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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 30, 2000
Policy Management Systems Corporation
(Exact Name of Registrant as Specified in Its Charter)
South Carolina
(State or Other Jurisdiction of Incorporation)
1-10557 57-0723125
(Commission File Number) (IRS Employer Identification No.)
One PMSC Center (PO Box Ten)
Blythewood, SC (Columbia, SC)
29016 (29202)
(Address of Principal Executive Offices)
(803) 333-4000
(Registrant's Telephone Number, Including Area Code)
Not Applicable.
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On March 30, 2000, Policy Management Systems Corporation ("PMSC")
and Politic Acquisition Corp. ("Acquisition"), an affiliate of Welsh, Carson,
Anderson & Stowe, entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which, subject to the terms and conditions set forth
therein, Acquisition will merge into PMSC. Under the terms of the Merger
Agreement, between 75% to 93% of the outstanding PMSC common stock will be
converted into the right to receive $14 in cash per share. The exact percentage
will be determined by an election procedure under which PMSC's stockholders can
elect cash or stock. PMSC's existing stockholders will retain the remaining
shares.
The merger is expected to be completed during the second or third
quarter of 2000 and is subject to approval by PMSC's shareholders, the receipt
of financing and other customary conditions.
In the event the merger agreement is terminated under certain
circumstances, PMSC has agreed to pay Acquisition a termination fee of $19
million plus expenses of up to $5 million.
The foregoing description is qualified in its entirety by reference
to the text of the Merger Agreement which is filed as exhibit 99.1 hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Agreement and Plan of Merger, dated as of March 30, 2000,
between Policy Management Systems Corporation and Politic
Acquisition Corp.
99.2 Press release issued by Policy Management Systems
Corporation on March 30, 2000.
99.3 Letter agreement dated March 30, 2000, among Welsh,
Carson, Anderson & Stowe VIII, L.P., and Policy Management
Systems Corporation
99.4 Letter agreement dated March 30, 2000, among Welsh,
Carson, Anderson & Stowe VIII, L.P., and Politic
Acquisition Corp.
99.5 Letter agreement dated March 30, 2000, among WCAS Capital
Partners III, L.P., and Politic Acquisition Corp.
99.6 Letter agreement dated March 30, 2000, among Welsh,
Carson, Anderson & Stowe VIII, L.P. and DLJ Capital
Funding Corp.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
POLICY MANAGEMENT SYSTEMS
CORPORATION
Date: March 31, 2000 By: /s/ G. Larry Wilson
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Name: G. Larry Wilson
Title: Chairman, President
and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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99.1 Agreement and Plan of Merger, dated as of March 30, 2000, between
Policy Management Systems Corporation and Politic Acquisition
Corp.
99.2 Press release issued by Policy Management Systems Corporation on
March 30, 2000
99.3 Letter agreement dated March 30, 2000, among Welsh, Carson,
Anderson & Stowe VIII, L.P., and Policy Management Systems
Corporation
99.4 Letter agreement dated March 30, 2000, among Welsh, Carson,
Anderson & Stowe VIII, L.P., and Policy Management Systems
Corporation
99.5 Letter agreement dated March 30, 2000, among WCAS Capital Partners
III, L.P., and Policy Management Systems Corporation
99.6 Letter agreement dated March 30, 2000, among Welsh, Carson,
Anderson
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AGREEMENT AND PLAN OF MERGER
By and Between
POLITIC ACQUISITION CORP.
and
POLICY MANAGEMENT SYSTEMS CORPORATION
Dated as of March 30 , 2000
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER
SECTION 1.01 The Merger 1
SECTION 1.02 Effect of the Merger 1
SECTION 1.03 Closing 1
SECTION 1.04 Consummation of the Merger 2
SECTION 1.05 Articles of Incorporation; By-Laws; Directors and Officers 2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.01 Effect on Capital Stock. 2
SECTION 2.02 Company Common Stock Elections. 4
SECTION 2.03 Proration. 5
SECTION 2.04 Exchange of Certificates. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification 10
SECTION 3.02 Subsidiaries 10
SECTION 3.03 Authority Relative to Agreements 11
SECTION 3.04 Non-Contravention 11
SECTION 3.05 Capitalization 11
SECTION 3.06 SEC Filings 12
SECTION 3.07 Financial Statements 12
SECTION 3.08 Absence of Certain Changes or Events 13
SECTION 3.09 Governmental Approvals 13
SECTION 3.10 Compliance with Laws; No Default 14
SECTION 3.11 Information Supplied 14
SECTION 3.12 Litigation 15
SECTION 3.13 Intellectual Property; Computer Software 15
SECTION 3.14 Trade Secrets 16
SECTION 3.15 Severance Arrangements 17
SECTION 3.16 Taxes 17
SECTION 3.17 Employee Benefit Plans 18
SECTION 3.18 Environmental Matters 19
SECTION 3.19 Customer Relationships 19
SECTION 3.20 Certain Transactions 20
SECTION 3.21 Title to Properties; Absence of Liens and Encumbrances 20
SECTION 3.22 Insurance 20
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SECTION 3.23 State Takeover Statutes; Certain Charter Provisions 20
SECTION 3.24 Opinion of Financial Advisor 21
SECTION 3.25 Brokers 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUISITION
SECTION 4.01 Organization and Qualification 21
SECTION 4.02 Capital Structure 21
SECTION 4.03 Authorization of Agreement, Non-Contravention, Etc 21
SECTION 4.04 Information Supplied 22
SECTION 4.05 Subsidiaries 22
SECTION 4.06 Interim Operations of Acquisition 22
SECTION 4.07 Brokers 23
SECTION 4.08 Financing 23
ARTICLE V CERTAIN AGREEMENTS
SECTION 5.01 Conduct of the Company's Business 24
SECTION 5.02 Stockholder Approval 26
SECTION 5.03 Access to Information 27
SECTION 5.04 Further Assurances 27
SECTION 5.05 Inquiries and Negotiations 27
SECTION 5.06 Notification of Certain Matters, Etc, 29
SECTION 5.07 Indemnification. 29
SECTION 5.08 Employee Benefits 30
SECTION 5.09 Affiliates of the Company 31
SECTION 5.10 Comfort Letters 31
ARTICLE VI CONDITIONS TO THE MERGER
SECTION 6.01 Conditions to the Obligations of the Parties. 31
SECTION 6.02 Conditions to the Obligation of Acquisition. 33
SECTION 6.03 Conditions to the Obligations of the Company 33
ARTICLE VII TERMINATION AND ABANDONMENT
SECTION 7.01 Termination and Abandonment 34
SECTION 7.02 Effect of Termination 35
ARTICLE VIII MISCELLANEOUS
SECTION 8.01 Nonsurvival of Representations and Warranties 35
SECTION 8.02 Expenses, Etc. 35
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SECTION 8.03 Publicity. 36
SECTION 8.04 Execution in Counterparts. 36
SECTION 8.05 Notices. 36
SECTION 8.06 Waivers. 37
SECTION 8.07 Entire Agreement. 37
SECTION 8.08 Applicable Law. 38
SECTION 8.09 Binding Effect, Benefits. 38
SECTION 8.10 Assignability. 38
SECTION 8.11 Amendments 38
SECTION 8.12 Interpretation 38
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INDEX TO SCHEDULES
Schedule Description
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3.05 Company Stock Options; Agreements in Respect
of Capital Stock
3.07 Certain Liabilities
3.08 Certain Changes or Events
3.09 Governmental Approvals
3.10 Defaults
3.12 Litigation
3.13 Intangible Rights
3.15 Severance Arrangements
3.16 Taxes
3.17 Employee Benefit Plans
3.19 Certain Customer Relationships
3.20 Certain Transactions
3.21 Title to Properties
3.22 Insurance Policies
5.01 Certain Actions
5.08 Employee Benefit Arrangements
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 30, 2000, by and
between POLITIC ACQUISITION CORP., a South Carolina corporation
("Acquisi-tion"), and POLICY MANAGEMENT SYSTEMS CORPORATION, a South Carolina
corporation (the "Company"). Acquisition and the Company -are hereinafter
some-times referred to as the "Con-stituent Corpo-rations" and the Company as
the "Surviv-ing Corpora-tion".
WHEREAS, the respective Boards of Directors of Acquisition and the
Company have unanimously deemed it advisable and in the best interests of their
respective stockholders that Acquisition merge (the "Merger") with and into the
Company pursuant to the terms and conditions of this Agreement and the South
Carolina Business Corporation Act (the "SCBCA"), and, in furtherance thereof,
such Boards of Directors have each unanimously adapted resolutions approving,
adopting and declaring the advisability of this Agreement and the Merger; and
WHEREAS, it is intended that the Merger be recorded as a
recapitalization for financial reporting purposes and each of the parties, after
discussion with their respective accounting advisors, believes that the Merger
is eligible for such treatment; and
NOW, THEREFORE, in consideration of the mutual repre-sentations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and condi-tions of the Merger and the mode of carrying
the same into effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger . Subject to the terms and conditions of
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this Agreement, at the Effective Time (as herein-after defined), in accor-dance
with this Agreement and the SCBCA, Acquisi-tion shall be merged with and into
the Company. Following the Merger, the separate existence of Acquisition shall
cease and the Company shall continue as the surviving corporation under the
current corporate name of the Company.
SECTION 1.02 Effect of the Merger . Upon the effec-tiveness of the
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Merger, the Surviving Corporation shall succeed to and assume all the rights and
obligations of the Company and Acquisition in accordance with the SCBCA and the
Merger shall otherwise have the effects set forth in Section 33-11-106 of the
Code of Laws of South Carolina of 1976, as amended (the "South Carolina Code").
SECTION 1.03 Closing . Unless this Agreement shall have been
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terminated previously, and subject to the satisfaction or waiver of the
conditions to the obligations of the parties to effect the Merger set forth
herein, the consummation of the Merger (the "Closing") will take place as
promptly as practicable, but in no event later than 10:00 a.m. on the second
business day following the satisfaction or waiver of all the conditions (other
than conditions which, by their nature are to be satisfied at closing, but
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subject to those conditions) to the obligations of the parties to effect the
Merger set forth herein (the "Closing Date"), at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York
10111, unless another time, date or place is agreed to by the parties hereto.
SECTION 1.04 Consummation of the Merger . Upon the Closing, the
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parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of the State of South Carolina properly executed articles of
merger in accordance with the SCBCA, which shall be effective upon filing or on
such later date as may be agreed by the parties and specified therein (the time
of such effectiveness being the "Effec-tive Time").
SECTION 1.05 Articles of Incorporation; By-Laws; Directors and
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Officers . (a) The Articles -of Incorporation of Acquisition in effect at the
Effective Time shall be the Articles of Incorpora-tion of the Surviving
Corporation (except that such Articles of Incorpora-tion shall be amended to
provide that the name of the Surviving Corpora-tion shall be the current
corporate name of the Company) until there-af-ter amended in accor-dance with
the provi-sions thereof and as provided by the SCBCA. The By-Laws of
Acquisition in effect at the Effective Time shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with the provisions
thereof, the Articles of Incorpo-ration of the Surviving Corporation and the
SCBCA.
(b) From and after the Effective Time and until their respective
successors are duly elected or appointed and quali-fied, or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Articles of Incorporation and By-Laws, (i) the directors of Acquisition at the
Effective Time shall be the directors of the Surviving Corporation and (ii) the
officers of the Company at the Effective Time shall be the officers of the
Surviving Corpo-ration.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.01 Effect on Capital Stock. As of the Effective Time, by
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virtue of the Merger and without any action on the part of any holder of shares
of common stock, par value $.01 per share, of the Company ("Company Common
Stock") or any shares of capital stock of Acquisition:
(a) Common Stock of Acquisition. Each share of common stock, par
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value $.01 per share, of Acquisition ("Acquisition Common Stock") that is issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of common stock, par value
$.01 per share, of the Surviving Corporation ("Surviving Corporation Common
Stock").
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(b) Cancellation of Excluded Shares. Each share of Company Common
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Stock that is owned by Acquisition or any subsidiary or affiliate of
Acquisition, or by any Subsidiary (as hereinafter defined) or held in the
treasury of the Company (collectively, the "Excluded Shares") shall
automatically be canceled and retired and shall cease to exist, and no cash,
Retained Shares (as hereinafter defined) or other consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion or Retention of Company Common Stock. Except as
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otherwise provided herein and subject to Sections 2.02 and 2.03, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than Excluded Shares or Dissenting Shares (as hereinafter defined))
shall be converted into the following merger consideration (the "Merger
Consideration"):
(i) for each such share of Company Common Stock with respect
to which an election to retain such share has been effectively made
and not revoked or lost pursuant to Sections 2.02 and 2.03 (the
"Electing Shares"), the right to retain one fully paid and
nonassessable share of Common Stock of the Surviving Corporation
(a "Retained Share"); and
(ii) for each such share of Company Common Stock (other than
Retained Shares), the right to receive in cash from the Surviving
Corporation following the Merger an amount equal to $14.00 (the
"Cash Election Price").
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
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the contrary, shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a holder who has
properly given written notice of his intent to exercise dissenters' rights with
respect to such shares in connection with the Merger and in compliance with
Chapter 13 of the SCBCA ("Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the Merger Consideration (but instead
shall be converted into the right to receive payment from the Surviving
Corporation with respect to such Dissenting Shares in accordance with the
SCBCA), unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's right under the SCBCA. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such right, each share held by such holder shall be treated as a share that was
not an Electing Share at the Effective Time, and, subject to Section 2.03, such
shares shall be exchanged for cash equal to the Cash Election Price. The
Company shall give prompt notice to Acquisition of any demands, attempted
withdrawals of such demands and any other instruments served pursuant to the
SCBCA that are received by the Company for appraisal of shares of Company Common
Stock, and Acquisition shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Acquisition, make any payment with
respect to, settle, offer to settle, or approve any withdrawal of any such
demands.
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(e) Cancellation and Retirement of Company Common Stock. As of the
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Effective Time, all shares of Company Common Stock (other than Excluded Shares,
Retained Shares and Dissenting Shares) issued and outstanding immediately prior
to the Effective Time shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall, to the extent such
certificate represents such shares, cease to have any rights with respect
thereto, except the right to receive the consideration provided for herein upon
surrender of such certificate in accordance with Section 2.04(e).
SECTION 2.02 Company Common Stock Elections. (a) Each person who,
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on or prior to the Election Date (as hereinafter defined), is a record holder of
shares of Company Common Stock will be entitled, with respect to all or any
portion of its shares, to make an unconditional election (a "Retention
Election") on or prior to the Election Date to retain Retained Shares (subject
to Section 2.03), on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as hereinafter
defined), Acquisition shall appoint a bank or trust company to act as exchange
agent (the "Exchange Agent") for the payment of the Merger Consideration.
(c) The Company shall prepare and mail a form of election, which form
shall be subject to the reasonable approval of Acquisition (the "Form of
Election"), with the Proxy Statement to the record holders of Company Common
Stock as of the record date for the Stockholders Meeting (as hereinafter
defined), which Form of Election shall be used by each record holder of shares
of Company Common Stock who wishes to make a Retention Election for any or all
shares of Company Common Stock held by such holder, subject to the provisions of
Section 2.03 hereof. The Company will use commercially reasonable efforts to
make the Form of Election and the Proxy Statement available to all persons who
become holders of shares of Company Common Stock during the period between such
record date and the Election Date. Any such holder's election to retain
Retained Shares shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time on the
second business day prior to the date of the Stockholders Meeting (the "Election
Date") (unless the Company and Acquisition determine that the Closing is not
likely to occur within one business day of the Stockholders Meeting, in which
case the Election Date shall be the business day prior to the likely Closing
Date; any such determination to be reasonably made), a Form of Election properly
completed and signed and accompanied by certificates for the shares of Company
Common Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or by an
appropriate guarantee of delivery of such certificates as set forth in such Form
of Election from a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, provided such certificates are in fact delivered to the Exchange Agent
by the third business day after the Election Date).
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(d) A stockholder may revoke a Form of Election by submitting a
written notice of revocation to the Exchange Agent provided that such notice is
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Election Date. In addition, all Forms of Election shall automatically be
revoked if the Exchange Agent is notified in writing by Acquisition and the
Company that the Merger has been abandoned. If a Form of Election is revoked,
the certificate or certificates (or guarantees of delivery, as appropriate) for
the shares of Company Common Stock to which such Form of Election relates shall
be promptly returned to the stockholder submitting the same to the Exchange
Agent.
(e) The determination of the Exchange Agent of whether or not
Retention Elections have been properly made or revoked pursuant to this Section
2.02 with respect to shares of Company Common Stock and when Retention Elections
and revocations were received by it shall be binding on all holders of shares of
Company Common Stock. If the Exchange Agent determines that any Retention
Election was not properly made with respect to shares of Company Common Stock,
such shares shall be treated by the Exchange Agent as shares that were not
Electing Shares at the Effective Time, and, subject to Section 2.03, such shares
shall be exchanged in the Merger for cash pursuant to Section 2.01(c)(ii). The
Exchange Agent shall also make all computations as to the allocation and the
proration contemplated by Section 2.03, and any such computation shall be
conclusive and binding on the holders of shares of Company Common Stock. The
Exchange Agent may, with the mutual agreement of Acquisition and the Company,
make such rules as are consistent with this Section 2.02 for the implementation
of the elections provided for herein as shall be necessary or desirable fully to
effect such elections.
SECTION 2.03 Proration. (a) Notwithstanding anything in this
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Agreement to the contrary, the aggregate number of shares of Company Common
Stock to be retained as Retained Shares at the Effective Time shall be a number
of shares equal to not more than 25% (the "Maximum Retention Number") and not
less than 7% (the "Minimum Retention Number") of the issued and outstanding
shares of Company Common Stock immediately prior to the Effective Time.
(b) If the number of Electing Shares exceeds the Maximum Retention
Number, then each Electing Share shall remain outstanding as a Retained Share or
be converted into the right to receive cash in accordance with the terms of
Section 2.01(c) in the following manner:
(i) a proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Maximum Retention Number by the total
number of Electing Shares;
(ii) subject to Section 2.04(e), the number of Electing Shares
covered by each Retention Election to be retained as Retained Shares
shall be determined by multiplying the Non-Cash Proration Factor by
the total number of Electing Shares covered by such Retention
Election; and
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(iii) all Electing Shares, other than those shares to remain
outstanding as Retained Shares in accordance with Section 2.03(b)(ii),
shall be converted into cash as if such shares were not Electing
Shares in accordance with the terms of Section 2.01(c)(ii).
(c) If the number of Electing Shares is less than the Minimum
Retention Number, then:
(i) all Electing Shares shall remain outstanding as Retained
Shares in accordance with the terms of Section 2.01(c)(i); and
(ii) additional shares of Company Common Stock other than
Electing Shares shall remain outstanding as Retained Shares in
accordance with the terms of Section 2.01(c)(i) in the following
manner:
(1) a proration factor (the "Cash Proration Factor") shall be determined
by dividing (x) the difference between the Minimum Retention Number
and the number of Electing Shares by (y) the total number of
outstanding shares of Company Common Stock other than Excluded Shares,
Dissenting Shares and Electing Shares; and
(2) with respect to each outstanding share of Company Common Stock
otherthan the Excluded Shares, Dissenting Shares and Electing Shares,
such share shall be converted into the right to receive a fraction of
one Retained Share equal to the Cash Proration Factor and an amount of
cash equal to the product of (x) the cash Election Price and (y) 1.0
less the Cash Proration Factor.
SECTION 2.04 Exchange of Certificates.
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(a) Exchange Agent. At or prior to the Effective Time, the Surviving
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Corporation shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock other than Excluded Shares, for
exchange in accordance with this Article II, the cash portion of the Merger
Consideration (such cash consideration being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions of the Surviving Corporation, make payments of the Cash Election
Price out of the Exchange Fund. The Exchange Fund shall not be used for any
other purpose. The funds deposited by the Surviving Corporation with the
Exchange Agent shall be derived first from the funds received by Acquisition
from the equity financing described in Section 4.08(a), to the extent of such
financing, and then, to the extent necessary, from other resources of the
Surviving Corporation. The parties shall take all necessary steps to ensure the
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tracing of such funds, including the segregation of the funds derived by
Acquisition from such financing in a separate account and the transfer of funds
from such account to the Exchange Agent for purposes of paying the cash portion
of the Merger Consideration.
(b) Exchange Procedures. As soon as practicable (and in no event
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later than three business days) after the Effective Time, each holder of an
outstanding certificate or certificates that prior thereto represented shares of
Company Common Stock other than Excluded Shares (the "Certificates") shall, upon
surrender to the Exchange Agent of such Certificate or Certificates (or, if such
shares are held in book-entry or other uncertificated form, upon the entry
through a book-entry transfer agent of the surrender of such shares of Company
Common Stock on a book-entry account statement (any references herein to
"Certificates" shall be deemed to include references to book-entry account
statements relating to the ownership of shares of Company Common Stock)) and
acceptance thereof by the Exchange Agent, be entitled to a certificate or
certificates representing the number of full shares of Surviving Corporation
Common Stock, if any, to be retained by the holder thereof as Retained Shares
pursuant to this Agreement and the amount of cash, if any, into which the number
of shares of Company Common Stock previously represented by such Certificate or
Certificates surrendered shall have been converted pursuant to this Agreement or
which is payable in respect of fractional shares. The Exchange Agent shall
accept such Certificates upon compliance with the terms and conditions of
Section 2.02 and such other reasonable terms and conditions as the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. Notwithstanding anything to the contrary contained in this
Section 2.04, the Exchange Agent shall not deliver any Merger Consideration to
any holder who is, as of the date hereof, an affiliate of the Company until such
holder has delivered the agreement contemplated by Section 5.09. After the
Effective Time, there shall be no further transfer on the records of the Company
or its transfer agent of Certificates, and if such Certificates are presented to
the Company for transfer, they shall be canceled against delivery of the Cash
Election Price and, if appropriate, certificates for Retained Shares. If any
certificate for such Retained Shares is to be issued in the name of, or if cash
is to be remitted to, a person other than the person in whose name the
Certificate surrendered for exchange is registered, it shall be a condition of
such exchange that the Certificate so surrendered shall be properly endorsed,
with signature guaranteed, or otherwise in proper form for transfer and that the
person requesting such exchange shall pay to the Company or its transfer agent
any transfer or other taxes required by reason of the remittance of cash to, or
the issuance of certificates for such Retained Shares in the name of, a person
other than that of the registered holder of the Certificate surrendered, or
establish to the satisfaction of the Company or its transfer agent that such tax
has been paid or is not applicable. Until surrendered as contemplated by this
Section 2.04(b), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration as contemplated by Section 2.01. No interest will be paid
or will accrue on any cash payable as Merger Consideration or in lieu of any
fractional Retained Shares.
(c) Distributions with Respect to Unexchanged Shares. No dividends
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or other distributions with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the Retained
Shares represented thereby and no cash payment in lieu of fractional shares
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shall be paid to any such holder pursuant to Section 2.04(e) until the surrender
of such Certificate in accordance with this Article II. Subject to the effect
of applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the Certificate representing whole Retained Shares,
without interest, (i) at the time of such surrender or as promptly after the
sale of the Excess Shares (as hereinafter defined) as practicable, the amount of
any cash payable in lieu of a fractional Retained Share to which such holder is
entitled pursuant to Section 2.04(e) and the proportionate amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such Retained Shares, and (ii) at the appropriate payment
date, the proportionate amount of dividends or other distributions with a record
date after the Effective Time but prior to such surrender and payment date
subsequent to such surrender payable with respect to such whole Retained Shares.
(d) No Further Ownership Rights in Company Common Stock Exchanged For
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Cash. All cash paid upon the surrender for exchange of Certificates
representing shares of Company Common Stock in accordance with the terms of this
Article II (including any cash paid pursuant to Section 2.04(e)) shall be deemed
to have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock exchanged for cash theretofore represented by such
Certificates.
(e) No Fractional Shares.
----------------------
(i) No certificates representing fractional Retained Share interests
shall be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of the Surviving Corporation after the Merger.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a Retained
Share (after taking into account all shares of Company Common Stock
delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest), rounded to the nearest cent, representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange
Agent (following the deduction of applicable transaction costs), on behalf
of all such holders, of the Retained Shares (the "Excess Shares")
representing such fractions. Such sale shall be made as soon as practicable
after the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
------------------------------
that remains undistributed to the holders of the Certificates for 183 days
after the Effective Time shall be delivered to the Surviving Corporation and any
holders of shares of Company Common Stock prior to the Merger who have not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation and only as general creditors thereof for payment of the
Merger Consideration.
8
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(g) No Liability. None of Acquisition, the Surviving Corporation or
-------------
the Exchange Agent shall be liable to any person in respect of any Retained
Shares (or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
---------------------------
cash included in the Exchange Fund, as directed by the Surviving Corporation, on
a daily basis. Any interest and other income resulting from such investments
shall be paid to the Surviving Corporation. To the extent that there are losses
with respect to such investments, or the Exchange Fund diminishes for other
reasons below the level required to make prompt payments of the Merger
Consideration as contemplated hereby, the Surviving Corporation shall promptly
replace or restore the portion of the Exchange Fund lost through investments or
other events so as to ensure that the Exchange Fund is, at all times, maintained
at a level sufficient to make such payments.
(i) Withholding Rights. The Surviving Corporation shall be entitled
-------------------
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as the
Surviving Corporation is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent
that amounts are so deducted and withheld by the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation.
(j) Lost Certificates. If any Certificate shall have been lost,
------------------
stolen or destroyed, upon the making of an affidavit of that fact by the holder
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such holder of a bond in such
reasonable amount as the Surviving Corporation may require as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will remit in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable, and unpaid dividends and
distributions on Retained Shares payable in respect thereof, pursuant to this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquisi-tion that, except as
set forth in the Schedules hereto or the Company SEC Filings:
9
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SECTION 3.01 Organization and Qualification . The Company is a
--------------------------------
corpora-tion duly organized, validly existing and in good standing under the
laws of the State of South Carolina and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the character of its properties and assets owned or leased
or the nature of its activities makes such qualifica-tion necessary, except
where the failure to be so qualified would not have a Material Adverse Effect
(as hereinafter defined) on the Company. As used herein, "Material Adverse
Effect" shall mean, with respect to any party, a material adverse effect on (i)
the business, assets, liabilities, condi-tion (financial or other), prospects or
operating results of such party and its subsidiar-ies, taken as a whole, or (ii)
the ability of such party to perform its obligations under this Agreement;
provided that changes in the general economy or in the public securities markets
- --------
shall not, in and of themselves, constitute a Material Adverse Effect. The
Company has heretofore made available to Acquisition complete and correct copies
of its minute books and its Articles of Incorporation and By-Laws.
SECTION 3.02 Subsidiaries . (a) Except for shares of, or other
------------
ownership interests in, the Subsidiaries (as hereinafter defined), the Company
does not own of record or benefi-cially, directly or indirectly, (i) any shares
of outstand-ing capital stock or securities con-vertible into or exchangeable or
exercisable for capital stock of any other corporation or (ii) any
partici-pating interest in any partnership, joint venture or other similar
non-corporate business enterprise. Each Subsidiary is a corporation,
partnership or limited liability company duly orga-nized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate, partnership or limited liability
company power and authority to own or lease and operate its properties and
assets and to carry on its business as it is now being conducted. Each
Subsidiary is duly qualified as a foreign corpo-ration to do business, and is in
good standing, in each jurisdic-tion in which the character of its properties
and assets owned or leased or the nature of its activities makes such
qualifica-tion necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the Compa-ny. Each Subsidiary and its
jurisdiction of incorporation or organization is identified in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. The Company
has heretofore made available to Acquisition complete and correct copies of the
minute books and the charter and by-laws (or other organizational documents) of
all Subsidiaries.
(b) All the outstand-ing shares of capital stock of, or other
ownership interests in, each Subsid-iary are validly issued, fully paid and
nonas-sess-able (and no such shares have been issued in violation of any
preemptive or similar rights) and are owned by the Company or by a wholly-owned
Subsid-iary of the Company, free and clear of any liens, claims, charg-es,
encum-brances or adverse claims ("Liens"), and there are no proxies out-standing
or restrictions on voting with respect to any such shares.
(c) For purposes of this Agree-ment, the term "Subsid-iary" shall
mean any corporation or other busi-ness entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
owned by the Company and/or one or more other Subsidiar-ies.
10
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SECTION 3.03 Authority Relative to Agreements . The Company has all
--------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and, subject to the approval and adoption of this Agreement by a two-thirds vote
of the stockholders of the Company, to 11 perform its obligations hereunder.
The execu-tion, delivery and perfor-mance of this Agreement by the Company and
the consum-mation by it of the transactions contem-plated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceed-ings on the part of the Company are necessary to authorize this
Agreement and the trans-actions contemplated hereby, other than the approval and
adoption of this Agreement by a two-thirds vote of the stockholders of the
Company. This Agreement has been duly executed and delivered by the Company
and, subject to such stockholder approv-al, consti-tutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
SECTION 3.04 Non-Contravention . The execution and delivery of this
-----------------
Agreement by the Company do not and the consum-mation by the Company of the
transac-tions contemplat-ed hereby will not (i) con-flict with any provi-sion of
the Articles -of Incorpora-tion or By_Laws of the Company; (ii) except as set
forth on Schedule 3.04, result (with the giving of notice or the lapse of time
or both) in any violation of or default or loss of a benefit under, or permit
the acceleration or termination of any obligation under, any mortgage,
inden-ture, lease, agreement or other instru-ment, permit, conces-sion, grant,
fran-chise, license, judgment, order, decree, stat-ute, law, ordinance, rule or
regula-tion applicable to the Company or any Subsidiary or their respective
properties; or (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any asset of the Company or any
Subsidiary; other than (in the case of clauses (ii) and (iii) above) such as
would not, individually or in the aggregate, have a Materi-al Adverse Effect on
the Compa-ny.
SECTION 3.05 Capitalization . The authorized capital stock of the
--------------
Company consists of (i) 75,000,000 shares of Company Common Stock and (ii)
5,000,000 shares of Special Stock, $.01 par value ("Special Stock"). As of
March 27, 2000, 35,586,100 shares of Company Common Stock were issued and
out-stand-ing, all of which were duly and validly issued, are fully paid and
nonas-sess-able and were not issued in violation of any preemptive or similar
right and no shares of Company Common Stock were held in the Company's treasury.
No shares of Special Stock are out-stand-ing. Each of the Company's stock
option or restricted stock plans (the "Company Stock Plans") and options to
acquire shares of Company Common Stock or shares of restricted stock of the
Company outstanding on the date hereof (the "Company Stock Rights"), including,
without limitation, information concerning the date of vesting of such options
or the lapse of restrictions on such restricted stock, strike prices of such
options and the acceleration of such vesting or removal of such restrictions, in
either case, by virtue of the Merger or the other transactions contemplated
hereby, are set forth on Schedule 3.05. As of March 27, 2000, 8,087,433 shares
of Company Common Stock were reserved for issuance under the Company Stock
Plans. Except for options to pur-chase an aggregate 7,134,633 shares of Company
Common Stock granted pursuant to the Com-pa-ny Stock Plans, and except as set
forth on Schedule 3.05, no sub-scription, warrant, option, convert-ible
11
<PAGE>
securi-ty, stock apprecia-tion or other right (contin-gent or other) to purchase
or acquire, or any securities convertible into or exchangeable or exercisable
for, any shares of or other interest in any class of capital stock of the
Company or any Subsidiary is authorized or outstand-ing and there is not any
commitment of the Company or any Subsid-iary to issue, or register under the
Securities Act, any shares, warrants, options or other such rights or to
distrib-ute to holders of any class of its capital stock any evidences of
indebtedness or assets. Neither the Company nor any Subsid-iary has any
obligation (contin-gent or other) to pur-chase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof. Except as set forth on Schedule
3.05, the Company is not party to or aware of any agreement relating to the
voting or transfer of Company Common Stock.
SECTION 3.06 SEC Filings . The Company has made available to
------------
Acquisition true and complete copies of each form, re-port, schedule, definitive
proxy state-ment and regis-tra-tion statement filed by the Company with the
Securities and Exchange Commission (the "SEC") subsequent to January 1, 1998 and
on or prior to the date hereof (collec-tively, the "Compa-ny SEC Fil-ings"),
which are all forms, reports, schedules, statements and other documents (other
than preliminary material) that the Company was required to file with the SEC.
The Company SEC Filings (including, without limita-tion, any financial
state-ments or schedules includ-ed therein) (i) were prepared in compli-ance
with the requirements of the Securi-ties Act of 1933, as amended (together with
the rules and regulations promulgated thereunder, the "Securities Act"), or the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), as the case may be, and
(ii) did not at the time of filing (or if amended, supple-mented or super-seded
by a filing prior to the date hereof, on the date of that filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or neces-sary in order to make the statements therein, in the
light of the circum-stances under which they were made, not misleading. None of
the Subsidiaries is required to file any forms, reports, schedules, statements
or other documents with the SEC.
SECTION 3.07 Financial Statements . The consolidated balance sheet
---------------------
of the Company as of December 31, 1999 (the "Audited Balance Sheet") and the
related statements of operations, cash flows and changes in stockholders equity
for the year then ended, certified by PricewaterhouseCoopers, LLP (the "1999
Financials"), and the consolidated financial statements of the Company included
in the Company SEC Filings have been prepared in accordance with generally
accepted account-ing princi-ples consis-tently applied and consis-tent with
prior peri-ods, subject, in the case of unaudited interim consoli-dated
financial state-ments, to year-end adjust-ments (which consist of normal
recur-ring accruals) and the absence of certain footnote disclosures. The
consolidated balance sheets of the Company included in the 1999 Financials and
the Company SEC Filings fairly present the consolidated financial position of
the Company -as of their respec-tive dates, and the related consolidated
state-ments of operations, cash flows and stock-holders' equity included in the
1999 Financials and the Company SEC Filings fairly present the consolidated
results of operations of the Company for the respective periods then ended,
12
<PAGE>
subject, in the case of unaudited interim financial statements, to year-end
adjustments (which consist of normal recurring accruals) and the absence of
certain footnote disclosures. None of the Company and its Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of a nature required by generally accepted accounting principles to be reflected
in a consolidated balance sheet (or reflected in the notes thereto), except for
those (i) that are accrued or reserved against in the Company's financial
statements (or reflected in the notes thereto) included in the 1999 Financials,
(ii) that were incurred subsequent to December 31, 1999 in the ordinary course
of business and consistent with past practice, or (iii) that would not have a
Material Adverse Effect on the Company.
SECTION 3.08 Absence of Certain Changes or Events . Except as
-----------------------------------------
disclosed in the Company SEC Filings or as set forth on Schedule 3.08, since
December 31, 1999, neither the Company nor any Subsidiar-y has (i) is-sued any
stock, bonds or other corpo-rate securi-ties, (ii) bor-rowed any amount or
incurred any material liabili-ties (absolute or contin-gent), except in the
ordinary course of business, (iii) dis-charged or satisfied any lien or incurred
or paid any obligation or liabili-ty (absolute or contin-gent) other than
current liabili-ties shown on the consolidated balance sheet of the Company as
of December 31, 1999 and current liabil-i-ties in-curred since the date of such
balance sheet in the ordinary course of busi-ness, (iv) de-clared or made any
payment or distri-bution to stock-holders or pur-chased or redeemed any shares
of its capital stock or other securi-ties, (v) mortgaged, pledged or sub-jected
to Lien any of its assets, tangible or intangible, other than Liens for current
real proper-ty taxes not yet due and pay-able, (vi) sold, assigned or
trans-ferred any of its tangible assets, or can-celed any debts or claims,
except in the ordinary course of business or as otherwise contemplated hereby,
(vii) sold, as-signed or trans-ferred any patents, trademarks, trade names,
copy-rights, trade secrets or other intangible assets, (viii) made any changes
in offi-cer or executive compensa-tion, (ix) waived any rights of substan-tial
value, whether or not in the ordinary course of business, (x) en-tered into any
trans-action, except in the ordi-nary course of busi-ness or as otherwise
contem-plated hereby, (xi) agreed, in writing or otherwise, to take any of the
actions listed in clauses (i) through (x) above, or (xii) suffered any Material
Adverse Effect.
SECTION 3.09 Governmental Approvals . No consent, approval, order or
----------------------
authori-zation of, or registration, declaration or filing with, any federal,
state, local or foreign governmental or regulatory authority ("Governmental
Entity") is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transac-tions contemplated hereby, except for (i)
compliance by the Company with the Hart-Scott-Rodino Anti-trust Improvements Act
of 1976, as amended (the "HSR Act"), (ii) the filing of articles of -merger with
the Secre-tary of State of the State of South Carolina in accor-dance with the
SCBCA, (iii) the filing with the SEC of (1) a proxy statement in definitive form
for distribution to the stockholders of the Company in advance of the
Stockholders Meeting in accordance with Regulation 14A promulgated under the
Exchange Act (such proxy statement, as amended or supplemented from time to
time, being herein referred to as the "Proxy Statement"), (2) a registration
statement on Form S_4 pursuant to the Securities Act in connection with the
registration of Retained Shares pursuant to the Merger (such registration
statement, as amended or supplemented from time to time, being herein referred
to as the "Registration Statement") and (3) such reports under and such other
compliance with the Exchange Act and Securities Act and the rules and
13
<PAGE>
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as are listed on
Schedule 3.09 and (v) such con-sents, approv-als, orders or autho-riza-tions
which if not obtained, or registra-tions, declara-tions or filings which if not
made, would not materially adverse-ly affect the ability of the Company to
consum-mate the transac-tions contem-plated hereby or the ability of the
Surviving Corpo-ration or any Subsid-iary to conduct its business after the
Effec-tive Time substantially as currently conducted by the Company or such
Subsidiary.
SECTION 3.10 Compliance with Laws; No Default . (a) Neither the
------------------------------------
Company nor any Subsidiary is in default under or in violation of any order of
any court, governmental authority or arbitra-tion board or tribu-nal to which
the Company or such Subsidiary is or was subject or in violation of any laws,
ordi-nances, governmental rules or regulations (including, but not limited to,
those relating to export controls, labor and employ-ment matters and foreign
corrupt practices) to which the Company or any Subsidiary is or was subject,
except for such defaults or violations that, in the aggregate, would not -have a
Material Adverse Effect on the Company. Neither the Company nor any Subsidiary
has failed to obtain any licenses, permits, fran-chises or other governmental
authoriza-tions neces-sary to the ownership of its properties or to the conduct
of its business, which failure would have a Material Adverse Effect on the
Company, and, after giving effect to the transac-tions contemplated hereby, all
such licens-es, permits, franchises and other govern-mental autho-riza-tions
will continue to be valid and in full force and effect.
(b) Except (i) as set forth on Schedule 3.10, no violation of, default
or event of default under, loss of benefit under, or right to terminate or
accelerate (a "Violation") exists (and no event has occurred which, with notice
or the lapse of time or both, would constitute a Violation) of any term,
condition or provision of (A) the certificate or articles of incorporation or
by-laws (or other organizational documents) of the Company or any of its
Subsidiaries, (B) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, obligation or commitment, instrument, permit,
concession, franchise or license to which the Company or any of its Subsidiaries
is now a party or by which the Company or any of its Subsidiaries or any of
their respective properties or assets is bound except in the case of (A) and (B)
for Violations which, in the aggregate, would not have a Material Adverse Effect
on the Company.
SECTION 3.11 Information Supplied . None of the information to be
---------------------
supplied by the Company for inclusion or incorporation by reference in the
Registration Statement or the Proxy Statement will, in the case of the
Registration Statement, at the time it is filed with the SEC, at the time it
becomes effective under the Securities Act and at the Effective Time, or, in the
case of the Proxy Statement or any amendments thereof or supplements thereto, at
the time of the mailing of the Proxy Statement and such amendment or supplement
thereto, and at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
14
<PAGE>
Statement will comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations promulgated
thereunder. Notwithstanding anything to the contrary, no representation is made
by the Company with respect to statements made in either the Proxy Statement or
the Registration Statement based on information supplied by Acquisition or its
representatives for inclusion.
SECTION 3.12 Litigation . Except as set forth on Schedule 3.12,
----------
there is no action, suit, investigation, proceed-ing or claim pending or, to the
best knowledge of the Company, threatened against or affecting the Company or
any Subsid-iary, or their respective properties or rights, before any court or
governmental body or arbitration board or tribunal, either alone or together
with other similar actions, the outcome of which could reasonably be expected to
have a Material Adverse Effect on the Company.
SECTION 3.13 Intellectual Property; Computer Software .
-------------------------------------------
(a) Patents, Trademarks, Tradenames, Etc. Schedule 3.13 lists all
----------------------------------------
material trademarks, trade names, service marks, service names, brand names,
copyrights and patents, registrations thereof and applications therefor, owned
by the Company or the Subsidiaries. All such trademarks, trade names, service
marks, service names, brand names, copyrights, patents and registrations thereof
and applications therefor are owned by, and may be used by, the Company or the
appropriate Subsidiary free and clear of any third party rights, liens, claims,
security interests or encumbrances, except for license rights granted to third
parties in the ordinary course of business of the Company and the Subsidiaries.
Except as disclosed on Schedule 3.13, neither the Company nor any of the
Subsidiaries is violating the rights in any trademark, trade name, service mark,
service name, copyright, patent, trade secret, know-how or other intangible
right (collectively, "Intangible Rights") of any third party, except where such
violation would not have a Material Adverse Effect on the Company. Except as
disclosed on Schedule 3.13, upon consummation of the Merger, the Company and the
Subsidiaries will continue to own or have the right to use all Intangible Rights
necessary to conduct their respective businesses (other than any such Rights,
the absence of which would not have a Material Adverse Effect on the Company).
(b) Owned Software. Schedule 3.13 also lists all software owned by
---------------
the Company that is currently licensed to third parties by the Company or the
Subsidiaries (the "Owned Software"). Except as disclosed on Schedule 3.13, (i)
the Company or one of the Subsidiaries has sole title to the Owned Software,
free of all claims including claims or rights of employees, independent
contractors, agents, consultants or other parties involved in the development,
creation, marketing, maintenance, enhancement or licensing of such Software;
(ii) the Owned Software does not contain any Licensed Software (as hereinafter
defined) or any other software (other than third party operating systems), or
derivatives of any of the foregoing; and (iii) the Company has the right to use,
market, distribute, sublicense, modify and copy the Owned Software, free and
clear of any limitations or encumbrances (including any obligations to pay
royalties). Schedule 3.13 also lists all the licensees of the Owned Software.
Except as disclosed on Schedule 3.13, the Company is not infringing any
Intangible Rights of any other person with respect to the Owned Software, and,
to the best knowledge of the Company, no other person is infringing any
Intangible Rights of Company with respect to the Owned Software.
15
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(c) Licensed Software. Schedule 3.13 lists all material software
------------------
(other than off-the-shelf or otherwise readily commercially available software)
for which the Company or one of the Subsidiaries is a licensee, lessee or
otherwise has obtained from a third party the right to use, market, distribute,
sublicense or otherwise transfer the right to use such software (the "Licensed
Software"). The Company and the Subsidiaries have made use of all copies of the
Licensed Software in their possession as permitted by the respective license
agreements in all material respects. Except as disclosed on Schedule 3.13, the
Company and the Subsidiaries have complied with all material provisions of the
license, lease or other similar agreement pursuant to which they have rights to
use the Licensed Software, except where non-compliance would not have a Material
Adverse Effect on the Company.
(d) Software Used in Business. The transactions contemplated hereby
--------------------------
will not cause a breach of, default under or otherwise trigger a right to
terminate the license agreement by which the Company or one of the Subsidiaries
licenses any Licensed Software or Owned Software or impair the Company's or the
relevant Subsidiary's ability to use the Licensed Software or license the Owned
Software in the same manner as such Software is currently used or licensed in
the business of the Company and the Subsidiaries, except where such breach,
default or right would not have a Material Adverse Effect on the Company.
(e) Contracts. The Company or one of the Subsidiaries and, to the
---------
best knowledge of the Company, the other parties to any contract under which the
Company or such Subsidiary is the licensor, lessor or has otherwise granted the
rights to use any Owned Software are in compliance therewith and are not in
breach of their obligations with respect thereto, except where non-compliance or
breach would not have a Material Adverse Effect on the Company.
(f) Viruses. To the best knowledge of the Company, (x) there are no
-------
viruses in the Owned Software and there are no defects in the Owned Software
that would prevent such software from performing in all material respects the
tasks and functions that it was intended to perform except those that can be
cured or otherwise corrected without a Material Adverse Effect on the Company
and (y) the Owned Software is free from any problems associated with changes in
the calendar date from December 31, 1999 to January 1, 2000 and no material
customer of the Company or any Subsidiary has experienced any problems
associated with changes in the calendar date from December 31, 1999 to January
1, 2000 that would have a Material Adverse Effect on the Company.
16
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SECTION 3.14 Trade Secrets . Since December 31, 1998, no third party
-------------
has claimed or noti-fied the Company or any Subsidiary that any person employed
by or otherwise affiliated with the Company or any Subsidiary has, in respect of
his or her activi-ties to date, violat-ed any of the terms or con-ditions of his
or her employment contract with any third party, or dis-closed or uti-lized any
trade secrets or proprietary infor-mation or docu-menta-tion of any third party,
or interfered in the em-ploy-ment rela-tionship between any third party and any
of its employees, and to the knowledge of the Company, no person employed by or
otherwise affili-ated with the Company or any Subsidiary has employed any trade
secrets or any informa-tion or documentation proprietary to any former employer,
or violated any confidential relationship which such person may have had with
any third party, in connec-tion with the development or sale of any products of
the Company or any Subsid-iary.
SECTION 3.15 Severance Arrangements . Except as set forth on
-----------------------
Schedule 3.15, neither the Company nor any Subsidiary is party to any agreement
with any employee (i) the benefits of which (including, without limitation,
severance benefits) are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company or any
Subsidiary of the nature of any of the transactions contemplated by this
Agreement or (ii) providing severance benefits in excess of those generally
available under the Com-pany's severance policies as in effect on the date
hereof (which are described on Schedule 3.15), or which are condi-tioned upon a
change of control, after the termination of employ-ment of such employees
regardless of the reason for such termina-tion of employment. Except as set
forth on Schedule 3.15, neither the Company nor any Subsidiary is a party to any
employ-ment agreement or compensa-tion guarantee extending for a period longer
than one year from the date hereof.
SECTION 3.16 Taxes . (a) Except as set forth on Sched-ule 3.16,
-----
each of the Company and its Subsidiar-ies has (i) timely filed all material Tax
Returns (as hereinafter defined) re-quired to be filed by it in respect of any
Taxes (as hereinafter defined), which Tax Returns were true, correct and
complete in all material respects, (ii) timely paid or withheld all material
Taxes that are due and payable with respect to the Tax Returns referred to in
clause (i) (other than Taxes that are being contested in good faith by
appropriate proceedings and are adequately reserved for in the Company's most
recent consolidated financial statements included in the Company SEC Filings),
(iii) estab-lished reserves that are adequate for the payment of all material
Taxes not yet due and payable with respect to the results of operations of the
Company and the Subsidiaries through the date hereof, and (iv) to the best
knowledge of the Company, complied in all material respects with all applicable
laws, rules and regula-tions relating to the payment and withholding of Taxes
and has timely withheld from employee wages and paid over to the proper
govern-mental authori-ties all material amounts required to be so withheld and
paid over.
(b) Except as set forth on Schedule 3.16, (i) there is no
defi-ciency, claim, audit, action, suit, pro-ceeding or investiga-tion now
pending or threatened against or with respect to the Company or any Subsidiary
in respect of any material Taxes, and (ii) there are no requests for rulings or
determina-tions in respect of any Taxes pending between the Company or any
Subsidiary and any taxing authority.
17
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(c) Except as set forth on Schedule 3.16, within the last five years,
neither the Company nor any Subsidiary has been a member of an affiliated group
filing consolidated, combined or unitary Tax Returns other than a group for
which the Company was the common parent and (ii) neither the Company nor any
Subsidiary has any material liability for Taxes of any other person under
Treasury regulations Section 1.1502-6, as a transferee or successor, by contract
or otherwise.
(d) Except as set forth on Schedule 3.16, neither the Company nor any
Subsidiary has executed or entered into (or prior to the Effective Time will
execute or enter into) with the Internal Revenue Service or any taxing authority
(i) any agree-ment or other document extend-ing or having the effect of
extend-ing the period for assessments or collection of any material Taxes for
which the Company or any Subsidiary would be liable, which period has not since
expired, or (ii) a closing agree-ment pursuant to Section 7121 of the Code, or
any predecessor provision thereof or any similar provision of foreign, state or
local Tax law that relates to the assets or operations of the Company or any
Subsidiary.
(e) For purposes of this Agreement, "Tax" (and with correlative
meaning, "Taxes") shall mean all federal, state, local, foreign or other taxing
authority net income, franchise, sales, use, ad valorem, property, payroll,
withholding, excise, severance, transfer, employment, alternative or add-on
minimum, stamp, occupation, premium, environmental or windfall profits taxes,
and other taxes, charges, fees, levies, imposts, customs, duties, licenses or
other assessments, together with any interest and any penalties, additions to
tax or addi-tional amounts imposed by any taxing authority.
(f) For purposes of this Agreement, "Tax Return" means all federal,
state, local and foreign tax returns, estimates, information statements and
reports relating to Taxes.
SECTION 3.17 Employee Benefit Plans . (a) Except as set forth on
------------------------
Schedule 3.17, each of the Compa-ny and the Subsidiaries has complied and
currently is in com-pli-ance in all material respects, both as to form and
oper-ation, with the appli-cable pro-vi-sions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the -Code with respect to each
"employee benefit plan" as defined under Sec-tion 3(3) of ERISA (a "Plan") which
the Company or any Subsidiary (i) has ever adopted, main-tained, estab-lished or
to which any of the same has been required to contribute to or has ever
contrib-uted or (ii) cur-rently maintains or to which any of the same cur-rently
contributes or is required to contrib-ute or (iii) current-ly par-ticipates in
or is required to partici-pate in.
(b) Except as set forth on Schedule 3.17, neither the Company nor any
Subsidiary has ever main-tained, adopted or es-tablished, contributed or been
required to contrib-ute to, or otherwise participated in or been required to
partici-pate in, a "multiemployer plan" (as de-fined in Sect-ion 3(37) of
ERISA). No amount is due or owing from the Company or any of the Subsidiaries
on account of a "multi-employer plan" (as defined in Section 3(37) of ERISA) or
on ac-count of any with-drawal there-from.
18
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(c) Other than routine claims for benefits and liability for premiums
due to the Pension Benefit Guaranty Corporation, neither the Company nor any
Subsidiary has in-curred any material lia-bility with re-spect to a Plan that is
currently due and owing and has not yet been satisfied, includ-ing, with-out
limitation, under ERISA (in-cluding, without limi-tation, Title I or Title IV
there-of), the Code or other applica-ble law, and no event has occurred, and, to
the best knowledge of the Company, there exists no condi-tion or set of
cir-cumstances (other than the ac-crual of benefits under the normal terms of
the Plans), that could result in the imposition of any material liabil-ity on
the Company or any Subsidiary with re-spect to a Plan, includ-ing, with-out
limi-tation, under ERISA (in-cluding, without limi-ta-tion, Title I or Title IV
of ERISA), the Code or other applica-ble law with respect to a Plan.
(d) Except as required by applicable law or as set forth on Schedule
3.17, neither the Company nor any Subsidiary has com-mit-ted itself, orally or
in writing, (x) to provide or cause to be provided to any person any payments or
provision of any "welfare" or "pen-sion" benefits (as defined in Sections 3(1)
and 3(2) of ERISA) in addi-tion to, or in lieu of, those pay-ments or bene-fits
set forth under any Plan, (y) to continue the payment of, or accelerate the
payment of, bene-fits under any Plan, except as expressly set forth there-under,
or (z) to provide or cause to be pro-vided any severance or other
post-employment benefit, sala-ry continuation, termina-tion, disability, death,
retire-ment, health or medical benefit to any person (in-cluding, without
limi-tation, any former or current em-ployee), except as set forth under any
Plan.
SECTION 3.18 Environmental Matters . Each of the Company and the
----------------------
Subsidiaries conducts its business and operations in materi-al compliance with
all applicable environmental laws, ordinances and regulations, and neither the
Company nor any Subsidiary has received notice of any claim, action, suit,
proceeding, hearing or investigation, based on or related to the manufacture,
pro-cessing, distribution, use, treatment, storage, disposal, trans-port or
handling, or the emission, discharge, release or threat-ened release into the
environment, of any pollutant, contaminant, or hazardous or toxic material or
waste (collectively, an "Envi-ronmental Event") by the Company or any
Subsidiary, the outcome of which could reasonably be expected to have a Material
Adverse Effect on the Company. To the best knowledge of the Company, no notice
of any material Environmental Event was given to any person or entity that
occupied any of the premises occupied by or used by the Company or any
Subsidiary prior to the date such premises were so occupied. Without limiting
the generality of the forego-ing, to the best knowledge of the Company, neither
the Company nor any Subsidiary has disposed of or placed on or in any property
or facility used in its business any waste materials, hazardous materials or
hazardous substances in viola-tion of law, which would have a Material Adverse
Effect on the Company.
SECTION 3.19 Customer Relationships . Except as set forth on
-----------------------
Schedule 3.19, neither the Company nor any Subsidiary has, since January 1,
1999, lost, or been notified that it will lose or suffer diminu-tion in its
relationship with any material customer, and, to the best knowledge of the
Company, no representa-tive of any customer has notified the Company or any
Subsidiary that, in the event of a change of ownership of the Company such as
19
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contem-plated by this Agree-ment, the Company or any Subsid-iary would, lose or
suffer diminu-tion in its relationship with any material customer.
SECTION 3.20 Certain Transactions . Except as dis-closed in the
---------------------
Company SEC Filings or as set forth on Schedule 3.20, there are no -material
transac-tions or arrangements between the Compa-ny or any Subsid-iary and (i)
any director or executive officer of the Company or (ii) any other person or
entity controlling or under common control with the Company.
SECTION 3.21 Title to Properties; Absence of Liens and Encumbrances .
------------------------------------------------------
Except as reflected in the Audited Balance Sheet (including any related notes
thereto), as set forth on Schedule 3.21 or with respect to assets disposed of
since December 31, 1999 in the ordinary course of business and consistent with
past practice, each of the Company and the Subsidiaries has good and valid title
to all its owned assets and properties, in each case free and clear of all
liens, claims, charges, security interests or other encumbrances, other than (x)
liens for taxes not yet delinquent or (y) security interests securing
indebtedness not in default for the purchase price of or lease rental payments
on property purchased or leased under capital lease arrangements in the ordinary
course of business or (z) such imperfections and irregularities of title or
Liens as do not affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties, in either case in such a manner as to have a Material Adverse Effect
on the Company. Any real property and buildings held under lease by the Company
or any of the Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and would not
individually or in the aggregate have a Material Adverse Effect on the Company
and do not interfere with the use made and proposed to be made of such property
and buildings.
SECTION 3.22 Insurance . Schedule 3.22 sets forth a list of all
---------
material insurance policies of the Company and the Subsidiaries (the "Insurance
Policies"). The Insurance Policies are in full force and effect and provide
insurance in such amounts and against such risks as are customary for companies
of similar size in the same business as the Company and the Subsidiaries. All
premiums with respect to the Insurance Policies have been paid, and no notice of
cancellation or termination has been received with respect to any such Insurance
Policy. With respect to each of the litigation matters set forth on Schedule
3.12, no carrier of any Insurance Policy has asserted any denial of coverage.
The Insurance Policies will remain in full force and effect and will not in any
way be affected by, or terminate or lapse by reason of, any of the transactions
contemplated hereby.
SECTION 3.23 State Takeover Statutes; Certain Charter Provisions .
-----------------------------------------------------
Prior to the date hereof, the Board of Directors of the Company has approved
this Agreement and the Merger and the other transactions contemplated hereby,
and such approval is sufficient to render inapplicable to the Merger the
provisions of Title 35 of the South Carolina Code and the provisions of Article
9(j) of the Company's Articles of Incorporation.
20
<PAGE>
SECTION 3.24 Opinion of Financial Advisor . The Company has received
----------------------------
the opinion of Credit Suisse First Boston Corporation, dated March 30, 2000,
substantially to the effect that the consideration to be received in the Merger
by the holders of Company Common Stock is fair to such holders from a financial
point of view, a copy of which opinion has been delivered to Acquisition.
SECTION 3.25 Brokers . No person is entitled to any broker-age or
-------
finder's, financial advisor's or other similar fee or commission in connection
with the transac-tions contemplated by this Agreement and as a result of any
action taken by or on behalf of the Company, other than Credit Suisse First
Boston Corporation pursuant to an engagement letter dated March 17, 2000, a copy
of which has been furnished to Acquisition.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to the Company as fol-lows:
SECTION 4.01 Organization and Qualification . Acquisition is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of South Carolina and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as it is now being conducted. Acquisition is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the character of its properties and assets owned or leased
or the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not have a Material Adverse Effect on
Acquisition.
SECTION 4.02 Capital Structure . As of the date of this Agreement,
------------------
the authorized capital stock of Acquisition consists of 1,000 shares of
Acquisition Common Stock, 1,000 shares of which have been validly issued and are
fully paid, nonassessable and owned of record and beneficially by Welsh, Carson,
Anderson & Stowe VIII, L.P. ("WCAS VIII"). Immediately prior to the Effective
Time, the authorized capital stock of Acquisition will consist of (1)
100,000,000 shares of Acquisition Common Stock and (2) 5,000,000 shares of
Preferred Stock, par value $.01 per share, of which between 24,261,429 shares
and 30,671,429 shares (depending on the number of Retained Shares) of
Acquisition Common Stock will be validly issued, fully paid and nonassessable
and owned of record and beneficially by WCAS VIII and/or its affiliates.
SECTION 4.03 Authorization of Agreement, Non-Contravention, Etc .
-----------------------------------------------------
Acquisition has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution,
delivery and performance of this Agreement by Acquisition and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate and stockholder action on the part of Acquisition. This
21
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Agreement has been duly executed and delivered by Acquisition and constitutes
the legal, valid and binding obligation of Acquisition, enforceable against
Acquisition in accordance with its terms. The execution and delivery of this
Agreement by Acquisition does not, and the consummation by Acquisition of the
transactions contemplated hereby will not, (i) conflict with any provision of
the Articles of Incorporation or By-Laws of Acquisition; (ii) result (with the
giving of notice or the lapse of time or both) in any violation of or default or
loss of a benefit under, or permit the acceleration of any obligation under any
mortgage, indenture, lease, agreement or other instrument, permit, concession,
grant, franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Acquisition or its properties; or (iii) result
in the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any asset of Acquisition, other than (in the case of clauses
(ii) and (iii) above) such as would not, individually or in the aggregate, have
a Material Adverse Effect on Acquisition. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be made or obtained by Acquisition in connection with the
execution and delivery of this Agreement by Acquisition or the consummation by
Acquisition of the transactions contemplated hereby, except for (i) compliance
by Acquisition with the HSR Act and (ii) the filing of articles of merger with
the Secretary of State of the State of South Carolina in accordance with the
SCBCA.
SECTION 4.04 Information Supplied . None of the information to be
---------------------
supplied by Acquisition for inclusion in the Proxy Statement or the Registration
Statement will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading (i) in the case of the Proxy Statement, at the date the
Proxy Statement is first mailed to the stockholders of the Company or at the
time of the Stockholders Meeting, or (ii) in the case of the Registration
Statement at the time of the filing of the Registration Statement with the SEC
at the time it becomes effective under the Securities Act and at the time of any
distribution thereof. The representations and warranties contained in this
Section 4.04 do not apply to statements or omissions included in the Proxy
Statement and/or the Registration Statement based upon information supplied by
the Company for inclusion or incorporation by reference therein.
SECTION 4.05 Subsidiaries . Acquisition does not own, directly or
------------
indirectly, any capital stock or other ownership interest in any person.
SECTION 4.06 Interim Operations of Acquisition . Acquisition was
------------------------------------
formed on March 22, 2000 solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby. Except for (i)
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated hereby and (ii) this Agreement
and any other agreements or arrangements contemplated hereby or in furtherance
of the transactions contemplated hereby, Acquisition has not incurred, directly
or indirectly, any obligations or
22
<PAGE>
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
SECTION 4.07 Brokers . No person is entitled any brokerage,
-------
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement and as a result of any
action taken by or on behalf of Acquisition or any of its affiliates, other than
Donaldson, Lufkin & Jenrette pursuant to an engagement letter dated March 10,
2000, a copy of which has been furnished to the Company.
SECTION 4.08 Financing . (a) Acquisition has received and executed
---------
commitment letters, each dated as of the date hereof (the "WCAS Commitment
Letters"), from (i) WCAS VIII, pursuant to which WCAS VIII has committed,
subject to the terms and conditions set forth therein, to provide to Acquisition
between $339.7 million and $429.4 million in common equity financing, depending
on the number of Retained Shares, and (ii) WCAS Capital Partners III, L.P.
("WCAS CP III"), pursuant to which WCAS CP III has committed, subject to the
terms and conditions set forth therein, to purchase from the Company for a
purchase price of up to $175 million, (x) up to $175 million in aggregate
principal amount of subordinated notes of the Surviving Corporation and (y)
1,785,714 shares of Company Common Stock. In addition, WCAS VIII has received
and executed a commitment letter dated March 30, 2000 from DLJ Capital Funding,
Inc. ("DLJ") (the "DLJ Commitment Letter," and together with the WCAS Commitment
Letters, the "Commitment Letters"), pursuant to which DLJ has committed, subject
to the terms and condition set forth therein, to provide to the Company $250
million in senior debt financing to complete the transactions contemplated
hereby. True and complete copies of the Commitment Letters have been furnished
to the Company. WCAS VIII or Acquisition, as the case may be, has fully paid
any and all commitment fees or other fees required by such Commitment Letters to
be paid as of the date hereof (and will duly pay any such fees after the date
hereof); provided that, if the Merger is consummated, the Surviving Corporation
--------
will reimburse WCAS VIII for such commitment fees or other fees required by such
Commitment Letters. The Commitment Letters are valid and in full force and
effect and no event has occurred which (with or without notice, lapse of time or
both) would constitute a default thereunder on the part of Acquisition or WCAS
VIII, as the case may be, or would adversely affect the probability that the
financing to be provided pursuant to such Commitment Letters (the "Financing")
will actually be funded.
(b) The Commitment Letters have been obtained, subject to the terms
and conditions thereof, to pay (or provide funds for the Surviving Corporation
to pay) the Cash Election Price pursuant to the Merger, to refinance any
indebtedness of the Company and its Subsidiaries that may become due as a result
of the transactions contemplated by this Agreement, to pay all related fees and
expenses, and to provide additional financing for future working capital and
general corporate needs of the Company and its Subsidiaries. It is the good
faith belief of Acquisition, as of the date hereof, that the Financing will be
23
<PAGE>
obtained, and Acquisition will use its commercially reasonable efforts to
fulfill or cause to be fulfilled all of the conditions precedent thereto that
are contained in the Commitment Letters. If the Financing is not available,
Acquisition shall use its commercially reasonable efforts to obtain other
financing (on terms no more burdensome in any material respect than those set
forth in the Commitment Letters) to consummate the transactions contemplated
hereby.
ARTICLE V
CERTAIN AGREEMENTS
SECTION 5.01 Conduct of the Company's Business . The Company
-------------------------------------
covenants and agrees that, prior to the Effective Time, unless Acquisition shall
otherwise consent in writing (such consent not to be unreasonably withheld or
delayed) or as set forth in Schedule 5.01 or as otherwise expressly contemplated
by this Agreement:
(a) the business of the Company and the Subsid-iaries shall be
conducted only in, and the Company and the Subsid-iaries shall not take any
action except in, the ordi-nary course of business and consistent with past
practice;
(b) neither the Company nor any Subsidiary shall, directly or
indirect-ly, do any of the following: (i) sell, pledge, dispose of or
encumber (or permit any Subsid-iary to sell, pledge, dispose of or
encumber) any assets of the Company or any Sub-sidiary, except inventory,
immaterial assets or in the ordinary course of business and consistent with
past practice; (ii) except as contemplated hereby, amend or propose to
amend its Certificate or Articles of Incorpora-tion or By_Laws (or similar
organizational documents); (iii) split, com-bine or reclassify any
outstand-ing shares of its capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or other-wise with respect to
such shares (except for any dividends paid in the ordi-nary course to the
Company or to any wholly_owned Subsidiary); (iv) redeem, pur-chase, acquire
or offer to acquire (or permit any Subsidiary to redeem, pur-chase, acquire
or offer to ac-quire) any shares of its capi-tal stock; or (v) enter into
any contract, agree-ment, com-mitment or arrange-ment with respect to any
of the matters set forth in this paragraph (b);
(c) neither the Company nor any Subsidiary shall (i) issue, sell,
pledge or dispose of, or agree to issue, sell, pledge or dispose of, any
additional shares of, or securi-ties convertible or exchangeable for, or
any op-tions, warrants or rights of any kind to acquire any shares of, its
capital stock of any class or other property or assets whether pursuant to
the Company Stock Plans or other-wise; provided that the Company may issue
shares of Company --------
Common Stock upon the exercise of currently out-standing Company Stock
Rights that are stock options and may, as previously authorized by the
Company's Board of Directors, grant options for up to 727,325 shares of
Company Common Stock at an exercise price equal to the market price of the
Company Common Stock 48 hours after public announcement of the Company's
results of operations for fiscal 1999; (ii) acquire (by merg-er,
consoli-da-tion or acquisi-tion of stock or assets) any corpo-ration,
partner-ship or other business organization or divi-sion thereof (except an
exist-ing wholly_owned Subsid-iary); (iii) incur
24
<PAGE>
any in-debted-ness for borrowed money or issue any debt secu-rities in an
amount exceeding $100,000 in the aggregate, except for working capital
loans in the ordinary course of business; (iv) enter into or modify any
material contract, lease, agreement or commit-ment, except in the ordinary
course of business and consis-tent with past practice; (v) terminate,
modify, as-sign, waive, release or relinquish any con-tract rights or amend
any materi-al rights or claims not in the ordinary course of business or
(vi) settle or compromise any claim, action, suit or pro-ceeding pending or
threatened against the Company, or, if the Compa-ny may be liable or
obligated to provide indem-nification, against the Company's directors or
officers, before any court, govern-men-tal agency or arbitra-tor, except in
the ordinary course of business; provid-ed that nothing --------- herein
shall require any action that might impair or otherwise affect the
obliga-tion of any insurance carrier under any insurance policy maintained
by the Compa-ny;
(d) neither the Company nor any Subsidiary shall grant any increase in
the salary or other compen-sation of its employees except (i) pursuant to
the terms of employ-ment agreements in effect on the date hereof and
previously disclosed to Acquisition and (ii) in the case of employees who
are not executive officers of the Company, in the ordinary course of
business and consis-tent with past practice, or grant any bonus to any
employee other than bonuses that are immaterial in amount to employees who
are not executive officers of the Company or enter into any employment
agreement or make any loan to or enter into any material transaction of any
other nature with any em-ployee of the Company or any Subsidiary;
(e) neither the Company nor any Subsidiar-y shall (except for salary
increases for employees who are not executive officers of the Company in
the ordinary course of business and consistent with past practice) adopt or
amend, in any respect, except as contemplated hereby or as may be required
by applica-ble law or regulation, any collec-tive bargaining, bonus, profit
sharing, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, fund, plan or arrangement for the benefit or welfare of
any directors, officers or employees (includ-ing, without limitation, any
such plan or arrangement relat-ing to severance or termination pay);
(f) neither the Company nor any Subsidiar-y shall take any action that
would make any representation or war-ranty of the Company hereunder
inaccurate in any respect at, or as of any time prior to, the Effective
Time, or omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time; and
(g) each of the Company and the Subsidiaries shall use its best
efforts, to the extent not prohib-ited by the foregoing provisions of this
Section 5.01, to maintain its relationships with its suppliers and
customers, and if and as requested by Acquisition, (i) the Company shall
use its best efforts to make reasonable arrange-ments for represen-tatives
of Acquisition to meet with
25
<PAGE>
customers and suppliers of the Company or any Subsid-iary and (ii) the
Company shall schedule, and the manage-ment of the Company shall
participate in, meetings of repre-senta-tives of Acquisition with employees
of the Company or any Subsidiary.
SECTION 5.02 Stockholder Approval . (a) As soon as reasonably
---------------------
practi-cable, the Company shall take all action necessary in accordance with the
SCBCA and its Articles of Incorpo-ration and By_Laws to call, give notice of and
convene a meeting (the "Stockholders Meeting") of its stockholders to consider
and vote upon the approval and adoption of this Agreement and the Merger and for
such other purposes as may be necessary or desirable. The Board of Direc-tors
of the Company has deter-mined that the Merger is advis-able and in the best
interests of the stock-holders of the Company and shall, subject to its
fiducia-ry duties as determined in good faith by the Board of Directors after
consultation with counsel, recommend that the stock-hold-ers of the Company vote
to approve and adopt this Agree-ment and the Merger and any other matters to be
submit-ted to stock-holders in connec-tion therewith.
(b) The Company shall, as promptly as practicable, prepare and file
with the SEC the Proxy Statement and the Registration Statement (in which the
Proxy Statement will be included). The Company shall use its best efforts to
have or cause the Registration Statement declared effective as promptly as
practicable, including, without limitation, causing its accountants to deliver
necessary or required instruments such as opinions and certificates, and will
take any other action required or necessary to be taken under federal or state
securities laws or otherwise in connection with the registration process and
will give Acquisition prompt notice of such effectuation. The Company will use
its best efforts to cause the Proxy Statement to be mailed to stockholders of
the Company at the earliest practicable date and shall use its best efforts to
hold the Stockholders Meeting as soon as practicable after the date hereof.
(c) The Company shall notify Acquisition of the receipt of any
comments of the staff of the SEC and of any requests by the staff for amendments
or supplements to the Proxy State-ment or the Registration Statement, or for
additional informa-tion, and shall promptly supply Acquisition with copies of
all correspon-dence between the Company (or its representatives) and the staff
of the SEC with respect thereto. If, at any time prior to the Stockholders
Meeting, any event should occur relating to or affecting the Company or
Acquisition, or to their respec-tive officers or directors, which event should
be described in an amendment or supplement to the Proxy Statement or the
Registration Statement, the parties shall promptly inform one another and shall
cooperate in promptly preparing, filing and clearing with the SEC and, if
required by applicable securities laws, distributing to the Company's
stockholders such amendment or supplement. The Company and Acquisition each
agree to correct any information provided by it for use in the Proxy Statement
or the Registration Statement which shall have become false or misleading.
26
<PAGE>
SECTION 5.03 Access to Information . (a) The Company shall, and
-----------------------
shall cause the Subsidiaries and its and their respec-tive officers, directors,
employees, representatives and agents to, afford, from the date hereof to the
Effective Time, the officers, employees, represen-tatives and agents of
Acquisition reason-able access during regular business hours to its officers,
employ-ees, agents, proper-ties, books, records and workpapers, and shall
promptly furnish Acquisition all financial, operating and other infor-mation and
data as Acquisition, through its offi-cers, employees or agents, may reasonably
re-quest.
(b) Except as required by law, Acquisition shall hold, and will cause
its respective officers, employees, repre-sentatives and agents to hold, any
confidential information of the Company or any of its Subsidiaries in accordance
with the Confidentiality Agreement between the Company and WCAS VIII.-----
(c) No investigation pursuant to this Section 5.03 or belief
contemplated by Section 5.06(c) shall affect, add to or subtract from any
representations or warranties of the parties hereto or the conditions to the
obliga-tions of the parties hereto to effect the Merger.
SECTION 5.04 Further Assurances . Subject to the terms and
-------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practi-cable the transactions contemplat-ed by this
Agreement, including, without limitation, using all reasonable efforts to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings (including, without limitation, any necessary filings
under the HSR Act).
SECTION 5.05 Inquiries and Negotiations . (a) From the date hereof
--------------------------
until the termination of this Agreement, the Company, the Subsidiaries and their
respective officers, directors, employees, representa-tives and other agents
will not, directly or indi-rectly, solicit or initiate any discussions,
submissions of proposals or offers or negotiations with or, subject to the
fiduciary duties of the Company's Board of Direc-tors as determined in good
faith by the Board of Directors after consultation with counsel, take any of the
following actions: partici-pate in any negotiations or discus-sions with, or
provide any information or data of any nature whatso-ever to, or otherwise
cooperate in any other way with, or assist or partici-pate in, facilitate or
encourage any effort or attempt by, any person, corporation, entity or "group"
(as defined in Section 13(d) of the Exchange Act) other than Acquisition and its
affili-ates, representa-tives and agents (each, a "Third Party") in connection
with any Alternative Transaction (as hereinafter defined). The Company shall
immediately notify Acquisition if any proposal, offer, inquiry or other contact
is received by, any information is requested from, or any discus-sions or
negotia-tions are sought to be initiated or continued with, the Company in
respect of an Alternative Transac-tion, and shall, in any such notice to
Acquisition, indicate the identity of the Third Party and the terms and
conditions of any proposals or offers or the nature of any inquiries or
contacts, and thereafter shall keep Acquisition informed, on a current basis, of
all material developments affecting the status and terms of any such proposals
or offers or the status of any such discussions or negotiations. Without
limiting the generality of the foregoing, the Company shall provide Acquisition
with not less then two business days' notice prior to the execution by the
Company of any defini-tive agreement with respect to any Alternative
27
<PAGE>
Transaction or any public announcement relating to the approval of any
Alternative Transaction. Prior to fur-nishing any non-public information to, or
entering into negotia-tions or discussions with, any Third Party, the Company
shall obtain an executed confidentiality agreement from such Third Party on
terms substan-tially the same as, or no less favorable to the Company in any
material respect than, those contained in the Confidentiality Agreement;
provided such agreement need not contain a "standstill" provision or
- --------
otherwise restrict the ability of the Third Party to make a proposal to the
Company's Board of Directors. The Company shall not release any Third Party
from, or waive any provision of, any such confi-denti-ality agree-ment or any
other confidentiality -or standstill agreement to which the Company is a party,
other than any such provision that would prevent or otherwise restrict the
ability of a Third Party to make a proposal to the Company's Board of Directors.
As of the date hereof, the Company shall cease, and shall cause the Subsidiaries
and the officers, direc-tors, employees, representatives and other agents of the
Company and the Subsidiaries, to cease, all discussions, negotiations and
communications with all Third Parties and demand the immediate return of all
confidential information previously provided to Third Parties. As used in this
Agreement, the term "Alternative Transaction" shall mean any (i) merger,
consolidation, recapitalization, tender or exchange offer, debt restructuring or
similar transaction involving the Company, (ii) the sale of more than 25% of the
common stock or other capital stock of the Company or (iii) sale of assets
(including stock of subsidiaries) representing more than 25% of the assets of
the Company and its subsidiaries, taken as a whole.
(b) If a Payment Event (as hereinafter defined) occurs, the Company
shall pay to Acquisition or its designated beneficiary within two business days
following such Payment Event, (i) a fee of $19.0 million in cash, plus (ii) all
documented out-of-pocket costs and expenses of Acquisition and WCAS VIII,
including, without limitation, financing fees, fees and expenses of counsel,
accountants, investment bankers and other advisors, filling fees and printing
expenses up to a maximum of $5.0 million. In the event that this Agreement
shall be terminated for any other reason and the Company shall have failed to
comply with or per-form, or shall have breached, in any material respect, any of
its covenants or agree-ments contained herein, the Company shall pay to
Acquisition or its designated beneficiary, within two business days following
such termination, the fees and expenses referred to in clause (ii) of the
preceding sentence; provided that such fees and expenses shall not be so payable
--------
if Acquisition shall have failed to comply with or per-form, or shall have
breached, in any material respect, any of its cove-nants or agree-ments
contained herein.
(c) For purposes of this Agreement, the term "Payment Event" shall
mean (x) the termination of this Agreement by Acquisition pursuant to Section
7.01(d); (y) the Com-pany's entering into a written agreement with respect to an
Alternative Transaction, as contem-plated by Section 7.01(c), or the termination
of this Agreement by the Company in connection with the commencement of a tender
offer by a Third Party, pursuant to Section 7.01(c); (z) within 12 months of
the date of termination of this Agreement (other than by reason of Acquisition's
failure to comply with or perform, or its breach of, in any material respect any
28
<PAGE>
of its agreements or covenants contained herein), the agreement of the Company
to enter into, or the consummation of, a transaction that is the subject of an
inquiry, proposal or offer that is an Alternative Transaction that was publicly
announced or submitted to the Company prior to the termination of this
Agreement.
(d) The Company acknowledges that the agreements contained in this
Section 5.05 are an integral part of the transactions contemplated by this
Agreement, and that, without these agree-ments, Acquisition would not enter into
this Agree-ment; according-ly, if the Company fails to promptly pay any amount
due pursuant to this Section 5.05, and, in order to obtain such payment, the
other party commences a suit that results in a judgment against the Company for
the fee or fees and expenses set forth in this Section 5.05, the Company shall
also pay to Acquisition its costs and expenses incurred in connec-tion with such
litigation.
(e) This Section 5.05 shall survive any termination of this
Agreement, however caused and is intended to benefit Acquisition and WCAS VIII
and shall be binding on the successors and assigns of the Company.
SECTION 5.06 Notification of Certain Matters, Etc, . (a) The Company
-------------------------------------
shall give prompt notice to Acquisition, and Acquisition shall give prompt
notice to the Company, of (i) the occurrence, or failure to occur, of any event
that such party believes would be likely to cause any of its represen-ta-tions
or warranties contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time and (ii)
any material failure of the Company or Acquisition, as the case may be, or any
offi-cer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that failure to give such notice shall not
-------- -------
constitute a waiver of any defense that may be validly asserted.
(b) Acquisition shall not take any action that would make any
representation or warranty of Acquisition hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time, or omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time.
(c) As of the date hereof, Acquisition has not formed any belief that
any of the representations or warranties of the Company contained in this
Agreement are untrue or incorrect in any material respect or that any of the
conditions to the obligation of Acquisition to consummate the Merger will not be
satisfied.
SECTION 5.07 Indemnification. (a) The Articles of Incorporation
---------------
and By-Laws of the Surviving Corporation shall contain the provisions with
respect to indemnification and exculpation from liability set forth in the
Company's Articles of Incorporation and By-Laws as in effect on the date hereof,
29
<PAGE>
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, on or prior to the Effective
Time, were direc-tors, officers, employees or agents of the Company
(collectively, the "Indemnified Parties"), unless such modification is required
by law.
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance covering
those Indemnified Parties who are currently covered by the Company's directors'
and offi-cers' liability insurance policy, a copy of which has heretofore been
delivered to Acquisition, on terms no less favorable than the terms of such
current insur-ance coverage; provided, however, that in no event shall the
-------- -------
Surviving Corpora-tion be required to expend in any one year an amount in excess
of 200% of the annual premi-ums currently payable by the Company for such
insurance, and further provided, however that, if the annual premiums of such
------- -------- -------
insurance coverage exceed such amount, the Surviving Corporation shall obtain a
policy with the greatest coverage available for a cost not exceeding such
amount.
(c) This Section 5.07 shall survive the consumma-tion of the Merger,
is intended to benefit the Company, the Surviving Corporation and the
Indemni-fied Parties, and shall be binding on the successors and assigns of the
Surviving Corporation.
SECTION 5.08 Employee Benefits . (a) From and after the Effective
------------------
Time, the Surviving Corporation and its Subsidiaries will honor in accordance
with their terms all existing employment, severance, consulting and salary
continuation agreements between the Company or any of its Subsidiaries and any
current or former executive officer or director of the Company or any of its
Subsidiaries of a type required to be filed (or described in a document filed)
with the SEC pursuant to the Exchange Act, which agreements are described on
Schedule 5.08 or included in the Company SEC Filings, subject to any
modifications thereto agreed to by any such officers or directors with the
Surviving Corporation.
(b) In addition to honoring the agreements referred to in Schedule
5.08, until the first anniversary of the Effective Time, the Surviving
Corporation will not materially alter the benefits (including health benefits,
severance policies and general employment policies and procedures) that are
available to employees of the Company and its Subsidiaries as of the date
hereof, except as contemplated by paragraph (d) of this Section 5.08; and
provided that nothing in this Section 5.08(b) shall be deemed to prevent the
--
Surviving Corporation or any of its Subsidiaries from making any change required
by applicable law.
(c) To the extent permitted under applicable law, each employee of
the Company or its Subsidiaries shall be given credit for all service with the
Company or its Subsidiaries (or service credited by the Company or its
Subsidiaries) under all employee benefit plans, programs, policies and
arrangements maintained by the Surviving Corporation in which they participate
or in which they become participants for purposes of eligibility, vesting and
benefit accrual including, without limitation, for purposes of determining (i)
short-term and long-term disability benefits, (ii) severance benefits, (iii)
vacation benefits and (iv) benefits under any retirement plan.
30
<PAGE>
(d) At the Effective Time, the Surviving Corporation shall adopt a
stock option plan providing for the grant of options for up to 1,675,000 shares
of Common Stock of the Surviving Corporation. Of such options, options for up
to 750,000 shares shall be granted at the Effective Time to officers of the
Company who enter into satisfactory employment arrangements with the Surviving
Corporation. The balance of such options shall be available for future grants
in the discretion of the Board of Directors of the Surviving Corporation. As of
the Effective Time, the Company shall cease to grant rights or other benefits
under all stock option, restricted stock, stock appreciation and other equity
employee plans of the Company and, except for any rights with respect to
outstanding awards granted thereunder prior to the Effective Time in accordance
with the terms of such plans and subject to the provisions of this Agreement,
officers and employees of the Company shall not have any rights thereunder.
(e) This Section 5.08 shall survive the consummation of the Merger,
is intended to benefit the Company, the Surviving Corporation and the employees
affected thereby, and shall be binding as binding on the successors and
assignees of the Surviving Corporation.
SECTION 5.09 Affiliates of the Company . The Company has identified
--------------------------
to Acquisition each person who is, as of the date hereof, an affiliate of the
Company for purposes of Rule 145 under the Securities Act. The Company shall
use its best efforts to cause each such affiliate to deliver to Acquisition, on
or prior to the Effective Time, a written agreement that the affiliate will not
sell, pledge, transfer or otherwise dispose of Retained Shares issued to such
affiliate pursuant to the Merger, except in compliance with Rule 145 or an
exemption from the registration requirements of the Securities Act.
SECTION 5.10 Comfort Letters . The Company shall use its
----------------
commercially reasonable efforts to cause to be delivered to Acquisition a letter
of its independent certified public accountants, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to Acquisition, in form and substance reasonably
satisfactory to Acquisition and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01 Conditions to the Obligations of the Parties. The
------------------------------------------------
respective obligations of the parties to consummate the Merger are subject to
the fulfillment at or prior to the Effective Time of the following conditions,
any or all of which may be waived in whole or in part by the Company or
Acquisition to the extent permitted by applicable law:
31
<PAGE>
(a) Stockholder Approval. This Agreement shall have been duly approved by
--------------------
the holders of two-thirds of the outstanding shares of Company Common Stock, in
accordance with applicable law and the Articles of Incorporation and By-Laws of
the Company.
(b) Registration Statement; "Blue Sky" Permits. The Registration
----------------------------------------------
Statement shall have become effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for such purpose shall have been initiated and be continuing or
threatened by the SEC. The Company shall have received all state securities
laws or "blue sky" permits and other authorizations necessary to issue Retained
Shares in exchange for the shares of Company Common Stock in the Merger.
(c) Injunction, etc. There shall be (i) in effect no preliminary or
----------------
permanent injunction or other order of any governmental or regulatory agency or
court of competent jurisdiction that restrains, enjoins or otherwise prohibits,
or imposes material and adverse conditions upon consummation of the transactions
contemplated hereby, (ii) in effect any pending or threatened suit, action or
proceeding by any governmental or regulatory agency seeking to prohibit or limit
the ownership or operations by Acquisition, the Company or any of the
Subsidiaries of Company, or to compel Acquisition, the Company or the
Subsidiaries of Company, in the aggregate, to dispose of or hold separate, any
of the material assets or business segments of the Company, in each case, as a
result of the transactions contemplated hereby, or (iii) any pending or
threatened action by a government or regulatory agency that could have any of
the effects referred to in (i) above; provided, however, that prior to invoking
-------- -------
this condition a party shall use all commercially reasonable efforts to have
such injunction or order vacated.
(d) Governmental Filings and Consents. All governmental filings required
----------------------------------
to be made prior to the Effective Time by the Company with, and all governmental
consents required to be obtained prior to the Effective Time by the Company or
Acquisition from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement by the Company or Acquisition and the
consummation of the transactions contemplated hereby shall have been made or
obtained, except where the failure to make such filing or obtain such consent
would not reasonably be expected to result in a Material Adverse Effect on the
Surviving Corporation (assuming the Merger had taken place) and the waiting
periods under the HSR Act shall have expired or been terminated.
(e) Third Party Consents. All contractual and other third party consents
---------------------
required to be obtained prior to the Effective Time by the Company in connection
with the execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby shall have been obtained,
32
<PAGE>
except where the failure to obtain such consent would not reasonably be expected
to result in a Material Adverse Effect on the Surviving Corporation (assuming
the Merger had taken place).
(f) Financing. Acquisition shall have (i) received the Financing
---------
contemplated by the Commitment Letters or the alternative Financing contemplated
by Section 4.08(b) or (ii) in lieu of the Financing contemplated by the DLJ
Commitment Letter, the Company shall have obtained all consents and/or waivers
that are necessary under the Company's existing senior credit facility in order
that the consummation of the transactions contemplated hereby will not
constitute an "Event of Default" thereunder, and the terms and conditions of
such existing credit facility (as so modified) shall be reasonably acceptable to
Acquisition.
SECTION 6.02 Conditions to the Obligation of Acquisition. The
------------------------------------------------
obligation of Acquisition to consummate the Merger is subject to the fulfillment
at or prior to the Effective Time of the following conditions, any or all of
which may be waived in whole or in part by Acquisition to the extent permitted
by applicable law:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Company set forth in this Agreement shall be true and correct in all
respects that are material to the Company and the Subsidiaries, as a whole, on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date (provided that representations and warranties made as of a
particular date shall be true as of such date) and the Company shall have
performed in all material respects all of its obligations under this Agreement
theretofore to be performed, and Acquisition shall have received a certificate
to that effect dated the Closing Date and executed by the chief executive
officer or chief financial officer of the Company.
(b) Delivery of Comfort Letter. The Company's independent certified
-----------------------------
public accountants shall have delivered to the Company, for delivery by it to
Acquisition, one or more letters with respect to the financial information
contained in the Proxy Statement and the Registration Statement in form and
substance reasonably satisfactory to Acquisition and customary in scope and
substance for letters delivered by independent certified public accountants in
connection with registration statements similar to the Registration Statement.
(c) No Material Adverse Effect. The Company shall not have suffered after
--------------------------
the date of this Agreement any change that has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 6.03 Conditions to the Obligations of the Company . The
------------------------------------------------
obligation of the Company to consummate the Merger is subject to the fulfillment
at or prior to the Effective Time of the following conditions, any or all of
which may be waived in whole or in part by the Company to the extent permitted
by applicable law:
33
<PAGE>
(a) Representations and Warranties. The representations and warranties of
------------------------------
Acquisition set forth in this Agreement shall be true and correct in all
respects that are material to Acquisition on and as of the Closing Date with the
same force and effect as if made on and as of the Closing Date (provided that
representations and warranties made as of a particular date shall be true as of
such date) and Acquisition shall have performed in all material respects all of
its obligations under this Agreement theretofore to be performed, and the
Company shall have received a certificate to that effect dated the Closing Date
and executed by the chief executive officer or chief financial officer of
Acquisition.
(b) Solvency Letter. Acquisition shall have caused the valuation firm which
---------------
has delivered a solvency letter to the financial institutions providing the debt
financing for the Merger (or, if no such letter has been provided thereto, a
valuation firm reasonably acceptable to the Company) to have delivered to the
Company a letter addressed to its Board of Directors in form and substance
reasonably satisfactory thereto as to the solvency of the Company and its
Subsidiaries after giving effect to the Merger, the financing arrangements
contemplated by Acquisition with respect to the Merger and the other
transactions contemplated hereby.
(c) No Material Adverse Effect. Acquisition shall not have suffered after
--------------------------
the date of this Agreement any change which has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Acquisition.
ARTICLE VII
TERMINATION AND ABANDONMENT
SECTION 7.01 Termination and Abandonment . This Agreement may be
-----------------------------
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the stockholders of the Company:
(a) by mutual action of the Boards of Directors of Acquisition and the
Company;
(b) by either the Company or Acquisition, if (i) the conditions to its
obligations under Sections 6.01 and 6.02, as applicable, shall not have been
complied with or performed in any material respect and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by the other party on or before September 30, 2000, or
(ii) the Merger shall not have been effected on or prior to the close of
business on September 30, 2000; un-less, in any case, such event has been caused
by the breach of this Agreement by the party seeking such termination;
34
<PAGE>
(c) by the Company if, prior to stockholder approval of this Agreement and
the Merger, the Company shall enter into a definitive written agreement with
respect to an Alternative Transaction with a Third Party, or a Third Party has
commenced a tender offer which, in either case, the Board of Directors of the
Company believes in good faith is more favorable to the Company's stockholders
than the transac-tions contemplated by this Agreement; provided, that all
--------
amounts payable under Section 5.05 hereof shall have been paid prior to such
termination; or
(d) by Acquisition, if the Board of Directors of the Company shall have
withdrawn, modified or amended in a manner adverse to Acquisition its approval
or recommendation of the Merger or approved, recommended or endorsed any
proposal for, or authorized the Company to enter into, an Alternative
Transaction.
(e) by either the Company or Acquisition if the approval of the Company's
stockholders contemplated by Section 6.01(a) shall not have been obtained at a
meeting held for such purpose, including any adjournment or postponement
thereof.
Any party desiring to terminate this Agreement pursuant to this Section 7.01
shall give notice to the other party in accordance with Section 8.05.
SECTION 7.02 Effect of Termination . Except as provid-ed in Sections
---------------------
5.05 and 8.02, in the event of the termina-tion of this Agreement and the
abandonment of the Merger pursuant to Sec-tion 7.01, this Agree-ment shall
there-after become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its stockholders or directors or officers
in respect thereof, except that nothing herein shall relieve any party from
liability for any willful breach hereof.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Nonsurvival of Representations and Warranties . None of
---------------------------------------------
the representations and warranties in this Agreement or in any instrument
delivered pursuant hereto shall survive the Effective Time, provided that this
--------
Section 8.01 shall not limit any covenant or agreement of the parties that by
its terms contemplates performance after the Effective Time.
SECTION 8.02 Expenses, Etc. (a) In the event that the transactions
--------------
contemplated by this Agreement are not consum-mated, neither the Company, on the
one hand, nor Acquisition, on the other hand, shall have any obligation to pay
any of the fees and expenses of the other incident to the negoti-ation,
preparation and execution of this Agreement, includ-ing the fees and expenses of
counsel, accountants, investment bankers and other experts; provided, however,
-------- -------
that if this Agree-ment shall have been terminated as a result of the willful
and material misrepresentations by a party or the willful and materi-al breach
35
<PAGE>
by a party of any of its covenants and agreements contained herein, such party
shall pay the costs and expenses incurred by the other parties in connection
with this Agreement.
(b) In the event that the transactions contem-plated by this
Agreement are consummated, the Company shall pay all of the fees and expenses of
Acquisition incident to the negotia-tion, prepara-tion and execution of this
Agreement, including the fees and expenses of counsel, accountants, invest-ment
bankers and other advisors.
SECTION 8.03 Publicity. The Company and Acquisition agree that they
---------
will not issue any press release or make any other public an-nounce-ment
concerning this Agreement or the transactions contemplated hereby without the
prior consent of the other party, except that the Company may make such public
disclosure that it believes in good faith to be required by law (in which event
such party shall consult with the other prior to making such disclosure).
SECTION 8.04 Execution in Counterparts. For the convenience of the
-------------------------
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 8.05 Notices. All notices that are required or may be given
-------
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage pre-paid, as follows:
If to Acquisition to:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022-6815
Telecopy: (212) 893-9575
Attention: Patrick J. Welsh
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopy: (212) 841-5725
Attention: Robert A. Schwed, Esq.
36
<PAGE>
If to the Company, to:
Policy Management Systems Corporation
One PMSC Center
Blythewood, South Carolina 29016
Telecopy: (803) 333-5560
Attention: Chief Executive Officer
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Telecopy: (212) 259-6333
Attention: Morton A. Pierce, Esq.
Richard D. Pritz, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 8.06 Waivers. The Company, on the one hand, and
-------
Acquisition, on the other hand, may, by written notice to the other, (i) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement; (ii) waive any inaccuracies in the representa-tions
or warranties of the other contained in this Agree-ment or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any of the
conditions of the other contained in this Agreement; or (iv) waive performance
of any of the obliga-tions of the other under this Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this Agree-ment,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representa-tions, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 8.07 Entire Agreement. This Agreement, its Exhibits and
-----------------
Schedules and the other documents executed at the Effec-tive Time in connection
herewith consti-tute the entire agreement among the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understand-ings, oral and written, between the parties hereto with respect to
the subject matter hereof. No representation, warran-ty, promise, inducement or
statement of intention has been made by any party that is not embodied in this
Agreement or such other documents, and none of the parties shall be bound by, or
be liable for, any alleged representation, warranty, promise, inducement or
state-ment of intention not embodied herein or therein.
37
<PAGE>
SECTION 8.08 Applicable Law. This Agreement shall be governed by
---------------
and construed in accordance with the laws of the State of South Carolina,
without regard to principles of conflict of laws.
SECTION 8.09 Binding Effect, Benefits. Except as otherwise stated
-------------------------
herein, this Agree-ment shall inure to the benefit of and be binding upon the
parties hereto and their respective permitted successors and assigns. Except as
otherwise stated herein, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective permitted successors and assigns, any rights, remedies, obliga-tions
or liabilities under or by reason of this Agreement; provided, however, that the
-------- -------
provisions of Section 5.07 hereof shall accrue to the benefit of, and shall be
en-forceable by, each of the current and former directors and officers of the
Company.
SECTION 8.10 Assignability. Neither this Agreement nor any of the
-------------
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other party hereto.
SECTION 8.11 Amendments . This Agreement may be varied, amended or
----------
supplemented at any time before or after the approval and adoption of this
Agreement by the stock-holders of the Company by action of the respective boards
of directors of the Company and Acquisition, without action by the stockholders
thereof; provided that, after approval and adoption of this Agreement by the
--------
Company's stock-holders, no such vari-ance, amendment or supplement shall,
without consent of such stockhold-ers, reduce the amount or alter the form of
the consid-eration that the holders of the capital stock of the Company shall be
entitled to receive upon the Effective Time pursuant to Article II hereof.
Without limiting the generality of the foregoing, this Agreement may only be
amended, varied or supple-mented by an instrument in writing, signed by the
parties hereto.
SECTION 8.12 Interpretation . As used herein, "best efforts" or
--------------
similar formulations shall mean "all commercially reasonable efforts."
References to the "knowledge" of the Company, or similar formulations, shall
mean to the actual knowledge of the executive officers of the Company. As used
herein, "including" or similar formulations shall mean "including without
limitation."
38
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement and Plan of Merger as of the day and year first above written.
POLICY MANAGEMENT SYSTEMS
CORPORATION
By G. Larry Wilson
---------------------
Name: G. Larry Wilson
Title: CEO, President
POLITIC ACQUISITION CORP.
By Thomas E.McInerney
------------------------
Name: Thomas E. McInerney
Title: President
39
<PAGE>
<TABLE>
<CAPTION>
INDEX TO DEFINED TERMS
THIS INDEX IS INCLUDED FOR CONVENIENCE ONLY AND
DOES NOT CONSTI-TUTE A PART OF THE AGREEMENT
Term (SEC) Reference
- ------------------------------------ --------------------
<S> <C>
"1999 Financials" 3.07
"Acquisition" Recitals
"Acquisition Common Stock" 2.01(a)
"Alternative Transaction" 5.05(a)
"Audited Balance Sheet" 3.07
"Cash Election Price" 2.01(c)(ii)
"Cash Proration Factor" 2.03(c)(ii)(1)
"Certifi-cates" 2.04(b)
"Closing" 1.03
"Closing Date" 1.03
"Code" 2.04(i)
"Commitment Letters" 4.08(a)
"Company" Recitals
"Company Common Stock" 2.01
"Company SEC Filings" 3.06
"Company Stock Rights" 3.05
"Company Stock Plans" 3.05
"Constituent Corporations" Recitals
"Dissenting Shares" 2.01(d)
"DLJ" 4.08(a)
"DLJ Commitment Letter" 4.08(a)
"Effective Time" 1.04
"Electing Shares" 2.01(c)(i)
"Election Date" 2.02(c)
"Environmental Event" 3.18
"ERISA" 3.17(a)
"Excess Shares" 2.04(e)(ii)
"Exchange Act" 3.06
"Exchange Agent" 2.02(b)
"Exchange Fund" 2.04(a)
"Excluded Shares" 2.01(b)
"Financing" 4.08(a)
"Form of Election" 2.02(c)
"Governmental Entity" 3.09
"HSR Act" 3.09
<PAGE>
"Indemnified Parties" 5.07(a)
"Insurance Policies" 3.22
"Intangible Rights" 3.13(a)
"Licensed Software" 3.13(c)
"Liens" 3.02(b)
"Material Adverse Effect" 3.01
"Maximum Retention Number" 2.03(a)
"Merger" Recitals
"Merger Consideration" 2.01(c)
"Minimum Retention Number" 2.03(a)
"Non-Cash Proration Factor" 2.03(b)(i)
"Owned Software" 3.13(b)
"Payment Event" 5.05(c)
"Plan" 3.17(a)
"Proxy Statement" 3.09
"Registration Statement" 3.09
"Retained Share" 2.01(c)(i)
"Retention Election" 2.02(a)
"SCBCA" Recitals
"SEC" 3.06
"Securities Act" 3.06
"South Carolina Code" 1.02
"Special Stock" 3.05
"Stockholders Meeting" 5.02(a)
"Subsidiary" 3.02(c)
"Surviving Corporation" Recitals
"Surviving Corporation Common Stock" 2.01(a)
"Tax Return" 3.16(f)
"Third Party" 5.05(a)
"Tax" 3.16(e)
"Violation" 3.10(b)
"WCAS Commitment Letters" 4.08(a)
</TABLE>
<PAGE>
PMSC ANNOUNCES AGREEMENT WITH WELSH, CARSON, ANDERSON & STOWE
STOCKHOLDERS CAN RECEIVE $14 PER SHARE IN CASH FOR 75 TO 93 PERCENT OF THE
SHARES
WCAS COMMITS UP TO $604 MILLION IN THE RECAPITALIZATION
NEW BUSINESS MODEL TO INCREASE FOCUS ON EBUSINESS AND BUSINESS PROCESS
OUTSOURCING AS INSURANCE AND FINANCIAL SERVICES CUSTOMERS RAMP-UP INTERNET USE
COLUMBIA, S.C., March 30 /PRNewswire/ -- Policy Management Systems Corporation
(PMSC) (NYSE: PMS - news) announced today that it has signed a definitive
--- ----
agreement with an affiliate of Welsh, Carson, Anderson & Stowe (``WCAS''), a
leading New York-based private investment firm, to affect a recapitalization of
the company. The company will continue to operate as a public company with its
current management and under its new name, Mynd. PMSC's Board of Directors has
approved the transaction.
Under the terms of the agreement, WCAS has committed to provide up to
approximately $604 million of capital, of which $75 million will be used for
investments in new strategic initiatives and other general corporate purposes.
Stockholders will have the right to elect to either retain their shares or
receive $14 per share in cash consideration, subject to between 75% and 93% of
the existing shares being converted to cash. PMSC's existing stockholders will
retain between 7% and 25% of the post-merger common stock.
Larry Wilson, Chairman and Chief Executive Officer of PMSC, said, ``We are
confident that this is the right step at this moment in the company's transition
to a new business model with a focus on eBusiness. This investment will
substantially strengthen our capital base and enable us to increase our focus on
delivering new, flexible solutions to our insurance and financial services
customers. We believe we will be positioned to capitalize on the substantial
growth opportunities in our markets.''
A spokesman for WCAS said, ``PMSC is a company with a proven record of
technological innovation, a strong customer base and a commitment to adapt its
products and services to the rapidly developing world of eBusiness. Our
investment reflects our strong belief that as an equity partner with a long-term
perspective, we will give PMSC the financial strength to complete its transition
to a new business model and invest in innovative technologies. As the pace of
technological change accelerates, we believe that, working together with PMSC's
management and employees, we will create substantial growth.''
The transaction is expected to be completed during the second or third quarter
of this year and is subject to approval by PMSC's stockholders, the receipt of
financing and other customary conditions. The financing necessary for the
transaction has been fully committed by WCAS and an affiliate of Donaldson,
Lufkin & Jenrette. A special meeting of PMSC's stockholders will take place as
soon as practical following approval of proxy materials by the Securities and
Exchange Commission. PMSC's Board was advised by Credit Suisse First Boston.
WCAS was advised by Donaldson, Lufkin & Jenrette.
In the event the agreement is terminated under certain circumstances, PMSC has
agreed to pay WCAS a termination fee of $19 million plus expenses of up to $5
million.
<PAGE>
WCAS, founded in 1979, is one of the leading private equity firms in the
country, with assets under management of approximately $8 billion. It focuses
exclusively on the information services, communications and health care
industries and invests out of a $3.2 billion equity fund and a $1.4 billion
subordinated debt fund. In addition to this investment, WCAS has sponsored a
number of transactions with leading information services companies including The
Bisys Group Inc., SunGuard Data Systems, Inc., Fiserv Inc., Amdocs Ltd., Bridge
Information Systems, and Comdata Holdings Corporation.
PMSC, headquartered in Columbia, S.C., is a leading provider of application
software, related automation support and information services designed to meet
the needs of the global insurance and financial services industries. Information
on PMSC and its products and services can be found on the World Wide Web at
http://www.pmsc.com.
- -------------------
Statements about the proposed agreement are forward-looking statements that
involve risks and uncertainties. Among the factors that could cause actual
results to differ materially from those in the forward looking statements are:
the failure of the agreement to be consummated and those factors in PMSC's 1999
Annual Report on Form 10K and other reports and filings with the U.S. Securities
and Exchange Commission. PMSC disclaims any intention or obligation to update or
revise any forward looking statements.
Investors are urged to read the Current Report on Form 8-K and proxy
statement/prospectus relating to the agreement and any other relevant documents
filed by PMSC with the Securities and Exchange Commission, when available,
because they will contain important information. Investors will be able to
obtain these documents, when available, for free from the SEC's web site,
www.sec.gov or from PMSC investor services at http://www.pmsc.com.
- -----------
SOURCE: Policy Management Systems Corporation
<PAGE>
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
320 Park Avenue, Suite 2500
New York, N.Y. 10022-6815
March 30, 2000
Politic Acquisition Corp.
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022-6815
Policy Management Systems Corporation
One PMSC Center
Blythewood, SC 29016
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Agreement"), between Politic Acquisition Corp. ("Politic") and
Policy Management Systems Corporation (the "Company"). Capitalized terms used
herein and not otherwise defined herein have the meanings given to them in the
Agreement.
We agree with Acquisition and the Company that, if at any time between
the date hereof and the Effective Time, Acquisition shall have any obligations
or liabilities, whether under the Agreement or otherwise, that cannot be
satisfied out of the assets of Acquisition, the undersigned shall make an equity
investment in Acquisition in an amount equal to such obligations or liabilities,
up to $429.4 million in the aggregate. Any such investment shall reduce by an
equal amount any investment commitment the undersigned may have to Acquisition.
The undersigned's obligation hereunder may be satisfied by an investment by any
other affiliate of Welsh, Carson, Anderson & Stowe or a third party.
We also agree that we shall use our commercially reasonable efforts to
consummate the Financing substantially on the terms of the Commitment Letters.
Notwithstanding anything that may be expressed or implied in the
foregoing provisions of this letter agreement, Acquisition and the Company, by
their acceptance of the benefits hereof, covenant, agree and acknowledge that no
person or entity other than Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS
VIII"), shall have any obligation hereunder and that, notwithstanding that WCAS
<PAGE>
VIII is a partnership, no recourse hereunder shall be had against any current or
future officer, director, agent or employee of WCAS VIII, against any current or
future general or limited partner of WCAS VIII or against any current or future
director, officer, employee, general or limited partner, member, affiliate or
assignee of any of the foregoing, whether by the enforcement of any assessment
or by any legal or equitable proceeding or by virtue of any statute, regulation
or other applicable law. Without limiting the generality of the foregoing, it
is expressly agreed and acknowledged that no personal liability whatsoever shall
attach to, be imposed on or otherwise incurred by any current or future officer,
agent or employee of WCAS VIII, any current or future general or limited partner
of WCAS VIII or any current or future director, officer, employee, general or
limited partner, member affiliate or assignee of any of the foregoing, as such
for any obligations of WCAS VIII under this letter agreement or for any claim
based on, in respect of or by reason of such obligations or their creation.
Very truly yours,
WELSH, CARSON, ANDERSON &
STOWE VIII, L.P.
By WCAS VIII Associates LLC
General Partner
By /s/ Thomas E. McInerney
----------------------------
Managing Member
Accepted and Agreed to By:
POLITIC ACQUISITION CORP.
By /s/ Thomas E. McInerney
----------------------------
Title: President
POLICY MANAGEMENT SYSTEMS CORPORATION
By
-------------------------
Title:
<PAGE>
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
320 Park Avenue, Suite 2500
New York, New York 10022-6815
As of March 30, 2000
Politic Acquisition Corp.
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, New York 10022-6815
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), between Policy Management Systems
Corporation, a South Carolina corporation (the "Company"), and Politic
Acquisition Corp., a South Carolina corporation ("Acquisition"). Capitalized
terms used and not otherwise defined herein have the meanings ascribed to them
in the Merger Agreement.
We agree that, at the Effective Time, subject to the satisfaction or
waiver (with our consent) of each of the conditions precedent set forth in
Sections 6.01 and 6.02 of the Merger Agreement, Acquisition will be capitalized
with common equity in an aggregate amount of between $339.7 million and $429.4
million or between 24,261,429 shares and 30,671,429 shares from Welsh, Carson,
Anderson & Stowe VIII, L.P. ("WCAS VIII") and certain affiliated investors
(together with WCAS VIII, the "Investors"). The equity commitment of the
Investors will increase proportionately above $339.7 million to the extent the
Company's shareholders elect to retain more than the minimum number of retained
shares specified by the Merger Agreement. The proceeds of such investment will
be used by Acquisition to consummate the Merger and related transactions as set
forth in the Merger Agree-ment and to provide additional equity capital for the
future working capital needs and general corporate purposes of the Surviving
Corporation and the Subsidiaries. The Investors will be under no obligation
under any circumstances to capitalize Acquisition with aggregate equity of
more than $429.4 million. At the time of, and subject to, the consummation of
the Merger, WCA Management Corporation or another designee of WCAS VIII shall be
entitled to receive from the Surviving Corporation a financing fee equal to
1.25% of the total equity and debt financing provided by WCAS VIII and its
affiliated entities and persons.
Notwithstanding anything that may be expressed or implied in this
letter agreement, the Company, by its acceptance of the benefits hereof,
covenants, agrees and acknowledges that, no person other than WCAS VIII shall
have any obligation hereunder and that, notwithstanding that WCAS VIII and
<PAGE>
certain of the other Investors are partnerships, no recourse hereunder or under
any documents or instruments delivered in connection herewith shall be had
against any current or future officer, agent or employee of WCAS VIII or of any
other Investor, against any current or future general or limited partner of WCAS
VIII or of any other Investor or against any current or future director,
officer, employee, general or limited partner, member, affiliate or assignee of
any of the foregoing, whether by the enforcement of any assessment or by any
legal or equitable proceeding, or by virtue of any statute, regulation or other
applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by
any current or future officer, agent or employee of WCAS VIII or of any other
Investor or any current or future general or limited partner of WCAS VIII or of
any Investor or any current or future director, officer, employee, general or
limited partner, member, affiliate or assignee of any of the foregoing, as such
for any obligations of WCAS VIII or of any Investor under this letter agreement
or any documents or instruments delivered in connection herewith or for any
claim based on, in respect of or by reason of such obligations or their
creation.
Very truly yours,
WELSH, CARSON, ANDERSON &
STOWE VIII, L.P.
By WCAS VIII Associates LLC,
General Partner
By /s/ Thomas E. McInerney
-----------------------------
Managing Member
<PAGE>
WCAS CAPITAL PARTNERS III, L.P.
320 Park Avenue, Suite 2500
New York, New York 10022-6815
As of March 30, 2000
Politic Acquisition Corp.
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, New York 10022-6815
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), between Policy Management Systems
Corporation, a South Carolina corporation (the "Company"), and Politic
Acquisition Corp., a South Carolina corporation ("Acquisition"). Capitalized
terms used and not otherwise defined herein have the meanings ascribed to them
in the Merger Agreement.
We agree that, at the Effective Time, subject to the satisfaction or
waiver (with our consent) of each of the conditions precedent set forth in
Sections 6.01 and 6.02 of the Merger Agreement, WCAS Capital Partners III, L.P.
("WCAS CP III") and certain affiliated investors (the "Investors") will purchase
for $175 million $175 million aggregate principal amount of subordinated notes
and 1,785,714 shares of common stock of the Surviving Corporation. A summary of
the terms of the subordinated notes are attached hereto as Exhibit A. The
proceeds of such financing will be used by Acquisition to consummate the Merger
and related transactions as set forth in the Merger Agreement and to provide
additional financing for the future working capital needs and general corporate
purpose of the Surviving Corporation and the Subsidiaries. The Inves-tors will
be under no obliga-tion under any circum-stances to purchase securities in an
amount greater than $175 million.
Notwithstanding anything that may be expressed or implied in this
letter agreement, the Company, by its acceptance of the benefits hereof,
covenants, agrees and acknowledges that, no Person other than WCAS CP III shall
have any obligation hereunder and that, notwithstanding that WCAS CP III and
certain of the other Investors are partnerships, no recourse hereunder or under
any documents or instruments delivered in connection herewith shall be had
<PAGE>
against any current or future officer, agent or employee of WCAS CP III or of
any other Investor, against any current or future general or limited partner of
WCAS CP III or of any other Investor or against any current or future director,
officer, employee, general or limited partner, member, affiliate or assignee of
any of the foregoing, whether by the enforcement of any assessment or by any
legal or equitable proceeding, or by virtue of any statute, regulation or other
applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by
any current or future officer, agent or employee of WCAS CP III or of any other
Investor or any current or future general or limited partner of WCAS CP III or
of any Investor or any current or future director, officer, employee, general or
limited partner, member, affiliate or assignee of any of the foregoing, as such
for any obligations of WCAS CP III or of any Investor under this letter
agreement or any documents or instruments delivered in connection herewith or
for any claim based on, in respect of or by reason of such obligations or their
creation.
Very truly yours,
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates LLC,
General Partner
By /s/ Thomas E. McInerney
-----------------------------
Managing Member
<PAGE>
Exhibit A
SUMMARY OF TERMS OF SUBORDINATED DEBT FINANCING
Issuer: Policy Management Systems Corporation
Principal Amount: $175,000,000
Ranking: Subordinate in right of payment to all senior
obligations
Maturity: Earlier of eight years or six months after the
maturity of the Credit Facilities to be provided
by DLJ Capital Funding, Inc.
Optional Prepayment: Pre-payable by the Company at any time at par
Mandatory Prepayment: Change of Control
Interest Rate: 10% per annum
Form of Interest: Cash, payable in quarterly installments
Common shares: 1,785,714 shares
<PAGE>
March 31, 2000
CONFIDENTIAL
------------
Welsh Carson Anderson & Stowe VIII, L.P.
320 Park Avenue
Suite 2500
New York, NY 10022-6815
Attention: Robert A. Minicucci
Gentlemen:
You have advised DLJ Capital Funding, Inc. and its affiliates ("DLJ CAPITAL
FUNDING") that (i) Welsh, Carson, Anderson & Stowe VIII, L.P. or one or more of
its affiliates (collectively "WCAS" or the "EQUITY INVESTORS") have formed a new
corporation named Politic Acquisition Corp. ("ACQUISITIONCO") for the purpose of
effecting the recapitalization (the "RECAPITALIZATION") of Policy Management
Systems Corporation ("POLITIC" or the "COMPANY") pursuant to a recapitalization
agreement (the "RECAPITALIZATION AGREEMENT") to be entered into between
Acquisitionco and Politic; (ii) pursuant to the Recapitalization Agreement,
Acquisitionco will merge (the "MERGER") with and into Politic, with Politic as
the survivor (such surviving corporation being herein referred to as the
"COMPANY") and (iii) at the date of consummation of the Recapitalization (the
"RECAPITALIZATION DATE"), the existing stockholders of Politic immediately prior
to the Merger (the "EXISTING STOCKHOLDERS") will have the right to elect to
either (x) receive an amount of cash equal to $14.00 per share for each share of
common stock held by such stockholder (in which event such shares will be
canceled) or (y) retain an equity interest in the Company; provided, however,
-------- -------
that, at the Recapitalization Date, the Existing Stockholders will own between
approximately 7% and 25% of the then outstanding common equity of the Company
(the "RETAINED EQUITY INTEREST"). In addition, in connection with the
Recapitalization and the Merger, the Company will (i) refinance all of its
existing indebtedness of approximately $231 million (the "REFINANCING") and (ii)
pay estimated fees and expenses (the "EXPENSE PAYMENTS") in connection with the
Acquisition and related transactions of approximately $35 million. As used
herein, the term "TRANSACTION" shall refer, collectively to the
Recapitalization, the Merger, the Refinancing, the Equity Investments (defined
below), Borrowings under the Credit Facilities (defined below) and the Expense
Payments.
We understand that the total proceeds required to consummate the
Transaction and provide for excess cash of at least $75 million are between
approximately $715 million in the case of a 25% Retained Equity Interest and
approximately $804 million in the case of a 7% Retained Equity Interest which
will be financed with the proceeds of the following: (i) not less than between
approximately $340 million in the case of a 25% Retained Equity Interest and
approximately $429 million in the case of a 7% Retained Equity Interest in cash
equity to be provided by the Equity Investors (the "EQUITY INVESTMENT"); (ii)
not less than $175 million received from the purchase for cash by WCAS Capital
Partners III Fund, L.P. ("WCAS CP III") of either subordinated debt securities
or exchangeable preferred securities of the Company (the "WCAS SUBORDINATED
SECURITIES") and (iii) $200 million of borrowings by the Company under $250
million of senior secured credit facilities (the "CREDIT FACILITIES") consisting
of: (a) a $200 million term loan facility (the "TERM LOAN FACILITY"), and (b) a
$50 million revolving credit facility (the "REVOLVING CREDIT FACILITY") which
will be unfunded on the Closing Date.
<PAGE>
DLJ Capital Funding is pleased to inform you that subject to the terms and
conditions set forth herein, DLJ Capital Funding or one of its affiliates
commits to provide the full amount of the Credit Facilities (the "COMMITMENT").
DLJ Capital Funding will act as the sole and exclusive advisor, book
manager, syndication agent and lead arranger in respect of the Credit
Facilities. DLJ Capital Funding, as "LEAD ARRANGER", hereby confirms its
willingness to use reasonable commercial efforts to arrange a syndicate of other
financial institutions that will, together with DLJ Capital Funding, participate
in the Credit Facilities. The financial institutions (including DLJ Capital
Funding) which participate in the Credit Facilities are referred to herein as
the "Lenders". DLJ Capital Funding, in consultation with you, will manage all
aspects of the syndication, if any, including decisions as to the selection of
institutions to be approached and when they will be approached, when their
commitment will be accepted, which institutions will participate and the
allocations of the Commitment among potential Lenders. In addition, DLJ Capital
Funding will determine the amount and distribution of fees among the Lenders.
You agree that no other agents, co-agents or arrangers will be appointed, no
other titles will be awarded and no compensation (other than that expressly set
forth herein and in the Fee Letter as defined below) will be paid in connection
with the Credit Facilities unless you and we shall so agree. You agree actively
to assist DLJ Capital Funding in completing a syndication satisfactory to it.
Such assistance shall include (i) your using commercially reasonable efforts to
ensure that the syndication efforts benefit materially from the existing lending
relationships of the Equity Investors and Politic and its subsidiaries, (ii)
your using reasonable efforts to make certain employees and agents of the Equity
Investors and certain members of the management of Politic and its subsidiaries,
as well as its consultants and advisors, are available during regular business
hours to answer questions regarding the Credit Facilities, (iii) assistance by
the Equity Investors and the management of Politic and its subsidiaries in the
preparation of a confidential informational memorandum to be used in connection
with the syndication and (iv) the hosting by the Equity Investors, and Politic
and its subsidiaries of meetings with prospective Lenders.
DLJ Capital Funding shall be entitled, after consultation with you, to
change the structure, terms, pricing or amounts of the Credit Facilities as set
forth in Exhibit A hereto (including reducing the Credit Facilities dollar for
dollar with like amounts of either senior unsecured notes, unsecured
subordinated notes or mezzanine securities) if DLJ Capital Funding determines
that such changes are advisable in order to ensure a successful syndication of
the Credit Facilities; provided, however, that the total amount of debt capital
committed to by DLJ Capital Funding and any of its affiliates shall remain
unchanged. DLJ Capital Funding reserves the right to propose alternative
financing amounts or structures that assure adequate protection for DLJ Capital
Funding and the Lenders. The Commitment, undertakings and agreements of DLJ
Capital Funding are subject to and contingent upon agreements in this paragraph.
The Equity Investor agrees to pay or cause Acquisitionco, the Company or
any of its subsidiaries to pay, to DLJ Capital Funding the fees set forth in the
fee letter (the "FEE LETTER") executed by the parties hereto on the date hereof
in accordance with the terms of the Fee Letter.
The Commitment is not assignable by you. Nothing in this Commitment
Letter, expressed or implied, shall give any person, other than the parties
hereto any benefit or any legal or equitable right, remedy or claim hereunder.
<PAGE>
Until the closing of the Transaction, the Equity Investors agree to
indemnify and hold the Indemnified Parties, as defined in Exhibit C hereto,
harmless to the extent set forth in Exhibit C hereto, and, upon demand from time
to time, to reimburse the Indemnified Parties for all reasonable out-of-pocket
costs, expenses and other payments, including but not limited to reasonable
legal fees and disbursements incurred or made in connection with the Commitment,
and the preparation, execution and delivery of the Definitive Documentation,
regardless of whether or not any Definitive Documentation is executed, or the
Commitment expires or is terminated. Upon the closing of the Transaction, the
Equity Investors shall be released from the obligations defined in this
paragraph and Exhibit C to the extent the Company has assumed such obligations.
You hereby represent that (a) all information, other than Projections (as
defined below), which has been made available to the DLJ Capital Funding by the
Equity Investors, Politic or its subsidiaries or any of your or their respective
representatives in connection with the transactions contemplated hereby
(together with information hereafter made available, the "INFORMATION") has been
reviewed and analyzed by you and Politic and, as supplemented as contemplated by
the next sentence, taken as a whole, is (or will be, in the case of Information
made available after the date hereof) complete and correct in all material
respects and does not (or will not, as the case may be) contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not materially misleading in light of the
circumstances under which such statements were or are made, and (b) all
financial projections concerning Politic that have been or are hereafter made
available to DLJ Capital Funding by you or Politic and its subsidiaries or any
of their representatives in connection with the transactions contemplated hereby
(the "PROJECTIONS") have been (or will be, in the case of Projections made
available after the date hereof) prepared in good faith based upon reasonable
assumptions. We understand that any representation made by you with respect to
information or projections provided by Politic or any of its subsidiaries is to
your best knowledge after your reasonable investigation. You agree to
supplement, and use best efforts to cause Politic to supplement, the
Information and Projections from time to time until the closing of the
Transaction so that the representation and warranty in the preceding sentence is
correct on the closing date of the Credit Facilities. In arranging and
syndicating the Credit Facilities, we may use and rely on the Information and
the Projections without independent verification thereof. The representations
and covenants contained in this paragraph shall remain effective until
definitive financing agreements are executed and thereafter the disclosure
representations contained herein shall be superseded by those contained in such
definitive financing agreements.
This Commitment Letter and the Fee Letter set forth the entire
understanding of the parties as to the scope of the Commitment and obligations
of DLJ Capital Funding hereunder. The Commitment will expire at 5:00 PM New York
City time on March 31, 2000 unless accepted prior to such time. The Commitment
will also expire at the earliest of (i) the termination of the Recapitalization
Agreement; (ii) the closing of the Transaction without the funding of the
Commitment; (iii) the sale, syndication or marketing of any competing issues of
debt securities or commercial bank credit facilities or other credit facilities
of Acquisitionco, Politic or any of their respective subsidiaries, or (iv) 5:00
PM New York City time on September 30, 2000 if the closing of the Transaction
has not occurred by such time; provided, however, that any term or provision
hereof to the contrary notwithstanding all your obligations hereunder in respect
of indemnification, confidentiality and fee and expense reimbursement shall
survive any termination of the Commitment pursuant to this paragraph.
<PAGE>
This Commitment Letter is delivered to you with the understanding that
neither this Commitment Letter, nor the substance hereof, shall be disclosed to
any third party (including, without limitation, other lenders, underwriters,
placement agents, or advisors or any similar persons), without the prior written
consent of DLJ Capital Funding except in the case of those in a confidential
relationship to you, such as legal counsel or accountants, or as required by law
or by any court or governmental agency (and in each such event of permitted
disclosure as required by law or by court or government agency you agree, to the
extent permitted by law, promptly to inform us). DLJ Capital Funding hereby
consents to your disclosure of this Commitment Letter (but not the Fee Letter)
to Politic and their financial and legal advisors for their use in connection
with evaluation of your proposal in connection with the Transaction.
This Commitment Letter may not be amended or waived except by an instrument
in writing signed by each of DLJ Capital Funding, the Equity Investors and
Acquisitionco.
This Commitment Letter shall be governed by, and construed in accordance
with, the laws of the State of New York. To the fullest extent permitted by
applicable law, each of the parties hereto hereby irrevocably submits to the
jurisdiction of any New York State court or Federal court sitting in the Borough
of Manhattan in New York City in respect of any suit, action or proceeding
arising out of or relating to the provisions of this Commitment Letter or the
making of the Commitment and irrevocably agrees that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. Each of the parties hereto waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding brought in any such court,
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum and any right to trial by jury in any such
suit, action or proceeding.
<PAGE>
Please indicate your acceptance of the Commitment and your agreement to
the matters contained in this Commitment Letter by executing this document
and returning it to us prior to the time of expiration set forth above.
Sincerely,
DLJ CAPITAL FUNDING, INC.
______________________________
By:
Title:
Accepted and Agreed to this
March , 2000
Welsh Carson Anderson & Stowe VIII, L.P.
By: WCAS VIII Associates, LLC
______________________________
By:
Title: Managing Member
Encl: Exhibit A - Credit Facilities Term Sheet
Exhibit B - Conditions to Closing
Exhibit C - Indemnification, Etc.
Exhibit D - Fee Letter
<PAGE>
EXHIBIT A
SUMMARY OF THE TERMS OF THE CREDIT FACILITIES
Set forth below is a summary of certain of the material terms of the Credit
Facilities and the Definitive Bank Financing Documentation. This summary is
intended merely as an outline, and does not include descriptions of all of the
terms, conditions and other provisions that are to be contained in the
Definitive Bank Financing Documentation. Capitalized terms used herein and not
otherwise defined have the meaning set forth in the Commitment Letter to which
this Summary of the Terms of the Credit Facilities is attached and of which it
forms a part.
<TABLE>
<CAPTION>
<S> <C>
BORROWER: Policy Management Systems Corporation (the "BORROWER"
or the "COMPANY").
GUARANTORS: The corporate parent of the Borrower (the "PARENT"), if any, formed
by the Equity Investors, and all direct and indirect (existing and
future) domestic subsidiaries and foreign subsidiaries (to the extent no
material tax liabilities will result from the guarantee of any such
foreign subsidiary) of the Borrower.
SOLE BOOK RUNNING MANAGER AND DLJ Capital Funding, Inc. ("DLJ CAPITAL FUNDING" or the
LEAD ARRANGER: "LEAD ARRANGER").
SYNDICATION AGENT: DLJ Capital Funding (the "SYNDICATION AGENT").
ADMINISTRATIVE AGENT: A financial institution to be identified and mutually agreed upon by
the Lead Arranger, the Syndication Agent and WCAS.
DOCUMENTATION AGENT: A financial institution to be identified and mutually agreed upon by
the Lead Arranger, the Syndication Agent and WCAS.
LETTER OF CREDIT ISSUER: The Administrative Agent.
LENDERS: DLJ Capital Funding and a group of financial institutions (collectively,
the "LENDERS") as may be identified by the Lead Arranger, the
Syndication Agent and Administrative Agent.
CLOSING DATE: No later than September 30, 2000 (the "CLOSING DATE").
DESCRIPTION OF THE A $250.0 million in senior, first-priority secured financing to be provided
CREDIT FACILITIES: to the Borrower consisting of (a) a $50.0 million revolving credit facility
(the "REVOLVING FACILITY"), and (b) a term loan facility of $200.0 million
(the "TERM FACILITY").
The Revolving Facility and the Term Facility are collectively referred to
as the "CREDIT FACILITIES".
USE OF PROCEEDS: Proceeds from the Term Loan will be used to partially finance
the consummation of the Transaction. In addition, proceeds from
the Revolving Loans will be available for post closing working
capital requirements and general corporate purposes of the Borrower.
REVOLVING FACILITY: Pursuant to the Revolving Facility, (i) Revolving Loans may be
borrowed, prepaid and re-borrowed by the Borrower, and (ii) letters
of credit ("LETTERS OF CREDIT") may be issued, reimbursed and re-issued
on behalf of the Borrower in each case from time to time prior to
the Revolving Facility Commitment Termination Date (as set forth below).
<PAGE>
REVOLVING FACILITY $50.0 million.
COMMITMENT AMOUNT:
REVOLVING FACILITY To be mutually agreed upon.
COMMITMENT TERMINATION DATE:
TERM LOAN FACILITY: The Term Loan Facility will be made available to the Borrower in a
single borrowing on the Closing Date pursuant to which the Term Loan
will be made. Once repaid, the Term Loan cannot be reborrowed.
TERM LOAN FACILITY $200.0 million.
COMMITMENT AMOUNT:
AMORTIZATION OF THE The Term Loan will amortize each year in equal quarterly installments
TERM LOAN FACILITY: in an annual amount to be mutually agreed upon.
FINAL MATURITY FOR To be mutually agreed upon.
THE TERM LOAN:
INTEREST RATE: At the Borrower's option, Revolving Loans and The Term Loan
will bear interest at the Administrative Agent's (i) alternate base rate
or (ii) reserve-adjusted LIBO rate, plus, in each case, applicable margins
(the "APPLICABLE MARGINS") to be determined at a later date.
After the occurrence and during the continuance of an event of
default, interest shall accrue at a rate equal to alternate base rate
plus the Applicable Margin for alternate base rate loans plus an
additional two percentage points (2.00%) per annum and shall be
payable upon demand.
INTEREST PAYMENT DATES: Interest periods for LIBO rate Loans shall be, at the Borrower's option
, one, two, three, six or, if available to all Lenders, nine or twelve
months. Interest on LIBO rate Loans (computed on the basis of a
360-day year) shall be payable on the last business day of the
applicable interest period for such Loans and, if earlier, at the
end of each three month period after the commencement of such
interest period. Interest on alternate base rate Loans (computed
on the basis of a 365-day year unless the interest rate thereon is
based on the Federal Funds Rate, in which case, calculated on the
basis of a 360-day) shall be payable quarterly in arrears.
UNUSED COMMITMENT A per annum commitment fee (the "UNUSED COMMITMENT FEE") on the daily
FEES: average unused portion of the Revolving Facility shall accrue from the
Closing Date and shall be payable quarterly in arrears and computed on the
basis of a 360-day year and actual days elapsed at a rate to be determined.
VOLUNTARY PREPAYMENTS: Revolving Loans and Term Loan will be voluntarily payable at any time
without premium or penalty. Voluntary Prepayments of the Term Facility
shall be applied on a pro rata basis to the outstanding Term Loan and shall
reduce scheduled amortization payments on a pro rata basis. In all events,
LIBO rate breakage costs, if any, shall be for the account of the Borrower.
MANDATORY PREPAYMENTS: Customary for the type of transaction proposed and others to be reasonably
specified by the Lead Arranger and the Syndication Agent, including, without
limitation, as follows:
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(i) 100% of net proceeds from asset sales, proceeds from
condemnations and the like and proceeds from loss or casualty,
subject to customary reinvestment periods;
(ii) 100% of net proceeds from the sale or issuance of debt securities;
(iii) 50% of net proceeds from the issuance of equity securities (with
exceptions to be agreed upon);
(iv) 50% of excess cash flow (to be defined).
Mandatory prepayments shall be applied pro rata among to the Term Loan,
ratably in accordance with the remaining amortization payments, and then to
the prepayment of the outstanding principal amount (if any) under, and a
reduction in, the Revolving Facility Commitment Amount.
SECURITY: The Credit Facilities will be secured by a first-priority perfected lien on: (i)
all the property and assets (tangible and intangible) of the Borrower and its
subsidiaries (both currently and future existing) and, (ii) all capital stock (or
similar equity interests) of the Borrower and each existing and future direct
and indirect subsidiary of the Borrower (provided, however, that no more
than 65% of the capital stock (or similar equity interests) of non-U.S.
subsidiaries that are direct subsidiaries of the Borrower or any of its U.S.
subsidiaries will be required to be pledged as security) and (iii) all
intercompany indebtedness in favor of the Borrower.
GUARANTEES: The Credit Facilities will be guaranteed by the Guarantors on a senior
secured basis.
CONDITIONS TO CLOSING: See Exhibit B.
FURTHER CONDITIONS In addition to the conditions set forth in Exhibit B, the making of each Loan
PRECEDENT: and the issuance of each Letter of Credit will be conditioned upon (i) all
representations in the Definitive DLJ Financing Documentation being true
and correct in all material respects, (ii) prior written notice of borrowing or
issuances as the case may be, and (iii) there being no matured or unmatured
event of default.
REPRESENTATIONS AND Customary for the type of transaction proposed and others to be reasonably
WARRANTIES: specified by the Lead Arranger and the Syndication Agent including, without
limitation, organization and authorization, enforceability, financial condition,
no material adverse changes, title to properties, litigation, payment of taxes,
compliance with law, environmental liabilities, employee pension liabilities,
solvency, and perfection of liens, all subject to negotiation.
AFFIRMATIVE COVENANTS: Customary for the type of transaction proposed and others to be reasonably
specified by the Lead Arranger and the Syndication Agent including, without
limitation, financial reporting, other information, maintenance of properties
and insurance, compliance with law (including, without limitation, tax and
environmental and margin regulations), investment company act, conduct of
business and maintenance of existence, all subject to negotiation.
NEGATIVE COVENANTS: Customary for the type of transaction proposed and others to be reasonably
specified by the Lead Arranger and the Syndication Agent, including,
without limitation, as follows, all subject to negotiation:
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(i) Restricting indebtedness (including, without limitation, sale leaseback
(ii) transactions and contingent liabilities).
(iii) Restricting the making of dividends or similar distributions (including
(iv) direct or indirect redemptions of common stock or preferred stock).
(v) Restricting liens and other encumbrances.
(vi) Restricting the sale of assets or similar transfers, other than in the
(vii) ordinary course of business.
(viii) Restricting the making of investments or acquisitions (in a single
(ix) transaction or in a series of related transactions and subject to certain
(x) exceptions and limitations to be mutually agreed upon).
(xi) Restricting mergers, consolidations and similar combinations.
(xii) Restrictions on transactions with affiliates.
(xiii) Restrictions on business activities.
(xiv) Limitations on capital expenditures.
(xv) Restricting the refinancing, defeasance, repurchase or prepayment of
(xvi) subordinated debt.
FINANCIAL COVENANTS: Customary for the transaction proposed and others to be reasonably
specified by the Lead Arranger and the Syndication Agent. The financial
covenants will be tested on a quarterly basis, with the definitions and
applicable levels and ratios to be negotiated (all accounting terms to be
interpreted, and all accounting determinations and computations to be made,
on a consolidated basis and in accordance with generally accepted
accounting principles).
EVENTS OF DEFAULT: Customary for the type of transaction proposed and others to be reasonably
specified by the Lead Arranger and the Syndication Agent, including,
without limitation, a change of control (to be defined) and a cross default to
other indebtedness of the Borrower.
MISCELLANEOUS: Customary provisions to be included, together with others to be reasonably
specified by the Lead Arranger and the Syndication Agent, including,
without limitation, the following:
1. Customary indemnity and capital adequacy provisions, including but
not limited to compensation in respect of taxes (including gross-up
provisions for withholding taxes) and decreased profitability resulting
from U.S. or foreign capital adequacy requirements, guidelines or
policies or their interpretation or application, and any other customary
yield and increased costs protection deemed necessary by the Lenders
to provide customary protection.
<PAGE>
2. The Lenders will be permitted to assign and participate Loans, notes
and commitments in minimum amounts of $1.0 million. Any
assignments would be by novation and would require the consent of
the Borrower and the Syndication Agent (unless such assignment was
to another Lender or an affiliate of the assigning Lender or any other
Lender), such consent not to be unreasonably withheld or delayed or
required by the Borrower following and during the continuance of a
matured or unmatured event of default. Participations shall be without
restrictions and participants will have the same benefits as the Lenders
with regard to increased costs, capital adequacy, etc., and provision of
information on the Borrower; provided, that the right of participants to
vote on amendments, waivers, etc. will be limited to certain customary
issues such as, without limitation, extension of the final scheduled
maturity date of the Loans participated in by such participant.
3. Indemnification of the Lead Arranger, the Syndication Agent, the
Administrative Agent, each of the Lenders and each of their respective
affiliates, directors, officers, agents and employees (collectively, the
"INDEMNIFIED PARTIES") from and against any losses, claims, damages,
liabilities or other expenses substantially as set forth in Exhibit C
hereto.
4. The Borrower shall pay all fees and out-of-pocket expenses as set
forth in the Fee Letter and Exhibit C hereto.
5. Amendments and waivers of the Definitive Bank Financing
Documentation will require the approval of Lenders holding more
than 50% of the Loans and commitments, except that (i) certain
amendments and waivers will require Lenders holding 100% of the
Loans and commitments (including, without limitation, the release of
all or substantially all of the collateral, the release of guarantors,
commitment amount increases, reduction of the rate of interest and
extension of due date for repayment) and (ii) certain amendments and
waivers will require the consent of Lenders holding more than 50% of
the Loans and commitments of specified tranches of the Credit
Facilities.
6. Waiver of jury trial.
7. New York governing law and consent to New York jurisdiction.
COUNSEL TO THE LEAD ARRANGER,
SYNDICATION AGENT AND LENDERS: Mayer, Brown & Platt.
</TABLE>
<PAGE>
EXHIBIT B
CONDITIONS TO CLOSING
The Commitment of DLJ Capital Funding is subject to the execution of Definitive
DLJ Financing Documentation and to the satisfaction of the conditions precedent
as set forth below. Unless otherwise defined herein, terms used in this Exhibit
have the meanings provided in the commitment letter (including the term sheet
annexed thereto) to which this Exhibit is annexed (such letter and term sheet
being, collectively, the "COMMITMENT LETTER").
(i) The Transaction shall have been consummated in accordance with the terms,
conditions and provisions of the Recapitalization Agreement and any
material related documentation (collectively, the "DEFINITIVE
RECAPITALIZATION DOCUMENTS"), all of which will be satisfactory in form and
substance to the Syndication Agent. The Definitive Recapitalization
Documents shall be in full force and effect. There shall not have been any
amendment, modification or waiver of any of the terms or conditions of the
Definitive Recapitalization Documents without the prior written consent of
the Syndication Agent;
(ii) Execution and delivery of the Definitive DLJ Financing Documentation
(including, without limitation, the guarantees) prepared by counsel to the
Syndication Agent, and satisfactory to the Syndication Agent and the
Lenders in all respects;
(iii)The Equity Investment shall have occurred and be on terms and conditions
reasonably satisfactory in all respects to the Syndication Agent; (iv) The
Borrower shall have received $175.0 million in net cash proceeds from the
issuance of the WCAS Subordinated Securities purchased for cash by WCAS CP
III on terms and conditions reasonably satisfactory in all respects to the
Syndication Agent;
(v) The Borrower and its subsidiaries shall have no indebtedness for borrowed
money other than the Credit Facilities, Subordinated Securities and other
indebtedness to be agreed upon in an aggregate amount not to exceed $5.0
million;
(vi) The corporate, tax, capital and ownership structure (including articles of
incorporation and by-laws), shareholders agreements and management of
Politic and its subsidiaries, before and after the consummation of the
Transaction, shall be reasonably satisfactory to the Syndication Agent in
all respects;
(vii)The Administrative Agent, for the benefit of the Lenders, shall have been
granted on the Closing Date of the Transaction first priority perfected
liens to the extent required and described in the Definitive DLJ Financing
Documentation and shall have received such other reports, documents and
agreements as are customarily delivered in connection with security
interests in real property assets;
(viii) All financing provided (or to be provided) to the Borrower in connection
with the Transaction shall have been provided (or shall have been provided)
in compliance with regulation U and X of the Board of Governors of the
Federal Reserve System;
(ix) Receipt of (a) a consolidated pro forma balance sheet and income statement
of Politic and its subsidiaries as of the most recent date practicable but
no earlier than the end of the most recent fiscal quarter, giving effect to
the Transaction and the transactions contemplated by the Definitive
Recapitalization Documents and reflecting estimated transaction related
accounting adjustments and (b) projected annual financial statements
(including balance sheets, statements of operations and cash flows) of
Politic and its subsidiaries for the eight-year period following the
Closing Date and projected quarterly financial statements (including
balance sheets, statements of operation and cash flows) for the two year
period following the Closing Date; all of the foregoing to be in form and
substance satisfactory to the Syndication Agent;
<PAGE>
(x) DLJ Capital Funding shall have received a certificate from a nationally
recognized, independent appraisal or valuation firm, in form and substance
satisfactory to DLJ Capital Funding, supporting the conclusions that, after
giving effect to the Transaction and the related transactions contemplated
hereby, Politic and its subsidiaries will not be insolvent or be rendered
insolvent by the indebtedness incurred in connection therewith, or be left
with unreasonably small capital with which to engage in its businesses, or
have incurred debts beyond its ability to pay such debts as they mature;
(xi) The results of DLJ Capital Funding's due diligence to date are
satisfactory. There shall be no additional information disclosed to or
discovered by DLJ Capital Funding which DLJ Capital Funding deems
materially adverse in respect of the operations, performance, projections
or prospects of Politic and its subsidiaries, taken as a whole;
(xii)Absence of any material adverse change in the business, assets, condition
(financial or otherwise), operations, performance, properties, projections
or prospects of Politic and its subsidiaries taken as a whole since the end
of the most recently ended fiscal year for which audited financial
statements have been provided to DLJ Capital Funding or in the facts and
information as represented to date;
(xiii) Receipt of all governmental, shareholder and third party consents
(including Hart-Scott-Rodino clearance) and approvals which are material in
connection with the Transaction, and the related financings and other
transactions contemplated hereby, and the expiration of all applicable
waiting periods without any action being taken by any competent authority
that could restrain, prevent or impose any materially adverse conditions on
the Transaction and no such law or regulation shall be applicable which in
the judgment of the Syndication Agent could have any such effect;
(xiv)Receipt of and satisfaction with consolidated financial statements of
Politic and its subsidiaries including a balance sheet, income and cash
flow statement and a management audit letter for the fiscal year ended
December 31, 1999, audited by independent public accountants of recognized
national standing (evidencing unqualified audit opinions) and prepared in
conformity with GAAP, together with the report thereon; (b) unaudited
selected financial information of Politic meeting the requirements of Item
301 (a) of Regulation S-K for the two fiscal years immediately preceding
the last three fiscal years; and (c) unaudited interim financial statements
of Politic, prepared in each case in the same manner as the historical
audited statements for the most recently ended quarterly period and for the
same quarterly period during the most recently ended fiscal year;
(xv) Except as previously disclosed and which is acceptable to the Syndication
Agent, absence of any action, suit, investigation, litigation or proceeding
pending or threatened in any court or before any arbitrator or governmental
instrumentality that could reasonably be expected to have a material
adverse effect on the Transaction, Politic and its subsidiaries, or any of
the other transactions contemplated hereby or on the business, assets,
operations, financial position or prospects of Politic and its
subsidiaries; (xvi) The Syndication Agent shall have received opinions
addressed to the Syndication Agent and Lenders from counsel to the Company
and its subsidiaries satisfactory to the Syndication Agent as to the
transactions contemplated hereby (including without limitation compliance
with the tax and corporate aspects thereof, compliance with all applicable
securities laws, and the perfection and priority of all liens securing the
Credit Facilities), and such corporate resolutions, certificates and other
documents as the Syndication Agent shall reasonably request;
(xvii) Absence of any default under the Definitive DLJ Financing Documentation
or the Definitive Recapitalization Documents or event that, with notice
and/or the passage of time, could become an Event of Default and
satisfaction as to the accuracy of all representations and warranties under
the Definitive DLJ Financing Documentation or the Definitive
Recapitalization Documents;
(xviii) All fees and expenses due to the Syndication Agent and the Lenders as
set forth in the Fee Letter or otherwise shall have been paid in full; and
<PAGE>
(xix)Absence of any material disruption or material adverse change in the
financial or capital markets generally or in the market for new issuances
of syndicated loans or high yield securities which, in either case, could
in the judgment of DLJ Capital Funding be expected to materially impair the
satisfactory syndication of the Credit Facilities.
<PAGE>
EXHIBIT C
INDEMNIFICATION
In consideration of the Commitment given by DLJ Capital Funding with
respect to the Transaction, described in the of which this Exhibit is a part,
Welsh Carson Anderson & Stowe VIII, L.P. (the "INDEMNIFYING PARTY") agrees to
indemnify and hold harmless DLJ Capital Funding, its affiliates, and each
person, if any, who controls DLJ Capital Funding, or any of its affiliates,
within the meaning of the Securities Act of 1933, as amended (the "ACT") or the
Securities Exchange Act of 1934, as amended (a "CONTROLLING PERSON"), and the
respective partners, agents, employees, officers and directors of DLJ Capital
Funding, its affiliates, and any such Controlling Person (each an "INDEMNIFIED
PARTY" and collectively, the "INDEMNIFIED PARTIES"), from and against any and
all losses, claims, damages, liabilities and expenses (including, without
limitation and as incurred, reasonable costs of investigating, preparing or
defending any such claim or action, whether or not the Indemnified Party is a
party thereto) arising out of, or in connection with any activities contemplated
by, the Commitment or any other services rendered in connection therewith,
including, but not limited to, losses, claims, damages, liabilities or expenses
arising out of or based upon any untrue statement or any alleged untrue
statement of a material fact or any omission or any alleged omission to state a
material fact in any of the disclosure or offering or confidential information
documents (the "DISCLOSURE DOCUMENTS") pertaining to any of the transactions or
proposed transactions contemplated by the Commitment Letter, including any
resale or refinancing of the Credit Facilities, provided that the Indemnifying
Party will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from the Indemnified Party's gross negligence, willful
misconduct or bad faith. The Indemnifying Party also agree that (a) DLJ Capital
Funding shall have no liability (except for breach of provisions of the
Commitment Letter) for claims, liabilities, damages, losses or expenses,
including legal fees, incurred by the Indemnifying Party unless they are
determined by final judgment of a court of competent jurisdiction to result from
DLJ Capital Funding's gross negligence, willful misconduct or bad faith and (ii)
DLJ Capital Funding shall in no event have any liability to the Indemnifying
Party or to any member of Politic and its subsidiaries on any theory of
liability for special, indirect, consequential or punitive damages (as opposed
to direct, actual damages) arising out of, in connection with, or as a result
of, the Commitment Letter.
If for any reason the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then in lieu of
indemnifying such Indemnified Party, the Indemnifying Party shall contribute to
the amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and by the Indemnified Party on the other from the Transaction
or (ii) if the allocation provided by clause (i) is not permitted under
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other, but also the relative fault of the Indemnifying
Party and the Indemnified Party as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Exhibit C, the aggregate
contribution of all Indemnified Parties shall not exceed the amount of fees
actually received by the Indemnified Parties in connection with the Transaction.
It is hereby further agreed that the relative benefits to the Indemnifying Party
on the one hand and the Indemnified Parties on the other with respect to the
Transaction shall be deemed to be in the same proportion as (i) the total value
of the Transaction bears to (ii) the fees paid to the Indemnified Parties with
respect to such Transaction. The relative fault of the Indemnifying Party on
the one hand and the Indemnified Parties on the other with respect to the
Transaction shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact related to information supplied by the
Indemnifying Party or by the Indemnified Parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. No Indemnified Party shall have any liability to
the Indemnifying Party or any other person in connection with the services
rendered pursuant to the Commitment except for the liability for claims,
liabilities, losses or damages finally determined by a court of competent
jurisdiction to have resulted from action taken or omitted to be taken by such
Indemnified Party in bad faith or to be due to such Indemnified Party's willful
misconduct, or gross negligence. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
<PAGE>
The indemnity, contribution and expense reimbursement obligations set
forth herein (i) shall be in addition to any liability the Indemnifying Party
may have to any Indemnified Party at common law or otherwise, (ii) shall
survive the termination of the Commitment and (iii) shall remain operative and
in full force and effect regardless or any investigation made by or on behalf of
any Indemnified Party.
Unless otherwise defined herein, terms used in this Exhibit have the
meanings provided in the meanings provided in this commitment letter (including
the term sheet annexed thereto) to which this Exhibit is annexed (such letter
and term sheet being, collectively, the "COMMITMENT LETTER").
<PAGE>
