . . . . . . . . . . . . . . 8
Section 7: Meetings . . . . . . . . . . . . . . . . . . . . . 8
Section 8: Quorum; Majority Vote. . . . . . . . . . . . . . . 8
Section 9: Procedure. . . . . . . . . . . . . . . . . . . . . 9
Section 10: Action Without Meeting. . . . . . . . . . . . . . 9
Section 11: Telephone and Similar Meetings. . . . . . . . . . 9
ARTICLE 5
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1: Offices. . . . . . . . . . . . . . . . . . . . . . 9
Section 2: Term . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3: Vacancies. . . . . . . . . . . . . . . . . . . . . 10
Section 4: Compensation . . . . . . . . . . . . . . . . . . . 10
Section 5: Removal. . . . . . . . . . . . . . . . . . . . . . 10
Section 6: Chairman of the Board. . . . . . . . . . . . . . . 10
Section 7: Vice Chairman of the Board . . . . . . . . . . . . 10
Section 8: Chief Executive Officer. . . . . . . . . . . . . . 10
Section 9: President. . . . . . . . . . . . . . . . . . . . . 10
Section 10: Vice Presidents . . . . . . . . . . . . . . . . . 10
Section 11: Secretary . . . . . . . . . . . . . . . . . . . . 11
Section 12: Assistant Secretary . . . . . . . . . . . . . . . 11
Section 13: Treasurer . . . . . . . . . . . . . . . . . . . . 11
Section 14: Assistant Treasurers. . . . . . . . . . . . . . . 12
Section 15: General Counsel . . . . . . . . . . . . . . . . . 12
ARTICLE 6
CERTIFICATES AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 12
Section 1: Certificates . . . . . . . . . . . . . . . . . . . 12
Section 2: Issuance of Shares . . . . . . . . . . . . . . . . 12
Section 3: Rights of Corporation with Respect to
Registered Owners . . . . . . . . . . . . . . . . . . . . 13
Section 4: Transfers of Shares. . . . . . . . . . . . . . . . 13
Section 5: Registration of Transfer . . . . . . . . . . . . . 13
Section 6: Lost, Stolen or Destroyed
Certificates. . . . . . . . . . . . . . . . . . . . . . . 13
Section 7: Restrictions on Shares . . . . . . . . . . . . . . 13
Section 8: Control Share Acquisitions Statute . . . . . . . . 14
Section 9: Voting of Stock Held . . . . . . . . . . . . . . . 14
ARTICLE 7
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 14
4
Section 1: Distributions. . . . . . . . . . . . . . . . . . . 14
Section 2: Books and Records. . . . . . . . . . . . . . . . . 14
Section 3: Execution of Documents . . . . . . . . . . . . . . 14
Section 4: Fiscal Year. . . . . . . . . . . . . . . . . . . . 15
Section 5: Seal . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6: Resignation. . . . . . . . . . . . . . . . . . . . 15
Section 7: Computation of Days. . . . . . . . . . . . . . . . 15
Section 8: Amendment of Bylaws. . . . . . . . . . . . . . . . 15
Section 9: Construction . . . . . . . . . . . . . . . . . . . 15
Section 10: Headings. . . . . . . . . . . . . . . . . . . . . 16
5
AMENDED AND RESTATED BYLAWS
OF
POLICY MANAGEMENT SYSTEMS CORPORATION
JULY 19, 1994
ARTICLE 1: OFFICES
Section 1: Registered Office and Agent. The registered
office of the Corporation and the registered agent shall be at One
PMS Center, Blythewood, South Carolina 29016.
Section 2: Other Offices. The Corporation may also have
offices at such other places within and without the State of South
Carolina as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE 2: SHAREHOLDERS
Section 1: Place of Meetings. Meetings of shareholders
shall be held at the time and place, within or without the State of
South Carolina, stated in the notice of the meeting or in a waiver
of notice.
Section 2: Annual Meetings. An annual meeting of the
shareholders shall be held each year on a date and at a time to be
set by the Board of Directors in accordance with all applicable
notice requirements. At the meeting, the shareholders shall elect
directors and transact such other business as may properly be
brought before the meeting.
Section 3: Special Meetings.
(a) Special meetings of the shareholders, for any
purpose or purposes, unless otherwise required by
the South Carolina Business Corporation Act of
1988, as amended or any successor provisions
thereof (the "Act"), the Articles of Incorporation
of the Corporation (the "Articles"), or these
Bylaws, may be called by the chief executive
officer, the president, the chairman of the Board
of Directors or a majority of the Board of
Directors.
(b) In addition to a special meeting called in
accordance with subsection 3(a) of this Article 2,
the Corporation shall, if and to the extent that it
is required by applicable law, hold a special
meeting of shareholders if the holders of at least
ten percent of all the votes entitled to be cast on
any issue proposed to be considered at such special
meeting sign, date and deliver to the secretary of
the Corporation one or more written demands for the
meeting. Such written demands shall be delivered
to the secretary by
6
certified mail, return receipt requested. Such
written demands sent to the secretary of the
Corporation shall set forth as to each matter the
shareholder or shareholders propose to be presented
at the special meeting (i) a description of the
purpose or purposes for which the meeting is to be
held (including the specific proposal(s) to be
presented); (ii) the name and record address of the
shareholder or shareholders proposing such business;
(iii) the class and number of shares of the
Corporation that are owned of record by the
shareholder or shareholders as of a date within ten
days of the delivery of the demand; (iv) the class
and number of shares of the Corporation that are held
beneficially, but not held of record, by the
shareholder or shareholders as of a date within ten
days of the delivery of the demand; and (v) any
interest of the shareholder or shareholders in such
business. Any such special shareholders' meeting shall
be held at a location designated by the Board of
Directors. The Board of Directors may set such rules
for any such meeting as it may deem appropriate,
including when the meeting will be held (subject to
any requirements of the Act), the agenda for the meeting
(which may include any proposals made by the Board of
Directors), who may attend the meeting in addition to
shareholders of record and other such matters.
(c) Business transacted at any special meeting shall be
confined to the specific purpose or purposes stated
in the notice of the meeting.
Section 4: Notice.
(a) Written or printed notice stating the place, day
and hour of the meeting and, in the case of a
special meeting, the specific purpose or purposes
for which the meeting is called, shall be delivered
by the Corporation not less than ten nor more than
sixty days before the date of the meeting, either
personally or by mail, to each shareholder of
record entitled to vote at such meeting. If
mailed, such notice shall be deemed effective when
deposited with postage prepaid in the United States
mail, addressed to the shareholder at the address
appearing on the stock transfer books of the
Corporation. Except as may be expressly provided
by law, no failure or irregularity of notice of any
regular meeting shall invalidate the same or any
proceeding thereat.
(b) The notice of each special shareholders meeting
shall include a description of the specific purpose
or purposes for which the meeting is called.
Except as provided by law, the Articles or these
Bylaws, the notice of an annual shareholders
meeting need not include a description of the
purpose or purposes for which the meeting is
called.
7
Section 5: Quorum. The holders of a majority of the
shares issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall be requisite and shall
constitute a quorum at meetings of the shareholders for the
transaction of business except as otherwise provided by statute, by
the Articles or these Bylaws. If a quorum is not present or
represented at a meeting of the shareholders, the shareholders
entitled to vote, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is
present or represented. At an adjourned meeting at which a quorum
is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Once a share is represented for any purpose at a meeting it is
deemed present for quorum purposes.
Section 6: Majority Vote; Withdrawal of Quorum. Except
in regards to the election of directors, when a quorum is present
at a meeting, the vote of the holders of a majority of the shares
having voting power, present in person or represented by proxy,
shall decide any question brought before the meeting, unless the
question is one on which, by express provision of the statutes, the
Articles or these Bylaws, a higher vote is required in which case
the express provision shall govern. Directors shall be elected by
a plurality vote of the shareholders. The shareholders present at
a duly constituted meeting may continue to transact business until
adjournment, despite the withdrawal of enough shareholders to leave
less than a quorum.
Section 7: Method of Voting. Each outstanding share of
common stock shall be entitled to one vote on each matter submitted
to a vote at a meeting of shareholders. Each outstanding share of
other classes of stock, if any, shall have such voting rights as
may be prescribed by the Board of Directors. Proxies delivered by
facsimile to the Corporation, if otherwise in order, shall be
valid. Votes shall be taken by voice, by hand or in writing, as
directed by the chairman of the meeting. Voting for directors
shall be in accordance with Article 3, Section 3 of these Bylaws.
Section 8: Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of
shareholders, including any special meeting, or shareholders
entitled to receive payment of dividends, or in order to make a
determination of shareholders for any other purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not less
than ten nor more than seventy days prior to the date on which the
particular action, requiring such determination of shareholders, is
to be taken. Except as otherwise provided by law, if no record
date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or of
shareholders entitled to receive payment of dividends, the date on
which notice of the meeting is mailed, or the date on which the
resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date.
Section 9: Shareholder Proposals. To the extent
required by applicable law, a shareholder may bring a proposal
before an annual meeting of shareholders as set forth in this
Section 9. To be properly brought before an annual meeting of
shareholders, business must be
8
(a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors; (b)
otherwise properly brought before the meeting by or at the
direction of the Board of Directors; or (c) otherwise properly
brought before the meeting by a shareholder. In addition to any
other applicable requirements, for business to be properly brought
before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the secretary of the
Corporation. To be timely, a shareholder's notice must be given,
either by personal delivery or by United States mail, postage
prepaid, return receipt requested to the secretary of the
Corporation not later than ninety days in advance of the annual
meeting. A shareholder's notice to the secretary of the
Corporation shall set forth as to each matter the shareholder
proposes to bring before the annual meeting (a) a description of
the business desired to be brought before the annual meeting
(including the specific proposal(s) to be presented) and the
reasons for conducting such business at the annual meeting; (b) the
name and record address of the shareholder proposing such business;
(c) the class and number of shares of the Corporation that are
owned of record by the shareholder as of the record date for the
meeting, if such date has been made publicly available, or as of a
date within ten days of the effective date of the notice by the
shareholder if the record date has not been made publicly
available; (d) the class and number of shares of the Corporation
that are held beneficially, but not held of record, by the
shareholder as of the record date for the meeting, if such date has
been made publicly available, or as of a date within ten days of
the effective date of the notice by the shareholder if the record
date has not been made publicly available; and (e) any interest of
the shareholder in such business. In the event that a shareholder
attempts to bring business before an annual meeting without
complying with the provisions of this Section 9, the chairman of
the meeting shall declare to the meeting that the business was not
properly brought before the meeting in accordance with the
foregoing procedures, and such business shall not be transacted.
The chairman of any annual meeting, for good cause shown and with
proper regard for the orderly conduct of business at the meeting,
may waive in whole or in part the operation of this Section 9.
ARTICLE 3: DIRECTORS
Section 1: Management. The business and affairs of the
Corporation shall be managed by the Board of Directors who may
exercise all such powers of the Corporation and do all such lawful
acts and things as are not by law, the Articles or these Bylaws
directed or required to be done or exercised by the shareholders.
Section 2: Number, Classification and Election of
Directors. The Board of Directors shall be limited to a maximum of
sixteen directors, with the precise number thereof to be fixed as
the Board shall from time to time resolve. The members of the
Board of Directors need not be shareholders nor need they be
residents of any particular state. Subject to the Act, the
directors shall be classified in accordance with the Articles.
9
Section 3: Election of Directors. Directors shall be
elected by a plurality vote. Each shareholder entitled to vote at
an election of directors shall be entitled to cumulate his votes in
accordance with the Act.
Section 4: Nomination of Directors. To the extent
required by applicable law, shareholders may nominate directors as
set forth in this Section 4. Nominations, other than those made by
or on behalf of the Board of Directors of the Corporation, shall be
made in writing and shall be delivered either by personal delivery
or by United States mail, postage prepaid, return receipt
requested, to the secretary of the Corporation no later than (a)
with respect to an election to be held at an annual meeting of
shareholders, ninety days in advance of such meeting; and (b) with
respect to an election to be held at a special meeting of
shareholders for the election of directors, the close of business
on the seventh day following the date on which notice of such
meeting is first given to shareholders. Each notice shall set
forth: (a) the name and address of the shareholder who intends to
make the nomination and of the person or persons to be nominated;
(b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the shareholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each
nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The chairman of the meeting may refuse
to acknowledge the nomination of any person not made in compliance
with the foregoing procedure. The chairman of any such meeting,
for good cause shown and with proper regard for the orderly conduct
of business at the meeting, may waive in whole or in part the
operation of this Section 4.
Section 5: Removal of Directors.
(a) Directors may be removed without cause by the
affirmative vote of the holders of a majority of
the shares entitled to vote at an election of
directors, such vote being taken at a meeting of
the shareholders called for that purpose at which
the holders of eighty percent (80%) of the shares
entitled to vote are present in person or
represented by proxy. No amendment, alteration,
change or repeal of this subparagraph of Article 3,
Section 5 may be effected unless it is first
approved by the affirmative vote of holders of not
less than eighty percent (80%) of each class of
shares of the Corporation entitled to vote thereon.
(b) Directors may be removed for cause by the
affirmative vote of the holders of a majority of
the shares entitled to vote at an election of
directors, such
10
vote being taken at a meeting of the shareholders
called for that purpose at which a quorum as
provided in Article 2, Section 6 is present.
(c) No director who has been elected by cumulative
voting may be removed if the votes cast against his
removal would be sufficient to elect him if then
cumulatively voted at an election of the entire
Board of Directors, or, if there be classes of
directors, at an election of the class of Directors
of which his is a part.
Section 6: Vacancies. Any vacancy occurring in the
Board of Directors, whether by increase in the number of directors
or by death, resignation, removal or otherwise may be filled by an
affirmative vote of a majority of the remaining directors then in
office for a term ending at the next annual meeting of the
shareholders of the Corporation.
Section 7: Place of Meetings. Meetings of the Board of
Directors, regular or special, may be held either within or without
the State of South Carolina.
Section 8: Regular Meetings. Regular meetings of the
Board of Directors may be held without notice at such time and
place as shall from time to time be determined by the Board.
Section 9: Special Meetings. Special meetings of the
Board of Directors may be called by the chairman, the chief
executive officer, the president or any executive vice president,
on not less than one hour's notice. Notice of a special meeting
may be given by personal notice, telephone, facsimile, electronic
communication, overnight courier or United States mail to each
director. Any such special meeting shall be held at such time and
place as shall be stated in the notice of the meeting. The notice
need not describe the purpose or purposes of the special meeting.
Section 10: Telephone and Similar Meetings. Directors
may participate in and hold a meeting by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person
at the meeting, except where a person participates in the meeting
for the express purpose of objecting to the holding of the meeting
or the transacting of any business at the meeting on the ground
that the meeting is not lawfully called or convened, and does not
thereafter vote for or assent to action taken at the meeting.
Section 11: Quorum; Majority Vote. At meetings of the
Board of Directors a majority of the number of directors then in
office shall constitute a quorum for the transaction of business.
The act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of
Directors, except as otherwise specifically provided by law, the
Articles or these Bylaws. If a quorum is not present at a meeting
of the Board of Directors, the directors present may adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
11
Section 12: Compensation. Each director shall be
entitled to receive such reasonable compensation as may be
determined by resolution of the Board of Directors. By resolution
of the Board of Directors, the directors may be paid their
expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors. No such payment shall preclude
any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of the Executive
Committee, Audit Committee, other standing committees and special
committees may, by resolution of the Board of Directors, be allowed
compensation for attending committee meetings.
Section 13: Procedure. The Board of Directors shall
keep regular minutes of its proceedings. The minutes shall be
placed in the minute book of the Corporation.
Section 14: Action Without Meeting. Any action required
or permitted to be taken at a meeting of the Board of Directors may
be taken without a meeting by unanimous written consent of all the
directors. Such consent shall have the same force and effect as a
meeting vote and may be described as such in any document.
ARTICLE 4: BOARD COMMITTEES
Section 1: Designation. The Board of Directors may, by
resolution adopted by a majority of the full Board, designate an
Executive Committee, an Audit Committee, a Nominating Committee, a
Compensation Committee and other committees. Each committee must
have two or more members who serve at the pleasure of the Board of
Directors. To the extent specified by the Board of Directors, in
the Articles or in these Bylaws, each committee may exercise the
authority of the Board of Directors. So long as prohibited by law,
however, a committee of the Board may not (a) authorize
distributions; (b) approve or propose to shareholders action
required by the Act to be approved by shareholders; (c) fill
vacancies on the Board of Directors or on any of its committees;
(d) amend the Articles; (e) adopt, amend or repeal these Bylaws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors; or (h)
authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee (or a senior
executive officer of the Corporation) to do so within limits
specifically prescribed by the Board of Directors.
Section 2: Executive Committee. The Executive Committee
shall consist of two or more directors elected by the Board, one of
whom shall be the chief executive officer of the Corporation. When
the Board of Directors is not in session, the Executive Committee,
to the extent permitted by applicable law, shall have and may
exercise all of the authority of the Board of Directors in the
management of the business and affairs of the Corporation.
12
Section 3: Audit Committee. The Audit Committee shall
consist of three or more directors elected by the Board, none of
whom shall be employed by the Corporation in any capacity other
than as directors, the chairman of which shall be appointed by the
chief executive officer. The Audit Committee shall select and
nominate for consideration of the Board of Directors independent
auditors of the Corporation, shall be responsible for the
arrangements for the scope of the independent examination of the
financial records of the Corporation by such auditors, shall give
appropriate consideration to the controls of such audit and shall
perform such other duties and assume such additional responsibility
as may from time to time be placed upon it by the Board of
Directors.
Section 4: Nominating Committee. The Nominating
Committee shall consist of two or more directors elected by the
Board. The Nominating Committee shall nominate for consideration
of the Board of Directors candidates for director, president,
secretary, treasurer, general counsel, and, if so directed by the
Board, chief executive officer. The nominating committee shall, if
so directed by the Board, nominate for consideration of the Board
of Directors candidates for the other offices and non-officer
positions the Board has the power to appoint. The Nominating
Committee shall perform such other duties and assume such
additional responsibility as may from time to time be placed upon
it by the Board of Directors.
Section 5: Compensation Committee. The Compensation
Committee shall consist of two or more directors elected by the
Board. The Compensation Committee shall be responsible for the
overall administration of all matters pertaining to compensation of
the officers and employees of the Corporation. The committee shall
give appropriate consideration to any salary administration plan or
bonus plan which may from time to time be proposed or adopted by
the Corporation. The Compensation Committee shall perform such
other duties and assume such additional responsibility as may be
placed upon it by the Board of Directors.
Section 6: Other Committees. The Board of Directors may
appoint such other committees as it deems appropriate, each
consisting of two or more directors. Any director may serve on any
such other committee. Any committee appointed under this Section
6 shall perform such duties and assume such responsibility as may
from time to time be placed upon it by the Board of Directors.
Section 7: Meetings. Time, place and notice of
Executive, Audit, Nominating, Compensation and other committee
meetings shall be as called and specified by the chief executive
officer, the committee chairman or any two members of each
committee.
Section 8: Quorum; Majority Vote. At meetings of the
Executive, Audit, Nominating, Compensation and other committees, a
majority of the number of members designated by the Board of
Directors shall constitute a quorum for the transaction of
business. The act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the
Executive, Audit, Nominating, Compensation and other committees,
except as otherwise specifically provided by the Act, the Articles
or these Bylaws. If a quorum is not
13
present at a meeting of the Executive, Audit, Nominating,
Compensation or other committees, the members present may adjourn
the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present.
Section 9: Procedure. The Executive, Audit, Nominating,
Compensation and other committees shall keep regular minutes of
their proceedings and report the same to the Board of Directors at
its next regular meeting. The minutes of the proceedings of the
Executive, Audit, Nomination, Compensation and other committees
shall be placed in the minute book of the Corporation.
Section 10: Action Without Meeting. Any action required
or permitted to be taken at a meeting of the Executive, Audit,
Nominating, Compensation or other committees may be taken without
a meeting by unanimous written consent of all the members of the
respective committee. Such consent shall have the same force and
effect as a meeting vote and may be described as such in any
document.
Section 11: Telephone and Similar Meetings. Executive,
Audit, Nominating, Compensation and other committee members may
participate in and hold a meeting by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express
purpose of objecting to the holding of the meeting or the
transacting of any business at the meeting on the ground that the
meeting is not lawfully called or convened, and does not thereafter
vote for or assent to action taken at the meeting.
ARTICLE 5: OFFICERS
Section 1: Offices. The officers of the Corporation
shall consist of a president (who in the absence of a separately
appointed chief executive officer shall also hold the office of
chief executive officer), a secretary, a treasurer, and a general
counsel, and if elected, a chairman of the board and vice chairman
of the board, and, if appointed, a chief executive officer separate
from the president, one or more executive vice presidents, one or
more senior vice presidents, one or more vice presidents, one or
more assistant secretaries, and one or more assistant treasurers.
The Board of Directors may also create and establish other officer
positions or non-officer positions as it deems appropriate. The
Board of Directors shall have the authority to appoint, or may
authorize the chief executive officer to appoint or authorize
specified officers to appoint, the persons who shall hold such
offices specified herein and such other offices and non-officer
positions as may be established by the Board. The Board of
Directors may also elect a chairman of the board and a vice
chairman of the board from among its members. Any two or more
offices may be held by the same person.
14
Section 2: Term. Each officer shall serve at the
pleasure of the Board of Directors (or, if appointed by an officer
of the Corporation pursuant to this Article, at the pleasure of the
Board of Directors, the chief executive officer, and/or such other
officer who is authorized to appoint the officer) until his or her
death, resignation, or removal, or until his or her replacement is
elected or appointed in accordance with this Article.
Section 3: Vacancies. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors.
Any vacancy in an office that was filled by the chief executive
officer or other authorized officer may also be filled by the chief
executive officer or by such other officer who is authorized to
fill such office.
Section 4: Compensation. The compensation of all
officers of the Corporation shall be fixed by the Board of
Directors or by a committee or officer appointed by the Board of
Directors. Officers may serve without compensation.
Section 5: Removal. All officers (regardless of how
elected or appointed) may be removed, with or without cause, by the
Board of Directors. Any officer appointed by the chief executive
officer or another officer may also be removed, with or without
cause, by the chief executive officer or by any officer authorized
to appoint the officer to be removed. Removal will be without
prejudice to the contract rights, if any, of the person removed,
but shall be effective notwithstanding any damage claim that may
result from infringement of such contract rights.
Section 6: Chairman of the Board. The office of the
chairman of the board may be filled by the Board at its pleasure by
the election of one of its members to the office. The chairman
shall preside at all meetings of the Board, and shall perform such
other duties as may be assigned to him by the Board of Directors.
Section 7: Vice Chairman of the Board. The office of
vice chairman of the board may be filled by the Board at its
pleasure by the election of one of its members to the office. In
the absence of the chairman of the board or in the event that that
office is vacant either temporarily or otherwise, during such
period the vice chairman shall assume the duties of the office of
the chairman of the board.
Section 8: Chief Executive Officer. If the Board
chooses to have a chief executive officer other than the president,
the position of chief executive officer may be filled by the Board
at its pleasure. The chief executive officer shall be responsible
for the general and active management of the business and affairs
of the Corporation, and shall see that all orders and resolutions
of the Board are carried into effect. The chief executive officer
shall preside at all meetings of the shareholders. He shall
perform such other duties and have such other authority and powers
as the Board of Directors may from time to time prescribe.
Section 9: President. In the event no other person is
designated the chief executive officer of the Corporation, or in
the event that office is vacant either temporarily or otherwise,
15
during such period the president shall serve as chief executive
officer and have the duties of that office. He shall perform such
other duties and have such other authority and powers as the Board
of Directors may from time to time prescribe.
Section 10: Vice Presidents. The vice presidents
(including the executive and senior vice presidents), as such
officers are appointed, with the executive vice presidents being
the most senior, and the senior vice presidents being next senior,
in the order of their seniority (based initially on title and then
on original time of appointment), unless otherwise determined by
the Board of Directors, shall, in the absence or disability of the
president, perform the duties and have the authority and exercise
the powers of the president. They shall perform such other duties
and have such other authority and powers that may from time to time
be prescribed by the Board of Directors or delegated by an
authorized officer.
Section 11: Secretary.
(a) The secretary shall attend all meetings of the
Board of Directors and all meetings of the
shareholders and record all votes, actions and the
minutes of all proceedings in a book to be kept for
that purpose and shall perform like duties for the
executive and other committees when required.
(b) He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings
of the Board of Directors.
(c) He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of
Directors or the Executive Committee, affix it to
any instrument requiring it. When so affixed, it
shall be attested by his signature or by the
signature of the treasurer or an assistant
secretary.
(d) He shall be under the supervision of the president.
He shall perform such other duties and have such
other authority and powers as may from time to time
be prescribed by the Board of Directors or
delegated by an authorized officer.
Section 12: Assistant Secretary. The assistant
secretaries, as such officers are appointed, in the order of their
seniority (based on original time of appointment), unless otherwise
determined by the Board of Directors, shall, in the absence or
disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall
perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors or delegated
by an authorized officer.
Section 13: Treasurer.
16
(a) The treasurer shall have the custody of the
corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements
of the Corporation and shall deposit all moneys and
other valuables in the name and to the credit of
the Corporation in appropriate depositories.
(b) He shall disburse the funds of the Corporation
ordered by the Board of Directors, and prepare
financial statements as they direct.
(c) He shall perform such other duties and have such
other authority and powers as may from time to time
be prescribed by the Board of Directors or
delegated by an authorized officer.
(d) His books and accounts shall be opened at any time
during business hours to the inspection of any
directors of the Corporation.
Section 14: Assistant Treasurers. The assistant
treasurers, as such officers are appointed, in the order of their
seniority (based on original time of appointment), unless otherwise
determined by the Board of Directors, shall in the absence or
disability of the treasurer, perform the duties and have the
authority and exercise the powers of treasurer. They shall perform
such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors or delegated by an
authorized officer.
Section 15: General Counsel. The general counsel of the
Corporation shall be responsible for the administration of the
legal affairs of the Corporation. He shall perform such other
duties and have such other powers as may from time to time be
prescribed by the Board of Directors or delegated by an authorized
officer.
ARTICLE 6: CERTIFICATES AND SHAREHOLDERS
Section 1: Certificates. Certificates in the form
determined by the Board of Directors shall be delivered
representing all shares of which shareholders are entitled.
Certificates shall be consecutively numbered and shall be entered
in the books of the Corporation as they are issued. At a minimum,
each share certificate must state on its face: (a) the name of the
Corporation and that it is organized under the laws of South
Carolina; (b) the name of the person to whom issued; and (c) the
number and class of shares and the designation of the series, if
any, the certificate represents. Each share certificate (a) must
be signed (either manually or in facsimile) by at least two
officers, including the president, a vice president or such other
officer or officers as the Board of Directors shall designate; and
(b) may bear the corporate seal or its facsimile. If the person
who signed (either manually or in facsimile) a share certificate no
longer holds office when the certificate is issued, the certificate
is nevertheless valid.
17
Section 2: Issuance of Shares. The Board of Directors
may authorize shares to be issued for consideration consisting of
any tangible or intangible property or benefit to the Corporation,
including cash, promissory notes, services performed, written
contracts for services to be performed or other securities of the
Corporation. Before the Corporation issues shares, the Board of
Directors must determine that the consideration received or to be
received for shares to be issued is adequate. That determination
by the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the
shares are validly issued, fully paid and nonassessable. When the
Corporation receives the consideration for which the Board of
Directors authorized the issuance of shares, the shares issued
therefor are fully paid and nonassessable.
Section 3: Rights of Corporation with Respect to
Registered Owners. Prior to due presentation for transfer of
registration of its shares, the Corporation may treat the
registered owner of the shares as the person exclusively entitled
to vote the shares, to receive any dividend or other distribution
with respect to the shares, and for all other purposes; and the
Corporation shall not be bound to recognize any equitable or other
claim to or interest in the shares on the part of any other person,
whether or not it has express or other notice of such a claim or
interest, except as otherwise provided by law.
Section 4: Transfers of Shares. Transfers of shares
shall be made upon the books of the Corporation kept by the
Corporation or by the transfer agent designated to transfer the
shares, only upon direction of the person named in the certificate
or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been
lost, stolen or destroyed, the provisions of these Bylaws shall
have been complied with.
Section 5: Registration of Transfer. The Corporation
shall register the transfer of a certificate for shares presented
to it for transfer if: ((a) the certificate is properly endorsed
by the registered owner or by his duly authorized attorney; (b) the
signature of such person has been guaranteed by a commercial bank
or brokerage firm that is a member of the National Association of
Securities Dealers and reasonable assurance is given that such
endorsements are effective; (c) the Corporation has no notice of an
adverse claim or has discharged any duty to inquire into such a
claim; (d) any applicable law relating to the collection of taxes
has been complied with; and (e) the transfer is in compliance with
applicable provisions of any transfer restrictions of which the
Corporation shall have notice.
Section 6: Lost, Stolen or Destroyed Certificates. The
Corporation shall issue a new certificate in place of any
certificate for shares previously issued if the registered owner of
the certificate: (a) makes proof in affidavit form that the
certificate has been lost, destroyed or wrongfully taken; (b)
requests the issuance of a new certificate before the Corporation
has notice that the certificate has been acquired by a purchaser
for value in good faith and without notice of an adverse claim; (c)
gives a bond in such form, and with such surety or sureties, with
fixed or open penalty, as the Corporation may direct, to indemnify
the Corporation (and its transfer agent
18
and registrar, if any) against any claim that may be made on
account of the alleged loss, destruction or theft of the
certificate; and (d) satisfies any other reasonable requirements
imposed by the Corporation. When a certificate has been lost,
apparently destroyed or wrongfully taken, and the holder of record
fails to notify the Corporation within a reasonable time after he
has notice of it, and the Corporation registers a transfer of the
shares represented by the certificate before receiving such
notification, the holder of record is precluded from making any
claim against the Corporation for the transfer or for a new
certificate.
Section 7: Restrictions on Shares. The Board of
Directors, on behalf of the Corporation, or the shareholders may
impose restrictions on the transfer of shares (including any
security convertible into, or carrying a right to subscribe for or
acquire shares) to the maximum extent permitted by law. A
restriction does not affect shares issued before the restriction
was adopted unless the holders of the shares are parties to the
restriction agreement or voted in favor of the restriction. A
restriction on the transfer of shares is valid and enforceable
against the holder or a transferee of the holder if the restriction
is authorized by this Section 7 and its existence is noted
conspicuously on the front or back of the certificate.
Section 8: Control Share Acquisitions Statute. The
Corporation elects not to be subject to or governed by the South
Carolina Control Share Acquisitions Statute contained in Sections
35-2-101 to 35-2-111 of the South Carolina Code, or any amended or
successor provisions thereof.
Section 9: Voting of Stock Held. Unless otherwise
provided by resolution of the Board of Directors or of the
Executive Committee, the president or any executive vice president
shall from time to time appoint an attorney or attorneys or agent
or agents of this Corporation, in the name and on behalf of this
Corporation, to cast the vote which this Corporation may be
entitled to cast as a shareholder or otherwise in any other
corporation, any of whose stock or securities may be held by this
Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing to
any action by any of such other corporation, and shall instruct the
person or persons so appointed as to the manner of casting such
votes or giving such consent and may execute or cause to be
executed on behalf of this Corporation and under its corporate seal
or otherwise, such written proxies, consents, waivers or other
instruments as may be necessary or proper; or, in lieu of such
appointment, the president or any executive vice president may
attend in person any meetings of the holders of stock or other
securities of any such other corporation and their vote or exercise
any or all power of this Corporation as the holder of such stock or
other securities of such other corporation.
ARTICLE 7: GENERAL PROVISIONS
Section 1: Distributions. The Board of Directors may
authorize, and the Corporation may make, distributions (including
dividends on its outstanding shares) in the manner and upon the
terms and conditions provided by applicable law and the Articles.
19
Section 2: Books and Records. The Corporation shall
keep correct and complete books and records of account and shall
keep minutes of the proceedings of its shareholders and Board of
Directors.
Section 3: Execution of Documents. The Board of
Directors or these Bylaws shall designate the officers, employees
and agents of the Corporation who shall have the power to execute
and deliver deeds, contracts, mortgages, bonds, debentures, checks
and other documents for and in the name of the Corporation, and may
authorize such officers, employees and agents to delegate such
power (including authority to redelegate) to other officers,
employees or agents of the Corporation. Unless so designated or
expressly authorized by these Bylaws, no officer, employee or agent
shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it
liable pecuniarily for any purpose or any amount.
Section 4: Fiscal Year. The fiscal year of the
Corporation shall be the same as the calendar year.
Section 5: Seal. The Corporation's seal shall contain
the name of the Corporation and the name of the state of
incorporation. The seal may be used by impressing it or
reproducing a facsimile of it or otherwise.
Section 6: Resignation. A director may resign by
delivering written notice to the Board of Directors, the chairman
or the Corporation. Such resignation of a director is effective
when the notice is delivered unless the notice specifies a later
effective date. An officer may resign at any time by delivering
notice to the Corporation. Such resignation of an officer is
effective when the notice is delivered unless the notice specifies
a later effective date. If a resignation of an officer is made
effective at a later date and the Corporation accepts the future
effective date, the pending vacancy may be filled before the
effective date if it is provided that the successor does not take
office until the effective date.
Section 7: Computation of Days. In computing any
period of days prescribed hereunder the day of the act after which
the designated period of days begins to run is not to be included.
The last day of the period so computed is to be included.
Section 8: Amendment of Bylaws.
(a) These Bylaws may be altered, amended or repealed or
new Bylaws may be adopted at any meeting of the
Board of Directors at which a quorum is present, by
a two-thirds (2/3) vote of the directors then in
office, provided notice of the proposed alteration,
amendment or repeal is contained in the notice of
the meeting.
20
(b) These Bylaws may also be altered, amended or
repealed or new Bylaws may be adopted at any
meeting of the shareholders at which a quorum is
present or represented by proxy, by the affirmative
vote of the holders of sixty-six and two-thirds
(66-2/3%) percent of each class of shares entitled
to vote thereon, provided notice of the proposed
alteration, amendment or repeal is contained in the
notice of the meeting.
(c) Upon adoption of any new bylaw by the shareholders,
the shareholders may provide expressly that the
Board of Directors may not adopt, amend or repeal
that bylaw or any bylaw on that subject.
Section 9: Construction. Whenever the context so
requires, the masculine shall include the feminine and neuter, and
the singular shall include the plural, and conversely. If any
portion of these Bylaws shall be invalid or inoperative, then, so
far as is reasonable and possible: (a) the remainder of these
Bylaws shall be considered valid and operative, and (b) effect
shall be given to the intent manifested by the portion held invalid
or inoperative.
Section 10: Headings. The headings are for convenience
of reference only and shall not affect in any way the meaning or
interpretation of these Bylaws.
EX-10
5
EXHIBIT 10L
1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this ____ day of ________,
1994, to be effective on February 1, 1994 by and between POLICY
MANAGEMENT SYSTEMS CORPORATION, a South Carolina corporation
(hereinafter referred to as "Employer"), and TIMOTHY V. WILLIAMS a
resident of South Carolina (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a corporation engaged in business in the State
of South Carolina and throughout the United States;
WHEREAS, Employer desires to employ Employee in the capacity of
Chief Financial Officer and Executive Vice President, upon the
terms and conditions hereinafter set forth; and
WHEREAS, Employee is willing to enter into this Agreement with
respect to his employment and services upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, Employer hereby employs Employee and
Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth:
1. Term of Employment. The term of employment under this
Agreement shall be for a period commencing on the date set
forth above, and terminating on December 31, 1998, unless such
employment is terminated or extended prior to the expiration
of said period as hereinafter provided.
2. Duties of Employee. Employee agrees that during the term of
this Agreement, he will devote his full professional and
business-related time, skills and best efforts to the
businesses of Employer in the capacity of Chief Financial
Officer and Executive Vice President, or such other capacity
as Employer and Employee may agree upon. If there are major
significant changes in the duties or responsibilities of
Employee from those listed as Prohibited Activities on Exhibit
A hereto, that are not mutually agreed upon, Employee may
terminate his employment within sixty (60) days of any such
change. In addition, Employee shall devote all necessary time
and his best efforts in the performance of any other duties as
may be assigned to him from time to time by the Board of
Directors of Employer
2
including, but not limited to, serving on Employer's Board of
Directors if elected. Employee shall devote his full professional
and business skills to Employer as his primary responsibility.
Employee may engage in personal, passive investment activities
provided such activities do not interfere with the performance of
his duties hereunder and violate the non-competition and
nondisclosure provisions set forth herein.
3. Compensation. For all the services rendered by Employee under
this Agreement, Employer shall pay Employee a base salary of
not less than two hundred seventy-five thousand dollars
($275,000.00) per annum (or fraction for portions of a year).
Said base salary will be adjusted from time to time in
accordance with then current standard salary administration
guidelines of Employer. Said payments shall be made in
installments consistent with Employer's payroll practices.
In addition to the base salary, Employee shall participate in
a bonus program as determined from time to time by Employer
which shall provide an opportunity for Employee to earn
additional annual compensation equal to not less than forty
percent (40%) of his base salary under a program of defined
goals, including personal and/or unit and/or group, and/or
corporate.
Employee shall also be eligible to receive at least 25,000
PMSC stock options annually under the PMSC Stock Option Plan.
Employee shall also be elected to Employer's Executive Council
and shall be entitled to participate in the Long-Term
Incentive Plan of Executives in accordance with the terms of
such Plan in effect during his employment.
4. Fringe Benefits. The terms of this Agreement shall not
foreclose Employee from participating with other employees of
Employer in such fringe benefit or incentive compensation
plans as may be authorized and adopted from time to time by
Employer; provided, however, that Employee must meet any and
all eligibility provisions required under said fringe benefit
or incentive compensation plans. Employee shall also be
entitled to perquisites substantially similar to those other
Executive Vice Presidents are receiving as of the effective
date of this Agreement, including the use of an automobile
selected by Employer.
5. Vacation. Employee shall be entitled during each calendar
year to vacation with pay at such times and for such periods
as are consistent with the policies of Employer.
6. Working Facilities. Employee shall be furnished an office,
personal secretary and such other facilities and services
suitable to his position and adequate for the performance of
his duties, which shall be substantially similar to those of
other Executive Vice Presidents and consistent with the
policies of Employer.
3
7. Sick Leave and Disability.
(a) As determined by Employer, Employee shall be entitled to
a number of days sick leave with full pay as is
consistent with the uniform employment policies of
Employer.
(b) Should Employee become totally and permanently disabled
as a result of sickness or accident and be unable to
adequately perform his regular duties prescribed under
this Agreement, his employment hereunder shall be deemed
terminated, but Employee shall be entitled to the
continuation of his base salary for a period of six (6)
months thereafter, as well as any bonus to which he may
be entitled under his bonus program. In addition,
Employee shall be entitled to such benefits as are
provided under any long-term disability plan instituted
or maintained by Employer on behalf of Employee.
For the purposes of this Agreement, the term "totally
and permanently disabled" shall mean total and permanent
disability for purposes of receiving benefits under
Employer's long-term disability plan or insurance
policy. If Employer does not have such a plan or policy
in existence at the time, the term "totally and
permanently disabled" shall mean Employee's inability,
mentally or physically, on account of sickness or
accident to regularly engage in or adequately perform
his duties hereunder. It is understood that Employee's
occasional sickness or other incapacity of short
duration may not result in his being or becoming
"totally and permanently disabled"; however, an illness
or incapacity may lead to Employee being or becoming
totally and permanently disabled if the illness or
incapacity is prolonged or recurring. For purposes of
this Agreement, in the event Employer and Employee
cannot agree at any time as to whether Employee is
totally and permanently disabled, a final decision shall
be made by a committee composed of three (3) physicians
licensed by the State of South Carolina, one of whom
shall be appointed by Employer, one of whom shall be
appointed by Employee and the third shall be appointed
by the physicians appointed by Employer and Employee.
The finding of such committee of physicians shall be
conclusive upon all parties and they shall be bound by
any statement signed by two (2) or more members of such
committee.
8. Death During Employment. If Employee dies during the term of
his employment, or if Employee was employed by Employer at the
beginning of his last illness, Employer shall continue to pay
Employee's base salary to the estate of Employee for a period
of six (6) months thereafter. Also, Employer shall pay to the
estate of Employee any bonuses to which Employee may be
entitled under his bonus program.
9. Termination of Employment. Employee and Employer shall have
the right to terminate the employment relationship described
herein at any time by mutual agreement in writing.
4
Employer shall have the right to terminate the employment
relationship hereunder, for cause, by serving notice on
Employee. For the purposes hereof, cause for termination
shall be deemed to exist upon a good faith finding of two-
thirds of the Board of Directors of Employer (excluding
Employee if he is a member of the Board of Directors) of the
following: negligence, intemperance which interferes with the
performance of his duties, dishonesty involving Employer,
willful shortage in accounts under Employee's direct
supervision and control, refusal or material failure by
Employee to perform his duties hereunder. Employee and/or his
representative shall have the right to appear before the Board
of Directors.
In the event that Employer breaches the terms of this
Agreement, Employee shall have the right to terminate the
employment relationship hereunder.
10. Other Agreements. This Agreement shall be separate and apart
from, and shall be deemed to alter the terms of, any executive
compensation agreements, deferred compensation agreements,
bonus agreements, general employment benefits plans, stock
option plans and any other plans or agreements entered into
between Employee and Employer pursuant to which Employee has
been granted specific rights, benefits or options.
11. Non-Competition. Employee agrees that, during his employment
with Employer and for a period of two (2) years from the date
of the termination of Employee's employment with Employer, he
will not directly or indirectly compete with Employer by
engaging in the activities set forth on Exhibit "A" which is
attached hereto and incorporated herein by reference (the
"Prohibited Activities") within the geographic area which is
set forth on Exhibit "B" hereto (the "Restricted Area"). For
purposes of this Section 11, Employee recognizes and agrees
that Employer conducts and will conduct business in the entire
Restricted Area and that Employee will perform his duties for
Employer within the entire Restricted Area. Employee shall be
deemed to be engaged in and carrying on said Prohibited
Activities if he engages in said activities in any capacity
whatsoever, including, but not limited to, by or through a
partnership of which he is a general or limited partner or an
employee engaged in said activities, or by or through a
corporation or association of which he owns five percent (5%)
or more of the stock or of which he is an officer, director,
employee, member, representative, joint venturer, independent
contractor, consultant or agent who is engaged in said
activities. Employee agrees that during the two (2) year
period described above, he will notify Employer of the name
and address of each employers with whom he has accepted
employment during said period. Such notification shall be
made in writing within five (5) days after Employee accepts
any employment or new employment by certified mail, return
receipt requested.
12. Confidential Data. Employee further agrees that, during his
employment with Employer and upon his termination of
employment for any cause, he will keep confidential and not
divulge to any one nor appropriate for his own benefit any
confidential information described in Exhibit "C" which is
attached hereto and incorporated by this reference herein
5
(the "Confidential Data"). Employee hereby acknowledges and agrees
that the prohibition against disclosure of confidential data
recited herein is in addition to and, not in lieu of, any rights or
remedies which Employer may have available pursuant to the laws of
any jurisdiction or at common law to prevent the disclosure of
trade secrets, and the enforcement by Employer of its rights and
remedies pursuant to this Agreement shall not be construed as a
waiver or any other rights or available remedies which it may
possess in law or equity absent this Agreement.
13. Non-Solicitation of Employees. Employee covenants that during
his employment and during the one (1) year period immediately
following the termination thereof, either by expiration of the
term of this Agreement or under any of the provisions of
Section 9 above, Employee will neither directly nor indirectly
induce or attempt to induce any employee of Employer to
terminate his or her employment. Nor will Employee, without
prior written consent of Employer, offer employment either on
behalf of himself or on behalf of any other individual or
entity to any employee of Employer or to any terminated
employee of Employer during the term of Employee's employment
and during the one (1) year period following the termination
of his employment.
14. Property of Employer. Employee acknowledges that from time to
time in the course of providing services pursuant to this
Agreement he shall have the opportunity to inspect and use
certain property, both tangible and intangible, of Employer
and Employee hereby agrees that said property shall remain the
exclusive property of Employer, and Employee shall have no
right or proprietary interest in such property, whether
tangible or intangible, including, without limitation,
Employee's customer and supplier lists, contract forms, books
of account, computer programs and similar property.
15. Equitable Relief. Employee acknowledges that the services to
be rendered by him are of a special, unique, unusual,
extraordinary, and intellectual character, which gives them a
peculiar value, and the loss of which cannot reasonably or
adequately be compensated in damages in an action at law; and
that a breach by him of any of the provisions contained in
this Agreement will cause Employer irreparable injury and
damage. Employee further acknowledges that he possesses
unique skills, knowledge and ability and that competition by
him in violation of this Agreement or any other breach of the
provisions of this Agreement would be extremely detrimental to
Employer. By reason thereof, Employee agrees that Employer
shall be entitled, in addition to any other remedies it may
have under this Agreement or otherwise, to injunctive and
other equitable relief to prevent or curtail any breach of
this Agreement by him.
16. "Change of Control". In the event: (1) Employer becomes a
subsidiary of another corporation or is merged or consolidated
into another corporation or substantially all of the assets of
Employer are sold to another corporation; or (2) any person,
corporation, partnership or other entity, either alone or in
conjunction with its "affiliates" as that term is defined in
Rule 405 of the General Rules and Regulations under the
Securities Act of
6
1933, as amended, or other group of persons, corporations,
partnerships or other entities who are not "affiliates" but who are
acting in concert, becomes the owner of record or beneficially of
securities of Employer which represent thirty-three and one-third
percent (33 1/3%) or more of the combined voting power of
Employer's then outstanding securities entitled to elect Directors;
or (3) the Board of Directors of Employer or a Committee thereof
makes a determination in its reasonable judgment that a "Change of
Control" of Employer has taken place (a "Change of Control"), the
term during which this Agreement shall be effective shall include
the term of this Employment Agreement following the date of the
Change of Control plus one (1) year, and Employee's compensation
for such period shall be based on the following formula, shall be
subject to the following conditions and shall be in lieu of the
compensation provided for under Section 3 of this Agreement:
(a) Employee shall be paid an annual salary for the term of
Employee's Employment Agreement plus one (1) year
consisting of one hundred fifty percent (150%) of the
average amount of total cash compensation, excluding
payments made under Employer's Long-Term Incentive Plan
for Executives and tax benefit bonuses paid upon the
lapse of resale restrictions on common stock for certain
officers of Employee for the two (2) calendar years
prior to the time such control was acquired.
(b) Employee shall be paid an annual amount for the term of
Employee's Employment Agreement plus one (1) year in
consideration of the non-competition covenant of Section
11 of this Agreement consisting of fifty percent (50%)
of the average amount of total cash compensation,
excluding payments made under Employer's Long-Term
Incentive Plan for Executives and tax benefit bonus paid
upon the lapse or resale restrictions on common stock
for certain officers, of Employee for the two (2)
calendar years prior to the time such control was
acquired. Said annual amounts shall be paid quarterly
in advance.
(c) Notwithstanding any of the provisions of this Agreement,
the amount of all payments to be made pursuant to this
section after a Change of Control shall not exceed one
dollar ($1.00) less than that amount which would cause
any such payment to be deemed a "parachute payment" as
defined in Section 280G of the Internal Revenue Code of
1986 (the "Code"), as amended, and as said statute is
then in effect at the time of such payment.
(d) Any payments made to Employee following a Change of
Control that shall be disallowed, in whole or in part,
as a deductible expense to Employer for Federal income
tax purposes by the Internal Revenue Service on the
basis that Section 280G of the Code prohibits such
deduction shall be reimbursed by Employee to the full
extent of said disallowance within six (6) months after
the date of which the amount of said disallowance has
been finally determined and Employer has paid the
deficiency with respect to said disallowance. Employer
shall legally defend any proposed disallowance by the
Internal Revenue Service and the amount required to be
7
reimbursed by Employee shall be the amount determined by an
appropriate court in a final, nonappealable decision that is
actually disallowed as a deduction. In lieu of payment to Employer
by Employee, Employer may, in its discretion, withhold amounts from
Employee's future compensation payments until the amount owed to
Employer has been fully recovered. No such withholding shall occur
prior to the date on which Employee would be required to make
reimbursement as provided herein.
(e) If the limitation set forth in (c) may at any time
become applicable to the amounts otherwise due pursuant
to paragraphs (a) and (b), then Employer shall continue
to pay Employee all amounts as provided under paragraphs
(a) and (b) until such time as cumulative payments equal
the aggregate amount as limited by paragraph (c) and
Employee may terminate his employment on three (3)
months notice at any time within the last twelve (12)
months of the time period during which the payments
described in this subparagraph will be paid without
affecting his rights to receive said payments.
(f) Employer shall have no obligation to pay the amounts set
forth in (a) and (b) as limited by (c) if there is
reasonable proof that the non-competition or
confidential data provisions of Sections 11 and 12 of
this Agreement are being violated.
(g) In the event of termination of employment of Employee
for Cause, as hereinafter defined, following a Change of
Control, Employer shall not be obligated to make any
further payments of the compensation amounts provided
for in this Agreement. Notwithstanding any other
provision of this Agreement, except for (e) and (j)
hereinafter which shall control in the event Employee
terminates employment as provided in (e) and (j), in the
event Employee voluntarily terminates employment
following a Change of Control for other than Good
Reason, as defined hereinafter, compensation amounts set
forth in (a) and (b) shall be payable only for a one (1)
year period following termination of employment.
"Cause" for the purposes of this Section is defined to
mean: (1) willful failure to substantially perform
prescribed duties other than as a result of disability;
or (2) willful engagement in misconduct significantly
detrimental to Employer.
"Good Reason" to terminate employment with Employer
occurs if: (1) duties are assigned that are materially
inconsistent with previous duties; (2) duties and
responsibilities are substantially reduced; (3) base
compensation is reduced not as part of an across the
board reduction for all senior officers or executives;
(4) participation under compensation plans or
arrangements generally made available to persons at
Employee's level of responsibility at Employer is
denied; (5) a successor fails to assume this Agreement;
or (6) termination is made without compliance with
prescribed procedures.
8
(h) In the event Employee is involuntarily terminated by
Employer without Cause or Employee voluntarily
terminates employment for Good Reason, Employer's
obligation to pay the compensation amounts provided in
this Section shall survive termination of employment.
(i) Further, in the event of termination of employment
during the pendency of a "Potential Change of Control",
as hereinafter defined, the provisions of (g) and (h)
shall apply as if an actual Change of Control had taken
place. A Potential Change of Control shall be deemed to
have occurred if: (1) Employer has entered into an
agreement or letter of intent the consummation of which
would result in a Change of Control; (2) any person
publicly announces an intention to take or to consider
taking actions which if consummated would constitute a
Change of Control; or (3) the Board of Directors of
Employer or a Committee thereof in its reasonable
judgment makes a determination that a Potential Change
of Control for purposes of this Agreement has occurred.
A Potential Change of Control remains pending for
purposes of receiving payments under this Agreement
until the earlier of the occurrence of a Change of
Control or a determination by the Board of Directors or
a committee thereof (at any time) that a Change of
Control is no longer reasonably expected to occur.
(j) Notwithstanding anything contained in this Agreement to
the contrary, Employee and Employer or the person,
corporation, partnership or other entity acquiring
control of Employer, with the concurrence of the Chief
Executive Officer and Compensation Committee of the
Board of Directors of Employer, may mutually agree that
Employee, with three (3) months' notice, may terminate
his employment and receive a lump sum payment equal to
the present value of remaining payments under this
Agreement discounted by the then current Treasury Bill
rate for the remaining term of this Agreement.
17. Successors Bound. This Agreement shall be binding upon
Employer and Employee, their respective heirs, executors,
administrators or successors in interest, including without
limitation, any corporation into which Employer may be merged
or by which it may be acquired.
18. Severability. In the event that any one or more of the
provisions of this Agreement or any word, phrase, clause,
sentence or other portion thereof (including without
limitation the geographical and temporal restrictions
contained herein) shall be deemed to be illegal or
unenforceable for any reason, such provision or portion
thereof shall be modified or deleted in such a manner so as to
make this Agreement as modified legal and enforceable to the
fullest extent permitted under applicable laws. The validity
and enforceability of the remaining provisions or portions
thereof shall not be construed as a waiver of any subsequent
breach of the same or any other covenants, term or provision.
If the geographical or temporal restrictions contained in
Sections 11 and 13 hereof are so deleted, no such modification
or deletion will be made which is less favorable to Employee
without
9
his consent.
19. Integrated Agreement. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the
subject matter hereof, and there are no agreements,
understandings, specific restrictions, warranties or
representations relating to said subject matter between the
parties other than those set forth herein or herein provided
for.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will take effect as an original
and all of which shall evidence one and the same Agreement.
21. Governing Law. The terms of this Agreement shall be governed
by and construed in accordance with the laws of the State of
South Carolina.
22. Assignment. The rights, duties and obligations under this
Agreement may not be assigned by either party, except if there
is a Change of Control as defined in Section 16, Employer may
assign its rights and obligations hereunder to the person,
corporation, partnership or other entity which has gained such
control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
"Employer"
[CORPORATE SEAL] POLICY MANAGEMENT SYSTEMS
CORPORATION
Witness:
_____________________________ BY: ___________________________
President
_____________________________
"Employee"
_____________________________ _________________________ (SEAL)
Timothy V. Williams
_____________________________
10
EXHIBIT A
Acting in any capacity, either individually or with any
corporation, partnership or other entity, directly or indirectly,
in providing, or proposing to provide, data processing software
systems, related automation support services and information
services to the insurance industry, including, but not limited to,
application software, processing, consulting and related services,
in the performance of any of the following types of duties in any
part of the insurance industry:
1. The performance of the sales and marketing functions.
2. The responsibility for sales revenue generation.
3. The responsibility for customer satisfaction.
4. The responsibility for research and development of insurance
data base products.
5. The responsibility for the research and development of
information data processing systems and services.
6. The providing of input to pricing of products.
7. The planning and management of data processing services
resources.
8. The coordination of the efforts of the various aspects of
computer systems services organizations with other functions.
9. The planning and management of information services resources.
10. The providing and management of an operations staff to support
the above listed activities.
11
EXHIBIT B
RESTRICTED AREA
Fifty mile radius of the city limits of the following cities:
Toronto, Canada Birmingham, Alabama
Columbus, Ohio Minneapolis, Minnesota
Cincinnati, Ohio San Diego, California
Chicago, Illinois Melbourne, Australia
Dallas/Fort Worth, Texas Indianapolis, Indiana
Los Angeles, California St. Paul, Minnesota
Boston, Massachusetts Denver, Colorado
Philadelphia, Pennsylvania Mobile, Alabama
Hartford, Connecticut Seattle, Washington
San Francisco, California Bloomington, Illinois
New York City, New York Des Moines, Iowa
Columbia, South Carolina San Juan, Puerto Rico
Sydney, Australia El Paso, Texas
Honolulu, Hawaii Detroit, Michigan
Jacksonville, Florida Phoenix, Arizona
Milwaukee, Wisconsin San Antonio, Texas
Montreal, Canada Baltimore, Maryland
12
EXHIBIT B (CONT.)
Kansas City, Missouri San Jose, California
Stanford, Connecticut Memphis, Tennessee
Oklahoma City, Oklahoma Washington, D.C.
Atlanta, Georgia New Orleans, Louisiana
Houston, Texas London, England
Miami, Florida Paris, France
Princeton, New Jersey St. Louis, Missouri
Cleveland, Ohio Nashville, Tennessee
13
EXHIBIT C
CONFIDENTIAL INFORMATION
1. All software/systems (including all present, planned and
future software), whether licenses or unlicensed, developed by
or on behalf of or otherwise acquired by Policy Management
Systems Corporation or any of its subsidiaries.
"All software/system" shall mean:
. all code in whatever form
. all data pertaining to the architecture and design of
such software systems
. all documentation in whatever form
. all flowcharts
. any reproduction or recreation in whole or in part of
any of the above in whatever form.
2. All business plans and strategies including:
. strategic plans
. product plans
. marketing plans
. financial plans
. operating plans
. resource plans
. all research and development plans including all data
produced by such efforts.
3. Internal policies, procedures, methods and approaches which
are unique to Policy Management Systems Corporation and are
non-public.
4. Any information relating to the employment, job
responsibility, performance, salary and compensation of any
present or future officer or employee of Policy Management
Systems Corporation.
EX-10
6
EXHIBIT 10O
1
FORM
STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement")
is made effective as of October 13, 1994, by and between
("EMPLOYEE") and Policy Management Systems Corporation
("PMSC").
W I T N E S S E T H:
WHEREAS, EMPLOYEE has been employed by PMSC in a position of
significant responsibility and PMSC desires to recognize EMPLOYEE'S
contribution to PMSC by making EMPLOYEE a "Key EMPLOYEE" as defined
in the Policy Management Systems Corporation 1989 Stock Option Plan
("Plan") and therefore eligible to be granted Options as defined
therein; and
WHEREAS, EMPLOYEE has developed and will continue to develop
intimate knowledge of PMSC's business practices, which, if
exploited by EMPLOYEE in contravention of this Agreement, could
seriously, adversely and irreparably affect the business of PMSC;
and
WHEREAS, EMPLOYEE and PMSC each desire to induce the other to enter
into this Agreement; and
WHEREAS, PMSC would not make EMPLOYEE a Key EMPLOYEE in the event
that EMPLOYEE refused to agree to the terms and conditions of this
Agreement and thus EMPLOYEE would not be eligible to receive
Options under the Plan;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants of the parties hereto, EMPLOYEE and PMSC
agree as follows:
1. Grant. Effective October 13, 1994, PMSC grants EMPLOYEE
"non-qualified" Options to purchase up to
( ) shares of PMSC
common stock pursuant to the Plan. Non-qualified options are
subject to tax upon exercise as set forth in paragraph 5
below.
A. THESE OPTIONS AND THIS AGREEMENT MAY BE REVOKED BY THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS IN THEIR
ABSOLUTE DISCRETION, PRIOR TO THE TIME THEY BECOME
EXERCISABLE IN ACCORDANCE WITH THIS AGREEMENT, IF THEY
DEEM IT APPROPRIATE TO DO SO BASED UPON SUCH FACTS OR
CIRCUMSTANCES AS THEY DEEM RELEVANT, INCLUDING, WITHOUT
2
LIMITATION, THE RESULTS OR FINDINGS, WHETHER PRELIMINARY OR
FINAL, OF THE VARIOUS INVESTIGATIONS INTO PMSC'S PREVIOUSLY
ISSUED FINANCIAL STATEMENTS.
B. THE OPTIONS HEREBY GRANTED ARE ALSO SUBJECT TO THE
SHAREHOLDERS OF PMSC APPROVING AN AMENDMENT TO THE PLAN
TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES UNDER THE
PLAN. IF SUCH SHAREHOLDER APPROVAL IS NOT OBTAINED, THE
NUMBER OF OPTIONS GRANTED HEREBY SHALL BE REDUCED BY A
PRO RATA AMOUNT AMONG THE OTHER OPTIONS GRANTED WITH THE
SAME EFFECTIVE DATE.
2. Price and Expiration. The option price of the shares subject
to these Options is the closing price of the stock on the New
York Stock Exchange on the date of grant, i.e., forty-four
dollars ($44.00). These Options may not be exercised after
the termination of employment or term as director of EMPLOYEE
with PMSC, except that in the event of retirement with the
consent of PMSC, EMPLOYEE may exercise these Options for a
period of three (3) months after retirement, and in the event
of the death of EMPLOYEE during his or her employment or term
as a director or death within three (3) months after
retirement, these Options may be exercised during a period of
one (1) year from the date of death, as described in the Plan.
In no event shall any Options be exercisable to any greater
extent than they may have been at the date of said retirement
or death. These Options must be exercised within ten (10)
years of the effective date of this Agreement (the "Expiration
Date") or they will expire.
3. Availability for Exercise. 33 1/3% of the shares subject to
the Options granted will become available for exercise on the
third (3rd) anniversary of the effective date of this grant,
an additional one-third will become exercisable beginning on
the fourth (4th) anniversary of the effective date of this
grant and the remainder will become exercisable beginning on
the fifth (5th) anniversary of the effective date of this
grant. For example... 33 1/3% of the total number of Options
granted will be available for exercise beginning October 13,
1997, 66 2/3% will be available for exercise beginning October
13, 1998; and 100% will be available for exercise beginning
October 13, 1999. Once Options become available for exercise,
they will remain available for exercise unless they expire.
3A. Change in Control. If there is a Change in Control (as
hereinafter defined) of PMSC prior to the Expiration Date,
then, notwithstanding any other provision of the Plan or this
Agreement to the contrary other than Section 1.B above and 3B
below, to the extent the Option otherwise would have been
exercisable according to the "One-third Schedule" as defined
below, each Option granted hereby then outstanding shall
become immediately exercisable in full and shall become
nonforfeitable regardless of whether there is a change in
office or employment status subsequent to such Change in
Control.
3
For purposes of this Section, a "Change in Control" shall be
deemed to have occurred in the event: (1) that substantially
all of PMSC's assets are sold to another person, corporation,
partnership, or other entity other than one owned or
controlled by PMSC; or (2) any person, corporation,
partnership or other entity, either alone or in conjunction
with its "affiliates" as that term is defined in Rule 405 of
the General Rules and Regulations under the Securities Act of
1933, as amended, or other group of persons, corporations,
partnerships or other entities who are not affiliates, but who
are acting in concert, becomes the owner of record or
beneficially of securities of PMSC which represent thirty-
three and one-third percent (33 1/3%) or more of the combined
voting power of PMSC's then outstanding securities entitled to
elect directors; or (3) the Board or a committee thereof makes
a determination in its reasonable judgment that a Change in
Control of PMSC has taken place.
For purposes of this Section, the "One-third Schedule" shall
mean that one-third of the total number of Options granted
hereunder would be exercisable beginning on the first
anniversary date of the grant; an additional one-third would
be exercisable beginning on the second anniversary date of the
grant; and all would be exercisable beginning on the third
anniversary date of the grant. Provided, however, if the
shareholders approve an amendment to the Plan to allow for the
immediate exercisability of all Options granted hereunder in
the event of a Change in Control, if there is a Change in
Control of PMSC prior to the Expiration Date, then
notwithstanding any other provision of the Plan or this
Agreement except Sections 1B above and 3B below: (i) each
Option granted hereby then outstanding shall become
immediately exercisable in full regardless of whether there is
a change in office or employment status subsequent to such
Change in Control; (ii) EMPLOYEE shall have a period of ninety
(90) days after termination of employment to exercise the
Options granted hereby; and (iii) and in the event of the
death of EMPLOYEE during the aforementioned ninety (90) day
period, said Options may be exercised during a period of one
(1) year from the date of death, as described in Section 10 of
the Plan, but in no event shall these Options be exercised
after the tenth anniversary date these Options were granted.
3B. Sale or merger. In the event of dissolution or liquidation of
PMSC or any merger or combination in which PMSC is not a
surviving corporation ("Sale or Merger"), each outstanding
Option granted hereunder shall terminate, but the Optionee
shall have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise his or her
Option, in whole or in part, to the extent that it shall not
have been exercised, without regard to any installment
exercise provisions.
3C. Additional Compensation. In the event a Change in Control or
Sale or Merger, as described in Sections 3A and 3B above,
occurs while EMPLOYEE is employed by PMSC and occurs prior to
the Expiration Date, then in addition to the exercise rights
granted, EMPLOYEE also shall be compensated based on the
following formula, subject to the following conditions,
EMPLOYEE may elect by written notice to PMSC's General Counsel
the following in lieu of all other compensation from PMSC:
4
(a) EMPLOYEE shall be paid an annual salary for two (2) years
following a Change in Control or Sale or Merger
consisting of one hundred percent (100%) of the average
amount of total cash compensation of EMPLOYEE for the two
(2) calendar years prior to the time of such Change in
Control or Sale or Merger. For purposes of the
foregoing, "average amount of total cash compensation"
shall include salary and bonuses, but shall specifically
exclude income attributable to the granting or exercising
of stock options.
(b) Notwithstanding any of the provisions of this Agreement,
the amount of all payments to be made pursuant to this
Agreement after a Change of Control or a Sale or Merger
shall not exceed one dollar ($1.00) less than that amount
which would cause any such payment to be deemed a
"parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986 (the "Code"), as amended,
and as said statute is then in effect at the time of such
payment.
(c) Any payments made to EMPLOYEE following a Change of
Control or a Sale or Merger that shall be disallowed, in
whole or in part, as a deductible expense to PMSC for
Federal income tax purposes by the Internal Revenue
Service on the basis that Section 280G of the Code
prohibits such deduction shall be reimbursed by EMPLOYEE
to the full extent of said disallowance within six (6)
months after the date on which the amount of said
disallowance has been finally determined and PMSC has
paid the deficiency with respect to said disallowance.
PMSC shall legally defend any proposed disallowance by
the Internal Revenue Service and the amount required to
be reimbursed by EMPLOYEE shall be the amount determined
by an appropriate court in a final, nonappealable
decision that is actually disallowed as a deduction. In
lieu of payment to PMSC by EMPLOYEE, PMSC may, in its
discretion, withhold amounts from EMPLOYEE's future
compensation payments until the amount owed to PMSC has
been fully recovered. No such withholding shall occur
prior to the date on which EMPLOYEE would be required to
make reimbursement as provided herein.
(d) If the limitation set forth in (b) may at any time become
applicable to the amounts otherwise due pursuant to
paragraph (a) then PMSC shall continue to pay EMPLOYEE
all amounts as provided under paragraph (a) until such
time as cumulative payments equal the aggregate amount as
limited by paragraph (b) and EMPLOYEE may terminate his
employment on three (3) months notice at any time within
the last twelve (12) months of the time period during
which the payments described in this Section 3C will be
paid without affecting his rights to receive said
payments.
(e) PMSC shall have no obligation to pay the amounts set
forth in (a) as limited by (b) if there is reasonable
proof that the non-competition or non-hire provisions of
Sections 7 and 8 of this Agreement are being violated.
5
(f) In the event of termination of employment of EMPLOYEE for
Cause, as hereinafter defined, following a Change of
Control or Sale or Merger, PMSC shall not be obligated to
make any further payments of the compensation amounts
provided for in this Section. Notwithstanding any other
provision of this Agreement, except for (d) and (i)
hereinafter which shall control in the event EMPLOYEE
terminates employment as provided in (d) and (i), in the
event EMPLOYEE voluntarily terminates employment
following a Change of Control or Sale or Merger for other
than Good Reason, as defined hereinafter, compensation
amounts set forth in (a) and (b) shall be payable only
for a one (1) year period following termination of
employment.
"Cause" for the purposes of this Section is defined to
mean: (1) willful failure to substantially perform
prescribed duties other than as a result of disability;
or (2) willful engagement in misconduct significantly
detrimental to PMSC.
"Good Reason" to terminate employment with PMSC occurs
if: (1) duties are assigned that are materially
inconsistent with previous duties; (2) duties and
responsibilities are substantially reduced; (3) base
compensation is reduced not as part of an across the
board reduction for all senior officers or executives;
(4) participation under compensation plans or
arrangements generally made available to persons at
EMPLOYEE's level of responsibility at PMSC is denied; (5)
a successor fails to assume this Agreement; or (6)
termination is made without compliance with prescribed
procedures.
(g) In the event EMPLOYEE is involuntarily terminated by PMSC
without Cause or EMPLOYEE voluntarily terminates
employment for Good Reason, PMSC's obligation to pay the
compensation amounts provided in this Section shall
survive termination of employment.
(h) Further, in the event of termination of employment during
the pendency of a "Potential Change of Control", as
hereinafter defined, the provisions of (f) and (g) shall
apply as if an actual Change of Control or Sale or Merger
had taken place. A Potential Change of Control shall be
deemed to have occurred if: (1) PMSC has entered into an
agreement or letter of intent the consummation of which
would result in a Change of Control or Sale or Merger;
(2) any person publicly announces an intention to take or
to consider taking actions which if consummated would
constitute a Change of Control or Sale or Merger; or (3)
the Board of Directors of PMSC or a Committee thereof in
its reasonable judgment makes a determination that a
Potential Change of Control for purposes of this
Agreement has occurred. A Potential Change of Control
remains pending for purposes of receiving payments under
this Section until the earlier of the occurrence of a
Change of Control or Sale or Merger or a determination by
the Board of Directors or a committee thereof (at
6
any time) that a Change of Control or Sale or Merger is no
longer reasonably expected to occur.
(i) Notwithstanding anything contained in this Agreement to
the contrary, EMPLOYEE and PMSC or the person,
corporation, partnership or other entity acquiring
control of PMSC, with the concurrence of the Chief
Executive Officer and Compensation Committee of the Board
of Directors of PMSC, may mutually agree that EMPLOYEE,
with three (3) months' notice, may terminate his
employment and receive a lump sum payment equal to the
present value of remaining payments under this Agreement
discounted by the then current Treasury Bill rate for the
remaining term of this Section.
4. Order of Exercise. The Options may be exercised without
regard to the order in which these and any other Options were
granted and without regard to any unexpired and unexercised
qualified, Incentive Stock Options ("ISO's") or other
non-qualified options.
5. Tax Liability. The tax liability which EMPLOYEE may incur
relating to these Options is described below based upon
present law and regulations which are subject to change.
Taxes incurred are:
+ when options are granted - none
+ when options are exercised - the difference between the
fair market value of the stock at the date of exercise of
an Option and the option price is a capital gain but
generally will be treated as ordinary income during the
year the Option is exercised. Such tax liability is
created at the time EMPLOYEE exercises an Option and PMSC
is required to collect withholding taxes from EMPLOYEE.
Federal income taxes (computed at a rate of 28% of the
above described difference) and FICA and state income
taxes (computed at the applicable rate of the above
described difference) are withheld. For example...if the
option price is $33.00 and the fair market value at the
date of the exercise is $38.00, the difference is $5.00,
and assuming an applicable FICA rate of 7.65% and state
income tax rate of 7%, along with the 28% federal income
tax, the PMSC would collect a tax of $2.13 per share from
EMPLOYEE.
+ when shares are sold - the difference between the fair
market value at the date of exercise (the $38.00 in the
above example) and the price at which EMPLOYEE sells the
stock is treated the same as above described during the
year in which EMPLOYEE sells the stock purchased by
exercise of his or her Options.
6. Exercise and Payment. Exercises of Options shall only be
handled pursuant to the Instructions set forth on the last
page of this Agreement. To exercise these Options, EMPLOYEE
shall make payment in full to PMSC for the option price of the
shares to be purchased...plus the combined (federal, FICA and
state) tax liability EMPLOYEE incurs.
7
Such taxes paid to PMSC will be forwarded to the Internal
Revenue Service and appropriate state tax commission and
credited to EMPLOYEE in the same manner as the withholding tax
on EMPLOYEE's salary. EMPLOYEE's actual tax will depend upon
the overall tax rate calculated when EMPLOYEE prepares his or
her tax returns. EMPLOYEE should consult a tax professional
regarding questions about EMPLOYEE's actual tax liability.
7. Non-competition. In consideration of the Options hereby
granted, EMPLOYEE covenants and agrees that EMPLOYEE shall
devote his or her best efforts to furthering the best
interests of PMSC and that during the period of his or her
employment with PMSC and for the periods set forth below
following the date of separation from employment, EMPLOYEE
shall not "Compete" with PMSC. The region within which
EMPLOYEE agrees not to Compete with PMSC is the United States,
Canada, and those countries in which PMSC has customers or
clients as of the date of EMPLOYEE's separation from
employment. For the purpose of this Agreement, the term
"Compete" shall have its commonly understood meaning which
shall include, but not be limited by, the following items with
respect to PMSC's insurance application software licensing,
data processing, consulting and information services
businesses and any other businesses carried on by PMSC at the
time of EMPLOYEE's separation from employment:
(i) for a period of two (2) years, soliciting or
accepting as a client or customer any individual,
partnership, corporation, trust or association that
was a client, customer or actively sought after
prospective client or customer of PMSC during the
twelve (12) calendar month period immediately
preceding the date of EMPLOYEE's separation from
employment;
(ii) for a period of one (1) year, acting as an
EMPLOYEE, independent contractor, agent,
representative, consultant, officer, director, or
otherwise affiliated party of any entity or
enterprise which is competing with PMSC in offering
similar application software or services to parties
described in (i) above; or
(iii) for a period of one (1) year, participating in any
such competing entity or enterprise as an owner,
partner, limited partner, joint venturer, creditor
or stockholder (except as an equity holder holding
less than a one percent (1%) interest).
8. Non-Hiring. During EMPLOYEE'S employment with PMSC and for a
period of three (3) years after separation from such
employment, EMPLOYEE agrees that EMPLOYEE shall under no
circumstances hire, attempt to hire or assist or be involved
in the hiring of any employee of PMSC either on EMPLOYEE'S
behalf or on behalf of any other person, entity or enterprise.
Also, for the same period of time, EMPLOYEE agrees to not
communicate to any such person, entity or enterprise the
names, addresses or any other information concerning any
employee of PMSC or any past, present or actively sought after
prospective client or customer of PMSC.
8
9. Equitable Relief. EMPLOYEE acknowledges (i) that EMPLOYEE'S
skill, knowledge, ability and expertise in the business
described herein is of a special, unique, unusual,
extraordinary, and/or intellectual character which gives said
skill, etc. a peculiar value; (ii) that PMSC could not
reasonably or adequately be compensated in damages in an
action at law for breach of this Agreement; and (iii) that a
breach of any of the provisions contained in this Agreement
could be extremely detrimental to PMSC and could cause PMSC
irreparable injury and damage. Therefore, EMPLOYEE agrees
that PMSC shall be entitled, in addition to any other remedies
it may have under this Agreement or otherwise, to preliminary
and permanent injunctive and other equitable relief to prevent
or curtail any breach of this Agreement; provided, however,
that no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver of or
prohibition against the pursuing of other legal or equitable
remedies in the event of such a breach.
10. Breach of Agreement. EMPLOYEE agrees that in the event
EMPLOYEE breaches any provision of this Agreement, PMSC shall
be entitled, in addition to any other remedies it may have
under this Agreement, to offset, to the extent of any
liability, loss, damage or injury from such breach, any
payments due to EMPLOYEE pursuant to his or her employment
with PMSC.
11. Employment Understanding. This Agreement constitutes the
entire agreement between the parties with regard to the
subject matter hereof, and there are no agreements,
understandings, restrictions, warranties or representations
between the parties relating to said subject matter other
than those set forth or provided for herein or in any
Agreement Not To Divulge or employment agreement between PMSC
and EMPLOYEE. It is understood that PMSC's and EMPLOYEE's
relationship is one of "at will" employment unless EMPLOYEE
and PMSC have entered into a written employment agreement
which provides otherwise. This Agreement shall not affect, or
be affected by, any employment agreement, if any, between PMSC
and EMPLOYEE.
12. General. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof
(including, without limitation, the geographical and temporal
restrictions contained herein) should be held to be
unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner
so as to make this Agreement enforceable to the fullest extent
permitted under applicable laws. All references to PMSC shall
include its subsidiaries as applicable. This Agreement shall
inure to the benefit of and be enforceable by PMSC and its
successors and assigns. No provision of this Agreement may be
changed, modified, waived or terminated, except by an
instrument in writing signed by the party against whom the
enforcement of such is sought. No waiver of any provision or
provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
Headings in this Agreement are inserted solely as a matter of
convenience and reference and are not a part of this Agreement
in any substantive sense.
9
This Agreement may be executed in two counterparts, each of
which will take effect as an original and shall evidence one
and the same Agreement.
13. Plan Controls. In the event of any discrepancy between this
Agreement and the Plan as to the terms and conditions of the
Options, the Plan shall control.
14. Governing Law. The terms of this Agreement shall be governed
by and construed in accordance with the laws of the State of
South Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY: _________________________________
Steven A. Denning
TITLE: Director and Chairman of the
Compensation Committee
EMPLOYEE
_____________________________________
(Signature)
(Type or Print Name)
_____________________________________
(Date Signed by EMPLOYEE)
10
INSTRUCTIONS FOR EXERCISE OF PMSC STOCK OPTIONS
Contact Person: Lynn W. Dillard, Ext. 4303
1A4
Post Office Box Ten, Columbia, SC 29202
An exercise form must be obtained and properly filled out. The
form and EMPLOYEE's check for the appropriate exercise price and
withholding taxes (federal and state income taxes and FICA) must be
delivered to the Contact Person. PMSC does not deal with third
parties concerning EMPLOYEE's exercise of his or her stock options.
If an EMPLOYEE deals with a brokerage firm, a bank or any other
third party, the EMPLOYEE shall be responsible to keep such party
from impacting on the two-party transaction between PMSC and the
EMPLOYEE. This transaction solely consists of EMPLOYEE bringing
PMSC the exercise form and his or her own check and after several
days PMSC giving EMPLOYEE a certificate for his or her shares of
stock. PMSC's stock transfer agent is located in New York. If
desired, an EMPLOYEE may request and pay the charges for the
certificate to be sent to PMSC via Federal Express. The
certificate will only be issued in the EMPLOYEE's name. EMPLOYEEs
may only exercise a whole number of options as PMSC shall not
direct the transfer agent to issue fractional shares.
As an optionholder, an EMPLOYEE is entitled to request copies of
PMSC's Annual and Quarterly Reports. An EMPLOYEE will not receive
such reports automatically as an optionholder. Additionally,
reports are available upon request showing a complete list of
EMPLOYEE's options outstanding, options available for exercise,
cost per share, total costs, and expiration dates of options. An
EMPLOYEE may wish to request these materials or information before
exercising options by calling or writing the Contact Person.
THESE INSTRUCTIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE.
11
SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
NAMED EXECUTIVE DATE OF NUMBER OPTION
OFFICER GRANT GRANTED PRICE
G. Larry Wilson October 13, 1994 225,000 $44.00
David T. Bailey October 13, 1994 100,000 $44.00
Charles E. Callahan October 13, 1994 100,000 $44.00
Donald A. Coggiola October 13, 1994 50,000 $44.00
Stephen G. Morrison October 13, 1994 30,000 $44.00
Timothy V. Williams October 13, 1994 30,000 $44.00
EX-10
7
EXHIBIT 10P
1
POLICY MANAGEMENT SYSTEMS CORPORATION
1993 LONG-TERM INCENTIVE PLAN OF EXECUTIVES
1.
PURPOSE
The purpose of this Plan is to promote the interest of Policy
Management Systems Corporation ("PMSC") and it subsidiaries by
granting Options to purchase Common Stock to certain key employees
in order (1) to attract and retain said employees, (2) to provide
an additional incentive to each such employee to work to increase
the value of Common Stock and (3) to provide each such employee
with a stake in the future of PMSC which corresponds to the stake
of each of PMSC's shareholders.
2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning
set forth opposite such term for purposes of this Plan and, for
purposes of such definitions, the singular shall include the plural
and the plural shall include the singular.
2.1. Board - - means the Board of Directors of PMSC.
2.2. Committee - - means the Compensation Committee of the
Board.
2.3. Employee - - shall mean an employee of PMSC or any of its
subsidiaries.
2
2.4. Executive Council - - shall mean the Executive Council of
PMSC. The Executive Council shall be appointed by the Committee,
based upon the recommendation of management, and shall serve as an
advisory council to the chief executive officer and other senior
management of PMSC.
2.5. Common Stock - - means the common stock of PMSC.
2.6. Effective Date - - shall mean the effective date of this
Plan as set forth in Section 4.
2.7. Fair Market Value - - means the closing price on any date
for a share of Common Stock on the New York Stock Exchange or any
other national securities exchange on which the Common Stock is
listed. If no such price quotation is available, "Fair Market
Value" shall mean the price which the Committee acting in good
faith determines through any reasonable valuation method that a
share of Common Stock would change hands between a willing seller
and a willing buyer, neither being under any compulsion to buy or
to sell and both having reasonable knowledge of the relevant facts.
2.8. Option - - shall mean a nonqualified stock option granted
under this Plan to purchase a number of shares of Common Stock.
All options under this Plan are intended to be nonqualified stock
options and are not intended to satisfy the requirements of Section
422 of the Internal Revenue Code.
2.9. Termination Date - - shall mean December 31, 1998, after
3
which no Option shall be granted under this Plan.
3.
SHARES SUBJECT TO OPTIONS
There shall be 750,000 shares of Common Stock reserved for use
under this Plan, and such shares of Common Stock shall be reserved
from authorized but unissued shares of Common Stock. Furthermore,
any shares of Common Stock subject to an Option which remain after
the cancellation, expiration or exchange of such Option thereafter
shall again become available for use under the Plan.
4.
EFFECTIVE DATE
The Effective Date of this Plan shall be the date it is
adopted by the Board, provided that the shareholders representing
a majority of the shares of PMSC voting at a duly called meeting of
such shareholders approve this Plan after such Effective Date. Any
Options granted under this Plan before the date of such shareholder
approval automatically shall be granted subject to such shareholder
approval.
5.
COMMITTEE
This Plan shall be administered by the Committee. The
Committee acting in its absolute discretion shall exercise such
4
powers and take such action as expressly called for under this Plan
and, further, the Committee shall have the power to interpret this
Plan and (subject to Section 13, Section 14 and Section 15) to take
such other action in the administration and operation of this Plan
as the Committee deems equitable under the circumstances, which
shall be binding on PMSC, on each affected Employee and on each
other person directly or indirectly affected by such action. The
Committee shall have the power, in the event the number of shares
available for issuance under the Plan is less than the number of
shares that otherwise would be subject to an Option, to provide for
the issuance of an Option for a reduced number of shares and for
the issuance of an additional Option for the number of shares
constituting such reduction if and when shares again become
available. Notwithstanding the foregoing, except as expressly set
forth in this Plan, the Committee shall not have the right to
diminish the rights of an Employee under any Option granted under
this Plan without the written consent of such Employee.
6.
ELIGIBILITY
Only members of the Executive Council shall be eligible for
the grant of Options under this Plan.
5
7.
GRANT OF OPTIONS
7.1. Initial Grant. On the Effective Date, each member of the
Executive Council serving on such date shall receive an Option for
the number of shares of Common Stock set forth below opposite the
office which he holds on the Effective Date:
Chief Executive Officer - - 100,000 shares
Executive Vice President - - 50,000 shares
Senior Vice President, holding
the position of Group Manager - - 30,000 shares
Senior Vice President - - 25,000 shares
Vice President (Elected or Appointed) - - 12,500 shares
7.2. New members. Any person not serving on the Executive
Council on the Effective Date who is appointed to the Council on or
before the Termination Date shall receive, if approved by the
Committee, an Option for the number of shares set forth opposite
his office in Section 7.1 multiplied by a fraction, the numerator
of which is the number of calendar months (with any partial month
treated as a full month) between the date of his appointment to the
Executive Council and the Termination Date and the denominator of
which is 72. For example, an Employee appointed to the Executive
Council while serving as Vice President 36 months prior to the
Termination Date would receive an Option for 6,250 shares (12,500
x 36/72). In the event any person appointed to the Executive
Council does not hold an office set forth in Section 7.1, such
6
person shall receive an Option for the number of shares determined
by the Committee in its sole discretion.
7.3. Promotions. Any member of the Executive Council who is
promoted by the Board to an office of higher rank (based on the
order of titles set forth in Section 7.1) on or before the
Termination Date shall receive, subject to availability of shares
reserved for issuance under the Plan, an additional Option for the
number of shares set forth in Section 7.1 opposite the office to
which he is promoted minus the number of shares set forth opposite
the office being vacated, multiplied by a fraction, the numerator
of which is the number of calendar months (with any partial month
being treated as a full month) between the date on which he is
promoted and the Termination Date and the denominator of which is
72. For example, an Employee who is promoted from Vice President
to Senior Vice President 36 months prior to the Termination Date
would receive an additional Option for 6,250 shares ((25,000 -
12,500) x 36/72). In the event any member of the Executive Council
is promoted to or from an office not set forth in Section 7.1, such
person shall receive an additional Option for the number of shares
determined by the Committee in its sole discretion.
7.4. Demotions. In the event any member of the Executive
Council is subsequently demoted to an office of lower rank (based
7
on the order of titles set forth in Section 7.1), any Option held
by such person that has not previously become exercisable in
accordance with Section 9 shall be automatically forfeited with
respect to the number of shares set forth above opposite the office
being vacated by him minus the number of shares set forth opposite
the office to which he is demoted, multiplied by a fraction, the
numerator of which is the number of calendar months (with any
partial month treated as a full month) between the date of such
demotion and the Termination Date and the denominator of which is
72. For example, an Employee who is demoted from Executive Vice
President to Senior Vice President 36 months prior to the
Termination Date would forfeit his Option with respect to 12,500
shares ((50,000 - 25,000) x 36/72). In the event any member of the
Executive Council is subsequently demoted to or from an office not
set forth in Section 7.1, the extent to which any Option held by
such person shall be forfeited shall be determined by the Committee
in its sole discretion.
7.5. Removal. In the event any member of the Executive
Council is subsequently removed from the Executive Council, any
Option held by such person shall be automatically forfeited to the
extent that such Option has not previously become exercisable in
accordance with Section 9.
8
8.
OPTION PRICE
The Option Price for each share of Common Stock subject to an
Option granted under Section 7.1 shall be equal to 105% of the Fair
Market Value of the Common Stock on the Effective Date. The Option
Price of any Option granted under Section 7.2 or Section 7.3 hereof
shall be equal to the percentage of the Fair Market Value of the
Common Stock on the date the Option is granted as follows:
Calendar year Option
is granted Percentage
1993 105%
1994 104%
1995 103%
1996 102%
1997 101%
1998 100%
The Option Price shall be payable in cash in full upon the
exercise of any Option, or, if approved by the Committee, the
Employee may pay all or part of the Option Price upon exercise of
the Option in shares of Common Stock already held by the Employee.
In the event that all or part of the Option Price is paid in shares
of Common Stock, the value of such shares shall be equal to the
Fair Market Value of such shares on the date of exercise of the
Option.
9
9.
EXERCISE PERIOD
All Options granted under this Plan shall become exercisable
in installments in accordance with "Exhibit A" attached to the Plan
and incorporated herein.
All Options granted under this Plan shall terminate on the
tenth anniversary of the Effective Date, without regard to the date
on which the Option was granted.
An Option may not be exercised after the termination of
employment of an Employee with PMSC or its subsidiaries, except as
set forth in this paragraph. In the event of (i) the retirement of
an Employee after reaching normal retirement age in accordance with
the practices and policies of PMSC then in effect, except for early
retirement, (ii) the early retirement of any Employee for which the
Committee in its discretion determines the extension of
exercisability to be in the best interest of PMSC, or (iii) the
permanent disability of an Employee, any Option held by such
Employee shall become immediately exercisable with respect to all
of the shares subject thereto and shall be exercisable for a period
of three (3) months from said retirement or disability. In the
event of the death of an Employee, during his employment or within
10
three (3) months after disability or retirement as described in the
preceding sentence, any Option held by such Employee shall be
immediately exercisable with respect to all shares subject thereto
and shall be exercisable for a period of one (1) year from the date
of death, as described in Section 10 below. In no event shall any
such extended period result in the exercise of an Option later than
the date which is the tenth anniversary of the date such Option is
granted.
10.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by an
Employee other than by will or by the laws of descent and
distribution, and such Option shall be exercisable during an
Employee's lifetime only by the Employee. The estate of a deceased
Employee or the person or persons to whom an Option is transferred
by will or by the laws of descent and distribution thereafter shall
be treated as the Employee.
11.
SECURITIES REGISTRATION
Each Option Agreement shall provide that, upon the receipt of
11
shares of Common Stock as a result of the surrender or exercise of
an Option, the Employee shall, if so requested by PMSC, hold such
shares of Common Stock for investment and not for resale or
distribution to the public and, if so requested by PMSC, shall
deliver to PMSC a written statement satisfactory to PMSC to that
effect. As for Common Stock issued pursuant to this Plan, PMSC at
its expense shall take such action as it deems necessary or
appropriate to register the original issuance of such Common Stock
to an Employee under the Securities Act of 1933 and under any other
applicable securities laws or to qualify such Common Stock for an
exemption under any such laws prior to the issuance of such Common
Stock to an Employee; however, PMSC shall have no obligation
whatsoever to take any such action in connection with the transfer,
resale or other disposition of such Common Stock by an Employee.
12.
LIFE OF PLAN
No Option shall be granted under this Plan after the earlier
of:
(1) December 31, 1998, in which event the Plan otherwise
thereafter shall continue in effect until all outstanding Options
have been surrendered or exercised in full or no longer are
exercisable, or
12
(2) the date on which all of the Common Stock reserved under
Section 3 of this Plan has (as a result of the surrender or
exercise of Options granted under this Plan) been issued or no
longer is available for use under this Plan, in which event this
Plan also shall terminate on such date.
13.
CERTAIN TRANSACTIONS
13.1. Adjustments in Stock. The maximum number of shares of
Common Stock which may be issued under this Plan, and the number of
shares of Common Stock subject to outstanding Options and the
Option price thereunder shall be proportionately adjusted for any
increase or decrease in the number of issued shares of capital
common stock of PMSC resulting from a subdivision or consolidation
of shares or other capital adjustment, or the payment of a stock
dividend or other increase or decrease in such shares effected
without receipt of consideration by PMSC; provided, however, that
any fractional shares resulting from any such adjustment shall be
disregarded.
13.2. Change in Control. If there is a Change in Control
(as hereinafter defined) of PMSC prior to the Expiration Date,
then, notwithstanding any other provision of this Plan to the
contrary, each Option then outstanding shall become immediately
13
exercisable in full and shall become nonforfeitable regardless of
whether there is a change in office or employment status subsequent
to such Change in Control. For purposes of this Section, a "Change
in Control" shall be deemed to have occurred in the event (1) that
PMSC becomes a subsidiary of another corporation or is merged or
consolidated into another corporation or substantially all of its
assets are sold to another corporation or (2) any person,
corporation, partnership or other entity, either alone or in
conjunction with its "affiliates" as that term is defined in Rule
405 of the General Rules and Regulations under the Securities Act
of 1933, as amended, or other group of persons, corporations,
partnerships or other entities who are not affiliates, but who are
acting in concert, becomes the owner of record or beneficially of
securities of PMSC which represent thirty-three and one-third
percent (33 1/3%) or more of the combined voting power of PMSC's
then outstanding securities entitled to elect directors or (3) the
Board or a committee thereof makes a determination in its
reasonable judgment that a Change in Control of PMSC has taken
place.
13.3. Sale or Merger. In the event of dissolution or
liquidation of PMSC or any merger or combination in which PMSC is
not the surviving corporation, each outstanding Option granted
14
hereunder shall terminate, but the Employee shall have the right,
immediately prior to such dissolution, liquidation, merger or
combination, to exercise his Option, in whole or in part, to the
extent that it is then exercisable, without regard to any
installment exercise provision under the Plan.
14.
AMENDMENT TO PLAN
This Plan may be amended by the Board from time to time to the
extent that the Board deems necessary or appropriate; provided,
however, no such amendment shall be made absent the approval of the
shareholders of PMSC (1) to increase the number of shares reserved
under Section 3, (2) to extend the maximum life of the Plan under
Section 12 or the maximum exercise period under Section 9, (3) to
decrease the minimum Option Price under Section 8, (4) to change
the class of persons eligible for Options under Section 6 or to
otherwise materially modify (within the meaning of Rule 16b-3 of
the Securities Exchange Act of 1934, as amended) the requirements
as to eligibility for participation in this Plan or (5) to
otherwise materially increase (within the meaning of Rule 16b-3 of
the Securities Exchange Act of 1934, as amended) the benefits
accruing under this Plan. The Board also may suspend the granting
of Options under this Plan at any time and may terminate this Plan
15
at any time; provided, however, that except as set forth in this
Plan no party shall have the right to modify, amend or cancel any
Option granted before such suspension or termination unless the
Employee consents in writing to such modification, amendment or
cancellation.
15.
MISCELLANEOUS
15.1. No Shareholder Rights. No Employee shall have any
right as a shareholder of PMSC as a result of the grant of an
Option under this Plan or the exercise of such Option, pending the
actual delivery of the Common Stock subject to such Option to such
Employee.
15.2. No Contract of Employment. The grant of an Option to
an Employee under the Plan shall not constitute a contract of
employment and shall not confer on an Employee any rights upon his
or her termination of employment in addition to those rights, if
any, expressly set forth in the Option Agreement which evidences
his or her Option.
15.3. Withholding. The exercise of any Option granted
under this Plan shall constitute an Employee's full and complete
consent to whatever action the Committee directs to satisfy the
federal and state tax withholding requirements, if any, which the
16
Committee in its discretion deems applicable to such exercise,
including payment by withholding of shares subject to the exercise.
15.4. Construction. This Plan shall be construed under the
laws of the State of South Carolina.
EXHIBIT A
VESTING SCHEDULE
1. Members on the Effective Date of the Plan: Subject to the
special rules for promotions and demotions set forth below, Options
granted pursuant to Section 7.1 shall become exercisable in
installments, as follows:
(1) On or after January 1, 1995, the Option shall be
exercisable with respect to twenty-five percent (25%) of
the number of shares subject to the Option;
(2) On or after January 1, 1997, the Option shall be
exercisable with respect to an additional twenty-five
percent (25%) of the number of shares subject to the
Option; and
(3) On or after January 1, 1999, the Option shall be
exercisable in full.
The special rules set forth in paragraphs 2,3 and 4 below are
intended to provide for an equitable adjustment in the vesting of
Options, consistent with the purpose of the Plan to provide long-
term performance incentive, in the event of new appointments to the
17
Executive Council, promotions and demotions.
2. New Appointments: Subject to the special rules for
promotions and demotions set forth below, all Options granted
pursuant to Section 7.2 shall become exercisable in installments on
the dates indicated below in accordance with the following
formulas:
January 1, 1995: S x P1
P1 + P2 + 2P3
January 1, 1997: S x P2
P1 + P2 + 2P3
January 1, 1999: S x 2P3
P1 + P2 + 2P3
For purposes of applying the formulas:
S = the number of shares subject to such Option.
P1 = the number of months (with any partial month
treated as a full month) during which the Employee
is a member of the Executive Council between
January 1, 1993 and December 31, 1994.
P2 = the number of months (with any partial month
treated as a full month) during which the Employee
is a member of the Executive Council between
January 1, 1995 and December 31, 1996.
P3 = the number of months (with any partial month
treated as a full month) during which the Employee
is a member of the Executive Council between
January 1, 1997 and December 31, 1998.
3. Promotions: In the event an Employee is granted an
additional Option pursuant to Section 7.3, such additional Option
shall become exercisable under the formulas set forth in paragraph
2 above as if the Employee had become a member of the Executive
Council on the date of such promotion. The promotion shall not
affect the vesting of the Option previously granted to such
Employee, which shall become exercisable according to the formulas
18
set forth above without regard to the promotion.
4. Demotions: In the event the number of shares subject to
an Option is reduced pursuant to Section 7.4, the number of shares
with respect to which such Option becomes exercisable on each
subsequent vesting date shall be reduced by the number determined
using the formulas set forth in paragraph 2 above, substituting the
total number of shares with respect to which the Option is reduced
as "S" in the formula and substituting the number of months the
Employee holds the lower-ranking office for the number of months
the Employee is a member of the Executive Council.
For example, a Senior Vice President who was a member of the
Executive Council on January 1, 1993 and received an Option for
25,000 shares pursuant to Section 7.1 but was demoted to Vice
President on January 1, 1996 would, pursuant to Section 7.3,
forfeit such option with respect to 6,250 shares. The number of
shares with respect to which such Option would have otherwise have
become exercisable on January 1, 1997 (6,250) would be reduced by
1,250 shares (6,250 x (12/60)) to 5,000 shares. The number of
shares with respect to which such Option would otherwise have
become exercisable on January 1, 1999 (12,500) shall be reduced by
5,000 shares (6,250 x (48/60)) to 7,500 shares.
5. Vesting Tables: The Vesting Tables attached hereto as
Exhibit A-1 are derived from the formulas set forth in this Exhibit
and provide examples of when an Option granted to a Vice President
becomes exercisable, using a variety of dates of appointment to the
Executive Council. The "Total Options Granted" column indicates
the total number of shares subject to such Option, based on a Vice
President being appointed to the Executive Council on the
"Appointment Date" shown in the second column.
The "End of First Period," "End of Second Period" and "End of
Final Period" columns indicate the number of shares of the total
Option which become exercisable on January 1, 1995, January 1, 1997
and January 1, 1999, respectively. For example, a Vice President
who is appointed to the Executive Council on January 1, 1993
receives an Option of 12,500 shares, which becomes exercisable as
follows: 3,125 on January 1, 1995; 3,125 shares on January 1, 1997;
and 6,250 shares on January 1, 1999.
The four columns at the right under "Percentage Exercisable
19
Table" illustrate the percentage of the total Option which becomes
exercisable on the exercise dates indicated. This portion of the
table can be used to determine when an Option for any number of
shares becomes exercisable, based on the particular Appointment
Date shown in the second column. For example, a Senior Vice
President entering the Plan on January 1, 1993 would, pursuant to
Section 7.1, be entitled to an Option for 25,000 shares. The
Option would become exercisable as follows: 6,250 shares (25% of
25,000) on January 1, 1995; 6,250 shares (25% of 25,000) on January
1, 1997; and 12,500 shares (50% of 25,000) on January 1,
1999.
20
EXHIBIT A-1
VESTING TABLES
ILLUSTRATING EXCERCISABILITY OF OPTIONS GRANTED
NUMBER OF SHARES EXERCISABLE TABLE PERCENTAGE EXERCISABLE TABLE
END OF END OF END OF END OF END OF END OF
TOTAL FIRST SECOND FINAL FIRST SECOND FINAL
OPTIONS APPOINTMENT PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD
GRANTED DATE (1/1/95) (1/1/97) (1/1/99) TOTAL (1/1/95) (1/1/97) (1/1/99) TOTAL
12,500 1/1/93 3,125 3,125 6,250 12,500 25.00% 25.00% 50.00% 100.00%
12,326 2/1/93 2,984 3,114 6,228 12,326 24.21% 25.26% 50.53% 100.00%
12,152 3/1/93 2,844 3,103 6,205 12,152 23.40% 25.53% 51.07% 100.00%
11,979 4/1/93 2,705 3,091 6,183 11,979 22.58% 25.81% 51.61% 100.00%
11,805 5/1/93 2,566 3,080 6,159 11,805 21.74% 26.09% 52.17% 100.00%
11,631 6/1/93 2,428 3,068 6,135 11,631 20.88% 26.37% 52.75% 100.00%
11,458 7/1/93 2,292 3,055 6,111 11,458 20.00% 26.67% 53.33% 100.00%
11,284 8/1/93 2,155 3,043 6,086 11,284 19.10% 26.97% 53.93% 100.00%
11,111 9/1/93 2,020 3,030 6,061 11,111 18.18% 27.27% 54.55% 100.00%
10,937 10/1/93 1,886 3,017 6,034 10,937 17.24% 27.59% 55.17% 100.00%
10,763 11/1/93 1,752 3,004 6,007 10,763 16.28% 27.91% 55.81% 100.00%
10,590 12/1/93 1,620 2,990 5,980 10,590 15.29% 28.24% 56.47% 100.00%
10,416 1/1/94 1,488 2,976 5,952 10,416 14.29% 28.57% 57.14% 100.00%
10,243 2/1/94 1,358 2,962 5,923 10,243 13.25% 28.92% 57.83% 100.00%
10,069 3/1/94 1,228 2,947 5,894 10,069 12.20% 29.27% 58.53% 100.00%
9,895 4/1/94 1,099 2,932 5,864 9,895 11.11% 29.63% 59.26% 100.00%
9,722 5/1/94 972 2,917 5,833 9,722 10.00% 30.00% 60.00% 100.00%
9,548 6/1/94 846 2,901 5,801 9,548 8.86% 30.38% 60.76% 100.00%
9,375 7/1/94 721 2,885 5,769 9,375 7.69% 30.77% 61.54% 100.00%
9,201 8/1/94 597 2,868 5,736 9,201 6.49% 31.17% 62.34% 100.00%
9,027 9/1/94 475 2,851 5,701 9,027 5.26% 31.58% 63.16% 100.00%
8,854 10/1/94 354 2,833 5,667 8,854 4.00% 32.00% 64.00% 100.00%
8,680 11/1/94 235 2,815 5,630 8,680 2.70% 32.43% 64.87% 100.00%
8,506 12/1/94 117 2,796 5,593 8,506 1.37% 32.88% 65.75% 100.00%
21
EXHIBIT A-1 (CONT.)
NUMBER OF SHARES EXERCISABLE TABLE PERCENTAGE EXERCISABLE TABLE
END OF END OF END OF END OF END OF END OF
TOTAL FIRST SECOND FINAL FIRST SECOND FINAL
OPTIONS APPOINTMENT PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD
GRANTED DATE (1/1/95) (1/1/97) (1/1/99) TOTAL (1/1/95) (1/1/97) (1/1/99) TOTAL
8,333 1/1/95 0 2,778 5,555 8,333 0.00% 33.33% 66.67% 100.00%
8,159 2/1/95 0 2,643 5,516 8,159 0.00% 32.39% 67.61% 100.00%
7,986 3/1/95 0 2,510 5,476 7,986 0.00% 31.43% 68.57% 100.00%
7,812 4/1/95 0 2,378 5,434 7,812 0.00% 30.43% 69.57% 100.00%
7,638 5/1/95 0 2,246 5,392 7,638 0.00% 29.41% 70.59% 100.00%
7,465 6/1/95 0 2,117 5,348 7,465 0.00% 28.36% 71.64% 100.00%
7,291 7/1/95 0 1,988 5,303 7,291 0.00% 27.27% 72.73% 100.00%
7,118 8/1/95 0 1,862 5,256 7,118 0.00% 26.15% 73.85% 100.00%
6,944 9/1/95 0 1,736 5,208 6,944 0.00% 25.00% 75.00% 100.00%
6,770 10/1/95 0 1,612 5,158 6,770 0.00% 23.81% 76.19% 100.00%
6,597 11/1/95 0 1,490 5,107 6,597 0.00% 22.58% 77.42% 100.00%
6,423 12/1/95 0 1,369 5,054 6,423 0.00% 21.31% 78.69% 100.00%
6,250 1/1/96 0 1,250 5,000 6,250 0.00% 20.00% 80.00% 100.00%
6,076 2/1/96 0 1,133 4,943 6,076 0.00% 18.64% 81.36% 100.00%
5,902 3/1/96 0 1,018 4,884 5,902 0.00% 17.24% 82.76% 100.00%
5,729 4/1/96 0 905 4,824 5,729 0.00% 15.79% 84.21% 100.00%
5,555 5/1/96 0 794 4,761 5,555 0.00% 14.29% 85.71% 100.00%
5,381 6/1/96 0 685 4,696 5,381 0.00% 12.73% 87.27% 100.00%
5,208 7/1/96 0 579 4,629 5,208 0.00% 11.11% 88.89% 100.00%
5,034 8/1/96 0 475 4,559 5,034 0.00% 9.43% 90.57% 100.00%
4,861 9/1/96 0 374 4,487 4,861 0.00% 7.69% 92.31% 100.00%
4,687 10/1/96 0 276 4,411 4,687 0.00% 5.88% 94.12% 100.00%
4,513 11/1/96 0 181 4,332 4,513 0.00% 4.00% 96.00% 100.00%
4,340 12/1/96 0 89 4,251 4,340 0.00% 2.04% 97.96% 100.00%
22
EXHIBIT A-1 (CONT.)
NUMBER OF SHARES EXERCISABLE TABLE PERCENTAGE EXERCISABLE TABLE
END OF END OF END OF END OF END OF END OF
TOTAL FIRST SECOND FINAL FIRST SECOND FINAL
OPTIONS APPOINTMENT PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD
GRANTED DATE (1/1/95) (1/1/97) (1/1/99) TOTAL (1/1/95) (1/1/97) (1/1/99) TOTAL
4,166 1/1/97 0 0 4,166 4,166 0.00% 0.00% 100.00% 100.00%
3,993 2/1/97 0 0 3,993 3,993 0.00% 0.00% 100.00% 100.00%
3,819 3/1/97 0 0 3,819 3,819 0.00% 0.00% 100.00% 100.00%
3,645 4/1/97 0 0 3,645 3,645 0.00% 0.00% 100.00% 100.00%
3,472 5/1/97 0 0 3,472 3,472 0.00% 0.00% 100.00% 100.00%
3,298 6/1/97 0 0 3,298 3,298 0.00% 0.00% 100.00% 100.00%
3,125 7/1/97 0 0 3,125 3,125 0.00% 0.00% 100.00% 100.00%
2,951 8/1/97 0 0 2,951 2,951 0.00% 0.00% 100.00% 100.00%
2,777 9/1/97 0 0 2,777 2,777 0.00% 0.00% 100.00% 100.00%
2,604 10/1/97 0 0 2,604 2,604 0.00% 0.00% 100.00% 100.00%
2,430 11/1/97 0 0 2,430 2,430 0.00% 0.00% 100.00% 100.00%
2,256 12/1/97 0 0 2,256 2,256 0.00% 0.00% 100.00% 100.00%
2,083 1/1/98 0 0 2,083 2,083 0.00% 0.00% 100.00% 100.00%
1,909 2/1/98 0 0 1,909 1,909 0.00% 0.00% 100.00% 100.00%
1,736 3/1/98 0 0 1,736 1,736 0.00% 0.00% 100.00% 100.00%
1,562 4/1/98 0 0 1,562 1,562 0.00% 0.00% 100.00% 100.00%
1,388 5/1/98 0 0 1,388 1,388 0.00% 0.00% 100.00% 100.00%
1,215 6/1/98 0 0 1,215 1,215 0.00% 0.00% 100.00% 100.00%
1,041 7/1/98 0 0 1,041 1,041 0.00% 0.00% 100.00% 100.00%
868 8/1/98 0 0 868 868 0.00% 0.00% 100.00% 100.00%
694 9/1/98 0 0 694 694 0.00% 0.00% 100.00% 100.00%
520 10/1/98 0 0 520 520 0.00% 0.00% 100.00% 100.00%
347 11/1/98 0 0 347 347 0.00% 0.00% 100.00% 100.00%
173 12/1/98 0 0 173 173 0.00% 0.00% 100.00% 100.00%
EX-10
8
EXHIBIT 10Q
1
FIRST AMENDMENT
TO THE
POLICY MANAGEMENT SYSTEMS CORPORATION
1989 STOCK OPTION PLAN
THIS AMENDMENT to the Policy Management Systems Corporation 1989
Stock Option Plan (the "Plan") is made by POLICY MANAGEMENT
SYSTEMS CORPORATION (the "Company") and entered into as of this
21st day of July, 1992, to be effective as of the date this
amendment is approved by a majority of the stockholders of the
Company at a meeting duly called and held.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan and,
pursuant to Section 15 thereof, the Company has the right to
amend the Plan subject to stockholders approving certain
amendments; and
WHEREAS, the Company desires to amend the Plan to authorize
additional shares of the Company's stock to be reserved for use
under the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as set
forth above, as follows:
I. The first sentence of Section 3 is amended to read as
follows:
There shall be 2,500,000 shares of Common Stock reserved
for use under this Plan, and such shares of Common Stock shall
be reserved to the extent that PMSC deems appropriate from
authorized but unissued shares of Common Stock.
2
IN WITNESS WHEREOF, this First Amendment has been executed on
the day and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
BY: __________________________
G. Larry Wilson
President
EX-11
9
1
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Year Ended December 31,
1994 1993 1992
(In Thousands, Except Per
Share Data)
Net Income:
Net income (loss) as reported $ (9,658) $(56,134) $ 61,522
Shares:
Weighted average number of
common shares outstanding 20,865 22,858 23,237
Common stock equivalents
(stock options) 104 143 479
Primary shares 20,969 23,001 23,716
Primary net income (loss)
per share $ (.46) $ (2.44) $ 2.59
EX-21
10
1
Exhibit 21
List of Subsidiaries of
Policy Management Systems Corporation
(Jurisdiction of Incorporation)
Policy Management Systems International, Ltd. (Delaware)
Policy Management Corporation (South Carolina)
Policy Management Systems Canada, Ltd. (Canada)
Policy Management Systems Europe, Limited (United Kingdom)
Portsmouth IT Services Limited (United Kingdom)
Policy Management Systems Australia Pty. Limited (Australia)
Policy Management Systems (Barbados), Ltd. (Barbados)
Policy Management Systems (Germany), GmbH (Germany)
CYBERTEK Corporation (Texas)
Policy Management Systems Investment, Inc. (Delaware)
Policy Management Systems Osterreich GmbH (Austria)
Policy Management Systems Norden A.S. (Norway)
Creative Group Holdings Limited (United Kingdom)
Creative Insurance Services Limited (United Kingdom)
Creative Software Development Limited (United Kingdom)
Creative Computer Systems Pty Limited (Australia)
Creative Solutions BV (The Netherlands)
Information Services Holding, Inc. (Delaware)
Software Services Holding, Inc. (Delaware)
Life Software Holding, Inc. (Delaware)
PMSI, L.P. (Also does business as "Medical Correspondence
Services") (Texas Limited Partnership)
Cybertek Solutions, L.P. (Texas Limited Partnership)
EX-23
11
1
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration
statements of Policy Management Systems Corporation and
subsidiaries ("Company") on Form S-8 (Nos. 33-33848, 33-35002 and
33-35917) of our report, which includes an emphasis paragraph
discussing litigation and federal investigations, dated February
9, 1995 on our audits of the consolidated financial statements
and financial statement schedules of the Company as of December
31, 1994 and 1993, and for the three years then ended December
31, 1994, which report is included in this Annual Report on Form
10-K.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
March 22, 1995
EX-27
12
5
1,000
YEAR
DEC-31-1994
DEC-31-1994
17,686
11,051
90,474
1,024
0
167,725
136,503
125,601
524,031
76,856
0
194
0
0
376,728
524,031
0
492,706
0
512,451
(1,256)
955
0
(18,489)
(8,831)
(9,658)
0
0
0
(9,658)
(.46)
0
EX-99
13
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 17, 1993
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in Charter)
South Carolina 0-10175 57-0723125
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One PMS Center (P.O.Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (803) 735-4000
2
Item 4. Changes in Registrant's Certifying Accountant
On August 17, 1993, Policy Management Systems
Corporation (the "Company") engaged the firm of Coopers & Lybrand
("Coopers") as its independent accountants to audit the Company's
financial statements for the six months ended June 30, 1993,
including a review of the Company's internal control structure.
Coopers has also agreed to work with the Company's previous
independent accountants to resolve any adjustments that could
impact prior periods. On August 17, the Company dismissed Arthur
Andersen & Co. ("Arthur Andersen"), which has served as the
Company's independent accountants since 1992. These actions were
approved by the Board of Directors upon the recommendation of the
Audit Committee.
Neither the previously issued auditors' report of
Arthur Andersen on the Company's financial statements for the
year ended December 31, 1992 nor the previously issued auditors'
report of Ernst & Young on the Company's financial statements for
the year ended December 31, 1991 contained any adverse opinion or
disclaimer, nor was either report qualified as to uncertainty,
audit scope, or accounting principles. By letter dated August
10, 1993, Arthur Andersen informed the Company of its withdrawal
of its auditors' report on the Company's financial statements for
the year ended December 31, 1992 for the reasons set forth in its
letter, a copy of which is filed herewith as Exhibit 99.1 and
incorporated by reference herein.
By letter dated August 13, 1993, Ernst & Young informed
the Company that its February 20, 1992 auditors' report should no
longer be associated with the Company's financial statements for
the years ended December 31, 1991 and 1990 for the reasons set
forth in its letter, a copy of which is attached herewith as
Exhibit 99.2 and is incorporated by reference herein.
By letter dated August 16, 1993, Ernst & Young further
advised the Company that its review reports on interim
financial statements during the years ended December 31, 1992,
1991 and 1990 should no longer be associated with those financial
statements. A copy of that letter is attached herewith as
Exhibit 99.3 and is incorporated by reference herein.
There have been no disagreements within the meaning of
Item 304(a) of Regulation S-K between the Company and either
Arthur Andersen or Ernst & Young in connection with the audits
for the fiscal years ended December 31, 1992 and 1991,
respectively, or subsequently, on any matter of accounting
principles or practices, financial statements disclosure, or
auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of such former principal accountants, would
have caused either firm to make reference to the subject matter
of the disagreements in connection with its report.
At a meeting on August 10, 1993, in connection with the
withdrawal of its auditors' report, Arthur Andersen advised the
Board of Directors that subsequent to the issuance of Arthur
Andersen's report and after the first quarter of 1993, certain
information came to its attention relating to the following
matters. Arthur Andersen advised the Board that it believes that
there are material weaknesses in the internal controls of the Company,
that information has come to its attention that has led it to question
certain of the Company's business practices and whether it would
any longer be able to rely on management's representations and
that information has come to its attention that, if further
investigated, may materially impact the fairness and reliability
of the Company's financial statements for prior periods. In its
comments to the Board of Directors, Arthur Andersen raised
questions regarding the Company's accounting practices related to
revenue recognition and certain other matters which had not been
resolved at the time of its termination. The Company, through
its representatives, has discussed each of these matters with
Arthur Andersen. The Company has authorized Arthur Andersen to
respond fully to inquiries of Coopers & Lybrand concerning these
matters, based upon information that has come to Arthur Andersen
in its capacity as principal accountant to audit the Company's
financial statements.
The Company and certain of its officers and directors
are defendants in a lawsuit alleging violation of the Federal
Securities Laws and purporting to be a class action. Among the
allegations are that the Company's financial statements for the
year ended December 31, 1992 are materially false and misleading.
Because Arthur Andersen audited those financial statements, the
Company believes that there exists the potential for conflicts
between the Company and Arthur Andersen. As a result, the
Company concluded that a change in its outside auditors was
appropriate.
The Company has furnished Arthur Andersen a copy of
this report and requested Arthur Andersen furnish a letter
addressed to the Securities and Exchange Commission stating
whether it agrees with the statements made herein. A copy of
such letter is filed herewith as Exhibit 16.1 and incorporated
by reference herein.
Item 7. Exhibits
Exhibit Number Description
16.1 Letter of Arthur Andersen dated
August 24, 1993
99.1 Letter of Arthur Andersen dated
August 10, 1993
99.2 Letter of Ernst & Young dated
August 13, 1993
99.3 Letter of Ernst & Young dated
August 16, 1993
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
Date: August 24, 1993 By: Robert L. Gresham
Executive Vice President
(Chief Financial Officer)
4
Exhibit 16.1
August 24, 1993
Arthur Andersen & Co.
Suite 2300
1201 Main Street
Columbia SC 29201
803 254 8102
The Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read item 4 included in the attached Form 8-k dated
August 24, 1993 of Policy Management Systems Corporation to be
filed with the Securities and Exchange Commission and are in
agreement with the statements contained therein.
Very Truly Yours,
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
5
Exhibit 99.1
August 10, 1993
Arthur Andersen & Co.
Suite 2300
1201 Main Street
Columbia SC 29201
803 254 8102
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
This is to inform you that Arthur Andersen & Co. withdraws its
report dated February 26, 1993 issued on the 1992 financial
statements of Policy Management Systems Corporation ("the
Company") due to the significant uncertainty related to the
outcome of the extended and broadened internal investigation
being conducted by the Company and Jones Day Reavis and Pogue,
concerning certain of the Company's business and accounting
practices and the effect of those practices on the financial
statements. Reliance should not be placed on the Arthur Andersen
& Co. report or the 1992 financial statements. The outcome of
the internal investigation is likely to require a restatement of
the 1992 financial statements. Please inform the Securities and
Exchange Commission concerning this development and make other
disclosures as appropriate.
Very truly yours,
ARTHUR ANDERSEN & CO.
/s/ ARTHUR ANDERSEN & CO.
6
Exhibit 99.2
ERNST & YOUNG
Two Insignia Financial Plaza
Suite 800
P.O. Box 10647
Greenville
South Carolina
803 242 5740
August 13, 1993
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
This is to inform you that Ernst & Young's report dated February
20, 1992 should no longer be associated with the financial
statements of Policy Management Systems Corporation (the Company)
for the years ended December 31, 1991 and December 31, 1990.
Following our inquiry of August 10, 1993, the Company confirmed
on August 13, 1993 that the outcome of an internal investigation
being conducted by the Company and its legal counsel into certain
of the Company's business and accounting practices is likely to
result in revision of its financial statements for periods prior
to 1992. We are taking this action as a result of the
significant uncertainty which thus exists as to the effect of
this matter on the Company's 1991 and 1990 financial statements.
Please inform the Securities and Exchange Commission and all
persons known to be currently relying on, or who are likely to
rely on, the financial statements that our report must no longer
be associated with the Company's financial statements for the
years ended December 31, 1991 and December 31, 1990.
/s/ ERNST & YOUNG
7
Exhibit 99.3
ERNST & YOUNG
Two Insigna Financial Plaza
Suite 800
P.O. Box 10647
Greenville
South Carolina
803 242 5740
August 16, 1993
Board of Directors of Policy Management
Systems Corporation
c/o Mr. G. Larry Wilson
Chairman of the Board, President,
and Chief Executive Officer
Policy Management Systems Corporation
Post Office Box 10
Columbia, South Carolina 29202
We refer to our letter dated August 13, 1993 in which we informed
you that Ernst & Young's report dated February 20, 1992 should no
longer be associated with the financial statements of Policy
Management Systems Corporation (the Company) for the years ended
December 31, 1991 and December 31, 1990. This letter is to
inform you that Ernst & Young's review reports on interim
financial statements during the years ended December 31, 1992,
1991 and 1990 should no longer be associated with the respective
interim financial statements of the Company. Please inform all
persons known to be currently relying on, or who are likely to
rely on, the interim financial statements that our review reports
must no longer be associated with the Company's interim financial
statements for such periods.
/s/ ERNST & YOUNG