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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
-----------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 001-13069
CHOICEPOINT INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2309650
(State or other jurisdiction of incorporation (I.R.S. Employer
- ------------------------------------------------ ------------------------------
or organization) Identification No.)
1000 Alderman Drive Alpharetta, Georgia 30005
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 752-6000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1999
----- ----------------------------
Common Stock, $.10 Par Value 14,732,916
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CHOICEPOINT INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Income -
Three Months Ended June 30, 1999 and 1998 and 3 Six Months Ended June 30,
1999 and 1998 3
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 4
Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 1999 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
</TABLE>
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenue ............................... $107,979 $106,702 $207,663 $201,252
Costs and expenses:
Costs of services ............................. 66,341 73,295 130,911 132,919
Selling, general, and administrative .......... 22,502 16,923 40,196 36,839
Unusual items ................................. -- -- 1,583 --
-------- -------- -------- --------
Total costs and expenses .................. 88,843 90,218 172,690 169,758
Operating income ................................ 19,136 16,484 34,973 31,494
Gain on sale of businesses, net ................. -- -- 2,513 --
Interest expense ................................ 2,913 1,825 5,469 3,470
-------- -------- -------- --------
Income before income taxes ...................... 16,223 14,659 32,017 28,024
Provision for income taxes ...................... 7,019 6,347 13,858 12,134
-------- -------- -------- --------
Net income ...................................... $ 9,204 $ 8,312 $ 18,159 $ 15,890
======== ======== ======== ========
Earnings per share - basic ...................... $ .64 $ .57 $ 1.26 $ 1.09
======== ======== ======== ========
Weighted average shares - basic ............... 14,476 14,611 14,457 14,626
======== ======== ======== ========
Earnings per share - diluted .................... $ .61 $ .55 $ 1.21 $ 1.05
======== ======== ======== ========
Weighted average shares - diluted ............. 15,059 15,162 14,975 15,129
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
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CHOICEPOINT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT PAR VALUES) 1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 15,132 $ 18,883
Marketable securities ................................................... -- --
Accounts receivable, net of allowance for doubtful accounts
of $3,700 at June 30, 1999 and $3,286 at December 31,1998 ............. 111,384 103,191
Deferred income tax assets .............................................. 8,435 8,372
Other current assets .................................................... 10,972 13,160
--------- ---------
Total current assets ................................................ 145,923 143,606
Property and equipment, net ............................................... 51,498 55,279
Goodwill, net ............................................................. 254,739 253,140
Deferred income tax assets ................................................ 18,639 19,010
Other ..................................................................... 48,494 63,164
--------- ---------
Total Assets .............................................................. $ 519,293 $ 534,199
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt ................ $ 926 $ 5,623
Notes payable for acquisitions .......................................... -- 22,701
Accounts payable ........................................................ 27,829 24,645
Accrued salaries and bonuses ............................................ 13,048 17,537
Other current liabilities ............................................... 42,541 54,454
--------- ---------
Total current liabilities ............................................. 84,344 124,960
Long-term debt, less current maturities ................................... 201,569 191,697
Postretirement benefit obligations ........................................ 51,913 53,251
Other long-term liabilities ............................................... 5,076 4,719
--------- ---------
Total liabilities ..................................................... 342,902 374,627
--------- ---------
Shareholders' equity:
Preferred stock, $.01 par value; shares
authorized - 10,000; no shares issued or outstanding ................. -- --
Common stock, $.10 par value; shares authorized -
100,000; shares issued and outstanding -
14,726 in 1999 and 14,660 in 1998 ..................................... 1,473 1,466
Paid-in capital ......................................................... 119,384 119,037
Retained earnings ....................................................... 67,322 49,163
Foreign currency translation adjustments ................................ (370) (176)
Stock held by employee benefit trusts, at cost,
234 shares in 1999 and 203 shares in 1998 ............................ (11,418) (9,918)
--------- ---------
Total shareholders' equity ............................................ 176,391 159,572
--------- ---------
Total Liabilities and Shareholders' Equity ................................ $ 519,293 $ 534,199
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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CHOICEPOINT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE STOCK HELD
(IN THOUSANDS) COMPREHENSIVE COMMON PAID-IN RETAINED TRANSLATION BY BENEFIT
INCOME STOCK CAPITAL EARNINGS ADJUSTMENTS TRUSTS TOTAL
------------- ------- --------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 ... $ 1,466 $ 119,037 $ 49,163 $ (176) $ (9,918) $ 159,572
119,037
Net income ................ $ 18,159 -- -- 18,159 -- -- 18,159
Restricted stock plans, net -- 3 (849) -- -- -- (846)
Stock options exercised ... -- 4 1,196 -- -- -- 1,200
Cost of shares repurchased -- -- -- -- -- (1,500) (1,500)
Translation adjustments ... (194) -- -- -- (194) -- (194)
-------- ------- --------- -------- ------- --------- ---------
Comprehensive income ........ $ 17,965
========
Balance June 30, 1999 ....... $ 1,473 $ 119,384 $ 67,322 $ (370) $ (11,418) $ 176,391
======= ========= ======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of this
consolidated statement.
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 18,159 $ 15,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................... 19,382 14,281
Provision for unusual items ............................................ 1,583 --
Gain on sale of businesses ............................................. (2,513) --
Compensation recognized under employee stock plans ..................... 1,610 1,116
Payment on employee stock plans ........................................ (3,378) --
Changes in assets and liabilities, excluding effects of acquisitions and
divestiture:
Accounts receivable, net ............................................. (7,198) 242
Other current assets ................................................. 1,790 414
Current liabilities, excluding debt .................................. (13,762) (4,186)
Deferred income taxes ................................................ 308 (1,904)
Other long-term liabilities, excluding debt .......................... (980) 503
-------- --------
Net cash provided by operating activities ................................ 15,001 26,356
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired ....................................... (8,010) (40,292)
Payment of notes payable for acquisitions ................................ (22,701) --
Cash proceeds from sale of business unit ................................. 22,000 --
Additions to property and equipment ...................................... (5,845) (7,037)
Additions to other assets, net ........................................... (8,833) (7,986)
-------- --------
Net cash flows used by investing activities .............................. (23,389) (55,315)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt ............................................. 30,000 25,042
Payments on long-term debt ............................................... (20,128) (21,213)
Net short-term borrowings ................................................ (4,696) 11,660
Purchases of stock held by employee benefit trusts ....................... (1,500) (4,702)
Proceeds from exercise of stock options .................................. 1,200 250
-------- --------
Net cash flows provided by financing activities .......................... 4,876 11,037
-------- --------
Effect of foreign currency exchange rates on cash .......................... (239) 54
-------- --------
Net decrease in cash ....................................................... (3,751) (17,868)
Cash and cash equivalents, beginning of period ............................. 18,883 26,858
-------- --------
Cash and cash equivalents, end of period ................................... $ 15,132 $ 8,990
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
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CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. ORGANIZATION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company"), is a
provider of actionable intelligence that helps businesses, governments and
individuals make better, more timely and more informed business decisions.
ChoicePoint's businesses are focused on two primary markets - Insurance
Services and Business and Government Services.
The Insurance Services group provides information products and
services used in the underwriting, claims, and marketing processes by
property and casualty and life insurers. Major offerings to the
personal lines property and casualty market include claims history
databases, motor vehicle records, credit information, and modeling
services. Additionally, ChoicePoint provides customized policy rating
and issuance software and property inspections and audits to the
commercial insurance market, and laboratory testing services and
related technology solutions to the life and health insurance market.
The Business and Government Services group provides direct marketing
and information products and services to Fortune 1000 corporations,
consumer finance companies, asset-based lenders, legal and
professional service providers, health care service providers and
federal, state and local government agencies. Major offerings include
pre-employment background and drug screenings, public record searches,
credential verification, due diligence information, uniform commercial
code searches and filings, and people and shareholder locator
searches.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ChoicePoint Inc.
and its wholly-owned subsidiaries. All material transactions between entities
included in the consolidated financial statements have been eliminated. The
consolidated financial statements have been prepared on the historical cost
basis, and reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position of ChoicePoint as of
June 30, 1999 and the results of operations and cash flows for the three months
and six months ended June 30, 1999 and 1998. The adjustments have been of a
normal recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the notes to the financial
statements included in ChoicePoint's Consolidated Financial Statements for the
year ended December 31, 1998 as filed with the Securities and Exchange
Commission in the Annual Report on Form 10-K (File No. 1-13069). The current
period's results are not necessarily indicative of results to be expected for a
full year.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
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4. REVENUE AND COSTS OF SERVICES PRESENTATION
Motor vehicle records registry revenue, the fee charged by states for motor
vehicle records which is passed on by ChoicePoint to its customers, is excluded
from revenue and is recorded as a reduction to cost of services in the
consolidated financial statements. Registry revenue was $89,836,000 and
$74,377,000 for the three months ended June 30, 1999 and 1998, respectively,
and $177,296,000 and $142,949,000 for the six months ended June 30, 1999 and
1998, respectively.
ChoicePoint Direct Inc., formally Customer Development Corporation, a business
acquired in the fourth quarter of 1998, passes on material, shipping and
postage charges to their customers. These charges are excluded from revenue and
are recorded as a reduction to cost of services in the consolidated financial
statements. Charges passed through to customers for the three months and six
months ended June 30, 1999 were $9,340,000 and $19,213,000, respectively.
5. EARNINGS PER SHARE
The net income amount used in the numerator of the Company's earnings per share
calculations is the same for both basic and diluted earnings per share. The
average outstanding shares used in the denominator of the calculation for
earnings per share - diluted includes the dilutive effect of stock options.
6. DEBT
In August 1997, ChoicePoint entered into a $250 million unsecured revolving
credit facility (the "Credit Facility") with a group of banks. The Credit
Facility bears interest at variable rates and is expandable to $300 million,
subject to approval of the lenders. The commitment termination date and final
maturity of the Credit Facility will occur in August 2002. Total borrowings
under the Credit Facility were $199,000,000 at June 30, 1999. In addition,
there was $2,981,000 of other long-term debt outstanding and $514,000 of
short-term debt outstanding as of June 30, 1999.
7. STOCK OPTIONS
During the first quarter of 1999, stock options to purchase approximately
644,000 shares of ChoicePoint common stock were granted at fair market value
under the ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan.
8. ACQUISITIONS
During the second quarter of 1999, the Company acquired Washington Document
Service, Inc., a leading nationwide court document research and retrieval
company. In addition, the Company made additional minority equity investments
in Intertech Information Management Inc., a provider of document management and
imaging services. The total purchase price of the acquisition, which was
accounted for as a purchase, and the equity investment was approximately
$7,241,000, with approximately $5,500,000 of that amount allocated to goodwill.
Subsequent to June 30, 1999, the Company announced the acquisition of Data
Tracks Technology, Inc., d/b/a Public Records On Line, a privately-held online
public record information company, and the assets of its affiliates.
9. GAIN ON SALE OF BUSINESSES
In December 1998, the Company sold its life and health insurance field
underwriting services and insurance claims investigation services to PMSI
Services, Inc. and recorded a gain on the sale. The proceeds from the sale
included $12.0 million in warrants and $10.0 million in a note receivable. The
warrants were discounted by $4.6 million at December 31, 1998. In March 1999,
ChoicePoint received
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$22.0 million plus interest from PMSI Services, Inc. for the prepayment of the
note receivable and the repurchase of the warrants. As a result, ChoicePoint
recognized an additional net pretax gain on the sale of $2.5 million. The net
pretax gain includes the unamortized discount of $4.3 million less
transaction-related costs including lease termination, additional asset
write-offs and personnel-related costs of $1.8 million.
In December 1998, the net pretax gain was also net of transaction-related
costs, including lease termination and personnel-related costs of $5.9 million
that were accrued at the time of the divestiture. As of June 30, 1999,
approximately $2.1 million has been charged against the total $7.7 million
accrued transaction-related costs.
10. UNUSUAL ITEMS
Operating income for the first quarter of 1999 includes $1.6 million of unusual
expense items. The unusual expense items relate primarily to asset impairments
($732,000), severance costs ($451,000) and other one-time costs ($400,000).
11. SEGMENT DISCLOSURES
As a result of the recent divestitures of certain field businesses in December
1998 (Note 9) and changes in the Company's internal organization structure,
ChoicePoint now operates in two reportable segments: Insurance Services
("Insurance") and Business and Government Services ("B&G"). See Note 1 for a
description of each segment. Revenues and operating income for the three months
and six months ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
(In Thousands) June 30, 1999 June 30, 1998
---------------------------------------- ---------------------------------------
Operating Operating
Income before Income before
Operating Acquisition Operating Acquisition
Revenue Income Amortization Revenue Income Amortization
-------- --------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Insurance $ 65,296 $ 24,797 $ 25,562 $ 67,157 $ 21,532 $ 22,213
B&G 42,602 4,097 7,130 25,009 2,236 4,276
Divested & Discontinued 81 (66) (66) 14,536 556 556
Corporate -- (9,692) (9,692) -- (7,840) (7,840)
-------- -------- -------- -------- -------- --------
Total $107,979 $ 19,136 $ 22,934 $106,702 $ 16,484 $ 19,205
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended Six months ended
(In Thousands) June 30, 1999 June 30, 1998
---------------------------------------- ---------------------------------------
Operating Operating
Income before Income before
Operating Acquisition Operating Acquisition
Revenue Income Amortization Revenue Income Amortization
-------- --------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Insurance $128,614 $ 46,349 $ 47,879 $125,431 $ 41,902 $ 43,264
B&G 78,815 5,581 11,611 46,687 2,226 6,096
Divested & Discontinued 234 (32) (32) 29,134 174 174
Corporate -- (15,342) (15,342) -- (12,808) (12,808)
Unusual items (Note 10) -- (1,583) (1,583) -- -- --
-------- -------- -------- -------- -------- --------
Total $207,663 $ 34,973 $ 42,533 $201,252 $ 31,494 $ 36,726
======== ======== ======== ======== ======== ========
</TABLE>
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Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. Acquisition amortization includes goodwill
and other intangible amortization related to acquisitions.
Total depreciation and amortization for the three months and six months ended
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Insurance $4,034 $3,281 $ 8,007 $ 6,557
B&G 4,951 3,318 10,194 6,399
Divested & Discontinued 12 198 43 412
Corporate 601 490 1,138 913
------ ------ ------- -------
Total $9,598 $7,287 $19,382 $14,281
====== ====== ======= =======
</TABLE>
ChoicePoint's balance sheets are generally managed on a consolidated basis and
therefore it is impracticable to report assets by segment. Substantially all of
the Company's operations are located in the United States and no customer
represents more than 10% of total operating revenue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company") is a
provider of actionable intelligence that helps businesses, governments and
individuals make better, more timely and more informed business decisions.
ChoicePoint's businesses are focused on two primary markets - Insurance
Services and Business and Government Services. See Note 1 to the consolidated
financial statements for a description of each market.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Consolidated revenue increased $1.3 million, or 1.2%, to $108.0 million for the
three months ended June 30, 1999 from $106.7 million for the three months ended
June 30, 1998. Excluding the effect of the sale of certain field businesses in
December 1998, consolidated revenues increased $15.7 million, or 17.1%, to
$107.9 million for the three months ended June 30, 1999 from $92.2 million for
the three months ended June 30, 1998 primarily as a result of strong revenue
performance in automated products and in new acquisitions. Consolidated
operating income increased $2.7 million, or 16.1%, to $19.1 million for the
three months ended June 30, 1999 from $16.5 million for the three months ended
June 30, 1998. Operating margins increased to 17.7% for the three months ended
June 30, 1999 from 15.4% for the three months ended June 30, 1998.
Revenue from Insurance Services, excluding the effect of the sale of the field
businesses noted above and an $8.2 million progress payment on a significant
systems development project in the second quarter of 1998, grew $6.3 million,
or 10.8%, to $65.3 million for the three months ended June 30, 1999 from $59.0
million for the three months ended June 30, 1998, driven by strong unit
performance in personal lines products and laboratory services. Operating
income increased $3.3 million, or 15.2%, to $24.8 million for the three months
ended June 30, 1999 from $21.5 million for the three months ended June 30,
1998, primarily as a result of revenue growth noted above. Acquisition
amortization, which includes goodwill and other intangible amortization related
to acquisitions, increased to $765,000 for the three months ended June 30, 1999
from $681,000 for the three months ended June 30, 1998 due to an acquisition
made in 1998. Excluding acquisition amortization, the operating margin in
Insurance Services for the second quarter of 1999 was 39.1%.
Revenue from Business and Government Services, excluding the effect of the sale
of its payroll verification business and other discontinued product lines,
increased $17.6 million, or 70.3%, to $42.6 million for the three months ended
June 30, 1999 from $25.0 million for the three months ended June 30, 1998.
Comparable internal revenue growth for Business and Government Services,
excluding the effect of revenue from acquisitions made since the first quarter
of 1998, was 6.9% over prior year. Operating income increased $1.9 million to
$4.1 million for the three months ended June 30, 1999 from $2.2 million for the
three months ended June 30, 1998, primarily as a result of new acquisitions.
Acquisition amortization, which includes goodwill and other intangible
amortization related to acquisitions, increased to $3.0 million for the three
months ended June 30, 1999 from $2.0 million for the three months ended June
30, 1998 due to acquisitions made in 1998. Excluding acquisition amortization,
the operating margin in Business and Government Services for the second quarter
of 1999 was 16.7%.
Divested and discontinued operations include the operating results from the
field businesses sold in December 1998, the payroll verification business sold
in May of 1999, the discontinued medical device registry business and from the
shutdown of certain remaining business and government field offices where
revenue did not justify sustained physical presence.
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Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. The increase to $9.7 million for the three
months ended June 30, 1999 from $7.8 million for the three months ended June
30, 1998 is primarily due to the increase in compensation expense recognized
under employee stock plans and in incentives.
Consolidated operating income increased $2.7 million, or 16.1%, to $19.1
million for the three months ended June 30, 1999 from $16.5 million for the
three months ended June 30, 1998. Included in operating results for the three
months ended June 30, 1999 and 1998 were $2.2 million and $0.8 million,
respectively, of expenses incurred to modify existing computer systems and
applications to address the Year 2000 compliance issues.
Interest expense was $2.9 million and $1.8 million for the three months ended
June 30, 1999 and 1998, respectively.
Net income increased $0.9 million, or 10.7%, to $9.2 million for the three
months ended June 30, 1999 from $8.3 million for the three months ended June
30, 1998. The effective tax rate remained unchanged at 43.3%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Consolidated revenue increased $6.4 million, or 3.2%, to $207.7 million for the
six months ended June 30, 1999 from $201.3 million for the six months ended
June 30, 1998. Excluding the effect of the sale of certain field businesses in
December 1998, consolidated revenues increased $35.3 million, or 20.5%, to
$207.4 million for the six months ended June 30, 1999 from $172.1 million for
the six months ended June 30, 1998, primarily as a result of strong revenue
performance in automated products and in new acquisitions. Consolidated
operating income before unusual items increased $5.1 million, or 16.1%, to
$36.6 million for the six months ended June 30, 1999 from $31.5 million for the
six months ended June 30, 1998. Operating margins (excluding the effects of
unusual items) increased to 17.6% for the six months ended June 30, 1999 from
15.6% for the six months ended June 30, 1998.
Revenue from Insurance Services, excluding the effect of the sale of the field
businesses noted above and an $8.2 million progress payment on a significant
systems development project in the second quarter of 1998, grew $11.4 million,
or 9.7%, to $128.6 million for the six months ended June 30, 1999 from $117.2
million for the six months ended June 30, 1998, driven by strong unit
performance in personal lines products and laboratory services. Operating
income increased $4.4 million, or 10.6%, to $46.3 million for the six months
ended June 30, 1999 from $41.9 million for the six months ended June 30, 1998,
primarily as a result of strong revenue growth noted above. Acquisition
amortization, which includes goodwill and other intangible amortization related
to acquisitions, increased to $1.5 million for the six months ended June 30,
1999 from $1.4 million for the six months ended June 30, 1998 due to
acquisitions made in 1998. Excluding acquisition amortization, the operating
margin in Insurance Services for the first six months of 1999 was 37.2%.
Revenue from Business and Government Services, excluding the effect of the sale
of its payroll verification business and other discontinued product lines,
increased $32.1 million, or 68.8%, to $78.8 million for the six months ended
June 30, 1999 from $46.7 million for the six months ended June 30, 1998.
Comparable internal revenue growth for Business and Government Services,
excluding the effect of revenue from acquisitions made since the first quarter
of 1998, was 5.6% over prior year. Operating income increased $3.4 million to
$5.6 million for the six months ended June 30, 1999 from $2.2 million for the
six months ended June 30, 1998, primarily as a result of new acquisitions.
Acquisition amortization, which includes goodwill and other intangible
amortization related to acquisitions, increased to $6.0 million for the six
months ended June 30, 1999 from $3.9 million for the six months ended June 30,
1998 due to acquisitions made since the first quarter of 1998. Excluding
acquisition amortization, the operating margin in Business and Government
Services for the first six months of 1999 was 14.7%.
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Divested and discontinued operations include the operating results from the
field businesses sold in December 1998, the payroll verification business sold
in May of 1999, the discontinued medical device registry business and from the
shutdown of certain remaining business and government field offices where
revenue did not justify sustained physical presence.
Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. The increase to $15.3 million for the six
months ended June 30, 1999 from $12.8 million for the six months ended June 30,
1998 is primarily due to the increase in incentives.
Unusual items of $1.6 million in the first quarter of 1999 relate primarily to
asset impairments ($732,000), severance costs ($451,000) and other one-time
costs ($400,000).
In the first quarter of 1999, an additional gain on the sale of certain field
businesses of $2.5 million was recorded in connection with the prepayment of a
note receivable and the repurchase of warrants issued by PMSI Services, Inc. in
the transaction. See Note 9 to the consolidated financial statements.
Consolidated operating income after unusual items increased $3.5 million, or
11.0%, to $35.0 million for the six months ended June 30, 1999 from $31.5
million for the six months ended June 30, 1998. Before unusual items, operating
income increased 16.1%. Included in operating results for the six months ended
June 30, 1999 and 1998 were $4.3 million and $1.5 million, respectively, of
expenses incurred to modify existing computer systems and applications to
address the Year 2000 compliance issues.
Interest expense was $5.5 million and $3.5 million for the six months ended
June 30, 1999 and 1998, respectively. Interest expense for the first quarter of
1999 is net of $431,000 of interest income from the PMSI Services, Inc. note
receivable and warrants prior to the prepayment and repurchase made in March
1999.
Net income increased $2.3 million, or 14.3%, to $18.2 million for the six
months ended June 30, 1999 from $15.9 million for the six months ended June 30,
1998. The effective tax rate remained unchanged at 43.3%.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operations was $15.0 million in the first six months of 1999
as increased net income and depreciation and amortization were offset by
reductions in current liabilities and an increase in accounts receivable.
During the first six months of 1998, cash provided by operations was $26.4
million. During the first six months of 1999, ChoicePoint used $23.4 million
for investing activities, primarily comprised of $8.0 million for acquisitions,
$5.8 million for additions to property and equipment and $8.8 million for
additions to other assets. Additions to property and equipment were primarily
system upgrades while additions to other assets were primarily software,
purchased data files, and software developed for external use. During the first
six months of 1998, ChoicePoint used $55.3 million for investing activities,
primarily for the acquisition of the remaining 27.4% interest in CDB Infotek,
other acquisitions, and for additions to property and equipment and other
assets. Net cash provided by financing activities was $4.9 million in the first
six months of 1999, as the $9.9 million net increase in long-term debt was used
to paydown $4.7 million in short-term borrowings. During the first six months
of 1998, net cash provided by financing activities was $11.1 million, as the
proceeds from a credit facility and two lines of credit were used to fund
acquisitions.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased $11.1 million, or 24.2%, to $56.9 million for the six months ended
June 30, 1999 from $45.8 million for the six months ended June 30, 1998. The
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principles) because such data
is used by certain investors to analyze and compare companies on the basis of
operating performance, leverage and liquidity, and to
13
<PAGE> 14
determine a company's ability to service debt. EBITDA is not presented as a
substitute for income from operations, net income or cash flows from operating
activities.
The Company's short-term and long-term liquidity depends primarily upon its
level of net income, accounts receivable, accounts payable and accrued
expenses. In order to meet its working capital needs, ChoicePoint entered into
a five-year, $250 million revolving credit facility ("Credit Facility") with a
group of banks in August 1997. The Credit Facility bears interest at variable
rates and is expandable to $300 million, subject to approval of the lenders.
During the first six months of 1999, ChoicePoint used borrowings under the
Credit Facility for payment of short-term borrowings and for acquisitions.
Total debt outstanding under the Credit Facility was $199.0 million at June 30,
1999 and $189.0 million at December 31, 1998. ChoicePoint may use additional
borrowings under the Credit Facility to finance acquisitions and for general
corporate cash requirements.
No cash dividends have been paid and the Company does not anticipate paying any
cash dividends on its common stock in the near future.
YEAR 2000
The term "Year 2000 compliance issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
approaches. The Year 2000 compliance issue exists because many currently
installed computer systems and software products are coded to accept only two
digit entries in the date code field. In order to distinguish 21st century
dates from 20th century dates, these date code fields must be able to interpret
four digit entries.
The Company's State of Readiness - ChoicePoint has established a central Year
2000 department to coordinate and report, on a continuing basis, with regard to
the assessment, remediation planning, implementation, and contingency planning
processes directed toward addressing the Company's Year 2000 compliance issues.
ChoicePoint is engaged in a continuous process of assessing the impact of the
Year 2000 compliance issue on its reporting systems and operations. As part of
that process, certain computer systems and software programs used, and in some
cases developed, by ChoicePoint required upgrading in order to address Year
2000 requirements. The Company has assessed its noninformation technology
systems, which includes systems that contain embedded technology. However, the
Company has determined that these systems present less of a risk to the
Company's operations.
ChoicePoint is also continuing to supply and receive data and inquiries from
its vendors and customers. Current remediation efforts are in place to accept
and transmit data in both 2-digit and 4-digit formats within applicable
ChoicePoint applications.
ChoicePoint uses the Gartner Group's COMpliance Progress And REadiness
(COMPARE) Scale to measure its progress in addressing the Year 2000 compliance
issue. The COMPARE scale has five levels:
Level One - PRELIMINARY ACTIVITY (problem not determined and risk is
high)
Level Two - PROBLEM DETERMINATION (IT and non-IT inventories
completed, risk levels understood)
Level Three - PLAN COMPLETE/RESOURCES COMMITTED (estimated costs have
been determined, required resources have been committed, initial
project plans complete)
Level Four - OPERATIONAL SUSTAINABILITY (systems and key partners are
compliant and certified)
Level Five - FULLY COMPLIANT (all systems are compliant and the Year
2000 threat has been completely neutralized throughout the business
process chain)
14
<PAGE> 15
At a minimum, all significant ChoicePoint applications have achieved level
three and the majority of them have reached level four. Final integration
testing is scheduled for completion by the end of the third quarter of 1999.
The Costs to Address the Company's Year 2000 Compliance Issues - During the
first six months of 1999, the Company incurred approximately $4.3 million to
modify existing computer systems and applications to address the Year 2000
compliance issue and estimates total 1999 expenditures to be approximately $7.0
to $8.0 million. The Company has funded and expects to continue to fund, the
costs of Year 2000 assessment and remediation from available cash flows.
The Risks of the Company's Year 2000 Compliance Issues - ChoicePoint is
continuously identifying Year 2000 risks and developing contingency plans to
address these risks as they are identified. If the Company's remediation plan
is not successful, there would be a significant disruption of the Company's
ability to transact business with its major customers and suppliers which could
have a material adverse effect on the Company's financial position and results
of operations. The Company has begun the systems integration testing phase of
its Year 2000 initiative. Until system integration testing is complete, the
Company cannot completely determine the success of its remediation plan.
However, ChoicePoint believes it is devoting the resources necessary to achieve
a level of readiness that will meet its Year 2000 challenges in a timely
manner. ChoicePoint believes the assessment, remediation planning, and plan
implementation processes will be effective to achieve Year 2000 readiness.
The Company's Contingency Plans - The Company is continuing to develop
contingency plans as business risks are identified to help mitigate the risk of
a disruption in operations resulting from a Year 2000-related event. The
Company will continuously reassess Year 2000 risks and develop contingency
plans for worst case scenarios for which there is a reasonable likelihood.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133" or the "Statement"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of the transactions that
receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance.
The Company has not yet quantified the impact of adopting SFAS No. 133 on it's
financial statements and has not determined the timing of or method of it's
adoption of the Statement. The adoption of SFAS No. 133 is not expected to have
a material impact on earnings or other comprehensive income. However, changes
in the Company's derivative instruments and hedging activities could increase
volatility in earnings and other comprehensive income.
FORWARD-LOOKING STATEMENTS
This report may contain certain information that constitutes forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Those statements, to the extent they are not historical facts,
should be considered forward-looking and subject to various risks and
uncertainties. Such forward-looking statements are made based upon management's
assessments of various risks and uncertainties, as well as assumptions made in
accordance with the "safe harbor" provisions of the Private
15
<PAGE> 16
Securities Litigation Reform Act of 1995. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of such risks and uncertainties, including those
identified in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and the other filings made by the Company from time to
time with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly release any revisions to any forward-looking statement
contained herein to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
information below summarizes the Company's market risk associated with its debt
obligations as of June 30, 1999. The information below should be read in
conjunction with Note 6 of the "Notes to Consolidated Financial Statements".
As of June 30, 1999, $199.0 million was outstanding under the Credit Facility.
The Company has also entered into six interest rate swap agreements (the "Swap
Agreements") to reduce the impact of changes in interest rates on its floating
rate obligation. The Swap Agreements have a combined notional amount of $175.0
million at June 30, 1999 and mature at various dates from 2000 to 2007. The
Swap Agreements involve the exchange of variable rate for fixed rate payments
and effectively change the Company's interest rate exposure to a weighted
average fixed rate of 5.43% plus a credit spread.
Based on the Company's overall interest rate exposure at June 30, 1999, a
near-term change in interest rates would not materially affect the consolidated
financial position, results of operations or cash flows of the Company.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ChoicePoint is involved in litigation from time to time in the ordinary course
of its business. The Company does not believe that the outcome of any pending
or threatened litigation will have a material adverse effect on the financial
position or results of operations of ChoicePoint. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a
risk that unpredictable decisions adverse to the Company could be reached.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 1999 the Company held its regular Annual Meeting of Shareholders. The
following matters were submitted to a vote of security holders:
(a) Votes cast for or withheld regarding the re-election of two
Directors for terms expiring in 2002:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Ron D. Barbaro 11,609,174 59,126
Tinsley H. Irvin 11,611,167 57,133
</TABLE>
Directors whose terms of office continue after the meeting
are as follows:
<TABLE>
<S> <C>
Terms Expiring in 2000 Terms Expiring in 2001
James M. Denny Ned C. Lautenbach
Julia B. North C.B. Rogers, Jr.
Charles I. Story Derek. V. Smith
</TABLE>
(b) Ratification of the ChoicePoint Inc. 1997 Omnibus Stock Incentive
Plan:
<TABLE>
<CAPTION>
FOR WITHHELD ABSTAIN
<S> <C> <C>
8,396,236 3,188,687 83,377
</TABLE>
(c) Ratification of the appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending
December 31, 1999:
<TABLE>
<CAPTION>
FOR WITHHELD ABSTAIN
<S> <C> <C>
11,590,348 45,295 32,657
</TABLE>
17
<PAGE> 18
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.02 Bylaws of the Company, as amended
27.01 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for
which this report was filed.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICEPOINT INC.
--------------------------------------------
(Registrant)
August 13, 1999 /s/ Derek V. Smith
- ---------------------- --------------------------------------------
Date Derek V. Smith, Chairman and
Chief Executive Officer
August 13, 1999 /s/ David E. Trine
- ---------------------- --------------------------------------------
Date David E. Trine, Vice President and
Corporate Controller (Principal Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
3.02 Bylaws of the Company, as amended
27.01 Financial Data Schedule (for SEC use only)
</TABLE>
20
<PAGE> 1
EXHIBIT 3.02
CHOICEPOINT INC.
BYLAWS
--------------------------
Effective as of July 27, 1999
<PAGE> 2
CHOICEPOINT INC.
--------
BYLAWS
--------
CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE MEETINGS OF THE SHAREHOLDERS..................................... 1
Section 1.1 Annual Meeting ................................................................ 1
Section 1.2 Special Meetings............................................................... 1
Section 1.3 Notice of Meetings............................................................. 1
Section 1.4 Voting Groups ................................................................ 1
Section 1.5 Quorum......................................................................... 2
Section 1.6 Vote Required for Action....................................................... 2
Section 1.7 Adjournments ................................................................ 2
Section 1.8 Presiding Officer.............................................................. 2
Section 1.9 Voting of Shares............................................................... 2
Section 1.10 Proxies........................................................................ 3
Section 1.11 Record Date ................................................................ 3
Section 1.12 Shareholder Proposals and Nominations.......................................... 3
ARTICLE TWO BOARD OF DIRECTORS............................................... 5
Section 2.1 General ...................................................................... 5
Section 2.2 Number of Directors and Term of Office......................................... 5
Section 2.3 Election of Directors.......................................................... 6
Section 2.4 Vacancies...................................................................... 6
Section 2.5 Term Limits.................................................................... 6
Section 2.5 (a) Term Limits - C. B. Rogers, Jr.............................................. 7
Section 2.6 Stock Ownership Requirement.................................................... 7
Section 2.7 Meetings....................................................................... 7
Section 2.8 Special Meetings............................................................... 7
Section 2.9 Notice of Meetings............................................................. 7
Section 2.10 Quorum; Adjournments........................................................... 7
Section 2.11 Vote Required for Action....................................................... 7
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 2.12 Action by Directors Without a Meeting.......................................... 8
Section 2.13 Compensation of Directors...................................................... 8
ARTICLE THREE ELECTIONS OF OFFICERS AND COMMITTEES............................. 8
Section 3.1 Election of Officers........................................................... 8
Section 3.2 Executive Committee............................................................ 8
Section 3.3 Other Committees............................................................... 9
ARTICLE FOUR OFFICERS......................................................... 9
Section 4.1 Officers....................................................................... 9
Section 4.2 Compensation of Officers....................................................... 10
Section 4.3 Chairman of the Board.......................................................... 10
Section 4.4 Vice Chairman of the Board..................................................... 10
Section 4.5 Chief Executive Officer........................................................ 10
Section 4.6 President...................................................................... 11
Section 4.7 Executive Vice Presidents...................................................... 11
Section 4.8 Vice Presidents................................................................ 11
Section 4.9 Treasurer...................................................................... 11
Section 4.10 Secretary...................................................................... 11
Section 4.11 Voting of Stock................................................................ 12
ARTICLE FIVE INDEMNIFICATION.................................................. 12
Section 5.1 Definitions.................................................................... 12
Section 5.2 Basic Indemnification Arrangement.............................................. 13
Section 5.3 Advances for Expenses.......................................................... 14
Section 5.4 Court-Ordered Indemnification and Advances for Expenses........................ 15
Section 5.5 Determination of Reasonableness of Expenses.................................... 15
Section 5.6 Indemnification of Employees and Agents........................................ 16
Section 5.7 Liability Insurance............................................................ 16
Section 5.8 Witness Fees................................................................... 16
Section 5.9 Report to Shareholders......................................................... 16
Section 5.10 No Duplication of Payments..................................................... 17
Section 5.11 Subrogation.................................................................... 17
Section 5.12 Contract Rights................................................................ 17
Section 5.13 Amendments..................................................................... 17
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE SIX CAPITAL STOCK.................................................... 17
Section 6.1 Direct Registration of Shares.................................................. 17
Section 6.2 Certificates for Shares........................................................ 18
Section 6.3 Transfer of Shares............................................................. 18
Section 6.4 Duty of Company to Register Transfer........................................... 18
Section 6.5 Lost, Stolen or Destroyed Certificates......................................... 19
Section 6.6 Authorization to Issue Shares and Regulations Regarding
Transfer and Registration...................................................... 19
ARTICLE SEVEN DISTRIBUTIONS AND DIVIDENDS...................................... 19
Section 7.1 Authorization or Declaration................................................... 19
Section 7.2 Record Date with Regard to Distributions and Share Dividends................... 19
ARTICLE EIGHT MISCELLANEOUS.................................................... 20
Section 8.1 Corporate Seal ................................................................ 20
Section 8.2 Inspection of Books and Records................................................ 20
Section 8.3 Conflict with Articles of Incorporation or Code................................ 20
Section 8.4 Severability................................................................... 20
ARTICLE NINE AMENDMENTS....................................................... 20
Section 9.1 Amendments..................................................................... 21
ARTICLE TEN FAIR PRICE REQUIREMENTS.......................................... 21
Section 10.1 Fair Price Requirements........................................................ 21
ARTICLE ELEVEN BUSINESS COMBINATIONS............................................ 21
Section 11.1 Business Combinations.......................................................... 21
</TABLE>
- iii -
<PAGE> 5
BYLAWS OF CHOICEPOINT INC.
-------------------
ARTICLE ONE
MEETINGS OF THE SHAREHOLDERS
Section 1.1 Annual Meeting. The Annual Meeting of the Shareholders of the
Company shall be held during the first five months after the end of each fiscal
year of the Company at such time and place, within or without the State of
Georgia, as shall be fixed by the Board of Directors, for the purpose of
electing Directors and for the transaction of such other business as may be
properly brought before the meeting.
Section 1.2 Special Meetings Special meetings of the Shareholders may be held at
the principal office of the Company in the State of Georgia or at such other
place, within or without the State of Georgia, as may be named in the call
therefor. Such special meetings may be called by the Chairman of the Board of
Directors, the Vice Chairman, the Chief Executive Officer, the President, the
Board of Directors by vote at a meeting, a majority of the Directors in writing
without a meeting, or by unanimous call of the Shareholders.
Section 1.3 Notice of Meetings. Unless waived in accordance with the Georgia
Business Corporation Code as amended from time-to-time (the "Code"), a notice of
each meeting of Shareholders stating the date, time and place of the meeting
shall be given not less than 10 days nor more than 60 days before the date
thereof to each Shareholder entitled to vote at that meeting. In the case of an
Annual Meeting, the notice need not state the purpose or purposes of the meeting
unless the Articles of Incorporation or the Code requires the purpose or
purposes to be stated in the notice of the meeting. Any irregularity in such
notice shall not affect the validity of the Annual Meeting or any action taken
at such meeting. In the case of a special meeting of the Shareholders, the
notice of meeting shall state the purpose or purposes for which the meeting is
called, and only business within the purpose or purposes described in such
notice may be conducted at the meeting.
Section 1.4 Voting Groups. Voting group means all shares of one or more classes
or series that are entitled to vote and be counted together collectively on a
matter at a meeting of Shareholders. All shares entitled to vote generally on
the matter are for that purpose a single voting group.
<PAGE> 6
Section 1.5 Quorum. With respect to shares entitled to vote as a separate voting
group on a matter at a meeting of Shareholders, the presence, in person or by
proxy, of a majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter unless the Articles of Incorporation or the Code provides otherwise. Once
a share is represented for any purpose at a meeting, other than solely to object
to holding the meeting or to transacting business at the meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of the meeting unless a new record date is or must be set for the
adjourned meeting pursuant to Section 1.11 of these Bylaws.
Section 1.6 Vote Required for Action. If a quorum exists, action on a matter
(other than the election of Directors) is approved if the votes cast favoring
the action exceed the votes cast opposing the action, unless the Articles of
Incorporation, provisions of these Bylaws validly adopted by the Shareholders,
or the Code requires a greater number of affirmative votes. If the Articles of
Incorporation or the Code provide for voting by two or more voting groups on a
matter, action on that matter is taken only when voted upon by each of those
voting groups counted separately.
Section 1.7 Adjournments. Whether or not a quorum is present to organize a
meeting, any meeting of Shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting shares represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Code concerning the selection of a new record date have been met.
Section 1.8 Presiding Officer. The Chairman of the Board shall call the meeting
of the Shareholders to order and shall act as Chairman of such meeting. In the
absence of the Chairman of the Board, the meeting shall be called to order by
any one of the following officers then present, in the following order: the Vice
Chairman of the Board, the Chief Executive Officer, the President, the senior
Executive Vice President, the next senior Executive Vice President, or any one
of the Vice Presidents, who shall act as chairman of the meeting. The Secretary
of the Company shall act as secretary of the meeting of the Shareholders. In the
absence of the Secretary, at any meeting of the Shareholders, the presiding
officer may appoint any person to act as Secretary of the meeting.
Section 1.9 Voting of Shares. Unless the Articles of Incorporation or the Code
provides otherwise, each outstanding share having voting rights shall be
entitled to one vote on each matter submitted to a vote at a meeting of
Shareholders.
-2-
<PAGE> 7
Section 1.10 Proxies. A Shareholder entitled to vote pursuant to Section 1.9 may
vote in person or by proxy pursuant to an appointment of proxy executed in
writing by the Shareholder. An appointment of proxy shall be valid for only one
meeting to be specified therein, and any adjournments of such meeting, but shall
not be valid for more than eleven months unless expressly provided therein.
Appointments of proxy shall be dated and filed with the records of the meeting
to which they relate. If the validity of any appointment of proxy is questioned,
it must be submitted for examination to the Secretary of the Company or to a
proxy officer or committee appointed by the Board of Directors. The Secretary
or, if appointed, the proxy officer or committee shall determine the validity or
invalidity of any appointment of proxy submitted, and reference by the Secretary
in the minutes of the meeting to the regularity of an appointment of proxy shall
be received as prima facie evidence of the facts stated for the purpose of
establishing the presence of a quorum at the meeting and for all other purposes.
Section 1.11 Record Date. For the purpose of determining Shareholders entitled
to notice of a meeting of the Shareholders, to demand a special meeting, to
vote, or to take any other action, the Board of Directors may fix a future date
as the record date, which date shall be not more than 70 days prior to the date
on which the particular action, requiring a determination of the Shareholders,
is to be taken. A determination of the Shareholders entitled to notice of or to
vote at a meeting of the Shareholders is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting. If no record date is fixed by the Board of Directors,
the 70th day preceding the date on which the particular action, requiring a
determination of the Shareholders, is to be taken shall be the record date for
that purpose.
Section 1.12 Shareholder Proposals and Nominations.
(a) No proposal for a Shareholder vote (other than a proposal that
appears in the Company's proxy statement after compliance with
the procedures set forth in Securities and Exchange Commission
Rule 14a-8) shall be submitted by a Shareholder (a
"Shareholder Proposal") to the Company's Shareholders unless
the Shareholder submitting such proposal (the "Proponent")
shall have filed a written notice setting forth with
particularity (i) the names and business addresses of the
Proponent and all natural persons, corporations, partnerships,
trusts or any other type of legal entity or recognized
ownership vehicle (collectively, a "Person") acting in concert
with the Proponent; (ii) the name and address of the Proponent
and the Persons identified in clause (i), as they appear on
the Company's books (if they so appear); (iii) the class and
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<PAGE> 8
number of shares of the Company beneficially owned by the
Proponent and by each Person identified in clause (i); (iv) a
description of the Shareholder Proposal containing all
material information relating thereto; and (v) such other
information as the Board of Directors reasonably determines is
necessary or appropriate to enable the Board of Directors and
Shareholders of the Company to consider the Shareholder
Proposal. The presiding officer at any meeting of the
Shareholders may determine that any Shareholder Proposal was
not made in accordance with the procedures prescribed in these
Bylaws or is otherwise not in accordance with law, and if it
is so determined, such officer shall so declare at the meeting
and the Shareholder Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the Board of
Directors or the committee of the Board of Directors designated to make
nominations, or who are nominated by Shareholders in accordance with the
procedures set forth in this Section 1.12, shall be eligible for election, or
qualified to serve, as Directors. Nominations of individuals for election to the
Board of Directors of the Company at any Annual Meeting or any special meeting
of Shareholders at which Directors are to be elected may be made by any
Shareholder of the Company entitled to vote for the election of Directors at
that meeting by compliance with the procedures set forth in this Section 1.12.
Nominations by Shareholders shall be made by written notice (a "Nomination
Notice"), which shall set forth (i) as to each individual nominated, (A) the
name, date of birth, business address and residence address of such individual;
(B) the business experience during the past five years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization in
which such occupations and employment were carried on, and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of such prior
business experience; (C) whether the nominee is or has ever been at any time a
director, officer or owner of five percent or more of any class of capital
stock, partnership interests or other equity interest of any corporation,
partnership or other entity; (D) any directorships held by such nominee in any
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or subject to the requirements of
Section 15(d) of such Act or any company registered as an investment company
under the Investment Company Act of 1940, as amended; and (E) whether such
nominee has ever been convicted in a criminal proceeding or has ever been
subject to a judgment, order, finding or decree of any federal, state or other
governmental entity, concerning any violation of federal, state or other law, or
any proceeding in bankruptcy, which conviction, order, finding, decree or
proceeding may be material to an evaluation of the ability or integrity of the
nominee; and (ii) as to the Person submitting the
-4-
<PAGE> 9
Nomination Notice and any Person acting in concert with such Person, (X) the
name and business address of such Person, (Y) the name and address of such
Person as they appear on the Company's books (if they so appear), and (Z) the
class and number of shares of the Company that are beneficially owned by such
Person. A written consent to being named in a proxy statement as a nominee, and
to serve as a Director if elected, signed by the nominee, shall be filed with
any Nomination Notice. If the presiding officer at any meeting of the
Shareholders determines that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, such officer shall so declare to the
meeting and the defective nomination shall be disregarded.
(c) If a Shareholder Proposal or Nomination Notice is to be
submitted at an Annual Meeting of the Shareholders, it shall be delivered to the
Secretary of the Company at the principal executive office of the Company within
the time period specified in Securities and Exchange Commission Rule
14a-8(a)(3)(i). Subject to Section 1.3 as to matters that may be acted upon at a
special meeting of the Shareholders, if a Shareholder Proposal or Nomination
Notice is to be submitted at a special meeting of the Shareholders, it shall be
delivered to the Secretary of the Company at the principal executive office of
the Company no later than the close of business on the earlier of (i) the 30th
day following the public announcement that a matter will be submitted to a vote
of the Shareholders at a special meeting, or (ii) the 15th day following the day
on which notice of the special meeting was given.
ARTICLE TWO
BOARD OF DIRECTORS
Section 2.1 General. Subject to the Articles of Incorporation, all corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Company shall be managed under the direction of, the Board of
Directors. In addition to the powers and authority expressly conferred upon it
by these Bylaws and the Articles of Incorporation, the Board of Directors may
exercise all such lawful acts and things as are not by law, by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the Shareholders.
Section 2.2 Number of Directors and Term of Office. The number of Directors
shall be not less than seven, nor more than fifteen Shareholders, and shall be
fixed within such range by the Board of Directors. The Directors shall be
divided into three classes, designated as Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of Directors constituting the entire Board of Directors. At each Annual
Meeting of the Shareholders, successors to the class of Directors whose term
expires at that Annual Meeting of
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Shareholders shall be elected for a three-year term. If the number of Directors
has changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of Directors in each class as nearly equal as
possible, and any additional Director of any class elected to the Board of
Directors to fill a vacancy resulting from an increase in such a class shall
hold office for a term that shall coincide with the remaining term of that
class, unless otherwise required by law, but in no case shall a decrease in the
number of Directors for a class shorten the term of an incumbent Director. A
Director shall hold office until the Annual Meeting of Shareholders for the year
in which such Director's term expires and until his or her successor shall be
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
Section 2.3 Election of Directors. A Director shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election at a meeting of
Shareholders at which a quorum is present.
Section 2.4 Vacancies. Any vacancy on the Board of Directors that results from
an increase in the number of Directors or from prior death, resignation,
retirement, disqualification or removal from office of a Director shall be
filled by a majority of the Board of Directors then in office, though less than
a quorum, or by the sole remaining Director. Any Director elected to fill a
vacancy resulting from prior death, resignation, retirement, disqualification or
removal from office of a director, shall have the same remaining term as that of
his or her predecessor.
Section 2.5 Term Limits. A Director reaching 70 years of age (or 65 years of age
for Directors, other than Chairman of the Board, who are also employees of the
Company) or who ceases to continue a regular business relationship (as defined
below) shall automatically retire from the Board, except that a non-employee
Director who ceases to continue a regular business relationship may continue
serving as a Director until the next Annual Meeting of the Shareholders, or 70
years of age, whichever first occurs. Notwithstanding the preceding, a
non-employee Director, or a retiring Chairman of the Board and Chief Executive
Officer (or either) may, at the request of the Executive Committee and if
ratified by the Board, continue to serve as a Director until age 70 if he or she
continues in a position or business activity that the Board determines would be
of substantial benefit to the Company. For purposes of this Section 2.5, the
expression "regular business relationship" means a relationship as an employee,
consultant or officer of a substantial business, professional or educational
organization, which requires exercise of business judgment on a regular basis,
and which is not lower in seniority than the position with such organization
occupied by the Director at the time of the Director's first election to the
Board of Directors of the Company.
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2.5 (a) Term Limits - C. B. Rogers, Jr. Notwithstanding Section 2.5 of these
bylaws, Mr. C. B. Rogers, Jr. may, with the approval of the Board, serve the
remainder of his term which expires at the 2001 Annual Meeting of Shareholders.
Section 2.6 Stock Ownership Requirement. Every Director shall be a Shareholder
of the Company. Directors shall serve for the terms for which they are elected
and until their successors shall have been duly chosen, unless any such term is
sooner ended as herein permitted; provided, however, that if a Director ceases
to be a Shareholder, the disposition of the stock shall constitute a resignation
of the Director's office as a Director.
Section 2.7 Meetings. Regular meetings of the Board of Directors shall be held
at such times as the Board of Directors may determine from time to time.
Section 2.8 Special Meetings. Special meetings of the Board of Directors shall
be held whenever called by the direction of the Chairman of the Board, or in his
or her absence, by the Vice Chairman, or in his or her absence, by either the
Chief Executive Officer or the President. Special meetings of the Board may also
be called by one-third of the Directors then in office. Unless otherwise
indicated in the notice thereof, any and all business of the Company may be
transacted at any special meeting of the Board of Directors.
Section 2.9 Notice of Meetings. Unless waived in accordance with the Code,
notice of each regular or special meeting of the Board of Directors, stating the
date, time and place of the meeting, shall be given not less than two days
before the date thereof to each Director.
Section 2.10 Quorum; Adjournments. A majority of the Board of Directors shall
constitute a quorum for the transaction of business. Whether or not a quorum is
present to organize a meeting, any meeting of Directors (including a reconvened
meeting) may be adjourned by a majority of the Directors present, to reconvene
within 120 days at a specific time and place. At any adjourned meeting, any
business may be transacted that could have been transacted at the meeting prior
to adjournment. If notice of the original meeting was properly given, it shall
not be necessary to give any notice of the adjourned meeting or of the business
to be transacted if the date, time and place of the adjourned meeting are
announced at the meeting prior to adjournment.
Section 2.11 Vote Required for Action. If a quorum is present when a vote is
taken, the affirmative vote of a majority of Directors present is the act of the
Board of Directors unless the
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Code, the Articles of Incorporation, or these Bylaws require the vote of a
greater number of Directors.
Section 2.12 Action by Directors Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of the Board of Directors may be
taken without a meeting if the action is taken by all the members of the Board
of Directors or of the committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken, signed by
each Director or each Director serving on the committee, as the case may be, and
delivered to the Company for inclusion in the minutes or filing with the
corporate records.
Section 2.13 Compensation of Directors. Directors who are salaried officers or
employees of the Company shall receive no additional compensation for service as
a Director or as a member of a committee of the Board of Directors. Each
Director who is not a salaried officer or employee of the Company shall be
compensated as established from time-to-time by the Board of Directors.
ARTICLE THREE
ELECTIONS OF OFFICERS AND COMMITTEES
Section 3.1 Election of Officers. At the April meeting of the Board of Directors
in each year, or, if not done at that time, then at any subsequent meeting, the
Board of Directors shall proceed to the election of executive officers of the
Company, and of the Executive Committee, as hereinafter provided for.
Section 3.2 Executive Committee. The Board of Directors may elect from their
members an Executive Committee which shall include the Chairman of the Board,
the Chief Executive Officer, and the President. The Executive Committee shall
consist of not less than three nor more than five members, the precise number to
be fixed by resolution of the Board of Directors from time to time.
Each member shall serve for one year and until his or her successor
shall have been elected, unless that term is sooner terminated by the Board of
Directors. The Board of Directors shall fill the vacancies in the Executive
Committee by election. The Chairman of the Board shall serve as Chairman of the
Executive Committee, if so designated by the Board of Directors.
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All action by the Executive Committee shall be reported to the Board of
Directors at its meeting next succeeding such action, and shall be subject to
revision or alteration by the Board of Directors, provided that no rights or
interests of third parties shall be affected by any such revision or alteration.
The Executive Committee shall fix its own rules and proceedings, and shall meet
where and as provided by such rules or by resolution of the Board of Directors.
In every case, the affirmative vote of a majority of all the members of the
Committee shall be necessary to its adoption of any resolution.
Except as prohibited by the Code, during the interval between the
meetings of the Board of Directors, the Executive Committee shall possess and
may exercise all the powers of the Board in the management of all the affairs of
the Company, including the making of contracts, the purchase and sale of
property, the execution of legal instruments, the functions of a Nominating
Committee and all other matters in which specific direction shall not have been
given by the Board of Directors.
Section 3.3 Other Committees. The Board of Directors is authorized and empowered
to appoint from its own body or from the officers of the Company, or both, such
other committees as it may think best, and may delegate to or confer upon such
committees all or such part of its powers except as prohibited by the Code, and
may prescribe the exercise thereof as it may deem proper.
ARTICLE FOUR
OFFICERS
Section 4.1 Officers. The officers of the Company, unless otherwise provided by
the Board from time to time, shall consist of the following: a Chairman of the
Board, a Chief Executive Officer, a President, one or more Vice Presidents (one
or more of whom may be designated Executive Vice President, one or more of whom
may be designated Corporate Vice President and one or more of whom may be
designated Senior Vice President), a Treasurer, and a Secretary, who shall be
elected by the Board of Directors. The Board of Directors may from time to time
elect a Vice Chairman of the Board. The Board of Directors, or any officer to
whom the Board may delegate such authority, may also appoint such other officers
as it or they may see fit, and may prescribe their respective duties. All
officers, however elected or appointed, may be removed with or without cause by
the Board of Directors, and any officer appointed by another officer may also be
removed, with or without cause, by the appointing officer or any officer senior
to the appointing
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officer. Any two or more of the offices may be filled by the same person. No
person shall serve as Chairman of the Board and Chief Executive Officer (or
either), beyond his or her 65th birthday.
Section 4.2 Compensation of Officers. The Executive Committee shall approve
salaries of all elected officers and such other employees as may be designated
by the Executive Committee, except that salaries of members of the Executive
Committee shall be fixed by the Management Compensation Committee of the Board
of Directors or by the Board of Directors.
Section 4.3 Chairman of the Board. The Chairman of the Board of Directors shall
serve as Chief Executive Officer of the Company, unless determined otherwise by
the Board of Directors. The Chairman of the Board shall preside at all meetings
of the Shareholders and shall preside at all meetings of the Board of Directors
and the Executive Committee. Except where by law the signature of the Chief
Executive Officer or President is required, the Chairman of the Board shall have
the same power as the Chief Executive Officer or President to sign all
authorized certificates, contracts, bonds, deeds, mortgages, and other
instruments.
Section 4.4 Vice Chairman of the Board. If the Chairman of the Board is not
designated Chief Executive Officer by the Board of Directors, then, if so
designated by the Board of Directors, the Vice Chairman shall serve as Chief
Executive Officer. It shall be the duty of the Vice Chairman of the Board, in
the absence of the Chairman of the Board, to preside at meetings of the
Shareholders, at meetings of the Directors, and at meetings of the Executive
Committee. The Vice Chairman shall do and perform all acts incident to the
office of Vice Chairman and, if so designated, those of Chief Executive Officer,
subject to the approval and direction of the Board of Directors.
Section 4.5 Chief Executive Officer. The Chief Executive Officer shall direct
the business and policies of the Company and shall have such other powers and
duties as from time to time may be assigned by the Board of Directors. In the
event of a vacancy in the office of Chairman and Vice Chairman of the Board or
during the absence or disability of the Chairman and the Vice Chairman, the
Chief Executive Officer shall have all of the rights, powers and authority given
hereunder to the Chairman of the Board. The Chief Executive Officer may sign all
authorized certificates, contracts, bonds, deeds, mortgages and other
instruments, except in cases in which the signing thereof shall have been
expressly delegated to some other officer or agent of the Company. In general,
the Chief Executive Officer shall have the usual powers and duties incident to
the office of a Chief Executive Officer of a corporation and such other powers
and duties as from time to time may be assigned by the Board of Directors or
Chairman of the Board.
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Section 4.6 President. The President shall be the Chief Operating Officer of the
Company and shall have general charge of the business of the Company subject to
the specific direction and approval of the Board of Directors or its Chairman or
Vice Chairman or the Executive Committee. The President shall also serve as
Chief Executive Officer of the Company if so designated by the Board of
Directors. In the event of a vacancy in the office of Chairman and Vice Chairman
of the Board or during the absence or disability of both the Chairman, the Vice
Chairman, and the Chief Executive Officer, the President shall serve as Chief
Executive Officer and shall have all of the rights, powers and authority given
hereunder to the Chairman of the Board. The President may sign all authorized
certificates, contracts, bonds, deeds, mortgages and other instruments, except
in cases in which the signing thereof shall have been expressly delegated to
some other officer or agent of the Company. In general, the President shall have
the usual powers and duties incident to the office of a president of a
corporation and such other powers and duties as from time to time may be
assigned by the Board or Chairman or Vice Chairman of the Board.
Section 4.7 Executive Vice Presidents. Each shall have authority, on behalf of
the Company, to execute, approve, or accept agreements for service, bids, or
other contracts, and shall sign such other instruments as each is authorized or
directed to sign by the Board of Directors or its Committee or by the Chief
Executive Officer or the President. Each shall do and perform all acts incident
to the office of the Executive Vice President of the Company or as may be
directed by its Board of Directors or its Committee or the Chief Executive
Officer or the President.
Section 4.8 Vice Presidents. There shall be one or more Vice Presidents of the
Company, as the Board of Directors may from time to time elect. Each Vice
President shall have such power and perform such duties as may be assigned by or
under the authority of the Board of Directors.
Section 4.9 Treasurer. The Treasurer shall be responsible for the custody of all
funds and securities belonging to the Company and for the receipt, deposit or
disbursement of funds and securities under the direction of the Board of
Directors. The Treasurer shall cause to be maintained full and true accounts of
all receipts and disbursements and shall make reports of the same to the Board
of Directors, the Chief Executive Officer, and the President upon request. The
Treasurer shall perform all duties as may be assigned from time to time by the
Board of Directors.
Section 4.10 Secretary. The Secretary shall be responsible for preparing minutes
of the acts and proceedings of all meetings of the Shareholders and of the Board
of Directors and any committees thereof. The Secretary shall have authority to
give all notices required by law or these Bylaws, and shall be responsible for
the custody of the corporate books, records, contracts and other documents.
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The Secretary may affix the corporate seal to any lawfully executed documents
and shall sign any instruments as may require the Secretary's signature. The
Secretary shall authenticate records of the Company and shall perform whatever
additional duties and have whatever additional powers the Board of Directors may
from time to time assign. In the absence or disability of the Secretary or at
the direction of the Chief Executive Officer, any Assistant Secretary may
perform the duties and exercise the powers of the Secretary.
Section 4.11 Voting of Stock. Unless otherwise ordered by the Board of Directors
or Executive Committee, the Chairman of the Board, the Vice Chairman, the Chief
Executive Officer, the President or any Executive Vice President of the Company
shall have full power and authority in behalf of the Company to attend and to
act and to vote at any meetings of shareholders of any corporation in which the
Company may hold stock, and at such meetings may possess and shall exercise any
and all rights and powers incident to the ownership of such stock which such
owner thereof (the Company) might have possessed and exercised if present. The
Board of Directors or Executive Committee, by resolution from time to time, may
confer like powers upon any other person or persons.
ARTICLE FIVE
INDEMNIFICATION
Section 5.1 Definitions. As used in this Article, the term:
(a) "Company" includes any domestic or foreign predecessor entity
of the Company in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" or "Officer" means an individual who is or was a
member of the Board of Directors or an officer elected by the
Board of Directors, respectively, or who, while a Director or
Officer, is or was serving at the Company's request as a
director, officer, partner, trustee, employee, or agent of
another domestic or foreign corporation, partnership, joint
venture, trust, employee benefit plan, or other entity. A
Director or Officer is considered to be serving an employee
benefit plan at the Company's request if his or her duties to
the Company also impose duties on, or otherwise involve
services by, the Director or Officer to the plan or to
participants in or beneficiaries of the plan. "Director" or
"Officer" includes, unless
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the context otherwise requires, the estate or personal
representative of a Director or Officer.
(c) "Disinterested Director" or "Disinterested Officer" means a
Director or Officer, respectively who at the time of an
evaluation referred to in subsection 5.5(b) is not:
(1) A Party to the Proceeding; or
(2) An individual having a familial, financial,
professional, or employment relationship with the
person whose advance for Expenses is the subject of
the decision being made with respect to the
Proceeding, which relationship would, in the
circumstances, reasonably be expected to exert an
influence on the Director's or Officer's judgment
when voting on the decision being made.
(d) "Expenses" includes counsel fees.
(e) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), and reasonable
Expenses incurred with respect to a Proceeding.
(f) "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a Proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative or investigative and whether
formal or informal.
(h) "Reviewing Party" shall mean the person or persons making the
determination as to reasonableness of Expenses pursuant to
Section 5.5 of this Article, and shall not include a court
making any determination under this Article or otherwise.
Section 5.2 Basic Indemnification Arrangement.
(a) The Company shall indemnify an individual who is a Party to a
Proceeding because he or she is or was a Director or Officer
against Liability incurred in the
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Proceeding; provided, however, that the Company shall not
indemnify a Director or Officer under this Article for any
Liability incurred in a Proceeding in which the Director or
Officer is adjudged liable to the Company or is subjected to
injunctive relief in favor of the Company:
(1) For any appropriation, in violation of his or her
duties, of any business opportunity of the Company;
(2) For acts or omissions which involve intentional
misconduct or a knowing violation of law;
(3) For the types of liability set forth in Section
14-2-832 of the Code; or
(4) For any transaction from which he or she received an
improper personal benefit.
(b) If any person is entitled under any provision of this Article
to indemnification by the Company for some portion of
Liability incurred, but not the total amount thereof, the
Company shall indemnify such person for the portion of such
Liability to which such person is entitled.
Section 5.3 Advances for Expenses.
(a) The Company shall, before final disposition of a Proceeding,
advance funds to pay for or reimburse the reasonable Expenses
incurred by a Director or Officer who is a Party to a
Proceeding because he or she is a Director or Officer if he or
she delivers to the Company:
(1) A written affirmation of his or her good faith belief
that his or her conduct does not constitute behavior
of the kind described in subsection 5.2(a) above; and
(2) His or her written undertaking (meeting the
qualifications set forth below in subsection 5.3(b))
to repay any funds advanced if it is ultimately
determined that he or she is not entitled to
indemnification under this Article or the Code.
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(b) The undertaking required by subsection 5.3(a)(2) above must be
an unlimited general obligation of the proposed indemnitee but
need not be secured and shall be accepted without reference to
the financial ability of the proposed indemnitee to make
repayment. If a Director or Officer seeks to enforce his or
her rights to indemnification in a court pursuant to Section
5.4 below, such undertaking to repay shall not be applicable
or enforceable unless and until there is a final court
determination that he or she is not entitled to
indemnification, as to which all rights of appeal have been
exhausted or have expired.
Section 5.4 Court-Ordered Indemnification and Advances for Expenses. A Director
or Officer who is a Party to a Proceeding shall have the rights to court-ordered
indemnification and advances for expenses as provided in the Code.
Section 5.5 Determination of Reasonableness of Expenses.
(a) The Company acknowledges that indemnification of a Director or
Officer under Section 5.2 has been pre-authorized by the
Company as permitted by Section 14-2-859(a) of the Code, and
that pursuant to Section 14-2-856 of the Code, no
determination need be made for a specific Proceeding that
indemnification of the Director or Officer is permissible in
the circumstances because he or she has met a particular
standard of conduct. Nevertheless, except as set forth in
subsection 5.5(b) below, evaluation as to reasonableness of
Expenses of a Director or Officer for a specific Proceeding
shall be made as follows:
(1) If there are two or more Disinterested Directors, by
the Board of Directors of the Company by a majority
vote of all Disinterested Directors (a majority of
whom shall for such purpose constitute a quorum) or
by a majority of the members of a committee of two or
more Disinterested Directors appointed by such a
vote; or
(2) If there are fewer than two Disinterested Directors,
by the Board of Directors (in which determination
Directors who do not qualify as Disinterested
Directors may participate); or
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(3) By the Shareholders, but shares owned by or voted
under the control of a Director or Officer who at the
time does not qualify as a Disinterested Director or
Disinterested Officer may not be voted on the
determination.
(b) Notwithstanding the requirement under subsection 5.5(a) that
the Reviewing Party evaluate the reasonableness of Expenses
claimed by the proposed indemnitee, any Expenses claimed by
the proposed indemnitee shall be deemed reasonable if the
Reviewing Party fails to make the evaluation required by
subsection 5.5(a) within sixty (60) days following the
proposed indemnitee's written request for indemnification or
advance for Expenses.
Section 5.6 Indemnification of Employees and Agents. The Company may indemnify
and advance Expenses under this Article to an employee or agent of the Company
who is not a Director or Officer to the same extent and subject to the same
conditions that a Georgia corporation could, without shareholder approval under
Section 14-2-856 of the Code, indemnify and advance Expenses to a Director, or
to any lesser extent (or greater extent if permitted by law) determined by the
Chief Executive Officer, in each case consistent with public policy.
Section 5.7 Liability Insurance. The Company may purchase and maintain insurance
on behalf of an individual who is a Director, Officer, employee or agent of the
Company or who, while a Director, Officer, employee or agent of the Company,
serves at the Company's request as a director, officer, partner, trustee,
employee or agent of another domestic or foreign corporation, partnership, joint
venture, trust, employee benefit plan, or other entity against Liability
asserted against or incurred by him or her in that capacity or arising from his
or her status as a Director, Officer, employee, or agent, whether or not the
corporation would have power to indemnify or advance Expenses to him or her
against the same Liability under this Article or the Code.
Section 5.8 Witness Fees. Nothing in this Article shall limit the Company's
power to pay or reimburse Expenses incurred by a person in connection with his
or her appearance as a witness in a Proceeding at a time when he or she is not a
Party.
Section 5.9 Report to Shareholders. To the extent and in the manner required by
the Code from time to time, if the Company indemnifies or advances Expenses to a
Director or Officer in connection with a Proceeding by or in the right of the
Company, the Company shall report the indemnification or advance to the
Shareholders.
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Section 5.10 No Duplication of Payments. The Company shall not be liable under
this Article to make any payment to a person hereunder to the extent such person
has otherwise actually received payment (under any insurance policy, agreement
or otherwise) of the amounts otherwise payable hereunder.
Section 5.11 Subrogation. In the event of payment under this Article, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
Section 5.12 Contract Rights. The right to indemnification and advancement of
Expenses conferred hereunder to Directors and Officers shall be a contract right
and shall not be affected adversely to any Director or Officer by any amendment
of these Bylaws with respect to any action or inaction occurring prior to such
amendment; provided, however, that this provision shall not confer upon any
indemnitee or potential indemnitee (in his or her capacity as such) the right to
consent or object to any subsequent amendment of these Bylaws.
Section 5.13 Amendments. It is the intent of the Company to indemnify and
advance Expenses to its Directors and Officers to the full extent permitted by
the Code, as amended from time to time. To the extent that the Code is hereafter
amended to permit a Georgia business corporation to provide to its directors
greater rights to indemnification or advancement of Expenses than those
specifically set forth hereinabove, this Article shall be deemed amended to
require such greater indemnification or more liberal advancement of Expenses to
the Company's Directors and Officers, in each case consistent with the Code as
so amended from time to time. No amendment, modification or rescission of this
Article, or any provision hereof, the effect of which would diminish the rights
to indemnification or advancement of Expenses as set forth herein shall be
effective as to any person with respect to any action taken or omitted by such
person prior to such amendment, modification or rescission.
ARTICLE SIX
CAPITAL STOCK
Section 6.1 Direct Registration of Shares. The Company may, with the Board of
Directors' approval, participate in a direct registration system approved by the
Securities and Exchange Commission and by the New York Stock Exchange or any
securities exchange on which the stock
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of the Company may from time to time be traded, whereby shares of capital stock
of the Company may be registered in the holder's name in uncertificated,
book-entry form on the books of the Company.
Section 6.2 Certificates for Shares. Except for shares represented in book-entry
form under a direct registration system contemplated in Section 6.1, the
interest of each Shareholder in the Company shall be evidenced by a certificate
or certificates representing shares of the Company which shall be in such form
as the Board of Directors from time to time may adopt. Share certificates shall
be numbered consecutively, shall be in registered form, shall indicate the date
of issuance, the name of the Company and that it is organized under the laws of
the State of Georgia, the name of the Shareholder, and the number and class of
shares and the designation of the series, if any, represented by the
certificate. Each certificate shall be signed by the Chairman of the Board, the
President or other Chief Executive Officer and by a Vice President or the
Secretary or may be signed with the facsimile signatures of the Chairman of the
Board, the President or other Chief Executive Officer and by a Vice President or
the Secretary, and in all cases a stock certificate must also be signed by the
transfer agent for the stock. The corporate seal need not be affixed.
Section 6.3 Transfer of Shares. The Board of Directors shall have authority to
appoint a transfer agent and/or a registrar for the shares of its capital stock,
and to empower them or either of them in such manner and to such extent as it
may deem best, and to remove such agent or agents from time to time, and to
appoint another agent or other agents. Transfers of shares shall be made upon
the transfer books of the Company, kept at the office of the transfer agent
designated to transfer the shares, only upon direction of the registered owner,
or by an attorney lawfully constituted in writing. With respect to certificated
shares, 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 requirements of Section 6.5 of these Bylaws
shall have been met. Transfer of shares shall be in accordance with such
reasonable rules and regulations as may be made from time to time by the Board
of Directors.
Section 6.4 Duty of Company to Register Transfer. Notwithstanding any of the
provisions of Section 6.3 of these Bylaws, the Company is under a duty to
register the transfer of its shares only if:
(a) the certificate or transfer instruction is endorsed by the
appropriate person or persons; and
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<PAGE> 23
(b) reasonable assurance is given that the endorsement or
affidavit is genuine and effective; and
(c) the Company either has no duty to inquire into adverse claims
or has discharged that duty; and
(d) the requirements of any applicable law relating to the
collection of taxes have been met; and
(e) the transfer in fact is rightful or is to a bona fide
purchaser.
Section 6.5 Lost, Stolen or Destroyed Certificates. Any person claiming a share
certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in the manner required by the Company and, if the
Company requires, shall give the Company a bond of indemnity in form and amount,
and with one or more sureties satisfactory to the Company, as the Company may
require, whereupon an appropriate new certificate may be issued in lieu of the
one alleged to have been lost, stolen or destroyed.
Section 6.6 Authorization to Issue Shares and Regulations Regarding Transfer and
Registration. The Board of Directors and the Executive Committee shall have
power and authority to issue shares of capital stock of the Company and to make
all such rules and regulations as, respectively, they may deem expedient
concerning the transfer and registration of shares of the capital stock of the
Company.
ARTICLE SEVEN
DISTRIBUTIONS AND DIVIDENDS
Section 7.1 Authorization or Declaration. Unless the Articles of Incorporation
provide otherwise, the Board of Directors from time to time in its discretion
may authorize or declare distributions or share dividends in accordance with the
Code.
Section 7.2 Record Date with Regard to Distributions and Share Dividends. For
the purpose of determining Shareholders entitled to a distribution (other than
one involving a purchase, redemption, or other reacquisition of the Company's
shares) or a share dividend, the Board of Directors may fix a date as the record
date. If no record date is fixed by the Board of Directors, the record date
shall be determined in accordance with the provisions of the Code.
-19-
<PAGE> 24
ARTICLE EIGHT
MISCELLANEOUS
Section 8.1 Corporate Seal. If the Board of Directors determines that there
should be a corporate seal for the Company, it shall be in the form as the Board
of Directors may from time to time determine.
Section 8.2 Inspection of Books and Records. The Board of Directors shall have
power to determine which accounts, books and records of the Company shall be
opened to the inspection of Shareholders, except those as may by law
specifically be made open to inspection, and shall have power to fix reasonable
rules and regulations not in conflict with the applicable law for the inspection
of accounts, books and records which by law or by determination of the Board of
Directors shall be open to inspection. Without the prior approval of the Board
of Directors in its discretion, the right of inspection set forth in Section
14-2-1602(c) of the Code shall not be available to any Shareholder owning two
percent or less of the shares outstanding.
Section 8.3 Conflict with Articles of Incorporation or Code. To the extent that
any provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, such provision of the Articles of Incorporation shall govern. To
the extent that any provision of these Bylaws conflicts with any
non-discretionary provision of the Code, such provision of the Code shall
govern.
Section 8.4 Severability. In the event that any of the provisions of these
Bylaws (including any provision within a single section, subsection, division or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of these Bylaws shall remain
enforceable to the fullest extent permitted by law.
ARTICLE NINE
AMENDMENTS
Section 9.1 Amendments. Subject, in each case, to the Articles of Incorporation:
(a) the Board of Directors shall have power to alter, amend or
repeal these Bylaws or adopt new Bylaws; and
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<PAGE> 25
(b) any Bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new Bylaws may be adopted, by the
Shareholders, as provided by the Code; and
(c) Articles Ten and Eleven of these Bylaws shall be amended
only in the manner provided by relevant provisions of the Code.
ARTICLE TEN
FAIR PRICE REQUIREMENTS
Section 10.1 Fair Price Requirements. All of the requirements of Article 11,
Part 2, of the Code, included in Sections 14-2-1110 through 1113 (and any
successor provisions thereto), shall be applicable to the Company in connection
with any business combination, as defined therein, with any interested
shareholder, as defined therein.
ARTICLE ELEVEN
BUSINESS COMBINATIONS
Section 11.1 Business Combinations. All of the requirements of Article 11, Part
3, of the Code, included in Sections 14-2-1131 through 1133 (and any successor
provisions thereto), shall be applicable to the Company in connection with any
business combination, as defined therein, with any interested shareholder, as
defined therein.
-21-
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