UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
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 of (IRS Employer
incorporation or organization) Identification No.)
ONE PMSC CENTER (PO BOX TEN)
BLYTHEWOOD, SC (COLUMBIA, SC) 29016 (29202)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 333-4000
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.
35,586,038 Common shares, $.01 par value, as of May 5, 2000.
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/A for the year ended December 31, 1999.
<PAGE>
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POLICY MANAGEMENT SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Income for the Three
Months Ended March 31, 2000 and 1999 . . . . . . . . 3
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999. . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity and Comprehensive Income for the Three
Months Ended March 31, 2000. . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 . . . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . 27
Signatures . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
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PART I
FINANCIAL INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
Ended March 31,
2000 1999
(Unaudited)
--------------
(In thousands, except
per share data)
<S> <C> <C>
REVENUES
Licensing . . . . . . . . . . . . . . . . . . . $ 26,300 $ 34,766
Services. . . . . . . . . . . . . . . . . . . . 122,042 125,523
--------- ---------
148,342 160,289
--------- ---------
OPERATING EXPENSES
Cost of revenues
Employee compensation and benefits. . . . . . 79,320 73,658
Computer and communications expenses. . . . . 13,651 11,929
Depreciation and amortization of property,
equipment and capitalized software costs . . 14,694 16,157
Other costs and expenses. . . . . . . . . . . 12,303 7,416
Selling, general and administrative expenses. . 28,214 25,572
Amortization of goodwill and other intangibles. 3,385 3,077
Restructuring and other charges . . . . . . . . 12,772 -
--------- ---------
164,339 137,809
--------- ---------
OPERATING (LOSS) INCOME. . . . . . . . . . . . . (15,997) 22,480
Equity in earnings of unconsolidated affiliates. 441 140
Minority interest. . . . . . . . . . . . . . . . 18 (38)
Other Income and Expenses
Investment income. . . . . . . . . . . . . . . 2,378 252
Interest expense and other charges . . . . . . (6,683) (1,493)
--------- ---------
(4,305) (1,241)
--------- ---------
(Loss) income before income taxes. . . . . . . . (19,843) 21,341
Income tax (benefit) expense . . . . . . . . . . (7,701) 7,890
--------- ---------
NET (LOSS) INCOME. . . . . . . . . . . . . . . . $(12,142) $ 13,451
========= =========
BASIC (LOSS) EARNINGS PER SHARE. . . . . . . . . $ (0.34) $ 0.37
========= =========
DILUTED (LOSS) EARNINGS PER SHARE. . . . . . . . $ (0.34) $ 0.35
========= =========
Weighted average common shares . . . . . . . . . 35,376 36,128
Weighted average common shares assuming dilution 35,376 38,336
<FN>
See accompanying notes
</TABLE>
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<TABLE>
<CAPTION>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
March 31, December 31,
2000 1999
-------- --------
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets
Cash and equivalents. . . . . . . . . . . . . . . . . . . . $ 15,143 $ 17,744
Marketable securities . . . . . . . . . . . . . . . . . . . 80 89
Receivables, net of allowance for uncollectible
amounts of $11,550 ($13,000 at 1999) . . . . . . . . . . . 96,753 99,669
Accrued revenues. . . . . . . . . . . . . . . . . . . . . . 34,759 36,393
Deferred income taxes . . . . . . . . . . . . . . . . . . . 18,975 15,979
Income tax receivable . . . . . . . . . . . . . . . . . . . 11,337 9,728
Other receivable. . . . . . . . . . . . . . . . . . . . . . - 7,788
Prepaids. . . . . . . . . . . . . . . . . . . . . . . . . . 10,406 12,050
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,015 12,559
--------- ---------
Total current assets. . . . . . . . . . . . . . . . . . . 203,468 211,999
Property and equipment, at cost less accumulated
depreciation and amortization of $134,790
($132,347 at 1999). . . . . . . . . . . . . . . . . . . . . 139,547 142,867
Accrued revenues . . . . . . . . . . . . . . . . . . . . . . 16,183 16,130
Income tax receivable. . . . . . . . . . . . . . . . . . . . 4,041 4,041
Goodwill and other intangibles, net. . . . . . . . . . . . . 111,909 111,024
Capitalized software costs, net. . . . . . . . . . . . . . . 157,224 155,896
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 31,995 29,850
Investments. . . . . . . . . . . . . . . . . . . . . . . . . 8,274 13,332
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,430 21,149
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . $693,071 $706,288
========= =========
Liabilities
Current liabilities
Accounts payable and accrued expenses . . . . . . . . . . . $ 43,933 $ 41,236
Current portion of long-term debt . . . . . . . . . . . . . 70,000 4,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . 4,560 4,616
Unearned revenues . . . . . . . . . . . . . . . . . . . . . 24,515 20,290
Accrued restructuring and other charges . . . . . . . . . . 7,590 3,630
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,228 2,223
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . 152,826 75,995
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 150,000 227,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 72,078 68,514
Accrued restructuring and other charges. . . . . . . . . . . 3,163 2,659
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,017 9,935
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . 387,084 384,103
--------- ---------
Minority interest. . . . . . . . . . . . . . . . . . . . . . 621 624
Commitments and contingencies (Note 3)
Stockholders' equity
Special stock, $.01 par value, 5,000,000 shares authorized . - -
Common stock, $.01 par value, 75,000,000 shares authorized,
35,586,038 shares issued and outstanding
(35,585,078 at December 31, 1999) . . . . . . . . . . . . . 356 356
Additional paid-in capital . . . . . . . . . . . . . . . . . 56,826 56,695
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 275,341 287,483
Accumulated other comprehensive income . . . . . . . . . . . (17,443) (12,972)
Stock employee compensation trust. . . . . . . . . . . . . . (9,714) (10,001)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . 305,366 321,561
--------- ---------
Total liabilities and stockholders' equity. . . . . . . $693,071 $706,288
========= =========
<FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
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POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)
Accumulated Stock
Additional Other Employee
Common Paid-In Retained Comprehensive Compensation
Stock Capital Earnings Income(1) Trust Total
----- ------- -------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 . . . . $ 356 $ 56,695 $287,483 $(12,972) $(10,001) $321,561
Comprehensive income
Net (loss) income . . . . . . . . - - (12,142) - - (12,142)
Other comprehensive income,
net of tax:
Foreign currency
translation adjustments. . . . - - - (4,471) - (4,471)
---------
Total comprehensive (loss) income. (16,613)
---------
Restricted stock returned. . . . . - - - - (95) (95)
Restricted stock forfeited . . . . - (8) - - 8 -
Restricted stock vested. . . . . . - 117 - - 374 491
Stock options exercised
(1,168 shares) . . . . . . . . . - 22 - - - 22
--------- ---------- --------- --------- --------- ---------
BALANCE, MARCH 31, 2000. . . . . . $ 356 $ 56,826 $275,341 $(17,443) $ (9,714) $305,366
========= ========== ========= ========= ========= =========
<FN>
See accompanying notes
(1) Comprehensive income for the three months ended March 31, 1999 was $11,080.
</TABLE>
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<TABLE>
<CAPTION>
POLICY MANAGEMENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31,
2000 1999
------ ------
(In thousands)
Operating Activities
<S> <C> <C>
Net (loss) income . . . . . . . . . . . . . . . . . . . $(12,142) $ 13,451
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . 19,988 20,403
Deferred income taxes . . . . . . . . . . . . . . . . (1,577) 1,364
Provision for uncollectible accounts. . . . . . . . . 368 (299)
Loss from disposal of property and equipment. . . . . 80 221
Gain on sale of investment in unconsolidated
Subsidiary. . . . . . . . . . . . . . . . . . . . . (2,146) -
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . 2,548 (18,675)
Accrued revenues. . . . . . . . . . . . . . . . . . . 1,581 (15,890)
Other receivable. . . . . . . . . . . . . . . . . . . 7,788 11,279
Accounts payable and accrued expenses . . . . . . . . (2,631) (7,930)
Accrued restructuring and other charges . . . . . . . 9,672 (604)
Income taxes. . . . . . . . . . . . . . . . . . . . . (1,665) 9,521
Unearned revenues . . . . . . . . . . . . . . . . . . 4,225 4,657
Other, net. . . . . . . . . . . . . . . . . . . . . . 1,527 (10,046)
--------- ---------
Cash provided by operations. . . . . . . . . . . . 27,616 7,452
--------- ---------
Investing Activities
Acquisition of property and equipment . . . . . . . . . (4,726) (12,254)
Capitalized internal software development costs . . . . (10,298) (16,918)
Business acquisitions and investments . . . . . . . . . (5,091) (26,117)
Sale of investment in unconsolidated affiliate. . . . . 7,787 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . (2,234) (393)
--------- ---------
Cash used by investing activities. . . . . . . . . (14,562) (55,682)
--------- ---------
Financing Activities
Payments on long-term debt. . . . . . . . . . . . . . . (57,000) (27,471)
Proceeds from borrowing under credit facility . . . . . 46,000 90,900
Purchase of stock for Stock Employee Compensation Trust - (10,094)
Issuance of common stock under stock option plans . . . 22 3,958
Repurchase of common stock. . . . . . . . . . . . . . . - (20,797)
Other, net. . . . . . . . . . . . . . . . . . . . . . . (4,677) 15
--------- ---------
Cash (used) provided by financing activities . . . (15,655) 36,511
--------- ---------
Net decrease in cash and equivalents . . . . . . . . . . (2,601) (11,719)
Cash and equivalents at beginning of period. . . . . . . 17,744 26,013
--------- ---------
Cash and equivalents at end of period. . . . . . . . . . $ 15,143 $ 14,294
========= =========
Supplemental Information
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 4,214 $ 1,094
Income taxes refunded . . . . . . . . . . . . . . . . . (5,000) (2,834)
<FN>
See accompanying notes
</TABLE>
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Policy Management Systems
Corporation (the "Company") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (the "SEC"). These
consolidated financial statements include estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the amounts of revenues and expenses. Actual results may
differ from those estimated. In the opinion of management, these statements
include all adjustments necessary for a fair presentation of the results of all
interim periods reported herein. All adjustments are of a normal recurring
nature unless otherwise disclosed. Certain information and footnote disclosures
prepared in accordance with generally accepted accounting principles either have
been condensed or omitted pursuant to SEC rules and regulations. However,
management believes that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
Company's latest annual report on Form 10-K/A.
BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") are calculated according to
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For the Company, the numerator is the same for the calculation of
both basic and diluted EPS. For the period ended March 31, 2000, the
denominator for basic and diluted EPS is the same for two reasons. First, the
net loss generated in the period would cause the inclusion of common stock
options to be anti-dilutive. Second, the average market price of the stock for
the period was below the exercise price for all options outstanding during the
period. The following is a reconciliation of the denominator used in the EPS
calculations (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
----- -----
Weighted Average Shares
- -------------------------
<S> <C> <C>
Basic EPS. . . . . . . . . . . 35,376 36,128
Effect of common stock options - 2,208
------ ------
Diluted EPS. . . . . . . . . . 35,376 38,336
====== ======
<PAGE>
</TABLE>
For the period ending March 31, 1999, options to purchase 2,776 and 1,388
shares of common stock at $42.78 and $45.56 per share, respectively, were
outstanding but were not included in the computation of diluted EPS for the
period ending March 31, 1999.
OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
NOTE 2. ACQUISITIONS
On June 30, 1999, the Company purchased DORN Technology Group, Inc.
("DORN"), a risk and claims management company, for $33.2 million in cash plus
additional consideration of up to $3.0 million contingent upon the future
performance of DORN, to be recorded as compensation expense as incurred until
2001. DORN owns the Riskmaster claims management software and the Quest
healthcare facility software, and provides risk and claims management software
and services mainly to the US self-insured market. The Company intends to grow
DORN's business and further develop the Riskmaster and Quest systems to
complement its existing claims products.
On June 30, 1999, the Company purchased Financial Administrative Services,
Inc. ("FAS"), a provider of business process outsourcing ("BPO"), for $13.0
million plus additional consideration of up to $12.0 million contingent on the
future performance of FAS, to be capitalized as additional goodwill when paid
until 2005. FAS uses the Company's PolicyLink system to support the rapid
introduction of variable insurance products and annuities in a business process
outsourcing environment. The Company intends to grow the business acquired.
On March 31, 1999, the Company purchased Legalgard Partners, L.P.
("Legalgard"), a legal cost containment business for $23.2 million plus
additional consideration of up to $4.3 million contingent upon the future
performance of Legalgard, to be recorded as compensation expense as incurred
until 2003. Legalgard provides legal cost containment services mainly to the US
property and casualty insurance industry using the Counsel Partnership System, a
proprietary software system. The Company intends to continue growing
Legalgard's existing services business and developing the technology acquired.
The acquisitions above have been recorded using the purchase method of
accounting. Accordingly, the Consolidated Statement of Operations of the Company
does not include the results of operations before the date of the acquisition.
<PAGE>
NOTE 3. CONTINGENCIES
The Company is involved in litigation commenced in February 2000, in the
District Court of Dallas County, Texas, by Chase Manhattan Mortgage Corporation
("Chase") related to the Company's mortgage loan origination products and
services. The complaint alleges breach of contract, breach of warranty,
misrepresentation, malpractice and mismanagement and seeks a declaratory
judgment and damages in excess of $20.0 million including amounts paid by Chase
to the Company, internal costs, consulting fees, opportunity costs, reputational
costs, attorneys fees and costs and punitive and exemplary damages. The Company
believes that the allegations are without merit and are subject to various
affirmative defenses and counterclaims and will vigorously defend the matter.
The Company is seeking to have the lawsuit dismissed or stayed pending
alternative dispute resolution proceedings as required by the agreements between
the parties.
In January 2000, Computer Sciences Corporation ("CSC") filed a complaint
against the Company alleging that the Company and NeuronWorks, an entity
retained by the Company in the development of Claims Outcome Advisor ("COA"),
misappropriated CSC's trade secrets related to CSC's Colossus product and used
such trade secrets in the development of the Company's COA product. The
litigation was removed from Texas State court and is currently pending in the
United States District Court for the Western District of Texas, Austin Division.
CSC's complaint alleges unfair competition, product misappropriation, trade
secret theft, tortious interference with existing and prospective contracts,
aiding and abetting breach of fiduciary duty, and civil conspiracy. CSC's
complaint seeks preliminary and permanent injunctive relief, damages, attorneys'
fees and punitive damages, all in an unspecified amount. The Company has denied
the allegations against it and asserted various affirmative defenses and
counterclaims against CSC, including counterclaims for unfair trade practices,
false representation, false promotion and commercial disparagement under the
Lanham Act, business disparagement, injurious falsehood, defamation, and
tortious interference with existing and prospective contractual and business
relationships. On March 22, 2000, a hearing was held on CSC's request for
preliminary injunctive relief to enjoin the Company from marketing and licensing
COA. CSC's request for preliminary injunctive relief was denied. The case has
been set for trial in December 2000. The Company believes CSC's remaining
claims are without merit and is vigorously defending this matter and pursuing
relief on the Company's claims.
On January 7, 2000, following a morning news release by the Company that
fourth quarter earnings would be below analyst estimates, the Company and three
of its officers were named as defendants in an purported class action complaint
filed on behalf of purchasers of the Company's stock during the period between
October 22, 1998 and January 6, 2000. Since this initial filing, additional
purported class actions have been filed, three in the United States District
Court for the District of South Carolina and two in the United States District
Court for the Southern District of New York (which are in the process of being
transferred to South Carolina), purportedly on behalf of purchasers of the
Company's stock during the period between October 22, 1998 and February 9 or 10,
2000.
<PAGE>
These class action lawsuits allege violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 based on, among other things, alleged misleading
statements, alleged failure to disclose material adverse information, alleged
false financial reporting, alleged failure to report trends, demands or
uncertainties, and alleged failure to implement and maintain adequate internal
controls. Each of the complaints seeks unspecified compensatory damages,
including interest, costs and attorney fees.
At a hearing held on March 20, 2000, the court granted plaintiffs' motion to
consolidate all six cases, appointed four members of the class as lead
plaintiffs and approved their selection of lead counsel, directed that the
complaints in all but the first-filed case be dismissed without prejudice, and
directed plaintiffs to file an amended consolidated complaint. The time for
filing the amended complaint has been extended until May 22, 2000.
Although the Company has not yet filed formal responses to these lawsuits,
the Company believes the claims are without merit and is vigorously pursuing a
full defense of these actions and allegations.
On March 10, 2000, one of the Company's employees, suing allegedly on
behalf of herself and all former or current participants in the Company's 401(k)
Retirement Savings Plan ("Plan") during the period October 22, 1998 through
February 10, 2000, commenced a purported class action against the Company, its
Chairman and three members of the Administrative Committee of the Plan. The
action alleges that the Plan's investment in the Company's stock violated
Sections 502(a)(2) and (3) of ERISA and constituted a breach of fiduciary duty
given defendants' alleged knowledge that the Company's stock price was
artificially inflated throughout the class period as a result of the same series
of alleged materially false and misleading statements that form the basis of the
securities class action described above.
Although the Company's time to respond to this complaint has yet to occur,
the Company believes the claims are without merit and intends to mount a
vigorous defense to the allegations.
On March 30, 2000, the Company and Politic Acquisition Corporation
("Politic"), an affiliate of Welsh, Carson, Anderson & Stowe, entered into a
merger agreement under which Politic will merge with the Company and between 75%
and 93% of the outstanding shares of Company common stock will be converted into
the right to receive $14 per share in cash. The exact percentage will be
determined by an election procedure under which the Company's stockholders can
elect to retain their shares or receive $14 per share in cash. If the
stockholders elect to retain more than 25% or less than 7% of their shares,
stockholders will be subject to proration to bring the amount of cash and stock
within these limits. The merger agreement is described in the Company's Current
Report on Form 8-K dated March 31, 2000. The merger is subject to the approval
of the holders of two-thirds of the outstanding shares of the Company at a
special meeting of stockholders which will be scheduled.
<PAGE>
Between March 31, 2000, and May 5, 2000, four purported class action lawsuits
were filed against the Company and its directors in the Court of Common Pleas in
Richland County, South Carolina on behalf of all stockholders. The complaints
allege that the consideration to be paid in the Politic merger is unfair and
grossly inadequate because defendants failed to conduct a "market check" and
because the Company stock has consistently traded above $14 per share and its
market price is only temporarily depressed due to recent disappointing financial
results. The complaints also allege that defendants have a substantial conflict
of interest, to the extent they will continue their employment with the Company
after the merger. The complaints seek an injunction directing that defendants
ensure that no conflicts exist that would prevent defendants from exercising
their fiduciary obligation to maximize stockholder value, and an injunction
preventing consummation of the merger unless the Company implements a process,
such as an auction, to obtain the highest price for the Company, together with
an award of costs and attorneys' fees. The Company believes the claims are
without merit and will vigorously defend the actions.
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 believes it has meritorious defenses and is vigorously defending
these matters.
On April 29, 1999, the Company received notice from the Internal Revenue
Service ("IRS") of proposed adjustments to its 1994, 1995 and 1996 federal
income tax returns. Should the IRS prevail in its position, a charge to income
of approximately $16.3 million would result. The Company has submitted a
response to the IRS and is awaiting a formal decision. Furthermore, the Company
strongly disagrees with the proposed adjustments and is vigorously defending its
position.
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.
<PAGE>
NOTE 4. SEGMENT INFORMATION
The Company's operating segments are the four revenue-producing components
of the Company for which separate financial information is produced for internal
decision making and planning purposes. The segments are as follows:
1. Property and casualty enterprise software and services (generally referred to
as "property and casualty"). This segment provides software products, product
support, professional services and outsourcing primarily to the US property and
casualty insurance market.
2. Claims and Risk Management (generally referred to as "claims"). This segment
provides software products, product support, professional services and
outsourcing primarily to the claims management function of the US insurance
industry and risk management, i.e. self-insured, marketplace. Prior to the 2000
first quarter, claims was included in the property and casualty segment.
3. Life and financial solutions enterprise software and services (generally
referred to as "life and financial solutions"). This segment provides software
products, product support, professional services and outsourcing primarily to
the US life insurance and related financial services markets.
4. International. This segment provides software products, product support,
professional services and outsourcing to the property and casualty and life
insurance markets primarily in Europe, Asia, Australia and Canada.
Prior to the 2000 first quarter, life information services and property and
casualty information services were included as segments for results included in
discontinued operations. Life information services was sold in May 1998.
Property and casualty information services was sold in August 1997.
<PAGE>
Information about the Company's operations for the three months ended March
31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------
2000 1999
------ ------
(In thousands)
REVENUES FROM EXTERNAL CUSTOMERS
<S> <C> <C>
Property and casualty. . . . . . $ 54,451 $ 70,824
Claims and risk management . . . 7,317 2,867
Life and financial solutions . . 47,868 41,634
-------------- ---------
Total US revenues. . . . . . . 109,636 115,325
International. . . . . . . . . . 38,706 44,964
-------------- ---------
Total revenues . . . . . . . . $ 148,342 $160,289
============== =========
OPERATING INCOME (EXPENSE)
Property and casualty. . . . . . $ 5,189 $ 19,590
Claims and risk management . . . 455 2,304
Life and financial solutions . . (4,776) 8,107
Corporate and US administrative. (12,874) (8,022)
-------------- ---------
Total US operating income. . . (12,006) 21,979
-------------- ---------
International. . . . . . . . . . (2,047) 2,280
International administrative . . (1,944) (1,779)
-------------- ---------
Total international. . . . . . (3,991) 501
-------------- ---------
Operating (loss) income. . . . (15,997) 22,480
Equity in earnings of
unconsolidated affiliates. . . 441 140
Minority interest. . . . . . . . 18 (38)
Other income and expenses. . . . (4,305) (1,241)
Income tax (benefit) expense . . (7,701) 7,890
-------------- ---------
Net (loss) income. . . . . . . $ (12,142) $ 13,451
============== =========
</TABLE>
NOTE 5. SPECIAL CHARGES
The Company considers special charges to be unusual events or unusual
transactions related to continuing business activities.
The Company's operating results for the 2000 first quarter include pre-tax
special charges of approximately $12.7 million which are net of a $2.1 million
gain on the sale of a 20 percent interest in an unconsolidated subsidiary and a
$1.2 million recovery of a banking division receivable which was initially
reserved as a special charge in the 1999 fourth quarter. The majority of these
charges have or will be paid in cash.
Restructuring and other charges of approximately $12.8 million includes
approximately $7.6 million of severance related to the reduction in force of
approximately 6 percent or 350 employees, announced in the 2000 first quarter.
Additionally, $5.2 million is included for customer dispute and litigation costs
(see Note 3, "Contingencies").
The Company continues to recognize amortization expense related to software
products written down in the 1999 third and fourth quarters. As a reflection of
their estimated impaired status, these products are being amortized on the
revenue basis which is faster than straight-line method. Revenue based
amortization related to products written down in the 1999 third and fourth
quarters resulted in approximately $1.0 million more amortization expense in the
2000 first quarter than would have been recognized under the straight-line
method.
Selling, general and administrative expenses for the 2000 first quarter
includes approximately $1.4 million of brand expenses associated with changing
the name of the Company (see Note 6, "Subsequent Event").
Investment income includes a $2.1 million gain on the sale of a 20%
interest in an unconsolidated subsidiary, and interest expense includes $1.0
million of amortization of credit facilities fees paid in the 2000 first quarter
to amend the Company's existing credit facilities.
NOTE 6. SUBSEQUENT EVENTS
On April 28, 2000, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-4 related to the proposed merger
of the Company with Politic Acquisition Corp., an affiliate of Welsh, Carson,
Anderson & Stowe. Also on April 28, 2000, the Company received a letter from
Electronic Data Systems Corporation ("EDS"), in which EDS set forth a
non-binding, preliminary proposal to acquire 100% of the outstanding common
stock of the Company for $18 to $20 per share, in cash. The board of directors
authorized the Company and its advisors to explore this proposal with EDS.
On April 28, 2000, the Company issued a news release that included EDS' letter
and filed the news release on May 1, 2000, under Rule 425. On May 15, 2000, EDS
issued a news release announcing it had withdrawn its proposal to acquire the
Company.
On May 1, 2000, the Company began doing business as Mynd Corporation ("Mynd")
following an earlier announcement of plans to change the Company's name.
Officially changing the Company's name requires a two-thirds vote of the
shareholders at a shareholder's meeting yet to be scheduled. If approved by the
shareholders, the Company will formally change its legal name with relevant
authorities including the New York Stock Exchange. Meanwhile, management
intends to proceed with a campaign to promote acceptance and awareness of the
new name.
<PAGE>
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/A for the year ended December 31, 1999.
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>
2000 vs. 1999
Percent
Percentage of Revenues Increase (Decrease)
------------------------ -------------------
Three Three
Months Ended Months
March 31, Ended
------------
2000 1999 March 31
----- ----- --------------
<S> <C> <C> <C>
Revenues
Licensing . . . . . . . . . . . . . 17.7% 21.7% (24)%
Services. . . . . . . . . . . . . . 82.3 78.3 (3)
------ ------
100.0 100.0 (7)
------ ------
Operating expenses
Cost of revenues
Employee compensation and benefits 53.5 46.0 8
Computer & communication expenses. 9.2 7.5 14
Depreciation & amortization
property, equipment &
capitalized software costs. . . . 9.9 10.0 (9)
Other costs & expenses . . . . . . 8.3 4.6 66
Selling, general &
administrative expenses . . . . . 19.0 16.0 10
Amortization of goodwill and
other intangibles . . . . . . . . 2.3 1.9 10
Restructuring and other charges . . 8.6 - 100
------ ------
110.8 86.0 19
------ ------
Operating (loss) income. . . . . . . (10.8) 14.0 (171)
Equity in earnings of unconsolidated
affiliates. . . . . . . . . . . . 0.3 0.1 215
Other income and expenses. . . . . . (2.9) (0.7) 247
------ ------
(Loss) income before income taxes. . (13.4) 13.4 (193)
Income tax (benefit) expense . . . . (5.2) 5.0 (198)
------ ------
Net (loss) income. . . . . . . . . . (8.2)% 8.4% (190)%
====== ======
</TABLE>
<PAGE>
THREE MONTH COMPARISON
REVENUES
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
Licensing 2000 1999 Change
- --------- ----- ----- ------
(Dollars in Millions)
<S> <C> <C> <C>
Initial charges. . . . . . . $ 9.1 $17.5 (48)%
Monthly charges. . . . . . . 17.2 17.3 -
------ ------
$26.3 $34.8 (24)%
====== ======
Percentage of total revenues 17.7% 21.7%
------ ------
</TABLE>
In licensing the Company's products, customers generally obligate
themselves to a non-refundable initial license charge and a monthly license fee
payable over a specified period of time, which is usually six years.
The monthly license charge entitles the customer, over the contract period, to
use the licensed product and to receive product support and enhancements.
Initial licensing
Initial license revenues decreased $8.4 million for the first quarter of
2000 compared with the first quarter of 1999, with the following increases or
decreases by business segment: property and casualty down 88% ($7.1 million);
claims down 7% ($0.2 million); life and financial solutions down 52% ($1.7
million); and international increased 18% ($0.6 million).
The emergence of the internet as a viable distribution channel between insurers,
agents, suppliers and consumers, and the resulting change in technological and
functional requirements, requires the Company to transition its products and
business models to capitalize on this market change. The company's results
reflect this transition.
Lingering customer Y2K concerns and uncertainty surrounding the Company's credit
agreements and the delayed filing of the Company's 1999 annual report had a
negative effect on initial licensing activity in the 2000 first quarter.
Furthermore, initial license charges for the first quarter of 2000 do not
include any right-to-use licenses. This compares to $6.1 million in
right-to-use licenses for the first quarter of 1999. Right-to-use licenses
represent the acquisition by certain customers of the right-to-use component of
their remaining monthly license charge obligation, if any, plus the acquisition
of a perpetual right-to-use the product thereafter. Since these types of
licenses represent an acceleration of future revenues, they reduce future
monthly license charges.
First quarter 1999 initial license charges include the first license of the
Company's new workplace injury claims management tool, Claims Outcome Advisor,
which was sold in conjunction with the purchase of Legalgard.
<PAGE>
Set forth below is a comparison of initial license revenue by segment for the
periods ending March 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
----- -----
(Dollars in Millions)
<S> <C> <C>
Property and casualty. . . . $1.0 $ 8.1
Claims . . . . . . . . . . . 2.7 2.9
Life and financial solutions 1.5 3.2
International. . . . . . . . 3.9 3.3
----- ------
$9.1 $17.5
===== ======
Percentage of total revenues 6.1% 10.9%
----- ------
</TABLE>
Monthly licensing
Monthly license charges remained relatively unchanged for the first quarter
of 2000 compared with the first quarter of 1999 with the following increases or
decreases by business segment: property and casualty down 15% ($1.1 million)
reflecting the impact of right-to-use licenses in prior years; claims increased
to $1.5 million; life and financial solutions remained relatively unchanged; and
international down 9% ($0.5 million).
Set forth below is a comparison of monthly licensing revenue by segment for
the periods ending March 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
----- -----
(Dollars in Millions)
<S> <C> <C>
Property and casualty. . . . $ 6.4 $ 7.5
Claims . . . . . . . . . . . 1.5 -
Life and financial solutions 5.0 5.0
International. . . . . . . . 4.3 4.8
------ ------
$17.2 $17.3
====== ======
Percentage of total revenues 11.6% 10.8%
------ ------
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
Services 2000 1999 Change
- -------- ----- ----- ------
(Dollars In Millions)
<S> <C> <C> <C>
Professional services & ITO. $ 97.8 $109.8 (11)%
BPO 23.1 . 15.4 51
Other. . . . . . . . . . . . 1.1 0.3 237
------------- -------
$ 122.0 $125.5 (3)%
============= =======
Percentage of total revenues 82.3% 78.3%
------------- -------
</TABLE>
The Company's services revenue consists primarily of Professional services &
Information Technology Outsourcing ("ITO") and Business Process Outsourcing
("BPO"). Services revenue is derived from professional support services, which
include implementation and integration assistance, consulting and education
services and outsourcing services.
Professional services & ITO
Professional services & ITO revenues decreased $12.0 million for the first
quarter of 2000 compared with the first quarter of 1999, with the following
increases or decreases by business segment: property and casualty down 22%
($9.4 million); claims up $3.2 million; life insurance and financial solutions
up 7% ($1.9 million); and international down 21% ($7.7 million). The decreases
are principally due to weak initial licensing activity during 1999. The increase
in claims is primarily due to the Company's 1999 acquisitions. The 1999 first
quarter revenues include $1.6 million for professional services rendered and
received in connection with the settlement of a dispute with a customer who has
terminated its relationship with the Company. Amounts paid by the Company in
connection with the resolution of this dispute were covered by insurance and
existing legal reserves and had no impact on the Company's operating results.
Set forth below is a comparison of professional services & ITO revenue by
segment for the periods ending March 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
----- -----
(Dollars in Millions)
<S> <C> <C>
Property and casualty. . . . $34.2 $ 43.6
Claims . . . . . . . . . . . 3.2 -
Life and financial solutions 31.5 29.6
International. . . . . . . . 28.9 36.6
------ -------
$97.8 $109.8
====== =======
Percentage of total revenues 65.9% 68.5%
------ -------
</TABLE>
BPO
BPO revenues increased $7.7 million for the first quarter of 2000 compared
with the first quarter of 1999, with the following increases by business
segment: property and casualty up 5% ($0.6 million); life insurance and
financial solutions up 157% ($6.0 million) due to internal growth and the
acquisition of FAS ($2.3 million); and international up $1.1 million.
<PAGE>
Set forth below is a comparison of BPO revenue by segment for the periods ending
March 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
2000 1999
----- -----
(Dollars in Millions)
<S> <C> <C>
Property and casualty. . . . $11.9 $11.3
Claims . . . . . . . . . . . - -
Life and financial solutions 9.8 3.8
International. . . . . . . . 1.4 .3
------ ------
$23.1 $15.4
====== ======
Percentage of total revenues 15.6% 9.6%
------ ------
</TABLE>
OPERATING EXPENSES
COST OF REVENUES
Employee compensation and benefits increased 8% for the first quarter of
2000 compared with the first quarter of 1999, due primarily to acquisitions in
1999 (see Note 2 of Notes to Consolidated Financial Statements). Before the
effect of 1999 acquisitions, employee compensation and benefits for the first
quarter of 2000 remained relatively unchanged when compared with the first
quarter of 1999 with reductions in force being offset by growth in BPO.
Compensation and benefits increased 14% ($7.0 million) domestically and
decreased 6% ($1.4 million) internationally.
Computer and communications expenses increased 14% for the first quarter of
2000 compared with the first quarter of 1999 due to the Company's 1999
acquisitions, an increase in processing volume and data center operating
software license fees.
Depreciation and amortization of property, equipment and capitalized
software costs decreased 9% primarily due to accelerated amortization recorded
in the 1999 third and fourth quarters, partially offset by the acquisitions of
Dorn and Legalgard. As a percentage of revenue, depreciation and amortization
remained relatively unchanged for the first quarter of 2000 compared with the
first quarter of 1999.
The Company continues to recognize amortization expense related to software
products written down in the 1999 third and fourth quarters. As a reflection of
their estimated impaired status, these products are being amortized on the
revenue basis which is faster than straight-line method. Revenue based
amortization related to products written down in the 1999 third and fourth
quarters resulted in approximately $1.0 million more amortization expense in
the 2000 first quarter than would have been recognized under the straight-line
method.
Other operating costs and expenses increased 66% for the first quarter of
2000 compared with the first quarter of 1999. This increase was due to the
Company's acquisitions in 1999 and a decrease in the amounts capitalized related
to internal software development and internal use systems partially off-set by
the recovery of approximately $1.2 million of receivables reserved in the 1999
fourth quarter.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 10% for the first
quarter of 2000 compared with the first quarter of 1999 due largely to the
Company's 1999 acquisitions and approximately $1.4 million of brand expenses
associated with changing the name of the Company. (see Note 6 of Notes to the
Consolidated Financial Statements regarding branding).
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles increased 10% for the first
quarter of 2000 compared with the first quarter of 1999, principally due to
increased amortization related to the Company's 1999 acquisitions.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges include approximately $7.6 million of cash
charges paid or to be paid as a result of an initiative taken by the Company in
the 2000 first quarter for a worldwide reduction in force of six percent or 350
employees. An additional $5.2 million relates to a contingent liability ($3.5
million) established pending the outcome of a dispute settlement and legal
expenses ($1.7 million) associated with the CSC and shareholder lawsuits (see
Note 3 of Notes to Consolidated Financial Statements).
OPERATING (LOSS) INCOME
The 2000 first quarter produced an operating loss of $16.0 million compared
with the 1999 first quarter operating income of $22.5 million. The 2000 first
quarter operating loss includes the banking division operating loss of $4.1
million. The 2000 first quarter operating loss includes approximately $12.7
million of unusual events or unusual transactions related to continuing business
activities described as special charges (see Note 5 of the Notes to the
Consolidated Financial Statements). Before these special charges, the 2000 first
quarter produced an operating loss of approximately $2.1 million compared with
operating income of $22.5 million in the 1999 first quarter. Also before special
charges, decreases in segment operating income were: property and casualty
decreased 58%, claims decreased 78%, life and financial solutions decreased 112%
and international decreased 487% (see discussion of "Revenues" and "Operating
Expenses" above).
A significant portion of both the Company's revenues and its operating
income is derived from initial licensing agreements received as part of the
Company's software licensing activities. Because a substantial portion of
initial licensing revenues are recorded at the time new systems are licensed,
there can be significant fluctuations from quarter to quarter in revenues and
operating income derived from licensing activities. This is attributable
principally to the timing of customers' decisions to enter into license
agreements with the Company, which the Company is unable to control.
Set forth below is a comparison of initial license revenues for the last eight
quarters expressed as a percentage of total revenues for each of the periods
presented:
<TABLE>
<CAPTION>
2000 1999 1998
----- ---------------- ----------------------------
1st 4th 3rd 2nd 1st 4th 3rd 2nd
----- ----------------------- ---------------------
(Dollars in Millions)
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
Initial license revenues $9.1 $8.7 $19.2 $26.7 $17.5 $27.4 $14.7 $13.0
% of total revenues 6.1% 6.1% 11.4% 15.4% 11.0% 16.0% 9.7% 9.0%
</TABLE>
The increasing rate of change in the insurance and banking industries
coupled with the rapid evolution of eCommerce technology and the volatility of
initial license revenues, as illustrated by the above table, is leading the
Company to consider new business models that place less emphasis on initial
license revenue and place more emphasis on transaction based revenue. The
Company expects this transition to occur gradually over the next several years
and will likely affect the amount and timing of revenue recognized in the
Company's financial statements.
OTHER INCOME AND EXPENSE
Investment income includes a $2.1 million gain on the sale of a 20%
interest in an unconsolidated subsidiary.
Interest expense increased 348% for the first quarter of 2000 compared with
the first quarter of 1999, principally due to higher levels of borrowed funds
under the Company's credit agreements and $1.0 million of amortization of credit
facilities fees paid in the 2000 first quarter to amend the Company's credit
agreements. The nominal interest rates applicable to borrowings under the
Company's credit agreements during the first quarter of 2000 ranged from 8.75 to
9.60 percent.
INCOME TAXES
The effective income tax rate (income taxes expressed as a percentage of pre-tax
income) was 38.8% and 37.0% for the first quarters of 2000 and 1999,
respectively. The effective rate for the first quarter of 2000 is higher than
the federal statutory rate principally due to the effect of state and local
income taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
- ---------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Cash and equivalents and marketable
securities. . . . . . . . . . . . $ 15.2 $ 17.8
Current assets. . . . . . . . . . . 203.5 212.0
Current liabilities . . . . . . . . 152.8 76.0
Working capital . . . . . . . . . . 50.7 136.0
Long-term debt. . . . . . . . . . . 150.0 227.0
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
- ----------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Cash provided by operations. . . . . . . . . $ 27.6 $ 7.5
Cash used by investing activities. . . . . . (14.6) (55.7)
Cash (used) provided by financing activities (15.7) 36.5
</TABLE>
The Company's total debt, net of cash and marketable securities, at March
31, 2000 was $205.0 million, a decrease from the comparable amount ($213.0
million) at December 31, 1999. Historically, the Company has used cash from
operations for the development and acquisition of new products, capital
expenditures, acquisition of businesses and repurchases of the Company's stock.
For the first quarter of 2000, compared with the first quarter of 1999 however,
the Company significantly decreased expenditures in all these areas.
As of March 31, 2000, the Company had the following credit facilities: a $180.0
million line of credit expiring in July 2001 that had $150.0 million outstanding
and a $70.0 million term loan expiring in January 2001 that had $70.0 million
outstanding. Because of the net loss in the fourth quarter, the Company was in
violation of one of the financial covenants of both the line of credit and the
term loan. Amendments of the related agreements were executed in March and
April 2000 that returned the Company to compliance with these covenants.
Additionally, the amendments include an extension of the term loan maturity to
January 31, 2001 and, among other things, an increase in the interest rate
payable on the term loan and line of credit, a security agreement covering the
Company's assets and a restriction on the Company's ability to make acquisitions
and certain similar investments and repurchases of the Company's common stock.
Total funds available under the line of credit will be reduced to $125.0 million
on April 1, 2001.
The results for the quarter ended March 31, 2000, resulted in a violation of the
Leverage Ratio financial covenant of both the credit and term loan agreements as
amended. Consequently, the Company entered into an amendment in April waiving
this covenant through December 30, 2000. In connection with this amendment, the
Company agreed to establish a new covenant applicable during the waiver period
based upon quarterly consolidated adjusted cash flows, as defined, less capital
expenditures. The amendment requires that quarterly consolidated adjusted cash
flow less capital expenditures at least equal $(2.0) million for the quarter
ended March 31, 2000, $15.0 million for the quarter ended June 30, 2000 and
$30.0 million for the quarter ended September 30, 2000.
Future credit availability under the Company's amended credit agreements is
dependent upon the Company achieving improvements in its operating performance.
In light of the uncertainties surrounding future performance and the Company's
current debt position, the Company, prior to making an agreement with Politic,
concluded that it must restructure its capital base in order to reduce debt and
take advantage of various growth opportunities. Accordingly, the Board of
Directors authorized the Company's management to explore various alternatives to
achieve efficiencies and obtain equity or other financing.
Significant expenditures planned for 2000, excluding new product
development are as follows: acquisition of data processing and communications
equipment, support software, buildings, building improvements and office
furniture, fixtures and equipment and costs related to the continued enhancement
of existing software products.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition may 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 and financial services industries. Significant
changes in the regulatory or market environment of these industries could impact
demand for the Company's software products and services. Additionally, there is
significant competition for the Company's products and services, and there can
be no assurance that the Company's current products and services will remain
competitive, or that the Company's development efforts will produce products
with the cost and performance characteristics necessary to remain competitive.
Furthermore, the market for the Company's products and services is characterized
by rapid changes in technology and the emergence of the Internet as a viable
insurance distribution channel. The Company's success will depend on the level
of market acceptance of the Company's products, technologies and enhancements,
and its ability to introduce such products, technologies and enhancements to the
market on a timely and cost effective basis, and maintain a labor force
sufficiently skilled to compete in the current environment.
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, such as the timing of customers' decisions to enter into large license
agreements with the Company, which make estimation of operating results prior to
the end of a quarter or year extremely uncertain.
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. Amounts affected by these estimates include, but are not limited to, the
estimated useful lives, related amortization expense and carrying values of the
Company's intangible assets and the net realizable value of capitalized software
development costs and accrued reserves established for contingencies such as
litigation and restructuring activities. 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.
A significant portion of both the Company's revenues and its operating
income is derived from initial licensing agreements received as part of the
Company's software licensing activities. Because a substantial portion of these
revenues are recorded at the time systems are licensed, there can be significant
fluctuations from quarter-to-quarter and year-to-year in the revenues and
operating income derived from licensing activities. This is attributable
principally to the timing of customers' decisions to enter into license
agreements with the Company, which the Company is unable to control.
The Year 2000 has caused an unprecedented level of investment in systems
and remediation services that may adversely affect customers' decisions to
invest in new application software. In addition, the Company believes that
system evaluations and decision processes are being affected by uncertainties
related to the Internet and its emergence as a viable insurance distribution
channel is causing a re-evaluation of the traditional methods of distribution
for insurance products. The Company also believes that in order for insurance
companies to capitalize on this new distribution method they will be required to
redesign their business models and related support systems. The issues raised
by the emergence of the Internet and related technology requirements will be
distracting and confusing for many insurance companies and complicate the
process of transitioning the insurance industry to modern architecture.
Therefore, customer uncertainty as to their Internet and enterprise business
strategies may extend sales cycles for large enterprise systems. The above
factors limit the Company's ability to accurately predict licensing and services
demand.
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 above and 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>
PART II
OTHER INFORMATION
POLICY MANAGEMENT SYSTEMS CORPORATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3, Contingencies, of Notes to Consolidated Financial Statements,
which is incorporated by reference in this Item.
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 filed a report under Item 5 Other Events on January 7, 2000,
disclosing that the Company did not expect to report earnings per share in
excess of the low teens (cents per share) for the fourth quarter. No financial
statements were filed with this 8-K.
The Company filed a report under Item 5 Other Events on March 31, 2000,
disclosing that the Company and Politic Acquisition Corp. ("Acquisition"), an
affiliate of Welsh, Carson, Anderson & Stowe, entered into an Agreement and Plan
of Merger pursuant to which Acquisition will merge into the Company.
<PAGE>
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 15, 2000 Timothy V. Williams
Executive Vice President
(Chief Financial Officer)
<PAGE>
POLICY MANAGEMENT SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
- -------
Number
- ------
2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
A. Agreement and Plan of Merger between Politic Acquisitions Corporation and
Policy Management Systems Corporation dated March 30, 2000 (filed as an exhibit
to Form 8-K dated March 30, 2000 and is incorporated herein by reference)
B. Amended and Restated Agreement and Plan of Merger between Politic
Acquisition Corporation and Policy Management Systems Corporation dated as of
April 27, 2000 (filed as an exhibit to Form S-4, Registration Statement, dated
April 29, 2000 and is incorporated herein by reference.
3. ARTICLES OF INCORPORATION AND BY-LAWS
A. Bylaws of the Company, as amended through September 2, 1999 incorporating
all amendments thereto subsequent to July 19, 1994 (filed as an Exhibit to Form
10-Q for the quarter ended September 30, 1999, and is incorporated herein by
reference)
B. Articles of Incorporation of the Company, as amended through October 13,
1994, incorporating all amendments thereto subsequent to December 31, 1993
(filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is
incorporated herein by reference)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
A. Specimen forms of certificates for Common Stock of the Company (filed as
an Exhibit to Registration Statement No. 2-74821, dated December 16, 1981, and
is incorporated herein by reference)
B. Articles of Incorporation of the Company, as amended through October 13,
1994, incorporating all amendments thereto subsequent to December 31, 1993
(filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is
incorporated herein by reference)
10. MATERIAL CONTRACTS
A. Conformed copy of Development and Marketing Agreement between
International Business Machines Corporation and Policy Management Systems
Corporation, dated July 26, 1989 (File No. 0-10175 - filed under cover of Form
SE filed on September 29, 1989, and is incorporated herein by reference)
B. Policy Management Systems Corporation 1989 Stock Option Plan (File No.
0-10175 - filed under cover of Form SE on March 22, 1991, and is incorporated
herein by reference)
<PAGE>
C. Deferred Compensation Agreement with G. Larry Wilson (filed as an Exhibit
to Form 10-K for the year ended December 31, 1993, and is incorporated herein by
reference)
D. Employment Agreement with Stephen G. Morrison (filed as an Exhibit to
Form 10-Q for the quarter ended March 31, 1994, and is incorporated herein by
reference)
E. Stock Option/Non-Compete Agreement with Stephen G. Morrison (filed as an
Exhibit to Form 10-Q for the quarter ended March 31, 1994, and is incorporated
herein by reference)
F. Employment Agreement with Timothy V. Williams (filed as an Exhibit to
Form 10-K for the year ended December 31, 1994, and is incorporated herein by
reference)
G. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1992, and
is incorporated herein by reference)
H. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1994, and
is incorporated herein by reference)
I. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-K for the year ended December 31, 1994, and is
incorporated herein by reference)
J. Policy Management Systems Corporation 1993 Long-Term Incentive Plan for
Executives (filed as an Exhibit to Form 10-K for the year ended December 31,
1994, and is incorporated herein by reference)
K. First Amendment to the Policy Management Systems Corporation 1989 Stock
Option Plan (filed as an Exhibit to Form 10-K for the year ended December 31,
1994, and is incorporated herein by reference)
L. Fourth Amendment to the Policy Management Systems Corporation 1989 Stock
Option Plan (filed as an Exhibit to Form 10-Q for the quarter ending March 31,
1995, and is incorporated herein by reference)
M. Second and Third Amendments to the Policy Management Systems Corporation
1989 Stock Option Plan (filed as an Exhibits and to Form 10-Q for the quarter
ended June 30, 1995, and is incorporated herein by reference)
N. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-Q for the quarter ended June 30, 1995, and is
incorporated herein by reference)
O. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is
incorporated herein by reference)
<PAGE>
P. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each named executive officer
(filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is
incorporated herein by reference)
Q. Stock Option/Non-Compete Agreement with Timothy V. Williams dated
February 1, 1994 (filed as an Exhibit to Form 10-K for year ended December 31,
1995, and is incorporated herein by reference)
R. Stock Option/Non-Compete Agreement with Timothy V. Williams dated May 10,
1995 (filed as an Exhibit to Form 10-K for year ended December 31, 1995, and is
incorporated herein by reference)
S. Registration Rights Agreement, dated March 8, 1996, between Policy
Management Systems Corporation and Continental Casualty Company (filed as an
Exhibit to Form 10-Q for the quarter ended March 31, 1996, and is incorporated
herein by reference)
T. Shareholders Agreement dated March 8, 1996 between Policy Management
Systems Corporation and Continental Casualty Company (filed as an Exhibit to
Form 10-Q for the quarter ended March 31, 1996, and is incorporated herein by
reference)
U. Stock Option/Non-Compete Form Agreement for named executive officers
together
with schedule identifying particulars for each named executive officer (filed as
an Exhibit to Form 10-Q for the quarter ended June 30, 1996, and is incorporated
herein by reference)
V. Employment Agreement Form dated November 7, 1996 for Messrs.
Morrison and Williams together with a schedule identifying particulars for each
executive officer (filed as an Exhibit to Form 10-K for year ended December 31,
1996 and is incorporated herein by reference)
W. Stock Option/Non-Compete Agreement with Stephen G. Morrison dated
October 22, 1996 (filed as an Exhibit to Form 10-K for year ended December 31,
1996 and is incorporated herein by reference)
X. Stock Option/Non-Compete Form Agreement for named executive officers
together with schedule identifying particulars for each executive officer (filed
as an Exhibit to Form 10-Q for the quarter ended March 31, 1997 and is
incorporated herein by reference)
Y. Form of Amendment No. 1 to the Employment Agreements with Messrs.
Morrison and Williams, together with schedule identifying particulars for each
executive officer (filed as an Exhibit to Form 10-Q for Quarter ended June 30,
1997 and is incorporated herein by reference)
Z. Form of Employment Agreements with Messrs. Wilson and Bailey,
together with schedule identifying particulars for each executive officer (filed
as an Exhibit to Form 10-Q for Quarter ending September 30, 1997 and is
incorporated herein by reference)
AA. Credit Agreement dated as of August 8, 1997 among Policy Management
Systems Corporation, the Guarantors Party hereto, Bank of America National Trust
and Savings Association and the Other Financial Institution Party Hereto (filed
as an Exhibit to Form 10-Q for Quarter ending September 30, 1997 and is
incorporated herein by reference)
<PAGE>
BB. Stock Option/Non-Compete Form Agreement for named executive
officers together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to the Form 10-Q for the quarter ended March 31,
1998, and is incorporated herein by reference)
CC. Policy Management Systems Corporation Restricted Stock Ownership
Plan (filed as an Exhibit to Form 10-Q for Quarter ended September 30, 1998 and
is incorporated herein by reference)
DD. Form of Restricted Stock Award Agreement dated August 11, 1998 with
Messrs. Berkeley, Feddersen, Palms, Sargent, Seibels and Trub (filed as an
Exhibit to Form 10-Q for Quarter ended September 30, 1998 and is incorporated
herein by reference)
EE. Employment Agreement with Michael W. Risley dated February 23,
1999, effective November 10, 1998 (filed as an Exhibit to Form 10-K for the year
ended December 31, 1998 and is incorporated herein by reference)
FF. Form of Restricted Stock Award Agreement dated March 1, 1999 with
Messrs. Berkeley, Feddersen, Palms, Sargent, Seibels and Trub (filed as an
Exhibit to Form 10-Q for Quarter ending March 31, 1999 and is incorporated
herein by reference)
GG. Form of Restricted Stock Award Agreement for named executive
officers together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for Quarter ending March 31, 1999 and
is incorporated herein by reference)
HH. Stock Option/Non-Compete Form Agreement for named executive
officers together with schedule identifying particulars for each named executive
officer (filed as an Exhibit to Form 10-Q for Quarter ending June 30, 1999 and
is incorporated herein by reference)
II. Stock Option/Non-Compete Form Agreement with Michael W. Risley
dated May 11, 1999 (filed as an Exhibit to Form 10-Q for Quarter ending June 30,
1999 and is incorporated herein by reference)
JJ. Form of 1999 Bonus Plan for named executive officers together with
schedule identifying particulars for each named executive officer (filed as an
Exhibit to Form 10-Q for Quarter ending June 30, 1999 and is incorporated herein
by reference)
KK. Promissory Note dated July 21, 1999 between Policy Management
Systems Corporation and First Union National Bank (filed as an Exhibit to Form
10-Q for Quarter ending September 30, 1999 and is incorporated herein by
reference)
LL. Modification Number One dated October 15, 1999 to the Promissory
Note between Policy Management Systems Corporation and First Union National Bank
dated July 21, 1999 (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
MM. Modification Number Two dated October 28, 1999 to the Promissory
Note between Policy Management Systems Corporation and First Union National Bank
dated July 21, 1999 (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
<PAGE>
NN. Stock Option/Non-Compete Form Agreement dated May 11, 1999 for
named executive officers together with schedule identifying particulars for each
named executive officer (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
OO. Stock Option/Non-Compete Form Agreement dated August 9, 1999 with
Mr. Harald J. Karlsen (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
PP. Stock Option/Non-Compete Form Agreement dated November 8, 1999 for
named executive officers together with schedule identifying particulars for each
named executive officer (filed as an exhibit to Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference)
QQ. Form of Restricted Stock Award Agreement dated February, 1999 for
Mr. Michael D. Gantt
(filed as an exhibit to Form 10-K for the year ended December 31, 1999
and is incorporated herein by reference)
RR. Change in Control Severance Pay Plan for Select Employees dated
October 22, 1996 together with schedule identifying particulars for Michael D.
Gantt and Harald J. Karlsen (filed as an exhibit to Form 10-K for the year
ended December 31, 1999 and is incorporated herein by reference)
SS. Term Loan Agreement between Policy Management Systems Corporation,
the Guarantors Party, Bank of America, N.A. and other financial institutions in
the amount of $70 million dated November 5, 1999 (filed as an exhibit to Form
10-K for the year ended December 31, 1999 and is incorporated herein by
reference)
TT. Form of Restricted Stock Award Agreement dated March 1, 2000 with
Messrs. Berkeley, Feddersen, Palms, Sargent and Trub with schedule
Identifying particulars for each named director (filed herewith)
The Schedule for TT contained the following:
Named Director Number Granted
--------------- ---------------
Al Berkeley 1,491
Don Feddersen 1,491
John Palms 1,491
Joe Sargent 1,491
Richard Trub 1,491
UU. First Amendment to the Credit Agreement dated as of November 5,
1999, between Policy Management Systems Corporation, Bank of America, N.A. and
the other financial institutions thereto (filed herewith)
VV. Second Amendment to the Credit Agreement dated as of February 10,
2000 between Policy Management Systems Corporation, Bank of America, N.A. and
the other financial institutions thereto (filed herewith)
<PAGE>
WW. Third Amendment to the Credit Agreement dated as of March 30, 2000
between Policy Management Systems Corporation, Bank of America, N.A. and the
other financial institutions thereto (filed herewith)
XX. Fourth Amendment to the Credit Agreement dated as of April 24, 2000
between Policy Management Systems Corporation, Bank of America, N.A. and the
other financial institutions thereto (filed herewith)
YY. First Amendment to Term Loan Agreement dated as of February 10,
2000 between Policy Management Systems Corporation, Bank of America, N.A. and
the other financial institutions thereto (filed herewith)
ZZ. Second Amendment to Term Loan Agreement dated as of March 30, 2000
between Policy Management Systems Corporation, Bank of America, N.A. and the
other financial institutions thereto (filed herewith)
AAA. Third Amendment to Term Loan Agreement dated as of April 24, 2000
between Policy Management Systems Corporation, Bank of America, N.A. and the
other financial institutions thereto (filed herewith)
BBB. Security Agreement dated as of April 28, 2000, among Policy
Management Systems Corporation, certain of its subsidiaries, and Bank of
America, N.A., as Administrative Agent (filed herewith)
CCC. Pledge Agreement dated as of April 28, 2000, between Policy
Management Systems Corporation, certain of its subsidiaries, and Bank of
America, N.A., as Administrative Agent (filed herewith)
DDD. Mortgage Agreement dated as of April 28, 2000, between Policy
Management Systems Corporation and Bank of America, N.A., as Administrative
Agent (filed herewith)
27. FINANCIAL DATA SCHEDULE
A. Filed herewith
2
FORM OF
POLICY MANAGEMENT SYSTEMS CORPORATION
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
Award Agreement, dated as of March 1, 2000 (the "Date of Grant") between
POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina corporation (the
"Company"), and _________________ (the "Participant"). This Award Agreement is
pursuant to the terms of the Company's Restricted Stock Ownership Plan (the
"Plan"). The applicable terms of the Plan are incorporated herein by reference,
including the definition of terms contained in the Plan.
Section 1. Restricted Stock Award. The Company grants to the
---------- ------------------------
Participant, on the terms and conditions hereinafter set forth, a Restricted
Stock award with respect to ______ SHARES of the Common Stock of the Company
(the "Restricted Stock").
Section 2. Vesting of Restricted Stock. Subject to Sections 3 and
--------- ---------------------------
4 hereof, the Restricted Stock shall become vested and nonforfeitable in five
equal annual installments based on the continued service of the Participant on
the Board in accordance with the following vesting schedule:
Vesting Date Number of Shares
------------- ------------------
1. January 1, 2001
2. January 1, 2002
3. January 1, 2003
4. January 1, 2004
5. January 1, 2005
Section 3. Termination of Service. If the Participant's service on
--------- ----------------------
the Board is terminated by reason of Retirement, Disability or Death, all
unvested shares of Restricted Stock shall become immediately vested and
nonforfeitable. If the Participant's service on the Board is terminated by the
Company without Cause prior to any applicable vesting date, two-thirds (2/3) of
the remaining unvested shares of Restricted Stock shall become immediately
vested and nonforfeitable, and one-third (1/3) of the remaining unvested shares
shall be forfeited to the Company (in each case rounded upward or downward to
the nearest whole share, as applicable). If the Participant is nominated but is
not reelected as a member of the Board by the shareholders of the Company, the
restrictions imposed on any unvested portion of the Restricted stock shall
immediately lapse. If the Participant's service on the Board is terminated for
any reason other than as provided above in this Section 3 (including, without
limitation, voluntary termination by the Participant or termination by the
Company for Cause) prior to any applicable vesting date, the Participant shall
forfeit his interest in all shares of Restricted Stock that have not become
vested as of the date of termination. Any shares of Restricted Stock that are
forfeited by the Participant hereunder shall be returned and transferred to the
Company or the Plan Trust, as determined by the Company, and the Participant
shall cease for all purposes to be a shareholder of such shares as of the date
of termination of service.
Section 4. Change of Control. All shares of Restricted Stock
---------- -------------------
shall become fully and immediately vested and nonforfeitable upon the occurrence
of a Change of Control of the Company prior to any scheduled vesting date as
provided in Section 2 hereof, provided that the Participant remains an
Independent Director of the Company on the date of the Change in Control.
<PAGE>
Section 5. Rights as a Shareholder. Subject to the otherwise
---------- --------------------------
applicable provisions of the Plan and this Award Agreement, the Participant will
have all rights of a shareholder with respect to shares of Restricted Stock
granted to the Participant hereunder, including the right to vote the shares and
receive all dividends and other distributions paid or made with respect thereto.
Section 6. Restrictions on Transfer. Neither this Award nor any
---------- -------------------------
shares of the Restricted Stock covered hereby may be sold, assigned,
transferred, encumbered, hypothecated or pledged by the Participant, otherwise
than to the Company, unless as of the date of any such sale, assignment,
transfer, encumbrance, hypothecation or pledge, such shares of Restricted Stock
to be thus disposed of have become vested in accordance with this Award
Agreement. The certificate or certificates representing shares delivered
pursuant to the Award shall bear a legend referring to the nontransferability or
assignability of such shares pursuant to this Section, and a stop-transfer order
against such certificate or certificates will be placed by the Company with its
transfer agents and registrars. At the discretion of the Committee, in lieu of
issuing a stock certificate to the Participant, the Company or its designated
agent may hold the shares of Restricted Stock in escrow during the period such
shares remain subject to the vesting restrictions and other restrictions
provided hereunder.
Section 7. Award Subject to Plan. This Award and the Restricted
---------- ----------------------
Stock acquired hereunder are subject to the Plan, the terms and provisions of
which, as it may be amended from time to time, are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan will govern and prevail.
Section 8. Section 83(b) Election. The Participant shall promptly
--------- ----------------------
(and not later than 30 days of the date hereof) notify the Company if the
Participant makes an election under section 83(b) of the Internal Revenue Code.
Section 9. Investment Representation. Upon acquisition of
---------- --------------------------
Restricted Stock under the Plan at a time when there is not in effect a
registration statement under the Securities Act of 1933 relating to the shares
of Common Stock, the Participant hereby represents and warrants, and by virtue
of such acquisition shall be deemed to represent and warrant, to the Company
that the shares of Restricted Stock shall be acquired for investment and not
with a view to the distribution thereof, and not with any present intention of
distributing the same, and the Participant shall provide the Company with such
further representations and warranties as the Company may require in order to
ensure compliance with applicable federal and state securities, blue sky and
other laws. No shares of Restricted Stock shall be acquired unless and until
the Company and/or the Participant shall have complied with all applicable
federal or state registration, listing and/or qualification requirements and all
other requirements of law or of any regulatory agencies having jurisdiction,
unless the Committee has received evidence satisfactory to it that the
Participant may acquire such shares pursuant to an exemption from registration
under the applicable securities laws. Any determination in this connection by
the Committee shall be final, binding, and conclusive. The Company reserves the
right to legend any certificate for shares of Common Stock, conditioning sales
of such shares upon compliance with applicable federal and state securities laws
and regulations.
Section 10. Changes in Common Stock. Any right of the Participant
---------- -----------------------
or the Company hereunder with respect to the Restricted Stock shall also apply
to any other shares of stock of the Company which such Restricted Stock has been
exchanged or converted into, or which were issued in respect thereof, pursuant
to any recapitalization or other event referred to in Section 3.2 of the Plan,
as determined by the Committee in accordance with the Plan.
Section 11. No Right of Service. Nothing in this Award Agreement
----------- -------------------
shall confer upon the Participant any right to continue as an Independent
Director of the Company or to interfere in any
<PAGE>
way with the right of the Company or the shareholders of the Company to
terminate the Participant's service on the Board at any time.
Section 12. Notices. Any notice hereunder by the Participant
----------- -------
shall be given to the Company in writing and such notice shall be deemed duly
given only upon receipt thereof at the Company's office at One PMSC Center,
Blythewood, South Carolina, 29016, or at such other address as the Company may
designate by notice to the President and General Counsel. Any notice hereunder
by the Company shall be given to the Participant in writing and such notice
shall be deemed duly given only upon receipt thereof at such address as the
Participant may have on file with the Company.
Section 13. Construction. The Committee shall have the
----------- ------------
discretionary authority for the interpretation and construction of this Award
Agreement, as and in the manner set forth in Section 4.2 of the Plan.
Section 14. Governing Law. This Award Agreement shall be
----------- --------------
construed and enforced in accordance with the laws of the State of South
Carolina, without giving effect to the choice of law principles thereof.
POLICY MANAGEMENT SYSTEMS CORPORATION
By:_____________________________________
Name: Stephen G. Morrison
Title: Executive Vice President, Secretary &
General Counsel
PARTICIPANT
Name:
6
6
10697v7
10697v7
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of November 5, 1999 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Company"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Company, the Agent and the Banks are parties to a Credit Agreement
dated as of August 8, 1997 (the "Credit Agreement") pursuant to which the Banks
extended a revolving facility. Capitalized terms used and not otherwise defined
or amended in this Amendment shall have the meanings respectively assigned to
them in the Credit Agreement.
The Company has requested that the Banks modify the Credit Agreement to
take into account certain restriction changes along with certain other
modifications. In order to induce the Banks to agree to the foregoing, the Banks
have requested, and the Company has agreed, that the Company will provide
certain information, pay an amendment fee and modify certain other covenants.
The Company has requested that the Banks enter into this Amendment in order to
approve and reflect the foregoing, and the Banks have agreed to do so, all upon
the terms and provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 1.1.
- -- ---------------------------
(a) A new definition of "Term Loan" is hereby added as follows:
"Term Loan" means that certain term loan in the amount of $70,000,000 made
to the Borrower by the Banks
<PAGE>
party to the Term Loan Agreement dated November 5, 1999."
(b) The definition of "Consolidated Tangible Net Worth" is hereby
amended by deleting the text in subclause "(i)" before the word "less" and
substituting the words "Total Shareholders' Equity" therefore.
2. Amendment to Section 2.1. Section 2.1 is hereby amended by deleting the
- -- --------------------------
amount "$15,000,000" and replacing it with the amount "$5,000,000".
3. Amendment to Section 2.4(a). Section 2.4(a) is hereby amended by
- -- ------------------------------
deleting the amount "$15,000,000" and replacing it with the amount "$5,000,000"
- --
throughout Section 2.4(a).
4. Amendment to Section 2.11. Section 2.11 is hereby amended and restated
- -- ---------------------------
as follows:
(a) The Commitments shall terminate on the Termination Date and any
Loans then due and outstanding (together with accrued interest thereon) shall be
due and payable on such date.
(b) If the Borrower shall issue for cash any additional equity (other
than in connection with the exercise of options, the issuance of equity in
connection with employee benefit plans, or a contribution to the Borrower in
connection with a vendor agreement to fund a specific development and marketing
effort or to fund one or more specific acquisitions set forth in the vendor
agreement or a technology transfer agreement) or incur Debt for cash, the
Borrower shall promptly notify the Agent of the estimated net proceeds of such
issuance to be received by the Borrower. Promptly upon, and in no event later
than three Business Days after receipt by the Borrower of the net cash proceeds
of such issuance, the Borrower shall prepay the Term Loan in an aggregate amount
equal to the amount of net proceeds until the Term Loan shall be repaid in full.
5. Amendment of Section 5.12. Section 5.12 of the Credit Agreement is
- -- ----------------------------
hereby amended by replacing the amount "$80,000,000" with the amount
- --
"$126,718,000" and replacing the date "January 1, 1997" with the date "January
- --
1, 1999".
6.
- --
<PAGE>
- ------
Amendment to Section 5.10(g). Section 5.10(g) of the Credit Agreement is hereby
- ----------------------------
amended by deleting the percentage "10%" and substituting "35%" therefor.
7. Amendment to Section 5.13. Section 5.13 of the Credit Agreement is
- -- ----------------------------
hereby amended by adding "or the Term Loan" after the words "the Loans" in
- --
subsection "(x)" of Section 5.13 and by adding a new "(w)" as follows:
- --
"(w) Outstandings in the amount of $30,000,000 under a promissory note
in favor of First Union National Bank payable on November 5, 1999."
8. Addition of New Section 5.17. A new Section 5.17 is hereby added as
- -- --------------------------------
follows:
- --
"5.17 Limitation on Non-Cash Charges. The Borrower will not incur
---------------------------------
non-cash charges that would exceed $50,000,000 in the aggregate with respect to
the Borrower and its Consolidated Subsidiaries from and after November 1, 1999
other than (i) depreciation and amortization expensed in the ordinary course of
business determined in accordance with generally accepted accounting principles
excluding a one-time acceleration of amortization and depreciation expense; and
(ii) any acquisition related charges of intangibles within one year of the end
of the fiscal quarter in which the acquisition occurred determined in accordance
with generally accepted accounting principles."
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Company hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. The representations and warranties of the Company pursuant to the
Credit Agreement are true on and as of the date hereof as if made on and as of
said date; and
3. The making and performance by the Company of this Amendment have
been duly authorized by all corporate action.
<PAGE>
C. CONDITIONS PRECEDENT
---------------------
This Amendment will become effective as of October 29, 1999 upon execution
by the Required Banks provided that the Agent shall have received in form and
substance satisfactory to the Agent all of the following:
1. A copy of a resolution passed by the Board of Directors of the
Company, certified by the Secretary or an Assistant Secretary of the Company as
being in full force and effect on the date hereof, authorizing the execution,
delivery and performance of the Credit Agreement as hereby amended.
2. A certificate of incumbency certifying the names of the officers of
the Company authorized to sign this Amendment, together with the true signatures
of such officers.
3. Executed counterparts of this Amendment.
4. Borrower shall have paid the Agent for the account of the consenting
Banks an amendment fee equal to 15 basis points payable to the Banks on November
5, 1999 in accordance with their Pro Rata Share.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By:_/S/ Stephen G. Morrison
--------------------------
Title: Executive Vice President
--------------------------
And General Counsel
---------------------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
WACHOVIA BANK, N.A.
By:/S/Donald E. Sellers, Jr.
----------------------------
Title: Vice President
----------------
FIRST UNION NATIONAL BANK
By: /S/Daniel Amaker
-----------------
Title: Vice President
---------------
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /S/ Susan M. O'Connor
------------------------
Title: Director
--------
By: /S/ Susan L. Pearson
-----------------------
Title: Director
--------
<PAGE>
DAI-ICHI KANGYO BANK, LTD.
By: /S/ Nelson Chang
------------------
Title: Assistant Vice President
--------------------------
THE FUJI BANK, LIMITED
By: /S/ Raymond Ventura
---------------------
Title:Vice President & Manager
---------------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ Stephen G. Morrison
--------------------------
Title: Secretary
---------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
------------------------
Title: President
---------
3
3
267015v4
267015v4
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of February 10, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Credit Agreement
dated as of August 8, 1997, as amended by a First Amendment to Credit Agreement
dated as of November 5, 1999 (the "Credit Agreement") pursuant to which the
Banks extended a revolving facility. Capitalized terms used and not otherwise
defined or amended in this Amendment shall have the meanings respectively
assigned to them in the Credit Agreement.
The Borrower has requested that the Banks modify the Leverage Ratio set
forth in the Credit Agreement. In order to induce the Banks to agree to the
foregoing, the Banks have requested, and the Borrower has agreed, that the
Borrower will pay an amendment fee and modify the pricing. The Borrower has
requested that the Banks enter into this Amendment in order to approve and
reflect the foregoing, and the Banks have agreed to do so, all upon the terms
and provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
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1. Amendment of Section 5.1. Section 5.1 is hereby amended by adding new
- -- ---------------------------
Section 5.1(j):
- --
"(j) Annually, within 5 days of its receipt by the Borrower, the
management letter provided by the Borrower's independent public accountants to
the audit committee of the Borrower's Board of Directors."
2.
- --
<PAGE>
- ------
Amendment of Section 5.11 Section 5.11 of the Credit Agreement is hereby
- ----------------------------
amended and restated as follows:
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The Borrower will not permit the Leverage Ratio at any time from December
31, 1999 through and including May 31, 2000 to exceed 3.5:1.0 and at any time
thereafter, to exceed 2.5:1.0.
3. Amendment to Pricing Schedule. The Pricing Schedule shall be amended and
- -- ------------------------------
restated retroactively through January 1, 2000 as per the attachment
hereto.
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment, the representations and
warranties of the Borrower pursuant to the Credit Agreement are true on and as
of the date hereof as if made on and as of said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary corporate action.
C. EFFECTIVENESS; CONDITIONS
--------------------------
This Amendment will become effective as of December 31, 1999 upon execution
by the Required Banks. The Borrower shall provide to the Agent in form and
substance satisfactory to the Agent, no later than February 18, 2000, all of the
following:
1. A copy of a resolution passed by the Board of Directors of the
Borrower, certified by the Secretary or an Assistant Secretary of the Borrower
as being in full force and effect on the date hereof, authorizing the execution,
delivery and performance of the Credit Agreement as hereby amended.
<PAGE>
2. A certificate of incumbency certifying the names of the officers of
the Borrower authorized to sign this Amendment, together with the true
signatures of such officers.
3. Executed counterparts of this Amendment.
Borrower shall pay the Agent for the account of the consenting Banks an
amendment fee equal to 0.30% payable to the Banks on February 11, 2000 in
accordance with their Pro Rata Share.
D. MISCELLANEOUS
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1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By:_/S/ Stephen G. Morrison
--------------------------
Title: Executive Vice President
--------------------------
And General Counsel
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BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
<PAGE>
WACHOVIA BANK, N.A.
By:/S/Donald E. Sellers, Jr.
----------------------------
Title: Vice President
----------------
FIRST UNION NATIONAL BANK
By:/S/Franklin M. Wesssinger
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Title: Senior Vice President
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DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /S/ Susan M. O'Connor
------------------------
Title: Director
--------
By: /S/ Susan L. Pearson
-----------------------
Title: Director
--------
DAI-ICHI KANGYO BANK, LTD.
By: /S/ Nelson Chang
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Title: Assistant Vice President
--------------------------
THE FUJI BANK, LIMITED
By: /S/ Raymond Ventura
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Title:Vice President & Manager
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<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ Stephen G. Morrison
--------------------------
Title: Secretary
---------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
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ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
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Title: President
---------
<PAGE>
PRICING SCHEDULE
Each of "Eurodollar Margin" and "Facility Fee Rate" means, for any date,
the rates set forth below:
Euro-Dollar Margin 1.375%
Facility Fee Rate 0.375%
13
CHAR1\527698_ 7
CHAR1\527698_ 7
THIRD AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of March 30, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Credit Agreement
dated as of August 8, 1997, as amended by a First Amendment to Credit Agreement
dated as of November 5, 1999, as further amended by a Second Amendment to Credit
Agreement dated as of February 10, 2000 (the "Credit Agreement") pursuant to
which the Banks extended a revolving facility. Capitalized terms used and not
otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Borrower has requested that the Banks modify certain provisions of the
Credit Agreement. In order to induce the Banks to agree to the foregoing, the
Banks have requested, and the Borrower has agreed, that the Borrower will pay an
amendment fee, modify the pricing, reduce the Commitments and provide the Banks
with security. The Borrower has requested that the Banks enter into this
Amendment in order to approve and reflect the foregoing, and the Banks have
agreed to do so, all upon the terms and provisions and subject to the conditions
hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 1.1. The following definitions set forth in
---------------------------
Section 1.1 are hereby amended and restated as follows:
(a) "Commitment" means, with respect to each Bank, the amount set forth
----------
opposite the name of such Bank on Exhibit A hereto, as such amount may be
---------
further reduced from time to time pursuant to Section 2.10 or Section 2.11;
provided, however, to the extent that the amount of the aggregate Commitments of
----
the Banks as of April 1, 2001 exceeds $125,000,000, the Commitments of the Banks
shall be reduced ratably on such date by the amount of such excess.
(b) "Termination Date" means July 1, 2001.
-----------------
2. Amendment of Section 1.1. Section 1.1 is hereby amended by adding
--------------------------
the following new definitions:
<PAGE>
(a) "Accounts Receivable" means, at any time, all accounts receivable of the
-------------------
Borrower other than Ineligible Accounts Receivable.
(b) "Borrowing Base" means, as of any day, an amount equal to a to be
---------------
determined percentage of Accounts Receivable plus a to be determined percentage
----
of Eligible PP&E as set forth in the applicable Borrowing Base Certificate
delivered to the Agent and the Lenders in accordance with the terms of Section
5.1(l), it being understood that (i) the foregoing to be determined percentages
and (ii) such additional eligible assets and amounts which may comprise the
Borrowing Base, shall be mutually determined by the Required Banks and the
Borrower; provided, however, that if no such mutual agreement can be reached
--------
with respect to the foregoing on or before July 15, 2000, such percentages and
or additional eligible assets shall be determined by the Required Banks, in
their sole discretion.
(c) "Borrowing Base Certificate" shall have the meaning assigned to such
----------------------------
term in Section 5.1(l).
(d) "Capitalized Software Costs" means the costs identified on the
----------------------------
Consolidated Statements of Cash Flows of the Borrower as "Capitalized internal
software development costs".
(e) "Collateral" means a collective reference to the collateral which is
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identified in, and at any time will be covered by, the Collateral Documents.
(f) "Collateral Documents" means a collective reference to the Security
---------------------
Agreement, the Pledge Agreement, the Mortgage and such other documents executed
and delivered in connection with the attachment and perfection of the Agent's
security interests and liens arising thereunder, including without limitation,
UCC financing statements and patent and trademark filings.
(g) "Dekru Acquisition" means the Acquisition by the Borrower of the stock
------------------
or assets of Dekru B.V., an entity organized under the laws of the Netherlands,
for aggregate consideration (including cash and non-cash consideration) not to
exceed $1,500,000.
(h) "Eligible PP&E" means, as of any date of determination and without
--------------
duplication, the aggregate net book value of all real estate, machinery and
equipment ("PP&E") owned by the Borrower or any of its Subsidiaries but
excluding in any event (i) PP&E which is (a) not subject to a perfected, first
priority Lien in favor of the Agent to secure the Obligations or (b) subject to
any other Lien that is not permitted under Section 5.3, (ii) PP&E which is not
in good condition or fails to meet standards for sale or use imposed by
governmental agencies, departments or divisions having regulatory authority over
such PP&E, (iii) PP&E which is not useable or salable at prices approximating
its depreciated value in the ordinary course of the business, (iv) PP&E located
outside of the
<PAGE>
United States, (v) PP&E located at a location not owned by the Borrower or any
of its Subsidiaries with respect to which the Agent shall not have received a
landlord's, warehousemen's, bailee's or appropriate waiver satisfactory to the
Agent and (vi) PP&E which is leased or on consignment.
(i) "Ineligible Accounts Receivable" shall be mutually determined by the
--------------------------------
Required Banks and the Borrower; provided, however, that if no such mutual
--------
agreement can be reached with respect to the definition of "Ineligible Accounts
Receivable" on or before July 15, 2000, such definition shall be determined by
the Required Banks, in their sole discretion.
(j) "Mortgage" means, collectively those certain deeds of trust encumbering
--------
the fee interest of the Borrower and each Material Subsidiary in the real
property assets identified on Schedule A hereto, as amended, modified, restated
----------
or supplemented from time to time.
(k) "Obligations" means all Debt, obligations and liabilities of the
-----------
Borrower under this Agreement, the Term Loan or any of the Collateral Documents
to which the Borrower is a party, now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, howsoever evidenced,
held or acquired, as the Obligations may be modified, extended, renewed or
replaced from time to time.
(l) "Pledge Agreement" means a pledge agreement in form and substance
-----------------
satisfactory to the Agent to be executed in favor of the Agent by the Borrower
and each Material Subsidiary, as amended, modified, restated or supplemented
from time to time.
(m) "Property Acquisition Costs" means the costs identified on the
----------------------------
Consolidated Statements of Cash Flows of the Borrower as "Acquisition of
property and equipment".
(n) "Security Agreement" means a security agreement in form and substance
-------------------
satisfactory to the Agent to be executed in favor of the Agent by the Borrower
and each Material Subsidiary, as amended, modified, restated or supplemented
from time to time.
3. Amendment of Section 2.11. Section 2.11 is hereby amended and
----------------------------
restated as follows:
Termination, Mandatory Prepayment and Reduction of Commitments
--------------------------------------------------------------------
Mandatory Termination of Commitments.
--------------------------------
(a) The Commitments shall automatically terminate on the Termination Date
and any Loans then due and outstanding (together with accrued interest thereon)
shall be due and payable on such date.
<PAGE>
(b) If at any time, the aggregate principal amount of Loans outstanding
shall exceed (i) the aggregate Commitments or (ii) to the extent the Borrowing
Base is then applicable, the lesser of the aggregate Commitments and the
Borrowing Base, the Borrower shall immediately make payment on the Loans in an
amount sufficient to eliminate the deficiency.
(c) If the Borrower shall issue for cash any additional equity (other than
in connection with the exercise of options or the issuance of equity in
connection with employee benefit plans) or issue debt securities for cash, the
Borrower shall promptly notify the Agent of the estimated net proceeds of such
issuance to be received by the Borrower. Promptly upon, and in no event later
than three Business Days after receipt by the Borrower of the net cash proceeds
of such issuance, the Borrower shall first prepay the Term Loan in an aggregate
amount equal to the amount of net proceeds until the Term Loan shall be repaid
in full, and if any excess then remains, such excess shall be applied to repay
any outstanding Loans. The Commitments will be reduced (i) to the extent that
the Borrowing Base is not applicable pursuant to the terms of Section 5.20(a) by
50% of any remaining excess and (ii) to the extent that the Borrowing Base is
applicable pursuant to the terms of Section 5.20(a), in a like amount until the
overadvance (if any) permitted with respect to the Loans shall be eliminated,
thereafter, the Commitments shall be reduced by 50% of any remaining excess.
4. Amendment of Section 5.1(a) and (b). Section 5.1(a) and (b) are
---------------------------------------
hereby amended and restated as follows:
(a) within 2 Business Days after the filing of each Form 10-K by the
Borrower with the Securities and Exchange Commission (and in any event no later
than 92 days after the end of each fiscal year of the Borrower), a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated statements of income and cash
flows and changes in stockholders' equity for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Securities and Exchange Commission and
accompanied by a report of independent public accountants or nationally
recognized standing in scope and manner acceptable to the Securities and
Exchange Commission;
(b) within 2 Business Days after the filing of each Form 10-Q by the
Borrower with the Securities and Exchange Commission (and in any event no later
than 47 days after the end of each of the first three quarters of each fiscal
year of the Borrower), a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and cash flows for such quarter and for the
portion of the Borrower's fiscal year ended at the end of such quarter, setting
forth in the case of such statements of income and cash flows, in comparative
form the figures for the corresponding quarter and the corresponding portion of
the Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted
<PAGE>
accounting principles and consistency by the chief financial officer or the
chief accounting officer of the Borrower;
5. Amendment of Section 5.1. Section 5.1 is hereby amended by adding a
------------------------
new Section 5.1(k), 5.1(l), 5.1(m) and 5.1(n):
"(k) to the extent the Borrowing Base is then applicable pursuant to the
terms of Section 5.20 hereof, within 47 days following the end of each fiscal
quarter, an accounts receivable aging and listing certified by the chief
financial officer of the Borrower to be true and correct as of the date thereof
and in form reasonably satisfactory to the Agent."
"(l) to the extent the Borrowing Base is then applicable pursuant to the
terms of Section 5.20 hereof, on or before the tenth Business Day of each month,
the Borrower shall submit, in form satisfactory to the Agent, a Borrowing Base
Certificate as of the last day of the prior month."
"(m) prior to the beginning of each fiscal month of the Borrower, a monthly
forecast of income and cash flows for such month, certified as to fairness of
presentation, generally accepted accounting principles and consistency by the
chief financial officer or the chief accounting officer of the Borrower."
"(n) prior to April 30, 2000 and thereafter, simultaneously with the delivery of
each set of financial statements referred to in clauses (a) and (b) above, a
report signed by an executive officer of the Borrower setting forth (i) a list
of United States registration numbers for all patents, trademarks, service
marks, and copyrights awarded to the Borrower or any of its Material
Subsidiaries since the last day of the immediately preceding fiscal quarter or
fiscal year, as the case may be, and (ii) a list of all trademark applications,
service mark applications, and copyright applications submitted for registration
in the United States by the Borrower or any of its Material Subsidiaries since
the last day of the immediately preceding fiscal quarter or fiscal year, as the
case may be, and the status of each such application, all in such form as shall
be reasonably satisfactory to the Agent."
6. Amendment of Section 5.3(b). Section 5.3(b) of the Credit Agreement
---------------------------
is hereby amended and restated as follows:
(b) The Borrower will maintain, and will cause each Material Subsidiary to
maintain, or be covered under, (i) physical damage insurance on all real and
personal property on an all risks basis (including the perils of flood and
quake), covering the repair and replacement cost of all such property and
consequential loss coverage for extra expense and (ii) public liability
insurance (including products/completed operations liability coverage) all on
terms and conditions and in scope substantially commensurate with that which is
currently maintained as described on Schedule 5.3 hereto and evidenced by the
------------
certificate contemplated by clause (w) of the second following sentence and with
risk retention thereunder up to an amount which in the good faith business
judgement of the Borrower's or such Material Subsidiary's management could not
reasonably be expected to expose the Borrower or such Material Subsidiary to a
<PAGE>
materially adverse noninsured loss. On or before, April 30, 2000, and at all
times thereafter, the Agent shall be named as loss payee or mortgagee, as its
interest may appear, and/or additional insured with respect to any such
insurance providing coverage in respect of any Collateral. All such insurance
shall be provided by insurers having an A.M. Best policyholders rating of not
less than B+ or such other insurers as the Required Banks may approve in
writing. The Borrower will deliver to the Agent for distribution to each of the
Banks (w) on the date of the first Borrowing hereunder, a certificate dated such
date showing the amount of coverage as of such date, (x) upon request of any
Bank through the Agent from time to time full information as to the insurance
carried, (y) within seven Business Days of receipt of notice from any insurer a
copy of any notice of cancellation, alteration or material change in coverage
from that existing on the date of this Agreement and (z) forthwith upon receipt
thereof, notice of any cancellation or nonrenewal of coverage by the Borrower.
7. Amendment of Section 5.9. Section 5.9 of the Credit Agreement is
---------------------------
hereby amended by adding new Section 5.9(k):
"(k) Liens in favor of the Agent on behalf of the Banks arising under the
Collateral Documents."
8. Amendment of Section 5.11. Section 5.11 of the Credit Agreement is
--------------------------
hereby amended and restated as follows:
Leverage Ratio5.11 Leverage Ratio. The Borrower will not permit the Leverage
- --------------- ---------------
Ratio at any time from (i) December 31, 1999 through but not including September
30, 2000 to exceed 5.5:1.0, (ii) September 30, 2000 through but not including
December 31, 2000 to exceed 3.5:1.0, and (iii) December 31, 2000 and at any time
thereafter, to exceed 2.5:1.0.
9. Amendment of Section 5.12. Section 5.12 of the Credit Agreement is
----------------------------
hereby amended and restated as follows:
Minimum Consolidated Tangible Net Worth Minimum Consolidated Tangible Net Worth.
- --------------------------------------- ---------------------------------------
At any date, Consolidated Tangible Net Worth will not be less than (i)
$126,718,000 until September 29, 2000 and $196,718,000 on September 30, 2000 and
thereafter plus on an annual basis (ii) beginning with the fiscal year beginning
January 1, 1999, 50% of Consolidated Net Income, if positive. There shall be
excluded from the calculation of Consolidated Tangible Net Worth all acquisition
related charges of intangibles and any amounts that have been expended to
repurchase shares of the Borrower's common stock, in each case, since August 8,
1997.
10. Amendment of Section 5.13. Section 5.13 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Restricted Payments5.13 Restricted Payments. Restricted PaymentsNeither the
- -------------------- -------------------- -------------------
Borrower nor any Subsidiary (i) will declare or make any Restricted Payment
(other than any dividend or other distribution from
<PAGE>
a Subsidiary, direct or indirect, to the Borrower) or (ii) will optionally
prepay, defease or purchase any Debt of the Borrower or any Subsidiary other
than (x) the Loans or the Term Loan or (y) any other Debt of the Borrower
incurred for working capital purposes provided that the aggregate amount of such
-------- ----
Debt prepaid, defeased or purchased is less than $15,000,000.
11. Amendment of Section 5.14(d). Section 5.14(d) of the Credit
-------------------------------
Agreement is hereby amended and restated as follows:
Restricted Payments(d) (i) any Investment made prior to March 31, 2000
-------------------
in compliance with Section 5.14(d) prior to the amendment hereby and (ii)
Restricted Payments any Investment with respect to the Dekru Acquisition.
---------------
12. Amendment of Section 5.16. Section 5.16 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Additional Guarantors Additional Guarantors. The Borrower shall from time to
- ---------------------- ---------------------
time cause each Subsidiary of the Borrower or other entity that is not a
Material Subsidiary on the date hereof but becomes a Material Subsidiary after
the date hereof (whether by acquisition of capital stock by the Borrower or
otherwise) to (a) become party hereto as guarantor by executing a supplement
hereto in form and substance satisfactory to the Agent, such supplement to be
executed by such Material Subsidiary within 10 days after the date on which the
Borrower acquires or forms such Material Subsidiary, or a Subsidiary not
originally a Guarantor becomes a Material Subsidiary, (b) cause 100% of the
issued and outstanding capital stock of such Material Subsidiary to be delivered
to the Agent (together with undated stock powers signed in blank, if applicable)
and pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement and otherwise in form reasonably
acceptable to the Agent and (c) deliver such other documentation as the Agent
may reasonably request in connection with the foregoing, including without
limitation, documentation to ensure that the Agent has a first priority
perfected Lien in the personal and real property owned by such Material
Subsidiary, certified resolutions and other authority documents of such Material
Subsidiary and favorable opinions of counsel to such Material Subsidiary (which
shall cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above), all in form, content and
scope reasonably satisfactory to the Agent.
13. Amendment of Section 5.17. Section 5.17 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Limitation on Non-Cash Charges Additional Guarantors. The Borrower will not
- --------------------------------- ---------------------
incur non-cash charges that would exceed (i) $25,000,000 in the aggregate with
- --
respect to the Borrower and its Consolidated Subsidiaries from
<PAGE>
and after November 1, 1999 through and including March 31, 2000 and (ii)
$15,000,000 in the aggregate with respect to the Borrower and its Consolidated
Subsidiaries from and after April 1, 2000 through and including the Termination
Date, other than (A) depreciation and amortization expensed in the ordinary
course of business determined in accordance with generally accepted accounting
principles; and (B) any acquisition related charges of intangibles determined in
accordance with generally accepted accounting principles.
14. Addition of New Section 5.18. A new Section 5.18 is hereby added
------------------------------
as follows:
SECTION 5.18. Pledged Assets.
---------------
On or before April 30, 2000, or such later date as the Agent may reasonably
determine, the Borrower will cause, and will cause each Material Subsidiary to
cause (i) all of its owned personal property located in the United States and
(ii) all of its owned real property located in the United States deemed to be
material by the Agent or the Required Banks in its or their sole reasonable
discretion, to be subject at all times to first priority, perfected Liens in
favor of the Agent to secure the Borrower's Obligations in accordance with the
terms and conditions of the Collateral Documents, subject in any case to Liens
permitted under Section 5.9. Without limiting the generality of the above, the
Borrower will cause (i) 100% of the issued and outstanding capital stock of each
domestic Material Subsidiary directly owned by the Borrower or any other
Material Subsidiary of the Borrower and (ii) 65% (or such greater percentage
which would not result in material adverse tax consequences) of the issued and
outstanding capital stock entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) and 100% of the issued and outstanding capital stock not
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of
each foreign Subsidiary directly owned by the Borrower or any other Material
Subsidiary of the Borrower to be subject at all times to a first priority,
perfected Lien in favor of the Agent to secure the Borrower's Obligations in
accordance with the terms and conditions of the Collateral Documents or such
other security documents as the Agent shall reasonably request.
15. Addition of New Section 5.19. A new Section 5.19 is hereby added
------------------------------
as follows:
SECTION 5.19. Real Property Collateral.
--------------------------
On or before April 30, 2000, or such later date as the Agent may reasonably
determine, the Borrower and each other Material Subsidiary shall, with respect
to the real property assets identified on Schedule A hereto and deemed to be
----------
material by the Agent or the Required Banks in its or their sole reasonable
discretion, deliver to the Agent the following:
(a) fully executed and notarized Mortgages;
(b) title reports obtained by the Borrower in respect of the real property
subject to the Mortgages;
(c) maps or plats of an as-built survey of the sites of the real property
covered by the Mortgages certified to the Agent and the title insurance company
issuing the
<PAGE>
policy referred to in clause (d) below (the "Title Insurance Company") in a
-----------------------
manner reasonably satisfactory to each of the Agent and the Title Insurance
Company, dated a date reasonably satisfactory to each of the Agent and the Title
Insurance Company by an independent professional licensed land surveyor, which
maps or plats and the surveys on which they are based shall be sufficient to
delete any standard printed survey exception contained in the applicable title
policy and be made in accordance with the Minimum Standard Detail Requirements
for Land Title Surveys jointly established and adopted by the American Land
Title Association and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there shall be surveyed
and shown on such maps, plats or surveys the following: (i) the locations on
such sites of all the buildings, structures and other improvements and the
established building setback lines; (ii) the lines of streets abutting the sites
and width thereof; (iii) all access and other easements appurtenant to the sites
necessary to use the sites; (iv) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar encumbrances affecting the
site, whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (v) any encroachments on any adjoining property
by the building structures and improvements on the sites; and (vi) if the site
is described as being on a filed map, a legend relating the survey to said map;
(d) an ALTA mortgagee title insurance policy issued by the Title Insurance
Company, in an amount satisfactory to the Agent, assuring the Agent that the
each Mortgage creates a valid and enforceable first priority mortgage lien on
the real property subject to the Mortgage, free and clear of all defects and
encumbrances except Liens permitted by Section 5.9, which mortgage policy shall
be in form and substance reasonably satisfactory to the Agent and shall provide
for affirmative insurance and such reinsurance as the Agent may reasonably
request, all of the foregoing in form and substance reasonably satisfactory to
the Agent;
(e) evidence as to (i) whether any of the mortgaged properties are in an
area designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards (a "Flood Hazard Property") and (ii) if any mortgaged
---------------------
property is a Flood Hazard Property, (A) whether the community in which such
mortgaged property is located is participating in the National Flood Insurance
Program, (B) the Borrower's written acknowledgment of receipt of written
notification from the Agent (1) as to the fact that such mortgaged property is a
Flood Hazard Property and (2) as to whether the community in which such Flood
Hazard Property is located is participating in the National Flood Insurance
Program and (C) copies of insurance policies or certificates of insurance of the
Borrower evidencing flood insurance satisfactory to the Agent and naming the
Agent as sole loss payee; and
(f) evidence reasonably satisfactory to the Agent that the mortgaged
properties, and the uses of the mortgaged properties, are in compliance in all
material respects, as relevant for purposes of this Agreement, with all
applicable laws, regulations and ordinances including without limitation health
and environmental protection laws, erosion control ordinances, storm drainage
control laws, doing business and/or licensing laws, zoning laws (the evidence
submitted as to zoning should include the zoning designation made for the
mortgaged properties, the permitted uses of the mortgaged
<PAGE>
properties under such zoning designation and zoning requirements as to parking,
lot size, ingress, egress and building setbacks) and applicable laws regarding
access and facilities for disabled persons including, but not limited to, the
Federal Architectural Barriers Act, the Fair Housing Amendments Act of 1988, the
Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990.
16. Addition of New Section 5.20. A new Section 5.20 is hereby added
------------------------------
as follows:
SECTION 5.20. Borrowing Base and Field Examination.
----------------------------------------
(a) If the Term Loan is not repaid in full by July 15, 2000, the aggregate
principal amount of the Loans outstanding at any time shall not exceed the
lesser of (i) the aggregate Commitments of the Banks and (ii) the Borrowing
Base.
(b) The Borrower and each of its Subsidiaries shall permit the Agent (or a
third party satisfactory to the Agent) to conduct a written business audit of
the accounts receivable, inventory, payables, controls and systems of the
Borrower and its Subsidiaries at a frequency to be determined in the sole
discretion of the Agent; provided that, the Borrower shall not be required to
--------
pay for more than four such field examinations in any one calendar year. If the
results of any of such audits are not satisfactory to the Agent, in its
reasonable discretion, the Borrower covenants and agrees to cooperate in good
faith with the Agent to develop a plan of action that will correct the
deficiencies identified by the Agent within 180 days of the completion of such
audit.
17. Addition of New Section 5.21. A new Section 5.21 is hereby added
------------------------------
as follows:
SECTION 5.21. Property Acquisition Costs and Capitalized Software Costs.
---------------------------------------------------------------
The Borrower will not permit the sum of Property Acquisition Costs and
Capitalized Software Costs for (a) fiscal year 2000 to exceed $84,000,000 and
(b) fiscal year 2001 to exceed $93,000,000.
18. Amendment of Section 6.1. Section 6.1 of the Credit Agreement is
--------------------------
hereby amended by adding new Section 6.1(m):
"(m) any of the Collateral Documents shall fail to be in full force and effect
or to give the Agent and/or the Banks the Liens, rights, powers and privileges
purported to be created thereby, or the Borrower or any Subsidiary of the
Borrower shall so state in writing."
19. Amendment to Pricing Schedule. The Pricing Schedule shall be
--------------------------------
amended and restated as per the attachment hereto.
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
<PAGE>
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment and the information contained
in the preliminary draft of the December 31, 1999 financial statements of the
Borrower, the representations and warranties of the Borrower pursuant to the
Credit Agreement are true on and as of the date hereof as if made on and as of
said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary corporate action.
C. EFFECTIVENESS; CONDITIONS
--------------------------
This Amendment will become effective as of December 31, 1999 upon execution
by the Required Banks (the "Effective Date"). The Borrower shall provide to the
Agent in form and substance satisfactory to the Agent, the following:
1. On or before March 31, 2000, a copy of a resolution passed by the
Board of Directors of the Borrower and each of the Guarantors, certified by the
Secretary or an Assistant Secretary of the Borrower and each of the Guarantors
as being in full force and effect on the date hereof, authorizing the execution,
delivery and performance of the Credit Agreement as hereby amended; provided,
however, with respect to Policy Management Systems Investments, Inc., such
certified resolution shall be provided to the Agent no later than April 28,
2000.
2. On or before March 31, 2000, a certificate of incumbency certifying
the names of the officers of the Borrower and Guarantors authorized to sign this
Amendment, together with the true signatures of such officers; provided,
however, with respect to Policy Management Systems Investments, Inc., such
certificate of incumbency shall be provided to the Agent no later than April 28,
2000.
3. On or before March 30, 2000, executed counterparts of this
Amendment.
Borrower shall pay the Agent for the account of the consenting Banks an
amendment fee equal to 1.00% of the Commitments payable to the Banks on April 3,
2000 in accordance with their Pro Rata Share.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties
<PAGE>
hereto according to its terms and provisions and all references therein or in
the Exhibits shall henceforth refer to the Credit Agreement as amended by this
Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By: /S/ G. Larry Wilson
----------------------
Title: Chief Executive Officer
--------------------------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
WACHOVIA BANK, N.A.
By:/S/ John Graham .
----------------- -
Title: Asst. Vice President
-----------------------
FIRST UNION NATIONAL BANK
By:/S/Franklin M. Wesssinger
---------------------------
Title: Senior Vice President
-----------------------
<PAGE>
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By:
Title:
By:
Title:
DAI-ICHI KANGYO BANK, LTD.
By: /S/ Nelson Chang
------------------
Title: Assistant Vice President
--------------------------
THE FUJI BANK, LIMITED
By:
Title:
<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ G. Larry Wilson
----------------------
Title: Director
--------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
------------------------
Title: President
---------
<PAGE>
EXHIBIT A
---------
BANK COMMITMENTS
Commitment
----------
BANK OF AMERICA, N.A. $ 54,000,000
WACHOVIA BANK, N.A. $ 45,000,000
FIRST UNION NATIONAL BANK $ 31,500,000
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH $ 22,500,000
DAI-ICHI KANGYO BANK, LTD. $ 18,000,000
THE FUJI BANK, LIMITED $ 9,000,000
----------------
$ 180,000,000
<PAGE>
PRICING SCHEDULE
Each of "Eurodollar Margin" and "Facility Fee Rate" means, for any date,
the rates set forth below:
Euro-Dollar Margin (Retroactive to January 1, 2000) 2.75%
Facility Fee Rate (Retroactive to January 1, 2000) .50%
2
CHAR1\531972_ 3
CHAR1\531972_ 3
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of April 24, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Credit Agreement
dated as of August 8, 1997, as amended by a First Amendment to Credit Agreement
dated as of November 5, 1999, as further amended by a Second Amendment to Credit
Agreement dated as of February 10, 2000, as further amended by a Third Amendment
to Credit Agreement dated as of March 30, 2000 (the "Credit Agreement") pursuant
to which the Banks extended a revolving facility. Capitalized terms used and
not otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Borrower has requested that the Banks modify certain provisions of the
Credit Agreement and the Banks have agreed to do so, all upon the terms and
provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 1.1. (a) The definition of "Consolidated
---------------------------
Adjusted Cash Flow" is hereby amended by adding the following sentence to the
end thereof:
For the purposes of Section 5.22 only, Consolidated Adjusted Cash Flow shall be
measured on a quarterly basis.
(b) The definition of "Consolidated Net Income" is hereby amended by adding
the following sentence to the end thereof:
For the purposes of Section 5.22 only, Consolidated Net Income shall be measured
on a quarterly basis.
2. Amendment of Section 5.11. Section 5.11 of the Credit Agreement is
--------------------------
hereby amended and restated as follows:
Leverage Ratio. The Borrower shall not be required to maintain any certain
- ---------------
Leverage Ratio at any time from March 31, 2000 through and including December
- -----
30, 2000. The Borrower will not permit the Leverage Ratio at any time from
- --
December 31, 2000 and thereafter, to exceed 2.5:1.0.
- --
3. Addition of New Section 5.22. A new Section 5.22 is hereby added as
----------------------------
follows:
SECTION 5.22. Consolidated Adjusted Cash Flow.
----------------------------------
<PAGE>
- ------
Consolidated Adjusted Cash Flow. The Borrower will cause Consolidated Adjusted
- ---------------------------------
Cash Flow minus Capital Expenditures to equal or exceed the following amounts
- - -----
for the quarterly period ending on each of the following dates: March 31, 2000,
($2,000,000), (ii) June 30, 2000, $15,000,000, and (iii) September 30, 2000,
$30,000,000.
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment, the representations and
warranties of the Borrower pursuant to the Credit Agreement are true on and as
of the date hereof as if made on and as of said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary corporate action.
C. EFFECTIVENESS; CONDITIONS
--------------------------
This Amendment will become effective as of March 31, 2000 upon execution by
the Required Banks (the "Effective Date"). The Borrower shall provide to the
Agent in form and substance satisfactory to the Agent, the following:
1. Execution of Counterparts of Amendment. The Agent shall have
------------------------------------------
received counterparts (or other evidence of execution, including telephonic
message, satisfactory to the Agent) of this Amendment, which collectively shall
have been duly executed on behalf of each of the Borrower, the Guarantors (other
than Policy Management Systems Investments, Inc., whose executed counterpart
shall not be required to be delivered to the Agent until April 30, 2000), the
Banks and the Agent.
2. Other Items. The Agent shall have received such other documents,
------------
agreements or information which may be reasonably requested by the Agent.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By:_/S/ Stephen G. Morrison
--------------------------
Title: Executive Vice President
--------------------------
and General Counsel
---------------------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
WACHOVIA BANK, N.A.
By:/S/ Donald E. Sellers, Jr.
------------------------------
Title: Vice President
----------------
FIRST UNION NATIONAL BANK
By:/S/ Franklin M. Wesssinger
-----------------------------
Title: Senior Vice President
-----------------------
<PAGE>
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By:
Title:
By:
Title:
DAI-ICHI KANGYO BANK, LTD.
By: /S/ Nelson Chang
------------------
Title: Assistant Vice President
--------------------------
THE FUJI BANK, LIMITED
By:
Title:
<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ Stephen G. Morrison
--------------------------
Title: Secretary
---------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
------------------------
Title: President
---------
3
3
302793.2
302793.2
FIRST AMENDMENT TO TERM LOAN AGREEMENT
This Amendment, dated as of February 10, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Term Loan Agreement
dated as of November 5, 1999 (the "Term Loan Agreement") pursuant to which the
Banks extended a term loan. Capitalized terms used and not otherwise defined or
amended in this Amendment shall have the meanings respectively assigned to them
in the Term Loan Agreement.
The Borrower has requested that the Banks modify the Leverage Ratio set
forth in the Term Loan Agreement. In order to induce the Banks to agree to the
foregoing, the Banks have requested, and the Borrower has agreed, that the
Borrower will pay an amendment fee and modify the pricing. The Borrower has
requested that the Banks enter into this Amendment in order to approve and
reflect the foregoing, and the Banks have agreed to do so, all upon the terms
and provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 5.1. Section 5.1 is hereby amended by adding new
- -- ---------------------------
Section 5.1(j):
- --
"(j) Annually, within 5 days of its receipt by the Borrower, the
management letter provided by the Borrower's independent public accountants to
the audit committee of the Borrower's Board of Directors."
2. Amendment of Section 5.11 Section 5.11 of the Term Loan Agreement is
- -- ----------------------------
hereby amended and restated as follows:
- --
The Borrower will not permit the Leverage Ratio at any time from December
31, 1999 through and including May 31, 2000 to exceed 3.5:1.0 and at any time
thereafter, to exceed 2.5:1.0.
3. Amendment to Pricing Schedule. The Pricing Schedule shall be amended and
- -- ------------------------------
restated retroactively through January 1, 2000 as per the attachment
hereto.
<PAGE>
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Term Loan Agreement and no event which with notice or lapse of time or
both would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment, the representations and
warranties of the Borrower pursuant to the Term Loan Agreement are true on and
as of the date hereof as if made on and as of said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary action.
C. CONDITIONS PRECEDENT
---------------------
This Amendment will become effective as of December 31, 1999 upon execution
by the Required Banks. The Borrower shall provide to the Agent in form and
substance satisfactory to the Agent, no later than February 18, 2000 all of the
following:
1. A copy of a resolution passed by the Board of Directors of the
Borrower, certified by the Secretary or an Assistant Secretary of the Borrower
as being in full force and effect on the date hereof, authorizing the execution,
delivery and performance of the Term Loan Agreement as hereby amended.
2. A certificate of incumbency certifying the names of the officers of
the Borrower authorized to sign this Amendment, together with the true
signatures of such officers.
3. Executed counterparts of this Amendment.
Borrower shall pay the Agent for the account of the consenting Banks an
amendment fee equal to 0.30% payable to the Banks on February 11, 2000 in
accordance with their Pro Rata Share.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Term Loan Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the Term
Loan Agreement as amended by this Amendment.
<PAGE>
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS CORPORATION
By:_/S/ Stephen G. Morrison
--------------------------
Title: Executive Vice President
--------------------------
and General Counsel
--------------------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
WACHOVIA BANK, N.A.
By:/S/Donald E. Sellers, Jr.
----------------------------
Title: Vice President
----------------
FIRST UNION NATIONAL BANK
By:/S/Franklin M. Wesssinger
---------------------------
Title: Senior Vice President
-----------------------
<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ Stephen G. Morrison
--------------------------
Title: Secretary
---------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
------------------------
Title: President
---------
<PAGE>
PRICING SCHEDULE
Each of "Eurodollar Margin" and "Facility Fee Rate" means, for any date,
the rates set forth below:
Euro-Dollar Margin 1.375%
Facility Fee Rate 0.375%
9
CHAR1\527993_ 5
CHAR1\527993_ 5
SECOND AMENDMENT TO TERM LOAN AGREEMENT
This Amendment, dated as of March 30, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Term Loan Agreement
dated as of November 5, 1999, as amended by a First Amendment to Credit
Agreement dated as of February 10, 2000 (the "Credit Agreement") pursuant to
which the Banks extended a term loan. Capitalized terms used and not otherwise
defined or amended in this Amendment shall have the meanings respectively
assigned to them in the Credit Agreement.
The Borrower has requested that the Banks modify certain provisions of the
Credit Agreement. In order to induce the Banks to agree to the foregoing, the
Banks have requested, and the Borrower has agreed, that the Borrower will pay an
amendment fee, modify the pricing, and provide the Banks with security. The
Borrower has requested that the Banks enter into this Amendment in order to
approve and reflect the foregoing, and the Banks have agreed to do so, all upon
the terms and provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 1.1. The definition of "Termination Date" in
-------------------------- ----------------
Section 1.1 is hereby amended and restated as follows:
"Termination Date" means January 31, 2001.
-----------------
2. Amendment of Section 1.1. Section 1.1 is hereby amended by adding
--------------------------
the following new definitions:
(a) "Capitalized Software Costs" means the costs identified on the
----------------------------
Consolidated Statements of Cash Flows of the Borrower as "Capitalized internal
software development costs".
(b) "Collateral" means a collective reference to the collateral which is
----------
identified in, and at any time will be covered by, the Collateral Documents.
<PAGE>
(c) "Collateral Documents" means a collective reference to the Security
---------------------
Agreement, the Pledge Agreement, the Mortgage and such other documents executed
and delivered in connection with the attachment and perfection of the Agent's
security interests and liens arising thereunder, including without limitation,
UCC financing statements and patent and trademark filings.
(d) "Dekru Acquisition" means the Acquisition by the Borrower of the stock
------------------
or assets of Dekru B.V., an entity organized under the laws of the Netherlands,
for aggregate consideration (including cash and non-cash consideration) not to
exceed $1,500,000.
(e) "Mortgage" means, collectively those certain deeds of trust encumbering
--------
the fee interest of the Borrower and each Material Subsidiary in the real
property assets identified on Schedule A hereto, as amended, modified, restated
----------
or supplemented from time to time.
(f) "Obligations" means all Debt, obligations and liabilities of the
-----------
Borrower under this Agreement, the Senior Bank Facility or any of the Collateral
Documents to which the Borrower is a party, now existing or hereafter arising,
due or to become due, direct or indirect, absolute or contingent, howsoever
evidenced, held or acquired, as the Obligations may be modified, extended,
renewed or replaced from time to time.
(g) "Pledge Agreement" means a pledge agreement in form and substance
-----------------
satisfactory to the Agent to be executed in favor of the Agent by the Borrower
and each Material Subsidiary, as amended, modified, restated or supplemented
from time to time.
(h) "Pricing Schedule" means the Schedule attached hereto identified as
-----------------
such.
(i) "Property Acquisition Costs" means the costs identified on the
----------------------------
Consolidated Statements of Cash Flows of the Borrower as "Acquisition of
property and equipment".
(j) "Security Agreement" means a security agreement in form and substance
-------------------
satisfactory to the Agent to be executed in favor of the Agent by the Borrower
and each Material Subsidiary, as amended, modified, restated or supplemented
from time to time.
3. Amendment of Section 2.7. Section 2.7 of the Credit Agreement is
---------------------------
hereby amended and restated as follows:
Fees Fees.
---- ----
2.9 Fees(a) The Borrower shall pay to the Agent for the account of the
----
Banks ratably a facility fee at the Facility Fee Rate (determined daily in
accordance with the
<PAGE>
Pricing Schedule). Such facility fee shall accrue from and including January 1,
2000 to but excluding the date the Loans shall be repaid in their entirety, on
the daily aggregate outstanding principal amount of the Loans. Subject to the
third sentence of Section 2.11(a), accrued fees under this Section shall be
payable quarterly in arrears on each September 30, December 31, March 31 and
June 30 and on the Termination Date in their entirety;
(b) If the Term Loan is not repaid in full on or before July 15, 2000, on
such date, the Borrower shall pay to the Agent for the account of the Banks
ratably a one-time fee on the aggregate outstanding amount of the Loans equal to
1.00%;
Fees(c) If the Term Loan is not repaid in full on or before October 15,
----
2000, on such date, the Borrower shall pay to the Agent for the account of the
--
Banks ratably a one-time fee on the aggregate outstanding amount of the Loans
equal to 1.25%; and
Fees(d) If the Term Loan is not repaid in full on or before December 15,
----
2000, on such date, the Borrower shall pay to the Agent for the account of the
-
Banks ratably a one-time fee on the aggregate outstanding amount of the Loans
equal to 1.50%.
4. Amendment of Section 5.1(a) and (b). Section 5.1(a) and (b) are
---------------------------------------
hereby amended and restated as follows:
(a) within 2 Business Days after the filing of each Form 10-K by the
Borrower with the Securities and Exchange Commission (and in any event no later
than 92 days after the end of each fiscal year of the Borrower), a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated statements of income and cash
flows and changes in stockholders' equity for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Securities and Exchange Commission and
accompanied by a report of independent public accountants or nationally
recognized standing in scope and manner acceptable to the Securities and
Exchange Commission;
(b) within 2 Business Days after the filing of each Form 10-Q by the
Borrower with the Securities and Exchange Commission (and in any event no later
than 47 days after the end of each of the first three quarters of each fiscal
year of the Borrower), a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and cash flows for such quarter and for the
portion of the Borrower's fiscal year ended at the end of such quarter, setting
forth in the case of such statements of income and cash flows, in comparative
form the figures for the corresponding quarter and the corresponding portion of
the Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted
<PAGE>
accounting principles and consistency by the chief financial officer or the
chief accounting officer of the Borrower;
5. Amendment of Section 5.1. Section 5.1 is hereby amended by adding a
------------------------
new Section 5.1(k) and 5.1(l):
"(k) prior to the beginning of each fiscal month of the Borrower, a monthly
forecast of income and cash flows for such month, certified as to fairness of
presentation, generally accepted accounting principles and consistency by the
chief financial officer or the chief accounting officer of the Borrower."
"(l) prior to April 30, 2000 and thereafter, simultaneously with the delivery of
each set of financial statements referred to in clauses (a) and (b) above, a
report signed by an executive officer of the Borrower setting forth (i) a list
of United States registration numbers for all patents, trademarks, service
marks, and copyrights awarded to the Borrower or any of its Material
Subsidiaries since the last day of the immediately preceding fiscal quarter or
fiscal year, as the case may be, and (ii) a list of all trademark applications,
service mark applications, and copyright applications submitted for registration
in the United States by the Borrower or any of its Material Subsidiaries since
the last day of the immediately preceding fiscal quarter or fiscal year, as the
case may be, and the status of each such application, all in such form as shall
be reasonably satisfactory to the Agent."
6. Amendment of Section 5.3(b). Section 5.3(b) of the Credit Agreement
---------------------------
is hereby amended and restated as follows:
(b) The Borrower will maintain, and will cause each Material Subsidiary
to maintain, or be covered under, (i) physical damage insurance on all real and
personal property on an all risks basis (including the perils of flood and
quake), covering the repair and replacement cost of all such property and
consequential loss coverage for extra expense and (ii) public liability
insurance (including products/completed operations liability coverage) all on
terms and conditions and in scope substantially commensurate with that which is
currently maintained as described on Schedule 5.3 hereto and evidenced by the
------------
certificate contemplated by clause (w) of the second following sentence and with
risk retention thereunder up to an amount which in the good faith business
judgement of the Borrower's or such Material Subsidiary's management could not
reasonably be expected to expose the Borrower or such Material Subsidiary to a
materially adverse noninsured loss. On or before, April 30, 2000, and at all
times thereafter, the Agent shall be named as loss payee or mortgagee, as its
interest may appear, and/or additional insured with respect to any such
insurance providing coverage in respect of any Collateral. All such insurance
shall be provided by insurers having an A.M. Best policyholders rating of not
less than B+ or such other insurers as the Banks may approve in writing. The
Borrower will deliver to the Agent for distribution to each of the Banks (w) on
the date of the first Borrowing hereunder, a certificate dated such date showing
the amount of coverage as of such date, (x) upon request of any Bank through the
Agent from time to time full information as to the insurance carried, (y)
within seven Business Days of receipt of notice from any insurer a copy of any
notice of
<PAGE>
cancellation or material change in coverage from that existing on the date of
this Agreement and (z) forthwith upon receipt thereof, notice of any
cancellation or nonrenewal of coverage by the Borrower.
7. Amendment of Section 5.9. Section 5.9 of the Credit Agreement is
---------------------------
hereby amended by adding new Section 5.9(k):
"(k) Liens in favor of the Agent on behalf of the Banks arising under the
Collateral Documents."
8. Amendment of Section 5.11. Section 5.11 of the Credit Agreement is
--------------------------
hereby amended and restated as follows:
Leverage Ratio5.11 Leverage Ratio. The Borrower will not permit the Leverage
- --------------- ---------------
Ratio at any time from (i) December 31, 1999 through but not including September
30, 2000 to exceed 5.5:1.0, (ii) September 30, 2000 through but not including
December 31, 2000 to exceed 3.5:1.0, and (iii) December 31, 2000 and at any time
thereafter, to exceed 2.5:1.0.
9. Amendment of Section 5.12. Section 5.12 of the Credit Agreement is
----------------------------
hereby amended and restated as follows:
Minimum Consolidated Tangible Net Worth Minimum Consolidated Tangible Net Worth.
- --------------------------------------- ---------------------------------------
At any date, Consolidated Tangible Net Worth will not be less than (i)
$126,718,000 until September 29, 2000 and $196,718,000 on September 30, 2000 and
thereafter plus on an annual basis (ii) beginning with the fiscal year beginning
----
January 1, 1999, 50% of Consolidated Net Income, if positive. There shall be
excluded from the calculation of Consolidated Tangible Net Worth all acquisition
related charges of intangibles and any amounts that have been expended to
repurchase shares of the Borrower's common stock, in each case, since August 8,
1997.
10. Amendment of Section 5.13. Section 5.13 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Restricted Payments5.13 Restricted Payments. Restricted PaymentsNeither the
- -------------------- -------------------- -------------------
Borrower nor any Subsidiary (i) will declare or make any Restricted Payment
(other than any dividend or other distribution from a Subsidiary, direct or
indirect, to the Borrower) or (ii) will optionally prepay, defease or purchase
any Debt of the Borrower or any Subsidiary other than (x) the Loans, (y) Debt
under the Senior Bank Facility, or (z) any other Debt of the Borrower incurred
for working capital purposes provided that the aggregate amount of such Debt
- - -------- ----
prepaid, defeased or purchased is less than $15,000,000.
11. Amendment of Section 5.14(d). Section 5.14(d) of the Credit
-------------------------------
Agreement is hereby amended and restated as follows:
<PAGE>
- ------
Restricted Payments(d) (i) any Investment made prior to March 31, 2000 in
--------------------
compliance with Section 5.14(d) prior to the amendment hereby and (ii)
Restricted Paymentsany Investment with respect to the Dekru Acquisition.
------------
12. Amendment of Section 5.16. Section 5.16 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Additional Guarantors Additional Guarantors. The Borrower shall from time to
- ---------------------- ----------------------
time cause each Subsidiary of the Borrower or other entity that is not a
- --
Material Subsidiary on the date hereof but becomes a Material Subsidiary after
- --
the date hereof (whether by acquisition of capital stock by the Borrower or
otherwise) to (a) become party hereto as guarantor by executing a supplement
hereto in form and substance satisfactory to the Agent, such supplement to be
executed by such Material Subsidiary within 10 days after the date on which the
Borrower acquires or forms such Material Subsidiary, or a Subsidiary not
originally a Guarantor becomes a Material Subsidiary, (b) cause 100% of the
issued and outstanding capital stock of such Material Subsidiary to be delivered
to the Agent (together with undated stock powers signed in blank, if applicable)
and pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement and otherwise in form reasonably
acceptable to the Agent and (c) deliver such other documentation as the Agent
may reasonably request in connection with the foregoing, including without
limitation, documentation to ensure that the Agent has a first priority
perfected Lien in the personal and real property owned by such Material
Subsidiary, certified resolutions and other authority documents of such Material
Subsidiary and favorable opinions of counsel to such Material Subsidiary (which
shall cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above), all in form, content and
scope reasonably satisfactory to the Agent.
13. Amendment of Section 5.17. Section 5.17 of the Credit Agreement is
-------------------------
hereby amended and restated as follows:
Limitation on Non-Cash Charges Additional Guarantors. The Borrower will not
- --------------------------------- ---------------------
incur non-cash charges that would exceed (i) $25,000,000 in the aggregate with
- --
respect to the Borrower and its Consolidated Subsidiaries from and after
November 1, 1999 through and including March 31, 2000 and (ii) $15,000,000 in
the aggregate with respect to the Borrower and its Consolidated Subsidiaries
from and after April 1, 2000 through and including the Termination Date, other
than (A) depreciation and amortization expensed in the ordinary course of
business determined in accordance with generally accepted accounting principles;
and (B) any acquisition related charges of intangibles determined in accordance
with generally accepted accounting principles.
14. Addition of New Section 5.18. A new Section 5.18 is hereby added
------------------------------
as follows:
<PAGE>
SECTION 5.18. Pledged Assets.
---------------
On or before April 30, 2000, or such later date as the Agent may reasonably
determine, the Borrower will cause, and will cause each Material Subsidiary to
cause (i) all of its owned personal property located in the United States and
(ii) all of its owned real property located in the United States deemed to be
material by the Agent or the Required Banks in its or their sole reasonable
discretion, to be subject at all times to first priority, perfected Liens in
favor of the Agent to secure the Borrower's Obligations in accordance with the
terms and conditions of the Collateral Documents, subject in any case to Liens
permitted under Section 5.9. Without limiting the generality of the above, the
Borrower will cause (i) 100% of the issued and outstanding capital stock of each
domestic Material Subsidiary directly owned by the Borrower or any other
Material Subsidiary of the Borrower and (ii) 65% (or such greater percentage
which would not result in material adverse tax consequences) of the issued and
outstanding capital stock entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) and 100% of the issued and outstanding capital stock not
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of
each foreign Subsidiary directly owned by the Borrower or any other Material
Subsidiary of the Borrower to be subject at all times to a first priority,
perfected Lien in favor of the Agent to secure the Borrower's Obligations in
accordance with the terms and conditions of the Collateral Documents or such
other security documents as the Agent shall reasonably request.
15. Addition of New Section 5.19. A new Section 5.19 is hereby added
------------------------------
as follows:
SECTION 5.19. Real Property Collateral.
--------------------------
On or before April 30, 2000, or such later date as the Agent may reasonably
determine, the Borrower and each other Material Subsidiary shall, with respect
to the real property assets identified on Schedule A hereto and deemed to be
----------
material by the Agent or the Required Banks in its or their sole reasonable
discretion, deliver to the Agent the following:
(a) fully executed and notarized Mortgages;
(b) title reports obtained by the Borrower in respect of the real property
subject to the Mortgages;
(c) maps or plats of an as-built survey of the sites of the real property
covered by the Mortgages certified to the Agent and the title insurance company
issuing the policy referred to in clause (d) below (the "Title Insurance
---------------
Company") in a manner reasonably satisfactory to each of the Agent and the Title
Insurance Company, dated a date reasonably satisfactory to each of the Agent and
the Title Insurance Company by an independent professional licensed land
surveyor, which maps or plats and the surveys on which they are based shall be
sufficient to delete any standard printed survey exception contained in the
applicable title policy and be made in accordance with the Minimum Standard
Detail Requirements for Land Title Surveys jointly established and adopted by
the American Land Title Association and the American Congress on Surveying and
<PAGE>
Mapping in 1992, and, without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or surveys the following: (i)
the locations on such sites of all the buildings, structures and other
improvements and the established building setback lines; (ii) the lines of
streets abutting the sites and width thereof; (iii) all access and other
easements appurtenant to the sites necessary to use the sites; (iv) all
roadways, paths, driveways, easements, encroachments and overhanging projections
and similar encumbrances affecting the site, whether recorded, apparent from a
physical inspection of the sites or otherwise known to the surveyor; (v) any
encroachments on any adjoining property by the building structures and
improvements on the sites; and (vi) if the site is described as being on a filed
map, a legend relating the survey to said map;
(d) an ALTA mortgagee title insurance policy issued by the Title Insurance
Company, in an amount satisfactory to the Agent, assuring the Agent that the
each Mortgage creates a valid and enforceable first priority mortgage lien on
the real property subject to the Mortgage, free and clear of all defects and
encumbrances except Liens permitted by Section 5.9, which mortgage policy shall
be in form and substance reasonably satisfactory to the Agent and shall provide
for affirmative insurance and such reinsurance as the Agent may reasonably
request, all of the foregoing in form and substance reasonably satisfactory to
the Agent;
(e) evidence as to (i) whether any of the mortgaged properties are in an
area designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards (a "Flood Hazard Property") and (ii) if any mortgaged
---------------------
property is a Flood Hazard Property, (A) whether the community in which such
mortgaged property is located is participating in the National Flood Insurance
Program, (B) the Borrower's written acknowledgment of receipt of written
notification from the Agent (1) as to the fact that such mortgaged property is a
Flood Hazard Property and (2) as to whether the community in which such Flood
Hazard Property is located is participating in the National Flood Insurance
Program and (C) copies of insurance policies or certificates of insurance of the
Borrower evidencing flood insurance satisfactory to the Agent and naming the
Agent as sole loss payee; and
(f) evidence reasonably satisfactory to the Agent that the mortgaged
properties, and the uses of the mortgaged properties, are in compliance in all
material respects, as relevant for purposes of this Agreement, with all
applicable laws, regulations and ordinances including without limitation health
and environmental protection laws, erosion control ordinances, storm drainage
control laws, doing business and/or licensing laws, zoning laws (the evidence
submitted as to zoning should include the zoning designation made for the
mortgaged properties, the permitted uses of the mortgaged properties under such
zoning designation and zoning requirements as to parking, lot size, ingress,
egress and building setbacks) and applicable laws regarding access and
facilities for disabled persons including, but not limited to, the Federal
Architectural Barriers Act, the Fair Housing Amendments Act of 1988, the
Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990.
16. Addition of New Section 5.20. A new Section 5.21 is hereby added
------------------------------
as follows:
<PAGE>
SECTION 5.20. Property Acquisition Costs and Capitalized Software Costs.
---------------------------------------------------------------
The Borrower will not permit the sum of Property Acquisition Costs and
Capitalized Software Costs for (a) fiscal year 2000 to exceed $84,000,000 and
(b) fiscal year 2001 to exceed $93,000,000.
17. Amendment of Section 6.1. Section 6.1 of the Credit Agreement is
--------------------------
hereby amended by adding new Section 6.1(m):
"(m) any of the Collateral Documents shall fail to be in full force and
effect or to give the Agent and/or the Banks the Liens, rights, powers and
privileges purported to be created thereby, or the Borrower or any Subsidiary of
the Borrower shall so state in writing."
18. Amendment to Pricing Schedule. The Pricing Schedule shall be
--------------------------------
amended and restated as per the attachment hereto.
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment and the information contained
in the preliminary draft of the December 31, 1999 financial statements of the
Borrower, the representations and warranties of the Borrower pursuant to the
Credit Agreement are true on and as of the date hereof as if made on and as of
said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary corporate action.
C. EFFECTIVENESS; CONDITIONS
--------------------------
This Amendment will become effective as of December 31, 1999 upon execution
by the Required Banks (the "Effective Date"). The Borrower shall provide to the
Agent in form and substance satisfactory to the Agent, the following:
1. On or before March 31, 2000, a copy of a resolution passed by the
Board of Directors of the Borrower and each of the Guarantors, certified by the
Secretary or an Assistant Secretary of the Borrower and each of the Guarantors
as being in full force and effect on the date hereof, authorizing the execution,
delivery and performance of the Credit Agreement as hereby amended; provided,
however, with respect to Policy Management Systems Investments, Inc., such
certified resolution shall be provided to the Agent no later than April 28,
2000.
<PAGE>
2. On or before March 31, 2000, a certificate of incumbency certifying the
names of the officers of the Borrower and Guarantors authorized to sign this
Amendment, together with the true signatures of such officers; provided,
however, with respect to Policy Management Systems Investments, Inc., such
certificate of incumbency shall be provided to the Agent no later than April 28,
2000.
3. On or before March 30, 2000, executed counterparts of this
Amendment.
Borrower shall pay the Agent for the account of the consenting Banks an
amendment fee equal to 1.50% of the aggregate outstanding Loans payable to the
Banks on April 3, 2000 in accordance with their Pro Rata Share.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By: /S/ G. Larry Wilson
----------------------
Title: Chief Executive Officer
-------------------------
BANK OF AMERICA, N.A.
By: /S/ Michael McKenney
----------------------
Title: Managing Director
------------------
WACHOVIA BANK, N.A.
By: /S/ John Graham
-----------------
Title: Assistant Vice President
--------------------------
FIRST UNION NATIONAL BANK
By: /S/ Franklin M. Wessinger
----------------------------
Title: Senior Vice President
-----------------------
<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
MYND CORPORATION F/K/A CYBERTEK CORPORATION
MYND INTERNATIONAL, LTD.
MYND PARTNERS, L.P. F/K/A CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION, its General Partner
MYND CORPORATION F/K/A DORN TECHNOLOGY GROUP, INC.
MYND CORPORATION F/K/A THE LEVERAGE GROUP, INC.
By: /S/ G. Larry Wilson
----------------------
Title: Director
--------
BANK OF AMERICA, N.A.,
as Agent
By: /S/ Michael McKenney
----------------------
Title: Managing Director
------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
----------------------
Title: President
---------
<PAGE>
PRICING SCHEDULE
Each of "Eurodollar Margin" and "Facility Fee Rate" means, for any date,
the rates set forth below:
Euro-Dollar Margin:
January 1, 2000 through July 15, 2000 2.75%
July 16, 2000 through October 15, 2000 3.75%
October 16, 2000 through January 31, 2001 4.75%
Facility Fee Rate (Retroactive to January 1, 2000) .50%
3
CHAR1\531974_ 3
CHAR1\531974_ 3
THIRD AMENDMENT TO TERM LOAN AGREEMENT
This Amendment, dated as of April 24, 2000 (this "Amendment") is entered
into by and among Policy Management Systems Corporation, a South Carolina
corporation (the "Borrower"), the financial institutions parties to this
Agreement (collectively, the "Banks"; individually, a "Bank") and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as Agent (the "Agent").
RECITALS
--------
The Borrower, the Agent and the Banks are parties to a Term Loan Agreement
dated as of November 5, 1999, as amended by a First Amendment to Credit
Agreement dated as of February 10, 2000, as amended by a Second Amendment to
Term Loan Agreement dated as of March 30, 2000 (the "Credit Agreement") pursuant
to which the Banks extended a term loan. Capitalized terms used and not
otherwise defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Borrower has requested that the Banks modify certain provisions of the
Credit Agreement and the Banks have agreed to do so, all upon the terms and
provisions and subject to the conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreement
hereinafter set forth, the parties hereto mutually agree as follows:
A. AMENDMENTS
----------
1. Amendment of Section 1.1. (a) The definition of "Consolidated
---------------------------
Adjusted Cash Flow" is hereby amended by adding the following sentence to the
end thereof:
For the purposes of Section 5.21 only, Consolidated Adjusted Cash Flow shall be
measured on a quarterly basis.
(b) The definition of "Consolidated Net Income" is hereby amended by adding
the following sentence to the end thereof:
For the purposes of Section 5.21 only, Consolidated Net Income shall be measured
on a quarterly basis.
2. Amendment of Section 5.11. Section 5.11 of the Credit Agreement is
----------------------------
hereby amended and restated as follows:
Leverage Ratio Leverage Ratio. The Borrower shall not be required to maintain
- --------------- --------------
any certain Leverage Ratio at any time from March 31, 2000 through and including
December 30, 2000. The Borrower will not permit the Leverage Ratio at any time
from December 31, 2000 and thereafter, to exceed 2.5:1.0.
3. Addition of New Section 5.21. A new Section 5.21 is hereby added as
----------------------------
follows:
<PAGE>
SECTION 5.21. Consolidated Adjusted Cash Flow.
----------------------------------
Consolidated Adjusted Cash Flow. The Borrower will cause Consolidated Adjusted
- ---------------------------------
Cash Flow minus Capital Expenditures to equal or exceed the following amounts
- - -----
for the quarterly period ending on each of the following dates: March 31, 2000,
($2,000,000), (ii) June 30, 2000, $15,000,000, and (iii) September 30, 2000,
$30,000,000.
B. REPRESENTATIONS AND WARRANTIES
--------------------------------
The Borrower hereby represents and warrants to the Agent and Banks that:
1. After giving effect to this Amendment, no Event of Default specified
in the Credit Agreement and no event which with notice or lapse of time or both
would become such an Event of Default has occurred and is continuing;
2. After giving effect to this Amendment, the representations and
warranties of the Borrower pursuant to the Credit Agreement are true on and as
of the date hereof as if made on and as of said date; and
3. The making and performance by the Borrower of this Amendment have
been duly authorized by all necessary corporate action.
C. EFFECTIVENESS; CONDITIONS
--------------------------
This Amendment will become effective as of March 31, 2000 upon execution by
the Required Banks (the "Effective Date"). The Borrower shall provide to the
Agent in form and substance satisfactory to the Agent, the following:
1. Execution of Counterparts of Amendment. The Agent shall have
------------------------------------------
received counterparts (or other evidence of execution, including telephonic
message, satisfactory to the Agent) of this Amendment, which collectively shall
have been duly executed on behalf of each of the Borrower, the Guarantors (other
than Policy Management Systems Investments, Inc., whose executed counterpart
shall not be required to be delivered to the Agent until April 30, 2000), the
Banks and the Agent;
2. Other Items. The Agent shall have received such other documents,
------------
agreements or information which may be reasonably requested by the Agent.
D. MISCELLANEOUS
-------------
1. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with same effect as if the signatures thereto and
hereto were upon the same instrument.
2. Except as herein specifically amended, all terms, covenants and
provisions of the Credit Agreement shall remain in full force and effect and
shall be performed by the parties hereto according to its terms and provisions
and all references therein or in the Exhibits shall henceforth refer to the
Credit Agreement as amended by this Amendment.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By:_/S/ Stephen G. Morrison
--------------------------
Title: Executive Vice President
--------------------------
and General Counsel
---------------------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
WACHOVIA BANK, N.A.
By:/S/Donald E. Sellers, Jr.
----------------------------
Title: Vice President
----------------
FIRST UNION NATIONAL BANK
By:/S/Franklin M. Wesssinger
---------------------------
Title: Senior Vice President
-----------------------
<PAGE>
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
CORPORATION
CYBERTEK CORPORATION
PMSC LIMITED
CYBERTEK SOLUTIONS, L.P.
By: POLICY MANAGEMENT
SYSTEMS CORPORATION;
Its General Partner
THE LEVERAGE GROUP
By: /S/ Stephen G. Morrison
--------------------------
Title: Secretary
---------
BANK OF AMERICA, N.A.
By:/S/ Michael J. McKenney
--------------------------
Title: Managing Director
--------------------
ACKNOWLEDGED AND AGREED:
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.
By: /S/ Elizabeth Powers
------------------------
Title: President
---------
CHAR1\529364_ 6
16
CHAR1\529364_ 6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as of
------------------
April 28, 2000 among POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina
corporation (the "Borrower"), certain Subsidiaries of the Borrower identified on
--------
the signature pages hereto and such other Subsidiaries of the Borrower as may
from time to time become an Obligor hereunder (individually a "Subsidiary
----------
Guarantor" and collectively the "Subsidiary Guarantors"; together with the
--- ----------------------
Borrower, individually an "Obligor", and collectively the "Obligors") and BANK
------- --------
OF AMERICA, N.A. (formerly known as Bank of America National Trust and Savings
Association), in its capacity as administrative agent (in such capacity, the
"Administrative Agent") for the respective lenders from time to time party to
-------------------
the Revolving Credit Agreement and the Term Loan Agreement described below
(collectively, the "Lenders").
-------
RECITALS
--------
WHEREAS, pursuant to that certain Credit Agreement, dated as of August 8,
1997 as amended by a First Amendment to Credit Agreement dated as of November 5,
1999, as amended by a Second Amendment to Credit Agreement dated as of February
10, 2000, as amended by a Third Amendment to Credit Agreement dated as of March
30, 2000 and as further amended by a Fourth Amendment to Credit Agreement dated
as of April 24, 2000 (as may be subsequently amended, modified, extended,
renewed or replaced from time to time, the "Revolving Credit Agreement"), among
--------------------------
the Borrower, the Subsidiary Guarantors, the Lenders party thereto (the
"Revolving Credit Lenders") and the Administrative Agent, the Revolving Credit
-------------------
Lenders have extended a revolving credit facility (the "Revolving Loans") upon
---------------
the terms and subject to the conditions set forth therein; and
WHEREAS, pursuant to that certain Term Loan Agreement dated as of November
5, 1999, as amended by a First Amendment to Term Loan Agreement dated as of
February 10, 2000 , as amended by a Second Amendment to Term Loan Agreement
dated as of March 30, 2000 and as further amended by a Third Amendment to Credit
Agreement dated as of April 24, 2000 (as may be subsequently amended, modified,
extended, renewed or replaced from time to time, the "Term Loan Agreement"),
-------------------
among the Borrower, the Subsidiary Guarantors, the Lenders party thereto (the
"Term Loan Lenders") and the Administrative Agent, the Term Loan Lenders have
------------------
extended a term loan (the "Term Loan") upon the terms and subject to the
----------
conditions set forth therein; and
WHEREAS, it is a requirement of each of the Revolving Credit Agreement and
the Term Loan Agreement and the continuing obligations of the Lenders to make
their respective Loans under the Revolving Credit Agreement and the Term Loan
Agreement, as applicable, that the Obligors shall have executed and delivered
this Security Agreement to the Administrative Agent for the ratable benefit of
the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Definitions.
-----------
(a) Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Revolving Credit Agreement
and the Term Loan Agreement, as applicable, and the following terms which are
defined in the Uniform Commercial Code in effect in the State of New York on the
date hereof (the "UCC") are used herein as so defined: Accounts, Chattel Paper,
---
Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General
Intangibles, Instruments, Inventory, Investment Property and Proceeds.
(b) In addition, the following terms shall have the following
meanings:
"Bankruptcy Code": means the Bankruptcy Code in Title 11 of the United
----------------
States Code, as amended, modified, succeeded or replaced from time to time.
"Copyright Licenses": any written agreement, naming any Obligor as
-------------------
licensor or licensee, granting any right under any Copyright including, without
limitation, any such agreement with those customers and other third parties
referred to in Schedule 1(b) attached hereto but excluding teaming agreements.
-------------
"Copyrights": (a) all registered United States copyrights in all
----------
Works, now existing or hereafter created or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United
States Copyright office including, without limitation, any thereof referred to
in Schedule 1(b) attached hereto, and (b) all renewals thereof including,
--------------
without limitation, any thereof referred to in Schedule 1(b) hereto.
--- --------------
"Credit Documents": means a collective reference to the Revolving Credit
-----------------
Agreement, the Term Loan Agreement, this Security Agreement, the Pledge
Agreement, the Mortgages and all other related agreements and documents issued
or delivered hereunder or thereunder or pursuant hereto or thereto.
"Event of Default": has the meaning set forth in Section 7 hereof.
------------------
"GAAP": means generally accepted accounting principals as in effect from
----
time to time in the United States of America as applied on a consistent basis by
the Borrower (except for changes concurred in by the Borrower's independent
public accountants).
"Governmental Authority": means any nation or government, any state or
-----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Patent License": all agreements, whether written or oral, providing
---------------
for the grant by or to an Obligor of any right to manufacture, use or sell any
invention covered by a Patent,
<PAGE>
including, without limitation, any such agreement with those customers and other
third parties referred to in Schedule 1(b) attached hereto but excluding teaming
-------------
agreements.
"Patents": all letters patent of the United States or any other
-------
country and all reissues and extensions thereof, including, without limitation,
any thereof referred to in Schedule 1(b) attached hereto.
--------------
"Revolving Loan Obligations": means the Borrower's obligations to the
----------------------------
Revolving Credit Lenders arising under the Revolving Credit Agreement, including
without limitation all principal, interest, fees and other charges in respect of
the Revolving Loans.
"Secured Obligations": the collective reference to the following:
--------------------
(i) The Revolving Loan Obligations, including without limitation, all
unpaid principal of and interest on (including interest accruing after maturity
and after the commencement of bankruptcy or insolvency proceedings) the
Revolving Loans and other obligations owing under the Revolving Credit
Agreement, and all other indebtedness, liabilities and obligations owing
thereunder, whether now existing or hereafter arising, and whether primary,
secondary, direct, contingent, or joint and several; including without
limitation, all liabilities and obligations incurred in connection with
collecting and enforcing the foregoing.
(ii) The Term Loan Obligations, including without limitation all unpaid
principal of and interest on (including interest accruing after maturity and
after the commencement of bankruptcy or insolvency proceedings) the Term Loans
and other obligations owing under the Term Loan Agreement, whether now existing
or hereafter arising, and whether primary, secondary, direct, contingent, or
joint and several; including without limitation, all liabilities and obligations
incurred in connection with collecting and enforcing the foregoing.
(iii) all indebtedness, liabilities and obligations of any kind or nature, now
existing or hereafter arising, owing by the Obligors to the Lenders, arising
under the Credit Documents.
"Term Loan Obligations": means the Borrower's obligations to the Term Loan
----------------------
Lenders arising under the Term Loan Agreement, including without limitation all
principal, interest, fees and other charges in respect of the Term Loan.
"Trademark License": means any agreement, written or oral, providing
------------------
for the grant by or to an Obligor of any right to use any Trademark, including,
without limitation, any such agreement with those customers and other third
parties referred to in Schedule 1(b) attached hereto but excluding teaming
--------------
agreements.
"Trademarks": (a) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles, service
marks, logos and other
<PAGE>
source or business identifiers, and the goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, those referred
to in Schedule 1(b) attached hereto, and (b) all renewals thereof.
--------------
"Work": any work which is subject to copyright protection pursuant to
----
Title 17 of the United States Code, as amended, modified, succeeded or replaced
from time to time, including but not limited to the works set forth on Schedule
--------
1(b) attached hereto.
- ----
2. Grant of Security Interest in the Collateral. To secure the prompt
---------------------------------------------
payment and performance in full when due, whether by lapse of time, acceleration
or otherwise, of the Secured Obligations, each Obligor hereby grants to the
Administrative Agent, for the benefit of the Lenders, a continuing security
interest in, and a right to set off against, any and all right, title and
interest of such Obligor in and to the following, whether now owned or existing
or owned, acquired, or arising hereafter (collectively, the "Collateral"):
----------
(a) all Accounts;
(b) all cash and Cash Equivalents maintained on deposit with the
Administrative Agent or any other Lender;
(c) all Chattel Paper;
(d) all Copyrights;
(e) all Copyright Licenses but only to the extent that such a pledge is
permitted and not otherwise prohibited thereunder;
(f) all Deposit Accounts;
(g) all Documents;
(h) all Equipment;
(i) all Fixtures;
(j) all General Intangibles but only to the extent that such a pledge
is permitted and not otherwise prohibited thereunder;
(k) all Instruments;
(l) all Inventory;
<PAGE>
(m) all Investment Property;
(n) all Patents;
(o) all Patent Licenses but only to the extent that such a pledge is
permitted and not otherwise prohibited thereunder;
(p) all Trademarks;
(q) all Trademark Licenses but only to the extent that such a pledge is
permitted and not otherwise prohibited thereunder;
(r) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks, and related data processing software (owned by such
Obligor or in which it has an interest) that at any time evidence or contain
information relating to any Collateral or are otherwise necessary or helpful in
the collection thereof or realization thereupon; and
(s) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing.
The Obligors and the Administrative Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks or Trademark Licenses.
3. Provisions Relating to Accounts.
----------------------------------
(a) Anything herein to the contrary notwithstanding, each of the
Obligors shall remain liable under each of the Accounts to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such Account. Neither the Administrative Agent nor any Lender shall have
any obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Security Agreement or the receipt
by the Administrative Agent or any Lender of any payment relating to such
Account pursuant hereto, nor shall the Administrative Agent or any Lender be
obligated in any manner to perform any of the obligations of an Obligor under or
pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.
<PAGE>
(b) Once during each calendar year or at any time after the occurrence
and during the continuation of an Event of Default, the Administrative Agent
shall have the right, but not the obligation, to make test verifications of the
Accounts in any manner and through any medium that it reasonably considers
advisable, and the Obligors shall furnish all such assistance and information as
the Administrative Agent may require in connection with such test verifications.
At any time and from time to time, upon the Administrative Agent's request and
at the expense of the Obligors, the Obligors shall cause independent public
accountants or others satisfactory to the Administrative Agent to furnish to the
Administrative Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts. The Administrative
Agent in its own name or in the name of others may communicate with account
debtors on the Accounts to verify with them to the Administrative Agent's
satisfaction the existence, amount and terms of any Accounts.
4. Representations and Warranties. Each Obligor hereby represents and
-------------------------------
warrants to the Administrative Agent, for the benefit of the Lenders, that so
long as any of the Secured Obligations remain outstanding or any Credit Document
is in effect or any Loan under the Revolving Credit Agreement or the Term Loan
Agreement shall remain outstanding, and until all of the Commitments under the
Revolving Credit Agreement and the Term Loan Agreement shall have been
terminated:
(a) Chief Executive Office; Books & Records. Each Obligor's chief
---------------------------------------
executive office and chief place of business is (and for the prior four months
have been) located at the locations set forth on Schedule 4(a) attached hereto,
-------------
and each Obligor primarily keeps its books and records at such locations.
(b) Location of Collateral. The location of all Collateral (other
----------------------
than de minimis amounts of personal property that may be at branch locations
and/or customer sites) owned by each Obligor is as shown on Schedule 4(b)
-------------
attached hereto.
(c) Ownership. Each Obligor is the legal and beneficial owner of
---------
its Collateral and has the right to pledge, sell, assign or transfer the same.
Each Obligor's legal name is as shown in this Security Agreement and no Obligor
has in the past four months changed its name, been party to a merger,
consolidation or other change in structure or used any tradename except as set
forth in Schedule 4(c) attached hereto.
--------------
(d) Security Interest/Priority. This Security Agreement creates a
--------------------------
valid security interest in favor of the Administrative Agent, for the benefit of
the Lenders, in the Collateral of such Obligor and, when properly perfected by
filing, shall constitute a valid perfected security interest in such Collateral,
to the extent such security can be perfected by filing under the UCC, free and
clear of all Liens except for Liens permitted under the Credit Documents.
(e) Farm Products. None of the Collateral constitutes, or is the
--------------
Proceeds of, Farm Products.
<PAGE>
(f) Accounts. (i) Each Account of the Obligors and the papers and
--------
documents relating thereto are genuine and in all material respects what they
purport to be, (ii) each Account arises out of (A) a bona fide sale of goods
sold and delivered by such Obligor (or is in the process of being delivered) or
(B) bona fide licensing or similar transactions or (C) services theretofore
actually rendered or in the process of being delivered by such Obligor to, the
account debtor named therein, (iii) no Account of an Obligor is evidenced by any
Instrument or Chattel Paper unless such Instrument or Chattel Paper has been
theretofore endorsed over and delivered to the Administrative Agent and (iv) no
surety bond (other than those set forth on Schedule 4(f), as applicable,
-------------
attached hereto) was required or given in connection with any Account of an
Obligor or the contracts or purchase orders out of which they arose.
(g) Inventory. No Inventory is held by an Obligor pursuant to
---------
consignment, sale or return, sale on approval or similar arrangement.
(h) Copyrights, Patents and Trademarks.
-------------------------------------
(i) Schedule 1(b) attached hereto includes all domestic
--------------
Copyrights, Patents and Trademarks owned by the Obligors in their own names as
of the date hereof, and substantially all customers and/or other third parties
which have entered into any Copyright Licenses, Patent Licenses and Trademark
Licenses with any of the Obligors for which the Obligors are the licensor and
which are in effect as of the date hereof.
(ii) To the best of each Obligor's knowledge, each Copyright,
Patent and Trademark of such Obligor is valid, subsisting, unexpired,
enforceable and has not been abandoned.
(iii) Except as set forth in Schedule 1(b) attached hereto, none
-------------
of such Copyrights, Patents and Trademarks is the subject of any licensing or
franchise agreement, excluding teaming agreements.
(iv) Other than standard prosecution proceedings, no holding,
decision or judgment has been rendered by any Governmental Authority which would
limit, cancel or question the validity of any Copyright, Patent or Trademark.
(v) No action or proceeding is pending seeking to limit, cancel or
question the validity of any Copyright, Patent or Trademark, or which, if
adversely determined, would have a material adverse effect on the value of any
Copyright, Patent or Trademark.
(vi) All applications identified in Schedule 1(b) pertaining to
-------------
the Copyrights and Trademarks of each Obligor have been duly and properly filed,
and all registrations or letters identified in Schedule 1(b) pertaining to such
-------------
Copyrights, Patents and Trademarks have been duly and properly filed and issued,
and, to our
<PAGE>
knowledge, all of such Copyrights, Patents and Trademarks are valid and
enforceable.
(vii) No Obligor has made any assignment or agreement in conflict
with the security interest in the Copyrights, Patents or Trademarks of each
Obligor hereunder.
(viii) To the best of each Obligor's knowledge and except as
identified in Schedule 1(b), no Copyright, Patent or Trademark infringes the
--------------
intellectual property rights of a third-party.
(ix) To the best of each Obligor's knowledge and except as
identified in Schedule 1(b), no third-party copyright, patent or trademark
--------------
infringes the rights of the Obligors in the Copyrights, Patents, and Trademarks
owned by the Obligors and identified in Schedule 1(b).
--------------
(x) After taking into account the Obligors' belief concerning the
likelihood of obtaining alternative or replacement arrangements, and the costs
thereof, termination (which would result from a change of ownership or control
of each such Obligor or an assignment of such Obligor's interest in such
licenses)of any Patent License, trade secret license, Trademark License,
Copyright License or other General intangible license in favor of any Obligor as
licensee which is excluded from the Collateral hereunder pursuant to Section 2
hereof will not, in the aggregate, result in a material adverse effect on the
operations of the business of the Borrower and its Subsidiaries taken as a
whole.
5. Covenants. Each Obligor covenants that, so long as any of the
---------
Secured Obligations remain outstanding or any Credit Document is in effect or
any Loan shall remain outstanding, and until all of the Commitments under the
Revolving Credit Agreement and the Term Loan Agreement shall have been
terminated, such Obligor shall:
(a) Other Liens. Defend the Collateral against the claims and
------------
demands of all other parties claiming an interest therein, keep the Collateral
free from all Liens, except Liens permitted under the Revolving Credit Agreement
or the Term Loan Agreement and not sell, exchange, transfer, assign, lease or
otherwise dispose of the Collateral or any interest therein, except as permitted
under the Credit Documents.
(b) Preservation of Collateral. Keep the Collateral in good
----------------------------
order, condition and repair and not use the Collateral in violation of the
provisions of this Security Agreement, the Credit Documents or any other
agreement relating to the Collateral or any policy insuring the Collateral or
any applicable statute, law, bylaw, rule, regulation or ordinance.
(c) Instruments/Chattel Paper. If any amount payable under or in
--------------------------
connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, immediately deliver such Instrument or Chattel
Paper to the Administrative Agent, duly
<PAGE>
endorsed in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Security Agreement.
(d) Change in Location. Not, without providing 45 days prior
--------------------
written notice to the Administrative Agent and without filing such amendments to
any previously filed financing statements as the Administrative Agent may
require, (a) change the location of its chief executive office and chief place
of business (as well as its books and records) from the locations set forth on
Schedule 4(a) hereto, (b) change the location of its Collateral from the
locations set forth for such Obligor on Schedule 4(b) hereto, or (c) change its
name, be party to a merger, consolidation or other change in structure or use
any tradename other than as set forth on Schedule 4(c) attached hereto.
--------------
(e) Inspection. Upon reasonable notice, and during reasonable
----------
hours, at all times allow the Administrative Agent or its representatives to
visit and inspect the Collateral as the Administrative Agent may reasonably
determine.
(f) Perfection of Security Interest. Execute and deliver to the
---------------------------------
Administrative Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of existing
documents, as the Administrative Agent may reasonably request) and do all such
other things as the Administrative Agent may reasonably deem necessary or
appropriate (i) to assure to the Administrative Agent its security interests
hereunder, including (A) such financing statements (including renewal
statements) or amendments thereof or supplements thereto or other instruments as
the Administrative Agent may from time to time reasonably request in order to
perfect and maintain the security interests granted hereunder in accordance with
the UCC, (B) with regard to Copyrights, a Notice of Grant of Security Interest
in Copyrights for filing with the United States Copyright Office in the form of
Schedule 5(f)(i) attached hereto, (C) with regard to Patents, a Notice of Grant
- -----------------
of Security Interest in Patents for filing with the United States Patent and
Trademark Office in the form of Schedule 5(f)(ii) attached hereto and (D) with
-----------------
regard to Trademarks, a Notice of Grant of Security Interest in Trademarks for
filing with the United States Patent and Trademark Office in the form of
Schedule 5(f)(iii) attached hereto, (ii) to consummate the transactions
------------
contemplated hereby and (iii) to otherwise protect and assure the Administrative
-
Agent of its rights and interests hereunder. To that end, each Obligor agrees
that the Administrative Agent may file one or more financing statements
disclosing the Administrative Agent's security interest in any or all of the
Collateral of such Obligor without, to the extent permitted by law, such
Obligor's signature thereon, and further each Obligor also hereby irrevocably
makes, constitutes and appoints the Administrative Agent, its nominee or any
other person whom the Administrative Agent may designate, as such Obligor's
attorney in fact with full power and for the limited purpose to sign in the name
of such Obligor any such financing statements, or amendments and supplements to
financing statements, renewal financing statements, notices or any similar
documents which in the Administrative Agent's reasonable discretion would be
necessary, appropriate or convenient in order to perfect and maintain perfection
of the security interests granted hereunder, such power, being coupled with an
interest, being and remaining irrevocable so long as either of the Revolving
Credit Agreement or Term
<PAGE>
Loan Agreement in effect or any amounts payable thereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
thereunder shall have terminated. Each Obligor hereby agrees that a carbon,
photographic or other reproduction of this Security Agreement or any such
financing statement is sufficient for filing as a financing statement by the
Administrative Agent without notice thereof to such Obligor wherever the
Administrative Agent may in its sole discretion desire to file the same. In the
event for any reason the law of any jurisdiction other than New York becomes or
is applicable to the Collateral of any Obligor or any part thereof, or to any of
the Secured Obligations, such Obligor agrees to execute and deliver all such
instruments and to do all such other things as the Administrative Agent in its
sole discretion reasonably deems necessary or appropriate to preserve, protect
and enforce the security interests of the Administrative Agent under the law of
such other jurisdiction (and, if an Obligor shall fail to do so promptly upon
the request of the Administrative Agent, then the Administrative Agent may
execute any and all such requested documents on behalf of such Obligor pursuant
to the power of attorney granted hereinabove). If any Collateral is in the
possession or control of an Obligor's agents and the Administrative Agent so
requests, such Obligor agrees to notify such agents in writing of the
Administrative Agent's security interest therein and, upon the Administrative
Agent's request, instruct them to hold all such Collateral for the Lenders'
account and subject to the Administrative Agent's instructions. Each Obligor
agrees to mark its books and records to reflect the security interest of the
Administrative Agent in the Collateral.
(g) Treatment of Accounts. Other than as normal and customary in
----------------------
the ordinary course of an Obligor's business, not grant or extend the time for
payment of any Account, or compromise or settle any Account for less than the
full amount thereof, or release any person or property, in whole or in part,
from payment thereof, or allow any credit or discount thereon.
(h) Covenants Relating to Copyrights.
-----------------------------------
(i) Employ the Copyright for each Work with such notice of
copyright as may be required by law to secure copyright protection in accordance
with the Borrower's standard business practice.
(ii) In accordance with the Borrower's standard business practice,
not knowingly do any act or knowingly omit to do any act whereby any material
Copyright may become invalidated and (A) not knowingly do any act, or knowingly
omit to do any act, whereby any material Copyright may become injected into the
public domain; (B) notify the Administrative Agent immediately if it knows, or
has reason to know, that any material Copyright may become injected into the
public domain or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
court or tribunal in the United States or any other country) regarding an
Obligor's ownership of any such Copyright or its validity; (C) take all
necessary steps as it shall deem appropriate under the circumstances, to
maintain and pursue each
<PAGE>
application (and to obtain the relevant registration) and to maintain each
registration of each material Copyright owned by an Obligor including, without
limitation, filing of applications for renewal where necessary; and (D) promptly
notify the Administrative Agent of any material infringement of any material
Copyright of an Obligor of which it becomes aware and take such actions as it
shall reasonably deem appropriate under the circumstances to protect such
Copyright, including, where appropriate, the bringing of suit for infringement,
seeking injunctive relief and seeking to recover any and all damages for such
infringement.
(iii) Not make any assignment or agreement in conflict with the
security interest in the Copyrights of each Obligor hereunder or as otherwise
permitted by the Credit Agreement.
(i) Covenants Relating to Patents and Trademarks.
-------------------------------------------------
(i) In accordance with the Borrower's standard business practice,
(A) continue to use each Trademark on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain such Trademark in full force free from any
claim of abandonment for non-use, (B) maintain as in the past the quality of
products and services offered under such Trademark, (C) employ such Trademark
with the appropriate notice of registration, (D) not adopt or use any mark which
is confusingly similar or a colorable imitation of such Trademark unless the
Administrative Agent, for the ratable benefit of the Lenders, shall obtain a
perfected security interest in such mark pursuant to this Security Agreement,
and (E) not knowingly (and not knowingly permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark may
become invalidated.
(ii) Not knowingly do any act, or knowingly omit to do any act,
whereby any Patent may become abandoned or dedicated.
(iii) Notify the Administrative Agent and the Lenders immediately
if it knows that any registration relating to any Patent or application or
registration relating to any Trademark may become abandoned or dedicated, or of
any adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office or any court or tribunal in any
country) regarding an Obligor's ownership of any Patent or Trademark or its
right to register the same or to keep and maintain the same.
(iv) Whenever an Obligor, either by itself or through an agent,
employee, licensee or designee, shall file an application for the registration
of any Trademark with the United States Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof, an Obligor shall report
<PAGE>
such filing to the Administrative Agent and the Lenders within five Business
Days after the last day of the fiscal quarter in which such filing occurs. Upon
request of the Administrative Agent, an Obligor shall execute and deliver any
and all agreements, instruments, documents and papers as the Administrative
Agent may request to evidence the Administrative Agent's and the Lenders'
security interest in any Patent or Trademark and the goodwill and general
intangibles of an Obligor relating thereto or represented thereby.
(v) In accordance with the Borrower's standard business practice,
take all reasonable and necessary steps, including, without limitation, in any
proceeding before the United States Patent and Trademark Office, or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of the Patents and Trademarks, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(vi) Promptly notify the Administrative Agent and the Lenders
after it learns that any Patent or Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party and, in accordance with
the Borrower's standard business practice (A) promptly sue for infringement,
misappropriation or dilution, (B) to seek injunctive relief where appropriate,
(C) to recover any and all damages for such infringement, misappropriation or
dilution, or (D) take such other actions as it shall reasonably deem appropriate
under the circumstances to protect such Patent or Trademark.
(vii) Not make any assignment or agreement in conflict with the
security interest in the Patents or Trademarks of each Obligor hereunder or as
otherwise permitted by the Credit Agreement.
(j) New Patents, Copyrights and Trademarks. Promptly provide the
---------------------------------------
Administrative Agent with (i) a listing of all applications, if any, for the
issuance of registrations or letters of new Copyrights or Trademarks and of the
issuance of registrations or letters of new Copyrights, Trademarks or Patents,
together with a listing of the issuance of registrations or letters on present
applications for Copyrights and Trademarks, which new applications and issued
registrations or letters shall be subject to the terms and conditions hereunder,
and (ii) (A) with respect to Copyrights, a duly executed Notice of Security
Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of
Security Interest in Patents, (C) with respect to Trademarks, a duly executed
Notice of Security Interest in Trademarks or (D) such other duly executed
documents as the Administrative Agent may request in a form acceptable to
counsel for the Administrative Agent and suitable for recording to evidence the
security interest in the Copyright or Trademark which is the subject of such new
application or the new Copyright, Trademark or Patent.
<PAGE>
(k) Insurance. Insure, repair and replace the Collateral of such
---------
Obligor as set forth in each of the Revolving Credit Agreement and Term Loan
Agreement. All insurance proceeds shall be subject to the security interest of
the Administrative Agent hereunder.
6. Advances by Lenders. On failure of any Obligor to perform any of
---------------------
the covenants and agreements contained herein, the Administrative Agent may, at
its sole option and in its sole discretion, perform the same and in so doing may
expend such sums as the Administrative Agent may reasonably deem advisable in
the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Administrative Agent or the Lenders may
make for the protection of the security hereof or which may be compelled to make
by operation of law. All such sums and amounts so expended shall be repayable
by the Obligors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Secured Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 2.8(a) of the Revolving Credit Agreement for overdue Base
Rate Committed Loans. No such performance of any covenant or agreement by the
Administrative Agent or the Lenders on behalf of any Obligor, and no such
advance or expenditure therefor, shall relieve the Obligors of any default under
the terms of this Security Agreement or the other Credit Documents. The Lenders
may make any payment hereby authorized in accordance with any bill, statement or
estimate procured from the appropriate public office or holder of the claim to
be discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax lien,
title or claim except to the extent such payment is being contested in good
faith by an Obligor in appropriate proceedings and against which adequate
reserves are being maintained in accordance with GAAP.
7. Events of Default.
-------------------
The occurrence of an event which under the Revolving Credit Agreement or
the Term Loan Agreement would constitute an Event of Default (which has not
otherwise been cured or waived in accordance with the provisions thereof) shall
be an Event of Default hereunder (an "Event of Default").
------------------
8. Remedies.
--------
(a) General Remedies. Upon the occurrence of an Event of Default
-----------------
and during continuation thereof, the Lenders shall have, in addition to the
rights and remedies provided herein, in the Credit Documents, or by law
(including, but not limited to, the rights and remedies set forth in the Uniform
Commercial Code of the jurisdiction applicable to the affected Collateral), the
rights and remedies of a secured party under the UCC (regardless of whether the
UCC is the law of the jurisdiction where the rights and remedies are asserted
and regardless of whether the UCC applies to the affected Collateral), and
further, the Administrative Agent may, with or without judicial process or the
aid and assistance of others, (i) enter on any premises on which any of the
Collateral may be located and, without resistance or interference by the
Obligors, take possession of the Collateral, (ii) dispose of
<PAGE>
any Collateral on any such premises, (iii) require the Obligors to assemble and
make available to the Administrative Agent at the expense of the Obligors any
Collateral at any place and time designated by the Administrative Agent which is
reasonably convenient to both parties, (iv) remove any Collateral from any such
premises for the purpose of effecting sale or other disposition thereof, and/or
(v) without demand and without advertisement, notice, hearing or process of law,
all of which each of the Obligors hereby waives to the fullest extent permitted
by law, at any place and time or times, sell and deliver any or all Collateral
held by or for it at public or private sale, by one or more contracts, in one or
more parcels, for cash, upon credit or otherwise, at such prices and upon such
terms as the Administrative Agent deems advisable, in its sole discretion
(subject to any and all mandatory legal requirements). In addition to all other
sums due the Administrative Agent and the Lenders with respect to the Secured
Obligations, the Obligors shall pay the Administrative Agent and each of the
Lenders all reasonable costs and expenses incurred by the Administrative Agent
or any such Lender, including, but not limited to, reasonable attorneys' fees
and court costs, in obtaining or liquidating the Collateral, in enforcing
payment of the Secured Obligations, or in the prosecution or defense of any
action or proceeding by or against the Administrative Agent or the Lenders or
the Obligors concerning any matter arising out of or connected with this
Security Agreement, any Collateral or the Secured Obligations, including,
without limitation, any of the foregoing arising in, arising under or related to
a case under the Bankruptcy Code. To the extent the rights of notice cannot be
legally waived hereunder, each Obligor agrees that any requirement of reasonable
notice shall be met if such notice is personally served on or mailed, postage
prepaid, to the Borrower in accordance with the notice provisions of Section
10.1 of the Revolving Credit Agreement at least 10 days before the time of sale
or other event giving rise to the requirement of such notice. The
Administrative Agent and the Lenders shall not be obligated to make any sale or
other disposition of the Collateral regardless of notice having been given. To
the extent permitted by law, any Lender may be a purchaser at any such sale. To
the extent permitted by applicable law, each of the Obligors hereby waives all
of its rights of redemption with respect to any such sale. Subject to the
provisions of applicable law, the Administrative Agent and the Lenders may
postpone or cause the postponement of the sale of all or any portion of the
Collateral by announcement at the time and place of such sale, and such sale
may, without further notice, to the extent permitted by law, be made at the time
and place to which the sale was postponed, or the Administrative Agent and the
Lenders may further postpone such sale by announcement made at such time and
place.
(b) Remedies relating to Accounts. Upon the occurrence of an
--------------------------------
Event of Default and during the continuation thereof, whether or not the
Administrative Agent has exercised any or all of its rights and remedies
hereunder, each Obligor will promptly upon request of the Administrative Agent
instruct all account debtors to remit all payments in respect of Accounts to a
mailing location selected by the Administrative Agent. In addition, the
Administrative Agent or its designee may notify any Obligor's customers and
account debtors that the Accounts of such Obligor have been assigned to the
Administrative Agent or of the Administrative Agent's security interest therein,
and may (either in its own name or in the name of an Obligor or both) demand,
collect (including without limitation by way
<PAGE>
of a lockbox arrangement), receive, take receipt for, sell, sue for, compound,
settle, compromise and give acquittance for any and all amounts due or to become
due on any Account, and, in the Administrative Agent's discretion, file any
claim or take any other action or proceeding to protect and realize upon the
security interest of the Lenders in the Accounts. Each Obligor acknowledges and
agrees that the Proceeds of its Accounts remitted to or on behalf of the
Administrative Agent in accordance with the provisions hereof shall be solely
for the Administrative Agent's own convenience and that such Obligor shall not
have any right, title or interest in such Accounts or in any such other amounts
except as expressly provided herein. The Administrative Agent and the Lenders
shall have no liability or responsibility to any Obligor for acceptance of a
check, draft or other order for payment of money bearing the legend "payment in
full" or words of similar import or any other restrictive legend or endorsement
or be responsible for determining the correctness of any remittance. Each
Obligor hereby agrees to indemnify the Administrative Agent and the Lenders from
and against all liabilities, damages, losses, actions, claims, judgments, costs,
expenses, charges and reasonable attorneys' fees suffered or incurred by the
Administrative Agent or the Lenders (each, an "Indemnified Party") because of
-----------------
the maintenance of the foregoing arrangements except as relating to or arising
out of the gross negligence or willful misconduct of an Indemnified Party or its
officers, employees or agents. In the case of any investigation, litigation or
other proceeding, the foregoing indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by an Obligor, its directors,
shareholders or creditors or an Indemnified Party or any other Person or any
other Indemnified Party is otherwise a party thereto.
(c) Access. In addition to the rights and remedies hereunder,
------
upon the occurrence of an Event of Default and during the continuance thereof,
the Administrative Agent shall have the right to enter and remain upon the
various premises of the Obligors without cost or charge to the Administrative
Agent, and use the same, together with materials, supplies, books and records of
the Obligors for the purpose of collecting and liquidating the Collateral, or
for preparing for sale and conducting the sale of the Collateral, whether by
foreclosure, auction or otherwise. In addition, the Administrative Agent may
remove Collateral, or any part thereof, from such premises and/or any records
with respect thereto, in order to effectively collect or liquidate such
Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the
----------------------------------
Administrative Agent or the Lenders to exercise any right, remedy or option
under this Security Agreement or the Credit Documents or as provided by law, or
any delay by the Administrative Agent or the Lenders in exercising the same,
shall not operate as a waiver of any such right, remedy or option. No waiver
hereunder shall be effective unless it is in writing, signed by the party
against whom such waiver is sought to be enforced and then only to the extent
specifically stated, which in the case of the Administrative Agent or the
Lenders shall only be granted as provided herein. To the extent permitted by
law, neither the Administrative Agent, the Lenders, nor any party acting as
attorney for the Administrative Agent or the Lenders, shall be liable hereunder
for any acts or omissions or for any error of judgment or mistake of fact or law
other than their gross negligence or willful misconduct hereunder. The rights
and remedies of the Administrative Agents and the Lenders under this Security
Agreement shall
<PAGE>
be cumulative and not exclusive of any other right or remedy which the
Administrative Agent or the Lenders may have.
(e) Retention of Collateral. The Administrative Agent may, after
------------------------
providing the notices required by Section 9-505(2) of the UCC or otherwise
complying with the requirements of applicable law of the relevant jurisdiction,
to the extent the Administrative Agent is in possession of any of the
Collateral, retain the Collateral in satisfaction of the Secured Obligations.
Unless and until the Administrative Agent shall have provided such notices,
however, the Administrative Agent shall not be deemed to have retained any
Collateral in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
----------
collection or realization are insufficient to pay all amounts to which the
Administrative Agent or the Lenders are legally entitled, the Obligors shall be
jointly and severally liable for the deficiency, together with interest thereon
at the default rate specified in Section 2.8(a) of the Revolving Credit
Agreement for overdue Base Rate Committed Loans, together with the costs of
collection and the reasonable fees of any attorneys employed by the
Administrative Agent to collect such deficiency. Any surplus remaining after
the full payment and satisfaction of the Secured Obligations shall be returned
to the Obligors or to whomsoever a court of competent jurisdiction shall
determine to be entitled thereto.
9. Rights of the Administrative Agent.
--------------------------------------
(a) Power of Attorney. In addition to other powers of attorney
-------------------
contained herein, each Obligor hereby designates and appoints the Administrative
Agent, on behalf of the Lenders, and each of its designees or agents, as
attorney-in-fact of such Obligor, irrevocably and with power of substitution,
with authority to take any or all of the following actions upon the occurrence
and during the continuance of an Event of Default:
(i) to demand, collect, settle, compromise, adjust, give
discharges and releases, all as the Administrative Agent may reasonably
determine;
(ii) to commence and prosecute any actions at any court for the
purposes of collecting any Collateral and enforcing any other right in respect
thereof;
(iii) to defend, settle or compromise any action brought regarding
the Collateral and, in connection therewith, give such discharge or release as
the Administrative Agent may deem reasonably appropriate;
(iv) receive, open and dispose of mail addressed to an Obligor and
endorse checks, notes, drafts, acceptances, money orders, bills of lading,
warehouse receipts or other instruments or documents evidencing payment,
shipment or storage of the goods giving rise to the Collateral of such Obligor
<PAGE>
on behalf of and in the name of such Obligor, or securing, or relating to such
Collateral;
(v) sell, assign, transfer, make any agreement in respect of, or
otherwise deal with or exercise rights in respect of, any Collateral or the
goods or services which have given rise thereto, as fully and completely as
though the Administrative Agent were the absolute owner thereof for all
purposes;
(vi) adjust and settle claims under any insurance policy relating
to the Collateral;
(vii) execute and deliver all assignments, conveyances,
statements, financing statements, renewal financing statements, security
agreements, affidavits, notices and other agreements, instruments and documents
that the Administrative Agent may determine necessary in order to perfect and
maintain the security interests and liens granted in this Security Agreement and
in order to fully consummate all of the transactions contemplated therein;
(viii) institute any foreclosure proceedings that the Administrative
Agent may deem appropriate; and
(ix) do and perform all such other acts and things as the
Administrative Agent may reasonably deem to be necessary, proper or convenient
in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain outstanding
under any of the Credit Documents is in effect or any Loan shall remain
outstanding and (ii) until all of the Commitments under the Revolving Credit
Agreement and the Term Loan Agreement shall have been terminated. The
Administrative Agent shall be under no duty to exercise or withhold the exercise
of any of the rights, powers, privileges and options expressly or implicitly
granted to the Administrative Agent in this Security Agreement, and shall not be
liable for any failure to do so or any delay in doing so. The Administrative
Agent shall not be liable for any act or omission or for any error of judgment
or any mistake of fact or law in its individual capacity or its capacity as
attorney-in-fact except acts or omissions resulting from its gross negligence or
willful misconduct. This power of attorney is conferred on the Administrative
Agent solely to protect, preserve and realize upon its security interest in the
Collateral.
(b) Performance by the Administrative Agent of Obligations. If
---------------------------------------------------------
any Obligor fails to perform any agreement or obligation contained herein, the
Administrative Agent itself may perform, or cause performance of, such agreement
or obligation, and the
<PAGE>
expenses of the Administrative Agent incurred in connection therewith shall be
payable by the Obligors on a joint and several basis pursuant to Section 11
hereof.
(c) Assignment by the Administrative Agent. The Administrative
-----------------------------------------
Agent may from time to time assign the Secured Obligations and any portion
thereof and/or the Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Administrative Agent under
this Security Agreement in relation thereto.
(d) The Administrative Agent's Duty of Care. Other than the
--------------------------------------------
exercise of reasonable care to assure the safe custody of the Collateral while
being held by the Administrative Agent hereunder, the Administrative Agent shall
have no duty or liability to preserve rights pertaining thereto, it being
understood and agreed that the Obligors shall be responsible for preservation of
all rights in the Collateral, and the Administrative Agent shall be relieved of
all responsibility for the Collateral upon surrendering it or tendering the
surrender of it to the Obligors. The Administrative Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which the Administrative Agent accords its own property, which shall be no
less than the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Administrative Agent shall not have
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any of the Collateral.
10. Application of Proceeds. Upon the occurrence and during the
-------------------------
continuance of an Event of Default, all amounts collected or received in respect
of the Collateral, when received by the Administrative Agent or any of the
Lenders in cash or its equivalent, shall be paid over or delivered as follows:
(a) FIRST, to the payment of all reasonable, documented
out-of-pocket costs and expenses (including without limitation reasonable,
documented attorneys' fees) of the Administrative Agent or any Lender in
connection with enforcing the rights of the Lenders under the Credit Documents
in respect of the Collateral and any protective advances made by the
Administrative Agent or any Lender with respect to the Collateral under or
pursuant to the terms of the Collateral Documents, pro rata as set forth below;
(b) SECOND, to the payment of all accrued fees and interest
payable to the Administrative Agent and the Lenders under the Credit Documents,
pro rata as set forth below;
(c) THIRD, to the payment of the outstanding principal amount of
the Secured Obligations, pro rata, as set forth below; and
(d) FOURTH, to all other obligations which shall have become due
and payable under the Credit Documents and not repaid pursuant to clauses
"FIRST" through "THIRD" above, pro rata, as set forth below; and
<PAGE>
(e) FIFTH, to the payment of the surplus, if any, to whomever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount under the
applicable category equal to its pro rata share of amounts available to be
applied above (based on the proportion that the then outstanding obligations
owed by the Borrower to such Lender under the Credit Documents with respect to
the applicable category bears to the aggregate outstanding obligations of the
Borrower to the Lenders under the Credit Documents with respect to the
applicable category); and (iii) each Obligor irrevocably waives the right to
direct the application of such payments and proceeds and acknowledges and agrees
that the Administrative Agent shall have the continuing and exclusive right to
apply and reapply any and all such payments and proceeds in the Administrative
Agent's sole discretion, notwithstanding any entry to the contrary upon any of
its books and records.
11. Costs of Counsel. If at any time hereafter, whether upon the
------------------
occurrence of an Event of Default or not, the Administrative Agent employs
counsel to prepare or consider amendments, waivers or consents with respect to
this Security Agreement, or to take action or make a response in or with respect
to any legal or arbitral proceeding relating to this Security Agreement or
relating to the Collateral, or to protect the Collateral or exercise any rights
or remedies under this Security Agreement or with respect to the Collateral,
then the Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Administrative Agent or the Lenders, all of
which costs and expenses shall constitute Secured Obligations hereunder.
12. Continuing Agreement.
---------------------
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any of the
Secured Obligations remain outstanding or any Credit Document is in effect or
any Loan under the Revolving Credit Agreement and the Term Loan Agreement shall
remain outstanding, and until all of the Commitments under the Revolving Credit
Agreement and the Term Loan Agreement shall have been terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Credit Documents). Upon such payment and
termination, this Security Agreement shall be automatically terminated and the
Administrative Agent and the Lenders shall, upon the request and at the expense
of the Obligors, forthwith release all of its liens and security interests
hereunder and shall execute and deliver all UCC termination statements and/or
other documents reasonably requested by the Obligors evidencing such
termination. Notwithstanding the foregoing all releases and indemnities
provided hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in whole
or in part, of any of the Secured Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender as a preference,
fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar
law, all as though such payment had not been
<PAGE>
made; provided that in the event payment of all or any part of the Secured
Obligations is rescinded or must be restored or returned, all reasonable costs
and expenses (including without limitation any reasonable legal fees and
disbursements) incurred by the Administrative Agent or any Lender in defending
and enforcing such reinstatement shall be deemed to be included as a part of the
Secured Obligations.
13. Amendments; Waivers; Modifications. This Security Agreement and
------------------------------------
the provisions hereof may not be amended, waived, modified, changed, discharged
or terminated except as set forth in each of Section 10.5 of the Revolving
Credit Agreement and Section 10.5 of the Term Loan Agreement.
14. Successors in Interest. This Security Agreement shall create a
------------------------
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Administrative Agent and the Lenders hereunder, to the
benefit of the Administrative Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Obligors may assign its
-------- -------
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Revolving Credit
Agreement and the Term Loan Agreement. To the fullest extent permitted by law,
each Obligor hereby releases the Administrative Agent and each Lender, and its
successors and assigns, from any liability for any act or omission relating to
this Security Agreement or the Collateral, except for any liability arising from
the gross negligence or willful misconduct of the Administrative Agent, or such
Lender, or its officers, employees or agents.
15. Notices. All notices required or permitted to be given under this
-------
Security Agreement shall be in conformance with Section 10.1 of the Revolving
Credit Agreement.
16. Counterparts. This Security Agreement may be executed in any
------------
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
17. Headings. The headings of the sections and subsections hereof are
--------
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
-----------------------------------------------------
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or
proceeding with respect to this Security Agreement may be brought in the courts
of the State of New York, or of the United States for the Eastern District of
New York, and, by execution and delivery of this Security Agreement, each
Obligor hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the
<PAGE>
jurisdiction of such courts. Each Obligor further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address for notices pursuant to Section 10.1 of
the Revolving Credit Agreement such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the Administrative Agent
to serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Obligor in any other
jurisdiction.
(b) Each Obligor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Security Agreement
brought in the courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
----------------------
EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Severability. If any provision of any of the Security Agreement is
------------
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
21. Entirety. This Security Agreement and the other Credit Documents
--------
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
22. Survival. All representations and warranties of the Obligors
--------
hereunder shall survive the execution and delivery of this Security Agreement,
the Revolving Credit Agreement, the Term Loan Agreement and other related
documents, the delivery of the Notes and the making of the Loans under each of
the Revolving Credit Agreement and the Term Loan Agreement.
23. Other Security. To the extent that any of the Secured Obligations
---------------
are now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by an Obligor), or by a
guarantee, endorsement or property of any other Person, then the Administrative
Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Administrative Agent and the Lenders have the right, in their sole
discretion, to determine which rights, security, liens, security interests or
remedies the Administrative Agent and the Lenders shall at any time pursue,
relinquish, subordinate, modify or take with respect thereto, without in any way
<PAGE>
modifying or affecting any of them or any of the Administrative Agent's and the
Lenders' rights or the Secured Obligations under this Security Agreement or
under any other of the Credit Documents.
24. Joint and Several Obligations of Obligors.
----------------------------------------------
(a) Each of the Obligors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by the
Lenders under each of the Revolving Credit Agreement and the Term Loan
Agreement, for the mutual benefit, directly and indirectly, of each of the
Obligors and in consideration of the undertakings of each of the Obligors to
accept joint and several liability for the obligations of each of them.
(b) Each of the Obligors jointly and severally hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Obligors with respect to the payment
and performance of all of the Secured Obligations arising under this Security
Agreement and the other Credit Documents, it being the intention of the parties
hereto that all the Obligations shall be the joint and several obligations of
each of the Obligors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained herein
or in any other of the Credit Documents, the obligations of each Subsidiary
Guarantor under the Credit Documents shall be limited to an aggregate amount
equal to the largest amount that would not render such obligations subject to
avoidance under Section 548 of the Bankruptcy Code or any comparable provisions
of any applicable state law.
25. Rights of Required Lenders. All rights of the Administrative Agent
--------------------------
hereunder, if not exercised by the Administrative Agent, may be exercised by the
Required Lenders under each of the Revolving Credit Agreement and the Term Loan
Agreement.
[remainder of page intentionally left blank]
<PAGE>
CHAR1\529364_ 6
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: POLICY MANAGEMENT SYSTEMS CORPORATION,
- --------
a South Carolina corporation
By: /S
--
Name: Stephen G. Morrison
---------------------
Title: Executive Vice President and General Counsel
--------------------------------------------
SUBSIDIARY
- ----------
GUARANTORS: MYND CORPORATION
- ----------
f/k/a The Leverage Group, Inc.,
a Connecticut corporation
MYND INTERNATIONAL, LTD.,
a Delaware corporation
MYND CORPORATION
f/k/a DORN Technology Group, Inc.,
a Michigan corporation
MYND CORPORATION
f/k/a CYBERTEK Corporation,
a Texas corporation
MYND PARTNERS, L.P.,
f/k/a Cybertek Solutions, L.P.,
a Texas limited partnership
By: /S/
---
Name: Stephen G. Morrison
---------------------
Title: Secretary
---------
of each of the foregoing
Subsidiary Guarantors
<PAGE>
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.,
A Delaware corporation
By: /S/
---
Name: Elizabeth Powers
-----------------
Title: President
---------
<PAGE>
Accepted and agreed to as of the date first above written.
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /S/
---
Name: Michael J. McKenney
---------------------
Title:_________________________
2
CHAR1\529464_ 4
CHAR1\529464_ 4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of April
----------------
28, 2000 among POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina
corporation (the "Borrower"), certain subsidiaries of the Borrower as identified
--------
on the signature pages hereto and such other subsidiaries of the Borrower as may
from time to time become a Pledgor hereunder by execution of a Joinder Agreement
(individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary
--------------------- ----------
Guarantors"; together with the Borrower, individually, a "Pledgor" and
---- -------
collectively, the "Pledgors") and BANK OF AMERICA, N.A., formerly known as Bank
--- --------
of America National Trust and Savings Association, in its capacity as
administrative agent (in such capacity, the "Administrative Agent") for the
--------------------
respective Lenders from time to time party to the Revolving Credit Agreement and
the Term Loan Agreement described below (collectively, the "Lenders").
-------
RECITALS
--------
WHEREAS, pursuant to that certain Credit Agreement, dated as of August 8,
1997 as amended by a First Amendment to Credit Agreement dated as of November 5,
1999, as amended by a Second Amendment to Credit Agreement dated as of February
10, 2000, as amended by a Third Amendment to Credit Agreement dated as of March
30, 2000 and as further amended by a Fourth Amendment to Credit Agreement dated
as of April 24, 2000 (as may be subsequently amended, modified, extended,
renewed or replaced from time to time, the "Revolving Credit Agreement"), among
--------------------------
the Borrower, the Subsidiary Guarantors, the Lenders party thereto (the
"Revolving Credit Lenders") and the Administrative Agent, the Revolving Credit
-------------------
Lenders have extended a revolving credit facility (the "Revolving Loans") upon
---------------
the terms and subject to the conditions set forth therein; and
WHEREAS, pursuant to that certain Term Loan Agreement dated as of November 5,
1999, as amended by a First Amendment to Term Loan Agreement dated as of
February 10, 2000 and as further amended by a Second Amendment to Term Loan
Agreement dated as of March 30, 2000, as amended by a Third Amendment to Term
Loan Agreement dated as of April 24, 2000 (as may be subsequently amended,
modified, extended, renewed or replaced from time to time, the "Term Loan
---------
Agreement"), among the Borrower, the Subsidiary Guarantors, the Lenders party
---
thereto (the "Term Loan Lenders") and the Administrative Agent, the Term Loan
------------------
Lenders have extended a term loan (the "Term Loan") upon the terms and subject
---------
to the conditions set forth therein; and
WHEREAS, it is a requirement of each of the Revolving Credit Agreement and the
Term Loan Agreement and the continuing obligations of the Lenders to make their
respective Loans under the Revolving Credit Agreement and the Term Loan
Agreement, as applicable, that the Pledgors shall have executed and delivered
this Pledge Agreement to the Administrative Agent for the ratable benefit of the
Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Definitions.
-----------
(a) Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Revolving Credit Agreement
or the Term Loan Agreement, as applicable.
(b) In addition, the following terms shall have the following meanings:
"Bankruptcy Code": means the Bankruptcy Code in Title 11 of the United
----------------
States Code, as amended, modified, succeeded or replaced from time to time.
"Credit Documents": means a collective reference to the Revolving Credit
-----------------
Agreement, the Term Loan Agreement, the Security Agreement, this Pledge
------
Agreement, the Mortgages and all other related agreements and documents issued
------
or delivered hereunder or thereunder or pursuant hereto or thereto.
"Event of Default": has the meaning set forth in Section 8 hereof.
------------------
"Governmental Authority": means any nation or government, any state or other
-----------------------
political subdivision thereof and any entity exercising executive, legislative,
--
judicial, regulatory or administrative functions of or pertaining to government.
"Revolving Loan Obligations": means the Borrower's obligations to the Revolving
---------------------------
Credit Lenders arising under the Revolving Credit Agreement, including without
limitation all principal, interest, fees and other charges in respect of the
Revolving Loans.
"Secured Obligations": the collective reference to the following:
--------------------
(i) The Revolving Loan Obligations, including without limitation, all unpaid
principal of and interest on (including interest accruing after maturity and
after the commencement of bankruptcy or insolvency proceedings) the Revolving
Loans and other obligations owing under the Revolving Credit Agreement, and all
other indebtedness, liabilities and obligations owing thereunder, whether now
existing or hereafter arising, and whether primary, secondary, direct,
contingent, or joint and several; including without limitation, all liabilities
and obligations incurred in connection with collecting and enforcing the
foregoing.
(ii) The Term Loan Obligations, including without limitation all unpaid
principal of and interest on (including interest accruing after maturity and
after the commencement of bankruptcy or insolvency proceedings) the Term Loans
and other obligations owing under the Term Loan Agreement, whether now existing
or hereafter arising, and whether primary, secondary, direct, contingent, or
joint and several; including without limitation, all liabilities and obligations
incurred in connection with collecting and enforcing the foregoing.
<PAGE>
(iii) all indebtedness, liabilities and obligations of any kind or nature,
now existing or hereafter arising, owing by the Obligors to the Lenders, arising
under the Credit Documents.
"Term Loan Obligations": means the Borrower's obligations to the Term Loan
-----------------------
Lenders arising under the Term Loan Agreement, including without limitation all
----
principal, interest, fees and other charges in respect of the Term Loan.
2. Pledge and Grant of Security Interest. To secure the prompt payment
-------------------------------------
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Administrative Agent, for the benefit of the Lenders,
and grants to the Administrative Agent, for the benefit of the Lenders, a
continuing security interest in any and all right, title and interest of such
Pledgor in and to the following, whether now owned or existing or owned,
acquired, or arising hereafter (collectively, the "Pledged Collateral"):
-------------------
(a) Pledged Shares. (i) 100% (or, if less, the full amount owned by
---------------
such Pledgor) of the issued and outstanding shares of capital stock owned by
such Pledgor of each directly owned Domestic Subsidiary of such Pledgor set
forth on Schedule 2(a) attached hereto (except for those shares of Mynd
--------------
International, Ltd., in which case, 65% shall be pledged) and (ii) 65% (or, if
less the full amount owned by such Pledgor) of the issued and outstanding shares
of each class of capital stock or other ownership interests entitled to vote
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) ("Voting Equity") and
-------------
100% (or, if less, the full amount owned by such Pledgor) of the issued and
outstanding shares of each class of capital stock or other ownership interests
not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
("Non-Voting Equity") owned by such Pledgor of each Foreign Subsidiary set forth
-----------------
on Schedule 2(a) attached hereto, in each case together with the certificates
--------------
(or other agreements or instruments), if any, representing such shares, and all
options and other rights, contractual or otherwise, with respect thereto
(collectively, together with the shares of capital stock described in Section
2(b) and 2(c) below, the "Pledged Shares"), including, but not limited to, the
--------------
following:
(y) all shares or securities representing a dividend on any of the
Pledged Shares, or representing a distribution or return of capital upon or in
respect of the Pledged Shares, or resulting from a stock split, revision,
reclassification or other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in respect of, the
Pledged Shares; and
(z) without affecting the obligations of the Pledgors under any provision
prohibiting such action hereunder or under the other Credit Documents, in the
event of any consolidation or merger involving the issuer of any Pledged Shares
and in which such issuer is not the surviving corporation, all shares of each
<PAGE>
class of the capital stock of the successor corporation formed by or resulting
from such consolidation or merger.
(b) Additional Shares. 100% (or, if less, the full amount owned by such
------------------
Pledgor) of the issued and outstanding shares of capital stock owned by such
Pledgor of any Person which hereafter becomes a Domestic Subsidiary and 65% (or,
if less, the full amount owned by such Pledgor) of the Voting Equity and 100%
(or, if less, the full amount owned by such Pledgor) of the Non-Voting Equity
owned by such Pledgor of any Person which hereafter becomes a Foreign
Subsidiary, including, without limitation, the certificates representing such
shares.
(c) Proceeds. All proceeds and products of the foregoing, however and
--------
whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby specifically
understood and agreed that a Pledgor may from time to time hereafter deliver
additional shares of stock to the Administrative Agent as collateral security
for the Pledgor Obligations. Upon delivery to the Administrative Agent, such
additional shares of stock shall be deemed to be part of the Pledged Collateral
of such Pledgor and shall be subject to the terms of this Pledge Agreement
whether or not Schedule 2(a) is amended to refer to such additional shares.
--------------
3. Security for Pledgor Obligations. The security interest created hereby
----------------------------------
in the Pledged Collateral of each Pledgor constitutes continuing collateral
security for all of the Secured Obligations, now existing or hereafter arising
pursuant to the Credit Documents, owing from the Borrower or any other Pledgor
to any Lender, any Affiliate of a Lender or the Administrative Agent, howsoever
evidenced, created, incurred or acquired, whether primary, secondary, direct,
contingent, or joint and several, including, without limitation, all obligations
and liabilities incurred in connection with collecting and enforcing the
foregoing (collectively, the "Pledgor Obligations").
--------------------
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
--------------------------------------
(a) Each Pledgor shall deliver to the Administrative Agent (i)
simultaneously with or prior to the execution and delivery of this Pledge
Agreement, all certificates representing the Pledged Shares of such Pledgor and
(ii) promptly upon the receipt thereof by or on behalf of a Pledgor, all other
certificates and instruments constituting Pledged Collateral of a Pledgor.
Prior to delivery to the Administrative Agent, all such certificates and
instruments constituting Pledged Collateral of a Pledgor shall be held in trust
by such Pledgor for the benefit of the Administrative Agent pursuant hereto.
All such certificates shall be delivered in suitable form for transfer by
delivery or shall be accompanied by duly executed instruments of transfer or
assignment in blank, substantially in the form provided in Exhibit 4(a) attached
------------
hereto.
(b) Additional Securities. If such Pledgor shall receive by virtue of its
----------------------
being or having been the owner of any Pledged Collateral, any (i) stock
certificate, including without limitation, any certificate representing a stock
dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger,
<PAGE>
consolidation, sale of assets, combination of shares, stock splits, spin-off or
split-off, promissory notes or other instrument; (ii) option or right, whether
as an addition to, substitution for, or an exchange for, any Pledged Collateral
or otherwise; (iii) dividends payable in securities; or (iv) distributions of
securities in connection with a partial or total liquidation, dissolution or
reduction of capital, capital surplus or paid-in surplus, then such Pledgor
shall receive such stock certificate, instrument, option, right or distribution
in trust for the benefit of the Administrative Agent, shall segregate it from
such Pledgor's other property and shall deliver it forthwith to the
Administrative Agent in the exact form received together with any necessary
endorsement and/or appropriate stock power duly executed in blank, substantially
in the form provided in Exhibit 4(a), to be held by the Administrative Agent as
------------
Pledged Collateral and as further collateral security for the Pledgor
Obligations.
(c) Financing Statements. Each Pledgor shall execute and deliver to the
---------------------
Administrative Agent such UCC or other applicable financing statements as may be
reasonably requested by the Administrative Agent in order to perfect and protect
the security interest created hereby in the Pledged Collateral of such Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents and
-------------------------------
warrants to the Administrative Agent, for the benefit of the Lenders, that so
long as any of the Pledgor Obligations remain outstanding or any Credit Document
is in effect or any Loan under the Revolving Credit Agreement or the Term Loan
Agreement shall remain outstanding, and until all of the Commitments under the
Revolving Credit Agreement and the Term Loan Agreement shall have been
terminated:
(a) Authorization of Pledged Shares. The Pledged Shares are duly
----------------------------------
authorized and validly issued, are fully paid and nonassessable and are not
subject to the preemptive rights of any Person. All other shares of stock
constituting Pledged Collateral will be duly authorized and validly issued,
fully paid and nonassessable and not subject to the preemptive rights of any
Person.
(b) Title. Each Pledgor has good and indefeasible title to the Pledged
-----
Collateral of such Pledgor and will at all times be the legal and beneficial
owner of such Pledged Collateral free and clear of any Lien, other than Liens
permitted under the Revolving Credit Agreement and the Term Loan Agreement.
There exists no "adverse claim" within the meaning of Section 8-302 of the
Uniform Commercial Code as in effect in the State of New York as of the date
hereof (the "UCC") with respect to the Pledged Shares of such Pledgor.
---
(c) Exercising of Rights. To the best of such Pledgor's knowledge, the
----------------------
exercise by the Administrative Agent of its rights and remedies hereunder will
not violate (i) any law or governmental regulation or (ii) any material
contractual restriction binding on or affecting a Pledgor or any of its
property.
(d) Pledgor's Authority. To the best of such Pledgor's knowledge, no
--------------------
authorization, approval or action by, and no notice or filing with any
Governmental
<PAGE>
Authority or with the issuer of any Pledged Shares are required either (i) for
the pledge made by a Pledgor or for the granting of the security interest by a
Pledgor pursuant to this Pledge Agreement or (ii) for the exercise by the
Administrative Agent or the Lenders of their rights and remedies hereunder
(except as may be required by laws affecting the offering and sale of
securities).
(e) Security Interest/Priority. This Pledge Agreement creates a valid
---------------------------
security interest in favor of the Administrative Agent for the benefit of the
Lenders, in the Pledged Collateral. The taking possession by the Administrative
Agent of the certificates representing the Pledged Shares and all other
certificates and instruments constituting Pledged Collateral will perfect and
establish the first priority of the Administrative Agent's security interest in
the Pledged Shares and, when properly perfected by filing or registration, in
all other Pledged Collateral represented by such Pledged Shares and instruments
securing the Pledgor Obligations. Except as set forth in this Section 5(e), no
action is necessary to perfect or otherwise protect such security interest.
(f) No Other Shares. No Pledgor owns any shares of stock other than as set
----------------
forth on Schedule 2(a) attached hereto or as otherwise permitted by the Credit
Agreement.
6. Covenants. Each Pledgor hereby covenants, that so long as any of
---------
the Pledgor Obligations remain outstanding or any Credit Document is in effect
or any Loan shall remain outstanding, and until all of the Commitments under the
Revolving Credit Agreement and the Term Loan Agreement shall have been
terminated, such Pledgor shall:
(a) Books and Records. Mark its books and records (and shall cause the
-----------------
issuer of the Pledged Shares of such Pledgor to mark its books and records) to
reflect the security interest granted to the Administrative Agent, for the
benefit of the Lenders, pursuant to this Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and ownership of the
------------------
Pledged Collateral of such Pledgor at its own expense against the claims and
demands of all other parties claiming an interest therein, keep the Pledged
Collateral free from all Liens, except for Liens permitted under the Credit
Documents, and not sell, exchange, transfer, assign, lease or otherwise dispose
of Pledged Collateral of such Pledgor or any interest therein, except as
permitted under the Credit Documents.
(c) Further Assurances. Promptly execute and deliver at its expense all
-------------------
further instruments and documents and take all further action that may be
necessary and desirable or that the Administrative Agent may reasonably request
in order to (i) perfect and protect the security interest created hereby in the
Pledged Collateral of such Pledgor (including without limitation any and all
action necessary to satisfy the Administrative Agent that the Administrative
Agent has obtained a first priority perfected security interest in any capital
stock); (ii) enable the Administrative Agent to exercise and enforce its rights
and remedies hereunder in respect of the Pledged Collateral of such Pledgor; and
(iii) otherwise effect the purposes of this Pledge Agreement, including, without
<PAGE>
limitation and if requested by the Administrative Agent, delivering to the
Administrative Agent irrevocable proxies in respect of the Pledged Collateral of
such Pledgor.
(d) Amendments. Not make or consent to any amendment or other modification
----------
or waiver with respect to any of the Pledged Collateral of such Pledgor or enter
into any agreement or allow to exist any restriction with respect to any of the
Pledged Collateral of such Pledgor other than pursuant hereto or as may be
permitted under the Credit Documents.
(e) Compliance with Securities Laws. File all reports and other information
-------------------------------
now or hereafter required to be filed by such Pledgor with the United States
Securities and Exchange Commission and any other state, federal or foreign
agency in connection with the ownership of the Pledged Collateral of such
Pledgor.
7. Advances by Lenders. On failure of any Pledgor to perform any of the
---------------------
covenants and agreements contained herein, the Administrative Agent may, at its
sole option and in its sole discretion, perform the same and in so doing may
expend such sums as the Administrative Agent may reasonably deem advisable in
the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Administrative Agent or the Lenders may
make for the protection of the security hereof or which may be compelled to make
by operation of law. All such sums and amounts so expended shall be repayable
by the Pledgors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Pledgor Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 2.8(a) of the Revolving Credit Agreement for overdue Base
Rate Committed Loans. No such performance of any covenant or agreement by the
Administrative Agent or the Lenders on behalf of any Pledgor, and no such
advance or expenditure therefor, shall relieve the Pledgors of any default under
the terms of this Pledge Agreement or the other Credit Documents. The Lenders
may make any payment hereby authorized in accordance with any bill, statement or
estimate procured from the appropriate public office or holder of the claim to
be discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax lien,
title or claim except to the extent such payment is being contested in good
faith by a Pledgor in appropriate proceedings and against which adequate
reserves are being maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event which under the Revolving
------------------
Credit Agreement or the Term Loan Agreement would constitute an Event of Default
(which has not otherwise been cured or waived in accordance with the provisions
thereof) shall be an Event of Default hereunder (an "Event of Default").
----------------
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and
-----------------
during the continuation thereof, the Administrative Agent and the Lenders shall
have, in respect of the Pledged Collateral of any Pledgor, in addition to the
rights and remedies
<PAGE>
provided herein and in the Credit Documents or by law, the rights and remedies
of a secured party under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an Event of Default
---------------------------
and during the continuation thereof, without limiting the generality of this
Section and without notice, the Administrative Agent may, in its sole
discretion, sell or otherwise dispose of or realize upon the Pledged Collateral,
or any part thereof, in one or more parcels, at public or private sale, at any
exchange or broker's board or elsewhere, at such price or prices and on such
other terms as the Administrative Agent may deem commercially reasonable, for
cash, credit or for future delivery or otherwise in accordance with applicable
law. To the extent permitted by law, any Lender may in such event, bid for the
purchase of such securities. Each Pledgor agrees that, to the extent notice of
sale shall be required by law and has not been waived by such Pledgor, any
requirement of reasonable notice shall be met if notice, specifying the place of
any public sale or the time after which any private sale is to be made, is
personally served on or mailed, postage prepaid, to such Pledgor, in accordance
with the notice provisions of Section 10.1 of the Revolving Credit Agreement at
------------
least 10 days before the time of such sale. The Administrative Agent shall not
be obligated to make any sale of Pledged Collateral of such Pledgor regardless
of notice of sale having been given. The Administrative Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(c) Private Sale. Upon the occurrence of an Event of Default and during the
------------
continuation thereof, the Pledgors recognize that the Administrative Agent may
deem it impracticable to effect a public sale of all or any part of the Pledged
Shares or any of the securities constituting Pledged Collateral and that the
Administrative Agent may, therefore, determine to make one or more private sales
of any such securities to a restricted group of purchasers who will be obligated
to agree, among other things, to acquire such securities for their own account,
for investment and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which might have
been obtained at a public sale and, notwithstanding the foregoing, agrees that
such private sale shall be deemed to have been made in a commercially reasonable
manner and that the Administrative Agent shall have no obligation to delay sale
of any such securities for the period of time necessary to permit the issuer of
such securities to register such securities for public sale under the Securities
Act of 1933. Each Pledgor further acknowledges and agrees that any offer to
sell such securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such offer may be advertised
without prior registration under the Securities Act of 1933), or (ii) made
privately in the manner described above shall be deemed to involve a "public
sale" under the UCC, notwithstanding that such sale may not constitute a "public
offering" under the Securities Act of 1933, and the Administrative Agent may, in
such event, bid for the purchase of such securities.
<PAGE>
(d) Retention of Pledged Collateral. In addition to the rights and remedies
-------------------------------
hereunder, upon the occurrence of an Event of Default, the Administrative Agent
may, after providing the notices required by Section 9-505(2) of the UCC or
otherwise complying with the requirements of applicable law of the relevant
jurisdiction, retain all or any portion of the Pledged Collateral in
satisfaction of the Pledgor Obligations. Unless and until the Administrative
Agent shall have provided such notices, however, the Administrative Agent shall
not be deemed to have retained any Pledged Collateral in satisfaction of any
Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any sale, collection or
----------
realization are insufficient to pay all amounts to which the Administrative
Agent or the Lenders are legally entitled, the Pledgors shall be jointly and
severally liable for the deficiency, together with interest thereon at the
default rate specified in Section 2.8(a) of the Revolving Credit Agreement for
--------------
overdue Base Rate Committed Loans, together with the costs of collection and the
reasonable fees of any attorneys employed by the Administrative Agent to collect
such deficiency. Any surplus remaining after the full payment and satisfaction
of the Pledgor Obligations shall be returned to the Pledgors or to whomsoever a
court of competent jurisdiction shall determine to be entitled thereto.
10. Rights of the Administrative Agent.
--------------------------------------
(a) Power of Attorney. In addition to other powers of attorney
-------------------
contained herein, each Pledgor hereby designates and appoints the Administrative
Agent, on behalf of the Lenders, and each of its designees or agents as
attorney-in-fact of such Pledgor, irrevocably and with power of substitution,
with authority to take any or all of the following actions upon the occurrence
and during the continuance of an Event of Default:
(i) to demand, collect, settle, compromise, adjust and give discharges
and releases concerning the Pledged Collateral of such Pledgor, all as the
Administrative Agent may reasonably determine;
(ii) to commence and prosecute any actions at any court for the purposes of
collecting any of the Pledged Collateral of such Pledgor and enforcing any other
right in respect thereof;
(iii) to defend, settle or compromise any action brought regarding the
Pledged Collateral and, in connection therewith, give such discharge or release
as the Administrative Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against the Pledged Collateral of
such Pledgor;
(v) to direct any parties liable for any payment under any of the Pledged
Collateral to make payment of any and all monies due and to become due
<PAGE>
thereunder directly to the Administrative Agent or as the Administrative Agent
shall direct;
(vi) to receive payment of and receipt for any and all monies, claims, and
other amounts due and to become due at any time in respect of or arising out of
any Pledged Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments, proxies, stock powers,
verifications, notices and other documents relating to the Pledged Collateral of
such Pledgor;
(viii) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Administrative Agent may deem reasonably appropriate;
(ix) execute and deliver all assignments, conveyances, statements, financing
statements, renewal financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the Administrative Agent
may determine necessary in order to perfect and maintain the security interests
and liens granted in this Pledge Agreement and in order to fully consummate all
of the transactions contemplated therein;
(x) to exchange any of the Pledged Collateral of such Pledgor or other
property upon any merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof and, in connection therewith, deposit
any of the Pledged Collateral of such Pledgor with any committee, depository,
transfer agent, registrar or other designated agency upon such terms as the
Administrative Agent may determine;
(xi) to vote for a shareholder resolution, or to sign an instrument in
writing, sanctioning the transfer of any or all of the Pledged Shares of such
Pledgor into the name of the Administrative Agent or one or more of the Lenders
or into the name of any transferee to whom the Pledged Shares of such Pledgor or
any part thereof may be sold pursuant to Section 10 hereof; and
(xii) to do and perform all such other acts and things as the Administrative
Agent may reasonably deem to be necessary, proper or convenient in connection
with the Pledged Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain outstanding
or any Credit Document is in effect or any Loan shall remain outstanding and
(ii) until all of the Commitments under the Revolving Credit Agreement and the
Term Loan Agreement shall have been terminated. The Administrative Agent shall
be under no duty to exercise or withhold the exercise of any of the rights,
powers, privileges and options expressly or implicitly granted to the
Administrative Agent in this Pledge Agreement, and shall not be liable for
<PAGE>
any failure to do so or any delay in doing so. The Administrative Agent shall
not be liable for any act or omission or for any error of judgment or any
mistake of fact or law in its individual capacity or its capacity as
attorney-in-fact except acts or omissions resulting from its gross negligence or
willful misconduct. This power of attorney is conferred on the Administrative
Agent solely to protect, preserve and realize upon its security interest in
Pledged Collateral.
(b) Performance by the Administrative Agent of Pledgor's Obligations.
------------------------------------------------------------------
If any Pledgor fails to perform any agreement or obligation contained herein,
the Administrative Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Administrative Agent incurred
in connection therewith shall be payable by the Pledgors on a joint and several
basis pursuant to Section 13 hereof.
(c) Assignment by the Administrative Agent. The Administrative Agent may
-----------------------------------------
from time to time assign the Pledgor Obligations and any portion thereof and/or
the Pledged Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Administrative Agent under
this Pledge Agreement in relation thereto provided, however that any such
--------
assignment shall not violate the Revolving Credit Agreement or the Term Loan
Agreement.
(d) The Administrative Agent's Duty of Care. Other than the exercise of
-------------------------------------------
reasonable care to assure the safe custody of the Pledged Collateral while being
held by the Administrative Agent hereunder, the Administrative Agent shall have
no duty or liability to preserve rights pertaining thereto, it being understood
and agreed that Pledgors shall be responsible for preservation of all rights in
the Pledged Collateral of such Pledgor, and the Administrative Agent shall be
relieved of all responsibility for Pledged Collateral upon surrendering it or
tendering the surrender of it to the Pledgors. The Administrative Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
the Pledged Collateral in its possession if such Pledged Collateral is accorded
treatment substantially equal to that which the Administrative Agent accords its
own property, which shall be no less than the treatment employed by a reasonable
and prudent agent in the industry, it being understood that the Administrative
Agent shall not have responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Administrative Agent has
or is deemed to have knowledge of such matters; or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
---------------------------------------------------------
(i) So long as no Event of Default shall have occurred and be
continuing, to the extent permitted by law, each Pledgor may exercise any and
all voting and other consensual rights pertaining to the Pledged Collateral of
such Pledgor or any part thereof for any purpose not inconsistent with the terms
of this Pledge Agreement or the other Credit Documents; and
<PAGE>
(ii) Upon the occurrence and during the continuance of an Event of Default,
all rights of a Pledgor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise pursuant to paragraph (i) of this
Section shall cease and all such rights shall thereupon become vested in the
Administrative Agent which shall then have the sole right to exercise such
voting and other consensual rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred and be
continuing and subject to Section 4(b) hereof, each Pledgor may receive and
retain any and all dividends (other than stock dividends and other dividends
constituting Pledged Collateral which are addressed hereinabove) or interest
paid in respect of the Pledged Collateral to the extent they are allowed under
the Revolving Credit Agreement and the Term Loan Agreement.
(ii) Upon the occurrence and during the continuance of an Event of Default
pursuant to which the Administrative Agent or the Required Lenders have decided
to exercise any rights or remedies granted thereto in the Revolving Credit
Agreement or the Term Loan Agreement:
(A) all rights of a Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain pursuant
to paragraph (i) of this Section shall cease and all such rights shall thereupon
be vested in the Administrative Agent which shall then have the sole right to
receive and hold as Pledged Collateral such dividends and interest payments; and
(B) all dividends and interest payments which are received by a Pledgor
contrary to the provisions of paragraph (A) of this Section shall be received in
trust for the benefit of the Administrative Agent, shall be segregated from
other property or funds of such Pledgor, and shall be forthwith paid over to the
Administrative Agent as Pledged Collateral in the exact form received, to be
held by the Administrative Agent as Pledged Collateral and as further collateral
security for the Pledgor Obligations.
(g) Release of Pledged Collateral. The Administrative Agent may
--------------------------------
release any of the Pledged Collateral from this Pledge Agreement or may
substitute any of the Pledged Collateral for other Pledged Collateral without
altering, varying or diminishing in any way the force, effect, lien, pledge or
security interest of this Pledge Agreement as to any Pledged Collateral not
expressly released or substituted, and this Pledge Agreement shall continue as a
first priority lien on all Pledged Collateral not expressly released or
substituted.
<PAGE>
11. Rights of Required Lenders. All rights of the Administrative Agent
-----------------------------
hereunder, if not exercised by the Administrative Agent, may be exercised by the
Required Lenders under the Revolving Credit Agreement and the Term Loan
Agreement.
12. Application of Proceeds. Upon the occurrence and during the
-------------------------
continuance of an Event of Default, all amounts collected or received in respect
of the Pledged Collateral, when received by the Administrative Agent or any of
the Lenders in cash or its equivalent, shall be paid over or delivered as
follows:
(a) FIRST, to the payment of all reasonable, documented out-of-pocket
costs and expenses (including without limitation reasonable, documented
attorneys' fees) of the Administrative Agent or any Lender in connection with
enforcing the rights of the Lenders under the Credit Documents in respect of the
Pledged Collateral and any protective advances made by the Administrative Agent
or any Lender with respect to the Pledged Collateral under or pursuant to the
terms of the Collateral Documents, pro rata as set forth below;
(b) SECOND, to the payment of all accrued fees and interest payable to the
Administrative Agent and the Lenders under the Credit Documents, pro rata as set
forth below;
(c) THIRD, to the payment of the outstanding principal amount of the Secured
Obligations, pro rata, as set forth below; and
(d) FOURTH, to all other obligations which shall have become due and payable
under the Credit Documents and not repaid pursuant to clauses "FIRST" through
"THIRD" above, pro rata, as set forth below; and
(e) FIFTH, to the payment of the surplus, if any, to whomever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount under the
applicable category equal to its pro rata share of amounts available to be
applied above (based on the proportion that the then outstanding obligations
owed by the Borrower to such Lender under the Credit Documents with respect to
the applicable category bears to the aggregate outstanding obligations of the
Borrower to the Lenders under the Credit Documents with respect to the
applicable category); and (iii) each Pledgor irrevocably waives the right to
direct the application of such payments and proceeds and acknowledges and agrees
that the Administrative Agent shall have the continuing and exclusive right to
apply and reapply any and all such payments and proceeds in the Administrative
Agent's sole discretion, notwithstanding any entry to the contrary upon any of
its books and records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree to
------------------
promptly pay upon demand any and all reasonable costs and expenses of the
Administrative Agent or the Lenders, (a) as required under the Credit Documents
and (b) as necessary to protect the Pledged Collateral
<PAGE>
or to exercise any rights or remedies under this Pledge Agreement or with
respect to any Pledged Collateral. All of the foregoing costs and expenses
shall constitute Pledgor Obligations hereunder.
14. Continuing Agreement.
---------------------
(a) This Pledge Agreement shall be a continuing agreement in every
respect and shall remain in full force and effect so long as any of the Pledgor
Obligations remain outstanding or any Credit Document is in effect or any Loan
under the Revolving Credit Agreement or the Term Loan Agreement shall remain
outstanding, and until all of the Commitments under the Revolving Credit
Agreement and the Term Loan Agreement thereunder shall have terminated (other
than any obligations with respect to the indemnities and the representations and
warranties set forth in the Credit Documents). Upon such payment and
termination, this Pledge Agreement shall be automatically terminated and the
Administrative Agent and the Lenders shall, upon the request and at the expense
of the Pledgors, forthwith release all of its liens and security interests
hereunder and shall executed and deliver all UCC termination statements and/or
other documents reasonably requested by the Pledgors evidencing such
termination. Notwithstanding the foregoing all releases and indemnities
provided hereunder shall survive termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in part, of
any of the Pledgor Obligations is rescinded or must otherwise be restored or
returned by the Administrative Agent or any Lender as a preference, fraudulent
conveyance or otherwise under any bankruptcy, insolvency or similar law, all as
though such payment had not been made; provided that in the event payment of all
or any part of the Pledgor Obligations is rescinded or must be restored or
returned, all reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Administrative Agent or
any Lender in defending and enforcing such reinstatement shall be deemed to be
included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
------------------------------------
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in each of Section 10.5 of the Revolving Credit
------------
Agreement and Section 10.5 of the Term Loan Agreement.
-------------
16. Successors in Interest. This Pledge Agreement shall create a continuing
----------------------
security interest in the Collateral and shall be binding upon each Pledgor, its
successors and assigns and shall inure, together with the rights and remedies of
the Administrative Agent and the Lenders hereunder, to the benefit of the
Administrative Agent and the Lenders and their successors and permitted assigns;
provided, however, that none of the Pledgors may assign its rights or delegate
- -------- -------
its duties hereunder without the prior written consent of each Lender or the
Required Lenders, as required by each of the Revolving Credit Agreement and the
Term Loan Agreement. To the fullest extent permitted by law, each Pledgor
hereby releases the Administrative Agent and each Lender, and its successors and
assigns, from any liability for any act or omission relating to this Pledge
<PAGE>
Agreement or the Collateral, except for any liability arising from the gross
negligence or willful misconduct of the Administrative Agent, or such Lender, or
its officers, employees or agents.
17. Notices. All notices required or permitted to be given under this
-------
Pledge Agreement shall be in conformance with Section 10.1 of the Revolving
Credit Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number of
------------
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
--------
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
-----------------------------------------------------
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding with respect
to this Security Agreement may be brought in the courts of the State of New
York, or of the United States for the Eastern District of New York, and, by
execution and delivery of this Security Agreement, each Pledgor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Each Pledgor further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at the address for notices
pursuant to Section 10.1 of the Revolving Credit Agreement, such service to
-------------
become effective 30 days after such mailing. Nothing herein shall affect the
right of the Administrative Agent to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed against any
Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Pledge Agreement brought
in the courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
----------------------
EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
22. Severability. If any provision of any of the Pledge Agreement is
------------
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement and the other Credit Documents
--------
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
24. Survival. All representations and warranties of the Pledgors hereunder
--------
shall survive the execution and delivery of this Pledge Agreement and the other
Credit Documents, the delivery of the Notes and the making of the Loans under
the Revolving Credit Agreement and the Term Loan Agreement.
25. Other Security. To the extent that any of the Pledgor Obligations are
---------------
now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Administrative Agent and the Lenders shall have the right to proceed against
such other property, guarantee or endorsement upon the occurrence of any Event
of Default, and the Administrative Agent and the Lenders have the right, in
their sole discretion, to determine which rights, security, liens, security
interests or remedies the Administrative Agent and the Lenders shall at any time
pursue, relinquish, subordinate, modify or take with respect thereto, without in
any way modifying or affecting any of them or any of the Administrative Agent's
and the Lenders' rights or the Pledgor Obligations under this Pledge Agreement
or under any other of the Credit Documents.
26. Joint and Several Obligations of Pledgors.
----------------------------------------------
(a) Each of the Pledgors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by the
respective Lenders under the Revolving Credit Agreement and the Term Loan
Agreement, as applicable, for the mutual benefit, directly and indirectly, of
each of the Pledgors and in consideration of the undertakings of each of the
Pledgors to accept joint and several liability for the obligations of each of
them.
(b) Each of the Pledgors jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with the other Pledgors with respect to the payment and
performance of all of the Pledgor Obligations arising under this Pledge
Agreement and the other Credit Documents, it being the intention of the parties
hereto that all the Pledgor Obligations shall be the joint and several
obligations of each of the Pledgors without preferences or distinction among
them.
(c) Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents, the obligations of each respective Guarantor
under the
<PAGE>
Revolving Credit Agreement the Term Loan Agreement and the other Credit
Documents shall be limited to an aggregate amount equal to the largest amount
that would not render such obligations subject to avoidance under Section 548 of
the Bankruptcy Code or any comparable provisions of any applicable state law.
[remainder of page intentionally left blank]
<PAGE>
CHAR1\529464_ 4
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER:
- --------
POLICY MANAGEMENT SYSTEMS CORPORATION,
a South Carolina corporation
By: /S/
---
Name: Stephen G. Morrison
---------------------
Title: Executive Vice President and General Counsel
-------------------------------------------------
SUBSIDIARY
- ----------
GUARANTORS:
- ----------
MYND CORPORATION
f/k/a The Leverage Group, Inc.,
a Connecticut corporation
MYND INTERNATIONAL, LTD.,
a Delaware corporation
MYND CORPORATION
f/k/a DORN Technology Group, Inc.,
a Michigan corporation
MYND CORPORATION
f/k/a CYBERTEK Corporation,
a Texas corporation
MYND PARTNERS, L.P.,
f/k/a Cybertek Solutions, L.P.,
a Texas limited partnership
By: /S/
---
Name: Stephen G. Morrison
---------------------
Title: Secretary
---------
of each of the foregoing
Subsidiary Guarantors
<PAGE>
POLICY MANAGEMENT SYSTEMS
INVESTMENTS, INC.,
a Delaware corporation
By: /S/
---
Name: Elizabeth Powers
-----------------
Title: President
---------
<PAGE>
Accepted and agreed to as of the date first above written.
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /S/
---
Name: Michael J. McKenney______
---------------------------
Title:_______________________________
14
CHAR1\532061_ 2
CHAR1\532061_ 2
Drawn By and Return To:
Moore & Van Allen, PLLC (ESB)
Bank of America Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
STATE OF SOUTH CAROLINA )
)
COUNTY OF RICHLAND )
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made and entered
into as of the 28th day of April, 2000, by and between
POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina corporation, whose
address is One PMSC Center, Blythewood, South Carolina 29016 (the "Mortgagor");
and
BANK OF AMERICA, N.A., a national banking association, in its capacity as
administrative agent (in such capacity, the "Administrative Agent") for the
lenders from time to time party to the Credit Agreement and the Term Loan
Agreement described herein (the "Lenders") with a mailing address of 100 N.
Tryon Street, Business Services Group, 15th Floor, NC1-007-17-15, Charlotte,
North Carolina 28255, Attn: Michael J. McKenney.
WHEREAS, the Mortgagor is the owner of the fee simple interest in the real
property described on Exhibit A attached hereto and incorporated herein by
----------
reference;
WHEREAS, the Mortgagor, Administrative Agent and Lenders are parties to (i)
that certain Credit Agreement dated as of August 8, 1997, as amended by a First
Amendment to Credit Agreement dated as of November 5, 1999, as further amended
by a Second Amendment to Credit Agreement dated as of February 10, 2000, as
further amended by a Third Amendment to Credit Agreement dated as of March 30,
2000, as further amended by a Fourth Amendment to Credit Agreement dated as of
April 24, 2000 ("Credit Agreement") pursuant to which the Lenders established a
revolving credit facility ("Credit Facility") and (ii) that certain Term Loan
Agreement dated as of November 5, 1999 as amended by a First Amendment to Term
Loan Agreement dated as of February 10, 2000, as further amended by a Second
Amendment to Term Loan Agreement dated as of March 30, 2000, as further amended
by a Third Amendment to Term Loan Agreement dated as of April 24, 2000 ("Term
Loan Agreement") pursuant to which the Lenders extended a term loan ("Term
Loan") (the Credit Agreement and the Term Loan Agreement and any and all
documents executed in connection therewith are hereinafter collectively referred
to as the "Credit Documents");
<PAGE>
WHEREAS, the Lenders have agreed to modify certain provisions of the Credit
Facility and Credit Agreement, Term Loan and Term Loan Agreement provided that,
among other things, the Mortgagor executes and delivers this Mortgage.
W I T N E S S E T H:
- - - - - - - - - -
In order to secure the repayment of the aforesaid Credit Facility and Term
Loan together with any renewals or extensions or modifications thereof upon the
same or different terms or at the same or different rate of interest and also to
secure: (i) all future advances and readvances that may subsequently be made to
the Mortgagor by the Lenders evidenced by any promissory notes given in
connection with the aforesaid Credit Facility and Term Loan, and all renewals
and extensions thereof; (ii) all obligations under the Credit Agreement and the
Term Loan Agreement; and (iii) all other indebtedness of the Mortgagor to the
Lenders pursuant to the Credit Facility and Term Loan, now or hereafter
existing, whether direct or indirect, the maximum amount of all indebtedness
outstanding at any one time secured hereby not to exceed $250 million, plus
interest thereon, all charges and expenses of collection incurred by
Administrative Agent including court costs and reasonable attorney's fees.
The Mortgagor, in consideration of the indebtedness herein recited and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, grants, mortgages, remises, aliens, assigns and conveys to
the Administrative Agent and the Administrative Agent's successors and permitted
assigns, WITH MORTGAGE COVENANTS, subject to the further terms of this Mortgage,
all of the Mortgagor's right, title and interest (thereunder or otherwise) in
and to the following described land, real property interests, buildings,
improvements, fixtures, furniture and appliances and other personal property:
(a) All that tract or parcel of land and other real property interests
in Richland County, South Carolina more particularly described in Exhibit A
---------
attached hereto and made a part hereof together with all of Mortgagor's right,
title and interest in, to and under all rights of way, easements, privileges and
appurtenances relating or appertaining to such real estate and all water and
water rights, sewer and sewer rights, ditches and ditch rights, minerals, oil
and gas rights, royalties, lease or leasehold interests owned by Mortgagor, now
or hereafter used in connection with or appurtenant to or related to such real
estate, and all interests of the Mortgagor now owned or hereafter acquired in
and to streets, roads, alleys and public places, now or hereafter used in
connection with such real estate, and all existing or future licenses,
contracts, permits and agreements required or used in connection with the
ownership, operation or maintenance of such real estate, and any and all
insurance proceeds, and any and all awards, including interest, previously or
hereafter made to Mortgagor for taking by eminent domain or in lieu thereof
(collectively, the "Land"); and
(b) All buildings and improvements of every kind and description now or
hereafter erected or placed on the Land (the "Improvements") and all materials
intended for construction, reconstruction, alteration and repair of such
Improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the Premises (as hereinafter defined) immediately
upon the delivery thereof to the Land, and all fixtures and articles of personal
<PAGE>
property now or hereafter owned by the Mortgagor and attached to or contained in
and used in connection with the Land and Improvements including, but not limited
to, all furniture, furnishings, apparatus, machinery, equipment, motors,
elevators, fittings, radiators, ranges, refrigerators, awnings, shades, screens,
blinds, carpeting, office equipment and other furnishings and all plumbing,
heating, lighting, cooking, laundry, ventilating, refrigerating, incinerating,
air conditioning and sprinkler equipment and fixtures and appurtenances thereto
and all renewals or replacements thereof or articles in substitution thereof,
whether or not the same are or shall be attached to the Land and Improvements in
any manner (the "Tangible Personalty") and all proceeds of the Tangible
Personalty (hereinafter, the Land, Improvements and Tangible Personalty may be
collectively referred to as the "Premises").
TO HAVE AND HOLD the same, together with all privileges, hereditaments,
easements and appurtenances thereunto belonging, to the Administrative Agent and
the Administrative Agent's successors and assigns to secure the indebtedness
herein recited.
And, as additional security for said indebtedness, the Mortgagor hereby
assigns to the Administrative Agent all right, title and interest of the
Mortgagor in and to the security deposits, rents, issues, profits and revenues
of the Premises from time to time accruing (the "Rents and Profits").
Additionally, the Mortgagor hereby grants, transfers and assigns to
Administrative Agent all the right, title and interest of Mortgagor in and to
all existing and future leases, subleases, licenses and other agreements for the
use and occupancy of all or part of the Premises, together with all guarantees
of the lessee's obligations thereunder (collectively, the "Leases"), whether
oral or written, for a definite term or month-to-month. This assignment shall
extend to and cover any and all extensions and renewals and future leases and to
any and all present and future rights against guarantor(s) of any such
obligations and to any and all Rents and Profits collected under the Leases or
derived from the Premises. In pursuance of this assignment, and not in lieu
hereof, Mortgagor shall, upon request from Administrative Agent, execute and
deliver to Administrative Agent separate specific assignments of rents and
leases covering some or all of the Leases, the terms of such assignments being
incorporated herein by reference. This assignment of leases is absolute and
effective immediately and without possession; however, Mortgagor shall have a
revocable license to receive, collect and enjoy the Rents and Profits accruing
from the Premises until an Event of Default has occurred. Upon the occurrence
of any Event of Default, pursuant to which the Administrative Agent or the
Required Lenders have decided to exercise any rights or remedies granted thereto
in the Credit Agreement or the Term Loan Agreement, the license shall be revoked
automatically, without need of notice, possession, foreclosure or any other act
or procedure, and all Rents and Profits assigned hereby shall thereafter be
payable to Administrative Agent. PROVIDED ALWAYS, however, that if Mortgagor or
Guarantors shall pay unto Administrative Agent and Lenders the obligations
secured by this Mortgage, and if Mortgagor or Guarantors shall duly, promptly
and fully perform, discharge, execute, effect, complete, comply with and abide
by each of the agreements, conditions and covenants of the Credit Documents,
then this assignment and the estates and interests hereby granted and created
shall terminate.
As additional collateral and further security for said indebtedness, the
Mortgagor does hereby assign to the Administrative Agent and grants to the
Administrative Agent a security
<PAGE>
interest in all of the right, title and interest of the Mortgagor in and to any
and all insurance policies and proceeds thereof, condemnation awards, any and
all leases of personal property (including equipment leases), rental agreements,
sales contracts, management contracts, franchise agreements, construction
contracts, architects' contracts, technical services agreements, or other
contracts, licenses and permits now or hereafter affecting the Premises (the
"Intangible Personalty") or any part thereof, and the Mortgagor agrees to
execute and deliver to the Administrative Agent such additional instruments, in
form and substance reasonably satisfactory to the Administrative Agent, as may
hereafter be reasonably requested by the Administrative Agent to evidence and
confirm said assignment; provided, however, that acceptance of any such
assignment shall not be construed as a consent by the Administrative Agent to
any lease, rental agreement, management contract, franchise agreement,
construction contract, technical services agreement or other contract, license
or permit, or to impose upon the Administrative Agent any obligation with
respect thereto. Notwithstanding the foregoing provisions, such assignment and
grant of security interest contained herein shall not extend to, and the
Intangible Personalty shall not include, any personalty which is now or
hereafter held by the Mortgagor as licensee, lessee or otherwise, to the extent
that (a) such personalty is not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto and (b) such consent has not been
obtained; provided, however, that the foregoing assignment and grant of security
-------- -------
interest shall extend to, and the Intangible Personalty shall include, any and
all proceeds of such personalty to the extent that the assignment or encumbering
of such proceeds is not so restricted under the terms of the license, lease or
other agreement applicable thereto.
All the Tangible Personalty which comprise a part of the Premises shall, as
far as permitted by law, be deemed to be affixed to the aforesaid Land and
conveyed therewith. As to the balance of the Tangible Personalty and the
Intangible Personalty, this Mortgage shall be considered to be a security
agreement which creates a security interest in such items for the benefit of the
Administrative Agent. In that regard, the Mortgagor grants to the
Administrative Agent all of the rights and remedies of a secured party under the
South Carolina Uniform Commercial Code and grants to the Administrative Agent a
security interest in all of the Tangible Personalty and Intangible Personalty.
The Mortgagor and the Administrative Agent covenant, represent and agree as
follows:
ARTICLEI
--------
Secured Obligations
1.1 Obligations Secured. The obligations secured by this Mortgage are the
-------------------
result of a $250 million Credit Facility and Term Loan (hereinafter the loans
and extensions of credit thereunder may be called the "Loans") established by
the Administrative Agent and the Lenders in favor of the Mortgagor pursuant to
the respective terms of the Credit Agreement and the Term
<PAGE>
Loan Agreement; terms used but not otherwise defined herein shall have the
meanings provided in the Credit Agreement and the Term Loan Agreement, as the
case may be.
ARTICLE II
The Mortgagor's Covenants, Representations and Agreements
2.1 Title to Property. The Mortgagor represents and warrants to the
-------------------
Administrative Agent that (i) it is the owner of the Land, Improvements and
Tangible Personalty (to the extent such Tangible Personalty does not constitute
fixtures), and has the right to convey the same, (ii) that as of the date hereof
title to such property is free and clear of all encumbrances except for the
matters shown on the title insurance policy accepted by the Administrative Agent
in connection with this Mortgage (the "Permitted Encumbrances") and for those
liens permitted by the Credit Agreement and the Term Loan Agreement (the
"Permitted Liens"), and (iii) it will warrant and defend the title to such
property except for the Permitted Encumbrances and the Permitted Liens against
the claims of all Persons. As to the balance of the Premises, the Rents and
Profits and the Intangible Personalty, the Mortgagor represents and warrants
that it has title to such property, that title as of the date hereof to such
property is free and clear of all encumbrances except for the Permitted
Encumbrances and the Permitted Liens, that it has the right to convey such
property and that it will warrant and defend such property except for the
Permitted Encumbrances and the Permitted Liens against the claims of all
Persons.
2.2 Taxes and Fees. The Mortgagor will pay all taxes, general and special
--------------
assessments, insurance premiums, permit fees, inspection fees, license fees,
water and sewer charges, franchise fees and equipment rents and any other
charges or fees against it or the Premises (and the Mortgagor, upon request of
the Administrative Agent, will submit to the Administrative Agent receipts
evidencing said payments).
2.3 Reimbursement. The Mortgagor agrees that if it shall fail to pay on
-------------
or before the date that the same become delinquent any tax, assessment or charge
levied or assessed against the Premises or any utility charge, whether public or
private, or any insurance premium or if it shall fail to procure the insurance
coverage and the delivery of the insurance certificates required hereunder, or
if it shall fail to pay any other charge or fee described in Sections 2.2, 2.3
or 2.6 hereof, then the Administrative Agent, at its option, may pay or procure
the same and will give the Mortgagor prompt notice of any such expenditures.
The Mortgagor will reimburse the Administrative Agent upon demand for any sums
of money paid by the Administrative Agent pursuant to this Section, together
with interest on each such payment at the default rate of interest provided in
Section 2.8 of the Credit Agreement and Section 2.6 of the Term Loan Agreement,
and all such sums and interest thereon shall be secured hereby.
2.4 Additional Documents. The Mortgagor agrees to execute and deliver to
---------------------
the Administrative Agent, concurrently with the execution of this Mortgage and
upon the request of the Administrative Agent from time to time hereafter, all
financing statements and other documents reasonably required to perfect and
maintain the security interest created hereby. The Mortgagor hereby irrevocably
(as long as any Loans remain outstanding or the Commitment has not been
terminated) makes, constitutes and appoints the Administrative Agent as the true
and
<PAGE>
lawful attorney of the Mortgagor to sign the name of the Mortgagor on any
financing statement, continuation of financing statement or similar document
required to perfect or continue such security interests.
2.5 Sale or Encumbrance. Except as permitted by the Credit Agreement and
--------------------
the Term Loan Agreement, the Mortgagor will not sell, encumber or otherwise
dispose of any of the Tangible Personalty except to incorporate such into the
Improvements or replace such with goods of quality and value at least equal to
that replaced. In the event the Mortgagor sells or otherwise disposes of any of
the Tangible Personalty in contravention of the foregoing sentence, the
Administrative Agent's security interest in the proceeds of the Tangible
Personalty shall continue pursuant to this Mortgage.
2.6 Fees and Expenses. The Mortgagor will promptly pay upon demand any
-------------------
and all reasonable costs and expenses of the Administrative Agent, (a) as
required under Section 10.3 of each of the Credit Agreement and the Term Loan
Agreement and (b) as necessary to protect the Premises, the Rents and Profits or
the Intangible Personalty or to exercise any rights or remedies under this
Mortgage or with respect to the Premises, Rents and Profits or the Intangible
Personalty. All of the foregoing costs and expenses shall be secured hereby.
2.7 Leases and Other Agreements. The Mortgagor shall faithfully keep and
----------------------------
perform, or cause to be kept and performed, in all material respects, all of the
covenants, conditions, and agreements contained in each lease (including any
equipment lease), rental agreement, management contract, franchise agreement,
construction contract, technical services agreement or other material contract,
license or permit now or hereafter affecting the Premises, now or hereafter
existing, on the part of the Mortgagor to be kept and performed (including
performance of all covenants to be performed under any and all leases of the
Premises or any part thereof) and shall at all times use commercially reasonable
efforts to enforce, with respect to each other party to said agreements, all
obligations, covenants and agreements by such other party to be performed
thereunder.
2.8 Maintenance of Premises. The Mortgagor will abstain from and will not
-----------------------
permit the commission of waste in or about the Premises and will maintain, or
cause to be maintained (subject to reconstruction periods after the occurrence
of an act of God), the Premises in good condition and repair, reasonable wear
and tear excepted.
2.9 Insurance. The Mortgagor shall maintain insurance for the Premises as
---------
set forth in Section 5.3 of each of the Credit Agreement and the Term Loan
Agreement. In addition to the requirements set forth in Section 5.3 of each of
the Credit Agreement and the Term Loan Agreement, if any part of the
Improvements is located in an area having "special flood hazards" as defined in
the Federal Flood Disaster Protection Act of 1973, a flood insurance policy as
may be required by law naming the Administrative Agent as mortgagee must be
submitted to the Administrative Agent. The policy must be in such amount,
covering such risks and liabilities and with such deductibles or self-insurance
retentions as are in accordance with normal industry practice.
<PAGE>
2.10 Eminent Domain. The Mortgagor assigns to the Administrative Agent
---------------
any proceeds or awards which may become due by reason of any condemnation or
other taking for public use of the whole or any part of the Premises or any
rights appurtenant thereto to which the Mortgagor is entitled. The Mortgagor
agrees to execute such further assignments and agreements as may be reasonably
required by the Administrative Agent to assure the effectiveness of this
Section. In the event any Governmental Authority shall require or commence any
proceedings for the demolition of any buildings or structures comprising a part
of the Premises, or shall commence any proceedings to condemn or otherwise take
pursuant to the power of eminent domain a material portion of the Premises, the
Mortgagor shall promptly notify the Administrative Agent of such requirement or
commencement of proceedings (for demolition, condemnation or other taking).
2.11 Releases and Waivers. The Mortgagor agrees that no release by the
----------------------
Administrative Agent of any portion of the Premises, the Rents and Profits or
the Intangible Personalty, no subordination of any Lien, no forbearance on the
part of the Lenders or the Administrative Agent to collect on the Loans, or any
part thereof, no waiver of any right granted or remedy available to the
Administrative Agent and no action taken or not taken by the Administrative
Agent shall in any way have the effect of releasing the Mortgagor from full
responsibility to the Lenders and the Administrative Agent for the complete
discharge of each and every of the Mortgagor's obligations hereunder.
2.12 Assignment of Leases and Mortgagor Collection of Rents and
------------------------------------------------------------------
Profits.
(a) Mortgagor hereby authorizes and directs any lessees or tenants of
the Premises that, upon written notice from Administrative Agent, all Rents and
Profits and all payments required under the Leases, or in any way respecting
same, shall be made directly to Administrative Agent as they become due.
Mortgagor hereby relieves said lessees and tenants from any liability to
Mortgagor by reason of said payments being made to Administrative Agent.
Nevertheless, until Administrative Agent notifies in writing said lessees and
tenants to make such payments to Administrative Agent, Mortgagor shall be
entitled to collect all such Rents and Profits and/or payments. Administrative
Agent is hereby authorized to give such notification only in the event of any
breach or default by Borrowers hereunder or under the Credit Documents.
(b) Any and all Rents and Profits collected by Administrative Agent may
be applied in the respective manners set forth in Section 2.13 of the Credit
Agreement and Section 2.11 of the Term Loan Agreement. Receipt by
Administrative Agent of such Rents and Profits shall not constitute a waiver of
any right that Administrative Agent may enjoy under this Mortgage, the Credit
Agreement, the Term Loan Agreement or under the laws of the State of South
Carolina, nor shall the receipt and application thereof cure any default
hereunder nor affect any foreclosure proceeding or any sale authorized by this
Mortgage, the Credit Agreement, the Term Loan Agreement and the laws of the
State of South Carolina.
<PAGE>
(c) Administrative Agent does not consent to, does not assume and shall
not be liable for any obligation of the lessor under any of the Leases and all
such obligations shall continue to rest upon Mortgagor as though this assignment
had not been made. Administrative Agent shall not be liable for the failure or
inability to collect any Rents and Profits.
ARTICLEIII
----------
Event of Default
An event of default shall exist under the terms of this Mortgage upon the
existence of an Event of Default under the terms of the Credit Agreement or the
Term Loan Agreement (which has not been cured or waived in accordance with the
provisions thereof) or the failure of Mortgagor to perform any covenant,
agreement or obligation under this Mortgage ("Event of Default").
ARTICLE IV
Foreclosure
4.1 Acceleration of Loan; Foreclosure. Upon the occurrence and during the
---------------------------------
continuance of an Event of Default, the entire balance of the Loans and any
other obligations due under the Credit Documents, including all accrued
interest, shall, at the option of the Administrative Agent, become immediately
due and payable. Upon failure to pay the Loans or reimburse any other amounts
due under the Credit Documents in full at any stated or accelerated maturity,
the Administrative Agent may foreclose the lien of this Mortgage by judicial
proceeding in a manner permitted by applicable law. The Mortgagor hereby waives
any statutory right of redemption in connection with such foreclosure
proceeding.
4.2 Proceeds of Sale. Following a foreclosure sale, the proceeds of such
-----------------
sale shall, subject to applicable law, be applied in accordance with the
respective provisions set forth in Section 2.13 of the Credit Agreement and
Section 2.11 of the Term Loan Agreement.
ARTICLEV
--------
Additional Rights and Remedies of the Administrative Agent
5.1 Rights Upon Maturity or an Event of Default. Upon the occurrence and
--------------------------------------------
during the continuance of an Event of Default, the Administrative Agent,
immediately and without additional notice and without liability therefor to the
Mortgagor and to the extent permitted by law, except for its own gross
negligence or willful misconduct, may do or cause to be done any or all of the
following: (a) take physical possession of the Premises; (b) exercise its right
to
<PAGE>
collect the Rents and Profits; (c) enter into contracts for the completion,
repair and maintenance of the Improvements thereon; (d) expend Loan funds and
any rents, income and profits derived from the Premises for payment of any
taxes, insurance premiums, assessments and charges for completion, repair and
maintenance of the Improvements, preservation of the lien of this Mortgage and
satisfaction and fulfillment of any liabilities or obligations of the Mortgagor
arising out of or in any way connected with the construction of Improvements on
the Premises whether or not such liabilities and obligations in any way affect,
or may affect, the lien of this Mortgage; (e) enter into leases demising the
Premises or any part thereof; (f) take such steps to protect and enforce the
specific performance of any covenant, condition or agreement in the Notes, this
Mortgage, the Credit Agreement, the Term Loan Agreement or to aid the execution
of any power herein granted; (g) generally, supervise, manage, and contract with
reference to the Premises as if the Administrative Agent were equitable owner of
the Premises; (h) seek the appointment of a receiver as provided in Section 5.2
below; (i) exercise any or all of the remedies available to a secured party
under the South Carolina Uniform Commercial Code, including, but not limited to,
selling, leasing or otherwise disposing of any fixtures and personal property
which is encumbered hereby at public sale, with or without having such fixtures
or personal property at the place or sale, and upon such terms and in such
manner as Administrative Agent may determine; and (j) exercise any or all of the
remedies of a secured party under the South Carolina Uniform Commercial Code
with respect to the Tangible Personalty and Intangible Personalty. The
Mortgagor also agrees that any of the foregoing rights and remedies of the
Administrative Agent may be exercised at any time independently of the exercise
of any other such rights and remedies, and the Administrative Agent may continue
to exercise any or all such rights and remedies until the Event(s) of Default
are cured or waived with the consent of the Required Lenders or the Lenders (as
required by the Credit Agreement and the Term Loan Agreement) or until
foreclosure and the conveyance of the Premises or until the obligations secured
hereby are satisfied or paid in full and the Commitment is terminated.
5.2 Appointment of Receiver. If upon the maturity of any of the Loans or
------------------------
any other amounts or obligations under the Credit Documents, the same remain
unpaid, or upon the occurrence and continuance of an Event of Default, the
Administrative Agent as a matter of right shall be entitled to the appointment
of a receiver or receivers for all or any part of the Premises, to take
possession of and to operate the Premises, and to collect the rents, issues,
profits, and income thereof, all expenses of which shall be added to the
indebtedness secured hereby, whether such receivership be incident to a proposed
sale (or sales) of such property or otherwise, and without regard to the value
of the Premises or the solvency of any Person or Persons liable for the payment
of the indebtedness secured hereby, and the Mortgagor does hereby irrevocably
consent to the appointment of such receiver or receivers, waives any and all
defenses to such appointment, and agrees not to oppose any application therefor
by Administrative Agent. Nothing herein is to be construed to deprive the
Administrative Agent of any other right, remedy or privilege it may have under
the law to have a receiver appointed. Any money advanced by the Administrative
Agent in connection with any such receivership shall be a demand obligation
(which obligation the Mortgagor hereby promises to pay) owing by the Mortgagor
to the Administrative Agent pursuant to this Mortgage.
<PAGE>
5.3 Waivers. No waiver of any Event of Default shall at any time
-------
thereafter be held to be a waiver of any rights of the Administrative Agent
stated anywhere in the Notes, this Mortgage, the Credit Agreement, the Term Loan
Agreement or any of the other Credit Documents, nor shall any waiver of a prior
Event of Default operate to waive any subsequent Event(s) of Default. All
remedies provided in this Mortgage, in the Notes, in the Credit Agreement, in
the Term Loan Agreement and in the other Credit Documents are cumulative and
may, at the election of the Administrative Agent, be exercised alternatively,
successively, or in any manner and are in addition to any other rights provided
by law.
5.4 Delivery of Possession After Foreclosure. In the event there is a
-----------------------------------------
foreclosure sale hereunder and at the time of such sale, the Mortgagor or the
Mortgagor's heirs, devisees, representatives, successors or assigns are
occupying or using the Premises, or any part thereof, each and all immediately
shall become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day to day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the property occupied, such
rental to be due daily to the purchaser; and to the extent permitted by
applicable law, the purchaser at such sale, notwithstanding any language herein
apparently to the contrary, shall have the sole option to demand possession
immediately following the sale or to permit the occupants to remain as tenants
at will. In the event the tenant fails to surrender possession of said property
upon demand, the purchaser shall be entitled to institute and maintain a summary
action for possession of the property (such as an action for forcible detainer)
in any court having jurisdiction.
ARTICLE VI
General Conditions
6.1 Terms. The singular used herein shall be deemed to include the
-----
plural; the masculine deemed to include the feminine and neuter; and the named
parties deemed to include their heirs, successors and assigns. The term
"Lender" shall include any of the Persons identified as a "Lender" on the
signature pages to the Credit Agreement and the Term Loan Agreement, and any
Person which may become a Lender by way of assignment in accordance with the
terms of the Credit Agreement and the Term Loan Agreement, together with their
successors and permitted assigns.
6.2 Notices. All notices and other communications required to be given
-------
hereunder shall have been duly given and shall be effective (i) when delivered,
(ii) when transmitted via telecopy (or other facsimile device) to the number set
out below, (iii) the Business Day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (iv)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case to the respective parties at
the address or telecopy numbers set forth below, or at such other address as
such party may specify by written notice to the other parties hereto.
<PAGE>
to the Mortgagor:
Policy Management Systems Corporation
One PMSC Center
Blythewood, South Carolina 29016
Attention: General Counsel
Telephone: (803) 333-4000
Telecopy: (803) 333-5560
to the Administrative Agent:
Bank of America, N.A.
100 N. Tryon Street
Business Services Group
NC1-007-17-15
Charlotte, North Carolina 28255
Attn: Michael J. McKenney
Telephone: (704) 388-5920
Telecopy: (704) 388-0960
6.3 Severability. If any provision of this Mortgage is determined to be
------------
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
6.4 Headings. The captions and headings herein are inserted only as a
--------
matter of convenience and for reference and in no way define, limit, or describe
the scope of this Mortgage nor the intent of any provision hereof.
6.5 Conflicting Terms. In the event the terms and conditions of this
------------------
Mortgage conflict with the terms and conditions of the Credit Agreement or the
Term Loan Agreement, the terms and conditions of the Credit Agreement or the
Term Loan Agreement, as applicable, shall control and supersede the provisions
of this Mortgage with respect to such conflicts.
6.6 Governing Law. This Mortgage shall be governed by and construed in
--------------
accordance with the internal law of the state where the Premises is located.
6.7 Special South Carolina Provisions.
------------------------------------
(a) In the event of any inconsistencies between the terms and
conditions of the other provisions of this Mortgage and this Section 6.7, the
terms of this Section 6.7 shall control and be binding.
<PAGE>
(b) Mortgagor agrees to the full extent permitted by law that in
case of an Event of Default on its part hereunder, neither Mortgagor nor anyone
claiming through or under it shall or will set up, claim or seek to take
advantage of any appraisal, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage, or the absolute sale of the Premises or the final and absolute
putting into possession thereof, immediately after such sale, of the purchaser's
thereat, and Mortgagor, for itself and all who may at any time claim through or
under it, hereby waives, to the full extent that it may lawfully so do the
benefit of such laws, and any and all right to have the assets comprising the
Premises marshalled upon any foreclosure of the lien hereof or appraised for the
purpose of reducing any deficiency judgment obtained by Administrative Agent
against Mortgagor and agrees that Administrative Agent or any court having
jurisdiction to foreclose such lien may sell the Premises in part or as an
entirety. Mortgagor further waives, to the full extent permitted by law, the
right to petition for the appointment of appraisers following foreclosure for
the purpose of seeking to reduce a deficiency judgment or for any reason.
(c) The maximum of all indebtedness outstanding at any one time
secured hereby shall not exceed $250 million plus interest thereon, all charges
and expenses of collection incurred by Administrative Agent including court
costs and reasonable attorneys' fees. Interest hereunder may be deferred,
accrued or capitalized.
(d) This Mortgage also secures, in accordance with Section
29-3-50, Code of Laws of South Carolina 1976, as amended, all future advances
and re-advances that may subsequently be made to Mortgagor by Administrative
Agent pursuant to this Mortgage and the other Credit Documents.
PROVIDED ALWAYS, and it is the true intent and meaning of the Mortgagor and
the Administrative Agent, that if the Mortgagor, the Guarantors, or their
successors and assigns, shall pay or cause to be paid and discharged unto the
Administrative Agent, its successors and assigns, the obligations secured hereby
according to the terms of this Mortgage, and the Credit Documents, then this
Mortgage shall cease, determine and be void, otherwise it shall remain in full
force and virtue. And it is agreed, by and between the Mortgagor and the
Administrative Agent, that the Mortgagor is to hold and enjoy the said premises
until an Event of Default be made in the terms of this Mortgage.
<PAGE>
CHAR1\532061_ 2
CHAR1\532061_ 2
The laws of South Carolina provide that in any real estate foreclosure
proceeding a defendant against whom a personal judgment is taken or asked may
within thirty days after the sale of the Premises apply to the court for an
order of appraisal. The statutory appraisal value as approved by the court
could be substituted for the high bid and may decrease the amount of any
deficiency owing in connection with the transaction. THE UNDERSIGNED MORTGAGOR
HEREBY WAIVES AND RELINQUISHES THE STATUTORY APPRAISAL RIGHTS WHICH MEANS THE
HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL BE APPLIED TO THE DEBT REGARDLESS
OF ANY APPRAISED VALUE OF THE PREMISES.
IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage under seal as
of the above written date.
POLICY MANAGEMENT SYSTEMS CORPORATION,
WITNESS: a South Carolina corporation
/S/ Lynn W. Dillard By: /S/ Stephen G. Morrison
- ---------------------- --------------------------
Title: Executive Secretary and General Counsel
-------------------------------------------
/S/ Katherine E. Daniels
- ---------------------------
<PAGE>
STATE OF SOUTH CAROLINA )
ACKNOWLEDGMENT
COUNTY OF RICHLAND )
I, Cynthia R. Dowie, Notary Public for the State of South Carolina, do
hereby certify that the above-named Policy Management Systems Corporation, by
its duly authorized officer, personally appeared before me this day and
acknowledged the due execution of the foregoing instruments.
Witness my hand an official seal this the 28th day of April 2000.
/S/ Cynthia R. Dowie
- -----------------------
Notary Public for South Carolina
My Commission Expires: March 2, 2002
<PAGE>
CHAR1\532061_ 2
CHAR1\532061_ 2
Administrative Agent hereby joins in the execution of this Mortgage and Security
Agreement with the intention that it shall serve as a financing statement
pursuant to Section 36-9-402 of the Code of Laws of South Carolina 1976.
-------------------------------------
WITNESS: ADMINISTRATIVE AGENT:
-
BANK OF AMERICA, N.A.
By:/S/ Christopher M. Chamness By: /S/ Michael J. McKenney
------------------------------ ------------------------------
Title:__________________________
WITNESS:
By: /S/ Naomi Simms
--------------------
<PAGE>
EXHIBIT A
---------
All that certain piece, parcel, or lot of land, with improvements thereon,
situate, lying and being in the County of Richland, State of South Carolina,
near the City of Columbia, located at the intersection of U.S. Interstate 77 and
U.S. Highway 21, as shown on that certain ALTA/ACSM Land Title Survey prepared
for Policy Management Systems Corporation by Leon Campbell & Associates, dated
April 26, 2000, last revised May 02, 2000, and recorded in the office of the
Richland County ROD in Book 00406, Pages 2764 and 2765. Reference to said plat
is craved for a fuller description, with all measurements being a little more or
less.
~Doc# 5162924.01 ~
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF POLICY
MANAGEMENT SYSTEMS CORPORATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15143
<SECURITIES> 80
<RECEIVABLES> 108303
<ALLOWANCES> 11550
<INVENTORY> 0
<CURRENT-ASSETS> 203468
<PP&E> 274337
<DEPRECIATION> 134790
<TOTAL-ASSETS> 693071
<CURRENT-LIABILITIES> 152826
<BONDS> 0
0
0
<COMMON> 356
<OTHER-SE> 305010
<TOTAL-LIABILITY-AND-EQUITY> 693071
<SALES> 0
<TOTAL-REVENUES> 148342
<CGS> 0
<TOTAL-COSTS> 119968
<OTHER-EXPENSES> 44371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4305
<INCOME-PRETAX> (19843)
<INCOME-TAX> (7701)
<INCOME-CONTINUING> (12142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12142)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
