<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission file number 0-10175
POLICY MANAGEMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0723125
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.) 29016 (29202)
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (803) 735-4000
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 No X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
19,419,584 Common shares, $.01 par value, as of September 30,
1994
The information furnished herein reflects all adjustments which
are, in the opinion of management, necessary for the fair
presentation of the results for the periods reported. Such
information should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
<PAGE> 2
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations for
the three and nine months ended September 30,
1994 and 1993..................................... 3
Consolidated Balance Sheets as of
September 30, 1994 and December 31, 1993.......... 4
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1994 and 1993. 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................23
Item 6. Exhibits and Reports on Form 8-K....................23
Signatures....................................................24
<PAGE> 3
PART I
FINANCIAL INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(Unaudited) (Unaudited) (Note 1)
(In Thousands, Except Per Share Data)
Revenues:
Licensing.......................... $ 27,027 $ 15,666 $ 67,018 $ 58,621
Services........................... 99,966 93,219 300,658 286,187
126,993 108,885 367,676 344,808
Costs and Expenses:
Employee compensation & benefits... 43,656 42,038 133,498 126,293
Computer and communications
expenses......................... 11,602 10,095 34,314 31,016
Information services and
data acquisition costs........... 33,039 34,281 100,865 96,300
Other operating costs & expenses... 25,816 21,719 66,347 91,862
Impairment and restructuring
charges (credits)................ (1,746) - (3,461) 80,733
112,367 108,133 331,563 426,204
Operating income (loss).............. 14,626 752 36,113 (81,396)
Other Income and Expenses:
Investment income.................. 1,282 2,237 4,954 7,941
Gain/(loss) on sale of marketable
securities....................... (1,010) 19 (1,829) 3,052
Interest expense and other
charges.......................... (605) (923) (2,324) (1,719)
(333) 1,333 801 9,274
Income (loss) before income tax
(benefit).......................... 14,293 2,085 36,914 (72,122)
Income taxes (benefit)............... 4,570 1,739 13,025 (12,045)
Net income (loss).................... $ 9,723 $ 346 $ 23,889 $ (60,077)
Net income (loss) per share.......... $ .49 $ .02 $ 1.12 $ ( 2.62)
Weighted average number of shares.... 19,975 22,604 21,360 22,933
See accompanying notes.
<PAGE> 4
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1994 1993
(In Thousands,
Except Share Data)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents................................... $ 17,153 $ 24,122
Marketable securities.................................. 45,932 132,650
Receivables, net of allowance for uncollectible
amounts of $1,996 ($1,817 at 1993).................. 101,674 92,975
Income tax receivable.................................. 18,337 18,764
Deferred income taxes.................................. 9,046 9,491
Other.................................................. 9,550 9,735
Total current assets................................ 201,692 287,737
Property and equipment, at cost less accumulated
depreciation and amortization of $121,073
($102,623 at 1993).................................. 131,870 139,029
Receivables.............................................. 582 4,716
Goodwill and other intangible assets..................... 77,975 85,969
Capitalized software costs............................... 127,678 117,513
Deferred income taxes.................................... - 21,585
Investments.............................................. 7,663 -
Other.................................................... 5,019 3,254
Total assets..................................... $552,479 $659,803
Liabilities
Current liabilities:
Accounts payable and accrued expenses.................. $ 39,721 $ 42,256
Accrued restructuring charges.......................... 5,441 9,521
Accrued contract termination costs..................... 1,580 2,714
Current portion of long-term debt...................... 4,114 6,986
Unearned revenues...................................... 15,710 19,121
Other.................................................. 317 383
Total current liabilities........................... 66,883 80,981
Long-term debt........................................... 4,477 5,655
Deferred income taxes.................................... 54,681 74,151
Accrued restructuring charges............................ 12,631 19,735
Other.................................................... 1,361 2,309
Total liabilities................................... 140,033 182,831
Commitments and contingencies (Note 3)
Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares
authorized............................................ - -
Common stock, $.01 par value, 75,000,000 shares
authorized, 19,419,584 shares issued and
outstanding (22,637,021 at 1993)...................... 194 226
Additional paid-in capital............................... 172,648 262,167
Retained earnings........................................ 240,521 216,632
Unrealized holding gain on marketable securities......... 19 -
Foreign currency translation adjustment.................. (936) (2,053)
Total stockholders' equity.......................... 412,446 476,972
Total liabilities and stockholders' equity....... $552,479 $659,803
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1994 1993
Operating Activities (In Thousands)
Net income/(loss)............................... $ 23,889 $(60,077)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation and amortization................. 50,413 47,214
Deferred income taxes......................... 2,560 (20,763)
Loss/(gain) on sale of marketable
securities.................................. 1,829 (3,053)
Provision for uncollectible accounts.......... 730 1,500
Impairment charges............................ - 54,890
Changes in assets and liabilities:
Accrued restructuring and lease
termination costs........................... (10,436) 25,843
Receivables................................... (5,295) 21,344
Income taxes receivable....................... 427 (7,341)
Accounts payable and accrued expenses......... (2,535) 1,822
Income taxes payable.......................... - 3,009
Other, net...................................... (4,852) (3,848)
Cash provided by operations................ 56,730 60,540
Investing Activities
Proceeds from sales/maturities of marketable
securities..................................... 225,840 364,443
Purchases of marketable securities.............. (153,033) (269,112)
Acquisition of property and equipment........... (14,514) (35,242)
Capitalized internal software development
costs.......................................... (25,914) (17,591)
Purchased software.............................. (418) (3,928)
Proceeds from disposal of property and
equipment...................................... (437) 9,123
Business acquisitions........................... - (59,097)
Cash provided (used) by investing
activities............................... 31,524 (11,404)
Financing Activities
Payments on long-term debt...................... (4,599) (3,680)
Issuance of common stock under stock
option plans.................................. - 690
Issuance of common stock to employee
benefit plan.................................. - 1,328
Repurchase of common stock...................... (89,551) (48,660)
Cash used for financing activities......... (94,150) (50,322)
Effect of exchange rate changes on cash........... (1,073) 519
Net decrease in cash and equivalents.............. (6,969) (667)
Cash and equivalents at beginning of period....... 24,122 31,959
Cash and equivalents at end of period............. $ 17,153 $ 31,292
Noncash Activities
Long-term debt arising from and assumed in
connection with business acquisition........... $ - $ 4,187
Supplemental Information
Interest paid................................... 1,719 1,037
Income taxes paid............................... 10,126 12,158
See accompanying notes.
<PAGE> 6
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
NOTE 1. RESTATEMENT OF PRIOR YEAR RESULTS OF OPERATIONS
In August 1993, the Company engaged independent accountants to
conduct a special audit of the Company's balance sheet as of
December 31, 1992 and its consolidated financial statements as of
and for the six months ended June 30, 1993. As a result of this
audit, the Company determined that retained earnings previously
reported as of December 31, 1992 required adjustment. These
adjustments were due to errors in the application of accounting
principles and subsequent discovery of facts existing at February
26, 1993, the date of the predecessor auditor's report (see Note 2
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
The Company has determined the specific prior periods affected by
these adjustments, has restated its financial statements for such
periods and intends to file amended annual and quarterly reports on
Forms 10-K and 10-Q for the years 1993 and 1992.
NOTE 2. MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," ("FAS
115"). In accordance with the provisions of FAS 115, the Company
has classified debt securities (principally municipal bonds) either
as available-for-sale, which are carried at fair market value and
shown as Marketable Securities, or as held-to-maturity, which are
carried at amortized cost and shown as Investments. Unrealized
gains and losses on securities classified as available-for-sale are
reported net and are included in Stockholders' Equity.
NOTE 3. CONTINGENCIES
In April 1993, litigation was commenced against the Company and
certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division. In the litigation, which is a class action on
behalf of purchasers of the Company's common stock between March
18, 1992 and July 8, 1993, the plaintiffs allege that the Company
failed to prepare its financial statements in accordance with
generally accepted accounting principles and omitted to disclose
certain information regarding, among other things, its business and
prospects in violation of the Federal securities laws, the South
Carolina Code and common law. The Company believes it has
meritorious defenses to the claims and is vigorously defending the
litigation. The plaintiffs seek unspecified compensatory damages,
legal fees and litigation costs. The Company is unable to predict
the outcome or the potential financial impact of this litigation.
As of September 30, 1994, the Company has recorded a claim for
recovery of litigation costs related to this matter of $10.6
million, which is included in current receivables on
<PAGE> 7
the Company's consolidated balance sheet. The maximum insurance
coverage related to these claims is $15 million under the directors'
and officers' insurance.
In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities. The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with their
investigation. The Company is cooperating with the SEC in
connection with the investigation.
In addition to the litigation noted above, the Company is
presently involved in litigation and a contract dispute arising out
of the Company's change in the direction of its future life
software systems development following the acquisition of CYBERTEK.
There are also various other litigation proceedings and claims
arising in the ordinary course of business. The Company believes
it has meritorious defenses and is vigorously defending these
matters. While the resolution of these matters could affect the
results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its
consolidated financial position. However, the Company is unable to
predict the ultimate outcome or the potential financial impact of
these matters.
NOTE 4. INCOME TAXES
On September 29, 1994, the Company reached a tentative agreement
with the Internal Revenue Service ("IRS") regarding proposed tax
deficiencies relating to an examination of the Company's
consolidated federal income tax returns. The tentative settlement,
which includes a current payment of $3.9 million and a liability
for further taxes in future periods, resolves all issues related to
the IRS's examination of the Company's tax returns for the years
1985 through 1990. The tentative settlement is also less than the
related amounts included in the income tax liability accounts of
the Company. This formal acceptance is expected within the next
several weeks in the form of a closing letter. Upon execution of
the closing letter, amounts previously established as liabilities
in excess of the settlement amount will be accounted for as
reductions of tax expense in the period that such closing letter is
received.
NOTE 5. IMPAIRMENT AND RESTRUCTURING
The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million and restructuring charges of $25.2 million associated
with employee severance and outplacement ($5.2 million), and to an
ongoing lease obligation and/or termination for the planned future
abandonment of certain leased office facilities ($20.0 million)
(see Note 13 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1993). Due to a
<PAGE> 8
change in its estimates, as of September 30, 1994, the Company has
reduced its restructuring reserves by $3.5 million, $1.7 million of
which resulted from a change in the scheduled downsizing of the
Company's health staff and a corresponding reduction in amounts
established for severance and outplacement costs, recorded in June
1994, and $1.8 million of which resulted from a lease termination
at amounts less than those established for the planned future
abandonment of certain leased office facilities, recorded in July
1994.
NOTE 6. OTHER MATTERS
In July 1994, the Company received a decision from an
international arbitration tribunal relating to a contract
termination dispute, finding that both parties were responsible.
The Company has made provision (at June 1994) for satisfaction of
the award in the amount of $1.9 million.
The Company announced on April 27, 1994, that it had agreed with
IBM to repurchase 2,278,537 of the 3,797,561 shares of the
Company's common stock held by IBM and that the remainder of the
Company's shares owned by IBM would be purchased by the General
Atlantic Partners group, a New York-based private investment firm.
The Company completed the repurchase of these shares on May 16,
1994, at a share price of $24.71, which approximated an aggregate
cash expenditure of $56.3 million. The shares repurchased by the
Company represent 10% of its total shares outstanding prior to the
repurchase.
Pursuant to a stock repurchase program approved by the Board of
Directors in July 1994, the Company may purchase from time to time
up to 2.5 million shares of its issued and outstanding common
stock. This program is flexible as to the timing and method of
acquisition of these shares. As of September 30, 1994, the Company
had repurchased, on the open market, 938,900 shares of its common
stock, at an average price of approximately $35.00 per share for a
total of $33.0 million.
<PAGE> 9
POLICY MANAGEMENT SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in
Part I of this report on Form 10-Q and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
RESULTS OF OPERATIONS
<TABLE>
Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:
<CAPTION>
1994 vs 1993
Percent Increase
(Decrease)
Percentage Percentage Three Nine
of Revenues of Revenues Months Months
Three Months Nine Months Ended Ended
Ended September 30, Ended September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Licensing................. 21.3 14.4 18.2 17.0 72.5 14.3
Services.................. 78.7 85.6 81.8 83.0 7.2 5.1
100.0 100.0 100.0 100.0 16.6 6.6
Costs and Expenses:
Employee compensation
and benefits.......... 34.4 38.6 36.3 36.6 3.8 5.7
Computer & communication
expense............... 9.1 9.3 9.3 9.0 14.9 10.6
Information services & data
acquisition costs..... 26.0 31.5 27.4 27.9 (3.6) 4.7
Other operating costs
and expenses.......... 20.3 19.9 18.1 26.7 18.9 (27.8)
Impairment and restructuring
charges (credits)..... (1.3) - (.9) 23.4 (100.0) (104.3)
88.5 99.3 90.2 123.6 3.9 (22.2)
Operating income (loss)... 11.5 .7 9.8 (23.6) 1,844.9 144.4
Other income and expenses. (.3) 1.2 .2 2.7 (125.0) (91.4)
Income (loss) before income
tax (benefit)......... 11.2 1.9 10.0 (20.9) 585.5 151.2
Income taxes (benefit).... 3.6 1.6 3.5 (3.5) 162.8 208.1
Net income (loss)......... 7.6 .3 6.5 (17.4) 2,710.1 139.8
</TABLE>
<PAGE> 10
THREE MONTHS COMPARISON
<TABLE>
A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:
<CAPTION>
Operating
Operating Income as a
Revenues Income % of Revenue
Three Months Three Months Three Months
Ended September 30, Ended September 30, Ended September 30,
1994 1993 1994 1993 1994 1993
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Line of Business
Property & Casualty $ 88.2 $ 80.2 $10.1 $ 6.5 11.5 8.1
Life 29.8 21.4 3.9 (1.1) 13.1 (5.1)
Health 8.9 7.3 3.4 (4.3) 38.2 (58.9)
Geographic Market
United States $110.7 $ 95.3 $15.3 $(1.3) 13.8 (1.4)
International 16.2 13.6 2.1 2.4 13.0 17.6
</TABLE>
The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities.
There were no equipment sales during the three months ended
September 30, 1994 or 1993. Costs associated with these corporate
activities amounted to $2.8 million and $.3 million, excluding
special charges, for the three months ended September 30, 1994 and
1993, respectively (see Costs and Expenses below).
Revenues
Total licensing revenues for the three months ended September 30,
1994 increased $11.4 million (72.5%) compared to the corresponding
period in 1993, due primarily to a $10.9 million increase in
initial license revenues attributable to new systems licensed by
both property and casualty and life insurers and by increased
revenues from continuing monthly license charges for maintenance,
enhancements and services availability ("MESA") and for continuing
right-to-use licenses of $.5 million (3.7%). As part of the
increase in initial license revenues, the Company executed a
license agreement expansion with a large Blue Cross Blue Shield
organization, which resulted in the recognition of $3.5 million in
revenue for the Company's health insurance systems business.
However, the Company does not expect to see recurring transactions
of this size in the near term as health insurers, for the most
part, are still reluctant to make major systems decisions.
Total services revenues for the three months ended September 30,
1994 increased $6.7 million (7.2%) compared to the corresponding
period in 1993. The total services revenue increase was affected
by activities in professional, outsourcing and information
services, as described more fully below.
<PAGE> 11
Revenues from professional services increased $2.9 million
(17.9%) to $19.3 million for the three months ended September 30,
1994 from $16.4 million for the corresponding period in 1993, due
primarily to additional services ($4.4 million) generated by the
life insurance services business. This increase was partially
offset by a reduction in professional services ($1.4 million)
provided by the Company's health insurance services business.
Revenues from outsourcing services amounted to $32.3 million for
the three months ended September 30, 1994, an increase of $6.2
million (23.5%) compared with the corresponding period in 1993.
Revenues from outsourcing services increased $11.2 million as a
result of new outsourcing services relating to life insurance
services in Europe and servicing existing and new contracts with
property and casualty insurance companies and residual markets.
These increases were partially offset by the wind-down of the New
Jersey Market Transition Facility (MTF) project, where revenues
from this property and casualty contract decreased from $2.9
million for the three months ended September 30, 1993 to $.5
million for the three months ended September 30, 1994, and to the
termination of a facilities management and processing contract in
September 1993, representing $2.7 million of life insurance
services business in Europe for the three months ended September
30, 1993.
Revenues from information services were $47.8 million for the
three months ended September 30, 1994 as compared with $50.8
million for the corresponding period in 1993. This $3.0 million
decrease is attributable to a decrease in business associated with
automobile property and casualty information services and as a
result of a sale of a small non-strategic division. These
decreases, however, were partially offset by an increase in life
and information services.
Costs and Expenses
Employee compensation and benefits increased $1.6 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs ($3.7 million) associated with the acquisition of CYBERTEK
Corporation in August 1993, the acquisition of a data center,
including its workforce, in Bergen, Norway and an increase in third
party temporary services. The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($2.1 million) resulting from a
downsizing in the Company's health insurance services staff from
437 at June 30, 1993 to approximately 238 at September 30, 1994.
These scheduled staff reductions are part of the Company's
restructuring of its health business (see Note 5 of Notes to
Consolidated Financial Statements).
Computer and communications expenses increased $1.5 million for
the three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway in December 1993.
<PAGE> 12
Information services and data acquisition costs decreased $1.2
million for the three months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to a decrease in
the volume of state fees for motor vehicle reports, which is part
of the Company's property and casualty information services
business.
Other operating costs and expenses for the three months ended
September 30, 1994 increased $4.1 million when compared with the
corresponding period in 1993. The increase is primarily
attributable to increases in operating costs associated with
providing total policy management outsourcing services for new
customers. This increase was partially offset by an increase in
amounts capitalized principally related to the internal development
of the Company's life software systems.
In July 1994 the Company, due to a change in its estimates,
reduced its restructuring reserves by $1.8 million, which resulted
from a lease termination at amounts less than those established for
the planned future abandonment of certain leased office facilities
(see Note 5 of Notes to Consolidated Financial Statements).
Operating Income
Operating income was $14.6 million for the three months ended
September 30, 1994, compared with $.8 million for the corresponding
period in 1993. This increase resulted primarily from an increase
in initial license revenues for new systems licensed by both
property and casualty and life insurers, an increase in life
insurance services in Europe, an increase in professional and
outsourcing services provided under existing and new contracts with
property and casualty insurance companies and residual markets, and
to a reduction in restructuring reserves.
The Company's health insurance systems business continues to show
some improvement. Revenues benefited from a significant license
agreement expansion resulting in the recognition of $3.5 million in
revenue. Additional improvements resulted from a reduction in
operating costs associated with the reduction in amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.
The property and casualty insurance software and services
business experienced a higher level of revenue primarily from
increased licensing activities and outsourcing revenues related to
total policy management services during the three months ended
September 30, 1994 compared to the corresponding period of 1993.
However, operating income declined from the second quarter of 1994
as a result of a decrease in information services business and
additional costs associated with servicing new outsourcing
customers.
Although the Company has not been able to reduce its operating
expenses, associated with the wind-down of the MTF project, as
quickly
<PAGE> 13
as the reduction in revenue from the MTF occurred, operating income
from services provided under new outsourcing contracts with
insurance companies and residual markets have started to replace
operating income lost from the MTF project. Revenues for the three
months ended September 30, 1994 increased $4.7 million compared
with the corresponding period in 1993; however, margins will be
reduced during the early phases of these contracts due to start-up
costs.
The information services businesses, which include property and
casualty as well as life insurance information services, produced
a net operating loss for the three months ended September 30, 1994
of $1.8 million. The property and casualty business unit produced
an operating loss of $2.5 million while the life business unit
produced operating income of $.7 million. These results were
weaker than that reported for the third quarter of 1993 when the
property and casualty business produced an operating loss of $.7
million and the life business produced operating income of $.7
million. The 1994 third quarter performance reflects a trend of
weakening results that began earlier in the year and in property
and casualty is reflective of increasing price competition and
changing market conditions. The life business has been heavily
impacted by the implementation of new systems and higher costs to
acquire information. In response to the recent performance and
changing market conditions, the Company has taken and is
considering further near-term actions to improve the overall
results from information services. These actions include
management changes, realigning and consolidating field offices,
reducing other expenses, refining and enhancing products and
services and evaluating the recoverability and amortization periods
of intangible assets acquired in information services business
acquisitions. Additionally, the Company is pursuing a long-term
strategy to direct more of its information services business into
database products and life information services where margins are
generally higher. The Company typically realizes a much lower
gross margin from property and casualty information services than
from software products and related services.
In August 1993, the Company completed its acquisition of CYBERTEK
Corporation. The Company continues to focus on integrating
CYBERTEK's products with the Company's Series III applications and
technology. The Company has also completed the combination of
CYBERTEK with the Company's life insurance software and services
organization to eliminate redundancies. Although ongoing expenses
of the combination continued at a high level in the third quarter,
total revenues and operating income for the Company's life business
increased $8.4 million and $5.0 million for the three months ended
September 30, 1994, respectively, compared with the corresponding
period in 1993, due primarily to the CYBERTEK acquisition, the
addition of a new outsourcing contract in Europe during December
1993, and to increased initial license revenues.
Investment income decreased $1.0 million during the three months
ended September 30, 1994, compared with the corresponding period in
1993, as a result of a lower level of investable funds resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation
<PAGE> 14
($59.7 million) in August 1993, the repurchase in May 1994 of
2,278,537 of the 3,797,561 shares of common stock held by IBM
($56.3 million), the repurchase of 938,900 shares of the Company's
common stock, on the open market, ($33.0 million) under its 2.5
million share repurchase plan (see Note 6 of Notes to Consolidated
Financial Statements).
As part of the Company's repurchase of 938,900 shares of its
outstanding common stock under its 2.5 million share repurchase
plan, the Company liquidated a portion of its marketable securities
portfolio. The Company incurred a loss on the sale of securities
of approximately $1.0 million related directly to the repurchase
during the third quarter of 1994 (see Note 6 of Notes to
Consolidated Financial Statements).
Interest expense and other charges decreased $.3 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of a decrease
in the amortization of discounts associated with long-term
restructuring liabilities recorded at June 30, 1993. These
liabilities, which are part of restructuring charges established to
recognize as a loss the planned future abandonment of certain
facilities relating to the restructuring of the Company's health
insurance services business, were reduced $1.8 million during the
three months ended September 30, 1994 (see Note 5 of Notes to
Consolidated Financial Statements).
The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.0% and 83.0% for the three
months ended September 30, 1994 and 1993, respectively. The
decrease in the effective tax rate is due primarily to the impact
of recording a one time charge in the three months ended September
30, 1993 related to the increase in the highest federal marginal
income tax rate from 34% to 35%. Without the one time charge, the
effective tax rate would have been 31.8% for the three months ended
September 30, 1993. The effective income tax rate for the three
months ended September 30, 1994 is lower than the preceding 1994
quarters, principally as a result of a reduction in state income
taxes ($.4 million), which are based on gross income and capital of
the Company.
<PAGE> 15
NINE MONTHS COMPARISON
<TABLE>
A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:
<CAPTION>
Operating
Operating Income as a
Revenues Income % of Revenue
Nine Months Nine Months Nine Months
Ended September 30, Ended September 30, Ended September 30,
1994 1993 1994 1993 1994 1993
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Line of Business
Property & Casualty $256.0 $260.0 $30.8 $37.3 12.0 14.3
Life 86.9 55.1 7.0 (6.4) 8.1 (11.6)
Health 24.7 25.9 6.1 (9.5) 24.7 (36.7)
Geographic Market
United States $317.2 $299.0 $38.7 $14.5 12.2 4.8
International 50.4 42.0 5.2 6.9 10.3 16.4
The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities.
Revenues related to equipment sales amounted to $3.8 million for
the nine months ended September 30, 1993. There were no equipment
sales during the corresponding period of 1994. Costs associated
with these corporate activities amounted to $7.8 million and $7.8
million, excluding special charges ($98.8 million in 1993), for the
nine months ended September 30, 1994 and 1993, respectively (see
Costs and Expenses below).
Revenues
Total licensing revenues for the nine months ended September 30,
1994 increased $8.4 million (14.3%) compared with the corresponding
period in 1993, due primarily to a $4.8 million increase in initial
license revenues attributable to new systems licensed by life
insurers and to an expanded license agreement in the health
insurance systems business. Additionally, revenues from continuing
monthly license charges for maintenance, system enhancements and
services availability ("MESA") and for continuing right-to-use
licenses increased $3.6 million (10.1%). These increases were
partially offset by a reduction in systems licensed primarily to
the property and casualty business in the United States.
Total services revenues for the nine months ended September 30,
1994 increased $14.5 million (4.2%) compared with the corresponding
period in 1993. The total services revenue increase was primarily
affected by activities in professional, outsourcing and information
services, as described more fully below.
Revenues from professional services increased $12.6 million
(26.7%) to $59.9 million for the nine months ended September 30, 1994
from
<PAGE> 16
$47.3 million for the corresponding period in 1993, due primarily to
additional services ($13.3 million) generated by the life insurance
services business.
Revenues from outsourcing services were $93.3 million for the nine
months ended September 30, 1994, an increase of $1.2 million (1.3%)
compared with the corresponding period in 1993. Revenues from
outsourcing services increased $26.5 million as a result of $7.9
million in new outsourcing services relating to life insurance
services in Europe and $17.4 million in servicing existing and new
contracts with property and casualty insurance companies and residual
markets. These increases were partially offset by the wind-down of
the New Jersey Market Transition Facility (MTF) project, where
revenues from this property and casualty business decreased from
$18.0 million for the first nine months in 1993 to $2.1 million for
the first nine months in 1994, and to the termination of a facilities
management and processing contract in September 1993, representing
$9.5 million of life insurance services revenue in Europe for the
nine months ended September 30, 1993.
Revenues from information services were $146.1 million for the
nine months ended September 30, 1994 as compared with $143.8 million
for the corresponding period in 1993. This $2.4 million increase
is primarily attributable to an increase in business associated with
automobile property and casualty information services and life
information services. These increases, however, were partially
offset by a reduction in property and casualty information services
revenue associated with risk services.
Costs And Expenses
Employee compensation and benefits increased $7.2 million for the
nine months ended September 30, 1994 compared with the corresponding
period in 1993, primarily as a result of increased costs ($12.6
million) associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway. The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($5.6 million) resulting from a
downsizing in the Company's health insurance services staff from 437
at June 30, 1993 to approximately 238 at September 30, 1994. These
scheduled staff reductions are part of the Company's restructuring
of its health business (see Note 13 of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
Computer and communications expenses increased $3.3 million for
the nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.
Information services and data acquisition costs increased $4.6
<PAGE> 17
million for the nine months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to an increase in the
volume of state fees for motor vehicle reports, which is part of the
Company's property and casualty information services business.
Other operating costs and expenses for the nine months ended
September 30, 1994 decreased $25.5 million when compared with the
corresponding period in 1993. The decrease is primarily attributable
to charges related to early project terminations, the deductible
under the Company's Directors' and Officers' liability insurance
policy in response to shareholder litigation, cost overruns on
certain projects and other charges arising from the Company's
previously disclosed internal investigation of its accounting
practices. These charges, $16.4 million, were recorded during the
six months ended June 30, 1993. In addition to these charges, other
operating costs and expenses declined as a result of a reduction in
the cost of equipment sold of $3.5 million, a decrease in costs
associated with the wind-down of the New Jersey MTF project, a
decrease associated with the recovery of certain receivables
previously written off, and an increase in amounts capitalized
principally related to the internal development of the Company's life
software systems. These decreases were partially offset by an
increase in operating costs associated with providing total policy
management outsourcing services for new customers.
Other operating costs and expenses include a charge of $1.9 million
associated with the recent settlement of a contract dispute, which
was decided through an international arbitration tribunal (see Note
6 of Notes to Consolidated Financial Statements).
Due to changes in its estimates, as of September 30, 1994, the
Company has reduced its restructuring reserves by $3.5 million, $1.7
million of which resulted from a change in the scheduled downsizing
of the Company's health staff and a corresponding reduction in
amounts established for severance and outplacement costs, recorded
in June 1994, and $1.8 million of which resulted from a lease
termination at amounts less than those established for the planned
future abandonment of certain leased office facilities, recorded in
July 1994 (see Note 5 of Notes to Consolidated Financial Statements).
Operating Income
Operating income was $36.1 million for the nine months ended
September 30, 1994, compared with an operating loss of $81.4 million
for the corresponding period in 1993. The operating loss for the
nine months ended September 30, 1993 reflected the special charges
of $98.8 million relating to impairment and restructuring charges
($80.7 million) and other special charges ($18.1 million).
Operating income, excluding impairment and restructuring charges
(credits) and other special charges, as a percentage of revenues
increased to 8.9% for the nine months ended September 30, 1994 from
5.0% for the comparable period in 1993. This increase resulted
primarily from an increase in outsourcing services related to life
<PAGE> 18
insurance services in Europe, professional and outsourcing services
provided under existing and new contracts with property and
casualty insurance companies and residual markets, and to an
increase in initial license revenues from both the Company's life
and health insurance systems businesses.
The Company's health insurance systems business continues to show
some improvement over the prior year's first nine month results.
Improvements resulted from a significant license agreement
expansion resulting in the recognition of $3.5 million in revenue
and to a reduction in operating costs associated with amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.
The property and casualty insurance software and services
business experienced a lower level of revenue and operating income
primarily from decreased licensing activities and outsourcing
services during the nine months ended September 30, 1994 than in
the corresponding periods of 1993. Outsourcing services for
property and casualty insurers have not met expectations due to
several contracts not closing or ramping up as fast as anticipated
and the Company has not been able to reduce its operating expenses,
associated with the wind-down of the MTF project, as quickly as the
reduction in revenue from the MTF occurred. However, as a result
of an increased role in servicing additional new contracts with
insurance companies and residual markets, the Company is beginning
to replace revenues lost from the MTF project during the nine
months ended September 30, 1994. Margins have improved but will be
reduced during the early phases of these contracts due to start-up
costs.
The information services businesses, which include property and
casualty as well as life information services, produced a net
operating loss for the nine months ended September 30, 1994 of $3.6
million. The property and casualty business produced an operating
loss of $5.9 million while the life business unit produced
operating income of $2.3 million. These results were weaker than
that reported for the corresponding period in 1993 where the
property and casualty business produced an operating loss of $3.6
million and the life business produced operating income of $3.9
million, resulting in net operating income of $.3 million. The
1994 nine months performance in property and casualty is reflective
of increasing price competition and changing market conditions.
The life business has been heavily impacted by the implementation
of new systems and higher costs to acquire information. In
response to the recent performance, the Company has taken and is
considering further near-term actions to improve the overall
results from information services.
One time costs of integrating CYBERTEK with the Company's life
insurance systems business continued at a high level in the first
nine months of 1994; however, total revenues for the Company's life
business were 57.7% higher ($31.8 million) for the nine months
ended September 30, 1994, compared with the corresponding period in
1993,
<PAGE> 19
due primarily to the CYBERTEK acquisition, the addition of a new
outsourcing contract in Europe during December 1993, and to
increased initial license revenues.
Investment income decreased $3.0 million for the nine months
ended September 30, 1994 compared with the corresponding period in
1993, as a result of a lower level of investable funds, resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation ($59.7 million) in August 1993, the repurchase in
April 1993 of 970,668 shares of the Company's common stock ($48.7
million), the repurchase in May 1994 of 2,278,537 of the 3,797,561
shares of common stock held by IBM ($56.3 million), the repurchase
of 938,900 shares of the Company's outstanding common stock, on the
open market, ($33.0 million) under its 2.5 million share repurchase
authorization, and to a decrease in interest income related to
long-term accounts receivable.
As part of the Company's repurchase of 2,278,537 of the 3,797,561
shares of its common stock held by IBM, at a price of $24.77 per
share, and the open market repurchase of 938,900 shares of common
stock, the Company liquidated a portion of its marketable
securities portfolio. The Company incurred a loss on the sale of
securities of approximately $1.8 million related directly to these
repurchases during 1994 (see Note 6 of Notes to Consolidated
Financial Statements).
Interest expense and other charges increased $.6 million for the
nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of the
amortization of discounts associated with long-term restructuring
liabilities recorded at June 30, 1993. These liabilities, which
are part of restructuring charges established to recognize as a
loss the planned future abandonment of certain facilities relating
to the restructuring of the Company's health insurance services
business, were reduced $1.8 million during the nine months ended
September 30, 1994 (see Note 5 of Notes to Consolidated Financial
Statements).
The effective income tax (benefit) rate (income taxes expressed
as a percentage of pre-tax income) was 35.3% and (16.7%) for the
nine months ended September 30, 1994 and 1993, respectively. The
effective tax benefit rate would have been significantly higher
(38.3%) for the 1993 period were it not for the write off of
goodwill ($39.4 million) related to the impairment of the Company's
health insurance systems business (see Note 13 of Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). The effective
income tax rate for the nine months ended September 30, 1994 is
lower than the preceeding six month period ended June 30, 1994,
principally as a result of a reduction in state income taxes ($.4
million), which are based on gross income and capital of the
Company.
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
September 30, December 31,
1994 1993
Cash and equivalents, marketable (In Millions)
securities, and investments $ 70.7 $156.8
Current assets 201.7 287.7
Current liabilities 66.8 81.0
Working capital 134.9 206.7
September 30, September 30,
1994 1993
(In Millions)
Cash provided by operations $ 56.7 $ 60.5
Cash provided (used) by
investing activities 31.5 (11.4)
Cash used for financing activities (94.2) (50.3)
The Company's financial condition remained strong at September
30, 1994. Working capital was $134.9 million, including cash, cash
equivalents and marketable securities of $63.1 million, and
excluding $7.7 million of long-term investments. Cash, cash
equivalents, marketable securities and investments were $70.7
million at September 30, 1994 as compared to $156.8 million at
December 31, 1993, a net decrease of $86.1 million, resulting
primarily from the repurchase in May 1994 of 2,278,537 of the
3,797,561 shares of common stock held by IBM for $56.3 million; the
repurchase of 938,900 shares of the Company's common stock for
$33.0 million, on the open market, in the third quarter of 1994.
The decrease in net cash generated by operations of $3.8 million
for the nine months ended September 30, 1994 compared with the
corresponding period in 1993 was primarily attributable to payment
of lease termination costs, an increase in accounts receivable and
a decrease in accounts payable and accrued expenses. This decrease
was partially offset by a decrease in income taxes paid. The
increase in accounts receivable is primarily due to the Company's
claim for recovery of litigation costs (see Note 3 of Notes to
Consolidated Financial Statements) and to the high level of
software licensing transactions which occurred during the latter
part of September 1994. These licensing transactions, most of
which required substantial payments at the date of execution, were
collected the following month.
The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million. Due to this impairment and write-down, the Company
decided to restructure this business and take a restructuring
charge of $25.2 million as of June 30, 1993. Costs to restructure
the health business are composed of $5.2 million associated with
employee severance and outplacement, and $20.0 million related to
an ongoing lease obligation and/or termination for the planned
future abandonment of certain leased office facilities (see Note 13
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K
<PAGE> 21
for the year ended December 31, 1993). Cash outlays with respect
to the restructuring charges were $10.4 million for the nine months
ended September 30, 1994. Cash outlays are expected to be
approximately $1.9 million for the remainder of 1994.
During the nine months ended September 30, 1994, the Company
reduced its liabilities for accrued restructuring charges by $8.1
million ($9.0 million in cash outlays, less $.9 million in non-cash
discount amortization) for lease terminations and $.4 million
(primarily cash) for employee severance and outplacement costs.
Additionally, the Company adjusted its restructuring liability
established for employee severance and outplacement and lease
termination costs downward by $3.5 million. This decrease resulted
from a change in the scheduled downsizing of its health staff and
a corresponding reduction in amounts established for severance and
outplacement costs and a lease termination at amounts less than
those established for the planned abandonment of certain leased
office facilities.
Excluding short-term investments, net cash used by investing
activities declined in the first nine months of 1994 compared with
the corresponding period in 1993. During the first nine months of
1994, net cash used for investments included $11.7 million compared
to $32.4 million for the first nine months of 1993 that was
invested in data processing, communications equipment and office
furniture and equipment. Approximately $27.4 million of the amount
expended in 1993 was for upgrading data processing and
communications equipment. Amounts capitalized for internal
software development increased $8.3 million (47.2%) to $25.9
million for the first nine months of 1994 compared to $17.6 million
for the corresponding period in 1993, due primarily to the
development of life systems based on the business functions of
CYBERTEK software and the process of integrating CYBERTEK
functionality with certain existing Series III applications.
Significant expenditures anticipated for the remainder of 1994,
excluding any possible business acquisitions and stock repurchases,
are as follows: acquisition of data processing, communications
equipment and office furniture, fixtures and equipment ($1.7
million); costs relating to the internal development of software
systems ($8.6 million); and debt payments relating to past business
acquisitions ($2.4 million).
The Company has historically used the cash generated from
operations for the following: development and acquisition of new
products, acquisition of businesses and repurchase of the Company's
stock. The Company anticipates that it will continue to use its
cash for all of these purposes in the future and that projected
cash from operations and cash and investment reserves will be able
to meet presently anticipated needs; however, the Company may also
consider incurring debt as needed to accomplish specific objectives
in these areas and for other general corporate purposes.
<PAGE> 22
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions; industry factors; the Company's ability to develop and
sell its products profitably; the Company's ability to successfully
increase market share in its core business while expanding its
product base into other markets; and the Company's ability to
effectively manage expense growth relative to revenue growth in
anticipation of continued pressure on gross margins. The Company's
operating results could be adversely affected should the Company be
unable to anticipate customer demand accurately, to introduce new
products on a timely basis, or to effectively manage the impact on
the Company of changes in the insurance marketplace.
Contracts with governmental agencies involve a variety of special
risks, including the risk of early contract termination by the
governmental agency and changes associated with newly elected state
administrations or newly appointed regulators.
A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges received
as part of the Company's software licensing activities. Because a
substantial portion of these revenues are recorded at the time new
systems are licensed, there can be significant fluctuations from
period to period in the revenues and operating income derived from
licensing activities based upon the timing of the licensing of new
systems.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
<PAGE> 23
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Item 1. Legal Proceedings
See Note 3, "Contingencies" of Notes to the Consolidated
Financial Statements.
Items 2, 3, 4, and 5 are not applicable
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibits required to be filed with this Quarterly Report on Form
10-Q are listed in the following Exhibit Index.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1994.
<PAGE> 24
POLICY MANAGEMENT SYSTEMS CORPORATION
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.
POLICY MANAGEMENT SYSTEMS CORPORATION
(Registrant)
Date: October 31, 1994 By: Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
</TABLE>
<PAGE> 1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number
10. MATERIAL CONTRACTS
A. Shareholders' Agreement, dated April 26, 1994, among
Policy Management Systems Corporation, General Atlantic
Partners 14, L.P. and GAP Coinvestment Partners (Filed
herewith)
B. Registration Rights Agreement, dated April 26, 1994 among
Policy Management Systems Corporation, General Atlantic
Partners 14, L.P. and GAP Coinvestment Partners (Filed
herewith)
C. Stock Option/Non-Compete Form Agreement for named
executive officers together with schedule identifying
particulars for each named executive officer (Filed
herewith)
<PAGE> 1
SHAREHOLDER' AGREEMENT
among
POLICY MANAGEMENT SYSTEMS CORPORTION,
GENERAL ATLANTIC PARTNERS 14, L.P.
and
GAP COINVESTMENT PARTNERS
__________________________
Dated as of April 26, 1994
__________________________
<PAGE> 2
TABLE OF CONTENTS
Page
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Transfers of Capital Stock . . . . . . . . . . . . . . . . . . 4
2.1 Right of First Offer. . . . . . . . . . . . . . . . . . . 4
2.2 Right of First Offer in Respect of Proposed
Transactions Under Rule 144. . . . . . . . . . . . . . 7
3. Board of Directors . . . . . . . . . . . . . . . . . . . . . . 9
3.1 General Atlantic Board Representative . . . . . . . . . . 9
4. Voting and Stand-still Agreement . . . . . . . . . . . . . . . 10
4.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Restrictions on Certain Actions by GAP 14 and
GAP Coinvestment.. . . . . . . . . . . . . . . . . . . 10
4.3 Stop Transfer Instructions. . . . . . . . . . . . . . . . 13
4.4 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Representations and Warranties . . . . . . . . . . . . . . . . 14
5.1 Representations and Warranties of GAP 14 and
GAP Coinvestment . . . . . . . . . . . . . . . . . . . 14
5.2 Representations and Warranties of the
Company. . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Indemnification.. . . . . . . . . . . . . . . . . . . . . 17
6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Duration. . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Legend. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Successors and Assigns. . . . . . . . . . . . . . . . . . 18
6.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Severability. . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 20
6.8 Amendments and Waivers. . . . . . . . . . . . . . . . . . 21
6.9 Governing Law.. . . . . . . . . . . . . . . . . . . . . . 21
6.10 Rules of Construction.. . . . . . . . . . . . . . . . . . 21
6.11 Headings; References. . . . . . . . . . . . . . . . . . . 21
6.12 Further Assurances. . . . . . . . . . . . . . . . . . . . 21
6.13 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE> 3
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of April 26,
1994, by and among POLICY MANAGEMENT SYSTEMS CORPORATION, a
South Carolina corporation (the "Company"), GENERAL
ATLANTIC PARTNERS 14, L.P., a Delaware limited partnership
("GAP 14"), and GAP COINVESTMENT PARTNERS, a New York
general partnership ("GAP Coinvestment").
Pursuant to a Stock Purchase Agreement, dated as
of the date hereof, among GAP 14, GAP Coinvestment and
INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York
corporation ("IBM") (the "Stock Purchase Agreement"), GAP 14
and GAP Coinvestment have agreed to purchase in the
aggregate 1,519,024 shares of common stock, par value $.01
per share, of the Company ("Common Stock," and such
1,519,024 shares of Common Stock are referred to herein as
the "Purchased Common Stock") from IBM. Simultaneously with
or prior to such purchase, the Company acquired an
additional 2,278,537 shares of Common Stock from IBM.
As more fully provided for herein, GAP 14 and GAP
Coinvestment have granted to the Company certain rights of
first offer over the shares of capital stock of the Company
owned by GAP 14 and GAP Coinvestment and their affiliates
and associates and certain stand-still rights. As partial
consideration for the rights granted to the Company
hereunder, GAP 14 and GAP Coinvestment have been granted the
right to designate a director of the Company and certain
other rights, in each case as more fully provided for
herein.
As further consideration for the obligations of
GAP 14 and GAP Coinvestment hereunder, the Company has
agreed to provide registration rights to GAP 14 and GAP
Coinvestment, as provided for in the Registration Rights
Agreement, dated as of date hereof, among GAP 14, GAP
Coinvestment and the Company (the "Registration Rights
Agreement").
For good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Definitions. As used herein, the following
terms shall have the meanings set forth below:
An "affiliate" of a Shareholder means any
individual, partnership, corporation, group, trust or other
entity that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under
common control with, such Shareholder. The affiliates of
GAP 14 shall include, without limitation, (i) any general or
limited partner of GAP 14, (ii) any current or former
<PAGE> 4
partner, controlling person, shareholder, director, officer
or employee of such partner and (iii) any partnership,
corporation, group or trust that directly or indirectly
controls, or is controlled by, or is under common control
with, a general or limited partner of GAP 14. The parties
agree and acknowledge that GAP Coinvestment is an affiliate
of GAP 14 and that the partners of GAP Coinvestment are
affiliates of GAP Coinvestment.
An "associate" has the meaning assigned such term
in Rule 12b-2 under the Exchange Act.
"Beneficial owner" (including correlative forms of
such term such as "beneficially own," "beneficial ownership"
and "beneficially owned") has the meaning assigned such term
in Rule 13d-3 under the Exchange Act.
"Board" has the meaning assigned such term in
Section 3.1 of this Agreement.
"Business Day" means any day other than a Satur-
day, Sunday or other day on which commercial banks in the
City of New York are authorized or required by law or execu-
tive order to close.
"Common Stock" has the meaning assigned such term
in the second paragraph of this Agreement.
"Company" has the meaning assigned such term in
the first paragraph of this Agreement.
"Company Acceptance" has the meaning assigned such
term in Section 2.2(b) of this Agreement.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"IBM" has the meaning assigned such term in the
second paragraph of this Agreement.
"GAP 14" has the meaning assigned such term in the
first paragraph of this Agreement.
"GAP" has the meaning assigned such term in the
first paragraph of this Agreement.
"GASC" has the meaning assigned such term in
Section 6.4(c) of this Agreement.
"Offered Shares" has the meaning assigned such
term in Section 2.1(a) of this Agreement.
<PAGE> 5
"Person" means any individual, corporation,
limited liability company, partnership, association, trust
or other entity or organization.
"Purchased Common Stock" has the meaning assigned
such term in the second paragraph of this Agreement, and
shall include any shares of capital stock of the Company or
any successor or assign thereof (whether by merger,
consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for or in substitution of
shares of Purchased Common Stock and shall be appropriately
adjusted for any stock splits, reverse stock splits, combi-
nations, recapitalizations and the like occurring after the
date hereof.
"Registration Rights Agreement" has the meaning
assigned such term in the fourth paragraph of this
Agreement.
"Rule 144 Price" has the meaning assigned such
term in Section 2.2(b) of this Agreement.
"Rule 144 Offered Shares" has the meaning assigned
such term in Section 2.2(a) of this Agreement.
"Rule 144 Shareholder" has the meaning assigned
such term in Section 2.2(a) of this Agreement.
"Rule 144 Shareholder Offer" has the meaning
assigned such term in Section 2.2(a) of this Agreement.
"Securities Act" means the Securities Act of 1933,
as amended.
"Selling Shareholder" has the meaning assigned
such term in Section 2.1(a) of this Agreement.
"Selling Shareholder Offer" has the meaning
assigned such term in Section 2.1(a) of this Agreement.
"Shareholder" means GAP 14, GAP Coinvestment and
their respective successors and permitted assigns, to the
extent provided for in Section 6.3 hereof.
"Stock Purchase Agreement" has the meaning
assigned such term in the second paragraph of this
Agreement.
"Successor" means any corporation or other entity
succeeding to the Company, the majority of the voting shares
or other voting interests of which are at the time of such
<PAGE> 6
succession beneficially owned by the shareholders of the
Company.
"Term" has the meaning assigned such term in
Section 4.1 of this Agreement.
"Total Voting Power" has the meaning assigned such
term in Section 4.1 of this Agreement.
"Voting Securities" has the meaning assigned such
term in Section 4.1 of this Agreement.
2. Transfers of Capital Stock.
2.1 Right of First Offer.
(a) If any Shareholder (a "Selling
Shareholder") desires to sell, give, transfer, distribute,
assign or otherwise dispose of all or any portion of the
Purchased Common Stock (other than (i) to an affiliate of a
Shareholder who has agreed with the Company in writing to be
bound by the provisions of this Agreement, including without
limitation, in connection with the termination or amendment
of a Shareholder's partnership agreement (provided that the
availability of the exception to the right of first offer
provided by this clause (i) shall be subject to Section
2.1(e)) or (ii) in a sale under Rule 144 under the
Securities Act), then such Selling Shareholder shall first
make a written offer (a "Selling Shareholder Offer") (for
purposes of this Agreement, a request for registration
pursuant to the Registration Rights Agreement shall be
deemed to constitute a Selling Shareholder Offer) to sell,
transfer or assign such shares of Purchased Common Stock
(the "Offered Shares") to the Company. The Selling
Shareholder Offer shall state (i) the number of Offered
Shares, (ii) the proposed cash sale price therefor and
(iii) any other material terms and conditions of the Selling
Shareholder Offer.
A Selling Shareholder Offer shall constitute an
irrevocable offer by such Selling Shareholder to sell to the
Company the Offered Shares at the proposed cash sale price
in cash unless the closing does not occur for any reason
whatsoever within 60 days following receipt of the Selling
Shareholder Offer. For purposes of this Section 2.1(a), the
proposed cash sale price for any Purchased Common Stock
which a Selling Shareholder desires to give or distribute to
another Person (other than an affiliate acquiring pursuant
to clause (i) of the first sentence of this Section 2.1(a)
in a transaction exempt from the right of first offer
provided in this Section 2.1) shall be deemed to be the
<PAGE> 7
closing price of the Common Stock on the principal exchange
on which the Common Stock is listed on the day the Selling
Shareholder Offer is received by the Company.
(b) Upon receipt of a Selling Shareholder
Offer, the Company shall have the right to purchase, upon
the terms and conditions of the Selling Shareholder Offer,
all, but not less than all, of the Offered Shares, which
right shall be exercisable by irrevocable written notice to
the Selling Shareholder given within 5 Business Days after
the Selling Shareholder Offer is received by the Company.
(c) The closing of any sale to the Company
pursuant to this Section 2.1 shall be held at the principal
office of the Company on the 30th Business Day after the
Selling Shareholder Offer is received by the Company, or at
such other time and place as the Company and the Selling
Shareholder may agree upon; provided that if there is any
litigation or governmental requirements relating to such
purchase and sale, the closing date shall be postponed until
a date not more than 10 days after the termination of such
litigation or satisfaction of such governmental
requirements. At such closing, the Selling Shareholder
shall deliver to the Company certificates representing the
Offered Shares duly endorsed for transfer and accompanied by
all requisite stock transfer taxes, and such Offered Shares
shall be free and clear of any liens, claims, options,
charges, encumbrances, or rights of others. The Company
shall deliver to the Selling Shareholder at the closing, by
certified check or wire transfer, the purchase price for the
Offered Shares being sold by the Selling Shareholder. The
Company and the Selling Shareholder shall execute such
documents as are otherwise customary and appropriate.
(d) If the Company does not elect to pur-
chase all of the Offered Shares as set forth above, then,
during the 120 days following the date on which the Company
shall cease to be entitled to elect to purchase the Offered
Shares (or shall have waived in writing its right to do so),
the Selling Shareholder may dispose of all, but not less
than all, of the Offered Shares upon terms that, in the
aggregate, are no more favorable to the purchaser thereof
than those stated in the Selling Shareholder Offer. If such
disposition is not consummated within such 120 days, the
restrictions provided for herein shall again become effec-
tive.
(e) Notwithstanding clause (i) of the
second parenthetical contained in Section 2.1(a), any sale,
gift, transfer, assignment or other disposition of shares of
<PAGE> 8
Purchased Common Stock to an affiliate of a Selling
Shareholder shall be subject to the right of first offer
provided for in this Section 2.1 if (i) such sale, transfer,
assignment or other disposition is to occur prior to the
third anniversary of this Agreement or (ii) prior to such
sale, gift, transfer, assignment or other disposition, a
total of ten transfers which were exempt from the right of
first offer provided for in this Section 2.1 by virtue of
clause (i) of the second parenthetical contained in Section
2.1(a) were made.
(f) Notwithstanding the foregoing, not less
than 15 days prior to any proposed sale by a Selling
Shareholder of Voting Securities pursuant to this
Section 2.1 constituting 1% or more of the Total Voting
Power to any Restricted Person (as defined below) the
Selling Shareholder shall give notice of the identity of
such Restricted Person to the Company and the Company shall
have the right, exercisable by delivery of a written
election notice to the Selling Shareholder within 10 days of
receipt of the notice from the Selling Shareholder of the
proposed sale, to purchase all of the Offered Shares at the
price specified in the Selling Shareholder's Offer. If the
Company fails to purchase the Offered Shares within such 10-
day period, the Selling Shareholder shall be permitted to
proceed with its or their sale to such Restricted Person in
accordance with Section 2.1(d). "Restricted Person" shall
mean a person who is a material competitor of the Company or
any material subsidiary of the Company. The affiliates of
GAP 14 and GAP Coinvestment shall not be deemed Restricted
Persons by virtue of any ownership interest they may have in
other companies.
(g) No transfer of Offered Shares to a third
party (including, without limitation, any assignee of a
party entitled to purchase such shares) pursuant to
Section 2.1(d) shall be consummated or recorded in the
Company's stock transfer books unless (i) the transferee of
such Offered Shares shall have furnished the Company a
written opinion of counsel reasonably satisfactory to
counsel for the Company that the proposed transfer may be
effected without registration under the Securities Act, and
(ii) the transferee of such Offered Shares shall have
furnished the Company a written instrument to the effect
that (A) it is acquiring such shares for its own account,
for investment, and not with a view to, or for sale in
connection with, the distribution thereof, and (B) it
understands that such shares have not been registered under
the Securities Act by reason of their issuance in a
transaction exempt from the requirements of the Securities
Act and that such shares must be held indefinitely unless a
<PAGE> 9
subsequent disposition thereof is registered under the
Securities Act or is exempt from such requirements.
(h) Any underwriters participating in a
distribution of Voting Securities beneficially owned by a
Selling Shareholder or its affiliates or associates pursuant
to this Agreement, including without limitation any
distribution referred to in Section 2.1(a) hereof, shall use
all reasonable efforts to effect as wide a distribution as
is reasonably practicable, and in no event shall any sale
(other than a sale to underwriters making such a
distribution) of shares of Voting Securities be made
knowingly to any Person (including its affiliates or
associates and any group in which that Person or its
affiliates or associates shall be a member if the Selling
Shareholder or such underwriters know of the existence of
such a group or affiliate or associate) that, after giving
effect to such sale, would beneficially own Voting
Securities representing three percent (3%) or more of the
Total Voting Power. The Selling Shareholder shall use
reasonable best efforts to secure the agreement of the
underwriters, in connection with any underwritten offerings
of its Voting Securities, to comply with the foregoing.
2.2 Right of First Offer in Respect of
Proposed Transactions Under Rule 144.
(a) If, during any given 30-day period, any
Shareholder (a "Rule 144 Shareholder") contemplates the sale
of all or any portion of the Purchased Common Stock
beneficially owned by the Rule 144 Shareholder in a sale
under Rule 144 under the Securities Act, then, at least five
Business Days before the commencement of such period, the
Rule 144 Shareholder shall notify the Company in writing
that it is contemplating the sale of shares of Purchased
Common Stock in such manner and the maximum number of such
shares that the Rule 144 Shareholder contemplates the sale
of during such 30-day period; provided, however that the
Rule 144 Shareholder shall not give such notice more than
once during any 30-day period. If the Rule 144 Shareholder
thereafter decides to sell shares of Purchased Common Stock,
such Rule 144 Shareholder shall first make a written offer
(a "Rule 144 Shareholder Offer") to sell such shares of
Purchased Common Stock (the "Rule 144 Offered Shares") to
the Company. The Rule 144 Shareholder Offer shall be
provided to the Company no later that 4:30 p.m., local time,
on the Business Day preceding such contemplated sale and
shall set forth the number of shares of Rule 144 Offered
Shares.
(b) Upon receipt of the Rule 144
Shareholder Offer, the Company shall have the right to
<PAGE> 10
purchase all or any portion of the Rule 144 Offered Shares
at the closing price of the Common Stock on the principal
exchange on which the Common Stock is listed on the date on
which such notice is given (the "Rule 144 Price"), which
right shall be exercisable by written notice to the Rule 144
Shareholder (the "Company Acceptance") given by 8:00 a.m.
local time on the Business Day immediately following the
Business Day on which the Rule 144 Shareholder Offer is
received.
(c) If the Company Acceptance is delivered
by the Company to the Rule 144 Shareholder in accordance
with the preceding paragraph, the closing of the sale of the
Rule 144 Offered Shares to be sold to the Company shall be
held at the principal office of the Company on or before the
first Business Day following the date on which bond
settlements are made by brokers in the ordinary course for
bonds sold on the date of the Company Acceptance or at such
time and place as the Company and the Rule 144 Shareholder
shall agree upon. At such closing, the Rule 144 Shareholder
shall deliver to the Company certificates representing such
Rule 144 Offered Shares, duly endorsed for transfer and
accompanied by all requisite stock transfer taxes, and such
Rule 144 Offered Shares shall be free and clear of any
liens, claims, options, charges, encumbrances, or rights of
others. The Company shall deliver at the closing, by
certified check or wire transfer, the Rule 144 Price
multiplied by the number of Rule 144 Offered Shares
purchased by the Company. The Company and the Rule 144
Shareholder shall execute such documents as are otherwise
customary and appropriate.
(d) If the Company does not elect to
purchase all of the Rule 144 Offered Shares, or fails to
deliver the Company Acceptance in accordance with Section
2.2(b) above, then, during the ten Business Days following
the date on which the Rule 144 Notice was given, the Rule
144 Shareholder may dispose of the Rule 144 Offered Shares
which the Company has elected not to purchase in one or more
market transactions under Rule 144 under the Securities Act.
If such disposition is not consummated within such ten
Business Days, the restrictions provided for herein shall
again become effective.
(e) Failure by the Company to exercise its
right to purchase Rule 144 Shares held by the Selling
Shareholder pursuant to this Section 2.2 shall not affect
the Company's right to purchase Rule 144 Shares pursuant to
this Section 2.2 in any subsequent instance.
(f) Section 2.2(a) through (e) shall be
unavailable to the Shareholders during any period in which
<PAGE> 11
the conditions contained in Rule 144 have not been
satisfied. The Shareholders acknowledge that the conditions
contained in Rule 144, including Section (c)(1) thereof have
not been satisfied as of the date hereof. The Shareholders
agree to be bound by the requirements of Rule 144 applicable
to "affiliates" as defined therein as long as they meet the
definition of "affiliates" set forth therein.
3. Board of Directors.
3.1 General Atlantic Board Representative.
(a) The Company shall use its reasonable
best efforts to cause the Board of Directors of the Company
(the "Board") to promptly, but in no event later than
15 Business Days after the effective date hereof, appoint a
designee of GAP 14 and GAP Coinvestment to fill a vacancy on
the Board (which GAP 14 and GAP Coinvestment agrees shall be
Steven A. Denning or another general partner of the general
partner of GAP 14 reasonably acceptable to the Company).
The Company represents and warrants that on the date of such
appointment there shall be a vacancy on the Board.
Thereafter, for so long as GAP 14 and GAP Coinvestment and
their affiliates and associates shall together beneficially
own shares of capital stock of the Company representing at
least 5% of the Total Voting Power of the Company, and
subject to the further provisions hereof, the Company's
nominating committee (or any other committee exercising a
similar function) shall recommend to the Board that such
individual be included in the slate of nominees recommended
by the Board to shareholders for election as a director at
each annual meeting of shareholders of the Company at which
directors of the class of which the nominee of GAP 14 and
GAP Coinvestment is a member are elected, commencing with
the next annual meeting of shareholders after the effective
date hereof.
(b) Notwithstanding the provisions of this
Section 3.1, GAP 14 and GAP Coinvestment shall not be
entitled to designate any individual to the Board if such
designation would result in any violation of applicable law
or order. The Company shall not be obligated to elect to
its Board any individual who would cause or be reasonably
likely to cause the Company to be unable in any material
respect to conduct its business. If any such individual has
been designated by GAP 14 and GAP Coinvestment and rejected
by the Company, GAP 14 and GAP Coinvestment shall be
permitted to designate a substitute designee for such
individual in accordance with this Section 3.1.
<PAGE> 12
4. Voting and Stand-still Agreement.
4.1 Term. The term (the "Term") of the
obligations set forth in this Article 4 shall commence on
the date hereof and shall continue until the date on which
the Voting Power of the Voting Securities, on a fully
diluted basis, beneficially owned by GAP 14 and GAP
Coinvestment and their affiliates and associates shall
represent less than 1.5% of the Total Voting Power. For the
purposes of this Agreement (i) the term "Voting Securities"
shall mean any securities entitled to vote generally in the
election of directors of the Company or any Successor, or
any direct or indirect rights or options to acquire any such
securities or any securities convertible or exercisable into
or exchangeable for such securities, (ii) the term "Voting
Power" shall mean the voting power in the general election
of directors of the Company, and (iii) the term "Total
Voting Power" shall mean the total combined Voting Power of
all of the Voting Securities then outstanding. For purposes
of this Article 4, in the event that GAP 14 or GAP
Coinvestment, an affiliate or associate of GAP 14 or GAP
Coinvestment is, or has a representative or designee who is,
a member of the Board of Directors or other governing entity
of a corporation, partnership or other entity, a rebuttable
presumption shall be created that such corporation,
partnership or other entity is controlled by GAP 14 or GAP
Coinvestment or such affiliate and is an affiliate of GAP 14
or GAP Coinvestment.
4.2 Restrictions on Certain Actions by
GAP 14 and GAP Coinvestment.
(a) During the Term, GAP 14 and GAP
Coinvestment will not, and will cause each of its affiliates
and associates not to, singly or as part of a partnership,
limited partnership, syndicate or other group (as those
terms are used in Section 13(d)(3) of the Exchange Act),
directly or indirectly:
(i) acquire, offer to acquire, or agree
to acquire, directly or indirectly, by purchase, gift or
otherwise, any Voting Securities if, as a result of such
acquisition, GAP 14 and GAP Coinvestment and their
affiliates and associates would beneficially own in excess
of (A) at any time that the Company's directors' and
officers' liability insurance excludes claims in respect of
any director that is an affiliate of the beneficial owner of
15% or more of the Voting Securities, 14.99% of the Total
Voting Power or (B) at any other time, 19.99% of the Total
Voting Power;
<PAGE> 13
(ii) make, or in any way participate in
any "solicitation" of "proxies" to vote (as such terms are
defined in Rule 14a-1 under the Exchange Act), solicit any
consent or communicate with or seek to advise or influence
any person or entity with respect to the voting of any
Voting Securities or become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act) with respect to the Company;
(iii) form, join or encourage the
formation of, any "person" or "group" within the meaning of
Section 13(d)(3) of the Exchange Act with respect to any
Voting Securities provided that this Section 4.2(a)(iii)
shall not prohibit any such arrangement solely among GAP 14
and any of its wholly-owned subsidiaries;
(iv) deposit any Voting Securities into
a voting trust or subject any such Voting Securities to any
arrangement or agreement with respect to the voting thereof,
provided that this Section 4.2(a)(iv) shall not prohibit any
such arrangement solely among GAP 14 and GAP Coinvestment
and any of their wholly-owned subsidiaries;
(v) initiate, propose or otherwise
solicit stockholders for the approval of one or more
stockholder proposals with respect to the Company as
described in Rule 14a-8 under the Exchange Act, or induce or
attempt to induce any other person to initiate any
stockholder proposal;
(vi) except for this Agreement, seek
election to or seek to place a representative on the Board
or, except with the approval of the Board, seek the removal
of any member of the Board;
(vii) except with the approval of the
Board, call or seek to have called any meeting of the
stockholders of the Company;
(viii) except through their
representative on the Board, otherwise act, directly or
indirectly, alone or in concert with others, to seek to
control, disrupt or influence the Board, policies or affairs
of the Company (including by means of providing or arranging
financing or providing financial advisory services for any
proposal or action referred to in this Section 4.2), except
with the approval of the Board;
(ix) sell or otherwise transfer in any
manner any Voting Securities to any "person" (within the
meaning of Section 13(d)(3) of the Exchange Act) who
<PAGE> 14
beneficially owns, or who as a result of such sale or
transfer will beneficially own, more than three percent (3%)
of any class of Voting Securities or who, without the
approval of the Board, has proposed a business combination
or similar transaction with, or a change of control of, the
Company or who has proposed a tender offer for Voting
Securities or who has discussed the possibility of proposing
a business combination or similar transaction with, or a
change in control of, the Company with GAP 14 or GAP
Coinvestment or any of their respective affiliates or
associates;
(x) solicit, propose, seek to effect,
negotiate with or provide any information to any other party
with respect to, or make any statement or proposal, whether
written or oral, to the Board or any director or officer of
the Company or otherwise make any public announcement or
proposal whatsoever with respect to, the Company, including,
without limitation, a merger, exchange offer or liquidation
of the Company's assets, or any restructuring,
recapitalization or similar transaction with respect to the
Company;
(xi) instigate or encourage any third
party to do any of the foregoing, including any statement or
proposal that is conditioned on or would require the Company
to waive the benefit of or amend any provision hereof, or
assist, participate in, facilitate, encourage any effort or
attempt by any person to do or seek to do any of the
foregoing;
(xii) request the Company (or its
directors, officers, employees or agents), directly or
indirectly, to amend or waive any provision of this Section
4.2(a) or otherwise seek any modification to or waiver of
any of GAP 14's, GAP Coinvestment's or their affiliates' or
associates' agreements or obligations under this Section
4.2(a); or
(xiii) encourage or render advice to or
make any recommendation or proposal to any person or other
entity to engage in any of the actions covered by this
Section 4.2(a).
(b) If, as a result of any repurchase of
Voting Securities by the Company, the percentage of Total
Voting Power to be held by a Shareholder together with its
affiliates and associates would exceed the percentage of
Total Voting Power permitted to be held by such Shareholder
and its affiliates and associates pursuant to clause (A) or
(B) of Section 4.2(a)(i) above, as applicable, such
Shareholder shall, and shall cause each of its affiliates
and associates to, sell to the Company (x) its pro rata
<PAGE> 15
portion of the total number of Voting Securities
representing such excess to be repurchased by the Company or
(y) any percentage of the total number of Voting Securities
to be offered to the Company by such Shareholder and its
affiliates and associates as they and the Company shall each
agree. Such Voting Securities shall be offered to the
Company at a price per share equal to the average of the
closing price of the Common Stock of the Company on the
principal exchange on which such class of stock is then
listed for the ten trading days preceding the date on which
the requirement to make such offer to sell arose. If any of
the Shareholders or any of its affiliates or associates
beneficially owns or acquires any Voting Securities in
violation of this Agreement, such Voting Securities shall be
disposed of to persons who are not affiliates or associates
thereof but only in compliance with the provisions of this
Section 4.2; provided, however, that the Company may also
pursue any other available remedy to which it may be
entitled as a result of such violation. Nothing contained
in this Agreement shall prohibit GAP 14 or GAP Coinvestment
or any of their affiliates or associates from selling shares
of Common Stock to the Company in any Company-initiated
share tender.
4.3 Stop Transfer Instructions. The
certificates representing the Purchased Common Stock shall
have placed thereon a legend evidencing the foregoing
restrictions. Each Shareholder consents to the entry of a
stop transfer order with respect to any purported transfer
of Purchased Common Stock or Voting Securities in
contravention of the restrictions contained in this
Agreement.
4.4 Voting. During the Term, whenever a
Shareholder or any of its affiliates or associates shall
have the right to vote such Voting Securities, it shall and
shall cause its affiliates and associates to (a) be present,
in person or represented by proxy, at all shareholder
meetings of the Company so that all Voting Securities
beneficially owned by it and its affiliates and associates
shall be counted for the purpose of determining the presence
of a quorum at such meetings, and (b) vote or cause to be
voted, or consent with respect to, all Voting Securities
beneficially owned by it and its affiliates and associates
in the manner recommended by the Board, except that during
any period or at any time when there shall be in full force
and effect a valid order or judgment of a court of competent
jurisdiction or a ruling, pronouncement or requirement of
the New York Stock Exchange, Inc. (the "NYSE") to the effect
that the foregoing provision of this Section 4.4 is invalid,
void, unenforceable or not in accordance with NYSE policy,
then, such Shareholder shall, and shall cause its affiliates
<PAGE> 16
and associates to, if so requested by the Board, vote or
cause to be voted all of its Voting Securities beneficially
owned by it and its affiliates and associates in the same
proportion as the votes cast by or on behalf of all the
other holders of the Company's Voting Securities.
5. Representations and Warranties.
5.1 Representations and Warranties of GAP 14
and GAP Coinvestment. Each of GAP 14 and GAP Coinvestment
hereby represents, warrants and covenants to the Company as
follows:
(a) Organization and Good Standing. GAP 14
is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of
Delaware. GAP Coinvestment is a general partnership duly
organized and validity existing under the laws of the State
of New York.
(b) Authority; Execution and Delivery, etc.
Each of GAP 14 and GAP Coinvestment has full power and
authority to enter into this Agreement and to perform its
obligations in accordance with the terms hereof. The
execution, delivery and performance of this Agreement have
been duly authorized by each of GAP 14 and GAP Coinvestment
and no other actions on the part of GAP 14 or GAP
Coinvestment are required. This Agreement has been duly
executed and delivered by each of GAP 14 and GAP
Coinvestment and constitutes the legal, valid and binding
obligation of each of GAP 14 and GAP Coinvestment,
enforceable against it in accordance with its terms.
(c) Consents, No Conflicts, etc. Neither
the execution and delivery of this Agreement, the
consummation by GAP 14 or GAP Coinvestment of the
transactions contemplated hereby, nor compliance by GAP 14
or GAP Coinvestment with any of the provisions hereof will
(with or without the giving of notice or the passage of
time) (i) violate or conflict with any provision of the
general or limited partnership agreement (or equivalent
organizational documents) of GAP 14 or GAP Coinvestment or
any agreement, instrument, judgment, decree, statute or
regulation applicable to GAP 14 or GAP Coinvestment or any
assets or properties of GAP 14 or GAP Coinvestment, (ii)
violate any order, writ, injunction, decree, statute, rule
or regulation applicable to GAP 14 or GAP Coinvestment, or
any of the respective assets or properties of GAP 14 or GAP
Coinvestment, or (iii) require the consent, approval,
permission or other authorization of or by, or designation,
declaration, filing, registration or qualification with, any
<PAGE> 17
court, arbitrator or governmental, administrative or self-
regulatory authority or any other third party whatsoever
other than disclosure of the transactions contemplated
hereby in the filings of GAP 14, GAP Coinvestment or in the
filings of either of their respective affiliates, pursuant
to the federal securities laws and the rules of any stock
exchange on which the securities of GAP 14, GAP Coinvestment
or any of their respective affiliates are listed.
(d) Litigation. There is no litigation,
proceeding, labor dispute, arbitral action or government
investigation pending or, so far as known to GAP 14 or GAP
Coinvestment, threatened against GAP 14 or GAP Coinvestment
with respect to this Agreement which if adversely determined
could prohibit or prevent GAP 14 or GAP Coinvestment from
consummating the transactions contemplated hereby. There
are no decrees, injunctions or orders of any court or
governmental department or agency outstanding against GAP 14
or GAP Coinvestment.
(e) No Brokers. Neither GAP 14 nor GAP
Coinvestment has entered into and neither will enter into
any agreement, arrangement or understanding with any person
or firm which will result in the obligation of the Company
to pay any finder's fee, brokerage commission or similar
payment in connection with the transactions contemplated
hereby. Each of GAP 14 and GAP Coinvestment agrees to
indemnify and hold the Company harmless from and against any
and all claims, liabilities or obligations with respect to
any finder's fees, brokerage commissions or similar payments
asserted by any person on the basis of any act or statement
alleged to have been made by GAP 14 or GAP Coinvestment.
(f) Access to Information. Each of GAP 14
and GAP Coinvestment acknowledges that it has been furnished
access to the business records of the Company and such
additional information as it has requested in order that it
make an informed decision regarding the transactions
contemplated hereby and the acquisition of the Purchased
Common Stock and has been given the opportunity to meet with
representatives of the Company and to have them answer
questions regarding the Company's affairs and condition.
Each of GAP 14 and GAP Coinvestment is an experienced and
sophisticated participant in transactions of the kind
contemplated hereby, is capable of evaluating the merits and
risks of transactions of the kind contemplated hereby, is
experienced in the evaluation of enterprises such as the
Company and has undertaken such investigation and evaluated
such information regarding the Company as it has deemed
necessary to make an informed and intelligent decision with
respect to the execution and performance of this Agreement
and the acquisition of the Purchased Common Stock. Each of
<PAGE> 18
GAP 14 and GAP Coinvestment acknowledges that the Company
makes no representation and warranty as to the Company's
financial condition, results of operations, business, assets
or prospects, except as set forth in Section 5.2(e) hereof.
Each of GAP 14 and GAP Coinvestment is acquiring the
Purchased Common Stock for investment only and not with a
view to the distribution of the Purchased Common Stock or
any interest therein.
5.2 Representations and Warranties of the
Company. The Company hereby represents, warrants and
covenants to GAP 14 and GAP Coinvestment as follows:
(a) Organization and Good Standing. The
Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of South
Carolina.
(b) Authority; Execution and Delivery, etc.
The Company has full power and authority to enter into this
Agreement and the Registration Rights Agreement and to
perform its obligations in accordance with the terms hereof
and thereof. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement have
been duly authorized by the Company and no other actions on
the part of the Company are required. This Agreement and
the Registration Rights Agreement have been duly executed
and delivered by the Company and constitute the legal, valid
and binding obligation of the Company, enforceable against
the Company in accordance with their respective terms except
for Section 8 of the Registration Rights Agreement, as to
which no representation is made.
(c) Consents, No Conflicts, etc. Neither
the execution and delivery of this Agreement nor the
Registration Rights Agreement, the consummation by the
Company of the transactions contemplated hereby and thereby,
nor compliance by the Company with any of the provisions
hereof or thereof will (with or without the giving of notice
or the passage of time) (i) violate or conflict with any
provision of the Articles of Incorporation or By-Laws of the
Company or any agreement, instrument, judgment, decree,
statute or regulation applicable to the Company or any
assets or properties of the Company, (ii) violate any order,
writ, injunction, decree, statute, rule or regulation
applicable to the Company or any assets or properties of the
Company or (iii) require the consent, approval, permission
or other authorization of or by, or designation,
declaration, filing, registration or qualification with, any
court, arbitrator or governmental, administrative or self-
regulatory authority or any other third party whatsoever,
<PAGE> 19
other than disclosure of the transactions contemplated
hereby in the Company's filings pursuant to the federal
securities laws and the rules of any stock exchange on which
the Common Stock is listed except, in the case of clauses
(i), (ii) and (iii) above, for Section 8 of the Registration
Rights Agreement, as to which no representation is made.
(d) Litigation. There is no litigation,
proceeding, labor dispute, arbitral action or government
investigation pending or, so far as known to the Company,
threatened against the Company with respect to the
transactions contemplated by this Agreement or the
Registration Rights Agreement which if adversely determined
could prohibit or prevent the Company from consummating the
transactions contemplated hereby or thereby. There are no
decrees, injunctions or orders of any court or governmental
department or agency outstanding against the Company with
respect to the transactions contemplated hereby or by the
Registration Rights Agreement.
(e) Accuracy of Disclosure. To the best
knowledge of the Company, all of the information provided to
GAP 14 and GAP Coinvestment in connection with the
transactions contemplated hereby, by the Stock Purchase
Agreement and by the Registration Rights Agreement is true
and accurate in all material respects; provided, that, the
Company does not make any representations or warranties as
to the truth, completeness or accuracy of any projections or
other forward-looking information provided to GAP 14 and/or
GAP Coinvestment or any financial statements in respect of
any financial period of the Company that are to be restated.
(f) No Brokers. The Company has not entered
into and will not enter into any agreement, arrangement or
understanding with any person or firm which will result in
the obligation of GAP 14 or GAP Coinvestment to pay any
finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby. The
Company agrees to indemnify and hold GAP 14 or GAP
Coinvestment harmless from and against any and all claims,
liabilities or obligations with respect to any finder's
fees, brokerage commissions or similar payments asserted by
any person on the basis of any act or statement alleged to
have been made by the Company.
5.3 Indemnification.
The representations and warranties of the
parties made in this Agreement will survive for a period
ending on the first anniversary of the date of this
Agreement.
<PAGE> 20
(a) The Company agrees to indemnify, defend
and hold harmless the Shareholders from and against all
losses, liabilities, damages and deficiencies, based upon,
arising out of, or otherwise in respect of, any inaccuracy
in or any breach of any representation or warranty contained
in Section 5.2 of this Agreement.
(b) The Shareholders agree to indemnify,
defend and hold harmless the Company from and against all
losses, liabilities, damages and deficiencies based upon,
arising out of, or otherwise in respect of, any inaccuracy
in or any breach of any representation or warranty contained
in Section 5.1 of this Agreement.
6. Miscellaneous.
6.1 Duration. This Agreement shall continue
in full force and effect until terminated by mutual
agreement between the Company and the Shareholders or until
the signatories hereto and each of the Persons who has
agreed in writing to be bound hereby cease to beneficially
own shares of capital stock of the Company.
6.2 Legend. Each certificate representing
shares of capital stock acquired from the Company by any
Shareholder shall, for as long as this Agreement is
effective, bear the legend set forth below (or such other
legend deemed to be appropriate by the Company and counsel
to the Shareholder beneficially owning the shares of capital
stock represented by such certificate):
"The securities represented by this Certificate
have not been registered under the Securities Act
of 1933, as amended, and are subject to a
Shareholders' Agreement, dated as of April 26,
1994, and may not be sold, assigned, transferred,
pledged or otherwise disposed of except in
compliance with applicable law and such
Shareholders' Agreement."
6.3 Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the
successors and "permitted assigns" of the Company. For
purposes of this Agreement, permitted assigns means the
signatories hereto and each of the Persons who has agreed in
writing to be bound by the provisions hereof. This
Agreement shall inure to the benefit of and be binding upon
(i) the successors of GAP 14, GAP Coinvestment and their
respective affiliates and (ii) the permitted assigns of
GAP 14, GAP Coinvestment and their respective affiliates to
the extent that the assignee is an affiliate of such
<PAGE> 21
assignor. Except as expressly otherwise provided herein,
this Agreement may not be assigned by any party hereto
without the prior written consent of the other parties
hereto.
6.4 Notices.
(a) All notices and other communications
hereunder shall be in writing and shall be deemed given if
telecopied or delivered personally or mailed by registered
or certified mail (return receipt requested) to the
following address (or at such other address as shall be
specified by like notice; provided, that, notice of a change
of address shall be effective only upon receipt thereof):
(i) if to GAP 14 or GAP Coinvestment:
General Atlantic Service Corporation
125 East 56th Street
New York, New York 10022
Attention: Steven A. Denning
Telephone: (212) 888-9191
Facsimile: (212) 644-8339
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(ii) if to the Company (two copies):
Policy Management Systems Corporation
One PMS Center
Blythewood, South Carolina 29016
Attention: President; General Counsel
Telephone: (803) 735-4000
Facsimile: (803) 735-5560
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert C. Myers, Esq.
Telephone: (212) 259-8000
Facsimile: (212) 259-6333
<PAGE> 22
(iii) if to any other Shareholder, at
its address as it appears on the
transfer books of the Company.
(b) Any notice given by telecopier or
delivered personally shall be deemed to have been received
by the recipient thereof on the day delivered if actually
received during normal business hours on a Business Day;
otherwise, such notice shall be deemed received on the next
following Business Day if actually received on such day.
All other notices in accordance herewith shall be effective
on the day actually received by the Company. Any party
hereto may, by notice to the other parties hereto, change
its address for receipt of notices hereunder.
(c) GAP 14 and GAP Coinvestment each hereby
designates General Atlantic Service Corporation ("GASC") as
its representative to receive any notice hereunder and to
communicate with the Company on its behalf. The Company
hereby acknowledges the designation of GASC as the repre-
sentative of each of GAP 14 and GAP Coinvestment for
purposes of this Section 6.4. Any notice given by the
Company to GASC shall be deemed given to the Shareholder to
whom it is addressed, and any notice given to the Company by
GASC on behalf either GAP 14 and GAP Coinvestment shall have
the same effect as if given to the Company by such
Shareholder.
6.5 Severability. If any one or more of the
provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any
way impaired, it being intended that all of the rights and
privileges of the Shareholders shall be enforceable to the
fullest extent permitted by law.
6.6 Counterparts. This Agreement may be
executed simultaneously in one or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
6.7 Entire Agreement. This Agreement
embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties,
covenants or understandings, other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with
respect to such subject matter.
<PAGE> 23
6.8 Amendments and Waivers. Except as
otherwise provided herein, the provisions of this Agreement
may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be
given unless such amendment, modification, supplement or
waiver has been consented to in writing by the Company and
the holders of a majority of the Voting Securities held of
record by the Shareholders.
6.9 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of South Carolina applicable to agreements made and to
be performed entirely within such State, without regard to
the principles of conflicts of law of such State.
6.10 Rules of Construction. Unless the
context otherwise requires, "or" is not exclusive, and
references to sections or subsections refer to sections or
subsections of this Agreement.
6.11 Headings; References. The headings
appearing in this Agreement are for convenience of reference
only and shall not affect the interpretation of this Agree-
ment. Except as otherwise indicated herein, all references
herein to Sections refer to the Sections contained in this
Agreement.
6.12 Further Assurances. Each of the parties
shall execute such documents and perform such further acts
as may be reasonably required or desirable to carry out or
to perform the provisions of this Agreement.
6.13 Effectiveness. This Agreement shall be
effective upon the purchase of the Purchased Common Stock by
GAP 14 and GAP Coinvestment pursuant to the Stock Purchase
Agreement, and if such purchase does not occur on or before
September 30, 1994, this Agreement shall terminate and be of
no force or effect.
<PAGE> 24
IN WITNESS WHEREOF, the undersigned have duly
executed this Agreement as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
By: _________________________________
G. Larry Wilson
Chairman, President and Chief
Executive Officer
GENERAL ATLANTIC PARTNERS 14, L.P.
By: GENERAL ATLANTIC PARTNERS
Its General Partner
By: _________________________________
Steven A. Denning
Managing General Partner
GAP COINVESTMENT PARTNERS
By: __________________________________
Steven A. Denning
Managing Partner
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
among
POLICY MANAGEMENT SYSTEMS CORPORATION
GENERAL ATLANTIC PARTNERS 14, L.P.
and
GAP COINVESTMENT PARTNERS
___________________________________
Dated as of April 26, 1994
__________________________________
<PAGE> 2
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Securities Subject to this Agreement. . . . . . . . . . . . . 3
(a) Registrable Securities . . . . . . . . . . . . . . . . . 3
(b) Holders of Registrable Securities. . . . . . . . . . . . 3
3. Demand Registration . . . . . . . . . . . . . . . . . . . . . 4
(a) Request for Demand Registration. . . . . . . . . . . . . 4
(b) Effective Demand Registration. . . . . . . . . . . . . . 5
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Underwriting Procedures. . . . . . . . . . . . . . . . . 5
(e) Selection of Underwriters. . . . . . . . . . . . . . . . 6
4. Piggy-Back Registration . . . . . . . . . . . . . . . . . . . 6
(a) Piggy-Back Rights. . . . . . . . . . . . . . . . . . . . 6
(b) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Holdback Agreements . . . . . . . . . . . . . . . . . . . . . 7
(a) Restrictions on Public Sale by Holders . . . . . . . . . 7
(b) Restrictions on Public Sale by the Company . . . . . . . 7
6. Registration Procedures . . . . . . . . . . . . . . . . . . . 7
(a) Obligations of the Company . . . . . . . . . . . . . . . 7
(b) Seller Information . . . . . . . . . . . . . . . . . . . 11
(c) Notice to Discontinue. . . . . . . . . . . . . . . . . . 11
7. Registration Expenses . . . . . . . . . . . . . . . . . . . . 11
8. Indemnification; Contribution . . . . . . . . . . . . . . . . 12
(a) Indemnification by the Company . . . . . . . . . . . . . 12
(b) Indemnification by Holders . . . . . . . . . . . . . . . 12
(c) Conduct of Indemnification Proceedings . . . . . . . . . 12
(d) Contribution . . . . . . . . . . . . . . . . . . . . . . 13
9. Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Recapitalizations, Exchanges, etc. . . . . . . . . . . . 14
(b) Remedies . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Amendments and Waivers . . . . . . . . . . . . . . . . . 15
(d) Notices. . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Successors and Assigns . . . . . . . . . . . . . . . . . 16
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . 16
(g) Governing Law. . . . . . . . . . . . . . . . . . . . . . 16
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . 16
(i) Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 17
(j) Severability . . . . . . . . . . . . . . . . . . . . . . 17
(k) Rules of Construction. . . . . . . . . . . . . . . . . . 17
(l) Headings; References . . . . . . . . . . . . . . . . . . 17
(m) Entire Agreement . . . . . . . . . . . . . . . . . . . . 17
(n) Further Assurances . . . . . . . . . . . . . . . . . . . 17
(o) Effectiveness. . . . . . . . . . . . . . . . . . . . . . 17
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April 26,
1994, among POLICY MANAGEMENT SYSTEMS CORPORATION, a South
Carolina corporation (the "Company"), GENERAL ATLANTIC PARTNERS
14, L.P., a Delaware limited partnership ("GAP 14"), and GAP
COINVESTMENT PARTNERS, a New York general partnership ("GAP
Coinvestment").
Pursuant to a Stock Purchase Agreement, dated as of the
date hereof, among GAP 14, GAP Coinvestment and INTERNATIONAL
BUSINESS MACHINES CORPORATION, a New York corporation ("IBM")
(the "Stock Purchase Agreement"), GAP 14 and GAP Coinvestment
have agreed to purchase from IBM 1,519,024 shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock,"
and such shares of Common Stock are referred to herein as the
"Purchased Common Stock").
In connection with the purchase of the Purchased Common
Stock by GAP 14 and GAP Coinvestment pursuant to the Stock
Purchase Agreement, each of them has entered into a Shareholders'
Agreement, dated as of the date hereof, among the Company, GAP 14
and GAP Coinvestment (the "Shareholders' Agreement"), pursuant to
which GAP 14 and GAP Coinvestment have granted to the Company
rights of first offer and certain other rights, in each case, to
the extent provided for therein.
In order to induce GAP 14 and GAP Coinvestment to enter
into the Shareholders' Agreement, the Company has agreed to
provide registration rights with respect to the Registrable
Securities (as hereinafter defined) as set forth in this
Agreement.
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. As used in this Agreement, and
unless the context requires a different meaning, the following
terms have the meanings indicated:
"Act" means the Securities Act of 1933, as
amended.
"Approved Underwriter" has the meaning assigned
such term in Section 3(e).
"Business Day" means any day other than a Satur-
day, Sunday or other day on which commercial banks in the City of
New York are authorized or required by law or executive order to
close.
<PAGE> 4
"Common Stock" has the meaning assigned such term
in the second paragraph of this Agreement.
"Company" has the meaning assigned such term in
the first paragraph of this Agreement.
"Company Approved Amount" has the meaning assigned
such term in Section 4(a).
"Company Underwriter" has the meaning assigned
such term in Section 4(a).
"Demand Registration" has the meaning assigned
such term in Section 3(a).
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"GAP 14" has the meaning assigned such term in the
first paragraph of this Agreement.
"GAP Coinvestment" has the meaning assigned such
term in the first paragraph of this Agreement.
"Holder" has the meaning assigned such term in
Section 2(b).
"Holders' Counsel" means (a) with respect to any
Demand Registration that has been requested pursuant to
Section 3, counsel selected by the Initiating Holders holding a
majority of the Registrable Securities held by all Initiating
Holders being registered in such registration, and (b) with
respect to a request for registration of Registrable Securities
pursuant to Section 4, counsel selected by the Holders holding a
majority of the Registrable Securities being registered in such
registration.
"IBM" has the meaning assigned such term in the
second paragraph of this Agreement.
"Indemnified Party" has the meaning assigned such
term in Section 8(c).
"Indemnifying Party" has the meaning assigned such
term in Section 8(c).
"Initiating Holders" has the meaning assigned to
such term in Section 3(a).
"NASD" has the meaning assigned such term in
Section 6(a)(xv).
"Person" means any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or
<PAGE> 5
political subdivision thereof) or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such
entity.
"Purchased Common Stock" has the meaning assigned
such term in the second paragraph of this Agreement.
"Registrable Securities" means, subject to
Section 2(a), (i) any shares of Purchased Common Stock, and
(ii) any other shares of Common Stock of the Company acquired by
GAP 14 and/or GAP Coinvestment in a manner consistent with and
subject to the Shareholders' Agreement and (iii) any shares of
capital stock issued or issuable in respect of shares of
Purchased Common Stock or any other shares of Common Stock of the
Company acquired by GAP 14 and/or GAP Coinvestment in a manner
consistent with and subject to the Shareholders' Agreement by way
of a stock dividend or stock split or in connection with a com-
bination of shares, recapitalization, merger, consolidation or
other reorganization or otherwise.
"Registration Expenses" has the meaning assigned
such term in Section 7.
"SEC" means the Securities and Exchange
Commission.
"Shareholders' Agreement" has the meaning assigned
such term in the third paragraph of this Agreement.
"Stock Purchase Agreement" has the meaning
assigned such term in the second paragraph of this Agreement.
"Total Securities" has the meaning assigned such
term in Section 4(a).
2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of
this Agreement, Registrable Securities will cease to be Regis-
trable Securities (i) when a registration statement covering such
Registrable Securities has been declared effective under the Act
by the SEC and such Registrable Securities have been disposed of
pursuant to such effective registration statement or (ii) if such
Registrable Securities have been sold pursuant to Rule 144 or
otherwise in a transaction in which such shares may be resold in
a transaction exempt from the registration requirements of the
Act and the legend on the certificates representing such shares
has been or is permitted to be removed.
(b) Holders of Registrable Securities. A Person
is deemed to be a holder of Registrable Securities (a "Holder")
whenever such Person (i) is a party to this Agreement or a
permitted assign under the Shareholders' Agreement (other than a
Rule 144 purchaser) who agrees to be bound in writing by the
terms and provisions of this Agreement and the Shareholders'
<PAGE> 6
Agreement and (ii) owns of record Registrable Securities. If the
Company receives conflicting instructions, notices or elections
from two or more persons with respect to the same Registrable
Securities, the Company shall act upon the basis of the
instructions, notice or election received from the registered
owner of such Registrable Securities.
3. Demand Registration.
(a) Request for Demand Registration. Subject to
Sections 3(b) and 3(d) hereof, the Holders holding at least a
majority of the Registrable Securities held by all of the Holders
(the "Initiating Holders") may request one registration (the
"Demand Registration") of Registrable Securities under the Act
and under the securities or blue sky laws of any United States
jurisdiction designated by the Holders that request to register
Registrable Securities in such registration. Notwithstanding the
foregoing, the Company shall not be required to effect the Demand
Registration (i) within the period beginning forty five (45) days
before the estimated filing date of a registration statement
filed by the Company on its own behalf covering a firm commitment
underwritten public offering and ending on the later of (A) one
hundred and twenty (120) days after the effective date of such
registration statement and (B) the expiration of any lock-up
period reasonably required by the underwriters, if any, in
connection therewith; (ii) if such registration is for the lesser
of 350,000 shares of Common Stock (appropriately adjusted for
stock dividends, stock splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof)
or 25% of the total number of shares of Registrable Securities
owned by the Holders; (iii) if, in the written opinion of counsel
to the Company, the shares to be registered may be resold in a
transaction exempt from the Registration requirements of the Act,
or a no-action letter of the staff of the SEC has been obtained
to that effect, and the shares are freed from any and all
restrictions on transfer under the Shareholders' Agreement;
(iv) for a maximum of sixty (60) days if the Company is
contemplating a material plan of financing or would be required
to disclose information that it deems advisable not to disclose
in a registration statement; (v) for a maximum of sixty (60) days
if the Company cannot then comply with the financial disclosure
requirements of the SEC in connection with such registration;
provided that (recognizing that the Company is not on the date
hereof in compliance with the SEC's financial reporting
requirements) no Demand Registration will be initiated until
three years of financial statements meeting such requirements
have been filed with the SEC and the Company is otherwise in
compliance with applicable SEC requirements. Any request for the
Demand Registration by the Initiating Holders shall specify the
amount of the Registrable Securities proposed to be sold, the
intended method of disposition thereof and whether the request is
for registration on Form S-3 (or any successor form thereto).
Upon a request for the Demand Registration, the Company shall
promptly take such steps as are reasonably necessary or
appropriate to prepare for the registration of the Registrable
<PAGE> 7
Securities to be registered. Within fifteen (15) days after the
receipt of such request, the Company shall give written notice
thereof to all other Holders and include in such registration all
Registrable Securities held by a Holder from whom the Company has
received a written request for inclusion therein at least ten
(10) days prior to the filing of the registration statement.
Each such request will also specify the number of Registrable
Securities to be registered, the intended method of disposition
thereof and whether the request is for registration on Form S-3
(or any successor form thereto). Unless the Initiating Holders
holding the majority of the Registrable Securities held by all
Initiating Holders to be included in the Demand Registration
consent in writing, no other party (other than the Company or any
other Holder), shall be permitted to offer securities under the
Demand Registration. If the Company notifies the Initiating
Holders that it intends to offer securities under the Demand
Registration, the Demand Registration shall be deemed to be a
Company-initiated registration statement with the Holders
participating pursuant to their "piggy-back" rights under Section
4 hereof, and the right of the Holders to make a Demand
Registration shall be restored.
(b) Effective Demand Registration. A registra-
tion shall not constitute the Demand Registration until it has
become effective and remains continuously effective for not less
than one hundred and twenty (120) days or until the shares
registered therein have been sold, whichever is earlier. If a
requested Demand Registration does not constitute the Demand
Registration, the Holders shall continue to be entitled to
request one Demand Registration under Section 3(a) hereof. The
Company shall use its reasonable best efforts to cause the Demand
Registration to become effective not later than ninety (90) days
after it receives a request for the Demand Registration under
Section 3(a).
(c) Expenses. In any registration initiated as a
Demand Registration, the Company shall pay all reasonable
Registration Expenses in connection therewith, whether or not
such requested Demand Registration becomes effective; provided,
however, that, if a registration initiated as a Demand
Registration does not become effective or remain effective for
one hundred and twenty (120) days as provided in Section 3(b)
above for reasons beyond the Company's control and the Company
pays such Registration Expenses, the Holders of Registrable
Securities included in any subsequent registration shall be
required to pay all Registration Expenses for the next Demand
Registration.
(d) Underwriting Procedures. If the Initiating
Holders holding a majority of the Registrable Securities held by
all Initiating Holders so elect, the offering of such Registrable
Securities pursuant to the Demand Registration shall be in the
form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be
the Approved Underwriter selected in accordance with Sec
<PAGE> 8
tion 3(e). In such event, if the Approved Underwriter advises
the Company in writing that, in its opinion, the aggregate amount
of such Registrable Securities requested to be included in such
offering is sufficiently large to have a material adverse effect
on the success of such offering, then (i) the Company shall
include in the registration only the aggregate amount of the
Registrable Securities that in the opinion of the Approved
Underwriter may be sold without any such effect on the success of
such offering and (ii) no Registrable Securities other than those
owned by the Initiating Holders shall be included in such
registration without the written consent of the Initiating
Holders and any further reduction in the shares to be included in
such registration shall be made pro rata among the participating
Holders in proportion to the number of shares they own as of such
date.
(e) Selection of Underwriters. If the Demand
Registration is in the form of an underwritten offering, the
Initiating Holders holding a majority of the Registrable
Securities held by all Initiating Holders to be included in the
Demand Registration shall select and obtain an investment banking
firm of national reputation to act as the managing underwriter of
the offering (the "Approved Underwriter"); provided, that, the
Approved Underwriter shall, in any case, be acceptable to the
Company in its reasonable judgment and shall undertake to comply
with Section 2.1(h) of the Shareholders' Agreement.
4. Piggy-Back Registration.
(a) Piggy-Back Rights. If the Company proposes
to file a registration statement under the Act with respect to an
offering by the Company for its own account of any class of
security (other than a registration statement on Form S-4 or S-8
(or any successor form thereto) under the Act), then the Company
shall give written notice of such proposed filing to each of the
Holders at least thirty (30) days before the anticipated filing
date, and such notice shall describe in detail the proposed
registration and distribution (including those jurisdictions
where registration under the securities or blue sky laws is
intended) and offer such Holders the opportunity to register the
number of Registrable Securities as each such Holder may request.
The Company shall use its reasonable best efforts to cause the
managing underwriter or underwriters of an underwritten offering
proposed by the Company (the "Company Underwriter") to permit the
Holders who have requested to participate in the registration for
such offering to include such Registrable Securities in such
offering and, if the Company proposes to register Common Stock or
any other securities of which the Registrable Securities are then
comprised, such Registrable Securities shall be included in such
offering on the same terms and conditions as the securities of
the Company included therein. The Company Underwriter shall
undertake to comply with the requirements of Section 2.1(h) of
the Shareholders' Agreement. Notwithstanding the foregoing, if
the Company Underwriter delivers a written opinion to the Company
(with a copy provided to the Holders of Registrable Securities)
<PAGE> 9
that the total amount of securities which such Holders and the
Company intend to include in such offering (the "Total
Securities") is sufficiently large so as to have a material
adverse effect on the Company's offering, then the Company shall
include in such registration the securities proposed to be
offered for the account of the Company and, to the extent
reasonably feasible, the Registrable Securities requested to be
included in such registration (any such Registrable Securities to
be registered for the accounts of the Holders are hereinafter
referred to as the "Company Approved Amount"). Each Holder shall
be entitled to have included in such registration Registrable
Securities equal to its pro rata portion of the Company Approved
Amount, as based on the amounts of Registrable Securities sought
to be registered by the Holders in their requests for participa-
tion in such registration.
(b) Expenses. The Company shall bear all
reasonable Registration Expenses in connection with any
registration pursuant to this Section 4.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Holders. In
order to participate in a registration effected hereby, to the
extent not inconsistent with applicable law, each Holder agrees
not to effect any public sale or distribution of any securities
of the Company, including a sale pursuant to Rule 144 under the
Act, during the period commencing with the notice of the proposed
registration until one hundred and twenty (120) days after the
effective date of such registration statement (except as part of
such registration), if and to the extent requested by the Company
in the case of a non-underwritten public offering, or if and to
the extent requested by the Company Underwriter or the Approved
Underwriter in the case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company.
The Company agrees not to effect any public sale or distribution
of any of its securities for its own account (except pursuant to
registrations on Form S-4 or S-8 (or any successor form thereto)
under the Act) during the ninety (90) day period commencing on
the effective date of any registration statement in which the
Holders are participating.
6. Registration Procedures.
(a) Obligations of the Company. Whenever regis-
tration of Registrable Securities has been requested pursuant to
Section 3 or 4 of this Agreement, the Company shall use its
reasonable best efforts to effect the registration and sale of
such Registrable Securities in accordance with the intended
method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as
expeditiously as possible:
<PAGE> 10
(i) prepare and file with the SEC (in any
event not later than sixty (60) Business Days after receipt of a
request to file a registration statement with respect to
Registrable Securities) a registration statement on Form S-3 or a
successor, or if the Company does not qualify for registration on
such form, then on any form on which registration is requested
for which the Company then qualifies, which counsel for the
Company and Holders' Counsel shall deem appropriate and which
shall be available for the sale of such Registrable Securities in
accordance with the intended method of distribution thereof, and
use its reasonable best efforts to cause such registration
statement to become effective; provided, however, that before
filing a registration statement or prospectus or any amendments
or supplements thereto, the Company shall (A) provide Holders'
Counsel with an adequate and appropriate opportunity to
participate in the preparation of such registration statement and
each prospectus included therein (and each amendment or supple-
ment thereto) to be filed with the SEC, which documents shall be
subject to the review (but not right of clearance) of Holders'
Counsel, and (B) notify Holders' Counsel and each seller of
Registrable Securities pursuant to such registration statement of
any stop order issued or to the Company's knowledge threatened by
the SEC and take all reasonable action required to prevent the
entry of such stop order or to remove it if entered;
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not
less than six (6) months or such shorter period which will
terminate when all Registrable Securities covered by such
registration statement have been sold (but not before the expira-
tion of the ninety (90) day period referred to in Section 4(3) of
the Act and Rule 174 thereunder, if applicable), and comply with
the provisions of the Act with respect to the disposition of all
Registrable Securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iii) as soon as reasonably possible and
subject to a reasonably appropriate confidentiality agreement,
furnish to each seller of Registrable Securities, prior to filing
a registration statement, copies of such registration statement
as it is proposed to be filed, and thereafter such number of
copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as each
such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) use its reasonable best efforts to
register or qualify such Registrable Securities under such other
securities or blue sky laws of such jurisdictions within the
<PAGE> 11
United States as any seller of Registrable Securities may
request, and to continue such qualification in effect in each
such jurisdiction for as long as is permissible pursuant to the
laws of such jurisdiction, or for as long as any such seller
requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things
which may be reasonably necessary or advisable to enable any such
seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however,
that the Company shall not be required to (A) qualify generally
to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 6(a)(iv), (B) subject
itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction;
(v) use its reasonable best efforts to
obtain all other approvals, covenants, exemptions or
authorizations from such governmental agencies or authorities as
may be reasonably necessary to enable the sellers of such Regis-
trable Securities to consummate the disposition of such Regis-
trable Securities;
(vi) notify each seller of Registrable
Securities at any time when a prospectus relating thereto is
required to be delivered under the Act, upon discovery that, or
upon the happening of any event as a result of which, the
prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circum-
stances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and
furnish to each such seller a reasonable number of copies of a
supplement to or amendment of such prospectus as may be necessary
so that, after delivery to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were
made;
(vii) enter into and perform customary
agreements (including an underwriting agreement in customary form
with the Approved Underwriter or Company Underwriter, if any,
selected as provided in Section 3 or 4) and take such other
actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities;
(viii) subject to a reasonably appropriate
confidentiality agreement and solely for the purpose of meeting
their legally required due diligence obligations, make available
for inspection by the managing underwriter participating in any
disposition pursuant to such registration statement, Holders'
Counsel and any attorney retained by the managing underwriter,
each of which shall be reasonably acceptable to the Company, such
<PAGE> 12
information as shall be reasonably necessary to enable them to
exercise their due diligence responsibility in connection with
such registration statement;
(ix) obtain a "cold comfort" letter from
the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by
"cold comfort" letters, as Holders' Counsel or the managing
underwriter reasonably request;
(x) furnish, at the request of any seller
of Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such regis-
tration or, if such securities are not being sold through under-
writers, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date,
of counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the
seller making such request, covering such legal matters with
respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are
customarily included in such opinions;
(xi) otherwise use its reasonable best
efforts to comply with all applicable rules and regulations of
the SEC, and make available to its security holders, as soon as
reasonably practicable but no later than fifteen (15) months
after the effective date of the registration statement, an earn-
ings statement covering a period of twelve (12) months beginning
after the effective date of the registration statement, in a
manner which satisfies the provisions of Section 11(a) of the
Act;
(xii) cause all such Registrable Securities
to be listed on each securities exchange on which similar securi-
ties issued by the Company are then listed, subject to the satis-
faction of the applicable listing requirements of each such
exchange;
(xiii) keep each seller of Registrable
Securities advised as to the initiation and progress of any
registration under Section 3 or 4 hereunder;
(xiv) provide officers' certificates and
other customary closing documents;
(xv) cooperate with each seller of
Registrable Securities and each underwriter participating in the
disposition of such Registrable Securities and their respective
counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the
"NASD"); and
<PAGE> 13
(xvi) use its reasonable best efforts to
take all other steps reasonably necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Seller Information. As a condition to
participation in any registration statement filed hereunder, the
Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the
Company in writing such information regarding the sellers and the
distribution of such securities as the Company may from time to
time reasonably request or as may reasonably be required by the
Approved Underwriter or the Company Underwriter as the case may
be, the SEC or applicable requirements of the Act or the Exchange
Act.
(c) Notice to Discontinue. Each Holder agrees
that, upon receipt of any notice from the Company of the happen-
ing of any event of the kind described in Section 6(a)(vi), such
Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Sec-
tion 6(a)(vi) and, if so directed by the Company, such Holder
shall deliver to the Company (at the Company's expense) by
certified or registered mail or overnight courier all copies,
other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securi-
ties which is current at the time of receipt of such notice. If
the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be
maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 6(a)(ii))
by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 6(a)(vi) to
and including the date when the Holder shall have received the
copies of the supplemented or amended prospectus contemplated by
and meeting the requirements of Section 6(a)(vi).
7. Registration Expenses. The Company shall pay all
reasonable out-of-pocket expenses (other than underwriting
discounts and commissions and the fees and charges of Holders'
Counsel) arising from or incident to the performance of, or
compliance with, this Agreement, including, without limitation,
(a) SEC, stock exchange and NASD registration and filing fees,
(b) all fees and expenses incurred in complying with securities
or blue sky laws (including, without limitation, reasonable fees,
charges and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) all printing,
messenger and delivery expenses, and (d) the fees, charges and
disbursements of counsel to the Company and of its independent
public accountants and any other accounting and legal fees,
charges and expenses incurred by the Company (including, without
limitation, any expenses arising from any special audits incident
to or required by any registration or qualification). All of the
<PAGE> 14
expenses described in this Section 7 are referred to in this
Agreement as "Registration Expenses."
8. Indemnification; Contribution.
(a) Indemnification by the Company. In
connection with any registration pursuant to Section 3 or 4
hereof, the Company agrees to indemnify and hold harmless each
Holder, its directors, officers, partners, employees, advisors
and agents, and each Person who controls (within the meaning of
the Act or the Exchange Act) such Holder, to the extent permitted
by law, from and against any and all losses, claims, damages,
expenses (including, without limitation, reasonable costs of
investigation and fees, disbursements and other charges of
counsel) or other liabilities resulting from or arising out of or
based upon any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, prospectus or
preliminary prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based
upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to
the Company by such Holder expressly for use therein. The
Company shall also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees, and each
Person who controls any such underwriter (within the meaning of
the Act and the Exchange Act) to the same extent as provided
above with respect to the indemnification of the Holders of
Registrable Securities.
(b) Indemnification by Holders. In connection
with any registration in which a Holder is participating pursuant
to Section 3 or 4 hereof, each such Holder shall furnish to the
Company in writing such information with respect to such Holder
as the Company may reasonably request or as may be required by
law for use in connection with any registration statement or
prospectus to be used in connection with such registration and
each Holder agrees to indemnify and hold harmless the Company,
any underwriter retained by the Company and their respective
directors, officers, employees, advisors and agents and each
Person who controls (within the meaning of the Act and the
Exchange Act) the Company or such underwriter to the same extent
as the foregoing indemnity from the Company to the Holders
(subject to the proviso to this sentence and applicable law), but
only with respect to any such information furnished in writing by
such Holder expressly for use therein; provided, however, that
the liability of any Holder under this Section 8(b) shall be
limited to the amount of the net proceeds received by such Holder
in the offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any
Person entitled to indemnification hereunder (the "Indemnified
Party") agrees to give prompt written notice to the indemnifying
<PAGE> 15
party (the "Indemnifying Party") after the receipt by the
Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof
made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement;
provided, that, the failure so to notify the Indemnifying Party
shall not relieve the Indemnifying Party of any liability that it
may have to the Indemnified Party hereunder. The Indemnifying
Party shall be entitled to participate in and, to the extent it
may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own
expense, with counsel chosen by it and satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to
employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall
be paid by the Indemnified Party unless (i) the Indemnifying
Party agrees to pay the same, (ii) the Indemnifying Party fails
to assume the defense of such action with counsel reasonably
satisfactory to the Indemnified Party in its reasonable judgment,
(iii) the named parties to any such action (including any
impleaded parties) have been advised by such counsel that either
(A) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable
standards of professional conduct or (B) there may be one or more
legal defenses available to it which are different from or addi-
tional to those available to the Indemnifying Party. In either
of such cases the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified
Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not
be unreasonably withheld. The rights accorded to any Indemnified
Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement
or otherwise.
(d) Contribution. If the indemnification
provided for in Section 8(a) and/or from the Indemnifying Party
is unavailable to an Indemnified Party in respect of any losses,
claims, damages, expenses or other liabilities referred to
therein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses,
claims, damages, expenses or other liabilities in such proportion
as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such losses, claims, damages, expenses
or other liabilities, as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among
other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, was made by, or
relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the Indemnifying Party's and Indemnified
Party's relative intent, knowledge, access to information and
<PAGE> 16
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages,
expenses or other liabilities referred to above shall be deemed
to include, subject to the limitations set forth in
Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable con-
siderations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution pursuant to this Section 8(d).
9. Rule 144. The Holders acknowledge that the
Company is not as of the date hereof in compliance with its
reporting requirements under the Exchange Act and rules and
regulations adopted by the SEC thereunder. After the Company has
come into compliance with such reporting requirements, the
Company covenants that it shall from that date forward use its
reasonable best efforts to file any reports required to be filed
by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and that it shall take such
further action as each Holder may reasonably request (including,
but not limited to, providing any information necessary to comply
with Rules 144 and 144A under the Act), all to the extent
required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within
the limitation of the exemptions provided by (a) Rule 144 or
Rule 144A under the Act, as such rules may be amended from time
to time, or (b) any similar rules or regulations hereafter
adopted by the SEC. The Company shall, upon the request of any
Holder, deliver to such Holder a written statement as to whether
the Company has complied with such requirements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The
provisions of this Agreement shall apply to any and all shares of
capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or
in substitution of, the Purchased Common Stock of any other
shares of Common Stock of the Company acquired by GAP 14 and/or
GAP Coinvestment that are acquired in a manner consistent with
and subject to the Shareholders' Agreement and that are not
freely tradeable, and shall be appropriately adjusted for any
stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof.
(b) Remedies. The Company and the Holders, in
addition to being entitled to exercise all rights granted by law,
<PAGE> 17
including recovery of damages, shall be entitled to specific
performance of their rights under this Agreement.
(c) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions of such section may not be given
unless the Company has obtained the prior written consent of
Holders holding at least a majority of the Registrable
Securities.
(d) Notices. All notices and other communi-
cations hereunder shall be in writing and shall be deemed given
if telecopied or delivered personally or mailed by registered or
certified mail (return receipt requested) to the following
address (or at such other address as shall be specified by like
notice; provided, that notice of a change of address shall be
effective only upon receipt thereof):
(i) if to GAP 14 or GAP Coinvestment:
c/o GAP 14 Service Corporation
125 East 56th Street
New York, New York 10022
Attention: Steven A. Denning
Telephone: (212) 888-9191
Facsimile: (212) 644-8339
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(ii) if to the Company (two copies):
Policy Management Systems Corporation
One PMS Center
Blythewood, South Carolina 29016
Attention: President; General Counsel
Telephone: 803-735-4000
Facsimile: 803-735-5500
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert C. Myers, Esq.
Telephone: 212-259-8000
Facsimile: 212-259-6000
<PAGE> 18
(iii) if to any other Holder, at its
address as it appears on the
transfer books of the Company
Any notice given by telecopier or delivered personally
shall be deemed to have been received by the recipient thereof on
the day delivered if actually received during normal business
hours on a Business Day; otherwise, such notice shall be deemed
received on the next following Business Day if actually received
on such day. All other notices in accordance herewith shall be
effective on the day actually received by the Company. Any party
hereto may, by notice to the other parties hereto, change its
address for receipt of notices hereunder.
Each Holder hereby designates General Atlantic Service
Corporation ("GASC") as its representative to receive any notice
hereunder and to communicate with the Company on its behalf. The
Company hereby acknowledges the designation of GASC as the
representative of each Holder for purposes of this Section 10(e).
Any notice given by the Company to GASC shall be deemed given to
the Party to whom it is addressed, and any notice given to the
Company by GASC on behalf of any Holder shall have the same
effect as if given to the Company by such Party.
(e) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. The registration rights
and the other obligations of the Company contained in this
Agreement shall, with respect to any Registrable Security, be
automatically transferred from a Holder to any subsequent holder
of such Registrable Security (including any pledgee), who or
which consents in writing to the terms and provisions of this
Agreement and the Shareholders' Agreement. If the Company
receives conflicting instructions, notices or elections from two
or more persons with respect to the same Registrable Securities,
the Company shall act upon the basis of the instructions, notice
or election received from the registered owner of such
Registrable Securities.
(f) Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall
be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
(g) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State, without regard to the
principles of conflicts of law of such State.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
<PAGE> 19
(i) Jurisdiction. Each party to this Agreement
hereby irrevocably agrees that any legal action or proceeding
arising out of or relating to this Agreement or any agreements or
transactions contemplated hereby may be brought in the courts of
the State of New York or of the United States of America for the
Southern District of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any
claim that such courts are an inconvenient forum.
(j) Severability. If any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Company and
the Holders shall be enforceable to the fullest extent permitted
by law.
(k) Rules of Construction. Unless the context
otherwise requires, "or" is not exclusive, and references to
sections or subsections refer to sections or subsections of this
Agreement.
(l) Headings; References. The headings appearing
in this Agreement are for convenience of reference only and shall
not affect the interpretation of this Agreement. Except as
otherwise indicated herein, all references herein to Sections
refer to the Sections contained in this Agreement.
(m) Entire Agreement. This Agreement embodies
the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no
restrictions, promises, warranties, covenants or understanding,
other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(n) Further Assurances. Each of the parties
shall execute such documents and perform such further acts as may
be reasonably required or desirable to carry out or to perform
the provisions of this Agreement.
(o) Effectiveness. This Agreement shall be
effective upon the purchase of the Purchased Common Stock by
GAP 14 and GAP Coinvestment pursuant to the Stock Purchase
Agreement, and if such purchase does not occur or on before
September 30, 1994, this Agreement shall terminate and be of no
force or effect.
<PAGE> 20
IN WITNESS WHEREOF, the undersigned have duly executed
this Agreement as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
By:
G. Larry Wilson
Chairman, President and Chief
Executive Officer
GENERAL ATLANTIC PARTNERS 14, L.P.
By: GENERAL ATLANTIC PARTNERS
Its General Partner
By:
Steven A. Denning
Managing General Partner
GAP COINVESTMENT PARTNERS
By:
Steven A. Denning
Managing Partner
<PAGE> 1
FORM OF
EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
THIS EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT ("the Agreement")
is made effective as of May 12, 1994 by and between &NAME&
("EMPLOYEE")and Policy Management Systems Corporation ("PMSC").
W I T N E S S E T H:
WHEREAS, EMPLOYEE has been employed by PMSC in a position of
significant responsibility and PMSC desires to recognize EMPLOYEE'S
contribution to PMSC by making EMPLOYEE a "Key Employee" as defined
in the Policy Management Systems Corporation 1989 Stock Option Plan
("Plan") and therefor eligible to be granted Options as defined
therein; and
WHEREAS, EMPLOYEE has developed and will continue to develop
intimate knowledge of PMSC's business practices, which, if
exploited by EMPLOYEE in contravention of this Agreement, could
seriously, adversely and irreparably affect the business of PMSC;
and
WHEREAS, EMPLOYEE and PMSC each desire to induce the other to enter
into this Agreement; and
WHEREAS, PMSC would not make EMPLOYEE a Key Employee in the event
that EMPLOYEE refused to agree to the terms and conditions of this
Agreement and thus EMPLOYEE would not be eligible to receive
Options under the Plan;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants of the parties hereto, EMPLOYEE and PMSC
agree as follows:
1. Grant. Effective May 12, 1994, PMSC grants EMPLOYEE
"non-qualified" Options to purchase up to &SHARES& shares of PMSC
common stock pursuant to the Plan. Non-qualified options are
subject to tax upon exercise as set forth in paragraph 5 below.
THESE OPTIONS MAY BE REVOKED BY THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS IN THEIR ABSOLUTE DISCRETION, PRIOR TO THE TIME
THEY BECOME EXERCISABLE IN ACCORDANCE WITH SECTION 9 OF THE PLAN IF
THEY DEEM IT APPROPRIATE TO DO SO BASED UPON SUCH FACTS OR
CIRCUMSTANCES AS THEY DEEM RELEVANT, INCLUDING, WITHOUT
LIMITATION, THE RESULTS OR FINDINGS, WHETHER PRELIMINARY OR FINAL,
OF THE VARIOUS INVESTIGATIONS INTO THE COMPANY'S PREVIOUSLY ISSUED
FINANCIAL STATEMENTS.
<PAGE> 2
2.Price and Expiration. The option price of the shares subject
to these Options is the closing price of the stock on the New York
Stock Exchange on the date of grant, i.e., thirty and one-quarter
dollars ($30.25). These Options must be exercised within ten (10)
years of the effective date of this Agreement or they expire.
3.Availability for Exercise. 33 1/3% of the shares subject to the
Options granted will become available for exercise at the end of
each of the three (3) years following the effective date of this
Agreement. For example ... 33 1/3% of the total number of Options
granted will be available for exercise beginning May 12, 1995; 66
2/3% will be available for exercise beginning May 12, 1996; and
100% will be available for exercise beginning May 12, 1997. Once
Options become available for exercise, they will remain available
for exercise for so long as EMPLOYEE is employed by the Company
unless they expire. Notwithstanding the foregoing, the Options
hereby granted shall not be exercisable until such time as the
common stock to be issued on exercise of the Options has been
registered under the Securities Act of 1933 or PMSC has otherwise
qualified such issuance of shares under an exemption from
registration under said Act.
4.Order of Exercise. The Options may be exercised without regard
to the order in which these and any other Options were granted and
without regard to any unexpired and unexercised qualified,
Incentive Stock Options ("ISO's") or other non-qualified options.
5.Tax Liability. The tax liability which EMPLOYEE may incur
relating to these Options is described below based upon present law
and regulations which are subject to change. Taxes incurred are:
+ when options are granted - none
+ when options are exercised - the difference between the fair
market value of the stock at the date of exercise of an Option and
the option price is a capital gain but generally will be treated as
ordinary income during the year the Option is exercised. Such tax
liability is created at the time EMPLOYEE exercises an Option and
PMSC is required to collect withholding taxes from EMPLOYEE.
Federal income taxes (computed at a rate of 20% of the above
described difference) and FICA and state income taxes (computed at
the applicable rate of the above described difference) are
withheld. For example...if the option price is $30.25 and the fair
market value at the date of the exercise is $35.25, the difference
is $5.00, and assuming an applicable FICA rate of 7.65% and state
income tax rate of 7%, along with the 20% federal income tax, the
Company would collect a tax of $1.73 per share from EMPLOYEE.
+ when shares are sold - the difference between the fair
market value at the date of exercise (the $35.25 in the above
example) and the price at which EMPLOYEE sells the stock is treated
the same as above described during the year in which EMPLOYEE sells
the stock purchased by exercise of his or her options.
<PAGE> 3
6.Exercise and Payment. Exercises of Options shall only be
handled pursuant to the Instructions set forth on the last page of
this Agreement. To exercise these Options, EMPLOYEE shall make
payment in full to PMSC for the option price of the shares to be
purchased...plus the combined (federal, FICA and state) tax
liability EMPLOYEE incurs. Such taxes paid to PMSC will be
forwarded to the Internal Revenue Service and appropriate state tax
commission and credited to EMPLOYEE in the same manner as the
withholding tax on EMPLOYEE's salary. EMPLOYEE's actual tax will
depend upon the overall tax rate calculated when EMPLOYEE prepares
his or her tax returns. EMPLOYEE should consult a tax professional
regarding questions about EMPLOYEE's actual tax liability.
7.Noncompetition. In consideration of the Options hereby granted,
EMPLOYEE covenants and agrees that EMPLOYEE shall devote his or her
best efforts to furthering the best interests of PMSC and that for
the one (1) year period from the effective date hereof, and if
EMPLOYEE separates from employment with PMSC for any reason within
said one (1) year period, then for a one (1) year period from the
date of such separation from employment, EMPLOYEE shall not
"Compete" with PMSC.
The region within which EMPLOYEE agrees not to Compete with PMSC
is the United States, Canada and those countries in which PMSC has
customers or clients as of the date of EMPLOYEE's separation from
employment. For the purpose of this Agreement, the term "Compete"
shall have its commonly understood meaning which shall include, but
not be limited by, the following items with respect to PMSC's
insurance application software licensing, data processing,
consulting and information services businesses and any other
businesses carried on by PMSC at the time of EMPLOYEE's separation
from employment:
(i) soliciting or accepting as a client or customer any
individual, partnership, corporation, trust or association that was
a client, customer or actively sought after prospective client or
customer of PMSC during the twelve (12) calendar month period
immediately preceding the date of EMPLOYEE's separation from
employment;
(ii) acting as an employee, independent contractor, agent,
representative, consultant, officer, director, or otherwise
affiliated party of any entity or enterprise which is competing
with PMSC in offering similar application software or services to
parties described in (i) above; or
(iii) participating in any such competing entity or enterprise as
an owner, partner, limited partner, joint venturer, creditor or
stockholder (except as an equity holder holding less than a one
percent (1%) interest).
8.Non-Hiring. During EMPLOYEE'S employment with PMSC and for a
period of three (3) years after separation from such employment,
EMPLOYEE agrees that EMPLOYEE shall under no circumstances hire,
attempt to hire or assist or be involved in the hiring of any
employee of PMSC either on EMPLOYEE'S behalf or on behalf of any
other person, entity or enterprise. Also, for a similar period of
time, EMPLOYEE agrees to not communicate to any such person, entity
or enterprise the names, addresses or any other information
concerning any employee of PMSC or any past, present or prospective
client or customer of PMSC.
<PAGE> 4
9.Equitable Relief. EMPLOYEE acknowledges (i) that EMPLOYEE'S
skill, knowledge, ability and expertise in the business described
herein is of a special, unique, unusual, extraordinary, and/or
intellectual character which gives said skill, etc. a peculiar
value; (ii) that PMSC could not reasonably or adequately be
compensated in damages in an action at law for breach of this
Agreement; and (iii) that a breach of any of the provisions
contained in this Agreement could be extremely detrimental to PMSC
and could cause PMSC irreparable injury and damage.
Therefore, EMPLOYEE agrees that PMSC shall be entitled, in addition
to any other remedies it may have under this Agreement or
otherwise, to preliminary and permanent injunctive and other
equitable relief to prevent or curtail any breach of this
Agreement; provided, however, that no specification in this
Agreement of a specific legal or equitable remedy shall be
construed as a waiver of or prohibition against the pursuing of
other legal or equitable remedies in the event of such a breach.
10.Breach of Agreement. EMPLOYEE agrees that in the event EMPLOYEE
breaches any provision of this Agreement, PMSC shall be entitled,
in addition to any other remedies it may have under this Agreement,
to offset, to the extent of any liability, loss, damage or injury
from such breach, any payments due to EMPLOYEE pursuant to his or
her employment with PMSC.
11.Employment Understanding. This Agreement constitutes the entire
agreement between the parties with regard to the subject matter
hereof, and there are no agreements, understandings, restrictions,
warranties or representations between the parties relating to said
subject matter other than those set forth or provided for herein
or in any Agreement Not To Divulge or employment agreement between
PMSC and EMPLOYEE. It is understood that PMSC's and EMPLOYEE's
relationship is one of "at will" employment unless EMPLOYEE and
PMSC have entered into a written employment agreement which
provides otherwise. This Agreement shall not affect, or be
affected by, any employment agreement, if any, between PMSC and
EMPLOYEE.
12.General. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof
(including, without limitation, the geographical and temporal
restrictions contained herein) should be held to be unenforceable
or invalid for any reason, such provision or portion thereof shall
be modified or deleted in such a manner so as to make this
Agreement enforceable to the fullest extent permitted under
applicable laws. All references to PMSC shall include its
subsidiaries as applicable. This Agreement shall inure to the
benefit of and be enforceable by PMSC and its successors and
assigns. No provision of this Agreement may be changed, modified,
waived or terminated, except by an instrument in writing signed by
the party against whom the enforcement of such is sought. No
waiver of any provision or provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing
waiver. Headings in this Agreement are inserted solely as a matter
of convenience and reference and are not a part of this Agreement
in any substantive sense. This Agreement may be executed in two
counterparts, each of which will take effect as an original and
shall evidence one and the same Agreement.
13.Plan Controls. In the event of any discrepancy between this
Agreement and the Plan as to the terms and conditions of the
Options, the Plan shall control.
<PAGE> 5
14.Governing Law. The terms of this Agreement shall be governed by
and construed in accordance with the laws of the State of South
Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
"PMSC"
BY:_________________________________
Stephen G. Morrison
Executive Vice President
TITLE:______________________________
EMPLOYEE
_____________________________________
(Signature)
_____________________________________
(Type or Print Name)
_____________________________________
(Date Signed by Employee)
<PAGE> 6
INSTRUCTIONS FOR EXERCISE OF PMSC STOCK OPTIONS
Contact Person: Lynn W. Dillard, Ext. 4303
4B3
Post Office Box Ten, Columbia, SC 29202
An exercise form must be obtained and properly filled out. The
form and employee's check for the appropriate exercise price and
withholding taxes (federal and state income taxes and FICA) must be
delivered to the Contact Person. The Company does not deal with
third parties concerning employee's exercise of his or her stock
options. If an employee deals with a brokerage firm, a bank or any
other third party, the employee shall be responsible to keep such
party from impacting on the two-party transaction between the
Company and the employee. This transaction solely consists of
employee bringing Company the exercise form and his or her own
check and after several days the Company giving employee a
certificate for his or her shares of stock. The Company's stock
transfer agent is located in New York. If desired, an employee may
request and pay the charges for the certificate to be sent to the
Company via Federal Express. The certificate will only be issued
in the employee's name.
Employees may only exercise a whole number of options as PMSC shall
not direct the transfer agent to issue fractional shares.
As an optionholder, an employee is entitled to request copies of
the Company's Annual and Quarterly Reports. An employee will not
receive such reports automatically as an optionholder.
Additionally, reports are available upon request showing a complete
list of employee's options outstanding, options available for
exercise, cost per share, total costs, and expiration dates of
options. An employee may wish to request these materials or
information before exercising options by calling or writing the
Contact Person.
THESE INSTRUCTIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE.
<PAGE> 7
SCHEDULE OF PARTICULARS
FOR NAMED EXECUTIVE OFFICERS
RE: EMPLOYEE STOCK OPTION/NON-COMPETE AGREEMENT
DATE: MAY 12, 1994
NAME SHARES
G. Larry Wilson 50,000
David T. Bailey 35,000
Charles E. Callahan 35,000
Donald A. Coggiola 25,000
Robert L. Gresham 15,000
