<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 March 31, 1996 Commission file number 1-10557
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 PMSC 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 X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
18,730,359 Common shares, $.01 par value, as of May 10, 1996
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, 1995.
<PAGE>2
POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Income for
the three months ended March 31, 1996 and 1995.... 3
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995.............. 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 1995.... 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................................... 19
Item 6. Exhibits and Reports on Form 8-K.................... 20
Signatures.................................................... 21
<PAGE>3
PART I
FINANCIAL INFORMATION
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues:
Licensing............................ $ 24,295 $ 25,543
Services............................. 108,888 107,876
133,183 133,419
Operating expenses:
Cost of revenues:
Employee compensation and
benefits........................... 41,925 38,771
Computer and communications
expenses........................... 7,975 6,621
Information services and data
acquisition costs.................. 28,037 31,897
Depreciation and amortization of
property, equipment and
capitalized software costs......... 11,134 11,679
Other costs and expenses............. 6,488 9,696
Selling, general and administrative
expenses............................. 17,058 15,975
Amortization of goodwill and
other intangibles.................... 2,543 2,042
Litigation settlement and
expenses, net........................ (63) (1,650)
115,097 115,031
Operating income....................... 18,086 18,388
Other income and expenses:
Investment income.................... 596 423
Interest expense and other charges... (711) (691)
(115) (268)
Income before income taxes............. 17,971 18,120
Income taxes........................... 6,343 6,800
Net income............................. $ 11,628 $ 11,320
Net income per share................... $ .60 $ .58
Weighted average number of shares...... 19,463 19,363
<FN>
See accompanying notes.
</TABLE>
<PAGE>4
<TABLE>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
(In Thousands,
Except Share Data)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents................................. $ 19,474 $ 35,094
Marketable securities................................ 3,820 4,615
Receivables, net of allowance for uncollectible
amounts of $1,463 ($2,042 at 1995)................ 93,100 95,740
Income tax receivable................................ 23,656 25,089
Deferred income taxes................................ 19,289 25,144
Other................................................ 18,529 17,833
Total current assets.............................. 177,868 203,515
Property and equipment, at cost less accumulated
depreciation and amortization of $107,700
($103,568 at 1995)................................ 107,663 109,183
Receivables............................................ 4,272 5,885
Goodwill and other intangible assets, net.............. 86,392 89,319
Capitalized software costs, net........................ 153,776 145,982
Deferred income taxes.................................. 13,333 12,793
Investments............................................ 4,642 4,905
Other.................................................. 5,245 5,492
Total assets................................... $553,191 $577,074
Liabilities
Current liabilities:
Accounts payable and accrued expenses................ $ 52,358 $ 70,589
Accrued restructuring charges........................ 7,036 9,456
Accrued contract termination costs................... 560 1,154
Current portion of long-term debt.................... - 1,766
Income taxes payable................................. 12,506 11,123
Unearned revenues.................................... 8,964 11,350
Other................................................ 31 84
Total current liabilities......................... 81,455 105,522
Long-term debt......................................... - 14,873
Deferred income taxes.................................. 69,257 66,929
Accrued restructuring charges.......................... 3,036 4,439
Other.................................................. 3,066 2,639
Total liabilities................................. 156,814 194,402
Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares
authorized.......................................... - -
Common stock, $.01 par value, 75,000,000 shares
authorized, 19,489,871 shares issued and
outstanding (19,436,114 at 1995).................... 195 194
Additional paid-in capital............................. 175,662 173,402
Retained earnings...................................... 221,741 210,113
Foreign currency translation adjustment................ (1,200) (1,037)
Unrealized holding loss on marketable securities....... (21) -
Total stockholders' equity........................ 396,377 382,672
Total liabilities and stockholders' equity..... $553,191 $577,074
<FN>
See accompanying notes.
</TABLE>
<PAGE>5
<TABLE>
<CAPTION>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
(In Thousands)
<S> <C> <C>
Operating Activities
Net income...................................... $ 11,628 $ 11,320
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................. 14,376 13,907
Deferred income taxes......................... 7,865 1,107
Provision for uncollectible accounts.......... 65 454
Changes in assets and liabilities:
Accrued restructuring and lease
termination costs........................... (3,823) (1,559)
Receivables................................... 4,188 (3,868)
Income taxes receivable....................... 1,433 4,373
Accounts payable and accrued expenses......... (18,231) (11,447)
Income taxes payable.......................... 1,161 1,118
Other, net...................................... (2,715) (5,953)
Cash provided by operations................ 15,947 9,452
Investing Activities
Proceeds from sales/maturities of available-
for-sale securities............................ 1,000 2,000
Acquisition of property and equipment........... (4,208) (6,272)
Capitalized internal software development
costs.......................................... (13,276) (9,692)
Purchased software.............................. (1 040) (57)
Proceeds from disposal of property and
equipment...................................... 409 12
Cash used for investing activities......... (17,115) (14,009)
Financing Activities
Payments on long-term debt...................... (16,893) (4,431)
Issuance of common stock under stock option
plans.......................................... 2,260 -
Cash used for financing activities......... (14,633) (4,431)
Effect of exchange rate changes on cash........... 181 (100)
Net decrease in cash and equivalents.............. (15,620) (9,088)
Cash and equivalents at beginning of period....... 35,094 17,686
Cash and equivalents at end of period............. $ 19,474 $ 8,598
Supplemental Information
Interest paid................................... $ 497 $ 516
Income taxes (refunds received) paid, net....... (4,325) 217
<FN>
See accompanying notes.
</TABLE>
<PAGE>6
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
NOTE 1. COMMITMENTS AND CONTINGENCIES
Contingencies - Legal Proceedings
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 this investigation.
The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development
contract. The Company is also presently involved in litigation with Liberty Life
Insurance Company arising out of the Company's change in the direction of its
future life software systems development following the acquisition of CYBERTEK.
The Company has asserted various affirmative defenses, claims and counterclaims
and is vigorously pursuing prompt resolutions of these matters through all
available legal processes (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit
against the Company in the United States District Court for the Northern
District of California (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In May 1996, after nine weeks of trial, the parties agreed that CSAA would
dismiss its claim against the Company in return for the Company dismissing its
counterclaim against CSAA. The agreement also resolves a collateral proceeding
by the Company against CSAA and Computer Sciences Corporation which is pending
in another jurisdiction and arose out of the agreement which was the basis of
the California proceeding.
Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced a
declaratory judgment action against the Company to determine St. Paul's
obligation for defense costs and to indemnify the Company for any payment
related to these claims. The Company filed a counterclaim against St. Paul
seeking to recover the Company's defense costs in the CSAA and SLD matters,
coverage for damages, if any, awarded in those matters, and consequential and
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In connection with the Company reaching an agreement with CSAA
<PAGE>7
for the dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss
with prejudice all claims against each other with respect to the CSAA matter,
and St. Paul agreed to reimburse the Company for the Company's legal fees in
the CSAA matter (in excess of its deductible) with interest. The Company
expects this amount to exceed $9 million. This agreement resolves the
Company's and St. Paul s claims related to the CSAA matter; however, the action
will continue as to the parties' claims related to insurance coverage for the
SLD matter.
In addition to the litigation described above, there are also various other
litigation proceedings and claims arising in the ordinary course of business.
The Company is vigorously pursuing prompt resolutions of these matters through
all available legal processes.
While the resolution of any of the above matters could have a material adverse
effect on the results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its consolidated
financial position. The Company, however, is unable to predict the ultimate
outcome or the potential financial impact of these matters.
NOTE 2. CERTAIN TRANSACTIONS
The Company announced on March 14, 1996, that it had agreed with GAP
Coinvestment Partners and General Atlantic Partners 14 L.P. (collectively
"General Atlantic Investors") to repurchase 759,512 (approximately 3.9% of its
total shares outstanding prior to the repurchase) of the 1,519,024 shares of the
Company's common stock held by General Atlantic Investors and that the remainder
of the Company's shares owned by General Atlantic Investors would be purchased
by Continental Casualty Company, one of the nation's largest insurance companies
and a licensee of the Company's Series III Solutions. The repurchase by the
Company, at a price of $50.00 per share, was completed on April 8, 1996,
resulting in an aggregate cash expenditure (after related costs) of
approximately $38.7 million.
NOTE 3. NEW ACCOUNTING STANDARDS
On January 1, 1996, the Company formally adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Assets to be Disposed Of" ("SFAS 121"). The Statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the expected future cash flows of
those assets are less than the assets' carrying amount. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be sold or discarded.
As the Company's accounting policies prior to the adoption of SFAS 121 have
provided for similar accounting treatment, the effect of adoption was not
material to the Company's financial condition or results of operations.
<PAGE>8
Also on January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The Statement
requires that companies with stock-based compensation plans either recognize
compensation expense based on new fair value accounting methods or continue to
apply the provisions of Accounting Principles Board Opinion No. 25 ("APB 25")
and disclose pro forma net income and earnings per share assuming the fair value
method had been applied. The Company has elected to adopt the disclosure
alternative and continue accounting for its stock-based compensation plans in
accordance with APB 25.
NOTE 4. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation. Amounts for Selling, general and administrative expenses, and
Amortization of goodwill and other intangibles have been segregated in the
Consolidated Statements of Income for the three months ended March 31, 1995 and
1996, respectively.
<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, 1995.
RESULTS OF OPERATIONS
Set forth below are certain operating items expressed as a percentage of
revenues and the percent increase (decrease) for those items between the periods
presented:
<TABLE>
<CAPTION>
Percent
Percentage Increase
of Revenues (Decrease)
Three Months Three Months
Ended March 31, Ended March 31,
1996 1995 1996 VS 1995
<S> <C> <C> <C>
Revenues:
Licensing.............................. 18.2 19.1 (4.9)
Services............................... 81.8 80.9 .9
100.0 100.0 (.2)
Operating expenses:
Cost of revenues:
Employee compensation and
benefits............................. 31.5 29.0 8.1
Computer and communications expenses... 6.0 5.0 20.5
Information services and data
acquisition costs.................... 21.0 23.9 (12.1)
Depreciation and amortization of
property, equipment and capitalized
software costs....................... 8.4 8.7 (4.7)
Other costs and expenses............... 4.9 7.3 (33.1)
Selling, general and administrative
expenses............................. 12.8 12.0 6.8
Amortization of goodwill and other
intangibles.......................... 1.9 1.5 24.5
Litigation settlement and
expenses, net........................ (0.1) (1.2) (96.2)
86.4 86.2 .1
Operating income ........................ 13.6 13.8 (1.6)
Other income and expenses................ (.1) (.2) (57.1)
Income before income
taxes................................ 13.5 13.6 (.8)
Income taxes ............................ 4.8 5.1 (6.7)
Net income .............................. 8.7 8.5 2.7
</TABLE>
<PAGE>10
The Company's revenues are generated principally by licensing standardized
insurance software systems and providing automation and administrative support
and information services to the worldwide insurance industry. Licensing
revenues are provided for under the terms of nonexclusive and nontransferable
license agreements, which generally have a noncancelable minimum term of six
years and provide for an initial license charge and a monthly license charge.
Services revenues are derived from professional support services, which include
implementation and integration assistance, consulting and education services,
information and outsourcing services ranging from making available software
licensed from the Company on a remote processing basis from the Company's data
centers, to complete systems management, processing, administration support and
automated information services through the Company's nationwide
telecommunications network using the Company's database products.
A comparison of revenues for each line of business and geographic market for
the periods presented is as follows:
Revenues
Three Months
Ended March 31,
1996 1995
(Dollars In Millions)
Line of Business
Property & Casualty $ 93.6 $ 96.6
Life 39.6 33.0
Health * 3.8
Geographic Market
United States $ 97.4 $104.2
International 35.8 29.2
* The Company's Health Insurance Systems business was divested June 30, 1995.
REVENUES
Three Three
Months Ended Months Ended
Licensing March 31,1996 March 31,1995 Change
(Dollars In Millions)
Initial charges................... $10.4 $11.9 (12.6)%
Monthly charges................... 13.9 13.6 2.2 %
$24.3 $25.5 (4.7)%
Percentage of revenues............ 18.2% 19.1%
Initial license revenues decreased 12.6% ($1.5 million) from the first quarter
of 1995 to the first quarter of 1996, due principally to decreases in domestic
property and casualty initial license revenues.
<PAGE>11
Domestic property and casualty initial license revenues decreased 22.4% ($1.4
million) for first quarter 1996 when compared to first quarter 1995. This
decrease is principally related to $5.5 million in first quarter 1995 initial
licensing revenue having resulted from a $4.0 million non-recurring source code
license agreement with a cross-industry vendor and $1.5 million related to a
joint marketing arrangement with NCR Corporation, formerly AT&T Global
Information Solutions. These revenues were replaced, in part, by a large Series
III license executed during the first quarter of 1996. Initial license revenues
include right-to-use charges of $1.1 million and $4.2 million for the first
quarters of 1996 and 1995, respectively (the 1995 amount is inclusive of the
aforementioned $4.0 million source code license agreement). Initial license
revenues also include termination charges of $0 and $.8 million for the first
quarters of 1996 and 1995, respectively.
Because a significant portion of initial licensing revenues are recorded at
the time new systems are licensed, there can be significant fluctuations in
licensing revenue from period to period. Presented below is a comparison of
initial license revenues for the preceding eight quarters expressed as a
percentage of total revenues for each of the periods presented:
1996 1995 1994
1st 4th 3rd 2nd* 1st* 4th* 3rd* 2nd*
(Dollars In Millions)
Property and Casualty
Initial license revenues $7.3 $13.8 $8.1 $7.3 $8.0 $5.6 $7.4 $6.4
Total revenues 5.5% 9.9% 6.2% 5.5% 6.0% 4.5% 5.8% 5.2%
Life
Initial license revenues $3.1 $2.3 $3.2 $2.1 $3.7 $1.6 $3.4 $3.6
Total revenues 2.3% 1.7% 2.4% 1.6% 2.8% 1.3% 2.7% 2.8%
*Excludes licensing activity of the Company's Health Insurance Systems business,
sold June 30, 1995 (see Note 11 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
First quarter 1995 licensing revenues (initial and monthly licensing charges)
related to the Health business were $.6 million.
<PAGE>12
Three Three
Months Ended Months Ended
Services March 31,1996 March 31,1995 Change
(Dollars In Millions)
Professional and outsourcing... $ 69.5 $ 61.2 13.6 %
Information.................... 38.8 46.5 (16.6)%
Other.......................... .6 .2 200.0 %
$108.9 $107.9 0.9 %
Percentage of revenues......... 81.8% 80.9%
Overall first quarter 1996 professional and outsourcing services revenues grew
by 13.6% as compared to the first quarter 1995. However, when first quarter 1995
professional and outsourcing revenues from the health insurance systems business
(which was sold June 30, 1995) of $3.3 million are excluded from the
comparison, aggregate professional and outsourcing services revenues increased
20.0% from quarter to quarter.
Domestic property and casualty professional and outsourcing services revenues
experienced a 4.3% increase from the first quarter of 1995 to the first quarter
of 1996 due principally to an increase in the volume of professional services
provided to new and existing customers. The increase was offset in part by a
decrease in revenues from the Company's nongovernmental total policy management
business. International property and casualty professional and outsourcing
services revenues increased 35.7%, principally as a result of increased services
volume related to the acquisition of micado Beteiligungs-und Verwaltungs GmbH
(micado), acquired on October 1, 1995 (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, 1995) and to a large Series III implementation project
underway in Europe. These increases were further strengthened by an increase in
the volume of property and casualty outsourcing services provided to new and
existing customers in Europe, Canada and Germany.
Life insurance professional and outsourcing services revenues increased 41.7%
from the first quarter of 1995 to the first quarter of 1996. Domestic life
insurance professional and outsourcing services revenues increased 83.3% ($4.7
million), primarily the result of an increase in the volume of professional
services provided to new and existing customers, as well as growth in the volume
of traditional life insurance outsourcing services and the introduction of
total policy administration outsourcing services (introduced in the third
quarter of 1995). International life insurance professional and outsourcing
services revenues increased 8.6%, principally from increased professional
services volume in the European and Nordic regions.
Information services revenues decreased 16.6% from the first quarter of 1995
to the first quarter of 1996. During the first quarter of 1996, the Company
ceased to provide certain property and casualty risk information services, which
resulted in a decrease in property and casualty risk information services
revenues from the first quarter of 1995 to the first quarter of 1996 of
approximately $5.2 million. First quarter of 1996 revenues associated with the
<PAGE>13
Company's domestic property and casualty automobile information services are
12.9% lower than first quarter of 1995 revenues, however, these revenues have
increased approximately 19.5% from fourth quarter 1995, resulting principally
from the Company's November 1995 alliance with a leading database information
enterprise. Life insurance information services revenues increased 6.7% from
first quarter 1995 to first quarter 1996, principally due to revenues related to
the Company's Infinity life insurance services.
OPERATING EXPENSES
Cost of Revenues
Employee compensation and benefits increased 8.1% from the first quarter of
1995 to the first quarter of 1996, resulting principally from the growth in
staffing related to professional and outsourcing services activities and the
October 1, 1995 acquisition of micado. These increases were offset in part by
cost reductions associated with the sale of the Company's health business, and
a decrease in the Company's provision for performance-based compensation
expense.
The 20.5% first quarter of 1995 to first quarter of 1996 increase in computer
and communications expenses results principally from the effect of licensing
expense related to the Company's long-term license and maintenance agreement
(entered into March 27, 1995) to acquire rights to certain operating system
management software products for use in the Company's worldwide data center
operations, and the effect of lease expense associated with leases entered into
as a result of the Company's restructuring of its data processing facilities. As
part of this restructuring, the Company entered into 2 and 4 year renewable
lease agreements for certain data processing equipment, which are intended to
enable the Company to make use of the latest technology in this area and
improve the quality of service to its customers while allowing the Company to
benefit from projected decreases in unit costs of this technology. The lease
expense resulting from the restructuring was offset by the decrease in
depreciation expense discussed below.
The 12.1% first quarter 1995 to first quarter 1996 decrease in information
services and data acquisition costs is principally related to a decrease in the
volume of state fees for motor vehicle reports associated with the domestic
property and casualty automobile information services business. However, the
volume of these state fees has increased approximately 15.6% when compared to
fourth quarter of 1995.
Depreciation and amortization of property, equipment and capitalized software
costs decreased 4.7% from the first quarter of 1995 to the first quarter of
1996, principally as a result of the data center restructuring referred to
above. Substantially offsetting the effect of the data center restructuring was
a 14.6% increase in amortization of capitalized software costs resulting
principally from amortization of the January 31, 1995 and March 31, 1995
releases of versions of the Company's Series III property and casualty software
and CYBERLife life insurance software, respectively.
<PAGE>14
Other costs and expenses for first quarter 1996 decreased 33.1% when compared
to the first quarter of 1995. Fees related to the use of consultants and
independent contractors increased 30.0%, principally the result of training
costs in new technologies and the satisfaction of staffing needs for certain
development and services activities. These increases were offset by an increase
in amounts capitalized principally related to the increased use of outside
resources in the continued enhancement and development of the Company's Series
III property and casualty insurance software and CYBERLife life insurance
software as well as other ongoing development projects.
Selling general and administrative expenses
The 6.8% increase in selling, general and administrative expenses from first
quarter 1995 to first quarter 1996 is principally the result of the Company's
continued international expansion.
Amortization of goodwill and other intangibles
The 24.5% increase in amortization of goodwill and other intangibles is
principally the result of amortization of intangible assets related to the
acquisition of micado on October 1, 1995.
Litigation settlement and expenses, net
In March 1995, the Company recorded a $1.7 million credit to adjust the
previously estimated costs of settling the Company's shareholder class action as
a result of additional amounts received from the Company's Directors and
Officers liability insurance carrier (see Note 8 of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
OPERATING INCOME
Before the effects of the litigation settlement credits taken during the first
quarters of 1996 and 1995, operating income increased 7.7% from 12.6% of
revenues for the first quarter of 1995 to 13.5% for the first quarter of 1996.
This increase is the result of an increase in professional and outsourcing
services as a percentage of total revenues. Professional and outsourcing
services revenues constituted 52.2% of total revenues for first quarter 1996 as
opposed to 45.8% of total revenues for first quarter 1995. Information
services, which generally produce lower margins than professional and
outsourcing services, declined as a percentage of total revenues from 34.9% of
total revenues for first quarter 1995 to 29.1% of total revenues for first
quarter 1996 (see Revenues discussion above).
Offsetting this change in part was the decrease in the percentage of total
revenues represented by initial license charges from 9.0% of total revenues for
first quarter 1995 to 7.8% of total revenues for first quarter 1996. A
significant portion of both the Company's revenues and operating income is
derived from initial license charges received as part of the Company's software
licensing activities. Because a substantial portion of these revenues are
<PAGE>15
recorded at the time systems are licensed, there can be significant fluctuations
from period to period in the revenues and operating income derived from
licensing activities. This is principally attributable to the timing of
customers' decisions to enter into license agreements with the Company, which
the Company is unable to control (see table in Revenues above).
OTHER INCOME AND EXPENSE
Interest income increased slightly, principally due to a higher level of
interest-bearing cash equivalents during first quarter of 1996 as compared to
first quarter of 1995.
Interest expense increased slightly as a result of outstanding borrowings
during first quarter 1996 under the Company's credit facilities. The nominal
interest rate applicable to borrowings under the facilities during first quarter
1996 was 6.34%.
INCOME TAXES
The Company's effective income tax rate (Income taxes expressed as a
percentage of Income before income taxes) for the first quarters of 1995 and
1996 is higher than the federal statutory rate due principally to the effect of
state and local income taxes. The 1996 income tax rate was lowered by the
effect of the Company's expensing, during 1996 for tax purposes, certain
intangible assets related to the abandonment of certain of the Company's
domestic property and casualty risk information services activities.
<PAGE>16
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
1996 1995
(Dollars In Millions)
Cash and equivalents,
marketable securities
and investments.................. $ 27.9 $ 44.6
Current assets..................... 177.9 203.5
Current liabilities................ 81.5 105.5
Working capital.................... 96.4 98.0
Long-term debt..................... - 14.9
Three Months Ended
March 31, March 31,
1996 1995
(Dollars In Millions)
Cash provided by operations........ $ 15.9 $ 9.4
Cash used by investing activities.. (17.1) (14.0)
Cash used by financing activities.. (14.6) (4.4)
The Company's financial condition remained strong at March 31, 1996. The
decrease in cash and equivalents, marketable securities and investments compared
to December 31, 1995 is due principally to repayments of amounts outstanding
under the Company's unsecured credit facilities.
Cash provided by operations increased as a result of several factors
including, principally, a reduction in receivables and an increase in the
Company's net deferred income tax liability. This was partially offset by the
decrease in accounts payable resulting principally from payments of amounts
accrued during the year in the normal course of business and payments on amounts
accrued for the Company's ongoing litigation (see Note 8 of Notes to
Consolidated Financial Statements and Part I Item 3 - Legal Proceedings, both
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995). Also, during the three months ended March 31, 1996 the
Company reduced its liabilities for accrued restructuring charges and employee
severance and outplacement costs by approximately $3.8 million. This reduction
included cash outlays of $3.7 million, less $.2 million in non-cash discount
amortization, and other adjustments of $.3 million for the disposal of certain
related assets.
On April 8, 1996 the Company completed its repurchase of 759,512
(approximately 3.9% of its total shares outstanding prior to the repurchase) of
the 1,519,024 shares of the Company's common stock held by GAP Coinvestment
Partners and General Atlantic Partners 14 L.P. The repurchase by the Company, at
a price of $50.00 per share, resulted in an aggregate cash expenditure (after
related costs) of approximately $38.7 million.
As previously announced, the Company's Board of Directors has authorized the
Company to repurchase up to 2 million of its
<PAGE>17
outstanding common shares. The repurchase authorization is flexible as to the
timing and amount of common shares to be repurchased. In order to manage the
potential cost of repurchasing its shares, the Company's Board of Directors has
also authorized the Company to enter into an equity swap agreement covering up
to an aggregate of 1.5 million of the 2 million common shares authorized for
repurchase. Generally, under the terms of such an agreement, the Company would
accept the return of its own share performance in exchange for a payment to the
counter-party to the agreement of a certain fixed annual return. At the
termination of the agreement, the Company would have the option to acquire the
shares from the counter-party or cash settle the transaction, receiving or
paying the difference between the total return on the shares over the time
period and the fixed annual return. The agreement would also provide for early
termination of the agreement by the Company under certain circumstances. Upon
settlement, the payments made or received under the agreement would be recorded
as adjustments to the Company's shareholders' equity. As of the date of this
report, the Company has not entered into such an agreement. The Company does
not hold or issue derivative financial instruments for trading purposes and is
not a party to leveraged instruments.
Significant expenditures anticipated for the remainder of 1996, excluding any
possible business acquisitions or common share repurchases, are as follows:
acquisition of data processing, communications equipment and office furniture,
fixtures and equipment ($4.9 million); costs relating to the internal
development of software systems ($39.0 million); and payments relating to
past business acquisitions ($6.2 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, cash and investment reserves and amounts
available under the Company's credit facilities will be able to meet presently
anticipated needs; however, the Company may also consider incurring additional
debt as needed to accomplish specific objectives in these areas and for other
general corporate purposes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition can be impacted by a
number of factors, including but not limited to the following, any of which
could cause actual results to vary materially from current and historical
results or the Company's anticipated future results:
- - Currently, the Company's business is focused principally within the global
property and casualty and life insurance industries;
- - there is increasing competition for the Company's products and services;
- - the market for the Company's products and services is
<PAGE>18
characterized by rapid changes in technology;
- - 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;
- - The timing and amount of the Company's revenues are subject to a number of
factors, including, but not limited to, the timing of customers' decisions to
enter into large license agreements with the Company;
- - Unforeseen events or adverse economic or business trends may significantly
increase cash demands beyond those currently anticipated or affect the
Company's ability to generate/raise cash to satisfy financing needs;
- - The Company's operations have not proven to be significantly seasonal,
although quarterly revenues and net income could be expected to vary at
times;
- - Although the Company cannot accurately determine the amounts attributable
thereto, the Company has been affected by inflation through increased costs
of employee compensation and other operating expenses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Changes in the status of certain matters or facts or circumstances
underlying these estimates could result in material changes to these estimates,
and actual results could differ from these estimates.
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.
_________________________________
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this report that are not descriptions of historical facts
may be forward-looking statements that are subject to risks and uncertainties,
including economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices, as well as other
specific factors discussed in the Company's filings with the Securities and
Exchange Commission. These and other factors may cause actual results to differ
materially from those anticipated.
<PAGE>19
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
Item 1. Legal Proceedings
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 this investigation.
The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development
contract. The Company is also presently involved in litigation with Liberty Life
Insurance Company arising out of the Company's change in the direction of its
future life software systems development following the acquisition of CYBERTEK.
The Company has asserted various affirmative defenses, claims and counterclaims
and is vigorously pursuing prompt resolutions of these matters through all
available legal processes (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit
against the Company in the United States District Court for the Northern
District of California (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In May 1996, after nine weeks of trial, the parties agreed that CSAA would
dismiss its claim against the Company in return for the Company dismissing its
counterclaim against CSAA. The agreement also resolves a collateral proceeding
by the Company against CSAA and Computer Sciences Corporation which is pending
in another jurisdiction and arose out of the agreement which was the basis of
the California proceeding.
Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced a
declaratory judgment action against the Company to determine St. Paul's
obligation for defense costs and to indemnify the Company for any payment
related to these claims. The Company filed a counterclaim against St. Paul
seeking to recover the Company's defense costs in the CSAA and SLD matters,
coverage for damages, if any, awarded in those matters, and consequential and
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
In connection with the Company reaching an agreement with CSAA for the
dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss with
prejudice all claims against each other with respect to the CSAA
<PAGE>20
matter, and St. Paul agreed to reimburse the Company for the Company's legal
fees in the CSAA matter (in excess of its deductible) with interest. The
Company expects this amount to exceed $9 million. This agreement resolves the
Company's and St. Paul's claims related to the CSAA matter; however, the action
will continue as to the parties' claims related to insurance coverage for the
SLD matter.
In addition to the litigation described above, there are also various other
litigation proceedings and claims arising in the ordinary course of business.
The Company is vigorously pursuing prompt resolutions of these matters through
all available legal processes.
While the resolution of any of the above matters could have a material adverse
effect on the results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its consolidated
financial position. The Company, however, is unable to predict the ultimate
outcome or the potential financial impact of these matters.
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
March 31, 1996.
<PAGE>21
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: May 13, 1996 By: Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
<PAGE>1
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
10. A. Registration Rights Agreement, dated March 8, 1996, between Policy
Management Systems Corporation and Continental Casualty Company
B. Shareholders Agreement dated March 8, 1996 between Policy
Management Systems Corporation and Continental Casualty Company
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
<PAGE>1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 8, 1996,
between POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina
corporation (the "Company") and CONTINENTAL CASUALTY COMPANY, an
Illinois domestic insurance company ("CNA").
Pursuant to a Stock Purchase Agreement, dated as of the date
hereof, among GENERAL ATLANTIC PARTNERS 14, L.P., a Delaware limited
partnership ("GAP 14"), GAP COINVESTMENT, L.P., a New York limited
partnership (GAP Coinvestment") and CNA (the "Stock Purchase
Agreement"), CNA has agreed to purchase from GAP 14 and GAP Coinvestment
759,512 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 CNA pursuant to the Stock Purchase Agreement, CNA has entered
into a Shareholder's Agreement, dated as of the date hereof, between the
Company and CNA (the "Shareholder's Agreement"), pursuant to which CNA
has 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 CNA to enter into the Shareholder's
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.
<PAGE>2
"Approved Underwriter" has the meaning assigned such
term in Section 3(e).
"Business Day" means any day other than a Saturday,
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.
"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
second paragraph of this Agreement.
"GAP Coinvestment" has the meaning assigned such term
in the second 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.
<PAGE>3
"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 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 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 shares of
capital stock or any other security of a class which is listed on a
national securities exchange issued or issuable in respect of shares of
Purchased Common Stock or any other shares of Common Stock of the
Company acquired by CNA in a manner consistent with and subject to the
Shareholder's Agreement by way of a stock dividend or stock split or in
connection with a combination 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.
"Shareholder's Agreement" has the meaning assigned
such term in the third paragraph of this Agreement.
<PAGE>4
"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 Registrable
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, (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 or (iii) if such
Registrable Securities are otherwise transferable without restriction
under the Act.
(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 Shareholder's Agreement (other than a Rule 144 purchaser) who agrees
to be bound in writing by the terms and provisions of this Agreement and
the Shareholder's 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
<PAGE>5
request, at any time after April 1, 1997, registration (the "Demand
Registration") of Registrable Securities under the Act and under the
securities or blue sky laws of any United States jurisdiction reasonably
designated by the Holders that request to register Registrable
Securities in such registration (subject to Section 6(a)(iv) below);
provided, however, that the Company shall be obligated to effect no more
than three such Demand Registrations. Notwithstanding the foregoing,
the Company shall not be required to effect a 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 less than 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, (A) 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 (B) the shares are freed from any and all restrictions on
transfer under the Shareholder's 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 reasonably
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.
Any request for a 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 a Demand Registration, the Company shall promptly take such
steps as are reasonably necessary or appropriate to prepare for the
registration of the Registrable 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
<PAGE>6
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 any Demand Registration consent in
writing, no other party (other than the Company or any other Holder),
shall be permitted to offer securities under a Demand Registration.
(b) Effective Demand Registration. A registration
shall not constitute a 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. The Company shall use its reasonable best efforts
to cause a Demand Registration to become effective not later than one
hundred and twenty (120) days after it receives a request for a Demand
Registration under Section 3(a).
(c) Expenses. In any registration initiated as a
Demand Registration, the Company shall pay all reasonable Registration
Expenses (as defined herein) 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 a Demand Registration shall be in the form of a firm
commitment
<PAGE>7
underwritten offering and the managing underwriter or underwriters
selected for such offering shall be the Approved Underwriter selected in
accordance with Section 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 a 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 a 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 Shareholder's 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
<PAGE>8
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
Shareholder's 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) 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
participation 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,
<PAGE>9
to the extent not inconsistent with any law, rule or regulation
applicable to a Holder, each such 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 eighty
(180) 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 or as
permitted pursuant to Section 3 above) during the ninety (90) day period
commencing on the effective date of a Demand Registration.
6. Registration Procedures.
(a) Obligations of the Company. Whenever
registration 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, and in connection with any such request, the Company shall, as
expeditiously as possible:
(i) use its reasonable best efforts within
ninety (90) Business Days to prepare and file with the SEC, 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
<PAGE>10
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 supplement 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 one
hundred and twenty (120) days or such shorter period which will
terminate when all Registrable Securities covered by such registration
statement have been sold 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
<PAGE>11
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 United
States as any seller of Registrable Securities may reasonably 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 reasonably 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 Registrable Securities to consummate the
disposition of such Registrable 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
circumstances 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
<PAGE>12
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 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 registration or, if such
securities are not being sold through underwriters, 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
<PAGE>13
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 earnings 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 securities
issued by the Company are then listed, subject to the satisfaction of
the applicable listing requirements of each such exchange;
(xiii) keep each seller of Registrable
Securities advised, as they may reasonably request, 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") or the New York
Stock Exchange, Inc.; and
(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
<PAGE>14
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 happening 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 Section 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 Securities 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, charges and disbursements 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
<PAGE>15
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 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
<PAGE>16
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 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 unless the
Indemnifying Party is materially prejudiced by such failure to so
notify. 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 reasonably 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; provided, that, the Indemnifying Party will not be liable to
such Indemnified Party under this Section 8 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection
with such participation other than reasonable costs of investigation
unless
<PAGE>17
(i) the Indemnifying Party has not employed counsel to assume the
defense of such action within a reasonable time after receiving notice
of commencement of the action, (ii) the Indemnifying Party has agreed in
writing to pay such fees and expenses or (iii) representation of the
Indemnifying Party and the Indemnified Party by the same counsel would,
in the written opinion of such counsel, constitute a conflict of
interest (in which case, the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of the Indemnified Party;
it being understood, however, that, with respect to clauses (i), (ii)
and (iii) of this proviso, the Indemnifying Party shall not be liable
for the fees and expenses of more than one separate firm of attorneys at
any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties). 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
<PAGE>18
information and 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 considerations 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 and Rule 144A. The Company shall 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 Rule 144 or Rule 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
<PAGE>19
Common Stock of any other shares of Common Stock of the Company acquired
by CNA that are acquired in a manner consistent with and subject to the
Shareholder's 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,
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 without the prior written
consent of the Company and Holders holding at least a majority of the
Registrable Securities.
(d) Notices. 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 CNA:
Continental Casualty Company
CNA Plaza
Chicago, Illinois 60685
Attention: Secretary
Telephone: 312-822-5158
Facsimile: 312-822-1297
<PAGE>20
(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: 212-259-6333
(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.
(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 Shareholder's Agreement, except to
a Holder of Registerable Securities (other than CNA or an affiliate of
CNA) whose shares would be transferable without restriction under the
<PAGE>21
Act, but for such Person's relationship with the Company. 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.
(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.
<PAGE>22
(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 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.
(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 CNA
pursuant to the Stock Purchase Agreement, and if such purchase does not
occur or on before May 15, 1996, this Agreement shall terminate and be
of no force or effect.
<PAGE>23
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
CONTINENTAL CASUALTY COMPANY
By:
Name:
Title:
<PAGE>24
REGISTRATION RIGHTS AGREEMENT
between
POLICY MANAGEMENT SYSTEMS CORPORATION
and
CONTINENTAL CASUALTY COMPANY
Dated as of March 8, 1996
<PAGE>25
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Securities Subject to this Agreement. . . . . . . . . . . . . 3
(a) Registrable Securities . . . . . . . . . . . . . . . . . 3
(b) Holders of Registrable Securities. . . . . . . . . . . . 4
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 . . . . . . . . . . . . . . . . . . . 8
(a) Obligations of the Company . . . . . . . . . . . . . . . 8
(b) Seller Information . . . . . . . . . . . . . . . . . . . 11
(c) Notice to Discontinue. . . . . . . . . . . . . . . . . . 11
7. Registration Expenses . . . . . . . . . . . . . . . . . . . . 12
8. Indemnification; Contribution . . . . . . . . . . . . . . . . 12
(a) Indemnification by the Company . . . . . . . . . . . . . 12
(b) Indemnification by Holders . . . . . . . . . . . . . . . 13
(c) Conduct of Indemnification Proceedings . . . . . . . . . 13
<PAGE>26
(d) Contribution . . . . . . . . . . . . . . . . . . . . . . 14
9. Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . 15
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Recapitalizations; Exchanges; etc. . . . . . . . . . . . 15
(b) Remedies . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Amendments and Waivers . . . . . . . . . . . . . . . . . 16
(d) Notices. . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Successors and Assigns . . . . . . . . . . . . . . . . . 17
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . 17
(g) Governing Law. . . . . . . . . . . . . . . . . . . . . . 17
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 18
(j) Severability . . . . . . . . . . . . . . . . . . . . . . 18
(k) Rules of Construction. . . . . . . . . . . . . . . . . . 18
(l) Headings; References . . . . . . . . . . . . . . . . . . 18
(m) Entire Agreement . . . . . . . . . . . . . . . . . . . . 18
(n) Further Assurances . . . . . . . . . . . . . . . . . . . 18
(o) Effectiveness. . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>1
SHAREHOLDER'S AGREEMENT
between
POLICY MANAGEMENT SYSTEMS CORPORATION
and
CONTINENTAL CASUALTY COMPANY
___________________________
Dated as of March 8, 1996
___________________________
<PAGE>2
SHAREHOLDER'S AGREEMENT
SHAREHOLDER'S AGREEMENT, dated as of March 8, 1996, between
POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina corporation (the
"Company"), and CONTINENTAL CASUALTY COMPANY, an Illinois domestic
insurance company ("CNA").
Pursuant to a Stock Purchase Agreement, dated as of the date
hereof, among CNA, GENERAL ATLANTIC PARTNERS 14, L.P., a Delaware
limited partnership ("GAP 14"), and GAP COINVESTMENT PARTNERS, L.P., a
New York limited partnership ("GAP Coinvestment"), as successor to GAP
Coinvestment Partners, a New York general partnership (the "Stock
Purchase Agreement"), CNA has agreed to purchase in the aggregate
759,512 shares of common stock, par value $.01 per share, of the Company
("Common Stock," and such 759,512 shares of Common Stock are referred to
herein as the "Purchased Common Stock") from GAP 14 and GAP
Coinvestment. Simultaneously with or prior to such purchase, the
Company acquired an additional 759,512 shares of Common Stock from GAP
14 and GAP Coinvestment.
As more fully provided for herein, CNA has granted to the
Company certain rights of first offer over the shares of capital stock
of the Company owned by CNA and its affiliates and associates. As
partial consideration for the rights granted to the Company hereunder,
CNA has been granted certain rights as more fully provided for herein.
As further consideration for the obligations of CNA
hereunder, the Company has agreed to provide registration rights to CNA,
as provided for in the Registration Rights Agreement, dated as of date
hereof, among CNA 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:
<PAGE>3
An "affiliate" of a Shareholder means any Person that directly
or indirectly through one or more intermediaries controls, is controlled
by, or is under common control with, such Shareholder.
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.
"Business Day" means any day other than a Saturday, 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.
"CNA" has the meaning assigned such term in the first
paragraph of this Agreement.
"CNA Purchase Agreement" has the meaning assigned to such
term in Section 4.1(h) of this Agreement.
"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.
"GAP 14" has the meaning assigned such term in the second
paragraph of this Agreement.
"GAP Coinvestment" has the meaning assigned such term in the
second paragraph of this Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
<PAGE>4
"Market Price" has the meaning assigned such term in Section
2.1(a) of this Agreement.
"Morgan Rate" means the prime rate as publicly announced
from time-to-time by Morgan Guaranty Trust Company of New York.
"Offered Shares" has the meaning assigned such term in
Section 2.1(a) of this Agreement.
"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,
combinations, 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.
<PAGE>5
"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 CNA and its respective successors and
permitted assigns, to the extent provided for in Section 5.3 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 succession beneficially owned
by the shareholders of the Company.
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 (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) subject to Section 2.2 hereof, 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.
<PAGE>6
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 35 days following acceptance
by the Company 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 price provided in clause (ii) of the last sentence of
the preceding paragraph except if the Selling Shareholder Offer shall be
pursuant to a request for registration in which case the proposed cash
sale price shall be deemed to be the closing price of the Common Stock
on the principal exchange on which the Common Stock is listed (the
"Market Price") 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 or before the 30th day following acceptance by the
Company of the Selling Shareholder Offer, or at such other time and
place as the Company and the Selling Shareholder may reasonably agree
upon, but not later than as provided in the second paragraph of Section
2.1(a) above. 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. Subject to the
further provisions of Section 2(d)(iii)
<PAGE>7
below, the Company shall deliver to the Selling Shareholder at the
closing, by wire transfer of immediately available funds, 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) (i) Subject to the further provisions of
this Section 2.1(d), if the Company does not elect to purchase 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.
(ii) Notwithstanding paragraph (i) above and
subject to the further provisions of this Section 2.1(d), if the sale is
pursuant to a request for registration and the cash sale price pursuant
to such registration is higher than the proposed cash sale price
contemplated by the second paragraph of Section 2.1(a) above then the
Selling Shareholder may dispose of the Offered Shares pursuant to
Section 2.1(d)(i) above; provided, however, that if the cash sale price
pursuant to a request for registration is less than the proposed cash
sale price contemplated by the second paragraph of Section 2.1(a) then
the Selling Shareholder shall give the Company written notice of such
sale price and the Company shall have 24 hours from such notice to elect
in writing to purchase the Offered Shares at such price. The closing of
such purchase by the Company shall be held on the third Business Day
following the Company's election to purchase in accordance with the last
three sentences of Section 2.1(c) above. If the Company shall elect not
to purchase the Offered Shares after notice or shall fail to close the
purchase as provided in the previous sentence then the Selling
Shareholder may dispose of the Offered Shares pursuant to Section
2.1(d)(i) (without regard to price or the proviso of the previous
sentence) until the later of the expiration of the 120-day period or the
fifth Business Day after giving notice to the
<PAGE>8
Company as contemplated by the previous sentence. If such disposition
is not consummated within such 120-day period (or the fifth Business Day
following notice to the Company as contemplated by the previous
sentence), the restrictions provided for herein shall again become
effective.
(iii) The following additional provisions shall apply
to a sale pursuant to a request for registration:
(A) The Company may, at its option, seek a purchaser
for the Offered Shares pursuant to Rule 144A under the Securities Act
and, if the Company is able to procure such a purchaser, CNA will use
reasonable best efforts to cause the Offered Shares to be sold to such
purchaser as promptly as practical at a purchase price per share equal
to the Market Price as of the day immediately prior to the closing date
of such sale or such higher price as the purchaser and CNA may agree.
For the purposes of paragraphs (B) - (E) below, a sale pursuant to Rule
144A of the Securities Act, as contemplated hereby, shall be deemed to
be a sale pursuant to a request for registration. The provisions of
this paragraph (A) shall in no way delay the Company's obligation to
file a registration statement pursuant to the terms of the Registration
Rights Agreement.
(B) If the cash sale price is higher than the Market
Price on the day the Selling Shareholder Offer is received by the
Company, CNA will, promptly upon the close of the sale of the Offered
Shares, remit to the Company such excess, less an amount equal to
interest on the proposed cash sale price at the Morgan Rate calculated
on the basis of the actual number of days elapsed divided by 365 for the
period from the third Business Day following the Company's receipt of
the Selling Shareholder Offer to the date of such closing.
(C) If the cash sale price is lower than the Market
Price on the day the Selling Shareholder Offer is received by the
Company, the Company will, promptly upon the close of the sale of the
Offered Shares remit to CNA such deficit, plus an amount equal to
interest on the proposed cash sale price at the Morgan Rate calculated
on the basis of the actual number of day elapsed divided by 365 for the
<PAGE>9
period from the third Business Day following the Company's receipt of
the Selling Shareholder Offer to the date of such closing. It is
understood for the purposes of this paragraph (C) that the Company may
be the purchaser of the Offered Shares.
(D) In the event that the Company does not cause an
effective registration statement to be in place for the sale of the
Offered Shares within 120 days of the Company receiving the Selling
Shareholder Offer (subject to Section 3(a)(iv) of the Registration
Rights Agreement), then CNA may, upon written notice to the Company, put
such Offered Shares to the Company at a purchase price equal to the
Market Price on the day the Selling Shareholder Offer is received by the
Company, plus interest calculated as provided in paragraph (C) above.
(E) The Closing of any sale of the Offered Shares by
CNA to the Company as contemplated by this Section 2.1(d)(iii) shall be
held in accordance with the last three sentences of Section 2.1(c)
above.
(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 Purchased Common Stock to
an affiliate of a Selling Shareholder (other than to CNA Financial
Corporation and/or its majority owned subsidiaries) shall be subject to
the right of first offer provided for in this Section 2.1 if such sale,
transfer, assignment or other disposition is to occur prior to the third
anniversary of this Agreement.
(f) No transfer (other than by way of a
registered public offering pursuant to a request for registration or
pursuant to Rule 144A of the Securities Act) 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
<PAGE>10
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, a
distribution thereof which would be in violation of the Securities Act,
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 subsequent disposition thereof is registered
under the Securities Act or is exempt from such requirements.
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 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
<PAGE>11
right shall be exercisable by written notice to the Rule 144 Shareholder
(the "Company Acceptance") given by 9:00 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 fifth Business Day following 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 wire
transfer of immediately available funds, 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 30
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 30-day period, 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.
<PAGE>12
(f) 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.
3. Certain Agreements.
3.1 Strategy Committee. CNA and the Company will
establish and maintain a technology/business strategy committee composed
of certain top executives at both companies which members shall be
designated by the respective companies. The technology/business
strategy committee will meet at least quarterly to review at least the
following: (i) major project status; (ii) planning for new information
services initiatives; and (iii) identifying areas of potential benefit
for each company.
3.2 Preferred Vendor. CNA agrees that it will
recognize the Company as one of a limited number of "preferred vendors"
for systems application software and systems services. The preferred
vendors will be looked to first to provide such software and services in
their areas of expertise and CNA will review all decision criteria for
such software and services with the Company at their regular quarterly
meetings.
4. Representations, Warranties and Covenants.
4.1 Representations and Warranties of CNA. CNA
hereby represents, warrants and covenants to the Company as follows:
(a) Organization and Good Standing. CNA is an
Illinois domestic insurance company duly authorized to conduct its
appropriate business under the insurance laws of the State of Illinois.
(b) Authority; Execution and Delivery, etc.
CNA 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
<PAGE>13
of this Agreement have been duly authorized by CNA and no other actions
on the part of CNA are required. This Agreement has been duly executed
and delivered by CNA and constitutes the legal, valid and binding
obligation of CNA, enforceable against it in accordance with its terms.
(c) Consents, No Conflicts, etc. Neither the
execution and delivery of this Agreement, the consummation by CNA of the
transactions contemplated hereby, nor compliance by CNA 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
Certificate of Incorporation or by-laws of CNA, or any agreement,
instrument, judgment, decree, statute or regulation applicable to CNA or
any assets or properties of CNA, (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to CNA, or
any of the assets or properties of CNA, 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 other than disclosure of the
transactions contemplated hereby in the filings of CNA, in the filings
of its affiliates, pursuant to the federal securities laws and the rules
of any stock exchange on which the securities of CNA or any of its
affiliates are listed or pursuant to the HSR Act.
(d) Litigation. There is no litigation,
proceeding, labor dispute, arbitral action or government investigation
pending or, so far as known to CNA, threatened against CNA with respect
to this Agreement which if adversely determined could prohibit or
prevent CNA from consummating the transactions contemplated hereby.
There are no decrees, injunctions or orders of any court or governmental
department or agency outstanding against CNA.
(e) No Brokers. CNA 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 the Company to pay
any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby. CNA agrees to
<PAGE>14
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 CNA.
(f) Access to Information. CNA 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. CNA 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. CNA 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 4.2(e) hereof. CNA 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.
(g) HSR Act. CNA represents, warrants and
agrees that (i) it will make all necessary filings under the HSR Act in
connection with the transactions contemplated by the Stock Purchase
Agreement on or before March 22, 1996 and (ii) in response to Item 1(d)
of its Hart-Scott-Rodino Antitrust Improvements Act Notification and
Report Form filing, it will indicate that the highest notification
threshold in 16 C.F.R. ss 801.1(h) for which its form is being filed is
the $15 million threshold.
(h) HSR Act Restriction. In the event the
Federal Trade Commission or the Antitrust Division of
<PAGE>15
the Department of Justice imposes any restriction upon CNA or the
Company by reason of CNA's purchase of the Purchased Common Stock as
contemplated by Section 6(h) of that certain Stock Purchase Agreement,
dated as of the date hereof, among GAP 14, GAP Coinvestment and CNA (the
"CNA Purchase Agreement"), then CNA agrees and covenants it will
terminate its purchase of the Purchased Common Stock as provided in the
CNA Purchase Agreement.
4.2 Representations, Warranties and Covenants of the
Company. The Company hereby represents, warrants and covenants to CNA
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 the provisions of the Registration Rights Agreement
relating to indemnification, contribution and related matters, as to
which no representation as to enforceability 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,
<PAGE>16
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, 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 and except, in the case of clauses (i), (ii)
and (iii) above, for the provisions of the Registration Rights Agreement
relating to indemnification, contribution and related matters, as to
which no representation as to enforceability 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 CNA 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, if
any, provided to CNA.
(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
<PAGE>17
will result in the obligation of CNA 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 CNA
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.
(g) The Purchased Stock. (i) The Purchased
Stock was validly issued and is fully paid and nonassessable and is not
subject to any restrictions on transfer other than as provided in this
Agreement, the Registration Rights Agreement or applicable securities
laws, rules or regulations or laws, rules or regulations pertaining to
CNA and/or its affiliates.
(ii) The transactions contemplated by the
agreement, the CNA Purchase Agreement and the Registration Rights
Agreement will not trigger or otherwise violate any provision of the
South Carolina Business Combination Statute or Control Share Acquisition
Statute.
(h) CNA Termination. In the event CNA
terminates its purchase of the Purchased Common Stock as contemplated by
Section 4.1(h) above, then the Company agrees and covenants that it will
purchase such Purchased Common Stock pursuant to the provisions of
Section 6 of that certain Stock Purchase Agreement, dated as of the date
hereof, among the Company, GAP Coinvestment and GAP 14.
4.3 Indemnification.
The representations and warranties of the parties made in
this Agreement will survive for a period ending on the date eighteen
months from the date of this Agreement.
(a) The Company agrees to indemnify, defend
and hold harmless the Shareholder, its officers, directors and each
Person who controls the Shareholder within the meaning of the Securities
Act 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
<PAGE>18
warranty contained in Section 4.2 of this Agreement.
(b) The Shareholder agrees to indemnify,
defend and hold harmless the Company, its officers, directors and each
Person who controls the Company within the meaning of the Securities Act
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 4.1 of
this Agreement.
5. Miscellaneous.
5.1 Duration. This Agreement shall continue in full
force and effect until the earliest of (a) its termination by mutual
agreement between the Company and the Shareholder, (b) CNA and each of
the Persons who has agreed in writing to be bound hereby (other than the
Company) cease to beneficially own shares of capital stock of the
Company and (c) the date which is three years from the date of the
purchase of the Purchased Common Stock by CNA.
5.2 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 Shareholder's Agreement, dated
as of March 8, 1996, and may not be sold, assigned,
transferred, pledged or otherwise disposed of except in
compliance with applicable law and such Shareholder's
Agreement."
5.3 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
<PAGE>19
writing to be bound by the provisions hereof, except that it is
specifically understood with respect to CNA that this Agreement shall
not inure to the benefit of any Person, and no Person shall be bound
hereby, who purchases Common Stock from CNA (other than an affiliate as
contemplated by Section 2.1) pursuant to Section 2.1 or 2.2. This
Agreement shall inure to the benefit of and be binding upon (i) the
successors of CNA and its affiliates and (ii) the permitted assigns of
CNA and its affiliates to the extent that the assignee is an affiliate
of such 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.
5.4 Notices.
(a) All notices and other communications
hereunder shall be in writing and shall be deemed given if telecopied
(followed by same day telephone confirmation) 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 CNA:
Continental Casualty Company
CNA Plaza
Chicago, Illinois 60685
Attention: Secretary
Telephone: (312) 822-5158
Facsimile: (312) 822-1297
(ii) if to the Company (two copies):
Policy Management Systems Corporation
One PMS Center
Blythewood, South Carolina 29016
Attention: General Counsel
Telephone: (803) 735-4000
Facsimile: (803) 735-5560
<PAGE>20
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
(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.
5.5 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 Shareholder shall be enforceable to the
fullest extent permitted by law.
5.6 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.
5.7 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
<PAGE>21
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter
and there are no other shareholder or similar agreements in effect
between CNA and/or the Company and any other Person which relate to the
subject matter hereof.
5.8 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
Shareholder.
5.9 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.
5.10 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.
5.11 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.
5.12 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.
5.13 Effectiveness. Except for the provisions of
4.1(g) and (h) and 4.2(h) which shall be effective immediately, this
Agreement shall be effective upon the purchase of the Purchased Common
Stock by CNA pursuant to the Stock Purchase Agreement, and if such
<PAGE>22
purchase does not occur on or before May 15, 1996 this Agreement shall
terminate and be of no force or effect.
<PAGE>23
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the date first above written.
POLICY MANAGEMENT SYSTEMS CORPORATION
By:
Name:
Title:
CONTINENTAL CASUALTY COMPANY
By:
Name:
Title:
<PAGE>24
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Transfers of Capital Stock. . . . . . . . . . . . . . . . . 3
2.1 Right of First Offer. . . . . . . . . . . . . . . . . 3
2.2 Right of First Offer in Respect of Proposed
Transactions Under Rule 144. . . . . . . . . . . . 7
3. Certain Agreements. . . . . . . . . . . . . . . . . . . . . 9
3.1 Strategy Committee. . . . . . . . . . . . . . . . . . 9
3.2 Preferred Vendor. . . . . . . . . . . . . . . . . . . 9
4. Representations, Warranties and Covenants . . . . . . . . . 10
4.1 Representations and Warranties of CNA . . . . . . . . 10
4.2 Representations, Warranties and Covenants of the
Company. . . . . . . . . . . . . . . . . . . . . . 12
4.3 Indemnification . . . . . . . . . . . . . . . . . . . 14
5. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Duration. . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Legend. . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Successors and Assigns. . . . . . . . . . . . . . . . 15
5.4 Notices . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Severability. . . . . . . . . . . . . . . . . . . . . 16
5.6 Counterparts. . . . . . . . . . . . . . . . . . . . . 16
5.7 Entire Agreement. . . . . . . . . . . . . . . . . . . 16
5.8 Amendments and Waivers. . . . . . . . . . . . . . . . 17
5.9 Governing Law . . . . . . . . . . . . . . . . . . . . 17
5.10 Rules of Construction . . . . . . . . . . . . . . . . 17
5.11 Headings; References. . . . . . . . . . . . . . . . . 17
5.12 Further Assurances. . . . . . . . . . . . . . . . . . 17
5.13 Effectiveness . . . . . . . . . . . . . . . . . . . . 17
<PAGE>1
Exhibit 11
Statement Regarding Computation of Per Share Earnings
For the three months ended,
March 31, 1996 March 31, 1995
(In Thousands, Except Per Share Data)
Primary net income per share
Net Income:
Net Income as reported $ 11,628 $ 11,320
Shares:
Weighted average number of
common shares
outstanding 19,463 19,363
Common stock equivalents
(stock options) 197 207
19,660 19,570
Primary earnings per share .59 .58
Fully diluted net income per share
Net Income:
Net income as reported $11,628 $11,320
Shares:
Weighted average number
of common shares
outstanding 19,463 19,363
Dilutive instruments
(exercisable stock
options whether or not
dilutive) 1,074 1,003
Fully diluted shares 20,537 20,366
Fully diluted net income
per share $ .57 $ .56
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,474
<SECURITIES> 3,820
<RECEIVABLES> 94,563
<ALLOWANCES> 1,463
<INVENTORY> 0
<CURRENT-ASSETS> 177,868
<PP&E> 215,363
<DEPRECIATION> 107,700
<TOTAL-ASSETS> 553,191
<CURRENT-LIABILITIES> 81,455
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 396,182
<TOTAL-LIABILITY-AND-EQUITY> 396,377
<SALES> 133,183
<TOTAL-REVENUES> 133,183
<CGS> 0
<TOTAL-COSTS> 115,097
<OTHER-EXPENSES> 115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 711
<INCOME-PRETAX> 17,971
<INCOME-TAX> 6,343
<INCOME-CONTINUING> 11,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,628
<EPS-PRIMARY> .60
<EPS-DILUTED> 0
</TABLE>
